-----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, SKmbF52OEBUOlHqysBp2EQQTLItS6hFpppdU1K1/BswUXlkw44JJRAyH54t2Ayt2 +mEBknhcoIpWcX6WTIbvQw== 0000950134-99-002645.txt : 19990405 0000950134-99-002645.hdr.sgml : 19990405 ACCESSION NUMBER: 0000950134-99-002645 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19990402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APARTMENT INVESTMENT & MANAGEMENT CO CENTRAL INDEX KEY: 0000922864 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 841259577 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 333-60355 FILM NUMBER: 99586847 BUSINESS ADDRESS: STREET 1: 1873 S BELLAIRE ST STREET 2: SUITE 1700 CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE ST STREET 2: 17TH FL CITY: DENVER STATE: CO ZIP: 80222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIMCO PROPERTIES LP CENTRAL INDEX KEY: 0000926660 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 841275621 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: SEC FILE NUMBER: 333-60355-01 FILM NUMBER: 99586848 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET SUITE 1700 CITY: DENVER STATE: CO ZIP: 80222-8101 BUSINESS PHONE: 3037578101 424B3 1 424B3 - SHAKER SQUARE LP 1 File Pursuant to Rule 424(b)(3) Registration Statement No. 333-60355 Prospectus Supplement to Prospectus dated March 26, 1999 PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED MARCH 26, 1999) AIMCO Properties, L.P. is offering to acquire units of limited partnership interest of Shaker Square, LP in exchange for your choice of: 2,656 of our 8.0% Class Two Partnership Preferred Units; 1,764.50 of our Partnership Common Units; or $66,400.00 in cash. Generally, you will not recognize any immediate taxable gain or loss if you exchange your units solely for our securities. However, you will recognize taxable gain or loss if you exchange your units for cash. We have retained Robert A. Stanger & Co., Inc. to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Our offer consideration will be reduced for any distributions subsequently made by your partnership prior to the expiration of our offer. We will only accept a maximum of 24% of the outstanding units in response to our offer. If more units are tendered to us, we will generally accept units on a pro rata basis according to the number of units tendered by each person. Our offer is not subject to any minimum number of units being tendered. You will not pay any fees or commissions if you tender your units. Our offer will expire at 5:00 p.m., New York City time, on June 4, 1999, unless we extend the deadline. You may withdraw any tendered units at any time before we have accepted them for payment. SEE "RISK FACTORS" BEGINNING ON PAGE S-23 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 2 OF THE ACCOMPANYING PROSPECTUS FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR OFFER, INCLUDING THE FOLLOWING: - We determined the offer consideration of $66,400.00 per unit without any arms-length negotiations. Accordingly, our offer consideration may not reflect the fair market value of your units. - Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. - We are making this offer with a view to making a profit and there is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. - Continuation of your partnership will result in our affiliates continuing to receive management fees from your partnership which would not be payable if your partnership was liquidated. - It is possible that we may conduct a subsequent offer at a higher price more than one year after expiration of this offer. - Unlike your partnership, our policy is to reinvest proceeds from the sale of our properties or refinancing of our indebtedness. - We may change our investment, acquisition or financing policies without a vote of our securityholders. - If you acquire our securities, your investment will change from holding an interest in a single property to holding an interest in our large portfolio of properties, thereby fundamentally changing the nature of your investment. - We cannot predict when the property owned by your partnership may be sold. - Recently, Moody's Investors Service revised its outlook for AIMCO's ratings from stable to negative. - There is currently no market for the Partnership Preferred Units or Partnership Common Units. Neither the Securities and Exchange Commission nor any State Securities Commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus Supplement or the accompanying Prospectus. Any representation to the contrary is a criminal offense. The Attorney General of the State of New York has not passed on or endorsed the merits of this offer. Any representation to the contrary is unlawful. March 31, 1999 2 TABLE OF CONTENTS
PAGE ----- SUMMARY........................................ S-1 The Offer.................................... S-1 The AIMCO Operating Partnership.............. S-1 Affiliation with your General Partner........ S-1 Risk Factors................................. S-1 Background and Reasons for the Offer......... S-6 Valuation of Units........................... S-9 Fairness of the Offer........................ S-10 Stanger Analysis............................. S-11 Your Partnership............................. S-11 Terms of the Offer........................... S-12 Federal Income Tax Consequences.............. S-14 Comparison of Your Partnership and the AIMCO Operating Partnership...................... S-14 Comparison of Your Units and AIMCO OP Units.. S-14 Conflicts of Interest........................ S-15 Source and Amount of Funds and Transactional Expenses................................... S-16 Summary Financial Information of AIMCO Properties, L.P............................ S-17 Summary Pro Forma Financial and Operating Information of AIMCO Properties, L.P....... S-19 Summary Financial Information of Shaker Square, LP................................. S-21 Comparative Per Unit Data.................... S-21 THE AIMCO OPERATING PARTNERSHIP................ S-22 RISK FACTORS................................... S-23 Risks to Unitholders Who Tender Their Units in the Offer............................... S-23 Offer Consideration Not Based on Third Party Appraisal or Arms-Length Negotiation.............................. S-23 Offer Consideration May Not Represent Fair Market Value............................. S-23 Offer Consideration Does Not Reflect Future Prospects................................ S-23 Offer Consideration Based on Our Estimate of Liquidation Proceeds.................. S-23 Offer Consideration May Be Less Than Liquidation Value........................ S-23 Holding Units May Result in Greater Future Value.................................... S-23 Conflicts of Interest with Respect to the Offer.................................... S-23 Conflicts of Interest Relating to Management Fees.......................... S-24 Possible Subsequent Offer at a Higher Price.................................... S-24 Possible Recognition of Taxable Gain on a Sale of Your Units....................... S-24 Fairness Opinion of Third Party Relied on Information We Provided.................. S-24 Loss of Future Distributions from Your Partnership.............................. S-24 Possible Effect of the Other Exchange Offers on Us............................. S-25 Potential Delay in Payments................ S-25 Risks to Unitholders Exchanging Units for OP Units in the Offer......................... S-25 Fundamental Change in Nature of Investment............................... S-25 Fundamental Change in Number of Properties Owned.................................... S-25 Lack of Trading Market for OP Units........ S-25 Uncertain Future Distributions............. S-25 Possible Reduction in Required Distributions on Preferred OP Units...... S-25 Possible Redemption of Preferred Stock..... S-26 Possible Recognition of Taxable Gains on OP Units.................................... S-26 Limitations on Effecting a Change of Control.................................. S-26 Limitation on Transfer of OP Units......... S-26 Limited Voting Rights of Holders of OP Units.................................... S-26 Market Prices for AIMCO's Securities May Fluctuate................................ S-26 Litigation Associated with Partnership Acquisitions............................. S-26
PAGE ----- Dilution of Interests of Holders of OP Units.................................... S-26 Risks to Unitholders Who Do Not Tender Their Units in the Offer......................... S-27 Possible Increase in Control of Your Partnership by Us........................ S-27 Recognition of Gain Resulting from Possible Future Reduction in Your Partnership Liabilities.............................. S-27 Possible Termination of Your Partnership for Federal Income Tax Purposes.......... S-27 Risk of Inability to Transfer Units for 12-Month Period.......................... S-27 Possible Change in Time Frame Regarding Sale of Property......................... S-27 Balloon Payments........................... S-27 SPECIAL FACTORS TO CONSIDER.................... S-28 BACKGROUND AND REASONS FOR THE OFFER........... S-28 Background of the Offer...................... S-28 Alternatives Considered...................... S-30 Expected Benefits of the Offer............... S-31 Disadvantages of the Offer................... S-32 VALUATION OF UNITS............................. S-34 FAIRNESS OF THE OFFER.......................... S-36 Position of the General Partner of Your Partnership With Respect to the Offer; Fairness................................... S-36 Fairness to Unitholders who Tender their Units...................................... S-37 Fairness to Unitholders who do not Tender their Units................................ S-38 Comparison of Consideration to Alternative Consideration.............................. S-38 Allocation of Consideration.................. S-41 STANGER ANALYSIS............................... S-42 Experience of Stanger........................ S-42 Summary of Materials Considered.............. S-42 Summary of Reviews........................... S-44 Conclusions.................................. S-46 Assumptions, Limitations and Qualifications............................. S-46 Compensation and Material Relationships...... S-47 YOUR PARTNERSHIP............................... S-48 General...................................... S-48 Your Partnership and its Property............ S-48 Property Management.......................... S-48 Investment Objectives and Policies; Sale or Financing of Investments................... S-48 Capital Replacement.......................... S-49 Borrowing Policies........................... S-49 Competition.................................. S-50 Legal Proceedings............................ S-50 History of the Partnership................... S-50 Fiduciary Responsibility of the General Partner of Your Partnership................ S-50 Distributions and Transfers of Units......... S-51 Beneficial Ownership of Interests in Your Partnership................................ S-51 Compensation Paid to the General Partner and its Affiliates............................. S-51 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP.................................. S-53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP.......................... S-54 THE OFFER...................................... S-57 Terms of the Offer; Expiration Date.......... S-57 Acceptance for Payment and Payment for Units...................................... S-57 Procedure for Tendering Units................ S-58 Withdrawal Rights............................ S-61 Extension of Tender Period; Termination; Amendment.................................. S-61
i 3
PAGE ----- Proration.................................... S-62 Fractional OP Units.......................... S-62 Future Plans of the AIMCO Operating Partnership................................ S-62 Voting by the AIMCO Operating Partnership.... S-63 Dissenters' Rights........................... S-63 Conditions of the Offer...................... S-63 Effects of the Offer......................... S-66 Certain Legal Matters........................ S-66 Fees and Expenses............................ S-68 Accounting Treatment......................... S-68 FEDERAL INCOME TAX CONSEQUENCES................ S-69 Tax Opinions................................. S-69 Tax Consequences of Exchanging Units Solely for OP Units............................... S-70 Disguised Sales.............................. S-71 Tax Consequences of Exchanging Units for Cash and OP Units............................... S-71 Tax Consequences of Exchanging Units Solely for Cash................................... S-72 Adjusted Tax Basis........................... S-72 Character of Gain or Loss Recognized Pursuant to the Offer............................... S-72 Passive Activity Losses...................... S-73 Tax Reporting................................ S-73 Foreign Offerees............................. S-73 Tax Consequences of a Termination of Your Partnership................................ S-73 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP........................ S-75 COMPARISON OF YOUR UNITS AND AIMCO OP UNITS.... S-82 DESCRIPTION OF PREFERRED OP UNITS.............. S-88 General...................................... S-88 Ranking...................................... S-88
PAGE ----- Distributions................................ S-88 Allocation................................... S-89 Liquidation Preference....................... S-89 Redemption................................... S-90 Voting Rights................................ S-90 Restrictions on Transfer..................... S-91 DESCRIPTION OF CLASS I PREFERRED STOCK......... S-91 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK.............................. S-93 CONFLICTS OF INTEREST.......................... S-97 Conflicts of Interest with Respect to the Offer...................................... S-97 Conflicts of Interest that Currently Exist for Your Partnership....................... S-97 Competition Among Properties................. S-97 Features Discouraging Potential Takeovers.... S-97 Future Exchange Offers....................... S-98 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES..................................... S-98 LEGAL MATTERS.................................. S-99 EXPERTS........................................ S-99 INDEX TO FINANCIAL STATEMENTS.................. F-1 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. ............................ P-1 OPINION OF ROBERT A. STANGER & CO., INC. ...... A-1 DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. .............................. B-1
ii 4 SUMMARY This summary highlights some of the information in this Prospectus Supplement and the accompanying Prospectus. THE OFFER In exchange for each of your units, we are offering you a choice of: - 1,764.50 of our Class Two Partnership Preferred Units; - 1,764.50 of our Partnership Common Units; or - $66,440.00 in cash; in each case, subject to reduction for any distribution subsequently made by your partnership prior to the expiration of our offer. We will accept a maximum of 24% of the outstanding units in response to our offer. Our offer is not subject to any minimum number of units being tendered. Our offer will expire at 5:00 p.m., New York City time, on June 4, 1999, unless we extend the deadline. The original offer price per unit in 1985 was $66,400. For the five years ended December 31, 1998, your partnership paid distributions of $7,917 per unit. THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of Apartment Investment and Management Company, or "AIMCO." AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiary, AIMCO-GP, Inc. ("AIMCO GP"), AIMCO acts as the sole general partner of the AIMCO Operating Partnership. As of December 31, 1998, AIMCO-GP and another AIMCO subsidiary, AIMCO-LP, Inc., a limited partner of the AIMCO Operating Partnership (the "Special Limited Partner"), owned approximately an 83% interest in the AIMCO Operating Partnership. As of December 31, 1998, our portfolio of owned or managed properties included 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, we believe that we are one of the largest owners and managers of multifamily apartment properties in the United States. As of December 31, 1998, we: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. Our principal executive offices are located at 1873 South Bellaire Street, Denver, Colorado 80222, and our telephone number is (303) 757-8101. AFFILIATION WITH YOUR GENERAL PARTNER As a result of our October 1, 1998 merger with Insignia Financial Group, Inc. and our February 26, 1999 merger with Insignia Properties Trust, we acquired a 100% ownership interest in the general partner of your partnership, Davidson Properties Inc. & Residual Equities, and the company that manages the property owned by your partnership. RISK FACTORS You should carefully consider the risks set forth under "Risk Factors" beginning on page S-23 of this Prospectus Supplement and on page 2 of the accompanying Prospectus. The following highlights some of the S-1 5 risks associated with our offer and the disadvantages of the offer to you and should be considered when you review "Summary -- Background and Reasons for the Offer -- Expected Benefits of the Offer": RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER OFFER CONSIDERATION NOT BASED ON THIRD PARTY APPRAISAL OR ARMS-LENGTH NEGOTIATION. We did not use any third-party appraisal or valuation to determine the value of any property owned by your partnership. We established the terms of our offer, including the exchange ratios and the cash consideration, without any arms-length negotiations. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. The offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than our offer consideration. OFFER CONSIDERATION DOES NOT REFLECT FUTURE PROSPECTS. Our offer consideration is based on your partnership's historical property income. It does not ascribe any value to potential future improvements in the operating performance of your partnership's property. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property because we think a prospective purchaser of the property would value the property using this method. In doing so, we applied a capitalization rate to your partnership's property income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If property income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. In determining our offer consideration, we estimated your property to be worth $6,140,000, less approximately $179,350 of deferred maintenance and investment. It is possible that a sale of the property could result in your receiving more per unit than in our offer. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more value if you retain your units until your partnership is liquidated. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of ours and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES. Since our subsidiaries receive fees for managing your partnership and its property, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after expiration of this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units. If you exchange your units for both cash and OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free S-2 6 contribution of such units to our operating partnership. If you tender your units for cash or for both cash and OP Units, the "amount realized" will be measured by the sum of the cash received plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities exceeds your tax basis for the units sold, you will recognize gain. Consequently, your tax liability resulting from such gain could exceed the amount of cash you receive from us. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership, and whether the "passive loss" rules apply to your investments. You should review "Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of an exchange of units will not be the same for everyone, you should consult your tax advisor before determining whether to tender your units pursuant to our offer. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is our subsidiary). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. For any units that we acquire from you, you will not receive any future distributions from your partnership's operating cash flow or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from us from our operating cash flow and upon a dissolution, liquidation or wind-up of the AIMCO Operating Partnership. POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." POTENTIAL DELAY IN PAYMENT. We reserve the right to extend the period of time during which our offer is open and thereby delay acceptance for payment of any tendered units. The offer may be extended indefinitely and no payment will be made in respect of tendered units until the expiration of the offer and the acceptance of units for payment. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from a sale of a property or a refinancing of its indebtedness, to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you tender your units for our OP Units, you will have changed your investment from an interest in a partnership that owns and manages one property to an interest in a partnership that invests in and manages a large portfolio of properties. S-3 7 LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a S-4 8 result, we may incur costs associated with defending or settling such litigation or paying any judgment if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. As a result of the offer, we may increase our ability to influence voting decisions with respect to your partnership. However, we will not be able to control voting decisions unless we acquire more units in another transaction, which cannot take place for at least one year after expiration of this offer. Also, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent or approval. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. Gain recognized by you on the disposition of retained units with a holding period of 12 months or less may be classified as short-term capital gain and subject to taxation at ordinary income tax rates. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investment in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to have to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. S-5 9 BALLOON PAYMENTS. Your partnership has approximately $2,929,148 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. BACKGROUND AND REASONS FOR THE OFFER Background of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, we merged with Insignia Financial Group, Inc. In doing so, we acquired a 51% ownership interest in Insignia Properties Trust, which has a 100% ownership interest in the general partner of your partnership and the company that manages the property owned by your partnership. On February 26, 1999, we acquired the remaining 49% interest in Insignia Properties Trust in a merger transaction. One of the consequences of the merger with Insignia is to allow us to make the offer and, if successful, to increase our ownership in your partnership. We contacted Robert A. Stanger & Co., Inc. in August 1998 to discuss the possibility of Stanger providing an independent fairness opinion for our offer consideration. We chose Stanger based on Stanger's expertise and strong reputation in this area of work. On August 28, 1998, we entered into an agreement with Stanger to provide such a fairness opinion for your partnership and other partnerships. Alternatives Considered The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary): Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers. However, a liquidating sale of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. Continuation of Your Partnership Without the Offer. A second alternative would be for your partnership to continue its business without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. We believe it is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. However, there are several risks and disadvantages that result from continuing the operations of your partnership without the offer. If your partnership were to continue operating as presently structured, it could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November, 2002 and require balloon payments totaling $2,929,148. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. In addition, continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, a partner of your partnership would have no opportunity for liquidity unless he were to sell his units in a private transaction. Any such sale would likely be at a very substantial discount from the partner's pro S-6 10 rata share of the fair market value of your partnership's property. There is currently no market for the Preferred OP Units or Common OP Units. Expected Benefits of the Offer We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. The offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to retain or liquidate your investment in your partnership for cash or for units in the AIMCO Operating Partnership. There are four principal advantages of exchanging your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $5,312 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of exchanging your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25 per unit. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. See "The AIMCO Operating Partnership." Assuming no change in the level of our distributions, this is equivalent to a distribution of $4,411.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. S-7 11 The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. Disadvantages of the Offer The principal disadvantages of the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and determining the offer consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of such property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pretax cash proceeds to you than our offer. - OP Units. OP Units lack a public market, have transfer restrictions and must be held for one year before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that a sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of the property and the tax consequences to you and your partners upon a sale of the property. - Possible Recognition of Taxable Gain. If you exercise your redemption right with respect to the OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss in the year of the exchange on such disguised sale. See "Federal Income Tax Consequences -- Disguised Sales." For a description of certain risks of our offer, see "Risk Factors." S-8 12 VALUATION OF UNITS We determined the offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual property income. A capitalization rate is a percentage (rate of return), commonly applied by purchasers of residential real estate to property income to determine the present value of income property. The lower the capitalization rate utilized the higher the value produced, and the higher the capitalization rate utilized the lower the value produced. We used your partnership's property income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered the partnership's property income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your partnership's property income from 1997 to 1998. Because your partnership's property income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. Although the direct capitalization method is a widely-accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our offer consideration. We determined our offer consideration as follows: Property income............................................. $ 660,000 Capitalization rate......................................... 10.75% ----------- Gross valuation of partnership property..................... $ 6,140,000 Plus: Cash and cash equivalents............................. 164,322 Plus: Other partnership assets, net of security deposits.... 351,450 Less: Mortgage debt, including accrued interest............. (3,562,255) Less: Accounts payable and accrued expenses................. (79,529) Less: Other liabilities..................................... 0 ----------- Partnership valuation before taxes and certain costs........ $ 3,013,988 Less: Disposition fees...................................... (25,138) Less: Extraordinary capital expenditures and deferred maintenance............................................... (179,350) Less: Closing costs......................................... (153,500) ----------- Estimated net valuation of your partnership................. $ 2,656,000 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ----------- Estimated net valuation of units............................ $ 2,656,000 Total number of units............................. 40.0 ----------- Estimated valuation per unit................................ $ 66,400 =========== Cash consideration per unit................................. $ 66,400 ===========
In order to determine the number of Preferred OP Units we are offering for each of your units, we divided the cash offer consideration of $66,400 by the $25 liquidation preference of each Preferred OP Unit to get 2,656 Preferred OP Units per unit. S-9 13 In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $66,400 by a price of $37.63 (the average closing price of AIMCO's Class A Common Stock on the NYSE for the 30 trading days ending March 23, 1999) to get 1,764.50 Common OP Units per unit. FAIRNESS OF THE OFFER Fairness to Unitholders. Your general partner is our subsidiary. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner did not participate in the structuring of the offer. We and your general partner believe that the offer and all forms of consideration offered is fair to you and the other limited partners of your partnership. We have retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to you of our offer consideration. Stanger is not affiliated with us or your general partner. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. If you choose not to tender any units, your interest in your partnership will remain unchanged, except that we may own a larger share of the limited partnership interests in your partnership than we did before the offer. If we acquire a substantial number of units pursuant to the offer, we may be in a position to influence voting decisions with respect to your partnership. Your general partner (which is our subsidiary) has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Comparison of Offer Price to Other Values. In evaluating the offer, your general partner (which is our subsidiary) has compared our offer consideration to: - your general partner's estimate of the net proceeds that would be distributed to you and your partners if your partnership was liquidated; - your general partner's estimate of the going concern value of your partnership if it continued operating as an independent stand-alone entity; and - the net book value of your partnership; The results of these comparative analyses are summarized as follows: COMPARISON TABLE
PER UNIT --------- Cash offer consideration.................................... $ 66,400 Partnership Preferred Units................................. $ 66,400 Partnership Common Units.................................... $ 66,400 Alternatives: Estimated liquidation proceeds............................ $ 66,400 Estimated going concern value(1).......................... $ 49,735 Estimated alternative going concern value(2).............. $ 55,977 Net book value (deficit).................................. $(584,112)
- --------------- (1) Assumes a refinancing of the partnership property's mortgage when it comes due. (2) Assumes a sale of the partnership property when the mortgage is due, rather than a refinancing of the mortgage. S-10 14 STANGER ANALYSIS We engaged Stanger to conduct an analysis of our offer and to render its opinion based on the review, analysis, scope and limitations described therein, as to the fairness to you of our offer consideration from a financial point of view. The full text of the opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations on the review and analysis, is set forth in Appendix A and should be read in its entirety. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. We have agreed to indemnify Stanger against certain liabilities arising out of its engagement to render the fairness opinion. Based on its analysis, and subject to the assumptions, limitations and qualifications cited in its opinion, Stanger concluded that our offer consideration is fair to you from a financial point of view. Stanger has rendered similar fairness opinions with regard to the other tender offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. YOUR PARTNERSHIP Your Partnership and its Property. Shaker Square, LP is a Delaware limited partnership which was formed on October 16, 1985 for the purpose of owning and operating a single property located in Whitehall, Ohio, known as "Shaker Square Apartments." The property consists of 194 units. Your partnership has no employees. As of September 30, 1998, there were 40 units of limited partnership interest issued and outstanding, which were held of record by 35 limited partners. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. Your partnership sold 40 limited partnership units in 1985. Between January 1, 1993 and December 31, 1998 your partnership paid cash distributions totalling $7,917 per unit. Your partnership currently owns one property. Property Management. Your partnership's property has been managed by an affiliate of ours. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. Investment Objectives and Policies; Sale or Financing of Investments. Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new capital or reinvest cash in new properties. Your partnership will terminate in July, 2015, unless earlier dissolved. Your general partner has no present intention to liquidate, sell, finance or refinance your partnership property within any specified time period. An investment in your partnership is a finite life investment in which partners receive regular cash distributions out of your partnership's distributable cash flow, if any, and upon liquidation. Borrowing Policies. Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a mortgage note outstanding of $3,319,331, payable to Marine Midland and Bank of America, which bears interest at the rate of 7.60%. The mortgage debt is due in November, 2002. Your partnership also has a second mortgage note outstanding of $119,949, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows your general partner to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. Transfers. Your units are not listed on any national securities exchange or quoted on NASDAQ, and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. Your general partner monitors transfers of the units (i) because the admission of the transferee as a substitute limited partner in your partnership requires the consent of your general partner under your partnership agreement, and (ii) in order to track compliance with applicable safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, your general partner does not S-11 15 monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. TERMS OF THE OFFER General. We are offering to acquire up to 24% of the outstanding 40 units of your partnership, which we do not directly or indirectly own, for consideration per unit of 2,656 Preferred OP Units, 1,764.50 Common OP Units, or $66,400.00 in cash. If you tender units pursuant to the offer, you may choose to receive any combination of such forms of consideration for your units. The offer is made upon the terms and subject to the conditions set forth in this Prospectus Supplement, the accompanying Prospectus and the accompanying Letter of Transmittal, including the instructions thereto, as the same may be supplemented or amended from time to time (the "Letter of Transmittal"). To be eligible to receive Preferred OP Units, Common OP Units or cash pursuant to the offer, you must validly tender and not withdraw your units on or prior to the Expiration Date. For administrative purposes, the transfer of units tendered pursuant to the offer will be deemed to take effect as of January 1, 1999, although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. If you accept our offer and do not specify the consideration you desire on the letter of transmittal, we will issue you Preferred OP Units. Expiration Date. Our offer will expire at 5:00 P.M., New York City time, on June 4, 1999, unless extended. Conditions of the Offer. Our offer is not conditioned on the tender of any minimum number of units. However, our offer is conditioned on a number of other factors. Procedures for Tendering. If you desire to accept our offer, you must complete and sign the Letter of Transmittal in accordance with the instructions contained therein and forward or hand deliver it, together with any other required documents, to the Information Agent. Proration. If the number of units properly tendered and not withdrawn prior to the Expiration Date exceeds 24% of the outstanding units, upon the terms and subject to the conditions of the offer, we will accept all units properly tendered and not withdrawn prior to the expiration date on a pro rata basis. In the event that proration of tendered units is required, we will determine the final proration factor as promptly as practicable after the expiration date. Withdrawal Rights. You may withdraw your tender of units pursuant to the offer at any time prior to their acceptance for payment as provided for herein. Purpose of the Offer. The purpose of our offer is to provide us with an opportunity to increase our investment in apartment properties, and provide you and your partners with an opportunity to liquidate your current investment and to invest in our operating partnership or receive cash, or to retain your units. Fractional OP Units. We will issue fractional Common OP Units or Preferred OP Units, if necessary. Delivery of OP Units and Cash. We will deliver OP Units and cash as soon as practicable after acceptance of units for purchase. Extension; Termination; Amendment. We expressly reserve the right, in our sole discretion, at any time and from time to time, to: - extend the period of time during which the offer is open and thereby delay acceptance of, and payment for, any tendered units; - terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for; - upon the failure to satisfy any of the conditions to the offer, delay the acceptance of, or payment for, any units not already accepted for payment or paid for; and S-12 16 - amend the offer in any respect (subject to applicable rules regarding tender offers), including the nature and form of consideration. The offer may be extended or delayed indefinitely, during which time you will not receive payment for any tendered units. EFFECTS OF THE OFFER. As a result of the offer, we, in our capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners, to the extent of units we purchase pursuant to the offer. The offer will not affect the operation of any property owned by your partnership's because your general partner (which is our subsidiary) and the property manager will remain unchanged. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in this and our other contemplated offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. Voting by the AIMCO Operating Partnership. If we acquire a substantial number of units pursuant to our offer, we may be in a position to influence voting decisions with respect to your partnership. However, we will not be able to control voting decisions unless we acquire more units in another transaction, which cannot take place for at least one year after expiration of this offer. Future Plans for Your Partnership. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business. We have no present intention to cause your partnership to sell its property or to prepay the current mortgage within any specified time period. Certain Legal Matters. Except as set forth in this section, we are not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, and that might be adversely affected by our acquisition of units as contemplated herein. On the same basis, we are not aware of any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to our acquisition of units pursuant to the offer as contemplated herein that have not been made or obtained. We are not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. Fees and Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. We will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses. We will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. We will pay all costs and expenses of printing and mailing this Prospectus Supplement and the accompanying Prospectus and Letter of Transmittal, and the legal and accounting fees and expenses in connection with the offer. We will also pay the fees of Stanger for providing the fairness opinion for the offer. We estimate that our total costs and expenses in making the offer (excluding the purchase price of the units payable to you and your partners) will be approximately $50,000. Accounting Treatment. Upon consummation of the offer, we will account for our investment in any acquired units under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. No Dissenters' Rights. You are not entitled to dissenters' (appraisal) rights in connection with the offer. Other Offers. The AIMCO Operating Partnership is also making similar exchange offers to approximately 90 other limited partnerships in which it controls the general partner, interests in substantially all of which were acquired in the merger on October 1, 1998 with Insignia Financial Group, Inc. and the February 26, 1999 merger with Insignia Properties Trust. Each of such exchange offers is being made by a separate prospectus supplement which is similar to this Prospectus Supplement. Copies of such prospectus supplements may be obtained upon written request from the Information Agent at the address set forth in S-13 17 "-- Information Agent" or on the back cover page of this Prospectus Supplement. The exchange offers may be different for limited partners in each partnership in terms of pricing and percentage of units sought, but the effects of the offers will essentially be the same. In general, we believe that the risk factors (except for certain tax-related risk factors) described herein for this offer will also be applicable to the other offers. Information Agent. River Oaks Partnership Services, Inc. is serving as Information Agent in connection with the offer. Its telephone numbers are (888) 349-2005 and (201) 896-1900. Its fax number is (201) 896-0910. FEDERAL INCOME TAX CONSEQUENCES You will generally not recognize any immediate taxable gain or loss for Federal income tax purposes if you exchange your units solely for Preferred OP Units or Common OP Units. You will recognize a gain or loss for Federal income tax purposes on units you sell for cash. The exchange of your units for cash and OP Units will be treated, for Federal income tax purposes, as a partial sale of such units for cash and as a partial tax-free contribution of such units to our operating partnership. THE FOREGOING SUMMARY IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF TENDERING UNITS IN THE OFFER. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO YOU IN LIGHT OF YOUR SPECIFIC CIRCUMSTANCES OR IF YOU ARE SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS. THE PARTICULAR TAX CONSEQUENCES OF THE OFFER TO YOU WILL DEPEND ON A NUMBER OF FACTORS RELATED TO YOUR TAX SITUATION. YOU SHOULD REVIEW "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS SUPPLEMENT AND "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS," "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNITHOLDERS" AND "OTHER TAX CONSEQUENCES" IN THE ACCOMPANYING PROSPECTUS AND CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES TO YOU OF THE OFFER. COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP There are a number of significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. For example, your general partner (which is our subsidiary) may be removed by the limited partners while the limited partners of the AIMCO Operating Partnership cannot remove the general partner. Also, your partnership is limited as to the number of limited partner interests it may issue while the AIMCO Operating Partnership has no such limitation. COMPARISON OF YOUR UNITS AND AIMCO OP UNITS There are a number of significant differences between your units, Preferred OP Units and Common OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For example, unlike the AIMCO OP Units, you have no redemption rights with respect to your units. As of February 19, 1999, the AIMCO Operating Partnership had approximately 9,729,130 Common OP Units outstanding (excluding interests held by AIMCO) and no Class Two Partnership Preferred Units outstanding. The number of OP Units you may acquire from us in exchange for your units will represent a lower percentage of the outstanding limited partnership interests in the AIMCO Operating Partnership than that of your current ownership interest in your partnership. In response to our offer, you could elect to receive $66,400.00 in cash, 2,656 Preferred OP Units or 1,764.50 Common OP Units. Both your units and the OP Units are subject to transfer restrictions and it is unlikely that a real trading market will ever develop for any of such securities. If you subsequently redeem OP Units for AIMCO Class A Common Stock or Class I Preferred Stock, we can make no assurance as to the value of such shares of AIMCO stock, at that time, which may be less than the cash offer price of $66,400. S-14 18 CONFLICTS OF INTEREST Conflicts of Interest with Respect to the Offer. Your general partner is our subsidiary and, therefore, has substantial conflicts of interest with respect to the offer, including (i) the fact that replacement of your general partner could result in a decrease or elimination of the management fees paid to an affiliate for managing your partnership's property and (ii) our desire to purchase units at a low price and your desire to sell units at a high price. Your general partner makes no recommendation as to whether you should tender or refrain from tendering your units. Conflicts of Interest that Currently Exist for Your Partnership. We own both the general partner of your partnership and the manager of your partnership's property. The general partner does not receive an annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $23,798 for the fiscal year ended December 31, 1998. The property manager received management fees of $65,757 for the fiscal year ended December 31, 1998. We have no current intention of changing the fee structure for your general partner or the property manager. Competition Among Properties. Your partnership's property and other properties owned or managed by us may compete with one another for tenants. However, in some cases it may be difficult to determine precisely the confines of the market area for particular properties and some competition may exist. Furthermore, you should bear in mind that we anticipate acquiring properties in general market areas where your partnership's property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts, staffing and other operational efficiencies. In managing our properties, we will attempt to reduce such conflicts between competing properties by referring prospective tenants to the property considered to be most conveniently located for the tenants' needs. Features Discouraging Potential Takeovers. Certain provisions of our governing documents, as well as statutory provisions under certain state laws, could be used by our management to delay, discourage or thwart efforts of third parties to acquire control of us, or a significant equity interest in us. AIMCO's Charter limits ownership of its common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and AIMCO's Chairman, Terry Considine). The 8.7% ownership limit may have the effect of precluding acquisition of control of us by a third party without the consent of our Board of Directors. Under AIMCO's Charter, the Board of Directors has the authority to classify and reclassify any of its unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as the Board of Directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders' best interests. As a Maryland corporation, AIMCO is subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our shareholders' best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our Board of Directors' prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and only with the approval of shareholders representing 80% of all votes entitled to be cast and 66% of the votes entitled to be cast, excluding the interested shareholder. Maryland law also provides that a person who acquires shares of our stock that represent 20% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Future Exchange Offers. Although we have no current plans to conduct further exchange offers for your units, our plans may change based on future circumstances. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. We might pay a higher price for any future exchange offers we may make for units of your partnership. In any event, we will not acquire any units for at least one year after expiration of this offer. S-15 19 SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES We expect that approximately $630,800 will be required to purchase all of the units sought in our offer, if such units are tendered for cash excluding expenses. We will obtain all such funds from cash from operations, equity issuances and short term borrowings. For a detailed description of estimated expenses to be incurred in the offer, see "Source and Amount of Funds and Transactional Expenses." S-16 20 SUMMARY FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. The historical summary financial data for AIMCO Properties, L.P. for the nine months ended September 30, 1998 and 1997 is unaudited. The historical summary financial data for AIMCO Properties, L.P. for the years ended December 31, 1997, 1996 and 1995 and for the AIMCO Properties, L.P. Predecessors for the period January 10, 1994 through July 28, 1994, and the year ended December 31, 1993, is based on audited financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of the AIMCO Operating Partnership" included in the accompanying Prospectus. All dollar values are in thousands, except per unit data.
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 265,700 $ 127,083 $ 193,006 $100,516 $ 74,947 $ 24,894 Property operating expenses........... (101,600) (50,737) (76,168) (38,400) (30,150) (10,330) Owned property management expenses.... (7,746) (4,344) (6,620) (2,746) (2,276) (711) Depreciation.......................... (59,792) (23,848) (37,741) (19,556) (15,038) (4,727) ---------- ---------- ---------- -------- -------- --------- 96,562 48,154 72,477 39,814 27,483 9,126 ---------- ---------- ---------- -------- -------- --------- SERVICE COMPANY BUSINESS: Management fees and other income...... 13,968 9,173 13,937 8,367 8,132 3,217 Management and other expenses......... (8,101) (5,029) (9,910) (5,352) (4,953) (2,047) Corporate overhead allocation......... (196) (441) (588) (590) (581) -- Other assets, depreciation and amortization........................ (3) (236) (453) (218) (168) (150) Owner and seller bonuses.............. -- -- -- -- -- -- Amortization of management company goodwill............................ -- -- (948) (500) (428) -- ---------- ---------- ---------- -------- -------- --------- 5,668 3,467 2,038 1,707 2,002 1,020 Minority interests in service company business............................ -- 48 (10) 10 (29) (14) ---------- ---------- ---------- -------- -------- --------- Company's shares of income from service company business............ 5,668 3,515 2,028 1,717 1,973 1,006 ---------- ---------- ---------- -------- -------- --------- General and administrative expenses... (7,444) (1,408) (5,396) (1,512) (1,804) (977) Interest income....................... 18,244 4,458 8,676 523 658 123 Interest expense...................... (56,756) (33,359) (51,385) (24,802) (13,322) (1,576) Minority interest in other partnerships........................ (1,052) (777) 1,008 (111) -- -- Equity in losses of unconsolidated partnerships(c)..................... (5,078) (463) (1,798) -- -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... 8,413 456 4,636 -- -- -- Amortization of goodwill.............. (5,071) (711) -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income from operations................ 53,486 19,865 30,246 15,629 14,988 7,702 Gain on disposition of properties..... 2,783 (169) 2,720 44 -- -- Provision for income taxes............ -- -- -- -- -- -- ---------- ---------- ---------- -------- -------- --------- Income (loss) before extraordinary item................................ 56,269 19,696 32,966 15,673 14,988 7,702 Extraordinary item -- early extinguishment of debt.............. -- (269) (269) -- -- -- ---------- ---------- ---------- -------- -------- --------- Net income (loss)..................... $ 56,269 $ 19,427 $ 32,697 $ 15,673 $ 14,988 $ 7,702 ========== ========== ========== ======== ======== ========= OTHER INFORMATION: Total owned properties (end of period)............................. 241 109 147 94 56 48 Total owned apartment units (end of period)............................. 62,955 28,773 40,039 23,764 14,453 12,513 Units under management (end of period)............................. 154,729 71,038 69,587 19,045 19,594 20,758 Basic earnings per Common OP Unit..... $ 0.80 $ 0.53 $ 1.09 $ 1.05 $ 0.86 $ 0.42 Diluted earnings per Common OP Unit... $ 0.79 $ 0.53 $ 1.08 $ 1.04 $ 0.86 $ 0.42 Distributions paid per Common OP Unit................................ $ 1.6875 $ 1.3875 $ 1.85 $ 1.70 $ 1.66 $ 0.29 Cash flows provided by operating activities.......................... 50,825 53,435 73,032 38,806 25,911 16,825 Cash flows used in investing activities.......................... (185,453) (314,814) (717,663) (88,144) (60,821) (186,481) Cash flows provided by (used in) financing activities................ 141,221 293,984 668,549 60,129 30,145 176,800 AIMCO PROPERTIES, L.P. PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(b) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income............... $ 5,805 $ 8,056 Property operating expenses........... (2,263) (3,200) Owned property management expenses.... -- -- Depreciation.......................... (1,151) (1,702) ------- -------- 2,391 3,154 ------- -------- SERVICE COMPANY BUSINESS: Management fees and other income...... 6,533 8,069 Management and other expenses......... (5,823) (6,414) Corporate overhead allocation......... -- -- Other assets, depreciation and amortization........................ (146) (204) Owner and seller bonuses.............. (204) (468) Amortization of management company goodwill............................ -- -- ------- -------- 360 983 Minority interests in service company business............................ -- -- ------- -------- Company's shares of income from service company business............ 360 983 ------- -------- General and administrative expenses... -- -- Interest income....................... -- -- Interest expense...................... (4,214) (3,510) Minority interest in other partnerships........................ -- -- Equity in losses of unconsolidated partnerships(c)..................... -- -- Equity in earnings of unconsolidated subsidiaries(d)..................... -- -- Amortization of goodwill.............. -- -- ------- -------- Income from operations................ (1,463) 627 Gain on disposition of properties..... -- -- Provision for income taxes............ (36) (336) ------- -------- Income (loss) before extraordinary item................................ (1,499) 291 Extraordinary item -- early extinguishment of debt.............. -- -- ------- -------- Net income (loss)..................... $(1,499) $ 291 ======= ======== OTHER INFORMATION: Total owned properties (end of period)............................. 4 4 Total owned apartment units (end of period)............................. 1,711 1,711 Units under management (end of period)............................. 29,343 28,422 Basic earnings per Common OP Unit..... N/A N/A Diluted earnings per Common OP Unit... N/A N/A Distributions paid per Common OP Unit................................ N/A N/A Cash flows provided by operating activities.......................... 2,678 2,203 Cash flows used in investing activities.......................... (924) (16,352) Cash flows provided by (used in) financing activities................ (1,032) 14,114
S-17 21
AIMCO PROPERTIES, L.P. ------------------------------------------------------------------------- FOR THE PERIOD JULY 29, FOR THE NINE MONTHS FOR THE YEAR ENDED 1994 ENDED SEPTEMBER 30, DECEMBER 31, THROUGH ----------------------- -------------------------------- DECEMBER 31, 1998 1997 1997 1996 1995 1994 ---------- ---------- ---------- -------- -------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ $ 132,881 $ 49,692 $ 81,155 $ 35,185 $ 25,285 $ 9,391 Weighted average number of Common OP Units outstanding..................... 53,007 24,347 29,119 14,994 11,461 10,920 BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $2,685,487 $1,250,239 $1,657,207 $865,222 $477,162 $ 406,067 Real estate, net of accumulated depreciation.......................... 2,355,122 1,107,545 1,503,922 745,145 448,425 392,368 Total assets............................ 3,121,949 1,608,195 2,100,510 827,673 480,361 416,361 Total mortgages and notes payable....... 1,275,401 661,715 808,530 522,146 268,692 141,315 Redeemable Partnership Units............ 232,405 178,321 197,086 96,064 38,463 32,047 Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- -- -- -- 107,228 Partners' Capital....................... 1,427,087 560,737 960,176 178,462 160,947 137,354 AIMCO PROPERTIES, L.P. PREDECESSORS(a) -------------------------- FOR THE PERIOD JANUARY 10, 1994 FOR THE YEAR THROUGH ENDED JULY 28, DECEMBER 31, 1994(B) 1993 ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA) Funds from operations(e)................ N/A N/A Weighted average number of Common OP Units outstanding..................... N/A N/A BALANCE SHEET INFORMATION: Real estate, before accumulated depreciation.......................... $47,500 $ 46,819 Real estate, net of accumulated depreciation.......................... 33,270 33,701 Total assets............................ 39,042 38,914 Total mortgages and notes payable....... 40,873 41,893 Redeemable Partnership Units............ -- -- Mandatorily redeemable 1994 Cumulative Senior Preferred Units................ -- -- Partners' Capital....................... (9,345) (7,556)
- --------------- (a) On July 29, 1994, AIMCO completed its initial public offering of 9,075,000 shares of AIMCO Class A Common Stock and issued 966,000 shares of convertible preferred stock and 513,514 unregistered shares of AIMCO Common Stock. The proceeds from the offering and such other issuances were contributed by AIMCO to AIMCO Properties, L.P. for 9,075,000 OP Units, 966,000 Preferred Units and 513,514 Common OP Units, respectively. On such date, AIMCO Properties, L.P. and its predecessors engaged in a business combination and consummated a series of related transactions which enabled AIMCO Properties, L.P. to continue and expand the property management and related businesses of its predecessors. The 966,000 shares of convertible preferred stock and 513,514 shares of AIMCO Class A Common Stock that were issued concurrently with the initial public offering were repurchased in 1995. (b) Represents the period January 10, 1994 through July 28, 1994, the date of the completion of the business combination with AIMCO Properties, L.P. (c) Represents AIMCO Properties, L.P.'s share of earnings from partnerships that own 83,431 apartment units in which partnerships AIMCO Properties, L.P. purchased an equity interest from the NHP Real Estate Companies. (d) Represents AIMCO Properties, L.P. equity earnings in unconsolidated subsidiaries. (e) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO", when considered with the financial data determined in accordance with GAAP, provides a useful measure of performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based on the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with industry-accepted measurements which help facilitate an understanding of its ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of net income to funds from operations:
FOR THE FOR THE NINE PERIOD MONTHS ENDED FOR THE YEAR ENDED JANUARY 10, SEPTEMBER 30, DECEMBER 31, 1994 ------------------ --------------------------- THROUGH 1998 1997 1997 1996 1995 JULY 28, 1994 -------- ------- ------- ------- ------- ------------- (IN THOUSANDS) Net income.................................................. $ 56,269 $19,427 $32,697 $15,673 $14,988 $ 7,702 (Gain) loss on disposition of property...................... (2,783) 169 (2,720) (44) -- -- Extraordinary item.......................................... -- 269 269 -- -- -- Real estate depreciation, net of minority interests......... 56,900 21,052 33,751 19,056 15,038 4,727 Amortization of goodwill.................................... 7,077 711 948 500 428 76 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation.................................. -- 2,689 3,584 -- -- -- Amortization of management contracts...................... 4,201 430 1,587 -- -- -- Deferred taxes............................................ 6,134 2,164 4,894 -- -- -- Equity in earnings of other partnerships: Real estate depreciation.................................. 17,379 2,781 6,280 -- -- -- Preferred stock dividends................................. (12,296) -- (135) -- (5,169) (3,114) -------- ------- ------- ------- ------- ------- Funds from operations....................................... $132,881 $49,692 $81,155 $35,185 $25,285 $ 9,391 ======== ======= ======= ======= ======= =======
S-18 22 SUMMARY PRO FORMA FINANCIAL AND OPERATING INFORMATION OF AIMCO PROPERTIES, L.P. The following table sets forth summary pro forma financial and operating information of AIMCO Properties, L.P. (the AIMCO Operating Partnership) for the nine months ended September 30, 1998 and for the year ended December 31, 1997. The pro forma financial and operating information gives effect to AIMCO's merger with Insignia Financial Group, Inc., the transfer of certain assets and liabilities of Insignia to unconsolidated subsidiaries, a number of transactions completed before the Insignia merger, and a number of exchange offers proposed to be made to limited partnerships formerly controlled or managed by Insignia, including your partnership.
AIMCO PROPERTIES, L.P. ---------------------------- FOR THE NINE MONTHS FOR THE ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS, EXCEPT PER UNIT DATA) OPERATING DATA: RENTAL PROPERTY OPERATIONS: Rental and other income................................... $ 345,961 $ 442,526 Property operating expenses............................... (136,240) (189,442) Owned property management expenses........................ (8,933) (11,831) Depreciation.............................................. (80,420) (98,853) --------- ----------- 120,368 142,400 --------- ----------- SERVICE COMPANY BUSINESS: Management fees and other income.......................... 28,912 41,676 Management and other expenses............................. (14,386) (23,683) Corporate overhead allocation............................. (196) (588) Depreciation and amortization............................. (15,243) (26,480) --------- ----------- (913) (9,075) Minority interests in service company business............ -- (10) --------- ----------- Partnership's shares of income from service company business............................................... (913) (9,085) --------- ----------- General and administrative expenses....................... (8,632) (21,371) Interest expense.......................................... (90,890) (121,699) Interest income........................................... 40,887 21,734 Minority interest......................................... (8,548) (10,034) Equity in losses of unconsolidated partnerships........... (23,349) (43,918) Equity in earnings of unconsolidated subsidiaries......... 851 5,848 Amortization of Goodwill.................................. (5,071) -- --------- ----------- Net income........................................ $ 24,703 $ (36,125) ========= =========== PER OP UNIT DATA: Basic earnings (loss) per Common OP Unit.................... $ (.12) $ (1.16) Diluted earnings (loss) per Common OP Unit.................. $ (.12) $ (1.16) Distributions paid per Common OP Unit....................... $ 1.69 $ 1.85 Book value per Common OP Unit............................... $ 24.52 $ 26.96 CASH FLOW DATA: Cash provided by operating activities....................... $ 90,439 $ 130,703 Cash used in investing activities........................... (79,923) (1,135,038) Cash provided by (used in) financing activities............. 16,740 955,977 OTHER DATA: Funds from operations(a).................................... $ 187,985 $ 172,733 Weighted average number of Common OP Units outstanding...... 74,946 74,094
S-19 23
AIMCO PROPERTIES, L.P. ---------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 ---------------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) BALANCE SHEET DATA: Real estate, net of accumulated depreciation................ $2,679,195 Total assets................................................ 4,558,819 Total mortgages and notes payable........................... 1,762,105 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.......................... 149,500 Redeemable partnership units................................ 320,443 Partners' capital........................................... 1,984,019
- --------------- (a) AIMCO Properties, L.P.'s management believes that the presentation of funds from operations or "FFO," when considered with the financial data determined in accordance with GAAP, provides useful measures of AIMCO Properties, L.P. performance. However, FFO does not represent cash flow and is not necessarily indicative of cash flow or liquidity available to AIMCO Properties, L.P., nor should it be considered as an alternative to net income as an indicator of operating performance. The Board of Governors of NAREIT defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. AIMCO Properties, L.P. calculates FFO based upon the NAREIT definition, as adjusted for the amortization of management company goodwill, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payments of dividends on perpetual preferred stock. AIMCO Properties, L.P. management believes that presentation of FFO provides investors with an industry accepted measurement which helps facilitate an understanding of AIMCO Properties, L.P.'s ability to make required dividend payments, capital expenditures and principal payments on its debt. There can be no assurance that AIMCO Properties, L.P.'s basis of computing FFO is comparable with that of other REITs. The following is a reconciliation of pro forma net income to pro forma funds from operations:
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ------------------ (IN THOUSANDS) Net income (loss)................................. $ 24,703 $(36,125) HUD release fee and legal reserve................. -- 10,202 Real estate depreciation, net of minority interests....................................... 76,521 93,050 Amortization of management contracts.............. 9,593 12,790 Amortization of management company goodwill....... 10,997 12,551 Equity in earnings of unconsolidated subsidiaries: Real estate depreciation........................ -- 1,715 Amortization of management company goodwill..... 959 1,918 Amortization of management contracts............ 23,010 30,516 Deferred taxes.................................. (713) (1,356) Equity in earnings of other partnerships: Real estate depreciation........................ 79,559 95,285 Interest on convertible debentures................ (7,537) (10,003) Preferred unit distributions...................... (29,107) (37,810) -------- -------- Funds from operations............................. $187,985 $172,733 ======== ========
S-20 24 SUMMARY FINANCIAL INFORMATION OF SHAKER SQUARE, L.P. The summary financial information of Shaker Square, L.P. for the 9 months ended September 30, 1998 and 1997 is unaudited. The summary financial information for Shaker Square, L.P. for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 is based on historical information for which 1997 has been audited. This information should be read in conjunction with such financial statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership" included herein. See "Index to Financial Statements."
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Total Revenues...................... $ 979,859 $ 967,930 $1,299,815 $1,221,122 $1,151,523 $1,195,937 $1,120,177 Net Income/(Loss)................... 80,411 82,421 68,046 (48,591) (62,225) 49,211 12,241 Net Income/(Loss) per limited partnership unit.................. 1,769 1,813 1,497 (1,069) (1,369) 1,083 269 Distributions per limited partnership unit.................. -- -- -- 2,565 2,200 2,245 --
SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Cash and Cash Equivalents........... $ 264,044 $ 165,416 $ 164,322 $ 154,424 $ 294,869 $ 384,219 $ 356,310 Real Estate, Net of Accumulated Depreciation...................... 2,914,953 3,029,174 3,059,174 3,130,587 3,234,635 3,313,210 3,422,088 Total Assets........................ 3,651,539 3,636,950 3,665,601 3,643,843 3,896,716 4,096,597 4,198,244 Notes Payable....................... 3,343,457 3,413,761 3,398,042 3,473,228 3,542,130 3,605,272 3,663,137 General Partners' Capital/(Deficit)... 1,322 840 517 (163) 1,489 3,111 3,640 Limited Partners' Capital/(Deficit)... 130,833 83,143 51,228 (16,138) 147,413 308,037 360,338 Partners' Capital/(Deficit)........... 132,155 83,983 51,745 (16,301) 148,902 311,148 363,978 Total Distributions................... -- -- -- 116,612 100,021 102,041 -- Book value per limited partnership unit................................ 2,937 1,866 1,150 (362) 3,309 6,914 8,088 Net increase (decrease) in cash and cash equivalents.................... 99,721 10,993 9,898 (140,445) (89,350) 27,909 356,310 Net cash provided by operating activities.......................... 202,015 154,454 265,060 175,078 208,759 281,584 (41,704) Ratio of earnings to fixed charges.... 1.20/1 1.47/1 1.20/1 0.85/1 0.91/1 1.15/1 1.04/1 LP Units Outstanding.................. 45 LP %.................................. 99% OP%................................... 1%
COMPARATIVE PER UNIT DATA Set forth below are historical cash distributions per unit of your partnership for the year ended December 31, 1998, and the cash distributions payable on the number of Common OP Units and Preferred OP Units issuable in exchange therefor:
ANNUAL DISTRIBUTIONS ------------- Units of Shaker Square, L.P. ............................... $ 0 Equivalent cash distributions on Common OP Units(1)......... $4,411.25 Equivalent cash distributions on Preferred OP Units(2)...... $5,312.00
- --------------- (1) Calculated by multiplying the exchange ratio of 1,764.50 Common OP Units per unit by the annualized distributions paid on the Common OP Units of $2.50 per unit. (2) Calculated by multiplying the exchange ratio of 2,656 Preferred OP Units per unit by the stated annual distribution rate on the Preferred OP Units of $2.00 per unit. S-21 25 THE AIMCO OPERATING PARTNERSHIP AIMCO Properties, L.P. is the "AIMCO Operating Partnership." It conducts substantially all of the operations of AIMCO. AIMCO is a real estate investment trust that owns and manages multifamily apartment properties throughout the United States. Through its wholly owned subsidiaries, AIMCO GP, the sole general partner of the AIMCO Operating Partnership, and the Special Limited Partner, as of December 31, 1998, AIMCO held approximately an 83% interest in the AIMCO Operating Partnership. Based on apartment unit data compiled by the National Multi Housing Council, we believe that AIMCO is one of the largest owner and manager of multifamily apartment properties in the United States, with a total portfolio of 379,363 apartment units in 2,147 properties located in 49 states, the District of Columbia and Puerto Rico. As of December 31, 1998, AIMCO: - owned or controlled 63,086 units in 242 apartment properties; - held an equity interest in 170,243 units in 902 apartment properties; and - managed 146,034 units in 1,003 apartment properties for third party owners and affiliates. AIMCO's Class A Common Stock is listed and traded on the NYSE under the symbol "AIV." On March 23, 1999, the last reported sale price of AIMCO Class A Common Stock on the NYSE was $35 3/16. The following table shows the high and low reported sales prices and dividends declared per share of AIMCO's Class A Common Stock for the periods indicated. The table also shows the distributions per unit declared on the Common OP Units for the same periods.
CLASS A PARTNERSHIP COMMON STOCK COMMON --------------------------- UNITS CALENDAR QUARTERS HIGH LOW DIVIDEND DISTRIBUTION ----------------- ---- --- -------- ------------ 1999 First Quarter (through March 23)........ $41 5/8 $35 3/16 $0.6250 $0.6250 1998 Fourth Quarter.......................... 37 3/8 30 0.5625 0.5625 Third Quarter........................... 41 30 15/16 0.5625 0.5625 Second Quarter.......................... 38 7/8 36 1/2 0.5625 0.5625 First Quarter........................... 38 5/8 34 1/4 0.5625 0.5625 1997 Fourth Quarter.......................... 38 32 0.5625 0.5625 Third Quarter........................... 36 3/16 28 1/8 0.4625 0.4625 Second Quarter.......................... 29 3/4 26 0.4625 0.4625 First Quarter........................... 30 1/2 25 1/2 0.4625 0.4625 1996 Fourth Quarter.......................... 28 3/8 21 1/8 0.4625 0.4625 Third Quarter........................... 22 18 3/8 0.4250 0.4250 Second Quarter.......................... 21 18 3/8 0.4250 0.4250 First Quarter........................... 21 1/8 19 3/8 0.4250 0.4250
The principal executive offices of AIMCO, the AIMCO GP, the Special Limited Partner and the AIMCO Operating Partnership are located at 1873 South Bellaire Street, Denver, Colorado 80222, and their telephone number is (303) 757-8101. S-22 26 RISK FACTORS The following sets forth certain risks and disadvantages of the offer and should be read and considered when reviewing the potential benefits of the offer set forth in "Background and Reasons for the Offer -- Expected Benefits of the Offer." In addition, you should review the other risks of investing in us beginning on page 2 of our accompanying Prospectus. RISKS TO UNITHOLDERS WHO TENDER THEIR UNITS IN THE OFFER OFFER CONSIDERATION NOT BASED ON THIRD PARTY APPRAISAL OR ARMS-LENGTH NEGOTIATION. We did not use any third-party appraisal or valuation to determine the value of your partnership's property. We established the terms of our offer, including the exchange ratios and the cash consideration without any arms-length negotiations. It is uncertain whether our offer consideration reflects the value which would be realized upon a sale of your units or a liquidation of your partnership's assets. Because of our affiliation with your general partner, your general partner makes no recommendation to you as to whether you should tender your units. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of our offer consideration from a financial point of view. OFFER CONSIDERATION MAY NOT REPRESENT FAIR MARKET VALUE. There is no established or regular trading market for your units, nor is there another reliable standard for determining the fair market value of your units. The offer consideration does not necessarily reflect the price that you would receive in an open market for your units. Such prices could be higher or lower than our offer consideration. OFFER CONSIDERATION DOES NOT REFLECT FUTURE PROSPECTS. Our offer consideration is based on your partnership's historical property income. It does not ascribe any value to potential future improvements in the operating performance of your partnership's property. OFFER CONSIDERATION BASED ON OUR ESTIMATE OF LIQUIDATION PROCEEDS. The offer consideration represents only our estimate of the amount you would receive if we liquidated the partnership. In determining the liquidation value, we used the direct capitalization method to estimate the value of your partnership's property because we think a prospective purchaser of the property would value the property using this method. In doing so, we applied a capitalization rate to your partnership's property income for the year ended December 31, 1997. In determining the appropriate capitalization rate, we considered your partnership's results of operations since December 31, 1997. If property income for a different period or a different capitalization rate was used, a higher valuation could result. Other methods of valuing your units could also result in a higher valuation. OFFER CONSIDERATION MAY BE LESS THAN LIQUIDATION VALUE. In determining our offer consideration, we estimate your property to be worth $6,140,000 less approximately $179,350 of deferred maintenance and investment. It is possible that a sale of the properties could result in you receiving more per unit than in our offer. Even if our cash offer consideration is equal to liquidation value, if you accept OP Units, you may not ultimately receive an amount equal to the cash offer consideration when you sell such OP Units or any AIMCO securities you may receive upon redemption of such OP Units. HOLDING UNITS MAY RESULT IN GREATER FUTURE VALUE. You might receive more pretax cash consideration if you do not tender your units and, instead, continue to hold your units and ultimately receive proceeds from a liquidation of your partnership. CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. Your general partner is a subsidiary of AIMCO and the AIMCO Operating Partnership and, therefore, has substantial conflicts of interest with respect to our offer. We are making this offer with a view to making a profit. There is a conflict between our desire to purchase your units at a low price and your desire to sell your units at a high price. Another conflict is the fact that a decision of the limited partners of your partnership to remove, for any reason, your general partner or the manager of your partnership's property from its current position would result in a decrease or elimination of the substantial fees paid to your general partner or the property manager for services provided to your partnership. Such conflicts of interest in connection with our offer and our operation's differ from those conflicts of interest that currently exist for your partnership. S-23 27 CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES. Since our subsidiaries receive fees for managing your partnership and its properties, a conflict of interest exists between our continuing the partnership and receiving such fees, and the liquidation of the partnership and the termination of such fees. POSSIBLE SUBSEQUENT OFFER AT A HIGHER PRICE. It is possible that we may make a subsequent offer at a higher price, but not earlier than one year after expiration of this offer. Such a decision will depend on, among other things, the performance of your partnership, prevailing interest rates, and our interest in acquiring additional limited partnership interests. POSSIBLE RECOGNITION OF TAXABLE GAIN ON A SALE OF YOUR UNITS. In general, if you exchange your units solely for our OP Units, it will not be a taxable transaction. If you sell your units for cash, you will recognize taxable gain or loss in an amount equal to the difference between the amount realized on the sale and your adjusted tax basis in your units sold. If you exchange your units for cash and our OP Units, it will be treated, for Federal income tax purposes, as a partial taxable sale of such units for cash and as a partial tax-free contribution of such units to the AIMCO Operating Partnership. If you exchange your units for cash or for cash and OP Units, the "amount realized" will be measured by the sum of the cash you receive plus the portion of your partnership's liabilities allocated to the units sold for Federal income tax purposes. To the extent that the amount of cash received plus the allocable share of your partnership's liabilities allocated to such units exceeds your tax basis in the units sold, you will recognize gain. Consequently, the tax liability resulting from such gain could exceed the amount of cash received upon such sale. If you exercise your redemption right with respect to the OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units or OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss in the year of exchange on such disguised sale. See "Federal Income Tax Consequences -- Disguised Sales." Although we have no present intention to liquidate or sell your partnership's property or prepay the current mortgage on your partnership's property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. In addition, if the AIMCO Operating Partnership were to be treated as a "publicly traded partnership" for Federal income tax purposes, passive activity losses generated by other passive activity investments held by you, including passive activity loss carryovers attributable to your units, could not be used to offset your allocable share of income generated by the AIMCO Operating Partnership. If you redeem OP Units for shares of AIMCO Class A Common Stock or Preferred Stock, you will recognize gain or loss measured by the difference between the amount realized from our tender offer and your adjusted tax basis in the OP Units exchanged. In addition, if you acquire shares of AIMCO stock, you will no longer be able to use income and loss from your investment to offset "passive" income and losses from other investments, and the distributions from AIMCO will constitute taxable income to the extent of AIMCO's earnings and profits. The particular tax consequences of the offer to you will depend upon a number of factors related to your individual tax situation, including your tax basis in your units, whether you dispose of all of your units in your partnership and whether the "passive loss" rules apply to your investments. You should review "Federal Income Tax Consequences" in this Prospectus Supplement and "Federal Income Taxation of AIMCO and AIMCO Stockholders," "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" and "Other Tax Consequences" in the accompanying Prospectus. Because the income tax consequences of tendering units will not be the same for everyone, you should consult your own tax advisor before determining whether to tender your units pursuant to our offer. FAIRNESS OPINION OF THIRD PARTY RELIED ON INFORMATION WE PROVIDED. Robert A. Stanger & Co.'s analysis of our offer and opinion as to the fairness to you of our offer consideration from a financial point of view relies on information prepared by the general partner of your partnership (which is controlled by us). No tests of the underlying data were performed, and no independent appraisal was conducted. Because the fairness opinion will not be updated, changes may occur from the date of the fairness opinion that might affect the conclusions expressed in the opinion. LOSS OF FUTURE DISTRIBUTIONS FROM YOUR PARTNERSHIP. If you tender your units in response to our offer, you will transfer all right title and interest in and to all of the units that we accept, and all distributions in S-24 28 respect of such units on or after the date on which we accept such units for purchase. Accordingly, for any units that we acquire from you, you will not receive any future distributions from operating cash flow of your partnership or upon a sale of property owned by your partnership or a refinancing of any of its debt. If you tender your units in exchange for OP Units, you will be entitled to future distributions from the operating cash flow of the AIMCO Operating Partnership and upon a dissolution, liquidation or winding-up of the AIMCO Operating Partnership. See "Comparison of Your Units and AIMCO OP Units -- Distributions." POSSIBLE EFFECT OF THE OTHER EXCHANGE OFFERS ON US. Concurrently with this offer, we are making or intend to make similar offers to investors in approximately 90 other limited partnerships. If all of these offers had been completed by December 31, 1997, our net income for the nine months ended September 30, 1998 would have been $24,703,000 instead of $41,493,000, based on the assumptions included in the Pro Forma Financial Statements. If we borrow funds for the cash consideration for these offers, our interest costs would increase which could adversely affect our future earnings. If all units in all the offers were purchased for cash and we borrowed all the funds, at current interest rates, our interest expense would increase by $3,064,000 per year. See "Pro Forma Financial Information of AIMCO Properties, L.P." POTENTIAL DELAY IN PAYMENTS. We reserve the right to extend the period of time during which our offer is open and thereby delay acceptance for payment of any tendered units. The offer may be extended indefinitely and no payment will be made in respect of tendered units until the expiration of the offer and the acceptance of units for payment. RISKS TO UNITHOLDERS EXCHANGING UNITS FOR OP UNITS IN THE OFFER FUNDAMENTAL CHANGE IN NATURE OF INVESTMENT. If you tender your units in exchange for our OP Units, you will have changed fundamentally the nature of your investment from (i) a partnership that distributes to its partners the proceeds from the sale of a property or a refinancing of its indebtedness to (ii) a partnership that reinvests the proceeds from sales of properties and refinancings of its indebtedness. You will have changed from a small partnership with a partnership termination date of 2015 to a much larger partnership with a partnership termination date of 2093. Under the AIMCO Operating Partnership's agreement of limited partnership, the general partner has the ability, without the concurrence of the limited partners, to acquire and dispose of properties and to borrow funds. Further, while it is the intent to distribute net income from operations, sales of properties and refinancings of indebtedness, the general partner may not make such distributions. Proceeds of future asset sales or refinancings by the AIMCO Operating Partnership generally will be reinvested rather than distributed. FUNDAMENTAL CHANGE IN NUMBER OF PROPERTIES OWNED. If you exchange your units for OP Units, you will have changed your investment from an interest in a partnership which owns and manages a single property to an interest in the AIMCO Operating Partnership which is in the business of acquiring, marketing, managing and operating a large portfolio of apartment properties. While diversification of assets may reduce certain risks of investment attributable to a single property or entity, there can be no assurance as to the value or performance of our securities and our portfolio of properties as compared to the value of your units and your partnership. LACK OF TRADING MARKET FOR OP UNITS. There is no public market for our OP Units. In addition, the AIMCO Operating Partnership's agreement of limited partnership restricts the transferability of OP Units. We have no plans to list the OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. UNCERTAIN FUTURE DISTRIBUTIONS. Although our operating partnership makes quarterly distributions based on its available cash, there can be no assurance regarding the amounts of available cash that our operating partnership will generate or the portion that we will choose to distribute. POSSIBLE REDUCTION IN REQUIRED DISTRIBUTIONS ON PREFERRED OP UNITS. On and after March 1, 2005, we may reduce the rate of distributions required to be paid on the Preferred OP Units, thus reducing the rate of return and possibly encouraging you to redeem such units. S-25 29 POSSIBLE REDEMPTION OF PREFERRED STOCK. On and after March 1, 2005, we may redeem each share of Class I Preferred Stock for $25, plus any accumulated, accrued and unpaid dividends, possibly forcing you to sell such shares to AIMCO or to sell in the open market at a possibly lower price per share than would have occurred without the redemption. If, for example, after five years we redeemed the Class I Preferred Stock for $25 per share, you will have received the present value equivalent of the cash consideration of our offer (assuming annual distributions of $2.00 on each Preferred OP Unit, a discount rate of 8% and without giving effect to the potential tax deferral associated with receiving OP Units instead of cash). POSSIBLE RECOGNITION OF TAXABLE GAINS ON OP UNITS. There are tax risks associated with the acquisition, retention and disposition of OP Units. Although your general partner (which is our subsidiary) has no present intention to liquidate or sell your partnership's property or prepay the current mortgage on the property within any specified time period, any such action in the future generally will require you to fully recognize any deferred taxable gain if you exchange your units for OP Units. See "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders" in the accompanying Prospectus. If you exercise your redemption right with respect to the OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss in the year of the exchange on such disguised sale. See "Federal Income Tax Consequences -- Disguised Sales." LIMITATIONS ON EFFECTING A CHANGE OF CONTROL. Our charter has restrictions on the ownership of our equity securities in order to comply with certain REIT tax requirements. The limited partners of the AIMCO Operating Partnership are unable to remove the general partner of the AIMCO Operating Partnership or to vote in the election of AIMCO's directors unless they own shares of AIMCO. As a result, our limited partners and stockholders are limited in their ability to effect a change of control of the AIMCO Operating Partnership and AIMCO. LIMITATION ON TRANSFER OF OP UNITS. Investors in our partnership must hold the OP Units for one year, subject to exceptions. Thereafter transfers may be made subject to applicable transfer restrictions. LIMITED VOTING RIGHTS OF HOLDERS OF OP UNITS. The AIMCO Operating Partnership is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting the AIMCO Operating Partnership's business. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, and the general partner may not be removed by holders of limited partnership interests. As a result, holders of OP Units have limited influence on matters affecting the operation of the AIMCO Operating Partnership and third parties may find it difficult to attempt to gain control or influence the activities of our operating partnership. Such matters affecting the operation of the AIMCO Operating Partnership include liquidation and distribution policies, property purchases, and potential mergers or acquisitions. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." MARKET PRICES FOR AIMCO'S SECURITIES MAY FLUCTUATE. We cannot predict the prices at which our stock will trade in the future. Recently, there have been fluctuations in the trading prices for many REIT equity securities, including ours. LITIGATION ASSOCIATED WITH PARTNERSHIP ACQUISITIONS. We often acquire interests in limited partnerships that own apartment properties. In some cases (such as for your partnership), we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. There is a risk that we will be subject to litigation based on claims that the general partner has breached its fiduciary duties to its limited partners or that the transaction violates the relevant partnership agreement. As a result, we may incur costs associated with defending or settling such litigation or paying any judgment if we lose. As of the present time, no limited partners of your partnership have initiated lawsuits on such grounds. DILUTION OF INTERESTS OF HOLDERS OF OP UNITS. We may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as we may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units. S-26 30 RISKS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS IN THE OFFER POSSIBLE INCREASE IN CONTROL OF YOUR PARTNERSHIP BY US. Because your general partner is a subsidiary of AIMCO, we control the management of your partnership. In addition, if we acquire more units, we will increase our ability to influence voting decisions with respect to your partnership. However, we will not be able to control voting decisions unless we acquire more units in another transaction, which cannot take place for at least one year after expiration of this offer. Furthermore, in the event that we acquire a substantial number of units pursuant to our offer, removal of your general partner (which is our subsidiary) or the manager of any property owned by your partnership may become more difficult or impossible without our consent. RECOGNITION OF GAIN RESULTING FROM POSSIBLE FUTURE REDUCTION IN YOUR PARTNERSHIP LIABILITIES. Generally, a decrease in your share of your partnership's liabilities is treated, for Federal income tax purposes, as a deemed cash distribution. Although your general partner (which is our subsidiary) has no current plan or intention to reduce the liabilities of your partnership, it is possible that future economic, market, legal, tax or other considerations may cause your general partner to reduce the liabilities of your partnership. If the liabilities of your partnership were to be reduced, and you do not tender all of your units pursuant to our offer, you will be treated as receiving a hypothetical distribution of cash resulting from a decrease in your share of the liabilities of your partnership. Any such hypothetical distribution of cash would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your units and thereafter as gain. POSSIBLE TERMINATION OF YOUR PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES. If there is a sale or exchange of 50% or more of the total interest in capital and profits of your partnership within any 12-month period, including sales or exchanges resulting from our offer, your partnership will terminate for Federal income tax purposes. Any such termination may, among other things, subject the assets of your partnership to longer depreciable lives than those currently applicable. This would generally decrease the annual average depreciation deductions allocable to you for a number of years if you do not tender all of your units (thereby increasing the taxable income allocable to your units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Any such termination may also change (and possibly shorten) your holding period with respect to your units that you choose to retain. Gain recognized by you on the disposition of retained units with a holding period of 12 months or less may be classified as short-term capital gain and subject to taxation at ordinary income tax rates. RISK OF INABILITY TO TRANSFER UNITS FOR 12-MONTH PERIOD. Your partnership's agreement of limited partnership prohibits any transfer of an interest if such transfer, together with all other transfers during the preceding 12 months, would cause 50% or more of the total interest in your partnership to be transferred within such 12-month period. If we acquire a significant percentage of the interest in your partnership, you may not be able to transfer your units for a 12-month period following our offer. POSSIBLE CHANGE IN TIME FRAME REGARDING SALE OF PROPERTY. It is not known when the property owned by your partnership may be sold. Therefore, there may be no way to liquidate your investments in the partnership in the future until the property is sold and your partnership is liquidated. You may continue to hold the units not exchanged in this offer for an indefinite period of time. The partnership currently owns one property. The general partner of your partnership continually considers whether the property should be sold or otherwise disposed of after consideration of relevant factors, including prevailing economic conditions, availability of favorable financing and tax considerations, with a view to achieving maximum capital appreciation for your partnership. We cannot predict when the property will be sold or otherwise disposed of. However, there is no current plan or intention to sell the property in the near future. BALLOON PAYMENTS. Your partnership has approximately $2,929,148 of balloon payments due on its mortgage debt in November 2002. Your partnership will have to refinance such debt or sell its property prior to the balloon payment dates, or it will be in default and could lose the property to foreclosure. S-27 31 SPECIAL FACTORS TO CONSIDER In reviewing the offer, you should pay special attention to the information in the Sections entitled "Background and Reasons for the Offer," "Valuation of Units," "Fairness of the Offer" and "Stanger Analysis," which contain information regarding the background and reasons for the offer, the method of evaluating units in the offer and alternative valuation methods considered, our view as to the fairness of the offer, and the fairness opinion rendered by Stanger. BACKGROUND AND REASONS FOR THE OFFER BACKGROUND OF THE OFFER General We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in your partnership's property while providing you and other investors with an opportunity to liquidate your current investment and to invest in our OP Units or receive cash, or to retain your units. On October 1, 1998, AIMCO merged (the "Insignia Merger") with Insignia Financial Group, Inc. ("Insignia"). As a result of the Insignia Merger, AIMCO acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"). The general partner of your partnership is a wholly owned subsidiary of IPT. Through the Insignia Merger, AIMCO also acquired a majority ownership interest in the entity that manages the properties owned by your partnership. Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.74% interest, consisting of a 1.24% limited partnership interest and a 1.5% general partnership interest, in your partnership. On October 31, 1998, IPT and AIMCO entered into an agreement and plan of merger, dated as of October 1, 1998 (the "IPT Merger Agreement"), pursuant to which IPT merged with AIMCO on February 26, 1999 (the "IPT Merger"). Upon consummation of the IPT Merger, each outstanding share of IPT not owned by AIMCO was converted into the right to receive 0.3601 shares of AIMCO's Class A Common Stock (approximately 4,180,000 shares in the aggregate). One of the reasons we chose to acquire Insignia is that we would be able to make the exchange offers to acquire limited partnership interests of some of the limited partnerships formerly controlled or managed by Insignia (the "Insignia Partnerships"). Such offers would provide liquidity for the limited partners of the Insignia Partnerships, and would provide the AIMCO Operating Partnership with a larger asset and capital base and increased diversification. As of the date of this offering, the AIMCO Operating Partnership proposes to make offers to approximately 90 of the Insignia Partnerships, including your partnership. During our negotiations with Insignia in early 1998, we decided that if the merger with Insignia were consummated, we could also benefit from making offers for limited partnership interests in the Insignia Partnerships. While some of the Insignia Partnerships are public partnerships and information is publicly available on such partnerships for weighing the benefits of making an exchange offer, many of the partnerships are private partnerships and information about such partnerships comes principally from the general partner. Our control of the general partner makes it possible to obtain access to such information. Further, such control also means that we control the operations of the partnerships and their properties. Insignia did not propose that we conduct such exchange offers, rather we initiated the offers on our own. We determined in June of 1998 that if the merger with Insignia were consummated, we would offer to limited partners of the Insignia Partnerships limited partnership units of the AIMCO Operating Partnership and/or cash. In connection with the Insignia Merger we acquired general partnership interests and certain limited partnership interests in a number of private and public partnerships. Eight private partnerships out of the 90 partnerships involved in the proposed exchange offers do not have audited financial statements prepared in accordance with generally accepted accounting practices ("GAAP"). Certain of these partnerships have audited financial statements prepared on the basis of federal income taxes and others have unaudited financial S-28 32 statements which may or may not be prepared on the basis of GAAP or federal income taxes. For the Insignia Partnerships for which exchange offers are being made which do not have audited GAAP financial statements for at least two years, we are making the offer on the basis of either one year of audited GAAP financial statements and one year of unaudited GAAP financial statements or just unaudited GAAP financial statements. We tried to obtain two years of audited GAAP financial statements for all the partnerships for which offers are being made, but because of the inability to locate records from inception of the partnerships which would allow auditors to verify the original purchase price of the properties, no audits were possible. In these cases, the entities which controlled the general partners prior to Insignia are no longer in business or have no current knowledge or records of such partnerships. For the same reasons, we do not have all the records for past years of some of the partnerships. Therefore, for the partnerships without an audit, we did not have invoices, escrow statements, property closing statements or the like to support the original costs of the real property to the satisfaction of independent auditors, in order for them to render an unqualified audit report. Consequently, we have no way to support the original cost of the properties. However, we have general ledgers and related accounting records that enable us to prepare GAAP basis financial statements. These records were taken from the entities that controlled the general partners and were subsequently maintained by us. The amount of capitalized property costs appearing in those books and records has, to our knowledge, been appropriately rolled forward from year to year and used by the general partners of the partnerships in question to prepare tax returns and periodic reports to the investors in the partnerships. Therefore, we believe that the unaudited financial statements included in the prospectus supplements for such partnerships have been prepared in accordance with GAAP. In acquiring Insignia and the interests in the Insignia Partnerships, we conducted due diligence with regard to certain of the assets acquired including the major properties held by the Insignia Partnerships. Our due diligence focused on the condition of the major properties and the terms of the partnership agreements. Since Insignia had audited GAAP financial statements and since those partnerships without audited GAAP financial statements are generally smaller, we did not focus on the issue of audited GAAP based financial statements for the smaller partnerships at the time of the merger. Further, for our internal due diligence use, audited tax based financial statements are also used. The total number of Insignia Partnerships we acquired an interest in was approximately 550 of which approximately 25 do not have audited GAAP statements. We were not able to pick and choose the partnerships in which we would acquire an interest. The Insignia Partnerships were part of the business of Insignia. As a consequence, we acquired interests in certain small private partnerships which do not have the ability to obtain audited GAAP financial statements. It is our policy to acquire properties or partnerships with audited GAAP based financial statements. However, in connection with large acquisitions of partnerships interests, such as with the Insignia Merger, we may occasionally acquire a partnership or property without audited GAAP financial statements. Previous Tender Offers Tender offers have been previously made with respect to certain of the public Insignia Partnerships. However, there have not been any prior tender offers to acquire units of your partnership. Except for such tender offers, we are not aware of any merger, consolidation or other combination involving any of the Insignia Partnerships, or any acquisitions of any of such partnerships or a material amount of the assets of such partnerships. Engagement of Fairness Opinion Provider The AIMCO Operating Partnership contacted Stanger in August 1998 to discuss the possibility of Stanger providing a fairness opinion for our offer. The AIMCO Operating Partnership chose Stanger based on Stanger's expertise and strong reputation in this area of work. The parties entered into a definitive agreement dated August 28, 1998 with Stanger to provide such a fairness opinion for your partnership and other partnerships. S-29 33 ALTERNATIVES CONSIDERED The following is a brief discussion of the benefits and disadvantages of alternatives to our offer that could have been pursued by your general partner (which is our subsidiary). Liquidation Benefits of Liquidation. One alternative to our offer would be for your partnership to sell its assets, distribute the net liquidation proceeds to its partners in accordance with your partnership's agreement of limited partnership, and then dissolve. Partners would be at liberty to use the net liquidation proceeds after taxes for investment, business, personal or other purposes, at their option. If your partnership were to sell its assets and liquidate, you and your partners would not need to rely upon capitalization of income or other valuation methods to estimate the fair market value of your partnership's assets. Instead, such assets would be valued through negotiations with prospective purchasers (in many cases unrelated third parties). Disadvantages of Liquidation. A liquidating sale of part or all of your partnership's property would be a taxable event for you and your partners and could result in significant amounts of taxable income to you and your partners. In the opinion of your general partner (which is our subsidiary), the present time may not be the most desirable time to sell the real estate assets of your partnership in private transactions, and any liquidation sale would be uncertain. Liquidation of the partnership's assets may trigger a substantial prepayment penalty on the order of 1% of the principal amount of the mortgage. Your general partner believes it currently is in the best interest of your partnership to continue holding its real estate assets. Continuation of the Partnership Without the Offer Benefits of Continuation. Although our offer permits you to continue your investment in your partnership, a second alternative would be for your partnership to continue as a separate legal entity, with its own assets and liabilities and continue to be governed by its existing agreement of limited partnership, without our offer. A number of advantages could result from the continued operation of your partnership. Given improving rental market conditions, the level of distributions might increase over time. Your partnership's net income has decreased from $100,283.00 for the nine months ended September 30, 1997, to $80,411.00 for the nine months ended September 30, 1998. It is possible that the private resale market for apartment and retail properties could improve over time, making a sale of your partnership's property in a private transaction at some point in the future a more viable option than it is currently. The continuation of your partnership will allow you to continue to participate in the net income and any increases of revenue of your partnership and any net proceeds from the sale of any property owned by your partnership. The General Partner continues to review operations and expects to complete expenditures in 1999 and 2000 enabling it to possibly increase rents and lower expenses. In addition, a sale of the property may cause a tax gain to each investor. Disadvantages of Continuation. There are several risks and disadvantages that result from continuing the operations of your partnership without our offer. If your partnership continues operating as presently structured, your partnership could be forced to borrow on terms that could result in net losses from operations. Your partnership's mortgage notes are due in November 2002 and require balloon payments totaling $2,929,148. Your partnership currently has adequate sources of cash to finance its operations on both a short term and long term basis. Continuation of your partnership without the offer would deny you and your partners the benefits that your general partner (which is our subsidiary) expects to result from the offer. For example, you would have no opportunity for liquidity unless you were to sell your units in a private transaction. Any such sale would likely be at a very substantial discount from your pro rata share of the fair market value of your partnership's property. Continuation without our offer would deny you and your partners the benefits of diversification into a company which has a much larger and more diverse portfolio of apartment properties. Alternative Structures Considered Before we decided to make our offer, we considered a number of alternative transactions, including purchasing your partnership's property; making an offer of only cash for your units; making an offer of only S-30 34 Common OP Units for your units; and making an offer of only Preferred OP Units for your units. A merger would require a vote of the limited partners of your partnership. If the merger was approved, all limited partners, including those who wish to retain their units and continue to participate in your partnership, would be forced to participate in the merger transaction. If the merger was not approved, all limited partners, including those who would like to liquidate their investment in your partnership, would be forced to retain their units. We also considered purchasing your partnership's properties from your partnership. However, a sale of your partnership's property would require a vote of a majority of the then outstanding units of all of the limited partners. If the sale was approved, all limited partners, including those who wish to continue to participate in the ownership of your partnership's property, would be forced to participate in the sale transaction, and possibly to recognize taxable income. If the sale was not approved, all limited partners, including those who would like to dispose of their investment in your partnership's property, would be forced to retain their investment. In order to give all limited partners in your partnership an opportunity to make their own investment decision, we elected to make an offer directly to you and the other limited partners. We considered making an all cash offer in order to satisfy some limited partners' desire for immediate liquidity. However, an all cash offer would not be desirable for those limited partners who do not desire immediate liquidity and do not want to immediately recognize any taxable income, but might otherwise be interested in disposing of their investment in your partnership and might want an opportunity to control the timing of any realization of taxable income associated with liquidating such investment in the future. We considered making an offer of only OP Units, either all Common OP Units or all Preferred OP Units. The primary disadvantage of an all OP Unit offer is that those limited partners who want immediate liquidity would be forced to wait at least one year before exchanging their OP Units for cash or AIMCO stock. We decided to offer limited partners both Common OP Units and Preferred OP Units in order to permit investors to make their own decision as to whether they preferred the possibility of future capital appreciation (Common OP Units) or preferred distribution rights (Preferred OP Units). After considering these alternatives, we decided to offer limited partners the possibility of all three forms of consideration: cash, Common OP Units and Preferred OP Units. We think that such an offer will appeal to a large number of limited partners in your partnership, while permitting each one to retain any or all of his or her units and remain a limited partner in your partnership on the same terms as before. Sale of Assets Your partnership could sell the property it owns. The general partner of your partnership considers sale of your partnership's property from time to time. However, any such sale would likely be a taxable transaction. EXPECTED BENEFITS OF THE OFFER We are in the business of acquiring direct and indirect interests in apartment properties such as the property owned by your partnership. Our offer provides us with an opportunity to increase our ownership interest in the property owned by your partnership while providing you and other investors with an opportunity to retain or liquidate your investment or to invest in the AIMCO Operating Partnership. There are four principal advantages of tendering your units for Preferred OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Preferred OP Units. - Enhanced Liquidity After One Year. While holders of the Preferred OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Preferred OP Units and receive, at our option, shares of AIMCO's Class A Common Stock or cash. After a two-year holding period, if you choose to redeem your Preferred OP Units, you may receive, at our option, cash, shares of AIMCO's Class I Preferred Stock or shares of AIMCO's Class A S-31 35 Common Stock. AIMCO's Class A Common Stock is, and AIMCO's Class I Preferred Stock is expected to be, currently listed and traded on the NYSE. - Preferred Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. Holders of Preferred OP Units will be entitled to receive quarterly distributions of $0.50 per unit (equivalent to $2.00 on an annualized basis) before any distributions are paid to holders of Common OP Units. This is equivalent to a distribution of $5,312 per year on the number of Preferred OP Units you will receive in exchange for each of your partnership units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. There are five principal advantages of tendering your units for Common OP Units: - Tax Deferral. You will generally not recognize any immediate taxable gain if you exchange your units solely for Common OP Units. - Enhanced Liquidity After One Year. While the holders of the Common OP Units must hold such units for one year, subject to certain exceptions, after a one-year holding period, you may choose to redeem your Common OP Units and receive, at our option, shares of AIMCO's Class A Common Stock (on a one-for-one basis, subject to adjustment in certain circumstances) or an equivalent amount of cash. AIMCO's Class A Common Stock is listed and traded on the NYSE. - Quarterly Distributions. Your partnership paid no distributions for the fiscal year ended December 31, 1998. In 1998, we paid quarterly distributions on the Common OP Units totalling $2.25. In January 1999, we increased our distribution rate on each of the Common OP Units to $2.50 on an annual basis. Assuming no change in the level of our distributions, this is equivalent to a distribution of $4,411.25 per year on the number of Common OP Units you will receive in exchange for each of your partnership units. See "The AIMCO Operating Partnership." - Growth Potential. Our assets, organizational structure and access to capital enables us to pursue acquisition and development opportunities that are not available to your partnership. You would have the opportunity to participate in the growth of our enterprise and would benefit from any future increase in the AIMCO stock price and from any future increase in distributions on the Common OP Units. - Diversification. We have a substantially larger and more diverse portfolio of apartment properties than your partnership. The principal advantage if you tender your units for cash is immediate liquidity. However, tendering your units for cash may cause you to recognize taxable gain for Federal income tax purposes. DISADVANTAGES OF THE OFFER The principal disadvantages to the offer are: - Lack of Independent Price Determination. We determined the offer price and the terms of the offer, including the exchange ratio for Common OP Units and Preferred OP Units, and the terms of the Preferred OP Units and the Class I Preferred Stock. The terms of the offer and the nature of the securities could differ if they were subject to independent third party negotiations. We determined the offering price and asked Stanger to determine if the price was fair. We did not ask Stanger to determine a fair price. - No Separate Representation of Limited Partners. In structuring the offer and the consideration, no one separately represented the interests of the limited partners. Although we have a fiduciary duty to the limited partners, we also have conflicting responsibilities to our equity holders. We did not appoint, or ask the limited partners to appoint, a party to represent only their interests. S-32 36 - No Proposal to Sell the Property. We are not proposing to try to liquidate the partnership and sell the partnership's property and distribute the net proceeds. An arms-length sale of the property after offering it for sale through licensed real estate brokers might be a better way to determine the true value of the property rather than the method we chose. The sale of the property and the liquidation of the partnership might result in greater pre-tax cash proceeds to you than our offer. - OP Units. Investing in OP Units has risks that include the lack of a public market, transfer restrictions and a one year holding period before they can be redeemed by a holder. The ultimate return on the OP Units is directly tied to the future price of AIMCO's Class A Common Stock or Class I Preferred Stock. You could ultimately receive less for your OP Units than the cash price in our offer. Further, on or after March 1, 2005, we may redeem the Class I Preferred Stock for $25 per share. - Continuation of the Partnership. We are proposing to continue to operate your partnership and not to attempt to liquidate it at the present time. Thus, our offer does not satisfy any expectation that you would receive the return of your investment in the partnership through a sale of the property at the present time. At the current time we do not believe that the sale of the property would be advantageous given market conditions, the condition of the property and tax considerations. In particular, we considered the changes in the local rental market, the potential for appreciation in the value of a property and the tax consequences to you and your partners on a sale of a property. See also "Your Partnership -- General Policy Regarding Sales and Refinancings of Partnership Property." - POSSIBLE RECOGNITION OF TAXABLE GAIN. If you exercise your redemption right with respect to the OP Units within two years of the date that you transfer your units to the AIMCO Operating Partnership, your exchange of units for OP Units and cash could be treated as a disguised sale of your units and you would be required to recognize gain or loss in the year of the exchange on such disguised sale. See "Federal Income Tax Consequences -- Disguised Sales." For a description of certain risks of our offer, see "Risk Factors." S-33 37 VALUATION OF UNITS We determined our cash offer consideration by estimating the value of the property owned by your partnership using the direct capitalization method. This method involves applying a capitalization rate to your partnership's annual property income. A capitalization rate is a percentage (rate of return), commonly applied by purchasers of residential real estate to property income to determine the present value of income property. The lower the capitalization rate utilized the higher the value produced, and the higher the capitalization rate utilized the lower the value produced. We used your partnership's property income for the fiscal year ended December 31, 1997. However, in determining the appropriate capitalization rate, we considered your partnership's property income since December 31, 1997. Our method for selecting a capitalization rate begins with each property being assigned a location and condition rating (e.g., "A" for excellent, "B" for good, "C" for fair, and "D" for poor). We have rated your property's location B (good) and its condition C (fair). Generally, we assign an initial capitalization rate of 10.50% to properties in this category. We then adjust the capitalization rate based on whether the mortgage debt that the property is subject to bears interest at a rate above or below 7.5% per annum. Generally, for every 0.5% in excess of 7.5%, the capitalization rate would be increased by 0.25%. Your property's mortgage debt bears interest at 7.60% per annum, which resulted in an increase from the initial capitalization rate of 0.25%. We also considered any changes in your partnership's income from 1997 to 1998. Because your partnership's income in 1998 remained relatively unchanged compared to 1997, we made no further revision of the capitalization rate, resulting in a final capitalization rate of 10.75%. The evaluation of a property's location and condition, and the determination of an appropriate capitalization rate for a property, is subjective in nature, and others evaluating the same property might use a different capitalization rate and derive a different property value. The property income is the difference between the revenues from the property and related costs and expenses, excluding income derived from sources other than regular activities and before income deductions. Income deductions include interest, income taxes, prior-year adjustments, charges to reserves, write-offs of intangibles, adjustments arising from major changes in accounting methods and other material and nonrecurrent items. In this respect, property income differs from net income disclosed in the partnership's financial statements, which does not exclude these income sources and deductions. The following is a reconciliation of your partnership's net income for the year ended December 31, 1997, to your partnership's property income for the same period. Net Income (Loss)........................................... $ 68,046 Other Non-Operating Expenses................................ 25,706 Depreciation................................................ 251,389 Interest.................................................... 314,859 -------- Property Income............................................. $660,000
Although the direct capitalization method is a widely accepted way of valuing real estate, there are a number of other methods available to value real estate, each of which may result in different valuations of a property. Further, in applying the direct capitalization method, others may make different assumptions and obtain different results. The proceeds that you would receive if you sold your units to someone else or if your partnership were actually liquidated might be higher or lower than our cash offer consideration. We determined our cash offer consideration as follows: - First, we estimated the value of the property owned by your partnership using the direct capitalization method. We selected capitalization rates based on our experience in valuing similar properties. The lower the capitalization rate applied to a property's income, the higher its value. We considered local market sales information for comparable properties, estimated actual capitalization rates (property less capital reserves divided by sales price) and then evaluated each property in light of its relative competitive position, taking into account property location, occupancy rate, overall property condition and other relevant factors. The AIMCO Operating Partnership believes that arms-length purchasers would base their purchase offers on capitalization rates comparable to those used by us, however there is no single correct capitalization rate and others might use different rates. We divided each S-34 38 property's fiscal 1997 property income of $660,000 by the property's capitalization rate 10.75% to derive an estimated gross property value $6,140,000. - Second, we calculated the value of the equity of your partnership by adding to the aggregate gross property value of all properties owned by your partnership, the value of the non-real estate assets of your partnership, and deducting the liabilities of your partnership, including mortgage debt and debt owed by your partnership to its general partner or its affiliates after consideration of any applicable subordination provisions affecting payment of such debt. We deducted from this value certain other costs including required capital expenditures, deferred maintenance, and closing costs to derive a net equity value for your partnership of $2,656,000. Closing costs, which are estimated to be 2.5% of the gross property value, include legal and accounting fees, real property, transfer taxes, title and escrow costs and broker's fees. - Third, using this net equity value, we determined the proceeds that would be paid to holders of units in the event of a liquidation of your partnership, based on the terms of your partnership's agreement of limited partnership. Accordingly, 100% of the estimated liquidation proceeds are assumed to be distributed to holders of units. Our cash offer consideration represents the per unit liquidation proceeds determined in this manner. Property income............................................. $ 660,000 Capitalization rate......................................... 10.75% ---------- Gross valuation of partnership property..................... $6,140,000 Plus: Cash and cash equivalents............................. 164,322 Plus: Other partnership assets, net of security deposits.... 351,450 Less: Mortgage debt, including accrued interest............. (3,562,255) Less: Accounts payable and accrued expenses................. (79,529) Less: Other liabilities..................................... 0 ---------- Partnership valuation before taxes and certain costs........ $3,013,988 Less: Disposition fees...................................... (25,138) Less: Extraordinary capital expenditures and deferred maintenance............................................... (179,350) Less: Closing costs......................................... (153,500) ---------- Estimated net valuation of your partnership................. $2,656,000 Percentage of estimated net valuation allocated to holders of units.................................................. 100.00% ---------- Estimated net valuation of units............................ $2,656,000 Total number of units............................. 40.0 ---------- Estimated valuation per unit................................ $ 66,400 ---------- Cash consideration per unit................................. $ 66,400 ----------
- In order to determine the number of Preferred OP Units we are offering you, we divided the cash offer consideration of $66,400.00 by the $25 liquidation preference of each Preferred OP Unit to get 2,656 Preferred OP Units per unit. - In order to determine the number of Common OP Units we are offering for each of your units, we divided the cash offer consideration of $66,400.00 by a price of $37.63 (the average closing price of AIMCO's Class A Common Stock on the NYSE for the 30 trading days ending on March 23, 1999) to get 1,764.50 Common OP Units per unit. The total net valuation of all partnerships in which the AIMCO Operating Partnership is making similar exchange offers, and which were valued using the same methods as used for your partnership, is $568,751,183, of which, $2,656,000 or .47% is the net valuation of your partnership. S-35 39 FAIRNESS OF THE OFFER POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER; FAIRNESS Your general partner is a subsidiary of the AIMCO Operating Partnership. As a result, your general partner has a conflict of interest and makes no recommendation to you as to whether you should tender or refrain from tendering your units. Your general partner has substantial conflicts of interest with regard to the offer. However, for all of the reasons discussed herein, we and your general partner believe that the offer and all forms of consideration offered is fair to you and the limited partners of your partnership. We also reasonably believe that the similar offers to the limited partners of the other partnerships are fair to such limited partners. The AIMCO Operating Partnership has retained Stanger to conduct an analysis of the offer and to render an opinion as to the fairness to unitholders of the offer consideration from a financial point of view. Stanger is not affiliated with us or your partnership. Stanger is one of the leaders in the field of analyzing and evaluating complex real estate transactions. However, we provided much of the information used by Stanger in forming its fairness opinion. We believe the information provided to Stanger is accurate in all material respects. See "Stanger Analysis." You should make your decision whether to tender based upon a number of factors, including your financial needs, other financial opportunities available to you and your tax position. The terms of our offer have been established by us and are not the result of arms-length negotiations. In evaluating the fairness of the offer, your general partner (which is our subsidiary) and the AIMCO Operating Partnership considered the following factors and information: 1. The opportunity for you to make an individual decision on whether to tender your units in the offer and that the offer allows each investor to continue to hold his or her units. 2. The estimated value of your partnership's property has been determined based on a method believed to reflect the valuation of such assets by buyers in the market. 3. An analysis of the possible alternatives including liquidation and continuation without the option of the offer. See "Background and Reasons for the Offer -- Alternatives Considered." 4. An evaluation of the financial condition and results of operations of your partnership and the AIMCO Operating Partnership and their anticipated level of operating results. The offer is not expected to have an effect on your partnership's financial condition or results of operations. The net income of your partnership has decreased from $100,283.00 for the nine months ended September 30, 1997 to $80,411.00 for the nine months ended September 30, 1998. These factors are reflected in our valuation of your partnership. 5. The method of determining the offer consideration which is intended to provide you with OP Units or cash that are substantially the financial equivalent to your interest in your partnership. See "Valuation of Units." 6. The opinion of Stanger, an independent third party, that the offer consideration is fair to holders of units from a financial point of view and Stanger's estimates of the net asset value ($62,013 per unit), going concern value ($45,962 per unit) and liquidation value ($58,356 per unit) of your partnership units. See "Stanger Analysis" 7. The fact that the units are illiquid and the offer provides holders of units with liquidity. However, we did review whether trading information was available. 8. The fact that the offer generally provides holders of units with the opportunity to receive both cash and OP Units together. 9. The fact that the offer provides holders of units with the opportunity to defer taxes by electing to accept Preferred OP Units or Common OP Units. 10. An evaluation of the market price of the Class A Common Stock and the limited information on prices at which Common OP Units and units are transferred. See "Your Partnership -- Distributions S-36 40 and Transfers of Units." No assurance can be given that the Class A Common Stock will continue to trade at its current price. 11. The estimated unit value of $66,400, based on a total estimated value of your partnership's property of $6,140,000. Your general partner (which is our subsidiary) has no present intention to liquidate your partnership or to sell or refinance your partnership's property. See "Background and Reasons for the Offer". See "Valuation of Units" for a detailed explanation of the methods we used to value your partnership. 12. Anticipated annualized distributions with respect to the Preferred OP Units are $2.00 and current annualized distributions with respect to the Common OP Units are $2.50. This is equivalent to distributions of $5,312.00 per year on the number of Preferred OP Units, or distributions of $4,411.25 per year on the number of Common OP Units, that you would receive in exchange for each of your partnership's units. There were no distributions with respect to your units for the fiscal year ended December 31, 1998. See "Comparison of Your Units and AIMCO OP Units -- Distributions." 13. The fact that if your partnership were liquidated as opposed to continuing, the general partner (which is our subsidiary) would not receive the substantial management fees it currently receives. As discussed in "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," we do not believe that liquidation of the partnership is in the best interests of the unitholders. Therefore, we believe the offer is fair in that the fees paid to the general partner would continue even if the offer was not consummated. We are not proposing to change the current management fee arrangement. In evaluating these factors, your general partner (which is our subsidiary) and the AIMCO Operating Partnership did not quantify or otherwise attach particular weight to any of them. Your general partner (which is our subsidiary) has not retained an unaffiliated representative to act on behalf of the limited partners in negotiating the terms of the offer since each individual limited partner can make his own decision as to whether or not to tender and what consideration to take. Unlike a merger or other form of partnership reorganization, a majority or more of the holders of limited partnership interests in your partnership cannot bind you. If an unaffiliated representative had been obtained, it is possible that such representative could have negotiated a higher price for your units than was unilaterally offered by the AIMCO Operating Partnership. We have retained Stanger to conduct an analysis of our offer and to render an opinion as to the fairness to you of the offer consideration from a financial point of view. Although no representative has been retained to act solely on behalf of the limited partners for purposes of negotiating the terms of the offer, we have determined that the transaction is fair to you from a financial point of view. We made this determination based, in part, on the fairness opinion from Stanger and the fact that all limited partners may elect to retain their existing security on the same terms as before our offer. FAIRNESS TO UNITHOLDERS WHO TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. The terms of the offer have been established by the AIMCO Operating Partnership and are not the result of arms-length negotiations. See "Conflicts of Interest." The general partner of your partnership and the AIMCO Operating Partnership believe that the valuation method described in "Valuation of Units" provides a meaningful indication of value for residential apartment properties and, although there are other ways to value real estate, is a reasonably fair method to determine the consideration offered. Although we believe our offer consideration represents the amount you would receive if we currently liquidated your partnership, an actual liquidation might generate a higher or lower price for holders of units. A liquidation in the future might generate a higher or lower price for holders of units. The future value of the OP Units received in the offer will depend on some of the same factors that will affect the value of the units, primarily the condition of the real estate markets. However, if you exchange your units for OP Units, you will be able to liquidate your investment only by tendering your OP Units for S-37 41 redemption after a one-year holding period or by selling your OP Units, which may preclude you from realizing the full value of your investment. FAIRNESS TO UNITHOLDERS WHO DO NOT TENDER THEIR UNITS Your general partner (which is our subsidiary) makes no recommendation as to whether you should tender or refrain from tendering your units. If you choose not to tender any units, your interest in your partnership will remain unchanged. The identity of the other limited partners of your partnership may change. If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, AIMCO may be in a position to influence voting decisions with respect to your partnership. AIMCO has no present intention to sell your partnership's property or refinance its indebtedness within any specified time period. COMPARISON OF CONSIDERATION TO ALTERNATIVE CONSIDERATION General To assist holders of units in evaluating the offer, your general partner (which is our subsidiary) has attempted to compare the cash offer consideration against: (a) estimates of the value of the units on a liquidation basis; (b) estimates of the going concern value of your units based on continuation of your partnership as a stand-alone entity; and (c) the net book value of your units. The general partner of your partnership believes that analyzing the alternatives in terms of estimated value, based upon currently available data and, where appropriate, reasonable assumptions made in good faith, establishes a reasonable framework for comparing alternatives. Since the value of the consideration for alternatives to the offer is dependent upon varying market conditions, no assurance can be given that the estimated values reflect the range of possible values. See "Valuation of Units." The results of these comparative analyses are summarized in the following chart. You should bear in mind that the estimated values assigned to the alternate forms of consideration are based on a variety of assumptions that have been made by us. These assumptions relate to, among other things: the operating results since December 31, 1997 as to income and expenses of each property, other projected amounts and the capitalization rates that may be used by prospective buyers if your partnership assets were to be liquidated. The 1998 budget is discussed in "Stanger Analysis -- Summary of Materials Considered" and other projected amounts are discussed in "Stanger Analysis -- Summary of Reviews." In addition, these estimates are based upon certain information available to your general partner (which is our subsidiary) at the time the estimates were computed, and no assurance can be given that the same conditions analyzed by it in arriving at the estimates of value would exist at the time of the offer. The assumptions used have been determined by the general partner of your partnership in good faith, and, where appropriate, are based upon current and historical information regarding your partnership and current real estate markets, and have been highlighted below to the extent critical to the conclusions of the general partner of your partnership. Actual results may vary from those set forth below based on numerous factors, including interest rate fluctuations, tax law changes, supply and demand for similar apartment properties, the manner in which your partnership's property is sold and changes in availability of capital to finance acquisitions of apartment properties. S-38 42 Under your partnership's agreement of limited partnership, the term of the partnership will continue until December 31, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. COMPARISON TABLE
PER UNIT --------- Cash offer price............................................ $ 66,400 Partnership preferred units................................. $ 66,400(1) Partnership common units.................................... $ 66,400(1) Alternatives: Estimated liquidation proceeds............................ $ 66,400 Estimated going concern value(2).......................... $ 49,735 Estimated alternative going concern value(3).............. $ 55,977 Net book value (deficit).................................. $(584,112)
- --------------- (1) In our discussion of the offer price as being fair with regard to other methods of valuing your partnership, we believe the number of Common OP Units and Preferred OP Units to be issued per unit in the offer to be equal to the cash price per unit. Therefore, the fairness discussion applies equally to the cash and non-cash forms of consideration being effected. See "Valuation of Units" for details of how the number of OP Units was determined. (2) Assumes a refinancing of the partnership property's mortgage when it comes due. (3) Assumes a sale of the partnership property when the mortgage is due, rather than a refinancing of the mortgage. Prices on Secondary Market There is no active market for your units. Your general partner (which is our subsidiary) is unaware of any secondary market activity in the units. Therefore any comparison to prices on the secondary market is not possible at the present time. See "Your Partnership -- Distributions and Transfers of Units -- Transfers." Prior Tender Offers There have been no previous tender offers for units of your partnership. Estimated Liquidation Proceeds Liquidation value is a measure of the price at which the assets of your partnership would sell if disposed of in an arms-length transaction between a willing buyer and your partnership, each having access to relevant information regarding the historical revenues and expenses of the business. Your general partner (which is our subsidiary) estimated the liquidation value of units using the same direct capitalization method and assumptions as we did in valuing the units for the cash offer consideration. See "Valuation of Units." The liquidation analysis also assumed that your partnership's property was sold to an independent third-party buyer at the current property value and that other balance sheet assets (excluding amortizing assets) and liabilities of your partnership were sold at their book value, and that the net proceeds of sale were allocated to your partners in accordance with your partnership's agreement of limited partnership. The liquidation analysis assumes that the assets of your partnership are sold in a single transaction. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners from cash flow from operations might be reduced because your partnership's relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales of the assets are assumed to occur concurrently. The S-39 43 liquidation analysis assumes that the assets would be disposed of in an orderly manner and not sold in forced or distressed sales where sellers might be expected to dispose of their interests at substantial discounts to their actual fair market value. Estimated Going Concern Value and Alternative Going Concern Value Going concern value is a measure of the value of your partnership if it continued operating as an independent stand-alone entity. The estimated value of the partnership on a going concern basis is not intended to reflect the distributions payable to limited partners if its assets were to be sold at their current fair market value. The general partner of your partnership estimated the going-concern value of your partnership by analyzing projected cash flows and performing a discounted cash flow analysis. The general partner of your partnership assumed that your partnership will be operated in the same manner as currently, as an independent stand-alone entity, and its assets sold in a liquidation after a ten-year holding period. Distribution and sale proceeds per partnership unit were discounted in the projections at a rate of 25%. The general partner of your partnership assumed that real estate selling costs will be incurred which will equal 3.0% of the sales price. This analysis assumes that the partnership property will be sold in a liquidation, at the expiration of the ten-year holding period, to an independent third-party buyer. Upon such liquidation, other balance sheet assets (excluding amortizing assets) and liabilities of your partnership will be sold at their book value, and the net proceeds of sale will be allocated between the general partners and offerees in accordance with your partnership's agreement of limited partnership. Should the assets be liquidated over time, even at prices equal to those projected, distributions to limited partners of your partnership's cash flow from operations might be reduced because relatively fixed costs, such as general and administrative expenses, are not proportionately reduced with the liquidation of assets. However, for simplification purposes, the sales are assumed to occur concurrently. The going concern method relies on a number of assumptions, including among other things, (i) rental rates for new leases and lease renewals; (ii) improvements needed to prepare an apartment for a new lease or a renewal lease; (iii) lease periods; (iv) capital expenditures; (v) broker's commissions; and (vi) discount rates applied to future cash flows. The use of assumptions or variables that differ from those described above could produce substantially different results. Neither we nor the general partner of your partnership solicited any offers or inquiries from prospective buyers of the property owned by your partnership in connection with the preparation of the estimates of value of the properties and the actual amounts for which the partnership's properties or the partnership could be sold could be significantly higher or lower than any of the estimates contained herein. The estimated going concern value of your partnership is $49,735 per unit, which value is below our offer price per unit. Therefore, we believe the offer price is fair in relation to the going concern value. The general partner determined going concern value based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation, which is a standard period for going concern analyses for real property assets. Such discounted cash flows were based upon year one property income from the real estate portfolio of $660,000, escalated at 3% per annum for the ten-year projection period. Property income was reduced by: (i) partnership administrative expenses of $50,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the property was assumed to be sold at a price based upon property income for the immediately following year, capitalized at a capitalization rate of 11.25%, less expenses of sale estimated at 3% of the property value. The net cash flow to limited partners from the continued operation of the property and the net proceeds of sale were then discounted at a discount rate of 25% to achieve the going concern value of $49,735 per unit. The capitalization rate used to determine the going concern value is 0.5% greater than the capitalization rate used in the liquidation analysis. The higher capitalization rate reflects the additional risk associated with the calculation of going concern value. These risks include: (i) projected growth in net operating income of 3% per annum, and (ii) the older age of the property at the time of the projected sale. Furthermore, we were S-40 44 advised by Stanger that it is common practice in the valuation of real estate to increase the capitalization rate by at least 0.5% when estimating a value based upon discounted future cash flows. Your partnerships property currently has a balloon payment due in November 2002. While the going concern value was based on your partnership refinancing its indebtedness and continuing to own its property; the alternative going concern value of $55,977 is based on selling the property when the balloon payment is due and otherwise includes the same assumptions as the going concern value described above. For the reason set forth above, we believe the offer consideration is fair in relation to the alternative going concern value. There is currently no market for the Partnership Preferred Units or Partnership Common Units. Net Book Value Net book value per unit is a deficit of $584,112 and therefore a comparison with the offering price would not be meaningful in determining the fairness of the offering price. Stanger's Estimate of Net Asset Value, Going Concern Value and Liquidation Value In rendering its opinion set forth as Appendix A, Stanger did its own independent estimate of your partnership's net asset value of $62,013 per unit, going concern value of $45,962 per unit and liquidation value of $58,356 per unit. For an explanation of how Stanger determined such values see "Stanger Opinion -- Summary of Reviews -- Comparison of Offer Price To Liquidation Value, Going Concern Value and Secondary Market Prices." An estimate of your partnership's net asset value per unit is based on a hypothetical sale of your partnership's property and the distribution to the limited partners and the general partner of the gross proceeds of such sales, net of related indebtedness, together with cash, proceeds from temporary investments, and all other assets that are believed to have a liquidation value, after provisions in full for all of the other known liabilities of your partnership. The net asset value does not take into account (i) timing considerations discussed under "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration -- Estimated Liquidation Proceeds," and (ii) costs associated with winding up of your partnership. Therefore, the AIMCO Operating Partnership believes that the estimate of net asset value per unit does not necessarily represent the fair market value of a unit or the amount the limited partner reasonably could expect to receive if the partnership's property was sold and the partnership was liquidated. For this above reason, the AIMCO Operating Partnership considers net asset value estimates to be less meaningful in determining the offer consideration than the analysis described above under "Valuation of Units." Stanger's estimates of net asset value, going concern value and liquidation value per unit represent discounts to the offer price of $4,387, $20,438 and $8,044. In light of these discounts and for all the reasons set forth above, the AIMCO Operating Partnership believes the offer price is fair to the limited partners. The AIMCO Operating Partnership believes that the best and most commonly used method of determining the value of a partnership which only owns an apartment is the capitalization of income approach set forth in "Valuation of Units." ALLOCATION OF CONSIDERATION Your partnership's agreement of limited partnership provides that, in the event of a liquidation, available proceeds are to be distributed 0% to the general partner and 100% to the limited partners. Accordingly, in valuing your units, we have assumed that 100% of the estimated liquidation proceeds are distributed to holders of units. Since this allocation is in accordance with the terms of the partnership agreement, we believe the allocation is fair. See "Valuation of Units." S-41 45 STANGER ANALYSIS We engaged Stanger, an independent investment banking firm, to conduct an analysis and to render an opinion (the "Fairness Opinion") as to whether the offer consideration for the units is fair, from a financial point of view, to the unitholders. We selected Stanger because of its experience in providing similar services to other parties in connection with real estate merger and sale transactions and Stanger's experience and reputation in connection with real estate partnerships and real estate assets. No other investment banking firm was engaged to provide, or has provided, any report, analysis or opinion relating to the fairness of our offer. Stanger has advised us that, subject to the assumptions, limitations and qualifications contained in its Fairness Opinion, the offer consideration for the units is fair, from a financial point of view, to the unitholders. We determined the offer consideration, and Stanger did not, and was not requested to, make any recommendations as to the form or amount of consideration to be paid in connection with the offer. The full text of the Fairness Opinion, which contains a description of the matters considered and the assumptions, limitations and qualifications made, is set forth as Appendix A hereto and should be read in its entirety. Stanger has advised us that the description of Stanger's analysis contained herein describes the material portions of Stanger's review. The summary set forth herein does not purport to be a complete description of the review performed by Stanger in rendering the Fairness Opinion. Arriving at a fairness opinion is a complex process not necessarily susceptible to partial analysis or amenable to summary description. We imposed no conditions or limitations on the scope of Stanger's investigation or with respect to the methods and procedures to be followed in arriving at the fairness opinion. See "-- Assumptions, Limitations and Qualifications." We have agreed to indemnify Stanger against any losses, claims, damages, liabilities or expenses to which Stanger may be subject, under any applicable federal or state law, including federal and state securities laws, arising out of Stanger's engagement to prepare and deliver the Fairness Opinion. EXPERIENCE OF STANGER Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major NYSE member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. Stanger was selected because of its experience and reputation in connection with real estate partnerships, real estate assets and mergers and acquisitions. SUMMARY OF MATERIALS CONSIDERED In the course of Stanger's analysis to render its opinion, Stanger: (i) reviewed a draft of the Prospectus Supplement related to the offer in substantially the form which will be distributed; (ii) reviewed your partnership's financial statements for the years ended December 31, 1996 and 1997, and its unaudited financial statements for the period ended September 30, 1998, which your partnership's management has indicated to be the most current available financial statements at the time; (iii) reviewed descriptive information concerning your partnership's real estate assets (the "property") provided by management, including location, number of units and unit mix or square footage, age, and amenities; (iv) reviewed summary historical operating statements for your partnership's property for 1996, 1997 and 1998; (v) reviewed operating budgets for your partnership's property for 1998, as prepared by your partnership; (vi) reviewed S-42 46 information prepared by management relating to any debt encumbering your partnership's property; (vii) reviewed information regarding market rental rates and conditions for similar properties in the general market area of your partnership's property and other information relating to acquisition criteria for similar properties; (viii) reviewed internal financial analyses prepared by your partnership of the estimated current net liquidation value and going concern value of your partnership; (ix) reviewed information provided by AIMCO concerning the AIMCO Operating Partnership, the Common OP Units and the Preferred OP Units; and (x) conducted other studies, analysis and inquiries as Stanger deemed appropriate. A summary of the operating budgets per property for the year ended December 31, 1998, which was supplied by your partnership to Stanger, is as follows: FISCAL 1998 OPERATING BUDGETS
SHAKER SQUARE ------------- Total Revenues.............................................. $1,310,586 Operating Expenses.......................................... (632,736) Replacement Reserves -- Net................................. (80,398) Debt Service................................................ (376,436) Capital Expenditures........................................ (158,500) ---------- Net Cash Flow..................................... $ 62,516 ==========
The above budgets at the time they were made were forward-looking information developed by the general partner of your partnership. Therefore, the budgets were dependent upon future events with respect to the ability of your partnership to meet such budget. The budgets incorporated various assumptions including, but not limited to, lease revenue (including occupancy rates), various operating expenses, general and administrative expenses, depreciation expenses, capital expenditures, and working capital levels. While we deemed such budgets to be reasonable and valid at the date made, there is no assurance that the assumed facts will be validated or that the circumstances will actually occur. Any estimate of the future performance of a business, such as your partnership's business, is forward-looking and based on assumptions some of which inevitably will prove to be incorrect. The budget amounts provided above are figures that were not computed in accordance with GAAP. In particular, items that are categorized as capital expenditures for purposes of preparing the operating budget are often re-categorized as expenses when the financial statements are audited and presented in accordance with GAAP. Therefore, the summary operating budget presented for fiscal 1998 should not necessarily be considered as indicative of what the audited operating results for fiscal 1998 will be. For the year ended December 31, 1998, the partnership expects to report revenues of $1,317,088, operating expenses of $674,030 and replacement reserves and capital expenditures of $217,877. Based on these estimates, the partnership's net cash flow before debt service, which we believe provides a better indication of the partnership's actual operating performance than net cash flow, was less than the budgeted amounts. In addition, Stanger discussed with management of your partnership and AIMCO the market conditions for the property, conditions in the market for sales/acquisitions of properties similar to that owned by your partnership, historical, current and projected operations and performance of your partnership's property and your partnership, the physical condition of your partnership's property including any deferred maintenance, and other factors influencing value of your partnership's property and your partnership. Stanger also performed site inspections of your partnership's property, reviewed local real estate market conditions, and discussed with property management personnel conditions in local apartment rental markets and market conditions for sales and acquisitions of properties similar to your partnership's property. S-43 47 SUMMARY OF REVIEWS The following is a summary of the material reviews conducted by Stanger in connection with and in support of its Fairness Opinion. The summary of the opinion and reviews of Stanger set forth in this Prospectus Supplement is qualified in its entirety by reference to the full text of such opinion. Property Evaluation. In preparing its Fairness Opinion, Stanger performed a site inspection of your partnership's property during the third quarter of 1998. In the course of the site visit, the physical facilities of your partnership's property were observed, current rental and occupancy information was obtained, current local market conditions were reviewed, similar competing properties were identified, and local property management personnel were interviewed concerning your partnership's property and local market conditions. Stanger also reviewed and relied upon information provided by your partnership and AIMCO, including, but not limited to, financial schedules of historical and current rental rates, occupancies, income, expenses, reserve requirements, cash flow and related financial information; property descriptive information including unit mix or square footage; and information relating to the condition of the property, including any deferred maintenance, capital budgets, status of ongoing or newly planned property additions, reconfigurations, improvements and other factors affecting the physical condition of the property improvements. Stanger also reviewed historical operating statements for your partnership's property for 1996, 1997, and for the nine month period ending September 30, 1998, the operating budget for 1998, as prepared by your partnership, and discussed with management the current and anticipated operating results of your partnership's property. In addition, Stanger interviewed management personnel of your partnership and AIMCO. Such interviews included discussions of conditions in the local market, economic and development trends affecting your partnership's property, historical and budgeted operating revenues and expenses and occupancies and the physical condition of your partnership's property (including any deferred maintenance and other factors affecting the physical condition of the improvements), projected capital expenditures and building improvements, the terms of existing debt, encumbering your partnership's property, and expectations of management regarding operating results of your partnership's property. Stanger also reviewed the acquisition criteria used by owners and investors in the type of real estate owned by your partnership, utilizing available published information and information derived from interviews conducted by Stanger with various real estate owners and investors. Review of Partnership Liquidation Analysis. Stanger reviewed the liquidation value calculation prepared by the management of your partnership. Stanger observed that such liquidation value was based upon the gross property valuation estimate prepared by management, which in turn is based upon fiscal year 1997 net operating income capitalized at capitalization rate of 10.75%. Stanger further observed that the gross property valuation was adjusted for the following additional items to achieve the liquidation value of your partnership: (i) cash, other assets, mortgage indebtedness and other liabilities determined as of December 31, 1997; (ii) estimated closing costs equal to approximately 2.5% of gross real estate value; and (iii) extraordinary capital expenditure estimates in the amount of $179,350. Stanger observed that your partnership liquidation value of $2,656,000 was divided by the total units outstanding of 40 to achieve the liquidation value per unit of $66,400. Review of Partnership Going Concern Analysis. Stanger reviewed the going concern value calculation prepared by management of your partnership. Stanger observed that such going concern value was based upon the discounted present value of projected cash flows from the partnership over a ten-year period of operation which is a standard period for going concern analysis for real property assets. Such discounted cash flows were based upon year one property income from the real estate portfolio of $660,000 escalated at 3% per annum for the ten-year projection period. Property income was reduced by: (i) partnership administrative expenses of $50,000 per annum; and (ii) debt service on existing debt through maturity or the end of ten years, whichever occurs first. For debt which matures during the ten-year period, a refinancing at a 7% interest rate was assumed. At the end of the ten-year projection period, the properties were assumed to be sold based upon: (i) property income for the immediately following year capitalized at a capitalization rate of S-44 48 11.25%; and (ii) expenses of sale estimated at 3% of property value. Stanger observed that the proceeds of sale were reduced by the estimated debt balance at the end of the tenth year to provide net proceeds from the sale of your partnership's property. The resulting cash flows for the ten-year period were discounted to present value at a discount rate of 25%. Stanger observed that such discount rate was based upon the portfolio real estate discount rate of 13.3%, adjusted for leverage risk and illiquidity risk. Stanger observed that the resulting partnership going concern value was divided by units outstanding of 40 to achieve management's estimate of going concern value of $49,735 per unit. Review of Secondary Market Prices. Stanger maintains a database of secondary market information on limited partnership units. Stanger observed for its data that no units were reported traded in the secondary market during 1998. Comparison of Offer Price to Liquidation Value, Going Concern Value and Secondary Market Price. Stanger observed that the offer price of $66,400 per unit is equal to management's estimate of liquidation value, and reflects a 33% premium to management's estimate of going concern value of $49,735. Stanger further observed that investors may select cash, Common OP Units or Preferred OP Units in exchange for their partnership units or they may elect to continue to hold their partnership units. Stanger further observed that the Common OP Units will be priced at $37.63 per unit, an amount which equals the average of the closing prices for the common shares into which such Common OP Units are convertible for the 30-trading day period ended March 23, 1999. Furthermore, Stanger observed that the Preferred OP Units to be issued in the transaction will be based upon the liquidation preference of $25. Stanger noted that the Preferred OP Units are redeemable for, at AIMCO's option, either: (i) $25 in cash per Preferred OP Unit; (ii) common stock of AIMCO based upon a ten-day average price at the time of the requested redemption; or (iii) commencing on the third year after the closing of the transaction preferred stock of AIMCO with a dividend equal to the distribution on the Preferred OP Units. Stanger observed that the ten day average closing price of the AIMCO common stock is $36.425, as of March 23, 1999 and therefore an investor receiving AIMCO common shares in redemption of the Preferred OP Units would receive 0.6863 shares with a value approximating $25 for each $25 Preferred OP Unit redeemed, based upon AIMCO's common share price as of March 23, 1999. Stanger noted that commencing in the third year, investors redeeming Preferred OP Units may receive from AIMCO Preferred Stock with a dividend equal to the distribution on the AIMCO Preferred OP Units. Stanger observed that the distribution on the Preferred OP Units is set at 8% of $25 and that the average dividend yield on AIMCO's outstanding C, D, G and H Preferred Shares approximates 10.17% as of March 23, 1999. Stanger noted that, based upon the cash dividend yield on the AIMCO Preferred Shares identified above as of March 23, 1999, investors would receive Preferred Shares with a value of approximately $19.80 for each $25 Preferred OP Unit if such redemption occurred after the second year following the closing of the transaction. Stanger further observed that the above analysis does not take into consideration the present value of the earnings on the tax deferral an investor may realize as the result of selecting Preferred OP Units in lieu of cash in a taxable transaction. In addition to the above analysis, Stanger prepared an independent estimate of net asset value, going concern value and liquidation value per unit. Stanger has advised AIMCO that Stanger's estimates of net asset value, liquidation value and going concern value are based upon Stanger's independent estimate of net operating income for the property, a direct capitalization rate of 10.5% transaction costs of 2.5% to 5.0%, growth rates of 3% and a terminal capitalization rate of 11.0% Stanger utilized deferred maintenance estimates derived from the Adjusters International, Inc. reports in the calculation of net asset value, liquidation value and going concern value. Stanger has advised us that the direct capitalization rate represents Stanger's estimate of the capitalization rate applicable to its estimate of property income and is based upon Stanger's independent estimate of the direct capitalization rate for such property based upon such property's age, condition and location. Stanger further advised us that the terminal capitalization rate is the capitalization rate utilized in Stanger's going concern value estimate which is applied to Stanger's estimate of property income in the eleventh year to establish the value of the property at the end of the tenth year Stanger has advised us that Stanger estimated the terminal capitalization rate at a 50 basis point premium to the direct capitalization rate estimate for the property. Stanger advised us that Stanger adjusted its estimate of net asset S-45 49 value and liquidation value for the cost of above market debt using a 7% interest rate. With respect to the going concern value estimate prepared by Stanger, Stanger advised AIMCO that a ten-year projection period and a discount rate of 25% was utilized. Such discount rate reflects the risk associated with real estate, leverage and a limited partnership investment. The 25% discount rate was based upon the property's estimated internal rate of return derived from the discounted cash flow analysis, (approximately 13% as described above), plus a premium reflecting the additional risk associated with mortgage debt equal to approximately 60% of property value. Stanger's estimates were based in part upon information provided by us. Stanger relied upon the deferred maintenance estimates, property descriptions, unit configurations, allocation among partners, and other data provided by us. Stanger's analyses were based on balance sheet data as of September 30, 1998. Stanger's review also included a site visit, review of rental rates and occupancy at the properties as well as competing properties. Stanger's estimate of net asset value, going concern value and liquidation value per unit were $62,013, $45,962, and $58,356 representing discounts to the offer price of 6.6%, 30.8%, and 12.1%. See "Fairness of the Offer -- of Consideration to Alternative Consideration." CONCLUSIONS Stanger concluded, based upon its analysis of the foregoing and the assumptions, qualifications and limitations stated below, as of the date of the Fairness Opinion, that the offer consideration to be paid for the units in connection with the offer is fair to the unitholders from a financial point of view. Stanger has rendered similar fairness opinions with regard to certain other exchange offers being made by the AIMCO Operating Partnership. Stanger rendered the opinions only as to the individual fairness of the offer consideration in each proposed exchange offer. The Fairness Opinion does not address the fairness of all possible acquisitions of interests in your partnership. In addition, the Fairness Opinion will not be revised to reflect the actual participation in the offer. ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS In rendering the Fairness Opinion, Stanger relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and data, and all other reports and information contained in this Prospectus Supplement or that were provided, made available, or otherwise communicated to Stanger by your partnership, AIMCO, or the management of the partnership's property. Stanger has not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of your partnership. Stanger relied upon the representations of your partnership and AIMCO concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditure and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of your partnership, the allocation of your partnership's net values between your general partner (which is our subsidiary) and limited partners of your partnership, the terms and conditions of any debt encumbering the partnership's property, and the transaction costs and fees associated with a sale of the property. Stanger also relied upon the assurance of your partnership, AIMCO, and the management of the partnership's property that any financial statements, budgets, pro forma statements, projections, capital expenditure estimates, debt, value estimates and other information contained in this Prospectus Supplement or provided or communicated to Stanger were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of your partnership's agreement of limited partnership, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the partnership's property or other balance sheet assets and liabilities or other information reviewed between the date of such information provided and the date of the Fairness Opinion; that your partnership, AIMCO, and the management of the partnership's property are not aware of any information or facts that would cause the information supplied to Stanger to be incomplete or misleading; that the highest and best use of the partnership's property is as improved; and that all calculations were made in accordance with the terms of your partnership's agreement of limited partnership. Stanger was not requested to, and therefore did not: (i) select the offer consideration or the method of determining the offer consideration; (ii) make any recommendation to your partnership or its partners with respect to whether to accept or reject the proposed offer or whether to accept the cash, Preferred OP Units or S-46 50 Common OP Units if the offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of your partnership or all or any part of your partnership; or (iv) express any opinion as to (a) the tax consequences of the offer to unitholders, (b) the terms of your partnership's agreement of limited partnership or the terms of any agreements or contracts between your partnership or AIMCO; (c) AIMCO's or the general partner's business decision to effect the offer, or alternatives to the offer, (d) the amount or allocation of expenses relating to the offer between AIMCO and your partnership or tendering unitholders; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the offer; and (f) any adjustments made to determine the offer consideration and the net amounts distributable to the unitholders, including but not limited to, balance sheet adjustments to reflect your partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the offer consideration for distributions made by your partnership subsequent to the date of the offer. Stanger is not expressing any opinions as to the fairness of any terms of the offer other than the offer consideration for the units, nor did Stanger address the fairness of all possible acquisitions of interests in the partnership. The opinion will not be revised to reflect the actual results of the offer. Stanger's opinion is based on business, economic, real estate and capital market, and other conditions as of the date of its analysis and addresses the offer in the context of information available as of the date of its analysis. Events occurring after such date and before the closing of the proposed offer could affect the partnership's property or the assumptions used in preparing the Fairness Opinion. Stanger has no obligation to update the Fairness Opinion on the basis of subsequent events. In connection with preparing the Fairness Opinion, Stanger was not engaged to, and consequently did not, prepare any written or oral report or compendium of its analysis for internal or external use beyond the report set forth in Appendix A. COMPENSATION AND MATERIAL RELATIONSHIPS Stanger has been retained by AIMCO to provide fairness opinions with respect to your partnership and other partnerships which are or will be the subject of similar offers. Stanger will be paid a fee by AIMCO of $9,000 with respect to your partnership. The estimated aggregate fee payable to Stanger in connection with all affiliated partnerships is estimated at $1,510,000, plus out-of-pocket expenses estimated at $61,000. In addition, Stanger is entitled to reimbursement for reasonable legal, travel and out-of-pocket expenses incurred in making the site visits and preparing the Fairness Opinion, and is entitled to indemnification against certain liabilities, including certain liabilities under Federal securities laws. No portion of Stanger's fee is contingent upon consummation of the offer or the content of Stanger's opinion. Stanger was engaged by AIMCO during 1997 to represent AIMCO in negotiations to acquire interests in a real estate limited partnership. Such transaction was never consummated and no fee was ever paid to Stanger in connection with such proposed transaction. AIMCO and its affiliates may retain the services of Stanger in the future. Any such future services could relate to this offer, some or all of the concurrent offers, or a completely separate transaction. S-47 51 YOUR PARTNERSHIP GENERAL Shaker Square, L.P., is a Delaware limited partnership which completed a private placement of units in 1985. Each unit was initially sold at a price of $66,400. Insignia acquired the general partner of your partnership in December 1991. AIMCO acquired Insignia in October 1998. There are currently a total of 35 limited partners of your partnership and a total of 40 units of your partnership outstanding. Your partnership is in the business of owning and managing residential housing. Currently, your partnership owns and manages the property described below. Your partnership has no employees. Your partnership's principal executive offices are located at 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222, and its telephone number at that address is (303) 757-8101. YOUR PARTNERSHIP AND ITS PROPERTY Your partnership was formed on October 16, 1985 for the purpose of owning an apartment property located in Whitehall, Ohio, known as "Shaker Square Apartments." Your partnership's property is owned by the partnership but is subject to a mortgage. The property consists of 194 apartment units. There are 194 two-bedroom apartments. Your partnership's property had an average occupancy rate of approximately 95.64% in 1998, 95.88% in 1997 and 95.88% in 1996. Your partnership's property provides residents with a number of amenities and services, such as 24-hour desk service, exercise room and/or sauna, and party or meeting rooms. Nearly all apartment units are wired for cable television, and many apartment units also offer one or more additional features, such as washer/ dryer, microwave, fireplace, and patio/balcony. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $179,350 and are intended to be paid for out of cash flow or borrowings. Renovation items include heating, ventilation and air conditioning systems, electrical, sidewalks, drives, parking lot, and fencing. Set forth below are the average rents for the apartments for the last five years:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- $524 $495 $467 $490 $463
The apartments are being depreciated for federal income tax purposes using the accelerated cost recovery method. Depreciation is computed principally by the straight-line and accelerated methods over estimated lives of 3 to 40 years. Currently, the real estate taxes on the property are $103,208 of $1,669,580 of assessed valuation with a current yearly tax rate of 6.18%. When the proposed improvements are made it is anticipated that the yearly tax rate may increase by approximately 6.49% of such improvements. PROPERTY MANAGEMENT Your partnership's property is managed by an entity which is a wholly owned subsidiary of AIMCO. Pursuant to the management agreement between the property manager and your partnership, the property manager operates your partnership's property, establishes rental policies and rates and directs marketing activities. The property manager also is responsible for maintenance, the purchase of equipment and supplies, and the selection and engagement of all vendors, suppliers and independent contractors. INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS Under your partnership's agreement of limited partnership, your partnership is not permitted to raise new equity and reinvest cash in new properties. Consequently, your partnership is limited in its ability to expand its investment portfolio. Your partnership will terminate on July 1, 2015 unless earlier dissolved. Your S-48 52 partnership has no present intention to liquidate, sell, finance or refinance your partnership's property within any specified time period. Generally, your partnership is authorized to acquire, develop, improve, own and operate your partnership's property as an investment and for income producing purposes. The investment portfolio of your partnership is limited to the assets acquired with the initial equity raised through the sale of units to the limited partners of your partnership or the assets initially contributed to your partnership by the limited partners, as well as the debt financing obtained by your partnership within the established borrowing restrictions. An investment in your partnership is a finite life investment, with the partners to receive regular cash distributions out of your partnership's distributable cash flow, if available, and to receive cash distributions upon liquidation of your partnership's real estate investments, if available. In general, your general partner (which is our subsidiary) regularly evaluates the partnership's property by considering various factors, such as the partnership's financial position and real estate and capital markets conditions. The general partner monitors the property's specific locale and sub-market conditions (including stability of the surrounding neighborhood) evaluating current trends, competition, new construction and economic changes. The general partner oversees each asset's operating performance and continuously evaluates the physical improvement requirements. In addition, the financing structure for each property (including any prepayment penalties), tax implications, availability of attractive mortgage financing to a purchaser, and the investment climate are all considered. Any of these factors, and possibly others, could potentially contribute to any decision by the general partner to sell, refinance, upgrade with capital improvements or hold a particular partnership property. If rental market conditions improve, the level of distributions might increase over time. It is possible that the private resale market for properties could improve over time, making a sale of the partnership's property in a private transaction at some point in the future a more viable option than it is currently. After taking into account the foregoing considerations, your general partner is not currently seeking a sale of your partnership's property primarily because it expects the property's operating performance to remain strong in the near term. In making this assessment, your general partner noted that occupancy and rental rates at the property were 96% and $536, respectively, at December 31, 1998, compared to 96% and $489, respectively, at December 31, 1997. In addition/particular, the general partner noted that it expects to spend approximately $179,350 for capital improvements at the property in 1999 to repair the property's HVAC, sidewalks, parking lots and fencing. These expenditures are expected to improve the desirability of the property to tenants. The general partner does not believe that a sale of the property at the present time would adequately reflect the property's future prospects. Another significant factor considered by your general partner is the likely tax consequences of a sale of the property for cash. Such a transaction would likely result in tax liabilities for many limited partners. The general partner has not received any recent indication of interest or offer to purchase the property. CAPITAL REPLACEMENT Your partnership has an ongoing program of capital improvements, replacements and renovations, including roof replacements, kitchen and bath renovations, balcony repairs (where applicable), replacement of various building systems and other replacements and renovations in the ordinary course of business. All capital improvement and renovation costs are expected to be paid from operating cash flows, cash reserves, or from short-term or long-term borrowings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of Your Partnership." BORROWING POLICIES Your partnership's agreement of limited partnership allows your partnership to incur debt. As of December 31, 1998, your partnership had a current mortgage note outstanding of $3,319,331, payable to Marine Midland and Bank of America, which bears interest at a rate of 7.60%. The mortgage debt is due on November 2002. Your partnership also has a second mortgage note outstanding of $119,949, on the same terms as the current mortgage note. Your partnership's agreement of limited partnership also allows the S-49 53 general partner of your partnership to lend funds to your partnership. As of December 31, 1998, your general partner had no outstanding loans to your partnership. COMPETITION There are other residential properties within the market area of your partnership's property. The number and quality of competitive properties in such an area could have a material effect on the rental market for the apartments at your partnership's property and the rents that may be charged for such apartments. While we are a significant factor in the United States in the apartment industry, competition for apartments is local. LEGAL PROCEEDINGS Your partnership is party to a variety of legal proceedings related to its ownership of the partnership's property and management and leasing business, respectively, arising in the ordinary course of the business, which are not expected to have a material adverse effect on your partnership. HISTORY OF THE PARTNERSHIP Your partnership sold $2,656,000 of limited partnership units in 1985 for $66,400 per unit. Your partnership currently owns one apartment property. Your partnership used the funds raised to purchase its property and it has expended the funds so raised many years ago. Your partnership currently owns the property described herein, which is subject to a substantial mortgage. Your general partner (which is our subsidiary) has not experienced any material adverse financial developments from January 1, 1997 through the present. Under your partnership's agreement of limited partnership, the term of the partnership will continue until July, 2015, unless sooner terminated as provided in the agreement or by law. Limited partners could, as an alternative to tendering their units, take a variety of possible actions, including voting to liquidate the partnership or amending the agreement of limited partnership to authorize limited partners to cause the partnership to merge with another entity or engage in a "roll-up" or similar transaction. FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER OF YOUR PARTNERSHIP Under applicable law, your general partner (which is our subsidiary) is accountable to your partnership as a fiduciary. Under your partnership's agreement of limited partnership, the general partners of your partnership and their affiliates are not liable, responsible or accountable, in damages or otherwise to your partnership or any limited partner for any acts performed by any of them which are reasonably believed by them to be within the scope of the authority conferred on them by your partnership's agreement of limited partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation. As a result, unitholders might have a more limited right of action in certain circumstances than they would have in the absence of such a provision in your partnership's agreement of limited partnership. The general partner of your partnership is majority-owned by AIMCO. See "Conflicts of Interest." The general partners and their affiliates are entitled to indemnification by your partnership for any and all acts performed by them in the good faith belief that the act or omission was in the best interests of your partnership and which are reasonable within the scope of the authority conferred upon them by your partnership's agreement of limited partnership or by your partnership, excepting only acts of malfeasance, gross negligence or actual misrepresentation; provided, however, that such indemnity will be paid out of and only to the extent of partnership assets. Your partnership's agreement of limited partnership does not limit the amount or type of insurance your partnership may purchase to cover the liability of the general partners of your partnership. S-50 54 DISTRIBUTIONS AND TRANSFERS OF UNITS Distributions The following table shows, for each of the years indicated, the distributions paid per unit in such years.
YEAR ENDED DECEMBER 31 AMOUNT ---------------------- ------ 1993........................................................ $ 0 1994........................................................ 2,551 1995........................................................ 2,451 1996........................................................ 2,915 1997........................................................ 0 1998........................................................ 0 ------ Total............................................. $7,917 ======
Transfers The units are not listed on any national securities exchange or quoted on the NASDAQ System, the Electronic Bulletin Board or the "pink sheets," and there is no established public trading market for the units. Secondary sales activity for the units has been limited and sporadic. The general partner of your partnership monitors transfers of the units (a) because the admission of the transferee as a substitute limited partner in your partnership require the consent of the general partner of your partnership under your partnership's agreement of limited partnership, and (b) in order to track compliance with safe harbor provisions to avoid treatment as a "publicly traded partnership" for tax purposes. However, the general partner of your partnership does not monitor or regularly receive or maintain information regarding the prices at which secondary sale transactions in the units have been effectuated. The general partner of your partnership estimates, based solely on the transfer records of your partnership (or your partnership's transfer agent), that the number of units transferred in privately negotiated transactions or in transactions believed to be between related parties, family members or the same beneficial owner was as follows:
NUMBER OF UNITS PERCENTAGE OF TOTAL UNITS NUMBER OF YEAR TRANSFERRED OUTSTANDING TRANSACTIONS - ---- --------------- ------------------------- ------------ 1994......................... 0 0.00% 0 1995......................... 0 0.00% 0 1996......................... 0 0.00% 0 1997......................... 0.5 1.41% 1 1998......................... 0 0.00% 0
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP Through subsidiaries, AIMCO currently owns, in the aggregate, approximately a 2.74% interest in your partnership, including .5 units held by us and the interest held by us, as general partner of your partnership. Except as set forth above, neither the AIMCO Operating Partnership, nor, to the best of its knowledge, any of its affiliates, (i) beneficially own or have a right to acquire any units, (ii) have effected any transactions in the units in the past two years, or (iii) have any contract, arrangement, understanding or relationship with any other person with respect to any securities of your partnership, including, but not limited to, contracts, arrangements, understandings or relationships concerning transfer or voting thereof, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or the giving or withholding of proxies. S-51 55 COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES The following table shows, for each of the years indicated, compensation paid to your general partner and its affiliates on a historical basis, and on a pro forma basis assuming that all of the units sought in our offer had been acquired at the beginning of each period:
HISTORICAL PRO FORMA --------------------------------------------------- --------------------------------------------------- PARTNERSHIP PROPERTY PARTNERSHIP PROPERTY FEES AND MANAGEMENT FEES AND MANAGEMENT YEAR EXPENSES FEES DISTRIBUTIONS TOTAL EXPENSES FEES DISTRIBUTIONS TOTAL ---- ----------- ---------- ------------- -------- ----------- ---------- ------------- -------- 1994................. $39,992 $58,606 $2,551 $101,149 $39,992 $58,606 $27,041 $125,639 1995................. 41,022 57,203 2,451 100,676 41,022 57,203 26,505 124,730 1996................. 44,648 61,478 2,915 109,041 44,648 61,478 30,902 137,028 1997................. 43,130 64,410 0 107,540 43,130 64,410 0 107,540 1998................. 23,798 65,757 0 89,555 23,798 65,757 0 89,555
S-52 56 SELECTED FINANCIAL INFORMATION OF YOUR PARTNERSHIP
SHAKER SQUARE, L.P. ----------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents..... $ 264,044 $ 165,416 $ 164,322 $ 154,424 $ 294,869 $ 384,219 $ 356,310 Land & Building............... 5,959,599 5,815,911 5,911,892 5,731,915 5,601,904 5,446,960 5,373,191 Accumulated Depreciation...... (3,044,646) (2,786,737) (2,852,718) (2,601,328) (2,367,271) (2,153,750) (1,951,103) Other Assets.................. 472,542 442,360 442,105 358,802 367,212 399,168 419,846 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Assets.......... $ 3,651,539 $ 3,636,950 $ 3,663,601 $ 3,643,843 $ 3,896,716 $ 4,096,397 $ 4,198,244 =========== =========== =========== =========== =========== =========== =========== Notes Payable................. $ 3,243,457 $ 3,413,761 $ 3,398,042 $ 3,473,228 $ 3,542,130 $ 3,605,272 $ 3,663,137 Other Liabilities............. 175,927 139,206 215,814 186,916 205,684 180,177 171,129 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total Liabilities..... $ 3,519,384 $ 3,552,967 $ 3,613,856 $ 3,660,144 $ 3,747,814 $ 3,785,449 $ 3,834,266 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Partners Capital (Deficit).... $ 132,155 $ 83,983 $ 51,745 $ (16,301) $ 148,902 $ 311,148 $ 363,978 =========== =========== =========== =========== =========== =========== ===========
SHAKER SQUARE, L.P. ------------------------------------------------------------------------------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31, ------------------- -------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 -------- -------- ---------- ---------- ---------- ---------- ---------- Rental Revenue.................... $922,644 $906,822 $1,220,424 $1,151,592 $1,087,550 $1,139,967 $1,078,463 Other Income...................... 57,215 61,108 79,391 69,530 63,973 55,970 41,714 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Revenue............. $979,859 $967,930 $1,290,815 $1,221,123 $1,151,523 $1,195,937 $1,120,177 -------- -------- ---------- ---------- ---------- ---------- ---------- Operating Expenses................ $370,322 $361,897 $ 518,119 $ 569,524 $ 548,462 $ 493,768 $ 451,948 General & Administrative.......... 39,786 32,870 48,509 49,378 48,374 41,242 61,048 Depreciation...................... 191,928 185,409 251,389 234,057 213,521 202,647 194,772 Interest Expense.................. 223,755 230,846 314,859 321,143 326,902 332,332 321,036 Property Taxes.................... 73,657 74,487 98,893 95,611 76,489 76,737 79,132 -------- -------- ---------- ---------- ---------- ---------- ---------- Total Expenses............ $899,448 $885,509 $1,231,769 $1,269,713 $1,213,748 $1,146,726 $1,107,936 -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (loss) before extraordinary items............. $ 80,411 $ 82,421 $ 68,046 $ (48,591) $ (62,225) $ 49,211 $ 12,241 Extraordinary Items............... -- -- -- -- -- -- -- -------- -------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)................. $ 80,411 $ 82,421 $ 68,046 $ (48,591) $ (62,225) $ 49,211 $ 12,241 ======== ======== ========== ========== ========== ========== ========== Net Income per limited partnership unit............................ $ 1,769 $ 1,813 $ 1,497 $ (1,069) $ (1,369) $ 1,083 $ 269 ======== ======== ========== ========== ========== ========== ========== Distributions per limited partnership unit................ $ -- $ -- $ -- $ 2,565 $ 2,200 $ 2,245 $ -- ======== ======== ========== ========== ========== ========== ==========
S-53 57 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF YOUR PARTNERSHIP RESULTS OF OPERATIONS Comparison of the Nine Months Ended September 30, 1998 to the Nine Months Ended September 30, 1997 NET INCOME Your partnership recognized net income of $80,411 for the nine months ended September 30, 1998, compared to net income of $82,421 for the nine months ended September 30, 1997. The decrease in net income of $2,010, or 2.44% was primarily the result of an increase in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $977,979 for the nine months ended September 30, 1998, compared to $969,810 for the nine months ended September 30, 1997, an increase of $8,169, or .84%. The Partnership increased rental rates by an average of 1.7%. However, rental rate increases were offset by minor decreases in other income related to decreased fees, including lease cancellation fees, application fees, and cleaning and damage fees. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $370,322 for the nine months ended September 30, 1998, compared to $361,897 for the nine months ended September 30, 1997, an increase of $8,425 or 2.3%. Management expenses totaled $48,903 for the nine months ended September 30, 1998, compared to $48,070 for the nine months ended September 30, 1997, an increase of $833, or 1.73% as management fees are calculated as a percentage of revenue. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses totaled $39,786 for the nine months ended September 30, 1998 compared to $32,870 for the nine months ended September 30, 1997, an increase of $6,916 or 21.04%. INTEREST AND EXPENSES Interest expense which includes the amortization of deferred financing costs, totaled $223,755 for the nine months ended September 30, 1998, compared to $230,846 for the nine months ended September 30, 1997, a decrease of $7,091, or 3.10%. As part of the ongoing business plan of your partnership, the general partner monitors the rental market environment of your partnership's investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting your partnership from increases in expenses. As part of this plan, the general partner attempts to protect your partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the general partner will be able to sustain such a plan. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 NET INCOME Your partnership recognized net income of $68,046 for the year ended December 31, 1997, compared to a net loss of $48,591 for the year ended December 31, 1996. The increase in net income of $116,637, or S-54 58 240.04% was primarily the result of increased revenue and a decrease in operating expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,299,815 for the year ended December 31, 1997, compared to $1,221,122 for the year ended December 31, 1996, an increase of $78,693, or 6.44%. The Partnership increased rental rates by an average of 2.8% while occupancy increased .2% to 95.5%. Additionally other income increased by $10,033 or 19.87% due to increased income from lease cancellation fees and laundry income. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants), contract services, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $518,119 for the year ended December 31, 1997, compared to $569,524 for the year ended December 31, 1996, a decrease of $51,405 or 9.03%. This is due primarily to a reduction to non-capitalized building improvements and repairs. In 1996, major exterior building improvements were undertaken, thus reducing the amount of 1997 expenses by $47,000. Also, interior building improvements decreased by $15,000 offset by an increase in major landscaping of $13,000. GENERAL AND ADMINISTRATIVE EXPENSES General administrative expenses totaled $48,509 for the year ended December 31, 1997 compared to $49,378 for the year ended December 31, 1996, a decrease of $869 of 1.76%. General and administrative expenses remained relatively constant throughout comparable period. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $314,859 for the year ended December 31, 1997, compared to $321,143 for the year ended December 31, 1996, a decrease of $6,284, or 1.96%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. Comparison of the Year Ended December 31, 1996 to the Year Ended December 31, 1995 NET INCOME Your partnership recognized a net loss of $48,591 for the year ended December 31, 1996, compared to a net loss of $62,225 for the year ended December 31, 1995. The decrease in net loss of $13,634, or 21.48% was primarily the result of increased revenue over the increase in expenses. These factors are discussed in more detail in the following paragraphs. REVENUES Rental and other property revenues from the partnership's property totaled $1,221,122 for the year ended December 31, 1996, compared to $1,151,523 for the year ended December 31, 1995, an increase of $69,599, or 6.04%. This is primarily due to increased occupancy levels from 90% in 1995 to 95% in 1996. EXPENSES Operating expenses, consisting of, utilities (net of reimbursements received from tenants) contract services, turnover costs, repairs and maintenance, advertising and marketing, and insurance, totaled $569,524 for the year ended December 31, 1996, compared to $548,462 for the year ended December 31, 1995, an increase of $21,062 or 3.84%. This is primarily due to increases of gutter repair expenses and exterior building maintenance for door replacements and exterior painting. Management expenses totaled $61,478 for the year ended December 31, 1996, compared to $57,203 for the year ended December 31, 1995, an increase of $4,275, S-55 59 or 7.47%. The increase resulted from increased revenues since management fees are calculated based on a percentage of rental revenue. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses totaled $49,378 for the year ended December 31, 1996 compared to $48,374 for the year ended December 31, 1995, an increase of $1,004 or 2.08%. INTEREST EXPENSE Interest expense, which includes the amortization of deferred financing costs, totaled $321,143 for the year ended December 31, 1996, compared to $326,902 for the year ended December 31, 1995, a decrease of $5,759, or 1.76%. This decrease is due to a lower outstanding balance on the mortgage indebtedness due to principal payments made during the period. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, your Partnership had $264,044 in cash and cash equivalents. Your Partnership's principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital improvements, and distributions paid to limited partners. At September 30, 1998, the outstanding balance on the mortgage indebtedness, excluding discount of $135,645, was $3,343,457. The mortgages require monthly payments of approximately $31,370 until November 2002, at which time a balloon payment of approximately $3,053,358 will be due. The notes are collateralized by pledge of land and buildings and have a stated interest rate of 7.60%. Presently, there are no plans for any renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $58,410 and are intended to be paid for out of cash flow or borrowings. Renovations or improvements include, but are not limited to, gutter and downspout repairs, hot water heater replacement, exterior lighting and irrigation repairs. There are no commitments for material capital expenditures as of September 1998. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the property to adequately maintain the physical assets and meet other operating needs of the partnership. Such assets are currently thought to be sufficient for any near-term needs of the partnership. Management believes that your partnership has adequate sources of cash to finance its operations, both on a short-term and long-term basis. Presently, there are no plans for any major renovations or improvements for the property. Budgeted renovations or improvements for the property. Budgeted renovations or improvements for 1999 total $179,350 and are intended to be paid for out of cash flow or borrowings. Renovation items include heating, ventilation, and air conditioning systems, electrical, sidewalks, drives, parking lot, and fencing. S-56 60 THE OFFER TERMS OF THE OFFER; EXPIRATION DATE We are offering to acquire up to 24% of the outstanding 40 units of your partnership (up to 10.8 units) for consideration per unit of (i) 2,656 Preferred OP Units, (ii) 1,764.50 Common OP Units, or (iii) $66,400 in cash. If you tender units pursuant to our offer, you may choose to receive any of such forms of consideration for your units or any combination of such forms of consideration. The purchase price per unit will automatically be reduced by the aggregate amount of distributions per unit, if any, made by your partnership to you on or after the commencement of our offer and prior to the date on which we acquire your units pursuant to our offer. Upon the terms and subject to the conditions of our offer set forth herein, the AIMCO Operating Partnership will accept (and thereby purchase) units that are validly tendered prior to the expiration of the offer and not withdrawn in accordance with the procedures set forth in "-- Withdrawal Rights." Our offer will expire at 5:00 p.m., New York City time, on June 4, 1999, unless the AIMCO Operating Partnership in its sole discretion, extends the offer. See "-- Extension of Tender Period; Termination; Amendment" for a description of the AIMCO Operating Partnership's right to extend the period of time during which the offer is open and to amend or terminate the offer. If, prior to the expiration of the offer, the AIMCO Operating Partnership increases the offer consideration, everyone whose units are accepted in the offer will receive the increased consideration, regardless of whether their units were tendered before or after the increase in the offer consideration. The AIMCO Operating Partnership will, upon the terms and subject to the conditions of the offer, accept for payment and pay for all units validly tendered and not withdrawn prior to the expiration of our offer (subject to proration as described below). Our offer is conditioned on the satisfaction of certain conditions. Our offer is not conditioned upon any minimum amount of units being tendered. See "-- Conditions of the Offer," which sets forth in full the conditions of our offer. The AIMCO Operating Partnership reserves the right (but is not obligated), in its sole discretion, to waive any or all of those conditions. If, on or prior to the expiration of the offer, any or all of the conditions have not been satisfied or waived, the AIMCO Operating Partnership reserves the right to (i) decline to purchase any of the units tendered, terminate the offer and return all tendered units, (ii) waive all the unsatisfied conditions and purchase all units validly tendered, (iii) extend the offer and, subject to the right of unitholders to withdraw units until the expiration of the offer, retain the units that have been tendered during the period or periods for which the offer is extended, and (iv) amend the offer. For administrative purposes, the transfer of units tendered pursuant to our offer will be deemed to take effect as of January 1, 1999 (subject to proration as described below), although you will be entitled to retain any distributions you may have received after such date and prior to our commencement of this offer. This offer is being mailed to the persons shown by your partnership's records to have been limited partners or, in the case of units owned of record by IRAs and qualified plans, beneficial owners of units, as of March 26, 1999. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS Upon the terms and subject to the conditions of the offer, the AIMCO Operating Partnership will purchase by accepting for payment and will pay for all units (subject to proration as described below) which are validly tendered and not withdrawn prior to the expiration of the offer as promptly as practicable following the expiration of the offer. A beneficial owner of units whose units are owned of record by an individual retirement account or other qualified plan will not receive direct payment of the offer consideration. Instead, payment will be made to the custodian of such account or plan. In all cases, payment for units purchased pursuant to the offer will be made only after timely receipt by the Information Agent of a properly completed and duly executed Letter of Transmittal and any other documents required by the Letter of Transmittal. The S-57 61 offer consideration shall be reduced by any interim distributions made by your partnership between the commencement and the expiration of the offer. See "-- Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT. For purposes of the offer, the AIMCO Operating Partnership will be deemed to have accepted for payment pursuant to the offer, and thereby purchased, validly tendered units if, as and when the AIMCO Operating Partnership gives verbal or written notice to the Information Agent of its acceptance of those units for payment pursuant to the offer. Payment for units accepted for payment pursuant to the offer will be made through the Information Agent, which will act as agent for tendering unitholders for the purpose of receiving cash payments from the AIMCO Operating Partnership and transmitting cash payments to tendering unitholders. OP Units will be issued directly by the AIMCO Operating Partnership to those unitholders who elect to receive OP Units pursuant to the offer. If any tendered units are not accepted for payment for any reason, the Letter of Transmittal with respect to such units not purchased may be destroyed by the AIMCO Operating Partnership or its agent. If for any reason, acceptance for payment of, or payment for, any units tendered pursuant to the offer is delayed or the AIMCO Operating Partnership is unable to accept for payment, purchase or pay for units tendered pursuant to the offer, then, without prejudice to the AIMCO Operating Partnership's rights under "-- Conditions of the Offer," the Information Agent may, nevertheless, on behalf of the AIMCO Operating Partnership retain tendered units. However, any tendered units may be withdrawn at any time prior to our accepting them for payment. The AIMCO Operating Partnership has an obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. The AIMCO Operating Partnership reserves the right to transfer or assign, in whole or in part, to one or more of its affiliates, the right to purchase units tendered pursuant to the offer, but no such transfer or assignment will relieve the AIMCO Operating Partnership of its obligations under the offer or prejudice your right to receive payment for units validly tendered and accepted for payment pursuant to the offer. PROCEDURE FOR TENDERING UNITS Valid Tender To validly tender units pursuant to the offer, a properly completed and duly executed Letter of Transmittal and any other documents required by such Letter of Transmittal must be received by the Information Agent, at its address set forth on the back cover of this Prospectus Supplement, on or prior to the expiration of the offer. You may tender all or any portion of your units. Signature Requirements IF THE LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER OF THE UNITS AND PAYMENT IS TO BE MADE DIRECTLY TO THAT HOLDER, THEN NO SIGNATURE GUARANTEE IS REQUIRED ON THE LETTER OF TRANSMITTAL. Similarly, if the units are tendered for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required on the Letter of Transmittal. However, in all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. In order to participate in the offer, you must validly tender and not withdraw your units prior to the expiration of the offer. THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING HOLDER OF UNITS, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. S-58 62 Appointment as Proxy By executing the Letter of Transmittal, you will irrevocably appoint the AIMCO Operating Partnership and its designees as your proxies (in the manner set forth in the Letter of Transmittal), each with full power of substitution, to the fullest extent of your rights with respect to your units tendered and accepted for payment by the AIMCO Operating Partnership. Each such proxy shall be considered coupled with an interest in the tendered units. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership accepts the tendered units for payment. Upon such acceptance for payment, all prior proxies given by you with respect to such units will, without further action, be revoked, and no subsequent proxies may be given (and if given will not be effective). The AIMCO Operating Partnership and the designees of the AIMCO Operating Partnership will, as to those units, be empowered to exercise all of your voting and other rights as they, in their sole discretion, may deem proper at any meeting of unitholders, by written consent or otherwise. The AIMCO Operating Partnership reserves the right to require that, in order for units to be deemed validly tendered, immediately upon the AIMCO Operating Partnership's acceptance for payment for the units, the AIMCO Operating Partnership must be able to exercise full voting rights with respect to the units, including voting at any meeting of unitholders then scheduled or acting by written consent without a meeting. By executing the Letter of Transmittal, you agree to execute all such documents and take such other actions as shall be reasonably required to enable the units tendered to be voted in accordance with the directions of the AIMCO Operating Partnership. The proxy and power of attorney granted to the AIMCO Operating Partnership upon your execution of the Letter of Transmittal will remain effective and be irrevocable for a period of ten years following the termination of the offer. Power of Attorney By executing a Letter of Transmittal, you also irrevocably constitute and appoint the AIMCO Operating Partnership and its managers and designees as your attorneys-in-fact, each with full power of substitution, to the full extent of your rights with respect to the units tendered by you and accepted for payment by the AIMCO Operating Partnership. Such appointment will be effective when, and only to the extent that, the AIMCO Operating Partnership pays for your units. You agree not to exercise any rights pertaining to the tendered units without the prior consent of the AIMCO Operating Partnership. Upon such acceptance for payment, all prior powers of attorney granted by you with respect to such units will, without further action, be revoked, and no subsequent powers of attorney may be granted (and if granted will not be effective). Pursuant to such appointment as attorneys-in-fact, the AIMCO Operating Partnership and its managers and designees each will have the power, among other things, (i) to transfer ownership of such units on the partnership books maintained by your general partner (which is our subsidiary) (and execute and deliver any accompanying evidences of transfer and authenticity any of them may deem necessary or appropriate in connection therewith), (ii) upon receipt by the Information Agent of the offer consideration, to become a substituted limited partner, to receive any and all distributions made by your partnership on or after the date on which the AIMCO Operating Partnership acquires such units, and to receive all benefits and otherwise exercise all rights of beneficial ownership of such units in accordance with the terms of our offer, (iii) to execute and deliver to the general partner of your partnership a change of address form instructing the general partner to send any and all future distributions to which the AIMCO Operating Partnership is entitled pursuant to the terms of the offer in respect of tendered units to the address specified in such form, and (iv) to endorse any check payable to you or upon your order representing a distribution to which the AIMCO Operating Partnership is entitled pursuant to the terms of our offer, in each case, in your name and on your behalf. Assignment of Interest in Future Distributions and All Other Rights, Etc. If you tender units, you will agree to irrevocably sell, assign, transfer, convey and deliver to, or upon the order of, the AIMCO Operating Partnership, all of your right, title and interest in and to such units tendered that are accepted for payment pursuant to the offer, including, without limitation, (i) all of your interest in the capital of your partnership, and interest in all profits, losses and distributions of any kind to which you shall at any time be entitled in respect of the units; (ii) all other payments, if any, due or to become due to you in S-59 63 respect of the units, under or arising out of your partnership's agreement of limited partnership, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of your claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of your partnership's agreement of limited partnership or your ownership of the units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of your partnership; and (iv) all of your present and future claims, if any, against your partnership or your partners under or arising out of your partnership's agreement of limited partnership for monies loaned or advanced, for services rendered, for the management of your partnership or otherwise. Election of Consideration You may elect to receive Preferred OP Units, Common OP Units or cash pursuant to our offer, by so indicating in the appropriate space on the Letter of Transmittal. In the event that you tender units but do not indicate on the Letter of Transmittal which type of consideration you want, the AIMCO Operating Partnership will issue Preferred OP Units to you. Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice of Defects All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of units pursuant to the offer will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. The AIMCO Operating Partnership reserves the absolute right to reject any or all tenders of any particular unit determined by it not to be in proper form or if the acceptance of or payment for that unit may, in the opinion of the AIMCO Operating Partnership's counsel, be unlawful. The AIMCO Operating Partnership also reserves the absolute right to waive or amend any of the conditions of the offer that it is legally permitted to waive as to the tender of any particular unit and to waive any defect or irregularity in any tender with respect to any particular unit. The AIMCO Operating Partnership's interpretation of the terms and conditions of the offer (including the Letters of Transmittal) will be final and binding on all parties. No tender of units will be deemed to have been validly made unless and until all defects and irregularities have been cured or waived. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in the tender of any units or will incur any liability for failure to give any such notification. Backup Federal Income Tax Withholding To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FIRPTA Withholding To prevent the withholding of Federal income tax in an amount equal to 10% of the amount realized pursuant to the offer, you must certify under penalty of perjury that you are not a foreign person. See the instructions to the Letter of Transmittal and "Federal Income Tax Consequences." Transfer Taxes The amount of any transfer taxes (whether imposed on the registered holder of units or any person) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the such taxes or exemption therefrom is submitted. S-60 64 Binding Agreement If you tender units pursuant to any of the procedures described above, the acceptance for payment of such units will constitute a binding agreement between you and the AIMCO Operating Partnership on the terms set forth in this Prospectus Supplement. WITHDRAWAL RIGHTS Tenders of units pursuant to the offer may be withdrawn at any time prior to our acceptance of such units for payment. For withdrawal to be effective, a written notice of withdrawal must be timely received by the Information Agent at its address set forth on the back cover of this Prospectus Supplement. Any such notice of withdrawal must specify the name of the person who tendered, the number of units to be withdrawn and the name of the registered holder of such units, if different from the person who tendered. In addition, the notice of withdrawal must be signed by the person(s) who signed the Letter of Transmittal in the same manner as the Letter of Transmittal was signed. If purchase of, or payment for, units is delayed for any reason or if the AIMCO Operating Partnership is unable to purchase or pay for units for any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, tendered units may be retained by the Information Agent and may not be withdrawn, except to the extent that participants are entitled to withdrawal rights as set forth herein; subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c) under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. Any units properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the offer. All questions as to the validity and form (including time of receipt) of notices of withdrawal will be determined by the AIMCO Operating Partnership, in its sole discretion, which determination shall be final and binding on all parties. Neither the AIMCO Operating Partnership, the Information Agent nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT The AIMCO Operating Partnership expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to extend the period of time during which the offer is open and thereby delay acceptance for payment of, and for, any units, (ii) to terminate the offer and not accept for payment any units not theretofore accepted for payment or paid for if any of the conditions to the offer are not satisfied or if any event occurs that might reasonably be expected to result in a failure to satisfy such conditions, (iii) upon the occurrence of any of the conditions specified in "-- Conditions of the Offer," to delay the acceptance for payment of, or for, any units not already accepted for payment or paid for and (iv) to amend the offer in any respect (including, without limitation, increasing or decreasing the number of Preferred OP Units or Common OP Units, or the amount of cash offered, eliminating any of the alternative types of consideration being offered, or increasing or decreasing the percentage of outstanding units being sought). Notice of any such extension, termination or amendment will promptly be disseminated in a manner reasonably designed to inform unitholders of such change. In the case of an extension of the offer, the extension will be followed by a press release or public announcement which will be issued no later than 7:00 a.m., Denver, Colorado time, on the next business day after the scheduled expiration date of the offer, in accordance with Rule 14e-1(d) under the Exchange Act. The offer may be extended or delayed indefinitely and no payment will be made in respect of tendered units until the expiration of the offer and the acceptance of units for payment. If the AIMCO Operating Partnership extends the offer, or if the AIMCO Operating Partnership (whether before or after its acceptance for payment of units) is delayed in its payment for units or is unable to pay for units pursuant to the offer for S-61 65 any reason, then, without prejudice to the AIMCO Operating Partnership's rights under the offer, the Information Agent may retain tendered units and those units may not be withdrawn except to the extent participants are entitled to withdrawal rights as described in "-- Withdrawal Rights;" subject, however, to the AIMCO Operating Partnership's obligation, pursuant to Rule 14e-1(c), under the Exchange Act, to pay the offer consideration in respect of units tendered or return those units promptly after termination or withdrawal of the offer. If the AIMCO Operating Partnership makes a material change in the terms of the offer, or if it waives a material condition to the offer, the AIMCO Operating Partnership will extend the offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. The minimum period during which the offer must remain open following any material change in the terms of the offer, other than a change in price or a change in percentage of securities sought or a change in any dealer's soliciting fee, will depend upon the facts and circumstances, including the materiality of the change. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in any dealer's soliciting fee, a minimum of ten business days from the date of such change is generally required to allow for adequate dissemination to participants. Accordingly, if prior to the expiration of the offer, the AIMCO Operating Partnership increases (other than increases of not more than two percent of the outstanding units) or decreases the number of units being sought, or increases or decreases the consideration offered pursuant to the offer, and if the offer is scheduled to expire at any time earlier than the tenth business day from the date that notice of such increase or decrease is first published, sent or given to unitholders, the offer will be extended at least until the expiration of such ten business days. As used herein, "business day" means any day other than a Saturday, Sunday or a Federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, Eastern time. PRORATION If the number of units properly tendered and not withdrawn prior to the expiration of the offer does not exceed 24% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will purchase all such units so tendered and not withdrawn. If the number of units properly tendered and not withdrawn prior to the expiration of the offer exceeds 24% of the outstanding units, the AIMCO Operating Partnership, upon the terms and subject to the conditions of the offer, will accept for purchase all units properly tendered and not withdrawn prior to the expiration of the offer on a pro rata basis. Following the expiration of the offer, the AIMCO Operating Partnership may renew the offer one or more times on the same terms as described in this Prospectus Supplement. If the number of units properly tendered and not withdrawn prior to the expiration of any such renewal (together with units previously purchased in the offer) is 24% or less, the AIMCO Operating Partnership will purchase such units so tendered and not withdrawn. If the number of units in your partnership properly tendered and not withdrawn prior to the expiration of any such renewal (together with any units previously purchased in this offer) is greater than 24%, the AIMCO Operating Partnership will purchase units in the order of priority described in the preceding paragraph. In the event that proration of tendered units is required, the AIMCO Operating Partnership will determine the final proration factor as promptly as practicable after the expiration of the offer or any renewal of the offer. FRACTIONAL OP UNITS We will issue fractional Common OP Units or Preferred OP Units, if necessary. FUTURE PLANS OF THE AIMCO OPERATING PARTNERSHIP As described above under "Background and Reasons for the Offer," the AIMCO Operating Partnership owns the general partner of your partnership and thereby controls the management of your partnership. In S-62 66 addition, AIMCO owns the company that manages your partnership's property. The AIMCO Operating Partnership currently intends that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. The offer is not expected to have any effect on your partnership's financial condition or results of operations. After the completion or termination of the offer, the AIMCO Operating Partnership and its affiliates may acquire additional units or sell units. However, the AIMCO Operating Partnership and its affiliates will not acquire any additional units for a period of at least one year after expiration of the offer. Any acquisition may be made through private purchases, market purchases or transactions effected on a so-called partnership trading board, through one or more future tender or exchange offers, by merger, consolidation or by any other means deemed advisable. Any acquisition may be at a price higher or lower than the price to be paid for the units purchased pursuant to this offer, and may be for cash, limited partnership interests in the AIMCO Operating Partnership or other consideration. The AIMCO Operating Partnership also may consider selling some or all of the units it acquires pursuant to the offer to persons not yet determined, which may include affiliates of the AIMCO Operating Partnership. The AIMCO Operating Partnership may also buy your partnership's property, although it has no present intention to do so. There can be no assurance, however, that the AIMCO Operating Partnership will initiate or complete, or will cause your partnership to initiate or complete, any subsequent transaction during any specific time period following the expiration of the offer or at all. We currently intend that, upon consummation of the offer, your partnership will continue its business and operations substantially as they are currently being conducted. We do not have any present plans or proposals which relate to or would result in any material changes in your partnership's structure or business such as a merger, reorganization or liquidation. We have no present intention to cause your partnership to sell any of its properties or to prepay current mortgages within any specified time period. VOTING BY THE AIMCO OPERATING PARTNERSHIP If the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, the AIMCO Operating Partnership may be in a position to influence voting decisions with respect to your partnership. Under your partnership's agreement of limited partnership, holders of outstanding units are entitled to take action with respect to a variety of matters, including dissolution and most types of amendments to your partnership's agreement of limited partnership. See "Comparison of Your Units and AIMCO OP Units -- Voting Rights." DISSENTERS' RIGHTS Neither your partnership's agreement of limited partnership nor applicable law provides any right for you to have your units appraised or redeemed in connection with or as a result of the offer. In addition, we are not extending appraisal rights in connection with the offer. You have the opportunity to make your own decision on whether to tender your units in the offer. No provisions have been made with regard to the offer to allow you or other limited partners to inspect the books and records of your partnership or to obtain counsel or appraisal services at our expense or at the expense of your partnership. However, as described under "Comparison of Your Partnership and the AIMCO Operating Partnership -- Review of Investor Lists," you have the right under your partnership's agreement of limited partnership to obtain a list of the limited partners. CONDITIONS OF THE OFFER Notwithstanding any other provisions of the offer, the AIMCO Operating Partnership shall not be required to accept for payment and pay for any units tendered pursuant to the offer, may postpone the purchase of, and payment for, units tendered, and may terminate or amend the offer if at any time from or S-63 67 after the date of this Prospectus Supplement and at or before the expiration date of the offer, including any extension thereof, any of the following shall occur: (a) any change (or any condition, event or development involving a prospective change) shall have occurred or been threatened in the business, properties, assets, liabilities, indebtedness, capitalization, condition (financial or otherwise), operations, licenses or franchises, management contract, or results of operations or prospects of your partnership or local markets in which your partnership owns or operates its property, including any fire, flood, natural disaster, casualty loss, or act of God that, in the reasonable judgment of the AIMCO Operating Partnership, is or may be materially adverse to your partnership or the value of your units to the AIMCO Operating Partnership, or the AIMCO Operating Partnership shall have become aware of any facts relating to your partnership, its indebtedness or its operations which, in the reasonable judgment of the AIMCO Operating Partnership, has or may have material significance with respect to the value of your partnership or the value of your units to the AIMCO Operating Partnership; or (b) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or the over-the-counter market in the United States, (ii) a decline in the closing share price of AIMCO's Class A Common Stock of more than 7.5% per share, from the date hereof, (iii) any extraordinary or material adverse change in the financial, real estate or money markets or major equity security indices in the United States such that there shall have occurred at least a 7.5% increase in LIBOR or at least a 7.5% decrease in the S&P 500 Index, the Morgan Stanley REIT Index, or the price of the 10-year Treasury Bond or the price of the 30-year Treasury Bond, in each case from the date hereof, (iv) any material adverse change in the commercial mortgage financing markets, (v) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (vi) a commencement of a war, armed hostilities or other national or international calamity directly or indirectly involving the United States, (vii) any limitation (whether or not mandatory) by any governmental authority on, or any other event which, in the reasonable judgment of the AIMCO Operating Partnership, might affect the extension of credit by banks or other lending institutions, or (viii) in the case of any of the foregoing existing at the time of the commencement of the offer, in the reasonable judgment of the AIMCO Operating Partnership, a material acceleration or worsening thereof (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (c) there shall have been threatened, instituted or pending any action, proceeding, application or counterclaim by any Federal, state, local or foreign government, governmental authority or governmental agency, or by any other person, before any governmental authority, court or regulatory or administrative agency, authority or tribunal, which (i) challenges or seeks to challenge the acquisition by the AIMCO Operating Partnership of the units, restrains, prohibits or delays the making or consummation of the offer, prohibits the performance of any of the contracts or other arrangements entered into by the AIMCO Operating Partnership (or any affiliates of the AIMCO Operating Partnership) seeks to obtain any material amount of damages as a result of the transactions contemplated by the offer, (ii) seeks to make the purchase of, or payment for, some or all of the units pursuant to the offer illegal or results in a delay in the ability of the AIMCO Operating Partnership to accept for payment or pay for some or all of the units, (iii) seeks to prohibit or limit the ownership or operation by AIMCO or any of its affiliates of the entity serving as your general partner (which is our subsidiary) or to remove such entity as the general partner of your partnership, or seeks to impose any material limitation on the ability of the AIMCO Operating Partnership or any of its affiliates to conduct your partnership's business or own such assets, (iv) seeks to impose material limitations on the ability of the AIMCO Operating Partnership or any of its affiliates to acquire or hold or to exercise full rights of ownership of the units including, but not limited to, the right to vote the units purchased by it on all matters properly presented to unitholders or (v) might result, in the sole judgment of the AIMCO Operating Partnership, in a diminution in the value of your partnership or a limitation of the benefits expected to be derived by the AIMCO Operating S-64 68 Partnership as a result of the transactions contemplated by the offer or the value of units to the AIMCO Operating Partnership; or (d) there shall be any action taken, or any statute, rule, regulation, order or injunction shall be sought, proposed, enacted, promulgated, entered, enforced or deemed applicable to the offer, the AIMCO Operating Partnership, its general partner or any of its affiliates or any other action shall have been taken, proposed or threatened, by any government, governmental authority or court, that, in the reasonable judgment of the AIMCO Operating Partnership, might, directly or indirectly, result in any of the consequences referred to in clauses (i) through (v) of paragraph (c) above; or (e) your partnership shall have (i) changed, or authorized a change of, its units or your partnership's capitalization, (ii) issued, distributed, sold or pledged, or authorized, proposed or announced the issuance, distribution, sale or pledge of (A) any equity interests (including, without limitation, units), or securities convertible into any such equity interests or any rights, warrants or options to acquire any such equity interests or convertible securities, or (B) any other securities in respect of, in lieu of, or in substitution for units outstanding on the date hereof, (iii) purchased or otherwise acquired, or proposed or offered to purchase or otherwise acquire, any outstanding units or other securities, (iv) declared or paid any dividend or distribution on any units or issued, authorized, recommended or proposed the issuance of any other distribution in respect of the units, whether payable in cash, securities or other property, (v) authorized, recommended, proposed or announced an agreement, or intention to enter into an agreement, with respect to any merger, consolidation, liquidation or business combination, any acquisition or disposition of a material amount of assets or securities, or any release or relinquishment of any material contract rights, or any comparable event, not in the ordinary course of business, (vi) taken any action to implement such a transaction previously authorized, recommended, proposed or publicly announced, (vii) issued, or announced its intention to issue, any debt securities, or securities convertible into, or rights, warrants or options to acquire, any debt securities, or incurred, or announced its intention to incur, any debt other than in the ordinary course of business and consistent with past practice, (viii) authorized, recommended or proposed, or entered into, any transaction which, in the reasonable judgment of the AIMCO Operating Partnership, has or could have an adverse affect on the value of your partnership or the units, (ix) proposed, adopted or authorized any amendment of its organizational documents, (x) agreed in writing or otherwise to take any of the foregoing actions, or (xi) been notified that any debt of your partnership or any of its subsidiaries secured by any of its or their assets is in default or has been accelerated (any changes to the offer resulting from the conditions set forth in this paragraph will most likely involve a change in the amount or terms of the consideration offered or the termination of the offer); or (f) a tender or exchange offer for any units shall have been commenced or publicly proposed to be made by another person or "group" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall have been publicly disclosed or the AIMCO Operating Partnership shall have otherwise learned that (i) any person or group shall have acquired or proposed or be attempting to acquire beneficial ownership of more than four percent of the units, or shall have been granted any option, warrant or right, conditional or otherwise, to acquire beneficial ownership of more than four percent of the units, or (ii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a merger, consolidation, purchase or lease of assets, debt refinancing or other business combination with or involving your partnership; or (g) with respect to the cash portion of the offer consideration only, the AIMCO Operating Partnership shall not have adequate cash or financing commitments available to pay the cash portion of the offer consideration; or (h) the offer to purchase may have an adverse effect on AIMCO's status as a REIT. The foregoing conditions are for the sole benefit of the AIMCO Operating Partnership and may be asserted by the AIMCO Operating Partnership regardless of the circumstances giving rise to such conditions or may be waived by the AIMCO Operating Partnership in whole or in part at any time and from time to time S-65 69 in its reasonable discretion. The failure by the AIMCO Operating Partnership at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances and each right shall be deemed a continuing right which may be asserted at any time and from time to time. EFFECTS OF THE OFFER Future Control by AIMCO Because the general partner of your partnership is a subsidiary of AIMCO, AIMCO has control over the management of your partnership. If the AIMCO Operating Partnership acquires units in the offer, AIMCO will increase its ability to influence voting decisions with respect to your partnership. However, we will not be able to control voting decisions unless we acquire more units in another transaction, which cannot take place for at least one year after expiration of this offer. Furthermore, in the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the general partner of your partnership (which general partner is controlled by AIMCO) without AIMCO's consent may become more difficult or impossible. AIMCO also controls the company that manages your partnership's property. In the event that the AIMCO Operating Partnership acquires a substantial number of units pursuant to the offer, removal of the property manager may become more difficult or impossible. Effect on Trading Market If a substantial number of units are purchased pursuant to the offer, the result will be a reduction in the number of limited partners in your partnership. In the case of certain kinds of equity securities, a reduction in the number of securityholders might be expected to result in a reduction in the liquidity and volume of activity in the trading market for the security. In this case, however, there is no established public trading market for the units and, therefore, the AIMCO Operating Partnership does not believe a reduction in the number of limited partners will materially further restrict your ability to find purchasers for your units through secondary market transactions. Distributions to the AIMCO Operating Partnership As a result of the offer, the AIMCO Operating Partnership, in its capacity as a limited partner of your partnership, will participate in any subsequent distributions to limited partners to the extent of its interest in your partnership, including the units purchased pursuant to this offer. Partnership Business This offer will not affect the operation of your partnership's property. The AIMCO Operating Partnership will continue to control the general partner of your partnership and the property manager will remain the same. Consummation of the offer will not affect your partnership's agreement of limited partnership, the financial condition or results of operations of your partnership, the business and properties owned, the management compensation payable to your general partner (which is our subsidiary) or its affiliates or any other matter relating to your partnership, except it would result in the AIMCO Operating Partnership substantially increasing its ownership of units of your partnership. We will receive future distributions from your partnership for any units we purchase. CERTAIN LEGAL MATTERS General. Except as set forth in this section, the AIMCO Operating Partnership is not, based on information provided by your general partner (which is our subsidiary), aware of any licenses or regulatory permits that would be material to the business of your partnership, taken as a whole, and that might be adversely affected by the AIMCO Operating Partnership's acquisition of units as contemplated herein, or any filings, approvals or other actions by or with any domestic or foreign governmental authority or administrative or regulatory agency that would be required prior to the acquisition of units by the AIMCO Operating S-66 70 Partnership pursuant to the offer as contemplated herein, other than the filing with the SEC of a Tender Offer Statement on Schedule 14D-1 and any amendments required thereto. While there is no present intent to delay the purchase of units tendered pursuant to the offer pending receipt of any such additional approval or the taking of any such action, there can be no assurance that any such additional approval or action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to your partnership's business, or that certain parts of your partnership's business might not have to be disposed of or other substantial conditions complied with in order to obtain such approval or action, any of which could cause the AIMCO Operating Partnership to elect to terminate the offer without purchasing units hereunder. The AIMCO Operating Partnership's obligation to purchase and pay for units is subject to certain conditions, including conditions related to the legal matters discussed in this section. Antitrust. The AIMCO Operating Partnership does not believe that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition of units contemplated by this offer. Margin Requirements. The units are not "margin securities" under the regulations of the Board of Governors of the Federal Reserve System and, accordingly, those regulations generally are not applicable to this offer. State Laws. The AIMCO Operating Partnership is not aware of any jurisdiction in which the making of the offer is not in compliance with applicable law. If the AIMCO Operating Partnership becomes aware of any jurisdiction in which the making of the offer would not be in compliance with applicable law, the AIMCO Operating Partnership will make a good faith effort to comply with any such law. If, after such good faith effort, the AIMCO Operating Partnership cannot comply with any such law, the offer will not be made to (nor will tenders be accepted from or on behalf of) limited partners residing in such jurisdiction. In those jurisdictions whose securities or blue sky laws require the offer to be made by a licensed broker or dealer, the offer shall be made on behalf of the AIMCO Operating Partnership, if at all, only by one or more registered brokers or dealers licensed under the laws of that jurisdiction. Certain Litigation On March 24, 1998, certain persons claiming to own limited partner interests in certain of the limited partnerships for which subsidiaries of IPT act as general partner (excluding your partnership) filed a purported class and derivative action in California Superior Court in the County of San Mateo against AIMCO, Insignia, the general partners of the partnerships, certain persons and entities who purportedly formerly controlled the general partners, and additional entities affiliated with and individuals who are officers, directors and/or principals of several of the defendants. The complaint contains allegations that, among other things, (i) the defendants breached fiduciary duties owed to the plaintiffs, or aided and abetted in those purported breaches, by selling or agreeing to sell their "fiduciary positions" as stockholders, officers and directors of the general partners for a profit and retaining said profit rather than distributing it to the plaintiffs; (ii) the defendants breached fiduciary duties, or aided and abetted in those purported breaches, by mismanaging the partnerships and misappropriating assets of the partnerships by (a) manipulating the operations of the partnerships to depress the trading price of limited partnership units of the partnerships; (b) coercing and fraudulently inducing unitholders to sell units to certain of the defendants at depressed prices; and (c) using the voting control obtained by purchasing units at depressed prices to entrench certain of the defendants' positions of control over the partnerships; and (iii) the defendants breached their fiduciary duties to the plaintiffs by (a) selling assets of the partnerships such as mailing lists of unitholders and (b) causing the general partners to enter into exclusive arrangements with their affiliates to sell goods and services to the general partners, the unitholders and tenants of properties owned by the partnerships. The complaint also alleges that the foregoing allegations constitute violations of various California securities, corporate and partnership statutes, as well as conversion and common law fraud. The complaint seeks unspecified compensatory and punitive damages, an injunction blocking the sale of control of the general partners and a court order directing the defendants to discharge their fiduciary duties to the plaintiffs. On June 25, 1998, the defendants filed motions seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have filed an amended complaint. On October 14, 1998, the AIMCO and Insignia defendants filed demurrers to the amended complaint. The demurrers (which are requests to dismiss the action as a matter of law) were S-67 71 heard on February 8, 1999, but no decision has been reached by the Court. While no assurances can be given, we believe that the ultimate outcome of this litigation will not have a material adverse effect on us. FEES AND EXPENSES The AIMCO Operating Partnership will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of units pursuant to the offer. The AIMCO Operating Partnership has retained River Oaks Partnership Services, Inc. to act as Information Agent in connection with the offer. The Information Agent may contact holders of units by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers and other nominees to forward materials relating to the offer to beneficial owners of the units. The AIMCO Operating Partnership will pay the Information Agent reasonable and customary compensation for its services in connection with the offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. The AIMCO Operating Partnership will also pay all costs and expenses of printing and mailing this Prospectus Supplement, the accompanying Prospectus, the Letter of Transmittal, and the legal and accounting fees in connection with this offer. The AIMCO Operating Partnership will also pay the fees of Stanger for providing the fairness opinion for the offer. The AIMCO Operating Partnership estimates that its total costs and expenses in making the offer (excluding the purchase price of the units) will be approximately $50,000. ACCOUNTING TREATMENT Upon consummation of the offer, the AIMCO Operating Partnership will account for its investment in the units acquired in the offer under the purchase method of accounting. There will be no effect on the accounting treatment of your partnership as a result of the offer. S-68 72 FEDERAL INCOME TAX CONSEQUENCES The following summary is a general discussion of the material Federal income tax consequences of the offer to (i) persons who tender some or all of their units in exchange for OP Units pursuant to the offer, (ii) persons who tender some or all of their units for cash pursuant to the offer and (iii) persons who do not tender any of their units pursuant to the offer. This discussion is based upon the Internal Revenue Code of 1986, as amended ("the Code"), Treasury Regulations, rulings issued by the IRS, and judicial decisions, all in effect as of the date of this offer and all of which are subject to differing interpretations or change, possibly retroactively. This summary is based on the assumptions that the AIMCO Operating Partnership and your partnership will be operated in accordance with their respective organizational documents and partnership agreements. This summary is for general information only and does not purport to discuss all aspects of Federal income taxation which may be important to you in light of your specific investment or tax circumstances, or if you are subject to special tax rules (for example, if you are a financial institution, broker-dealer, insurance company, or, except to the extent discussed below, tax-exempt organization or foreign investor, as determined for United States Federal income tax purposes). This summary assumes that your units and any OP Units that you receive in the offer are capital assets (generally, property held for investment). No advance ruling has been or will be sought from the IRS regarding any matter discussed in this Prospectus Supplement. The Federal income tax treatment of an offeree participating in the offer depends in some instances on determinations of fact and interpretations of complex provisions of Federal income tax law. No clear precedent or authority may be available on some questions. Accordingly, you should consult your tax advisor regarding the Federal, state, local and foreign tax consequences to you of selling or exchanging units pursuant to the offer or of a decision not to sell or exchange in light of your specific tax situation. TAX OPINIONS Skadden, Arps, Slate, Meagher & Flom LLP ("Special Tax Counsel") has delivered an opinion letter with regard to the material United States Federal income tax consequences of the offer. The opinion letter of Special Tax Counsel is filed as an exhibit to this Registration Statement. You may obtain a copy of such opinion letter by sending a written request to the AIMCO Operating Partnership. The specific United States Federal income tax opinions that Special Tax Counsel has provided are: 1. Commencing with AIMCO's initial taxable year ended December 31, 1994, AIMCO was organized in conformity with the requirements for qualification as a REIT under the Code, and its actual method of operation has enabled, and its proposed method of operation will enable, AIMCO to meet the requirements for qualification and taxation as a REIT. As noted in the accompanying Prospectus, AIMCO's qualification and taxation as a REIT depend upon its ability to meet, through actual annual operating results, certain requirements, including requirements relating to distribution levels and diversity of stock ownership, and the various qualification tests imposed under the Code, the results of which have been represented by the AIMCO's officers and will not be reviewed by Special Tax Counsel. No assurance can be given that the actual results of AIMCO's future operations for any one taxable year will satisfy the requirements for taxation as a REIT under the Code. 2. The AIMCO Operating Partnership will be treated as a partnership and not as an association taxable as a corporation for Federal income tax purposes. 3. You will not recognize gain or loss for Federal income tax purposes when you exchange your units solely for OP Units. If, immediately prior to such exchange, the amount of your partnership's liabilities allocable to the units you transfer to the AIMCO Operating Partnership exceeds the amount of the AIMCO Operating Partnership's liabilities allocable to you immediately after the exchange, you will receive a deemed distribution in an amount equal to such liability relief and will recognize gain for Federal income tax purposes to the extent that the amount of such deemed distribution exceeds your aggregate adjusted tax basis in your OP Units. S-69 73 4. If you exchange your units for cash and OP Units, you will be treated for Federal income tax purposes as selling some of your units for cash in a taxable sale and contributing some of your units for OP Units in a tax-free exchange. With respect to the units that you will be treated as selling for cash, you will be taxed as described in paragraph number five below. With respect to the units that you will be treated as exchanging for OP Units, you will be taxed as described in paragraph number three above. 5. If you sell your units solely for cash, you will recognize gain or loss for Federal income tax purposes in an amount equal to the difference between (i) your amount realized on the sale and (ii) your adjusted tax basis in the units you sold. 6. If you retain all or a portion of your units and your partnership terminates for Federal income tax purposes, you will not recognize any gain or loss as a result of such termination and your capital account in your partnership will not be affected. 7. Because of the factual nature of the inquiry, no opinion is expressed by Special Tax Counsel as to whether your exercise of a redemption right with respect to an OP Unit would cause your contribution of units to the AIMCO Operating Partnership to be a taxable transaction under the disguised sale rules of the Code. 8. The discussion in the accompanying Prospectus under the captions "FEDERAL INCOME TAXATION OF AIMCO AND AIMCO STOCKHOLDERS" and "FEDERAL INCOME TAXATION OF THE AIMCO OPERATING PARTNERSHIP AND OP UNIT HOLDERS" and in this Prospectus Supplement under the caption "FEDERAL INCOME TAX CONSEQUENCES" is a fair and accurate summary of the material United States Federal income tax consequences of the offers and of the acquisition, ownership and disposition of the OP Units and the AIMCO stock by a holder who acquires the OP Units or AIMCO stock in connection with the offers, subject to the qualifications set forth therein. It must be emphasized that these opinions are based and conditioned upon representations and covenants made by AIMCO and the AIMCO Operating Partnership as to factual matters (including representations and covenants concerning AIMCO's properties and the past, present and future conduct of its business and your partnership's liabilities). These opinions are expressed as of the date of the opinion letter and Special Tax Counsel has no obligation to advise AIMCO or the AIMCO Operating Partnership of any subsequent change in the matters stated, represented, or assumed or any subsequent change in the law. An opinion of counsel is not binding on the IRS, and no assurance can be given that the IRS will not challenge the above opinions of Special Tax Counsel. TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR OP UNITS Except as described below, you will not recognize gain or loss for Federal income tax purposes when you exchange your units solely for OP Units. You may recognize gain upon such exchange if, immediately prior to such exchange, the amount of liabilities of your partnership allocable to the units you transferred exceeds the amount of the AIMCO Operating Partnership liabilities allocable to you immediately after such exchange. If this was true in your case, the excess would be treated as a deemed distribution of cash to you from the AIMCO Operating Partnership. This deemed cash distribution would be treated as a nontaxable return of capital to the extent of your adjusted tax basis in your OP Units and thereafter as a taxable gain. The AIMCO Operating Partnership anticipates that, under most circumstances, you will be allocated an amount of the AIMCO Operating Partnership liabilities, as determined immediately after you exchange your units pursuant to the offer, at least equal to the amount of liabilities of your partnership that were allocable to your units prior to such exchange. Accordingly, the AIMCO Operating Partnership anticipates that most persons who participate in the tender offer would not recognize gain or loss as a result of an exchange of units solely for OP Units pursuant to the offer. S-70 74 DISGUISED SALES Under the Code, a transfer of property by a partner to a partnership followed by a related transfer by the partnership of money or other property to the partner is treated as a "disguised" sale if (1) the second transfer would not have occurred but for the first transfer and (2) the second transfer "is not dependent on the entrepreneurial risks of the partnership operations." In a disguised sale, the partner is treated as if he or she sold the contributed property to the partnership as of the date the property was contributed to the partnership. In addition, unless a few technical exceptions apply, transfers of money or other property between a partnership and a partner that are made within two years of each other, including redemptions of OP Units made within two years of a contribution of your units, must be reported to the IRS and are presumed to be a "disguised" sale unless the facts and circumstances clearly establish that the transfers do not constitute a sale. While there is no authority applying the disguised sale rules to the exercise of a redemption right by a partner with respect to a partnership interest received in exchange for property, the exercise of a redemption right with respect to OP Units within two years of the date of the contribution of your units to the AIMCO Operating Partnership may be treated as a disguised sale. If this treatment were to apply, you would be treated for Federal income tax purposes as if, on the date of the contribution of your units, the AIMCO Operating Partnership transferred to you an obligation to give you the redemption proceeds. In that case, you would be required to recognize gain on the disguised sale in such earlier year. Because of the factual nature of such an inquiry, Special Tax Counsel is unable to opine whether your exercise of a redemption right with respect to an OP Unit would cause your contribution of units to the AIMCO Operating Partnership to be a taxable transaction under the disguised sale rules of the Code. If you are considering exchanging units for OP Units pursuant to the offer, please read the description under the heading "Federal Income Taxation of the AIMCO Operating Partnership and OP Unitholders -- Tax Consequences Upon Contribution of Property to the AIMCO Operating Partnership" in the accompanying Prospectus. TAX CONSEQUENCES OF EXCHANGING UNITS FOR CASH AND OP UNITS If you exchange your units for cash and OP Units, you will be treated as selling some of your units for cash in a taxable sale and contributing some of your units for OP Units in a tax-free exchange. Your adjusted tax basis in your transferred units will be allocated between the units you will be deemed to have sold and the units you will be deemed to have contributed to the AIMCO Operating Partnership. With respect to the units that you will be treated as selling, you will recognize gain or loss in an amount equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in units you sold. Your "amount realized" on such sale will be equal to the sum of the amount of cash you received pursuant to the offer (that is, the offer consideration) plus the amount of your partnership's liabilities attributed to the units you sold. For purposes of these partial sale rules, the amount of your partnership's liabilities attributed to the units you sold will be equal to the lesser of (i) the excess of the amount of your partnership's liabilities allocable to you in respect of the transferred units immediately prior to the exchange over the amount of such liabilities allocable to you as determined immediately after the exchange or (ii) the product of (A) the amount of your partnership's liabilities allocable to you in respect of the units you are deemed to have sold immediately prior to the exchange and (B) your "net equity percentage" with respect to those units. Your "net equity percentage" will be equal to the percentage determined by dividing (x) the cash you received in the exchange by (y) the excess of the gross fair market value of the units in the exchange over the amount of your partnership's liabilities allocable to you in respect of those units immediately prior to the exchange. Thus, your tax liability could exceed the amount of cash you receive in the sale. With respect to the units that you will be treated as exchanging, rather than selling, you will be taxed as described above under the heading "Tax Consequences of Exchanging Units Solely for OP Units." S-71 75 TAX CONSEQUENCES OF EXCHANGING UNITS SOLELY FOR CASH If you sell your units solely for cash, you will recognize gain or loss on a sale of your units equal to the difference between (i) your "amount realized" on the sale and (ii) your adjusted tax basis in the units you sold. The "amount realized" with respect to a unit will be equal to the sum of the amount of cash you received for your units (that is, the offer consideration) plus the amount of the liabilities of your partnership allocable to such units (as determined under Section 752 of the Code). Thus, your tax liability could exceed the amount of cash you receive in the sale. ADJUSTED TAX BASIS If you acquired your units for cash: - your initial tax basis in your units will be equal to such cash investment in your partnership increased by your share of your partnership's liabilities at the time such units were acquired; - your initial tax basis generally has been increased by: - your share of your partnership's income and gains and - any increases in your share of your partnership's liabilities; and - your initial tax basis generally has been decreased (but not below zero) by: - your share of cash distributions from your partnership, - any decreases in your share of your partnership's liabilities, - your share of your partnership's losses, and - your share of nondeductible expenditures of your partnership that are not chargeable to capital. For purposes of determining your adjusted tax basis in your units immediately prior to a disposition of such units, your adjusted tax basis will include your share of your partnership's income, gain or loss for the taxable year of disposition. If your adjusted tax basis is less than your share of your partnership's liabilities (e.g., as a result of the effect of net loss allocations and/or distributions exceeding the cost of your unit), the gain you would recognize pursuant to the offer will exceed the cash proceeds you would realize upon the sale of your units. The adjusted tax basis of the OP Units you receive in exchange for your units pursuant to the offer will be equal to (i) the sum of your adjusted tax basis in the units you transferred plus any gain recognized in the exchange and will be reduced by (ii) any cash you received or you were deemed to receive in the exchange. CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER Except as described below, the gain or loss that you recognize on a sale or exchange of a unit pursuant to the offer will be treated as a capital gain or loss and will be treated as long-term capital gain or loss if your holding period for the unit exceeds one year. Long-term capital gains recognized by individuals and certain other noncorporate taxpayers generally will be subject to a maximum Federal income tax rate of 20%. If the amount realized with respect to a unit that is attributable to your share of "unrealized receivables" of your partnership exceeds the tax basis attributable to those assets, such excess will be treated as ordinary income. Among other things, "unrealized receivables" include depreciation recapture for certain types of property. In addition, the maximum Federal income tax rate applicable to persons who are noncorporate taxpayers for net capital gains attributable to the sale of depreciable real property (which may be determined to include an interest in a partnership such as your partnership) held for more than one year is currently 25% (rather than 20%) to the extent of previously claimed depreciation deductions that would not be treated as "unrealized receivables." If you tender units in the offer, you will be allocated a share of your partnership's taxable income or loss for the year of tender with respect to any units sold or exchanged. You will not receive any future distributions S-72 76 on units that you tender on or after the date on which such units are accepted for purchase, and accordingly, you may not receive any distributions with respect to the income or loss. Such allocation and any cash distributed by your partnership to you for that year will affect your adjusted tax basis in your unit and, therefore, the amount of your taxable gain or loss upon a sale of a unit pursuant to the offer. PASSIVE ACTIVITY LOSSES The passive activity loss rules of the Code limit the use of losses derived from passive activities, which generally include investments in limited partnership interests such as the units. An individual, as well as certain other types of investors, generally cannot use losses from passive activities to offset nonpassive activity income received during the taxable year. Passive activity losses that are disallowed for a particular tax year are "suspended" and may be carried forward to offset passive activity income earned by the investor in future taxable years. In addition, such suspended losses may be claimed as a deduction, subject to other applicable limitations, upon a taxable disposition of the investor's interest in the passive activity. Accordingly, if your investment in your partnership is treated as a passive activity, you may be able to shelter gain from the sale of your units pursuant to the offer with passive losses in the manner described below. If you receive cash for all or a portion of your units pursuant to the offer and recognize a gain on such sale, you will be entitled to use your current and "suspended" passive activity losses (if any) from your partnership and other passive sources to offset that gain. If you receive cash for all or a portion of your units pursuant to the offer and recognize a loss on such sale, you will be entitled to deduct that loss currently (subject to other applicable limitations) against the sum of your passive activity income from your partnership for that year (if any) plus any passive activity income from other sources for that year. If you receive cash for all of your units pursuant to the offer, the balance of any "suspended" losses from your partnership that were not otherwise utilized against passive activity income as described in the two preceding sentences will no longer be suspended and will therefore be deductible (subject to any other applicable limitations) by you against any other income for that year, regardless of the character of that income. Accordingly, you should consult your tax advisor concerning whether, and the extent to which, you have available suspended passive activity losses from your partnership or other investments that may be used to offset gain from the sale of your units pursuant to the offer. TAX REPORTING If you tender any units, you must report the transaction by filing a statement with your Federal income tax return for the year of the tender which provides certain required information to the IRS. To prevent the possible application of back-up Federal income tax withholding of 31% with respect to payment of the offer consideration, you may have to provide the AIMCO Operating Partnership with your correct taxpayer identification number. See the instructions to the Letter of Transmittal. FOREIGN OFFEREES Gain recognized by a foreign person on a transfer of a unit for cash, OP Units, or a combination thereof, pursuant to the offer will be subject to Federal income tax under the Foreign Investment in Real Property Tax Act of 1980 ( "FIRPTA"). If you are a foreign person, the AIMCO Operating Partnership will be required, under the FIRPTA provisions of the Code, to deduct and withhold 10% of the amount realized by you on the disposition. The amount withheld would be creditable against your Federal income tax liability and, if the amount withheld exceeds your actual tax liability you could obtain a refund from the IRS by filing a U.S. income tax return. See the Instructions to the Letter of Transmittal. TAX CONSEQUENCES OF A TERMINATION OF YOUR PARTNERSHIP Section 708 of the Code provides that if there is a sale or exchange of 50% or more of the total interest in capital and profits of a partnership within any 12-month period, such partnership terminates for Federal income tax purposes (a "Termination"). The AIMCO Operating Partnership's acquisition of units pursuant to the offer may result in a Termination of your partnership. If an acquisition of units results in a S-73 77 Termination, the following Federal income tax events will be deemed to occur: the terminated Partnership (the "Old Partnership") will be deemed to have contributed all of its assets (subject to its liabilities) (the "Hypothetical Contribution") to a new partnership (the "New Partnership") in exchange for interests in the New Partnership and, immediately thereafter, the Old Partnership will be deemed to have distributed interests in the New Partnership (the "Hypothetical Distribution") to the AIMCO Operating Partnership and to the offerees who do not tender all of their units (a "Remaining Offeree") in proportion to their respective interests in the Old Partnership in liquidation of the Old Partnership. A Remaining Offeree will not recognize any gain or loss upon the Hypothetical Distribution or upon the Hypothetical Contribution and the capital accounts of the Remaining Offerees in the Old Partnership will carry over intact to the New Partnership. A Termination will change (and possibly shorten) a Remaining Offeree's holding period with respect to its units in your partnership for Federal income tax purposes. Gains recognized by a Remaining Offeree on the disposition of New Partnership interests with a holding period of 12 months or less may be classified as short-term capital gains and subject to taxation at ordinary income tax rates. The New Partnership's adjusted tax basis in its assets will be the same as the Old Partnership's basis in such assets immediately before the Termination. A Termination will also cause the New Partnership to recalculate the depreciable lives of its assets. This will cause the assets to be depreciated over a longer period of time than if there had been no Termination. This would generally decrease the annual average depreciation deductions allocable to the Remaining Offerees for a number of years following consummation of the offer (thereby increasing the taxable income allocable to their retained units in each such year), but would have no effect on the total depreciation deductions available over the useful lives of the assets of your partnership. Elections as to tax matters previously made by the Old Partnership prior to Termination will not be applicable to the New Partnership unless the New Partnership chooses to make the same elections. Additionally, upon a Termination, the Old Partnership's taxable year will close for all offerees. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO YOU AS A RESULT OF A SALE OR EXCHANGE OF UNITS PURSUANT TO THE OFFER. S-74 78 COMPARISON OF YOUR PARTNERSHIP AND THE AIMCO OPERATING PARTNERSHIP The information below highlights a number of the significant differences between your partnership and the AIMCO Operating Partnership relating to, among other things, form of organization, permitted investments, policies and restrictions, management structure, compensation and fees, and investor rights. The section immediately following this section compares certain of the respective legal rights associated with the ownership of units with Common OP Units and Preferred OP Units. These comparisons are intended to assist you in understanding how your investment will be changed if, as a result of the offer, your units are exchanged for Common OP Units or Preferred OP Units. FOR A DISCUSSION OF CERTAIN OF THE SIGNIFICANT DIFFERENCES BETWEEN THE AIMCO OPERATING PARTNERSHIP AND AIMCO, SEE "COMPARISON OF THE AIMCO OPERATING PARTNERSHIP AND AIMCO" IN THE ACCOMPANYING PROSPECTUS. For a comparison of certain legal rights associated with an investment in the Common OP Units and the Class A Common Stock, and a similar comparison in respect of the Preferred OP Units and the Class I Preferred Stock, see "Comparison of Common OP Units and Class A Common Stock" in the accompanying Prospectus and "Comparison of Preferred OP Units and Class I Preferred Stock" herein, respectively. YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP Form of Organization and Assets Owned Your partnership is a limited partnership The AIMCO Operating Partnership is organized organized under Delaware law. as a Delaware limited partnership. The AIMCO Operating Partnership owns interests (either directly or through subsidiaries) in numerous multifamily apartment properties. The AIMCO Operating Partnership conducts substantially all of the operations of AIMCO, a corporation organized under Maryland and as a REIT.
Duration of Existence Your partnership was presented to limited The term of the AIMCO Operating Partnership partners as a finite life investment, with continues until December 31, 2093, unless limited partners to receive regular cash the AIMCO Operating Partnership is dissolved distributions out of your partnership's Cash sooner pursuant to the terms of the AIMCO Flow (as defined in your partnership's Operating Partnership's agreement of limited agreement of limited partnership). The partnership (the "AIMCO Operating termination date of your partnership is July Partnership Agreement") or as provided by 1, 2015. law. See "Description of OP Units -- General" and "Description of OP Units -- Dissolution and Winding Up" in the accompanying Prospectus.
Purpose and Permitted Activities Your partnership has been formed to acquire, The purpose of the AIMCO Operating finance and operate your partnership's Partnership is to conduct any business that property. Subject to restrictions contained may be lawfully conducted by a limited in your partnership's agreement of limited partnership organized pursuant to the partnership, your partnership may perform Delaware Revised Uniform Limited Part- all acts necessary or appropriate in nership Act (as amended from time to time, connection therewith and reasonably related or any successor to such statute) (the thereto, including acquiring additional real "Delaware Limited Partnership Act"), or personal property, borrowing money and provided that such business is to be creating liens. conducted in a manner that permits AIMCO to be qualified as a REIT, unless AIMCO ceases to qualify as a REIT. The AIMCO Operating Partner-
S-75 79 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP ship is authorized to perform any and all acts for the furtherance of the purposes and business of the AIMCO Operating Partnership, provided that the AIMCO Operating Partnership may not take, or refrain from taking, any action which, in the judgment of its general partner could (i) adversely affect the ability of AIMCO to continue to qualify as a REIT, (ii) subject AIMCO to certain income and excise taxes, or (iii) violate any law or regulation of any governmental body or agency (unless such ac- tion, or inaction, is specifically consented to by AIMCO). Subject to the foregoing, the AIMCO Operating Partnership may invest in or enter into partnerships, joint ventures, or similar arrangements. The AIMCO Operating partnership currently invests, and intends to continue to invest, in a real estate portfolio primarily consisting of multifamily rental apartment properties.
Additional Equity The general partner of your partnership are The general partner is authorized to issue authorized to issue additional limited additional partnership interests in the partnership interests in your partnership AIMCO Operating Partnership for any and may admit additional limited partners by partnership purpose from time to time to the selling not more than 40 units for cash and limited partners and to other persons, and notes to selected persons who fulfill the to admit such other persons as additional requirements set forth in your partnership's limited partners, on terms and conditions agreement of limited partnership. The and for such capital contributions as may be capital contribution need not be equal for established by the general partner in its all limited partners and no action or sole discretion. The net capital consent is required in connection with the contribution need not be equal for all OP admission of any additional limited Unitholders. No action or consent by the OP partners. Unitholders is required in connection with the admission of any additional OP Unitholder. See "Description of OP Units -- Management by the AIMCO GP" in the accompanying Prospectus. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any OP Unitholder, and set forth in a written document thereafter attached to and made an exhibit to the AIMCO Operating Partnership Agreement.
Restrictions Upon Related Party Transactions Under your partnership's agreement of The AIMCO Operating Partnership may lend or limited partnership, your partnership may contribute funds or other assets to its acquire property or services from, and have subsidiaries or other persons in which it other transactions with per- has an equity investment,
S-76 80 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP sons who are partners or who are affiliates and such persons may borrow funds from the of partners. Any and all compensation paid AIMCO Operating Partnership, on terms and to such persons in connection with services conditions established in the sole and performed for your partnership must be absolute discretion of the general partner. commensurate with that which would be paid To the extent consistent with the business to an independent person for similar purpose of the AIMCO Operating Partnership services and all agreements must be in and the permitted activities of the general writing. Your partnership may not make loans partner, the AIMCO Operating Partnership may to any partners but the general partner may transfer assets to joint ventures, limited make loans to your partnership; provided liability companies, partnerships, that the interest and fees received by the corporations, business trusts or other general partner in connection with such business entities in which it is or thereby loans are not in excess of the amounts which becomes a participant upon such terms and would be charged by an unrelated bank and subject to such conditions consistent with the general partner does not receive a the AIMCO Operating Partnership Agreement finder's or placement fee or commission. and applicable law as the general partner, in its sole and absolute discretion, believes to be advisable. Except as expressly permitted by the AIMCO Operating Partnership Agreement, neither the general partner nor any of its affiliates may sell, transfer or convey any property to the AIMCO Operating Partnership, directly or indirectly, except pursuant to transactions that are determined by the general partner in good faith to be fair and reasonable.
Borrowing Policies The general partner of your partnership is The AIMCO Operating Partnership Agreement authorized to borrow money and issue contains no restrictions on borrowings, and evidences of indebtedness in furtherance of the general partner has full power and your partnership business, whether secured authority to borrow money on behalf of the or unsecured. AIMCO Operating Partnership. The AIMCO Operating Partnership has credit agreements that restrict, among other things, its ability to incur indebtedness.
Review of Investor Lists Your partnership's agreement of limited Each OP Unitholder has the right, upon partnership entitles the limited partners to written demand with a statement of the receive, for any proper purpose, the name purpose of such demand and at such OP and address of each Limited Partner and the Unitholder's own expense, to obtain a number of units owned by each limited current list of the name and last known partner. Your partnership furnishes such in- business, residence or mailing address of formation to any limited partner requesting the general partner and each other OP the same in writing, upon payment of all Unitholder. costs and expenses of your partnership in connection with the preparation and forwarding of such information.
Management Control The general partner of your partnership All management powers over the business and manages and controls your partnership and affairs of the AIMCO Operating Partnership all aspects of its business. The general are vested in AIMCO-GP, Inc., which is the partner has full, exclusive and complete general partner. No OP Unitholder has any authority and discretion in the management right to participate in or exercise control and control of the business and the or management power over the busi- activities
S-77 81 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP and operations of your partnership. In the ness and affairs of the AIMCO Operating exercise of its authority, it makes all Partnership. The OP Unitholders have the decisions affecting the conduct of the right to vote on certain matters described business of your partnership. The general under "Comparison of Your Units and AIMCO OP partner possesses and may enjoy and exercise Units -- Voting Rights" below. The general all of the rights and powers of general partner may not be removed by the OP partner as provided by applicable laws, Unitholders with or without cause. except to the extent any such rights may be limited or restricted by express provisions In addition to the powers granted a general of your agreement. Limited partners may not partner of a limited partnership under take part in the management of the business, applicable law or that are granted to the affairs and operations of your partnership, general partner under any other provision of transact any business for your partnership, the AIMCO Operating Partnership Agreement, have any power, right or authority to enter the general partner, subject to the other into any agreement, execute or sign provisions of the AIMCO Operating documents for, make representation on behalf Partnership Agreement, has full power and of nor to otherwise act so as to bind your authority to do all things deemed necessary partnership in any manner. or desirable by it to conduct the business of the AIMCO Operating Partnership, to exercise all powers of the AIMCO Operating Partnership and to effectuate the purposes of the AIMCO Operating Partnership. The AIMCO Operating Partnership may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose upon such terms as the general partner determines to be appropriate, and may perform such other acts and duties for and on behalf of the AIMCO Operating Partnership as are provided in the AIMCO Operating Partnership Agreement. The general partner is authorized to execute, deliver and perform certain agreements and transactions on behalf of the AIMCO Operating Partnership without any further act, approval or vote of the OP Unitholders.
Management Liability and Indemnification Under your partnership's agreement of Notwithstanding anything to the contrary set limited partnership, the general partner of forth in the AIMCO Operating Partnership your partnership and its affiliates are not Agreement, the general partner is not liable liable, responsible or accountable, in to the AIMCO Operating Partnership for damages or otherwise to your partnership or losses sustained, liabilities incurred or any limited partner for any acts performed benefits not derived as a result of errors by any of them which are reasonably believed in judgment or mistakes of fact or law of by them to be within the scope of the any act or omission if the general partner authority conferred on them by your acted in good faith. The AIMCO Operating partnership's agreement of limited partner- Partnership Agreement provides for ship, excepting only acts of malfeasance, indemnification of AIMCO, or any director or gross negligence or actual officer of AIMCO (in its capacity as the misrepresentation. In addition, the general previous general partner of the AIMCO partner and its affiliates are entitled to Operating Partnership), the general partner, indemnification by your partnership for any any officer or director of general partner and all acts performed by them in the good or the AIMCO Operating Partnership and such faith belief that the act or omission was in other persons as the general partner may the best interests of your partnership and designate from and against all losses, which are reasonable within the scope of the claims, damages, liabilities, joint or authority conferred upon them by your several, expenses (in-
S-78 82 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP partnership's agreement of limited cluding legal fees), fines, settlements and partnership or by your partnership, other amounts incurred in connection with excepting only acts of malfeasance, gross any actions relating to the operations of negligence or actual misrepresentation; pro- the AIMCO Operating Partnership, as set vided, however, that such indemnity will be forth in the AIMCO Operating Partnership paid out of and only to the extent of Agreement. The Delaware Limited Partnership partnership assets. Act provides that subject to the standards and restrictions, if any, set forth in its partnership agreement, a limited partnership may, and shall have the power to, indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. It is the position of the Securities and Exchange Commission and certain state securities administrations that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and is unenforceable pursuant to Section 14 of the Securities Act of 1933 and their respective state securities laws.
Anti-Takeover Provisions Under your partnership's agreement of Except in limited circumstances, the general limited partnership, the limited partners partner has exclusive management power over may remove a general partner for cause and the business and affairs of the AIMCO elect a successor general partner upon a Operating Partnership. The general partner vote of the limited partners owning a may not be removed as general partner of the majority of the outstanding units. A general AIMCO Operating Partnership by the OP partner may not transfer, assign, sell, Unitholders with or without cause. Under the withdraw or otherwise dispose of its AIMCO Operating Partnership Agreement, the interest unless it obtains the prior written general partner may, in its sole discretion, consent of those persons owning more than prevent a transferee of an OP Unit from 50% of the units and satisfies other becoming a substituted limited partner conditions set forth in your partnership's pursuant to the AIMCO Operating Partnership agreement of limited partnership. Such Agreement. The general partner may exercise consent is also necessary for the approval this right of approval to deter, delay or of a new general partner. A limited partner hamper attempts by persons to acquire a may not transfer his interests without the controlling interest in the AIMCO Operating written consent of the general partners. Partnership. Additionally, the AIMCO Operating Partnership Agreement contains restrictions on the ability of OP Unitholders to transfer their OP Units. See "Description of OP Units -- Transfers and Withdrawals" in the accompanying Prospectus.
Amendment of Your Partnership Agreement Your partnership's agreement of limited With the exception of certain circumstances partnership may be amended by the general set forth in the AIMCO Operating Partnership partners to change the name and location of Agreement, whereby the general partner may, the principal place of business of your without the consent of the OP Unitholders, partnership, change the name or the amend the AIMCO Operating Partnership residence of a partner, substitute a limited Agreement, amendments to the AIMCO Operating partner, correct an error in your Partnership Agreement require the consent of partnership's agreement of limited the holders of a majority of the outstanding partnership and as required by law. Amend- Common OP Units, excluding AIMCO ments of specified provisions of your partnership's
S-79 83 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP agreement of limited partnership may be made and certain other limited exclusions (a only with the prior written consent of all "Majority in Interest"). Amendments to the partners. Other amendments must be approved AIMCO Operating Partnership Agreement may be by the limited partners owning more than 50% proposed by the general partner or by of the units. holders of a Majority in Interest. Following such proposal, the general partner will submit any proposed amendment to the OP Unitholders. The general partner will seek the written consent of the OP Unitholders on the proposed amendment or will call a meeting to vote thereon. See "Description of OP Units -- Amendment of the AIMCO Operating Partnership Agreement" in the accompanying Prospectus.
Compensation and Fees In addition to the right to distributions in The general partner does not receive respect of its partnership interest and compensation for its services as general reimbursement for all fees and expenses as partner of the AIMCO Operating Partnership. set forth in your partnership's agreement of However, the general partner is entitled to limited partnership, the general partner payments, allocations and distributions in receives $19,000 annually and may receive its capacity as general partner of the AIMCO other fees for additional services. Operating Partnership. In addition, the Moreover, the general partner or certain AIMCO Operating Partnership is responsible affiliates may be entitled to compensation for all expenses incurred relating to the for additional services rendered. AIMCO Operating Partnership's ownership of its assets and the operation of the AIMCO Operating Partnership and reimburses the general partner for such expenses paid by the general partner. The employees of the AIMCO Operating Partnership receive compensation for their services.
Liability of Investors Under your partnership's agreement of Except for fraud, willful misconduct or limited partnership, limited partners are gross negligence, no OP Unitholder has not subject to assessment nor personally personal liability for the AIMCO Operating liable for any of the debts or obligations Partnership's debts and obligations, and of your partnership or any of the losses of liability of the OP Unitholders for the your partnership beyond its obligations to AIMCO Operating Partnership's debts and contribute to the capital of your obligations is generally limited to the partnership as specified in your amount of their investment in the AIMCO partnership's agreement of limited Operating Partnership. However, the partnership and as otherwise provided by limitations on the liability of limited law. partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the AIMCO Operating Part- nership had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the holders of OP Units as a group to make certain amendments to the AIMCO Operating Partnership Agreement or to take other action pursuant to the AIMCO Operating Partnership Agreement constituted participation in the "control" of the AIMCO Operating Partnership's business, then a holder of OP Units could be held liable under certain
S-80 84 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP circumstances for the AIMCO Operating Partnership's obligations to the same extent as the general partner.
Fiduciary Duties Under your partnership's agreement of Unless otherwise provided for in the limited partnership, the general partner has relevant partnership agreement, Delaware law fiduciary responsibilities to your generally requires a general partner of a partnership in respect of the funds and Delaware limited partnership to adhere to assets of your partnership and will take all fiduciary duty standards under which it owes actions which may be necessary or its limited partners the highest duties of appropriate for the proper maintenance and good faith, fairness and loyalty and which operation of your partnership's property in generally prohibit such general partner from accordance with the provisions of your taking any action or engaging in any partnership's agreement of limited transaction as to which it has a conflict of partnership and in accordance with interest. The AIMCO Operating Partnership applicable laws and regulations. The general Agreement expressly authorizes the general partner will manage and control the affairs partner to enter into, on behalf of the of your partnership to the best of its AIMCO Operating Partnership, a right of abilities and use its best efforts to carry first opportunity arrangement and other out the business of your partnership as set conflict avoidance agreements with various forth in your partnership's agreement of affiliates of the AIMCO Operating limited partnership. However, the general Partnership and the general partner, on such partner may engage in or hold interests in terms as the general partner, in its sole other business ventures of every kind and and absolute discretion, believes are description for its own account including, advisable. The AIMCO Operating Partnership without limitation, ventures such as those Agreement expressly limits the liability of undertaken by your partnership and your the general partner by providing that the partnership and the partners will have no general partner, and its officers and rights in and to such independent business directors will not be liable or accountable ventures or the income and profits derived in damages to the AIMCO Operating therefrom. Partnership, the limited partners or as- signees for errors in judgment or mistakes In general, your partnership's agreement of of fact or law or of any act or omission if limited partnership and the AIMCO Operating the general partner or such director or Partnership Agreement have limitations on officer acted in good faith. See the liability of the general partner but "Description of OP Units -- Fiduciary such limitations differ and provide more Responsibilities" in the accompanying protection for the general partner of the Prospectus. AIMCO Operating Partnership.
Federal Income Taxation In general, there are no material The AIMCO Operating Partnership is not differences between the taxation of your subject to Federal income taxes. Instead, partnership and the AIMCO Operating each holder of OP Units includes in income Partnership. its allocable share of the AIMCO Operating Partnership's taxable income or loss when it determines its individual Federal income tax liability. Income and loss from the AIMCO Operating Partnership may be subject to the passive activity limitations. If an investment in an OP Unit is treated as a passive activity, income and loss from the AIMCO Operating Partnership generally can be offset against income and loss from other investments that consti-
S-81 85 YOUR PARTNERSHIP AIMCO OPERATING PARTNERSHIP tute "passive activities" (unless the AIMCO Operating Partnership is considered a "publicity traded partnership", in which case income and loss from the AIMCO Operating Partnership can only be offset against other income and loss from the AIMCO Operating Partnership). Income of the AIMCO Operating Partnership, however, attributable to dividends from the Management Subsidiaries (as defined below) or interest paid by the Management Subsidiaries does not qualify as passive activity income and cannot be offset against losses from "passive activities." Cash distributions by the AIMCO Operating Partnership are not taxable to a holder of OP Units except to the extent they exceed such Partner's basis in its interest in the AIMCO Operating Partnership (which will include such OP Unitholder's allocable share of the AIMCO Operating Partnership's nonre- course debt). Each year, OP Unitholders receive a Schedule K-1 tax form containing tax information for inclusion in preparing their Federal income tax returns. OP Unitholders are required, in some cases, to file state income tax returns and/or pay state income taxes in the states in which the AIMCO Operating Partnership owns property or transacts business, even if they are not residents of those states. The AIMCO Operating Partnership may be required to pay state income taxes in certain states.
COMPARISON OF YOUR UNITS AND AIMCO OP UNITS YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Nature of Investment
The partnership interests in your The Preferred OP Units constitute The Common OP Units constitute partnership constitute equity in- equity interests entitling each equity interests entitling each OP terests entitling each partner to holder of Preferred OP Units, when Unitholder to such partner's pro its pro rata share of and as declared by the board of rata share of cash distributions distributions to be made to the directors of the general partner made from Available Cash (as such partners of your partnership. of the AIMCO Operating Part- term is defined in the AIMCO nership, quarterly cash distribu- Operating Partnership Agreement) tion at a rate of $0.50 per to the partners of the AIMCO Preferred OP Unit, subject to ad- Operating Partnership. To the justments from time to time on or extent the AIMCO Operating after the fifth anniversary of the Partnership sells or refi-
S-82 86 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS issue date of the Preferred OP nances its assets, the net Units. proceeds therefrom generally will be retained by the AIMCO Operating Partnership for working capital and new investments rather than being distributed to the OP Unitholders (including AIMCO).
Voting Rights Under your partnership's Except as otherwise required Under the AIMCO Operating agreement of limited by applicable law or in the Partnership Agreement, the partnership, upon the vote AIMCO Operating Partnership OP Unitholders have voting of the limited partners Agreement, the holders of rights only with respect to owning a majority of the the Preferred OP Units will certain limited matters such outstanding units, the have the same voting rights as certain amendments and limited partners may amend as holders of the Common OP termination of the AIMCO your partnership's agreement Units. See "Description of Operating Partnership of limited partnership, OP Units" in the accompany- Agreement and certain subject to certain ing Prospectus. So long as transactions such as the limitations; dissolve and any Preferred OP Units are institution of bankruptcy terminate your partnership; outstanding, in addition to proceedings, an assignment remove a general partner for any other vote or consent of for the benefit of creditors cause; approve certain partners required by law or and certain transfers by the changes of or transfers by a by the AIMCO Operating general partner of its general partner and approve Partnership Agreement, the interest in the AIMCO or disapprove the sale of affirmative vote or consent Operating Partnership or the all or substantially all of of holders of at least 50% admission of a successor the assets of your of the outstanding Preferred general partner. partnership. OP Units will be necessary A general partner may cause for effecting any amendment Under the AIMCO Operating the dissolution of your of any of the provisions of Partnership Agreement, the partnership by retiring when the Partnership Unit general partner has the there are no remaining Designation of the Preferred power to effect the general partners unless, the OP Units that materially and acquisition, sale, transfer, limited partners owning more adversely affects the rights exchange or other than 50% of the then or preferences of the disposition of any assets of outstanding units elect a holders of the Preferred OP the AIMCO Operating new general partner who Units. The creation or Partnership (including, but decides to continue your issuance of any class or not limited to, the exercise partnership with the series of partnership units, or grant of any conversion, approval of the limited including, without option, privilege or partners owning more than limitation, any partner- subscription right or any 50% of the then outstanding ship units that may have other right available in units. rights senior or superior to connection with any assets the Preferred OP Units, at any time held by the In general, you have greater shall not be deemed to AIMCO Operating Partnership) voting rights in your materially adversely affect or the merger, partnership than you will the rights or preferences of consolidation, have as an OP Unitholder. OP the holders of Preferred OP reorganization or other Unitholders can not remove Units. With respect to the combination of the AIMCO the general partner of the exercise of the above Operating Partnership with AIMCO Operating Partnership. described voting rights, or into another entity, all each Preferred OP Units without the consent of the shall have one (1) vote per OP Unitholders. Preferred OP Unit. The general partner may cause the dissolution of the AIMCO Operating Partnership by an
S-83 87 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS "event of withdrawal," as defined in the Delaware Limited Partnership Act (including, without limi- tation, bankruptcy), unless, within 90 days after the withdrawal, holders of a "majority in interest," as defined in the Delaware Limited Partnership Act, agree in writing, in their sole and absolute discretion, to continue the business of the AIMCO Operating Partnership and to the appointment of a successor general partner. The general partner may elect to dissolve the AIMCO Operating Partnership in its sole and absolute discretion, with or without the consent of the OP Unitholders. See "Descrip- tion of OP Units -- Dissolution and Winding Up" in the accom- panying Prospectus. OP Unitholders cannot remove the general partner of the AIMCO Operating Partnership with or without cause.
Distributions Your partnership's agreement Holders of Preferred OP Subject to the rights of of limited partnership Units will be entitled to holders of any outstanding specifies how the cash receive, when and as Preferred OP Units, the available for distribution, declared by the board of AIMCO Operating Partnership whether arising from directors of the general Agreement requires the operations or sales or partner of the AIMCO general partner to cause the refinancing, is to be shared Operating Partnership, AIMCO Operating Partnership among the partners. Your quarterly cash distributions to distribute quarterly all, partnership may, but is not at the rate of $0.50 per or such portion as the obligated to, make current Preferred OP Unit; provided, general partner may in its distributions out of its however, that at any time sole and absolute discretion cash funds as the general and from time to time on or determine, of Available Cash partners may, in their dis- after the fifth anniversary (as defined in the AIMCO cretion, determine. The of the issue date of the Operating Partnership distributions payable to the Preferred OP Units, the Agreement) generated by the partners are not fixed in AIMCO Operating Partnership AIMCO Operating Partnership amount and depend upon the may adjust the annual during such quarter to the operating results and net distribution rate on the general partner, the special sales or refinancing Preferred OP Units to the limited partner and the proceeds available from the lower of (i) 2.00% plus the holders of Common OP Units disposition of your annual interest rate then on the record date es- partnership's assets. applicable to U.S. Treasury tablished by the general notes with a maturity of partner with respect to such five years, and (ii) the quarter, in accordance with annual dividend rate on the their respective most recently issued AIMCO
S-84 88 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS non-convertible preferred interests in the AIMCO stock which ranks on a Operating Partnership on parity with its Class H such record date. Holders of Cumulative Preferred Stock. any other Preferred OP Units Such distributions will be issued in the future may cumulative from the date of have priority over the original issue. Holders of general partner, the special Preferred OP Units will not limited partner and holders be entitled to receive any of Common OP Units with distributions in excess of respect to distributions of cumulative distributions on Available Cash, the Preferred OP Units. No distributions upon interest, or sum of money in liquidation or other lieu of interest, shall be distributions. See "Per payable in respect of any Share and Per Unit Data" in distribution payment or pay- the accompanying Prospectus. ments on the Preferred OP Units that may be in The general partner in its arrears. sole and absolute discretion may distribute to the OP When distributions are not Unitholders Available Cash paid in full upon the on a more frequent basis and Preferred OP Units or any provide for an appropriate Parity Units (as defined record date. below), all distributions declared upon the Preferred The AIMCO Operating Partner- OP Units and any Parity ship Agreement requires the Units shall be declared general partner to take such ratably in proportion to the reasonable efforts, as respective amounts of determined by it in its sole distributions accumulated, and absolute discretion and accrued and unpaid on the consistent with AIMCO's Preferred OP Units and such qualification as a REIT, to Parity Units. Unless full cause the AIMCO Operating cumulative distributions on Partnership to distribute the Preferred OP Units have sufficient amounts to en- been declared and paid, able the general partner to except in limited circum- transfer funds to AIMCO and stances, no distributions enable AIMCO to pay stock- may be declared or paid or holder dividends that will set apart for payment by the (i) satisfy the requirements AIMCO Operating Partnership for qualifying as a REIT and no other distribution of under the Code and the cash or other property may Treasury Regulations and be declared or made, (ii) avoid any Federal directly or indirectly, by income or excise tax the AIMCO Operating liability of AIMCO. See Partnership with respect to "Description of OP any Junior Units (as de- Units -- Distributions" in fined below), nor shall any the accompanying Prospectus. Junior Units be redeemed, purchased or otherwise acquired for considera- tion, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
S-85 89 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS Liquidity and Transferability/Redemption Rights
A limited partner may There is no public market There is no public market transfer his units to any for the Preferred OP Units for the OP Units. The AIMCO person and be substituted as and the Preferred OP Units Operating Partnership a limited partner by such are not listed on any Agreement restricts the person if: (1) the interest securities exchange. The transferability of the OP being acquired by the Preferred OP Units are Units. Until the expiration assignee consists of an subject to restrictions on of one year from the date on integral multiple of half transfer as set forth in the which an OP Unitholder units, (2) a written assign- AIMCO Operating Partnership acquired OP Units, subject ment has been duly executed Agreement. to certain exceptions, such and acknowledged by the OP Unitholder may not assignor and assignee, (3) Pursuant to the AIMCO transfer all or any por- the written approval of the Operating Partnership tion of its OP Units to any general partners which may Agreement, until the transferee without the be withheld in the sole and expiration of one year from consent of the general absolute discretion of the the date on which a holder partner, which consent may general partners has been of Preferred OP Units be withheld in its sole and granted, (4) the assignor or acquired Preferred OP Units, absolute discretion. After the assignee pays a transfer subject to certain the expiration of one year, fee, (5) the transfer will exceptions, such holder of such OP Unitholder has the not result in a termination Preferred OP Units may not right to transfer all or any of your partnership for tax transfer all or any portion portion of its OP Units to purposes and (6) the of its Preferred OP Units to any person, subject to the assignor and assignee have any transferee without the satisfaction of certain con- complied with such other consent of the general ditions specified in the conditions as set forth in partner, which consent may AIMCO Operating Partnership your partnership's agreement be withheld in its sole and Agreement, including the of limited partnership. absolute discretion. After general partner's right of the expiration of one year, first refusal. See There are no redemption such holders of Preferred OP "Description of OP Units -- rights associated with your Units has the right to Transfers and Withdrawals" units. transfer all or any portion in the accompanying of its Preferred OP Units to Prospectus. any person, subject to the satisfaction of certain After the first anniversary conditions specified in the of becoming a holder of AIMCO Operating Partner- Common OP Units, an OP ship Agreement, including Unitholder has the right, the general partner's right subject to the terms and of first refusal. conditions of the AIMCO Operating Partnership After a one-year holding Agreement, to require the period, a holder may redeem AIMCO Operating Partnership Preferred OP Units and to redeem all or a portion receive in exchange of the Common OP Units held therefor, at the AIMCO Oper- by such party in exchange ating Partnership's option, for a cash amount based on (i) subject to the terms of the value of shares of Class any Senior Units (as defined A Common Stock. See below), cash in an amount "Description of OP equal to the Liquidation Units -- Redemption Rights" Preference of the Preferred in the accompanying OP Units tendered for Prospectus. Upon receipt of redemption, (ii) a number of a notice of redemption, the shares of Class A Common AIMCO Operating Partnership Stock of AIMCO that is equal may, in its sole and in Value to the Liquidation absolute discretion but Preference of the Preferred subject to the restrictions OP Units tendered on the ownership of Class A Common
S-86 90 YOUR UNITS PREFERRED OP UNITS COMMON OP UNITS for redemption, or (iii) for Stock imposed under AIMCO's Preferred OP Units redeemed charter and the transfer after a two-year holding restrictions and other period, a number of shares limitations thereof, elect of Class I Preferred Stock to cause AIMCO to acquire of AIMCO that pay an some or all of the ten- aggregate amount of dered Common OP Units in dividends equivalent to the exchange for Class A Common distributions on the Stock, based on an exchange Preferred OP Units tendered ratio of one share of Class for redemption; provided A Common Stock for each Com- that such shares are part of mon OP Unit, subject to a class or series of adjustment as provided in preferred stock that is then the AIMCO Operating listed on the NYSE or an- Partnership Agreement. other national securities exchange. See "Federal Income Tax Consequences -- Disguised Sales." The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership. See "Description of Preferred OP Units -- Redemption."
S-87 91 DESCRIPTION OF PREFERRED OP UNITS GENERAL The Preferred OP Units are the Class Two Partnership Preferred Units of the AIMCO Operating Partnership. RANKING The Preferred OP Units will, with respect to distribution rights and rights upon liquidation, dissolution or winding up of the AIMCO Operating Partnership, effectively rank:(i) prior or senior to the Class I High Performance Units, the Common OP Units and any other interest in the AIMCO Operating Partnership if the holders of Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of such interest (the Common OP Units and such other interests are collectively referred to herein as "Junior Units"); (ii) on a parity with the Class B Partnership Preferred Units, the Class C Partnership Preferred Units, the Class D Partnership Preferred Units, the Class G Partnership Preferred Units, the Class H Partnership Preferred Units, the Class J Partnership Preferred Units, the Class K Partnership Preferred Units and with any other interest in the AIMCO Operating Partnership if the holders of such interest and the Preferred OP Units shall be entitled to the receipt of distributions and amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accumulated, accrued and unpaid distributions or stated preferences, without preference or priority of one over the other ("Parity Units"); and (iii) junior to the Class F Partnership Preferred Units, the Class One Partnership Preferred Units and any other interest in the AIMCO Operating Partnership if the holders of such interest shall be entitled to the receipt of distributions or amounts distributable upon liquidation, dissolution or winding up in preference or priority to the holders of the Preferred OP Units ("Senior Units"). Junior Units, Parity Units and Senior Units may be issued from time to time by the AIMCO Operating Partnership without any approval or consent by holders of the Preferred OP Units. Although proceeds upon liquidation, dissolution or winding up of the AIMCO Operating Partnership will be made in accordance with the positive balance of all partners capital accounts, the AIMCO Operating Partnership creates, to the extent possible, the preference upon such events by specially allocating income, if necessary, to the Preferred OP Units in an amount equal to their liquidation preference. DISTRIBUTIONS Holders of Preferred OP Units are entitled to receive, when and as declared by the board of directors of the general partner of the AIMCO Operating Partnership, quarterly cash distributions at the rate of $0.50 per Preferred OP Unit (equivalent to 8.0% per annum of the $25 stated liquidation preference); provided, however, that at any time and from time to time on or after March 1, 2005, the AIMCO Operating Partnership may adjust the annual distribution rate on the Preferred OP Units to the lower of (i) 2.0% plus the annual interest rate then applicable to U.S. Treasury notes with a maturity of five years, and (ii) the annual dividend rate on the most recently issued AIMCO non-convertible preferred stock which ranks on a parity with its Class H Cumulative Preferred Stock. A reduction in the distribution rate will reduce your rate of return on the Preferred OP Units and possibly encourage you to redeem such units. Such adjustment shall become effective upon the date the AIMCO Operating Partnership issues a notice to such effect to the holders of the Preferred OP Units. Such distributions are cumulative from the date of original issue, whether or not in any distribution period or periods such distributions have been declared, and shall be payable quarterly on February 15, May 15, August 15 and November 15 of each year (or, if not a business day, the next succeeding business day) (each a "Distribution Payment Date"), commencing on the first such date occurring after the date of original issue. If the Preferred OP Units are issued on any day other than a Distribution Payment Date, the first distribution payable on such Preferred OP Units will be prorated for the portion of the quarterly period that such Preferred OP Units are outstanding on the basis of twelve 30-day months and a 360-day year. Distributions are payable in arrears to holders of record as they appear on the records of the AIMCO Operating Partnership at the close of business on the February 1, May 1, August 1 or S-88 92 November 1, as the case may be, immediately preceding each Distribution Payment Date. Holders of Preferred OP Units will not be entitled to receive any distributions in excess of cumulative distributions on the Preferred OP Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Preferred OP Units that may be in arrears. Holders of any Preferred OP Units that are issued after the date of original issuance are entitled to receive the same distributions as holders of any Preferred OP Units issued on the date of original issuance. When distributions are not paid in full upon the Preferred OP Units or any Parity Units, or a sum sufficient for such payment is not set apart, all distributions declared upon the Preferred OP Units and any Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated, accrued and unpaid on the Preferred OP Units and accumulated, accrued and unpaid on such Parity Units. Except as set forth in the preceding sentence, unless distributions on the Preferred OP Units equal to the full amount of accumulated, accrued and unpaid distributions have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for such payment, for all past distribution periods, no distributions shall be declared or paid or set apart for payment by the AIMCO Operating Partnership with respect to any Parity Units. Unless full cumulative distributions (including all accumulated, accrued and unpaid distributions) on the Preferred OP Units have been declared and paid, or declared and set apart for payment, for all past distribution periods, no distributions (other than distributions or distributions paid in Junior Units or options, warrants or rights to subscribe for or purchase Junior Units) may be declared or paid or set apart for payment by the AIMCO Operating Partnership and no other distribution of cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired (except for a redemption, purchase or other acquisition of Common OP Units made for purposes of an employee incentive or benefit plan of AIMCO, the AIMCO Operating Partnership or any subsidiary) for any consideration (or any monies be paid to or made available for a sinking fund for the redemption of any such Junior Units), directly or indirectly, by the AIMCO Operating Partnership (except by conversion into or exchange for Junior Units, or options, warrants or rights to subscribe for or purchase Junior Units), nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. Notwithstanding the foregoing provisions of this paragraph, the AIMCO Operating Partnership shall not be prohibited from (i) declaring or paying or setting apart for payment any distribution on any Parity Units or (ii) redeeming, purchasing or otherwise acquiring any Parity Units, in each case, if such declaration, payment, redemption, purchase or other acquisition is necessary to maintain AIMCO's qualification as a REIT. ALLOCATION Holders of Preferred OP Units will be allocated net income of the AIMCO Operating Partnership in an amount equal to the distributions made on such holder's Preferred OP Units during the taxable year. Holders of Preferred OP Units also will generally be allocated any net loss of the AIMCO Operating Partnership that is not allocated to holders of Common OP Units or other interests of the AIMCO Operating Partnership. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership, before any allocation of income or gain by the AIMCO Operating Partnership shall be made to or set apart for the holders of any Junior Units, to the extent possible, the holders of Preferred OP Units shall be entitled to be allocated income and gain to effectively enable them to receive a liquidation preference (the "Liquidation Preference") of $25 per Preferred OP Unit, plus accumulated, accrued and unpaid distributions (whether or not earned or declared) to the date of final distribution to such holders; but such holders shall not be entitled to any further allocation of income or gain. Until the holders of the Preferred OP Units have been paid the Liquidation Preference in full, no allocation of income or gain will be made to any holder of Junior Units upon the liquidation, dissolution or winding up of the AIMCO Operating Partnership. If, upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, the assets of the AIMCO Operating Partnership, or proceeds thereof, distributable among the holders of Preferred OP Units shall be S-89 93 insufficient to pay in full the above described preferential amount and liquidating payments on any Parity Units, then following certain allocations made by the AIMCO Operating Partnership, such assets, or the proceeds thereof, shall be distributed among the holders of Preferred OP Units and any such Parity Units ratably in the same proportion as the respective amounts that would be payable on such Preferred OP Units and any such Parity Units if all amounts payable thereon were paid in full. A voluntary or involuntary liquidation, dissolution or winding up of the AIMCO Operating Partnership will not include a consolidation or merger of the AIMCO Operating Partnership with one or more partnerships, corporations or other entities, or a sale or transfer of all or substantially all of the AIMCO Operating Partnership's assets. Upon any liquidation, dissolution or winding up of the AIMCO Operating Partnership, after all allocations shall have been made in full to the holders of Preferred OP Units and any Parity Units to enable them to receive their Liquidation Preference, any Junior Units shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Preferred OP Units and any Parity Units shall not be entitled to share therein. REDEMPTION The Preferred OP Units may not be redeemed at the option of the AIMCO Operating Partnership, and will not be required to be redeemed or repurchased by the AIMCO Operating Partnership or AIMCO except if a holder of a Preferred OP Unit effects a redemption, as described below. The AIMCO Operating Partnership or AIMCO may purchase Preferred OP Units from time to time in the open market, by tender or exchange offer, in privately negotiated purchases or otherwise. After a one-year holding period, a holder may redeem Preferred OP Units and receive in exchange therefor, at the AIMCO Operating Partnership's option, (i) subject to the terms of any Senior Units, cash in an amount equal to the Liquidation Preference of the Preferred OP Units tendered for redemption, (ii) a number of shares of Class A Common Stock of AIMCO that is equal in Value to the Liquidation Preference of the Preferred OP Units tendered for redemption, or (iii) for Preferred OP Units redeemed after a two-year holding period, a number of shares of Class I Preferred Stock of AIMCO that pay an aggregate amount of dividends equivalent to the distributions on the Preferred OP Units tendered for redemption; provided that such shares are part of a class or series of preferred stock that is then listed on the NYSE or another national securities exchange. The "Value" of shares of Class A Common Stock will be determined based on a 10-day average trading price of the shares, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. Before issuing any preferred stock upon redemption of Preferred OP Units, AIMCO will register the issuance and sale of such shares under the Securities Act of 1933. If shares of Class I Preferred Stock or Class A Common Stock of AIMCO are issued in exchange for any Preferred OP Units tendered for redemption, the Preferred OP Units that are acquired by AIMCO will be converted to a class of AIMCO Operating Partnership units that corresponds to the class of stock so issued. VOTING RIGHTS Except as otherwise required by applicable law or in the AIMCO Operating Partnership's agreement of limited partnership, the holders of the Preferred OP Units will have the same voting rights as holders of the Common OP Units. See "Description of OP Units" in the accompanying Prospectus. So long as any Preferred OP Units are outstanding, in addition to any other vote or consent of partners required by law or by the AIMCO Operating Partnership's agreement of limited partnership, the affirmative vote or consent of holders of at least 50% of the outstanding Preferred OP Units will be necessary for effecting any amendment of any of the provisions of the Partnership Unit Designation of the Preferred OP Units that materially and adversely affects the rights or preferences of the holders of the Preferred OP Units. The creation or issuance of any class or series of AIMCO Operating Partnership units, including, without limitation, any AIMCO Operating Partnership units that may have rights senior or superior to the Preferred OP Units, will not be deemed to materially adversely affect the rights or preferences of the holders of Preferred OP Units. With respect to the exercise of the above described voting rights, each Preferred OP Unit will have one (1) vote per Preferred OP Unit. S-90 94 RESTRICTIONS ON TRANSFER Preferred OP Units will be subject to the same restrictions on transfer applicable to Common OP Units, as set forth in the AIMCO Operating Partnership's agreement of limited partnership. DESCRIPTION OF CLASS I PREFERRED STOCK The Class I Preferred Stock (a) ranks prior to the Class A Common Stock and any other class or series of capital stock of AIMCO if the holders of the Class I Preferred Stock are to be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution, and winding-up in preference or priority to the holders of shares of such class or series ("Class I Junior Stock"), (b) ranks on a parity with the Class B Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the Class G Preferred Stock, the Class H Preferred Stock, the Class J Preferred Stock, the Class K Preferred Stock and with any other class or series of capital stock of AIMCO, if the holders of such class of stock or series and the Class I Preferred Stock are entitled to the receipt of dividends and of amounts distributable upon liquidation, dissolution or winding-up in proportion to their respective amounts of accrued and unpaid dividends per share or liquidation preferences, without preference or priority one over the other ("Class I Parity Stock") and (c) ranks junior to any class or series of capital stock of AIMCO if the holders of such class or series are entitled to the receipt of dividends or amounts distributable upon liquidation, dissolution or winding-up in preference or priority to the holders of the Class I Preferred Stock ("Class I Senior Stock"). Holders of Class I Preferred Stock are entitled to receive cash dividends at the rate of 8.0% per annum of the $25 liquidation preference (equivalent to $2.00 per annum per share). Such dividends are cumulative from the date of original issue, and are payable quarterly on or before January 15, April 15, July 15 and October 15 of each year, commencing July 15, 1999. Upon any liquidation, dissolution or winding up of AIMCO, before payment or distribution by AIMCO may be made to or set apart for the holders of any shares of Class I Junior Stock, the holders of Class I Preferred Stock are entitled to receive a liquidation preference of $25 per share (the "Class I Liquidation Preference"), plus an amount equal to all accumulated, accrued and unpaid dividends to the date of final distribution to such holders; but such holders shall not be entitled to any further payment. If proceeds available for distribution are insufficient to pay the preference described above and any liquidating payments on any other shares of any class or series of Class I Parity Stock, then such proceeds will be distributed among the holders of Class I Preferred Stock and any such other Class I Parity Stock ratably in the same proportion as the respective amount that would be payable on such Class I Preferred Stock and any such other Class I Parity Stock if all amounts payable thereon were paid in full. On and after March 1, 2005, AIMCO may redeem shares of Class I Preferred Stock, in whole or in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accrued and unpaid dividends to the date fixed for redemption. The Class I Preferred Stock has no stated maturity and is not subject to any sinking fund or mandatory redemption provisions. Holders of shares of Class I Preferred Stock have no voting rights, except that if distributions on Class I Preferred Stock or any series or class of Class I Parity Stock are in arrears for six or more quarterly periods, the number of directors constituting the AIMCO board of directors will be increased by two and the holders of Class I Preferred Stock (voting together as a single class with all other shares of Class I Parity Stock, which are entitled to similar voting rights) will be entitled to vote for the election of the two additional directors of AIMCO at any annual meeting of stockholders or at a special meeting of the holders of the Class I Preferred Stock called for the purpose. The affirmative vote of the holders of two-thirds of the outstanding shares of Class I Preferred Stock will be required to amend the AIMCO charter in any manner that would adversely affect the rights of the holders of Class I Preferred Stock, and to approve the issuance of any capital stock that ranks senior to the Class I Preferred Stock with respect to payment of dividends or upon liquidation, dissolution, winding up or otherwise. Ownership of shares of Class I Preferred Stock by any person will be limited such that the sum of the aggregate value of all capital stock of AIMCO (including all shares of Class I Preferred Stock) owned directly or constructively by such person may not exceed 8.7% (or 15% in the case of certain pension trusts, S-91 95 registered investment companies and Mr. Considine) of the aggregate value of all shares of capital stock of AIMCO over (ii) the aggregate value of all shares of capital stock of AIMCO (the "Class I Preferred Ownership Limit"). The AIMCO board of directors may waive such ownership limit if evidence satisfactory to the AIMCO board of directors and AIMCO's tax counsel is presented that such ownership will not then or in the future jeopardize AIMCO's status as a REIT. As a condition of such waiver, the AIMCO board of directors may require opinions of counsel satisfactory to it and/or an undertaking from the applicant with respect to preserving the REIT status of AIMCO. If shares of Class I Preferred Stock in excess of the Class I Preferred Ownership Limit, or shares of Class I Preferred Stock which would result in AIMCO being "closely held," within the meaning of Section 856(h) of the Code, or which would otherwise result in AIMCO failing to qualify as a REIT, are issued or transferred to any person, such issuance or transfer will be null and void to the intended transferee, and the intended transferee would acquire no rights to the Class I Preferred Stock. Shares of Class I Preferred Stock transferred in excess of the Class I Preferred Ownership Limit or other applicable limitations will automatically be transferred to a trust for the exclusive benefit of one or more qualifying charitable organizations to be designated by AIMCO. Shares transferred to such trust will remain outstanding, and the trustee of the trust will have all voting and dividend rights pertaining to such shares. The trustee of such trust may transfer such shares to a person whose ownership of such shares does not violate the Class I Preferred Ownership Limit or other applicable limitation. Upon a sale of such shares by the trustee, the interest of the charitable beneficiary will terminate, and the sales proceeds would be paid, first, to the original intended transferee, to the extent of the lesser of (a) such transferee's original purchase price (or the original market value of such shares if purportedly acquired by gift or devise) and (b) the price received by the trustee, and, second, any remainder to the charitable beneficiary. In addition, shares of Class I Preferred Stock held in such trust are purchasable by AIMCO for a 90-day period at a price equal to the lesser of the price paid for the Class I Preferred Stock by the original intended transferee (or the original market value of such shares if purportedly acquired by gift or devise) and the market price for the Class I Preferred Stock on the date that AIMCO determines to purchase the Class I Preferred Stock. The 90-day period commences on the date of the violative transfer or the date that the AIMCO board of directors determines in good faith that a violative transfer has occurred, whichever is later. All certificates representing shares of Class I Preferred Stock bear a legend referring to the restrictions described above. S-92 96 COMPARISON OF PREFERRED OP UNITS AND CLASS I PREFERRED STOCK PREFERRED OP UNITS CLASS I PREFERRED STOCK Nature of Investment The Preferred OP Units constitute equity The Class I Preferred Stock constitutes an interests entitling each holder of Preferred equity interest entitling each holder of OP Units to receive, when and as declared by Class I Preferred Stock to receive, when and the board of directors of the general as declared by the AIMCO board of directors, partner of the AIMCO Operating Partnership, cash distribution at a rate of $2.00 per quarterly cash distribution at a rate of annum per share. $0.50 per Preferred OP Unit, subject to adjustments from time to time on or after the fifth anniversary of the issue date of the Preferred OP Units.
Voting Rights Except as otherwise required by applicable Holders of Class I Preferred Stock do not law or in the AIMCO Operating Partnership's have any voting rights, except as set forth agreement of limited partnership, the below and except as otherwise required by holders of the Preferred OP Units will have applicable law. the same voting rights as holders of the Common OP Units. See "Description of OP If and whenever dividends on any shares of Units" in the accompanying Prospectus. So Class I Preferred Stock or any series or long as any Preferred OP Units are class of Class I Parity Stock are in arrears outstanding, in addition to any other vote for six or more quarterly periods (whether or consent of partners required by law or by or not consecutive), the number of directors the AIMCO Operating Partnership's agreement then constituting the AIMCO board of of limited partnership, the affirmative vote directors shall be increased by two (if not or consent of holders of at least 50% of the already increased by reason of similar types outstanding Preferred OP Units will be of provisions with respect to shares of necessary for effecting any amendment of any voting preferred stock), and the holders of of the provisions of the Partnership Unit shares of Class I Preferred Stock, together Designation of the Preferred OP Units that with the holders of shares of all other materially and adversely affects the rights voting preferred stock then entitled to or preferences of the holders of the exercise similar voting rights, voting as a Preferred OP Units. The creation or issuance single class regardless of series, will be of any class or series of AIMCO Operating entitled to vote for the election of two Partnership units, including, without additional directors of AIMCO. Whenever limitation, any AIMCO Operating Partnership dividends in arrears and dividends for the units that may have rights senior or current quarterly dividend period have been superior to the Preferred OP Units, will not paid or declared and set aside in respect of be deemed to materially adversely affect the the outstanding shares of the Class I rights or preferences of the holders of Preferred Stock and the voting preferred Preferred OP Units. With respect to the stock, then the right of the holders of exercise of the above described voting Class I Preferred Stock and the voting rights, each Preferred OP Units will have preferred stock to elect such additional two one (1) vote per Preferred OP Unit. directors will cease and the terms of office of such directors will terminate. The affirmative vote or consent of at least 66 2/3% of the votes entitled to be cast by the holders of Class I Preferred Stock and Class I Parity Stock entitled to vote on such matters, voting as a single class, will be required to (i) authorize, create, increase the authorized amount of, or issue any shares of any class of Class I Senior Stock or any security convertible into shares of any class of Class I Senior Stock, or (ii) amend, alter or repeal any provision of, or add any provision to, the AIMCO charter or
S-93 97 PREFERRED OP UNITS CLASS I PREFERRED STOCK by-laws, if such action would materially adversely affect the voting powers, rights or preferences of the holders of the Class I Preferred Stock; provided, however, that no such vote of the Class I Preferred Stockholders shall be required if, at or prior to the time such proposed change, provisions are made for the redemption of all outstanding shares of Class I Preferred Stock. The amendment of the AIMCO charter to authorize, create, increase or decrease the authorized amount of or to issue Class I Junior Stock, Class I Preferred Stock or any shares of any class of Class I Parity Stock shall not be deemed to materially adversely affect the voting powers, rights or preferences of the holders of Class I Preferred Stock. With respect to the exercise of the above described voting rights, each share of Class I Preferred Stock will have one vote per share, except that when any other class or series of preferred stock has the right to vote with the Class I Preferred Stock as a single class, then the Class I Preferred Stock and such other class or series shall have one quarter of one vote per $25 of stated liquidation preference.
Distributions Holders of Preferred OP Units are entitled Holders of Class I Preferred Stock are to receive, when and as declared by the entitled to receive, when and as declared by board of directors of the general partner of the AIMCO board of directors, out of funds the AIMCO Operating Partnership, quarterly legally available for payment, cash cash distributions at the rate of $0.50 per dividends at the rate of $2.00 per annum per Preferred OP Unit; provided, however, that share. Such dividends are cumulative from at any time and from time to time on or the date of original issue. Holders of Class after the fifth anniversary of the issue I Preferred Stock are not be entitled to date of the Preferred OP Units, the AIMCO receive any dividends in excess of Operating Partnership may adjust the annual cumulative dividends on the Class I distribution rate on the Preferred OP Units Preferred Stock. No interest, or sum of to the lower of (i) 2.00% plus the annual money in lieu of interest, shall be payable interest rate then applicable to U.S. in respect of any dividend payment or Treasury notes with a maturity of five payments on the Class I Preferred Stock that years, and (ii) the annual dividend rate on may be in arrears. the most recently issued AIMCO non-convertible preferred stock which ranks When dividends are not paid in full upon the on a parity with its Class H Cumulative Class I Preferred Stock or any other class Preferred Stock. Such distributions will be or series of Class I Parity Stock, all cumulative from the date of original issue. dividends declared upon the Class I Holders of Preferred OP Units will not be Preferred Stock and any shares of Class I entitled to receive any distributions in Parity Stock will be declared ratably in excess of cumulative distributions on the proportion to the respective amounts of Preferred OP Units. No interest, or sum of dividends accumulated, accrued and unpaid on money in lieu of interest, shall be payable the Class I Preferred Stock and such Class I in respect of any distribution payment or Parity Stock. Unless dividends equal to the payments on the Preferred OP Units that may full amount of all accumulated, accrued and be in arrears. unpaid dividends on the Class I Preferred Stock have been paid, or declared and set apart for
S-94 98 PREFERRED OP UNITS CLASS I PREFERRED STOCK When distributions are not paid in full upon payment, except in limited circumstances, no the Preferred OP Units or any Parity Units, dividends may be declared or paid or set all distributions declared upon the apart for payment by AIMCO and no other Preferred OP Units and any Parity Units will distribution of cash or other property may be declared ratably in proportion to the be declared or made, directly or indirectly, respective amounts of distributions by AIMCO with respect to any shares of Class accumulated, accrued and unpaid on the I Junior Stock, nor shall any shares of Preferred OP Units and such Parity Units. Class I Junior Stock be redeemed, purchased Unless full cumulative distributions on the or otherwise acquired for any consideration, Preferred OP Units have been declared and nor shall any other cash or other property paid, except in limited circumstances, no be paid or distributed to or for the benefit distributions may be declared or paid or set of holders of shares of Class I Junior apart for payment by the AIMCO Operating Stock. See "Description of Class I Preferred Partnership and no other distribution of Stock -- Dividends." cash or other property may be declared or made, directly or indirectly, by the AIMCO Operating Partnership with respect to any Junior Units, nor shall any Junior Units be redeemed, purchased or otherwise acquired for consideration, nor shall any other cash or other property be paid or distributed to or for the benefit of holders of Junior Units. See "Description of Preferred OP Units -- Distributions."
Liquidity and Transferability/Redemption There is no public market for the Preferred Ownership of shares of Class I Preferred OP Units and the Preferred OP Units are not Stock by any person will be limited such listed on any securities exchange. The that the sum of the aggregate value of all Preferred OP Units are subject to certain equity stock (including all shares of Class restrictions on transferability set forth in I Preferred Stock) owned directly or the AIMCO Operating Partnership Agreement. constructively by such person may not exceed 8.7% (or 15% in the case of certain parties) Pursuant to the AIMCO Operating of the aggregate value of all outstanding Partnership's agreement of limited shares of equity stock. Further, certain partnership, until the expiration of one transfers which may have the effect of year from the date on which a holder of causing AIMCO to lose its status as a REIT Preferred OP Units acquired Preferred OP are void ab initio. Units, subject to certain exceptions, such holder of Preferred OP Units may not If any transfer of Class I Preferred Stock transfer all or any portion of its Preferred occurs which, if effective, would result in OP Units to any transferee without the any person beneficially or constructively consent of the general partner, which owning Class I Preferred Stock in excess or consent may be withheld in its sole and in violation of the Class I Preferred absolute discretion. After the expiration of Ownership Limit, such shares of Class I one year, such holders of Preferred OP Units Preferred Stock in excess of the Class I has the right to transfer all or any portion Preferred Ownership Limit will be of its Preferred OP Units to any person, automatically transferred to a trustee in subject to the satisfaction of certain his capacity as trustee of a trust for the conditions specified in the AIMCO Operating exclusive benefit of one or more charitable Partnership's agreement of limited beneficiaries designated by AIMCO, and the partnership, including the general partner's prohibited transferee will generally have no right of first refusal. rights in such shares, except upon sale of the shares by the trustee. The trustee will After a one-year holding period, a holder have all voting rights and rights to may redeem Preferred OP Units and receive in dividends with respect to shares of Class I exchange therefor, at the AIMCO Operating Preferred Stock held in the trust, which Partnership's option, (i) subject to the rights will be exercised for the benefit of terms of any Senior Units, the charitable beneficiaries.
S-95 99 PREFERRED OP UNITS CLASS I PREFERRED STOCK cash in an amount equal to the Liquidation Preference of the Preferred OP Units The trustee may sell the Class I Preferred tendered for redemption, (ii) a number of Stock held in the trust to AIMCO or a shares of Class A Common Stock of AIMCO that person, designated by the trustee, whose is equal in value to the Liquidation ownership of the Class I Preferred Stock Preference of the Preferred OP Units will not violate the Class I Preferred tendered for redemption, or (iii) for Ownership Limit. Upon such sale, the Preferred OP Units redeemed after a two-year interest of the charitable beneficiaries in holding period, a number of shares of Class the shares sold will terminate and the I Preferred Stock of AIMCO that pay an trustee will distribute to the prohibited aggregate amount of dividends equivalent to transferee, the lesser of (i) the price paid the distributions on the Preferred OP Units by the prohibited transferee for the shares tendered for redemption; provided that such or if the prohibited transferee did not give shares are part of a class or series of value for the shares in connection with the preferred stock that is then listed on the event causing the shares to be held in the NYSE or another national securities trust, the market price of such shares on exchange. See "Federal Income Tax the day of the event causing the shares to Consequences -- Disguised Sales." The be held in the trust and (ii) the price per Preferred OP Units may not be redeemed at share received by the trustee from the sale the option of the AIMCO Operating or other disposition of the shares held in Partnership. See "Description of Preferred the trust. Any proceeds in excess of the OP Units -- Redemption." amount payable to the prohibited transferee will be payable to the charitable beneficiaries. On and after March 1, 2005, AIMCO may, at its option, redeem shares of Class I Preferred Stock, in whole or from time to time in part, at a cash redemption price equal to 100% of the Class I Liquidation Preference plus all accumulated, accrued and unpaid dividends to the date fixed for redemption. If full cumulative dividends on all outstanding shares of Class I Preferred Stock have not been paid or declared and set apart for payment, no shares of Class I Preferred Stock may be redeemed unless all outstanding shares of Class I Preferred Stock are simultaneously redeemed and neither AIMCO nor any of its affiliates may purchase or acquire shares of Class I Preferred Stock otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Class I Preferred Stock. The redemption price for the Class I Preferred Stock (other than any portion thereof consisting of accumulated, accrued and unpaid dividends) will be payable solely with the proceeds from the sale by AIMCO of capital stock of AIMCO or the sale by the AIMCO Operating Partnership of partnership interests in the AIMCO Operating Partnership (whether or not such sale occurs concurrently with such redemption).
S-96 100 CONFLICTS OF INTEREST CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER The general partner of your partnership became a majority-owned subsidiary of AIMCO on October 1, 1998, when AIMCO merged with Insignia. Your general partner became a wholly owned subsidiary on February 26, 1999 of AIMCO when IPT merged with AIMCO. Accordingly, the general partner of your partnership has substantial conflicts of interest with respect to the offer. The general partner of your partnership has a fiduciary obligation to obtain a fair offer price for you, even as a subsidiary of AIMCO. It also has a duty to remove the property manager for your partnership's property, under certain circumstances, even though the property manager is also an affiliate of AIMCO. The conflicts of interest include the fact that a decision to remove, for any reason, the general partner of your partnership from its current position as a general partner of your partnership would result in a decrease or elimination of the substantial management fees paid to an affiliate of the general partner of your partnership for managing your partnership property. Additionally, we desire to purchase units at a low price and you desire to sell units at a high price. The general partner of your partnership makes no recommendation as to whether you should tender or refrain from tendering your units. Such conflicts of interest in connection with the offer and the operation of AIMCO differ from those conflicts of interest that currently exist for your partnership. See "Risk Factors -- Risks to Unitholders Who Tender Their Units in the Offer -- Conflicts of Interest with Respect to the Offer." CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP We own both the general partner of your partnership and the manager of your partnership's property. The general partner receives a $19,000 annual management fee but may receive reimbursements for expenses incurred in its capacity as general partner. The general partner of your partnership received total fees and reimbursements of $44,648 in 1996, $43,130 in 1997 and $23,798 in 1998. The property manager received management fees of $61,478 in 1996, $64,410 in 1997 and $65,757 in 1998. The AIMCO Operating Partnership has no current intention of changing the fee structure for the general partner or for the manager of your partnership's property. COMPETITION AMONG PROPERTIES Because AIMCO and your partnership both invest in apartment properties, these properties may compete with one another for tenants. AIMCO's policy is to limit its management to properties which do not compete with one another. Furthermore, you should bear in mind that AIMCO anticipates acquiring properties in general market areas where your partnership property is located. It is believed that this concentration of properties in a general market area will facilitate overall operations through collective advertising efforts and other operational efficiencies. In managing AIMCO's properties, the AIMCO Operating Partnership will attempt to reduce such conflicts between competing properties by referring prospective customers to the property considered to be most conveniently located for the customer's needs. FEATURES DISCOURAGING POTENTIAL TAKEOVERS Certain provisions of AIMCO's governing documents, as well as statutory provisions under certain state laws, could be used by AIMCO's management to delay, discourage or thwart efforts of third parties to acquire control of, or a significant equity interest in, AIMCO and the AIMCO Operating Partnership. See "Comparison of Your Partnership and the AIMCO Operating Partnership." AIMCO's Charter limits ownership of its common stock by any single shareholder to 8.7% of the outstanding shares (or 15% in the case of certain pension trusts, registered investment companies and AIMCO's Chairman, Terry Considine). The 8.7% ownership limit may have the effect of precluding acquisition of control of us by a third party without the consent of our Board of Directors. Under AIMCO's Charter, the Board of Directors has the authority to classify and reclassify any of its unissued shares of capital stock into shares of preferred stock with such preferences, rights, powers and restrictions as the Board of Directors may determine. The authorization and issuance of preferred stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders' best interests. As a Maryland corporation, AIMCO is S-97 101 subject to various Maryland laws which may have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our shareholders' best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our Board of Directors' prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and only with the approval of shareholders representing 80% of all votes entitled to be cast and 66% of the votes entitled to be cast, excluding the interested shareholder. Maryland law also provides that a person who acquires shares of our stock that represent 20% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. FUTURE EXCHANGE OFFERS If the results of operations were to improve for your partnership under AIMCO's management, AIMCO might be required to pay a higher price for any future exchange offers it may make for units of your partnership. Although we have no current plans to conduct future exchange offers for your units, our plans may change based on future circumstances. However, we will not acquire any additional units for a period of at least one year after expiration of the offer. Any such future offers that we might make could be for consideration that is more or less than the consideration we are currently offering. SOURCE AND AMOUNT OF FUNDS AND TRANSACTIONAL EXPENSES The AIMCO Operating Partnership expects that approximately $630,800 will be required to purchase all of the units sought in the offer, if such units are tendered for cash excluding expenses as itemized below. The AIMCO Operating Partnership will obtain all such funds from cash from operations, equity issuances and short term borrowings. The AIMCO Operating Partnership will pay all of the costs of the offer and not your partnership. Below is an itemized statement of the estimated expenses incurred and to be incurred in the offer by the AIMCO Operating Partnership: Information Agent Fees...................................... $ 5,000 Accountant's Fees........................................... $ 5,000 Legal Fees.................................................. $10,000 Printing Fees............................................... $10,000 Stanger's Fees.............................................. $ 9,000 Other....................................................... $11,000 ------- Total............................................. $50,000 =======
If funds are borrowed to consummate the offer, we intend to use our amended and restated credit agreement with Bank of America National Trust and Savings Association ("Bank of America") and BankBoston, N.A. The credit agreement provides a revolving credit facility of up to $100 million, including a swing line of up to $30 million. The AIMCO Operating Partnership is the borrower under the credit facility, and all obligations thereunder are guaranteed by AIMCO and certain of its subsidiaries. The annual interest rate under the credit facility is based on either LIBOR or Bank of America's reference rate, at the election of the Company, plus an applicable margin. The AIMCO Operating Partnership elects which interest rate will be applicable to particular borrowings under the credit facility. The margin ranges between 2.25% and 2.75% in the case of LIBOR-based loans and between 0.75% and 1.25% in the case of base rate loans, depending upon a ratio of the AIMCO Operating Partnership's consolidated unsecured indebtedness to the value of certain unencumbered assets. The credit facility matures on September 30, 1999 unless extended, at the discretion of the lenders. The credit facility provides for the conversion of the revolving facility into a three year term loan. The availability of funds to the AIMCO Operating Partnership under the credit facility is subject to certain borrowing base restrictions and other customary restrictions, including compliance with S-98 102 financial and other covenants thereunder. The financial covenants require the AIMCO Operating Partnership to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, an interest coverage ratio of 2.25 to 1.0 and a fixed charge coverage ratio of at least 1.6 to 1.0 through December 31, 1998, 1.7 to 1.0 from January 1, 1999 through June 30, 1999, and 1.8 to 1.0 thereafter. In addition, the credit facility limits the AIMCO Operating Partnership from distributing more than 80% of its Funds From Operations (as defined) to holders of OP Units, imposes minimum net worth requirements and provides other financial covenants related to certain unencumbered assets. We may obtain funds pursuant to a credit agreement entered into by our subsidiary, Insignia Properties, L.P. ("IPLP"), with Lehman Commercial Paper, Inc., as syndication agent, First Union National Bank, as administrative agent and the lenders from time to time parties thereto. Pursuant to the credit agreement, the lenders have made available to IPLP a revolving credit facility of up to $50,000,000 at any one time outstanding which matures in a single installment on December 30, 2000. Loans may be borrowed by IPLP at a rate based upon the adjusted LIBOR Rate (as defined in the credit agreement) or the Base Rate (as defined in the credit agreement). IPLP is obligated to pay a commitment fee at a rate of 0.25% per annum on the undrawn portion of the line of credit. The credit agreement includes customary covenants and restrictions on IPLP's ability to, among other things, incur debt or contingent obligations, grant liens, sell assets, make distributions or make investments. In addition, the credit agreement contains certain financial covenants. The AIMCO Operating Partnership intends to repay any funds borrowed out of working capital in the ordinary course of business. LEGAL MATTERS Skadden, Arps, Slate, Meagher & Flom LLP has delivered an opinion to the effect that the Common OP Units and the Preferred OP Units offered by this Prospectus Supplement will be validly issued, fully paid and nonassessable. Skadden, Arps, Slate, Meagher & Flom LLP has delivered an opinion with regard to the material Federal income tax consequences of the offer. Skadden, Arps, Slate, Meagher & Flom LLP has previously performed certain legal services on behalf of AIMCO and the AIMCO Operating Partnership and their affiliates. The two opinions of Skadden, Arps, Slate, Meagher & Flom LLP are not attached to this Prospectus Supplement. However, upon receipt of a written request by a unitholder or representative so designated in writing, a copy of such opinions will be sent by the Information Agent. EXPERTS The financial statements of Shaker Square, Limited as of December 31, 1997 and for the year then ended, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. S-99 103 INDEX TO THE FINANCIAL STATEMENTS
PAGE ---- Condensed Balance Sheet as of September 30, 1998 (unaudited)............................................... F-2 Condensed Statements of Operations for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-3 Condensed Statements of Cash Flows for the nine months ended September 30, 1998 and 1997 (unaudited)................... F-4 Notes to Condensed Financial Statements..................... F-5 Independent Auditors' Report................................ F-7 Balance Sheets as of December 31, 1997 and 1996 (unaudited)............................................... F-8 Statements of Operations and Changes in Partners' Capital for the years ended December 31, 1997 and 1996 (unaudited)............................................... F-9 Statements of Cash Flows for the years ended December 31, 1997 and 1996 (unaudited)................................. F-10 Notes to Financial Statements............................... F-11
F-1 104 SHAKER SQUARE, LIMITED CONDENSED BALANCE SHEET -- UNAUDITED SEPTEMBER 30, 1998 ASSETS
Cash and cash equivalents................................... $ 264,000 Other assets................................................ 472,542 Investment property: Land...................................................... $ 425,000 Building and related personal property.................... 5,534,599 ----------- 5,959,599 Less: accumulated depreciation............................ (3,044,646) 2,914,953 ----------- ---------- Total assets...................................... $3,651,539 ========== LIABILITIES AND PARTNERS' DEFICIT Liabilities and partners' capital: Other accrued liabilities................................. $ 175,927 Notes payable............................................. 3,343,457 Partners' deficit........................................... 132,155 ---------- Total liabilities and partners' deficit........... $3,651,539 ==========
See accompanying notes to the financial statements. F-2 105 SHAKER SQUARE, LIMITED CONDENSED STATEMENTS OF OPERATIONS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Revenues Rental income............................................. $922,644 $906,822 Other income.............................................. 57,215 61,108 -------- -------- Total revenues.................................... 979,859 967,930 Expenses: Operating expenses........................................ 410,108 394,767 Depreciation expense...................................... 191,928 185,409 Interest expense.......................................... 223,755 212,984 Property tax expense...................................... 73,657 74,487 -------- -------- Total expenses.................................... 899,448 867,647 Net income........................................ $ 80,411 $100,283 ======== ========
See accompanying notes to the financial statements. F-3 106 SHAKER SQUARE, LIMITED CONDENSED STATEMENTS OF CASH FLOWS -- UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 -------- -------- Operating Activities: Net Income................................................ $ 80,411 $100,283 Adjustments to reconcile net income (loss) to net cash provided by operating Activities: Depreciation and Amortization.......................... 191,928 185,409 Changes in accounts: Receivables and deposits and other assets............ (30,437) (83,528) Accounts Payable and accrued expenses................ (39,887) (47,710) -------- -------- Net cash provided by (used in) operating activities...................................... 202,015 154,454 -------- -------- Investing Activities: Property improvements and replacements.................... (47,707) (83,996) -------- -------- Net cash provided by (used in) investing activities....... (47,707) (83,996) -------- -------- Financing Activities: Payments on mortgage...................................... (54,585) (59,467) Partners' Distributions................................... (1) 1 -------- -------- Net cash provided by (used in) financing activities....... (54,586) (59,466) -------- -------- Net increase (decrease) in cash and cash equivalents...... 99,721 10,993 Cash and cash equivalents at beginning of period.......... 164,322 154,424 -------- -------- Cash and cash equivalents at end of period................ $264,044 $165,416 ======== ========
See accompanying notes to the financial statements. F-4 107 SHAKER SQUARE, LIMITED NOTES TO CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 NOTE A -- BASIS OF PRESENTATION The accompanying unaudited financial statements of Shaker Square, Limited as of September 30, 1998 and for the nine months ended September 30, 1998 and 1997 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a recurring nature. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1997. It should be understood that the accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. NOTE B -- SUBSEQUENT EVENT On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. F-5 108 SHAKER SQUARE, LIMITED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (WITH INDEPENDENT AUDITORS' REPORT THEREON) F-6 109 INDEPENDENT AUDITORS' REPORT General Partners Shaker Square, Limited: We have audited the accompanying balance sheet of Shaker Square, Limited as of December 31, 1997, and the related statements of operations and changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a text basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shaker Square, Limited as of December 31, 1997, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Greenville, South Carolina December 9, 1998 F-7 110 SHAKER SQUARE, LIMITED BALANCE SHEET ASSETS
DECEMBER 31, ------------------------- 1997 1996 ----------- ----------- (UNAUDITED) Cash and cash equivalents................................... $ 164,322 $ 154,424 Receivables and deposits.................................... 160,914 80,281 Restricted escrows (Note B)................................. 206,537 198,048 Other assets................................................ 74,654 80,503 Investment properties (Note C): Land...................................................... 425,000 425,000 Buildings and related personal property................... 5,486,892 5,306,915 ----------- ----------- 5,911,892 5,731,915 Less accumulated depreciation.......................... (2,852,718) (2,601,328) ----------- ----------- 3,059,174 3,130,587 ----------- ----------- $ 3,665,601 $ 3,643,843 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Accounts payable.......................................... $ 66,383 $ 33,409 Tenant security deposit liabilities....................... 23,761 28,942 Other liabilities......................................... 125,670 124,565 Mortgage notes payable (Note C)........................... 3,398,042 3,473,228 Partners' capital........................................... 51,745 (16,301) ----------- ----------- $ 3,665,601 $ 3,643,843 =========== ===========
See Accompanying Notes to Financial Statements F-8 111 SHAKER SQUARE, LIMITED STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 ---------- ----------- (UNAUDITED) Revenues: Rental income............................................. $1,220,424 $1,151,592 Other income.............................................. 79,391 69,530 ---------- ---------- Total revenues.................................... 1,299,815 1,221,122 ---------- ---------- Expenses: Operating (Note D)........................................ 518,119 569,524 General and administrative (Note D)....................... 48,509 49,378 Depreciation.............................................. 251,389 234,057 Interest.................................................. 314,859 321,143 Property taxes............................................ 98,893 95,611 ---------- ---------- Total expenses.................................... 1,231,769 1,269,713 ---------- ---------- Net income (loss)........................................... 68,046 (48,591) Distributions to partners................................... -- (116,612) Partners' (deficit) capital at beginning of year............ (16,301) 148,902 ---------- ---------- Partners' capital (deficit) at end of year.................. $ 51,745 $ (16,301) ========== ==========
See Accompanying Notes to Fiscal Statements F-9 112 SHAKER SQUARE, LIMITED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------- 1997 1996 --------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss)......................................... $ 68,046 $ (48,591) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 251,389 234,057 Amortization of discounts and loan costs............... 40,816 39,629 Change in accounts: Receivables and deposits............................. (80,633) 21,460 Other assets......................................... (7,759) -- Accounts payable..................................... 32,974 (21,237) Tenant security deposit liabilities.................. (5,181) 894 Other liabilities.................................... 1,105 1,575 --------- --------- Net cash provided by operating activities......... 300,757 227,787 --------- --------- Cash flows from investing activities: Property improvements and replacements.................... (179,977) (130,009) Net deposits to restricted escrows........................ (8,489) 1,359 --------- --------- Net cash used in investing activities............. (188,466) (128,650) --------- --------- Cash flows from financing activities: Payments on mortgage notes payable........................ (102,393) (94,922) Distributions to partners................................. -- (116,612) --------- --------- Net cash used in financing activities............. (102,393) (211,534) --------- --------- Net increase (decrease) in cash and cash equivalents........ 9,898 (112,397) Cash and cash equivalents at beginning of year.............. 154,424 266,821 --------- --------- Cash and cash equivalents at end of year.................... $ 164,322 $ 154,424 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the year for interest.................... $ 274,043 $ 281,514 ========= =========
See Accompanying Notes to Financial Statements F-10 113 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 (UNAUDITED) NOTE A -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization Shaker Square, Limited (the "Partnership") was organized as a limited partnership under the laws of the State of Delaware pursuant to a Certificate and Agreement of Limited Partnership dated October 16, 1985. The Partnerships owns and operates a 194 unit multi-family housing complex, Shaker Square Apartments, in Columbus, Ohio. The Partnership's Managing General Partner is Davidson Properties, an affiliate of Insignia Financial Group, Inc. ("Insignia"). The property is managed by Insignia Residential Group, an affiliate of Insignia. On March 17, 1998, Insignia Financial Group, Inc., an affiliate of the corporate general partner of the Partnership, entered into an agreement to merge its national residential property management operations and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The merger was completed effective October 1, 1998, and accordingly, as of that date AIMCO acquired the corporate general partner and the company that manages the Partnership. Income Taxes On the basis of Treasury Regulations, the general partners believe that the Partnership will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss and cash distributions of the Partnership are allocated in accordance with the partnership agreement and the Internal Revenue Code and are reportable in the income tax returns of its partners. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Depreciation Depreciation is computed principally by use of the straight-line method based upon the estimated useful lives of various classes of assets; buildings are depreciated over 25 years and personal property assets are depreciated over a 5 to 15 year period. Other Assets Other assets at December 31, 1997 and 1996 include unamortized deferred loan costs of $66,894 and $80,503, respectively, which are amortized over the term of the related borrowing. They are shown net of accumulated amortization. Cash and Cash Equivalents For purposes of reporting cash flows, the Partnership considers unrestricted cash and unrestricted highly liquid investments, with an original maturity of three months or less when purchased, to be cash and cash equivalents. F-11 114 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Tenant Security Deposits The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. NOTE B -- RESTRICTED ESCROWS Restricted escrow deposits at December 31, 1997 and 1996 were $206,537 and $198,048, respectively, and consist of a reserve escrow established with a portion of the proceeds of the loan. The funds are used for certain repair work, debt service, expenses and property taxes or insurance. The funds in the reserve escrow exceed the minimum balance required to be maintained by the lender during the term of the loan. NOTE C -- MORTGAGE NOTES PAYABLE Mortgage notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996 ---------- ----------- (UNAUDITED) First mortgage note payable in monthly installments of $30,610, including interest at 7.60%, due November 2002; collateralized by land and buildings...................... $3,430,162 $3,532,555 Second mortgage note payable in monthly installments of $760, interest only at 7.60%, principal due November 2002; collateralized by land and buildings...................... 119,949 119,949 ---------- ---------- Principal balance at year end............................... 3,550,111 3,652,504 Less unamortized discount................................... (152,069) (179,276) ---------- ---------- $3,398,042 $3,473,228 ---------- ----------
Scheduled principal payments of the mortgage notes during the years subsequent to December 31, 1997 are as follows: 1998..................................................... $ 110,451 1999..................................................... 119,144 2000..................................................... 128,521 2001..................................................... 138,637 2002..................................................... 3,053,358 ---------- $3,550,111 ==========
The principal balance of the mortgage notes may be prepaid in whole upon payment of a penalty of the greater of one percent of the unpaid balance at the time of prepayment or the present value of the excess of interest which would be incurred at the stated rate under the notes over the interest which would be incurred at the Treasury constant maturity for U.S. Government obligations. F-12 115 SHAKER SQUARE, LIMITED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) NOTE D -- TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no administrative or management employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all partnership activities. The Partnership is obligated to pay a property management fee equal to 5% of gross monthly collections. In addition to the management fee, the partnership agreement provides for payments to affiliates of a partnership administration fee and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Transactions with the Managing General Partner and its affiliates are as follows:
1997 1996 TYPE OF TRANSACTION AMOUNT AMOUNT ------------------- ------- ----------- (UNAUDITED) Management fee.............................................. $64,410 $61,478 Partnership administration fee.............................. $17,413 $18,996 Reimbursement for services of affiliates.................... $23,717 $22,921 Construction oversight costs................................ $ 2,000 $ 2,731
F-13 116 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. AS OF SEPTEMBER 30, 1998 AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 INTRODUCTION On October 1, 1998, Apartment Investment and Management Company ("AIMCO") completed its merger with Insignia Financial Group ("IFG") ("the IFG Merger"). In the IFG Merger, IFG's common stock was converted into 8,423,751 shares of Class E Cumulative Convertible Preferred Stock of AIMCO ("Class E Preferred Stock") whose issue date market value approximately equaled $292 million. In addition to receiving the same dividends as holders of AIMCO Common Stock, holders of Class E Preferred Stock will be entitled to a special dividend of approximately $50 million in the aggregate. When that special dividend is paid in full, the Class E Preferred Stock will automatically convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution adjustments, if any. In addition, AIMCO assumed approximately $411 million in indebtedness and other liabilities of IFG and its subsidiaries and subsidiaries of AIMCO, assumed approximately $149.5 million of convertible securities and purchased approximately $5 million of IFG stock prior to the Merger. AIMCO and Insignia Properties Trust ("IPT") have completed a merger in which IPT has merged into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). In the IPT Merger, shares of IPT common stock not held by AIMCO were converted, into 4,826,745 shares of AIMCO Class A Common Stock whose market value approximately equaled $152 million. AIMCO assumed approximately $68 million in indebtedness. In connection with the IFG Merger and the IPT Merger, AIMCO incurred approximately $55 million in transaction costs for a combined transactional value of approximately $1,183 million. AIMCO contributed substantially all the assets and liabilities of Insignia acquired in the Insignia Merger to AIMCO Properties, L.P. (together with its subsidiaries and other controlled entities, the "Partnership") (and together with entities in which that Partnership has a controlling financial interest, the "Company") in exchange for 8,423,751 Class E Preferred Units. The Class E Preferred Units have terms substantially the same as the Class E Preferred Stock. In addition, AIMCO contributed substantially all the assets and liabilities of IPT acquired in the IPT Merger to the Partnership in exchange for 4,826,745 limited partnership units in the Partnership ("OP Units"). In connection with the IFG Merger, the Partnership assumed property management of approximately 192,000 multifamily units which consist of general and limited partnership investments in 115,000 units and third party management of 77,000 units. Insignia Properties Trust ("IPT"), which prior to the IFG Merger was a subsidiary of IFG, owns a 32% weighted average general and limited partnership interest in approximately 51,000 units. Immediately following the IFG Merger, in order to satisfy certain requirements of the Internal Revenue Code of 1986 (the "Code") applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "IFG Reorganization") of the assets and operations of IFG whereby IFG's operations are being conducted through corporations (the "Unconsolidated Subsidiaries") in which the Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. In May and September of 1997, AIMCO directly or indirectly through a subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired the remaining shares of NHP Common Stock in a merger transaction accounted for as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued 6,759,148 shares of AIMCO Common Stock, valued at $180.8 million, and paid $86.5 million in cash. The total cost of the purchase of NHP was $349.5 million. Substantially all assets and liabilities of NHP were contributed by AIMCO to the Partnership. In June 1997, the Company purchased a group of companies (the "NHP Real Estate Companies") affiliated with NHP that hold general and limited partnership interests in partnerships (the "NHP P-1 117 Partnerships") that own 534 conventional and affordable multifamily apartment properties (the "NHP Properties") containing 87,659 units, a captive insurance subsidiary and certain related assets (the "NHP Real Estate Acquisition"). The Company paid aggregate consideration of $54.8 million in cash and warrants that entitle the holders to purchase 399,999 shares of AIMCO Common Stock at an exercise price of $36.00 per share. The Company engaged in a reorganization (the "NHP Real Estate Reorganization") of its interests in the NHP Real Estate Companies, which resulted in certain of the assets of the NHP Real Estate Companies being owned by a limited partnership (the "Unconsolidated Partnership") in which the Partnership holds 99% limited partner interest and certain directors and officers of AIMCO directly or indirectly, hold a 1% general partner interest. Immediately following the NHP Merger, in order to satisfy certain requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged in a reorganization (the "NHP Reorganization") of the assets and operations of NHP that resulted in the Master Property Management Agreement being terminated and NHP's operations being conducted through Unconsolidated Subsidiaries in which the AIMCO Operating Partnership holds non-voting preferred stock that represents a 95% economic interest, and certain officers and/or directors of AIMCO hold, directly or indirectly, all of the voting common stock, representing a 5% economic interest. As a result of the controlling ownership interest in the Unconsolidated Subsidiaries held by others, the Partnership accounts for its interest in the Unconsolidated Subsidiaries on the equity method. On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc. ("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the "Ambassador Merger"). Each outstanding share of stock ("Ambassador Common Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were converted into 0.553 (the "Conversion Ratio") shares of AIMCO Common Stock. Any outstanding options to purchase Ambassador Common Stock were converted, at the election of the option holder, into cash or options to purchase AIMCO Common Stock at such options' then current exercise price divided by the Conversion Ratio. In accordance with the Agreement and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the "Ambassador Preferred Stock") were redeemed and converted into Ambassador Common Stock prior to the Ambassador Merger. Following the consummation of the Ambassador Merger, a subsidiary of the Partnership was merged with and into the Ambassador Operating Partnership (the "Ambassador OP Merger"). Each outstanding unit of limited partnership interest in the Ambassador Operating Partnership was converted into the right to receive 0.553 OP Units, and as a result, the Ambassador Operating Partnership became a 99.9% owned subsidiary partnership of the Partnership. Also during 1997, the Partnership (i) (a) acquired 44 properties for aggregate purchase consideration of $467.4 million, of which $56 million was paid in the form of 1.9 million OP Units (b) paid $34.2 million in cash and issued OP Units valued at $7.3 million in connection with the acquisition of partnership interests through tender offers in certain partnerships ((a) and (b) together are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire 886,600 shares of Ambassador Common Stock (together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii) sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000 shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1 million; of which all proceeds were contributed by AIMCO to the Partnership in exchange for 16,367,000 OP Units, 750,000 Class B Preferred Units, and 2,400,000 Class C Preferred Units (collectively, the "1997 Stock Offerings"); and (iii) sold five real estate properties (the "1997 Dispositions"). Also during 1998, AIMCO (i) (a) sold 4,200,000 shares of its Class D Cumulative Preferred Stock for net proceeds of $101.5 million (the "Class D Preferred Stock Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); (c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net proceeds of $48.1 million (the "Class H Preferred Stock Offering"); and (d) sold 1,000,000 shares of its Class J Cumulative Convertible Preferred Stock in a private placement for $100.0 million (the "Class J Preferred P-2 118 Stock Offering"); of which all proceeds were contributed by AIMCO to the Partnership in exchange for 4,050,000 Class G Preferred Units, 2,000,000 Class H Preferred Units and 1,000,000 shares of Class J Preferred Units (collectively, the "1998 Stock Offerings"); (ii) purchased 29 properties for aggregate purchase consideration of $312.7 million, of which $52.2 million was paid in the form of OP Units (the "1998 Acquisitions"); (iii) sold two real estate properties (the "1998 Dispositions"); (iv) contracted to purchase two properties for aggregate purchase consideration of $62.1 million, of which $26.4 million will be paid in the form of OP units (the "Probable Purchases") and (v) sold 1,400,000 Class B Preferred Partnership Units of a subsidiary and warrants to purchase 875,000 shares of AIMCO Class A Common Stock for $35.0 million (the "Preferred Partnership Unit Offering"). PRO FORMA FINANCIAL INFORMATION OF THE PARTNERSHIP (INSIGNIA MERGER) The following Pro Forma Consolidated Balance Sheet (Insignia Merger) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) the purchase of nine properties for an aggregate purchase price of $62.5 million; (ii) the Class J Preferred Stock Offering; (iii) the Probable Purchases; (iv) the IFG Merger; (v) the IPT Merger; (vi) the IFG Reorganization; and (vii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi) the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization; (ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the Probable Purchases; (xii) the 1998 Dispositions; (xiii) the Ambassador Merger; (xiv) the IFG Merger; (xv) the merger between IPT and Angeles Mortgage Investment Trust ("AMIT") ("the AMIT Merger"); (xvi) the IPT Merger; (xvii) the IFG Reorganization; and (xviii) the Preferred Partnership Unit offering. The following Pro Forma Consolidated Statement of Operations (Insignia Merger) and Pro Forma Consolidated Statement of Cash Flows (Insignia Merger) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; (v) the Ambassador Merger; (vi) the IFG Merger; (vii) the AMIT Merger; (viii) the IPT Merger; (ix) the IFG Reorganization; and (x) the Preferred Partnership Unit offering. The following Pro Forma Financial Information (Insignia Merger) is based, in part, on the following historical financial statements: (i) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (ii) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; (iii) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (iv) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (v) the audited Consolidated Financial Statements of IFG for the year ended December 31, 1997; (vi) the audited Consolidated Financial Statements of AMIT for the year ended December 31, 1997; (vii) the unaudited Consolidated Financial Statements of IFG for the nine months ended September 30, 1998; (viii) the unaudited Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998; (ix) the unaudited Consolidated Financial Statements of NHP for the nine months ended September 30, 1997; (x) the unaudited Combined Financial Statements of the NHP Real Estate Companies for the three months ended March 31, 1997; (xi) the unaudited Financial Statements of NHP Southwest Partners, L.P. for the three months ended March 31, 1997; (xii) the unaudited Combined Financial Statements of the NHP New LP Entities for the three months ended March 31, 1997; (xiii) the unaudited Combined Financial Statements of the NHP Borrower Entities for the three months ended March 31, 1997; (xiv) the unaudited Historical Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for the three months ended March 31, 1997; (xv) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Morton Towers for the six months ended June 30, 1997; (xvi) the unaudited Combined Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition Properties for the six months ended June 30, 1997; (xvii) the unaudited Statement of P-3 119 Revenues and Certain Expenses of First Alexandria Associates, a Limited Partnership for the nine months ended September 30, 1997; (xviii) the unaudited Statement of Revenues and Certain Expenses of Country Lakes Associates Two, a Limited Partnership for the nine months ended September 30, 1997; (xix) the unaudited Statement of Revenues and Certain Expenses of Point West Limited Partnership, A Limited Partnership for the nine months ended September 30, 1997; (xx) the unaudited Statement of Revenues and Certain Expenses for The Oak Park Partnership for the nine months ended September 30, 1997; (xxi) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the year ended December 31, 1997, (xxii) the audited Combined Historical Summary or Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the year ended December 31, 1997; (xxiii) the audited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the year ended December 31, 1997; (xxiv) the audited Historical Summary of Gross Income and Direct Operating Expenses of the Calhoun Beach Club Apartments for the year ended December 31, 1997; (xxv) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities I for the nine months ended September 30, 1998; (xxvi) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Cirque Apartment Communities for the three months ended March 31, 1998; (xxvii) the unaudited Combined Historical Summary of Gross Income and Direct Operating Expenses of the Realty Investment Apartment Communities II for the nine months ended September 30, 1998; and (xxviii) the unaudited Historical Summary of Gross Income and Direct Operating Expenses of Calhoun Beach Club Apartments for the nine months ended September 30, 1998. The following Pro Forma Financial Information should be read in conjunction with such financial statements and the notes thereto incorporated by reference herein. The unaudited Pro Forma Financial Information (Insignia Merger) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the 1997 Acquisitions, the 1998 Acquisitions, and the Probable Purchases are adjusted to estimated fair market value, based upon preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information may differ from the amounts ultimately determined. The following unaudited Pro Forma Financial Information (Insignia Merger) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions or results of operations. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. P-4 120 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 IN THOUSANDS, EXCEPT SHARE DATA
COMPLETED TRANSACTIONS IFG AIMCO BEFORE IFG AND PROBABLE IFG MERGER IFG REORGANIZATION HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) REORGANIZATION(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------------- -------------- Real estate.............. $2,355,122 $202,332 $ 44,488 $ 23,880(G) $2,625,822 $ -- Property held for sale... 42,212 -- -- -- 42,212 -- Investments in securities............. -- -- -- 443,513(G) (443,513)(H) -- -- Investments in and notes receivable from unconsolidated subsidiaries........... 127,082 -- -- -- 127,082 59,195(I) Investments in and notes receivable from unconsolidated real estate partnerships.... 246,847 -- 232,892 444,570(G) 924,309 -- Mortgage notes receivable............. -- -- 20,916 -- 20,916 Cash and cash equivalents............ 43,681 6,107 73,064 -- 122,852 (17,897)(J) Restricted cash.......... 83,187 -- 2,691 -- 85,878 (1,352)(J) Accounts receivable...... 11,545 -- 54,060 (32,234)(G) 33,371 (5,471)(J) Deferred financing costs.................. 21,835 -- 7,020 (7,020)(G) 21,835 -- Goodwill................. 120,503 -- 19,503 111,018(G) 251,024 -- Property management contracts.............. -- -- 86,419 31,147(G) 117,566 (79,195)(I) Other assets............. 69,935 -- 20,128 (4,533)(G) 85,530 (2,860)(J) ---------- -------- -------- --------- ---------- -------- Total Assets..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== Secured notes payable.... $ 774,676 $122,568 $ 29,002 $ -- $ 926,246 $ -- Secured tax-exempt bond financing.............. 399,925 -- -- -- 399,925 -- Secured short-term financing.............. 50,000 (50,000) 332,691 (300,000)(G) 32,691 -- Unsecured short-term financing.............. 50,800 (50,800) -- 300,000(G) 300,000 -- Accounts payable, accrued and other liabilities............ 131,799 -- 33,241 50,000(G) 53,333(G) 4,935(G) 2,525(G) 275,833 (27,580)(J) Deferred tax liability... -- -- 18,802 1,198(G) 20,000 (20,000)(I) Security deposits and prepaid rents.......... 13,171 -- 3,533 (3,533) 13,171 -- ---------- -------- -------- --------- ---------- -------- 1,420,371 21,768 417,269 108,458 1,967,866 (47,580) Minority interest........ 42,086 37,345 108,485 (108,485)(G) 79,431 -- Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. -- -- 144,282 5,218 149,500 -- Redeemable Partnership Units.................. 232,405 45,176 -- -- 277,581 -- Partners' capital and shareholders' equity Common stock........... -- -- 320 (320)(G) -- -- Additional paid-in capital.............. -- -- (86,959) 86,959(G) -- -- Distributions in excess of earnings.......... -- -- (22,216) 22,216(G) -- -- General and Special Limited Partner...... 1,039,525 4,150 -- 443,513(H) 9,269(G) 1,496,457 -- Preferred Units........ 387,562 100,000 -- -- 487,562 -- ---------- -------- -------- --------- ---------- -------- 1,427,087 104,150 (108,855) 561,637 1,984,019 -- ---------- -------- -------- --------- ---------- -------- Total Liabilities and Equity..... $3,121,949 $208,439 $561,181 $ 566,828 $4,458,397 $(47,580) ========== ======== ======== ========= ========== ======== PRO FORMA ---------- Real estate.............. $2,625,822 Property held for sale... 42,212 Investments in securities............. -- Investments in and notes receivable from unconsolidated subsidiaries........... 186,277(K) Investments in and notes receivable from unconsolidated real estate partnerships.... 924,309 Mortgage notes receivable............. 20,916 Cash and cash equivalents............ 104,955 Restricted cash.......... 84,526 Accounts receivable...... 27,900 Deferred financing costs.................. 21,835 Goodwill................. 251,024 Property management contracts.............. 38,371 Other assets............. 82,670 ---------- Total Assets..... $4,410,817 ========== Secured notes payable.... $ 926,246 Secured tax-exempt bond financing.............. 399,925 Secured short-term financing.............. 32,691 Unsecured short-term financing.............. 300,000 Accounts payable, accrued and other liabilities............ 248,253 Deferred tax liability... -- Security deposits and prepaid rents.......... 13,171 ---------- 1,920,286 Minority interest........ 79,431 Company-obligated mandatorily redeemable convertible securities of a subsidiary trust.................. 149,500 Redeemable Partnership Units.................. 277,581 Partners' capital and shareholders' equity Common stock........... -- Additional paid-in capital.............. -- Distributions in excess of earnings.......... -- General and Special Limited Partner...... 1,496,457 Preferred Units........ 487,562 ---------- 1,984,019 ---------- Total Liabilities and Equity..... $4,410,817 ==========
P-5 121 - --------------- (A) Represents the unaudited historical consolidated financial position of the Partnership as of September 30, 1998. (B) Represents adjustments to reflect the purchase of ten properties for an aggregate purchase price of $140.2 million; the Class J Preferred Stock Offering; the Probable Purchases; and the Preferred Partnership Unit Offering. (C) Represents the unaudited historical consolidated financial position of IFG as of September 30, 1998. (D) Represents the following adjustments occurring as a result of the IFG Merger: (i) the issuance of 8,423,751 shares of AIMCO Common Stock, based on consideration to holders of IFG common stock outstanding as of the date of the IFG Merger; (ii) the issuance of 4,826,745 shares of AIMCO Class A Common Stock to holders of IPT common stock (other than AIMCO); (iii) the payment of a special dividend of $50,000; (iv) the assumption of $149,500 of the convertible debentures of IFG; (v) the allocation of the combined purchase price of IFG and IPT based on the preliminary estimates of relative fair market value of the assets and liabilities of IFG and IPT; and (vi) the contribution by AIMCO of substantially all the assets and liabilities of Insignia and IPT to the Partnership in exchange for OP Units. (E) Represents the effects of AIMCO's acquisition of IFG immediately after the IFG Merger. These amounts do not give effect to the IFG Reorganization, which includes the transfers of certain assets and liabilities of IFG to the combined Unconsolidated Subsidiaries. The IFG Reorganization occurred immediately after the IFG Merger so that AIMCO could maintain its qualification as a REIT. This column is included as an intermediate step to assist the reader in understanding the entire nature of the IFG Merger and related transactions. (F) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party property management operations. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (G) In connection with the IFG Merger and the IPT Merger, AIMCO became obligated to issue a total of 13,250,496 shares of AIMCO Common Stock The total purchase price of IFG and IPT is $1,128,009, as follows: Issuance of 8,423,751 shares of AIMCO Common Stock in the IFG Merger, at $34.658 per share.......................... $ 291,949 Issuance of 4,826,745 shares of AIMCO Common Stock in the IPT Merger, at $31.50 per share........................... 151,564 Assumption of Convertible Debentures........................ 149,500 Assumption of liabilities as indicated in the Merger Agreement................................................. 397,459 Transaction costs........................................... 53,333 Generation of deferred tax liability........................ 20,000 Special dividend............................................ 50,000 Purchase of IFG Common Stock prior to merger................ 4,935 Consideration for options................................... 9,269 ---------- Total............................................. $1,128,009 ==========
P-6 122 The purchase price was allocated to the various assets of IFG acquired in the IFG Merger, as follows: Purchase price.............................................. $1,128,009 Historical basis of IFG's assets acquired................... (561,181) ---------- Step-up to record the fair value of IFG's assets acquired............................................... $ 566,828 ==========
This step-up was applied to IFG's assets as follows: Real estate................................................. $ 23,880 Investment in real estate partnerships...................... 444,570 Decrease in accounts receivable............................. (32,234) Decrease in deferred loan costs............................. (7,020) Management contracts........................................ 31,147 Increase in goodwill........................................ 111,018 Reduction in value of other assets.......................... (4,533) -------- Total............................................. $566,828 ========
The fair value of IFG's assets, primarily the real estate and management contracts, was calculated based on estimated future cash flows of the underlying assets. As of September 30, 1998, IFG's stockholder's equity was $(108,855), which is detailed as follows: Common stock................................................ $ 320 Additional paid-in capital.................................. (86,959) Distributions in excess of earnings......................... (22,216) --------- Total............................................. $(108,855) =========
Upon completion of the IFG Merger, the entire amount of the stockholder's equity was eliminated. In addition, the minority interest in other partnerships of IFG of $108,485 will be eliminated upon the IPT Merger. At the time of the IFG Merger, AIMCO obtained unsecured short-term financing of $300 million. The proceeds were used to repay secured short-term financing of IFG that AIMCO assumed. (H) Represents the issuance of a total of 13,250,496 OP Units to AIMCO and the concurrent issuance of 13,250,496 shares of AIMCO Common Stock to IFG and IPT stockholders, in exchange for all the shares of IFG and IPT common stock. In accordance with the IFG Merger Agreement, AIMCO became obligated to issue 8,423,751 shares of Class E Preferred Stock, approximately equal to $292 million. Each share of Class E Preferred Stock will automatically convert to one share of AIMCO Common Stock upon the payment of the special dividend thereon. As such, for the purpose of preparing the pro forma financial statements, AIMCO's management believes that the Class E Preferred Stock is substantially the same as AIMCO Common Stock, and that the fair value of the Class E Preferred Stock approximates the fair value of the AIMCO Common Stock. Upon the payment of the special dividend on the Class E Preferred Stock and the conversion of the Class E Preferred Stock to AIMCO Common Stock, the former IFG stockholders will own approximately 15.0% of the AIMCO Common Stock and the IPT stockholders will own approximately 7.3% of AIMCO Common Stock. The special dividend on the Class E Preferred Stock is intended to represent a distribution in an amount at least equal to the earnings and profits of IFG at the time of the IFG Merger, to which AIMCO succeeds. Concurrent with the issuance of Class E Preferred Stock, the Partnership will issue comparable Class E Preferred Units to AIMCO. The Class E Preferred Units will have terms substantially the same as the Class E Preferred Stock. (I) Represents the increase in the Partnership's investment in Unconsolidated Subsidiaries to reflect the contribution or sale of property management contracts, including the related deferred tax liability, in exchange for preferred stock and a note payable from the Unconsolidated Subsidiaries. These assets and P-7 123 liabilities are valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (J) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, (K) Represents notes receivable from the Unconsolidated Subsidiaries of $95,000, advances to the Unconsolidated Subsidiaries of $42,792, and equity in the Unconsolidated Subsidiaries of $48,485. The combined pro forma balance sheet of the Unconsolidated Subsidiaries as of September 30, 1998 is presented below, which reflects the effects of the IFG Merger, the IPT Merger, and the IFG Reorganization as if such transactions had occurred as of September 30, 1998. P-8 124 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET (INSIGNIA MERGER) AS OF SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
IFG HISTORICAL REORGANIZATION(i) PRO FORMA ---------- ----------------- --------- ASSETS Real estate............................................ $ 22,376 $ -- $ 22,376 Cash and cash equivalents.............................. 16,919 17,897(ii) 34,816 Restricted cash........................................ 5,507 1,352(ii) 6,859 Management contracts................................... 47,846 79,195(iii) 127,041 Accounts receivable.................................... 13,109 5,471(ii) 18,580 Deferred financing costs............................... 3,117 -- 3,117 Goodwill............................................... 43,544 -- 43,544 Other assets........................................... 51,498 2,860(ii) 54,358 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable.................................. $114,302 $ 45,000(iii) $159,302 Accounts payable, accrued and other liabilities........ 56,773 27,580(ii) 84,353 Security deposits and deferred income.................. 334 --(ii) 334 Deferred tax liability................................. -- 20,000(iii) 20,000 -------- -------- -------- 171,409 92,580 263,989 Common stock........................................... 2,061 747(iv) 2,808 Preferred stock........................................ 34,290 14,195(iii) 48,485 Retained earnings...................................... (3,844) -- (3,844) Notes receivable on common stock purchases............. -- (747)(iv) (747) -------- -------- -------- 32,507 14,195 46,702 -------- -------- -------- $203,916 $106,775 $310,691 ======== ======== ========
- --------------- (i) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the transfer of assets valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. The Partnership received non-voting preferred stock as consideration in exchange for the net assets contributed. The net deferred tax liability is assumed by the Unconsolidated Subsidiaries as it resulted from the assets and liabilities transferred to the Unconsolidated Subsidiaries. (ii) Represents certain assets and liabilities of IFG, primarily related to the management operations of IFG, contributed or sold by the Partnership to the Unconsolidated Subsidiaries, valued at the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the transfer or sale of management contracts, the establishment of an intercompany note, and the establishment of the related estimated net deferred Federal and state tax liabilities at a combined rate of 40% for the estimated difference between the book and tax basis of the net assets of the Unconsolidated Subsidiaries. The primary component of the deferred tax liability is the difference between the new basis of the property management contracts, as a result of the allocation of the purchase price of IFG, and the historical tax basis. (iv) Represents the issuance of common stock to the common stockholders of the Unconsolidated Subsidiaries in exchange for notes receivable, in order for the common stockholders to maintain their respective ownership interest in the Unconsolidated Subsidiaries. P-9 125 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE NHP AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- Rental and other property revenues........................ $193,006 $120,337(I) 11,012(J) $ 6,660 $ 93,329 $ -- $ 6,912 Property operating expenses....... (76,168) (59,466)(I) (4,860)(J) (2,941) (36,088) -- (3,307) Owned property management expense......................... (6,620) (4,327)(I) (602)(J) (282) -- -- -- Depreciation...................... (37,741) (26,645)(I) (2,172)(J) (1,414) (18,979) (5,997)(O) (966) -------- -------- ------- -------- ------- -------- Income from property operations... 72,477 33,277 2,023 38,262 (5,997) 2,639 -------- -------- ------- -------- ------- -------- Management fees and other income.......................... 13,937 -- 7,813 -- -- 94,330 Management and other expenses..... (9,910) -- (5,394) -- -- (57,615) Corporate overhead allocation..... (588) -- -- -- -- -- Amortization...................... (1,401) -- (5,800) -- -- (16,768) -------- -------- ------- -------- ------- -------- Income from service company business........................ 2,038 -- (3,381) -- -- 19,947 Minority interest in service company business................ (10) -- -- -- -- -- -------- -------- ------- -------- ------- -------- AIMCO's share of income from service company business........ 2,028 -- (3,381) -- -- 19,947 -------- -------- ------- -------- ------- -------- General and administrative expenses........................ (5,396) -- (1,025) (7,392) 7,392(P) (21,199) Interest expense.................. (51,385) (3,451)(K) (2,497)(L) (5,462) (26,987) (221)(Q) (9,035) Interest income................... 8,676 -- 1,900 -- -- 10,967 Minority interest................. 1,008 458(M) 16 (851) 705(R) (12,871) Equity in losses of unconsolidated partnerships.................... (1,798) (122)(N) (8,542) 405 -- 12,515 Equity in earnings of unconsolidated subsidiaries..... 4,636 -- 5,790 -- -- -- -------- -------- ------- -------- ------- -------- Income (loss) from operations..... 30,246 27,665 (8,681) 3,437 1,879 2,963 Income tax provision.............. -- -- -- -- -- 1,701 Gain on dispositions of property........................ 2,720 (2,720) -- -- -- 80 -------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item............................ 32,966 24,945 (8,681) 3,437 1,879 4,744 Extraordinary item -- early extinguishment of debt.......... (269) 269 -- -- -- -- -------- -------- ------- -------- ------- -------- Net income........................ 32,697 25,214 (8,681) 3,437 1,879 4,744 Income attributable to preferred unitholders..................... 2,315 39,859 -- -- -- -- -------- -------- ------- -------- ------- -------- Income attributable to common unitholders..................... $ 30,382 $(14,645) $(8,681) $ 3,437 $ 1,879 $ 4,744 ======== ======== ======= ======== ======= ======== Basic earnings per OP unit........ $ 1.09 ======== Diluted earnings per OP unit...... $ 1.08 ======== Weighted average OP units outstanding..................... 27,732 ======== Weighted average OP units and equivalents outstanding......... 28,113 ======== IFG IFG MERGER REORGANIZATION ADJUSTMENTS(G) ADJUSTMENTS(H) PRO FORMA -------------- -------------- --------- Rental and other property revenues........................ $ -- $ -- $ 431,256 Property operating expenses....... -- -- (182,830) Owned property management expense......................... -- -- (11,831) Depreciation...................... (2,350)(S) -- (96,264) -------- -------- --------- Income from property operations... (2,350) -- 140,331 -------- -------- --------- Management fees and other income.......................... -- (74,404)(X) 41,676 Management and other expenses..... -- 49,236(X) (23,683) Corporate overhead allocation..... -- -- (588) Amortization...................... (32,699)(T) 30,188(Y) (26,480) -------- -------- --------- Income from service company business........................ (32,699) 5,020 (9,075) Minority interest in service company business................ -- -- (10) -------- -------- --------- AIMCO's share of income from service company business........ (32,699) 5,020 (9,085) -------- -------- --------- General and administrative expenses........................ -- 6,249(X) (21,371) Interest expense.................. (14,750) -- (113,788) Interest income................... -- 191(Z) 21,734(BB) Minority interest................. 1,552(U) -- (9,983) Equity in losses of unconsolidated partnerships.................... (29,995)(V) -- (27,537) Equity in earnings of unconsolidated subsidiaries..... -- (4,578)(AA) 5,848(DD) -------- -------- --------- Income (loss) from operations..... (78,242) 6,882 (13,851) Income tax provision.............. (1,701)(W) -- -- Gain on dispositions of property........................ (80) -- -- -------- -------- --------- Income (loss) before extraordinary item............................ (80,023) 6,882 (13,851) Extraordinary item -- early extinguishment of debt.......... -- -- -- -------- -------- --------- Net income........................ (80,023) 6,882 (13,851) Income attributable to preferred unitholders..................... -- -- 42,174(CC) -------- -------- --------- Income attributable to common unitholders..................... $(80,023) $ 6,882 $ (56,025)(BB) ======== ======== ========= Basic earnings per OP unit........ $ (0.83)(BB) ========= Diluted earnings per OP unit...... $ (0.83)(BB) ========= Weighted average OP units outstanding..................... 67,522 ========= Weighted average OP units and equivalents outstanding......... 68,366 =========
P-10 126 - --------------- (A) Represents the Partnership's audited consolidated results of operations for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probable Purchases; (vii) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed, as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ Rental and other property revenues................. $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660 Property operating expenses................. (2,941)(v) (8,411) -- 8,411 (xvii (2,941) Owned property management expense.................. (282)(v) (862) -- 862 (xvii (282) Depreciation............... (1,414)(vi) (2,527) (693)(xi) 3,220 (xvii (1,414) ------- -------- ------- -------- ------- Income from property operations............... 2,023 5,042 (693) (4,349) 2,023 ------- -------- ------- -------- ------- Management fees and other income................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813 Management and other expenses................. (2,263)(viii) (35,267) -- 32,136 (xviii (5,394) Amortization............... -- (9,111) (4,432)(xii) 7,743 (xix (5,800) ------- -------- ------- -------- ------- Income from service company business................. (858) 27,798 (4,432) (25,889) (3,381) ------- -------- ------- -------- ------- General and administrative expenses................. -- (16,266) 8,668 (xiii 6,573 (xviii (1,025) Interest expense........... (5,082)(ix) (10,685) -- 10,305(xx) (5,462) Interest income............ 540(v) 1,963 -- (603)(xxi) 1,900 Minority interest.......... 16(v) -- -- -- 16 Equity in losses of unconsolidated partnerships............. (3,905)(x) -- (4,631)(xiv) (6) (8,542) Equity in earnings of unconsolidated subsidiaries............. -- -- (4,636)(xv) 10,426 (xxii 5,790 ------- -------- ------- -------- ------- Income (loss) from operations............... (7,266) 7,852 (5,724) (3,543) (8,681) Income tax provision....... -- (3,502) 3,502 (xvi -- -- ------- -------- ------- -------- ------- Net income (loss).......... $(7,266) $ 4,350 $(2,222) $ (3,543) $(8,681) ======= ======== ======= ======== =======
- --------------- (i) Represents the adjustment to record activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. The historical financial statements of the NHP Real Estate Companies consolidate certain real estate partnerships in which they have an interest that will be presented on the equity method by the Partnership as a result of the NHP Real Estate Reorganization. In addition, represents adjustments to record additional depreciation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii)Represents the unaudited consolidated results of operations of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). P-11 127 (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to the management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership: (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related revenues and expenses primarily related to the management operations and other businesses owned by NHP and (ii) the historical results of operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (v) Represents adjustments to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997. (vi) Represents incremental depreciation related to the consolidated real estate assets purchased from the NHP Real Estate Companies. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (vii) Represents the adjustment to record the revenues from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997. (viii) Represents $4,878 related to the adjustment to record the expenses from ancillary businesses purchased from the NHP Real Estate Companies as if the acquisition had occurred on January 1, 1997, less $2,615 related to a reduction in personnel costs pursuant to a restructuring plan, approved by the Company's senior management, assuming that the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and the date of completion. (ix) Represents adjustments in the amount of $3,391 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as the increase in interest expense in the amount of $1,691 related to borrowings on the Partnership's credit facilities of $55,807 to finance the NHP Real Estate Acquisition. (x) Represents adjustments in the amount of $2,432 to reflect the acquisition of the NHP Real Estate Companies and the corresponding historical results of operations as if they had occurred on January 1, 1997, as well as amortization of $1,473 related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of the NHP Real Estate Companies, based on an estimated average life of 20 years. (xi) Represents incremental depreciation related to the real estate assets purchased from NHP. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (xii) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management and other business operated by the Unconsolidated P-12 128 Subsidiaries, based on the Partnership's new basis as adjusted by the allocation of the combined purchase price of NHP including amortization of management contracts of $3,782, depreciation of furniture, fixtures and equipment of $2,018 and amortization of goodwill of $7,743, less NHP's historical depreciation and amortization of $9,111. Management contracts are amortized using the straight-line method over the weighted average life of the contracts estimated to be approximately 15 years. Furniture, fixtures and equipment are depreciated using the straight-line method over the estimated life of 3 years. Goodwill is amortized using the straight-line method over 20 years. (xiii) Represents a reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan, approved by the Company's senior management, specifically identifying all significant actions to be taken to complete the restructuring plan, assuming that the NHP Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. (xiv) Represents adjustment for amortization of the increased basis in investments in real estate partnerships, as a result of the allocation of the combined purchase price of NHP and the NHP Real Estate Companies, based on an estimated average life of 20 years. (xv) Represents the reversal of equity in earnings in NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP, as a result of the Partnership's acquisition of 100% of the NHP Common Stock. (xvi) Represents the reversal of NHP's income tax provision due to the restructuring of the management business to the Unconsolidated Subsidiaries. (xvii) Represents the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership pursuant to the NHP Reorganization. (xviii) Represents the historical income and expenses associated with certain assets and liabilities of NHP that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xix) Represents the amortization and depreciation of certain management contracts and other assets of NHP, based on the Partnership's new basis resulting from the allocation of the purchase price of NHP, that will be contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations and other businesses owned by NHP. (xx) Represents interest expense of $6,020 related to the contribution of NHP's 12 real estate properties containing 2,905 apartment units to the Unconsolidated Partnership and interest expense of $4,285 related to the certain assets and liabilities that will be contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxi) Represents the interest income of $5,000 earned on notes payable of $50,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $4,750 reflected in the equity in earnings of the Unconsolidated Subsidiaries operating results, offset by $853 in interest income primarily related to the management operations and other businesses owned by NHP contributed or sold to the Unconsolidated Subsidiaries pursuant to the NHP Reorganization. (xxii) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. (D) Represents the audited historical statement of operations of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of operations to conform to the Partnership's Statement of Operations presentation. The Ambassador historical statement of operations excludes extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of P-13 129 interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of Holdings as if these transactions had occurred on January 1, 1997. These adjustments are detailed, as follows:
IFG AMIT HOLDINGS IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues....................... $ 6,646 $ 266 $ -- $ 6,912 Property operating expenses...... (3,251) (56) -- (3,307) Depreciation..................... (966) -- -- (966) --------- ------- --------- -------- Income from property operations..................... 2,429 210 -- 2,639 --------- ------- --------- -------- Management fees and other income......................... 389,626 -- (295,296) 94,330 Management and other expenses.... (315,653) -- 258,038 (57,615) Amortization..................... (31,709) (303) 15,244 (16,768) --------- ------- --------- -------- Income from service company business....................... 42,264 (303) (22,014) 19,947 --------- ------- --------- -------- General and administrative expenses....................... (20,435) (1,351) 587 (21,199) Interest expense................. (9,353) -- 318 (9,035) Interest income.................. 4,571 6,853 (457) 10,967 Minority interest................ (12,448) (382) (41) (12,871) Equity in income (losses) of unconsolidated partnership..... 10,027 2,639 (151) 12,515 --------- ------- --------- -------- Income (loss) from operations.... 17,055 7,666 (21,758) 2,963 Income tax provision............. (6,822) (180) 8,703 1,701 Gain on sale of property......... -- 80 -- 80 --------- ------- --------- -------- Net income (loss)................ 10,233 7,566 (13,055) 4,744 ========= ======= ========= ========
- --------------- (i) Represents the audited consolidated results of operations of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. P-14 130 (I) Represents adjustments to reflect the 1997 Property Acquisitions and the 1998 Acquisitions, less the 1997 Dispositions and the 1998 Dispositions as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1997 PROPERTY 1997 1998 1998 ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITIONS TOTAL ------------- ------------ ------------ ------------ -------- Rental and other property revenues........... $ 88,589 $(4,081) $ 39,132 $(3,303) $120,337 Property operating expense............ (44,109) 1,944 (18,655) 1,354 (59,466) Owned property management expense............ (3,233) 133 (1,349) 122 (4,327) Depreciation......... (16,839) 452 (10,946) 688 (26,645)
(J) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1997. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (K) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1997 Property Acquisitions..................................... $(29,490) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1997 Dispositions and the 1997 Stock Offerings.................................. 19,568 Repayments on the Partnership's credit facilities with proceeds from a dividend received from one of the Unconsolidated Subsidiaries............................... 1,889 Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.............................................. (15,994) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.................................. 20,113 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering............................................. 463 -------- $ (3,451) ========
(L) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the Probable Purchases. (M) Represents (i) loss of $181 related to limited partners in consolidated partnerships acquired in connection with the 1997 Property Acquisitions and the 1998 Property Acquisitions and (ii) income of $502 allocable to the Partnership Preferred Units. (N) Represents the reduction in the Partnership's earnings in unconsolidated partnerships as a result of the consolidation of additional partnerships resulting from additional ownership acquired through tender offers. (O) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. P-15 131 (P) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses...................... $ 724 Reduction in salaries and benefits.......................... 4,197 Merger related costs........................................ 524 Other....................................................... 1,947 ------ $7,392 ======
The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1997 and that the restructuring plan was completed on January 1, 1997. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (Q) Represents the decrease in interest expense of $3,612 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $3,833 related to borrowings under the Partnership's credit facilities. (R) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (S) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (T) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $38,885, amortization of goodwill of $6,526, and depreciation of furniture, fixtures, and equipment of $3,753, less IFG's historical depreciation and amortization of $16,465. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (U) Represents elimination of minority interest of IPT resulting from the IPT merger. (V) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (W) Represents the reversal of IFG's income tax provision. (X) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (Y) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Z) Represents interest income of $3,825 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries by the Partnership, net of the elimination of the Partnership's share of the related interest expense of $3,634 reflected on the equity in earnings of the Unconsolidated Subsidiaries. (AA) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-16 132 (BB) The following table presents the net impact to pro forma net loss applicable to holders of OP Units and net loss per OP Units assuming the interest rate per annum increases by 0.25%: Increase in interest expense................................ $ 938 ======== Net income.................................................. $(14,789) ======== Net loss attributable to OP unitholders..................... $(56,963) ======== Basic loss per OP unit...................................... $ (0.84) ======== Diluted loss per OP unit.................................... $ (0.84) ========
(CC) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these Preferred Units had been issued as of January 1, 1997. (DD) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(2,536), plus the elimination of intercompany interest expense of $8,384. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997 is presented below, which represents the effects of the Ambassador Merger, the NHP Merger, the NHP Reorganization, the IFG Merger, and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-17 133 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
REORGANIZATION IFG HISTORICAL(i) ADJUSTMENTS(ii) REORGANIZATION(iii) PRO FORMA ------------- --------------- ------------------- --------- Rental and other property revenues...... $ 6,194 $ 6,371(iv) $ -- $ 12,565 Property operating expenses............. (3,355) (3,531)(iv) -- (6,886) Owned property management expense....... (147) (478)(iv) -- (625) Depreciation expense.................... (1,038) (767)(iv) -- (1,805) -------- -------- -------- -------- Income from property operations......... 1,654 1,595 -- 3,249 -------- -------- -------- -------- Management fees and other income........ 23,776 41,992(v) 74,404(x) 140,172 Management and other expenses........... (11,733) (20,403)(v) (49,236)(x) (81,372) Amortization............................ (3,726) (4,017)(v) (30,188)(xi) (37,931) -------- -------- -------- -------- Income from service company............. 8,317 17,572 (5,020) 20,869 General and administrative expense...... -- (6,573)(v) (6,249)(x) (12,822) Interest expense........................ (6,058) (5,849)(vi) (3,825)(xii) (15,732) Interest income......................... 1,001 (148)(v) -- 853 Minority interest....................... (2,819) 2,198(viii) -- (621) Equity in losses of unconsolidated partnerships.......................... (1,028) 1,028(iv) -- -- Equity in earnings of Unconsolidated Subsidiaries.......................... 2,943 (2,943)(vii) -- -- -------- -------- -------- -------- Income (loss) from operations........... 4,010 6,880 (15,094) (4,204) Income tax provision.................... (1,902) (3,013)(ix) 6,450(xiii) 1,535 -------- -------- -------- -------- Net income (loss)....................... $ 2,108 $ 3,867 $ (8,644) $ (2,669) ======== ======== ======== ======== Income attributable to preferred unitholders........................... $ 2,198 $ 3,478 $ (8,212) $ (2,536) ======== ======== ======== ======== Income (loss) attributable to common unitholders........................... $ (90) $ 389 $ (432) $ (133) ======== ======== ======== ========
- --------------- (i) Represents the historical results of operations of the Unconsolidated Subsidiaries for the year ended December 31, 1997. (ii) Represents adjustments related to the NHP Reorganization, which includes the sale or contribution of 14 properties containing 2,725 apartment units from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as well as the sale or contribution of 12 properties containing 2,905 apartment units from the Unconsolidated Subsidiaries to the Unconsolidated Partnership. (iii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iv) Represents adjustments for the historical results of operations of the 14 real estate properties contributed or sold to the Unconsolidated Subsidiaries, offset by the historical results of operations of the 12 real estate properties contributed or sold to the Unconsolidated Partnership, with additional depreciation recorded related to the Partnership's new basis resulting from the allocation of purchase price of NHP and the NHP Real Estate Companies. P-18 134 (v) Represents adjustments to reflect income and expenses associated with certain assets and liabilities of NHP contributed or sold to the Unconsolidated Subsidiaries. (vi) Represents adjustments of $6,058 to reverse the historical interest expense of the Unconsolidated Subsidiaries, which resulted from its original purchase of NHP Common Stock, offset by $2,622 related to the contribution or sale of the 14 real estate properties, $4,285 related to assets and liabilities transferred from the Partnership to the Unconsolidated Subsidiaries and $5,000 related to a note payable to the Partnership. (vii) Represents the reversal of the historical equity in earnings of NHP for the period in which NHP was not consolidated by the Unconsolidated Subsidiaries. (viii)Represents the minority interest in the operations of the 14 real estate properties. (ix) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill which is not deductible for tax purposes. (x) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (xi) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (xii) Represents adjustment for interest expense related to a note payable to the Partnership. (xiii)Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-19 135 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
COMPLETED TRANSACTIONS AMBASSADOR AND PROBABLE AMBASSADOR PURCHASE PRICE IFG AS HISTORICAL(A) PURCHASES(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ------------- ------------ ------------- -------------- ----------- Rental and other property revenues............. $ 265,700 $ 19,603(H) $ $ $ 8,398(I) 35,480 -- 8,126 Property operating expenses.................... (101,600) (9,009)(H) (3,745)(I) (14,912) -- (2,585) Owned property management expense.............. (7,746) (728)(H) (459)(I) -- -- -- Depreciation................................... (59,792) (4,886)(H) (2,624)(I) (7,270) (1,420)(M) (904) --------- -------- -------- ------- -------- Income from property operations................ 96,562 6,550 13,298 (1,420) 4,637 --------- -------- -------- ------- -------- Management fees and other income............... 13,968 -- -- -- 71,155 Management and other expenses.................. (8,101) -- -- -- (41,477) Corporate overhead allocation.................. (196) -- -- -- -- Amortization................................... (3) -- -- -- (13,986) --------- -------- -------- ------- -------- Income from service company business........... 5,668 -- -- -- 15,692 --------- -------- -------- ------- -------- General and administrative expenses............ (7,444) -- (5,278) 5,278(N) (61,386) Interest expense............................... (56,756) 1,975(J) (2,469)(K) (10,079) 145(O) (24,871) Interest income................................ 18,244 (1) -- -- 22,501 Minority interest.............................. (1,052) 160(L) (252) 252(P) (14,159) Equity in losses of unconsolidated partnerships................................. (5,078) -- (71) -- 13,492 Equity in earnings of unconsolidated subsidiaries................................. 8,413 -- -- -- -- Amortization of goodwill....................... (5,071) -- -- -- -- --------- -------- -------- ------- -------- Income (loss) from operations.................. 53,486 6,215 (2,382) 4,255 (44,094) Income tax provision........................... -- -- -- -- 1,180 Gain on dispositions of property............... 2,783 (2,783) -- -- 6,576 --------- -------- -------- ------- -------- Net income..................................... 56,269 3,432 (2,382) 4,255 (36,338) Income attributable to preferred unitholders... 16,320 16,094 -- -- -- --------- -------- -------- ------- -------- Income (loss) attributable to common unitholders.................................. $ 39,949 $(12,662) $ (2,382) $ 4,255 $(36,338) ========= ======== ======== ======= ======== Basic earnings (loss) per OP Unit.............. $ 0.80 ========= Diluted earnings (loss) per OP Unit............ $ 0.79 ========= Weighted average OP Units outstanding.......... 50,420 ========= Weighted average OP Unit and equivalents outstanding.................................. 50,544 ========= IFG IFG MERGER REORGANIZATION ADJUSTMENTS(F) ADJUSTMENTS(G) PRO FORMA -------------- -------------- --------- Rental and other property revenues............. $ $ $ -- -- 337,307 Property operating expenses.................... -- -- (131,851) Owned property management expense.............. -- -- (8,933) Depreciation................................... (1,583)(Q) -- (78,479) -------- -------- --------- Income from property operations................ (1,583) -- 118,044 -------- -------- --------- Management fees and other income............... -- (56,211)(W) 28,912 Management and other expenses.................. -- 35,192(W) (14,386) Corporate overhead allocation.................. -- -- (196) Amortization................................... (23,895)(R) 22,641(X) (15,243) -------- -------- --------- Income from service company business........... (23,895) 1,622 (913) -------- -------- --------- General and administrative expenses............ 45,823(S) 14,375(W) (8,632) Interest expense............................... 7,045 -- (85,010)(AA) Interest income................................ -- 143(Y) 40,887 Minority interest.............................. 6,622(T) -- (8,429) Equity in losses of unconsolidated partnerships................................. (18,577)(U) -- (10,234) Equity in earnings of unconsolidated subsidiaries................................. -- (7,562)(Z) 851(CC) Amortization of goodwill....................... -- -- (5,071) -------- -------- --------- Income (loss) from operations.................. 15,435 8,578 41,493 Income tax provision........................... (1,180)(V) -- -- Gain on dispositions of property............... (6,576) -- -- -------- -------- --------- Net income..................................... 7,679 8,578 41,493 Income attributable to preferred unitholders... -- -- 32,414(BB) -------- -------- --------- Income (loss) attributable to common unitholders.................................. $ 7,679 $ 8,578 $ 9,079(AA) ======== ======== ========= Basic earnings (loss) per OP Unit.............. $ 0.13(AA) ========= Diluted earnings (loss) per OP Unit............ $ 0.13(AA) ========= Weighted average OP Units outstanding.......... 68,554 ========= Weighted average OP Unit and equivalents outstanding.................................. 69,218 =========
P-20 136 - --------------- (A) Represents the Partnership's unaudited consolidated results of operations for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probable Purchases; (iv) the 1998 Dispositions; and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of operations of Ambassador for the four months ended April 30, 1998. Certain reclassifications have been made to Ambassador's historical Statement of Operations to conform to the Partnership's Statement of Operations presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger and the spin-off of the common stock of Holdings as if these transactions had occurred on January 1, 1998. These adjustments are detailed, as follows:
HOLDINGS IFG AMIT SPIN- IFG HISTORICAL(i) MERGER(ii) OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- Rental and other property revenues...... $ 7,566 $ 560 $ -- $ 8,126 Property operating expenses............. (2,585) -- -- (2,585) Depreciation............................ (904) -- -- (904) --------- ------ --------- -------- Income from property operations......... 4,077 560 -- 4,637 --------- ------ --------- -------- Management fees and other income........ 311,475 -- (240,320) 71,155 Management and other expenses........... (252,295) -- 210,818 (41,477) Amortization............................ (26,781) (48) 12,843 (13,986) --------- ------ --------- -------- Income from service company business.... 32,399 (48) (16,659) 15,692 --------- ------ --------- -------- General and administrative expenses..... (66,272) (675) 5,561 (61,386) Interest expense........................ (24,164) -- (707) (24,871) Interest income......................... 18,817 4,193 (509) 22,501 Minority interest....................... (14,159) -- -- (14,159) Equity in losses of unconsolidated partnerships.......................... 12,169 1,323 13,492 --------- ------ --------- -------- Income (loss) from operations........... (37,133) 4,030 (10,991) (44,094) Income tax provision.................... (4,772) -- 5,952 1,180 Gain on disposition of property......... 5,888 688 -- 6,576 --------- ------ --------- -------- Item income (loss)...................... $ (36,017) $4,718 $ (5,039) $(36,338) ========= ====== ========= ========
---------------------- (i) Represents the unaudited consolidated results of operations of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of operations to conform to the Partnership's statement of operations presentation. (ii) Represents the historical statement of operations of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT Merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of Holdings common stock for each three shares of IFG common stock to holders of IFG common stock. (F) Represents the following adjustments occurring as a result of the IFG Merger: (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts P-21 137 resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustments to reflect the 1998 Acquisitions, less the 1998 Dispositions as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. These adjustments are as follows:
1998 1998 ACQUISITIONS DISPOSITIONS TOTAL ------------ ------------ ------- Rental and other property revenues......... $20,554 $(951) $19,603 Property operating expense................. (9,385) 376 (9,009) Owned property management expense.......... (765) 37 (728) Depreciation............................... (4,979) 93 (4,886)
(I) Represents adjustments to reflect the Probable Purchases as if they had occurred on January 1, 1998. These pro forma operating results are based on historical results of the properties, except for depreciation, which is based on the Partnership's investment in the properties. (J) Represents adjustments to interest expense for the following: Borrowings on the Partnership's credit facilities and other loans and mortgages assumed in connection with the 1998 Acquisitions.................................. $(8,698) Repayments on the Partnership's credit facilities and other indebtedness with proceeds from the 1998 Dispositions and the 1998 Stock Offerings.............................................. 10,326 Repayments on AIMCO's credit facilities and other indebtedness with proceeds from the Preferred Partnership Unit Offering.............................. 347 ------- $ 1,975 =======
(K) Represents adjustments to interest expense related to the assumption of mortgage debt in connection with the probable purchases. (L) Represents (i) loss of $537 related to limited partners in consolidated partnerships acquired in connection with the 1998 Acquisitions and (ii) income of $377 allocable to the Partnership Preferred Units. (M) Represents incremental depreciation related to the real estate assets purchased in connection with the Ambassador Merger. Buildings and improvements are depreciated on the straight-line method over a period of 30 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (N) Decrease results from identified historical costs of certain items which will be eliminated or reduced as a result of the Ambassador Merger, as follows: Duplication of public company expenses.................... $ 355 Reduction in salaries and benefits........................ 2,482 Merger related costs...................................... 1,212 Other..................................................... 1,229 ------ $5,278 ======
P-22 138 The reduction in salaries and benefits is pursuant to a restructuring plan, approved by the Company's senior management, assuming that the Ambassador Merger had occurred on January 1, 1998 and that the restructuring plan was completed on January 1, 1998. The restructuring plan specifically identifies all significant actions to be taken to complete the restructuring plan, including the reduction of personnel, job functions, location and date of completion. (O) Represents the decrease in interest expense of $1,480 related to the repayment of the Ambassador revolving lines of credit upon consummation of the Ambassador Merger, offset by an increase in interest expense of $1,335 related to borrowings under the Partnership's line of credit. (P) Represents elimination of minority interest in Jupiter-I, L.P. resulting from the redemption of limited partnership interests not owned by Ambassador in connection with the Ambassador Merger. (Q) Represents incremental depreciation related to the consolidated real estate assets purchased in connection with the IFG Merger and IPT Merger, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. Buildings and improvements are depreciated on the straight-line method over a period of 20 years, and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (R) Represents incremental depreciation and amortization of the tangible and intangible assets related to the property management business of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG, including amortization of property management contracts of $30,096, amortization of goodwill of $4,895, and depreciation of furniture, fixtures, and equipment of $2,842, less IFG's historical depreciation and amortization of $13,938. Property management contracts are amortized using the straight-line method over a period of three years. Furniture, fixtures, and equipment are depreciated using the straight-line method over a period of three years. Goodwill is amortized using the straight-line method over 20 years. (S) Represents the elimination of merger related expenses recorded by IFG during the nine months ended September 30, 1998. In connection with the IFG Merger, certain IFG executives will receive one-time lump-sum payments in connection with the termination of their employment and option agreements. The total of these lump sum payments is estimated to be approximately $50,000. (T) Represents elimination of minority interest in IPT resulting from the IPT merger. (U) Represents amortization related to the increased basis in investment in real estate partnerships, as a result of the allocation of the purchase price of IFG and IPT, based on an estimated average life of 20 years, and based on the Partnership's new basis resulting from the allocation of the purchase price of IFG and IPT. (V) Represents the reversal of IFG's income tax provision. (W) Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (X) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (Y) Represents interest income of $2,861 earned on notes payable of $45,000 to the Partnership issued as consideration for certain assets and liabilities sold to the Unconsolidated Subsidiaries of the Partnership, net of the elimination of the Partnership's share of the related interest expense of $2,718 reflected in the equity in earnings of the Unconsolidated Subsidiaries. (Z) Represents the Partnership's equity in earnings of the Unconsolidated Subsidiaries. P-23 139 (AA) The following table presents the net impact to pro forma net income applicable to holders of shares of AIMCO Common Stock and net income per share of AIMCO Common Stock assuming the interest rate per annum increases by 0.25%: Increase in interest........................................ $ 702 ======= Net income.................................................. $40,791 ======= Net income attributable to OP Unitholders................... $ 8,377 ======= Basic loss per OP Unit...................................... $ 0.12 ======= Diluted loss per OP Unit.................................... $ 0.12 =======
(BB) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units the Class G Preferred Units, the Class H Preferred Units and the Class J Preferred Units as if these stock offerings had occurred as of January 1, 1997. (CC) Represents the Partnership's equity in earnings in the Unconsolidated Subsidiaries of $(1,867) plus the elimination of intercompany interest of $2,718. The combined Pro Forma Statement of Operations of the Unconsolidated Subsidiaries for the nine months ended September 30, 1998 is presented below, which represents the effects of the Ambassador Merger, the IFG Merger and the IFG Reorganization as if these transactions had occurred as of January 1, 1997. P-24 140 UNCONSOLIDATED SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
IFG HISTORICAL(i) REORGANIZATION(ii) PRO FORMA ------------- ------------------ --------- Rental and other property revenues................... $ 9,910 $ -- $ 9,910 Property operating expense........................... (5,139) -- (5,139) Owned property management expense.................... (345) -- (345) Depreciation expense................................. (1,026) -- (1,026) -------- -------- -------- Income from property operations...................... 3,400 -- 3,400 -------- -------- -------- Management fees and other income..................... 57,665 56,211(iii) 113,876 Management and other expenses........................ (36,221) (35,192)(iii) (71,413) Amortization......................................... (2,111) (22,641)(iv) (24,752) -------- -------- -------- Income from service company.......................... 19,333 (1,622) 17,711 General and administrative expense................... -- (14,375)(iii) (14,375) Interest expense..................................... (6,931) (2,861)(v) (9,792) Interest income...................................... 617 -- 617 Minority interest.................................... (526) -- (526) -------- -------- -------- Income (loss) from operations........................ 15,893 (18,858) (2,965) Income tax provision................................. (7,037) 8,037(vi) 1,000 -------- -------- -------- Net income (loss).................................... $ 8,856 $(10,821) $ (1,965) ======== ======== ======== Income (loss) attributable to preferred stockholders....................................... $ 8,413 $(10,280) $ (1,867) ======== ======== ======== Income (loss) attributable to common stockholders.... $ 443 $ (541) $ (98) ======== ======== ========
- --------------- (i) Represents the Unconsolidated Subsidiaries historical consolidated results of operations. (ii) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the combined Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily related to the management operations owned by IFG. The adjustments reflect the related revenues and expenses primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (iii)Represents the historical income and expenses associated with certain assets and liabilities of IFG that were contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG. (iv) Represents the depreciation and amortization of certain management contracts and furniture, fixtures, and equipment contributed or sold to the Unconsolidated Subsidiaries, primarily related to the management operations of IFG, based on the Partnership's new basis resulting from the allocation of the purchase price of IFG. (v) Represents adjustment for interest expense related to a note payable to the Partnership. (vi) Represents the estimated Federal and state tax provisions, which are calculated on the pro forma operating results of the Unconsolidated Subsidiaries, excluding amortization of goodwill, which is not deductible for tax purposes. P-25 141 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
COMPLETED TRANSACTIONS AMBASSADOR IFG AND PROBABLE NHP AMBASSADOR PURCHASE PRICE AS HISTORICAL(A) PURCHASES(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) ADJUSTED(F) ------------- ------------ --------------- ------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $ 32,697 $ 25,214 $ (8,681) $ 3,437 $ 1,879 $ 4,744 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 43,520 28,817 7,354 20,372 5,997 17,248 Gain on investments............ -- -- (12) -- -- -- (Gain) loss on disposition of properties.................... (2,720) 2,720 (3,882) -- -- (80) Minority interests............. (1,008) (458) (16) 851 (705) 12,871 Equity in earnings of unconsolidated partnerships... 1,798 122 8,542 (405) -- (12,515) Equity in earnings of unconsolidated subsidiaries... (4,636) -- (5,790) -- -- -- Extraordinary (gain) loss on early extinguishment of debt.......................... 269 (269) -- -- -- (5,366) Changes in operating assets and operating liabilities......... 3,112 -- 5,314 (3,523) -- (4,384) --------- --------- --------- --------- -------- -------- Total adjustments........... 40,335 30,932 11,510 17,295 5,292 7,774 --------- --------- --------- --------- -------- -------- Net cash provided by (used in) operating activities... 73,032 56,146 2,829 20,732 7,171 12,518 Net cash used in discontinued operations.... -- -- (7,999) -- -- -- --------- --------- --------- --------- -------- -------- Net cash provided by (used in) continuing operations................. 73,032 56,146 (5,170) 20,732 7,171 12,518 --------- --------- --------- --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 21,792 19,627(I) -- -- -- -- Purchase of real estate.......... (376,315) (220,995)(J) (4,114) (24,179) -- -- Additions to real estate, investments and property held for sale....................... (26,966) (5,217)(K) (522) (19,033) -- (4,154) Proceeds from sale of property held for sale.................. 303 -- -- -- -- -- Purchase of general and limited partnership interests.......... (199,146) -- (1,208) -- -- (76,104) Purchase of management contracts...................... -- -- (11,686) -- -- (36,868) Purchase of/additions to notes receivable..................... (59,787) -- (4,236) -- -- (17,647) Proceeds from repayments of notes receivable..................... -- -- 214 1,000 -- 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... 45,791 -- 3,097 3,183 -- 42,615 Contribution to unconsolidated subsidiaries................... (42,879) -- -- -- -- -- Proceeds from sale of securities..................... -- -- 642 -- -- -- Purchase of investments held for sale........................... -- -- (73) -- -- -- Purchase of NHP mortgage loans... (60,575) -- -- -- -- -- Purchase of Ambassador common stock.......................... (19,881) -- -- -- -- -- --------- --------- --------- --------- -------- -------- Net cash used in investing activities................. (717,663) (206,585) (17,886) (39,029) -- (83,320) --------- --------- --------- --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. 225,436 122,568(L) 145,519 156,746 -- 111,001 Principal repayments on secured notes payable.................. (12,512) -- (141,032) (141,676) -- (12,697) Proceeds from secured short-term financing...................... 19,050 -- -- -- -- -- Repayments on secured short-term financing...................... -- (259,027)(M) (434) -- -- -- Principal repayments on unsecured short-term notes payable....... (79) (50,800)(M) -- -- -- -- Proceeds (payoff) from unsecured short-term financing........... (12,500) -- -- -- -- -- Principal repayments on secured tax-exempt bond financing...... (1,487) -- -- -- -- -- Net borrowings (paydowns) on the Company's revolving credit facilities..................... (162,008) -- -- -- -- -- Payment of loan costs, net of proceeds from interest rate hedge.......................... (6,387) -- (245) (8,095) -- (2,305) Proceeds from issuance of common and preferred stock, net....... 643,224 357,389(N) 6,286 28,946 -- 62,420 Proceeds from exercises of employee stock options and warrants....................... 871 -- -- 3,195 -- 7,487 Repurchase of common stock....... -- -- -- -- -- (3,283) Principal repayments received on notes due from Officers........ 25,957 -- -- 1,323 -- -- Investments made by minority interests...................... -- -- -- -- -- 249 Receipt of contributions from minority interests............. -- 37,345(O) -- -- -- -- Payments of distribution to minority interests............. -- (2,713)(P) -- -- -- -- Payment of distributions......... (44,660) (19,396)(Q) (11,503)(T) (15,717) (12,173)(U) (2,695) Payment of distributions to limited partners............... -- (5,193)(R) -- -- (15)(U) -- Payment of preferred unit distributions.................. (846) (39,859)(S) -- (2,279) -- -- Payment of distributions to minority interests............. (5,510) -- -- (3,700) -- (12,578) Net transactions with Insignia/ESG................... -- -- -- -- -- (57,612) --------- --------- --------- --------- -------- -------- Net cash provided by (used in) financing activities... 668,549 140,314 (1,409) 18,743 (12,188) 89,987 --------- --------- --------- --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 23,918 (10,125) (24,465) 446 (5,017) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 13,170 -- 36,277 4,002 -- 64,447 --------- --------- --------- --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ 37,088 $ (10,125) $ 11,812 $ 4,448 $ (5,017) $ 83,632 ========= ========= ========= ========= ======== ======== IFG IFG MERGER REORGANIZATION PRO ADJUSTMENTS(G) ADJUSTMENTS(H) FORMA -------------- -------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................ $(80,023) $ 6,882 $ (13,851) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................. 35,049 (30,188) 128,169 Gain on investments............ -- -- (12) (Gain) loss on disposition of properties.................... 80 -- (3,882) Minority interests............. (1,552) -- 9,983 Equity in earnings of unconsolidated partnerships... 29,995 -- 27,537 Equity in earnings of unconsolidated subsidiaries... -- 4,578 (5,848) Extraordinary (gain) loss on early extinguishment of debt.......................... 5,366 -- Changes in operating assets and operating liabilities......... -- -- 519 -------- -------- ----------- Total adjustments........... 68,938 (25,610) 156,466 -------- -------- ----------- Net cash provided by (used in) operating activities... (11,085) (18,728) 142,615 Net cash used in discontinued operations.... -- -- (7,999) -------- -------- ----------- Net cash provided by (used in) continuing operations................. (11,085) (18,728) 134,616 -------- -------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... -- -- 41,419 Purchase of real estate.......... -- -- (625,603) Additions to real estate, investments and property held for sale....................... -- -- (55,892) Proceeds from sale of property held for sale.................. -- -- 303 Purchase of general and limited partnership interests.......... -- -- (276,458) Purchase of management contracts...................... -- -- (48,554) Purchase of/additions to notes receivable..................... -- -- (81,670) Proceeds from repayments of notes receivable..................... -- -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries.... -- -- 94,686 Contribution to unconsolidated subsidiaries................... -- -- (42,879) Proceeds from sale of securities..................... -- -- 642 Purchase of investments held for sale........................... -- -- (73) Purchase of NHP mortgage loans... -- -- (60,575) Purchase of Ambassador common stock.......................... -- -- (19,881) -------- -------- ----------- Net cash used in investing activities................. -- -- (1,064,483) -------- -------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............. -- -- 761,270 Principal repayments on secured notes payable.................. -- -- (307,917) Proceeds from secured short-term financing...................... -- -- 19,050 Repayments on secured short-term financing...................... -- -- (259,461) Principal repayments on unsecured short-term notes payable....... -- -- (50,879) Proceeds (payoff) from unsecured short-term financing........... -- -- (12,500) Principal repayments on secured tax-exempt bond financing...... -- -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities..................... -- -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge.......................... -- -- (17,032) Proceeds from issuance of common and preferred stock, net....... -- -- 1,098,265 Proceeds from exercises of employee stock options and warrants....................... -- -- 11,553 Repurchase of common stock....... -- -- (3,283) Principal repayments received on notes due from Officers........ -- -- 27,280 Investments made by minority interests...................... -- -- 249 Receipt of contributions from minority interests............. -- -- 37,345 Payments of distribution to minority interests............. -- -- (2,713) Payment of distributions......... (24,513)(V) -- (130,657) Payment of distributions to limited partners............... -- -- (5,208) Payment of preferred unit distributions.................. -- -- (42,984) Payment of distributions to minority interests............. -- -- (21,788) Net transactions with Insignia/ESG................... -- -- (57,612) -------- -------- ----------- Net cash provided by (used in) financing activities... (24,513) -- 879,483 -------- -------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (35,598) (18,728) (50,384) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. -- -- 117,896 -------- -------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $(35,598) $(18,728) $ 67,512 ======== ======== ===========
P-26 142 - --------------- (A) Represents the Partnership's audited consolidated statement of cash flows for the year ended December 31, 1997. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the Probably Purchases; (vii) the 1998 Dispositions; and (viii) the Preferred Partnership Unit Offering. (C) Represents adjustments to reflect the purchase of the NHP Real Estate Companies, the NHP Merger, and the NHP Reorganization, as if the transactions had taken place on January 1, 1997. These adjustments are detailed as follows:
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ (7,266) $ 4,350 $(2,222) $ (3,543) $ (8,681) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 4,058 9,134 5,125 (10,963) 7,354 Gain on investments............. (12) -- -- -- (12) (Gain) loss on disposition of properties.................... (3,882) -- -- -- (3,882) Minority interests.............. (16) -- -- -- (16) Equity in earnings of unconsolidated partnerships... 3,905 -- 4,631 6 8,542 Equity in earnings of unconsolidated subsidiaries... -- -- 4,636 (10,426) (5,790) Changes in operating assets and operating liabilities......... (1,036) 6,350 -- -- 5,314 -------- -------- ------- -------- --------- Total adjustments........... 3,017 15,484 14,392 (21,383) 11,510 -------- -------- ------- -------- --------- Net cash provided by (used in) operating activities................ (4,249) 19,834 12,170 (24,926) 2,829 Net cash used in discontinued operations... -- (7,999) -- -- (7,999) -------- -------- ------- -------- --------- Net cash provided by (used in) continuing operations................ (4,249) 11,835 12,170 (24,926) (5,170) -------- -------- ------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- (4,114) -- -- (4,114) Additions to real estate, investments and property held for sale........................ (522) -- -- -- (522) Purchase of general and limited partnership interests........... (1,208) -- -- -- (1,208) Purchase of management contracts....................... -- (11,686) -- -- (11,686) Purchase of/additions to notes receivable...................... -- (4,236) -- -- (4,236) Proceeds from repayments of notes receivable...................... 214 -- -- -- 214 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 3,097 -- -- -- 3,097 Proceeds from sale of securities...................... 642 -- -- -- 642 Purchase of investments held for sale............................ (73) -- -- -- (73) -------- -------- ------- -------- --------- Net cash provided by (used in) investing activities................ 2,150 (20,036) -- -- (17,886) -------- -------- ------- -------- ---------
P-27 143
NHP REAL ESTATE NHP NHP NHP NHP PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS ----------- -------------- ---------------- ------------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. $ 74,019 $ 71,500 $ -- $ -- $ 145,519 Principal repayments on secured notes payable................... (71,256) (69,776) -- -- (141,032) Repayments on secured short-term financing....................... (434) -- -- -- (434) Payment of loan costs, net of proceeds from interest rate hedge........................... -- (245) -- -- (245) Proceeds from issuances of common and preferred stock, net........ -- 6,286 -- -- 6,286 Payment of distributions.......... (2,000) -- (9,503) -- (11,503) -------- -------- ------- -------- --------- Net cash provided by (used in) financing activities................ 329 7,765 (9,503) -- (1,409) -------- -------- ------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (1,770) (436) 2,667 (24,926) (24,465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 25,795 10,482 -- -- 36,277 -------- -------- ------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 24,025 $ 10,046 $ 2,667 $(24,926) $ 11,812 ======== ======== ======= ======== =========
- --------------- (i) Represents the adjustment to record cash flow activity from January 1, 1997 to the date of acquisition, as if the acquisition of the NHP Real Estate Companies had occurred on January 1, 1997. In addition, represents adjustments to record additional deprecation and amortization related to the increased basis in the assets of the NHP Real Estate Companies as a result of the allocation of the purchase price of the NHP Real Estate Companies and additional interest expense incurred in connection with borrowings incurred by the Partnership to consummate the NHP Real Estate Acquisition. (ii) Represents the unaudited consolidated statement of cash flows of NHP for the period from January 1, 1997 through December 8, 1997 (date of the NHP Merger). (iii) Represents the following adjustments occurring as a result of the NHP Merger: (i) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (ii) the incremental depreciation of the purchase price adjustment related to real estate; (iii) the incremental amortization of the purchase price adjustment related to management contracts, furniture, fixtures and equipment, and goodwill; (iv) the reversal of equity in earnings of NHP during the pre-merger period when the Partnership held a 47.62% interest in NHP; and (v) the amortization of the increased basis in investments in real estate partnerships, based on the purchase price adjustment related to real estate and an estimated average life of 20 years. (iv) Represents adjustments related to the NHP Reorganization, whereby the Partnership contributed or sold to the Unconsolidated Subsidiaries and the Unconsolidated Partnership; (i) certain assets and liabilities of NHP, primarily related to the management operations and other businesses owned by NHP and (ii) 12 real estate properties containing 2,905 apartment units. The adjustments represent (i) the related cash flow activity primarily related to the management operations of such real estate partnerships contributed, with additional depreciation and amortization recorded related to the Partnership's new basis resulting from the allocation of the combined purchase price of NHP and the NHP Real Estate Companies. (D) Represents the audited historical statement of cash flows of Ambassador for the year ended December 31, 1997. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. The Ambassador P-28 144 historical statement of cash flows excludes an extraordinary loss of $1,384 and a loss on sale of an interest rate cap of $509. (E) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (F) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)..................... $ 10,233 $ 7,566 $(13,055) $ 4,744 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...... 32,675 63 (15,490) 17,248 Gain on disposition of property.... -- (80) -- (80) Minority interests................. 12,448 382 41 12,871 Equity in earnings of unconsolidated partnerships...... (10,027) (2,639) 151 (12,515) Extraordinary gain on early extinguishment of debt........... (5,366) -- -- (5,366) Changes in operating assets and liabilities...................... -- (2,405) (1,979) (4,384) --------- -------- -------- -------- Total adjustments............. 29,730 (4,679) (17,277) 7,774 --------- -------- -------- -------- Net cash provided by (used in) operating activities............................ 39,963 2,887 (30,332) 12,518 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to real estate, investments and property held for sale......... (7,695) 665 2,876 (4,154) Purchase of general and limited partnership interests.............. (93,118) -- 17,014 (76,104) Purchase of management contracts...... (99,540) -- 62,672 (36,868) Purchase of/additions to notes receivable......................... (9,172) (14,251) 5,776 (17,647) Proceeds from repayments of notes receivable......................... 4,523 7,552 (3,237) 8,838 Distributions from investments in real estate partnerships and unconsolidated subsidiaries........ 44,823 -- (2,208) 42,615 --------- -------- -------- -------- Net cash provided by (used in) investing activities........ (160,179) (6,034) 82,893 (83,320) --------- -------- -------- --------
P-29 145
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings......................... $ 118,141 $ -- $ (7,140) $111,001 Principal repayments on secured notes payable............................ (15,682) -- 2,985 (12,697) Payment of loan costs, net of proceeds from interest rate hedge........... (2,305) -- -- (2,305) Proceeds from issuance of common and preferred stock, net............... 62,420 -- -- 62,420 Proceeds from exercises of employee stock options and warrants......... 7,487 -- -- 7,487 Repurchase of common stock............ (3,283) -- -- (3,283) Investment made by minority interests.......................... 249 -- -- 249 Payment of distributions.............. -- (2,695) -- (2,695) Payment of distributions to minority interests.......................... (12,578) -- -- (12,578) Net transactions with Insignia/ESG.... -- -- (57,612) (57,612) --------- -------- -------- -------- Net cash provided by (used in) financing activities........ 154,449 (2,695) (61,767) 89,987 --------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 34,233 (5,842) (9,206) 19,185 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 54,614 9,789 44 64,447 --------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 88,847 $ 3,947 $ (9,162) $ 83,632 ========= ======== ======== ========
- --------------- (i) Represents the audited consolidated statement of cash flows of IFG for the year ended December 31, 1997, as reported in IFG's Annual Report on Form 10-K. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. (G) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (H) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (I) Represents proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997. P-30 146 (J) Represents the use of cash to purchase the 1998 Acquisitions and the Probable Purchases, as if these acquisitions occurred on January 1, 1997. (K) Represents cash payments for capital improvements of $300 per unit on the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases. (L) Represents notes payable assumed in connection with the 1998 Acquisitions and the Probable Purchases, assuming these transactions occurred January 1, 1997. (M) Represents net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions, the Probable Purchases, the 1998 Stock Offerings and the Preferred Partnership Unit Offering occurred January 1, 1997. (N) Represents cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997. (O) Represents contributions from minority interests assuming the Preferred Partnership Unit Offering occurred January 1, 1997. (P) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (Q) Represents distributions paid on the 1997 Stock Offerings as if these occurred on January 1, 1997. (R) Represents distributions paid to limited partners on OP Units issued in connection with the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (S) Represents preferred unit distributions paid on the Class B Preferred Stock, the Class C Preferred Stock and the 1998 Stock Offerings as if these occurred on January 1, 1997. (T) Represents historical distributions of $2,000 and pro forma distributions on the shares issued in the NHP Merger as if these shares had been issued on January 1, 1997. (U) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (V) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-31 147 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (INSIGNIA MERGER) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
COMPLETED TRANSACTIONS AND AMBASSADOR PROBABLE AMBASSADOR PURCHASE PRICE IFG AS IFG MERGER HISTORICAL(A) PURCHASE(B) HISTORICAL(C) ADJUSTMENTS(D) ADJUSTED(E) ADJUSTMENTS(F) ------------- ------------ ------------- -------------- ----------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 56,269 $ 3,432 $ (2,382) $ 4,255 $ (36,338) $ 7,679 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... 67,344 7,512 7,520 1,420 14,890 25,478 (Gain) loss on disposition of properties..................... (2,783) 2,783 -- -- (6,576) 6,576 Minority interests.............. 1,052 (160) 252 (252) 14,159 (6,622) Equity in earnings of unconsolidated partnerships.... 5,078 -- 71 -- (13,492) 18,577 Equity in earnings of unconsolidated subsidiaries.... (8,413) -- -- -- -- -- Non-cash compensation........... -- -- -- -- 796 -- Changes in operating assets and operating liabilities.......... (67,722) -- 5,948 -- (7,775) -- --------- -------- -------- ------- --------- -------- Total adjustments............ (5,444) 10,135 13,791 1,168 2,002 44,009 --------- -------- -------- ------- --------- -------- Net cash provided by (used in) operating activities... 50,825 13,567 11,409 5,423 (34,336) 51,688 --------- -------- -------- ------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... (63,839) 63,839(H) -- -- 27,122 -- Additions to real estate.......... (47,878) (1,198)(I) (17,759) -- 9,309 -- Proceeds from sale of property and investments held for sale....... 19,627 (19,627)(J) -- -- (35) -- Additions to property held for sale............................ (1,986) -- -- -- -- -- Purchase of general and limited partnership interests........... (27,016) -- -- -- 17,420 -- Purchase of/additions to notes receivable...................... (72,445) -- -- -- (27,589) -- Proceeds from repayments/sale of notes receivable................ 21,562 -- -- -- 21,185 -- Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... 513 -- 1,063 -- 22,053 -- Payment of trust based preferred dividends....................... -- -- -- -- (7,415) -- Cash received in connection with Ambassador Merger and AMIT Merger.......................... 4,492 -- -- -- 13,423 -- Contribution to unconsolidated subsidiaries.................... (13,032) -- -- -- -- -- Purchase of investments held for sale............................ (4,935) -- -- -- -- -- Redemption of OP Units............ (516) -- -- -- -- -- Merger costs...................... -- -- -- -- (1,402) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) investing activities... (185,453) 43,014 (16,696) -- 74,071 -- --------- -------- -------- ------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. 77,489 -- 37,162 -- 177,234 -- Principal repayments on secured notes payable................... (56,262) -- -- -- 4,239 -- Principal advances on secured tax-exempt bond financing....... -- -- 21,784 -- -- -- Principal repayments on secured tax-exempt bond financing....... (1,436) -- -- -- -- -- Net borrowings/repayments on secured short-term financing.... (30,693) 209,027(K) (43,002) -- -- -- Net borrowings (paydowns) on the revolving credit facilities..... -- -- 2,513 -- -- -- Principal repayments on unsecured short-term notes payable........ -- -- -- -- 2,644 -- Payment of loan costs, net of proceeds from interest rate hedge........................... (5,727) -- -- -- (83) -- Proceeds from issuance of common stock and preferred stock, net............................. 253,239 (253,239)(L) -- -- -- -- Repurchase of common stock........ (10,972) -- -- -- -- -- Proceeds from exercises of employee stock options and warrants........................ -- -- 9,761 -- 6,533 -- Principal repayments received on notes due from Officers......... 8,084 -- -- -- -- -- Payments of distributions to minority interests.............. -- (2,034)(M) -- -- -- -- Payment of distributions.......... (73,322) -- -- (3,701)(P) (8,606) (22,360)(Q) Payment of distributions to limited partners................ (10,251) (1,919)(N) -- (5)(P) (494) -- Payment of preferred unit distributions................... (10,916) (16,094)(O) -- -- -- -- Proceeds from issuance of High Performance Units............... 1,988 -- -- -- -- -- Net transactions with Insignia/ESG.................... -- -- -- -- (241,003) -- --------- -------- -------- ------- --------- -------- Net cash provided by (used in) financing activities... 141,221 (64,259) 28,218 (3,706) (59,536) (22,360) --------- -------- -------- ------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 6,593 (7,678) 22,931 1,717 (19,801) 29,328 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 37,088 (10,125) 4,448 (5,017) 83,632 (35,598) --------- -------- -------- ------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $ 43,681 $(17,803) $ 27,379 $(3,300) $ 63,831 $ (6,270) ========= ======== ======== ======= ========= ======== IFG REORGANIZATION PRO ADJUSTMENTS(G) FORMA -------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)................. $ 8,578 $ 41,493 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization... (22,641) 101,523 (Gain) loss on disposition of properties..................... -- -- Minority interests.............. -- 8,429 Equity in earnings of unconsolidated partnerships.... -- 10,234 Equity in earnings of unconsolidated subsidiaries.... 7,562 (851) Non-cash compensation........... -- 796 Changes in operating assets and operating liabilities.......... -- (69,549) -------- --------- Total adjustments............ (15,079) 50,582 -------- --------- Net cash provided by (used in) operating activities... (6,501) 92,075 -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate........... -- 27,122 Additions to real estate.......... -- (57,526) Proceeds from sale of property and investments held for sale....... -- (35) Additions to property held for sale............................ -- (1,986) Purchase of general and limited partnership interests........... -- (9,596) Purchase of/additions to notes receivable...................... -- (100,034) Proceeds from repayments/sale of notes receivable................ -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries..... -- 23,629 Payment of trust based preferred dividends....................... -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger.......................... -- 17,915 Contribution to unconsolidated subsidiaries.................... -- (13,032) Purchase of investments held for sale............................ -- (4,935) Redemption of OP Units............ -- (516) Merger costs...................... -- (1,402) -------- --------- Net cash provided by (used in) investing activities... -- (85,064) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings.............. -- 291,885 Principal repayments on secured notes payable................... -- (52,023) Principal advances on secured tax-exempt bond financing....... -- 21,784 Principal repayments on secured tax-exempt bond financing....... -- (1,436) Net borrowings/repayments on secured short-term financing.... -- 135,332 Net borrowings (paydowns) on the revolving credit facilities..... -- 2,513 Principal repayments on unsecured short-term notes payable........ -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge........................... -- (5,810) Proceeds from issuance of common stock and preferred stock, net............................. -- -- Repurchase of common stock........ -- (10,972) Proceeds from exercises of employee stock options and warrants........................ -- 16,294 Principal repayments received on notes due from Officers......... -- 8,084 Payments of distributions to minority interests.............. -- (2,034) Payment of distributions.......... -- (107,989) Payment of distributions to limited partners................ -- (12,669) Payment of preferred unit distributions................... -- (27,010) Proceeds from issuance of High Performance Units............... -- 1,988 Net transactions with Insignia/ESG.................... -- (241,003) -------- --------- Net cash provided by (used in) financing activities... -- 19,578 -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (6,501) 26,589 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... (18,728) 55,700 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............................ $(25,229) $ 82,289 ======== =========
P-32 148 - --------------- (A) Represents the Partnership's unaudited consolidated statement of cash flows for the nine months ended September 30, 1998. (B) Represents adjustments to reflect the following as if they had occurred on January 1, 1997; (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions; (iii) the Probably Purchases; (iv) the 1998 Dispositions and (v) the Preferred Partnership Unit Offering. (C) Represents the unaudited historical statement of cash flows of Ambassador for the four months ended April 20, 1998. Certain reclassifications have been made to Ambassador's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. (D) Represents the following adjustments occurring as a result of the Ambassador Merger: (i) the incremental depreciation of the purchase price adjustment related to real estate; (ii) the reduction in personnel costs, primarily severance costs, pursuant to a restructuring plan; (iii) the reduction of interest expense, resulting from the net reduction of debt; and (iv) the elimination of the minority interest associated with Jupiter-I, L.P. (E) Represents adjustments to reflect the IFG Merger, the AMIT Merger, the IPT Merger, and the spin-off of New Insignia as if those transaction had occurred on January 1, 1997. These adjustments are detailed as follows:
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)......................................... $ (36,017) $ 4,718 $ (5,039) $(36,338) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 27,685 48 (12,843) 14,890 Gain on disposition of property......................... (5,888) (688) -- (6,576) Minority interests...................................... 14,159 -- -- 14,159 Equity in earnings of unconsolidated partnerships....... (12,169) -- (1,323) (13,492) Non-cash compensation................................... 796 -- -- 796 Changes in operating assets and liabilities............. (18,853) (1,499) 12,577 (7,775) --------- -------- --------- -------- Total adjustments................................... 5,730 (2,139) (1,589) 2,002 --------- -------- --------- -------- Net cash provided by (used in) operating activities........................................ (30,287) 2,579 (6,628) (34,336) --------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... (3,804) -- 30,926 27,122 Additions to real estate.................................. (2,252) (25) 11,586 9,309 Proceeds from sales of property and investments held for sale.................................................... -- 161 (196) (35) Purchase of general and limited partnership interests..... (44,270) -- 61,690 17,420 Purchases of / additions to notes receivable.............. (17,107) (15,407) 4,925 (27,589) Proceeds from repayments/sale of notes receivable......... 151 23,672 (2,638) 21,185 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 21,360 -- 693 22,053 Payment of trust based preferred dividends................ (7,415) -- -- (7,415) Cash received in connection with AMIT Merger.............. 13,423 -- -- 13,423 Merger costs.............................................. (1,402) -- -- (1,402) --------- -------- --------- -------- Net cash provided by (used in) investing activities........................................ (41,316) 8,401 106,986 74,071 --------- -------- --------- --------
P-33 149
NEW IFG AMIT INSIGNIA IFG HISTORICAL(i) MERGER(ii) SPIN-OFF(iii) AS ADJUSTED ------------- ---------- ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 186,000 -- (8,766) 177,234 Principal repayments on secured notes payable............. (1,874) -- 6,113 4,239 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (83) -- -- (83) Proceeds from exercises of employee stock options and warrants................................................ 6,533 -- -- 6,533 Payment of distributions.................................. (6,541) (2,065) -- (8,606) Payment of distributions minority interests............... (494) -- -- (494) Net transactions with Insignia/ESG........................ (118,424) -- (122,579) (241,003) --------- -------- --------- -------- Net cash provided by (used in) financing activities........................................ 67,761 (2,065) (125,232) (59,536) --------- -------- --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,842) 8,915 (24,874) (19,801) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 88,847 3,947 (9,162) 83,632 --------- -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 85,005 $ 12,862 $ (34,036) $ 63,831 ========= ======== ========= ========
- --------------- (i) Represents the unaudited consolidated statement of cash flows of IFG for the nine months ended September 30, 1998. Certain reclassifications have been made to IFG's historical statement of cash flows to conform to the Partnership's statement of cash flows presentation. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (ii) Represents the historical statement of cash flows of AMIT, as well as pro forma adjustments related to the AMIT Merger. The AMIT merger closed prior to the IFG Merger. (iii) Represents the distribution of two shares of New Insignia common stock for each three shares of IFG common stock to holders of IFG common stock. In addition, the cash and cash equivalents at the beginning of the period has been adjusted. (F) Represents the following adjustments occurring as a result of the IFG Merger and the IPT Merger; (i) the incremental depreciation of the purchase price adjustment related to consolidated real estate and investments in real estate partnerships; (ii) the amortization of goodwill and property management contracts resulting from the IFG Merger; (iii) the increase in interest expense resulting from the net increase in debt; and (iv) the elimination of the income tax provision. (G) Represents adjustments related to the IFG Reorganization, whereby, following the IFG Merger, the Partnership contributed or sold to the Unconsolidated Subsidiaries certain assets and liabilities of IFG, primarily management contracts and related working capital assets and liabilities related to IFG's third party management operations. The adjustments reflect the related cash flow activity primarily related to the management operations owned by IFG, with additional amortization recorded related to the Partnership's new basis resulting from the allocation of the purchase price of IFG. (H) Represents adjustment to remove the use of cash to purchase the 1998 Acquisitions, as if these acquisitions occurred on January 1, 1997; therefore, the purchases are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (I) Represents cash payments for capital improvements of $300 per unit on the 1998 Acquisitions. (J) Represents adjustment to remove the proceeds from the sale of the 1998 Dispositions, as if these dispositions occurred on January 1, 1997; therefore, the proceeds are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (K) Represents adjustment to remove net principal repayments assuming the 1998 Acquisitions, the 1998 Dispositions and the 1998 Stock Offerings occurred January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. (L) Represents adjustment to remove cash proceeds from the 1998 Stock Offerings, as if these offerings occurred on January 1, 1997; therefore, the repayments are included on the Pro Forma Consolidated Statement of Cash Flows for the year ended December 31, 1997. P-34 150 (M) Represents pro forma distributions on the units issued in the Preferred Partnership Unit Offering as if these units had been issued January 1, 1997. (N) Represents distributions paid to limited partners on OP Units issued in connection with the 1998 Acquisitions and the Probable Purchases, as if the issuance of the OP Units occurred on January 1, 1997. (O) Represents preferred unit distributions paid on the 1998 Stock Offerings as if these occurred on January 1, 1997. (P) Represents pro forma distributions and distributions to limited partners on the shares issued in the Ambassador Merger as if these shares had been issued on January 1, 1997. (Q) Represents pro forma distributions on the shares issued in the IFG Merger and IPT Merger as if these shares had been issued on January 1, 1997. P-35 151 PRO FORMA FINANCIAL INFORMATION OF AIMCO PROPERTIES, L.P. (EXCHANGE OFFERS) INTRODUCTION AIMCO Properties L.P. (the "Partnership") intends to offer to purchase limited partnership interests in syndicated real estate limited partnerships in which AIMCO holds partnership interests. The Partnership, is subject to applicable law, plans to offer to purchase certain of such limited partnership interests in exchange for (i) equity securities of the Partnership; (ii) cash or (iii) a combination of such equity securities and cash. Such offers are expected to include terms that will allow limited partners to continue to hold their limited partnership interests. The following Pro Forma Consolidated Balance Sheet (Exchange Offers) of the Partnership as of September 30, 1998 has been prepared as if each of the following transactions had occurred as of September 30, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the year ended December 31, 1997 has been prepared as if each of the following transactions had occurred as of January 1, 1997: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The following Pro Forma Consolidated Statement of Operations (Exchange Offers) and Pro Forma Consolidated Statement of Cash Flows (Exchange Offers) of the Partnership for the nine months ended September 30, 1998 has been prepared as if each of the following transactions had occurred as of January 1, 1998: (i) all the transactions discussed in the Pro Forma Financial Statements (Insignia Merger) appearing elsewhere herein; and (ii) the acceptance of exchange offers by limited partners in 91 limited partnerships. The Pro Forma Financial Information (Exchange Offers) is based, in part, on the historical financial statements of the partnerships in which the Exchange Offers are made. The Pro Forma Financial Information (Exchange Offers) is also based, in part, on the Pro Forma Financial Information (Insignia Merger) of the Partnership included elsewhere herein. Such pro forma information is based in part upon: (i) the audited Consolidated Financial Statements of Insignia for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of Angeles Mortgage Investment Trust ("AMIT") for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Insignia for the nine months ended September 30, 1998; and (iv) the unaudited Consolidated Financial Statements of AMIT for the period from January 1, 1998 to September 17, 1998. The Pro Forma Financial Information (Insignia Merger) is also based, in part, upon: (i) the audited Consolidated Financial Statements of Ambassador for the year ended December 31, 1997; (ii) the audited Consolidated Financial Statements of the Partnership for the year ended December 31, 1997; (iii) the unaudited Consolidated Financial Statements of Ambassador for the four months ended April 30, 1998; (iv) the unaudited Consolidated Financial Statements of the Partnership for the nine months ended September 30, 1998; and (v) the historical financial statements of certain properties and companies acquired by AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5, 1997, June 3, 1997, September 19, 1997, October 15, 1997, December 1, 1997 and November 2, 1998. The following Pro Forma Financial Information (Exchange Offers) should be read in conjunction with such financial statements and notes thereto. The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared under the assumption that after the exchange offers are accepted, AIMCO will own varying ownership percentages of each partnership, and that the limited partners will choose to elect to receive 35% of the consideration in the form of equity securities of AIMCO Properties, L.P. and 65% of the consideration in the form of cash. The P-36 152 interest to be acquired in each of the partnerships, the estimated purchase price for each partnership, including cash, common units, or preferred units is summarized below:
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Angeles Income Properties, Ltd. II.................... 26.70 $ 4,946 $ 3,215 $1,731 Angeles Income Properties, Ltd. III................... 30.63 2,156 1,401 755 Angeles Income Properties, Ltd. IV.................... 18.64 1,154 750 404 Angeles Income Properties, Ltd. 6..................... 37.29 4,523 2,940 1,583 Angeles Opportunity Properties, Ltd................... 37.94 1,729 1,124 605 Angeles Partners VII.................................. 24.86 610 397 213 Angeles Partners VIII................................. 24.80 0 0 0 Angeles Partners IX................................... 18.92 1,171 761 410 Angeles Partners X.................................... 22.97 709 461 248 Angeles Partners XI................................... 21.83 205 133 72 Angeles Partners XII.................................. 11.89 2,877 1,870 1,007 Angeles Partners XIV.................................. 24.93 0 0 0 Baywood Partners, Ltd................................. 25.00 347 226 121 Brampton Associates Partnership....................... 25.00 382 248 134 Buccaneer Trace Limited Partnership................... 25.00 2 1 1 Burgundy Court Associates, L.P........................ 25.00 1,074 698 376 Calmark/Fort Collins, Ltd............................. 25.00 192 125 67 Calmark Heritage Park II Ltd.......................... 25.00 47 31 16 Casa Del Mar Associates Limited Partnership........... 21.16 503 327 176 Catawba Club Associates, L.P.......................... 25.00 85 55 30 Cedar Tree Investors Limited Partnership.............. 25.00 1,037 674 363 Century Properties Fund XVI........................... 12.52 831 540 291 Century Properties Fund XVIII......................... 13.08 474 308 166 Century Properties Fund XIX........................... 15.30 1,765 1,147 618 Century Properties Growth Fund XXII................... 21.43 4,977 3,235 1,742 Chapel Hill, Limited.................................. 21.15 569 370 199 Chestnut Hill Associates Limited Partnership.......... 26.75 1,582 1,028 554 Coastal Commons Limited Partnership................... 25.00 566 368 198 Consolidated Capital Institutional Properties/2 & Consolidated Capital Equity Properties/2............ 18.98 7,320 4,758 2,562 Consolidated Capital Institutional Properties/3....... 16.37 6,770 4,401 2,369 Consolidated Capital Properties III................... 13.02 1,134 737 397 Consolidated Capital Properties IV.................... 18.04 9,407 6,112 3,295 Consolidated Capital Properties V..................... 16.69 560 364 196 Consolidated Capital Properties VI.................... 25.82 556 361 195 DFW Apartment Investors Limited Partnership........... 35.65 2,719 1,767 952 DFW Residential Investors Limited Partnership......... 37.60 1,092 710 382 Davidson Diversified Real Estate I, L.P............... 34.78 627 408 219 Davidson Diversified Real Estate II, L.P.............. 35.11 1,318 857 461 Davidson Diversified Real Estate III, L.P............. 21.76 0 0 0 Davidson Growth Plus, L.P............................. 23.91 2,304 1,498 806 Davidson Income Real Estate, L.P...................... 30.81 2,691 1,749 942 Drexel Burnham Lambert Real Estate Associates II...... 19.58 994 646 348 Four Quarters Habitat Apartment Associates, Ltd....... 25.00 174 113 61 Fox Strategic Housing Income Partners................. 33.18 2,414 1,569 845 Georgetown of Columbus Associates, L.P................ 25.00 227 148 79 HCW Pension Real Estate Fund Limited Partnership...... 32.64 2,368 1,539 829 Investors First-Staged Equity......................... 49.00 306 199 107 Johnstown/Consolidated Income Partners................ 25.66 1,871 1,216 655 La Colina Partners, Ltd............................... 25.00 583 379 204 Lake Eden Associates, L.P............................. 25.00 632 411 221 Landmark Associates, L.P.............................. 25.00 48 31 17
P-37 153
INTEREST TO ESTIMATED BE ACQUIRED PURCHASE PARTNERSHIP NAME IN PARTNERSHIP PRICE CASH OP UNITS ---------------- -------------- --------- ------- -------- Minneapolis Associates II Limited Partnership......... 25.00 $ 2 $ 1 $ 1 Multi-Benefit Realty Fund "87-1-Class A & Class B..... 21.89 1,657 1,077 580 National Property Investors 8......................... 11.13 988 642 346 Northbrook Apartments, Ltd............................ 25.00 209 136 73 Olde Mill Investors Limited Partnership............... 8.75 170 111 59 Orchard Park Apartments Limited Partnership........... 25.00 1 1 0 Park Town Place Associates Limited Partnership........ 24.70 298 194 104 Quail Run Associates, L.P............................. 25.00 487 317 170 Ravensworth Associates Limited Partnership............ 25.00 1 1 0 Rivercreek Apartments Limited Partnership............. 25.00 180 117 63 Rivercrest Apartments, Limited........................ 25.00 1,687 1,097 590 Riverside Park Associates L.P......................... 13.69 590 384 206 Salem Arms of Augusta Limited Partnership............. 25.00 278 181 97 Shaker Square, L.P.................................... 23.75 631 410 221 Shannon Manor Apartments, Limited Partnership......... 25.00 1,170 761 409 Sharon Woods, L.P..................................... 22.75 499 324 175 Shelter Properties III................................ 15.20 1,960 1,274 686 Shelter Properties IV................................. 50.52 12,764 8,295 4,469 Shelter Properties VI................................. 13.78 1,919 1,247 672 Shelter Properties VII Limited Partnership............ 26.65 1,975 1,284 691 Snowden Village Associates, L.P....................... 25.00 443 288 155 Springhill Lake Investors Limited Partnership......... 11.84 2,908 1,890 1,018 Sturbrook Investors, Ltd.............................. 25.00 377 245 132 Sycamore Creek Associates, L.P........................ 25.00 1 1 0 Texas Residential Investors Limited Partnership....... 18.45 1,147 746 401 Thurber Manor Associates, Limited Partnership......... 25.00 218 142 76 U.S. Realty Partners Limited Partnership.............. 25.00 1,441 937 504 United Investors Growth Properties.................... 39.01 165 107 58 United Investors Growth Properties II................. 25.00 351 228 123 United Investors Income Properties.................... 23.44 1,977 1,285 692 Villa Nova, Limited Partnership....................... 25.00 228 148 80 Walker Springs, Limited............................... 23.99 95 62 33 Wingfield Investors Limited Partnership............... 25.00 179 116 63 Winrock-Houston Limited Partnership................... 13.60 1,041 677 364 Winthrop Apartment Investors Limited Partnership...... 31.60 1,318 857 461 Winthrop Growth Investors 1 Limited Partnership....... 27.94 1,233 801 432 Winthrop Texas Investors Limited Partnership.......... 5.27 158 103 55 Woodmere Associates, L.P.............................. 25.00 280 182 98 Yorktown Towers Associates............................ 25.00 809 526 283 -------- ------- ------ Total (See adjustment C to the Pro Forma Consolidated Balance Sheet)...................................... $122,463 $79,601 42,862 ======== ======= ======
The unaudited Pro Forma Financial Information (Exchange Offers) has been prepared using the purchase method of accounting whereby the assets and liabilities of NHP, the NHP Real Estate Companies, Ambassador, IFG, IPT, the Exchange Offers, the 1997 Acquisitions, the 1998 Acquisitions and the Probable Purchases are adjusted to estimated fair market value, based on preliminary estimates, which are subject to change as additional information is obtained. The allocations of purchase costs are subject to final determination based upon estimates and other evaluations of fair market value. Therefore, the allocations reflected in the following unaudited Pro Forma Financial Information (Exchange Offers) may differ from the amounts ultimately determined. P-38 154 The following unaudited Pro Forma Financial Information (Exchange Offers) is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the Partnership that would have occurred if such transactions had been completed on the dates indicated, nor does it purport to be indicative of future financial positions, results of operations or cash flows. In the opinion of the Partnership's management, all material adjustments necessary to reflect the effects of these transactions have been made. AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET (EXCHANGE OFFERS) AS OF SEPTEMBER 30, 1998 ASSETS
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT UNIT DATA) Real estate....................................... $2,625,822 $ 12,764(C) 26,954(D) 13,655(E) $2,679,195 Property held for sale............................ 42,212 -- 42,212 Investments in and notes receivable from unconsolidated subsidiaries..................... 186,277 -- 186,277 Investments in and notes receivable from unconsolidated partnerships..................... 924,309 109,699(C) (13,655)(E) (8,161)(F) 816(G) 1,013,008 Mortgage notes receivable......................... 20,916 -- 20,916 Cash and cash equivalents......................... 104,955 2,620(D) 107,575 Restricted cash................................... 84,526 1,807(D) 86,333 Accounts receivable............................... 27,900 1,081(D) 28,981 Deferred financing costs.......................... 21,835 -- 21,835 Goodwill.......................................... 251,024 -- 251,024 Property management contracts..................... 38,371 -- 38,371 Other assets...................................... 82,670 422(D) 83,092 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ========== LIABILITIES AND PARTNERS' CAPITAL Secured notes payable............................. $ 926,246 $ 23,642(D) $ 949,888 Secured tax-exempt bond financing................. 399,925 -- 399,925 Secured short-term financing...................... 32,691 -- 32,691 Unsecured short-term financing.................... 300,000 79,601(C) 379,601 Accounts payable, accrued and other liabilities... 248,253 826(D) 249,079 Security deposits and deferred income............. 13,171 255(D) 13,426 ---------- -------- ---------- 1,920,286 104,324 2,024,610 Minority interests................................ 79,431 816(G) 80,247 Company obligated mandatorily redeemable convertible securities of a subsidiary trust.... 149,500 -- 149,500 Redeemable common partnership units............... 277,581 8,161(D) (8,161)(F) 30,616(C) 308,197 Redeemable preferred partnership units............ -- 12,246(C) 12,246 Partner's capital General and Special Limited Partner............. 1,496,457 -- 1,496,457 Preferred Units................................. 487,562 -- 487,562 ---------- -------- ---------- 1,984,019 -- 1,984,019 ---------- -------- ---------- $4,410,817 $148,002 $4,558,819 ========== ======== ==========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." P-39 155 (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical balance sheet data as of September 30, 1998 (unaudited) related to the 91 real estate partnerships is as follows (dollars in thousands): Real estate................................................. $1,082,652 Cash........................................................ 151,024 Total assets................................................ 1,493,409 Mortgages payable........................................... 1,585,196 Partners' capital (deficit)................................. (171,740)
(C) Represents the purchase price paid by the Partnership to the limited partners in order to obtain additional ownership by AIMCO in 91 real estate partnerships. For the purposes of the pro-forma presentation, it is assumed: (i) 65% of the purchase price is funded with cash by drawing down on the Partnership's unsecured short term credit facility; (ii) 25% of the purchase price is funded by the issuance of 749,362 OP Units at $40 per OP Unit; and (iii) 10% of the purchase price is funded by the issuance of 8% Preferred OP Units. (D) Represents historical balance sheet data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (E) Represent the adjustment to real estate recorded in the IFG Merger related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (F) Represents the elimination of the partners' capital in the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. (G) Represents minority interest of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional partnership interests. P-40 156 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations.............. $ 431,256 $ 11,270(C) $ 442,526 Property operating expenses....................... (182,830) (6,612)(C) (189,442) Owned property management expense................. (11,831) -- (11,831) Depreciation...................................... (96,264) (2,589)(C) (98,853) --------- -------- --------- Income from property operations................... 140,331 2,069 142,400 --------- -------- --------- Management fees and other income.................. 41,676 -- 41,676 Management and other expenses..................... (23,683) -- (23,683) Corporate overhead allocation..................... (588) -- (588) Amortization...................................... (26,480) -- (26,480) --------- -------- --------- Income from service company business.............. (9,075) -- (9,075) Minority interest in service company business..... (10) -- (10) --------- -------- --------- Partnership's share of income from service company business........................................ (9,085) -- (9,085) --------- -------- --------- General and administrative expenses............... (21,371) -- (21,371) Interest expense.................................. (113,788) (5,691)(D) (2,220)(C) (121,699)(H) Interest income................................... 21,734 21,734 Minority interests................................ (9,983) (51)(E) (10,034) Equity in losses of unconsolidated partnerships... (27,537) (16,864)(F) 483(G) (43,918)(I) Equity in earnings of Unconsolidated Subsidiaries.................................... 5,848 -- 5,848 --------- -------- --------- Net income (loss)................................. (13,851) (22,274) (36,125)(H) Income attributable to Preferred Unitholders...... 42,174 980 43,154(J) --------- -------- --------- Income (loss) attributable to OP Unitholders...... (56,025) $(23,254) $ (79,279)(H) ========= ======== ========= Basic earnings (loss) per OP Unit................. (.83) $ (1.16)(H) ========= ========= Diluted earnings (loss) per OP Unit............... $ (.83) $ (1.16)(H) ========= ========= Weighted average OP Units outstanding............. 67,522 68,287 ========= ========= Weighted average OP Units and equivalents outstanding..................................... 68,366 69,131 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $456,968 Operating expense........................................... 249,097 Depreciation................................................ 87,344 Interest.................................................... 138,778 Net income.................................................. 15,005
P-41 157 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $10,740 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $6,124 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net loss, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- --------- --------------- ------------ Interest expense......... $(121,699) $(124,763) $(116,008) $(116,008) Net loss................. (36,125) (39,189 (30,434) (30,434) Preferred unit distributions.......... 43,154 42,174 42,174 51,971 Net loss attributable to OP Unitholders......... (79,279) (81,363) (72,608) (82,405) Net loss per OP Unit..... (1.16) (1.20) (1.03) (1.22)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Increase in interest expense.................. $ 1,137 $ 1,245 $ 938 $ 938 Net loss................... (37,262) (40,434) (31,372) (31,372) Net loss attributable to OP Unitholders.............. (80,416) (82,608) (73,546) (83,343) Net loss per OP Unit....... (1.18) (1.22) (1.04) (1.23)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, the Partnership will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The amount included in the pro forma financial statements assume an acceptance rate of 100%. The following table shows the effect on equity in earnings of unconsolidated partnerships, net loss, net loss attributable to OP Unitholders, and net loss per OP Unit in the event that the Partnership will have an acceptance rate of 50% of the interests tendered and will own varying percentages of each partnership: Equity in earnings of unconsolidated partnerships........... $(36,510) Net loss.................................................... (26,084) Net loss attributable to OP Unitholders..................... (68,784) Net loss per OP Unit........................................ (1.01)
P-42 158 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-43 159 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Rental and other property operations............... $ 337,307 $ 8,654(C) $ 345,961 Property operating expenses........................ (131,851) (4,389)(C) (136,240) Owned property management expense.................. (8,933) -- (8,933) Depreciation....................................... (78,479) (1,941)(C) (80,420) --------- -------- --------- Income from property operations.................... 118,044 2,324 120,368 --------- -------- --------- Management fees and other income................... 28,912 -- 28,912 Management and other expenses...................... (14,386) -- (14,386) Corporate overhead allocation...................... (196) -- (196) Amortization....................................... (15,243) -- (15,243) --------- -------- --------- Income from service company business............... (913) -- (913) Minority interest in service company business...... -- -- -- --------- -------- --------- Partnership's share of income from service company business......................................... (913) -- (913) --------- -------- --------- General and administrative expenses................ (8,632) -- (8,632) Interest expense................................... (85,010) (4,250)(D) (1,630)(C) (90,890)(H) Interest income.................................... 40,887 40,887 Minority interests................................. (8,429) (119)(E) (8,548) Equity in losses of unconsolidated partnerships.... (10,234) (13,156)(F) 41(G) (23,349)(I) Equity in earnings of Unconsolidated Subsidiaries..................................... 851 -- 851 Amortization of goodwill........................... (5,071) -- (5,071) --------- -------- --------- Net income (loss).................................. 41,493 (16,790) 24,703(H) Income attributable to Preferred Unitholders....... 32,414 735 33,149(J) --------- -------- --------- Income (loss) attributable to OP Unitholders....... $ 9,079 $(17,525) $ (8,446)(H) ========= ======== ========= Basic earnings (loss) per OP Unit.................. $ .13 $ (.12)(H) ========= ========= Diluted earnings (loss) per OP Unit................ $ .13 $ (.12)(H) ========= ========= Weighted average OP Units outstanding.............. 68,554 69,319 ========= ========= Weighted average OP Units and equivalents outstanding...................................... 69,218 69,983 ========= =========
- --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical operating data (unaudited) for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Revenue..................................................... $338,937 Operating expense........................................... 182,529 Depreciation................................................ 64,127 Interest.................................................... 103,756 Net income.................................................. (9,329)
P-44 160 (C) Represents historical statement of operations data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (D) Represents the increase in interest expense related to borrowings to pay the cash portion of the purchase price of the partnership interests. The interest rate used in the calculation of interest expense was LIBOR plus 1.75%. (E) Represents the minority interests share of net income of the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (F) Represents the changes in the Partnership's equity in losses from the 91 real estate partnerships of (i) $8,552 resulting from the Partnership's increase in the ownership based on the historical operating results of the 91 real estate partnerships; and (ii) amortization of $4,604 related to the increased basis in investments in real estate partnerships, as a result of the allocation of the purchase price of the partnership interests, based on an estimated average life of 20 years. (G) Represents the elimination of the equity earnings related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) The pro forma financial statements have been prepared under the assumption that the limited partners will elect 65% of the consideration to be paid in cash, 25% of the consideration to be paid in the form of common OP Units, and 10% of the consideration to be paid in the form of 8% Preferred OP Units. The following table shows the effect on interest expense, net income, preferred unit distributions, and net loss per OP Unit in the event that the limited partners elect to receive all their consideration in cash, common OP Units, and 8% Preferred OP Units, respectively:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- -------- --------------- ------------ Interest expense........... $(90,890) $(93,184) $(86,640) $(86,640) Net income................. 24,703 22,409 28,953 28,953 Preferred unit distributions............ 33,149 32,414 32,414 39,762 Net loss attributable to OP Unitholders.............. (8,446) (10,005) (3,461) (10,809) Net loss per OP Unit....... (.12) (.15) (.05) (.16)
In addition, the following table presents the net impact to interest expense, net loss, and net loss per OP Unit assuming the interest rate per annum increases by 0.25%:
8% PREFERRED PRO FORMA CASH COMMON OP UNITS OP UNITS --------- ------- --------------- ------------ Increase in interest expense.................... $ 851 $ 931 $ 702 $ 702 Net income................... 24,703 21,478 28,251 28,251 Net loss attributable to OP Unitholders................ (9,296) (10,936) (4,163) (11,511) Net loss per OP Unit......... (.13) (.16) (.06) (.17)
(I) The pro forma financial statements have been prepared under the assumption that after the exchange offers are accepted, AIMCO will own 49% of certain 88 Partnerships, 25% of two Partnerships, and 100% of one Partnership. The following table shows the effect on equity in earnings of unconsolidated partnerships, net income, net income (loss) attributable to OP Unitholders, and net loss per OP Unit in the event the Partnership will own varying percentages of each partnership. Equity in earnings of unconsolidated partnerships........... $(17,797) Net income.................................................. 32,216 Net income (loss) attributable to OP Unitholders............ (593) Net income (loss) per OP Unit............................... (.01)
P-45 161 (J) Represents the net income attributable to holders of the Class B Preferred Units, the Class C Preferred Units, the Class D Preferred Units, the Class G Preferred Units, the Class H Preferred Units, the Class J Preferred Units and the 8% Preferred OP Units as if these Preferred Units had been issued as of January 1, 1997. P-46 162 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ (13,851) $(22,274)(C) $ (36,125) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization........................... 128,169 2,589(D) 130,758 Gain on investments..................................... (12) -- (12) (Gain) loss on disposition of properties................ (3,882) -- (3,882) Minority interests...................................... 9,983 51 10,034 Equity in earnings of unconsolidated partnerships....... 27,537 16,864(E) (483)(F) 43,918 Equity in earnings of unconsolidated subsidiaries....... (5,848) -- (5,848) Extraordinary (gain) loss on early extinguishment of debt.................................................. -- Changes in operating assets and operating liabilities... 519 (660)(G) (141) ---------- -------- ---------- Total adjustments................................... 156,466 18,361 174,827 ---------- -------- ---------- Net cash provided by (used in) operating activities........................................ 142,615 (3,913) 138,702 Net cash used in discontinued operations............ (7,999) -- (7,999) ---------- -------- ---------- Net cash provided by (used in) continuing operations........................................ 134,616 (3,913) 130,703 ---------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of real estate......................... 41,419 -- 41,419 Purchase of real estate................................... (625,603) -- (625,603) Additions to real estate, investments and property held for sale................................................ (55,892) (1,024)(G) (56,916) Proceeds from sale of property held for sale.............. 303 -- 303 Purchase of general and limited partnership interests..... (276,458) (79,601)(H) (356,059) Purchase of management contracts.......................... (48,554) -- (48,554) Purchase of/additions to notes receivable................. (81,670) -- (81,670) Proceeds from repayments of notes receivable.............. 10,052 -- 10,052 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 94,686 10,070(I) 104,756 Contribution to unconsolidated subsidiaries............... (42,879) -- (42,879) Proceeds from sale of securities.......................... 642 -- 642 Purchase of investments held for sale..................... (73) -- (73) Purchase of NHP........................................... (60,575) -- (60,575) Purchase of Ambassador common stock....................... (19,881) -- (19,881) ---------- -------- ---------- Net cash used in investing activities............... (1,064,483) (70,555) (1,135,038) ---------- -------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 761,270 -- 761,270 Principal repayments on secured notes payable............. (307,917) (713)(G) (308,630) Proceeds from secured short-term financing................ 19,050 79,601(H) 98,651 Repayments on secured short-term financing................ (259,461) -- (259,461) Principal repayments on unsecured short-term notes payable................................................. (50,879) -- (50,879) Proceeds (payoff) from unsecured short-term financing..... (12,500) -- (12,500) Principal repayments on secured tax-exempt bond financing............................................... (1,487) -- (1,487) Net borrowings (paydowns) on the Company's revolving credit facilities....................................... (162,008) -- (162,008) Payment of loan costs, net of proceeds from interest rate hedge................................................... (17,032) -- (17,032) Proceeds from issuance of common and preferred stock, net..................................................... 1,098,265 -- 1,098,265 Proceeds from exercises of employee stock options and warrants................................................ 11,553 -- 11,553 Repurchase of common stock................................ (3,283) -- (3,283) Principal repayments received on notes due from Officers................................................ 27,280 -- 27,280 Investments made by minority interests.................... 249 -- 249 Receipt of contributions from minority interests.......... 37,345 -- 37,345 Payments of distributions to minority interests........... (2,713) -- (2,713) Payment of distributions.................................. (130,657) -- (130,657) Payment of distributions to limited partners.............. (5,208) (1,415)(J) (6,623) Payment of preferred unit distributions................... (42,984) (979)(K) (43,963) Payment of distributions to minority interests............ (21,788) -- (21,788) Net transactions with Insignia/ESG........................ (57,612) -- (57,612) ---------- -------- ---------- Net cash provided by financing activities........... 879,483 76,494 955,977 ---------- -------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (50,384) 2,026 (48,358) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 117,896 2,291 120,187 ---------- -------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 67,512 $ 4,317 $ 71,829 ========== ======== ==========
P-47 163 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the year ended December 31, 1997 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 65,372 Cash used in investing activities......................... (11,713) Cash used in financing activities......................... (74,617)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 20 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the cash portion of the purchase price (and additional borrowings by the Partnership) related to the acquisition by the Partnership of additional limited partnership interests in 91 real estate limited partnerships. (I) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (J) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.85 per Common OP Unit. (K) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-48 164 AIMCO PROPERTIES, L.P. PRO FORMA CONSOLIDATED STATEMENT OF CASH FLOWS (EXCHANGE OFFERS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
INSIGNIA MERGER PRO FORMA PRO FORMA(A) ADJUSTMENTS(B) EXCHANGE OFFERS --------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss)......................................... $ 41,493 $(16,790)(C) $ 24,703 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 101,523 1,941(D) 103,464 (Gain) loss on disposition of properties................ -- -- -- Minority interests...................................... 8,429 119 8,548 Equity in earnings of unconsolidated partnerships....... 10,234 13,156(E) (41)(F) 23,349 Equity in earnings of unconsolidated subsidiaries....... (851) -- (851) Non-cash compensation................................... 796 -- 796 Changes in operating assets and operating liabilities... (69,549) (21)(G) (69,570) --------- -------- --------- Total adjustments................................... 50,582 15,154 65,736 --------- -------- --------- Net cash provided by operating activities........... 92,075 (1,636) 90,439 --------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of real estate................................... 27,122 -- 27,122 Additions to real estate.................................. (57,526) (668)(G) (58,194) Proceeds from sale of property and investments held for sale.................................................... (35) -- (35) Additions to property held for sale....................... (1,986) -- (1,986) Purchase of general and limited partnership interests..... (9,596) -- (9,596) Purchase of/additions to notes receivable................. (100,034) -- (100,034) Proceeds from repayments/sale of notes receivable......... 42,747 -- 42,747 Distributions from investments in real estate partnerships and unconsolidated subsidiaries......................... 23,629 5,809(H) 29,438 Payment of trust based preferred dividends................ (7,415) -- (7,415) Cash received in connection with Ambassador Merger and AMIT Merger............................................. 17,915 -- 17,915 Contribution to unconsolidated subsidiaries............... (13,032) -- (13,032) Purchase of investments held for sale..................... (4,935) -- (4,935) Redemption of OP Units.................................... (516) -- (516) Merger costs.............................................. (1,402) -- (1,402) --------- -------- --------- Net cash used in investing activities............... (85,064) 5,141 (79,923) --------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from secured notes payable borrowings............ 291,885 -- 291,885 Principal repayments on secured notes payable............. (52,023) -- (52,023) Principal advances on secured tax-exempt bond financing... 21,784 -- 21,784 Principal repayments on secured tax-exempt bond financing............................................... (1,436) -- (1,436) Net borrowings/ repayments on secured short-term financing............................................... 135,332 -- 135,332 Net borrowings (paydowns) on the revolving credit facilities.............................................. 2,513 (812)(G) 1,701 Principal repayments on unsecured short-term notes payable................................................. 2,644 -- 2,644 Payment of loan costs, net of proceeds from interest rate hedge................................................... (5,810) -- (5,810) Proceeds from issuance of common stock and preferred stock, net.............................................. -- -- -- Repurchase of common stock................................ (10,972) -- (10,972) Proceeds from exercises of employee stock options and warrants................................................ 16,294 -- 16,294 Principal repayments received on notes due from Officers................................................ 8,084 -- 8,084 Receipt of contributions from minority interests.......... -- -- -- Payments of distributions to minority interests........... (2,034) (2,034) Payment of distributions.................................. (107,989) -- (107,989) Payment of distributions to limited partners.............. (12,669) (1,291)(I) (13,960) Payment of preferred unit distributions................... (27,010) (735)(J) (27,745) Proceeds from issuance of High Performance Units.......... 1,988 -- 1,988 Net transactions with Insignia/ESG........................ (241,003) -- (241,003) --------- -------- --------- Net cash provided by financing activities........... 19,578 (2,838) 16,740 --------- -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 26,589 667 27,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 55,700 4,316 60,016 --------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 82,289 $ 4,983 $ 87,272 ========= ======== =========
P-49 165 - --------------- (A) See "Pro Forma Financial Information (Insignia Merger)." (B) Represents adjustments related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. Selected historical cash flow data for the nine months ended September 30, 1998 related to the 91 real estate partnerships is as follows (dollars in thousands): Cash provided by operating activities..................... $ 76,113 Cash used in investing activities......................... (22,616) Cash used in financing activities......................... (42,273)
(C) Represents the pro forma net loss related to the Partnership's purchase of additional limited partnership interests in 91 real estate partnerships. (D) Represents additional deprecation related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests, based on the Partnership's new basis in the real estate. Buildings and improvements are depreciated on the straight-line method over a period of 30 years and furniture and fixtures are depreciated on the straight-line method over a period of 5 years. (E) Represents the increase in the Partnership's equity in earnings from the 90 real estate partnerships resulting from the Partnership's corresponding increase in ownership. (F) Represents the elimination of the equity earnings related to one real estate partnership that will be consolidated as a result of the Partnership's purchase of the additional limited partnership interests. (G) Represents historical cash flow data related to the one real estate partnership that will be consolidated as a result of the Partnership's purchase of additional limited partnership interests. (H) Represents the distributions to be received for the additional partnership interests acquired by the Partnership in the 91 real estate partnerships, based on the historical distributions paid per partnership unit. (I) Represents adjustments for distributions paid on the Common OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at the historical distribution amount of $1.6875 per Common OP Unit. (J) Represents adjustments for distributions paid on the Preferred OP Units assumed to be issued by the Partnership to acquire the additional limited partnership interests in 91 real estate limited partnerships, at a distribution rate of 8% per Preferred OP Unit. P-50 166 APPENDIX A - -------------------------------------------------------------------------------- ROBERT A. STANGER & CO., INC. 1129 Broad Street INVESTMENT BANKING Shrewsbury, NJ 07702-4314 (732) 389-3600 FAX:(732) 389-1751 (732) 544-0779
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AIMCO Properties, L.P. 1873 South Bellaire -- Suite 1700 Denver, Colorado 80222 Re: Shaker Square L.P. Gentlemen: You have advised us that AIMCO Properties, L.P. (the "Purchaser"), a subsidiary of Apartment Investment and Management Company ("AIMCO"), which directly or indirectly owns the general partner (the "General Partner") of Shaker Square L.P. (the "Partnership") (the Purchaser, AIMCO, the General Partner and other affiliates and subsidiaries of AIMCO are referred to herein collectively as the "Company"), is contemplating a transaction (the "Offer") in which limited partnership interests in the Partnership (the "Units") will be acquired by the Purchaser in exchange for an offer price per Unit of $66,400 in cash, or 1,764.50 Common OP Units of the Purchaser, or 2,656 Preferred OP Units of the Purchaser, or a combination of any of such forms of consideration. The limited partners of the Partnership (the "Limited Partners") will have the choice to maintain their current interest in the Partnership or exchange their Units for any or a combination of such forms of consideration. The amount of cash, Common OP Units or Preferred OP Units offered per Unit is referred to herein as the "Offer Price." You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as to whether the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Since its founding in 1978, Stanger and its affiliates have provided information, research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms, insurance companies and over seventy companies engaged in the management and operation of partnerships and real estate investment trusts. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes. Stanger's valuation practice principally involves partnerships, partnership securities and the assets typically held through partnerships, such as real estate, oil and gas reserves, cable television systems and equipment leasing assets. In the course of our analysis for rendering this opinion, we have, among other things: 1. Reviewed a draft of the Prospectus Supplement related to the Offer in a form management has represented to be substantially the same as will be distributed to the Limited Partners; 2. Reviewed the Partnership's financial statements for the years ended December 31, 1996 and 1997, and the quarterly report for the period ending September 30, 1998, which the Partnership's management has indicated to be the most current available financial statements; A-1 167 ROBERT A. STANGER & CO. INC. 3. Reviewed descriptive information concerning the real property owned by the Partnership (the "Property"), including location, number of units and unit mix, age, amenities and land acreage; 4. Reviewed summary historical operating statements for the Property, for the years ended December 31, 1996 and 1997, and the nine months ending September 30, 1998; 5. Reviewed the 1998 operating budget for the Property prepared by the Partnership's management. Such budgets are summarized in the Prospectus Supplement under the section "Stanger Analysis -- Summary of Materials Considered"; 6. Reviewed the estimate of liquidation value and going concern value provided by the general partner to Stanger. Such estimates are described in the Prospectus Supplement under the section "Fairness of the Offer -- Comparison of Consideration to Alternative Consideration." In addition, we received the 1998 operating budgets for each property provided by the Partnership; 7. Discussed with management market conditions for the Property; conditions in the market for sales/acquisitions of properties similar to that owned by the Partnership; historical, current and expected operations and performance of the Property and the Partnership; the physical condition of the Property including any deferred maintenance; and other factors influencing value of the Property and the Partnership; 8. Performed a site inspection of the Property; 9. Reviewed data and discussed with local sources real estate rental market conditions in the market of the Property, and reviewed available information relating to acquisition criteria for income-producing properties similar to the Property; 10. Reviewed information provided by the Company relating to debt encumbering the Property; and 11. Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all financial information and management reports and data, and all other reports and information contained in the Prospectus Supplement or that were provided, made available or otherwise communicated to us by the Partnership and the Company. We have not performed an independent appraisal, engineering study or environmental study of the assets and liabilities of the Partnership. We have relied upon the representations of the Partnership and the Company concerning, among other things, any environmental liabilities, deferred maintenance and estimated capital expenditures and replacement reserve requirements, the determination and valuation of non-real estate assets and liabilities of the Partnership, the terms and conditions of any debt encumbering the Property, the allocation of net Partnership values between the General Partner and Limited Partners, and the transaction costs and fees associated with a sale of the Property. We have also relied upon the assurance of the Partnership and the Company that any financial statements, projections, capital expenditure estimates, debt summaries, value estimates and other information contained in the Prospectus Supplement or otherwise provided or communicated to us were reasonably prepared and adjusted on bases consistent with actual historical experience, are consistent with the terms of the Partnership Agreement, and reflect the best currently available estimates and good faith judgments; that no material changes have occurred in the value of the Property or other information reviewed between the date such information was provided and date of this letter; that the Partnership and the Company are not aware of any information or facts that would cause the information supplied to us to be incomplete or misleading; that the highest and best use of the Property is as improved; and that all calculations were made in accordance with the terms of the Partnership Agreement. In addition, you have advised us that upon consummation of the Offer, the Partnership will continue its business and operations substantially as they are currently being conducted and that the Partnership and the Company do not have any present plans, proposals or intentions which relate to or would result in an A-2 168 ROBERT A. STANGER & CO. INC. extraordinary transaction, such as a merger, reorganization or liquidation involving the Partnership; a sale of the Partnership's Properties or the sale or transfer of a material amount of the Partnership's other assets; any changes to the Partnership's senior management or personnel or their compensation; any changes in the Partnership's present capitalization or distribution policy; or any other material changes in the Partnership's structure or business. We have not been requested to, and therefore did not: (i) select the Offer Price or the method of determining the Offer Price in connection with the Offer; (ii) make any recommendation to the Partnership or its partners with respect to whether to accept or reject the Offer or whether to accept the cash, Preferred OP Units or Common OP Units if the Offer is accepted; (iii) solicit any third party indications of interest in acquiring the assets of the Partnership or all or any part of the Partnership; or (iv) express any opinion as to (a) the tax consequences of the proposed Offer to the Limited Partners, (b) the terms of the Partnership Agreement or of any agreements or contracts between the Partnership and the Company, (c) the Company's business decision to affect the Offer or alternatives to the Offer, (d) the amount of expenses relating to the Offer or their allocation between the Company and the Partnership or tendering Limited Partners; (e) the relative value of the cash, Preferred OP Units or Common OP Units to be issued in connection with the Offer, and (f) any adjustments made to determine the Offer price and the net amounts distributable to the Limited Partners, including but not limited to, balance sheet adjustments to reflect the Partnership's estimate of the value of current net working capital balances, reserve accounts, and liabilities, and adjustments to the Offer Price for distributions made by the Partnership subsequent to the date of the initial Offer. We are not expressing any opinion as to the fairness of any terms of the Offer other than the Offer Price for the Units. Our opinion is based on business, economic, real estate and capital market, and other conditions as they existed and could be evaluated as of the date of our analysis and addresses the Offer in the context of information available as of the date of our analysis. Events occurring after that date could affect the assumptions used in preparing the opinion. The summary of the opinion set forth in the Prospectus Supplement does not purport to be a complete description of the analyses performed, or the matters considered, in rendering our opinion. The analyses and the summary set forth must be considered as a whole, and selecting portions of such summary or analyses, without considering all factors and analyses, would create an incomplete view of the processes underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made, and the judgments applied, in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to in the Prospectus Supplement is not meant to indicate that such analysis was given greater weight than any other analysis. Based upon and subject to the foregoing, it is our opinion that as of the date of this letter the Offer Price is fair to the Limited Partners of the Partnership from a financial point of view. Yours truly, /s/ ROBERT A. STANGER & CO. INC. Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey March 30, 1999 A-3 169 APPENDIX B DIRECTORS AND EXECUTIVE OFFICERS OF APARTMENT INVESTMENT AND MANAGEMENT COMPANY AND AIMCO-GP, INC. The names and positions of the executive officers of Apartment Investment and Management Company ("AIMCO"), AIMCO-GP, Inc. ("AIMCO-GP") and the directors of AIMCO are set forth below. The two directors of AIMCO-GP are Terry Considine and Peter Kompaniez. The two directors of the general partner of your partnership are Peter K. Kompaniez and Patrick J. Foye. The two executive officers of the general partner of your partnership are Patrick J. Foye, Executive Vice President, and Timothy R. Garrick, Vice President -- Accounting. Unless otherwise indicated, the business address of each executive officer and director is 1873 South Bellaire Street, 17th Floor, Denver, Colorado 80222. Each executive officer and director is a citizen of the United States of America.
NAME POSITION ---- -------- Terry Considine.............................. Chairman of the Board of Directors and Chief Executive Officer Peter K. Kompaniez........................... Vice Chairman, President and Director Thomas W. Toomey............................. Executive Vice President -- Finance and Administration Joel F. Bonder............................... Executive Vice President, General Counsel and Secretary Patrick J. Foye.............................. Executive Vice President Paul J. McAuliffe............................ Executive Vice President -- Capital Markets Robert Ty Howard............................. Executive Vice President -- Ancillary Services Steven D. Ira................................ Executive Vice President and Co-Founder Harry G. Alcock.............................. Senior Vice President -- Acquisitions Troy D. Butts................................ Senior Vice President and Chief Financial Officer Richard S. Ellwood........................... Director J. Landis Martin............................. Director Thomas L. Rhodes............................. Director John D. Smith................................ Director
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Terry Considine...................... Mr. Considine has been Chairman of the Board of Directors and Chief Executive Officer of AIMCO and AIMCO-GP since July 1994. He is the sole owner of Considine Investment Co. and prior to July 1994 was owner of approximately 75% of Property Asset Management, L.L.C., Limited Liability Company, a Colorado limited liability company, and its related entities (collectively, "PAM"), one of AIMCO's predecessors. On October 1, 1996, Mr. Considine was appointed Co-Chairman and director of Asset Investors Corp. and Commercial Asset Investors, Inc., two other public real estate investment trusts, and appointed as a director of Financial Assets Management, LLC, a real estate investment trust manager. Mr. Considine has been involved as a principal in a variety of real estate activities, including the acquisition, renovation, development and disposition of properties. Mr. Considine has also controlled entities engaged in other businesses such as television broadcasting, gasoline distribution and environmental laboratories. Mr. Considine received a
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- B.A. from Harvard College, a J.D. from Harvard Law School and is admitted as a member of the Massachusetts Bar. Peter K. Kompaniez................... Mr. Kompaniez has been Vice Chairman and a director of AIMCO since July 1994 and was appointed President of AIMCO in July 1997. Mr. Kompaniez has served as Vice President of AIMCO-GP from July 1994 through July 1998 and was appointed President in July 1998. Mr. Kompaniez has been a director of AIMCO-GP since July 1994. Since September 1993, Mr. Kompaniez has owned 75% of PDI Realty Enterprises, Inc., a Delaware corporation ("PDI"), one of AIMCO's predecessors, and serves as its President and Chief Executive Officer. From 1986 to 1993, he served as President and Chief Executive Officer of Heron Financial Corporation ("HFC"), a United States holding company for Heron International, N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez administered the acquisition, development and disposition of approximately 8,150 apartment units (including 6,217 units that have been acquired by the AIMCO) and 3.1 million square feet of commercial real estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law firm of Loeb and Loeb where he had extensive real estate and REIT experience. Mr. Kompaniez received a B.A. from Yale College and a J.D. from the University of California (Boalt Hall). Thomas W. Toomey..................... Mr. Toomey has served as Senior Vice President -- Finance and Administration of AIMCO since January 1996 and was promoted to Executive Vice-President-Finance and Administration in March 1997. Mr. Toomey has been Executive Vice President -- Finance and Administration of AIMCO-GP since July 1998. From 1990 until 1995, Mr. Toomey served in a similar capacity with Lincoln Property Company ("LPC") as well as Vice President/Senior Controller and Director of Administrative Services of Lincoln Property Services where he was responsible for LPC's computer systems, accounting, tax, treasury services and benefits administration. From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S. in Business Administration/Finance from Oregon State University and is a Certified Public Accountant. Joel F. Bonder....................... Mr. Bonder was appointed Executive Vice President and General Counsel of AIMCO since December 8, 1997. Mr. Bonder has been Executive Vice President and General Counsel of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Bonder served as Senior Vice President and General Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice President and Deputy General Counsel of NHP from June 1991 to March 1994 and as Associate General Counsel of NHP from 1986 to 1991. From 1983 to 1985, Mr. Bonder was with the Washington, D.C. law firm of Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross and Hardies. Mr. Bonder received an A.B. from the University of Rochester and a J.D. from Washington University School of Law. Patrick J. Foye...................... Mr. Foye has served as Executive Vice President of AIMCO and AIMCO-GP since May 1998. Prior to joining AIMCO, Mr. Foye was
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Paul J. McAuliffe.................... Mr. McAuliffe was appointed Executive Vice President -- Capital Markets in February 1999. Prior to joining AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp and prior to that time had been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was a key member of the underwriting team that led AIMCO's initial public offering in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate group at CS First Boston from 1990 to 1993 and he was a Principal in the real estate group at Morgan Stanley & Co., Inc. from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an MBA from University of Virginia, Darden School. Robert Ty Howard..................... Mr. Howard has served as Executive Vice President -- Ancillary Services since February 1998. Mr. Howard was appointed Executive Vice President -- Ancillary Services of AIMCO-GP in July 1998. Prior to joining AIMCO, Mr. Howard served as an officer and/or director of four affiliated companies, Hecco Ventures, Craig Corporation, Reading Company and Decurion Corporation. Mr. Howard was responsible for financing, mergers and acquisitions activities, investments in commercial real estate, both nationally and internationally, cinema development and interest rate risk management. From 1983 to 1988, he was employed by Spieker Properties. Mr. Howard received a B.A. from Amherst College, a J.D. from Harvard Law School and an M.B.A. from Stanford University Graduate School of Business. Steven D. Ira........................ Mr. Ira is a Co-Founder of AIMCO and has served as Executive Vice President of AIMCO since July 1994. Mr. Ira has been Executive Vice President of AIMCO-GP since July 1998. From 1987 until July 1994, he served as President of PAM. Prior to merging his firm with PAM in 1987, Mr. Ira acquired extensive experience in property management. Between 1977 and 1981 he supervised the property management of over 3,000 apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in 1981 he joined with others to form the property management firm of McDermott, Stein and Ira. Mr. Ira served for several years on the National Apartment Manager Accreditation Board and is a former president of both the National Apartment Association and the Colorado Apartment Association. Mr. Ira is the sixth individual elected to the Hall of Fame of the National Apartment Association in its 54-year history. He holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment Manager designation from the National Apartment Association, a Certified Property Manager (CPM) designation from the National Institute of Real Estate Management (IREM) and he is a member of the Board of Directors of the National Multi-Housing Council, the National Apartment Association
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- and the Apartment Association of Metro Denver. Mr. Ira received a B.S. from Metropolitan State College in 1975. Harry G. Alcock...................... Mr. Alcock has served as Vice President of AIMCO and AIMCO-GP since July 1996, and was promoted to Senior Vice President -- Acquisitions in October 1997, with responsibility for acquisition and financing activities since July 1994. From June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los Angeles based real estate developer, with responsibility for raising debt and joint venture equity to fund land acquisitions and development. From 1987 to 1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San Jose State University. Troy D. Butts........................ Mr. Butts has served as Senior Vice President and Chief Financial Officer of AIMCO since November 1997. Mr. Butts has been Senior Vice President and Chief Financial Officer of AIMCO-GP since July 1998. Prior to joining AIMCO, Mr. Butts served as a Senior Manager in the audit practice of the Real Estate Services Group for Arthur Andersen LLP in Dallas, Texas. Mr. Butts was employed by Arthur Andersen LLP for ten years and his clients were primarily publicly-held real estate companies, including office and multi-family real estate investment trusts. Mr. Butts holds a Bachelor of Business Administration degree in Accounting from Angelo State University and is a Certified Public Accountant. Richard S. Ellwood................... Mr. Ellwood was appointed a Director of AIMCO in July 1994 12 Auldwood Lane and is currently Chairman of the Audit Committee. Mr. Rumson, NJ 07660 Ellwood is the founder and President of R.S. Ellwood & Co., Incorporated, a real estate investment banking firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987, Mr. Ellwood had 31 years experience on Wall Street as an investment banker, serving as: Managing Director and senior banker at Merrill Lynch Capital Markets from 1984 to 1987; Managing Director at Warburg Paribas Becker from 1978 to 1984; general partner and then Senior Vice President and a director at White, Weld & Co. from 1968 to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to 1968. Mr. Ellwood currently serves as a director of FelCor Suite Hotels, Inc. and Florida East Coast Industries, Inc. J. Landis Martin..................... Mr. Martin was appointed a Director of AIMCO in July 1994 199 Broadway and became Chairman of the Compensation Committee in March Suite 4300 1998. Mr. Martin has served as President and Chief Executive Denver, CO 80202 Officer and a Director of NL Industries, Inc., a manufacturer of titanium dioxide, since 1987. Mr. Martin has served as Chairman of Tremont Corporation, a holding company operating through its affiliates Titanium Metals Corporation ("TIMET") and NL Industries, Inc., since 1990 and as Chief Executive Officer and a director of Tremont since 1998. Mr. Martin has served as Chairman of Timet, an integrated producer of titanium, since 1987 and Chief Executive Officer since January 1995. From 1990 until its acquisition by Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman of the Board and Chief Executive Officer of Baroid Corporation, an oilfield services company. In addition to Tremont, NL and TIMET,
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NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS ---- --------------------------------------------- Mr. Martin is a director of Dresser, which is engaged in the petroleum services, hydrocarbon and engineering industries. Timothy R. Garrick................... Mr. Garrick has been Vice President -- Accounting of the general partner and AIMCO since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President -- Accounting Services of Insignia Financial Group from June 1997 until October 1998. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting for Insignia Financial Group. From 1987 to 1990, Mr. Garrick served as Investment Advisor for U.S. Shelter Corporation. From 1984 to 1987, Mr. Garrick served as Partnership Investment Analyst for U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina in 1979 and is a certified public accountant. Thomas L. Rhodes..................... Mr. Rhodes was appointed a Director of AIMCO in July 1994. 215 Lexingon Avenue Mr. Rhodes has served as the President and a Director of 4th Floor National Review magazine since November 30, 1992, where he New York, NY 10016 has also served as a Director since 1998. From 1976 to 1992 , he held various positions at Goldman, Sachs & Co. and was elected a General Partner in 1986 and served as a General Partner from 1987 until November 27, 1992. He is currently Co-Chairman of the Board , Co-Chief Executive Officer and a Director of Commercial Assets Inc. and Asset Investors Corporation. He also serves as a Director of Delphi Financial Group, Inc. and its subsidiaries, Delphi International Ltd., Oracle Reinsurance Company, and the Lynde and Harry Bradley Foundation. Mr. Rhodes is Chairman of the Empire Foundation for Policy Research, a Founder and Trustee of Change NY, a Trustee of The Heritage Foundation, and a Trustee of the Manhattan Institute. John D. Smith........................ Mr. Smith was appointed a Director of AIMCO in November 3400 Peachtree Road 1994. Mr. Smith is Principal and President of John D. Smith Suite 831 Developments. Mr. Smith has been a shopping center Atlanta, GA 30326 developer, owner and consultant for over 8.6 million square feet of shopping center projects including Lenox Square in Atlanta, Georgia. Mr. Smith is a Trustee and former President of the International Council of Shop ping Centers and was selected to be a member of the American Society of Real Estate Counselors. Mr. Smith served as a Director for Pan-American Properties, Inc. (National Coal Board of Great Britain) formerly known as Continental Illinois Properties. He also serves as a director of American Fidelity Assurance Companies and is retained as an advisor by Shop System Study Society, Tokyo, Japan.
B-5 174 Questions and requests for assistance or for additional copies of this Prospectus Supplement and the Letter of Transmittal may be directed to the Information Agent at its telephone number and address listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: TOLL FREE (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 EX-99 2 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER UNITS OF LIMITED PARTNERSHIP INTEREST IN SHAKER SQUARE, L.P. LIMITED PARTNERSHIP PURSUANT TO AN OFFER DATED MARCH 31, 1999 BY AIMCO PROPERTIES, L.P. --------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 4, 1999, UNLESS EXTENDED. --------------------- The Information Agent for the offer is: RIVER OAKS PARTNERSHIP SERVICES, INC. By Mail: By Overnight Courier: By Hand: P.O. Box 2065 111 Commerce Road 111 Commerce Road S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072 Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone: Toll Free (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910
- ------------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF UNITS TENDERED - ------------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE INDICATE CHANGES OR NUMBER OF UNITS TENDERED CORRECTIONS TO THE NAME, (ATTACH ADDITIONAL LIST, IF NECESSARY) ADDRESS AND TAX IDENTIFICATION NUMBER PRINTED BELOW.) - ------------------------------------------------------------------------------------------------------------------------------ 2. NUMBER 3. NUMBER OF UNITS OF UNITS 4. NUMBER 1. TOTAL TENDERED TENDERED OF UNITS 5. TOTAL NUMBER OF FOR FOR TENDERED NUMBER UNITS PREFERRED COMMON FOR OF UNITS OWNED OP UNITS OP UNITS CASH TENDERED (#) (#) (#) (#) (#) ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------
2 To participate in the offer and receive either cash, Partnership Common Units ("Common OP Units") of AIMCO Properties, L.P. (the "Purchaser") or Class Two Partnership Preferred Units ("Preferred OP Units") of the Purchaser, you must send a duly completed and executed copy of this Letter of Transmittal and any other documents required by this Letter of Transmittal so that such documents are received by River Oaks Partnership Services, Inc., the Information Agent, on or prior to June 4, 1999 (the "Expiration Date"). THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK AND, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. DELIVERY OF THIS LETTER OF TRANSMITTAL OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE VALID DELIVERY. FOR INFORMATION OR ASSISTANCE IN CONNECTION WITH THE OFFER OR THE COMPLETION OF THIS LETTER OF TRANSMITTAL, PLEASE CONTACT THE INFORMATION AGENT AT (888) 349-2005 (TOLL FREE) OR (201) 896-1900. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 9) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be issued in the name of someone other than the undersigned. [ ] Issue consideration to: Name: ------------------------------------------ (Please Type or Print) Address: --------------------------------------- - ------------------------------------------------ - ------------------------------------------------ - ------------------------------------------------ (Include Zip Code) - ------------------------------------------------ (Tax Identification or Social Security No.) (See Substitute Form W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 2, 4 AND 9) To be completed ONLY if the consideration for the purchase price of Units accepted for payment is to be sent to someone other than the undersigned or to the undersigned at an address other than that shown above. [ ] Mail consideration to: Name: ------------------------------------------ (Please Type or Print) Address: --------------------------------------- - ------------------------------------------------ - ------------------------------------------------ - ------------------------------------------------ (Include Zip Code) NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 3 Ladies and Gentlemen: The undersigned (the "Limited Partner") hereby acknowledges that he or she has received and reviewed (i) the Apartment Investment and Management Company and AIMCO Properties, L.P. Prospectus, dated March 26, 1999, as supplemented or amended from time to time, (ii) the Purchaser's Prospectus Supplement, dated March 31, 1999, which describes the exchange offer, as supplemented or amended from time to time, and (iii) this Letter of Transmittal, including the Instructions hereto, as it may be supplemented or amended from time to time (the "Letter of Transmittal"). (all constituting the "Offer"). Upon the terms and subject to the conditions set forth in the Offer, the undersigned hereby tenders to the Purchaser the units of limited partnership interest ("Units") in Shaker Square, L.P., a Delaware limited partnership (the "Partnership"), set forth in the box above entitled "Description of Units Tendered" under the column entitled "Total Number of Units Tendered." For each Unit that you tender, you may choose to receive as consideration per Unit (the "Offer Price") any combination of 2,656 Class Two Partnership Preferred Units ("Preferred OP Units"), 1,764.50 Partnership Common Units ("Common OP Units") or $66,400.00 in cash, reduced in each case for the amount of distributions, if any, made by the Partnership from the date the Offer commences (the "Offer Date") until the Expiration Date. The number of Units you choose to tender for each type of consideration will be set forth by you in the box above entitled "Description of Units Tendered" under the columns entitled "Number of Units Tendered for Preferred OP Units," "Number of Units Tendered for Common OP Units," and "Number of Units Tendered for Cash." ALL HOLDERS OF UNITS WHO DO NOT SPECIFY WHICH TYPE OF CONSIDERATION THEY WISH TO RECEIVE WILL BE DEEMED TO HAVE ELECTED TO RECEIVE PREFERRED OP UNITS. Subject to and effective upon payment of any of the Units tendered hereby in accordance with the terms of the Offer, the undersigned hereby irrevocably sells, assigns, transfers, conveys and delivers to, or upon the order of, the Purchaser all right, title and interest in and to such Units tendered hereby that are accepted for payment pursuant to the Offer, including, without limitation, (i) all of the undersigned's interest in the capital of the Partnership, and the undersigned's interest in all profits, losses and distributions of any kind to which the undersigned shall at any time be entitled in respect of the Units; (ii) all other payments, if any, due or to become due to the undersigned in respect of the Units, under or arising out of the Partnership Agreement, whether as contractual obligations, damages, insurance proceeds, condemnation awards or otherwise; (iii) all of the undersigned's claims, rights, powers, privileges, authority, options, security interests, liens and remedies, if any, under or arising out of the Partnership Agreement or the undersigned's ownership of the Units, including, without limitation, all voting rights, rights of first offer, first refusal or similar rights, and rights to be substituted as a limited partner of the Partnership; and (iv) all present and future claims, if any, of the undersigned against the Partnership, the other partners of the Partnership, or the general partner and its affiliates, including the Purchaser, under or arising out of the Partnership Agreement, the undersigned's status as a limited partner, or the terms or conditions of the Offer, for monies loaned or advanced, for services rendered, for the management of the Partnership or otherwise. The undersigned hereby irrevocably constitutes and appoints the Purchaser and any designees of the Purchaser as the true and lawful agent and attorney-in-fact of the undersigned with respect to such Units, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to vote or act in such manner as any such attorney and proxy or substitute shall, in its sole discretion, deem proper with respect to such Units, to do all such acts and things necessary or expedient to deliver such Units and transfer ownership of such Units on the partnership books maintained by the general partner of the Partnership, together with all accompanying evidence of transfer and authenticity to, or upon the order of, the Purchaser, to sign any and all documents necessary to authorize the transfer of the Units to the Purchaser including, without limitation, the "Transferor's (Seller's) Application for Transfer" created by the National Association of Securities Dealers, Inc., if required, and upon receipt by the Information Agent (as the undersigned's agent) of the offer price, to become a substitute limited partner, to receive any and all distributions made by the Partnership from and after the expiration date of the offer (regardless of the record date for any such distribution), and to receive all benefits and otherwise exercise all rights of beneficial ownership of such Units all in accordance with the terms of the Offer. This appointment is effective upon the purchase of the Units by the Purchaser as provided in the Offer. Upon the purchase of Units pursuant to the Offer, all prior proxies and consents given by the undersigned with respect to such Units will be revoked and no subsequent proxies or consents may be given (and if given will not be deemed effective). In addition to and without limiting the generality of the foregoing, the undersigned hereby irrevocably (i) requests and authorizes (subject to and effective upon acceptance for payment of any Unit tendered hereby) the Partnership and general partner to take any and all actions as may be required to effect the transfer of the undersigned's Units to the Purchaser (or its designee) and to admit the Purchaser as a substitute limited partner in the Partnership under the terms of the Partnership Agreement; (ii) empowers the 4 Purchaser and its agent to execute and deliver to the general partner a change of address form instructing the general partner to send any and all future distributions to the address specified in the form, and to endorse any check payable to or upon the order of such Limited Partner representing a distribution to which the Purchaser is entitled to the terms of the offer, in each case in the name and on behalf of the tendering Limited Partner; and (iii) agrees not to exercise any rights pertaining to the Units without the prior consent of the Purchaser. NOTWITHSTANDING ANY PROVISION IN THE PARTNERSHIP AGREEMENT TO THE CONTRARY, THE UNDERSIGNED HEREBY DIRECTS THE GENERAL PARTNER OF THE PARTNERSHIP TO MAKE ALL DISTRIBUTIONS AFTER THE PURCHASER ACCEPTS THE TENDERED UNITS FOR PAYMENT TO THE PURCHASER OR ITS DESIGNEE. Subject to and effective upon acceptance for payment of any Unit tendered hereby, the undersigned hereby requests that the Purchaser be admitted to each Partnership as a substitute limited partner under the terms of its Partnership Agreement. Upon request, the undersigned will execute and deliver additional documents deemed by the Information Agent or the Purchaser to be necessary or desirable to complete the assignment, transfer and purchase of Units tendered hereby and will hold any distributions received from the Partnership after the Expiration Date in trust for the benefit of the Purchaser and, if necessary, will promptly forward to the Purchaser any such distributions immediately upon receipt. The Purchaser reserves the right to transfer or assign, in whole or in part, from time to time, to one or more of its affiliates, the right to purchase Units tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer or prejudice the rights of tendering limited partners to receive payment for Units validly tendered and accepted for payment pursuant to the Offer. By executing this Letter of Transmittal, the undersigned represents that either (i) the undersigned is not a plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 of any such plan, or (ii) the tender and acceptance of Units pursuant to the Offer will not result in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code. The undersigned understands that a tender of Units to the Purchaser will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer, the Purchaser may not be required to accept for payment any of the Units tendered hereby. In such event, the undersigned understands that any Letter of Transmittal for Units not accepted for payment may be destroyed by the Purchaser (or its agent). UNITS TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THEIR ACCEPTANCE FOR PAYMENT AS PROVIDED IN THE OFFER. THE UNDERSIGNED HAS BEEN ADVISED THAT THE PURCHASER IS AN AFFILIATE OF THE GENERAL PARTNER OF THE PARTNERSHIP AND THE GENERAL PARTNER OF THE PARTNERSHIP MAKES NO RECOMMENDATION TO THE UNDERSIGNED AS TO WHETHER TO TENDER OR TO REFRAIN FROM TENDERING UNITS IN THE OFFER AND THE UNDERSIGNED HAS MADE HIS OR HER OWN DECISION TO TENDER UNITS. The undersigned hereby represents and warrants for the benefit of the Partnership and the Purchaser that the undersigned owns the Units tendered hereby and has full power and authority and has taken all necessary action to validly tender, sell, assign, transfer, convey and deliver the Units tendered hereby and that when the same are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof, and such Units will not be subject to any adverse claims and that the transfer and assignment contemplated herein are in compliance with all applicable laws and regulations. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned, and any obligations of the undersigned shall be binding upon the heirs, personal representatives, trustees in bankruptcy, legal representatives, and successors and assigns of the undersigned. The undersigned, if he is accepting the Offer for OP Units, hereby acknowledges that he has reviewed the Third Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") attached as Appendix B to the Prospectus, and hereby accepts admission to the Partnership as an Additional Limited Partner and agrees to be bound by all of the provisions of the Partnership Agreement, which is incorporated herein by reference, including, without limitation, the power of attorney set forth in Section 2.4 of the Partnership Agreement. 5 SIGNATURE BOX (SEE INSTRUCTION 2) Please sign exactly as your name is printed on the front of this Letter of Transmittal. For joint owners, each joint owner must sign. (See Instruction 2). TRUSTEES, EXECUTORS, ADMINISTRATORS, GUARDIANS, ATTORNEYS-IN-FACT, OFFICERS OF A CORPORATION OR OTHER PERSONS ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE COMPLETE THIS BOX AND SEE INSTRUCTION 2. The signatory hereto hereby tenders the Units indicated in this Letter of Transmittal to the Purchaser pursuant to the terms of the Offers, and certifies under penalties of perjury that the statements in Box A, Box B and, if applicable, Box C are true. X ------------------------------------------------------------------------------ (SIGNATURE OF OWNER) X ------------------------------------------------------------------------------ (SIGNATURE OF JOINT OWNER) Name and Capacity (if other than individuals): --------------------------------- Title: ------------------------------------------------------------------------- Address: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- (CITY) (STATE) (ZIP) Area Code and Telephone No. (Day): --------------------------------------------- (Evening): -------------------------------------------------- SIGNATURE GUARANTEE (IF REQUIRED) (SEE INSTRUCTION 2) Name and Address of Eligible Institution: -------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Authorized Signature: X -------------------------------------------------------- Name: -------------------------------------------------------------------------- Title: ---------------------------- Date: ---------------------------, 1999 6 TAX CERTIFICATIONS (SEE INSTRUCTION 5) By signing the Letter of Transmittal in the Signature Box, the Limited Partner certifies as true under penalty of perjury, the representations in Boxes A, B and C below. Please refer to the attached Instructions for completing this Letter of Transmittal and Boxes A, B and C below. BOX A SUBSTITUTE FORM W-9 (SEE INSTRUCTION 5 -- BOX A) The Limited Partner hereby certifies the following to the Purchaser under penalties of perjury: (i) The Taxpayer Identification No. ("TIN") printed (or corrected) on the front of this Letter of Transmittal is the correct TIN of the Limited Partner, unless the Units are held in an Individual Retirement Account (IRA); or if this box [ ] is checked, the Limited Partner has applied for a TIN. If the Limited Partner has applied for a TIN, a TIN has not been issued to the Limited Partner, and either (a) the Limited Partner has mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office, or (b) the Limited Partner intends to mail or deliver an application in the near future (it being understood that if the Limited Partner does not provide a TIN to the Purchaser, 31% of all reportable payments made to the Limited Partner will be withheld); and (ii) Unless this box [ ] is checked, the Limited Partner is not subject to backup withholding either because the Limited Partner: (a) is exempt from backup withholding; (b) has not been notified by the IRS that the Limited Partner is subject to backup withholding as a result of a failure to report all interest or dividends; or (c) has been notified by the IRS that such Limited Partner is no longer subject to backup withholding. Note: Place an "X" in the box in (ii) above, only if you are unable to certify that the Limited Partner is not subject to backup withholding. 7 BOX B FIRPTA AFFIDAVIT (SEE INSTRUCTION 5 -- BOX B) Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg. 1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount realized with respect to certain transfers of an interest in a partnership if 50% or more of the value of its gross assets consists of U.S. real property interests and 90% or more of the value of its gross assets consists of U.S. real property interests plus cash equivalents, and the holder of the partnership interest is a foreign person. To inform the Purchaser that no withholding is required with respect to the Limited Partner's Units in the Partnership, the person signing this Letter of Transmittal hereby certifies the following under penalties of perjury: (i) Unless this box [ ] is checked, the Limited Partner, if an individual, is a U.S. citizen or a resident alien for purposes of U.S. income taxation, and if other than an individual, is not a foreign corporation, foreign partnership, foreign estate or foreign trust (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); (ii) The Limited Partner's U.S. social security number (for individuals) or employer identification number (for non-individuals) is correct as furnished in the blank provided for that purpose on the front of the Letter of Transmittal; (iii) The Limited Partner's home address (for individuals), or office address (for non-individuals), is correctly printed (or corrected) on the front of this Letter of Transmittal. The person signing this Letter of Transmittal understands that this certification may be disclosed to the IRS by the Purchaser and that any false statements contained herein could be punished by fine, imprisonment, or both. (SEE BOX C ON REVERSE SIDE) 8 BOX C SUBSTITUTE FORM W-8 (SEE INSTRUCTION 5 -- BOX C) By checking this box [ ], the person signing this Letter of Transmittal hereby certifies under penalties of perjury that the Limited Partner is an "exempt foreign person" for purposes of the Backup Withholding rules under the U.S. Federal income tax laws, because the Limited Partner has the following characteristics: (i) Is a nonresident alien individual or a foreign corporation, partnership, estate or trust; (ii) If an individual, has not been and plans not to be present in the U.S. for a total of 183 days or more during the calendar year; and (iii) Neither engages, nor plans to engage, in a U.S. trade or business that has effectively connected gains from transactions with a broker or barter exchange. 9 INSTRUCTIONS FOR COMPLETING LETTER OF TRANSMITTAL 1. REQUIREMENTS OF TENDER. To be effective, a duly completed and signed Letter of Transmittal (or facsimile thereof) and any other required documents must be received by the Information Agent at one of its addresses (or its facsimile number) set forth herein before 5:00 p.m., New York City Time, on June 4, 1999, unless extended. To ensure receipt of the Letter of Transmittal and any other required documents, it is suggested that you use overnight courier delivery or, if the Letter of Transmittal and any other required documents are to be delivered by United States mail, that you use certified or registered mail, return receipt requested. WHERE NO DEFINITIVE INDICATION IS MARKED IN THE BOX ENTITLED "DESCRIPTION OF UNITS TENDERED" UNDER THE COLUMNS ENTITLED "NUMBER OF UNITS TENDERED FOR PREFERRED OP UNITS," "NUMBER OF UNITS TENDERED FOR COMMON OP UNITS," AND "NUMBER OF UNITS TENDERED FOR CASH," LETTERS OF TRANSMITTAL THAT HAVE BEEN DULY EXECUTED SHALL BE DEEMED TO HAVE TENDERED ALL UNITS FOR PREFERRED OP UNITS PURSUANT TO THE OFFER. UNLESS OTHERWISE INDICATED, ALL UNITS LISTED AS OWNED WILL BE DEEMED TO HAVE BEEN ENTERED PURSUANT TO THE OFFER. WHEN TENDERING BY FACSIMILE, PLEASE TRANSMIT ALL PAGES OF THE LETTER OF TRANSMITTAL, INCLUDING TAX CERTIFICATIONS (BOXES A, B AND C). THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING LIMITED PARTNER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. 2.SIGNATURE REQUIREMENTS. INDIVIDUAL AND JOINT OWNERS -- After carefully reading and completing the Letter of Transmittal, to tender Units, Limited Partners must sign at the "X" in the Signature Box of the Letter of Transmittal. The signature(s) must correspond exactly with the names printed (or corrected) on the front of the Letter of Transmittal. If the Letter of Transmittal is signed by the Limited Partner (or beneficial owner in the case of an IRA), no signature guarantee on the Letter of Transmittal is required. If any tendered Units are registered in the names of two or more joint owners, all such owners must sign this Letter of Transmittal. IRA'S/ELIGIBLE INSTITUTIONS -- For Units held in an IRA account, the beneficial owner should sign in the Signature Box and no signature guarantee is required. Similarly, if Units are tendered for the account of a member firm of a registered national security exchange, a member firm of the National Association of Securities Dealers, Inc. or a commercial bank, savings bank, credit union, savings and loan association or trust company having an office, branch or agency in the United States (each an "Eligible Institution"), no signature guarantee is required. TRUSTEES, CORPORATIONS, PARTNERSHIPS AND FIDUCIARIES -- Trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or other persons acting in a fiduciary or representative capacity must sign at the "X" in the Signature Box and have their signatures guaranteed by an Eligible Institution by completing the signature guarantee set forth in the Signature Box of the Letter of Transmittal. If the Letter of Transmittal is signed by trustees, administrators, guardians, attorneys-in-fact, officers of a corporation, authorized partners of a partnership or others acting in a fiduciary or representative capacity, such persons should, in addition to having their signatures guaranteed, indicate their title in the Signature Box and must submit proper evidence satisfactory to the Purchaser of their authority to so act (see Instruction 3 below). 3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be completed on the Letter of Transmittal, additional documentation may be required by the Purchaser under certain circumstances including, but not limited to, those listed below. Questions on documentation should be directed to the Information Agent at its telephone number set forth herein. DECEASED OWNER (JOINT TENANT) -- Copy of death certificate. 10 DECEASED OWNER (OTHERS) -- Copy of death certificate (see also Executor/Administrator/Guardian below). EXECUTOR/ADMINISTRATOR/GUARDIAN -- Copy of court appointment documents for executor or administrator; and (a) a copy of applicable provisions of the will (title page, executor(s)' powers, asset distribution); or (b) estate distribution documents. ATTORNEY-IN-FACT -- Current power of attorney. CORPORATION/PARTNERSHIP -- Corporate resolution(s) or other evidence of authority to act. Partnership should furnish copy of the partnership agreement. TRUST/PENSION PLANS -- Unless the trustee(s) are named in the registration, a copy of the cover page of the trust or pension plan, along with a copy of the section(s) setting forth names and powers of trustee(s) and any amendments to such sections or appointment of successor trustee(s). 4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If consideration is to be issued in the name of a person other than the person signing the Signature Box of the Letter of Transmittal or if consideration is to be sent to someone other than such signer or to an address other than that set forth on the Letter of Transmittal in the box entitled "Description of Units Tendered," the appropriate boxes on the Letter of Transmittal should be completed. 5. TAX CERTIFICATIONS. The Limited Partner(s) tendering Units to the Purchaser pursuant to the Offer must furnish the Purchaser with the Limited Partner's taxpayer identification number ("TIN") and certify as true, under penalties of perjury, the representations in Box A, Box B and, if applicable, Box C. By signing the Signature Box, the Limited Partner(s) certifies that the TIN as printed (or corrected) on this Letter of Transmittal in the box entitled "Description of Units Tendered" and the representations made in Box A, Box B and, if applicable, Box C, are correct. See attached Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for guidance in determining the proper TIN to give the Purchaser. U.S. PERSONS. A limited partner that is a U.S. citizen or a resident alien individual, a domestic corporation, a domestic partnership, a domestic trust or a domestic estate (collectively, "U.S. Persons"), as those terms are defined in the Code, should follow the instructions below with respect to certifying Box A and Box B. BOX A -- SUBSTITUTE FORM W-9. Part (i), Taxpayer Identification Number -- Tendering limited partners must certify to the Purchaser that the TIN as printed (or corrected) on this Letter of Transmittal in the box entitled "Description of Units Tendered" is correct. If a correct TIN is not provided, penalties may be imposed by the Internal Revenue Service (the "IRS"), in addition to the limited partner being subject to backup withholding. Part (ii), Backup Withholding -- In order to avoid 31% Federal income tax backup withholding, the tendering limited partner must certify, under penalties of perjury, that such limited partner is not subject to backup withholding. Certain limited partners (including, among others, all corporations and certain exempt non-profit organizations) are not subject to backup withholding. Backup withholding is not an additional tax. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. DO NOT CHECK THE BOX IN BOX A, PART (II), UNLESS YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING. When determining the TIN to be furnished, please refer to the following as a guide: Individual accounts -- should reflect owner's TIN. Joint accounts -- should reflect the TIN of the owner whose name appears first. Trust accounts -- should reflect the TIN assigned to the trust. IRA custodial accounts -- should reflect the TIN of the custodian (not necessary to provide). Custodial accounts for the benefit of minors -- should reflect the TIN of the minor. Corporations, partnership or other business entities -- should reflect the TIN assigned to that entity. By signing the Signature Box, the limited partner(s) certifies that the TIN as printed (or corrected) on the front of the Letter of Transmittal is correct. 11 BOX B -- FIRPTA AFFIDAVIT -- Section 1445 of the Code requires that each limited partner transferring interests in a partnership with real estate assets meeting certain criteria certify under penalty of perjury the representations made in Box B, or be subject to withholding of tax equal to 10% of the purchase price \for interests purchased. Tax withheld under Section 1445 of the Code is not an additional tax. If withholding results in an overpayment of tax, a refund may be obtained from the IRS. PART (I) SHOULD BE CHECKED ONLY IF THE TENDERING LIMITED PARTNER IS NOT A U.S. PERSON, AS DESCRIBED THEREIN. BOX C -- FOREIGN PERSONS -- In order for a tendering Limited Partner who is a Foreign Person (i.e., not a U.S. Person, as defined above) to qualify as exempt from 31% backup withholding, such foreign Limited Partner must certify, under penalties of perjury, the statement in Box C of this Letter of Transmittal, attesting to that Foreign Person's status by checking the box preceding such statement. UNLESS THE BOX IS CHECKED, SUCH LIMITED PARTNER WILL BE SUBJECT TO 31% WITHHOLDING OF TAX. 6. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will be accepted. 7. VALIDITY OF LETTER OF TRANSMITTAL. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of a Letter of Transmittal and other required documents will be determined by the Purchaser and such determination will be final and binding. The Purchaser's interpretation of the terms and conditions of the Offer (including these Instructions for this Letter of Transmittal) will be final and binding. The Purchaser will have the right to waive any irregularities or conditions as to the manner of tendering. Any irregularities in connection with tenders, unless waived, must be cured within such time as the Purchaser shall determine. This Letter of Transmittal will not be valid until any irregularities have been cured or waived. Neither the Purchaser nor the Information Agent are under any duty to give notification of defects in a Letter of Transmittal and will incur no liability for failure to give such notification. 8. ASSIGNEE STATUS. Assignees must provide documentation to the Information Agent which demonstrates, to the satisfaction of the Purchaser, such person's status as an assignee. 9. TRANSFER TAXES. The amount of any transfer taxes (whether imposed on the registered holder or any person other than the person signing the Letter of Transmittal) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. 10. TENDERING UNITS. A limited partner may tender any or all of his, her or its Units. 11. CONDITIONAL TENDERS. No alternative, conditional or contingent tenders will be accepted. 12 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- --------------------------------------------------------- --------------------------------------------------------- FOR THIS TYPE OF ACCOUNT: GIVE THE FOR THIS TYPE OF ACCOUNT: GIVE THE TAXPAYER TAXPAYER IDENTIFICATION IDENTIFICATION - --------------------------------------------------------- --------------------------------------------------------- 1. An individual account The individual 2. Two or more individuals The actual owner of (joint account) the account or, if combined funds, the first individual on the account 3. Husband and wife (joint The actual owner of account) the account or, if joint funds, either person 4. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee for a incompetent person(3) designated ward, minor, or incompetent person(3) 7. a The usual revocable The grantor trustee(1) savings trust account (grantor is also trustee) b So-called trust account The actual owner(1) that is not a legal or valid trust under state law 8. Sole proprietorship account The owner(4) 9. A valid trust, estate or The legal entity (Do pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, or The organization educational organization account 12. Partnership account held in The partnership the name of the business 13. Association, club, or other The organization tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the Department The public entity of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- -------------------------------------- -------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's or incompetent person's name and furnish such person's social security number or employer identification number. (4) Show your individual name. You may also enter your business name. You may use your social security number or employer identification number. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE:If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 13 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency, or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a) of the Code. - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. - A futures commission merchant registered with the Commodity Futures Trading Commission. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441 of the Code. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to an appropriate nominee. - Section 404(k) payments made by an ESOP. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt interest dividends under section 852 of the Code). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451 of the Code. - Payments made by certain foreign organizations. - Payments of mortgage interest to you. - Payments made to an appropriate nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(A), 6045, and 6050A. PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend, interest, or other payments to give correct taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a correct taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE 14 The Information Agent for the offer is: River Oaks Partnership Services, Inc. By Mail: P.O. Box 2065 S. Hackensack, N.J. 07606-2065 By Overnight Courier: 111 Commerce Road Carlstadt, N.J. 07072 Attn.: Reorganization Dept. By Hand: 111 Commerce Road Carlstadt, N.J. 07072 Attn.: Reorganization Dept. By Telephone: Toll Free (888) 349-2005 or (201) 896-1900 By Fax: (201) 896-0910 -----END PRIVACY-ENHANCED MESSAGE-----