FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from.........to.........
Commission file number 0-14194
VMS NATIONAL PROPERTIES JOINT VENTURE
(Exact name of registrant as specified in its charter)
Illinois 36-3311347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 Dundee Road, Suite 220
Northbrook, Illinois 60062
(Address of principal executive offices) (Zip Code)
(847) 714-9600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
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 SHEETS
(in thousands)
September 30, December 31,
1997 1996
Assets: (Unaudited) (Note)
Cash and cash equivalents:
Unrestricted $ 1,664 $ 1,788
Restricted-tenant security deposits 1,116 1,082
Accounts receivable 215 151
Escrows and other reserves 2,452 1,507
Other assets 528 411
Investment properties
Land 13,404 13,404
Buildings and personal property 129,725 128,455
143,129 141,859
Less accumulated depreciation (74,058) (70,019)
69,071 71,840
$ 75,046 $ 76,779
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 411 $ 302
Tenant security deposits 1,110 1,080
Accrued interest 14,402 11,948
Accrued property taxes 796 492
Other liabilities 548 381
Mortgage loans payable 119,038 119,229
Notes payable 36,511 33,837
Advances from affiliates of general partner 509 753
Deferred gain on extinguishment of debt 54,053 54,053
Partners' Deficit (152,332) (145,296)
$ 75,046 $ 76,779
Note:The balance sheet at December 31, 1996, 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
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 6,289 $ 5,873 $ 18,372 $ 18,099
Other income 325 281 831 888
Total revenues 6,614 6,154 19,203 18,987
Expenses:
Operating 2,028 1,868 5,603 5,761
General and administrative 287 268 749 725
Maintenance 811 718 2,062 2,280
Depreciation 1,377 1,343 4,056 4,096
Interest 4,236 4,032 12,493 12,574
Property taxes 459 450 1,298 1,405
Write-down of investment property -- -- -- 1,850
Total expenses 9,198 8,679 26,261 28,691
Loss before extraordinary item (2,584) (2,525) (7,058) (9,704)
Extraordinary gain on
extinguishment of debt -- -- -- 14,095
Net (loss) income $(2,584) $(2,525) $ (7,058) $ 4,391
Net (loss) income allocated to
general partners $ (52) $ (51) $ (141) $ 88
Net (loss) income allocated to
limited partners (2,532) (2,474) (6,917) 4,303
$(2,584) $(2,525) $ (7,058) $ 4,391
Net (loss) income per limited
partnership interest:
Net loss before extraordinary item
Portfolio I (644 interests) $(2,776) $(2,713) $ (7,587) $(10,422)
Portfolio II (268 interests) $(2,776) $(2,715) $ (7,578) $(10,440)
Extraordinary item
Portfolio I (644 interests) $ -- $ -- $ -- $ 15,146
Portfolio II (268 interests) $ -- $ -- $ -- $ 15,146
Net (loss) income
Portfolio I (644 interests) $(2,776) $(2,713) $ (7,587) $ 4,724
Portfolio II (268 interests) $(2,776) $(2,715) $ (7,578) $ 4,706
<FN>
See Accompanying Notes to Combined Financial Statements
</FN>
</TABLE>
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)
<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, 1996 $(3,356) $(98,353) $ (534) $ (98,887) $(102,243)
Collections of subscription
notes -- -- 15 15 15
Net loss for the nine months
ended September 30, 1997 (100) (4,886) -- (4,886) (4,986)
Partner's deficit at
September 30, 1997 $(3,456) $(103,239) $ (519) $(103,758) $(107,214)
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 1996 $(1,404) $ (41,307) $ (342) $ (41,649) $ (43,053)
Collections of subscription
notes -- -- 7 7 7
Net loss for the nine months
ended September 30, 1997 (41) (2,031) -- (2,031) (2,072)
Partner's deficit at
September 30, 1997 $(1,445) $ (43,338) $ (335) $ (43,673) $ (45,118)
Combined total $(4,901) $(146,577) $ (854) $(147,431) $(152,332)
<FN>
See Accompanying Notes to Combined Financial Statements
</FN>
</TABLE>
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)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (7,058) $ 4,391
Adjustments to reconcile net (loss) income:
to net cash provided by operating activities:
Write-down of investment property -- 1,850
Extraordinary gain on extinguishment of debt -- (14,095)
Depreciation 4,056 4,096
Amortization of discounts and loan costs 2,726 2,450
Loss on disposal of property 20 60
Gain on sale of property -- (59)
Change in accounts:
Restricted cash (34) 37
Accounts receivable (64) 22
Escrows and other reserves (945) (374)
Other assets (123) (145)
Accounts payable 109 (142)
Tenant security deposit liabilities 30 3
Accrued interest 2,454 3,277
Accrued property taxes 304 370
Other liabilities 167 (1)
Net cash provided by operating activities 1,642 1,740
Cash flows from investing activities:
Property improvements and replacements (1,307) (1,344)
Proceeds from sale of property -- 3,847
Net cash (used in) provided by
investing activities (1,307) 2,503
Cash flows from financing activities:
Payments on mortgage loans payable (237) (2,598)
Payments received on subscription notes 22 60
Payments on advances from affiliates (244) (1,388)
Cash released to lenders upon foreclosure -- (53)
Net cash used in financing activities (459) (3,979)
Net (decrease) increase in unrestricted cash and
cash equivalents (124) 264
Unrestricted cash and cash equivalents at beginning
of period 1,788 1,984
Unrestricted cash and cash equivalents at end of period $ 1,664 $ 2,248
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,297 $ 6,831
<FN>
See Accompanying Notes to Combined Financial Statements
</FN>
</TABLE>
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. In connection with these transactions, the following accounts were
adjusted by the amounts noted for 1996:
1996
Restricted-tenant security deposits $ 1,000
Accounts receivable (21,000)
Escrow deposits (265,000)
Other assets 108,000
Investment properties (5,781,000)
Accumulated depreciation 3,618,000
Accounts payable (6,000)
Accrued interest 9,941,000
Other liabilities 262,000
Mortgage loans payable 6,291,000
Aggregate gain on transactions 14,095,000
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
(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 and has a partners' deficit
of approximately $152 million at September 30, 1997. Continued operating losses
are expected to occur. Historically, VMS Realty Investments, Ltd. ("VMSRIL" or
the "Managing General Partner") and its affiliates had advanced funds to the
Venture. The Managing General Partner is not obligated, and does not intend, to
fund any future deficits. During 1994, the Managing General Partner and its
affiliates assigned a portion of the unpaid advances to an affiliate of Insignia
Financial Group, Inc. ("Insignia"). The Managing 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 Managing General Partner and its affiliates have incurred
serious financial difficulties that may affect the ability of the Managing
General Partner to function in that capacity. The administration and management
of the Venture are dependent on the Managing General Partner and its affiliates.
Pursuant to an agreement dated July 14, 1994, a transaction is pending in which
the current Managing General Partner would be replaced by MAERIL, Inc., an
affiliate of Insignia. The substitution of MAERIL, Inc. as the Managing General
Partner is expected, but there is no assurance that the transaction will be
consummated. The pending replacement of the Managing General Partner in and of
itself 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 the Managing General Partner, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine months
ended September 30, 1997, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1997. For further information,
refer to the combined financial statements and footnotes thereto included in the
Venture's annual report on Form 10-K for the fiscal year ended December 31,
1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
NOTE 3 - PETITION FOR RELIEF UNDER CHAPTER 11
On February 22, 1991, the 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 the 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").
NOTE 4 - PLAN OF REORGANIZATION
The primary aspects of the Venture's Plan 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. All of the non-retained properties have been
foreclosed upon as of December 31, 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 a HUD Regulatory
Agreement 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 totaling $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 $42,060,000 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. 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
service fees 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 service fees may be paid from
available partnership cash sources. Additionally, the service 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. Accordingly, the fee was reduced upon the disposition of Bellevue and
Carlisle Square in 1996. The Venture engaged Insignia to commence property
management of all of the Venture's retained complexes effective January 1,
1994.
NOTE 5 - CONTINGENCIES
The Venture and certain affiliates of the Venture, including the Managing
General Partner and certain officers and directors of the Managing General
Partner, are parties to certain pending legal proceedings filed as of September
30, 1997. 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 6 - HUD CONTINGENCIES
The Venture, VMS Realty Management, Inc. and HUD entered into a Settlement
Agreement dated December 9, 1996, related to the appropriateness of certain
Crosswood Park and Venetian Bridges Grand Canal I disbursements totaling
approximately $603,000 and $133,000, respectively, made during the years 1987
through 1991. This audit also included five other HUD projects managed by VMS
Realty Management, Inc. which were not owned by the Venture. The Settlement
Agreement provided an aggregate payment of $550,000 to the Federal government,
$102,000 of which was paid from available funds of Venetian Bridges Grand Canal
I and the remainder of the settlement payment of $448,000 were paid by entities
other than the Venture and its subpartnerships.
NOTE 7 - SALE OF PROPERTIES
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 Venture 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, and are included in other income in the accompanying combined
statements of operations. 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 Managing General Partner.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Venture's unrestricted cash and cash equivalents at September 30, 1997, of
approximately $1,664,000 decreased by approximately $124,000 from December 31,
1996. This decrease was attributable to net cash provided by operating
activities of approximately $1,642,000, offset by net cash used in investing and
financing activities of approximately $1,307,000 and $459,000, respectively.
The decrease in net cash provided by operating activities for the nine months
ended September 30, 1997, compared to the corresponding period of 1996 was
primarily due to an increase in cash paid for interest. Also contributing to
the decrease was the sale of Bellevue Towers and Carlisle Square properties
during the second quarter of 1996. Additionally, deposits held in escrows and
other reserves increased during 1997 compared to 1996.
Net cash used in investing activities increased for the nine months ended
September 30, 1997, as a result of the proceeds from the sale of Bellevue Towers
and Carlisle Square during the second quarter of 1996.
Net cash used in financing activities decreased for the nine months ended
September 30, 1997, compared to the corresponding period in 1996, primarily due
to sales proceeds from the sales discussed above, being used to pay off the
respective mortgage loans on the sold properties. In addition, the remaining
net sales proceeds were used to repay advances from affiliates of the Managing
General Partner.
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, which became effective on September 30, 1993, also restricts the
permitted uses of the excess limited partner cash balances on hand at September
30, 1997.
Total net capital contribution and interest amounts due from limited partners of
Portfolio I and Portfolio II at September 30, 1997, approximated $986,000. 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 Portfolio I,
Portfolio II, the 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 the
Venture and the other settling defendants. Portfolio I, Portfolio II and the
Venture was not obligated to fund any portion of this cash settlement. The
settling class members in Portfolio I and Portfolio 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 are expected to occur. The Managing General Partner
is not obligated, and does not intend, to fund any 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. However, the ultimate resolution of these financial difficulties
and uncertainties cannot be determined at this time.
Results of Operations
The Partnership realized a net loss of approximately $7,058,000 for the nine
months ended September 30, 1997, compared to net income of approximately
$4,391,000 for the corresponding period in 1996. For the three months ended
September 30, 1997, the Partnership realized a net loss of approximately
$2,584,000 compared to a net loss of approximately $2,525,000 for the three
months ended September 30, 1996. Included in net income for the nine month
period ended September 30, 1996, is an extraordinary gain on extinguishment of
debt of approximately $14,095,000 resulting from the foreclosures of the two
non-retained properties during the second quarter of 1996. Net loss before this
extraordinary item was approximately $9,704,000 for the nine months ended
September 30, 1996. The decrease in net loss before the extraordinary item is
primarily attributable to the write-down of investment properties and the
foreclosures of Weatheridge and Sierra in 1996, which caused a reduction in
expenses. The write-down of investment properties of $1,850,000 to fair market
value was recorded on the two non-retained properties during the second quarter
of 1996.
At the remaining properties, net loss before the extraordinary gain decreased by
approximately $201,000 for the nine months ended September 30, 1997. This
decrease was attributable to an increase in rental income which was partially
offset by increases in operating and interest expenses. The increase in rental
revenues is the result of increased rental rates at the majority of the
Partnership's properties. Rental income at Scotchollow and Pathfinder combined
for an increase of approximately $628,000. Forest Ridge and Shadowood kept rents
stable in an attempt to improve occupancy. The increase in operating expenses of
approximately $273,000 at the remaining properties is primarily due to increases
at Forest Ridge, Shadowood, and Vista Village for rental costs and concessions,
property salaries and incentives, and utilities. The increase in interest
expense for the remaining properties is primarily due to increased interest
accruals on the junior mortgages. Deferred interest on these mortgages accrues
additional interest at a rate of 10%, compounded monthly. Included in
maintenance expense for the nine months ended September 30, 1997, is
approximately $448,000 of major repairs and maintenance comprised primarily of
landscaping, parking lot repairs and exterior building repairs, largely related
to work at Watergate Apartments. Included in maintenance expense for the nine
months ended September 30, 1996, is approximately $642,000 of major repairs and
maintenance comprised primarily of landscaping, parking lot repairs, swimming
pool, and interior and exterior building repairs, mostly related to work at
Scotchollow and Mountain View.
As discussed in "Item 1. Note 7 - Sale of Properties", included in other income
for the three and nine month periods ended September 30, 1996, is approximately
$59,000 relating to gains on the sales of Carlisle Square and Bellevue Towers.
Average occupancy rates for the nine months ended September 30, 1997 and 1996,
for the Partnership's properties are as follows:
Average Occupancy
Property 1997 1996
Buena Vista Apartments
Pasadena, CA 99% 95%
Casa de Monterey
Norwalk, CA 94% 92%
Crosswood Park
Citrus Heights, CA 96% 96%
Mountain View Apartments
San Dimas, CA 98% 97%
Pathfinder
Fremont, CA 96% 96%
Scotchollow
San Mateo, CA 98% 99%
The Bluffs
Milwaukie, OR 95% 96%
Vista Village Apartments
El Paso, TX 92% 88%
Chapelle Le Grande
Merrillville, IN 97% 97%
North Park Apartments
Evansville, IN 96% 97%
Shadowood Apartments
Monroe, LA 92% 95%
The Towers of Westchester Park
College Park, MD 93% 95%
Terrace Gardens
Omaha, NE 94% 96%
Watergate Apartments
Little Rock, AR 94% 95%
Forest Ridge Apartments
Flagstaff, AZ 79% 84%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: increase at Buena Vista to the improved curb
appeal of the property, resulting from new landscaping and increased maintenance
efforts; increase at Vista Village to interior improvements to the apartments
and an improved rental market; and a decrease at Forest Ridge due to increased
competition as new properties are 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, 1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As disclosed in the prior reports on Form 10-Q or Form 10-K ("Prior Public
Filings"), the Venture including the Joint Ventures, VMS Realty Investment
L.T.D., General Partner of the Joint Ventures, 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, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K: None filed during the quarter ended September 30,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VMS NATIONAL PROPERTIES JOINT VENTURE
By: VMS National Residential Portfolio I
By: VMS Realty Investment, Ltd.
Managing General Partner
By: JAS Realty Corporation
Date: November 12, 1997 By: /s/ Joel A. Stone
Joel A. Stone
President
Date: November 12, 1997 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: November 12, 1997 By: /s/ Joel A. Stone
Joel A. Stone
President
Date: November 12, 1997 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 1997 Third Quarter 10-Q and is qualified in its
entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000789089
<NAME> VMS NATIIONAL PROPERTIES JOINT VENTURE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,664
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 143,129
<DEPRECIATION> (74,058)
<TOTAL-ASSETS> 75,046
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 119,038
0
0
<COMMON> 0
<OTHER-SE> (152,332)
<TOTAL-LIABILITY-AND-EQUITY> 75,046
<SALES> 0
<TOTAL-REVENUES> 19,203
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,493
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,058)
<EPS-PRIMARY> (7,583)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
