-----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, RFfFZPNfSek9ay2W/AR0BXBhtk1bX6VxfXSBY7yzThncDQtVCGwt7ak0AiE3biqN GHKT6VW5hrj+C28J7/n7hQ== 0000950134-99-002421.txt : 19990402 0000950134-99-002421.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950134-99-002421 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 10-K SEC ACT: SEC FILE NUMBER: 000-24497 FILM NUMBER: 99582933 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET SUITE 1700 CITY: DENVER STATE: CO ZIP: 80222-8101 BUSINESS PHONE: 3037578101 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-24497 AIMCO PROPERTIES, L.P. (Exact name of registrant as specified in its charter) DELAWARE 84-1275621 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 80222-4348 1873 SOUTH BELLAIRE STREET, SUITE 1700, (Zip Code) DENVER, CO (Address of principal executive offices)
--------------------- Registrant's telephone number, including area code: (303) 757-8101 Securities registered pursuant to Section 12(b) of the Act: NOT APPLICABLE NOT APPLICABLE (Title of each class (Name of each exchange on which to be so registered) each class to be registered)
Securities registered pursuant to Section 12(g) of the Act: PARTNERSHIP COMMON UNITS Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 11, 1999, there were 67,618,941 Partnership Common Units outstanding. --------------------- DOCUMENTS INCORPORATED BY REFERENCE NONE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AIMCO PROPERTIES, L.P. TABLE OF CONTENTS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
ITEM PAGE - ---- ---- PART I 1. Business.................................................... 1 1998 Developments........................................... 2 Financial Information About Industry Segments............... 6 Operating and Financial Strategies.......................... 6 Growth Strategies........................................... 7 Property Management Strategies.............................. 8 Taxation of the Partnership................................. 8 Taxation of AIMCO........................................... 9 Competition................................................. 9 Regulation.................................................. 9 Insurance................................................... 11 Employees................................................... 11 2. Properties.................................................. 11 3. Legal Proceedings........................................... 12 4. Submission of Matters to a Vote of Unitholders.............. 13 PART II 5. Market Price of and Distributions on the Registrant's Common Units and Related Unitholder Matters...................... 13 6. Selected Financial Data..................................... 14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 15 7a. Quantitative and Qualitative Disclosures About Market Risk...................................................... 26 8. Financial Statements and Supplementary Data................. 27 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................. 27 PART III 10. Directors and Executive Officers of the Registrant.......... 27 11. Executive Compensation...................................... 30 12. Security Ownership of Certain Beneficial Owners and Management................................................ 32 13. Certain Relationships and Related Transactions.............. 32 PART IV 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K....................................................... 35
3 PART I INTRODUCTION The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements in certain circumstances. Certain information included in this report, and other filings (collectively "SEC Filings") under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as well as information communicated orally or in writing between the dates of such SEC Filings) contains or may contain information that is forward looking, including, without limitation, statements regarding the effect of acquisitions, the future financial performance of AIMCO Properties, L.P., a Delaware limited partnership (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")) and Apartment Investment and Management Company, a Maryland corporation which controls the Partnership ("AIMCO"), the ability of AIMCO to qualify as a real estate investment trust (a "REIT"), which involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and the effect of government regulations. Actual results may differ materially from those described in the forward looking statements and will be affected by a variety of risks and factors including, without limitation, national and local economic conditions, the general level of interest rates, terms of governmental regulations that affect the Partnership and interpretations of those regulations, the competitive environment in which the Partnership operates, financing risks, including the risk that the Partnership's cash flows from operations may be insufficient to meet required payments of principal and interest, real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets, acquisition and development risks, including failure of such acquisitions to perform in accordance with projections, and possible environmental liabilities, including costs which may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the company. Readers should carefully review the Partnership's financial statements and the notes thereto, as well as the risk factors described in the SEC filings. ITEM 1. BUSINESS. The Partnership is a Delaware limited partnership organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act (as amended from time to time, or any successor to such statute, the "Act"), engaged in the ownership, acquisition, development, expansion, and management of multi-family apartment properties. The term of the Partnership commenced on May 16, 1994, and will continue until December 31, 2093, unless the Partnership is dissolved sooner pursuant to the provisions of the Third Amended and Restated Agreement of limited partnership, dated as of July 29, 1994 (the "Partnership Agreement"), or as otherwise provided by the Act. AIMCO-GP, Inc., a Delaware corporation and a wholly owned subsidiary of AIMCO (the "General Partner"), is the sole general partner of the Partnership, and another wholly owned subsidiary of AIMCO, AIMCO-LP, Inc., a Delaware corporation (the "Special Limited Partner"), is a limited partner in the Partnership. As of December 31, 1998, AIMCO held an approximate 83% interest in the Partnership. AIMCO, which was formed on January 10, 1994, is a self-administered and self-managed REIT that does not have any material assets or operations other than its interest in the Partnership. On July 24, 1994, AIMCO completed its initial public offering and engaged in a business combination and consummated a series of related transactions which enabled it to continue and expand the property management and related businesses of Property Asset Management, L.L.C. and its affiliated companies, and PDI Realty Enterprises, Inc. (collectively, the "AIMCO Predecessors"). Based on apartment unit data compiled by the National Multi Housing Council, we believe that, as of December 31, 1998, the Company was the largest owner and manager of multifamily apartment properties in the United States. As of December 31, 1998, the Partnership owned or managed 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico, as follows: - owned or controlled 61,672 units in 234 apartment properties; - held an equity interest in 171,657 units in 910 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. 1 4 By virtue of its aggregate 83% interest in the Partnership and its control of the General Partner, AIMCO has the ability to control all of the day-to-day operations of the Partnership. Moreover, by virtue of its ownership interest in the Partnership and the General Partner, AIMCO is able to approve amendments to the Partnership Agreement, without the approval of any other limited partners of the Partnership, except for certain amendments that require the approval of all of the limited partners. AIMCO conducts substantially all of its operations through the Partnership. The Partnership'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. 1998 DEVELOPMENTS Ambassador Acquisition On May 8, 1998, Ambassador Apartments, Inc. ("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 approximately 6.6 million shares of AIMCO Class A Common Stock valued at $251.3 million. Pursuant to the Ambassador merger agreement, each outstanding share of Ambassador common stock was converted into the right to receive 0.553 shares of AIMCO Class A Common Stock. 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. The merger was accounted for as a purchase. Contemporaneously with the consummation of the Ambassador merger, a subsidiary of the 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 Partnership Common Units ("OP Units") of the Partnership. Prior to the merger, 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 Acquisition 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 the issuance of up to approximately 8.9 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 mandatory 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 AIMCO Class A Common Stock. In addition, on January 15, 1999, holders of Class E Preferred Stock received 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 AIMCO 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"). Concurrently with the Insignia merger, AIMCO contributed to the Partnership all the assets and liabilities acquired, except Insignia's interests in IPT, in exchange for approximately 3.8 million OP Units 2 5 valued at approximately $132.5 million and $4.9 million in cash. The assets and liabilities contributed to the Partnership consisted of assets valued at $775.7 million, assumed debt and liabilities of $488.8 million (including the $50 million special dividend and transaction costs) and $149.5 million in assumed mandatory redeemable convertible preferred securities. Also on October 1, 1998, in connection with and following the Insignia Merger, the Partnership purchased from IPLP the economic interests underlying substantially all the assets of IPLP, excluding certain enumerated assets such as cash (the "IPLP Exchange and Assumption"). In exchange for the economic interests underlying the assets, the Partnership agreed to assume all the obligations of IPLP with respect to such assets and issued to IPLP approximately 10.2 million OP Units (which were assigned a value of approximately $386.2 million). Effective February 26, 1999, upon completion of the merger with IPT (described below), IPLP and the Partnership unwound the IPLP Exchange and Assumption. 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 with and into AIMCO, with AIMCO being the surviving corporation. Pursuant to the merger, each of the 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). Simultaneously with the IPT merger, AIMCO contributed all the assets and liabilities of IPT to the Partnership in exchange for approximately 8.9 million OP Units (valued at approximately $318.2 million). The assets and liabilities contributed to the Partnership consisted of assets valued at $395.7 million and assumed debt and liabilities of approximately $77.5 million. Also in connection with the IPT merger, the IPLP Exchange and Assumption was unwound and the approximately 10.2 million OP Units issued in connection with the IPLP Exchange and Assumption were canceled. 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 approximately 280 partnerships to acquire their limited partnerships interests. The Company paid approximately $41.0 million in cash and OP Units to acquire limited partnership interests pursuant to the offers. Property Dispositions In 1998, the Company sold seven properties for an aggregate sales price of $54.5 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 three of these properties were accounted for by the Company under the equity method. The Company recognized a gain of approximately $4.3 million on the disposition of the four 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, AIMCO and the Partnership entered into a new $50 million credit agreement with Bank of America National Trust and Savings Association and Bank Boston, N.A. The Partnership is the 3 6 borrower under the credit agreement, but all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. In October 1998, the parties 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 Partnership, 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 Partnership, as borrower, and AIMCO and certain single asset wholly-owned subsidiaries of the Company, as guarantors, 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 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 Partnership 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 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, AIMCO sold Class J Cumulative Convertible Preferred Stock ("Class J Preferred Stock") for proceeds of $100.0 million, which was contributed by AIMCO to the Partnership in exchange for 1,000,000 Class J Cumulative Convertible Preferred Units ("Class J Preferred Units"). The Partnership used the proceeds 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 ("Class K Preferred Stock") were contributed by AIMCO to the Partnership in exchange for 5,000,000 Class K Convertible Cumulative Preferred Units ("Class K Preferred Units"). The Partnership used the proceeds to further pay down the loan. In December 1998, the Company completed the refinancing 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 refinancing, 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 in the aggregate $83.4 million of long-term, fixed rate, fully amortizing mortgage debt secured by 13 properties in separate loan transactions. 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 4 7 $74.8 million and under the IPT credit agreement was $45.0 million. The amount available under the credit facility at March 11, 1999 was $24 million and under the IPT credit agreement was $5.0 million. Equity Offerings of AIMCO The Partnership Agreement requires that, whenever AIMCO issues shares of its Class A Common Stock or its preferred stock, the proceeds from such issuances are contributed to the Partnership in exchange for an equal number of OP Units or Partnership Preferred Units ("Preferred Units"), respectively. In 1998, AIMCO raised proceeds of over $391 million in three public offerings and three private placements of equity securities. The total proceeds were contributed by AIMCO to the Partnership in exchange for similar classes of preferred units that have the same respective terms as the preferred stock detailed below. These transactions are summarized below:
NUMBER TOTAL PROCEEDS OF SHARES IN DISTRIBUTION TRANSACTION TYPE DATE OR UNITS MILLIONS RATE - ----------- ------- --------- --------- -------------- ----------------- Class D Cumulative Preferred Stock of AIMCO................. Public Feb. 1998 4,200,000 $105.00 8.75% Class G Cumulative Preferred Stock of AIMCO................. Public Jul. 1998 4,050,000 $101.25 9.375% Class H Cumulative Preferred Stock of AIMCO................. Public Aug. 1998 2,000,000 $ 50.00 9.5% Class J Cumulative Convertible Preferred Stock of AIMCO....... Private Nov. 1998 1,250,000 $100.00 (1) Preferred Partnership Units of Ambassador Apartments, L.P..... Private Dec. 1998 1,400,000 $ 30.85 7.75% Warrant to purchase AIMCO Class A Common Stock................... Private Dec. 1998 875,000 $ 4.15 N/A ------- TOTAL PROCEEDS 1998............................................... $391.25 Class K Convertible Cumulative Preferred Stock of AIMCO....... Public Feb. 1999 5,000,000 $125.00 (2)
- --------------- (1) Holders of Class J Preferred Stock are entitled to receive cash dividends at the rate of 7% per annum of the $100 liquidation preference (equivalent to $7 per annum per share) for the period from November 6, 1998 until November 15, 1998, 8% per annum of the $100 liquidation preference (equivalent to $8 per annum per share) for the period from November 15, 1998 until November 15, 1999, 9% per annum of the $100 liquidation preference (equivalent to $9 per annum per share) for the period from November 15, 1999 until November 15, 2000, and 9 1/2% per annum of the $100 liquidation preference (equivalent to $9.50 per annum per share) thereafter. The Class J Preferred Units held by AIMCO have the same terms as the Class J Preferred Stock. (2) For three years from the date of original issuance, the Class K Preferred Stock dividends will be in an amount per share equal to the greater of (i) $2.00 per year (equivalent to 8% of the $25 liquidation preference), or (ii) the cash dividend payable on the number of shares of AIMCO Class A Common Stock (or portion thereof) into which a share of Class K Preferred Stock is convertible. Beginning with the third anniversary of the date of original issuance, the Class K Preferred Stock dividends per share will be increased to the greater of (i) $2.50 per year (equivalent to 10% of the $25 liquidation preference), or (ii) the cash dividend payable on the number of shares of AIMCO Class A Common Stock (or portion thereof) into which a share of Class K Preferred Stock is convertible. The Class K Preferred Units held by AIMCO have the same terms as the Class K Preferred Stock. Pending 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 5 8 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 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 $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 on a per share basis. Contribution and Management Agreement In order to maintain AIMCO's qualification as a REIT under the Code, AIMCO has acquired, and may in the future acquire, an interest in entities in which the Partnership does not own any interest (the "QRSs"). AIMCO and the Partnership have entered into a Contribution and Management Agreement (the "Management Agreement"), pursuant to which the Partnership has acquired from AIMCO, in exchange for interests in the Partnership, the economic benefits of the assets owned by the QRSs, and AIMCO has granted the Partnership certain rights with respect to the assets owned by the QRSs. Under the Management Agreement, the Partnership has a right of first refusal to acquire the assets owned by the QRSs for no additional consideration. Under the Management Agreement, AIMCO is obligated to contribute to the Partnership all dividends, distributions, and other proceeds received from the QRSs (excluding distributions received in respect of any interest in the Partnership). Properties owned by the QRSs and properties in which the QRSs have ownership interests are included in the consolidated financial statements of the Partnership pursuant to the Management Agreement. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Company operates in one industry segment, the ownership and management of real estate properties. See the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K for financial information relating to the Company. 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 OP Unit, less a reserve for Capital Replacements of $300 per apartment unit, include the following: - Acquisition of Properties at Less Than Replacement Cost. The Company attempts to acquire properties at a significant discount to their replacement cost. - Geographic Diversification. The Company 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 the Company'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. The Company believes that the physical condition and amenities of its apartment communities are important factors in its ability to maintain and increase rental rates. The 6 9 Company allocates approximately $300 annually per owned apartment unit for Capital Replacements, and reserves unexpended amounts for future capital replacements. - Debt Financing. The Company's strategy is generally to incur debt to increase its return on equity while maintaining acceptable interest coverage ratios. The Company seeks to maintain a ratio of free cash flow to 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 24.2% of the Company's outstanding debt was short-term debt and 75.8% was long-term debt. As of March 11, 1999, approximately 9.5% of the Company's outstanding debt was short-term debt and 90.5% 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 the Company does not believe that the long-term neighborhood values justify the continued investment in the properties. - Distribution Policy. The Partnership pays distributions on its OP Units to share its profitability with its OP Unitholders. The Partnership distributed 65.7%, 66.5% and 72.3% of FFO to holders of OP Units for the years ended December 31, 1998, 1997 and 1996, respectively. It is the present policy of the Board of Directors of AIMCO, as General Partner, to increase the distribution 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 AIMCO's 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. The Company 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 the Company's growth has resulted from the acquisition of other companies that owned or controlled properties. - Acquisition of Managed Properties. The Company 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 the Company 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. The Company has completed tender offers with respect to approximately 280 partnerships and has purchased additional interests in such partnerships for cash and for OP Units. 7 10 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. - Redevelopment of Properties. The Company believes redevelopment of selected properties in superior locations provides advantages over development of new properties. The Company 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, and carport, garage and storage space rental at certain properties. - Controlling Expenses. Cost reductions are accomplished by local focus on the regional operating center level and 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 large property base. PROPERTY MANAGEMENT STRATEGIES The Company 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. The Company's management operations are organized into 35 regional operating centers. Each of the regional operating centers is supervised by a Regional Vice-President. TAXATION OF THE PARTNERSHIP The 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 the partnership, however, is subject to tax on his allocable share of partnership tax items, including partnership income, gains, losses, deductions and credits ("Partnership Tax Items") for each taxable year during which he is a partner, regardless of whether he receives any actual distributions of cash or other property from the Partnership during the taxable year. Generally, the characterization of any particular Partnership Tax Item is determined by 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. AIMCO, the General Partner, is the "tax matters partner" of the Partnership for Federal income tax purposes. The tax matters partner is authorized, but not required, to take certain actions on behalf of the Partnership with respect to tax matters. 8 11 TAXATION OF AIMCO AIMCO has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 1994, and intends to continue to operate in such a manner. AIMCO's current and continuing qualification as a REIT depends on its ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership. If AIMCO qualifies for taxation as a REIT, it will generally not be subject to U.S. Federal corporate income tax on its net income that is currently distributed to stockholders. This treatment substantially eliminates the "double taxation" (at the corporate and stockholder levels) that generally results from investment in a corporation. 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. If in any taxable year AIMCO fails to qualify as a REIT and incurs additional tax liability, AIMCO may need to borrow funds or liquidate certain investments in order to pay the applicable tax and AIMCO would not be compelled to make distributions under the Code. Unless entitled to relief under certain statutory provisions, AIMCO would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. Although AIMCO currently intends to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause AIMCO to fail to qualify as a REIT or may cause the Board of Directors of AIMCO to revoke the REIT election. AIMCO and its stockholders may be subject to state or local taxation in various state or local jurisdictions, including those in which it or they transact business or reside. The state and local tax treatment of AIMCO and its stockholders may not conform to the U.S. Federal income tax treatment. COMPETITION There are numerous housing alternatives that compete with the Company's 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 its properties. In addition, the Company competes with numerous property management companies in the markets where the properties managed by the Company are located. REGULATION General Multi-family 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 other laws regulating multi-family housing may reduce rental revenue or increase operating costs in particular markets. 9 12 HUD Enforcement A significant number of properties owned by the Company are subject to regulation by HUD. Under its regulations, HUD reserves the right to 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, participation in HUD programs 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 of management of 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 Multi-family Participation Review Committee in Washington, D.C. (the "2530 Committee"). As a result of certain mortgage defaults and unsatisfactory ratings received by NHP Incorporated in years prior to its acquisition by the Company in December 1997, HUD believes that the 2530 Committee must review any application for 2530 Clearance filed by the Company. On December 18, 1998, the Company received approval of approximately fifty 2530 applications and had no unresolved flags in the 2530 system as of December 31, 1998. The Company believes that the 2530 Committee will continue to apply the 2530 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. 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 would be impaired. Laws Benefitting Disabled Persons Under the Americans with Disabilities Act of 1990, 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 the Company's 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 requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with these laws 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 the Company believes that its properties are substantially in compliance with present requirements, it may incur unanticipated expenses to comply with these laws. Regulation of Affordable Housing As of December 31, 1998, the Company 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. The Company must obtain the approval of HUD in order to manage, or acquire a significant interest in, a HUD-assisted or HUD-insured property. The Company can make no assurance that it will always receive such approval. 10 13 Environmental Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances present 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 the Company's ability to sell or borrow against 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 liability for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous or toxic substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of properties, the Company could potentially be liable for environmental liabilities or costs associated with its properties. INSURANCE Management believes that the Company's 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 13,000 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. ITEM 2. PROPERTIES. The Company's properties are located in 49 states, Puerto Rico and the District of Columbia. The properties are managed by four Division Vice-Presidents controlling 35 regional operating centers. The following table sets forth information for the regional operating centers as of December 31, 1998:
REGIONAL OPERATING NUMBER OF NUMBER OF CENTER DIVISION PROPERTIES UNITS - --------- --------- ---------- --------- Chicago, IL................................................. Far West 60 11,744 Denver, CO.................................................. Far West 73 11,478 Kansas City, MO............................................. Far West 97 13,138 Los Angeles, CA............................................. Far West 69 10,239 Oakland, CA................................................. Far West 80 8,931 Phoenix, AZ................................................. Far West 51 13,138 San Diego, CA............................................... Far West 36 5,291 ----- ------- 466 73,959 Allentown, PA............................................... East 48 7,493 Columbia, SC................................................ East 57 10,011 Greenville, SC.............................................. East 70 8,650 Philadelphia, PA............................................ East 37 11,804 MLG Sub ROC 2............................................... East 27 8,061 Richmond, VA................................................ East 43 11,420 Rockville, MD............................................... East 84 13,053 Maine Sub ROC 1............................................. East 70 2,328 Tarrytown, NY............................................... East 67 9,582 ----- ------- 503 82,402
11 14
REGIONAL OPERATING NUMBER OF NUMBER OF CENTER DIVISION PROPERTIES UNITS - --------- --------- ---------- --------- Atlanta, GA................................................. Southeast 63 11,896 Boca Raton, FL.............................................. Southeast 35 7,797 Miami, FL................................................... Southeast 49 10,454 Mobile, AL.................................................. Southeast 62 10,136 Nashville, TN............................................... Southeast 63 11,589 Orlando, FL................................................. Southeast 52 12,786 Tampa, FL................................................... Southeast 53 13,075 ----- ------- 377 77,733 Austin, TX.................................................. West 55 10,452 Columbus, OH................................................ West 57 8,774 Dallas I, TX................................................ West 65 12,773 Dallas II, TX............................................... West 68 13,153 Houston I, TX............................................... West 49 10,458 Houston II, TX.............................................. West 58 13,818 Indianapolis, IN............................................ West 43 9,675 ----- ------- 395 79,103 Portfolio: Senior Living Sub ROC 1..................................... Oxford 8 1,638 Affordable Midwest.......................................... Oxford 44 5,711 Conventional Mideast........................................ Oxford 23 6,342 Conventional Midwest........................................ Oxford 45 10,725 Conventional South.......................................... Oxford 41 10,210 ----- ------- 161 34,626 Other....................................................... 245 31,540 ----- ------- 2,147 379,363 ===== =======
At December 31, 1998, the Company owned or controlled 234 properties containing 61,672 units. These properties contain, on average, 261 apartment units, with the largest property containing 2,113 apartment units. These properties offer residents a range of amenities, including swimming pools, clubhouses, spas, fitness centers, tennis courts and saunas. Many of the apartment units offer design and appliance features such as vaulted ceilings, fireplaces, washer and dryer hook-ups, cable television, balconies and patios. In addition, at December 31, 1998, the Company held an equity interest in 910 properties containing 171,657 units, and managed 1,003 other properties containing 146,034 units. The Company's 2,147 properties contain, on average, 177 apartment units, with the largest property containing 2,899 apartment units. Substantially all of the properties owned or controlled by the Company are encumbered by mortgage indebtedness or serve as collateral for the Company's indebtedness. At December 31, 1998, the Company had aggregate mortgage indebtedness totaling $1,213.4 million, which was secured by 193 properties having an aggregate weighted average interest rate of 7.1%. As of December 31, 1998, approximately 24.2% of the Company's outstanding debt was short-term debt and 75.8% was long-term debt. As of March 11, 1999, approximately 9.5% of the Company's outstanding debt was short-term debt and 90.5% was long-term debt. See the financial statements included elsewhere in this Annual Report on Form 10-K for additional information about the Company's indebtedness. ITEM 3. LEGAL PROCEEDINGS. The Company is a party to various legal actions resulting from its operating activities. These actions are routine litigation and administrative proceedings arising in the ordinary course of business, some of which are covered by liability issuance, and none of which are expected to have a material adverse effect on the consolidated financial condition or results of operations of the Company. 12 15 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS. None. PART II ITEM 5. MARKET PRICE OF AND DISTRIBUTIONS ON THE REGISTRANT'S COMMON UNITS AND RELATED UNITHOLDER MATTERS. There is no public market for the OP Units, and the Partnership does not intend to list the OP Units on any securities exchange. In addition, the partnership agreement restricts the transferability of OP Units. The following table sets forth the cash distributions per OP Unit during the years ended December 31, 1998 and 1997.
YEAR ENDED DECEMBER 31, ------------------ 1998 1997 ------- ------- 1st Quarter................................................. $0.5625 $0.4625 2nd Quarter................................................. 0.5625 0.4625 3rd Quarter................................................. 0.5625 0.4625 4th Quarter................................................. 0.5625 0.4625
On March 11, 1999, there were 67,618,941 OP Units outstanding, held by 735 unitholders of record. RECENT SALES OF UNREGISTERED SECURITIES. For the year ended December 31, 1998, the Partnership issued 1.2 million OP Units and 90,000 Preferred Units in transactions to acquire real estate property or interests in real estate property. Each of these transactions was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof or Regulation D thereunder. In January 1998, the Partnership sold 15,000 High Performance Units to a joint venture formed by fourteen members of AIMCO's senior management, and to three non-employee directors of AIMCO for $2.1 million in cash. All the proceeds were used for general corporate purposes. This transaction was exempt from registration under the Securities Act, pursuant to Section 4(2) thereof or Regulation D thereunder. During the year ended December 31, 1998, the Partnership issued to AIMCO, in exchange for cash, 4,200,000 Class D Preferred Units, 4,050,000 Class G Preferred Units, and 2,000,000 Class H Preferred Units. All the proceeds were used to repay indebtedness or for general corporate purposes. Each of these transactions was also exempt from registration under the Securities Act, pursuant to Section 4(2) thereof or Regulation D thereunder. On November 6, 1998, AIMCO issued 1,000,000 shares of Class J Preferred Stock in exchange for $100.0 million in cash. The cash proceeds of $100.0 million were contributed by AIMCO to the Partnership in exchange for 1,000,000 Class J Preferred Units. All of the proceeds were used to repay indebtedness under the Company's interim term loan agreement with Lehman Brothers, Inc. In addition, on the same date, AIMCO issued 250,000 shares of Class J Preferred Stock to the Partnership in a private placement in exchange for 250,000 Class J Preferred Units. Each of these transactions was exempt from registration under the Securities Act, pursuant to Section 4(2) thereof or Regulation D thereunder. 13 16 On December 14, 1998, AEW Targeted Securities Fund, L.P. purchased for $35 million: (i) 1,400,000 Class B partnership preferred units of a subsidiary of the Partnership, and (ii) a warrant to purchase 875,000 shares of AIMCO Class A Common Stock. The partnership preferred units may be redeemed at the option of the holders at any time, and at the option of the Company under certain circumstances. Any redemption of the units may be satisfied by delivery of cash, AIMCO Class A Common Stock or OP Units. The warrant has an exercise price of $40 per share. The warrant may be exercised at any time, and expires upon a redemption of the Class B partnership preferred units. The Company used all of the $35 million of proceeds from these transactions for general corporate purposes. The partnership preferred units and warrant were sold in private transactions exempt from registration under the Securities Act, pursuant to Section 4(2) thereof or Regulation D thereunder. ITEM 6. SELECTED FINANCIAL DATA The historical selected financial data for the Company for the years ended December 31, 1998, 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" included herein. The historical selected financial data for the Company for the year ended December 31, 1995 and the period from July 29, 1994 (the date of inception) through December 31, 1994 and for the Company's Predecessors for the period January 1, 1994 through July 28, 1994 is based on audited financial statements.
THE COMPANY'S THE COMPANY PREDECESSORS -------------------------------------------------------------------------- -------------- FOR THE PERIOD FOR THE PERIOD JULY 29, JANUARY 1, 1994 1994 FOR THE YEAR ENDED DECEMBER 31, THROUGH THROUGH --------------------------------------------------------- DECEMBER 31, JULY 28, 1998 1997 1996 1995 1994 1994 ------------ ------------ ------------ ------------ -------------- -------------- OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income........ $ 373,963 $ 193,006 $ 100,516 $ 74,947 $ 24,894 $ 5,805 Property operating expenses.... (145,966) (76,168) (38,400) (30,150) (10,330) (2,263) Owned property management expenses..................... (10,882) (6,620) (2,746) (2,276) (711) -- Depreciation................... (83,908) (37,741) (19,556) (15,038) (4,727) (1,151) ---------- ---------- ---------- -------- -------- ------- 133,207 72,477 39,814 27,483 9,126 2,391 ---------- ---------- ---------- -------- -------- ------- SERVICE COMPANY BUSINESS: Management fees and other income....................... 22,675 13,937 8,367 8,132 3,217 6,533 Management and other expenses..................... (16,764) (10,373) (5,560) (5,150) (2,211) (6,173) Corporate overhead allocation................... (196) (588) (590) (581) -- -- ---------- ---------- ---------- -------- -------- ------- 5,715 2,976 2,217 2,401 1,006 360 ---------- ---------- ---------- -------- -------- ------- General and administrative expenses..................... (11,418) (5,396) (1,512) (1,804) (977) (36) Interest expense............... (88,208) (51,385) (24,802) (13,322) (1,576) (4,214) Interest income................ 29,252 8,676 523 658 123 -- Equity in earnings of unconsolidated subsidiaries................. 12,009 4,636 -- -- -- -- Equity in losses of unconsolidated real estate partnerships................. (2,665) (1,798) -- -- -- -- Loss from IPLP Exchange and Assumption................... (2,648) -- -- -- -- -- Minority interest.............. (1,868) 1,008 (111) -- -- -- Amortization of goodwill....... (8,735) (948) (500) (428) -- -- ---------- ---------- ---------- -------- -------- ------- Income from operations......... 64,641 30,246 15,629 14,988 7,702 (1,499) Gain on disposition of properties................... 4,287 2,720 44 -- -- -- ---------- ---------- ---------- -------- -------- ------- Income (loss) before extraordinary item........... 68,928 32,966 15,673 14,988 7,702 (1,499) Extraordinary item -- early extinguishment of debt....... -- (269) -- -- -- -- ---------- ---------- ---------- -------- -------- ------- Net income (loss).............. $ 68,928 $ 32,697 $ 15,673 $ 14,988 $ 7,702 $(1,499) ========== ========== ========== ======== ======== =======
14 17
THE COMPANY'S THE COMPANY PREDECESSORS -------------------------------------------------------------------------- -------------- FOR THE PERIOD FOR THE PERIOD JULY 29, JANUARY 1, 1994 1994 FOR THE YEAR ENDED DECEMBER 31, THROUGH THROUGH --------------------------------------------------------- DECEMBER 31, JULY 28, 1998 1997 1996 1995 1994 1994 ------------ ------------ ------------ ------------ -------------- -------------- OTHER INFORMATION: Total owned or controlled properties (end of period)... 234 147 94 56 48 4 Total owned or controlled apartment units (end of period)...................... 61,672 40,039 23,764 14,453 12,513 1,711 Total equity apartment units (end of period).............. 171,657 83,431 19,045 19,594 20,758 29,343 Units under management (end of period)...................... 146,034 69,587 19,045 19,594 20,758 29,343 Basic earnings per OP Unit..... $ 0.80 $ 1.09 $ 1.05 $ 0.86 $ 0.42 N/A Diluted earnings per OP Unit... $ 0.78 $ 1.08 $ 1.04 $ 0.86 $ 0.42 N/A Distributions paid per OP Unit......................... $ 2.25 $ 1.85 $ 1.70 $ 1.66 $ 0.29 N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation................. $2,743,865 $1,657,207 $ 865,222 $477,162 $406,067 $47,500 Real estate, net of accumulated depreciation................. 2,515,710 1,503,922 745,145 448,425 392,368 33,270 Total assets................... 4,186,764 2,100,510 827,673 480,361 416,739 39,042 Total mortgages and notes payable...................... 1,601,730 808,530 522,146 268,692 141,315 40,873 Redeemable partnership units... -- 197,086 96,064 38,463 32,047 -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units........................ -- -- -- -- 96,600 -- Partnership-obligated mandatory redeemable convertible preferred securities of a subsidiary trust............. 149,500 -- -- -- -- -- Partners' capital.............. 2,153,335 960,176 178,462 160,947 137,354 (9,345)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with the financial statements incorporated by reference in Item 8 of this Annual Report on Form 10-K. RESULTS OF OPERATIONS Comparison of the Year Ended December 31, 1998 to the Year Ended December 31, 1997 Net Income The Company recognized net income of $68.9 million, and net income attributable to holders of OP Units of $42.4 million, for the year ended December 31, 1998, compared to 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. Net income attributable to holders of OP Units represents net income less distributions on Preferred Units. The increase in net income attributable to holders of OP Units of $12.0 million, or 39.5%, was primarily the result of the following: - the increase in net "same store" property results; - the acquisition of 11,706 units in 44 apartment communities during 1997; - the acquisition of 22,459 units in 82 apartment communities during 1998; - the acquisition of NHP Incorporated ("NHP") in December 1997; - the acquisition of Ambassador Apartments, Inc. in May 1998; 15 18 - the acquisition of the Insignia Multi-family Business in October 1998; and - receipt of interest income on general partner loans to unconsolidated real estate partnerships and notes receivable. The effect of the above on net income was partially offset by the sale of four properties in 1998 and five properties in 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 or controlled properties totaled $374.0 million for the year ended December 31, 1998, compared to $193.0 million for the year ended December 31, 1997, an increase of $181.0 million, or 93.8%. Rental and other property revenues consisted of the following (in thousands):
1998 1997 -------- -------- 1997 acquisitions........................................... $124,266 $ 36,871 1998 acquisitions........................................... 88,857 -- "Same store" properties..................................... 150,476 136,219 1997 dispositions........................................... -- 4,092 1998 dispositions........................................... 304 8,106 Properties in lease-up after the completion of an expansion or renovation............................................. 10,060 7,718 -------- -------- Total............................................. $373,963 $193,006 ======== ========
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 $146.0 million for the year ended December 31, 1998, compared to $76.2 million for the year ended December 31, 1997, an increase of $69.8 million, or 91.6%. Property operating expenses consisted of the following (in thousands):
1998 1997 -------- ------- 1997 acquisitions........................................... $ 48,570 $15,389 1998 acquisitions........................................... 33,811 -- "Same store" properties..................................... 59,993 52,870 1997 dispositions........................................... -- 1,972 1998 dispositions........................................... 348 3,592 Properties in lease-up after the completion of an expansion or renovation............................................. 3,244 2,345 -------- ------- Total............................................. $145,966 $76,168 ======== =======
Owned property management expenses, representing the costs of managing the Company's owned or controlled properties, totaled $10.9 million for the year ended December 31, 1998, compared to $6.6 million for the year ended December 31, 1997, an increase of $4.3 million, or 65.2%. The increase resulted from acquisitions of properties in 1997 and 1998 and acquisitions of controlling interests in properties through the NHP and Ambassador mergers. 16 19 Service Company Business Income from the service company business was $5.7 million for the year ended December 31, 1998, compared to $3.0 million for the year ended December 31, 1997, an increase of $2.7 million or 90%. The increase was primarily due to management contracts acquired in the Insignia merger that are held by the Company, as well as the transfer of majority-owned management contracts from the management companies to the Partnership. When the Company owns at least a 40% interest in a real estate partnership, the management contract with that real estate partnership is assigned to the Partnership. In addition, the increase is partially due to additional partnership and administrative fees resulting from the acquisition of partnership interests during 1998. The commercial asset management and brokerage businesses were reorganized as part of the management companies at the start of 1998. The insurance portion of operations and also property management services were reorganized as part of the management companies, effective July 1, 1998. The Company's share of income from service company businesses consisted of the following (in thousands):
1998 1997 -------- ------- Properties managed Management fees and other income.......................... $ 18,718 $ 9,353 Management and other expenses............................. (13,472) (9,498) -------- ------- 5,246 (145) -------- ------- Commercial asset management Management and other income............................... -- 245 Management and other expenses............................. -- (275) -------- ------- -- (30) -------- ------- Reinsurance operations Revenues.................................................. 993 4,228 Expenses.................................................. (255) (360) -------- ------- 738 3,868 -------- ------- Other Revenues.................................................. 2,964 111 Expenses.................................................. (3,037) (240) -------- ------- (73) (129) -------- ------- Corporate overhead allocation............................... (196) (588) -------- ------- $ 5,715 $ 2,976 ======== =======
General and Administrative Expenses General and administrative expenses totaled $11.4 million for the year ended December 31, 1998, compared to $5.4 million for the year ended December 31, 1997, an increase of $6.0 million, or 111.1%. The increase in general and administrative expenses 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 mergers with NHP Incorporated in December 1997, Ambassador Apartments, Inc. in May 1998 and Insignia Financial Group, Inc. in October 1998. In addition, due to the growth of the Company, several new departments have been added including legal, tax and limited partnership administration, as well as increased levels of personnel in the accounting and finance departments. Interest Expense Interest expense, which includes the amortization of deferred finance costs, totaled $88.2 million for the year ended December 31, 1998, compared to $51.4 million for the year ended December 31, 1997, an increase of $36.8 million or 71.6%. The increase was primarily due to interest expense incurred in connection with the acquisition of interests in Ambassador Apartments, Inc. and Insignia Financial Group, Inc. and interest expense incurred in connection with 1998 and 1997 acquisitions. 17 20 Interest income Interest income totaled $29.3 million for the year ended December 31, 1998, compared to $8.7 million for the year ended December 31, 1997. The increase is primarily due to interest earned on the increased average outstanding balances of general partner loans and notes receivable. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31, 1996 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 distributions on Preferred Units. 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 acquisitions of 11,706 units in 44 apartment communities during 1997; - the acquisition of interests in the NHP Partnerships including the period June through December 1997; - the acquisition of NHP Partnerships in December 1997; - interest income on general partner loans to unconsolidated real estate partnerships; and - the increase in net "same store" property results. The effect of the above on net income was partially offset by the sale of four properties in August 1996 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 or controlled 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):
1997 1996 -------- -------- 1996 acquisitions........................................... $ 68,505 $ 14,970 1997 acquisitions........................................... 22,163 -- "Same store" properties..................................... 78,724 75,069 Acquisitions 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%. 18 21 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):
1997 1996 ------- ------- 1996 acquisitions........................................... $28,911 $ 5,258 1997 acquisitions........................................... 8,402 -- "Same store" properties..................................... 28,009 28,234 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 Company's 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 Income from the service company business was $3.0 million for the year ended December 31, 1997 compared to $2.2 million for the year ended December 31, 1996, an increase of $0.8 million or 36.4%. 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):
1997 1996 ------- ------- Properties managed Management fees and other income.......................... $ 9,353 $ 5,679 Management and other expenses............................. (9,498) (4,623) ------- ------- (145) 1,056 ------- ------- 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.................................................. (240) (316) ------- ------- (129) 79 ------- ------- Corporate overhead allocation............................... (588) (590) ------- ------- $ 2,976 $ 2,217 ======= =======
19 22 Income (loss) from the management of properties for third parties and affiliates was $(0.1) million for the year ended December 31, 1997 compared to $1.1 million for the year ended December 31, 1996, a decrease of $1.2 million, or 109.1%. 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 purchase of the NHP Real Estate Companies in June 1997 and the merger with NHP in December 1997. 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 was primarily due to interest expense incurred in connection with the acquisition of interests in the NHP Real Estate Companies and NHP and interest expense incurred in connection with 1997 and 1996 acquisitions. 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. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, the Company had $52.8 million in cash and cash equivalents and $53.7 million of restricted cash, primarily consisting of reserves and impounds held by lenders for capital expenditures, property taxes and insurance. In addition, cash, cash equivalents and restricted cash is held by partnerships and subsidiaries which are not presented on a consolidated basis. 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 its unitholders. The Company considers its cash provided by operating activities to be adequate to meet short-term liquidity demands. As of December 31, 1998, 90% of the Company's owned or controlled properties and 53% of its total assets were encumbered by debt. The Company had total outstanding indebtedness of $1,601.7 million, of which $1,321.4 million was secured by properties. The Company's indebtedness is comprised of $819.3 million of secured long-term financing, $394.1 million of secured tax-exempt bonds and $388.3 in secured and unsecured short-term financing. As of December 31, 1998, approximately 27.0% of the Company's indebtedness bears interest at variable rates. As of March 11, 1999, approximately 9.5% of the Company's indebtedness bears interest at variable rates. General Motors Acceptance Corporation had made 85 loans (the "GMAC Loans") to property owning partnerships of the Company, each of which is secured by the property owned by such partnership. The 85 GMAC Loans had an aggregate outstanding principal balance of $175.2 million as of December 31, 1998. Certain GMAC Loans are cross-collateralized with certain other GMAC Loans. Other 20 23 than certain GMAC Loans, none of the Company's debt is subject to cross-collateralization provisions. The weighted average interest rate on the Company's long-term, secured, tax-exempt notes payable was 7.0% with a weighted average maturity of 12.0 years as of December 31, 1998. The weighted average interest rate on the Company's secured and unsecured short-term financing was 7.1% as of December 31, 1998. In February 1999, the $50 million credit facility with Washington Mortgage Financial Group, Ltd. was terminated and all outstanding indebtedness was repaid with the proceeds from new, long-term, fully amortizing indebtedness secured by properties that previously secured the credit facility. In February and March 1999, the Company incurred in the aggregate $83.4 million of long-term, fixed rate, fully amortizing mortgage debt secured by 13 properties in separate loan transactions. 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 $45.0 million. The amount available under the credit facility at March 11, 1999 was $24 million and under the IPT credit agreement was $5.0 million. The Company expects to meet its long-term liquidity requirements, such as refinancing debt and property acquisitions, through long-term borrowings, both secured and unsecured, the issuance of debt or equity securities (including OP Units) and cash generated from operations. In August 1998, AIMCO and the Partnership filed a shelf registration statement with the Securities and Exchange Commission ("SEC") with respect to an aggregate of $1,268 million of debt and equity securities of AIMCO (of which $268 million was carried forward from AIMCO's 1997 shelf registration statement) and $500 million of debt securities of the Partnership. The registration statement was declared effective by the SEC on December 10, 1998. As of December 31, 1998, AIMCO had $1,268 million available and the Partnership had $500 million available from this registration statement. On February 18, 1999, AIMCO raised net proceeds of $120.6 million in a public offering and contributed all of the proceeds to the Partnership in exchange for 5,000,000 Class K Preferred Units. The offering reduced the amount remaining available to AIMCO under the shelf registration statement to $1,143 million. All proceeds were used to further reduce the balance outstanding under the Lehman interim loan. The Company expects to finance pending acquisitions of real estate interests with the issuance of equity securities and debt. CAPITAL EXPENDITURES For the year ended December 31, 1998, the Company spent $28.3 million for Capital Replacements (expenditures for routine maintenance of a property), $28.1 million for Initial Capital Expenditures ("ICE", 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), and $20.1 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 Company's primary credit facility, working capital reserves and net cash provided by operating activities. During 1999, the Company will provide an allowance for capital replacements of $300 per apartment unit. ICE and capital enhancements will primarily be funded by cash from operating activities and borrowings under the Company's primary credit facility. 21 24 The Company's accounting treatment of various capital and maintenance costs is detailed in the following table:
DEPRECIABLE LIFE EXPENDITURE ACCOUNTING TREATMENT 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, capitalize 5 dishwashers, washers/dryers)...................... 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 amounts various in excess of $250
FUNDS FROM OPERATIONS The Company measures its economic profitability based on Funds From Operations ("FFO"), less a reserve for Capital Replacements of $300 per apartment unit. The Company's management believes that FFO, less such a reserve, 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 based on the NAREIT definition, as adjusted for amortization of 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. 22 25 For the years ended December 31, 1998, 1997 and 1996, the Company's FFO is calculated as follows (amounts in thousands):
1998 1997 1996 --------- --------- -------- Net income............................................ $ 68,928 $ 32,697 $ 15,673 Extraordinary item.................................... -- 269 -- Gain on disposition of properties..................... (4,287) (2,720) (44) Real estate depreciation, net of minority interests... 79,869 33,751 19,056 Real estate depreciation related to unconsolidated entities............................................ 34,765 9,864 -- Amortization of goodwill.............................. 11,401 948 500 Amortization of recoverable amount of management contracts........................................... 14,776 1,587 -- Deferred taxes........................................ 9,215 4,894 -- Preferred unit distributions.......................... (20,837) (135) -- --------- --------- -------- Funds From Operations (FFO)........................... $ 193,830 $ 81,155 $ 35,185 ========= ========= ======== Weighted average number of OP units and OP unit equivalents: OP units............................................ 52,798 27,732 14,978 OP unit equivalents................................. 1,306 381 16 Preferred units convertible into OP units........... 2,463 1,006 -- --------- --------- -------- 56,567 29,119 14,994 ========= ========= ======== CASH FLOW INFORMATION: Cash flow provided by operating activities............ $ 144,152 $ 73,032 $ 38,806 Cash flow used in investing activities................ (342,541) (717,663) (88,144) Cash flow provided by financing activities............ 214,133 668,549 60,129
CONTINGENCIES HUD Enforcement In October 1997, NHP received a subpoena from the HUD Inspector General, which requested 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 property management of a HUD project. The Company believes that other owners and managers of HUD projects have received similar subpoenas. Documents provided by the Company to the HUD Inspector General relating to certain of NHP acquisitions of property management rights for HUD projects may be 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, affect the Company's ability to receive 2530 Clearances 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 by any HUD office or nationwide for violations of HUD regulatory requirements. 23 26 Year 2000 Compliance 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 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 in time, the Year 2000 issue could have a material impact on the operations of the Company. The Company's plan to resolve Year 2000 issues involves 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 COMPUTER HARDWARE During 1997 and 1998, the Company identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. During 1997, when the Company merged with NHP, the mainframe system used by NHP was Year 2000 compliant. In August 1998, the Year-2000 compliant system became fully functional for the entire Company. In addition to the mainframe, PC-based network servers, 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 December 31, 1998, had completed approximately 75% of this effort. The total cost to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million, of which $1.3 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. COMPUTER 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. In 1997, when the Company merged with NHP, 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 implemented a Year 2000 compliant system at each of its owned or managed properties, at a cost of $1.4 million. During 1998, the Company acquired 82 properties and acquired the Insignia Multi-family Business. Insignia owned or managed 1,100 properties. 24 27 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 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. The Company 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. 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 inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example, elevators, heating, ventilating and air conditioning systems, security and alarm systems, etc.) The Company has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and 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 the Company at risk financially or operationally. The Company intends 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, the Company has 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. The Company estimates the cost to replace or repair any remaining operating equipment is approximately $325,000, and the Company expects to be completed by April 30, 1999. The Company continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within the enterprise. NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO THE YEAR 2000 The Company continues to conduct surveys of its banking and other 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 Year 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 $3.5 million and is being funded from operating cash flows. To date, the Company has incurred approximately $2.8 million ($0.6 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the 25 28 total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 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 adversely affect the Company. The Company could be subject to litigation for, among other things, computer system failures, equipment shutdowns or a 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. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure relates to changes in interest rates. The Company is not subject to any foreign currency exchange rate risk or commodity price risk, or any other material market rate or price risks. 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 uses short-term debt financing and working capital primarily to fund acquisitions and generally expects to refinance such borrowings with proceeds from equity offerings or long term debt financings. The Company had $432.0 million of variable rate debt outstanding at December 31, 1998, which represents 27.0% of the Company's total outstanding debt. Based on this level of debt, an increase in interest rates of 1% would result in the Company's income and cash flows being reduced by $4.3 million on an annual basis. As of March 11, 1999, approximately 9.5% of the Company's indebtedness bears interest at variable rates. At December 31, 1998, the Company had $1,169.7 million of fixed rate debt outstanding, of which debt in an aggregate amount of $39.6 million, $47.8 million, $42.5 million, $89.1 million and $56.2 million will mature in the years 1999, 2000, 2001, 2002 and 2003, respectively. From time to time, the Company enters into interest rate lock agreements to obtain what the Company considers advantageous pricing for future anticipated debt issuances. The estimated aggregate fair value of the Company's cash and cash equivalents, receivables, payables and short-term secured and unsecured debt as of December 31, 1998 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 Company's secured tax-exempt bond debt and secured long-term 26 29 debt approximates their carrying value, based on market comparisons to similar types of debt instruments having similar maturities. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The independent auditor's reports, consolidated financial statements and schedule listed in the accompanying index are filed as part of this report and incorporated herein by this reference. See "Index to Financial Statements" on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT All of the executive officers of the General Partner of the Partnership also serve as executive officers of AIMCO. Accordingly, the information below reflects the directors of the General Partner and the executive officers of both the General Partner of the Partnership and AIMCO. The officers of AIMCO and the General Partner of the Partnership are elected annually by their respective Boards of Directors.
NAME AGE POSITION WITH THE COMPANY - ---- --- ------------------------- Terry Considine................ 51 Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez............. 54 Vice Chairman, President and Director Joel F. Bonder................. 50 Executive Vice President, General Counsel and Secretary Patrick J. Foye................ 42 Executive Vice President Robert Ty Howard............... 41 Executive Vice President -- Ancillary Services Steven D. Ira.................. 48 Executive Vice President and Co-Founder Paul J. McAuliffe.............. 42 Executive Vice President -- Capital Markets Thomas W. Toomey............... 38 Executive Vice President -- Finance and Administration Harry G. Alcock................ 35 Senior Vice President -- Acquisitions Troy D. Butts.................. 34 Senior Vice President and Chief Financial Officer
The following is a biographical summary of the experience of the current directors of the General Partner and executive officers of the General Partner and AIMCO as of March 11, 1999. Terry Considine. Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of the General Partner and AIMCO since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of the Company's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been and remains involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a B.A. from Harvard College, a J.D. from Harvard Law School and was formerly admitted as a member of the Massachusetts Bar (inactive). Mr. Considine has had substantial multifamily real estate experience. From 1975 through July 1994, partnerships or other entities in which Mr. Considine had controlling interests invested in approximately 35 multifamily apartment properties and commercial real estate properties. Six of these real estate assets (four of which were multifamily apartment properties and two of which were office properties) did not generate 27 30 sufficient cash flow to service their related indebtedness and were foreclosed upon by their lenders, causing pre-tax losses of approximately $11.9 million to investors and losses of approximately $2.7 million to Mr. Considine. Peter K. Kompaniez. Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of the General Partner from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of the General Partner since July 1994. Mr. Kompaniez has also served as Chief Operating Officer of NHP and President of NHP Partners since June 1997. 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 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). Joel F. Bonder. Mr. Bonder was appointed Executive Vice President General Counsel and Secretary of AIMCO effective December 1997. Mr. Bonder has also been Executive Vice President and General Counsel of the General Partner 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 Incorporated from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder practiced with the Washington, D.C. law firm of Lane & Edson, PC. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received a B.A. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye. Mr. Foye was appointed Executive Vice President of AIMCO in May 1998. He is responsible for acquisitions of partnership securities, consolidation of minority interest, and corporate and other acquisitions. Mr. Foye has also been Executive Vice President of the General Partner since July 1998. Prior to joining AIMCO, Mr. Foye was a Mergers and Acquisitions 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 received a B.A. from Fordham College, a J.D. from Fordham Law School and was Associate Editor of the Fordham Law Review. Mr. Foye is also Deputy Chairman of the Long Island Power Authority ("LIPA"). Mr. Foye is also a member of the New York State Privatization Council. Robert Ty Howard. Mr. Howard was appointed Executive Vice President -- Ancillary Services in February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of the General Partner 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. Prior to joining AIMCO, Mr. Howard was responsible for venture investment, financing, mergers and acquisitions activities and investments in commercial real estate, both nationally and internationally. From 1983 to 1987, 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 since July 1994. Mr. Ira has been Executive Vice President of the General Partner since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of 28 31 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 is a member of the Boards of Directors of the National Multi-Housing Council, the National Apartment Association and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Paul J. McAuliffe. Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Mr. McAuliffe has also been Executive Vice President -- Capital Markets of the General Partner since 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 the senior member of the underwriting team that lead 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. where he worked from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an M.B.A. from University of Virginia, Darden School. Thomas W. Toomey. Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice President -- Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of the General Partner since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. Mr. Toomey received a B.S. in Business Administration/ Finance from Oregon State University. Harry G. Alcock. Mr. Alcock has served as a Vice President of the General Partner and AIMCO since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and 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 also been Senior Vice President and Chief Financial Officer of the General Partner 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. Section 16(a) Compliance. Section 16(a) of the Securities Exchange Act requires the General Partner's executive officers and directors, and persons who own more than ten percent of a registered class of the Partnership's OP Units, to file reports (Forms 3, 4 and 5) of unit ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and beneficial owners of more than ten percent of the Partnership's OP Units are required by Securities Exchange Commission regulations to furnish the Partnership with copies of all such forms that they file. Based solely on the Partnership's review of the copies of Forms 3, 4 and 5 and the amendments thereto received by it for the year ended December 31, 1998, or written representations from certain reporting persons that no Forms 5 were required to be filed by those persons, the Partnership believes that during the period ended December 31, 1998, all filing requirements were complied with by its executive officers and beneficial 29 32 owners of more than ten percent of the Partnership's OP Units with the exception of the following: Mr. Considine filed a Form 5 on January 29, 1999, which disclosed the acquisition of OP Units; Mr. Ira filed a Form 5 on January 29, 1999, which disclosed the acquisition of OP Units; and the initial statements of beneficial ownership of securities on Form 3 with respect to the Partnership were filed in March 1999 for Messrs. Considine, Kompaniez, Bonder, Foye, Howard, Ira, Toomey, Alcock and Butts. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth the compensation paid for each of the three fiscal years ended December 31, 1998, 1997 and 1996 to the directors of the General Partner and the Chief Executive Officer and each of the four other most highly compensated executive officers of the General Partner and AIMCO (the "Named Executive Officers"). Information regarding stock options and other stock based compensation payable by AIMCO has been included for informational purposes since the Partnership will issue to AIMCO additional OP Units upon the exercise of such stock options and the contribution to the Partnership of the net proceeds therefrom.
LONG TERM COMPENSATION(1) ---------------- SECURITIES ANNUAL COMPENSATION UNDERLYING STOCK ----------------------- OTHER ANNUAL OPTIONS/SARS (#) ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($) AWARDS COMPENSATION($) - --------------------------- ---- --------- ----------- --------------- ---------------- --------------- Terry Considine................. 1998 $275,000 $1,025,000 -- 150,000 -- Chairman of the Board of 1997 275,000 2,060,000 -- 2,740,000 -- Directors and Chief 1996 267,500 20,000 -- 165,000 -- Executive Officer Peter K. Kompaniez.............. 1998 $235,000 $ 735,000 -- 75,000 -- President and Vice 1997 235,000 800,000 -- 815,000 -- Chairman 1996 227,500 20,000 -- 87,000 -- Steven D. Ira................... 1998 $200,000 $ 225,000 -- -- -- Executive Vice President 1997 200,000 550,000 -- 210,000 -- and Co-Founder 1996 194,000 20,000 -- 77,000 -- Thomas W. Toomey................ 1998 $200,000 $ 300,000 -- 100,000 -- Executive Vice President -- 1997 180,000 555,000 -- 220,000 -- Finance and Administration 1996 130,000 50,000 -- 73,000 -- Patrick J. Foye(3).............. 1998 $135,600 $ 400,000 -- 375,000 -- Executive Vice President 1997 -- -- -- -- -- 1996 -- -- -- -- --
- --------------- (1) Excludes 1,227,078, 376,526, 125,632, 165,632 and 78,948 shares of AIMCO Class A Common Stock underlying options granted to Messrs. Considine, Kompaniez, Ira, Toomey and Foye, respectively, from 1996 to 1998, which were immediately exercised to purchase shares pursuant to AIMCO's leveraged stock purchase program. See "Item 13 -- Certain Relationships and Related Transactions-Stock Purchase Loans." Options earned in respect of 1997 and 1998 fiscal years were awarded in January 1998 and 1999, respectively. (2) Includes all Discretionary and Incentive cash compensation earned by the Named Executive Officers. (3) Mr. Foye was not an employee of the General Partner prior to May 1998. 30 33 OPTION/SAR GRANTS IN LAST FISCAL YEAR Information on options granted in 1998 to the Named Executive Officers is set forth in the following table. Such options reflect options to purchase shares of AIMCO Class A Common Stock.
INDIVIDUAL GRANTS(1) ---------------------------------------------------- % OF TOTAL OPTIONS/ SARS POTENTIAL REALIZABLE VALUE AT NUMBER OF GRANTED ASSUMED ANNUAL RATES OF STOCK SECURITIES TO PRICE APPRECIATION FOR OPTION UNDERLYING EMPLOYEES EXERCISE OR TERM(4) OPTIONS/SARS IN FISCAL BASE EXPIRATION ------------------------------ NAME GRANTED(#)(2) YEAR(3) PRICE($/SH) DATE 5%($) 10%($) ---- ------------- --------- ----------- ---------- ------------- -------------- Terry Considine......... 2,740,000 55.7% $37.375 1/21/2008 $64,403,500 $163,211,200 Peter K. Kompaniez...... 815,000 16.7% 37.375 1/21/2008 19,156,500 48,546,400 Steven D. Ira........... 210,000 4.3% 37.375 1/21/2008 4,936,000 12,508,900 Thomas W. Toomey........ 220,000 4.5% 37.375 1/21/2008 5,171,100 13,104,500 Patrick J. Foye......... 275,000 5.6% 38.000 5/22/2008 6,571,900 16,654,600
- --------------- (1) Unless otherwise specified, options vest over five years, with vesting as to 40% of the underlying shares after two years and an additional 20% vesting each of the next two years. Under the terms of the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (the "1997 Stock Plan"), the plan administrator retains discretion, subject to certain restrictions, to modify the terms of outstanding options. The exercise price of incentive and non-qualified options granted under the 1997 Stock Plan will generally equal the fair market value of a share of AIMCO Class A Common Stock on the date of grant. (2) Excludes 78,948 shares of AIMCO Class A Common Stock underlying options granted to Mr. Foye which were immediately exercised to purchase shares pursuant to AIMCO's leveraged stock purchase program. See "Item 13 -- Certain Relationships and Related Transactions -- Stock Purchase Loans." (3) Excludes 513,046 shares of AIMCO Class A Common Stock underlying options granted to all employees which were immediately exercised to purchase shares pursuant to AIMCO's leveraged stock purchase program. See "Item 13 -- Certain Relationships and Related Transactions -- Stock Purchase Loans." (4) Assumed annual rates of stock price appreciation are set forth for illustrative purposes only. The amounts shown are for the assumed rates of appreciation only, do not constitute projections of future stock price performance, and may not be realized. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES Information on option exercises during 1998 by the Named Executive Officers, and the value of unexercised options held by Named Executive Officers at December 31, 1998 is set forth in the following table. Such options reflect options to purchase shares of AIMCO Class A Common Stock.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS FY-END(#) AT FY-END($)(3) SHARES ACQUIRED VALUE --------------------------- --------------------------- NAME ON EXERCISE(#)(1) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------------- -------------- ----------- ------------- ----------- ------------- Terry Considine.................. 2,400 $ 20,954 -- 2,747,200 -- $119,250 Peter K. Kompaniez............... -- -- 800 817,400 $ 13,250 39,750 Steven D. Ira.................... 25,000 293,200 49,600 212,400 815,500 39,750 Thomas W. Toomey................. -- -- -- 220,000 -- -- Patrick J. Foye.................. -- -- -- 275,000 -- --
31 34 - --------------- (1) Excludes 78,948 shares of AIMCO Class A Common Stock underlying options granted to Mr. Foye which were immediately exercised to purchase shares pursuant to AIMCO's leveraged stock purchase program. See "Item 13 -- Certain Relationships and Related Transactions -- Stock Purchase Loans." (2) "Value Realized" is reduced by amounts withheld for payment of Federal and state taxes. (3) Market value of underlying securities at fiscal year-end, less the exercise price. Market value is determined based on the closing price of the AIMCO Class A Common Stock on the New York Stock Exchange on December 31, 1998 of $37.1875 per share. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information available to the Company, as of March 11, 1999, with respect to OP Units of the Company held by (i) each director of the General Partner and the five most highly compensated executive officers of the General Partner who were serving as of December 31, 1998; (ii) all directors and executive officers of the Partnership as a group; and (iii) those persons known to the Company to be the beneficial owners (as determined under the rules of the Securities Exchange Commission) of more than 5% of such OP Units. This table does not reflect options that are not exercisable within 60 days, or the beneficial ownership of High Performance Units by executive officers and directors of the General Partner. The business address of each of the following directors and executive officers of the General Partner is 1873 South Bellaire Street, Suite 1700, Denver, Colorado 80222-4348, unless otherwise specified.
PERCENTAGE OF NUMBER OF OWNERSHIP OF THE NAME AND ADDRESS OF BENEFICIAL OWNER OP UNITS PARTNERSHIP - ------------------------------------ ------------ ---------------- Directors & Executive Officers of the General Partner: Terry Considine........................................... 785,011(1) 1.2% Peter K. Kompaniez........................................ 23,625 * Steven D. Ira............................................. 96,614 * Thomas W. Toomey.......................................... * Patrick J. Foye........................................... * All directors and executive officers as a group (10 persons)............................................... 905,250 1.3% 5% or Greater Holders AIMCO-LP, Inc............................................. 61,656,837 91.2%
- --------------- * Less than 1.0% (1) Includes 160,724 OP Units held by entities in which Mr. Considine has sole voting and investment power, 2,300 OP Units held by the Considine Partnership, for 99% of which Mr. Considine disclaims beneficial ownership, and 157,698 OP Units held by Mr. Considine's spouse, Elizabeth Considine, for which Mr. Considine disclaims beneficial ownership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS From time to time, the Company has entered into various transactions with certain of its executive officers and directors. The Company attempts to price such transactions based on fair market value, and believes that the transactions are on terms that are as favorable to the Company, as the case may be, as could be achieved with unrelated third parties. FORMATION OF MANAGEMENT COMPANIES From time to time the Company has formed corporations (the "Management Companies") in which the Partnership holds non-voting preferred stock representing a 95% economic interest in such corporations. The remaining 5% economic interest, which represents 100% of the voting interest, is owned by certain of the Company's executive officers, including Messrs. Considine, Kompaniez and Ira. The Management Companies 32 35 were formed to engage in businesses generally not permitted under the REIT provisions of the Internal Revenue Code. Although transactions between the Company and the Management Companies are not at arm's length, the Company believes that such transactions are at fair market value. During 1997, in connection with the acquisition of NHP and certain related assets, the following Management Companies were formed: AIMCO/NHP Holdings, Inc. ("ANHI"), NHP Management Company ("NHPMC"), AIMCO/NHP Properties, Inc. ("ANPI") and NHP A&R Services, Inc. ("NHPAR"). Messrs. Considine and Kompaniez, collectively, own 5% of the outstanding stock of each of NHPAR, NHPMC, ANHI and ANPI. Prior to July 1, 1998, Messrs. Considine and Kompaniez, collectively, owned 5% of the outstanding stock of Property Asset and Management Services, Inc. ("PAMS, Inc."), a Management Company formed in 1996. On July 1, 1998, each of Messrs. Considine and Kompaniez and the Partnership contributed all of their stock in PAMS, Inc. to NHPMC. Because the relative share ownership of PAMS, Inc. and NHPMC by Messrs. Considine and Kompaniez and the Partnership was identical, no additional shares of NHPMC were issued in consideration for the contribution. For the year ended December 31, 1998, Messrs. Considine and Kompaniez have received dividends of approximately $232,000 and $46,000, respectively, on their shares of common stock of the Management Companies and the Company has received dividends of $5,284,000 on its shares of preferred stock of the Management Companies. All of the amounts paid as dividends to Messrs. Considine and Kompaniez were used to pay interest and/or principal due under promissory notes to the Company and the Management Companies. TRANSACTIONS WITH THE MANAGEMENT COMPANIES When the Company owns a significant interest in a real estate partnership, the management contract for the property owned by that real estate partnership may be assigned by the Management Companies to the Partnership. During 1998, Management Companies assigned their rights under a total of 330 management contracts to the Partnership in exchange for the Partnership assuming all obligations under such contracts. During 1998, in connection with the Insignia merger, the Partnership transferred its subsidiary, AG Management LLC, to NHPMC. NHPMC executed a note for $45,000,000 in favor of the Partnership in respect of certain obligations assumed by the Partnership. The highest amount of indebtedness existing under the note during 1998 was $45,000,000. The rate of interest under the note is 8.5%. The amount outstanding under the note was $45,000,000 as of December 31, 1998. During 1998, the Partnership formed a partnership, AG Services, L.P., with NHPMC and NHPAR in connection with a cost sharing arrangement with the Company. Under this arrangement, AG Services, L.P. serves as a common paymaster agent and employs certain individuals who provide services to properties that are managed by NHPMC, NHPAR and/or the Partnership. STOCK PURCHASE LOANS From time to time, AIMCO makes loans to certain executive officers to finance their purchase of shares of AIMCO Class A Common Stock from AIMCO. All loans made prior to 1998 bear interest at the rate of 7.25% per annum. During 1998, AIMCO sold 152,860 shares of AIMCO Class A Common Stock to Messrs. Bonder, Howard and Foye for an aggregate purchase price of $5,648,000. In each case, the purchase price was equal to the closing price of the AIMCO Class A Common Stock on the New York Stock Exchange on the date of sale. In payment for such shares, Messrs. Bonder, Howard and Foye executed notes payable to AIMCO bearing interest at 7.0%, 7.0% and 6.25%, respectively, per annum, payable quarterly, and due in 2008. The interest rate on the loans is based upon the Company's cost of borrowing under its line of credit. 33 36 The following table sets forth certain information with respect to these loans to executive officers.
HIGHEST AMOUNT AMOUNT REPAID OWED DURING SINCE INCEPTION NAME INTEREST RATE 1998 (THRU 3/8/99) 3/8/99 BALANCE ---- ------------- -------------- --------------- -------------- Terry Considine........................ 7.25% $22,020,964 $19,619,183 $ 16,216,252 Peter K. Kompaniez..................... 7.25% 4,124,478 8,137,031 3,799,234 Steven D. Ira.......................... 7.25% 3,052,093 131,400 2,962,310 Thomas W. Toomey....................... 7.25% 1,363,946 4,569,804 1,197,866 Harry G. Alcock........................ 7.25% 404,289 136,478 270,522 David L. Williams(1)................... 7.25% 1,568,309 1,578,960 -- Troy D. Butts.......................... 7.25% 1,048,619 36,225 1,013,783 Joel F. Bonder......................... 7.00% 1,200,000 28,850 1,171,150 Robert Ty Howard....................... 7.00% 1,447,500 22,491 1,425,010 Patrick J. Foye........................ 6.25% 3,000,024 125,000 2,875,024 ----------- ----------- -------------- $39,230,222 $34,385,422 $ 30,931,151 =========== =========== ==============
- --------------- (1) Mr. Williams resigned his position with the Company in January 1999. MANAGEMENT OF CERTAIN PROPERTIES Mr. Considine retains the Company to manage one property owned by his affiliates. This contract is on similar terms as contracts with other property owners and is terminable upon 30 days notice. During 1998, an aggregate of $76,200 in management fees were paid to the Company for management of this property. SALE OF HIGH PERFORMANCE UNITS In January 1998, the Partnership sold an aggregate of 15,000 Class I High Performance Partnership Units of the Partnership (the "HPUs") to SMP, L.L.C. ("SMP"), a joint venture formed by fourteen of the Company's officers, and to Messrs. Martin, Rhodes and Smith for an aggregate purchase price of $2,070,000, of which $1,980,000 was paid by SMP and an aggregate of $90,000 was paid by three non-employee directors of AIMCO. The purchase price of the HPUs was determined by the Board of Directors of AIMCO, based upon the advice of a nationally recognized independent investment bank that this purchase price represented the fair market value of the HPUs. The sale of the HPUs was ratified and approved by AIMCO's stockholders on May 8, 1998. SALE OF BRANDON LAKES, LTD. On September 24, 1998, Messrs. Considine and Ira and other partners of Brandon Lakes, Ltd. transferred all of their respective interests in Brandon Lakes, Ltd. to the Partnership and its affiliate, AIMCO Holdings, L.P. Brandon Lakes, Ltd. owns a multi-family residence commonly known as Sun Lake Apartments, located in Brandon, Florida. The total purchase price for all the interests in Brandon Lakes, Ltd. was approximately $4,300,000. Mr. Considine received 1,208 OP Units valued at $41,000 for the transfer of his interests in Brandon Lakes, Ltd. Mr. Ira received 241 OP Units valued at $8,000 for the transfer of his interests in Brandon Lakes, Ltd. 34 37 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) (1) The financial statements listed in the Index to Financial Statements on Page F-1 of this report are filed as part of this report and incorporated herein by reference. (a) (2) The financial statement schedule listed in the Index to Financial Statements on Page F-1 of this report is filed as part of this report and incorporated herein by reference. (a) (3) The Exhibit Index is included on page 36 of this report and incorporated herein by reference. (b) Reports on Form 8-K for the quarter ended December 31, 1998: Current Report on Form 8-K, dated November 2, 1998 (and Amendment Nos. 1 and 2 thereto, filed December 7, 1998 and December 14, 1998, respectively), relating to the acquisition of five multifamily residential properties from Cirque Property, L.C.; the acquisition of interests in nine multifamily restricted properties from affiliates of Realty Investment Co.; and the acquisition of the SunLake Apartments from a related party. The Report includes the Combined Historical Summary of Gross Income and Direct Operating Expenses of Cirque Apartment Communities for the year ended December 31, 1997 and the three months ended March 31, 1998 (unaudited), together with the Report of Independent Auditors; the Combined Historical Summary of Gross Income and Direct Operating Expenses of Realty Investment Apartment Communities I for the year ended December 31, 1997 and the six months ended June 30, 1998 (unaudited), together with the Independent Auditors' Report; the Combined Historical Summary of Gross Income and Direct Operating Expenses of Realty Investment Apartment Communities II for the year ended December 31, 1997 and the six months ended June 30, 1998 (unaudited), together with the Independent Auditors' Report; the Historical Summary of Gross Income and Direct Operating Expenses of Sun Lake Apartments for the years ended December 31, 1997, 1996 and 1995 and the nine months ended September 30, 1998 (unaudited), together with the Independent Auditor's Report; and certain pro forma financial information. Current Report on Form 8-K, dated December 21, 1998, relating to the Company's entering into an Acquisition and Contribution Agreement and Joint Escrow Instructions with Calhoun Beach Associates II Limited Partnership, including the Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the year ended December 31, 1997 and the nine months ended September 30, 1998 (unaudited), together with the Independent Auditor's Report, and certain pro forma information. 35 38 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 -- Second Amended and Restated Agreement and Plan of Merger, dated as of January 22, 1999, by and between Apartment Investment and Management Company and Insignia Properties Trust (Exhibit 2.2 to the Current Report on Form 8-K of Insignia Properties Trust, dated February 11, 1999, is incorporated herein by this reference) 2.2 -- Agreement and Plan of Merger, dated as of December 23, 1997, by and between Apartment Investment and Management Company and Ambassador Apartments, Inc. (Exhibit 2.1 to AIMCO's Current Report on Form 8-K, dated December 23, 1997, is incorporated herein by this reference) 2.3 -- Amended and Restated Agreement and Plan of Merger, dated as of May 26, 1998, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., Insignia Financial Group, Inc., and Insignia/ESG Holdings, Inc. (Exhibit 2.1 to AIMCO's Registration Statement on Form S-4, filed August 5, 1998, is incorporated herein by this reference) 10.1 -- Amended and Restated Credit Agreement (Unsecured Revolver-to-Term Facility), dated as of October 1, 1998, among AIMCO Properties, L.P., Bank of America National Trust and Savings Association, and BankBoston, N.A. (Exhibit 10.1 to AIMCO's Current Report on Form 8-K, dated October 1, 1998, is incorporated herein by this reference) 10.2 -- First Amendment to Credit Agreement, dated as of November 6, 1998, by and among AIMCO Properties, L.P., the financial institutions listed on the signature pages thereof and Bank of America National Trust and Savings Association (Exhibit 10.2 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.3 -- Promissory Note, dated October 1, 1998, in the principal amount of $65,000,000 issued by AIMCO Properties, L.P. to Bank of America National Trust and Savings Association, and BankBoston, N.A. (Exhibit 10.2 to AIMCO's Current Report on Form 8-K, dated October 1, 1998, is incorporated herein by this reference) 10.4 -- Promissory Note, dated October 1, 1998, in the principal amount of $35,000,000 issued by AIMCO Properties, L.P. to Bank of America National Trust and Savings Association, and BankBoston, N.A. (Exhibit 10.3 to AIMCO's Current Report on Form 8-K, dated October 1, 1998, is incorporated herein by this reference) 10.5 -- Swing Line Promissory Note, dated October 1, 1998, in the principal amount of $30,000,000, issued by AIMCO Properties, L.P. to Bank of America National Trust and Savings Association, and BankBoston, N.A. (Exhibit 10.4 to AIMCO's Current Report on Form 8-K, dated October 1, 1998, is incorporated herein by this reference) 10.6 -- Payment Guaranty of Non-Preferred Stock Subsidiaries, dated as of October 1, 1998, by Apartment Investment and Management Company, AIMCO Holdings QRS, Inc., AIMCO/OTC QRS, Inc., AIMCO Holdings, L.P., AIMCO-GP, Inc., AIMCO-LP, Inc., AIMCO Properties Finance Corp., AIMCO Somerset, Inc., Ambassador II, L.P., Ambassador X, L.P., Ambassador IV, Inc., Ambassador V, Inc., Ambassador Florida Partners Inc. and A.J. Two, Inc. (Exhibit 10.5 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference) 10.7 -- Payment Guaranty of Preferred Stock Subsidiaries, dated as of October 1, 1998, by Property Asset Management Services, Inc., Property Asset Management Services, L.P., NHP Management Company and Property Asset Management Services-California, L.L.C. (Exhibit 10.6 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference)
36 39
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.8 -- Payment Guaranty of Non-Preferred Stock Subsidiaries, dated as of October 1, 1998, by CPF XIV/St. Charleston, Inc., CPF XIV/Torrey Pines, Inc., CPF XIV/ Sun River, Inc., CPF XIV/Lakeside Place, Inc., ConCap CCP/IV Stratford Place Properties, Inc., ConCap CCP/IV River's Edge Properties, Inc., PRA, Inc. and National Property Investors, Inc. (Exhibit 10.7 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference) 10.9 -- Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 29, 1994 as amended and restated as of October 1, 1998 (Exhibit 10.8 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference) 10.10 -- First Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of November 6, 1998 (Exhibit 10.9 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference) 10.11 -- Second Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of December 30, 1998 (Exhibit 10.1 to Amendment No. 1 to AIMCO's Current Report on Form 8-K/A, filed February 11, 1999, is incorporated herein by this reference) 10.12 -- Third Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of February 18, 1999 (Exhibit 10.12 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.13 -- Credit Agreement dated December 30, 1997, by and among Insignia Properties, L.P., Lehman Commercial Paper Inc., as lending agent, First Union National Bank, as administrative agent, and the lenders from time to party thereto (Exhibit 10.8 to Form S-4 of Insignia Properties Trust, filed May 28, 1998, is incorporated herein by this reference) 10.14 -- Unconditional Guaranty, dated as of December 30, 1997, made by Insignia Properties Trust in favor of First Union National Bank (Exhibit 10.9 to Form S-4 of Insignia Properties Trust, filed May 28, 1998, is incorporated herein by this reference) 10.15 -- Shareholders Agreement, dated October 1, 1998, by and among Apartment Investment and Management Company, Andrew L. Farkas, James A. Aston and Frank M. Garrison (Exhibit 10.4 to AIMCO's Schedule 13D filed on October 15, 1998, is incorporated herein by this reference) 10.16 -- $300,000,000 Interim Term Loan Agreement, dated as of October 1, 1998, among Apartment Investment and Management Company, AIMCO Properties, L.P., the several lenders from time to time parties thereto, Lehman Brothers, Inc., and Lehman Commercial Paper Inc. (Exhibit 10.16 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.17 -- Subsidiaries Guarantee, dated as October 1, 1998, made by each of the entities that are signatories thereto in favor of Lehman Commercial Paper Inc. as administrative agent for the several banks and other financial institutions or entities from time to time parties to the Interim Term Loan Agreement (Exhibit 10.17 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.18 -- Preferred Stock Subsidiaries' Guarantee, dated as of October 1, 1998, made by each of the entities that are signatories thereto in favor of Lehman Commercial Paper Inc., as administrative agent for the several banks and other financial institutions or entities from time to time parties to the Interim Loan Agreement (Exhibit 10.18 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference)
37 40
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.19 -- Common Stock Purchase Agreement made as of August 26, 1997, by and between Apartment Investment and Management Company and ABKB/LaSalle Securities Limited Partnership (Exhibit 99.1 to AIMCO's Current Report on Form 8-K, dated August 26, 1997, is incorporated herein by this reference) 10.20 -- Purchase and Sale Agreement and Joint Escrow Instructions, made and entered into as of August 22, 1997, by and between AIMCO Properties, L.P. and each of the parties identified on Exhibit "A" attached thereto (collectively, the "Winthrop Sellers") (Exhibit 99.3 to AIMCO's Current Report on Form 8-K, dated October 15, 1997, is incorporated herein by this reference) 10.21 -- Letter Agreement, dated October 15, 1997 by and between AIMCO Properties, L.P. and the Winthrop Sellers (Exhibit 99.6 to AIMCO's Current Report on Form 8-K, dated October 15, 1997, is incorporated herein by this reference) 10.22 -- Summary of Arrangement for Sale of Stock to Executive Officers (Exhibit 10.104 to AIMCO's Annual Report on Form 10-K for the fiscal year 1996, is incorporated herein by this reference)* 10.23 -- Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (Annex A to AIMCO's Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 1997, is incorporated herein by this reference)* 10.24 -- Amendment No. 1 to the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (Annex A to AIMCO's Proxy Statement for Annual Meeting of Stockholders to be held on May 8, 1998, is incorporated herein by this reference)* 10.25 -- Apartment Investment and Management Company 1998 Incentive Compensation Plan (Annex B to AIMCO's Proxy Statement for Annual Meeting of Stockholders to be held on May 8, 1998, is incorporated herein by this reference)* 10.26 -- Employment Contract, executed on July 29, 1994, by and between AIMCO Properties, L.P. and Peter Kompaniez (Exhibit 10.44A to AIMCO's Annual Report on Form 10-K for the fiscal year 1994, is incorporated herein by this reference)* 10.27 -- Real Estate Acquisition Agreement, dated as of May 22, 1997, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., Demeter Holdings Corporation, Phemus Corporation, Capricorn Investors, L.P., J. Roderick Heller, III and NHP Partners LLC (Exhibit 2.1 to AIMCO's Current Report on Form 8-K, dated June 3, 1997, is incorporated herein by this reference) 10.28 -- Contribution Agreement, dated as of January 31, 1998, by and between Apartment Investment and Management Company and Terry Considine and Peter K. Kompaniez (Exhibit 2.1 to AIMCO's Current Report on Form 8-K, dated January 31, 1998, is incorporated herein by this reference)* 10.29 -- Amended and Restated Assignment and Assumption Agreement, dated as of December 7, 1998, by and among Insignia Properties, L.P. and AIMCO Properties, L.P. (Exhibit 10.1 to the Current Report on Form 8-K of Insignia Properties Trust, dated February 11, 1999, is incorporated herein by this reference) 10.30 -- Amended and Restated Indemnification Agreement, dated as of May 26, 1998, by and between Apartment Investment and Management Company and Insignia/ESG Holdings, Inc. (Exhibit 2.2 to AIMCO's Registration Statement on Form S-4, filed August 5, 1998, is incorporated herein by this reference) 10.31 -- Form of Restricted Stock Agreement (1997 Stock Award and Incentive Plan) (Exhibit 10.11 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1997, is incorporated herein by this reference)* 10.32 -- Apartment Investment and Management Company Non-Qualified Employee Stock Option Plan, adopted August 29, 1996 (Exhibit 10.8 to AIMCO's Quarterly Report on Form 10/Q-A for the quarterly period ending September 30, 1996, is incorporated herein by this reference)* 10.33 -- Amended and Restated Apartment Investment and Management Company Non-Qualified Employee Stock Option Plan (Annex B to AIMCO's Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 1997, is incorporated herein by this reference)*
38 41
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.34 -- Employment Contract executed on July 29, 1994 by and between AIMCO Properties, LP and Terry Considine (Exhibit 10.44C to AIMCO's Annual Report on Form 10-K for the fiscal year 1994, is incorporated herein by this reference)* 10.35 -- Employment Contract executed on July 29, 1994 by and between AIMCO Properties, LP and Steven D. Ira (Exhibit 10.44D to AIMCO's Annual Report on Form 10-K for the fiscal year 1994, is incorporated herein by this reference)* 10.36 -- The 1994 Stock Incentive Plan for Officers, Directors and Key Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P. and Subsidiaries (Exhibit 10.40 to Ambassador Apartments, Inc. Annual Report on Form 10-K for the fiscal year 1997, is incorporated herein by this reference)* 10.37 -- Amendment to the 1994 Stock Incentive Plan for Officers, Directors and Key Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P. and Subsidiaries (Exhibit 10.41 to Ambassador Apartments, Inc. Annual Report on Form 10-K for the fiscal year 1997, is incorporated herein by this reference)* 10.38 -- The 1996 Stock Incentive Plan for Officers, Directors and Key Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P. and Subsidiaries, as amended March 20, 1997 (Exhibit 10.42 to Ambassador Apartments, Inc. Annual Report on Form 10-K for the fiscal year 1997, is incorporated herein by this reference)* 10.39 -- Insignia 1992 Stock Incentive Plan, as amended through March 28, 1994 and November 13, 1995 (Exhibit 10.1 to Insignia Financial Group, Inc. Annual Report on Form 10-K for the fiscal year 1997, is incorporated herein by this reference)* 10.40 -- NHP Incorporated 1990 Stock Option Plan (Exhibit 10.9 to NHP Incorporated Annual Report on Form 10-K for the fiscal year 1995, is incorporated herein by this reference)* 10.41 -- NHP Incorporated 1995 Incentive Stock Option Plan (Exhibit 10.10 to NHP Incorporated Annual Report on Form 10-K for the fiscal year 1995, is incorporated herein by this reference)* 10.42 -- Form of Incentive Stock Option Agreement (1997 Stock Award and Incentive Plan) (Exhibit 10.42 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference)* 10.43 -- Contribution and Management Agreement, dated as of June 15, 1998, by and between Apartment Investment and Management Company and AIMCO Properties, L.P. (Exhibit 10.2 to Amendment No. 2 to Form 10 of AIMCO Properties, L.P., filed October 28, 1998, is incorporate herein by this reference) 10.44 -- Convertible Promissory Note from AIMCO Properties, L.P. to AIMCO-LP Inc. in the amount of $149,500,000 (Exhibit 10.3 to Amendment No. 2 to Form 10 of AIMCO Properties, L.P., filed October 28, 1998, is incorporated herein by this reference) 21.1 -- List of Subsidiaries (Exhibit 21.1 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 23.1 -- Consent of Ernst & Young LLP 27.1 -- Financial Data Schedule 99.1 -- Agreement re: disclosure of long-term debt instruments
- --------------- (1) Schedules and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request. * Management contract or compensatory plan or arrangement. 39 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 11th day of March, 1999. AIMCO PROPERTIES, L.P. By: AIMCO-GP, Inc., its General Partner /s/ TERRY CONSIDINE ------------------------------------ Terry Considine Chairman of the Board And Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ TERRY CONSIDINE Chairman of the Board and Chief March 11, 1999 - ----------------------------------------------------- Executive Officer Terry Considine /s/ PETER K. KOMPANIEZ Vice Chairman, President and March 11, 1999 - ----------------------------------------------------- Director Peter K. Kompaniez /s/ THOMAS W. TOOMEY Executive Vice President of March 11, 1999 - ----------------------------------------------------- Finance and Administration Thomas W. Toomey /s/ PATRICK FOYE Executive Vice President March 11, 1999 - ----------------------------------------------------- Patrick Foye /s/ TROY D. BUTTS Senior Vice President and Chief March 11, 1999 - ----------------------------------------------------- Financial Officer Troy D. Butts
40 43 INDEX TO FINANCIAL STATEMENTS AIMCO PROPERTIES, L.P.
PAGE ---- FINANCIAL STATEMENTS: Report of Independent Auditors............................ F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997................................................... F-3 Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996....................... F-4 Consolidated Statements of Partners' Capital for the Years Ended December 31, 1998, 1997 and 1996................. F-5 Consolidated Statements of Cash Flow for the Years Ended December 31, 1998, 1997 and 1996....................... F-6 Notes to Consolidated Financial Statements................ F-10 FINANCIAL STATEMENT SCHEDULE: Schedule III -- Real Estate and Accumulated Depreciation........................................... F-35 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
F-1 44 REPORT OF INDEPENDENT AUDITORS The Partners AIMCO Properties, L.P. We have audited the accompanying consolidated balance sheets of AIMCO Properties, L.P. as of December 31, 1998 and 1997, and the related consolidated statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the consolidated financial statement schedule listed in the Index at Item 14(a)(2). 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, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 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. /s/ ERNST & YOUNG LLP Denver, Colorado March 11, 1999 F-2 45 AIMCO PROPERTIES, L.P. CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997 (IN THOUSANDS) ASSETS
1998 1997 ---------- ---------- Real Estate, net of accumulated depreciation of $228,155 and $153,285.................................................. $2,515,710 $1,503,922 Property held for sale...................................... 27,304 6,284 Investments in and notes receivable from unconsolidated subsidiaries.............................................. 198,417 84,459 Investments in and notes receivable from unconsolidated real estate partnerships....................................... 719,185 212,150 IPLP exchange and assumption receivable..................... 346,352 -- Cash and cash equivalents................................... 52,832 37,088 Restricted cash............................................. 53,703 24,229 Goodwill.................................................... 128,658 125,239 Investments in securities................................... -- 22,144 Other assets................................................ 144,603 84,995 ---------- ---------- $4,186,764 $2,100,510 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable....................................... $ 819,331 $ 681,421 Secured tax-exempt bond financing........................... 394,077 74,010 Unsecured short-term financing.............................. 280,300 -- Secured short-term financing................................ 108,022 53,099 ---------- ---------- Total indebtedness................................. 1,601,730 808,530 ---------- ---------- Accounts payable, accrued and other liabilities............. 195,296 88,170 Resident security deposits and prepaid rents................ 12,654 10,213 ---------- ---------- Total liabilities.................................. 1,809,680 906,913 ---------- ---------- Commitments and contingencies............................... -- -- Partnership-obligated mandatory redeemable convertible preferred securities of a subsidiary trust................ 149,500 -- Minority interest........................................... 74,249 36,335 Redeemable partnership common units......................... -- 197,086 Partners' capital Preferred Units........................................... 642,120 134,579 General Partner and Special Limited Partner............... 1,036,002 825,597 Limited Partners.......................................... 500,213 -- ---------- ---------- 2,178,335 960,176 Less: Investment in AIMCO Preferred Stock................. 25,000 -- ---------- ---------- Total partners' capital............................ 2,153,335 960,176 ---------- ---------- $4,186,764 $2,100,510 ========== ==========
See accompanying notes to consolidated financial statements. F-3 46 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER UNIT DATA)
1998 1997 1996 --------- -------- -------- RENTAL PROPERTY OPERATIONS Rental and other property revenues.......................... $ 373,963 $193,006 $100,516 Property operating expenses................................. (145,966) (76,168) (38,400) Owned property management expense........................... (10,882) (6,620) (2,746) Depreciation................................................ (83,908) (37,741) (19,556) --------- -------- -------- Income from property operations............................. 133,207 72,477 39,814 --------- -------- -------- SERVICE COMPANY BUSINESS Management fees and other income............................ 22,675 13,937 8,367 Management and other expenses............................... (16,764) (10,373) (5,560) Partnership overhead allocation............................. (196) (588) (590) --------- -------- -------- Income from service company business........................ 5,715 2,976 2,217 --------- -------- -------- General and administrative expenses......................... (11,418) (5,396) (1,512) Interest expense............................................ (88,208) (51,385) (24,802) Interest income............................................. 29,252 8,676 523 Equity in earnings of unconsolidated subsidiaries........... 12,009 4,636 -- Equity in losses of unconsolidated real estate partnerships.............................................. (2,665) (1,798) -- Loss from IPLP exchange and assumption...................... (2,648) -- -- Minority interest........................................... (1,868) 1,008 (111) Amortization of goodwill.................................... (8,735) (948) (500) --------- -------- -------- Income from operations...................................... 64,641 30,246 15,629 Gain on disposition of properties........................... 4,287 2,720 44 --------- -------- -------- Income before extraordinary item............................ 68,928 32,966 15,673 Extraordinary item -- early extinguishment of debt.......... -- (269) -- --------- -------- -------- Net income.................................................. 68,928 32,697 15,673 Net income attributable to preferred unitholders............ 26,533 2,315 -- --------- -------- -------- Net income attributable to common unitholders............... $ 42,395 $ 30,382 $ 15,673 ========= ======== ======== Comprehensive Income Net income.................................................. $ 68,928 $ 32,697 $ 15,673 Other comprehensive income: Net unrealized gains on investment in securities.......... -- (1,683) -- --------- -------- -------- Comprehensive income........................................ $ 68,928 $ 31,014 $ 15,673 ========= ======== ======== Basic earnings per common unit.............................. $ 0.80 $ 1.09 $ 1.05 ========= ======== ======== Diluted earnings per common unit............................ $ 0.78 $ 1.08 $ 1.04 ========= ======== ======== Weighted average common units outstanding................... 52,798 27,732 14,978 ========= ======== ======== Weighted average common units and common unit equivalents outstanding............................................... 54,104 28,113 14,994 ========= ======== ======== Distributions paid per common unit.......................... $ 2.25 $ 1.85 $ 1.70 ========= ======== ========
See accompanying notes to consolidated financial statements. F-4 47 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
GENERAL PARTNER INVESTMENT AND SPECIAL IN AIMCO LIMITED PREFERRED LIMITED PREFERRED PARTNER UNITS PARTNERS STOCK TOTAL --------------- --------- --------- ---------- ---------- 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 common units.................................. (4,255) -- -- -- (4,255) Common units redeemed by Limited Partners to Special Limited Partner................................................... 3,799 -- -- -- 3,799 Acquisition of real estate or interests in real estate partnerships through issuance of common units............. 15,294 -- -- -- 15,294 Net income.................................................. 12,984 -- -- -- 12,984 Distributions paid to common unitholders.................... (20,736) -- -- -- (20,736) Adjustment to reflect Limited Partners' capital 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) Issuance of common units in connection with NHP merger...... 180,851 -- -- -- 180,851 Common units redeemed by Limited Partners 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 common unitholders.................... (44,660) -- -- -- (44,660) Distributions paid to Class B preferred unitholders......... -- (846) -- -- (846) Unrealized loss on investments.............................. (1,683) -- -- -- (1,683) Adjustment to reflect Limited Partners' capital at redemption value.......................................... (47,837) -- -- -- (47,837) ---------- -------- --------- --------- ---------- PARTNERS' CAPITAL AT DECEMBER 31, 1997...................... 825,597 134,579 -- -- 960,176 Reclassification of Limited Partners' redeemable units as of October 1, 1998........................................... -- -- 232,405 -- 232,405 Contributions from AIMCO related to preferred offerings..... -- 340,897 -- -- 340,897 Exchange of Class J Preferred Units for Class J Preferred Stock of AIMCO............................................ -- 25,000 -- (25,000) -- Contribution from AIMCO related to warrant to purchase AIMCO Class A Common Stock...................................... 4,150 -- -- -- 4,150 Contribution from AIMCO related to stock purchased by officers, net of notes receivable of $23,471.............. 155 -- -- -- 155 Contributions from AIMCO related to options and warrants exercised................................................. 11,015 -- -- -- 11,015 Repurchase of common units.................................. (11,067) -- -- -- (11,067) Issuance of common units in connection with the Ambassador merger.................................................... 251,275 -- -- -- 251,275 Issuance of common units for IPLP exchange and assumption... -- -- 271,638 -- 271,638 Issuance of Class E Preferred Units in connection with Insignia merger........................................... -- 132,515 -- -- 132,515 Common units redeemed by Limited Partners to Special Limited Partner................................................... 5,795 -- (281) -- 5,514 Repayment of notes receivable from officers of AIMCO........ 8,908 -- -- -- 8,908 Acquisition of real estate or interests in real estate partnerships through issuance of common units............. -- 9,000 5,417 -- 14,417 Net Income.................................................. 37,213 26,533 757 -- 64,503 Distributions paid to common unitholders.................... (94,835) -- (3,949) -- (98,784) Distributions paid to preferred unitholders................. -- (26,404) -- -- (26,404) Change in unrealized loss on investments.................... 1,683 -- -- -- 1,683 Adjustment to reflect Limited Partners' capital at redemption value.......................................... (3,887) -- (5,774) -- (9,661) ---------- -------- --------- --------- ---------- PARTNERS' CAPITAL AT DECEMBER 31, 1998...................... $1,036,002 $642,120 $ 500,213 $ (25,000) $2,153,335 ========== ======== ========= ========= ==========
See accompanying notes to consolidated financial statements. F-5 48 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 --------- --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 68,928 $ 32,697 $ 15,673 --------- --------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 100,884 43,520 21,209 Gain on disposition of properties....................... (4,287) (2,720) (44) Minority interest....................................... 1,868 (1,008) 111 Equity in losses of unconsolidated real estate partnerships.......................................... 2,665 1,798 -- Equity in earnings of unconsolidated subsidiaries....... (12,009) (4,636) -- Loss from IPLP exchange and assumption.................. 2,648 -- -- Extraordinary loss on early extinguishment of debt...... -- 269 -- Changes in operating assets and operating liabilities... (16,545) 3,112 1,857 --------- --------- -------- Total adjustments................................... 75,224 40,335 23,133 --------- --------- -------- Net cash provided by operating activities........... 144,152 73,032 38,806 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of real estate.................................. (137,052) (376,315) (26,032) Additions to real estate.................................. (77,245) (26,719) (19,663) Proceeds from sale of property held for sale.............. 36,468 22,095 17,147 Additions to property held for sale....................... (2,339) (247) (5,718) Purchase of NHP common stock, notes receivable, general limited partnership interests and other assets.......... (32,576) (199,146) (53,878) Contributions to unconsolidated subsidiaries.............. (13,032) (59,787) -- Advances to unconsolidated partnerships................... -- (42,879) -- Purchase of/additions to notes receivable................. (81,587) (60,575) -- Proceeds from repayments of notes receivable.............. 29,290 -- -- Cash received in connection with acquisitions............. 4,693 -- -- Cash paid for merger related costs........................ (76,286) -- -- Distributions from investments in real estate partnerships............................................ 1,576 -- -- Purchase of investments held for sale..................... (4,935) (19,881) -- Redemptions of common units............................... (516) -- -- Distributions received from unconsolidated subsidiaries... -- 45,791 -- Cash received from sale of notes receivable............... 11,000 -- -- --------- --------- -------- Net cash used in investing activities............... (342,541) (717,663) (88,144) --------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 102,115 225,436 -- Principal repayments on secured notes payable............. (93,469) (12,512) (28,463) Proceeds from secured tax-exempt bond financing........... 210,720 -- 58,010 Principal repayments on secured tax-exempt bond financing............................................... (224,395) (1,487) (48,703) Proceeds from (payoff of) unsecured short-term financing............................................... -- (12,579) 12,500 Proceeds from secured short-term financing................ 57,140 19,050 30,119 Repayments on secured short-term financing................ (34,333) -- -- Net borrowings (paydowns) on the revolving credit facilities.............................................. (46,262) (162,008) 40,800 Payment of loan costs, including proceeds and costs from interest rate hedges.................................... (7,398) (6,387) (3,464) Proceeds from issuance of common units.................... -- 510,114 28,136 Proceeds from issuances of preferred units................ 340,897 133,110 -- Proceeds from exercises of employee stock options and warrants................................................ 11,015 871 -- Proceeds from partnership preferred units in a subsidiary and warrants to purchase AIMCO Class A Common Stock..... 35,000 -- -- Proceeds from issuance of high performance units.......... 1,988 -- -- Principal repayments received on notes due from officers on common unit purchases................................ 8,951 25,957 -- Repurchase of common units................................ (11,066) (4,255) Payment of distributions to General Partner and Special Limited Partner......................................... (94,835) (44,660) (20,736) Payment of distributions to Limited Partners.............. (12,651) (5,510) (3,815) Payment of preferred unit distributions................... (26,404) (846) -- Payment of distributions to minority interest............. (2,880) -- -- --------- --------- -------- Net cash provided by financing activities........... 214,133 668,549 60,129 --------- --------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS................... 15,744 23,918 10,791 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 37,088 13,170 2,379 --------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 52,832 $ 37,088 $ 13,170 ========= ========= ========
See accompanying notes to consolidated financial statements. F-6 49 AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT SHARE AND PARTNERSHIP UNIT DATA)
1998 1997 1996 ------- ------- ------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid............................................. $90,580 $51,076 $22,869
NON CASH INVESTING AND FINANCING ACTIVITIES PURCHASE OF REAL ESTATE, CASH COLLATERAL AND PROPERTY MANAGEMENT BUSINESSES
1998 1997 1996 -------- -------- ------- Secured notes payable assumed in connection with purchase of real estate............................................... $115,151 $140,451 $31,796 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 common units..................................................... 34,756 55,906 30,573 Real estate purchased in exchange for 90,000 partnership preferred units........................................... 9,000 -- -- Assumption of operating liabilities......................... 857 -- -- Accrual of contingent consideration......................... 4,500 -- --
PURCHASE OF INSIGNIA FINANCIAL GROUP, INC. In October 1998, AIMCO acquired all the common stock of Insignia Financial Group, Inc. in exchange for up to approximately 8.9 million shares of Class E Cumulative Convertible Preferred Stock of AIMCO with a recorded value of approximately $301.2 million. Concurrently with the Insignia merger, AIMCO contributed to the Partnership all the assets and liabilities acquired, except Insignia's interests in Insignia Properties Trust ("IPT"), in exchange for approximately 3.8 million Partnership Common Units ("OP Units") valued at approximately $132.5 million. Also in October 1998, in connection with and following the Insignia Merger, the Partnership purchased from Insignia Properties, L.P., IPT's operating partnership ("IPLP"), the economic interests underlying substantially all the assets of IPLP, excluding certain enumerated assets such as cash (the "IPLP Exchange and Assumption"). In exchange for the economic interests underlying the assets, the Partnership agreed to assume all the obligations of IPLP with respect to such assets and issued to IPLP approximately 10.2 million OP Units (which were assigned a value of approximately $386.2 million). (See Note 4). The aggregate purchase price of Insignia and the value of the IPLP Exchange and Assumption consisted of the following: Investment in unconsolidated real estate partnerships....... $486,247 Investment in unconsolidated subsidiaries................... 68,168 IPLP exchange and assumption receivable..................... 386,161 Other assets................................................ 62,845 Secured short-term financing................................ 301,948 Account payable, accrued and other liabilities.............. 148,303 Mandatory redeemable convertible preferred securities of a subsidiary trust.......................................... 149,500 Partners' capital........................................... 404,153
F-7 50 PURCHASE OF AMBASSADOR APARTMENTS, INC. In May 1998, Apartment Investment and Management Company ("AIMCO"), which owns the General Partner and Special Limited Partner of the Partnership, acquired all of the common stock of Ambassador Apartments, Inc. in exchange for approximately 6.6 million shares of AIMCO Class A Common Stock with a recorded value of $251.3 million. Contemporaneously with the consummation of the Ambassador merger, a subsidiary of the 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. (see Note 4). The aggregate purchase price consisted of the following: Real estate................................................. $713,596 Investment in unconsolidated 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 Secured short-term financing................................ 31,550 Unsecured short-term financing.............................. 2,513 Account payable, accrued and other liabilities.............. 15,199 Resident security deposits and prepaid rents................ 8,898 Minority interest........................................... 5,899 Partners' capital........................................... 251,274
PURCHASE OF NHP AND REAL ESTATE COMPANIES In 1997, the Partnership, individually and through AIMCO, 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 approximately 6.8 million shares of AIMCO Class A Common Stock with a recorded value of $180.9 million, $141.3 million in cash and warrants to purchase 399,999 shares of AIMCO Class A Common Stock 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
RECEIPT OF NOTES PAYABLE FROM OFFICERS In 1998, AIMCO received promissory notes from officers of AIMCO for a total of $23.5 million in connection with their purchase of approximately 600,000 shares of AIMCO Class A Common Stock. The notes receivable were contributed by AIMCO to the Partnership in exchange for approximately 600,000 OP Units. In 1997, AIMCO received promissory notes from officers of AIMCO for a total of $42.6 million in connection with the sale of approximately 1.5 million shares of AIMCO Class A Common Stock. The notes receivable were contributed by AIMCO to the Partnership in exchange for approximately 1.5 million OP Units. F-8 51 OTHER In 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. 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. In 1998, the Partnership obtained control of certain real estate partnerships which became consolidated. The non-cash effects for the year ended December 31, 1998 are as follows: Real estate................................................. $22,089 Investments in and notes receivable from unconsolidated real estate partnerships....................................... 16,683 Secured notes payable....................................... 4,679 Accounts payable, accrued and other liabilities............. 727
During the year ended December 31, 1998, the Partnership contributed certain assets and liabilities to unconsolidated subsidiaries and unconsolidated partnerships as follows: Investment in unconsolidated subsidiaries................... $38,579 Investment in unconsolidated partnerships................... 3,361 Restricted cash............................................. 552 Accounts receivable......................................... 13,972 Other assets................................................ 14,440 Accounts payable, accrued and other liabilities............. 62,011
In 1998, 250,000 shares of Class J Preferred Stock with a value of $25.0 million were contributed by AIMCO to the Partnership in exchange for 250,000 shares of Class J Preferred Units. F-9 52 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998, 1997, AND 1996 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. The Partnership's securities include Partnership Common Units ("OP Units"), Partnership Preferred Units ("Preferred Units"), and High Performance Units (see Note 19). Apartment and Investment Management Company ("AIMCO") is the owner of the General Partner and Special Limited Partner, as defined in the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. (the "Partnership Agreement"), of the Partnership. The General Partner and Special Limited Partner hold OP Units of the Partnership. In addition, AIMCO is the primary holder of all Preferred Units outstanding in the Partnership. The Limited Partners of the Partnership are individuals or entities that own 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 the Partnership to elect to acquire some or all of the OP Units tendered for redemption for cash or in exchange for shares of AIMCO 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 Partnership 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 that 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 the AIMCO 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. Based on apartment unit data complied by the National Multi Housing Council, we believe that, as of December 31, 1998, the Company was the largest owner and manager of multifamily apartment properties in the United States. As of December 31, 1998, the Company owned or managed 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico, as follows: - owned or controlled 61,672 units in 234 apartment properties; - held an equity interest in 171,657 units in 910 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. The Company manages apartment properties for third parties and affiliates through unconsolidated subsidiaries referred to as the "management companies." At December 31, 1998 and 1997, the Partnership had 64,946,583 and 45,802,907 OP Units outstanding, respectively, and 18,563,422 and 3,150,000 Preferred Units outstanding, respectively. F-10 53 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 Company are reflected as Minority Interests. All significant intercompany balances and transactions have been eliminated in consolidation. The assets of property-owning limited partnerships and limited liability companies owned or controlled by the Company are generally not available to pay creditors or secure the obligations of the Company. Investments in and Notes Receivable from Unconsolidated Subsidiaries The Company has investments in numerous subsidiaries. Investments in entities 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 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 Company 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 Company would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. As of December 31, 1998, management believes that no impairments exist based on periodic reviews. No impairment losses were recognized for the years ended December 31, 1998, 1997 and 1996. Expenditures in excess of $250 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 ("ICE") are those costs considered necessary by the Company 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. ICE and capital enhancement costs are capitalized and depreciated over the estimated useful lives of the related assets. F-11 54 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Direct costs associated with the acquisition of ownership or control of 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. Redevelopment The Company capitalizes direct and indirect costs (including interest, taxes and other costs) in connection with the redevelopment of its owned or controlled properties and land under development. Interest of $2.8 million, $1.3 million and $0.8 million was capitalized for the years ended December 31, 1998, 1997 and 1996, respectively. Property Held For Sale Property held for sale is recorded at the lower of carrying amount or fair value less costs to sell. Upon management's determination that a property is to be sold, the Company ceases depreciation of the property's assets. Cash Equivalents The Company 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 Company 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 estimated useful life. The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. Management believes that goodwill is not impaired at December 31, 1998. Other Assets Fees and costs incurred in obtaining financing are capitalized and are included in other assets. Such costs are amortized over the terms of the related loan agreements and are charged to interest expense. Certain 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. Redeemable Partnership Common Units The Partnership accounts for the outstanding OP Units not held by AIMCO as redeemable partnership common units. Prior to October 1, 1998, these OP Units were classified outside of permanent partners' capital in the accompanying financial statements because, in connection with a Limited Partner's right to redeem OP Units for cash, AIMCO had the right to elect to acquire some or all of the OP Units tendered for redemption for cash or in exchange for shares of AIMCO Class A Common Stock, on a one-for-one ratio. Effective October 1, 1998, pursuant to the Partnership Agreement, the right of AIMCO to elect to acquire redeemed OP Units for cash or AIMCO Class A Common Stock became the sole right of the Partnership. As a result, F-12 55 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) subsequent to September 30, 1998, these OP Units held by Limited Partners were classified as permanent partners' capital. The OP Units held by Limited Partners 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 Class A Common Stock on that date (see Note 15). Revenue Recognition The Company's 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. The Company recognizes interest income on notes receivable as earned, in accordance with the terms of the notes. Interest income is not recorded on individual notes receivable if management believes the interest is not collectible. 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. 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 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 stockholders. 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. 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 issuances of additional OP Units if stock options and warrants were exercised or converted into Class A Common Stock of AIMCO. (see Note 17). Fair Value of Financial Instruments The estimated aggregate fair value of the Company's cash and cash equivalents, receivables, payables and short-term secured and unsecured debt as of December 31, 1998 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 Company's secured tax-exempt bond debt and secured long-term debt approximate 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 Company has recognized unrealized losses on investments of $1.7 million as of December 31, 1997, which are included as a component of partners' capital. Due to a reorganization in 1998, Property Asset Management Services, Inc. ("PAMS, Inc."), a subsidiary of the Partnership, is no longer consolidated. All unrealized losses on investments in 1997 were related to PAMS, Inc. There are no unrealized losses on investments at December 31, 1998. F-13 56 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest Rate Lock and Interest Rate Swap 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. Reclassifications Certain items included in the 1997 and 1996 consolidated financial statements have been reclassified to conform with the 1998 presentation. Use of Estimates The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates. NOTE 3 REAL ESTATE Real estate at December 31, 1998 and 1997, is as follows (in thousands):
1998 1997 ---------- ---------- Land........................................................ $ 404,868 $ 265,570 Buildings and improvements.................................. 2,338,997 1,391,637 ---------- ---------- 2,743,865 1,657,207 Accumulated depreciation.................................... (228,155) (153,285) ---------- ---------- $2,515,710 $1,503,922 ========== ==========
During the years ended December 31, 1998 and 1997, the Company purchased or acquired control of 82 properties (22,459 units) and 59 properties (17,191 units), respectively, and disposed of four properties (1,468 units) and five properties (916 units), respectively, as described below. The Company directly acquired 30 apartment communities in unrelated transactions during 1998 (not including those acquired in connection with the mergers with Ambassador Apartments, Inc. and Insignia Financial Group, Inc. (see Note 4)). The aggregate consideration paid by the Company of $316.5 million consisted of $96.0 million in cash, 1.2 million OP Units with a total recorded value of $48.2 million, and the assumption of $172.3 million of secured long-term indebtedness. In 1997, as a result of the acquisition of the NHP Real Estate Companies and related tender offers to limited partners, the Company acquired a controlling interest in 15 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 these 15 partnerships was approximately $269.3 million, including the assumption of approximately $212.3 million of mortgage indebtedness. In October 1997, the Company acquired a portfolio of 35 residential apartment properties. 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 incurrence of $139.1 million of new indebtedness secured by the properties. The Company has also budgeted an additional $16.0 million in initial capital expenditures related to these properties. F-14 57 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 1998, the Company sold four apartment properties containing 1,468 units to unaffiliated third parties. Cash proceeds from the sales of approximately $37.5 million were used to repay a portion of the Company's outstanding indebtedness. The Company recognized a gain of approximately $4.3 million on the disposition of these four properties. During 1997, the Company sold five apartment properties containing 916 units to unaffiliated third parties. Cash proceeds from the sales of approximately $22.7 million were used to repay a portion of the Company's outstanding indebtedness. The Company recognized a gain of approximately $2.8 million on the disposition of these five properties. NOTE 4 MERGERS Ambassador Merger On May 8, 1998, Ambassador was merged with and into AIMCO, with AIMCO being the surviving corporation. The merger was accounted for as a purchase. The purchase price of $713.6 million was comprised of $90.3 million in cash, $372.0 million of assumed debt and approximately 6.6 million shares of AIMCO Class A Common Stock valued at $251.3 million. Pursuant to the Ambassador merger agreement, each outstanding share of Ambassador common stock not owned by AIMCO was converted into the right to receive 0.553 shares of AIMCO Class A Common Stock. 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 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. Prior to its acquisition by AIMCO, 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 merger was accounted for as a purchase. The purchase price of $1,125.7 million was comprised of the issuance of up to approximately 8.9 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 mandatory redeemable convertible preferred securities, and $4.9 million in cash. The Class E Preferred Stock entitled the holders thereof to receive the same cash dividends per share as holders of AIMCO Class A Common Stock. On January 15, 1999, holders of Class E Preferred Stock received 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 AIMCO 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"). F-15 58 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concurrently with the Insignia merger, AIMCO contributed to the Partnership all the assets and liabilities acquired, except Insignia's interests in IPT, in exchange for approximately 3.8 million OP Units valued at approximately $132.5 million and $4.9 million in cash. The assets and liabilities contributed to the Partnership consisted of assets valued at $775.7 million, assumed debt and liabilities of $488.8 million (including the $50 million special dividend and transaction costs) and $149.5 million in assumed mandatory redeemable convertible preferred securities. Also on October 1, 1998, in connection with and following the Insignia merger, the Partnership purchased from IPLP the economic interests underlying substantially all the assets of IPLP, excluding certain enumerated assets such as cash (the "IPLP Exchange and Assumption"). In exchange for the economic interests underlying the assets, the Partnership agreed to assume all the obligations of IPLP with respect to such assets and issued to IPLP approximately 10.2 million OP Units (which were assigned a value of approximately $386.2 million). The Company records income or loss from the assets and liabilities subject to the IPLP Exchange and Assumption. Effective February 26, 1999, upon completion of the merger with IPT (described below), IPLP and the Partnership unwound the IPLP Exchange and Assumption. IPT Merger As a result of Insignia merger, AIMCO acquired approximately 51% of the outstanding shares of beneficial interest of IPT. On February 26, 1999, IPT was merged with and into AIMCO, with AIMCO being the surviving corporation (see Note 24). NOTE 5 INVESTMENTS IN AND NOTES RECEIVABLE FROM UNCONSOLIDATED SUBSIDIARIES In order to satisfy certain requirements of the Internal Revenue Code applicable to AIMCO's status as a REIT, certain assets of the Company are held through corporations in which the Company 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 Company accounts for its interest in the unconsolidated subsidiaries using the equity method. As of December 31, 1998, the unconsolidated subsidiaries included AIMCO/NHP Holdings, Inc. ("ANHI"), AIMCO/NHP Properties, Inc. ("ANPI"), NHP Management Company ("NHPMC"), and NHP A&R Services, Inc. ("NHPA&R"). In May and September of 1997, AIMCO acquired an aggregate of approximately 6.9 million 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 AIMCO Class A Common Stock or (ii) at the stockholder's option, 0.37383 shares of AIMCO Class A Common Stock and $10.00 in cash. As a result of the NHP Merger, AIMCO issued approximately 6.8 million shares of AIMCO Class A Common Stock, valued at $180.9 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 purchase of NHP and Insignia, the Company acquired NHP's and Insignia's property management businesses, as well as several other businesses, including a membership purchasing organization, home health care services, and insurance services. Immediately following both the NHP merger and the Insignia merger, the Company completed reorganizations which resulted in those businesses being conducted by unconsolidated subsidiaries. As of December 31, 1998 and 1997, the Company's investment in and notes receivable from unconsolidated subsidiaries totaled $198.4 million and $84.5 million, respectively, which consisted of $114.0 million and F-16 59 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $50.0 million, respectively, in notes receivable, advances of $20.4 million in 1998, and $64.0 million and $34.5 million, respectively, in preferred stock of the unconsolidated subsidiaries. The following table provides selected combined financial information for the Company's unconsolidated subsidiaries as of and for the years ended December 31, 1998 and 1997 (in thousands):
1998 1997 -------- -------- Management contracts........................................ $122,291 $ 51,441 Goodwill.................................................... 42,889 45,494 Total assets................................................ 236,976 119,936 Total liabilities........................................... 169,560 83,663 Stockholders' equity........................................ 67,416 36,273 Total liabilities and stockholders' equity.................. 236,976 119,936 Service company revenues.................................... 100,308 23,776 Service company expenses.................................... (70,771) (11,733) Interest expense............................................ (7,699) (2,902) Net income before discontinued operations................... 12,641 3,430 Net income.................................................. 12,641 3,636
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 in excess of 82,000 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 it controlled to AIMCO/NHP Partners, L.P. ("ANPLP"), a partnership in which the Company owns a 99% limited partnership interest. A limited liability company owned by certain officers of the Company is the 1% general partner of ANPLP. Based on the provisions of the partnership agreement for ANPLP, the Company does not possess control of the partnership. In connection with the Insignia merger, the Company acquired an approximately 30% limited partner interest in IPLP, which is unconsolidated (see Note 4). IPLP owns general and limited partnership interests in partnerships. During 1998 and 1997, the Company has made separate offers to the limited partners of approximately 280 partnerships to acquire their limited partnership interests. The Company paid approximately $41.0 million and $59 million during 1998 and 1997, respectively, in connection with such tender offers. At December 31, 1998 and 1997, the Company's investment in and notes receivable from unconsolidated real estate partnerships totaled $719.2 million and $212.1 million, respectively. F-17 60 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table provides selected combined financial information for the Company's unconsolidated partnerships as of and for the years ended December 31, 1998 and 1997 (in thousands):
1998 1997 ---------- ---------- Real estate, net of accumulated depreciation................ $3,744,132 $2,252,702 Total assets................................................ 4,907,242 2,707,328 Secured notes payable....................................... 3,293,295 2,951,989 Partners' capital (deficit)................................. 905,316 (805,776) Total liabilities and partners' capital (deficit)........... 4,907,242 2,707,328 Rental and other property revenues.......................... 879,154 501,384 Property operating expenses................................. (526,980) (303,547) Depreciation expense........................................ (151,972) (63,384) Interest expense............................................ (221,380) (154,027) Net loss before gain on disposition of properties........... (10,696) (11,019) Net income (loss)........................................... (10,696) 7,900
NOTE 7 SECURED NOTES PAYABLE The following table summarizes the Company's secured notes payable at December 31, 1998 and 1997, all of which are non-recourse to the Company (in thousands):
1998 1997 -------- -------- Fixed rate, ranging from 5.99% to 8.75%, fully-amortizing notes maturing at various dates through 2032.............. $659,953 $561,056 Fixed rate, ranging from 7.20% to 10.04%, non-amortizing notes maturing at various dates through 2027.............. 153,798 106,424 Floating rate, ranging from 5.0% to 7.1% at December 31, 1998, non-amortizing notes maturing at various dates through 2025.............................................. 5,580 13,941 -------- -------- $819,331 $681,421 ======== ========
As of December 31, 1998, the scheduled principal payments for the Company's secured notes payable are as follows (in thousands): 1999........................................................ $ 26,936 2000........................................................ 40,609 2001........................................................ 34,837 2002........................................................ 81,023 2003........................................................ 47,728 Thereafter.................................................. 588,198 -------- $819,331 ========
NOTE 8 SECURED TAX-EXEMPT BOND FINANCING In December 1998, the Company completed the refinancing of $222 million in variable rate tax-exempt debt assumed in conjunction with the May 1998 merger with Ambassador Apartments, Inc. The debt was secured by 27 properties located in Texas, Arizona, Tennessee and Illinois. Through the refinancing, 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 F-18 61 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) $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. The following table summarizes the Company's secured tax-exempt bond financing at December 31, 1998 and 1997, all of which is non-recourse to the Company (in thousands):
1998 1997 -------- ------- 7.0% fully-amortizing bonds, due July 2016.................. $ 45,237 $46,498 6.9% fully-amortizing bonds, due July 2016.................. 9,267 9,529 Fixed rate fully-amortizing bonds, ranging from 5.1% to 5.8%, due December 2021................................... 159,555 -- Fixed rate fully-amortizing bonds, ranging from 6.5% to 7.3%, due at various dates through 2028................... 78,926 -- Fixed rate non-amortizing bonds, ranging from 5.0% to 6.8%, due at various dates through 2017......................... 55,747 -- 4.2% interest-only bonds, due July 2016..................... -- 5,958 6.0% interest-only bonds, secured by a letter of credit in the amount of $5,350, due September 1998.................. -- 5,325 5.4% interest-only bonds, due December 2002................. -- 6,700 Variable rate bonds, ranging from 4.9% to 5.3%, due December 2021...................................................... 45,345 -- -------- ------- Total............................................. $394,077 $74,010 ======== =======
As of December 31, 1998, the scheduled principal payments for the Company's secured tax-exempt bonds are as follows (in thousands): 1999........................................................ $ 14,408 2000........................................................ 11,978 2001........................................................ 7,702 2002........................................................ 8,132 2003........................................................ 8,610 Thereafter.................................................. 343,247 -------- $394,077 ========
NOTE 9 UNSECURED SHORT-TERM FINANCING In January 1998, AIMCO and the Partnership entered into a new $50 million unsecured credit agreement with Bank of America National Trust and Savings Association and Bank Boston, N.A. The 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 parties 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 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 Partnership, 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. F-19 62 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In October 1998, the 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%. As of December 31, 1998, there was $196 million of indebtedness outstanding under the loan agreement. The following table summarizes the Company's unsecured short-term financing at December 31, 1998 (in thousands):
1998 -------- Floating rate credit facility, interest at 7.30% at December 31, 1998, expiring September 1999......................... $ 84,300 Floating rate interim term loan, interest at 7.30% at December 31, 1998, expiring September 1999................ 196,000 -------- Total............................................. $280,300 ========
At December 31, 1998, the total unused commitments under the Company's unsecured short-term financing arrangements were $15.7 million. At March 11, 1999, $144.8 million remained outstanding on the Company's unsecured short-term financing and unused commitments aggregated $29 million. NOTE 10 SECURED SHORT-TERM FINANCING The Company utilizes a variety of secured short-term financing instruments to manage its working capital needs and to finance real estate investments. In February 1998, the 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 assets including four apartment properties and two mortgage notes. Under the agreement, advances to the 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 Partnership terminated the credit facility agreement (see Note 24). In December 1998, the Company acquired Calhoun Beach Club Apartments for $77.1 million, of which $53.5 million was financed with short-term indebtedness. The debt incurred was in the form of a short-term bridge loan bearing interest at 8.63% and maturing in April 1999. The Company intends to replace the short- term debt with a fixed rate, fully amortizing note in 1999. In January 1998, AIMCO and the Partnership, replaced its secured credit facility with Bank of America National Trust and Savings Association with a new unsecured revolving credit facility (see Note 9). F-20 63 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the Company's secured short-term financing at December 31, 1998 and 1997 (in thousands):
1998 1997 -------- ------- Floating rate credit facility, interest at 5.70% at December 31, 1998, expiring February 2003.......................... $ 50,000 $ -- Floating rate interest-only notes, having a stated interest rate of 8.63% at December 31, 1998, due April 1999........ 53,500 -- Floating rate interest-only notes, having a stated interest rate of 7.62% at December 31, 1998, due March 1999........ 4,522 -- Floating rate credit facility, interest at 7.33% at December 31, 1997, replaced in January 1998........................ -- 33,500 Floating rate interest-only note, repaid February 1998...... -- 19,050 Other....................................................... -- 549 -------- ------- $108,022 $53,099 ======== =======
NOTE 11 COMMITMENTS AND CONTINGENCIES Legal 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. 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. HUD Approval and Enforcement A significant number of affordable units as assets of the Company are subject to regulation by the U.S. Department of Housing and Urban Development ("HUD"). Under its regulations, HUD reserves the right to 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, participation in HUD programs 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 of management of 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 Multi-family Participation Review Committee in Washington, D.C. (the "2530 Committee"). As a result of certain mortgage defaults and unsatisfactory ratings received by NHP in years prior to its acquisition in December 1997 by the Company, HUD believes that the 2530 Committee must review any application for 2530 Clearance filed by the Company. On December 18, 1998, the Company F-21 64 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) received approval of approximately fifty 2530 applications and had no unresolved flags in the 2530 system as of December 31, 1998. In October 1997, NHP received a subpoena from the HUD Inspector General, which requested 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 property management of a HUD project. The Company believes that other owners and managers of HUD projects have received similar subpoenas. Documents provided by the Company to the HUD Inspector General relating to certain NHP acquisitions of property management rights for HUD projects may be 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, affect the Company's ability to receive 2530 Clearances 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 by any HUD office or nationwide for violations of HUD regulatory requirements. The Company believes that the 2530 Committee will continue to apply the 2530 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. 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 would be impaired. Environmental Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances present 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 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 liability for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous or toxic substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of our properties, we could potentially be liable for environmental liabilities or costs associated with our properties or properties we may acquire or manage in the future. Operating Leases The Company is obligated under office space and equipment under noncancelable operating leases. In addition, the Company subleases certain of its office space to tenants under noncancelable subleases. Approximate minimum annual rentals under operating leases and approximate minimum payments to be F-22 65 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) received under annual subleases for the five years ending after December 31, 1998 are as follows (in thousands):
OPERATING LEASE SUBLEASE PAYMENTS PAYMENTS --------------- -------- 1999........................................................ $10,600 $ 2,100 2000........................................................ 10,400 2,100 2001........................................................ 8,800 1,600 2002........................................................ 3,700 -- 2003........................................................ 2,200 -- Thereafter.................................................. 3,000 -- ------- ------- Total....................................................... $38,700 $ 5,800 ======= =======
Under the Company's current operating structure, substantially all of the office space and equipment subject to the operating leases described above are for the use of its regional operating centers, which are operated by certain of the Company's unconsolidated subsidiaries (see Note 5). Rent expense recognized by the unconsolidated subsidiaries totaled $6.2 million in 1998. Rent expense recognized by the Company totaled $0.7 million and $0.6 million in 1997 and 1996, respectively. Sublease income for the unconsolidated subsidiaries for 1998 was approximately $2.7 million. There was no sublease income for 1997 and 1996. NOTE 12 TRUST BASED CONVERTIBLE PREFERRED SECURITIES In connection with the Insignia merger, the Company assumed the obligations under the Trust Based Convertible Preferred Securities (the "Securities") with an aggregate liquidation amount of $149.5 million. The Securities will mature on September 30, 2016 and require distributions at the rate of 6.5% per annum, with quarterly distributions payable in arrears. The Securities are convertible by the holders at any time through September 30, 2016 and may be redeemed by the Company on or after November 1, 1999. Each $50 of liquidation value of the Securities can be converted into AIMCO Class A Common Stock at a conversion price of $49.61, which equates to 1.007 shares of AIMCO Class A Common Stock. Upon conversion of the Securities into AIMCO Class A Common Stock, the Partnership will issue OP Units to AIMCO on a one-for one-ratio. NOTE 13 TRANSACTIONS INVOLVING MINORITY INTERESTS On December 14, 1998, the Company sold, in a private placement, 1.4 million Class B partnership preferred units of a subsidiary of the Partnership for $30.85 million. The partnership preferred units may be redeemed at the option of the holders at any time, and at the option of the Company under certain circumstances. Any redemption of the units may be satisfied by delivery of cash, AIMCO Class A Common Stock or OP Units. NOTE 14 REGISTRATION STATEMENTS In April 1997, AIMCO filed a shelf registration statement with the Securities and Exchange Commission ("SEC") which provides for the offering of, on a delayed or continuous basis, debt securities, AIMCO Class A Common Stock, preferred stock and warrants with an aggregate value of up to $1.0 billion. The shelf registration statement was declared effective in May 1997. In August 1998, AIMCO and the Partnership filed a shelf registration statement with the Securities and Exchange Commission with respect to an aggregate of $1,268 million of debt and equity securities of AIMCO (of which $268 million was carried forward from AIMCO's 1997 shelf registration statement) and $500 million of debt securities of the Partnership. The registration statement was declared effective by the SEC on December 10, 1998. As of December 31, 1998, AIMCO had $1,268 million available and the F-23 66 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Partnership had $500 million available from this registration statement. The Company expects to finance pending acquisitions of real estate interests with the issuance of equity and debt securities under the shelf registration statement. NOTE 15 PARTNERS' CAPITAL Preferred Units All classes of Preferred Units, except the Class E Cumulative Convertible Preferred Units (the "Class E Preferred Units"), are on equal parity and are senior to the Class E Preferred Units and OP Units. The Class E Preferred Units are senior to the OP Units. None of the classes of Preferred Units have any voting rights, except the right to approve certain changes to the Partnership Agreement that would adversely affect holders of such class of units. Holders of the Class B Cumulative Convertible Preferred Units (the "Class B Preferred Units") are entitled to receive, when, as and if declared by the General Partner, quarterly cash distributions per share equal to the greater of $1.78125 or the cash distributions declared on the number of OP Units into which one Class B Preferred Unit is convertible. Each Class B Preferred Unit is convertible at the option of the holder, beginning August 1998, into 3.28407 OP Units, subject to certain anti-dilution adjustments. Holders of Class C, D, G and H Preferred Units are entitled to receive, when, as and if declared by the Board of Directors of the General Partner, distributions at the following rates per annum: Class C Cumulative Preferred Units.......................... 9.000% Class D Cumulative Preferred Units.......................... 8.750% Class G Cumulative Preferred Units.......................... 9.375% Class H Cumulative Preferred Units.......................... 9.500%
Holders of Class J Cumulative Convertible Preferred Units (the "Class J Preferred Units") are entitled to receive cash distributions at the rate of 7% per annum of the $100 liquidation preference (equivalent to $7 per annum per unit) for the period beginning on November 6, 1998 and lasting until November 15, 1998, 8% per annum of the $100 liquidation preference(equivalent to $8 per annum per unit) for the period beginning on and including November 15, 1998 and lasting until November 15, 1999, 9% per annum of the $100 liquidation preference (equivalent to $9 per annum per unit) for the period beginning on and including November 15, 1999 and lasting until November 15, 2000, and 9 1/2% per annum of the $100 liquidation preference (equivalent to $9.50 per annum per unit) thereafter. The Company may convert any or all of the Class J Preferred Units into OP units at a conversion rate of 2.5 OP Units for each Class J Preferred Unit, plus unpaid distributions accrued on the units redeemed (a) on or after November 6, 2002, if the market price of the AIMCO Class A Common Stock in the five most recent trading days, as defined, 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, as defined, exceeds 12.5%. In connection with the acquisition of Calhoun Beach Club, the Company issued 90,000 Preferred Units, with an initial liquidation value of $9.0 million. Holders of these Preferred Units are entitled to receive, when and as declared by the General Partner, cash distributions at the rate of 8% per annum. After December 30, 1999, a holder of these Preferred Units may redeem these Preferred Units, at the option of the Company, for cash or shares of AIMCO Class A Common Stock. The Class E Preferred Units were issued in connection with the Insignia merger. Holders of Class E Preferred Units were entitled to receive the same cash distributions per unit as holders of OP Units. In addition, on January 15, 1999, holders of Class E Preferred Units received a special dividend in an aggregate F-24 67 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) amount of approximately $50 million, and all outstanding Class E Preferred Units automatically converted into an equal number of OP Units. OP Units OP Units are redeemable by OP Unitholders (other than the General Partner and Special Limited Partner) at their option, subject to certain restrictions, on the basis of one OP Unit for either one share of AIMCO Class A Common Stock or cash equal to the fair value of a share of AIMCO Class A Common Stock at the time of redemption. The Company has the option to deliver shares of AIMCO Class A Common Stock in exchange for all or any portion of the cash requested. When a Limited Partner redeems an OP Unit for AIMCO Class A Common Stock, Limited Partner's capital is reduced and the Special Limited Partners' capital is increased. OP Units held by AIMCO are not redeemable. During 1998 and 1997, AIMCO sold approximately 600,000 and 1,149,900 shares, respectively, of AIMCO Class A Common Stock to certain of AIMCO's executive officers (or entities controlled by them) at market prices. In exchange for the shares purchased, the executive officers (or entities controlled by them) executed notes payable to AIMCO totaling $23.5 million and $33.5 million, respectively. The notes were contributed by AIMCO to the Partnership in exchange for approximately 600,000 and 1,149,900 OP Units, respectively. Total payments on such notes from officers in 1998 and 1997 were $8.9 million and $14.5 million, respectively. In addition, in 1998, the Partnership issued 40,000 OP Units to AIMCO and AIMCO issued approximately 40,000 shares of AIMCO Class A Common Stock to certain of AIMCO's executive officers. In connection with acquisitions of real estate and interests in real estate partnerships, the Company issued a total of approximately 1.2 million OP Units with a recorded value of approximately $38.8 million and 90,000 Preferred Units with a recorded value of $9.0 million during 1998 and approximately 1.9 million OP Units with a recorded value of approximately $63.4 million during 1997. The outstanding OP Units, excluding those OP Units held by AIMCO, have been classified as redeemable partnership common units. Prior to October 1, 1998, these OP Units were classified outside of permanent partners' capital in the accompanying financial statements because, in connection with a Limited Partner's right to redeem OP Units for cash, AIMCO had the right to elect to acquire some or all of the OP Units tendered for redemption for cash or in exchange for shares of AIMCO Class A Common Stock, on a one-for-one ratio. Effective October 1, 1998, pursuant to the Partnership Agreement, the right of AIMCO to elect to acquire redeemed OP Units for cash or AIMCO Class A Common Stock became the sole right of the Partnership. As a result, subsequent to September 30, 1998, these OP Units held by Limited Partners were classified as permanent partners' capital. The OP Units held by Limited Partners 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 Class A Common Stock on that date, multiplied by the total number of outstanding OP Units held by Limited Partners. F-25 68 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the changes in redeemable OP Units held by Limited Partners through September 30, 1998, after which date they were classified as permanent partners' capital:
LIMITED PARTNERS -------- Redeemable OP Units at December 31, 1995.................... $ 38,463 OP Units redeemed by Limited Partners to Special Limited Partner................................................ (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 Unitholders...................... (3,815) Adjustment to reflect Limited Partners' capital at redemption value....................................... 29,202 -------- Redeemable OP Units at December 31, 1996.................... 96,064 OP Units redeemed by Limited Partners to Special Limited Partner................................................ (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 Unitholders...................... (5,510) Adjustment to reflect Limited Partners' capital at redemption value....................................... 47,837 -------- Redeemable OP Units at December 31, 1997.................... 197,086 OP Units redeemed by Limited Partners to Special Limited Partner................................................ (5,514) Acquisition of real estate or interests in real estate partnerships through issuance of OP Units.............. 33,384 Issuance of High Performance Units........................ 2,070 OP Units redeemed by Limited Partners for cash............ (516) Issuance of OP Units in connection with Ambassador merger................................................. 146 Net income................................................ 4,425 Distributions paid to OP Unitholders...................... (8,702) Other..................................................... 365 Adjustment to reflect Limited Partners' capital at redemption value....................................... 9,661 -------- Redeemable OP Units at September 30, 1998................... $232,405 ========
Investment in AIMCO Preferred Stock In November 1998, AIMCO issued 1 million shares of Class J Preferred Stock for proceeds of $100.0 million. The proceeds were contributed by AIMCO to the Partnership in exchange for 1 million Class J Preferred Units. Concurrently, the Partnership issued 250,000 Class J Preferred Units valued at $25.0 million to AIMCO, in exchange for 250,000 shares of Class J Preferred Stock. The investment in AIMCO's preferred stock is presented in the accompanying financial statements as a reduction to partners' capital. 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 shares of AIMCO 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. F-26 69 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 and warrants. Under APB 25, because the exercise price of AIMCO's employee stock options and warrants equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The AIMCO Board of Directors has adopted the 1994 Stock Option Plan of Apartment Investment and Management Company (the "1994 Plan"), the Apartment Investment and Management Company 1996 Stock Award and Incentive Plan (the "1996 Plan"), the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (the "1997 Plan") and the Apartment Investment and Management Company Non-Qualified Employee Stock Option Plan (the "Non-Qualified Plan") to attract and retain officers, key employees and independent directors. The 1994 Plan provides for the granting of a maximum of 150,000 options to purchase common shares. The 1996 Plan provides for the granting of a maximum of 500,000 options to purchase common shares. The 1997 Plan provides for the granting of a maximum of 20,000,000 options to purchase common shares. The Non-Qualified Plan provides for the granting of a maximum of 500,000 options to purchase common shares. The 1994 Plan, the 1996 Plan, the 1997 Plan and the Non-Qualified Plan allow for the grant of incentive and non-qualified stock options, and are administered by the Compensation Committee of the Board of Directors of AIMCO. 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 of AIMCO 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 options vest over a one to five-year period from the date of grant. Terms may be modified at the discretion of the Compensation Committee of the Board of Directors of AIMCO. 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 and warrants granted subsequent to December 31, 1994 under the fair value method. The fair value for these options and warrants were estimated at the date of grant using a Black-Scholes valuation model with the following weighted average assumptions:
1998 1997 1996 ------------ ------------ ------------ Range of risk free interest rates.......... 5.2% to 7.5% 5.2% to 7.5% 5.2% to 7.5% Expected dividend yield.................... 6.0% 6.0% 7.8% Volatility factor of the expected market price of the Company's common stock...... 0.183 0.175 0.194 Weighted average expected life of options.................................. 4.5 years 4.5 years 4.5 years
The Black-Scholes valuation model was developed for use in estimating the fair value of traded options and warrants which have no vesting restrictions and are fully transferable. In addition, the valuation model requires the input of highly subjective assumptions including the expected stock price volatility. Because the AIMCO stock options and warrants have characteristics significantly different from those of traded options and warrants, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing model does not necessarily provide a reliable single measure of the fair value of its employee stock options and warrants. F-27 70 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For purposes of pro forma disclosures, the estimated fair values of the options are amortized over the options' vesting period. AIMCO's pro forma information for the years ended December 31, 1998, 1997 and 1996 is as follows (in thousands, except per share information):
1998 1997 1996 ------- ------- ------- Pro forma income attributable to common stockholders.... $34,443 $26,096 $12,201 Pro forma basic earnings per common share............... $ 0.76 $ 1.00 $ 0.98 Pro forma diluted earnings per common share............. $ 0.75 $ 1.00 $ 0.98
The effects of applying SFAS 123 in calculating pro forma income attributable to common stockholders and pro forma basic earnings per share may not necessarily be indicative of the effects of applying SFAS 123 to future years' earnings. The following table summarizes the option and warrants activity for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 -------------------- -------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED OPTIONS AVERAGE OPTIONS AVERAGE OPTIONS AVERAGE AND EXERCISE AND EXERCISE AND EXERCISE WARRANTS PRICE WARRANTS PRICE WARRANTS PRICE --------- -------- --------- -------- -------- -------- Outstanding at beginning of year...................... 1,184,000 $30.01 505,000 $20.74 108,000 $18.00 Granted............................................... 5,578,000 38.91 127,000 30.88 422,600 20.75 Assumed in connection with acquisitions............... 671,000 25.99 995,000 26.75 -- -- Exercised............................................. (647,000) 19.88 (437,000) 18.11 (2,600) 18.50 Forfeited............................................. (50,000) 20.25 (6,000) 18.50 (23,000) 17.50 --------- ------ --------- ------ ------- ------ Outstanding at end of year............................ 6,736,000 $37.82 1,184,000 $30.01 505,000 $20.74 Exercisable at end of year............................ 1,293,000 $25.19 690,000 $19.95 425,000 $20.25 Weighted-average fair value of options and warrants granted during the year............................. $ 3.71 $ 3.24 $ 1.01
At December 31, 1998, exercise prices for outstanding and exercisable options range from $12.36 to $43.85 and warrants range from $3.96 to $51.67, and the remaining weighted-average contractual life of the options and warrants is 9.06 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. On December 2, 1997, AIMCO issued warrants (the "Oxford Warrants") exercisable to purchase up to an aggregate of 500,000 shares of AIMCO Class A Common Stock at $41 per share. The Oxford Warrants were issued to affiliates of Oxford Realty Financial Group, Inc., a Maryland corporation ("Oxford"), in connection with the amendment of certain agreements pursuant to which the Company manages properties controlled by Oxford or its affiliates. The actual number of shares of AIMCO 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 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. In connection with the Insignia merger, AIMCO assumed warrants that will allow the holders to purchase shares of AIMCO Class A Common Stock at prices ranging from approximately $4 to $52 per share at any time prior to September 30, 1999. At December 31, 1998, warrants representing approximately 359,000 shares were available for exercise. On December 14, 1998, AIMCO sold, in a private placement, a warrant to purchase 875,000 shares of AIMCO Class A Common Stock for $4.15 million. The warrant has an exercise price of $40 per share. The F-28 71 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) warrant may be exercised at any time, and expires upon a redemption of the Class B partnership preferred units (see Note 13). 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 Class A Common Stock or cash equal to the fair market value thereof at the time of such redemption, at the option of the Company, the Company applies the requirements of SFAS 128 to its calculation of its per OP Unit information. As required, the Company adopted SFAS 128 as of December 31, 1997 and restated earnings per share information for prior interim and annual periods. The Class B Preferred Units, Class E Preferred Units and the Class J Preferred Units are convertible (see Note 15). The Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, and the Class H Preferred Units are not convertible. The following table illustrates the calculation of basic and diluted earnings per common unit for the years ended December 31, 1998, 1997 and 1996 (in thousands, except per common unit data):
1998 1997 1996 -------- -------- -------- Numerator: Net income.................................................. $ 68,928 $ 32,697 $ 15,673 Preferred Unit distributions................................ (26,533) (2,315) -- -------- -------- -------- Numerator for basic and diluted earnings per common unit -- income attributable to common unitholders......... $ 42,395 $ 30,382 $ 15,673 ======== ======== ======== Denominator: Denominator for basic earnings per common unit -- weighted average number of common units outstanding................ 52,798 27,732 14,978 Effect of dilutive securities: Class E Preferred Units..................................... 981 -- -- Employee options............................................ 325 381 14 Warrants.................................................... -- -- 2 -------- -------- -------- Dilutive potential common unit.............................. 1,306 381 16 -------- -------- -------- Denominator for diluted earnings per common unit............ 54,104 28,113 14,994 ======== ======== ======== Basic earnings per common unit: Operations................................................ $ 0.72 $ 0.99 $ 1.05 Gain on disposition of properties......................... 0.08 0.11 -- Extraordinary item........................................ -- (0.01) -- -------- -------- -------- Total............................................. $ 0.80 $ 1.09 $ 1.05 ======== ======== ======== Diluted earnings per common unit: Operations................................................ $ 0.70 $ 0.98 $ 1.04 Gain on dispositions of properties........................ 0.08 0.11 -- Extraordinary item........................................ -- (0.01) -- -------- -------- -------- Total............................................. $ 0.78 $ 1.08 $ 1.04 ======== ======== ========
F-29 72 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 18 RECENT ACCOUNTING DEVELOPMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("Statement 133"). Statement 133 requires recording all derivative instruments as assets or liabilities, measured at fair value. Statement 133 is effective beginning after 1999. The Company has elected not to early adopt the provisions of Statement 133 as of December 31, 1998 and when Statement 133 is adopted, the Partnership does not expect the Statement to have a significant impact on its financial position or results of operations. NOTE 19 TRANSACTIONS WITH AFFILIATES In January 1998, the Partnership sold an aggregate of 15,000 High Performance Units (the "High Performance Units") to a joint venture formed by fourteen members of AIMCO's senior management, and to three of AIMCO's independent directors for $2.1 million in cash. The High Performance Units have nominal value unless AIMCO's total return, 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 AIMCO's Total Return satisfies these criteria, the holders of the High Performance Units will receive distributions and allocations of income and loss from the Partnership in the same amounts and at the same times as would holders of a number of OP Units equal to the quotient obtained by dividing the product of (i)(a) 15% of the amount by which AIMCO's cumulative Total Return over the three year period exceeds the greater of 115% of a peer group index or 30% (such excess being the "Excess Return"), multiplied by (b) the weighted average market value of the outstanding AIMCO Class A Common Stock and OP Units, by (ii) the market value of one share of AIMCO 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 AIMCO. Unlike OP Units, the High Performance Units are not redeemable or convertible into AIMCO Class A Common Stock unless a change of control of AIMCO 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 Company has not recorded any value to the High Performance Units in excess of to the cash received upon their issuance (recorded as Limited Partners' capital). If the measurement period had ended December 31, 1998, the Excess Return would have been $0 and the value of the High Performance Units would have been $0, and such High Performance Units would have had no dilutive effect on net income per OP Unit. Interest income earned on notes receivable from affiliates for the year ended December 31, 1998 was $26.1 million. Fees earned based on services provided by the Company, as general partner, to real estate partnerships for customary services including refinancing, construction supervisory and disposition fees for the year ended December 31, 1998 were $6.4 million. Interest income on notes receivable from affiliates and fees earned by the Company for the years ended December 31, 1997 and 1996 were not significant. NOTE 20 EMPLOYEE BENEFIT PLANS The Company offers medical, dental, life and long-term disability benefits to employees of the Company 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 Company also participates in a 401(k) defined-contribution employee savings plan. Employees who have completed six months of service are eligible to participate. The Company matches 50% of the participant's contributions to the plan up to a maximum of 6% of the participant's prior year compensation. F-30 73 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 21 UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION Summarized unaudited consolidated quarterly information for 1998 and 1997 is provided below (amounts in thousands, except per unit amounts).
QUARTER --------------------------------------- YEAR ENDED DECEMBER 31, 1998 FIRST SECOND THIRD FOURTH - ---------------------------- ------- ------- -------- -------- Revenue from property operations..................... $71,336 $89,928 $104,436 $108,263 Income from property operations...................... 28,918 33,701 33,943 36,645 Revenue from service company business................ 4,821 4,741 4,406 8,707 Company's share of income from service company business........................................... 992 1,183 1,775 47 Net income before extraordinary item................. 23,930 14,594 17,745 12,659 Net income........................................... 23,930 14,594 17,745 12,659 Basic earnings per common unit....................... $ 0.44 $ 0.19 $ 0.19 $ 0.04 Diluted earnings per common unit..................... $ 0.43 $ 0.19 $ 0.19 $ 0.04 Weighted average common units outstanding............ 46,508 51,159 52,896 60,523 Weighted average common units and common unit equivalents outstanding............................ 46,605 51,400 53,523 64,890
QUARTER --------------------------------------- YEAR ENDED DECEMBER 31, 1997 FIRST SECOND THIRD FOURTH - ---------------------------- ------- ------- -------- -------- Revenue from property operations..................... $38,040 $41,679 $ 47,364 $ 65,923 Income from property operations...................... 14,808 15,971 17,375 24,323 Revenue from service company business................ 2,444 3,161 3,568 4,764 Company's share of income from service company business........................................... 551 1,717 1,010 (776) Net income before extraordinary item................. 5,694 6,039 7,963 13,270 Net income........................................... 5,425 6,039 7,963 13,270 Basic earnings per common unit....................... $ 0.28 $ 0.26 $ 0.25 $ 0.30 Diluted earnings per common unit..................... $ 0.28 $ 0.26 $ 0.25 $ 0.29 Weighted average common units outstanding............ 19,494 23,387 27,969 39,852 Weighted average common units and common unit equivalents outstanding............................ 19,626 23,525 28,154 40,271
NOTE 22 INDUSTRY SEGMENTS The Company adopted Financial Accounting Standards Board ("FASB") Statement No. 131, Disclosures about Segments of an Enterprise and Related Information ("Statement 131") in the fourth quarter of 1998. Statement No. 131 superseded FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise. Statement 131 establishes standards for the way public business enterprises report information regarding reportable operating segments. The adoption of Statement 131 did not affect the results of operations or financial position of the Company. The Company owns and operates multi-family apartment communities throughout the United States and Puerto Rico which generated rental and other property related income through the leasing of apartment units to a diverse base of tenants. The Company separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single apartment communities segment. All segment disclosures are included in or can be derived from the Partnership's consolidated financial statements. F-31 74 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) All revenues are from external customers and no revenues are generated from transactions with other segments. There are no tenants which contributed 10% or more of the Partnership's total revenues during 1998, 1997 or 1996. NOTE 23 PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) The unaudited pro forma condensed consolidated statements of operations for the years ended December 31, 1998 and 1997 have been prepared as if each of the following transactions had occurred on January 1, 1997: (i) the NHP stock purchases and the NHP Merger (see Note 5); (ii) the acquisition of the NHP Real Estate Companies (see Note 6); (iii) a reorganization of the interests held by the NHP Real Estate Companies (see Note 5); (iv) the (a) 1997 property acquisitions, (b) the acquisition of the Controlled NHP Partnerships and (c) the acquisition of the Winthrop Portfolio, the related issuance of AIMCO Class A Common Stock and OP Units, the incurrence of indebtedness to finance such acquisitions, and the refinancing of such indebtedness; (v) the 1998 property acquisitions; (vi) the 1998 property dispositions; (vii) the sale of (a) 2,015,000 shares of AIMCO Class A Common Stock in February 1997, (b) 2,300,000 shares of AIMCO Class A Common Stock in May 1997, (c) 5,052,418 shares of AIMCO Class A Common Stock in August and September 1997, and (d) 7,000,000 shares of AIMCO Class A Common Stock in October 1997, and the contribution by AIMCO to the Partnership of such net proceeds thereof and the application of the aggregate net proceeds thereof to repay indebtedness and fund the purchase of additional shares of NHP common stock; (viii) the sale of 750,000 shares of AIMCO Class B Preferred Stock in August 1997, and the contribution by AIMCO to the Partnership of such net proceeds thereof and the application of the net proceeds thereof to repay indebtedness; (ix) the sale of 2,400,000 shares of AIMCO Class C Preferred Stock in December 1997 and the contribution by AIMCO to the Partnership of such net proceeds thereof and the application of the net proceeds thereof to pay indebtedness; (x) the sale of 4,200,000 shares of AIMCO Class D Cumulative Preferred Stock and the contribution by AIMCO to the Partnership of such net proceeds thereof and the application of the net proceeds thereof to pay indebtedness; (xi) the sale of 4,050,000 shares of AIMCO Class G Cumulative Preferred Stock and the contribution by AIMCO to the Partnership of such net proceeds thereof and the application of the net proceeds thereof to pay indebtedness; (xii) the sale of 2,000,000 shares of AIMCO Class H Cumulative Preferred Stock and the contribution by AIMCO to the Partnership of such net proceeds thereof and the application of the net proceeds thereof to pay indebtedness; (xiii) the sale of 1,000,000 shares of AIMCO Class J Cumulative Convertible Preferred Stock and the contribution by AIMCO to the Partnership of such net proceeds thereof and the application of the net proceeds thereof to repay indebtedness; (xiv) the Company's receipt of a dividend from ANHI from proceeds ANHI received from ANHI stock transfers; (xv) the Ambassador Merger (Note 4); (xvi) the purchase of third-party notes payable secured by four properties in which the NHP Real Estate Companies own an interest, and the conversion of such notes payable into loans from the general partner; (xvii) the purchase of land leased by two partnerships in which the NHP Real Estate Companies own an interest; (xviii) the Insignia merger (Note 4); and (xix) the IPLP Exchange and Assumption (Note 4). F-32 75 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The pro forma information is 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 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
1998 1997 -------- -------- Income from property operations............................. $150,069 $137,404 -------- -------- Company's share of loss from service company business....... (2,590) (12,628) -------- -------- Net income.................................................. $ 44,327 $ (776) ======== ======== Net income attributable to preferred unitholders............ $ 40,994 $ 41,174 ======== ======== Net income (loss) attributable to common unitholders........ $ 3,333 $(41,950) ======== ======== Basic earnings (loss) per common unit....................... $ 0.05 $ (0.66) Diluted earnings (loss) per common unit..................... $ 0.05 $ (0.66) Weighted average number of common units outstanding......... 65,561 63,935 Weighted average number of common units and common unit equivalents outstanding................................... 66,226 64,779
NOTE 24 SUBSEQUENT EVENTS Distribution Declared The General Partner declared a one-time special cash distribution of $5.582 per Class E Preferred Unit, paid on January 15, 1999 to holders of record on December 31, 1998. Upon payment of this special cash distribution totaling approximately $50 million in the aggregate, each Class E Preferred Unit was automatically converted into one OP Unit. On January 20, 1999, the General Partner declared a quarterly cash distribution of $0.625 per OP Unit for the quarter ended December 31, 1998, paid on February 12, 1999, to OP Unitholders of record on February 5, 1999. The increased distribution is equivalent to an annualized distribution rate of $2.50 per OP Unit, an 11% increase from the previous annual distribution rate of $2.25. Stock Offering On February 18, 1999, AIMCO issued 5,000,000 shares of newly created Class K Convertible Cumulative Preferred Stock, par value $.01 per share ("Class K Preferred Stock") in a public offering. The net proceeds of $120.6 million were contributed by AIMCO to the Partnership in exchange for 5,000,000 Class K Preferred Units and were used to repay certain indebtedness and for working capital. For three years, holders of the Class K Preferred Stock (which mirror those of the Class K Preferred Units) are entitled to receive, when, as and if declared by the Board of Directors and AIMCO, as General Partner, annual cash distributions in an amount per OP Unit equal to the greater of (i) $2.00 per year (equivalent to 8% of the liquidation preference), or (ii) the cash distributions payable on the number of shares of OP Units into which a Class K Preferred Unit is convertible. Beginning with the third anniversary of the date of original issuance, holders of Class K Preferred Units will be entitled to receive an amount per Class K Preferred Unit equal to the greater of (i) $2.50 per year (equivalent to 10% of the liquidation preference), or (ii) the cash distributions payable on the number of OP Units into which a Class K Preferred Unit is convertible. The Class K Preferred Unit is senior to the OP Units as to distributions and liquidation. Upon any liquidation, F-33 76 AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) dissolution or winding up of AIMCO, before payment or dividends by AIMCO shall be made to any holders of AIMCO Class A Common Stock, the holders of the Class K Preferred Stock and the Class K Preferred Units shall be entitled to receive a liquidation preference of $25 per share/unit, plus accumulated, accrued and unpaid distributions. Insignia Properties Trust As a result of the Insignia merger, AIMCO acquired approximately 51% of the outstanding shares of beneficial interest in IPT. On February 26, 1999, IPT was merged into AIMCO. Pursuant to the merger, each of the 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 for each share of IPT common stock, resulting in the issuance of approximately 4.3 million shares of AIMCO Class A Common Stock (with a recorded value of approximately $158.8 million). Concurrently with the IPT merger, all the assets and liabilities of IPT were contributed by AIMCO to the Partnership in exchange for approximately 8.9 million OP Units (valued at approximately $318.2 million). Also in connection with the IPT merger, the IPLP Exchange and Assumption was unwound and the approximately 10.2 million OP Units issued in connection with the IPLP Exchange and Assumption were canceled. Debt Refinancing In February 1999, the Partnership terminated its $50 million credit facility with Washington Mortgage Financial Group, Ltd. 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 February and March 1999, the Company incurred in the aggregate $83.4 million of long-term, fixed rate, fully amortizing mortgage debt secured by 13 properties in separate loan transactions. 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 $45.0 million. The amount available under the credit facility at March 11, 1999 was $24 million. F-34 77 SCHEDULE III AIMCO PROPERTIES, L.P. REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 (IN THOUSANDS EXCEPT UNIT DATA)
INITIAL COST COST ---------------------- CAPITALIZED BUILDINGS SUBSEQUENT DATE YEAR NUMBER AND TO PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION - ------------- -------- --------------------- --------- -------- ------- ------------ ----------- 100 Forest Place......... 10/97 OakPark, IL 1986 234 $ 3,463 $ 19,624 $ 528 40th North............... 7/94 Phoenix, AZ 1970 556 2,546 14,437 1,539 Anchorage................ 11/96 League City, TX 1985 264 523 9,097 403 Arbor Crossing........... 5/97 Lithonia, GA 1988 240 1,879 10,647 1,169 Arbor Station............ 4/98 Montgomery, AL 1987 264 1,627 9,218 577 Arbors................... 5/98 Deland, FL 1983 224 1,872 7,925 307 Arbors................... 10/97 Tempe, AZ 1971 200 1,092 6,189 310 Ashford Plantation....... 12/95 Atlanta, GA 1975 211 2,770 9,956 578 Aspen Hills.............. 5/98 Austin, TX 1986 344 3,281 13,917 590 Atriums of Plantation.... 8/98 Plantation, FL 1980 210 1,807 9,756 519 Bay Club................. 4/97 Aventura, FL 1990 702 10,530 60,830 1,719 Beacon Hill.............. 10/97 Chamblee, GA 1978 120 928 5,261 243 Bent Oaks................ 5/98 Austin, TX 1979 146 1,444 5,834 222 Blossomtree.............. 10/97 Scottsdale, AZ 1970 125 535 3,029 225 Bluffs................... 9/83 Boulder, CO 1971 232 696 7,779 909 Boardwalk................ 12/95 Tamarac, FL 1986 291 3,350 8,196 1,049 Brandywine............... 4/83 St. Petersburg, FL 1971 477 1,423 11,336 1,810 Brant Rock............... 10/97 Houston, TX 1984 84 337 1,908 128 Breasview................ 5/98 San Antonio, TX 1982 396 3,200 17,051 765 Brentwood................ 11/96 Lake Jackson, TX 1980 104 200 3,092 428 Bridgewater.............. 11/96 Tomball, TX 1978 206 333 4,033 551 Broadmoor Apartments..... 5/98 Austin, TX 1985 200 1,606 7,360 208 Brookdale Lakes.......... 5/98 Naperville, IL 1990 200 1,923 15,430 857 Brookside Village........ 4/96 Tustin, CA 1970 628 2,498 14,180 20,286 Calhoun Beach............ 12/98 Minneapolis, MN 1928/1998 351 11,567 65,546 2,633 Cambridge Heights........ 5/97 Natchez, MS 1979 94 249 1,413 74 Cape Cod................. 5/98 San Antonio, TX 1985 244 1,951 8,324 317 Captiva Club............. 12/96 Tampa, FL 1975 357 1,500 7,085 7,052 Casa Anita............... 3/98 Phoenix, AZ 1986 224 1,125 6,404 68 Cedar Creek.............. 5/98 San Antonio, TX 1979 392 1,630 10,051 328 Chesapeake............... 12/96 Houston, TX 1983 320 775 7,317 655 Citrus Grove............. 6/98 Redlands, CA 1985 198 1,118 6,333 107 Citrus Sunset............ 3/98 Vista, CA 1985 96 663 3,758 53 Cobble Creek............. 3/98 Tucson, AZ 1980 301 1,299 7,395 269 Colonade Gardens/Ferntree........ 10/97 Phoenix, AZ 1973 196 765 4,337 203 Colony................... 9/98 Bradenton, FL 1986 166 1,121 6,350 144 Copper Chase............. 12/96 Katy, TX 1982 316 1,484 11,530 478 Copperfield.............. 11/96 Houston, TX 1983 196 702 7,003 (574) Coral Cove............... 5/98 Tampa, FL 1985 200 1,614 5,875 241 Coral Gardens............ 4/93 Las Vegas, NV 1983 670 3,190 12,745 2,047 Country Club Villas...... 7/94 Amarillo, TX 1984 282 1,049 5,951 749 DECEMBER 31, 1998 ----------------------------------------------------------------------------------- TOTAL COST BUILDINGS NET OF AND ACCUMULATED ACCUMULATED PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES - ------------- ----------- ------------ --------- ------------ ------------ ------------ 100 Forest Place......... $ 3,463 $ 20,152 $ 23,615 $ 1,186 $ 22,429 $ 15,281 40th North............... 2,546 15,976 18,522 2,998 15,524 10,521 Anchorage................ 523 9,500 10,023 3,290 6,733 4,821 Arbor Crossing........... 1,880 11,815 13,695 866 12,829 5,191 Arbor Station............ 1,627 9,795 11,422 176 11,246 --(2) Arbors................... 1,872 8,232 10,104 221 9,883 3,816 Arbors................... 1,092 6,499 7,591 323 7,268 7,605 Ashford Plantation....... 2,770 10,534 13,304 1,449 11,855 7,289 Aspen Hills.............. 3,281 14,507 17,788 504 17,284 9,800 Atriums of Plantation.... 1,807 10,275 12,082 195 11,887 7,767 Bay Club................. 10,530 62,549 73,079 3,923 69,156 49,000 Beacon Hill.............. 928 5,504 6,432 236 6,196 3,590 Bent Oaks................ 1,444 6,056 7,500 181 7,319 4,400 Blossomtree.............. 535 3,254 3,789 158 3,631 2,092 Bluffs................... 696 8,688 9,384 5,396 3,988 4,522 Boardwalk................ 3,350 9,245 12,595 1,299 11,296 9,267(2) Brandywine............... 1,423 13,146 14,569 5,217 9,352 6,407 Brant Rock............... 337 2,036 2,373 91 2,282 1,210 Breasview................ 3,200 17,816 21,016 523 20,493 14,025 Brentwood................ 200 3,520 3,720 242 3,478 1,779 Bridgewater.............. 333 4,584 4,917 1,190 3,727 4,150 Broadmoor Apartments..... 1,606 7,568 9,174 226 8,948 6,000 Brookdale Lakes.......... 1,923 16,287 18,210 482 17,728 13,600(2) Brookside Village........ 7,263 29,701 36,964 2,706 34,258 -- Calhoun Beach............ 11,698 68,048 79,746 -- 79,746 53,500 Cambridge Heights........ 249 1,487 1,736 113 1,623 1,555 Cape Cod................. 1,951 8,641 10,592 273 10,319 6,800 Captiva Club............. 1,500 14,137 15,637 591 15,046 --(2) Casa Anita............... 1,125 6,472 7,597 219 7,378 4,101 Cedar Creek.............. 1,630 10,379 12,009 262 11,747 --(2) Chesapeake............... 775 7,972 8,747 692 8,055 --(2) Citrus Grove............. 1,118 6,440 7,558 211 7,347 --(2) Citrus Sunset............ 663 3,811 4,474 107 4,367 3,594 Cobble Creek............. 1,299 7,664 8,963 253 8,710 6,998 Colonade Gardens/Ferntree........ 765 4,540 5,305 226 5,079 -- Colony................... 1,121 6,494 7,615 121 7,494 3,331 Copper Chase............. 1,484 12,008 13,492 3,736 9,756 5,525 Copperfield.............. 572 6,559 7,131 1,178 5,953 3,453 Coral Cove............... 1,614 6,116 7,730 182 7,548 3,965 Coral Gardens............ 3,190 14,792 17,982 3,766 14,216 10,996 Country Club Villas...... 1,049 6,700 7,749 1,228 6,521 3,955
F-35 78
INITIAL COST COST ---------------------- CAPITALIZED BUILDINGS SUBSEQUENT DATE YEAR NUMBER AND TO PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION - ------------- -------- --------------------- --------- -------- ------- ------------ ----------- Country Club West........ 5/98 Greeley, CO 1986 288 1,646 17,029 637 Courtney Park............ 5/98 Fort Collins, CO 1986 248 2,570 15,336 505 Coventry Square.......... 11/96 Houston, TX 1983 270 975 6,355 684 Crossings at Bell........ 1/98 Amarillo, TX 1976 160 483 2,737 1,092 Crossings of Bellevue.... 5/98 Nashville, TN 1985 300 2,096 14,754 747 Crossroads............... 5/98 Phoenix, AZ 1982 316 1,447 12,788 456 Crows Nest............... 11/96 League City, TX 1984 176 795 5,400 247 Cypress Landing.......... 12/96 Savannah, GA 1984 200 386 7,911 983 Cypress Ridge............ 5/98 Houston, TX 1979 268 1,477 4,179 262 Dolphins Landing......... 12/96 Corpus Christi, TX 1980 218 1,740 5,589 662 Dunwoody Park............ 7/94 Dunwoody, GA 1980 318 1,838 10,538 966 Eagles Nest.............. 5/98 San Antonio, TX 1973 226 1,339 5,365 380 Eaglewood/Woods.......... 6/98 Memphis, TN 1983 584 750 16,544 (3,702) Easton Village........... 11/96 Houston, TX 1983 146 440 6,584 284 Eden Crossing............ 11/94 Pensacola, FL 1985 200 1,111 6,332 653 Elm Creek................ 5/97 Elmhurst, IL 1986 372 5,339 30,253 6,939 Emerald Ridge............ 2/98 Tyler, TX 1984 484 1,469 8,324 469 Fairways................. 7/94 Chandler, AZ 1986 352 1,830 10,403 6,844 Ferntree................. 10/98 Phoenix, AZ 1970 219 1,243 7,046 10 Fieldcrest............... 10/98 Jacksonville, FL 1982 240 1,331 7,544 14 Fishermans Landing....... 9/98 Temple Terrace, FL 1986 256 1,643 9,311 153 Fisherman's Landing...... 12/97 Bradenton, FL 1984 200 1,275 7,225 571 Fishermans Wharf......... 11/96 Clute, TX 1981 360 830 9,969 407 Foothills................ 10/97 Tucson, AZ 1982 270 1,203 6,817 166 Foxbay................... 10/97 Tucson, AZ 1983 232 700 3,966 478 Foxchase................. 5/97 Alexandria, VA 1947 2,113 39,390 68,354 6,692 Foxtree.................. 10/97 Tempe, AZ 1976 487 2,505 14,194 687 Frankford Place.......... 7/94 Carrollton, TX 1982 274 1,125 6,382 854 Franklin Oaks............ 5/98 Franklin, TN 1987 468 3,467 22,753 1,369 Freedom Place Club....... 10/97 Jacksonville, FL 1988 352 2,289 12,970 388 Garden Terrace........... 7/94 Bowie, TX 1978 20 49 280 28 Greens of Naperville..... 5/97 Naperville, IL 1986 400 3,756 21,284 (227) Greentree................ 12/96 Carrollton, TX 1983 365 1,909 14,842 1,442 Hampton Hill............. 11/96 Houston, TX 1984 332 1,574 8,408 1,218 Harbor Cove.............. 5/98 San Antonio, TX 1980 256 1,845 7,563 328 Hastings Place........... 11/96 Houston, TX 1984 176 734 3,382 307 Haverhill Commons........ 5/98 W. Palm Beach, FL 1986 222 2,389 8,372 443 Hazeltree................ 10/97 Phoenix, AZ 1970 310 997 5,650 689 Heather Ridge............ 5/98 Phoenix, AZ 1983 252 1,914 8,568 316 Heather Ridge............ 12/96 Arlington, TX 1983 180 655 5,455 (1,077) Hidden Lake Apts......... 5/98 Tampa, FL 1983 267 1,613 7,241 357 Hiddentree............... 10/97 East Lansing, MI 1966 261 1,470 8,330 908 Highland Park............ 12/96 Fort Worth, TX 1985 500 3,234 19,536 (2,331) Hillmeade................ 11/94 Nashville, TN 1985 288 2,872 16,066 1,449 Hunters Glen............. 4/98 Austell, GA 1983 72 301 1,704 69 Islandtree............... 10/97 Savannah, GA 1985 216 1,267 7,181 445 Jefferson Place.......... 11/94 Baton Rouge, LA 1985 234 2,696 15,115 1,397 La Jolla de San Antonio................. 5/98 San Antonio, TX 1975 300 1,196 10,676 1,975 La Jolla de Tucson Apts.................... 5/98 Tucson, AZ 1978 223 2,944 7,196 (431) Lake Crossing............ 5/97 Austell, GA 1988 300 2,046 11,596 401 Lakehaven I.............. 5/97 Carol Stream, IL 1984 144 1,071 6,069 298 DECEMBER 31, 1998 ----------------------------------------------------------------------------------- TOTAL COST BUILDINGS NET OF AND ACCUMULATED ACCUMULATED PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES - ------------- ----------- ------------ --------- ------------ ------------ ------------ Country Club West........ 1,646 17,666 19,312 446 18,866 11,253 Courtney Park............ 2,570 15,841 18,411 401 18,010 9,979 Coventry Square.......... 975 7,039 8,014 2,679 5,335 3,005 Crossings at Bell........ 483 3,829 4,312 156 4,156 --(2) Crossings of Bellevue.... 2,096 15,501 17,597 387 17,210 8,540 Crossroads............... 1,447 13,244 14,691 378 14,313 7,000 Crows Nest............... 795 5,647 6,442 1,708 4,734 2,856 Cypress Landing.......... 386 8,894 9,280 2,670 6,610 4,274 Cypress Ridge............ 1,477 4,441 5,918 177 5,741 4,250 Dolphins Landing......... 1,740 6,251 7,991 591 7,400 --(2) Dunwoody Park............ 1,838 11,504 13,342 2,136 11,206 7,338 Eagles Nest.............. 1,339 5,745 7,084 260 6,824 4,805 Eaglewood/Woods.......... 750 12,842 13,592 1,325 12,267 --(2) Easton Village........... 590 6,718 7,308 1,352 5,956 2,863 Eden Crossing............ 1,111 6,985 8,096 1,193 6,903 5,786 Elm Creek................ 5,339 37,192 42,531 2,388 40,143 --(2) Emerald Ridge............ 1,469 8,793 10,262 435 9,827 6,176 Fairways................. 1,830 17,247 19,077 2,111 16,966 6,229 Ferntree................. 1,243 7,056 8,299 67 8,232 2,826 Fieldcrest............... 1,331 7,558 8,889 108 8,781 5,745 Fishermans Landing....... 1,643 9,464 11,107 177 10,930 5,688 Fisherman's Landing...... 1,275 7,796 9,071 298 8,773 -- Fishermans Wharf......... 830 10,376 11,206 4,230 6,976 3,498(2) Foothills................ 1,203 6,983 8,186 354 7,832 3,835 Foxbay................... 700 4,444 5,144 208 4,936 3,176 Foxchase................. 16,175 98,261 114,436 5,955 108,481 65,879 Foxtree.................. 2,505 14,881 17,386 736 16,650 8,845 Frankford Place.......... 1,125 7,236 8,361 1,409 6,952 3,896 Franklin Oaks............ 3,467 24,122 27,589 668 26,921 17,700 Freedom Place Club....... 2,289 13,358 15,647 618 15,029 6,935 Garden Terrace........... 49 308 357 61 296 -- Greens of Naperville..... 3,756 21,057 24,813 1,308 23,505 12,724(2) Greentree................ 1,909 16,284 18,193 4,697 13,496 7,358(2) Hampton Hill............. 2,130 9,070 11,200 4,173 7,027 4,094 Harbor Cove.............. 1,845 7,891 9,736 250 9,486 5,900 Hastings Place........... 734 3,689 4,423 1,166 3,257 2,626 Haverhill Commons........ 2,389 8,815 11,204 241 10,963 9,100 Hazeltree................ 997 6,339 7,336 294 7,042 4,034 Heather Ridge............ 1,914 8,884 10,798 248 10,550 6,000 Heather Ridge............ 655 4,378 5,033 593 4,440 2,603 Hidden Lake Apts......... 1,613 7,598 9,211 219 8,992 -- Hiddentree............... 1,470 9,238 10,708 573 10,135 4,390 Highland Park............ 3,234 17,205 20,439 8,294 12,145 9,270 Hillmeade................ 2,872 17,515 20,387 2,930 17,457 10,788 Hunters Glen............. 301 1,773 2,074 65 2,009 1,111 Islandtree............... 1,267 7,626 8,893 322 8,571 4,191 Jefferson Place.......... 2,697 16,511 19,208 2,803 16,405 9,281 La Jolla de San Antonio................. 2,670 11,177 13,847 337 13,510 8,855 La Jolla de Tucson Apts.................... 1,470 8,239 9,709 869 8,840 5,820 Lake Crossing............ 2,047 11,996 14,043 947 13,096 9,765 Lakehaven I.............. 1,071 6,367 7,438 404 7,034 --(1)(2)
F-36 79
INITIAL COST COST ---------------------- CAPITALIZED BUILDINGS SUBSEQUENT DATE YEAR NUMBER AND TO PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION - ------------- -------- --------------------- --------- -------- ------- ------------ ----------- Lakehaven II............. 5/97 Carol Stream, IL 1985 348 2,680 15,189 604 Landmark................. 5/98 Albuquerque, NM 1965 101 780 4,455 224 Las Brisas............... 12/95 San Antonio, TX 1983 176 1,100 5,454 (2,476) Las Brisas............... 7/94 Casa Grande, AZ 1985 132 573 3,260 3,127 Legend Oaks/The Woodlands............... 5/98 Tampa, FL 1983 416 2,723 12,243 686 Lexington................ 7/94 San Antonio, TX 1981 72 311 1,764 125 Los Arboles.............. 9/97 Chandler, AZ 1985 232 1,662 9,418 449 Madera Point............. 5/98 Phoenix, AZ 1986 256 924 12,733 420 Meadow Creek............. 4/85 Boulder, CO 1972 332 1,387 10,027 919 Meadows.................. 12/96 Austin, TX 1983 100 417 4,563 673 Mesa Ridge............... 5/98 San Antonio, TX 1986 200 1,159 6,594 371 Mills.................... 5/98 Houston, TX 1979 708 7,075 18,750 774 Montecito................ 7/94 Austin, TX 1985 268 1,268 7,194 1,809 Morton Towers............ 9/97 Miami Beach, FL 1960 1,277 8,736 49,774 21,136 Mountainview............. 5/98 Colorado Springs, CO 1985 252 1,935 14,647 613 Newberry Park............ 5/97 Chicago, IL 1985 84 181 1,027 (3) Newport.................. 7/94 Avondale, AZ 1986 204 800 4,554 508 Oak Falls................ 11/96 Spring, TX 1983 144 514 3,585 398 Ocean Oaks Apartments.... 5/98 Port Orange, FL 1988 296 2,694 11,157 443 Old Farm................. 12/98 Lexington, KY 1985 330 1,893 10,725 43 Olmos Club............... 10/97 San Antonio, TX 1983 134 322 1,825 120 Olympiad................. 11/94 Montgomery, AL 1986 176 1,046 5,958 558 Orchidtree............... 10/97 Scottsdale, AZ 1971 278 2,314 13,112 303 Palencia................. 5/98 Tampa, FL 1985 420 3,448 14,666 737 Paradise Palms........... 7/94 Phoenix, AZ 1970 130 647 3,684 469 Park @ Cedar Lawn........ 11/96 Galveston, TX 1985 192 769 5,073 358 Park Colony.............. 5/98 Norcross, GA 1984 352 3,335 17,990 491 Parliament Bend.......... 7/94 San Antonio, TX 1980 232 765 4,342 662 Peachtree Park........... 1/96 Atlanta, GA 1962/1995 295 4,681 12,957 1,898 Penn Square.............. 12/94 Albuquerque, NM 1982 210 1,128 6,478 592 Peppermill Place......... 11/96 Houston, TX 1983 224 406 3,957 441 Pine Creek............... 10/97 Clio, MI 1978 233 852 4,830 318 Pine Shadows............. 5/98 Phoenix, AZ 1983 272 2,490 11,143 402 Pinebrook................ 10/98 Jacksonville, FL 1974 208 856 4,854 6 Pleasant Ridge........... 11/94 Little Rock, AR 1982 200 1,660 9,464 811 Pleasant Valley Point.... 11/94 Little Rock, AR 1985 112 907 5,069 890 Point West............... 5/97 Lenexa, KS 1985 172 979 5,548 (16) Polo Park................ 10/97 Midland, TX 1983 184 800 4,532 325 Prairie Hills............ 7/94 Albuquerque, NM 1985 360 1,680 9,633 589 Pride Gardens............ 5/97 Flora, MS 1975 76 265 1,502 169 Prime Crest.............. 5/98 Austin, TX 1973 148 1,160 3,508 209 Privado Park............. 5/98 Phoenix, AZ 1984 352 2,054 15,236 389 Quail Ridge.............. 5/98 Tucson, AZ 1974 253 2,015 8,559 400 Quailtree................ 10/97 Phoenix, AZ 1978 184 659 3,735 247 Rancho Sunset............ 3/98 Escondido, CA 1985 344 3,103 16,755 933 Randol Crossing.......... 12/96 Fort Worth, TX 1984 160 782 5,742 670 Redhill Plaza............ 6/97 Tustin, CA 1971 392 1,515 3,735 2 Ridgecrest............... 12/96 Denton, TX 1983 152 612 5,642 (1,125) Rio Cancion.............. 10/98 Tucson, AZ 1983 379 2,832 16,090 146 Rivercrest............... 10/97 Tucson, AZ 1984 310 751 4,253 139 DECEMBER 31, 1998 ----------------------------------------------------------------------------------- TOTAL COST BUILDINGS NET OF AND ACCUMULATED ACCUMULATED PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES - ------------- ----------- ------------ --------- ------------ ------------ ------------ Lakehaven II............. 2,680 15,793 18,473 1,013 17,460 --(1)(2) Landmark................. 780 4,679 5,459 148 5,311 --(2) Las Brisas............... 573 3,505 4,078 657 3,421 --(3) Las Brisas............... 1,100 5,860 6,960 797 6,163 3,302 Legend Oaks/The Woodlands............... 2,723 12,929 15,652 383 15,269 --(2) Lexington................ 311 1,889 2,200 362 1,838 1,038 Los Arboles.............. 1,662 9,867 11,529 491 11,038 --(3) Madera Point............. 924 13,153 14,077 348 13,729 8,067 Meadow Creek............. 1,398 10,935 12,333 4,089 8,244 7,716 Meadows.................. 417 5,236 5,653 1,372 4,281 2,062 Mesa Ridge............... 1,159 6,965 8,124 241 7,883 5,100 Mills.................... 7,075 19,524 26,599 589 26,010 14,575 Montecito................ 1,268 9,003 10,271 1,542 8,729 4,895 Morton Towers............ 13,182 66,464 79,646 2,632 77,014 12,913 Mountainview............. 1,935 15,260 17,195 449 16,746 --(2) Newberry Park............ 158 1,047 1,205 82 1,123 8,495 Newport.................. 800 5,062 5,862 1,002 4,860 2,531 Oak Falls................ 514 3,983 4,497 1,181 3,316 2,702 Ocean Oaks Apartments.... 2,694 11,600 14,294 317 13,977 10,295 Old Farm................. 1,893 10,768 12,661 47 12,614 9,919 Olmos Club............... 322 1,945 2,267 82 2,185 1,242 Olympiad................. 1,046 6,516 7,562 1,146 6,416 5,158 Orchidtree............... 2,314 13,415 15,729 677 15,052 7,227 Palencia................. 3,448 15,403 18,851 564 18,287 --(2) Paradise Palms........... 647 4,153 4,800 782 4,018 2,273 Park @ Cedar Lawn........ 769 5,431 6,200 1,396 4,804 2,537 Park Colony.............. 3,335 18,481 21,816 446 21,370 --(2) Parliament Bend.......... 765 5,004 5,769 963 4,806 --(3) Peachtree Park........... 4,683 14,853 19,536 1,636 17,900 9,396 Penn Square.............. 1,128 7,070 8,198 1,240 6,958 4,189 Peppermill Place......... 406 4,398 4,804 1,196 3,608 3,541 Pine Creek............... 852 5,148 6,000 217 5,783 2,380 Pine Shadows............. 2,490 11,545 14,035 321 13,714 --(2) Pinebrook................ 857 4,859 5,716 58 5,658 3,626 Pleasant Ridge........... 1,661 10,274 11,935 1,799 10,136 6,700 Pleasant Valley Point.... 907 5,959 6,866 1,030 5,836 3,370 Point West............... 979 5,532 6,511 367 6,144 5,580 Polo Park................ 800 4,857 5,657 226 5,431 2,268 Prairie Hills............ 1,680 10,222 11,902 1,938 9,964 7,134 Pride Gardens............ 265 1,671 1,936 121 1,815 890 Prime Crest.............. 1,160 3,717 4,877 134 4,743 2,400 Privado Park............. 2,054 15,625 17,679 438 17,241 9,200 Quail Ridge.............. 2,015 8,959 10,974 262 10,712 6,400 Quailtree................ 659 3,982 4,641 195 4,446 2,198 Rancho Sunset............ 3,103 17,688 20,791 502 20,289 13,787 Randol Crossing.......... 782 6,412 7,194 1,988 5,206 2,427 Redhill Plaza............ 1,515 3,737 5,252 279 4,973 -- Ridgecrest............... 612 4,517 5,129 2,037 3,092 2,451 Rio Cancion.............. 2,832 16,236 19,068 551 18,517 12,990 Rivercrest............... 751 4,392 5,143 220 4,923 2,801
F-37 80
INITIAL COST COST ---------------------- CAPITALIZED BUILDINGS SUBSEQUENT DATE YEAR NUMBER AND TO PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION - ------------- -------- --------------------- --------- -------- ------- ------------ ----------- Riverside................ 7/94 Littleton, CO 1987 248 1,553 8,829 938 Riverwalk................ 12/95 Little Rock, AR 1988 262 1,075 9,295 520 Royal Crest.............. 5/98 Austin, TX 1973 204 1,709 6,176 302 Royal Gardens............ 10/98 Hemet, CA 1987 137 521 2,817 141 Royal Palms.............. 7/94 Mesa, AZ 1985 152 832 4,731 244 San Marina............... 3/98 Phoenix, AZ 1986 399 1,926 10,954 267 Sand Castles............. 10/97 League City, TX 1987 136 978 5,541 267 Sand Pebble.............. 10/97 El Paso, TX 1983 208 861 4,879 309 Sandalwood............... 5/98 Houston, TX 1979 352 2,142 7,394 289 Sandpiper Cove........... 5/97 Boynton Beach, FL 1987 416 4,006 22,701 2,432 Sawgrass................. 7/97 Orlando, FL 1986 208 1,443 8,158 477 Seaside Point............ 11/96 Galveston, TX 1985 102 295 2,994 406 Seasons.................. 10/95 San Antonio, TX 1976 280 974 5,749 728 Shadetree................ 10/97 Tempe, AZ 1965 123 591 3,349 376 Shadow Creek Apartments.............. 5/98 Phoenix, AZ 1984 266 2,599 11,085 314 Shadow Lake.............. 10/97 Greensboro, NC 1988 136 1,054 5,972 336 Shallow Creek............ 5/98 San Antonio, TX 1982 208 1,390 6,678 301 Signature Point.......... 11/96 League City, TX 1994 304 2,160 13,627 (431) Silktree................. 10/97 Phoenix, AZ 1979 86 421 2,383 145 Snug Harbor.............. 12/95 Las Vegas, NV 1990 64 750 2,966 300 Somerset Village......... 5/96 West Valley City, UT 1985 486 4,375 17,600 1,035 South Willow............. 7/94 West Jordan, UT 1987 440 2,218 12,612 1,085 Southridge............... 12/96 Greenville, TX 1984 160 565 5,787 700 Spectrum Pointe.......... 7/94 Marietta, GA 1984 196 1,029 5,903 578 Stirling Court........... 11/96 Houston, TX 1984 228 946 5,958 396 Stonebrook............... 6/97 Sanford, FL 1991 244 1,583 9,046 419 Stoney Brook............. 11/96 Houston, TX 1972 113 579 3,871 529 Stonybrook............... 5/98 Tucson, AZ 1983 411 2,503 11,565 554 Summerchase.............. 5/97 Van Buren, AR 1974 72 170 962 145 Summit Creek............. 5/98 Austin, TX 1985 164 1,331 5,007 236 Sun Grove................ 7/94 Peoria, AZ 1986 86 659 3,749 161 Sun Katcher.............. 12/95 Jacksonville, FL 1972 360 578 3,440 5,830 Sun Lake................. 5/98 Lake Mary, FL 1986 600 5,574 24,277 1,076 Sunbury Downs............ 11/96 Houston, TX 1982 240 565 4,380 297 Sunchase Clearwater...... 11/94 Clearwater, FL 1985 461 2,177 19,641 1,597 Sunchase East............ 11/94 Orlando, FL 1985 296 927 8,361 857 Sunchase North........... 11/94 Orlando, FL 1985 324 1,013 9,142 974 Sunchase Tampa........... 11/94 Tampa, FL 1985 216 757 6,831 782 Sundown Village.......... 3/98 Tucson, AZ 1984/1994 330 2,214 12,582 161 Sunlake.................. 9/98 Brandon, FL 1986 88 189 1,086 3,126 Sunset Village........... 3/98 Oceanside, CA 1987 114 1,128 6,392 44 Surrey Oaks.............. 10/97 Bedford, TX 1983 152 628 3,560 265 Swiss Village............ 11/96 Houston, TX 1972 360 1,011 11,310 (625) Tall Timbers............. 10/97 Houston, TX 1982 256 1,238 7,016 349 Tara Bridge.............. 5/97 Jonesboro, GA 1988 220 1,610 9,124 335 Tatum Gardens............ 5/98 Phoenix, AZ 1985 128 1,229 5,326 282 The Bluffs............... 12/98 Laffayette, IN 1982 181 979 5,549 -- The Bradford............. 10/97 Midland, TX 1982 264 705 3,996 (789) The Breakers............. 10/98 Daytona Beach, FL 1985 258 1,008 5,710 14 The Falls of Bells Ferry................... 5/98 Marietta, GA 1987 720 8,270 34,528 1,125 The Hills................ 10/97 Austin, TX 1983 329 1,367 7,747 235 DECEMBER 31, 1998 ----------------------------------------------------------------------------------- TOTAL COST BUILDINGS NET OF AND ACCUMULATED ACCUMULATED PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES - ------------- ----------- ------------ --------- ------------ ------------ ------------ Riverside................ 1,554 9,766 11,320 1,850 9,470 5,884 Riverwalk................ 1,075 9,815 10,890 1,269 9,621 5,555 Royal Crest.............. 1,709 6,478 8,187 217 7,970 3,400 Royal Gardens............ 521 2,958 3,479 28 3,451 2,414 Royal Palms.............. 832 4,975 5,807 939 4,868 3,463 San Marina............... 1,926 11,221 13,147 375 12,772 7,912 Sand Castles............. 978 5,808 6,786 265 6,521 3,081 Sand Pebble.............. 861 5,188 6,049 243 5,806 2,690 Sandalwood............... 2,142 7,683 9,825 277 9,548 4,700 Sandpiper Cove........... 4,006 25,133 29,139 1,774 27,365 13,376 Sawgrass................. 1,443 8,635 10,078 504 9,574 4,778 Seaside Point............ 295 3,400 3,695 873 2,822 2,075 Seasons.................. 982 6,469 7,451 866 6,585 4,472 Shadetree................ 591 3,725 4,316 176 4,140 2,048 Shadow Creek Apartments.............. 2,599 11,399 13,998 329 13,669 6,965 Shadow Lake.............. 1,054 6,308 7,362 268 7,094 3,216 Shallow Creek............ 1,390 6,979 8,369 204 8,165 4,600 Signature Point.......... 2,160 13,196 15,356 2,122 13,234 7,306 Silktree................. 421 2,528 2,949 125 2,824 1,547 Snug Harbor.............. 751 3,265 4,016 463 3,553 2,028 Somerset Village......... 4,375 18,635 23,010 1,866 21,144 8,311 South Willow............. 2,218 13,697 15,915 2,585 13,330 8,149 Southridge............... 565 6,487 7,052 2,374 4,678 2,083 Spectrum Pointe.......... 1,029 6,481 7,510 1,145 6,365 4,238 Stirling Court........... 946 6,354 7,300 3,047 4,253 3,546 Stonebrook............... 1,583 9,465 11,048 632 10,416 5,395 Stoney Brook............. 679 4,300 4,979 960 4,019 --(1) Stonybrook............... 2,503 12,119 14,622 370 14,252 5,598 Summerchase.............. 170 1,107 1,277 77 1,200 670 Summit Creek............. 1,331 5,243 6,574 181 6,393 3,524 Sun Grove................ 659 3,910 4,569 756 3,813 --(3) Sun Katcher.............. 578 9,270 9,848 702 9,146 --(2) Sun Lake................. 5,574 25,353 30,927 665 30,262 15,102(2) Sunbury Downs............ 565 4,677 5,242 1,186 4,056 2,433 Sunchase Clearwater...... 2,177 21,238 23,415 2,781 20,634 17,074 Sunchase East............ 927 9,218 10,145 1,592 8,553 8,960 Sunchase North........... 1,013 10,116 11,129 1,715 9,414 12,019 Sunchase Tampa........... 757 7,613 8,370 1,319 7,051 7,184 Sundown Village.......... 2,214 12,743 14,957 431 14,526 8,464 Sunlake.................. 189 4,212 4,401 329 4,072 -- Sunset Village........... 1,128 6,436 7,564 182 7,382 5,549 Surrey Oaks.............. 628 3,825 4,453 177 4,276 2,290 Swiss Village............ 1,011 10,685 11,696 4,343 7,353 4,490 Tall Timbers............. 1,238 7,365 8,603 336 8,267 4,080 Tara Bridge.............. 1,610 9,459 11,069 747 10,322 6,800 Tatum Gardens............ 1,229 5,608 6,837 170 6,667 3,426 The Bluffs............... 979 5,549 6,528 -- 6,528 -- The Bradford............. 519 3,393 3,912 147 3,765 1,631 The Breakers............. 1,008 5,724 6,732 40 6,692 3,773 The Falls of Bells Ferry................... 8,270 35,653 43,923 1,023 42,900 27,685 The Hills................ 1,367 7,982 9,349 348 9,001 8,144
F-38 81
INITIAL COST COST ---------------------- CAPITALIZED BUILDINGS SUBSEQUENT DATE YEAR NUMBER AND TO PROPERTY NAME ACQUIRED LOCATION BUILT OF UNITS LAND IMPROVEMENTS ACQUISITION - ------------- -------- --------------------- --------- -------- ------- ------------ ----------- The Park................. 10/98 Melbourne, FL 1983 120 719 4,072 8 The Pines................ 10/97 Palm Bay, FL 1984 216 601 3,406 16 The Stratford............ 5/98 San Antonio, TX 1979 269 1,920 10,567 573 Tierra Bonita............ 5/98 Tucson, AZ 1986 410 2,081 9,489 747 Timbermill............... 10/95 San Antonio, TX 1982 296 778 4,674 667 Timbertree............... 10/97 Phoenix, AZ 1980 387 2,334 13,229 459 Township at Highlands.... 11/96 Littleton, CO 1986 119 1,058 11,166 2,910 Trails of Ashford........ 5/98 Houston, TX 1979 514 3,237 14,123 485 Twinbridge............... 10/97 Tucson, AZ 1982 104 310 1,757 76 Victoria Station......... 6/98 Victoria, TX 1997 224 425 3946 1,330 Villa La Paz............. 6/98 Sun City, CA 1990 96 573 3,096 189 Villa Ladera............. 1/96 Albuquerque, NM 1985 280 1,765 10,013 975 Village Creek at Brookhill............... 7/94 Westminster, CO 1987 324 2,446 13,901 959 Village Crossing......... 5/98 W. Palm Beach, FL 1986 289 2,259 8,251 436 Vista Ventana Apartments.............. 5/98 Phoenix, AZ 1982 275 2,196 10,327 417 Walnut Springs........... 12/96 San Antonio, TX 1983 224 851 8,076 448 Waterford................ 11/96 Houston, TX 1984 312 533 5,693 781 Waterways Village........ 6/97 Aventura, FL 1991 180 4,504 11,702 314 Weatherly................ 10/98 Stone Mountain, GA 1984 274 1,275 6,887 350 Weslayan I............... 10/96 Houston, TX 1983 25 130 376 (10) West 135th Street........ 8/98 New York, NY 1979 242 258 9660 3,246 West Way Village......... 5/98 Houston, TX 1979 276 3,353 6,816 425 Wickertree............... 10/97 Phoenix, AZ 1983 226 1,225 6,944 189 Wildflower............... 10/97 Midland, TX 1982 264 705 3,996 635 Williams Cove............ 7/94 Irving, TX 1984 260 1,227 6,973 507 Williamsburg............. 5/98 Rolling Meadows, IL 1985 379 3,103 14,471 986 Windridge................ 5/98 San Antonio, TX 1983 286 1,374 8,228 340 Windsor Landing.......... 10/97 Morrow, GA 1991 200 1,641 9,298 158 Windward at the Villages................ 10/97 W. Palm Beach, FL 1988 196 1,595 9,037 314 Woodhill Associates...... 12/96 Denton, TX 1985 352 1,578 13,199 1,191 Woodhollow............... 10/97 Austin, TX 1974 108 658 3,728 163 Woodland Ridge........... 12/96 Irving, TX 1984 130 1,021 4,507 459 Woodlands/Odessa......... 7/94 Odessa, TX 1982 240 676 3,836 676 Woodlands/Tyler.......... 7/94 Tyler, TX 1984 256 1,029 5,846 544 Yorktree................. 10/97 Carolstream, IL 1972 293 1,968 11,151 712 ------ ------- --------- ------- 61,672 414,385 2,138,730 185,750 ------ ------- --------- ------- Other Land and Assets.... -- 3,864 1,136 -- ------ ------- --------- ------- 61,672 418,249 2,139,866 185,750 ====== ======= ========= ======= DECEMBER 31, 1998 ----------------------------------------------------------------------------------- TOTAL COST BUILDINGS NET OF AND ACCUMULATED ACCUMULATED PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES - ------------- ----------- ------------ --------- ------------ ------------ ------------ The Park................. 719 4,080 4,799 58 4,741 2,728 The Pines................ 601 3,422 4,023 49 3,974 2,226 The Stratford............ 1,920 11,140 13,060 364 12,696 5,945 Tierra Bonita............ 2,081 10,236 12,317 325 11,992 6,000 Timbermill............... 778 5,341 6,119 767 5,352 --(2) Timbertree............... 2,334 13,688 16,022 685 15,337 7,843 Township at Highlands.... 1,059 14,075 15,134 2,520 12,614 9,500 Trails of Ashford........ 3,237 14,608 17,845 463 17,382 9,050 Twinbridge............... 310 1,833 2,143 91 2,052 1,131 Victoria Station......... 425 5,276 5,701 437 5,264 3,339 Villa La Paz............. 573 3,285 3,858 108 3,750 --(2) Villa Ladera............. 1,765 10,988 12,753 1,368 11,385 5,502 Village Creek at Brookhill............... 2,446 14,860 17,306 2,631 14,675 --(3) Village Crossing......... 2,259 8,687 10,946 230 10,716 7,000 Vista Ventana Apartments.............. 2,196 10,744 12,940 305 12,635 6,400 Walnut Springs........... 851 8,524 9,375 2,478 6,897 4,811 Waterford................ 533 6,474 7,007 1,759 5,248 3,973 Waterways Village........ 4,504 12,016 16,520 789 15,731 7,771 Weatherly................ 1,275 7,237 8,512 84 8,428 4,642 Weslayan I............... 130 366 496 184 312 -- West 135th Street........ 259 12,905 13,164 895 12,269 1,054 West Way Village......... 3,353 7,241 10,594 317 10,277 4,846 Wickertree............... 1,225 7,133 8,358 362 7,996 4,123 Wildflower............... 705 4,631 5,336 199 5,137 2,065 Williams Cove............ 1,227 7,480 8,707 1,459 7,248 3,822 Williamsburg............. 3,103 15,457 18,560 446 18,114 12,535 Windridge................ 1,374 8,568 9,942 293 9,649 6,270 Windsor Landing.......... 1,641 9,456 11,097 418 10,679 5,421 Windward at the Villages................ 1,595 9,351 10,946 467 10,479 4,615 Woodhill Associates...... 1,578 14,390 15,968 4,679 11,289 5,770 Woodhollow............... 658 3,891 4,549 167 4,382 2,082 Woodland Ridge........... 1,021 4,966 5,987 1,628 4,359 2,060 Woodlands/Odessa......... 676 4,512 5,188 806 4,382 --(2) Woodlands/Tyler.......... 1,029 6,390 7,419 1,224 6,195 4,156 Yorktree................. 1,968 11,863 13,831 501 13,330 6,604 ----------- --------- --------- ------- --------- --------- 401,009 2,337,856 2,738,865 228,155 2,510,710 1,271,380 ----------- --------- --------- ------- --------- --------- Other Land and Assets.... 3,859 1,141 5,000 -- 5,000 ----------- --------- --------- ------- --------- --------- 404,868 2,338,997 2,743,865 228,155 2,515,710 1,271,380 =========== ========= ========= ======= ========= =========
- --------------- (1) Debt is owned by the Company and is therefore eliminated in consolidation. (2) Pledged as security under one of the Company's credit facilities. (3) Pledged as additional collateral for secured tax-exempt financing. F-39 82 AIMCO PROPERTIES, L.P. REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
1998 1997 1996 ---------- ---------- -------- REAL ESTATE Balance at beginning of year............................ $1,657,207 $ 865,222 $477,162 Additions during the year: Real estate acquisitions............................. 1,058,428 786,571 388,574 Additions............................................ 78,270 26,808 17,993 Sales/transfers to held for sale..................... (50,040) (21,394) (18,507) ---------- ---------- -------- Balance at end of year.................................. $2,743,865 $1,657,207 $865,222 ========== ========== ======== ACCUMULATED DEPRECIATION Balance at beginning of year............................ $ 153,285 $ 120,077 $ 28,737 Additions during the year: Depreciation......................................... 83,908 37,741 19,556 Additions............................................ -- -- 73,189 Sales/transfers to held for sale..................... (9,038) (4,533) (1,405) ---------- ---------- -------- Balance at end of year.................................. $ 228,155 $ 153,285 $120,077 ========== ========== ========
F-40 83 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 -- Second Amended and Restated Agreement and Plan of Merger, dated as of January 22, 1999, by and between Apartment Investment and Management Company and Insignia Properties Trust (Exhibit 2.2 to the Current Report on Form 8-K of Insignia Properties Trust, dated February 11, 1999, is incorporated herein by this reference) 2.2 -- Agreement and Plan of Merger, dated as of December 23, 1997, by and between Apartment Investment and Management Company and Ambassador Apartments, Inc. (Exhibit 2.1 to AIMCO's Current Report on Form 8-K, dated December 23, 1997, is incorporated herein by this reference) 2.3 -- Amended and Restated Agreement and Plan of Merger, dated as of May 26, 1998, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., Insignia Financial Group, Inc., and Insignia/ESG Holdings, Inc. (Exhibit 2.1 to AIMCO's Registration Statement on Form S-4, filed August 5, 1998, is incorporated herein by this reference) 10.1 -- Amended and Restated Credit Agreement (Unsecured Revolver-to-Term Facility), dated as of October 1, 1998, among AIMCO Properties, L.P., Bank of America National Trust and Savings Association, and BankBoston, N.A. (Exhibit 10.1 to AIMCO's Current Report on Form 8-K, dated October 1, 1998, is incorporated herein by this reference) 10.2 -- First Amendment to Credit Agreement, dated as of November 6, 1998, by and among AIMCO Properties, L.P., the financial institutions listed on the signature pages thereof and Bank of America National Trust and Savings Association (Exhibit 10.2 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.3 -- Promissory Note, dated October 1, 1998, in the principal amount of $65,000,000 issued by AIMCO Properties, L.P. to Bank of America National Trust and Savings Association, and BankBoston, N.A. (Exhibit 10.2 to AIMCO's Current Report on Form 8-K, dated October 1, 1998, is incorporated herein by this reference) 10.4 -- Promissory Note, dated October 1, 1998, in the principal amount of $35,000,000 issued by AIMCO Properties, L.P. to Bank of America National Trust and Savings Association, and BankBoston, N.A. (Exhibit 10.3 to AIMCO's Current Report on Form 8-K, dated October 1, 1998, is incorporated herein by this reference) 10.5 -- Swing Line Promissory Note, dated October 1, 1998, in the principal amount of $30,000,000, issued by AIMCO Properties, L.P. to Bank of America National Trust and Savings Association, and BankBoston, N.A. (Exhibit 10.4 to AIMCO's Current Report on Form 8-K, dated October 1, 1998, is incorporated herein by this reference) 10.6 -- Payment Guaranty of Non-Preferred Stock Subsidiaries, dated as of October 1, 1998, by Apartment Investment and Management Company, AIMCO Holdings QRS, Inc., AIMCO/OTC QRS, Inc., AIMCO Holdings, L.P., AIMCO-GP, Inc., AIMCO-LP, Inc., AIMCO Properties Finance Corp., AIMCO Somerset, Inc., Ambassador II, L.P., Ambassador X, L.P., Ambassador IV, Inc., Ambassador V, Inc., Ambassador Florida Partners Inc. and A.J. Two, Inc. (Exhibit 10.5 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference)
84
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.7 -- Payment Guaranty of Preferred Stock Subsidiaries, dated as of October 1, 1998, by Property Asset Management Services, Inc., Property Asset Management Services, L.P., NHP Management Company and Property Asset Management Services-California, L.L.C. (Exhibit 10.6 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference) 10.8 -- Payment Guaranty of Non-Preferred Stock Subsidiaries, dated as of October 1, 1998, by CPF XIV/St. Charleston, Inc., CPF XIV/Torrey Pines, Inc., CPF XIV/ Sun River, Inc., CPF XIV/Lakeside Place, Inc., ConCap CCP/IV Stratford Place Properties, Inc., ConCap CCP/IV River's Edge Properties, Inc., PRA, Inc. and National Property Investors, Inc. (Exhibit 10.7 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference) 10.9 -- Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 29, 1994 as amended and restated as of October 1, 1998 (Exhibit 10.8 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference) 10.10 -- First Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of November 6, 1998 (Exhibit 10.9 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1998, is incorporated herein by this reference) 10.11 -- Second Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of December 30, 1998 (Exhibit 10.1 to Amendment No. 1 to AIMCO's Current Report on Form 8-K/A, filed February 11, 1999, is incorporated herein by this reference) 10.12 -- Third Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of February 18, 1999 (Exhibit 10.12 to AIMCO's Annual Report of Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.13 -- Credit Agreement dated December 30, 1997, by and among Insignia Properties, L.P., Lehman Commercial Paper Inc., as lending agent, First Union National Bank, as administrative agent, and the lenders from time to party thereto (Exhibit 10.8 to Form S-4 of Insignia Properties Trust, filed May 28, 1998, is incorporated herein by this reference) 10.14 -- Unconditional Guaranty, dated as of December 30, 1997, made by Insignia Properties Trust in favor of First Union National Bank (Exhibit 10.9 to Form S-4 of Insignia Properties Trust, filed May 28, 1998, is incorporated herein by this reference) 10.15 -- Shareholders Agreement, dated October 1, 1998, by and among Apartment Investment and Management Company, Andrew L. Farkas, James A. Aston and Frank M. Garrison (Exhibit 10.4 to AIMCO's Schedule 13D filed on October 15, 1998, is incorporated herein by this reference) (Exhibit 10.16 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.16 -- $300,000,000 Interim Term Loan Agreement, dated as of October 1, 1998, among Apartment Investment and Management Company, AIMCO Properties, L.P., the several lenders from time to time parties thereto, Lehman Brothers, Inc., and Lehman Commercial Paper Inc. (Exhibit 10.16 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.17 -- Subsidiaries Guarantee, dated as October 1, 1998, made by each of the entities that are signatories thereto in favor of Lehman Commercial Paper Inc. as administrative agent for the several banks and other financial institutions or entities from time to time parties to the Interim Term Loan Agreement (Exhibit 10.17 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference)
85
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.18 -- Preferred Stock Subsidiaries' Guarantee, dated as of October 1, 1998, made by each of the entities that are signatories thereto in favor of Lehman Commercial Paper Inc., as administrative agent for the several banks and other financial institutions or entities from time to time parties to the Interim Loan Agreement (Exhibit 10.18 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 10.19 -- Common Stock Purchase Agreement made as of August 26, 1997, by and between Apartment Investment and Management Company and ABKB/LaSalle Securities Limited Partnership (Exhibit 99.1 to AIMCO's Current Report on Form 8-K, dated August 26, 1997, is incorporated herein by this reference) 10.20 -- Purchase and Sale Agreement and Joint Escrow Instructions, made and entered into as of August 22, 1997, by and between AIMCO Properties, L.P. and each of the parties identified on Exhibit "A" attached thereto (collectively, the "Winthrop Sellers") (Exhibit 99.3 to AIMCO's Current Report on Form 8-K, dated October 15, 1997, is incorporated herein by this reference) 10.21 -- Letter Agreement, dated October 15, 1997 by and between AIMCO Properties, L.P. and the Winthrop Sellers (Exhibit 99.6 to AIMCO's Current Report on Form 8-K, dated October 15, 1997, is incorporated herein by this reference) 10.22 -- Summary of Arrangement for Sale of Stock to Executive Officers (Exhibit 10.104 to AIMCO's Annual Report on Form 10-K for the fiscal year 1996, is incorporated herein by this reference)* 10.23 -- Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (Annex A to AIMCO's Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 1997, is incorporated herein by this reference)* 10.24 -- Amendment No. 1 to the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (Annex A to AIMCO's Proxy Statement for Annual Meeting of Stockholders to be held on May 8, 1998, is incorporated herein by this reference)* 10.25 -- Apartment Investment and Management Company 1998 Incentive Compensation Plan (Annex B to AIMCO's Proxy Statement for Annual Meeting of Stockholders to be held on May 8, 1998, is incorporated herein by this reference)* 10.26 -- Employment Contract, executed on July 29, 1994, by and between AIMCO Properties, L.P. and Peter Kompaniez (Exhibit 10.44A to AIMCO's Annual Report on Form 10-K for the fiscal year 1994, is incorporated herein by this reference)* 10.27 -- Real Estate Acquisition Agreement, dated as of May 22, 1997, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., Demeter Holdings Corporation, Phemus Corporation, Capricorn Investors, L.P., J. Roderick Heller, III and NHP Partners LLC (Exhibit 2.1 to AIMCO's Current Report on Form 8-K, dated June 3, 1997, is incorporated herein by this reference) 10.28 -- Contribution Agreement, dated as of January 31, 1998, by and between Apartment Investment and Management Company and Terry Considine and Peter K. Kompaniez (Exhibit 2.1 to AIMCO's Current Report on Form 8-K, dated January 31, 1998, is incorporated herein by this reference)* 10.29 -- Amended and Restated Assignment and Assumption Agreement, dated as of December 7, 1998, by and among Insignia Properties, L.P. and AIMCO Properties, L.P. (Exhibit 10.1 to the Current Report on Form 8-K of Insignia Properties Trust, dated February 11, 1999, is incorporated herein by this reference) 10.30 -- Amended and Restated Indemnification Agreement, dated as of May 26, 1998, by and between Apartment Investment and Management Company and Insignia/ESG Holdings, Inc. (Exhibit 2.2 to AIMCO's Registration Statement on Form S-4, filed August 5, 1998, is incorporated herein by this reference) 10.31 -- Form of Restricted Stock Agreement (1997 Stock Award and Incentive Plan) (Exhibit 10.11 to AIMCO's Quarterly Report on Form 10-Q for the quarterly period ending September 30, 1997, is incorporated herein by this reference)*
86
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.32 -- Apartment Investment and Management Company Non-Qualified Employee Stock Option Plan, adopted August 29, 1996 (Exhibit 10.8 to AIMCO's Quarterly Report on Form 10/Q-A for the quarterly period ending September 30, 1996, is incorporated herein by this reference)* 10.33 -- Amended and Restated Apartment Investment and Management Company Non-Qualified Employee Stock Option Plan (Annex B to AIMCO's Proxy Statement for the Annual Meeting of Stockholders to be held on April 24, 1997, is incorporated herein by this reference)* 10.34 -- Employment Contract executed on July 29, 1994 by and between AIMCO Properties, LP and Terry Considine (Exhibit 10.44C to AIMCO's Annual Report on Form 10-K for the fiscal year 1994, is incorporated herein by this reference)* 10.35 -- Employment Contract executed on July 29, 1994 by and between AIMCO Properties, LP and Steven D. Ira (Exhibit 10.44D to AIMCO's Annual Report on Form 10-K for the fiscal year 1994, is incorporated herein by this reference)* 10.36 -- The 1994 Stock Incentive Plan for Officers, Directors and Key Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P. and Subsidiaries (Exhibit 10.40 to Ambassador Apartments, Inc. Annual Report on Form 10-K for the fiscal year 1997, is incorporated herein by this reference)* 10.37 -- Amendment to the 1994 Stock Incentive Plan for Officers, Directors and Key Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P. and Subsidiaries (Exhibit 10.41 to Ambassador Apartments, Inc. Annual Report on Form 10-K for the fiscal year 1997, is incorporated herein by this reference)* 10.38 -- The 1996 Stock Incentive Plan for Officers, Directors and Key Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P. and Subsidiaries, as amended March 20, 1997 (Exhibit 10.42 to Ambassador Apartments, Inc. Annual Report on Form 10-K for the fiscal year 1997, is incorporated herein by this reference)* 10.39 -- Insignia 1992 Stock Incentive Plan, as amended through March 28, 1994 and November 13, 1995 (Exhibit 10.1 to Insignia Financial Group, Inc. Annual Report on Form 10-K for the fiscal year 1997, is incorporated herein by this reference)* 10.40 -- NHP Incorporated 1990 Stock Option Plan (Exhibit 10.9 to NHP Incorporated Annual Report on Form 10-K for the fiscal year 1995, is incorporated herein by this reference)* 10.41 -- NHP Incorporated 1995 Incentive Stock Option Plan (Exhibit 10.10 to NHP Incorporated Annual Report on Form 10-K for the fiscal year 1995, is incorporated herein by this reference)* 10.42 -- Form of Incentive Stock Option Agreement (1997 Stock Award and Incentive Plan) (Exhibit 10.42 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference)* 10.43 -- Contribution and Management Agreement, dated as of June 15, 1998, by and between Apartment Investment and Management Company and AIMCO Properties, L.P. (Exhibit 10.2 to Amendment No. 2 to Form 10 of AIMCO Properties, L.P., filed October 28, 1998, is incorporate herein by this reference) 10.44 -- Convertible Promissory Note from AIMCO Properties, L.P. to AIMCO-LP Inc. in the amount of $149,500,000 (Exhibit 10.3 to Amendment No. 2 to Form 10 of AIMCO Properties, L.P., filed October 28, 1998, is incorporated herein by this reference) 21.1 -- List of Subsidiaries (Exhibit 21.1 to AIMCO's Annual Report on Form 10-K for the fiscal year 1998, is incorporated herein by this reference) 23.1 -- Consent of Ernst & Young LLP 27.1 -- Financial Data Schedule 99.1 -- Agreement re: disclosure of long-term debt instruments
- --------------- (1) Schedules and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request. * Management contract or compensatory plan or arrangement. EX-23.1 2 CONSENT OF ERNST & YOUNG L.L.P 1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-4 No. 333-61409) and the Registration Statement (Form S-4 No. 333-60355) of AIMCO Properties, L.P. of our report dated March 11, 1999, with respect to the consolidated financial statements and schedule of AIMCO Properties, L.P. included in this Annual Report (Form 10-K) for the year ended December 31, 1998. /s/ Ernst & Young LLP Denver, Colorado March 29, 1999 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K. YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 106,535 0 0 0 0 0 2,743,865 228,155 4,186,764 0 1,601,730 149,500 642,120 0 1,511,215 4,186,764 396,638 425,890 257,716 277,869 0 0 88,208 68,928 0 68,928 0 0 0 68,928 0.80 0.78
EX-99.1 4 AGREEMENT RE: DISCLOSURE LONG TERM DEBT INSTRUMENT 1 EXHIBIT 99.1 Agreement Regarding Disclosure of Long-Term Debt Instruments In reliance upon Item 601(b)(4)(iii)(A), of Regulation S-K, AIMCO Properties, L.P., a Delaware limited partnership (the "Partnership") has not filed as an exhibit to its Annual Report on Form 10-K for the fiscal year ended December 31, 1998, any instrument with respect to long-term debt not being registered where the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the Partnership and its subsidiaries on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A), of Regulation S-K, the Partnership hereby agrees to furnish a copy of any such agreements to the Securities Exchange Commission upon request. AIMCO PROPERTIES, L.P. By: AIMCO-GP, Inc. its General Partner By: /s/ PETER KOMPANIEZ -------------------------- Peter Kompaniez President -----END PRIVACY-ENHANCED MESSAGE-----