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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-24497
AIMCO PROPERTIES, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1275621
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 SOUTH COLORADO BOULEVARD,
TOWER TWO, SUITE 2-1000,
DENVER, CO 80222-7900
(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:
NOT APPLICABLE NOT APPLICABLE
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(Title of each class (Name of each exchange on which
to be so registered) each class to be registered)
Securities Registered Pursuant to Section 12(g) of the Act:
PARTNERSHIP COMMON UNITS
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 10-K. [ ]
As of March 8, 2000, there were 73,424,988 Partnership Common Units
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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AIMCO PROPERTIES, L.P.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
ITEM PAGE
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PART I
1. Business.................................................... 1
1999 Developments........................................... 1
Financial Information About Industry Segments............... 4
Operating and Financial Strategies.......................... 4
Growth Strategies........................................... 5
Property Management Strategies.............................. 6
Taxation of the Partnership................................. 6
Taxation of AIMCO........................................... 7
Competition................................................. 7
Regulation.................................................. 7
Insurance................................................... 8
Employees................................................... 9
2. Properties.................................................. 9
3. Legal Proceedings........................................... 10
4. Submission of Matters to a Vote of Security Holders......... 11
PART II
5. Market Price of and Distributions on the Registrant's Common 11
Units and Related Unitholder Matters......................
6. Selected Financial Data..................................... 12
7. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations.................................
7a. Quantitative and Qualitative Disclosures About Market 21
Risk......................................................
8. Financial Statements and Supplementary Data................. 21
9. Changes in and Disagreements with Accountants on Accounting 21
and Financial Disclosure..................................
PART III
10. Directors and Executive Officers of the Registrant.......... 22
11. Executive Compensation...................................... 24
12. Security Ownership of Certain Beneficial Owners and 26
Management................................................
13. Certain Relationships and Related Transactions.............. 27
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form 28
8-K.......................................................
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PART I
ITEM 1. BUSINESS.
AIMCO Properties, L.P. (together with its subsidiaries and other controlled
entities, the "Partnership" (and together with entities in which the Partnership
has a controlling financial interest, the "Company")), is a Delaware limited
partnership organized pursuant to the provisions of the Delaware Revised Uniform
Limited Partnership Act (as amended from time to time, or any successor to such
statute, the "Act"), and is engaged in the ownership, acquisition, development,
expansion, and management of multi-family apartment properties. The term of the
Partnership commenced on May 16, 1994, and will continue until December 31,
2093, unless the Partnership is dissolved sooner pursuant to the provisions of
the Third Amended and Restated Agreement of limited partnership, dated as of
July 29, 1994 (the "Partnership Agreement"), or as otherwise provided by the
Act. AIMCO-GP, Inc., a Delaware corporation (the "General Partner"), and a
wholly owned subsidiary of Apartment Investment and Management Company, a
Maryland corporation, which controls the Partnership ("AIMCO") is the sole
general partner of the Partnership, and another wholly owned subsidiary of
AIMCO, AIMCO-LP, Inc., a Delaware corporation (the "Special Limited Partner"),
is a limited partner in the Partnership. As of December 31, 1999, AIMCO held an
approximate 91% interest in the Partnership. AIMCO, which was formed on January
10, 1994, is a self-administered and self-managed REIT that does not have any
material assets or operations other than its interest in the Partnership. On
July 24, 1994, AIMCO completed its initial public offering and engaged in a
business combination and consummated a series of related transactions which
enabled it to continue and expand the property management and related businesses
of Property Asset Management, L.L.C. and its affiliated companies, and PDI
Realty Enterprises, Inc.
Based on apartment unit data compiled by the National Multi Housing
Council, we believe that, as of December 31, 1999, the Company was the largest
owner and manager of multifamily apartment properties in the United States. As
of December 31, 1999, the Company owned or managed 363,462 apartment units in
1,942 properties located in 48 states, the District of Columbia and Puerto Rico,
as follows:
- owned or controlled 106,148 units in 373 apartment properties;
- held an equity interest in 133,113 units in 751 apartment properties; and
- managed 124,201 units in 818 apartment properties for third party owners
and affiliates.
By virtue of its aggregate 91% interest in the Partnership and its control of
the General Partner, AIMCO has the ability to control all of the day-to-day
operations of the Partnership. Moreover, by virtue of its ownership interest in
the Partnership and the General Partner, AIMCO is able to approve amendments to
the Partnership Agreement, without the approval of any other limited partners of
the Partnership, except for certain amendments that require the approval of all
of the limited partners. AIMCO conducts substantially all of its operations
through the Partnership. From time to time the Company has formed corporations
(the "Management Companies") in which the Partnership holds non-voting preferred
stock and 100% of the voting stock is owned by certain of the Company's
executive officers (or entities controlled by them), including Messrs. Considine
and Kompaniez. The Management Companies were formed to engage in businesses
generally not permitted under the REIT provisions of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code").
The Partnership's principal executive offices are located at 2000 South
Colorado Boulevard, Tower Two, Suite 2-1000, Denver, Colorado 80222-7900 and its
telephone number is (303) 757-8101.
1999 DEVELOPMENTS
Individual Property Acquisitions
The Company directly acquired 28 apartment communities in unrelated
transactions during 1999 (not including those acquired in connection with the
merger with Insignia Properties Trust, "IPT"). The aggregate consideration paid
by the Company of $495.0 million consisted of $91.5 million in cash, 2.4 million
Partnership Preferred Units ("Preferred Units"), 1.4 million Partnership Common
Units ("OP Units") with
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a total recorded value of $116.8 million, assumption of $110.1 million of
secured long-term indebtedness, the assumption of $15.2 million of other
liabilities, and new financing of $161.4 million of secured long-term
indebtedness. The Company has budgeted an additional $23.9 million for initial
capital enhancements related to these properties.
Tender Offers
During 1999, the Company made separate offers to the limited partners of
approximately 600 partnerships to acquire their limited partnership interests.
The Company paid approximately $258 million in cash and OP Units to acquire
limited partnership interests pursuant to the offers.
Property Dispositions
In 1999, the Company sold 63 properties for an aggregate sales price of
approximately $426.0 million. Net cash proceeds to the Company from the sales of
$135.8 million were used to repay a portion of the Company's outstanding
short-term indebtedness. The results of operations of 55 of these properties
were accounted for by the Company under the equity method.
Debt Assumptions and Financings
In August 1999, AIMCO and the Partnership closed a $300 million revolving
credit facility arranged by Bank of America, N.A. BankBoston, N.A. and First
Union National Bank and comprised of a total of nine lender participants. The
obligations under the new credit facility are secured by certain non-real estate
assets of the Company. The existing lines of credit were terminated. The credit
facility is used for general corporate purposes and has a two-year term with two
one-year extensions. The annual interest rate under the new credit facility is
based on either LIBOR or a base rate which is the higher of Bank of America's
reference rate or 0.5% over the federal funds rate, plus, in either case, an
applicable margin. The margin ranges between 2.05% and 2.55%, in the case of
LIBOR-based loans, and between 0.55% and 1.05%, in the case of base rate loans,
based upon a fixed charge coverage ratio. The weighted average interest rate at
December 31, 1999 was 8.84%. The amount available under the credit facility at
December 31, 1999 was $90.8 million.
In March 2000, the Partnership executed an Amended and Restated Credit
Agreement which increases its existing credit facility to $345 million, with an
additional potential increase up to $400 million.
During the year ended December 31, 1999, the Company issued $410.3 million
of long-term fixed rate, fully amortizing non-recourse mortgage notes payable
with a weighted average interest rate of 7.3%. Each of the notes is individually
secured by one of forty properties with no cross-collateralization. The Company
used the net proceeds after transaction costs of $373.6 million to repay
existing debt. During the year ended December 31, 1999, the Company has also
assumed $110.1 million of long-term fixed rate, fully amortizing notes payables
with a weighted average interest rate of 7.9% in connection with the acquisition
of properties. Each of the notes is individually secured by one of thirteen
properties with no cross-collateralization.
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Equity Offerings
The Partnership Agreement requires that, whenever AIMCO issues shares of
its Class A Common Stock or its preferred stock, the proceeds from such
issuances are contributed to the Partnership in exchange for an equal number of
OP Units or Preferred Units, respectively. In 1999, AIMCO raised proceeds of
$304.6 million in one public offering and two direct placements of equity
securities. The total proceeds were contributed by AIMCO to the Partnership in
exchange for similar classes of preferred units that have the same respective
terms as the preferred stock detailed below. These transactions are summarized
below:
NUMBER TOTAL PROCEEDS DIVIDEND OR
OF IN DISTRIBUTION
TRANSACTION TYPE DATE SHARES MILLIONS RATE
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Class K Convertible Cumulative
Preferred Stock of AIMCO....... Public Feb. 1999 5,000,000 $125.0 (1)
Class L Convertible Cumulative
Preferred Stock of AIMCO....... Direct May 1999 5,000,000 125.0 (2)
Class A Common Stock of AIMCO.... Direct Sept. 1999 1,382,580 54.6
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Total Proceeds 1999....... $304.6
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(1) For three years from the date of original issuance, the Class K Preferred
Stock dividend will be in an amount per share equal to the greater of (i)
$2.00 per year (equivalent to 8% of the liquidation preference), or (ii) the
cash dividends payable on the number of shares of AIMCO Class A Common Stock
(or portion thereof) into which a share of Class K Preferred Stock is
convertible. Beginning with the third anniversary of the date of original
issuance, the Class K Preferred Stock dividend per share will be increased
to the greater of (i) $2.50 per year (equivalent to 10% of the liquidation
preference), or (ii) the cash dividends payable on the number of shares of
AIMCO Class A Common Stock (or portion thereof) into which a share of Class
K Preferred Stock is convertible. The Class K Preferred Units held by AIMCO
have the same terms as the Class K Preferred Stock.
(2) For three years from the date of original issuance, the Class L Preferred
Stock dividend will be in an amount per share equal to the greater of (i)
$2.025 per year (equivalent to 8.1% of the liquidation preference), or (ii)
the cash dividends payable on the number of shares of AIMCO Class A Common
Stock into which a share of Class L Preferred Stock is convertible.
Beginning with the third anniversary of the date of original issuance, the
holder of Class L Preferred Stock will be entitled to receive an amount per
share equal to the greater of (i) $2.50 per year (equivalent to 10% of the
liquidation preference), or (ii) the cash dividends payable on the number of
shares of Class A Common Stock into which a share of Class L Preferred Stock
is convertible. The Class L Preferred Units held by AIMCO have the same
terms as the Class L Preferred Stock.
Insignia Properties Trust Merger
As a result of the Insignia merger on October 1, 1998, AIMCO acquired
approximately 51% of the outstanding shares of beneficial interest of IPT. On
February 26, 1999, IPT was merged into AIMCO. Pursuant to the merger, each of
the outstanding shares of IPT that were not held by AIMCO were converted into
the right to receive 0.3601 shares of AIMCO Class A Common Stock, resulting in
the issuance of approximately 4.3 million shares of AIMCO Class A Common Stock
(valued at approximately $158.8 million). Concurrently with the IPT merger, all
the assets and liabilities of IPT were contributed by AIMCO to the Partnership
in exchange for approximately 8.9 million OP Units (valued at approximately
$318.2 million). Also in connection with the IPT merger, the IPLP Exchange and
Assumption (under which the Partnership purchased from IPLP, a subsidiary of
IPT, the economic interests underlying substantially all the assets of IPLP in
exchange for assumption of all of IPLP's obligations and approximately 10.2
million OP Units) was unwound. The approximately 10.2 million OP Units issued in
connection with the IPLP Exchange and Assumption were also canceled at that
time.
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Pending Acquisitions
In the ordinary course of business, the Company engages in discussions and
negotiations regarding the acquisition of apartment properties (including
interests in entities that own apartment properties). The Company frequently
enters into contracts and non-binding letters of intent with respect to the
purchase of properties. These contracts are typically subject to certain
conditions and permit the Company to terminate the contract in its sole and
absolute discretion if it is not satisfied with the results of its due diligence
investigation of the properties. The Company believes that such contracts
essentially result in the creation of an option on the subject properties and
give the Company greater flexibility in seeking to acquire properties. As of
February 29, 2000, the Company had under contract or letter of intent an
aggregate of 10 multi-family apartment properties with a maximum aggregate
purchase price of $107.6 million, including estimated capital improvements,
which, in some cases, may be paid in the form of assumption of existing debt.
All such contracts are subject to termination by the Company as described above.
No assurance can be given that any of these possible acquisitions will be
completed or, if completed, that they will be accretive on a per share basis.
Contribution and Management Agreement
In order to maintain AIMCO's qualification as a REIT under the Code, AIMCO
has acquired, and may in the future acquire, an interest in entities in which
the Partnership does not own any interest (the "QRSs"). AIMCO and the
Partnership have entered into a Contribution and Management Agreement (the
"Management Agreement"), pursuant to which the Partnership has acquired from
AIMCO, in exchange for interests in the Partnership, the economic benefits of
the assets owned by the QRSs, and AIMCO has granted the Partnership certain
rights with respect to the assets owned by the QRSs. Under the Management
Agreement, the Partnership has a right of first refusal to acquire the assets
owned by the QRSs for no additional consideration. Under the Management
Agreement, AIMCO is obligated to contribute to the Partnership all dividends,
distributions, and other proceeds received from the QRSs (excluding
distributions received in respect of any interest in the Partnership).
Properties owned by the QRSs and properties in which the QRSs have ownership
interests are included in the consolidated financial statements of the
Partnership pursuant to the Management Agreement.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment, the ownership and management
of real estate properties. See the consolidated financial statements and notes
thereto included elsewhere in this Annual Report on Form 10-K for financial
information relating to the Company.
OPERATING AND FINANCIAL STRATEGIES
The Company strives to meet its objective of providing long-term,
predictable funds from operations ("FFO") per OP Unit, less an allowance for
Capital Replacements of $300 per apartment unit, by implementing its operating
and financing strategies which include the following:
- Acquisition of Properties at Less Than Replacement Cost. The Company
attempts to acquire properties at a significant discount to their
replacement cost.
- Geographic Diversification. The Company operates in 48 states, the
District of Columbia and Puerto Rico. This geographic diversification
insulates the Company, to some degree, from inevitable downturns in any
one market. The Company's net income before depreciation and interest
expense is earned in more than 175 local markets. In 1999, the largest
single market contributed 7% to net income before depreciation and
interest expense, and the five largest markets contributed 32%.
- Market Growth. The Company seeks to operate in markets where population
and employment growth are expected to exceed the national average and
where it believes it can become a regionally significant owner or manager
of properties. For the period from 1997 through 2000, annual population
and
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employment growth rates in the Company's five largest regional markets
are forecasted to be 2.2% and 3.6%, respectively.
- Product Diversification. The Company's portfolio of apartment properties
spans a wide range of apartment community types, both within and among
markets, including garden and high-rise apartments, as well as corporate
and student housing.
- Capital Replacement. The Company believes that the physical condition and
amenities of its apartment communities are important factors in its
ability to maintain and increase rental rates. The Company allocates
approximately $300 annually per owned apartment unit for capital
replacements, and reserves unexpended amounts for future capital
replacements.
- Debt Financing. The Company's strategy is generally to incur debt to
increase its return on equity while maintaining acceptable interest
coverage ratios. The Company seeks to maintain a ratio of free cash flow
to combined interest expense and preferred stock dividends of between 2:1
and 3:1, and a ratio of earnings before interest, income taxes,
depreciation and amortization (with certain adjustments and after a
provision of approximately $300 per owned apartment unit) to debt service
of at least 2:1, and to match debt maturities to the character of the
assets financed. For the year ended December 31, 1999, the Company was
within these targets. The Company uses predominantly long-term,
fixed-rate and self-amortizing non-recourse debt in order to avoid the
refunding or repricing risks of short-term borrowings. The Company uses
short-term debt financing to fund acquisitions and generally expects to
refinance such borrowings with proceeds from equity offerings or
long-term debt financings. As of December 31, 1999, approximately 9% of
the Company's outstanding debt was short-term debt and 91% was long-term
debt.
- Dispositions. The Company regularly sells properties that do not meet its
return on investment criteria or that are located in areas where the
Company does not believe that the long-term neighborhood values justify
the continued investment in the properties.
- Dividend Policy. The Partnership pays distributions on its OP Units to
share its profitability with its OP Unitholders. The Partnership
distributed 61.3%, 65.7% and 66.5% of FFO to holders of OP Units for the
years ended December 31, 1999, 1998 and 1997, respectively. It is the
present policy of the Board of Directors of AIMCO, as General Partner, to
increase the distribution annually in an amount equal to one-half of the
projected increase in FFO, adjusted for Capital Replacements, subject to
minimum distribution requirements applicable to REITs.
GROWTH STRATEGIES
The Company seeks growth through two primary sources -- internal expansion
and acquisitions.
Internal Growth Strategies.
The Company pursues internal growth primarily through the following
strategies:
- Revenue Increases. The Company increases rents where feasible and seeks
to improve occupancy rates.
- Controlling Expenses. Cost reductions are accomplished by local focus on
the regional operating center level and by exploiting economies of scale.
As a result of the size of its portfolio and its creation of regional
concentrations of properties, the Company has the ability to leverage
fixed costs for general and administrative expenditures and certain
operating functions, such as insurance, information technology and
training, over a large property base.
- Redevelopment of Properties. The Company believes redevelopment of
selected properties in superior locations provides advantages over
development of new properties. The Company believes that redevelopment
generally allows the Company to maintain rents comparable to new
properties and, compared to development of new properties, can be
accomplished with relatively lower financial risk, in less time and with
reduced delays due to governmental regulation.
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- Expansion of Properties. The Company believes that expansion within or
adjacent to properties already owned or managed by the Company also
provides growth opportunities at lower risk than new development. Such
expansion can offer cost advantages to the extent common area amenities
and on-site management personnel can service the property expansions. The
Company's current policy is to limit redevelopments and expansions to 10%
of total equity market capitalization.
- Ancillary Services. The Company believes that its ownership and
management of properties provides it with unique access to a customer
base that allows us to provide additional services and thereby increase
occupancy, increase rents and generate incremental revenue. The Company
currently provides cable television, telephone services, appliance
rental, and carport, garage and storage space rental at certain
properties.
Acquisition Strategies.
The Company believes its acquisition strategies will increase profitability
and predictability of earnings by increasing its geographic diversification,
economies of scale and opportunities to provide ancillary services to tenants at
its properties. Since AIMCO's initial public offering in July 1994, the Company
has completed numerous acquisitions, expanding its portfolio of owned or managed
properties from 132 apartment properties with 29,343 units to 1,942 apartment
properties with 363,462 units as of December 31, 1999. The Company acquires
additional properties primarily in three ways:
- Direct Acquisitions. The Company may directly, including through mergers
and other business combinations, acquire individual properties or
portfolios of properties and controlling interests in entities that own
or control such properties or portfolios. To date, a significant portion
of the Company's growth has resulted from the acquisition of other
companies that owned or controlled properties.
- Acquisition of Managed Properties. The Company believes that its property
management operations support its acquisition activities. Since AIMCO's
initial public offering, the Company has acquired from its managed
portfolio 16 properties comprising 5,697 units for total consideration of
$189.9 million.
- Increasing its Interest in Partnerships. For properties where the Company
owns a general partnership interest in the property-owning partnership,
the Company may seek to acquire, subject to its fiduciary duties, the
interests in the partnership held by third parties for cash or, in some
cases, in exchange for OP Units. The Company has completed tender offers
with respect to approximately 1,000 partnerships and has purchased
additional interests in such partnerships for cash and for OP Units.
PROPERTY MANAGEMENT STRATEGIES
The Company seeks to improve the operating results from its property
management business by, among other methods, combining centralized financial
control and uniform operating procedures with localized property management
decision-making and market knowledge. The Company's management operations are
organized into 31 regional operating centers. Each of the regional operating
centers is supervised by a Regional Vice-President.
TAXATION OF THE PARTNERSHIP
The Partnership is treated as a "pass-through" entity for Federal income
tax purposes and is not itself subject to Federal income taxation. Each partner
of the partnership, however, is subject to tax on his allocable share of
partnership tax items, including partnership income, gains, losses, deductions
and credits ("Partnership Tax Items") for each taxable year, regardless of
whether the Partnership makes any actual distributions of cash or other property
during the taxable year. Generally, the characterization of any particular
Partnership Tax Item is determined by the Partnership, rather than at the
partner level, and the amount of a partner's allocable share of such item is
governed by the terms of the partnership agreement. AIMCO, the General Partner,
is the "tax matters partner" of the Partnership for Federal income tax purposes.
The tax matters
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partner is authorized, but not required, to take certain actions on behalf of
the Partnership with respect to tax matters.
TAXATION OF AIMCO
AIMCO has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended, commencing with its taxable year ended December 31, 1994, and
the Company intends to continue to operate in such a manner. AIMCO's current and
continuing qualification as a REIT depends on its ability to meet the various
requirements imposed by the Internal Revenue Code, through actual operating
results, distribution levels and diversity of stock ownership.
If AIMCO qualifies for taxation as a REIT, it will generally not be subject
to U.S. 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 AIMCO fails to qualify as a REIT in any taxable
year, its taxable income will be subject to U.S. federal income tax at regular
corporate rates (including any applicable alternative minimum tax). Even if
AIMCO qualifies as a REIT, it may be subject to certain state and local income
taxes and to U.S. federal income and excise taxes on its undistributed income.
If in any taxable year AIMCO fails to qualify as a REIT and incurs
additional tax liability, AIMCO may need to borrow funds or liquidate certain
investments in order to pay the applicable tax and AIMCO would not be compelled
to make distributions under the Code. Unless entitled to relief under certain
statutory provisions, AIMCO would also be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. Although AIMCO 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 AIMCO to fail to qualify as a REIT or may cause
the Board of Directors to revoke AIMCO's REIT election.
AIMCO 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 AIMCO and its
stockholders may not conform to the U.S. federal income tax treatment.
COMPETITION
There are numerous housing alternatives that compete with the Company's
properties in attracting residents. The Company's properties compete directly
with other multi-family rental apartments and single family homes that are
available for rent or purchase in the markets in which the Company's properties
are located. The Company's properties also compete for residents with new and
existing 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. The Company competes with
numerous real estate companies in acquiring, developing and managing
multi-family apartment properties and seeking tenants to occupy its properties.
In addition, the Company competes with numerous property management companies in
the markets where the properties managed by the Company 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 development, construction and safety
requirements, may result in significant unanticipated expenditures, which would
adversely affect the Company's cash flows from operating activities. In
addition, future enactment of rent control or rent stabilization laws or other
laws regulating multi-family housing may reduce rental revenue or increase
operating costs in particular markets.
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Laws Benefiting Disabled Persons
Under the Americans with Disabilities Act of 1990, 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 may also require
modifications to the Company's properties, or restrict certain further
renovations of the properties, with respect to access thereto by disabled
persons. For example, the Fair Housing Amendments Act of 1988 requires apartment
properties first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with these laws 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 the Company believes that its properties are
substantially in compliance with present requirements, it may incur
unanticipated expenses to comply with these laws.
Regulation of Affordable Housing
As of December 31, 1999, the Company owned or controlled 27 properties and
held an equity interest in 434 properties with a combined weighted average
ownership percentage of 24%. AIMCO also managed for third parties and affiliates
477 properties that benefit from governmental programs intended to provide
housing to people with low or moderate incomes. These programs, which are
usually administered by the United States Department of Housing and Urban
Development ("HUD") or state housing finance agencies, typically provide
mortgage insurance, favorable financing terms or rental assistance payments to
the property owners. As a condition to the receipt of assistance under these
programs, the properties must comply with various requirements, which typically
limit rents to pre-approved amounts. If permitted rents on a property are
insufficient to cover costs, a sale of the property may become necessary, which
could result in a loss of management fee revenue. The Company must obtain the
approval of HUD in order to manage, or acquire a significant interest in, a
HUD-assisted or HUD-insured property. This approval process is commonly referred
to as "2530 Clearance." The Company had three unresolved flags in the 2530
system as of December 31, 1999, which the Company believes will not have a
material effect on its ability to receive 2530 approval. The Company can make no
assurance, however, that it will always receive such approval.
Environmental
The Company is subject to various Federal, state and local laws that impose
liability on property owners or operators for the costs of removal or
remediation of certain hazardous substances present on a property. Such laws
often impose liability without regard to whether the owner or operator knew of,
or was responsible for, the release of the hazardous substances. The presence
of, or the failure to properly remediate, hazardous substances may adversely
affect occupancy at contaminated apartment communities and our ability to sell
or borrow against contaminated properties. In addition to the costs associated
with investigation and remediation actions brought by governmental agencies, the
presence of hazardous wastes on a property could result in personal injury or
similar claims by private plaintiffs. The Company also is subject to various
laws that impose liability for the cost of removal or remediation of hazardous
substances at a disposal or treatment facility. Anyone who arranges for the
disposal or treatment of hazardous or toxic substances is potentially liable
under such laws. These laws often impose liability whether or not the person
arranging for the disposal ever owned or operated the disposal facility. In
connection with the ownership, operation and management of our properties, we
could potentially be liable for environmental liabilities or costs associated
with our properties or properties we may acquire or manage in the future.
INSURANCE
Management believes that the Company's properties are covered by adequate
fire, flood and property insurance provided by reputable companies and with
commercially reasonable deductibles and limits.
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EMPLOYEES
The Company has a staff of employees performing various acquisition,
redevelopment and management functions. The Company, through the Partnership and
the Management Companies, has approximately 12,500 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.
ITEM 2. PROPERTIES.
The Company's properties are located in 48 states, Puerto Rico and the
District of Columbia. The properties are managed by four Division
Vice-Presidents controlling 31 regional operating centers. The following table
sets forth information for the regional operating centers as of December 31,
1999:
NUMBER
OF NUMBER OF
REGIONAL OPERATING CENTER DIVISION PROPERTIES UNITS
------------------------- --------- ---------- ---------
Chicago, IL.......................................... Far West 57 10,761
Denver, CO........................................... Far West 84 14,279
Kansas City, MO...................................... Far West 72 11,094
Los Angeles, CA...................................... Far West 53 9,505
Oakland, CA.......................................... Far West 69 8,013
Phoenix, AZ.......................................... Far West 52 13,008
----- -------
387 66,660
----- -------
Allentown, PA........................................ East 116 9,693
Columbia, SC......................................... East 73 13,767
Greenville, SC....................................... East 86 12,016
Philadelphia, PA..................................... East 62 19,512
Rockville, MD........................................ East 62 16,881
Tarrytown, NY........................................ East 67 9,413
----- -------
466 81,282
----- -------
Atlanta, GA.......................................... Southeast 56 11,066
Boca Raton, FL....................................... Southeast 25 6,083
Miami, FL............................................ Southeast 32 7,400
Mobile, AL........................................... Southeast 60 9,893
Nashville, TN........................................ Southeast 58 10,720
Orlando, FL.......................................... Southeast 48 10,444
Tampa, FL............................................ Southeast 56 12,921
----- -------
335 68,527
----- -------
Austin, TX........................................... West 54 10,202
Columbus, OH......................................... West 62 12,426
Dallas I, TX......................................... West 58 10,989
Dallas II, TX........................................ West 68 13,281
Houston I, TX........................................ West 47 10,290
Houston II, TX....................................... West 48 12,062
Indianapolis, IN..................................... West 51 13,741
----- -------
388 82,991
----- -------
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NUMBER
OF NUMBER OF
REGIONAL OPERATING CENTER DIVISION PROPERTIES UNITS
------------------------- --------- ---------- ---------
Portfolio:
Senior Living Sub ROC 1.............................. Oxford 8 1,637
Affordable Midwest................................... Oxford 42 5,409
Conventional Mideast................................. Oxford 32 8,289
Conventional Midwest................................. Oxford 45 10,725
Conventional South................................... Oxford 38 10,337
----- -------
165 36,397
----- -------
Other................................................ 201 27,605
----- -------
1,942 363,462
===== =======
At December 31, 1999, the Company owned or controlled 373 properties
containing 106,148 units. These owned or controlled properties contain, on
average, 285 apartment units, with the largest property containing 2,113
apartment units. These properties offer residents a range of amenities,
including swimming pools, clubhouses, 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. In addition, at December 31, 1999, the Company held an
equity interest in 751 properties containing 133,113 units, and managed 818
other properties containing 124,201 units. The Company's total portfolio of
1,942 properties contain, on average, 187 apartment units, with the largest
property containing 2,907 apartment units.
Substantially all of the properties owned or controlled by the Company are
encumbered by mortgage indebtedness or serve as collateral for the Company's
indebtedness. At December 31, 1999, the Company had aggregate mortgage
indebtedness totaling $2,375.1 million, which was secured by 361 properties with
a combined net book value of $4,028.8 million, having an aggregate weighted
average interest rate of 6.66%. As of December 31, 1999, approximately 9% of the
Company's outstanding debt was short-term debt and 91% was long-term debt. See
the financial statements included elsewhere in this Annual Report on Form 10-K
for additional information about the Company's indebtedness.
ITEM 3. LEGAL PROCEEDINGS.
General
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 issuance, and none of which are expected to have a material
adverse effect on the consolidated financial condition or results of operations
of the Company.
Limited Partnerships
In connection with the Company's offers to purchase interests in limited
partnerships that own properties, the Company and its affiliates are sometimes
subject to legal actions, including allegations that such activities may involve
breaches of fiduciary duties to the limited partners of such partnerships or
violations of the relevant partnership agreements. The Company believes it
complies with its fiduciary obligations and relevant partnership agreements, and
does not expect such legal actions to have a material adverse effect on the
consolidated financial condition or results of operations of the Company and its
subsidiaries taken as a whole. The Company may incur costs in connection with
the defense or settlement of such litigation, which could adversely affect the
Company's desire or ability to complete certain transactions and thereby have a
material adverse effect on the Company and its subsidiaries.
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Pending Investigations of HUD Management Arrangements
In 1997, NHP received subpoenas from the HUD Inspector General ("IG")
requesting documents relating to arrangements whereby NHP or any of its
affiliates provides compensation to owners of HUD-assisted or HUD-insured
multi-family projects in exchange for or in connection with property management
of a HUD project. In July 1999, NHP received a grand jury subpoena requesting
documents relating to the same subject matter as the HUD IG subpoenas and NHP's
operation of a group purchasing program created by NHP, known as Buyers Access.
To date, neither the HUD IG nor the grand jury has initiated any action against
NHP or the Company or, to NHP's or the Company's knowledge, any owner of a HUD
property managed by NHP. The Company believes that NHP's operations and programs
are in compliance, in all material respects, with all laws, rules and
regulations relating to HUD-assisted or HUD-insured properties. The Company is
cooperating with the investigations and does not believe that the investigations
will result in a material adverse impact on its operations. However, as with any
similar investigation, there can be no assurance that these will not result in
material fines, penalties or other costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET PRICE OF AND DISTRIBUTIONS ON THE REGISTRANT'S COMMON UNITS AND
RELATED UNITHOLDER MATTERS.
There is no public market for the OP Units, and the Partnership does not
intend to list the OP Units on any securities exchange. In addition, the
Partnership Agreement restricts the transferability of OP Units. The following
table sets forth the cash distributions per OP Unit during the years ended
December 31, 1999 and 1998.
YEAR ENDED
DECEMBER 31,
----------------
1999 1998
------ -------
1st Quarter................................................. $0.625 $0.5625
2nd Quarter................................................. 0.625 0.5625
3rd Quarter................................................. 0.625 0.5625
4th Quarter................................................. 0.625 0.5625
On March 8, 2000, there were 73,424,988 OP Units outstanding, held by 2,627
Unitholders of record.
For the year ended December 31, 1999, the Partnership issued 1.0 million OP
Units and 2.3 million Preferred Units in transactions to acquire real estate
property or interests in real estate property. Each of these transactions was
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) thereof or Regulation D thereunder.
During the year ended December 31, 1999, the Partnership issued to AIMCO,
in exchange for cash, 5,000,000 Class K Preferred Units, and 5,000,000 Class L
Preferred Units. All the proceeds were used to repay indebtedness or for general
corporate purposes. Each of these transactions was also exempt from registration
under the Securities Act, pursuant to Section 4(2) thereof or Regulation D
thereunder.
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ITEM 6. SELECTED FINANCIAL DATA
The following historical selected financial data for the Company is based
on audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein.
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
OPERATING DATA:
RENTAL PROPERTY OPERATIONS:
Rental and other income................................... $ 531,883 $ 373,963 $ 193,006 $100,516 $ 74,947
Property operating expenses............................... (213,959) (145,966) (76,168) (38,400) (30,150)
Owned property management expenses........................ (15,322) (10,882) (6,620) (2,746) (2,276)
Depreciation.............................................. (131,257) (83,908) (37,741) (19,556) (15,038)
---------- ---------- ---------- -------- --------
Income from property operations........................... 171,345 133,207 72,477 39,814 27,483
---------- ---------- ---------- -------- --------
SERVICE COMPANY BUSINESS:
Management fees and other income.......................... 42,877 22,675 13,937 8,367 8,132
Management and other expenses............................. (25,470) (16,960) (10,961) (6,150) (5,731)
---------- ---------- ---------- -------- --------
Income from service company business...................... 17,407 5,715 2,976 2,217 2,401
---------- ---------- ---------- -------- --------
General and administrative expenses....................... (12,016) (10,336) (5,396) (1,512) (1,804)
Interest expense.......................................... (139,124) (88,208) (51,385) (24,802) (13,322)
Interest income........................................... 62,183 28,170 8,676 523 658
Equity in losses of unconsolidated real estate
partnerships............................................ (2,588) (2,665) (1,798) -- --
Equity in earnings (losses) of unconsolidated
subsidiaries............................................ (2,400) 12,009 4,636 -- --
Loss from IPLP Exchange and Assumption.................... (684) (2,648) -- -- --
Minority interest......................................... (5,788) (1,868) 1,008 (111) --
Amortization.............................................. (5,860) (8,735) (948) (500) (428)
---------- ---------- ---------- -------- --------
Income from operations.................................... 82,475 64,641 30,246 15,629 14,988
Gain (loss) on disposition of properties.................. (1,785) 4,287 2,720 44 --
---------- ---------- ---------- -------- --------
Income before extraordinary item.......................... 80,690 68,928 32,966 15,673 14,988
Extraordinary item -- early extinguishment of debt........ -- -- (269) -- --
---------- ---------- ---------- -------- --------
Net income................................................ $ 80,690 $ 68,928 $ 32,697 $ 15,673 $ 14,988
========== ========== ========== ======== ========
OTHER INFORMATION:
Total owned or controlled properties (end of period)...... 373 234 147 94 56
Total owned or controlled apartment units (end of
period)................................................. 106,148 61,672 40,039 23,764 14,453
Total equity apartment units (end of period).............. 133,113 171,657 83,431 3,611 6,349
Units under management (end of period).................... 124,201 146,034 69,587 15,439 13,245
Basic earnings per OP Unit................................ $ 0.39 $ 0.80 $ 1.09 $ 1.05 $ 0.86
Diluted earnings per OP Unit.............................. $ 0.38 $ 0.78 $ 1.08 $ 1.04 $ 0.86
Distributions paid per OP Unit............................ $ 2.50 $ 2.25 $ 1.85 $ 1.70 $ 1.66
BALANCE SHEET INFORMATION:
Real estate, before accumulated depreciation.............. $4,508,535 $2,743,865 $1,657,207 $865,222 $477,162
Real estate, net of accumulated depreciation.............. 4,092,543 2,515,710 1,503,922 745,145 448,425
Total assets.............................................. 5,684,251 4,186,764 2,100,510 827,673 480,361
Total indebtedness........................................ 2,584,289 1,601,730 808,530 522,146 268,692
Redeemable partnership units.............................. -- -- 197,086 96,064 38,463
Partnership-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust.............. 149,500 149,500 -- -- --
Partners' capital......................................... 2,486,889 2,153,335 960,176 178,462 160,947
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
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 and other 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 flows from operations may be
insufficient to meet required payments of principal and interest, real estate
risks, including variations of real estate values and the general economic
climate in local markets and competition for tenants in such markets,
acquisition and development risks, including failure of such acquisitions to
perform in accordance with projections, and possible environmental liabilities,
including costs which may be incurred due to necessary remediation of
contamination of properties presently owned or previously owned by the Company.
In addition, AIMCO'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.
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
financial statements incorporated by reference in Item 8 of this Annual Report
on Form 10-K. The following discussion of results of operations is based on net
income calculated under accounting principles generally accepted in the United
States. The Company, however, considers funds from operations, less a reserve
for capital replacements, to be a more meaningful measure of economic
performance.
RESULTS OF OPERATIONS
Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
1998
NET INCOME
The Company recognized net income of $80.7 million, and net income
attributable to holders of OP Units of $26.5 million, for the year ended
December 31, 1999, compared to net income and net income attributable to holders
of OP Units of $68.9 million and $42.4 million, respectively, for the year ended
December 31, 1998. Net income attributable to holders of OP Units represents net
income less distributions on Preferred Units.
The increase in net income of $11.8 million, or 17.1%, was primarily the
result of the following:
- the increase in net "same store" property results;
- the acquisition of 22,459 units in 82 apartment communities during 1998;
- the acquisition of 12,721 units in 28 apartment communities during 1999;
- the acquisition of Ambassador Apartments, Inc. in May 1998 which impacted
the second half of 1998;
- the acquisition of the Insignia Multi-family Business in October 1998
which primarily impacted 1999;
- the completion of the Insignia Properties Trust Merger in February 1999;
- the purchase of $258 million in limited partnership interests from
unaffiliated third parties; and
- an increase in interest income on notes receivable from unconsolidated
real estate partnerships.
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The effect of the above on net income was partially offset by the sale of
eight properties in 1999 and four properties in 1998. These factors are
discussed in more detail in the following paragraphs.
Rental Property Operations
The increases in rental property operations resulted primarily from
improved same store sales results, acquisitions of properties in 1998 and 1999,
and through the purchase of limited partnership interests from unaffiliated
third parties which gave the Company a controlling interest in partnerships
owning 125 properties in 1999.
Rental and other property revenues from the Company's owned and controlled
properties totaled $531.9 million for the year ended December 31, 1999, compared
to $374.0 million for the year ended December 31, 1998, an increase of $157.9
million, or 42.2%.
Property operating expenses totaled $214.0 million for the year ended
December 31, 1999, compared to $146.0 million for the year ended December 31,
1998, an increase of $68.0 million, or 46.6%. Property operating expenses
consist 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.
Owned property management expenses, representing the costs of managing the
Company's owned or controlled properties, totaled $15.3 million for the year
ended December 31, 1999, compared to $10.9 million for the year ended December
31, 1998, an increase of $4.4 million, or 40.4%.
Service Company Business
Income from the service company business was $17.4 million for the year
ended December 31, 1999, compared to $5.7 million for the year ended December
31, 1998, an increase of $11.7 million or 205.3%. The increase was primarily due
to management contracts acquired in the Insignia and IPT mergers that are held
by the Company, as well as the transfer of majority-owned management contracts
from the unconsolidated management companies to the Company. When the Company
owns at least a 40% interest in a real estate partnership, the management
contract with that real estate partnership is assigned to the Company increasing
the amount of revenues recognized by the consolidated service company
operations.
General and Administrative Expenses
General and administrative expenses totaled $12.0 million for the year
ended December 31, 1999, compared to $10.3 million for the year ended December
31, 1998, an increase of $1.7 million, or 16.5%. The increase in general and
administrative expenses is primarily due to efforts to align expenses with the
revenues they help generate. The results of these efforts increased the amount
of expenses allocated to both consolidated and unconsolidated service company
management expenses.
Interest Expense
Interest expense, which includes the amortization of deferred finance
costs, totaled $139.1 million for the year ended December 31, 1999, compared to
$88.2 million for the year ended December 31, 1998, an increase of $50.9 million
or 57.7%. The increase was primarily due to interest expense incurred in
connection with 1999 and 1998 acquisitions, as well as the consolidation of an
additional 125 properties when control was obtained.
Interest Income
Interest income totaled $62.2 million for the year ended December 31, 1999,
compared to $28.2 million for the year ended December 31, 1998, an increase of
$34.0 million or 120.6%. The Company holds investments in notes receivable which
were either extended by the Company and are carried at the face amount plus
accrued interest ("par value notes") or were made by predecessors whose
positions have been acquired by the Company at a discount and are carried at the
acquisition amount using the cost recovery method ("discounted notes"). $32.5
million of the increase in interest income is due to the recognition of
14
17
interest income that had previously been deferred and portions of the related
discounts for certain discounted notes. Based upon closed or pending
transactions, market conditions, and improved operations of the obligor, the
collectibility of such notes is now believed to be probable and the amounts and
timing of collections are estimable. The remaining increase is primarily related
to other recurring interest earned on both the par value and discounted notes
made by the Company to the partnerships in which the Company acts as the general
partner and interest earned on notes receivable acquired in the mergers with
Insignia and IPT.
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997
NET INCOME
The Company recognized net income of $68.9 million, and net income
attributable to holders of OP Units of $42.4 million, for the year ended
December 31, 1998, compared to net income and net income attributable to holders
of OP Units of $32.7 million and $30.4 million, respectively, for the year ended
December 31, 1997. Net income attributable to holders of OP Units represents net
income less distributions on Preferred Units.
The increase in net income of $36.2 million, or 110.7%, was primarily the
result of the following:
- the increase in net "same store" property results;
- the acquisition of 11,706 units in 44 apartment communities during 1997;
- the acquisition of 22,459 units in 82 apartment communities during 1998;
- the acquisition of NHP Incorporated ("NHP") in December 1997 which
impacted operations in 1998;
- the acquisition of Ambassador Apartments, Inc. in May 1998 which impacted
the second half of 1998;
- the acquisition of the Insignia Multi-family Business in October 1998
which impacted the last quarter of 1998; and
- an increase in interest income on notes receivable from unconsolidated
real estate partnerships.
The effect of the above on net income was partially offset by the sale of
four properties in 1998 and five properties in 1997. These factors are discussed
in more detail in the following paragraphs.
Rental Property Operations
The increases in rental property operations resulted primarily from
improved same store sale results, acquisitions of properties in 1997 and 1998,
and acquisitions of controlling interests in properties through the NHP,
Ambassador and Insignia mergers.
Rental and other property revenues from the Company's owned and controlled
properties totaled $374.0 million for the year ended December 31, 1998, compared
to $193.0 million for the year ended December 31, 1997, an increase of $181.0
million, or 93.8%.
Property operating expenses totaled $146.0 million for the year ended
December 31, 1998, compared to $76.2 million for the year ended December 31,
1997, an increase of $69.8 million, or 91.6%. Property operating expenses
consist 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.
Owned property management expenses, representing the costs of managing the
Company's owned or controlled properties, totaled $10.9 million for the year
ended December 31, 1998, compared to $6.6 million for the year ended December
31, 1997, an increase of $4.3 million, or 65.2%.
Service Company Business
Income from the service company business was $5.7 million for the year
ended December 31, 1998, compared to $3.0 million for the year ended December
31, 1997, an increase of $2.7 million or 90.0%. The
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18
increase was primarily due to management contracts acquired in the Insignia
merger that are held by the Company, as well as the transfer of majority-owned
management contracts from the management companies to the Company. When the
Company owns at least a 40% interest in a real estate partnership, the
management contract with that real estate partnership is assigned to the Company
increasing the amount of revenues recognized by the consolidated service company
operations.
General and Administrative Expenses
General and administrative expenses totaled $10.3 million for the year
ended December 31, 1998, compared to $5.4 million for the year ended December
31, 1997, an increase of $4.9 million, or 90.7%. The increase in general and
administrative expenses is primarily due to additional corporate costs and
additional employee salaries associated with the purchase of NHP Real Estate
Companies in June 1997 and the mergers with NHP Incorporated in December 1997,
Ambassador Apartments, Inc. in May 1998 and Insignia Financial Group, Inc. in
October 1998. In addition, due to the growth of the Company, several new
departments have been added including legal, tax and Limited Partnership
administration, as well as increased levels of personnel in the accounting and
finance departments.
Interest Expense
Interest expense, which includes the amortization of deferred finance
costs, totaled $88.2 million for the year ended December 31, 1998, compared to
$51.4 million for the year ended December 31, 1997, an increase of $36.8 million
or 71.6%. The increase was primarily due to interest expense incurred in
connection with the acquisition of interests in Ambassador Apartments, Inc. and
Insignia Financial Group, Inc. and interest expense incurred in connection with
1998 and 1997 acquisitions.
Interest Income
Interest income totaled $28.2 million for the year ended December 31, 1998,
compared to $8.7 million for the year ended December 31, 1997. The increase is
primarily due to interest earned on the increased average outstanding balances
of notes receivable from unconsolidated real estate partnerships and
subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had $101.6 million in cash and cash
equivalents and $84.6 million of restricted cash, primarily consisting of
reserves and impounds held by lenders for capital expenditures, property taxes
and insurance. In addition, cash, cash equivalents and restricted cash are held
by partnerships and subsidiaries which are not presented on a consolidated
basis. The Company's principal demands for liquidity include normal operating
activities, payments of principal and interest on outstanding debt, capital
improvements, acquisitions of and investments in properties, distributions paid
to its unitholders and distributions paid to limited partners. The Company
considers its cash provided by operating activities to be adequate to meet
short-term liquidity demands.
In August 1999, AIMCO and the Partnership closed a $300 million revolving
credit facility arranged by Bank of America, N.A. BankBoston, N.A. and First
Union National Bank and comprised of a total of nine lender participants. The
obligations under the credit facility are secured by certain non-real estate
assets of the Company. The existing lines of credit were terminated. The credit
facility is used for general corporate purposes and has a two-year term with two
one-year extensions. The annual interest rate under the credit facility is based
on either LIBOR or a base rate which is the higher of Bank of America's
reference rate or 0.5% over the federal funds rate, plus, in either case, an
applicable margin. The margin ranges between 2.05% and 2.55%, in the case of
LIBOR-based loans, and between 0.55% and 1.05%, in the case of base rate loans,
based upon a fixed charge coverage ratio. The weighted average interest rate at
December 31, 1999 was 8.84%. The amount available under the credit facility at
December 31, 1999 was $90.8 million.
In March 2000, the Partnership executed an Amended and Restated Credit
Agreement which increases its existing credit facility to $345 million, with an
additional potential increase up to $400 million.
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As of December 31, 1999, 96.8% of the Company's owned or controlled
properties and 45.4% of its total assets were encumbered by debt. The Company
had total outstanding indebtedness of $2,584.3 million, of which $2,375.1
million was secured by properties. The Company's indebtedness is comprised of
$1,954.3 million of secured long-term financing, $420.8 million of secured
tax-exempt bond financing and $209.2 in unsecured short-term financing. As of
December 31, 1999, approximately 9% of the Company's indebtedness bears interest
at variable rates. General Motors Acceptance Corporation has made 113 loans (the
"GMAC Loans") to property owning partnerships of the Company, each of which is
secured by the property owned by such partnership. The 113 GMAC Loans had an
aggregate outstanding principal balance of $570.1 million as of December 31,
1999. Certain GMAC Loans are cross-collateralized with certain other GMAC Loans.
Other than certain GMAC Loans, none of the Company's debt is subject to
cross-collateralization provisions. The weighted average interest rate on the
Company's secured, long-term notes payable was 6.66% with a weighted average
maturity of 12.8 years as of December 31, 1999. At December 31, 1999, the
weighted average interest rate on the Company's unsecured short-term financing
was 8.84%.
During the year ended December 31, 1999, the Company issued $410.3 million
of long-term fixed rate, fully amortizing notes payable with a weighted average
interest rate of 7.3%. Each of the notes is individually secured by one of forty
properties with no cross-collateralization. The Company used the net proceeds
after transaction costs of $373.6 million to repay existing debt. During the
year ended December 31, 1999, the Company has also assumed $110.1 million of
long-term fixed rate, fully amortizing notes payable with a weighted average
interest rate of 7.9% in connection with the acquisition of properties. Each of
the notes is individually secured by one of thirteen properties with no
cross-collateralization.
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 or equity securities (including OP
Units) and cash generated from operations. In August 1998, AIMCO and the
Partnership filed a shelf registration statement with the Securities and
Exchange Commission ("SEC") with respect to an aggregate of $1,268 million of
debt and equity securities of AIMCO (of which $268 million was carried forward
from AIMCO's 1997 shelf registration statement) and $500 million of debt
securities of the Partnership. The registration statement was declared effective
by the SEC on December 10, 1998. As of December 31, 1999, AIMCO had $1,088
million available and the Partnership had $500 million available from this
registration statement. The Company expects to finance acquisition of real
estate interests with cash from operations or the issuance of equity securities
and debt.
CAPITAL EXPENDITURES
For the year ended December 31, 1999, the Company spent a total of $291.7
million for capital expenditures on its portfolio of assets. The Company's share
of those expenditures for its conventional assets are as follows: $38.4 million
for capital replacements (expenditures for routine maintenance of a property);
$54.8 million for Initial Capital Expenditures ("ICE", expenditures at a
property that have been identified, at the time the property is acquired, as
expenditures to be incurred within one year of the acquisition); and $43.3
million for construction and capital enhancements (amenities that add a material
new feature or revenue source at a property). The expenditures for capital
replacements in 1999 exceeded the provision of $300 per apartment provided for
by the Company by $9.7 million which represents unspent capital replacements and
ICE from prior years. These expenditures were funded by net cash provided by
operating activities, working capital reserves, and borrowings under the
Company's credit facility. ICE and capital enhancements will primarily be funded
by cash from operating activities and borrowings under the Company's credit
facility.
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20
The Company's accounting treatment of various capital and maintenance costs
is detailed in the following table:
DEPRECIABLE LIFE
EXPENDITURE ACCOUNTING TREATMENT IN YEARS
- ----------- -------------------- ----------------
Initial capital expenditures........................ capitalize 5 to 15
Capital enhancements................................ capitalize 5 to 30
Capital replacements:
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 5
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 5
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 amounts Various
in excess of $250
FUNDS FROM OPERATIONS
The Company measures its economic profitability based on funds from
operations ("FFO"), less a reserve for capital replacements of $300 per
apartment unit. The Company's management believes that FFO, less such a reserve,
provides investors with an understanding of the Company's ability to incur and
service debt and make capital expenditures. The Board of Governors of the
National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as
net income (loss), computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains and losses from debt restructuring and
sales of property, plus real estate related depreciation and amortization
(excluding amortization of financing costs), and after adjustments for
unconsolidated partnerships and joint ventures. The Company calculates FFO based
on the NAREIT definition, as adjusted for amortization, the non-cash deferred
portion of the income tax provision for unconsolidated subsidiaries and less the
payment of distributions on Preferred Units. FFO should not be considered an
alternative to net income or net cash flows from operating activities, as
calculated in accordance with GAAP, as an indication of the Company's
performance or as a measure of liquidity. FFO is not necessarily indicative of
cash available to fund future cash needs. In addition, there can be no assurance
that the Company's basis for computing FFO is comparable with that of other real
estate investment trusts.
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For the years ended December 31, 1999, 1998 and 1997, the Company's FFO is
calculated as follows (amounts in thousands):
1999 1998 1997
-------- -------- ---------
Net income.......................................... $ 80,690 $ 68,928 $ 32,697
Extraordinary item.................................. -- -- 269
(Gain) loss on disposition of properties............ 1,785 (4,287) (2,720)
Real estate depreciation, net of minority
Interests......................................... 121,084 79,869 33,751
Real estate depreciation related to Unconsolidated
entities.......................................... 104,754 34,765 9,864
Amortization........................................ 36,731 26,177 2,535
Deferred taxes...................................... 1,763 9,215 4,894
Expenses associated with convertible preferred
securities........................................ 6,892 -- --
Preferred unit distributions........................ (33,265) (20,837) (135)
-------- -------- ---------
Funds From Operations (FFO)......................... $320,434 $193,830 $ 81,155
======== ======== =========
Weighted average number of OP Units and OP Unit
equivalents:
OP Units.......................................... 68,828 52,798 27,732
OP Unit equivalents............................... 1,101 1,306 381
Preferred units convertible into OP Units......... 8,602 2,463 1,006
-------- -------- ---------
78,531 56,567 29,119
======== ======== =========
CASH FLOW INFORMATION:
Cash flow provided by operating activities.......... $254,380 $144,152 $ 73,032
Cash flow used in investing activities.............. (243,078) (342,541) (717,663)
Cash flow provided by financing activities.......... 37,470 214,133 668,549
CONTRIBUTION TO FREE CASH FLOW
The Company seeks to improve funds from operations, less a reserve for
capital replacements, on a per share basis. In this regard, in addition to the
year-to-year comparative discussion, the Company has provided disclosure (see
Footnote 22 in the accompanying Notes to Consolidated Financial Statements) on
the contribution (separated between consolidated and unconsolidated activity) to
the Company's free cash flow from several components of the Company and a
reconciliation of free cash flow to FFO, less a reserve for capital
replacements, and to net income for the year ended December 31, 1999. The
Company defines free cash flow as FFO, less a reserve for capital replacements,
plus interest expense and preferred stock dividends.
The contributors to the Company's free cash flow of $526 million were real
estate -- $419 million (79%), service businesses -- $51 million (10%), recurring
interest income -- $31 million (6%) and transactions (fees and recovery of loan
discounts) -- $37 million (7%), less general and administrative expenses -- $12
million (2%).
Expenses to arrive at FFO, less a reserve for capital replacements, were
interest expense -- $201 million, and Preferred Unit distributions -- $33
million. This results in FFO, less a reserve for capital replacements, of $292
million of which $178 million (61%) is from consolidated activities and $114
million (39%) is from unconsolidated activities.
The real estate free cash flow contribution of $444 million before a $24
million minority interest deduction is concentrated in conventional apartment
properties, which comprise $389 million or 88% of the real estate free cash flow
contribution. Conventional apartments with rents of $500 per month or higher
comprise $333 million or 86% of the real estate free cash flow contribution from
conventional units. Conventional apartments with rents of $600 per month or
higher comprise $222 million or 57% of the real estate free cash flow
contribution from conventional units. Overall, the Company has balanced
contributions to conventional real estate free cash flow from monthly rents of
less than $500 per unit to monthly rents greater than $800 per unit.
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Contributions to conventional real estate free cash flow for 1999 were as
follows:
TOTAL CONTR. %
-------- --------
Average monthly rent greater than $800 per unit............. $ 78,305 20%
Average monthly rent $700 to $800 per unit.................. 56,939 15%
Average monthly rent $600 to $700 per unit.................. 86,400 22%
Average monthly rent $500 to $600 per unit.................. 110,921 29%
Average monthly rent $500 per unit.......................... 56,553 14%
-------- ---
$389,118 100%
======== ===
The service businesses contributed $51 million (10%) to free cash flow. The
service businesses provide management services to properties and partnerships
and includes Buyers Access, the nation's largest group purchasing organization
serving the apartment industry. Management contracts contribute $47 million
(92%) to the service businesses contribution. $36 million (75%) of the
management contract contribution is derived from properties the Company controls
through economic ownership or its general partner position. $10 million (22%) of
the management contract contribution is from long-term management contracts.
Less than $1 million is contributed from short-term third party management
contracts (30 day cancelable). Buyer's Access contributed $3 million or 6% to
the service businesses contribution.
The Company received recurring interest income from par value notes and
other receivables and interest bearing accounts of $31 million (50% of total
interest income in 1999). In addition, the Company has realized interest income
from recoveries of notes receivable that were acquired at a discount to actual
face value. As the Company improved property operations, some of these notes
have become collectible. In 1999, the Company recognized $32 million (50% of
total interest income) in recoveries from notes purchased at a discount.
Fees contributed $5 million (1%) to free cash flow contribution. Fees are
earned in partnership sales and financing transactions. The Company considers
fees and interest income from notes purchased at a discount as transactional.
Together, the transactional contribution was $37 million (7%) of free cash flows
contribution.
Footnote 22 in the accompanying Notes to Consolidated Financial Statements
provides additional detail on each component of free cash flow. We believe this
disclosure is complementary to the previous year-to-year results of operations
comparisons.
CONTINGENCIES
Pending Investigations of HUD Management Arrangements
In 1997, NHP received subpoenas from the HUD Inspector General ("IG")
requesting documents relating to arrangements whereby NHP or any of its
affiliates provides compensation to owners of HUD-assisted or HUD-insured
multi-family projects in exchange for or in connection with property management
of a HUD project. In July 1999, NHP received a grand jury subpoena requesting
documents relating to the same subject matter as the HUD IG subpoenas and NHP's
operation of a group purchasing program created by NHP, known as Buyers Access.
To date, neither the HUD IG nor the grand jury has initiated any action against
NHP or the Company or, to NHP's or the Company's knowledge, any owner of a HUD
property managed by NHP. The Company believes that NHP's operations and programs
are in compliance, in all material respects, with all laws, rules and
regulations relating to HUD-assisted or HUD-insured properties. The Company is
cooperating with the investigations and does not believe that the investigations
will result in a material adverse impact on its operations. However, as with any
similar investigation, there can be no assurance that these will not result in
material fines, penalties or other costs.
INFLATION
Substantially all of the leases at the Company's apartment properties are
for a period of twelve months or less, allowing, at the time of renewal, for
adjustments in the rental rate and the opportunity to re-lease the
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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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure relates to changes in interest
rates. The Company is not subject to any foreign currency exchange rate risk or
commodity price risk, or any other material market rate or price risks. The
Company uses predominantly long-term, fixed-rate and self-amortizing
non-recourse mortgage debt in order to avoid the refunding or repricing risks of
short-term borrowings. The Company uses short-term debt financing and working
capital primarily to fund acquisitions and generally expects to refinance such
borrowings with proceeds from operating activities, equity offerings or
long-term debt financings.
The Company had $240.9 million of variable rate debt outstanding at
December 31, 1999, which represents 9% of the Company's total outstanding debt.
Based on this level of debt, an increase in interest rates of 1% would result in
the Company's income and cash flows being reduced by $2.4 million on an annual
basis. At December 31, 1999, the Company had $2,343.4 million of fixed rate debt
outstanding. The partnership debt secured by individual properties in an
aggregate amount of $51.8 million, $92.7 million, $66.9 million, $139.7 million
and $205.7 million will mature in the years 2000, 2001, 2002, 2003 and 2004,
respectively.
The estimated aggregate fair value of the Company's cash and cash
equivalents, receivables, payables and short-term unsecured debt as of December
31, 1999 is assumed to approximate their carrying value due to their relatively
short terms. Management further believes that the fair market value of the
Company's secured tax-exempt bond debt and secured long-term debt approximates
their carrying value, based on market comparisons to similar types of debt
instruments having similar maturities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditor's reports, consolidated financial statements and
schedules listed in the accompanying index are filed as part of this report and
incorporated herein by this reference. See "Index to Financial Statements" on
page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
All of the executive officers of the General Partner of the Partnership
also serve as executive officers of AIMCO. Accordingly, the information below
reflects the directors of the General Partner and the executive officers of both
the General Partner of the Partnership and AIMCO. The officers of AIMCO and the
General Partner of the Partnership are elected annually by their respective
Boards of Directors.
NAME AGE FIRST ELECTED POSITION
- ---- --- ------------- --------
Terry Considine................ 52 July 1994 Chairman of the Board of Directors
and Chief Executive Officer
Peter K. Kompaniez............. 55 July 1994 Vice Chairman of the Board of
Directors and President
Thomas W. Toomey............... 39 January 1996 Chief Operating Officer
Harry G. Alcock................ 36 July 1996 Executive Vice President and Chief
Investment Officer
Joel F. Bonder................. 51 December 1997 Executive Vice President, General
Counsel and Secretary
Patrick J. Foye................ 43 May 1998 Executive Vice President
Lance J. Graber................ 38 October 1999 Executive Vice
President -- Acquisitions
Steven D. Ira.................. 49 July 1994 Co-Founder and Executive Vice
President -- Property Operations
Paul J. McAuliffe.............. 43 February 1999 Executive Vice President and Chief
Financial Officer
The following is a biographical summary of the experience of the current
directors of the General Partner and executive officers of the General Partner
and AIMCO as of February 29, 2000.
Terry Considine. Mr. Considine has been Chairman of the Board of Directors
and Chief Executive Officer of the General Partner and AIMCO since July 1994.
Mr. Considine serves as Chairman and director of Asset Investors Corporation
("Asset Investors") and Commercial Assets, Inc. ("Commercial Assets"), two other
public real estate investment trusts. Mr. Considine has been and remains
involved as a principal in a variety of other business activities.
Peter K. Kompaniez. Mr. Kompaniez has been Vice Chairman of the Board of
Directors of the General Partner and AIMCO since July 1994 and was appointed
President of AIMCO in July 1997. Mr. Kompaniez has also served as Chief
Operating Officer of NHP Incorporated ("NHP"), which was acquired by the Company
in December 1997. 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 units that have been
acquired by the Company) and 3.1 million square feet of commercial real estate.
Thomas W. Toomey. Mr. Toomey served as Senior Vice President-Finance and
Administration of the General Partner and AIMCO since January 1996 to March
1997, when he was promoted to Executive Vice President-Finance and
Administration. Mr. Toomey served as Executive Vice President -- Finance and
Administration until December 1999, when he was appointed Chief Operating
Officer. 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. Mr. Toomey
received a B.S. in Business Administration/Finance from Oregon State University.
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Harry G. Alcock. Mr. Alcock served as a Vice President of the General
Partner and AIMCO since July 1996 to October 1997, when he was promoted to
Senior Vice President-Acquisitions. Mr. Alcock served as Senior Vice
President-Acquisitions until October 1999, when he was promoted to Executive
Vice President and Chief Investment Officer. Mr. Alcock has had responsibility
for acquisition and financing activities of the Company since July 1994. From
June 1992 until July 1994, Mr. Alcock served as Senior Financial Analyst for PDI
and HFC. From 1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a
Los Angeles-based real estate developer, with responsibility for raising debt
and joint venture equity to fund land acquisitions and development. From 1987 to
1988, Mr. Alcock worked for Ford Aerospace Corp. He received his B.S. from San
Jose State University.
Joel F. Bonder. Mr. Bonder was appointed Executive Vice President, General
Counsel and Secretary of the General Partner and AIMCO in December 1997. Prior
to joining the Company, Mr. Bonder served as Senior Vice President and General
Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as Vice
President and Deputy General Counsel of NHP from June 1991 to March 1994 and as
Associate General Counsel of NHP Incorporated from 1986 to 1991. From 1983 to
1985, Mr. Bonder practiced with the Washington, D.C. law firm of Lane & Edson,
P.C. and from 1979 to 1983 practiced with the Chicago law firm of Ross and
Hardies. Mr. Bonder received a B.A. from the University of Rochester and a J.D.
from Washington University School of Law.
Patrick J. Foye. Mr. Foye was appointed Executive Vice President of the
General Partner and AIMCO in May 1998. He is responsible for acquisitions of
partnership securities, consolidation of minority interests, and corporate and
other acquisitions. Prior to joining the Company, Mr. Foye was a Merger and
Acquisitions Partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP
from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and
Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the
Long Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham Law School and was Associate Editor of the Fordham Law Review.
Lance J. Graber. Mr. Graber was appointed Executive Vice
President-Acquisitions of the General Partner and AIMCO in October 1999. His
principal business function is acquisitions. Prior to joining the Company, Mr.
Graber was an Associate from 1991 through 1992 and then a Vice President from
1992 through 1994 at Credit Suisse First Boston engaged in real estate financial
advisory services and principal investing. He was a Director there from 1994 to
May 1999, during which time he supervised a staff of seven in the making of
principal investments in hotel, multi-family and assisted living properties. Mr.
Graber received a B.S. and an M.B.A. from the Wharton School of the University
of Pennsylvania.
Steven D. Ira. Mr. Ira is a Co-Founder of AIMCO and has served as Executive
Vice President -- Property Operations of the General Partner and AIMCO since
July 1994. Mr. Ira has been Executive Vice President of the General Partner
since July 1998. 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 a 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 54-year history. He
holds a Certified Apartment Property Supervisor (CAPS) and a Certified Apartment
Manager 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 Boards of Directors of the National
Multi-Housing Council, the National Apartment Association and the Apartment
Association of Greater Orlando. Mr. Ira received a B.S. from Metropolitan State
College in 1975.
Paul J. McAuliffe. Mr. McAuliffe has been Executive Vice President of the
General Partner and AIMCO since February 1999 and was appointed Chief Financial
Officer in October 1999. Prior to joining the Company, Mr. McAuliffe was Senior
Managing Director of Secured Capital Corp and prior to that time had
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been a Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was
senior member of the underwriting team that lead AIMCO's initial public offering
in 1994. Mr. McAuliffe was also a Managing Director and head of the real estate
group at CS First Boston from 1990 to 1993 and he was a Principal in the real
estate group at Morgan Stanley & Co., Inc. where he worked from 1983 to 1990.
Mr. McAuliffe received a B.A. from Columbia College and an M.B.A. from
University of Virginia, Darden School.
Section 16(a) Compliance. Section 16(a) of the Securities Exchange Act
requires the General Partner's executive officers and directors, and persons who
own more than ten percent of a registered class of the Partnership's OP Units,
to file reports (Forms 3, 4 and 5) of unit ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and beneficial
owners of more than ten percent of the Partnership's OP Units are required by
Securities Exchange Commission regulations to furnish the Partnership with
copies of all such forms that they file.
Based solely on the Partnership's review of the copies of Forms 3, 4 and 5
and the amendments thereto received by it for the year ended December 31, 1999,
or written representations from certain reporting persons that no Forms 5 were
required to be filed by those persons, the Partnership believes that during the
period ended December 31, 1999, all filing requirements were complied with by
its executive officers, directors and beneficial owners of more than ten percent
of the Partnership's OP Units.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid for each of the three
fiscal years ended December 31, 1999, 1998 and 1997 to the directors of the
General Partner and the Chief Executive Officer and each of the four other most
highly compensated executive officers of the General Partner and AIMCO (the
"Named Executive Officers"). Information regarding stock options and other stock
based compensation payable by AIMCO has been included for informational purposes
since the Partnership will issue to AIMCO additional OP Units upon the exercise
of such stock options and the contribution to the Partnership of the net
proceeds therefrom.
LONG TERM COMPENSATION(1)
----------------------------
SECURITIES
UNDERLYING
STOCK
ANNUAL COMPENSATION OPTIONS/
NAME AND PRINCIPAL ----------------------- OTHER ANNUAL RESTRICTED SARS(#) ALL OTHER
POSITION YEAR SALARY($) BONUS($)(2) COMPENSATION($) STOCK AWARDS($) AWARDS COMPENSATION($)
------------------ ---- --------- ----------- --------------- --------------- ---------- ---------------
Terry Considine............ 1999 $275,000 $1,275,000 $ -- 385,294
Chairman of the Board of 1998 275,000 1,025,000 -- -- 150,000 --
Directors and Chief 1997 275,000 2,060,000 -- -- 2,740,000 --
Executive Officer
Peter K. Kompaniez......... 1999 $235,000 $ 985,000 $ -- 75,000
President and Vice 1998 235,000 735,000 -- -- 75,000 --
Chairman 1997 235,000 800,000 -- -- 815,000 --
Thomas W. Toomey........... 1999 $200,000 $ 500,000 $ -- 29,412
Chief Operating Officer 1998 200,000 300,000 -- -- 100,000 --
1997 180,000 555,000 -- -- 220,000 --
Patrick J. Foye(3)......... 1999 $225,000 $ 400,000 $995,313 29,412
Executive Vice President 1998 135,600 400,000 -- -- 375,000 --
1997 -- -- -- -- -- --
Paul J. McAuliffe(4)....... 1999 $166,667 $ 300,000 $995,313 223,529
Executive Vice President 1998 -- -- -- -- -- --
and Chief Financial 1997 -- -- -- -- -- --
Officer
- ---------------
(1) Excludes 1,227,078, 376,526, 165,632, 78,948 and 64,865 shares of AIMCO
Class A Common Stock underlying options granted to Messrs. Considine,
Kompaniez, Toomey, Foye and McAuliffe, respectively,
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27
from 1996 to 1999, which were immediately exercised to purchase shares
pursuant to the Company's leveraged stock purchase program. See "Certain
Relationships and Transactions -- Stock Purchase Loans." Options earned in
respect of 1998 and 1999 fiscal years were awarded in January 1999 and 2000,
respectively.
(2) Includes all Discretionary and Incentive cash compensation earned by the
Named Executive Officers.
(3) Mr. Foye was not an employee of the Company prior to May 1998.
(4) Mr. McAuliffe was not an employee of the Company prior to February 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Information on options granted in 1999 to the Named Executive Officers is
set forth in the following table.
INDIVIDUAL GRANTS(1)
-------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
OPTIONS/SARS AT ASSUMED ANNUAL RATES
NUMBER OF GRANTED OF STOCK PRICE
SECURITIES TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE TERM(3)
OPTIONS/SARS IN FISCAL OR BASE EXPIRATION --------------------------
NAME GRANTED(#)(2) YEAR(2) PRICE($/SH) DATE 5%($) 10%($)
- ---- ------------- ------------ ----------- ---------- ------------ -----------
Terry Considine................... 385,294 38.5% $38.50 1/20/2009 $9,328,909 $23,641,287
Peter K. Kompaniez................ 75,000 7.5% 38.50 1/20/2009 1,815,933 4,601,931
Thomas W. Toomey.................. 29,412 2.9% 38.50 1/20/2009 712,136 1,804,693
Patrick J. Foye................... 29,412 2.9% 38.50 1/20/2009 712,136 1,804,693
Paul J. McAuliffe................. 223,529 22.4% 37.16 2/01/2009 5,223,515 13,237,412
- ---------------
(1) Unless otherwise specified, options vest over five years, with vesting as to
60% of the underlying shares after three years and an additional 20% vesting
each of the next two years. Under the terms of the Apartment Investment and
Management Company 1997 Stock Award and Incentive Plan (the "1997 Stock
Plan"), the plan administrator retains discretion, subject to certain
restrictions, to modify the terms of outstanding options. The exercise price
of incentive and non-qualified options granted under the 1997 Stock Plan
will generally equal the fair market value of a share of AIMCO Class A
Common Stock on the date of grant.
(2) Excludes 64,865 shares of AIMCO Class A Common Stock underlying options
granted to Mr. McAuliffe which were immediately exercised to purchase shares
pursuant to the Company's leveraged stock purchase program. See "Certain
Relationships and Transactions -- Stock Purchase Loans."
(3) Assumed annual rates of stock price appreciation are set forth for
illustrative purposes only. The amounts shown are for the assumed rates of
appreciation only, do not constitute projections of future stock price
performance, and may not be realized.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
Information on option exercises during 1999 by the Named Executive
Officers, and the value of unexercised options held by Named Executive Officers
at December 31, 1999 is set forth in the following table.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY- OPTIONS/SARS AT FY-
SHARES END(#) END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#)(1) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ----------- ------------- ----------- -------------
Terry Considine............... 2,400 $43,050 -- 2,894,800 -- $7,267,725
Peter K. Kompaniez............ 1,600 28,600 -- 891,600 -- 2,265,700
Thomas W. Toomey.............. -- -- -- 320,000 -- 867,500
Patrick J. Foye............... -- -- -- 375,000 -- 829,688
Paul J. McAuliffe............. -- -- -- 200,000 -- 562,500
- ---------------
(1) Excludes 64,865 shares of AIMCO Class A Common Stock underlying options
granted to Mr. McAuliffe which were immediately exercised to purchase shares
pursuant to the Company's leveraged stock purchase program. See "Certain
Relationships and Transactions -- Stock Purchase Loans."
(2) Market value of underlying securities at fiscal year-end, less the exercise
price. Market value is determined based on the closing price of the AIMCO
Class A Common Stock on the New York Stock Exchange on December 31, 1999 of
$39.8125 per share.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information available to the
Company, as of January 31, 2000, with respect to OP Units of the Company held by
(i) each director of the General Partner and the five most highly compensated
executive officers of the General Partner who were serving as of December 31,
1999; (ii) all directors and executive officers of the General Partner and AIMCO
as a group; and (iii) those persons known to the Company to be the beneficial
owners (as determined under the rules of the Securities Exchange Commission) of
more than 5% of such OP Units. This table does not reflect options that are not
exercisable within 60 days, or the beneficial ownership of High Performance
Units by executive officers and directors of the General Partner. The business
address of each of the following directors and executive officers of the General
Partner is 2000 South Colorado Boulevard, Tower 2, Suite 2-1000, Denver,
Colorado 80222-7900, unless otherwise specified.
PERCENTAGE OF
NUMBER OF OP OWNERSHIP OF THE
NAME AND ADDRESS OF BENEFICIAL OWNER UNITS PARTNERSHIP
- ------------------------------------ ------------ ----------------
Directors & Executive Officers of the General Partner:
Terry Considine........................................ 816,661(1) 1.1%
Peter K. Kompaniez..................................... 30,5000 *
Thomas W. Toomey....................................... -- *
Patrick J Foye......................................... -- *
Paul J. McAuliffe...................................... -- *
All directors and executive officers as a group (13
persons)............................................ 943,801 1.3%
5% or Greater Holders
AIMCO-LP, Inc. ........................................ 66,932,716 91.4%
- ---------------
* Less than 1.0%
(1) Includes 192,374 OP Units held by entities in which Mr. Considine has sole
voting and investment power, 2,300 OP Units held by the Considine
Partnership, for 99% of which Mr. Considine disclaims beneficial ownership,
and 157,698 OP Units held by Mr. Considine's spouse, Elizabeth Considine,
for which Mr. Considine disclaims beneficial ownership.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, the Company has entered into various transactions with
certain of its executive officers and directors. The Company attempts to price
such transactions based on fair market value, and believes that the transactions
are on terms that are as favorable to the Company as could be achieved with
unrelated third parties.
TRANSACTIONS WITH MANAGEMENT COMPANIES
From time to time the Company has formed "Management Companies" in which
the Partnership holds non-voting preferred stock and 100% of the voting stock is
owned by certain of the Company's executive officers of the General Partner and
AIMCO (or entities controlled by them), including Messrs. Considine and
Kompaniez. The Management Companies were formed to engage in businesses
generally not permitted under the REIT provisions of the Internal Revenue Code.
Although transactions between the Company and the Management Companies are not
at arm's length, the Company believes that such transactions are at fair market
value.
Prior to December 29, 1999, Messrs. Considine and Kompaniez, collectively,
own