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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-13232
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND 84-1259577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1873 SO. BELLAIRE STREET, SUITE 1700, DENVER, CO 80222-4348
(Address of principal executive offices) (Zip Code)
_______________________
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 757-8101
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
-------------------- -----------------------------
Class A Common Stock New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10K. _____
The number of shares of Class A and Class B Common Stock outstanding as of
March 11, 1997 was 17,569,970 and 325,000, respectively. The aggregate market
value of the voting stock held by non-affiliates of the registrant, was
approximately $468,337,000 as of March 11, 1997.
_______________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the registrant's 1997 annual meeting of
stockholders' are incorporated by reference into Part III of this Annual Report.
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
ITEM PAGE
- ---- ----
PART I
1. Business........................................................... 1
Recent Developments............................................. 1
Financial Information About Industry Segments................... 5
Growth Strategies............................................... 5
Operating Strategies............................................ 7
Taxation of the Company......................................... 8
Competition..................................................... 8
Regulation...................................................... 8
Environmental Matters........................................... 9
Insurance....................................................... 10
Employees....................................................... 10
2. Properties......................................................... 11
3. Legal Proceedings.................................................. 14
4. Submission of Matters to a Vote of Security Holders................ 14
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters.............................................. 15
6. Selected Financial Data............................................ 16
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 17
8. Financial Statements and Supplementary Data........................ 28
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 28
PART III
10. Directors and Executive Officers of the Registrant................. 28
11. Executive Compensation............................................. 30
12. Security Ownership of Certain Beneficial Owners and Management..... 30
13. Certain Relationships and Related Transactions..................... 31
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 31
PART I
INTRODUCTION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. Certain information
included in this Report, the Company's Annual Report to Shareholders and
other Company filings (collectively "SEC Filings") under the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as
well as information communicated orally or in writing between the dates of
such SEC Filings), contains or may contain information that is forward
looking, including, without limitation, statements regarding the effect of
acquisitions, the Company's future financial performance and the effect of
government regulations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety
of risks and factors including, without limitation, national and local
economic conditions, the general level of interest rates, terms of
governmental regulations that affect the Company and interpretations of those
regulations, the competitive environment in which the Company operates,
financing risks, including the risk that the Company's cash flow from
operations may be insufficient to meet required payments of principal and
interest, real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets, acquisition and development risks, including failure of such
acquisitions to perform in accordance with projections, and possible
environmental liabilities, including costs which may be incurred due to
necessary remediation of contamination of properties presently owned or
previously owned by the Company. In addition, the Company's continued
qualification as a real estate investment trust involves the application of
highly technical and complex provisions of the Internal Revenue Code. Readers
should carefully review the Company's financial statements and the notes
thereto, as well as the risk factors described in the SEC Filings.
ITEM 1. BUSINESS
Apartment Investment and Management Company, a Maryland corporation formed on
January 10, 1994 ("AIMCO" and, together with its subsidiaries and other
controlled entities, the "Company"), is a self-administered and self-managed
real estate investment trust (a "REIT") engaged in the ownership,
acquisition, development, expansion and management of multifamily apartment
properties. Through its controlling interests in AIMCO Properties, L.P. a
Delaware limited partnership (the "Operating Partnership"), other limited
partnerships and subsidiary corporations, the Company owns or controls
multifamily apartment properties (the "Owned Properties") and manages other
multifamily apartment properties (the "Managed Properties") for third parties
and affiliates. The Company focuses on "middle market" multifamily apartment
properties (properties with rents at or near the averages in their markets).
As of December 31, 1996, the Company owned or controlled 23,764 apartment
units in 94 multifamily apartment properties, managed for affiliates 3,611
apartment units in 18 properties and managed for over 90 third-party owners
15,434 apartment units in 119 properties bringing the total managed portfolio
to 42,809 apartment units in 231 properties.
The Company's principal executive offices are located at 1873 So. Bellaire
Street, Suite 1700, Denver, Colorado 80222-4348 and its telephone number is
(303) 757-8101.
Limited partners in the Operating Partnership and holders of minority interests
in partnerships controlled by the Company can contact the Company at (888) 759-
0816 for information and assistance.
RECENT DEVELOPMENTS
INDIVIDUAL PROPERTY ACQUISITIONS
During the year ended December 31, 1996, the Company acquired seven multifamily
apartment properties consisting of 2,311 apartment units. The aggregate
consideration paid by the Company of $93.1 million consisted of $26.0 million in
cash, 704,220 shares of AIMCO's Class A Common Stock, par value $.01 per share
(the "Class A Common Stock") with a total recorded value of $15.3 million,
745,183 Operating Partnership Units ("OP Units") with a total recorded value of
$15.0 million and the assumption of $31.7 million of secured long-term
indebtedness and $5.1 million of secured short-term indebtedness.
1
PORTFOLIO ACQUISITIONS:
ENGLISH PORTFOLIO ACQUISITION
In November 1996, the Company completed the acquisition (the "English Portfolio
Acquisition") of certain partnership interests, real estate and related assets
owned by J.W. English, a Houston, Texas-based real estate syndicator and
developer, and certain affiliated entities (collectively, the "J.W. English
Companies"). The English Portfolio Acquisition included the purchase of all of
the general and some of the limited partnership interests in 22 limited
partnerships which act as the general partner to 31 limited partnerships (the
"English Partnerships"). The English Partnerships own multifamily apartment
properties, aggregating 5,230 apartment units, and four commercial properties,
primarily in Houston, Texas. In addition, the Company acquired title to a
104-unit multi-family apartment property in Houston, Texas; certain assets of J.
W. English Management Company which provided management services to the
apartment properties; and other real estate interests related to the J.W.
English Companies' operations. The aggregate purchase price of the English
Portfolio Acquisition was $23.1 million, consisting of $15.2 million in OP Units
and $7.9 million in cash.
The Company also made separate offers (the "English Tender Offers") to the
limited partners of 25 of the English Partnerships to acquire their limited
partnerships interests for cash or OP Units. The Company accepted tenders
representing, in the aggregate, approximately 46% of all outstanding limited
partnership interests in the English Partnerships subject to the offers. The
Company paid $16.0 million in cash and $1.7 million in OP Units, at a price of
$23 per OP Unit, for the interests tendered in the English Tender Offers. The
remaining limited partners elected to continue as limited partners in such
English Partnerships.
DALLAS PORTFOLIO ACQUISITION
In a series of related transactions completed in November and December 1996, the
Company acquired general partnership interests in 21 limited partnerships which
own twelve multifamily apartment properties (collectively, the "Dallas
Acquisition Properties") aggregating 2,839 apartment units, primarily in the
Dallas, Texas metropolitan area, and loans made by the previous general partners
and their affiliates to such partnerships, for an aggregate price of $26.7
million in cash (collectively, the "Dallas Portfolio Acquisition"). The existing
limited partners retained their interest in such limited partnerships.
PROPERTY DISPOSITIONS
In August 1996, the Company sold the Dakota Apartments, the Sterling Point
Apartments, the Ridgmar Park Apartments and the Woodcreek Apartments
(collectively, the "Four Sold Properties") consisting of 1,265 apartment
units, all of which are located in the Dallas, Texas metropolitan area, in a
single transaction for net cash proceeds totaling $17.1 million. The net
proceeds were used to repay the balance then outstanding under the Company's
revolving line of credit with Bank of America (the "Credit Facility") of $9.2
million and to provide funds for working capital and investment purposes.
The properties were acquired as part of a portfolio in conjunction with the
Company's initial public offering in July 1994. The Company recognized a
gain of $44,000 on the dispositions.
DEBT ASSUMPTIONS AND FINANCINGS
In 1996, the Company assumed $31.7 million in first and second long-term
mortgage loans in connection with the purchase of the three apartment
properties. In July 1996, mortgage loans on two of the apartment properties
totaling $25.8 million, in addition to $2.7 million in participating interest
due in accordance with the terms of a second mortgage loan, were repaid using
borrowings under the Credit Facility and the issuance of 63,152 OP Units with
a recorded value of $1.2 million.
2
In June 1996, the Company completed two tax-exempt bond offerings totaling $58.0
million on five Florida properties. Proceeds from the bond offerings were used
to repay the variable rate $48.1 million tax-exempt bonds securing four Florida
properties and the $9.9 million tax-exempt revenue bonds which were purchased in
connection with the acquisition of a Florida property in December 1995. The
bond offerings include $48.0 million in fully amortizing, 20 year mortgage loans
with an effective interest rate of 7.2% and a $9.9 million fully amortizing, 20
year mortgage loan with an effective interest rate of 7.3%. In addition to the
five Florida properties, five other properties were pledged as additional
collateral to secure the financings.
In August 1996, the Company's refinanced its $25.0 million one-year bridge
facility secured by five properties. The borrowings were increased to $25.8
million, the interest rate was reduced to LIBOR plus 1.75% from LIBOR plus 2.0%
and the maturity was extended to July 31, 1998. In addition, one of the
properties was released from the cross-collateralized security. The indebtedness
is unconditionally guaranteed by the Company.
In November 1996, the Company borrowed $12.5 million pursuant to an unsecured
line of credit with Bank One, Colorado, NA (the "Bank One Credit Line"). The
Bank One Credit Line bears interest at a variable rate equal to LIBOR plus 1.75%
(7.1% per annum as of December 31, 1996). The proceeds were used by the Company
to pay for a portion of the limited partnership interests acquired in the
English Tender Offers. The Bank One credit line was repaid with proceeds of a
public offering in February 1997.
In December 1996, the English Partnerships borrowed $60.5 million, bearing
interest at a variable rate equal to LIBOR plus 1.75% (7.4% per annum as of
December 31, 1996) which matures in December 1997 (subject to extension by the
Company to December 1998). The indebtedness is secured by deeds of trust on 13
of the properties owned by 12 of the English partnerships and is guaranteed in
part by AIMCO and certain of its affiliates. The aggregate amount of the
obligations guaranteed is approximately $28.8 million. This guaranty is secured
by an assignment of the Company's general partnership interests in the 12
English Partnerships. The net proceeds of such indebtedness were used by the
Company to repay indebtedness of certain of the English Partnerships. The
English Partnerships are subject to an additional $34.9 million of mortgage
debt.
In December 1996, the Company borrowed approximately $25.6 million to finance
the Dallas Portfolio Acquisition. Such indebtedness is secured by second
mortgages on twelve of the Dallas Acquisition Properties and bears interest at a
variable rate equal to LIBOR plus 2.50% (8.0% per annum as of December 31,
1996). The indebtedness was repaid by the Company with proceeds of a public
offering in February 1997. In December 1996, the partnerships which own the
Dallas Acquisition Properties borrowed $29.2 million, bearing interest at LIBOR
plus 2.50% (8.0% at December 31, 1996) which matures December 1998. The
indebtedness is secured by deeds of trust on seven of the Dallas Acquisition
Properties. The net proceeds of such indebtedness were used by the Company to
repay indebtedness of certain of the partnerships which own the Dallas
Acquisition Properties. The Dallas Acquisition Properties are subject to an
additional $31.5 million of mortgage debt.
STOCK REPURCHASES
In September 1996, the Company's Board of Directors authorized the re-purchase
of up to 500,000 shares of Class A Common Stock in open market and privately
negotiated purchase transactions. During 1996, the Company repurchased 79,400
shares of Class A Common Stock in open market purchases for a total of $1.7
million at an average price of $21.41 per share. In addition, the Company
repurchased 126,300 shares of Class A Common Stock in a privately negotiated
purchase transaction for a total of $2.6 million at an average price of $20.50
per share.
3
PUBLIC OFFERINGS
In November 1996, the Company completed a public offering of 1,265,000 shares of
Class A Common Stock (including 165,000 shares subject to the underwriter's
overallotment option) at a net price of $23.43 per share. The net proceeds of
$29.6 million were used to repay a portion of the indebtedness incurred in
recent acquisitions. In February 1997, the Company completed a public offering
of 2,015,000 shares of Class A Common Stock (including 15,000 shares subject to
the underwriter's overallotment option) at a price of $26.75 per share. The net
proceeds of $51.1 million were used to repay a portion of the Company's
indebtedness incurred in acquisitions completed in November and December 1996.
MANAGEMENT STOCK ACQUISITION
On October 1, 1996, the Company issued 379,750 shares of Class A Common Stock to
certain executive officers (or entities controlled by them) at $20.75 per share
(the closing price on the NYSE on August 29, 1996, the option award date)
pursuant to the exercise of stock options issued under the Apartment Investment
and Management Company 1996 Stock Award and Incentive Plan. In payment for such
shares, the executive officers (or entities controlled by them) executed $7.9
million of notes payable to the Company bearing interest at 7.25% per annum,
payable quarterly, and due in 2006. The notes are secured by the shares
purchased and are recourse as to 25% of the principal owed. In March 1997,
certain executive officers (or entities controlled by them) repaid $740,000
of the $7.9 million of notes payable to the Company outstanding as of
December 31, 1996. In addition, on August 29, 1996, certain executive officers
also agreed to purchase (or cause entities controlled by them to purchase),
prior to January 31, 1997, an additional 515,500 shares of Class A Common Stock
at a purchase price of $20.75 per share. These shares were issued and delivered
as of December 31, 1996. In payment for such shares, the executive officers (or
entities controlled by them) executed $10.7 million of notes payable to the
Company bearing interest at 7.25% per annum, payable quarterly, and due in 2006.
The notes are recourse to the officers. In March 1997, certain officers of the
Company (or entities controlled by them) repaid in full the notes payable to the
Company totaling $10.7 million.
As a result of these two transactions, management and directors ownership
increased from approximately 8% at December 31, 1995 to approximately 12% at
December 31, 1996.
PENDING ACQUISITION
On February 20, 1997, the Company announced that its Board of Directors had
approved an agreement with Demeter Holdings Corporation ("Demeter") and Phemus
Corporation ("Phemus"), affiliates of The Harvard Private Capital Group, and
Capricorn Investors, L.P. ("Capricorn"), pursuant to which the Company will
acquire all of Demeter's and Capricorn's 6.93 million shares of NHP Incorporated
("NHP") common stock at a purchase price of $20.00 per share, payable in 3.2
million shares of Class A Common Stock of the Company and $53 million in cash.
In addition, Demeter and Capricorn would be entitled to retain their
proportionate interest in NHP's subsidiary, NHP Financial Services, Ltd.
The agreement also provides for the Company to acquire from Demeter, Phemus and
Capricorn (together, the "Sellers") interests in certain entities that, directly
or indirectly, own conventional and affordable multifamily apartment properties
managed by NHP. Pursuant to the agreement, the Operating Partnership will
acquire the Sellers' controlling interests in limited partnerships that own 18
conventional apartment communities containing 7,278 apartment units for an
aggregate price of approximately $24.5 million, payable in cash or OP Units, at
the sellers' option. The Company also has an option to acquire the Sellers'
interests in entities that own an additional 15 conventional apartment
communities containing 3,800 apartment units. Upon completion of such
acquisition, the Operating Partnership intends to make separate offers to the
limited partners of the various partnerships to acquire their interests in the
limited partnerships.
4
The agreement also provides for the formation of a joint venture with the
Sellers in which the Operating Partnership will have a 50% interest. The joint
venture would be managed equally by the Sellers, on the one hand, and Operating
Partnership on the other. The Sellers will contribute to the venture their
interests in entities that own 24 apartment communities containing 5,464
apartment units, and, at the Operating Partnership's option, the Sellers'
interests in entities that own an additional 20 apartment communities containing
4,532 apartment units. The Company will contribute cash or other assets valued
at approximately $13 million and the Sellers will contribute assets valued at
approximately $13 million to form the joint venture.
Also pursuant to the agreement, the Operating Partnership will invest
approximately $3.4 million to acquire a 25% interest in entities owned by the
Sellers that own interests in 52,741 affordable housing units and 12,588
other apartment units and other assets.
The Company also made a merger proposal to NHP's Board of Directors pursuant
to which NHP would merge into the Company (or one of its subsidiaries) and
the Company would offer to acquire the remaining stockholders' interests in
NHP for $20 per NHP share to be paid in the Company's Class A Common Stock.
The Company's proposal contemplates that NHP's subsidiary, NHP Financial
Services, Ltd., will be spun off to NHP stockholders (including the Sellers'
but not the Company) prior to the merger. Consequently, NHP stockholders
would be entitled to receive approximately 0.75 shares of the Company's Class
A Common Stock in the merger. If the spin-off of NHP Financial Services, Ltd.
does not occur, the Company will pay an additional $3.05 per share to
Demeter, Capricorn and the remaining Stockholders in NHP.
Closing of the transactions is subject to completion of additional documentation
and customary closing conditions, including all necessary governmental
approvals, the continuation of the Company's status as a REIT under federal tax
laws, as well as certain rights of first refusal of NHP with respect to the
purchase of interests in properties managed by NHP. The closing of the real
estate transactions with the Sellers and the acquisition by the Company of the
Sellers' interest in NHP is expected to occur during the second quarter of 1997.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment, the ownership and management of
real estate. See the consolidated financial statements and notes thereto
included in Item 8 of this Annual Report on Form 10-K for financial
information relating to the Company.
GROWTH STRATEGIES
The Company measures its economic profitability based on Funds From Operations
("FFO") less a minimum annual provision for capital replacements of $300 per
apartment unit, which the Company defines as Cash Earned For Shareholders
("CEFS"). The Company's primary objective is to maximize shareholder value by
increasing the amount and predictability of CEFS on a per share basis. The
Company seeks to achieve this objective primarily by improving net operating
income from its Owned Properties and by acquiring additional properties at
values that are accretive on a per share basis. The Company follows operating
and financial strategies, including: (i) maintaining a geographically
diversified portfolio of properties; (ii) providing a minimum of $300 per
apartment unit per year for capital replacements to maintain its properties;
(iii) emphasizing long-term, fixed rate, fully amortizing debt; (iv) maintaining
a ratio of CEFS plus interest expense and preferred stock dividends ("Free
Cash Flow") to interest expense of at least 2 to 1; and (v) maintaining a
dividend payout ratio of more than 80% of CEFS.
5
ACQUISITIONS
During 1996, the Company has acquired, either directly or through the
acquisition of controlling interests in limited partnerships, 42 multifamily
apartment properties, and has sold four Owned Properties, increasing the
number of apartment units it owns or controls to 23,764, a net increase of
approximately 64% from the 14,453 apartment units in the 56 Owned Properties
held at December 31, 1995.
The Company intends to continue to expand its portfolio of Owned Properties
by: (i) acquiring properties in markets familiar to the Company's management;
(ii) developing and expanding its Owned Properties and (iii) acquiring
controlling interests in companies that own or manage multifamily properties.
MANAGED PROPERTIES
The Company believes its property management operations are integral to its
overall business strategy. The economies of scale realized from managing more
than 40,000 apartment units enable the Company to more efficiently operate
its properties. In addition, the Company believes that managing properties
for third parties improves the performance of its Owned Properties by
subjecting property managers to market-based pricing and service standards.
The Company's property management operations also support the Company's
acquisition activities by enhancing its ability to identify and evaluate
acquisition and development opportunities in its markets. The Company's local
and regional personnel maintain first-hand knowledge of local market
conditions and often obtain early notification of Managed Properties and
other properties that may be offered for sale.
REDEVELOPMENT AND EXPANSION PROPERTIES
The Company has a cautious strategy concerning new development and intends to
develop only in situations in which it believes it has a significant
advantage. The Company believes that redevelopment of selected properties in
superior locations can provide advantages over the development of new
properties, because redevelopment generally can be accomplished with
relatively lower risk, in shorter periods of time and with reduced delays
attributable to governmental approval procedures.
The Company acquired the Sun Katcher Apartments (360 units) located in
Jacksonville, Florida in December 1995. The property has substantially
completed a second phase of redevelopment, at a total cost of approximately
$4.0 million. The entire redevelopment is expected to be completed by the
second quarter of 1997.
The Company acquired the Bay West Apartments (376 units) located in Tampa,
Florida, in December 1996. The Company anticipates spending $2.6 million in
renovation costs to upgrade the interior and exterior of the property and
reposition the property in the marketplace.
The Company believes that expansion within, or adjacent to, existing
properties will provide growth opportunities at lower risks than are
associated with new development, and may offer certain cost advantages to the
extent common area amenities and on-site management personnel can be utilized.
In 1996, the Company completed 92 additional units within Fairways, (260
units) located in Phoenix, Arizona, at a total cost of approximately
$6.0 million. Common area amenities and on-site management personnel from
Fairways will serve the additional 92 units. In addition, the Company owns
Fairways III, 19.9 acres of undeveloped land adjacent to Fairways suitable
for development. The Company has received approval from local agencies for
the construction of 279 units.
6
The acquisition of the English Portfolio Acquisition included a partnership
which owns the Township at Highlands (119 units) located in Denver, Colorado.
The Company has plans to develop an additional 42 apartments units at a cost
of approximately $75,000 per unit. The 42 apartment units will use the
existing common area amenities and on-site management personnel already in
place at the Township at Highlands.
OPERATING STRATEGIES
PRODUCT FOCUS
The Company focuses on "middle market" multifamily apartment properties, a
market segment in which the Company's management has substantial ownership
and management experience. The Company considers a middle market multifamily
apartment property to be a property with units offered for rent at or near
the average rents in their markets. As of December 31, 1996, the Owned
Properties which the Company considers to be representative of middle market
properties, had an average acquisition cost of approximately $35,000 per
apartment unit (approximately $44 per square foot). Excluding properties
acquired in November and December 1996, the average monthly rent per occupied
unit was $535 per month ($0.66 per square foot) during 1996.
INTERNAL GROWTH STRATEGY
The Company's strategy for internal growth and to increase cash flow is to
continually: (i) seek higher net rental revenues by enhancing and maintaining
the competitiveness of properties through periodic property upgrades which
typically include cable television, selective refurbishment and the addition
of other amenities; (ii) provide a high level of service to residents; (iii)
manage expenses through a system of detailed management reporting and
accountability; and (iv) provide training programs, orientation workshops and
technical courses for on-site marketing, maintenance and management personnel.
In pursuing its internal growth strategy, the Company's policy is to: (i)
provide on-site management trained to respond promptly to residents' needs;
(ii) conduct annual resident satisfaction surveys; (iii) respond to
maintenance calls within 24 hours; and (iv) maintain the quality and
appearance of its properties with an annual provision of $300 per apartment
unit for capital replacements.
PROPERTY MANAGEMENT
The Company's property management strategy is to achieve improvements in
operating results by combining centralized financial control and uniform
operating procedures with localized property management decision making and
market knowledge. The Company is organized into six regions. Each region is
served by local offices of regional property managers and is supervised by a
Regional Vice President.
DIVERSIFIED MARKETS
The Company seeks to operate in markets: (i) where population and employment
growth rates are expected to exceed the national averages; (ii) where it
believes it can become one of the regionally significant owners and managers
of multifamily apartment properties; and (iii) that will enable the Company to
maintain a geographically diversified portfolio or otherwise gain significant
financial benefits. The distribution of the Owned Properties reflects the
Company's focus on growth markets and its belief that geographic
diversification will help to insulate the portfolio from regional and
economic fluctuations. The Company also seeks to create concentrations of
properties within each of its markets in order to achieve economies of scale
in management and operations. The Company owns or manages in excess of 5,000
apartment units in the Houston, Texas metropolitan area and 2,000 apartment
units in the Dallas, Texas metropolitan area and in excess of 1,000 apartment
units in each of the Atlanta, Georgia; Phoenix, Arizona; Salt Lake City,
7
Utah; San Antonio, Texas; Denver/Boulder, Colorado; and Tampa/St. Petersburg,
Florida metropolitan areas.
TAXATION OF THE COMPANY
The Company has elected to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), commencing with its taxable year ended
December 31, 1994, and the Company intends to continue to operate in such a
manner. The Company's current and continuing qualification as a REIT depends
on its ability to meet the various requirements imposed by the Code, through
actual operating results, distribution levels and diversity of stock
ownership.
If the Company qualifies for taxation as a REIT, it will generally not be
subject to Federal corporate income tax on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. If the Company fails to qualify as
a REIT in any taxable year, its taxable income will be subject to Federal
income tax at regular corporate rates on its taxable income (including any
applicable alternative minimum tax). Even if the Company qualifies as a
REIT, it may be subject to certain state and local income taxes and to
Federal income and excise taxes on its undistributed income.
If in any taxable year the Company fails to qualify as a REIT and incurs
additional tax liability, the Company might need to borrow funds or liquidate
certain investments in order to pay the applicable tax and the Company would
not be compelled to make distributions under the Code. Unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following
the year during which qualification is lost. Although the Company currently
intends to operate in a manner designed to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause
the Company to fail to qualify as a REIT or may cause the Board of Directors
to revoke the REIT election.
The Company and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax treatment.
COMPETITION
There are numerous housing alternatives that compete with the Company's Owned
Properties and Managed Properties in attracting residents. The Company's
properties compete directly with other multifamily rental apartments and
single family homes that are available for rent in the markets in which the
Company's properties are located. The Company's properties also compete for
residents with new and existing homes and condominiums. The number of
competitive properties in a particular area could have a material effect on
the Company's ability to lease apartment units at its properties and on the
rents charged. Numerous real estate companies compete with the Company in
acquiring, developing and managing multifamily apartment properties and
seeking tenants to occupy their properties. In addition, numerous property
management companies compete with the Company in the markets where the
Managed Properties are located.
REGULATION
GENERAL
Multifamily apartment properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such
as swimming pools, activity centers and other common areas. Changes in laws
increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions,
as well as changes in laws affecting
8
development, construction and safety requirements, may result in significant
unanticipated expenditures, which would adversely affect the Company's cash
flow from operating activities. In addition, future enactment of rent
control or rent stabilization laws or other laws regulating multifamily
housing may reduce rental revenue or increase operating costs in particular
markets.
RESTRICTIONS IMPOSED BY LAWS BENEFITING DISABLED PERSONS
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of
public accommodation are required to meet certain federal requirements
related to access and use by disabled persons. These requirements became
effective in 1992. A number of additional federal, state and local laws exist
which also may require modifications to the Owned Properties, or restrict
certain further renovations thereof, with respect to access thereto by
disabled persons. For example, the Fair Housing Amendments Act of 1988 (the
"FHAA") requires apartment properties first occupied after March 13, 1990 to
be accessible to the handicapped. Noncompliance with the ADA or the FHAA
could result in the imposition of fines or an award of damages to private
litigants and also could result in an order to correct any non-complying
feature, which could result in substantial capital expenditures. Although
management of the Company believes that the Owned Properties are
substantially in compliance with present requirements, if the Owned
Properties are not in compliance, the Company is likely to incur additional
costs to comply with the ADA and the FHAA.
ENVIRONMENTAL MATTERS
Under federal, state and local environmental laws and regulations, a current
or previous owner or operator of real property may be required to investigate
and clean up a release of hazardous substances at such property, and may,
under such laws and common law, be held liable for property damage and other
costs incurred by third parties in connection with such releases. The
liability under certain of these laws has been interpreted to be joint and
several unless the harm is divisible and there is a reasonable basis for
allocation of responsibility. The failure to remediate the property properly
may also adversely affect the owner's ability to sell or rent the property or
to borrow using the property as collateral. In connection with its ownership,
operation and management of the Owned Properties and other real properties,
including the Managed Properties, the Company could be potentially liable for
such costs.
Certain federal, state and local laws and ordinances govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when
those materials are in poor condition or in the event of building remodeling,
renovation or demolition, impose certain worker protection and notification
requirements and govern emissions of and exposure to asbestos fibers in the
air. The laws may also impose liability for release of ACMs and may enable
third parties to seek recovery from owners or operators of real properties
for personal injury associated with ACMs. In connection with its ownership,
operation and management of properties, the Company could be potentially
liable for those costs. There are ACMs at certain of the Owned Properties and
there may be ACMs at certain of the Managed Properties. The Company has
developed and implemented operations and maintenance programs that establish
operating procedures with respect to the ACMs at the Owned Properties.
Certain of the Owned Properties are, and some of the Managed Properties may
be, located on or near properties that have contained underground storage
tanks or on which activities have occurred which could have released
hazardous substances into the soil or groundwater. There can be no assurances
that such hazardous substances have not been released or have not migrated,
or in the future will not be released or will not migrate onto the Owned
Properties and Managed Properties. In addition, the Company's Montecito
property in Austin, Texas is located adjacent to, and may be partially on,
land that was used as a landfill. Low levels of methane and other landfill
gases have been detected at Montecito. The remediation of the landfill gas is
now substantially complete. The environmental authorities have preliminarily
approved the methane gas remediation efforts. Final approval of the site and
the remediation process is contingent upon the results of continued methane
gas monitors to confirm the effectiveness of the remediation efforts. Should
further actionable levels of methane gas be detected, a proposed contingent
plan of passive methane gas venting may be implemented. The Company believes
the cost of such further limited action, if any, will not be material.
Testing has also been conducted on Montecito to
9
determine whether, and to what extent, groundwater has been impacted. Test
reports have indicated that the groundwater is not contaminated at actionable
levels.
All of the Owned Properties were subject to Phase I or similar environmental
audits by independent environmental consultants. The audits did not reveal,
nor is the Company aware of, any environmental liability relating to the
Owned Properties that the Company believes would have a material adverse
effect on the Company's business, assets or results of operations.
Nevertheless, it is possible that the Company's audits did not reveal all
environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Although the Managed Properties
may not have been subject to Phase I or similar environmental audits by
independent environmental consultants, the Company is not aware of any
environmental liability relating to the Managed Properties that it believes
would have a material adverse effect on its business, assets or results of
operations.
INSURANCE
Management believes that the Properties are covered by adequate fire, flood
and property insurance provided by reputable companies and with commercially
reasonable deductibles and limits.
EMPLOYEES
The Company has a staff of employees performing various acquisition,
redevelopment and management functions. The Company, through the Operating
Partnership and related service company businesses, has 1,294 employees, most
of whom are employed at the property level. None of the employees are
represented by a union, and the Company has never experienced a work
stoppage. The Company believes it maintains satisfactory relations with its
employees.
10
ITEM 2. PROPERTIES
The Company's Owned Properties are located in thirteen states in the Sunbelt
regions of the United States. A significant portion of the Owned Properties
are concentrated in or around twelve metropolitan areas in which the Company
owns or controls more than 500 units. The following table sets forth certain
information as of December 31, 1996 with respect to the Company's twelve
principal markets:
PERCENTAGE OF
NUMBER OF NUMBER OF TOTAL UNITS
PROPERTIES UNITS OWNED/CONTROLLED
---------- --------- ----------------
Albuquerque, NM................. 3 750 3%
Atlanta, GA..................... 4 1,020 4%
Dallas, TX...................... 11 2,743 12%
Denver, CO...................... 5 1,255 5%
Houston, TX..................... 23 5,657 24%
Las Vegas, NV................... 2 734 3%
Little Rock, AR................. 3 574 2%
Orlando, FL..................... 2 620 3%
Phoenix, AZ..................... 7 1,622 7%
Salt Lake City, UT.............. 3 1,356 6%
San Antonio, TX................. 6 1,280 5%
Tampa/St. Petersburg, FL........ 4 1,530 7%
-- ------ ---
Principal markets total....... 73 19,141 81%
Other markets................... 21 4,623 19%
-- ------ ---
Total......................... 94 23,764 100%
-- ------ ---
-- ------ ---
At December 31, 1996, the Company owned or controlled 94 Owned Properties
containing 23,764 units. The Owned Properties average 253 apartment units
each, with the largest property containing 670 apartment units. Apartment
units in the Owned Properties have an average size of 800 square feet. The
Owned Properties include 1,047 studio apartments, 12,060 one-bedroom
apartments, 9,436 two-bedroom apartments, 1,204 three-bedroom apartments and
17 four-bedroom apartments. At December 31, 1996, the weighted average physical
occupancy for the Company's Owned Properties was 93.7% and their weighted
average monthly rent per occupied unit was $555.
The Owned Properties offer residents a range of amenities. Many of the Owned
Properties include a swimming pool and clubhouse, spas, fitness centers,
tennis courts and saunas. Many of the apartment units offer design and
appliance features such as vaulted ceilings, fireplaces, washer and dryer
hook-ups, cable television, balconies and patios.
11
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
APARTMENT PORTFOLIO
The following table sets forth certain property information at December 31,
1996 by region and state:
AVERAGE
NUMBER NET RENTABLE TOTAL YEAR UNIT SIZE
PROPERTY STATE OF UNITS SQUARE FEET ACREAGE CONSTRUCTED (SQ. FT.)
- -------- ----- -------- ------------ ------- ----------- ---------
COLORADO REGION
Bluffs Colorado 232 154,176 19.00 1971 665
Meadowcreek Colorado 332 260,000 24.00 1972 783
Riverside Colorado 248 199,344 9.85 1987 804
Village Creek Colorado 324 222,348 12.26 1987 686
Township Colorado 119 175,841 16.5 1985 1,478
Prairie Hills New Mexico 260 218,352 12.00 1985 840
Penn Square Village New Mexico 210 150,150 6.47 1982 715
Villa Ladera New Mexico 280 279,860 10.99 1985 1,000
------ ---------- --------
REGIONAL TOTAL 2,005 1,660,071 111.07
SOUTHWEST REGION
40th North Arizona 556 372,800 9.57 1970 671
Cobble Creek Arizona 142 100,840 4.66 1985 710
Fairways Village Arizona 352 236,600 15.33 1986 910
Newport Arizona 204 151,984 6.79 1986 745
Paradise Palms Arizona 130 132,804 5.65 1970 1,022
Royal Palms Arizona 152 116,940 7.12 1985 769
Sun Grove Arizona 86 83,298 4.59 1986 969
Las Brisas Arizona 132 90,584 6.96 1985 686
Rillito Village Arizona 272 142,248 7.77 1985 523
Coral Gardens Nevada 670 397,148 26.67 1983 593
Snug Harbor Nevada 64 69,052 4.25 1990 1,079
Sun Valley Utah 430 169,144 14.23 1985 393
Somerset Utah 486 420,080 25.23 1985 393
South Willow Utah 440 244,044 18.63 1987 555
------ ---------- --------
REGIONAL TOTAL 4,116 2,727,566 157.45
FLORIDA REGION
Bay West Florida 376 294,300 11.10 1975 783
Boardwalk Florida 291 235,599 17.65 1986 810
Brandywine Florida 477 357,472 19.70 1971 749
Eden Crossing Florida 200 164,992 14.20 1985 825
Sun Katcher Florida 360 308,512 18.74 1972 857
Sunchase Clearwater Florida 461 369,761 30.57 1985 802
Sunchase East Florida 296 216,512 19.63 1985 731
Sunchase North Florida 324 258,480 24.90 1985 798
Sunchase Tampa Florida 216 165,920 12.04 1985 768
------ ---------- --------
REGIONAL TOTAL 3,001 2,371,548 168.53
SOUTH TEXAS REGION
Ashwood Texas 144 96,744 5.25 1984 672
Anchorage Texas 264 206,936 14.55 1985 784
Brentwood Texas 104 92,648 4.91 1981 891
Bridgewater Texas 206 171,920 8.19 1979 835
Chesapeake Texas 320 239,856 11.13 1983 822
Copper Chase Texas 316 255,636 11.00 1982 809
Copperfield Texas 196 161,032 7.45 1983 822
Coventry Square Texas 270 201,880 8.40 1985 748
Crows Nest Texas 176 134,272 6.85 1984 763
Dolphin's Landing Texas 218 199,723 23.70 1975 916
Easton Village I & II Texas 146 129,573 7.60 1983 887
Fisherman's Wharf Texas 360 277,984 21.95 1981 772
Fondren Court Texas 429 366,598 13.16 1979 855
Hampton Hill Texas 332 235,312 11.11 1984 709
Hastings Place Texas 176 159,992 5.62 1984 909
Las Brisas Texas 176 179,982 17.66 1983 1,023
Lexington Texas 72 55,848 3.56 1981 776
Meadowbrook Texas 260 199,504 9.81 1985 767
Oak Falls Texas 144 162,000 8.40 1983 1,125
Park at Cedar Lawn Texas 192 191,090 5.93 1985 995
12
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
APARTMENT PORTFOLIO
AVERAGE
NUMBER NET RENTABLE TOTAL YEAR UNIT SIZE
PROPERTY STATE OF UNITS SQUARE FEET ACREAGE CONSTRUCTED (SQ. FT.)
- -------- ----- -------- ------------ ------- ----------- ---------
Parkside Texas 160 107,952 5.45 1983 675
Parliament Bend Texas 232 134,880 6.47 1980 581
Peppermill Place Texas 224 169,776 8.00 1983 758
Seaside Point Texas 102 71,012 3.10 1985 696
Seasons Texas 280 233,334 9.95 1976 833
Signature Point Texas 304 261,136 19.56 1994 859
Stirling Court Texas 228 144,772 7.06 1984 635
Stonehaven Texas 337 299,523 11.60 1972 889
Stoneybrook Texas 113 135,947 4.05 1972 1,203
Sunbury Downs Texas 240 167,408 8.05 1984 698
Swiss Village Texas 360 248,472 11.42 1972 690
Walnut Springs Texas 224 154,392 10.85 1983 689
Waterford Texas 312 213,656 10.63 1984 685
Timbermill Texas 296 197,560 11.00 1982 667
------ ---------- --------
REGIONAL TOTAL 7,913 6,258,350 333.42
NORTH TEXAS REGION
Olympiad Alabama 176 137,296 11.00 1986 780
Pleasant Ridge Arkansas 200 248,200 14.50 1982 1,241
Pleasant Valley Pointe Arkansas 112 149,580 13.19 1985 1,336
Riverwalk Arkansas 262 212,118 10.95 1988 810
Ashford Plantation Georgia 211 280,135 23.25 1975 1,328
Cypress Landing Georgia 200 209,600 16.40 1984 1,048
Dunwoody Georgia 318 273,000 27.00 1980 858
Peachtree Park Georgia 295 280,106 13.24 1962/1995 950
Spectrum Pointe Georgia 196 169,484 14.00 1984 865
Jefferson Place Louisiana 234 324,814 24.73 1985 1,388
Hillmeade Tennessee 288 397,352 57.50 1985 1,380
Chimney Ridge Texas 210 133,212 4.29 1983 634
Country Club Texas 282 223,180 10.78 1984 791
Frankford Place Texas 274 220,248 15.34 1982 804
Garden Terrace Texas 20 19,000 1.45 1978 950
Greentree Texas 365 302,724 20.00 1983 829
Heather Texas 180 128,920 7.20 1983 716
Highland Park Texas 500 421,616 28.00 1985 843
Meadows Texas 100 81,168 5.00 1983 812
Montecito Texas 268 187,824 10.37 1985 701
Randol Crossing Texas 160 120,820 6.50 1984 755
Ridgecrest Texas 152 125,712 7.40 1983 827
Southridge Texas 160 139,992 8.01 1984 875
Williams Cove Texas 260 205,096 10.39 1984 789
Woodhill Texas 352 294,728 19.00 1985 837
Woodland Ridge Texas 130 99,126 5.00 1984 763
Woodlands - Odessa Texas 232 174,712 9.09 1982 753
Woodlands - Tyler Texas 256 177,600 10.64 1984 694
------ ---------- --------
REGIONAL TOTAL 6,393 5,737,363 404.22
CALIFORNIA REGION
Brookside Village California 336 266,264 13.24 1970 792
------ ---------- -------- ---
TOTAL 23,764 19,021,162 1,187.93
------ ---------- --------
------ ---------- --------
AVERAGE 253 202,352 12.64 1982 800
------ ---------- -------- ---
------ ---------- -------- ---
The average physical occupancy during 1996 for the Owned Properties held as
of December 31, 1995 and for the Owned Properties purchased during 1996
(exclusive of properties purchased in November and December 1996) was 95%.
The average monthly rent per occupied unit during 1996 for these Owned
Properties was $535 per unit, or $0.66 per square foot.
13
Substantially all of the Owned Properties are encumbered by mortgage
indebtedness or serve as collateral for the Company's Credit Facility. At
December 31, 1996, the Company had aggregate mortgage indebtedness totaling
$463.8 million, which was secured by 83 Owned Properties with a combined net
book value of $647.0 million. At December 31, 1996, the Company had borrowings
of $44.8 million outstanding under its Credit Facility which were collateralized
by six Owned Properties with a combined net book value of $89.0 million. See
Item 8 of this Annual Report on Form 10-K for additional information about the
Company's indebtedness.
ITEM 3. LEGAL PROCEEDINGS
In November 1996, five limited partners in certain of the English Partnerships
sued the Company alleging that, in connection with the English Portfolio
Acquisition, the Company conspired with J.W. English to breach his fiduciary
duties to the plaintiffs, and that the offering materials used by the Company in
connection with the English Tender Offers contained misleading statements or
omissions. The plaintiffs made an application for a temporary restraining order
with respect to the English Tender Offers, which was denied. To date, the
Company has not received a summons effecting service of the Complaint. The
Company intends to defend itself vigorously in connection with this action.
The Company is a party to various legal actions resulting from its operating
activities. These actions are routine litigation and administrative proceedings
arising in the ordinary course of business, some of which are covered by
liability insurance, and none of which are expected to have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock has been listed and traded on the New York Stock Exchange
("NYSE") under the symbol "AIV" since July 22, 1994. The following table sets
forth the quarterly high and low sales prices of the Common Stock as reported on
the NYSE and the dividends paid by the Company for the periods indicated.
QUARTER ENDED HIGH LOW DIVIDENDS
- ------------- ------- ------- ---------
1995 (PER SHARE)
- ----
March 31, 1995.............................. $18 1/2 $17 1/8 $0.415
June 30, 1995............................... 20 1/4 17 7/8 0.415
September 30, 1995.......................... 21 1/4 19 1/2 0.415
December 31, 1995........................... 20 7/8 18 0.425
1996
- ----
March 31, 1996.............................. 21 1/8 19 3/8 0.425
June 30, 1996............................... 21 18 3/8 0.425
September 30, 1996.......................... 22 18 3/8 0.425
December 31, 1996........................... 28 3/8 21 1/8 0.425
March 31, 1997 (Through March 11, 1997)..... 29 1/2 25 7/8 0.4625(1)
- -------------------
(1) On January 23, 1997, the Company's Board of Directors declared a cash
dividend of $0.4625 per share of Common Stock, paid on February 14, 1997
to stockholders of record on February 7, 1997.
On March 11, 1997, there were 17,569,970 shares of Common Stock outstanding
held by 308 stockholders of record.
The Company, as a REIT, is required to distribute annually to holders of
Common Stock at least 95% of its "real estate investment trust taxable
income," which, as defined by the Code and Treasury regulations, is generally
equivalent to net taxable ordinary income. The Company measures its economic
profitability and intends to pay regular dividends to its stockholders based
on CEFS during the relevant period. However, the future payment of dividends
by the Company will be at the discretion of the Board of Directors and will
depend on numerous factors including the Company's financial condition, its
capital requirements, the annual distribution requirements under the
provisions of the Code applicable to REITs and such other factors as the
Board of Directors deems relevant.
15
ITEM 6. SELECTED FINANCIAL DATA
The historical selected financial data for the Company for the years ended
December 31, 1996 and 1995 and for the period January 10, 1994 (the date of
inception) through December 31, 1994 and for the AIMCO Predecessors (as
defined in the audited financial statements included elsewhere in this Form
10-K) for the period from January 1, 1994 through July 28, 1994 are based on
the audited financial statements included elsewhere in this Form 10-K. This
information should be read in conjunction with such financial statements,
including the notes thereto. The historical selected financial data for the
AIMCO Predecessors for the year ended December 31, 1993 and 1992 is derived
from audited financial statements.
THE COMPANY AIMCO PREDECESSORS
---------------------------------------------- ----------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE YEARS
FOR THE FOR THE JANUARY 10, 1994 JANUARY 1, 1994 ENDED
YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 28, ----------------
1996 1995 1994 1994 1993 1992
------------ ------------ ---------------- --------------- ------- ------
(RESTATED) (RESTATED)
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income $100,516 $ 74,947 $ 24,894 $ 5,805 $ 8,056 $ 5,769
Property operating expenses (38,400) (30,150) (10,330) (2,263) (3,200) (2,248)
Owned property management expenses (2,746) (2,276) (711) - - -
-------- -------- -------- ------- ------- -------
59,370 42,521 13,853 3,542 4,856 3,521
Depreciation (19,556) (15,038) (4,727) (1,151) (1,702) (1,232)
-------- -------- -------- ------- ------- -------
39,814 27,483 9,126 2,391 3,154 2,289
-------- -------- -------- ------- ------- -------
SERVICE COMPANY BUSINESS:
Management fees and other income 8,367 8,132 3,217 6,533 8,069 7,231
Management and other expenses (5,352) (4,953) (2,047) (5,823) (6,414) (5,853)
Corporate overhead allocation (590) (581) - - - -
Owner and seller bonuses - - - (204) (468) (522)
Depreciation and amortization (718) (596) (150) (146) (204) (350)
-------- -------- -------- ------- ------- -------
1,707 2,002 1,020 360 983 506
-------- -------- -------- ------- ------- -------
Minority interests in service
company business 10 (29) (14) - - -
-------- -------- -------- ------- ------- -------
Company's shares of income from
service company business 1,717 1,973 1,006 360 983 506
-------- -------- -------- ------- ------- -------
GENERAL AND ADMINISTRATIVE EXPENSES (1,512) (1,804) (977) 0 0 0
INTEREST INCOME 523 658 123 0 0 0
INTEREST EXPENSE (24,802) (13,322) (1,576) (4,214) (3,510) (2,741)
NON-CONTROLLED INTERESTS IN PARTNERSHIPS (111) - - - - -
-------- -------- -------- ------- ------- -------
INCOME (LOSS) BEFORE GAIN ON DISPOSITION
OF PROPERTY, EXTRAORDINARY ITEM, INCOME
TAXES AND MINORITY INTEREST IN
OPERATING PARTNERSHIP 15,629 14,988 7,702 (1,463) 627 54
Gain on disposition of property 44 - - - - -
Extraordinary gain - forgiveness
of debt - - - - - 135
Provision for income taxes - - - (36) (336) (303)
-------- -------- -------- ------- ------- -------
INCOME (LOSS) BEFORE MINORITY INTEREST
IN OPERATING PARTNERSHIP 15,673 14,988 7,702 (1,499) 291 (114)
Minority interest in Operating
Partnership (2,689) (1,613) (559) - - -
-------- -------- -------- ------- ------- -------
NET INCOME (LOSS) $ 12,984 $ 13,375 $ 7,143 $(1,499) $ 291 $ (114)
-------- -------- -------- ------- ------- -------
-------- -------- -------- ------- ------- -------
OTHER INFORMATION:
Total properties (end of period) 94 56 48 4 4 3
Total apartment units (end of period) 23,764 14,453 12,513 1,711 1,711 1,041
Units under management (end of period) 19,045 19,594 20,758 29,343 28,422 25,636
Net income per common share and
common share equivalent $1.04 $0.86 $0.42 N/A N/A N/A
Dividends paid per common share $1.70 $1.66 $0.29 N/A N/A N/A
BALANCE SHEET DATA:
Real estate, before accumulated
depreciation $865,222 $477,162 $406,067 $47,500 $46,819 $30,789
Total assets 834,813 480,361 416,739 39,042 38,914 23,366
Total mortgages and notes payable 522,146 268,692 141,315 40,873 41,893 25,935
Mandatorily redeemable 1994
Cumulative Convertible Senior
Preferred Stock - - 96,600 - - -
Stockholders' equity 222,889 169,032 140,319 (9,345) (7,556) (7,003)
16
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The Company is a real estate investment trust which holds a geographically
diversified portfolio of apartments, primarily serving the middle market. As
of December 31, 1996, the Company owned or controlled 94 multifamily
apartment properties containing 23,764 apartment units. In addition to its
Owned Properties, the Company managed 3,611 apartment units in 18 properties
for affiliates and 15,434 apartment units in 119 properties for over 90 third
party-owners, bringing the total managed portfolio to 231 multifamily
apartment properties containing 42,809 apartment units located in the Sunbelt
regions of the United States.
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with Item 8
of the Form 10-K included herein.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER
31, 1995
The Company recognized net income of $12,984,000 for the year ended December
31, 1996 allocable to the holders of Class A Common Stock ("Common
Stockholders"). For the year ended December 31, 1995, the Company recognized
net income of $13,375,000, of which $5,169,000 was allocable to the holder of
the mandatorily redeemable 1994 Cumulative Convertible Senior Preferred Stock
("Convertible Preferred Stock") and $8,206,000 was allocable to the Common
Stockholders. The increase in net income allocable to the Common
Stockholders in 1996 of 58% was primarily the result of the acquisition of
forty-seven Owned Properties from December 1995 (acquired with the proceeds
of a December 1995 public offering) to December 1996 offset by the sale of
the Four Sold Properties. The increase in net
17
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
income is partially offset by increased interest expense associated with debt
which was incurred in June 1995 and September 1995 upon the redemption of the
Convertible Preferred Stock, increased interest expense attributable to
indebtedness assumed or incurred in connection with the acquisition of Owned
Properties offset by decreased interest expense after the pay down of the
Credit Facility with proceeds from the sale of the Four Sold Properties.
These factors are discussed in more detail in the following paragraphs.
RENTAL PROPERTY OPERATIONS
Rental and other property revenues from the Company's apartment properties
totaled $100,516,000 for the year ended December 31, 1996 consisting of
$69,268,000 for the 42 "same store" properties, $3,363,000 for the four
properties sold in July 1996, $1,956,000 for two properties owned in 1995 and
1996 but for which operations are not comparable and $25,929,000 for the 47
properties acquired from December 1995 to December 1996. Rental and other
revenue for the 42 "same store" properties increased from $67,058,000 for the
year ended December 31, 1995 to $69,268,000 for the year ended December 31,
1996, an increase of $2,210,000 or 3.3%. Average monthly rent per occupied
unit for these 42 properties at December 31, 1996 and 1995 was $546 and $531,
respectively, an increase of 2.8%. Weighted average physical occupancy for
the 42 properties increased from 94.2% at December 31, 1995 to 94.9% at
December 31, 1996, a 0.7% increase.
Operating expenses, consisting of on-site payroll costs, utilities (net of
reimbursements received from tenants), contract services, turnover costs,
repairs and maintenance, advertising and marketing, property taxes and
insurance totaled $38,400,000 for the year ended December 31, 1996,
consisting of $26,103,000 for the 42 "same store" properties, $1,793,000 for
the four sold properties, $852,000 for the two non-comparable properties and
$9,652,000 for the 47 properties acquired from December 1995 to December
1996. Operating expenses for the 42 properties of $26,103,000 for the year
ended December 31, 1996, compared to $25,615,000 for the same period in 1995,
reflecting an increase of $488,000, or 1.9%, is due primarily to increases in
utilities, marketing, turnover and real estate taxes offset by a decrease in
payroll expense and insurance costs due to lower premiums.
Owned property management expenses, representing the costs of managing the
Company's Owned Properties, totaled $2,746,000 for the year ended December
31, 1996, consisting of $1,900,000 for the 42 "same store" properties,
$127,000 for the Four Sold Properties, $41,000 for the two non-comparable
properties and $678,000 for the properties purchased from December 1995 to
December 1996. The owned property management expenses for the year ended
December 31, 1995 totaled $2,276,000, consisting of $2,003,000 for the 42
"same store" properties, $230,000 for the Four Sold Properties and $43,000
for the two non-comparable properties.
18
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SERVICE COMPANY BUSINESS
The Company's share of income from the service company business was $1,717,000
for the year ended December 31, 1996 compared to $1,973,000 for the year ended
December 31, 1995. Management fees and other income totaled $8,367,000 for the
year ended December 31, 1996 compared to $8,132,000 for the year ended December
31, 1995, reflecting an increase of $235,000, or 2.9%. Management and other
expenses totaled $5,352,000 for the year ended December 31, 1996 compared to
$4,953,000 for the year ended December 31, 1995, reflecting an increase of
$399,000, or 8.1%. Major sources of revenue and expense before amortization of
management company goodwill, corporate overhead allocations, depreciation and
amortization and minority interest are described below.
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(in thousands)
Properties managed for third parties
and affiliates
Management fees and other income $ 5,679 $ 4,878
Management and other expenses (4,405) (3,620)
------- -------
1,274 1,258
------- -------
Commercial asset management
Management and other income 1,026 1,564
Management and other expenses (339) (562)
------- -------
687 1,002
------- -------
Reinsurance operations
Revenues 1,267 1,193
Expenses (282) (432)
------- -------
985 761
------- -------
Brokerage and other
Revenues 395 497
Expenses (326) (339)
------- -------
69 158
------- -------
$ 3,015 $ 3,179
------- -------
------- -------
19
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net income from the management of properties for third parties and affiliates
was $1,274,000 for the year ended December 31, 1996, compared to $1,258,000
for the year ended December 31, 1995, an increase of $16,000, or 1.3%. The
increase in net income is primarily due to the acquisition by the Company of
property management businesses in August and November 1996. For the year
ended December 31, 1996, the Company had income of $997,000 and expenses of
$415,000 attributable to the operations of these recently acquired property
management businesses. The increase in net income due to these property
management businesses acquired is partially offset by increased payroll costs.
Net income from commercial asset management was $687,000 for the year ended
December 31, 1996 compared to $1,002,000 for the same period in 1995, a
decrease of $315,000, or 31.4%, as a result of a reduction in the number of
commercial properties under management. The decline in revenues from
commercial asset management for the year ended December 31, 1996 of $538,000,
or 34.4%, from the year ended December 31, 1995, was partially offset by a
decrease in related management and other expenses over the same periods of
$223,000, or 39.7%, primarily due to a reduction in personnel. The asset
management contracts expire on March 31, 1997.
Net income from the reinsurance operations for the year ended December 31,
1996 increased by $224,000, or 29.4%, from the year ended December 31, 1995,
due to increased premiums collected from a larger work force, improved loss
experience and the closure of claims for less than the amounts previously
reserved.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled $1,512,000 for the year ended
December 31, 1996 compared to $1,804,000 for the same period in 1995. The
amount presented for 1996 included $1,460,000 for payroll, overhead and other
costs associated with operating a public company and $642,000 for payroll and
other costs incurred in the development of new business offset by a corporate
overhead allocation of $590,000 to the service company business. The amount
presented for 1995 included $1,620,000 for payroll, overhead and other costs
associated with operating a public company, and $765,000 for payroll and
other costs incurred in the development of new business offset by a corporate
overhead allocation of $581,000 to the service company business. The net
decrease in general and administrative expenses for the year ended December
31, 1996 of $292,000, or 16.2%, from the year ended December 31, 1995 is
attributable to fewer personnel and a decrease in state income taxes paid in
1996 as a result of the restructuring in early 1995.
20
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE
Interest expense totaled $24,802,000 for the year ended December 31, 1996
compared to $13,322,000 for the year ended December 31, 1995. Interest
expense, which includes amortization of deferred financing costs, for the
year ended December 31, 1996 increased by $11,480,000, or 86.2% from the year
ended December 31, 1995. The increase consists primarily of $5,693,000 in
interest expense on secured long-term debt incurred in connection with
refinancings completed in June 1995 and September 1995 to refinance certain
secured notes payable, redeem the Convertible Preferred Stock and repurchase
513,514 unregistered shares of Class A Common Stock, and $5,532,000 in
interest expense on long-term and short-term indebtedness incurred or assumed
in connection with properties purchased from December 1995 to December 1996.
Interest expense on secured tax-exempt bond financing increased by $993,000
or 13.5% due to an increase in interest rate on the $48,140,000 of tax-exempt
bonds refinanced in June 1996 and the borrowing of $9,870,000 in June 1996
(proceeds of which were used to pay down the Company's Credit Facility).
During the year ended December 31, 1996, the Company capitalized interest of
$821,000 as a result of increased construction and renovation activities
compared to $113,000 which was capitalized during the year ended December 31,
1995. Interest expense, amortization of deferred financing costs and unused
commitment fees on the Credit Facility were $1,589,000 for the year ended
December 31, 1996 compared to $1,598,000 for the year ended December 31,
1995.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE PERIOD FROM JANUARY 10,
1994 (INCEPTION) THROUGH DECEMBER 31, 1994
The Company recognized net income of $13,375,000 for the year ended December
31, 1995 of which $5,169,000 was allocable to the holder of the Convertible
Preferred Stock and $8,206,000 was allocable to the Common Stockholders. For
the period from January 10, 1994 (inception) through December 31, 1994 the
Company recognized net income of $7,143,000 of which $3,114,000 was allocable
to the holder of the Convertible Preferred Stock and $4,029,000 was allocable
to the Common Stockholders. The Company completed its initial public offering
(the "IPO") on July 29, 1994 and while the AIMCO Predecessors advanced costs
associated with the IPO during the period from the Company's formation on
January 10, 1994 through July 28, 1994, the day prior to the Company's
completion of its IPO, the Company did not pay for any costs associated with
the IPO or incur any operating expenses during the period from January 10,
1994 to July 28, 1994.
21
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RENTAL PROPERTY OPERATIONS
Rental and other property revenues totaled $74,947,000 for the year ended
December 31, 1995 compared to $24,894,000 for the period from July 29, 1994
(when the Company commenced operations as a public company following the IPO)
to December 31, 1994. The revenues for the year ended December 31, 1995
include $55,924,000 for the 37 Owned Properties acquired or contributed in
conjunction with the IPO compared to $23,163,000 for the same properties for
the five month period of operations in 1994. For the eleven Owned Properties
acquired during November and December 1994, the Company earned revenues of
$18,507,000 for the year ended December 31, 1995 compared to $1,731,000 for
the period of operations in 1994. In addition, the Company acquired eight
Owned Properties in December 1995. Rental and other property revenues for
these Owned Properties was $516,000.
Operating expenses totaled $30,150,000 for the year ended December 31, 1995
compared to $10,330,000 for the five months of operations in 1994. The
expenses include $23,225,000 for the initial 37 properties for the year ended
December 31, 1995 compared to $9,709,000 for the period of operations in
1994. For the eleven Owned Properties acquired during November and December
1994, the Company incurred expenses of $6,707,000 for the year ended December
31, 1995 compared to $621,000 for the period of operations in 1994. Operating
expenses for the eight Owned Properties acquired in December 1995 totaled
$218,000.
Owned property management expenses totaled $2,276,000 for the year ended
December 31, 1995 compared to $711,000 for the period of operations in 1994.
Weighted average physical occupancy during the year ended December 31, 1995 and
the period from July 29, 1994 through December 31, 1994 was 94.4% and 95.1%,
respectively. The average monthly rent per occupied unit was $505 and $489
per apartment unit, respectively, for the periods presented.
22
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SERVICE COMPANY BUSINESS
The Company's share of income from the service company business was
$1,973,000 for the year ended December 31, 1995 compared to $1,006,000 for
the period from July 29, 1994 to December 31, 1994. Major sources of revenue
and expense before amortization of management company goodwill, corporate
overhead allocations, depreciation and amortization and minority interest are
described below.
JANUARY 10, 1994
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ----------------
(IN THOUSANDS)
Properties managed for third parties
and affiliates
Management fees and other income $ 4,878 $ 1,843
Management and other expenses (3,620) (1,398)
------- -------
1,258 445
------- -------
Commercial asset management
Management fees and other income 1,564 714
Management and other expenses (562) (293)
------- -------
1,002 421
------- -------
Reinsurance operations
Revenues 1,193 430
Expenses (432) (235)
------- -------
761 195
------- -------
Brokerage and other
Revenues 497 230
Expenses (339) (121)
------- -------
158 109
------- -------
$ 3,179 $ 1,170
------- -------
------- -------
23
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
REIT GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled $1,804,000 for the year ended
December 31, 1995 compared to $977,000 for the period from July 29, 1994 to
December 31, 1994.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1995 totaled $13,322,000.
The amount includes: (1) $1,427,000 of interest expense of secured notes
payable assumed in conjunction with the acquisition of three properties at
the IPO; (2) $5,292,000 of interest expense on the secured tax-exempt bond
financing and secured notes payable assumed in conjunction with the
acquisition of eleven Owned Properties in November and December 1994; (3)
$5,118,000 of interest expense on June and September 1995 refinancings; and
(4) $1,598,000 of interest expense on the Credit Facility. The Company
capitalized $113,000 of interest expense in conjunction with the development,
expansion and redevelopment of three Owned Properties.
Interest expense of $1,576,000 for the five months ended December 31, 1994
includes: (1) $655,000 of interest expense on mortgages assumed in
conjunction with the acquisition of three properties at the IPO; (2) $856,000
of interest expense on the secured tax-exempt bond financing, secured notes
payable and borrowings under the Credit Facility incurred in conjunction with
the acquisition of eleven Owned Properties in November and December; and (3)
$65,000 of interest expense on an unsecured note payable incurred in
conjunction with the IPO which was repaid in November 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $13,170,000 in cash and cash
equivalents and $15,831,000 of restricted cash primarily consisting of
reserves and impounds held by lenders for capital expenditures, property
taxes and insurance. The Company's principal demands for liquidity include
normal operating activities, payments of principal and interest on
outstanding debt, capital improvements, acquisitions of or investments in
properties, dividends paid to its stockholders and distributions paid to
minority limited partners in the Operating Partnership. The Company considers
its cash provided by operating activities to be adequate to meet short-term
liquidity demands.
On August 13, 1996, the Company increased its Credit Facility to $50 million
from $40 million, reduced its interest rate to LIBOR plus 1.625% from LIBOR
plus 1.75% and reduced its unused commitment fee to 0.125% from 0.375%.
Effective January 1, 1997, the Company further reduced its interest rate on
the Credit Facility to LIBOR plus 1.45%. The Credit Facility has an initial
term of two years and, subject to certain customary conditions, the
outstanding balance may be converted to a three year term loan. The Company
utilizes the Credit Facility for general corporate purposes and to fund
investments on an interim basis. At December 31, 1996, $44,800,000 was
borrowed under the Credit Facility.
24
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company expects to meet its long-term liquidity requirements, such as
refinancing debt and property acquisitions, through long-term borrowings,
both secured and unsecured, the issuance of debt, units of limited
partnership in the Operating Partnerships ("OP Units") or equity securities
and cash generated from operations. On October 18, 1995, the Company filed a
shelf registration statement with the Securities and Exchange Commission with
respect to an aggregate of $200 million of debt and equity securities. As of
March 1, 1997, the amount remaining available under the shelf registration
was $64.7 million. The Company expects to finance the pending acquisition of
the NHP common stock and other real estate interests, discussed previously in
this report, with the issuance of equity securities and debt.
As of December 31, 1996, the Company had outstanding indebtedness totaling
$522.1 million including $242.1 million of secured long-term financing,
$147.2 in secured short-term financing, $75.5 million of secured tax-exempt
bonds, $12.5 million of unsecured short-term financing and $44.8 million
outstanding under its Credit Facility. The Company's outstanding debt is
secured by substantially all of the Company's Owned Properties. The weighted
average interest rate on the Company's long-term secured tax-exempt financing
and secured notes payable was 7.9% with a weighted average maturity of 10
years. The weighted average interest rate on the Company's secured short-term
financing was 8.1%.
Indebtedness of the English Partnerships totaling approximately $28.8 million
is guaranteed in part by the Company and certain of its affiliates. This
guaranty is secured by an assignment of the Company's general partnership
interests in 12 of the English Partnerships.
In 1997, the Company intends to refinance approximately $116 million in
secured short-term, floating rate indebtedness with fixed rate, fully
amortizing indebtedness with a maturity of twenty years. The Company entered
into two anticipatory interest rate swap agreements in November and December
1996, aggregating $100 million in order to fix the interest rate on $100
million of its outstanding floating rate debt intended to be refinanced. The
Company locked in the twelve year U.S. Treasury rate at 6.2% and 6.3%,
respectively, in two separate $50 million transactions.
In February 1997, the Company completed a public offering of 2,015,000 shares
of common stock at $26.75 per share (including 15,000 shares subject to the
underwriter's overallotment option). The net proceeds of $51.1 million were
used to repay $38.1 million of secured and unsecured short-term indebtedness
arising from the acquisitions completed in November and December 1996, $9.5
million was used to pay down the Company's Credit Facility and $3.5 million
was used to provide working capital.
25
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL EXPENDITURES
For the year ended December 31, 1996, the Company spent $5.1 million for
capital replacements, $6.2 million for initial capital expenditures and $0.9
million for capital enhancements. In addition, in the year ended December
31, 1996, the Company spent $6.8 million in costs related to the expansion
and renovation of two Owned Properties. These expenditures were funded by
borrowings under the Credit Facility, working capital reserves and net cash
provided by operating activities. For the year ending December 31, 1997, the
Company will provide an allowance for capital replacements of $300 per
apartment unit per annum, plus a reserve of $586,000 carried over for amounts
not expended during the year ended December 31, 1996 for a total of $6.7
million. In addition, the Company expects to spend initial capital
expenditures of approximately $15.5 million (including expansion and
renovation costs of $7.0 million) and approximately $3.8 million of capital
enhancements (including $2.5 million for cable television equipment at
certain Owned Properties) during the year ended December 31, 1997. Initial
capital expenditures and capital enhancements will be funded by cash from
operating activities and borrowings under the Credit Facility.
The Company's accounting treatment of various capital and maintenance costs
is detailed in the following table:
ACCOUNTING DEPRECIABLE
EXPENDITURE TREATMENT LIFE IN YEARS
- ----------- ---------- -------------
Initial capital expenditures (costs identified
at the time of acquisition to be spent within
one year of acquisition) capitalize 5 to 30
Capital enhancements (amenities to add a
material new feature or revenue source) capitalize 5 to 30
Carpet/vinyl replacement capitalize 5
Carpet cleaning expense n/a
Major appliance replacement (refrigerators,
stoves, dishwashers, washers/dryers) capitalize 5
Cabinet replacement capitalize 5
Major new landscaping capitalize 15
Seasonal plantings and landscape replacements expense n/a
Roof replacements capitalize 15
Roof repairs expense n/a
Model furniture capitalize 5
Office equipment capitalize 5
Exterior painting, significant capitalize 10
Interior painting expense n/a
Parking lot repairs expense n/a
Parking lot repaving capitalize 15
Equipment repairs expense n/a
General policy for capitalization capitalize various
amounts
in excess
of $250
26
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
FUNDS FROM OPERATIONS AND CASH EARNED FOR SHAREHOLDERS
The Company measures its economic profitability based on Funds From
Operations ("FFO") less a minimum annual provision for capital replacements
of $300 per apartment unit, which the Company defines as Cash Earned For
Shareholders ("CEFS"). FFO represents income before minority interest and
gain on sale of real estate based on generally accepted accounting principles
plus real estate depreciation and amortization of management company goodwill
less any preferred stock dividend payments. FFO computations conform to the
National Association of Real Estate Investment Trusts' ("NAREIT") definition
adjusted to add back amortization of management company goodwill and deduct
payment of dividends on preferred stock.
FFO and CEFS do not represent cash generated from operating activities in
accordance with generally accepted accounting principles and therefore should
not be considered an alternative to net income as an indication of the
Company's performance or to net cash flows from operating activities as
determined by generally accepted accounting principles as a measure of
liquidity and is not necessarily indicative of cash available to fund future
cash needs.
For the years ended December 31, 1996 and 1995, FFO and CEFS are as follows
(amounts in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Income before gain on disposition
of property and minority interest
in Operating Partnership $15,629 $14,988
Owned properties depreciation 19,056 15,038
Amortization of management
company goodwill 500 428
Preferred stock dividend - (5,169)
------- -------
Funds From Operations (FFO) 35,185 25,285
Capital Replacements (4,617) (3,764)
------- -------
Cash Earned For Shareholders (CEFS) $30,568 $21,521
------- -------
------- -------
Weighted average common shares,
common share equivalents and OP
Units 14,994 11,461
------- -------
------- -------
27
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CONTINGENCIES
Certain of the Company's Owned Properties are, and some of the Managed
Properties may be, located on or near properties that have contained
underground storage tanks or on which activities have occurred which could
have released hazardous substances into the soil or groundwater. There can
be no assurances that such hazardous substances have not been released or
have not migrated, or in the future will not be released or will not migrate
onto the properties. In addition, the Company's Montecito property in
Austin, Texas, is located adjacent to, and may be partially on, land that was
used as a landfill. Low levels of methane and other landfill gas have been
detected at Montecito. The remediation of the landfill gas is now
substantially complete. The environmental authorities have preliminarily
approved the methane gas remediation efforts. Final approval of the site and
the remediation process is contingent upon the results of continued methane
gas monitors to confirm the effectiveness of the remediation efforts. Should
further actionable levels of methane gas be detected, a proposed contingent
plan of passive methane gas venting may be implemented. The Company
believes the costs of such further limited action, if any, will not be
material. Testing has also been conducted on Montecito to determine whether,
and to what extent, groundwater has been impacted. Test reports have
indicated that the groundwater is not contaminated at actionable levels.
INFLATION
Substantially all of the leases at the Company's apartment properties are for
a period of six months or less, allowing, at the time of renewal, for
adjustments in the rental rate and the opportunity to re-lease the apartment
unit at the prevailing market rate. The short term nature of these leases
generally serves to minimize the risk to the Company of the adverse effect of
inflation and the Company does not believe that inflation has had a material
adverse impact on its revenues.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditor's reports, consolidated and combined financial
statements and schedules listed in the accompanying index are filed as part
of this report and incorporated herein by reference. See "Index to Financial
Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Company's Directors required by this item is
presented under the caption "Board of Directors and Officers" in the Company's
proxy statement for its 1997 annual meeting of stockholders and is incorporated
herein by reference.
The Executive Officers of the Company as of March 11, 1997 are:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Terry Considine 49 Chairman of the Board of Directors, President
and Chief Executive Officer
Peter K. Kompaniez 52 Vice Chairman and Director
Steven D. Ira 47 Executive Vice President - Start
Robert P. Lacy 46 Executive Vice President
Thomas W. Toomey 36 Executive Vice President - Finance and
Administration
David L. Williams 51 Executive Vice President-Property Operations
Leeann Morein 42 Senior Vice President, Chief Financial Officer
and Secretary
Patricia K. Heath 42 Vice President and Chief Accounting Officer
Harry Alcock 33 Vice President-Acquisitions
TERRY CONSIDINE. Mr. Considine has been Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since July 1994. He is
the sole owner of Considine Investment Co. and prior to the IPO was an owner
of approximately 75% of Property Asset Management, one of the AIMCO
Predecessors. Mr. Considine has been involved as a principal in a variety of
real estate activities, including the acquisition, renovation, development
and disposition of properties. Mr. Considine has also controlled entities
engaged in other businesses such as television broadcasting, gasoline
distribution and environmental laboratories. Mr. Considine received a B.A.
from Harvard College and a J.D. from Harvard Law School. He served as a
Colorado State Senator from 1987 to 1992 and in 1992 was the Republican
nominee for election to the United States Senate from Colorado.
PETER K. KOMPANIEZ. Mr. Kompaniez has been Vice Chairman and a Director of
the Company since July 1994. Since September 1993, Mr. Kompaniez has owned
75% of PDI Realty Enterprises, Inc. ("PDI"), one of the AIMCO 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 apartment units that have been
acquired by the Company) and 3.1 million square feet of commercial real
estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law
firm of Loeb and Loeb where he had extensive real estate and REIT experience.
Mr. Kompaniez received a B.A. from Yale College and a J.D. from the
University of California (Boalt Hall).
29
STEVEN D. IRA. Mr. Ira has served as Executive Vice President of the Company
since July 1994. From 1987 until July 1994, he served as President of
Property Asset Management ("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 the 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 53-year history. He holds a Certified Apartment Property
Supervisor (CAPS) 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, National Apartment Association and
Apartment Association of Metro Denver. Mr. Ira received a B.S. from
Metropolitan State College in 1973.
ROBERT P. LACY. Mr. Lacy has served as Executive Vice President of the
Company since July 1994. From September 1993, Mr. Lacy has owned 25% of PDI
and served as Executive Vice President and Chief Operating Officer of PDI.
From 1990 to 1993, Mr. Lacy served as Executive Vice President of Income
Producing Properties for HFC. In that capacity he was responsible for all
improved real estate in HFC's portfolio, including 8,150 apartment units
(6,217 were acquired by the Company) and over 3.1 million square feet of
commercial real estate. From 1985 to 1990, Mr. Lacy served in various
capacities with the Birtcher Group of Companies, initially as Executive Vice
President and Chief Operating Officer of Birtcher Properties, where he
managed public and private partnership properties nationwide. Subsequently,
Mr. Lacy participated in the formation of Birtcher Financial Services and
eventually became Managing General Partner of that entity, where he provided
portfolio work-out services to the banking and thrift industries and
successfully resolved over $500 million in real estate loans and properties.
Mr. Lacy received a B.A. in Business Administration from California State
University at Fullerton in 1973, holds a CPM designation from IREM and is a
California Real Estate Broker.
DAVID L. WILLIAMS. Mr. Williams has been Executive Vice President-Property
Operations of the Company since January 1997. Prior to joining the Company,
Mr. Williams was Senior Vice President of Operations at Evans Withycombe
Residential, Inc. from January 1996 to January 1997. Previously, he was
Executive Vice President at Equity Residential Properties Trust from October
1989 to December 1995. He has served on National Multi-Housing Council
Boards and NAREIT committees. Mr. Williams also served as Senior Vice
President of Operations and Acquisitions of US Shelter Corporation from 1983
to 1989. Mr. Williams has been involved in the property management,
development and acquisition of real estate properties since 1973. Mr.
Williams received a B.A. in education and administration from the University of
Washington in 1967.
THOMAS W. TOOMEY. Mr. Toomey has served as Senior Vice President -
Finance and Administration of the Company since January 1996 and was promoted
to Executive Vice President in March 1997. From 1990 until 1995, Mr. Toomey
served in a similar capacity with Lincoln Property Company ("LPC") as Vice
President/Senior Controller and Director of Administrative Services of
Lincoln Property Services where he was responsible for LPC's computer
systems, accounting, tax, treasury services and benefits administration.
From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where
he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was
on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S.
in Business Administration/Finance from Oregon State University and is a
Certified Public Accountant.
30
LEEANN MOREIN. Ms. Morein has served as Senior Vice President, Chief
Financial Officer and Secretary of the Company since July 1994. From
September 1990 to March 1994, Ms. Morein served as Chief Financial Officer of
the real estate subsidiaries of California Federal Bank, including the
general partner of CF Income Partners, L.P., a publicly traded master limited
partnership. Ms. Morein joined California Federal in September 1988 as
Director of Real Estate Syndications Accounting and became Vice President -
Financial Administration in January 1990. From 1983 to 1988, Ms. Morein was
Controller of Storage Equities, Inc., a real estate investment trust, and
from 1981 to 1983, she was Director of Corporate Accounting for Angeles
Corporation, a real estate syndication firm. Ms. Morein worked on the audit
staff of Price Waterhouse from 1979 to 1981. Ms. Morein received a B.A. from
Pomona College and is a Certified Public Accountant.
PATRICIA K. HEATH. Ms. Heath has served as Vice President and Chief
Accounting Officer of the Company since July 1994. From 1992 to July 1994,
Ms. Heath served as Manager of Accounting, then Chief Financial Officer, of
HFC, and effective September 1993, as Chief Financial Officer of PDI. She had
responsibility for all internal and external financial reporting, cash
management and budgeting for HFC, its subsidiaries, related joint ventures
and partnerships and for PDI. Ms. Heath served as Controller for the real
estate investment, development and syndication firms of Guilford Glazer &
Associates from 1990 to 1992, Ginarra Holdings, Inc. from 1984 to 1990, and
Fox & Carskadon Financial Corporation from 1980 to 1983. Ms. Heath worked
from 1978 to 1980 as an auditor with Deloitte, Haskins and Sells. She
received her B.S. in Business from California State University at Chico and
is a Certified Public Accountant.
HARRY G. ALCOCK. Mr. Alcock has worked for the Company since July 1994 and has
served as Vice President since July 1996, with responsibility for acquisition
and financing activities. From 1992 until July 1994, Mr. Alcock served as
Senior Financial Analyst for PDI and HFC. 6,217 of HFC's apartment units
were acquired by the Company. From 1988 to 1992, Mr. Alcock worked for
Larwin Development Corp., a 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.
Information required by this item is presented under the caption "Other
Matters - Section 16(a) Compliance" in the Company's proxy statement for its
1997 annual meeting of stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is presented under the captions
"Summary Compensation Table", "Option/SAR Grants in Last Fiscal Year" and
"Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Options/SAR Values" in the Company's proxy statement for its 1997 annual
meeting of stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is presented under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's proxy statement for its 1997 annual meeting of stockholders and is
incorporated herein by reference.
31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is presented under the caption "Certain
Relationships and Transactions" in the Company's proxy statement for its 1997
annual meeting of stockholders and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The financial statements listed in the Index to Financial Statements
on Page F-1 of this report are filed as part of this report.
(a)(2) The financial statement schedules listed in the Index to Financial
Statements on Page F-1 of this report are filed as part of this report.
(a)(3) The Exhibit Index is included on page 32 of this report.
(b) Reports on Form 8-K for the quarter ended December 31, 1996:
Current Report on Form 8-K, dated November 21, 1996 and Amendment
No.1 thereto.
Current Report on Form 8-K, dated December 19, 1996.
___________________________________
32
EXHIBIT INDEX (1)
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Bylaws of the Company (2)
10.1 Letter agreement dated July 20, 1995 between AIMCO and Financial
Security Assurance Inc. re: redemption of AIMCO preferred stock
and related matters (4)
10.2 Letter agreement dated July 20, 1995 between AIMCO and Financial
Security Assurance Inc. re: release from certain obligations
under November 29, 1994 letter agreement (4)
10.3 Multifamily Note, dated as of June l, 1995, by AIMCO/Brandywine,
L.P. in favor of GMAC Commercial Mortgage Corporation in the
amount of $2,467,318 (Paradise Palms Apartments, Phoenix,
Arizona) (3)
10.4 Addendum to Multifamily Note, dated as of June 1, 1995, by
AIMCO/Brandywine, L.P. in favor of GMAC Commercial Mortgage
Corporation (Paradise Palms Apartments, Phoenix, Arizona) (3)
10.5 Supplemental Addendum to Multifamily Note, dated as of June 1,
1995, by AIMCO/Brandywine, L.P. in favor of GMAC Commercial
Mortgage Corporation (Paradise Palms Apartments, Phoenix,
Arizona) (3)
10.6 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement, dated as of June 1, 1995, by and among
AIMCO/Brandywine, L.P., the Trustee named therein and GMAC
Commercial Mortgage Corporation (Paradise Palms Apartments,
Phoenix, Arizona) (3)
10.7 Rider to Multifamily Instrument, dated as of June l, 1995, by
AIMCO/Brandywine, L.P. (Paradise Palms Apartments, Phoenix,
Arizona)(3)
10.8 Supplemental Rider to Multifamily Instrument, dated as of June 1,
1995, by AIMCO/Brandywine, L.P. (Paradise Palms Apartments,
Phoenix, Arizona) (3)
33
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.9 Exceptions to Non-Recourse Guaranty, dated as of June 1, 1995, by
Apartment Investment and Management Company and AIMCO Properties,
L.P. (Paradise Palms Apartments, Phoenix, Arizona) (3)
10.10 Replacement Reserve and Security Agreement, dated as of June 1,
1995, by AIMCO/Brandywine, L.P. and GMAC Commercial Mortgage
Corporation (Paradise Palms Apartments, Phoenix, Arizona) (3)
10.11 Completion/Repair and Security Agreement, dated as of June 1,
1995, by AIMCO/Brandywine, L.P. and GMAC Commercial Mortgage
Corporation (Paradise Palms Apartments, Phoenix, Arizona) (3)
10.12 Assignment of Management Agreement, dated as of June 1, 1995, by
and among AIMCO/Brandywine, L.P., GMAC Commercial Mortgage
Corporation and the Manager named therein (Paradise Palms
Apartments, Phoenix, Arizona)(3)
10.13 Multifamily Note, dated as of September 1, 1995, by AIMCO
Properties Finance Partnership, L.P. in favor of GMAC Commercial
Mortgage Corporation in the amount of $4,587,281 (Spectrum Pointe
Apartments, Marietta, Georgia) (5)
10.14 Addendum to Multifamily Note, dated as of September 1, 1995, by
AIMCO Properties Finance Partnership, L.P. in favor of GMAC
Commercial Mortgage Corporation (Spectrum Pointe Apartments,
Marietta, Georgia) (5)
10.15 Supplemental Addendum to Multifamily Note, dated as of September
1, 1995, by AIMCO Properties Finance Partnership, L.P. in favor
of GMAC Commercial Mortgage Corporation (Spectrum Pointe
Apartments, Marietta, Georgia) (5)
10.16 Multifamily Deed to Secure Debt, Assignment of Rents and Security
Agreement, dated as of September 1, 1995, by AIMCO Properties
Finance Partnership, L.P. (Spectrum Pointe Apartments, Marietta,
Georgia) (5)
10.17 Rider to Multifamily Instrument, dated as of September 1, 1995,
by AIMCO Properties Finance Partnership, L.P. (Spectrum Pointe
Apartments, Marietta, Georgia) (5)
34
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.18 Supplemental Rider to Multifamily Instrument, dated as of
September 1, 1995, by AIMCO Properties Finance Partnership,
L.P. (Spectrum Pointe Apartments, Marietta, Georgia) (5)
10.19 Exceptions to Non-Recourse Guaranty, dated as of September 1,
1995, by Apartment Investment and Management Company and AIMCO
Properties Finance Partnership, L.P (Spectrum Pointe Apartments,
Marietta, Georgia) (5)
10.20 Replacement Reserve and Security Agreement, dated as of September
1, 1995, by AIMCO Properties Finance Partnership, L.P. and GMAC
Commercial Mortgage Corporation (Spectrum Pointe Apartments,
Marietta, Georgia) (5)
10.21 Completion/Repair and Security Agreement, dated as of September
1, 1995, by AIMCO Properties Finance Partnership, L.P. and GMAC
Commercial Mortgage Corporation (Spectrum Pointe Apartments,
Marietta, Georgia) (5)
10.22 Assignment of Management Agreement, dated as of September l, 1995,
by and among AIMCO Properties Finance Partnership, L.P., GMAC
Commercial Mortgage Corporation and the Manager named therein
(Spectrum Pointe Apartments, Marietta, Georgia) (5)
10.23 Property Contribution Agreement, dated as of June 30, 1995, by
the Company and Centennial Mortgage, Inc. ("Centennial") (5)
10.24 Option Agreement, dated as of August 2, 1995, by the Company and
Centennial (5)
10.25 First Amendment to Property Contribution Agreement, dated as of
August 2, 1995, by the Company and Centennial (5)
10.26 Purchase and Sale Agreement, dated as of October 9, 1995, by AIMCO
Properties, L.P. and Villa Ladera Associates, Ltd. (5)
10.27 Amendment to and Restatement of Agreement to Contribute
Partnership Interests, dated as of October 20, 1995, by and among
SKG Holding Corp., Joel Kagan, Herbert M. Scheuer, Jr., Michael S.
Goldner, AIMCO/Properties, L.P. and AIMCO/Holdings, L.P. (5)
10.28 Purchase and Sale Agreement, dated as of October 23, 1995, by
Tamarac Apartments Joint Venture and the Company (5)
35
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.29 Purchase and Sale Agreement (with Escrow Instructions) by
AIMCO/Properties, L.P. and Foundation for Social Resources,
Inc. (5)
10.30 Agreement of Purchase and Sale, dated as of December 27, 1995, by
and among General Electric Credit Equities, Inc., AIMCO/RALS, L.P.
and Stewart Title Guarantee Company (6)
10.31 Contribution Agreement, dated as of December 27, 1995, by and
among AIMCO/Properties, L.P., Home Ventures Associates I, Ltd.
and Home Ventures Associates II, Ltd. (6)
10.32 Agreement of Purchase and Sale, dated as of December 27, 1995, by
and among Riverwa1k Village Associates, L.P., AIMCO/AIMCO/RALS,
L.P. and Stewart Title Guarantee Company (6)
10.33 Assignment of Management Agreement, dated as of December 29, 1995,
by and among AIMCO/RALS, L.P., GMAC Commercial Mortgage
Corporation and the Manager named therein (Ashford Plantation
Apartments, Dekalb County, Georgia)(6)
10.34 Guaranty and Surety Agreement, dated as of December 29, 1995, by
Apartment Investment and Management Company in favor of GMAC
Commercial Mortgage Corporation (Ashford Plantation Apartments,
Dekalb County, Georgia) (6)
10.35 Multifamily Note, dated as of December 29, 1995, by AIMCO/RALS,
L.P. in favor of GMAC Commercial Mortgage Corporation in the
amount of $6,800,000 (Ashford Plantation Apartments, Dekalb
County, Georgia)(6)
10.36 Multifamily Deed to Secure Debt, Assignment of Rents and Security
Agreement, dated as of December 29, 1995, by AIMCO/RALS, L.P. and
GMAC Commercial Mortgage Corporation (Ashford Plantation
Apartments, Dekalb County, Georgia)(6)
10.37 Rider to Multifamily Instrument, dated as of December 29, 1995,
by AIMCO/RALS, L.P. (Ashford Plantation Apartments, Dekalb County,
Georgia) (6)
10.38 Supplemental Rider to Multifamily Instrument, dated as of
December 29, 1995, by AIMCO/RALS, L.P. (Ashford Plantation
Apartments, Dekalb County, Georgia)(6)
36
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.39 Replacement Reserve and Security Agreement, dated as of December
29, 1995, by AIMCO/RALS, L.P. and GMAC Commercial Mortgage
Corporation (Ashford Plantation Apartments, Dekalb County,
Georgia)(6)
10.40 Completion/Repair and Security Agreement, dated as of December
29, 1995, by AIMCO/RALS, L.P. and GMAC Commercial Mortgage
Corporation (Ashford Plantation Apartments, Dekalb County,
Georgia)(6)
10.41 Note, dated as of December 29, 1995, by AIMCO/Boardwalk Finance,
L.P. in favor of GMAC Commercial Mortgage Corporation in the
amount of $6,200,000 (6)
10.42 Guaranty and Surety Agreement, dated as of December 29, 1995, by
Apartment Investment and Management Company in favor of GMAC
Commercial Mortgage Corporation (6)
10.43 Pledge and Security Agreement, dated as of December 29, 1995, by
AIMCO/Boardwalk Finance, L.P. and GMAC Commercial Mortgage
Corporation (6)
10.44 Contribution Agreement and Joint Escrow Instructions, dated as of
January 1, 1996, by and between AIMCO Properties, L.P. and
Peachtree Park 94, L.P. (7)
10.45 Acquisition Agreement, dated as of April 30, 1996, by and among
the Company, AIMCO Somerset, Inc., AIMCO Properties, L.P.,
Somerset REIT, Inc., RJ Holdings, Ltd., Somerset PAM Partnership
and RJ Equities, Inc. (8)
10.46 Shareholder Registration Rights Agreement, dated as of May 31,
1996, by and between the Company and Somerset REIT, Inc. (8)
10.47 Unitholder Registration Rights Agreement, dated as of May 20,
1996, by and among the Company and the investors listed on
Schedule A thereto (8)
10.48 Amended and Restated Promissory Note, dated September 1, 1993,
in the original principal amount of $13,200,000 by Somerset Utah,
L.P. in favor of Branzos Partners, L.P. (8)
10.49 Acquisition and Contribution Agreement and Joint Escrow
Instructions, dated as of April 19, 1996 by and among the Company,
AIMCO Properties, L.P. and Thoner-Pankey (8)
37
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.50 Registration Agreement, dated as of April 19, 1996, by among
the Company and the investors listed on Schedule A thereto
(OP Units) (8)
10.51 Registration Agreement, dated as of April 19, 1996, by and among
the Company and the investors listed on Schedule A thereto
(Class A Common Stock) (8)
10.52 Credit Agreement, dated as of August 12, 1996, by and among
AIMCO Properties, L.P., the banks from time to time party to this
Agreement, Bank of America National Trust and Savings Association,
as one of the Banks, and Bank of America National Trust and
Savings Association, as Agent (9)
10.53 Promissory Note, dated as of August 12, 1996, by AIMCO Properties,
L.P., in favor of Bank of America National Trust and Savings
Association (9)
10.54 Payment Guaranty, dated as of August 12, 1996, by the Company,
AIMCO-GP, Inc., AIMCO-LP, Inc., AIMCO Holdings, L.P., AIMCO
Holdings QRS, Inc., AIMCO Somerset, Inc. and AIMCO/OTC QRS, Inc.
in favor of Bank of America National Trust and Savings
Association, as the agent (9)
10.55 Credit Agreement (BRIDGE LOAN) entered into as of August 12, 1996,
among AIMCO Properties, L.P., the National Trust and Savings
Association and Bank of America National Trust and Savings
Association, as Agent (9)
10.56 Promissory Note by AIMCO Properties, L.P. in favor of Bank of
America National Trust and Savings Association (9)
10.57 Payment Guaranty dated as of August 12, 1996, by the Company,
AIMCO-GP, Inc., AIMCO-LP, Inc., AIMCO Holdings, L.P., AIMCO
Holdings QRS, Inc., AIMCO Somerset, Inc. and AIMCO/OTC QRS,
Inc., in favor of Bank of America National Trust and Savings
Association (9)
10.58 Acquisition Agreement, dated as of July 26, 1995, among the
Company, AIMCO Properties, L.P., AIMCO/PAM Properties, L.P.,
John W. English, J.W. English Real Estate, Inc., J.W. English
Development Co., J.W. English Investments Co., J.W. English
Management Co., Easton Falls Partners, Ltd. and English Income
Fund I, a Texas Limited Partnership (9)
38
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.59 Apartment Investment and Management Company Non-Qualified Employee
Stock Option Plan, adopted August 29, 1996 (10) (11)
10.60 Registration Rights Agreement, dated as of September 30, 1996,
among the Company and the persons listed on Schedule A hereto
10.61 Registration Rights Agreement, dated as of October 9, 1996, among
the Company and the persons listed on Schedule A hereto
10.62 Unitholder Registration Rights Agreement, dated as of November 7,
1996, among the Company and the persons listed on Schedule A
hereto
10.63 Guaranty Agreement, dated as of November 12, 1996, by the Company,
in favor of Bank United
10.64 Amendment and Modification of Promissory Note and Deed of Trust,
dated as of December 26, 1996, between Township at Highlands
Partners, Ltd. and Bank United
10.65 Registration Rights Agreement, dated as of December 27, 1996,
among the Company and the persons listed on Schedule A thereto
10.66 Promissory Note, dated as of December 27, 1996, by Hastings Place
Partners, payable to NationsBank of Texas, N.A., in the original
principal amount of $3,258,000.00
10.67 Deed of Trust, Assignment, Security Agreement and Financing
Statement, dated as of December 27, 1996, by Hastings Place
Partners, for the benefit of NationsBank of Texas, N.A.
10.68 Guaranty Agreement, dated as of December 27, 1996, by the Company,
AIMCO Properties, L.P., AIMCO-GP, Inc., AIMCO-L.P., Inc., AIMCO
Holdings, L.P. and AIMCO Holdings QRS, Inc., in favor of
NationsBank of Texas, N.A.
10.69 Security Agreement, dated as of December 27, 1996, among AIMCO
Properties, L.P., AIMCO Copperfield, L.P., AIMCO Crows Nest, L.P.,
AIMCO Group, L.P., AIMCO Hampton Hill, L.P., AIMCO Hastings Place,
L.P., AIMCO Oak Falls, L.P., AIMCO Recovery Fund, L.P., AIMCO
Signature Point, L.P., AIMCO Sunbury, L.P., AIMCO West Trails,
L.P. and NationsBank of Texas, N.A.
39
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.70 Apartment Investment and Management Company 1996 Stock Award and
Incentive Plan, adopted April 25, 1996 (11)
10.71 Amended and Restated Note, dated as of December 2, 1996, between
AIMCO LT, L.P. and GMAC Commercial Mortgage Corporation in the
amount of $25,615,200.00
10.72 Amended and Restated General Partner Pledge and Security
Agreement, dated as of December 2, 1996, between AIMCO LT, L.P.
and GMAC Commercial Mortgage Corporation
10.73 General Partner Pledge and Security Agreement, dated as of
December 2, 1996, by AIMCO LT, L.P. as general partner of Meadows
Limited Partnership in favor of GMAC Commercial Mortgage
Corporation relating to a loan in the amount of $2,488,400.00
(Meadows at Anderson Mill Apartments in Austin, Texas)
10.74 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement, dated as of December 2, 1996, among Meadows Limited
Partnership, Jay C. Paxton and GMAC Commercial Mortgage
Corporation
10.75 Rider to Multifamily Instrument, dated as of December 2, 1996, by
Meadows Limited Partnership
10.76 Supplemental Rider to Multifamily Instrument, dated as of December
2, 1996, by Meadows Limited Partnership
10.77 Exceptions to Non-Recourse Guaranty, dated as of December 2, 1996,
between Meadows Limited Partnership and GMAC Commercial Mortgage
Corporation
10.78 Multifamily Note, dated as of December 2, 1996, by Meadows Limited
Partnership in favor of GMAC Commercial Mortgage Corporation in
the amount of $2,488,400.00
10.79 Master Reimbursement Agreement, dated as of July 1, 1996, between
Federal National Mortgage Association and OTC Apartments Limited
Partnership
40
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.80 Cash Management, Security, Pledge and Assignment Agreement, dated
as of July 1, 1996, among OTC Apartments Limited Partnership,
Federal National Mortgage Association and GMAC Commercial Mortgage
Corporation
10.81 Payment Guaranty, dated as of July 1, 1996, by the Company in
favor of Federal National Mortgage Association
10.82 Payment Guaranty, dated as of July 1, 1996, by AIMCO Properties,
L.P. in favor of Federal National Mortgage Association
10.83 Amended and Restated Pledge and Security Agreement, dated as of
December 2, 1996, between AIMCO LT, L.P. and GMAC Commercial
Mortgage Corporation
10.84 Multifamily First Mortgage, Assignment of Rents and Security
Agreement, dated as of July 1, 1996, between OTC Apartments
Limited Partnership and Housing Finance Authority of Broward
County, Florida
10.85 Rider to Multifamily Instrument, dated as of July 1, 1996, by OTC
Apartments Limited Partnership
10.86 Special Rider to Multifamily Instrument, dated as of July 1, 1996,
by OTC Apartments Limited Partnership
10.87 Multifamily Second Mortgage, Assignment of Rents and Security
Agreement, dated as of July 1, 1996, between OTC Apartments
Limited Partnership and Federal National Mortgage Association
10.88 Rider to Multifamily Instrument, dated as of July 1, 1996, by OTC
Apartments Limited Partnership
10.89 Special Rider to Multifamily Instrument, dated as of July 1, 1996,
by OTC Apartments Limited Partnership
10.90 Financing Agreement, dated as of June 15, 1996, among Housing
Finance Authority of Broward County, Florida, The Bank of New
York and OTC Apartments Limited Partnership
10.91 Multifamily Note, dated as of July 1, 1996, by OTC Apartments
Limited Partnership in favor of Housing Finance Authority of
Broward County, Florida in the amount of $9,870,000.00
41
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.92 Addendum to Multifamily Note, dated as of July 1, 1996, by OTC
Apartments Limited Partnership in favor of Housing Finance
Authority of Broward County, Florida
10.93 Supplemental Addendum to Multifamily Note, dated as of July 1,
1996, by OTC Apartments Limited Partnership in favor of Housing
Finance Authority of Broward County, Florida
10.94 Multifamily Mortgage, Assignment of Rents and Security Agreement,
dated as of August 1, 1996, between OTC Apartments Limited
Partnership and The Bank of New York
10.95 Rider to Multifamily Instrument, dated as of August 1, 1996,
between OTC Apartments Limited Partnership and The Bank of New
York
10.96 Special Rider to Multifamily Instrument, dated as of August 1,
1996, between OTC Apartments Limited Partnership and The Bank of
New York
10.97 Multifamily Mortgage, Assignment of Rents and Security Agreement,
dated as of August 1, 1996, between OTC Apartments Limited
Partnership and Federal National Mortgage Association
10.98 Rider to Multifamily Instrument, dated as of August 1, 1996,
between OTC Apartments Limited Partnership and Federal National
Mortgage Association
10.99 Special Rider to Multifamily Instrument, dated as of August 1,
1996, between OTC Apartments Limited Partnership and Federal
National Mortgage Association
10.100 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement, dated as of July 1, 1996, among OTC Apartments
Limited Partnership, the Public Trustee of Jefferson County and
Federal National Mortgage Association (Village Creek Apartments)
10.101 Rider to Multifamily Instrument, dated as of July 1, 1996, among
OTC Apartments Limited Partnership, the Public Trustee of
Jefferson County and Federal National Mortgage Association
(Village Creek Apartments)
42
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.102 Special Rider to Multifamily Instrument, dated as of July 1, 1996,
among OTC Apartments Limited Partnership, the Public Trustee of
Jefferson County and Federal National Mortgage Association
(Village Creek Apartments)
10.103 Amended and Restated Loan Agreement, as Most Recently Amended and
Restated, dated as of June 1, 1991 and most recently amended and
restated as of July 1, 1996, among the State Agency, OTC
Apartments Limited Partnership and SunTrust Bank, Central Florida,
N.A., relating to those certain $48,140,000.00 Florida Housing
Finance Agency Multi-Family Housing Revenue Refunding Bonds, 1991
Series C (Players Club at Tampa, Suntree at East Bay, Suntree at
Orlando, Players Club at Magnolia Bay and Players Club at East Bay
Projects)
10.104 Summary of Arrangement for Sale of Stock to Executive
Officers (11)
10.105 Employment Contract executed on July 29, 1994 by and between AIMCO
Properties, L.P. and Peter Kompaniez (2) (11)
10.106 Employment Contract executed on July 29, 1994 by and between AIMCO
Properties, L.P. and Robert P. Lacy (2) (11)
10.107 Employment Contract executed on July 29, 1994 by and between AIMCO
Properties, L.P. and Terry Considine (2) (11)
10.108 Employment Contract executed on July 29, 1994 by and between AIMCO
Properties, L.P. and Steven D. Ira (2) (11)
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
- -------------------
(1) Schedules and supplemental materials to the exhibits have been omitted
but will be provided to the SEC upon request.
(2) Incorporated by reference from the Company's Annual Report on Form 10-K
for fiscal year 1994.
(3) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1995.
43
(4) Incorporated by reference from the Company's Current Report on Form 8-K
dated July 20, 1995.
(5) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarterly period ending September 30, 1995.
(6) Incorporated by reference from the Company's Current Report on Form 8-K
dated December 29, 1995.
(7) Incorporated by reference from the Company's Current Report on Form 8-K
dated January 1, 1996.
(8) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 1996.
(9) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarterly period ending September 30, 1996.
(10) Incorporated by reference from the Company's Quarterly Report on Form
10-Q/A for the quarterly period ending September 30, 1996.
(11) Management contract or compensatory plan or arrangement.
44
SCHEDULE 1
Documents substantially identical to Exhibits 10.3 through 10.12, except
as to the loan amount and the subject property, have been omitted in reliance
on Rule 12b-31 under the Securities Exchange Act of 1934, as amended. Set
forth below are the material details in which such documents differ from
Exhibits 10.3 through 10.12.
SUBJECT PROPERTY LOAN AMOUNT
---------------- -----------
1. Brandywine Apartments $ 6,955,768
St. Petersburg, Florida
2. Meadow Creek Apartments $ 8,376,699
Boulder, Colorado
3. Riverside Apartments $ 6,387,619
Littleton, Colorado
4. Chimney Ridge Apartments $ 2,033,570
Dallas, Texas
5. Williams Cove Apartments $ 4,149,900
Irving, Texas
6. Frankford Place Apartments $ 4,229,425
Carrollton, Texas
7. Meadowbrook Apartments $ 3,467,381
Humble, Texas
8. Parkside Apartments $ 2,284,650
Humble, Texas
9. Ashwood Park Apartments $ 1,660,560
Pasadena, Texas
10. Lexington Apartments $ 1,126,868
San Antonio, Texas
11. Montecito Apartments $ 5,314,567
Austin, Texas
12. Country Club Apartments $ 4,293,866
Amarillo, Texas
45
13. Newport Apartments $ 2,747,889
Avondale, Arizona
14. Cobble Creek Apartments $ 1,503,920
Glendale, Arizona
Documents substantially identical to Exhibits 10.13 through 10.22, except
as to the loan amount and the subject property, have been omitted in reliance
on Rule 12b-31 under the Securities Exchange Act of 1934, as amended. Set
forth below are the material details in which such documents differ from
Exhibits 10.13 through 10.22.
SUBJECT PROPERTY LOAN AMOUNT
---------------- -----------
15. Fairways Apartments $ 6,743,232
Chandler, Arizona
16. Rillito Village Apartments $ 4,276,352
Tuscon, Arizona
17. Royal Palms Apartments $ 3,749,110
Mesa, Arizona
18. 40th North Apartments $11,389,266
Phoenix, Arizona
19. South Willow Apartments $ 8,821,703
West Jordan, Utah
20. Sun Valley Apartments $ 5,895,456
Layton, Utah
21. Dunwoody Apartments $ 7,943,606
Dunwoody, Georgia
22. Coral Gardens Apartments $11,903,230
Las Vegas, Nevada
23. Prairie Hills Apartments $ 7,720,008
Albuquerque, New Mexico
24. Pleasant Valley Apartments $ 3,648,119
Little Rock, Arkansas
25. Hillmeade Apartments $11,676,811
Nashville, Tennessee
26. Jefferson Place Apartments $10,046,507
Baton Rouge, Louisiana
46
Documents substantially identical to Exhibits 10.33 through 10.43, except
as to the loan amount and the subject property, have been omitted in reliance
on Rule 12b-31 under the Securities Exchange Act of 1934, as amended. Set
forth below are the material details in which such documents differ from
Exhibits 10.33 through 10.43.
SUBJECT PROPERTY LOAN AMOUNT
---------------- -----------
27. Las Brisas Apartments $ 3,800,000
San Antonio, Texas
28. Riverwalk Apartments $ 6,200,000
Little Rock, Arkansas
29. Snug Harbor Apartments $ 2,000,000
Las Vegas, Nevada
Documents substantially identical to Exhibits 10.66 through 10.67, except
as to the loan amount and the subject partnership, have been omitted in
reliance on Rule 12b-31 under the Securities Exchange Act of 1934, as
amended. Set forth below are the material details in which such documents
differ from Exhibits 10.66 through 10.67.
SUBJECT PARTNERSHIP LOAN AMOUNT
------------------- -----------
30. Copperfield Partners, Ltd. $ 4,336,000
31. Coventry Square Partners $ 4,240,000
32. Crows Nest Partners, Ltd. $ 4,160,000
33. Fisherman's Wharf Partners $ 6,000,000
34. Hampton Hill Partners $ 3,952,000
35. The Houston Recovery Fund $ 4,732,000
36. The Houston Recovery Fund $ 750,000
37. Oak Falls Partners $ 3,285,000
38. Signature Point Joint Venture, $11,040,000
a Texas Joint Venture
39. Sunbury Partners, Ltd. $ 2,950,000
40. J.W. English Swiss Village $ 6,880,000
Partners, Ltd.
41. West Trails Partners, Ltd. $ 4,870,952
47
Documents substantially identical to Exhibits 10.73 through 10.78, except
as to the loan amount and the subject partnership and property, have been
omitted in reliance on Rule 12b-31 under the Securities Exchange Act of 1934.
Set forth below are the material details in which such documents differ from
Exhibits 10.73 through 10.78.
SUBJECT PARTNERSHIP/PROPERTY LOAN AMOUNT
---------------------------- -----------
42. Greentree Associates $8,353,100
Greentree Apartments,
Carrollton, Texas
43. Meadowbrook Drive Limited Partnership $3,276,400
Randol Crossing Apartments,
Fort Worth, Texas
44. RC Associates $2,683,100
Ridgecrest Apartments,
Denton, Texas
45. Southridge Associates $3,050,100
Southridge Apartments,
Greenville, Texas
46. Woodhill Associates $6,849,600
Woodhill Apartments,
Denton, Texas
47. Woodland Ridge II Partners $2,544,100
Limited Partnership
Woodland Ridge II Apartments,
Irving, Texas
Documents substantially identical to Exhibits 10.84 through 10.93, except
as to the loan amount and the subject property, have been omitted in reliance
on Rule 12b-31 under the Securities Exchange Act of 1934. Set forth below
are the material details in which such documents differ from Exhibits 10.84
through 10.93.
SUBJECT PROPERTY LOAN AMOUNT
---------------- -----------
48. Sunchase Eastbay $18,170,000
49. Sunchase Tampa $12,790,000
50. Sunchase North $ 9,535,000
51. Sunchase East $ 7,645,000
48
Documents substantially identical to Exhibits 10.100 through 10.102,
except as to the subject property, have been omitted in reliance on Rule
12b-31 under the Securities Exchange Act of 1934. Set forth below are the
material details in which such documents differ from Exhibits 10.100 through
10.102.
SUBJECT PROPERTY
----------------
52. Las Brisas Apartments
53. Parliament Bend Apartments
54. Woodlands-Odessa Apartments
55. Sun Grove Apartments
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 27th day of
March, 1997.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
/S/ TERRY CONSIDINE
-----------------------------------------
Terry Considine, CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ TERRY CONSIDINE Chairman of the Board, President and March 28, 1997
- ----------------------- Chief Executive Officer
Terry Considine
/s/ THOMAS W. TOOMEY Executive Vice President-Finance March 28, 1997
- --------------------- and Administration
Thomas W. Toomey
/s/ LEEANN MOREIN Senior Vice President, Chief Financial March 28, 1997
- --------------------- Officer and Secretary
Leeann Morein
/s/ PATRICIA K. HEATH Vice President and Chief Accounting March 28, 1997
- ---------------------- Officer
Patricia K. Heath
/s/ PETER K. KOMPANIEZ Vice Chairman and Director March 28, 1997
- -----------------------
Peter K. Kompaniez
/s/ RICHARD S. ELLWOOD Director March 28, 1997
- -----------------------
Richard S. Ellwood
/s/ J. LANDIS MARTIN Director March 28, 1997
- -----------------------
J. Landis Martin
/s/ THOMAS L. RHODES Director March 28, 1997
- -----------------------
Thomas L. Rhodes
/s/ JOHN D. SMITH Director March 28, 1997
- -----------------------
John D. Smith
50
INDEX TO FINANCIAL STATEMENTS
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AND
AIMCO PREDECESSORS
PAGE
----
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
FINANCIAL STATEMENTS:
Report of Independent Auditors...................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995....... F-3
Consolidated Statements of Income for the Years ended
December 31, 1996 and 1995 and for the Period January 10, 1994
(inception) through December 31, 1994.............................. F-4
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1996 and 1995 and for the Period January 10,
1994 (inception) through December 31, 1994......................... F-5
Consolidated Statements of Cash Flow for the Years ended
December 31, 1996 and 1995 and for the Period January 10, 1994
(inception) through December 31, 1994.............................. F-6
Notes to Consolidated Financial Statements.......................... F-8
FINANCIAL STATEMENT SCHEDULE:
Schedule III -- Real Estate and Accumulated Depreciation .......... F-32
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or
notes thereto.
AIMCO PREDECESSORS
FINANCIAL STATEMENTS:
Report of Independent Auditors.................................... F-35
Combined Balance Sheet as of July 28, 1994........................ F-36
Combined Statements of Operations for the Period January 1, 1994
through July 28, 1994............................................ F-37
Combined Statements of Owners' Deficit for the Period January 1,
1994 through July 28, 1994....................................... F-38
Combined Statements of Cash Flows for the Period January 1, 1994
through July 28, 1994............................................ F-39
Notes to Combined Financial Statements............................ F-40
FINANCIAL STATEMENT SCHEDULE:
Schedule III -- Real Estate and Accumulated Depreciation.......... F-46
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
F-1
Report of Independent Auditors
Stockholders and Board of Directors
Apartment Investment and Management Company
We have audited the accompanying consolidated balance sheets of Apartment
Investment and Management Company as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1996 and
for the period January 10, 1994 (inception) to December 31, 1994. Our audits
also included the consolidated financial statement schedule listed in the
Index at Item 14(a)(2). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Apartment Investment and Management Company at December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996 and for the period
January 10, 1994 (inception) to December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
January 24, 1997, except for
Note 4 and Note 20, as to which
the date is March 25, 1997
F-2
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Consolidated Balance Sheets
December 31, 1996 and 1995
(In Thousands, Except Share Data)
1996 1995
-------- --------
(Restated)
ASSETS
REAL ESTATE - net of accumulated depreciation of
$120,077 and $28,737 - Note 3 $745,145 $448,425
CASH AND CASH EQUIVALENTS 13,170 2,379
RESTRICTED CASH 15,831 18,630
ACCOUNTS RECEIVABLE 4,344 1,581
DEFERRED FINANCING COSTS 11,053 5,474
OTHER ASSETS - Note 4 45,270 3,872
-------- --------
$834,813 $480,361
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
SECURED NOTES PAYABLE - Note 5 $242,110 $173,502
SECURED SHORT-TERM FINANCING - Note 6 192,039 29,000
SECURED TAX-EXEMPT BOND FINANCING - Note 7 75,497 66,190
UNSECURED SHORT-TERM FINANCING - Note 8 12,500 --
ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES 16,299 9,615
RESIDENT SECURITY DEPOSITS AND PREPAID RENTS 4,316 2,646
-------- --------
542,761 280,953
-------- --------
COMMITMENTS AND CONTINGENCIES - Note 9 -- --
MINORITY INTERESTS IN OTHER PARTNERSHIPS - Note 11 10,386 --
MINORITY INTEREST IN OPERATING PARTNERSHIP - Note 12 58,777 30,376
STOCKHOLDERS' EQUITY - Note 13
Class A Common Stock, $.01 par value, 150,000,000 shares
authorized, 14,980,441 and 11,847,568 shares issued
and outstanding 150 118
Class B Common Stock, $.01 par value, 685,000 shares
authorized, 325,000 and 585,000 shares issued
and outstanding 3 6
Non-voting preferred stock, $0.01 par value, 10,000,000
authorized, none issued and outstanding -- --
Additional paid-in capital 236,791 175,211
Accumulated deficit (14,055) (6,303)
-------- --------
222,889 169,032
-------- --------
$834,813 $480,361
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
F-3
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Consolidated Statements of Income
For the Years Ended December 31, 1996 and 1995 and
For the Period January 10, 1994 (Inception) through December 31, 1994
(In Thousands, Except Per Share Data)
FOR THE PERIOD
JANUARY 10, 1994
FOR THE YEAR FOR THE YEAR (INCEPTION)
ENDED ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
(RESTATED) (RESTATED)
RENTAL PROPERTY OPERATIONS
Rental and other property revenues $ 100,516 $ 74,947 $ 24,894
Property operating expenses (38,400) (30,150) (10,330)
Owned property management expense (2,746) (2,276) (711)
----------- ---------- ----------
Income from property operations before
depreciation 59,370 42,521 13,853
Depreciation (19,556) (15,038) (4,727)
----------- ---------- ----------
Income from rental property operations 39,814 27,483 9,126
----------- ---------- ----------
SERVICE COMPANY BUSINESS
Management fees and other income 8,367 8,132 3,217
Management and other expenses (5,352) (4,953) (2,047)
Corporate overhead allocation (590) (581) -
Management company goodwill amortization (500) (428) (76)
Depreciation and amortization (218) (168) (74)
----------- ---------- ----------
1,707 2,002 1,020
Minority interests in service company business 10 (29) (14)
----------- ---------- ----------
Company's share of income from service company
business 1,717 1,973 1,006
----------- ---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES (1,512) (1,804) (977)
INTEREST EXPENSE (24,802) (13,322) (1,576)
INTEREST INCOME 523 658 123
NON-CONTROLLED INTERESTS IN PARTNERSHIPS (111) - -
----------- ---------- ----------
INCOME BEFORE GAIN ON DISPOSTION OF PROPERTY
AND MINORITY INTEREST IN OPERATING
PARTNERSHIP 15,629 14,988 7,702
GAIN ON DISPOSITION OF PROPERTY 44 - -
----------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 15,673 14,988 7,702
MINORITY INTEREST IN OPERATING PARTNERSHIP (2,689) (1,613) (559)
----------- ---------- ----------
NET INCOME $ 12,984 $ 13,375 $ 7,143
----------- ---------- ----------
----------- ---------- ----------
NET INCOME ALLOCABLE TO PREFERRED STOCKHOLDER $ - $ 5,169 $ 3,114
----------- ---------- ----------
----------- ---------- ----------
NET INCOME ALLOCABLE TO COMMON STOCKHOLDERS $ 12,984 $ 8,206 $ 4,029
----------- ---------- ----------
----------- ---------- ----------
NET INCOME PER COMMON SHARE AND COMMON
SHARE EQUIVALENT $ 1.04 $ 0.86 $ 0.42
----------- ---------- ----------
----------- ---------- ----------
DIVIDENDS PAID PER COMMON SHARE $ 1.70 $ 1.66 $ 0.29
----------- ---------- ----------
----------- ---------- ----------
WEIGHTED AVERAGE SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING 12,427 9,579 9,589
----------- ---------- ----------
----------- ---------- ----------
See accompanying notes to consolidated financial statements.
F-4
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996 and 1995 and
For the Period January 10, 1994 (inception) through December 31, 1994
(In Thousands)
CLASS A CLASS B
COMMON STOCK COMMON STOCK RETAINED
-------------- --------------- ADDITIONAL EARNINGS/
SHARES SHARES PAID-IN (ACCUMULATED
ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ------ ------ --------- ----------- -----
Issuance of Class B Common Stock upon
Incorporation (January 10, 1994) 1,000
Reverse Stock Split (April 29, 1994) (250)
Reverse Stock Split (July 19, 1994) (100)
Purchase of Class B Common Stock $ 7 $ 3 $ 10
Net proceeds from issuance of Class A
Common Stock at initial public
offering 9,075 $ 91 154,173 154,264
Issuance of unregistered Class A
Common Stock 514 5 9,495 9,500
AIMCO Predecessor historical capital
accounts (24,703) (24,703)
Net income $ 7,143 7,143
Dividends paid - Convertible Preferred
Stock (3,114) (3,114)
Dividends paid - Class A Common Stock (2,781) (2,781)
------ ----- --- ---- --------- -------- --------
BALANCE DECEMBER 31, 1994 9,589 96 650 7 138,968 1,248 140,319
Net proceeds from issuance of Class A
Common Stock at public offering 2,706 27 46,847 46,874
Repurchase of unregistered Class A
Common Stock (514) (5) (10,623) (10,628)
Conversion of Class B Common Stock
to Class A Common Stock 65 (65) (1) 1 -
Conversion of Operating Partnership
Units to Class A Common Stock 1 18 18
Net income 13,375 13,375
Dividends paid - Convertible Preferred
Stock (5,169) (5,169)
Dividends paid - Class A Common
Stock (15,757) (15,757)
------ ----- --- ---- --------- -------- --------
BALANCE DECEMBER 31, 1995 11,847 118 585 6 175,211 (6,303) 169,032
Net proceeds from issuance of Class A
Common Stock at public offering 1,265 13 28,123 28,136
Conversion of Class B Common Stock
to Class A Common Stock 260 3 (260) (3) -
Conversion of Operating Partnership
Units to Class A Common Stock 212 2 3,797 3,799
Class A Common Stock issued as
consideration for real estate acquired 704 7 15,287 15,294
Purchase of stock by officers 895 9 18,568 18,577
Repurchase of Class A Common Stock (206) (2) (4,253) (4,255)
Stock options exercised 3 58 58
Net income 12,984 12,984
Dividends paid - Class A Common Stock (20,736) (20,736)
------ ----- --- ---- --------- -------- --------
BALANCE DECEMBER 31, 1996 14,980 $ 150 325 $ 3 $ 236,791 $(14,055) $222,889
------ ----- --- ---- --------- -------- --------
------ ----- --- ---- --------- -------- --------
See accompanying notes to consolidated financial statements.
F-5
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Consolidated Statements of Cash Flow
For the Years Ended December 31, 1996 and 1995 and
For the Period January 10, 1994 (Inception) through December 31, 1994
(In Thousands)
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR (INCEPTION)
ENDED ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- -----------------
(RESTATED) (RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 12,984 $ 13,375 $ 7,143
--------- --------- --------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 21,209 15,859 4,877
Gain on disposition of property (44) - -
Minority interest in Operating Partnership 2,689 1,613 559
Minority interests in other partnerships 111 - -
Changes in operating assets, (increase)
decrease in:
Restricted cash 6,678 (6,072) (2,085)
Accounts receivable (1,515) (2,065) 36
Accounts receivable from affiliates - 289 (289)
Other assets (3,270) 209 -
Changes in operating liabilities, increase
(decrease) in:
Accounts payable, accrued and other
liabilities (385) 2,391 4,599
Resident security deposits and prepaid
rents 349 312 1,985
--------- --------- --------
Total adjustments 25,822 12,536 9,682
--------- --------- --------
Net cash provided by operating
activities 38,806 25,911 16,825
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of real estate 17,147 - -
Purchase of real estate (26,032) (52,419) (184,999)
Purchase of property held for sale (5,718) - -
Purchase of notes receivable, general and
limited partnership interests and other
assets (53,878) - -
Capital replacements (5,133) (2,865) (1,310)
Initial capital expenditures (6,194) (4,879) (172)
Capital enhancements (854) - -
Construction in progress (6,775) (639) -
Purchase of office equipment and leasehold
improvements (707) (19) -
--------- --------- --------
Net cash used in investing activities (88,144) (60,821) (186,481)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Class A Common
Stock and Class B Common Stock, net of
underwriting and offering costs 28,136 46,792 163,774
Proceeds from secured tax-exempt bond
financing 58,010 - -
Proceeds from secured notes payable
borrowings - 155,401 -
Principal paydowns on secured tax-exempt bond
financing (48,703) - -
Principal paydowns on secured notes payable (28,463) (43,666) (33)
Payment of loan costs (3,464) (4,703) -
Net borrowings (paydowns) on Credit Facility 40,800 (17,600) 21,600
Proceeds from secured short-term financing 30,119 25,000 -
Proceeds from unsecured short-term financing 12,500 - -
Payoff of unsecured note payable - - (2,300)
Redemption of mandatorily redeemable 1994
Cumulative Convertible Senior Preferred
Stock and repurchase of unregistered Class A
Common Stock - (107,228) -
Payment of dividend on mandatorily redeemable
1994 Cumulative Convertible Senior Preferred
Stock - (5,169) (3,114)
Repurchase of common stock (4,255) - -
Payment of common stock dividends (20,736) (15,757) (2,781)
Payment of distributions to minority interest
in Operating Partnership (3,815) (2,925) (346)
--------- --------- --------
Net cash provided by financing activities 60,129 30,145 176,800
--------- --------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 10,791 (4,765) 7,144
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,379 7,144 -
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,170 $ 2,379 $ 7,144
--------- --------- --------
--------- --------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Consolidated Statements of Cash Flow
(In Thousands Except Share and Operating Partnership Unit Data)
NON CASH INVESTING AND FINANCING ACTIVITIES
PURCHASE OF REAL ESTATE, CASH COLLATERAL AND PROPERTY
MANAGEMENT BUSINESSES
1996 1995 1994
--------- -------- ---------
Secured notes payable assumed in connection
with purchase of real estate $ 31,796 $ 8,242 $ 37,150
Secured tax-exempt financing assumed in
connection with purchase of real estate - - 66,190
Secured short-term financing assumed in
connection with purchase of real estate 5,072 - -
Real estate, restricted cash, cash collerateral
and property management businesses contributed
in exchange for Operating Partnership Units
("OP Units") 15,279 2,626 11,544
Common Stock issued in consideration for
purchase of real estate 15,294 - -
--------- -------- ---------
$ 67,441 $ 10,868 $ 114,884
--------- -------- ---------
--------- -------- ---------
PURCHASE OF NOTES RECEIVABLE, GENERAL AND LIMITED PARTNERSHIPS, PROPERTY HELD
FOR SALE AND OTHER ASSETS
In 1996, the Company issued 789,039 OP units with a recorded value of $16,877
and assumed $1,051 in secured short-term financing in connection with the
purchase of the English Portfolio Acquisition.
The historical cost of the assets and liabilities assumed in connection with
the purchase of the English Portfolio Acquisition and the Dallas Portfolio
Acquisition were as follows (in thousands):
Real estate, net $ 157,689
Restricted cash 3,879
Accounts receivable 1,248
Deferred financing costs 2,956
Other assets 5,331
Secured notes payable (66,443)
Secured short-term financing (85,995)
Accounts payable, accrued and other liabilities (7,069)
Resident security deposits and prepaid rent (1,321)
Minority interests in other partnerships (10,275)
REPAYMENT OF SECURED NOTE PAYABLE
In 1996, 63,152 OP Units with a recorded value of $1,168 were issued in
connection with the repayment of the second deed of trust on a property
purchased in 1996.
ISSUANCE OF NOTES RECEIVABLE DUE FROM OFFICERS
In 1996, the Company issued notes receivable due from Officers for a total of
$18,557 in connection with the purchase of 895,250 shares of Class A Common
Stock (of which $11,440 was repaid in March 1997).
REDEMPTION OF OP UNITS
In 1996, 211,392 OP Units with a recorded value of $3,799 were redeemed in
exchange for an equal number of shares of Class A Common Stock.
In 1995, 1,145 OP Units with a recorded value of $18 were redeemed in exchange
for an equal number of shares of Class A Common Stock.
CONVERSION OF CLASS B COMMON STOCK
In 1996, 260,000 shares of Class B Common Stock were converted to Class A Common
Stock upon achievement of the 1995 and 1996 target results (130,000 shares
respectively for each year) for a total recorded value of $3 (See Note 11).
In 1995, 65,000 shares of Class B Common Stock with a recorded value of $1 were
converted to Class A Common Stock upon achievement of the 1994 target results.
FORMATION TRANSACTIONS
In July 1994, upon the completion of the initial public offering and the
purchase of certain real estate assets, the Company executed the following
transactions:
- - Issued $96,600 of mandatorily redeemable 1994 Cumulative Convertible Senior
Preferred Stock.
- - Assumed $12,308 of mortgages and an unsecured note payable.
- - Issued 1,193,695 Operating Partnership Units with a recorded value of $22,083
in exchange for assets and liabilities acquired from the AIMCO Predecessors.
F-7
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
NOTE 1 - ORGANIZATION
Apartment Investment and Management Company, a Maryland corporation
incorporated on January 10, 1994 ("AIMCO" and together with its
subsidiaries and other controlled entities, the "Company") acts as sole
general partner of AIMCO Properties, L.P. (the "Operating Partnership"),
through AIMCO-GP, Inc. and AIMCO-LP, Inc., wholly-owned subsidiaries which
hold all of the Company's general and limited partnership interests in and
majority ownership of the Operating Partnership. On July 29, 1994, the
Company completed its initial public offering (the "IPO") of 9,075,000
shares of Class A Common Stock and issued 966,000 shares Convertible
Preferred Stock and 513,514 unregistered shares of Class A Common Stock.
On such date, the Company and Property Asset Management, L.L.C., Limited
Liability Company and its affiliated companies and PDI Realty Enterprises,
Inc. (collectively, the "AIMCO Predecessors") engaged in a business
combination and consummated a series of related transactions which enabled
the Company to continue and expand the property management and related
businesses of the AIMCO Predecessors.
Prior to February 1996, four of the Company's executive officers
collectively held a 5% beneficial interests in each of four regional
business trusts (the "Service Trusts"). The Service Trusts owned four
corresponding regional limited liability companies (the "Service
LLCs") through which the Company's third party property and asset
management business was then principally conducted. In February 1996,
the Operating Partnership and the four executive officers contributed
their respective interests in the Service Trusts to Property Asset
Management Services, Inc. ("PAMS, Inc."), a newly formed
non-controlled subsidiary of the Operating Partnership. In April
1996, the Service Trusts were dissolved and their interests in the
Service LLCs were distributed to PAMS, Inc. In May 1996, the four
Service LLCs were merged into Property Asset Management Services, L.P.
("PAMS, LP" and, together with PAMS, Inc., the "Service Company
Subsidiaries") with PAMS, LP as the surviving entity. Consequently,
the Company's property and asset management business is now conducted
principally through PAMS, Inc. and PAMS, LP.
At December 31, 1996, the Company had 14,980,441 shares of Class A
Common Stock and the Operating Partnership had 3,400,509 OP Units
outstanding, for a combined total of 18,380,950 shares and OP Units.
The Company held an 81.5% interest in the Operating Partnership as of
December 31, 1996.
At December 31, 1996, the Company owned or controlled 23,764 apartment
units in 94 properties (the "Owned Properties") and managed an
additional 15,434 apartment units in 119 properties for third party
owners and 3,611 apartment units in 18 properties for affiliates (the
"Managed Properties"), bringing the total managed portfolio to 231
properties containing 42,809 apartment units located in the Sunbelt
regions of the United States.
F-8
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of AIMCO, the Operating Partnership, majority owned
subsidiaries and controlled real estate limited partnerships for the
years ended December 31, 1996 and 1995. Interests held by limited
partners in real estate partnerships controlled by the Company are
reflected as Minority Interests in Other Partnerships.
In the second quarter of 1996, the Company adopted Emerging Issues
Task Force (EITF) Number 95-6 "Accounting by a Real Estate Investment
Trust for an Investment in a Service Corporation". The Company
reports the operations of the service company business on a
consolidated basis after the adoption of EITF 95-6. Prior to the
issuance of EITF 95-6, the Company reported the service company
business on the equity method. The adoption of EITF 95-6 has no
impact on net income, but does increase third party and affiliate
management and other income, management and other expenses,
amortization of management company goodwill and depreciation of
non-real estate assets. The Company has restated the balance sheet as
of December 31, 1995 and the statements of income and statements of
cash flows for the year ended December 31, 1995 and for the period
from January 10, 1994 through December 31, 1994 to reflect the
retroactive application of the change.
Due to the significance of the property acquisitions which occurred
concurrently with the IPO, the financial statements of the AIMCO
Predecessors, prior to July 29, 1994, are not considered comparable to
the Company and have not been included herein.
All significant intercompany balances and transactions have been
eliminated in consolidation.
REAL ESTATE AND DEPRECIATION
Real estate is recorded at the lower of cost or net realizable value
less accumulated depreciation. If events or circumstances indicate
that the carrying amount of a property may be impaired, the Company
will make an assessment of its recoverability by estimating the future
discounted cash flows, excluding interest charges, of the property.
If the carrying amount exceeds the aggregate future cash flows, the
Company would recognize an impairment loss to the extent the carrying
amount exceeds the fair value of the property. No impairments exist
based on the Company's periodic reviews and therefore, no real estate
carrying amounts have been adjusted.
Costs in excess of $250 which have a useful life of more than one year
and maintain the existing assets are capitalized as capital
replacement expenditures. Such costs are capitalized and depreciated
over their estimated useful lives. If the Company does not spend $300
per apartment unit in capital replacements per annum, the amount not
spent is available to offset such spending in future years. At
December 31, 1996, a total of $586,000 remains available for future
capital replacements.
Depreciation is calculated on the straight-line method based on a fifteen
to thirty year life for buildings and improvements and five years for
furniture, fixtures and equipment.
F-9
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Initial capital expenditures are those costs considered by the Company
in its investment decision to correct deferred maintenance or improve
a property; these costs are capitalized and depreciated over their
estimated useful lives. Capital enhancements which add a material new
feature or increase the revenue potential of a property are
capitalized and depreciated over their estimated useful lives.
The Company capitalizes direct and indirect costs (including interest,
taxes and other carrying costs) in connection with the development or
redevelopment of its Owned Properties and land under development.
Expenditures for ordinary repairs, maintenance and apartment turnover
costs are expensed as incurred.
PROPERTY HELD FOR SALE
Property held for sale, which is included in other assets, is recorded
at the lower of cost or estimated sales proceeds less selling costs.
CASH EQUIVALENTS
The Company considers highly liquid investments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash includes capital replacement reserves, completion
repair reserves, bond sinking fund amounts, and tax and insurance
impound accounts held by lenders.
Restricted cash at December 31, 1996 includes $5,074,000 which was
held in escrow for the repayment of indebtedness assumed in connection
with the acquisition of the Chesapeake Apartments in December 1996
(see Note 20). Restricted cash at December 31, 1995 included $10,000,000
which was held as collateral by a financial institution providing credit
enhancement for certain bond indebtedness. Upon the refinancing of
such indebtedness in 1996, the $10,000,000 in collateral was released
by the lender.
DEFERRED FINANCING COSTS
Fees and costs incurred in obtaining long-term and short-term
financing and credit facilities are amortized on the effective yield
method or the straight-line method (if it is not materially different
from the effective yield method) over the terms of the related loan
agreements and are charged to interest expense.
F-10
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INTANGIBLE ASSETS
Intangible assets, which are included in other assets, consist of
costs associated with the purchase of property management businesses
including property management contracts, goodwill, legal and other
acquisition costs. These costs are amortized on a straight-line basis
over terms ranging from five to twenty years.
REVENUE RECOGNITION
The Owned Properties have operating leases with apartment residents
with terms generally of six months or less and rental revenues
associated with these leases are recognized when earned. Fees for
property management and asset management services provided for
properties which the Company does not own are recognized when earned.
INTEREST RATE SWAP AGREEMENTS
The differential to be paid or received under the terms of interest
rate swap agreements is accrued as interest rates change and is
recognized over the life of the agreements. Interest rate swap
agreements accounted for as anticipatory hedges are related to planned
refinances of certain of the Company's variable rate indebtedness.
Upon refinance of such indebtedness, any gain or loss associated with
the termination of the interest rate swap agreement is deferred and
recognized over the life of the refinanced indebtedness.
INCOME TAXES
The Company has elected to be taxed as a real estate investment trust
("REIT") as defined under the Internal Revenue Code of 1986, as
amended (the "Code"). In order for the Company to qualify as a REIT,
at least 95% of the Company's gross income in any year must be derived
from qualifying sources. The activities of the Service Company
Subsidiaries are not qualifying sources.
As a REIT, the Company generally will not be subject to Federal income
taxes at the corporate level if it distributes at least 95% of its
REIT taxable income to its shareholders. REITs are also subject to a
number of other organizational and operational requirements. If the
Company fails to qualify as a REIT in any taxable year, its taxable
income will be subject to Federal income tax at regular corporate
rates on its taxable income (including any applicable alternative
minimum tax). Even if the Company qualifies as a REIT, it may be
subject to certain state and local income taxes and to Federal income
and excise taxes on its undistributed income.
For income tax purposes, distributions paid to shareholders consist of
ordinary income, capital gains, return of capital or a combination thereof.
Earnings and profits, which determine the taxability of dividends to
shareholders, differ from net income reported for financial reporting
purposes due to differences for Federal tax purposes in the estimated
useful lives used to compute depreciation and the carrying value (basis) of
the investment in the Owned Properties.
F-11
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
For the years ended December 31, 1996 and 1995 and the period ended
December 31, 1994, distributions paid per share were taxable as
follows:
1996 % 1995 % 1994 %
---- - ---- - ---- -
Ordinary income $1.45 85% $1.48 89% $0.29 100%
Return of capital 0.25 15 0.18 11 - -
----- ---- ----- ---- ----- ----
$1.70 100% $1.66 100% $0.29 100%
----- ---- ----- ---- ----- ----
----- ---- ----- ---- ----- ----
EARNINGS PER SHARE
Earnings per share is computed using the weighted average common
shares and common share equivalents outstanding during the period. The
Class B Common Stock is not included in the computation of earnings
per share until such time as all the conditions required for
conversion into Class A Common Stock have been met.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" requires disclosure of the
year end fair value of significant financial instruments, including
long-term debt. Management believes that the estimated aggregate
fair values of the secured tax-exempt bond financing and secured
long-term financing approximate their carrying values. Rents
receivable, accounts payable, accrued and other liabilities, secured
short-term financing including the Credit Facility and unsecured
short-term financing which mature December 31, 1997 approximate fair
value because of the short term of these instruments.
INSURANCE SUBSIDIARY
Reinsurance premiums written are earned on a monthly pro rata basis
over the terms of the policies. A reserve for outstanding losses and
loss-related expenses of $435,000 has been provided at December 31, 1996.
The reserve includes estimates for insurance losses incurred but not
reported, as well as losses pending settlement. Reserves are based
on Management's estimates and are believed to be adequate.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts included in the financial statements and accompanying notes
thereto. Actual results could differ from those estimates.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid for the years ended December 31, 1996 and 1995 and for
the period from January 10, 1994 (inception) through December 31,
1994, net of amounts capitalized, were $22,869,000, $12,170,000 and
$1,316,000, respectively. State income and franchise taxes of
$271,000 and $639,000 were paid in 1996 and 1995, respectively. No
state or franchise taxes were paid in 1994.
F-12
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - REAL ESTATE
Real estate at December 31 is as follows (in thousands):
1996 1995
--------- --------
Land $ 118,031 $ 70,904
Buildings and improvements 747,191 406,258
--------- --------
865,222 477,162
Accumulated depreciation (120,077) (28,737)
--------- --------
$ 745,145 $448,425
--------- --------
--------- --------
During 1996, the Company purchased or acquired control of forty-two
properties as described below. The cash portions of the acquisitions
were funded from proceeds raised through public offerings, short-term
financings, borrowings under the Company's Credit Facility or with
working capital.
The Company acquired 100% ownership in the following seven
multi-family apartment properties in unrelated transactions in 1996.
The aggregate consideration paid by the Company of $93.1 million
consisted of $26.0 million in cash, 704,220 shares of Common Stock
with a total recorded value of $15.3 million, 745,183 in OP Units with
a total recorded value of $15.0 million and the assumption of $31.7
million of secured long-term indebtedness and $5.1 million of secured
short-term indebtedness. Each transaction, with the exception of
Peachtree Park and Somerset Village, was with an unaffiliated third
party (see Note 16).
Date Number
Acquired Property Location of Units
-------- -------- -------- --------
1/96 Peachtree Park Atlanta, Georgia 295
1/96 Villa Ladera Albuquerque, New Mexico 280
4/96 Brookside Village Tustin, California 336
(formerly known as
Sycamore Creek)
5/96 Somerset Village Salt Lake City, Utah 486
12/96 Bay West Tampa, Florida 376
12/96 Chesapeake Houston, Texas 320
12/96 Dolphin's Landing Corpus Cristi, Texas 218
-----
2,311
-----
-----
In November 1996, the Company completed the acquisition (the "English
Portfolio Acquisition") of certain partnership interests, real estate
and related assets owned by J.W. English, a Houston, Texas-based real
estate syndicator and developer, and certain affiliated entities
(collectively, the "J.W. English Companies"). The English Portfolio
Acquisition included the purchase of all of the general and some of
the limited partnership interests in 22 limited partnerships which
act as the general partner to 31 limited partnerships (the "English
Partnerships") that own 22 multifamily apartment properties,
aggregating 5,230 apartment units, and four commercial properties,
primarily in Houston, Texas; title to a 104-unit apartment property in
Houston, Texas; certain assets of J. W. English Management Company
which provided management services to the apartment properties; and
other real estate interests related to the J.W. English Companies'
operations. The aggregate purchase price of the English Portfolio
Acquisition was $23.1 million, consisting of $15.2 million in OP Units
and $7.9 million in cash. The English Partnerships are subject to
approximately $95.4 million of mortgage debt.
F-13
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - REAL ESTATE (CONTINUED)
The Company also made separate offers (the "English Tender Offers")
to the limited partners of 25 of the English Partnerships to acquire
their limited partnerships interests for cash or OP Units. The Company
accepted tenders representing, in the aggregate, approximately 46%
of all outstanding limited partnership interests in the English
Partnerships subject to the offers. The Company paid $16.0 million
in cash and $1.7 million in OP Units, at a price of $23 per OP Unit,
for the interest tendered in the English Tender Offers. The remaining
limited partners elected to continue as limited partners in such
English Partnerships.
Through its ownership of the general partners of the English
Partnerships, the Company has the ability to refinance or sell the
properties held by the English Partnerships. In addition, the Company
owns, in the aggregate, approximately 46% of all outstanding limited
partnership interests. Net cash flow generated by the English
Partnerships, if any, after payment of debt service to third party
lenders, is used to make distributions to the general and limited
partners and, in some cases, to repay indebtedness due to the general
partner. Due to the level of control that the Company has over the
activities of the English Partnerships, the financial position and
results of operations of the English Partnerships are included in
the consolidated financial statements of the Company.
The English Portfolio Acquisition included the acquisition of
controlling interests or a 100% interest in the following properties:
Date Number
Acquired Property Location of Units
-------- -------- -------- --------
11/96 Anchorage League City, Texas 264
11/96 Brentwood Lake Jackson, Texas 104
11/96 Bridgewater Tomball, Texas 206
11/96 Copperfield Houston, Texas 196
11/96 Coventry Square Houston, Texas 270
11/96 Crow's Nest League City, Texas 176
11/96 Easton Village Houston, Texas 146
11/96 Fisherman's Wharf Clute, Texas 360
11/96 Fondren Court Houston, Texas 429
11/96 Hampton Hill Houston, Texas 332
11/96 Hastings Place Houston, Texas 176
11/96 Oaks Falls Spring, Texas 144
11/96 Park at Cedar Lawn Galveston, Texas 192
11/96 Peppermill Place Houston, Texas 224
11/96 Seaside Point Galveston, Texas 102
11/96 Signature Point League City, Texas 304
11/96 Stirling Court Houston, Texas 228
11/96 Stonehaven Houston, Texas 337
11/96 Stoneybrook Houston, Texas 113
11/96 Sunbury Downs Houston, Texas 240
11/96 Swiss Village Houston, Texas 360
11/96 Township at
Highlands Denver, Colorado 119
11/96 Waterford Houston, Texas 312
-----
5,334
-----
-----
F-14
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - REAL ESTATE (CONTINUED)
In a series of related transactions completed in November and
December 1996, the Company acquired general partnership interests
in 21 limited partnerships which own twelve multifamily apartment
properties (collectively, the "Dallas Acquisition Properties")
aggregating 2,839 apartment units, primarily in the Dallas, Texas
metropolitan area, and loans made by the general partners and their
affiliates to such partnerships, for an aggregate price of $26.7
million in cash (collectively, the "Dallas Portfolio Acquisition").
The Dallas Acquisition Properties are subject to approximately
$60.7 million of mortgage debt. The existing limited partners
retained their interest in such limited partnerships. The Company
borrowed approximately $25.6 million to finance the purchase price
and closing costs.
Through its ownership of the general partners of the partnerships that
own the Dallas Acquisition Properties, the Company has the ability
to refinance or sell the properties. Although a majority vote of the
limited partners may replace the general partner, the Company considers
this replacement remote as the Company also has substantial demand
notes with second liens on the properties. Cash flow generated by the
Dallas Acquisition Properties, if any, after payment of debt service
to third party lenders, is used to repay indebtedness due to the
general partner and thereafter, to make distributions to general and
limited partners. Due to the level of control that the Company has
over the activities of the partnerships that own the Dallas Acquisition
Properties, the financial position and results of operations of the
Dallas Acquisition Properties are included in the consolidated
financial statements of the Company. The Dallas Acquisition Properties
consisted of the following properties:
Date Number
Acquired Property Location of Units
-------- -------- -------- --------
12/96 Copper Chase Katy, Texas 316
12/96 Cypress Landing Savannah, Georgia 200
12/96 Greentree Carrollton, Texas 365
12/96 Heather Ridge Arlington., Texas 180
11/96 Highland Park Fort Worth, Texas 500
12/96 Randol Crossing Fort Worth, Texas 160
11/96 Ridgecrest Denton, Texas 152
12/96 Southridge Greenville, Texas 160
12/96 Meadows Austin, Texas 100
12/96 Walnut Springs San Antonio, Texas 224
12/96 Woodhill Denton, Texas 352
12/96 Woodland Ridge Irving, Texas 130
-----
2,839
-----
-----
During 1996, the Company disposed of the four properties listed below.
The properties were sold to one unaffiliated third party. The cash
proceeds from the disposition of approximately $17.1 million were used
to pay down the then outstanding balance on the Company's Credit
Facility of $9.2 million and to provide funds available for future
investment purposes. The Company recognized a total gain of
approximately $44,000 on the disposition on these four properties.
F-15
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 3 - REAL ESTATE (CONTINUED)
Net Disposition
Date Number Price
Disposed Property Location of Units (in thousands)
-------- -------- -------- -------- ---------------
8/96 Dakota Dallas, Texas 584 $ 8,916
8/96 Ridgmar Park Fort Worth, Texas 232 2,058
8/96 Sterling Point Dallas, Texas 149 1,715
8/96 Woodcreek Dallas, Texas 300 4,458
----- -------
1,265 $17,147
----- -------
----- -------
In the fourth quarter of 1996, the Company completed construction
of a 92 apartment unit expansion within the Fairways Apartments in
Phoenix, Arizona for a cost of approximately $6.0 million.
During 1996, the Company spent $3.0 million on the renovation of
the Sun Katcher Apartments (336 units) in Jacksonville, Florida.
The Company anticipates spending an additional $1.0 million for
the completion of the renovation. The renovation is anticipated
to be completed in 1997.
Interest of $821,000 and $113,000 was capitalized for the years ended
December 31, 1996 and 1995, respectively.
The tax basis of the real estate assets has been recorded based upon
the value of the consideration paid by the Company and the historical
cost of the AIMCO Predecessors' properties, the English Acquisition
Properties and the Dallas Acquisition Properties. The aggregate cost
of the real estate for Federal income tax purposes at December 31,
1996 and 1995 was $880,558,000 and $454,998,000, respectively.
NOTE 4 - OTHER ASSETS
The following table summarizes the Company's other assets at December
31, 1996 and 1995 (in thousands):
1996 1995
------- ------
Notes receivable from officers $18,557
Investments in property management contracts 9,441 $1,479
Property held for sale 6,769 -
Other 10,503 2,393
------- ------
$45,270 $3,872
------- ------
------- ------
On October 1, 1996, the Company issued 379,750 shares of Class A
Common Stock to certain executive officers (or entities controlled by
them) at $20.75 per share (the closing price on the NYSE on August 29,
1996, the option award date) pursuant to the exercise of stock options
issued under the Apartment Investment and Management Company 1996
Stock Award and Incentive Plan. In payment for such shares, the
executive officers executed notes payable to the
F-16
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 4 - OTHER ASSETS (CONTINUED)
Company totaling $7.9 million bearing interest at 7.25% per annum,
payable quarterly, and due in 2006. These stock purchase notes are
secured by the shares purchased and are recourse as to 25% of the
principal owed. In March 1997, certain executive officers of the
Company (or entities controlled by them) repaid $740,000 of the
notes payable to the Company outstanding as of December 31, 1996.
In addition, on August 29, 1996, certain executive officers also
agreed to purchase (or cause entities controlled by them to purchase),
prior to January 31, 1997, 515,500 shares of Class A Common Stock at a
purchase price of $20.75 per share (the closing price on the NYSE on
such date). These shares were issued and delivered as of December 31,
1996. In payment for such shares, the executive officers (or entities
controlled by them) executed notes payable to the Company totaling
$10.7 million bearing interest at 7.25% per annum, payable quarterly,
and due in 2006. The notes receivable are recourse as to 100% of the
principal amount. In March 1997, these executive officers (or
entities controlled by them) repaid in full the notes payable to the
Company totaling $10.7 million.
NOTE 5 - SECURED NOTES PAYABLE
The following table summarizes the Company's long-term secured notes
payable at December 31, 1996 and 1995, all of which are non-recourse
to the Company (in thousands):
1996 1995
-------- --------
Fixed rate, ranging from 7.13% to 8.1%,
or a weighted average all-in rate of
8.0%, fully-amortizing notes maturing
at various dates through 2029 $165,762 $163,502
Fixed rate, ranging from 8.125% to 9.5%,
or a weighted average all-in rate of
9.1%, non-amortizing notes maturing at
various dates through 2001 57,198 10,000
Floating rate, ranging from 6.19% to
7.625% at December 31, 1996, or a
weighted average all-in rate of 7.6%,
non-amortizing notes maturing at
various dates through 2005 19,150 -
-------- --------
$242,110 $173,502
-------- --------
-------- --------
Real estate assets which secure the first trust deeds for these
secured notes payable had a net book value of $366,644,000 at
December 31, 1996.
Certain of the secured notes payable require, among other things,
reserve accounts for payments of taxes, insurance, improvements and
repairs. Lenders retained $8,026,000 in these accounts at December
31, 1996.
As of December 31, 1996, the scheduled principal payments are as
follows (in thousands):
1997 $ 4,975
1998 10,962
1999 30,103
2000 12,761
2001 40,678
Thereafter 142,631
--------
$242,110
--------
--------
F-17
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 6 - SECURED SHORT-TERM FINANCING
The Company entered into a $40,000,000 variable rate revolving credit
facility with Bank of America (the "Credit Facility") in conjunction
with the IPO. In August 1996, the Credit Facility was extended
through August 1998, the interest rate was reduced from LIBOR plus
1.75% to LIBOR plus 1.625% and the commitment was increased to
$50,000,000. Interest is payable monthly at the variable interest
rate of LIBOR plus 1.625% (7.52% at December 31, 1996). The interest
rate was changed to LIBOR plus 1.45% effective January 1, 1997.
Subject to certain conditions, the Company may elect to convert any
outstanding borrowings under the Credit Facility into a three year
term loan bearing interest at the same rate. The availability of
funds to the Company under the Credit Facility is subject to certain
borrowing base restrictions and other customary restrictions,
including compliance with financial and other covenants thereunder.
As of December 31, 1996, $44,800,000 was borrowed under the Credit
Facility, $609,000 was used to collateralize two outstanding letters
of credit which expire in 1997 and $4,591,000 remained available to be
borrowed. Commitment fees of 0.125% per annum on the remaining
availability are payable quarterly.
The following table summarizes the Company's secured short-term
financing at December 31, 1996 and 1995 (in thousands):
1996 1995
-------- -------
Floating rate interest only notes,
ranging from 7.3% to 8.0% at December 31,
1996, or a weighted average all-in rate
of 8.5%, maturing at various dates
through 1998. $115,499 $25,000
Floating rate interest only notes,
interest at 8.0% at December 31, 1996.
See Note 20. 25,615 -
Floating rate interest only notes,
ranging from 8.95% to 9.25% secured by
property held for sale maturing at
various dates through 2008. 1,051 -
7.875% fixed rate, non-amortizing note,
repaid February 1997. 5,074 -
Floating rate Credit Facility, interest
at 7.52% at December 31, 1996, expiring
August 1998. 44,800 4,000
-------- -------
$192,039 $29,000
-------- -------
-------- -------
Real estate assets which secure the first and second trust deeds for
this short-term financing had a net book value of $253,724,000 at
December 31, 1996.
Certain of the secured notes payable require, among other things,
reserve accounts for payments of taxes, insurance, improvements
and repairs. Lenders retained $1,176,000 in these accounts at
December 31, 1996.
Secured short-term indebtedness totaling $28.8 million is guaranteed
by the Company and certain of its affiliates and secured by an
assignment of the Company's general partnership interests in the 12
English Partnerships. An additional $25.8 million of secured
short-term indebtedness is guaranteed by the Company.
F-18
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 6 - SECURED SHORT-TERM FINANCING (CONTINUED)
The Company anticipates that it will refinance a portion of its
floating rate indebtedness with fixed rate indebtedness during 1997.
In order to reduce the impact of changes in interest rates prior to
the refinancing, the Company entered into interest rate swap
agreements that are accounted for as anticipatory hedges. At December
31, 1996, the Company had outstanding two interest rate swap
agreements with a commercial bank and an investment banker, each
having a notional principal amount of $50 million. Those agreements
effectively reduce the Company's interest rate exposure on $100
million of its LIBOR based floating rate indebtedness. When the
floating rate indebtedness is refinanced, the gain or loss on the
interest rate swap agreements will be deferred and amortized over the
life of the refinanced indebtedness, as an adjustment to interest
expense. Management expects that this adjustment will have the effect
of locking in the fixed rate identified in the swap agreements of 6.2%
and 6.3%.
The interest rate swap agreements, each with a notional amount of
$50 million mature on March 12, 1997 and May 27, 1997, respectively,
and have a fair value at December 31, 1996 of approximately $568,000
and $1,143,000, respectively. The Company is exposed to credit risk
in the event of nonperformance by the other parties to the interest
rate swap agreements. However, the Company does not anticipate
nonperformance by the counterparties. In addition, since the variable
rate in the interest rate swap agreements is not on the same basis as
the variable rate indebtedness, the Company is exposed to losses to
the extent that the LIBOR rate and the Treasury rate change
independently of each other. The Company does not anticipate that
inconsistent changes in the LIBOR rate and the Treasury rate will have
a material effect.
NOTE 7 - SECURED TAX-EXEMPT BOND FINANCING
The following table summarizes the Company's secured tax-exempt bond
financing at December 31, 1996 and 1995, which is non-recourse to the
Company (in thousands):
1996 1995
---- ----
7.03% fully-amortizing bonds, effective rate of 7.03%, due July 2016. $47,674
Floating rate bonds (5.35% at December 31, 1995) due July 2022,
repaid July 1996. - $48,140
6.9% fully-amortizing bonds due, effective rate of 7.3% July 2016. 9,773 -
4.2% interest only bonds, effective rate of 5.23%, due July 2016. 6,000 6,000
6.0% interest only bonds, effective rate of 7.9%, secured by a
letter of credit in the amount of $5,350, due September 1997. 5,350 5,350
5.375% interest only bonds due December 2002. 6,700 6,700
------- -------
Total $75,497 $66,190
------- -------
------- -------
F-19
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 7 - SECURED TAX-EXEMPT BOND FINANCING (CONTINUED)
Real estate assets securing the tax-exempt bond financing had a net
book value of $116,273,000 at December 31, 1996.
Certain of the secured tax-exempt bond financings require, among other
things, reserve accounts for the payments of taxes, insurance,
improvements and repairs. Lenders retained $1,136,000 in these
accounts at December 31, 1996.
As of December 31, 1996, the scheduled principal payments
are as follows (in thousands):
1997 $6,784
1998 1,533
1999 1,642
2000 1,760
2001 1,886
Thereafter 61,892
-------
$75,497
-------
-------
NOTE 8 - UNSECURED SHORT-TERM FINANCING
In November 1996, the Company borrowed $12,500,000 in conjunction with
the purchase of limited partnership interests in the English
Partnerships. The loan is unsecured and bears interest at LIBOR plus
1.75% (see Note 20).
NOTE 9 - COMMITMENTS AND CONTINGENCIES
INCOME TAXES
The Company filed a request with the IRS for a private letter ruling
regarding the characterization of certain advances paid in 1994 and
1995 to the Service Company Subsidiaries with respect to property
management services provided to third parties and affiliates. In
October 1996, the IRS ruled that such amounts are not includable in
gross income for purposes of the REIT qualification tests for the
Company's 1994 and 1995 taxable years.
LEGAL
In November 1996, five limited partners in certain of the English
Partnerships sued the Company alleging that, in connection with the
English Portfolio Acquisition, the Company conspired with J.W. English
to breach his fiduciary duties to the plaintiffs, and that the
offering materials used by the Company in connection with the English
Tender Offers contained misleading statements or omissions. The
plaintiffs made an application for a temporary restraining order with
respect to the English Tender Offers, which was denied. To date, the
Company has not received a summons effecting service of the Complaint.
The Company intends to defend itself vigorously in connection with
this action.
The Company is a party to various legal actions resulting from its
operating activities. These actions are routine litigation arising in
the ordinary course of business, some of which are covered
F-20
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
by liability insurance, and all of which are not expected to have a
material adverse effect on the consolidated financial condition or the
results of operations of the Company.
ENVIRONMENTAL
Certain of the Owned Properties are, and some of the Managed
properties may be, located on or near properties that have contained
underground storage tanks or on which activities have occurred which
could have released hazardous substances into the soil or
groundwater. There can be no assurances that such hazardous substances
have not been released or have not migrated, or in the future will not
be released or will not migrate onto the Owned Properties and Managed
Properties. In addition, the Company's Montecito property in Austin,
Texas, is located adjacent to, and may be partially on, land that was
used as a landfill. Low levels of methane and other landfill gas have
been detected at Montecito. The remediation of the landfill gas is now
substantially complete. The environmental authorities have
preliminarily approved the methane gas remediation efforts. Final
approval of the site and the remediation process is contingent upon
the results of continued methane gas monitors to confirm the
effectiveness of the remediation efforts. Should further actionable
levels of methane gas be detected, a proposed contingent plan of
passive methane gas venting may be implemented. The Company believes
the costs of such further limited action, if any, will not be
material. Testing has also been conducted on Montecito to determine
whether, and to what extent, groundwater has been impacted. Test
reports have indicated that the groundwater is not contaminated at
actionable levels.
LEASE COMMITMENTS
Minimum payments under the terms of all noncancellable operating
leases in which the Company is the lessee, principally for office
space, at December 31, 1996 are as follows (in thousands):
1997 $ 476
1998 401
1999 234
2000 74
2001 1
------
$1,186
------
------
F-21
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 10 - MANDATORILY REDEEMABLE 1994 CUMULATIVE CONVERTIBLE SENIOR PREFERRED
STOCK
The Company issued 966,000 shares of Convertible Preferred Stock in
connection with the IPO. In September 1995, the Company repurchased
all of the outstanding shares of Convertible Preferred Stock and
513,514 unregistered shares of Class A Common Stock for an aggregate
price of $107.2 million with the proceeds from a $98.4 million
secured debt financing and borrowings under its Credit Facility.
NOTE 11 - MINORITY INTERESTS IN OTHER PARTNERSHIPS
Interests held by limited partners in real estate partnerships
controlled by the Company are reflected as Minority Interests in Other
Partnerships. Net income is allocated based on the percentage
interest owned by the limited partners in each respective real estate
partnership.
NOTE 12 - MINORITY INTEREST IN OPERATING PARTNERSHIP
Net income is allocated to the limited partners whose interests are
represented by OP Units based on their respective weighted-average
ownership percentage in the Operating Partnership. The Company owns
one OP Unit in the Operating Partnership for each share of Class A
Common Stock outstanding. Ownership percentage is determined by
dividing the number of OP Units held by the limited partners, weighted
for the number of days outstanding during the period by total weighted
OP Units and shares of Class A Common Stock outstanding. Reductions
to or issuance of additional OP Units and Class A Common Stock changes
the ownership percentage of both the limited partners and the Company.
The Company records the issuance of OP Units and the assets acquired
in purchase transactions based on the market price of the Company's
Class A Common Stock at the date of execution of the purchase
contract. The holders of the OP Units receive distributions, prorated
from the date of admittance, in an amount equivalent to the dividends
paid to holders of Class A Common Stock. During 1996 and 1995, the
weighted average ownership interest of the limited partners in the
Operating Partnership was 17.1% and 16.4%, respectively. At December
31, 1996, the ownership interest of the limited partners was 18.5%.
The limited partners do not have voting rights in the Company. After
holding the OP Units for one year, the limited partners generally have
the right to redeem their OP Units for cash. Notwithstanding that
right, the Company, may elect to acquire some or all of the OP Units
tendered for redemption in exchange for shares of the Company's Class
A Common Stock in lieu of cash. To date, the Company has acquired
all OP Units tendered for redemption in exchange for such shares.
F-22
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 13 - STOCKHOLDERS' EQUITY
At December 31, 1996, the Company had 14,980,441 shares of Class A
Common Stock outstanding.
Concurrent with the IPO, 650,000 shares of common stock held by four
of the Company's executive officers were reclassified as Class B
Common Stock. The Class B Common Stock is convertible into Class A
Common Stock, subject to certain conditions. In April 1995, the Board
of Directors waived the right of the Company to purchase the Class A
Common Stock if the holder terminates employment for certain reasons
within one year after conversion. In 1996 and 1995, respectively,
260,000 and 65,000 shares of Class B Common Stock were converted into
Class A Common Stock upon the satisfaction of the requisite conditions
for 1994 through 1996. The Company recognized the issuance of these
shares of Class A Common Stock with no charge to earnings.
In September 1996, the Company's Board of Directors authorized the
re-purchase of up to 500,000 shares of Class A Common Stock in open
market and privately negotiated purchase transactions. The shares
acquired were made available for the issuance upon exercise of
employee stock options granted by the Compensation Committee of the
Board of Directors in August 1996. The stock may be purchased from
time to time as market conditions warrant. At December 31, 1996, the
Company had purchased and canceled 205,664 shares for approximately
$4.3 million at an average price of $20.69 per share.
On October 1, 1996, the Company issued 379,750 shares of Class A
Common Stock to certain executive officers (or entities controlled by
them) at $20.75 per share (the closing price on the NYSE on August 29,
1996, the option award date) pursuant to the exercise of stock options
issued under the Apartment Investment and Management Company 1996
Stock Award and Incentive Plan. In addition, on August 29, 1996,
certain executive officers also agreed to purchase (or cause entities
controlled by them to purchase), prior to January 31, 1997, 515,500
shares of Class A Common Stock at a purchase price of $20.75 per share
(the closing price on the NYSE on such date). These shares were
issued and delivered as of December 31, 1996. In payment for the
shares purchased, the executive officers (or entities controlled by
them) executed notes payable totaling $18.6 million to the Company
(see Note 20).
F-23
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 14 - STOCK OPTION PLANS AND STOCK WARRANTS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation", requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Company has adopted the 1994 Stock Option Plan of Apartment
Investment and Management Company (the "1994 Plan"), the Apartment
Investment and Management Company 1996 Stock Award and Incentive Plan
(the"1996 Plan") and the Apartment Investment and Management Company
Non-Qualified Employee Stock Option Plan (the "Non-Qualified Plan")
to attract and retain officers, key employees and independent
directors. The 1994 Plan provides for the granting of a maximum of
150,000 options to purchase common shares. The 1996 Plan provides
for the granting of a maximum of 500,000 options to purchase common
shares. The Non-Qualified Plan provides for the granting of a maximum
of 500,000 options to purchase common shares. The 1994 Plan, the 1996
Plan and the Non-Qualified Plan allow for the grant of incentive and
non-qualified stock options and are administered by the Compensation
Committee of the Board of Directors. The 1994 Plan also provides for
a formula grant of the non-qualified stock options to the independent
directors to be administered by the Board of Directors to the extent
necessary. The exercise price of the options granted may not be less
than the fair market value of the common stock at the date of grant.
The term of the incentive and non-qualified options is ten years from
the date of grant. The non-qualified options vest 20% per year over
a five-year period with initial vesting one year from the date of
grant. Terms may be modified at the discretion of the Compensation
Committee of the Board of Directors.
Pro forma information regarding the net income and earnings per share
is required by Statement 123, which also requires that the information
be determined as if the Company has accounted for its employee stock
options granted subsequent to December 31, 1994 under the fair value
method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 1996 and
1995, respectively: (i) risk-free interest rates ranging from 5.2%
to 7.5%; (ii) a dividend yield of 7.8%; (iii) volatility factors
of the expected market price of the Company's common stock of .194;
and (iv) a weighted average expected life of the options of 4 1/2
years.
The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except per share
information):
1996 1995
---- ----
Pro forma net income $12,201 $13,360
Pro forma earnings per share $0.98 $0.86
F-24
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 14 - STOCK OPTION PLAN AND STOCK WARRANTS (CONTINUED)
The following table summarizes the option activity for the years ended
December 31, 1996 and 1995 and for the period from January 10, 1994
(inception) through December 31, 1994:
1996 1995 1994
---- ---- ----
Number of Shares Under Stock Options:
Outstanding at beginning of period 108,000 86,000 -
Granted 803,000 27,000 102,000
Exercised (383,000) - -
Forfeited (23,000) (5,000) (16,000)
-------- ------- -------
Outstanding at end of period 505,000 108,000 86,000
-------- ------- -------
-------- ------- -------
Stock options exercisable at the
end of the year 425,000 26,000 -
-------- ------- -------
-------- ------- -------
Weighted average fair value of options
granted during the year $1.01 $1.75 N/A
Weighted average exercise price $20.74 $17.69 N/A
Exercise price $20.25- $17.12- N/A
$20.75 $18.37
At December 31, 1996, 16,400 warrants were outstanding. During 1996,
65,600 warrants which had not vested were forfeited. The warrants
have an exercise price of $18.50 per share and vest in equal annual
installments over five years. The warrants expire in November 2004.
NOTE 15 - DIVIDEND REINVESTMENT PLAN
Effective August 21, 1995, the Company implemented a dividend
reinvestment plan. Stockholders can reinvest dividends and make
voluntary cash investments to purchase additional shares of the
Company's Class A Common Stock. In May 1996, the Company filed a
registration statement relating to 1,000,000 shares of Class A Common
Stock to be made available for issuance under the dividend
reinvestment plan.
NOTE 16 - TRANSACTIONS WITH AFFILIATES
The Company serves as property manager for certain apartment
properties owned by entities in which certain officers of the Company
have an ownership interest. Compensation for these services is 3% to
6% of gross receipts from the properties and were $619,000 and
$1,347,000 for the years ending December 31, 1996 and 1995,
respectively. In addition, the Company received consulting fees from
affiliates of $149,000 for the year ended December 31, 1995. No
consulting fees from affiliates were received for the year ended
December 31, 1996.
F-25
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 16 - TRANSACTIONS WITH AFFILIATES (CONTINUED)
In 1996, the Company acquired the Peachtree Park Apartments in
Atlanta, Georgia and the Somerset Village Apartments in Salt Lake
City, Utah from entities controlled by officers of the Company.
The aggregate consideration paid of $39.6 million consisted of $3.8
million in cash, 372,678 shares of Class A Common Stock and 121,447
of OP Units with a total recorded value of $9.9 million, and the
assumption of $25.9 million of secured short-term indebtedness. In
addition, the Company acquired the cable equipment at the Peachtree
Park Apartments from an entity controlled by an officer of the Company
for total consideration of 8,243 shares of Class A Common Stock with a
recorded value $175,000.
NOTE 17 - EMPLOYEE BENEFIT PLANS
The Company offers medical, dental, life and long-term disability
benefits to employees of the Company through insurance coverage of the
Company-sponsored plan. The medical and dental plans are self-funded
and are administered by independent third parties. The Company
incurred insurance benefit costs, net of reimbursements, of
approximately $577,000 and $617,000 for the years ended December 31,
1996 and 1995, respectively.
The Company also participates in a 401(k) defined-contribution
employee savings plan. Employees who have completed one year of
service are eligible to participate. The Company matches 50% of the
participant's contributions to the plan up to a maximum of 2% of the
participant's prior year compensation. The Company contributed
$91,000 in matching contributions to the plan for the year ended
December 31, 1996.
F-26
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 18 - UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION
Summarized unaudited consolidated quarterly information for 1996 and
1995 are as follows (amounts in thousands except per share amounts):
QUARTER
-------
Year ended December 31, 1996 FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Income from property operations $8,617 $9,083 $9,866 $12,248
Company's share of income from
service company business 291 350 401 675
Income before gain on disposition
of property and minority interest
in Operating Partnership 3,304 3,774 4,054 4,497
Net income 2,810 3,145 3,396 3,633
Net income per share $0.24 $0.26 $0.27 $0.27
Weighted average common shares
and common share equivalents
outstanding 11,860 12,217 12,398 13,309
QUARTER
-------
Year ended December 31, 1995 FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Income from property operations $6,946 $6,829 $6,495 $7,213
Company's share of income from
service company business 450 597 974 (48)
Income before minority interest in
Operating Partnership 4,425 4,356 3,907 2,300
Net income 4,005 3,947 3,508 1,915
Net income allocable to
Preferred Stockholder 1,836 1,836 1,497 -
Net income allocable to common
stockholders 2,169 2,111 2,011 1,915
Net income per common share $0.23 $0.22 $0.21 $0.20
Weighted average common shares
and common share equivalents
outstanding 9,589 9,589 9,650 9,488
F-27
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 19 - PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The unaudited pro forma Consolidated Statement of Income for the year
ended December 31, 1996 is presented based on the audited historical
financial data of the Company and has been prepared as if each of the
following transactions had occurred on January 1, 1996: (i) the sale
of 1,265,000 shares of the Company's Class A Common Stock at $23.428
per share completed in November and December 1996 and the application
of the net proceeds thereof to pay indebtedness under the Credit
Facility; (ii) the conversion of 260,000 shares of Class B Common
Stock to Class A Common Stock; (iii) the purchase of the Dolphin's
Landing Apartments, the Chesapeake Apartments and the Bay West
Apartments (the "December 1996 Acquisitions") and the incurrence of
indebtedness and issuance of 193,676 shares of Class A Common Stock to
finance such acquisitions; (iv) the acquisition of the English
Partnerships; (v) the consummation of the English Tender Offers; (vi)
the Dallas Portfolio Acquisition; (vii) the incurrence of indebtedness
to finance the English Portfolio Acquisition, the English Tender Offer
and the Dallas Portfolio Acquisition; (viii) the refinancing of
certain indebtedness assumed in connection with the English
Partnership acquisition; (ix) the acquisition of the Villa Ladera
Apartments, the Brookside Village Apartments and the Somerset Village
Apartments from January 1996 through May 1996 and the assumption of
indebtedness and issuance of OP Units in consideration for certain of
the acquisitions (the "1996 Acquisitions"); and (x) the sale of the
Four Sold Properties in August 1996 and the application of sales
proceeds therefrom to pay indebtedness under the Credit Facility.
The unaudited pro forma Consolidated Statement of Income for the year
ended December 31, 1995 is presented based on the audited historical
financial data of the Company and has been prepared as if each of the
following transactions had occurred on January 1, 1995: (i) the sale
of 2,706,423 shares of the Company's Class A Common Stock at $19.125
per share completed in December 1995; (ii) the sale of 1,265,000 shares
of Class A Common Stock at $23.428 per share completed in November and
December 1996 and the application of net proceeds thereof to pay
indebtedness under the Credit Facility; (iii) the purchase of eight
properties acquired by the Company in December 1995 (iv) the conversion
of 260,000 shares of Class B Common Stock to Class A Common Stock;
(v) the purchase of the December 1996 Acquisitions and the incurrence
of indebtedness and issuance of 193,676 shares of Class A Common Stock
to finance such acquisitions; (vi) the acquisition of the English
Partnerships; (vii) the consummation of the English Tender Offers;
(viii) the Dallas Portfolio Acquisition; (ix) the incurrence of
indebtedness to finance the English Portfolio Acquisition, the English
Tender Offer and the Dallas Portfolio Acquisition; (x) the refinancing
of certain indebtedness assumed in connection with the English
Partnership acquisition; (xi) the purchase of the 1996 Acquisitions
and the assumption of indebtedness and issuance of OP Units in
consideration for certain of the 1996 Acquisitions; and (xii) the
sale of the Four Sold Properties and the application of sales proceeds
therefrom to pay indebtedness under the Credit Facility.
The pro forma information is not necessarily indicative of what the
Company's results of operations would have been assuming the
completion of the described transactions at the beginning of the
periods indicated, nor does it purport to project the Company's
results of operations for any future period.
F-28
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 19 - PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
Pro Forma Condensed Consolidated Statement of Operations
(In Thousands Except Per Share Data)
(Unaudited)
1996 1995
---- ----
RENTAL PROPERTY OPERATIONS
Rental and other property revenues $148,043 $138,810
Property operating expenses (65,797) (65,808)
Owned property management expenses (4,816) (4,971)
-------- --------
Income from property operations before
depreciation 77,430 68,031
Depreciation (27,396) (26,929)
-------- --------
Income from property operations 50,034 41,102
-------- --------
SERVICE COMPANY BUSINESS
Company's share of income from
Service Company Business 1,917 2,239
GENERAL AND ADMINISTRATIVE EXPENSES (1,512) (1,804)
INTEREST INCOME 523 658
INTEREST EXPENSE (37,661) (30,835)
NON-CONTROLLED INTERESTS IN PARTNERSHIPS 3,385 4,997
-------- --------
INCOME BEFORE MINORITY INTEREST
IN OPERATING PARTNERSHIP 16,686 16,357
Minority interest in Operating Partnership (3,299) (3,322)
-------- --------
NET INCOME $13,387 $13,035
-------- --------
-------- --------
NET INCOME ALLOCABLE TO PREFERRED STOCKHOLDER $ - $ 5,169
-------- --------
-------- --------
NET INCOME ALLOCABLE TO COMMON STOCKHOLDERS $13,387 $ 7,866
-------- --------
-------- --------
NET INCOME PER COMMON SHARE $0.95 $0.56
-------- --------
-------- --------
WEIGHTED AVERAGE COMMON SHARES
AND COMMON SHARE EQUIVALENTS
OUTSTANDING 14,141 14,032
-------- --------
-------- --------
F-29
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 20 - SUBSEQUENT EVENTS
DIVIDEND DECLARED
On January 24, 1997, the Board of Directors declared a cash dividend
of $0.4625 per share ($1.85 annualized dividend per share, an
increase of 8.8% per share) of Class A Common Stock for the quarter
ended December 31, 1996, payable on February 14, 1997 to stockholders
of record on February 7, 1997.
COMPLETION OF PUBLIC OFFERING
In February 1997, the Company completed a public offering of 2,015,000
shares of Class A Common Stock (including 15,000 shares subject to the
underwriter's overallotment option) at a price of $26.75 per share.
The net proceeds of $51.1 million were used to repay a portion of the
Company's indebtedness incurred in acquisitions completed in December
1996.
USE OF RESTRICTED CASH
In February 1997, the Company used $5,074,000 which was held in
escrow at December 31, 1996 to repay indebtedness assumed in connection
with the acquisition of the Chesapeake Apartments in December 1996.
PENDING ACQUISITION
On February 20, 1997, the Company announced that its Board of
Directors had approved an agreement with Demeter Holdings Corporation
("Demeter") and Phemus Corporation ("Phemus"), affiliates of The
Harvard Private Capital Group, and Capricorn Investors, L.P.
("Capricorn"), pursuant to which the Company will acquire all of
Demeter's and Capricorn's 6.93 million shares of NHP Incorporated
("NHP") common stock at a purchase price of $20.00 per share, payable
in 3.2 million shares of Class A Common Stock of the Company and $53
million cash. In addition, Demeter and Capricorn would be entitled
to retain their proportionate interest in NHP's subsidiary, NHP
Financial Services, Ltd.
The agreement also provides for the Company to acquire from Demeter,
Phemus and Capricorn (together, the "Sellers") interests in certain
entities that, directly or indirectly, own conventional and affordable
multifamily apartment properties managed by NHP. Pursuant to the
agreement, the Operating Partnership will acquire the Sellers'
controlling interests in limited partnerships that own 18 conventional
apartment communities containing 7,278 apartment units for an
aggregate price of approximately $24.5 million, payable in cash or OP
Units, at the sellers' option. The Company has an option to acquire
the Sellers' interests in entities that own an additional 15
conventional apartment communities containing 3,800 apartment units.
Upon completion of such acquisition, the Operating Partnership intends
to make separate offers to the limited partners of the various
partnerships to acquire their interests in the limited partnerships.
The agreement also provides for the formation of a joint venture with
the Sellers in which the Operating Partnership will have a 50%
interest. The joint venture would be managed equally by the Sellers,
on the one hand, and Operating Partnership on the other. The Sellers
will contribute to the venture their interests in entities that own 24
apartment communities containing 5,464 apartment units, and, at the
Operating Partnership's option, the Sellers' interests in entities
that own an additional 20 apartment communities containing 4,532
apartment units. The Company will contribute cash or other assets
valued at approximately $13 million and the Sellers will contribute
assets valued at approximately $13 million to form the joint venture.
F-30
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (Continued)
NOTE 20 - SUBSEQUENT EVENTS (CONTINUED)
Also pursuant to the agreement, the Operating Partnership will invest
approximately $3.4 million to acquire a 25% interest in entities owned
by the Sellers that own interests in 52,741 affordable housing units
and 12,588 apartment units and other assets.
The Company also made a merger proposal to NHP's Board of Directors
pursuant to which NHP would merge into the Company (or one of its
subsidiaries) and the Company would offer to acquire the remaining
stockholders' interests in NHP for $20 per NHP share to be paid in
the Company's Class A common stock. The Company's proposal
contemplates that NHP's Subsidiary, NHP Financial Services, Ltd.,
will be spun off to NHP stockholders (including the Sellers' but
not the Company) prior to the merger. Consequently, NHP
stockholders would be entitled to receive approximately 0.75 shares
of the Company's Class A Common Stock in the merger. If the
spin-off of NHP Financial Services, Ltd. does not occur, the
Company will pay an additional $3.05 per share to Demeter,
Capricorn and the remaining stockholders in NHP.
Closing of the transactions is subject to completion of additional
documentation and customary closing conditions, including all
necessary governmental approvals, the continuation of the Company's
status as a REIT under federal tax laws, as well as certain rights of
first refusal of NHP with respect to the purchase of interests in
properties managed by NHP. The closing of the real estate
transactions with the Sellers and the acquisition by the Company of
the Sellers' interest in NHP is expected to occur during the second
quarter of 1997.
REPAYMENT OF NOTES RECEIVABLE FROM OFFICERS
In March 1997, certain executive of the Company (or entities
controlled by them) repaid in full notes payable to the Company
totaling $10.7 million executed for the purchase in 1996 of 515,500
shares of Class A Common Stock. In addition, $740,000 was repaid
on the notes payable to the Company totaling $7.9 million executed
for the purchase in 1996 of 379,750 shares of Class A Common Stock.
AGREEMENT TO ACQUIRE THREE PROPERTIES
On March 25, 1997, the Company announced that an agreement was
reached on the acquisition of three multifamily apartment
properties totaling 536 apartment units located in Tustin,
California and Orlando, Florida in two separate transactions.
The acquisition price for the three properties totals $28.8 million
which includes $1.7 million which the Company has budgeted for
initial capital expenditures. The consideration will include
approximately $9.8 million in cash, the issuance of approximately
450,000 shares of Class A Common Stock and OP units for an
aggregate recorded value of $12.5 million and the assumption of
$6.5 million of indebtedness secured by a first trust deed. The
transactions are expected to be completed by April 30, 1997.
F-31
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS EXCEPT UNIT DATA)
INITIAL COST
------------------- COST
BUILDINGS CAPITALIZED
UNITS YEAR NO. OF AND SUBSEQUENT TO
PROPERTY NAME ACQUIRED LOCATION BUILT UNITS LAND IMPROVEMENTS ACQUISITION
- ------------- -------- -------- ----- ----- ---- ------------ ------------
40th North 07/94 Phoenix, AZ 1970 556 $2,546 $14,437 $ 1,016
Anchorage 11/96 League City, TX 1985 264 523 9,097 7
Ashford Plantation 12/95 Atlanta, GA 1975 211 2,770 9,956 217
Ashwood 07/94 Houston, TX 1984 144 451 2,563 132
Bay West 12/96 Tampa, FL 1975 376 1,500 7,085
Bluffs 09/83 Boulder, CO 1971 232 696 7,779 270
Boardwalk 12/95 Tamarac, FL 1986 291 3,350 8,196 715
Brandywine 04/83 St. Petersburg, FL 1971 477 1,423 11,336 823
Brentwood 11/96 Lake Jackson, TX 1980 104 200 3,092
Bridgewater 11/96 Tomball, TX 1978 206 333 4,033 14
Brookside Village 4/96 Tustin, CA 1970 336 2,498 14,180 1,051
Chesapeake 12/96 Houston, TX 1983 320 775 7,317
Chimney Ridge 07/94 Dallas, TX 1983 210 574 3,258 243
Cobble Creek 07/94 Phoenix, AZ 1985 142 407 2,314 88
Copperfield 11/96 Houston, TX 1983 196 572 7,133 6
Copper Chase 12/96 Katy, TX 1982 316 1,484 11,530
Coral Gardens 04/93 Las Vegas, NV 1983 670 3,190 12,745 900
Country Club 07/94 Amarillo, TX 1984 282 1,049 5,951 173
Coventry Square 11/96 Houston, TX 1983 270 975 6,355 7
Crows Nest 11/96 League City, TX 1984 176 795 5,400 4
Cypress Landing 12/96 Savannah, GA 1984 200 386 7,911
Dolphin's Landing 12/96 Corpus Cristi, TX 1980 218 1,740 5,589
Dunwoody 07/94 Atlanta, GA 1980 318 1,838 10,538 374
Easton Village 11/96 Houston, TX 1983 146 440 6,584 3
Eden Crossing 11/94 Pensacola, FL 1985 200 1,111 6,332 236
Fairways 07/94 Phoenix, AZ 1986 260 1,830 10,403 416
Fairways II 09/96 Phoenix, AZ 1996 92 5,952
Fishermans Wharf 11/96 Clute, TX 1981 360 830 9,969 10
Fondren Court 11/96 Houston, TX 1979 429 1,349 9,355 11
Frankford Place 07/94 Dallas, TX 1982 274 1,125 6,382 399
Garden Terrace 07/94 Bowie, TX 1978 20 49 280 11
Green Tree 12/96 Carrollton, TX 1983 365 1,909 14,842
Hampton Hill 11/96 Houston, TX 1984 332 1,574 8,408 11
Hastings Place 11/96 Houston, TX 1984 176 734 3,382 21
Heather Ridge 12/96 Arlington, TX 1983 180 655 5,455
Highland Park 12/96 Ft. Worth, TX 1985 500 3,234 19,536
Hillmeade 11/94 Nashville, TN 1985 288 2,872 16,066 1,020
Jefferson Place 11/94 Baton Rouge, LA 1985 234 2,696 15,115 976
Las Brisas 07/94 Casa Grande, AZ 1985 132 572 3,261 69
Las Brisas 12/95 San Antonio, TX 1983 176 1,100 5,454 209
Lexington 07/94 San Antonio, TX 1981 72 311 1,764 52
Meadowbrook 07/94 Houston, TX 1985 260 999 5,667 300
Meadowcreek 04/85 Boulder, CO 1972 332 1,387 10,027 364
Meadows 12/96 Austin, TX 1983 100 417 4,563
Montecito 07/94 Austin, TX 1985 268 1,268 7,194 206
Newport 07/94 Phoenix, AZ 1986 204 800 4,554 158
Oak Falls 11/96 Spring, TX 1983 144 514 3,585 20
Olympiad 11/94 Montgomery, AL 1986 176 1,046 5,958 320
Paradise Palms 07/94 Phoenix, AZ 1970 130 647 3,684 232
Park at Cedar
Lawn 11/96 Galveston, TX 1985 192 769 5,073 4
Parkside 07/94 Houston, TX 1983 160 592 3,358 187
Parliament Bend 07/94 San Antonio, TX 1980 232 765 4,342 267
Peachtree Park 1/96 Atlanta, GA 1962/1995 295 4,681 12,957 931
Penn Square 12/94 Albuquerque, NM 1982 210 1,128 6,478 236
Peppermill Place 11/96 Houston, TX 1983 224 406 3,957 10
DECEMBER 31, 1996
---------------------------------------------------------------------
TOTAL COST TOTAL COST
----------------------------- NET OF
BUILDINGS AND ACCUMULATED ACCUMULATED
LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES
PROPERTY NAME
- -------------
40th North $ 2,546 $15,453 $17,999 $1,584 $16,415 $11,093
Anchorage 523 9,104 9,627 2,599 7,028 5,016
Ashford Plantation 2,770 10,173 12,943 428 12,515 9,300
Ashwood 451 2,695 3,146 270 2,876 1,611
Bay West 1,500 7,085 8,585 8,585
Bluffs 696 8,049 8,745 4,604 4,141 6,256
Boardwalk 3,350 8,911 12,261 376 11,885 9,773
Brandywine 1,423 12,159 13,582 4,027 9,555 6,746
Brentwood 200 3,092 3,292 3,292 (A)
Bridgewater 333 4,047 4,380 915 3,465
Brookside Village 2,498 15,231 17,729 395 17,334 (A)
Chesapeake 775 7,317 8,092 8,092 5,073
Chimney Ridge 574 3,501 4,075 360 3,715 1,972
Cobble Creek 407 2,402 2,809 245 2,564 1,459
Copperfield 572 7,139 7,711 697 7,014 4,336
Copper Chase 1,484 11,530 13,014 3,367 9,647 9,772
Coral Gardens 3,190 13,645 16,835 2,408 14,427 11,594
Country Club 1,049 6,124 7,173 619 6,554 4,165
Coventry Square 975 6,362 7,337 2,453 4,884 4,240
Crows Nest 795 5,404 6,199 1,316 4,883 4,160
Cypress Landing 386 7,911 8,297 2,301 5,996 7,629
Dolphin's Landing 1,740 5,589 7,329 7,329
Dunwoody 1,838 10,912 12,750 1,090 11,660 7,737
Easton Village 440 6,587 7,027 457 6,570 4,732
Eden Crossing 1,111 6,568 7,679 579 7,100 6,000
Fairways 1,830 10,819 12,649 1,100 11,549 6,568
Fairways II - 5,952 5,952 - 5,952
Fishermans Wharf 830 9,979 10,809 3,412 7,397 6,000
Fondren Court 1,349 9,366 10,715 4,229 6,486 5,642
Frankford Place 1,125 6,781 7,906 673 7,233 4,102
Garden Terrace 49 291 340 29 311
Green Tree 1,909 14,842 16,751 4,188 12,563 11,520
Hampton Hill 1,574 8,419 9,993 3,406 6,587 3,952
Hastings Place 734 3,403 4,137 914 3,223 3,258
Heather Ridge 655 5,455 6,110 1,855 4,255 4,838
Highland Park 3,234 19,536 22,770 7,440 15,330 18,157
Hillmeade 2,872 17,086 19,958 1,439 18,519 11,373
Jefferson Place 2,696 16,091 18,787 1,357 17,430 9,785
Las Brisas 572 3,330 3,902 334 3,568 (B)
Las Brisas 1,100 5,663 6,763 236 6,527 5,250
Lexington 311 1,816 2,127 183 1,944 1,093
Meadowbrook 999 5,967 6,966 610 6,356 3,363
Meadowcreek 1,387 10,391 11,778 3,016 8,762 8,125
Meadows 417 4,563 4,980 1,188 3,792 3,330
Montecito 1,268 7,400 8,668 745 7,923 5,155
Newport 800 4,712 5,512 481 5,031 2,665
Oak Falls 514 3,605 4,119 940 3,179 3,285
Olympiad 1,046 6,278 7,324 534 6,790 5,350
Paradise Palms 647 3,916 4,563 391 4,172 2,393
Park at Cedar
Lawn 769 5,077 5,846 1,011 4,835 2,826
Parkside 592 3,545 4,137 349 3,788 2,216
Parliament Bend 765 4,609 5,374 464 4,910 (B)
Peachtree Park 4,681 13,888 18,569 501 18,068 (A)
Penn Square 1,128 6,714 7,842 575 7,267 4,257
Peppermill Place 406 3,967 4,373 887 3,486 3,677
F-32
ESTIMATE AND MANAGEMENT COMPANY
SCHEDULE III - (CONTINUED)
INITIAL COST
------------------ COST
BUILDINGS CAPITALIZED
UNITS YEAR NO. OF AND SUBSEQUENT TO
PROPERTY NAME ACQUIRED LOCATION BUILT UNITS LAND IMPROVEMENTS ACQUISITION
- ------------- -------- -------- ----- ----- ---- ------------ ------------
Pleasant Ridge 11/94 Little Rock, AR 1982 200 1,660 9,464 401
Pleasant Valley 11/94 Little Rock, AR 1985 112 907 5,069 510
Prairie Hills 07/94 Albuquerque, NM 1985 260 1,680 9,633 163
Randol Crossing 12/96 Ft. Worth, TX 1984 160 782 5,742
Ridge Crest 12/96 Denton, TX 1983 152 612 5,642
Rillito Village 07/94 Tuscon, AZ 1985 272 1,220 6,947 145
Riverside 07/94 Denver, CO 1987 248 1,553 8,828 258
Riverwalk 12/95 Little Rock, AR 1988 262 1,075 9,295 205
Royal Palms 07/94 Phoenix, AZ 1985 152 832 4,730 129
Seaside Point 11/96 Galveston, TX 1985 102 295 2,994 2
Seasons 10/95 San Antonio, TX 1976 280 974 5,749 430
Signature Point 11/96 League City, TX 1994 304 2,160 13,627 2
Snug Harbor 12/95 Las Vegas, NV 1990 64 750 2,966 195
Somerset Village 5/96 Salt Lake City, UT 1985 486 4,375 17,600 174
South Willow 07/94 Salt Lake City, UT 1987 440 2,218 12,612 283
Southridge 12/96 Greenville, TX 1984 160 565 5,787
Spectrum Pointe 07/94 Atlanta, GA 1984 196 1,029 5,903 110
Stirling Court 11/96 Houston, TX 1984 228 946 5,958 8
Stonehaven 11/96 Houston, TX 1972 337 1,197 11,236 6
Stoney Brook 11/96 Houston, TX 1972 113 579 3,871 8
Sun Grove 07/94 Phoenix, AZ 1986 86 659 3,749 90
Sun Katcher 12/95 Jacksonville, FL 1972 360 578 3,440 3,044
Sun Valley 07/94 Salt Lake City, UT 1985 430 1,306 7,434 232
Sunbury Downs 11/96 Houston, TX 1982 240 565 4,380 11
Sunchase-Clearwater 11/94 Clearwater, FL 1985 461 2,177 19,641 598
Sunchase-East 11/94 Orlando, FL 1985 296 927 8,361 380
Sunchase-North 11/94 Orlando, FL 1985 324 1,013 9,142 352
Sunchase-Tampa 11/94 Tampa, FL 1985 216 757 6,831 542
Swiss Village 11/96 Houston, TX 1972 360 1,011 11,310 13
Timbermill 10/95 San Antonio, TX 1982 296 778 4,674 461
Township at Highlands 11/96 Denver, CO 1986 119 1,058 11,166 3
Villa Ladera 1/96 Albuquerque, NM 1985 280 1,764 10,014 456
Village Creek 07/94 Denver, CO 1987 324 2,446 13,901 622
Walnut Springs 12/96 San Antonio, TX 1983 224 851 8,076
Waterford 11/96 Houston, TX 1984 312 533 5,692 7
Williams Cove 07/94 Dallas, TX 1984 260 1,227 6,972 295
Woodhill 12/96 Denton, TX 1985 352 1,578 13,199
Woodland Ridge 12/96 Irving, TX 1984 130 1,021 4,507
Woodlands-Odessa 07/94 Odessa, TX 1982 232 676 3,835 208
Woodlands-Tyler 07/94 Tyler, TX 1984 256 1,030 5,844 207
----------------------------------------
Sub-total 23,764 115,249 717,601 29,221
----------------------------------------
Properties under development or held for development:
Fairways III land 07/94 2,303 369
Villa Ladera land 03/96 479 -
----------------------------------------
Total 23,764 $118,031 $717,601 $29,590
----------------------------------------
----------------------------------------
DECEMBER 31, 1996
-----------------------------------------------------------------------
TOTAL COST TOTAL COST
----------------------------- NET OF
BUILDINGS AND ACCUMULATED ACCUMULATED
PROPERTY NAME LAND IMPROVEMENTS TOTAL DEPRECIATION DEPRECIATION ENCUMBRANCES
- ------------- ----- ------------ ----- ------------ ------------ ------------
Pleasant Ridge 1,660 9,865 11,525 846 10,679 6,700
Pleasant Valley 907 5,579 6,486 466 6,020 3,553
Prairie Hills 1,680 9,796 11,476 978 10,498 7,519
Randol Crossing 782 5,742 6,524 1,762 4,762 3,875
Ridge Crest 612 5,642 6,254 1,804 4,450 3,825
Rillito Village 1,220 7,092 8,312 708 7,604 4,165
Riverside 1,553 9,086 10,639 917 9,722 6,195
Riverwalk 1,075 9,500 10,575 386 10,189 8,550
Royal Palms 832 4,859 5,691 487 5,204 3,652
Seaside Point 295 2,996 3,291 663 2,628
Seasons 974 6,179 7,153 251 6,902 4,596
Signature Point 2,160 13,629 15,789 1,164 14,625 11,040
Snug Harbor 750 3,161 3,911 131 3,780 2,700
Somerset Village 4,375 17,774 22,149 408 21,741 (A)
South Willow 2,218 12,895 15,113 1,295 13,818 8,592
Southridge 565 5,787 6,352 2,074 4,278 3,473
Spectrum Pointe 1,029 6,013 7,042 599 6,443 4,468
Stirling Court 946 5,966 6,912 2,472 4,440 3,673
Stonehaven 1,197 11,242 12,439 2,804 9,635 4,969
Stoney Brook 579 3,879 4,458 945 3,513 750
Sun Grove 659 3,839 4,498 387 4,111 (B)
Sun Katcher 578 6,484 7,062 56 7,006 (A)
Sun Valley 1,306 7,666 8,972 768 8,204 5,742
Sunbury Downs 565 4,391 4,956 799 4,157 2,950
Sunchase-Clearwater 2,177 20,239 22,416 1,140 21,276 17,994
Sunchase-East 927 8,741 9,668 758 8,910 9,443
Sunchase-North 1,013 9,494 10,507 823 9,684 12,666
Sunchase-Tampa 757 7,373 8,130 633 7,497 7,571
Swiss Village 1,011 11,323 12,334 5,195 7,139 6,880
Timbermill 778 5,135 5,913 208 5,705 (A)
Township at Highlands 1,058 11,169 12,227 1,750 10,477 9,165
Villa Ladera 1,764 10,470 12,234 423 11,811 5,781
Village Creek 2,446 14,523 16,969 1,422 15,547 (B)
Walnut Springs 851 8,076 8,927 2,182 6,745 6,730
Waterford 533 5,699 6,232 1,358 4,874 4,871
Williams Cove 1,227 7,267 8,494 739 7,755 4,025
Woodhill 1,578 13,199 14,777 4,240 10,537 9,605
Woodland Ridge 1,021 4,507 5,528 1,445 4,083 3,580
Woodlands-Odessa 676 4,043 4,719 403 4,316 (B)
Woodlands-Tyler 1,030 6,051 7,081 611 6,470 3,653
----------------------------------------------------------------------
Sub-total 115,249 746,822 862,071 120,077 741,994 463,795
----------------------------------------------------------------------
Properties under development or held for development:
Fairways III land 2,303 369 2,672 2,672
Villa Ladera land 479 - 479 479
----------------------------------------------------------------------
Total $118,031 $747,191 $865,222 $120,077 $745,145 463,795
----------------------------------------------------------------------
----------------------------------------------------------------------
(A) Pledged as security for the Credit Facility.
(B) Pledges as additional colleratal for secured tax-exempt financing.
_______________
See Report of Independent Auditors and accompanying notes to
consolidated financial statements.
F-33
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Real Estate and Accumulated Depreciation
For the Years ended December 31, 1996 and 1995 and
For the Period January 10, 1994 (Inception) through December 31, 1994
(In Thousands)
REAL ESTATE 1996 1995 1994
-------- -------- --------
Balance at beginning of period $477,162 $406,067 $ -
Additions during the period:
Real estate acquisitions and
AIMCO Predecessor's historical
cost 388,574 63,351 402,847
Additions 17,993 7,744 1,482
Dispositions (18,507) - -
-------- -------- --------
Balance at end of period $865,222 $477,162 404,329
-------- -------- --------
-------- -------- --------
ACCUMULATED DEPRECIATION
Balance at beginning of period $ 28,737 $ 13,699 $ -
Additions during the period:
AIMCO Predecessor's historical
cost - - 8,972
Depreciation 19,556 15,038 4,727
Additions 73,189 - -
Dispositions (1,405) - -
-------- -------- --------
Balance at end of period $120,077 $ 28,737 $ 13,699
-------- -------- --------
-------- -------- --------
The aggregate cost of the real estate for Federal income tax
purposes at December 31, 1996 and 1995 was $880,558, or $15,336
more than the book basis and $454,998, or $22,164, less than the
book basis, respectively.
See Report of Independent Auditors and accompanying notes to
consolidated financial statements.
F-34
Report of Independent Auditors
Owners of the
AIMCO Predecessors
We have audited the accompanying combined balance sheet of the AIMCO
Predecessors (as defined in Note 1), as of July 28, 1994, and the related
combined statements of operations, owners' deficit and cash flows for the
period January 1, 1994 through July 28, 1994. Our audit also included the
consolidated financial statement schedule listed in the Index at Item 14(a)(2).
These financial statements and schedule are the responsibility of the AIMCO
Predecessors' management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the AIMCO
Predecessors at July 28, 1994, and the combined results of its operations and
its cash flows for the period January 1, 1994 through July 28, 1994, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related combined financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
January 20, 1995
F-35
AIMCO PREDECESSORS
Combined Balance Sheet
(In Thousands)
July 28,
1994
-------
ASSETS
MULTIFAMILY PROPERTIES - net of
accumulated depreciation of $14,230 - Note 3 $33,270
CASH AND CASH EQUIVALENTS 1,531
RESTRICTED CASH 343
ACCOUNTS RECEIVABLE - TENANTS AND
OTHER - Note 4 1,089
NOTES AND ADVANCES RECEIVABLE -
AFFILIATES - Note 5 -
REINSURANCE BALANCES
RECEIVABLE - Note 9 723
FUNDS WITHHELD - Note 9 40
INVESTMENTS - Note 6 697
PROPERTY AND EQUIPMENT - net of
accumulated depreciation of $966 285
INTANGIBLE ASSETS - net of accumulated
amortization of $91 181
PREPAID EXPENSES 156
OTHER ASSETS 727
-------
$39,042
-------
-------
LIABILITIES AND OWNERS' DEFICIT
NOTES PAYABLE - Note 7 $ 3,077
MORTGAGES PAYABLE - Note 8 37,796
RESIDENT SECURITY DEPOSITS AND
PREPAID RENT 333
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES - Note 10 2,955
ACCRUED INTEREST PAYABLE 2,768
REINSURANCE BALANCES PAYABLE 244
RESERVE FOR OUTSTANDING LOSSES AND LOSS-
RELATED EXPENSES 647
UNEARNED PREMIUMS 567
-------
48,387
-------
COMMITMENTS AND CONTINGENCIES - Note 9 -
OWNER'S DEFICIT (9,345)
-------
$39,042
-------
-------
See accompanying notes to combined financial statements.
F-36
AIMCO PREDECESSORS
Combined Statements of Operations
(In Thousands)
FOR THE PERIOD
JANUARY 1, 1994 THROUGH
JULY 28, 1994
-----------------------
RENTAL PROPERTY OPERATIONS
Rental and other property revenue $ 5,805
Property operating expenses 2,263
-------
3,542
Depreciation and amortization (1,151)
-------
2,391
-------
PROPERTY MANAGEMENT BUSINESS
Residential management 3,286
Commercial management and brokerage 1,700
Brokerage 296
Insurance Operations 426
Other income 825
-------
6,533
-------
Employee compensation and expenses 4,000
General and administrative 1,197
Depreciation and amortization 146
Insurance Operations 626
Owner and seller bonuses 204
-------
6,173
-------
360
-------
INTEREST EXPENSE (4,214)
-------
LOSS BEFORE EXTRAORDINARY
ITEM AND INCOME TAXES (1,463)
Provision for income taxes (36)
-------
NET LOSS $(1,499)
-------
-------
See accompanying notes to combined financial statements.
F-37
AIMCO PREDECESSORS
Combined Statements of Owners' Deficit
(In Thousands)
PAM
PROPERTIES
COMMON PAID-IN OWNERS' OWNERS'
STOCK CAPITAL DEFICIT DEFICIT TOTAL
------ ------- ------- ------- -------
Balance January 1, 1994 $120 $316 $(1,001) $(6,991) $(7,556)
Net income (loss) - - (1,499) - (1,499)
Contributions - - - 887 887
Distributions - - (278) (899) (1,177)
------ ------- ------- ------- -------
Balance July 28, 1994 $120 $316 $(2,778) $(7,003) $(9,345)
------ ------- ------- ------- -------
------ ------- ------- ------- -------
See accompanying notes to condensed combined financial statements.
F-38
AIMCO PREDECESSORS
Combined Statements of Cash Flow
(In Thousands)
FOR THE PERIOD
JANUARY 1, 1994
THROUGH
1994
---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,499)
-------
Adjustments to reconcile net loss to net cash provided
by operating activities
Depreciation and Amortization 1,297
Changes in operating assets and liabilities
Net disbursements from impound accounts 205
Increase in accounts receivable-tenants and other (644)
(Increase) decrease in reinsurance balances receivable (300)
Decrease (increase) in funds withheld 661
Decrease (increase) in prepaid expenses and other assets 24
Increase (decrease) in reserve for outstanding losses
and loss related expenses 189
Increase (decrease) in unearned premiums 251
(Decrease) increase in resident security deposits
and prepaid rent (77)
Increase (decrease) in accounts payable and
accrued expenses 921
(Decrease) increase in taxes payable (163)
Increase in accrued interest payable 1,788
Increase in reinsurance balances payable 25
-------
Total Adjustments 4,177
-------
Net cash provided by operating activities 2,678
-------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (707)
Decrease in notes receivable-affiliates 120
(Increase) decrease in investments, net (337)
-------
Net cash used in by financing activities (924)
-------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of mortgages and other notes payable (1,020)
Contributions from owners 887
Distribution to owners (899)
-------
Net cash (used in) provided by financing activities (1,032)
-------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 722
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 809
-------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,531
-------
-------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period of interest $ 2,383
-------
-------
See accompanying notes to combined financial statements.
F-39
AIMCO PREDECESSORS
Notes to Combined Financial Statements
July 28, 1994
NOTE 1 - ORGANIZATION
Property Asset Management, L.L.C., Limited Liability Company ("PAM"),
certain limited liability companies related to PAM, PAM Consolidated
Assurance Company ("PCA") (collectively, the "PAM Companies"), PDI
Realty Enterprises, Inc. and certain related limited partnerships and
limited liability companies that have general partners or shareholders
affiliated with the PAM Companies (together, the "AIMCO Predecessors")
were engaged in providing property management services for apartment
properties, commercial real estate brokerage services, workers'
compensation and excess employer liability reinsurance, asset
management for apartment and commercial properties and the ownership
of four apartment properties. Apartment Investment and Management
Company (the "Company") was formed to continue and expand the property
management and related businesses of the AIMCO Predecessors.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying combined financial statements reflect the financial
position and results of operations for the AIMCO Predecessors for the
period from January 1, 1994 through July 28, 1994, the date of the
completion of the business combination with the Company.
PRINCIPLES OF COMBINATION
The financial statements include the accounts of the AIMCO
Predecessors. The financial statements have been presented on a
combined basis because, in conjunction with the Company's initial
public offering on July 29, 1994, the entities were included in a
business combination with the Company. The owners of the AIMCO
Predecessors transferred their property management and related
businesses and certain of their interests in real estate to
AIMCO Properties, L.P., an operating partnership (the "Operating
Partnership") for which the Company's wholly owned subsidiary is
the sole general partner. Concurrent with the transfer, certain
owners of the AIMCO Predecessors received units of limited
partnership interest in the Operating Partnership ("OP Units").
All significant intercompany balances and transactions have been
eliminated in combination.
MULTIFAMILY PROPERTIES, PROPERTY AND EQUIPMENT AND DEPRECIATION
Multifamily properties are recorded at cost less accumulated
depreciation. Property and equipment is stated at cost.
For multifamily properties, depreciation is calculated on the
straight-line method based on a 25-year life for buildings and five
to ten year lives for furniture and fixtures. Apartment turnover
costs and ordinary repairs and maintenance are expensed as incurred.
Replacements and betterments that extend the useful life of the assets
are capitalized and depreciated over their estimated useful lives.
Property and equipment is depreciated over the estimated useful lives
of the related assets, ranging from two to seven years, using various
accelerated methods.
F-40
AIMCO PREDECESSORS
Notes to Combined Financial Statements (continued)
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less when acquired.
RESTRICTED CASH
Restricted cash consists of escrow deposits held by lenders for
property taxes, insurance and replacement reserves, and tenant
security deposits.
REINSURANCE
To reduce the potential adverse effects of significant workers'
compensation claims, PCA has ceded the potential exposure of excess
layers of coverage to an unrelated insurance provider. No claims
have reached this excess layer and, accordingly, no recoveries from
reinsurers are provided for in the combined balance sheet.
Reinsurance does not relieve PCA of the liabilities under the original
policies. However, in the opinion of management, PCA's reinsurer is
financially capable, and any potential future expenses from nonpayment
are unlikely.
FUNDS WITHHELD
Funds withheld represent amounts on deposit with ceding insurance
companies as security for PCA's reinsurance obligations.
INVESTMENTS
Investments include holdings in a fixed income fund administered in
Bermuda, which are carried at quoted market values with unrealized
gains recognized in owners' deficit.
F-41
AIMCO PREDECESSORS
Notes to Combined Financial Statements (Continued)
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of organization costs, loan procurement
costs and allocated costs of purchasing other property management
businesses, including non-compete agreements, property management
contracts, goodwill, trade names and other acquisition costs. These
costs are amortized on a straight-line basis over their contractual
and estimated useful lives ranging from one to five years.
DEFERRED FINANCING COSTS
Fees and costs incurred in obtaining long-term financing are included
in other assets and such costs are amortized on a straight-line basis
(which approximates the interest method) over the term of the related
loan agreements.
RESERVE FOR OUTSTANDING LOSSES AND LOSS-RELATED EXPENSES
The reserve for outstanding losses and loss-related expenses and the
provision for losses and loss-related expenses included in insurance
operations include estimates for insurance losses incurred but not
reported, as well as losses pending settlement. Reserves are based
on management's estimates, loss adjusters' evaluations and actuarial
determinations and are believed to be adequate.
REVENUE RECOGNITION
The apartment properties have operating leases with terms generally of
one year or less and rental revenues associated with these leases are
recognized when earned. Fees for the property management business and
other income are recognized when earned. Reinsurance premiums written
are earned on a monthly pro rata basis over the terms of the policies.
INCOME TAXES
The provision for income taxes is recorded for the combined
corporations. Income from the limited liability companies and limited
partnerships is recorded on the separate tax returns of the membership
unit holders and individual partners and accordingly, no provision for
their income taxes has been recorded.
Deferred taxes of $395,000 are the result of expected future tax
consequences of temporary differences between the financial reporting
basis and tax basis of assets and liabilities.
COMMON STOCK SHARES AND EARNINGS PER SHARE
The number of common stock shares issued and outstanding and per share
data is not relevant since the financial statements are a presentation
of the combined operations of various corporations, limited liability
companies and limited partnerships.
F-42
AIMCO PREDECESSORS
Notes to Combined Financial Statements (Continued)
NOTE 3 - MULTIFAMILY PROPERTIES
Multifamily properties are summarized as follows (in thousands):
JULY 28, 1994
-------------
Land $ 5,703
Buildings and improvements 37,669
Furniture, fixtures and equipment 4,128
--------
47,500
Accumulated depreciation (14,230)
--------
$ 33,270
--------
--------
NOTE 4 - ACCOUNTS RECEIVABLE - TENANTS AND OTHER
Accounts receivable - tenants and other at July 28, 1994 included
approximately $700,000 of costs advanced to the Company in conjunction
with its initial public offering. These costs were repaid following
the completion of the offering.
NOTE 5 - NOTES AND ADVANCES RECEIVABLE - AFFILIATES
Notes and advances receivable from affiliates are due on demand and
interest is charged at rates ranging from 6% to 9% per year.
Notes and advances receivable from affiliates of $278,000 were
distributed to owners, and $120,000 was repaid, prior to the transfer
of the businesses to the Company.
NOTE 6 - INVESTMENTS
Investments at July 28, 1994 are comprised of fixed income fund
balances of $697,000.
NOTE 7 - NOTES PAYABLE
Notes payable bear interest at rates ranging from 4% to prime plus 1%,
and have maturities ranging from March 1994 to October 1996. All of
the notes payable were repaid upon the completion of the Company's
initial public offering.
F-43
AIMCO PREDECESSORS
Notes to Combined Financial Statements (Continued)
NOTE 8 - MORTGAGES PAYABLE
A mortgage note payable, secured by a first trust deed, to a mortgage
company of $6,380,000 was assumed by the Company. Interest at 9.25%
and principal is paid in monthly installments of $53,000, with the
remaining balance due June 1999. All other mortgages payable, secured
by first and second trust deeds and mortgages, having maturities from
April 1994 to June 2000, with fixed and variable interest rates, were
repaid upon the completion of the Company's initial public offering.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
REINSURANCE BALANCES RECEIVABLE AND FUNDS WITHHELD
There is a dispute with National Union Fire Insurance Company
regarding March 1991 to February 1992 insurance risks which were
subsequently reinsured by PCA. Reinsurance balances receivable and
funds withheld includes $213,000 relating to this dispute.
The Company became a party to this dispute in conjunction with the
business combination.
LETTER OF CREDIT
PAM pledged $220,000 of its holdings in a fixed income fund to
collateralize a $200,000 letter of credit securing the payment of
outstanding losses and loss-related expenses relating to the
reinsurance business.
LITIGATION
PAM is involved in various litigation arising in the ordinary course
of business. Management does not believe that these actions will have
a material adverse effect on the Company.
NOTE 10 - RELATED PARTY TRANSACTIONS
The AIMCO Predecessors provided property management, consulting and
accounting services to affiliated companies and recorded fees of
$266,000 for the period ended July 28, 1994.
The parent company of PAM provides loss consulting services to PCA for
$8,000 per month. These fees are included in owner and seller
bonuses.
Seller bonuses represent performance compensation to sellers of
property management and brokerage operations acquired by PAM.
Accounts payable and accrued expenses include $220,000 due to certain
owners and officers of PAM relating to deferred compensation.
F-44
AIMCO PREDECESSORS
Notes to Combined Financial Statements (Continued)
NOTE 11 - EMPLOYEE BENEFIT PLAN
The PAM Companies participated in a 401(k) defined-contribution
employee savings plan. Employees who had completed one year of
service were eligible to participate. The PAM Companies matched 50%
of the participant's contributions to the plan up to a maximum of 2%
of the participant's prior year compensation. Expenses under the plan
are not material. This 401(k) plan was continued in conjunction with
the business combination.
NOTE 12 - STATUTORY CAPITAL AND SURPLUS
PCA is registered under the Bermuda Insurance Act of 1978 and Related
Regulations (the "Act") and is required to comply with various
provisions of the Act regarding solvency and liquidity. Actual
statutory capital was and continues to be in excess of the minimum
statutory capital and surplus requirement.
F-45
AIMCO PREDECESSORS
SCHEDULE III
REAL ESTATE INVESTMENT AND ACCUMULATED DEPRECIATION
AS OF JULY 28, 1994
(IN THOUSANDS)
PROPERTY NAME LOCATION NUMBER OF LAND BUILDINGS AND IMPROVEMENTS CARRYING LAND BUILDING AND TOTAL
- ------------- -------- UNITS ---- IMPROVEMENTS ------------ COSTS ---- IMPROVEMENTS -------
--------- ------------- -------- TOTAL COST
INITIAL COST COST CAPITALIZED ------------
------------ SUBSEQUENT TO ACQUISITION
-------------------------
Bluffs Boulder, CO 232 $ 696 $ 6,102 $1,661 - $ 696 $ 7,763 $ 8,459
Meadowcreek Boulder, CO 332 821 6,328 2,639 - 821 8,967 9,788
Coral Gardens Las Vegas, NV 670 3,190 11,775 602 - 3,190 12,377 15,567
Brandywine St. Petersburg, FL 477 996 11,444 1,246 - 996 12,690 13,686
----- ------ ------- ------ ----- ------ ------- -------
1,711 $5,703 $35,649 $6,148 - $5,703 $41,797 $47,500
----- ------ ------- ------ ----- ------ ------- -------
----- ------ ------- ------ ----- ------ ------- -------
PROPERTY NAME ACCUMULATED ENCUMBRANCES YEAR DATE DEPRECIABLE
- ------------- DEPRECIATION ------------ BUILT ACQUIRED LIFE
------------ ------------ ----------- ------------
Bluffs $ 3,675 $ 6,387 1971 Sept. 1983 5 - 25 years
Meadowcreek 3,788 5,987 1972 June 1985 5 - 25 years
Coral Gardens 777 14,930 1983 June 1993 5 - 25 years
Brandywine 5,990 10,492 1971 April 1983 5 - 25 years
------- -------
$14,230 $37,796
------- -------
------- -------
A summary of activity of real estate assets and accumulated depreciation is
as follows:
JULY 28,
1994
-------
REAL ESTATE ASSETS
------------------
Balance at beginning of period............. $46,819
Improvements............................... 681
Acquisition of building and improvements... -
Balance at end of period................... $47,500
-------
-------
JULY 28,
1994
-------
ACCUMULATED DEPRECIATION
------------------------
Balance at beginning of period............. $13,118
Depreciation expense....................... 1,112
-------
Balance at end of period................... $14,230
-------
-------
See report of independent auditors and accompanying notes to combined
financial statements.