Filed Pursuant to Rule 424(b)(3)
Registration File No. 333-175842

 

INFORMATION STATEMENT/PROSPECTUS

 

ANGELES INCOME PROPERTIES, LTD. 6

 

Angeles Income Properties, Ltd. 6, or AIP, has entered into an amended and restated agreement and plan of merger, or merger agreement, with AIMCO Properties, L.P., or Aimco OP, and two wholly-owned subsidiaries of Aimco OP. Under the merger agreement:

 

(i) First, AIP will be merged with and into Angeles Income Properties 6, LP, a Delaware limited partnership, or New AIP, with New AIP as the surviving entity. New AIP was formed for the purpose of effecting this merger and does not have any assets or operations. In the first merger, each unit of limited partnership interest in AIP, or AIP Unit, will be converted into an identical unit of limited partnership interest in New AIP, also referred to herein as an AIP Unit, and the general partnership interest in AIP now held by AIP’s general partner will be converted into a general partnership interest in New AIP. All interests in New AIP outstanding immediately prior to the merger will be cancelled in the first merger; and

 

(ii) Second, Aimco OP’s subsidiary, AIMCO AIP 6 Merger Sub LLC, a Delaware limited liability company, or the Aimco Subsidiary, will be merged with and into New AIP, with New AIP as the surviving entity. Aimco Subsidiary was formed for the purpose of effecting this merger and does not have any assets or operations. In the second merger, each AIP Unit will be converted into the right to receive, at the election of the holder of such unit, either:

 

 

The merger consideration of $268.04 per AIP Unit was based on an independent third party appraisal of AIP’s property by KTR Real Estate Advisors LLC, or KTR, an independent valuation firm.

 

The number of OP Units offered for each AIP Unit in the second merger will be calculated by dividing $268.04 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 second 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 11.27 OP Units offered for each AIP Unit. However, if Aimco OP determines that the law of the state or other jurisdiction in which a limited partner resides would prohibit the issuance of OP Units in that state or other jurisdiction (or that registration or qualification in that state or jurisdiction would be prohibitively costly), then such limited partner will not be entitled to elect OP Units, and will receive cash.

 

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

 

In the second merger, Aimco OP’s interest in the Aimco Subsidiary will be converted into limited partnership interests in New AIP. As a result, after the second merger, Aimco OP will be the sole limited partner of New AIP.

 

Within ten days after the effective time of the second merger, Aimco OP will prepare and mail to former holders of AIP Units an election form pursuant to which former holders of AIP Units can elect to receive cash or OP Units. Former holders of AIP Units may elect the form of consideration they wish to receive 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 former holder of AIP Units before 5:00 p.m., New York time, on the 30th day after the mailing of the election form, such former holder will be deemed to have elected to receive cash. Former holders of AIP Units may also use the election form to elect to receive, in lieu of the merger consideration, the appraised value of their AIP Units, determined through an arbitration proceeding.

 

AIP’s general partner, Angeles Realty Corporation II, or the General Partner, has determined that the merger transactions are advisable, fair to, and in the best interests of AIP and its limited partners and has approved the merger transactions. As of November 18, 2011, there were 47,311 issued and outstanding AIP Units, and Aimco OP and its affiliates owned 27,739 of those units, or approximately 58.63% of the number of units outstanding. The General Partner’s affiliates have indicated that they will vote all of their AIP Units in favor of the merger transactions, enabling them to approve the merger transactions without the consent or approval of any unaffiliated limited partners.

 

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 transactions on or about January 23, 2012. As a result, approval of the merger transactions is assured, and your consent to the merger transactions 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 agreement and the transactions contemplated thereby and the securities offered hereby, and the reasons that the General Partner has decided that the merger transactions are in the best interests of AIP and its limited partners. The General Partner has conflicts of interest with respect to the transactions that are described in greater detail herein. Please read this information statement/prospectus carefully, including the section entitled “Risk Factors” beginning on page 19. It provides you with detailed information about the merger agreement and the transactions contemplated thereby 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 transactions described herein, determined if this information statement/prospectus is truthful or complete, approved or disapproved of the transactions, passed upon the merits or fairness of the transactions 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, November 21, 2011, and is first being mailed to limited partners on or about November 23, 2011.

 

WE ARE CURRENTLY SEEKING QUALIFICATION TO ALLOW ALL HOLDERS OF AIP UNITS THE ABILITY TO ELECT TO RECEIVE OP UNITS IN CONNECTION WITH THE MERGER TRANSACTIONS DESCRIBED HEREIN. 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 TRANSACTIONS DESCRIBED HEREIN:

 

CALIFORNIA
MASSACHUSETTS

 

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 AIP Units in connection with the transactions described herein, 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 agreement and the transactions contemplated thereby.

 

TABLE OF CONTENTS

 

 

SUMMARY TERM SHEET

	•	The Merger Transactions:  AIP entered into a merger agreement with Aimco OP, New AIP and Aimco Subsidiary. The merger agreement contemplates two merger transactions. First, AIP will be merged with and into New AIP with New AIP as the surviving entity. In this merger, each AIP Unit will be converted into an identical unit of limited partnership in New AIP and the general partnership interest in AIP now held by the general partner will be converted into a general partnership interest in New AIP. All interests in New AIP outstanding immediately prior to the merger will be cancelled in the first merger. AIP’s partnership agreement in effect immediately prior to the first merger will be adopted as the partnership agreement of New AIP, with the following changes: (i) references therein to the California Uniform Limited Partnership Act, as amended, or the California Act, will be amended to refer to the Delaware Revised Uniform Limited Partnership Act, as amended, or the Delaware Act; (ii) a description of the merger will be added; and (iii) the name of the partnership will be “Angeles Income Properties 6, LP.” Second, the Aimco Subsidiary will be merged with and into New AIP, with New AIP as the surviving entity. The Aimco Subsidiary was formed for the purpose of effecting this merger and does not have any assets or operations. In this second merger, each AIP Unit will be converted into the right to receive the merger consideration described below. 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 mergers.

	•	Merger Consideration:  In the second merger, each AIP Unit will be converted into the right to receive, at the election of the holder of such AIP Unit, either $268.04 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 AIP Unit will be calculated by dividing the $268.04 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 second merger. For a full description of the determination of the merger consideration, see “The Transactions — Determination of Merger Consideration” beginning on page 39.

	•	Fairness of Merger Consideration:  Although the Aimco Entities have interests that may conflict with those of AIP’s unaffiliated limited partners, each of the Aimco Entities believes that the mergers are fair to the unaffiliated limited partners of AIP. See “Special Factors — Fairness of the Merger Transactions” beginning on page 7. The merger consideration of $268.04 per AIP Unit was based on an independent third party appraisal of AIP’s underlying property by KTR, an independent appraisal firm.

	•	Opinion of Financial Advisor:  In connection with the transactions, Duff & Phelps, LLC, or Duff & Phelps has delivered its written opinion to the boards of directors of Aimco and the general partners of Aimco OP and AIP to the effect that, as of November 15, 2011, the cash consideration offered in the second merger is fair, from a financial point of view, to the unaffiliated limited partners of AIP. The full text of Duff & Phelps 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 B. You are encouraged to read Duff & Phelps’ opinion, and the section entitled “Special Factors — Opinion of Financial Advisor” beginning on page 13, carefully and in their entirety. Duff & Phelps’ opinion was directed to the boards of directors of Aimco and the general partners of Aimco OP and AIP, and addresses only the fairness to the unaffiliated limited partners of AIP, from a financial point of view, of the cash consideration offered to them in the second merger as of the date of the opinion. Duff & Phelps’ opinion did not address any other aspect of the transactions and was not

		intended to and does not constitute a recommendation as to how any party should vote or act with respect to the transactions or any matter relating thereto.

	•	Effects of the Transactions:  After the merger transactions, Aimco OP will be the sole limited partner in New AIP, and will own all of the outstanding limited partnership interests of New AIP. As a result, after the merger transactions, you will cease to have any rights in New AIP as a limited partner. See “Special Factors — Effects of the Transactions,” beginning on page 6.

	•	Appraisal Rights:  Pursuant to the terms of the merger agreement, Aimco OP will provide each limited partner with contractual dissenters’ appraisal rights that are similar to the dissenters’ appraisal rights available to a stockholder of a constituent corporation in a merger under Delaware law, and which will enable a limited partner to obtain an appraisal of the value of the limited partner’s AIP Units in connection with the transactions. See “The Transactions — Appraisal Rights,” beginning on page 41. 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 C.

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

	•	Parties Involved:

	•	Angeles Income Properties, Ltd. 6, or AIP, is a California limited partnership organized on June 29, 1984 for the purpose of acquiring, managing, and ultimately selling income-producing real property. AIP presently owns and operates, through a limited partnership of which it owns 99% of the limited partnership interests, one investment property, Lazy Hollow Apartments, a 178 unit apartment project located in Columbia, Maryland. See “Information About Angeles Income Properties, Ltd. 6”, beginning on page 32. AIP’s principal address is 55 Beattie Place, P.O. Box 1089, Greenville, South Carolina 29602, and its telephone number is (864) 239-1000.

	•	Apartment Investment and Management Company, or Aimco, is a Maryland corporation that is a self-administered and self-managed real estate investment trust, or REIT. Aimco’s principal financial objective is to provide predictable and attractive returns to its stockholders. Aimco’s common stock is listed and traded on the NYSE under the symbol “AIV.” See “Information about the Aimco Entities,” beginning on page 32. Aimco’s principal address is 4582 South Ulster Street, Suite 1100, Denver, Colorado 80237, and its telephone number is (303) 757-8101.

	•	AIMCO Properties, L.P., or Aimco OP, is a Delaware limited partnership which, through its operating divisions and subsidiaries, holds substantially all of Aimco’s assets and manages the daily operations of Aimco’s business and assets. See “Information about the Aimco Entities,” beginning on page 30. Aimco OP’s principal address is 4582 South Ulster Street, Suite 1100, Denver, Colorado 80237, and its telephone number is (303) 757-8101.

	•	Angeles Income Properties 6, LP, or New AIP, is a Delaware limited partnership formed on July 26, 2011, for the purpose of consummating the first merger with AIP. New AIP’s general partner is Angeles Realty Corporation II, and its sole limited partner is Aimco OP. See “Information about the Aimco Entities,” beginning on page 30.

	•	AIMCO AIP 6 Merger Sub LLC, or the Aimco Subsidiary, is a Delaware limited liability company formed on July 26, 2011, for the purpose of consummating the second merger with New AIP. The Aimco Subsidiary is a direct wholly-owned subsidiary of Aimco OP. See “Information about the Aimco Entities,” beginning on page 30.

	•	Reasons for the Transactions:  Aimco and Aimco OP are in the business of acquiring, owning and managing apartment properties such as the one owned by AIP, and have decided to proceed with the transactions as a means of acquiring the property currently owned by AIP 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 AIP of the expenses associated with a sale of the property, including marketing and other transaction costs. The Aimco Entities decided to proceed with the transactions at this time for the following reasons:

	•	In the absence of a transaction, AIP limited partners have only limited options to liquidate their investment in AIP. The AIP Units are not traded on an exchange or other reporting system, and transactions in the securities are limited and sporadic.
	•	The value of the single property owned by AIP is not sufficient to justify its continued operation as a public company. As a public company with a significant number of unaffiliated limited partners, AIP 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 $89,000 per year.

	•	Conflicts of Interest:  The General Partner is indirectly wholly-owned by Aimco. Therefore, the General Partner has a conflict of interest with respect to the transactions. The General Partner has fiduciary duties to AIMCO/IPT, Inc., the General Partner’s sole stockholder and an affiliate of Aimco, on the one hand, and to AIP and its limited partners, on the other hand. The duties of the General Partner to AIP and its limited partners conflict with the duties of the General Partner to AIMCO/IPT, Inc., which could result in the General Partner approving a transaction that is more favorable to Aimco than might be the case absent such conflict of interest. See “The Transactions — Conflicts of Interest,” beginning on page 40.

	•	Risk Factors:  In evaluating the merger agreement and the transactions contemplated thereby, AIP limited partners should carefully read this information statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors,” beginning on page 19. Some of the risk factors associated with the transactions are summarized below:

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

	•	There are a number of significant differences between AIP Units and 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 AIP Units and Aimco OP Units,” beginning on page 62.

	•	AIP limited partners may elect to receive OP Units as merger consideration in the second merger, 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. See “Comparison of AIP Units and Aimco OP Units,” beginning on page 62.

	•	Material United States Federal Income Tax Consequences of the Transactions:  The merger between AIP and New AIP will generally be treated as a partnership merger for U.S. Federal income tax purposes. In general, AIP will not recognize gain as a result of contribution of its assets to New AIP, and the merger between AIP and New AIP will not result in any tax consequences to the limited partners of AIP. The merger between AIP and the Aimco Subsidiary will generally be treated as a partnership merger for U.S. Federal income tax purposes. In general, any payment of cash for AIP Units will be treated as a sale of such AIP Units by the holder thereof. Any exchange of AIP 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 Transactions,” beginning on page 68.

 

Aimco and Aimco OP are in the business of acquiring, owning and managing apartment properties such as the one owned by AIP, and have decided to proceed with the transactions as a means of acquiring the property currently owned by AIP in a manner 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 AIP of the expenses associated with a sale of the property, including marketing and other transaction costs.

 

The Aimco Entities determined to proceed with the transactions at this time for the following reasons:

 

 

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

 

Continuation of AIP as a Public Company Operating the Property.  The General Partner and the other Aimco Entities did not consider the continuation of AIP as a public company operating the property to be a viable alternative primarily because of the costs associated with preparing financial statements, tax returns, periodic SEC reports and other expenses. If AIP is unable to generate sufficient funds to cover operating expenses, advances from Aimco OP may not be available in the future as Aimco OP is not obligated to provide such advances.

 

Liquidation of AIP.  The General Partner and the other Aimco Entities considered a liquidation of AIP in which AIP’s property would be marketed and sold to a third party for cash, with any net proceeds remaining, after payment of all liabilities, distributed to AIP’s limited partners. The primary advantage of such a transaction would be that the sale price would reflect arm’s-length negotiations and might therefore be higher than the appraised value which has been used to determine the merger consideration. The General Partner and the other 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 that AIP would incur in connection with marketing and selling the property; (iii) the fact that limited partners would recognize taxable gain on the sale without the option of deferring that gain; and (iv) the prepayment penalties that AIP would incur in repaying its mortgage debt upon a sale of the property.

 

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

 

The Aimco Entities believe that the transactions will have the following benefits and detriments to unaffiliated limited partners, AIP and the Aimco Entities:

 

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

 

Liquidity.  Limited partners are given a choice of merger consideration and may elect to receive either cash or OP Units in the second merger, except in those jurisdictions where the law prohibits the offer of OP Units (or registration or qualification would be prohibitively costly). Limited partners who receive 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 second merger will have the opportunity to participate in Aimco OP, which has a more diversified property portfolio than AIP.

 

Benefits to AIP.  The transactions are expected to have the following principal benefits to AIP:

 

Elimination of Costs Associated with SEC Reporting Requirements and Multiple Limited Partners.  After the transactions, the Aimco Entities will own all of the interests in AIP, and AIP will terminate its registration and cease filing periodic reports with the SEC. As a result, AIP will no longer incur 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 expenses to be approximately $89,000 per year.

 

Benefits to the Aimco Entities.  The transactions are expected to have the following principal benefits to the Aimco Entities:

 

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

 

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

 

Taxable Gain.  Limited partners who receive cash consideration may recognize taxable gain in the second merger and that gain could exceed the merger consideration. In addition, limited partners who receive OP Units in the second merger could recognize taxable gain if Aimco subsequently sells AIP’s property.

 

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

 

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

Detriments to AIP.  The transactions are not expected to have any detriments to AIP.

 

Detriments to the Aimco Entities.  The transactions are expected to have the following principal detriments to the Aimco Entities:

 

Increased Interest in AIP.  Upon completion of the merger transactions, the Aimco Entities’ interest in the net book value of AIP will increase from 59.44% to 100%, or from a deficit of $5,871,000 to a deficit of $9,877,000 as of December 31, 2010. Upon completion of the merger transactions, Aimco OP will be the sole limited partner of New AIP. As a result, Aimco OP will bear the burden of all future operating or other losses of AIP, as well as any decline in the value of AIP’s property.

 

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

 

For a discussion of the material U.S. Federal income tax consequences of the transactions, see “Material United States Federal Income Tax Considerations — United States Federal Income Tax Consequences Relating to the Transactions,” beginning on page 68.

 

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

 

 

 

 

 

 

 

 

 

 

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

 

 

The Aimco Entities did not assign relative weights to the above factors in reaching their decision that the transactions are fair to AIP and its unaffiliated limited partners. However, in determining that the benefits of the proposed transactions outweigh the costs and risks, they relied primarily on the following factors: (i) the merger consideration of $268.04 per AIP Unit is based on an independent third party appraisal of AIP’s property, (ii) the

Duff & Phelps opinion that, as of November 15, 2011, based on and subject to the various 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 $268.04 per AIP Unit offered in the second merger is fair, from a financial point of view, to the unaffiliated limited partners of AIP, (iii) limited partners may defer recognition of taxable gain by electing to receive OP Units in the second merger (except in certain jurisdictions) and (iv) limited partners are entitled to contractual dissenters’ appraisal rights. The Aimco Entities were aware of, but did not place much emphasis on, information regarding prices at which AIP Units may have sold in the secondary market because they do not view that information as a reliable measure of value. The AIP Units are not traded on an exchange or other reporting system, and transactions in the secondary market are very limited and sporadic. In addition, some of the historical prices are not comparable to current value because of intervening events, including a property sale, increased borrowings through a second mortgage on AIP’s property and the distribution of proceeds from such events.

 

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

 

Selection and Qualifications of Independent Appraiser.  The General Partner retained the services of KTR to appraise the market value of AIP’s sole property, the Lazy Hollow Apartments. KTR is an experienced independent valuation consulting firm that has performed appraisal services for Aimco OP and its affiliates in the past. Aimco OP believes that its relationship with KTR had no negative impact on its independence in conducting the appraisal related to the merger.

 

Factors Considered.  KTR performed a complete appraisal of the Lazy Hollow Apartments. KTR has represented that its report was 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. AIP furnished KTR with all of the necessary information requested by KTR in connection with the appraisal. The appraisal was not prepared in conjunction with a request for a specific value or a value within a given range. In preparing its valuation of the property, KTR, among other things:

 

 

Summary of Approaches and Methodologies Employed.  The following summary describes the approaches and analyses employed by KTR in preparing the appraisal. 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. This can be accomplished through either a direct capitalization of a single year’s income by an overall capitalization rate or using a discounted cash flow in which the

annual cash flows and reversionary value are discounted to a present value for the remainder of the property’s productive life or over a reasonable ownership period. KTR reported that the property has an adequate operations history to determine its income-producing capabilities over the near future. In addition, performance levels of competitive properties served as an adequate check as to the reasonableness of the property’s actual performance. As such, the income capitalization approach was utilized in the appraisal of the property.

 

As part of the income capitalization approach, KTR used the direct capitalization method to estimate a value for the Lazy Hollow Apartments. According to KTR’s report, the basic steps in the direct capitalization analysis to valuing the property 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, collection, administrative use, concession and below-market rental rate 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 KTR with respect to the property are set forth below. The property-specific assumptions were determined by KTR to be reasonable based on its review of historical operating and financial data for the property and comparison of said data to the operating statistics of similar properties in the influencing market areas. The capitalization rate for the property was determined to be reasonable by KTR based on its review of applicable data ascertained within the market in which the 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. Inherent in and central to this approach is the principle of substitution. 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. KTR reported that, although the volume of sales activity is down as a result of market conditions, its research revealed adequate sales activity to form a reasonable estimation of the subject property’s market value pursuant to the sales comparison approach.

 

For the appraisal, KTR conducted research in the market in an attempt to locate sales of properties similar to the appraised property. In the appraisal, numerous sales were uncovered and the specific sales included in the appraisal report were deemed representative of the most comparable data available at the time the appraisal was prepared. Important criteria utilized in selecting the most comparable data included: conditions under which the sale occurred (i.e., seller and buyer were typically motivated); date of sale — every attempt was made to utilize recent sales transactions; 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 KTR’s report, 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. KTR reviewed each approach in order to determine its appropriateness relative to the property. The accuracy of the data available and the quantity of evidence were weighted in each approach. For the appraisal of the Lazy Hollow

Apartments, KTR relied equally on the income capitalization and sales comparison approaches to valuation. Within the income capitalization approach, KTR relied on the direct capitalization method. KTR reported that the value conclusion derived pursuant to the sales comparison approach was directly supportive of the conclusion derived pursuant to the income capitalization approach.

 

Summary of Independent Appraisal of the Lazy Hollow Apartments.  KTR performed a complete appraisal of the Lazy Hollow Apartments. The appraisal report of Lazy Hollow Apartments is dated October 20, 2011. The appraisal report provides an estimate of the property’s market value as of October 1, 2011. The summary set forth below describes the material conclusions reached by KTR based on the value determined under the valuation approaches and subject to the assumptions and limitations described below. According to KTR’s appraisal report, the estimated market value of the Lazy Hollow Apartments was $27,000,000 as of October 1, 2011. Two previous appraisal reports by KTR of the Lazy Hollow Apartments, dated March 11, 2011 and June 3, 2011, respectively, indicated that the estimated market value of the Lazy Hollow Apartments was $26,000,000 as of March 4, 2011 and June 1, 2011, respectively. An increase of $1,000,000 was noted by KTR in the estimated market value of the Lazy Hollow Apartments as of October 1, 2011. The following is a summary of the appraisal report dated October 20, 2011. There is no present intention to further update the appraisal report dated October 20, 2011. The Aimco Entities are not aware of any events that have occurred or conditions that have changed since the October 1, 2011 appraisal that may have caused a material change in the value of the Lazy Hollow Apartments since such date.

 

Extraordinary Assumption.  In connection with the preparation of its March 11, 2011 appraisal report of the Lazy Hollow Apartments, KTR inspected the property on March 4, 2011. KTR noted that the scope of work of the June 3, 2011 and October 20, 2011 appraisal reports of the Lazy Hollow Apartments did not include a physical inspection of the Lazy Hollow Apartments, and that the values derived in the report are based on the extraordinary assumption that the physical condition of the Lazy Hollow Apartments 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 Lazy Hollow Apartments. The direct capitalization analysis resulted in a valuation conclusion for the Lazy Hollow Apartments of approximately $27,200,000.

 

The assumptions employed by KTR to determine the value of the Lazy Hollow Apartments under the income capitalization approach using the direct capitalization method included:

 

 

 

 

 

 

 

 

 

Using the direct capitalization method, KTR calculated the value of the Lazy Hollow Apartments by dividing the stabilized net operating income (including an allowance for reserves) of $1,634,213 by the concluded capitalization rate of 6.0%. KTR calculated the value conclusion of the Lazy Hollow Apartments under the income capitalization approach of approximately $27,200,000 as of October 1, 2011.

 

Valuation Under Sales Comparison Approach.  KTR estimated the property value of the Lazy Hollow Apartments under the sales comparison approach by analyzing sales from the influencing market that were most similar to the Lazy Hollow Apartments in terms of age, size, tenant profile and location. KTR reported that adequate sales existed to formulate a defensible value for the Lazy Hollow Apartments under the sales comparison approach.

 

The sales comparison approach resulted in a valuation conclusion for the Lazy Hollow Apartments of approximately $26,900,000 as of October 1, 2011.

 

In reaching a valuation conclusion for the Lazy Hollow Apartments, KTR examined and analyzed comparable sales of three properties in the influencing market. The sales reflected unadjusted sales prices ranging from $120,047 to $151,479 per unit. After adjustment, the comparable sales illustrated a value range of $146,250 to $154,071 per unit. KTR reported that one of the comparable sales required the least adjustment and was accorded most significance in the analysis, and that the adjusted indicators exhibited by this sale was $151,101 per unit. Further, KTR reported that this comparable sale was the only property also located in Columbia and was accorded the greatest weight in the analysis. KTR estimated a value of $151,000 per unit for the Lazy Hollow Apartments. Applied to the Lazy Hollow Apartments’ 178 units, this resulted in KTR’s total value estimate for the Lazy Hollow Apartments of approximately $26,900,000.

 

Reconciliation of Values and Conclusion of Appraisal.  For the appraisal of the Lazy Hollow Apartments, KTR relied equally on the income capitalization and the sales comparison approaches to valuation. Within the income capitalization approach, KTR relied on the direct capitalization method. KTR reported that the value conclusion derived pursuant to the sales comparison approach is directly supportive of the conclusion derived pursuant to the income capitalization approach. The income capitalization approach using a direct capitalization method resulted in a value of $27,200,000, and the sales comparison approach resulted in a value of $26,900,000. KTR concluded that the market value of the Lazy Hollow Apartments as of October 1, 2011 was $27,000,000.

 

Assumptions, Limitations and Qualifications of KTR’s Valuations.  In preparing the appraisal, KTR relied, without independent verification, on the information furnished by others. KTR’s appraisal report 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 the property was assumed to be good and marketable unless otherwise stated; the property was appraised free and clear of any or all liens or encumbrances unless otherwise stated; responsible ownership and competent property management were assumed; the information furnished by others was believed to be reliable, and no warranty was given by KTR for the accuracy of such information; all engineering was assumed to be correct, and any plot plans or illustrative material in the appraisal report are provided only to assist the reader in visualizing the property; 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 the appraisal report was based; the utilization of the land and improvements is within the boundaries or property lines of the property described and there is no encroachment or trespass unless noted in the appraisal report; the distribution, if any, of the total valuation in the appraisal report between land and improvements applies only under the stated program of utilization; unless otherwise stated in the appraisal 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 the property, or other environmental conditions, were not called to the attention of nor did the appraiser become aware of such during the appraiser’s inspection, and the appraiser had no knowledge of the existence of such materials on or in the property unless otherwise stated; the appraiser has not made a specific compliance survey and analysis of the 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 the appraisal report, either permanently affixed to the real estate or were implicitly part of the real estate in that tenants expected the use of such items in exchange for rent and never gained any of the rights of ownership, and the intention of the owners was not to remove the articles which are required under the implied or express warranty of habitability.

 

Compensation of Appraiser.  KTR’s fee for the appraisal was approximately $15,900. Aimco OP paid for the costs of the appraisal. KTR’s fee for the appraisal was not contingent on the approval or completion of the merger transactions. Aimco OP also has agreed to indemnify KTR for certain liabilities that may arise out of the rendering of the appraisals. In addition to the appraisal performed in connection with the transactions, during the prior two

years, KTR has been paid approximately $288,700 for appraisal services by Aimco OP and its affiliates which includes, but is not limited to, approximately $160,200 in fees paid to KTR for appraisal services rendered in connection with certain other merger transactions that are being effected concurrently with this transaction. Except as set forth above, during the prior two years, no material relationship has existed between KTR and AIP or Aimco OP or any of their affiliates. Aimco OP believes that its relationship with KTR had no negative impact on its independence in conducting the appraisal.

 

Availability of the Appraisal Report.  You may obtain a full copy of KTR’s appraisal 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 report has been filed with the SEC. For more information about how to obtain a copy of the appraisal report see “Where You Can Find Additional Information.”

 

For additional information about the appraisal, see the table, “Summary of Appraisal” attached as Annex J.

 

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 AIP in connection with their evaluation of the proposed terms of the second 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 AIP, 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 of $268.04 per AIP Unit offered in the second merger is fair from a financial point of view to the unaffiliated limited partners of AIP.

 

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 B to this information statement/prospectus. You are encouraged to read the opinion carefully and in its entirety. The summary of Duff & Phelps’ 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 AIP, and addressed only the fairness from a financial point of view of the cash consideration offered in the second merger, 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 AIP in connection with their evaluation of the second 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 second merger, or whether to proceed with the second merger or any related transaction.

 

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

 

1. Reviewed the following documents:

 

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

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

 

c. Reviewed documents related to the merger transactions, including certain portions of a draft of this information statement/prospectus, including a draft of the amended and restated agreement and plan of merger agreement dated as of November 15, 2011, and certain other documents related to the merger transactions;

 

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

 

a. Reviewed previously completed appraisal reports associated with the property owned by AIP prepared by KTR as of October 1, 2011 and provided to Duff & Phelps by management of Aimco OP (and as described under the heading “Special Factors — The Appraisal” and Annex J — Summary of Appraisal Table);

 

b. Reviewed facts and circumstances related to AIP’s property to understand factors relevant to the appraisal; and

 

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

 

3. Reviewed the following information and/or documents related to AIP’s property:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

a. 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 property owned by AIP, AIP, the merger transactions 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;

 

b. 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;

 

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

 

d. Assumed that there has been no material change in the assets, financial condition, business, or prospects of AIP or its owned property since the date of the appraisal report, the most recent financial statements and the other information made available to Duff & Phelps;

 

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

f. Assumed responsible ownership and competent property management of the property owned by AIP, that, except as expressly disclosed in the appraisal report, there are no unapparent conditions with respect to the property owned by AIP that could affect the value of such property, and that, except as expressly disclosed in the appraisal report, there are no hazardous substances on or near the property owned by AIP that could affect the value of such property;

 

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

 

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

 

Duff & Phelps did not evaluate AIP’s solvency or conduct an independent appraisal or physical inspection of any specific liabilities (contingent or otherwise). Duff & Phelps did not evaluate the tax consequences the merger transactions 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 transactions, the assets, businesses or operations of AIP, or any alternatives to the merger transactions, (ii) negotiate the terms of the merger transactions, or (iii) advise Aimco OP or any other party with respect to alternatives to the merger transactions.

 

Duff & Phelps did not express any opinion as to the market price or value of AIP’s or Aimco OP’s equity (or anything else) after the announcement or the consummation of the merger transactions. 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 AIP’s or Aimco OP’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps did not make, and assumed no responsibility to make, any representation, or render any opinion, as to any legal matter (including with respect to title to or any encumbrances relating to the property owned by AIP).

 

Duff & Phelps did not investigate any of the physical conditions of the property owned by AIP and has not made, and assumed no responsibility to make, any representation, or render any opinion, as to the physical condition of the property owned by AIP. No independent survey of the property owned by AIP was conducted by Duff & Phelps. Duff & Phelps did not arrange for any engineering studies that may be required to discover any unapparent condition in the property. 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 the property owned by AIP.

 

In rendering its opinion, Duff & Phelps did not express any opinion with respect to the amount or nature of any compensation to any of Aimco OP’s and/or Aimco’s respective officers, directors, or employees, or any class of such persons, relative to the consideration offered to the unaffiliated limited partners in the second 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 transactions versus any alternative strategy or transaction, (ii) does not address any transaction related to the merger transactions, (iii) is not a recommendation as to how any party should vote or act with respect to any matters relating to the second merger or any related transaction, or whether to proceed with the second 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 cash consideration offered in the second merger is within a range suggested by certain financial analyses. The decision as to whether to proceed with the second merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the opinion was based.

 

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

 

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

 

Valuation Analysis

 

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

 

 

Estimated Value of Limited Partnership Units

 

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

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

 

 

 

 

Based on an range of value for the property owned by AIP of $26.1 million to $28.4 million, Duff & Phelps estimated the range of value per AIP Unit to be approximately $249.23 to $297.31, compared to the merger consideration of $268.04 per AIP 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 AIP) 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 AIP and a partnership that ultimately did not pursue a merger transaction, and $50,000 for a bring-down 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. Other than this engagement, during the two years preceding the date of this opinion, Duff & Phelps has been paid approximately $199,400 for property tax consulting services by Aimco OP and its affiliates for which Duff & Phelps received customary fees and indemnification. Except as set forth above, during the two years preceding the date of this opinion, Duff & Phelps had not had any material relationship with any party to the merger for which compensation has been received or is intended to be received, nor is any such material relationship or related compensation mutually understood to be contemplated.

 

At the end of each calendar year, Aimco OP’s management prepares an estimated operating budget for the next calendar year for the property owned by AIP. Aimco OP’s management provided the 2011 estimated operating

budget for the property to Duff & Phelps for use in connection with the preparation of its fairness opinion, and to KTR in connection with the preparation of the appraisal.

 

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

 

 

 

 

 

Aimco OP’s management believed these assumptions and estimates were reasonable at the time the budgets were prepared, but these assumptions and estimates may not be realized and are inherently subject to significant uncertainties and contingencies, including, among others, the risks and uncertainties described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in AlP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, which is included as Annex F 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 AIP.

 

The 2011 estimated operating budget has been prepared by, and is the responsibility of, Aimco OP’s management. The 2011 estimated operating budget was prepared solely for internal use and not with a view toward public disclosure and, accordingly, does not comply with generally accepted accounting principles, the published guidelines of the SEC regarding projections, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Aimco’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the 2011 estimated operating budget, 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 budget. Furthermore, the 2011 estimated operating budget does not take into account any circumstances or events occurring after the date they were prepared.

 

The inclusion of the 2011 estimated operating budget 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 budget to be predictive of actual future results, and it 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 budget. 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 budget 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 budget are no longer appropriate, except as required by law.

 

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

 

The following table summarizes the 2011 estimated operating budget for the property owned by AIP:

 

 

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

 

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

 

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

 

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

 

The merger agreement does not require approval by a majority of the unaffiliated limited partners.  Under the provisions of the AIP partnership agreement and applicable law, the merger agreement and the transactions contemplated thereby must be approved by a majority in interest of the AIP Units. As of November 18, 2011, there were 47,311 issued and outstanding AIP Units, and Aimco OP and its affiliates owned 27,739 of those units, or approximately 58.63% of the number of units outstanding. The General Partner’s affiliates have indicated that they will vote all of their AIP Units in favor of the merger transactions, enabling them to approve the merger transactions without the consent or approval of any unaffiliated limited partners.

 

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

 

The merger consideration was determined based on the appraised value of the property as of the date of the appraisal, and there can be no assurance that the value of the property will not increase as of the date of the consummation of the merger transactions.  KTR appraised AIP’s property as of October 1, 2011, and the General Partner calculated the amount of the merger consideration based on the appraised value of the property as of such date. The General Partner has not made any other attempt to assess or account for any changes in the value of the property since the date of KTR’s appraisal in its determination of the merger consideration.

 

Alternative valuations of AIP’s property might exceed the appraised value relied on to determine the merger consideration.  Aimco determined the merger consideration in reliance on the appraised value of AIP’s property. See, “Special Factors — The Appraisal,” beginning on page 9, for more information about the appraisal. Although an independent appraiser was engaged to perform a complete appraisal of the property, 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 the property. Also, others using the same valuation methodology could make different assumptions and judgments, and obtain different results. For example, in connection with the refinancing of the mortgages encumbering the property during 2010, the lender appraised the value of the property at $21,500,000, an amount that is less than the property’s current appraised value.

 

The actual sales price of AIP’s property could exceed the appraised value that Aimco relied on to determine the merger consideration.  Except as described below, no recent attempt has been made to market the Lazy Hollow Apartments to unaffiliated third parties. There can be no assurance that the Lazy Hollow Apartments could not be sold for a value higher than the appraised value used to determine the merger consideration if it was marketed to third-party buyers interested in a property of this type. In September 2009, the limited partnership in which AIP owns a 99% limited partnership interest, together with certain other affiliates of Aimco, entered into a purchase and sale contract with a third party to sell the Lazy Hollow Apartments and certain other apartment complexes. This purchase and sale contract was terminated by the parties in the fourth quarter of 2009. The amount of the overall purchase price to be allocated to the Lazy Hollow Apartments under the terminated purchase and sale contract was $17,510,000, which is less than the property’s current appraised value.

 

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

 

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

 

Limited partners in certain jurisdictions will not be able to elect OP Units.  In those states or jurisdictions where the offering of the OP Units hereby is not permitted (or the registration or qualification of OP Units in that state or jurisdiction would be prohibitively costly), residents of those states will receive only the cash consideration in the merger transactions.

 

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

 

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

 

Cash distributions by Aimco OP are not guaranteed and may fluctuate with partnership performance.  Aimco OP makes quarterly distributions to holders of OP Units (on a per unit basis) that generally are equal to dividends paid

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

 

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

 

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

 

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

 

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

 

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

OP and its partners may therefore come into conflict with the duties of the directors and officers of the general partner to its sole stockholder, Aimco. Such conflicts of interest might arise in the following situations, among others:

 

 

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

 

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

 

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

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

 

Aimco OP may be treated as a “publicly traded partnership” taxable as a corporation.  If Aimco OP were treated as a “publicly traded partnership” taxed as a corporation for U.S. Federal income tax purposes, material adverse consequences to the partners would result. Moreover in such case, a holder of AIP 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 an AIP limited partner receives or is deemed to receive cash or consideration other than OP Units in connection with the merger transactions, 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) (including AIP’s distribution of funds from the June 30, 2010 second mortgage AIP obtained on the Lazy Hollow Apartments) within two years before or after the merger, including cash paid at closing, will generally be treated as part of a “disguised sale.” The application of the “disguised sale” rules is complex and depends, in part, upon the facts and circumstances applicable to the limited partner, which Aimco has not undertaken to review. Accordingly, limited partners are particularly urged to consult with their tax advisors concerning the extent to which the “disguised sale” rules would apply.

 

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

 

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

 

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

 

OP Unitholders may be subject to state, local or foreign taxation.  OP Unitholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which Aimco OP transacts business and owns property. It should be noted that Aimco OP owns properties located in a number of states and local jurisdictions, and an OP Unitholder may be required to file income tax returns in some or all of those jurisdictions. The state, local or foreign tax treatment of OP Unitholders may not conform to the U.S. federal income tax consequences of an investment in OP Units, as described in “Material United States Federal Income Tax Considerations” beginning on page 67.

 

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

 

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

 

 

 

 

 

 

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

 

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

 

 

 

 

 

 

 

The following table sets forth AIP’s selected summary historical financial data as of the dates and for the periods indicated. AIP’s 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 AIP’s financial statements included in AIP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. AIP’s unaudited historical statements of operations 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 information included in AIP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.

 

You should read this information together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the financial statements and notes to the financial statements included in AIP’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC on March 25, 2011, and AIP’s 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 E and Annex F, respectively, to this information statement/prospectus.

 

 

Aimco common stock trades on the NYSE under the symbol “AIV.” The OP Units are not listed on any securities exchange and do not trade in an active secondary market. However, as described below, the trading price of Aimco common stock is considered a reasonable estimate of the fair market value of an OP Unit. After a one-year holding period, OP Units are redeemable for shares of Aimco common stock (on a one-for-one basis) or cash equal to the value of such shares, as Aimco elects. As a result, the trading price of Aimco common stock is considered a reasonable estimate of the fair market value of an OP Unit. The number of OP Units offered in the merger with respect to each AIP 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 second merger. The closing price of Aimco common stock as reported on the NYSE on November 10, 2011, was $22.82.

 

The AIP 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 AIP Units is greater than the General Partner’s estimate of the proceeds that would be available for distribution to limited partners (following the repayment of debt and other liabilities of AIP) if its property was sold at a price equal to its appraised value, given that the General Partner did not deduct certain amounts that would be payable upon an immediate sale of the partnership’s property, such as prepayment penalties on the mortgage debt of such property.

 

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

 

 

 

 

 

 

 

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

 

 

As of September 30, 2011, Aimco:

 

 

 

 

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

 

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

 

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

 

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

AIMCO/IPT, Inc. holds a 70% interest in AIMCO IPLP, L.P. as its general partner. AIMCO/IPT, Inc. and AIMCO IPLP, L.P. share voting and dispositive power over 5,462 AIP Units, or approximately 11.54% of the outstanding AIP Units. Aimco OP holds a 30% interest in AIMCO IPLP, L.P. as its limited partner.

 

Angeles Income Properties 6, LP, or New AIP, is a Delaware limited partnership formed on July 26, 2011, for the purpose of consummating the merger with AIP. New AIP 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. New AIP’s general partner is Angeles Realty Corporation II, and its sole limited partner is Aimco OP.

 

AIMCO AIP 6 Merger Sub LLC, or the Aimco Subsidiary, is a Delaware limited liability company formed on July 26, 2011, for the purpose of consummating the merger with AIP. 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, LLC, the General Partner 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-GP, AIMCO/IPT, Inc., AIMCO IPLP, L.P., Aimco OP, Cooper River Properties, LLC, AIP or the General Partner 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 G, 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:

 

 

Angeles Income Properties, Ltd. 6 is a California limited partnership organized in June 1984. During its initial offering period through September 30, 1988, AIP sold a total of 47,384 units of the limited partnership for $1,000 each, for an aggregate capital contribution of $47,384,000. In addition, the general partner contributed a total of $1,000 to AIP for a 1% interest. Since its initial offering, AIP has not received, nor are limited partners required to make, additional capital contributions. AIP’s partnership agreement provides that the partnership is to terminate on December 31, 2037 unless terminated prior to such date. The General Partner is a wholly-owned subsidiary of Aimco.

 

AIP was organized for the purpose of acquiring fee and other forms of equity interests in various types of real estate property. On May 20, 2010, AIP sold Homestead Apartments, a 168 unit apartment complex in East Lansing, Michigan, to a third party for a gross sales price of $7,000,000. The net proceeds realized by AIP were approximately $6,802,000 after payment of closing costs of approximately $198,000. AIP used approximately $3,295,000 to repay the mortgage encumbering the property. AIP realized a gain on sale of discontinued operations of approximately $3,820,000 as a result of the sale. In addition, AIP recorded a loss on extinguishment of debt of approximately $968,000 due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the mortgage of approximately $870,000. While AIP is not subject to federal income tax, it is subject to tax related to its Michigan activities. During the year ended December 31, 2010, as a result of the sale of Homestead Apartments, AIP recognized current tax expense of approximately $118,000, with a corresponding liability at December 31, 2010.

 

At September 30, 2011, AIP, through a limited partnership in which AIP owns a 99% interest, owned and operated one property, the Lazy Hollow Apartments, a 178 unit apartment project located in Columbia, Maryland.

 

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

 

 

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 the property is as follows:

 

 

The real estate industry is highly competitive. AIP’s property is subject to competition from other residential apartment complexes in the area. The General Partner believes that the property is adequately insured. The property is an apartment complex which leases units for terms of one year or less. No tenant leases 10% or more of the available rental space.

 

In June 2008, Lazy Hollow Apartments suffered damage to several of its apartment units as a result of high winds and falling trees. AIP incurred approximately $67,000 to repair the damaged units during 2008, including approximately $17,000 for clean-up costs. During the year ended December 31, 2009, AIP received approximately $64,000 in insurance proceeds, including approximately $14,000 for emergency expenses. AIP recognized a casualty gain of approximately $36,000 during the year ended December 31, 2009 as a result of the write-off of undepreciated damaged assets of approximately $14,000.

 

During the year ended December 31, 2010, AIP completed approximately $119,000 of capital improvements at Lazy Hollow Apartments consisting primarily of water heater, appliance and floor covering replacements. These improvements were funded from operating cash flow. During the nine months ended September 30, 2011, AIP completed approximately $211,000 of capital improvements at Lazy Hollow Apartments, consisting primarily of water heater and floor covering replacements, exterior painting and parking lot improvements. These improvements

were funded from operating cash flow. AIP regularly evaluates the capital improvement needs of the property. AIP has received notice that lender on the first and second mortgage on AIP’s property will require AIP to complete certain parking lot and common area repairs during 2011, which repairs cost approximately $109,800. As discussed above, all of these capital improvements were completed during the nine months ended September 30, 2011. Except for these repairs, AIP has no material commitments for property improvements and replacements, however, certain routine capital expenditures are anticipated during the remainder of 2011. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

 

Additional capital expenditures will be incurred only if cash is available from operations or from AIP reserves. To the extent that such capital improvements are completed, AIP’s distributable cash flow, if any, may be adversely affected at least in the short term.

 

The following table sets forth certain information relating to the mortgages encumbering the Lazy Hollow Apartments at September 30, 2011:

 

 

 

 

The mortgage notes payable are fixed rate mortgages that are non-recourse and are secured by pledges of AIP’s rental property and by pledges of revenues from the rental property. The mortgage notes payable include prepayment penalties if repaid prior to maturity. Further, the property may not be sold subject to existing indebtedness.

 

On June 30, 2010, AIP obtained a second mortgage loan in the principal amount of $6,330,000 on the Lazy Hollow Apartments. The second mortgage bears interest at a fixed rate of 5.88% per annum and requires monthly payments of principal and interest of approximately $37,000, from August 1, 2010 through the July 1, 2020 maturity date. The second mortgage has a balloon payment of approximately $5,292,000 due at maturity. AIP may prepay the second mortgage at any time with 30 days written notice to the lender subject to a prepayment penalty. As a condition of the loan, the lender required Aimco OP to guarantee certain non-recourse carve-out obligations of AIP with respect to the new mortgage financing. In connection with the new loan, AIP incurred loan costs of approximately $189,000, which were capitalized during the year ended December 31, 2010. Included in the capitalized loan costs is a refinance fee of approximately $56,000 which was paid to an affiliate of the General Partner during the year ended December 31, 2010.

 

In connection with the second mortgage loan, AIP also agreed to certain modifications on the existing mortgage loan encumbering the Lazy Hollow Apartments. The modification includes a fixed interest rate of 6.04% per annum and monthly payments of principal and interest of approximately $46,000, from August 1, 2010 through the maturity date of July 1, 2020, at which time a balloon payment of approximately $6,412,000 is due. The previous terms provided for a fixed interest rate of 5.94% per annum and monthly payments of principal and interest of approximately $71,000 through the April 30, 2023 maturity date, at which date the mortgage was scheduled to be fully amortized. AIP may prepay the first mortgage loan at any time subject to a prepayment penalty. Total costs associated with the modification of the existing mortgage were approximately $15,000. As a condition of the loan, the lender required Aimco OP to guarantee certain non-recourse carve-out obligations of AIP with respect to the modified loan.

 

The AIP Units are entitled to allocations of profit and loss, and distributions, relating to AIP’s interest in the Lazy Hollow Apartments. As of November 18, 2011, there were 47,311 AIP Units outstanding, and Aimco OP and its affiliates owned 27,739 of those units, or approximately 58.63% of those units.

 

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

 

 

 

 

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

 

 

 

 

At December 31, 2010, approximately $41,000 of the distribution payable represents the estimated Michigan withholding taxes to be paid by AIP on behalf of certain limited partners in connection with the sale of Homestead Apartments.

 

In conjunction with the transfer of funds from a majority owned sub-tier limited partnership to AIP, approximately $6,000 and $9,000 was distributed to the general partner of the majority owned sub-tier limited partnership during the years ended December 31, 2010 and 2009, respectively. In the fourth quarter, the general partner of the majority owned sub-tier limited partnership returned $57,000 of distributions previously received. During the nine months ended September 30, 2011, AIP paid an operating distribution of approximately $111,000 (approximately $110,000 to the limited partners or $2.32 per limited partnership unit) and approximately $41,000 to the applicable limited partners associated with the sale of Homestead Apartments, which was previously withheld for Michigan withholding taxes, both of which were included in distribution payable at December 31, 2010. No other distributions were made or declared during the nine months ended September 30, 2011.

 

Future cash distributions will depend on the level of cash generated from operations, the timing of debt maturity, refinancings, and/or property sale. AIP’s cash available for distribution is reviewed on a monthly basis.

There can be no assurance, however, that AIP will generate sufficient funds from operations after required capital expenditures to permit any distributions to its partners during the remainder of 2011 or subsequent periods.

 

AIP has no employees and depends on the General Partner and its affiliates for the management and administration of all partnership activities. The AIP partnership agreement provides that the General Partner and its affiliates receive certain payments for services and reimbursement of certain expenses incurred on behalf of AIP.

 

The AIP partnership agreement also provides that the General Partner and its affiliates receive 5% of gross receipts from AIP’s properties as compensation for providing property management services. AIP paid to such affiliates approximately $166,000 and $207,000 for the years ended December 31, 2010 and 2009, respectively, and approximately $103,000 and $133,000 for each of the nine months ended September 30, 2011 and 2010, respectively.

 

Affiliates of the General Partner charged AIP for reimbursement of accountable administrative expenses amounting to approximately $54,000 and $81,000 for the years ended December 31, 2010 and 2009, respectively. A portion of these reimbursements for these periods are for construction management services provided by an affiliate of the General Partner of approximately $3,000 and $25,000 for the years ended December 31, 2010 and 2009, respectively.

 

Affiliates of the General Partner charged AIP for reimbursement of accountable administrative expenses amounting to approximately $43,000 and $45,000 for the nine months ended September 30, 2011 and 2010, respectively. A portion of these reimbursements for these periods are for construction management services provided by an affiliate of the General Partner of approximately $17,000 and $1,000 for the nine months ended September 30, 2011 and 2010, respectively.

 

In connection with the second mortgage obtained on Lazy Hollow Apartments during the nine months ended September 30, 2010, an affiliate of the General Partner was paid a financing fee of approximately $56,000 in accordance with the Partnership Agreement. The fee was capitalized by AIP.

 

Pursuant to AIP’s partnership agreement, the General Partner is entitled to receive a distribution equal to 3% of the aggregate disposition price of sold properties. Pursuant to this provision, AIP paid total distributions to the General Partner of approximately $731,000 in prior years related to property sales as follows: 1997 sale of LaSalle Warehouse, 1998 sale of Whispering Pines, 1999 sale of Mesa Dunes Mobile Home Park, 2000 sale of Wakonda Shopping Center and Town and Country Shopping Center and the 2001 sale of Casa Granada Apartments. These distributions are subordinate to the limited partners receiving a preferred return, as specified in AIP’s partnership agreement. If the limited partners have not received their preferred return when AIP terminates, the General Partner will be required to return this amount to AIP. AIP did not pay a distribution to the General Partner under this provision during the year December 31, 2010 related to the sale of Homestead Apartments as the limited partners have not received their preferred return as of September 30, 2011 or December 31, 2010.

 

Pursuant to AIP’s partnership agreement for managing the affairs of AIP, the General Partner is entitled to receive a Partnership Management Fee equal to 10% of AIP’s net cash from operations. During the nine months ended September 30, 2011 and 2010, the amount accrued for the allowable fee was approximately $8,000 and $0, respectively. The total amount due at September 30, 2011 was approximately $8,000. During the years ended December 31, 2010 and 2009, the amount accrued for the allowable fee was zero and approximately $55,000, respectively. The total amount due at December 31, 2009 was approximately $270,000. Payment of the Partnership Management Fee is restricted to distributable net proceeds as defined in AIP’s partnership agreement. The cumulative unpaid Partnership Management Fees earned for the years 2003 through 2009 of approximately $270,000 were paid during the year ended December 31, 2010 with distributable net proceeds from the sale of Homestead Apartments.

 

In accordance with AIP’s partnership agreement, during the year ended December 31, 2009, Aimco OP advanced to AIP approximately $70,000 to fund property taxes at the Lazy Hollow Apartments. Interest on the advances was charged at a variable rate based on the prime rate plus a market rate adjustment for similar type loans. Interest expense was approximately $1,000 for the year ended December 31, 2009. There were no such advances or interest expense during the year ended December 31, 2010 or the nine months ended September 30, 2011 and 2010. Total advances and interest of approximately $71,000 were repaid during the year ended December 31, 2009. There were no advances or accrued interest owed to affiliates at December 31, 2010 or September 30, 2011. AIP may receive additional advances of funds from Aimco OP although Aimco OP is not obligated to provide such advances.

 

AIP insures its property 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. AIP insures its property above the Aimco limits through insurance policies obtained by Aimco from insurers

unaffiliated with the General Partner. During the years ended December 31, 2010 and 2009, AIP was charged by Aimco and its affiliates approximately $44,000 and $47,000, respectively, for insurance coverage and fees associated with policy claims administration. During the nine months ended September 30, 2011, AIP was charged by Aimco and its affiliates approximately $13,000 for hazard insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by AIP during 2011 as other insurance policies renew later in the year.

 

In addition to its indirect ownership of the general partner interests in AIP, Aimco and its affiliates owned 27,739 AIP Units representing approximately 58.63% of the number of AIP Units outstanding, at November 18, 2011. Pursuant to the AIP partnership agreement, limited partners holding a majority of the units are entitled to take action with respect to a variety of matters that include voting on certain amendments to the AIP partnership agreement and voting to remove the General Partner. As a result of its ownership of 58.63% of the outstanding AIP Units, Aimco and its affiliates are in a position to control all such voting decisions with respect to AIP. Although the General Partner owes fiduciary duties to AIP’s limited partners, it also owes fiduciary duties to its sole stockholder, which is wholly-owned by Aimco. As a result, the duties of the General Partner to AIP and its limited partners may come into conflict with the duties of the General Partner its sole stockholder.

 

 

AIP 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 the 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 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 AIP nor its directors or officers during the year ended December 31, 2010 or the nine months ended September 30, 2011.

 

The board of directors of the General Partner does not have a separate audit committee. As such, the board of directors of the General Partner 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 the General Partner with authority over AIP 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 Aimco’s website (www.aimco.com). Aimco’s website is not incorporated by reference to this filing.

 

The General Partner owns all of the outstanding general partner interests in AIP, which constitute 1% of the total interests in the partnership. AIP has no directors or executive officers of its own. The General Partner is a California corporation, which is indirectly wholly-owned by Aimco. None of the General Partner or any of its directors or executive officers owns any of the AIP Units. The following table sets forth certain information as of

November 18, 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 the AIP Units.

 

 

 

 

 

For additional information about AIP and its property and operating data related to this property, see AIP’s Annual Report on Form 10-K for the year ended December 31, 2010, attached hereto as Annex E, and AIP’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, attached hereto as Annex F.

 

The General Partner regularly evaluates AIP’s properties by considering various factors, such as AIP’s financial position and real estate and capital markets conditions. The General Partner monitors the properties’ 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 properties and continuously evaluates the physical improvement requirements. In addition, the financing structure for the properties (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, could potentially contribute to any decision by the General Partner to sell, refinance, upgrade with capital improvements or hold AIP’s properties.

 

After taking into account the foregoing considerations, during 2009, the General Partner began to consider strategic alternatives for AIP and its two properties, the Homestead Apartments and the Lazy Hollow Apartments. In September 2009, the General Partner, together with certain other affiliates of Aimco, entered into a purchase and sale contract with a third party to sell the Lazy Hollow Apartments and certain other apartment complexes owned by Aimco’s affiliates. This purchase and sale contract was terminated by the parties in the fourth quarter of 2009. The amount of the overall purchase price to be allocated to the Lazy Hollow Apartments under the terminated purchase and sale contract was $17,510,000. On May 20, 2010, the General Partner sold the Homestead Apartments to a third party for a gross sales price of $7,000,000.

 

During January 2011, officers of the General Partner, who are also officers of Aimco, met several times to discuss strategic alternatives for AIP and its sole remaining property, the Lazy Hollow Apartments. During these meetings, they considered the costs of maintaining AIP’s current ownership structure, including audit, tax and SEC reporting costs, given Aimco OP’s ownership of 58.63% of the AIP Units.

 

After considering all of these factors, the General Partner agreed to explore the possibility of Aimco OP acquiring the Lazy Hollow Apartments through a transaction that would provide the unaffiliated limited partners with the opportunity to defer taxable gain through an exchange of AIP Units for OP Units.

 

During January and February of 2011, the General Partner’s management sought advice from outside counsel to determine whether a transaction would be feasible that would result in Aimco OP’s ownership of the Lazy Hollow Apartments while also providing potential tax deferral to limited partners who are unaffiliated with Aimco OP. At the same time, they spoke with appraisers regarding the possibility of appraising the property for purposes of evaluating a potential transaction with Aimco OP. The General Partner engaged KTR on February 11, 2011 to appraise the Lazy Hollow Apartments. KTR delivered the appraisal for the Lazy Hollow Apartments on March 11, 2011. Pursuant to this appraisal, KTR valued the property at $26,000,000 as of March 4, 2011.

 

Over the following weeks, the General Partner’s management reviewed the appraisal report and discussed both KTR’s assumptions and its valuation of the property and determined that KTR’s assumptions were reasonable and the valuation appropriate. As part of their review, they considered the fiduciary duties owed by the General Partner to unaffiliated limited partners, as well as the property’s appraised value, and the amount of indebtedness secured by the property, which at March 31, 2011 was approximately $13.9 million.

 

In April and May 2011, the General Partner’s management further discussed with outside counsel the possibility of pursuing a transaction that would result in Aimco’s ownership of the Lazy Hollow Apartments. In connection with these discussions, Aimco OP and the General Partner agreed that, if they were to pursue such a transaction, they should consider retaining an independent financial advisor to opine as to the fairness of such transaction to the unaffiliated limited partners of AIP.

 

In May 2011, the General Partner’s management, 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 merger transactions and the other possible merger transactions. In the following weeks, Duff & Phelps had due

diligence calls with the General Partner’s management and received due diligence materials in response to its diligence requests.

 

On June 3, 2011, at the request of Aimco OP and the General Partner, KTR delivered an updated appraisal for the Lazy Hollow Apartments, pursuant to which it valued the property at $26,000,000, as of June 1, 2011. The General Partner’s management reviewed and discussed the updated appraisal report and calculated the merger consideration based on this updated appraisal.

 

On July 28, 2011, Duff & Phelps delivered its written opinion to the boards of directors of Aimco and the general partners of Aimco OP and AIP to the effect that, as of July 28, 2011, and based on and subject to the various assumptions made, procedure followed, factors considered, and qualifications and limitations on the review undertaken by Duff & Phelps in connection with its opinion, the cash consideration in the second merger is fair, from a financial point of view, to the unaffiliated limited partners of AIP.

 

On July 28, 2011, the General Partner considered the merger transactions and decided to approve the merger agreement. Before doing so, the General Partner and the Aimco Entities considered a number of possible alternatives to the proposed transactions, as described in greater detail in this information statement/prospectus. However, the General Partner and the Aimco Entities ultimately determined that the proposed mergers are in the best interests of AIP and its unaffiliated limited partners that hold AIP Units. On July 28, 2011, AIP, New AIP, 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 15, 2011, Aimco and Aimco OP responded to SEC comments and revised the registration statement.

 

On September 20, 2011, the General Partner’s management met to discuss the merger transactions and the valuation of AIP’s property. On October 4, 2011, the General Partner’s management met again to discuss the timing of the merger transactions and considered updating the valuations of AIP’s property. On October 5, 2011, the General Partner engaged KTR to update the appraisal and Duff & Phelps to provide an updated fairness opinion with respect to the equity value resulting from such updated appraisal.

 

On October 20, 2011, KTR delivered an updated appraisal for the Lazy Hollow Apartments, pursuant to which it valued the property at $27,000,000 as of October 1, 2011. Aimco OP and the General Partner reviewed and discussed the updated appraisal report and calculated the equity value of the AIP Units based on the updated appraisal, AIP’s updated financial position and the updated mark-to-market adjustment of the mortgage debt encumbering AIP’s property. This calculation, together with the updated financial information of AIP, resulted in an increase of the equity value of the AIP Units from $252.40 per AIP Unit to $268.04 per AIP Unit.

 

On November 15, 2011, Duff & Phelps delivered its updated written opinion to the boards of directors of Aimco, and the general partners of Aimco OP and AIP, 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 $268.04 per AIP Unit is fair, from a financial point of view, to the unaffiliated limited partners of AIP.

 

On November 15, 2011, the General Partner and the general partner of Aimco OP approved an amendment and restatement of the merger agreement that provides for consideration of $268.04 per AIP Unit, payable in cash or OP Units. On November 15, 2011, AIP, New AIP, Aimco OP and the Aimco Subsidiary entered into the amended and restated agreement and plan of merger.

 

In the second merger, each AIP Unit outstanding immediately prior to consummation of the second merger will be converted into the right to receive, at the election of the holder of such AIP Unit, either $268.04 in cash or equivalent value in 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 the General Partner, the merger consideration has not been determined in an arm’s-length negotiation. In order to arrive

at a fair consideration, KTR, an independent real estate appraisal firm, was engaged to perform a complete appraisal of AIP’s sole property, the Lazy Hollow Apartments. For more detailed information about the independent appraiser’s determination of the estimated value of the property, see “Special Factors — The Appraisal.” The per unit cash merger consideration payable to each holder of AIP Units is greater than the General Partner’s estimate of the proceeds that would be available for distribution to limited partners (following the repayment of debt and other liabilities of AIP) if the property was sold at a price equal to its appraised value. The General Partner did not deduct certain amounts that would be payable upon an immediate sale of the partnership’s property, such as prepayment penalties on the mortgage debt of the property. The estimated prepayment penalty would have been approximately $4,210,400 as of September 30, 2011. The General Partner calculated the equity of the partnership by (i) adding to the appraised value the value of any other non-real estate assets of AIP that would not be included in the appraisal; and (ii) deducting all liabilities, including the market value of mortgage debt, debt owed to the General Partner or its affiliates, accounts payable and accrued expenses and certain other costs. The amount of liabilities deducted includes an estimate of $71,200 for expenses attributable to the property that would be incurred prior to the transactions but payable after the transactions. This calculation, which is summarized below, resulted in per unit cash merger consideration of $268.04.

 

 

 

 

The number of OP Units offered per AIP 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 second 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 Aimco’s right to acquire each OP Unit in exchange for one share of Aimco common stock (subject to antidilution adjustments). Therefore, the General Partner 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 11.27 OP Units per AIP Unit.

 

The General Partner is indirectly wholly-owned by Aimco. Therefore, it has a conflict of interest with respect to the transactions. The General Partner has fiduciary duties to its sole stockholder, which is wholly-owned by Aimco, on the one hand, and to AIP and its limited partners, on the other hand. The duties of the General Partner to AIP and its limited partners conflict with its duties to its sole stockholder, which could result in the General Partner approving a transaction that is more favorable to Aimco than might be the case absent such conflict of interest. The General Partner’s desire to seek the best possible terms for AIP’s limited partners conflicts with Aimco’s interest in obtaining the best possible terms for Aimco OP.

 

After the transactions, Aimco OP will be the sole limited partner in New AIP, and will own all of the outstanding limited partnership interests of New AIP. The General Partner will continue to be the General Partner of New AIP after the transactions, and AIP’s partnership agreement in effect immediately prior to the merger transactions will be adopted as the partnership agreement of New AIP, with the following changes: (i) references therein to the California Act will be amended to refer to the Delaware Act; (ii) a description of the merger will be added; and (iii) the name of the partnership will be “Angeles Income Properties 6, LP”. Aimco OP intends to retain the limited partnership interests of New AIP after the transactions. After the merger transactions, Aimco will evaluate the capital improvement needs of the Lazy Hollow Apartments, and anticipates making certain routine capital expenditures with respect to the property during 2011, including certain parking lot and common area repairs, which cost approximately $109,800, that are required by AIP’s lender. As discussed above, all of these capital improvements were completed during the nine months ended September 30, 2011.

 

For a discussion of the material U.S. Federal income tax consequences of the transactions, see “Material United States Federal Income Tax Considerations — United States Federal Income Tax Consequences Relating to the Transactions.”

 

No material federal or state regulatory requirements must be satisfied or approvals obtained in connection with the transactions, except (1) filing a registration statement that includes this information statement/prospectus with the SEC and obtaining the SEC’s declaration that the registration statement is effective under the Securities Act, (2) registration or qualification of the issuance of OP Units under state securities laws, and (3) filing certificates of merger with the Secretary of State of the State of Delaware and the Secretary of State of the State of California.

 

Aimco and Aimco OP will treat the transactions 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 OP’s consolidated financial statements as an adjustment to the amounts of consolidated equity and partners’ capital attributed to Aimco and Aimco OP, respectively.

 

Limited partners are not entitled to dissenters’ appraisal rights under applicable law or AIP’s partnership agreement in connection with the mergers. However, pursuant to the terms of the merger agreement, Aimco OP will provide each limited partner with contractual dissenters’ appraisal rights that are similar to the dissenters’ appraisal rights available to a stockholder of a constituent corporation in a merger under Delaware law. These contractual appraisal rights will enable a limited partner to obtain an appraisal of the value of the limited partner’s AIP Units in connection with the mergers. 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 C.

 

Under AIP’s partnership agreement and applicable Law, upon written request and at the cost of the limited partner, a limited partner who holds AIP Units has the right to receive by mail a list of the names and addresses of the partners of AIP and the number of units of partnership interest held by each of them. This list may be obtained by making written request to the Angeles Realty Corporation II, c/o Eagle Rock Proxy Advisors, LLC, 12 Commerce Drive, Cranford, New Jersey 07016, or by fax at (908) 497-2349.

 

The costs of planning and implementing the transactions, including the cash merger consideration and the preparation of this information statement/prospectus, will be borne by Aimco OP without regard to whether the transactions are effectuated. The estimated amount of these costs is approximately $5,684,400 (assuming all limited partners elect to receive the cash merger consideration). Aimco OP is paying for the costs of the transactions with funds on hand or from drawings under its revolving credit facility. The revolving credit facility is pursuant to Aimco OP’s 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 OP’s 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 additional year, subject to certain conditions Aimco OP’s obligations under the Amended and Restated Senior Secured Credit Agreement are secured by its equity interests in its subsidiaries.

 

Under applicable law, the transactions contemplated by the merger agreement must be approved by the General Partner and a majority of the limited partnership units. The General Partner has determined that the transactions contemplated by the merger agreement are advisable and in the best interests of AIP and its limited partners and has approved the merger transactions. Each AIP Unit is entitled to one vote. As of November 18, 2011, there were issued and outstanding 47,311 AIP Units, and Aimco OP and its affiliates owned 27,739 of those units, or approximately 58.63% of the outstanding AIP Units. The General Partner’s affiliates have indicated that they will vote all of their AIP Units in favor of the merger transactions, enabling them to approve the merger transactions without the consent or approval of any unaffiliated limited partners. 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 transactions on or about January 23, 2012. As a result, approval of the merger agreement and the transactions contemplated thereby is assured and your consent is not required.

 

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 these merger transactions.

 

AIP has entered into an agreement and plan of merger with New AIP, 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 $252.40 per AIP Unit to $268.04 per AIP Unit. The merger agreement contemplates the following transactions:

 

Merger of AIP with and into New AIP.  First, AIP will be merged with and into New AIP with New AIP as the surviving entity. In this merger, each AIP Unit will be converted into an identical unit of limited partnership in New AIP and the general partnership interest in AIP now held by the General Partner will be converted into a general partnership interest in New AIP. All interests in New AIP outstanding immediately prior to the first merger will be cancelled in the first merger. AIP’s partnership agreement in effect immediately prior to the first merger will be adopted as the partnership agreement of New AIP, with the following changes: (i) references therein to the California Uniform Limited Partnership Act, as amended, or the California Act, will be amended to refer to the Delaware Revised Uniform Limited Partnership Act, as amended, or the Delaware Act; (ii) a description of the merger will be added; and (iii) the name of the partnership will be “Angeles Income Properties 6, LP”.

 

Merger of the Aimco Subsidiary with and into New AIP.  Second, the Aimco Subsidiary will be merged with and into New AIP, with New AIP as the surviving entity. In the second merger, each AIP Unit outstanding immediately prior to consummation of the second merger will be converted into the right to receive, at the election of the holder of such AIP Unit, either $268.04 in cash or equivalent value in OP Units (calculated by dividing $268.04 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 second 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 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 $268.04 in cash for each AIP Unit. Each holder of AIP Units must make the same election (cash or OP Units) for all of his or her AIP Units.

 

In this second merger, Aimco OP’s interest in the Aimco Subsidiary will be converted into limited partnership interest of New AIP. After the merger, Aimco OP will be the sole limited partner of New AIP, and will own all of the limited partnership interests of New AIP. The General Partner will continue to serve as the general partner of the surviving entity. The agreement of limited partnership of New AIP, as in effect immediately prior to the consummation of the merger, will be the agreement of limited partnership of the surviving entity after the merger, until thereafter amended in accordance with the provisions thereof and applicable law.

 

None of the parties to the merger agreement will be required to consummate the mergers 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.

 

The merger agreement may be terminated, and the mergers may be abandoned, at any time prior to consummation of the mergers, without liability to any party to the merger agreement, by AIP, 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 AIP or the member of the Aimco Subsidiary.

 

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 mergers with respect to any of the terms contained therein.

 

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.

 

Limited partners are not entitled to dissenters’ appraisal rights under applicable law or AIP’s partnership agreement in connection with the mergers. However, pursuant to the terms of the merger agreement, Aimco OP will provide each limited partner with contractual dissenters’ appraisal rights that are similar to the dissenters’ appraisal rights available to a stockholder of a constituent corporation in a merger under Delaware law. These contractual appraisal rights will enable a limited partner to obtain an appraisal of the value of the limited partner’s AIP Units in connection with the mergers. 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 C.

 

Within ten days after the effective time of the merger transactions, Aimco OP will prepare and mail to the former holders of AIP Units an election form pursuant to which they can elect to receive cash or OP Units. Each holder of AIP Units must make the same election (cash or OP Units) for all of his on her AIP Units. Former holders of AIP 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 AIP Units may also use the election form to elect to receive, in lieu of the merger consideration, the appraised value of their AIP Units, determined through an arbitration proceeding.

 

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.

 

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.

 

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.

 

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 OP’s business, transact any business in Aimco OP’s 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 Partner’s 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

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 partner’s sole and absolute discretion.

 

Indemnification.  As a part of conducting the merger transactions 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 transactions, 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.

 

As of October 31, 2011, Aimco OP had issued and outstanding the following partnership interests:

 

 

 

 

 

 

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.

 

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

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.

 

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 partner’s estimate of further taxes required to be paid by such limited partner.

 

No partner is entitled to interest on its capital contribution or on such partner’s 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.

 

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

sole and absolute discretion but subject to the restrictions on the ownership of Aimco stock imposed under Aimco’s 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.

 

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 partner’s 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.

 

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 partner’s 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.

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 partner’s 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 partner’s 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.

 

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.

 

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

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).

 

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 OP’s 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.

 

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.

 

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.  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.

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 OP’s 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 OP’s 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 Aimco OP’s 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; (iii) third, to the satisfaction of all of Aimco OP’s 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.

 

Aimco’s 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 of 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 Aimco’s common stock in the periods indicated.