1 ================================================================================UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549--------------------- FORMForm 10-Q (MARK ONE) [X]
(Mark One)[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO
--------------------- COMMISSION FILE NUMBERCommission File Number 1-13232 --------------------- APARTMENT INVESTMENT AND MANAGEMENT COMPANY (ExactApartment Investment and Management Company
(Exact name of registrant as specified in its charter)
MARYLAND 84-1259577 (StateMaryland
(State or other jurisdiction of(I.R.S. Employer
Incorporation or organization)84-1259577
(I.R.S. Employer
Identification No.)
2000 SOUTH COLORADO BOULEVARD TOWER TWO, SUITESouth Colorado Boulevard, Tower 2, Suite 2-1000DENVER, COLORADO 80222-4348 (Address
Denver, Colorado
(Address of principal executive offices)(Zip80222
(Zip Code)(303) 757-8101
(Registrant's
(Registrant’s telephone number, including area code)NOT APPLICABLE (FormerNot Applicable
(Former name, former address, and former fiscal year,
if changed since last report)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 [ ]
---------------------The number of shares of Class A Common Stock outstanding as of
April 30,July 31, 2000:67,163,247 ================================================================================2 APARTMENT INVESTMENT AND MANAGEMENT COMPANY FORM 10-Q INDEX67,590,368TABLE OF CONTENTSAPARTMENT INVESTMENT AND MANAGEMENT COMPANY
FORM 10-Q
INDEX
Page PART I FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 3 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2000 and 1999 (unaudited) 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 27 PART II OTHER INFORMATION ITEM 1. Legal Proceedings 28 ITEM 2. Changes in Securities and Use of Proceeds 28 ITEM 3. Defaults Upon Senior Securities 28 ITEM 4. Submission of Matters to a Vote of Security Holders 28 ITEM 5. Other Information 29 ITEM 6. Exhibits and Reports on Form 8-K.............................. 24 Signatures.................................................. 268-K30 Signatures 31 2
3APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED)ASSETS Real estate, net of accumulated depreciation of $488,480 and $416,497.................................................. $4,507,406 $4,092,038 Property held for sale...................................... 4,376 4,162 Investments in unconsolidated real estate partnerships...... 813,627 891,449 Investments in unconsolidated subsidiaries.................. 49,247 44,921 Notes receivable from unconsolidated real estate partnerships.............................................. 119,698 142,828 Notes receivable from unconsolidated subsidiaries........... 89,633 88,754 Cash and cash equivalents................................... 136,890 101,604 Restricted cash............................................. 92,803 84,595 Other assets................................................ 204,829 234,600 ---------- ---------- Total assets...................................... $6,018,509 $5,684,951 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Secured notes payable....................................... $2,323,336 $1,954,259 Secured tax-exempt bond financing........................... 406,514 420,830 Unsecured short-term financing.............................. 277,200 209,200 ---------- ---------- Total indebtedness................................ 3,007,050 2,584,289 Accounts payable, accrued and other liabilities............. 188,909 271,627 Resident security deposits and deferred rental revenue...... 26,797 22,793 ---------- ---------- Total liabilities................................. 3,222,756 2,878,709 ---------- ---------- Commitments and contingencies............................... -- -- Company-obligated mandatory redeemable convertible preferred securities of a subsidiary trust.......................... 149,500 149,500 Minority interest in other entities......................... 147,186 168,533 Minority interest in operating partnership.................. 226,383 225,381 Stockholders' equity: Preferred Stock........................................... 671,250 641,250 Class A Common Stock, $.01 par value, 474,337,500 shares and 474,121,284 shares authorized, 67,164,211 and 66,802,886 shares issued and outstanding, respectively........................................... 679 668 Additional paid-in capital................................ 1,898,261 1,885,424 Notes receivable on common stock purchases................ (52,685) (51,619) Distributions in excess of earnings....................... (244,821) (212,895) ---------- ---------- Total stockholders' equity........................ 2,272,684 2,262,828 ---------- ---------- Total liabilities and stockholders' equity........ $6,018,509 $5,684,951 ========== ==========(In Thousands, Except Share Data)
June 30, December 31, 2000 1999 (Unaudited) ASSETS Real Estate, net of accumulated depreciation of $573,768 and $416,497 $ 4,953,798 $ 4,096,200 Investments in unconsolidated real estate partnerships 690,051 891,449 Investments in unconsolidated subsidiaries 48,913 44,921 Notes receivable from unconsolidated real estate partnerships 140,809 142,828 Notes receivable from and advances to unconsolidated subsidiaries 91,477 88,754 Cash and cash equivalents 90,709 101,604 Restricted cash 108,311 84,595 Other assets 213,499 234,600 Total assets $ 6,337,567 $ 5,684,951 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Secured notes payable $ 2,653,746 $ 1,954,259 Secured tax-exempt bond financing 403,774 420,830 Unsecured short-term financing 293,500 209,200 Total indebtedness 3,351,020 2,584,289 Accounts payable, accrued and other liabilities 194,006 271,627 Resident security deposits and deferred rental income 31,835 22,793 Total liabilities 3,576,861 2,878,709 Commitments and contingencies — — Company-obligated mandatory redeemable convertible preferred securities of a subsidiary trust 149,500 149,500 Minority interest in other entities 149,621 168,533 Minority interest in operating partnership 219,370 225,381 Stockholders’ equity: Preferred Stock 671,250 641,250 Class A Common Stock, $.01 par value, 474,337,500 shares and 474,121,284 shares authorized, 67,578,000 and 66,802,886 shares issued and outstanding, at June 30, 2000 and December 31, 1999, respectively 676 668 Additional paid-in capital 1,912,113 1,885,424 Notes receivable on common stock purchases (47,515 ) (51,619 ) Distributions in excess of earnings (294,309 ) (212,895 ) Total stockholders’ equity 2,242,215 2,262,828 Total liabilities and stockholders’ equity $ 6,337,567 $ 5,684,951 See
accompanyingnotes to consolidated financial statements.3
4APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
FOR THE THREE MONTHS ENDED --------------------- MARCH 31, MARCH 31, 2000 1999 --------- ---------RENTAL PROPERTY OPERATIONS: Rental and other property revenues.......................... $224,320 $112,586 Property operating expenses................................. (90,751) (43,170) Owned property management expense........................... (7,816) (3,502) Depreciation................................................ (64,690) (27,112) -------- -------- Income from property operations............................. 61,063 38,802 -------- -------- SERVICE COMPANY BUSINESS: Management fees and other income............................ 13,310 8,556 Management and other expenses............................... (4,957) (8,902) -------- -------- Income (loss) from service company business................. 8,353 (346) -------- -------- General and administrative expenses......................... (3,211) (3,081) Interest expense............................................ (56,224) (31,330) Interest income............................................. 13,004 9,758 Equity in earnings of unconsolidated real estate partnerships.............................................. 2,445 816 Equity in earnings of unconsolidated subsidiaries........... 3,215 2,372 Minority interest in other entities......................... (3,721) 111 Amortization................................................ (1,575) (1,942) -------- -------- Income from operations...................................... 23,349 15,160 Gain on disposition of properties........................... 5,105 15 -------- -------- Income before minority interest in operating partnership.... 28,454 15,175 Minority interest in operating partnership, Common.......... (989) (1,219) Minority interest in operating partnership, Preferred....... (1,583) -- -------- -------- Net income.................................................. $ 25,882 $ 13,956 ======== ======== Net income attributable to preferred stockholders........... $ 14,515 $ 13,620 -------- -------- Net income attributable to common stockholders.............. $ 11,367 $ 336 ======== ======== Basic earnings per common share............................. $ 0.17 $ 0.01 ======== ======== Diluted earnings per common share........................... $ 0.17 $ 0.01 ======== ======== Cash dividends declared..................................... $ 0.70 $ 0.6250 ======== ========(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 RENTAL PROPERTY OPERATIONS: Rental and other property revenues $ 258,064 $ 116,237 $ 482,384 $ 228,823 Property operating expense (104,653 ) (45,095 ) (195,404 ) (88,265 ) Owned property management expense (4,136 ) (125 ) (6,241 ) (192 ) Depreciation (85,289 ) (27,827 ) (146,580 ) (54,939 ) Income from property operations 63,986 43,190 134,159 85,427 SERVICE COMPANY BUSINESS: Management fees and other income 12,410 6,936 22,435 14,835 Management and other expenses (7,948 ) (2,386 ) (12,905 ) (11,288 ) Income from service company business 4,462 4,550 9,530 3,547 General and administrative expenses (1,940 ) (2,263 ) (5,150 ) (5,344 ) Interest expense (64,397 ) (29,734 ) (122,604 ) (61,064 ) Interest income 15,508 10,978 28,511 20,736 Equity in earnings of unconsolidated real estate partnerships 1,441 2,963 3,886 3,779 Equity in earnings (losses) of unconsolidated subsidiaries 1,700 (3,734 ) 4,472 (4,140 ) Minority interest in other entities (6,332 ) (15 ) (13,452 ) 96 Amortization of intangibles (1,494 ) (1,942 ) (3,069 ) (3,884 ) Income from operations 12,934 23,993 36,283 39,153 Net gain on disposition of properties 226 — 5,331 15 Income before minority interest in operating partnership 13,160 23,993 41,614 39,168 Minority interest in operating partnership, common 280 (876 ) (709 ) (2,095 ) Minority interest in operating partnership, preferred (1,618 ) — (3,201 ) — Net income 11,822 23,117 37,704 37,073 Net income attributable to preferred stockholders 14,600 13,993 29,115 27,613 Net income (loss) attributable to common stockholders $ (2,778 ) $ 9,124 $ 8,589 $ 9,460 Basic earnings (loss) per common share $ (0.04 ) $ 0.15 $ 0.13 $ 0.16 Diluted earnings (loss) per common share $ (0.04 ) $ 0.14 $ 0.13 $ 0.16 Dividends declared per common share $ 0.700 $ 0.625 $ 1.400 $ 1.250 See
accompanyingnotes to consolidated financial statements.4
5APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
FOR THE THREE MONTHS ENDED --------------------- MARCH 31, MARCH 31, 2000 1999 --------- ---------CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................ $ 25,882 $ 13,956 --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 67,720 33,381 Gain on disposition of properties...................... (5,105) (15) Minority interest in operating partnership............. 2,572 1,219 Minority interest in other entities.................... 3,862 (111) Equity in (earnings) of unconsolidated real estate partnerships.......................................... (2,445) (816) Equity in earnings of unconsolidated subsidiaries...... (3,215) (2,372) Changes in operating assets and operating liabilities........................................... (19,714) 19,180 --------- --------- Total adjustments................................. 43,675 50,466 --------- --------- Net cash provided by operating activities......... 69,557 64,422 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of real estate................................... (91) -- Additions to real estate.................................. (39,298) (19,708) Proceeds from sale of property held for sale.............. 16,953 3,845 Cash from newly consolidated properties................... 14,179 -- Purchase of notes receivable, general limited partnerships interests and other assets............................. (102,814) (33,517) Purchase of/additions to notes receivable................. (21,114) -- Proceeds from sale of notes receivable.................... -- 17,788 Proceeds from repayment of notes receivable............... 8,684 6,444 Cash received in connection with acquisitions............. -- -- Cash paid for merger related costs........................ (4,679) (54,907) Distributions received from investments in real estate partnerships........................................... 18,976 17,860 --------- --------- Net cash used in investing activities............. (109,204) (62,195) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from secured notes payable borrowings............ 82,762 175,963 Principal repayments on secured notes payable............. (38,082) (32,686) Proceeds from secured tax-exempt bond financing........... -- 7,500 Principal repayments on secured tax-exempt bond financing.............................................. (1,572) (1,172) Repayments on secured short-term financing................ -- -- Net borrowings (paydowns) on revolving credit facilities............................................. 68,000 (236,000) Payment of loan costs, including proceeds and costs from interest rate hedge.................................... (3,603) (5,697) Proceeds from issuance of common and preferred stock, exercise of options/ warrants.......................... 35,720 114,907 Principal repayments received on notes due from officers on Class A Common Stock purchases...................... 3,526 2,230 Repurchase of Class A Common Stock........................ (2,515) -- Payment of common stock dividends......................... (45,642) (35,141) Payment of distributions to minority interest in operating partnership............................................ (4,686) (4,365) Payment of distributions to minority interest in other entities............................................... (7,512) (7,710) Payment of preferred stock dividends...................... (11,463) (12,800) --------- --------- Net cash provided by financing activities......... 74,933 (34,971) --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 35,286 (32,744) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 101,604 71,305 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 136,890 $ 38,561 ========= =========(In Thousands)
(Unaudited)
Six Months Ended June 30, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 37,704 $ 37,073 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of intangibles 155,686 67,095 Gain on disposition of properties (5,331 ) (15 ) Minority interest in operating partnership 3,910 2,095 Minority interest in other entities 13,452 (96 ) Equity in earnings of unconsolidated real estate partnerships (3,886 ) (3,779 ) Equity in (earnings) losses of unconsolidated subsidiaries (4,472 ) 4,140 Changes in operating assets and operating liabilities (46,152 ) (2,786 ) Total adjustments 113,207 66,654 Net cash provided by operating activities 150,911 103,727 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of and additions to real estate (96,559 ) (80,454 ) Proceeds from sale of property held for sale 13,743 38,594 Cash from newly consolidated properties 37,691 — Purchase of notes receivable, general and limited partnership interests and other assets (146,041 ) (29,467 ) Purchase of/additions to notes receivable (53,975 ) (29,201 ) Proceeds from sale of notes receivable — 17,788 Proceeds from repayment of notes receivable 12,968 15,220 Cash paid for merger related costs (5,655 ) (14,743 ) Distributions received from investments in unconsolidated real estate partnerships 40,476 22,329 Distributions received from investments in unconsolidated subsidiaries — 18,393 Net cash used in investing activities (197,352 ) (41,541 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from secured notes payable borrowings 131,245 248,014 Principal repayments on secured notes payable (56,995 ) (18,768 ) Proceeds from secured tax-exempt bond financing — 20,731 Principal repayments on secured tax-exempt bond financing (4,325 ) (35,887 ) Repayments on secured short-term financing — (4,522 ) Net borrowings (paydowns) on revolving credit facilities 84,300 (360,300 ) Payment of loan costs (3,603 ) (9,423 ) Proceeds from issuance of common and preferred stock, exercise of options/warrants 46,661 236,360 Repurchase of Class A Common Stock (2,600 ) — Principal repayments received on notes due from officers on Class A Common Stock purchases 10,026 3,183 Payment of common stock dividends (92,352 ) (73,361 ) Payment of distributions to minority interest (50,748 ) (17,827 ) Payment of preferred stock dividends (26,063 ) (70,033 ) Net cash provided by (used in) financing activities 35,546 (81,833 ) NET DECREASE IN CASH AND CASH EQUIVALENTS (10,895 ) (19,647 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 101,604 71,305 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 90,709 $ 51,658 See
accompanyingnotes to consolidated financial statements.5
6APARTMENT INVESTMENT AND MANAGEMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,June 30, 2000 (UNAUDITED)
(Unaudited)NOTE 1
-- ORGANIZATION— OrganizationApartment Investment and Management Company,
("AIMCO"a Maryland corporation incorporated on January 10, 1994 (“AIMCO” and, together with its consolidated subsidiaries"the Company"and other controlled entities, the “Company”),a Maryland corporation formed on January 10, 1994, is a self-administered, self-managed REIT engaged in the ownership, acquisition, development, expansion and management of multi-family apartment properties. AIMCOowns a majority of the ownership interests intheAIMCO Properties, L.P., (the “AIMCO operatingpartnershippartnership”) through its wholly owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP, Inc. The Company held an approximate 92% interest in the AIMCO operating partnership as ofMarch 31,June 30, 2000. AIMCO-GP, Inc. is the sole general partner of the AIMCO operating partnership.As of
March 31,June 30, 2000,the Company owned or managed 352,519 apartment units in 1,834 properties located in 48 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi-Housing Council, we believe that, as of March 31, 2000, the Company was the largest owner and manager of multi-family apartment properties in the United States. As of March 31, 2000,AIMCO:- owned or controlled 121,449 units in 439 apartment properties; - held an equity interest in 115,951 units in 671 apartment properties; and - managed 115,119 units in 724 apartment properties for third party owners and affiliates of which 53,627 units have management agreements that are cancelable in 30 days and 61,492 units with management agreements in excess of one year.
• owned or controlled 135,261 units in 483 apartment properties; • held an equity interest in 100,441 units in 614 apartment properties; and • managed 108,176 units in 705 apartment properties for third party owners and affiliates. At
March 31,June 30, 2000, AIMCO had67,164,21167,578,000 shares of Class A Common Stock outstanding and the AIMCO operating partnership had6,319,4606,274,887 Partnership Common Units("(“Common OPUnits"Units”) outstanding (excluding units held by the Company), for a combined total of73,483,67173,852,887 shares of Class A Common Stock and Common OP Units outstanding.NOTE 2
-- BASIS OF PRESENTATION— Basis of PresentationThe accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the
three-month periodthree and six months endedMarch 31,June 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000.The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
For further information, refer to the statements and notes thereto included in the AIMCO annual report on Form 10-K for the year ended December 31, 1999. Certain 1999 financial statement amounts have been reclassified to conform to the 2000 presentation.
The accompanying consolidated financial statements include the accounts of AIMCO, the AIMCO operating partnership, majority owned subsidiaries and controlled real estate limited partnerships. Interests held by limited partners in real estate partnerships controlled by the Company
and interests held by the shareholders of Insignia Properties Trust (through February 26, 1999)are reflected as minority interest in other entities. All significant intercompany balances and transactions have been eliminated in consolidation. Minority interest in limited partnerships represents the non-controllingpartners'partners’ share of the underlying net assets of theCompany'sCompany’s controlled limited partnerships. With regard to such partnerships, losses in excess of thebases ofbasis in the minority interests($3.4of $15 million forfirst quarter 2000)the three months ended and $18 million for the six months ended June 30, 2000,6
respectively, have been charged to
operations and classified with real estate structural depreciation expense by the Company.operations. The assets of property owning limited67 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)partnerships and limited liability companies owned or controlled by AIMCO or the AIMCO operating partnership generally aregenerallynot available to pay creditors of AIMCO or the AIMCO operating partnership.NOTE 3
-- ACQUISITIONS— AcquisitionsDuring the
threesix months endedMarch 31,June 30, 2000 the Company purchased:- for $18 million limited partnership interests in 122 partnerships (which own 379 properties) where AIMCO serves as general partner; - one apartment community with details below:
NUMBER PURCHASE DATE ACQUIRED LOCATION OF UNITS PRICE - ------------- ---------------- -------- -----------• for $61 million limited partnership interests in 189 partnerships (which own 506 properties) where AIMCO serves as general partner; • one apartment community with details below:
Date Acquired Location Number of Units Purchase Price January 2000.................................2000Falls Church, VA 159 $12$ 12 million NOTE 4
-- INTEREST INCOME RECOGNITION FOR NOTES RECEIVABLE AND INVESTMENTS— Interest Income Recognition for Notes Receivable and InvestmentsAs of
March 31,June 30, 2000 the Company holds$52$49 million of par value notes, plus accrued interest, net of intercompany par value notes of $85 million("(“general partner par valuenotes"notes”), for which management believes the collectibility of such amounts is both probable and estimable. Interest income for all general partner par value notes receivable, notes receivable from officers and others as well as money market and interest bearing accounts generally isgenerallyrecognized as it is earned. Interest income from such notes and investments for the three and six months endedMarch 31,June 30, 2000, totaled approximately$6.8 million.$8 million and $15 million, respectively.As of
March 31,June 30, 2000, the Company held discounted notes, with a carrying value including accrued interest, of$67$92 million which were made by predecessors whose positions have been acquired by the Company at a discount and are carried at the acquisition amount with interest income being earned using the cost recovery method("(“discountednotes"notes”). The total face value plus accrued interest of these notes was$142$138 million. In general, interest income from the discounted notes is not recognized as it is accrued under the note instrument because the timing and amounts of cash flows are not probable and estimable. Under the cost recovery method, the discounted notes are carried at the acquisition amount, less subsequent cash collections, until such time as collectibility is probable and the timing and amounts are estimable. Based upon closed or pending transactions (including sales activity), market conditions, and improved operations of the obligor, among other things, certain notes and the related discounts have been determined to be collectible. Accordingly, interest income that had previously been deferred and portions of the related discounts were recognized as interest income during the period. For the three and six months endedMarch 31,June 30, 2000, the Company recognized, net of minority interests, deferred interest income and discounts of approximately $6 million ($0.080.09 per basic and$0.08$0.09 per diluted share).and $12 million ($0.18 per basic and $0.18 per diluted share), respectively.NOTE 5
-- COMMITMENTS AND CONTINGENCIES— Commitments and ContingenciesLegal
The Company is a party to various legal actions resulting from its operating activities. These actions are routine litigation and administrative proceedings arising in the ordinary course of business, some of which are covered by liability insurance, and none of which are expected to have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole.
7
Limited Partnerships
In connection with the
Company's offers to purchaseCompany’s acquisitions of interests in limited partnerships that own properties, the Company and its affiliates are sometimes subject to potential legal actions, including allegations that such activities may involve breaches of fiduciary duties to the limited partners of such partnerships or violations of the relevant partnership agreements. The Company believes it complies with its fiduciary obligations and relevant78 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)partnership agreements, and does not expect any such legal actions to have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole.Pending Investigations of HUD Management Arrangements
In July 1999,
NHPthe National Housing Partnership (“NHP”) received a grand jury subpoena requesting documents relating toNHP'sNHP’s management of HUD-assisted or HUD-insured multi-family projects andNHP'sNHP’s operation of a group purchasing program created by NHP, known as Buyers Access. The subpoena relates to the same subject matter as subpoenas NHP received in October and December of 1997 from the HUD Inspector General. To date, neither the HUD Inspector General nor the grand jury has initiated any action against NHP or AIMCO or, toNHP'sNHP’s orAIMCO'sAIMCO’s knowledge, any owner ofaHUD property managed by NHP. AIMCO believes thatNHP'sNHP’s operations and programs are in compliance, in all material respects, with all laws, rules and regulations relating to HUD-assisted or HUD-insured properties. AIMCO is cooperating with the investigation and does not believe that theinvestigationsinvestigation will result in a material adverse effect on the financial condition of the Company. However, as with any similar investigation, there can be no assurance that these will not result in material fines, penalties or other costs that may impact theCompany'sCompany’s future results of operations or cashflows in a particular quarter.flows.Environmental
The Company is subject to variousVarious Federal, state and local laws
that impose liability onsubject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous substances. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. In addition to the costs associated with investigation and remediation actions brought by governmental agencies, the presence of hazardous wastes on a property could result in personal injury or similar claims by private plaintiffs.The Company isVarious laws alsosubject to various laws thatimpose liability for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous or toxic substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of our properties, the Company could potentially be liable for environmental liabilities or costs associated with properties or properties it acquires or manages in the future.8
9 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)NOTE 6
-- STOCKHOLDERS' EQUITY— Stockholders’ EquityPreferred Stock
At March 31,The Company’s outstanding classes of preferred stock, and their original issue prices, as of June 30, 2000 and December 31, 1999,
the Company had the following classes of preferred stock outstanding:are as follows:
2000 1999 -------- -------- (IN THOUSANDS)Class B Cumulative Convertible Preferred Stock, $.01 par value, 750,000 shares authorized, 750,000 and 750,000 shares issued and outstanding............................. $ 75,000 $ 75,000 Class C Cumulative Preferred Stock, $.01 par value, 2,400,000 shares authorized, 2,400,000 and 2,400,000 shares issued and outstanding; dividends payable at 9.0%, per annum................................................. 60,000 60,000 Class D Cumulative Preferred Stock, $.01 par value, 4,200,000 shares authorized, 4,200,000 and 4,200,000 shares issued and outstanding; dividends payable at 8.75%, per annum................................................. 105,000 105,000 Class G Cumulative Preferred Stock, $.01 par value, 4,050,000 shares authorized, 4,050,000 and 4,050,000 shares issued and outstanding; dividends payable at 9.375%, per annum......................................... 101,250 101,250 Class H Cumulative Preferred Stock, $.01 par value, 2,000,000 shares authorized, 2,000,000 and 2,000,000 shares issued and outstanding; dividends payable at 9.5%, per annum................................................. 50,000 50,000 Class K Convertible Cumulative Preferred Stock, $.01 par value, 5,000,000 shares authorized, 5,000,000 and 5,000,000 shares issued and outstanding................... 125,000 125,000 Class L Convertible Cumulative Preferred Stock, $.01 par value, 5,000,000 shares authorized, 5,000,000 and 5,000,000 shares issued and outstanding................... 125,000 125,000 Class M Cumulative Convertible Preferred Stock, $.01 par value, 1,600,000 shares authorized, 1,200,000 and no shares issued and outstanding............................. 30,000 -- -------- -------- $671,250 $641,250 ======== ========
June 30, December 31, 2000 1999 Class B Cumulative Convertible Preferred Stock, $.01 par value, 750,000 shares authorized, 750,000 and 750,000 shares issued and outstanding $ 75,000 $ 75,000 Class C Cumulative Preferred Stock, $.01 par value, 2,400,000 shares authorized, 2,400,000 and 2,400,000 shares issued and outstanding; dividends payable at 9.0%, per annum 60,000 60,000 Class D Cumulative Preferred Stock, $.01 par value, 4,200,000 shares authorized, 4,200,000 and 4,200,000 shares issued and outstanding; dividends payable at 8.75%, per annum 105,000 105,000 Class G Cumulative Preferred Stock, $.01 par value, 4,050,000 shares authorized, 4,050,000 and 4,050,000 shares issued and outstanding; dividends payable at 9.375%, per annum 101,250 101,250 Class H Cumulative Preferred Stock, $.01 par value, 2,000,000 shares authorized, 2,000,000 and 2,000,000 shares issued and outstanding; dividends payable at 9.5%, per annum 50,000 50,000 Class K Convertible Cumulative Preferred Stock, $.01 par value, 5,000,000 shares authorized, 5,000,000 and 5,000,000 shares issued and outstanding 125,000 125,000 Class L Convertible Cumulative Preferred Stock, $.01 par value, 5,000,000 shares authorized, 5,000,000 and 5,000,000 shares issued and outstanding 125,000 125,000 Class M Convertible Cumulative Preferred Stock, $.01 par value, 1,600,000 shares authorized, 1,200,000 and no shares issued and outstanding 30,000 — $ 671,250 $ 641,250 In January 2000, AIMCO issued 1,200,000 shares of newly created Class M Convertible Cumulative Preferred Stock, par value $.01 per share
("(“Class M PreferredStock"Stock”), in a direct placement. The proceeds of $30.0 million were used to repay certain indebtedness and for working capital. For the period beginning January 13, 2000 through and including January 13, 2003, the holder of the Class M Preferred Stock is entitled to receive, when and as declared by the Board of Directors, annual cash dividends in an amount per share equal to the greater of (i) $2.125 per year (equivalent to 8.5% of the liquidation preference), or (ii) the cash dividends payable on the number of shares of Class A Common Stock into which a share of Class M Preferred Stock is convertible. Beginning with the third anniversary of the date of original issuance, the holder of Class M Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) $2.3125 per year (equivalent to 9.25% of the liquidation preference), or (ii) the cash dividends payable on the number of shares of Class A Common Stock into which a share of Class M Preferred Stock is convertible. The 1,200,000 shares Class M Preferred Stock are convertible into 681,818 shares of Class A Common Stock. The Class M Preferred Stock is senior to the Class A Common Stock as to dividends and liquidation. Upon any liquidation, dissolution or winding up of the Company, before payments or distributions by the Company are made to any holders of Class A Common Stock, the holder of the Class M Preferred Stock is entitled to receive a liquidation preference of $25 per share, plus accumulated, accrued and unpaid dividends.9
10 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)NOTE 7
-- EARNINGS PER SHARE— Earnings Per ShareEarnings per share is calculated based on the weighted average number of shares of common stock, common stock equivalents and dilutive convertible securities outstanding during the period. The following
table illustratestables illustrate the calculation of basic and diluted earnings per share for the three and six months endedMarch 31,June 30, 2000 and 1999 (in thousands, except per share data):
THREE MONTHS ENDED --------------------- MARCH 31, MARCH 31, 2000 1999 --------- ---------NUMERATOR: Net income................................................ $ 25,882 $ 13,956 Preferred stock dividends................................. (14,515) (13,620) -------- -------- Numerator for basic and diluted earnings per share -- income attributable to common stockholders... $ 11,367 $ 336 ======== ======== DENOMINATOR: Denominator for basic earnings per share -- weighted average number of shares of common stock outstanding... 65,947 56,468 Effect of dilutive securities: Dilutive potential common shares, options and warrants.... 368 1,944 -------- -------- Denominator for dilutive earnings per share............... 66,315 58,412 ======== ======== Basic earnings per common share: Operations............................................. $ 0.09 $ 0.01 Gain on disposition of properties...................... 0.08 -- -------- -------- Total............................................. $ 0.17 $ 0.01 ======== ======== Diluted earnings per common share: Operations............................................. $ 0.09 $ 0.01 Gain on disposition of properties...................... 0.08 -- -------- -------- Total............................................. $ 0.17 $ 0.01 ======== ========
Three Months Ended June 30, 2000 1999 NUMERATOR: Net income $ 11,822 $ 23,117 Preferred stock dividends (14,600 ) (13,993 ) Numerator for basic and diluted earnings per share — income (loss) attributable to common stockholders ($2,778 ) $ 9,124 DENOMINATOR: Denominator for basic earnings per share — weighted average number of shares of common stock outstanding 66,261 62,323 Effect of dilutive securities: Dilutive potential common shares, options and warrants — 1,229 Denominator for dilutive earnings per share 66,261 63,552 Basic earnings (loss) per common share: Operations $ (0.04 ) $ 0.15 Gain on disposition of properties — — Total $ (0.04 ) $ 0.15 Diluted earnings (loss) per common share: Operations $ (0.04 ) $ 0.14 Gain on disposition of properties — — Total $ (0.04 ) $ 0.14
Six Months Ended June 30, 2000 1999 NUMERATOR: Net income $ 37,704 $ 37,073 Preferred stock dividends (29,115 ) (27,613 ) Numerator for basic and diluted earnings per share — income attributable to common stockholders $ 8,589 $ 9,460 DENOMINATOR: Denominator for basic earnings per share — weighted average number of shares of common stock outstanding 66,167 59,396 Effect of dilutive securities: Dilutive potential common shares, options and warrants 996 1,586 Denominator for dilutive earnings per share 67,163 60,982 Basic earnings per common share: Operations $ 0.05 $ 0.16 Gain on disposition of properties 0.08 — Total $ 0.13 $ 0.16 Diluted earnings per common share: Operations $ 0.05 $ 0.16 Gain on disposition of properties 0.08 — Total $ 0.13 $ 0.16 10
NOTE 8
-- INDUSTRY SEGMENTS— Industry SegmentsThe Company owns and operates multi-family apartment communities throughout the United States
includingand Puerto Rico, which generate rental and other property-related income through the leasing of apartment units. The Company separately evaluates the performance of each of its apartment communities. However, because the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single apartment communities segment. All segment disclosures are included in or can be derived from theCompany'sCompany’s consolidated financial statements.All revenues are from external customers and no revenues are generated from transactions with other segments. There are no tenants who contributed 10% or more of the
Company'sCompany’s total revenues during the three months and six months endedMarch 31,June 30, 2000 orMarch 31,June 30, 1999.Although the Company operates in only one segment, there are different components of the multi-family business for which management considers disclosure to be useful. The following
table presentstables present the contribution (separated between consolidated and unconsolidated activity) to theCompany'sCompany’s Free Cash Flow for the three months and six months endedMarch 31,June 30, 2000, fromthethese components,of the Companyand a reconciliation of Free Cash Flowtoto: Earnings Before StructuralDepreciation, toDepreciation; NetIncome, and toIncome; Funds From Operations; and Adjusted Funds From Operationsless a reserve for capital replacements,(in thousands, except equivalent units (ownership effected and period weighted) and monthly rents):1011
APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)FREE CASH FLOW FROM BUSINESS SEGMENTS
For the Three Months Ended June 30, 2000
(in thousands)
Consolidated Unconsolidated Total % Real Estate Conventional Average monthly rent greater than $800 per unit (14,477 equivalent units) $ 29,130 $ 2,158 $ 31,288 19.0 % Average monthly rent $700 to $800 per unit (8,964 equivalent units) 13,852 1,516 15,368 9.3 % Average monthly rent $600 to $700 per unit (27,991 equivalent units) 36,594 3,174 39,768 24.2 % Average monthly rent $500 to $600 per unit (39,004 equivalent units) 37,679 4,903 42,582 25.8 % Average monthly rent less than $500 per unit (21,866 equivalent units) 16,077 1,772 17,849 10.8 % Subtotal conventional real estate contribution to Free Cash Flow 133,332 13,523 146,855 89.1 % Affordable (13,481 equivalent units) 3,966 10,578 14,544 8.8 % College housing (average rent of $660 per month) (2,567 equivalent units) 3,109 150 3,259 2.0 % Other Properties 339 484 823 0.5 % Resident services 981 164 1,145 0.7 % Minority interest (24,319 ) — (24,319 ) (14.7 %) Total real estate contribution to free cash flow 117,408 24,899 142,307 86.4 % Service Businesses Management contract (property and asset management)
Controlled properties3,207 486 3,693 2.3 % Third party with terms in excess of one year — 2,340 2,340 1.4 % Third party cancelable in 30 days — 1,171 1,171 0.7 % Subtotal management contracts contribution to free cash flow 3,207 3,997 7,204 4.4 % Buyers Access — (124 ) (124 ) (0.1 %) Other service businesses 640 490 1,130 0.7 % Total service businesses contribution to free cash flow 3,847 4,363 8,210 5.0 % Interest income General partner loan interest 5,125 — 5,125 3.1 % Notes receivable from officers 206 — 206 0.1 % Other notes receivable 297 — 297 0.2 % Money market and interest bearing accounts 2,674 — 2,674 1.6 % Subtotal interest income 8,302 — 8,302 5.0 % Accretion of loan discount 7,206 — 7,206 4.4 % Total interest income contribution to free cash flow 15,508 — 15,508 9.4 % Fee Income Disposition Fees 651 (34 ) 617 0.4 % Refinancing Fees (36 ) 99 63 0.0 % Total fee income contribution to free cash flow 615 65 680 0.4 % General and Administrative Expense (1,940 ) — (1,940 ) (1.2 %) Free Cash Flow (1) $ 135,438 $ 29,327 $ 164,765 100.0 % 12
FREE CASH FLOW FROM BUSINESS SEGMENTS (Continued)
For the Three Months Ended June 30, 2000
(in thousands)
Consolidated Unconsolidated Total Free Cash Flow $ 135,438 $ 29,327 $ 164,765 Cost of Senior Capital Interest Expense: Secured debt Long-term, fixed rate (46,160 ) (8,863 ) (55,023 ) Long-term, variable rate (285 ) (314 ) (599 ) Short-term (10,633 ) (312 ) (10,945 ) Lines of credit and other unsecured debt (7,334 ) (585 ) (7,919 ) Interest expense on convertible debt (2,430 ) — (2,430 ) Interest capitalized 2,445 — 2,445 Total interest expense before minority interest (64,397 ) (10,074 ) (74,471 ) Minority interest share of interest expense 10,131 — 10,131 Total interest expense after minority interest (54,266 ) (10,074 ) (64,340 ) Dividends on preferred securities (16,896 ) — (16,896 ) Contribution before non-cash charges and ownership adjustments 64,276 19,253 83,529 Non-structural depreciation, net of capital replacements (3,913 ) (312 ) (4,225 ) Amortization of intangible assets (1,493 ) (511 ) (2,004 ) Gain (loss) on sales of real estate, net of minority interest (1,800 ) — (1,800 ) Deferred tax provision — (2,108 ) (2,108 ) Earnings Before Structural Depreciation (EBSD) (1) 57,070 16,322 73,392 Structural depreciation, net of minority interest in other entities (63,269 ) (13,181 ) (76,450 ) Net income (loss) (6,199 ) 3,141 (3,058 ) (a ) Gain on sales of real estate, net of minority interest 1,800 — 1,800 Non-structural depreciation, net of minority interest in other entities 11,461 2,420 13,881 Amortization of intangible assets 1,493 511 2,004 Deferred tax provision — 2,108 2,108 Structural depreciation, net of minority interest in other entities 63,269 13,181 76,450 Funds From Operations (FFO) (1) 71,824 21,361 93,185 Capital replacement reserve (7,548 ) (2,110 ) (9,658 ) Adjusted Funds From Operations (AFFO) (1) $ 64,276 $ 19,251 $ 83,527
CONSOLIDATED UNCONSOLIDATED TOTAL % ------------ -------------- -------- -----REAL ESTATE Conventional Average monthly rent greater than $800 per unit (15,369 equivalent units)......................... $ 25,460 $ 3,860 $ 29,320 19.1% Average monthly rent $700 to $800 per unit (10,671 equivalent units)................................. 10,232 2,705 12,937 8.4% Average monthly rent $600 to $700 per unit (32,658 equivalent units)................................. 26,716 5,025 31,741 20.7% Average monthly rent $500 to $600 per unit (46,053 equivalent units)................................. 33,806 4,982 38,788 25.3% Average monthly rent less than $500 per unit (26,549 equivalent units)................................. 13,907 1,999 15,906 10.4% -------- ------- -------- ----- Subtotal conventional real estate contribution to(a) Represents net loss of the AIMCO operating partnership. AIMCO’s share of this net loss is approximately 92%, or ($2,778).
Earnings (loss) Earnings (loss) Shares per Share EBSD Basic $ 73,392 72,580 Diluted $ 85,510 89,425 Net Income (Loss) Basic $ (3,058 ) 72,580 $ (0.04 ) Diluted $ (3,058 ) 72,580 $ (0.04 ) FFO Basic $ 93,185 72,580 Diluted $ 105,303 89,425 AFFO Basic $ 83,527 72,580 Diluted $ 95,645 89,425 13
FREE CASH FLOW FROM BUSINESS SEGMENTS
For the Six Months Ended June 30, 2000
(in thousands)
Consolidated Unconsolidated Total % Real Estate Conventional Average monthly rent greater than $800 per unit (14,357 equivalent units) $ 55,538 $ 6,018 $ 61,556 19.3 % Average monthly rent $700 to $800 per unit (9,112 equivalent units) 24,517 4,221 28,738 9.0 % Average monthly rent $600 to $700 per unit (28,149 equivalent units) 64,622 8,199 72,821 22.9 % Average monthly rent $500 to $600 per unit (39,920 equivalent units) 73,209 9,885 83,094 26.1 % Average monthly rent less than $500 per unit (22,449 equivalent units) 30,819 3,771 34,590 10.9 % Subtotal conventional real estate contribution to Free Cash Flow 248,705 32,094 280,799 88.2 % Affordable (13,266 equivalent units) 7,041 19,027 26,068 8.2 % College housing (average rent of $662 per month) (2,796 equivalent units) 6,549 490 7,039 2.2 % Other Properties 789 1,149 1,938 0.6 % Resident services 2,388 323 2,711 0.9 % Minority interest (43,015 ) — (43,015 ) (13.5 )% Total real estate contribution to free cash flow 222,457 53,083 275,540 86.6 % Service Businesses Management contract (property and asset management) Controlled properties 6,623 2,349 8,972 2.8 % Third party with terms in excess of one year — 4,525 4,525 1.4 % Third party cancelable in 30 days — 1,428 1,428 0.5 % Subtotal management contracts contribution to free cash flow 6,623 8,302 14,925 4.7 % Buyers Access — 348 348 0.1 % Other service businesses 1,172 1,160 2,332 0.7 % Total service businesses contribution to free cash flow 7,795 9,810 17,605 5.5 % Interest income General partner loan interest 8,940 — 8,940 2.8 % Notes receivable from officers 375 — 375 0.1 % Other notes receivable 593 — 593 0.2 % Money market and interest bearing accounts 5,206 — 5,206 1.6 % Subtotal interest income 15,114 — 15,114 4.7 % Accretion of loan discount 13,397 — 13,397 4.2 % Total interest income contribution to free cash flow 28,511 — 28,511 8.9 % Fee Income Disposition Fees 1,567 (34 ) 1,533 0.5 % Refinancing Fees 167 99 266 0.1 % Total fee income contribution to free cash flow 1,734 65 1,799 0.6 % General and Administrative Expense (5,151 ) — (5,151 ) (1.6 )% Free Cash Flow (1) $ 255,346 $ 62,958 $ 318,304 100.0 % 14
FREE CASH FLOW FROM BUSINESS SEGMENTS (Continued)
For the Six Months Ended June 30, 2000
(in thousands)
Consolidated Unconsolidated Total Free Cash Flow $ 255,346 $ 62,958 $ 318,304 Cost of Senior Capital Interest Expense: Secured debt Long-term, fixed rate (87,128 ) (18,808 ) (105,936 ) Long-term, variable rate (461 ) (745 ) (1,206 ) Short-term (21,483 ) (1,123 ) (22,206 ) Lines of credit and other unsecured debt (13,112 ) (833 ) (13,945 ) Interest expense on convertible debt (4,859 ) — (4,859 ) Interest capitalized 4,439 1,165 5,604 Total interest expense before minority interest (122,604 ) (20,344 ) (142,948 ) Minority interest share of interest expense 18,071 — 18,071 Total interest expense after minority interest (104,533 ) (20,344 ) (124,877 ) Dividends on preferred securities (33,672 ) — (33,672 ) Contribution before non-cash charges and ownership adjustments 117,141 42,614 159,755 Non-structural depreciation, net of capital replacements (4,764 ) (1,262 ) (6,026 ) Amortization of intangible assets (3,068 ) (1,019 ) (4,087 ) Gain (loss) on sales of real estate, net of minority interest 3,305 — 3,305 Deferred tax provision — (2,960 ) (2,960 ) Earnings Before Structural Depreciation (EBSD) (1) 112,614 37,373 149,987 Structural depreciation, net of minority interest in other entities (111,674 ) (29,015 ) (140,689 ) Net income 940 8,358 9,298 (a ) Gain on sales of real estate, net of minority interest (3,305 ) — (3,305 ) Non-structural depreciation, net of minority interest in other entities 20,033 5,548 25,581 Amortization of intangible assets 3,068 1,019 4,087 Deferred tax provision — 2,960 2,960 Structural depreciation, net of minority interest in other entities 111,674 29,015 140,689 Funds From Operations (FFO) (1) 132,410 46,900 179,310 Capital replacement reserve (15,269 ) (4,288 ) (19,557 ) Adjusted Funds From Operations (AFFO) (1) $ 117,141 $ 42,612 $ 159,753
(a) Represents net income of the AIMCO operating partnership. AIMCO’s share of this net income is approximately 92%, or $8,589.
Earnings Earnings Shares Per Share EBSD Basic $ 149,987 72,516 Diluted $ 174,102 88,287 Net Income Basic $ 9,298 72,516 $ 0.13 Diluted $ 9,298 73,392 $ 0.13 FFO Basic $ 179,310 72,516 Diluted $ 203,425 88,287 AFFO Basic $ 159,753 72,516 Diluted $ 183,868 88,287 15
(1) Free Cash Flow............. 110,121 18,571 128,692 83.8% Affordable (13,521 equivalent units).................. 2,809 8,449 11,258 7.3% College housing (average rent of $663 per month) (3.962 equivalent units)............................ 3,256 340 3,596 2.3% Other Properties...................................... 440 665 1,105 0.7% Resident services..................................... 1,407 159 1,566 1.0% Minority interest..................................... (18,696) -- (18,696) (12.2)% -------- ------- -------- ----- Total real estate contribution to Free Cash Flow....................................... 99,337 28,184 127,521 83.1% SERVICE BUSINESSES Management contracts (property and asset management) Controlled properties............................... 6,702 4,289 10,991 7.2% Third party with terms in excess of one year........ -- 2,185 2,185 1.4% Third party cancelable in 30 days................... -- 257 257 0.2% -------- ------- -------- ----- Subtotal management contracts contribution to Free Cash Flow............................. 6,702 6,731 13,433 8.7% Buyers Access......................................... -- 472 472 0.3% Other service businesses.............................. 532 670 1,202 0.8% -------- ------- -------- ----- Total service businesses contribution to Free Cash Flow.................................. 7,234 7,873 15,107 9.8% INTEREST INCOME General partner loan interest......................... 3,815 -- 3,815 2.5% Notes receivable from officers........................ 169 -- 169 0.1% Other notes receivable................................ 296 -- 296 0.2% Money market and interest bearing accounts............ 2,532 -- 2,532 1.6% -------- ------- -------- ----- Subtotal interest income..................... 6,812 -- 6,812 4.4% Accretion of loan discount............................ 6,191 -- 6,191 4.0% -------- ------- -------- ----- Total interest income contribution to Free Cash Flow.................................. 13,003 -- 13,003 8.5% FEE INCOME Disposition Fees...................................... 916 -- 916 0.6% Refinancing Fees...................................... 203 -- 203 0.1% -------- ------- -------- ----- Total fee income contribution to Free Cash Flow....................................... 1,119 -- 1,119 0.7% -------- ------- -------- ----- General and Administrative Expense.................... (3,211) -- (3,211) (2.1)% -------- ------- -------- ----- Free Cash Flow(1)..................................... 117,482 36,057 153,539 100.0% ======== ======= ======== =====1112 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BASIC ---------------------------------------- CONSOLIDATED UNCONSOLIDATED TOTAL ------------ -------------- --------FREE CASH FLOW.............................................. 117,482 36,057 153,539 COST OF SENIOR CAPITAL Interest expense: Secured debt Long-term, fixed rate.............................. (40,968) (9,945) (50,913) Long-term, variable rate........................... (176) (431) (607) Short-term......................................... (10,850) (811) (11,661) Lines of credit and other unsecured debt.................. (5,778) (248) (6,026) Interest expense on convertible debt...................... (2,429) -- (2,429) Interest capitalized...................................... 1,994 1,165 3,159 Minority interest share of interest expense............... 7,940 -- 7,940 -------- -------- -------- Total interest expense after minority interest..... (50,267) (10,270) (60,537) Dividends on preferred equity securities.................... (16,776) -- (16,776) -------- -------- -------- Contribution before non-cash charges and ownership adjustments.......................................... 50,439 25,787 76,226 Non-structural depreciation, net of capital replacements.... (851) (950) (1,801) Amortization of intangible assets........................... (1,575) (508) (2,083) Gain (loss) on sales of real estate......................... 5,105 -- 5,105 Deferred tax provision...................................... -- (852) (852) -------- -------- --------Flow, Earnings Before Structural Depreciation,(EBSD)(1)........................................ 53,118 23,477 76,595 Structural depreciation, net of minority interest in other entities.................................................. (48,405) (15,834) (64,239) -------- -------- -------- Net income(a)...................................... 4,713 7,643 12,356 Gain (loss) on sales of real estate......................... (5,105) -- (5,105) Non-structural depreciation, net of minority interest in other entities............................................ 8,572 3,128 11,700 Amortization of intangible assets........................... 1,575 508 2,083 Deferred tax provision...................................... -- 852 852 Structural depreciation, net of minority interest in other entities.................................................. 48,405 15,834 64,239 -------- -------- --------FundsfromFrom Operations,(FFO)(1)..................... 58,160 27,965 86,125 Capital replacement reserve................................. (7,721) (2,178) (9,899) -------- -------- --------and Adjusted Funds From Operations(AFFO)(1)........... $ 50,439 $ 25,787 $ 76,226 ======== ======== ========are measurement standards used by the Company’s management. These should not be considered alternatives to net income or net cash flow from operating activities, as determined in accordance with GAAP, as an indication of the Company’s performance or as a measure of liquidity.- --------------- (a) Represents net income of the AIMCO operating partnership. The REIT's share of this net income is 92%, or $11,367. 1213 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS EARNINGS SHARES PER SHARE -------- ------- ---------EBSD Basic................................................ $76,595 72,307 Diluted.............................................. 88,592 87,150• “Free Cash Flow” is defined by the Company as net operating income minus the capital spending required to maintain the related assets. It measures profitability prior to the cost of capital. • “Earnings Before Structural Depreciation” (“EBSD”) is defined by the Company as Net Income, Basic................................................ 12,356 72,307 $0.17 Diluted.............................................. 12,356 72,675 $0.17determined in accordance with GAAP, plus “structural depreciation”, i.e. depreciation of buildings and land improvements whose useful lives exceed 20 years.• “Funds From Operations” (“FFO”) is defined by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (loss), computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The Company calculates FFO Basic................................................ 86,125 72,307 Diluted.............................................. 98,122 87,150 AFFO Basic................................................ 76,226 72,307 Diluted.............................................. 88,223 87,150based on the NAREIT definition, as adjusted for minority interest in the AIMCO operating partnership, amortization, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payment of dividends on preferred stock. There can be no assurance that the Company’s basis for computing FFO is comparable with that of other real estate investment trusts.• “Adjusted Funds From Operations” (“AFFO”) is defined by the Company as FFO less a charge for capital replacements equal to $300 per apartment unit. - --------------- (1) "Free Cash Flow", "Earnings Before Structural Depreciation", "Funds From Operations", and "Adjusted Funds From Operations" are measurement standards used by the Company's management. These should not be considered alternatives to net income or net cash flow from operating activities, as determined in accordance with GAAP, as an indication of the Company's performance or as a measure of liquidity. - Free Cash Flow is defined by the Company as net operating income minus the capital spending required to maintain the related assets. It measures profitability prior to the cost of capital. - Earning Before Structural Depreciation ("EBSD") is defined by the Company as Net Income, determined in accordance with GAAP, plus "structural depreciation", i.e. depreciation of buildings and land improvements whose useful lives exceed 20 years. - Funds From Operations ("FFO") is defined by the Board Governors of the National Association of Real Estate Investment Trusts ("NAREIT") as net income (loss), computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains and losses from debt restructuring and sales of property, plus real estate related depreciation and amortization (excluding amortization of financing costs), and after adjustments for unconsolidated partnerships and joint ventures. The Company calculates FFO based on the NAREIT definition, as adjusted for minority interest in the AIMCO operating partnership, amortization, the non-cash deferred portion of the income tax provision for unconsolidated subsidiaries and less the payment of dividends on preferred stock. There can be no assurance that the Company's basis for computing FFO is comparable with that of other real estate investment trusts. - Adjusted Funds From Operations ("AFFO") is defined by the Company as FFO less a charge for Capital Replacements equal to $300 per apartment unit.NOTE 9
-- HIGH PERFORMANCE UNITS— High Performance UnitsIn January 1998,
AIMCO'sAIMCO’s operating partnership sold an aggregate of 15,000 of its Class I High Performance Partnership Units (the"High“High PerformanceUnits"Units”) to a joint venture comprised of twelve members ofAIMCO'sAIMCO’s senior management and to three of its independent directors for a total of $2.1 million in cash. The High Performance Units have nominal value unless theCompany'sCompany’s total return (as defined below) over thethree yearthree-year period ending December 31, 2000, is at least 30% and exceeds the industry average, as determined by a peer group index, by at least 15%. At the conclusion of the three year period, if theCompany's Total ReturnCompany’s total return satisfies these criteria, the holders of the High Performance Units will receive distributions and allocations of income and loss from the AIMCO operating partnership in the same amounts and at the same times as would1314 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)holders of a number of Common OP Units equal to the quotient obtained by dividing (i) the product of (a) 15% of the amount by which theCompany'sCompany’s cumulativeTotal Returntotal return over the three year period exceeds the greater of 115% of a peer group index or 30% (such excess being the"Excess Return"“Excess Return”), multiplied by (b) the weighted average market value of theCompany'sCompany’s outstanding Class A Common Stock and Common OP Units, by (ii) the market value of one share of Class A Common Stock at the end of the three year period. Thethree yearthree-year measurement period will be shortened in the event of a change of control of the Company. Unlike Common OP Units, the High Performance Units are not redeemable or convertible into Class A Common Stock unless a change of control of the Company occurs. Because there is substantial uncertainty that the High Performance Units will have more than nominal value due to the requiredTotal Returntotal return over thethree yearthree-year term, the Company has not recorded any value to the High Performance Units in the consolidated financial statements as ofMarch 31,June 30, 2000. The Company includes any dilutive effect of the High Performance Units in itsAFFOearnings.The Morgan Stanley Dean Witter REIT Index is being used as the peer group index for purposes of the High Performance Units. The Morgan Stanley Dean Witter REIT Index is a capitalization-weighted index (with dividends reinvested) of the most actively traded real estate investment trusts. The Morgan Stanley Dean Witter REIT Index is comprised of over 100 real estate investment trusts selected by Morgan Stanley Dean Witter & Co. Incorporated. The Board of Directors of the Company has selected this index because it believes that it is the real estate investment trust index most widely reported and accepted among institutional investors.
"Total return"“Total return” means, for any security and for any period, the cumulative total return for such security over such period, as measured by (i) the sum of (a) the cumulative amount of dividends paid in respect of such security for such period (assuming that all cash dividends are reinvested in such security as of the payment date for such dividend based on the security price on the dividend payment date), and (b) an amount equal to (x) the security price
16
at the end of such period, minus (y) the security price at the beginning of such period, divided by (ii) the security price at the beginning of the measurement period; provided, however, that if the foregoing calculation results in a negative number, the
"total return"total return shall be equal to zero. For purposes of calculating theTotaltotal return of the AIMCO Class A Common Stock, the security price at the end of the period will be based on an average of the volume-weighted average daily trading price of the AIMCO Class A Common Stock for the 20 trading days immediately preceding the end of the period.The High Performance Units are not convertible into AIMCO Class A Common Stock. However, in the event of a change of control of the Company, holders of High Performance Units will have redemption rights similar to those of holders of Common OP Units. Upon the occurrence of a change of control, any holder of High Performance Units may, subject to certain restrictions, require the AIMCO operating partnership to redeem all or a portion of the High Performance Units held by such party in exchange for a cash payment per unit equal to the
marketliquidation value of ashare of AIMCO Common Stockunit at the time of redemption. However, in the event that any High Performance Units are tendered for redemption, theAIMCO operating partnership'sPartnership’s obligation to pay the redemption price is subject to the prior right of the Company to acquire such High Performance Units in exchange for an equal number of shares of AIMCO Class A Common Stock(subjectwith a market value equivalent tocertain adjustments).the liquidation value of the units.If
AIMCO'sAIMCO’s total return over the measurement period exceeds 115% of the total return of the Morgan Stanley Dean Witter REIT Index and exceeds the minimum return (30% over three years), then the holders of High Performance Units could be entitled to a significant percentage of future distributions made by the AIMCOOperating Partnership.operating partnership. This could have a dilutive effect on future earnings per share of AIMCO Class A Common Stock, and onAIMCO'sAIMCO’s equity ownership in the AIMCOOperating Partnershipoperating partnership after thethree yearthree-year measurement period.The following table illustrates the value of the 15,000 High Performance Units at the end of the
three yearthree-year measurement period, assuming a range of different prices for the AIMCO Class A Common Stock at the end of the measurement period. For the period from January 1, 1998 toMarch 31,June 30, 2000, the cumulative total1415 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)return of the Morgan Stanley Dean Witter REIT Index was(18.58)%(10.13%) and the cumulative total return of the AIMCO Class A Common Stock was19.93%39.2%. As a result, for purposes of the illustration, we have assumed that the cumulative total return of the AIMCO Class A Common Stock will exceed 115% of the cumulative total return of the peer group index. This implies that the High Performance Units will only have value if the cumulative total return on the AIMCO Class A Common Stock from January 1, 1998 to January 1, 2001 exceeds 30%. We have also assumed, for purposes of the illustration, that the weighted average market value of outstanding equity (AIMCO Class A Common Stock and Common OP Units) during the measurement period is$2,377,769,040,$2,440,408,891, which was the amount as ofMarch 31,June 30, 2000.17
Please note that the table below is for illustrative purposes only and there can be no assurance that actual outcomes will be within the ranges used. Some of the factors that could affect the results set forth in the table are the total return of the AIMCO Class A Common Stock relative to the total return of the Morgan Stanley Dean Witter REIT Index, and the market value of the average outstanding equity of the Company during the measurement period. These factors may be affected by general economic conditions, local real estate conditions and the dividend policy of the Company.
Average Excess Market Shareholder Stock AIMCO Minimum Excess Capitalization Value Added Price Total Return Return (thousands) (thousands) (12/31/00) Return (1) (2) (3) (4) $ 39.00 28.93 % 30.00 % 0.00 % $ 2,440,409 $ — 39.51 30.58 % 30.00 % 0.58 % 2,440,409 14,154 40.00 32.17 % 30.00 % 2.17 % 2,440,409 52,957 41.00 35.41 % 30.00 % 5.41 % 2,440,409 132,026 42.00 38.65 % 30.00 % 8.65 % 2,440,409 211,095 43.00 41.89 % 30.00 % 11.89 % 2,440,409 290,165 44.00 45.13 % 30.00 % 15.13 % 2,440,409 369,234 45.00 48.37 % 30.00 % 18.37 % 2,440,409 448,303 46.00 51.60 % 30.00 % 21.60 % 2,440,409 527,128 47.00 54.84 % 30.00 % 24.84 % 2,440,409 606,198 48.00 58.07 % 30.00 % 28.07 % 2,440,409 685,023 49.00 61.31 % 30.00 % 31.31 % 2,440,409 764,092 50.00 64.54 % 30.00 % 34.54 % 2,440,409 842,917 [Additional columns below]
[Continued from above table, first column(s) repeated]
Value of OP Unit Cash Proceeds High Dilution as To Company Performance OP Unit a % of total From Initial Stock Units Dilution Diluted shares Investment Price (thousands) (thousands) Outstanding (thousands) (12/31/00) (5) (6) (7) (8) $ 39.00 $ 6 — 0.00 % $ 2,064 39.51 2,123 54 0.06 % 2,064 40.00 7,944 199 0.22 % 2,064 41.00 19,804 483 0.54 % 2,064 42.00 31,664 754 0.84 % 2,064 43.00 43,525 1,012 1.13 % 2,064 44.00 55,385 1,259 1.41 % 2,064 45.00 67,245 1,494 1.67 % 2,064 46.00 79,069 1,719 1.92 % 2,064 47.00 90,930 1,935 2.16 % 2,064 48.00 102,753 2,141 2.39 % 2,064 49.00 114,614 2,339 2.62 % 2,064 50.00 126,438 2,529 2.83 % 2,064
CASH VALUE OF(1) Assumes that the AIMCO total return will exceed that of the peer group by at least 15%. (2) “Excess Return” is the amount, if any, by which the total return of the AIMCO Class A Common Stock over the measurement period exceeds the minimum return. (3) Assumes the market value of outstanding equity (AIMCO Class A Common Stock and Common OP UNIT PROCEEDS AVERAGE EXCESS HIGH DILUTION AS TO COMPANY MARKET SHAREHOLDER PERFORMANCEUnits) at June 30, 2000 throughout the measurement period.(4) “Excess Shareholder Value Added” is calculated by multiplying the Excess Return by the average market capitalization. (5) The “Value of High Performance Units” is calculated by multiplying the Excess Shareholder Value Added by 15%. If Excess Shareholder Value Added is 0, the “Value of High Performance Units” is calculated by multiplying the stock price by 150 OP UNIT AUnits. The initial investment of $2,070,000 will continue to be treated as contributed equity on the balance sheet of the AIMCO operating partnership.(6) The “OP Unit Dilution” is calculated by dividing the Value of High Performance Units by the stock price at the end of the period. (7) “OP Unit Dilution as a % OF TOTAL FROM INITIAL STOCK AIMCO MINIMUM RETURN CAPITALIZATION VALUE ADDED UNITS DILUTION DILUTED SHARES INVESTMENT PRICE TOTAL RETURN EXCESS (THOUSANDS) (THOUSANDS) (THOUSANDS) (THOUSANDS) OUTSTANDING (THOUSANDS) (12/31/00) RETURN (1) (2) (3) (4) (5) (6) (7)of Total Diluted Shares Outstanding” is calculated by dividing the OP Unit Dilution by the total weighted-average diluted shares outstanding as of June 30, 2000.(8) - ---------- ------ ------- ------ -------------- ----------- ----------- ----------- -------------- ------------$38.00 26.04% 30.00% 0.00% $2,377,769 $ -- $ 6 -- 0.00% 2,064 38.50 27.65 30.00 0.00 2,377,769 -- 6 -- 0.00 2,064 39.00 29.26 30.00 0.00 2,377,769 -- 6 -- 0.00 2,064 39.41 30.58 30.00 0.58 2,377,769 13,791 2,070 52 0.06 2,064 39.50 30.87 30.00 0.87 2,377,769 20,687 3,103 79 0.09 2,064 40.00 32.48 30.00 2.48 2,377,769 58,969 8,845 221 0.25 2,064 41.00 35.69 30.00 5.69 2,377,769 135,295 20,294 495 0.57 2,064 42.00 38.90 30.00 8.90 2,377,769 211,621 31,743 756 0.87 2,064 43.00 42.11 30.00 12.11 2,377,769 287,948 43,192 1,004 1.15 2,064 44.00 45.32 30.00 15.32 2,377,769 364,274 54,641 1,242 1.42 2,064 45.00 48.53 30.00 18.53 2,377,769 440,601 66,090 1,469 1.69 2,064 46.00 51.74 30.00 21.74 2,377,769 516,927 77,539 1,686 1.93 2,064 47.00 54.94 30.00 24.94 2,377,769 593,016 88,952 1,893 2.17 2,064 48.00 58.15 30.00 28.15 2,377,769 669,342 100,401 2,092 2.40 2,064If Excess Shareholder Value Added is $0, the “Cash Proceeds to Company from Initial Investment” is calculated by subtracting the “Value of High Performance Units” from $2,070,000, which is the purchase price of 15,000 High Performance Units. - --------------- (1) Assumes that the AIMCO total return will exceed that of the peer group by at least 15%. (2) "Excess Return" is the amount, if any, by which the total return of the AIMCO Class A Common Stock over the measurement period exceeds the minimum return. (3) Assumes the market value of outstanding equity (AIMCO Class A Common Stock and Common OP Units) at March 31, 2000 throughout the measurement period. (4) "Excess Shareholder Value Added" is calculated by multiplying the Excess Return by the average market capitalization. (5) The "Value of High Performance Units" is calculated by multiplying the Excess Shareholder Value Added by 15%. If "Excess Shareholder Return" is 0, the "Value of High Performance Units" is calculated by multiplying the stock price by 150 OP Units. The initial investment of $2,070,000 will continue to be treated as contributed equity on the balance sheet of the AIMCO Operating Partnership. (6) The "OP Unit Dilution" is calculated by dividing the Value of High Performance Units by the stock price at the end of the period. (7) "OP Unit Dilution as a % of total diluted shares outstanding" is calculated by dividing the OP Unit Dilution by the total weighted-average diluted shares outstanding as of March 31, 2000. (8) If "Excess Shareholder Return" is 0, the "Cash Proceeds to Company from Initial Investment" is calculated by subtracting the "Value of High Performance Units" from $2,070,000, which is the purchase price of 15,000 high performance units. 1516 APARTMENT INVESTMENT AND MANAGEMENT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)18
The following table summarizes the status of the High Performance Units as of December 31, 1999 and
March 31,June 30, 2000:
Morgan Stanley AIMCO Total Dean Witter Minimum Excess As of Return REIT Index Return Return December 31, 1999 22.71 % (20.69 )% 19.11 % 3.60 % June 30, 2000 39.20 % (10.13 )% 24.44 % 14.76 % [Additional columns below]
[Continued from above table, first column(s) repeated]
Average Excess Value of High Market Shareholder Performance OP Unit As of Capitalization Value Added(1) Units (2) Dilution December 31, 1999 $ 2,327,728,992 $ 83,798,244 $ 12,569,737 340,096 (3) June 30, 2000 $ 2,440,408,891 $ 360,204,352 $ 54,030,653 1,268,623 (4)
AIMCO AVERAGE EXCESS VALUE OF HIGH TOTAL MORGAN STANLEY MINIMUM EXCESS MARKET SHAREHOLDER PERFORMANCE(1) Excess Return multiplied by average market capitalization (2) Excess Shareholder Value Added multiplied by 15% (3) OP UNITS AS OF RETURN REIT INDEX RETURN EXCEEDED CAPITALIZATION VALUE ADDED(1) UNITS(2) DILUTED - ----- ------ -------------- ------- -------- -------------- -------------- ------------- --------December 31, 1999..... 22.71% (20.69)% 19.11% 3.60% 2,327,728,992 83,798,244 12,569,737 340,096(3) March 31, 2000........ 19.93% (18.58)% 21.75% 0.00% 2,377,770,912 -- -- --Unit calculation based on trailing 20-day average stock price of $36.96(4) OP Unit calculation based on trailing 20-day average stock price of $42.59 - --------------- (1) Return exceeded multiplied by average market capitalization (2) Excess Shareholder Value added multiplied by 15% (3) OP Unit calculation based on trailing 20-day average stock price of $36.96NOTE 10
-- PORTFOLIOS HELD FOR SALE— Portfolios Held for SaleThe Company is currently marketing for sale certain real estate
properties.properties as part of its policy of selling the lowest ranking properties (as determined by management from time to time) in the Company’s portfolio. Approximately5,81110,284 units with an approximate carrying value of$133$143 million are included with real estate in the consolidated financial statements and approximately23,37920,192 units with an approximate carrying value of$117$101 million are included with investments in unconsolidated real estate partnerships in the consolidated financial statements. The Company does not expect to incur any material losses with respect to the sales of the properties.1617 APARTMENT INVESTMENT AND MANAGEMENT COMPANYNOTE 11 — Pending Acquisition
On June 28, 2000 the Company announced that it had entered into a definitive agreement pursuant to which the Company will acquire the stock and other interests held by the principals, officers and directors of Oxford Realty Financial Group (“ORFG”) in entities, including ORFG, which own interests in and control the Oxford properties, for a purchase price of $301 million. The Oxford properties are 166 apartment communities including 36,662 units, located in 18 states. The Company currently manages the Oxford properties pursuant to long-term contracts. In addition to the interests in the Oxford properties, the Company is acquiring the entity which owns the managing general partner position in Oxford Tax-Exempt Fund II, L.P. (“OTEF”). OTEF holds tax-exempt bonds primarily secured by mortgages on certain of the Oxford properties. The Company has also agreed to purchase approximately 700,000 OTEF securities that represent approximately a 9% limited partnership interest.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEWManagement’s Discussion and Analysis of Financial Condition and Results of Operations.Overview
AIMCO is a real estate investment trust with headquarters in Denver, Colorado and 29 regional operating centers, which holds a geographically diversified portfolio of apartment communities. As of
March 31,June 30, 2000, the Company owned or managed352,519343,878 apartment units, comprised of121,449135,261 units in439483 apartment communities owned or controlled by the Company (the"Owned Properties"“Owned Properties”),115,951100,441 units in671614 apartment communities in which the Company has an equity interest (the"Equity Properties"“Equity Properties”) and115,119108,176 units in724705 apartment communities which the Company manages for third parties and affiliates (the"Managed Properties"“Managed Properties” and together with the Owned Properties and the Equity Properties, the"AIMCO Properties"“AIMCO Properties”). The apartment communities are located in 48 states, the District of Columbia and Puerto Rico.In the three months ended June 30, 2000, AIMCO completed $207 million in acquisitions, dispositions, and mortgage-financing transactions. AIMCO purchased $43 million of limited partnership interests. AIMCO sold six apartment communities and six commercial properties for a total sales price of $75 million. AIMCO’s share of the sales price was $19 million and gain was $0.2 million. Second quarter refinancing activity included the closing of $89 million of new mortgages and loan assumptions at a weighted average interest rate of 7.67%. As previously announced, AIMCO also entered into a definitive agreement to acquire certain stock and interests in entities that own and control the Oxford portfolio of properties.
The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor"“safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that isforward looking,forward-looking, including, without limitation, statements regarding the effect of acquisitions, thecompany'sCompany’s future financial performance and the effect of government regulations. Actual results may differ materially from those described in theforward lookingforward-looking statements and will be affected by a variety of risks and factors including, without limitation, national and local economicconditions,conditions: the general level of interestrates,rates; the terms of governmental regulations that affect thecompanyCompany and interpretations of thoseregulations,regulations; the competitive environment in which thecompany operates,Company operates; financing risks, including the risk that thecompany'sCompany’s cash flows from operations may be insufficient to meet required payments of principal andinterest,interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in suchmarkets,markets; acquisition and development risks, including failure of such acquisitions to perform in accordance withprojections,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, theCompany'sCompany’s current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on its ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distributions levels and diversity of stock ownership. Readers should carefully review thecompany'sCompany’s financial statements and the notes thereto, as well as the risk factors described in documents the Company files from time to time with the Securities and Exchange Commission.RESULTS OF OPERATIONSResults of Operations
Comparison of the Three Months Ended
March 31,June 30, 2000 to the Three Months EndedMarch 31,June 30, 1999NET INCOMENet Income
The Company recognized net income of
$25.9$11.8 million for the three months endedMarch 31,June 30, 2000, comparedto $14.0with $23.1 million for the three months endedMarch 31,June 30, 1999. The decrease in net income of $11.3 million, or (48.9%), primarily was the result of $15 million charged to operations for partnership losses or distributions in excess of the basis in minority interests.20
Consolidated Rental Property Operations
Rental and other property revenues from the consolidated Owned Properties totaled $258.1 million for the three months ended June 30, 2000, compared with $116.2 million for the three months ended June 30, 1999, an increase of $141.9 million, or 122.1%. The increase in rental and other property revenues reflects an increase in “same store” sales revenue of 5.1%; the purchase of 28 properties during 1999 and one property in 2000; the acquisition of controlling interests in partnerships owning 227 properties; and the subsequent consolidation of the purchased and newly controlled entities; partly offset by the sale of 25 properties.
Property operating expenses for the consolidated Owned Properties, 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 $104.7 million for the three months ended June 30, 2000, compared with $45.1 million for the three months ended June 30, 1999, an increase of $59.6 million or 132.2%. The increase in property operating expenses primarily was due to an increase in “same store” expenses of 3.7%; the purchase of 28 properties in 1999 and 1 property in 2000; the acquisition of controlling interests in partnerships owning 227 properties; and the subsequent consolidation of the purchased and newly controlled entities; partly offset by the sale of 25 properties.
Service Company Business
The Company’s share of income from the service company business remained relatively unchanged with $4.5 million for the three months ended June 30, 2000, compared with $4.6 million for the three months ended June 30, 1999. Expenses of the service company business increased $5.5 million for the three months ended June 30, 2000 compared with the three months ended June 30, 1999 primarily due to the investment in several technology initiatives and product enhancements.
General and Administrative Expenses
General and administrative expenses decreased from $2.3 million for the three months ended June 30, 1999 to $1.9 million for the three months ended June 30, 2000, a 17.4% decrease. The decrease primarily is due to the classification of certain general and administrative costs with management and other expenses of the service company business.
Interest Expense
Interest expense, which includes the amortization of deferred financing costs, totaled $64.4 million for the three months ended June 30, 2000, compared with $29.7 million for the three months ended June 30, 1999, an increase of $34.7 million, or 116.8%. The increase primarily was due to the Company acquiring controlling interests in partnerships owning 227 properties and the subsequent consolidation of these properties. The Company had also drawn $293.5 million on its credit facility with Bank of America as of June 30, 2000 compared with $0 at June 30, 1999. The cost of such borrowing was at a weighted average interest rate of 9.06% at June 30, 2000.
Interest Income
Interest income totaled $15.5 million for the three months ended June 30, 2000, compared with $11.0 million for the three months ended June 30, 1999. The increase of $4.5 million primarily is due to the recognition of interest accretion on discounted acquisition notes.
21
Comparison of the Six Months Ended June 30, 2000 to the Six Months Ended June 30, 1999
Net Income
The Company recognized net income of $37.7 million for the six months ended June 30, 2000, compared with $37.1 million for the six months ended June 30, 1999. The increase in net income of
$11.9$0.6 million, or85.5%1.6%, primarily wasprimarilythe resultof:of an increase in net"same store"“same store” property results; the acquisition of 28 properties during1999;1999 and one property during 2000; the completion of the merger of Insignia Properties Trust into AIMCO; the purchase of $271 million in limited partnership interests from unaffiliated third parties in 1999; and an increase in interest income on notes receivable from unconsolidated real estate partnerships in 2000. The effect of the above on net income was partially offset by $18 million charged to operations for partnership losses or distributions in excess of the basis in minority interests and the sale of eight properties during 1999 andthirteentwenty-five properties in 2000. These factors are discussed in more detail in the following paragraphs.CONSOLIDATED RENTAL PROPERTY OPERATIONSConsolidated Rental Property Operations
Rental and other property revenues from the consolidated Owned Properties totaled
$224.3$482.4 million for thethreesix months endedMarch 31,June 30, 2000, comparedto $112.6with $228.8 million for thethreesix months endedMarch 31,June 30, 1999, an increase of$111.7$253.6 million, or99.2%110.8%. The increase in rental and other property revenues primarily wasprimarilydueto:to an increase in"same store"“same store” sales revenue of3%4.2%; the purchase of 28properties;properties in 1999 and one property in 2000; the acquisition of controlling interests in partnerships owning183227 properties; and the subsequent consolidation of the purchased and newly controlled entities;andpartly offset by the sale of1325 properties.1718Property operating expenses for the consolidated Owned Properties, consisting
of:of on-site payrollcosts;costs, utilities (net of reimbursements received from tenants);, contractservices;services, turnovercosts;costs, repairs andmaintenance;maintenance, advertising andmarketing;marketing, property taxes andinsurance;insurance, totaled$90.8$195.4 million for thethreesix months endedMarch 31,June 30, 2000, comparedto $43.2with $88.3 million for thethreesix months endedMarch 31,June 30, 1999, an increase of$47.6$107.1 million or110%121.3%. The increase in property operating expenses primarily wasprimarilydueto:to an increase in"same store"“same store” expenses of1%1.9%; the purchase of 28properties;properties in 1999 and one property in 2000; the acquisition of controlling interests in partnerships owning183227 properties; and the subsequent consolidation of the purchased and newly controlled entities;andpartly offset by the sale of1325 properties.SERVICE COMPANY BUSINESSService Company Business
The
Company'sCompany’s share of income from the service company business was$8.4$9.5 million for thethreesix months endedMarch 31,June 30, 2000, comparedto ($0.3)with $3.5 million for thethreesix months endedMarch 31,June 30, 1999. The increase in service company business income of$8.7$6 million, or 171%, primarily wasprimarilydue to a reduction in the allocation of management contract expense between the consolidated service company business and the unconsolidated subsidiaries. The allocation of such expense will remain constant on a year to year comparison, and the core business operations remained unchanged between the periods.GENERAL AND ADMINISTRATIVE EXPENSESExpenses increased due to the investment in several technology initiatives and product enhancements.General and Administrative Expenses
General and administrative expenses
increased from $3.1remained relatively unchanged with $5.3 million for thethreesix months endedMarch 31,June 30, 1999to $3.2and $5.2 million for thethreesix months endedMarch 31, 2000, a 3.2% increase. The increase of $0.1 million is primarily due to the growth of the Company, as well as increased levels of personnel in the accounting and finance departments. INTEREST EXPENSEJune 30, 2000.Interest Expense
Interest expense, which includes the amortization of deferred financing costs, totaled
$59.1$122.6 million for thethreesix months endedMarch 31,June 30, 2000, comparedto $31.3with $61.1 million for thethreesix months endedMarch 31,June 30, 1999, an increase of$27.8$61.5 million, or88.8%100.7%. The increase primarily wasprimarilydue to the Company acquiring controlling interests in partnerships owning183227 properties and the subsequent consolidation of these properties. The Company had also drawn$277$293.5 million on its credit facility with Bank of America as ofMarch 31,June 30, 2000 comparedto $124 millionwith $0 atMarch 31, 1999 which incurred interestJune 30, 1999. The cost of such borrowing was at a weighted average interest rate of8.55% and 7.67% , during the respective three month periods then ended. INTEREST INCOME9.06% at June 30, 2000.22
Interest Income
Interest income totaled
$15.9$28.5 million for thethreesix months endedMarch 31,June 30, 2000, comparedto $9.8with $20.7 million for thethreesix months endedMarch 31,June 30, 1999. The increase of$6.1$7.8 million or 37% primarily isprimarilydue to the recognition of interestincomeaccretion on discounted acquisition notes.1819 FUNDS FROM OPERATIONS
THREE MONTHS ENDED ------------------------------- MARCH 31, 2000 MARCH 31, 1999 -------------- --------------Income before minority interest in operating partnership.... $28,454 $ 15,175 Gain on disposition of properties......................... (5,105) (15) Real estate depreciation, net of minority interest........ 56,977 25,700 Real estate depreciation related to unconsolidated entities............................................... 18,962 21,115 Amortization of intangibles............................... 2,083 12,999 Deferred Taxes benefit.................................... 852 2,456 Preferred stock dividend.................................. (7,208) (10,347) Expenses associated with convertible preferred securities............................................. 2,429 -- Preferred OP Unit distributions........................... 678 (858) ------- -------- Funds From Operations..................................... $98,122 $ 66,225 ======= ========Funds From Operations
For the three months and six months ended June 30, 2000 and 1999, the Company’s Funds From Operations (“FFO”) on a fully diluted basis were as follows (dollars in thousands):
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Income before minority interest in operating partnership $ 13,160 $ 23,993 $ 41,614 $ 39,168 Gain on disposition of properties (226 ) — (5,331 ) (15 ) Real estate depreciation, net of minority interest 76,756 26,713 133,725 52,413 Real estate depreciation related to unconsolidated entities 15,601 23,641 34,563 44,756 Amortization of intangibles 1,679 2,309 3,439 4,911 Amortization of recoverable amount of management contracts 325 10,399 648 20,796 Deferred tax (benefit) provision 2,109 (659 ) 2,961 1,797 Preferred stock dividends and distributions (6,530 ) (8,322 ) (13,052 ) (19,527 ) TOPR’s interest expense 2,429 — 4,858 — Funds From Operations (FFO) $ 105,303 $ 78,074 $ 203,425 $ 144,299 Weighted average number of common shares,common share equivalents and Common OP Units outstanding: Common share and common share equivalents 83,106 71,909 81,948 66,392 Common OP Units 6,319 5,621 6,339 6,964 89,425 77,530 88,287 73,356 FFO increased
from $66to $105 million and $203 million for the three and six months endedMarch 31, 1999 to $98June 30, 2000, respectively, compared with $78 million and $144 million, respectively, for thethree months ended March 31, 2000same periods in 1999 primarily due to:an increase of 5%increases in"same store"“same store” property operations; the acquisition and subsequent consolidation of newly controlled entities and controlling interests in partnerships owning183227 properties; and the purchase of 28 properties in 1999 andresultant1 property in 2000; partly offset by the sale of1325 properties.LIQUIDITY AND CAPITAL RESOURCES23
Same Store Property Operating Results
The Company defines “same store” properties as apartment communities owned in the comparable periods of 2000 and 1999. The following table summarizes the unaudited consolidated rental property operations on a “same store” basis (dollars in thousands):
Three Months Ended June 30, Six Months Ended June 30, 2000 1999 2000 1999 Properties 552 552 552 552 Units 151,398 151,398 151,398 151,398 Average Physical Occupancy 94.8 % 94.7 % 94.7 % 94.3 % Average Rent Collected/Unit/Month $ 642 $ 612 $ 637 $ 605 Revenues $ 207,257 $ 197,255 $ 408,883 $ 392,340 Expenses 78,216 75,421 153,548 150,745 Net Operating Income $ 129,041 $ 121,834 $ 255,335 $ 241,595 Liquidity and Capital Resources
For the
threesix months endedMarch 31,June 30, 2000 and 1999, net cash flows were as follows (dollars in thousands):
2000 1999 --------- --------Cash flow provided by operating activities.................. $ 69,557 $ 64,422 Cash flow (used in) investing activities.................... (109,204) (62,195) Cash flow provided by financing activities.................. 74,933 (34,971)
2000 1999 Cash flow provided by operating activities $ 150,911 $ 103,727 Cash flow used in investing activities (197,352 ) (41,541 ) Cash flow provided by (used in) financing activities 35,546 (81,833 ) During the
threesix months endedMarch 31,June 30, 2000, the Company closed$119$207.7 million of long-term fixed-rate, fully amortizing notes payable with a weighted average interest rate of8.3%8.02%. Each of the notes is individually secured by one oftwelvenineteen properties with no cross-collateralization. The Company used the net proceeds totaling$117.5$204.9 million after transaction costs to repay existingdebt.debt and for working capital. During thethreesix months endedMarch 31,June 30, 2000, the Company also assumed a $7 million long-term fixed rate, fully amortizing note payable with an interest rate of 8.37% in connection with the acquisition of one property. The note is secured by the acquired property.In August 1999, the Company closed a $300 million revolving credit facility arranged by Bank of America, N.A. BankBoston, N.A. and First Union National Bank with a syndicate comprised of a total of nine lender participants. Effective March 15, 2000 the credit facility was expanded by $45 million with the potential to expand it by another $55 million to a total of $400 million. On April 14, 2000, the credit facility was expanded by $5 million to $350 million. The obligations under the credit facility are secured by certain non-real estate assets of the Company.
TheBorrowings under the credit facility, including the $50 million expansion,isare available for general corporatepurposes andpurposes. The credit facility has a two-year termwithsubject to two one-year extensions. The annual interest rate under the credit facility is based either oneitherLIBOR or a base rate which is the higher of Bank ofAmerica'sAmerica’s reference rate or 0.5% over the federal funds rate, plus, in either case, an applicable margin. The margin ranges between 2.05% and 2.55%, in the case of LIBOR-based loans, and between 0.55% and 1.05%, in the case of base rate loans, based upon a fixed charge coverage ratio. The weighted average interest rate atMarch 31,June 30, 2000 was 9.06%. The amount available under different credit facilities at June 30, 2000 and 1999 was8.55% and 7.67% respectively. The amount available under the credit facility at March 31, 2000 and 1999 was $72.8$56.5 million and$75.7$145 million, respectively.1920The Company expects to meets its short-term liquidity requirements including property acquisitions, tender offers and refinancing of short-term debt with long-term, fixed rate, fully amortizing debt, secured or unsecured short-term debt, the issuance of debt or equity securities in public offerings or private placements, and cash generated from operations.
24
On
January 11,June 28, 2000, the Company announced that it had entered into a definitive agreement pursuant to which the Company will acquire the stock and other interests held by the principals, officers and directors of Oxford Realty Financial Group (“ORFG”) in entities, including ORFG, which own interest in and control the Oxford properties, for a purchase price of $301 million. The Oxford properties are 166 apartment communities including 36,662 units, located in 18 states. The Company has agreed to pay $241 million in cash and $60 million in AIMCOcompleted a direct placement of 681,818 shares ofCommon OP Units and/or Class A CommonStock into which 1,200,000 sharesStock. The Company expects to borrow the cash portion ofClass M Convertible Cumulative Preferred Stock are convertiblethe purchase price from Bank of America, N.A. and Lehman Brothers pursuant toAEW Targeted Securities Fund II, L.P.a term loan that the Company intends to repay from presently scheduled property refinancings, expected property sales, and internal cash flow. Thenet proceedsterm loan requires amortization ofapproximately$15 million per quarter for the first year increasing to $30 millionwas usedper quarter thereafter and matures on July 31, 2002. The term loan will bear interest at LIBOR plus 4% for the first twelve months and increases by 0.5% each six months thereafter. The term loan is expected torepay indebtedness and for working capital. On March 3, 2000 AIMCO filed a shelf registration statement with the Securities and Exchange Commission with respectbe secured by certain Oxford assets toan aggregate of 681,818 shares of Class A Common Stock into which 1,200,000 shares of Class M Convertible Cumulative Preferred Stock are convertible. The registration statement was declared effective by the SEC on March 31, 2000.be acquired.At
March 31,June 30, 2000, the Company had$137$90.7 million in cash and cash equivalents. In addition, the Company had$93$108.3 million of restricted cash, primarily consisting of reserves and impounds held by lenders for capital expenditures, property taxes and insurance. TheCompany'sCompany’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 tominoritylimitedpartners in the AIMCO operating partnership.partners. The Company considers its cash provided by operating activities, and funds available under its credit facilities, to be adequate to meet short-term liquidity demands. The Company utilizes its revolving credit facility for general corporate purposes and to fund investments on an interim basis.From time to time, the Company has offered to acquire and, in the future, may offer to acquire the interests held by third party investors in certain limited partnerships for which the Company acts as general partner. Any such acquisitions will require funds to pay the cash purchase price for such
interest.interests. During thethreesix months endedMarch 31,June 30, 2000, the Company made separate offers to the limited partners of122189 partnerships to acquire their limited partnershipinterests. The Companyinterests, and purchased approximately$18$61 million (including transaction costs) of limited partnership interests.RETURN ON ASSETS AND RETURN ON EQUITYReturn on Assets and Return on Equity
The
Company'sCompany’s Return On Assets and Return On Equity for thethreesix months endedMarch 31,June 30, 2000 and 1999 are as follows:
Based on AFFO Based on FFO Six Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Return on Assets (a) 10.3 % 9.7 % 10.8 % 10.3 % Return on Equity Basic (b) 15.0 % 14.6 % 16.4 % 15.8 % Diluted (c) 13.5 % 12.3 % 14.5 % 13.3 %
BASED ON BASED ON AFFO FFO ------------- ------------- THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, ------------- ------------- 2000 1999 2000 1999 ----- ----- ----- -----(a) The Company defines Return on Assets (a)....................................... 10.2% 9.5% 10.7% 10.0%(AFFO) as (i) annualized Free Cash Flow divided by (ii) Average Assets. Average Assets are computed by averaging the sum of Assets, as defined below, at the beginning and the end of the period. Assets are total assets, plus accumulated depreciation, less accumulated Capital Replacements of $73,018 for the six months ended June 30, 2000, and less all non-indebtedness liabilities. The Company defines Return on Assets (FFO) as (i) annualized Free Cash Flow plus Capital Replacements; divided by (ii) Average Assets plus accumulated Capital Replacements.(b) The Company defines Return on Equity-Basic (AFFO) as (i) annualized AFFO-Basic; divided by (ii) Average Equity. Average Equity Basic (b)................................................ 14.4% 14.1% 15.8% 15.3% Dilutedis computed by averaging the sum of Equity, as defined below, at the beginning and the end of the period. Equity is total stockholders’ equity, plus accumulated depreciation, less accumulated25
Capital Replacements of $73,018 for the six months ended June 30, 2000, less preferred stock, plus minority interest in the AIMCO operating partnership, net of preferred OP unit interests ($105,362). The Company defines Return on Equity-Basic (FFO) as (i) annualized AFFO-Basic plus Capital Replacements; divided by (ii) Average Equity plus accumulated Capital Replacements. (c) .............................................. 13.0% 11.6% 14.1% 12.6%The Company defines Return on Equity-Diluted (AFFO) and Return on Equity-Diluted (FFO) assuming conversion of debt and preferred securities whose conversion is dilutive. - --------------- (a) The Company defines Return on Assets (AFFO) as (i) Free Cash Flow divided by (ii) Average Assets. Average assets are total assets, plus accumulated depreciation, less accumulated Capital Replacements ($68,189), and less all current liabilities. "Average Assets" are computed by averaging the sum of Assets at the beginning and the end of the period. The Company defines Return on Assets (FFO) as (i) Free Cash Flow plus Capital Replacements; divided by (ii) Average Assets plus accumulated Capital Replacements. (b) The Company defines Return on Equity-Basic (AFFO) as (i) AFFO-Basic; divided by (ii) Average Equity. "Equity" is total stockholders' equity, plus accumulated depreciation, less accumulated Capital 2021 Replacements ($68,189), less preferred stock, and plus minority interest in Operating Partnership, net of preferred OP unit interests ($103,759). "Average Equity" is computed by averaging the sum of Equity at the beginning and the end of the period. The Company defines Return on Equity-Basic (FFO) as (i) AFFO-Basic plus Capital Replacements; divided by (ii) Average Equity plus accumulated Capital Replacements. (c) The Company defines Return on Equity-Diluted (AFFO) and Return on Equity-Diluted (FFO) assuming conversion of debt and preferred securities whose conversion is dilutive.The increase in Return On Assets (AFFO) and (FFO) from the 1999 period to the 2000 period is the result of higher returns on acquired properties, as well as on the additional properties consolidated in the fourth quarter of 1999 and the first
quarterhalf of 2000.The increase in Return On Equity-Basic (AFFO) and (FFO) and Return On Equity
-- Diluted–Diluted (AFFO) and (FFO) from the 1999 period to the 2000 period primarily isprimarilydue to increasedreturnReturn onassets. LITIGATIONAssets.Litigation
The Company is a party to various legal actions resulting from its operating activities. These actions are routine litigation and administrative proceedings arising in the ordinary course of business, some of which are covered by liability insurance, and none of which are expected to have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole.
In connection with the
Company's offers to purchaseCompany’s acquisitions of interests in limited partnerships that own properties, the Company and its affiliates are sometimes subject to potential legal actions, including allegations that such activities may involve breaches of fiduciary duties to the limited partners of such partnerships or violations of the relevant partnership agreements. The Company believes it complies with its fiduciary obligations and relevant partnership agreements, and does not expect any such legal actions to have a material adverse effect on the consolidated financial condition or results of operations of the Company and its subsidiaries taken as a whole.CONTINGENCIESContingencies
Pending Investigations of HUD Management Arrangements
In July 1999,
NHPthe National Housing Partnership (“NHP”) received a grand jury subpoena requesting documents relating toNHP'sNHP’s management of HUD-assisted or HUD-insured multi-family projects andNHP'sNHP’s operation of a group purchasing program created by NHP, known as Buyers Access. The subpoena relates to the same subject matter as subpoenas NHP received in October and December of 1997 from the HUD Inspector General. To date, neither the HUD Inspector General nor the grand jury has initiated any action against NHP or AIMCO or, toNHP'sNHP’s orAIMCO'sAIMCO’s knowledge, any owner ofaHUD property managed by NHP. AIMCO believes thatNHP's operationNHP’s operations andprogramprograms are in compliance, in all material respects, with all laws, rules and regulations relating to HUD-assisted or HUD-insured properties. AIMCO is cooperating with the investigation and does not believe that theinvestigationsinvestigation will result in a material adverseimpacteffect onits operations.the financial condition of the Company. However, as with any similar investigation, there can be no assurance that these will not result in material fines, penalties or othercosts.costs that may impact the Company’s future results of operations or cash flows.26
Environmental
Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous substances. The presence of, or the failure to properly remediate, hazardous substances may adversely affect occupancy at contaminated apartment communities and our ability to sell or borrow against contaminated properties. In addition to the costs associated with investigation and remediation actions brought by governmental agencies, the presence of hazardous wastes on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability for the cost of removal or remediation of
2122hazardous substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous or toxic substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of our properties,wethe Company could potentially be liable for environmental liabilities or costs associated withourproperties or propertieswe may acquireit acquires ormanagemanages in the future.YEAR 2000 DISCLOSURE The Year 2000 (Y2K) issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has funded Y2K compliance efforts from cash flow from operations and has not incurred any significant costs to date related to Y2K issues. To date, there has been no material negative impact on the Company's results of operations or financial condition as a result of the Y2K issue or its Y2K compliance efforts.ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures about Market RiskThe
Company'sCompany’s primary market risk exposure relates to changes in interest rates. The Company is not subject to any foreign currency exchange rate risk or commodity price risk, or any other material market rate or price risks. The Company uses predominantly long-term, fixed-rate and self-amortizing non-recourse debt in order to avoid the refunding or repricing risks of short-term borrowings. The Company uses short-term debt financing and working capital primarily to fund acquisitions and generally expects to refinance such borrowings with proceeds from equity offerings or long term debt financings.The Company had
$366$444.9 million of variable rate debt outstanding atMarch 31,June 30, 2000, which represents12.2%13.3% of theCompany'sCompany’s total outstanding debt. Based on this level of debt, an increase in interest rates of 1% would result in theCompany'sCompany’s income and cash flows being reduced by$3.7$4.4 million on an annual basis.The estimated aggregate fair value of the
Company'sCompany’s cash and cash equivalents, receivables, payables and short-term secured and unsecured debt as ofMarch 31,June 30, 2000 is assumed to approximate their carrying value due to their relatively short terms. Management further believes that, after consideration of interest rate agreements, the fair market value of theCompany'sCompany’s secured tax-exempt bond debt and secured long-term debt approximates their carrying value, based on market comparisons to similar types of debt instruments having similar maturities.27
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2.
CHANGES IN SECURITIES AND USE OF PROCEEDSChanges in Securities and Use of ProceedsFrom time to time during the quarter, AIMCO issued shares of Class A Common Stock in exchange for Common OP Units tendered to the AIMCO operating partnership for redemption in accordance with the terms and provisions of the agreement of limited partnership of the AIMCO operating partnership. Such shares are issued based on an exchange ratio of one share for each Common OP Unit. The shares are issued in exchange for Common OP Units in private transactions exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"“Securities Act”), pursuant to Section 4(2) thereof. During thethreesix months endedMarch 31,June 30, 2000,133,732137,314 shares of Class A Common Stock were issued in exchange for Common OP Units.As disclosed in
AIMCO'sAIMCO’s Current Report on Form 8-K, dated January 13, 2000, on January 13, 2000 AIMCO sold 1,200,000 shares of Class M Convertible Cumulative Preferred Stock to an institutional investor2223for $30 million. The shares were issued in a private placement transaction exempt from registration under the Securities Act pursuant to Section4(2)4 (2) thereof.ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on April 20, 2000. At the
meeting, the stockholders approved the proposals set forth below:
1. Proposal to elect five directors, for a term of one year each, until the next annual meeting of stockholders and until their successors are elected and qualify. Votes Cast For Each Director
Votes Votes For Withheld Terry Considine 51,635,190 521,978 Peter K. Kompaniez 51,634,763 522,405 Richard S. Ellwood 51,679,497 477,671 J. Landis Martin 51,683,332 473,836 Thomas L. Rhodes 51,680,872 476,296 There were no abstentions or Broker nonvotes.
John D. Smith did not stand for re-election to the Board of Directors. See Item 5. Other Information.
2. Proposal to ratify the selection of Ernst & Young LLP, to serve as independent auditors for the Company for the fiscal year ending December 31, 2000:
Votes For Votes Against Abstentions Broker Non Votes 51,773,571 37,114 346,483 0 ITEM 5. Other Information
On June 5, 2000 AIMCO announced the election of James N. Bailey to the AIMCO Board of Directors. Mr. Bailey is co-founder of Cambridge Associates, LLC. He received his BA degree magna cum laude from Harvard University in 1969, after which he enrolled in the first class of Harvard Business and Harvard Law Schools’ joint program. There in 1973 he received his MBA and JD degrees from Harvard Business School and Harvard Law School, respectively. Upon graduation, Mr. Bailey, along with co-founder Hunter Lewis formed Cambridge Associates to provide investment and financial planning to nonprofit, endowed institutions. Harvard became Cambridge Associates’ first client in July of 1973 when Harvard’s new Treasurer, George Putnam, Jr. hired Cambridge to conduct a comprehensive study of endowment practices that led to the creation of the Harvard Management Company, Inc. Cambridge Associates has developed into a premier investment consulting firm for nonprofit institutions and wealthy family groups.
Mr. Bailey is also co-founder, Treasurer and Director of The Plymouth Rock Company, Direct Response Corporation, and Homeowner’s Direct Corporation, all U.S. personal lines insurance companies. In addition, he serves as a Trustee and member of the Investment Committee of the New England Aquarium. He has also been a member of a number of Harvard University alumni affairs committees, including the Overseers Nominating Committee and The Harvard Endowment Committee. He is also a member of the Massachusetts Bar and the American Bar Associations.
29
Item 6.
EXHIBITS AND REPORTS ON FORMExhibits and Reports on Form 8-K(a) Exhibits. The following exhibits are filed with this
report(1)report (1):
EXHIBIT NO. DESCRIPTION ------- -----------Exhibit Number Description 2.1 Acquisition Agreement, dated as of June 28, 2000, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., NHP Management Company and AIMCO/NHP Properties, Inc., as Buyers, and Leo E. Zickler, Francis P. Lavin, Robert B. Downing, Mark E. Schifrin, Marc B. Abrams, and Richard R. Singleton, as Sellers 3.1 --Charter (Exhibit 3.1 to AIMCO'sAIMCO’s Annual Report on Form 10-K for the fiscal year 1999 is incorporated herein by this reference)3.2 --Bylaws (Exhibit 3.2 to AIMCO'sAIMCO’s Annual Report on Form 10-K for the fiscal year 1999 is incorporated herein by this reference)10.1 -- EleventhThirteenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of January 13,August 7, 2000(Exhibit 10.12 to AIMCO's Annual Report on Form 10-K for the fiscal year 1999, is incorporated herein by this reference) 10.2 -- Twelfth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of April 19, 2000 10.3 -- Amended and Restated Credit Agreement, dated as of March 15, 2000, among AIMCO Properties, L.P., the lenders listed therein, Bank of America, N.A., Fleet National Bank (as successor in interest to BankBoston, N.A.), and First Union National Bank (Exhibit 10.20 to AIMCO Properties, L.P.'s Annual Report on Form 10-K for the fiscal year 1999, is incorporated herein by this reference) 10.4 -- First Amendment to $345,000,000 Amended and Restated Credit Agreement, dated as of April 14, 2000, among AIMCO Properties, L.P., Bank of America, N.A. and U.S. Bank National Association27.1 --Financial Data Schedule 99.1 --Agreement re: disclosure of long-term debt instruments - --------------- (1) Schedules
(1) Schedule and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request. (b) Reports on Form 8-K for the quarter ended
March 31,June 30, 2000:During the quarter for which this report is filed, Apartment Investment and Management Company filed its Current Report on Form 8-K, dated
December 15, 1999, relating to AIMCO Properties L.P.'s acquisition of residential communities and certain interests from Dreyfuss Brothers, Inc.; its Current Report on Form 8-K dated January 13,June 28, 2000, relating to thesaleacquisition by AIMCO and AIMCO Properties, L.P. ofan aggregateinterests in 166 apartment communities from affiliates of1,200,000 shares of Class M Convertible Cumulative Preferred Stock of Apartment Investment and Management Company; its Current Report on Form 8-K, dated January 20, 2000, relating to an increase in Apartment Investment and Management Company's measure of economic profitability for the fourth quarter of 1999, compared to the quarter ended December 31, 1998; its Current Report on Form 8-K, dated March 14, 2000, relating to Apartment Investment and Management Company's letter to stockholders for fiscal year 1999. 2324Oxford Realty Financial Group.30
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
APARTMENT INVESTMENT AND MANAGEMENT COMPANY By: /s/ PAUL J. MCAULIFFE ---------------------------------- Paul J. McAuliffe Executive Vice President, Chief Financial Officer (duly authorized officer and principal financial officer)
APARTMENT INVESTMENT AND
MANAGEMENT COMPANYBy:/s/ PAUL J. McAULIFFE
Paul J. McAuliffe
Executive Vice President,
Chief Financial Officer
(duly authorized officer and
principal financial officer)By:/s/ THOMAS C. NOVOSEL
Thomas C. Novosel
Senior Vice President,
Chief Accounting OfficerDate:
May 10,August 14, 20002425 INDEX TO EXHIBITS31
EXHIBIT INDEX(1)
EXHIBIT NO. DESCRIPTION ------- -----------Exhibit Number Description 2.1 Acquisition Agreement, dated as of June 28, 2000, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., NHP Management Company and AIMCO/NHP Properties, Inc., as Buyers, and Leo E. Zickler, Francis P. Lavin, Robert B. Downing, Mark E. Schifrin, Marc B. Abrams, and Richard R. Singleton, as Sellers 3.1 --Charter (Exhibit 3.1 to AIMCO'sAIMCO’s Annual Report on Form 10-K for the fiscal year 1999 is incorporated herein by this reference)3.2 --Bylaws (Exhibit 3.2 to AIMCO'sAIMCO’s Annual Report on Form 10-K for the fiscal year 1999 is incorporated herein by this reference)10.1 -- EleventhThirteenth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of January 13,August 7, 2000(Exhibit 10.12 to AIMCO's Annual Report on Form 10-K for the fiscal year 1999, is incorporated herein by this reference) 10.2 -- Twelfth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of April 19, 2000 10.3 -- Amended and Restated Credit Agreement, dated as of March 15, 2000, among AIMCO Properties, L.P., the lenders listed therein, Bank of America, N.A., Fleet National Bank (as successor in interest to BankBoston, N.A.), and First Union National Bank (Exhibit 10.20 to AIMCO Properties, L.P.'s Annual Report on Form 10-K for the fiscal year 1999, is incorporated herein by this reference) 10.4 -- First Amendment to $345,000,000 Amended and Restated Credit Agreement, dated as of April 14, 2000, among AIMCO Properties, L.P., Bank of America, N.A. and U.S. Bank National Association27.1 --Financial Data Schedule 99.1 --Agreement re: disclosure of long-term debt instruments - --------------- (1) Schedules and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request.
(1) | Schedule and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request. |