FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
U.S. 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, 1999
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.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) 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,
1999 1998
(Unaudited) (Note)
Assets:
Cash and cash equivalents $ 785 $ 931
Receivables and deposits 2,220 2,163
Restricted escrows 3,005 2,596
Other assets 365 418
Investment properties:
Land 13,404 13,404
Buildings and related personal property 134,496 133,223
Less accumulated depreciation (85,107) (80,798)
62,793 65,829
$ 69,168 $ 71,937
Liabilities and Partners' Deficit:
Liabilities
Accounts payable $ 454 $ 405
Tenant security deposits liabilities 1,100 1,108
Accrued property taxes 967 1,047
Other liabilities 567 493
Accrued interest 1,064 1,076
Mortgage notes payable 137,855 139,732
Notes payable 40,693 37,458
Deferred gain on extinguishment of debt 42,225 42,225
Partners' Deficit (155,757) (151,607)
$ 69,168 $ 71,937
Note: The balance sheet at December 31, 1998, 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 unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 6,874 $ 6,691 $ 20,473 $ 19,755
Other income 381 332 957 882
Casualty gain -- 7 -- 230
Total revenues 7,255 7,030 21,430 20,867
Expenses:
Operating 2,268 2,598 6,851 7,519
General and administrative 149 184 501 532
Depreciation 1,452 1,456 4,309 4,234
Interest 4,211 4,243 12,565 12,509
Property taxes 449 456 1,354 1,261
Loss on disposal of property -- 62 -- 188
Total expenses 8,529 8,999 25,580 26,243
Net loss $ (1,274) $ (1,969) $ (4,150) $ (5,376)
Net loss allocated
to general partners (2%) $ (25) $ (40) $ (83) $ (108)
Net loss allocated
to limited partners (98%) (1,249) (1,929) (4,067) (5,268)
$ (1,274) $ (1,969) $ (4,150) $ (5,376)
Net loss per limited
partnership interest:
Portfolio I (644 interests
issued and outstanding) $ (1,370) $ (2,117) $ (4,464) $ (5,780)
Portfolio II (267 interests
issued and outstanding) $ (1,370) $ (2,120) $ (4,465) $ (5,790)
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, except unit data)
<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, 1998 $(3,445) $(102,751) $ (506) $(103,257) $(106,702)
Net loss for the
nine months ended
September 30, 1999 (59) (2,875) -- (2,875) (2,934)
Partners' deficit at
September 30, 1999 $(3,504) $(105,626) $ (506) $(106,132) $(109,636)
</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, 1998 $(1,442) $(43,134) $ (329) $ (43,463) $ (44,905)
Net loss for the
nine months ended
September 30, 1999 (24) (1,192) -- (1,192) (1,216)
Partners' deficit at
September 30, 1999 $(1,466) $ (44,326) $ (329) $ (44,655) $ (46,121)
Combined total $(4,970) $(149,952) $ (835) $(150,787) $(155,757)
</TABLE>
See Accompanying Notes to Combined Financial Statements
d)
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois limited partnerships)
VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net loss $ (4,150) $ (5,376)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 4,309 4,234
Amortization of discounts 3,235 2,999
Loss on disposal of property -- 188
Casualty gain -- (230)
Change in accounts:
Receivables and deposits (57) (41)
Other assets 53 64
Accounts payable 49 94
Tenant security deposit liabilities (8) 34
Accrued property taxes (80) 261
Accrued interest 477 2,619
Other liabilities 74 (512)
Net cash provided by operating activities 3,902 4,334
Cash flows from investing activities:
Property improvements and replacements (1,273) (2,438)
Net deposits to restricted escrows (409) (2,348)
Net insurance proceeds -- 329
Net cash used in investing activities (1,682) (4,457)
Cash flows from financing activities:
Payments on mortgage notes payable (2,366) (1,358)
Payments received on subscription notes -- 11
Net cash used in financing activities (2,366) (1,347)
Net decrease in cash and cash equivalents (146) (1,470)
Cash and cash equivalents at beginning of period 931 2,510
Cash and cash equivalents at end of period $ 785 $ 1,040
Supplemental disclosure of cash flow information:
Cash paid for interest $ 8,852 $ 6,619
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable $ 489 $ 1,556
See Accompanying Notes to Combined Financial Statements
e)
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 A _ BASIS OF PRESENTATION
The accompanying unaudited combined financial statements of VMS National
Properties Joint Venture (the "Venture" or "Registrant") 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 month periods ended September 30, 1999, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. 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
year ended December 31, 1998.
Basis of Accounting:
The accompanying combined financial statements include the accounts of VMS
National Residential Portfolio I ("Portfolio I") VMS National Residential
Portfolio II ("Portfolio II"), the Venture and subpartnerships
("Subpartnerships"). Significant interpartnership accounts and transactions
have been eliminated from these combined financial statements.
NOTE B _ TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998, and
February 26, 1999, Insignia Financial Group, Inc. ("Insignia") and Insignia
Properties Trust merged 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, AIMCO acquired 100%
ownership interest in the Managing General Partner. The Managing General
Partner does not believe that this transaction will have a material effect on
the affairs and operations of the Venture.
NOTE C - 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 (as so
refinanced, the "Senior Debt").
(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 (as so refinanced, the "Junior Debt").
(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 Service
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 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.
(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 provided for an annual compensation of
$500,000 to be paid to Insignia in equal monthly installments. In addition,
Insignia received reimbursement for all accountable expense 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 funding
for insurance, real estate and personal property taxes and senior and junior
mortgage payments. If insufficient operating cash flow exists after the funding
of these items, the balance of asset management fees and reimbursements may be
paid from available partnership cash sources. Additionally, the asset
management fee payable 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. Effective January 1, 1998, in relation to the refinancing of
the Senior Debt on December 29, 1997 (see "Note D"), the Venture and Managing
General Partner agreed to amend the Asset Management Agreement to reduce the
annual asset management fee payable to $300,000 per year and to reduce the
annual reimbursement for accountable expenses to $100,000.
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 Subpartnership
activities. The Revised Asset Management Agreement, which was executed in
conjunction with the Venture's Plan, provided for (i) certain payments to
affiliates for real estate advisory services and asset management of the
Venture's retained properties for an annual compensation of $500,000 and (ii)
reimbursement of certain expenses incurred by affiliates on behalf of the
Venture up to $200,000 per annum.
Effective January 1, 1998, in relation to the refinancing of the Senior Debt on
December 29, 1997, the Venture and Managing General Partner agreed to amend the
Asset Management Agreement to reduce the annual asset management fee payable to
$300,000 per year and to reduce the annual reimbursement for accountable
expenses to $100,000.
Asset management fees of approximately $229,000 and $230,000 were paid to an
affiliate of the Managing General Partner for the nine months ended September
30, 1999 and 1998, respectively.
Affiliates of the Managing General Partner are entitled to receive a percentage
of the gross receipts from all of the Registrant's properties as compensation
for providing property management services. The Registrant paid to such
affiliates approximately $862,000 and $838,000 for the nine months ended
September 30, 1999 and 1998, respectively.
In addition, affiliates of the Managing General Partner received reimbursement
of accountable administrative expenses amounting to approximately $75,000 and
$77,000 for the nine months ended September 30, 1999 and 1998, respectively.
These expenses are included in general and administrative expenses. Included in
investment properties and operating expenses of the Venture are construction
oversight reimbursements, paid to an affiliate of the Managing General Partner,
of approximately $5,000 and $54,000 for the nine months ended September 30, 1999
and 1998, respectively.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $107,000 and $108,000 for the nine months ended
September 30, 1999 and 1998, respectively. These expenses are included in
general and administrative expenses.
In connection with the Venture's Plan, the court approved the payment of certain
fees and expense reimbursements due to the former managing general partner
relating to the prepetition period. An unpaid balance of approximately $397,000
in management fees owing to the former managing general partner was assigned to
MF VMS, L.L.C., the note holder for the senior and junior notes. This balance
was paid during 1998.
Prepetition property management fees were approved by the Bankruptcy Court for
payment to a former affiliate. This allowed claim may be paid only from
available Venture cash. At September 30, 1999 and 1998, the outstanding balance
of $79,000 is included in other liabilities.
Certain affiliates of the former general partners and the VMS/Stout Venture may
be entitled to receive various fees upon disposition of the properties. These
fees will be paid from the disposition proceeds and are subordinated to the
distributions required by the Plan. There were no property dispositions for
which proceeds were received during the nine months ended September 30, 1999 and
1998.
On June 16, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner, commenced a tender offer to purchase up to 275.06 interests of limited
partnership interest in VMS National Residential Portfolio I ("Portfolio I")
(approximately 42.71% of the total outstanding interests) for a purchase price
of $41 per unit. In addition, on July 8, 1999, AIMCO Properties, L.P. commenced
a tender offer to purchase up to 114.94 interests of limited partnership
interest in VMS National Residential Portfolio II ("Portfolio II")
(approximately 43.05% of the total outstanding interests) for a purchase price
of $98 per unit. The offers expired on July 30, 1999. Pursuant to the offers,
AIMCO Properties, L.P. acquired 17.25 interests in Portfolio I and 14.16
interests in Portfolio II, representing approximately 2.68% and approximately
5.30% of the total outstanding interests, respectively. It is possible that
AIMCO or its affiliate will make one or more additional offers to acquire
additional limited partnership interests in Portfolio I or Portfolio II or the
Venture for cash or in exchange for interests in the operating partnership of
AIMCO.
On October 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing
General Partner, executed agreements to purchase the Junior Debt and certain
residual claims. The consummation of these transactions is subject to several
conditions precedent which, in substance, must be satisfactory to AIMCO
Properties, L.P. and the servicer of the Senior Debt. There can be no assurance
that any of such transactions will be consummated upon the terms and conditions
of the executed agreements, on different terms and conditions, or at all.
NOTE E - MORTGAGE NOTES REFINANCED
On December 29, 1997, the Venture refinanced the mortgages encumbering all of
its 15 properties. The refinancing resulted in each property being encumbered
by new Senior and Junior Debt. The Senior Debt 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 Debt, which aggregates
approximately $29,822,000 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 debt
matures on January 1, 2008, and the Senior Debt includes prepayment penalties if
paid prior to January 1, 2007. The Senior Debt retained similar terms for the
previous indebtedness regarding note face amounts and agreed valuation amounts.
Upon refinancing, the Senior Debt was recorded at the agreed valuation amount
of $110,000,000, which was less than the $152,225,000 face amount of the Senior
Debt. 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 debt is cross-collateralized, but it
is not cross-defaulted. As of September 30, 1999, the outstanding balance of
the Senior and Junior Debt was approximately $108,033,000 and $29,822,000,
respectively.
NOTE F - SEGMENT REPORTING
Description of the types of products and services from which reportable segment
derives its revenues:
The Venture has one reportable segment: residential properties. The Venture's
residential property segment consists of fifteen apartment complexes located in
California (6 properties), Oregon (1 property), Texas (1 property), Indiana (2
properties), Louisiana (1 property), Maryland (1 property), Nebraska (1
property), Arkansas (1 property), and Arizona (1 property). The Venture rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Venture evaluates performance based on net income. The accounting policies
of the reportable segment are the same as those described in the summary of
significant accounting policies in the Venture's Annual Report on Form 10-K for
the year ended December 31, 1998.
Factor's management used to identify the enterprise's reportable segment:
The Venture's reportable segment consists of investment properties that offer
similar products and services. Although each of the investment properties is
managed separately, they have been aggregated into one segment as they provide
services with similar types of products and customers.
Segment information for the nine months ended September 30, 1999 and 1998, is
shown in the tables below (in thousands). The "Other" column includes Venture
administration related items and income and expense not allocated to the
reportable segment.
1999 Residential Other Totals
Rental income $20,473 $ -- $20,473
Other income 944 13 957
Interest expense 9,330 3,235 12,565
Depreciation 4,309 -- 4,309
General and administrative expense -- 501 501
Segment loss (427) (3,723) (4,150)
Total assets 68,788 380 69,168
Capital expenditures 1,273 -- 1,273
1998 Residential Other Totals
Rental income $19,755 $ -- $19,755
Other income 829 53 882
Casualty gain 230 -- 230
Interest expense 9,510 2,999 12,509
Depreciation 4,234 -- 4,234
General and administrative expense -- 532 532
Loss on disposal of property 188 -- 188
Segment loss (1,898) (3,478) (5,376)
Total assets 71,589 725 72,314
Capital expenditures 2,438 -- 2,438
NOTE G - LEGAL PROCEEDINGS
The Venture is not aware of any pending or outstanding litigation that is not of
a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
Average occupancy rates for the nine months ended September 30, 1999 and 1998,
for all of the Venture's properties are as follows:
Average Occupancy
Property 1999 1998
North Park Apartments
Evansville, IN 95% 97%
Chapelle Le Grande
Merrillville, IN 93% 93%
Terrace Gardens
Omaha, NE 97% 95%
Forest Ridge Apartments
Flagstaff, AZ 94% 89%
Scotchollow
San Mateo, CA 91% 95%
Pathfinder
Fremont, CA 91% 91%
Buena Vista Apartments
Pasadena, CA 100% 99%
Mountain View Apartments
San Dimas, CA 99% 98%
Crosswood Park
Citrus Heights, CA 96% 95%
Casa de Monterey
Norwalk, CA 98% 95%
The Bluffs
Milwaukie, OR 94% 96%
Watergate Apartments
Little Rock, AR 92% 90%
Shadowood Apartments
Monroe, LA 96% 95%
Vista Village Apartments
El Paso, TX 93% 95%
The Towers of Westchester Park
College Park, MD 99% 97%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: an increase at Casa de Monterey due to an
improvement in the curb appeal of the property in addition to improved market
conditions; decrease at Scotchollow due to an increase in rental rates and an
increase at Forest Ridge Apartments due to a stronger rental market and more
aggressive marketing.
Results of Operations
The Venture recorded a net loss for the nine months ended September 30, 1999 of
approximately $4,150,000 as compared to a net loss of $5,376,000 for the
corresponding period in 1998. For the three months ended September 30, 1999,
the Venture recorded a net loss of approximately $1,274,000 as compared to a net
loss of approximately $1,969,000 for the corresponding period in 1998. The
decrease in net loss for both the three and nine month periods is primarily
attributable to an increase in total revenues and a decrease in total expenses.
The increase in total revenues is due to an increase in rental and other income
which is partially offset by the recording of a casualty gain for the nine
months ended September 30, 1998. No such gain was recorded for the nine months
ended September 30, 1999. Rental income increased mainly due to an increase in
average annual rental rates at all fifteen of the Venture's investment
properties along with occupancy increases at nine of the properties, which more
than offset the decreases at four other properties. Other income increased due
to increases in corporate unit income, lease cancellation fees and late charges.
A casualty gain of approximately $230,000 was recorded during the nine months
ended September 30, 1998 in connection with a fire that damaged eight of the two
hundred forty-six units at Pathfinder Village.
Total expenses for both three and nine month periods decreased primarily due to
a reduction in operating expense and, to a lesser extent, due to the fact that
no loss on disposal of property was recorded during the nine months ended
September 30, 1999, as was for the nine months ended September 30, 1998.
However, for the comparable nine month period, such decrease in total expenses
was slightly offset by increases in depreciation, interest and property tax
expenses. Each of the foregoing expenses decreased slightly during the
comparable three month period. Operating expense decreased primarily due to a
decrease in hazard insurance expense at all of the Venture's investment
properties as a result of a change in insurance carriers. Operating expense
also decreased as a result of the completion of the following projects during
the nine months ended September 30, 1998: exterior painting at North Park, Buena
Vista, Mountain View, Scotchollow, and Casa De Monterey; interior building
improvements at all of the properties, and exterior building improvements at
Crosswood Park, North Park, Watergate, Pathfinder and Shadowood Apartments.
The loss on disposal of property for the nine months ended September 30, 1998
resulted from the write-off of roofs that were not fully depreciated at the time
of roof replacement projects at Chapelle Le Grande, Pathfinder, Casa de Monterey
and Mountain View. No such loss was recorded during the nine months ended
September 30, 1999. Interest expense increased primarily due to an increase in
the amortization of debt discounts. Property taxes increased due to an increase
in property tax rates at Mountain View, Watergate, and Vista Village.
Depreciation expense increased as the result of depreciation taken on property
improvements and replacements placed into service for the final two quarters of
1998 and the first two quarters of 1999.
General and administrative expense decreased slightly for the three and nine
months ended September 30, 1999 compared to the same periods in 1998 primarily
due to the payment of a trustee fee for the nine months ended September 30, 1998
in connection with the 1997 modification of the Venture's bankruptcy plan, which
allowed the Senior and Junior Debts to be refinanced. Included in general and
administrative expenses for the nine months ended September 30, 1999 and 1998
are reimbursements to the Managing General Partner allowed under the Partnership
Agreement associated with its management of the Venture. Costs associated with
the quarterly and annual communications with investors and regulatory agencies
and the annual audit required by the Partnership Agreement are also included.
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
expenses. 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.
Liquidity and Capital Resources
At September 30, 1999, the Venture had cash and cash equivalents of
approximately $785,000 as compared to approximately $1,040,000 at September 30,
1998. Cash and cash equivalents decreased approximately $146,000 for the nine
months ended September 30, 1999, from the Venture's fiscal year end. The
decrease in cash and cash equivalents is the result of approximately $2,366,000
of cash used in financing activities and $1,682,000 of cash used in investing
activities which is partially offset by approximately $3,902,000 of cash
provided by operating activities. Cash used in financing activities consisted of
payments of principal made on the mortgages encumbering the Registrant's
properties. Cash used in investing activities consisted primarily of property
improvements and replacements and, to a lessor extent, net deposits to escrow
accounts maintained by the mortgage lender. The Venture invests its working
capital reserves in a money market account.
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 properties to adequately maintain the physical
assets and other operating needs of the Venture and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Venture's properties are detailed below.
Budgeted capital improvements which total approximately $888,000 for the Venture
are expected to be funded from each of the property's replacement reserves. In
conjunction with the December, 1997 refinancing of the mortgages encumbering all
of the properties, the Junior Debt limit the funding of capital improvements to
$300.00 per unit per annum. As a result, the capital improvement budgets for
each of the Venture's properties have been prepared in accordance with the
maximum limits permitted by the Junior Debt. As of September 30, 1999, several
of the properties have exceeded the $300.00 per unit in allowable capital
improvements. However, the Venture has not received notification from the
holder of the Junior Debt that these additional capital improvement expenditures
are unreasonable or in violation of their funding limits. The additional
capital improvements incurred at various of the properties were funded from
operations and Venture reserves.
North Park Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that North Park Apartments
requires approximately $129,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $85,000 for 1999
at this property which include certain of the required improvements and consist
primarily of electrical upgrades, balconies and driveway and parking lot
improvements. As of September 30, 1999, approximately $35,000 has been incurred
consisting primarily of flooring replacements.
Chapelle Le Grande Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Chapelle Le Grande
Apartments requires approximately $122,000 of capital improvements over the next
few years. The Venture has budgeted capital improvements of approximately
$32,000 for 1999 at this property which include certain of the required
improvements and consist primarily of roofing, siding/trim/facia/soffits,
driveway and parking lot improvements, landscaping and irrigation. As of
September 30, 1999, approximately $39,000 has been incurred consisting primarily
of appliance, roof and flooring replacements and air conditioning upgrades.
Terrace Garden Townhouses:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Terrace Garden Townhouses
requires approximately $370,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $38,000 for 1999
at this property which include certain of the required improvements and consist
primarily of roofing, gutters and downspouts, HVAC, siding/trim/facia/soffits,
balconies, driveway and parking lot improvements, landscaping and irrigation.
As of September 30, 1999, approximately $50,000 has been incurred consisting
primarily of appliance and flooring replacements and heating system
enhancements.
Forest Ridge Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Forest Ridge Apartments
requires approximately $284,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $83,000 for 1999
at this property which include certain of the required improvements and consist
primarily of gutters and downspouts, driveway and parking lot improvements,
exterior lighting, and landscaping and irrigation. As of September 30, 1999,
approximately $76,000 has been incurred consisting primarily of building
renovations, heating system upgrades, and parking lot, appliance and flooring
replacements.
Scotchollow Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Scotchollow Apartments
requires approximately $382,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $125,000 for 1999
at this property which include certain of the required improvements and consist
primarily of balconies, driveway and parking lot improvements, exterior
lighting, landscaping and irrigation. As of September 30, 1999, approximately
$181,000 has been incurred consisting primarily of balcony, driveway and parking
lot improvements, landscaping, a roofing project, golf cart purchases and
lighting, water heater, appliance and flooring replacements.
Pathfinder Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Pathfinder Apartments
requires approximately $591,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $74,000 for 1999
at this property which include certain of the required improvements and consist
primarily of roofing, electrical upgrades, siding/trim/facia/soffits,
stairwells, balconies, driveway and parking lot improvements, landscaping and
irrigation. As of September 30, 1999, approximately $168,000 has been incurred
consisting primarily of balcony and building improvements, landscaping and
appliance and flooring replacements. In addition to such capital expenditures,
the Managing General Partner has identified a severe termite infestation on this
property that will cost an estimated $170,000 to correct. As more fully
discussed below, the Venture is negotiating a remediation plan (the "Termite
Remediation") to enable such treatment to be made as expeditiously as possible.
Buena Vista Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Buena Vista Apartments
requires approximately $102,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $28,000 for 1999
at this property which include certain of the required improvements and consist
primarily of carpet and vinyl replacements and swimming pool improvements. As of
September 30, 1999, approximately $81,000 has incurred consisting primarily of
swimming pool replacements and flooring and plumbing replacements.
Mountain View Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Mountain View Apartments
requires approximately $149,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $50,000 for 1999
at this property which include certain of the required improvements and consist
primarily of carpet and vinyl replacements, land improvements and outdoor
furniture. As of September 30, 1999, approximately $27,000 has been incurred
consisting of appliance and flooring replacements.
Crosswood Park Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Crosswood Park Apartments
requires approximately $129,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $54,000 for 1999
at this property which include certain of the required improvements and consist
primarily of siding/trim/soffits, stairwells, and balconies. As of September
30, 1999, approximately $73,000 has been incurred consisting of balcony and
building improvements, office equipment purchases, appliance and flooring
replacements and heating upgrades.
Casa De Monterey Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Casa De Monterey
Apartments requires approximately $106,000 of capital improvements over the next
few years. The Venture has budgeted capital improvements of approximately
$43,000 for 1999 at this property which include certain of the required
improvements and consist primarily of carpet and vinyl replacements. As of
September 30, 1999, approximately $105,000 has been incurred consisting of land
improvements, water heater and plumbing upgrades, and appliance,
cabinets/countertops and flooring replacements.
The Bluffs Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that The Bluffs Apartments
requires approximately $75,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $41,000 for 1999
at this property which include certain of the required improvements and consist
primarily of carpet and vinyl replacements, parking lot improvements, building
improvements and signage. As of September 30, 1999, $21,000 has been incurred
consisting of appliance, water heater, and flooring replacements and interior
decoration.
Watergate Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Watergate Apartments
requires approximately $211,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $42,000 for 1999
at this property which include certain of the required improvements and consist
primarily of roofing, electrical upgrades, landscaping and irrigation. As of
September 30, 1999, approximately $57,000 has been incurred consisting of
flooring and water heater replacements and swimming pool enhancements.
Shadowood Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Shadowood Apartments
requires approximately $435,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $36,000 for 1999
at this property which include certain of the required improvements and consist
primarily of gutters and downspouts, HVAC, siding/trim/facia/soffits, balconies,
driveway and parking lot improvements, landscaping and irrigation, fences, and
pool improvements. As of September 30, 1999, approximately $35,000 has been
incurred consisting of air conditioning and plumbing upgrades and light
fixtures, flooring and appliance replacements.
Vista Village Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Vista Village Apartments
requires approximately $326,000 of capital improvements over the next few years.
The Venture has budgeted capital improvements of approximately $66,000 for 1999
at this property which include certain of the required improvements and consist
primarily of roofing, HVAC, electrical upgrades, driveway and parking lot
replacements, exterior lighting, landscaping and irrigation. As of September
30, 1999, approximately $137,000 has been incurred consisting of air
conditioning and plumbing upgrades, and appliance and flooring replacements.
Tower of Westchester Apartments:
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that Tower of Westchester
Apartments requires approximately $681,000 of capital improvements over the next
few years. The Venture has budgeted capital improvements of approximately
$91,000 for 1999 at this property which include certain of the required
improvements and consist primarily of carpet, cabinet and appliance
replacements. As of September 30, 1999, approximately $188,000 has been
incurred consisting of balcony replacements, handicap accessible renovations,
heating, lighting and sprinkler system upgrades, building, plumbing, swimming
pool improvements, appliance and flooring replacement and equipment purchases.
Of these required capital expenditures, the Managing General Partner believes
that the balconies on this property require prompt remedial work that may cost
up to $1,500,000. As more fully discussed below, the Venture is negotiating a
remediation plan (the "Balcony Remediation") to enable such repairs to be made
as expeditiously as possible.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The Senior Debt
encumbering all of the properties totals approximately $108,033,000 and is being
amortized over 25 years, with a balloon payment of $91,352,000 due January 2008.
The Junior Debt, which also matures January 2008, totals approximately
$29,822,000 and requires monthly payments based upon monthly excess cash flow
for each property. The Managing General Partner may attempt to refinance such
indebtedness and/or sell the properties prior to such maturity date. If the
properties cannot be refinanced or sold for a sufficient amount, the Venture
will risk losing such properties through foreclosure.
Capital expenditures of $1,749,286 in excess of the amounts budgeted under the
terms of the Senior and Junior Debt were made with respect to the properties
during 1998. The Managing General Partner believes that the owners of the
Senior and Junior Debt at the time such capital expenditures were made were
informed of, and orally consented to, such capital expenditures and the payment
therefore out of cash flows that otherwise would have been used to pay debt
service on the Junior Debt. The use of these cash flows for these purposes has
not caused any delinquencies in the payment of principal, interest, or other
charges on the Senior Debt. In addition, certain scheduled capital expenditures
were not made on a timely basis in compliance with the terms of the Senior and
Junior Debt. Compliance is expected to be waived and such expenditures are in
process.
AIMCO and the Venture are currently negotiating documentation relating to such
prior unscheduled capital expenditures, such delinquent capital expenditures and
remedial plans for the Termite Remediation and the Balcony Remediation and
increased capital expenditure reserves for all properties owned by the Venture
with the current owner of the Junior Debt and the servicer for the Senior Debt
(with the intent that such plans and additional reserves would be paid for out
of cash flow that otherwise would be utilized to pay debt service on the Junior
Debt ("Cap Ex Documentation")). Despite such agreement in principle, however,
there can be no assurance that all of the parties will reach agreement with
respect to such documentation or such remedial plans, or the effect that any
such documentation or remedial plans will have upon the operations of Towers of
Westchester or Pathfinder, the operations of the Venture, or the amortization of
the Junior Debt. The implementation of the Termite Remediation and the Balcony
Remediation may cause the Junior Debt to negatively amortize for a significant
period of time and increase the balloon payments due thereon at the end of the
term. There can be no assurance that the owners of the Senior or Junior Debt
will approve any increase in such capital expenditures at any time, or that the
properties owned by the Venture will be maintained in the future in an
acceptable or marketable state of repair.
On October 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing
General Partner, executed agreements to purchase the Junior Debt and certain
residual claims. The consummation of these transactions is subject to several
conditions precedent, including, without limitation, execution of the Cap Ex
Documentation (as defined herein), in substance satisfactory to AIMCO
Properties, L.P., and the servicer of the Senior Debt. There can be no
assurance that any or such transactions will be consummated upon the terms and
conditions described herein, on different terms and conditions or at all.
There were no cash distributions to the partners of either of the
Subpartnerships for the nine months ended September 30, 1999 and 1998. In
accordance with the respective Agreements of Limited Partnership, there are no
material restrictions on the Subpartnerships' ability to make cash
distributions. Future cash distributions are, however, subject to the order of
distributions as stipulated by Venture's Plan of Reorganization. The source of
future distributions will depend upon the levels of net cash generated from
operations, the availability of cash reserves, and timing of debt maturities,
refinancings and/or property sales. The Subpartnerships' distribution policies
are reviewed on an annual basis. There can be no assurance, however, that the
Subpartnerships will generate sufficient funds from operations, after required
capital expenditures and the order of distributions as stipulated by the
Venture's Plan of Reorganization, to permit any distributions to partners during
the remainder of 1999 or subsequent periods.
Tender Offer
On June 16, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner, commenced a tender offer to purchase up to 275.06 interests of limited
partnership interest in VMS National Residential Portfolio I ("Portfolio I")
(approximately 42.71% of the total outstanding interests) for a purchase price
of $41 per unit. In addition, on July 8, 1999, AIMCO Properties, L.P. commenced
a tender offer to purchase up to 114.94 interests of limited partnership
interest in VMS National Residential Portfolio II ("Portfolio II")
(approximately 43.05% of the total outstanding interests) for a purchase price
of $98 per unit. The offers expired on July 30, 1999. Pursuant to the offers,
AIMCO Properties, L.P. acquired 17.25 interests in Portfolio I and 14.16
interests in Portfolio II, representing approximately 2.68% and approximately
5.30% of the total outstanding interests, respectively. It is possible that
AIMCO or its affiliate will make one or more additional offers to acquire
additional limited partnership interests in Portfolio I and Portfolio II or the
Venture for cash or in exchange for interests in the operating partnership of
AIMCO.
Year 2000 Compliance
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 digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the 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.
Over the past two years, 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
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation 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.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Venture is exposed to market risks from adverse changes in interest rates.
In this regard, changes in U.S. interest rates affect the interest earned on the
Venture's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Venture does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations.
To mitigate the impact of fluctuations in U.S. interest rates, the Venture
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at September 30, 1999, a 1% increase or decrease in
market interest rates would not have a material impact on the Venture.
The following table summarizes the Venture's debt obligations at December 31,
1998. The interest rates are weighted-average rates. The fair value of the
debt obligations approximate the recorded value as of December 31, 1998.
Principal Weighted-average
(in thousands) Interest Rate
1999 $ 1,211 10.84%
2000 1,293 10.84%
2001 1,436 10.84%
2002 1,565 10.84%
2003 1,705 10.84%
Thereafter 132,522 9.05%
Total $ 139,732
PART II - OTHER INFORMATION
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, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
VMS National Residential Portfolio II
By: MAERIL, Inc.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: November 12, 1990
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from VMS National
Properties Joint Venture Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 785
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 147,900
<DEPRECIATION> 85,107
<TOTAL-ASSETS> 69,168
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 178,548
0
0
<COMMON> 0
<OTHER-SE> (155,757)
<TOTAL-LIABILITY-AND-EQUITY> 69,168
<SALES> 0
<TOTAL-REVENUES> 21,430
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 25,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,565
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,150)
<EPS-BASIC> (4,464)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
