UNITED STATES
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
(As last amended in Rel. No. 31326, eff. 10/22/92.)
[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 Report Under Section 13 or 15(d) of the
Exchange Act
For the transition period.........to.........
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form
10-K. [X]
<PAGE>
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 AND SUBPARTNERSHIPS
(an Illinois partnership)
COMBINED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Assets
Cash:
Unrestricted $ 2,597,400 $ 2,476,476
Restricted-tenant security deposits 1,319,787 1,249,345
Accounts receivable 284,430 322,669
Escrows and other reserves 2,638,806 3,953,244
Other assets 349,240 498,639
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 abondonment
Land 4,256,965 4,256,965
Buildings and personal property 30,065,409 30,045,871
Less accumulated depreciation (80,717,466) (77,413,702)
$ 107,712,050 $ 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 119,677 100,249
Accrued interest 33,704,310 30,646,892
Accrued and other liabilities 1,082,485 799,746
Mortgage loans payable 28,371,555 28,256,877
Partners' Deficit (172,054,165) (162,907,945)
$ 107,712,050 $ 111,232,360
</TABLE>
See Accompanying Notes to Combined Financial Statements
1
<PAGE>
b) VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES AND SUBPARTNERSHIPS
(an Illinois partnership)
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1995 1994
<S> <C> <C>
Revenues:
Rental income $ 6,851,018 $ 7,138,943
Other income 275,113 321,388
Total revenues 7,126,131 7,460,331
Expenses:
Operating 2,197,040 1,941,770
General and administrative 332,587 330,342
Property management fees 286,798 307,438
Maintenance 1,104,773 1,021,758
Depreciation 1,777,030 1,620,996
Interest 5,698,141 4,452,275
Property taxes 634,933 531,596
Loss on disposal of property 39,806 --
Total expenses 12,071,108 10,206,175
Net loss $(4,944,977) $(2,745,844)
Net loss allocated to general
partners $ (98,900) $ (54,264)
Net loss allocated to limited
partners (4,846,077) (2,691,580)
$(4,944,977) $(2,745,844)
Net loss per limited partnership
interest:
Net loss
Portfolio I (644 interests) $ (5,315) $ (2,960)
Portfolio II (268 interests) (5,311) (2,929)
</TABLE>
See Accompanying Notes to Combined Financial Statements
2
<PAGE>
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES AND SUBPARTNERSHIPS
(an Illinois partnership)
COMBINED STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Revenues:
Rental income $13,825,079 $14,573,073
Other income 647,502 647,116
Total revenues 14,472,581 15,220,189
Expenses:
Operating 4,415,748 4,564,499
General and administrative 612,469 725,978
Property management fees 580,870 619,635
Maintenance 1,909,922 1,900,692
Depreciation 3,531,208 3,345,356
Interest 11,313,579 8,716,080
Property taxes 1,228,189 1,261,413
Write-down of investment
property -- 1,132,331
Loss on disposal of property 82,707 --
Total expenses 23,674,692 22,265,984
Net loss before extraordinary gain (9,202,111) (7,045,795)
Extraordinary item - gain on
extinguishment of debt -- 14,058,827
Net (loss) income $(9,202,111) $ 7,013,032
Net (loss) income allocated to
general partners $ (184,043) $ 140,914
Net (loss) income allocated to
limited partners (9,018,068) 6,872,118
$(9,202,111) $ 7,013,032
Net (loss) income per limited
partnership interest:
Net loss before extraordinary
Portfolio I (644 interests) $ (9,886) $ (7,569)
Portfolio II (268 interests) (9,894) (7,578)
Extraordinary item
Portfolio I (644 interests) -- 15,107
Portfolio II (268 interests) -- 15,107
Net (loss) income
Portfolio I (644 interests) (9,886) 7,538
Portfolio II (268 interests) (9,894) 7,529
</TABLE>
See Accompanying Notes to Combined Financial Statements
3
<PAGE>
c) VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES AND SUBPARTNERSHIPS
(an Illinois partnership)
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 -- -- 34,119 34,119 34,119
Write-off of subscription notes -- -- -- -- --
Net loss for the six months ended
June 30, 1995 (129,927) (6,366,405) -- (6,366,405) (6,496,332)
Partner's deficit at June 30, 1995 $(3,732,892) $(116,795,094) $(592,943) $(117,388,037) $(121,120,929)
</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 -- -- 21,772 21,772 21,772
Write-off of subscription notes -- -- -- -- --
Net loss for the six months ended June
30, 1995 (54,116) (2,651,663) -- (2,651,663) (2,705,779)
Partner's deficit at June 30, 1995 $(1,560,298) $(48,982,901) $(390,037) $(49,372,938) $(50,933,236)
Combined total $(5,293,190) $(165,777,995) $(982,980) $(166,760,975) $(172,054,165)
</TABLE>
See Accompanying Notes to Combined Financial Statements
4
<PAGE>
d) VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES AND SUBPARTNERSHIPS
(an Illinois partnership)
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(9,202,111) $ 7,013,032
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Writedown of investment property -- 1,132,331
Extraordinary gain on extinguishment
of debt -- (14,058,827)
Depreciation 3,531,208 3,345,356
Amortization of discounts and loan costs 1,559,409 1,435,882
Loss on disposal of property 82,707 --
Change in accounts:
Escrows and other reserves 1,314,438 761,073
Accounts receivable 38,239 (71,309)
Tenant security deposits (70,442) 463,129
Other assets 129,705 502,112
Accounts payable (273,707) 112,749
Accrued interest 4,735,849 1,858,895
Accrued and other liabilities (237,298) 35,825
Net cash provided by operating
activities 1,607,997 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)
</TABLE>
See Accompanying Notes to Combined Financial Statements
5
<PAGE>
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES AND SUBPARTNERSHIPS
(an Illinois partnership)
COMBINED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
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 -- (259,644)
Net cash used in provided by
financing activities (82,757) (221,388)
Net increase in cash 120,924 1,534,664
Cash at beginning of period 2,476,476 2,049,143
Cash at end of period $ 2,597,400 $3,583,807
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 5,000,793 $5,434,938
</TABLE>
See Accompanying Notes to Combined Financial Statements
6
<PAGE>
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES AND SUBPARTNERSHIPS
(an Illinois partnership)
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Foreclosure
Pursuant to the Plan of Reorganization (see Note 4), on January 25, 1994,
and February 7, 1994, the Partnership lost Broad Meadows Apartments located in
Virginia Beach, Virginia and the Courts of Harford Square, an apartment
community located in Harford Square, Maryland, respectively, through
foreclosure to the Federal Deposit Insurance Corporation. In connection with
these transactions, the following accounts were adjusted by the non-cash
amounts noted:
<TABLE>
<CAPTION>
Courts of
Broad Meadows Harford Square Total
<S> <C> <C> <C>
Relinquishment of cash $ (107,601) $ (152,043) $ (259,644)
Accounts receivable (5,657) (58,675) (64,332)
Escrow deposits (7,911) (62,366) (70,277)
Other assets (14,320) (54,998) (69,318)
Investment properties (4,980,189) (11,072,143) (16,052,332)
Accumulated depreciation 2,281,527 4,813,805 7,095,332
Accounts payable 736 2,336 3,072
Tenant security deposits 22,129 49,607 71,736
Accrued interest 2,502,073 5,461,441 7,963,514
Other liabilities 19,719 39,048 58,767
Mortgage loans payable 5,142,961 10,239,348 15,382,309
Aggregate gain on transaction (4,853,467) (9,205,360) (14,058,827)
</TABLE>
See Accompanying Notes to Combined Financial Statements
7
<PAGE>
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES AND SUBPARTNERSHIPS
(an Illinois partnership)
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 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
8
<PAGE>
Note 2 - Basis of Presentation (continued)
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 periods ended
June 30, 1995, are not necessarily indicative of the results that may be
expected for the fiscal 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 fiscal 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
9
<PAGE>
Note 4 - Plan of Reorganization (continued)
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
seven 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
10
<PAGE>
Note 4 - Plan of Reorganization (continued)
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.
11
<PAGE>
Note 4 - Plan of Reorganization (continued)
(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
12
<PAGE>
Note 4 - Plan of Reorganization - (continued)
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 Extinguishmeent of Debt
The Combined Statements of Operations for the six months ended June 30,
1994, reflects the foreclosures of two of the Venture's abandoned properties.
As a result of these foreclosures, the following liabilities and assets were
written off:
Total
Mortgage Principal Payable $15,382,309
Accrued Interest Payable 7,963,514
Other (329,996)
Investment in Properties,
Net of Accumulated Depreciation
of $7,095,332 and Provision to
Reduce to Fair Value of $1,132,331 (8,957,000)
Extraordinary Gain $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
13
<PAGE>
Note 5 - Extraordinary Gain on Extinguishmeent of Debt (continued)
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 7 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.
Note 8 - HUD Contingencies
The Venture,VMS Realty Management, Inc. and the Department of Housing and
Urban Development (HUD) are engaged in discussions covering the appropriateness
14
<PAGE>
Note 8 - HUD Contingencies (continued)
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.
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.
15
<PAGE>
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
$2,597,400 increased $120,924 from December 31, 1994. This increase was
attributable to net cash provided by operating activities of $1,607,997,
partially offset by net cash used in investing and financing activities of
$1,404,316 and $82,757, 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 tenant security deposits in combination with
increased payments of accounts payable and other liabilities partially offset
by an increase in accrued interest. Cash provided by operating activities
also decreased from the prior year due to a decrease in operating revenues
compounded by increases in operating expenses.
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 decreased primarily due to reduced
collections of subscription notes in addition to the cash relinquished to
lenders in 1994.
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 $1,120,296. 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
16
<PAGE>
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 $14,472,581 for the six months ended
June 30, 1995, decreased $747,608 or 5% from the six months ended June 30,
1994. Total rental and other revenues for the three months ended June 30,
1995, decreased $334,200 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 $255,270 or 13% for the three month period
ended June 30, 1995, as compared to the corresponding period in 1994 primarily
as a result of increases in advertising costs, professional fees, and insurance
17
<PAGE>
premiums. General and administrative expenses decreased $113,509 or
15.6% 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 $1,245,886 or 28% and $2,597,499 or 30% 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 $103,337 or 19% for the three months ended June 30, 1995,
compared to the same period in the prior year 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 provision to reduce investments in 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, 1994, resulted from gains on the foreclosures of Courts of Harford
Square and Broad Meadows during the first quarter of 1994.
The loss on disposal of assets for the three and six months ended June 30,
1995, resulted from the write-off of roofs replaced 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%
18
<PAGE>
Average
Occupancy
1995 1994
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.
19
<PAGE>
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.
20
<PAGE>
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.
21
<PAGE>
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: August 14, 1995 By:/s/ Joel A. Stone
Joel A. Stone
President
Date: August 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: August 14, 1995 By:/s/ Joel A. Stone
Joel A. Stone
President
Date: August 14, 1995 By:/s/ Thomas A. Gatti
Thomas A. Gatti
Senior Vice-President and Principal
Accounting Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from VMS
National Properties Joint Venture's 1995 Second Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,597,400
<SECURITIES> 0
<RECEIVABLES> 284,430
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,189,663
<PP&E> 181,239,853
<DEPRECIATION> 80,717,466
<TOTAL-ASSETS> 107,712,050
<CURRENT-LIABILITIES> 44,355,868
<BONDS> 179,462,455
<COMMON> 0
0
0
<OTHER-SE> (172,054,165)
<TOTAL-LIABILITY-AND-EQUITY> 107,712,050
<SALES> 0
<TOTAL-REVENUES> 14,472,581
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,674,692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,313,579
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,202,111)
<EPS-PRIMARY> (9,888)
<EPS-DILUTED> 0
</TABLE>
