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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, 2004
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
(Registrant's telephone number)
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___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X_
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)
September 30, December 31,
2004 2003
(Unaudited) (Note)
Assets:
Cash and cash equivalents $ 1,695 $ 1,761
Receivables and deposits 2,348 1,709
Restricted escrows 1,023 896
Other assets 796 585
Investment properties:
Land 13,404 13,404
Buildings and related personal property 153,878 152,044
167,282 165,448
Less accumulated depreciation (117,717) (112,389)
49,565 53,059
$ 55,427 $ 58,010
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 1,086 $ 1,154
Tenant security deposit liabilities 849 849
Accrued property taxes 983 600
Other liabilities 785 821
Accrued interest 699 798
Due to affiliate (Note D) 5,978 4,190
Mortgage notes payable, including $22,243 and $22,521
due to an affiliate at September 30, 2004 and
December 31, 2003, respectively (Note D) 122,615 124,242
Mortgage participation liability (Note C) 17,919 13,732
Notes payable (Note B) 42,060 42,060
Deferred gain on extinguishment of debt (Note B) 42,225 42,225
Partners' Deficit (179,772) (172,661)
$ 55,427 $ 58,010
Note: The combined balance sheet at December 31, 2003 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
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per interest data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Revenues:
Rental income $ 7,171 $ 7,293 $20,908 $22,015
Other income 584 579 1,737 1,710
Casualty gain (Note E) 9 -- 46 115
Total revenues 7,764 7,872 22,691 23,840
Expenses:
Operating 3,123 2,875 8,607 8,155
Property management fee to an
affiliate 303 315 894 950
General and administrative 140 141 435 441
Depreciation 1,773 1,730 5,351 5,229
Interest 4,330 4,196 12,876 12,530
Property taxes 571 461 1,639 1,488
Total expenses 10,240 9,718 29,802 28,793
Net loss $(2,476) $(1,846) $(7,111) $(4,953)
Net loss allocated to general
partners (2%) $ (49) $ (37) $ (142) $ (99)
Net loss allocated to limited
partners (98%) (2,427) (1,809) (6,969) (4,854)
$(2,476) $(1,846) $(7,111) $(4,953)
Net loss per limited partnership interest:
Portfolio I (644 interests
issued and outstanding) $(2,663) $(1,986) $(7,649) $(5,328)
Portfolio II (267 interests
issued and outstanding) $(2,667) $(1,985) $(7,652) $(5,330)
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (continued)
(Unaudited)
(in thousands)
VMS National Residential Portfolio I
Limited Partners
Limited
General Accumulated Subscription Partners'
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 2003 $(3,742) $(117,311) $ (502) $(117,813) $(121,555)
Net loss for the
nine months ended
September 30, 2004 (100) (4,926) -- (4,926) (5,026)
Partners' deficit at
September 30, 2004 $(3,842) $(122,237) $ (502) $(122,739) $(126,581)
VMS National Residential Portfolio II
Limited Partners
Limited
General Accumulated Subscription Partners'
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 2003 $(1,566) $ (49,212) $ (328) $ (49,540) $ (51,106)
Net loss for the
nine months ended
September 30, 2004 (42) (2,043) -- (2,043) (2,085)
Partners' deficit at
September 30, 2004 $(1,608) $ (51,255) $ (328) $ (51,583) $ (53,191)
Combined total $(5,450) $(173,492) $ (830) $(174,322) $(179,772)
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net loss $(7,111) $(4,953)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 5,351 5,229
Amortization of discounts 4,187 3,758
Casualty gain (46) (115)
Change in accounts:
Receivables and deposits (660) (279)
Other assets (211) (447)
Accounts payable (289) 303
Tenant security deposit liabilities -- (19)
Due to affiliate 283 215
Accrued property taxes 383 338
Accrued interest 1,520 944
Other liabilities (36) (5)
Net cash provided by operating activities 3,371 4,969
Cash flows from investing activities:
Property improvements and replacements (1,643) (2,254)
Net (deposits to) withdrawals from restricted escrows (127) 56
Net insurance proceeds 74 160
Net cash used in investing activities (1,696) (2,038)
Cash flows from financing activities:
Payments on mortgage notes payable (3,246) (4,170)
Advances from (payments to) an affiliate 1,505 (3)
Net cash used in financing activities (1,741) (4,173)
Net decrease in cash and cash equivalents (66) (1,242)
Cash and cash equivalents at beginning of period 1,761 2,809
Cash and cash equivalents at end of period $ 1,695 $ 1,567
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $363
and $1,114 paid to an affiliate $ 6,890 $ 7,623
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable $ 1,619 $ 809
At September 30, 2004 and December 31, 2003 accounts payable and property
improvements and replacements were adjusted by approximately $551,000 and
$330,000, respectively.
Included in property improvements and replacements for the nine months ended
September 30, 2003 are approximately $104,000 of improvements which were
included in accounts payable at December 31, 2002.
See Accompanying Notes to Combined Financial Statements
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 month periods ended September 30, 2004 are not necessarily
indicative of the results which may be expected for the year ending December 31,
2004. 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, 2003. The Managing General Partner is a wholly owned
subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust.
Reclassifications:
Certain reclassifications have been made to the 2003 balances to conform to the
2004 presentation.
Note B - Deferred Gain and Notes Payable
Deferred Gain on Extinguishment of Debt:
When the senior and junior loans refinanced in 1997, the senior loans were
recorded at the agreed valuation amount of $110,000,000, which was less than the
$152,225,000 face amount of the senior 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. Accordingly, the
Venture deferred recognition of a gain of $42,225,000, which is the difference
between the note face amounts and the agreed valuation amounts.
Assignment Note:
The Venture executed a purchase money subordinated note (the "Assignment Note")
payable to the VMS/Stout Venture, an affiliate of the former general partner, 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.
In November 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.
At September 30, 2004 and December 31, 2003, the $38,810,000 Assignment Note is
non-interest bearing and is payable only after payment of debt of higher
priority, including the senior and junior mortgage notes payable. Pursuant to
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code", 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%. Interest expense was being recognized through the amortization of the
discount which became fully amortized in January 2000.
Long-Term Loan Arrangement Fee Note:
The Venture executed an 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 note in the amount of $3,250,000 does not bear interest and is payable only
after debt of a higher priority, including senior and junior mortgage loans,
have been repaid.
Note C - Participating Mortgage Note
AIMCO Properties, L.P., 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) a significant interest in the Bankruptcy Claims (as
defined below) effective September 2000. These transactions occurred between
AIMCO Properties, L.P. and an unrelated third party and thus had no effect on
the combined financial statements of the Venture. Residual value is defined as
the amount remaining from a sale of the Venture's investment properties or
refinancing of the mortgages encumbering such investment properties after
payment of selling or refinancing costs and repayment of the senior and junior
debt, plus accrued interest on each. The agreement states that the Venture will
retain an amount equal to $13,500,000 plus accrued interest at 10% compounded
monthly (the "Partnership Advance Account") from the proceeds. Interest began
accruing on the Partnership Advance Account in 1993 when the bankruptcy plan was
finalized. Any proceeds remaining after the Partnership Advance Account is fully
funded are split equally (the "50/50 Split") between the Venture and AIMCO
Properties, L.P. The Venture must repay the Assignment Note, the Long-term Loan
Arrangement Fee Note and other pre-petition claims (collectively the "Bankruptcy
Claims") which collectively total approximately $42,139,000 from the Partnership
Advance Account. Any amounts remaining in the Partnership Advance Account after
payment of the Bankruptcy Claims are split 75% to the Venture and 25% to AIMCO
Properties, L.P.
The Venture has recorded the estimated fair value of the participation feature
as a mortgage participation liability of approximately $36,518,000. During the
nine months ended September 30, 2004 and 2003, the Venture amortized
approximately $4,187,000 and $3,758,000, respectively, of the mortgage
participation debt discount which is included in interest expense. The related
mortgage participation debt discount at September 30, 2004 and December 31, 2003
was approximately $18,599,000 and $22,786,000, respectively. The fair value of
the participation feature was calculated based upon information currently
available to the Managing General Partner and depends largely upon the fair
value of the collateral properties. These fair values were determined using the
net operating income of the properties capitalized at a rate deemed reasonable
for the type of property adjusted for market conditions, the physical condition
of the property and other factors. The Managing General Partner evaluates the
fair value of the participation feature on an annual basis or as circumstances
dictate that it should be analyzed.
Note D - Transactions with Affiliated Parties
The Venture has no employees and depends on the Managing General Partner and its
affiliates for the management and administration of all Venture activities. The
Revised and Amended Asset Management Agreement provides 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 $300,000, adjusted
annually by the consumer price index and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Venture up to $100,000 per annum.
Asset management fees of approximately $243,000 and $241,000 were earned and
paid to affiliates of the Managing General Partner for the nine months ended
September 30, 2004 and 2003, respectively. These fees are included in general
and administrative expense.
Affiliates of the Managing General Partner are entitled to receive a percentage
of the gross receipts from all of the Venture's properties as compensation for
providing property management services. The Venture paid to such affiliates
approximately $894,000 and $950,000 for the nine months ended September 30, 2004
and 2003, respectively, which are included in property management fee expense.
Affiliates of the Managing General Partner charged the Venture reimbursements of
accountable administrative expenses amounting to approximately $75,000 for each
of the nine month periods ended September 30, 2004 and 2003. These expenses are
included in general and administrative expense. At September 30, 2004,
approximately $8,000 of reimbursements were accrued by the Venture and are
included in due to affiliate on the accompanying combined balance sheet.
During the nine months ended September 30, 2004 and 2003, the Venture paid fees
related to construction management services provided by an affiliate of the
Managing General Partner of approximately $54,000 and $68,000, respectively. The
construction management service fees are calculated based on a percentage of
current additions to investment properties and are included in investment
properties.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $93,000 for each of the nine month periods ended
September 30, 2004 and 2003. These expenses are included in operating expense.
At September 30, 2004 and December 31, 2003, the Venture owed loans of
approximately $5,111,000 and $3,606,000 to an affiliate of the Managing General
Partner plus accrued interest thereon of approximately $859,000 and $508,000,
respectively, which are included in due to affiliate on the combined balance
sheets. These loans were made in accordance with the Joint Venture Agreement and
accrue interest at the prime rate plus 3% (7.75% at September 30, 2004). The
Venture recognized interest expense of approximately $278,000 and $215,000
during the nine months ended September 30, 2004 and 2003, respectively.
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, 2004 and December 31, 2003, 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 bankruptcy plan. There were no property
dispositions for which proceeds were received during either of the nine month
periods ended September 30, 2004 or 2003.
The junior debt of approximately $22,243,000 and $22,521,000 at September 30,
2004 and December 31, 2003, respectively, is held by an affiliate of the
Managing General Partner. The monthly principal and interest payments are based
on monthly excess cash flow for each property, as defined in the mortgage
agreement. During the nine months ended September 30, 2004 and 2003, the Venture
recognized interest expense of approximately $1,846,000 and $1,916,000,
respectively.
The Venture insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty and vehicle
liability. The Venture insures its properties above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During the nine months ended September 30, 2004 and
2003, the Venture was charged by AIMCO and its affiliates approximately $434,000
and $474,000, respectively, for insurance coverage and fees associated with
policy claims administration.
Note E - Casualty Gain
During the nine months ended September 30, 2004, a net casualty gain of
approximately $46,000 was recorded at Terrace Gardens Apartments. The casualty
gain related to a winter ice storm, occurring in February 2004, which caused
damage to 32 units at the property. The gain was the result of the receipt of
insurance proceeds of approximately $74,000 offset by approximately $7,000 of
undepreciated property improvements and replacements being written off and
approximately $21,000 of emergency repairs made at the property.
During the nine months ended September 30, 2003 a net casualty gain of
approximately $65,000 was recorded at Shadowood Apartments. The casualty gain
related to a fire, occurring in September 2002, which caused damage to eight
units at the property. The gain was the result of the receipt of insurance
proceeds of approximately $78,000 offset by approximately $13,000 of
undepreciated property improvements and replacements being written off.
During the nine months ended September 30, 2003 a net casualty gain of
approximately $50,000 was recorded at Pathfinder Village Apartments. The
casualty gain related to fire damage occurring in February 2003, which caused
damage to five units at the property. The gain was a result of the receipt of
insurance proceeds of approximately $82,000 offset by approximately $17,000 of
undepreciated property improvements and replacements being written off and
approximately $15,000 of emergency repairs made at the property.
Note F - Contingencies
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004, the
plaintiffs filed an amended complaint also naming NHP Management Company, which
is also an affiliate of the Managing General Partner. The complaint is styled as
a Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations.
Similarly, the Managing General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Venture's consolidated
financial condition or results of operations.
The Venture is unaware of any other pending or outstanding litigation matters
involving it or its investment properties that are not of a routine nature
arising in the ordinary course of business.
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission (the "SEC") is conducting a formal
investigation relating to certain matters. Although the staff of the SEC is not
limited in the areas that it may investigate, AIMCO believes the areas of
investigation include AIMCO's miscalculated monthly net rental income figures in
third quarter 2003, forecasted guidance, accounts payable, rent concessions,
vendor rebates, capitalization of payroll and certain other costs, and tax
credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict
when the matter will be resolved. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations. Similarly, the Managing General Partner does
not believe that the ultimate outcome will have a material adverse effect on the
Venture's combined financial condition or results of operations.
Note G - Subsequent Event
On November 2, 2004, the Venture, the holder of the senior debt and Aimco
Properties, L.P. ("AIMCO"), which is also the holder of the junior debt, agreed
that AIMCO would loan up to approximately $6,440,000 to the Venture (the "New
Mezzanine Loan") to fund capital improvements that need to be made to the
Venture's properties as a result of life safety issues, compliance with ADA
requirements and general updating of the properties. The New Mezzanine Loan
bears interest at a rate of prime plus 3% with unpaid interest being compounded
monthly. The Venture, the holder of the senior debt and AIMCO also agreed that
cash flow that would otherwise be used to repay the junior debt will instead be
used to repay the New Mezzanine Loan, until such time as the New Mezzanine Loan
and all accrued interest thereon is paid in full. The Venture's Managing General
Partner is of the opinion that this transaction will reduce the amount of the
junior debt amortized prior to its maturity by an amount at least equal to the
principal and interest on the New Mezzanine Loan, and will reduce the ultimate
payment received by holders of outstanding Bankruptcy Claims (see Note C -
Participating Mortgage Note) by a similar amount.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Venture and interpretations of those regulations; the competitive environment in
which the Venture operates; financing risks, including the risk that cash flows
from operations may be insufficient to meet required payments of principal and
interest; real estate risks, including variations of real estate values and the
general economic climate in local markets and competition for tenants in such
markets; litigation, including costs associated with prosecuting and defending
claims and any adverse outcomes, and possible environmental liabilities. Readers
should carefully review the Venture's financial statements and the notes
thereto, as well as the risk factors described in the documents the Venture
files from time to time with the Securities and Exchange Commission.
Average occupancy rates for the nine months ended September 30, 2004 and 2003,
for all of the Venture's properties are as follows:
Average Occupancy
Property 2004 2003
North Park Apartments
Evansville, IN 95% 95%
Chapelle Le Grande
Merrillville, IN 96% 95%
Terrace Gardens (4)
Omaha, NE 85% 88%
Forest Ridge Apartments
Flagstaff, AZ 92% 90%
Scotchollow (1)
San Mateo, CA 81% 92%
Pathfinder Village
Fremont, CA 90% 91%
Buena Vista Apartments (2)
Pasadena, CA 94% 97%
Mountain View Apartments
San Dimas, CA 94% 94%
Crosswood Park (1)
Citrus Heights, CA 88% 94%
Casa de Monterey (3)
Norwalk, CA 93% 96%
The Bluffs (5)
Milwaukie, OR 88% 93%
Watergate Apartments (4)
Little Rock, AR 82% 95%
Shadowood Apartments
Monroe, LA 94% 95%
Vista Village Apartments
El Paso, TX 96% 98%
The Towers of Westchester Park
College Park, MD 99% 98%
(1) The decrease in occupancy at Scotchollow and Crosswood Park is due to a
weak economy in the property's market area.
(2) The decrease in occupancy at Buena Vista Apartments is primarily
attributable to a decrease in tenant retention and roof repairs to 3 units
resulting in the units being unavailable for most of the nine months
ending September 30, 2004. Property management has implemented more
effective lease management techniques which include staggering lease
expiration dates. The roof repairs have been completed and the units are
now being leased.
(3) Casa de Monterey occupancy decreased due to tenants purchasing homes
and/or vacating due to personal economic situations.
(4) The decrease in occupancy at Terrace Gardens and Watergate Apartments is
primarily attributable to property management raising the qualifying
conditions for prospective tenants in order to attract a more stable
tenant population.
(5) The decrease in occupancy at The Bluffs Apartments is due to tenants
purchasing homes due to low interest rates.
The Venture's financial results depend upon a number of factors including the
ability to attract and maintain tenants at the investment properties, interest
rates on mortgage loans, costs incurred to operate the investment properties,
general economic conditions and weather. As part of the ongoing business plan of
the Venture, the Managing General Partner monitors the rental market environment
of its investment properties to assess the feasibility of increasing rents,
maintaining or increasing occupancy levels and protecting the Venture from
increases in expenses. As part of this plan, the Managing General Partner
attempts to protect the Venture from the burden of inflation-related increases
in expenses by increasing rents and maintaining a high overall occupancy level.
However, the Managing General Partner may use rental concessions and rental rate
reductions to offset softening market conditions, accordingly, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Further, a number of factors that are outside the control of the Venture such as
the local economic climate and weather, can adversely or positively affect the
Venture's financial results.
Results of Operations
The Venture recorded a net loss for the nine months ended September 30, 2004 of
approximately $7,111,000 compared to a net loss of approximately $4,953,000 for
the corresponding period in 2003. For the three months ended September 30, 2004
the Venture recorded a net loss of approximately $2,476,000 as compared to a net
loss of approximately $1,846,000 for the corresponding period in 2003. The
increase in net loss for the three and nine months ended September 30, 2004 is
due to a decrease in total revenues and an increase in total expenses.
The decrease in total revenues for the nine months ended September 30, 2004 is
due to decreases in rental income and casualty gains partially offset by an
increase in other income. The decrease in total revenues for the three months
ended September 30, 2004 is due to a decrease in rental income partially offset
by an increase in both other income and casualty gains. The decrease in rental
income for both periods is the result of the decrease in occupancy at ten of the
Venture's properties. These decreases more than offset the occupancy increases
at three of the Venture's properties. Other income increased for both periods
primarily due to increases in lease cancellation fees and utility reimbursements
offset by a decrease in late charges charged by the properties.
During the nine months ended September 30, 2004, a net casualty gain of
approximately $46,000 was recorded at Terrace Gardens Apartments. The casualty
gain related to a winter ice storm, occurring in February 2004, which caused
damage to 32 units at the property. The gain was the results of the receipt of
insurance proceeds of approximately $74,000 offset by approximately $7,000 of
undepreciated property improvements and replacements being written off and
approximately $21,000 of emergency repairs made at the property.
During the nine months ended September 30, 2003 a net casualty gain of
approximately $65,000 was recorded at Shadowood Apartments. The casualty gain
related to a fire, occurring in September 2002, which caused damage to eight
units at the property. The gain was the result of the receipt of insurance
proceeds of approximately $78,000 offset by approximately $13,000 of
undepreciated property improvements and replacements being written off.
During the nine months ended September 30, 2003 a net casualty gain of
approximately $50,000 was recorded at Pathfinder Village Apartments. The
casualty gain related to fire damage occurring in February 2003, which caused
damage to five units at the property. The gain was the result of the receipt of
insurance proceeds of approximately $82,000 offset by approximately $17,000 of
undepreciated property improvements and replacements being written off and
approximately $15,000 of emergency repairs made at the property.
For the three and nine months ended September 30, 2004, total expenses increased
due to increases in operating, depreciation, interest and property tax expenses
partially offset by a decrease in property management fees. General and
administrative expenses remained relatively constant for the comparable periods.
Operating expenses increased due to increases in advertising, property and
maintenance expenses. Advertising expense increased as a result of increased
promotions and various advertising costs in an effort to increase occupancy at
the properties. Property expenses increased due to increases in salaries and
related employee expenses at twelve of the Venture's properties and utilities at
ten of the Venture's properties. Maintenance expense increased due to an
increase in contract services at six of the Venture's properties and repairs at
most of the properties. Depreciation expense increased due to property
improvements and replacements placed into service during the past twelve months
which are now being depreciated. The increase in interest expense is
attributable to an increase in the amortization of the debt discount related to
the mortgage participation liability partially offset by a decrease in interest
on the senior and junior debt due to principal reduction payments. Property tax
expense increased due to the increases in the assessed value at nine of the
Venture's properties. Property management fees decreased as a result of the
decrease in rental income on which such fees are based.
Included in general and administrative expenses for the nine months ended
September 30, 2004 and 2003 are reimbursements to the Managing General Partner
allowed under the Partnership Agreement associated with its management of the
Venture. Costs associated with quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement are also included.
Liquidity and Capital Resources
At September 30, 2004, the Venture had cash and cash equivalents of
approximately $1,695,000 as compared to approximately $1,567,000 at September
30, 2003. Cash and cash equivalents decreased approximately $66,000 for the nine
months ended September 30, 2004, from December 31, 2003. The decrease in cash
and cash equivalents is the result of approximately $1,741,000 and $1,696,000 of
cash used in financing and investing activities, respectively, which is
partially offset by approximately $3,371,000 of cash provided by operating
activities. Cash used in financing activities consisted of principal payments on
the mortgages encumbering the Venture's investment properties partially offset
by advances from an affiliate. Cash used in investing activities consisted of
property improvements and replacements and net deposits to restricted escrow
accounts maintained by the mortgage lender partially offset by the receipt of
insurance proceeds related to the casualty at Terrace Garden Apartments. The
Venture invests its working capital reserves in interest bearing accounts.
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 Partnership and to comply with Federal,
state, and local legal and regulatory requirements. The Managing General Partner
monitors developments in the area of legal and regulatory compliance. For
example, the Sarbanes-Oxley Act of 2002 mandates or suggests additional
compliance measures with regard to governance, disclosure, audit and other
areas. In light of these changes, the Venture expects that it will incur higher
expenses related to compliance. Capital improvements planned for each of the
Venture's properties are detailed below.
The Venture is generally restricted to annual capital improvements of $300 per
unit or approximately $ 888,000 for all of its properties. Such amount is equal
to the required replacement reserve funding of the senior debt. As the Venture
identifies properties which need additional capital improvements above $ 300 per
unit, approval of the holders of the junior and senior debt is required due to
the impact such expenditures have on the ability of the Venture to make required
principal and interest payments out of the properties monthly cashflow on the
junior debt. As such the Venture has identified approximately $6,440,000 of
capital improvements that need to be made to the properties as a result of life
safety issues, compliance with ADA requirements and general updating of the
properties. Such improvements are expected to be completed during the remainder
of 2004 and into 2005 and are included in the additional capital improvements
expected to be completed for each property identified below. On November 2,
2004, the Venture, the holder of the senior debt and Aimco Properties, L.P.
("AIMCO"), which is also the holder of the junior debt, agreed that AIMCO would
loan up to approximately $6,440,000 to the Venture (the "New Mezzanine Loan") to
fund the above mentioned capital improvements that need to be made to the
Venture's properties. The New Mezzanine Loan bears interest at a rate of prime
plus 3% with unpaid interest being compounded monthly. The Venture, the holder
of the senior debt and AIMCO also agreed that cash flow that would otherwise be
used to repay the junior debt will instead be used to repay the New Mezzanine
Loan, until such time as the New Mezzanine Loan and all accrued interest thereon
is paid in full. The Venture's Managing General Partner is of the opinion that
this transaction will reduce the amount of the junior debt amortized prior to
its maturity by an amount at least equal to the principal and interest on the
New Mezzanine Loan, and will reduce the ultimate payment received by holders of
outstanding Bankruptcy Claims (see Item 1. Financial Statements, Note C -
Participating Mortgage Note) by a similar amount.
North Park Apartments: The Venture completed approximately $399,000 in capital
expenditures at North Park Apartments during the nine months ended September 30,
2004, consisting primarily of floor covering and roof replacements, exterior
painting, vinyl siding, and HVAC and balcony replacements. These improvements
were funded from operating cash flow and replacement reserves. The Venture
evaluates the capital improvement needs of the property during the year and
expects that only necessary improvements will be made during the remainder of
2004 in order to maintain occupancy at the property. Capital improvements
associated with life safety issues, compliance with ADA requirements and general
updating of the property of approximately $316,000 are expected to be completed
during the remainder of 2004 and into 2005 and will be funded with proceeds from
the New Mezzanine Loan referred to above.
Chapelle Le Grande: The Venture completed approximately $29,000 in capital
expenditures at Chapelle Le Grande during the nine months ended September 30,
2004, consisting primarily of air conditioning upgrades and floor covering
replacements. These improvements were funded from operating cash flow. The
Venture evaluates the capital improvement needs of the property during the year
and expects that only necessary improvements will be made during the remainder
of 2004 in order to maintain occupancy at the property. Capital improvements
associated with life safety issues, compliance with ADA requirements and general
updating of the property of approximately $17,000 are expected to be completed
during the remainder of 2004 and into 2005 and will be funded with proceeds from
the New Mezzanine Loan referred to above.
Terrace Gardens: The Venture completed approximately $94,000 in capital
expenditures at Terrace Gardens during the nine months ended September 30, 2004,
consisting primarily of vinyl siding and gutter and floor covering replacements.
An additional $62,000 was spent during the nine months ended September 30, 2004
consisting of building improvements associated with the ice storm that occurred
in February 2004. These improvements were funded from operating cash flow,
replacement reserves and insurance proceeds. The Venture evaluates the capital
improvement needs of the property during the year and expects that only
necessary improvements will be made during the remainder of 2004 in order to
maintain occupancy at the property. Capital improvements associated with life
safety issues, compliance with ADA requirements and general updating of the
property of approximately $87,000 are expected to be completed during the
remainder of 2004 and into 2005 and will be funded with proceeds from the New
Mezzanine Loan referred to above.
Forest Ridge Apartments: The Venture completed approximately $86,000 in capital
expenditures at Forest Ridge Apartments during the nine months ended September
30, 2004, consisting primarily of floor covering, appliance and water heater
replacements. These improvements were funded from operating cash flow and
replacement reserves. The Venture evaluates the capital improvement needs of the
property during the year and expects that only necessary improvements will be
made during the remainder of 2004 in order to maintain occupancy at the
property. Capital improvements associated with life safety issues, compliance
with ADA requirements and general updating of the property of approximately
$146,000 are expected to be completed during the remainder of 2004 and into 2005
and will be funded with proceeds from the New Mezzanine Loan referred to above.
Scotchollow: The Venture completed approximately $213,000 in capital
expenditures at Scotchollow during the nine months ended September 30, 2004,
consisting primarily of structural and plumbing improvements, floor covering and
appliance replacements, fire safety equipment, and interior decoration. These
improvements were funded from operating cash flow and replacement reserves. The
Venture evaluates the capital improvement needs of the property during the year
and expects that only necessary improvements will be made during the remainder
of 2004 in order to maintain occupancy at the property. Capital improvements
associated with life safety issues, compliance with ADA requirements and general
updating of the property of approximately $527,000 are expected to be completed
during the remainder of 2004 and into 2005 and will be funded with proceeds from
the New Mezzanine Loan referred to above.
Pathfinder Village: The Venture completed approximately $190,000 in capital
expenditures at Pathfinder Village during the nine months ended September 30,
2004, consisting primarily of floor covering and appliance replacements, major
landscaping and parking lot resurfacing. These improvements were funded from
operating cash flow and replacement reserves. The Venture evaluates the capital
improvement needs of the property during the year and expects that only
necessary improvements will be made during the remainder of 2004 in order to
maintain occupancy at the property. Capital improvements associated with life
safety issues, compliance with ADA requirements and general updating of the
property of approximately $260,000 are expected to be completed during the
remainder of 2004 and into 2005 and will be funded with proceeds from the New
Mezzanine Loan referred to above.
Buena Vista Apartments: The Venture completed approximately $78,000 in capital
expenditures at Buena Vista Apartments during the nine months ended September
30, 2004, consisting primarily of floor covering and roof replacements. These
improvements were funded from operating cash flow and replacement reserves. The
Venture evaluates the capital improvement needs of the property during the year
and expects that only necessary improvements will be made during the remainder
of 2004 in order to maintain occupancy at the property. Capital improvements
associated with life safety issues, compliance with ADA requirements and general
updating of the property of approximately $269,000 are expected to be completed
during the remainder of 2004 and into 2005 and will be funded with proceeds from
the New Mezzanine Loan referred to above.
Mountain View Apartments: The Venture completed approximately $131,000 in
capital expenditures at Mountain View Apartments during the nine months ended
September 30, 2004, consisting primarily of floor covering, water heater and
HVAC replacements, plumbing fixture upgrades and roof replacements. These
improvements were funded from operating cash flow and replacement reserves. The
Venture evaluates the capital improvement needs of the property during the year
and expects that only necessary improvements will be made during the remainder
of 2004 in order to maintain occupancy at the property. Capital improvements
associated with life safety issues, compliance with ADA requirements and general
updating of the property of approximately $719,000 are expected to be completed
during the remainder of 2004 and into 2005 and will be funded with proceeds from
the New Mezzanine Loan referred to above.
Crosswood Park: The Venture completed approximately $127,000 in capital
expenditures at Crosswood Park during the nine months ended September 30, 2004,
consisting primarily of structural improvements, floor covering replacements and
water and sewer upgrades. These improvements were funded from operating cash
flow and replacement reserves. The Venture evaluates the capital improvement
needs of the property during the year and expects that only necessary
improvements will be made during the remainder of 2004 in order to maintain
occupancy at the property. Capital improvements associated with life safety
issues, compliance with ADA requirements and general updating of the property of
approximately $963,000 are expected to be completed during the remainder of 2004
and into 2005 and will be funded with proceeds from the New Mezzanine Loan
referred to above.
Casa de Monterey: The Venture completed approximately $41,000 in capital
expenditures at Casa de Monterey during the nine months ended September 30,
2004, consisting primarily of floor covering replacements, plumbing fixture
upgrades and parking lot resurfacing. These improvements were funded from
operating cash flow and replacement reserves. The Venture evaluates the capital
improvement needs of the property during the year and expects that only
necessary improvements will be made during the remainder of 2004 in order to
maintain occupancy at the property. Capital improvements associated with life
safety issues, compliance with ADA requirements and general updating of the
property of approximately $145,000 are expected to be completed during the
remainder of 2004 and into 2005 and will be funded with proceeds from the New
Mezzanine Loan referred to above.
The Bluffs: The Venture completed approximately $27,000 in capital expenditures
at The Bluffs during the nine months ended September 30, 2004, consisting
primarily of floor covering replacements and major landscaping. These
improvements were funded from operating cash flow and replacement reserves. The
Venture evaluates the capital improvement needs of the property during the year
and expects to complete an additional $14,000 in capital improvements during the
remainder of 2004. Additional improvements may be considered during 2004 and
will depend on the physical condition of the property as well as debt
restrictions, replacement reserves and anticipated cash flow generated by the
property. Capital improvements associated with life safety issues, compliance
with ADA requirements and general updating of the property of approximately
$160,000 are expected to be completed during the remainder of 2004 and into 2005
and will be funded with proceeds from the New Mezzanine Loan referred to above.
Watergate Apartments: The Venture completed approximately $131,000 in capital
expenditures at Watergate Apartments during the nine months ended September 30,
2004, consisting primarily of interior painting, plumbing fixture upgrades,
floor covering, appliance and water heater replacements. These improvements were
funded from operating cash flow and replacement reserves. The Venture evaluates
the capital improvement needs of the property during the year and expects that
only necessary improvements will be made during the remainder of 2004 in order
to maintain occupancy at the property. Capital improvements associated with life
safety issues, compliance with ADA requirements and general updating of the
property of approximately $418,000 are expected to be completed during the
remainder of 2004 and into 2005 and will be funded with proceeds from the New
Mezzanine Loan referred to above.
Shadowood Apartments: The Venture completed approximately $32,000 in capital
expenditures at Shadowood Apartments during the nine months ended September 30,
2004, consisting primarily of floor covering replacements. These improvements
were funded from operating cash flow and replacement reserves. The Venture
evaluates the capital improvement needs of the property during the year and
expects that only necessary improvements will be made during the remainder of
2004 in order to maintain occupancy at the property. Capital improvements
associated with life safety issues, compliance with ADA requirements and general
updating of the property of approximately $72,000 are expected to be completed
during the remainder of 2004 and into 2005 and will be funded with proceeds from
the New Mezzanine Loan referred to above.
Vista Village Apartments: The Venture completed approximately $44,000 in capital
expenditures at Vista Village Apartments during the nine months ended September
30, 2004, consisting primarily of floor covering, appliance and water heater
replacements and air conditioning upgrades. These improvements were funded from
operating cash flow and replacement reserves. The Venture evaluates the capital
improvement needs of the property during the year and expects to complete an
additional $22,000 in capital improvements during the remainder of 2004.
Additional improvements may be considered during 2004 and will depend on the
physical condition of the property as well as debt restrictions, replacement
reserves and anticipated cash flow generated by the property. Capital
improvements associated with life safety issues, compliance with ADA
requirements and general updating of the property of approximately $785,000 are
expected to be completed during the remainder of 2004 and into 2005 and will be
funded with proceeds from the New Mezzanine Loan referred to above.
The Towers of Westchester Park: The Venture completed approximately $180,000 in
capital expenditures at Towers of Westchester Park during the nine months ended
September 30, 2004, consisting primarily of swimming pool, electrical and air
conditioning upgrades, structural improvements, parking lot resurfacing and
floor covering and appliance replacements. These improvements were funded from
operating cash flow and replacement reserves. The Venture evaluates the capital
improvement needs of the property during the year and expects that only
necessary improvements will be made during the remainder of 2004 in order to
maintain occupancy at the property. Capital improvements associated with life
safety issues, compliance with ADA requirements and general updating of the
property of approximately $1,556,000 are expected to be completed during the
remainder of 2004 and into 2005 and will be funded with proceeds from the New
Mezzanine Loan referred to above.
The Registrant's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Registrant. The senior debt
encumbering all of the properties totals approximately $100,372,000 and is being
amortized over 25 years, with a balloon payment of $93,243,000 due January 2008.
Not including the debt discount relating to the mortgage participation
liability, the junior debt, which also matures January 2008, totals
approximately $22,243,000 and requires monthly payments based upon monthly
excess cash flow for each property. 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 and are only payable
from the proceeds of the sale or refinancing of the properties.
There were no cash distributions to the partners of either of the Ventures for
the nine months ended September 30, 2004 and 2003. 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 subject to the order of distributions as stipulated by the
Venture's Plan of Reorganization. The source of future distributions will depend
upon the levels of net cash generated from operations, the availability of cash
reserves, and timing of debt maturities, refinancings and/or property sales. The
Ventures' distribution policies are reviewed on a quarterly basis. There can be
no assurance 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 2004 or subsequent periods.
Other
As a result of tender offers, AIMCO and its affiliates currently own 119 units
of limited partnership interest in Portfolio I representing 18.48% of the
outstanding limited partnership interests, along with the 2% general partner
interest for a combined ownership in Portfolio I of 20.48%. AIMCO and its
affiliates currently own 67.42 units of limited partnership interest in
Portfolio II representing 25.25% of the outstanding limited partnership
interests, along with the 2% general partner interest for a combined ownership
in Portfolio II of 27.25%. The Venture is owned 70.69% by Portfolio I and 29.31%
by Portfolio II which results in AIMCO and its affiliates currently owning
22.47% of the Venture. It is possible that AIMCO or its affiliates will make one
or more additional offers to acquire additional units of limited partnership
interest in the Venture in exchange for cash or a combination of cash and units
in AIMCO Properties, L.P., the operating partnership of AIMCO, either through
private purchases or tender offers. 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 Venture Agreement and voting to remove the Managing
General Partner. Although the Managing General Partner owes fiduciary duties to
the limited partners of the Venture, the Managing General Partner also owes
fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of
the Managing General Partner, as managing general partner, to the Venture and
its limited partners may come into conflict with the duties of the Managing
General Partner to AIMCO as its sole stockholder.
Critical Accounting Policies and Estimates
The combined financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the Venture to
make estimates and assumptions. The Venture believes that of its significant
accounting policies, the following may involve a higher degree of judgment and
complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Venture will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Venture would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the Venture's
investment properties. These factors include, but are not limited to, changes in
the national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Venture's assets.
Revenue Recognition
The Venture generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Venture evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
The Venture will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
Participating Mortgage Note
The Venture has a participating mortgage note which requires it to record the
estimated fair value of the participation feature as a liability and a debt
discount. The fair value of the participation feature is calculated based upon
information currently available to the Managing General Partner and depends
largely upon the fair value of the collateral properties. These fair values are
determined using the net operating income of the properties capitalized at a
rate deemed reasonable for the type of property adjusted for market conditions,
physical condition of the property and other factors. The Managing General
Partner evaluates the fair value of the participation feature on an annual basis
or as circumstances dictate that it should be analyzed.
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 except for advances made from an affiliate of the Managing
General Partner. These advances bear interest at the prime rate plus three basis
points. Based on interest rates at September 30, 2004, an increase or decrease
of 100 basis points in market interest rates would not have a material impact on
the Venture.
The following table summarizes the Venture's debt obligations at September 30,
2004. The interest rates represent the weighted-average rates. The fair value of
the Venture's first mortgages, after discounting the scheduled loan payments to
maturity, is approximately $106,078,000 at September 30, 2004. However, the
Venture is precluded from refinancing the first mortgage until January 2007. The
Managing General Partner believes that it is not appropriate to use the
Venture's incremental borrowing rate for the second mortgages, as there is
currently no market in which the Venture could obtain similar financing.
Therefore, the Managing General Partner considers estimation of fair value to be
impracticable for this indebtedness.
Long-term Debt
Principal Weighted-average
(in thousands) Interest Rate
2004 $ 453 8.50%
2005 2,022 8.50%
2006 2,201 8.50%
2007 2,403 8.50%
2008 115,536 8.95%
$122,615
As principal payments for the junior loans are based upon monthly cash flow, all
principal is assumed to be repaid at maturity.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Venture's management, with the
participation of the principal executive officer and principal financial officer
of the Managing General Partner, who are the equivalent of the Venture's
principal executive officer and principal financial officer, respectively, has
evaluated the effectiveness of the Venture's disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on such evaluation, the principal executive
officer and principal financial officer of the Managing General Partner, who are
the equivalent of the Venture's principal executive officer and principal
financial officer, respectively, have concluded that, as of the end of such
period, the Venture's disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Venture's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Venture's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. On March 5, 2004, the
plaintiffs filed an amended complaint also naming NHP Management Company, which
is also an affiliate of the Managing General Partner. The complaint is styled as
a Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations.
Similarly, the Managing General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Venture's combined financial
condition or results of operations.
ITEM 6. EXHIBITS
See Exhibit Index attached.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VMS NATIONAL PROPERTIES JOINT VENTURE
(Venture)
VMS National Residential Portfolio I
By: MAERIL, Inc.
Managing General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
VMS National Residential Portfolio II
By: MAERIL, Inc.
Managing General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 12, 2004
EXHIBIT INDEX
Exhibit No. Description
3 and 21 Portions of the Prospectus of the Venture dated May
15, 1986 as supplemented by Supplement Numbers 1
through 7 dated December 18, 1986, February 11, 1987,
March 31, 1987, August 19, 1987, January 4, 1988,
April 18, 1988 and June 30, 1988 as filed with the
Commission pursuant to Rule 424(b) and (c), as well
as the Restated Limited Venture Agreement set forth
as Exhibit A to the Prospectus, are hereby
incorporated by reference, specifically pages 15 -
21, 44 - 68, 76, 86 - 90, 106 - 108, A9 - A13, A16 -
A20 and Supplements Numbers 1 and 2.
10.1 Stipulation Regarding Entry of Agreed Final Judgment
of Foreclosure and Order Relieving Receiver of
Obligation to Operate Subject Property - Kendall Mall
is incorporated by reference to the Form 10-QSB dated
June 30, 1995.
10.2 Form of Amended, Restated and Consolidated Senior
Secured Promissory Note between the Venture and MF VMS,
L.L.C. relating to each of the Venture's properties.
10.3 Form of Amended, Restated and Consolidated Junior
Secured Promissory Note between the Venture and MF VMS,
L.L.C. relating to each of the Venture's properties.
11 Calculation of Net Loss Per Investor.
31.1 Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Exhibit 11
VMS NATIONAL PROPERTIES JOINT VENTURE
CALCULATION OF NET LOSS PER INVESTOR
(in thousands, except per partnership interest data)
For the Nine Months
Ended September 30,
2004 2003
VMS National Properties net loss $(7,111) $(4,953)
Portfolio I net loss -- --
Portfolio II net loss -- --
Combined net loss $(7,111) $(4,953)
Portfolio I allocation:
70.69% VMS National Properties net loss $(5,026) $(3,501)
100.00% Portfolio I net loss -- --
$(5,026) $(3,501)
Net loss to general partner (2%) $ (100) $ (70)
Net loss to limited partners (98%) $(4,926) $(3,431)
Number of Limited Partner units 644 644
Net loss per limited partnership interest $(7,649) $(5,328)
Portfolio II allocation:
29.31% VMS National Properties net loss $(2,085) $(1,452)
100.00% Portfolio II net loss -- --
$(2,085) $(1,452)
Net loss to general partner (2%) $ (42) $ (29)
Net loss to limited partners (98%) $(2,043) $(1,423)
Number of Limited Partner units 267 267
Net loss per limited partnership interest $(7,652) $(5,330)
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-Q of VMS National
Properties Joint Venture;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Venture as of, and for, the periods presented in this report;
4. The Venture's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Venture and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Venture, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Evaluated the effectiveness of the Venture's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
(c) Disclosed in this report any change in the Venture's internal
control over financial reporting that occurred during the Venture's
most recent fiscal quarter (the Venture's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Venture's internal
control over financial reporting; and
5. The Venture's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the Venture's auditors and the audit committee of the Venture's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Venture's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Venture's
internal control over financial reporting.
Date: November 12, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of MAERIL,
Inc., equivalent of the chief
executive officer of the Venture
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-Q of VMS National
Properties Joint Venture;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Venture as of, and for, the periods presented in this report;
4. The Venture's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Venture and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Venture, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Evaluated the effectiveness of the Venture's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
(c) Disclosed in this report any change in the Venture's internal
control over financial reporting that occurred during the Venture's
most recent fiscal quarter (the Venture's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Venture's internal
control over financial reporting; and
5. The Venture's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the Venture's auditors and the audit committee of the Venture's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Venture's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Venture's
internal control over financial reporting.
Date: November 12, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President of MAERIL, Inc.,
equivalent of the chief financial
officer of the Venture
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of VMS National Properties
Joint Venture (the "Venture"), for the quarterly period ended September 30, 2004
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Martha L. Long, as the equivalent of the Chief Executive Officer of
the Venture, and Stephen B. Waters, as the equivalent of the Chief Financial
Officer of the Venture, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Venture.
/s/Martha L. Long
Name: Martha L. Long
Date: November 12, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 12, 2004
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Venture for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.