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, 1998
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
(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.)
55 Beattie Place, P. O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (ZIP code)
(864) 239-1000
(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,
1998 1997
(Unaudited) (Note)
Assets:
Cash and cash equivalents $ 1,040 $ 2,510
Receivables and deposits 1,913 1,872
Restricted escrows 2,434 86
Other assets 414 478
Investment properties:
Land 13,404 13,404
Buildings and personal property 132,445 130,603
Less accumulated depreciation (79,336) (75,411)
66,513 68,596
$ 72,314 $ 73,542
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 463 $ 369
Tenant security deposit liabilities 1,139 1,105
Accrued property taxes 866 605
Other liabilities 482 994
Accrued interest 1,063 --
Mortgage notes payable 139,647 139,449
Notes payable 36,454 33,455
Deferred gain on extinguishment of debt 42,225 42,225
Partners' Deficit (150,025) (144,660)
$ 72,314 $ 73,542
Note: The balance sheet at December 31, 1997, 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
(Unaudited)
(in thousands, except per interest data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues:
Rental income $ 6,691 $ 6,172 $19,755 $18,145
Other income 332 325 882 831
Casualty gain 7 -- 230 --
Total revenues 7,030 6,497 20,867 18,976
Expenses:
Operating 2,598 2,711 7,519 7,419
General and administrative 184 287 532 749
Depreciation 1,456 1,377 4,234 4,056
Interest 4,243 4,236 12,509 12,493
Property taxes 456 459 1,261 1,298
Loss on disposal of property 62 11 188 19
Total expenses 8,999 9,081 26,243 26,034
Net loss $(1,969) $(2,584) $(5,376) $(7,058)
Net loss allocated to
general partners (2%) $ (40) $ (52) $ (108) $ (141)
Net loss allocated to
limited partners (98%) (1,929) (2,532) (5,268) (6,917)
$(1,969) $(2,584) $(5,376) $(7,058)
Net loss per limited
partnership interest:
Portfolio I (644 interests
issued and outstanding) $(2,117) $(2,776) $(5,780) $(7,587)
Portfolio II (267 and 268
interests issued and outstanding
in 1998 and 1997, respectively) $(2,120) $(2,776) $(5,790) $(7,578)
See Accompanying Notes to Combined Financial Statements
c)
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
VMS National Residential Portfolio I
General Accumulated Subscription
Partners Deficit Notes Total Total
<S> <C> <C> <C> <C> <C>
Partners' deficit at
December 31, 1997 $ (3,347) $ (97,932) $ (511) $ (98,443) $(101,790)
Collections of subscription
notes -- -- 5 5 5
Net loss for the nine months
ended September 30, 1998 (76) (3,722) -- (3,722) (3,798)
Partner's deficit at
September 30, 1998 $ (3,423) $(101,654) $ (506) $(102,160) $(105,583)
</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, 1997 $(1,401) $ (41,134) $ (335) $ (41,469) $ (42,870)
Collections of subscription
Notes -- -- 6 6 6
Net loss for the nine months
ended September 30, 1998 (32) (1,546) -- (1,546) $ (1,578)
Partner's deficit at
September 30, 1998 $(1,433) $ (42,680) $ (329) $ (43,009) $ (44,442)
Combined total $(4,856) $(144,334) $ (835) $(145,169) $(150,025)
<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
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss $ (5,376) $ (7,058)
Adjustments to reconcile net loss to net
Cash provided by operating activities:
Depreciation 4,234 4,056
Amortization of discounts 2,999 2,726
Loss on disposal of property 188 19
Casualty gain (230) --
Change in accounts:
Receivables and deposits (41) (1,027)
Other assets 64 (123)
Accounts payable 94 109
Tenant security deposit liabilities 34 30
Accrued property taxes 261 304
Accrued interest 2,619 2,454
Other liabilities (512) 167
Net cash provided by operating activities 4,334 1,657
Cash flows from investing activities:
Property improvements and replacements (2,438) (1,307)
Net deposits to restricted escrows (2,348) (15)
Net insurance proceeds 329 --
Net cash used in investing activities (4,457) (1,322)
Cash flows from financing activities:
Payments on mortgage notes payable (1,358) (237)
Payments on advances from affiliates -- (244)
Payments received on subscription notes 11 22
Net cash used in financing activities (1,347) (459)
Net decrease in cash and cash equivalents (1,470) (124)
Cash and cash equivalents at beginning of period 2,510 1,788
Cash and cash equivalents at end of period $ 1,040 $ 1,664
Supplemental disclosure of cash flow information:
Cash paid for interest $ 6,619 $ 7,297
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable $ 1,556 $ --
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 SUBPARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited combined financial statements of VMS National
Properties (the "Venture") 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
MAERIL, Inc. ("MAERIL" or 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, 1998, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998. 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,
1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - PETITION FOR RELIEF UNDER CHAPTER 11 AND PLAN OF REORGANIZATION
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 herein after 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 Portfolio I and 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 Plan was confirmed by the Bankruptcy Court in March 1993 and
became effective on September 30, 1993 (the "Effective Date"). During 1997, the
Plan was modified in order to allow the Venture to refinance the debt
encumbering its properties. The bankruptcy plan was closed by the Bankruptcy
Court on April 29, 1998.
The Primary aspects of the Venture's 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 consisted 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 were 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 had a first
mortgage lien insured by HUD and two of the retained properties which had 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 with
a maturity 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 payments due thereafter on the FDIC value, as defined in "c"
below.
All of the senior-lien debt was refinanced on December 29, 1997.
(c) As it pertained 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 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 accrued 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 made 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.
On December 29, 1997, all of the junior mortgages were refinanced.
(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 (the "VMS/Stout Venture") was formed pursuant to
an agreement dated August 18, 1984, which was amended and restated on October 4,
1984. VMS Realty Partners has a 50% interest and affiliates of the Seller (as
defined below) have a 50% interest in the VMS/Stout Venture. The VMS/Stout
Venture, the J.D. Stout Company ("Stout") and certain affiliates of Stout
entered into a contract of sale dated August 18, 1984, which was amended on
October 4, 1984. The contract provided for the sale by Stout and other owners
(collectively the "Seller") of the 51 residential apartment complexes to the
VMS/Stout Venture. The VMS/Stout Venture assigned its interest as purchaser to
the Venture. During 1987, Stout assigned its interest in the VMS/Stout Joint
Venture to ContiTrade Service Corporation ("ContiTrade"). On November 17, 1993,
VMS Realty Partners assigned its interest in the VMS/Stout Joint Venture to the
Partners Liquidating Trust. The VMS/Stout Joint Venture was granted an allowed
claim in the amount of $49,535,000 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%
non-compounding interest on the outstanding principal balance calculated daily
on the basis of a 360 day year. The ContiTrade Note was secured by a Deed of
Trust, Assignment of Rents and Security Agreement on each of the Venture's
retained properties, and provided ContiTrade with other approval rights as to
the ongoing operations of the Venture's retained properties. The ContiTrade
Note, which was scheduled to mature January 15, 2000, was paid off on December
29, 1997.
NOTE C - MORTGAGE NOTES REFINANCED
On December 29, 1997, the Venture refinanced the mortgages encumbering all of
its remaining 15 properties. The refinancing resulted in each property being
encumbered by new senior and junior loans. The senior loans each have an
interest rate of 8.5% per annum and require monthly payments of principal and
interest based on a 25 year amortization period. Balloon payments of
approximately $91,352,000 will be due at maturity (January 1, 2008). The junior
loans, which aggregate approximately $29,449,000, each have an interest rate of
10.84% per annum and require monthly payments based on excess monthly cash flow,
as defined, for each property. The difference between the accrued amount of the
stated rate and the actual payment is transferred to the outstanding principal.
All of the loans mature on January 1, 2008, and the senior loans include
prepayment penalties if paid prior to January 1, 2007. The senior loans
retained similar terms for the previous indebtedness regarding note face amounts
and agreed valuation amounts. These new senior loans are recorded at the agreed
valuation amount of $110,000,000, which is less than the $152,225,000 face
amount of the senior loans. If the Venture defaults on the new mortgage notes
payable or is unable to pay the outstanding agreed valuation amounts upon
maturity, then the note face amounts become due. Accordingly, the Venture
deferred recognition of a gain of $42,225,000, which is the difference between
the refinanced note face amounts and the agreed valuation amounts. All the
loans are cross-collateralized, but they are not cross-defaulted. At September
30, 1998, the outstanding balance of the senior and junior notes was
approximately $109,243,000 and $30,404,000, respectively.
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
The Venture has no employees and is dependent on the Managing General Partner
and its affiliates for the management and administration of all partnership
activities. Effective December 12, 1997, MAERIL became the Managing General
Partner of VMS National Residential Portfolio I and VMS National Residential
Portfolio II (the VMS "Partnerships"). Effective February 25, 1998, MAERIL
became a wholly-owned subsidiary of Insignia Properties Trust ("IPT") (see "Note
E" below).
Effective January 1, 1998, the Venture and the Managing General Partner agreed
to amend the Asset Management Agreement to reduce the annual service fee payable
to an affiliate of the Managing General Partner to $300,000 per year, and to
reduce the annual out of pocket cost reimbursements to $100,000. These costs
are paid throughout the year and are included in general and administrative
expenses. In addition, bookkeeping reimbursements in the amount of
approximately $108,000 and property management fees in the amount of
approximately $838,000 (both included in operating expenses) were paid to an
affiliate of the Managing General Partner during the nine months ended September
30, 1998.
NOTE E - TRANSFER OF CONTROL; SUBSEQUENT EVENT
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the Managing General Partner. In addition, AIMCO also acquired approximately
51% of the outstanding common shares of beneficial interest of IPT. Also,
effective October 1, 1998, IPT and AIMCO entered into an Agreement and plan of
Merger pursuant to which IPT is to be merged with and into AIMCO or a subsidiary
of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of the
holders of a majority of the outstanding IPT Shares. AIMCO has agreed to vote
all of the IPT Shares owned by it in favor of the IPT Merger and has granted an
irrevocable limited proxy to unaffiliated representatives of IPT to vote the IPT
Shares acquired by AIMCO and its subsidiaries in favor of the IPT Merger. As a
result of AIMCO's ownership and its agreement, the vote of no other holder of
IPT is required to approve the merger. The Managing General Partner does not
believe that this transaction will have a material effect on the affairs and
operations of the Venture.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Average occupancy rates for the nine months ended September 30, 1998 and 1997,
for the Venture's properties are as follows:
Average Occupancy
Property 1998 1997
Buena Vista Apartments
Pasadena, CA 99% 99%
Casa de Monterey
Norwalk, CA 95% 94%
Crosswood Park
Citrus Heights, CA 95% 96%
Mt. View Apartments
San Dimas, CA 98% 98%
Pathfinder Village
Fremont, CA 91% 96%
Scotchollow
San Mateo, CA 95% 98%
The Bluffs
Milwaukie, OR 96% 95%
Vista Village Apartments
El Paso, TX 95% 92%
Chapelle Le Grande
Merrillville, IN 93% 97%
North Park Apartments
Evansville, IN 97% 96%
Shadowood Apartments
Monroe, LA 95% 92%
The Towers of Westchester Park
College Park, MD 97% 93%
Terrace Gardens
Omaha, NE 95% 94%
Watergate Apartments
Little Rock, AR 90% 94%
Forest Ridge Apartments
Flagstaff, AZ 89% 79%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: a decrease at Pathfinder Village due to a fire
which caused repairs to be made to one entire building during 1998 and rental
rate increases; decrease at Chapelle Le Grande due to home purchases in the
area; an increase at The Towers of Westchester Park due to a stronger rental
market and more aggressive marketing; a decrease at Watergate Apartments due to
a more competitive market; and an increase at Forest Ridge Apartments due to
effective marketing efforts.
The Venture realized a net loss of approximately $5,376,000 for the nine months
ended September 30, 1998, compared to a net loss of approximately $7,058,000 for
the corresponding period of 1997. For the three months ended September 30,
1998, the Venture realized a net loss of approximately $1,969,000 compared to a
net loss of approximately $2,584,000 for the three months ended September 30,
1997. The decrease in net loss for the three and nine month periods ended
September 30, 1998 is primarily attributable to increased rental income due to
increased rental rates at all of the Venture's properties. Other income also
increased during the nine months ended September 30, 1998 primarily due to an
increase in lease cancellation fees and cleaning and damage fees at Scotchollow
Apartments due to early moveouts of first time homebuyers and reimbursements for
legal refinancing expense incurred in a prior year. Additionally, the Venture
recorded a casualty gain in connection with a fire that damaged eight of the 246
units at Pathfinder Village. Also contributing to the decrease in net loss was
a decrease in general and administrative expenses primarily due to a decrease in
asset management fees and reimbursements resulting from the revised Asset
Management Agreement, which was effective January 1, 1998. Partially offsetting
the increase in revenues and the decrease in general and administrative expenses
during the nine months ended September 30, 1998 was an increase in operating
expenses and an increase in loss on disposal of property. Operating expenses for
the nine months ended September 30, 1998 increased primarily due to increased
utilities at Forest Ridge, Pathfinder Village, and Vista Village. For the three
months ended September 30, 1998, operating expenses decreased primarily due to a
decrease in repair and maintenance expenses. The loss on disposal of property
resulted from the write-off of roofs that were not fully depreciated when
replaced at Chapelle Le Grande, Pathfinder Village, Mountain View Apartments and
Casa de Monterey during the nine months ended of September 30, 1998. These
losses were greater than a similar loss on disposal of property at Terrace
Gardens and Crosswood Park during the corresponding period of 1997.
Included in operating expense for the nine months ended September 30, 1998, is
approximately $400,000 in major repairs and maintenance comprised primarily of
exterior building repairs, exterior painting, and landscaping. Included in
operating expense for the nine months ended September 30, 1997, is approximately
$448,000 in major repairs and maintenance comprised primarily of landscaping,
parking lot repairs and exterior building repairs, largely related to work at
Watergate Apartments.
As part of the ongoing business plan of the Venture, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Venture from increases in
expense. As part of this plan, the Managing General Partner attempts to protect
the Venture from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due
to changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
At September 30, 1998, the Venture had cash and cash equivalents of
approximately $1,040,000 compared to approximately $1,664,000 at September 30,
1997. The net decrease in cash and cash equivalents for the nine months ended
September 30, 1998, was approximately $1,470,000 compared to a net decrease of
approximately $124,000 for the corresponding period in 1997. Net cash provided
by operating activities increased during the nine months ended September 30,
1998, primarily due to a decrease in net loss, as discussed above, and a
decrease in net cash used in receivables and deposits resulting from a decrease
in tax and insurance escrows and operating reserves. Net cash used in investing
activities increased primarily due to an increase in property improvements and
replacements and an increase in net deposits to restricted escrows as required
by the December 1997 refinancing. Net cash used in financing activities
increased due to an increase of payments on the junior loans resulting from an
increase in excess cash flow at several of the Venture's investment properties.
On December 29, 1997, the Venture refinanced the mortgages encumbering all of
its remaining 15 properties. The refinancing resulted in each property being
encumbered by new senior and junior loans. The senior loans each have an
interest rate of 8.5% per annum and require monthly payments of principal and
interest based on a 25 year amortization period. Balloon payments of
approximately $91,352,000 will be due at maturity (January 1, 2008). The junior
loans, which aggregate approximately $29,449,000, each have an interest rate of
10.84% per annum and require monthly payments based on excess monthly cash flow,
as defined, for each property. The difference between the accrued amount of the
stated rate and the actual payment is transferred to the outstanding principal.
All of the loans mature on January 1, 2008, and the senior loans include
prepayment penalties if paid prior to January 1, 2007. The senior loans
retained similar terms as the previous indebtedness regarding note face amounts
and agreed valuation amounts. These new senior loans are recorded at the agreed
valuation amount of $110,000,000, which is less than the $152,225,000 face
amount of the senior loans. If the Venture defaults on the new mortgage notes
payable or is unable to pay the outstanding agreed valuation amounts upon
maturity, then the note face amounts become due. Accordingly, the Venture
deferred recognition of a gain of $42,225,000, which is the difference between
the refinanced note face amounts and the agreed valuation amounts. All the
loans are cross-collateralized, but they are not cross-defaulted. At September
30, 1998, the outstanding balance of the senior and junior notes was
approximately $109,243,000 and $30,404,000, respectively.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Venture. Such assets are
currently thought to be sufficient for any near-term needs of the Venture. The
Managing General Partner is currently assessing the need for capital
improvements at each of the Venture's properties. To the extent that additional
capital improvements are required, the Venture's distributable cash flow, if
any, may be adversely effected. No cash distributions were made by the Venture
during the nine months ended September 30, 1998, or during the nine months ended
September 30, 1997. Future cash distributions are subject to the order of
distributions stipulated by the Venture's Plan of Reorganization. The source of
future cash distributions is dependent upon cash generated by the Venture's
properties and the cash generated through the sale or refinancing of those
properties. There can be no assurance, however, that the Venture will generate
sufficient funds from operations to permit distributions to its partners in 1998
or subsequent periods.
Transfer of Control; Subsequent Event
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the Managing General Partner. In addition, AIMCO also acquired approximately
51% of the outstanding common shares of beneficial interest of Insignia
Properties Trust ("IPT"), the sole shareholder of the Managing General Partner.
Also, effective October 1, 1998 IPT and AIMCO entered into an Agreement and plan
of Merger pursuant to which IPT is to be merged with and into AIMCO or a
subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of
the holders of a majority of the outstanding IPT Shares. AIMCO has agreed to
vote all of the IPT Shares owned by it in favor of the IPT Merger and has
granted an irrevocable limited proxy to unaffiliated representatives of IPT to
vote the IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT
Merger. As a result of AIMCO's ownership and its agreement, the vote of no
other holder of IPT is required to approve the merger. The Managing General
Partner does not believe that this transaction will have a material effect on
the affairs and operations of the Venture.
Year 2000
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Venture is dependent
upon the Managing General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any computer programs or hardware
that have date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Managing Agent has determined that it will be required to modify or replace
significant portions of its software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. The Managing Agent
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.
Status of Progress in Becoming Year 2000 Compliant
The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. Assessments are continuing in regards to embedded systems in operating
equipment. The Managing Agent anticipates having all phases complete by June 1,
1999.
In addition to the areas the Venture is relying on the Managing Agent to verify
compliance with, the Venture has certain operating equipment, primarily at the
property sites, which needed to be evaluated for Year 2000 compliance. The
focus of the Managing General Partner was to the security systems, elevators,
heating-ventilation-air-conditioning systems, telephone systems and switches,
and sprinkler systems. The Managing General Partner is currently engaged in the
identification of all non-compliant operational systems, and is in the process
of estimating the costs associated with any potential modifications or
replacements needed to such systems in order for them to be Year 2000 compliant.
It is not expected that such costs would have a material adverse affect upon
the operations of the Venture.
Risk Associated with the Year 2000
The Managing General Partner believes that the Managing Agent has an effective
program in place to resolve the Year 2000 issue in a timely manner and has
appropriate contingency plans in place for critical applications that could
affect the Partnership's operations. To date, the Managing General Partner is
not aware of any external agent with a Year 2000 issue that would materially
impact the Partnership's results of operations, liquidity or capital resources.
However, the Managing General Partner has no means of ensuring that external
agents will be Year 2000 compliant. The Managing General Partner does not
believe that the inability of external agents to complete their Year 2000
resolution process in a timely manner will have a material impact on the
financial position or results of operations of the Partnership. However, the
effect of non-compliance by external agents is not readily determinable.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and as such may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Venture to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
forward-looking statements speak only as of the date of this quarterly report.
The Venture expressly disclaims any obligation or undertaking to release
publicly any updates of revisions to any forward-looking statements contained
herein to reflect any change in the Venture's expectations with regard thereto
or any change in events, conditions or circumstances on which any such statement
is based.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1998.
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
(Registrant)
VMS National Residential Portfolio I
By: MAERIL, Inc.
Its Managing General Partner
Date: November 16, 1998 By: /s/Patrick Foye
Patrick Foye
Executive Vice President
Date: November 16, 1998 By: /s/Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
(Duly Authorized Officer)
VMS National Residential Portfolio II
By: MAERIL, Inc.
Its Managing General Partner
Date: November 16, 1998 By: /s/Patrick Foye
Patrick Foye
Executive Vice President
Date: November 16, 1998 By: /s/Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
(Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
VMS National Properties 1998 Third Quarter 10-Q and is qualified in its
entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000789089
<NAME> VMS NATIONAL PROPERTIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,040
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 145,849
<DEPRECIATION> 79,336
<TOTAL-ASSETS> 72,314
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 196,101
0
0
<COMMON> 0
<OTHER-SE> (150,025)
<TOTAL-LIABILITY-AND-EQUITY> 72,314
<SALES> 0
<TOTAL-REVENUES> 20,867
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 26,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,509
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,376)
<EPS-PRIMARY> (5,780)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
