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 MARCH 31, 1999
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)
(770) 984-9500
-------------------
Registrant's telephone number, including area code:
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 April 30,1999: 1,100,504
<PAGE>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
INDEX OF FINANCIAL INFORMATION
PAGE
PART I FINANCIAL INFORMATION ----
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1999 3
and December 31, 1998
Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 4
Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1999 5
Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
PART II OTHER INFORMATION/SIGNATURE
Item 6 Exhibits and Reports on Form 8-K 24
Signature 25
<PAGE>
<TABLE>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<CAPTION>
March 31, December 31,
1999 1998
--------------- ----------------
ASSETS
<S> <C> <C>
Real estate assets:
Land $ 2,884,500 $ 2,884,500
Buildings and improvements 15,519,694 15,399,690
Furniture, fixtures & equipment 1,034,124 1,025,222
Less: accumulated depreciation (1,824,545) (1,664,678)
--------------- ----------------
Net real estate assets 17,613,773 17,644,734
Cash and cash equivalents 243,978 158,302
Restricted cash 472,860 458,877
Receivables and other assets 688,988 694,998
Deferred financing costs, less accumulated amortization of $84,984 and
$77,258 at March 31, 1999 and December 31, 1998, respectively 131,339 139,064
Deferred leasing costs, less accumulated amortization of $39,552 and
$32,861 at March 31, 1999 and December 31, 1998, respectively 57,354 52,203
=============== ================
Total assets $ 19,208,292 $ 19,148,178
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 13,602,078 $ 13,640,065
Line of credit 2,000,000 2,000,000
Accounts payable and accrued liabilities 641,038 546,249
--------------- ----------------
Total liabilities 16,243,116 16,186,314
--------------- ----------------
Minority interest of unitholders in Operating Partnership 535,491 534,892
--------------- ----------------
Contingencies (Note 8)
Shareholders' equity:
Shares of beneficial interest, without par value, unlimited shares
authorized, 1,100,504 and 1,100,505 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 19,502,908 19,502,911
Cumulative earnings 37,305,306 37,302,590
Cumulative distributions (54,378,529) (54,378,529)
--------------- ----------------
Total shareholders' equity 2,429,685 2,426,972
============== ================
Total liabilities and shareholders' equity $ 19,208,292 $ 19,148,178
=============== ================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
For the three
months ended March 31,
-----------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
REVENUES
Rental revenues $ 998,389 $ 976,815
Other property revenues 40,374 39,316
Other income 12,000 597
-------------- -------------
1,050,763 1,016,728
-------------- -------------
EXPENSES
Property operating and maintenance 397,549 372,670
Depreciation and amortization 166,557 158,748
Amortization of deferred financing costs 7,726 7,725
Interest expense 332,079 331,491
General and administrative 143,537 105,201
Unusual item - 87,965
-------------- -------------
1,047,448 1,063,800
-------------- -------------
Income (loss) before minority interest 3,315 (47,072)
-------------- -------------
Minority interest (599) 8,629
-------------- -------------
Net income (loss) $ 2,716 $ (38,443)
============== =============
NET INCOME (LOSS) PER SHARE - BASIC $ 0.00 $ (0.04)
============== =============
NET INCOME (LOSS) PER SHARE - DILUTED $ 0.00 $ (0.04)
============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 1,100,505 1,080,510
============== =============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 1,343,051 1,323,056
============== =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three months ended March 31, 1999
(unaudited)
<CAPTION>
Shares of Total
beneficial Cumulative Cumulative shareholders'
interest earnings distributions equity
------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $19,502,911 $37,302,590 $(54,378,529) $ 2,426,972
Net income - 2,716 - 2,716
Retirement of shares (3) - - (3)
------------- -------------- --------------- ----------------
BALANCE AT MARCH 31, 1999 $19,502,908 $37,305,306 $(54,378,529) $ 2,429,685
============= ============== =============== ================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<TABLE>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
For the three
months ended March 31,
----------------------------------
1999 1998
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 2,716 $(38,443)
------------ -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 166,557 158,748
Amortization of deferred financing costs 7,726 7,725
Minority interest of unitholders in Operating Partnership 599 (8,629)
Changes in assets and liabilities:
Restricted cash (13,983) (47,344)
Receivables and other assets 19,289 (29,866)
Capitalized leasing costs (11,842) -
Accounts payable and accrued liabilities 94,789 65,066
------------ -----------
Total adjustments 263,135 145,700
------------ -----------
Net cash provided by operating activities 265,851 107,257
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (128,907) (25,324)
Refundable deposits and acquisition costs (13,278) -
------------ -----------
Net cash used in investing activities (142,185) (25,324)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage notes payable (37,987) (35,039)
Purchase of retired shares (3) (14)
------------ -----------
Net cash used in financing activities (37,990) (35,053)
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 85,676 46,880
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 158,302 164,843
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 243,978 $211,723
============ ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(unaudited)
------------------------------------------
NOTE 1 - FORMATION AND ORGANIZATION
Vinings Investment Properties Trust ("Vinings" or the "Trust") was
organized on December 7, 1984 as a twenty year finite-life real estate
investment trust ("REIT") whose original purpose was to invest in
participating, shared appreciation, convertible and fixed rate
mortgages and joint venture financing secured by office, industrial and
retail facilities located throughout the United States. The Declaration
of Trust provided, among other things, that the Trustees would use
their best efforts to terminate the Trust within approximately ten
years. The Trustees proceeded with the orderly liquidation of assets
and the distribution of proceeds to the shareholders. The remaining
assets of the Trust were Peachtree Business Center, a 75,000 square
foot business park located in Atlanta, Georgia ("Peachtree") and
approximately $163,000 in cash.
On January 31, 1996, Vinings Investment Properties, Inc. (the
"Purchaser") commenced a cash tender offer (the "Tender Offer") for a
minimum of a majority and a maximum of 85% of the outstanding shares of
beneficial interest, without par value (the "Shares"), of the Trust.
The Tender Offer expired in accordance with its terms at midnight on
February 28, 1996, and the Purchaser accepted approximately 73.3% of
the outstanding Shares. 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 ("Management"). In
addition, 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 the Trust and to rebuild Vinings assets by expanding into the
multifamily real estate markets through the acquisition of garden style
apartment communities that 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 Vinings' real estate portfolio as well.
On June 11, 1996, Vinings Investment Properties, L.P. (the "Operating
Partnership"), a Delaware limited partnership, was organized. As of
March 31, 1999, the Trust was the sole 1% general partner and an 80.94%
limited partner in the Operating Partnership. (This structure is
commonly referred to as an umbrella partnership REIT or "UPREIT").
At March 31, 1999 Vinings owned three real estate assets, all in
Atlanta, Georgia, through the Operating Partnership and its
subsidiaries, which are (1) The Thicket Apartments ("Thicket"), a
254-unit apartment community; (2) Windrush Apartments ("Windrush"), a
202-unit apartment community; and (3) Peachtree, an approximately
75,000 square foot, single-story business park. At March 31, 1999,
Thicket, Windrush and Peachtree were 97%, 98% and 100% leased,
respectively.
On May 1, 1999 Vinings acquired eight apartment communities totaling
1,064 units through subsidiaries of the Operating Partnership and
acquired a 20% partnership interest through a joint venture
arrangement, of which it is also the general partner, which acquired
five apartment communities totaling 968 units. For more information
regarding the acquisition see Note 12.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
three month period ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31,
1999.
The accompanying consolidated financial statements of Vinings include
the consolidated accounts of the Trust and its subsidiaries. All
significant intercompany balances and transactions have been eliminated
in consolidation. The minority interest of the unitholders in the
Operating Partnership on the accompanying balance sheet is calculated
based on the minority interest ownership percentage (18.06% as of March
31, 1999) multiplied by the Operating Partnership's net assets. The
minority interest of the unitholders in the income or loss of the
Operating Partnership on the accompanying statement of operations is
calculated based on the weighted average number of Shares and Units (as
hereinafter defined) outstanding during the period. The term "Vinings"
or "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, 1998.
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 that
Vinings 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.
Restricted Cash
---------------
Restricted cash includes real estate tax, insurance and replacement
reserve escrows held by mortgagees. These escrows are funded monthly
from property operations and released solely for the purpose for which
they were established. In addition, restricted cash includes security
deposits held in separate accounts by the individual communities.
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.
Real Estate Assets
------------------
Real estate assets are stated at depreciated cost less reductions for
impairment, if any. In identifying potential impairment, management
considers such factors as declines in a property's operating
performance or market value, a change in use, or adverse changes in
general market conditions. In determining whether an asset is impaired,
management estimates the future cash flows expected to be generated
from the asset's use and its eventual disposition. If the sum of these
estimated future cash flows on an undiscounted basis is less than the
asset's carrying cost, the asset is written down to its fair value. In
management's opinion, there has been no impairment of the Vinings' real
estate assets as of March 31, 1999.
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, 3-5 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.
Net Income (Loss) Per Share
---------------------------
The following is a reconciliation of net income (loss) available to the
common shareholders and the weighted average shares used in Vinings'
basic and diluted net income (loss) per share computations:
For the three months
Ended March 31,
------------------------
1999 1998
----------- ----------
Net income (loss) - basic $2,716 $(38,443)
Minority interest 599 (8,629)
----------- ----------
Net income (loss) - diluted $3,315 $(47,072)
=========== ==========
Weighted average shares - basic 1,100,505 1,080,510
Dilutive Securities
Weighted average Units in Operating
Partnership 242,546 242,546
Share options - -
----------- ----------
Weighted average shares - diluted 1,343,051 1,323,056
=========== ==========
Units in the Operating Partnership held by the minority unitholders are
redeemable for Shares of the Trust on a one-for-one basis, or for cash,
at the option of the Trust. For the three months ended March 31, 1999
options to purchase 108,750 shares were excluded and for the three
months ended March 31, 1998 options to purchase 26,000 shares were
excluded as the impact of such options was antidilutive.
Reclassifications
-----------------
Certain 1998 financial statement amounts have been reclassified to
conform with the current year presentation.
NOTE 3 - REAL ESTATE ASSETS
Windrush Apartments
-------------------
On December 19, 1997, Vinings acquired Windrush for a purchase price of
$7,555,000 consisting of the assumption of an existing mortgage loan in
the amount of $6,464,898 and other liabilities and the issuance of
224,330 limited partnership units in the Operating Partnership
("Units").
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.
Peachtree Business Center
-------------------------
Vinings 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 the Trust's mortgage
investment at the date of foreclosure. Subsequent to the acquisition,
approximately $1,133,100 of improvements has been capitalized.
Heritage Transaction
--------------------
On May 1, 1999, Vinings completed the acquisition of thirteen
multifamily communities, totaling 2,032 apartment homes located in
various markets in Mississippi, with a concentration in the Jackson
area (collectively, the "Portfolio Properties"), from seventeen limited
partnerships and limited liability companies, all represented by
Heritage Properties, Inc. (the "Heritage Transaction"). Five of the
Portfolio Properties were purchased through a joint venture in which
Vinings has a 20% interest. The remaining Portfolio Properties were
purchased through subsidiaries of Vinings' Operating Partnership.
The aggregate purchase price for the Portfolio Properties was
$94,300,000, including the assumption of approximately $80,958,000 of
debt on the Portfolio Properties and cash payments totaling
approximately $13,342,000. In addition, approximately $1,465,600 of
tax, insurance and replacement reserve escrows held by the various
mortgagees was purchased. For more information regarding the Heritage
Transaction see Note 12.
NOTE 4 - NOTES PAYABLE
Mortgage Notes Payable
----------------------
At March 31, 1999, Vinings had the following mortgage notes payable:
1) 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.
2) 7.5% mortgage note payable which was assumed on December 19, 1997
with a principal balance of $6,464,898, which is secured by Windrush
and which matures on July 1, 2024. Principal and interest are
payable in monthly installments of $47,457.
At March 31, 1999, the total outstanding principal for both notes was
$13,602,078. Scheduled maturities of the mortgage notes payable as of
March 31, 1999 are as follows:
1999 $ 118,677
2000 169,860
2001 184,179
2002 199,716
2003 7,103,494
Thereafter 5,826,152
==========
Total $13,605,078
Line of Credit
--------------
On June 28, 1998 Vinings renewed its line of credit in the amount of
$2,000,000 for six months, which expired on December 28, 1998. Vinings
did not renew the line of credit at that time and the bank informally
extended the due date to February 4, 1999 with interest continuing to
be paid monthly until Vinings secured alternative financing. On
February 4, 1999 one of the independent Trustees purchased the line of
credit from the bank and Vinings paid interest to the Trustee monthly
at the annual rate of 8.50% from such date through April 27, 1999, at
which time Vinings obtained a new line of credit in the amount of
$2,000,000. The independent Trustee who had purchased the line of
credit was repaid in full on April 27, 1999. The interest rate on the
line of credit is one percent over prime as posted in The Wall Street
Journal and is due on April 27, 2000.
NOTE 5 - RELATED PARTY TRANSACTIONS
On January 1, 1999, Vinings entered into management agreements with VIP
Management, LLC, an affiliate of the officers, who are also Trustees of
Vinings, to provide property management services for Thicket, Windrush
and Peachtree for a fee equal to a percentage of gross revenues plus a
fee for data processing. Prior to January 1, 1999, Vinings had entered
into management agreements with Vinings Properties, Inc., also an
affiliate of the officers of Vinings, to provide property management
services on substantially the same terms as the current agreements. A
total of $56,184 and $53,538 in management fees and $6,840 and $6,840
in data processing fees were incurred by Vinings during the three month
periods ended March 31, 1999 and 1998, respectively.
In addition, as a commitment to the rebuilding of Vinings, prior to
1998 The Vinings Group, Inc., the parent corporation of Vinings
Properties, Inc. (collectively, "The Vinings Group"), provided numerous
services at no cost to Vinings relating to administration, acquisition,
and capital and asset advisory services. Certain direct costs paid on
Vinings' behalf were reimbursed to The Vinings Group and beginning
January 1, 1998, The Vinings Group has charged Vinings for certain
overhead charges. However, while Vinings has been in its initial growth
stages, The Vinings Group has been committed to providing as many
services as possible to promote the Trust's growth. A total of $11,250
and $11,250 were paid for the three month periods ended March 31, 1999
and 1998, respectively, to The Vinings Group for shareholder services
provided for the sole benefit of Vinings by one of The Vinings Group's
employees. In addition, a total of $42,000 and $15,000 has been
incurred for the three month periods ended March 31, 1999 and 1998,
respectively, to The Vinings Group for the reimbursement of overhead
expenses, which includes salaries and benefits for employees hired by
The Vinings Group for the sole benefit of the Trust. The officers of
the Trust have not received compensation from Vinings for their
services through March 31, 1999 except for the Restricted Stock, as
hereinafter defined, which was awarded on July 1, 1998. (See Note 11.)
On February 4, 1999 one of the independent Trustees purchased the
Trust's line of credit, which expired on December 28, 1998 and Vinings
paid interest to the Trustee monthly at the annual rate of 8.50%
through April 27, 1999, at which time the Trustee was repaid in full.
For more information regarding the line of credit see Note 4.
In connection with the Heritage Transaction, a fee totaling $233,173
was paid by the Joint Venture, as hereinafter defined, to MFI Realty,
Inc., an affiliate of the officers, who are also Trustees of the Trust.
In addition, a fee, the amount of which is yet to be determined, is
also to be paid by the Operating Partnership to MFI Realty, Inc in
either cash, shares or partnership interests as determined by the Board
of Trustees.
NOTE 6 - DISTRIBUTIONS
There were no distributions declared or distributed for the periods
ended March 31, 1999 and 1998. Since the consummation of the Tender
Offer, management has not declared any dividends. In an effort to
rebuild Vinings' assets, all operating cash flow has been reserved for
future growth and expansion. However, as assets are acquired and
operating cash flow increases, Vinings intends to pay distributions to
shareholders in amounts at least sufficient to enable the Trust to
qualify as a REIT.
NOTE 7 - 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 March 31, 1999, at Peachtree:
1999 $ 407,948
2000 412,217
2001 313,573
2002 120,557
------------
Total $1,254,295
============
One tenant accounts for 72% of the future minimum lease payments.
NOTE 8 - 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 will not have a material adverse effect on the financial
position or results of operations of Vinings.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Vinings paid interest of $312,319 and $323,553 for the three months
ended March 31, 1999 and 1998, respectively.
NOTE 10 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on interest rates and other pertinent information available to
Vinings as of March 31, 1999, the Trust estimates that the carrying
value of cash and cash equivalents, the mortgage notes 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 March 31, 1999.
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 March 31, 1999.
NOTE 11 - 1997 STOCK OPTION AND INCENTIVE PLAN
Vinings' 1997 Stock Option and Incentive Plan (the "Plan") provides
incentives to officers, employees, Trustees, and other key persons
including the grant of share options, share appreciation rights,
restricted and unrestricted share awards, performance share awards, and
dividend equivalent rights.
Under the Plan, the maximum number of shares that may be reserved and
available for issuance is 10% of the total number of outstanding shares
at any time plus 10% of the number of Units outstanding at any time
that are subject to redemption rights. At March 31, 1999 the total
number of shares available for issuance under the Plan was 134,305.
Options granted under the Plan expire ten years from the date of grant.
On July 1, 1997, Vinings granted a total of 26,000 non-qualified share
options (the "1997 Options") to the officers, Trustees and certain key
persons. The 1997 Options are exercisable at a price of $5.00 (based on
a closing sales price of a share of the Trust on the Nasdaq SmallCap
Market on June 30, 1997 of $4.56) and became exercisable in full on
July 1, 1998. No options had been exercised as of March 31, 1999.
On June 9, 1998, Vinings granted a total of 81,250 non-qualified share
options (the "1998 Options") to the officers, Trustees and certain key
persons. The 1998 Options are exercisable at a price of $4.00 (based on
a closing sales price of a share of the Trust on the Over-the-Counter
Bulletin Board on June 8, 1998 of $3.63) and become exercisable in full
on June 9, 1999.
On September 1, 1998, Vinings granted 1,500 additional non-qualified
share options (the "Additional 1998 Options") to certain key persons.
The Additional 1998 Options are exercisable at a price of $4.75 (based
on a closing sales price of a share of the Trust on the
Over-the-Counter Bulletin Board on August 30, 1998 of $4.75) and become
exercisable in full on September 1, 1999.
On July 1, 1998 Vinings awarded 20,000 shares of restricted stock to
the officers and certain trustees (the "Restricted Stock"),
representing a total value of $80,000 (based on the Fair Market Value
of a share of the Trust on the award date) which has been reflected in
compensation expense and in shareholders' equity. The Restricted Stock
was awarded as compensation for services to the Trust provided by such
officers and trustees as well as by The Vinings Group.
NOTE 12 - SUBSEQUENT EVENT
Heritage Transaction
--------------------
On May 1, 1999, Vinings completed the acquisition of thirteen
multifamily communities (collectively, the "Portfolio Properties") from
seventeen limited partnerships and limited liability companies, all
represented by Heritage Properties, Inc. (the "Heritage Transaction").
Five of the Portfolio Properties were purchased through a joint venture
in which Vinings has a 20% interest. The remaining Portfolio Properties
were purchased through subsidiaries of Vinings' Operating Partnership.
The Portfolio Properties are comprised of 2,032 two- and three-story
garden-style apartment homes located in various markets in Mississippi,
with a concentration in the Jackson area. The average age of each of
the Portfolio Properties is just over three years and on May 1, 1999,
the average occupancy of the Portfolio Properties was approximately
94%.
The aggregate purchase price for the Portfolio Properties was
$94,300,000, including the assumption of approximately $80,958,000 of
debt on the Portfolio Properties and cash payments totaling
approximately $13,342,000. In addition, approximately $1,465,600 of
tax, insurance and replacement reserve escrows held by the various
mortgagees was purchased.
The Portfolio Properties were purchased in seventeen individual
partnerships (the "Property Partnerships") in each of which Vinings
Holdings, Inc. ("Holdings"), a wholly-owned subsidiary of Vinings, is
the general partner.
Properties Purchased through the Joint Venture
----------------------------------------------
Five of the Portfolio Properties, totaling 968 units (the "Joint
Venture Properties"), were purchased by nine Property Partnerships in
each of which Holdings owns a .1% general partnership interest and
Vinings/CMS Master Partnership, L.P. (the "Joint Venture") owns a 99.9%
limited partnership interest. The Operating Partnership is the general
partner and a 19.98% limited partner in the Joint Venture. The
remaining limited partnership interests in the Joint Venture are held
by an unaffiliated third party. The Joint Venture was formed on March
22, 1999, primarily to acquire the limited partner interest in limited
partnerships that acquire, operate, manage, hold and sell certain real
property, specifically the Joint Venture Properties. The aggregate
purchase price paid by the Property Partnerships for the Joint Venture
Properties was $46,634,603, which includes the assumption of
approximately $39,265,000 of debt and the balance being paid in cash. A
total of approximately $716,400 in escrows held by the mortgagees was
also purchased. In connection with the acquisition, a fee totaling
$233,173 was paid by the Joint Venture to MFI Realty, Inc., an
affiliate of the officers, who are also Trustees of the Trust.
Properties Purchased through the Operating Partnership
------------------------------------------------------
Eight of the Portfolio Properties, totaling 1,064 units (the "Vinings
Properties"), were purchased by eight Property Partnerships in each of
which Holdings owns a .1% general partnership interest and the
Operating Partnership owns a 99.9% limited partnership interest. The
aggregate purchase price for the Vinings Properties was $47,665,396,
which includes the assumption of debt of approximately $41,693,000 and
the balance being paid in cash. A total of approximately $749,200 in
escrows held by the mortgagees was also purchased. In connection with
the acquisition, a fee, the amount of which is yet to be determined, is
also to be paid by the Operating Partnership in either cash, shares or
partnership interests as determined by the Board of Trustees to MFI
Realty, Inc., an affiliate of the officers, who are also Trustees of
the Trust.
Issuance of Series A Preferred Units
------------------------------------
On April 29, 1999, in a private transaction, the Operating Partnership
issued 1,958,823 Series A Preferred Units of the Partnership (the
"Preferred Units"), for an aggregate purchase price of $8,325,000
pursuant to a Securities Purchase Agreement. The Operating Partnership
used the proceeds of the sale of Preferred Units to pay the cash
consideration for the Operating Partnership's interests in the Joint
Venture and in the Property Partnerships that acquired the Vinings
Properties.
The holders of Preferred Units are entitled to receive cumulative
preferential cash distributions at the per annum rate of $0.4675 per
Preferred Unit. Upon the occurrence of certain triggering events, the
holders of Preferred Units are entitled to receive, in addition to an
amount equal to any accumulated and unpaid distributions on such
holder's Preferred Units, a liquidation preference of $4.46 per
Preferred Unit, or, if any such triggering event occurs prior to April
29, 2000, $4.25 per Preferred Unit (the "Liquidation Preference").
The holders of Preferred Units may convert any part or all of such
Preferred Units into common partnership interests of the Operating
Partnership or shares of beneficial interest, no par value, of Vinings
(each a "Common Share") at any time on or after one year from the date
of issuance. In lieu of converting Preferred Units into Common Shares,
the Operating Partnership, in its sole discretion, may pay holders of
Preferred Units in cash. Vinings may also request that holders of
Preferred Units exchange such Preferred Units for shares of preferred
interests of Vinings (each a "Preferred Share") with the same powers,
special rights, preferences privileges and voting power, if such
Preferred Shares become available. In addition, the Operating
Partnership may, in certain instances, redeem all or part of the
Preferred Units for a price equal to the Liquidation Preference.
Generally, the holders of Preferred Units do not have voting rights.
However, the holders of Preferred Units do have certain protective
rights to vote as a separate class of Partnership Interests on certain
transactions including, without limitation, certain authorizations and
issuances of preferred units of Partnership Interests designated as
ranking senior to the Preferred Units, certain amendments to the
Partnership Agreement, and certain sales or other dispositions of
assets of the Operating Partnership, certain mergers or consolidations
of the Operating Partnership, and transactions which result in the
liquidation of the Partnership.
ITEM 2 - 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 as a twenty year finite-life real estate investment trust
("REIT") whose original purpose was to invest in participating, shared
appreciation, convertible and fixed rate mortgages and joint venture financing
secured by office, industrial and retail facilities located throughout the
United States. The Declaration of Trust provided, among other things, that the
Trustees would use their best efforts to terminate the Trust within
approximately ten years. The Trustees proceeded with the orderly liquidation of
assets and the distribution of proceeds to the shareholders. The remaining
assets of the Trust were Peachtree Business Center, a 75,000 square foot
business park located in Atlanta, Georgia ("Peachtree") and approximately
$163,000 in cash.
On January 31, 1996, Vinings Investment Properties, Inc. (the "Purchaser")
commenced a cash tender offer (the "Tender Offer") which expired in accordance
with its terms at midnight on February 28, 1996. The Purchaser accepted
approximately 73.3% of the outstanding Shares and appointed new trustees and
officers ("Management").
The purpose of the Tender Offer was for Management to acquire control of the
Trust and to rebuild Vinings' 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 Vinings' real estate portfolio as well.
On June 11, 1996, Vinings Investment Properties, L.P. (the "Operating
Partnership"), was organized with the Trust as the sole general partner in an
effort to facilitate acquisitions. This structure is commonly referred to as an
umbrella partnership REIT or "UPREIT".
At March 31, 1999, Vinings' real estate assets were The Thicket Apartments, a
254-unit apartment community located in Atlanta, Georgia ("Thicket"), Windrush
Apartments, a 202-unit apartment community located in Atlanta, Georgia
("Windrush") and Peachtree, which were 97%, 98% and 100% leased, respectively.
On May 1, 1999 Vinings acquired eight apartment communities totaling 1,064 units
through subsidiaries of the Operating Partnership and acquired a 20% partnership
interest through a joint venture arrangement, of which it is also the general
partner, which acquired five apartment communities totaling 968 units (the
"Heritage Transaction"). For more information regarding the Heritage
Transaction, see Note 12 to Vinings' March 31, 1999 Consolidated Financial
Statements.
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.
Results of Operations
- ---------------------
Vinings' net income for the three months ended March 31, 1999 increased $41,159,
from a net loss of $38,443 for the three months ended March 31, 1998 to net
income of $2,716 for the three months ended March 31, 1999.
Rental and other property revenues increased $22,632, or 2%, from $1,016,131 for
the three month period ended March 31, 1998 to $1,038,763 for the three month
period ended March 31, 1999. The increased revenues were generated primarily by
rental rate increases at Thicket and increased occupancy at Windrush.
Other income increased $11,403 from $597 for the three month period ended March
31, 1998 to $12,000 for the three month period ended March 31, 1999 due to
interest earned on the earnest money deposits held in escrow on the Heritage
Transaction.
Property operating and maintenance expense increased $24,879, or 7%, from
$372,670 for the three months ended March 31, 1998 to $397,549 for the three
months ended March 31, 1999. This increase is due primarily to lower than normal
operating expenses in January, 1998 for both Thicket and Windrush.
Depreciation and amortization increased by $7,809, or 5%, from $158,748 for the
three months ended March 31, 1998 to $166,557 for the three months ended March
31, 1999. Of this increase, $3,025 is an increase in amortization of leasing
commissions at Peachtree and $4,784 is an increase in depreciation due to
capital additions made during the year.
Interest expense remained fairly constant for the three months ended March 31,
1999 as compared to the three months ended March 31, 1998.
General and administrative expense increased $38,336, or 36%, from $105,201 for
the three months ended March 31, 1998 to $143,537 for the three months ended
March 31, 1999. Of this increase $27,000 is in overhead reimbursements to The
Vinings Group, Inc. (see Note 5 to Vinings' March 31, 1999 Consolidated
Financial Statements), $5,200 is in Trustee expense and $4,750 is in legal
expense.
The Unusual item of $87,965 for the three months ended March 31, 1998 represents
legal expense incurred in connection with litigation involving an acquisition in
which the seller breached its contract with the Trust. There were no costs
incurred in this regard during the three months ended March 31, 1999.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities increased $158,594 from $107,257 for
the three months ended March 31, 1998 to $265,851 for the three months ended
March 31, 1999. Of this increase, $50,387 represents an increase in income
before minority interest. Other increases are the result of a decrease of funds
going to restricted cash accounts totaling $33,361, a decrease in receivables
and other assets totaling $49,155 and an increase in accounts payable and
accrued liabilities of $29,723.
Cash flows used in investing activities increased $116,861 from $25,324 for the
three months ended March 31, 1998 to $142,185 for the three months ended March
31, 1999. Of this amount $13,278 was acquisition costs incurred in connection
with the Heritage Transaction. The balance was an increase in capital
expenditures at the properties.
Cash flows used in financing activities increased $2,937 from $35,053 for the
three months ended March 31, 1998 to $37,990 for the three months ended March
31, 1999. These funds were used to make principal repayments on the mortgage
notes payable and to retire shares of beneficial interest in the Trust.
Net cash increased $85,676 for the three months ended March 31, 1999, compared
to an increase of $46,880 for the three months ended March 31, 1998.
On April 29, 1999, Vinings issued 1,958,823 Series A Preferred Units of the
Operating Partnership for an aggregate purchase price of $8,325,000 (the
"Preferred Units"). The Operating Partnership used the proceeds of the sale of
Preferred Units, along with $6,820,000 in equity from an unaffiliated joint
venture partner to complete the Heritage Transaction. (See Note 12 of Vinings'
March 31, 1999 Consolidated Financial Statements.)
The cash held by Vinings at March 31, 1999, plus the cash flow from Vinings'
assets, including the properties acquired in the Heritage Transaction, is
expected to provide sources of liquidity to allow Vinings to meet all current
operating obligations. A new line of credit in the amount of $2,000,000 has been
obtained and management intends to pay a portion of the line down with equity
obtained for the Heritage Transaction. (See Note 4 to Vinings' March 31, 1999
Consolidated Financial Statements.) Management plans to continue ongoing
discussions with capital sources, both public and private, as well as explore
financing alternatives, so as to allow the Trust to continue to expand and grow
its income producing investments.
Year 2000
- ---------
The statements in the following section include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act of
1998.
The "Year 2000 issue" is the term used to describe the various problems caused
from the improper processing of dates and date sensitive information by
computers and other machinery and equipment. The Year 2000 issue is the result
of many computer programs recognizing a date ending with "00" as the year 1900
rather than the year 2000, causing potential system failures or miscalculations
which could result in disruptions of normal business operations.
Vinings is continuing its assessment of the potential impact Year 2000 will have
on its operations. A compliance program has been implemented, which will 1)
determine Vinings state of readiness for the Year 2000, including the Trust's
information technology ("IT") systems, its non-IT systems and the state of
readiness of Vinings material suppliers and third party vendors; 2) assess where
potential risks may occur, recognizing that date sensitive systems may fail at
different points in time depending on their function, and prioritize those
risks; 3) determine what steps need to be taken in order to bring remaining
software, hardware and systems, including embedded systems, into Year 2000
compliance; 4) implement, test and re-evaluate all solutions in time to minimize
any significant detrimental effects on operations; and 5) determine a
contingency plan in the event that the Trust or any of its material suppliers or
third party vendors will not be Year 2000 compliant (the "Compliance Program").
Vinings believes that its testing of all systems should be complete by the end
of the third quarter, 1999.
Vinings believes that most of its computer systems and related software are
already Year 2000 compliant. These systems include the on-site resident
management software and associated hardware as well as corporate financial and
accounting software and related hardware. The costs incurred to date for new
on-site hardware and software total approximately $6,200. The financial and
accounting systems are shared with The Vinings Group. The costs incurred to
upgrade these systems total approximately $70,000 and are in the form of monthly
lease payments of $1,178, which expire in November 2002. Currently these lease
payments are not a cost of the Trust. Any additional costs to upgrade or modify
these systems are not expected to be material.
None of the Portfolio Properties acquired in the Heritage Transaction had
on-site automated systems. Therefore, Vinings is in the process of obtaining the
necessary hardware and software to automate these newly acquired communities.
The estimated cost to automate the Portfolio Properties with systems that will
be Year 2000 compliant is approximately $67,000, which is expected to be
financed over a period of time.
Vinings is still in the process of determining whether many of its other
operational systems are Year 2000 compliant and therefore cannot determine at
this time the potential impact on the Trust's financial condition and results of
operations. These systems include administrative systems as well as mechanical
systems. However, Vinings has been in contact with the suppliers and
manufacturers of these systems and believes that all material systems within its
control will be Year 2000 compliant well in advance of January 1, 2000.
Vinings' most reasonably likely worst case scenario relates to Year 2000
non-compliance by third party vendors and service providers. Vinings' relies on
a number of suppliers for utility services, financial services, materials, etc.
Interruption of suppliers' operations due to Year 2000 issues could have a
material adverse effect on the Trust's future financial condition and results of
operations. Vinings' has taken steps to evaluate the status of suppliers'
efforts in order to determine whether any of these suppliers will have an
adverse material effect. Once evaluation is complete, Vinings will determine any
required alternatives and contingency plan requirements.
The information provided above regarding Vinings' Year 2000 compliance includes
forward-looking statements based on management's best estimates of future
events. Such forward-looking statements involve risks and uncertainties
including the availability of resources, the ability to identify and correct
potential Year 2000 sensitive problems that could have a serious impact on
operations and the ability of third party suppliers to bring their systems into
Year 2000 compliance. There can be no assurance that any of the factors or
statements regarding the Trust's Year 2000 preparedness will not change and that
any change will not affect the accuracy of the Trust's forward-looking
statements.
Other Matters
- -------------
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 Vinings, the
inability of Vinings to identify unaffiliated properties for acquisition, the
less than satisfactory performance of any property which might be acquired by
Vinings, 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.
<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
Current Report on Form 8-K, dated April 29, 1999, was filed with the Securities
and Exchange Commission on May 10, 1999, with respect to the Trust's issuance of
Preferred Partnership Units and the Heritage Transaction.
<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: May 17, 1999
<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 March 31, 1999 and is qualified in its
entirety by reference to such financial statements as contained in the Form 10-Q
report for the three months ended March 31, 1999.
</LEGEND>
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<NAME> Vinings Investment Properties Trust
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<FISCAL-YEAR-END> DEC-31-1999
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