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 June 30, 1996
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
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited) (Note)
<S> <C> <C>
Assets
Cash and cash equivalents:
Unrestricted $ 2,381 $ 1,984
Restricted-tenant security deposits 1,068 1,120
Accounts receivable 263 240
Escrows and other reserves 1,195 1,364
Other assets 736 511
Investment properties
Land 13,404 14,293
Buildings and personal property 127,385 133,517
Investment properties subject to abandonment
Land, buildings and personal property -- 7,630
Less accumulated depreciation (67,460) (72,219)
$ 78,972 $ 88,440
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 359 $ 356
Tenant security deposits 1,040 1,080
Accrued interest 10,031 8,193
Accrued taxes 523 507
Other liabilities 795 559
Mortgage loans payable 119,349 121,845
Notes payable 32,177 30,610
Advances from affiliates of general partner 893 2,280
Deferred gain on extinguishment of debt 54,053 54,053
Liabilities subject to abandonment:
Accrued interest -- 9,477
Accrued taxes -- 121
Other liabilities -- 295
Mortgage loans payable -- 6,278
Partners' Deficit (140,248) (147,214)
$ 78,972 $ 88,440
<FN>
Note: The balance sheet at December 31, 1995, has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Combined Financial Statements
</TABLE>
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
(in thousands, except per interest data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
<S> <C> <C>
Revenues:
Rental income $ 5,945 $ 6,851
Other income 276 273
Total revenues 6,221 7,124
Expenses:
Operating 1,884 2,411
General and administrative 189 332
Maintenance 872 1,085
Depreciation 1,318 1,686
Interest 3,993 5,387
Property taxes 436 616
Write-down of investment properties 1,850 3,094
Total expenses 10,542 14,611
Loss on disposal of property -- (40)
Gain on sale of property 59 --
Net loss before extraordinary item (4,262) (7,527)
Extraordinary item-gain on
extinguishment of debt 14,095 28,285
Net income $ 9,833 $20,758
Net income allocated to
general partners $ 196 $ 415
Net income allocated to
limited partners 9,637 20,343
$ 9,833 $20,758
Net income (loss) per limited
partnership interest:
Net loss before extraordinary item
Portfolio I (644 interests) $(4,574) $(8,089)
Portfolio II (268 interests) (4,593) (8,086)
Extraordinary item
Portfolio I (644 interests) 15,146 30,394
Portfolio II (268 interests) 15,146 30,394
Net income
Portfolio I (644 interests) 10,572 22,305
Portfolio II (268 interests) 10,553 22,308
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
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
(in thousands, except per interest data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Revenues:
Rental income $ 12,226 $ 13,825
Other income 548 646
Total revenues 12,774 14,471
Expenses:
Operating 3,884 4,905
General and administrative 457 612
Maintenance 1,554 1,890
Depreciation 2,753 3,441
Interest 8,542 11,021
Property taxes 955 1,210
Write-down of investment
properties 1,850 3,094
Total expenses 19,995 26,173
Loss on disposal of property (17) (83)
Gain on sale of property 59 --
Net loss before extraordinary item (7,179) (11,785)
Extraordinary item - gain on
extinguishment of debt 14,095 28,285
Net income $ 6,916 $ 16,500
Net income allocated to
general partners $ 138 $ 330
Net income allocated to
limited partners 6,778 16,170
$ 6,916 $ 16,500
Net income (loss) per limited
partnership interest:
Net loss before extraordinary item
Portfolio I (644 interests) $ (7,710) $(12,660)
Portfolio II (268 interests) (7,725) (12,669)
Extraordinary item
Portfolio I (644 interests) 15,146 30,394
Portfolio II (268 interests) 15,146 30,394
Net income
Portfolio I (644 interests) 7,436 17,734
Portfolio II (268 interests) 7,421 17,725
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
<TABLE>
<CAPTION>
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
(in thousands)
(Unaudited)
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, 1995 $(3,382) $(99,615) $(587) $(100,202) $(103,584)
Collections of subscription notes -- -- 32 32 32
Net income for the six months ended June
30, 1996 98 4,789 -- 4,789 4,887
Partner's deficit at June 30, 1996 $(3,284) $(94,826) $(555) $ (95,381) $ (98,665)
</TABLE>
<TABLE>
<CAPTION>
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
<S> <C> <C> <C> <C>
Partners' deficit at December 31, 1995 $(1,414) $ (41,831) $ (385) $ (42,216) $ (43,630)
Collections of subscription notes -- -- 18 18 18
Net income for the six months ended June
30, 1996 40 1,989 -- 1,989 2,029
Partner's deficit at June 30, 1996 $(1,374) $ (39,842) $ (367) $ (40,209) $ (41,583)
Combined total $(4,658) $(134,668) $ (922) $(135,590) $(140,248)
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
<TABLE>
<CAPTION>
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
(in thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,916 $ 16,500
Adjustments to reconcile net income
to net cash provided by operating activities:
Writedown of investment property 1,850 3,094
Extraordinary gain on debt extinguishment (14,095) (28,285)
Depreciation 2,753 3,441
Amortization of discounts and loan costs 1,615 1,545
Loss on disposal of property 17 83
Gain on sale of property (59) --
Change in accounts:
Escrows and other reserves (96) 1,314
Accounts receivable (44) 33
Restricted tenant security deposits 53 (31)
Other assets (125) 130
Accounts payable (4) (265)
Tenant security deposit liabilities (36) 49
Accrued taxes 70 184
Accrued interest 2,302 4,419
Other liabilities 26 (537)
Net cash provided by operating
activities 1,143 1,674
Cash flows from investing activities:
Property improvements and replacements (678) (1,404)
Proceeds from sale of property 3,847 --
Net cash provided by (used in)
investing activities 3,169 (1,404)
Cash flows from financing activities:
Payments on mortgage loans payable (2,524) (139)
Payments received on subscription notes 50 56
Payments on advances from affiliates (1,388) --
Cash released to lenders upon foreclosure (53) (591)
Net cash used in financing activities (3,915) (674)
Net increase (decrease) in cash and cash equivalents 397 (404)
Cash and cash equivalents at beginning of period 1,984 2,476
Cash and cash equivalents at end of period $ 2,381 $ 2,072
Supplemental disclosure of cash flow information
Cash paid for interest $ 4,613 $ 5,018
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
<TABLE>
<CAPTION>
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 30, 1996, and May 13, 1996, the
Partnership lost Weatheridge Apartments and Sierra Gardens Apartments, respectively, through
foreclosure to the Federal Deposit Insurance Corporation. 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. In connection with these transactions, the following accounts
were adjusted by the amounts noted for 1996 and 1995:
1996 1995
<S> <C> <C>
Relinquishment of cash $ (53,000) $ (591,000)
Restricted-tenant security deposits 1,000 (167,000)
Accounts receivable (21,000) (100,000)
Escrow deposits (265,000) (326,000)
Other assets 108,000 (130,000)
Investment properties (5,781,000) (18,533,000)
Accumulated depreciation 3,618,000 9,367,000
Accounts payable (6,000) 125,000
Accrued interest 9,941,000 19,990,000
Other liabilities 262,000 620,000
Mortgage loans payable 6,291,000 18,030,000
Aggregate gain on transactions 14,095,000 28,285,000
<FN>
See Accompanying Notes to Combined Financial Statements
</TABLE>
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
(Unaudited)
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' deficit
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 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 six months ended June 30,
1996, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. 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, 1995.
Note 3 - Petition For Relief Under Chapter 11
On February 22, 1991, VMS National Properties Joint Venture filed for Chapter
11 bankruptcy protection in the United States Bankruptcy Court in the Central
District of California. The initial filing included only the residential
apartment complexes directly owned by VMS National Properties Joint Venture
(entities included in the filing hereinafter referred to collectively as the
Debtor) 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's "Second Amended and Restated Plan of Reorganization" (the "Plan")
was confirmed by the Bankruptcy Court in March 1993 and became effective
September 30, 1993 ("Effective Date"). (See "Note 4").
Note 4 - Plan of Reorganization
The primary aspects of the Venture's Second Amended and Restated Plan of
Reorganization included the following:
a. The Venture retained 17 properties from the existing portfolio (the
"retained properties"), and abandoned title of the remaining properties
(the "non-retained properties") to the Federal Deposit Insurance
Corporation (the "FDIC"). The retained properties consist of one HUD
property and sixteen non-HUD properties. Two of the seventeen retained
properties were sold during the second quarter of 1996. None of the non-
retained properties remain at June 30, 1996.
b. The Venture restructured the existing senior-lien debt obligations on the
retained properties (except for one of the retained properties which has a
first mortgage lien insured by HUD and two of the retained properties
which have senior liens formerly payable to the FDIC, as successor to
Beverly Hills Mortgage Corporation, ("BH") to provide for an interest rate
of 8.75% per annum effective as of the first day of the month of the
Effective Date with payments based on a 30 year amortization commencing on
the first monthly payment due thereafter and a maturity date of January
15, 2000.
The senior lien collateralized by HUD on one of the retained properties
was not modified, and the senior liens formerly held by the FDIC were
modified to accrue at 9% per annum effective as of the first day of the
month of the Effective Date with monthly payments of interest only made at
7% per annum commencing with the first monthly payment due thereafter on
the FDIC value, as defined in "c" below.
c. As it pertains to the existing BH junior mortgages on the retained
properties, the FDIC reduced its claim on two of the properties to
$300,000 per property evidenced by a non-interest bearing note scheduled
to mature January 15, 2000, and has left in place liens for the full
amount of its claims at the petition date for all other retained
properties. Interest on the former FDIC loans for these retained
properties accrues at 10% per annum on the FDIC value (total property
value per the FDIC's June 1992 valuations less the property's senior lien
indebtedness) commencing as of the first day of the month of the Effective
Date and monthly payments of interest only at 7% per annum on the FDIC
value will commence with the first monthly payment due thereafter. (The
retained property governed by HUD Regulatory Agreements is to make
payments of interest only following the approval by HUD of the Surplus
Cash calculation.) 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.
d. The Venture distributed the following amounts in conjunction with the
terms of the Plan: (1) approximately $5,980,000 to satisfy unsecured
prepetition creditor claims of the nonaffiliated note payable to Security
Pacific National Bank, trade creditors, and property taxes on the
retained properties; (2) approximately $1,056,000 to provide for allowed
and unclassified administrative claims; and (3) approximately $5,960,000
to make capital improvements at the retained properties. This capital
improvement reserve was exhausted during 1995.
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 them 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. The Venture also
executed a $4,000,000 promissory note dated September 1, 1993, to
ContiTrade Services Corporation (the ContiTrade Note) in connection with
these allowed note claims. The ContiTrade Note represents a
prioritization of payments to ContiTrade of the first $4,000,000 in
repayments made under the existing Assignment and Long-Term Loan
Arrangement Notes payable to the VMS/Stout Joint Venture, and does not
represent an additional $4,000,000 claim payable to ContiTrade. In
addition to prioritizing ContiTrade's receipt of the first $4,000,000 of
repayments on the old notes, the ContiTrade Note provides for 5%
noncompounding interest on the outstanding principal balance calculated
daily on the basis of a 360 day year. The ContiTrade Note is secured by a
Deed of Trust, Assignment of Rents and Security Agreement on each of the
Venture's retained properties, and provides ContiTrade with other approval
rights as to the ongoing operations of the Venture's retained properties.
The ContiTrade Note matures January 15, 2000. The remaining $42,059,819
is noninterest bearing.
f. The Venture 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 properties and partnership functions
for 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 all
out-of-pocket costs incurred in connection with their services up to
$200,000 per calendar year. These amounts are to be paid from the
available operating cash flow of the Venture's retained complexes after
the payment of operating expenses and priority reserve fundings for
insurance, real estate and personal property taxes, senior mortgage
payments, minimum interest payment requirements on the former 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 fees and reimbursements may be paid from
available partnership cash sources. Additionally, the asset management
fee 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 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, 1996,
reflects the foreclosures of two of the Venture's abandoned properties. The
Combined Statement of Operations for the six months ended June 30, 1995,
reflects the foreclosures of four of the Venture's abandoned properties. As a
result of these foreclosures, the following liabilities and assets were written
off:
1996 1995
Mortgage Principal Payable $6,291,000 $18,030,000
Accrued Interest Payable 9,941,000 19,990,000
Other 26,000 (569,000)
Investment in Properties (5,781,000) (18,533,000)
Accumulated Depreciation 3,618,000 9,367,000
Extraordinary Gain $14,095,000 $28,285,000
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 $54,053,000 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 prior to June
30, 1996. 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
combined 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 to two of these at
December 31, 1995, have been presented as "Investment in Properties Subject To
Abandonment" on the Venture's Combined Balance Sheet at December 31, 1995. The
extraordinary gain on the extinguishment of debt for all of these properties
exceeded the ordinary loss from the write down of the net carrying values of
these properties to their estimated fair market values. None of the non-
retained properties remain at June 30, 1996.
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 $603,000 and $133,000,
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. No adjustment has been made to
the Venture's combined financial statements concerning this matter given the
General Partner's beliefs, the uncertainty regarding the eventual resolution of
the amounts in question, and the responsible parties' and their ability to make
repayment if deemed necessary.
Two of the non-retained HUD projects were involved in similar discussions
with HUD relating to $1,855,000 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.
Note 10 - Sale of Property
The Partnership sold two of the retained properties, Carlisle Square
Apartments and Bellevue Towers Apartments, to an unaffiliated party on April 19,
1996, and April 30, 1996, respectively. The properties sold had a net book
value of $2,247,000 for Carlisle Square Apartments and $1,541,000 for Bellevue
Towers Apartments. The Partnership received net proceeds from the sales of
Carlisle Square and Bellevue Towers after payments of costs related to the sales
of approximately $2,291,000 and $1,556,000, respectively. The total gains on
the sale of Carlisle Square and Bellevue Towers were $44,000 and $15,000,
respectively. The gain has been allocated to the partners in accordance with
the Limited Partnership Agreement. Of the combined proceeds, $2,356,000 was
used to pay down the mortgage note payable and $1,388,000 was used to repay
advances from affiliates of the General Partner.
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, 1996, of
$2,381,000 increased $397,000 from December 31, 1995. This increase was
attributable to net cash provided by operating and investing activities of
$1,143,000 and $3,169,000, respectively, offset by net cash used in financing
activities of $3,915,000.
The decrease in net cash provided by operating activities for the six months
ended June 30, 1996, compared to the six months ended June 30, 1995, was due
primarily to the disposition of the remaining non-retained properties and sale
of the Bellevue Towers and Carlisle Square properties during the second quarter
of 1996.
Net cash provided by investing activities increased for the six months ended
June 30, 1996, compared to the six months ended June 30, 1995, as a result of
proceeds received from the sale of Carlisle Square and Bellevue Towers during
the second quarter of 1996.
Net cash used in financing activities increased primarily due to payments
made on mortgage notes and advances from affiliates resulting from proceeds
received from the sale of the two investment properties noted above.
Total capital contribution and interest amounts due from limited partners of
Portfolio I and Portfolio II at June 30, 1996, approximated $1,054,591. 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 limited
partner units in Portfolio I and 5.67 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
The Partnership realized net income of $6,916,000 for the six months ended
June 30, 1996, compared to net income of $16,500,000 for the six months ended
June 30, 1995. The Partnership realized net income of $9,833,000 for the three
months ended June 30, 1996, compared to net income of $20,758,000 for the
corresponding period of 1995. The reduction in net income for the three and six
months ended June 30, 1996, resulted primarily from the Partnership recognizing
fewer gains upon debt extinguishment during 1996 as the number of foreclosures
decreased.
The decrease in revenues and total expenses for the three and six month
periods ended June 30, 1996, resulted from the timing of non-retained
foreclosure activity. There were four non-retained properties foreclosed upon
during the second quarter of 1995 and two non-retained properties foreclosed
upon during the second quarter of 1996. Additionally, two of the retained
properties were sold during the second quarter of 1996. Excluding the impact of
the foreclosure and sale of properties, total revenues for the six months ending
June 30, 1996, increased approximately 3% compared to the six months ended June
30, 1995. Total property expenses decreased approximately 1%.
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, 1996, was related to the foreclosure of two properties
during the six months ended June 30, 1996. 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 ended June
30, 1995.
The extraordinary gain on extinguishment of debt for the six and three months
ended June 30, 1996, resulted from gains on the foreclosures of the two
remaining non-retained properties during the second quarter of 1996. The
extraordinary gain on extinguishment of debt for the three and six months ended
June 30, 1995, resulted from gains on the foreclosures of four of the non-
retained properties during the second quarter of 1995.
The loss on disposal of assets for each of the six months ended June 30, 1996
and 1995, resulted from roof replacements at one and four properties,
respectively. The gain on sale of property for the three and six months ended
June 30, 1996, resulted from the sales of Carlisle Square and Bellevue Towers
during the second quarter of 1996.
Average occupancy rates for each of the six months ended June 30, 1996 and
1995, for the retained properties are as follows:
Average
Occupancy
1996 1995
Buena Vista Apartments
Pasadena, CA 95% 93%
Casa de Monterey
Norwalk, CA 92% 92%
Crosswood Park
Citrus Heights, CA 96% 96%
Mt. View Apartments
San Dimas, CA 97% 90%
Pathfinder
Fremont, CA 96% 92%
Scotchollow
San Mateo, CA 99% 99%
Average
Occupancy
1996 1995
The Bluffs
Milwaukie, OR 97% 96%
Vista Village Apartments
El Paso, TX 86% 80%
Chapelle Le Grande
Merrillville, IN 97% 93%
North Park Apartments
Evansville, In 98% 97%
Shadowood Apartments
Monroe, LA 95% 91%
The Towers of Westchester Park
College Park, MD 95% 98%
Terrace Gardens
Omaha, NE 98% 95%
Watergate Apartments
Little Rock, AR 93% 95%
Forest Ridge Apartments
Flagstaff, AZ 85% 93%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: increases in occupancy at Mt. View Apartments to
improved market conditions and increased lease renewals; increases in occupancy
at Pathfinder to unit upgrades, property improvements, and a decrease in the
availability of homes in the area; increases in occupancy at Vista Village to
strong marketing efforts including additional advertising; increases in
occupancy at Chappelle Le Grande to property improvements and unit upgrades;
increases in occupancy at Shadowood to a local business bringing in an
additional two hundred people to the area in need of housing as well as unit
upgrades at the property; decreases in occupancy at Towers of Westchester to the
age of the property combined with a reduction in the volume of unit upgrades;
increases in occupancy at Terrace Gardens to remodeling performed to improve the
appearance of the property and fewer move-outs; decreases in occupancy at Forest
Ridge Apartments to retention of college students, the primary tenants, and new
properties being built in the area.
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 1" of
the Venture's report on form 10-K for the year ended December 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 Realty
Investment L.T.D. -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 Limited Partnership Litigation
i) There are no new developments or changes from "Item 3.A." of the
Partnership's report on Form 10-K for the year ended December 31, 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 10b, Sale Contracts for Carlisle Square and Bellevue Towers.
The Partnership has requested copies of the closing documents from the
purchaser for the sale of Carlisle Square and Bellevue Towers but has
not received these documents as of the date of this filing. The
Partnership will file an amended 10-Q to include these Exhibits when
they are received.
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, 1996.
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)
VMS National Residential Portfolio I
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
Date: August 14, 1996 By:/s/Joel A. Stone
Joel A. Stone
President
Date: August 14, 1996 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 Corporation
Date: August 14, 1996 By:/s/Joel A. Stone
Joel A. Stone
President
Date: August 14, 1996 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
Properties Joint Venture 1996 Second Quarter 10-Q and is qualified in its
entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000789089
<NAME> VMS NATIONAL PROPERTIES JOINT VENTURE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,381
<SECURITIES> 0
<RECEIVABLES> 263
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 140,789
<DEPRECIATION> 67,460
<TOTAL-ASSETS> 78,972
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 151,526
0
0
<COMMON> 0
<OTHER-SE> (140,248)
<TOTAL-LIABILITY-AND-EQUITY> 78,972
<SALES> 0
<TOTAL-REVENUES> 12,774
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,995
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 8,542
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 14,095<F2>
<CHANGES> 0
<NET-INCOME> 6,916
<EPS-PRIMARY> 7,432<F3>
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
<F2>Gain.
<F3>Multiplier is 1.
</FN>
</TABLE>
