FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[No Fee Required]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[No Fee Required]
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)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
State issuer's revenues for its most recent fiscal year. $28,658,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
Item 1. Description of Business
VMS National Properties Joint Venture (the "Venture" or the "Registrant"), of
which the general partners are VMS National Residential Portfolio I ("Portfolio
I") and VMS National Residential Portfolio II ("Portfolio II"), was formed in
September 1984. Portfolio I and Portfolio II are collectively referred to as the
"Partnerships". The Partnerships are limited partnerships formed in September
1984, under the Uniform Limited Partnership Act of the State of Illinois.
Effective December 12, 1997, the managing general partner of each of the
Partnerships was transferred from VMS Realty Investment, Ltd. ("VMSRIL")
(formerly VMS Realty Partners) to MAERIL, Inc. ("MAERIL" or the "Managing
General Partner"), a wholly-owned subsidiary of MAE GP Corporation ("MAE GP")
and an affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective
February 25, 1998, MAE GP was merged with Insignia Properties Trust ("IPT"),
which was an affiliate of Insignia. Effective October 1, 1998 and February 26,
1999, Insignia and IPT were respectively merged into Apartment Investment and
Management Company ("AIMCO"). Thus, the Managing General Partner is now a
wholly-owned subsidiary of AIMCO.
From the period October 26, 1984, through June 16, 1985, the Partnerships sold
912 Limited Partnership Interests at a price of $150,000 per Limited Partnership
Interest for a total of $136,800,000. The Interests of each Partnership were
offered in reliance upon exemptions from registration under the Securities Act
of 1933, as amended (the "Act"), and Regulation D thereunder. The participation
interest in the Venture of Portfolio I and Portfolio II is approximately 71% and
29%, respectively. See Note H to the combined Financial Statements for
information as to capital contributions of partners.
The Venture originally acquired 51 residential apartment complexes located
throughout the United Sates. At December 31, 1999, 34 of the Venture's
properties had been foreclosed and two had been sold. The Venture continues to
own and operate the remaining 15 residential apartment complexes (see "Item 2.
Description of Properties").
The Managing General Partner intends to maximize the operating results and,
ultimately, the net realizable value of each of the Venture's properties in
order to achieve the best possible return for the investors. Such results may
best be achieved through property sales, refinancings, debt restructurings or
relinquishment of the assets. The Venture intends to evaluate each of its
holdings periodically to determine the most appropriate strategy for each of the
assets.
The Registrant has no employees. Management and administrative services are
provided by the Managing General Partner and by agents retained by the Managing
General Partner. In addition to day-to-day management of the properties'
operations, affiliates of the Managing General Partner also provide real estate
advisory and asset management services to the Venture. As advisor, such
affiliates provide all partnership accounting and administrative services,
investment management, and supervisory services over property management and
leasing.
The real estate business in which the Registrant is engaged is highly
competitive. There are other residential properties within the market area of
the Registrant's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Managing General
Partner, in such market area could have a material effect on the rental market
for the apartments at the Registrant's properties and the rents that may be
charged for such apartments. While the Managing General Partner and its
affiliates own and/or control a significant number of apartment units in the
United States such units represent an insignificant percentage of total
apartment units in the United States and competition for the apartments is
local.
Both the income and expenses of operating the properties owned by the Registrant
are subject to factors outside of the Registrant's control, such as changes in
the supply and demand for similar properties resulting from various market
conditions, increases in unemployment or population shifts, changes in the
availability of permanent mortgage financing, changes in zoning laws, or changes
in patterns or needs of users. In addition, there are risks inherent in owning
and operating residential properties because such properties are susceptible to
the impact of economic and other conditions outside of the control of the
Registrant.
There have been, and it is possible there may be other, Federal, state, and
local legislation and regulations enacted relating to the protection of the
environment. The Venture is unable to predict the extent, if any, to which such
new legislation or regulations might occur and the degree to which such existing
or new legislation or regulations might adversely affect the properties owned by
the Venture.
The Venture monitors its properties for evidence of pollutants, toxins and other
dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed, which resulted in no material adverse
conditions or liabilities. In no case has the Venture received notice that it is
a potentially responsible party with respect to an environmental clean up site.
As a result of financial difficulties, the Venture filed for Chapter 11
bankruptcy protection in the United States Bankruptcy Court in the Central
District of California on February 22, 1991 (see "Note C" of the combined
financial statements included in "Item 8. Financial Statements and Supplemental
Data"). This voluntary filing encompassed the Venture's non-HUD properties only.
In March 1993, the substance of the Venture's Plan of Reorganization (the
"Plan") was approved by the Bankruptcy Court and a Confirmation Order was
entered and the Plan became effective on September 30, 1993. 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.
On December 29, 1997, the Venture refinanced the mortgages encumbering all of
its remaining properties (see "Item 2. Description of Properties" for a further
discussion).
A further description of the Registrant's business is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in "Item 7" of this Form 10-K.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998, and
February 26, 1999, Insignia and IPT merged into 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 has had or will have a material effect on the affairs and
operations of the Venture.
Segments
Segment data for the years ended December 31, 1999, 1998, and 1997 is included
in "Item 8. Financial Statements and Supplementary Data - Note K" and is an
integral part of the Form 10-K.
Item 2. Description of Properties
The following table sets forth the Venture's remaining investment in properties:
Date of
Property (1) Purchase Use
Buena Vista Apartments 10/26/84 Apartment
Pasadena, CA 92 Units
Casa de Monterey 10/26/84 Apartment
Norwalk, CA 144 Units
Crosswood Park 12/05/84 Apartment
Citrus Heights, CA 180 Units
Mountain View Apartments 10/26/84 Apartment
San Dimas, CA 168 Units
Pathfinders Village 10/26/84 Apartment
Freemont, CA 246 Units
Scotchollow 10/26/84 Apartment
San Mateo, CA 418 Units
The Bluffs 10/26/84 Apartment
Milwaukee, OR 137 Units
Vista Village Apartments 10/26/84 Apartment
El Paso, TX 220 Units
Chapelle Le Grande 12/05/84 Apartment
Merrillville, IN 105 Units
North Park Apartments 11/14/84 Apartment
Evansville, IN 284 Units
Shadowood Apartments 11/14/84 Apartment
Monroe, LA 120 Units
Towers of Westchester Park 10/26/84 Apartment
College Park, MD 303 Units
Terrace Gardens 10/26/84 Apartment
Omaha, NE 126 Units
Watergate Apartments 10/26/84 Apartment
Little Rock, AR 140 Units
Forest Ridge Apartments 10/26/84 Apartment
Flagstaff, AZ 278 Units
(1) All properties are fee ownership, each subject to a first and second
mortgage.
Schedule of Properties:
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Method Rate Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
North Park Apartments $ 10,475 $ 6,516 SL/200% DBL 5-27.5 yrs $ 2,041
Chapelle Le Grande 4,855 2,971 SL/200% DBL 5-27.5 yrs 996
Terrace Gardens 6,188 3,538 SL/150% and 5-27.5 yrs 1,696
200% DBL
Forest Ridge Apartments 8,875 5,277 SL/150% and 5-27.5 yrs 2,067
200% DBL
Scotchollow 28,681 16,441 SL/150% DBL 5-27.5 yrs 7,567
Pathfinders Village 16,043 8,594 SL/200% DBL 5-27.5 yrs 5,913
Buena Vista Apartments 5,993 3,418 SL/200% DBL 5-27.5 yrs 1,468
Mountain View Apartments 10,847 5,759 SL/200% DBL 5-29 yrs 2,632
Crosswood Park 9,171 5,303 SL/150% DBL 5-29 yrs 3,095
Casa de Monterey 8,092 4,698 SL/200% DBL 5-27.5 yrs 2,015
The Bluffs 4,374 2,786 SL/200% DBL 5-27.5 yrs 728
Watergate Apartments 7,136 4,365 SL/200% DBL 5-27.5 yrs 1,521
Shadowood Apartments 4,336 2,728 SL 5-27.5 yrs 856
Vista Village Apartments 6,821 3,882 SL 5-27.5 yrs 1,685
Towers of Westchester Park 16,597 10,522 SL 5-27.5 yrs 3,056
$148,484 $86,798 $37,336
</TABLE>
See "Note A" of the Notes to the Combined Financial Statements included in "Item
8" for a description of the Venture's depreciation policy and "Note M - Change
in Accounting Principle".
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
<TABLE>
<CAPTION>
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date Maturity
(in thousands) (in thousands)
North Park Apartments
<S> <C> <C> <C> <C> <C>
1st mortgage $ 6,209 8.50% 25 years 01/08 $ 5,264
2nd mortgage 1,811 10.84% (A) 01/08 (A)
Chapelle Le Grande
1st mortgage 3,184 8.50% 25 years 01/08 2,702
2nd mortgage 949 10.84% (A) 01/08 (A)
Terrace Gardens
1st mortgage 4,405 8.50% 25 years 01/08 3,739
2nd mortgage 1,210 10.84% (A) 01/08 (A)
Forest Ridge Apartments
1st mortgage 5,854 8.50% 25 years 01/08 4,968
2nd mortgage 1,644 10.84% (A) 01/08 (A)
Scotchollow
1st mortgage 28,913 8.50% 25 years 01/08 24,533
2nd mortgage 8,058 10.84% (A) 01/08 (A)
Pathfinders Village
1st mortgage 13,370 8.50% 25 years 01/08 11,336
2nd mortgage 3,868 10.84% (A) 01/08 (A)
Buena Vista Apartments
1st mortgage 4,920 8.50% 25 years 01/08 4,171
2nd mortgage 1,299 10.84% (A) 01/08 (A)
Mountain View Apartments
1st mortgage 7,108 8.50% 25 years 01/08 6,026
2nd mortgage 1,961 10.84% (A) 01/08 (A)
Crosswood Park
1st mortgage 5,530 8.50% 25 years 01/08 4,688
2nd mortgage 1,309 10.84% (A) 01/08 (A)
Casa de Monterey
1st mortgage 4,074 8.50% 25 years 01/08 3,454
2nd mortgage 1,178 10.84% (A) 01/08 (A)
The Bluffs
1st mortgage 3,695 8.50% 25 years 01/08 3,135
2nd mortgage 1,044 10.84% (A) 01/08 (A)
Watergate Apartments
1st mortgage 2,878 8.50% 25 years 01/08 2,440
2nd mortgage 799 10.84% (A) 01/08 (A)
Shadowood Apartments
1st mortgage 2,236 8.50% 25 years 01/08 1,896
2nd mortgage 586 10.84% (A) 01/08 (A)
Vista Village Apartments
1st mortgage 3,299 8.50% 25 years 01/08 2,797
2nd mortgage 938 10.84% (A) 01/08 (A)
Towers of Westchester Park
1st mortgage 12,035 8.50% 25 years 01/08 10,203
2nd mortgage 3,447 10.84% (A) 01/08 (A)
Totals $137,811 $91,352
</TABLE>
(A) Payments based on excess monthly cash flow at each property, with any
unpaid balance due at maturity. Per the junior loan agreements, excess
monthly cash flow is defined as revenue generated from operation of a
property less (1) operating expenses of the property, (2) the debt service
payment for the senior loans, (3) the tax and insurance reserve deposit and
(4) replacement reserve deposit. Under a November 19, 1999 agreement with
the holder of the senior loan of Towers of Westchester (see "Note E -
Mortgage Notes Payable"), this property's excess monthly cash flow is to
first be used to fund a repair reserve. Once that reserve is fully funded,
the excess monthly cash flow will again be used as payment towards the
junior loan.
Pursuant to the Plan of Reorganization, the mortgages formerly held by the FDIC
were modified effective September 30, 1993. The face value of the notes were
restated to agreed valuation amounts. Under the terms of the modification, the
lender may reinstate the full claim upon the default of any note. As a result,
the Venture deferred recognition of a gain of $54,053,000, which was the
difference between the note face amounts and the agreed valuation amounts of the
modified debt.
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. The junior loans each have an interest rate of 10.84% per annum and
the monthly payments are based on excess monthly cash flow for each property.
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 regarding note face amounts and agreed valuation amounts. These
new loans were 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. Therefore, a default by one property under the terms of its
loan agreements does not in and of itself create a default under all of the
senior and junior loan agreements. However, if the proceeds upon the sale or
refinancing of any property are insufficient to fully repay the outstanding
senior and junior loan related to that property, any deficiency is to be
satisfied from the sale or refinancing of the remaining properties. As a result
of the refinancing, the Venture recognized an extraordinary gain on
extinguishment of debt of $10,303,000, of which $11,828,000 is the result of a
decreased difference between the note face amounts and agreed valuation amounts
for the refinanced mortgage notes as compared to the old indebtedness. This gain
was partially offset by debt extinguishment costs of $41,000 and the write-off
of discounts and loan costs on the old debt of $1,484,000.
As more fully discussed in "Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations" AIMCO Properties, L.P. ("AIMCO
LP"), which owns the Managing General Partner and which is a controlled
affiliate of AIMCO, purchased (i) the junior loans on November 19, 1999, and
(ii) a significant interest in the residual value of the properties on November
16, 1999. These transactions occurred between AIMCO LP and an unrelated third
party and thus had no effect on the combined financial statements of the
Venture.
Rental Rates and Occupancy:
The following table sets forth the average annual rental rates and occupancy for
1999 and 1998 for each property.
Average Annual Average
Rental Rates Per Unit Occupancy
Property 1999 1998 1999 1998
North Park Apartments $ 6,312 $ 6,072 95% 97%
Chapelle Le Grande 8,277 8,231 92% 93%
Terrace Gardens 9,268 9,057 97% 95%
Forest Ridge Apartments 7,464 7,390 95% 89%
Scotchollow 15,451 14,819 93% 95%
Pathfinders Village 14,586 13,575 92% 90%
Buena Vista Apartments 13,310 12,326 99% 99%
Mountain View Apartments 11,213 10,567 98% 98%
Crosswood Park 9,435 9,050 96% 96%
Casa de Monterey 8,384 8,049 98% 95%
The Bluffs 7,066 6,883 94% 96%
Watergate Apartments 7,343 7,115 91% 90%
Shadowood Apartments 6,548 6,349 95% 95%
Vista Village Apartments 6,415 6,305 93% 95%
Towers of Westchester Park 11,645 11,221 98% 97%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: an increase at Forest Ridge Apartments due to a
stronger rental market and more aggressive marketing and an increase at Casa de
Monterey due to an improvement in the curb appeal at the property in addition to
improved market conditions.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties are subject to competition from other
residential apartment complexes in the area. The Managing General Partner
believes that all of the properties are adequately insured. Each property is an
apartment complex which leases units for lease terms of one year or less. No
residential tenant leases 10% or more of the available rental space.
Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for each property were as follows:
1999 1999
Taxes Rate
(in thousands)
North Park Apartments $149 9.42%
Chapelle Le Grande 53 12.88%
Terrace Gardens 82 2.17%
Forest Ridge Apartments 88 10.00%
Scotchollow 340 1.27%
Pathfinders Village 215 1.43%
Buena Vista Apartments 71 1.22%
Mountain View Apartments 118 1.20%
Crosswood Park 86 1.05%
Casa de Monterey 63 1.24%
The Bluffs 69 1.32%
Watergate Apartments 54 6.39%
Shadowood Apartments 32 12.52%
Vista Village Apartments 107 2.95%
Towers of Westchester Park 212 3.69%
Capital Improvements:
North Park Apartments: The Venture completed approximately $45,000 in capital
expenditures at North Park Apartments as of December 31, 1999, consisting
primarily of appliance and flooring replacements and air conditioning upgrades.
These improvements were funded from cash flow and replacement reserves. The
Venture is currently evaluating the capital improvement needs of the property
for the upcoming year. The minimum amount to be budgeted is expected to be $300
per unit or $85,200. Additional improvements may be considered and will depend
on the physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Chapelle Le Grande: The Venture completed approximately $53,000 in capital
expenditures at Chapelle Le Grande as of December 31, 1999, consisting primarily
of appliances and flooring replacements and air conditioning upgrades. These
improvements were funded from cash flow. The Venture is currently evaluating the
capital improvement needs of the property for the upcoming year. The minimum
amount to be budgeted is expected to be $300 per unit or $31,500. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Terrace Gardens: The Venture completed approximately $89,000 in capital
expenditures at Terrace Gardens as of December 31, 1999, consisting primarily of
appliance and flooring replacements, heating system upgrades and a roofing
project. These improvements were funded from cash flow and replacement reserves.
The Venture is currently evaluating the capital improvement needs of the
property for the upcoming year. The minimum amount to be budgeted is expected to
be $300 per unit or $37,800. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
Forest Ridge Apartments: The Venture completed approximately $96,000 in capital
expenditures at Forest Ridge Apartments as of December 31, 1999, consisting
primarily of appliance and flooring replacements and heating system upgrades.
These improvements were funded from replacement reserves. The Venture is
currently evaluating the capital improvement needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $83,400. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Scotchollow: The Venture completed approximately $241,000 in capital
expenditures at Scotchollow as of December 31, 1999, consisting primarily of
appliance and flooring replacements, major landscaping, heating system, golf
cart purchase, balcony upgrades and roofing and parking lot projects. These
improvements were funded from replacement reserves. The Venture is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $125,400.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
Pathfinders Village: The Venture completed approximately $306,000 in capital
expenditures at Pathfinders Village as of December 31, 1999, consisting
primarily of appliance and flooring replacements and major building
improvements. These improvements were funded from cash flow and replacement
reserves. The Venture is currently evaluating the capital improvement needs of
the property for the upcoming year. The minimum amount to be budgeted is
expected to be $300 per unit or $73,800. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Buena Vista Apartments: The Venture completed approximately $109,000 in capital
expenditures at Buena Vista Apartments as of December 31, 1999, consisting
primarily of plumbing upgrades, water heaters and flooring replacements. These
improvements were funded from cash flow. The Venture is currently evaluating the
capital improvement needs of the property for the upcoming year. The minimum
amount to be budgeted is expected to be $300 per unit or $27,600. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Mountain View Apartments: The Venture completed approximately $52,000 in capital
expenditures at Mountain View Apartments as of December 31, 1999, consisting
primarily of flooring replacements, major landscaping and handicap accessible
improvements. These improvements were funded from cash flow and replacement
reserves. The Venture is currently evaluating the capital improvement needs of
the property for the upcoming year. The minimum amount to be budgeted is
expected to be $300 per unit or $50,400. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Crosswood Park: The Venture completed approximately $108,000 in capital
expenditures at Crosswood Park as of December 31, 1999, consisting primarily of
appliances, office equipment, flooring replacements and balcony, plumbing and
building improvements. These improvements were funded from cash flow. The
Venture is currently evaluating the capital improvement needs of the property
for the upcoming year. The minimum amount to be budgeted is expected to be $300
per unit or $54,000. Additional improvements may be considered and will depend
on the physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Casa de Monterey: The Venture completed approximately $164,000 in capital
expenditures at Casa de Monterey as of December 31, 1999, consisting primarily
of appliance and flooring replacements, plumbing and building improvements.
These improvements were funded from cash flow. The Venture is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $43,200.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
The Bluffs: The Venture completed approximately $38,000 in capital expenditures
at The Bluffs as of December 31, 1999, consisting primarily of appliances and
flooring replacements. These improvements were funded from replacement reserves.
The Venture is currently evaluating the capital improvement needs of the
property for the upcoming year. The minimum amount to be budgeted is expected to
be $300 per unit or $41,100. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
Watergate Apartments: The Venture completed approximately $66,000 in capital
expenditures at Watergate Apartments as of December 31, 1999, consisting
primarily of water heaters, air conditioning and flooring replacements and pool
improvements. These improvements were funded from cash flow and replacement
reserves. The Venture is currently evaluating the capital improvement needs of
the property for the upcoming year. The minimum amount to be budgeted is
expected to be $300 per unit or $42,000. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Shadowood Apartments: The Venture completed approximately $43,000 in capital
expenditures at Shadowood Apartments as of December 31, 1999, consisting
primarily of appliances, air conditioning and flooring replacements. These
improvements were funded from cash flow and replacement reserves. The Venture is
currently evaluating the capital improvement needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $36,000. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Vista Village Apartments: The Venture completed approximately $159,000 in
capital expenditures at Vista Village Apartments as of December 31, 1999,
consisting primarily of appliances, air conditioning upgrades, exterior
painting, and flooring replacements. These improvements were funded from
replacement reserves. The Venture is currently evaluating the capital
improvement needs of the property for the upcoming year. The minimum amount to
be budgeted is expected to be $300 per unit or $66,000. Additional improvements
may be considered and will depend on the physical condition of the property as
well as replacement reserves and anticipated cash flow generated by the
property.
Towers of Westchester Park: The Venture completed approximately $288,000 in
capital expenditures at Towers of Westchester Park as of December 31, 1999,
consisting primarily of appliances, equipment, heating, air conditioning,
plumbing, flooring replacements and pool and structural improvements. These
improvements were funded from cash flow and replacement reserves. The Venture is
currently evaluating the capital improvement needs of the property for the
upcoming year. The Venture, the holder (AIMCO LP) of the junior loan encumbering
the property and the servicer of the senior loan encumbering the property
agreed, on November 19, 1999, to a procedure to assess whether or not capital
expenditures in addition to permitted capital expenditures of $300 per unit per
year are needed at the property and the methodology for funding any such capital
expenditures, in each case as more fully described in Item 7. This methodology
has been applied to Towers of Westchester. The parties agreed that this property
required repairs over the next year that are estimated to cost $920,000 and that
these repairs would be funded out of cash flows from the properties that
otherwise would be utilized to pay debt service on the junior loans. As a
result, the balloon payment due on the junior loans may be higher at their
maturity in January 2008. In addition, on November 19, 1999, the parties agreed
to a schedule of physical needs required at the property over the next ten years
and agreed that the required replacement reserve escrow funding on the property
under the senior loan encumbering the property would be increased from $300 per
unit per year to approximately $478 per unit per year, effective January 1,
2000. As a result the monthly debt service requirement of the senior loan will
increase and be made from operating cash flow prior to any payments on the
junior loan. Accordingly the budget for 2000 is expected to be approximately
$1,065,000.
The Venture has budgeted a minimum of $300 per unit or $797,400 for all of the
properties except Towers of Westchester which is the limit set by the second
mortgage notes for funding of capital improvements. As the Venture identifies
properties which require additional improvements discussions are held with the
holders of both the first and second mortgage notes for approval to perform
agreed upon capital improvements.
Item 3. Legal Proceedings
The Venture is unaware of any pending or outstanding litigation that is not of a
routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
The unit holders of the Partnerships did not vote on any matter during the
quarter ended December 31, 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholders
Matters
From the period October 26, 1984, through June 16, 1985, Portfolio I and
Portfolio II sold a total of 912 Limited Partnership Interests at a price of
$150,000 per Limited Partnership Interest, for a total of $136,800,000. As of
December 31, 1999, there were 795 holders of record of Portfolio I and 313
holders of record of Portfolio II, owning 644 and 267 units, respectively. As of
December 31, 1998, there were 823 holders of record of Portfolio I and 332
holders of record of Portfolio II, owning a total of 644 and 267 units,
respectively. No public trading market has developed for the Units, and it is
not anticipated that such a market will develop in the future. During 1997, the
number of Limited Partnership Units in Portfolio II decreased by 1 unit from 268
to 267 units due to a limited partner abandoning his/her unit. In abandoning his
or her Limited Partnership Unit, a limited partner relinquishes all right, title
and interest in the Partnership as of the date of abandonment.
There were no cash distributions to the partners of either of the Partnerships
for the years ended December 31, 1999, 1998, and 1997. In accordance with the
respective Agreements of Limited Partnership, there are no material restrictions
on the Partnership's ability to make cash distributions, future cash
distributions are, however, subject to the order of distributions as stipulated
by the Venture's Plan of Reorganization. Future cash distributions will depend
on the levels of net cash generated from operations, the availability of cash
reserves and the timing of debt maturities, refinancings, and/or property sales.
The Partnership's distribution policy is reviewed on an annual basis. There can
be no assurance, however, that the Partnership 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 its partners in 2000 or subsequent periods. See "Item 2.
Description of Properties - Capital Improvements" for information relating to
anticipated capital expenditures at the properties.
During 1999, AIMCO LP an affiliate of the Managing General Partner made a tender
offer to purchase units of limited partnership interest in both Portfolio I and
II. As a result of the tender offer, AIMCO and its affiliates currently own
21.25 units of limited partnership interest in Portfolio I representing 3.3% of
the outstanding limited partnership interests, along with the 2% general partner
interest for a combined ownership in Portfolio I of 5.30%. AIMCO and its
affiliates currently own 19.50 units of limited partnership interest in
Portfolio II representing 7.3% of the outstanding limited partnership interests,
along with the 2% general partner interest for a combined ownership in Portfolio
II of 9.30%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio
II which results in AIMCO and its affiliates currently owning 6.47% of the
Venture. It is possible that AIMCO or its affiliates will make one or more
additional offers to acquire additional limited partnership interests in the
Partnerships for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreements, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the Managing General Partner. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Item 6. Selected Financial Data (in thousands, except per interest data):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
Total revenues from rental
<S> <C> <C> <C> <C> <C>
operations $ 28,658 $ 27,956 $ 25,577 $ 25,001 $ 27,874
Extraordinary item-gain on
extinguishment of debt $ -- $ -- $ 10,303 (B) $ 14,095 (A) $ 34,598 (A)
Net (loss) income $ (6,402) $ (6,958) $ 606 $ 1,823 $ 15,626
Net (loss) income per limited
partnership Portfolio I -
644 interests $ (6,842) $ (7,483) $ 654 $ 1,961 (A) $ 16,791 (A)
Portfolio II - 267 interests $ (6,992) $ (7,493) $ 646 (C) $ 1,953 (A) $ 16,791 (A)
Tax (loss) income $ (6,244) $ (6,792) $ (7,923) $ 3,188 $ 21,385
Tax (loss) income per limited
partnership Portfolio I -
644 interests $ (6,717) $ (7,306) $ (8,514) $ 3,426 $ 23,448
Portfolio II - 267 interests $ (6,717) $ (7,306) $ (8,514)(C) $ 3,426 $ 23,448
Total assets $ 68,445 $ 71,937 $ 73,542 $ 76,779 $ 88,440
Mortgage loans and notes $179,468 $177,190 $172,904 $153,066 $158,733
</TABLE>
A) During 1995 and 1996, respectively, five and two of the Ventures
nonretained properties were foreclosed. As a result of these events, the
Venture recognized extraordinary gains on the extinguishment of the
related debt. As of December 31, 1996, all of the nonretained properties
have been foreclosed.
B) During 1997, all of the Ventures' properties were refinanced. As a result,
the Venture recognized an extraordinary gain on the extinguishment of
debt.
C) During 1997, one Partnership interest was abandoned. In abandoning
Partnership Units, a limited partner relinquishes all right, title and
interest in the Partnership as of the date of abandonment. However, during
the year of abandonment, the Limited Partner will still be allocated his
or her share of the income or loss for that year.
The above selected financial data should be read in conjunction with the
combined financial statements and the related notes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-K 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 matter, 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.
This item should be read in conjunction with the combined financial statements
and other items contained elsewhere in this report.
Results from Operations
1999 Compared with 1998
The Venture recorded a net loss for the twelve months ended December 31, 1999 of
approximately $6,402,000 as compared to a net loss of $6,958,000 for the
corresponding period in 1998. (See "Note J" of the financial statements for a
reconciliation of these amounts to the Registrant's federal taxable income
(loss)). The decrease in net loss is primarily attributable to an increase in
total revenues. The increase in total revenues is due to an increase in rental
income which is partially offset by the recording of a casualty gain for the
twelve months ended December 31, 1998. No such gain was recorded for the twelve
months ended December 31, 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 six of the properties,
which more than offset the decreases at five other properties. A casualty gain
of approximately $279,000 was recorded during the year ended December 31, 1998
in connection with a fire that damaged eight of the two hundred forty-six units
at Pathfinder Village.
Total expenses increased primarily due to an increase in depreciation, interest
and property taxes, which more than offset the decrease in operating expenses
and to a lesser extent the fact that no loss on disposal of property was
recorded during the year ended December 31, 1999, as was for the year ended
December 31, 1998. Interest expense increased due to an increase in the
principal balance of outstanding notes payable. Property taxes increased due to
an increase in property tax rates at Buena Vista Apartments, Crosswood Park, The
Bluffs, Chapelle Le Grande, and Shadowood Apartments. Depreciation expense
increased as the result of depreciation taken on property improvements and
replacements placed into service for 1999. Operating expense decreased primarily
due to a decrease in insurance expense at all of the Venture's investment
properties as a result of a change in insurance carriers. Operating expense for
1998 included parking lot repairs at Scotchollow combined with exterior building
improvements at Crosswood Park, North Park, Watergate, Pathfinder and Shadowood
Apartments. In addition, all of the properties completed interior painting
projects in 1998. The loss on disposal of property for the year ended December
31, 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 twelve months
ended December 31, 1999.
General and administrative expense decreased for the year ended December 31,
1999 compared to the year ended December 31, 1998 primarily due to the payment
of a trustee fee for the year ended December 31, 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 year ended December 31, 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.
Effective January 1, 1999, the Venture changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to decrease the net loss by approximately $66,000 ($71.00 per limited
partnership interest for both Portfolio I and II). The cumulative effect, had
this change been applied to prior periods, is not material. The accounting
principle change will not have an effect on cash flow, funds available for
distribution or fees payable to the Managing General Partner and affiliates.
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.
1998 Compared to 1997
The Venture recorded a net loss for the year ended December 31, 1998 of
$6,958,000 as compared to net income of $606,000 for the year ended December 31,
1997. (See "Note J" of the financial statements for a reconciliation of these
amounts to the Registrant's federal taxable income (loss)). The decrease in net
income is primarily attributable to an extraordinary gain on extinguishment of
debt related to the refinancing of the Venture's properties on December 29,
1997. Net loss before the extraordinary gain on extinguishment of debt was
$6,958,000 and $9,697,000 for the years ended December 31, 1998 and 1997,
respectively. The decrease in net loss before the extraordinary gain is
primarily attributable to an increase in total revenues as well as a slight
decrease in total expenses. The increase in total revenues is due primarily to
an increase in rental income and to a lesser extent an increase in other income
and the recognition of a casualty gain. Rental income increased mainly due to an
increase in average annual rental rates at all fifteen of the Venture's
investment properties. In addition, occupancy at eight of the investment
properties increased for 1998; occupancy at three other properties remained the
same while the four remaining properties experienced decreases. Other income
increased primarily due to an increase in corporate units at Shadowood
Apartments. The Venture also recorded a casualty gain of $279,000 in connection
with a fire that damaged eight of the 246 units at Pathfinder Village.
Total expenses decreased due to reductions in operating, general and
administrative, interest and property tax expenses, which more than offset the
increase in depreciation and the loss on disposal of property. Operating
expenses decreased primarily due to landscaping expenses at Watergate Apartments
and exterior building improvements at Terrace Gardens, Forest Ridge and
Scotchollow in 1997. Also contributing to the reduction in operating expense was
a decrease in insurance expense at all of the Venture's investment properties.
Finally, the cost of contract garbage removal services decreased at Scotchollow
and Pathfinder. The decrease in general and administrative expenses is primarily
due to a decrease in asset management fees and reimbursements resulting from the
revised Asset Management Agreement, which was effective January 1, 1998.
Interest expense decreased due to the 1997 refinancing of the Ventures senior
loans to a lower interest rate. The decrease in property taxes is primarily the
result of reduced assessments at Casa de Monterey, Crosswood Park, Chapelle Le
Grande and North Park.
Depreciation expense increased as the result of depreciation taken on property
improvements and replacements for 1998. 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 1998.
Liquidity and Capital Resources
At December 31, 1999, the Venture had cash and cash equivalents of approximately
$2,004,000 as compared to approximately $931,000 at December 31, 1998. Cash and
cash equivalents increased approximately $1,073,000 for the year ended December
31, 1999. The increase in cash and cash equivalents is the result of
approximately $6,260,000 of cash provided by operating activities and was
partially offset by approximately $3,345,000 of cash used in financing
activities and approximately $1,842,000 of cash used in investing 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 was
slightly offset by net withdrawals from 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.
The Venture has budgeted a minimum of $300 per unit or $797,400 for all of the
properties except Towers of Westchester Park which is the limit set by the
second mortgage notes for funding of capital improvements. The Venture, the
holder (AIMCO LP) of the junior loan encumbering the property and the servicer
of the senior loan encumbering the property agreed, on November 19, 1999, to a
procedure to assess whether or not capital expenditures in addition to permitted
capital expenditures of $300 per unit per year are needed at the property and
the methodology for funding any such capital expenditures, in each case. This
methodology has been applied to Towers of Westchester. The parties agreed that
this property required repairs over the next year that are estimated to cost
$920,000 and that these repairs would be funded out of cash flows from the
properties that otherwise would be utilized to pay debt service on the junior
loans. As a result, the balloon payment due on the junior loans may be higher at
their maturity in January 2008. In addition, on November 19, 1999, the parties
agreed to a schedule of physical needs required at the property over the next
ten years and agreed that the required replacement reserve escrow funding on the
property under the senior loan encumbering the property would be increased from
$300 per unit per year to approximately $478 per unit per year, effective
January 1, 2000. As a result the monthly debt service requirement of the senior
loan will increase and be made from operating cash flow prior to any payments on
the junior loan. Accordingly the budget for 2000 is expected to be approximately
$1,065,000 for Towers of Westchester Park.
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 all have an interest
rate of 8.5% per annum and require monthly payment of principal and interest.
The junior loans all have an interest rate of 10.84% per annum and the monthly
payments are based on excess monthly cash flow for each property. All of the
loans mature on January 1, 2008. The 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. In accordance with the terms of the notes, if the
related junior note is prepaid and the outstanding agreed valuation amount of
the senior note is paid between January 1, 2007 and January 1, 2008, the notes
will be discharged without further liability. All of the loans are
cross-collateralized, but they are not cross-defaulted. As a result of the
refinancing, the Venture recognized an extraordinary gain on extinguishment of
debt of $10,303,000 during 1997. The extraordinary gain is the result of the
recognition of $11,828,000 of the deferred gain on extinguishment of debt, which
was reduced by debt extinguishment costs of $41,000 and the write-off of
discounts and loan costs on the old debt of $1,484,000. The reduction in the
deferred gain on extinguishment of debt results from the reduction of the
difference between the aggregate note face amounts and the aggregate agreed
valuation amounts. Under the terms of the old notes, the aggregate note face
amounts exceeded the aggregate valuation amounts by $54,053,000. Under the terms
of the new notes, the aggregate note face amounts exceed the aggregate agreed
valuation amounts by $42,225,000.
Both on a short-term and long-term basis the Managing General Partner monitors
the rental market environment of each of the investment properties within the
Venture to assess the feasibility of increasing rents, maintaining or increasing
occupancy levels and protecting the Venture from increases in expenses all of
which have an impact on the Venture's liquidity. The Venture's current assets
are thought to be sufficient for any short-term needs (exclusive of capital
improvements) of the Venture. However, as a result of the $920,000 of capital
improvements needed at Towers of Westchester, and the increase of $178 per unit
per year in the replacement reserve escrow, as stated above, the current assets
of the Registrant are not anticipated to be sufficient to service the junior
loans on a monthly basis. See below for further information as to the possible
impact on the junior loans. The Registrant's senior loans encumbering all of its
properties total approximately $107,711,000 and are being amortized over 25
years, with a balloon payment of $91,352,000 due January 2008. The Registrant's
junior loans, which also mature January 2008, total approximately $30,100,000
and require monthly payments based upon monthly excess cash flow for each
property. Per the junior loan agreements, excess monthly cash flow is defined as
revenue generated from operation of a property less (1) operating expenses of
the property, (2) the debt service payment for the senior loans, (3) the tax and
insurance reserve deposit and (4) replacement reserve deposit. Under a November
19, 1999 agreement with the holder of the senior loan of Towers of Westchester
(as discussed above) this property's excess monthly cash flow is to first be
used to fund a repair reserve. Once that reserve is fully funded, the excess
monthly cash flow will again be used as payment towards the junior loan. The
Venture anticipates that cash flow on a long-term basis will be sufficient to
meet the operating needs of the Venture as well as the requirements of the
senior loans with any excess cash flow being utilized to meet the requirements
of the junior loans.
AIMCO LP, which owns the Managing General Partner and which is a controlled
affiliate of AIMCO, purchased (i) the junior loans on November 19, 1999, and
(ii) a significant interest in the residual value of the properties on November
16, 1999. These transactions occurred between AIMCO LP and an unrelated third
party and thus had no effect on the combined financial statements of the
Venture. In connection with AIMCO LP's purchase of the junior loans, (i) the
seller, which owned the senior loans on the properties until October 1998,
acknowledged its prior consent to $1,749,286 of capital expenditures made on the
properties in addition to those funded pursuant to the capital expenditure
reserves for the senior and junior loans, which capital expenditures were funded
out of cash flow that would otherwise have been used to pay debt services on the
junior loans, and (ii) certain convenience as to the timeliness and completion
of certain scheduled deferred maintenance items were waived. In addition, AIMCO
LP, the Venture, and the servicer of the senior loans encumbering the properties
(the "Servicer") agreed to a procedure to assess whether or not capital
expenditures in addition to permitted capital expenditures of $300 per unit per
year are needed at each property and the methodology for funding any such
capital expenditures. Capital expenditures that are identified pursuant to these
procedures likely will be funded out of cash flow from the properties that
otherwise would be used to service the junior loans on the properties; longer
term capital expenditures so identified likely will be funded through an
increase in required capital expenditure reserve funding.
Although the effect of such additional capital expenditures, and the funding
therefore, cannot be determined with precision at this time, the Venture
anticipates that the additional capital expenditures at the properties
identified pursuant to the procedures described above, and the funding therefor,
will significantly increase the period of time that it takes to amortize the
junior loans, may cause the junior loans to negatively amortize for some period
of time, and may result in or increase the amount of balloon payments due on the
junior loans at the end of the term. If the properties cannot be refinanced or
sold at or before the end of such term for a sufficient amount, the Venture will
risk losing such properties through foreclosure. There can be no assurance of
the effect that such additional capital expenditures, and the funding therefor,
will have on the operations of the properties, or whether the properties will be
maintained in the future in an acceptable or marketable state of repair.
There were no cash distributions to the partners of either of the Partnerships
for the years ended December 31, 1999, 1998, and 1997. In accordance with the
respective Agreements of Limited Partnership, there are no material restrictions
on the Partnerships' ability to make cash distributions; future cash
distributions are, however, subject to the order of distributions as stipulated
by the 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, the timing of debt maturities, refinancings and/or property
sales. The Partnerships' distribution policy is reviewed on an annual basis.
There can be no assurance, however, that the Partnerships 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 in 2000 or subsequent periods.
Tender Offer
During 1999, AIMCO LP an affiliate of the Managing General Partner made a tender
offer to purchase units of limited partnership interest in both Portfolio I and
II. As a result of the tender offer, AIMCO and its affiliates currently own
21.25 units of limited partnership interest in Portfolio I representing 3.3% of
the outstanding limited partnership interests, along with the 2% general partner
interest for a combined ownership in Portfolio I of 5.30%. AIMCO and its
affiliates currently own 19.50 units of limited partnership interest in
Portfolio II representing 7.3% of the outstanding limited partnership interests,
along with the 2% general partner interest for a combined ownership in Portfolio
II of 9.30%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio
II which results in AIMCO and its affiliates currently owning 6.47% of the
Venture. It is possible that AIMCO or its affiliates will make one or more
additional offers to acquire additional limited partnership interests in the
Partnerships for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreements, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the Managing General Partner. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Year 2000
General Description
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 Managing Agent's
computer programs or hardware that had date-sensitive software or embedded chips
might have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted 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.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. To date, no material failure or erroneous results have occurred in
the Managing Agent's computer applications related to the failure to reference
the Year 2000.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
Item 7a. Market Risk Factors
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
trading purposes. The Venture is exposed to changes in interest rates primarily
as a result of 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 December 31, 1999, an increase or
decrease of 100 basis points 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,
1999. The interest rates represent the weighted-average rates. The fair value of
the debt obligations approximated the recorded value as of December 31, 1999.
<TABLE>
<CAPTION>
Long-term Debt
Principal Weighted-average
(in thousands) Interest Rate
<S> <C> <C> <C>
2000 $ 1,125 8.50%
2001 1,419 8.50%
2002 1,553 8.50%
2003 1,692 8.50%
2004 1,825 8.50%
Thereafter 130,197 9.04%
$137,811
</TABLE>
<PAGE>
Item 8. Financial Statements and Supplementary Data
LIST OF COMBINED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Combined Balance Sheets - Years ended December 31, 1999 and 1998
Combined Statements of Operations - Years ended December 31, 1999, 1998,
and 1997
Combined Statements of Changes in Partners' Deficit - Years ended December
31, 1999, 1998, and 1997
Combined Statements of Cash Flows - Years ended December 31, 1999, 1998 and
1997
Notes to Combined Financial Statements
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners
VMS National Residential Portfolio I and
VMS National Residential Portfolio II
We have audited the accompanying combined balance sheets of VMS National
Properties Joint Venture as of December 31, 1999 and 1998, and the related
combined statements of operations, changes in partners' deficit and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of VMS National
Properties Joint Venture at December 31, 1999 and 1998, and the combined results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
As discussed in Note M to the financial statements, the Partnership changed its
method of accounting to capitalize the cost of exterior painting and major
landscaping effective January 1, 1999.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 2000
<PAGE>
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
Assets:
<S> <C> <C>
Cash and cash equivalents $ 2,004 $ 931
Receivables and deposits 1,863 2,163
Restricted escrows 2,581 2,596
Other assets 311 418
Investment properties:
Land 13,404 13,404
Buildings and related personal property 135,080 133,223
Less accumulated depreciation (86,798) (80,798)
61,686 65,829
$ 68,445 $ 71,937
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 649 $ 405
Tenant security deposits liabilities 1,075 1,108
Accrued property taxes 598 1,047
Other liabilities 1,726 493
Accrued interest 713 1,076
Mortgage notes payable, including $30,101 due to
an affiliate at December 31, 1999 (Note E) 137,811 139,732
Notes payable 41,657 37,458
Deferred gain on extinguishment of debt 42,225 42,225
Partners' Deficit (158,009) (151,607)
$ 68,445 $ 71,937
</TABLE>
See Accompanying Notes to Combined Financial Statements
<PAGE>
b)
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per interest data)
<TABLE>
<CAPTION>
For The Years Ended December 31,
1999 1998 1997
Revenues:
<S> <C> <C> <C>
Rental income $ 27,503 $ 26,511 $ 24,507
Other income 1,155 1,166 1,070
Casualty gain -- 279 --
Total revenues 28,658 27,956 25,577
Expenses:
Operating 8,428 8,832 9,192
Property management fees 1,160 1,122 1,013
General and administrative 636 785 953
Depreciation 6,000 5,696 5,465
Interest 17,029 16,600 16,924
Property taxes 1,807 1,691 1,727
Loss on disposal of property -- 188 --
Total expenses 35,060 34,914 35,274
Loss before extraordinary item (6,402) (6,958) (9,697)
Extraordinary item - gain on extinguishment
of debt -- -- 10,303
Net (loss) income $ (6,402) $ (6,958) $ 606
Net (loss) income allocated to general partners $ (128) $ (139) $ 12
Net (loss) income allocated to limited partners (6,274) (6,819) 594
$ (6,402) $ (6,958) $ 606
Net (loss) income per limited partnership
interest:
Loss before extraordinary item
Portfolio I (644 interests) $ (6,842) $ (7,483) $(10,417)
Portfolio II (1) $ (6,992) $ (7,493) $(10,425)
Extraordinary item
Portfolio I (644 interests) $ -- $ -- $ 11,071
Portfolio II (1) $ -- $ -- $ 11,071
Net (loss) income
Portfolio I (644 interests) $ (6,842) $ (7,483) $ 654
Portfolio II (1) $ (6,992) $ (7,493) $ 646
</TABLE>
(1) 267, 267 and 268 interests at December 31, 1999, 1998, and 1997,
respectively.
See Accompanying Notes to Combined Financial Statements
<PAGE>
c)
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
VMS National Residential Portfolio I
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
<S> <C> <C> <C> <C> <C> <C> <C>
Partners'deficit at December 31, 1996 $(3,356) $ (98,353) $ (534) $ (98,887) $(102,243)
Collections of subscription notes -- -- 23 23 23
Net income for the year
ended December 31, 1997 9 421 -- 421 430
Partner's 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 year ended
December 31, 1998 (98) (4,819) -- (4,819) (4,917)
Partners' deficit at December 31, 1998 (3,445) (102,751) (506) (103,257) (106,702)
Net loss for the year ended
December 31, 1999 (90) (4,406) -- (4,406) (4,496)
Partners' deficit at December 31, 1999 $(3,535) $(107,157) $ (506) $(107,663) $(111,198)
</TABLE>
See Accompanying Notes to Combined Financial Statements
<PAGE>
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (Continued)
(in thousands)
<TABLE>
<CAPTION>
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
<S> <C> <C> <C> <C> <C> <C> <C>
Partners' deficit at December 31, 1996 $(1,404) $ (41,307) $ (342) $ (41,649) $ (43,053)
Collections of subscription notes -- -- 7 7 7
Net income for the year
ended December 31, 1997 3 173 -- 173 176
Partner's 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 year ended
December 31, 1998 (41) (2,000) -- (2,000) (2,041)
Partners deficit at December 31, 1998 (1,442) (43,134) (329) (43,463) (44,905)
Net loss for the year ended
December 31, 1999 (38) (1,868) -- (1,868) (1,906)
Partners' deficit at December 31, 1999 $(1,480) $ (45,002) $ (329) $ (45,331) $ (46,811)
Combined partners' deficit at
December 31, 1999 $(5,015) $(152,159) $ (835) $(152,994) $(158,009)
</TABLE>
See Accompanying Notes to Combined Financial Statements
<PAGE>
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For The Years Ended December 31,
1999 1998 1997
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income $ (6,402) $ (6,958) $ 606
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operating
activities:
Extraordinary gain on
Extinguishment of debt -- -- (10,303)
Depreciation 6,000 5,696 5,465
Amortization of mortgage discounts
and loan costs 4,199 4,003 3,688
Loss on disposal of property -- 188 76
Casualty gain -- (279) --
Change in accounts:
Receivables and deposits 300 (291) 670
Other assets 107 60 43
Accounts payable 244 36 67
Tenant security deposit liabilities (33) 3 25
Accrued interest 1,061 3,146 (11,948)
Accrued property taxes (449) 442 113
Other liabilities 1,233 (501) 197
Net cash provided by (used in)
operating activities 6,260 5,545 (11,301)
Cash flows from investing activities:
Property improvements and replacements (1,857) (3,216) (2,297)
Net insurance proceeds from casualty -- 378 --
Net withdrawals from (deposits to) restricted
escrows 15 (2,510) (20)
Net cash used in investing activities $ (1,842) $ (5,348) $ (2,317)
</TABLE>
See Accompanying Notes to Combined Financial Statements
<PAGE>
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
<TABLE>
<CAPTION>
For The Years Ended December 31,
1999 1998 1997
Cash flows from financing activities:
<S> <C> <C> <C>
Payments on mortgage notes payable $ (3,345) $ (1,787) $ (320)
Repayment of mortgage notes payable -- -- (120,441)
Proceeds from mortgage notes payable -- -- 139,449
Debt extinguishment costs -- -- (41)
Payments received on subscription notes -- 11 30
Repayment of notes payable -- -- (4,000)
Payments on advances from affiliates -- -- (337)
Net cash (used in) provided by
financing activities (3,345) (1,776) 14,340
Net increase (decrease) in cash and cash
equivalents 1,073 (1,579) 722
Cash and cash equivalents at beginning
of year 931 2,510 1,788
Cash and cash equivalents at end of year $ 2,004 $ 931 $ 2,510
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 11,768 $ 9,461 $ 25,163
Supplemental non-cash disclosure of
financing activities:
Assignment of advance from
affiliate to mortgage note holder $ -- $ -- $ 397
Accrued interest added to
mortgage notes payable $ 1,424 $ 2,070 $ --
</TABLE>
See Accompanying Notes to Combined Financial Statements
<PAGE>
VMS NATIONAL PROPERTIES JOINT VENTURE
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization:
VMS National Properties Joint Venture (the "Venture") was formed as a general
partnership pursuant to the Uniform Partnership Act of the State of Illinois and
a joint venture agreement (the "Venture Agreement") dated September 27, 1984,
between VMS National Residential Portfolio I ("Portfolio I") and VMS National
Residential Portfolio II ("Portfolio II") (collectively, the "Partnerships").
Effective December 12, 1997, the managing general partner of each of the
Partnerships was transferred from VMS Realty Investment, Ltd. ("VMSRIL" or the
"Former Managing General Partner") (formerly VMS Realty Partners) to MAERIL,
Inc. ("MAERIL" or the "Managing General Partner"), a wholly-owned subsidiary of
MAE GP Corporation ("MAE GP") and an affiliate of Insignia Financial Group, Inc.
("Insignia"). Effective February 25, 1998, MAE GP was merged with Insignia
Properties Trust ("IPT"), which was an affiliate of Insignia. Effective October
1, 1998 and February 26, 1999, Insignia and IPT were respectively merged into
Apartment Investment and Management Company ("AIMCO"). Thus the Managing General
Partner is now a wholly-owned subsidiary of AIMCO. See "Note B - Transfer of
Control." The directors and officers of the Managing General Partner also serve
as executive officers of AIMCO.
The Venture originally acquired 51 residential apartment properties located
throughout the United States. Of these 51 properties, four were foreclosed prior
to 1993. As more fully described in "Note C", the Venture filed for Chapter 11
bankruptcy protection on February 22, 1991. The Venture's Second Amended and
Restated Plan of Reorganization (the "Plan") became effective on September 30,
1993. Pursuant to the Plan, 19 of the Venture's properties were foreclosed in
1993, four properties were foreclosed in 1994, five properties were foreclosed
in 1995 and an additional two properties foreclosed in 1996. Also, the Venture
sold two of the residential properties during 1996. The Venture continues to own
and operate 15 of the residential apartment complexes it originally acquired.
These properties are located in or near major urban areas in the United States.
Pursuant to the terms of the Joint Venture Agreement for the Venture and the
respective Partnership Agreements for Portfolio I and Portfolio II, the Managing
General Partner will manage Portfolio I, Portfolio II, VMS National Properties
and each of the Venture's operating properties. The Limited Partners do not
participate in or control the management of their respective partnership, except
that certain events must be approved by the Limited Partners. These events
include: (1) voluntary dissolution of either Portfolio I or Portfolio II, and
(2) amending substantive provisions of either Partnership Agreement.
Basis of Accounting:
The accompanying financial statements represent the combined financial
statements of VMS National Residential Portfolio I ("Portfolio I"), VMS National
Residential Portfolio II ("Portfolio II"), and the Venture. Significant
interpartnership accounts and transactions have been eliminated from these
combined financial statements.
Allocation of Income, Loss, and Distributions:
The operating profits and losses of VMS National Properties Joint Venture are
allocated to Portfolio I and Portfolio II based on their respective ownership of
VMS National Properties Joint Venture which is 70.69% and 29.31%, respectively.
Portfolio I and Portfolio II then combine their respective share of the
operating profits and losses of VMS National Properties Joint Venture with their
respective operating profits and losses which is then allocated 98% to the
respective limited partners and 2% to the respective general partner of both
Portfolio I and Portfolio II.
Operating cash flow distributions for Portfolio I and Portfolio II will be made
at the discretion of the Managing General Partner subject to the order of
distribution indicated in the Plan and approved by the Bankruptcy Court. Such
distributions will be allocated first to the respective Limited Partners in an
amount equal to 12% per year (on a noncumulative basis) of their contributed
capital; then, to the general partners, a subordinated incentive fee equal to
10.45% of remaining operating cash flow; and finally, of the balance to be
distributed, 98% to the Limited Partners and 2% to the general partners.
Distributions of proceeds arising from the sale or refinancing of the Venture's
properties will be allocated to Portfolio I and Portfolio II in proportion to
their respective Venture interests subject to the order of distribution
indicated in the Plan and approved by Bankruptcy Court. Distributions by
Portfolio I and Portfolio II will then be allocated as follows: (1) first to the
Limited Partners in an amount equal to their aggregate capital contributions;
(2) then to the general partners in an amount equal to their aggregate capital
contributions; (3) then, among the Limited Partners, an amount equal to
$62,000,000 multiplied by the respective percentage interest of Portfolio I or
Portfolio II in the Venture; and (4) finally, of the balance, 76% to the Limited
Partners and 24% to the general partners.
In any event, there shall be allocated to the general partners not less than 1%
of profits or losses.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about
Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures
about Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Venture believes that
the carrying amount of its financial instruments (except for long term debt)
approximates their fair value due to the short term maturity of these
instruments. The fair value of the Venture's long term debt, after discounting
the scheduled loan payments to maturity, approximates its carrying balance.
Cash and Cash Equivalents:
Includes cash on hand in banks and money market accounts. At certain times, the
amount of cash deposited at a bank may exceed the limit on insured deposits.
Tenant Security Deposits:
The Venture requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables and deposits. The security
deposits are refunded when the tenant vacates, provided the tenant has not
damaged its space, and is current on its rental payments.
Investment Properties:
Investment properties consist of fifteen apartment complexes and are stated at
cost. Acquisition fees are capitalized as a cost of real estate. In accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. No adjustments for impairment of value were
recorded in the years ended December 31, 1999, 1998 or 1997.
Escrows:
In connection with the December 1997 refinancing of the Venture's 15 remaining
properties, a replacement escrow was required for each property. Each property
was required to deposit an initial lump sum amount plus make monthly deposits
over the term of the loan, which varies by property. These funds are to be used
to cover replacement costs. The balance of the replacement reserves at December
31, 1999 is approximately $2,581,000, including interest.
Depreciation:
Depreciation is computed by the straight-line method over estimated useful lives
ranging from 25 to 29 years for buildings and improvements and the 150% or 200%
declining balance method for five to fifteen years for personal property.
Effective January 1, 1999 the Venture changed its method of accounting to
capitalize the costs of exterior painting and major landscaping (see "Note M").
Leases:
The Venture generally leases apartment units for twelve-month terms or less. The
Venture recognizes income as earned on its leases. In addition, the Managing
General Partner's policy is to offer rental concessions during particularly slow
months or in response to heavy competition from other similar complexes in the
area. Concessions are charged against rental income as incurred.
Segment Reporting:
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" established standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
See "Note K" for detailed disclosure of the Venture's segments.
Advertising Costs:
The Venture expenses the cost of advertising as incurred. Advertising costs of
approximately $355,000, $335,000, and $334,000, are included in operating
expense for the years ended December 31, 1999, 1998, and 1997, respectively.
Deferred Gain on Extinguishment of Debt:
For the period February 22, 1991 to September 30, 1993 the Venture was under a
Plan of Reorganization Under the Bankruptcy Code ("the Plan") and had reflected
its operations under the financial reporting guidance prescribed by the AICPA
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code". Pursuant to the Plan the senior and junior loans
were modified effective September 30, 1993. The face value of the loans were
recorded at the Agreed Valuation Amount as stipulated under the Plan and under
the terms of the restated notes, the holder of the loans may reinstate the full
claim which was in place at the petition filing date upon the default of any
note. Under SFAS 5 "Accounting for Contingencies" the difference between the
Agreed Valuation Amount and the face value of the junior loans was recorded as a
deferred gain.
Income Taxes:
Taxable income or loss of the Venture is reported in the income tax returns of
its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Venture.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998, and
February 26, 1999, Insignia and IPT merged into 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 has had or 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 it's properties (see "Note D"). 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 (see "Note D").
(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 (see "Note
D").
(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 (see "Note F"). 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 represented 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 did 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 provided
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 (see "Note D").
(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 expenses 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-lien 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 - Extraordinary Gain On Extinguishment Of Debt
Pursuant to the Plan of Reorganization (see "Note C"), the mortgages formerly
held by the FDIC were modified effective September 30, 1993. The face value of
the notes were restated to agreed valuation amounts. Under the terms of the
modification, the lender may reinstate the full claim upon the default of any
note. As a result, the Venture deferred recognition of a gain of $54,053,000,
which was the difference between the note face amounts and the agreed valuation
amounts of the modified debt.
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. The junior loans 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. Per the junior loan agreements, excess monthly cash flow is defined as
revenue generated from operation of a property less (1) operating expenses of
the property, (2) the debt service payment for the senior loans, (3) the tax and
insurance reserve deposit and (4) replacement reserve deposit. Under a November
19, 1999 agreement with the holder of the senior loan of Towers of Westchester
(see "Note E - Mortgage Notes Payable"), this property's excess monthly cash
flow is to first be used to fund a repair reserve. Once that reserve is fully
funded, the excess monthly cash flow will be used as payment towards the junior
loan. 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 regarding note face amounts and agreed valuation amounts. These
new loans were recorded at the agreed valuation amount of $110,000,000, which
was 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.
The junior loans were recorded at their face amount at the time of the
refinancing and are being accounted for under the terms of their note
agreements. 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. Therefore, a default by one property under the
terms of its loan agreements does not in and of itself create a default under
all of the senior and junior loan agreements. However, if the proceeds upon the
sale or refinancing of any property are insufficient to fully repay the
outstanding senior and junior loan related to that property, any deficiency is
to be satisfied from the sale or refinancing of the remaining properties. In
conjunction with the refinancing, the Venture paid the outstanding principal and
accrued interest on the $4,000,000 ContiTrade Note (see "Note F"). As a result
of the refinancing, the Venture recognized an extraordinary gain on
extinguishment of debt of $10,303,000, of which $11,828,000 is the result of a
decreased difference between the note face amounts and agreed valuation amounts
for the refinanced mortgage notes as compared to the old indebtedness. This gain
was partially offset by debt extinguishment costs of $41,000 and the write-off
of discounts and loan costs on the old debt of $1,484,000.
Note E - Mortgage Notes Payable
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Balance
December 31, Including Interest Maturity Due At
Property 1999 Interest Rate Date Maturity
(in thousands) (in thousands)
North Park Apartments
<S> <C> <C> <C> <C> <C>
1st mortgage $ 6,209 $51 8.50% 01/08 $ 5,264
2nd mortgage 1,811 (A) 10.84% 01/08 (A)
Chapelle Le Grande
1st mortgage 3,184 26 8.50% 01/08 2,702
2nd mortgage 949 (A) 10.84% 01/08 (A)
Terrace Gardens
1st mortgage 4,405 36 8.50% 01/08 3,739
2nd mortgage 1,210 (A) 10.84% 01/08 (A)
Forest Ridge Apartments
1st mortgage 5,854 48 8.50% 01/08 4,968
2nd mortgage 1,644 (A) 10.84% 01/08 (A)
Scotchollow
1st mortgage 28,913 236 8.50% 01/08 24,533
2nd mortgage 8,058 (A) 10.84% 01/08 (A)
Pathfinders Village
1st mortgage 13,370 109 8.50% 01/08 11,336
2nd mortgage 3,868 (A) 10.84% 01/08 (A)
Buena Vista Apartments
1st mortgage 4,920 40 8.50% 01/08 4,171
2nd mortgage 1,299 (A) 10.84% 01/08 (A)
Mountain View Apartments
1st mortgage 7,108 58 8.50% 01/08 6,026
2nd mortgage 1,961 (A) 10.84% 01/08 (A)
Crosswood Park
1st mortgage 5,530 45 8.50% 01/08 4,688
2nd mortgage 1,309 (A) 10.84% 01/08 (A)
Casa de Monterey
1st mortgage 4,074 33 8.50% 01/08 3,454
2nd mortgage 1,178 (A) 10.84% 01/08 (A)
The Bluffs
1st mortgage 3,695 30 8.50% 01/08 3,135
2nd mortgage 1,044 (A) 10.84% 01/08 (A)
Watergate Apartments
1st mortgage 2,878 23 8.50% 01/08 2,440
2nd mortgage 799 (A) 10.84% 01/08 (A)
Shadowood Apartments
1st mortgage 2,236 18 8.50% 01/08 1,896
2nd mortgage 586 (A) 10.84% 01/08 (A)
Vista Village Apartments
1st mortgage 3,299 27 8.50% 01/08 2,797
2nd mortgage 938 (A) 10.84% 01/08 (A)
Towers of Westchester Park
1st mortgage 12,035 98 8.50% 01/08 10,203
2nd mortgage 3,447 (A) 10.84% 01/08 (A)
Totals $137,811 $91,352
</TABLE>
(A) Payments are based on excess monthly cash flow, as defined (see "Note D -
Extraordinary Gain on Extinguishment of Debt"), with any unpaid balance
due at maturity.
On November 19, 1999, the Venture entered into an agreement with the holder of
the first mortgage of Towers of Westchester Park to fund a repair reserve of
$920,000 from available cash flow as defined.
AIMCO Properties, LP ("AIMCO LP"), which owns the Managing General Partner and
which is a controlled affiliate of AIMCO, purchased (i) the junior loans on
November 19, 1999, and (ii) a significant interest in the residual value of the
properties on November 16, 1999. These transactions occurred between AIMCO LP
and an unrelated third party and thus had no effect on the combined financial
statements of the Venture.
Scheduled principal payments on mortgage loans payable subsequent to December
31, 1999 are as follows (in thousands):
2000 $ 1,125
2001 1,419
2002 1,553
2003 1,692
2004 1,825
Thereafter 130,197
$ 137,811
Principal payments for the senior mortgage loans were determined based upon
stated monthly interest and principal payments. No stated principal payments are
required for the junior mortgage loans.
Note F - Notes Payable
Assignment Note:
The Venture executed a $29,000,000 purchase money subordinated note (the
"Assignment Note") payable to the VMS/Stout Venture in exchange for the
assignment by the VMS/Stout Venture of its interest in the contract of sale to
the Venture. The Assignment Note is collateralized by the pledge from Portfolio
I and Portfolio II of their respective interests in the Venture.
On November 17, 1993, VMS Realty Partners assigned its 50% interest in the
VMS/Stout Venture to the Partners Liquidating Trust which was established for
the benefit of the former creditors of VMS Realty Partners and its affiliates.
The stated rate of interest on the Assignment Note (prior to modification by the
Plan) was 12% per annum (compounded semi-annually) with monthly payments of
interest only at a rate of 6%. Monthly payments on this note were discontinued
in May 1990, and the accrual of interest was discontinued after the February 22,
1991 petition filing date. Additionally, effective April 10, 1991, VMS Realty
Partners waived its right to collect interest on its portion of the Assignment
Note.
Pursuant to the Plan, the allowed claim for the Assignment Note and related
interest was $46,285,000; $3,475,000 of this amount was paid in October 1993, in
accordance with the terms of the Plan. The Venture also executed a $4,000,000
promissory note payable dated September 1, 1993 to ContiTrade Services
Corporation ("ContiTrade Note") with interest at 5% per annum. This note
represented a prioritization of payment to ContiTrade and did not represent the
assumption of any additional debt. The ContiTrade Note was to mature on January
15, 2000, and was collateralized by a Deed of Trust, Assignment of Rents and
Security Agreement on each of the Venture's retained complexes. This note was
paid with the December 29, 1997, refinancing (see "Note D").
The remaining $38,810,000 of the Assignment Note is non-interest bearing and is
payable only after payment of debt of higher priority, including the senior and
junior mortgage notes payable. Pursuant to SOP 90-7, the Assignment Note, the
Long-Term Loan Arrangement Fee Note (as defined below) and related accrued
interest were adjusted to the present value of amounts to be paid using an
estimated current interest rate of 11.5%. At December 31, 1999, the carrying
amount of the Assignment Note is $38,407,000, net of discount for imputed
interest of $403,000. Interest expense is being recognized through the
amortization of the discount which totaled approximately $4,199,000 and
$4,003,000, and $3,618,000 in 1999, 1998, and 1997, respectively.
Long-Term Loan Arrangement Fee Note:
The Venture executed a $3,000,000 unsecured, nonrecourse promissory note, the
"Long-Term Loan Arrangement Fee Note" payable to the VMS/Stout Venture as
consideration for arranging long-term financing.
The stated rate of interest on this note prior to modification by the Plan was
10% per annum, payable on a monthly basis. Monthly interest payments on this
Note were discontinued in May 1990. Additionally, the accrual of interest on
this Note was discontinued after the February 22, 1991 petition filing date.
Pursuant to the Plan, the entire $3,250,000 balance, which included $250,000 in
unpaid accrued interest that was rolled into principal, was granted as an
allowed claim. None of this balance bears interest, and the balance is payable
only after debt of a higher priority, including senior and junior mortgage
loans.
Note G - 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 $300,000, $300,000 and $441,000 were paid
to an affiliate of the Managing General Partner for the years ended December 31,
1999, 1998, and 1997, 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 $1,160,000, $1,122,000 and $1,013,000 for the years
ended December 31, 1999, 1998, and 1997, respectively.
In addition, affiliates of the Managing General Partner received reimbursement
of accountable administrative expenses amounting to approximately $100,000,
$100,000 and $200,000 for the years ended December 31, 1999, 1998, and 1997
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 $16,000, $54,000, and $43,000 for the
years ended December 31, 1999, 1998, and 1997, respectively.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $142,000, $144,000 and $145,000 for the year
ended December 31, 1999, 1998, and 1997, 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 December 31, 1999, 1998, and 1997, 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 years ended December 31, 1999, 1998, and
1997.
AIMCO Properties, LP ("AIMCO LP"), which owns the Managing General Partner and
which is a controlled affiliate of AIMCO, purchased (i) the junior loans on
November 19, 1999, and (ii) a significant interest in the residual value of the
properties on November 16, 1999. These transactions occurred between AIMCO LP
and an unrelated third party and thus had no effect on the combined financial
statements of the Venture.
During 1999, AIMCO LP an affiliate of the Managing General Partner made a tender
offer to purchase units of limited partnership interest in both Portfolio I and
II. As a result of the tender offer, AIMCO and its affiliates currently own
21.25 units of limited partnership interest in Portfolio I representing 3.3% of
the outstanding limited partnership interests, along with the 2% general partner
interest for a combined ownership in Portfolio I of 5.30%. AIMCO and its
affiliates currently own 19.50 units of limited partnership interest in
Portfolio II representing 7.3% of the outstanding limited partnership interests,
along with the 2% general partner interest for a combined ownership in Portfolio
II of 9.30%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio
II which results in AIMCO and its affiliates currently owning 6.47% of the
Venture. It is possible that AIMCO or its affiliates will make one or more
additional offers to acquire additional limited partnership interests in the
Partnerships for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreements, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the Managing General Partner. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Note H - Subscription Notes And Accrued Interest Receivable
Portfolio I and Portfolio II executed promissory notes requiring cash
contributions from the partners aggregating $136,800,000 to the capital of
Portfolios I and II for 644 and 267 units, respectively. Of this amount,
approximately $135,055,000 was contributed in cash through December 31, 1999,
and $910,000 was deemed uncollectible and written-off prior to December 31,
1999. The following table represents the remaining Limited Partners'
subscription notes principal balances and the related accrued interest
receivable at December 31, 1999 (in thousands):
Portfolio I Portfolio II
Subscription notes receivable $ 506 $ 329
Accrued interest receivable 63 67
Allowance for uncollectible
interest receivable (63) (67)
Total subscription notes and
accrued interest receivable $ 506 $ 329
All amounts outstanding at December 31, 1999, are considered past due and bear
interest at the default rate of 18%. No interest will be recognized until
collection is assured.
Note I - Investment Properties and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
(in thousands)
Buildings and Costs Capitalized Provision to
Related Personal Subsequent to Reduce to
Description Encumbrances Land Property Acquisition Fair Value
<S> <C> <C> <C> <C> <C>
North Park Apartments $ 8,020 $ 557 $ 8,349 $ 1,569 $ --
Chapelle Le Grande 4,133 166 3,873 816 --
Terrace Gardens 5,615 433 4,517 1,238 --
Forest Ridge Apartments 7,498 701 6,930 1,244 --
Scotchollow 36,971 3,510 19,344 5,827 --
Pathfinders Village 17,238 3,040 11,698 2,555 (1,250)
Buena Vista Apartments 6,219 893 4,538 562 --
Mountain View Apartments 9,069 1,289 8,490 1,068 --
Crosswood Park 6,839 611 8,597 1,963 (2,000)
Casa De Monterey 5,252 869 6,136 1,087 --
The Bluffs 4,739 193 3,667 514 --
Watergate Apartments 3,677 263 5,625 1,248 --
Shadowood Apartments 2,822 209 3,393 734 --
Vista Village Apartments 4,237 568 5,209 1,044 --
Towers Of Westchester Park 15,482 529 13,491 2,577 --
TOTAL $137,811 $13,831 $ 113,857 $24,046 $(3,250)
</TABLE>
Gross Amount At Which Carried
At December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Buildings Accumu- Date Deprec-
And Related lated Year of of iable
Personal Reprec- Constru- Acquis- Life-
Description Land Property Total iation ction ition Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North Park Apartments $ 557 $ 9,918 $ 10,475 $ 6,516 1968 11/14/84 5-27.5
Chapelle Le Grand 166 4,689 4,855 2,971 1972 12/05/84 5-27.5
Terrace Gardens 433 5,755 6,188 3,538 1973 10/26/84 5-27.5
Forest Ridge Apartments 701 8,174 8,875 5,277 1974 10/26/86 5-27.5
Scotchollow 3,510 25,171 28,681 16,441 1973 10/26/84 5-27.5
Pathfinders Village 2,753 13,290 16,043 8,594 1971 10/26/84 5-27.5
Bunea Vista Apartments 893 5,100 5,993 3,418 1972 10/26/84 5-27.5
Mountain View Apartments 1,289 9,558 10,847 5,759 1978 10/26/84 5-29
Crosswood Park 471 8,700 9,171 5,303 1977 12/05/84 5-29
Casa De Monterey 869 7,223 8,092 4,698 1970 10/26/84 5-27.5
The Bluffs 193 4,181 4,374 2,786 1968 10/26/84 5-27.5
Watergate Apartments 263 6,873 7,136 4,365 1972 10/26/84 5-27.5
Shadowood Apartments 209 4,127 4,336 2,728 1974 11/14/84 5-27.5
Vista Village Apartments 568 6,253 6,821 3,882 1971 10/26/84 5-27.5
Towers Of Westchester Park 529 16,068 16,597 10,522 1971 10/26/84 5-27.5
TOTAL $13,404 $135,080 $148,484 $86,798
</TABLE>
The aggregate costs of the investment properties for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $165,944,000 and $164,090,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $128,608,000 and $121,859,000,
respectively.
Reconciliation of Investment Properties and Accumulated Depreciation:
<TABLE>
<CAPTION>
1999 1998 1997
Investment Properties
<S> <C> <C> <C>
Balance at beginning of year $146,627 $144,007 $141,859
Property improvements
and replacements 1,857 3,216 2,297
Dispositions of property -- (596) (149)
Balance at end of Year $148,484 $146,627 $144,007
Accumulated Depreciation
Balance at beginning of year $ 80,798 $ 75,411 $ 70,019
Additions charged to expense 6,000 5,696 5,465
Dispositions of property -- (309) (73)
Balance at end of Year $ 86,798 $ 80,798 $ 75,411
</TABLE>
Note J - Income Taxes
The following is a reconciliation of reported net (loss) income per the
financial statements to the Federal taxable loss to partners (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
Net (loss) income as reported $ (6,402) $ (6,958) $ 606
Depreciation and amortization
<S> <C> <C> <C>
differences (749) (371) (260)
Unearned income 812 66 181
Gain on refinancing -- -- (8,787)
Casualty loss -- 161 --
Write-down of fixed assets -- 125 208
Other 95 185 129
Federal taxable loss $ (6,244) $ (6,792) $(7,923)
</TABLE>
The following is a reconciliation between the Venture's reported amounts and
Federal tax basis of net liabilities at December 31, 1999 (in thousands):
Net liabilities as reported $(158,009)
Land and buildings 17,460
Accumulated depreciation (41,810)
Syndication costs 17,650
Deferred gain 42,225
Other deferred costs 9,601
Other (52,445)
Notes payable 4,882
Subscription note receivable 1,842
Mortgage payable (47,727)
Accrued interest 9,571
Net liabilities - Federal tax basis $(196,760)
Note K - 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 segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies.
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 years ended December 31, 1999, 1998, and 1997 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 $27,503 $ -- $ 27,503
Other income 1,138 17 1,155
Interest expense 12,830 4,199 17,029
Depreciation 6,000 -- 6,000
General and administrative expense -- 636 636
Segment loss (1,454) (4,948) (6,402)
Total assets 67,991 454 68,445
Capital expenditures 1,857 -- 1,857
1998
Residential Other Totals
Rental income $26,511 $ -- $ 26,511
Other income 1,108 58 1,166
Interest expense 12,596 4,004 16,600
Depreciation 5,696 -- 5,696
General and administrative expense -- 785 785
Casualty gain 279 -- 279
Loss on disposal of assets (188) -- (188)
Segment loss (2,227) (4,731) (6,958)
Total assets 71,454 483 71,937
Capital expenditures 3,216 -- 3,216
1997
Residential Other Totals
Rental income $ 24,507 $ -- $ 24,507
Other income 967 103 1,070
Interest expense 13,148 3,776 16,924
Depreciation 5,465 -- 5,465
General and administrative expense -- 953 953
Extraordinary item - gain on
extinguishment of debt 10,303 -- 10,303
Segment profit (loss) 5,232 (4,626) 606
Total assets 71,961 1,581 73,542
Capital expenditures 2,297 -- 2,297
Note L - Legal Proceedings
The Venture is unaware of any pending or outstanding litigation that is not of a
routine nature arising in the ordinary course of business.
Note M - Change in Accounting Principle
Effective January 1, 1999, the Venture changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to decrease the net loss by approximately $66,000 ($71.00 per limited
partnership interest for both Portfolio I and II). The cumulative effect, had
this change been applied to prior periods, is not material. The accounting
principle change will not have an effect on cash flow, funds available for
distribution or fees payable to the Managing General Partner and affiliates.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnerships have no officers or directors. The Managing General Partner
manages substantially all of the affairs and has general responsibility in all
matters affecting the business of the Venture. Effective December 12, 1997, the
managing general partner of each of the Partnerships was transferred from VMS
Realty Investment, Ltd. ("VMSRIL") (formerly VMS Realty Partners) to MAERIL,
Inc. ("MAERIL" or the "Managing General Partner"), a wholly-owned subsidiary of
MAE GP Corporation ("MAE GP") and an affiliate of Insignia Financial Group, Inc.
("Insignia"). Effective February 25, 1998, MAE GP was merged with Insignia
Properties Trust ("IPT"), which is an affiliate of Insignia. Effective October
1, 1998 and February 26, 1999; Insignia and IPT were respectively merged into
Apartment Investment and Management Company ("AIMCO"). Thus, the Managing
General Partner is now a wholly-owned subsidiary of AIMCO.
The names of the directors and executive officers of the Managing General
Partner, their ages and the nature of all positions with the Managing General
Partner presently held by them are set forth below. There are no family
relationships between or among any officers or directors.
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the Managing
General Partner and AIMCO since October 1998, as a result of the acquisition of
Insignia Financial Group, Inc. From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997, retaining that title until October 1998. From 1988
to June 1994, Ms. Long was Senior Vice President and Controller for The First
Savings Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Form 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years.
Item 11. Executive Compensation
No compensation or remuneration was paid by the Venture to any officer or
director of the Managing General Partner. However, reimbursements and other
payments have been made to the Venture's current and former managing general
partners and their affiliates, as described in "Item 13. Certain Relationships
and Related Transactions" below.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners.
Except as noted below, no persons or entity owns of record or is known by
the Venture to own beneficially more than 5% of the outstanding Interests
of either of the Partnerships as of December 31, 1999.
National Residential Portfolio II
Entity Number of Units Percentage
AIMCO Properties LP 19.5 7.635%
(an affiliate of AIMCO)
AIMCO Properties LP is indirectly ultimately controlled by AIMCO. Its
business address is 2000 South Colorado Boulevard, Denver, Colorado.
(b) Security ownership of management.
No officers or directors of MAERIL or of Prudential-Bache Properties,
Inc., the general partners of the Partnerships, own any Limited
Partnership Interests in the Partnerships.
No general partners, officers or directors of the general partners of the
Venture possess the right to acquire a beneficial ownership of Interests
of either of the Partnerships.
(c) Change in control
Pursuant to a series of transactions which closed on October 1, 1998, and
February 26, 1999, Insignia and IPT merged into 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.
Item 13. Certain Relationships and Related Transactions
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 $300,000, $300,000 and $441,000 were paid
to an affiliate of the Managing General Partner for the years ended December 31,
1999, 1998, and 1997, 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 $1,160,000, $1,122,000 and $1,013,000 for the years
ended December 31, 1999, 1998, and 1997, respectively.
In addition, affiliates of the Managing General Partner received reimbursement
of accountable administrative expenses amounting to approximately $100,000,
$100,000 and $200,000 for the years ended December 31, 1999, 1998, and 1997
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 $16,000, $54,000, and $43,000 for the
years ended December 31, 1999, 1998, and 1997, respectively.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $142,000, $144,000 and $145,000 for the year
ended December 31, 1999, 1998, and 1997, 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 December 31, 1999, 1998, and 1997, 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 years ended December 31, 1999, 1998, and
1997.
During 1999, AIMCO LP an affiliate of the Managing General Partner made a tender
offer to purchase units of limited partnership interest in both Portfolio I and
II. As a result of the tender offer, AIMCO and its affiliates currently own
21.25 units of limited partnership interest in Portfolio I representing 3.3% of
the outstanding limited partnership interests, along with the 2% general partner
interest for a combined ownership in Portfolio I of 5.30%. AIMCO and its
affiliates currently own 19.50 units of limited partnership interest in
Portfolio II representing 7.3% of the outstanding limited partnership interests,
along with the 2% general partner interest for a combined ownership in Portfolio
II of 9.30%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio
II which results in AIMCO and its affiliates currently owning 6.47% of the
Venture. It is possible that AIMCO or its affiliates will make one or more
additional offers to acquire additional limited partnership interests in the
Partnerships for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreements, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the Managing General Partner. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
AIMCO LP, which owns the Managing General Partner and which is a controlled
affiliate of AIMCO, purchased (i) the junior loans on November 19, 1999, and
(ii) a significant interest in the residual value of the properties on November
16, 1999. These transactions occurred between AIMCO LP and an unrelated third
party and thus had no effect on the combined financial statements of the
Venture.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following combined financial statements of the Registrant are included
in Item 8:
Combined Balance Sheets at December 31, 1999 and 1998.
Combined Statements of Operations for the years ended December 31, 1999,
1998 and 1997.
Combined Statements of Changes in Partners' Deficit for the years ended
December 31, 1999, 1998 and 1997.
Combined Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997.
Notes to Combined Financial Statements
Schedules are omitted for the reason that they are inapplicable or
equivalent information has been included elsewhere herein.
The following items are incorporated:
Part V - Amended Restated Certificate and Agreement of:
Item 1(b)(i) Limited Partnership of VMS National Residential Portfolio I.
Item 1(b)(ii) Limited Partnership of VMS National Residential Portfolio II.
Item 1(b)(iii) Joint Venture Agreement between VMS National Residential
Portfolio I and VMS National Residential Portfolio II.
(b) Reports on Form 8-K:
None filed during the quarter ended December 31, 1999.
(c) Exhibits:
See Exhibit Index
<PAGE>
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: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date:
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/Patrick J. Foye Date:
Patrick J. Foye
Executive Vice President and Director
/s/Martha L. Long Date:
Martha L. Long
Senior Vice President
and Controller
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3 and 21 Portions of the Prospectus of the Partnership dated May 15,
1986 as supplemented by Supplement Numbers 1 through 7 dated December
18, 1986, February 11, 1987, March 31, 1987, August 19, 1987, January
4, 1988, April 18, 1988 and June 30, 1988 as filed with the Commission
pursuant to Rule 424(b) and (c), as well as the Restated Limited
Partnership Agreement set forth as Exhibit A to the Prospectus, are
hereby incorporated by reference, specifically pages 15 - 21, 44 - 68,
76, 86 - 90, 106 - 108, A9 - A13, A16 - A20 and Supplements Numbers 1
and 2.
10.1 Stipulation Regarding Entry of Agreed Final Judgment of Foreclosure
and Order Relieving Receiver of Obligation to Operate Subject Property
- Kendall Mall is incorporated by reference to the Form 10-QSB dated
June 30, 1995.
10.2 Form of Amended, Restated and Consolidated Senior Secured Promissory
Note between the Venture and MF VMS, L.L.C. relating to each of the
Venture's properties.
10.3 Form of Amended, Restated and Consolidated Junior Secured Promissory
Note between the Venture and MF VMS, L.L.C. relating to each of the
Venture's properties.
11 Calculation of Net Income (Loss) Per Investor.
18 Independent Accountants' Preferability Report on Change in Accounting
Principle.
27 Financial Data Schedule.
<PAGE>
Exhibit 11
VMS NATIONAL PROPERTIES JOINT VENTURE
CALCULATION OF NET INCOME (LOSS) PER INVESTOR
(in thousands, except unit data)
For the Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
VMS National Properties net (loss) income $(6,272) $(6,948) $ 674
Portfolio I net loss (63) (5) (46)
Portfolio II net loss (67) (5) (22)
Combined net (loss) income $(6,402) $(6,958) $ 606
Portfolio I allocation: 70.69% $(4,433) $(4,912) $ 476
(63) (5) (46)
$(4,496) $(4,917) $ 430
Net (loss) income to general partner 2% $ (90) $ (98) $ 9
Net (loss) income to limited partners 98% $(4,406) $(4,819) $ 421
Number of Limited Partner units 644 644 644
Net (loss) income per limited Partnership
interest $(6,842) $(7,483) $ 654
Portfolio II allocation: 29.31% $(1,839) $(2,036) $ 198
(67) (5) (22)
$(1,906) $(2,041) $ 176
Net (loss) income to general partner 2% $ (38) $ (41) $ 3
Net (loss) income to limited partners 98% $(1,868) $(2,000) $ 173
Number of Limited Partner units 267 267 267
Net (loss) income per limited Partnership
interest $(6,992) $(7,493) $ 646
</TABLE>
<PAGE>
Exhibit 18
February 7, 2000
Mr. Patrick J. Foye
Executive Vice President and Director
MAERIL, Inc.
Managing General Partner of VMS National Residential Portfolio I and
VMS National Residential Portfolio II
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note M of Notes to the Combined Financial Statements of VMS National Properties
Joint Venture included in its Form 10-K for the year ended December 31, 1999
describes a change in the method of accounting to capitalize exterior painting
and major landscaping, which would have been expensed under the old policy. You
have advised us that you believe that the change is to a preferable method in
your circumstances because it provides a better matching of expenses with the
related benefit of the expenditures and is consistent with policies currently
being used by your industry and conforms to the policies of the Managing General
Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/Ernst & Young LLP
Greenville, South Carolina
