-----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, FMr2lm+rJzmV/n6wyn9D5XLi5tJnV2l0FpXKaGZDOuafRmm+HwvJeExWS7CNO2pU p+hFSMLq1oKPYEb2LauiRw== 0000792181-95-000002.txt : 19951119 0000792181-95-000002.hdr.sgml : 19951119 ACCESSION NUMBER: 0000792181-95-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: AMEX 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: 1934 Act SEC FILE NUMBER: 000-14194 FILM NUMBER: 95592148 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 (As last amended in Rel. No. 312905, eff. 4/26/93.) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the quarterly period ended September 30, 1995 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period.........to......... (Amended by Exchange Act Rel. No. 312905, eff. 4/26/93.) Commission file number 0-14194 VMS NATIONAL PROPERTIES JOINT VENTURE (Exact name of small business issuer as specified in its charter) Illinois 36-3311347 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8700 West Bryn Mawr Chicago, Illinois 60631 (Address of principal executive offices) (Zip Code) Issuer's telephone number (312) 399-8700 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 SHEET (Unaudited)
September 30, December 31, 1995 1994 Assets Cash: Unrestricted $ 2,206,423 $ 2,476,476 Restricted-tenant security deposits 1,140,423 1,249,345 Accounts receivable 223,320 322,669 Escrows and other reserves 1,561,604 3,953,244 Other assets 768,410 498,639 Investment properties, at cost Land 14,293,678 14,293,679 Buildings and personal property 133,119,338 131,549,174 Investment properties subject to abandonment Land 1,664,533 4,256,965 Buildings and personal property 11,039,368 30,045,871 Less accumulated depreciation (72,712,782) (77,413,702) $ 93,304,315 $ 111,232,360 Liabilities and Partners' Deficit Liabilities Accounts payable $ 515,253 $ 905,558 Accrued interest 7,263,295 4,693,490 Accrued and other liabilities 2,811,096 2,985,089 Mortgage loans payable 121,903,447 122,072,363 Notes payable 29,859,292 27,732,149 Advances from affiliates of general partner 1,895,155 1,895,155 Deferred gain on extinguishment of debt 54,052,737 54,052,737 Subject to abandonment: Accounts payable 1,965 100,249 Accrued interest 14,082,627 30,646,892 Accrued and other liabilities 469,443 799,746 Mortgage loans payable 10,349,896 28,256,877 Partners' Deficit (149,899,891) (162,907,945) $ 93,304,315 $ 111,232,360
[FN] See Accompanying Notes to Combined Financial Statements b) VMS NATIONAL RESIDENTIAL PORTFOLIO I VMS NATIONAL RESIDENTIAL PORTFOLIO II (Illinois limited partnerships) VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS COMBINED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September 30, 1995 1994 Revenues: Rental income $ 6,396,142 $ 7,128,925 Other income 307,302 333,688 Total revenues 6,703,444 7,462,613 Expenses: Operating 1,853,989 2,507,783 General and administrative 208,263 279,335 Property management fees 264,907 307,912 Maintenance 1,139,550 1,385,968 Depreciation 1,522,688 1,713,338 Interest 4,727,400 8,089,072 Property taxes 512,826 577,697 Write-down of investment property -- 2,641,740 Loss on disposal of property 25,142 92,989 Total expenses 10,254,765 17,595,834 Net loss before extraordinary item (3,551,321) (10,133,221) Extraordinary item - gain on extinguishment of debt -- 13,359,397 Net (loss) income $(3,551,321) $ 3,226,176 Net (loss) income allocated to general partners $ (71,026) $ 63,870 Net (loss) income allocated to limited partners (3,480,295) 3,162,306 $(3,551,321) $ 3,226,176 Net (loss) income per limited partnership interest: Net loss before extraordinary item Portfolio I (644 interests) $ (3,820) $ (10,891) Portfolio II (268 interests) (3,809) (10,884) Extraordinary item Portfolio I (644 interests) -- 14,356 Portfolio II (268 interests) -- 14,356 Net (loss) income Portfolio I (644 interests) (3,820) 3,465 Portfolio II (268 interests) (3,809) 3,472
[FN] 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 COMBINED STATEMENTS OF OPERATIONS (Continued) (Unaudited)
Nine Months Ended September 30, 1995 1994 Revenues: Rental income $ 20,221,007 $ 21,701,998 Other income 953,150 980,804 Total revenues 21,174,157 22,682,802 Expenses: Operating 6,177,532 7,024,887 General and administrative 820,732 1,052,708 Property management fees 845,637 927,547 Maintenance 3,029,553 3,286,660 Depreciation 4,963,300 5,058,694 Interest 15,748,569 16,805,152 Property taxes 1,722,729 1,839,110 Write-down of investment property 3,093,811 3,774,071 Loss on disposal of property 107,849 92,989 Total expenses 36,509,712 39,861,818 Net loss before extraordinary item (15,335,555) (17,179,016) Extraordinary item - gain on extinguishment of debt 28,284,688 27,418,224 Net income $ 12,949,133 $ 10,239,208 Net income allocated to general partners $ 258,983 $ 204,784 Net income allocated to limited partners 12,690,150 10,034,424 $ 12,949,133 $ 10,239,208 Income (loss) per limited partnership interest: Net loss before extraordinary item Portfolio I (644 interests) $ (16,480) $ (18,460) Portfolio II (268 interests) (16,478) (18,462) Extraordinary item Portfolio I (644 interests) 30,394 29,463 Portfolio II (268 interests) 30,394 29,463 Net income Portfolio I (644 interests) 13,914 11,003 Portfolio II (268 interests) 13,916 11,001
[FN] 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 (Unaudited)
VMS National Residential Portfolio I Limited Partners General Accumulated Subscription Partners Deficit Notes Total Total Partners' deficit at December 31, 1994 $(3,602,965) $(110,428,689) $(627,062) $(111,055,751) $(114,658,716) Collections of subscription notes -- -- 35,149 35,149 35,149 Net income for the nine months ended September 30, 1995 182,871 8,960,675 -- 8,960,675 9,143,546 Partner's deficit at September 30, 1995 $(3,420,094) $(101,468,014) $(591,913) $(102,059,927) $(105,480,021)
VMS National Residential Portfolio II Limited Partners General Accumulated Subscription Partners Deficit Notes Total Total Partners' deficit at December 31, 1994 $(1,506,182) $ (46,331,238) $(411,809) $ (46,743,047) $ (48,249,229) Collections of subscription notes -- -- 23,772 23,772 23,772 Net income for the nine months ended September 30, 1995 76,112 3,729,475 -- 3,729,475 3,805,587 Partner's deficit at September 30, 1995 $(1,430,070) $ (42,601,763) $(388,037) $ (42,989,800) $ (44,419,870) Combined total $(4,850,164) $(144,069,777) $(979,950) $(145,049,727) $(149,899,891)
See Accompanying Notes to Combined Financial Statements d) VMS NATIONAL RESIDENTIAL PORTFOLIO I VMS NATIONAL RESIDENTIAL PORTFOLIO II (Illinois limited partnerships) VMS NATIONAL PROPERTIES (an Illinois partnership) AND SUBPARTNERSHIPS COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1995 1994 Cash flows from operating activities: Net income $ 12,949,133 $ 10,239,208 Adjustments to reconcile net income to net cash provided by operating activities: Writedown of investment property 3,093,811 3,774,071 Extraordinary gain on extinguishment of debt (28,284,688) (27,418,224) Depreciation 4,963,300 5,058,694 Amortization of discounts and loan costs 2,314,771 2,156,245 Loss on disposal of property 107,849 92,989 Change in accounts: Escrows and other reserves 2,065,351 1,393,785 Accounts receivable (541) (46,052) Restricted cash (58,552) 109,010 Other assets (423,350) 370,606 Accounts payable (363,196) 346,976 Accrued interest 5,995,288 6,764,214 Accrued and other liabilities 115,680 348,336 Net cash provided by operating activities 2,474,856 3,189,858 Cash flows from investing activities: Property improvements and replacements (2,002,528) (1,712,636) Net cash used in investing activities (2,002,528) (1,712,636) Cash flows from financing activities: Payments on mortgage loans payable (210,189) (177,024) Payments received on subscription notes 58,921 171,384 Cash released to lenders on foreclosed properties (591,113) (316,725) Net cash used in financing activities (742,381) (322,365) Net (decrease) increase in cash (270,053) 1,154,857 Cash at beginning of period 2,476,476 2,049,143 Cash at end of period $ 2,206,423 $ 3,204,000 Supplemental disclosure of cash flow information: Cash paid for interest $ 7,392,109 $ 7,900,998
[FN] 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), in April 1995, and June 1995, the Partnership lost The Winery, Canal Court, Grand Canal I, and Grand Canal II through foreclosure to the Federal Deposit Insurance Corporation ("FDIC"). In January 1994, and February 1994, the Partnership lost Broad Meadows Apartments and the Courts of Hartford Square and August 1994, the Partnership lost Edgewater I and Edgewater II through foreclosure to the FDIC. In connection with these transactions, the following accounts were adjusted by the non-cash amounts noted for 1995 and 1994: 1995 1994 Relinquishment of cash $ (591,113) $ (316,725) Restricted-tenant security deposits (167,474) -- Accounts receivable (99,890) (98,372) Escrow deposits (326,289) (117,354) Other assets (130,360) (163,239) Investment properties (18,533,055) (22,857,797) Accumulated depreciation 9,367,635 10,834,945 Accounts payable 125,393 3,947 Accrued interest 19,989,748 16,489,517 Other liabilities 619,976 323,326 Mortgage loans payable 18,030,117 23,319,976 Aggregate gain on transaction (28,284,688) (27,418,224) 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 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, has a partners' deficiency and is in default of certain debt agreements. Continued operating losses and insufficient cash flows to meet all obligations of certain of the Venture's properties are expected to occur. Historically, the General Partner and its affiliates had advanced funds to the Venture. The General Partner is not obligated, and does not intend, to fund any future deficits. During 1994, the General Partner and its affiliates assigned a portion of the unpaid advances to an affiliate of Insignia Financial Group, Inc., ("Insignia"). The 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 General Partner and its affiliates have incurred serious financial difficulties that may affect the ability of the General Partner to function in that capacity. The administration and management of the Venture are dependent on the General Partner and its affiliates. Pursuant to an agreement dated July 14, 1994, a transaction is pending in which the current General Partner would be replaced by MAERIL, Inc., an affiliate of Insignia. The substitution of MAERIL, Inc. as the General Partner is expected and has been approved by the Bankruptcy Court and certain other creditors, but there is no assurance that the transaction will be consummated. The pending replacement of the General Partner 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 Management, 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, 1995, are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. 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, 1994. Note 3 - Petition for Relief Under Chapter 11 As a result of severe liquidity difficulties and impending foreclosure proceedings, the Venture filed for Chapter 11 bankruptcy protection on February 22, 1991. The initial filing included only the 40 residential apartment complexes directly owned by VMS National Properties Joint Venture, 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 filed its proposed Plan of Reorganization and Disclosure Statement with the Bankruptcy Court on October 13, 1992. After several modifications to the Venture's proposed Plan, the "Second Amended and Restated Plan of Reorganization" (the "Plan") was approved by the Bankruptcy Court in March 1993 and became effective on September 30, 1993 (see Note 4). Note 4 - Plan of Reorganization The primary aspects of the Venture's Plan include the following: a. The Venture will retain 17 properties from the previously existing portfolio (the "retained complexes"). The retained complexes consist of 16 non-HUD properties and one HUD property. The Venture has filed motions to abandon the non-retained HUD properties held at December 31, 1993, of which three remain at September 30, 1995. b. The senior mortgages on the Venture's non-HUD retained complexes payable to lenders other than the FDIC were modified effective September 1, 1993. The modified senior mortgages provide for an interest rate of 8.75% per annum with payments based on a 30 year amortization commencing with the first payment due October 1, 1993, and mature on January 15, 2000. The modified senior loan balances consisted of principal and accrued interest balances due under the old mortgage terms at September 1, 1993, plus approved legal, late and other charges claimed by the senior lenders approximating $197,000 in the aggregate. There was no forgiveness of debt from the refinancing of mortgages payable to lenders other than the FDIC. The senior mortgage on the retained complex which is insured by the Department of Housing and Urban Development was not modified. The senior liens held by the FDIC on two of the Venture's non-HUD retained complexes were modified effective September 1, 1993, to accrue interest at 9% with monthly payments commencing October 1, 1993, of interest only at 7% on the restated FDIC notes' "Agreed Valuation Amount" (defined in "c" below). Interest is calculated on the basis of a 360 day year and the actual number of days in each month. The difference between the 9% accrual rate and the 7% minimum pay rate (the "FDIC Deferral") shall accrue, but not be added to principal, and shall bear interest at the 9% note rate from and after the due date of each payment, compounded monthly. All unpaid principal and accrued interest is due in full on the January 15, 2000, maturity date. Approximately $3,774,000 in prepetition accrued unpaid interest was written off at September 30, 1993, to reduce the senior lien FDIC liabilities recorded on the Venture's books to the Agreed Valuation Amounts. A portion of this gain was deferred (see Note 5). c. The junior lien mortgages held by the FDIC on the Venture's retained complexes were modified effective September 1, 1993, and mature January 15, 2000. The FDIC reduced its claim on two of the non-HUD retained complexes to $300,000 per property evidenced by a non-interest bearing note. The FDIC left intact liens for the full amount of the original claims at the petition filing date for all other properties (including the two senior liens discussed in "b" above) in the event the Venture defaults on any of its obligations under the restated FDIC notes. The restated FDIC junior lien notes provide for a 10% accrual rate with monthly payments commencing October 1, 1993, of interest only at 7% on the non-HUD restated FDIC notes' "Agreed Valuation Amount". Pursuant to the Plan, the Agreed Valuation Amount represents the total property value per the FDIC's June 1992 valuations less the property's senior lien indebtedness at September 30, 1992. The retained property governed by HUD Regulatory Agreements will make payments of interest only at 7% each April 1st and October 1st, payable only from distributable surplus cash as provided by the HUD Regulatory Agreement and following the HUD's approval of semi-annual surplus cash calculations prepared each December 31st and June 30th. The Agreed Valuation Amount represents the total principal claim that will be repaid to the FDIC provided there are no defaults under the terms of the restated notes. Approximately $68,060,000 in prepetition principal and accrued unpaid interest was written off at September 30, 1993, to reduce the FDIC junior lien liabilities recorded on the Venture's books to the Agreed Valuation Amounts. A portion of this gain was deferred (see Note 5). d. The Venture distributed the following amounts in conjunction with the terms of the Plan: (1) A $5,960,000 reserve to fund capital improvements at the retained complexes was established in 1993. Approximately $5,000 of this reserve, which is included in escrows and other reserves on the Venture's Combined Balance Sheet, remains at September 30, 1995. (2) Approximately $5,980,000 in allowed prepetition claims, including the nonaffiliated Letter of Credit Note, amounts due trade creditors, and real and personal property taxes on the retained complexes was disbursed in October 1993. (3) Payments totalling approximately $1,006,000 were authorized for immediate distribution to affiliates of the Managing General Partner for reimbursement of cash advances and asset management services provided to the Venture. (4) Payments of $50,000 each to the FDIC and ContiTrade Services Corporation were made for reimbursement of administrative costs incurred in connection with the Venture's bankruptcy case. 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 it by the Venture. Payments totalling $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. Of the remaining allowed claim, $4,000,000 is represented by a promissory note (the "ContiTrade Note") which bears interest at the rate of 5% per annum, while the remaining $42,059,819 is non- interest bearing. The ContiTrade Note is collateralized by a Deed of Trust, Assignment of Rents and Security Agreement on each of the Venture's retained complexes, and provides ContiTrade with other approval rights as to the ongoing operations of the Venture's retained complexes. The ContiTrade Note matures January 15, 2000. f. The Venture has 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 complexes and partnership functions. However, an affiliate of the Managing General Partner assisted in the asset management functions of the Venture's retained and non-retained complexes through July 1994. This affiliate was compensated by Insignia at the rate of 28% of the asset management fees paid to Insignia by the Venture. 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 their costs incurred in connection with their services up to $200,000 per calendar year. Compensation to Insignia is to be paid from the available operating cash flow of the Venture's retained complexes after the payment of operating expenses and fundings for insurance, real estate and personal property tax reserves, senior mortgage payments, minimum interest payment requirements on the 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 compensation may be paid from available partnership cash sources. Additionally, the compensation 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. The Venture also engaged Insignia to commence property management of all of the Venture's retained complexes effective January 1, 1994. Note 5 - Investment Property Foreclosures The Combined Statements of Operations for both nine month periods ended September 30, 1995 and 1994 reflect the foreclosures of four of the Venture's abandoned properties. As a result of these foreclosures, the following liabilities and assets were written off: 1995 1994 Total Total Mortgage Principal Payable $ 18,030,117 $ 23,319,976 Accrued Interest Payable 19,989,748 16,489,517 Other (569,757) (368,417) Investment in Properties (18,533,055) (22,857,797) Accumulated depreciation 9,367,635 10,834,945 Extraordinary Gain $ 28,284,688 $ 27,418,224 The ordinary losses recognized for the write downs of the carrying values of investment properties to their estimated fair market values were made pursuant to EITF Abstract Issue No. 91-2, "Debtor's Accounting for Forfeiture of Real Estate Subject to a Nonrecourse Mortgage" which prescribes that a "two-step" approach method be used to present fairly the economic transaction upon foreclosure events. The write-down of investment properties to fair market value for the nine months ended September 30, 1995, was related to the foreclosure of four properties during the second quarter of 1995. The provision to reduce investments in properties to fair market value for the nine months ended September 30, 1994, was related to the foreclosure of two properties during the first quarter of 1994 and two properties during the third quarter of 1994. Pursuant to the Plan, the mortgages held by the FDIC were modified effective September 30, 1993. For 15 of the 17 retained properties, the face value of the note was restated to the Agreed Valuation Amount. Under the terms of the restated notes, the FDIC may reinstate the full claim which was in place at the petition filing date upon the default of any note. The restated notes are cross-collateralized; however, they are not cross-defaulted. As a result, the Venture has deferred $54,052,737 of this extraordinary gain on extinguishment of debt. Note 6 - 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, 1995. 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 financial statements. Note 7 - Investment in Properties Subject to Abandonment The Venture's investment in 10 properties for which it obtained Bankruptcy Court approval to abandon, to which it still held legal title for 3 of these at September 30, 1995, has been presented as "Investment in Properties Subject To Abandonment" on the Venture's Combined Balance Sheet at September 30, 1995, and December 31, 1994. The extraordinary gain on the extinguishment of debt for all of these properties will exceed the ordinary loss from the write down of the net carrying values of these properties to their estimated fair market values. Therefore, no allowance or provision for the loss in asset value has been made in the Venture's Combined Statements of Operations for the three and nine months ended September 30, 1995. Four of these properties were foreclosed during each of the nine month periods ended September 30, 1995 and 1994. Note 8 - HUD Contingencies The Venture, VMS Realty Management, Inc. and HUD are engaged in discussions covering the appropriateness of certain Crosswood Park and Venetian Bridges Grand Canal I disbursements totalling approximately $602,601 and $132,744, respectively, made during the years 1987 through 1991. The parties are attempting to resolve this issue, but the ultimate outcome cannot presently be determined. The General Partner is vigorously defending its past actions and does not believe the eventual outcome of these discussions will have a material adverse effect on the operations of the Venture. Given the General Partner's beliefs and the uncertainty regarding the eventual resolution of the amounts in question, the responsible parties and their ability to make repayment if deemed necessary, no adjustment has been made to the Venture's combined financial statements concerning this matter. Note 8 - HUD Contingencies - continued Two of the non-retained HUD projects were involved in similar discussions with HUD relating to $1,854,657 of inappropriate disbursements. These matters were settled during 1994 with no effect on the Venture. Note 9 - Mortgage Notes Payable 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. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Venture's unrestricted cash at September 30, 1995, of $2,206,423 decreased $270,053 from December 31, 1994. This decrease was attributable to net cash provided by operating activities of $2,474,856, offset by net cash used in investing and financing activities of $2,002,528 and $742,381, respectively. The decrease in net cash provided by operating activities for the nine months ended September 30, 1995, compared to the corresponding period of 1994 was due primarily to increased fundings of tenant security deposits, increased prepayments of insurance and property tax expenses, and increased payments of accounts payable partially offset by reductions in fundings of other reserves. Net cash used in investing activities increased for the nine months ended September 30, 1995, compared to the corresponding period of 1994 as a result of roof replacements at Pathfinder, construction of an exercise room at Bellevue, siding installation at Watergate, and floor covering and counter-top replacements at Scotchollow Apartments. Net cash used in financing activities increased for the nine months ended September 30, 1995, compared to the corresponding period of 1994 due to the cash relinquished to lenders in 1995 and reduced collections of subscription notes. 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 of Reorganization, which became effective on September 30, 1993, also restricts the permitted uses of the excess limited partner cash balances on hand at September 30, 1995. Total capital contribution and interest amounts due (net of an approximate $877,000 provision for uncollectible amounts) from limited partners of Portfolio I and Portfolio II at September 30, 1995, approximated $1,115,093. 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 VMS National Residential Portfolio I and II, VMS National Properties Joint 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 10.0 limited partner units in Portfolio I and 5.666 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 VMS and the other settling defendants. VMS National Residential Portfolio I and II and VMS National Properties Joint Venture was not obligated to fund any portion of this cash settlement. The settling class members in VMS National Residential Portfolio I and 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 and insufficient cash flows to meet all obligations of certain of the Venture's properties are expected to occur. The Managing General Partner is not obligated, and does not intend, to fund any such 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. While this change in ownership has been approved by the Bankruptcy Court and certain other creditors, it is subject to the approval of various parties, including, among others, HUD. 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 on that basis. However, the ultimate resolution of these financial difficulties and uncertainties cannot be determined at this time. Results of Operations Total rental and other revenues of $21,174,157 for the nine months ended September 30, 1995, decreased $1,508,645 or 6.7% from the corresponding period of 1994. Total rental and other revenues for the three months ended September 30, 1995, decreased $759,169 or 10.2% compared to the corresponding period of 1994. The decline for the three and nine months ended September 30, 1995, was directly related to the foreclosures of 4 properties during the second quarter of 1995 (See Note 5 in Notes to Combined Financial Statements). Operating expenses, property management fees, depreciation, and property taxes decreased for the three and nine months ended September 30, 1995, compared to the corresponding periods of 1994 due to the 4 foreclosures during the second quarter of 1995. General and administrative expenses decreased $71,072 or 25.4% and $231,976 or 22% for the three and nine months ended September 30, 1995, respectively, compared to the corresponding periods of 1994. The decreases resulted primarily from reductions in collection fees related to subscription note collections, legal fees, and other miscellaneous expenses. Maintenance expense for the three months ended September 30, 1995, decreased $246,418 or 17.8% from the corresponding period of 1994 due to the four foreclosures noted above partially offset by exterior painting at Forest Ridge and patio repairs at Buena Vista apartments. Interest expense decreased $3,361,672 or 41.6% for the three months ended September 30, 1995, compared to the corresponding period of 1994 also due to the foreclosures which eliminated the accruing of interest during most of the third quarter of 1995 on the mortgages relating to the nonretained properties. The ordinary losses recognized for the write downs of the carrying values of investment properties to their estimated fair market values were made pursuant to EITF Abstract Issue No. 91-2, "Debtor's Accounting for Forfeiture of Real Estate Subject to a Nonrecourse Mortgage" which prescribes that a "two-step" approach method be used to present fairly the economic transaction upon foreclosure events. The write-down of investment properties to fair market value for the nine months ended September 30, 1995, was related to the foreclosure of four properties during the second quarter of 1995. The provision to reduce investments in properties to fair market value for the nine months ended September 30, 1994, was related to the foreclosure of two properties during the first quarter and two properties during the third quarter of 1994. The extraordinary gain on extinguishment of debt for the nine months ended September 30, 1995 and 1994, resulted from gains on the foreclosure of four properties in each year. The loss on disposal of assets for the nine months ended September 30, 1995 and 1994, resulted from roof replacements at eight properties and two properties, respectively. Average occupancy rates for the nine months ended September 30, 1995 and 1994 for the retained properties are as follows: Average Occupancy 1995 1994 Buena Vista Apartments Pasadena, CA 94% 97% Casa de Monterey Norwalk, CA 92% 94% Crosswood Park Citrus Heights, CA 95% 92% Mt. View Apartments San Dimas, CA 90% 92% Pathfinder Fremont, CA 93% 95% Scotchollow San Mateo, CA 99% 96% The Bluffs Milwaukie, OR 96% 97% Bellevue Towers Memphis, TN 96% 96% Vista Village Apartments El Paso, TX 82% 86% Chapelle Le Grande Merrillville, IN 95% 95% North Park Apartments Evansville, In 97% 97% Shadowood Apartments Monroe, LA 92% 94% The Towers of Westchester Park College Park, MD 97% 95% Terrace Gardens Omaha, NE 95% 96% Carlisle Square Albuquerque, NM 97% 98% Watergate Apartments Little Rock, AR 95% 97% Forest Ridge Apartments Flagstaff, AZ 93% 93% The Managing General Partner attributes the occupancy fluctuations at the properties to the following: decrease in occupancy at Casa de Monterey to increases in rental rates and evictions for slow or non-payment violations; decline in occupancy at Buena Vista to job lay-offs, transfers, and home purchases; decrease in occupancy at Vista Village to military transfers, slower traffic and volatile market conditions; increase in occupancy at Scotchollow to unit upgrades and property improvements in addition to improving economic conditions; and the increase in occupancy at Crosswood Park to increases in advertising and special rental concessions. 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 2 of the Venture's report on form 10-Q for the quarter ended March 31, 1995. ITEM 3. LEGAL PROCEEDINGS As disclosed in the prior reports on Form 10-Q or Form 10-K ("Prior Public Filings"), the Joint Venture including the Joint Venturers, VMS-General Partner of the Joint Venturers, 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 National Properties and Subpartnerships Foreclosure Litigation i) There are no new developments or changes from Item 3.A. of the Partnership's report on Form 10-Q for the quarter ended June 30, 1995. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 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, 1995. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VMS NATIONAL PROPERTIES JOINT VENTURE (Registrant) By: VMS National Residential Portfolio I By: JAS Realty Corporation Date: November 14, 1995 By:/s/ Joel A. Stone Joel A. Stone President Date: November 14, 1995 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 Realty Corporation Date: November 14, 1995 By:/s/ Joel A. Stone Joel A. Stone President Date: November 14, 1995 By:/s/ Thomas A. Gatti Thomas A. Gatti Senior Vice-President and Principal Accounting Officer EX-27 2
5 This schedule contains summary finacial information extracted from VMS National Properties Joint Venture 1995 Third Quarter 10-Q and is qualified in its entirety by reference to such 10-Q. 0000789089 VMS NATIONAL PROPERTIES JOINT VENTURE 1 9-MOS DEC-31-1995 SEP-30-1995 2,206,423 0 223,320 0 0 0 160,116,917 72,712,782 93,304,315 0 162,112,635 0 0 0 (149,899,891) 93,304,315 0 21,174,157 0 0 36,509,712 0 15,748,569 0 0 0 0 28,284,688 0 12,949,133 13,915 0 The Registrant has an unclassified balance sheet.
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