SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE TO/A
(AMENDMENT NO. 2)
TENDER OFFER STATEMENT UNDER SECTION 14(D)(1) OR 13(E)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934
Century Properties Growth Fund XXII
- --------------------------------------------------------------------------------
(Name of Subject Company (Issuer)
Apartment Investment and Management Company
AIMCO-GP, Inc.
Fox Capital Management Corporation
AIMCO Properties, L.P.
- --------------------------------------------------------------------------------
(Names of Filing Persons - Offerors)
Limited Partnership Units
- --------------------------------------------------------------------------------
(Title of Class Securities)
None
- --------------------------------------------------------------------------------
(CUSIP Number of Class Securities)
Patrick J. Foye
Apartment Investment and Management Company
Colorado Center, Tower Two
2000 South Colorado Boulevard, Suite 2-1000
Denver, Colorado 80222
(303) 757-8101
- --------------------------------------------------------------------------------
Name, address, and telephone numbers of person authorized
to receive notices and communications on behalf of filing persons)
Copy to:
Joseph A. Coco
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
and
Jonathan L. Friedman
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
(213) 687-5000
1
Calculation of Filing Fee
<Table>
<Caption>
Transaction valuation* Amount of filing fee
- ---------------------- --------------------
$7,036,737.30 $ 569.27
</Table>
* For purposes of calculating the fee only. This amount assumes the
purchase of 36,535.50 units of limited partnership interest of the
subject partnership for $192.70 per unit. The amount of the filing fee,
calculated in accordance with Section 14(g)(1)(B)(3) and Rule 0-11(d)
under the Securities Exchange Act of 1934, as amended, equals $80.90
per million of the aggregate amount of cash offered by the bidder.
[X] Check the box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $569.27 Filing Party: AIMCO Properties, L.P.
Form or Registration No.: Schedule TO Date Filed: November 7, 2003
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to which the
statement relates:
[X] third-party tender offer subject to Rule 14d-1
[ ] issuer tender offer subject to Rule 13e-4
[X] going-private transaction subject to Rule 13e-3
[ ] amendment to Schedule 13D under Rule 13d-2
Check the following box if the filing is a final amendment reporting the results
of the tender offer: [ ]
2
AMENDMENT NO. 2 TO SCHEDULE TO
This Amendment No. 2 amends and supplements the Tender Offer Statement
and Rule 13e-3 Transaction Statement on Schedule TO, as amended by Amendment No.
1 thereto (the "Schedule TO"), relating to the offer by AIMCO Properties, L.P.,
a Delaware limited partnership, to purchase units of limited partnership
interest ("Units") of Century Properties Growth Fund XXII, a California limited
partnership (the "Partnership"), at a price of $192.70 per unit in cash, subject
to the conditions set forth in the Offer to Purchase dated November 6, 2003, and
in the related Letter of Transmittal (which, together with any supplements or
amendments, collectively constitute the "Offer"). Copies of the Offer to
Purchase and the Letter of Transmittal are filed as Exhibits (a)(1) and (a)(2),
respectively, to the Schedule TO. The item numbers and responses thereto below
are in accordance with the requirements of Schedule TO. Unless defined herein,
capitalized terms used and not otherwise defined herein have the respective
meanings ascribed to such terms in the Offer to Purchase.
ITEM 1. SUMMARY TERM SHEET.
Item 1 is amended and supplemented as follows:
(1) The following paragraph under "THE SUMMARY TERM SHEET" is
amended and restated as follows:
"Covenant Not to Sue. If you requested exclusion from the
settlement but tender your units in this offer, by signing the letter
of transmittal, you agree not to bring any action, claim, suit or
proceeding against us and those affiliates who were defendants in the
class and derivative litigation concerning any of the matters that are
the subject of the Stipulation of Settlement approved by the Court in
connection with the settlement of such class and derivative litigation,
including this Litigation Settlement Offer, other than for violations
of federal or state securities laws. If you do not request exclusion
from the settlement class, you will already have agreed not to bring
any such action, you will already have agreed not to bring any such
action, claim, suit or proceeding once the settlement."
(2) The following paragraph under "THE SUMMARY TERM SHEET" is
amended and restated as follows:
"Conflicts of Interest. NHP Management Company (which is our
affiliate) receives fees for managing your partnership's property and
the general partner of your partnership (which is our affiliate) is
entitled to receive asset management fees and reimbursement of certain
expenses involving your partnership and its property. As a result, a
conflict of interest exists between continuing the partnership and
receiving these fees, and the liquidation of the partnership and the
termination of these fees. See "The Litigation Settlement Offer --
Section 13. Conflicts of Interest and Transactions with Affiliates" and
"-- Section 15. Certain Information Concerning Your Partnership."
(3) The following paragraph is added as the eighteenth
paragraph under "THE SUMMARY TERM SHEET":
"Fairness of the Offer. Although we, Apartment Investment and
Management Company ("AIMCO") and AIMCO-GP, Inc. (collectively, the
"AIMCO Entities") and your general partner have interests that may
conflict with those the partnership's unaffiliated limited partners,
each of the AIMCO Entities believes that the offer price and the offer
are fair to the unaffiliated limited partners of your partnership. This
determination is based on the information and the factors set
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forth under "The Litigation Settlement Offer -- Section 12. Position of
Your General Partner of Your Partnership With Respect to the Offer."
ITEM 2. SUBJECT COMPANY INFORMATION.
Item 2(a) of the Schedule TO is amended and supplemented as
follows:
(1) The following paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 15. Certain Information Concerning Your Partnership" is amended and
restated as follows:
"Ownership and Voting. We, together with IPLP Acquisition,
L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 46,312.50
units, or 55.90%, of the outstanding units of your partnership. Because
we and our affiliates own a majority of the outstanding units, we have
the ability to control most votes of the limited partners. See "The
Litigation Settlement Offer -- Section 7. Effects of the Offer" and "--
Section 16. Voting Power.""
(2) The chart under "THE LITIGATION SETTLEMENT OFFER - Section 15.
Certain Information Concerning Your Partnership - Financial Data" is amended by
adding the following line items:
<Table>
<Caption>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
---------------------------- --------------------------------------
2003 2002 2002 2001 2000
------------- ------------- ------------- ------------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
Income (loss) per unit from continuing operations $ (15.32) $ 1.44 $ (2.39) $ 76.57 $ 27.47
Ratio of earnings to fixed charges (deficit)....... (36%) 3.3% (4.2%) 139.1% 44.3%
Book value per limited partnership unit............ 23.26 44.85 41.03 63.80 150.85
</Table>
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON.
Item 3(a) - (c) of the Schedule TO is amended and supplemented
as follows:
(1) The Rule 13e-3 Transaction Statement on Schedule TO is being filed
by Apartment Investment and Management Company, a Maryland corporation
("AIMCO"), AIMCO Properties, L.P., a Delaware limited partnership ("AIMCO OP"),
AIMCO-GP, Inc. a Delaware corporation ("AIMCO-GP"), and Fox Capital Management
Corporation, a Delaware corporation ("Fox Capital"). AIMCO-GP is the general
partner of AIMCO OP and a wholly owned subsidiary of AIMCO. Fox Capital is the
managing general partner of the Partnership and a wholly owned subsidiary of
AIMCO. The principal business of AIMCO, AIMCO-GP, and AIMCO OP is the ownership,
acquisition, development, expansion and management of multi-family apartment
properties. The business address of AIMCO, AIMCO-GP and AIMCO OP is 4582 Ulster
Street Parkway, Suite 1100, Denver, Colorado 80237, and their telephone number
is (303) 757-8101. The principal address of Fox Capital is 55 Beattie Place,
P.O. Box 1089, Greenville, South Carolina 29602, and its phone number is (864)
239-1000.
During the last five years, none of AIMCO, AIMCO-GP, AIMCO OP
or Fox Capital nor, to the best of their knowledge, any of the persons listed in
Annex I to the Offer to Purchase (i) has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining further violations of or
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prohibiting activities subject to federal or state securities laws or finding
any violation with respect to such laws.
(2) The fourth paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 10. Information Concerning Us and Certain of Our Affiliates" is amended
and restated as follows:
"We and AIMCO are both subject to the information and
reporting requirements of the Exchange Act and, in accordance
therewith, file reports and other information with the Securities and
Exchange Commission relating to our business, financial condition and
other matters, including the complete financial statements summarized
below. Such reports and other information may be inspected at the
public reference facilities maintained by the SEC at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material
can also be obtained from the Public Reference Room of the SEC in
Washington, D.C. at prescribed rates. The SEC also maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants
that file electronically with the SEC. In addition, information filed
by AIMCO with the New York Stock Exchange may be inspected at the
offices of the New York Stock Exchange at 20 Broad Street, New York,
New York 10005."
(3) The following chart under Annex I is amended and restated as
follows:
<Table>
<Caption>
NAME POSITION
-------------------------- -------------------------------------
Terry Considine............ Chairman of the Board of Directors and Chief
Executive Officer
Peter K. Kompaniez......... Vice Chairman, President and Director
Harry G. Alcock............ Executive Vice President and Chief Investment
Officer
Miles Cortez............... Executive Vice President, General Counsel and
Secretary
Joseph DeTuno.............. Executive Vice President -- Redevelopment
Patti K. Fielding.......... Executive Vice President -- Securities and Debt
Patrick J. Foye............ Executive Vice President
Lance J. Graber............ Executive Vice President -- AIMCO Capital
Paul J. McAuliffe.......... Executive Vice President and Chief Financial Officer
Ronald D. Monson........... Executive Vice President and Head of Property
Operations
David Robertson............ Executive Vice President -- President and Chief Executive Officer
of AIMCO Capital
Jim Purvis................. Executive Vice President -- Human Resources
Randall J. Fein............ Executive Vice President -- Student Housing
James N. Bailey............ Director
Richard S. Ellwood......... Director
J. Landis Martin........... Director
Thomas L. Rhodes........... Director
</Table>
ITEM 4. TERMS OF THE TRANSACTION.
Item 4(a) of the Schedule TO is amended and supplemented as
follows:
(1) The following paragraph under "RISK FACTORS" is amended and
restated as follows:
"THERE MAY BE A POSSIBLE REDUCTION OF AVAILABLE INFORMATION ABOUT YOUR
PARTNERSHIP AS A RESULT OF THIS OFFER.
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If there are less than 300 unitholders in your partnership
upon consummation of the offer, your partnership would no longer be
required to file periodic reports with the SEC, such as annual reports
on Form 10-KSB containing annual audited financial statements, and
quarterly reports on Form 10-QSB containing unaudited quarterly
financial statements. Such reports are publicly available and can be
obtained on the SEC's web site. The lack of such filings could
adversely affect the already limited secondary market which currently
exists for units in your partnership and may discourage offers to
purchase your units. In such a case, you would regularly have access
only to the information your partnership's agreement of limited
partnership requires your general partner (which is our affiliate) to
provide each year, which consists primarily of tax information. See
"The Litigation Settlement Offer - Section 7. Effects of the Offer -
Effect on Trading Market; Registration Under Section 12(g) of the
Exchange Act."
(2) Section 1 under "THE LITIGATION SETTLEMENT OFFER" is amended and
restated as follows:
"1. TERMS OF THE OFFER; EXPIRATION DATE
Upon the terms and subject to the conditions of the offer, we
will accept (and thereby purchase) any and all units that are validly
tendered on or prior to the expiration date and not withdrawn in
accordance with the procedures set forth in "The Litigation Settlement
Offer -- Section 4. Withdrawal Rights." For purposes of the offer, the
term "expiration date" shall mean midnight, New York City time, on
December 9, 2003, unless we in our sole discretion shall have extended
the period of time for which the offer is open (which may not exceed 90
business days from the date of commencement, as provided in the
settlement). See "The Litigation Settlement Offer -- Section 5.
Extension of Tender Period; Termination; Amendment; No Subsequent
Offering Period," for a description of our right to extend the period
of time during which the offer is open and to amend or terminate the
offer.
The purchase price per unit will automatically be reduced by
the aggregate amount of distributions per unit, if any, made or
declared by your partnership on or after the commencement of our offer
and prior to the date on which we acquire your units pursuant to our
offer. If the offer price is reduced in this manner, we will notify you
and, if necessary, we will extend the offer period so that you will
have at least ten business days from the date of our notice to withdraw
your units.
If, prior to the expiration date, we increase the
consideration offered pursuant to the offer, the increased
consideration will be paid for all units accepted for payment pursuant
to the offer, whether or not the units were tendered prior to the
increase in consideration.
The offer is conditioned on satisfaction of certain
conditions. The offer is not conditioned upon any minimum number of
units being tendered. See "The Litigation Settlement Offer -- Section
19. Conditions to the Offer," which sets forth in full the conditions
of the offer. We reserve the right (but in no event shall we be
obligated), in our reasonable discretion, to waive any or all of those
conditions. If, on or prior to the expiration date, any or all of the
conditions have not been satisfied or waived, we reserve the right to
(i) decline to purchase any of the units tendered, terminate the offer
and return all tendered units to tendering limited partners, (ii) waive
all the unsatisfied conditions and purchase, subject to the terms of
the offer, any and all units validly tendered, (iii) extend the offer
and, subject to your withdrawal rights, retain the units that have been
tendered during the period or periods for which the offer is extended,
or (iv) amend the offer. If we are unable to accept the units tendered
in this Litigation Settlement Offer due to a failure of any or all of
the conditions of our offer to be satisfied, we will conduct another
offer in
6
accordance with the terms of the settlement (which will occur no later
than six months after the date of the commencement of this offer). We
will continue this process until we have accepted for payment all units
properly tendered in an offer conducted in accordance with the terms of
the settlement. By executing the letter of transmittal, you will agree
that the transfer of units will be deemed to take effect as of the
first day of the calendar quarter in which the offer expires. Upon
expiration of the offer, the books and records of the partnership will
reflect the change in ownership as having occurred as of this date. For
tax, accounting and financial reporting purposes, the transfer of
tendered units will be deemed to take effect on the first day of the
calendar quarter. Accordingly, all profits and losses relating to any
tendered units will be allocated to us from and after this date. If we
waive any material conditions to our offer (other than those relating
to necessary governmental approvals), we will notify you and, if
necessary, we will extend the offer period so that you will have at
least five business days from the date of our notice to withdraw your
units.
This offer is being mailed on or about November 7, 2003 to the
persons shown by your partnership's records to be limited partners or,
in the case of units owned of record by Individual Retirement Accounts
and qualified plans, beneficial owners of units."
Section 2 under "THE LITIGATION SETTLEMENT OFFER" is amended and
restated as follows:
"2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms and subject to the conditions of the offer, we
will purchase, by accepting for payment, and will pay for, any and all
units validly tendered promptly following the expiration date. A
tendering beneficial owner of units whose units are owned of record by
an Individual Retirement Account or other qualified plan will not
receive direct payment of the offer price; rather, payment will be made
to the custodian of such account or plan. In all cases, payment for
units purchased pursuant to the offer will be made only after timely
receipt by the Information Agent of a properly completed and duly
executed letter of transmittal and other documents required by the
letter of transmittal. See "The Litigation Settlement Offer -- Section
3. Procedure for Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST
BE PAID ON THE OFFER PRICE BY REASON OF ANY DELAY IN MAKING SUCH
PAYMENT.
For purposes of the offer, we will be deemed to have accepted
for payment pursuant to the offer, and thereby purchased, validly
tendered units, if, as and when we give verbal or written notice to the
Information Agent of our acceptance of those units for payment pursuant
to the offer. Payment for units accepted for payment pursuant to the
offer will be made through the Information Agent, which will act as
agent for tendering limited partners for the purpose of receiving cash
payments from us and transmitting cash payments to tendering limited
partners.
If any tendered units are not accepted for payment by us for
any reason, the letter of transmittal with respect to such units not
purchased may be destroyed by the Information Agent or us or returned
to you. You may withdraw tendered units until the expiration date
(including any extensions). In addition, if we have not accepted units
for payment by January 6, 2004 you may then withdraw any tendered
units. After the expiration date, the Information Agent may, on our
behalf, retain tendered units, and those units may not be otherwise
withdrawn, if, for any reason, acceptance for payment of, or payment
for, any units tendered pursuant to the offer is delayed or we are
unable to accept for payment, purchase or pay for units tendered
pursuant to the offer. Any such action is subject, however, to our
obligation under Rule 14e-1(c) under the Exchange Act, to pay you the
offer price in respect of units tendered or return those units promptly
after termination or withdrawal of the offer.
7
We reserve the right to transfer or assign, in whole or in
part, to one or more of our affiliates, the right to purchase units
tendered pursuant to the offer, but no such transfer or assignment will
relieve us of our obligations under the offer or prejudice your rights
to receive payment for units validly tendered and accepted for payment
pursuant to the offer."
(3) The first paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 3. Procedure for Tendering Units - Release of Claims" is amended and
restated as follows:
"Release of Claims. By executing the letter of transmittal,
effective upon acceptance for payment of the units tendered by you, you
will, on behalf of yourself, your heirs, estate, executor,
administrator, successors and assigns, and your partnership, fully,
finally and forever release, relinquish and discharge us and our
predecessors, successors and assigns and our present and former
parents, subsidiaries, affiliates, investors, insurers, reinsurers,
officers, directors, employees, agents, administrators, auditors,
attorneys, accountants, information and solicitation agents, investment
bankers, and other representatives, including but not limited to AIMCO
Properties, L.P. (collectively, the "Releasees"), from any and all
claims and causes of action, whether brought individually, on behalf of
a class, or derivatively, demands, rights, or liabilities, including,
but not limited to, claims for negligence, gross negligence,
professional negligence, breach of duty of care or loyalty, or breach
of duty of candor, fraud, breach of fiduciary duty, mismanagement,
corporate waste, malpractice, misrepresentation, whether intentional or
negligent, misstatements and omissions to disclose, breach of contract,
violations of any state or federal statutes, rules or regulations,
whether known claims or unknown claims that have been asserted or that
could have been asserted against the Releasees, that arise out of or
relate to (a) those matters and claims set forth in the class and
derivative litigation described in this Litigation Settlement Offer,
(b) the ownership of one or more units in your partnership, including
but not limited to, any and all claims related to the management of
your partnership or the properties owned by your partnership (whether
currently or previously), the payment of management fees or other
monies to the general partner of your partnership and its affiliates,
prior acquisitions or tender offers and the prior settlement, (c) the
purchase, acquisition, holding, sale, tender or voting of one or more
units in your partnership, or (d) any of the facts, circumstances,
allegations, claims, causes of action, representations, statements,
reports, disclosures, transactions, events, occurrences, acts,
omissions or failures to act, of whatever kind or character whatsoever,
irrespective of the state of mind of the actor performing or omitting
to perform the same, that have been or could have been alleged in any
pleadings, amended pleading, argument, complaint, amended complaint,
brief, motion, report or filing in the class and derivative litigation
described in this Litigation Settlement Offer (collectively, the
"Released Claims"); provided, however, that the Released Claims are not
intended to include (i) any unrelated claims that are unique to a
limited partner or settlement class member (e.g., a settlement class
member slips and falls on property owned by one of the defendants in
the class and derivative litigation, loses or did not receive a
distribution check distributed to other limited partners in such
partnership, or is an employee of one of the defendants and has an
employee related claim) or (ii) any claim based upon violations of
federal or state securities laws in connection with this offer."
(4) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 3.
Procedure for Tendering Units - Covenant Not to Sue" is amended and restated as
follows:
"Covenant Not to Sue. By executing the letter of transmittal,
you agree not to bring any action, claim, suit or proceeding against us
and those affiliates who were defendants in the class and derivative
litigation concerning any of the matters that are the subject of the
Stipulation of Settlement approved by the Court in connection with the
settlement of such class and derivative litigation, including this
Litigation Settlement Offer, other than for violations of federal or
state securities laws."
8
(5) The paragraph under "THE LITIGATION SETTLEMENT OFFER -- Procedure
for Tendering Units - Section 3. Procedure for Tendering Units -- Determination
of Validity; Rejection of Units; Waiver of Defects; No Obligation to Give Notice
of Defects" is amended and restated as follows:
"Determination of Validity; Rejection of Units; Waiver of
Defects; No Obligation to Give Notice of Defects. All questions as to
the validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of units pursuant to our offer
will be determined by us, in our reasonable discretion, which
determination shall be final and binding on all parties. We reserve the
absolute right to reject any or all tenders of any particular unit
determined by us not to be in proper form or if the acceptance of or
payment for that unit may, in the opinion of our counsel, be unlawful.
We also reserve the absolute right to waive or amend any of the
conditions of the offer that we are legally permitted to waive as to
the tender of any particular unit and to waive any defect or
irregularity in any tender with respect to any particular unit of any
particular limited partner. If we waive any of the conditions to the
offer with respect to the tender of a particular unit, we will waive
such condition with respect to all other tenders of units in this offer
as well. Our interpretation of the terms and conditions of the offer
(including the letter of transmittal) will be final and binding on all
parties. No tender of units will be deemed to have been validly made
unless and until all defects and irregularities have been cured or
waived. Neither we, the Information Agent, nor any other person will be
under any duty to give notification of any defects or irregularities in
the tender of any unit or will incur any liability for failure to give
any such notification."
(6) The first paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 5. Extension of Tender Period; Termination; Amendment; No Subsequent
Offering Period" is amended and restated as follows:
"We expressly reserve the right, in our reasonable discretion,
at any time and from time to time, (i) to extend the period of time
during which our offer is open (but not beyond 90 business days from
the date of commencement of the offer) and thereby delay acceptance for
payment of, and the payment for, any unit, (ii) to terminate the offer
and not accept any units not theretofore accepted for payment or paid
for if any of the conditions to the offer are not satisfied or if any
event occurs that might reasonably be expected to result in a failure
to satisfy such conditions, (iii) upon the occurrence of any of the
conditions specified in "The Litigation Settlement Offer -- Section 19.
Conditions of the Offer" relating to necessary governmental approvals,
to delay the acceptance for payment of, or payment for, any units not
already accepted for payment or paid for, and (iv) to amend our offer
in any respect (including, without limitation, by increasing or
decreasing the consideration offered, increasing or decreasing the
units being sought, or both). We will not assert any of the conditions
to the offer (other than those relating to necessary governmental
approvals) subsequent to the expiration of the offer. Notice of any
such extension, termination or amendment will promptly be disseminated
to you in a manner reasonably designed to inform you of such change. In
the case of an extension of the offer, the extension may be followed by
a press release or public announcement which will be issued no later
than 9:00 a.m., New York City time, on the next business day after the
scheduled expiration date of our offer, in accordance with Rule
14e-1(d) under the Exchange Act."
(7) The third paragraph under "THE LITIGATION SETTLEMENT OFFER--Section
8. Valuation of Units -- Determination of Offer Price" is amended and restated
as follows:
"We relied on the direct capitalization method because we believe this
is the valuation methodology most often used by the real estate
industry to value income producing property. The
9
court appointed independent appraiser also utilized the direct
capitalization method as one its valuation methodologies. However, in
comparison to our methodology, the independent appraiser relied on pro
forma net operating income as opposed to the current property income of
your partnership."
(8) The first paragraph and the first bullet point under "THE
LITIGATION SETTLEMENT OFFER - Section 19. Conditions to the Offer" are amended
and restated as follows:
"Notwithstanding any other provisions of our offer, we will
not be required to accept for payment and pay for any units tendered
pursuant to our offer, may postpone the purchase of, and payment for,
units tendered, and may terminate or amend our offer if at any time on
or after the date of this Litigation Settlement Offer and at or before
the expiration of our offer (including any extension thereof), any of
the following shall occur:
o any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in
the business, properties, assets, liabilities, indebtedness,
capitalization, condition (financial or otherwise),
operations, licenses or franchises, management contract, or
results of operations or prospects of your partnership or
local markets in which your partnership owns or operates its
property, including any fire, flood, natural disaster,
casualty loss, or act of God that is or could reasonably be
expected to be materially adverse to your partnership or the
value of your units to us, which change would, individually or
in the aggregate, result in, or reasonably be expected to
result in, an adverse effect on net operating income of your
partnership of more than $10,000 per year, or a decrease in
value of an asset of your partnership, or the incurrence of a
liability with respect to your partnership, in an amount in
excess of $100,000 (a "Material Adverse Effect"), or we shall
have become aware of any facts relating to your partnership,
its indebtedness or its operations which has had or could
reasonably be expected to have a Material Adverse Effect; or"
(9) The third bullet point under "THE LITIGATION SETTLEMENT OFFER -
Section 19. Conditions to the Offer" is amended and restated as follows:
"o there shall have been threatened in writing, instituted or pending
any action, proceeding, application or counterclaim by any Federal,
state, local or foreign government, governmental authority or
governmental agency, or by any other person, before any governmental
authority, court or regulatory or administrative agency, authority or
tribunal, which (i) challenges or seeks to challenge the acquisition by
us of the units, restrains, prohibits or delays the making or
consummation of the offer, prohibits the performance of any of the
contracts or other arrangements entered into by us (or any of our
affiliates) seeks to obtain any material amount of damages as a result
of the transactions contemplated by the offer, (ii) seeks to make the
purchase of, or payment for, some or all of the units pursuant to the
offer illegal or results in a delay in our ability to accept for
payment or pay for some or all of the units, (iii) seeks to prohibit or
limit the ownership or operation by us or any of our affiliates of the
entity serving as your general partner (which is our affiliate) or to
remove such entity as the general partner of your partnership, or seeks
to impose any material limitation on our ability or any of our
affiliates to conduct your partnership's business or own such assets,
(iv) seeks to impose material limitations on our ability or any of our
affiliates to acquire or hold or to exercise full rights of ownership
of the units including, but not limited to, the right to vote the units
purchased by us on all matters properly presented to unitholders or (v)
could reasonably be expected to result in a Material Adverse Effect; or
10
(10) The fifth bullet point under "THE LITIGATION SETTLEMENT OFFER -
Section 19. Conditions to the Offer" is amended and restated as follows:
"o your partnership shall have (i) changed, or authorized a change of,
its units or your partnership's capitalization, (ii) issued,
distributed, sold or pledged, or authorized, proposed or announced the
issuance, distribution, sale or pledge of (A) any equity interests
(including, without limitation, units), or securities convertible into
any such equity interests or any rights, warrants or options to acquire
any such equity interests or convertible securities, or (B) any other
securities in respect of, in lieu of, or in substitution for units
outstanding on the date hereof, (iii) purchased or otherwise acquired,
or proposed or offered to purchase or otherwise acquire, any
outstanding units or other securities, (iv) declared or paid any
dividend or distribution on any units or issued, authorized,
recommended or proposed the issuance of any other distribution in
respect of the units, whether payable in cash, securities or other
property, (v) authorized, recommended, proposed or announced an
agreement, or intention to enter into an agreement, with respect to any
merger, consolidation, liquidation or business combination, any
acquisition or disposition of a material amount of assets or
securities, or any release or relinquishment of any material contract
rights, or any comparable event, not in the ordinary course of
business, (vi) taken any action to implement such a transaction
previously authorized, recommended, proposed or publicly announced,
(vii) issued, or announced its intention to issue, any debt securities,
or securities convertible into, or rights, warrants or options to
acquire, any debt securities, or incurred, or announced its intention
to incur, any debt other than in the ordinary course of business and
consistent with past practice, (viii) authorized, recommended or
proposed, or entered into, any transaction which, has or could
reasonably be expected to have a Material Adverse Effect, (ix)
proposed, adopted or authorized any amendment of its organizational
documents, (x) agreed in writing or otherwise to take any of the
foregoing actions, or (xi) been notified that any debt of your
partnership or any of its subsidiaries secured by any of its or their
assets is in default or has been accelerated (any changes to the offer
resulting from the conditions set forth in this paragraph will most
likely involve a change in the amount or terms of the consideration
offered or the termination of the offer); or"
(11) The seventh bullet point of "THE LITIGATION SETTLEMENT OFFER -
Section 19. Conditions to the Offer" is amended and restated as follows:
"o there shall have occurred any event, circumstance, change, effect or
development that, individually or in the aggregate with any other
events, circumstances, changes, effects or developments, has had or
would reasonably be expected to have an adverse effect on our financial
condition in an amount in excess of $10,000,000; or"
(12) The following bullet point under "THE LITIGATION SETTLEMENT OFFER
- - Section 19. Conditions to the Offer" is deleted in its entirety:
"o we shall not have adequate cash or financing commitments available
to pay for the units validly tendered, which is the result of events or
circumstances beyond our reasonable control."
(13) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 19. Conditions to the Offer" is amended and restated as follows:
"The foregoing conditions are for our sole benefit and may be
asserted by us regardless of the circumstances giving rise to such
conditions or may be waived by us at any time in our reasonable
discretion prior to the expiration of this offer. The failure by us at
any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right, the waiver of any such right with respect to
any particular facts or circumstances shall not be deemed a waiver with
respect to any other facts or circumstances. All conditions to our
offer will be satisfied or waived on or before the expiration of our
offer."
11
(14) The first paragraph of the Letter of Transmittal is amended and
restated as follows:
"The undersigned hereto hereby acknowledges that he or she has
received (i) the Purchaser's Litigation Settlement Offer, dated the
date set forth above (the "Offer Date"), relating to the offer by AIMCO
Properties, L.P. (the "Purchaser") to purchase Limited Partnership
Interests (the "Units") in the Partnership and (ii) this Letter of
Transmittal and the Instructions hereto, as each may be supplemented or
amended from time to time (collectively, the "Offer")."
(15) The fourth paragraph of the Letter of Transmittal is amended and
restated as follows:
"By executing this Letter of Transmittal, the undersigned
hereby acknowledges that neither the court nor counsel for the parties
in the class and derivative litigation make any recommendation
regarding whether the undersigned should accept the Offer, and the
undersigned hereto represents and warrants to the Purchaser that the
undersigned (i) has received the Offer, including the executive summary
of the independent appraiser's report attached to the Litigation
Settlement Offer, and (ii) has had an opportunity to seek the advice of
such undersigned's attorney, tax advisor and/or financial advisor
before deciding whether or not to accept the Offer."
(16) The sixth paragraph of the Letter of Transmittal is amended and
restated as follows:
"The undersigned hereto, on behalf of himself or herself, his
or her heirs, estate, executor, administrator, successors and assigns,
and the Partnership, fully, finally and forever releases, relinquishes
and discharges the Purchaser and its predecessors, successors and
assigns and its present and former parents, subsidiaries, affiliates,
investors, insurers, reinsurers, officers, directors, employees,
agents, administrators, auditors, attorneys, accountants, information
and solicitation agents, investment bankers, and other representatives,
including but not limited to Apartment Investment and Management
Company and the general partner of the Partnership (collectively, the
"Releasees"), from any and all claims and causes of action, whether
brought individually, on behalf of a class, or derivatively, demands,
rights, or liabilities, including, but not limited to, claims for
negligence, gross negligence, professional negligence, breach of duty
of care or loyalty, or breach of duty of candor, fraud, breach of
fiduciary duty, mismanagement, corporate waste, malpractice,
misrepresentation, whether intentional or negligent, misstatements and
omissions to disclose, breach of contract, violations of any state or
federal statutes, rules or regulations, whether known claims or unknown
claims that have been asserted or that could have been asserted against
the Releasees, that arise out of or relate to (a) those matters and
claims set forth in the class and derivative litigation described in
the Litigation Settlement Offer, (b) the ownership of one or more Units
in the Partnership, including but not limited to, any and all claims
related to the management of the Partnership or the properties owned by
the Partnership (whether currently or previously), the payment of
management fees or other monies to the general partner of the
Partnership and its affiliates, prior acquisitions or tender offers and
the prior settlement, (c) the purchase, acquisition, holding, sale,
tender or voting of one or more Units in the Partnership, or (d) any of
the facts, circumstances, allegations, claims, causes of action,
representations, statements, reports, disclosures, transactions,
events, occurrences, acts, omissions or failures to act, of whatever
kind or character whatsoever, irrespective of the state of mind of the
actor performing or omitting to perform the same, that have been or
could have been alleged in any pleadings, amended pleading, argument,
complaint, amended complaint, brief, motion, report or filing in the
class and derivative litigation described in the Litigation Settlement
Offer (collectively, the "Released Claims"); provided, however, that
the Released Claims are not intended to include (i) any unrelated
claims that are unique to a unitholder or settlement class member
(e.g., a settlement class member slips and falls on property owned by
one of the defendants in the class and derivative litigation, loses or
did not receive a distribution check
12
distributed to other limited partners in such partnership, or is an
employee of one of the defendants and has an employee related claim),
or (ii) any claim based on violations of federal or state securities
laws in connection with the Offer."
(17) The tenth paragraph of the Letter of Transmittal is amended and
restated as follows:
"Subject to and effective upon acceptance for payment of any
Unit tendered hereby in accordance with the terms of the Offer, the
signatory agrees not to bring any action, claim, suit or proceeding
against the Purchaser and its affiliates who were defendants in the
class and derivative litigation described in the Litigation Settlement
Offer concerning any of the matters that are the subject of the
Stipulation of Settlement approved by the Court in connection with the
settlement of such class and derivative litigation, including the
Offer, other than for violations of federal or state securities laws."
(18) The eleventh paragraph of the Letter of Transmittal is amended and
restated as follows:
"The undersigned hereto irrevocably appoints the Purchaser and
its designees as his or her proxy, each with full power of
substitution, to the fullest extent of the undersigned's rights with
respect to the Units tendered by him or her and accepted for payment by
the Purchaser. Such proxy shall be considered coupled with an interest
in the tendered Units. Such appointment will be effective upon receipt
of this Letter of Transmittal. Upon receipt of this Letter of
Transmittal, all prior proxies and consents given by undersigned hereto
with respect to the Units will, without further action, be revoked, and
no subsequent proxies or consents may be given (and if given will not
be effective). The Purchaser and its designees are, as to those Units,
empowered to exercise all voting as a limited partner as the Purchaser,
in its discretion, may deem proper at any meeting of limited partners,
by written consent or otherwise. The Purchaser reserves the right to
require that, in order for Units to be deemed validly tendered,
immediately upon our acceptance for payment of the Units, the Purchaser
must be able to exercise full voting rights with respect to the Units,
including voting at any meeting of limited partners then scheduled or
acting by written consent without a meeting. By executing this Letter
of Transmittal, the undersigned agrees to execute all such documents
and take such other actions as shall be reasonably required to enable
the Units tendered to be voted in accordance with the Purchaser's
directions. The proxy granted by the undersigned hereto to the
Purchaser will remain effective and be irrevocable for a period of ten
years following the Expiration Date of the Offer."
(19) The following paragraph in the Letter of Transmittal is deleted in
its entirety:
"The undersigned hereto irrevocably constitutes and appoints
the Purchaser and any designees of the Purchaser as the true and lawful
agent and attorney-in-fact of the undersigned with respect to such
Units, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to
withdraw any or all of such Units that have been previously tendered in
response to any tender or exchange offer provided that the price per
unit being offered by the Purchaser is equal to or higher than the
price per unit being offered in the other tender or exchange offer.
This appointment is effective upon execution and receipt of this Letter
of Transmittal and shall continue to be effective unless and until such
Units are withdrawn from the Offer by the undersigned prior to the
Expiration Date."
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Item 5(a) and (b) of the Schedule TO is amended and
supplemented as follows:
13
(1) The first, second and third paragraphs of "THE LITIGATION
SETTLEMENT OFFER - Section 9. The Lawsuit and the Settlement - The Settlement of
the Nuanes and Heller Complaints" is amended and restated as follows:
"On December 20, 2002, the parties to the above-entitled
litigation executed a Stipulation of Settlement of the two actions.
That settlement was the result of over one year of negotiations and the
involvement of two separate settlement judges. Class counsel and
defendants' counsel first met with the Honorable William J. Cahill,
Retired California Superior Court Judge, on two separate occasions.
Counsel also met on four separate occasions with the Honorable Margaret
J. Kemp, California Superior Court Judge, before reaching a settlement
in principle. The parties initially met with Judge Cahill on two
occasions in the fall of 2000, but were ultimately unsuccessful in
reaching a definitive settlement agreement. At the Court's direction,
they renewed formal settlement discussions before Judge Kemp. The
parties first attended a settlement conference before Judge Kemp in
September or October 2002 and then subsequently met with her on October
28, 2002, November 26, 2002 and December 2, 2002. The parties reached
final agreement on the material terms of the settlement at the last
settlement conference with Judge Kemp on December 2, 2002 and put the
terms of that agreement on the record in open court.
In each of the conferences described above, counsel from Lieff
Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman
Devalerio Pease & Tobacco attended on behalf of the named plaintiffs
and the putative settlement class; counsel from Skadden, Arps, Slate,
Meagher & Flom LLP attended on behalf of AIMCO and its affiliated
entities, including your general partner, and Orrick Herrington &
Sutcliffe attended on behalf of the remaining defendants. AIMCO
Executive Vice President Patrick Foye also attended each of these
meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham
also participated on behalf of plaintiffs and the putative settlement
class in those settlement discussions before the Hon. Cahill, Retired.
At these meetings, discussions included possible transactions that
could provide liquidity to investors and form the basis of a
settlement, the use of a settlement fund and the amount of such fund,
the timing and distribution of any settlement fund, selection and use
of an appraiser and disclosures that would accompany any contemplated
transaction(s). The participants considered but ultimately rejected a
merger or roll-up of the various partnerships as possible alternatives
to cash tender offers. The parties ultimately concluded, however, that
a merger or roll-up could be potentially complicated and time consuming
and that a cash tender offer would be a less coercive form of providing
liquidity to those investors who desired it.
The Settlement Agreement requires each tender offer to attach
executive summaries of partnership property appraisals commissioned
specifically for the settlement tender offers and to provide an
explanation of how the appraised values of the properties compare to
the per Unit price(s) being offered. It also requires the payment of an
allocable portion of the settlement fund for each unit tendered
pursuant to the settlement fund, details the scope of the release and
covenants not to sue which will bind class members, requires that
tender offers be made no more than one year after final approval of the
settlement and imposes certain restrictions on the length of time in
which the tender offers can remain open, as well as with regard to
other disclosures made therein. On April 4, 2003, the Court
preliminarily approved the settlement and, on June 13, 2003, entered an
order finally approving the settlement and dismissing both the Heller
and Nuanes litigation with prejudice. On August 12, 2003, an objector
filed an appeal of the court's order approving the settlement and is
seeking to reverse or vacate the Court's order and the judgment entered
thereto. Although we reserve our right to terminate or amend our offer
if final court approval of the settlement is reversed or vacated, we
have nevertheless elected to proceed with this offer under the terms of
the settlement. On November 24, 2003, the objector appealing the
settlement and judgment entered thereto filed an application requesting
the Court order AIMCO to withdraw the settlement tender offers, refrain
from making further offers pending the appeal and auction any units
tendered to third parties. The objector contends that this offer does
not conform with the terms of the Settlement. Alternatively, counsel
for the objector has requested the Court on behalf of a settlement
class member order AIMCO to pay all non-tendering settlement class
members their pro rata share of the Settlement Fund whether or not the
settlement and judgment entered thereto is vacated on appeal and to
notify settlement class members that the releases and covenant not to
sue are not binding unless the settlement and judgment entered thereto
is affirmed on appeal. AIMCO asserts that such applications are without
merit and is opposing such applications."
14
(2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 11. Background and Reasons for the Offer - Alternatives Considered by
Your General Partner -- Liquidation" is amended and restated as follows:
"If your partnership was liquidated, and the properties sold
at prices equal to the values recently determined by the independent
appraiser (see Annex II), we estimate that your net liquidation
proceeds would be $530.61 per unit. See "The Litigation Settlement
Offer -- Section 8. Valuation of Units." However, in the opinion of
your general partner, which is our affiliate, the present time may not
be the most desirable time to sell the real estate assets of your
partnership in a private transaction, and the proceeds realized from
any such sale would be uncertain. Your general partner believes it
currently is in the best interest of your partnership to continue
holding its real estate assets. Although future operating results and
sales prices are uncertain, your general partner believes that the
operating performance of your partnership's property may improve in the
future. This improvement, should it occur, may result in higher
property values. Such values, however, are also a function of
capitalization rates in the market and the interest rate environment at
the time. However, because your general partner and property manager
(which are our affiliates) receive fees for managing your partnership
and its property, a conflict of interest exists between continuing the
partnership and receiving such fees, on the one hand, and the
liquidation of the partnership and the termination of such fees, on the
other. See "The Litigation Settlement Offer -- Section 15. Certain
Information Concerning Your Partnership -- Investment Objectives and
Policies; Sale or Financing of Investments" and "--Section 13.
Conflicts of Interest and Transactions with Affiliates." The term of
the partnership will continue until December 31, 2010, unless the
partnership is terminated sooner under the provisions of the
partnership agreement."
(3) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11.
Background and Reasons for the Offer - Alternative Transactions Considered by
Us" is amended and restated as follows:
"Alternative Transactions Considered by Us. At the present
time, we have decided to proceed with this offer pursuant to the court
approved settlement. From time to time in the past, we have considered
proposing a number of alternative transactions, including the purchase
of your partnership's property or a merger of your partnership in which
you would receive cash in exchange for your units. We decided not to
pursue these alternative transactions because, in each case, we
determined that a tender offer would be a less expensive means of
acquiring additional interests in your partnership, and would not
require the consent or approval of any limited partners (other than
those who elect to tender their units). In the future, however, we may
consider purchasing your partnership's property or effecting such a
merger. See "The Litigation Settlement Offer -- Section 14. Future
Plans of the Purchaser." We also considered an offer to exchange units
in your partnership for limited partnership interests in AIMCO
Properties, L.P. However, because of the expense and delay associated
with making such an exchange offer, we decided to make an offer for
cash only. In addition, our historical experience has been that when we
have offered limited partners an opportunity to receive cash or limited
partnership interests in AIMCO Properties, L.P., the limited partners
who tender usually prefer the cash option."
(4) The first paragraph of "THE LITIGATION SETTLEMENT OFFER - Section
13. Conflicts of Interest and Transactions with Affiliates -- Transactions with
Affiliates" is amended and restated as follows:
"NHP Management Company (which is our affiliate) received fees
of approximately $170,000 and $817,000 for the years ended December 31,
2002 and 2001, respectively, for
15
construction management services. The construction management service
fees are calculated based on a percentage of current additions to
investment properties."
(5) The third paragraph of "THE LITIGATION SETTLEMENT OFFER - Section
13. Conflicts of Interest and Transactions with Affiliates -- Transactions with
Affiliates" is amended and restated as follows:
"We have made available to the partnership a credit line of up
to $150,000 per property owned by the partnership. During the year
ended December 31, 2002, we agreed to advance funds in excess of the
$150,000 line of credit to fund operating expenses of Plantation Creek
Apartments and advanced $329,000 for this purpose. At December 31,
2002, the outstanding balance was approximately $333,000, including
accrued interest. The advance was repaid in full subsequent to December
31, 2002. There were no outstanding amounts due under this line of
credit at December 31, 2001."
ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Item 6(a), (c)(1) - (7) of the Schedule TO is amended and
supplemented as follows:
(1) The first two paragraphs under "THE LITIGATION SETTLEMENT OFFER --
Section 7. Effects of the Offer" are amended and restated as follows:
"Because the general partner of your partnership is our
affiliate, we have control over the management of your partnership. In
addition, we, together with IPLP Acquisition, L.L.C. and AIMCO IPLP,
L.P. (which are our affiliates), own 46,312.50, or 55.90%, of the
outstanding units of your partnership. Because we and our affiliates
own a majority of the outstanding units and control your partnership's
general partner, we control the outcome of most voting decisions with
respect to your partnership. In general, we will vote the units owned
by us in whatever manner we deem to be in our best interests, which may
not be in the interest of other limited partners. This could (1)
prevent non-tendering limited partners from taking action that they
desire but that we oppose and (2) enable us to take action desired by
us but opposed by non-tendering limited partners. We are also
affiliated with the company that currently manages, and has managed for
some time, the property owned by your partnership. In the event that we
acquire a substantial number of units pursuant to this offer, removal
of the property manager may become more difficult or impossible.
If we acquire all of the units that we are seeking in the
offer, our interest in your partnership's net earnings ($(1,439,000)
for the nine months ended September 30, 2003) and net book value
($(6,301,000) as of September 30, 2003) will increase to 100%. AIMCO-GP
owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its
subsidiaries, owns an 89% in AIMCO Properties."
(2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 7. Effects of the Offer - Effect on the Trading Market; Registration
Under Section 12(g) of the Exchange Act" is amended and restated as follows:
"The units are registered under Section 12(g) of the Exchange
Act, which means, among other things, that your partnership is required
to file periodic reports with the SEC and to comply with the SEC's
proxy rules. We do not expect or intend that consummation of the offer
will cause the units to cease to be registered under Section 12(g) of
the Exchange Act. If the units were to be held by fewer than 300
persons, your partnership could apply to de-register the units under
the Exchange Act. Your partnership currently has 3,166 unitholders. The
lack of filing periodic
16
reports could affect the already limited secondary market which
currently exists for units in your partnership and may result in others
not tendering for such units. In such a case, you would regularly have
access only to the limited information your partnership's agreement of
limited partnership requires your general partner (which is our
affiliate) to provide each year, which information consists primarily
of tax information. In particular, you will continue to receive a
Schedule K-1 each year as well as audited financial statements with
respect to your partnership. See "The Litigation Settlement Offer --
Section 1. Terms of the Offer; Expiration Date.""
(3) The first, second and third paragraphs of "THE LITIGATION
SETTLEMENT OFFER - Section 9. The Lawsuit and the Settlement - The Settlement of
the Nuanes and Heller Complaints" is amended and restated as follows:
"On December 20, 2002, the parties to the above-entitled
litigation executed a Stipulation of Settlement of the two actions.
That settlement was the result of over one year of negotiations and the
involvement of two separate settlement judges. Class counsel and
defendants' counsel first met with the Honorable William J. Cahill,
Retired California Superior Court Judge, on two separate occasions.
Counsel also met on four separate occasions with the Honorable Margaret
J. Kemp, California Superior Court Judge, before reaching a settlement
in principle. The parties initially met with Judge Cahill on two
occasions in the fall of 2000, but were ultimately unsuccessful in
reaching a definitive settlement agreement. At the Court's direction,
they renewed formal settlement discussions before Judge Kemp. The
parties first attended a settlement conference before Judge Kemp in
September or October 2002 and then subsequently met with her on October
28, 2002, November 26, 2002 and December 2, 2002. The parties reached
final agreement on the material terms of the settlement at the last
settlement conference with Judge Kemp on December 2, 2002 and put the
terms of that agreement on the record in open court.
In each of the conferences described above, counsel from Lieff
Cabraser Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman
Devalerio Pease & Tobacco attended on behalf of the named plaintiffs
and the putative settlement class; counsel from Skadden, Arps, Slate,
Meagher & Flom LLP attended on behalf of AIMCO and its affiliated
entities, including your general partner, and Orrick Herrington &
Sutcliffe attended on behalf of the remaining defendants. AIMCO
Executive Vice President Patrick Foye also attended each of these
meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham
also participated on behalf of plaintiffs and the putative settlement
class in those settlement discussions before the Hon. Cahill, Retired.
At these meetings, discussions included possible transactions that
could provide liquidity to investors and form the basis of a
settlement, the use of a settlement fund and the amount of such fund,
the timing and distribution of any settlement fund, selection and use
of an appraiser and disclosures that would accompany any contemplated
transaction(s). The participants considered but ultimately rejected a
merger or roll-up of the various partnerships as possible alternatives
to cash tender offers. The parties ultimately concluded, however, that
a merger or roll-up could be potentially complicated and time consuming
and that a cash tender offer would be a less coercive form of providing
liquidity to those investors who desired it.
The Settlement Agreement requires each tender offer to attach
executive summaries of partnership property appraisals commissioned
specifically for the settlement tender offers and to provide an
explanation of how the appraised values of the properties compare to
the per Unit price(s) being offered. It also requires the payment of an
allocable portion of the settlement fund for each unit tendered
pursuant to the settlement fund, details the scope of the release and
covenants not to sue which will bind class members, requires that
tender offers be made no more than one year after final approval of the
settlement and imposes certain restrictions on the length of time in
which the tender offers can remain open, as well as with regard to
other disclosures
17
made therein. On April 4, 2003, the Court preliminarily approved the
settlement and, on June 13, 2003, entered an order finally approving
the settlement and dismissing both the Heller and Nuanes litigation
with prejudice. On August 12, 2003, an objector filed an appeal of the
court's order approving the settlement and is seeking to reverse or
vacate the Court's order and the judgment entered thereto. Although we
reserve our right to terminate or amend our offer if final court
approval of the settlement is reversed or vacated, we have nevertheless
elected to proceed with this offer under the terms of the settlement.
On November 24, 2003, the objector appealing the settlement and
judgment entered thereto filed an application requesting the Court
order AIMCO to withdraw the settlement tender offers, refrain from
making further offers pending the appeal and auction any units tendered
to third parties. The objector contends that this offer does not
conform with the terms of the Settlement. Alternatively, counsel for
the objector has requested the Court on behalf of a settlement class
member order AIMCO to pay all non-tendering settlement class members
their pro rata share of the Settlement Fund whether or not the
settlement and judgment entered thereto is vacated on appeal and to
notify settlement class members that the releases and covenant not to
sue are not binding unless the settlement and judgment entered thereto
is affirmed on appeal. AIMCO asserts that such applications are without
merit and is opposing such applications."
(4) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 11. Background and Reasons for the Offer - Alternatives Considered by
Your General Partner -- Liquidation" is amended and restated as follows:
"If your partnership was liquidated, and the properties sold
at prices equal to the values recently determined by the independent
appraiser (see Annex II), we estimate that your net liquidation
proceeds would be $530.61 per unit. See "The Litigation Settlement
Offer -- Section 8. Valuation of Units." However, in the opinion of
your general partner, which is our affiliate, the present time may not
be the most desirable time to sell the real estate assets of your
partnership in a private transaction, and the proceeds realized from
any such sale would be uncertain. Your general partner believes it
currently is in the best interest of your partnership to continue
holding its real estate assets. Although future operating results and
sales prices are uncertain, your general partner believes that the
operating performance of your partnership's property may improve in the
future. This improvement, should it occur, may result in higher
property values. Such values, however, are also a function of
capitalization rates in the market and the interest rate environment at
the time. However, because your general partner and property manager
(which are our affiliates) receive fees for managing your partnership
and its property, a conflict of interest exists between continuing the
partnership and receiving such fees, on the one hand, and the
liquidation of the partnership and the termination of such fees, on the
other. See "The Litigation Settlement Offer -- Section 15. Certain
Information Concerning Your Partnership -- Investment Objectives and
Policies; Sale or Financing of Investments" and "--Section 13.
Conflicts of Interest and Transactions with Affiliates." The term of
the partnership will continue until December 31, 2010, unless the
partnership is terminated sooner under the provisions of the
partnership agreement."
(5) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section 11.
Background and Reasons for the Offer - Alternative Transactions Considered by
Us" is amended and restated as follows:
"Alternative Transactions Considered by Us. At the present
time, we have decided to proceed with this offer pursuant to the court
approved settlement. From time to time in the past, we have considered
proposing a number of alternative transactions, including the purchase
of your partnership's property or a merger of your partnership in which
you would receive cash in exchange for your units. We decided not to
pursue these alternative transactions because, in each case, we
determined that a tender offer would be a less expensive means of
acquiring additional interests in your partnership, and would not
require the consent or approval of any limited partners (other than
those who elect to tender their units). In the future, however, we may
consider purchasing your partnership's property or effecting such a
merger. See "The Litigation Settlement Offer -- Section 14. Future
Plans of the Purchaser." We also considered an offer to exchange units
in your partnership for limited partnership interests in AIMCO
Properties, L.P. However, because of the expense and delay associated
with making such an exchange offer, we decided to make an offer for
cash only. In addition, our historical experience has been that when we
have offered limited partners an opportunity to receive cash or limited
partnership interests in AIMCO Properties, L.P., the limited partners
who tender usually prefer the cash option."
18
(6) The fourth and fifth paragraphs under "THE LITIGATION SETTLEMENT
OFFER - Section 14. Future Plans of the Purchaser" are amended and restated as
follows:
"We have been advised that the general partner does not
currently expect to consider, on behalf of your partnership any of the
following transactions: (i) payment of extraordinary distributions;
(ii) refinancing, reducing or increasing existing indebtedness of the
partnership; (iii) sales of assets, individually or as part of a
complete liquidation; and (iv) mergers or other consolidation
transactions involving the partnership. Any such merger or
consolidation transaction could involve other limited partnerships in
which your general partner or its affiliates serve as general partners,
or a combination of the partnership with one or more existing, publicly
traded entities (including, possibly, affiliates of AIMCO), in any of
which limited partners might receive cash, common stock or other
securities or consideration. As discussed under "The Litigation
Settlement Offer - Section 15. Certain Information Concerning Your
Partnership - Investment Objectives and Policies; Sale or Financing of
Investments," the general partner regularly evaluates the real estate
and capital markets. The general partner may consider refinancing the
partnership's existing indebtedness to the extent that the general
partner is able to obtain a lower interest rate or if such indebtedness
is approaching maturity. Furthermore, in the event that the general
partner receives an attractive offer for any of your partnership's
properties, the general partner would give due consideration to such an
offer.
If any of the transactions referred to above occur, and
financial benefits accrue to the limited partners, we will participate
in those benefits to the extent of our ownership of units. The
agreement of limited partnership prohibits limited partners from voting
on actions taken by the partnership, unless otherwise specifically
permitted therein. Limited partners may vote on a liquidation, and we
will be able to significantly influence or control the outcome of any
such vote. Our primary objective in seeking to acquire the units
pursuant to the offer is not, however, to influence the vote on any
particular transaction, but rather to generate a profit on the
investment represented by those units."
ITEM 7. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Item 7(a), (b) and (d) of the Schedule TO is amended and
supplemented as follows:
(1) The following sentence is added to the end of the first paragraph
under "THE LITIGATION SETTLEMENT OFFER -Section 21. Fees and Expenses":
"The partnership will not be responsible for paying any of the fees or
expenses incurred by us in connection with this offer."
(2) The second paragraph under "THE LITIGATION SETTLEMENT OFFER --
Section 21. Fees and Expenses" is amended and restated as follows:
"The following is an itemized statement of the aggregate
estimated expenses incurred and to be incurred in this offer by us:
<Table>
Information Agent Fees............... $ 7,500
Legal Fees........................... 5,000
Printing Fees........................ 5,000
Tax and Accounting Fees.............. 1,500
Postage.............................. 500
Appraiser............................ 17,500
Depositary........................... 500
------------
Total.............................. $ 37,500"
=============
</Table>
19
ITEM 8. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
Item 8 of the Schedule TO is amended and supplemented as
follows:
The following paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 15. Certain Information Concerning Your Partnership" is amended and
restated as follows:
"Ownership and Voting. We, together with IPLP Acquisition,
L.L.C. and AIMCO IPLP, L.P. (which are our affiliates), own 46,312.50
units, or 55.90%, of the outstanding units of your partnership. Because
we and our affiliates own a majority of the outstanding units, we have
the ability to control most votes of the limited partners. See "The
Litigation Settlement Offer -- Section 7. Effects of the Offer" and "--
Section 16. Voting Power.""
ITEM 11. ADDITIONAL INFORMATION.
Item 11(b) of the Schedule TO is amended and supplemented as
follows:
Section 16 under "THE LITIGATION SETTLEMENT OFFER" is amended and
restated as follows:
"16. VOTING POWER
Decisions with respect to the day-to-day management of your
partnership are the responsibility of the general partner. Because the
general partner of your partnership is our affiliate, we control the
management of your partnership. Under your partnership's agreement of
limited partnership, limited partners holding a majority of the
outstanding units must approve certain extraordinary transactions,
including the removal of the general partner, most amendments to the
partnership agreement and the sale of all or substantially all of your
partnership's assets. We, together with IPLP Acquisition, L.L.C. and
AIMCO IPLP, L.P. (which are our affiliates) own 46,312.50 units, or
55.90%, of the outstanding units of your partnership. Because we and
our affiliates own a majority of the outstanding units, we control most
voting decisions made by limited partners. See "The Litigation
Settlement Offer -- Section 7. Effects of the Offer.""
ITEM 12. EXHIBITS.
Item 12 of the Schedule TO is amended and supplemented as
follows:
(c)(1) Appraisal of Autumn Run Apartments
(c)(2) Appraisal of Cooper's Pointe Apartments
(c)(3) Appraisal of Copper Mill Apartments
(c)(4) Appraisal of Four Winds Apartments
(c)(5) Appraisal of Hampton Greens Apartments
20
(c)(6) Appraisal of Plantation Creek Apartments
(c)(7) Appraisal of Promontory Point Apartments
(c)(8) Appraisal of Wood Creek Apartments
ITEM 13. INFORMATION REQUIRED BY SCHEDULE 13E-3.
Item 13 of the Schedule TO is amended and supplemented as
follows:
(1) The thirteenth paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 6. Certain Federal Income Tax Matters" is amended and restated as
follows:
"Tax Consequences to Your Partnership of Our Offer. Section
708 of the Code provides that if there is a sale or exchange of 50% or
more of the total interest in capital and profits of a partnership
within any 12-month period, such partnership terminates for United
States federal income tax purposes. It is possible that our acquisition
of units pursuant to the offer alone or in combination with other
transfers of interests in your partnership could result in such a
termination of your partnership. If your partnership is not deemed to
terminate for tax purposes, there will be no tax effect to your
partnership. If your partnership is deemed to terminate for tax
purposes, however, the following federal income tax events will be
deemed to occur: the terminated partnership will be deemed to have
contributed all of its assets (subject to its liabilities) to a new
partnership in exchange for an interest in the new partnership and,
immediately thereafter, the old partnership will be deemed to have
distributed interests in the new partnership to the remaining limited
partners in proportion to their respective interests in the old
partnership in liquidation of the old partnership.
A termination of your partnership for federal income tax
purposes may also subject the assets of your partnership to longer
depreciable lives than those currently applicable to the assets of your
partnership. This would generally decrease the annual average
depreciation deductions following our offer, but would have no effect
on the total depreciation deductions available over the useful lives of
the assets of your partnership. Additionally, upon a termination of
your partnership, the taxable year of your partnership will close for
federal income tax purposes. Elections as to tax matters previously
made by the old partnership will not be applicable to the new
partnership unless the new partnership chooses to make the same
elections.
Tax Consequences to Non-Tending and Partially-Tendering
Limited Partners. As described above, if 50% or more of such interests
are sold or exchanged within a 12 month period, including as a result
of our acquisition of units, a deemed tax termination of your
partnership will occur for tax purposes. If less than 50% of the total
interest in capital and profits of your partnership are sold or
exchanged within any 12 month period, there will be no tax effect to
you from the offer.
You will not recognize any gain or loss upon a deemed tax
termination of your partnership, and your capital account in your
partnership will carry over to the new partnership. A termination of
your partnership for federal income tax purposes may change (and
possibly shorten) your holding period with respect to interests in your
partnership that you choose to retain. Gain recognized by you on the
disposition of retained units with a holding period of 12 months or
less may be classified as short-term capital gain and subject to
taxation at ordinary income tax rates.
A deemed tax termination will also decrease the annual
depreciation deductions (as a result of the longer partnership
depreciation lives described above) allocable to you (thereby possibly
increasing the taxable income allocable to your interests in the
partnership each year)."
21
(2) The first two paragraphs under "THE LITIGATION SETTLEMENT OFFER --
Section 7. Effects of the Offer" are amended and restated as follows:
"Because the general partner of your partnership is our
affiliate, we have control over the management of your partnership. In
addition, we, together with IPLP Acquisition, L.L.C. and AIMCO IPLP,
L.P. (which are our affiliates), own 46,312.50, or 55.90%, of the
outstanding units of your partnership. Because we and our affiliates
own a majority of the outstanding units and control your partnership's
general partner, we control the outcome of most voting decisions with
respect to your partnership. In general, we will vote the units owned
by us in whatever manner we deem to be in our best interests, which may
not be in the interest of other limited partners. This could (1)
prevent non-tendering limited partners from taking action that they
desire but that we oppose and (2) enable us to take action desired by
us but opposed by non-tendering limited partners. We are also
affiliated with the company that currently manages, and has managed for
some time, the property owned by your partnership. In the event that we
acquire a substantial number of units pursuant to this offer, removal
of the property manager may become more difficult or impossible.
If we acquire all of the units that we are seeking in the
offer, our interest in your partnership's net earnings ($(1,439,000)
for the nine months ended September 30, 2003) and net book value
($(6,301,000) as of September 30, 2003) will increase to 100%. AIMCO-GP
owns a 1% interest in AIMCO Properties, L.P. and AIMCO, through its
subsidiaries, owns an 89% in AIMCO Properties."
(3) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 7. Effects of the Offer - Effect on the Trading Market; Registration
Under Section 12(g) of the Exchange Act" is amended and restated as follows:
"The units are registered under Section 12(g) of the Exchange
Act, which means, among other things, that your partnership is required
to file periodic reports with the SEC and to comply with the SEC's
proxy rules. We do not expect or intend that consummation of the offer
will cause the units to cease to be registered under Section 12(g) of
the Exchange Act. If the units were to be held by fewer than 300
persons, your partnership could apply to de-register the units under
the Exchange Act. Your partnership currently has 3,166 unitholders. The
lack of filing periodic reports could affect the already limited
secondary market which currently exists for units in your partnership
and may result in others not tendering for such units. In such a case,
you would regularly have access only to the limited information your
partnership's agreement of limited partnership requires your general
partner (which is our affiliate) to provide each year, which
information consists primarily of tax information. In particular, you
will continue to receive a Schedule K-1 each year as well as audited
financial statements with respect to your partnership. See "The
Litigation Settlement Offer -- Section 1. Terms of the Offer;
Expiration Date.""
(4) The following subsection under "THE LITIGATION SETTLEMENT OFFER -
Section 8. Valuation of Units" is amended and restated as follows:
"Estimated Liquidation Proceeds Based on Independent Appraisal
SELECTION AND QUALIFICATIONS OF INDEPENDENT APPRAISER. Under
the terms of the settlement, your partnership's property was appraised
by American Appraisal Associates, Inc. ("AAA"), an independent
appraiser appointed by the court. The information was provided to us by
AAA with respect to its appraisals.
22
AAA is an experienced independent valuation consulting firm
with more than 50 offices on four continents. AAA provides valuation
and consulting services for the real estate industry through its
specialized industry focus and operates through a team of professionals
with different economical, financial, statistical, legal,
architectural, urban and engineering knowledge and expertise.
FACTORS CONSIDERED. AAA performed complete appraisals of all
of your partnership's properties. AAA has represented that its report
was prepared in conformity with the Uniform Standards of Professional
Appraisal Practice and the Code of Professional Ethics and Standards of
Professional Practice of the Appraisal Institute. We furnished the
appraiser with all of the necessary information requested by AAA in
connection with the appraisal. The information furnished to the
appraiser was true, correct and complete in all material respects. No
limitations were imposed on AAA by us or any of our affiliates. In
preparing its valuation of your partnership property, AAA:
o inspected and analyzed the exterior of all buildings and site
improvements and a representative sample of units;
o conducted neighborhood and area research, including major
employers, demographics (population trends, number of
households, and income trends), housing trends, surrounding
uses, and general economic outlook of the area;
o conducted market research of rental inventory, historical
vacancy rates, historical average rental rates, occupancy
trends, concessions, and marketing strategies in the
submarket, and occupancy rates at competing properties;
o reviewed leasing policy, concessions and history of recent
occupancy;
o reviewed the historical operating statements for your
partnership's property and an operating budget forecast for
2003;
o prepared an estimate of stabilized income and expense (for
capitalization purposes);
o conducted market inquiries into recent sales of similar
properties to ascertain sales price per unit, effective gross
income multipliers and capitalization rates; and
o prepared sales comparison and income capitalization approaches
to value.
AAA was provided by us with the following management budgets for your
partnership's property:
<Table>
<Caption>
DESCRIPTION AUTUMN RUN COOPER'S POINTE COPPER MILL FOUR WINDS
FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003
MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET
TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Revenues
Rental Income $3,120,000 $ 9,750 $1,471,500 $ 7,664 $1,805,900 $ 9,406 $2,906,112 $ 8,303
Vacancy 186,725 584 86,500 451 82,135 428 158,300 452
CreditLoss/Concessions 114,520 358 33,180 173 38,210 199 105,000 300
Subtotal $ 301,245 $ 941 $ 119,680 $ 623 $ 120,345 $ 627 $ 263,300 $ 752
Laundry Income $ 0 $ 0 $ 8,400 $ 44 $ 11,004 $ 57 $ 27,708 $ 79
Garage Revenue 0 0 0 0 0 0 0 0
Other Misc. Revenue 197,400 617 117,000 609 105,972 552 236,900 677
Subtotal Other $ 197,400 $ 617 $ 125,400 $ 653 $ 116,976 $ 609 $ 264,608 $ 756
Income
Effective Gross Income $3,016,155 $ 9,425 $1,477,220 $ 7,694 $1,802,531 $ 9,388 $2,907,420 $ 8,307
Operating Expenses
Taxes $ 384,722 $ 1,202 $ 143,123 745 $ 93,577 $ 487 $ 196,620 $ 562
Insurance 52,740 165 44,396 231 32,130 167 68,780 197
Utilities 173,408 542 78,000 406 86,616 451 106,500 304
Repair & Maintenance 86,316 270 138,500 721 18,480 96 73,464 210
Cleaning 0 0 0 0 50,732 264 0 0
Landscaping 47,305 148 0 0 58,792 306 43,200 123
Security 0 0 0 0 0 0 0 0
Marketing & Leasing 54,222 169 17,100 89 24,000 125 77,900 223
General Administrative 265,730 830 141,274 736 27,348 142 319,704 913
Management 102,400 320 74,061 386 90,200 470 153,000 437
Miscellaneous 90,962 284 0 0 146,946 765 $ 103,360 295
Total Operating Expenses $1,257,805 $ 3,931 $ 636,454 $ 3,315 $ 628,821 $ 3,275 $1,142,528 $ 3,264
Reserves 0 0 0 0 0 0 0 0
Net Income $1,758,350 $ 5,495 $ 840,766 $ 4,379 $1,173,710 $ 6,113 $1,764,892 $ 5,043
</Table>
23
<Table>
<Caption>
DESCRIPTION HAMPTON GREENS PLANTATION CREEK PROMONTORY POINTE WOODCREEK
FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003
MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET
TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Revenues
Rental Income $1,996,072 $ 6,460 $4,195,000 $ 8,667 $1,883,064 $ 7,472 $3,000,681 $ 6,946
Vacancy 117,000 379 634,000 1,310 90,924 361 177,503 411
CreditLoss/Concessions 54,900 178 244,800 506 78,000 310 84,633 196
Subtotal $ 71,900 $ 56 $ 878,800 $ 1,816 $ 168,924 $ 670 $ 262,136 $ 607
Laundry Income $ 21,648 $ 70 $ 0 $ 0 $ 12,516 $ 50 $ 20,148 $ 47
Garage Revenue 0 0 0 0 0 0 0 0
Other Misc. Revenue 94,800 307 261,600 540 63,264 251 234,108 542
Subtotal Other $ 116,448 $ 377 $ 261,600 $ 540 $ 75,780 $ 301 $ 254,256 $ 589
Income
Effective Gross Income $1,940,620 $ 6,280 $3,577,800 $ 7,392 $1,789,920 $ 7,103 $2,992,801 $ 6,928
Operating Expenses
Taxes $ 240,993 $ 780 $ 381,488 $ 788 $ 277,435 $ 1,101 $ 203,632 $ 471
Insurance 69,531 225 99,274 205 63,218 251 79,326 184
Utilities 108,600 351 362,000 748 86,076 342 249,147 577
Repair & Maintenance 41,100 133 138,000 285 30,528 121 51,840 120
Cleaning 66,600 216 175,000 362 65,604 260 91,000 211
Landscaping 58,136 188 189,500 392 61,248 243 75,800 175
Security 0 0 0 0 0 0 0 0
Marketing & Leasing 44,910 145 102,400 212 32,280 128 53,000 123
General Administrative 205,256 664 354,504 732 183,132 727 365,118 845
Management 100,031 324 202,780 419 91,943 365 147,732 342
Miscellaneous 0 0 0 0 0 0 0 0
Total Operating Expenses $ 935,157 $ 3,026 $2,004,946 $ 4,142 $ 891,464 $ 3,538 $1,316,595 $ 3,048
Reserves 0 0 0 0 0 0 0 0
Net Income $1,005,463 $ 3,254 $1,572,854 $ 3,250 $ 898,456 $ 3,565 $1,676,206 $ 3,880
</Table>
THE ABOVE MANAGEMENT BUDGETS ARE INTERNALLY PREPARED OPERATING
PROJECTIONS FOR THE PARTNERSHIP'S PROPERTIES. A MANAGEMENT BUDGET DOES
NOT REFLECT A PROPERTY'S ACTUAL PERFORMANCE, OR CHANGES IN THE
CONDITION OF A PROPERTY, IN THE LOCAL AREA SURROUNDING A PROPERTY OR IN
THE ECONOMY IN GENERAL.
SUMMARY OF APPROACHES AND METHODOLOGIES EMPLOYED. The
following summary describes the material approaches and analyses
employed by AAA in preparing the appraisals. The partnership imposed no
conditions or limitations on the scope of AAA's investigation or the
24
methods and procedures to be followed in preparing the appraisal. AAA
principally relied on two approaches to valuation: (1) the sales
comparison approach and (2) the income capitalization approach.
The sales comparison approach uses analysis techniques and
sales of comparable improved properties in surrounding or competing
areas to derive units of comparison that are then used to indicate a
value for the subject property. Under this approach, the primary
methods of analysis used by the appraiser were: (1) sales price per
unit analysis; (2) net operating income analysis; and (3) effective
gross income analysis.
The purpose of the income capitalization approach is to value
an income-producing property by analyzing likely future income and
expenses of the property over a reasonable holding period. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive property value. The direct capitalization analysis determines
the value of a property by applying a capitalization rate that takes
into account all of the factors influencing the value of such property
to the net operating income of such property for a single year. The
direct capitalization method is normally more appropriate for
properties with relatively stable operating histories and expectations.
The discounted cash flow analysis determines the value of a property by
discounting to present value the estimated operating cash flow of such
property and the estimated proceeds of a hypothetical sale of such
property at the end of an assumed holding period. The discounted cash
flow method is more appropriate for the analysis of investment
properties with multiple or long-term leases, particularly leases with
cancellation clauses or renewal options. It is especially useful for
multi-tenant properties in volatile markets.
AAA relied principally on the income capitalization approach
to valuation and secondarily on the sales comparison approach. Although
the sales comparison approach is considered a reliable method for
valuing property, the income capitalization approach is the primary
approach used for valuing income producing property, such as your
partnership's property.
Summary of independent appraisals of your partnership's
property. AAA performed complete appraisals of all eight of your
partnership's properties. The summary set forth below describes the
material conclusions reached by AAA based on the values determined
under the valuation approaches and subject to the assumptions and
limitations described below. AAA determined that the estimated total
"as is" market value of the fee simple estate of your partnership's
property was $119,800,000, which is higher than our estimated total
gross valuation of $81,656,281.
AUTUMN RUN APARTMENTS
Valuation Under Sales Comparison Approach. AAA compared five
apartment complexes with Autumn Run Apartments that were sold between
May 2001 and January 2003 and located in the property's real estate
market area. Based on its qualitative analysis, AAA rated the locations
of two comparable properties as comparable and rated the locations of
three comparable properties as inferior to the location of Autumn Run
Apartments. AAA rated the quality/appeal of two comparable properties
as comparable and rated the locations of three comparable properties as
inferior to Autumn Run Apartments. AAA rated the amenities of five
comparable properties as comparable to the amenities of Autumn Run
Apartments.
AAA made adjustments to the sales price per unit of each
comparable property to reflect differences from Autumn Run Apartments
in location, number of units, quality/appeal, age/condition, occupancy
25
at sale, amenities and average unit size. Based on the available data,
AAA concluded a value range of $74,308 to $90,857 per unit with a mean
or average adjusted price of $82,082 per unit and a median adjusted
price of $78,519 per unit. Thus, the estimated value based on a $75,000
sales price per unit for the 320 units was approximately $23,900,000
after adjustment for present value of concessions.
As part of the sales comparison approach, AAA also conducted a
net operating income ("NOI") analysis. NOI effectively takes into
account the various physical, location and operating aspects of the
sale. AAA compared Autumn Run Apartments's NOI to the NOI of the five
comparable properties and arrived at a percentage adjustment. After
applying the percentage adjustment to the sales price per unit of each
comparable property, the range of value was between $59,947 and $75,741
per unit, with an average of $68,014 per unit. The appraiser concluded
a value of $71,000 per unit for the 320 units of Autumn Run Apartments,
resulting in an estimated "as is" market value of $22,700,000 using the
NOI analysis after adjustment for present value of concessions.
AAA also performed an effective gross income multiplier
("EGIM") analysis. The EGIM measures the relationship between the sales
price of a property and its effective gross income, which is the total
annual income that a property would produce after an allowance for
vacancy and credit loss. AAA estimated the operating expense ratio
("OER") of Autumn Run Apartments to be 39.70% before reserves, with the
expense ratios of the five comparable properties ranging from 33.90% to
45.00%, resulting in EGIMs ranging from 6.76 to 8.74. Thus, AAA
concluded an EGIM of 7.40 for Autumn Run Apartments and applied the
EGIM to the stabilized effective gross income for Autumn Run Apartments
(see Income Approach section below), resulting in a value conclusion of
approximately $23,200,000 after adjustment for present value of
concessions.
AAA estimated the value using the price per unit analysis at
$23,900,000, the value using the NOI analysis at $22,700,000 and the
value using the EGIM analysis at $23,200,000. Based on these three
valuation methods, AAA concluded that the reconciled value for Autumn
Run Apartments under the sales comparison approach was $23,300,000. AAA
assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive a value for Autumn Run Apartments.
AAA first utilized a discounted cash flow method to analyze
the value of Autumn Run Apartments. Under this method, anticipated
future cash flow and a reversionary value are discounted at an
appropriate rate of return to arrive at an estimate of present value.
AAA performed a market rent analysis for Autumn Run Apartments to
derive a projected rental income. AAA also employed a direct
capitalization analysis on the property by dividing a forecast of net
operating income ("NOI") by an appropriate capitalization rate. AAA
performed a market rent analysis for Autumn Run Apartments to derive a
projected rental income. The analysis included both a review of the
subject's current asking and actual rent rates as well as a comparison
with comparable apartment properties. AAA calculated Autumn Run
Apartment's effective gross income ("EGI") by adding apartment rental
collections to other income and then making an adjustment for vacancy
and collection loss. Under this analysis, AAA arrived at an EGI of
$3,147,760. Once the EGI was established, operating expenses were
deducted from the EGI in order to arrive at an NOI for Autumn Run
Apartments of approximately $1,802,127. AAA performed a pro forma
analysis of revenues and expenses for Autumn Run Apartments to derive
the subject's stabilized NOI. AAA relied on the subject's historical
and budgeted income and expenses for this estimate. AAA derived
appropriate investments criteria, including an overall capitalization
rate, terminal capitalization rate and a discount rate based upon
analysis of comparable sales and a survey of real estate investors.
The assumptions employed by AAA to determine the value of
Autumn Run Apartments under the income approach included:
(1) stabilized vacancy and collection loss rate of 5%;
(2) replacement reserve of $300 per unit;
(3) overall capitalization rate of 7.75%;
(4) terminal capitalization rate of 8.25%;
26
(5) discount rate of 10.75%;
(6) 2% cost of sale at reversion; and
(7) holding period of 10 years.
No adjustment was made for lease-up costs because the property was near
or at a stabilized condition. An adjustment was made for concessions,
and AAA estimated the present value of concessions to be $52,000. Based
on these assumptions, AAA's estimate of cash flows for a 10-year period
resulted in an indicated value of $23,100,000 through the discounted
cash flow method. The reversion value contributed approximately 45%
of the value.
Under the direct capitalization method, utilizing a
capitalization rate of 7.75%, the projected NOI resulted in a value
(after rounding) of $23,200,000 after adjustments for lease-up costs
and present value of concessions.
Using the income capitalization approach, AAA determined on an
as-is basis that the direct capitalization method and the discounted
cash flow method indicated the value for Autumn Run Apartments was
$23,200,000.
Reconciliation of Values and Conclusions of Appraisal. The
final step in the appraisal process was to reconcile the sales
comparison approach and the income capitalization approach values to
arrive at a final value conclusion. The reconciliation of the two
approaches involved weighing the valuation techniques in relation to
their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type,
and the purpose of the valuation. AAA concluded that the estimated
market value under the sales comparison approach was $23,300,000 and
the estimated market value under the income capitalization approach was
$23,200,000. After reconciling the various factors, AAA determined that
the most appropriate technique for estimating the value of
income-producing property was an approach based primarily on income,
and thus arrived at a final "as is" market value for Autumn Run
Apartments of $23,300,000 as of May 30, 2003.
COOPER'S POINTE
Valuation Under Sales Comparison Approach. AAA compared five
apartment complexes with Cooper's Pointe Apartments that were sold
between September 1998 and February 2002 and located in the property's
real estate market area. Based on its qualitative analysis, AAA rated
the locations of four comparable properties as comparable and rated the
location of one comparable properties as inferior to the location of
Cooper's Pointe Apartments. AAA rated the quality/appeal of one
comparable property as superior, two comparable properties as
comparable and two comparable properties as inferior to the
quality/appeal of Cooper's Pointe Apartments. AAA rated the amenities
of four comparable
27
properties as comparable and one comparable property as superior to the
amenities of Cooper's Pointe Apartments.
AAA made adjustments to the sales price per unit of each
comparable property to reflect differences from Cooper's Pointe
Apartments in location, number of units, quality/appeal, age/condition,
occupancy at sale, amenities and average unit size. Based on the
available data, AAA concluded a value range of $47,214 to $53,362 per
unit with a mean or average adjusted price of $50,971 per unit and a
median adjusted price of $52,250 per unit. Thus, the estimated value
based on a $50,000 sales price per unit for the 192 units was
approximately $9,600,000.
As part of the sales comparison approach, AAA also conducted a
net operating income ("NOI") analysis. NOI effectively takes into
account the various physical, location and operating aspects of the
sale. AAA compared Cooper's Pointe Apartments' NOI to the NOI of the
five comparable properties and arrived at a percentage adjustment.
After applying the percentage adjustment to the sales price per unit of
each comparable property, the range of value was between $45,280 and
$54,603 per unit, with an average of $51,823 per unit. The appraiser
concluded a value of $52,000 per unit for the 192 units of Cooper's
Pointe Apartments, resulting in an estimated "as is" market value of
$10,000,000 using the NOI analysis.
AAA also performed an effective gross income multiplier
("EGIM") analysis. The EGIM measures the relationship between the sales
price of a property and its effective gross income, which is the total
annual income that a property would produce after an allowance for
vacancy and credit loss. AAA estimated the operating expense ratio
("OER") of Cooper's Pointe Apartments to be 42.73% before reserves,
with the expense ratios of the five comparable properties ranging from
41.50% to 52.91%, resulting in EGIMs ranging from 4.88 to 7.15. Thus,
AAA concluded an EGIM of 6.50 for Cooper's Pointe, and applied the EGIM
to the stabilized effective gross income for Cooper's Pointe Apartments
(see Income Approach section below), resulting in a value conclusion of
approximately $10,100,000.
AAA estimated the value using the price per unit analysis at
$9,600,000, the value using the NOI analysis at $10,000,000 and the
value using the EGIM analysis at $10,100,000. Based on these three
valuation methods, AAA concluded that the reconciled value for Cooper's
Pointe Apartments under the sales comparison approach was $10,000,000.
AAA assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive a value for Cooper's Pointe Apartments.
AAA first utilized a discounted cash flow method to analyze
the value of Cooper's Pointe Apartments. Under this method, anticipated
future cash flow and a reversionary value are discounted at an
appropriate rate of return to arrive at an estimate of present value.
AAA performed a market rent analysis for Cooper's Pointe Apartments to
derive a projected rental income. AAA also employed a direct
capitalization analysis on the property by dividing a forecast of net
operating income ("NOI") by an appropriate capitalization rate. AAA
performed a market rent analysis for Cooper's Pointe Apartments to
derive a projected rental income. The analysis included both a review
of the subject's current asking and actual rent rates as well as a
comparison with comparable apartment properties. AAA calculated
Cooper's Pointe Apartment's effective gross income ("EGI") by adding
apartment rental collections to other income and then making an
adjustment for vacancy and collection loss. Under this analysis, AAA
arrived at an EGI of $1,547,178. Once the EGI was established,
operating expenses were deducted from the EGI in order to arrive at an
NOI for Cooper's Pointe Apartments of approximately $838,139. AAA
performed a pro forma analysis of revenues and expenses for Cooper's
Pointe Apartments to derive the subject's stabilized NOI. AAA relied on
the subject's historical and budgeted income and expenses for this
estimate. AAA derived appropriate investment criteria, including an
overall capitalization rate, terminal capitalization rate and a
discount rate based upon analysis of comparable sales and a survey of
real estate investors.
The assumptions employed by AAA to determine the value of
Cooper's Pointe Apartments under the income approach included:
(1) stabilized vacancy and collection loss rate of 6%;
(2) replacement reserve of $250 per unit;
28
(3) overall capitalization rate of 8.50%;
(4) terminal capitalization rate of 10.00%;
(5) discount rate of 11.00%;
(6) 2.00% cost of sale at reversion; and
(7) holding period of 10 years.
No adjustment was made for lease-up costs because the property was near
or at a stabilized condition. No adjustment was made for concessions.
Based on these assumptions, AAA's estimate of cash flows for a 10-year
period resulted in an indicated value of $9,800,000 through the
discounted cash flow method. The reversion value contributed
approximately 40% of the value.
Under the direct capitalization method, utilizing a
capitalization rate of 8.50%, the projected NOI resulted in a
prospective (stabilized) value (after rounding) of $9,900,000.
Using the income capitalization approach, AAA determined on an
as-is basis that the direct capitalization method and the discounted
cash flow method indicated the value for Cooper's Pointe Apartments was
$9,900,000.
Reconciliation of Values and Conclusions of Appraisal. The
final step in the appraisal process was to reconcile the sales
comparison approach and the income capitalization approach values to
arrive at a final value conclusion. The reconciliation of the two
approaches involved weighing the valuation techniques in relation to
their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type,
and the purpose of the valuation. AAA concluded that the estimated
market value under the sales comparison approach was $10,000,000 and
the estimated market value under the income capitalization approach was
$9,900,000. After reconciling the various factors, AAA determined that
the most appropriate technique for estimating the value of
income-producing property was an approach based primarily on income,
and thus arrived at a final "as is" market value for Cooper's Pointe
Apartments of $9,900,000 as of May 28, 2003 .
COPPER MILL
Valuation Under Sales Comparison Approach. AAA compared five
apartment complexes with Copper Mill that were sold between September
2000 and June 2001 and located in the property's real estate market
area. Based on its qualitative analysis, AAA rated the locations of
three comparable properties as comparable and two comparable properties
as inferior to the location of Copper Mill. AAA rated the
quality/appeal of five comparable properties as comparable to the
quality/appeal of Copper Mill. AAA rated the amenities of five
comparable properties as comparable to the amenities of Copper Mill.
29
AAA made adjustments to the sales price per unit of each
comparable property to reflect differences from Copper Mill in
location, number of units, quality/appeal, age/condition, occupancy at
sale, amenities and average unit size. Based on the available data, AAA
concluded a value range of $68,775 to $81,814 per unit with a mean or
average adjusted price of $76,139 per unit and a median adjusted price
of $78,099 per unit. Thus, the estimated value based on a $72,000 sales
price per unit for the 192 units was approximately $13,800,000 after
adjustment for present value of concessions.
As part of the sales comparison approach, AAA also conducted a
net operating income ("NOI") analysis. NOI effectively takes into
account the various physical, location and operating aspects of the
sale. AAA compared Copper Mill's NOI to the NOI of the five comparable
properties and arrived at a percentage adjustment. After applying the
percentage adjustment to the sales price per unit of each comparable
property, the range of value was between $63,865 and $71,413 per unit,
with an average of $67,561 per unit. The appraiser concluded a value of
$72,000 per unit for the 192 units of Copper Mill, resulting in an
estimated "as is" market value of $13,800,000 using the NOI analysis
after adjustment for present value of concessions.
AAA also performed an effective gross income multiplier
("EGIM") analysis. The EGIM measures the relationship between the sales
price of a property and its effective gross income, which is the total
annual income that a property would produce after an allowance for
vacancy and credit loss. AAA estimated the operating expense ratio
("OER") of Copper Mill to be 35.55% before reserves, with the expense
ratios of the five comparable properties ranging from 30.33% to 39.36%,
resulting in EGIMs ranging from 6.89 to 8.23. Thus, AAA concluded
an EGIM of 7.65 for Copper Mill, and applied the EGIM to the stabilized
effective gross income for Copper Mill (see Income Approach section
below), resulting in a value conclusion of approximately $13,700,000
after adjustment for present value of concessions.
AAA estimated the value using the price per unit analysis at
$13,800,000, the value using the NOI analysis at $13,800,000 and the
value using the EGIM analysis at $13,700,000. Based on these three
valuation methods, AAA concluded that the reconciled value for Copper
Mill under the sales comparison approach was $13,800,000. AAA assumed a
marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive a value for Copper Mill.
AAA first utilized a discounted cash flow method to analyze
the value of Copper Mill. Under this method, anticipated future cash
flow and a reversionary value are discounted at an appropriate rate of
return to arrive at an estimate of present value. AAA performed a
market rent analysis for Copper Mill to derive a projected rental
income. AAA also employed a direct capitalization analysis on the
property by dividing a forecast of net operating income ("NOI") by an
appropriate capitalization rate. AAA performed a market rent analysis
for Copper Mill to derive a projected rental income. The analysis
included both a review of the subject's current asking and actual rent
rates as well as a comparison with comparable apartment properties. AAA
calculated Copper Mill's effective gross income ("EGI") by adding
apartment rental collections to other income and then making an
adjustment for vacancy and collection loss. Under this analysis, AAA
arrived at an EGI of $1,790,090. Once the EGI was established,
operating expenses were deducted from the EGI in order to arrive at an
NOI for Copper Mill of approximately $1,115,841. AAA performed a pro
forma analysis of revenues and expenses for Copper Mill to derive the
subject's stabilized NOI. AAA relied on the subject's historical and
budgeted income and expenses for this estimate. AAA derived appropriate
investment criteria, including an overall capitalization rate, terminal
capitalization rate and a discount rate based upon analysis of
comparable sales and a survey of real estate investors.
The assumptions employed by AAA to determine the value of
Copper Mill under the income approach included:
(1) stabilized vacancy and collection loss rate of 7%;
(2) replacement reserve of $200 per unit;
30
(3) overall capitalization rate of 8.75%;
(4) terminal capitalization rate of 9.25%;
(5) discount rate of 11.00%;
(6) 2.00% cost of sale at reversion; and
(7) holding period of 10 years.
No adjustment was made for lease-up costs because the property was near
or at a stabilized condition. An adjustment was made for concessions,
and AAA estimated the present value of concessions to be $47,000. Based
on these assumptions, AAA's estimate of cash flows for a 10-year period
resulted in an indicated value of $13,400,000 through the discounted
cash flow method. The reversion value contributed approximately 42% of
the value.
Under the direct capitalization method, utilizing a
capitalization rate of 8.75%, the projected NOI resulted in a
prospective (stabilized) value (after rounding) of $12,700,000 after
adjustments for present value of concessions.
Using the income capitalization approach, AAA determined on an
as-is basis that the direct capitalization method and the discounted
cash flow method indicated the value for Copper Mill was $13,400,000.
Reconciliation of Values and Conclusions of Appraisal. The
final step in the appraisal process was to reconcile the sales
comparison approach and the income capitalization approach values to
arrive at a final value conclusion. The reconciliation of the two
approaches involved weighing the valuation techniques in relation to
their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type,
and the purpose of the valuation. AAA concluded that the estimated
market value under the sales comparison approach was $13,800,000 and
the estimated market value under the income capitalization approach was
$13,400,000. After reconciling the various factors, AAA determined that
the most appropriate technique for estimating the value of
income-producing property was an approach based primarily on income,
and thus arrived at a final "as is" market value for Copper Mill of
$13,500,000 as of May 7, 2003.
FOUR WINDS APARTMENTS
Valuation Under Sales Comparison Approach. AAA compared five
apartment complexes with Four Winds Apartments that were sold between
January 2001 and August 2002 and located in the property's real estate
market area. Based on its qualitative analysis, AAA rated the locations
of five comparable properties as comparable to the location of Four
Winds Apartments. AAA rated the quality/appeal of two comparable
properties as superior
31
and three comparable properties as comparable to the quality/appeal
Four Winds Apartments. AAA rated the amenities of one comparable
property as superior and four comparable properties as comparable to
the amenities of Four Winds Apartments.
AAA made adjustments to the sales price per unit of each
comparable property to reflect differences from Four Winds Apartments
in location, number of units, quality/appeal, age/condition, occupancy
at sale, amenities and average unit size. Based on the available data,
AAA concluded a value range of $44,855 to $50,468 per unit with a mean
or average adjusted price of $47,825 per unit and a median adjusted
price of $47,586 per unit. Thus, the estimated value based on a $47,500
sales price per unit for the units was approximately $16,600,000 after
adjustment for deferred maintenance.
As part of the sales comparison approach, AAA also conducted a
net operating income ("NOI") analysis. NOI effectively takes into
account the various physical, location and operating aspects of the
sale. AAA compared Four Winds Apartments' NOI to the NOI of the five
comparable properties and arrived at a percentage adjustment. After
applying the percentage adjustment to the sales price per unit of each
comparable property, the range of value was between $40,691 and $55,416
per unit, with an average of $49,452 per unit. The appraiser concluded
a value of $47,500 per unit for the 350 units of Four Winds Apartments,
resulting in an estimated "as is" market value of $16,600,000 using the
NOI analysis after adjustment for deferred maintenance.
AAA also performed an effective gross income multiplier
("EGIM") analysis. The EGIM measures the relationship between the sales
price of a property and its effective gross income, which is the total
annual income that a property would produce after an allowance for
vacancy and credit loss. AAA estimated the operating expense ratio
("OER") of Four Winds Apartments to be 43.31% before reserves, with the
expense ratios of the five comparable properties ranging from 32.03% to
47.37%, resulting in EGIMs ranging from 6.49 to 7.33. Thus, AAA
concluded an EGIM of 6.00 for Four Winds Apartments, and applied the
EGIM to the stabilized effective gross income for Four Winds Apartments
(see Income Approach section below), resulting in a value conclusion of
approximately $16,600,000 after adjustment for deferred maintenance.
AAA estimated the value using the price per unit analysis at
$16,600,000, the value using the NOI analysis at $16,600,000 and the
value using the EGIM analysis at $16,600,000. Based on these three
valuation methods, AAA concluded that the reconciled value for Four
Winds Apartments under the sales comparison approach was $16,600,000.
AAA assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive a value for Four Winds Apartments.
AAA first utilized a discounted cash flow method to analyze
the value of Four Winds Apartments. Under this method, anticipated
future cash flow and a reversionary value are discounted at an
appropriate rate of return to arrive at an estimate of present value.
AAA performed a market analysis for Four Winds Apartments to derive a
projected rental income. AAA also employed a direct capitalization
analysis on the property by dividing a forecast of net operating income
("NOI") by an appropriate capitalization rate. AAA performed a market
rent analysis for Four Winds Apartments to derive a projected rental
income. The analysis included both a review of the subject's current
asking and actual rent rates as well as a comparison with comparable
apartment properties. AAA calculated Four Winds Apartment's effective
gross income ("EGI") by adding apartment rental collections to other
income and then making an adjustment for vacancy and collection loss.
Under this analysis, AAA arrived at an EGI of $2,786,271. Once the EGI
was established, operating expenses were deducted from the EGI in order
to arrive at an NOI for Four Winds Apartments of approximately
$1,491,957. AAA performed a pro forma analysis of revenues and expenses
for Four Winds Apartments to derive the subject's stabilized NOI. AAA
relied on the subject's historical and budgeted income and expenses for
this estimate. AAA derived appropriate investment criteria, including
an overall capitalization rate, terminal capitalization rate and a
discount rate based upon analysis of comparable sales and a survey of
real estate investors.
The assumptions employed by AAA to determine the value of Four
Winds Apartments under the income approach included:
(1) stabilized vacancy and collection loss rate of 8.50%;
(2) replacement reserve of $250 per unit;
32
(3) overall capitalization rate of 9.00%;
(4) terminal capitalization rate of 10.00%;
(5) discount rate of 11.00%;
(6) 2.00% cost of sale at reversion; and
(7) holding period of 10 years.
No adjustment was made for lease-up costs because the property was near
or at a stabilized condition. No adjustment was made for concessions.
An adjustment was made for deferred maintenance. Based on these
assumptions, AAA's estimate of cash flows for a 10-year period resulted
in an indicated value of $16,500,000 through the discounted cash flow
method. The reversion value contributed approximately 39% of the value.
Under the direct capitalization method, utilizing a
capitalization rate of 9.00%, the projected NOI resulted in a
prospective (stabilized) value (after rounding) of $16,500,000 after
adjustment for deferred maintenance.
Using the income capitalization approach, AAA determined on an
as-is basis that the direct capitalization method and the discounted
cash flow method indicated the value for Four Winds Apartments was
$16,500,000.
Reconciliation of Values and Conclusions of Appraisal. The
final step in the appraisal process was to reconcile the sales
comparison approach and the income capitalization approach values to
arrive at a final value conclusion. The reconciliation of the two
approaches involved weighing the valuation techniques in relation to
their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type,
and the purpose of the valuation. AAA concluded that the estimated
market value under the sales comparison approach was $16,600,000 and
the estimated market value under the income capitalization approach was
$16,500,000. After reconciling the various factors, AAA determined that
the most appropriate technique for estimating the value of
income-producing property was an approach based primarily on income,
and thus arrived at a final "as is" market value for Four Winds
Apartments of $16,500,000 as of May 8, 2003.
HAMPTON GREENS
Valuation Under Sales Comparison Approach. AAA compared five
apartment complexes with Hampton Greens that were sold between February
2000 and August 2001 and
33
located in the property's real estate market area. Based on its
qualitative analysis, AAA rated the locations of one comparable
property as superior, three comparable properties as comparable and one
comparable properties as inferior to the location of Hampton Greens.
AAA rated the quality/appeal of two comparable properties as comparable
and three comparable properties as inferior to quality/appeal of
Hampton Greens. AAA rated the amenities of five comparable properties
as comparable to the amenities of Hampton Greens.
AAA made adjustments to the sales price per unit of each
comparable property to reflect differences from Hampton Greens in
location, number of units, quality/appeal, age/condition, occupancy at
sale, amenities and average unit size. Based on the available data, AAA
concluded a value range of $30,015 to $38,222 per unit with a mean or
average adjusted price of $32,744 per unit and a median adjusted price
of $31,058 per unit. Thus, the estimated value based on a $31,000 sales
price per unit for the 309 units was approximately $9,400,000 after
adjustment for lease-up costs and present value of concessions.
As part of the sales comparison approach, AAA also conducted a
net operating income ("NOI") analysis. NOI effectively takes into
account the various physical, location and operating aspects of the
sale. AAA compared Hampton Greens' NOI to the NOI of the five
comparable properties and arrived at a percentage adjustment. After
applying the percentage adjustment to the sales price per unit of each
comparable property, the range of value was between $20,575 and $25,866
per unit, with an average of $23,471 per unit. The appraiser concluded
a value of $25,000 per unit for the 309 units of Hampton Greens,
resulting in an estimated "as is" market value of $7,500,000 using the
NOI analysis after adjustment for lease-up costs and present value of
concessions.
AAA also performed an effective gross income multiplier
("EGIM") analysis. The EGIM measures the relationship between the sales
price of a property and its effective gross income, which is the total
annual income that a property would produce after an allowance for
vacancy and credit loss. AAA estimated the operating expense ratio
("OER") of Hampton Greens to be 50.73% before reserves, with the
expense ratios of the five comparable properties ranging from 40.66% to
55.86%, resulting in EGIMs ranging from 4.24 to 5.50. Thus, AAA
concluded an EGIM of 4.50 for Hampton Greens, and applied the EGIM to
the stabilized effective gross income for Hampton Greens (see Income
Approach section below), resulting in a value conclusion of
approximately $8,100,000 after adjustment for lease-up costs and
present value of concessions.
AAA estimated the value using the price per unit analysis at
$9,400,000, the value using the NOI analysis at $7,500,000 and the
value using the EGIM analysis at $8,100,000. Based on these three
valuation methods, AAA concluded that the reconciled value for Hampton
Greens under the sales comparison approach was $8,500,000. AAA assumed
a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive a value for Hampton Greens.
AAA first utilized a discounted cash flow method to analyze
the value of Hampton Greens. Under this method, anticipated future cash
flow and a reversionary value are discounted at an appropriate rate of
return to arrive at an estimate of present value. AAA performed a
market rent analysis for Hampton Greens to derive a projected rental
income. AAA also employed a direct capitalization analysis on the
property by dividing a forecast of net operating income ("NOI") by an
appropriate capitalization rate. AAA performed a market rent analysis
for Hampton Greens to derive a projected rental income. The analysis
included both a review of the subject's current asking and actual rent
rates as well as a comparison with comparable apartment properties. AAA
calculated Hampton Greens' effective gross income ("EGI") by adding
apartment rental collections to other income and then making an
adjustment for vacancy and collection loss. Under this analysis, AAA
arrived at an EGI of $1,844720. Once the EGI was established, operating
expenses were deducted from the EGI in order to arrive at an NOI for
Hampton Greens of approximately $831,572. AAA performed a pro forma
analysis of revenues and expenses for Hampton Greens to derive the
subject's stabilized NOI. AAA relied on the subject's historical and
budgeted income and expenses for this estimate. AAA derived appropriate
investment criteria, including an overall capitalization rate, terminal
capitalization rate and a discount rate based upon analysis of
comparable sales and a survey of real estate investors.
The assumptions employed by AAA to determine the value of
Hampton Greens under the income approach included:
34
(1) stabilized vacancy and collection loss rate of 10%;
(2) replacement reserve of $250 per unit;
(3) overall capitalization rate of 9.50%;
(4) terminal capitalization rate of 10.00%;
(5) discount rate of 11.00%;
(6) 3.00% cost of sale at reversion; and
(7) holding period of 10 years.
In addition, adjustments were made for any assumed lease-up costs and
concessions because Hampton Greens' occupancy level was below a
stabilized occupancy projection and due to soft market conditions.
Thus, AAA assumed a 12-month lease up period and estimated the present
value of concessions to be $123,000 through the discounted cash flow
method. Based on these assumptions, AAA's estimate of cash flows for a
10-year period resulted in an indicated value of $8,800,000. The
reversion value contributed approximately 40% of the value.
Under the direct capitalization method utilizing a
capitalization rate of 9.50%, the projected NOI resulted in a value
(after rounding) of $8,600,000 after adjustments for lease-up costs
and present value of concessions.
Using the income capitalization approach, AAA determined on
an as-is basis that the direct capitalization method and the
discounted cash flow method indicated the value for Hampton Greens
was $8,700,000.
Reconciliation of Values and Conclusions of Appraisal. The
final step in the appraisal process was to reconcile the sales
comparison approach and the income capitalization approach values to
arrive at a final value conclusion. The reconciliation of the two
approaches involved weighing the valuation techniques in relation to
their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type,
and the purpose of the valuation. AAA concluded that the estimated
market value under the sales comparison approach was $8,500,000 and
the estimated market value under the income capitalization approach
was $8,700,000. After reconciling the various factors, AAA determined
that the most appropriate technique for estimating the value of
income-producing property was an approach based primarily on income,
and thus arrived at a final "as is" market value for Hampton Greens
of $8,500,000 as of April 28, 2003.
35
PLANTATION CREEK
Valuation Under Sales Comparison Approach. AAA compared
five apartment complexes with Plantation Creek that were sold between
August 2001 and March 2003 and located in property's real estate
market area. Based on its qualitative analysis, AAA rated the
locations of one comparable property as superior and four comparable
properties as comparable to the location of Plantation Creek. AAA
rated the quality/appeal of five comparable properties as comparable
to the quality/appeal of Plantation Creek. AAA rated the amenities of
five comparable properties as comparable to the amenities of
Plantation Creek.
AAA made adjustments to the sales price per unit of each
comparable property to reflect differences from Plantation Creek in
location, number of units, quality/appeal, age/condition, occupancy
at sale, amenities and average unit size. Based on the available
data, AAA concluded a value range of $44,464 to $49,844 per unit with
a mean or average adjusted price of $47,282 per unit and a median
adjusted price of $47,500 per unit. Thus, the estimated value based
on a $47,500 sales price per unit for the 484 units was approximately
$22,700,000 after adjustment for present value of concessions.
As part of the sales comparison approach, AAA also
conducted a net operating income ("NOI") analysis. NOI effectively
takes into account the various physical, location and operating
aspects of the sale. AAA compared Plantation Creek's NOI to the NOI
of the five comparable properties and arrived at a percentage
adjustment. After applying the percentage adjustment to the sales
price per unit of each comparable property, the range of value was
between $37,829 and $49,350 per unit, with an average of $43,839 per
unit. The appraiser concluded a value of $45,000 per unit for the 484
units of Plantation Creek, resulting in an estimated "as is" market
value of $21,500,000 using the NOI analysis after adjustment for
present value of concessions.
AAA also performed an effective gross income multiplier
("EGIM") analysis. The EGIM measures the relationship between the
sales price of a property and its effective gross income, which is
the total annual income that a property would produce after an
allowance for vacancy and credit loss. AAA estimated the operating
expense ratio ("OER") of Plantation Creek to be 46.18% before
reserves, with the expense ratios of the five comparable properties
ranging from 39.21% to 46.35%, resulting in EGIMs ranging from 5.59
to 6.44. Thus, AAA concluded an EGIM of 6.10 for Plantation Creek,
and applied the EGIM to the stabilized effective gross income for
Plantation Creek (see Income Approach section below), resulting in a
value conclusion of approximately $23,600,000 after adjustment for
present value of concessions.
AAA estimated the value using the price per unit analysis
at $22,700,000, the value using the NOI analysis at $21,500,000 and
the value using the EGIM analysis at $23,600,000. Based on these
three valuation methods, AAA concluded that the reconciled value for
Plantation Creek under the sales comparison approach was $22,500,000.
AAA assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive a value for Plantation Creek.
AAA first utilized a discounted cash flow method to analyze
the value of Plantation Creek. Under this method, anticipated future
cash flow and a reversionary value are discounted at an appropriate
rate of return to arrive at an estimate of present value. AAA
performed a market rent analysis for Plantation Creek to derive a
projected rental income. AAA also employed a direct capitalization
analysis on the property by dividing a forecast of net operating
income ("NOI") by an appropriate capitalization rate. AAA performed a
market rent analysis for Plantation Creek to derive a projected
rental income. The analysis included both a review of the subject's
current asking and actual rent rates as well as a comparison with
comparable apartment properties. AAA calculated Plantation Creek's
effective gross income ("EGI") by adding apartment rental collections
to other income and then making an adjustment for vacancy and
collection loss. Under this analysis, AAA arrived at an EGI of
$3,923,374. Once the EGI was established, operating expenses were
deducted from the EGI in order to arrive at an NOI for Plantation
Creek of approximately $1,990,613. AAA performed a pro forma analysis
of revenues and expenses for Plantation Creek to derive the subject's
stabilized NOI. AAA relied on the subject's historical and budgeted
income and expenses for this estimate. AAA derived appropriate
investment criteria, including an overall capitalization rate,
terminal capitalization rate and a discount rate based upon analysis
of comparable sales and a survey of real estate investors.
The assumptions employed by AAA to determine the value of
Plantation Creek under the discount cash flow method included:
36
(1) stabilized vacancy and collection loss rate of 13%;
(2) replacement reserve of $250 per unit;
(3) overall capitalization rate 9.00%;
(4) terminal capitalization rate of 9.50%;
(5) discount rate of 11.00%;
(6) 2.00% cost of sale at reversion; and
(7) holding period of 10 years.
No adjustment was made for lease-up costs because the property was
near or at a stabilized condition. An adjustment was made for
concessions, and AAA estimated the present value of concessions to be
$327,000. Based on these assumptions, AAA's estimate of cash flows
for a 10-year period resulted in an indicated value of $22,200,000
through the discounted cash flow method. The reversion value
contributed approximately 41% of the value.
Under the direct capitalization method utilizing a
capitalization rate of 9.00%, the projected NOI resulted in a
prospective (stabilized) value (after rounding) of $21,800,000 after
adjustments for present value of concessions.
Using the income capitalization approach, AAA determined on
an as-is basis that the direct capitalization method and the
discounted cash flow method indicated the value for Plantation Creek
was $22,000,000.
Reconciliation of Values and Conclusions of Appraisal. The
final step in the appraisal process was to reconcile the sales
comparison approach and the income capitalization approach values to
arrive at a final value conclusion. The reconciliation of the two
approaches involved weighing the valuation techniques in relation to
their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type,
and the purpose of the valuation. AAA concluded that the estimated
market value under the sales comparison approach was $22,500,000 and
the estimated market value under the income capitalization approach
was $22,000,000. After reconciling the various factors, AAA
determined that the most appropriate technique for estimating the
value of income-producing property was an approach based primarily on
income, and thus arrived at a final "as is" market value for
Plantation Creek of $22,300,000 as of May 22, 2003.
37
PROMONTORY POINTE
Valuation Under Sales Comparison Approach. AAA compared
five apartment complexes with Promontory Pointe that were sold
between November 2000 and June 2002 and located in the property's
real estate market area. Based on its qualitative analysis, AAA rated
the locations of four comparable properties as superior one
comparable property as comparable to the location of Promontory
Pointe. AAA rated the quality/appeal of three comparable properties
as superior, one comparable property as comparable and one comparable
property as inferior to the quality/appeal of Promontory Pointe. AAA
rated the amenities of five comparable properties as comparable to
the amenities of Promontory Pointe.
AAA made adjustments to the sales price per unit of each
comparable property to reflect differences from Promontory Pointe in
location, number of units, quality/appeal, age/condition, occupancy
at sale, amenities and average unit size. Based on the available
data, AAA concluded a value range of $30,527 to $38,383 per unit with
a mean or average adjusted price of $35,200 per unit and a median
adjusted price of $35,396 per unit. Thus, the estimated value based
on a $35,000 sales price per unit for the 252 units was approximately
$8,600,000 after adjustment for lease-up costs and present value of
concessions.
As part of the sales comparison approach, AAA also
conducted a net operating income ("NOI") analysis. NOI effectively
takes into account the various physical, location and operating
aspects of the sale. AAA compared Promontory Pointe's NOI to the NOI
of the five comparable properties and arrived at a percentage
adjustment. After applying the percentage adjustment to the sales
price per unit of each comparable property, the range of value was
between $29,647 and $34,158 per unit, with an average of $31,903 per
unit. The appraiser concluded a value of $33,000 per unit for the 252
units of Promontory Pointe, resulting in an estimated "as is" market
value of $8,100,000 using the NOI analysis after adjustment for
lease-up costs and present value of concessions.
AAA also performed an effective gross income multiplier
("EGIM") analysis. The EGIM measures the relationship between the
sales price of a property and its effective gross income, which is
the total annual income that a property would produce after an
allowance for vacancy and credit loss. AAA estimated the operating
expense ratio ("OER") of Promontory Pointe to be 47.92% before
reserves, with the expense ratios of the five comparable properties
ranging from 50.06% to 50.47%, resulting in EGIMs ranging from 4.50
to 5.14. Thus, AAA concluded an EGIM of 5.00 for Promontory Point,
and applied the EGIM to the stabilized effective gross income for
Promontory Pointe (see Income Approach section below), resulting in a
value conclusion of approximately $8,400,000 after adjustment for
lease-up costs and present value of concessions.
AAA estimated the value using the price per unit analysis
at $8,600,000, the value using the NOI analysis at $8,100,000 and the
value using the EGIM analysis at $8,400,000. Based on these three
valuation methods, AAA concluded that the reconciled value for
Promontory Pointe under the sales comparison approach was $8,400,000.
AAA assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive a value for Promontory Pointe.
AAA first utilized a discounted cash flow method to analyze
the value of Promontory Pointe. Under this method, anticipated future
cash flow and a reversionary value are discounted at
38
an appropriate rate of return to arrive at an estimate of present
value. AAA performed a market rent analysis for Promontory Pointe to
derive a projected rental income. AAA also employed a direct
capitalization analysis on the property by dividing a forecast of net
operating income ("NOI") by an appropriate capitalization rate. AAA
performed a market rent analysis for Promontory Pointe to derive a
projected rental income. The analysis included both a review of the
subject's current asking and actual rent rates as well as a
comparison with comparable apartment properties. AAA calculated
Promontory Pointe's effective gross income ("EGI") by adding
apartment rental collections to other income and then making an
adjustment for vacancy and collection loss. Under this analysis, AAA
arrived at an EGI of $1,712,815. Once the EGI was established,
operating expenses were deducted from the EGI in order to arrive at
an NOI for Promontory Pointe of approximately $829,083. AAA performed
a pro forma analysis of revenues and expenses for Promontory Pointe
to derive the subject's stabilized NOI. AAA relied on the subject's
historical and budgeted income and expenses for this estimate. AAA
derived appropriate investment criteria, including an overall
capitalization rate, terminal capitalization rate and a discount rate
based upon analysis of comparable sales and a survey of real estate
investors.
The assumptions employed by AAA to determine the value of
Promontory Pointe under the income approach included:
(1) stabilized vacancy and collection loss rate of 12%;
(2) replacement reserve of $250 per unit;
(3) overall capitalization rate of 9.00%;
(4) terminal capitalization rate of 9.50%;
(5) discount rate of 10.50%;
(6) 3.00% cost of sale at reversion; and
(7) holding period of 10 years.
In addition, adjustments were made for assumed lease-up costs and
concessions because Hampton Greens' occupancy level was below a
stabilized occupancy projection and due to soft market conditions.
Thus, AAA assumed a 12-month lease up period and estimated the
present value of concessions to be $137,000. Based on these
assumptions, AAA's estimate of cash flows for a 10-year period
resulted in an indicated value of $9,200,000 through the discounted
cash flow method. The reversion value contributed approximately 42%
of the value.
Under the direct capitalization method utilizing a
capitalization rate of 9.00%, the projected NOI resulted in a
prospective (stabilized) value (after rounding) of $9,000,000 after
adjustments for lease-up costs and present value of concessions.
Using the income capitalization approach, AAA determined on
an as-is basis that the direct capitalization method and the
discounted cash flow method indicated the value for Promontory Pointe
was $9,100,000.
Reconciliation of Values and Conclusions of Appraisal. The
final step in the appraisal process was to reconcile the sales
comparison approach and the income capitalization approach values to
arrive at a final value conclusion. The reconciliation of the two
approaches involved weighing the valuation techniques in relation to
their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type,
and the purpose of the valuation. AAA concluded that the estimated
market value under the sales comparison approach was $8,400,000 and
the estimated market value under the income capitalization approach
was $9,100,000. After reconciling the various factors, AAA determined
that the most appropriate technique for estimating the value of
income-producing property was an approach based primarily on income,
and thus arrived at a final "as is" market value for Promontory
Pointe of $9,000,000 as of May 20, 2003.
39
WOODCREEK
Valuation Under Sales Comparison Approach. AAA compared
five apartment complexes with Woodcreek that were sold between August
2002 and February 2003 and located in the property's real estate
market area. Based on its qualitative analysis, AAA rated the
locations of two comparable property superior, one comparable
property as comparable and two comparable properties as inferior to
the location of Woodcreek. AAA rated the quality/appeal of four
comparable properties as superior and one comparable properties as
inferior to the quality/appeal of Woodcreek. AAA rated the amenities
of two comparable properties as superior, two comparable properties
as comparable and one comparable property as inferior to the
amenities of Woodcreek.
AAA made adjustments to the sales price per unit of each
comparable property to reflect differences from Woodcreek in
location, number of units, quality/appeal, age/condition, occupancy
at sale, amenities and average unit size. Based on the available
data, AAA concluded a value range of $35,688 to $42,396 per unit with
a mean or average adjusted price of $39,823 per unit and a median
adjusted price of $40,091 per unit. Thus, the estimated value based
on a $40,000 sales price per unit for the 432 units was approximately
$16,800,000 after adjustment for lease-up costs and present value of
concessions.
As part of the sales comparison approach, AAA also
conducted a net operating income ("NOI") analysis. NOI effectively
takes into account the various physical, location and operating
aspects of the sale. AAA compared Woodcreek's NOI to the NOI of the
five comparable properties and arrived at a percentage adjustment.
After applying the percentage adjustment to the sales price per unit
of each comparable property, the range of value was between $44,477
and $46,568 per unit, with an average of $45,298 per unit. The
appraiser concluded a value of $44,000 per unit for the 432 units of
Woodcreek, resulting in an estimated "as is" market value of
$18,500,000 using the NOI analysis after adjustment for lease-up
costs and present value of concessions.
AAA also performed an effective gross income multiplier
("EGIM") analysis. The EGIM measures the relationship between the
sales price of a property and its effective gross income, which is
the total annual income that a property would produce after an
allowance for vacancy and credit loss. AAA estimated the operating
expense ratio ("OER") of Woodcreek to be 44.70% before reserves, with
the expense ratios of the five comparable properties ranging from
36.58% to 45.35%, resulting in EGIMs ranging from 6.73 to 7.88. Thus,
AAA concluded an EGIM of 6.00 for Woodcreek, and applied the EGIM
to the stabilized effective gross income for Woodcreek (see Income
Approach section below), resulting in a value conclusion of
approximately $17,600,000 after adjustment for lease-up costs and
present value of concessions.
AAA estimated the value using the price per unit analysis
at $16,800,000, the value using the NOI analysis at $18,500,000 and
the value using the EGIM analysis at $17,600,000. Based on these
three valuation methods, AAA concluded that the reconciled value for
Woodcreek under the sales comparison approach was $17,200,000. AAA
assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the
income capitalization approach, AAA performed: (1) a direct
capitalization analysis and (2) a discounted cash flow analysis to
derive a value for Woodcreek.
40
AAA first utilized a discounted cash flow method to analyze
the value of Woodcreek. Under this method, anticipated future cash
flow and a reversionary value are discounted at an appropriate rate
of return to arrive at an estimate of present value. AAA performed a
market rent analysis for Woodcreek to derive a projected rental
income. AAA also employed a direct capitalization analysis on the
property by dividing a forecast of net operating income ("NOI") by an
appropriate capitalization rate. AAA performed a market rent analysis
for Woodcreek to derive a projected rental income. The analysis
included both a review of the subject's current asking and actual
rent rates as well as a comparison with comparable apartment
properties. AAA calculated Woodcreek's effective gross income ("EGI")
by adding apartment rental collections to other income and then
making an adjustment for vacancy and collection loss. Under this
analysis, AAA arrived at an EGI of $3,014,448. Once the EGI was
established, operating expenses were deducted from the EGI in order
to arrive at an NOI for Woodcreek of approximately $1,559,086. AAA
performed a pro forma analysis of revenues and expenses for Woodcreek
to derive the subject's stabilized NOI. AAA relied on the subject's
historical and budgeted income and expenses for this estimate. AAA
derived appropriate investment criteria, including an overall
capitalization rate, terminal capitalization rate and a discount rate
based upon analysis of comparable sales and a survey of real estate
investors.
The assumptions employed by AAA to determine the value of
under the discount cash flow method included:
(1) stabilized vacancy and collection loss rate of 15%;
(2) replacement reserve of $250 per unit;
(3) overall capitalization rate of 9.00%;
(4) terminal capitalization rate of 9.50%;
(5) discount rate of 12.00%;
(6) 2.00% cost of sale at reversion; and
(7) holding period of 10 years.
In addition, adjustments were made for assumed lease-up costs and
concessions because Woodcreek's occupancy level was below a
stabilized occupancy projection and due to soft market conditions.
Thus, AAA assumed a 12-month lease up period and estimated the
present value of concessions to be $245,000. Based on these
assumptions, AAA's estimate of cash flows for a 10-year period
resulted in an indicated value of $16,900,000 through the discounted
cash flow method. The reversion value contributed approximately 41%
of the value.
Under the direct capitalization method utilizing a
capitalization rate of 9.00%, the projected NOI resulted in a
prospective (stabilized) value (after rounding) of $16,900,000 after
adjustments lease-up costs and present value of concessions.
Using the income capitalization approach, AAA determined on
an as-is basis that the direct capitalization method and the
discounted cash flow method indicated the value for Woodcreek was
$16,900,000.
Reconciliation of Values and Conclusions of Appraisal. The
final step in the appraisal process was to reconcile the sales
comparison approach and the income capitalization approach values to
arrive at a final value conclusion. The reconciliation of the two
approaches involved weighing the valuation techniques in relation to
their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type,
and the purpose of
41
the valuation. AAA concluded that the estimated market value under
the sales comparison approach was $17,200,000 and the estimated
market value under the income capitalization approach was
$16,900,000. After reconciling the various factors, AAA determined
that the most appropriate technique for estimating the value of
income-producing property was an approach based primarily on income,
and thus arrived at a final "as is" market value for of $16,900,000
as of May 6, 2003.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS OF AAA'S
VALUATION. In preparing the appraisal, AAA relied, without
independent verification, on the accuracy and completeness of all
information supplied or otherwise made available to it by or on
behalf of the partnership. In arriving at the appraisal, AAA assumed:
o good and marketable title to the property;
o validity of owner's claim to the property;
o no encumbrances which could not be cleared through normal
processes, unless otherwise stated;
o accuracy of land areas and descriptions obtained from public
records;
o no subsurface mineral and use rights or conditions;
o no substances such as asbestos, urea-formaldehyde foam
insulation, other chemicals, toxic wastes, or other potentially
hazardous materials in existence or present on or in the
property;
o full compliance with applicable federal, state and local
environmental regulations and laws, unless otherwise stated,
defined and considered;
o possession of all required licenses, consents, or other
legislative or administrative authority from any local, state, or
national government or private entity organization and that the
renewal of these items is possible;
o compliance with all applicable zoning and use regulations and
restrictions, unless a nonconformity has been stated, defined,
and considered;
o utilization of the land and improvements within property
boundaries and no encroachment or trespass of the improvements,
unless otherwise stated;
o the structural integrity of the property including its conformity
to specific governmental code requirements, such as fire,
building and safety, earthquake, and occupancy, or any physical
defects not readily apparent during inspection; and
o compliance with the Americans with Disabilities Act of 1992.
COMPENSATION OF APPRAISER. AAA was appointed by the court
to perform all the real estate appraisals in connection with the
settlement and this Litigation Settlement Offer. AAA was paid a fee
of $619,100 for the appraisals. We has agreed to pay 50% of the costs
of the appraisals, with the other 50% to be paid from the settlement
fund. AAA has conducted other appraisals of property in connection
with the other offers being made pursuant to the settlement
agreement. Other than the appraisals performed in connection with the
settlement agreement, during the prior two years, no material
relationship has existed between AAA and your partnership or any of
its affiliates, including the AIMCO Entities.
AVAILABILITY OF APPRAISAL REPORTS. You may obtain a full
copy of AAA's appraisals upon request, without charge, by contacting
the Information Agent at one of the addresses or the telephone number
on the back cover of this Litigation Settlement Offer. Copies of the
appraisal for the property are also available for inspection and
copying at the principal executive offices of the partnership during
regular business hours by any interested unitholder or his or her
designated representative at his or her cost. In addition, a copy of
the appraisals has been filed with the SEC as an exhibit to the
Tender Offer Statement and Rule 13e-3 Transaction Statement on
Schedule TO.
42
In estimating the net liquidation proceeds that would be payable per
unit based on the total appraised value of your partnership's properties, we
applied the same basic methodology as described under "Valuation of Units",
except that we did not deduct any amounts that were reflected in the total
appraised value nor did we include any payment from the settlement fund. As
indicated below, based on the total appraised value of the partnership
properties, the estimated net liquidation proceeds per unit is $530.61, which is
higher than our offer price of $192.60.
<Table>
Appraised value of partnership properties ............................ $ 119,800,000
Plus: Cash and cash equivalents (net of tenant security
deposits) .......................................................... 946,512
Plus: Other partnership assets, including any amounts
payable by the general partner and its affiliates upon
liquidation ........................................................ 2,088,432
Less: Mortgage debt, including accrued interest and any
prepayment penalty ................................................. (75,489,604)
Less: Accounts payable and accrued expenses .......................... (656,030)
Less: Other liabilities .............................................. (1,607,167)
-------------
Partnership valuation before taxes and certain costs ................. $ 45,082,144
Less: Estimated state entity taxes and nonresident
withholding ........................................................ (178,249)
Less: Extraordinary capital expenditures and deferred
maintenance (to the extent not reflected in the appraised
value of partnership properties) ................................... (144,600)
Less: Estimated closing costs ........................................ (1,466,280)
Plus: General partner contribution under deficit restoration
provision .......................................................... 1,532,880
-------------
Estimated net liquidation proceeds of your partnership ............... $ 44,825,896
Percentage of estimated net liquidation proceeds allocable
to holders of units based on the partnership agreement ............. 98%
-------------
Estimated net liquidation proceeds of units .......................... $ 43,960,035
Total number of units .............................................. 82,848.00
-------------
Estimated net liquidation proceeds per unit .......................... $ 530.61"
=============
</Table>
(5) The second paragraph under "THE LITIGATION SETTLEMENT OFFER -
Section 11. Background and Reasons for the Offer - Alternatives Considered by
Your General Partner -- Liquidation" is amended and restated as follows:
"If your partnership was liquidated, and the properties
sold at prices equal to the values recently determined by the
independent appraiser (see Annex II), we estimate that your net
liquidation proceeds would be $530.61 per unit. See "The Litigation
Settlement Offer -- Section 8. Valuation of Units." However, in the
opinion of your general partner, which is our affiliate, the present
time may not be the most desirable time to sell the real estate
assets of your partnership in a private transaction, and the proceeds
realized from any such sale would be uncertain. Your general partner
believes it currently is in the best interest of your partnership to
continue holding its real estate assets. Although future operating
results and sales prices are uncertain, your general partner believes
that the operating performance of your partnership's property may
improve in the future. This improvement, should it occur, may result
in higher property values. Such values, however, are also a function
of capitalization rates in the market and the interest rate
environment at the time. However, because your general partner and
property manager (which are our affiliates) receive fees for managing
your partnership and its property, a conflict of
43
interest exists between continuing the partnership and receiving such
fees, on the one hand, and the liquidation of the partnership and the
termination of such fees, on the other. See "The Litigation
Settlement Offer -- Section 15. Certain Information Concerning Your
Partnership -- Investment Objectives and Policies; Sale or Financing
of Investments" and "--Section 13. Conflicts of Interest and
Transactions with Affiliates." The term of the partnership will
continue until December 31, 2010, unless the partnership is
terminated sooner under the provisions of the partnership agreement."
(6) The paragraph under "THE LITIGATION SETTLEMENT OFFER - Section
11. Background and Reasons for the Offer - Alternative Transactions Considered
by Us" is amended and restated as follows:
"Alternative Transactions Considered by Us. At the present
time, we have decided to proceed with this offer pursuant to the
court approved settlement. From time to time in the past, we have
considered proposing a number of alternative transactions, including
the purchase of your partnership's property or a merger of your
partnership in which you would receive cash in exchange for your
units. We decided not to pursue these alternative transactions
because, in each case, we determined that a tender offer would be a
less expensive means of acquiring additional interests in your
partnership, and would not require the consent or approval of any
limited partners (other than those who elect to tender their units).
In the future, however, we may consider purchasing your partnership's
property or effecting such a merger. See "The Litigation Settlement
Offer -- Section 14. Future Plans of the Purchaser." We also
considered an offer to exchange units in your partnership for limited
partnership interests in AIMCO Properties, L.P. However, because of
the expense and delay associated with making such an exchange offer,
we decided to make an offer for cash only. In addition, our
historical experience has been that when we have offered limited
partners an opportunity to receive cash or limited partnership
interests in AIMCO Properties, L.P., the limited partners who tender
usually prefer the cash option."
(7) Section 12 under "THE LITIGATION SETTLEMENT OFFER" is amended and
restated as follows:
"12. POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT
TO THE OFFER
The partnership and the general partner of your partnership
(which is our affiliate) have provided the following information for
inclusion in this Litigation Settlement Offer:
Factors in Favor of Fairness Determination. The general
partner of your partnership believes the offer price and the
structure of the transaction are fair to the unaffiliated limited
partners. In support of such determination, the general partner
considered the factors and information set forth below, but did not
quantify or otherwise attach particular weight to any such factors or
information:
o the Court's approval of the settlement pursuant to which the
offer is being made;
o the fact that the interests of the unaffiliated limited partners
were represented by counsel in the negotiation of the settlement
agreement;
o the method we used to determine our offer price is a method
commonly relied upon by investors to value income producing
property;
o the offer gives limited partners an opportunity to make an
individual decision on whether to tender their units or to
continue to hold them;
44
o there is no established trading market for the limited
partnership units, and the offer would provide immediate
liquidity for tendering limited partners;
o the uncertainty of the resulting proceeds from the possible
alternative transactions, particularly a property sale or a
liquidation of the partnership,
o the fact that no unaffiliated limited partners would be able to
participate in the future performance of the partnership
following such alternative transactions;
o the offer price exceeds the book value per unit of $23.26 at
September 30, 2003;
o the fact that our offer price does not reflect any discount for
minority interests; and
o the absence of any other firm offers by third parties for all or
substantially all of the partnership's assets, a merger or other
extraordinary transaction during the past two years with which
to compare the Litigation Settlement Offer.
Factors Not in Favor of Fairness Determination. In addition
to the foregoing factors, the general partner considered the
following countervailing factors:
o the recent valuation of your partnership's property by American
Appraisal Associates, Inc., an independent appraiser appointed
by the Court, which results in an estimate of net liquidation
proceeds per unit of $530.61, which is higher than our offer
price of $192.60;
o the fact that offer prices in our prior tender offers were
higher than our current offer price; and
o prices at which the units have recently sold were higher than
our current offer price.
The general partner believes that consideration of the offer was
procedurally fair because, among other things, (1) the Court approved
the settlement agreement pursuant to which the offer is being made,
(2) limited partners are provided the opportunity to retain their
units, (3) the unaffiliated limited partners were represented by
counsel in the negotiation of the settlement agreement, and (4)
limited partners can evaluate our offer price by comparing it to the
net liquidation proceeds per unit derived from the independent
appraiser's property valuation.
While the general partner believes our offer is fair, the general
partner also believes that you must make your own decision whether or
not to participate in any offer, based upon a number of factors,
including several factors that may be personal to you, such as your
financial position, your need or desire for liquidity, your
preferences regarding the timing of when you might wish to sell your
units, other financial opportunities available to you, and your tax
position and the tax consequences to you of selling your units.
Consequently, the general partner makes no recommendation as to
whether or not you should tender or refrain from tendering your units
in this offer. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS LITIGATION
SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT
APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION
AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX
ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO
ACCEPT THIS LITIGATION SETTLEMENT OFFER.
Neither the general partner of your partnership or its affiliates
have any plans or arrangements to tender any units. Except as
otherwise provided in "The Litigation Settlement Offer -- Section 14.
45
Future Plans of the Purchaser," the general partner does not have any
present plans or proposals which relate to or would result in an
extraordinary transaction, such as a merger, reorganization or
liquidation, involving your partnership; a purchase or sale or
transfer of a material amount of your partnership's assets; or any
changes in your partnership's present capitalization, indebtedness or
distribution policies. For information relating to certain
relationships between your partnership and its general partner, on
one hand, and AIMCO and its affiliates, on the other, and conflicts
of interests with respect to the tender offer, see "The Litigation
Settlement Offer -- Section 11. Background and Reasons for the Offer"
and "-- Section 13. Conflicts of Interest and Transactions with
Affiliates." See also "The Litigation Settlement Offer -- Section 8.
Valuation of Units -- Comparison to Alternative Consideration" for
certain information regarding transactions with respect to units of
your partnership.
Your partnership did not receive any report, opinion or appraisal
with respect to the fairness of this Litigation Settlement Offer or
the offer price being offered to limited partners. However, the
partnership did receive the appraisals prepared by AAA, as described
above.
Although the AIMCO Entities have interests that may be in conflict
with those of the partnership's unaffiliated limited partners, each
of the AIMCO Entities believes that the offer price and the structure
of the transaction are fair to the unaffiliated limited partners
based on the information and factors considered by the general
partner of your partnership. Each of AIMCO Entities expressly adopts
the analysis, and the factors underlying such analysis, of the
general partner of your partnership."
(8) The first paragraph of "THE LITIGATION SETTLEMENT OFFER - Section
13. Conflicts of Interest and Transactions with Affiliates -- Transactions with
Affiliates" is amended and restated as follows:
"NHP Management Company (which is our affiliate) received
fees of approximately $170,000 and $817,000 for the years ended
December 31, 2002 and 2001, respectively, for construction management
services. The construction management service fees are calculated
based on a percentage of current additions to investment properties."
(9) The third paragraph of "THE LITIGATION SETTLEMENT OFFER - Section
13. Conflicts of Interest and Transactions with Affiliates -- Transactions with
Affiliates" is amended and restated as follows:
"We have made available to the partnership a credit line of
up to $150,000 per property owned by the partnership. During the year
ended December 31, 2002, we agreed to advance funds in excess of the
$150,000 line of credit to fund operating expenses of Plantation
Creek Apartments and advanced $329,000 for this purpose. At December
31, 2002, the outstanding balance was approximately $333,000,
including accrued interest. The advance was repaid in full subsequent
to December 31, 2002. There were no outstanding amounts due under
this line of credit at December 31, 2001."
(10) The fourth and fifth paragraphs under "THE LITIGATION SETTLEMENT
OFFER - Section 14. Future Plans of the Purchaser" are amended and restated as
follows:
"We have been advised that the general partner does not
currently expect to consider, on behalf of your partnership any of
the following transactions: (i) payment of extraordinary
distributions; (ii) refinancing, reducing or increasing existing
indebtedness of the partnership; (iii) sales of assets, individually
or as part of a complete liquidation; and (iv) mergers or other
consolidation transactions involving the partnership. Any such merger
or consolidation
46
transaction could involve other limited partnerships in which your
general partner or its affiliates serve as general partners, or a
combination of the partnership with one or more existing, publicly
traded entities (including, possibly, affiliates of AIMCO), in any of
which limited partners might receive cash, common stock or other
securities or consideration. As discussed under "The Litigation
Settlement Offer - Section 15. Certain Information Concerning Your
Partnership - Investment Objectives and Policies; Sale or Financing
of Investments," the general partner regularly evaluates the real
estate and capital markets. The general partner may consider
refinancing the partnership's existing indebtedness to the extent
that the general partner is able to obtain a lower interest rate or
if such indebtedness is approaching maturity. Furthermore, in the
event that the general partner receives an attractive offer for any
of your partnership's properties, the general partner would give due
consideration to such an offer.
If any of the transactions referred to above occur, and
financial benefits accrue to the limited partners, we will
participate in those benefits to the extent of our ownership of
units. The agreement of limited partnership prohibits limited
partners from voting on actions taken by the partnership, unless
otherwise specifically permitted therein. Limited partners may vote
on a liquidation, and we will be able to significantly influence or
control the outcome of any such vote. Our primary objective in
seeking to acquire the units pursuant to the offer is not, however,
to influence the vote on any particular transaction, but rather to
generate a profit on the investment represented by those units."
(11) The chart under "THE LITIGATION SETTLEMENT OFFER - Section 15.
Certain Information Concerning Your Partnership - Financial Data" is amended by
adding the following line items:
<Table>
<Caption>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
2003 2002 2002 2001 2000
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
Income (loss) per unit from continuing operations ..... $ (15.32) $ 1.44 $ (2.39) $ 76.57 $ 27.47
Ratio of earnings to fixed charges (deficit) .......... (36%) 3.3% (4.2%) 139.1% 44.3%
Book value per limited partnership unit ............... 23.26 44.85 41.03 63.80 150.85
</Table>
(12) The following chart under Annex I is amended and restated as
follows:
<Table>
<Caption>
NAME POSITION
- -------------------------- ------------------------------------------------------------------
Terry Considine............ Chairman of the Board of Directors and Chief
Executive Officer
Peter K. Kompaniez......... Vice Chairman, President and Director
Harry G. Alcock............ Executive Vice President and Chief Investment
Officer
Miles Cortez............... Executive Vice President, General Counsel and
Secretary
Joseph DeTuno.............. Executive Vice President -- Redevelopment
Patti K. Fielding.......... Executive Vice President -- Securities and Debt
Patrick J. Foye............ Executive Vice President
Lance J. Graber............ Executive Vice President -- AIMCO Capital
Paul J. McAuliffe.......... Executive Vice President and Chief Financial Officer
Ronald D. Monson........... Executive Vice President and Head of Property
Operations
David Robertson............ Executive Vice President -- President and Chief Executive Officer
of AIMCO Capital
Jim Purvis................. Executive Vice President -- Human Resources
Randall J. Fein............ Executive Vice President -- Student Housing
James N. Bailey............ Director
Richard S. Ellwood......... Director
J. Landis Martin........... Director
Thomas L. Rhodes........... Director
</Table>
47
SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned hereby certify that the information set forth in this statement is
true, complete and correct.
Date: December 5, 2003
AIMCO PROPERTIES, L.P.
By: AIMCO-GP, INC.
Its General Partner
By: /s/ Patrick J. Foye
-------------------------------
Patrick J. Foye
Executive Vice President
48
SCHEDULE 13E-3
After due inquiry and to the best of its knowledge and belief, the
undersigned hereby certify that the information set forth in this statement is
true, complete and correct.
Date: December 5, 2003
AIMCO-GP, INC.
By: /s/ Patrick J. Foye
-------------------------------
Patrick J. Foye
Executive Vice President
APARTMENT INVESTMENT AND MANAGEMENT
COMPANY
By: /s/ Patrick J. Foye
-------------------------------
Patrick J. Foye
Executive Vice President
FOX CAPITAL MANAGEMENT COMPANY
By: /s/ Patrick J. Foye
-------------------------------
Patrick J. Foye
Executive Vice President
49
EXHIBIT INDEX
<Table>
<Caption>
Exhibit No. Description
- ----------- -----------
(c)(1) Appraisal of Autumn Run Apartments
(c)(2) Appraisal of Cooper's Pointe Apartments
(c)(3) Appraisal of Copper Mill Apartments
(c)(4) Appraisal of Four Winds Apartments
(c)(5) Appraisal of Hampton Greens Apartments
(c)(6) Appraisal of Plantation Creek Apartments
(c)(7) Appraisal of Promontory Point Apartments
(c)(8) Appraisal of Wood Creek Apartments
</Table>
50