-----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, OejZDN0BR8wQWZuL7sbKWIfRISZc9vL0yzXZo2UE0N+tmX+wFZGbpk+dkuAPcCH+ lL1IVmRAN8hrvVxqshwqEw== 0000736909-97-000007.txt : 19971114 0000736909-97-000007.hdr.sgml : 19971114 ACCESSION NUMBER: 0000736909-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VMS NATIONAL PROPERTIES JOINT VENTURE CENTRAL INDEX KEY: 0000789089 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [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: 97712818 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10-Q 1 FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended September 30, 1997 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.) 630 Dundee Road, Suite 220 Northbrook, Illinois 60062 (Address of principal executive offices) (Zip Code) (847) 714-9600 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) VMS NATIONAL RESIDENTIAL PORTFOLIO I VMS NATIONAL RESIDENTIAL PORTFOLIO II (Illinois limited partnerships) VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS COMBINED BALANCE SHEETS (in thousands) September 30, December 31, 1997 1996 Assets: (Unaudited) (Note) Cash and cash equivalents: Unrestricted $ 1,664 $ 1,788 Restricted-tenant security deposits 1,116 1,082 Accounts receivable 215 151 Escrows and other reserves 2,452 1,507 Other assets 528 411 Investment properties Land 13,404 13,404 Buildings and personal property 129,725 128,455 143,129 141,859 Less accumulated depreciation (74,058) (70,019) 69,071 71,840 $ 75,046 $ 76,779 Liabilities and Partners' Deficit Liabilities Accounts payable $ 411 $ 302 Tenant security deposits 1,110 1,080 Accrued interest 14,402 11,948 Accrued property taxes 796 492 Other liabilities 548 381 Mortgage loans payable 119,038 119,229 Notes payable 36,511 33,837 Advances from affiliates of general partner 509 753 Deferred gain on extinguishment of debt 54,053 54,053 Partners' Deficit (152,332) (145,296) $ 75,046 $ 76,779 Note:The balance sheet at December 31, 1996, has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Combined Financial Statements b) VMS NATIONAL RESIDENTIAL PORTFOLIO I VMS NATIONAL RESIDENTIAL PORTFOLIO II (Illinois limited partnerships) VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS COMBINED STATEMENTS OF OPERATIONS (in thousands, except per interest data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Revenues: Rental income $ 6,289 $ 5,873 $ 18,372 $ 18,099 Other income 325 281 831 888 Total revenues 6,614 6,154 19,203 18,987 Expenses: Operating 2,028 1,868 5,603 5,761 General and administrative 287 268 749 725 Maintenance 811 718 2,062 2,280 Depreciation 1,377 1,343 4,056 4,096 Interest 4,236 4,032 12,493 12,574 Property taxes 459 450 1,298 1,405 Write-down of investment property -- -- -- 1,850 Total expenses 9,198 8,679 26,261 28,691 Loss before extraordinary item (2,584) (2,525) (7,058) (9,704) Extraordinary gain on extinguishment of debt -- -- -- 14,095 Net (loss) income $(2,584) $(2,525) $ (7,058) $ 4,391 Net (loss) income allocated to general partners $ (52) $ (51) $ (141) $ 88 Net (loss) income allocated to limited partners (2,532) (2,474) (6,917) 4,303 $(2,584) $(2,525) $ (7,058) $ 4,391 Net (loss) income per limited partnership interest: Net loss before extraordinary item Portfolio I (644 interests) $(2,776) $(2,713) $ (7,587) $(10,422) Portfolio II (268 interests) $(2,776) $(2,715) $ (7,578) $(10,440) Extraordinary item Portfolio I (644 interests) $ -- $ -- $ -- $ 15,146 Portfolio II (268 interests) $ -- $ -- $ -- $ 15,146 Net (loss) income Portfolio I (644 interests) $(2,776) $(2,713) $ (7,587) $ 4,724 Portfolio II (268 interests) $(2,776) $(2,715) $ (7,578) $ 4,706 See Accompanying Notes to Combined Financial Statements
c) VMS NATIONAL RESIDENTIAL PORTFOLIO I VMS NATIONAL RESIDENTIAL PORTFOLIO II (Illinois limited partnerships) VMS NATIONAL PROPERTIES (an Illinois partnership)AND SUBPARTNERSHIPS COMBINED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (in thousands) (Unaudited)
VMS National Residential Portfolio I Limited Partners General Accumulated Subscription Partners Deficit Notes Total Total Partners' deficit at December 31, 1996 $(3,356) $(98,353) $ (534) $ (98,887) $(102,243) Collections of subscription notes -- -- 15 15 15 Net loss for the nine months ended September 30, 1997 (100) (4,886) -- (4,886) (4,986) Partner's deficit at September 30, 1997 $(3,456) $(103,239) $ (519) $(103,758) $(107,214) VMS National Residential Portfolio II Limited Partners General Accumulated Subscription Partners Deficit Notes Total Total Partners' deficit at December 31, 1996 $(1,404) $ (41,307) $ (342) $ (41,649) $ (43,053) Collections of subscription notes -- -- 7 7 7 Net loss for the nine months ended September 30, 1997 (41) (2,031) -- (2,031) (2,072) Partner's deficit at September 30, 1997 $(1,445) $ (43,338) $ (335) $ (43,673) $ (45,118) Combined total $(4,901) $(146,577) $ (854) $(147,431) $(152,332) See Accompanying Notes to Combined Financial Statements
d) VMS NATIONAL RESIDENTIAL PORTFOLIO I VMS NATIONAL RESIDENTIAL PORTFOLIO II (Illinois limited partnerships) VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS COMBINED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Nine Months Ended September 30, 1997 1996 Cash flows from operating activities: Net (loss) income $ (7,058) $ 4,391 Adjustments to reconcile net (loss) income: to net cash provided by operating activities: Write-down of investment property -- 1,850 Extraordinary gain on extinguishment of debt -- (14,095) Depreciation 4,056 4,096 Amortization of discounts and loan costs 2,726 2,450 Loss on disposal of property 20 60 Gain on sale of property -- (59) Change in accounts: Restricted cash (34) 37 Accounts receivable (64) 22 Escrows and other reserves (945) (374) Other assets (123) (145) Accounts payable 109 (142) Tenant security deposit liabilities 30 3 Accrued interest 2,454 3,277 Accrued property taxes 304 370 Other liabilities 167 (1) Net cash provided by operating activities 1,642 1,740 Cash flows from investing activities: Property improvements and replacements (1,307) (1,344) Proceeds from sale of property -- 3,847 Net cash (used in) provided by investing activities (1,307) 2,503 Cash flows from financing activities: Payments on mortgage loans payable (237) (2,598) Payments received on subscription notes 22 60 Payments on advances from affiliates (244) (1,388) Cash released to lenders upon foreclosure -- (53) Net cash used in financing activities (459) (3,979) Net (decrease) increase in unrestricted cash and cash equivalents (124) 264 Unrestricted cash and cash equivalents at beginning of period 1,788 1,984 Unrestricted cash and cash equivalents at end of period $ 1,664 $ 2,248 Supplemental disclosure of cash flow information: Cash paid for interest $ 7,297 $ 6,831 See Accompanying Notes to Combined Financial Statements
VMS NATIONAL RESIDENTIAL PORTFOLIO I VMS NATIONAL RESIDENTIAL PORTFOLIO II (Illinois limited partnerships) VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY Foreclosure Pursuant to the Plan of Reorganization (see "Note 4"), on April 30, 1996, and May 13, 1996, the Partnership lost Weatheridge Apartments and Sierra Gardens Apartments, respectively, through foreclosure to the Federal Deposit Insurance Corporation. In connection with these transactions, the following accounts were adjusted by the amounts noted for 1996: 1996 Restricted-tenant security deposits $ 1,000 Accounts receivable (21,000) Escrow deposits (265,000) Other assets 108,000 Investment properties (5,781,000) Accumulated depreciation 3,618,000 Accounts payable (6,000) Accrued interest 9,941,000 Other liabilities 262,000 Mortgage loans payable 6,291,000 Aggregate gain on transactions 14,095,000 See Accompanying Notes to Combined Financial Statements VMS NATIONAL RESIDENTIAL PORTFOLIO I VMS NATIONAL RESIDENTIAL PORTFOLIO II (Illinois limited partnerships) VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS NOTES TO COMBINED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - GOING CONCERN The combined financial statements have been prepared assuming that the VMS National Properties Joint Venture (the "Venture") will continue as a going concern. The combined financial statements do not include any adjustments that might result from the outcome of the uncertainties described below, however, such uncertainties raise substantial doubt about the Venture's ability to continue as a going concern. The Venture has incurred recurring operating losses and has a partners' deficit of approximately $152 million at September 30, 1997. Continued operating losses are expected to occur. Historically, VMS Realty Investments, Ltd. ("VMSRIL" or the "Managing General Partner") and its affiliates had advanced funds to the Venture. The Managing General Partner is not obligated, and does not intend, to fund any future deficits. During 1994, the Managing General Partner and its affiliates assigned a portion of the unpaid advances to an affiliate of Insignia Financial Group, Inc. ("Insignia"). The Managing General Partner is evaluating its options for the Venture should the Venture continue to suffer substantial losses from operations and cash deficiencies. In addition, the Managing General Partner and its affiliates have incurred serious financial difficulties that may affect the ability of the Managing General Partner to function in that capacity. The administration and management of the Venture are dependent on the Managing General Partner and its affiliates. Pursuant to an agreement dated July 14, 1994, a transaction is pending in which the current Managing General Partner would be replaced by MAERIL, Inc., an affiliate of Insignia. The substitution of MAERIL, Inc. as the Managing General Partner is expected, but there is no assurance that the transaction will be consummated. The pending replacement of the Managing General Partner in and of itself will not necessarily improve the financial condition of the Venture. The combined financial statements do not include any adjustments relating to the recoverability of the recorded asset accounts or the amount of liabilities that might be necessary should the Venture be unable to continue as a going concern. NOTE 2 - BASIS OF PRESENTATION The accompanying unaudited combined financial statements 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 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, 1997, are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the combined financial statements and footnotes thereto included in the Venture's annual report on Form 10-K for the fiscal year ended December 31, 1996. Certain reclassifications have been made to the 1996 information to conform to the 1997 presentation. NOTE 3 - PETITION FOR RELIEF UNDER CHAPTER 11 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 hereinafter 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, VMS National Residential Portfolio I ("Portfolio I") and VMS National Residential Portfolio II ("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 "Second Amended and Restated Plan of Reorganization" (the "Plan") was confirmed by the Bankruptcy Court in March 1993 and became effective September 30, 1993, ("Effective Date"). NOTE 4 - PLAN OF REORGANIZATION The primary aspects of the Venture's Plan 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 consist 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 have been 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 has a first mortgage lien insured by HUD and two of the retained properties which have 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 and a maturity date 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 payment due thereafter on the FDIC value, as defined in "c" below. c.As it pertains 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 has 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 accrues 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 is to make 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. 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 was granted an allowed claim in the amount of $49,534,819 for the Assignment and Long-Term Loan Arrangement Notes payable to them by the Venture. Payments totaling $3,475,000 in conjunction with this allowed claim were made to the nonaffiliated members of the VMS/Stout Joint Venture on October 7, 1993. The Venture also executed a $4,000,000 promissory note dated September 1, 1993, to ContiTrade Services Corporation (the "ContiTrade Note") in connection with these allowed note claims. The ContiTrade Note represents a prioritization of payments to ContiTrade of the first $4,000,000 in repayments made under the existing Assignment and Long- Term Loan Arrangement Notes payable to the VMS/Stout Joint Venture, and does not represent an additional $4,000,000 claim payable to ContiTrade. In addition to prioritizing ContiTrade's receipt of the first $4,000,000 of repayments on the old notes, the ContiTrade Note provides for 5% noncompounding interest on the outstanding principal balance calculated daily on the basis of a 360 day year. The ContiTrade Note is secured by a Deed of Trust, Assignment of Rents and Security Agreement on each of the Venture's retained properties, and provides ContiTrade with other approval rights as to the ongoing operations of the Venture's retained properties. The ContiTrade Note matures January 15, 2000. The remaining $42,060,000 is noninterest bearing. 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. The Revised Asset Management Agreement provides for an annual compensation of $500,000 to be paid to Insignia in equal monthly installments. In addition, Insignia will receive reimbursement for all out-of-pocket costs incurred in connection with their services up to $200,000 per calendar year. These service fees 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 fundings for insurance, real estate and personal property taxes, senior mortgage payments, minimum interest payment requirements on the former FDIC mortgages, and any debt service and principal payments currently due on any liens or encumbrances senior to the ContiTrade Deeds of Trust. If insufficient operating cash flow exists after the funding of these items, the balance of Insignia's service fees may be paid from available partnership cash sources. Additionally, the service fee payable to Insignia 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. The Venture engaged Insignia to commence property management of all of the Venture's retained complexes effective January 1, 1994. NOTE 5 - CONTINGENCIES The Venture and certain affiliates of the Venture, including the Managing General Partner and certain officers and directors of the Managing General Partner, are parties to certain pending legal proceedings filed as of September 30, 1997. The legal proceedings in which the Venture is included relate primarily to the limited partners' investment in the Venture. The adverse outcome of any one or more legal proceedings against the Venture or any of its affiliates which provide financial support or services to the Venture could have a materially adverse effect on the present and future operations of the Venture. The eventual outcome of these matters cannot be determined at this time. Accordingly, no provision for any liability that may result has been made in the combined financial statements. NOTE 6 - HUD CONTINGENCIES The Venture, VMS Realty Management, Inc. and HUD entered into a Settlement Agreement dated December 9, 1996, related to the appropriateness of certain Crosswood Park and Venetian Bridges Grand Canal I disbursements totaling approximately $603,000 and $133,000, respectively, made during the years 1987 through 1991. This audit also included five other HUD projects managed by VMS Realty Management, Inc. which were not owned by the Venture. The Settlement Agreement provided an aggregate payment of $550,000 to the Federal government, $102,000 of which was paid from available funds of Venetian Bridges Grand Canal I and the remainder of the settlement payment of $448,000 were paid by entities other than the Venture and its subpartnerships. NOTE 7 - SALE OF PROPERTIES The Partnership sold two of the retained properties, Carlisle Square Apartments and Bellevue Towers Apartments, to an unaffiliated party on April 19, 1996, and April 30, 1996, respectively. The properties sold had a net book value of $2,247,000 for Carlisle Square Apartments and $1,541,000 for Bellevue Towers Apartments. The Venture received net proceeds from the sales of Carlisle Square and Bellevue Towers after payments of costs related to the sales of approximately $2,291,000 and $1,556,000, respectively. The total gains on the sale of Carlisle Square and Bellevue Towers were $44,000 and $15,000, respectively, and are included in other income in the accompanying combined statements of operations. The gain has been allocated to the partners in accordance with the Limited Partnership Agreement. Of the combined proceeds, $2,356,000 was used to pay down the mortgage note payable and $1,388,000 was used to repay advances from affiliates of the Managing General Partner. ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Venture's unrestricted cash and cash equivalents at September 30, 1997, of approximately $1,664,000 decreased by approximately $124,000 from December 31, 1996. This decrease was attributable to net cash provided by operating activities of approximately $1,642,000, offset by net cash used in investing and financing activities of approximately $1,307,000 and $459,000, respectively. The decrease in net cash provided by operating activities for the nine months ended September 30, 1997, compared to the corresponding period of 1996 was primarily due to an increase in cash paid for interest. Also contributing to the decrease was the sale of Bellevue Towers and Carlisle Square properties during the second quarter of 1996. Additionally, deposits held in escrows and other reserves increased during 1997 compared to 1996. Net cash used in investing activities increased for the nine months ended September 30, 1997, as a result of the proceeds from the sale of Bellevue Towers and Carlisle Square during the second quarter of 1996. Net cash used in financing activities decreased for the nine months ended September 30, 1997, compared to the corresponding period in 1996, primarily due to sales proceeds from the sales discussed above, being used to pay off the respective mortgage loans on the sold properties. In addition, the remaining net sales proceeds were used to repay advances from affiliates of the Managing General Partner. At December 31, 1992, the Venture had approximately $15,433,000 in excess limited partner contributions. Permitted uses of these excess limited partner contributions during 1993 were limited to 1) the funding of monthly Bankruptcy Court approved professional fees; 2) establishing a reserve of $5,960,000 to fund capital improvements on the retained complexes; 3) repayments of approximately $5,980,000 on various prepetition claims including notes payable, real estate taxes and amounts due trade creditors; 4) payments of $1,006,000 to the Managing General Partner for reimbursement of cash advances and asset management services; and 5) payments to the FDIC and ContiTrade for reimbursement of administrative costs incurred in connection with the bankruptcy case (see "Note 4" of the Notes to Combined Financial Statements). The Venture's Plan, which became effective on September 30, 1993, also restricts the permitted uses of the excess limited partner cash balances on hand at September 30, 1997. Total net capital contribution and interest amounts due from limited partners of Portfolio I and Portfolio II at September 30, 1997, approximated $986,000. A settlement agreement was entered into on March 28, 1991, by the Plaintiff class counsel on behalf of the class of limited partners in approximately 100 non- publicly traded VMS sponsored limited partnerships including Portfolio I, Portfolio II, the Venture, and VMS Realty Partners and its affiliates and certain other defendants. The Settlement Agreement provided the settling Limited Partners with an option to refinance their defaulted subscription note principal and interest payments. Of the total number of limited partner units in Portfolio I and Portfolio II, only 10 limited partner units in Portfolio I and 5.67 limited partner units in Portfolio II opted out of the Settlement Agreement, and accordingly were ineligible to elect this refinancing option. Approximately 65% of the total capital and accrued interest amounts due from limited partners of Portfolio I and Portfolio II represented amounts due from limited partners who elected the refinancing option. All amounts remaining due from the limited partners are considered past due and their outstanding amount bears interest at the 18% default rate. A cash payment of $24,550,000 was paid into a settlement fund for the benefit of the settling class members of all settling limited partnerships on behalf of the Venture and the other settling defendants. Portfolio I, Portfolio II and the Venture was not obligated to fund any portion of this cash settlement. The settling class members in Portfolio I and Portfolio II were collectively allocated approximately $3,000,000 of the net settlement proceeds paid on behalf of the VMS Settling Defendants and Prudential-Bache Settling Defendants. Continued operating losses are expected to occur. The Managing General Partner is not obligated, and does not intend, to fund any operating and cash flow deficits. However, the Venture's ability to continue as a going concern and to meet its obligations as they come due is solely dependent upon its ability to generate adequate cash flow from maintaining profitable operations on the retained properties or securing an infusion of capital. Management is involved in negotiations which would replace VMSRIL as the managing general partner and has entered into an agreement with Insignia which contemplates that VMSRIL will withdraw as general partner and be replaced by an entity in which Insignia owns an interest. This change in ownership is subject to the approval of various parties, including, among others, HUD, the FDIC and ContiTrade. The Managing General Partner believes that they will be successful in obtaining a replacement general partner and that the Venture will be able to continue operations as a going concern. However, the ultimate resolution of these financial difficulties and uncertainties cannot be determined at this time. Results of Operations The Partnership realized a net loss of approximately $7,058,000 for the nine months ended September 30, 1997, compared to net income of approximately $4,391,000 for the corresponding period in 1996. For the three months ended September 30, 1997, the Partnership realized a net loss of approximately $2,584,000 compared to a net loss of approximately $2,525,000 for the three months ended September 30, 1996. Included in net income for the nine month period ended September 30, 1996, is an extraordinary gain on extinguishment of debt of approximately $14,095,000 resulting from the foreclosures of the two non-retained properties during the second quarter of 1996. Net loss before this extraordinary item was approximately $9,704,000 for the nine months ended September 30, 1996. The decrease in net loss before the extraordinary item is primarily attributable to the write-down of investment properties and the foreclosures of Weatheridge and Sierra in 1996, which caused a reduction in expenses. The write-down of investment properties of $1,850,000 to fair market value was recorded on the two non-retained properties during the second quarter of 1996. At the remaining properties, net loss before the extraordinary gain decreased by approximately $201,000 for the nine months ended September 30, 1997. This decrease was attributable to an increase in rental income which was partially offset by increases in operating and interest expenses. The increase in rental revenues is the result of increased rental rates at the majority of the Partnership's properties. Rental income at Scotchollow and Pathfinder combined for an increase of approximately $628,000. Forest Ridge and Shadowood kept rents stable in an attempt to improve occupancy. The increase in operating expenses of approximately $273,000 at the remaining properties is primarily due to increases at Forest Ridge, Shadowood, and Vista Village for rental costs and concessions, property salaries and incentives, and utilities. The increase in interest expense for the remaining properties is primarily due to increased interest accruals on the junior mortgages. Deferred interest on these mortgages accrues additional interest at a rate of 10%, compounded monthly. Included in maintenance expense for the nine months ended September 30, 1997, is approximately $448,000 of major repairs and maintenance comprised primarily of landscaping, parking lot repairs and exterior building repairs, largely related to work at Watergate Apartments. Included in maintenance expense for the nine months ended September 30, 1996, is approximately $642,000 of major repairs and maintenance comprised primarily of landscaping, parking lot repairs, swimming pool, and interior and exterior building repairs, mostly related to work at Scotchollow and Mountain View. As discussed in "Item 1. Note 7 - Sale of Properties", included in other income for the three and nine month periods ended September 30, 1996, is approximately $59,000 relating to gains on the sales of Carlisle Square and Bellevue Towers. Average occupancy rates for the nine months ended September 30, 1997 and 1996, for the Partnership's properties are as follows: Average Occupancy Property 1997 1996 Buena Vista Apartments Pasadena, CA 99% 95% Casa de Monterey Norwalk, CA 94% 92% Crosswood Park Citrus Heights, CA 96% 96% Mountain View Apartments San Dimas, CA 98% 97% Pathfinder Fremont, CA 96% 96% Scotchollow San Mateo, CA 98% 99% The Bluffs Milwaukie, OR 95% 96% Vista Village Apartments El Paso, TX 92% 88% Chapelle Le Grande Merrillville, IN 97% 97% North Park Apartments Evansville, IN 96% 97% Shadowood Apartments Monroe, LA 92% 95% The Towers of Westchester Park College Park, MD 93% 95% Terrace Gardens Omaha, NE 94% 96% Watergate Apartments Little Rock, AR 94% 95% Forest Ridge Apartments Flagstaff, AZ 79% 84% The Managing General Partner attributes the occupancy fluctuations at the properties to the following: increase at Buena Vista to the improved curb appeal of the property, resulting from new landscaping and increased maintenance efforts; increase at Vista Village to interior improvements to the apartments and an improved rental market; and a decrease at Forest Ridge due to increased competition as new properties are being built in the area. Recent Developments - VMS Realty Partners and Affiliates There have been no material developments or changes from the Recent Developments-VMS Realty Partners and Affiliates disclosed in "Part I, Item 1" of the Venture's report on form 10-K for the year ended December 31, 1996. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As disclosed in the prior reports on Form 10-Q or Form 10-K ("Prior Public Filings"), the Venture including the Joint Ventures, VMS Realty Investment L.T.D., General Partner of the Joint Ventures, Subpartnerships, VMS Realty Partners, now known as VMS Realty Partners, L.P., certain officers and directors of VMS Realty Partners, now known as VMS Realty Partners, L.P. and certain other affiliates of the Venture are parties to certain pending legal proceedings which are summarized below (other than litigation matters covered by insurance policies). The adverse outcome of certain of the legal proceedings disclosed in this Report and the Prior Public Filings could have a materially adverse effect on the present and future operations of the Joint Venture. Summarized below are certain developments in legal proceedings filed against VMS Realty Partners, now known as VMS Realty Partners, L.P. and its affiliates which were disclosed in the Prior Public Filings and certain pending legal proceedings not previously reported that have been filed against VMS Realty Partners, now known as VMS Realty Partners, L.P. and its affiliates. The inclusion in this Report of any legal proceeding or developments in any legal proceeding is not intended as a representation by the Joint Venture that such particular proceeding is material. For those actions summarized below in which the plaintiffs are seeking damages, the amount of damages being sought is an amount to be proven at trial unless otherwise specified. There can be no assurance as to the outcome of any of the legal proceedings summarized in this Report or in Prior Public Filings. A. VMS Limited Partnership Litigation i) There are no new developments or changes from "Item 3.A." of the Partnership's report on Form 10-K for the year ended December 31, 1996. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended September 30, 1997. 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 By: VMS National Residential Portfolio I By: VMS Realty Investment, Ltd. Managing General Partner By: JAS Realty Corporation Date: November 12, 1997 By: /s/ Joel A. Stone Joel A. Stone President Date: November 12, 1997 By: /s/ Thomas A. Gatti Thomas A. Gatti Senior Vice-President and Principal Accounting Officer VMS National Residential Portfolio II By: VMS Realty Investment, Ltd. Managing General Partner By: JAS Corporation Date: November 12, 1997 By: /s/ Joel A. Stone Joel A. Stone President Date: November 12, 1997 By: /s/ Thomas A. Gatti Thomas A. Gatti Senior Vice-President and Principal Accounting Officer EX-27 2
5 This schedule contains summary financial information extracted from VMS National Properties Joint Venture 1997 Third Quarter 10-Q and is qualified in its entirety by reference to such 10-Q filing. 0000789089 VMS NATIIONAL PROPERTIES JOINT VENTURE 1,000 9-MOS DEC-31-1997 SEP-30-1997 1,664 0 0 0 0 0 143,129 (74,058) 75,046 0 119,038 0 0 0 (152,332) 75,046 0 19,203 0 0 26,261 0 12,493 0 0 0 0 0 0 (7,058) (7,583) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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