FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14194
VMS NATIONAL PROPERTIES JOINT VENTURE
(Exact name of registrant as specified in its charter)
Illinois 36-3311347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited) (Note)
Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,218 $ 2,004
Receivables and deposits 2,117 1,863
Restricted escrows 3,261 2,581
Other assets 445 311
Investment properties:
Land 13,404 13,404
Buildings and related personal property 135,554 135,080
Less accumulated depreciation (88,301) (86,798)
60,657 61,686
$ 67,698 $ 68,445
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 321 $ 649
Tenant security deposit liabilities 1,067 1,075
Accrued property taxes 882 598
Other liabilities 471 1,726
Accrued interest 1,056 713
Mortgage notes payable, including $ 30,656 and $30,101
due to an affiliate at March 31, 2000 and
December 31, 1999 respectively (Note D) 138,117 137,811
Notes payable 42,060 41,657
Deferred gain on extinguishment of debt 42,225 42,225
Partners' Deficit (158,501) (158,009)
$ 67,698 $ 68,445
</TABLE>
Note: The balance sheet at December 31, 1999, has been derived from the audited
financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Combined Financial Statements
<PAGE>
b)
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Revenues:
<S> <C> <C>
Rental income $ 7,182 $ 6,784
Other income 279 272
Total revenues 7,461 7,056
Expenses:
Operating 2,307 2,280
General and administrative 144 165
Depreciation 1,503 1,448
Interest 3,550 4,211
Property taxes 454 463
Total expenses 7,958 8,567
Net loss $ (497) $(1,511)
Net loss allocated to general partners (2%) $ (10) $ (30)
Net loss allocated to limited partners (98%) (487) (1,481)
$ (497) $(1,511)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and outstanding) $ (535) $(1,625)
Portfolio II (267 interests issued and outstanding) $ (536) $(1,626)
</TABLE>
See Accompanying Notes to Combined Financial Statements
<PAGE>
c)
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
VMS National Residential Portfolio I
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999 $(3,535) $(107,157) $ (506) $(107,663) $(111,198)
Collections of
subscription notes -- -- 4 4 4
Net loss for the
three months ended
March 31, 2000 (7) (344) -- (344) (351)
Partners' deficit at
March 31, 2000 $(3,542) $(107,501) $ (502) $(108,003) $(111,545)
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 1999 $(1,480) $ (45,002) $ (329) $ (45,331) $ (46,811)
Collections of
subscription notes -- -- 1 1 1
Net loss for the
three months ended
March 31, 2000 (3) (143) -- (143) (146)
Partners' deficit at
March 31, 2000 $(1,483) $ (45,145) $ (328) $ (45,473) $ (46,956)
Combined total $(5,025) $(152,646) $ (830) $(153,476) $(158,501)
</TABLE>
See Accompanying Notes to Combined Financial Statements
<PAGE>
d)
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (497) $(1,511)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 1,503 1,448
Amortization of discounts 403 1,079
Change in accounts:
Receivables and deposits (254) 185
Other assets (134) (80)
Accounts payable (328) 8
Tenant security deposit liabilities (8) (24)
Accrued property taxes 284 (133)
Accrued interest 995 50
Other liabilities (1,255) 60
Net cash provided by operating activities 709 1,082
Cash flows from investing activities:
Property improvements and replacements (474) (390)
Net deposits to restricted escrows (680) (50)
Net cash used in investing activities (1,154) (440)
Cash flows from financing activities:
Payments on mortgage notes payable (346) (708)
Payments received on subscription notes 5 --
Net cash used in financing activities (341) (708)
Net decrease in cash and cash equivalents (786) (66)
Cash and cash equivalents at beginning of period 2,004 931
Cash and cash equivalents at end of period $ 1,218 $ 865
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,151 $ 3,083
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable $ 652 $ 154
</TABLE>
See Accompanying Notes to Combined Financial Statements
<PAGE>
e)
VMS NATIONAL PROPERTIES JOINT VENTURE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited combined financial statements of VMS National
Properties Joint Venture (the "Venture" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of MAERIL, Inc. ("MAERIL" or the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six month period ended 31, 2000, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. For further
information, refer to the combined financial statements and footnotes thereto
included in the Venture's Annual Report on Form 10-K for the year ended December
31, 1999.
Basis of Accounting:
The accompanying combined financial statements include the accounts of VMS
National Residential Portfolio I ("Portfolio I"), VMS National Residential
Portfolio II ("Portfolio II") (collectively the "Partnerships"), and the
Venture. Significant interpartnership accounts and transactions have been
eliminated from these combined financial statements.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998, and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this transaction 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 are 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 March 31, 1993 (the "Effective Date"). During 1997, the Plan
was modified in order to allow the Venture to refinance the debt encumbering its
properties. The bankruptcy plan was closed by the Bankruptcy Court on April 29,
1998.
The Primary aspects of the Venture's Plan of Reorganization included the
following:
(a) The Venture retained 17 properties from the existing portfolio (the
"retained properties"), and abandoned title of the remaining properties (the
"non-retained properties") to the Federal Deposit Insurance Corporation (the
"FDIC"). The retained properties consisted of one HUD property and sixteen
non-HUD properties. Two of the seventeen retained properties were sold during
the second quarter of 1996. All of the non-retained properties were foreclosed
upon as of December 31, 1996.
(b) The Venture restructured the existing senior-lien debt obligations on the
retained properties (except for one of the retained properties which had a first
mortgage lien insured by HUD and two of the retained properties which had senior
liens formerly payable to the FDIC, as successor to Beverly Hills Mortgage
Corporation ("BH")) to provide for an interest rate of 8.75% per annum effective
as of the first day of the month of the Effective Date with payments based on a
30 year amortization commencing on the first monthly payment due thereafter with
a maturity of January 15, 2000.
The senior lien collateralized by HUD on one of the retained properties was not
modified, and the senior liens formerly held by the FDIC were modified to accrue
at 9% per annum effective as of the first day of the month of the Effective Date
with monthly payments of interest only made at 7% per annum commencing with the
first monthly payments due thereafter on the FDIC value, as defined in "c"
below.
All of the senior-lien debt (the "Senior Debt") was refinanced on December 29,
1997.
(c) As it pertained to the existing BH junior mortgages on the retained
properties, the FDIC reduced its claim on two of the properties to $300,000 per
property evidenced by a non-interest bearing note scheduled to mature January
15, 2000, and left in place liens for the full amount of its claims at the
petition date for all other retained properties. Interest on the former FDIC
loans for these retained properties accrued at 10% per annum on the FDIC value
(total property value per the FDIC's June 1992 valuations less the property's
senior lien indebtedness) commencing as of the first day of the month of the
Effective Date and monthly payments of interest only at 7% per annum on the FDIC
value will commence with the first monthly payment due thereafter. (The retained
property governed by a HUD Regulatory Agreement made payments of interest only
following the approval by HUD of the Surplus Cash calculation.) On October 28,
1995, the FDIC sold all of the debt it held related to the retained properties
to BlackRock Capital Finance, L.P. The debt amounts and terms were not modified.
On December 29, 1997, all of the junior mortgages (the "Junior Debt") were
refinanced.
(d) The Venture distributed the following amounts in conjunction with the terms
of the Plan: (1) approximately $5,980,000 to satisfy unsecured prepetition
creditor claims of the nonaffiliated note payable to Security Pacific National
Bank, trade creditors, and property taxes on the retained properties; (2)
approximately $1,056,000 to provide for allowed and unclassified administrative
claims; and (3) approximately $5,960,000 to make capital improvements at the
retained properties. This capital improvement reserve was exhausted during 1995.
(e) The VMS/Stout Joint Venture (the "VMS/Stout Venture") was formed pursuant to
an agreement dated August 18, 1984, which was amended and restated on October 4,
1984. VMS Realty Partners has a 50% interest and affiliates of the Seller (as
defined below) have a 50% interest in the VMS/Stout Venture. The VMS/Stout
Venture, the J.D. Stout Company ("Stout") and certain affiliates of Stout
entered into a contract of sale dated August 18, 1984, which was amended on
October 4, 1984. The contract provided for the sale by Stout and other owners
(collectively the "Seller") of the 51 residential apartment complexes to the
VMS/Stout Venture. The VMS/Stout Venture assigned its interest as purchaser to
the Venture. During 1987, Stout assigned its interest in the VMS/Stout Joint
Venture to ContiTrade Service Corporation ("ContiTrade"). On November 17, 1993,
VMS Realty Partners assigned its interest in the VMS/Stout Joint Venture to the
Partners Liquidating Trust. The VMS/Stout Joint Venture was granted an allowed
claim in the amount of $49,535,000 for the Assignment and Long-Term Loan
Arrangement Notes payable to them by the Venture. Payments totaling $3,475,000
in conjunction with this allowed claim were made to the nonaffiliated members of
the VMS/Stout Joint Venture on October 7, 1993. The Venture also executed a
$4,000,000 promissory note dated September 1, 1993, to ContiTrade Service
Corporation (the "ContiTrade Note") in connection with these allowed note
claims. The ContiTrade Note represents a prioritization of payments to
ContiTrade of the first $4,000,000 in repayments made under the existing
Assignment and Long-Term Arrangement Notes payable to the VMS/Stout Joint
Venture, and does not represent an additional $4,000,000 claim payable to
ContiTrade. In addition to prioritizing ContiTrade's receipt of the first
$4,000,000 of repayments on the old notes, the ContiTrade Note provides for 5%
non-compounding interest on the outstanding principal balance calculated daily
on the basis of a 360 day year. The ContiTrade Note was secured by a Deed of
Trust, Assignment of Rents and Security Agreement on each of the Venture's
retained properties, and provided ContiTrade with other approval rights as to
the ongoing operations of the Venture's retained properties. The ContiTrade
Note, which was scheduled to mature January 15, 2000, was paid off on December
29, 1997.
(f) The Venture entered into a Revised Restructured Amended and Restated Asset
Management Agreement (the "Revised Asset Management Agreement") with Insignia.
Effective October 1, 1993, Insignia took over the asset management of the
Venture's retained properties and partnership functions for the Venture. The
Revised Asset Management Agreement provided for an annual compensation of
$500,000 to be paid to Insignia in equal monthly installments. In addition,
Insignia received reimbursement for all accountable expense incurred in
connection with their services up to $200,000 per calendar year. These amounts
are to be paid from the available operating cash flow of the Venture's retained
complexes after the payment of operating expenses and priority reserve funding
for insurance, real estate and personal property taxes and senior and junior
mortgage payments. If insufficient operating cash flow exists after the funding
of these items, the balance of asset management fees and reimbursements may be
paid from available partnership cash sources. Additionally, the asset management
fee payable will be reduced proportionately for each of the Venture's retained
complexes which are sold or otherwise disposed of from time to time.
Accordingly, the fee was reduced upon the disposition of Bellevue and Carlisle
Square in 1996. Effective January 1, 1998, in relation to the refinancing of the
Senior Debt on December 29, 1997 (see "Note D"), the Venture and Managing
General Partner agreed to amend the Asset Management Agreement to reduce the
annual asset management fee payable to $300,000 per year and to reduce the
annual reimbursement for accountable expenses to $100,000.
Note D - Transactions with Affiliated Parties
The Venture has no employees and is dependent on the Managing General Partner
and its affiliates for the management and administration of all Subpartnership
activities. The Revised Asset Management Agreement, which was executed in
conjunction with the Venture's Plan, provided for (i) certain payments to
affiliates for real estate advisory services and asset management of the
Venture's retained properties for an annual compensation of $500,000 and (ii)
reimbursement of certain expenses incurred by affiliates on behalf of the
Venture up to $200,000 per annum.
Effective January 1, 1998, in relation to the refinancing of the Senior Debt on
December 29, 1997, the Venture and Managing General Partner agreed to amend the
Asset Management Agreement to reduce the annual asset management fee payable to
$300,000 per year and to reduce the annual reimbursement for accountable
expenses to $100,000.
Asset management fees of approximately $75,000 and $70,000 were paid to an
affiliate of the Managing General Partner for the three months ended March 31,
2000 and 1999, 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 $300,000 and $286,000 for the three months ended March
31, 2000 and 1999, respectively.
In addition, affiliates of the Managing General Partner received reimbursement
of accountable administrative expenses amounting to approximately $25,000 and
$23,000 for the three months ended March 31, 2000 and 1999, respectively. These
expenses are included in general and administrative expenses.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $36,000 for both the three months ended March 31,
2000 and 1999. These expenses are included in operating expense.
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 March 31, 2000 and 1999, 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 three months ended March 31, 2000 and
1999.
AIMCO Properties, LP ("AIMCO LP"), which owns the Managing General Partner and
which is a controlled affiliate of AIMCO, purchased (i) the junior debt 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 E - Mortgage Notes Refinanced
On December 29, 1997, the Venture refinanced the mortgages encumbering all of
its 15 properties. The refinancing resulted in each property being encumbered by
new Senior and Junior Debt. The Senior Debt each have an interest rate of 8.5%
per annum and require monthly payments of principal and interest based on a 25
year amortization period. Balloon payments of approximately $91,352,000 will be
due at maturity (January 1, 2008). The Junior Debt each has an interest rate of
10.84% per annum and requires monthly payments based on excess monthly cash
flow, as defined, for each property. The difference between the accrued amount
of the stated rate and the actual payment is transferred to the outstanding
principal. Per the Junior Debt 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 Debt, (3) the tax and
insurance reserve deposit and (4) replacement reserve deposit. Under a November
19, 1999 agreement with the holder of the Senior Debt of Towers of Westchester
the property's excess monthly cash flow is to first be used to fund a repair
reserve. Once this reserve is fully funded, the excess monthly cash flow will
again be used as payment towards the Junior Debt. 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 debt with any excess cash
flow being utilized to meet the requirements of the junior debt. The Senior and
Junior Debt matures on January 1, 2008, and the Senior Debt includes prepayment
penalties if paid prior to January 1, 2007. The Senior Debt retained similar
terms for the previous indebtedness regarding note face amounts and agreed
valuation amounts. Upon refinancing, the Senior Debt was recorded at the agreed
valuation amount of $110,000,000, which was less than the $152,225,000 face
amount of the Senior Debt. If the Venture defaults on the new mortgage notes
payable or is unable to pay the outstanding agreed valuation amounts upon
maturity, then the note face amounts become due. The junior debt was 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 debt is
cross-collateralized, but it is not cross-defaulted. Therefore, a default by one
property under the terms of its debt agreements does not in and of itself create
a default under all of the senior and junior debt agreements. However, if the
proceeds upon the sale or refinancing of any property are insufficient to fully
repay the outstanding senior and junior debt related to that property, any
deficiency is to be satisfied from the sale or refinancing of the remaining
properties. As of March 31, 2000, the outstanding balance of the Senior and
Junior Debt was approximately $107,461,000 and $30,656,000, respectively.
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 C").
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 March 31, 2000, the carrying amount
of the Assignment Note is $38,810,000. Interest expense is being recognized
through the amortization of the discount over the estimated term of the note
which totaled approximately $403,000 and $1,050,000 in 2000 and 1999,
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 - 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 in the
Venture's Annual Report on Form 10-K for the year ended December 31, 1999.
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 three months ended March 31, 2000 and 1999, 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.
2000 Residential Other Totals
Rental income $ 7,182 $ -- $ 7,182
Other income 275 4 279
Interest expense 3,147 403 3,550
Depreciation 1,503 -- 1,503
General and administrative expense -- 144 144
Segment profit (loss) 46 (543) (497)
Total assets 67,533 165 67,698
Capital expenditures for investment
properties 474 -- 474
1999 Residential Other Totals
Rental income $ 6,784 $ -- $ 6,784
Other income 267 5 272
Interest expense 3,132 1,079 4,211
Depreciation 1,448 -- 1,448
General and administrative expense -- 165 165
Segment loss (272) (1,239) (1,511)
Total assets 70,232 526 70,758
Capital expenditures for investment
properties 390 -- 390
Note H - Legal Proceedings
The Venture is not aware of any pending or outstanding litigation that is not of
a routine nature arising in the ordinary course of business.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
Average occupancy rates for the three months ended March 31, 2000 and 1999, for
all of the Venture's properties are as follows:
Average Occupancy
Property 2000 1999
North Park Apartments
Evansville, IN 91% 93%
Chapelle Le Grande
Merrillville, IN 96% 93%
Terrace Gardens
Omaha, NE 95% 95%
Forest Ridge Apartments
Flagstaff, AZ 97% 90%
Scotchollow
San Mateo, CA 98% 92%
Pathfinder
Fremont, CA 99% 88%
Buena Vista Apartments
Pasadena, CA 97% 99%
Mountain View Apartments
San Dimas, CA 97% 99%
Crosswood Park
Citrus Heights, CA 95% 96%
Casa de Monterey
Norwalk, CA 98% 99%
The Bluffs
Milwaukie, OR 94% 95%
Watergate Apartments
Little Rock, AR 89% 91%
Shadowood Apartments
Monroe, LA 90% 96%
Vista Village Apartments
El Paso, TX 91% 95%
The Towers of Westchester Park
College Park, MD 96% 99%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: an increase at Chapelle Le Grande due to improved
resident services and customer service; an increase at Forest Ridge Apartments,
Scotchollow and Pathfinder due to more aggressive marketing; a decrease at The
Towers of Westchester Park due to an increase in rental rates; a decrease at
Vista Village Apartments due to tenants purchasing homes and breaking leases
prior to their expiration and a decrease at Shadowood Apartments due to a
decrease in corporate unit rental in the first quarter of 2000 and a slow market
in the Monroe, LA area. The property anticipates improved conditions in the
second quarter.
Results of Operations
The Venture recorded a net loss for the three months ended March 31, 2000 of
approximately $497,000 as compared to a net loss of approximately $1,511,000 for
the corresponding period in 1999. The decrease in net loss is primarily
attributable to an increase in total revenues and a decrease in total expenses.
The increase in total revenues is primarily due to an increase in rental income.
Rental income increased mainly due to the increase in occupancy at Forest Ridge,
Scotchollow and Pathfinder and an increase in rental rates at Casa de Monterey.
Overall the average rental rates at fourteen of the Venture's investment
properties increased and occupancy decreased at ten of the properties and
increased at four of the properties with one property remaining constant.
Total expenses decreased primarily due to a reduction in interest expense which
more than offset the increase in depreciation expense. Interest expense
decreased due to a reduction in the amortization of the imputed interest on the
Venture's Assignment Note. This discount for imputed interest became fully
amortized during January 2000 which was the estimated maturity date of the
Assignment Note. Depreciation expense increased as the result of depreciation
taken on property improvements and replacements placed into service during the
previous twelve months.
Included in general and administrative expenses for the three months ended March
31, 2000 and 1999 are reimbursements to the Managing General Partner allowed
under the Partnership Agreement associated with its management of the Venture.
Costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included.
As part of the ongoing business plan of the Venture, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Venture from increases in
expenses. As part of this plan, the Managing General Partner attempts to protect
the Venture from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2000, the Venture had cash and cash equivalents of approximately
$1,218,000 as compared to approximately $865,000 at March 31, 1999. Cash and
cash equivalents decreased approximately $786,000 for the three months ended
March 31, 2000, from the Venture's fiscal year end. The decrease in cash and
cash equivalents is result of approximately $1,154,000 of cash used in investing
activities and approximately $341,000 of cash used in financing activities which
is partially offset by approximately $709,000 of cash provided by operating
activities. Cash used in investing activities consisted of net deposits to
escrow accounts maintained by the mortgage lender and property improvements and
replacements. Cash used in financing activities consisted of payments of
principal made on the mortgages encumbering the Registrant's properties and was
slightly offset by payments received on subscription notes. The Venture invests
its working capital reserves in a money market account.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Venture and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Venture's properties are detailed below.
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
junior debt for funding of capital improvements. The Venture, the holder (AIMCO
LP) of the junior debt encumbering the property and the servicer of the senior
debt 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
debt. As a result, the balloon payment due on the junior debt 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 debt 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
debt will increase and be made from operating cash flow prior to any payments on
the junior debt.
North Park Apartments: As of March 31, 2000 the property has spent approximately
$7,000 on capital expenditures, consisting primarily of flooring replacements
and air conditioning upgrades. These improvements were funded from replacement
reserves. 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 along with the outcome of
discussions held with the servicer of the senior loan.
Chapelle Le Grande: As of March 31, 2000 the property has spent approximately
$6,000 on capital expenditures, consisting primarily of appliances and roof
replacement work. These improvements were funded from replacement reserves.
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 along with the outcome of discussions held with
the servicer of the senior loan.
Terrace Gardens: As of March 31, 2000 the property has spent approximately
$11,000 in capital expenditures, consisting primarily of appliance, water heater
and flooring replacements. These improvements were funded from cash flow.
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 along with the outcome of discussions held with
the servicer of the senior loan.
Forest Ridge Apartments: As of March 31, 2000 the property has spent
approximately $21,000 on capital expenditures, consisting primarily of
appliances, water heaters, lighting and flooring replacements. These
improvements were funded from cash flow. 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 along
with the outcome of discussions held with the servicer of the senior loan.
Scotchollow: As of March 31, 2000 the property has spent approximately $23,000
in capital expenditures, consisting primarily of appliances, water heaters and
flooring replacements, swimming pool and building improvements. These
improvements were funded from cash flow. 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 along
with the outcome of discussions held with the servicer of the senior loan.
Pathfinder Village: As of March 31, 2000 the property has spent approximately
$95,000 in capital expenditures, consisting primarily of appliance and flooring
replacements, HVAC upgrades and various building improvements. These
improvements were funded from cash flow. 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 along
with the outcome of discussions held with the servicer of the senior loan.
Buena Vista Apartments: As of March 31, 2000 the property has spent
approximately $15,000 in capital expenditures, consisting primarily of appliance
and flooring replacements. These improvements were funded from replacement
reserves. 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 along with the outcome of
discussions held with the servicer of the senior loan.
Mountain View Apartments: As of March 31, 2000 the property has spent
approximately $33,000 in capital expenditures, consisting primarily of appliance
and flooring replacements and parking lot improvements. These improvements were
funded from cash flow and replacement reserves. 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 along
with the outcome of discussions held with the servicer of the senior loan.
Crosswood Park: As of March 31, 2000 the property has spent approximately
$35,000 in capital expenditures, consisting primarily of appliances, air
conditioning, sewer and flooring replacements and plumbing. These improvements
were funded from cash flow. 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 along with the outcome of
discussions held with the servicer of the senior loan.
Casa de Monterey: The Venture completed approximately $44,000 in capital
expenditures as of March 31, 2000, consisting primarily of appliance and
flooring replacements. These improvements were funded from replacement reserves
and cash flow. The Venture is currently evaluating the capital improvement needs
of the property for the upcoming year. 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 along with the
outcome of discussions held with the servicer of the senior loan.
The Bluffs: As of March 31, 2000 the property has spent approximately $7,000 in
capital expenditures, consisting primarily of appliances and flooring
replacements. These improvements were funded from replacement reserves.
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 along with the outcome of discussions held with
the servicer of the senior loan.
Watergate Apartments: As of March 31, 2000 the property has spent approximately
$11,000 in capital expenditures, consisting primarily of appliance and flooring
replacements. These improvements were funded from cash flow. 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 along with the outcome of discussions held with the servicer of the
senior loan.
Shadowood Apartments: As of March 31, 2000 the property has spent approximately
$3,000 in capital expenditures, consisting primarily of flooring replacements.
These improvements were funded from cash flow. 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 along
with the outcome of discussions held with the servicer of the senior loan.
Vista Village Apartments: As of March 31, 2000 the property has spent
approximately $14,000 in capital expenditures, consisting primarily of
appliances, air conditioning and flooring replacements. These improvements were
funded from cash flow. 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 along with the outcome of
discussions held with the servicer of the senior loan.
Towers of Westchester Park: The Venture budgeted approximately $1,398,000 for
capital improvements at Towers of Westchester Park consisting primarily of
appliance, air conditioning, electrical, water heater, light fixtures, plumbing,
cabinet, heating and flooring replacements and landscaping, pool and structural
improvements. As of March 31, 2000 the property has spent approximately $149,000
in capital expenditures, consisting primarily of appliances, office equipment,
plumbing, flooring replacements and structural improvements. These improvements
were funded from cash flow.
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
debt on a monthly basis. See below for further information as to the possible
impact on the junior debt. The Senior Debt encumbering all of the properties
totals approximately $107,461,000 and is being amortized over 25 years, with a
balloon payment of $91,352,000 due January 2008. The Junior Debt, which also
matures January 2008, totals approximately $30,656,000 and requires monthly
payments based upon monthly excess cash flow for each property. Per the Junior
Debt 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 Debt, (3) the tax and insurance reserve
deposit and (4) replacement reserve deposit. Under a November 19, 1999 agreement
with the holder of the Senior Debt of Towers of Westchester (as discussed above)
the property's excess monthly cash flow is to first be used to fund a repair
reserve. Once this reserve is fully funded, the excess monthly cash flow will
again be used as payment towards the Junior Debt. 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 debt with any excess cash
flow being utilized to meet the requirements of the junior debt. The Assignment
Note and Long-Term Arrangement Fee Notes totaling approximately $42,060,000 are
non-interest bearing and are subordinate to the Senior and Junior Debt.
AIMCO LP, which owns the Managing General Partner and which is a controlled
affiliate of AIMCO, purchased (i) the junior debt 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 debt, (i) the seller, which
owned the senior debt 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 debt, which capital expenditures were funded out of cash flow
that would otherwise have been used to pay debt services on the junior debt, 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 debt 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 debt 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 debt, may cause the junior debt to negatively amortize for some period of
time, and may result in or increase the amount of balloon payments due on the
junior debt 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 three months ended March 31, 2000 and 1999. 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 Venture's Plan of Reorganization. The source of future distributions will
depend upon the levels of net cash generated from operations, the availability
of cash reserves, and timing of debt maturities, refinancings and/or property
sales. The Partnerships' distribution policies are 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 during the remainder of 2000 or subsequent
periods.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Venture is exposed to market risks from adverse changes in interest rates.
In this regard, changes in U.S. interest rates affect the interest earned on the
Venture's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Venture does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
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 March 31, 2000, an increase or
decrease of 100 basis points in market interest rates would not have a material
impact on the Venture's Senior or Junior Debt. The Managing General Partner
considers estimation of the fair value for the Assignment and Long-Term
Arrangement Fee Notes Payable to be impracticable as there is currently no
market in which the Venture could obtain similar financing.
The following table summarizes the Venture's Senior and Junior 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.
Long-term Debt
Principal Weighted-average
(in thousands) Interest Rate
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
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 11, Calculation of net income (loss) per investor is
filed as an exhibit to this report.
b) Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
c) Reports on Form 8-K:
None filed during the quarter ended March 31, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VMS NATIONAL PROPERTIES JOINT VENTURE
(Registrant)
VMS National Residential Portfolio I
By: MAERIL, Inc.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
VMS National Residential Portfolio II
By: MAERIL, Inc.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date:
<PAGE>
Exhibit 11
VMS NATIONAL PROPERTIES JOINT VENTURE
CALCULATION OF NET INCOME (LOSS) PER INVESTOR
(in thousands, except unit data)
For the Three Months
Ended March 31,
2000 1999
VMS National Properties net income (loss) $ (496) $(1,512)
Portfolio I net (loss) income (1) 1
Portfolio II net loss -- --
Combined net income (loss) $ (497) $(1,511)
Portfolio I allocation: 70.69% $ (350) $(1,069)
(1) 1
$ (351) $(1,068)
Net income (loss) to general partner (2%) $ (7) $ (21)
Net income (loss) to limited partners (98%) $ (344) $(1,047)
Number of Limited Partner units 644 644
Net income (loss) per limited partnership
interest $ (535) $(1,625)
Portfolio II allocation: 29.31% $ (146) $ (443)
-- --
$ (146) $ (443)
Net income (loss) to general partner (2%) $ (3) $ (9)
Net income (loss) to limited partners (98%) $ (143) $ (434)
Number of Limited Partner units 267 267
Net income (loss) per limited partnership
interest $ (536) $(1,626)
