FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905, eff. 4/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period.........to.........
(Amended by Exchange Act Rel. No. 312905, eff. 4/26/93.)
Commission file number 0-14194
VMS NATIONAL PROPERTIES JOINT VENTURE
(Exact name of small business issuer as specified in its charter)
Illinois 36-3311347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8700 West Bryn Mawr
Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (312) 399-8700
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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
<S> 1995 1994
Assets <C> <C>
Cash:
Unrestricted $ 2,206,423 $ 2,476,476
Restricted-tenant security deposits 1,140,423 1,249,345
Accounts receivable 223,320 322,669
Escrows and other reserves 1,561,604 3,953,244
Other assets 768,410 498,639
Investment properties, at cost
Land 14,293,678 14,293,679
Buildings and personal property 133,119,338 131,549,174
Investment properties subject to abandonment
Land 1,664,533 4,256,965
Buildings and personal property 11,039,368 30,045,871
Less accumulated depreciation (72,712,782) (77,413,702)
$ 93,304,315 $ 111,232,360
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 515,253 $ 905,558
Accrued interest 7,263,295 4,693,490
Accrued and other liabilities 2,811,096 2,985,089
Mortgage loans payable 121,903,447 122,072,363
Notes payable 29,859,292 27,732,149
Advances from affiliates of general partner 1,895,155 1,895,155
Deferred gain on extinguishment of debt 54,052,737 54,052,737
Subject to abandonment:
Accounts payable 1,965 100,249
Accrued interest 14,082,627 30,646,892
Accrued and other liabilities 469,443 799,746
Mortgage loans payable 10,349,896 28,256,877
Partners' Deficit (149,899,891) (162,907,945)
$ 93,304,315 $ 111,232,360
</TABLE>
[FN]
See Accompanying Notes to Combined Financial Statements
b) VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
<S> <C> <C>
Revenues:
Rental income $ 6,396,142 $ 7,128,925
Other income 307,302 333,688
Total revenues 6,703,444 7,462,613
Expenses:
Operating 1,853,989 2,507,783
General and administrative 208,263 279,335
Property management fees 264,907 307,912
Maintenance 1,139,550 1,385,968
Depreciation 1,522,688 1,713,338
Interest 4,727,400 8,089,072
Property taxes 512,826 577,697
Write-down of investment
property -- 2,641,740
Loss on disposal of property 25,142 92,989
Total expenses 10,254,765 17,595,834
Net loss before extraordinary item (3,551,321) (10,133,221)
Extraordinary item - gain on
extinguishment of debt -- 13,359,397
Net (loss) income $(3,551,321) $ 3,226,176
Net (loss) income allocated to
general partners $ (71,026) $ 63,870
Net (loss) income allocated to
limited partners (3,480,295) 3,162,306
$(3,551,321) $ 3,226,176
Net (loss) income per limited
partnership interest:
Net loss before extraordinary item
Portfolio I (644 interests) $ (3,820) $ (10,891)
Portfolio II (268 interests) (3,809) (10,884)
Extraordinary item
Portfolio I (644 interests) -- 14,356
Portfolio II (268 interests) -- 14,356
Net (loss) income
Portfolio I (644 interests) (3,820) 3,465
Portfolio II (268 interests) (3,809) 3,472
</TABLE>
[FN]
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S>
Revenues: <C> <C>
Rental income $ 20,221,007 $ 21,701,998
Other income 953,150 980,804
Total revenues 21,174,157 22,682,802
Expenses:
Operating 6,177,532 7,024,887
General and administrative 820,732 1,052,708
Property management fees 845,637 927,547
Maintenance 3,029,553 3,286,660
Depreciation 4,963,300 5,058,694
Interest 15,748,569 16,805,152
Property taxes 1,722,729 1,839,110
Write-down of investment property 3,093,811 3,774,071
Loss on disposal of property 107,849 92,989
Total expenses 36,509,712 39,861,818
Net loss before extraordinary item (15,335,555) (17,179,016)
Extraordinary item - gain on
extinguishment of debt 28,284,688 27,418,224
Net income $ 12,949,133 $ 10,239,208
Net income allocated to general
partners $ 258,983 $ 204,784
Net income allocated to limited
partners 12,690,150 10,034,424
$ 12,949,133 $ 10,239,208
Income (loss) per limited
partnership interest:
Net loss before extraordinary item
Portfolio I (644 interests) $ (16,480) $ (18,460)
Portfolio II (268 interests) (16,478) (18,462)
Extraordinary item
Portfolio I (644 interests) 30,394 29,463
Portfolio II (268 interests) 30,394 29,463
Net income
Portfolio I (644 interests) 13,914 11,003
Portfolio II (268 interests) 13,916 11,001
</TABLE>
[FN]
See Accompanying Notes to Combined Financial Statements
c) VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
VMS National Residential Portfolio I
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
<S> <C> <C> <C> <C> <C>
Partners' deficit at
December 31, 1994 $(3,602,965) $(110,428,689) $(627,062) $(111,055,751) $(114,658,716)
Collections of subscription notes -- -- 35,149 35,149 35,149
Net income for the nine months
ended September 30, 1995 182,871 8,960,675 -- 8,960,675 9,143,546
Partner's deficit at
September 30, 1995 $(3,420,094) $(101,468,014) $(591,913) $(102,059,927) $(105,480,021)
</TABLE>
<TABLE>
<CAPTION>
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
<S> <C> <C> <C> <C> <C>
Partners' deficit at December 31, 1994 $(1,506,182) $ (46,331,238) $(411,809) $ (46,743,047) $ (48,249,229)
Collections of subscription notes -- -- 23,772 23,772 23,772
Net income for the nine months ended
September 30, 1995 76,112 3,729,475 -- 3,729,475 3,805,587
Partner's deficit at
September 30, 1995 $(1,430,070) $ (42,601,763) $(388,037) $ (42,989,800) $ (44,419,870)
Combined total $(4,850,164) $(144,069,777) $(979,950) $(145,049,727) $(149,899,891)
</TABLE>
See Accompanying Notes to Combined Financial Statements
d) VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,949,133 $ 10,239,208
Adjustments to reconcile net income to net
cash provided by operating activities:
Writedown of investment property 3,093,811 3,774,071
Extraordinary gain on extinguishment of debt (28,284,688) (27,418,224)
Depreciation 4,963,300 5,058,694
Amortization of discounts and loan costs 2,314,771 2,156,245
Loss on disposal of property 107,849 92,989
Change in accounts:
Escrows and other reserves 2,065,351 1,393,785
Accounts receivable (541) (46,052)
Restricted cash (58,552) 109,010
Other assets (423,350) 370,606
Accounts payable (363,196) 346,976
Accrued interest 5,995,288 6,764,214
Accrued and other liabilities 115,680 348,336
Net cash provided by operating activities 2,474,856 3,189,858
Cash flows from investing activities:
Property improvements and replacements (2,002,528) (1,712,636)
Net cash used in investing activities (2,002,528) (1,712,636)
Cash flows from financing activities:
Payments on mortgage loans payable (210,189) (177,024)
Payments received on subscription notes 58,921 171,384
Cash released to lenders on foreclosed properties (591,113) (316,725)
Net cash used in financing activities (742,381) (322,365)
Net (decrease) increase in cash (270,053) 1,154,857
Cash at beginning of period 2,476,476 2,049,143
Cash at end of period $ 2,206,423 $ 3,204,000
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,392,109 $ 7,900,998
</TABLE>
[FN]
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Foreclosure
Pursuant to the Plan of Reorganization (see Note 4), in April 1995, and June
1995, the Partnership lost The Winery, Canal Court, Grand Canal I, and Grand
Canal II through foreclosure to the Federal Deposit Insurance Corporation
("FDIC"). In January 1994, and February 1994, the Partnership lost
Broad Meadows Apartments and the Courts of Hartford Square and August 1994, the
Partnership lost Edgewater I and Edgewater II through foreclosure to the FDIC.
In connection with these transactions, the following accounts were adjusted by
the non-cash amounts noted for 1995 and 1994:
1995 1994
Relinquishment of cash $ (591,113) $ (316,725)
Restricted-tenant security deposits (167,474) --
Accounts receivable (99,890) (98,372)
Escrow deposits (326,289) (117,354)
Other assets (130,360) (163,239)
Investment properties (18,533,055) (22,857,797)
Accumulated depreciation 9,367,635 10,834,945
Accounts payable 125,393 3,947
Accrued interest 19,989,748 16,489,517
Other liabilities 619,976 323,326
Mortgage loans payable 18,030,117 23,319,976
Aggregate gain on transaction (28,284,688) (27,418,224)
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Going Concern
The combined financial statements have been prepared assuming that the VMS
National Properties Joint Venture (the "Venture") will continue as a going
concern. The combined financial statements do not include any adjustments that
might result from the outcome of the uncertainties described below, however,
such uncertainties raise substantial doubt about the Venture's ability to
continue as a going concern.
The Venture has incurred recurring operating losses, has a partners'
deficiency and is in default of certain debt agreements. Continued operating
losses and insufficient cash flows to meet all obligations of certain of the
Venture's properties are expected to occur. Historically, the General Partner
and its affiliates had advanced funds to the Venture. The General Partner is
not obligated, and does not intend, to fund any future deficits. During 1994,
the General Partner and its affiliates assigned a portion of the unpaid advances
to an affiliate of Insignia Financial Group, Inc., ("Insignia"). The General
Partner is evaluating its options for the Venture should the Venture continue to
suffer substantial losses from operations and cash deficiencies.
In addition, the General Partner and its affiliates have incurred serious
financial difficulties that may affect the ability of the General Partner to
function in that capacity. The administration and management of the Venture are
dependent on the General Partner and its affiliates. Pursuant to an agreement
dated July 14, 1994, a transaction is pending in which the current General
Partner would be replaced by MAERIL, Inc., an affiliate of Insignia. The
substitution of MAERIL, Inc. as the General Partner is expected and has been
approved by the Bankruptcy Court and certain other creditors, but there is no
assurance that the transaction will be consummated. The pending replacement of
the General Partner will not necessarily improve the financial condition of the
Venture.
The combined financial statements do not include any adjustments relating to
the recoverability of the recorded asset accounts or the amount of liabilities
that might be necessary should the Venture be unable to continue as a going
concern.
Note 2 - Basis of Presentation
The accompanying unaudited combined 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 (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
30, 1995, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1995. For further information, refer to the
combined financial statements and footnotes thereto included in the Venture's
annual report on Form 10-K for the year ended December 31, 1994.
Note 3 - Petition for Relief Under Chapter 11
As a result of severe liquidity difficulties and impending foreclosure
proceedings, the Venture filed for Chapter 11 bankruptcy protection on February
22, 1991. The initial filing included only the 40 residential apartment
complexes directly owned by VMS National Properties Joint Venture, and excluded
the 10 Subpartnerships consisting of 10 residential apartment complexes
encumbered by financing insured or held by the Department of Housing and Urban
Development ("HUD") and the investing limited partnerships, VMS National
Residential Portfolio I ("Portfolio I") and VMS National Residential Portfolio
II ("Portfolio II"). Due to the partnership agreements existing between the
Venture, Portfolio I and Portfolio II, which provide the Venture with exclusive
rights to the limited partner investor contributions, the Venture's initial
filing was amended to reflect the Venture's right to receive any excess limited
partner investor contributions.
The Venture filed its proposed Plan of Reorganization and Disclosure
Statement with the Bankruptcy Court on October 13, 1992. After several
modifications to the Venture's proposed Plan, the "Second Amended and Restated
Plan of Reorganization" (the "Plan") was approved by the Bankruptcy Court in
March 1993 and became effective on September 30, 1993 (see Note 4).
Note 4 - Plan of Reorganization
The primary aspects of the Venture's Plan include the following:
a. The Venture will retain 17 properties from the previously existing
portfolio (the "retained complexes"). The retained complexes consist of
16 non-HUD properties and one HUD property. The Venture has filed
motions to abandon the non-retained HUD properties held at December 31,
1993, of which three remain at September 30, 1995.
b. The senior mortgages on the Venture's non-HUD retained complexes
payable to lenders other than the FDIC were modified effective
September 1, 1993. The modified senior mortgages provide for an
interest rate of 8.75% per annum with payments based on a 30 year
amortization commencing with the first payment due October 1, 1993, and
mature on January 15, 2000. The modified senior loan balances
consisted of principal and accrued interest balances due under the old
mortgage terms at September 1, 1993, plus approved legal, late and
other charges claimed by the senior lenders approximating $197,000 in
the aggregate. There was no forgiveness of debt from the refinancing
of mortgages payable to lenders other than the FDIC. The senior
mortgage on the retained complex which is insured by the Department of
Housing and Urban Development was not modified.
The senior liens held by the FDIC on two of the Venture's non-HUD
retained complexes were modified effective September 1, 1993, to accrue
interest at 9% with monthly payments commencing October 1, 1993, of
interest only at 7% on the restated FDIC notes' "Agreed Valuation
Amount" (defined in "c" below). Interest is calculated on the basis of
a 360 day year and the actual number of days in each month. The
difference between the 9% accrual rate and the 7% minimum pay rate (the
"FDIC Deferral") shall accrue, but not be added to principal, and shall
bear interest at the 9% note rate from and after the due date of each
payment, compounded monthly. All unpaid principal and accrued interest
is due in full on the January 15, 2000, maturity date. Approximately
$3,774,000 in prepetition accrued unpaid interest was written off at
September 30, 1993, to reduce the senior lien FDIC liabilities recorded
on the Venture's books to the Agreed Valuation Amounts. A portion of
this gain was deferred (see Note 5).
c. The junior lien mortgages held by the FDIC on the Venture's retained
complexes were modified effective September 1, 1993, and mature January
15, 2000. The FDIC reduced its claim on two of the non-HUD retained
complexes to $300,000 per property evidenced by a non-interest bearing
note. The FDIC left intact liens for the full amount of the original
claims at the petition filing date for all other properties (including
the two senior liens discussed in "b" above) in the event the Venture
defaults on any of its obligations under the restated FDIC notes. The
restated FDIC junior lien notes provide for a 10% accrual rate with
monthly payments commencing October 1, 1993, of interest only at 7% on
the non-HUD restated FDIC notes' "Agreed Valuation Amount". Pursuant
to the Plan, the Agreed Valuation Amount represents the total property
value per the FDIC's June 1992 valuations less the property's senior
lien indebtedness at September 30, 1992. The retained property
governed by HUD Regulatory Agreements will make payments of interest
only at 7% each April 1st and October 1st, payable only from
distributable surplus cash as provided by the HUD Regulatory Agreement
and following the HUD's approval of semi-annual surplus cash
calculations prepared each December 31st and June 30th. The Agreed
Valuation Amount represents the total principal claim that will be
repaid to the FDIC provided there are no defaults under the terms of
the restated notes. Approximately $68,060,000 in prepetition principal
and accrued unpaid interest was written off at September 30, 1993, to
reduce the FDIC junior lien liabilities recorded on the Venture's books
to the Agreed Valuation Amounts. A portion of this gain was deferred
(see Note 5).
d. The Venture distributed the following amounts in conjunction with
the terms of the Plan:
(1) A $5,960,000 reserve to fund capital improvements at the
retained complexes was established in 1993. Approximately
$5,000 of this reserve, which is included in escrows and other
reserves on the Venture's Combined Balance Sheet, remains at
September 30, 1995.
(2) Approximately $5,980,000 in allowed prepetition claims,
including the nonaffiliated Letter of Credit Note, amounts due
trade creditors, and real and personal property taxes on the
retained complexes was disbursed in October 1993.
(3) Payments totalling approximately $1,006,000 were authorized
for immediate distribution to affiliates of the Managing
General Partner for reimbursement of cash advances and asset
management services provided to the Venture.
(4) Payments of $50,000 each to the FDIC and ContiTrade Services
Corporation were made for reimbursement of administrative
costs incurred in connection with the Venture's bankruptcy
case.
e. The VMS/Stout Joint Venture was granted an allowed claim in the
amount of $49,534,819 for the Assignment and Long-Term Loan
Arrangement Notes payable to it by the Venture. Payments totalling
$3,475,000 in conjunction with this allowed claim were made to the
nonaffiliated members of the VMS/Stout Joint Venture on October 7,
1993. Of the remaining allowed claim, $4,000,000 is represented by
a promissory note (the "ContiTrade Note") which bears interest at
the rate of 5% per annum, while the remaining $42,059,819 is non-
interest bearing. The ContiTrade Note is collateralized by a Deed
of Trust, Assignment of Rents and Security Agreement on each of the
Venture's retained complexes, and provides ContiTrade with other
approval rights as to the ongoing operations of the Venture's
retained complexes. The ContiTrade Note matures January 15, 2000.
f. The Venture has entered into a Revised Restructured Amended and
Restated Asset Management Agreement (the Revised Asset Management
Agreement) with Insignia. Effective October 1, 1993, Insignia took
over the asset management of the Venture's retained complexes and
partnership functions. However, an affiliate of the Managing
General Partner assisted in the asset management functions of the
Venture's retained and non-retained complexes through July 1994.
This affiliate was compensated by Insignia at the rate of 28% of the
asset management fees paid to Insignia by the Venture.
The Revised Asset Management Agreement provides for an annual
compensation of $500,000 to be paid to Insignia in equal monthly
installments. In addition, Insignia will receive reimbursement for
their costs incurred in connection with their services up to
$200,000 per calendar year. Compensation to Insignia is to be paid
from the available operating cash flow of the Venture's retained
complexes after the payment of operating expenses and fundings for
insurance, real estate and personal property tax reserves, senior
mortgage payments, minimum interest payment requirements on the FDIC
mortgages, and any debt service and principal payments currently due
on any liens or encumbrances senior to the ContiTrade Deeds of
Trust. If insufficient operating cash flow exists after the funding
of these items, the balance of Insignia's compensation may be paid
from available partnership cash sources. Additionally, the
compensation payable to Insignia will be reduced proportionately for
each of the Venture's retained complexes which are sold or otherwise
disposed of from time to time.
The Venture also engaged Insignia to commence property management of
all of the Venture's retained complexes effective January 1, 1994.
Note 5 - Investment Property Foreclosures
The Combined Statements of Operations for both nine month periods ended
September 30, 1995 and 1994 reflect the foreclosures of four of the Venture's
abandoned properties. As a result of these foreclosures, the following
liabilities and assets were written off:
1995 1994
Total Total
Mortgage Principal Payable $ 18,030,117 $ 23,319,976
Accrued Interest Payable 19,989,748 16,489,517
Other (569,757) (368,417)
Investment in Properties (18,533,055) (22,857,797)
Accumulated depreciation 9,367,635 10,834,945
Extraordinary Gain $ 28,284,688 $ 27,418,224
The ordinary losses recognized for the write downs of the carrying values of
investment properties to their estimated fair market values were made pursuant
to EITF Abstract Issue No. 91-2, "Debtor's Accounting for Forfeiture of Real
Estate Subject to a Nonrecourse Mortgage" which prescribes that a "two-step"
approach method be used to present fairly the economic transaction upon
foreclosure events. The write-down of investment properties to fair market
value for the nine months ended September 30, 1995, was related to the
foreclosure of four properties during the second quarter of 1995. The provision
to reduce investments in properties to fair market value for the nine months
ended September 30, 1994, was related to the foreclosure of two properties
during the first quarter of 1994 and two properties during the third quarter of
1994.
Pursuant to the Plan, the mortgages held by the FDIC were modified effective
September 30, 1993. For 15 of the 17 retained properties, the face value of the
note was restated to the Agreed Valuation Amount. Under the terms of the
restated notes, the FDIC may reinstate the full claim which was in place at the
petition filing date upon the default of any note. The restated notes are
cross-collateralized; however, they are not cross-defaulted. As a result, the
Venture has deferred $54,052,737 of this extraordinary gain on extinguishment of
debt.
Note 6 - Contingencies
The Venture and certain affiliates of the Venture, including the Managing
General Partner and certain officers and directors of the Managing General
Partner, are parties to certain pending legal proceedings filed as of September
30, 1995. The legal proceedings in which the Venture is included relate
primarily to the limited partners' investment in the Venture. The adverse
outcome of any one or more legal proceedings against the Venture or any of its
affiliates which provide financial support or services to the Venture could have
a materially adverse effect on the present and future operations of the
Venture. The eventual outcome of these matters cannot be determined at this
time. Accordingly, no provision for any liability that may result has been made
in the financial statements.
Note 7 - Investment in Properties Subject to Abandonment
The Venture's investment in 10 properties for which it obtained Bankruptcy
Court approval to abandon, to which it still held legal title for 3 of these at
September 30, 1995, has been presented as "Investment in Properties Subject To
Abandonment" on the Venture's Combined Balance Sheet at September 30, 1995, and
December 31, 1994. The extraordinary gain on the extinguishment of debt for all
of these properties will exceed the ordinary loss from the write down of the net
carrying values of these properties to their estimated fair market values.
Therefore, no allowance or provision for the loss in asset value has been made
in the Venture's Combined Statements of Operations for the three and nine months
ended September 30, 1995. Four of these properties were foreclosed during each
of the nine month periods ended September 30, 1995 and 1994.
Note 8 - HUD Contingencies
The Venture, VMS Realty Management, Inc. and HUD are engaged in discussions
covering the appropriateness of certain Crosswood Park and Venetian Bridges
Grand Canal I disbursements totalling approximately $602,601 and $132,744,
respectively, made during the years 1987 through 1991. The parties are
attempting to resolve this issue, but the ultimate outcome cannot presently be
determined. The General Partner is vigorously defending its past actions and
does not believe the eventual outcome of these discussions will have a material
adverse effect on the operations of the Venture. Given the General Partner's
beliefs and the uncertainty regarding the eventual resolution of the amounts in
question, the responsible parties and their ability to make repayment if deemed
necessary, no adjustment has been made to the Venture's combined financial
statements concerning this matter.
Note 8 - HUD Contingencies - continued
Two of the non-retained HUD projects were involved in similar discussions
with HUD relating to $1,854,657 of inappropriate disbursements. These matters
were settled during 1994 with no effect on the Venture.
Note 9 - Mortgage Notes Payable
On October 28, 1995, the FDIC sold all of the debt it held related to the
retained properties to BlackRock Capital Finance, L.P. The debt amounts and
terms were not modified.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Venture's unrestricted cash at September 30, 1995, of $2,206,423
decreased $270,053 from December 31, 1994. This decrease was attributable to
net cash provided by operating activities of $2,474,856, offset by net cash used
in investing and financing activities of $2,002,528 and $742,381, respectively.
The decrease in net cash provided by operating activities for the nine months
ended September 30, 1995, compared to the corresponding period of 1994 was due
primarily to increased fundings of tenant security deposits, increased
prepayments of insurance and property tax expenses, and increased payments of
accounts payable partially offset by reductions in fundings of other reserves.
Net cash used in investing activities increased for the nine months ended
September 30, 1995, compared to the corresponding period of 1994 as a result of
roof replacements at Pathfinder, construction of an exercise room at Bellevue,
siding installation at Watergate, and floor covering and counter-top
replacements at Scotchollow Apartments.
Net cash used in financing activities increased for the nine months ended
September 30, 1995, compared to the corresponding period of 1994 due to the cash
relinquished to lenders in 1995 and reduced collections of subscription notes.
At December 31, 1992, the Venture had approximately $15,433,000 in excess
limited partner contributions. Permitted uses of these excess limited partner
contributions during 1993 were limited to 1) the funding of monthly Bankruptcy
Court approved professional fees; 2) establishing a reserve of $5,960,000 to
fund capital improvements on the retained complexes; 3) repayments of
approximately $5,980,000 on various prepetition claims including notes payable,
real estate taxes and amounts due trade creditors; 4) payments of $1,006,000 to
the Managing General Partner for reimbursement of cash advances and asset
management services; and 5) payments to the FDIC and ContiTrade for
reimbursement of administrative costs incurred in connection with the bankruptcy
case (see Note 4 of the Notes to Combined Financial Statements). The Venture's
Plan of Reorganization, which became effective on September 30, 1993, also
restricts the permitted uses of the excess limited partner cash balances on hand
at September 30, 1995.
Total capital contribution and interest amounts due (net of an approximate
$877,000 provision for uncollectible amounts) from limited partners of Portfolio
I and Portfolio II at September 30, 1995, approximated $1,115,093. A settlement
agreement was entered into on March 28, 1991, by the Plaintiff class counsel on
behalf of the class of limited partners in approximately 100 non-publicly traded
VMS sponsored limited partnerships including VMS National Residential Portfolio
I and II, VMS National Properties Joint Venture, and VMS Realty Partners and its
affiliates and certain other defendants. The Settlement Agreement provided the
settling Limited Partners with an option to refinance their defaulted
subscription note principal and interest payments. Of the total number of
limited partner units in Portfolio I and Portfolio II, only 10.0 limited partner
units in Portfolio I and 5.666 limited partner units in Portfolio II opted out
of the Settlement Agreement, and accordingly were ineligible to elect this
refinancing option. Approximately 65% of the total capital and accrued interest
amounts due from limited partners of Portfolio I and Portfolio II represented
amounts due from limited partners who elected the refinancing option. All
amounts remaining due from the limited partners are considered past due and
their outstanding amount bears interest at the 18% default rate.
A cash payment of $24,550,000 was paid into a settlement fund for the benefit
of the settling class members of all settling limited partnerships on behalf of
VMS and the other settling defendants. VMS National Residential Portfolio I and
II and VMS National Properties Joint Venture was not obligated to fund any
portion of this cash settlement. The settling class members in VMS National
Residential Portfolio I and II were collectively allocated approximately
$3,000,000 of the net settlement proceeds paid on behalf of the VMS Settling
Defendants and Prudential-Bache Settling Defendants.
Continued operating losses and insufficient cash flows to meet all
obligations of certain of the Venture's properties are expected to occur. The
Managing General Partner is not obligated, and does not intend, to fund any such
operating and cash flow deficits. However, the Venture's ability to continue as
a going concern and to meet its obligations as they come due is solely dependent
upon its ability to generate adequate cash flow from maintaining profitable
operations on the retained properties or securing an infusion of capital.
Management is involved in negotiations which would replace VMSRIL as the
managing general partner and has entered into an agreement with Insignia which
contemplates that VMSRIL will withdraw as general partner and be replaced by an
entity in which Insignia owns an interest. While this change in ownership has
been approved by the Bankruptcy Court and certain other creditors, it is subject
to the approval of various parties, including, among others, HUD. The Managing
General Partner believes that they will be successful in obtaining a replacement
general partner and that the Venture will be able to continue operations as a
going concern on that basis. However, the ultimate resolution of these
financial difficulties and uncertainties cannot be determined at this time.
Results of Operations
Total rental and other revenues of $21,174,157 for the nine months ended
September 30, 1995, decreased $1,508,645 or 6.7% from the corresponding period
of 1994. Total rental and other revenues for the three months ended September
30, 1995, decreased $759,169 or 10.2% compared to the corresponding period of
1994. The decline for the three and nine months ended September 30, 1995, was
directly related to the foreclosures of 4 properties during the second quarter
of 1995 (See Note 5 in Notes to Combined Financial Statements).
Operating expenses, property management fees, depreciation, and property
taxes decreased for the three and nine months ended September 30, 1995, compared
to the corresponding periods of 1994 due to the 4 foreclosures during the second
quarter of 1995. General and administrative expenses decreased $71,072 or 25.4%
and $231,976 or 22% for the three and nine months ended September 30, 1995,
respectively, compared to the corresponding periods of 1994. The decreases
resulted primarily from reductions in collection fees related to subscription
note collections, legal fees, and other miscellaneous expenses. Maintenance
expense for the three months ended September 30, 1995, decreased $246,418 or
17.8% from the corresponding period of 1994 due to the four foreclosures noted
above partially offset by exterior painting at Forest Ridge and patio repairs at
Buena Vista apartments. Interest expense decreased $3,361,672 or 41.6% for the
three months ended September 30, 1995, compared to the corresponding period of
1994 also due to the foreclosures which eliminated the accruing of interest
during most of the third quarter of 1995 on the mortgages relating to the
nonretained properties.
The ordinary losses recognized for the write downs of the carrying values of
investment properties to their estimated fair market values were made pursuant
to EITF Abstract Issue No. 91-2, "Debtor's Accounting for Forfeiture of Real
Estate Subject to a Nonrecourse Mortgage" which prescribes that a "two-step"
approach method be used to present fairly the economic transaction upon
foreclosure events. The write-down of investment properties to fair market
value for the nine months ended September 30, 1995, was related to the
foreclosure of four properties during the second quarter of 1995. The provision
to reduce investments in properties to fair market value for the nine months
ended September 30, 1994, was related to the foreclosure of two properties
during the first quarter and two properties during the third quarter of 1994.
The extraordinary gain on extinguishment of debt for the nine months ended
September 30, 1995 and 1994, resulted from gains on the foreclosure of four
properties in each year.
The loss on disposal of assets for the nine months ended September 30, 1995
and 1994, resulted from roof replacements at eight properties and two
properties, respectively.
Average occupancy rates for the nine months ended September 30, 1995 and 1994
for the retained properties are as follows:
Average
Occupancy
1995 1994
Buena Vista Apartments
Pasadena, CA 94% 97%
Casa de Monterey
Norwalk, CA 92% 94%
Crosswood Park
Citrus Heights, CA 95% 92%
Mt. View Apartments
San Dimas, CA 90% 92%
Pathfinder
Fremont, CA 93% 95%
Scotchollow
San Mateo, CA 99% 96%
The Bluffs
Milwaukie, OR 96% 97%
Bellevue Towers
Memphis, TN 96% 96%
Vista Village Apartments
El Paso, TX 82% 86%
Chapelle Le Grande
Merrillville, IN 95% 95%
North Park Apartments
Evansville, In 97% 97%
Shadowood Apartments
Monroe, LA 92% 94%
The Towers of Westchester Park
College Park, MD 97% 95%
Terrace Gardens
Omaha, NE 95% 96%
Carlisle Square
Albuquerque, NM 97% 98%
Watergate Apartments
Little Rock, AR 95% 97%
Forest Ridge Apartments
Flagstaff, AZ 93% 93%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: decrease in occupancy at Casa de Monterey to
increases in rental rates and evictions for slow or non-payment violations;
decline in occupancy at Buena Vista to job lay-offs, transfers, and home
purchases; decrease in occupancy at Vista Village to military transfers, slower
traffic and volatile market conditions; increase in occupancy at Scotchollow to
unit upgrades and property improvements in addition to improving economic
conditions; and the increase in occupancy at Crosswood Park to increases in
advertising and special rental concessions.
Recent Developments - VMS Realty Partners and Affiliates
There have been no material developments or changes from the Recent
Developments-VMS Realty Partners and Affiliates disclosed in Part I, Item 2 of
the Venture's report on form 10-Q for the quarter ended March 31, 1995.
ITEM 3. LEGAL PROCEEDINGS
As disclosed in the prior reports on Form 10-Q or Form 10-K ("Prior Public
Filings"), the Joint Venture including the Joint Venturers, VMS-General Partner
of the Joint Venturers, Subpartnerships, VMS Realty Partners, now known as VMS
Realty Partners, L.P., certain officers and directors of VMS Realty Partners,
now known as VMS Realty Partners, L.P. and certain other affiliates of the
Venture are parties to certain pending legal proceedings which are summarized
below (other than litigation matters covered by insurance policies). The
adverse outcome of certain of the legal proceedings disclosed in this Report and
the Prior Public Filings could have a materially adverse effect on the present
and future operations of the Joint Venture.
Summarized below are certain developments in legal proceedings filed against
VMS Realty Partners, now known as VMS Realty Partners, L.P. and its affiliates
which were disclosed in the Prior Public Filings and certain pending legal
proceedings not previously reported that have been filed against VMS Realty
Partners, now known as VMS Realty Partners, L.P. and its affiliates. The
inclusion in this Report of any legal proceeding or developments in any legal
proceeding is not intended as a representation by the Joint Venture that such
particular proceeding is material. For those actions summarized below in which
the plaintiffs are seeking damages, the amount of damages being sought is an
amount to be proven at trial unless otherwise specified. There can be no
assurance as to the outcome of any of the legal proceedings summarized in this
Report or in Prior Public Filings.
A. VMS National Properties and Subpartnerships Foreclosure Litigation
i) There are no new developments or changes from Item 3.A. of the Partnership's
report on Form 10-Q for the quarter ended June 30, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1995.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VMS NATIONAL PROPERTIES JOINT VENTURE
(Registrant)
By: VMS National Residential Portfolio I
By: JAS Realty Corporation
Date: November 14, 1995 By:/s/ Joel A. Stone
Joel A. Stone
President
Date: November 14, 1995 By:/s/ Thomas A. Gatti
Thomas A. Gatti
Senior Vice-President and Principal
Accounting Officer
VMS National Residential Portfolio II
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
Date: November 14, 1995 By:/s/ Joel A. Stone
Joel A. Stone
President
Date: November 14, 1995 By:/s/ Thomas A. Gatti
Thomas A. Gatti
Senior Vice-President and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary finacial information extracted from VMS National
Properties Joint Venture 1995 Third Quarter 10-Q and is qualified in its
entirety by reference to such 10-Q.
</LEGEND>
<CIK> 0000789089
<NAME> VMS NATIONAL PROPERTIES JOINT VENTURE
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,206,423
<SECURITIES> 0
<RECEIVABLES> 223,320
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 160,116,917
<DEPRECIATION> 72,712,782
<TOTAL-ASSETS> 93,304,315
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 162,112,635
<COMMON> 0
0
0
<OTHER-SE> (149,899,891)
<TOTAL-LIABILITY-AND-EQUITY> 93,304,315
<SALES> 0
<TOTAL-REVENUES> 21,174,157
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 36,509,712
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,748,569
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 28,284,688
<CHANGES> 0
<NET-INCOME> 12,949,133
<EPS-PRIMARY> 13,915
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
