<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997 Commission file number 0-13693
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
----------------
(Exact name of registrant as specified in charter)
Massachusetts 13-6850434
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 Paces Mill Road, Suite A-200, Atlanta, GA 30339
- ---------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 984-9500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
Shares of Beneficial Interest outstanding at October 10, 1997: 1,080,512
<PAGE>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
INDEX OF FINANCIAL INFORMATION
------------------------------
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
- ------ --------------------
Consolidated Balance Sheets at September 30, 1997 (unaudited)
and December 31, 1996 3
Consolidated Statements of Operations (unaudited) for the
three and nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Shareholders' Equity for the
year ended December 31, 1996 and the nine months
ended September 30, 1997 (unaudited) 5
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II OTHER INFORMATION/SIGNATURE
Item 6 Exhibits and Reports on Form 8-K 17
Signature 18
<PAGE>
<TABLE>
<CAPTION>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
-----------
September 30, December 31,
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
- ------
Real estate assets:
Land ................................................. $ 1,470,500 $ 1,470,500
Buildings and improvements ........................... 9,302,060 9,218,263
Furniture, fixtures & equipment ...................... 808,036 783,691
Less: accumulated depreciation .................... (930,713) (613,918)
------------ ------------
Net real estate assets .......................... 10,649,883 10,858,536
Cash and cash equivalents ................................ 194,971 171,736
Cash escrows ............................................. 256,053 192,611
Receivables and other assets ............................. 106,542 86,002
Deferred financing costs, less accumulated amortization
of $46,733 and $19,502 at September 30, 1997
and December 31, 1996, respectively .................. 177,694 204,925
Deferred leasing costs, less accumulated amortization of
$35,514 and $28,470 at September 30, 1997 and
December 31, 1996, respectively ...................... 32,649 5,659
------------ ------------
Total Assets ............................................. $ 11,417,792 $ 11,519,469
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage note payable .................................... $ 7,333,112 $ 7,371,676
Line of credit ........................................... 1,568,104 1,568,104
Accounts payable and accrued liabilities ................. 413,724 347,141
------------ ------------
Total Liabilities ................................. 9,314,940 9,286,921
------------ ------------
Contingencies (Note 11)
Shareholders' Equity:
Shares of beneficial interest, without par value,
unlimited shares authorized, 1,080,512 and 1,080,528
shares issued and outstanding at September 30, 1997
and December 31, 1996, respectively ................ 18,731,682 18,731,763
Cumulative earnings .................................. 37,749,699 37,879,314
Cumulative distributions ............................. (54,378,529) (54,378,529)
------------ ------------
Total Shareholders' Equity ........................ 2,102,852 2,232,548
------------ ------------
Total Liabilities and Shareholders' Equity ............... $ 11,417,792 $ 11,519,469
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
-----------
For the three months For the nine months
ended September 30, ended September 30,
-------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES
Rental revenues ........................... $ 613,118 $ 583,776 $ 1,765,491 $ 896,256
Other property revenues ................... 21,679 29,135 64,751 46,277
Interest income ........................... 939 399 1,903 92,302
Other income .............................. -- -- -- 141,229
----------- ----------- ----------- -----------
635,736 613,310 1,832,145 1,176,064
----------- ----------- ----------- -----------
EXPENSES
Property operating and maintenance ........ 247,440 230,857 759,954 332,403
Depreciation and amortization ............. 108,436 100,945 323,839 141,845
Amortization of deferred financing costs .. 7,726 9,751 27,231 9,751
Interest expense .......................... 200,280 200,945 600,196 208,370
General and administrative ................ 90,479 146,905 250,540 734,547
Investment advisor's fees ................. -- -- -- 333,461
----------- ----------- ----------- -----------
654,361 689,403 1,961,760 1,760,377
----------- ----------- ----------- -----------
Loss before loss on real estate
investments ............................ (18,625) (76,093) (129,615) (584,313)
----------- ----------- ----------- -----------
LOSS ON REAL ESTATE INVESTMENTS
Loss on real estate investments ........... -- -- -- (26,800)
----------- ----------- ----------- -----------
Net Loss .................................. $ (18,625) $ (76,093) $ (129,615) $ (611,113)
=========== =========== =========== ===========
EARNINGS PER SHARE
Loss before loss on real estate investments $ (0.02) $ (0.07) $ (0.12) $ (0.54)
Loss on real estate investments ........... -- -- -- (0.03)
----------- ----------- ----------- -----------
Net loss .................................. $ (0.02) $ (0.07) $ (0.12) $ (0.57)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ............ 1,080,513 1,080,580 1,080,516 1,080,610
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the year ended December 31, 1996 and the
nine months ended September 30, 1997
(unaudited)
-----------
Shares of Total
beneficial Cummulative Cummulative shareholders'
interest earnings distributions equity
------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ........... $ 36,973,249 $ 38,689,392 $(54,378,529) $ 21,284,112
Net Loss ............................... -- (810,078) -- (810,078)
Retirement of Shares ................... (536) -- -- (536)
Distributions to shareholders
($16.88 per share return of capital
for federal income tax purposes) .. (18,240,950) -- -- (18,240,950)
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 ........... 18,731,763 37,879,314 (54,378,529) 2,232,548
Net Loss ............................... -- (129,615) -- (129,615)
Retirement of Shares ................... (81) -- -- (81)
------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1997 .......... $ 18,731,682 $ 37,749,699 $(54,378,529) $ 2,102,852
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the nine months
ended September 30,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ................................................. $ (129,615) $ (611,113)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization .................... 323,839 141,845
Amortization of deferred financing costs ......... 27,231 9,751
Loss on real estate investments .................. -- 26,800
Changes in assets and liabilities:
Cash escrows ................................... (63,442) (268,236)
Receivables and other assets ................... (20,540) 122,978
Capitalized leasing costs ...................... (34,034) (5,639)
Accounts payable, accrued liabilities and ...... 66,583 (177,003)
due to affiliate ............................. -- --
Total adjustments ................................ 299,637 (149,504)
------------ ------------
Net cash provided by (used in) operating activities ...... 170,022 (760,617)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of The Thicket Apartments ....................... -- (8,660,900)
The Thicket capital expenditures ......................... (82,250) (5,347)
Peachtree capital expenditures ........................... (25,892) (9,077)
Sales proceeds from real estate investments .............. -- 673,200
------------ ------------
Net cash used in investing activities .................... (108,142) (8,002,124)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from mortgage note payable and line of credit -- 8,960,104
Deferred financing costs ................................. -- (224,426)
Principal repayments on mortgage payable ................. (38,564) (8,039)
Purchase of retired shares ............................... (81) (465)
Distributions to shareholders ............................ -- (18,240,950)
------------ ------------
Net cash used in financing activities .................... (38,645) (9,513,776)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..... 23,235 (18,276,517)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......... 171,736 18,470,031
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 194,971 $ 193,514
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(unaudited)
-----------
NOTE 1 - FORMATION AND ORGANIZATION
Vinings Investment Properties Trust ("Vinings" or the "Trust") was
organized on December 7, 1984 under the laws of the Commonwealth of
Massachusetts as a twenty-year finite-life real estate investment trust
("REIT") under the Internal Revenue Code of 1986. Vinings was
originally organized for the purpose of making real estate investments
consisting primarily of mortgage loans and was to liquidate at the end
of approximately ten years in accordance with its Declaration of Trust,
provided, however, that the Trustees would have the absolute discretion
to determine in good faith such termination date as would be in the
best interests of the shareholders. On January 3, 1996, the final asset
to be liquidated was sold and final liquidating dividends were
declared.
On January 31, 1996, Vinings Investment Properties, Inc. ("the
Purchaser") commenced a tender offer for a minimum of a majority and a
maximum of 85% of the issued and outstanding shares of beneficial
interest, without par value, of the Trust (the "Shares") at a purchase
price of $0.47 per share ($3.76 per share adjusted for the Share Split,
as hereinafter defined) (the "Tender Offer"). The Tender Offer expired
in accordance with its terms on February 28, 1996, and, in connection
therewith, the Purchaser accepted an aggregate of 6,337,279 Shares
(792,159 Shares adjusted for the Share Split, as hereinafter defined),
representing approximately 73.3% of the outstanding Shares, for a total
acquisition price of $2,978,521. The remaining assets of Vinings were
Peachtree Business Center and approximately $163,000 in cash. The
purpose of the Tender Offer was for the Purchaser to acquire control of
Vinings and to rebuild the Trust's assets by expanding into the
multifamily property markets. In connection with the consummation of
the Tender Offer, all of the Trustees and officers of the Trust
resigned and were replaced with designees of the Purchaser. The name of
the Trust was changed from Mellon Participating Mortgage Trust,
Commercial Properties Series 85/10 to Vinings. In addition, prior to
the Tender Offer, the Trust was an externally advised REIT for which it
paid advisory fees to an unrelated third party (the "Advisor"). Upon
consummation of the Tender Offer, the relationship with the Advisor was
terminated and Vinings became self-administered.
On June 11, 1996, Vinings Investment Properties, L.P. (the "Operating
Partnership"), a Delaware limited partnership, was organized. Vinings
is the sole general partner and a 98% limited partner in the Operating
Partnership. Through its ownership of Vinings Holdings, Inc., a
Delaware corporation and wholly-owned subsidiary of the Trust, which is
also a limited partner in the Operating Partnership, Vinings was a 100%
economic owner of the Operating Partnership at September 30, 1997.
(This structure is commonly referred to as an umbrella partnership REIT
or "UPREIT.")
Vinings currently owns The Thicket Apartments ("Thicket"), a 254-unit
apartment complex located in Atlanta, Georgia, through Thicket
Apartments, L.P., a Delaware limited partnership, of which the
Operating Partnership is a 99% limited partner and Thicket Holdings,
Inc., a Delaware corporation and wholly-owned subsidiary of Vinings, is
the sole general partner. Vinings also owns Peachtree Business Center
("Peachtree"), an approximately 75,000 square foot, single-story
business park located in Atlanta, Georgia, through its wholly-owned
subsidiary, PBC Acquisition, Inc.
<PAGE>
On July 1, 1996, Vinings effected a 1-for-8 reverse share split
(the "Share Split") of its 8,645,000 outstanding Shares. Pursuant to
the Share Split, shareholders who tendered their Shares received one
Share for every eight Shares owned. Vinings has purchased and
continues to purchase any fractional Shares resulting from the Share
Split at a cost of $5.50 per Share. As of September 30, 1997, a total
of 113 fractional Shares had been repurchased and retired leaving
1,080,512 Shares outstanding. All share and per share data included in
the accompanying financial statements and notes thereto have been
restated to reflect the Share Split.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary (consisting only of normal recurring adjustments)
for a fair presentation have been included. Operating results for the
nine month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1997.
The accompanying consolidated financial statements of Vinings
Investment Properties Trust include the consolidated accounts of
Vinings Investment Properties Trust and its subsidiaries. All
significant intercompany balances and transactions have been eliminated
in consolidation. The term "Vinings" or the "Trust" hereinafter refers
to Vinings Investment Properties Trust and its subsidiaries, including
the Operating Partnership.
These financial statements should be read in conjunction with Vinings'
audited consolidated financial statements and footnotes thereto
included in Vinings' Annual Report on Form 10-K for the year ended
December 31, 1996, as amended.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
------------
Vinings has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, Vinings will
generally not be subject to federal income taxation on that portion of
its income that qualifies as REIT taxable income to the extent the REIT
distributes at least 95% of its taxable income to its shareholders and
satisfies certain other requirements. Accordingly, no provision for
federal income taxes has been included in the accompanying consolidated
financial statements.
Cash and Cash Equivalents
-------------------------
Vinings considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Cash Escrows
------------
Cash escrows consist of real estate tax, insurance, replacement reserve
and repair escrows held by the mortgagee. These funds are restricted
accounts and released solely for the purpose for which they were
established.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
<PAGE>
Real Estate Assets
------------------
Real estate assets are stated at depreciated cost. Ordinary repairs and
maintenance are expensed as incurred. Major improvements and
replacements are capitalized and depreciated over their estimated
useful lives when they extend the useful life, increase capacity or
improve efficiency of the related asset. Depreciation is computed on a
straight-line basis over the useful lives of the real estate assets
(buildings and improvements, 5-40 years; furniture, fixtures and
equipment, 5 years; and tenant improvements, generally over the life of
the related lease).
Revenue Recognition
-------------------
All leases are classified as operating leases and rental income is
recognized when earned which materially approximates revenue
recognition on a straight-line basis.
Deferred Financing Costs and Amortization
-----------------------------------------
Deferred financing costs include fees and costs incurred to obtain
financing and are capitalized and amortized over the term of the
related debt.
Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share is computed based on the weighted average
number of shares outstanding during the period. All references in the
accompanying financial statements and notes to the financial statements
to the weighted average number of shares outstanding and to earnings
(loss) per share have been restated to reflect the Share Split.
Recent Accounting Pronouncements
--------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), which supersedes the current authoritative
literature and related interpretations for earnings per share under
Accounting Principles Board Opinion No. 15. SFAS 128 will have no
immediate financial statement impact on Vinings since it currently has
a simple capital structure and earnings per share will continue to be
computed by dividing net income (loss) by the weighted average number
of common shares outstanding during the reporting period. For entities
with complex capital structures, SFAS 128 will require dual
presentation of basic and diluted earnings per share. SFAS 128 becomes
effective for financial statements for both interim and annual periods
ending after December 15, 1997. Earlier application is not permitted.
Vinings will adopt SFAS 128 during its quarter and fiscal year ending
December 31, 1997.
Reclassification
----------------
Certain 1996 financial statement amounts have been reclassified to
conform with the current year presentation.
NOTE 4 - REAL ESTATE ASSETS
The Thicket Apartments
----------------------
On June 28, 1996, Vinings acquired Thicket for a purchase price of
$8,650,000. The acquisition was financed by a mortgage loan on the
property in the amount of $7,392,000 and borrowings from Vinings' line
of credit.
<PAGE>
Peachtree Business Center
-------------------------
The Trust acquired Peachtree through a deed-in-lieu of foreclosure on
April 12, 1990. Peachtree was recorded at $1,700,000, its fair market
value, which was less than the book value of Vinings' mortgage
investment at the date of foreclosure. Subsequent to the acquisition,
approximately $1,087,000 of improvements have been capitalized.
NOTE 5 - REAL ESTATE INVESTMENTS
Hawthorne Note
--------------
On March 30, 1995, Vinings sold Hawthorne Research and Development
Complex for $5,095,000 of which $3,500,000 was paid at closing and the
balance of $1,595,000 was payable pursuant to a non-recourse purchase
money note (the "Hawthorne Note") which was subordinate to first
mortgage liens totaling $10,360,000.
In connection with the liquidation of assets, Vinings entered into an
agreement with the first mortgage lien holder to sell the Hawthorne
Note for $700,000. At December 31, 1995, the Trust established a
valuation allowance of $895,000 to reflect its net realizable value of
$700,000. On January 3, 1996, Vinings closed on the sale of the
Hawthorne Note and recorded commissions and fees for a loss on the sale
of $26,800.
NOTE 6 - NOTES PAYABLE
Mortgage Note Payable
---------------------
At September 30, 1997, Vinings had a 9.04% mortgage note payable in the
original principal amount of $7,392,000, which is secured by Thicket
and which matures on July 1, 2003. Principal and interest are payable
in monthly installments of $59,691. At September 30, 1997, the
outstanding principal balance was $7,333,112. Scheduled maturities of
the mortgage note payable as of September 30, 1997, are as follows:
1997 $ 13,443
1998 56,909
1999 62,272
2000 68,140
2001 74,562
Thereafter 7,057,786
==========
Total $7,333,112
==========
Line of Credit
--------------
Vinings renewed its one year line of credit in the amount of $2,000,000
on June 28, 1997, which bears interest at the bank's base rate which
approximates prime. At September 30, 1997, the interest rate was 8.50%
and the outstanding balance was $1,568,104. Interest is payable monthly
with the entire principal balance due on June 28, 1998. The line of
credit is secured by Peachtree.
NOTE 7 - RELATED PARTY TRANSACTIONS
During 1996, Vinings entered into a management agreement with Vinings
Properties, Inc. for property management services for Thicket for a fee
equal to five percent of gross revenues plus a fee for data processing
which, for the nine months ended September 30, 1997, totaled $69,300
and $11,430, respectively. Vinings Properties, Inc. is an affiliate of
certain officers and trustees of the Trust.
<PAGE>
In addition, as a commitment to the rebuilding of the Trust, The
Vinings Group, Inc., the parent corporation of Vinings Properties, Inc.
(collectively, "The Vinings Group"), has provided numerous services
relating to administration, acquisition, and capital and asset advisory
services at little or no cost to the Trust. Vinings does not anticipate
that these services will continue to be provided free of charge, and
certain costs paid on Vinings' behalf have been reimbursed to The
Vinings Group. Vinings has reimbursed The Vinings Group for investor
relation services for the sole benefit of the Trust which totaled
$33,750 for the nine months ended September 30, 1997. The officers of
the Trust did not receive compensation from the Trust for their
services through the third quarter of 1997.
During 1997, Vinings paid a total of $21,000 to Northshore
Communications, Inc., a company affiliated with one of the Trustees,
for the design and production of Vinings' 1996 annual report.
On April 1, 1997, the Operating Partnership entered into an agreement
with Windrush Partners, Ltd. ("Windrush") to acquire Windrush
Apartments, a 202-unit apartment community in metropolitan Atlanta,
Georgia, for a total acquisition price of $7,555,000. The general
partner of Windrush is an affiliate of the officers and certain
Trustees of Vinings. The transaction is a contribution of property in
exchange for units in the Operating Partnership and is subject to the
approval of the limited partners of Windrush and the assumption of the
existing mortgage loan, which are both in process.
Vinings received limited partner approval for the Windrush transaction
and the assumption of the mortgage note is in the final stages of
approval with the lender. In connection with Vinings' proposed
acquisition of Windrush Apartments, MFI Realty, Inc., an entity
affiliated with the officers and certain trustees of Vinings, will be
paid a financial advisor fee of $75,550 upon the closing of the
acquisition.
NOTE 8 - ADVISORY AGREEMENT
Prior to the consummation of the Tender Offer, Vinings had engaged the
Advisor to provide investment advisory services and act as the
administrator of Trust operations. The agreement with the Advisor,
which was terminated upon consummation of the Tender Offer, provided
for the payment of administrative, asset management and other servicing
fees to the Advisor for services rendered in administering the Trust's
operations. The Advisor earned administrative, asset management,
special services, and mortgage servicing fees aggregating $333,461, for
the nine months ended September 30, 1996.
NOTE 9 - DISTRIBUTIONS
Vinings paid cash dividends of $16,857,750 ($15.60 per share) and
$1,383,200 ($1.28 per share) on February 2, 1996, and March 8, 1996,
respectively. The entire $18,240,950 was a return of capital for
federal income tax purposes.
<PAGE>
NOTE 10 - LEASING ACTIVITY
The following is a schedule of future minimum rents due under operating
leases that have initial or remaining noncancellable lease terms in
excess of one year as of September 30, 1997, at Peachtree:
1997 $ 146,421
1998 583,466
1999 540,930
2000 403,665
2001 318,864
Thereafter 132,860
============
Total $ 2,126,206
============
One tenant generated 59% of Peachtree's revenues for the nine months
ended September 30, 1997. The same tenant accounts for 70% of the
future minimum lease payments. While this tenant's lease does not
expire until May 31, 2002, it contains a 90-day cancellation clause
which management is currently negotiating to extend to one year.
NOTE 11 - CONTINGENCIES
Vinings is, from time to time, subject to various claims that arise in
the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted
with certainty, management believes that the final outcome of such
matters would not have a material adverse effect on the financial
position or results of operations of Vinings.
NOTE 12 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on interest rates and other pertinent information available to
management as of September 30, 1997, Vinings estimates that the
carrying value of cash and cash equivalents, the mortgage note payable,
the line of credit, and other liabilities approximate their fair values
when compared to instruments of similar type, terms and maturity.
Disclosure about fair value of financial instruments is based on
pertinent information available to management as of September 30, 1997.
Although management is not aware of any factors that would
significantly affect its estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of these financial
statements since September 30, 1997.
NOTE 13 - SUBSEQUENT EVENTS
On July 14, 1997, the Operating Partnership entered into an agreement
with Stratford Oaks Partnership, Ltd., a Florida limited partnership,
to acquire Stratford Oaks Apartments ("Stratford"), a 165-unit
apartment community in Sarasota, Florida. On October 30, 1997 Vinings
announced that following its due diligence review it was not in the
best interests of the Trust or its shareholders to go forward with the
Stratford transaction.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
OVERVIEW
Vinings Investment Properties Trust ("Vinings" or the "Trust") was organized on
December 7, 1984 under the laws of the Commonwealth of Massachusetts as a
twenty-year finite-life real estate investment trust ("REIT") under the Internal
Revenue Code of 1986. Vinings was originally organized for the purpose of making
real estate investments consisting primarily of mortgage loans and was to
liquidate at the end of approximately ten years in accordance with its
Declaration of Trust, provided, however, that the Trustees would have the
absolute discretion to determine in good faith such termination date as would be
in the best interests of the shareholders. On January 3, 1996, the final asset
to be liquidated was sold and final liquidating dividends were declared.
On January 31, 1996, Vinings Investment Properties, Inc. ("the Purchaser")
commenced a tender offer for a minimum of a majority and a maximum of 85% of the
issued and outstanding shares of beneficial interest, without par value, of the
Trust (the "Shares") at a purchase price of $0.47 per share ($3.76 per share
adjusted for the Share Split, as hereinafter defined) (the "Tender Offer"). The
Tender Offer expired in accordance with its terms on February 28, 1996, and, in
connection therewith, the Purchaser accepted an aggregate of 6,337,279 Shares
(792,159 Shares adjusted for the Share Split, as hereinafter defined),
representing approximately 73.3% of the outstanding Shares, for a total
acquisition price of $2,978,521. The remaining assets of Vinings were Peachtree
Business Center ("Peachtree") and approximately $163,000 in cash. The purpose of
the Tender Offer was for the Purchaser to acquire control of Vinings and to
rebuild the Trust's assets by expanding into the multifamily property markets.
In connection with the consummation of the Tender Offer, all of the Trustees and
officers of the Trust resigned and were replaced with designees of the
Purchaser. The name of the Trust was changed from Mellon Participating Mortgage
Trust, Commercial Properties Series 85/10 to Vinings. In addition, prior to the
Tender Offer, the Trust was an externally advised REIT for which it paid
advisory fees to an unrelated third party (the "Advisor"). Upon consummation of
the Tender Offer, the relationship with the Advisor was terminated and Vinings
became self-administered.
The purpose of the Tender Offer was for Management to acquire control of Vinings
and to rebuild its assets by expanding into the multifamily real estate markets
through the acquisition of garden style apartment communities which are leased
to middle-income residents. Management believes that these investments will
provide attractive sources of income to Vinings which will not only increase net
income and provide cash available for future distributions, but will increase
the value of the Trust's real estate portfolio as well.
On June 11, 1996, Vinings Investment Properties, L.P. (the "Operating
Partnership"), a Delaware limited partnership, was organized. Vinings is the
sole general partner and a 98% limited partner in the Operating Partnership.
Through its ownership of Vinings Holdings, Inc., a Delaware corporation and
wholly-owned subsidiary of the Trust, which is also a limited partner in the
Operating Partnership, Vinings was a 100% economic owner of the Operating
Partnership at September 30, 1997. (This structure is commonly referred to as an
umbrella partnership REIT or "UPREIT.")
Management believes that conducting its business and operations through the
Operating Partnership will have certain strategic advantages over Vinings'
previous structure, which allowed investment in Vinings only through the
purchase of Shares of the Trust. In particular, the Operating Partnership
structure will provide Vinings with greater flexibility, in certain
circumstances, in facilitating future acquisitions by permitting the issuance of
partnership units on a tax advantaged basis to owners of real estate properties
who contribute such properties to the Operating Partnership. The overall effect
of this structure, Management believes, will be an enhanced ability of Vinings
to access the real estate and capital markets.
<PAGE>
On July 1, 1996, Vinings effected a 1-for-8 reverse share split (the "Share
Split") of its 8,645,000 outstanding Shares. Pursuant to the Share Split,
shareholders who tendered their Shares received one Share for every eight Shares
owned. Vinings has purchased and continues to purchase any fractional Shares at
a cost of $5.50 per Share. As of September 30, 1997, a total of 113 fractional
Shares had been repurchased and retired leaving 1,080,512 Shares outstanding.
As a result of the Tender Offer, much of Management's efforts during 1996 were
focused on Vinings' organizational structure and preparing the Trust
strategically for future acquisitions. The Thicket Apartments ("Thicket"), a
254-unit apartment community in Atlanta, Georgia, was acquired on June 28, 1996.
Currently, Vinings is under contract to acquire a 202-unit community in Atlanta,
Georgia.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying consolidated
financial statements of Vinings and the notes thereto.
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Vinings' actual results could differ materially from those set forth in
the forward-looking statements. Certain factors that might cause such a
difference include the following: the inability of Vinings to identify
properties within existing multifamily property portfolios of entities
affiliated with management which will have a strategic fit with the Trust, the
inability of Vinings to identify unaffiliated properties for acquisition, the
less than satisfactory performance of any property which might be acquired by
the Trust, the inability to access the capital markets in order to fund Vinings'
present growth and expansion strategy, the cyclical nature of the real estate
market generally and locally in Georgia and the surrounding southeastern states,
the national economic climate, the local economic climate in Georgia and the
surrounding southeastern states, and the local real estate conditions and
competition in Georgia and the surrounding southeastern states. There can be no
assurance that, as a result of the foregoing factors, Vinings' growth and
expansion strategy will be successful or that the business and operations of
Vinings will not be adversely affected thereby.
RESULTS OF OPERATIONS
Vinings' net loss for the three months and the nine months ended September 30,
1997 decreased $57,468 and $481,498, respectively from the same periods in 1996.
Total revenues for the three months and nine months ended September 30, 1997
increased $22,426 and $656,081, respectively as compared to the same periods
ended September 30, 1996. Total expenses decreased $35,042 for the three months
and increased $201,383 for the nine months ended September 30, 1997 as compared
to the same periods in the previous year.
Rental and Other property revenues increased $21,886, from $612,911 for the
three months ended September 30,1996 to $634,797 for the same period in 1997,
and $887,709 from $942,533 for the nine months ended September 30, 1996 to
$1,830,242 for the same period in 1997. These increases are due to the income
generated from Thicket which was not in Vinings' portfolio during the first and
second quarters of 1996.
Interest income increased by $540 for the three months ended September 30, 1997
from the same period in 1996. However, for the nine months ended September 30,
1997 interest income decreased $90,399 as compared to 1996 due to the large cash
balances earning interest at the beginning of 1996. Approximately $18.5 million
was held in cash equivalents at January 1, 1996, of which $18.24 million was
paid in dividends during February and March 1996. Cash balances at January 1,
1997 were substantially less.
Other income decreased by $141,229 for the nine months ended September 30, 1997.
This decrease was due to the non-recurring proceeds from the termination of the
receivership for the Hall Street Property received in February 1996.
<PAGE>
Property operating and maintenance expense increased by $16,583 for the three
months ended September 30, 1997 and $427,551 for the nine months ended September
30, 1997 as compared to the same periods in 1996. This increase was directly
attributable to the acquisition of Thicket on June 28, 1996. Property operating
and maintenance expense from Peachtree remained fairly constant.
Depreciation and amortization increased by $7,491 for the three months ended
September 30, 1997 and $181,994 for the nine months ended September 30, 1997 as
compared to the same periods in 1996. This increase is also attributable to the
acquisition of Thicket. Depreciation and amortization from Peachtree remained
fairly constant.
Amortization of deferred financing costs decreased $2,025 for the three months
ended September 30, 1997 as loan costs associated with the line of credit were
fully amortized at June 30, 1997. Deferred financing costs increased $17,480 for
the nine months ended September 30, 1997 which was all related to the financing
of Thicket. Interest expense remained constant for the three months ended
September 30, 1997 as compared to the same period in 1996. However, for the nine
months ended September 30, 1997, interest increased by $391,826 which is all
related to the mortgage payable and the line of credit, both incurred in
connection with the acquisition of Thicket.
General and administrative expense decreased $56,426 for the three months and
$484,007 for the nine months ended September 30, 1997. These expenses include
legal, accounting and other professional fees, directors' and officers'
insurance, shareholder expenses, trustee fees and expenses, annual reporting
costs and other miscellaneous general and administrative expenses. The decrease
from 1996 to 1997 was mostly attributable to the following: a decrease in legal
and professional fees of $39,427 for the three months and $374,808 for the nine
months; an increase in trustee fees and expenses of $6,310 for the three months
and a decrease of $33,298 for the nine months; a decrease in proxy and annual
reporting costs of $15,648 for the three months and $46,163 for the nine months;
a decrease in filing fees and state franchise tax of $4,002 for the three months
and $28,211 for the nine months; and a decrease in directors' & officers'
insurance of $20,777 for the three months and $42,250 for the nine months. These
decreases were offset by increases in travel and abandoned project costs of
$16,891 for the three months and $20,571 for the nine months ended September 30,
1997 and by an increase in shareholder and investor relations expense of $19,062
for the nine months ended September 30, 1997. All of these costs and savings
were a direct result of the Tender Offer occurring in the first quarter of 1996
and the subsequent change in Vinings' focus to the expansion into the
multifamily property markets.
There have been no investment advisor's fees paid during 1997 as compared to
$333,461 for the nine months ended September 30, 1996. During the first quarter
of 1996, the prior Advisor was paid various fees for asset management, asset
liquidation and the successful completion of the Tender Offer. Since the
consummation of the Tender Offer, Vinings has not incurred investment advisor's
fees.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities of Vinings provided net cash of $170,022 for the nine
months ended September 30, 1997 as compared to net cash used in operating
activities of $760,617 for the same period in 1996. This is due to the fact that
Vinings' previous management was in the process of liquidating the Trust's
assets and Peachtree was the only revenue producing asset held during the first
quarter of 1996. In addition, the Tender Offer occurred during the first quarter
of 1996 from which Vinings incurred a number of nonrecurring expenses. With the
acquisition of Thicket on June 28, 1996, Vinings has begun to increase its
operating cash flow, reflecting nine months of operations during 1997 as
compared to three months during 1996.
Vinings used cash in investing activities for the nine months ended September
30, 1997 by incurring $82,250 in capital expenditures with respect to Thicket
and $25,892 with respect to Peachtree as compared to $5,347 in capital
expenditures with respect to Thicket and $9,077 with respect to Peachtree for
the same period in 1996. In addition, for the nine months ended September 30,
1996, $673,200 in sale proceeds was generated from the liquidating sale of the
Hawthorne Note on January 3, 1996 and $8,660,900 was used to purchase Thicket on
June 28, 1996.
<PAGE>
The cash used to purchase Thicket was generated from net proceeds provided by
the Thicket mortgage note payable and line of credit totaling $8,960,104 for the
nine months ended September 30, 1996. These proceeds also provided cash to fund
$224,426 in deferred financing costs for the nine months ended September 30,
1996. Net cash was used in financing activities for the third quarter of 1997 to
make principal repayments of $38,564 on the Thicket mortgage note payable and
was used to retire Shares of the Trust. Distributions to shareholders in the
first quarter of 1996 totaled $18,240,950 as a result of the liquidation of
investments. No distributions to shareholders have been made during the nine
months ended September 30, 1997.
Total net cash increased by $23,235 for the nine months ended September 30, 1997
as compared to net cash used of $18,276,517 for the same period in 1996.
The cash held by Vinings plus the cash flow from Peachtree and Thicket are
expected to provide sources of liquidity to meet Vinings' current operating
obligations. Vinings also has a secured line of credit totaling $2,000,000,
which bears interest at the bank's base rate which approximates prime. At
September 30, 1997 the interest rate was 8.5% and the outstanding balance was
$1,568,104. The remaining balance of $431,896 may be drawn for working capital
needs or for acquisition funding. The line of credit, which was originally due
June 1997, was renewed and now expires on June 28, 1998. In addition, management
intends to seek new capital sources, both public and private, as well as explore
financing alternatives so as to allow Vinings to expand and grow its income
producing investments.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
supersedes the current authoritative literature and related interpretations for
earnings per share under Accounting Principles Board Opinion No. 15. SFAS 128
will have no immediate financial statement impact on Vinings since it currently
has a simple capital structure and earnings per share will continue to be
computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the reporting period. For entities with complex
capital structures, SFAS 128 will require dual presentation of basic and diluted
earnings per share. SFAS 128 becomes effective for financial statements for both
interim and annual periods ending after December 15, 1997. Earlier application
is not permitted. Vinings will adopt SFAS 128 during its quarter and fiscal year
ending December 31, 1997.
IMPACT OF INFLATION
Substantially all of the residential leases at Thicket are for periods of one
year or less which will enable Vinings to seek increased rents upon renewal of
existing leases or upon commencement of new leases. Although there can be no
assurance that rental increases may be obtained, the short term nature of these
leases generally serves to reduce the risk to Vinings of the adverse effects of
inflation.
Substantially all of the tenant leases at Peachtree have remaining terms of five
years or less and contain clauses which require the tenants to pay their
prorated share of operating expenses, including common area maintenance, real
estate taxes, and insurance. This serves to reduce the risk of increased costs
and operating expenses resulting from inflation. In addition, Vinings may seek
increased base rents upon renewal of existing leases or upon commencement of new
leases in order to offset any adverse effects of inflation. However, there can
be no assurance that rental increases may be obtained.
<PAGE>
PART II
OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the nine
months ended September 30, 1997.
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Vinings Investment Properties Trust
By: /s/ Stephanie A. Reed
------------------------
Stephanie A. Reed
Vice President and Treasurer
Dated: October 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated balance sheet and statements of operations for Vinings Investment
Properties Trust for the period ended September 30, 1997 and is qualified in its
entirety by reference to such financial statements as contained in the Form 10-Q
report for the nine months ended September 30, 1997.
</LEGEND>
<CIK> 0000759174
<NAME> Vinings Investment Properties Trust
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 451024
<SECURITIES> 0
<RECEIVABLES> 106542
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11580596
<DEPRECIATION> (930713)
<TOTAL-ASSETS> 11417792
<CURRENT-LIABILITIES> 0
<BONDS> 8901216
0
0
<COMMON> 0
<OTHER-SE> 2102852
<TOTAL-LIABILITY-AND-EQUITY> 11417792
<SALES> 0
<TOTAL-REVENUES> 1852145
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1361564
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 600196
<INCOME-PRETAX> (129615)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (129615)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0
</TABLE>
