1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------------------
COMMISSION FILE NUMBER 1-13232
---------------------
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND 84-1259577
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
2000 SOUTH COLORADO BOULEVARD
TOWER TWO, SUITE 2-1000
DENVER, COLORADO 80222-4348
(Address of principal executive offices) (Zip Code)
(303) 757-8101
(Registrant's telephone number, including area code)
NOT 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, 2000:
67,163,247
================================================================================
2
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999..................................... 3
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999 (unaudited)....................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 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................................... 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 24
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................... 24
Item 6. Exhibits and Reports on Form 8-K.............................. 24
Signatures.................................................. 26
2
3
APARTMENT 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
========== ==========
See accompanying notes to consolidated financial statements.
3
4
APARTMENT 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
======== ========
See accompanying notes to consolidated financial statements.
4
5
APARTMENT 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
========= =========
See accompanying notes to consolidated financial statements.
5
6
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE 1 -- ORGANIZATION
Apartment Investment and Management Company ("AIMCO" together with its
consolidated subsidiaries "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. AIMCO owns a majority of the ownership interests in the
AIMCO operating partnership 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 of March 31, 2000. AIMCO-GP, Inc. is the sole
general partner of the AIMCO operating partnership. As of March 31, 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.
At March 31, 2000, AIMCO had 67,164,211 shares of Class A Common Stock
outstanding and the AIMCO operating partnership had 6,319,460 Partnership Common
Units ("Common OP Units") outstanding (excluding units held by the Company), for
a combined total of 73,483,671 shares of Class A Common Stock and Common OP
Units outstanding.
NOTE 2 -- BASIS OF PRESENTATION
The 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 period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
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 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 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-controlling partners' share
of the underlying net assets of the Company's controlled limited partnerships.
With regard to such partnerships, losses in excess of the bases of the minority
interests ($3.4 million for first quarter 2000) have been charged to operations
and classified with real estate structural depreciation expense by the Company.
The assets of property owning limited
6
7
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 are generally not available to pay creditors of
AIMCO or the AIMCO operating partnership.
NOTE 3 -- ACQUISITIONS
During the three months ended March 31, 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
- ------------- ---------------- -------- -----------
January 2000................................. Falls Church, VA 159 $12 million
NOTE 4 -- INTEREST INCOME RECOGNITION FOR NOTES RECEIVABLE AND INVESTMENTS
As of March 31, 2000 the Company holds $52 million of par value notes, plus
accrued interest net of intercompany par value notes of $85 million ("general
partner par value 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 is generally recognized as it
is earned. Interest income from such notes and investments for the three months
ended March 31, 2000, totaled approximately $6.8 million.
As of March 31, 2000, the Company held discounted notes, with a carrying
value including accrued interest, of $67 million which were made by predecessors
whose positions have been acquired by the Company at a discount and are carried
at the acquisition amount using the cost recovery method ("discounted notes").
The total face value plus accrued interest of these notes was $142 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 months ended March 31, 2000, the Company recognized deferred interest
income and discounts of approximately $6 million ($0.08 per basic and $0.08 per
diluted share).
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
Legal
The Company is a party to various legal actions resulting from its
operating activities. These actions are routine litigation and administrative
proceedings arising in the ordinary course of business, some of which are
covered by liability insurance, and none of which are expected to have a
material adverse effect on the consolidated financial condition or results of
operations of the Company and its subsidiaries taken as a whole.
Limited Partnerships
In connection with the Company's offers to purchase interests in limited
partnerships that own properties, the Company and its affiliates are sometimes
subject to legal actions, including allegations that such activities may involve
breaches of fiduciary duties to the limited partners of such partnerships or
violations of the relevant partnership agreements. The Company believes it
complies with its fiduciary obligations and relevant
7
8
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
partnership agreements, and does not expect such legal actions to have a
material adverse effect on the consolidated financial condition or results of
operations of the Company and its subsidiaries taken as a whole.
Pending Investigations of HUD Management Arrangements
In July 1999, NHP received a grand jury subpoena requesting documents
relating to NHP's management of HUD-assisted or HUD-insured multi-family
projects and NHP'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, to NHP's or AIMCO's knowledge, any owner of a
HUD property managed by NHP. AIMCO believes that NHP'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 the investigations
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 the Company's future results of operations or cash flows in a particular
quarter.
Environmental
The Company is subject to various Federal, state and local laws that impose
liability on property owners or operators 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 is also subject to various
laws that impose liability for the cost of removal or remediation of hazardous
substances at the disposal or treatment facility. Anyone who arranges for the
disposal or treatment of hazardous or toxic substances is potentially liable
under such laws. These laws often impose liability whether or not the person
arranging for the disposal ever owned or operated the disposal facility. In
connection with the ownership, operation and management of our properties, 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
Preferred Stock
At March 31, 2000 and December 31, 1999, the Company had the following classes
of preferred stock outstanding:
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
======== ========
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
Preferred 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 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
The following table illustrates the calculation of basic and diluted
earnings per share for the three months ended March 31, 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
======== ========
NOTE 8 -- INDUSTRY SEGMENTS
The Company owns and operates multi-family apartment communities throughout
the United States including 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 the Company'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's total revenues during the three months ended March 31,
2000 or March 31, 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 presents the contribution
(separated between consolidated and unconsolidated activity) to the Company's
Free Cash Flow for the three months ended March 31, 2000, from the components of
the Company and a reconciliation of Free Cash Flow to Earnings Before Structural
Depreciation, to Net Income, and to Funds From Operations, less a reserve for
capital replacements, (in thousands, except equivalent units (ownership effected
and period weighted) and monthly rents):
10
11
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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%
======== ======= ======== =====
11
12
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)
-------- -------- --------
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
-------- -------- --------
Funds from Operations (FFO)(1)..................... 58,160 27,965 86,125
Capital replacement reserve................................. (7,721) (2,178) (9,899)
-------- -------- --------
Adjusted Funds From Operations (AFFO)(1)........... $ 50,439 $ 25,787 $ 76,226
======== ======== ========
- ---------------
(a) Represents net income of the AIMCO operating partnership. The REIT's share
of this net income is 92%, or $11,367.
12
13
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
Net Income
Basic................................................ 12,356 72,307 $0.17
Diluted.............................................. 12,356 72,675 $0.17
FFO
Basic................................................ 86,125 72,307
Diluted.............................................. 98,122 87,150
AFFO
Basic................................................ 76,226 72,307
Diluted.............................................. 88,223 87,150
- ---------------
(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
In January 1998, AIMCO's operating partnership sold an aggregate of 15,000
of its Class I High Performance Partnership Units (the "High Performance Units")
to a joint venture comprised of twelve members of AIMCO'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 the Company's total return over
the three year period ending December 31, 2000, is at least 30% and exceeds the
industry average, as determined by a peer group index, by at least 15%. At the
conclusion of the three year period, if the Company'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 would
13
14
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 the Company's
cumulative Total Return over the three year period exceeds the greater of 115%
of a peer group index or 30% (such excess being the "Excess Return"), multiplied
by (b) the weighted average market value of the Company'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. The three 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 required Total Return over the
three year term, the Company has not recorded any value to the High Performance
Units in the consolidated financial statements as of March 31, 2000. The Company
includes any dilutive effect of the High Performance Units in its AFFO earnings.
The Morgan Stanley REIT Index is being used as the peer group index for
purposes of the High Performance Units. The Morgan Stanley REIT Index is a
capitalization-weighted index (with dividends reinvested) of the most actively
traded real estate investment trusts. The Morgan Stanley REIT Index is comprised
of over 100 real estate investment trusts selected by Morgan Stanley & 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" means, for any security and for any period, the cumulative
total return for such security over such period, as measured by (i) the sum of
(a) the cumulative amount of dividends paid in respect of such security for such
period (assuming that all cash dividends are reinvested in such security as of
the payment date for such dividend based on the security price on the dividend
payment date), and (b) an amount equal to (x) the security price at the end of
such period, minus (y) the security price at the beginning of such period,
divided by (ii) the security price at the beginning of the measurement period;
provided, however, that if the foregoing calculation results in a negative
number, the "total return" shall be equal to zero. For purposes of calculating
the Total 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 market
value of a share of AIMCO Common Stock at the time of redemption. However, in
the event that any High Performance Units are tendered for redemption, the AIMCO
operating partnership'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 (subject to certain
adjustments).
If AIMCO's total return over the measurement period exceeds 115% of the
total return of the Morgan Stanley 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 AIMCO
Operating Partnership. This could have a dilutive effect on future earnings per
share of AIMCO Class A Common Stock, and on AIMCO's equity ownership in the
AIMCO Operating Partnership after the three year measurement period.
The following table illustrates the value of the 15,000 High Performance
Units at the end of the three 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 to March 31, 2000, the
cumulative total
14
15
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
return of the Morgan Stanley REIT Index was (18.58)% and the cumulative total
return of the AIMCO Class A Common Stock was 19.93%. 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, which was the amount as of March 31, 2000.
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 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.
CASH
VALUE OF OP UNIT PROCEEDS
AVERAGE EXCESS HIGH DILUTION AS TO COMPANY
MARKET SHAREHOLDER PERFORMANCE OP UNIT 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) (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 2,064
- ---------------
(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.
15
16
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the status of the High Performance Units as
of December 31, 1999 and March 31, 2000:
AIMCO AVERAGE EXCESS VALUE OF HIGH
TOTAL MORGAN STANLEY MINIMUM EXCESS MARKET SHAREHOLDER PERFORMANCE 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 -- -- --
- ---------------
(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 $36.96
NOTE 10 -- PORTFOLIOS HELD FOR SALE
The Company is currently marketing for sale certain real estate properties.
Approximately 5,811 units with an approximate carrying value of $133 million are
included with real estate in the consolidated financial statements and
approximately 23,379 units with an approximate carrying value of $117 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.
16
17
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
As of March 31, 2000, the Company owned or managed 352,519 apartment units,
comprised of 121,449 units in 439 apartment communities owned or controlled by
the Company (the "Owned Properties"), 115,951 units in 671 apartment communities
in which the Company has an equity interest (the "Equity Properties") and
115,119 units in 724 apartment communities which the Company manages for third
parties and affiliates (the "Managed Properties" and together with the Owned
Properties and the Equity Properties, the "AIMCO Properties"). The apartment
communities are located in 48 states, the District of Columbia and Puerto Rico.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report contains or may contain information that is
forward looking, including, without limitation, statements regarding the effect
of acquisitions, the company's future financial performance and the effect of
government regulations. Actual results may differ materially from those
described in the forward looking statements and will be affected by a variety of
risks and factors including, without limitation, national and local economic
conditions, the general level of interest rates, terms of governmental
regulations that affect the company and interpretations of those regulations,
the competitive environment in which the company operates, financing risks,
including the risk that the company's cash flows from operations may be
insufficient to meet required payments of principal and interest, real estate
risks, including variations of real estate values and the general economic
climate in local markets and competition for tenants in such markets,
acquisition and development risks, including failure of such acquisitions to
perform in accordance with projections, and possible environmental liabilities,
including costs which may be incurred due to necessary remediation of
contamination of properties presently owned or previously owned by the Company.
In addition, the Company'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 the company'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 OPERATIONS
Comparison of the Three Months Ended March 31, 2000 to the Three Months Ended
March 31, 1999
NET INCOME
The Company recognized net income of $25.9 million for the three months
ended March 31, 2000, compared to $14.0 million for the three months ended March
31, 1999. The increase in net income of $11.9 million, or 85.5%, was primarily
the result of: an increase in net "same store" property results; the acquisition
of 28 properties during 1999; 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 the sale of eight
properties during 1999 and thirteen properties in 2000. These factors are
discussed in more detail in the following paragraphs.
CONSOLIDATED RENTAL PROPERTY OPERATIONS
Rental and other property revenues from the consolidated Owned Properties
totaled $224.3 million for the three months ended March 31, 2000, compared to
$112.6 million for the three months ended March 31, 1999, an increase of $111.7
million, or 99.2%. The increase in rental and other property revenues was
primarily due to: an increase in "same store" sales revenue of 3%; the purchase
of 28 properties; the acquisition of controlling interests in partnerships
owning 183 properties; the subsequent consolidation of the purchased and newly
controlled entities; and the sale of 13 properties.
17
18
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 $90.8 million
for the three months ended March 31, 2000, compared to $43.2 million for the
three months ended March 31, 1999, an increase of $47.6 million or 110%. The
increase in property operating expenses was primarily due to: an increase in
"same store" expenses of 1%; the purchase of 28 properties; the acquisition of
controlling interests in partnerships owning 183 properties; the subsequent
consolidation of the purchased and newly controlled entities; and the sale of 13
properties.
SERVICE COMPANY BUSINESS
The Company's share of income from the service company business was $8.4
million for the three months ended March 31, 2000, compared to ($0.3) million
for the three months ended March 31, 1999. The increase in service company
business income of $8.7 million was primarily due to a reduction in the
allocation of management contract expense between the consolidated service
company 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 EXPENSES
General and administrative expenses increased from $3.1 million for the
three months ended March 31, 1999 to $3.2 million for the three months ended
March 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 EXPENSE
Interest expense, which includes the amortization of deferred financing
costs, totaled $59.1 million for the three months ended March 31, 2000, compared
to $31.3 million for the three months ended March 31, 1999, an increase of $27.8
million, or 88.8%. The increase was primarily due to the Company acquiring
controlling interests in partnerships owning 183 properties and the subsequent
consolidation of these properties. The Company had also drawn $277 million on
its credit facility with Bank of America as of March 31, 2000 compared to $124
million at March 31, 1999 which incurred interest at a weighted average interest
rate of 8.55% and 7.67% , during the respective three month periods then ended.
INTEREST INCOME
Interest income totaled $15.9 million for the three months ended March 31,
2000, compared to $9.8 million for the three months ended March 31, 1999. The
increase of $6.1 million is primarily due to the recognition of interest income
on discounted notes.
18
19
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 increased from $66 million for the three months ended
March 31, 1999 to $98 million for the three months ended March 31, 2000
primarily due to: an increase of 5% in "same store" property operations; the
acquisition and subsequent consolidation of newly controlled entities and
controlling interests in partnerships owning 183 properties; the purchase of 28
properties and resultant sale of 13 properties.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 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)
During the three months ended March 31, 2000, the Company closed $119
million of long-term fixed-rate, fully amortizing notes payable with a weighted
average interest rate of 8.3%. Each of the notes is individually secured by one
of twelve properties with no cross-collateralization. The Company used the net
proceeds totaling $117.5 million after transaction costs to repay existing debt.
During the three months ended March 31, 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. The credit facility including the $50 million expansion
is available for general corporate purposes and has a two-year term with two
one-year extensions. The annual interest rate under the credit facility is based
on either LIBOR or a base rate which is the higher of Bank of America's
reference rate 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 at
March 31, 2000 and 1999 was 8.55% and 7.67% respectively. The amount available
under the credit facility at March 31, 2000 and 1999 was $72.8 million and $75.7
million respectively.
19
20
The 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.
On January 11, 2000, AIMCO completed a direct placement of 681,818 shares
of Class A Common Stock into which 1,200,000 shares of Class M Convertible
Cumulative Preferred Stock are convertible to AEW Targeted Securities Fund II,
L.P. The net proceeds of approximately $30 million was used to repay
indebtedness and for working capital.
On March 3, 2000 AIMCO filed a shelf registration statement with the
Securities and Exchange Commission with respect to an 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.
At March 31, 2000 the Company had $137 million in cash and cash
equivalents. In addition, the Company had $93 million of restricted cash,
primarily consisting of reserves and impounds held by lenders for capital
expenditures, property taxes and insurance. The Company's principal demands for
liquidity include normal operating activities, payments of principal and
interest on outstanding debt, capital improvements, acquisitions of or
investments in properties, dividends paid to its stockholders and distributions
paid to minority limited partners in the AIMCO operating partnership. The
Company considers its cash provided by operating activities, and funds available
under its credit facilities, to be adequate to meet short-term liquidity
demands. The Company utilizes its revolving credit 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. During the three months ended March 31, 2000, the Company made
separate offers to the limited partners of 122 partnerships to acquire their
limited partnership interests. The Company purchased approximately $18 million
(including transaction costs) of limited partnership interests.
RETURN ON ASSETS AND RETURN ON EQUITY
The Company's Return On Assets and Return On Equity for the three months
ended March 31, 2000 and 1999 are as follows:
BASED ON BASED ON
AFFO FFO
------------- -------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
------------- -------------
2000 1999 2000 1999
----- ----- ----- -----
Return on Assets (a)....................................... 10.2% 9.5% 10.7% 10.0%
Return on Equity
Basic (b)................................................ 14.4% 14.1% 15.8% 15.3%
Diluted (c).............................................. 13.0% 11.6% 14.1% 12.6%
- ---------------
(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
20
21
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
the additional properties consolidated in the fourth quarter of 1999 and the
first quarter of 2000.
The increase in Return On Equity-Basic (AFFO) and (FFO) and Return On
Equity -- Diluted (AFFO) and (FFO) from the 1999 period to the 2000 period is
primarily due to increased return on assets.
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 purchase interests in limited
partnerships that own properties, the Company and its affiliates are sometimes
subject to legal actions, including allegations that such activities may involve
breaches of fiduciary duties to the limited partners of such partnerships or
violations of the relevant partnership agreements. The Company believes it
complies with its fiduciary obligations and relevant partnership agreements, and
does not expect such legal actions to have a material adverse effect on the
consolidated financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
CONTINGENCIES
Pending Investigations of HUD Management Arrangements
In July 1999, NHP received a grand jury subpoena requesting documents
relating to NHP's management of HUD-assisted or HUD-insured multi-family
projects and NHP'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, to NHP's or AIMCO's knowledge, any owner of a
HUD property managed by NHP. AIMCO believes that NHP's operation and program 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 the investigations will result in a
material adverse impact on its operations. However, as with any similar
investigation, there can be no assurance that these will not result in material
fines, penalties or other costs.
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
21
22
hazardous substances at the disposal or treatment facility. Anyone who arranges
for the disposal or treatment of hazardous or toxic substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership, operation and management of our properties, we
could potentially be liable for environmental liabilities or costs associated
with our properties or properties we may acquire or manage in the future.
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 RISK
The Company's primary market risk exposure relates to changes in interest
rates. The Company is not subject to any foreign currency exchange rate risk or
commodity price risk, or any other material market rate or price risks. The
Company uses predominantly long-term, fixed-rate and self-amortizing
non-recourse debt in order to avoid the refunding or repricing risks of
short-term borrowings. The Company uses short-term debt financing and working
capital primarily to fund acquisitions and generally expects to refinance such
borrowings with proceeds from equity offerings or long term debt financings.
The Company had $366 million of variable rate debt outstanding at March 31,
2000, which represents 12.2% of the Company's total outstanding debt. Based on
this level of debt, an increase in interest rates of 1% would result in the
Company's income and cash flows being reduced by $3.7 million on an annual
basis.
The estimated aggregate fair value of the Company's cash and cash
equivalents, receivables, payables and short-term secured and unsecured debt as
of March 31, 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 the Company'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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From 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"), pursuant to Section 4(2) thereof. During the three months ended March 31,
2000, 133,732 shares of Class A Common Stock were issued in exchange for Common
OP Units.
As disclosed in AIMCO'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 investor
22
23
for $30 million. The shares were issued in a private placement transaction
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with this report(1):
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 -- Charter (Exhibit 3.1 to AIMCO'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's Annual Report on Form 10-K
for the fiscal year 1999, is incorporated herein by this
reference)
10.1 -- Eleventh Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of January 13, 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 Association
27.1 -- Financial Data Schedule
99.1 -- Agreement re: disclosure of long-term debt instruments
- ---------------
(1) Schedules and supplemental materials to the exhibits have been omitted but
will be provided to the Securities and Exchange Commission upon request.
(b) Reports on Form 8-K for the quarter ended March 31, 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, 2000, relating to the sale of an aggregate of 1,200,000
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.
23
24
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)
Date: May 10, 2000
24
25
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 -- Charter (Exhibit 3.1 to AIMCO'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's Annual Report on Form 10-K
for the fiscal year 1999, is incorporated herein by this
reference)
10.1 -- Eleventh Amendment to the Third Amended and Restated
Agreement of Limited Partnership of AIMCO Properties,
L.P., dated as of January 13, 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 Association
27.1 -- Financial Data Schedule
99.1 -- Agreement re: disclosure of long-term debt instruments
- ---------------
(1) Schedules and supplemental materials to the exhibits have been omitted but
will be provided to the Securities and Exchange Commission upon request.