As Filed with the Securities and Exchange Commission on October 27, 2010

Registration No. 333-169871

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

AIMCO PROPERTIES, L.P.

(Exact name of registrant as specified in its charter)

 

4582 South Ulster Street Parkway, Suite 1100

Denver, Colorado 80237

(303) 757-8101

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

John Bezzant

Senior Vice President

Apartment Investment and Management Company

4582 South Ulster Street Parkway, Suite 1100

Denver, Colorado 80237

(303) 757-8101

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

Copies to:

Gregory M. Chait

Paul J. Nozick

Alston & Bird LLP

One Atlantic Center

1201 West Peachtree Street

Atlanta, GA 30309

(404) 881-7000

 

 

 

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

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

 

 

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

 

SUBJECT TO COMPLETION, DATED OCTOBER 27, 2010

 

INFORMATION STATEMENT/PROSPECTUS

 

SHELTER PROPERTIES IV LIMITED PARTNERSHIP

 

Shelter Properties IV Limited Partnership, or Shelter, plans to enter into an agreement and plan of merger with AIMCO Shelter Merger Sub LLC, or the Aimco Subsidiary, a wholly owned subsidiary of Aimco Properties, L.P., or Aimco OP. Under the proposed merger agreement, the Aimco Subsidiary, will be merged with and into Shelter, with Shelter as the surviving entity. The Aimco Subsidiary was formed for the purpose of effecting this transaction and does not have any assets or operations. In the merger, each limited partnership unit of Shelter, or Limited Partnership Unit, will be converted into the right to receive, at the election of the holder of such unit, either:

 

 

The number of OP Units offered for each Limited Partnership Unit will be calculated by dividing $4.50 by the average closing price of common stock of Apartment Investment and Management Company, or Aimco, as reported on the New York Stock Exchange, over the ten consecutive trading days ending on the second trading day immediately prior to the consummation of the merger. For example, as of October 26, 2010, the average closing price of Aimco common stock over the preceding ten consecutive trading days was $23.08, which would have resulted in 0.19 OP Units offered for each Limited Partnership 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.

 

In the merger, Aimco OP’s interest in the Aimco Subsidiary will be converted into Shelter limited partnership units. As a result, after the merger, Aimco OP will be the sole limited partner of Shelter and will own all of the outstanding Shelter limited partnership units. Within ten days after the effective time of the merger, Aimco OP will prepare and mail to the former limited partners of Shelter an election form with which they can elect to receive cash or OP Units. Shelter limited partners 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 merger, the limited partner will be deemed to have elected to receive cash. Former limited partners may also use the election form to elect to receive, in lieu of the merger consideration, the appraised value of their Limited Partnership Units, determined through an arbitration proceeding.

 

In addition, limited partners who are not affiliated with Aimco OP may elect to receive an additional cash payment of $3.75 per Limited Partnership Unit in exchange for executing a waiver and release of certain claims. In order to receive this additional payment, limited partners must complete the relevant section of the election form, execute the waiver and release that is attached to the election form and return both the election form and the executed waiver and release to the information agent as described above.

 

Shelter’s corporate general partner has determined that the proposed merger agreement and merger are advisable and in the best interests of Shelter and its limited partners and has approved the proposed merger agreement and merger. Shelter’s partnership agreement is currently silent as to the approval required for the proposed merger and therefore, under South Carolina law, would require the approval of the merger by all limited partners. However, pursuant to South Carolina law and the terms of the partnership agreement, the partnership agreement may be amended by the holders of a majority of the Limited Partnership Units. In light the substantial cost and burdens likely associated with obtaining approval from each limited partner and consistent with the corporate general partner’s determination that the proposed merger is advisable and in the best interest of Shelter and its limited partners, the holders of a majority of the Limited Partnership Units intend to amend the partnership agreement to provide that the approval by the holders of a majority of the Limited Partnership Units, rather than all limited partners, is required to approve business combination transactions involving Shelter, including the proposed merger. Immediately subsequent to such amendment, the holders of a majority of the Limited Partnership Units intend to approve the proposed merger agreement and merger.

 

As of October 20, 2010, there were issued and outstanding 49,995 Limited Partnership Units, and Aimco OP and its affiliates owned 36,650 of those units, or approximately 73.31% of the Limited Partnership Units outstanding. Aimco OP and its affiliates have indicated that they intend to take action by written consent, as permitted under the partnership agreement, to approve the amendment, the proposed merger agreement and the merger, on or about [ • ], 2010. As a result, approval of the merger is assured, and your consent to the merger is not required.

 

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

 

This information statement/prospectus contains information about the proposed amendment of Shelter’s partnership agreement, the proposed merger agreement, the merger and the securities offered hereby, and the reasons that Shelter’s corporate general partner has decided that these transactions are in the best interests of Shelter and its limited partners. Shelter’s corporate general partner has conflicts of interest with respect to the transactions that are described in greater detail in this information statement/prospectus supplement. Please read this information statement/prospectus carefully, including the section entitled “Risk Factors” beginning on page 11. It provides you with detailed information about the proposed amendment, the merger agreement, the merger and the securities offered hereby. The proposed merger agreement is attached to this information statement/prospectus as Annex A. The proposed amendment to the partnership agreement is attached to this information statement/prospectus as Annex F.

 

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

 

This information statement/prospectus is dated [ • ] 2010, and is first being mailed to limited partners on or about [ • ],2010.

 

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

 

CALIFORNIA

MASSACHUSETTS

NEW YORK

 

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

 

ADDITIONAL INFORMATION

 

This information statement/prospectus incorporates important business and financial information about Aimco and Aimco OP from documents that they have filed with the Securities and Exchange Commission 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 86 of this information statement/prospectus.

 

Aimco will provide you with copies of such documents relating to Aimco and Aimco OP (excluding all exhibits unless Aimco or Aimco OP 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 Securities and Exchange Commission 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 Shelter Limited Partnership Units in connection with the merger, and a prospectus of Aimco under Section 5 of the Securities Act with respect to shares of Aimco common stock that may be issued in exchange for such OP Units tendered for redemption. This document also constitutes an information statement under Section 14(c) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to the action to be taken by written consent to approve the amendment of Shelter’s partnership agreement, the proposed merger agreement and merger.

 

TABLE OF CONTENTS

 

 

SUMMARY TERM SHEET

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

	•	Merger Consideration:  In the proposed merger, each Limited Partnership Unit will be converted into the right to receive, at the election of the holder of such Limited Partnership Unit, either $4.50 in cash or equivalent value in OP Units. The number of OP Units issuable with respect to each Limited Partnership Unit will be calculated by dividing the $4.50 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 proposed merger. For a full description of the determination of the merger consideration, see “The Merger — Determination of Merger Consideration” beginning on page 30.

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

	•	Appraisal Rights:  Pursuant to the terms of the proposed 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 South Carolina law, and which will enable a limited partner to obtain an appraisal of the value of the limited partner’s Limited Partnership Units in connection with the proposed merger. See “The Merger — Appraisal Rights,” beginning on page 33. A description of the appraisal rights being provided, and the procedures that a limited partner must follow to seek such rights, is attached to this information statement/prospectus as Annex B.

	•	Additional Payment for Waiver and Release:  In addition to the merger consideration, each limited partner unaffiliated with Aimco OP or its affiliates may elect to receive an additional cash payment of $3.75 per Limited Partnership Unit in exchange for executing a waiver and release of potential claims such unaffiliated limited partner may have had in the past, may now have or may have in the future (through and including the date of the consummation of the merger) against Shelter, Shelter GP, Aimco OP or its affiliates and certain other persons and entities, including but not limited to claims related to the merger agreement and the transactions contemplated thereby, but excluding claims limited partners may have under federal securities laws. See “The Merger — Waiver and Release and Additional Consideration,” beginning on page 31.

	•	Parties Involved:

	•	Shelter Properties IV Limited Partnership, or Shelter, is a South Carolina limited partnership formed on August 21, 1981. Its corporate general partner, the general partner responsible for managing Shelter, is Shelter Realty IV Corporation, or Shelter GP. Shelter GP is a South Carolina corporation and a subsidiary of Aimco. Shelter’s other general partner is an individual who has executed a power of attorney in favor of Aimco OP, which gives Aimco OP control over the individual general partner interest of Shelter. Shelter’s primary business and only industry segment is real estate related operations. Shelter presently owns one investment property, Baymeadows Apartments, or the property, a 904 unit apartment project located in Jacksonville, Florida. Additional information about Shelter is included in documents included in this

	•	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, focused on the ownership and management of quality apartment communities located in the 20 largest markets in the United States. Aimco is one of the largest owners and operators of apartment properties in the United States. Aimco’s common stock is listed and traded on the NYSE under the symbol “AIV.” See “Information about the Aimco Entities,” beginning on page 22.

	•	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 22.

	•	AIMCO Shelter Merger Sub LLC, or the Aimco Subsidiary, is a South Carolina limited liability company formed for the purpose of consummating the proposed merger with Shelter. The Aimco Subsidiary is a direct wholly-owned subsidiary of Aimco OP. See “Information about the Aimco Entities,” beginning on page 22.

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

	•	In the absence of a transaction, Shelter limited partners have only limited options to liquidate their investment in Shelter. The Limited Partnership 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 Shelter is not sufficient to justify its continued operation as a public company. As a public company with a significant number of unaffiliated limited partners, Shelter incurs costs associated with preparing audited annual financial statements, unaudited quarterly financial statements, tax returns for partners on schedule K-1 and periodic SEC reports, and other costs associated with having multiple limited partners. The Aimco Entities estimate these costs to be approximately $66,000 per year.

	•	Shelter has been operating at a loss for the past several years. From January 1, 2006 to September 30, 2010, Aimco OP made loans of approximately $22,910,000 to Shelter to help fund the redevelopment of the property and operating expenses, but it is not likely to continue to make advances to Shelter. Shelter has made payments totaling $2,457,000 during this period. The Aimco Entities believe that it is unlikely that Shelter can obtain financing from an independent third party. If the Aimco Entities acquire 100% ownership of Shelter, they will have greater flexibility in financing and operating its property.

	•	Fairness of the Merger:  Although the Aimco Entities have interests that may conflict with those of Shelter’s unaffiliated limited partners, each of the Aimco Entities believe that the proposed merger is fair to the unaffiliated limited partners of Shelter. See “Special Factors — Fairness of the Transaction” beginning on page 6.

	•	Conflicts of Interest:  Shelter GP is the corporate general partner of Shelter and is wholly-owned by AIMCO/IPT, Inc., which in turn is wholly-owned by Aimco. Therefore, Shelter GP has a conflict of interest with respect to the proposed merger. Shelter GP has fiduciary duties to AIMCO/IPT, Inc., Shelter GP’s sole stockholder and an affiliate of Aimco, on the one hand, and to Shelter and its limited partners, on the other hand. The duties of Shelter GP to Shelter and its limited partners conflict with the duties of Shelter GP to AIMCO/IPT, Inc., which could result in Shelter GP approving a transaction that is more favorable to Aimco than might be the case absent such conflict of interest. See, “The Merger — Conflicts of Interest,” beginning on page 31.

	•	Risk Factors:  In evaluating the proposed merger agreement and the proposed merger, Shelter limited partners should carefully read this information statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors” beginning on page 11. Some of the risk factors associated with the proposed merger are summarized below:

	•	Aimco owns Shelter GP, the corporate general partner of Shelter. As a result, Shelter GP has a conflict of interest in the merger. A transaction with a third party in the absence of this conflict could result in better terms or greater consideration to Shelter limited partners.

	•	Shelter limited partners who receive cash may recognize taxable gain in the merger and that gain could exceed the merger consideration.

	•	There are a number of significant differences between Shelter Limited Partnership Units and Aimco OP Units relating to, among other things, the nature of the investment, voting rights, distributions and liquidity and transferability/redemption. For more information regarding those differences, see “Comparison of Shelter Limited Partnership Units and Aimco OP Units,” beginning on page 53.

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

	•	Material United States Federal Income Tax Consequences of the Merger: The proposed merger will generally be treated as a partnership merger for Federal income tax purposes. In general, any payment of cash for Limited Partnership Units will be treated as a sale of such Limited Partnership Units by such holder, and any exchange of Limited Partnership Units for OP Units under the terms of the proposed merger agreement will be treated, in accordance with Sections 721 and 731 of the Internal Revenue Code of 1986, as amended, or the Code, as a tax free transaction, except to the extent described in “Material United States Federal Income Tax Matters — United States Federal Income Tax Consequences Relating to the Merger,” beginning on page 58.

 

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

 

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

 

 

 

 

Before deciding to proceed with the proposed merger, Shelter GP and the other Aimco Entities considered the alternatives described below:

 

Liquidation of Shelter.  Shelter GP and the other Aimco Entities considered selling the property to a third party for cash and distributing the net cash proceeds to Shelter’s limited partners. The primary advantage of such transactions would be that the sale prices would reflect arm’s-length negotiations and might therefore be higher than the appraised value which has been used to determine the merger consideration. Shelter GP and the other Aimco Entities rejected this alternative because of: (i) the risk that a third party might not be found at a satisfactory price or at all; (ii) the costs imposed on Shelter in connection with marketing and selling the property; and (iii) the fact that limited partners would recognize taxable gain on the sales without the option of deferring that gain. Further, Shelter GP and the other Aimco Entities recently evaluated a sale of the property to a third party but determined that a third-party buyer would be unwilling to buy the property at a price that would repay Shelter’s outstanding indebtedness, including indebtedness owed to Aimco OP.

 

Contribution of the property to Aimco.  Shelter GP and the other Aimco Entities considered a contribution of the property to Aimco OP in exchange for OP Units. The primary advantage of such a transaction would be that Shelter limited partners would not recognize taxable gain. Shelter GP and the other Aimco Entities rejected this alternative because it would not offer an opportunity for immediate liquidity to the limited partners who desire such an alternative.

 

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

 

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

 

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

 

Option to Defer Taxable Gain.  Limited partners who elect to receive OP Units in the merger may defer recognition of taxable gain.

 

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

 

Benefits to Shelter.  The proposed merger is expected to have the following principal benefits to Shelter:

 

Elimination of Costs Associated with SEC Reporting Requirements and Multiple Limited Partners.  After the merger, Aimco OP will be the sole limited partner in Shelter, and Shelter will terminate its registration and cease filing periodic reports with the SEC. As a result, Shelter will no longer incur costs associated with preparing audited annual financial statements, unaudited quarterly financial statements, tax returns for partners on schedule K-1 and periodic SEC reports, or costs associated with having multiple limited partners. The Aimco Entities estimate these expenses to be approximately $66,000 per year.

 

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

 

Increased Interest in Shelter.

 

Upon completion of the proposed merger, Aimco OP will be the sole limited partner in Shelter. As a result, the Aimco Entities will receive all of the benefit from any future appreciation in value of the property after the merger, and any future property income.

 

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

 

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

 

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

 

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

 

Detriments to Shelter.  The proposed merger is not expected to have any detriments to Shelter.

 

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

 

Increased Interest in Deficit, Net Book Value and Net Losses.  Upon completion of the merger, the Aimco Entities’ interest in the net book value of Shelter will increase from 73.4% to 100%, or from a deficit of $23,253,000 to a deficit of $31,679,000 as of December 31, 2009, and their interest in the net losses of Shelter will increase from 73.6% to 100%, or from a loss of $5,511,000 to a loss of $7,490,000 for the period ended December 31, 2009. As a result, Aimco OP will bear the burden of all future operating or other losses, as well as any decline in the value of the property.

 

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

 

For a discussion of the material United States federal income tax consequences of the merger, see “Material United States Federal Income Tax Matters — United States Federal Income Tax Consequences Relating to the Merger,” beginning on page 58.

 

Factors in Favor of Fairness Determination.  The Aimco Entities (including Shelter GP as general partner of Shelter) believe that the merger is fair and in the best interests of Shelter 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 making their conclusion that the merger is fair to Shelter and its unaffiliated limited partners. They relied primarily on their estimate of value calculated by adding the appraised value of the property and the value of all of its other assets, and deducting the amount of mortgage debt and all other liabilities.

 

The Aimco Entities were aware of, but did not place much emphasis on, information regarding prices at which Limited Partnership Units may have sold in the secondary markets because they do not view that information as a reliable measure of value. The Limited Partnership Units are not traded on an exchange or other reporting system, and transactions in the securities are very limited and sporadic.

 

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

unaffiliated limited partners under the proposed merger agreement that are similar to the dissenters’ appraisal rights available to stockholders in a corporate merger under South Carolina law.

 

Selection and Qualifications of Independent Appraiser.  Shelter GP, in its capacity as the corporate general partner of Shelter, retained the services of CRA to appraise the market value of the property. CRA 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 CRA had no negative impact on its independence in conducting the appraisal related to the merger.

 

Factors Considered.  CRA performed a complete appraisal of the property. CRA 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. Shelter furnished CRA with all of the necessary information requested by CRA 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, CRA, among other things:

 

 

 

 

 

 

 

 

Summary of Approaches and Methodologies Employed.  The following summary describes the approaches and analyses employed by CRA in preparing the appraisal. CRA principally relied on two approaches to valuation: (i) the income capitalization approach using a direct capitalization analysis and (ii) the sales comparison approach.

 

The income capitalization approach is based on the premise that value is derived by converting anticipated benefits into property value. Anticipated benefits include the present value of the net income and the present value of the net proceeds resulting from the re-sale of the property. CRA reported that the property has an adequate operations history to determine its income-producing capability 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, through a direct capitalization analysis, was utilized in the appraisal of the property.

 

According to CRA’s report, the basic steps in the direct capitalization analysis are as follows: (i) calculate potential gross income from all sources that a competent owner could legally generate; (ii) estimate and deduct an appropriate vacancy and collection loss factor to arrive at effective gross income; (iii) estimate and deduct operating expenses that would be expected during a stabilized year to arrive at a probable net operating income; (iv) develop an appropriate overall capitalization rate to apply to the net operating income; and (v) estimate value by dividing the net operating income by the overall capitalization rate. In addition, any adjustments to account for differences between the current conditions and stabilized conditions are also considered.

 

The sales comparison approach is an estimate of value based upon a process of comparing recent sales of similar properties in the surrounding or competing areas to the subject property. This comparative process involves judgment as to the similarity of the subject property and the comparable sales with respect to many value factors

such as location, contract rent levels, quality of construction, reputation and prestige, age and condition, and the interest transferred, among others. The value estimated through this approach represents the probable price at which the subject property would be sold by a willing seller to a willing and knowledgeable buyer as of the date of value. The reliability of this technique is dependent upon the availability of comparable sales data, the verification of the sales data, the degree of comparability and extent of adjustment necessary for differences, and the absence of atypical conditions affecting the individual sales prices. CRA 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. According to CRA’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. CRA 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 property, CRA relied principally on the income capitalization approach to valuation and secondarily on the sales comparison approach, and reported that the value conclusion derived pursuant to the sales comparison approach is supportive of the conclusion derived pursuant to the income capitalization approach.

 

Summary of Independent Appraisal of the Property.  CRA performed a complete appraisal of the property. The appraisal was performed as of April 27, 2010 and delivered to Shelter GP in late May 2010. The summary set forth below describes the material conclusions reached by CRA based on the values determined under the valuation approaches and subject to the assumptions and limitations described below. CRA estimated the market value of the property was, as of the time of the appraisal, $56,600,000.

 

Valuation Under Income Capitalization Approach.  Using the income capitalization approach, CRA performed a direct capitalization analysis to derive a value of $56,600,000 for the property, based on the following underlying determinations:

 

 

 

 

 

 

 

 

 

Using a direct capitalization analysis, CRA calculated the value of the property by dividing the stabilized net operating income by the concluded capitalization rate of 8.0%.

 

Valuation Under Sales Comparison Approach.  CRA estimated the value of the property under the sales comparison approach by analyzing sales from the influencing market that were most similar to the property in terms of age, size, tenant profile and location. CRA reported that adequate sales existed to formulate a defensible value for the property under the sales comparison approach. The sales comparison approach resulted in a valuation conclusion for the property of approximately $54,200,000 as of April 27, 2010.

 

In reaching a valuation conclusion for the property, CRA examined and analyzed comparable sales of five properties in the influencing market. The sales reflected per unit unadjusted sales prices ranging from $34,231 to

$95,035. After adjustment for factors such as changes in market conditions from the time of the comparable sale and differences in location, building size, quality of construction, building interests, age, condition, functional utility, appearance and average unit size, the comparable sales illustrated a range of unit prices from $58,193 to $61,034 with mean and median adjusted sales prices of $59,933 and $60,114 per unit. CRA determined that a value of $60,000 per unit was appropriate for the property. This value, when multiplied by the property’s 904 units, resulted in a total value estimate for the property of approximately $54,200,000 (as of April 27 2010).

 

Reconciliation of Values and Conclusion of Appraisal.  CRA relied principally on the income capitalization approach to valuation. CRA relied secondarily on the sales comparison approach. The income capitalization approach resulted in a value of $56,600,000 (as of April 2010). CRA concluded that the market value of the property as of April 27, 2010 was $56,600,000.

 

Assumptions, Limitations and Qualifications of CRA’s Valuation.  CRA’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 CRA for the accuracy of such information; all engineering was assumed to be correct; there were no hidden or unapparent conditions of the property, subsoil, or structures that render it more or less valuable, and no responsibility was assumed for such conditions or for arranging for engineering studies that may be required to discover them; there was full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance was stated, defined, and considered in the appraisal report; all applicable zoning and use regulations and restrictions have been complied with, unless nonconformity had been stated, defined, and considered in the appraisal report; all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimate contained in 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.  CRA’s fee for the appraisal was approximately $6,862. Aimco OP paid for the costs of the appraisal. CRA’s fee for the appraisals was not contingent on the approval or completion of the merger. In addition to the appraisal performed in connection with the merger, during the prior two years, CRA has been paid approximately $106,931 for appraisal services by Aimco OP and its affiliates. Except as set forth above, during the prior two years, no material relationship has existed between CRA and Shelter or Aimco OP or any of their affiliates. Aimco OP believes that its relationship with CRA had no negative impact on its independence in conducting the appraisal.

 

Availability of Appraisal Report.  You may obtain a full copy of CRA’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.”

 

Conflicts of Interest.  Shelter GP holds a majority of the general partnership interests in Shelter. It is wholly-owned by AIMCO/IPT, Inc., which in turn is wholly-owned by Aimco, an affiliate of Aimco OP. Therefore, Shelter GP has a conflict of interest with respect to the proposed merger. Shelter GP has fiduciary duties to AIMCO/IPT, Inc., Shelter GP’s sole stockholder and an affiliate of Aimco, on the one hand, and to Shelter and its limited partners, on the other hand. The duties of Shelter GP to Shelter and its limited partners conflict with the duties of Shelter GP to AIMCO/IPT, Inc., which could result in Shelter GP approving a transaction that is more favorable to Aimco than might be the case absent such conflict of interest. As the corporate general partner of Shelter, Shelter GP seeks the best possible terms for Shelter’s limited partners. This conflicts with Aimco’s interest in obtaining the best possible terms for Aimco OP.

 

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

 

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

 

Neither the amendment of Shelter’s partnership agreement nor the merger agreement requires approval by a majority of the limited partners unaffiliated with Aimco OP.  Under the provisions of Shelter’s partnership agreement and applicable South Carolina law, the amendment of Shelter’s partnership agreement must be approved by a majority in interest of the Limited Partnership Units. As of October 20, 2010, Aimco OP and its affiliates owned approximately 73.31% of the Limited Partnership Units outstanding, enabling them to approve the amendment without the consent or approval of any unaffiliated limited partners. Once amended, the partnership agreement will provide that the merger may be approved by Shelter’s general partners and by holders of more than fifty percent (50%) of the outstanding Limited Partnership Units.

 

By amending the Shelter partnership agreement, Aimco OP will be entitled to approve the proposed merger without the consent of the other limited partners.  Shelter’s partnership agreement is currently silent as to the approval required for the proposed merger and therefore, under South Carolina law, would require the approval of the proposed merger by all limited partners. However, pursuant to South Carolina law and the terms of the partnership agreement, the partnership agreement may be amended by the holders of a majority of the Limited Partnership Units. Aimco OP, as the holder of a majority of the Limited Partnership Units, intends to amend the partnership agreement to provide that the approval by the holders of a majority of the Limited Partnership Units, rather than all limited partners, is required to approve business combination transactions such as the proposed merger. As a result of this amendment, Aimco OP, as the holder of a majority of the Limited Partnership Units, will be able to approve the proposed merger without any consent or other action by any other holder of Limited Partnership Units on terms and conditions it deems to be in its best interest, which may not be in the best interest of the other limited partners.

 

Alternative valuations of Shelter’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 Shelter’s property. See, “Special Factors — The Appraisal,” beginning on page 8, 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 a property. Also, others using the same valuation methodology could make different assumptions and judgments, and obtain different results.

 

The actual sales price of Shelter’s property could exceed the appraised value that Aimco relied on to determine the merger consideration.  No recent attempt has been made to market the property to unaffiliated third parties. Accordingly, there can be no assurance that the property could not be sold for a value higher than the appraised value

used to determine the merger consideration if it was marketed to third-party buyers interested in a property of this type.

 

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

 

No opinion has been obtained from an independent financial advisor that the merger is fair to unaffiliated limited partners.  While Shelter GP and each of the other Aimco Entities believes that the terms of the merger are fair to Shelter limited partners unaffiliated with Shelter GP or Aimco for the reasons discussed in “Special Factors — Fairness of the Transaction,” beginning on page 6, no opinion has been obtained as to whether the merger is fair to the limited partners of Shelter unaffiliated with Shelter GP or Aimco from a financial point of view.

 

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

 

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

 

For a description of risks related to an investment in Aimco and Aimco OP, please see the information set forth under “Part I — Item 1A. Risk Factors” in the Annual Reports on Form 10-K for the year ended December 31, 2009 of each of Aimco and Aimco OP, which documents are incorporated herein by reference and are available electronically through the SEC’s website, www.sec.gov, or by request to Aimco.

 

There are restrictions on the ability to transfer OP Units, and there is no public market for Aimco OP Units.  The Aimco OP partnership agreement restricts the transferability of OP Units. Until the expiration of a one-year holding period, subject to certain exceptions, investors may not transfer OP Units without the consent of Aimco OP’s general partner. Thereafter, investors may transfer such OP Units subject to the satisfaction of certain conditions, including the general partner’s right of first refusal. There is no public market for the OP Units. Aimco OP has no plans to list any OP Units on a securities exchange. It is unlikely that any person will make a market in the OP Units, or that an active market for the OP Units will develop. If a market for the OP Units develops and the OP Units are considered “readily tradable” on a “secondary market (or the substantial equivalent thereof),” Aimco OP would be classified as a publicly traded partnership for United States 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 United States Federal income tax considerations to be taken into account in connection with an investment in OP Units. For a general discussion of material United States Federal income tax consequences resulting from acquiring, holding, exchanging, and otherwise disposing of OP Units, see “Material United States Federal Income Tax Matters — 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 United States Federal income tax purposes, material adverse consequences to the partners and their owners would result. In addition, Aimco would not qualify as a REIT for United States 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” or 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 United States Federal income tax purposes.

 

The limited partners may recognize gain on the transaction.  If a Shelter limited partner receives or is deemed to receive cash or consideration other than OP Units in connection with the merger, the receipt of such cash or other consideration would be taxable to the limited partner either as “boot” or under the “disguised sale” rules. 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 cash paid at closing, within two years before or after a contribution of property that has an adjusted tax basis in excess of its fair market value, 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 (and its owners), which Aimco has not undertaken to review. Accordingly, limited partners and their owners 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 United States Federal income tax purposes, in a manner chosen by Aimco OP such that the contributing partner is charged with and must recognize 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 is likely to 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 certain tax elections made 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 United States 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.

 

The following tables set forth Aimco’s selected summary historical financial data as of the dates and for the periods indicated. Aimco’s historical consolidated statements of income data set forth below for each of the five fiscal years in the period ended December 31, 2009 and the historical consolidated balance sheet data for each of the five fiscal year-ends in the period ended December 31, 2009, are derived from information included in Aimco’s Current Report on Form 8-K filed with the SEC on September 10, 2010. Aimco’s historical consolidated statements of income data set forth below for each of the six months ended June 30, 2010 and 2009, and the historical consolidated balance sheet data as of June 30, 2010, are derived from Aimco’s unaudited interim Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

 

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 September 10, 2010 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, filed with the SEC on July 30, 2010, 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 income data set forth below for each of the five fiscal years in the period ended December 31, 2009 and the historical consolidated balance sheet data for each of the five fiscal year-ends in the period ended December 31, 2009, are derived from information included in Aimco OP’s Current Report on Form 8-K filed with the SEC on September 10, 2010. Aimco OP’s historical consolidated statements of income data set forth below for each of the six months ended June 30, 2010 and 2009, and the historical consolidated balance sheet data as of June 30, 2010, are derived from Aimco OP’s unaudited interim Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

 

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 included in Aimco OP’s Current Report on Form 8-K filed with the SEC on September 10, 2010, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, filed with the SEC on July 30, 2010, 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 Shelter’s selected summary historical financial data as of the dates and for the periods indicated. Shelter’s historical statements of income and cash flow data set forth below for each of the two fiscal years in the period ended December 31, 2009 and the historical balance sheet data as of December 31, 2009 and 2008, are derived from Shelter’s financial statements included in Shelter’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. Shelter’s historical statements of income and cash flow data set forth below for each of the six months ended June 30, 2010 and 2009, and the historical balance sheet data as of June 30, 2010, are derived from Shelter’s unaudited interim Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

 

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 for the fiscal year ended December 31, 2009 included in Shelter’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC on March 29, 2010 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 filed with the SEC on August 13, 2010, which are attached to this information statement/prospectus. See “Where You Can Find Additional Information” in this information statement/prospectus.

 

 

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

 

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. The number of OP Units offered in the merger with respect to each Limited Partnership Unit was calculated by dividing the per unit cash merger consideration by the average closing price of Aimco common stock, as reported on the NYSE over the ten consecutive trading days ending on the second trading day immediately prior to the consummation of the merger. The closing price of Aimco common stock as reported on the NYSE on October 20, 2010 was $23.27.

 

The Limited Partnership 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 Limited Partnership Units is greater than Shelter GP’s estimate of the proceeds that would be available for distribution to limited partners of Shelter if its property was sold at a price equal to its appraised value.

 

The following tables summarize the historical per share information for Aimco, Aimco OP and Shelter 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, focused on the ownership and management of quality apartment communities located in the 20 largest markets in the United States (as measured by total market capitalization, which is the total market value of institutional-grade apartment properties in a particular market). Aimco upgrades the quality of its portfolio through the sale of communities with rents below average market rents and the reinvestment of capital within these 20 target markets through redevelopment and acquisitions. Aimco’s apartment properties are generally financed with property-level, non-recourse, long-dated, fixed-rate, amortizing debt. Aimco’s common stock is listed and traded on the NYSE under the symbol “AIV.” As of June 30, 2010, Aimco owned or managed 817 apartment properties containing 129,350 units located in 43 states, the District of Columbia and Puerto Rico. Aimco is one of the largest owners and operators of apartment properties in the United States.

 

As of June 30, 2010, Aimco:

 

 

Of these properties, Aimco consolidated 230 conventional properties with 70,605 units and 197 affordable properties with 23,901 units.

 

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 June 30, 2010, Aimco held approximately 93% of the common partnership units and equivalents of Aimco OP. Aimco conducts substantially all of its business and owns substantially all of its assets through Aimco OP. Interests in Aimco OP that are held by limited partners other than Aimco include partnership common units or OP Units, partnership preferred units and high performance partnership units, or HPUs. Aimco OP’s income is allocated to holders of OP Units and equivalents based on the weighted average number of OP Units and equivalents outstanding during the period. 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 June 30, 2010, after elimination of shares held by consolidated subsidiaries, 117,039,659 shares of Aimco common stock were outstanding and Aimco OP had 8,330,534 OP Units and equivalents outstanding for a combined total of 125,370,193 shares of Aimco common stock and Aimco OP Units outstanding (excluding partnership preferred units).

 

Through its wholly owned subsidiary, AIMCO/IPT, Inc., a Delaware corporation, Aimco owns all of the outstanding common stock of Shelter GP, the corporate general partner of Shelter.

 

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 19,737 Limited Partnership Units, or approximately 39.48% of the outstanding Limited Partnership Units. AIMCO IPLP, L.P. also owns 100% of Cooper River Properties, L.L.C., which owns 3,685 Limited Partnership Units or approximately 7.37% of Shelter’s outstanding Limited Partnership Units.

 

AIMCO Shelter Merger Sub LLC, or the Aimco Subsidiary, is a South Carolina limited liability company formed on September 30, 2010, for the purpose of consummating the merger with Shelter. 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. 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 on Annex C attached hereto and are incorporated in this information statement/prospectus by reference. Neither AIMCO IPLP, L.P. nor Cooper River Properties, L.L.C. have directors or executive officers. During the last five years, none of Aimco, Aimco-GP, AIMCO/IPT, Inc., AIMCO IPLP, L.P., Cooper River Properties, L.L.C., Aimco OP, Shelter or Shelter GP nor, to the best of their knowledge, any of the persons listed in Annex C 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 and Aimco OP is included in documents incorporated by reference into this information statement/prospectus. See “Where You Can Find Additional Information.”

 

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

 

 

Shelter is a South Carolina limited partnership formed on August 21, 1981. The general partner responsible for management of Shelter’s business is Shelter GP. Shelter GP is a subsidiary of Aimco. The other general partner is Mr. Barton Tuck, an individual who has executed a power of attorney in favor of Aimco OP, an affiliate of Shelter GP and Aimco, giving Aimco OP control over the individual general partner interest in Shelter. Shelter’s partnership agreement provides that Shelter is to terminate on December 31, 2022 unless terminated earlier in accordance with the terms of the partnership agreement.

 

Commencing June 8, 1982, Shelter offered pursuant to a Registration Statement filed with the Securities and Exchange Commission, or the SEC, up to 49,900 Limited Partnership Units at a purchase price of $1,000 per Limited Partnership Unit. Shelter GP purchased an additional 100 Limited Partnership Units. The offering terminated on December 15, 1982. Upon termination of the offering, Shelter had accepted subscriptions for 50,000 Limited Partnership Units, including 100 Limited Partnership Units purchased by Shelter GP, for an aggregate of $50,000,000.

 

Shelter invested approximately $38,000,000 of the proceeds in five apartment properties. As of March 31, 2006, Shelter had sold all but one of these five properties. Shelter continues to hold and operate the one remaining

apartment property, Baymeadows Apartments, or the property, a 904 unit apartment project located in Jacksonville, Florida. Since its initial offering, Shelter has not received, nor are limited partners required to make, additional capital contributions.

 

Shelter’s primary business and only industry segment is real estate related operations. Shelter GP is vested with full authority as to the general management and supervision of the business and affairs of Shelter. Limited partners have no right to participate in the management or conduct of such business and affairs. An affiliate of the Shelter GP provides day-to-day property management services at the property, as Shelter has no employees.

 

The average annual rental rates for each of the five years ended December 31, 2009 for the property are as follows:

 

 

The average occupancy for each of the five years ended December 31, 2009 and for the six months ended June 30, 2010 and 2009 for the property is as follows:

 

 

Shelter GP attributes the increase in occupancy from the years ended December 31, 2006 and 2005 to a redevelopment project at the property during those years. At December 31, 2006 and 2005, approximately 25 and 111 units, respectively, were unavailable for rent due to the project. At December 31, 2007, all of the property’s units were available for rent. Shelter GP attributes the more recent increase in occupancy to competitive pricing efforts.

 

The real estate industry is highly competitive. The property is subject to competition from other residential apartment complexes. Shelter GP believes that the property is adequately insured. The property leases apartments for terms of one year or less. No tenant leases 10% or more of the available rental space. The property is in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age.

 

Shelter completed a redevelopment project in order to become more competitive with other properties in the area in an effort to increase occupancy and rental rates at the property. The redevelopment began during 2005 and was completed during the first quarter of 2008 at a total cost of approximately $33,852,000. The redevelopment consisted of major landscaping, interior and exterior improvements, the addition of detached garages and upgrades to the pool area. The project was funded by partnership reserves and loans from Aimco OP.

 

During the year ended December 31, 2009, Shelter completed approximately $1,795,000 of capital improvements at the property, which consisted primarily of roof replacement, swimming pool resurfacing, exterior painting, water heater and floor covering replacements and construction related to damage caused primarily by Tropical Storm Fay and other severe storms. These improvements were funded from operating cash flow, insurance proceeds and loans from Aimco OP. During the year ended December 31, 2005, a project was approved to add 288 new apartment units at the property at a total estimated cost of approximately $26,953,000, of which approximately $257,000 was incurred as of December 31, 2005. The project to add the additional 288 units was on hold as Shelter GP was informed by the city of Jacksonville that it would not allow permits for new units in the area until litigation that was unrelated to Shelter and Baymeadows Apartments was resolved. During the fourth quarter of 2009, Shelter cancelled the proposed project and wrote off approximately $257,000 of costs.

 

During the six months ended June 30, 2010, Shelter completed approximately $907,000 of capital improvements at the property, which consisted primarily of major landscaping, electrical upgrades, plumbing fixtures, appliance, water heater and floor covering replacements and construction related to the casualty discussed below. These improvements were funded from operating cash flow, insurance proceeds and loans from Aimco OP.

In January 2010, the property suffered damage as a result of a fire which damaged four units. The estimated cost, at June 30, 2010, to repair the damage is approximately $129,000 including approximately $10,000 of clean-up costs. During the six months ended June 30, 2010, Shelter received initial insurance proceeds of approximately $107,000, which included approximately $10,000 for clean-up costs. Shelter anticipates receiving additional insurance proceeds related to this casualty during 2010.

 

Shelter regularly evaluates the capital improvement needs of the property. While Shelter has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during the remainder of 2010, including approximately $225,000 for electrical breakers. These capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Capital expenditures will be incurred only if cash is available from operations, partnership reserves or loans from Aimco OP, although Aimco OP is not obligated to make such loans and has indicated an unwillingness to make such loans. To the extent that capital improvements are completed, Shelter’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 mortgage encumbering the property at June 30, 2010.

 

 

 

 

Other than the general partner interest held by Shelter GP and the individual general partner interest, which is beneficially owned by Aimco OP, Shelter presently has only Limited Partnership Units issued and outstanding. The Limited Partnership Units are entitled to allocations of profit and loss, and distributions. As of October 20, 2010, there were 49,995 Limited Partnership Units outstanding, and Aimco OP and its affiliates owned 36,650, or approximately 73.31%, of those units.

 

There were no distributions to the partners during the six months ended June 30, 2010 or during the years ended December 31, 2009 and 2008. Future cash distributions will depend on the levels of net cash generated from operations, the timing of debt maturities, property sales and refinancings. Shelter’s cash available for distribution is reviewed on a monthly basis.

 

Shelter has no employees and depends on Shelter GP and its affiliates for the management and administration of all partnership activities. The Shelter partnership agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of Shelter.

 

Affiliates of Shelter GP receive 5% of gross receipts from Shelter’s property as compensation for providing property management services. Shelter paid to these affiliates approximately $239,000 and $244,000 for the six months ended June 30, 2010 and 2009, respectively, and $488,000 and $480,000 for the years ended December 31, 2009 and 2008, respectively.

 

An affiliate of Shelter GP charged Shelter for reimbursement of accountable administrative expenses amounting to approximately $135,000 and $309,000 for the six months ended June 30, 2010 and 2009, respectively, and $416,000 and $856,000 for the years ended December 31, 2009 and 2008, respectively. These reimbursements

were primarily for expenses related to construction management services provided by an affiliate of Shelter GP. At June 30, 2010, the partnership owed approximately $643,000 for accountable administrative expenses.

 

Aimco OP loaned Shelter approximately $250,000 and $1,230,000 during the six months ended June 30, 2010 and 2009, respectively, and approximately $2,055,000 and $4,876,000 for the years ended December 31, 2009 and 2008, respectively, to fund capital improvements, including the redevelopment during 2008, and operations at the property. The interest rates on outstanding loans at June 30, 2010 ranged from 5.25% to 9.60%. Interest expense was approximately $645,000 and $612,000 for the six months ended June 30, 2010 and 2009, respectively, and $1,245,000 and $1,335,000 for the years ended December 31, 2009 and 2008, respectively. Shelter repaid approximately $290,000 and $339,000 for the six months ended June 30, 2010 and 2009, respectively, and $560,000 for the year ended December 31, 2009, of loans and accrued interest. Shelter made no such payments during the year ended December 31, 2008. At June 30, 2010, the total loans and accrued interest due to Aimco OP was approximately $25,042,000. Subsequent to June 30, 2010, Shelter repaid approximately $250,000 of accrued interest, which is reflected in the calculation of value to the limited partners of Shelter included in this information statement/prospectus. For more information on Aimco OP, including copies of its audited balance sheet, please see its reports filed with the SEC.

 

Shelter 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. Shelter insures its property above the Aimco limits through insurance policies obtained by Aimco from insurers unaffiliated with Shelter GP or Aimco. During the six months ended June 30, 2010, Shelter was charged by Aimco and its affiliates approximately $233,000 for insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by Shelter during 2010 as other insurance policies renew later in the year. Shelter was charged by Aimco and its affiliates approximately $225,000 and $235,000 for insurance coverage and fees associated with policy claims administration during the years ended December 31, 2009 and 2008, respectively.

 

In addition to its indirect ownership of the general partner interest and beneficial ownership of the individual general partner interest in Shelter, Aimco and its affiliates own 36,650 Limited Partnership Units representing 73.31% of the outstanding Limited Partnership Units. A number of these Limited Partnership Units were acquired pursuant to tender offers made by Aimco or its affiliates. Pursuant to the Shelter partnership agreement, limited partners holding a majority of the Limited Partnership Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Shelter partnership agreement and voting to remove Shelter GP. As a result of its ownership of 73.31% of the outstanding Limited Partnership Units, Aimco and its affiliates are in a position to control all such voting decisions with respect to Shelter. Although Shelter GP owes fiduciary duties to the limited partners of Shelter, Shelter GP also owes fiduciary duties to Aimco as its sole stockholder. As a result, the duties of Shelter GP, as corporate general partner, to Shelter and its limited partners may come into conflict with the duties of Shelter GP to Aimco as its sole stockholder.

 

Shelter does not have any 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 Shelter GP, as of October 20, 2010, are set forth in Annex C 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. None of the directors or officers of Shelter GP received remuneration from Shelter during the year ended December 31, 2009 or during the six months ended June 30, 2010.

 

The board of directors of Shelter GP does not have a separate audit committee. As such, the board of directors of Shelter GP 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 Shelter GP, which have authority over Shelter GP and, indirectly, Shelter, 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.

 

Shelter GP and an individual who has executed a power of attorney in favor of Aimco OP for the control of his individual general partner interest in Shelter are the general partners of Shelter. Together they own 1% of the total interest in Shelter, with Shelter GP holding 0.6% and the individual general partner holding 0.4%. Shelter has no directors or executive officers of its own. Shelter GP is a South Carolina corporation, which is indirectly owned by Aimco. None of Shelter GP or any of the directors or executive officers of Shelter GP, owns any of the limited partnership interests of Shelter. The following tables sets forth certain information as of October 20, 2010 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 units of limited partnership interest of Shelter.

 

 

 

 

 

For additional information about Shelter and its property and operating data related to its property, see Shelter’s Annual Report on Form 10-K for the year ended December 31, 2009, attached hereto as Annex D and Shelter’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, attached hereto as Annex E.

 

On March 10, 2010, Mr. Terry Considine, Chairman and Chief Executive Officer of Aimco, and Mr. Derek McCandless, Senior Vice President, Assistant General Counsel and Assistant Secretary of Aimco and Shelter GP met to discuss strategic alternatives for Shelter. During this meeting, they considered the costs of maintaining Shelter’s current ownership structure, including audit, tax and SEC filing costs, given Aimco OP’s ownership of 73.31% of the Limited Partnership Units and the sizeable outstanding debt owed to Aimco OP. Messrs. Considine and McCandless noted that Shelter owed approximately $25,018,000 to Aimco OP, as of December 31, 2009, and that Shelter had recognized a loss during each of the years ending December 31, 2009, 2008 and 2007. In light of the amounts already then owed to Aimco OP and Shelter’s ongoing losses, Messrs. Considine and McCandless concluded that additional loans from Aimco OP would be unlikely.

 

Also during this meeting, Messrs. Considine and McCandless noted that the indebtedness secured by a mortgage on the property matures in September of 2012, at which time a balloon payment of approximately $35,445,000 is due, and that, as a result, Shelter would either need to refinance this indebtedness or sell the property in advance of the maturity date. Messrs. Considine and McCandless agreed that while a refinancing could potentially repay the outstanding mortgage debt owed by Shelter, it would repay little, if any, of the outstanding loans made to Shelter by Aimco OP. After considering all of these factors, Messrs Considine and McCandless agreed to explore the possibility of Aimco OP acquiring the property through a transaction that would provide the unaffiliated limited partners with the opportunity to defer tax gain through an exchange of Shelter Limited Partnership Units for Aimco OP units.

 

During March and April of 2010, Mr. McCandless sought advice from outside legal and tax counsel to determine whether a transaction would be feasible that would result in Aimco OP’s ownership of the property while also providing potential tax deferral to limited partners that are unaffiliated with Aimco OP. At the same time, he spoke with appraisers regarding the possibility of appraising the property for purposes of evaluating a potential transaction with Aimco OP. Shelter GP engaged CRA on April 13, 2010 to appraise the property.

 

CRA delivered the appraisal on June 3, 2010, pursuant to which it valued the property at $56.6 million. Over the following weeks, Mr. John Bezzant, Senior Vice President — Transactions of Aimco and a Director and Senior Vice President of Shelter GP, and Mr. Nikhil Venkatesh, Vice President — Portfolio Strategy of Aimco and Vice President of Shelter GP, reviewed the appraisal report and discussed both CRA’s assumptions and its valuation of the property, and determined that the CRA’s assumptions were reasonable and the valuation appropriate. As part of their review, they considered the fiduciary duties owed by Shelter GP to unaffiliated limited partners, as well as the property’s appraised worth, the amount of indebtedness secured by the property, which at June 30, 2010 was approximately $37.6 million, and other indebtedness of Shelter, which at June 30, 2010 was approximately $25.7 million.

 

Due to the value of the property relative to its debt, Messrs Bezzant and McCandless agreed that the property would likely not be sold at a price sufficient to satisfy the remaining liabilities of Shelter in advance of the maturity date of the loan encumbering the property. As a result, none of the sale proceeds would be available for distribution to Shelter’s limited partners. The two also concluded that neither refinancing the mortgage indebtedness on the property nor obtaining additional debt financing from independent third party sources was likely to repay the current mortgage debt and the loans from Aimco OP.

 

On October 8, 2010, the board of directors of Shelter GP considered the proposed merger. The board decided to approve and effect a transaction with Aimco OP that would give Aimco OP ownership of Shelter and, indirectly, its property. The board of directors also decided to approve an amendment to the partnership agreement pursuant to which a majority of the Limited Partnership Units, rather than all limited partners, would be required to approve the merger. Shelter GP and the Aimco Entities considered a number of possible alternatives to the proposed merger with the Aimco Subsidiary, as described in greater detail below. However, Shelter GP and the Aimco Entities ultimately determined that the proposed merger with the Aimco Subsidiary is in the best interests of Shelter and its unaffiliated limited partners.

 

Amendment of Partnership Agreement

 

Prior to entering into the proposed merger agreement, Shelter’s partnership agreement will be amended to provide that a majority in interest of the Limited Partnership Units may approve business combination transactions involving Shelter, including the merger contemplated by the proposed merger agreement. The proposed amendment to Shelter’s partnership agreement is included in this information statement/prospectus as Annex F.

 

In the merger, each Limited Partnership Unit outstanding immediately prior to consummation of the merger will be converted into the right to receive, at the election of the holder of such Limited Partnership Unit, either $4.50 in cash or equivalent value in Aimco OP Units, except in those jurisdictions where the law prohibits the offer of OP Units in this transaction (or registration would be prohibitively costly). Because Aimco indirectly owns Shelter GP, the merger consideration has not been determined in an arm’s-length negotiation. In order to arrive at a fair consideration, CRA, an independent real estate appraisal firm, was engaged to perform a complete appraisal of the property. For more detailed information about the independent appraiser’s determination of the estimated values of the property, see “The Merger — The Appraisal.”

 

Using CRA’s appraised value of $56.6 million for the property, Shelter GP calculated the value of the equity of Shelter by adding the property’s appraised value to the value of the non-real estate assets of Shelter and deducting Shelter’s liabilities and certain other costs, including an estimate for expenses that would be incurred prior to the merger but payable after the merger. Because the liabilities attributable to Shelter and the property (including mortgage debt and amounts owed to affiliates of Shelter GP) exceed the appraised value of the property and the value of other partnership assets, Shelter GP determined that Shelter had an equity value of zero. Thus, if the property was sold at its appraised value and Shelter was dissolved and wound-up in accordance with applicable law and its partnership agreement, all net proceeds would be distributed in satisfaction of Shelter’s liabilities and none would be available for distribution to limited partners. Nevertheless, Aimco and Shelter GP determined that unaffiliated limited partners would receive an aggregate of $60,000 in the merger. This amount was deemed sufficient to make the merger consideration to unaffiliated limited partners a non-trivial amount and facilitate their ability to exchange their Limited Partnership Units for OP Units. However, it was not so large that it would make the transaction economically undesirable for Aimco OP. In order to determine the per unit merger consideration, Shelter GP divided this amount by the number of outstanding Limited Partnership Units held by limited partners unaffiliated with Aimco OP. This calculation, which is summarized below, resulted in per unit cash merger consideration of $4.50.

 

 

 

 

The number of OP Units issuable with respect to each Limited Partnership Unit will be calculated by dividing the $4.50 per unit cash merger consideration by the average closing price of Aimco common stock, as reported on the NYSE over the ten consecutive trading days ending on the second trading day immediately prior to the consummation of the merger. Although there is no public market for OP Units, after a one year holding period, each OP Unit is generally redeemable for cash in an amount equal to the value of a share of Aimco common stock at the time, subject to Aimco’s right to acquire the OP Unit in exchange for one share of Aimco common stock (subject to antidilution adjustments). Therefore, the trading price of Aimco common stock is considered a reasonable estimate of the fair market value of an OP Unit. As of October 26, 2010, the average closing price of Aimco common stock over the preceding ten consecutive trading days was $23.08, which would have resulted in OP Unit consideration of 0.19 OP Units per Limited Partnership Unit.

 

Shelter GP holds the corporate general partnership interests in Shelter. It is wholly-owned by AIMCO/IPT, Inc., which in turn is wholly-owned by Aimco. Therefore, Shelter GP has a conflict of interest with respect to the merger. Shelter GP has fiduciary duties to AIMCO/IPT, Inc., Shelter GP’s sole stockholder and an affiliate of Aimco, on the one hand, and to Shelter and its limited partners, on the other hand. The duties of Shelter GP to Shelter and its limited partners conflict with the duties of Shelter GP to AIMCO/IPT, Inc., which could result in Shelter GP approving a transaction that is more favorable to Aimco than might be the case absent such conflict of interest. As the corporate general partner of Shelter, Shelter GP seeks the best possible terms for Shelter’s limited partners. This conflicts with Aimco’s interest in obtaining the best possible terms for Aimco OP.

 

Parties to going private transactions such as the proposed merger are often subject to claims alleging that the transaction is unfair to unaffiliated security holders. Litigation in these situations can arise even if the transaction is ultimately found to be fair to the unaffiliated security holders. In order to attempt to reduce the probability of any such claims, and the related costs of defending against any such claims, Aimco OP has decided to offer unaffiliated limited partners, in addition to the merger consideration, a payment of $3.75 per Limited Partnership Unit in exchange for executing a waiver and release of potential claims the limited partner may have against the Releasees (as defined below). The amount of $3.75 per unit was determined by dividing $50,000 by the number of outstanding Limited Partnership Units held by unaffiliated limited partners. This $50,000 amount represents Aimco OP’s estimate of the value of such a release in potentially reducing its costs to defend against such claims. Unaffiliated limited partners may elect to receive the additional consideration by completing the election form, executing the waiver and release that is attached to the election form as an exhibit and returning the election form and the executed waiver and release in accordance with the instructions provided. In executing the waiver and release, the limited partner, on behalf of himself, his heirs, estate, executor, administrator, successors and assigns, will release Aimco OP and its predecessors, successors and assigns and its present and former parents, subsidiaries, affiliates, investors, insurers, reinsurers, officers, directors, employees, agents, administrators, auditors, attorneys, accountants, information and solicitation agents, investment bankers, and other representatives, including but not limited to Aimco, Shelter GP and Aimco OP (collectively, the “Releasees”), from any and all claims and causes of action, whether brought individually, on behalf of a class, or derivatively, demands, rights, or liabilities, including, but not limited to, claims for negligence, gross negligence, fraud, breach of fiduciary duty (including, but not limited to, duties of care, loyalty or candor), mismanagement, corporate waste, misrepresentation, whether intentional or negligent, misstatements and omissions to disclose, breach of contract, violations of any state or federal statutes, rules or regulations, whether known claims or unknown claims, whether past claims, present claims or future claims through and including the date of the consummation of the merger, including, but not limited to, those claims that have arisen or arise, directly or indirectly, out of or relate, directly or indirectly, to (a) the merger agreement and the transactions contemplated thereby (excluding only such unaffiliated limited partner’s rights, if any, under the merger agreement), (b) any other circumstance, agreement, activity, action, omission, event or matter occurring or existing on or prior to the date of the consummation of the merger, (c) the ownership of any limited partnership interest in Shelter, including but not limited to, any and all claims related to the management of Shelter or the property owned by Shelter (whether currently or previously), the payment of management fees or other monies to

Shelter GP and to affiliates of Shelter and prior sales of property, or (d) the purchase, acquisition, holding, sale or voting of one or more limited partnership interests in Shelter (collectively, the “Released Claims”).

 

The waiver and release do not apply to claims limited partners may have under the federal securities laws.

 

Each unaffiliated limited partner who elects to execute the waiver and release and to receive the additional cash payment will expressly waive and relinquish, to the fullest extent permitted by law and consistent with the release, the provisions, rights and benefits of Section 1542 of the Civil Code of California, or Section 1542, which provides:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

 

Each unaffiliated limited partner who elects to execute the waiver and release and to receive the additional cash payment will waive any and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or principle of common law, that is similar, comparable or equivalent to Section 1542. Each unaffiliated limited partner who elects to execute the waiver and release and to receive the additional cash payment will acknowledge and agree that he may later discover facts in addition to or different from those which he or she now knows or believes to be true with respect to the subject matter of the released claims, but such unaffiliated limited partner will be deemed to have fully, finally and forever settled and released any and all released claims, known or unknown, suspected or unsuspected, contingent or non-contingent, that now exist or may arise in the future through and including the date of the consummation of the merger under any theory of law or equity now existing, including, but not limited to, conduct that is negligent, intentional, with malice, or a breach of any duty, law or rule, without regard to the subsequent discovery of the existence of such different or additional facts.

 

Each unaffiliated limited partner who elects to execute the waiver and release and to receive the additional cash payment will agree that the release is intended to include the Released Claims discussed above, which such unaffiliated limited partner may have and which such unaffiliated limited partner does not know or suspect to exist in its favor against the Releasees and that the release extinguishes those claims. Each unaffiliated limited partner who elects to execute the waiver and release and to receive the additional cash payment will represent and warrant to the Releasees that such unaffiliated limited partner has not assigned or otherwise transferred or subrogated any interest in the Released Claims.

 

After the merger, Aimco OP will be the sole limited partner in Shelter, and will own all of the outstanding Limited Partnership Units. Shelter GP will continue to be the corporate general partner of Shelter after the merger, and Shelter’s partnership agreement in effect immediately prior to the merger will remain unchanged after the merger. Aimco OP intends to retain the Limited Partnership Units after the merger. Following completion of the merger, the Limited Partnership Units will be deregistered under the Exchange Act and Shelter’s obligation to file reports under Section 15(d) of the Exchange Act will be suspended.

 

After the merger, Aimco will evaluate the capital improvement needs of the property. Aimco anticipates owning and operating the property following the merger with a view towards eventually recouping amounts loaned to Shelter by Aimco OP. Aimco also anticipates making certain routine capital expenditures with respect to the property during the remainder of 2010.

 

For a discussion of the material United States federal income tax consequences of the merger, see “Material United States Federal Income Tax Matters — United States Federal Income Tax Consequences Relating to the Merger.”

 

No material federal or state regulatory requirements must be satisfied or approvals obtained in connection with the merger, except (1) filing a registration statement that includes this information statement/prospectus with the SEC and obtaining the 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 a certificate of merger with the Secretary of State of the State of South Carolina.

 

Aimco and Aimco OP will treat the merger as a purchase of noncontrolling interests for financial accounting purposes. This means that Aimco and the 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 Shelter’s partnership agreement in connection with the merger. However, pursuant to the terms of the proposed 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 South Carolina law. These contractual appraisal rights will enable a limited partner to obtain an appraisal of the value of the limited partner’s Limited Partnership Units in connection with the proposed merger. Prosecution of these contractual appraisal rights will involve an arbitration proceeding, and the consideration paid to a limited partner after the prosecution of such contractual appraisal rights, which will take a period of time that cannot be predicted with accuracy, will be a cash payment, resulting in a taxable event to such limited partner. A description of the appraisal rights being provided, and the procedures that a limited partner must follow to seek such rights, is attached to this information statement/prospectus as Annex B.

 

The costs of planning and implementing the merger, including the cash merger consideration and the preparation of this information statement/prospectus, will be borne by Aimco OP without regard to whether the merger is effectuated. The estimated amount of these costs is approximately $472,260 (assuming all limited partners elect to receive the cash merger consideration and all limited partners unaffiliated with Aimco OP elect to receive an additional cash payment in exchange for executing a waiver and release). Aimco OP is paying for the costs of the merger with funds on hand or from drawings under its revolving credit facility. The revolving credit facility is pursuant to Aimco 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 2.00% 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 an additional year, subject to certain conditions.

 

Shelter GP has determined that the proposed merger is advisable and in the best interests of Shelter and its limited partners and has approved the proposed merger and proposed merger agreement. Shelter’s partnership agreement is currently silent as to the approval required for the proposed merger and therefore, under South Carolina law, would require the approval of the proposed merger by all limited partners. However, pursuant to South Carolina law and the terms of the partnership agreement, the partnership agreement may be amended by the holders of a majority of the Limited Partnership Units. In light the substantial cost and burdens likely associated with obtaining approval from each limited partner and consistent with the corporate general partner’s determination that the proposed merger is advisable and in the best interest of Shelter and its limited partners, the holders of a majority

of the Limited Partnership Units intend to amend the partnership agreement to provide that the approval by the holders of a majority of the Limited Partnership Units, rather than all limited partners, is required to approve business combination transactions, including the proposed merger. Immediately subsequent to such amendment, the holders of a majority of the Limited Partnership Units intend to approve the proposed merger agreement and merger.

 

As of October 20, 2010, there were issued and outstanding 49,995 Limited Partnership Units, and Aimco OP and its affiliates owned 36,650 of those units, or approximately 73.31% of the Limited Partnership Units outstanding. Aimco OP and its affiliates have indicated that they intend to take action by written consent, as permitted under the partnership agreement, to approve the amendment and subsequently, the proposed merger, on or about [ • ], 2010. As a result, approval of the merger is assured, and your consent to the merger is not required. Aimco OP has approved the proposed merger on behalf of the Aimco Subsidiary.

 

The following is a summary of the material terms of the proposed merger agreement and is qualified in its entirety by reference to the proposed merger agreement, which is attached to this information statement/prospectus as Annex A. You should read the proposed merger agreement carefully in its entirety as it is the legal document that governs this merger.

 

Following the amendment of its partnership agreement, Shelter plans to enter into an agreement and plan of merger with the Aimco Subsidiary and Aimco OP. The Aimco Subsidiary is a wholly owned subsidiary of Aimco OP, and was formed for the purpose of effecting the merger with Shelter. Aimco owns Shelter’s corporate general partner, Shelter GP, and, together with its affiliates, owns a majority of Shelter’s outstanding Limited Partnership Units.

 

Under the proposed merger agreement, at the effective time of the merger, the Aimco Subsidiary will be merged with and into Shelter, with Shelter as the surviving entity. In the merger, each Limited Partnership Unit of Shelter outstanding immediately prior to consummation of the merger will be converted into the right to receive, at the election of the holder of such Limited Partnership Unit, either $4.50 in cash or equivalent value in Aimco OP Units (calculated by dividing $4.50 by the average closing price of Aimco common stock, as reported on the NYSE, over the ten consecutive trading days ending on the second trading day immediately prior to the consummation of the merger); provided, however, that if Shelter GP determines that the law of the state or other jurisdiction in which a limited partner resides would prohibit the issuance of Aimco OP Units in that state or other jurisdiction, then such limited partner will only be entitled to receive $4.50 in cash for each Limited Partnership Unit. Aimco OP’s interest in the Aimco Subsidiary will be converted into Shelter limited partnership units. As a result, after the merger, Aimco OP will be the sole limited partner of Shelter and will own all of the outstanding Limited Partnership Units.

 

The agreement of limited partnership of Shelter as in effect immediately prior to the consummation of the merger will be the agreement of limited partnership of Shelter after the merger, until thereafter amended in accordance with the provisions thereof and applicable law.

 

Shelter.  Under the proposed merger agreement, each Limited Partnership Unit of Shelter outstanding immediately prior to consummation of the merger will be converted into the right to receive, at the election of the holder of such Limited Partnership Unit, either $4.50 in cash or equivalent value in Aimco OP Units (calculated by dividing $4.50 by the average closing price of Aimco common stock, as reported on the NYSE, over the ten consecutive trading days ending on the second trading day immediately prior to the consummation of the merger), except in those jurisdictions where the law prohibits the issuance of Aimco OP Units (or registration would be prohibitively costly). Shelter GP will continue to be the corporate general partner of Shelter after the proposed merger, and its current general partner interest will remain unchanged after the merger.

 

Aimco Subsidiary.  All membership interests in the Aimco Subsidiary immediately prior to the effective time of the proposed merger will be converted into Limited Partnership Units of Shelter after the merger.

 

None of the parties to the proposed merger agreement are required to consummate the proposed merger if any third party consent, authorization or approval that any of the parties deems necessary or desirable in connection with the proposed merger agreement, and the consummation of the transactions contemplated thereby, has not been obtained or received.

 

The proposed merger agreement may be terminated and the proposed merger may be abandoned at any time prior to consummation of the merger, without liability to any party to the proposed merger agreement, by Shelter, 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 Shelter 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 merger 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 South Carolina, without reference to the conflict of law provisions thereof.

 

Limited partners are not entitled to dissenters’ appraisal rights under applicable law or Shelter’s partnership agreement in connection with the merger. 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 South Carolina law. These contractual appraisal rights will enable a limited partner to obtain an appraisal of the value of the limited partner’s Limited Partnership Units in connection with the merger. Prosecution of these contractual appraisal rights will involve an arbitration proceeding, and the consideration paid to a limited partner after the prosecution of such contractual appraisal rights, which will take a period of time that cannot be predicted with accuracy, will be a cash payment, resulting in a taxable event to such limited partner. A description of the appraisal rights being provided, and the procedures that a limited partner must follow to seek such rights, is attached to this information statement/prospectus as Annex B.

 

Within 10 days after the effective time of the merger, Aimco OP will prepare and mail to the former holders of Limited Partnership Units an election form with which they can elect to receive cash or OP Units. Limited partners may also elect appraisal of their Limited Partnership Units pursuant to the election form. Holders of Limited Partnership 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 merger, the holder will be deemed to have elected to receive the cash consideration. Former holders of Limited Partnership Units may also use the election form to elect to receive, in lieu of the merger consideration, the appraised value of their Limited Partnership Units, determined through an arbitration proceeding.

 

In addition, limited partners who are not affiliated with Aimco OP may elect to receive an additional cash payment of $3.75 per Limited Partnership Unit in exchange for executing a waiver and release of certain claims. In order to receive this additional consideration, limited partners must complete the election form, execute the waiver and release that is attached to the election form as an exhibit and return both the election form and the executed waiver and release to the information agent as described above.

 

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) to conduct the business of ownership, construction, development and operation of multifamily rental apartment communities, (ii) to enter 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) to conduct 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) to do 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 Aimco OP interest of the general partner, 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.

 

As of June 30, 2010, 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 Code and the applicable Treasury Regulations and (ii) avoid any United States 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 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 United States Federal income tax purposes under the 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 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 Code or the 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 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 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 United States 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 United States Federal and state income tax purposes and will use all reasonable effort to furnish, within 90 days of the close of each taxable year, the tax information reasonably required by limited partners for United States 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 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; (ii) 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 422,157,736 shares of common stock. As of October 20, 2010, 117,033,718 shares were issued and outstanding. The Aimco common stock is traded on the NYSE under the symbol “AIV.” Computershare Limited serves as transfer agent and registrar of the Aimco common stock. On October 20, 2010, the closing price of the Aimco common stock on the NYSE was $23.27. 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.