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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 1-13232
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND 84-1259577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1873 SO. BELLAIRE STREET, SUITE 1700, DENVER, CO 80222-4348
(Address of principal executive offices) (Zip Code)
_______________________
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 757-8101
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
-------------------- -----------------------------
Class A Common Stock New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10K. _____
The number of shares of Class A and Class B Common Stock outstanding as of
March 11, 1997 was 17,569,970 and 325,000, respectively. The aggregate market
value of the voting stock held by non-affiliates of the registrant, was
approximately $468,337,000 as of March 11, 1997.
_______________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the registrant's 1997 annual meeting of
stockholders' are incorporated by reference into Part III of this Annual Report.
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
ITEM PAGE
- ---- ----
PART I
1. Business........................................................... 1
Recent Developments............................................. 1
Financial Information About Industry Segments................... 5
Growth Strategies............................................... 5
Operating Strategies............................................ 7
Taxation of the Company......................................... 8
Competition..................................................... 8
Regulation...................................................... 8
Environmental Matters........................................... 9
Insurance....................................................... 10
Employees....................................................... 10
2. Properties......................................................... 11
3. Legal Proceedings.................................................. 14
4. Submission of Matters to a Vote of Security Holders................ 14
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters.............................................. 15
6. Selected Financial Data............................................ 16
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 17
8. Financial Statements and Supplementary Data........................ 28
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure......................................... 28
PART III
10. Directors and Executive Officers of the Registrant................. 28
11. Executive Compensation............................................. 30
12. Security Ownership of Certain Beneficial Owners and Management..... 30
13. Certain Relationships and Related Transactions..................... 31
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 31
PART I
INTRODUCTION
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. Certain information
included in this Report, the Company's Annual Report to Shareholders and
other Company filings (collectively "SEC Filings") under the Securities Act
of 1933, as amended, and the Securities Exchange Act of 1934, as amended (as
well as information communicated orally or in writing between the dates of
such SEC Filings), contains or may contain information that is forward
looking, including, without limitation, statements regarding the effect of
acquisitions, the Company's future financial performance and the effect of
government regulations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety
of risks and factors including, without limitation, national and local
economic conditions, the general level of interest rates, terms of
governmental regulations that affect the Company and interpretations of those
regulations, the competitive environment in which the Company operates,
financing risks, including the risk that the Company's cash flow from
operations may be insufficient to meet required payments of principal and
interest, real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets, acquisition and development risks, including failure of such
acquisitions to perform in accordance with projections, and possible
environmental liabilities, including costs which may be incurred due to
necessary remediation of contamination of properties presently owned or
previously owned by the Company. In addition, the Company's continued
qualification as a real estate investment trust involves the application of
highly technical and complex provisions of the Internal Revenue Code. Readers
should carefully review the Company's financial statements and the notes
thereto, as well as the risk factors described in the SEC Filings.
ITEM 1. BUSINESS
Apartment Investment and Management Company, a Maryland corporation formed on
January 10, 1994 ("AIMCO" and, together with its subsidiaries and other
controlled entities, the "Company"), is a self-administered and self-managed
real estate investment trust (a "REIT") engaged in the ownership,
acquisition, development, expansion and management of multifamily apartment
properties. Through its controlling interests in AIMCO Properties, L.P. a
Delaware limited partnership (the "Operating Partnership"), other limited
partnerships and subsidiary corporations, the Company owns or controls
multifamily apartment properties (the "Owned Properties") and manages other
multifamily apartment properties (the "Managed Properties") for third parties
and affiliates. The Company focuses on "middle market" multifamily apartment
properties (properties with rents at or near the averages in their markets).
As of December 31, 1996, the Company owned or controlled 23,764 apartment
units in 94 multifamily apartment properties, managed for affiliates 3,611
apartment units in 18 properties and managed for over 90 third-party owners
15,434 apartment units in 119 properties bringing the total managed portfolio
to 42,809 apartment units in 231 properties.
The Company's principal executive offices are located at 1873 So. Bellaire
Street, Suite 1700, Denver, Colorado 80222-4348 and its telephone number is
(303) 757-8101.
Limited partners in the Operating Partnership and holders of minority interests
in partnerships controlled by the Company can contact the Company at (888) 759-
0816 for information and assistance.
RECENT DEVELOPMENTS
INDIVIDUAL PROPERTY ACQUISITIONS
During the year ended December 31, 1996, the Company acquired seven multifamily
apartment properties consisting of 2,311 apartment units. The aggregate
consideration paid by the Company of $93.1 million consisted of $26.0 million in
cash, 704,220 shares of AIMCO's Class A Common Stock, par value $.01 per share
(the "Class A Common Stock") with a total recorded value of $15.3 million,
745,183 Operating Partnership Units ("OP Units") with a total recorded value of
$15.0 million and the assumption of $31.7 million of secured long-term
indebtedness and $5.1 million of secured short-term indebtedness.
1
PORTFOLIO ACQUISITIONS:
ENGLISH PORTFOLIO ACQUISITION
In November 1996, the Company completed the acquisition (the "English Portfolio
Acquisition") of certain partnership interests, real estate and related assets
owned by J.W. English, a Houston, Texas-based real estate syndicator and
developer, and certain affiliated entities (collectively, the "J.W. English
Companies"). The English Portfolio Acquisition included the purchase of all of
the general and some of the limited partnership interests in 22 limited
partnerships which act as the general partner to 31 limited partnerships (the
"English Partnerships"). The English Partnerships own multifamily apartment
properties, aggregating 5,230 apartment units, and four commercial properties,
primarily in Houston, Texas. In addition, the Company acquired title to a
104-unit multi-family apartment property in Houston, Texas; certain assets of J.
W. English Management Company which provided management services to the
apartment properties; and other real estate interests related to the J.W.
English Companies' operations. The aggregate purchase price of the English
Portfolio Acquisition was $23.1 million, consisting of $15.2 million in OP Units
and $7.9 million in cash.
The Company also made separate offers (the "English Tender Offers") to the
limited partners of 25 of the English Partnerships to acquire their limited
partnerships interests for cash or OP Units. The Company accepted tenders
representing, in the aggregate, approximately 46% of all outstanding limited
partnership interests in the English Partnerships subject to the offers. The
Company paid $16.0 million in cash and $1.7 million in OP Units, at a price of
$23 per OP Unit, for the interests tendered in the English Tender Offers. The
remaining limited partners elected to continue as limited partners in such
English Partnerships.
DALLAS PORTFOLIO ACQUISITION
In a series of related transactions completed in November and December 1996, the
Company acquired general partnership interests in 21 limited partnerships which
own twelve multifamily apartment properties (collectively, the "Dallas
Acquisition Properties") aggregating 2,839 apartment units, primarily in the
Dallas, Texas metropolitan area, and loans made by the previous general partners
and their affiliates to such partnerships, for an aggregate price of $26.7
million in cash (collectively, the "Dallas Portfolio Acquisition"). The existing
limited partners retained their interest in such limited partnerships.
PROPERTY DISPOSITIONS
In August 1996, the Company sold the Dakota Apartments, the Sterling Point
Apartments, the Ridgmar Park Apartments and the Woodcreek Apartments
(collectively, the "Four Sold Properties") consisting of 1,265 apartment
units, all of which are located in the Dallas, Texas metropolitan area, in a
single transaction for net cash proceeds totaling $17.1 million. The net
proceeds were used to repay the balance then outstanding under the Company's
revolving line of credit with Bank of America (the "Credit Facility") of $9.2
million and to provide funds for working capital and investment purposes.
The properties were acquired as part of a portfolio in conjunction with the
Company's initial public offering in July 1994. The Company recognized a
gain of $44,000 on the dispositions.
DEBT ASSUMPTIONS AND FINANCINGS
In 1996, the Company assumed $31.7 million in first and second long-term
mortgage loans in connection with the purchase of the three apartment
properties. In July 1996, mortgage loans on two of the apartment properties
totaling $25.8 million, in addition to $2.7 million in participating interest
due in accordance with the terms of a second mortgage loan, were repaid using
borrowings under the Credit Facility and the issuance of 63,152 OP Units with
a recorded value of $1.2 million.
2
In June 1996, the Company completed two tax-exempt bond offerings totaling $58.0
million on five Florida properties. Proceeds from the bond offerings were used
to repay the variable rate $48.1 million tax-exempt bonds securing four Florida
properties and the $9.9 million tax-exempt revenue bonds which were purchased in
connection with the acquisition of a Florida property in December 1995. The
bond offerings include $48.0 million in fully amortizing, 20 year mortgage loans
with an effective interest rate of 7.2% and a $9.9 million fully amortizing, 20
year mortgage loan with an effective interest rate of 7.3%. In addition to the
five Florida properties, five other properties were pledged as additional
collateral to secure the financings.
In August 1996, the Company's refinanced its $25.0 million one-year bridge
facility secured by five properties. The borrowings were increased to $25.8
million, the interest rate was reduced to LIBOR plus 1.75% from LIBOR plus 2.0%
and the maturity was extended to July 31, 1998. In addition, one of the
properties was released from the cross-collateralized security. The indebtedness
is unconditionally guaranteed by the Company.
In November 1996, the Company borrowed $12.5 million pursuant to an unsecured
line of credit with Bank One, Colorado, NA (the "Bank One Credit Line"). The
Bank One Credit Line bears interest at a variable rate equal to LIBOR plus 1.75%
(7.1% per annum as of December 31, 1996). The proceeds were used by the Company
to pay for a portion of the limited partnership interests acquired in the
English Tender Offers. The Bank One credit line was repaid with proceeds of a
public offering in February 1997.
In December 1996, the English Partnerships borrowed $60.5 million, bearing
interest at a variable rate equal to LIBOR plus 1.75% (7.4% per annum as of
December 31, 1996) which matures in December 1997 (subject to extension by the
Company to December 1998). The indebtedness is secured by deeds of trust on 13
of the properties owned by 12 of the English partnerships and is guaranteed in
part by AIMCO and certain of its affiliates. The aggregate amount of the
obligations guaranteed is approximately $28.8 million. This guaranty is secured
by an assignment of the Company's general partnership interests in the 12
English Partnerships. The net proceeds of such indebtedness were used by the
Company to repay indebtedness of certain of the English Partnerships. The
English Partnerships are subject to an additional $34.9 million of mortgage
debt.
In December 1996, the Company borrowed approximately $25.6 million to finance
the Dallas Portfolio Acquisition. Such indebtedness is secured by second
mortgages on twelve of the Dallas Acquisition Properties and bears interest at a
variable rate equal to LIBOR plus 2.50% (8.0% per annum as of December 31,
1996). The indebtedness was repaid by the Company with proceeds of a public
offering in February 1997. In December 1996, the partnerships which own the
Dallas Acquisition Properties borrowed $29.2 million, bearing interest at LIBOR
plus 2.50% (8.0% at December 31, 1996) which matures December 1998. The
indebtedness is secured by deeds of trust on seven of the Dallas Acquisition
Properties. The net proceeds of such indebtedness were used by the Company to
repay indebtedness of certain of the partnerships which own the Dallas
Acquisition Properties. The Dallas Acquisition Properties are subject to an
additional $31.5 million of mortgage debt.
STOCK REPURCHASES
In September 1996, the Company's Board of Directors authorized the re-purchase
of up to 500,000 shares of Class A Common Stock in open market and privately
negotiated purchase transactions. During 1996, the Company repurchased 79,400
shares of Class A Common Stock in open market purchases for a total of $1.7
million at an average price of $21.41 per share. In addition, the Company
repurchased 126,300 shares of Class A Common Stock in a privately negotiated
purchase transaction for a total of $2.6 million at an average price of $20.50
per share.
3
PUBLIC OFFERINGS
In November 1996, the Company completed a public offering of 1,265,000 shares of
Class A Common Stock (including 165,000 shares subject to the underwriter's
overallotment option) at a net price of $23.43 per share. The net proceeds of
$29.6 million were used to repay a portion of the indebtedness incurred in
recent acquisitions. In February 1997, the Company completed a public offering
of 2,015,000 shares of Class A Common Stock (including 15,000 shares subject to
the underwriter's overallotment option) at a price of $26.75 per share. The net
proceeds of $51.1 million were used to repay a portion of the Company's
indebtedness incurred in acquisitions completed in November and December 1996.
MANAGEMENT STOCK ACQUISITION
On October 1, 1996, the Company issued 379,750 shares of Class A Common Stock to
certain executive officers (or entities controlled by them) at $20.75 per share
(the closing price on the NYSE on August 29, 1996, the option award date)
pursuant to the exercise of stock options issued under the Apartment Investment
and Management Company 1996 Stock Award and Incentive Plan. In payment for such
shares, the executive officers (or entities controlled by them) executed $7.9
million of notes payable to the Company bearing interest at 7.25% per annum,
payable quarterly, and due in 2006. The notes are secured by the shares
purchased and are recourse as to 25% of the principal owed. In March 1997,
certain executive officers (or entities controlled by them) repaid $740,000
of the $7.9 million of notes payable to the Company outstanding as of
December 31, 1996. In addition, on August 29, 1996, certain executive officers
also agreed to purchase (or cause entities controlled by them to purchase),
prior to January 31, 1997, an additional 515,500 shares of Class A Common Stock
at a purchase price of $20.75 per share. These shares were issued and delivered
as of December 31, 1996. In payment for such shares, the executive officers (or
entities controlled by them) executed $10.7 million of notes payable to the
Company bearing interest at 7.25% per annum, payable quarterly, and due in 2006.
The notes are recourse to the officers. In March 1997, certain officers of the
Company (or entities controlled by them) repaid in full the notes payable to the
Company totaling $10.7 million.
As a result of these two transactions, management and directors ownership
increased from approximately 8% at December 31, 1995 to approximately 12% at
December 31, 1996.
PENDING ACQUISITION
On February 20, 1997, the Company announced that its Board of Directors had
approved an agreement with Demeter Holdings Corporation ("Demeter") and Phemus
Corporation ("Phemus"), affiliates of The Harvard Private Capital Group, and
Capricorn Investors, L.P. ("Capricorn"), pursuant to which the Company will
acquire all of Demeter's and Capricorn's 6.93 million shares of NHP Incorporated
("NHP") common stock at a purchase price of $20.00 per share, payable in 3.2
million shares of Class A Common Stock of the Company and $53 million in cash.
In addition, Demeter and Capricorn would be entitled to retain their
proportionate interest in NHP's subsidiary, NHP Financial Services, Ltd.
The agreement also provides for the Company to acquire from Demeter, Phemus and
Capricorn (together, the "Sellers") interests in certain entities that, directly
or indirectly, own conventional and affordable multifamily apartment properties
managed by NHP. Pursuant to the agreement, the Operating Partnership will
acquire the Sellers' controlling interests in limited partnerships that own 18
conventional apartment communities containing 7,278 apartment units for an
aggregate price of approximately $24.5 million, payable in cash or OP Units, at
the sellers' option. The Company also has an option to acquire the Sellers'
interests in entities that own an additional 15 conventional apartment
communities containing 3,800 apartment units. Upon completion of such
acquisition, the Operating Partnership intends to make separate offers to the
limited partners of the various partnerships to acquire their interests in the
limited partnerships.
4
The agreement also provides for the formation of a joint venture with the
Sellers in which the Operating Partnership will have a 50% interest. The joint
venture would be managed equally by the Sellers, on the one hand, and Operating
Partnership on the other. The Sellers will contribute to the venture their
interests in entities that own 24 apartment communities containing 5,464
apartment units, and, at the Operating Partnership's option, the Sellers'
interests in entities that own an additional 20 apartment communities containing
4,532 apartment units. The Company will contribute cash or other assets valued
at approximately $13 million and the Sellers will contribute assets valued at
approximately $13 million to form the joint venture.
Also pursuant to the agreement, the Operating Partnership will invest
approximately $3.4 million to acquire a 25% interest in entities owned by the
Sellers that own interests in 52,741 affordable housing units and 12,588
other apartment units and other assets.
The Company also made a merger proposal to NHP's Board of Directors pursuant
to which NHP would merge into the Company (or one of its subsidiaries) and
the Company would offer to acquire the remaining stockholders' interests in
NHP for $20 per NHP share to be paid in the Company's Class A Common Stock.
The Company's proposal contemplates that NHP's subsidiary, NHP Financial
Services, Ltd., will be spun off to NHP stockholders (including the Sellers'
but not the Company) prior to the merger. Consequently, NHP stockholders
would be entitled to receive approximately 0.75 shares of the Company's Class
A Common Stock in the merger. If the spin-off of NHP Financial Services, Ltd.
does not occur, the Company will pay an additional $3.05 per share to
Demeter, Capricorn and the remaining Stockholders in NHP.
Closing of the transactions is subject to completion of additional documentation
and customary closing conditions, including all necessary governmental
approvals, the continuation of the Company's status as a REIT under federal tax
laws, as well as certain rights of first refusal of NHP with respect to the
purchase of interests in properties managed by NHP. The closing of the real
estate transactions with the Sellers and the acquisition by the Company of the
Sellers' interest in NHP is expected to occur during the second quarter of 1997.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment, the ownership and management of
real estate. See the consolidated financial statements and notes thereto
included in Item 8 of this Annual Report on Form 10-K for financial
information relating to the Company.
GROWTH STRATEGIES
The Company measures its economic profitability based on Funds From Operations
("FFO") less a minimum annual provision for capital replacements of $300 per
apartment unit, which the Company defines as Cash Earned For Shareholders
("CEFS"). The Company's primary objective is to maximize shareholder value by
increasing the amount and predictability of CEFS on a per share basis. The
Company seeks to achieve this objective primarily by improving net operating
income from its Owned Properties and by acquiring additional properties at
values that are accretive on a per share basis. The Company follows operating
and financial strategies, including: (i) maintaining a geographically
diversified portfolio of properties; (ii) providing a minimum of $300 per
apartment unit per year for capital replacements to maintain its properties;
(iii) emphasizing long-term, fixed rate, fully amortizing debt; (iv) maintaining
a ratio of CEFS plus interest expense and preferred stock dividends ("Free
Cash Flow") to interest expense of at least 2 to 1; and (v) maintaining a
dividend payout ratio of more than 80% of CEFS.
5
ACQUISITIONS
During 1996, the Company has acquired, either directly or through the
acquisition of controlling interests in limited partnerships, 42 multifamily
apartment properties, and has sold four Owned Properties, increasing the
number of apartment units it owns or controls to 23,764, a net increase of
approximately 64% from the 14,453 apartment units in the 56 Owned Properties
held at December 31, 1995.
The Company intends to continue to expand its portfolio of Owned Properties
by: (i) acquiring properties in markets familiar to the Company's management;
(ii) developing and expanding its Owned Properties and (iii) acquiring
controlling interests in companies that own or manage multifamily properties.
MANAGED PROPERTIES
The Company believes its property management operations are integral to its
overall business strategy. The economies of scale realized from managing more
than 40,000 apartment units enable the Company to more efficiently operate
its properties. In addition, the Company believes that managing properties
for third parties improves the performance of its Owned Properties by
subjecting property managers to market-based pricing and service standards.
The Company's property management operations also support the Company's
acquisition activities by enhancing its ability to identify and evaluate
acquisition and development opportunities in its markets. The Company's local
and regional personnel maintain first-hand knowledge of local market
conditions and often obtain early notification of Managed Properties and
other properties that may be offered for sale.
REDEVELOPMENT AND EXPANSION PROPERTIES
The Company has a cautious strategy concerning new development and intends to
develop only in situations in which it believes it has a significant
advantage. The Company believes that redevelopment of selected properties in
superior locations can provide advantages over the development of new
properties, because redevelopment generally can be accomplished with
relatively lower risk, in shorter periods of time and with reduced delays
attributable to governmental approval procedures.
The Company acquired the Sun Katcher Apartments (360 units) located in
Jacksonville, Florida in December 1995. The property has substantially
completed a second phase of redevelopment, at a total cost of approximately
$4.0 million. The entire redevelopment is expected to be completed by the
second quarter of 1997.
The Company acquired the Bay West Apartments (376 units) located in Tampa,
Florida, in December 1996. The Company anticipates spending $2.6 million in
renovation costs to upgrade the interior and exterior of the property and
reposition the property in the marketplace.
The Company believes that expansion within, or adjacent to, existing
properties will provide growth opportunities at lower risks than are
associated with new development, and may offer certain cost advantages to the
extent common area amenities and on-site management personnel can be utilized.
In 1996, the Company completed 92 additional units within Fairways, (260
units) located in Phoenix, Arizona, at a total cost of approximately
$6.0 million. Common area amenities and on-site management personnel from
Fairways will serve the additional 92 units. In addition, the Company owns
Fairways III, 19.9 acres of undeveloped land adjacent to Fairways suitable
for development. The Company has received approval from local agencies for
the construction of 279 units.
6
The acquisition of the English Portfolio Acquisition included a partnership
which owns the Township at Highlands (119 units) located in Denver, Colorado.
The Company has plans to develop an additional 42 apartments units at a cost
of approximately $75,000 per unit. The 42 apartment units will use the
existing common area amenities and on-site management personnel already in
place at the Township at Highlands.
OPERATING STRATEGIES
PRODUCT FOCUS
The Company focuses on "middle market" multifamily apartment properties, a
market segment in which the Company's management has substantial ownership
and management experience. The Company considers a middle market multifamily
apartment property to be a property with units offered for rent at or near
the average rents in their markets. As of December 31, 1996, the Owned
Properties which the Company considers to be representative of middle market
properties, had an average acquisition cost of approximately $35,000 per
apartment unit (approximately $44 per square foot). Excluding properties
acquired in November and December 1996, the average monthly rent per occupied
unit was $535 per month ($0.66 per square foot) during 1996.
INTERNAL GROWTH STRATEGY
The Company's strategy for internal growth and to increase cash flow is to
continually: (i) seek higher net rental revenues by enhancing and maintaining
the competitiveness of properties through periodic property upgrades which
typically include cable television, selective refurbishment and the addition
of other amenities; (ii) provide a high level of service to residents; (iii)
manage expenses through a system of detailed management reporting and
accountability; and (iv) provide training programs, orientation workshops and
technical courses for on-site marketing, maintenance and management personnel.
In pursuing its internal growth strategy, the Company's policy is to: (i)
provide on-site management trained to respond promptly to residents' needs;
(ii) conduct annual resident satisfaction surveys; (iii) respond to
maintenance calls within 24 hours; and (iv) maintain the quality and
appearance of its properties with an annual provision of $300 per apartment
unit for capital replacements.
PROPERTY MANAGEMENT
The Company's property management strategy is to achieve improvements in
operating results by combining centralized financial control and uniform
operating procedures with localized property management decision making and
market knowledge. The Company is organized into six regions. Each region is
served by local offices of regional property managers and is supervised by a
Regional Vice President.
DIVERSIFIED MARKETS
The Company seeks to operate in markets: (i) where population and employment
growth rates are expected to exceed the national averages; (ii) where it
believes it can become one of the regionally significant owners and managers
of multifamily apartment properties; and (iii) that will enable the Company to
maintain a geographically diversified portfolio or otherwise gain significant
financial benefits. The distribution of the Owned Properties reflects the
Company's focus on growth markets and its belief that geographic
diversification will help to insulate the portfolio from regional and
economic fluctuations. The Company also seeks to create concentrations of
properties within each of its markets in order to achieve economies of scale
in management and operations. The Company owns or manages in excess of 5,000
apartment units in the Houston, Texas metropolitan area and 2,000 apartment
units in the Dallas, Texas metropolitan area and in excess of 1,000 apartment
units in each of the Atlanta, Georgia; Phoenix, Arizona; Salt Lake City,
7
Utah; San Antonio, Texas; Denver/Boulder, Colorado; and Tampa/St. Petersburg,
Florida metropolitan areas.
TAXATION OF THE COMPANY
The Company has elected to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), commencing with its taxable year ended
December 31, 1994, and the Company intends to continue to operate in such a
manner. The Company's current and continuing qualification as a REIT depends
on its ability to meet the various requirements imposed by the Code, through
actual operating results, distribution levels and diversity of stock
ownership.
If the Company qualifies for taxation as a REIT, it will generally not be
subject to Federal corporate income tax on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. If the Company fails to qualify as
a REIT in any taxable year, its taxable income will be subject to Federal
income tax at regular corporate rates on its taxable income (including any
applicable alternative minimum tax). Even if the Company qualifies as a
REIT, it may be subject to certain state and local income taxes and to
Federal income and excise taxes on its undistributed income.
If in any taxable year the Company fails to qualify as a REIT and incurs
additional tax liability, the Company might need to borrow funds or liquidate
certain investments in order to pay the applicable tax and the Company would
not be compelled to make distributions under the Code. Unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following
the year during which qualification is lost. Although the Company currently
intends to operate in a manner designed to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause
the Company to fail to qualify as a REIT or may cause the Board of Directors
to revoke the REIT election.
The Company and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax treatment.
COMPETITION
There are numerous housing alternatives that compete with the Company's Owned
Properties and Managed Properties in attracting residents. The Company's
properties compete directly with other multifamily rental apartments and
single family homes that are available for rent in the markets in which the
Company's properties are located. The Company's properties also compete for
residents with new and existing homes and condominiums. The number of
competitive properties in a particular area could have a material effect on
the Company's ability to lease apartment units at its properties and on the
rents charged. Numerous real estate companies compete with the Company in
acquiring, developing and managing multifamily apartment properties and
seeking tenants to occupy their properties. In addition, numerous property
management companies compete with the Company in the markets where the
Managed Properties are located.
REGULATION
GENERAL
Multifamily apartment properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such
as swimming pools, activity centers and other common areas. Changes in laws
increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions,
as well as changes in laws affecting
8
development, construction and safety requirements, may result in significant
unanticipated expenditures, which would adversely affect the Company's cash
flow from operating activities. In addition, future enactment of rent
control or rent stabilization laws or other laws regulating multifamily
housing may reduce rental revenue or increase operating costs in particular
markets.
RESTRICTIONS IMPOSED BY LAWS BENEFITING DISABLED PERSONS
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places of
public accommodation are required to meet certain federal requirements
related to access and use by disabled persons. These requirements became
effective in 1992. A number of additional federal, state and local laws exist
which also may require modifications to the Owned Properties, or restrict
certain further renovations thereof, with respect to access thereto by
disabled persons. For example, the Fair Housing Amendments Act of 1988 (the
"FHAA") requires apartment properties first occupied after March 13, 1990 to
be accessible to the handicapped. Noncompliance with the ADA or the FHAA
could result in the imposition of fines or an award of damages to private
litigants and also could result in an order to correct any non-complying
feature, which could result in substantial capital expenditures. Although
management of the Company believes that the Owned Properties are
substantially in compliance with present requirements, if the Owned
Properties are not in compliance, the Company is likely to incur additional
costs to comply with the ADA and the FHAA.
ENVIRONMENTAL MATTERS
Under federal, state and local environmental laws and regulations, a current
or previous owner or operator of real property may be required to investigate
and clean up a release of hazardous substances at such property, and may,
under such laws and common law, be held liable for property damage and other
costs incurred by third parties in connection with such releases. The
liability under certain of these laws has been interpreted to be joint and
several unless the harm is divisible and there is a reasonable basis for
allocation of responsibility. The failure to remediate the property properly
may also adversely affect the owner's ability to sell or rent the property or
to borrow using the property as collateral. In connection with its ownership,
operation and management of the Owned Properties and other real properties,
including the Managed Properties, the Company could be potentially liable for
such costs.
Certain federal, state and local laws and ordinances govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when
those materials are in poor condition or in the event of building remodeling,
renovation or demolition, impose certain worker protection and notification
requirements and govern emissions of and exposure to asbestos fibers in the
air. The laws may also impose liability for release of ACMs and may enable
third parties to seek recovery from owners or operators of real properties
for personal injury associated with ACMs. In connection with its ownership,
operation and management of properties, the Company could be potentially
liable for those costs. There are ACMs at certain of the Owned Properties and
there may be ACMs at certain of the Managed Properties. The Company has
developed and implemented operations and maintenance programs that establish
operating procedures with respect to the ACMs at the Owned Properties.
Certain of the Owned Properties are, and some of the Managed Properties may
be, located on or near properties that have contained underground storage
tanks or on which activities have occurred which could have released
hazardous substances into the soil or groundwater. There can be no assurances
that such hazardous substances have not been released or have not migrated,
or in the future will not be released or will not migrate onto the Owned
Properties and Managed Properties. In addition, the Company's Montecito
property in Austin, Texas is located adjacent to, and may be partially on,
land that was used as a landfill. Low levels of methane and other landfill
gases have been detected at Montecito. The remediation of the landfill gas is
now substantially complete. The environmental authorities have preliminarily
approved the methane gas remediation efforts. Final approval of the site and
the remediation process is contingent upon the results of continued methane
gas monitors to confirm the effectiveness of the remediation efforts. Should
further actionable levels of methane gas be detected, a proposed contingent
plan of passive methane gas venting may be implemented. The Company believes
the cost of such further limited action, if any, will not be material.
Testing has also been conducted on Montecito to
9
determine whether, and to what extent, groundwater has been impacted. Test
reports have indicated that the groundwater is not contaminated at actionable
levels.
All of the Owned Properties were subject to Phase I or similar environmental
audits by independent environmental consultants. The audits did not reveal,
nor is the Company aware of, any environmental liability relating to the
Owned Properties that the Company believes would have a material adverse
effect on the Company's business, assets or results of operations.
Nevertheless, it is possible that the Company's audits did not reveal all
environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Although the Managed Properties
may not have been subject to Phase I or similar environmental audits by
independent environmental consultants, the Company is not aware of any
environmental liability relating to the Managed Properties that it believes
would have a material adverse effect on its business, assets or results of
operations.
INSURANCE
Management believes that the Properties are covered by adequate fire, flood
and property insurance provided by reputable companies and with commercially
reasonable deductibles and limits.
EMPLOYEES
The Company has a staff of employees performing various acquisition,
redevelopment and management functions. The Company, through the Operating
Partnership and related service company businesses, has 1,294 employees, most
of whom are employed at the property level. None of the employees are
represented by a union, and the Company has never experienced a work
stoppage. The Company believes it maintains satisfactory relations with its
employees.
10
ITEM 2. PROPERTIES
The Company's Owned Properties are located in thirteen states in the Sunbelt
regions of the United States. A significant portion of the Owned Properties
are concentrated in or around twelve metropolitan areas in which the Company
owns or controls more than 500 units. The following table sets forth certain
information as of December 31, 1996 with respect to the Company's twelve
principal markets:
PERCENTAGE OF
NUMBER OF NUMBER OF TOTAL UNITS
PROPERTIES UNITS OWNED/CONTROLLED
---------- --------- ----------------
Albuquerque, NM................. 3 750 3%
Atlanta, GA..................... 4 1,020 4%
Dallas, TX...................... 11 2,743 12%
Denver, CO...................... 5 1,255 5%
Houston, TX..................... 23 5,657 24%
Las Vegas, NV................... 2 734 3%
Little Rock, AR................. 3 574 2%
Orlando, FL..................... 2 620 3%
Phoenix, AZ..................... 7 1,622 7%
Salt Lake City, UT.............. 3 1,356 6%
San Antonio, TX................. 6 1,280 5%
Tampa/St. Petersburg, FL........ 4 1,530 7%
-- ------ ---
Principal markets total....... 73 19,141 81%
Other markets................... 21 4,623 19%
-- ------ ---
Total......................... 94 23,764 100%
-- ------ ---
-- ------ ---
At December 31, 1996, the Company owned or controlled 94 Owned Properties
containing 23,764 units. The Owned Properties average 253 apartment units
each, with the largest property containing 670 apartment units. Apartment
units in the Owned Properties have an average size of 800 square feet. The
Owned Properties include 1,047 studio apartments, 12,060 one-bedroom
apartments, 9,436 two-bedroom apartments, 1,204 three-bedroom apartments and
17 four-bedroom apartments. At December 31, 1996, the weighted average physical
occupancy for the Company's Owned Properties was 93.7% and their weighted
average monthly rent per occupied unit was $555.
The Owned Properties offer residents a range of amenities. Many of the Owned
Properties include a swimming pool and clubhouse, spas, fitness centers,
tennis courts and saunas. Many of the apartment units offer design and
appliance features such as vaulted ceilings, fireplaces, washer and dryer
hook-ups, cable television, balconies and patios.
11
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
APARTMENT PORTFOLIO
The following table sets forth certain property information at December 31,
1996 by region and state:
AVERAGE
NUMBER NET RENTABLE TOTAL YEAR UNIT SIZE
PROPERTY STATE OF UNITS SQUARE FEET ACREAGE CONSTRUCTED (SQ. FT.)
- -------- ----- -------- ------------ ------- ----------- ---------
COLORADO REGION
Bluffs Colorado 232 154,176 19.00 1971 665
Meadowcreek Colorado 332 260,000 24.00 1972 783
Riverside Colorado 248 199,344 9.85 1987 804
Village Creek Colorado 324 222,348 12.26 1987 686
Township Colorado 119 175,841 16.5 1985 1,478
Prairie Hills New Mexico 260 218,352 12.00 1985 840
Penn Square Village New Mexico 210 150,150 6.47 1982 715
Villa Ladera New Mexico 280 279,860 10.99 1985 1,000
------ ---------- --------
REGIONAL TOTAL 2,005 1,660,071 111.07
SOUTHWEST REGION
40th North Arizona 556 372,800 9.57 1970 671
Cobble Creek Arizona 142 100,840 4.66 1985 710
Fairways Village Arizona 352 236,600 15.33 1986 910
Newport Arizona 204 151,984 6.79 1986 745
Paradise Palms Arizona 130 132,804 5.65 1970 1,022
Royal Palms Arizona 152 116,940 7.12 1985 769
Sun Grove Arizona 86 83,298 4.59 1986 969
Las Brisas Arizona 132 90,584 6.96 1985 686
Rillito Village Arizona 272 142,248 7.77 1985 523
Coral Gardens Nevada 670 397,148 26.67 1983 593
Snug Harbor Nevada 64 69,052 4.25 1990 1,079
Sun Valley Utah 430 169,144 14.23 1985 393
Somerset Utah 486 420,080 25.23 1985 393
South Willow Utah 440 244,044 18.63 1987 555
------ ---------- --------
REGIONAL TOTAL 4,116 2,727,566 157.45
FLORIDA REGION
Bay West Florida 376 294,300 11.10 1975 783
Boardwalk Florida 291 235,599 17.65 1986 810
Brandywine Florida 477 357,472 19.70 1971 749
Eden Crossing Florida 200 164,992 14.20 1985 825
Sun Katcher Florida 360 308,512 18.74 1972 857
Sunchase Clearwater Florida 461 369,761 30.57 1985 802
Sunchase East Florida 296 216,512 19.63 1985 731
Sunchase North Florida 324 258,480 24.90 1985 798
Sunchase Tampa Florida 216 165,920 12.04 1985 768
------ ---------- --------
REGIONAL TOTAL 3,001 2,371,548 168.53
SOUTH TEXAS REGION
Ashwood Texas 144 96,744 5.25 1984 672
Anchorage Texas 264 206,936 14.55 1985 784
Brentwood Texas 104 92,648 4.91 1981 891
Bridgewater Texas 206 171,920 8.19 1979 835
Chesapeake Texas 320 239,856 11.13 1983 822
Copper Chase Texas 316 255,636 11.00 1982 809
Copperfield Texas 196 161,032 7.45 1983 822
Coventry Square Texas 270 201,880 8.40 1985 748
Crows Nest Texas 176 134,272 6.85 1984 763
Dolphin's Landing Texas 218 199,723 23.70 1975 916
Easton Village I & II Texas 146 129,573 7.60 1983 887
Fisherman's Wharf Texas 360 277,984 21.95 1981 772
Fondren Court Texas 429 366,598 13.16 1979 855
Hampton Hill Texas 332 235,312 11.11 1984 709
Hastings Place Texas 176 159,992 5.62 1984 909
Las Brisas Texas 176 179,982 17.66 1983 1,023
Lexington Texas 72 55,848 3.56 1981 776
Meadowbrook Texas 260 199,504 9.81 1985 767
Oak Falls Texas 144 162,000 8.40 1983 1,125
Park at Cedar Lawn Texas 192 191,090 5.93 1985 995
12
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
APARTMENT PORTFOLIO
AVERAGE
NUMBER NET RENTABLE TOTAL YEAR UNIT SIZE
PROPERTY STATE OF UNITS SQUARE FEET ACREAGE CONSTRUCTED (SQ. FT.)
- -------- ----- -------- ------------ ------- ----------- ---------
Parkside Texas 160 107,952 5.45 1983 675
Parliament Bend Texas 232 134,880 6.47 1980 581
Peppermill Place Texas 224 169,776 8.00 1983 758
Seaside Point Texas 102 71,012 3.10 1985 696
Seasons Texas 280 233,334 9.95 1976 833
Signature Point Texas 304 261,136 19.56 1994 859
Stirling Court Texas 228 144,772 7.06 1984 635
Stonehaven Texas 337 299,523 11.60 1972 889
Stoneybrook Texas 113 135,947 4.05 1972 1,203
Sunbury Downs Texas 240 167,408 8.05 1984 698
Swiss Village Texas 360 248,472 11.42 1972 690
Walnut Springs Texas 224 154,392 10.85 1983 689
Waterford Texas 312 213,656 10.63 1984 685
Timbermill Texas 296 197,560 11.00 1982 667
------ ---------- --------
REGIONAL TOTAL 7,913 6,258,350 333.42
NORTH TEXAS REGION
Olympiad Alabama 176 137,296 11.00 1986 780
Pleasant Ridge Arkansas 200 248,200 14.50 1982 1,241
Pleasant Valley Pointe Arkansas 112 149,580 13.19 1985 1,336
Riverwalk Arkansas 262 212,118 10.95 1988 810
Ashford Plantation Georgia 211 280,135 23.25 1975 1,328
Cypress Landing Georgia 200 209,600 16.40 1984 1,048
Dunwoody Georgia 318 273,000 27.00 1980 858
Peachtree Park Georgia 295 280,106 13.24 1962/1995 950
Spectrum Pointe Georgia 196 169,484 14.00 1984 865
Jefferson Place Louisiana 234 324,814 24.73 1985 1,388
Hillmeade Tennessee 288 397,352 57.50 1985 1,380
Chimney Ridge Texas 210 133,212 4.29 1983 634
Country Club Texas 282 223,180 10.78 1984 791
Frankford Place Texas 274 220,248 15.34 1982 804
Garden Terrace Texas 20 19,000 1.45 1978 950
Greentree Texas 365 302,724 20.00 1983 829
Heather Texas 180 128,920 7.20 1983 716
Highland Park Texas 500 421,616 28.00 1985 843
Meadows Texas 100 81,168 5.00 1983 812
Montecito Texas 268 187,824 10.37 1985 701
Randol Crossing Texas 160 120,820 6.50 1984 755
Ridgecrest Texas 152 125,712 7.40 1983 827
Southridge Texas 160 139,992 8.01 1984 875
Williams Cove Texas 260 205,096 10.39 1984 789
Woodhill Texas 352 294,728 19.00 1985 837
Woodland Ridge Texas 130 99,126 5.00 1984 763
Woodlands - Odessa Texas 232 174,712 9.09 1982 753
Woodlands - Tyler Texas 256 177,600 10.64 1984 694
------ ---------- --------
REGIONAL TOTAL 6,393 5,737,363 404.22
CALIFORNIA REGION
Brookside Village California 336 266,264 13.24 1970 792
------ ---------- -------- ---
TOTAL 23,764 19,021,162 1,187.93
------ ---------- --------
------ ---------- --------
AVERAGE 253 202,352 12.64 1982 800
------ ---------- -------- ---
------ ---------- -------- ---
The average physical occupancy during 1996 for the Owned Properties held as
of December 31, 1995 and for the Owned Properties purchased during 1996
(exclusive of properties purchased in November and December 1996) was 95%.
The average monthly rent per occupied unit during 1996 for these Owned
Properties was $535 per unit, or $0.66 per square foot.
13
Substantially all of the Owned Properties are encumbered by mortgage
indebtedness or serve as collateral for the Company's Credit Facility. At
December 31, 1996, the Company had aggregate mortgage indebtedness totaling
$463.8 million, which was secured by 83 Owned Properties with a combined net
book value of $647.0 million. At December 31, 1996, the Company had borrowings
of $44.8 million outstanding under its Credit Facility which were collateralized
by six Owned Properties with a combined net book value of $89.0 million. See
Item 8 of this Annual Report on Form 10-K for additional information about the
Company's indebtedness.
ITEM 3. LEGAL PROCEEDINGS
In November 1996, five limited partners in certain of the English Partnerships
sued the Company alleging that, in connection with the English Portfolio
Acquisition, the Company conspired with J.W. English to breach his fiduciary
duties to the plaintiffs, and that the offering materials used by the Company in
connection with the English Tender Offers contained misleading statements or
omissions. The plaintiffs made an application for a temporary restraining order
with respect to the English Tender Offers, which was denied. To date, the
Company has not received a summons effecting service of the Complaint. The
Company intends to defend itself vigorously in connection with this action.
The Company is a party to various legal actions resulting from its operating
activities. These actions are routine litigation and administrative proceedings
arising in the ordinary course of business, some of which are covered by
liability insurance, and none of which are expected to have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock has been listed and traded on the New York Stock Exchange
("NYSE") under the symbol "AIV" since July 22, 1994. The following table sets
forth the quarterly high and low sales prices of the Common Stock as reported on
the NYSE and the dividends paid by the Company for the periods indicated.
QUARTER ENDED HIGH LOW DIVIDENDS
- ------------- ------- ------- ---------
1995 (PER SHARE)
- ----
March 31, 1995.............................. $18 1/2 $17 1/8 $0.415
June 30, 1995............................... 20 1/4 17 7/8 0.415
September 30, 1995.......................... 21 1/4 19 1/2 0.415
December 31, 1995........................... 20 7/8 18 0.425
1996
- ----
March 31, 1996.............................. 21 1/8 19 3/8 0.425
June 30, 1996............................... 21 18 3/8 0.425
September 30, 1996.......................... 22 18 3/8 0.425
December 31, 1996........................... 28 3/8 21 1/8 0.425
March 31, 1997 (Through March 11, 1997)..... 29 1/2 25 7/8 0.4625(1)
- -------------------
(1) On January 23, 1997, the Company's Board of Directors declared a cash
dividend of $0.4625 per share of Common Stock, paid on February 14, 1997
to stockholders of record on February 7, 1997.
On March 11, 1997, there were 17,569,970 shares of Common Stock outstanding
held by 308 stockholders of record.
The Company, as a REIT, is required to distribute annually to holders of
Common Stock at least 95% of its "real estate investment trust taxable
income," which, as defined by the Code and Treasury regulations, is generally
equivalent to net taxable ordinary income. The Company measures its economic
profitability and intends to pay regular dividends to its stockholders based
on CEFS during the relevant period. However, the future payment of dividends
by the Company will be at the discretion of the Board of Directors and will
depend on numerous factors including the Company's financial condition, its
capital requirements, the annual distribution requirements under the
provisions of the Code applicable to REITs and such other factors as the
Board of Directors deems relevant.
15
ITEM 6. SELECTED FINANCIAL DATA
The historical selected financial data for the Company for the years ended
December 31, 1996 and 1995 and for the period January 10, 1994 (the date of
inception) through December 31, 1994 and for the AIMCO Predecessors (as
defined in the audited financial statements included elsewhere in this Form
10-K) for the period from January 1, 1994 through July 28, 1994 are based on
the audited financial statements included elsewhere in this Form 10-K. This
information should be read in conjunction with such financial statements,
including the notes thereto. The historical selected financial data for the
AIMCO Predecessors for the year ended December 31, 1993 and 1992 is derived
from audited financial statements.
THE COMPANY AIMCO PREDECESSORS
---------------------------------------------- ----------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE YEARS
FOR THE FOR THE JANUARY 10, 1994 JANUARY 1, 1994 ENDED
YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31,
DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 28, ----------------
1996 1995 1994 1994 1993 1992
------------ ------------ ---------------- --------------- ------- ------
(RESTATED) (RESTATED)
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income $100,516 $ 74,947 $ 24,894 $ 5,805 $ 8,056 $ 5,769
Property operating expenses (38,400) (30,150) (10,330) (2,263) (3,200) (2,248)
Owned property management expenses (2,746) (2,276) (711) - - -
-------- -------- -------- ------- ------- -------
59,370 42,521 13,853 3,542 4,856 3,521
Depreciation (19,556) (15,038) (4,727) (1,151) (1,702) (1,232)
-------- -------- -------- ------- ------- -------
39,814 27,483 9,126 2,391 3,154 2,289
-------- -------- -------- ------- ------- -------
SERVICE COMPANY BUSINESS:
Management fees and other income 8,367 8,132 3,217 6,533 8,069 7,231
Management and other expenses (5,352) (4,953) (2,047) (5,823) (6,414) (5,853)
Corporate overhead allocation (590) (581) - - - -
Owner and seller bonuses - - - (204) (468) (522)
Depreciation and amortization (718) (596) (150) (146) (204) (350)
-------- -------- -------- ------- ------- -------
1,707 2,002 1,020 360 983 506
-------- -------- -------- ------- ------- -------
Minority interests in service
company business 10 (29) (14) - - -
-------- -------- -------- ------- ------- -------
Company's shares of income from
service company business 1,717 1,973 1,006 360 983 506
-------- -------- -------- ------- ------- -------
GENERAL AND ADMINISTRATIVE EXPENSES (1,512) (1,804) (977) 0 0 0
INTEREST INCOME 523 658 123 0 0 0
INTEREST EXPENSE (24,802) (13,322) (1,576) (4,214) (3,510) (2,741)
NON-CONTROLLED INTERESTS IN PARTNERSHIPS (111) - - - - -
-------- -------- -------- ------- ------- -------
INCOME (LOSS) BEFORE GAIN ON DISPOSITION
OF PROPERTY, EXTRAORDINARY ITEM, INCOME
TAXES AND MINORITY INTEREST IN
OPERATING PARTNERSHIP 15,629 14,988 7,702 (1,463) 627 54
Gain on disposition of property 44 - - - - -
Extraordinary gain - forgiveness
of debt - - - - - 135
Provision for income taxes - - - (36) (336) (303)
-------- -------- -------- ------- ------- -------
INCOME (LOSS) BEFORE MINORITY INTEREST
IN OPERATING PARTNERSHIP 15,673 14,988 7,702 (1,499) 291 (114)
Minority interest in Operating
Partnership (2,689) (1,613) (559) - - -
-------- -------- -------- ------- ------- -------
NET INCOME (LOSS) $ 12,984 $ 13,375 $ 7,143 $(1,499) $ 291 $ (114)
-------- -------- -------- ------- ------- -------
-------- -------- -------- ------- ------- -------
OTHER INFORMATION:
Total properties (end of period) 94 56 48 4 4 3
Total apartment units (end of period) 23,764 14,453 12,513 1,711 1,711 1,041
Units under management (end of period) 19,045 19,594 20,758 29,343 28,422 25,636
Net income per common share and
common share equivalent $1.04 $0.86 $0.42 N/A N/A N/A
Dividends paid per common share $1.70 $1.66 $0.29 N/A N/A N/A
BALANCE SHEET DATA:
Real estate, before accumulated
depreciation $865,222 $477,162 $406,067 $47,500 $46,819 $30,789
Total assets 834,813 480,361 416,739 39,042 38,914 23,366
Total mortgages and notes payable 522,146 268,692 141,315 40,873 41,893 25,935
Mandatorily redeemable 1994
Cumulative Convertible Senior
Preferred Stock - - 96,600 - - -
Stockholders' equity 222,889 169,032 140,319 (9,345) (7,556) (7,003)
16
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The Company is a real estate investment trust which holds a geographically
diversified portfolio of apartments, primarily serving the middle market. As
of December 31, 1996, the Company owned or controlled 94 multifamily
apartment properties containing 23,764 apartment units. In addition to its
Owned Properties, the Company managed 3,611 apartment units in 18 properties
for affiliates and 15,434 apartment units in 119 properties for over 90 third
party-owners, bringing the total managed portfolio to 231 multifamily
apartment properties containing 42,809 apartment units located in the Sunbelt
regions of the United States.
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with Item 8
of the Form 10-K included herein.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER
31, 1995
The Company recognized net income of $12,984,000 for the year ended December
31, 1996 allocable to the holders of Class A Common Stock ("Common
Stockholders"). For the year ended December 31, 1995, the Company recognized
net income of $13,375,000, of which $5,169,000 was allocable to the holder of
the mandatorily redeemable 1994 Cumulative Convertible Senior Preferred Stock
("Convertible Preferred Stock") and $8,206,000 was allocable to the Common
Stockholders. The increase in net income allocable to the Common
Stockholders in 1996 of 58% was primarily the result of the acquisition of
forty-seven Owned Properties from December 1995 (acquired with the proceeds
of a December 1995 public offering) to December 1996 offset by the sale of
the Four Sold Properties. The increase in net
17
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
income is partially offset by increased interest expense associated with debt
which was incurred in June 1995 and September 1995 upon the redemption of the
Convertible Preferred Stock, increased interest expense attributable to
indebtedness assumed or incurred in connection with the acquisition of Owned
Properties offset by decreased interest expense after the pay down of the
Credit Facility with proceeds from the sale of the Four Sold Properties.
These factors are discussed in more detail in the following paragraphs.
RENTAL PROPERTY OPERATIONS
Rental and other property revenues from the Company's apartment properties
totaled $100,516,000 for the year ended December 31, 1996 consisting of
$69,268,000 for the 42 "same store" properties, $3,363,000 for the four
properties sold in July 1996, $1,956,000 for two properties owned in 1995 and
1996 but for which operations are not comparable and $25,929,000 for the 47
properties acquired from December 1995 to December 1996. Rental and other
revenue for the 42 "same store" properties increased from $67,058,000 for the
year ended December 31, 1995 to $69,268,000 for the year ended December 31,
1996, an increase of $2,210,000 or 3.3%. Average monthly rent per occupied
unit for these 42 properties at December 31, 1996 and 1995 was $546 and $531,
respectively, an increase of 2.8%. Weighted average physical occupancy for
the 42 properties increased from 94.2% at December 31, 1995 to 94.9% at
December 31, 1996, a 0.7% increase.
Operating expenses, consisting of on-site payroll costs, utilities (net of
reimbursements received from tenants), contract services, turnover costs,
repairs and maintenance, advertising and marketing, property taxes and
insurance totaled $38,400,000 for the year ended December 31, 1996,
consisting of $26,103,000 for the 42 "same store" properties, $1,793,000 for
the four sold properties, $852,000 for the two non-comparable properties and
$9,652,000 for the 47 properties acquired from December 1995 to December
1996. Operating expenses for the 42 properties of $26,103,000 for the year
ended December 31, 1996, compared to $25,615,000 for the same period in 1995,
reflecting an increase of $488,000, or 1.9%, is due primarily to increases in
utilities, marketing, turnover and real estate taxes offset by a decrease in
payroll expense and insurance costs due to lower premiums.
Owned property management expenses, representing the costs of managing the
Company's Owned Properties, totaled $2,746,000 for the year ended December
31, 1996, consisting of $1,900,000 for the 42 "same store" properties,
$127,000 for the Four Sold Properties, $41,000 for the two non-comparable
properties and $678,000 for the properties purchased from December 1995 to
December 1996. The owned property management expenses for the year ended
December 31, 1995 totaled $2,276,000, consisting of $2,003,000 for the 42
"same store" properties, $230,000 for the Four Sold Properties and $43,000
for the two non-comparable properties.
18
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SERVICE COMPANY BUSINESS
The Company's share of income from the service company business was $1,717,000
for the year ended December 31, 1996 compared to $1,973,000 for the year ended
December 31, 1995. Management fees and other income totaled $8,367,000 for the
year ended December 31, 1996 compared to $8,132,000 for the year ended December
31, 1995, reflecting an increase of $235,000, or 2.9%. Management and other
expenses totaled $5,352,000 for the year ended December 31, 1996 compared to
$4,953,000 for the year ended December 31, 1995, reflecting an increase of
$399,000, or 8.1%. Major sources of revenue and expense before amortization of
management company goodwill, corporate overhead allocations, depreciation and
amortization and minority interest are described below.
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(in thousands)
Properties managed for third parties
and affiliates
Management fees and other income $ 5,679 $ 4,878
Management and other expenses (4,405) (3,620)
------- -------
1,274 1,258
------- -------
Commercial asset management
Management and other income 1,026 1,564
Management and other expenses (339) (562)
------- -------
687 1,002
------- -------
Reinsurance operations
Revenues 1,267 1,193
Expenses (282) (432)
------- -------
985 761
------- -------
Brokerage and other
Revenues 395 497
Expenses (326) (339)
------- -------
69 158
------- -------
$ 3,015 $ 3,179
------- -------
------- -------
19
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Net income from the management of properties for third parties and affiliates
was $1,274,000 for the year ended December 31, 1996, compared to $1,258,000
for the year ended December 31, 1995, an increase of $16,000, or 1.3%. The
increase in net income is primarily due to the acquisition by the Company of
property management businesses in August and November 1996. For the year
ended December 31, 1996, the Company had income of $997,000 and expenses of
$415,000 attributable to the operations of these recently acquired property
management businesses. The increase in net income due to these property
management businesses acquired is partially offset by increased payroll costs.
Net income from commercial asset management was $687,000 for the year ended
December 31, 1996 compared to $1,002,000 for the same period in 1995, a
decrease of $315,000, or 31.4%, as a result of a reduction in the number of
commercial properties under management. The decline in revenues from
commercial asset management for the year ended December 31, 1996 of $538,000,
or 34.4%, from the year ended December 31, 1995, was partially offset by a
decrease in related management and other expenses over the same periods of
$223,000, or 39.7%, primarily due to a reduction in personnel. The asset
management contracts expire on March 31, 1997.
Net income from the reinsurance operations for the year ended December 31,
1996 increased by $224,000, or 29.4%, from the year ended December 31, 1995,
due to increased premiums collected from a larger work force, improved loss
experience and the closure of claims for less than the amounts previously
reserved.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled $1,512,000 for the year ended
December 31, 1996 compared to $1,804,000 for the same period in 1995. The
amount presented for 1996 included $1,460,000 for payroll, overhead and other
costs associated with operating a public company and $642,000 for payroll and
other costs incurred in the development of new business offset by a corporate
overhead allocation of $590,000 to the service company business. The amount
presented for 1995 included $1,620,000 for payroll, overhead and other costs
associated with operating a public company, and $765,000 for payroll and
other costs incurred in the development of new business offset by a corporate
overhead allocation of $581,000 to the service company business. The net
decrease in general and administrative expenses for the year ended December
31, 1996 of $292,000, or 16.2%, from the year ended December 31, 1995 is
attributable to fewer personnel and a decrease in state income taxes paid in
1996 as a result of the restructuring in early 1995.
20
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE
Interest expense totaled $24,802,000 for the year ended December 31, 1996
compared to $13,322,000 for the year ended December 31, 1995. Interest
expense, which includes amortization of deferred financing costs, for the
year ended December 31, 1996 increased by $11,480,000, or 86.2% from the year
ended December 31, 1995. The increase consists primarily of $5,693,000 in
interest expense on secured long-term debt incurred in connection with
refinancings completed in June 1995 and September 1995 to refinance certain
secured notes payable, redeem the Convertible Preferred Stock and repurchase
513,514 unregistered shares of Class A Common Stock, and $5,532,000 in
interest expense on long-term and short-term indebtedness incurred or assumed
in connection with properties purchased from December 1995 to December 1996.
Interest expense on secured tax-exempt bond financing increased by $993,000
or 13.5% due to an increase in interest rate on the $48,140,000 of tax-exempt
bonds refinanced in June 1996 and the borrowing of $9,870,000 in June 1996
(proceeds of which were used to pay down the Company's Credit Facility).
During the year ended December 31, 1996, the Company capitalized interest of
$821,000 as a result of increased construction and renovation activities
compared to $113,000 which was capitalized during the year ended December 31,
1995. Interest expense, amortization of deferred financing costs and unused
commitment fees on the Credit Facility were $1,589,000 for the year ended
December 31, 1996 compared to $1,598,000 for the year ended December 31,
1995.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE PERIOD FROM JANUARY 10,
1994 (INCEPTION) THROUGH DECEMBER 31, 1994
The Company recognized net income of $13,375,000 for the year ended December
31, 1995 of which $5,169,000 was allocable to the holder of the Convertible
Preferred Stock and $8,206,000 was allocable to the Common Stockholders. For
the period from January 10, 1994 (inception) through December 31, 1994 the
Company recognized net income of $7,143,000 of which $3,114,000 was allocable
to the holder of the Convertible Preferred Stock and $4,029,000 was allocable
to the Common Stockholders. The Company completed its initial public offering
(the "IPO") on July 29, 1994 and while the AIMCO Predecessors advanced costs
associated with the IPO during the period from the Company's formation on
January 10, 1994 through July 28, 1994, the day prior to the Company's
completion of its IPO, the Company did not pay for any costs associated with
the IPO or incur any operating expenses during the period from January 10,
1994 to July 28, 1994.
21
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RENTAL PROPERTY OPERATIONS
Rental and other property revenues totaled $74,947,000 for the year ended
December 31, 1995 compared to $24,894,000 for the period from July 29, 1994
(when the Company commenced operations as a public company following the IPO)
to December 31, 1994. The revenues for the year ended December 31, 1995
include $55,924,000 for the 37 Owned Properties acquired or contributed in
conjunction with the IPO compared to $23,163,000 for the same properties for
the five month period of operations in 1994. For the eleven Owned Properties
acquired during November and December 1994, the Company earned revenues of
$18,507,000 for the year ended December 31, 1995 compared to $1,731,000 for
the period of operations in 1994. In addition, the Company acquired eight
Owned Properties in December 1995. Rental and other property revenues for
these Owned Properties was $516,000.
Operating expenses totaled $30,150,000 for the year ended December 31, 1995
compared to $10,330,000 for the five months of operations in 1994. The
expenses include $23,225,000 for the initial 37 properties for the year ended
December 31, 1995 compared to $9,709,000 for the period of operations in
1994. For the eleven Owned Properties acquired during November and December
1994, the Company incurred expenses of $6,707,000 for the year ended December
31, 1995 compared to $621,000 for the period of operations in 1994. Operating
expenses for the eight Owned Properties acquired in December 1995 totaled
$218,000.
Owned property management expenses totaled $2,276,000 for the year ended
December 31, 1995 compared to $711,000 for the period of operations in 1994.
Weighted average physical occupancy during the year ended December 31, 1995 and
the period from July 29, 1994 through December 31, 1994 was 94.4% and 95.1%,
respectively. The average monthly rent per occupied unit was $505 and $489
per apartment unit, respectively, for the periods presented.
22
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SERVICE COMPANY BUSINESS
The Company's share of income from the service company business was
$1,973,000 for the year ended December 31, 1995 compared to $1,006,000 for
the period from July 29, 1994 to December 31, 1994. Major sources of revenue
and expense before amortization of management company goodwill, corporate
overhead allocations, depreciation and amortization and minority interest are
described below.
JANUARY 10, 1994
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ----------------
(IN THOUSANDS)
Properties managed for third parties
and affiliates
Management fees and other income $ 4,878 $ 1,843
Management and other expenses (3,620) (1,398)
------- -------
1,258 445
------- -------
Commercial asset management
Management fees and other income 1,564 714
Management and other expenses (562) (293)
------- -------
1,002 421
------- -------
Reinsurance operations
Revenues 1,193 430
Expenses (432) (235)
------- -------
761 195
------- -------
Brokerage and other
Revenues 497 230
Expenses (339) (121)
------- -------
158 109
------- -------
$ 3,179 $ 1,170
------- -------
------- -------
23
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
REIT GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses totaled $1,804,000 for the year ended
December 31, 1995 compared to $977,000 for the period from July 29, 1994 to
December 31, 1994.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1995 totaled $13,322,000.
The amount includes: (1) $1,427,000 of interest expense of secured notes
payable assumed in conjunction with the acquisition of three properties at
the IPO; (2) $5,292,000 of interest expense on the secured tax-exempt bond
financing and secured notes payable assumed in conjunction with the
acquisition of eleven Owned Properties in November and December 1994; (3)
$5,118,000 of interest expense on June and September 1995 refinancings; and
(4) $1,598,000 of interest expense on the Credit Facility. The Company
capitalized $113,000 of interest expense in conjunction with the development,
expansion and redevelopment of three Owned Properties.
Interest expense of $1,576,000 for the five months ended December 31, 1994
includes: (1) $655,000 of interest expense on mortgages assumed in
conjunction with the acquisition of three properties at the IPO; (2) $856,000
of interest expense on the secured tax-exempt bond financing, secured notes
payable and borrowings under the Credit Facility incurred in conjunction with
the acquisition of eleven Owned Properties in November and December; and (3)
$65,000 of interest expense on an unsecured note payable incurred in
conjunction with the IPO which was repaid in November 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $13,170,000 in cash and cash
equivalents and $15,831,000 of restricted cash primarily consisting of
reserves and impounds held by lenders for capital expenditures, property
taxes and insurance. The Company's principal demands for liquidity include
normal operating activities, payments of principal and interest on
outstanding debt, capital improvements, acquisitions of or investments in
properties, dividends paid to its stockholders and distributions paid to
minority limited partners in the Operating Partnership. The Company considers
its cash provided by operating activities to be adequate to meet short-term
liquidity demands.
On August 13, 1996, the Company increased its Credit Facility to $50 million
from $40 million, reduced its interest rate to LIBOR plus 1.625% from LIBOR
plus 1.75% and reduced its unused commitment fee to 0.125% from 0.375%.
Effective January 1, 1997, the Company further reduced its interest rate on
the Credit Facility to LIBOR plus 1.45%. The Credit Facility has an initial
term of two years and, subject to certain customary conditions, the
outstanding balance may be converted to a three year term loan. The Company
utilizes the Credit Facility for general corporate purposes and to fund
investments on an interim basis. At December 31, 1996, $44,800,000 was
borrowed under the Credit Facility.
24
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company expects to meet its long-term liquidity requirements, such as
refinancing debt and property acquisitions, through long-term borrowings,
both secured and unsecured, the issuance of debt, units of limited
partnership in the Operating Partnerships ("OP Units") or equity securities
and cash generated from operations. On October 18, 1995, the Company filed a
shelf registration statement with the Securities and Exchange Commission with
respect to an aggregate of $200 million of debt and equity securities. As of
March 1, 1997, the amount remaining available under the shelf registration
was $64.7 million. The Company expects to finance the pending acquisition of
the NHP common stock and other real estate interests, discussed previously in
this report, with the issuance of equity securities and debt.
As of December 31, 1996, the Company had outstanding indebtedness totaling
$522.1 million including $242.1 million of secured long-term financing,
$147.2 in secured short-term financing, $75.5 million of secured tax-exempt
bonds, $12.5 million of unsecured short-term financing and $44.8 million
outstanding under its Credit Facility. The Company's outstanding debt is
secured by substantially all of the Company's Owned Properties. The weighted
average interest rate on the Company's long-term secured tax-exempt financing
and secured notes payable was 7.9% with a weighted average maturity of 10
years. The weighted average interest rate on the Company's secured short-term
financing was 8.1%.
Indebtedness of the English Partnerships totaling approximately $28.8 million
is guaranteed in part by the Company and certain of its affiliates. This
guaranty is secured by an assignment of the Company's general partnership
interests in 12 of the English Partnerships.
In 1997, the Company intends to refinance approximately $116 million in
secured short-term, floating rate indebtedness with fixed rate, fully
amortizing indebtedness with a maturity of twenty years. The Company entered
into two anticipatory interest rate swap agreements in November and December
1996, aggregating $100 million in order to fix the interest rate on $100
million of its outstanding floating rate debt intended to be refinanced. The
Company locked in the twelve year U.S. Treasury rate at 6.2% and 6.3%,
respectively, in two separate $50 million transactions.
In February 1997, the Company completed a public offering of 2,015,000 shares
of common stock at $26.75 per share (including 15,000 shares subject to the
underwriter's overallotment option). The net proceeds of $51.1 million were
used to repay $38.1 million of secured and unsecured short-term indebtedness
arising from the acquisitions completed in November and December 1996, $9.5
million was used to pay down the Company's Credit Facility and $3.5 million
was used to provide working capital.
25
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL EXPENDITURES
For the year ended December 31, 1996, the Company spent $5.1 million for
capital replacements, $6.2 million for initial capital expenditures and $0.9
million for capital enhancements. In addition, in the year ended December
31, 1996, the Company spent $6.8 million in costs related to the expansion
and renovation of two Owned Properties. These expenditures were funded by
borrowings under the Credit Facility, working capital reserves and net cash
provided by operating activities. For the year ending December 31, 1997, the
Company will provide an allowance for capital replacements of $300 per
apartment unit per annum, plus a reserve of $586,000 carried over for amounts
not expended during the year ended December 31, 1996 for a total of $6.7
million. In addition, the Company expects to spend initial capital
expenditures of approximately $15.5 million (including expansion and
renovation costs of $7.0 million) and approximately $3.8 million of capital
enhancements (including $2.5 million for cable television equipment at
certain Owned Properties) during the year ended December 31, 1997. Initial
capital expenditures and capital enhancements will be funded by cash from
operating activities and borrowings under the Credit Facility.
The Company's accounting treatment of various capital and maintenance costs
is detailed in the following table:
ACCOUNTING DEPRECIABLE
EXPENDITURE TREATMENT LIFE IN YEARS
- ----------- ---------- -------------
Initial capital expenditures (costs identified
at the time of acquisition to be spent within
one year of acquisition) capitalize 5 to 30
Capital enhancements (amenities to add a
material new feature or revenue source) capitalize 5 to 30
Carpet/vinyl replacement capitalize 5
Carpet cleaning expense n/a
Major appliance replacement (refrigerators,
stoves, dishwashers, washers/dryers) capitalize 5
Cabinet replacement capitalize 5
Major new landscaping capitalize 15
Seasonal plantings and landscape replacements expense n/a
Roof replacements capitalize 15
Roof repairs expense n/a
Model furniture capitalize 5
Office equipment capitalize 5
Exterior painting, significant capitalize 10
Interior painting expense n/a
Parking lot repairs expense n/a
Parking lot repaving capitalize 15
Equipment repairs expense n/a
General policy for capitalization capitalize various
amounts
in excess
of $250
26
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
FUNDS FROM OPERATIONS AND CASH EARNED FOR SHAREHOLDERS
The Company measures its economic profitability based on Funds From
Operations ("FFO") less a minimum annual provision for capital replacements
of $300 per apartment unit, which the Company defines as Cash Earned For
Shareholders ("CEFS"). FFO represents income before minority interest and
gain on sale of real estate based on generally accepted accounting principles
plus real estate depreciation and amortization of management company goodwill
less any preferred stock dividend payments. FFO computations conform to the
National Association of Real Estate Investment Trusts' ("NAREIT") definition
adjusted to add back amortization of management company goodwill and deduct
payment of dividends on preferred stock.
FFO and CEFS do not represent cash generated from operating activities in
accordance with generally accepted accounting principles and therefore should
not be considered an alternative to net income as an indication of the
Company's performance or to net cash flows from operating activities as
determined by generally accepted accounting principles as a measure of
liquidity and is not necessarily indicative of cash available to fund future
cash needs.
For the years ended December 31, 1996 and 1995, FFO and CEFS are as follows
(amounts in thousands):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Income before gain on disposition
of property and minority interest
in Operating Partnership $15,629 $14,988
Owned properties depreciation 19,056 15,038
Amortization of management
company goodwill 500 428
Preferred stock dividend - (5,169)
------- -------
Funds From Operations (FFO) 35,185 25,285
Capital Replacements (4,617) (3,764)
------- -------
Cash Earned For Shareholders (CEFS) $30,568 $21,521
------- -------
------- -------
Weighted average common shares,
common share equivalents and OP
Units 14,994 11,461
------- -------
------- -------
27
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CONTINGENCIES
Certain of the Company's Owned Properties are, and some of the Managed
Properties may be, located on or near properties that have contained
underground storage tanks or on which activities have occurred which could
have released hazardous substances into the soil or groundwater. There can
be no assurances that such hazardous substances have not been released or
have not migrated, or in the future will not be released or will not migrate
onto the properties. In addition, the Company's Montecito property in
Austin, Texas, is located adjacent to, and may be partially on, land that was
used as a landfill. Low levels of methane and other landfill gas have been
detected at Montecito. The remediation of the landfill gas is now
substantially complete. The environmental authorities have preliminarily
approved the methane gas remediation efforts. Final approval of the site and
the remediation process is contingent upon the results of continued methane
gas monitors to confirm the effectiveness of the remediation efforts. Should
further actionable levels of methane gas be detected, a proposed contingent
plan of passive methane gas venting may be implemented. The Company
believes the costs of such further limited action, if any, will not be
material. Testing has also been conducted on Montecito to determine whether,
and to what extent, groundwater has been impacted. Test reports have
indicated that the groundwater is not contaminated at actionable levels.
INFLATION
Substantially all of the leases at the Company's apartment properties are for
a period of six months or less, allowing, at the time of renewal, for
adjustments in the rental rate and the opportunity to re-lease the apartment
unit at the prevailing market rate. The short term nature of these leases
generally serves to minimize the risk to the Company of the adverse effect of
inflation and the Company does not believe that inflation has had a material
adverse impact on its revenues.
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditor's reports, consolidated and combined financial
statements and schedules listed in the accompanying index are filed as part
of this report and incorporated herein by reference. See "Index to Financial
Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Company's Directors required by this item is
presented under the caption "Board of Directors and Officers" in the Company's
proxy statement for its 1997 annual meeting of stockholders and is incorporated
herein by reference.
The Executive Officers of the Company as of March 11, 1997 are:
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Terry Considine 49 Chairman of the Board of Directors, President
and Chief Executive Officer
Peter K. Kompaniez 52 Vice Chairman and Director
Steven D. Ira 47 Executive Vice President - Start
Robert P. Lacy 46 Executive Vice President
Thomas W. Toomey 36 Executive Vice President - Finance and
Administration
David L. Williams 51 Executive Vice President-Property Operations
Leeann Morein 42 Senior Vice President, Chief Financial Officer
and Secretary
Patricia K. Heath 42 Vice President and Chief Accounting Officer
Harry Alcock 33 Vice President-Acquisitions
TERRY CONSIDINE. Mr. Considine has been Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since July 1994. He is
the sole owner of Considine Investment Co. and prior to the IPO was an owner
of approximately 75% of Property Asset Management, one of the AIMCO
Predecessors. Mr. Considine has been involved as a principal in a variety of
real estate activities, including the acquisition, renovation, development
and disposition of properties. Mr. Considine has also controlled entities
engaged in other businesses such as television broadcasting, gasoline
distribution and environmental laboratories. Mr. Considine received a B.A.
from Harvard College and a J.D. from Harvard Law School. He served as a
Colorado State Senator from 1987 to 1992 and in 1992 was the Republican
nominee for election to the United States Senate from Colorado.
PETER K. KOMPANIEZ. Mr. Kompaniez has been Vice Chairman and a Director of
the Company since July 1994. Since September 1993, Mr. Kompaniez has owned
75% of PDI Realty Enterprises, Inc. ("PDI"), one of the AIMCO Predecessors,
and serves as its President and Chief Executive Officer. From 1986 to 1993,
he served as President and Chief Executive Officer of Heron Financial
Corporation ("HFC"), a United States holding company for Heron International,
N.V.'s real estate and related assets. While at HFC, Mr. Kompaniez
administered the acquisition, development and disposition of approximately
8,150 apartment units (including 6,217 apartment units that have been
acquired by the Company) and 3.1 million square feet of commercial real
estate. Prior to joining HFC, Mr. Kompaniez was a senior partner with the law
firm of Loeb and Loeb where he had extensive real estate and REIT experience.
Mr. Kompaniez received a B.A. from Yale College and a J.D. from the
University of California (Boalt Hall).
29
STEVEN D. IRA. Mr. Ira has served as Executive Vice President of the Company
since July 1994. From 1987 until July 1994, he served as President of
Property Asset Management ("PAM"). Prior to merging his firm with PAM in
1987, Mr. Ira acquired extensive experience in property management. Between
1977 and 1981, he supervised the property management of over 3,000 apartment
and mobile home units in Colorado, Michigan, Pennsylvania and Florida, and in
1981 he joined with others to form the property management firm of McDermott,
Stein and Ira. Mr. Ira served for several years on the National Apartment
Manager Accreditation Board and is the former president of both the National
Apartment Association and the Colorado Apartment Association. Mr. Ira is the
sixth individual elected to the Hall of Fame of the National Apartment
Association in its 53-year history. He holds a Certified Apartment Property
Supervisor (CAPS) designation from the National Apartment Association, a
Certified Property Manager (CPM) designation from the National Institute of
Real Estate Management (IREM) and he is a member of the Board of Directors of
the National Multi-Housing Council, National Apartment Association and
Apartment Association of Metro Denver. Mr. Ira received a B.S. from
Metropolitan State College in 1973.
ROBERT P. LACY. Mr. Lacy has served as Executive Vice President of the
Company since July 1994. From September 1993, Mr. Lacy has owned 25% of PDI
and served as Executive Vice President and Chief Operating Officer of PDI.
From 1990 to 1993, Mr. Lacy served as Executive Vice President of Income
Producing Properties for HFC. In that capacity he was responsible for all
improved real estate in HFC's portfolio, including 8,150 apartment units
(6,217 were acquired by the Company) and over 3.1 million square feet of
commercial real estate. From 1985 to 1990, Mr. Lacy served in various
capacities with the Birtcher Group of Companies, initially as Executive Vice
President and Chief Operating Officer of Birtcher Properties, where he
managed public and private partnership properties nationwide. Subsequently,
Mr. Lacy participated in the formation of Birtcher Financial Services and
eventually became Managing General Partner of that entity, where he provided
portfolio work-out services to the banking and thrift industries and
successfully resolved over $500 million in real estate loans and properties.
Mr. Lacy received a B.A. in Business Administration from California State
University at Fullerton in 1973, holds a CPM designation from IREM and is a
California Real Estate Broker.
DAVID L. WILLIAMS. Mr. Williams has been Executive Vice President-Property
Operations of the Company since January 1997. Prior to joining the Company,
Mr. Williams was Senior Vice President of Operations at Evans Withycombe
Residential, Inc. from January 1996 to January 1997. Previously, he was
Executive Vice President at Equity Residential Properties Trust from October
1989 to December 1995. He has served on National Multi-Housing Council
Boards and NAREIT committees. Mr. Williams also served as Senior Vice
President of Operations and Acquisitions of US Shelter Corporation from 1983
to 1989. Mr. Williams has been involved in the property management,
development and acquisition of real estate properties since 1973. Mr.
Williams received a B.A. in education and administration from the University of
Washington in 1967.
THOMAS W. TOOMEY. Mr. Toomey has served as Senior Vice President -
Finance and Administration of the Company since January 1996 and was promoted
to Executive Vice President in March 1997. From 1990 until 1995, Mr. Toomey
served in a similar capacity with Lincoln Property Company ("LPC") as Vice
President/Senior Controller and Director of Administrative Services of
Lincoln Property Services where he was responsible for LPC's computer
systems, accounting, tax, treasury services and benefits administration.
From 1984 to 1990, he was an audit manager with Arthur Andersen & Co. where
he served real estate and banking clients. From 1981 to 1983, Mr. Toomey was
on the audit staff of Kenneth Leventhal & Company. Mr. Toomey received a B.S.
in Business Administration/Finance from Oregon State University and is a
Certified Public Accountant.
30
LEEANN MOREIN. Ms. Morein has served as Senior Vice President, Chief
Financial Officer and Secretary of the Company since July 1994. From
September 1990 to March 1994, Ms. Morein served as Chief Financial Officer of
the real estate subsidiaries of California Federal Bank, including the
general partner of CF Income Partners, L.P., a publicly traded master limited
partnership. Ms. Morein joined California Federal in September 1988 as
Director of Real Estate Syndications Accounting and became Vice President -
Financial Administration in January 1990. From 1983 to 1988, Ms. Morein was
Controller of Storage Equities, Inc., a real estate investment trust, and
from 1981 to 1983, she was Director of Corporate Accounting for Angeles
Corporation, a real estate syndication firm. Ms. Morein worked on the audit
staff of Price Waterhouse from 1979 to 1981. Ms. Morein received a B.A. from
Pomona College and is a Certified Public Accountant.
PATRICIA K. HEATH. Ms. Heath has served as Vice President and Chief
Accounting Officer of the Company since July 1994. From 1992 to July 1994,
Ms. Heath served as Manager of Accounting, then Chief Financial Officer, of
HFC, and effective September 1993, as Chief Financial Officer of PDI. She had
responsibility for all internal and external financial reporting, cash
management and budgeting for HFC, its subsidiaries, related joint ventures
and partnerships and for PDI. Ms. Heath served as Controller for the real
estate investment, development and syndication firms of Guilford Glazer &
Associates from 1990 to 1992, Ginarra Holdings, Inc. from 1984 to 1990, and
Fox & Carskadon Financial Corporation from 1980 to 1983. Ms. Heath worked
from 1978 to 1980 as an auditor with Deloitte, Haskins and Sells. She
received her B.S. in Business from California State University at Chico and
is a Certified Public Accountant.
HARRY G. ALCOCK. Mr. Alcock has worked for the Company since July 1994 and has
served as Vice President since July 1996, with responsibility for acquisition
and financing activities. From 1992 until July 1994, Mr. Alcock served as
Senior Financial Analyst for PDI and HFC. 6,217 of HFC's apartment units
were acquired by the Company. From 1988 to 1992, Mr. Alcock worked for
Larwin Development Corp., a real estate developer, with responsibility for
raising debt and joint venture equity to fund lan