-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LrTZ0UhJYUGVhLnI68wup/B0VfuHbmBbG74mFGZd53IRJp+6zAAZlyNG01mz2OfH CXGyvOwA+E//44lZxCBD1g== /in/edgar/work/0000711642-00-000348/0000711642-00-000348.txt : 20001116 0000711642-00-000348.hdr.sgml : 20001116 ACCESSION NUMBER: 0000711642-00-000348 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VMS NATIONAL PROPERTIES JOINT VENTURE CENTRAL INDEX KEY: 0000789089 STANDARD INDUSTRIAL CLASSIFICATION: [6500 ] IRS NUMBER: 363311347 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14194 FILM NUMBER: 768414 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10-Q 1 0001.txt QUARTER ENDING SEPTEMBER 30, 2000 FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED BALANCE SHEETS (in thousands)
September 30, December 31, 2000 1999 (Unaudited) (Note) Assets: Cash and cash equivalents $ 1,563 $ 2,004 Receivables and deposits 2,147 1,863 Restricted escrows 3,849 2,581 Other assets 451 311 Investment properties: Land 13,404 13,404 Buildings and related personal property 137,530 135,080 Less accumulated depreciation (91,244) (86,798) 59,690 61,686 $ 67,700 $ 68,445 Liabilities and Partners' Deficit Liabilities Accounts payable $ 955 $ 649 Tenant security deposit liabilities 1,079 1,075 Accrued property taxes 928 598 Other liabilities 452 1,726 Due to affiliate 16 -- Accrued interest 1,047 713 Mortgage notes payable, including $30,433 and $30,101 due to an affiliate at September 30, 2000 and December 31, 1999 respectively (Note D) 137,272 137,811 Notes payable 42,060 41,657 Deferred gain on extinguishment of debt 42,225 42,225 Partners' Deficit (158,334) (158,009) $ 67,700 $ 68,445 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
b) VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Revenues: Rental income $ 7,465 $ 6,874 $21,934 $20,473 Other income 424 381 1,092 957 Total revenues 7,889 7,255 23,026 21,430 Expenses: Operating 2,540 2,268 7,256 6,851 General and administrative 186 149 485 501 Depreciation 1,422 1,452 4,446 4,309 Interest 3,161 4,211 9,867 12,565 Property taxes 425 449 1,302 1,354 Total expenses 7,734 8,529 23,356 25,580 Net income (loss) $ 155 $(1,274) $ (330) $(4,150) Net income (loss) allocated to general partners (2%) $ 3 $ (25) $ (7) $ (83) Net income (loss) allocated to limited partners (98%) 152 (1,249) (323) (4,067) $ 155 $(1,274) $ (330) $(4,150) Net income (loss) per limited partnership interest: Portfolio I (644 interests issued and outstanding) $ 168 $(1,371) $ (354) $(4,463) Portfolio II (267 interests issued and outstanding) $ 165 $(1,371) $ (356) $(4,468) See Accompanying Notes to Combined Financial Statements
c) VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) VMS National Residential Portfolio I Limited Partners
General Accumulated Subscription Partners Deficit Notes Total Total Partners' deficit at December 31, 1999 $(3,535) $(107,157) $ (506) $(107,663) $(111,198) Collections of subscription notes -- -- 4 4 4 Net loss for the nine months ended September 30, 2000 (5) (228) -- (228) (233) Partners' deficit at September 30, 2000 $(3,540) $(107,385) $ (502) $(107,887) $(111,427)
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 nine months ended September 30, 2000 (2) (95) -- (95) (97) Partners' deficit at September 30, 2000 $(1,482) $ (45,097) $ (328) $ (45,425) $ (46,907) Combined total $(5,022) $(152,482) $ (830) $(153,312) $(158,334) See Accompanying Notes to Combined Financial Statements
d) VMS NATIONAL PROPERTIES JOINT VENTURE COMBINED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2000 1999 Cash flows from operating activities: Net loss $ (330) $(4,150) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 4,446 4,309 Amortization of discounts 403 3,235 Change in accounts: Receivables and deposits (284) (57) Other assets (140) 53 Accounts payable (83) 49 Tenant security deposit liabilities 4 (8) Accrued property taxes 330 (80) Accrued interest 2,100 477 Other liabilities (1,274) 74 Due to affiliate 16 -- Net cash provided by operating activities 5,188 3,902 Cash flows from investing activities: Property improvements and replacements (2,061) (1,273) Net deposits to restricted escrows (1,268) (409) Net cash used in investing activities (3,329) (1,682) Cash flows from financing activities: Payments on mortgage notes payable (2,305) (2,366) Payments received on subscription notes 5 -- Net cash used in financing activities (2,300) (2,366) Net decrease in cash and cash equivalents (441) (146) Cash and cash equivalents at beginning of period 2,004 931 Cash and cash equivalents at end of period $ 1,563 $ 785 Supplemental disclosure of cash flow information: Cash paid for interest $ 7,363 $ 8,852 Supplemental disclosure of non-cash activity: Accrued interest added to mortgage notes payable $ 1,766 $ 489 Property improvements and replacements included in accounts payable $ 389 $ -- See Accompanying Notes to Combined Financial Statements
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 three and nine months ended September 30, 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 statements represent the combined financial statements 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. ("Insignia") and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Managing General Partner. The Managing General Partner does not believe that this transaction 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 of Reorganization 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 nineteen 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 commenced 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 Venture activities. The Revised Asset Management Agreement, which was executed in conjunction with the Venture's Plan of Reorganization, 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 $225,000 and $229,000 were paid to an affiliate of the Managing General Partner for the nine months ended September 30, 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 $918,000 and $862,000 for the nine months ended September 30, 2000 and 1999, respectively. In addition, affiliates of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $75,000 for both the nine months ended September 30, 2000 and 1999. 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 $53,000 and $5,000 for the nine months ended September 30, 2000 and 1999, respectively. An affiliate of the Managing General Partner received bookkeeping reimbursements in the amount of approximately $100,000 and $107,000 for the nine months ended September 30, 2000 and 1999, respectively. These expenses are included in operating expense. During the nine months ended September 30, 2000, the Managing General Partner has loaned the Venture funds to cover operational expenses required at Buena Vista and Casa de Monterey Apartments. These loans were made in accordance with the terms of the Partnership Agreement. At September 30, 2000, the balance of the loans was approximately $16,000. Interest is charged at the prime rate plus 2% or the Managing General Partners cost, whichever is lower. Interest expense was approximately $2,000 for the nine months ended September 30, 2000 and is included in interest 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 September 30, 2000 and December 31, 1999, the outstanding balance of approximately $79,000 is included in other liabilities. Certain affiliates of the former general partners and the VMS/Stout Venture may be entitled to receive various fees upon disposition of the properties. These fees will be paid from the disposition proceeds and are subordinated to the distributions required by the Plan. There were no property dispositions for which proceeds were received during the nine months ended September 30, 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 loans on November 19, 1999, (ii) a significant interest in the residual value of the properties on November 16, 1999, and (iii) economic and voting rights in a 0.61% interest in Partners Liquidating Trust in September 2000. These transactions occurred between AIMCO LP and unrelated third parties and thus had no affect on the combined financial statements of the Venture. As a result of tender offers, AIMCO and its affiliates currently own 39.75 units of limited partnership interest in Portfolio I representing 6.2% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio I of 8.2%. AIMCO and its affiliates currently own 31.0 units of limited partnership interest in Portfolio II representing 11.6% of the outstanding limited partnership interests, along with the 2% general partner interest for a combined ownership in Portfolio II of 13.6%. The Venture is owned 70.69% by Portfolio I and 29.31% by Portfolio II which results in AIMCO and its affiliates currently owning 8.2% 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 has 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 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 requirement of the Senior Debt with any excess cash flow being utilized to meet the requirement of the Junior Debt. Per the Junior Debt Agreements, excess cash flow is defined as revenue generated from the operation of a property less (1) operating expenses of the property, (2) the debt service payment for the Senior Debt, (3) tax and insurance reserve deposit, and (4) replacement reserve deposit. The difference between the accrued amount of the stated rate and the actual payment is transferred to the outstanding principal. 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. On July 10, 2000, similar agreements were signed relating to North Park, Scotchollow, Pathfinder, Buena Vista, Mountain View, Casa De Monterey, and The Bluffs Apartments. In August 2000, similar agreements were signed relating to Crosswood Park, Shadowood, Vista Village, Chapelle Le Grand, Watergate, and Forest Ridge Apartments. On September 19, 2000, a similar agreement was signed relating to Terrace Gardens Apartments. Once these reserves are fully funded, the excess monthly cash flow will again be used as payment toward 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 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 loan 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 September 30, 2000, the outstanding balance of the Senior and Junior Debt was approximately $106,839,000 and $30,433,000, 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 Debt. 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 September 30, 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 $3,235,000 for the nine months ended September 30, 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 Debt. 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 and nine months ended September 30, 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. Three Months Ended September 30, 2000 Residential Other Totals Rental income $ 7,465 $ -- $ 7,465 Other income 424 -- 424 Interest expense 3,161 -- 3,161 Depreciation 1,422 -- 1,422 General and administrative expense -- 186 186 Segment profit (loss) 341 (186) 155
Nine Months Ended September 30, 2000 Residential Other Totals Rental income $21,934 $ -- $21,934 Other income 1,081 11 1,092 Interest expense 9,464 403 9,867 Depreciation 4,446 -- 4,446 General and administrative expense -- 485 485 Segment profit (loss) 547 (877) (330) Total assets 66,636 1,064 67,700 Capital expenditures for investment properties 2,450 -- 2,450
Three Months Ended September 30, 1999 Residential Other Totals Rental income $ 6,874 $ -- $ 6,874 Other income 377 4 381 Interest expense 3,133 1,078 4,211 Depreciation 1,452 -- 1,452 General and administrative expense -- 149 149 Segment loss (51) (1,223) (1,274)
Nine Months Ended September 30, 1999 Residential Other Totals Rental income $20,473 $ -- $20,473 Other income 944 13 957 Interest expense 9,330 3,235 12,565 Depreciation 4,309 -- 4,309 General and administrative expense -- 501 501 Segment loss (427) (3,723) (4,150) Total assets 68,788 380 69,168 Capital expenditures for investment properties 1,273 -- 1,273
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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed in this Form 10-Q contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-Q and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. Average occupancy rates for the nine months ended September 30, 2000 and 1999, for all of the Venture's properties are as follows: Average Occupancy Property 2000 1999 North Park Apartments Evansville, IN 93% 95% Chapelle Le Grande Merrillville, IN 94% 93% Terrace Gardens Omaha, NE 94% 97% Forest Ridge Apartments Flagstaff, AZ 96% 94% Scotchollow San Mateo, CA 99% 91% Pathfinder Fremont, CA 98% 91% Buena Vista Apartments Pasadena, CA 97% 100% Mountain View Apartments San Dimas, CA 97% 99% Crosswood Park Citrus Heights, CA 95% 96% Casa de Monterey Norwalk, CA 98% 98% The Bluffs Milwaukie, OR 94% 94% Watergate Apartments Little Rock, AR 91% 92% Shadowood Apartments Monroe, LA 94% 96% Vista Village Apartments El Paso, TX 91% 93% The Towers of Westchester Park College Park, MD 97% 99% The Managing General Partner attributes the occupancy fluctuations at the properties to the following: a decrease at Terrace Gardens due to tenants purchasing homes; an increase at Scotchollow and Pathfinder due to more aggressive marketing; a decrease at Buena Vista Apartments due to an increase in rental rates which more than offset the decrease in occupancy in regards to the property's total rent collected. Results of Operations The Venture recorded a net loss for the nine months ended September 30, 2000 of approximately $330,000 as compared to a net loss of approximately $4,150,000 for the corresponding period in 1999. For the three months ended September 30, 2000, the Venture recorded net income of approximately $155,000 as compared to a net loss of approximately $1,274,000 for the three months ended September 30, 1999. The decrease in net loss for the three and nine months ended September 30, 2000, is attributable to an increase in total revenues and a decrease in total expenses. The increase in total revenues is due to an increase in both rental and other income. Rental income increased mainly due to an increase in average annual rental rates at all of the Venture's investment properties despite decreases in occupancy at nine of the investment properties. Other income increased primarily due to increases in interest income and tenant auxiliary services. Total expenses for the nine months ended September 30, 2000, decreased primarily due to a reduction in interest expense which more than offset the increase in operating and depreciation expenses. Total expenses for the three months ended September 30, 2000, decreased primarily due to a reduction in interest expense which more than offset the increase in operating 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. Operating expenses increased due to an increase in property expenses. The increase in property expense is primarily a result of an increase in salary and related benefits at Scotchollow. 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 nine months ended September 30, 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 within the Venture to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Venture from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Venture from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At September 30, 2000, the Venture had cash and cash equivalents of approximately $1,563,000 as compared to approximately $785,000 at September 30, 1999. Cash and cash equivalents decreased approximately $441,000 for the nine months ended September 30, 2000, from the Venture's fiscal year end. The decrease in cash and cash equivalents is the result of approximately $3,329,000 of cash used in investing activities and approximately $2,300,000 of cash used in financing activities which was partially offset by approximately $5,188,000 of cash provided by operating activities. Cash used in financing activities consisted of payments of principal made on the mortgages encumbering the Registrant's properties and was slightly offset by payments received on subscription notes. Cash used in investing activities consisted of property improvements and replacements and net deposits to escrow accounts maintained by the mortgage lender. The Venture invests its working capital reserves in a money market account. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Venture and to comply with Federal, state and local legal and regulatory requirements. Capital improvements planned for each of the Venture's properties are detailed below. The Venture had budgeted a minimum of $300 per unit for all of the properties, 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 properties and the servicer of the Senior Debt encumbering the properties have agreed to a procedure to assess whether or not capital expenditures, in addition to those permitted under the $300 per unit minimum, are needed at the properties and the methodology for funding any such capital expenditures. The parties agreed upon the required capital expenditures and that these costs would be funded out of the 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. On November 19, 1999, an agreement was signed relating to the required capital expenditures at Towers of Westchester Park. On July 10, 2000, similar agreements were signed relating to North Park Apartments, Scotchollow, Pathfinder, Buena Vista Apartments, Mountain View Apartments, Casa de Monterey and The Bluffs. In August 2000, agreements were signed relating to Shadowood Apartments, Crosswood Park Apartments, Vista Village Apartments, Watergate Apartments, Chapelle Le Grande Apartments, and Forest Ridge Apartments and on September 19, 2000, an agreement was signed relating to Terrace Gardens Apartments. North Park Apartments: The methodology discussed above for funding the required capital expenditures has been applied to North Park Apartments. The parties agreed that this property required capital expenditures over the next nine months that are estimated to cost approximately $150,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture has budgeted approximately $235,000 for capital improvements during 2000 at North Park Apartments consisting primarily of appliance replacements and structural improvements. The Venture completed approximately $86,000 in capital expenditures at North Park Apartments as of September 30, 2000, consisting primarily of plumbing enhancements, flooring replacements, and swimming pool upgrades. These improvements were funded from operating cash flow and replacement reserves. Chapelle Le Grande: The methodology discussed above for funding the required capital expenditures has been applied to Chapelle Le Grande Apartments. The parties agreed that this property required capital expenditures over the next six months that are estimated to cost approximately $90,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture budgeted approximately $122,000 for capital improvements during 2000 at Chapelle Le Grande consisting primarily of appliance, air conditioning, roof, balcony and flooring replacements. The Venture completed approximately $90,000 in capital expenditures at Chapelle Le Grande Apartments as of September 30, 2000, consisting primarily of flooring replacements and roof replacements. These improvements were funded from operating cash flow and replacement reserves. Terrace Gardens: The methodology discussed above for funding the required capital expenditures has been applied to Terrace Gardens Apartments. The parties agreed that this property required capital expenditures over the next six months that are estimated to cost approximately $433,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture budgeted approximately $471,000 for capital improvements during 2000 at Terrace Gardens consisting primarily of pool deck, roof, overhead garage doors, electrical wiring, exterior lighting and air conditioning replacement and parking lot and plumbing improvements. The Venture completed approximately $75,000 in capital expenditures at Terrace Gardens Apartments as of September 30, 2000, consisting primarily of air conditioning, water heater, and flooring replacements and structural and other building improvements. These improvements were funded from operating cash flow and replacements reserves. Forest Ridge Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Forest Ridge Apartments. The parties agreed that this property required capital expenditures over the next six months that are estimated to cost approximately $296,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture budgeted approximately $379,000 for capital improvements during 2000 at Forest Ridge Apartments consisting primarily of appliance, fencing, lighting, and flooring replacements and parking lot and structural improvements and exterior painting. The Venture completed approximately $145,000 in capital expenditures at Forest Ridge Apartments as of September 30, 2000, consisting primarily of appliance, water heater, flooring replacements, exterior painting, and building improvements. These improvements were funded from operating cash flow and replacement reserves. Scotchollow: The methodology discussed above for funding the required capital expenditures has been applied to Scotchollow. The parties agreed that this property required capital expenditures over the next nine months that are estimated to cost approximately $439,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture has budgeted approximately $564,000 for capital improvements during 2000 at Scotchollow consisting primarily of appliance and flooring replacements and structural improvements. The Venture completed approximately $84,000 in capital expenditures at Scotchollow as of September 30, 2000, consisting primarily of appliance and flooring replacements, fencing, and structural improvements. These improvements were funded from operating cash flow and replacements reserves. Pathfinders Village: The methodology discussed above for funding the required capital expenditures has been applied to Pathfinders Village. The parties agreed that this property required capital expenditures over the next nine months that are estimated to cost approximately $1,037,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture has budgeted approximately $1,111,000 for capital improvements during 2000 at Pathfinders Village consisting primarily of appliance and flooring replacements and building and structural improvements. The Venture completed approximately $341,000 in capital expenditures at Pathfinders Village as of September 30, 2000, consisting primarily of appliance, window coverings, cabinet, countertop, and flooring replacements, air conditioning and heating system upgrades, clubhouse renovations, building and structural improvements. These improvements were funded from operating cash flow and replacements reserves. Buena Vista Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Buena Vista Apartments. The parties agreed that this property required capital expenditures over the next nine months that are estimated to cost approximately $110,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture has budgeted approximately $138,000 for capital improvements during 2000 at Buena Vista Apartments consisting primarily of lighting replacements and building and structural improvements. The Venture completed approximately $41,000 in capital expenditures at Buena Vista Apartments as of September 30, 2000, consisting primarily of appliance and flooring replacements. These improvements were funded from replacement reserves. Mountain View Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Mountain View Apartments. The parties agreed that this property required capital expenditures over the next nine months that are estimated to cost approximately $134,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture has budgeted approximately $184,000 for capital improvements during 2000 at Mountain View Apartments consisting primarily of appliance replacements and building and structural improvements. The Venture completed approximately $133,000 in capital expenditures at Mountain View Apartments as of September 30, 2000, consisting primarily of appliance, furniture, lighting and flooring replacements, parking lot and structural improvements, and recreation facilities. These improvements were funded from operating cash flow and replacement reserves. Crosswood Park: The methodology discussed above for funding the required capital expenditures has been applied to Crosswood Park Apartments. The parties agreed that this property required capital expenditures over the next six months that are estimated to cost approximately $301,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture budgeted approximately $355,000 for capital improvements during 2000 at Crosswood Park consisting primarily of appliance, piping and deck replacements and ponds and creek enhancements and balcony repairs and various enhancements. The Venture completed approximately $93,000 in capital expenditures at Crosswood Park Apartments as of September 30, 2000, consisting primarily of appliances, plumbing and flooring replacements and building improvements. These improvements were funded from cash flow and replacement reserves. Casa de Monterey: The methodology discussed above for funding the required capital expenditures has been applied to Casa de Monterey. The parties agreed that this property required capital expenditures over the next nine months that are estimated to cost approximately $227,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture has budgeted approximately $270,000 for capital improvements during 2000 at Casa de Monterey consisting primarily of building and structural improvements. The Venture completed approximately $190,000 in capital expenditures at Casa de Monterey as of September 30, 2000, consisting primarily of appliance, cabinet, countertop, lighting and flooring replacements and structural improvements. These improvements were funded from operating cash flow and replacement reserves. The Bluffs: The methodology discussed above for funding the required capital expenditures has been applied to The Bluffs. The parties agreed that this property required capital expenditures over the next nine months that are estimated to cost approximately $52,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture has budgeted approximately $93,000 for capital improvements during 2000 at The Bluffs consisting primarily of plumbing, appliance and flooring replacements, building and structural improvements. The Venture completed approximately $31,000 in capital expenditures at The Bluffs as of September 30, 2000, consisting primarily of appliance, plumbing and flooring replacements. These improvements were funded from replacement reserves. Watergate Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Watergate Apartments. The parties agreed that this property required capital expenditures over the next six months that are estimated to cost approximately $186,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture budgeted approximately $228,000 for capital improvements during 2000 at Watergate Apartments consisting primarily of appliance, air conditioners, roof, plumbing fixtures, water heaters and flooring replacements and structural and landscaping improvements. The Venture completed approximately $71,000 in capital expenditures at Watergate Apartments as of September 30, 2000, consisting primarily of appliance, heating system, electrical, plumbing and flooring replacements. These improvements were funded from operating cash flow and replacement reserves. Shadowood Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Shadowood Apartments. The parties agreed that this property required capital expenditures over the next six months that are estimated to cost approximately $151,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture budgeted approximately $187,000 for capital improvements during 2000 at Shadowood Apartments consisting primarily of appliance, roof gutters, asphalt top course, fencing, plumbing fixtures, water heaters, air conditioners and flooring replacements and exterior painting. The Venture completed approximately $37,000 in capital expenditures at Shadowood Apartments as of September 30, 2000, consisting primarily of appliance, water heater, heating system and flooring replacements. These improvements were funded from operating cash flow and replacement reserves. Vista Village Apartments: The methodology discussed above for funding the required capital expenditures has been applied to Vista Village Apartments. The parties agreed that this property required capital expenditures over the next six months that are estimated to cost approximately $264,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture budgeted approximately $330,000 for capital improvements during 2000 at Vista Village Apartments consisting primarily of lighting, fencing and roof replacements and landscaping improvements. The Venture completed approximately $81,000 in capital expenditures at Vista Village Apartments as of September 30, 2000, consisting primarily of appliances, air conditioning and flooring replacements and recreational facility enhancements. These improvements were funded from operating cash flow and replacement reserves. Towers of Westchester Park: The methodology discussed above for funding the required capital expenditures has been applied to Towers of Westchester Park. The parties agreed that this property required capital expenditures during 2000 that are estimated to cost approximately $920,000 and that these costs would be funded out of cash flows from the properties that otherwise would be utilized to pay debt service on the junior debt. Including the required capital expenditures, the Venture has budgeted approximately $1,011,000 for capital improvements during 2000 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. The Venture completed approximately $952,000 in capital expenditures at Towers of Westchester Park as of September 30, 2000, consisting primarily of cabinet, appliance, heating system, air conditioning, plumbing and flooring replacements, major landscaping and structural improvements. These improvements were funded from operating cash flow and replacement reserves. 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, as discussed above and below) of the Venture. The Senior Debt encumbering all of the properties totals approximately $106,839,000 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 $30,433,000 and requires monthly payments based upon monthly excess cash flow for each property. Per the Junior Debt Agreements, excess cash flow is defined as revenue generated from the operation of a property less (1) operating expenses of the property, (2) the debt service payment for the Senior Loan, (3) 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, the property's excess monthly cash flow is to first be used to fund a repair reserve. On July 10, 2000, similar agreements were signed relating to North Park, Scotchollow, Pathfinder, Buena Vista, Mountain View, Casa De Monterey, and The Bluffs Apartments. In August 2000, similar agreements were signed relating to Crosswood Park, Shadowood, Vista Village, Chapelle Le Grand, Watergate, and Forest Ridge Apartments. On September 19, 2000, a similar agreement was signed relating to Terrace Gardens Apartments. Once these reserves are fully funded, the excess monthly cash flow will be used as payment toward 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 loans 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, (ii) a significant interest in the residual value of the properties on November 16, 1999 and (iii) economic and voting rights in a 0.61% interest in Partners Liquidating Trust in September 2000. These transactions occurred between AIMCO LP and unrelated third parties and thus had no affect 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 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 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 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 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 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 nine months ended September 30, 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 subpartnerships' 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. 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 September 30, 2000, an increase or decrease of 100 basis points in market interest rate 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 September 30, 2000. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximated the recorded value as of September 30, 2000.
Long-term Debt Principal Weighted-average (in thousands) Interest Rate 2000 $ 253 8.50% 2001 1,419 8.50% 2002 1,553 8.50% 2003 1,692 8.50% 2004 1,825 8.50% Thereafter 130,530 9.04% $137,272
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 September 30, 2000. 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: November 14, 2000 Exhibit 11 VMS NATIONAL PROPERTIES JOINT VENTURE CALCULATION OF NET INCOME (LOSS) PER INVESTOR (in thousands, except unit data)
For the Three Months For the Nine Months Ended September 30, Ended September 30, 2000 1999 2000 1999 VMS National Properties net income (loss) $ 156 $(1,274) $ (328) $(4,151) Portfolio I net (loss) income -- -- (1) 1 Portfolio II net loss (1) -- (1) -- Combined net income (loss) $ 155 $(1,274) $ (330) $(4,150) Portfolio I allocation: 70.69% $ 110 $ (901) $ (232) $(2,934) -- -- (1) 1 $ 110 $ (901) $ (233) $(2,933) Net income (loss) to general partner (2%) $ 2 $ (18) $ (5) $ (59) Net income (loss) to limited partners (98%) $ 108 $ (883) $ (228) $(2,874) Number of Limited Partner units 644 644 644 644 Net income (loss) per limited partnership interest $ 168 $(1,371) $ (354) $(4,463) Portfolio II allocation: 29.31% $ 46 $ (373) $ (96) $(1,217) (1) -- (1) -- $ 45 $ (373) $ (97) $(1,217) Net income (loss) to general partner (2%) $ 1 $ (7) $ (2) $ (24) Net income (loss) to limited partners (98%) $ 44 $ (366) $ (95) $(1,193) Number of Limited Partner units 267 267 267 267 Net income (loss) per limited partnership interest $ 165 $(1,371) $ (356) $(4,468)
EX-27 2 0002.txt THIRD QUARTER 10-QSB
5 This schedule contains summary financial information extracted from PARTNERSHIP NAME 2000 Third Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000789089 VMS National Properties Joint Venture 1,000 9-MOS DEC-31-2000 JUL-01-2000 SEP-30-2000 1,563 0 0 0 0 0 150,934 (91,244) 67,700 0 179,332 0 0 0 (158,334) 67,700 0 23,026 0 0 13,489 0 9,867 0 0 0 0 0 0 (330) (354.00) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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