FORM 10-Q/A--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 June 30, 1995
or
[ ] Transition Pursuant to Under 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>
June 30, December 31,
1995 1994
<S> <C> <C>
Assets
Cash:
Unrestricted $ 2,071,825 $ 2,476,476
Restricted-tenant security deposits 1,112,827 1,249,345
Accounts receivable 189,319 322,669
Escrows and other reserves 2,312,517 3,953,244
Other assets 220,407 498,639
Investment properties, at cost
Land 14,293,678 14,293,679
Buildings and personal property 132,623,801 131,549,174
Investment properties subject to abandonment
Land 1,664,533 4,256,965
Buildings and personal property 11,030,975 30,045,871
Less accumulated depreciation (71,259,235) (77,413,702)
$ 94,260,647 $ 111,232,360
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 612,423 $ 905,558
Accrued interest 6,371,921 4,693,490
Accrued and other liabilities 2,465,052 2,985,089
Mortgage loans payable 121,961,038 122,072,363
Notes payable 29,129,862 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 2,508 100,249
Accrued interest 13,397,701 30,646,892
Accrued and other liabilities 395,593 799,746
Mortgage loans payable 10,328,257 28,256,877
Partners' Deficit (146,351,600) (162,907,945)
$ 94,260,647 $ 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
June 30,
1995 1994
<S>
Revenues: <C> <C>
Rental income $ 6,850,804 $ 7,138,943
Other income 273,459 321,388
Total revenues 7,124,263 7,460,331
Expenses:
Operating 2,104,835 1,895,263
General and administrative 332,587 376,849
Property management fees 286,658 307,438
Maintenance 1,084,854 1,021,758
Depreciation 1,686,434 1,620,996
Interest 5,405,731 4,452,275
Property taxes 616,647 531,596
Write-down of investment properties 3,093,811 --
Loss on disposal of property 39,806 --
Total expenses 14,651,363 10,206,175
Net loss before extraordinary item (7,527,100) (2,745,844)
Extraordinary item-gain on
extinguishment of debt 28,284,688 --
Net income (loss) $20,757,588 $(2,745,844)
Net income (loss) allocated to
general partners $ 415,152 $ (54,264)
Net income (loss) allocated to
limited partners 20,342,436 (2,691,580)
$20,757,588 $(2,745,844)
Net income (loss) per limited
partnership interest:
Net loss before extraordinary item
Portfolio I (644 interests) $ (8,089) $ (2,960)
Portfolio II (268 interests) (8,086) (2,929)
Extraordinary item
Portfolio I (644 interests) 30,394 --
Portfolio II (268 interests) 30,394 --
Net income (loss)
Portfolio I (644 interests) 22,305 (2,960)
Portfolio II (268 interests) 22,308 (2,929)
</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>
Six Months Ended
June 30,
1995 1994
<S>
Revenues: <C> <C>
Rental income $ 13,824,865 $14,573,073
Other income 645,848 647,116
Total revenues 14,470,713 15,220,189
Expenses:
Operating 4,323,543 4,517,104
General and administrative 612,469 773,373
Property management fees 580,730 619,635
Maintenance 1,890,003 1,900,692
Depreciation 3,440,612 3,345,356
Interest 11,021,169 8,716,080
Property taxes 1,209,903 1,261,413
Write-down of investment
properties 3,093,811 1,132,331
Loss on disposal of property 82,707 --
Total expenses 26,254,947 22,265,984
Net loss before extraordinary item (11,784,234) (7,045,795)
Extraordinary item - gain on
extinguishment of debt 28,284,688 14,058,827
Net income $ 16,500,454 $ 7,013,032
Net income allocated to
general partners $ 330,009 $ 140,914
Net income allocated to
limited partners 16,170,445 6,872,118
$ 16,500,454 $ 7,013,032
Net income (loss) per limited
partnership interest:
Net loss before extraordinary item
Portfolio I (644 interests) $ (12,660) $ (7,569)
Portfolio II (268 interests) (12,669) (7,578)
Extraordinary item
Portfolio I (644 interests) 30,394 15,107
Portfolio II (268 interests) 30,394 15,107
Net income
Portfolio I (644 interests) 17,734 7,538
Portfolio II (268 interests) 17,725 7,529
</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)
VMS National Residential Portfolio I
<TABLE>
<CAPTION>
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 -- -- 34,119 34,119 34,119
Net income for the six months ended
June 30, 1995 233,066 11,420,220 -- 11,420,220 11,653,286
Partner's deficit at June 30, 1995 $(3,369,899) $ (99,008,469) $(592,943) $ (99,601,412) $(102,971,311)
</TABLE>
<TABLE>
VMS National Residential Portfolio II
<CAPTION>
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 -- -- 21,772 21,772 21,772
Net income for the six months
ended June 30, 1995 96,943 4,750,225 -- 4,750,225 4,847,168
Partner's deficit at
June 30, 1995 $(1,409,239) $ (41,581,013) $(390,037) $ (41,971,050) $ (43,380,289)
Combined total $(4,779,138) $(140,589,482) $(982,980) $(141,572,462) $(146,351,600)
</TABLE>
[FN]
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>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,500,454 $ 7,013,032
Adjustments to reconcile net income
to net cash provided by operating
activities:
Writedown of investment property 3,093,811 1,132,331
Extraordinary gain on extinguishment
of debt (28,284,688) (14,058,827)
Depreciation 3,440,612 3,345,356
Amortization of discounts and loan costs 1,544,701 1,435,882
Loss on disposal of property 82,707 --
Change in accounts:
Escrows and other reserves 1,314,438 761,073
Accounts receivable 33,460 (71,309)
Restricted cash (30,956) 463,129
Other assets 129,705 502,112
Accounts payable (265,483) 112,749
Accrued interest 4,418,988 1,858,895
Accrued and other liabilities (304,214) 35,825
Net cash provided by operating
activities 1,673,535 2,530,248
Cash flows from investing activities:
Property improvements and replacements (1,404,316) (774,196)
Net cash used in investing
activities (1,404,316) (774,196)
Cash flows from financing activities:
Payments on mortgage loans payable (138,648) (111,748)
Payments received on subscription notes 55,891 150,004
Cash released to lenders on foreclosed
properties (591,113) (259,644)
Net cash used in financing activities (673,870) (221,388)
Net (decrease) increase in cash (404,651) 1,534,664
Cash at beginning of period 2,476,476 2,049,143
Cash at end of period $ 2,071,825 $3,583,807
Supplemental disclosure of cash flow information
Cash paid for interest $ 5,018,320 $5,434,938
</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), on April 1, 1995, and
June 30, 1995, the Partnership lost The Winery, Canal Court, Grand Canal I, and
Grand Canal II through foreclosure to the Federal Deposit Insurance Corporation.
On January 25, 1994, and February 7, 1994, the Partnership lost Broad Meadows
Apartments and the Courts of Hartford Square through foreclosure to the Federal
Deposit Insurance Corporation. In connection with these transactions, the
following accounts were adjusted by the non-cash amounts noted for 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Relinquishment of cash $ (591,113) $ (259,644)
Restricted-tenant security deposits (167,474) --
Accounts receivable (99,890) (64,332)
Escrow deposits (326,289) (70,277)
Other assets (130,360) (69,318)
Investment properties (18,533,055) (16,052,332)
Accumulated depreciation 9,367,635 7,095,332
Accounts payable 125,393 3,072
Accrued interest 19,989,748 7,963,514
Other liabilities 619,976 130,503
Mortgage loans payable 18,030,117 15,382,309
Aggregate gain on transaction (28,284,688) (14,058,827)
</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
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, 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 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 six month ended June 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 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. Subsequent to December
31, 1993, titles to two of the non-retained, non-HUD properties were
transferred to the lenders. The Venture has filed motions to abandon
the non-retained HUD properties held at December 31, 1993, of which
three remain at June 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 June 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
$626,500 of this reserve, which is included in escrows and
other reserves on the Venture's Combined Balance Sheet, remains
at June 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 - Extraordinary Gain on Extinguishment of Debt
The Combined Statement of Operations for the six months ended June 30, 1995,
reflects the foreclosures of four of the Venture's abandoned properties. The
Combined Statement of Operations for the six months ended June 30, 1994,
reflects the foreclosure of two 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 $15,382,309
Accrued Interest Payable 19,989,748 7,963,514
Other (569,757) (329,996)
Investment in Properties (18,533,055) (16,052,332)
Accumulated Depreciation 9,367,635 7,095,332
Extraordinary Gain $28,284,688 $14,058,827
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 June 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 11 properties for which it obtained Bankruptcy
Court approval to abandon, to which it still held legal title for 3 of these at
June 30, 1995, have been presented as "Investment in Properties Subject To
Abandonment" on the Venture's Combined Balance Sheet at June 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 six months
ended June 30, 1995. Two of these properties were foreclosed during the quarter
ended March 31, 1994, and two were foreclosed during the quarter ended September
30, 1994. An additional four of these properties were foreclosed during the
quarter ended June 30, 1995.
Note 8 - HUD Contingencies
The Venture, VMS Realty Management, Inc. and (HUD) are engaged in discussions
covering the appropriateness of certain Crosswood Park and 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.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Venture's cash and cash equivalents balance at June 30, 1995, of
$2,071,825 decreased $404,651 from December 31, 1994. This decrease was
attributable to net cash provided by operating activities of $1,673,535,
partially offset by net cash used in investing and financing activities of
$1,404,316 and $673,870, respectively.
The decrease in net cash provided by operating activities for the six months
ended June 30, 1995, compared to the six months ended June 30, 1994, was due
primarily to increased fundings of tenant security deposits in combination with
increased payments of accounts payable and other liabilities partially offset by
an increase in accrued interest.
Net cash used in investing activities increased for the six months ended June
30, 1995, compared to the six months ended June 30, 1994, as a result of
extensive property improvements primarily at Watergate, Scotchollow, and Towers
of Westchester.
Net cash used in financing activities increased primarily due to reduced
collections of subscription notes in addition to the cash relinquished to
lenders as a result of the foreclosures in 1995.
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 June 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 June 30, 1995, approximated $1,120,116. 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. This change in ownership is subject
to the approval of various parties, including, among others, HUD, the FDIC and
ContiTrade. 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 $14,470,713 for the six months ended June
30, 1995, decreased $749,476 or 4.9% from the six months ended June 30, 1994.
Total rental and other revenues for the three months ended June 30, 1995,
decreased $336,068 or 4.5% compared to the corresponding period in 1994. The
decline for the three and six months ended June 30, 1995, was attributable to an
overall 1% decrease in average occupancy rates and the foreclosure of two
properties in the last nine months of 1994. These decreases were partially
offset by increases in average property rental rates. The decrease in other
income for the three months ended June 30, 1995, was further impacted by a 14%
decrease in interest and laundry income.
Operating expenses increased $209,572 or 11% for the three month period ended
June 30, 1995, compared to the corresponding period in 1994 primarily as a
result of increases in advertising costs, professional fees, and insurance
premiums. General and administrative expenses decreased $160,904 or 20.8% for
the six months ended June 30, 1995, compared to the six months ended June 30,
1994, due to decreases in legal fees and other miscellaneous expenses in
addition to the Partnership owning two fewer properties. Interest expense
increased $953,456 or 21.4% and $2,305,089 or 26.4% for the three and six month
periods ended June 30, 1995, respectively, compared to the corresponding periods
ended June 30, 1994. The increases resulted primarily from accruing interest on
the mortgages relating to the nonretained properties and the FDIC mortgages of
the retained properties under the Reorganization Plan. Property taxes
increased $85,051 or 16% for the three months ended June 30, 1995, compared to
the corresponding period of 1994 due to increases in property tax rates at
several properties.
The ordinary losses recognized for the write downs of the carrying values of
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
six months ended June 30, 1995, was related to the foreclosure of four
properties during the six months ending June 30, 1995. The write-down of
investment properties to fair market value for the six months ended June 30,
1994, was related to the foreclosure of two properties during the first quarter
of 1994.
The extraordinary gain on extinguishment of debt for the six months ended
June 30, 1995, resulted from gains on the foreclosure of four properties during
the six months ending June 30, 1995. The extraordinary gain on extinguishment
of debt for the six months ended June 30, 1994, resulted from gains on the
foreclosure of two properties during the first quarter of 1994.
The loss on disposal of assets for the three and six months ended June 30,
1995, resulted from roof replacements at four properties.
Average occupancy rates for the six months ended June 30, 1995 and 1994 for
the retained properties are as follows:
Average
Occupancy
1995 1994
Buena Vista Apartments
Pasadena, CA 93% 96%
Casa de Monterey
Norwalk, CA 92% 95%
Crosswood Park
Citrus Heights, CA 96% 92%
Mt. View Apartments
San Dimas, CA 90% 91%
Pathfinder
Fremont, CA 92% 96%
Scotchollow
San Mateo, CA 99% 95%
The Bluffs
Milwaukie, OR 96% 97%
Bellevue Towers
Memphis, TN 97% 95%
Vista Village Apartments
El Paso, TX 80% 89%
Chapelle Le Grande
Merrillville, IN 93% 95%
North Park Apartments
Evansville, In 97% 97%
Shadowood Apartments
Monroe, LA 91% 95%
The Towers of Westchester Park
College Park, MD 98% 94%
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% 94%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: decreases in occupancy at Casa de Monterey and
Pathfinder to increases in rental rates, evictions for slow or non-payment
violations and slower traffic; declines in occupancy at Buena Vista, Chapelle
Le Grande, and Watergate to job lay-offs, transfers and an unusually high number
of home purchases in their respective areas; decrease in occupancy at Vista
Village to numerous military transfers, slower traffic and volatile market
conditions; decline in occupancy at Shadowood to business relocations due to
poor economic conditions in Monroe and rental rates higher than competition;
increases in occupancy at Scotchollow and Towers of Westchester Park to unit
upgrades and property improvements in addition to improving economic conditions
in their respective areas; and the increase in occupancy at Crosswood Park to
increases in advertising and special rental concessions being offered.
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) The following foreclosure proceedings were filed against VMS National
Properties and/or its affiliates by lenders during the VMS National
Properties bankruptcy proceedings:
Federal Deposit Insurance Corporation as manager of the Federal Savings and
Loan Insurance Corporation Resolution Fund as assignee of BH Mortgage
Corporation, a California corporation, v. Chicago Wheaton Partners, an
Illinois general partnership, VMS National Properties, an Illinois
partnership, VMS National Properties II, a California general partnership,
Case No. CIV S 93 892 EJG JFM (United States District Court, Eastern
Division of California), filed on or about June 24, 1993. This action has
been dismissed.
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 June 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 financial information extracted from VMS National
Joint Venture 1995 Second Quarter 10-Q/A and is qualifed in its entirety by
reference to such 10-Q/A.
</LEGEND>
<CIK> 0000789089
<NAME> VMS NATIONAL PROPERTIES JOINT VENTURE
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,071,825
<SECURITIES> 0
<RECEIVABLES> 189,319
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 159,612,987
<DEPRECIATION> 71,259,235
<TOTAL-ASSETS> 94,260,647
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 161,419,156
<COMMON> 0
0
0
<OTHER-SE> 146,351,600
<TOTAL-LIABILITY-AND-EQUITY> 94,260,647
<SALES> 0
<TOTAL-REVENUES> 14,470,713
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,254,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,021,169
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 28,284,688
<CHANGES> 0
<NET-INCOME> 16,500,454
<EPS-PRIMARY> 17,731
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
