As filed with the Securities and Exchange Commission on November 15, 2011

Registration No. 333-175848

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Amendment No. 3

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

AIMCO PROPERTIES, L.P.

(Exact name of registrant as specified in its charter)

 

4582 South Ulster Street, Suite 1100

Denver, Colorado 80237

(303) 757-8101

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

John Bezzant

Executive Vice President

Apartment Investment and Management Company

4582 South Ulster Street, Suite 1100

Denver, Colorado 80237

(303) 757-8101

(Name, address, including zip code and telephone number, including area code of agent for service)

Copies to:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement is declared effective and all other conditions to the merger as described in the enclosed information statement/prospectus are satisfied or waived.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)         o

 

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  o

 

The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants will file a further amendment which specifically states that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement will become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

SUBJECT TO COMPLETION, DATED NOVEMBER 15, 2011

 

INFORMATION STATEMENT/PROSPECTUS

 

ANGELES PARTNERS XII, LP

 

Angeles Partners XII, LP, or AP XII, has entered into an agreement and plan of merger with a wholly-owned subsidiary of AIMCO Properties, L.P., or Aimco OP. Under the merger agreement, the Aimco Subsidiary, AIMCO AP XII Merger Sub LLC, will be merged with and into AP XII, with AP XII as the surviving entity. The Aimco Subsidiary was formed for the purpose of effecting this transaction and does not have any assets or operations. In the merger, each Unit of Limited Partnership Interest of AP XII, or AP XII Unit, will be converted into the right to receive, at the election of the holder of such unit, either:

 

 

 

The merger consideration of $483.14 per AP XII Unit was based on independent third party appraisals of AP XII’s properties by independent valuation firms.

 

The number of OP Units offered for each AP XII Unit will be calculated by dividing $483.14 by the average closing price of common stock of Apartment Investment and Management Company, or Aimco, as reported on the New York Stock Exchange, or the NYSE, over the ten consecutive trading days ending on the second trading day immediately prior to the consummation of the merger. For example, as of November 10, 2011, the average closing price of Aimco common stock over the preceding ten consecutive trading days was $23.79, which would have resulted in 20.31 OP Units offered for each AP XII Unit. However, if Aimco OP determines that the law of the state or other jurisdiction in which a limited partner resides would prohibit the issuance of OP Units in that state or other jurisdiction (or that registration or qualification in that state or jurisdiction would be prohibitively costly), then such limited partner will not be entitled to elect OP Units, and will receive cash.

 

The OP Units are not listed on any securities exchange nor do they trade in an active secondary market. However, after a one-year holding period, OP Units are redeemable for shares of Aimco common stock (on a one-for-one basis) or cash equal to the value of such shares, as Aimco elects. As a result, the trading price of Aimco common stock is considered a reasonable estimate of the fair market value of an OP Unit. Aimco’s common stock is listed and traded on the NYSE under the symbol “AIV.”

 

In the merger, Aimco OP’s interest in the Aimco Subsidiary will be converted into AP XII Units. As a result, after the merger, Aimco OP will be the sole limited partner of AP XII and will own all of the outstanding AP XII Units.

 

Within ten days after the effective time of the merger, Aimco OP will prepare and mail to the former holders of AP XII Units an election form pursuant to which they can elect to receive cash or OP Units. Holders of AP XII Units may elect their form of consideration by completing and returning the election form in accordance with its instructions. If the information agent does not receive a properly completed election form from a holder before 5:00 p.m., New York time, on the 30th day after the mailing of the election form, the holder will be deemed to have elected to receive cash. Former holders of AP XII Units may also use the election form to elect to receive, in lieu of the merger consideration, the appraised valued of their AP XII Units, determined through an arbitration proceeding.

 

Under Delaware law, the merger must be approved by all general partners of AP XII and a majority in interest of the AP XII Units. Both AP XII’s managing general partner, Angeles Realty Corporation II, or the Managing General Partner, and AP XII’s non-managing general partner, AIMCO Angeles GP, LLC, or the Non-Managing General Partner (and, together with the Managing General Partner, the General Partners), have determined that the merger is advisable, fair to and in the best interests of AP XII and its limited partners and have approved the merger and the merger agreement. As of November 10, 2011, there were issued and outstanding 44,718 AP XII Units, and Aimco OP and its affiliates owned 33,750 of those units, or approximately 75.47% of the number of units outstanding. Aimco OP and its affiliates have indicated that they intend to take action by written consent, as permitted under the partnership agreement, to approve the merger on or about          , 2011. As a result, approval of the merger is assured, and your consent to the merger is not required.

 

WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY

 

This information statement/prospectus contains information about the merger and the securities offered hereby, and the reasons that the Managing General Partner has decided that the merger is in the best interests of AP XII and its limited partners. The Managing General Partner has conflicts of interest with respect to the merger that are described in greater detail herein. Please read this information statement/prospectus carefully, including the section entitled “Risk Factors” beginning on page 20. It provides you with detailed information about the merger and the securities offered hereby. The merger agreement is attached to this information statement/prospectus as Annex A.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the merger, determined if this information statement/prospectus is truthful or complete, approved or disapproved of the merger, passed upon the merits or fairness of the merger, or passed upon the adequacy or accuracy of the disclosure in this information statement/prospectus. Any representation to the contrary is a criminal offense.

 

This information statement/prospectus is dated          , 2011, and is first being mailed to limited partners on or about          , 2011.

 

WE ARE CURRENTLY SEEKING QUALIFICATION TO ALLOW ALL HOLDERS OF AP XII UNITS THE ABILITY TO ELECT TO RECEIVE OP UNITS IN CONNECTION WITH THE MERGER. HOWEVER, AT THE PRESENT TIME, IF YOU ARE A RESIDENT OF ONE OF THE FOLLOWING STATES, YOU ARE NOT PERMITTED TO ELECT TO RECEIVE OP UNITS IN CONNECTION WITH THE MERGER:

 

CALIFORNIA

MASSACHUSETTS

NEW YORK

 

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

ADDITIONAL INFORMATION

 

This information statement/prospectus incorporates important business and financial information about Aimco from documents that it has filed with the Securities and Exchange Commission, or the SEC, but that have not been included in or delivered with this information statement/prospectus. For a listing of documents incorporated by reference into this information statement/prospectus, please see “Where You Can Find Additional Information” beginning on page 94 of this information statement/prospectus.

 

Aimco will provide you with copies of such documents relating to Aimco (excluding all exhibits unless Aimco has specifically incorporated by reference an exhibit in this information statement/prospectus), without charge, upon written or oral request to:

 

ISTC Corporation
P.O. Box 2347
Greenville, South Carolina 29602
(864) 239-1029

 

If you have any questions or require any assistance, please contact our information agent, Eagle Rock Proxy Advisors, LLC, by mail at 12 Commerce Drive, Cranford, New Jersey 07016; by fax at (908) 497-2349; or by telephone at (800) 217-9608.

 

ABOUT THIS INFORMATION STATEMENT/PROSPECTUS

 

This information statement/prospectus, which forms a part of a registration statement on Form S-4 filed with the SEC by Aimco and Aimco OP, constitutes a prospectus of Aimco OP under Section 5 of the Securities Act of 1933, as amended, or the Securities Act, with respect to the OP Units that may be issued to holders of AP XII Units in connection with the merger, and a prospectus of Aimco under Section 5 of the Securities Act with respect to shares of Aimco common stock that may be issued in exchange for such OP Units tendered for redemption. This document also constitutes an information statement under Section 14(c) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to the action to be taken by written consent to approve the merger.

 

TABLE OF CONTENTS

 

 

SUMMARY TERM SHEET

	•	The Merger:  AP XII has entered into an agreement and plan of merger with the Aimco Subsidiary and Aimco OP. Under the merger agreement, at the effective time of the merger, the Aimco Subsidiary will be merged with and into AP XII, with AP XII as the surviving entity. A copy of the merger agreement is attached as Annex A to this information statement/prospectus. You are encouraged to read the merger agreement carefully in its entirety because it is the legal agreement that governs the merger.

	•	Merger Consideration:  In the merger, each AP XII Unit will be converted into the right to receive, at the election of the holder of such AP XII Unit, either $483.14 in cash or equivalent value in OP Units, except in those jurisdictions where the law prohibits the offer of OP Units (or registration or qualification would be prohibitively costly). The number of OP Units issuable with respect to each AP XII Unit will be calculated by dividing the $483.14 per unit cash merger consideration by the average closing price of Aimco common stock, as reported on the NYSE, over the ten consecutive trading days ending on the second trading day immediately prior to the consummation of the merger. Each holder of AP XII Units must make the same election (cash or OP Units) for all of his or her AP XII Units. For a full description of the determination of the merger consideration, see “The Merger — Determination of Merger Consideration” beginning on page 42.

	•	Fairness of the Merger:  Although the Aimco Entities have interests that may conflict with those of AP XII’s unaffiliated limited partners, each of the Aimco Entities believe that the merger is fair to the unaffiliated limited partners of AP XII. See “Special Factors — Fairness of the Transaction” beginning on page 6. The merger consideration of $483.14 per AP XII Unit was based on independent third party appraisals of AP XII’s properties by independent valuation firms.

	•	Opinion of Financial Advisor:  In connection with the merger, Duff & Phelps, LLC, or Duff & Phelps, has delivered its written opinion to the boards of directors of Aimco, the general partner of Aimco OP, the Managing General Partner and the general partner of the sole member of the Non-Managing General Partner to the effect that, as of November 15, 2011, the cash consideration of $483.14 per unit is fair, from a financial point of view, to the unaffiliated limited partners of AP XII. The full text of Duff & Phelps’s written opinion, which sets forth the assumptions made, procedures followed, factors considered and qualifications and limitations on the review undertaken by Duff & Phelps in connection with its opinion, is attached to this information statement/prospectus as Annex C. You are encouraged to read Duff & Phelps’s opinion, and the section entitled “Special Factors — Opinion of Financial Advisor” beginning on page 14, carefully and in their entirety. Duff & Phelps’s opinion was directed to the boards of directors of Aimco, the general partner of Aimco OP, the Managing General Partner and the general partner of the sole member of the Non-Managing General Partner, and addresses only the fairness to the unaffiliated limited partners of AP XII, from a financial point of view, of the cash consideration of $483.14 per unit as of the date of the opinion. Duff & Phelps’s opinion did not address any other aspect of the merger and was not intended to and does not constitute a recommendation as to how any party should vote or act with respect to the merger or any matter relating thereto.

	•	Effects of the Merger:  After the merger, Aimco OP will be the sole limited partner in AP XII, and will own all of the outstanding AP XII Units. As a result, after the merger, you will cease to have any rights in AP XII as a limited partner. See “Special Factors — Effects of the Merger,” beginning on page 5.

	•	Appraisal Rights:  Pursuant to the terms of the merger agreement, Aimco OP will provide each limited partner with contractual dissenters’ appraisal rights that are similar to the dissenters’ appraisal rights available to a stockholder of a constituent corporation in a merger under Delaware law, and which will enable a limited partner to obtain an appraisal of the value of the limited partner’s AP XII Units in connection with the merger. See “The Merger — Appraisal Rights,” beginning on page 44. A description of the

		appraisal rights being provided, and the procedures that a limited partner must follow to seek such rights, is attached to this information statement/prospectus as Annex B.

	•	List of Investors:  Under AP XII’s partnership agreement and Delaware law, upon written request and at the cost of the limited partner, a limited partner who holds AP XII Units has the right to receive by mail a list of the names and addresses of the partners of AP XII and the number of units of partnership interest held by each of them. This list may be obtained by making written request to the General Partners, c/o Eagle Rock Proxy Advisors, LLC, 12 Commerce Drive, Cranford, New Jersey 07016, or by fax at (908) 497-2349.
	•	Parties Involved:

	•	Angeles Partners XII, LP, or AP XII, is a Delaware limited partnership formed on November 24, 2010, following a redomestication of the partnership from California to Delaware. AP XII owns and operates two investment properties:  (i) the Hunters Glen Apartments, or the Hunters Glen Property, which consists of the Hunters Glen Apartments IV, a 264 unit apartment project, or the Hunters Glen IV Property, the Hunters Glen Apartments V, which consists of a 304 unit apartment project, or the Hunters Glen V Property, and the Hunters Glen Apartments VI, which consists of a 328 unit apartment project, or the Hunters Glen VI Property, each of which is located in Plainsboro, New Jersey; and (ii) the Twin Lake Towers Apartments, which consists of a 399 unit apartment project located in Westmont, Illinois, or the Twin Lake Towers Property. As a result of a refinancing which collateralizes the three phases of the Hunters Glen Property under one mortgage loan, AP XII has combined the assets, liabilities and operations of the Hunters Glen IV Property, the Hunters Glen V Property and the Hunters Glen VI Property, into one property, the Hunters Glen Property. See “Information About Angeles Partners XII, LP” beginning on page 33. AP XII’s principal address is 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its telephone number is (864) 239-1000.

	•	Apartment Investment and Management Company, or Aimco, is a Maryland corporation that is a self-administered and self-managed real estate investment trust, or REIT. Aimco’s principal financial objective is to provide predictable and attractive returns to its stockholders. Aimco’s common stock is listed and traded on the NYSE under the symbol “AIV.” See “Information about the Aimco Entities,” beginning on page 31. Aimco’s principal address is 4582 South Ulster Street, Suite 1100, Denver, Colorado 80237, and its telephone number is (303) 757-8101.

	•	AIMCO Properties, L.P., or Aimco OP, is a Delaware limited partnership which, through its operating divisions and subsidiaries, holds substantially all of Aimco’s assets and manages the daily operations of Aimco’s business and assets. See “Information about the Aimco Entities,” beginning on page 31. Aimco OP’s principal address is 4582 South Ulster Street, Suite 1100, Denver, Colorado 80237, and its telephone number is (303) 757-8101.

	•	AIMCO AP XII Merger Sub LLC, or the Aimco Subsidiary, is a Delaware limited liability company formed for the purpose of consummating the merger with AP XII. The Aimco Subsidiary is a direct wholly-owned subsidiary of Aimco OP. See “Information about the Aimco Entities,” beginning on page 31.

	•	Reasons for the Merger:  Aimco and Aimco OP are in the business of acquiring, owning and managing apartment properties such as the ones owned by AP XII, and have decided to proceed with the merger as a means of acquiring the properties currently owned by AP XII in a manner that they believe (i) provides fair value to limited partners, (ii) offers limited partners an opportunity to receive immediate liquidity, or defer recognition of taxable gain (except where the law of the state or other jurisdiction in which a limited partner resides would prohibit the issuance of OP Units in that state or other jurisdiction, or where registration or qualification would be prohibitively costly), and (iii) relieves AP XII of the expenses associated with a sale of the property, including marketing and other transaction costs. The Aimco Entities decided to proceed with the merger at this time for the following reasons:

	•	In the absence of a transaction, limited partners of AP XII have only limited options to liquidate their investment in AP XII. The AP XII Units are not traded on an exchange or other reporting system, and transactions in the securities are limited and sporadic.
	•	The value of the properties owned by AP XII is not sufficient to justify its continued operation as a public company. As a public company with a significant number of unaffiliated limited partners, AP XII incurs costs associated with preparing audited annual financial statements, unaudited quarterly financial

		statements, tax returns and partner Schedule K-1s, periodic SEC reports and other expenses. The Aimco Entities estimate these costs to be approximately $97,000 per year.

	•	AP XII has been operating at a loss for the past two years. Since late 2010 , Aimco OP has made loans of approximately $10,939,000 to AP XII to help fund operating expenses, pay off old mortgages and fund loan commitment fees for the new mortgage encumbering the Hunters Glen Property. AP XII may receive additional advances of funds from Aimco OP, although Aimco OP is not obligated to provide such advances. If the Aimco Entities acquire 100% ownership of AP XII, they will have greater flexibility in financing and operating its properties.

	•	Conflicts of Interest:  The Managing General Partner is wholly-owned by AIMCO/IPT, Inc., which in turn is wholly-owned by Aimco. Therefore, the Managing General Partner has a conflict of interest with respect to the merger. The Managing General Partner has fiduciary duties to AIMCO/IPT, Inc., the Managing General Partner’s sole stockholder and an affiliate of Aimco, on the one hand, and to AP XII and its limited partners, on the other hand. The duties of the Managing General Partner to AP XII and its limited partners conflict with the duties of the Managing General Partner to AIMCO/IPT, Inc., which could result in the Managing General Partner approving a transaction that is more favorable to Aimco than might be the case absent such conflict of interest. See, “The Merger — Conflicts of Interest,” beginning on page 43.

	•	Risk Factors:  In evaluating the merger agreement and the merger, AP XII limited partners should carefully read this information statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors” beginning on page 20. Some of the risk factors associated with the merger are summarized below:

	•	Aimco owns the Managing General Partner. As a result, the Managing General Partner has a conflict of interest in the merger. A transaction with a third party in the absence of this conflict could result in better terms or greater consideration to AP XII limited partners.
	•	AP XII limited partners who receive cash may recognize taxable gain in the merger and that gain could exceed the merger consideration.

	•	There are a number of significant differences between AP XII Units and Aimco OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For more information regarding those differences, see “Comparison of AP XII Units and Aimco OP Units,” beginning on page 64.

	•	AP XII limited partners may elect to receive OP Units as merger consideration, and there are risks related to an investment in OP Units, including the fact that there are restrictions on transferability of OP Units; there is no public market for OP Units; and there is no assurance as to the value that might be realized upon a future redemption of OP Units.

	•	Material United States Federal Income Tax Consequences of the Merger:  The merger will generally be treated as a partnership merger for U.S. federal income tax purposes. In general, any payment of cash for AP XII Units will be treated as a sale of such AP XII Units by the holder thereof, and any exchange of AP XII Units for OP Units under the terms of the merger agreement will be treated as a tax-free transaction, except to the extent described in “Material United States Federal Income Tax Considerations — United States Federal Income Tax Consequences Relating to the Merger,” beginning on page 70.

		The foregoing is a general discussion of the material U.S. federal income tax consequences of the merger. This summary does not discuss all aspects of U.S. federal income taxation that may be relevant to you in light of your specific circumstances or if you are subject to special treatment under the U.S. federal income tax laws. The particular tax consequences of the merger to you will depend on a number of factors related to your tax situation. You should review “Material United States Federal Income Tax Considerations,” herein and consult your tax advisors for a full understanding of the tax consequences to you of the merger.

 

Aimco and Aimco OP are in the business of acquiring, owning and managing apartment properties such as the ones owned by AP XII, and have decided to proceed with the merger as a means of acquiring the properties currently owned by AP XII in a manner that they believe (i) provides fair value to limited partners, (ii) offers limited partners an opportunity to receive immediate liquidity, or defer recognition of taxable gain (except where the law of the state or other jurisdiction in which a limited partner resides would prohibit the issuance of OP Units in that state or other jurisdiction, or where registration or qualification would be prohibitively costly), and (iii) relieves AP XII of the expenses associated with a sale of the properties, including marketing and other transaction costs.

 

The Aimco Entities decided to proceed with the merger at this time for the following reasons:

 

 

 

As discussed in more detail below, the Aimco Entities considered a sale of the Hunters Glen Property in early 2009, but determined that they would most likely not be able to find any buyers at acceptable prices.

 

Before deciding to proceed with the merger, the Managing General Partner and the other Aimco Entities considered the alternatives described below:

 

Continuation of AP XII as a Public Company Operating the Properties.  The Managing General Partner and the Aimco Entities did not consider the continuation of AP XII as a public company operating the properties to be a viable alternative primarily because of the costs associated with preparing financial statements, tax returns, periodic SEC reports and other expenses, and the inability of AP XII to generate sufficient funds to cover operating expenses without advances from Aimco OP which may not be available in the future.

 

Liquidation of AP XII.  As discussed above, the Managing General Partner and the other Aimco Entities considered a liquidation of AP XII in which AP XII’s properties would be marketed and sold to third parties for cash, with any net proceeds remaining after payment of all liabilities distributed to AP XII’s limited partners. The primary advantage of such a transaction would be that the sale prices would reflect arm’s-length negotiations and might therefore be higher than the appraised values which have been used to determine the merger consideration. The Managing General Partner and the Aimco Entities rejected this alternative because of: (i) the risk that a third party purchaser might not be found that would offer a satisfactory price; (ii) the costs imposed on AP XII in connection with marketing and selling the properties; and (iii) the fact that limited partners would recognize taxable gain on the sales. In early 2009, the Managing General Partner and the other Aimco Entities considered a sale of the Hunters Glen Property, but determined that they would most likely not be able to find any buyers at acceptable prices.

 

Contribution of Properties to Aimco OP.  The Aimco Entities considered a transaction in which AP XII’s properties would be contributed to Aimco OP in exchange for OP Units. The primary advantage of such a transaction would be that AP XII limited partners would not recognize taxable gain. The Aimco Entities rejected this alternative because it would not offer limited partners an opportunity for immediate liquidity.

 

The Aimco Entities believe that the merger will have the following benefits and detriments to unaffiliated limited partners, AP XII and the Aimco Entities:

 

Benefits to Unaffiliated Limited Partners.  The merger is expected to have the following principal benefits to unaffiliated limited partners:

 

Liquidity.  Limited partners are given a choice of merger consideration and may elect to receive either cash or OP Units in the merger, except in those jurisdictions where the law prohibits the offer of OP Units (or registration or qualification would be prohibitively costly). Limited partners who receive the cash consideration will receive immediate liquidity with respect to their investment.

 

Option to Defer Taxable Gain.  Limited partners who receive OP Units in the merger may defer recognition of taxable gain (except where the law of the state or other jurisdiction in which a limited partner resides would prohibit the issuance of OP Units in that state or other jurisdiction, or where registration or qualification would be prohibitively costly).

 

Diversification.  Limited partners who receive OP Units in the merger will have the opportunity to participate in Aimco OP, which has a more diversified property portfolio than AP XII.

 

Benefits to AP XII.  The merger is expected to have the following principal benefits to AP XII:

 

Elimination of Costs Associated with SEC Reporting Requirements and Multiple Limited Partners.  AP XII will terminate registration after the merger is completed, and will cease filing periodic reports with the SEC. As a result, AP XII will no longer incur costs associated with preparing audited financial statements, unaudited quarterly financial statements, tax returns and partner Schedule K-1s, periodic SEC reports and other expenses. The Aimco Entities estimate these expenses to be approximately $97,000 per year.

 

Benefits to the Aimco Entities.  The merger is expected to have the following principal benefits to the Aimco Entities:

 

Increased Interest in AP XII.  Upon completion of the merger, Aimco OP will be the sole limited partner of AP XII. As a result, the Aimco Entities will receive all of the benefit from any future appreciation in value of the properties after the merger, and any future income from such properties.

 

Detriments to Unaffiliated Limited Partners.  The merger is expected to have the following principal detriments to unaffiliated limited partners:

 

Taxable Gain.  Limited partners who receive the cash consideration may recognize taxable gain in the merger that could exceed the merger consideration. In addition, limited partners who receive OP Units in the merger could recognize taxable gain if Aimco subsequently sells any of AP XII’s properties.

 

Risks Related to OP Units.  Limited partners who receive OP Units in the merger will be subject to the risks related to an investment in OP Units, as described in greater detail under the heading “Risk Factors — Risks Related to an Investment in OP Units.”

 

Conflicts of Interest; No Separate Representation of Unaffiliated Limited Partners.  The Managing General Partner is wholly-owned by AIMCO/IPT, Inc., which in turn is wholly-owned by Aimco. Therefore, the Managing General Partner has a conflict of interest with respect to the merger. The Managing General Partner has fiduciary duties to AIMCO/IPT, Inc., the Managing General Partner’s sole stockholder and an affiliate of Aimco, on the one hand, and to AP XII and its limited partners, on the other hand. The duties of the Managing General Partner to AP XII and its limited partners conflict with the duties of the Managing General Partner to AIMCO/IPT, Inc., which could result in the Managing General Partner approving a transaction that is more favorable to Aimco than might be the case absent such conflict of interest. In negotiating the merger agreement, no one separately represented the interests of the unaffiliated limited partners. If an independent advisor had been engaged, it is possible that such advisor could have negotiated better terms for AP XII’s unaffiliated limited partners.

 

Detriments to AP XII.  The merger is not expected to have any detriments to AP XII.

Detriments to the Aimco Entities.  The merger is expected to have the following principal detriments to the Aimco Entities:

 

Increased Interest in AP XII.  Upon completion of the merger, the Aimco Entities’ interest in the net book value of AP XII will increase from 75.7% to 100%, or from a deficit of $54,071,000 to a deficit of $71,382,000 as of December 31, 2010, and their interest in the net losses of AP XII will increase from 75.7% to 100%, or from $2,162,000 to $2,855,000 for the period ended December 31, 2010. Upon completion of the merger, Aimco OP will be the sole limited partner of AP XII. As a result, Aimco OP will bear the burden of all future operating or other losses of AP XII, as well as any decline in the value of AP XII’s properties.

 

Burden of Capital Expenditures.  Upon completion of the merger, the Aimco Entities will have sole responsibility for providing any funds necessary to pay for capital expenditures at the properties.

 

For a discussion of the material U.S. federal income tax consequences of the merger, see “Material United States Federal Income Tax Considerations — United States Federal Income Tax Consequences Relating to the Merger,” beginning on page 70.

 

Factors in Favor of Fairness Determination.  The Aimco Entities (including the Managing General Partner of AP XII) believe that the merger is advisable, fair to and in the best interests of AP XII and its unaffiliated limited partners. In support of such determination, the Aimco Entities considered the following factors:

 

 

 

 

 

 

 

 

 

 

 

Factors Not in Favor of Fairness Determination.  In addition to the foregoing factors, the Aimco Entities also considered the following countervailing factors:

 

 

 

 

 

The Aimco Entities did not assign relative weights to the above factors in reaching their decision that the merger is fair to AP XII and its unaffiliated limited partners. However, in determining that the benefits of the proposed merger outweigh the costs and risks, they relied primarily on the following factors: (i) the merger consideration of $483.14 per AP XII Unit is based on independent third party appraisals of AP XII’s properties, (ii) the Duff & Phelps opinion that, as of November 15, 2011, based upon and subject to the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Duff & Phelps in connection with its opinion, the cash consideration of $483.14 per unit is fair, from a financial point of view, to the unaffiliated limited partners of AP XII; (iii) limited partners may defer recognition of taxable gain by electing to receive OP Units in the merger (except in certain jurisdictions) and (iv) limited partners are entitled to contractual dissenters’ appraisal rights. The Aimco Entities were aware of, but did not place much emphasis on, information regarding prices at which AP XII Units may have sold in the secondary market because they do not view that information as a reliable measure of value. The AP XII Units are not traded on an exchange or other reporting system, and transactions in the secondary market are very limited and sporadic. In addition, some of the historical prices are not comparable to current value because of intervening events, including refinancing, distribution of proceeds and advances from Aimco OP.

 

Procedural Fairness.  The Aimco Entities determined that the merger is fair from a procedural standpoint despite the absence of any customary procedural safeguards, such as the engagement of an unaffiliated representative, the approval of independent directors or approval by a majority of unaffiliated limited partners. In making this determination, the Aimco Entities relied primarily on the dissenters’ appraisal rights provided to unaffiliated limited partners under the merger agreement that are similar to the dissenters’ appraisal rights available to stockholders in a corporate merger under Delaware law.

 

Selection and Qualifications of Independent Appraisers.  The Managing General Partner retained the services of CRA to appraise the market value of the Twin Lake Towers Property. The Managing General Partner retained the services of KTR to appraise the market value of the Hunters Glen Property. CRA and KTR are each experienced independent valuation consulting firms that have performed appraisal services for Aimco OP and its affiliates in the past. Aimco OP believes that its relationship with CRA and KTR had no negative impact on those firms’ independence in conducting the appraisals related to the merger.

 

Factors Considered.  CRA performed a complete appraisal of the Twin Lake Towers Property. KTR performed a complete appraisal of the Hunters Glen Property. CRA and KTR have each represented that its respective reports were prepared in conformity with the Uniform Standards of Professional Appraisal Practice, as promulgated by the Appraisal Standards Board of the Appraisal Foundation and the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. AP XII furnished CRA and KTR with all of the necessary information requested by CRA or KTR, as applicable, in connection with the appraisals. The appraisals were not prepared in conjunction with a request for a specific value or a value within a given range. In preparing its valuation of each property, CRA and, KTR, among other things:

 

 

 

Summary of Approaches and Methodologies Employed.  The following summary describes the approaches and analyses employed by CRA and KTR, respectively, in preparing the appraisals. CRA and KTR principally relied on two approaches to valuation: (i) the income capitalization approach and (ii) the sales comparison approach.

 

The income capitalization approach is based on the premise that value is derived by converting anticipated benefits into property value. Anticipated benefits include the present value of the net income and the present value of the net proceeds resulting from the re-sale of the property. CRA reported that the Twin Lake Towers Property has an adequate operations history to determine its income-producing capabilities over the near future. KTR reported that the Hunters Glen Property has an adequate operations history to determine its income-producing capabilities over the near future. In addition, each firm reported that performance levels of competitive properties served as an adequate check as to the reasonableness of each property’s actual performance. As such, the income capitalization approach was utilized in the appraisal of each property.

 

As part of the income capitalization approach, CRA and KTR used the direct capitalization method to estimate a value for the Twin Lake Towers Property and the Hunters Glen Property, respectively. According to the appraisal reports, the basic steps in the direct capitalization analysis are as follows: (i) calculate potential gross income from all sources that a competent owner could legally generate; (ii) estimate and deduct an appropriate vacancy and collection loss factor to arrive at effective gross income; (iii) estimate and deduct operating expenses that would be expected during a stabilized year to arrive at a probable net operating income; (iv) develop an appropriate overall capitalization rate to apply to the net operating income; and (v) estimate value by dividing the net operating income by the overall capitalization rate. In addition, any adjustments to account for differences between the current conditions and stabilized conditions are also considered. The assumptions utilized by CRA and KTR with respect to each property are set forth below. The property-specific assumptions were determined by CRA and KTR to be reasonable based on their review of historical operating and financial data for their respective property and comparison of said data to the operating statistics of similar properties in the respective influencing market areas. The capitalization rate for each property was determined to be reasonable by CRA and KTR, as applicable, based on its review of applicable data ascertained within the market in which the respective property is located.

 

The sales comparison approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. This comparative process involves judgment as to the similarity of the subject property and the comparable sales with respect to many value factors such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, and the interest transferred, among others. The value estimated through this approach represents the probable price at which the subject property would be sold by a willing seller to a willing and knowledgeable buyer as of the date of value. The reliability of this technique is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences, and the absence of atypical conditions affecting the individual sales prices. CRA and KTR each reported that research revealed adequate sales activity to form a reasonable estimation of each of the subject property’s market value pursuant to the sales comparison approach. For their respective appraisals, CRA and KTR conducted research in the influencing market in an attempt to locate sales of properties similar to the appraised properties. The results of CRA’s and KTR’s research indicated that an adequate number of comparable sales were obtained from the local markets in which the Twin Lake Towers Property and the Hunters Glen Property are located.

 

In each of the appraisals, numerous sales were uncovered and the specific sales included in the appraisal reports were deemed representative of the most comparable data available at the time the appraisals were prepared. Important criteria utilized in selecting the most comparable data included: conditions under which the sale occurred; date of sale; sales were selected based on their physical similarity to the appraised property; transactions were selected based on the

similarity of location between the comparable and appraised property; and, similarity of economic characteristics between the comparable and appraised property. Sales data that may have been uncovered during the course of research that was not included in the appraisal did not meet the described criteria and/or could not be adequately confirmed.

 

According to CRA’s and KTR’s reports, the basic steps in processing the sales comparison approach are outlined as follows: (i) research the market for recent sales transactions, listings, and offers to purchase or sell of properties similar to the subject property; (ii) select a relevant unit of comparison and develop a comparative analysis; (iii) compare comparable sale properties with the subject property using the elements of comparison and adjust the price of each comparable to the subject property; and (iv) reconcile the various value indications produced by the analysis of the comparables.

 

The final step in the appraisal process is the reconciliation of the value indicators into a single value estimate. CRA and KTR reviewed each approach in order to determine its appropriateness relative to the properties that they appraised. The accuracy of the data available and the quantity of evidence were weighted in each approach. For the appraisal of the Twin Lake Towers Property, CRA placed primary emphasis on the income capitalization approach to valuation, and the direct capitalization approach was considered in the conclusion of value for the property. CRA relied secondarily on the sales comparison approach, and reported that the value conclusion derived pursuant to the sales comparison approach was utilized as a means to support the value conclusion rendered for the Twin Lake Towers Property pursuant to the income capitalization approach. For the appraisal of the Hunters Glen Property, KTR relied principally on the income capitalization approach to valuation, and the direct capitalization method was given greatest consideration in the conclusion of value for this approach. While KTR granted some weight to the sales comparison approach, KTR noted that less weight was accorded to this approach than otherwise might be typical given the degree of adjustments necessary and the lack of directly comparable sales.

 

Twin Lake Towers Property

 

Summary of Independent Appraisal of the Twin Lake Towers Property.  CRA performed a complete appraisal of the Twin Lake Towers Property. The appraisal report of the Twin Lake Towers Property is dated May 19, 2010, and indicates that the estimated market value of the Twin Lake Towers Property was $36,000,000 as of April 21, 2010. The appraisal report was updated by CRA as reflected in CRA’s supplemental letters dated January 3, 2011, June 9, 2011, and October 28, 2011. The appraisal report, as updated by the supplemental letters dated January 3, 2011 and June 9, 2011, indicates that the estimated market value of the Twin Lake Towers Property was $41,400,000 as of December 20, 2010 and $45,600,000 as of May 31, 2011, respectively. The appraisal report, as updated by the supplemental letter dated October 28, 2011, provides an estimate of the property’s market value as of October 1, 2011. The summary set forth below describes the material conclusions reached by CRA based on the value determined under the valuation approaches and subject to the assumptions and limitations described below. According to CRA’s report, as updated by the supplemental letters, the estimated market value of the Twin Lake Towers Property was $47,200,000 as of October 1, 2011. The following is a summary of the appraisal report dated May 19, 2010, as updated by the supplemental letters dated January 3, 2011, June 9, 2011, and October 28, 2011. There is no present intention to further update the appraisal report. The Aimco Entities are not aware of any events that have occurred or conditions that have changed since the October 28, 2011 supplemental letter that may have caused a material change in the value of the Twin Lake Towers Property.

 

Extraordinary Assumption.  In connection with the preparation of its January 2011 supplemental letter of the Twin Lake Towers Property, CRA inspected the property on December 20, 2010. CRA noted that a physical inspection of the Twin Lake Towers Property and its environs was not conducted in conjunction with the May 2011 supplemental letter or the October 2011 supplemental letter, and that it is assumed for purposes of the May 2011 supplemental letter and the October 2011 supplemental letter that the Twin Lake Towers Property is in a similar state of repair and condition, and that neighborhood conditions and composition are consistent with observations noted on December 20, 2010.

 

Valuation under Income Capitalization Approach.  Using the income capitalization approach, CRA performed a direct capitalization analysis to derive a value for the Twin Lake Towers Property. The direct capitalization analysis resulted in a valuation conclusion for the Twin Lake Towers Property of approximately $47,200,000 as of October 1, 2011.

The assumptions employed by CRA to determine the value of the Twin Lake Towers Property under the income capitalization approach using a direct capitalization analysis included:

 

 

 

 

 

 

 

 

 

Using a direct capitalization analysis, CRA calculated the value of the Twin Lake Towers Property by dividing the stabilized net operating income of $2,952,338 by the concluded capitalization rate of 6.25%.

 

CRA calculated the value conclusion of the Twin Lake Towers Property under the income capitalization approach of approximately $47,200,000 as of October 1, 2011.

 

Valuation Under Sales Comparison Approach.  CRA estimated the property value of the Twin Lake Towers Property under the sales comparison approach by analyzing sales from the influencing market that were most similar to the Twin Lake Towers Property in terms of age, size, tenant profile and location. In addition to the sales outlined in the May 2011 Supplemental Letter, CRA researched and analyzed two recent comparable transactions. CRA reported that the sales comparison approach was utilized as a means of support to the value conclusion rendered for the Twin Lake Towers Property via the income capitalization approach.

 

The sales comparison approach resulted in a valuation conclusion for the Twin Lake Towers Property of approximately $44,900,000 as of October 1, 2011.

 

In reaching a valuation conclusion for the Twin Lake Towers Property, CRA examined and analyzed comparable sales of five properties in the influencing market. The sales reflected per unit unadjusted sales prices ranging from $71,429 to $120,833. After adjustment, the comparable sales illustrated a range from $103,714 to $115,917 per unit, with mean and median adjusted sale prices of $111,447 and $112,946 per unit, respectively. CRA estimated a value of $112,500 per unit. Applied to the Twin Lake Towers Property’s 399 units, this resulted in CRA’s total value estimate for the Twin Lake Towers Property of approximately $44,900,000 as of October 1, 2011.

 

Reconciliation of Values and Conclusion of Appraisal.  For the appraisal of the Twin Lake Towers Property, CRA placed primary emphasis on the value indicator produced by the income capitalization approach to valuation, and the direct capitalization method was given greatest consideration in the conclusion of value for this approach. CRA relied secondarily on the sales comparison approach, and reported that the value conclusion derived pursuant to the sales comparison approach is utilized as a means to support the value conclusion rendered for the Twin Lake Towers Property pursuant to the income capitalization approach. The income capitalization approach using a direct capitalization analysis resulted in a value of $47,200,000, and the sales comparison approach resulted in a value of $44,900,000. CRA concluded that the market value of the Twin Lake Towers Property as of October 1, 2011 was $47,200,000.

 

Hunters Glen Property

 

Summary of Independent Appraisal of the Hunters Glen Property.  KTR performed a complete appraisal of the Hunters Glen Property. The appraisal report of the Hunters Glen Property is dated October 20, 2011. The appraisal report provides an estimate of the property’s market value as of October 1, 2011. The summary set forth below describes the material conclusions reached by KTR based on the value determined under the valuation approaches and subject to the assumptions and limitations described below. According to KTR’s report, the estimated market value of the Hunters Glen Property was $92,000,000 as of October 1, 2011. Previous appraisal

reports by KTR of the Hunters Glen Property, dated March 17, 2011 and June 1, 2011, indicated that the estimated market value of the Hunters Glen Property was $91,000,000 as of March 4, 2011 and $92,000,000 as of June 1, 2011, respectively. The increase in the estimated market value of the Hunters Glen Property is mainly due to changes in the assumptions employed by KTR to determine the value of the Hunters Glen Property (including a lower allowance attributable to loss to lease). The following is a summary of the appraisal report dated October 20, 2011. There is no present intention to update the appraisal report. The Aimco Entities are not aware of any events that have occurred or conditions that have changed since the date of the appraisal report that may have caused a material change in the value of the Hunters Glen Property.

 

Extraordinary Assumption.  In connection with the preparation of its March 2011 appraisal report of the Hunters Glen Property, KTR inspected the property on March 4, 2011. KTR noted that the scope of work of the June 2011 appraisal report and the October 2011 appraisal report of the Hunters Glen Property did not include a physical inspection of the Hunters Glen Property, and that the values derived in the reports are based on the extraordinary assumption that the physical condition of the Hunters Glen Property has not materially changed since March 4, 2011.

 

Valuation under Income Capitalization Approach.  Using the income capitalization approach, KTR performed a direct capitalization analysis to derive a value for the Hunters Glen Property.

 

The direct capitalization analysis resulted in a valuation conclusion for the Hunters Glen Property of approximately $91,800,000 as of October 1, 2011.

 

The assumptions employed by KTR to determine the value of the Hunters Glen Property under the income capitalization approach using a direct capitalization analysis included:

 

 

 

 

 

 

 

 

 

Using a direct capitalization analysis, KTR calculated the value of the Hunters Glen Property by dividing the stabilized net operating income of $5,505,639 by the concluded overall capitalization rate of 6.00%.

 

KTR calculated the value conclusion of the Hunters Glen Property under the income capitalization approach of approximately $91,800,000 as of October 1, 2011.

 

Valuation Under Sales Comparison Approach.  KTR estimated the property value of the Hunters Glen Property under the sales comparison approach by analyzing sales from the influencing market that were most similar to the Hunters Glen Property in terms of age, size, tenant profile and location. KTR reported that, due to the insignificant average unit size disparity between the Hunters Glen Property and the comparable sales, it considered that a price per unit comparison was reliable.

 

The sales comparison approach resulted in a valuation conclusion for the Hunters Glen Property of approximately $94,000,000 as of October 1, 2011.

 

In reaching a valuation conclusion for the Hunters Glen Property, KTR examined and analyzed comparable sales of four properties in the influencing market. The sales reflected per unit unadjusted sales prices ranging from $93,487 to $125,000. After adjustment, the comparable sales illustrated a range from $105,896 to $118,750 per unit. KTR reported

that one of the sales was a portfolio sale of three properties in which two of the buildings were located in the same town as the Hunters Glen Property. KTR also reported that two of the sales are of properties located in the neighborhood of the Hunters Glen Property and that these sales indicated a value range of $105,896 to $108,143 per unit. KTR also reported that it placed the greatest reliance on one of these three sales as it is the most recent transaction in the immediate market of the Hunters Glen Property and required the least adjustments. KTR estimated a value of $105,000 per unit. Applied to the Hunters Glen Property, 896 total units, this resulted in KTR’s total value estimate for the Hunters Glen Property of approximately $94,000,000 as of October 1, 2011.

 

Reconciliation of Values and Conclusion of Appraisal.  For the appraisal of the Hunters Glen Property, KTR relied principally on the income capitalization approach to valuation, and the direct capitalization method was given greatest consideration in the conclusion of value for this approach. While KTR granted some weight to the sales comparison approach, KTR noted that less weight was accorded to this approach than otherwise might be typical given the degree of adjustments necessary and the lack of directly comparable sales. The income capitalization approach using a direct capitalization analysis result in a value of $91,800,000, and the sales comparison approach resulted in a value of $94,000,000, each as of October 1, 2011. KTR concluded that the market value of the Hunters Glen Property as of October 1, 2011 was $92,000,000.

 

Assumptions, Limitations and Qualifications of CRA’s and KTR’s Valuations.  In preparing their respective appraisals, CRA and KTR relied, without independent verification, on the information furnished by others. Each of CRA’s and KTR’s appraisal reports was subject to, among others, the following assumptions and limiting conditions: no responsibility was assumed for the legal description or for matters including legal or title considerations, and title to each property was assumed to be good and marketable unless otherwise stated; each property was appraised free and clear of any or all liens or encumbrances unless otherwise stated; responsible ownership and competent property management were assumed; all engineering was assumed to be correct; there were no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable, and no responsibility was assumed for such conditions or for arranging for engineering studies that may be required to discover them; there was full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance was stated, defined, and considered in the appraisal report; all applicable zoning and use regulations and restrictions have been complied with, unless nonconformity had been stated, defined, and considered in the appraisal report; all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in each report was based; the utilization of the land and improvements is within the boundaries or property lines of the property described and that there is no encroachment or trespass unless noted in either report; the distribution, if any, of the total valuation in each report between land and improvements applies only under the respective stated program of utilization; unless otherwise stated in each report, the existence of hazardous substances, including without limitation, asbestos, polychlorinated biphenyls, petroleum leakage, or agricultural chemicals, which may or may not be present on each property, or other environmental conditions, were not called to the attention of nor did the appraiser become aware of such during the appraiser’s inspection, and the appraiser had no knowledge of the existence of such materials on or in the property unless otherwise stated; the appraiser has not made a specific compliance survey and analysis of this property to determine whether or not it is in conformity with the various detailed requirements of the Americans with Disabilities Act; and former personal property items such as kitchen and bathroom appliances were, at the time of each appraisal report, either permanently affixed to the real estate or were implicitly part of the real estate in that tenants expect the use of such items in exchange for rent and never gain any of the rights of ownership, and the intention of the owners is not to remove the articles which are required under the implied or express warranty of habitability.

 

Compensation of Appraisers.  CRA’s fee for the appraisal of the Twin Lake Towers Property was approximately $20,300. KTR’s fee for the appraisal of the Hunters Glen Property was approximately $21,500. Aimco OP paid for the costs of the appraisals. Neither CRA’s nor KTR’s fee for the appraisals was contingent on the approval or completion of the merger. Aimco OP also has agreed to indemnify CRA and KTR for certain liabilities that may arise out of the rendering of the appraisals. During the past two years, in addition to these fees, Aimco OP and its affiliates have paid CRA and KTR approximately $241,900 and $283,100, respectively, for other appraisal services, including, but not limited to, fees of approximately $146,100 and $154,600, respectively, for appraisal services related to certain other merger transactions that are being effected concurrently with this merger. Except as set forth above, during the prior two years, no material relationship has existed between CRA or KTR, on the one hand, and

AP XII or Aimco OP or any of their affiliates, on the other hand. Aimco OP believes that its relationships with CRA and KTR had no negative impact on either firm’s independence in conducting the appraisals.

 

Availability of Appraisal Reports.  You may obtain a full copy of CRA’s and KTR’s appraisals upon request, without charge, by contacting Eagle Rock Proxy Advisors, LLC, by mail at 12 Commerce Drive, Cranford, New Jersey 07016; by fax at (908) 497-2349; or by telephone at (800) 217-9608. In addition, the appraisal reports have been filed with the SEC. For more information about how to obtain a copy of the appraisal reports see “Where You Can Find Additional Information.”

 

Aimco OP retained Duff & Phelps to act as financial advisor to the boards of directors of Aimco, the general partner of Aimco OP, the Managing General Partner and the general partner of the sole member of the Non-Managing General Partner in connection with their evaluation of the proposed terms of the merger.

 

On November 15, 2011, Duff & Phelps rendered its written opinion to the boards of directors of Aimco, the general partner of Aimco OP, the Managing General Partner and the general partner of the sole member of the Non-Managing General Partner, to the effect that, as of November 15, 2011, based upon and subject to the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken, the cash consideration offered in the merger is fair from a financial point of view to the unaffiliated limited partners of AP XII.

 

The full text of the written opinion of Duff & Phelps, dated November 15, 2011, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Duff & Phelps in connection with the opinion, is attached as Annex C to this information statement/prospectus. You are encouraged to read the opinion carefully and in its entirety. The summary of Duff & Phelps’s opinion in this information statement/prospectus is qualified in its entirety by reference to the full text of the opinion.

 

Duff & Phelps’ opinion was directed to the boards of directors of Aimco, the general partner of Aimco OP, the Managing General Partner and the general partner of the sole member of the Non-Managing General Partner, and addressed only the fairness from a financial point of view of the cash consideration of $483.14 per unit, as of the date of the opinion. Duff & Phelps provided its opinion for the information and assistance of the boards of directors of Aimco, the general partner of Aimco OP, the Managing General Partner and the general partner of the sole member of the Non-Managing General Partner in connection with their evaluation of the merger. Neither Duff & Phelps’ opinion nor the summary of the opinion and the related analyses set forth in this information statement/prospectus are intended to be, and do not constitute, advice or a recommendation as to how any person should act with respect to any matters relating to the merger, or whether to proceed with the merger or any related transaction.

 

In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

 

1. Reviewed the following documents:

 

a. Reviewed AP XII’s property level internal unaudited financial statements for the nine months ended September 30, 2011 and AP XII’s property level unaudited annual financial statements for each of the three fiscal years ended December 31, 2010;

 

b. Reviewed other internal documents relating to the history, current operations, and probable future outlook of AP XII, including financial projections, provided to Duff & Phelps by the management of Aimco OP; and

 

c. Reviewed documents related to the merger, including certain portions of a draft of this information statement/prospectus, including a draft of the merger agreement dated as of November 10, 2011, and certain other documents related to the merger;

2. Reviewed the following information and/or documents related to the real estate holdings of AP XII:

 

a. Reviewed previously completed appraisal reports associated with the properties owned by AP XII prepared by KTR and CRA as of October 1, 2011 and provided to Duff & Phelps by management of Aimco OP (which appraisal reports are incorporated by reference in Exhibits 99.1 through 99.5 in this information statement/prospectus);

 

b. Reviewed facts and circumstances related to each of the properties owned by AP XII to understand factors relevant to the appraisals; and

 

c. Reviewed market data for each of the subject markets and assessed current supply and demand trends;

 

3. Reviewed the following information and/or documents related to the properties owned by AP XII:

 

a. Reviewed operating statements and balance sheets for the twelve month periods ending December 31, 2008, 2009, and 2010;

 

b. Reviewed the year-to-date operating statement and balance sheet for the nine month period ending September 30, 2011;

 

c. Reviewed budgeted financial statements for the twelve month period ending December 31, 2011;

 

d. Reviewed rent rolls prepared as of September 2011; and

 

e. Discussed the information referred to above and the background and other elements of the merger with the management of Aimco OP; and

 

4. Conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

 

In performing its analyses and rendering its opinion with respect to the merger, Duff & Phelps made certain assumptions, qualifications and limiting conditions, which included, but were not limited to, the items summarized below:

 

1. Relied upon the accuracy, completeness, reliability, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources regarding or otherwise relating to the properties owned by AP XII, AP XII, the merger and/or otherwise received by it in connection with the opinion, including information obtained from Aimco OP management, and did not independently verify such information;

 

2. Assumed that any estimates, evaluations, forecasts or projections furnished to Duff & Phelps by management of Aimco OP were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same;

 

3. Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed;

 

4. Assumed that there has been no material change in the assets, financial condition, business, or prospects of AP XII or any of its owned properties since the respective dates of the appraisal reports, the most recent financial statements and the other information made available to Duff & Phelps;

 

5. Assumed that title to the properties owned by AP XII is good and marketable, that all material licenses and related regulatory approvals that are required or advisable to be obtained with respect to the properties owned by AP XII have been obtained and are current, and that, except as expressly disclosed in the appraisal reports, the properties owned by AP XII are in compliance with applicable material zoning, use, occupancy, environmental, and similar laws and regulations;

 

6. Assumed responsible ownership and competent property management of each of the properties owned by AP XII, that, except as expressly disclosed in the appraisal reports, there are no unapparent conditions with respect to any of the properties owned by AP XII that could affect the value of such property, and that, except as

expressly disclosed in the appraisal reports, there are no hazardous substances on or near any of the properties owned by AP XII that could affect the value of such property;

 

7. Assumed that all of the conditions required to implement the merger will be satisfied and that the merger will be completed in accordance with the merger agreement without any amendments thereto or any waivers of any terms or conditions thereof; and

 

8. Assumed that each of the unaffiliated limited partners elects to receive the cash consideration offered, and therefore, Duff & Phelps made no determination as to the fair value of, or fairness with respect to the OP Unit consideration.

 

Duff & Phelps did not evaluate AP XII’s solvency or conduct an independent appraisal or physical inspection of any specific liabilities (contingent or otherwise). Duff & Phelps did not evaluate the tax consequences the merger may have on any person, including any unaffiliated limited partner, and did not take any such consequences into account in rendering the opinion. Duff & Phelps was not requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the merger, the assets, businesses or operations of AP XII, or any alternatives to the merger, (ii) negotiate the terms of the merger, or (iii) advise Aimco OP or any other party with respect to alternatives to the merger.

 

Duff & Phelps did not express any opinion as to the market price or value of AP XII’s or Aimco OP’s equity (or anything else) after the announcement or the consummation of the merger. Without limiting the generality of the foregoing, Duff & Phelps did not express any opinion as to the liquidity of, rights and/or risks associated with owning, or any other feature or characteristic of, the OP Units. The opinion should not be construed as a valuation opinion, credit rating, solvency opinion, an analysis of AP XII’s or Aimco OP’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps did not make, and assumed no responsibility to make, any representation, or render any opinion, as to any legal matter (including with respect to title to or any encumbrances relating to any of the properties owned by AP XII.

 

Duff & Phelps did not investigate any of the physical conditions of any of the properties owned by AP XII and has not made, and assumed no responsibility to make, any representation, or render any opinion, as to the physical condition of any of the properties owned by AP XII. No independent surveys of the properties owned by AP XII were conducted by Duff & Phelps. Duff & Phelps did not arrange for any engineering studies that may be required to discover any unapparent condition in the properties owned by AP XII. Duff & Phelps did not arrange for or conduct any soil analysis or geological studies or any investigation of any water, oil, gas, coal, or other subsurface mineral and use rights or conditions or arrange for or conduct any other environmental analysis, including with respect to any hazardous materials, which may or may not be present on, in or near any of the properties owned by AP XII.

 

In rendering its opinion, Duff & Phelps did not express any opinion with respect to the amount or nature of any compensation to any of Aimco OP’s and/or Aimco’s respective officers, directors, or employees, or any class of such persons, relative to the consideration offered to the unaffiliated limited partners in the merger, or with respect to the fairness of any such compensation.

 

The opinion (i) does not address the merits of the underlying business decision to enter into the merger versus any alternative strategy or transaction, (ii) does not address any transaction related to the merger, (iii) is not a recommendation as to how any party should vote or act with respect to any matters relating to the merger or any related transaction, or whether to proceed with the merger or any related transaction, and (iv) does not indicate that the consideration offered is the best possibly attainable under any circumstances; instead, the opinion merely states whether the consideration offered in the merger is within a range suggested by certain financial analyses. The decision as to whether to proceed with the merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the opinion was based.

 

Duff & Phelps prepared its opinion effective as of November 15, 2011. The opinion was necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of such date, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting the opinion which may come or be brought to the attention of Duff & Phelps after such date.

The following is a summary of the material financial analyses performed by Duff & Phelps in connection with providing its opinion. The summary of Duff & Phelps’s valuation analyses is not a complete description of the analyses underlying Duff & Phelps’s opinion. The preparation of an opinion regarding fairness is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither an opinion regarding fairness nor its underlying analyses is readily susceptible to partial analysis or summary description. Duff & Phelps arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses could create a misleading or incomplete view of the processes underlying its analyses and opinion.

 

Valuation Analysis

 

Duff & Phelps estimated the value attributable to the interests of the unaffiliated limited partners as follows:

 

 

Estimated Value of Limited Partnership Units

 

The table below provides a summary of (i) the estimated range of value for the properties owned by AP XII by applying a capitalization rate range that was 25 basis points above and below the capitalization rate used by the third party appraisers to the appropriate measure of income from the properties owned by AP XII used by the third party appraisers, (ii) a summary of the estimated fair market value of mortgage debt associated with the properties owned

by AP XII, and (iii) the proposed merger consideration (which was determined by the Aimco Entities) and Duff & Phelps’ range of value for the AP XII Units.

 

 

 

 

Based on an aggregate range of value for the properties owned by AP XII of $133.5 million to $145.0 million, Duff & Phelps estimated the range of value per AP XII Unit to be approximately $378.04 to $590.07, compared to the cash merger consideration of $483.14 per AP XII Unit.

 

Other Matters

 

By letter agreement dated June 10, 2011 between Duff & Phelps and Aimco OP, Duff & Phelps was engaged to opine, as to the fairness, from a financial point of view, to the unaffiliated limited partners of each of certain limited partnerships (including AP XII) of the cash consideration offered in the proposed merger relating to that limited partnership. Duff & Phelps was engaged based on its experience as a leading global independent provider of financial advisory and investment banking services. Duff & Phelps delivers advice principally in the areas of valuation, transactions, financial restructuring, dispute and taxation. Since 2005, Duff & Phelps has completed hundreds of valuations in the real estate investment trust and real estate operating company industry and rendered over 308 fairness opinions in transactions aggregating over $103 billion. Duff & Phelps has also rendered over 222 solvency opinions in transactions aggregating over $1.02 trillion.

 

Duff & Phelps has received a fee in the aggregate amount of $450,000 for its services with respect to all of the partnerships pursuant to this engagement (which includes a retainer in the amount of $200,000 allocated among eleven partnerships, including AP XII and a partnership that ultimately did not pursue a merger transaction, and $50,000 for a bringdown of the initial fairness opinions dated July 28, 2011) as well as reimbursement for its expenses in the amount of approximately $50,000. No portion of Duff & Phelps’ fee is contingent upon either the conclusion expressed in this (or any other) opinion or whether or not this (or any other) merger is successfully consummated. Aimco OP also has agreed to indemnify Duff & Phelps for certain liabilities that may arise out of the rendering of this opinion and any related to Duff & Phelps’ engagement. During the two years preceding the date of this opinion, Duff & Phelps has been paid approximately $199,400 for property tax consulting services by Aimco OP and its affiliates for which Duff & Phelps received customary fees and indemnification. Except as set forth above, during the two years preceding the date of this opinion, Duff & Phelps had not had any material relationship with any party to the merger for which compensation has been received or is intended to be received, nor is any such material relationship or related compensation mutually understood to be contemplated.

 

 

At the end of each calendar year, Aimco OP’s management prepares an estimated operating budget for the next calendar year for each of the properties owned by AP XII. Aimco OP’s management provided the 2011 estimated operating budgets for these properties to Duff & Phelps for use in connection with the preparation of its fairness opinion, and to CRA and KTR in connection with the preparation of their appraisals.

In preparing the 2011 estimated operating budgets, Aimco OP’s management made a number of assumptions and estimates, including the following:

 

 

Aimco OP’s management believed these assumptions and estimates were reasonable at the time the budgets were prepared, but these assumptions and estimates may not be realized and are inherently subject to significant uncertainties and contingencies, including, among others, the risks and uncertainties described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in AP XII’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, which is included as Annex G to this information statement/prospectus. All of these uncertainties and contingencies are difficult to predict and many are beyond the control of Aimco, Aimco OP and AP XII.

 

The 2011 estimated operating budgets have been prepared by, and are the responsibility of, Aimco OP’s management. The 2011 estimated operating budgets were prepared solely for internal use and not with a view toward public disclosure and, accordingly, do not comply with generally accepted accounting principles, the published guidelines of the SEC regarding projections, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Aimco’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the 2011 estimated operating budgets, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and they assume no responsibility for, and disclaim any association with, the 2011 estimated operating budgets. Furthermore, the 2011 estimated operating budgets do not take into account any circumstances or events occurring after the date they were prepared.

 

The inclusion of the 2011 estimated operating budgets in this information statement/prospectus should not be regarded as an indication that any of Aimco, Aimco OP or their respective affiliates, advisors or representatives consider the 2011 estimated operating budgets to be predictive of actual future results, and they should not be relied upon as such. There can be no assurance that the underlying assumptions will prove to be accurate or that the estimated results will be realized, and actual results likely will differ, and may differ materially, from those reflected in the 2011 estimated operating budgets. None of Aimco, Aimco OP or their respective affiliates, advisors, officers, directors or representatives undertakes any obligation to update or otherwise revise the 2011 estimated operating budgets to reflect circumstances existing after the date they were prepared, or to reflect the occurrence of future events, even if any or all of the assumptions underlying the 2011 estimated operating budgets are no longer appropriate, except as required by law.

 

In light of the foregoing factors and the uncertainties inherent in the 2011 estimated operating budgets, holders of AP XII Units are cautioned not to place undue, if any, reliance on them.

 

The following table summarizes the 2011 estimated operating budgets for each of the properties owned by AP XII:

 

 

Limited Partners are urged to review AP XII’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, which is included as Annex G to this information statement/prospectus, for information regarding AP XII’s results of operations during the nine months ended September 30, 2011, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Conflicts of Interest.  The Managing General Partner is wholly-owned by AIMCO/IPT, Inc., which in turn is wholly-owned by Aimco. Therefore, the Managing General Partner has a conflict of interest with respect to the merger. The Managing General Partner has fiduciary duties to AIMCO/IPT, Inc., the Managing General Partner’s sole stockholder and an affiliate of Aimco, on the one hand, and to AP XII and its limited partners, on the other hand. The duties of the Managing General Partner to AP XII and its limited partners conflict with the duties of the Managing General Partner to AIMCO/IPT, Inc., which could result in the Managing General Partner approving a transaction that is more favorable to Aimco than might be the case absent such conflict of interest. The Managing General Partner, in its capacity as the managing general partner of AP XII, seeks the best possible terms for AP XII’s limited partners. This conflicts with Aimco’s interest in obtaining the best possible terms for Aimco OP.

 

No independent representative was engaged to represent the unaffiliated limited partners in negotiating the terms of the merger.  If an independent advisor had been engaged, it is possible that such advisor could have negotiated better terms for AP XII’s unaffiliated limited partners.

 

The terms of the merger have not been determined in arm’s-length negotiations.  The terms of the merger, including the merger consideration, were determined through discussions between officers and directors of the Managing General Partner, on the one hand, and officers of Aimco, on the other. All of the officers and directors of the Managing General Partner are also officers of Aimco. There are no independent directors of the Managing General Partner. If the terms of the merger had been determined through arm’s-length negotiations, the terms might be more favorable to AP XII and its limited partners.

 

The merger agreement does not require approval of the merger by a majority of the unaffiliated limited partners.  Under the provisions of the AP XII partnership agreement and applicable Delaware law, the merger must be approved by a majority in interest of AP XII Units. As of November 10, 2011, there were issued and outstanding 44,718 AP XII Units, and Aimco OP and its affiliates owned 33,750 of those units, or approximately 75.47% of the units outstanding, enabling them to approve the merger without the consent or approval of any unaffiliated limited partners.

 

In connection with previous partnership merger transactions, lawsuits have been filed alleging that Aimco and certain of its affiliates breached their fiduciary duties to the unaffiliated limited partners.  In February 2011, Aimco and Aimco OP completed six partnership mergers. In each merger, the limited partners who were not affiliated with Aimco received cash or OP Units with a value calculated based on the estimated proceeds that would be available for distribution to limited partners if the partnership’s properties were sold at prices equal to their appraised values. In March 2011, counsel representing a putative class consisting of former limited partners in each of those partnerships contacted Aimco alleging that the merger transactions were unfair to the unaffiliated limited partners because the appraisals used were not of a recent date and no fairness opinions were obtained, among other reasons. Aimco denied the purported class allegations, but agreed to mediate plaintiffs’ claims in June 2011, and agreed to settle this dispute by paying the unaffiliated limited partners additional consideration of $7.5 million. The merger contemplated hereby may also be subject to claims that the merger consideration is unfair and a result of self-dealing.

 

The merger consideration was determined based on the appraised values of the properties as of the date of the respective appraisals, and there can be no assurance that the value of the properties will not increase as of the date of the consummation of the merger. CRA and KTR appraised the Twin Lake Towers Property and the Hunters Glen Property, respectively, as of October 1, 2011. The Managing General Partner calculated the amount of the merger consideration based on the appraised values of the properties as of such date. The Managing General Partner has not made any other attempt to assess or account for any changes in the value of the properties since the date of the appraisals in its determination of the merger consideration.

 

Alternative valuations of AP XII’s properties might exceed the appraised values relied on to determine the merger consideration.  Aimco determined the merger consideration in reliance on the appraised values of AP XII’s properties. See, “Special Factors — The Appraisals,” beginning on page 8, for more information about the

appraisals. Although independent appraisers were engaged to perform complete appraisals of the properties, valuation is not an exact science. There are a number of other methods available to value real estate, each of which may result in different valuations of a property. Also, others using the same valuation methodology could make different assumptions and judgments, and obtain different results. A January 2011 lender appraisal for the Hunters Glen Property indicated a market value of $102,000,000 as of November 19, 2010, which is higher than the value relied on to determine the merger consideration. However, this lender appraisal is more than ten months old and does not account for certain changes in the operating metrics of the Hunters Glen Property related to operational challenges in the second half of 2010.

 

Actual sales prices of AP XII’s properties could exceed the appraised values that Aimco relied on to determine the merger consideration.  No recent attempt has been made to market the Twin Lake Towers Property to unaffiliated third parties. There can be no assurance that the Twin Lake Towers Property could not be sold for a value higher than the appraised value used to determine the merger consideration if it was marketed to third-party buyers interested in properties of this type. In March 2009, the Managing General Partner considered a sale of the Hunters Glen Property, but determined that it would most likely not be able to find any buyers at acceptable prices.

 

The merger consideration may not represent the price limited partners could obtain for their AP XII Units in an open market.  There is no established or regular trading market for AP XII Units, nor is there another reliable standard for determining the fair market value of the AP XII Units. The merger consideration does not necessarily reflect the price that AP XII limited partners would receive in an open market for their AP XII Units. Such prices could be higher than the aggregate value of the merger consideration.

 

Limited partners may recognize taxable gain in the merger that could exceed the merger consideration.  Limited partners who elect to receive cash in the merger will recognize gain or loss equal to the difference between their “amount realized” and their adjusted tax basis in the AP XII Units sold. The resulting tax liability could exceed the value of the cash received in the merger.

 

Limited partners in certain jurisdictions will not be able to elect OP Units.  In those states where the offering of the OP Units hereby is not permitted, residents of those states will receive only the cash consideration in the merger.

 

For a description of risks related to an investment in Aimco and Aimco OP, please see the information set forth under “Part I — Item 1A. Risk Factors” in the Annual Reports on Form 10-K for the year ended December 31, 2010 of each of Aimco and Aimco OP. Aimco’s Annual Report is incorporated herein by reference and is available electronically through the SEC’s website, www.sec.gov, or by request to Aimco. Aimco OP’s Annual Report on Form 10-K for the year ended December 31, 2010 (excluding the report of the independent registered public accounting firm, the financial statements and the notes thereto), is included as Annex H to this information statement/prospectus.

 

There are restrictions on the ability to transfer OP Units, and there is no public market for Aimco OP Units.  The Aimco OP partnership agreement restricts the transferability of OP Units. Until the expiration of a one-year holding period, subject to certain exceptions, investors may not transfer OP Units without the consent of Aimco OP’s general partner. Thereafter, investors may transfer such OP Units subject to the satisfaction of certain conditions, including the general partner’s right of first refusal. There is no public market for the OP Units. Aimco OP has no plans to list any OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. If a market for the OP Units develops and the OP Units are considered “readily tradable” on a “secondary market (or the substantial equivalent thereof),” Aimco OP would be classified as a publicly traded partnership for U.S. federal income tax purposes, which could have a material adverse effect on Aimco OP.

 

Cash distributions by Aimco OP are not guaranteed and may fluctuate with partnership performance.  Aimco OP makes quarterly distributions to holders of OP Units (on a per unit basis) that generally are equal to dividends paid on the Aimco common stock (on a per share basis). However, such distributions will not necessarily continue to be equal to such

dividends. Although Aimco OP makes quarterly distributions on its OP Units, there can be no assurance regarding the amounts of available cash that Aimco OP will generate or the portion that its general partner will choose to distribute. The actual amounts of available cash will depend upon numerous factors, including profitability of operations, required principal and interest payments on our debt, the cost of acquisitions (including related debt service payments), its issuance of debt and equity securities, fluctuations in working capital, capital expenditures, adjustments in reserves, prevailing economic conditions and financial, business and other factors, some of which may be beyond Aimco OP’s control. Cash distributions depend primarily on cash flow, including from reserves, and not on profitability, which is affected by non-cash items. Therefore, cash distributions may be made during periods when Aimco OP records losses and may not be made during periods when it records profits. The Aimco OP partnership agreement gives the general partner discretion in establishing reserves for the proper conduct of the partnership’s business that will affect the amount of available cash. Aimco is required to make reserves for the future payment of principal and interest under its credit facilities and other indebtedness. In addition, Aimco OP’s credit facility limits its ability to distribute cash to holders of OP Units. As a result of these and other factors, there can be no assurance regarding actual levels of cash distributions on OP Units, and Aimco OP’s ability to distribute cash may be limited during the existence of any events of default under any of its debt instruments.

 

Holders of OP Units are limited in their ability to effect a change of control.  The limited partners of Aimco OP are unable to remove the general partner of Aimco OP or to vote in the election of Aimco’s directors unless they own shares of Aimco. In order to comply with specific REIT tax requirements, Aimco’s charter has restrictions on the ownership of its equity securities. As a result, Aimco OP limited partners and Aimco stockholders are limited in their ability to effect a change of control of Aimco OP and Aimco, respectively.

 

Holders of OP Units have limited voting rights.  Aimco OP is managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of OP Units have only limited voting rights on matters affecting Aimco OP’s business. Such matters relate to certain amendments of the partnership agreement and certain transactions such as the institution of bankruptcy proceedings, an assignment for the benefit of creditors and certain transfers by the general partner of its interest in Aimco OP or the admission of a successor general partner. Holders of OP Units have no right to elect the general partner on an annual or other continuing basis, or to remove the general partner. As a result, holders of OP Units have limited influence on matters affecting the operation of Aimco OP, and third parties may find it difficult to attempt to gain control over, or influence the activities of, Aimco OP.

 

Holders of OP Units are subject to dilution.  Aimco OP may issue an unlimited number of additional OP Units or other securities for such consideration and on such terms as it may establish, without the approval of the holders of OP Units. Such securities could have priority over the OP Units as to cash flow, distributions and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of OP Units.

 

Holders of OP Units may not have limited liability in specific circumstances.  The limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that Aimco OP had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the OP Unitholders as a group to make specific amendments to the agreement of limited partnership or to take other action under the agreement of limited partnership constituted participation in the “control” of Aimco OP’s business, then a holder of OP Units could be held liable under specific circumstances for Aimco OP’s obligations to the same extent as the general partner.

 

Aimco may have conflicts of interest with holders of OP Units.  Conflicts of interest have arisen and could arise in the future as a result of the relationships between the general partner of Aimco OP and its affiliates (including Aimco), on the one hand, and Aimco OP or any partner thereof, on the other. The directors and officers of the general partner have fiduciary duties to manage the general partner in a manner beneficial to Aimco, as the sole stockholder of the general partner. At the same time, as the general partner of Aimco OP, it has fiduciary duties to manage Aimco OP in a manner beneficial to Aimco OP and its limited partners. The duties of the general partner of Aimco OP to Aimco OP and its partners may therefore come into conflict with the duties of the directors and

officers of the general partner to its sole stockholder, Aimco. Such conflicts of interest might arise in the following situations, among others:

 

 

Provisions in the Aimco OP partnership agreement may limit the ability of a holder of OP Units to challenge actions taken by the general partner.  Delaware law provides that, except as provided in a partnership agreement, a general partner owes the fiduciary duties of loyalty and care to the partnership and its limited partners. The Aimco OP partnership agreement expressly authorizes the general partner to enter into, on behalf of Aimco OP, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of Aimco OP and the general partner, on such terms as the general partner, in its sole and absolute discretion, believes are advisable. The latitude given in the Aimco OP partnership agreement to the general partner in resolving conflicts of interest may significantly limit the ability of a holder of OP Units to challenge what might otherwise be a breach of fiduciary duty. The general partner believes, however, that such latitude is necessary and appropriate to enable it to serve as the general partner of Aimco OP without undue risk of liability.

 

The Aimco OP partnership agreement limits the liability of the general partner for actions taken in good faith. Aimco OP’s partnership agreement expressly limits the liability of the general partner by providing that the general partner, and its officers and directors, will not be liable or accountable in damages to Aimco OP, the limited partners or assignees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. In addition, Aimco OP is required to indemnify the general partner, its affiliates and their respective officers, directors, employees and agents to the fullest extent permitted by applicable law, against any and all losses, claims, damages, liabilities, joint or several, expenses, judgments, fines and other actions incurred by the general partner or such other persons, provided that Aimco OP will not indemnify for (i) willful misconduct or a knowing violation of the law or (ii) for any transaction for which such person received an improper personal benefit in violation or breach of any provision of the partnership agreement. The provisions of Delaware law that allow the common law fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and the general partner has not obtained an opinion of counsel covering the provisions set forth in the Aimco OP partnership agreement that purport to waive or restrict the fiduciary duties of the general partner that would be in effect under common law were it not for the partnership agreement.

 

The following are among the U.S. federal income tax considerations to be taken into account in connection with an investment in OP Units. For a general discussion of material U.S. federal income tax consequences resulting

from acquiring, holding, exchanging, and otherwise disposing of OP Units, see “Material United States Federal Income Tax Considerations — Taxation of Aimco OP and OP Unitholders.”

 

Aimco OP may be treated as a “publicly traded partnership” taxable as a corporation.  If Aimco OP were treated as a “publicly traded partnership” taxed as a corporation for U.S. federal income tax purposes, material adverse consequences to the partners would result. Moreover, in such case, a holder of AP XII Units receiving OP Units in the merger would be required to recognize gain or loss on the transaction. In addition, Aimco would not qualify as a REIT for U.S. federal income tax purposes, which would have a material adverse impact on Aimco and its shareholders. Aimco believes and intends to take the position that Aimco OP should not be treated as a “publicly traded partnership” taxable as a corporation. No assurances can be given that the Internal Revenue Service, or the IRS, would not assert, or that a court would not sustain a contrary position. Accordingly, each prospective investor is urged to consult his tax advisor regarding the classification and treatment of Aimco OP as a “partnership” for U.S. federal income tax purposes.

 

The limited partners may recognize gain on the transaction.  If a limited partner of AP XII receives or is deemed to receive cash or consideration other than OP Units in connection with the merger, the receipt of such cash or other consideration may be taxable to the limited partner. Subject to certain exceptions, including exceptions applicable to periodic distributions of operating cash flow, any transfer or deemed transfer of cash by Aimco OP to the limited partner (or its owners) within two years before or after the merger, including cash paid at closing, will generally be treated as part of a disguised sale. The application of the disguised sale rules is complex and depends, in part, upon the facts and circumstances applicable to the limited partner, which Aimco has not undertaken to review. Accordingly, limited partners are particularly urged to consult with their tax advisors concerning the extent to which the disguised sale rules would apply.

 

A contribution of appreciated or depreciated property may result in special allocations to the contributing partner.  If property is contributed to Aimco OP and the adjusted tax basis of the property differs from its fair market value, then Aimco OP tax items must be specially allocated for U.S. federal income tax purposes, in a manner chosen by Aimco OP, such that the contributing partner is charged with and recognizes the unrealized gain, or benefits from the unrealized loss, associated with the property at the time of the contribution. As a result of such special allocations, the amount of net taxable income allocated to a contributing partner may exceed the amount of cash distributions, if any, to which such contributing partner is entitled.

 

The Aimco OP general partner could take actions that would impose tax liability on a contributing partner.  There are a variety of transactions that Aimco OP may in its sole discretion undertake following a property contribution that could cause the transferor (or its partners) to incur a tax liability without a corresponding receipt of cash. Such transactions include, but are not limited to, the sale or distribution of a particular property and a reduction in nonrecourse debt, or the making of certain tax elections by Aimco OP. In addition, future economic, market, legal, tax or other considerations may cause Aimco OP to dispose of the contributed property or to reduce its debt. As permitted by the Aimco OP partnership agreement, the general partner intends to make decisions in its capacity as general partner of Aimco OP so as to maximize the profitability of Aimco OP as a whole, independent of the tax effects on individual holders of OP Units.

 

An investor’s tax liability from OP Units could exceed the cash distributions received on such OP Units.  A holder of OP Units will be required to pay U.S. federal income tax on such holder’s allocable share of Aimco OP’s income, even if such holder receives no cash distributions from Aimco OP. No assurance can be given that a holder of OP Units will receive cash distributions equal to such holder’s allocable share of taxable income from Aimco OP or equal to the tax liability to such holder resulting from that income. Further, upon the sale, exchange or redemption of any OP Units, a reduction in nonrecourse debt, or upon the special allocation at the liquidation of Aimco OP, an investor may incur a tax liability in excess of the amount of cash received.

 

OP Unitholders may be subject to state, local or foreign taxation.  OP Unitholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which Aimco OP transacts business and owns property. It should be noted that Aimco OP owns properties located in a number of states and local jurisdictions, and an OP Unitholder may be required to file income tax returns in some or all of those jurisdictions. The state, local or foreign tax treatment of OP Unitholders may not conform to the U.S. federal income tax consequences of an investment in OP Units, as described in “Material United States Federal Income Tax Considerations” beginning on page 69.

 

The following table sets forth Aimco’s selected summary historical financial data as of the dates and for the periods indicated. Aimco’s historical consolidated statements of operations data set forth below for each of the five fiscal years in the period ended December 31, 2010 and the historical consolidated balance sheet data for each of the five fiscal year-ends in the period ended December 31, 2010, are derived from information included in Aimco’s Current Report on Form 8-K, filed with the SEC on November 15, 2011. Aimco’s unaudited historical consolidated statements of operations data set forth below for each of the nine months ended September 30, 2011 and 2010, and the unaudited historical consolidated balance sheet data as of September 30, 2011, are derived from information included in Aimco’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the SEC on October 28, 2011.

 

You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the consolidated financial statements and notes to the consolidated financial statements included in Aimco’s Current Report on Form 8-K, filed with the SEC on November 15, 2011, and Aimco’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the SEC on October 28, 2011, which are incorporated by reference in this information statement/prospectus. See “Where You Can Find Additional Information” in this information statement/prospectus.

 

 

 

 

 

 

The following table sets forth Aimco OP’s selected summary historical financial data as of the dates and for the periods indicated. Aimco OP’s historical consolidated statements of operations data set forth below for each of the five fiscal years in the period ended December 31, 2010 and the historical consolidated balance sheet data for each of the five fiscal year-ends in the period ended December 31, 2010, are derived from information included in Aimco OP’s Current Report on Form 8-K, filed with the SEC on November 15, 2011 and included as Annex J to this information statement/prospectus. Aimco OP’s unaudited historical consolidated statements of operations data set forth below for each of the nine months ended September 30, 2011 and 2010, and the unaudited historical consolidated balance sheet data as of September 30, 2011, are derived from information included in Aimco OP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 included as Annex I to this information statement/prospectus.

 

You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the consolidated financial statements and notes to the consolidated financial statements included in Aimco OP’s Current Report on Form 8-K, filed with the SEC on November 15, 2011, and Aimco OP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the SEC on October 28, 2011, which are included as Annex J and Annex I to this information statement/prospectus.

 

 

 

 

 

 

The following table sets forth AP XII’s selected summary historical financial data as of the dates and for the periods indicated. AP XII’s historical consolidated statements of operations and cash flow data set forth below for each of the two fiscal years in the period ended December 31, 2010 and the historical consolidated balance sheet data as of December 31, 2010 and 2009, are derived from AP XII’s consolidated financial statements included in AP XII’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. AP XII’s unaudited historical consolidated statements of operations and cash flow data set forth below for each of the nine months ended September 30, 2011 and 2010, and the unaudited historical consolidated balance sheet data as of September 30, 2011, are derived from information included in AP XII’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.

 

You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the consolidated financial statements and notes to the consolidated financial statements for the fiscal year ended December 31, 2010 included in AP XII’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on March 25, 2011, and AP XII’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, filed with the SEC on November 10, 2011, which are included as Annex F and Annex G to this information statement/prospectus. See “Where You Can Find Additional Information” in this information statement/prospectus.

 

 

Aimco common stock trades on the NYSE under the symbol “AIV.” The OP Units are not listed on any securities exchange and do not trade in an active secondary market. However, as described below, the trading price of Aimco common stock is considered a reasonable estimate of the fair market value of an OP Unit.

 

After a one-year holding period, OP Units are redeemable for shares of Aimco common stock (on a one-for-one basis) or cash equal to the value of such shares, as Aimco elects. As a result, the trading price of Aimco common stock is considered a reasonable estimate of the fair market value of an OP Unit. The number of OP Units offered in the merger with respect to each AP XII Unit was calculated by dividing the per unit cash merger consideration by the average closing price of Aimco common stock, as reported on the NYSE over the ten consecutive trading days ending on the second trading day immediately prior to the consummation of the merger. The closing price of Aimco common stock as reported on the NYSE on November 10 was $22.82.

 

The AP XII Units are not listed on any securities exchange nor do they trade in an active secondary market. The per unit cash merger consideration payable to each holder of AP XII Units is greater than the Managing General Partner’s estimate of the proceeds that would be available for distribution to limited partners of AP XII if its properties were sold at prices equal to their respective appraised values.

 

The following tables summarize the historical per share/unit information for Aimco, Aimco OP and AP XII for the periods indicated:

 

 

 

 

 

 

 

Aimco is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT. Aimco’s principal financial objective is to provide predictable and attractive returns to its stockholders. Aimco’s business plan to achieve this objective is to:

 

 

As of September 30, 2011, Aimco:

 

 

 

 

Of these properties, Aimco consolidated 199 conventional properties with 63,335 units and 160 affordable properties with 19,969 units.

 

For conventional assets, Aimco focuses on the ownership of primarily B/B+ assets. Aimco measures conventional property asset quality based on average rents of its units compared to local market average rents as reported by a third-party provider of commercial real estate performance and analysis, with A-quality assets earning rents greater than 125% of local market average, B-quality assets earning rents 90% to 125% of local market average and C-quality assets earning rents less than 90% of local market average. Aimco classifies as B/B+ those assets earning rents ranging from 100% to 125% of local market average. Although some companies and analysts within the multifamily real estate industry use asset class ratings of A, B and C, some of which are tied to local market rent averages, the metrics used to classify asset quality as well as the timing for which local markets rents are calculated may vary from company to company. Accordingly, Aimco’s rating system for measuring asset quality is neither broadly nor consistently used in the multifamily real estate industry.

 

Through its wholly-owned subsidiaries, AIMCO-GP, Inc., the general partner of Aimco OP, and AIMCO-LP Trust, Aimco owns a majority of the ownership interests in Aimco OP. As of September 30, 2011, Aimco held approximately 94% of the OP Units and high performance units, or HPUs, of Aimco OP. Aimco conducts substantially all of its business and owns substantially all of its assets through Aimco OP. Interests in Aimco OP that are held by limited partners other than Aimco include OP Units, HPUs and partnership preferred units. The holders of OP Units receive distributions, prorated from the date of issuance, in an amount equivalent to the dividends paid to holders of Aimco common stock. Holders of OP Units may redeem such units for cash or, at Aimco OP’s option, Aimco common stock. Partnership preferred units entitle the holders thereof to a preference with respect to distributions or upon liquidation. At September 30, 2011, after elimination of shares held by consolidated subsidiaries, 120,916,144 shares of Aimco common stock were outstanding and Aimco OP had 8,289,841 OP Units and HPUs outstanding for a combined total of 129,205,985 shares of Aimco common stock, OP Units and HPUs outstanding.

 

Through its wholly-owned subsidiary, AIMCO/IPT, Inc., a Delaware corporation, Aimco owns all of the outstanding common stock of the Managing General Partner.

 

AIMCO/IPT, Inc. holds a 70% interest in AIMCO IPLP, L.P. as its general partner. AIMCO/IPT, Inc. and AIMCO IPLP, L.P. share voting and dispositive power over 14,433 AP XII Units, or approximately 32.28% of the

outstanding AP XII Units. AIMCO IPLP, L.P. also owns 100% of each of Broad River Properties, L.L.C. and Cooper River Properties, L.L.C., which own 8,002 and 4,607 AP XII Units, respectively, or approximately 17.89% and 10.30% of AP XII’s outstanding AP XII Units, respectively.

 

AIMCO AP XII Merger Sub LLC, or the Aimco Subsidiary, is a Delaware limited liability company formed on September 29, 2010, for the purpose of consummating the merger with AP XII. The Aimco Subsidiary is a direct wholly-owned subsidiary of Aimco OP. The Aimco Subsidiary has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement.

 

The names, positions and business addresses of the directors and executive officers of Aimco, Aimco OP, AIMCO-GP, Inc., AIMCO/IPT, Inc., AIMCO IPLP, L.P., Broad River Properties, L.L.C., Cooper River Properties, L.L.C. and the Aimco Subsidiary, as well as a biographical summary of the experience of such persons for the past five years or more, are set forth in Annex D attached hereto and are incorporated in this information statement/prospectus by reference. During the last five years, none of Aimco, Aimco OP, Aimco-GP, Inc., AIMCO/IPT, Inc., AIMCO IPLP, L.P., Broad River Properties, L.L.C., Cooper River Properties, L.L.C., AP XII or the General Partners nor, to the best of their knowledge, any of the persons listed in Annex D of this information statement/prospectus (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of or prohibiting activities subject to federal or state securities laws or finding any violation with respect to such laws. Additional information about Aimco is included in documents incorporated by reference into this information statement/prospectus. Additional information about Aimco OP is included in Annex H and Annex I to this information statement/prospectus. See “Where You Can Find Additional Information.”

 

The following chart represents the organizational structure of the Aimco Entities:

 

 

AP XII is a Delaware limited partnership organized on November 24, 2010, in connection with a redomestication of a predecessor limited partnership from California to Delaware in November 2010. The predecessor was organized as a California limited partnership on May 26, 1983. Commencing May 26, 1983, the predecessor of AP XII offered up to 80,000 limited partnership units at a purchase price of $1,000 per unit with a minimum purchase of 5 units pursuant to a registration statement filed with the SEC. The Managing General Partner contributed capital in the amount of $1,000 for a 1% interest in the predecessor of AP XII. The offering terminated on February 13, 1985. Upon termination of the offering, the predecessor to AP XII had sold 44,773 Units aggregating $44,773,000. AP XII’s partnership agreement provides that the partnership is to terminate on December 31, 2035, unless terminated prior to such date. The Managing General Partner is a wholly-owned subsidiary of AIMCO/IPT, which in turn is a wholly-owned subsidiary of Aimco.

 

AP XII is engaged in the business of operating and holding real estate properties for investment. At September 30, 2011, AP XII owned the following properties:

 

 

 

The average annual rental rates for each of the five years ended December 31, 2010 for each property are as follows:

 

 

The average occupancy for each of the five years ended December 31, 2010 for each property is as follows:

 

 

The average occupancy for the nine months ended September 30, 2011 and 2010 for each property is as follows:

 

 

The real estate industry is highly competitive. All of the properties are subject to competition from other residential apartment complexes in the area. The Managing General Partner believes that all of the properties are adequately insured. The residential properties are apartment complexes which lease units for terms of one year or less. As of September 30, 2011, no residential tenant leases 10% or more of the available rental space.

 

During the year ended December 31, 2010, AP XII completed approximately $198,000 of capital improvements at the Hunters Glen IV Property consisting primarily of water heaters and floor covering replacement. These improvements were funded from operating cash flow. During the year ended December 31, 2010, AP XII completed approximately $189,000 of capital improvements at the Hunters Glen V Property consisting primarily of water heaters and floor covering replacement. These improvements were funded from operating cash flow. During the year ended December 31, 2010, AP XII completed approximately $194,000 of capital improvements at the Hunters Glen VI Property consisting primarily of water heaters, HVAC upgrades and floor covering replacement. These improvements were funded from operating cash flow. During the year ended December 31, 2010, AP XII completed approximately $298,000 of capital improvements at the Twin Lake Towers Property, consisting primarily of fire safety equipment, balcony upgrades and floor covering replacement. These improvements were funded from operating cash flow.

 

During the nine months ended September 30, 2011, AP XII completed approximately $917,000 of capital improvements at the Hunters Glen Property, consisting primarily of patio and balcony upgrades, exterior painting, water heater upgrades and floor covering replacements. These improvements were funded from replacement reserves and operating cash flow. During the nine months ended September 30, 2011, AP XII completed approximately $579,000 of capital improvements at the Twin Lake Towers Property, consisting primarily of kitchen upgrades, electrical and plumbing upgrades and appliance and floor covering replacements. These improvements were funded from operating cash flow.

 

AP XII regularly evaluates the capital improvement needs of the properties, and anticipates making certain routine capital expenditures with respect to each property during the remainder of 2011. Such capital expenditures will depend on the physical conditions of the properties as well as anticipated cash flows generated by the properties. During 2011, AP XII also intends to replace the steel piping with copper piping in those units of the Twin Lake Towers Property where such work has not yet been completed, as mandated by the lender, as well as kitchen and bath work associated with the piping replacement, at an estimated cost of approximately $744,000. In addition, AP XII intends to make repairs to a retaining wall, as mandated by the lender, resurface a pool, replace the balconies, repair sidewalk concrete and renovate the laundry room, at an estimated total cost of approximately $670,000. As discussed above, a portion (but not all) of these capital improvements was completed during the nine months ended September 30, 2011. All of AP XII’s properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age.

 

The following table sets forth certain information relating to the mortgages encumbering AP XII’s properties at September 30, 2011.

 

 

 

 

 

 

AP XII presently has AP XII Units issued and outstanding. The AP XII Units are entitled to allocations of profit and loss, and distributions, relating to AP XII’s interest in the Twin Lake Towers Property and the Hunters Glen Property. As of November 10, 2011, there were 44,718 AP XII Units outstanding, and Aimco OP and its affiliates owned 33,750 of those units, or approximately 75.47% of those units.

 

AP XII distributed the following amounts during the years ended December 31, 2010 and 2009 (in thousands, except per unit data):

 

 

 

 

AP XII distributed the following amounts during the nine months ended September 30, 2011 and 2010 (in thousands, except per unit data):