sv4za
As Filed with
the Securities and Exchange Commission on November 15,
2011
Registration
No.
333-175843
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 1
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)
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Maryland
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6798
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84-1259577
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(State of other jurisdiction
of
incorporation or organization)
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(Primary standard industrial
classification code number)
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(IRS Employer
Identification Number)
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AIMCO PROPERTIES,
L.P.
(Exact name of registrant as
specified in its charter)
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Delaware
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6513
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84-1275621
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(State of other jurisdiction of
incorporation or organization)
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(Primary standard industrial
classification code number)
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(IRS Employer
Identification Number)
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4582 South Ulster Street,
Suite 1100
Denver, Colorado
80237
(303) 757-8101
(Address, including zip code,
and telephone number, including area code, of registrants
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:
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Jonathan Friedman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, CA 90071
Telephone:
(213) 687-5396
Fax:
(213) 621-5396
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Joseph Coco, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Telephone: (212) 735-3050
Fax: (917) 777-3050
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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):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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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
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering
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Aggregate
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Registration
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Securities to be Registered
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Registered(1)
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Price per Unit
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Offering Price(2)
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Fee
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Partnership Common Units of AIMCO Properties, L.P.
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$8,809,643.68
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$1,022.38(3)
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Common Stock of Apartment Investment and Management Company(2)
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(1) |
Omitted in reliance on Rule 457(o) under the Securities Act
of 1933.
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(2) |
Represents shares of Common Stock issuable upon redemption of
Partnership Common Units issued hereunder.
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(3) |
A registration fee of $990.43 was paid prior to October 1, 2011,
based on a proposed maximum offering price of $8,530,839.30 and
the then applicable fee rate. The aggregate amount of the
registration fee represents this previously paid fee plus an
additional fee of $31.95, based on the increase in the proposed
maximum offering price of $278,804.38 and the current fee rate.
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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.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
NOVEMBER 15, 2011
INFORMATION
STATEMENT/PROSPECTUS
CONSOLIDATED
CAPITAL INSTITUTIONAL PROPERTIES/3, LP
Consolidated Capital Institutional Properties/3, LP, or CCIP/3,
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 CCIP/3
Merger Sub LLC, will be merged with and into CCIP/3, with CCIP/3
as the surviving entity. The Aimco Subsidiary was formed for the
purpose of effecting this transaction and does not have any
assets or operations. CCIP/3 currently has two series of limited
partnership interests, Series A Units of Limited
Partnership Interest, or Series A Units, and Series B
Units of Limited Partnership Interest, or Series B Units.
Units of Limited Partnership Interest in CCIP/3 (whether before
or after the creation of the Series A Units and
Series B Units) are sometimes referred to herein as CCIP/3
Units. In the merger, each Series A Unit will be converted
into the right to receive, at the election of the holder of such
unit, either:
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$61.30 in partnership common units of Aimco OP, or OP Units.
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The merger consideration of $61.30 per Series A Unit was
based on independent third party appraisals of each of the two
underlying properties by either Cogent Realty Advisors, LLC, or
CRA, or KTR Real Estate Advisors LLC, or KTR, each an
independent valuation firm.
The number of OP Units offered for each Series A Unit
will be calculated by dividing $61.30 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 2.58 OP Units offered for each Series A 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. Aimcos common stock is listed and traded on
the NYSE under the symbol AIV.
In the merger, Aimco OPs interest in the Aimco Subsidiary
will be converted into Series A Units. As a result, after
the merger, Aimco OP will own all of the outstanding
Series A Units. The Series B Units will not be
affected by the merger and will remain outstanding following
consummation of the merger.
Within ten days after the effective time of the merger, Aimco OP
will prepare and mail to the former holders of Series A
Units an election form pursuant to which they can elect to
receive cash or OP Units. Holders of Series A 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 Series A Units may also use the election
form to elect to receive, in lieu of the merger consideration,
the appraised valued of their Series A Units, determined
through an arbitration proceeding.
Under Delaware law, the merger must be approved by CCIP/3s
general partner and a majority in interest of the Series A
Units. The general partner has determined that the merger is
advisable, fair to and in the best interests of CCIP/3 and its
limited partners and has approved the merger and the merger
agreement. As of November 10, 2011, there were issued and
outstanding 382,925.60 Series A Units, and Aimco OP and its
affiliates owned 239,212 of those units, or approximately 62.47%
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 CCIP/3s general partner has decided that the merger
is in the best interests of CCIP/3 and the limited partners of
CCIP/3. CCIP/3s 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 SERIES A 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 Series A
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
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Page
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47
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47
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47
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47
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SUMMARY
TERM SHEET
This summary term sheet highlights the material information
with respect to the merger, the merger agreement and the other
matters described herein. It may not contain all of the
information that is important to you. You are urged to carefully
read the entire information statement/prospectus and the other
documents referred to in this information statement/prospectus,
including the merger agreement. Aimco, Aimco OP, ConCap
Equities, Inc., or ConCap, and Aimcos subsidiaries that
may be deemed to directly or indirectly beneficially own
Series A Units are referred to herein, collectively, as the
Aimco Entities.
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The Merger: CCIP/3 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
CCIP/3, with CCIP/3 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.
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Merger Consideration: In the merger,
each Series A Unit will be converted into the right to
receive, at the election of the holder of such Series A
Unit, either $61.30 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 Series A Unit
will be calculated by dividing the $61.30 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 Series A Units
must make the same election (cash or OP Units) for all of
his or her Series A Units. For a full description of the
determination of the merger consideration, see The
Merger Determination of Merger Consideration
beginning on page 43.
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Fairness of the Merger: Although the
Aimco Entities have interests that may conflict with those of
CCIP/3s
unaffiliated limited partners, each of the Aimco Entities
believe that the merger is fair to the unaffiliated limited
partners of CCIP/3. See Special Factors
Fairness of the Transaction beginning on page 6. The
merger consideration of $61.30 per Series A Unit was based
on independent third party appraisals of each of the two
underlying properties by either CRA or KTR, each an independent
valuation firm.
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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 and the general partner of CCIP/3 to the effect that, as of
November 15, 2011, the cash consideration of $61.30 per
unit is fair, from a financial point of view, to the
unaffiliated limited partners of CCIP/3. The full text of
Duff & Phelpss 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 & Phelpss opinion, and the section entitled
Special Factors Opinion of Financial
Advisor beginning on page 14, carefully and in their
entirety. Duff & Phelpss opinion was directed to
the boards of directors of Aimco, the general partner of Aimco
OP and the general partner of CCIP/3, and addresses only the
fairness to the unaffiliated limited partners of CCIP/3, from a
financial point of view, of the cash consideration of $61.30 per
unit as of the date of the opinion. Duff &
Phelpss 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.
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Effects of the Merger: After the
merger, Aimco OP will own all of the outstanding Series A
Units. As a result, after the merger, you will cease to have any
rights with respect to the Series A Units. The
Series B Units will not be affected by the merger and will
remain outstanding following consummation of the merger. See
Special Factors Effects of the Merger,
beginning on page 5.
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Appraisal Rights: Pursuant to the terms
of the merger agreement, Aimco OP will provide each limited
partner that holds Series A Units 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 partners Series A Units in
connection with the merger. See The Merger
Appraisal Rights, beginning on page 45. A description
of the appraisal
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rights being provided, and the procedures that a limited partner
that holds Series A Units must follow to seek such rights,
is attached to this information statement/prospectus as
Annex B.
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List of Investors: Under CCIP/3s
partnership agreement and Delaware law, a limited partner has
the right to obtain by mail, free of charge, a list of the names
and addresses and interests owned of the limited partners. This
list may be obtained by making written request to ConCap
Equities, Inc.,
c/o Eagle
Rock Proxy Advisors, LLC, 12 Commerce Drive, Cranford, New
Jersey 07016, or by fax at
(908) 497-2349.
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Consolidated Capital Institutional Properties/3, LP, or CCIP/3,
is a Delaware limited partnership formed on October 2,
2008, following a redomestication of the partnership from
California to Delaware. CCIP/3 owns and operates two investment
properties: the Cedar Rim Apartments, which consists of a
104 unit apartment project located in New Castle,
Washington, or the Cedar Rim Property; and the Tamarac Village
Apartments, a 564 unit apartment project located in Denver,
Colorado, or the Tamarac Village Property. As further described
below, on June 21, 2011, CCIP/3 sold the Lamplighter Park
Apartments, a 174 unit apartment project located in
Bellevue, Washington, or the Lamplighter Park Property, to a
third party for a total sales price of $25,125,000. Holders of
CCIP/3s Series A Units are entitled to distributions
and allocations of gain and loss with respect to the Cedar Rim
Property and the Tamarac Village Property. Holders of
CCIP/3s Series B Units are entitled to distributions
and allocations of gain and loss with respect to the Lamplighter
Park Property. See Information About Consolidated Capital
Institutional Properties/3, beginning on page 34.
CCIP/3s principal address is 55 Beattie Place,
P.O. Box 1089, Greenville, South Carolina 29602, and
its telephone number is
(864) 239-1000.
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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. Aimcos
principal financial objective is to provide predictable and
attractive returns to its stockholders. Aimcos common
stock is listed and traded on the NYSE under the symbol
AIV. See Information about the Aimco
Entities, beginning on page 32. Aimcos
principal address is 4582 South Ulster Street, Suite 1100,
Denver, Colorado 80237, and its telephone number is
(303) 757-8101.
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AIMCO Properties, L.P., or Aimco OP, is a Delaware limited
partnership which, through its operating divisions and
subsidiaries, holds substantially all of Aimcos assets and
manages the daily operations of Aimcos business and
assets. See Information about the Aimco Entities,
beginning on page 32. Aimco OPs principal address is
4582 South Ulster Street, Suite 1100, Denver, Colorado
80237, and its telephone number is
(303) 757-8101.
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AIMCO CCIP/3 Merger Sub LLC, or the Aimco Subsidiary, is a
Delaware limited liability company formed for the purpose of
consummating the merger with CCIP/3. The Aimco Subsidiary is a
direct wholly-owned subsidiary of Aimco OP. See
Information about the Aimco Entities, beginning on
page 32.
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Reasons for the Merger: Aimco and Aimco
OP are in the business of acquiring, owning and managing
apartment properties such as the two properties owned by CCIP/3.
Aimco and Aimco OP have decided to proceed with the merger as a
means of acquiring CCIP/3s remaining two properties 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 CCIP/3 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:
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In the absence of a transaction, limited partners of CCIP/3 that
hold Series A Units have only limited options to liquidate
their investment in CCIP/3. The Series A Units are not
traded on an exchange or other reporting system, and
transactions in the securities are limited and sporadic.
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The value of the properties owned by CCIP/3 is not sufficient to
justify its continued operation as a public company. As a public
company with a significant number of unaffiliated limited
partners, CCIP/3 incurs
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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 $200,000 per year. As a
result of the merger, Aimco OP will become the sole holder of
Series A Units and, upon termination of the Series B
Units (which is expected to occur at year end), Aimco OP will be
the sole limited partner of CCIP/3, thus allowing the
partnership to eliminate costs associated with being a public
company.
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CCIP/3 has been operating at a loss for the past several years.
Since 2009, Aimco OP has made loans of approximately $947,000 to
CCIP/3 to help fund capital improvements and operating expenses,
of which approximately $189,000 was unpaid as of
October 31, 2011. CCIP/3 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 CCIP/3, they will have greater flexibility in
financing and operating its properties.
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Conflicts of Interest: ConCap is the
general partner of CCIP/3 and is wholly-owned by AIMCO/IPT,
Inc., which in turn is wholly-owned by Aimco. Therefore, ConCap
has a conflict of interest with respect to the merger. ConCap
has fiduciary duties to AIMCO/IPT, Inc., ConCaps sole
stockholder and an affiliate of Aimco, on the one hand, and to
CCIP/3 and its limited partners, on the other hand. The duties
of ConCap to CCIP/3 and its limited partners conflict with the
duties of ConCap to AIMCO/IPT, Inc., which could result in the
ConCap 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 44.
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Risk Factors: In evaluating the merger
agreement and the merger, CCIP/3 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:
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Aimco owns ConCap, the general partner of CCIP/3. As a result,
ConCap 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 CCIP/3s
limited partners who hold Series A Units.
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CCIP/3 limited partners who receive cash may recognize taxable
gain in the merger and that gain could exceed the merger
consideration.
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There are a number of significant differences between
Series A 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 Series A Units and Aimco
OP Units, beginning on page 65.
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CCIP/3 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.
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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 Series A
Units will be treated as a sale of such Series A Units by
the holder thereof, and any exchange of Series A 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.
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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.
3
SPECIAL
FACTORS
Purposes,
Alternatives and Reasons for the Merger
Aimco and Aimco OP are in the business of acquiring, owning and
managing apartment properties such as the two properties owned
by CCIP/3. Aimco and Aimco OP have decided to proceed with the
merger as a means of acquiring CCIP/3s remaining two
properties 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 CCIP/3 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:
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In the absence of a transaction, limited partners of CCIP/3 that
hold Series A Units have only limited options to liquidate
their investment in CCIP/3. The Series A Units are not
traded on an exchange or other reporting system, and
transactions in the securities are limited and sporadic.
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The value of the properties owned by CCIP/3 is not sufficient to
justify its continued operation as a public company. As a public
company with a significant number of unaffiliated limited
partners, CCIP/3 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 $200,000 per year. As a
result of the merger, Aimco OP will become the sole holder of
Series A Units and, upon termination of the Series B
Units (which is expected to occur at year end), Aimco OP will be
the sole limited partner of CCIP/3, thus allowing the
partnership to eliminate costs associated with being a public
company.
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CCIP/3 has been operating at a loss for the past several years.
Since 2009, Aimco OP has made loans of approximately $947,000 to
CCIP/3 to help fund capital improvements and operating expenses,
of which approximately $189,000 was unpaid as of
October 31, 2011. CCIP/3 may receive additional advances of
funds from Aimco OP, although Aimco OP is not obligated to
provide such advances. The Aimco Entities do not believe that
CCIP/3 can obtain financing from an independent third party. If
the Aimco Entities acquire 100% ownership of CCIP/3, they will
have greater flexibility in financing and operating its
properties.
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Before deciding to proceed with the merger, ConCap and the other
Aimco Entities considered the alternatives described below:
Continuation of CCIP/3 as a Public Company Operating the
Properties. ConCap and the Aimco Entities did not
consider operating CCIP/3 as a public company in the long term
as a viable alternative primarily because of the costs
associated with preparing financial statements, tax returns,
periodic SEC reports and other expenses. If CCIP/3 is unable to
generate sufficient funds to cover operating expenses, advances
from Aimco OP may not be available in the future.
Liquidation of CCIP/3. As discussed above,
ConCap and the other Aimco Entities considered a liquidation of
CCIP/3 in which CCIP/3s properties would be marketed and
sold to third parties for cash, with any net proceeds remaining
after payment of all liabilities distributed to CCIP/3s
limited partners. The primary advantage of such a transaction
would be that the sale prices would reflect arms-length
negotiations and might therefore be higher than the appraised
values which have been used to determine the merger
consideration. ConCap 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 CCIP/3 in connection with
marketing and selling the properties; and (iii) the fact
that limited partners would recognize taxable gain on the sales.
ConCap and the other Aimco Entities evaluated a sale of the
Tamarac Village Property to third parties in mid-2009, and
received offers at that time to purchase the Tamarac Village
Property for purchase prices ranging from $24,000,000 in cash to
$29,000,000 in cash plus the assumption of debt. ConCap
determined at the time that those offers were not acceptable,
and was unable to find a third-party buyer that was willing to
buy the property at a price that was acceptable to ConCap. Also,
ConCap determined that an assumption of the existing loans would
require a partial loan paydown because of lender
loan-to-value
requirements. Such a paydown would have triggered a prepayment
penalty (at the time that ConCap
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was evaluating a sale of the property, the estimated prepayment
penalties would have been approximately $5 million), that
would have resulted in reduced net proceeds to CCIP/3 from the
sale.
Contribution of properties to Aimco OP. The
Aimco Entities considered a transaction in which CCIP/3s
properties would be contributed to Aimco OP in exchange for
OP Units. The primary advantage of such a transaction would
be that CCIP/3 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.
Effects
of the Merger
The Aimco Entities believe that the merger will have the
following benefits and detriments to unaffiliated limited
partners of CCIP/3 who hold Series A Units, CCIP/3 and the
Aimco Entities:
Benefits to Unaffiliated Limited Partners. The
merger is expected to have the following principal benefits to
unaffiliated limited partners of CCIP/3 who hold Series A
Units:
Liquidity. Limited partners are given a choice
of merger consideration and may elect to receive either cash or
OP Units in the merger in exchange for their Series A
Units, 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 in exchange for their Series A
Units will have the opportunity to participate in Aimco OP,
which has a more diversified property portfolio than CCIP/3.
Benefits to CCIP/3. The merger is expected to
have the following principal benefits to CCIP/3:
Elimination of Costs Associated with SEC Reporting
Requirements and Multiple Limited Partners. As
discussed above, following consummation of the merger and upon
termination of the Series B Units (which is expected to
occur at year end), Aimco OP will be the sole limited partner of
CCIP/3, at which point CCIP/3 will cease filing periodic reports
with the SEC. As a result, CCIP/3 will then 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 $200,000 per year.
Benefits to the Aimco Entities. The merger is
expected to have the following principal benefits to the Aimco
Entities:
Increased Interest in CCIP/3. Upon completion
of the merger, Aimco OP will be the sole holder of Series A
Units. As a result, the Aimco Entities will receive all of the
benefit from any future appreciation in value of CCIP/3s
remaining two 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
of CCIP/3 who hold Series A Units:
Taxable Gain. Limited partners who receive the
cash consideration in exchange for their Series A Units 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 the properties of CCIP/3 subject
to the merger.
Risks Related to OP Units. Limited
partners who receive OP Units in the merger in exchange for
their Series A Units 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. ConCap is the
general partner of CCIP/3 and is wholly-owned by AIMCO/IPT,
Inc., which in turn is wholly-owned by Aimco. Therefore,
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ConCap has a conflict of interest with respect to the merger.
ConCap has fiduciary duties to AIMCO/IPT, Inc., ConCaps
sole stockholder and an affiliate of Aimco, on the one hand, and
to CCIP/3 and its limited partners, on the other hand. The
duties of ConCap to CCIP/3 and its limited partners conflict
with the duties of ConCap to AIMCO/IPT, Inc., which could result
in the ConCap 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
of CCIP/3 that hold Series A Units. If an independent
advisor had been engaged, it is possible that such advisor could
have negotiated better terms for CCIP/3s unaffiliated
limited partners that hold Series A Units.
Detriments to CCIP/3. The merger is not
expected to have any detriments to CCIP/3.
Detriments to the Aimco Entities. The merger
is expected to have the following principal detriments to the
Aimco Entities:
Increased Interest in CCIP/3. Upon completion
of the merger and the distribution of the remaining net proceeds
attributable to the Series B Units, the Aimco
Entities interest in the net book value of CCIP/3 will
increase from 65.42% to 100%, or from a deficit of $8,018,000 to
a deficit of $12,256,000 as of December 31, 2010, and their
interest in the losses from continuing operations of CCIP/3 will
increase from 62.83% to 100%, or from $1,890,000 to $3,008,000
for the period ended December 31, 2010. Upon completion of
the merger, Aimco OP will own all of the outstanding
Series A Units of CCIP/3. As a result, Aimco OP will bear
the burden of all future operating or other losses of CCIP/3, as
well as any decline in the value of CCIP/3s 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 its two properties.
Material
United States Federal Income Tax Consequences of the
Merger
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.
Fairness
of the Transaction
Factors in Favor of Fairness
Determination. The Aimco Entities (including
ConCap as general partner of CCIP/3) believe that the merger is
advisable, fair to and in the best interests of CCIP/3 and its
unaffiliated limited partners. In support of such determination,
the Aimco Entities considered the following factors:
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The merger consideration of $61.30 per Series A Unit was
based on independent third party appraisals of each of the two
underlying properties by either CRA or KTR, each an independent
valuation firm.
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Duff & Phelps has delivered its written opinion to the
boards of directors of Aimco, the general partner of Aimco OP
and the general partner of CCIP/3 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 by
Duff & Phelps in connection with its opinion, the cash
consideration of $61.30 per unit is fair, from a financial point
of view, to the unaffiliated limited partners of CCIP/3.
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The merger consideration is greater than the Aimco
Entities estimate of liquidation value because there was
no deduction for certain amounts that would be payable upon an
immediate sale of the properties, such as prepayment penalties
on the mortgage debt, currently estimated to be approximately
$7,933,900 and $3,154,000 for the Tamarac Village Property and
the Cedar Rim Property, respectively.
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The merger consideration is equal to the going concern value,
calculated as the aggregate appraised value of the two
underlying properties, plus the amount of any other assets, less
the amount of CCIP/3s liabilities, including the market
value of mortgage debt (but without deducting prepayment
penalties thereon).
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The
mark-to-market
adjustment to the mortgage debt encumbering CCIP/3s two
properties is less than the prepayment penalties that would be
payable upon an immediate sale of the properties.
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The merger consideration exceeds the net book value per
Series A Unit (a deficit of $27.02 per Series A Unit
at September 30, 2011).
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Limited partners may defer recognition of taxable gain by
electing to receive 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).
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The number of OP Units issuable to limited partners in the
merger will be determined based on 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.
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Limited partners who receive the cash consideration will achieve
immediate liquidity with respect to their investment.
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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 CCIP/3.
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Although limited partners who hold Series A Units are not
entitled to dissenters appraisal rights under Delaware
law, the merger agreement provides them with contractual
dissenters appraisal rights that are similar to the
dissenters appraisal rights that are available to
stockholders in a corporate merger under Delaware law.
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Although the merger agreement may be terminated by either side
at any time, Aimco OP and the Aimco Subsidiary are very likely
to complete the merger on a timely basis.
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Unlike a typical property sale agreement, the merger agreement
contains no indemnification provisions, so there is no risk of
subsequent reduction of the proceeds.
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In contrast to a sale of the properties to a third party, which
would involve marketing and other transaction costs, Aimco OP
has agreed to pay all expenses associated with the merger.
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The merger consideration to be paid to holders of Series A
Units (together with the distribution of proceeds from the sale
of the Lamplighter Park Property to holders of Series B Units)
is greater than the prices at which CCIP/3 Units have recently
sold in the secondary market ($2.00 to $30.00 per CCIP/3 Unit)
from January 1, 2010 through November 4, 2011.
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The merger consideration to be paid to holders of Series A
Units (together with the distribution of proceeds from the sale
of the Lamplighter Park Property to holders of Series B Units)
is greater than the prices at which CCIP/3 Units have
historically sold in the secondary market ($10.00 to $40.00 per
CCIP/3 Unit) from January 1, 2009 through December 31,
2009.
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Factors Not in Favor of Fairness
Determination. In addition to the foregoing
factors, the Aimco Entities also considered the following
countervailing factors:
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ConCap, the general partner of CCIP/3, has substantial conflicts
of interest with respect to the merger as a result of
(i) the fiduciary duties it owes to unaffiliated limited
partners, who have an interest in receiving the highest possible
consideration, and (ii) the fiduciary duties it owes to its
sole stockholder, an affiliate of Aimco, which has an interest
in obtaining the two underlying properties for the lowest
possible consideration.
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The terms of the merger were not approved by any independent
directors.
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An unaffiliated representative was not retained to act solely on
behalf of the unaffiliated limited partners who hold
Series A Units for purposes of negotiating the merger
agreement on an independent, arms-length basis, which
might have resulted in better terms for the unaffiliated limited
partners.
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The merger agreement does not require the approval of any
unaffiliated limited partners.
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In calculating the merger consideration, the market value of the
mortgage debt encumbering CCIP/3s two properties was
deducted, which resulted in less merger consideration than would
have been the case if the aggregate amount outstanding was
deducted.
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Limited partners who receive the cash consideration in the
merger in exchange for their Series A Units may recognize
taxable gain that could exceed the merger consideration.
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Limited partners who receive OP Units in the merger in
exchange for their Series A Units could recognize taxable
gain if Aimco subsequently sells either of its two properties.
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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.
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CRA and KTR, the valuation firms that appraised the two
underlying properties, have performed work for Aimco OP and its
affiliates in the past, and this pre-existing relationship could
negatively impact CRAs or KTRs independence.
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The Aimco Entities did not assign relative weights to the above
factors in reaching their decision that the merger is fair to
CCIP/3 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 $61.30 per
Series A Unit is based on independent third party
appraisals of the two underlying 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 $61.30
per unit is fair, from a financial point of view, to the
unaffiliated limited partners of CCIP/3; (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 who hold
Series A Units 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
CCIP/3 Units may have sold in the secondary market because they
do not view that information as a reliable measure of value.
CCIP/3 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
of the CCIP/3 Units are not comparable to current value because
of intervening events, including the creation of two series of
CCIP/3 Units, property sales, distribution to limited partners
of proceeds and advances from ConCap.
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 holders of
Series A Units under the merger agreement that are similar
to the dissenters appraisal rights available to
stockholders in a corporate merger under Delaware law.
The
Appraisals
Selection and Qualifications of Independent
Appraisers. ConCap, in its capacity as the
general partner of CCIP/3, retained the services of CRA to
appraise the market value of the Tamarac Village Property and
the services of KTR to appraise the market value of the Cedar
Rim 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 Tamarac Village Property and KTR performed a
complete appraisal of the Cedar Rim 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. CCIP/3 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 its
respective property, CRA and KTR, among other things:
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Inspected the property and its environs;
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Reviewed demographic and other socioeconomic trends pertaining
to the city and region where the property is located;
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Examined regional apartment, office and retail market
conditions, with special emphasis on the propertys
submarket;
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Investigated lease and sale transactions involving comparable
properties in the influencing market;
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Reviewed the existing rent roll and discussed the leasing status
with the building manager and leasing agent. In addition, CRA
and KTR reviewed the propertys recent operating history
and those of competing properties;
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Utilized appropriate appraisal methodology to derive estimates
of value; and
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Reconciled the estimates of value into a single value conclusion.
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Summary of Approaches and Methodologies
Employed. The following summary describes the
approaches and analyses employed by CRA and KTR 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 Tamarac Village Property has an adequate operations history
to determine its income-producing capabilities over the near
future. KTR reported that the Cedar Rim 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
propertys 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
Tamarac Village Property and the Cedar Rim Property,
respectively. According to CRAs report, 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 propertys
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
CRAs and KTRs
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research indicated that an adequate number of comparable sales
were obtained from the local markets in which the Tamarac
Village Property and the Cedar Rim 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 CRAs and KTRs 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 Tamarac Village
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
Tamarac Village Property pursuant to the income capitalization
approach. For the appraisal of the Cedar Rim Property, KTR
reported that both the income capitalization approach and the
sales comparison approach were processed, each approach having
merit and similar limitations. KTR noted that greatest reliance
was placed upon the income capitalization approach to valuation,
and the direct capitalization approach was considered in the
conclusion of value for the property.
Tamarac
Village Property
Summary of Independent Appraisal of the Tamarac Village
Property. CRA performed a complete appraisal of
the Tamarac Village Property. The appraisal report of the
Tamarac Village Property is dated March 16, 2011, and
indicates that the estimated market value of the Tamarac Village
Property was $39,600,000 as of February 23, 2011. The
appraisal report was updated by CRA as reflected in CRAs
supplemental letters dated June 17, 2011 and October 13,
2011. The appraisal report, as updated by the supplemental
letter dated June 17, 2011, indicates that the estimated
market value of the Tamarac Village Property was $40,600,000 as
of May 31, 2011. The appraisal report, as updated by the
supplemental letter dated October 13, 2011, provides an
estimate of the propertys 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
CRAs report, as updated by the supplemental letters, the
estimated market value of the Tamarac Village Property was
$42,700,000 as of October 1, 2011. The following is a
summary of the appraisal report dated March 16, 2011, as
updated by the supplemental letters dated June 17, 2011 and
October 13, 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 13, 2011 supplemental letter that may
have caused a material change in the value of the Tamarac
Village Property.
Extraordinary Assumption. In connection with
the preparation of its March 2011 appraisal report of the
Tamarac Village Property, CRA inspected the property on
February 23, 2011. CRA noted that a physical inspection of
the Tamarac Village Property and its environs was not conducted
in conjunction with the June 2011 supplemental letter or the
October 2011 supplemental letter, and that it is assumed for
purposes of the June 2011 supplemental letter and the October
2011 supplemental letter that the Tamarac Village Property is in
a similar state of repair and condition, and that neighborhood
conditions and composition are consistent with observations
noted on February 23, 2011.
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Valuation under Income Capitalization
Approach. Using the income capitalization
approach, CRA performed a direct capitalization analysis to
derive a value for the Tamarac Village Property. The direct
capitalization analysis resulted in a valuation conclusion for
the Tamarac Village Property of approximately $42,700,000 as of
October 1, 2011.
The assumptions employed by CRA to determine the value of the
Tamarac Village Property under the income capitalization
approach using the direct capitalization method included:
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potential gross income from apartment unit rentals of $411,927
per month or $4,943,124 for the appraised year;
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a 10% allowance attributable to loss to lease;
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concession allowance of 1.0% of the gross rent potential;
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a combined vacancy and collection loss factor of 4.0%;
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estimated utility income of $298,920, or $530 per unit;
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estimated other income of $451,200, or $800 per unit;
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total estimated expenses of $2,285,813; and
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capitalization rate of 6.25%.
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Using the direct capitalization method, CRA calculated the value
of the Tamarac Village Property by dividing the stabilized net
operating income of $2,665,962 by the concluded overall
capitalization rate of 6.25%.
CRA calculated the value conclusion of the Tamarac Village
Property under the income capitalization approach of
approximately $42,700,000 as of October 1, 2011.
Valuation under Sales Comparison Approach. CRA
estimated the property value of the Tamarac Village Property
under the sales comparison approach by analyzing sales from the
influencing market that were most similar to the Tamarac Village
Property in terms of age, size, tenant profile and location. CRA
reported that the local market has been active in terms of
investment sales of similar properties, and that adequate sales
existed to formulate a value for the Tamarac Village Property
under the sales comparison approach.
The sales comparison approach resulted in a valuation conclusion
for the Tamarac Village Property of approximately $40,900,000 as
of October 1, 2011.
In reaching a valuation conclusion for the Tamarac Village
Property, CRA examined and analyzed comparable sales of five
properties in the influencing market. The sales reflected
unadjusted sales prices ranging from $60,505 to $86,528 per
unit. After adjustment, the comparable sales illustrated a value
range of $66,556 to $81,410 per unit. CRA estimated a value of
$72,500 per unit. Applied to the Tamarac Village Propertys
564 units, this resulted in CRAs total value estimate
for the Tamarac Village Property of approximately $40,900,000.
Reconciliation of Values and Conclusion of
Appraisal. For the appraisal of the Tamarac
Village Property, CRA placed primary emphasis on the value
indicator produced by the income capitalization approach in the
final conclusion of market value. 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 Tamarac Village Property pursuant to the income
capitalization approach. The income capitalization approach
using a direct capitalization analysis resulted in a value of
$42,700,000, and the sales comparison approach resulted in a
value of $40,900,000. CRA concluded that the market value of the
Tamarac Village Property as of October 1, 2011 was
$42,700,000.
Cedar
Rim Property
Summary of Independent Appraisal of the Cedar Rim
Property. KTR performed a complete appraisal of
the Cedar Rim Property. The appraisal report of the Cedar Rim
Property is dated October 14, 2011. The appraisal report
provides an estimate of the propertys 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
KTRs report, the estimated market value of the
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Cedar Rim Property was $12,000,000 as of October 1, 2011.
Previous appraisal reports by KTR of the Cedar Rim Property,
dated March 17, 2011 and June 8, 2011, indicated that the
estimated market value of the Cedar Rim Property was $11,500,000
and $11,700,000 as of March 4, 2011 and June 1, 2011,
respectively. The increase in the estimated market value of the
Cedar Rim Property is mainly due to changes in the assumptions
employed by KTR to determine the value of the Cedar Rim Property
under the income capitalization approach (including higher
potential gross income from apartment unit rentals and higher
estimated other income) and the fact that KTR placed the
greatest reliance upon the income capitalization approach to
valuation. The following is a summary of the appraisal report
dated October 14, 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 Cedar Rim Property.
Extraordinary Assumption. In connection with
the preparation of its March 2011 appraisal report of the Cedar
Rim Property, KTR inspected the property on March 4, 2011.
KTR noted that the scope of work of the subsequent appraisal
reports of the Cedar Rim Property did not include a physical
inspection of the Cedar Rim Property, and that the values
derived in those reports are based on the extraordinary
assumption that the physical condition of the Cedar Rim 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 Cedar Rim Property. The direct
capitalization analysis resulted in a valuation conclusion for
the Cedar Rim Property of approximately $12,000,000 as of
October 1, 2011.
The assumptions employed by KTR to determine the value of the
Cedar Rim Property under the income capitalization approach
using the direct capitalization method included:
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potential gross income from apartment unit rentals of $132,225
per month or $1,586,700 for the appraised year;
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a 3.0% allowance attributable to loss to lease;
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concession allowance of 4.0% of the gross rent potential;
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a combined vacancy and collection loss factor of 5.0%;
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administrative unit rental loss associated with the operation of
one administrative unit of $15,300 for the appraised year;
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estimated other income of $145,600, or $1,400 per unit;
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total estimated expenses of $866,102; and
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capitalization rate of 5.5%.
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Using the direct capitalization method, KTR calculated the value
of the Cedar Rim Property by dividing the stabilized net
operating income of $660,494 by the concluded overall
capitalization rate of 5.5%.
KTR calculated the value conclusion of the Cedar Rim Property
under the income capitalization approach of approximately
$12,000,000 as of October 1, 2011.
Valuation under Sales Comparison Approach. KTR
estimated the property value of the Cedar Rim Property under the
sales comparison approach by analyzing sales from the
influencing market that were most similar to the Cedar Rim
Property in terms of age, size, tenant profile and location. KTR
reported that the local market has been active in terms of
investment sales of similar properties, and that adequate sales
existed to formulate a value for the Cedar Rim Property under
the sales comparison approach.
The sales comparison approach resulted in a valuation conclusion
for the Cedar Rim Property of approximately $12,000,000 as of
October 1, 2011.
In reaching a valuation conclusion for the Cedar Rim Property,
KTR examined and analyzed comparable sales of four properties in
the influencing market. The sales reflected unadjusted sales
prices ranging from $101,550 to $169,889 per unit. After
adjustment, the comparable sales illustrated a value range of
$111,705 to $127,417 per unit. KTR reported that it placed the
greatest reliance on two of the sales as they required the least
aggregate and net adjustments and one of these two sales was
also the most proximate to the Cedar Rim Property. KTR reported
that
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these sales indicated a value range of $111,705 to $125,821 per
unit. KTR estimated a value of $115,000 per unit. Applied to the
Cedar Rim Propertys 104 units, this resulted in
KTRs total value estimate for the Cedar Rim Property of
approximately $12,000,000.
Reconciliation of Values and Conclusion of
Appraisal. For the appraisal of the Cedar Rim
Property, KTR reported that both the income capitalization
approach and the sales comparison approach were processed, each
approach having merit and similar limitations. KTR noted that
greatest reliance was placed upon the income capitalization
approach to valuation. The income capitalization approach using
a direct capitalization analysis resulted in a value of
$12,000,000, and the sales comparison approach resulted in a
value of $12,00,000. KTR concluded that the market value of the
Cedar Rim Property as of October 1, 2011 was $12,000,000.
Assumptions, Limitations and Qualifications of CRAs and
KTRs Valuations. In preparing their
respective appraisals, CRA and KTR relied, without independent
verification, on the information furnished by others. Each of
CRAs and KTRs appraisal reports was subject to 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
appraisers 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. CRAs fee for
the appraisal of the Tamarac Village Property was approximately
$14,300. KTRs fee for the appraisal of the Cedar Rim
Property was approximately $18,900. Aimco OP paid for the costs
of the appraisals. Neither CRAs nor KTRs fee for its
respective appraisal 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 $247,900 and $285,700, respectively,
for other appraisal services, including, but not limited to,
fees of approximately $152,100 and $157,300, 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 CCIP/3 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 firms independence in
conducting the appraisals.
Availability of Appraisal Reports. You may
obtain a full copy of CRAs and KTRs 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
13
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.
Opinion
of Financial Advisor
Aimco OP retained Duff & Phelps to act as financial
advisor to the boards of directors of Aimco, the general partner
of Aimco OP, and the general partner of CCIP/3 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, and the general partner of CCIP/3, 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 CCIP/3.
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 &
Phelpss 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,
and the general partner of CCIP/3, and addressed only the
fairness from a financial point of view of the cash
consideration of $61.30 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, and the general partner of CCIP/3 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:
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1.
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Reviewed the following documents:
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a.
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Reviewed CCIP/3s property level internal unaudited
financial statements for the nine months ended
September 30, 2011 and CCIP/3s property level
unaudited annual financial statements for each of the three
fiscal years ended December 31, 2010;
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b.
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Reviewed other internal documents relating to the history,
current operations, and probable future outlook of CCIP/3,
including financial projections, provided to Duff &
Phelps by the management of Aimco OP; and
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c.
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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;
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2.
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Reviewed the following information
and/or
documents related to the real estate holdings of CCIP/3:
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a.
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Reviewed previously completed appraisal reports associated with
the properties owned by CCIP/3 prepared by KTR and CRA as of
October 1, 2011 and provided to Duff & Phelps by
management of
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Aimco OP (which appraisal reports are incorporated by reference
in Exhibits 99.1 through 99.4 in this information
statement/prospectus);
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b.
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Reviewed facts and circumstances related to each of the
properties owned by CCIP/3 to understand factors relevant to the
appraisals; and
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c.
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Reviewed market data for each of the subject markets and
assessed current supply and demand trends;
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3.
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Reviewed the following information
and/or
documents related to the properties owned by CCIP/3:
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a.
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Reviewed operating statements and balance sheets for the twelve
month periods ending December 31, 2008, 2009, and 2010;
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b.
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Reviewed the
year-to-date
operating statement and balance sheet for the nine month period
ending September 30, 2011;
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c.
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Reviewed budgeted financial statements for the twelve month
period ending December 31, 2011;
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d.
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Reviewed rent rolls prepared as of September 2011; and
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e.
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Discussed the information referred to above and the background
and other elements of the merger with the management of Aimco
OP; and
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4.
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Conducted such other analyses and considered such other factors
as Duff & Phelps deemed appropriate.
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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:
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1.
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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 CCIP/3, CCIP/3, 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;
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2.
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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;
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3.
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Assumed that the final versions of all documents reviewed by
Duff & Phelps in draft form conform in all material
respects to the drafts reviewed;
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4.
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Assumed that there has been no material change in the assets,
financial condition, business, or prospects of CCIP/3 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;
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5.
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Assumed that, title to the properties owned by CCIP/3 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 CCIP/3 have
been obtained and are current, and that, except as expressly
disclosed in the appraisal reports, the properties owned by
CCIP/3 are in compliance with applicable material zoning, use,
occupancy, environmental, and similar laws and regulations;
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6.
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Assumed responsible ownership and competent property management
of each of the properties owned by CCIP/3, that, except as
expressly disclosed in the appraisal reports, there are no
unapparent conditions with respect to any of the properties
owned by CCIP/3 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 CCIP/3 that could affect the value of such
property;
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7.
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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
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8.
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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.
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Duff & Phelps did not evaluate CCIP/3s 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 CCIP/3, 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 CCIP/3s or Aimco OPs 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 CCIP/3s or Aimco OPs 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 CCIP/3.
Duff & Phelps did not investigate any of the physical
conditions of any of the properties owned by CCIP/3 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 CCIP/3. No independent surveys of the
properties owned by CCIP/3 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 CCIP/3.
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 CCIP/3.
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 OPs
and/or
Aimcos 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 &
Phelpss valuation analyses is not a complete description
of the analyses underlying Duff & Phelpss
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,
16
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:
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Duff & Phelps reviewed the valuation conclusions for
each of the properties owned by CCIP/3 reached in the third
party appraisals that were provided by the management of Aimco
OP and as described in greater detail under the heading
Special Factors The Appraisals and
Annex E Summary of Appraisals Table;
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Duff & Phelps review of the third party
appraisals included a review of the key assumptions used in and
the conclusions reached by the appraisals and a comparison of
such assumptions and conclusions to appropriate sources of real
estate market data including, but not limited to: market
surveys, selected comparable real estate transaction data, and
discussions with opinions of professionals in the market place.
Duff & Phelps also reviewed the valuation methodology
employed by the third party appraisers and determined it to be
appropriate;
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Duff & Phelps estimated the range of value
attributable to the interests of the unaffiliated limited
partners by adding to the range of the aggregate appraised value
of the properties owned by CCIP/3 the amount of
CCIP/3s
other non-real estate assets that were not included in the
appraisals, and subtracting the amount of
CCIP/3s
liabilities, including the market value of mortgage debt (but
without deducting any prepayment penalties thereon) and the
amount of liabilities estimated by management of Aimco OP for
expenses attributable to the properties owned by CCIP/3 that
would be incurred prior to the transactions but payable after
the transactions; and
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Duff & Phelps reviewed Aimco OP managements
estimate of the fair value of the mortgage debt associated with
the properties owned by CCIP/3, as described in greater detail
under the heading The Merger Determination of
Merger Consideration, by reviewing the valuation
methodology and the determination of the appropriate current
market yield on mortgage debt of similar type, leverage and
duration.
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Estimated
Value of Limited Partnership Units
The table below provides a summary of (i) the estimated
range of value for the properties owned by CCIP/3 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 CCIP/3 used by the third party appraisers,
(ii) a summary of the estimated fair market value of
mortgage debt associated with the properties owned
17
by CCIP/3, and (iii) the proposed merger consideration
(which was determined by the Aimco Entities) and
Duff & Phelps range of value for the
Series A Units.
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Low Value
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Proposed Value
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High Value
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% of Total
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Property Value
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Tamarac Village
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$
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41,000,000
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$
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42,700,000
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$
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44,400,000
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Cedar Rim
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11,500,000
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12,000,000
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12,600,000
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Total
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$
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52,500,000
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$
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54,700,000
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$
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57,000,000
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Debt Summary
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Book Value of Debt(1)
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$
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25,929,512
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$
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25,929,512
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$
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25,929,512
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Fair Value of Debt(1)
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31,015,149
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31,015,149
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31,015,149
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Fair Value as a % of Book
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120%
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120%
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120%
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LP Interest Summary
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Proceeds Distributable to LPs
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$
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21,294,363
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$
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23,472,363
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$
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25,749,363
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Affiliated LP Units
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239,212
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239,212
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239,212
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62
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%
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Unaffiliated LP Units
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143,714
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143,714
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143,714
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38
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%
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Total LP Units
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382,926
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382,926
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382,926
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Value Per LP Unit
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$
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55.61
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$
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61.30
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$
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67.24
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(1) |
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Includes accrued interest. |
Based on an aggregate range of value for the properties owned by
CCIP/3 of $52.5 million to $54.6 million,
Duff & Phelps estimated the range of value per
Series A Unit to be approximately $55.61 to $67.24,
compared to the cash merger consideration of $61.30 per
Series A 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 CCIP/3) 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 CCIP/3 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.
Estimated
Operating Budgets for the Properties
At the end of each calendar year, Aimco OPs management
prepares an estimated operating budget for the next calendar
year for each of the properties owned by CCIP/3. Aimco OPs
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.
18
In preparing the 2011 estimated operating budgets, Aimco
OPs management made a number of assumptions and estimates,
including the following:
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income was projected to grow in accordance with estimated rent
growth projections provided by Property & Portfolio
Research, Inc., Reis, Inc., and Axiometrics Inc. by market;
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expense growth was assumed to be 3.4% for budget year 2011;
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vacancy rates were budgeted to remain at or above 96%; and
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turnover was budgeted in accordance with historic experience at
each property.
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Aimco OPs 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 Managements Discussion
and Analysis of Financial Condition and Results of
Operations in CCIP/3s 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
CCIP/3.
The 2011 estimated operating budgets have been prepared by, and
are the responsibility of, Aimco OPs 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
Aimcos 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
Series A 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 CCIP/3:
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Property
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Tamarac Village
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Cedar Rim
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Apartments
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Apartments
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Effective Gross Income
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$
|
4,745,313
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$
|
1,629,487
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Total Expenses
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$
|
2,329,677
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$
|
830,719
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|
|
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|
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Net Operating Income
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|
$
|
2,415,636
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$
|
798,768
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Limited partners are urged to review CCIP/3s 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 CCIP/3s results of operations
during the nine months ended September 30, 2011, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
19
RISK
FACTORS
Risks
Related to the Merger
Conflicts of Interest. ConCap is the general
partner of CCIP/3 and is wholly-owned by AIMCO/IPT, Inc., which
in turn is wholly-owned by Aimco. Therefore, ConCap has a
conflict of interest with respect to the merger. ConCap has
fiduciary duties to AIMCO/IPT, Inc., ConCaps sole
stockholder and an affiliate of Aimco, on the one hand, and to
CCIP/3 and its limited partners, on the other hand. The duties
of ConCap to CCIP/3 and its limited partners conflict with the
duties of ConCap to AIMCO/IPT, Inc., which could result in the
ConCap approving a transaction that is more favorable to Aimco
than might be the case absent such conflict of interest.
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 CCIP/3s unaffiliated limited partners who
hold Series A Units.
The terms of the merger have not been determined in
arms-length negotiations. The terms of the
merger, including the merger consideration, were determined
through discussions between officers and directors of ConCap, on
the one hand, and officers of Aimco, on the other. All of the
officers and directors of ConCap are also officers of Aimco.
There are no independent directors of ConCap. If the terms of
the merger had been determined through arms-length
negotiations, the terms might be more favorable to CCIP/3 and
its limited partners who hold Series A Units.
The merger agreement does not require approval of the merger
by a majority of the unaffiliated limited
partners. Under the provisions of the CCIP/3
partnership agreement and applicable Delaware law, the merger
must be approved by a majority in interest of the Series A
Units. As of November 10, 2011, there were issued and
outstanding 382,925.60 Series A Units, and Aimco OP and its
affiliates owned 239,212 of those units, or approximately 62.47%
of the number of Series A 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 partnerships 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 value of the two remaining properties as of the date
of the 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 Tamarac Village Property and the Cedar Rim Property,
respectively, as of October 1, 2011. ConCap calculated the
amount of the merger consideration based on the appraised values
of the properties as of such date. ConCap 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 CCIP/3s 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 the two
remaining properties of CCIP/3. 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
20
methodology could make different assumptions and judgments, and
obtain different results. A February 2009 lender appraisal for
the Cedar Rim Property indicated a market value of $15,350,000
as of February 20, 2009, which is higher than the appraised
value relied on to determine the merger consideration. However,
this lender appraisal is more than two years old.
Actual sales prices of CCIP/3s properties could exceed
the appraised values that Aimco relied on to determine the
merger consideration. No recent attempt has been
made to market the Cedar Rim Property to unaffiliated third
parties. There can be no assurance that the Cedar Rim Property
could not be sold for a value higher than the appraised value
used to determine the merger consideration if it were marketed
to third-party buyers interested in properties of this type.
ConCap listed the Tamarac Village Property for sale to
third-party buyers in March 2009, and received offers at that
time to purchase the Tamarac Village Property for purchase
prices ranging from $24,000,000 in cash to $29,000,000 in cash
plus the assumption of debt. ConCap determined at the time that
those offers were not acceptable, and was unable to find a
third-party buyer that was willing to buy the property at a
price that was acceptable to ConCap. Also, ConCap determined an
assumption of the existing loans would require a partial loan
paydown because of lender
loan-to-value
requirements. Such a paydown would trigger a prepayment penalty
(at the time that ConCap was evaluating a sale of the property,
the estimated prepayment penalties would have been approximately
$5 million), that would result in reduced net proceeds to
CCIP/3 from the sale.
The merger consideration may not represent the price limited
partners could obtain for their Series A Units in an open
market. There is no established or regular
trading market for Series A Units, nor is there another
reliable standard for determining the fair market value of the
Series A Units. The merger consideration does not
necessarily reflect the price that CCIP/3 limited partners would
receive in an open market for their Series A 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 in exchange for their Series A
Units will recognize gain or loss equal to the difference
between their amount realized and their adjusted tax
basis in the Series A 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.
Risks
Related to an Investment in Aimco or Aimco OP
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. Aimcos Annual Report is incorporated herein by
reference and is available electronically through the SECs
website, www.sec.gov, or by request to Aimco. Aimco OPs
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.
Risks
Related to an Investment in OP Units
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 OPs general partner. Thereafter,
investors may transfer such OP Units subject to the
satisfaction of certain conditions, including the general
partners 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.
21
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 OPs 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 partnerships
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 OPs 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
OPs 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 Aimcos directors unless they
own shares of Aimco. In order to comply with specific REIT tax
requirements, Aimcos 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 OPs 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
OPs business, then a holder of OP Units could be held
liable under specific circumstances for Aimco OPs
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
22
officers of the general partner to its sole stockholder, Aimco.
Such conflicts of interest might arise in the following
situations, among others:
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Decisions of the general partner with respect to the amount and
timing of cash expenditures, borrowings, issuances of additional
interests and reserves in any quarter will affect whether or the
extent to which there is available cash to make distributions in
a given quarter.
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|
|
Under the terms of the Aimco OP partnership agreement, Aimco OP
will reimburse the general partner and its affiliates for costs
incurred in managing and operating Aimco OP, including
compensation of officers and employees.
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|
|
|
Whenever possible, the general partner seeks to limit Aimco
OPs liability under contractual arrangements to all or
particular assets of Aimco OP, with the other party thereto
having no recourse against the general partner or its assets.
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|
Any agreements between Aimco OP and the general partner and its
affiliates will not grant to the OP Unitholders, separate
and apart from Aimco OP, the right to enforce the obligations of
the general partner and such affiliates in favor of Aimco OP.
Therefore, the general partner, in its capacity as the general
partner of Aimco OP, will be primarily responsible for enforcing
such obligations.
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|
|
|
Under the terms of the Aimco OP partnership agreement, the
general partner is not restricted from causing Aimco OP to pay
the general partner or its affiliates for any services rendered
on terms that are fair and reasonable to Aimco OP or entering
into additional contractual arrangements with any of such
entities on behalf of Aimco OP. Neither the Aimco OP partnership
agreement nor any of the other agreements, contracts and
arrangements between Aimco OP, on the one hand, and the general
partner of Aimco OP and its affiliates, on the other, are or
will be the result of arms-length negotiations.
|
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 OPs
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.
Certain
United States Tax Risks Associated with an Investment in the OP
Units
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
23
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 a case, a holder of
Series A 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 CCIP/3 limited partner 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 investors 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
holders allocable share of Aimco OPs 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 holders 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.
24
SELECTED
SUMMARY HISTORICAL FINANCIAL DATA OF
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
The following table sets forth Aimcos selected summary
historical financial data as of the dates and for the periods
indicated. Aimcos 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 Aimcos Current Report
on
Form 8-K,
filed with the SEC on November 15, 2011. Aimcos
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 Aimcos 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
Managements 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 Aimcos Current Report on
Form 8-K,
filed with the SEC on November 15, 2011, and Aimcos
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.
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|
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|
|
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For the Nine Months
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Ended September 30,
|
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For The Years Ended December 31,
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2011
|
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2010
|
|
2010(1)
|
|
2009(1)
|
|
2008(1)
|
|
2007(1)
|
|
2006(1)
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|
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(unaudited)
|
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|
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(dollar amounts in thousands, except per share data)
|
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Consolidated Statements of Operations:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
834,521
|
|
|
$
|
812,265
|
|
|
$
|
1,092,606
|
|
|
$
|
1,082,231
|
|
|
$
|
1,128,099
|
|
|
$
|
1,063,962
|
|
|
$
|
978,692
|
|
Total operating expenses(2)
|
|
|
(702,240
|
)
|
|
|
(720,017
|
)
|
|
|
(967,144
|
)
|
|
|
(995,469
|
)
|
|
|
(1,096,498
|
)
|
|
|
(901,629
|
)
|
|
|
(825,485
|
)
|
Operating income(2)
|
|
|
132,281
|
|
|
|
92,248
|
|
|
|
125,462
|
|
|
|
86,762
|
|
|
|
31,601
|
|
|
|
162,333
|
|
|
|
153,207
|
|
Loss from continuing operations(2)
|
|
|
(100,550
|
)
|
|
|
(121,293
|
)
|
|
|
(161,725
|
)
|
|
|
(199,680
|
)
|
|
|
(117,743
|
)
|
|
|
(47,827
|
)
|
|
|
(44,129
|
)
|
Income from discontinued operations, net(3)
|
|
|
50,959
|
|
|
|
65,881
|
|
|
|
72,101
|
|
|
|
154,880
|
|
|
|
744,745
|
|
|
|
173,333
|
|
|
|
331,151
|
|
Net (loss) income
|
|
|
(49,591
|
)
|
|
|
(55,412
|
)
|
|
|
(89,624
|
)
|
|
|
(44,800
|
)
|
|
|
627,002
|
|
|
|
125,506
|
|
|
|
287,022
|
|
Net loss (income) attributable to noncontrolling interests
|
|
|
5,438
|
|
|
|
5,147
|
|
|
|
17,896
|
|
|
|
(19,474
|
)
|
|
|
(214,995
|
)
|
|
|
(95,595
|
)
|
|
|
(110,234
|
)
|
Net (income) attributable to Aimcos preferred stockholders
|
|
|
(35,429
|
)
|
|
|
(36,626
|
)
|
|
|
(53,590
|
)
|
|
|
(50,566
|
)
|
|
|
(53,708
|
)
|
|
|
(66,016
|
)
|
|
|
(81,132
|
)
|
Net (loss) income attributable to Aimcos common
stockholders
|
|
|
(79,751
|
)
|
|
|
(86,891
|
)
|
|
|
(125,318
|
)
|
|
|
(114,840
|
)
|
|
|
351,314
|
|
|
|
(40,586
|
)
|
|
|
93,710
|
|
Earnings (loss) per common share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to Aimcos
common stockholders
|
|
$
|
(0.92
|
)
|
|
$
|
(1.10
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
(1.77
|
)
|
|
$
|
(2.09
|
)
|
|
$
|
(1.39
|
)
|
|
$
|
(1.49
|
)
|
Net (loss) income attributable to Aimcos common
stockholders
|
|
$
|
(0.67
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
(1.00
|
)
|
|
$
|
3.96
|
|
|
$
|
(0.43
|
)
|
|
$
|
0.98
|
|
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net of accumulated depreciation
|
|
$
|
6,179,415
|
|
|
|
|
|
|
$
|
6,297,557
|
|
|
$
|
6,474,700
|
|
|
$
|
6,633,790
|
|
|
$
|
6,405,002
|
|
|
$
|
5,946,219
|
|
Total assets
|
|
|
7,042,702
|
|
|
|
|
|
|
|
7,378,566
|
|
|
|
7,906,468
|
|
|
|
9,441,870
|
|
|
|
10,617,681
|
|
|
|
10,292,587
|
|
Total indebtedness
|
|
|
5,259,725
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|
|
|
|
|
|
|
5,338,630
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|
|
|
5,316,303
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|
|
|
5,679,544
|
|
|
|
5,303,531
|
|
|
|
4,647,864
|
|
Total equity
|
|
|
1,201,114
|
|
|
|
|
|
|
|
1,306,772
|
|
|
|
1,534,703
|
|
|
|
1,646,749
|
|
|
|
2,048,546
|
|
|
|
2,650,182
|
|
Other Information:
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|
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|
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Dividends declared per common share(4)
|
|
$
|
0.36
|
|
|
$
|
0.20
|
|
|
$
|
0.30
|
|
|
$
|
0.40
|
|
|
$
|
7.48
|
|
|
$
|
4.31
|
|
|
$
|
2.40
|
|
Total consolidated properties (end of period)
|
|
|
359
|
|
|
|
419
|
|
|
|
399
|
|
|
|
426
|
|
|
|
514
|
|
|
|
657
|
|
|
|
703
|
|
Total consolidated apartment units (end of period)
|
|
|
83,304
|
|
|
|
93,008
|
|
|
|
89,875
|
|
|
|
95,202
|
|
|
|
117,719
|
|
|
|
153,758
|
|
|
|
162,432
|
|
Total unconsolidated properties (end of period)
|
|
|
47
|
|
|
|
59
|
|
|
|
48
|
|
|
|
77
|
|
|
|
85
|
|
|
|
94
|
|
|
|
102
|
|
Total unconsolidated apartment units (end of period)
|
|
|
5,517
|
|
|
|
6,933
|
|
|
|
5,637
|
|
|
|
8,478
|
|
|
|
9,613
|
|
|
|
10,878
|
|
|
|
11,791
|
|
25
|
|
|
(1) |
|
Certain reclassifications have been made to conform to the
September 30, 2011 financial statement presentation,
including retroactive adjustments to reflect additional
properties sold or classified as held for sale as of
September 30, 2011 as discontinued operations (see
Note 3 to the condensed consolidated financial statements
in Item 1 Financial
Statements in Aimcos Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2011, and Note 13
to the consolidated financial statements in
Item 8 Financial Statements and
Supplementary Data in Aimcos Current Report on
Form 8-K
filed with the SEC on November 15, 2011, which are
incorporated by reference in this information
statement/prospectus.). |
|
|
|
(2) |
|
Total operating expenses, operating income and loss from
continuing operations for the year ended December 31, 2008,
include a $91.1 million pre-tax provision for impairment
losses on real estate development assets, which is discussed
further in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations in Aimcos Annual Report on
Form 10-K
for the year ended December 31, 2010, filed with the SEC on
February 25, 2011, which is incorporated by reference in
this information statement/prospectus. |
|
|
|
(3) |
|
Income from discontinued operations for the years ended
December 31, 2010, 2009, 2008, 2007 and 2006 includes
$94.9 million, $221.8 million, $800.3 million,
$116.1 million and $336.2 million in gains on
disposition of real estate, respectively. Income from
discontinued operations for 2010, 2009 and 2008 is discussed
further in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations in Aimcos Current Report on
Form 8-K
filed with the SEC on November 15, 2011, which is
incorporated by reference in this information
statement/prospectus. |
|
|
|
(4) |
|
Dividends declared per common share during the years ended
December 31, 2008 and 2007, included $5.08 and $1.91,
respectively, of per share dividends that were paid through the
issuance of shares of Aimco Class A Common Stock (see
Note 11 to the consolidated financial statements in
Item 8 Financial Statements and
Supplementary Data included in Aimcos Current
Report on
Form 8-K
filed with the SEC on November 15, 2011, which is
incorporated by reference in this information
statement/prospectus). |
26
SELECTED
SUMMARY HISTORICAL FINANCIAL DATA OF
AIMCO PROPERTIES, L.P.
The following table sets forth Aimco OPs selected summary
historical financial data as of the dates and for the periods
indicated. Aimco OPs 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 OPs 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 OPs 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 OPs 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
Managements 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 OPs Current Report
on
Form 8-K,
filed with the SEC on November 15, 2011, and Aimco
OPs 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.
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|
|
For the Nine Months
|
|
|
|
|
Ended September 30,
|
|
For The Years Ended December 31,
|
|
|
2011
|
|
2010
|
|
2010(1)
|
|
2009(1)
|
|
2008(1)
|
|
2007(1)
|
|
2006(1)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollar amounts in thousands, except per unit data)
|
|
Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
834,521
|
|
|
$
|
812,265
|
|
|
$
|
1,092,606
|
|
|
$
|
1,082,231
|
|
|
$
|
1,128,099
|
|
|
$
|
1,063,962
|
|
|
$
|
978,692
|
|
Total operating expenses(2)
|
|
|
(702,240
|
)
|
|
|
(720,017
|
)
|
|
|
(967,144
|
)
|
|
|
(995,469
|
)
|
|
|
(1,096,498
|
)
|
|
|
(901,629
|
)
|
|
|
(825,485
|
)
|
Operating income(2)
|
|
|
132,281
|
|
|
|
92,248
|
|
|
|
125,462
|
|
|
|
86,762
|
|
|
|
31,601
|
|
|
|
162,333
|
|
|
|
153,207
|
|
Loss from continuing operations(2)
|
|
|
(99,290
|
)
|
|
|
(120,651
|
)
|
|
|
(160,866
|
)
|
|
|
(198,860
|
)
|
|
|
(116,957
|
)
|
|
|
(47,078
|
)
|
|
|
(41,169
|
)
|
Income from discontinued operations, net(3)
|
|
|
50,959
|
|
|
|
65,881
|
|
|
|
72,101
|
|
|
|
154,880
|
|
|
|
744,745
|
|
|
|
173,333
|
|
|
|
331,151
|
|
Net (loss) income
|
|
|
(48,331
|
)
|
|
|
(54,770
|
)
|
|
|
(88,765
|
)
|
|
|
(43,980
|
)
|
|
|
627,788
|
|
|
|
126,255
|
|
|
|
289,982
|
|
Net loss (income) attributable to noncontrolling interests
|
|
|
4,612
|
|
|
|
1,795
|
|
|
|
13,301
|
|
|
|
(22,442
|
)
|
|
|
(155,749
|
)
|
|
|
(92,138
|
)
|
|
|
(92,917
|
)
|
Net (income) attributable to Aimco OPs preferred
unitholders
|
|
|
(40,441
|
)
|
|
|
(39,918
|
)
|
|
|
(58,554
|
)
|
|
|
(56,854
|
)
|
|
|
(61,354
|
)
|
|
|
(73,144
|
)
|
|
|
(90,527
|
)
|
Net (loss) income attributable to Aimco OPs common
unitholders
|
|
|
(84,329
|
)
|
|
|
(92,893
|
)
|
|
|
(134,018
|
)
|
|
|
(123,276
|
)
|
|
|
403,700
|
|
|
|
(43,508
|
)
|
|
|
104,592
|
|
Earnings (loss) per common unit basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to Aimco OPs
common unitholders
|
|
$
|
(0.91
|
)
|
|
$
|
(1.10
|
)
|
|
$
|
(1.44
|
)
|
|
$
|
(1.76
|
)
|
|
$
|
(1.94
|
)
|
|
$
|
(1.38
|
)
|
|
$
|
(1.47
|
)
|
Net (loss) income attributable to Aimco OPs common
unitholders
|
|
$
|
(0.66
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(1.07
|
)
|
|
$
|
(1.00
|
)
|
|
$
|
4.11
|
|
|
$
|
(0.42
|
)
|
|
$
|
0.99
|
|
Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net of accumulated depreciation
|
|
$
|
6,179,920
|
|
|
|
|
|
|
$
|
6,298,062
|
|
|
$
|
6,475,205
|
|
|
$
|
6,634,295
|
|
|
$
|
6,405,507
|
|
|
$
|
5,946,724
|
|
Total assets
|
|
|
7,060,492
|
|
|
|
|
|
|
|
7,395,096
|
|
|
|
7,922,139
|
|
|
|
9,456,721
|
|
|
|
10,631,746
|
|
|
|
10,305,903
|
|
Total indebtedness
|
|
|
5,259,725
|
|
|
|
|
|
|
|
5,338,630
|
|
|
|
5,316,303
|
|
|
|
5,679,544
|
|
|
|
5,303,531
|
|
|
|
4,647,864
|
|
Total partners capital
|
|
|
1,218,904
|
|
|
|
|
|
|
|
1,323,302
|
|
|
|
1,550,374
|
|
|
|
1,661,600
|
|
|
|
2,152,326
|
|
|
|
2,753,617
|
|
Other Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared per common unit(4)
|
|
$
|
0.36
|
|
|
$
|
0.20
|
|
|
$
|
0.30
|
|
|
$
|
0.40
|
|
|
$
|
7.48
|
|
|
$
|
4.31
|
|
|
$
|
2.40
|
|
Total consolidated properties (end of period)
|
|
|
359
|
|
|
|
419
|
|
|
|
399
|
|
|
|
426
|
|
|
|
514
|
|
|
|
657
|
|
|
|
703
|
|
Total consolidated apartment units (end of period)
|
|
|
83,304
|
|
|
|
93,008
|
|
|
|
89,875
|
|
|
|
95,202
|
|
|
|
117,719
|
|
|
|
153,758
|
|
|
|
162,432
|
|
Total unconsolidated properties (end of period)
|
|
|
47
|
|
|
|
59
|
|
|
|
48
|
|
|
|
77
|
|
|
|
85
|
|
|
|
94
|
|
|
|
102
|
|
Total unconsolidated apartment units (end of period)
|
|
|
5,517
|
|
|
|
6,933
|
|
|
|
5,637
|
|
|
|
8,478
|
|
|
|
9,613
|
|
|
|
10,878
|
|
|
|
11,791
|
|
27
|
|
|
(1) |
|
Certain reclassifications have been made to conform to the
September 30, 2011 financial statement presentation,
including retroactive adjustments to reflect additional
properties sold or classified as held for sale as of
September 30, 2011 as discontinued operations (see
Note 3 to the condensed consolidated financial statements
in Item 1 Financial
Statements in Aimco OPs Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2011, included as
Annex I to this information statement/prospectus,
and Note 13 to the consolidated financial statements in
Item 8 Financial Statements and
Supplementary Data in Aimco OPs Current Report
on
Form 8-K,
filed with the SEC on November 15, 2011, and included as
Annex J to this information statement/prospectus.). |
|
|
|
(2) |
|
Total operating expenses, operating income and loss from
continuing operations for the year ended December 31, 2008,
include a $91.1 million pre-tax provision for impairment
losses on real estate development assets, which is discussed
further in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations in Aimco OPs Annual Report on
Form 10-K
for the year ended December 31, 2010 included as
Annex H to this information statement/prospectus. |
|
|
|
(3) |
|
Income from discontinued operations for the years ended
December 31, 2010, 2009, 2008, 2007 and 2006 includes
$94.9 million, $221.8 million, $800.3 million,
$116.1 million and $336.2 million in gains on
disposition of real estate, respectively. Income from
discontinued operations for 2010, 2009 and 2008 is discussed
further in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations in Aimco OPs Current Report on
Form 8-K
filed with the SEC on November 15, 2011, and included as
Annex J to this information statement/prospectus. |
|
|
|
(4) |
|
Distributions declared per common unit during the years ended
December 31, 2008 and 2007, included $5.08 and $1.91,
respectively, of per unit distributions that were paid to Aimco
through the issuance of OP Units (see Note 11 to the
consolidated financial statements in
Item 8 Financial Statements and
Supplementary Data in Aimco OPs Current Report
on
Form 8-K,
filed with the SEC on November 15, 2011, and included as
Annex J to this information statement/prospectus.). |
28
SELECTED
SUMMARY HISTORICAL FINANCIAL DATA OF
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3, LP
The following table sets forth CCIP/3s selected summary
historical financial data as of the dates and for the periods
indicated. CCIP/3s historical 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
balance sheet data as of December 31, 2010 and 2009, are
derived from CCIP/3s financial statements included in
CCIP/3s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010. CCIP/3s
unaudited historical 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
balance sheet data as of September 30, 2011, are derived
from CCIP/3s unaudited financial statements included in
CCIP/3s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2011.
You should read this information together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and with the financial
statements and notes to the financial statements for the fiscal
year ended December 31, 2010 included in CCIP/3s
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, filed with the
SEC on March 25, 2011, and in CCIP/3s Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2011, filed with the
SEC on November 9, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
For the Years Ended
|
|
|
Ended September 30,
|
|
December 31,
|
|
|
2011
|
|
2010(1)(4)
|
|
2010(1)
|
|
2009(1)
|
|
|
(unaudited)
|
|
|
|
|
|
|
(dollar amounts in thousands, except per unit data)
|
|
Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
5,049
|
|
|
$
|
4,797
|
|
|
$
|
6,460
|
|
|
$
|
6,207
|
|
Loss from continuing operations
|
|
|
(1,690
|
)
|
|
|
(2,312
|
)
|
|
|
(2,765
|
)
|
|
|
(3,704
|
)
|
Net income
|
|
|
14,282
|
|
|
|
5,108
|
|
|
|
4,627
|
|
|
|
1,031
|
|
Loss from continuing operations per limited partnership unit
|
|
|
(2.24
|
)(2)
|
|
|
(5.97
|
)
|
|
|
(8.40
|
)
|
|
|
(11.15
|
)
|
Loss from continuing operations per Series A Unit
|
|
|
(2.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per limited partnership unit
|
|
|
36.92
|
|
|
|
13.20
|
|
|
|
11.96
|
|
|
|
2.67
|
|
Distributions per limited partnership unit
|
|
|
0.77
|
(3)
|
|
|
4.33
|
|
|
|
4.95
|
|
|
|
|
|
Distributions per Series A Unit
|
|
|
6.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions per Series B Unit
|
|
|
26.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit of earnings to fixed charges
|
|
|
(1,690
|
)
|
|
|
(2,312
|
)
|
|
|
(2,765
|
)
|
|
|
(3,708
|
)
|
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
362
|
|
|
$
|
345
|
|
|
$
|
336
|
|
|
$
|
196
|
|
Real estate, net of accumulated depreciation
|
|
|
14,771
|
|
|
|
17,226
|
|
|
|
16,442
|
|
|
|
19,604
|
|
Assets held for sale
|
|
|
|
|
|
|
5,293
|
(5)
|
|
|
5,113
|
(5)
|
|
|
14,404
|
(6)
|
Total assets
|
|
|
15,870
|
|
|
|
26,029
|
|
|
|
25,176
|
|
|
|
35,460
|
|
Mortgage notes payable
|
|
|
25,758
|
|
|
|
26,052
|
|
|
|
25,984
|
|
|
|
26,247
|
|
Due to affiliates
|
|
|
346
|
|
|
|
|
|
|
|
|
|
|
|
619
|
|
Liabilities related to assets held for sale
|
|
|
|
|
|
|
10,738
|
(5)
|
|
|
10,569
|
(5)
|
|
|
22,567
|
(6)
|
General partners deficit
|
|
|
(954
|
)
|
|
|
(958
|
)
|
|
|
(965
|
)
|
|
|
(992
|
)
|
Limited partners deficit
|
|
|
|
|
|
|
(10,577
|
)
|
|
|
(11,291
|
)
|
|
|
(13,977
|
)
|
Limited partners deficit Series A
|
|
|
(10,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners capital Series B
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners deficit
|
|
|
(11,175
|
)
|
|
|
(11,535
|
)
|
|
|
(12,256
|
)
|
|
|
(14,969
|
)
|
Total distributions
|
|
|
13,201
|
|
|
|
1,674
|
|
|
|
1,914
|
|
|
|
|
|
Book value per limited partnership unit
|
|
|
|
|
|
|
(27.62
|
)
|
|
|
(29.48
|
)
|
|
|
(36.49
|
)
|
Book value per Series A Unit
|
|
|
(27.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per Series B Unit
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months
|
|
For the Years Ended
|
|
|
Ended September 30,
|
|
December 31,
|
|
|
2011
|
|
2010(1)(4)
|
|
2010(1)
|
|
2009(1)
|
|
|
(unaudited)
|
|
|
|
|
|
|
(dollar amounts in thousands, except per unit data)
|
|
Other Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
26
|
|
|
$
|
149
|
|
|
$
|
140
|
|
|
$
|
(171
|
)
|
Net cash provided by operating activities
|
|
|
968
|
|
|
|
926
|
|
|
|
1,405
|
|
|
|
593
|
|
|
|
|
(1) |
|
Certain reclassifications have been made to conform to the
September 30, 2011 financial statement presentations,
including retroactive adjustments to reflect the Lamplighter
Park Property, which was sold in June 2011, as discontinued
operations (see Note A to the financial statements in
Item 1 Financial Statements
in CCIP/3s Quarterly Report on Form
10-Q for the
quarter ended September 30, 2011, which is included as
Annex G to this information statement/prospectus). |
|
|
|
(2) |
|
Represents loss from continuing operations per unit prior the
serialization of CCIP/3s interest, which was effective
May 9, 2011. |
|
|
|
(3) |
|
Represents distributions per unit prior to the serialization of
CCIP/3s interest, which was effective May 9, 2011. |
|
|
|
(4) |
|
The statement of operations for the nine months ended
September 30, 2011 also reflects the operations of Sienna
Bay Apartments as discontinued operations as a result of its
sale in March 2010. |
|
|
|
(5) |
|
Includes the Lamplighter Park Property, which was sold in June
2011. |
|
|
|
(6) |
|
Includes Sienna Bay Apartments, which was sold in March 2010,
and the Lamplighter Park Property, which was sold in June 2011. |
30
COMPARATIVE
PER SHARE DATA
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 Series A 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, 2011 was $22.82.
The CCIP/3 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 Series A
Units is greater than ConCaps estimate of the proceeds
that would be available for distribution to limited partners of
CCIP/3 if its two 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 CCIP/3 for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Fiscal Year Ended
|
|
|
|
Ended September 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash dividends declared per share/unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aimco Common Stock
|
|
$
|
0.36
|
|
|
$
|
0.30
|
|
|
$
|
0.40
|
|
|
$
|
2.40
|
|
Aimco OP Units
|
|
|
0.36
|
|
|
|
0.30
|
|
|
|
0.40
|
|
|
|
2.40
|
|
CCIP/3 Units
|
|
|
0.77
|
|
|
|
4.95
|
|
|
|
|
|
|
|
|
|
Series A Units
|
|
|
6.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share/unit from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aimco Common Stock
|
|
$
|
(0.92
|
)
|
|
$
|
(1.45
|
)
|
|
$
|
(1.77
|
)
|
|
$
|
(2.09
|
)
|
Aimco OP Units
|
|
|
(0.91
|
)
|
|
|
(1.44
|
)
|
|
|
(1.76
|
)
|
|
|
(1.94
|
)
|
CCIP/3 Units
|
|
|
(2.24
|
)
|
|
|
(7.14
|
)
|
|
|
(9.57
|
)
|
|
|
(9.95
|
)
|
Series A Units
|
|
|
(2.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
December 31, 2010
|
|
Book value per share/unit
|
|
|
|
|
|
|
|
|
Aimco Common Stock(1)
|
|
$
|
7.87
|
|
|
$
|
8.89
|
|
Aimco OP Units(2)
|
|
|
7.26
|
|
|
|
8.18
|
|
CCIP/3 Units(3)
|
|
|
|
|
|
|
(29.48
|
)
|
Series A Units(4)
|
|
|
(27.02
|
)
|
|
|
|
|
|
|
|
(1) |
|
Based on 120.9 million and 117.6 million shares of
Aimco common stock outstanding at September 30, 2011 and
December 31, 2010, respectively. |
|
|
|
(2) |
|
Based on 129.2 million and 126.1 million Aimco OP
Units and equivalents outstanding at September 30, 2011 and
December 31, 2010, respectively. |
|
|
|
(3) |
|
Based on 382,925.60 CCIP/3 Units outstanding at
December 31, 2010. |
|
|
|
(4) |
|
Based on 382,925.60 Series A Units outstanding at
September 30, 2011. |
31
INFORMATION
ABOUT THE AIMCO ENTITIES
Aimco is a Maryland corporation incorporated on January 10,
1994. Aimco is a self-administered and self-managed real estate
investment trust, or REIT. Aimcos principal financial
objective is to provide predictable and attractive returns to
its stockholders. Aimcos business plan to achieve this
objective is to:
|
|
|
|
|
own and operate a broadly diversified portfolio of primarily
class B/B+ assets (defined below) with properties
concentrated in the 20 largest markets in the United States (as
measured by total apartment value, which is the estimated total
market value of apartment properties in a particular market);
|
|
|
|
improve its portfolio by selling assets with lower projected
returns and reinvesting those proceeds through the purchase of
new assets or additional investment in existing assets in its
portfolio, including increased ownership or
redevelopment; and
|
|
|
|
provide financial leverage primarily by the use of non-recourse,
long-dated, fixed-rate property debt and perpetual preferred
equity.
|
As of September 30, 2011, Aimco:
|
|
|
|
|
owned an equity interest in 205 conventional real estate
properties with 64,781 units;
|
|
|
|
|
|
owned an equity interest in 201 affordable real estate
properties with 24,040 units; and
|
|
|
|
|
|
provided services for or managed 11,233 units in 159
properties, primarily pursuant to long-term asset management
agreements. In certain cases, Aimco may indirectly own generally
less than one percent of the operations of such properties
through a syndication or other fund.
|
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, Aimcos 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 OPs 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
FCMC, the managing general partner of ConCap, which in turn is
the general partner of CCIP/3.
32
AIMCO/IPT, Inc. holds a 70% interest in AIMCO IPLP, L.P. as its
general partner. AIMCO IPLP, L.P. and AIMCO/IPT, Inc. share
voting and dispositive power over 119,654.4 Series A Units,
representing approximately 31.25% of the outstanding
Series A Units. AIMCO IPLP, L.P. also owns 100% of each of
Cooper River Properties, L.L.C. and Madison River Properties,
L.L.C., which own 28,039.3 and 46,747.4 Series A Units,
respectively, or approximately 7.32% and 12.21% of CCIP/3s
outstanding Series A Units, respectively.
AIMCO CCIP/3 Merger Sub LLC, or the Aimco Subsidiary, is a
Delaware limited liability company formed on July 27, 2011,
for the purpose of consummating the merger with CCIP/3. 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., Cooper River Properties,
L.L.C., Madison 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., Cooper River Properties,
L.L.C., Madison River Properties, L.L.C., CCIP/3 or ConCap 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:
33
INFORMATION
ABOUT CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3,
LP
CCIP/3 is a Delaware limited partnership organized on
October 2, 2008, in connection with a redomestication of a
predecessor limited partnership from California to Delaware in
October 2008. The predecessor was organized as a California
limited partnership on May 23, 1984. During 1985, the
predecessor of CCIP/3 offered 800,000 CCIP/3 Units at a price of
$250 per unit pursuant to a registration statement filed with
the SEC. The sale of the units terminated in May of 1987, with
383,033 units sold for an aggregate purchase price of
$95,758,000. Since its initial offering, CCIP/3 has not
received, nor are limited partners required to make, additional
capital contributions. During each of 2009, 2010 and 2011,
CCIP/3 sold one property to a third party.
CCIP/3 serialized its interests through an amendment to the
partnership agreement dated May 9, 2011, which created the
Series A Units, which relate to the Tamarac Village
Property and the Cedar Rim Property, and the Series B
Units, which related to the Lamplighter Park Property.
CCIP/3s partnership agreement provides that the
partnership is to terminate on December 31, 2015 unless
terminated prior to such date. ConCap, which is the general
partner of CCIP/3, is indirectly wholly-owned by Aimco.
CCIP/3s principal business is to operate, hold for
investment, and ultimately sell income-producing multi-family
residential properties. CCIP/3 sold the Lamplighter Park
Property, which was the sole property related to the Series B
Units, to a third party on June 21, 2011. At September 30,
2011, CCIP/3 owned the following properties:
|
|
|
|
|
the Cedar Rim Property, which consists of a 104 unit
apartment project located in New Castle, Washington; and
|
|
|
|
|
|
the Tamarac Village Property, a 564 unit apartment project
located in Denver, Colorado.
|
The average annual rental rates for each of the five years ended
December 31, 2010 for each property are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Annual Rental Rates (per unit)
|
Property
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
Cedar Rim Apartments
|
|
$
|
14,657
|
|
|
$
|
15,854
|
|
|
$
|
15,781
|
|
|
$
|
11,895
|
|
|
$
|
10,676
|
|
Tamarac Village Apartments
|
|
|
7,324
|
|
|
|
7,446
|
|
|
|
7,359
|
|
|
|
6,935
|
|
|
|
6,608
|
|
The average occupancy for each of the five years ended
December 31, 2010 and for the nine months ended
September 30, 2011 and 2010 for each property is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Occupancy
|
|
|
For the Nine Months
|
|
|
|
|
Ended September 30,
|
|
For the Years Ended December 31,
|
Property
|
|
2011
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
Cedar Rim Apartments
|
|
|
96
|
%
|
|
|
96
|
%
|
|
|
97
|
%
|
|
|
93
|
%
|
|
|
75
|
%
|
|
|
43
|
%
|
|
|
97
|
%
|
Tamarac Village Apartments
|
|
|
98
|
%
|
|
|
97
|
%
|
|
|
97
|
%
|
|
|
95
|
%
|
|
|
98
|
%
|
|
|
97
|
%
|
|
|
95
|
%
|
The real estate industry is highly competitive. All of the
properties are subject to competition from other residential
apartment complexes in the area. ConCap believes that all of the
properties are adequately insured. The properties are apartment
complexes which lease units for terms of one year or less. No
tenant leases 10% or more of the available rental space.
During the year ended December 31, 2010, CCIP/3 completed
approximately $135,000 of capital improvements at the Cedar Rim
Property consisting primarily of floor covering replacements and
construction related water damage from a broken water line.
These improvements were funded from operating cash flow and
insurance proceeds. During the year ended December 31,
2010, CCIP/3 completed approximately $325,000 of capital
improvements at the Lamplighter Park Property consisting
primarily of building and parking area improvements, lighting,
appliance and floor covering replacements, and construction
related to flood damage from a broken sump pump. These
improvements were funded from operating cash flow and insurance
proceeds. During the year ended December 31, 2010, CCIP/3
completed approximately $589,000 of capital improvements at the
Tamarac Village Property consisting primarily of building and
parking area improvements, kitchen and bath resurfacing and
34
appliance and floor covering replacements. These improvements
were funded from operating cash flow and replacement reserves.
During the nine months ended September 30, 2011, CCIP/3
completed approximately $28,000 of capital improvements at the
Cedar Rim Property, consisting primarily of floor covering
replacements; approximately $142,000 of capital improvements at
the Lamplighter Park Property, consisting primarily of appliance
and floor covering replacements, heating upgrades and
construction related to flood damage from a broken sump pump;
and approximately $1,045,000 of capital improvements at the
Tamarac Village Property, consisting primarily of stairway and
railing upgrades, parking lot repavement, water heater and floor
covering replacements and heating upgrades. These improvements
were funded from operating cash flow, insurance proceeds (with
respect to the flood damage to the Lamplighter Park Property)
advances from an affiliate and replacement reserves. CCIP/3
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. CCIP/3 made certain other
non-routine capital improvements to the Tamarac Village Property
during 2011, including discretionary work on the propertys
elevators, stairs and landings and drainage facilities, as well
as lender-mandated asphalt overlay to the propertys
parking lot which cost approximately $527,600 to complete. These
improvements are included in the discussion above. All of
CCIP/3s 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 CCIP/3s properties at
September 30, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal,
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
September 30,
|
|
|
Interest
|
|
|
Period
|
|
Maturity
|
|
Due at
|
|
Property
|
|
2011
|
|
|
Rate(1)
|
|
|
Amortized
|
|
Date
|
|
Maturity(2)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Cedar Rim Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Mortgage
|
|
$
|
3,789
|
|
|
|
7.49
|
%
|
|
360 months
|
|
08/21
|
|
$
|
3,189
|
|
2nd
Mortgage
|
|
|
3,915
|
|
|
|
6.45
|
%
|
|
360 months
|
|
08/21
|
|
|
3,209
|
|
Tamarac Village Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st
Mortgage
|
|
|
15,512
|
|
|
|
7.45
|
%
|
|
360 months
|
|
07/21
|
|
|
13,201
|
|
2nd
Mortgage
|
|
|
2,542
|
|
|
|
6.48
|
%
|
|
360 months
|
|
07/21
|
|
|
2,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,758
|
|
|
|
|
|
|
|
|
|
|
$
|
21,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fixed rate mortgages. |
|
(2) |
|
See Note C Mortgage Notes
Payable to the consolidated financial statements
included in Item 8 Financial
Statements and Supplementary Data in CCIP/3s
Annual Report on
Form 10-K
for the year ended December 31, 2010, included as
Annex F to this information statement/prospectus,
for information with respect to CCIP/3s ability to prepay
these mortgages and other specific details about the mortgages. |
Distributions
to Limited Partners
CCIP/3 presently has Series A Units and Series B Units
issued and outstanding. The Series A Units are entitled to
allocations of profit and loss, and distributions, relating to
CCIP/3s interest in the Cedar Rim Property and the Tamarac
Village Property, and the Series B Units were entitled to
allocations of profit and loss, and distributions, relating to
CCIP/3s interest in the Lamplighter Park Property, which
was sold in June 2011. On June 28, 2011, CCIP/3 distributed
$10,401,251 of proceeds from the sale of the Lamplighter Park
Property to ConCap and the holders of Series B Units. A
portion of the proceeds from the sale was retained to cover
trailing payables. Any proceeds remaining at the end of the year
will be distributed to ConCap and holders of Series B
Units. The Series B Units are expected to be terminated at
year end after resolution of trailing payables. As of
November 10, 2011, there were 382,925.60 Series A
Units and 382,925.60 Series B Units outstanding, and Aimco
OP and its affiliates owned 239,212 of the Series A Units
and 239,212 of the Series B Units, or approximately 62.47%
of each series of units.
35
CCIP/3 distributed the following amounts during the years ended
December 31, 2010 and 2009 (in thousands, except per unit
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
Per Limited
|
|
|
|
|
|
Per Limited
|
|
|
|
|
|
|
Partnership
|
|
|
|
|
|
Partnership
|
|
|
|
Aggregate
|
|
|
Unit
|
|
|
Aggregate
|
|
|
Unit
|
|
|
Sale(1)
|
|
$
|
1,914
|
|
|
$
|
4.95
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Proceeds from the March 2010 sale of Sienna Bay Apartments. |
CCIP/3 distributed the following amounts during the nine months
ended September 30, 2011 and 2010 (in thousands, except per
unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2011
|
|
|
September 30, 2010
|
|
|
|
|
|
|
Per Limited
|
|
|
|
|
|
Per Limited
|
|
|
|
|
|
|
Partnership
|
|
|
|
|
|
Partnership
|
|
|
|
Aggregate
|
|
|
Unit
|
|
|
Aggregate
|
|
|
Unit
|
|
|
Sale(1)
|
|
$
|
58
|
|
|
$
|
.15
|
|
|
$
|
1,674
|
|
|
$
|
4.33
|
|
Sale(2)
|
|
|
2,500
|
|
|
|
6.46
|
|
|
|
|
|
|
|
|
|
Sale(3)
|
|
|
10,401
|
|
|
|
26.89
|
|
|
|
|
|
|
|
|
|
Operations(4)
|
|
|
242
|
|
|
|
.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,201
|
|
|
$
|
34.12
|
|
|
$
|
1,674
|
|
|
$
|
4.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Proceeds from the March 2010 sale of Sienna Bay Apartments,
distributed prior to the serialization of CCIP/3s
interests. |
|
|
|
(2) |
|
Distribution to Series A limited partners of proceeds from the
March 2010 sale of Sienna Bay Apartments. |
|
|
|
(3) |
|
Distribution to Series B limited partners of proceeds from the
June 2011 sale of the Lamplighter Park Property. |
|
|
|
(4) |
|
Distribution prior to the serialization of CCIP/3s
interests. |
Future cash distributions will depend on the levels of net cash
generated from operations, the timing of debt maturities,
refinancings
and/or
property sales. CCIP/3s cash available for distribution is
reviewed on a monthly basis. There can be no assurance, however,
that CCIP/3 will generate sufficient funds from operations,
after required capital improvement expenditures, to permit any
distributions to its partners in 2011 or subsequent periods.
Certain
Relationships and Related Transactions
CCIP/3 has no employees and depends on ConCap and its affiliates
for the management and administration of all partnership
activities. The CCIP/3 partnership agreement provides for
certain payments to affiliates for services and reimbursement of
certain expenses incurred on behalf of CCIP/3.
The CCIP/3 partnership agreement also provides that affiliates
of ConCap receive 5% of gross receipts from all of CCIP/3s
properties as compensation for providing property management
services. CCIP/3 paid to such affiliates approximately $460,000
and $627,000 for the years ended December 31, 2010 and
2009, respectively, and approximately $299,000 and $353,000 for
the nine months ended September 30, 2011 and 2010,
respectively.
An affiliate of ConCap charged CCIP/3 for reimbursement of
accountable administrative expenses amounting to approximately
$270,000 and $264,000 for the years ended December 31, 2010
and 2009, respectively. A portion of these reimbursements for
the years ended December 31, 2010 and 2009 are for
construction management services provided by an affiliate of
ConCap of approximately $97,000 and $92,000, respectively.
An affiliate of ConCap charged CCIP/3 for reimbursement of
accountable administrative expenses amounting to approximately
$210,000 and $204,000 for the nine months ended
September 30, 2011 and 2010, respectively. A portion of
these reimbursements for the nine months ended
September 30, 2011 and 2010 are construction management
services provided by an affiliate of ConCap of approximately
$94,000 and $67,000, respectively.
36
During the year ended December 31, 2010, Aimco OP advanced
CCIP/3 approximately $271,000 to cover expenses related to
operations at the Tamarac Village Property and the Cedar Rim
Property. During the year ended December 31, 2009, Aimco OP
advanced CCIP/3 approximately $53,000 to cover expenses related
to operations at each of CCIP/3s properties and
approximately $81,000 to cover a refinance commitment fee at the
Cedar Rim Property. During the year ended December 31,
2010, CCIP/3 repaid Aimco OP approximately $893,000, which
included approximately $8,000 of accrued interest, with proceeds
from the sale of Sienna Bay Apartments and operating cash flow.
During the year ended December 31, 2009, CCIP/3 repaid
Aimco OP approximately $11,762,000, which included approximately
$1,435,000 of accrued interest, with proceeds from the mortgage
debt financings at the Cedar Rim Property and the Tamarac
Village Property, proceeds from the sale of Williamsburg Manor
Apartments, the sale deposit related to Sienna Bay Apartments
and operating cash flow. During the nine months ended
September 30, 2011, Aimco OP advanced CCIP/3 approximately
$542,000 to cover property taxes at the Cedar Rim Property
and capital expenditures and operating expenses at the Tamarac
Village Property. During the nine months ended
September 30, 2010, Aimco OP advanced CCIP/3 approximately
$47,000 to cover expenses related to operations at the Tamarac
Village Property and the Cedar Rim Property. During the nine
months ended September 30, 2011 and 2010, CCIP/3 repaid
Aimco OP approximately $204,000 and $667,000, respectively. The
repayments included accrued interest of approximately $5,000 and
$6,000, respectively. Aimco OP charges interest on advances
under the terms permitted by the Partnership Agreement. The
interest rates charged on the outstanding advances made to
CCIP/3 range from the prime rate to a variable rate based on the
prime rate plus a market rate adjustment for similar type loans.
Affiliates of the general partner review the market rate
adjustment quarterly. The interest rate on outstanding advances
at September 30, 2011 was 8.92%. Interest expense on
outstanding advance balances was approximately $3,000 and
$421,000 for the years ended December 31, 2010 and 2009,
respectively. Interest expense on outstanding advance balances
was approximately $8,000 and $1,000 for the nine months ended
September 30, 2011 and 2010, respectively. There were no
outstanding advances or accrued interest owed at
December 31, 2010. At September 30, 2011, total
advances and accrued interest of approximately $346,000 were
owed to Aimco OP. CCIP/3 may receive additional advances of
funds from Aimco OP, although Aimco OP is not obligated to
provide such advances. Subsequent to September 30, 2011,
CCIP/3 repaid Aimco OP approximately $160,000, including accrued
interest of approximately $3,000.
CCIP/3 insures its properties up to certain limits through
coverage provided by Aimco, which is generally self-insured for
a portion of losses and liabilities related to workers
compensation, property casualty, general liability and vehicle
liability. CCIP/3 insures its properties above the Aimco limits
through insurance policies obtained by Aimco from insurers
unaffiliated with ConCap. During the years ended
December 31, 2010 and 2009, CCIP/3 was charged by Aimco and
its affiliates approximately $135,000 and $216,000,
respectively, for insurance coverage and fees associated with
policy claims administration. During the nine months ended
September 30, 2011, CCIP/3 was charged by Aimco and its
affiliates approximately $91,000 for hazard insurance coverage
and fees associated with policy claims administration.
Additional charges will be incurred by CCIP/3 during 2011 as
other insurance policies renew later in the year.
In addition to its indirect ownership of the general partner
interests in CCIP/3, Aimco and its affiliates owned 239,212 of
each of the Series A Units and Series B Units, or
approximately 62.47% of the number of Series A Units and
Series B Units outstanding, at November 10, 2011.
Pursuant to the CCIP/3 partnership agreement, limited partners
holding a majority of the outstanding units of each series are
entitled to take action with respect to a variety of matters
that include, but are not limited to, voting on certain
amendments to the CCIP/3 partnership agreement and voting to
remove ConCap as the general partner. As a result of its
ownership of 62.47% of each of the outstanding Series A
Units and the outstanding Series B Units, Aimco and its
affiliates are in a position to control all such voting
decisions with respect to CCIP/3. Although ConCap owes fiduciary
duties to CCIP/3s limited partners, it also owes fiduciary
duties to its sole stockholder, which is an affiliate of Aimco.
As a result, the duties of ConCap, as general partner, to CCIP/3
and its limited partners may come into conflict with the duties
of ConCap to AIMCO/IPT, Inc., as its sole stockholder.
Directors,
Executive Officers and Corporate Governance
CCIP/3 has no directors or executive officers of its own. The
names and ages of, as well as the positions and offices held by,
the present directors and officers of ConCap, CCIP/3s
general partner, as of September 30, 2011 are set forth in
Annex D to this information statement/prospectus.
One or more of those persons are also directors
and/or
officers of a general partner (or general partner of a general
partner) of limited partnerships which either have a class of
securities registered pursuant to Section 12(g) of the
Exchange Act, or are subject to the reporting
37
requirements of Section 15(d) of the Exchange Act. Further,
one or more of those persons are also officers of Aimco and the
general partner of Aimco OP, entities that have a class of
securities registered pursuant to Section 12(g) of the
Exchange Act, or are subject to the reporting requirements of
Section 15(d) of the Exchange Act. There are no family
relationships between or among any officers or directors. No
remuneration was paid to CCIP/3 nor its directors or officers
during the year ended December 31, 2010.
The board of directors of ConCap, the general partner of CCIP/3,
does not have a separate audit committee. As such, the board of
directors of ConCap fulfills the functions of an audit
committee. The board of directors has determined that Steven D.
Cordes meets the requirement of an audit committee
financial expert.
The directors and officers of ConCap with authority over CCIP/3
are all employees of subsidiaries of Aimco. Aimco has adopted a
code of ethics that applies to such directors and officers that
is posted on Aimcos website (www.aimco.com). Aimcos
website is not incorporated by reference to this filing.
Security
Ownership of Certain Beneficial Owners and Management
ConCap is the general partner of CCIP/3 and owns all of the
outstanding general partner interests in CCIP/3, which
constitute 1% of the total interests in the partnership. CCIP/3
has no directors or executive officers of its own. ConCap, the
general partner of CCIP/3, is indirectly wholly-owned by Aimco.
None of the general partner or any of its directors or executive
officers owns any of the limited partnership interests of the
partnership. The following table sets forth certain information
as of November 10, 2011 with respect to the ownership by
any person (including any group, as that term is
used in Section 13(d)(3) of the Exchange Act) known to us
to be the beneficial owner of more than 5% of any series of
limited partnership interest of the partnership.
Series A
Units Limited Partners
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
Approximate
|
|
|
Number of Series A
|
|
Percent of
|
Entity Name and Address
|
|
Units
|
|
Class
|
|
Apartment Investment and Management Company(1)
|
|
|
239,212
|
(2)
|
|
|
62.47
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
AIMCO-GP, Inc.(1)
|
|
|
239,212
|
(2)
|
|
|
62.47
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
AIMCO Properties, L.P.(1)
|
|
|
239,212
|
(2)
|
|
|
62.47
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
AIMCO IPLP, L.P.(3)
|
|
|
119,654.4
|
(4)
|
|
|
31.25
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
AIMCO/IPT, Inc.(3)
|
|
|
119,654.4
|
(4)
|
|
|
31.25
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
Cooper River Properties, L.L.C.(5)
|
|
|
28,039.3
|
(4)
|
|
|
7.32
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
Madison River Properties, L.L.C.(6)
|
|
|
46,747.4
|
(4)
|
|
|
12.21
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
38
|
|
|
(1) |
|
AIMCO-GP, Inc., a Delaware corporation, is the sole general
partner of AIMCO Properties, L.P., and owns approximately a 1%
general partner interest in AIMCO Properties, L.P. AIMCO-GP,
Inc. is wholly-owned by Apartment Investment and Management
Company. As of November 10, 2011, AIMCO-LP Trust, a
Delaware trust wholly-owned by Apartment Investment and
Management Company, owns approximately a 93% interest in the OP
Units and equivalents of AIMCO Properties, L.P. |
|
|
|
(2) |
|
AIMCO Properties, L.P., AIMCO-GP, Inc. and Apartment Investment
and Management Company share voting and dispositive power over
239,212 Series A Units, representing approximately 62.47%
of the class. AIMCO-GP, Inc. holds its Series A Units,
directly or indirectly, as nominee for AIMCO Properties, L.P.
and so AIMCO Properties, L.P. may be deemed the beneficial owner
of the Series A Units held by AIMCO-GP, Inc. Apartment
Investment and Management Company may be deemed the beneficial
owner of the Series A Units held by AIMCO Properties, L.P.
and AIMCO-GP, Inc. by virtue of its indirect ownership or
control of these entities. |
|
(3) |
|
AIMCO/IPT, Inc. is wholly-owned by Apartment Investment and
Management Company and holds a 70.0% interest in AIMCO IPLP,
L.P. as its general partner. AIMCO Properties, L.P. holds a 30%
interest in AIMCO IPLP, L.P. as the limited partner. |
|
(4) |
|
AIMCO IPLP, L.P. and AIMCO/IPT, Inc. share voting and
dispositive power over 119,654.4 Series A Units,
representing approximately 31.25% of the class. |
|
(5) |
|
AIMCO IPLP, L.P. owns 100% of Cooper River Properties, L.L.C. |
|
(6) |
|
AIMCO IPLP, L.P. owns 100% of Madison River Properties, L.L.C. |
Series B
Units Limited Partners
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
Approximate
|
|
|
Number of Series B
|
|
Percent of
|
Entity Name and Address
|
|
Units
|
|
Class
|
|
Apartment Investment and Management Company(1)
|
|
|
239,212
|
(2)
|
|
|
62.47
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
AIMCO-GP, Inc.(1)
|
|
|
239,212
|
(2)
|
|
|
62.47
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
AIMCO Properties, L.P.(1)
|
|
|
239,212
|
(2)
|
|
|
62.47
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
AIMCO IPLP, L.P.(3)
|
|
|
119,654.4
|
(4)
|
|
|
31.25
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
AIMCO/IPT, Inc.(3)
|
|
|
119,654.4
|
(4)
|
|
|
31.25
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
Cooper River Properties, L.L.C.(5)
|
|
|
28,039.3
|
(4)
|
|
|
7.32
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
Madison River Properties, L.L.C.(6)
|
|
|
46,747.4
|
(4)
|
|
|
12.21
|
%
|
4582 South Ulster Street,
|
|
|
|
|
|
|
|
|
Suite 1100
|
|
|
|
|
|
|
|
|
Denver, CO 80237
|
|
|
|
|
|
|
|
|
39
|
|
|
(1) |
|
AIMCO-GP, Inc., a Delaware corporation, is the sole general
partner of AIMCO Properties, L.P., and owns approximately a 1%
general partner interest in AIMCO Properties, L.P. AIMCO-GP,
Inc. is wholly-owned by Apartment Investment and Management
Company. As of November 10, 2011, AIMCO-LP Trust, a
Delaware trust wholly-owned by Apartment Investment and
Management Company, owns approximately a 93% interest in the OP
Units and equivalents of AIMCO Properties, L.P. |
|
|
|
(2) |
|
AIMCO Properties, L.P., AIMCO-GP, Inc. and Apartment Investment
and Management Company share voting and dispositive power over
239,212 Series B Units, representing approximately 62.47%
of the class. AIMCO-GP, Inc. holds its Series B Units,
directly or indirectly, as nominee for AIMCO Properties, L.P.
and so AIMCO Properties, L.P. may be deemed the beneficial owner
of the Series B Units held by AIMCO-GP, Inc. Apartment
Investment and Management Company may be deemed the beneficial
owner of the Series B Units held by AIMCO Properties, L.P.
and AIMCO-GP, Inc. by virtue of its indirect ownership or
control of these entities. |
|
(3) |
|
AIMCO/IPT, Inc. is wholly-owned by Apartment Investment and
Management Company and holds a 70.0% interest in AIMCO IPLP,
L.P. as its general partner. AIMCO Properties, L.P. holds a 30%
interest in AIMCO IPLP, L.P. as the limited partner. |
|
(4) |
|
AIMCO IPLP, L.P. and AIMCO/IPT, Inc. share voting and
dispositive power over 119,654.4 Series B Units,
representing approximately 31.25% of the class. |
|
(5) |
|
AIMCO IPLP, L.P. owns 100% of Cooper River Properties, L.L.C. |
|
(6) |
|
AIMCO IPLP, L.P. owns 100% of Madison River Properties, L.L.C. |
Additional
Information
For additional information about CCIP/3 and its properties and
operating data related to those properties, see CCIP/3s
Annual Report on
Form 10-K
for the year ended December 31, 2010, attached hereto as
Annex F, and CCIP/3s Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2011, attached hereto
as Annex G.
40
THE
MERGER
Background
of the Merger
As the general partner of CCIP/3, ConCap regularly evaluates
CCIP/3s properties by considering various factors, such as
CCIP/3s financial position and real estate and capital
markets conditions. ConCap monitors a propertys specific
locale and
sub-market
conditions (including stability of the surrounding
neighborhood), evaluating current trends, competition, new
construction and economic changes. It oversees the operating
performance of each property and continuously evaluates the
physical improvement requirements. In addition, the financing
structure for each property (including any prepayment
penalties), tax implications to limited partners, availability
of attractive mortgage financing to a purchaser, and the
investment climate are all considered. Any of these factors, and
possibly others, can potentially contribute to any decision by
ConCap to sell, refinance, upgrade with capital improvements or
hold a partnership property.
After taking into account the foregoing considerations, in early
2009, ConCap listed the Tamarac Village Property for sale and
commenced negotiations with a third party shortly thereafter.
The purchase prices for offers to purchase the Tamarac Village
Property ranged from $24,000,000 in cash to $29,000,000 in cash
plus the assumption of debt. ConCap determined at the time that
those offers were not acceptable and was unable to find a
third-party buyer that was willing to buy the property at a
price that was acceptable to ConCap. Also, ConCap determined an
assumption of the existing loans would require a partial loan
paydown because of lender
loan-to-value
requirements. Such a paydown would have triggered a prepayment
penalty (at the time that ConCap was evaluating a sale of the
property, the estimated prepayment penalties would have been
approximately $5 million), that would have resulted in
reduced net proceeds to CCIP/3 from the sale. In September 2009,
CCIP/3 sold the Williamsburg Manor Apartments to a third party
for a gross sales price of $10,350,000. In March 2010, CCIP/3
sold the Sienna Bay Apartments to a third party for a gross
sales price of $16,850,000.
During January 2011, officers of ConCap, who are also officers
of Aimco, met several times to consider and discuss strategic
alternatives for CCIP/3s remaining three properties.
During these meetings, they considered the costs of maintaining
CCIP/3s current ownership structure, including audit, tax
and SEC reporting costs, given Aimco OPs ownership of
62.47% of the CCIP/3 Units and past loans and advances that had
been made by Aimco OP to CCIP/3.
After considering all of these factors, the officers agreed to
explore the possibility of Aimco OP acquiring some or all of
CCIP/3s properties through a transaction that would
provide the unaffiliated limited partners with the opportunity
to defer taxable gain through an exchange of CCIP/3 Units for
OP Units.
During January and February of 2011, ConCaps management
sought advice from outside counsel to determine whether a
transaction would be feasible that would result in Aimco
OPs ownership of some or all of CCIP/3s properties
while also providing potential tax deferral to limited partners
that are unaffiliated with Aimco OP. ConCaps management
also considered the ongoing efforts to market the Lamplighter
Park Property for sale and discussed with counsel whether a
transaction would be feasible that would result in Aimcos
ownership of all of CCIP/3s properties other than the
Lamplighter Park Property. At the same time, they spoke with
appraisers regarding the possibility of appraising the
properties for purposes of evaluating a potential transaction
with Aimco OP.
ConCap engaged CRA and KTR in February 2011 to appraise the
Tamarac Village Property and the Cedar Rim Property.
ConCaps management decided not to obtain an appraisal for
the Lamplighter Park Property due to the ongoing sales efforts.
CRA delivered the appraisal for the Tamarac Village Property on
March 16, 2011. Pursuant to this appraisal, CRA valued the
property at $39,600,000. KTR delivered the appraisal for the
Cedar Rim Property on March 17, 2011. Pursuant to this
appraisal, KTR valued the property at $11,500,000.
On March 21, 2011, CCIP/3 entered into a sale contract with
a third party to sell the Lamplighter Park Property.
Over the following weeks, ConCaps management reviewed the
appraisal reports and discussed both CRAs and KTRs
assumptions and their valuations of the properties and
determined that CRAs and KTRs assumptions were
reasonable and the valuations appropriate. As part of their
review, they considered the fiduciary duties owed by ConCap to
unaffiliated limited partners, as well as the properties
respective appraised value, and the amount of indebtedness
secured by each appraised property, which at March 31, 2011
was approximately $7,747,000 million for the Cedar Rim
Property and $18,163,000 million for the Tamarac Village
Property.
41
In late April of 2011, ConCaps management further
discussed with outside counsel the possibility of pursuing a
transaction that would result in Aimcos ownership of all
of CCIP/3s properties other than the Lamplighter Park
Property. On May 9, 2011, CCIP/3 serialized its interests
through an amendment to its partnership agreement, which created
the Series A Units, which relate to the Cedar Rim Property
and the Tamarac Village Property, and the Series B Units,
which relate to the Lamplighter Park Property.
In April and May 2011, Aimco OP and ConCap continued discussions
regarding a possible merger transaction between CCIP/3 and Aimco
OP. In connection with these discussions, Aimco OP and ConCap
agreed that, if they were to pursue the merger, they should
consider retaining an independent financial advisor to opine as
to the fairness of the merger to the unaffiliated limited
partners of CCIP/3. Aimco OP and ConCap, together with outside
counsel, conducted interviews with representatives of
Duff & Phelps and two other financial advisory firms.
On June 10, 2011, Aimco OP engaged Duff & Phelps
to provide a fairness opinion, and if requested, an updated
fairness opinion, with respect to the proposed merger
transaction and ten other possible merger transactions. In the
following weeks, Duff & Phelps had due diligence calls
with ConCaps management and received due diligence
materials in response to its diligence requests.
On June 17, 2011, at the request of Aimco OP and ConCap,
CRA delivered an updated appraisal for the Tamarac Village
Property, pursuant to which it valued the property at
$40,600,000 as of May 31, 2011. On June 8, 2011, at
the request of Aimco OP and ConCap, KTR delivered an updated
appraisal for the Cedar Rim Property, pursuant to which it
valued the property at $11,700,000 as of June 1, 2011.
Aimco OP and ConCap reviewed and discussed the updated appraisal
reports and calculated the equity value of the Series A
Units based on these updated appraisals.
On June 21, 2011, the sale of the Lamplighter Park Property
was completed. The property was sold to a third party for
$25,125,000.
On July 28, 2011, Duff & Phelps delivered its written
opinion to the boards of directors of Aimco, the general partner
of Aimco OP and the general partner of CCIP/3 to the effect
that, as of July 28, 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 $59.36 per unit is fair, from a financial point
of view, to the unaffiliated limited partners of CCIP/3.
On July 28, 2011, ConCap and the general partner of Aimco OP
approved an agreement and plan of merger that provided for
consideration of $59.36 per unit to holders of Series A
Units, payable in cash or OP Units. Before doing so, ConCap
and the other Aimco Entities considered a number of possible
alternatives to the proposed transaction, as described in
greater detail in this information statement/prospectus.
However, they ultimately determined that the proposed merger is
in the best interests of CCIP/3 and its unaffiliated limited
partners. On July 28, 2011, CCIP/3, Aimco OP and the Aimco
Subsidiary entered into the agreement and plan of merger.
Also on July 28, 2011, Aimco and Aimco OP filed with the
SEC a registration statement relating to the merger. In
addition, the Aimco Entities made certain other filings required
in connection with the merger. From August through November
2011, Aimco and Aimco OP responded to SEC comments and revised
the registration statement.
On September 20, 2011, ConCaps management met to
discuss the merger transaction and the valuations of
CCIP/3s properties. On October 4, 2011, ConCaps
management met again to discuss the timing of the merger
transaction and considered updating the valuations of
CCIP/3s properties. On October 5, 2011, ConCap
engaged CRA and KTR to update their appraisals and
Duff & Phelps to provide an updated fairness opinion
with respect to the equity value resulting from such updated
appraisals.
On October 13, 2011, CRA delivered an updated appraisal for
the Tamarac Village Property, pursuant to which it valued the
property at $42,700,000 as of October 1, 2011. On
October 14, 2011, KTR delivered an updated appraisal for
the Cedar Rim Property, pursuant to which it valued the property
at $12,000,000 as of October 1, 2011. Aimco OP and ConCap
reviewed and discussed the updated appraisal reports and
calculated the equity value of the Series A Units based on
these updated appraisals, CCIP/3s updated financial
position and the updated mark-to-market adjustment of the
mortgage debt encumbering CCIP/3s properties. This
calculation resulted in an increase of the equity value of the
Series A Units from $59.36 per unit to $61.30 per unit.
42
On November 15, 2011, Duff & Phelps delivered its
updated written opinion to the boards of directors of Aimco, the
general partner of Aimco OP and the general partner of CCIP/3 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 by Duff & Phelps in connection with its
opinion, the cash consideration of $61.30 per unit is fair, from
a financial point of view, to the unaffiliated limited partners
of CCIP/3.
On November 15, 2011, ConCap and the general partner of
Aimco OP approved an amendment and restatement of the merger
agreement that provides for consideration of $61.30 per unit,
payable in cash or OP Units. On November 15, 2011,
CCIP/3, Aimco OP and the Aimco Subsidiary entered into the
amended and restated agreement and plan of merger.
Determination
of Merger Consideration
In the merger, each Series A Unit outstanding immediately
prior to consummation of the merger will be converted into the
right to receive, at the election of the holder of such
Series A Unit, either $61.30 in cash or equivalent value in
Aimco OP Units, except in those jurisdictions where the law
prohibits the offer of OP Units in this transaction (or
registration or qualification would be prohibitively costly).
Because Aimco indirectly owns ConCap, which is the general
partner of CCIP/3, the merger consideration has not been
determined in an arms-length negotiation. In order to
arrive at a fair consideration, CRA and KTR, both independent
real estate appraisal firms, were engaged to perform complete
appraisals of the two CCIP/3 properties subject to the merger.
For more detailed information about the independent
appraisers determinations of the estimated values of the
properties, see Special Factors The
Appraisals. The per unit cash merger consideration payable
to each holder of Series A Units is greater than
ConCaps estimate of the proceeds that would be available
for distribution to limited partners (following the repayment of
debt and other liabilities of CCIP/3) if the two properties were
sold at prices equal to their respective appraised values.
ConCap did not deduct certain amounts that would be payable upon
an immediate sale of the two properties subject to the merger,
such as a prepayment penalty on the mortgage debt of each of the
properties. The estimated prepayment penalties would have
totaled approximately $11,087,900 for properties related to the
Series A Units. ConCap calculated the net proceeds
available to all Series A Unit holders by (i) adding
to the appraised values the value of any other non-real estate
assets of CCIP/3 that relate to the Series A Units that
would not be included in the appraisal; and (ii) deducting
all liabilities that relate to the Series A Units,
including the market value of mortgage debt as of
September 30, 2011, accounts payable and accrued expenses
and certain other costs. The amount of liabilities deducted
includes an estimate of $267,200 for expenses attributable to
the properties that would be incurred prior to the merger but
payable after the merger. In order to determine the per unit
cash merger consideration, ConCap divided this amount by the
total number of outstanding Series A Units. This
calculation, which is summarized below, resulted in per unit
cash merger consideration of $61.30.
|
|
|
|
|
Appraised value of the Cedar Rim Property
|
|
$
|
12,000,000
|
|
Plus: Appraised value of the Tamarac Village Property
|
|
|
42,700,000
|
|
Plus: Cash and cash equivalents
|
|
|
258,282
|
|
Plus: Other assets
|
|
|
342,319
|
|
Less: Mortgage debt, including accrued interest
|
|
|
(25,929,512
|
)
|
Less:
Mark-to-market
adjustment(1)
|
|
|
(5,085,637
|
)
|
Less: Loans from affiliates of the general partner
|
|
|
(346,527
|
)
|
Less: Other amounts due to the general partner and/or its
affiliates
|
|
|
(420
|
)
|
Less: Accounts payable and accrued expenses owed to third parties
|
|
|
(484,673
|
)
|
Less: Other liabilities(2)
|
|
|
(336,540
|
)
|
Plus: Deficit restoration obligation of general partner(3)
|
|
|
622,271
|
|
Less: Estimated trailing payables
|
|
|
(267,200
|
)
|
|
|
|
|
|
Net partnership equity
|
|
$
|
23,472,363
|
|
Percentage of net partnership equity allocable to limited
partners
|
|
|
100%
|
|
|
|
|
|
|
Net partnership equity allocable to limited partners
|
|
$
|
23,472,363
|
|
Total number of Units
|
|
|
382,925.6
|
|
|
|
|
|
|
Cash consideration per unit
|
|
$
|
61.30
|
|
|
|
|
|
|
43
|
|
|
(1) |
|
The
mark-to-market
adjustment reflects the difference between the outstanding
amount of the mortgage debt and its market value as of
September 30, 2011. The market value was calculated as the
present value of the remaining required payments under the loan
through maturity, discounted at 4.81% (in the case of the Cedar
Rim Property) and 4.37% (in the case of the Tamarac Village
Property), which we believe is an appropriate market rate based
on our analysis of interest rates for selected loans of a
similar type, leverage and duration. |
|
|
|
(2) |
|
Consists primarily of security deposits paid by tenants of the
properties. |
|
(3) |
|
Contribution by general partner pursuant to the terms of the
partnership agreement to address a deficiency in its capital
account, net of partnership equity allocable to general partner. |
The number of OP Units offered per Series A 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. Although there is no public market for OP Units,
after a one-year holding period, each OP Unit is generally
redeemable for cash in an amount equal to the value of one share
of Aimco common stock at the time, subject to Aimcos right
to acquire each OP Unit in exchange for one share of Aimco
common stock (subject to antidilution adjustments). Therefore,
ConCap considers the trading price of Aimco common stock to be a
reasonable estimate of the fair market value of an OP Unit.
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 OP Unit consideration
of 2.58 OP Units per Series A Unit.
Conflicts
of Interest
ConCap is the general partner of CCIP/3 and is wholly-owned by
AIMCO/IPT, Inc., which in turn is wholly-owned by Aimco.
Therefore, ConCap has a conflict of interest with respect to the
merger. ConCap has fiduciary duties to AIMCO/IPT, Inc.,
ConCaps sole stockholder and an affiliate of Aimco, on the
one hand, and to CCIP/3 and its limited partners, on the other
hand. The duties of ConCap to CCIP/3 and its limited partners
conflict with the duties of ConCap to AIMCO/IPT, Inc., which
could result in the ConCap approving a transaction that is more
favorable to Aimco than might be the case absent such conflict
of interest.
Future
Plans for the Properties
After the merger, Aimco OP will own all of the outstanding
Series A Units. ConCap will continue to be the sole general
partner of CCIP/3 after the merger, and CCIP/3s
partnership agreement in effect immediately prior to the merger
will remain unchanged after the merger. Aimco OP intends to
retain the Series A Units after the merger. The merger will
result in the 100% ownership by Aimco of the Cedar Rim Property
and the Tamarac Village Property. Following consummation of the
merger and upon termination of the Series B Units (which is
expected to occur at year end), Aimco OP will be the sole
limited partner of CCIP/3.
Aimco anticipates owning and operating the Cedar Rim Property
and the Tamarac Village Property following the merger. After the
merger, Aimco will evaluate the capital improvement needs of the
two properties subject to the merger, and anticipates making
certain routine capital expenditures with respect to each
property during the remainder of 2011.
Material
United States Federal Income Tax Consequences of the
Merger
For a discussion of the material United States 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.
Regulatory
Matters
No material federal or state regulatory requirements must be
satisfied or approvals obtained in connection with the merger,
except (1) filing a registration statement that includes
this information statement/prospectus with the SEC and obtaining
the SECs declaration that the registration statement is
effective under the Securities Act,
44
(2) registration or qualification of the issuance of
OP Units under state securities laws, and (3) filing a
certificate of merger with the Secretary of State of the State
of Delaware.
Accounting
Treatment of the Merger
Aimco and Aimco OP will treat the merger as a purchase of
noncontrolling interests for financial accounting purposes. This
means that Aimco and Aimco OP will recognize any difference
between the purchase price for these noncontrolling interests
and the carrying amount of such noncontrolling interests in
Aimco and Aimco OPs consolidated financial statements as
an adjustment to the amounts of consolidated equity and
partners capital attributed to Aimco and Aimco OP,
respectively.
Appraisal
Rights
Limited partners that hold Series A Units are not entitled
to dissenters appraisal rights under applicable law or
CCIP/3s partnership agreement in connection with the
merger. However, pursuant to the terms of the merger agreement,
Aimco OP will provide each limited partner that holds
Series A Units 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. These contractual appraisal rights
will enable such limited partner to obtain an appraisal of the
value of the limited partners Series A Units in
connection with the merger. Prosecution of these contractual
appraisal rights will involve an arbitration proceeding, and the
consideration paid to a limited partner after the prosecution of
such contractual appraisal rights, which will take a period of
time that cannot be predicted with accuracy, will be a cash
payment, resulting in a taxable event to such limited partner. 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 CCIP/3s partnership agreement and Delaware law, a
limited partner has the right to obtain by mail, free of charge,
a list of the names and addresses and interests owned of the
limited partners. This list may be obtained by making written
request to ConCap Equities, Inc., c/o Eagle Rock Proxy Advisors,
LLC, 12 Commerce Drive, Cranford, New Jersey 07016, or by
fax at (908)
497-2349.
Expenses
and Fees and Source of Funds
The costs of planning and implementing the merger, including the
cash merger consideration and the preparation of this
information statement/prospectus, will be borne by Aimco OP
without regard to whether the merger is effectuated. The
estimated amount of these costs is approximately $9,531,700
(assuming all limited partners that hold Series A Units
elect to receive the cash merger consideration). Aimco OP is
paying for the costs of the merger with funds on hand or from
drawings under its revolving credit facility. The revolving
credit facility is pursuant to Aimco OPs Amended and
Restated Senior Secured Credit Agreement, as amended, with a
syndicate of financial institutions, with Bank of America, N.A.
as administrative agent, swing line lender and L/C issuer.
Borrowings under the revolving credit facility bear interest
based on a pricing grid determined by leverage (either at LIBOR
plus 4.25% with a LIBOR floor of 1.50% or, at Aimco OPs
option, a base rate equal to the Prime rate plus a spread of
3.00%). The revolving credit facility matures May 1, 2013,
and may be extended for one year, subject to certain conditions.
Aimco OPs obligations under the Amended and Restated
Senior Secured Credit Agreement are secured by its equity
interests in its subsidiaries.
Approvals
Required
Under Delaware law, the merger must be approved by CCIP/3s
general partner and a majority in interest of the Series A
Units. The general partner has determined that the merger is
advisable, fair to and in the best interests of CCIP/3 and its
limited partners and has approved the merger and the merger
agreement. As of November 10, 2011, there were issued and
outstanding 382,925.60 Series A Units, and Aimco OP and its
affiliates owned 239,212 of those units, or approximately 62.47%
of the number of Series A 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.
45
THE
MERGER AGREEMENT
The following is a summary of the material terms of the
merger agreement and is qualified in its entirety by reference
to the merger agreement, which is attached to this information
statement/prospectus as Annex A. You should read the
merger agreement carefully in its entirety as it is the legal
document that governs this merger.
The
Merger
CCIP/3 has entered into an agreement and plan of merger with the
Aimco Subsidiary and Aimco OP. The merger agreement amends and
restates a prior merger agreement to reflect an increase in the
merger consideration from $59.36 in cash (or equivalent value in
OP Units) to $61.30 in cash (or equivalent value in
OP Units) due to, among other things, changes in the
mark-to-market adjustment of the mortgage debt encumbering
CCIP/3s properties and changes to the estimated market
values of CCIP/3s properties which were relied upon to
determine the merger consideration. The Aimco Subsidiary is a
wholly-owned subsidiary of Aimco OP, and was formed for the
purpose of effecting the merger with CCIP/3. Aimco owns
CCIP/3s general partner, ConCap, and, together with its
affiliates, owns a majority of CCIP/3s outstanding
Series A Units.
Under the merger agreement, at the effective time of the merger,
the Aimco Subsidiary will be merged with and into CCIP/3, with
CCIP/3 as the surviving entity. In the merger, each
Series A Unit outstanding immediately prior to consummation
of the merger will be converted into the right to receive, at
the election of the holder of such Series A Unit, either
$61.30 in cash or equivalent value in Aimco OP Units
(calculated by dividing $61.30 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); provided,
however, that if Aimco OP determines that the law of the state
or other jurisdiction in which a limited partner resides would
prohibit the issuance of Aimco 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 only be entitled to receive $61.30 in
cash for each Series A Unit. Each holder of Series A
Units must make the same election (cash or OP Units) for
all of his or her Series A Units. Aimco OPs interest
in the Aimco Subsidiary will be converted into Series A
Units. As a result, after the merger, Aimco OP will own all of
the outstanding Series A Units.
The agreement of limited partnership of CCIP/3 as in effect
immediately prior to the consummation of the merger will be the
agreement of limited partnership of CCIP/3 after the merger,
until thereafter amended in accordance with the provisions
thereof and applicable law.
Treatment
of Interests in the Merger
CCIP/3. Under the merger agreement, each
Series A Unit outstanding immediately prior to consummation
of the merger will be converted into the right to receive, at
the election of the holder of such Series A Unit, either
$61.30 in cash or equivalent value in Aimco OP Units
(calculated by dividing $61.30 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), except in
those jurisdictions where the law prohibits the issuance of
Aimco OP Units (or registration or qualification would be
prohibitively costly). ConCap will continue to be the sole
general partner of CCIP/3 after the merger, and its current
Series A general partner interest will remain unchanged
after the merger. The Series B Units will not be affected
by the merger and will remain outstanding following consummation
of the merger.
Aimco Subsidiary. All membership interests in
the Aimco Subsidiary immediately prior to the effective time of
the merger will be converted into Series A Units after the
merger.
Approvals
Required
Under Delaware law, the merger must be approved by ConCap, as
the general partner of CCIP/3, and a majority in interest of the
Series A Units. ConCap has determined that the merger is
advisable, fair to and in the best interests of CCIP/3 and its
limited partners and has approved the merger and the merger
agreement. As of November 10, 2011, there were issued and
outstanding 382,925.60 Series A Units, and Aimco OP and its
affiliates owned 239,212 of those units, or approximately 62.47%
of the number of Series A Units outstanding. Aimco OP and
its affiliates have indicated that they intend to take action by
written consent, as permitted under the partnership
46
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. Aimco OP has
approved the merger on behalf of the Aimco Subsidiary.
Conditions
to Obligations to Complete the Merger
None of the parties to the merger agreement are required to
consummate the merger if any third party consent, authorization
or approval that any of the parties deems necessary or desirable
in connection with the merger agreement, and the consummation of
the transactions contemplated thereby, has not been obtained or
received.
Termination
of the Merger Agreement
The merger agreement may be terminated and the merger may be
abandoned at any time prior to consummation of the merger,
without liability to any party to the merger agreement, by
CCIP/3, Aimco OP or the Aimco Subsidiary, in each case, acting
in its sole discretion and for any reason or for no reason,
notwithstanding the approval of the merger agreement by any of
the partners of CCIP/3 or the member of the Aimco Subsidiary.
Amendment
Subject to applicable law, the merger agreement may be amended,
modified or supplemented by written agreement of the parties at
any time prior to the consummation of the merger with respect to
any of the terms contained therein.
Governing
Law
The merger agreement is governed by and construed in accordance
with the laws of the State of Delaware, without reference to the
conflict of law provisions thereof.
Appraisal
Rights
Limited partners that hold Series A Units are not entitled
to dissenters appraisal rights under applicable law or
CCIP/3s partnership agreement in connection with the
merger. However, pursuant to the terms of the merger agreement,
Aimco OP will provide each limited partner that holds
Series A Units 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. These contractual appraisal rights
will enable such limited partner to obtain an appraisal of the
value of the limited partners Series A Units in
connection with the merger. Prosecution of these contractual
appraisal rights will involve an arbitration proceeding, and the
consideration paid to a limited partner after the prosecution of
such contractual appraisal rights, which will take a period of
time that cannot be predicted with accuracy, will be a cash
payment, resulting in a taxable event to such limited partner. 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.
Election
Forms
Within 10 days after the effective time of the merger,
Aimco OP will prepare and mail to the former holders of
Series A Units an election form pursuant to which they can
elect to receive cash or OP Units. Each holder of
Series A Units must make the same election (cash or OP
Units) for all of his or her Series A Units. Limited
partners may also elect appraisal of their Series A Units
pursuant to the election form. Holders of Series A 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 the
cash consideration. Former holders of Series A Units may
also use the election form to elect to receive, in lieu of the
merger consideration, the appraised value of their Series A
Units, determined through an arbitration proceeding.
47
DESCRIPTION
OF AIMCO OP UNITS; SUMMARY OF AIMCO OP PARTNERSHIP
AGREEMENT
The following description sets forth some general terms and
provisions of the Aimco OP partnership agreement. The following
description of the Aimco OP partnership agreement is qualified
in its entirety by the terms of the agreement.
General
Aimco OP is a limited partnership organized under the provisions
of the Delaware Revised Uniform Limited Partnership Act, as
amended from time to time, or any successor to such statute, or
the Delaware Act, and upon the terms and subject to the
conditions set forth in its agreement of limited partnership.
AIMCO-GP, Inc., a Delaware corporation and wholly-owned
subsidiary of Aimco, is the sole general partner of Aimco OP.
Another wholly-owned subsidiary of Aimco, AIMCO-LP Trust, a
Delaware trust, or the special limited partner, is a limited
partner in Aimco OP. The term of Aimco OP commenced on
May 16, 1994, and will continue in perpetuity, unless Aimco
OP is dissolved sooner under the provisions of the partnership
agreement or as otherwise provided by law.
Purpose
and Business
The purpose and nature of Aimco OP is to conduct any business,
enterprise or activity permitted by or under the Delaware Act,
including, but not limited to, (i) conducting the business
of ownership, construction, development and operation of
multifamily rental apartment communities, (ii) entering
into any partnership, joint venture, business trust arrangement,
limited liability company or other similar arrangement to engage
in any business permitted by or under the Delaware Act, or to
own interests in any entity engaged in any business permitted by
or under the Delaware Act, (iii) conducting the business of
providing property and asset management and brokerage services,
whether directly or through one or more partnerships, joint
ventures, subsidiaries, business trusts, limited liability
companies or other similar arrangements, and (iv) doing
anything necessary or incidental to the foregoing; provided,
however, such business and arrangements and interests may be
limited to and conducted in such a manner as to permit Aimco, in
the sole and absolute discretion of the general partner, at all
times to be classified as a REIT.
Management
by the General Partner
Except as otherwise expressly provided in the Aimco OP
partnership agreement, all management powers over the business
and affairs of Aimco OP are exclusively vested in the general
partner. No limited partner of Aimco OP or any other person to
whom one or more OP Units have been transferred (each, an
assignee) may take part in the operations,
management or control (within the meaning of the Delaware Act)
of Aimco OPs business, transact any business in Aimco
OPs name or have the power to sign documents for or
otherwise bind Aimco OP. The general partner may not be removed
by the limited partners with or without cause, except with the
consent of the general partner. In addition to the powers
granted to a general partner of a limited partnership under
applicable law or that are granted to the general partner under
any other provision of the Aimco OP partnership agreement, the
general partner, subject to the other provisions of the Aimco OP
partnership agreement, has full power and authority to do all
things deemed necessary or desirable by it to conduct the
business of Aimco OP, to exercise all powers of Aimco OP and to
effectuate the purposes of Aimco OP. Aimco OP may incur debt or
enter into other similar credit, guarantee, financing or
refinancing arrangements for any purpose (including, without
limitation, in connection with any acquisition of properties)
upon such terms as the general partner determines to be
appropriate. The general partner is authorized to execute,
deliver and perform specific agreements and transactions on
behalf of Aimco OP without any further act, approval or vote of
the limited partners.
Restrictions on General Partners
Authority. The general partner may not take any
action in contravention of the Aimco OP partnership agreement.
The general partner may not, without the prior consent of the
limited partners, undertake, on behalf of Aimco OP, any of the
following actions or enter into any transaction that would have
the effect of such transactions: (i) except as provided in
the partnership agreement, amend, modify or terminate the
partnership agreement other than to reflect the admission,
substitution, termination or withdrawal of partners;
(ii) make a general assignment for the benefit of creditors
or appoint or acquiesce in the appointment of a custodian,
receiver or trustee for all or any part of the assets of Aimco
OP; (iii) institute any proceeding for bankruptcy on
48
behalf of Aimco OP; or (iv) subject to specific exceptions,
approve or acquiesce to the transfer of the Aimco OP general
partner interest, or admit into Aimco OP any additional or
successor general partners.
Additional Limited Partners. The general
partner is authorized to admit additional limited partners to
Aimco OP from time to time, on terms and conditions and for such
capital contributions as may be established by the general
partner in its reasonable discretion. The net capital
contribution need not be equal for all partners. No action or
consent by the limited partners is required in connection with
the admission of any additional limited partner. The general
partner is expressly authorized to cause Aimco OP to issue
additional interests (i) upon the conversion, redemption or
exchange of any debt, OP Units or other securities issued
by Aimco OP, (ii) for less than fair market value, so long
as the general partner concludes in good faith that such
issuance is in the best interests of the general partner and
Aimco OP, and (iii) in connection with any merger of any
other entity into Aimco OP if the applicable merger agreement
provides that persons are to receive interests in Aimco OP in
exchange for their interests in the entity merging into Aimco
OP. Subject to Delaware law, any additional partnership
interests may be issued in one or more classes, or one or more
series of any of such classes, with such designations,
preferences and relative, participating, optional or other
special rights, powers and duties as shall be determined by the
general partner, in its sole and absolute discretion without the
approval of any limited partner, and set forth in a written
document thereafter attached to and made an exhibit to the
partnership agreement. Without limiting the generality of the
foregoing, the general partner has authority to specify
(a) the allocations of items of partnership income, gain,
loss, deduction and credit to each such class or series of
partnership interests; (b) the right of each such class or
series of partnership interests to share in distributions;
(c) the rights of each such class or series of partnership
interests upon dissolution and liquidation of Aimco OP;
(d) the voting rights, if any, of each such class or series
of partnership interests; and (e) the conversion,
redemption or exchange rights applicable to each such class or
series of partnership interests. No person may be admitted as an
additional limited partner without the consent of the general
partner, which consent may be given or withheld in the general
partners sole and absolute discretion.
Indemnification. As a part of conducting the
merger described herein, the general partner has agreed not to
seek indemnification from, or to be held harmless by, Aimco OP,
or its affiliates, for any liability or loss suffered by the
general partner related to the merger, unless (i) the
general partner has determined, in good faith, that the course
of conduct which caused the loss or liability was in the best
interests of Aimco OP, (ii) the general partner was acting
on behalf of or performing services for Aimco OP,
(iii) such liability or loss was not the result of
negligence or misconduct by the general partner and
(iv) such indemnification or agreement to hold harmless is
recoverable only out of the assets of Aimco OP and not from the
limited partners of Aimco OP. In addition, the general partner,
and any of its affiliates that are performing services on behalf
of Aimco OP, have agreed that they will not seek indemnification
for any losses, liabilities or expenses arising from or out of
an alleged violation of federal or state securities laws unless
(i) there has been a successful adjudication on the merits
of each count involving alleged securities law violations as to
the particular indemnitee, (ii) such claims have been
dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee, or (iii) a
court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and finds that
indemnification of the settlement and related costs should be
made, and, as relates to (iii), the court of law considering the
request for indemnification has been advised of the position of
the SEC and the position of any state securities regulatory
authority in which securities of Aimco OP were offered or sold
as to indemnification for violations of securities laws. Aimco
OP shall not incur the cost of that portion of liability
insurance, if any, which insures the general partner for any
liability as to which the general partner is prohibited from
being indemnified as described in this paragraph. Finally, the
general partner has agreed that the provision of advancement
from Aimco OP funds to the general partner or any of its
affiliates for legal expenses and other costs incurred as a
result of any legal action is permissible if (i) the legal
action relates to acts or omissions with respect to the
performance of duties or services on behalf of Aimco OP;
(ii) the legal action is initiated by a third party who is
not a limited partner of Aimco OP, or the legal action is
initiated by a limited partner and a court of competent
jurisdiction specifically approves such advancement; and
(iii) the general partner or its affiliates undertake to
repay the advanced funds to Aimco OP in cases in which such
person is not entitled to indemnification under this paragraph.
49
Outstanding
Classes of Units
As of October 31, 2011, Aimco OP had issued and outstanding
the following partnership interests:
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Liquidation
|
|
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Units
|
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Quarterly Distribution
|
|
Preference
|
Class
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Outstanding
|
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per Unit
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(per Unit)
|
|
Partnership Common Units (OP Units)
|
|
|
120,916,144
|
|
|
$
|
|
|
|
|
N/A
|
|
Class T Partnership Preferred Units
|
|
|
6,000,000
|
|
|
$
|
0.50
|
|
|
$
|
25.00
|
|
Class U Partnership Preferred Units
|
|
|
12,000,000
|
|
|
$
|
0.485
|
|
|
$
|
25.00
|
|
Class V Partnership Preferred Units
|
|
|
2,587,500
|
|
|
$
|
0.50
|
|
|
$
|
25.00
|
|
Class Y Partnership Preferred Units
|
|
|
3,450,000
|
|
|
$
|
0.4925
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|
|
$
|
25.00
|
|
Class Z Partnership Preferred Units
|
|
|
823,817
|
|
|
$
|
0.4375
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|
|
$
|
25.00
|
|
Series A Community Reinvestment Act Perpetual Partnership
Preferred Units(1)
|
|
|
94
|
|
|
$
|
1,875.00
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|
|
$
|
500,000.00
|
|
Class One Partnership Preferred Units(2)
|
|
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90,000
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|
|
$
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2.00
|
|
|
$
|
91.43
|
|
Class Two Partnership Preferred Units(2)
|
|
|
19,289
|
|
|
$
|
0.12
|
|
|
$
|
25.00
|
|
Class Three Partnership Preferred Units(2)
|
|
|
1,365,284
|
|
|
$
|
0.4925
|
|
|
$
|
25.00
|
|
Class Four Partnership Preferred Units(2)
|
|
|
755,999
|
|
|
$
|
0.50
|
|
|
$
|
25.00
|
|
Class Six Partnership Preferred Units(2)
|
|
|
796,668
|
|
|
$
|
0.5325
|
|
|
$
|
25.00
|
|
Class Seven Partnership Preferred Units(2)
|
|
|
27,960
|
|
|
$
|
0.595
|
|
|
$
|
25.00
|
|
Class Eight Partnership Preferred Units(3)
|
|
|
6,250
|
|
|
$
|
|
|
|
|
N/A
|
|
Class I High Performance Partnership Units (HPUs)(3)
|
|
|
2,339,950
|
|
|
$
|
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
The Series A Community Reinvestment Act Perpetual
Partnership Preferred Units, or the CRA Preferred Units, have
substantially the same terms as Aimcos Series A
Community Reinvestment Act Perpetual Preferred Stock, or the CRA
Preferred Stock. Holders of the CRA Preferred Units are entitled
to cumulative cash dividends payable quarterly in arrears on
March 31, June 30, September 30, and December 31
of each year, when and as declared, beginning on
September 30, 2006. For the period from the date of
original issuance through March 31, 2015, the distribution
rate is a variable rate per annum equal to the Three-Month LIBOR
Rate (as defined in the articles supplementary designating the
CRA Preferred Stock) plus 1.25%, calculated as of the beginning
of each quarterly dividend period. The rate at
September 30, 2011 was 1.50%. Upon liquidation, holders of
the CRA Preferred Stock are entitled to a preference of $500,000
per share, plus an amount equal to accumulated, accrued and
unpaid dividends, whether or not earned or declared. The CRA
Preferred Units rank prior to Common OP Units and on the same
level as Aimco OPs other Preferred OP Units, with respect
to the payment of distributions and the distribution of amounts
upon liquidation, dissolution or winding up. The CRA Preferred
Units were not redeemable prior to June 30, 2011, except in
limited circumstances related to Aimcos REIT
qualification. On and after June 30, 2011, the CRA
Preferred Units are redeemable for cash, in whole or from time
to time in part, upon the redemption, at Aimcos option, of
its CRA Preferred Stock at a price per share equal to the
liquidation preference, plus accumulated, accrued and unpaid
distributions, if any, to the redemption date. |
|
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|
(2) |
|
The Class One, Class Two, Class Three,
Class Four, Class Six and Class Seven preferred
OP Units are redeemable, at the holders option. Aimco OP,
at its sole discretion, may settle such redemption requests in
cash or shares of Aimco common stock in a value equal to the
redemption preference. In the event Aimco OP requires Aimco to
issue shares to settle a redemption request, it would issue to
Aimco a corresponding number of OP Units. Aimco OP has a
redemption policy that requires cash settlement of redemption
requests for the redeemable preferred OP Units, subject to
limited exceptions. |
|
(3) |
|
The holders of Class Eight preferred OP Units and HPUs
receive the same amount of distributions that are paid to
holders of an equivalent number of Aimco OPs outstanding
OP Units. |
50
Distributions
Subject to the rights of holders of any outstanding partnership
preferred units, the Aimco OP partnership agreement requires the
general partner to cause Aimco OP to distribute quarterly all,
or such portion as the general partner may in its sole and
absolute discretion determine, of Available Cash (as defined in
the partnership agreement) generated by Aimco OP during such
quarter to the general partner, the special limited partner, the
other holders of OP Units and holders of HPUs on the record
date established by the general partner with respect to such
quarter, in accordance with their respective interests in Aimco
OP on such record date. Holders of any partnership preferred
units issued in the future may have priority over the general
partner, the special limited partner, holders of OP Units
and holders of HPUs with respect to distributions of Available
Cash, distributions upon liquidation or other distributions.
Distributions payable with respect to any interest in Aimco OP
that was not outstanding during the entire quarterly period in
respect of which any distribution is made will be prorated based
on the portion of the period that such interest was outstanding.
The general partner in its sole and absolute discretion may
distribute to the limited partners Available Cash on a more
frequent basis and provide for an appropriate record date. The
partnership agreement requires the general partner to take such
reasonable efforts, as determined by it in its sole and absolute
discretion and consistent with the requirements for
qualification as a REIT, to cause Aimco OP to distribute
sufficient amounts to enable the general partner to transfer
funds to Aimco and enable Aimco to pay stockholder dividends
that will (i) satisfy the requirements, or the REIT
Requirements, for qualifying as a REIT under the Internal
Revenue Code and the applicable regulations promulgated by the
U.S. Treasury Department, or the Treasury Regulations, and
(ii) avoid any U.S. federal income or excise tax
liability of Aimco.
While some of the debt instruments to which Aimco OP is a party,
including its credit facilities, contain restrictions on the
payment of distributions to OP Unitholders, the debt
instruments allow Aimco OP to distribute sufficient amounts to
enable the general partner and special limited partner to
transfer funds to Aimco which are then used to pay stockholder
dividends, thereby allowing Aimco to meet the requirements for
qualifications as a REIT under the Internal Revenue Code.
Distributions in Kind. No OP Unitholder
has any right to demand or receive property other than cash as
provided in the partnership agreement. The general partner may
determine, in its sole and absolute discretion, to make a
distribution in kind of partnership assets to the
OP Unitholders, and such assets will be distributed in such
a fashion as to ensure that the fair market value is distributed
and allocated in accordance with the Aimco OP partnership
agreement.
Distributions Upon Liquidation. Subject to the
rights of holders of any outstanding partnership preferred
units, net proceeds from the sale or other disposition of all or
substantially all of its assets in a transaction that will lead
to a liquidation of Aimco OP or a related series of transactions
that, taken together, result in the sale or other disposition of
all or substantially all of the assets of Aimco OP, or a
Terminating Capital Transaction, and any other cash received or
reductions in reserves made after commencement of the
liquidation of Aimco OP, will be distributed to the
OP Unitholders in accordance with the Aimco OP partnership
agreement.
Restricted Distributions. The Aimco OP
partnership agreement prohibits Aimco OP and the general
partner, on behalf of Aimco OP, from making a distribution to
any OP Unitholder on account of its interest in
OP Units if such distribution would violate
Section 17-607
of the Delaware Act or other applicable law.
Allocations
of Net Income and Net Loss
OP Units and HPUs. Net Income (as defined
in the Aimco OP partnership agreement) and Net Loss (as defined
in the Aimco OP partnership agreement) of Aimco OP will be
determined and allocated with respect to each fiscal year of
Aimco OP as of the end of each such year. Except as otherwise
provided in the Aimco OP partnership agreement, an allocation to
an OP Unitholder of a share of Net Income or Net Loss will
be treated as an allocation of the same share of each item of
income, gain, loss or deduction that is taken into account in
computing Net Income or Net Loss. Except as otherwise provided
in the Aimco OP partnership agreement and subject to the terms
of any outstanding partnership preferred units, Net Income and
Net Loss will be allocated to the holders of OP Units and
holders of HPUs in accordance with their respective interests at
the end of each fiscal year. The Aimco OP
51
partnership agreement contains provisions for special
allocations intended to comply with certain regulatory
requirements, including the requirements of Treasury Regulations
Sections 1.704-1(b)
and 1.704-2. Except as otherwise provided in the Aimco OP
partnership agreement and subject to the terms of any
outstanding partnership preferred units, for U.S. federal
income tax purposes under the Internal Revenue Code and the
Treasury Regulations, each partnership item of income, gain,
loss and deduction will be allocated among the
OP Unitholders in the same manner as its correlative item
of book income, gain, loss or deduction is allocated
under the Aimco OP partnership agreement.
Partnership Preferred Units. Net income will
be allocated to the holders of partnership preferred units for
any fiscal year (and, if necessary, subsequent fiscal years) to
the extent that the holders of partnership preferred units
receive a distribution on any partnership preferred units (other
than an amount included in any redemption of partnership
preferred units). If any partnership preferred units are
redeemed, for the fiscal year that includes such redemption
(and, if necessary, for subsequent fiscal years) (i) gross
income and gain (in such relative proportions as the general
partner in its discretion will determine) will be allocated to
the holders of partnership preferred units to the extent that
the redemption amounts paid or payable with respect to the
partnership preferred units so redeemed exceeds the aggregate
capital contributions (net of liabilities assumed or taken
subject to by Aimco OP) per partnership preferred units
allocable to the partnership preferred units so redeemed and
(ii) deductions and losses (in such relative proportions as
the general partner in its discretion will determine) will be
allocated to the holders of partnership preferred units to the
extent that the aggregate capital contributions (net of
liabilities assumed or taken subject to by Aimco OP) per
partnership preferred units allocable to the partnership
preferred units so redeemed exceeds the redemption amount paid
or payable with respect to the partnership preferred units so
redeemed.
Withholding
Aimco OP is authorized to withhold from or pay on behalf of or
with respect to each limited partner any amount of federal,
state, local or foreign taxes that the general partner
determines that Aimco OP is required to withhold or pay with
respect to any amount distributable or allocable to such limited
partner under the Aimco OP partnership agreement. The Aimco OP
partnership agreement also provides that any withholding tax
amount paid on behalf of or with respect to a limited partner
constitutes a loan by Aimco OP to such limited partner. This
loan is required to be repaid within 15 days after notice
to the limited partner from the general partner, and each
limited partner grants a security interest in its partnership
interest to secure its obligation to pay any partnership
withholding tax amounts paid on its behalf or with respect to
such limited partner. In addition, under the Aimco OP
partnership agreement, the partnership may redeem the
partnership interest of any limited partner who fails to pay
partnership withholding tax amounts paid on behalf of or with
respect to such limited partner. Also, the general partner has
authority to withhold, from any amounts otherwise distributable,
allocable or payable to a limited partner, the general
partners estimate of further taxes required to be paid by
such limited partner.
Return of
Capital
No partner is entitled to interest on its capital contribution
or on such partners capital account. Except (i) under
the rights of redemption set forth in the Aimco OP partnership
agreement, (ii) as provided by law, or (iii) under the
terms of any outstanding partnership preferred units, no partner
has any right to demand or receive the withdrawal or return of
its capital contribution from Aimco OP, except to the extent of
distributions made under the Aimco OP partnership agreement or
upon termination of Aimco OP. Except to the extent otherwise
expressly provided in the Aimco OP partnership agreement and
subject to the terms of any outstanding partnership preferred
units, no limited partner or assignee will have priority over
any other limited partner or Assignee either as to the return of
capital contributions or as to profits, losses or distributions.
Redemption Rights
of Qualifying Parties
After the first anniversary of becoming a holder of
OP Units, each OP Unitholder and some assignees have
the right, subject to the terms and conditions set forth in the
Aimco OP partnership agreement, to require Aimco OP to redeem
all or a portion of the OP Units held by such party in
exchange for shares of Aimco common stock or a cash amount equal
to the value of such shares, as Aimco OP may determine. On or
before the close of business on the fifth business day after a
holder of OP Units gives the general partner a notice of
redemption, Aimco OP may, in its
52
sole and absolute discretion but subject to the restrictions on
the ownership of Aimco stock imposed under Aimcos charter
and the transfer restrictions and other limitations thereof,
elect to cause Aimco to acquire some or all of the tendered
OP Units from the tendering party in exchange for Aimco
common stock, based on an exchange ratio of one share of Aimco
common stock for each OP Unit, subject to adjustment as
provided in the Aimco OP partnership agreement. The Aimco OP
partnership agreement does not obligate Aimco or the general
partner to register, qualify or list any Aimco common stock
issued in exchange for OP Units with the SEC, with any
state securities commissioner, department or agency, or with any
stock exchange. Aimco common stock issued in exchange for
OP Units under the Aimco OP partnership agreement will
contain legends regarding restrictions under the Securities Act
and applicable state securities laws as Aimco in good faith
determines to be necessary or advisable in order to ensure
compliance with securities laws. In the event of a change of
control of Aimco, holders of HPUs will have redemption rights
similar to those of holders of OP Units.
Partnership
Right to Call Limited Partner Interests
Notwithstanding any other provision of the Aimco OP partnership
agreement, on and after the date on which the aggregate
percentage interests of the limited partners, other than the
special limited partner, are less than one percent (1%), Aimco
OP will have the right, but not the obligation, from time to
time and at any time to redeem any and all outstanding limited
partner interests (other than the special limited partners
interest) by treating any limited partner as if such limited
partner had tendered for redemption under the Aimco OP
partnership agreement the amount of OP Units specified by
the general partner, in its sole and absolute discretion, by
notice to the limited partner.
Transfers
and Withdrawals
Restrictions On Transfer. The Aimco OP
partnership agreement restricts the transferability of
OP Units. Any transfer or purported transfer of an
OP Unit not made in accordance with the Aimco OP
partnership agreement will be null and void ab initio. Until the
expiration of one year from the date on which an
OP Unitholder acquired OP Units, subject to some
exceptions, such OP Unitholder may not transfer all or any
portion of its OP Units to any transferee without the
consent of the general partner, which consent may be withheld in
its sole and absolute discretion. After the expiration of one
year from the date on which an OP Unitholder acquired
OP Units, such OP Unitholder has the right to transfer
all or any portion of its OP Units to any person, subject
to the satisfaction of specific conditions specified in the
Aimco OP partnership agreement, including the general
partners right of first refusal.
It is a condition to any transfer (whether or not such transfer
is effected before or after the one year holding period) that
the transferee assumes by operation of law or express agreement
all of the obligations of the transferor limited partner under
the Aimco OP partnership agreement with respect to such
OP Units, and no such transfer (other than under a
statutory merger or consolidation wherein all obligations and
liabilities of the transferor partner are assumed by a successor
corporation by operation of law) will relieve the transferor
partner of its obligations under the Aimco OP partnership
agreement without the approval of the general partner, in its
sole and absolute discretion.
In connection with any transfer of OP Units, the general
partner will have the right to receive an opinion of counsel
reasonably satisfactory to it to the effect that the proposed
transfer may be effected without registration under the
Securities Act, and will not otherwise violate any federal or
state securities laws or regulations applicable to Aimco OP or
the OP Units transferred.
No transfer by a limited partner of its OP Units (including
any redemption or any acquisition of OP Units by the
general partner or by Aimco OP) may be made to any person if
(i) in the opinion of legal counsel for Aimco OP, it would
result in Aimco OP being treated as an association taxable as a
corporation, or (ii) such transfer is effectuated through
an established securities market or a
secondary market (or the substantial equivalent
thereof) within the meaning of section 7704 of the
Internal Revenue Code.
HPUs. HPUs are subject to different
restrictions on transfer. Individuals may not transfer HPUs
except to a family member (or a family-owned entity) or in the
event of their death.
53
Substituted Limited Partners. No limited
partner will have the right to substitute a transferee as a
limited partner in its place. A transferee of the interest of a
limited partner may be admitted as a substituted limited partner
only with the consent of the general partner, which consent may
be given or withheld by the general partner in its sole and
absolute discretion. If the general partner, in its sole and
absolute discretion, does not consent to the admission of any
permitted transferee as a substituted limited partner, such
transferee will be considered an assignee for purposes of the
Aimco OP partnership agreement. An assignee will be entitled to
all the rights of an assignee of a limited partnership interest
under the Delaware Act, including the right to receive
distributions from Aimco OP and the share of Net Income, Net
Losses and other items of income, gain, loss, deduction and
credit of Aimco OP attributable to the OP Units assigned to
such transferee and the rights to transfer the OP Units
provided in the Aimco OP partnership agreement, but will not be
deemed to be a holder of OP Units for any other purpose
under the Aimco OP partnership agreement, and will not be
entitled to effect a consent or vote with respect to such
OP Units on any matter presented to the limited partners
for approval (such right to consent or vote, to the extent
provided in the Aimco OP partnership agreement or under the
Delaware Act, fully remaining with the transferor limited
partner).
Withdrawals. No limited partner may withdraw
from Aimco OP other than as a result of a permitted transfer of
all of such limited partners OP Units in accordance
with the Aimco OP partnership agreement, with respect to which
the transferee becomes a substituted limited partner, or under a
redemption (or acquisition by Aimco) of all of such limited
partners OP Units.
Restrictions on the general partner. The
general partner may not transfer any of its general partner
interest or withdraw from Aimco OP unless (i) the limited
partners consent or (ii) immediately after a merger of the
general partner into another entity, substantially all of the
assets of the surviving entity, other than the general
partnership interest in Aimco OP held by the general partner,
are contributed to Aimco OP as a capital contribution in
exchange for OP Units.
Amendment
of the Partnership Agreement
By the General Partner Without the Consent of the Limited
Partners. The general partner has the power,
without the consent of the limited partners, to amend the Aimco
OP partnership agreement as may be required to facilitate or
implement any of the following purposes: (1) to add to the
obligations of the general partner or surrender any right or
power granted to the general partner or any affiliate of the
general partner for the benefit of the limited partners;
(2) to reflect the admission, substitution or withdrawal of
partners or the termination of Aimco OP in accordance with the
partnership agreement; (3) to reflect a change that is of
an inconsequential nature and does not adversely affect the
limited partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in the
partnership agreement not inconsistent with law or with other
provisions, or make other changes with respect to matters
arising under the partnership agreement that will not be
inconsistent with law or with the provisions of the partnership
agreement; (4) to satisfy any requirements, conditions or
guidelines contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in federal
or state law; (5) to reflect such changes as are reasonably
necessary for Aimco to maintain its status as a REIT; and
(6) to modify the manner in which capital accounts are
computed (but only to the extent set forth in the definition of
Capital Account in the Aimco OP partnership
agreement or contemplated by the Internal Revenue Code or the
Treasury Regulations).
With the Consent of the Limited
Partners. Amendments to the Aimco OP partnership
agreement may be proposed by the general partner or by holders
of a majority of the outstanding OP Units and other classes
of units that have the same voting rights as holders of
OP Units, excluding the special limited partner. Following
such proposal, the general partner will submit any proposed
amendment to the limited partners. The general partner will seek
the written consent of a majority in interest of the limited
partners on the proposed amendment or will call a meeting to
vote thereon and to transact any other business that the general
partner may deem appropriate.
Procedures
for Actions and Consents of Partners
Meetings of the partners may be called by the general partner
and will be called upon the receipt by the general partner of a
written request by a majority in interest of the limited
partners. Notice of any such meeting will be given to all
partners not less than seven (7) days nor more than thirty
(30) days prior to the date of such meeting. Partners
54
may vote in person or by proxy at such meeting. Each meeting of
partners will be conducted by the general partner or such other
person as the general partner may appoint under such rules for
the conduct of the meeting as the general partner or such other
person deems appropriate in its sole and absolute discretion.
Whenever the vote or consent of partners is permitted or
required under the partnership agreement, such vote or consent
may be given at a meeting of partners or may be given by written
consent. Any action required or permitted to be taken at a
meeting of the partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by
partners holding a majority of outstanding OP Units (or
such other percentage as is expressly required by the Aimco OP
partnership agreement for the action in question).
Records
and Accounting; Fiscal Year
The Aimco OP partnership agreement requires the general partner
to keep or cause to be kept at the principal office of Aimco OP
those records and documents required to be maintained by the
Delaware Act and other books and records deemed by the general
partner to be appropriate with respect to Aimco OPs
business. The books of Aimco OP will be maintained, for
financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles, or on
such other basis as the general partner determines to be
necessary or appropriate. To the extent permitted by sound
accounting practices and principles, Aimco OP, the general
partner and Aimco may operate with integrated or consolidated
accounting records, operations and principles. The fiscal year
of Aimco OP is the calendar year.
Reports
As soon as practicable, but in no event later than one hundred
and five (105) days after the close of each calendar
quarter and each fiscal year, the general partner will make
available to limited partners (which may be done by filing a
report with the SEC) a report containing financial statements of
Aimco OP, or of Aimco if such statements are prepared solely on
a consolidated basis with Aimco, for such calendar quarter or
fiscal year, as the case may be, presented in accordance with
generally accepted accounting principles, and such other
information as may be required by applicable law or regulation
or as the general partner determines to be appropriate.
Statements included in quarterly reports are not audited.
Statements included in annual reports are audited by a
nationally recognized firm of independent public accountants
selected by the general partner.
Tax
Matters Partner
The general partner is the tax matters partner of
Aimco OP for U.S. federal income tax purposes. The tax
matters partner is authorized, but not required, to take certain
actions on behalf of Aimco OP with respect to tax matters. In
addition, the general partner will arrange for the preparation
and timely filing of all returns with respect to partnership
income, gains, deductions, losses and other items required of
Aimco OP for U.S. federal and state income tax purposes and
will use all reasonable effort to furnish, within ninety
(90) days of the close of each taxable year, the tax
information reasonably required by limited partners for
U.S. federal and state income tax reporting purposes. The
limited partners will promptly provide the general partner with
such information as may be reasonably requested by the general
partner from time to time.
Dissolution
and Winding Up
Dissolution. Aimco OP will dissolve, and its
affairs will be wound up, upon the first to occur of any of the
following (each a liquidating event): (i) an
event of withdrawal, as defined in the Delaware Act (including,
without limitation, bankruptcy), of the sole general partner
unless, within ninety (90) days after the withdrawal, a
majority in interest (as such phrase is used in
Section 17-801(3)
of the Delaware Act) of the remaining partners agree in writing,
in their sole and absolute discretion, to continue the business
of Aimco OP and to the appointment, effective as of the date of
withdrawal, of a successor general partner; (ii) an
election to dissolve Aimco OP made by the general partner in its
sole and absolute discretion, with or without the consent of the
limited partners; (iii) entry of a decree of judicial
dissolution of Aimco OP under the provisions of the Delaware
Act; (iv) the occurrence of a Terminating Capital
Transaction; or (v) the redemption (or acquisition by
Aimco, the general partner
and/or the
special limited partner) of all OP Units other than
OP Units held by the general partner or the special limited
partner.
55
Winding Up. Upon the occurrence of a
liquidating event, Aimco OP will continue solely for the
purposes of winding up its affairs in an orderly manner,
liquidating its assets and satisfying the claims of its
creditors and partners. The general partner (or, in the event
that there is no remaining general partner or the general
partner has dissolved, become bankrupt within the meaning of the
Delaware Act or ceased to operate, any person elected by a
majority in interest of the limited partners) will be
responsible for overseeing the winding up and dissolution of
Aimco OP and will take full account of Aimco OPs
liabilities and property, and Aimco OP property will be
liquidated as promptly as is consistent with obtaining the fair
value thereof, and the proceeds therefrom (which may, to the
extent determined by the general partner, include Aimco stock)
will be applied and distributed in the following order:
(i) first, to the satisfaction of all of Aimco OPs
debts and liabilities to creditors other than the partners and
their assignees (whether by payment or the making of reasonable
provision for payment thereof); (ii) second, to the
satisfaction of all of Aimco OPs debts and liabilities to
the general partner (whether by payment or the making of
reasonable provision for payment thereof), including, but not
limited to, amounts due as reimbursements under the partnership
agreement; (ii) third, to the satisfaction of all of Aimco
OPs debts and liabilities to the other partners and any
assignees (whether by payment or the making of reasonable
provision for payment thereof); (iv) fourth, to the
satisfaction of all liquidation preferences of outstanding
Partnership Preferred Units, if any; and (v) the balance,
if any, to the general partner, the limited partners and any
assignees in accordance with and in proportion to their positive
capital account balances, after giving effect to all
contributions, distributions and allocations for all periods. In
the event of a liquidation, holders of HPUs will be specially
allocated items of income and gain in an amount sufficient to
cause the capital account of such holder to be equal to that of
a holder of an equal number of OP Units.
56
DESCRIPTION
OF AIMCO COMMON STOCK
General
Aimcos charter authorizes the issuance of up to
510,587,500 shares of capital stock, consisting of
480,887,260 shares currently classified as common stock
with a par value of $0.01 per share and 29,700,240 shares
currently classified as preferred stock with a par value of
$0.01 per share. As of October 31, 2011,
120,916,144 shares were issued and outstanding. Aimco
common stock is traded on the NYSE under the symbol
AIV. Computershare Limited serves as transfer agent
and registrar of Aimco common stock. On November 10, 2011,
the closing price of the Aimco common stock on the NYSE was
$22.82. The following table shows the high and low reported
sales prices and dividends paid per share of Aimcos common
stock in the periods indicated.
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Quarter Ended
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High
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|
Low
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|
Dividends
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|
December 31, 2011 (through November 10, 2011)
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$
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27.26
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|
|
$
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20.08
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|
|
$
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|
|
September 30, 2011
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|
|
28.12
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|
|
|
21.92
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|
|
|
0.12
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|
June 30, 2011
|
|
|
27.67
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|
|
|
24.50
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|
|
|
0.12
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|
March 31, 2011
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|
|
26.33
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|
|
|
23.38
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|
|
|
0.12
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|
December 31, 2010
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|
$
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26.24
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|
|
$
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21.22
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|
|
$
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0.10
|
|
September 30, 2010
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|
|
22.82
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|
|
|
18.12
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|
|
|
0.10
|
|
June 30, 2010
|
|
|
24.21
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|
|
|
18.14
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|
|
|
0.10
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|
March 31, 2010
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|
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19.17
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|
|
|
15.01
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|
|
|
0.00
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|
December 31, 2009
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|
$
|
17.09
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|
|
$
|
11.80
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|
|
$
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0.20
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|
September 30, 2009
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|
|
15.91
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|
|
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7.36
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|
|
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0.10
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|
June 30, 2009
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|
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11.10
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|
|
|
5.18
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|
|
|
0.10
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|
March 31, 2009
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|
|
12.89
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|
|
|
4.57
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|
|
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0.00
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|
Aimco has a Stock Award and Incentive Plan to attract and retain
officers, key employees and independent directors. Aimcos
plan reserves for issuance a maximum of 4.1 million shares,
which may be in the form of incentive stock options,
non-qualified stock options and restricted stock, or other types
of awards as authorized under Aimcos plan.
Holders of Aimco common stock are entitled to receive dividends,
when and as declared by the Board of Directors of Aimco, or the
Aimco Board of Directors, out of funds legally available
therefor. The holders of shares of common stock, upon any
liquidation, dissolution or winding up of Aimco, are entitled to
receive ratably any assets remaining after payment in full of
all liabilities of Aimco and the liquidation preferences of
preferred stock. The shares of common stock possess ordinary
voting rights for the election of directors and in respect of
other corporate matters, each share entitling the holder thereof
to one vote. Holders of shares of common stock do not have
cumulative voting rights in the election of directors, which
means that holders of more than 50% of the shares of common
stock voting for the election of directors can elect all of the
directors if they choose to do so and the holders of the
remaining shares cannot elect any directors. Holders of shares
of common stock do not have preemptive rights, which means they
have no right to acquire any additional shares of common stock
that may be issued by Aimco at a subsequent date.
Outstanding
Classes of Preferred Stock
Aimco is authorized to issue shares of preferred stock in one or
more classes or subclasses, with such designations, preferences,
conversion and other rights, voting powers, restriction,
limitations as to dividends, qualifications and terms and
conditions of redemption, in each case, if any as are permitted
by Maryland law and as
57
the Aimco Board of Directors may determine by resolution. As of
October 31, 2011, Aimco had issued and outstanding the
following classes of preferred stock:
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Quarterly
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|
Liquidation
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|
|
|
|
Shares
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|
Shares
|
|
Dividend
|
|
Preference
|
|
Conversion
|
Class
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Authorized
|
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Outstanding
|
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per Share
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per Share
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Price
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|
Class T Cumulative Preferred Stock
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|
|
6,000,000
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|
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|
6,000,000
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|
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$
|
0.50
|
|
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$
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25.00
|
|
|
|
N/A
|
|
Class U Cumulative Preferred Stock
|
|
|
12,000,000
|
|
|
|
12,000,000
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|
|
$
|
0.485
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|
|
$
|
25.00
|
|
|
|
N/A
|
|
Class V Cumulative Preferred Stock
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|
|
3,450,000
|
|
|
|
2,587,500
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|
|
$
|
0.50
|
|
|
$
|
25.00
|
|
|
|
N/A
|
|
Class Y Cumulative Preferred Stock
|
|
|
3,450,000
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|
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|
3,450,000
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|
|
$
|
0.4925
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|
|
$
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25.00
|
|
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N/A
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|
Class Z Cumulative Preferred Stock
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|
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4,800,000
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|
|
|
823,817
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|
$
|
0.4375
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|
|
$
|
25.00
|
|
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N/A
|
|
Series A Community Reinvestment Act Perpetual Preferred
Stock(1)
|
|
|
240
|
|
|
|
94
|
|
|
$
|
1,875.00
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|
|
$
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500,000.00
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|
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N/A
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|
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|
(1) |
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For the period from the date of original issuance through
March 31, 2015, the dividend rate is a variable rate per
annum equal to the Three-Month LIBOR Rate (as defined in the
articles supplementary designating the CRA Preferred Stock) plus
1.25%, calculated as of the beginning of each quarterly dividend
period. The rate at September 30, 2011 was 1.50%. Upon
liquidation, holders of the CRA Preferred Stock are entitled to
a preference of $500,000 per share, plus an amount equal to
accumulated, accrued and unpaid dividends, whether or not earned
or declared. The CRA Preferred Stock ranks prior to the Aimco
common stock and on the same level as Aimcos outstanding
shares of preferred stock with respect to the payment of
dividends and the distribution of amounts upon liquidation,
dissolution or winding up. The CRA Preferred Stock was not
redeemable prior to June 30, 2011, except in limited
circumstances related to REIT qualification. On and after
June 30, 2011, the CRA Preferred Stock is redeemable for
cash, in whole or from time to time in part, at Aimcos
option, at a price per share equal to the liquidation
preference, plus accumulated, accrued and unpaid dividends, if
any, to the redemption date. |
Ranking. Each authorized class of preferred
stock ranks, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of Aimco, (a) prior
or senior to the common stock and any other class or series of
capital stock of Aimco if the holders of that class of preferred
stock are entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or
winding-up
in preference or priority to the holders of shares of such class
or series (Junior Stock); (b) on a parity with
the other authorized classes of preferred stock and any other
class or series of capital stock of Aimco if the holders of such
class or series of stock and that class of preferred stock are
entitled to receive dividends and amounts distributable upon
liquidation, dissolution or
winding-up
in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without
preference or priority of one over the other (Parity
Stock); and (c) junior to any class or series of
capital stock of Aimco if the holders of such class or series
are entitled to receive dividends and amounts distributable upon
liquidation, dissolution or
winding-up
in preference or priority to the holders of that class of
preferred stock (Senior Stock).
Dividends. Holders of each authorized class of
preferred stock are entitled to receive, when and as declared by
the Aimco Board of Directors, out of funds legally available for
payment, quarterly cash dividends in the amount per share set
forth in the table above under the heading, Quarterly
Dividend Per Share. The dividends are cumulative from the
date of original issue, whether or not in any dividend period or
periods Aimco declares any dividends or have funds legally
available for the payment of such dividend. Holders of preferred
stock are not entitled to receive any dividends in excess of
cumulative dividends on the preferred stock. No interest, or sum
of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the preferred stock that may be
in arrears.
When dividends are not paid in full upon any class of preferred
stock, or a sum sufficient for such payment is not set apart,
all dividends declared upon that class of preferred stock and
any shares of Parity Stock will be declared ratably in
proportion to the respective amounts of dividends accumulated,
accrued and unpaid on that class of preferred stock and
accumulated, accrued and unpaid on such Parity Stock. Except as
set forth in the preceding sentence, unless dividends on each
class of preferred stock equal to the full amount of
accumulated, accrued and unpaid dividends have been or
contemporaneously are declared and paid or declared and a sum
sufficient for the
58
payment thereof has been or contemporaneously is set apart for
such payment, for all past dividend periods, no dividends may be
declared or paid or set apart for payment by Aimco and no other
distribution of cash or other property may be declared or made,
directly or indirectly, by Aimco with respect to any shares of
Parity Stock. Unless dividends equal to the full amount of all
accumulated, accrued and unpaid dividends on each class of
preferred stock have been declared and paid, or declared and a
sum sufficient for the payment thereof has been set apart for
such payment, for all past dividend periods, no dividends (other
than dividends or distributions paid in shares of Junior Stock
or options, warrants or rights to subscribe for or purchase
shares of Junior Stock) may be declared or paid or set apart for
payment by Aimco and no other distribution of cash or other
property may be declared or made, directly or indirectly, by
Aimco with respect to any shares of Junior Stock, nor may any
shares of Junior Stock be redeemed, purchased or otherwise
acquired (other than a redemption, purchase or other acquisition
of common stock made for purposes of an employee incentive or
benefit plan of Aimco or any subsidiary) for any consideration
(or any monies be paid to or made available for a sinking fund
for the redemption of any shares of any such stock), directly or
indirectly, by Aimco (except by conversion into or exchange for
shares of Junior Stock, or options, warrants or rights to
subscribe for or purchase shares of Junior Stock), nor shall any
other cash or other property be paid or distributed to or for
the benefit of holders of shares of Junior Stock.
Notwithstanding the foregoing provisions of this paragraph,
Aimco is not prohibited from (1) declaring or paying or
setting apart for payment any dividend or distribution on any
shares of Parity Stock or (2) redeeming, purchasing or
otherwise acquiring any Parity Stock, in each case, if such
declaration, payment, redemption, purchase or other acquisition
is necessary to maintain Aimcos qualification as a REIT.
Liquidation Preference. Upon any voluntary or
involuntary liquidation, dissolution or winding up of Aimco,
before it makes or sets apart any payment or distribution for
the holders of any shares of Junior Stock, the holders of each
class of preferred stock are entitled to receive a liquidation
preference per share in the amount set forth above under the
heading, Liquidation Preference Per Share, plus an
amount equal to all accumulated, accrued and unpaid dividends
(whether or not formed or declared) to the date of final
distribution to such holders. Holders of each class of preferred
stock are not entitled to any further payment. Until the holders
of each class of preferred stock have been paid their respective
liquidation preferences in full, plus an amount equal to all
accumulated, accrued and unpaid dividends (whether or not earned
or declared) to the date of final distribution to such holders,
no payment may be made to any holder of Junior Stock upon the
liquidation, dissolution or winding up of Aimco. If, upon any
liquidation, dissolution or winding up of Aimco, its assets, or
proceeds thereof, distributable among the holders of preferred
stock are insufficient to pay in full the preference described
above for any class of preferred stock and any liquidating
payments on any other shares of any class or series of Parity
Stock, then such proceeds shall be distributed among the holders
of such class of preferred stock and holders of all other shares
of any class or series of Parity Stock ratably in the same
proportion as the respective amounts that would be payable on
such class of preferred stock and any such Parity Stock if all
amounts payable thereon were paid in full. A voluntary or
involuntary liquidation, dissolution or winding up of Aimco does
not include its consolidation or merger with one or more
corporations, a sale or transfer of all or substantially all of
its assets, or a statutory share exchange. Upon any liquidation,
dissolution or winding up of Aimco, after payment shall have
been made in full to the holders of preferred stock, any other
series or class or classes of Junior Stock shall be entitled to
receive any and all assets remaining to be paid or distributed,
and the holders of each class of preferred stock and any Parity
Stock shall not be entitled to share therein.
Redemption. Except as described below and in
certain limited circumstances, including circumstances relating
to maintaining Aimcos ability to qualify as a REIT, Aimco
may not redeem the shares of preferred stock. On or after the
dates set forth in the table below, Aimco may, at its option,
redeem shares of the classes of preferred stock set forth below,
in whole or from time to time in part, at a cash redemption
price equal to the percentage of the liquidation preference for
that class of preferred stock indicated under the heading
Price, plus all accumulated, accrued and unpaid
dividends, if any, to the date fixed for redemption. The
redemption price for each class of non-convertible preferred
stock (other than any portion thereof consisting of accumulated,
accrued and unpaid dividends) is payable solely with the
proceeds from the sale of equity securities by Aimco or Aimco OP
(whether or not such sale occurs concurrently with such
redemption). For purposes of the preceding sentence,
capital shares means any common stock, preferred
stock, depositary shares, partnership or other interests,
participations or other ownership interests (however designated)
and any rights (other than debt securities convertible into or
exchangeable
59
at the option of the holder for equity securities (unless and to
the extent such debt securities are subsequently converted into
capital stock)) or options to purchase any of the foregoing
securities issued by Aimco or Aimco OP.
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|
|
Class
|
|
Date
|
|
Price
|
|
Class T Cumulative Preferred Stock
|
|
July 31, 2008
|
|
|
100
|
%
|
Class U Cumulative Preferred Stock
|
|
March 24, 2009
|
|
|
100
|
%
|
Class V Cumulative Preferred Stock
|
|
September 29, 2009
|
|
|
100
|
%
|
Class Y Cumulative Preferred Stock
|
|
December 21, 2009
|
|
|
100
|
%
|
Class Z Cumulative Preferred Stock
|
|
July 29, 2016
|
|
|
100
|
%
|
Series A Community Reinvestment Act Perpetual Preferred
Stock
|
|
June 30, 2011
|
|
|
100
|
%
|
Except as otherwise described in this information
statement/prospectus, none of the authorized classes of
preferred stock have any stated maturity or are subject to any
sinking find or mandatory redemption provisions.
Conversion. The shares of convertible
preferred stock are convertible at any time, at the option of
the holder, into a number of shares of Aimco common stock
obtained by dividing its liquidation preference (excluding any
accumulated, accrued and unpaid dividends) by the conversion
price set forth in the table above. In the case of shares called
for redemption, conversion rights will terminate at the close of
business on the date fixed for such redemption, unless Aimco
defaults in making such redemption payment. Each conversion will
be deemed to have been effected immediately prior to the close
of business on the date on which the holder surrenders
certificates representing shares of preferred stock and Aimco
receives notice and any applicable instruments of transfer and
any required taxes. The conversion will be at the conversion
price in effect at such time and on such date unless the stock
transfer books of Aimco are closed on that date, in which event
such person or persons will be deemed to have become such holder
or holders of record at the close of business on the next
succeeding day on which such stock transfer books are open, but
such conversion will be at the conversion price in effect on the
date on which such shares were surrendered and such notice
received by Aimco. No fractional shares of Aimco common stock or
scrip representing fractions of a share of Aimco common stock
will be issued upon conversion of shares of preferred stock.
Instead of any fractional interest in a share of Aimco common
stock that would otherwise be deliverable upon the conversion of
any share of preferred stock, Aimco will pay to the holder of
such shares an amount in cash based upon the closing price of
the Aimco common stock on the trading day immediately preceding
the date of conversion. If more than one share of preferred
stock is surrendered for conversion at one time by the same
holder, the number of full shares of Aimco common stock issuable
upon conversion thereof will be computed on the basis of the
aggregate number of shares of preferred stock so converted.
Except as otherwise required, Aimco will make no payment or
allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends (other than dividends on the
common stock the record date for which is after the conversion
date and which Aimco shall pay in the ordinary course to the
record holder as of the record date) on the Aimco common stock
issued upon such conversion. Holders of preferred stock at the
close of business on a record date for the payment of dividends
on the preferred stock will be entitled to receive an amount
equal to the dividend payable on such shares on the
corresponding dividend payment date notwithstanding the
conversion of such shares following such record date.
Each conversion price is subject to adjustment upon the
occurrence of certain events, including: (i) if Aimco
(A) pays a dividend or makes a distribution on its capital
stock in shares of Aimco common stock, (B) subdivides its
outstanding common stock into a greater number of shares,
(C) combines its outstanding common stock into a smaller
number of shares or (D) issues any shares of capital stock
by reclassification of its outstanding common stock;
(ii) if Aimco issues rights, options or warrants to holders
of common stock entitling them to subscribe for or purchase
common stock at a price per share less than the fair market
value thereof; and (iii) if Aimco makes a distribution on
its common stock other than in cash or shares of common stock.
Conversion of preferred stock will be permitted only to the
extent that such conversion would not result in a violation of
the ownership restrictions set forth in Aimcos charter.
Voting Rights. Holders of shares of the
authorized classes of preferred stock do not have any voting
rights, except as set forth below and except as otherwise
required by applicable law.
60
If and whenever dividends on any shares of any class of
preferred stock or any series or class of Parity Stock are in
arrears for six or more quarterly periods, whether or not
consecutive, the number of directors then constituting the Aimco
Board of Directors will be increased by two, if not already
increased by reason of similar types of provisions with respect
to shares of Parity Stock of any other class or series which is
entitled to similar voting rights (the Voting Preferred
Stock), and the holders of shares of that class of
preferred stock, together with the holders of shares of all
other Voting Preferred Stock then entitled to exercise similar
voting rights, voting as a single class regardless of series,
will be entitled to vote for the election of the two additional
directors of Aimco at any annual meeting of stockholders or at a
special meeting of the holders of that class of preferred stock
and of the Voting Preferred Stock called for that purpose.
Whenever dividends in arrears on outstanding shares of Voting
Preferred Stock shall have been paid and dividends thereon for
the current quarterly dividend period have been paid or declared
and set apart for payment, then the right of the holders of the
Voting Preferred Stock to elect the additional two directors
shall cease and the terms of office of the directors shall
terminate and the number of directors constituting the Aimco
Board of Directors shall be reduced accordingly. Holders of
Class W Cumulative Convertible Preferred Stock, voting as a
single class, are also entitled to elect one director of Aimco
if and whenever (i) for two consecutive quarterly dividend
periods, Aimco fails to pay at least $0.45 per share in
dividends on the common stock or (ii) Aimco fails to pay a
quarterly dividend on that class of preferred stock, whether or
not earned or declared.
The affirmative vote or consent of at least
662/3%
of the votes entitled to be cast by the holders of the
outstanding shares of each class of preferred stock and the
holders of all other classes or series of Parity Stock entitled
to vote on such matters, voting as a single class, will be
required to (1) authorize, create, increase the authorized
amount of, or issue any shares of any class of Senior Stock or
any security convertible into shares of any class of Senior
Stock, or (2) amend, alter or repeal any provision of, or
add any provision to, Aimcos charter or by-laws, if such
action would materially adversely affect the voting powers,
rights or preferences of the holders of that class of preferred
stock or, with respect to the Class W Cumulative
Convertible Preferred Stock, would convert such preferred stock
into cash or any other security other than Preferred Stock with
terms and provisions equivalent to those set forth in the
articles supplementary for such class of preferred stock
(including any amendment, alteration or repeal effected pursuant
to a merger, consolidation, or similar transaction); provided,
however, that no such vote of the holders of that class of
preferred stock shall be required if, at or prior to the time
such amendment, alteration or repeal is to take effect or the
issuance of any such Senior Stock or convertible security is to
be made, as the case may be, provisions are made for the
redemption of all outstanding shares of that class of preferred
stock. The amendment of or supplement to Aimcos charter to
authorize, create, increase or decrease the authorized amount of
or to issue Junior Stock, or any shares of any class of Parity
Stock shall not be deemed to materially adversely affect the
voting powers, rights or preferences of any class of preferred
stock.
Transfer. For Aimco to qualify as a REIT under
the Internal Revenue Code, not more than 50% in value of its
outstanding capital stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) during the last half of a
taxable year, and the shares of Aimco common stock must be
beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Because the Aimco
Board of Directors believes that it is essential for Aimco to
meet the REIT Requirements, the Aimco Board of Directors has
adopted, and the stockholders have approved, provisions of
Aimcos charter restricting the acquisition of shares of
Aimco common stock.
Subject to specific exceptions specified in Aimcos
charter, no holder may own, or be deemed to own by virtue of
various attribution and constructive ownership provisions of the
Internal Revenue Code and
Rule 13d-3
under the Exchange Act, more than 8.7% (or 15% in the case of
specific pension trusts described in the Internal Revenue Code,
investment companies registered under the Investment Company Act
of 1940, as amended, and Mr. Considine) of the outstanding
shares of Aimco common stock (the Ownership Limit).
The Aimco Board of Directors may waive the Ownership Limit if
evidence satisfactory to the Aimco Board of Directors and
Aimcos tax counsel is presented that such ownership will
not then or in the future jeopardize Aimcos status as a
REIT. However, in no event may such holders direct or
indirect ownership of Aimco common stock exceed 12% of the total
outstanding shares of Aimco common stock. As a condition of such
waiver, the Aimco Board of Directors may require opinions of
counsel satisfactory to it
and/or an
undertaking from the applicant with respect to preserving the
REIT status of
61
Aimco. The foregoing restrictions on transferability and
ownership will not apply if the Aimco Board of Directors
determines that it is no longer in the best interests of Aimco
to attempt to qualify, or to continue to quality as a REIT and a
resolution terminating Aimcos status as a REIT and
amending Aimcos charter to remove the foregoing
restrictions is duly adopted by the Aimco Board of Directors and
a majority of Aimcos stockholders. If shares of Aimco
common stock in excess of the Ownership Limit, or shares of
Aimco common stock which would cause the REIT to be beneficially
owned by fewer than 100 persons, or which would result in
Aimco being closely held, within the meaning of
section 856(h) of the Internal Revenue Code, or which would
otherwise result in Aimco failing to qualify as a REIT, are
issued or transferred to any person, such issuance or transfer
shall be null and void to the intended transferee, and the
intended transferee would acquire no rights to the stock. Shares
of Aimco common stock transferred in excess of the Ownership
Limit or other applicable limitations will automatically be
transferred to a trust for the exclusive benefit of one or more
qualifying charitable organizations to be designated by Aimco.
Shares transferred to such trust will remain outstanding, and
the trustee of the trust will have all voting and dividend
rights pertaining to such shares. The trustee of such trust may
transfer such shares to a person whose ownership of such shares
does not violate the Ownership Limit or other applicable
limitation. Upon a sale of such shares by the trustee, the
interest of the charitable beneficiary will terminate, and the
sales proceeds would be paid, first, to the original intended
transferee, to the extent of the lesser of (a) such
transferees original purchase price (or the original
market value of such shares if purportedly acquired by gift or
devise) and (b) the price received by the trustee, and,
second, any remainder to the charitable beneficiary. In
addition, shares of stock held in such trust are purchasable by
Aimco for a 90 day period at a price equal to the lesser of
the price paid for the stock by the original intended transferee
(or the original market value of such shares if purportedly
acquired by gift or devise) and the market price for the stock
on the date that Aimco determines to purchase the stock. The
90 day period commences on the date of the violative
transfer or the date that the Aimco Board of Directors
determines in good faith that a violative transfer has occurred,
whichever is later. All certificates representing shares of
Aimco common stock bear a legend referring to the restrictions
described above.
All persons who own, directly or by virtue of the attribution
provisions of the Internal Revenue Code and
Rule 13d-3
under the Exchange Act, more than a specified percentage of the
outstanding shares of Aimco common stock must file an affidavit
with Aimco containing the information specified in Aimcos
charter within 30 days after January 1 of each year. In
addition, each stockholder shall upon demand be required to
disclose to Aimco in writing such information with respect to
the direct, indirect and constructive ownership of shares as the
board of directors deems necessary to comply with the provisions
of the Internal Revenue Code applicable to a REIT or to comply
with the requirements of any taxing authority or governmental
agency.
The ownership limitations may have the effect of precluding
acquisition of control of Aimco by specific parties unless the
Aimco Board of Directors determines that maintenance of REIT
status is no longer in the best interests of Aimco.
62
COMPARISON
OF AIMCO OP UNITS AND AIMCO COMMON STOCK
Set forth below is a comparison of the OP Units to the
Aimco common stock.
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OP Units
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Common Stock
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Nature of Investment
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The OP Units constitute equity interests entitling each holder
to his or her pro rata share of cash distributions made from
Available Cash (as such term is defined in the Aimco OP
partnership agreement) to the partners of Aimco OP, a Delaware
limited partnership.
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The Aimco common stock constitutes equity interests in Aimco, a
Maryland corporation.
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Voting Rights
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Under the Aimco OP partnership agreement, limited partners have
voting rights only with respect to certain limited matters such
as 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.
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Each outstanding share of Aimco common stock entitles the holder
thereof to one vote on all matters submitted to stockholders for
a vote, including the election of directors. Holders of Aimco
common stock have the right to vote on, among other things, a
merger of Aimco, amendments to the Aimco charter and the
dissolution of Aimco. Certain amendments to the Aimco charter
require the affirmative vote of not less than two-thirds of
votes entitled to be cast on the matter. The Aimco charter
permits the Aimco Board of Directors to classify and issue
capital stock in one or more series having voting power which
may differ from that of the common stock. Under Maryland law, a
consolidation, merger, share exchange or transfer of all or
substantially all of the assets of Aimco requires the
affirmative vote of not less than two-thirds of all of the votes
entitled to be cast on the matter. With respect to each of these
transactions, only the holders of common stock are entitled to
vote on the matters. No approval of the stockholders is required
for the sale of less than all or substantially all of
Aimcos assets. Maryland law provides that the Aimco Board
of Directors must obtain the affirmative vote of at least
two-thirds of the votes entitled to be cast on the matter in
order to dissolve Aimco. Only the holders of Aimco common stock
are entitled to vote on Aimcos dissolution.
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Distributions/Dividends
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Subject to the rights of holders of any outstanding partnership
preferred units, the Aimco OP partnership agreement requires the
general partner to cause Aimco OP to distribute quarterly all,
or such portion as the general partner may in its sole and
absolute discretion determine, of Available Cash (as such term
is defined in the partnership agreement) generated by Aimco OP
during such quarter to the general partner, the Special Limited
Partner and the holders of OP Units and HPUs on the record date
established by the general partner with respect to such quarter,
in accordance with their respective interests in Aimco OP on
such record date. Holders of any Partnership Preferred Units
currently issued and which may be issued in the future may have
priority over the general partner, the special limited partner
and holders of OP Units and HPUs with respect to distributions
of Available Cash, distributions upon liquidation or other
distributions.
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Holders of Aimco common stock are entitled to receive dividends
when and as declared by the Aimco Board of Directors, out of
funds legally available therefor. Under the REIT rules, Aimco is
required to distribute dividends (other than capital gain
dividends) to its stockholders in an amount at least equal to
(A) the sum of (i) 90% of Aimcos REIT taxable
income (computed without regard to the dividends paid
deduction and Aimcos net capital gain) and (ii) 90% of the
net income (after tax), if any, from foreclosure property, minus
(B) the sum of certain items of noncash income. See
Material United States Federal Income Tax Matters.
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OP Units
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Common Stock
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See Description of Aimco OP Units; Summary of Aimco OP
Partnership Agreement Distributions. The
general partner in its sole and absolute discretion may
distribute to the holders of OP Units and HPUs Available Cash on
a more frequent basis and provide for an appropriate record
date. The partnership agreement requires the general partner to
take such reasonable efforts, as determined by it in its sole
and absolute discretion and consistent with the REIT
Requirements, to cause Aimco OP to distribute sufficient amounts
to enable the general partner to transfer funds to Aimco and
enable Aimco to pay stockholder dividends that will
(i) satisfy the requirements for qualifying as a REIT under
the Internal Revenue Code, and the Treasury Regulations and
(ii) avoid any U.S. federal income or excise tax liability
of Aimco. See Description of Aimco OP Units; Summary of
Aimco OP Partnership Agreement Distributions.
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Liquidity and Transferability/Redemption
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There is no public market for the OP Units and the OP Units are
not listed on any securities exchange.
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The Aimco common stock is transferable subject to the Ownership
Limit set forth in the Aimco charter. The Aimco common stock is
listed on the NYSE.
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Under the Aimco OP partnership agreement, until the expiration
of one year from the date on which a holder acquired OP Units,
subject to certain exceptions, such OP Unitholder may not
transfer all or any portion of its OP Units to any transferee
without the consent of the general partner, which consent may be
withheld in its sole and absolute discretion. After the
expiration of one year, such OP Unitholder has the right to
transfer all or any portion of its OP Units to any person,
subject to the satisfaction of certain conditions specified in
the partnership agreement, including the general partners
right of first refusal. See Description of Aimco OP Units;
Summary of Aimco OP Partnership Agreement Transfers
and Withdrawals. After the first anniversary of becoming a
holder of OP Units, a holder has the right, subject to the terms
and conditions of the partnership agreement, to require Aimco OP
to redeem all or a portion of such holders OP Units in
exchange for shares of common stock or a cash amount equal to
the value of such shares, as Aimco OP may elect. See
Description of Aimco OP Units; Summary of Aimco OP
Partnership Agreement Redemption Rights of
Qualifying Parties. Upon receipt of a notice of
redemption, Aimco OP may, in its sole and absolute discretion
but subject to the restrictions on the ownership of common stock
imposed under the Aimco charter and the transfer restrictions
and other limitations thereof, elect to cause Aimco to acquire
some or all of the tendered OP Units in exchange for common
stock, based on an exchange ratio of one share of common stock
for each OP Unit, subject to adjustment as provided in the
partnership agreement.
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64
COMPARISON
OF SERIES A UNITS AND AIMCO OP UNITS
The rights of CCIP/3 limited partners that hold Series A
Units are currently governed by the Delaware Act and the CCIP/3
partnership agreement. The rights of the limited partners of
Aimco OP are currently governed by the Delaware Act and the
Aimco OP partnership agreement.
The information below highlights a number of the significant
differences between Series A Units and Aimco OP Units.
These comparisons are intended to assist CCIP/3 limited partners
in understanding how their investment will be changed after
completion of the merger, if they elect to receive OP Units
in lieu of cash with respect to the merger.
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Series A Units
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OP Units
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Nature of Investment
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The Series A Units constitute equity interests entitling
each partner to its pro rata share of distributions to be made
to the partners of CCIP/3.
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The OP Units constitute equity interests entitling each holder
to his or her pro rata share of cash distributions made from
Available Cash (as such term is defined in the partnership
agreement) to the partners of Aimco OP.
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Voting Rights
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With limited exceptions, under the CCIP/3 partnership agreement,
upon the vote of a majority in interest of each series of units,
the limited partners may make amendments to CCIP/3s
partnership agreement. The limited partners holding a majority
in interest of each series of units may remove the general
partner. If the general partner is removed, (a) the
remaining general partner, if any, may elect to continue the
business of CCIP/3 or (b) the limited partners holding a
majority in interest of each series of units may elect one or
more new general partners to continue the business of CCIP/3. An
affiliate of the general partner of CCIP/3 currently owns a
majority of the Series A Units and the Series B
Units.
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Under the Aimco OP partnership agreement, limited partners have
voting rights only with respect to certain limited matters such
as 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. Under the Aimco OP
partnership agreement, the general partner has the power to
effect the acquisition, sale, transfer, exchange or other
disposition of any assets of Aimco OP (including, but not
limited to, the exercise or grant of any conversion, option,
privilege or subscription right or any other right available in
connection with any assets at any time held by Aimco OP) or the
merger, consolidation, reorganization or other combination of
Aimco OP with or into another entity, all without the consent of
the OP Unitholders.
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The general partner of CCIP/3 may serialize interests without
the consent of the limited partners.
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The general partner may cause the dissolution of Aimco OP by an
event of withdrawal, as defined in the Delaware Act
(including, without limitation, bankruptcy), unless, within
90 days after the withdrawal, holders of a majority
in interest, as defined in the Delaware Act, agree in
writing, in their sole and absolute discretion, to continue the
business of Aimco OP and to the appointment of a successor
general partner. The general partner may elect to dissolve Aimco
OP in its sole and absolute discretion, with or without the
consent of the OP Unitholders. OP Unitholders cannot remove the
general partner of Aimco OP with or without cause.
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Distributions
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Distributable Cash From Operations (as such term is defined in
the CCIP/3 partnership agreement) of CCIP/3 to the extent deemed
available by the general partners for distribution for each
fiscal year will be distributed quarterly in the manner
specified in the CCIP/3 partnership agreement. In the event that
Surplus Funds (as such term is defined in the CCIP/3
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Subject to the rights of holders of any outstanding partnership
preferred units, the Aimco OP partnership agreement requires the
general partner to cause Aimco OP to distribute quarterly all,
or such portion as the general partner may in its sole and
absolute discretion determine, of Available Cash (as such term
is defined in the partnership agreement) generated by Aimco OP
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Series A Units
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OP Units
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partnership agreement) are available and subject to the
establishment of working capital reserves deemed reasonably
required by the general partners for CCIP/3s business,
distributions of Surplus Funds will be made in the manner
specified in the CCIP/3 partnership agreement. The distributions
payable to the partners are not fixed in amount and depend upon
the operating results and net sales or refinancing proceeds
available from the disposition of CCIP/3s assets.
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during such quarter to the general partner, the special limited
partner and the holders of OP Units and HPUs on the record date
established by the general partner with respect to such quarter,
in accordance with their respective interests in Aimco OP on
such record date. Holders of any partnership preferred units
currently issued and which may be issued in the future may have
priority over the general partner, the special limited partner
and holders of OP Units and HPUs with respect to distributions
of Available Cash, distributions upon liquidation or other
distributions. See Description of Aimco OP Units; Summary
of Aimco OP Partnership Agreement
Distributions. The general partner in its sole and
absolute discretion may distribute to the holders of OP Units
and HPUs Available Cash on a more frequent basis and provide for
an appropriate record date. The partnership agreement requires
the general partner to take such reasonable efforts, as
determined by it in its sole and absolute discretion and
consistent with the REIT requirements, to cause Aimco OP to
distribute sufficient amounts to enable the general partner to
transfer funds to Aimco and enable Aimco to pay stockholder
dividends that will (i) satisfy the requirements for qualifying
as a REIT under the Internal Revenue Code, and the Treasury
Regulations and (ii) avoid any U.S. federal income or excise tax
liability of Aimco. See Description of Aimco OP Units;
Summary of Aimco OP Partnership Agreement
Distributions.
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Liquidity and Transferability/Redemption
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There is a limited market for the Series A Units, and the
Series A Units are not listed on any securities exchange.
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There is no public market for the OP Units and the OP Units are
not listed on any securities exchange.
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Under the CCIP/3 partnership agreement, holders of Series A
Units may assign one or more whole Series A Units by a
written instrument, the terms of which are not in contravention
of any of the provisions of the CCIP/3 partnership agreement,
which instrument has been duly executed by the assignor of such
Series A Unit. A minimum of twenty Series A Units may
be transferred, subject to certain exceptions. Notwithstanding
the above, no partner may make a transfer if the transfer would,
when considered with all other transfers in the same applicable
twelve month period, cause a termination of the partnership for
federal or any applicable state income tax purposes. No assignee
of a limited partners interest may become a substituted
limited partner unless (a) the assignor designates such
intention in the instrument of assignment, (b) the written
consent of the general partners is obtained, which consent may
be withheld in the general partners absolute discretion,
(c) the assignment instrument is satisfactory to the
general partners in form and substance, (d) the assignor
and assignee execute and acknowledge other instruments that the
general partners deem necessary or desirable to effect
admission
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Under the Aimco OP partnership agreement, until the expiration
of one year from the date on which a holder acquired OP Units,
subject to certain exceptions, such OP Unitholder may not
transfer all or any portion of its OP Units to any transferee
without the consent of the general partner, which consent may be
withheld in its sole and absolute discretion. After the
expiration of one year, such OP Unitholder has the right to
transfer all or any portion of its OP Units to any person,
subject to the satisfaction of certain conditions specified in
the partnership agreement, including the general partners
right of first refusal. See Description of Aimco OP Units;
Summary of Aimco OP Partnership Agreement Transfers
and Withdrawals. After the first anniversary of becoming a
holder of OP Units, a holder has the right, subject to the terms
and conditions of the partnership agreement, to require Aimco OP
to redeem all or a portion of such holders OP Units in
exchange for shares of common stock or a cash amount equal to
the value of such shares, as Aimco OP may elect. See
Description of Aimco OP Units; Summary of Aimco OP
Partnership Agreement Redemption Rights of
Qualifying Parties. Upon receipt of a
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Series A Units
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OP Units
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and(e) and the assignee accepts, adopts, and approves in
writing all the terms of the CCIP/3 partnership agreement.
Unauthorized assignments and transfers are void ab
initio. The CCIP/3 partnership agreement contains no
redemption rights.
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notice of redemption, Aimco OP may, in its sole and absolute
discretion but subject to the restrictions on the ownership of
common stock imposed under the Aimco charter and the transfer
restrictions and other limitations thereof, elect to cause Aimco
to acquire some or all of the tendered OP Units in exchange for
common stock, based on an exchange ratio of one share of common
stock for each OP Unit, subject to adjustment as provided in the
partnership agreement.
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Fiduciary Duty
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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 CCIP/3 partnership agreement provides that ConCap, as the
general partner, has a fiduciary responsibility for the
safekeeping and use of all funds of the partnership, whether or
not in ConCaps immediate possession or control, and shall
not employ, or permit another to employ, such funds or assets in
any manner except for the exclusive benefit of the partnership.
ConCap may purchase, or cause any of its affiliates to purchase,
for resale or for investment, Series A Units for any reason
deemed appropriate by ConCap. The CCIP/3 partnership agreement
expressly limits the liability of ConCap by providing that the
general partner shall have no liability whatsoever to the
partnership or to any holder of units of limited partnership
interest for any loss suffered by the partnership which arises
out of any action or inaction of the general partner, if the
general partner, in good faith, determined that such course of
conduct was in the best interests of the partnership, and such
course of conduct did not constitute negligence or misconduct of
the general partner.
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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 Aimco OP
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.
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Investment Policy
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CCIP/3 is engaged in the business of operating and holding real
estate properties for investment. In general, ConCap, as the
general partner, regularly evaluates CCIP/3s properties by
considering various factors, such as the partnerships
financial position and real estate and capital markets
conditions. ConCap monitors a propertys specific locale
and
sub-market
conditions (including stability of the surrounding
neighborhood), evaluating current trends, competition, new
construction and economic changes. It oversees the operating
performance of the property and evaluates the physical
improvement requirements. In addition, the financing structure
for the property (including any prepayment penalties), tax
implications, availability of attractive mortgage financing to a
purchaser, and the investment climate are all considered. Any of
these factors, and possibly others, could potentially contribute
to any decision by ConCap to sell, refinance, upgrade with
capital improvements or hold a partnership property.
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Aimco OP was formed to engage in the acquisition, ownership,
management and redevelopment of apartment properties. Although
it holds all of its properties for investment, Aimco OP may sell
properties when they do not meet its investment criteria or are
located in areas that it believes do not justify a continued
investment when compared to alternative uses for capital. Its
portfolio management strategy includes property acquisitions and
dispositions to concentrate its portfolio in its target markets.
It may market for sale certain properties that are inconsistent
with this long-term investment strategy. Additionally, from time
to time, Aimco OP may market certain properties that are
consistent with this strategy but offer attractive returns.
Aimco OP may use its share of the net proceeds from such
dispositions to, among other things, reduce debt, fund capital
expenditures on existing assets, fund acquisitions, and for
other operating needs and corporate purposes.
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Compensation
and Distributions
CCIP/3. CCIP/3 has no employees and depends on
ConCap, CCIP/3s general partner, and its affiliates for
the management and administration of all partnership activities.
The CCIP/3 partnership agreement provides that ConCap and its
affiliates receive 5% of gross receipts from all of
CCIP/3s properties as compensation for providing property
management services, and also provides that ConCap and its
affiliates receive certain payments for other services and
reimbursement of certain expenses incurred on behalf of CCIP/3.
In addition, under the CCIP/3 partnership agreement, Net Profits
and Net Losses, Distributable Cash From Operations, to the
extent deemed available by the general partner for distribution,
Surplus Funds, to the extent available and subject to the
establishment of working capital reserves deemed reasonably
required by the general partners for CCIP/3s business, and
Distributions (all as defined in the CCIP/3 partnership
agreement), is distributed as follows: ninety-nine percent (99%)
to the limited partners and one percent (1%) to ConCap, as the
general partner.
A description of the compensation paid to ConCap, as
CCIP/3s general partner, and its affiliates during the
years ended December 31, 2010 and 2009, and during the nine
months ended September 30, 2011 and 2010, can be found
under the heading Certain Relationships and Related
Transactions in this information statement/prospectus. In
addition, for more information, see
Note B Transactions with Affiliated
Parties in the notes to the consolidated financial
statements appearing in CCIP/3s Annual Report on
Form 10-K
for the year ended December 31, 2010, which is included as
Annex F to this information statement/prospectus,
and Note B Transactions with
Affiliated Parties in CCIP/3s Quarterly Report
on
Form 10-Q
for the quarter ended September 30, 2011, which is included
as Annex G to this information statement/prospectus.
Aimco OP. The Aimco OP partnership agreement
provides that Aimco OPs general partner shall not be
compensated for its services as a general partner, other than
the compensation it receives with respect to distributions and
allocations in accordance with the partnership agreement.
Subject to certain provisions of the partnership agreement,
Aimco OP will reimburse the general partner for all sums
expended in connection with the partnerships business.
In addition, subject to the rights of holders of any outstanding
preferred OP Units, the Aimco OP partnership agreement
requires the general partner to cause Aimco OP to distribute
quarterly all, or such portion of, as the general partner may in
its sole and absolute discretion determine, Available Cash (as
such term is defined in the partnership agreement) generated by
Aimco OP during such quarter to the general partner, the special
limited partner and the holders of common OP Units and HPUs
on the record date established by the general partner with
respect to such quarter, in accordance with their respective
interests in Aimco OP on such record date. The partnership
agreement requires the general partner to take such reasonable
efforts, as determined by it in its sole and absolute discretion
and consistent with the REIT Requirements, to cause Aimco OP to
distribute sufficient amounts to enable the general partner to
transfer funds to Aimco and enable Aimco to pay stockholder
dividends that will (i) satisfy the requirements for
qualifying as a REIT under the Internal Revenue Code and the
Treasury Regulations and (ii) avoid any U.S. federal
income or excise tax liability of Aimco.
68
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal
income tax consequences of the merger and the material
U.S. federal income tax considerations related to an
investment in Aimco OP Units and Aimco stock. This
discussion is based upon the Internal Revenue Code, Treasury
Regulations, rulings issued by the IRS, and judicial decisions,
all in effect as of the date of this information
statement/prospectus and all of which are subject to change or
differing interpretations, possibly with retroactive effect.
This summary is also based on the assumption that the operation
of Aimco, Aimco OP and the limited liability companies and
limited partnerships in which they own controlling interests
(collectively, the Subsidiary Partnerships) and any
affiliated entities will be in accordance with their respective
organizational documents and partnership agreements. This
summary is for general information only and does not purport to
discuss all aspects of U.S. federal income taxation which
may be important to a particular investor. This summary also
assumes that investors will hold their OP Units and Aimco
stock as capital assets (generally, property held for
investment). Except to the extent provided below, this summary
is not directed to investors subject to special tax rules, such
as:
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banks or other financial institutions;
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regulated investment companies;
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holders that receive Aimco stock through the exercise of stock
options or otherwise as compensation;
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persons holding Aimco stock as part of a straddle,
hedge, conversion transaction,
synthetic security or other integrated investment;
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and, except to the extent discussed below:
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tax-exempt organizations;
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No advance ruling from the IRS has been or will be sought
regarding the tax status of Aimco or Aimco OP, or the tax
consequences relating to Aimco or Aimco OP of an investment in
OP Units or Aimco stock. No assurance can be given that the
IRS would not assert, or that a court would not sustain, a
position contrary to any of the tax consequences set forth below.
THE U.S. FEDERAL INCOME TAX TREATMENT OF A PARTICULAR
HOLDER DEPENDS UPON DETERMINATIONS OF FACT AND INTERPRETATIONS
OF COMPLEX PROVISIONS OF UNITED STATES FEDERAL INCOME TAX LAW
FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE.
ACCORDINGLY, EACH HOLDER IS URGED TO CONSULT ITS TAX ADVISOR
REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES OF THE MERGER, OF ACQUIRING, HOLDING, EXCHANGING,
OR OTHERWISE DISPOSING OF OP UNITS AND AIMCO STOCK, AND OF
AIMCOS ELECTION TO BE SUBJECT TO TAX, FOR
U.S. FEDERAL INCOME TAX PURPOSES, AS A REAL ESTATE
INVESTMENT TRUST.
Federal
Income Tax Opinion
Skadden, Arps, Slate, Meagher & Flom LLP has acted as
Aimco and Aimco OPs counsel in connection with the merger.
Skadden, Arps, Slate, Meagher & Flom LLP has also
issued an opinion regarding the material U.S. federal
income tax consequences of the merger summarized below under
United States Federal Income Tax Consequences
Relating to the Merger. The opinion is expressed as of the
date issued. Skadden, Arps, Slate, Meagher & Flom LLP
will have no obligation to advise Aimco, Aimco OP or the limited
partners of any subsequent change in the matters stated,
represented or assumed, or of any subsequent change in the
applicable law. Each investor should be aware that opinions of
counsel are not binding on the IRS, and no assurance can be
given that the IRS will not challenge the conclusions set forth
in such opinions.
69
The opinion is not included as an appendix to this information
statement/prospectus, but has been filed as an exhibit to the
registration statement filed with the SEC. Aimco will provide a
copy of the opinion, without charge, if an investor (or an
investors representative who has been so designated in
writing) makes a written request at the address set forth herein
under Where You Can Find Additional Information.
United
States Federal Income Tax Consequences Relating to the
Merger
Tax
Consequences of the Transaction to CCIP/3, Aimco OP, and
Aimco
For U.S. federal income tax purposes, each series of
limited partnership interests is treated as a separate
partnership. When the assets or operations of two partnerships
such as the Series A Units of CCIP/3 (the
Series A Partnership) and Aimco OP are combined
in a transaction pursuant to which one of the partnerships (the
Series A Partnership) ceases to exist as a partnership (the
terminated partnership) for U.S. federal income
tax purposes, and the members of the terminated partnership
become members of the surviving partnership (i.e., Aimco OP),
that combined transaction is generally treated as a partnership
merger.
In general, the Series A Partnership will be treated as
contributing all of its assets, and assigning all of its
liabilities, to Aimco OP in exchange for interests in Aimco OP.
To the extent Aimco OP issues consideration other than interests
in Aimco OP, the Series A Partnership may recognize gain.
Immediately thereafter, the Series A Partnership will be
treated as distributing all of its assets to its partners in
complete liquidation. The merger of the Series A
Partnership into Aimco OP will not effect the Series B
Units of CCIP/3.
Aimco is not expected to recognize any gain or loss on the
transaction.
Tax
Consequences of Exchanging Series A Units Solely for
Cash
For U.S. federal income tax purposes, any payment of cash
for Series A Units will be treated as a sale of such
Series A Units by such holder. Each such holder of
Series A Units who accepts cash must explicitly agree and
consent to treat the payment of cash for Series A Units as
a sale of such units to Aimco OP, in accordance with the terms
of the merger agreement.
If a holder of Series A Units exchanges such units for
cash, such holder will recognize gain or loss on the exchange of
his units equal to the difference between (i) such
holders amount realized on the exchange and
(ii) such holders adjusted tax basis in the
Series A Units exchanged. The amount realized
with respect to a Series A Unit will be equal to the sum of
the amount of cash such holder receives for his units plus the
amount of liabilities of CCIP/3 allocable to such Series A
Units as determined under section 752 of the Internal
Revenue Code.
Tax
Consequences of Exchanging Series A Units Solely for OP
Units
For U.S. federal income tax purposes, a holder of
Series A Units receiving OP Units in the merger will
be treated as receiving the OP Units pursuant to a
distribution in complete liquidation of such holders
interest in the Series A Partnership. Except to the extent
described below, a holder receiving OP Units in the merger
will not recognize gain or loss on the transaction.
If a holder of Series A Units receives solely OP Units
in the merger, such holder generally will not recognize gain or
loss. If, immediately prior to the merger, the amount of
liabilities of CCIP/3 allocable to such holders
Series A Units exceeds the amount of the Aimco OP
partnership liabilities allocable to such holder immediately
after the merger, the excess will be treated as a deemed
distribution of cash to such holder. This deemed cash
distribution will be treated as a return of capital to the
extent of such holders adjusted tax basis in his
Series A Units exchanged, which is not subject to tax, and
thereafter as taxable gain. If such holder exercises his
redemption rights with respect to the OP Units within the
two year period beginning on the date of the merger, please see
the discussion below under Taxation of Aimco
OP and OP Unitholders Disguised Sale
Rules.
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Taxation
of Aimco OP and OP Unitholders
Partnership
Status
Aimco believes that Aimco OP is classified as a partnership, and
not as an association or publicly traded partnership taxable as
a corporation for U.S. federal income tax purposes. If
Aimco OP were treated as an association or a publicly traded
partnership taxable 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
Series A Units receiving OP Units in the merger would be
required to recognize gain or loss on the transaction. In
addition, classification of Aimco OP as an association or
publicly traded partnership taxable as a corporation would also
result in the termination of Aimcos status as a REIT for
U.S. federal income tax purposes, which would have a
material adverse impact on Aimco and its shareholders. See
Taxation of Aimco and Aimco
Stockholders Tax Aspects of Aimcos Investments
in Partnerships. This discussion assumes that Aimco OP is,
and will continue to be, classified and taxed as a partnership
for U.S. federal income tax purposes.
Taxation
of OP Unitholders
In general, a partnership is treated as a
pass-through entity for U.S. federal income tax
purposes and is not itself subject to U.S. federal income
taxation. Each partner of a partnership, however, is subject to
tax on his allocable share of partnership tax items, including
partnership income, gains, losses, deductions, and expenses
(Partnership Tax Items) for each taxable year of the
partnership ending within or with such taxable year of the
partner, regardless of whether he receives any actual
distributions from the partnership during the taxable year.
Generally, the characterization of any particular Partnership
Tax Item is determined at the partnership, rather than at the
partner level, and the amount of a partners allocable
share of such item is governed by the terms of the partnership
agreement. An OP unitholders allocable share of Aimco
OPs taxable income may exceed the cash distributions to
the OP unitholder for any year if Aimco OP retains its profits
rather than distributing them.
Allocations
of Aimco OP Profits and Losses
For U.S. federal income tax purposes, an OP
unitholders allocable share of Aimco OPs Partnership
Tax Items will be determined by Aimco OPs partnership
agreement, provided such allocations either have
substantial economic effect or are determined to be
in accordance with the OP unitholders interests in Aimco
OP. If the allocations provided by Aimco OPs partnership
agreement were successfully challenged by the IRS, the
redetermination of the allocations to a particular OP unitholder
for U.S. federal income tax purposes may be less favorable
than the allocation set forth in Aimco OPs partnership
agreement.
Tax
Basis of a Partnership Interest
A partners adjusted tax basis in his partnership interest
is relevant, among other things, for determining (i) gain
or loss upon a taxable disposition of his partnership interest,
(ii) gain upon the receipt of partnership distributions,
and (iii) the limitations imposed on the use of partnership
deductions and losses allocable to such partner. Generally, the
adjusted tax basis of an OP unitholders interest in
Aimco OP is equal to the sum of the adjusted tax basis of the
property contributed by the OP unitholder to Aimco OP in
exchange for an interest in Aimco OP and the amount of cash, if
any, contributed by the OP unitholder to Aimco OP,
increased by the OP unitholders allocable share of
Aimco OP (a) partnership income and gains and
(b) partnership liabilities. The OP unitholders
adjusted tax basis will be reduced, but not below zero, by
(a) the OP unitholders allocable share of Aimco
OP partnership distributions, deductions, and losses and
(b) the OP unitholders liabilities assumed by
Aimco OP and the OP unitholders allocable share of
any reduction in Aimco OP partnership liabilities.
Cash
Distributions
Cash distributions received from a partnership do not
necessarily correlate with income earned by the partnership as
determined for U.S. federal income tax purposes. Thus, an
OP unitholders U.S. federal income tax liability in
respect of his allocable share of Aimco OP taxable income for a
particular taxable year may exceed the amount of cash, if any,
received by the OP unitholder from Aimco OP during such year.
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If cash distributions, including a deemed cash
distribution as discussed below, received by an OP unitholder in
any taxable year exceed his allocable share of Aimco OP taxable
income for the year, the excess will generally constitute, for
U.S. federal income tax purposes, a return of capital to
the extent of such OP unitholders adjusted tax basis in
his Aimco OP interest. Such return of capital will not be
includible in the taxable income of the OP unitholder, for
U.S. federal income tax purposes, but it will reduce, but
not below zero, the adjusted tax basis of Aimco OP interests
held by the OP unitholder. If an OP unitholders tax basis
in his Aimco OP interest is reduced to zero, a subsequent cash
distribution received by the OP unitholder will be subject to
tax as capital gain
and/or
ordinary income, but only if, and to the extent that, such
distribution exceeds the subsequent positive adjustments, if
any, to the tax basis of the OP unitholders Aimco OP
interest as determined at the end of the taxable year during
which such distribution is received. A decrease in an OP
unitholders allocable share of Aimco OP liabilities
resulting from the payment or other settlement, or reallocation
of such liabilities is generally treated, for U.S. federal
income tax purposes, as a deemed cash distribution. A decrease
in an OP unitholders percentage interest in Aimco OP
because of the issuance by Aimco OP of additional OP Units
or otherwise, may decrease an OP unitholders share of
nonrecourse liabilities of Aimco OP and thus, may result in a
corresponding deemed distribution of cash. A deemed distribution
of cash resulting from the payment, settlement, or other
reduction or reallocation of Aimco OP liabilities formerly
allocated to an OP unitholder will result in taxable gain to
such OP unitholder to the extent such deemed distribution of
cash exceeds the OP unitholders basis in his OP Units.
A non-pro rata distribution (or deemed distribution) of money or
property may result in ordinary income to an OP unitholder,
regardless of such OP unitholders tax basis in his
OP Units, if the distribution reduces such OP
unitholders share of Aimco OPs unrealized
receivables. Unrealized receivables include
amounts attributable to previously claimed depreciation
deductions on certain types of property. To the extent that such
a reduction in an OP unitholders share of unrealized
receivables occurs, Aimco OP will be deemed to have
distributed a proportionate share of the unrealized
receivables to the OP unitholder followed by a deemed
exchange of such assets with Aimco OP in return for the non-pro
rata portion of the actual distribution made to such OP
unitholder. This deemed exchange will generally result in the
realization of ordinary income by the OP unitholder. Such income
will equal the excess of (1) the non-pro rata portion of
such distribution over (2) the OP unitholders tax
basis in such OP unitholders share of such
unrealized receivables deemed relinquished in the
exchange.
Tax
Consequences Relating to Contributed Assets
If an investor contributes property to Aimco OP in exchange for
OP Units, and the adjusted tax basis of such property
differs from its fair market value, Partnership Tax Items must
be allocated in a manner such that the contributing partner,
over the life of Aimco OP, is charged with, or benefits from,
the unrealized gain or unrealized loss associated with such
property at the time of the contribution. This may result in a
tax liability without a corresponding receipt of cash. Where a
partner contributes cash to a partnership that holds appreciated
property, Treasury Regulations provide for a similar allocation
of such items to the other partners. For example, these rules
may apply to a contribution by Aimco to Aimco OP of cash
proceeds received by Aimco from the offering of its stock. Such
allocations are solely for U.S. federal income tax purposes
and do not affect the book capital accounts or other economic or
legal arrangements among the OP unitholders. The general purpose
underlying this provision is to specially allocate certain
Partnership Tax Items in order to place both the noncontributing
and contributing partners in the same tax position that they
would have been in had the contributing partner contributed
property with an adjusted tax basis equal to its fair market
value. Treasury Regulations provide Aimco OP with several
alternative methods and allow Aimco OP to adopt any other
reasonable method to make allocations to reduce or eliminate
these book-tax differences. The general partner, in
its sole and absolute discretion and in a manner consistent with
Treasury Regulations, will select and adopt a method of
allocating Partnership Tax Items for purposes of eliminating
such disparities. The method selected by Aimco OP in its sole
discretion could cause those CCIP/3 limited partners that
receive OP Units in connection with the merger to incur a
tax liability without a corresponding receipt of cash. Each
prospective investor is urged to consult his tax advisor
regarding the tax consequences of any special allocations of
Partnership Tax Items resulting from the contribution of
property to Aimco OP.
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Disguised
Sale Rules
Generally, section 721 of the Internal Revenue Code
provides that neither the contributing partner nor Aimco OP will
recognize a gain or loss, for U.S. federal income tax
purposes, upon a contribution of property to Aimco OP solely in
exchange for OP Units. If, however, in connection with such
a contribution of property, the investor receives, or is deemed
to receive, cash or other consideration in addition to
OP Units, the receipt or deemed receipt of such cash or
other consideration may be treated as part of a disguised
sale. In that case, the investor would be treated as
having sold, in a taxable transaction, a portion of the
contributed property to Aimco OP in exchange for such cash or
other consideration; the balance of the contributed property
would, however, remain subject to the tax-free contribution
treatment described above.
The disguised sale rules further provide that, unless certain
exceptions apply (including exceptions that apply to
distributions of operating cash flow), transfers of money or
other property between a partnership and a partner that are made
within two years of each other must be reported to the IRS and
are presumed to be a disguised sale unless the facts
and circumstances clearly establish that the transfers do not
constitute a sale. The disguised sale rules may also
apply, and give rise to taxable income without a corresponding
receipt of cash where, for example, a partner contributes
property to Aimco OP subject to one or more liabilities or where
liabilities are assumed or paid by Aimco OP. If the
disguised sale rules apply, all or a portion of the
liabilities associated with the contributed property may be
treated as consideration received by the contributing partner in
a sale of the property to Aimco OP. The disguised
sale rules also may apply if, for example, the issuance of
OP Units to CCIP/3 limited partners in connection with the
merger is integrated with any other acquisition between Aimco
and any OP unitholder or any related party. For example, the IRS
may assert that any redemption or exchange for several years
between Aimco OP and any OP unitholder who receives
OP Units in the merger constitutes an integrated
disguised sale that may result in taxation (without
receipt of cash) for such OP unitholders. No assurances can be
given that the IRS would not be successful in such an assertion.
Each prospective investor is urged to consult his tax advisor
regarding the application of the disguised sale
rules.
Limitations
on Deductibility of Losses
Basis Limitation. To the extent that an OP
unitholders allocable share of Aimco OP partnership
deductions and losses exceeds his adjusted tax basis in his
Aimco OP interest at the end of the taxable year in which the
losses and deductions flow through, the excess losses and
deductions cannot be utilized, for U.S. federal income tax
purposes, by the OP unitholder in such year. The excess losses
and deductions may, however, be utilized in the first succeeding
taxable year in which, and to the extent that, there is an
increase in the tax basis of the Aimco OP interest held by such
OP unitholder, but only to the extent permitted under the
at risk and passive activity loss rules
discussed below.
At Risk Limitation. Under the
at risk rules of section 465 of the Internal
Revenue Code, a noncorporate taxpayer and a closely held
corporate taxpayer are generally not permitted to claim a
deduction, for U.S. federal income tax purposes, in respect
of a loss from an activity, whether conducted directly by the
taxpayer or through an investment in a partnership, to the
extent that the loss exceeds the aggregate dollar amount which
the taxpayer has at risk in such activity at the
close of the taxable year. To the extent that losses are not
permitted to be used in any taxable year, such losses may be
carried over to subsequent taxable years and may be claimed as a
deduction by the taxpayer if, and to the extent that, the amount
which the taxpayer has at risk is increased.
Provided certain requirements are met, a taxpayer is considered
at risk for the taxpayers share of any
nonrecourse financing secured by real property where the real
property is used in the taxpayers activity of
holding real property; the holding of an
OP Unit generally would constitute such an activity.
Passive Activity Loss
Limitation. The passive activity loss rules of
section 469 of the Internal Revenue Code limit the use of
losses derived from passive activities, which generally includes
an investment in limited partnership interests such as the
OP Units. If an investment in an OP Unit is treated as
a passive activity, an OP unitholder who is an individual
investor, as well as certain other types of investors, would not
be able to use losses from Aimco OP to offset nonpassive
activity income, including salary, business income, and
portfolio income (e.g., dividends, interest, royalties, and gain
on the disposition of portfolio investments) received during the
taxable year. Passive activity losses that are disallowed for a
particular taxable year may, however, be carried forward to
offset
73
passive activity income earned by the OP unitholder in future
taxable years. In addition, such disallowed losses may be
claimed as a deduction, subject to the basis and at risk
limitations discussed above, upon a taxable disposition of an OP
unitholders entire interest in Aimco OP, regardless of
whether such OP unitholder has received any passive activity
income during the year of disposition.
If Aimco OP were characterized as a publicly traded partnership,
each OP unitholder would be required to treat any loss derived
from Aimco OP separately from any income or loss derived from
any other publicly traded partnership, as well as from income or
loss derived from other passive activities. In such case, any
net losses or credits attributable to Aimco OP which are carried
forward may only be offset against future income of Aimco OP.
Moreover, unlike other passive activity losses, suspended losses
attributable to Aimco OP would only be allowed upon the complete
disposition of the OP unitholders entire
interest in Aimco OP.
Section 754
Election
Aimco OP has made the election permitted by section 754 of
the Internal Revenue Code. Such election is irrevocable without
the consent of the IRS. The election will generally permit a
purchaser of OP Units, such as Aimco when it acquires
OP Units from OP unitholders, to adjust its share of the
basis in Aimco OPs properties pursuant to
section 743(b) of the Internal Revenue Code to fair market
value (as reflected by the value of consideration paid for the
OP Units), as if such purchaser had acquired a direct
interest in Aimco OPs assets. The section 743(b)
adjustment is attributed solely to a purchaser of OP Units
and is not added to the bases of Aimco OPs assets
associated with all of the OP unitholders in Aimco OP.
Depreciation
Section 168(i)(7) of the Internal Revenue Code provides
that in the case of property transferred to a partnership in a
section 721 transaction, the transferee shall be treated as
the transferor for purposes of computing the depreciation
deduction with respect to so much of the basis in the hands of
the transferee as does not exceed the adjusted basis in the
hands of the transferor. The effect of this rule would be to
continue the historic basis, placed in service dates and methods
with respect to the depreciation of any properties contributed
to Aimco OP in exchange for OP Units. However, an acquirer
of OP Units that obtains a section 743(b) adjustment
by reason of such acquisition (see Section 754
Election, above) generally will be allowed depreciation
with respect to such adjustment beginning as of the date of the
exchange as if it were new property placed in service as of that
date.
Sale,
Redemption, Exchange or Abandonment of OP Units
An OP unitholder will recognize a gain or loss upon a sale of an
OP Unit, a redemption of an OP Unit for cash, an
exchange of an OP Unit for shares of common stock or other
taxable disposition of an OP Unit. Gain or loss recognized
upon a sale or exchange of an OP Unit will be equal to the
difference between (i) the amount realized in the
transaction (i.e., the sum of the cash and the fair market value
of any property received for the OP Unit plus the amount of
Aimco OP liabilities allocable to the OP Unit at such time)
and (ii) the OP unitholders tax basis in the OP Unit
disposed of, which tax basis will be adjusted for the OP
unitholders allocable share of Aimco OPs income or
loss for the taxable year of the disposition. The tax liability
resulting from the gain recognized on a disposition of an
OP Unit could exceed the amount of cash and the fair market
value of property received. If Aimco OP redeems less than all of
an OP unitholders OP Units, the OP unitholder would
recognize taxable gain only to the extent that the cash, plus
the amount of Aimco OP liabilities allocable to the redeemed
OP Units, exceeded the OP unitholders adjusted tax
basis in all of such OP unitholders OP Units
immediately before the redemption.
Capital gains recognized by individuals and certain other
noncorporate taxpayers upon the sale or disposition of an
OP Unit will be subject to taxation at long term capital
gains rates if the OP Unit is held for more than
12 months and will be taxed at ordinary income tax rates if
the OP Unit is held for 12 months or less. Generally,
gain or loss recognized by an OP unitholder on the sale or other
taxable disposition of an OP Unit will be taxable as
capital gain or loss. However, to the extent that the amount
realized upon the sale or other taxable disposition of an
OP Unit attributable to an OP unitholders share of
unrealized receivables of Aimco OP exceeds the basis
attributable to those assets, such excess will be treated as
ordinary income. In addition, the maximum U.S. federal
income tax rate for net capital gains attributable to the sale
of depreciable real property (which may be determined
74
to include an interest in a partnership such as Aimco OP) held
for more than 12 months is currently 25% (rather than 15%)
to the extent of previously claimed depreciation deductions that
would not be treated as unrealized receivables. See
also Disguised Sale Rules above for sales
integrated with the contribution of property for OP Units.
The law is currently uncertain regarding the treatment of an
abandoned interest in a partnership, and whether an abandonment
gives rise to a deductible loss is a question of fact.
Prospective investors are urged to consult their tax advisors
regarding the application, effect and method of abandoning an
interest in an OP Unit.
Alternative
Minimum Tax
The Internal Revenue Code contains different sets of minimum tax
rules applicable to corporate and noncorporate investors. The
discussion below relates only to the alternative minimum tax
applicable to noncorporate taxpayers. Accordingly, corporate
investors should consult with their tax advisors with respect to
the effect of the corporate minimum tax provisions that may be
applicable to them. Noncorporate taxpayers are subject to an
alternative minimum tax to the extent the tentative minimum tax
exceeds the regular income tax otherwise payable. In general,
alternative minimum taxable income (AMTI) consists
of the taxpayers taxable income, determined with certain
adjustments, plus his items of tax preference. For example,
alternative minimum taxable income is calculated using an
alternative cost recovery (depreciation) system that is not as
favorable as the methods provided for under section 168 of
the Internal Revenue Code which Aimco OP will use in computing
its income for regular U.S. federal income tax purposes.
Accordingly, an OP unitholders AMTI derived from Aimco OP
may be higher than such OP unitholders share of Aimco
OPs net taxable income. Prospective investors should
consult their tax advisors as to the impact of an investment in
OP Units on their liability for the alternative minimum tax.
Information
Returns and Audit Procedures
Aimco OP will use all reasonable efforts to furnish to each OP
unitholder as soon as possible after the close of each taxable
year of Aimco OP, certain tax information, including a
Schedule K-l,
which sets forth each OP unitholders allocable share of
Aimco OPs Partnership Tax Items. In preparing this
information the general partner will use various accounting and
reporting conventions to determine the respective OP
unitholders allocable share of Partnership Tax Items. The
general partner cannot assure a current or prospective OP
unitholder that the IRS will not successfully contend in court
that such accounting and reporting conventions are impermissible.
No assurance can be given that Aimco OP will not be audited by
the IRS or that tax adjustments will not be made. Further, any
adjustments in Aimco OPs tax returns will lead to
adjustments in OP unitholders tax returns and may lead to
audits of their returns and adjustments of items unrelated to
Aimco OP. Each OP unitholder would bear the cost of any expenses
incurred in connection with an examination of such OP
unitholders personal tax return.
The tax treatment of Partnership Tax Items generally is
determined at the partnership level in a unified partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code provides for one partner to
be designated as the Tax Matters Partner for these purposes.
The Tax Matters Partner is authorized, but not required, to take
certain actions on behalf of Aimco OP and the OP unitholders and
can extend the statute of limitations for assessment of tax
deficiencies against OP unitholders with respect to Aimco OP
Partnership Tax Items. The Tax Matters Partner may bind an OP
unitholder with less than a l% profits interest in Aimco OP to a
settlement with the IRS, unless such OP unitholder elects, by
filing a statement with the IRS, not to give such authority to
the Tax Matters Partner. The Tax Matters Partner may seek
judicial review (to which all the OP unitholders are bound) of a
final partnership administrative adjustment; if the Tax Matters
Partner fails to seek judicial review, such review may be sought
by any OP unitholder having at least a 1% interest in the
profits of Aimco OP or by OP unitholders having in the aggregate
at least a 5% profits interest. However, only one action for
judicial review will go forward, and each OP unitholder with an
interest in the outcome may participate.
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Taxation
of Foreign OP Unitholders
A
Non-U.S. OP
unitholder (see the definition of
Non-U.S. stockholder
below under Taxation of Aimco and Aimco
Stockholders Taxation of Stockholders
Taxation of Foreign Stockholders) will generally be
considered to be engaged in a United States trade or business on
account of its ownership of an OP Unit. As a result, a
Non-U.S. OP
unitholder will be required to file U.S. federal income tax
returns with respect to its allocable share of Aimco OPs
income. A
Non-U.S. OP
unitholder that is a corporation may also be subject to United
States branch profit tax at a rate of 30%, in addition to
regular U.S. federal income tax, on its allocable share of
such income. Such a tax may be reduced or eliminated by an
income tax treaty between the United States and the country with
respect to which the
Non-U.S. OP
unitholder is resident for tax purposes.
Non-U.S. OP
unitholders are advised to consult their tax advisors regarding
the effects an investment in Aimco OP may have on information
return requirements and other United States and
non-United
States tax matters, including the tax consequences of an
investment in Aimco OP for the country or other jurisdiction of
which such
Non-U.S. Holder
is a citizen or in which such
Non-U.S. Holder
resides or is otherwise located.
Taxation
of Aimco and Aimco Stockholders
Taxation
of Aimco
The REIT provisions of the Internal Revenue Code are highly
technical and complex. The following summary sets forth certain
aspects of the provisions of the Internal Revenue Code that
govern the U.S. federal income tax treatment of a REIT and
its stockholders. This summary is qualified in its entirety by
the applicable Internal Revenue Code provisions, Treasury
Regulations, and administrative and judicial interpretations
thereof, all of which are subject to change, possibly with
retroactive effect.
Aimco has elected to be taxed as a REIT under the Internal
Revenue Code commencing with its taxable year ended
December 31, 1994, and Aimco intends to continue such
election. Although Aimco believes that, commencing with
Aimcos initial taxable year ended December 31, 1994,
Aimco was organized in conformity with the requirements for
qualification as a REIT, and its actual method of operation has
enabled, and its proposed method of operation will enable, it to
meet the requirements for qualification and taxation as a REIT
under the Internal Revenue Code, no assurance can be given that
Aimco has been or will remain so qualified. Such qualification
and taxation as a REIT depends upon Aimcos ability to
meet, on a continuing basis, through actual annual operating
results, asset ownership, distribution levels, and diversity of
stock ownership, the various qualification tests imposed under
the Internal Revenue Code as discussed below. No assurance can
be given that the actual results of Aimcos operation for
any one taxable year will satisfy such requirements. See
Failure to Qualify. No assurance can be
given that the IRS will not challenge Aimcos eligibility
for taxation as a REIT.
Taxation
of REITs in General
Provided Aimco qualifies as a REIT, it will generally be
entitled to a deduction for dividends that it pays and therefore
will not be subject to U.S. federal corporate income tax on
its net income that is currently distributed to its
stockholders. This deduction for dividends paid substantially
eliminates the double taxation of corporate income
(i.e., taxation at both the corporate and stockholder levels)
that generally results from investment in a corporation. Rather,
income generated by a REIT is generally taxed only at the
stockholder level upon a distribution of dividends by the REIT.
For tax years through 2012, most domestic stockholders that are
individuals, trusts or estates are taxed on corporate dividends
at a maximum rate of 15% (the same as long-term capital gains).
With limited exceptions, however, dividends received by
stockholders from Aimco or from other entities that are taxed as
REITs are generally not eligible for this rate, and will
continue to be taxed at rates applicable to ordinary income. See
Taxation of Stockholders Taxation
of Taxable Domestic Stockholders Distributions.
Net operating losses, foreign tax credits and other tax
attributes of a REIT generally do not pass through to the
stockholders of the REIT, subject to special rules for certain
items such as capital gains recognized by REITs. See
Taxation of Stockholders.
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If Aimco qualifies as a REIT, it will nonetheless be subject to
U.S. federal income tax in the following circumstances:
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Aimco will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net
capital gains.
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A 100% excise tax may be imposed on some items of income and
expense that are directly or constructively paid between Aimco
and its taxable REIT subsidiaries (as described below) if and to
the extent that the IRS successfully asserts that the economic
arrangements between Aimco and its taxable REIT subsidiaries are
not comparable to similar arrangements between unrelated parties.
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If Aimco has net income from prohibited transactions, which are,
in general, sales or other dispositions of property held
primarily for sale to customers in the ordinary course of
business, other than foreclosure property, such income will be
subject to a 100% tax.
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If we elect to treat property that we acquire in connection with
a foreclosure of a mortgage loan or certain leasehold
terminations as foreclosure property, we may thereby
avoid the 100% prohibited transactions tax on gain from a resale
of that property (if the sale would otherwise constitute a
prohibited transaction), but the income from the sale or
operation of the property may be subject to corporate income tax
at the highest applicable rate. We do not anticipate receiving
any income from foreclosure property.
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If Aimco should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but nonetheless
maintains its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on
an amount based on the magnitude of the failure adjusted to
reflect the profit margin associated with Aimcos gross
income.
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Similarly, if Aimco should fail to satisfy the asset test or
other requirements applicable to REITs, as described below, yet
nonetheless maintain its qualification as a REIT because there
is reasonable cause for the failure and other applicable
requirements are met, it may be subject to an excise tax. In
that case, the amount of the tax will be at least $50,000 per
failure, and, in the case of certain asset test failures, will
be determined as the amount of net income generated by the
assets in question multiplied by the highest corporate tax rate
if that amount exceeds $50,000 per failure.
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If Aimco should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain net income for
such year, and (iii) any undistributed taxable income from
prior periods, Aimco will be required to pay a 4% excise tax on
the excess of the required distribution over the sum of
(a) the amounts actually distributed, plus
(b) retained amounts on which income tax is paid at the
corporate level.
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Aimco may be required to pay monetary penalties to the IRS in
certain circumstances, including if it fails to meet the record
keeping requirements intended to monitor its compliance with
rules relating to the composition of a REITs stockholders,
as described below in Requirements for
Qualification General.
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If Aimco acquires appreciated assets from a corporation that is
not a REIT (i.e., a subchapter C corporation) in a
transaction in which the adjusted tax basis of the assets in the
hands of Aimco is determined by reference to the adjusted tax
basis of the assets in the hands of the subchapter C
corporation, Aimco may be subject to tax on such appreciation at
the highest corporate income tax rate then applicable if Aimco
subsequently recognizes gain on the disposition of any such
asset during the ten-year period following its acquisition from
the subchapter C corporation.
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Certain of Aimcos subsidiaries are subchapter C
corporations, the earnings of which could be subject to
U.S. federal corporate income tax.
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Aimco may be subject to the alternative minimum tax
on its items of tax preference, including any deductions of net
operating losses.
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Aimco and its subsidiaries may be subject to a variety of taxes,
including state, local and foreign income taxes, property taxes
and other taxes on their assets and operations. Aimco could also
be subject to tax in situations and on transactions not
presently contemplated.
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Requirements
for Qualification
The Internal Revenue Code defines a REIT as a corporation, trust
or association:
1. that is managed by one or more trustees or directors;
2. the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of
beneficial interest;
3. that would be taxable as a domestic corporation, but for
the special Internal Revenue Code provisions applicable to REITs;
4. that is neither a financial institution nor an insurance
company subject to certain provisions of the Internal Revenue
Code;
5. the beneficial ownership of which is held by 100 or more
persons;
6. in which, during the last half of each taxable year, not
more than 50% in value of the outstanding stock is owned,
directly or indirectly, by five or fewer individuals (as defined
in the Internal Revenue Code to include certain entities and as
determined by applying certain attribution rules); and
7. that meets other tests described below (including with
respect to the nature of its income and assets).
The Internal Revenue Code provides that conditions
(1) through (4) must be met during the entire taxable
year, and that the condition (5) must be met during at
least 335 days of a taxable year of 12 months, or
during a proportionate part of a shorter taxable year.
Aimco believes that it has been organized, has operated and has
issued sufficient shares of stock to satisfy conditions
(1) through (7) inclusive. Aimcos articles of
incorporation provide certain restrictions regarding transfers
of its shares, which are intended to assist Aimco in satisfying
the share ownership requirements described in conditions
(5) and (6) above. These restrictions, however, may
not ensure that Aimco will, in all cases, be able to satisfy the
share ownership requirements described in (5) and
(6) above.
To monitor Aimcos compliance with the share ownership
requirements, Aimco is generally required to maintain records
regarding the actual ownership of its shares. To do so, Aimco
must demand written statements each year from the record holders
of certain percentages of its stock in which the record holders
are to disclose the actual owners of the shares (i.e., the
persons required to include in gross income the dividends paid
by Aimco). A list of those persons failing or refusing to comply
with this demand must be maintained as part of Aimcos
records. Failure by Aimco to comply with these record keeping
requirements could subject it to monetary penalties. A
stockholder who fails or refuses to comply with the demand is
required by the Treasury Regulations to submit a statement with
its tax return disclosing the actual ownership of the shares and
certain other information.
In addition, a corporation generally may not elect to become a
REIT unless its taxable year is the calendar year. Aimco
satisfies this requirement.
Effect of
Subsidiary Entities
Ownership of Partnership Interests. In the
case of a REIT that is a partner in a partnership, the Treasury
Regulations provide that the REIT is deemed to own its
proportionate share of the partnerships assets and to earn
its proportionate share of the partnerships income for
purposes of the asset and gross income tests applicable to REITs
as described below. Similarly, the assets and gross income of
the partnership are deemed to retain the same character in the
hands of the REIT. Thus, Aimcos proportionate share of the
assets, liabilities and items of income of Aimco OP and the
Subsidiary Partnerships will be treated as assets, liabilities
and items of income of Aimco for purposes of applying the REIT
requirements described below. A summary of certain rules
governing the U.S. federal income
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taxation of partnerships and their partners is provided below in
Tax Aspects of Aimcos Investments in
Partnerships.
Disregarded Subsidiaries. Aimcos
indirect interests in Aimco OP and other Subsidiary Partnerships
are held through wholly-owned corporate subsidiaries of Aimco
organized and operated as qualified REIT
subsidiaries within the meaning of the Internal Revenue
Code. A qualified REIT subsidiary is any corporation, other than
a taxable REIT subsidiary as described below, that is
wholly-owned by a REIT, or by other disregarded subsidiaries, or
by a combination of the two. If a REIT owns a qualified REIT
subsidiary, that subsidiary is disregarded for U.S. federal
income tax purposes, and all assets, liabilities and items of
income, deduction and credit of the subsidiary are treated as
assets, liabilities and items of income, deduction and credit of
the REIT itself, including for purposes of the gross income and
asset tests applicable to REITs as summarized below. Each
qualified REIT subsidiary, therefore, is not subject to
U.S. federal corporate income taxation, although it may be
subject to state or local taxation. Other entities that are
wholly-owned by a REIT, including single member limited
liability companies, are also generally disregarded as separate
entities for U.S. federal income tax purposes, including
for purposes of the REIT income and asset tests. Disregarded
subsidiaries, along with partnerships in which Aimco holds an
equity interest, are sometimes referred to herein as
pass-through subsidiaries.
In the event that a disregarded subsidiary of Aimco ceases to be
wholly-owned for example, if any equity interest in
the subsidiary is acquired by a person other than Aimco or
another disregarded subsidiary of Aimco the
subsidiarys separate existence would no longer be
disregarded for U.S. federal income tax purposes. Instead,
it would have multiple owners and would be treated as either a
partnership or a taxable corporation. Such an event could,
depending on the circumstances, adversely affect Aimcos
ability to satisfy the various asset and gross income
requirements applicable to REITs, including the requirement that
REITs generally may not own, directly or indirectly, more than
10% of the securities of another corporation. See
Asset Tests and Income
Tests.
Taxable Subsidiaries. A REIT, in general, may
jointly elect with a subsidiary corporation, whether or not
wholly-owned, to treat the subsidiary corporation as a taxable
REIT subsidiary (TRS). A TRS also includes any
corporation, other than a REIT, with respect to which a TRS in
which a REIT owns an interest owns securities possessing 35% of
the total voting power or total value of the outstanding
securities of such corporation. The separate existence of a TRS
or other taxable corporation, unlike a disregarded subsidiary as
discussed above, is not ignored for U.S. federal income tax
purposes. As a result, a parent REIT is not treated as holding
the assets of a TRS or as receiving any income that the TRS
earns. Rather, the stock issued by the TRS is an asset in the
hands of the parent REIT, and the REIT recognizes as income the
dividends, if any, that it receives from the subsidiary. This
treatment can affect the income and asset test calculations that
apply to the REIT, as described below. Because a parent REIT
does not include the assets and income of such subsidiary
corporations in determining the parents compliance with
the REIT requirements, such entities may be used by the parent
REIT to indirectly undertake activities that the REIT rules
might otherwise preclude it from doing directly or through
pass-through subsidiaries (for example, activities that give
rise to certain categories of income such as management fees or
foreign currency gains). As a taxable corporation, a TRS is
required to pay regular U.S. federal income tax, and state
and local income tax where applicable.
Certain of Aimcos operations (including certain of its
property management, asset management, risk management, etc.)
are conducted through its TRSs. Because Aimco is not required to
include the assets and income of such TRSs in determining
Aimcos compliance with the REIT requirements, Aimco uses
its TRSs to facilitate its ability to offer services and
activities to its residents that are not generally considered as
qualifying REIT services and activities. If Aimco fails to
properly structure and provide such nonqualifying services and
activities through its TRSs, its ability to satisfy the REIT
gross income requirement, and also its REIT status, may be
jeopardized.
A TRS may generally engage in any business except the operation
or management of a lodging or health care facility. The
operation or management of a health care or lodging facility
precludes a corporation from qualifying as a TRS. If any of
Aimcos TRSs were deemed to operate or manage a health care
or lodging facility, such TRSs would fail to qualify as taxable
REIT subsidiaries, and Aimco would fail to qualify as a REIT.
Aimco believes that none of its TRSs operate or manage any
health care or lodging facilities. However, the statute provides
little guidance as to the definition of a health care or lodging
facility. Accordingly, there can be no assurance that the IRS
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will not contend that an Aimco TRS operates or manages a health
care or lodging facility, disqualifying it from treatment as a
TRS, and thereby resulting in the disqualification of Aimco as a
REIT.
Several provisions of the Internal Revenue Code regarding
arrangements between a REIT and a TRS seek to ensure that a TRS
will be subject to an appropriate level of U.S. federal
income taxation. For example, a TRS is limited in its ability to
deduct interest payments made to its REIT owner. In addition,
Aimco would be obligated to pay a 100% penalty tax on certain
payments that it receives from, or on certain expenses deducted
by, a TRS if the IRS were to successfully assert that the
economic arrangements between Aimco and the taxable REIT
subsidiary were not comparable to similar arrangements among
unrelated parties.
A portion of the amounts to be used to fund distributions to
stockholders may come from distributions made by Aimcos
TRSs to Aimco OP, and interest paid by the TRSs on certain notes
held by Aimco OP. In general, TRSs pay federal, state and local
income taxes on their taxable income at normal corporate rates.
Any federal, state or local income taxes that Aimcos TRSs
are required to pay will reduce Aimcos cash flow from
operating activities and its ability to make payments to holders
of its securities.
Income
Tests
In order to maintain qualification as a REIT, Aimco annually
must satisfy two gross income requirements:
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First, at least 75% of Aimcos gross income for each
taxable year, excluding gross income from sales of inventory or
dealer property in prohibited transactions, must be
derived from investments relating to real property or mortgages
on real property, including rents from real
property, dividends received from other REITs, interest
income derived from mortgage loans secured by real property, and
gains from the sale of real estate assets, as well as certain
types of temporary investments.
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Second, at least 95% of Aimcos gross income for each
taxable year, excluding gross income from prohibited
transactions, must be derived from some combination of such
income from investments in real property (i.e., income that
qualifies under the 75% income test described above), as well as
other dividends, interest and gains from the sale or disposition
of stock or securities, which need not have any relation to real
property.
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Rents received by Aimco directly or through Aimco OP or the
Subsidiary Partnerships will qualify as rents from real
property in satisfying the gross income requirements
described above, only if several conditions are met. If rent is
partly attributable to personal property leased in connection
with a lease of real property, the portion of the total rent
attributable to the personal property will not qualify as
rents from real property unless it constitutes 15%
or less of the total rent received under the lease. Moreover,
the REIT generally must not operate or manage the property
(subject to certain exceptions) or furnish or render services to
the tenants of such property, other than through an
independent contractor from which the REIT derives
no revenue. Aimco and its affiliates are permitted, however, to
directly perform services that are usually or customarily
rendered in connection with the rental of space for
occupancy only and are not otherwise considered rendered to the
occupant of the property. In addition, Aimco and its affiliates
may directly or indirectly provide non-customary services to
tenants of its properties without disqualifying all of the rent
from the property if the payment for such services does not
exceed 1% of the total gross income from the property. For
purposes of this test, the income received from such
non-customary services is deemed to be at least 150% of the
direct cost of providing the services. Moreover, Aimco is
generally permitted to provide services to tenants or others
through a TRS without disqualifying the rental income received
from tenants for purposes of the REIT income requirements.
Aimco manages apartment properties for third parties and
affiliates through its TRSs. These TRSs receive management fees
and other income. A portion of such fees and other income accrue
to Aimco through distributions from the TRSs that are classified
as dividend income to the extent of the earnings and profits of
the TRSs. Such distributions will generally qualify for purposes
of the 95% gross income test but not for purposes of the 75%
gross income test. Any dividend Aimco receives from a REIT,
however, will be qualifying income in Aimcos hands for
purposes of both the 95% and 75% income tests.
Any income or gain derived by Aimco directly or through Aimco OP
or the Subsidiary Partnerships from instruments that hedge
certain risks, such as the risk of changes in interest rates,
will not constitute gross income for purposes of the 75% or 95%
gross income tests, provided that specified requirements are
met. Such requirements
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include that the instrument hedge risks associated with
indebtedness issued by Aimco, Aimco OP or the Subsidiary
Partnerships that is incurred to acquire or carry real
estate assets (as described below under
Asset Tests), and the instrument is
properly identified as a hedge, along with the risk that it
hedges, within prescribed time periods.
If Aimco fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify
as a REIT for the year if it is entitled to relief under certain
provisions of the Internal Revenue Code. These relief provisions
will be generally available if Aimcos failure to meet
these tests was due to reasonable cause and not due to willful
neglect, and Aimco attaches a schedule of the sources of its
income to its tax return. It is not possible to state whether
Aimco would be entitled to the benefit of these relief
provisions in all circumstances. If these relief provisions are
inapplicable to a particular set of circumstances involving
Aimco, Aimco will not qualify as a REIT. Even where these relief
provisions apply, the Internal Revenue Code imposes a tax based
upon the amount by which Aimco fails to satisfy the particular
gross income test.
Asset
Tests
Aimco, at the close of each calendar quarter of its taxable
year, must also satisfy four tests relating to the nature of its
assets:
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First, at least 75% of the value of the total assets of Aimco
must be represented by some combination of real estate
assets, cash, cash items, U.S. government securities,
and under some circumstances, stock or debt instruments
purchased with new capital. For this purpose, real estate
assets include interests in real property, such as land,
buildings, leasehold interests in real property, stock of other
corporations that qualify as REITs, and some kinds of mortgage
backed securities and mortgage loans. Assets that do not qualify
for purposes of the 75% test are subject to the additional asset
tests described below.
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Second, not more than 25% of Aimcos total assets may be
represented by securities other than those in the 75% asset
class.
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Third, of the investments included in the 25% asset class, the
value of any one issuers securities owned by Aimco may not
exceed 5% of the value of Aimcos total assets, Aimco may
not own more than 10% of any one issuers outstanding
voting securities, and, subject to certain exceptions, Aimco may
not own more than 10% of the total value of the outstanding
securities of any one issuer. The 5% and 10% asset tests do not
apply to securities of TRSs.
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Fourth, the aggregate value of all securities of TRSs held by
Aimco may not exceed 25% of the value of Aimcos total
assets.
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Aimco believes that the value of the securities held by Aimco in
its TRSs will not exceed, in the aggregate, 25% of the value of
Aimcos total assets and that Aimcos ownership
interests in its TRSs qualify under the asset tests set forth
above.
Notwithstanding the general rule that a REIT is treated as
owning its share of the underlying assets of a subsidiary
partnership for purposes of the REIT income and asset tests, if
a REIT holds indebtedness issued by a partnership, the
indebtedness will be subject to, and may cause a violation of,
the asset tests, resulting in loss of REIT status, unless it is
a qualifying mortgage asset satisfying the rules for
straight debt, or is sufficiently small so as not to
otherwise cause an asset test violation. Similarly, although
stock of another REIT is a qualifying asset for purposes of the
REIT asset tests, non-mortgage debt held by Aimco that is issued
by another REIT may not so qualify.
Certain securities will not cause a violation of the 10% value
test described above. Such securities include instruments that
constitute straight debt, which includes, among
other things, securities having certain contingency features. A
security does not qualify as straight debt where a
REIT (or a controlled TRS of the REIT) owns other securities of
the same issuer which do not qualify as straight debt, unless
the value of those other securities constitute, in the
aggregate, 1% or less of the total value of that issuers
outstanding securities. In addition to straight debt, the
Internal Revenue Code provides that certain other securities
will not violate the 10% value test. Such securities include
(a) any loan made to an individual or an estate,
(b) certain rental agreements in which one or more payments
are to be made in subsequent years (other than agreements
between a REIT and certain persons related to
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the REIT), (c) any obligation to pay rents from real
property, (d) securities issued by governmental entities
that are not dependent in whole or in part on the profits of (or
payments made by) a non-governmental entity, (e) any
security issued by another REIT, and (f) any debt
instrument issued by a partnership if the partnerships
income is of a nature that it would satisfy the 75% gross income
test described above under Income Tests.
In applying the 10% value test, a debt security issued by a
partnership is not taken into account to the extent, if any, of
the REITs proportionate equity interest in that
partnership.
Aimco believes that its holdings of securities and other assets
comply, and will continue to comply, with the foregoing REIT
asset requirements, and it intends to monitor compliance on an
ongoing basis. No independent appraisals have been obtained,
however, to support Aimcos conclusions as to the value of
its assets, including Aimco OPs total assets and the value
of Aimco OPs interest in the TRSs. Moreover, values of
some assets may not be susceptible to a precise determination,
and values are subject to change in its future. Furthermore, the
proper classification of an instrument as debt or equity for
U.S. federal income tax purposes may be uncertain in some
circumstances, which could affect the application of the REIT
asset requirements. Accordingly, there can be no assurance that
the IRS will not contend that Aimcos interests in its
subsidiaries or in the securities of other issuers will cause a
violation of the REIT asset requirements and loss of REIT status.
Certain relief provisions are available to allow REITs to
satisfy the asset requirements or to maintain REIT qualification
notwithstanding certain violations of the asset and other
requirements. One such provision allows a REIT which fails one
or more of the asset tests to nevertheless maintain its REIT
qualification if (a) it provides the IRS with a description
of each asset causing the failure, (b) the failure is due
to reasonable cause and not willful neglect, (c) the REIT
pays a tax equal to the greater of (i) $50,000 per failure,
and (ii) the product of the net income generated by the
assets that caused the failure multiplied by the highest
applicable corporate tax rate, and (d) the REIT either
disposes of the assets causing the failure within 6 months
after the last day of the quarter in which it identifies the
failure, or otherwise satisfies the relevant asset tests within
that time frame.
A second relief provision contained in the Internal Revenue Code
applies to de minimis violations of the 10% and 5% asset tests.
A REIT may maintain its qualification despite a violation of
such requirements if (a) the value of the assets causing
the violation do not exceed the lesser of 1% of the REITs
total assets, and $10,000,000, and (b) the REIT either
disposes of the assets causing the failure within 6 months
after the last day of the quarter in which it identifies the
failure, or the relevant tests are otherwise satisfied within
that time frame.
If we should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause us to lose our
REIT status if we (1) satisfied the asset tests at the
close of the preceding calendar quarter and (2) the
discrepancy between the value of our assets and the asset test
requirements was not wholly or partly caused by an acquisition
of non-qualifying assets, but instead arose from changes in the
market value of our assets. If the condition described in
(2) were not satisfied, we still could avoid
disqualification by eliminating any discrepancy within
30 days after the close of the calendar quarter in which it
arose.
Annual
Distribution Requirements
In order for Aimco to qualify as a REIT, Aimco is required to
distribute dividends, other than capital gain dividends, to its
stockholders in an amount at least equal to:
(a) 90% of Aimcos REIT taxable income, computed
without regard to the deduction for dividends paid and net
capital gain of Aimco, and
(b) 90% of the net income, if any, from foreclosure
property (as described below), minus
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the sum of certain items of noncash income.
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These distributions must be paid in the taxable year to which
they relate, or in the following taxable year if they are
declared in October, November, or December of the taxable year,
are payable to stockholders of record on a specified date in any
such month, and are actually paid before the end of January of
the following year. In order for distributions to be counted for
this purpose, and to give rise to a tax deduction by Aimco, they
must not be preferential dividends. A dividend is
not a preferential dividend if it is pro rata among all
outstanding shares of
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stock within a particular class, and is in accordance with the
preferences among different classes of stock as set forth in
Aimcos organizational documents.
To the extent that Aimco distributes at least 90%, but less than
100%, of its REIT taxable income, as adjusted, it will be
subject to tax thereon at ordinary corporate tax rates. In any
year, Aimco may elect to retain, rather than distribute, its net
capital gain and pay tax on such gain. In such a case,
Aimcos stockholders would include their proportionate
share of such undistributed long-term capital gain in income and
receive a corresponding credit for their share of the tax paid
by Aimco. Aimcos stockholders would then increase the
adjusted basis of their Aimco shares by the difference between
the designated amounts included in their long-term capital gains
and the tax deemed paid with respect to their shares.
To the extent that a REIT has available net operating losses
carried forward from prior tax years, such losses may reduce the
amount of distributions that it must make in order to comply
with the REIT distribution requirements. Such losses, however,
will generally not affect the character, in the hands of
stockholders, of any distributions that are actually made by the
REIT, which are generally taxable to stockholders to the extent
that the REIT has current or accumulated earnings and profits.
See Taxation of Stockholders
Taxable Domestic Stockholders Distributions.
If Aimco should fail to distribute during each calendar year at
least the sum of:
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85% of its REIT ordinary income for such year,
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95% of its REIT capital gain net income for such year (excluding
retained net capital gain), and
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any undistributed taxable income from prior periods,
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Aimco would be subject to a 4% excise tax on the excess of such
required distribution over the sum of (x) the amounts
actually distributed, and (y) the amounts of income
retained on which it has paid corporate income tax.
It is possible that Aimco, from time to time, may not have
sufficient cash to meet the 90% distribution requirement due to
timing differences between (i) the actual receipt of cash
(including receipt of distributions from Aimco OP) and
(ii) the inclusion of certain items in income by Aimco for
U.S. federal income tax purposes. In the event that such
timing differences occur, in order to meet the distribution
requirements Aimco may find it necessary to arrange for
short-term, or possibly long-term, borrowings, or to pay
dividends in the form of taxable in-kind distributions of
property.
Under certain circumstances, Aimco may be able to rectify a
failure to meet the distribution requirement for a year by
paying deficiency dividends to stockholders in a
later year, which may be included in Aimcos deduction for
dividends paid for the earlier year. In this case, Aimco may be
able to avoid losing its REIT status or being taxed on amounts
distributed as deficiency dividends; however, Aimco will be
required to pay interest and a penalty based on the amount of
any deduction taken for deficiency dividends.
Prohibited
Transactions
Net income derived by a REIT from a prohibited transaction is
subject to a 100% excise tax. The term prohibited
transaction generally includes a sale or other disposition
of property (other than foreclosure property) that is held
primarily for sale to customers in the ordinary course of a
trade or business. Aimco intends to conduct its operations so
that no asset owned by Aimco or its pass-through subsidiaries
will be held for sale to customers, and that a sale of any such
asset will not be in the ordinary course of Aimcos
business. Whether property is held primarily for sale to
customers in the ordinary course of a trade or business
depends, however, on the particular facts and circumstances. No
assurance can be given that no property sold by Aimco will be
treated as property held for sale to customers, or that Aimco
can comply with certain safe-harbor provisions of the Internal
Revenue Code that would prevent the imposition of the 100%
excise tax. The 100% tax does not apply to gains from the sale
of property that is held through a TRS or other taxable
corporation, although such income will be subject to tax in the
hands of the corporation at regular corporate rates.
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Penalty
Tax
Aimco will be subject to a 100% penalty tax on the amount of
certain non-arms length payments received from, or certain
expenses deducted by, a TRS if the IRS were to successfully
assert that the economic arrangements between Aimco and such TRS
are not comparable to similar transaction between unrelated
parties. Such amounts may include rents from real property that
are overstated as a result of services furnished by a TRS to
tenants of Aimco and amounts that are deducted by a TRS for
payments made to Aimco that are in excess of the amounts that
would have been charged by an unrelated party.
Aimco believes that the fees paid to its TRSs for tenant
services are comparable to the fees that would be paid to an
unrelated third party negotiating at arms-length. This
determination, however, is inherently factual, and the IRS may
assert that the fees paid by Aimco do not represent
arms-length amounts. If the IRS successfully made such an
assertion, Aimco would be required to pay a 100% penalty tax on
the excess of an arms-length fee for tenant services over
the amount actually paid.
Failure
to Qualify
If Aimco fails to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, Aimco will be
subject to tax, including any applicable alternative minimum
tax, on its taxable income at regular corporate rates.
Distributions to stockholders in any year in which Aimco fails
to qualify will not be deductible by Aimco nor will they be
required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to
stockholders that are individuals will generally be taxable at
the preferential income tax rates (i.e., the 15% maximum federal
rate through 2012) for qualified dividends. In addition,
subject to the limitations of the Internal Revenue Code,
corporate distributees may be eligible for the dividends
received deduction. Unless Aimco is entitled to relief under
specific statutory provisions, Aimco would also be disqualified
from re-electing to be taxed as a REIT for the four taxable
years following the year during which qualification was lost. It
is not possible to state whether, in all circumstances, Aimco
would be entitled to this statutory relief.
Tax
Aspects of Aimcos Investments in
Partnerships
General
Substantially all of Aimcos investments are held
indirectly through Aimco OP. In general, partnerships are
pass-through entities that are not subject to
U.S. federal income tax. Rather, partners are allocated
their proportionate shares of the items of income, gain, loss,
deduction and credit of a partnership, and are potentially
subject to tax on these items, without regard to whether the
partners receive a distribution from the partnership. Aimco will
include in its income its proportionate share of the foregoing
partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for
purposes of the REIT asset tests, Aimco will include its
proportionate share of assets held by Aimco OP and the
Subsidiary Partnerships. See Effect of
Subsidiary Entities Ownership of Partnership
Interests.
Entity
Classification
Aimcos direct and indirect investment in partnerships
involves special tax considerations, including the possibility
of a challenge by the IRS of the tax status of Aimco OP or any
of the Subsidiary Partnerships as a partnership for
U.S. federal income tax purposes. If any of these entities
were treated as an association or a publicly traded partnership
taxable as a corporation for U.S. federal income tax
purposes, it would be subject to an entity-level tax on its
income. In such a situation, the character of Aimcos
assets and items of gross income would change and could preclude
Aimco from satisfying the REIT asset tests and gross income
tests (see Asset Tests and
Income Tests), and in turn could prevent
Aimco from qualifying as a REIT unless Aimco is eligible for
relief from the violation pursuant to relief provisions
described above. See Failure to Qualify
above for a summary of the effect of Aimcos failure to
satisfy the REIT tests for a taxable year, and of the relief
provisions. In addition, any change in the status of any of the
Subsidiary Partnerships for tax purposes might be treated as a
taxable event, in which case Aimco might incur a tax liability
without any related cash distributions.
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Tax
Allocations with Respect to the Properties
Under the Internal Revenue Code and the Treasury Regulations,
income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated
for tax purposes in a manner such that the contributing partner
is charged with, or benefits from the unrealized gain or
unrealized loss associated with the property at the time of the
contribution. The amount of the unrealized gain or unrealized
loss is generally equal to the difference between the fair
market value of the contributed property at the time of
contribution, and the adjusted tax basis of such property at the
time of contribution (a BookTax Difference).
Such allocations are solely for U.S. federal income tax
purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. Aimco OP was
formed by way of contributions of appreciated property.
Consequently, allocations must be made in a manner consistent
with these requirements. Where a partner contributes cash to a
partnership at a time that the partnership holds appreciated (or
depreciated) property, the Treasury Regulations provide for a
similar allocation of these items to the other (i.e.,
non-contributing) partners. These rules apply to the
contribution by Aimco to Aimco OP of the cash proceeds received
in any offerings of its stock.
In general, certain unitholders will be allocated lower amounts
of depreciation deductions for tax purposes and increased
taxable income and gain on the sale by Aimco OP or other
Subsidiary Partnerships of the contributed properties. This will
tend to eliminate the Book-Tax Difference over the life of these
partnerships. However, the special allocations do not always
entirely rectify the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed properties in the
hands of Aimco OP or other Subsidiary Partnerships may cause
Aimco to be allocated lower depreciation and other deductions,
and possibly greater amounts of taxable income in the event of a
sale of such contributed assets in excess of the economic or
book income allocated to it as a result of such sale. This may
cause Aimco to recognize, over time, taxable income in excess of
cash proceeds, which might adversely affect Aimcos ability
to comply with the REIT distribution requirements. See
Taxation of Aimco Annual
Distribution Requirements.
With respect to any property purchased or to be purchased by any
of the Subsidiary Partnerships (other than through the issuance
of units) subsequent to the formation of Aimco, such property
will initially have a tax basis equal to its fair market value
and the special allocation provisions described above will not
apply.
Sale of
the Properties
Aimcos share of any gain realized by Aimco OP or any other
Subsidiary Partnership on the sale of any property held as
inventory or primarily for sale to customers in the ordinary
course of business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See
Prohibited Transactions. Under existing
law, whether property is held as inventory or primarily for sale
to customers in the ordinary course of a partnerships
trade or business is a question of fact that depends on all the
facts and circumstances with respect to the particular
transaction. Aimco OP and the other Subsidiary Partnerships
intend to hold their properties for investment with a view to
long-term appreciation, to engage in the business of acquiring,
developing, owning and operating the properties and to make such
occasional sales of the properties, including peripheral land,
as are consistent with Aimcos investment objectives.
Taxation
of Stockholders
Taxable
Domestic Stockholders
Distributions. Provided that Aimco qualifies
as a REIT, distributions made to Aimcos taxable domestic
stockholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will generally be
taken into account by them as ordinary income and will not be
eligible for the dividends received deduction for corporations.
With limited exceptions, dividends received from REITs are not
eligible for taxation at the preferential income tax rates for
qualified dividends received by individuals from taxable C
corporations. Stockholders that are individuals, however, are
taxed at the preferential rates on dividends designated by and
received from REITs to the extent that the dividends are
attributable to (i) income retained by the REIT in the
prior taxable year on which the REIT was subject to corporate
level income tax (less the amount of tax), (ii) dividends
received by the REIT from TRSs or other taxable C corporations,
or (iii) income in the prior taxable year from the
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sales of built-in gain property acquired by the REIT
from C corporations in carryover basis transactions (less the
amount of corporate tax on such income).
Distributions (and retained net capital gains) that are
designated as capital gain dividends will generally be taxed to
stockholders as long-term capital gains, to the extent that they
do not exceed Aimcos actual net capital gain for the
taxable year, without regard to the period for which the
stockholder has held its stock. However, corporate stockholders
may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Long-term capital gains are
generally taxable at maximum federal rates of 15% through 2012
in the case of stockholders who are individuals, and 35% in the
case of stockholders that are corporations. Capital gains
attributable to the sale of depreciable real property held for
more than 12 months are subject to a 25% maximum
U.S. federal income tax rate for taxpayers who are
individuals, to the extent of previously claimed depreciation
deductions.
Aimco may elect to retain and pay taxes on some or all of its
net long term capital gain, in which case U.S. stockholders
will be treated as having received, solely for U.S. federal
income tax purposes, Aimcos undistributed capital gain as
well as a corresponding credit or refund, as the case may be,
for taxes that Aimco paid on such undistributed capital gain.
See Taxation of Aimco Annual
Distribution Requirements.
In determining the extent to which a distribution constitutes a
dividend for tax purposes, Aimcos earnings and profits
generally will be allocated first to distributions with respect
to preferred stock prior to allocating any remaining earnings
and profits to distributions on Aimcos common stock. If
Aimco has net capital gains and designates some or all of its
distributions as capital gain dividends to that extent, the
capital gain dividends will be allocated among different classes
of stock in proportion to the allocation of earnings and profits
as described above.
Distributions in excess of current and accumulated earnings and
profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholders
shares in respect of which the distributions were made, but
rather will reduce the adjusted basis of such shares. To the
extent that such distributions exceed the adjusted basis of a
stockholders shares, they will be included in income as
long-term capital gain, or short-term capital gain if the shares
have been held for one year or less. In addition, any dividend
declared by Aimco in October, November or December of any year
and payable to a stockholder of record on a specified date in
any such month will be treated as both paid by Aimco and
received by the stockholder on December 31 of such year,
provided that the dividend is actually paid by Aimco
before the end of January of the following calendar year.
To the extent that a REIT has available net operating losses and
capital losses carried forward from prior tax years, such losses
may reduce the amount of distributions that must be made in
order to comply with the REIT distribution requirements. See
Taxation of Aimco Annual
Distribution Requirements. Such losses, however, are not
passed through to stockholders and do not offset income of
stockholders from other sources, nor would they affect the
character of any distributions that are actually made by a REIT,
which are generally subject to tax in the hands of stockholders
to the extent that the REIT has current or accumulated earnings
and profits.
Dispositions of Aimco Stock. A stockholder
will realize gain or loss upon the sale, redemption or other
taxable disposition of stock in an amount equal to the
difference between the sum of the fair market value of any
property and cash received in such disposition, and the
stockholders adjusted tax basis in the stock at the time
of the disposition. In general, a stockholders tax basis
will equal the stockholders acquisition cost, increased by
the excess of net capital gains deemed distributed to the
stockholder (as discussed above), less tax deemed paid on such
net capital gains, and reduced by returns of capital. In
general, capital gains recognized by individuals upon the sale
or disposition of shares of Aimco stock will be subject to a
taxation at long term capital gains rates if the Aimco stock is
held for more than 12 months, and will be taxed at ordinary
income rates if the Aimco stock is held for 12 months or
less. Gains recognized by stockholders that are corporations are
currently subject to U.S. federal income tax at a maximum
rate of 35%, whether or not classified as long-term capital
gains. Capital losses recognized by a stockholder upon the
disposition of Aimco stock held for more than one year at the
time of disposition will be considered long-term capital losses,
and are generally available only to offset capital gain income
of the stockholder but not ordinary income (except in the case
of individuals, who may offset up to $3,000 of ordinary income
each year). In addition, any loss upon a sale or exchange of
shares of Aimco stock by a stockholder who has held the shares
for six months or less, after applying holding period rules,
will be treated as a long-term capital loss to the extent of
distributions received from Aimco that are required to be
treated by the stockholder as long-term capital gain.
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A redemption of Aimco stock (including preferred stock or equity
stock) will be treated under section 302 of the Internal
Revenue Code as a dividend subject to tax at ordinary income tax
rates (to the extent of Aimcos current or accumulated
earnings and profits), unless the redemption satisfies certain
tests set forth in section 302(b) of the Internal Revenue
Code enabling the redemption to be treated as a sale or exchange
of the stock. The redemption will satisfy such test if it
(i) is substantially disproportionate with
respect to the holder (which will not be the case if only the
preferred stock is redeemed, since it generally does not have
voting rights), (ii) results in a complete
termination of the holders stock interest in Aimco,
or (iii) is not essentially equivalent to a
dividend with respect to the holder, all within the
meaning of section 302(b) of the Internal Revenue Code. In
determining whether any of these tests have been met, shares
considered to be owned by the holder by reason of certain
constructive ownership rules set forth in the Internal Revenue
Code, as well as shares actually owned, must generally be taken
into account. Because the determination as to whether any of the
alternative tests of section 302(b) of the Internal Revenue
Code is satisfied with respect to any particular holder of the
stock will depend upon the facts and circumstances as of the
time the determination is made, prospective investors are
advised to consult their own tax advisors to determine such tax
treatment. If a redemption of the stock is treated as a
distribution that is taxable as a dividend, the amount of the
distribution would be measured by the amount of cash and the
fair market value of any property received by the stockholders.
The stockholders adjusted tax basis in such redeemed stock
would be transferred to the holders remaining
stockholdings in Aimco. If, however, the stockholder has no
remaining stockholdings in Aimco, such basis may, under certain
circumstances, be transferred to a related person or it may be
lost entirely.