UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
[ ] 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 Venture 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)
Venture's telephone number (864) 239-1000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Venture Interest
(Title of class)
Indicate by check mark whether the Venture: (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 Venture 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Venture's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
Indicate by check mark whether the Venture is an accelerated filer (as
defined in Exchange Act Rate 12b-2). Yes ___ No X__
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 2004. No market exists for the limited partnership
interests of the Venture, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant 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 Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
PART I
Item 1. Description of Business
VMS National Properties Joint Venture (the "Venture" or the "Registrant"), of
which the general partners are VMS National Residential Portfolio I ("Portfolio
I") and VMS National Residential Portfolio II ("Portfolio II"), was formed in
September 1984. Portfolio I and Portfolio II are collectively referred to as the
"Ventures". The Ventures are limited partnerships formed in September 1984,
under the Uniform Limited Venture Act of the State of Illinois. Effective
December 12, 1997, the managing general partner of each of the Ventures was
transferred from VMS Realty Investment, Ltd. ("VMSRIL") (formerly VMS Realty
Partners) to MAERIL, Inc. ("MAERIL" or the "Managing General Partner"), a
wholly-owned subsidiary of MAE GP Corporation ("MAE GP") and an affiliate of
Insignia Financial Group, Inc. ("Insignia"). Effective February 25, 1998, MAE GP
was merged with Insignia Properties Trust ("IPT"), which was an affiliate of
Insignia. Effective October 1, 1998 and February 26, 1999, Insignia and IPT were
respectively merged into Apartment Investment and Management Company ("AIMCO"),
a publicly traded real estate investment trust. Thus, the Managing General
Partner is now a wholly-owned subsidiary of AIMCO.
From the period October 26, 1984, through June 16, 1985, the Ventures sold 912
Limited Venture Interests ("Interests") at a price of $150,000 per Limited
Venture Interest for a total of $136,800,000. The Interests of each Venture were
offered in reliance upon exemptions from registration under the Securities Act
of 1933, as amended (the "Act"), and Regulation D thereunder. The participation
interest in the Venture of Portfolio I and Portfolio II is approximately 71% and
29%, respectively.
The Venture originally acquired 51 residential apartment complexes located
throughout the United Sates. At December 31, 2004, 34 of the Venture's
properties had been foreclosed and two had been sold. The Venture continues to
own and operate the remaining 15 residential apartment complexes (see "Item 2.
Description of Properties").
The Managing General Partner seeks to maximize the operating results and,
ultimately, the net realizable value of each of the Venture's properties in
order to achieve the best possible return for the investors. Such results may
best be achieved through property sales, refinancings, debt restructurings or
relinquishment of the assets. The Venture intends to evaluate each of its
holdings periodically to determine the most appropriate strategy for each of the
assets.
The Venture has no employees. Management and administrative services are
provided by the Managing General Partner and by agents retained by the Managing
General Partner. In addition to day-to-day management of the properties'
operations, affiliates of the Managing General Partner also provide real estate
advisory and asset management services to the Venture. As advisor, such
affiliates provide all partnership accounting and administrative services,
investment management, and supervisory services over property management and
leasing.
Risk Factors
The real estate business in which the Venture is engaged is highly competitive.
There are other residential properties within the market area of the Venture's
properties. The number and quality of competitive properties, including those
which may be managed by an affiliate of the Managing General Partner, in such
market area could have a material effect on the rental market for the apartments
at the Venture's properties and the rents that may be charged for such
apartments. While the Managing General Partner and its affiliates own and/or
control a significant number of apartment units in the United States, such units
represent an insignificant percentage of total apartment units in the United
States and competition for the apartments is local.
Laws benefiting disabled persons may result in the Venture's incurrence of
unanticipated expenses. Under the Americans with Disabilities Act of 1990, or
ADA, all places intended to be used by the public are required to meet certain
Federal requirements related to access and use by disabled persons. Likewise,
the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties
first occupied after March 13, 1990 to be accessible to the handicapped. These
and other Federal, state and local laws may require modifications to the
Venture's properties, or restrict renovations of the properties. Noncompliance
with these laws could result in the imposition of fines or an award of damages
to private litigants and also could result in an order to correct any
non-complying feature, which could result in substantial capital expenditures.
Although the Managing General Partner believes that the Venture's properties are
substantially in compliance with the present requirements, the Venture may incur
unanticipated expenses to comply with the ADA and the FHAA.
Both the income and expenses of operating the properties owned by the Venture
are subject to factors outside of the Venture's control, these factors include,
but are not limited to, changes in the supply and demand for similar properties
resulting from various market conditions, increases in unemployment or
population shifts, changes in the availability of permanent mortgage financing,
changes in zoning laws, or changes in patterns or needs of users. In addition,
there are risks inherent in owning and operating residential properties because
such properties are susceptible to the impact of economic and other conditions
outside of the control of the Venture.
From time to time, the Federal Bureau of Investigation, or FBI, and the United
States Department of Homeland Security issue alerts regarding potential
terrorist threats involving apartment buildings. Threats of future terrorist
attacks, such as those announced by the FBI and the Department of Homeland
Security, could have a negative effect on rent and occupancy levels at the
Venture's properties. The effect that future terrorist activities or threats of
such activities could have on the Venture's operations is uncertain and
unpredictable. If the Venture were to incur a loss at a property as a result of
an act of terrorism, the Venture could lose all or a portion of the capital
invested in the property, as well as the future revenue from the property. In
this regard, the Venture has purchased insurance to cover acts of terrorism. The
Managing General Partner does not anticipate that these costs will have a
negative effect on the Venture's combined financial condition or results of
operations.
There have been, and it is possible there may be other, Federal, state, and
local legislation and regulations enacted relating to the protection of the
environment. The Venture is unable to predict the extent, if any, to which such
new legislation or regulations might occur and the degree to which such existing
or new legislation or regulations might adversely affect the properties owned by
the Venture.
The Venture monitors its properties for evidence of pollutants, toxins and other
dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed, which resulted in no material adverse
conditions or liabilities. In no case has the Venture received notice that it is
a potentially responsible party with respect to an environmental clean up site.
A further description of the Venture's business is included in "Management's
Discussion and Analysis of Financial Condition and Results of Operation"
included in "Item 7" of this Form 10-K.
Item 2. Description of Properties
The following table sets forth the Venture's remaining investment in properties:
Date of
Property (1) Purchase Use
North Park Apartments 11/14/84 Apartment
Evansville, IN 284 Units
Chapelle Le Grande 12/05/84 Apartment
Merrillville, IN 105 Units
Terrace Gardens 10/26/84 Apartment
Omaha, NE 126 Units
Forest Ridge Apartments 10/26/84 Apartment
Flagstaff, AZ 278 Units
Scotchollow 10/26/84 Apartment
San Mateo, CA 418 Units
Pathfinder Village 10/26/84 Apartment
Freemont, CA 246 Units
Buena Vista Apartments 10/26/84 Apartment
Pasadena, CA 92 Units
Mountain View Apartments 10/26/84 Apartment
San Dimas, CA 168 Units
Crosswood Park 12/05/84 Apartment
Citrus Heights, CA 180 Units
Casa de Monterey 10/26/84 Apartment
Norwalk, CA 144 Units
The Bluffs 10/26/84 Apartment
Milwaukee, OR 137 Units
Watergate Apartments 10/26/84 Apartment
Little Rock, AR 140 Units
Shadowood Apartments 11/14/84 Apartment
Monroe, LA 120 Units
Vista Village Apartments 10/26/84 Apartment
El Paso, TX 220 Units
Towers of Westchester Park 10/26/84 Apartment
College Park, MD 303 Units
(1) All properties are fee ownership, each subject to a first mortgage and
other than Mountain View Apartments, a second mortgage.
Schedule of Properties
Set forth below for each of the Venture's properties is the gross carrying
value, accumulated depreciation, method of depreciation, depreciable life and
Federal tax basis.
Gross
Carrying Accumulated Depreciable Federal
Property Value Depreciation Method Life Tax Basis
(in thousands) (in thousands)
North Park Apartments $ 11,589 $ 8,639 SL 5-30 yrs $ 1,582
Chapelle Le Grande 5,302 3,998 SL 5-30 yrs 553
Terrace Gardens 7,221 4,995 SL 5-30 yrs 1,562
Forest Ridge Apartments 10,074 7,429 SL 5-30 yrs 1,567
Scotchollow 31,914 22,038 SL 5-30 yrs 6,403
Pathfinder Village 19,586 12,644 SL 5-30 yrs 5,797
Buena Vista Apartments 6,588 4,551 SL 5-30 yrs 1,322
Mountain View Apartments 12,032 7,640 SL 5-30 yrs 2,353
Crosswood Park 10,780 7,292 SL 5-30 yrs 2,495
Casa de Monterey 9,261 6,603 SL 5-30 yrs 1,777
The Bluffs 4,871 3,801 SL 5-30 yrs 461
Watergate Apartments 8,061 5,987 SL 5-30 yrs 1,185
Shadowood Apartments 4,791 3,691 SL 5-30 yrs 509
Vista Village Apartments 7,654 5,617 SL 5-30 yrs 1,226
Towers of Westchester Park 19,139 14,584 SL 5-30 yrs 2,632
$168,863 $119,509 $31,424
See "Note A" of the Notes to the Combined Financial Statements included in "Item
8" for a description of the Venture's capitalization and depreciation policies.
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loans
encumbering the Venture's properties.
Principal Principal Principal
Balance At Balance At Balance
December 31, December 31, Period Due At
Property 2004 2003 Amortized Maturity
(in thousands) (in thousands)
North Park Apartments
1st mortgage $ 5,750 $ 5,856 25 yrs $ 5,376
2nd mortgage 2,446 2,248 (A) (A)
Chapelle Le Grande
1st mortgage 2,955 3,005 25 yrs 2,759
2nd mortgage 1,205 1,141 (A) (A)
Terrace Gardens
1st mortgage 4,083 4,159 25 yrs 3,818
2nd mortgage 1,421 1,305 (A) (A)
Forest Ridge Apartments
1st mortgage 5,434 5,533 25 yrs 5,073
2nd mortgage 566 663 (A) (A)
Scotchollow
1st mortgage 26,834 27,326 25 yrs 25,054
2nd mortgage 8,861 8,029 (A) (A)
Pathfinder Village
1st mortgage 12,380 12,626 25 yrs 11,576
2nd mortgage 2,816 2,639 (A) (A)
Buena Vista Apartments
1st mortgage 4,562 4,646 25 yrs 4,260
2nd mortgage 62 445 (A) (A)
Mountain View Apartments
1st mortgage 6,592 6,713 25 yrs 6,154
2nd mortgage (B) -- 275 (A) (A)
Crosswood Park
1st mortgage 5,120 5,215 25 yrs 4,788
2nd mortgage 299 458 (A) (A)
Casa de Monterey
1st mortgage 3,772 3,847 25 yrs 3,479
2nd mortgage 268 496 (A) (A)
The Bluffs
1st mortgage 3,429 3,492 25 yrs 3,202
2nd mortgage 1,349 1,232 (A) (A)
Watergate Apartments
1st mortgage 2,665 2,718 25 yrs 2,492
2nd mortgage 840 768 (A) (A)
Shadowood Apartments
1st mortgage 2,074 2,109 25 yrs 1,936
2nd mortgage 88 234 (A) (A)
Vista Village Apartments
1st mortgage 3,059 3,111 25 yrs 2,856
2nd mortgage 1,215 1,103 (A) (A)
Towers of Westchester Park
1st mortgage 11,160 11,365 25 yrs 10,420
2nd mortgage 687 1,485 (A) (A)
Totals $121,992 $124,242 $93,243
Interest rates are 8.50% and 10.84% for the fixed rate first and second
mortgages, respectively. All notes mature January 1, 2008.
(A) Payments based on excess monthly cash flow at each property, with any
unpaid balance due at maturity. Per the junior loan agreements, excess
monthly cash flow is defined as revenue generated from operation of a
property less (1) operating expenses of the property, (2) the debt service
payment for the senior loans, (3) the tax and insurance reserve deposit
and (4) replacement reserve deposit.
(B) Second mortgage loan was satisfied in 2004.
Rental Rates and Occupancy
The following table sets forth the average annual rental rates and occupancy for
2004 and 2003 for each property.
Average Annual Average
Rental Rates Per Unit Occupancy
Property 2004 2003 2004 2003
North Park Apartments $ 6,254 $ 5,973 93% 95%
Chapelle Le Grande 8,512 8,428 95% 96%
Terrace Gardens 9,192 9,314 86% 88%
Forest Ridge Apartments (1) 7,864 7,859 92% 89%
Scotchollow (2) 14,542 15,689 82% 90%
Pathfinder Village 14,463 15,448 91% 90%
Buena Vista Apartments 16,246 15,938 95% 97%
Mountain View Apartments 15,266 14,642 95% 94%
Crosswood Park (2) 11,219 10,742 88% 94%
Casa de Monterey (3) 11,433 10,999 93% 96%
The Bluffs (4) 6,908 7,133 90% 93%
Watergate Apartments (5) 7,641 7,417 84% 94%
Shadowood Apartments 7,368 6,936 93% 95%
Vista Village Apartments 6,458 6,230 96% 98%
Towers of Westchester Park 13,592 13,151 99% 98%
(1) The increase in occupancy at Forest Ridge Apartments is due to an
improvement in the economy in the Arizona market.
(2) The decrease in occupancy at Scotchollow and Crosswood Park is due to a
weak economy in the respective property's market area.
(3) The decrease in occupancy at Casa de Monterey is due to tenants purchasing
homes and/or vacating due to personal economic situations.
(4) The decrease in occupancy at The Bluffs Apartments is due to tenants
purchasing homes due to low interest rates.
(5) The decrease in occupancy at Watergate Apartments is primarily
attributable to property management raising the qualifying conditions for
prospective tenants in order to attract a more stable tenant population.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties are subject to competition from other
residential apartment complexes in the area. The Managing General Partner
believes that all of the properties are adequately insured. Each property is an
apartment complex which leases units for lease terms of one year or less. No
residential tenant leases 10% or more of the available rental space.
Real Estate Taxes and Rates
Real estate taxes and rates in 2004 for each property were as follows:
2004 2004
Taxes Rate
(in thousands)
North Park Apartments $184 2.16%
Chapelle Le Grande 90 2.62%
Terrace Gardens 97 2.16%
Forest Ridge Apartments 90 9.22%
Scotchollow 400 1.35%
Pathfinder Village 237 1.43%
Buena Vista Apartments 82 1.28%
Mountain View Apartments 140 1.29%
Crosswood Park 137 1.11%
Casa de Monterey 110 1.27%
The Bluffs 72 1.41%
Watergate Apartments 64 6.34%
Shadowood Apartments 40 11.20%
Vista Village Apartments 116 3.21%
Towers of Westchester Park 261 1.39%
Capital Improvements
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 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., which is also the holder of the
junior debt, agreed that AIMCO Properties, L.P. 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
Properties, L.P. 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 believes that the payment
of such amounts to reduce the New Mezzanine Loan instead of the junior debt will
reduce the amount of the junior debt amortized prior to its maturity (therefore
increasing the amount due) by an amount at least equal to the principal and
interest on the New Mezzanine Loan, the effect of which will be to reduce the
ultimate payment received by holders of outstanding Bankruptcy Claims (see Item
8. Financial Statements, Note D - Participating Mortgage Note) by a similar
amount.
North Park Apartments: The Venture completed approximately $535,000 in capital
expenditures at North Park Apartments during the year ended December 31, 2004,
consisting primarily of floor covering and roof replacements, exterior painting,
vinyl siding, fence upgrades and HVAC and balcony replacements. These
improvements were funded from operating cash flow, replacement reserves and
loans from an affiliate of the Managing General Partner. The Venture regularly
evaluates the capital improvement needs of the property and anticipates spending
the $300 per unit allowed under the senior debt replacement reserve funding
requirement on capital improvements during 2005 in addition to the amounts
identified in the below schedule.
Chapelle Le Grande: The Venture completed approximately $45,000 in capital
expenditures at Chapelle Le Grande during the year ended December 31, 2004,
consisting primarily of air conditioning upgrades and floor covering
replacements. These improvements were funded from operating cash flow. The
Venture regularly evaluates the capital improvement needs of the property and
anticipates spending the $300 per unit allowed under the senior debt replacement
reserve funding requirement on capital improvements during 2005 in addition to
the amounts identified in the below schedule.
Terrace Gardens: The Venture completed approximately $110,000 in capital
expenditures at Terrace Gardens during the year ended December 31, 2004,
consisting primarily of building upgrades, vinyl siding and gutter and floor
covering replacements. An additional $62,000 was spent during the year ended
December 31, 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
regularly evaluates the capital improvement needs of the property and
anticipates spending the $300 per unit allowed under the senior debt replacement
reserve funding requirement on capital improvements during 2005 in addition to
the amounts identified in the below schedule.
Forest Ridge Apartments: The Venture completed approximately $219,000 in capital
expenditures at Forest Ridge Apartments during the year ended December 31, 2004,
consisting primarily of structural improvements, appliance, gutter and floor
covering replacements. These improvements were funded from operating cash flow,
replacement reserves and loans from an affiliate of the Managing General
Partner. The Venture regularly evaluates the capital improvement needs of the
property and anticipates spending the $300 per unit allowed under the senior
debt replacement reserve funding requirement on capital improvements during 2005
in addition to the amounts identified in the below schedule.
Scotchollow: The Venture completed approximately $444,000 in capital
expenditures at Scotchollow during the year ended December 31, 2004, consisting
primarily of structural improvements, floor covering and appliance replacements,
fire safety equipment, interior decoration, interior painting and water and
sewer upgrades. These improvements were funded from operations, replacement
reserves and loans from an affiliate of the Managing General Partner. The
Venture regularly evaluates the capital improvement needs of the property and
anticipates spending the $300 per unit allowed under the senior debt replacement
reserve funding requirement on capital improvements during 2005 in addition to
the amounts identified in the below schedule.
Pathfinder Village: The Venture completed approximately $350,000 in capital
expenditures at Pathfinder Village during the year ended December 31, 2004,
consisting primarily of roof, appliance and floor covering replacements,
interior decoration and major landscaping. These improvements were funded from
operating cash flow, replacement reserves and loans from an affiliate of the
Managing General Partner. The Venture regularly evaluates the capital
improvement needs of the property and anticipates spending the $300 per unit
allowed under the senior debt replacement reserve funding requirement on capital
improvements during 2005 in addition to the amounts identified in the below
schedule.
Buena Vista Apartments: The Venture completed approximately $150,000 in capital
expenditures at Buena Vista Apartments during the year ended December 31, 2004,
consisting primarily of floor covering and roof replacements. These improvements
were funded from operating cash flow and replacement reserves. The Venture
regularly evaluates the capital improvement needs of the property and
anticipates spending the $300 per unit allowed under the senior debt replacement
reserve funding requirement on capital improvements during 2005 in addition to
the amounts identified in the below schedule.
Mountain View Apartments: The Venture completed approximately $228,000 in
capital expenditures at Mountain View Apartments during the year ended December
31, 2004, consisting primarily of floor covering, roof, water heater and HVAC
replacements, plumbing fixtures upgrades and structural improvements. These
improvements were funded from operating cash flow, replacement reserves and
loans from an affiliate of the Managing General Partner. The Venture regularly
evaluates the capital improvement needs of the property and anticipates spending
the $300 per unit allowed under the senior debt replacement reserve funding
requirement on capital improvements during 2005 in addition to the amounts
identified in the below schedule.
Crosswood Park: The Venture completed approximately $312,000 in capital
expenditures at Crosswood Park during the year ended December 31, 2004,
consisting primarily of structural improvements and balcony, appliance and floor
covering replacements. These improvements were funded from operating cash flow,
replacement reserves and loans from an affiliate of the Managing General
Partner. The Venture regularly evaluates the capital improvement needs of the
property and anticipates spending the $300 per unit allowed under the senior
debt replacement reserve funding requirement on capital improvements during 2005
in addition to the amounts identified in the below schedule.
Casa de Monterey: The Venture completed approximately $62,000 in capital
expenditures at Casa de Monterey during the year ended December 31, 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 regularly evaluates the capital
improvement needs of the property and anticipates spending the $300 per unit
allowed under the senior debt replacement reserve funding requirement on capital
improvements during 2005 in addition to the amounts identified in the below
schedule.
The Bluffs: The Venture completed approximately $46,000 in capital expenditures
at The Bluffs during the year ended December 31, 2004, consisting primarily of
roof and floor replacements, major landscaping, fire safety equipment and water
and sewer upgrades. These improvements were funded from operating cash flow and
replacement reserves. The Venture regularly evaluates the capital improvement
needs of the property and anticipates spending the $300 per unit allowed under
the senior debt replacement reserve funding requirement on capital improvements
during 2005 in addition to the amounts identified in the below schedule.
Watergate Apartments: The Venture completed approximately $306,000 in capital
expenditures, including the aforementioned capital expenditures, at Watergate
Apartments during the year ended December 31, 2004, consisting primarily of
interior painting, roof, siding, balcony and floor covering replacements, major
landscaping, plumbing fixture and water and sewer upgrades. These improvements
were funded from operating cash flow, replacement reserves and loans from an
affiliate of the Managing General Partner. The Venture regularly evaluates the
capital improvement needs of the property and anticipates spending the $300 per
unit allowed under the senior debt replacement reserve funding requirement on
capital improvements during 2005 in addition to the amounts identified in the
below schedule.
Shadowood Apartments: The Venture completed approximately $34,000 in capital
expenditures at Shadowood Apartments during the year ended December 31, 2004,
consisting primarily of floor covering replacements. These improvements were
funded from operating cash flow and replacement reserves. The Venture regularly
evaluates the capital improvement needs of the property and anticipates spending
the $300 per unit allowed under the senior debt replacement reserve funding
requirement on capital improvements during 2005 in addition to the amounts
identified in the below schedule.
Vista Village Apartments: The Venture completed approximately $151,000 in
capital expenditures at Vista Village Apartments during the year ended December
31, 2004, consisting primarily of floor covering, appliance and water heater
replacements and air conditioning upgrades. These improvements were funded from
operating cash flow, replacement reserves and loans from an affiliate of the
Managing General Partner. The Venture regularly evaluates the capital
improvement needs of the property and anticipates spending the $300 per unit
allowed under the senior debt replacement reserve funding requirement on capital
improvements during 2005 in addition to the amounts identified in the below
schedule.
Towers of Westchester Park: The Venture completed approximately $396,000 in
capital expenditures at Towers of Westchester Park during the year ended
December 31, 2004, consisting primarily of swimming pool, electrical and air
conditioning upgrades, structural improvements, parking lot resurfacing, floor
covering and appliance replacements, exterior painting and plumbing fixture
upgrades. These improvements were funded from operating cash flow and
replacement reserves. The Venture regularly evaluates the capital improvement
needs of the property and anticipates spending the $300 per unit allowed under
the senior debt replacement reserve funding requirement on capital improvements
during 2005 in addition to the amounts identified in the below schedule.
The following schedule summarizes the $6,440,000 of capital improvements that
were identified during 2004 as needing to be made to the properties as a result
of life safety issues, compliance with ADA requirements and general updating of
the properties. As discussed above these improvements will be funded with
proceeds from the New Mezzanine Loan. The amounts indicated as having been
incurred during 2004 related to these approved improvements are included in the
amounts discussed above for each respective property.
Costs Incurred Cost to be
Total Cost of Through Incurred
Property Improvements December 31, 2004 During 2005
North Park Apartments $ 316,000 $ 298,000 $ 18,000
Chapelle Le Grande 17,000 -- 17,000
Terrace Gardens 87,000 36,000 51,000
Forest Ridge Apartments 146,000 41,000 105,000
Scotchollow 527,000 81,000 446,000
Pathfinder 260,000 62,000 198,000
Buena Vista Apartments 269,000 103,000 166,000
Mountain View Apartments 719,000 64,000 655,000
Crosswood Park 963,000 78,000 885,000
Casa de Monterey 145,000 9,000 136,000
The Bluffs 160,000 11,000 149,000
Watergate Apartments 418,000 38,000 380,000
Shadowood Apartments 72,000 3,000 69,000
Vista Village Apartments 785,000 99,000 686,000
Towers of Westchester Park 1,556,000 123,000 1,433,000
$6,440,000 $1,046,000 $5,394,000
Item 3. Legal Proceedings
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Managing General Partner, are defendants in an action in the
United States District Court, District of Columbia. The plaintiffs have styled
their complaint as a collective action under the Fair Labor Standards Act
("FLSA") and seek 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, plaintiffs allege 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. Discovery
relating to the certification of the collective action has concluded and
briefing is currently underway. 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 4. Submission of Matters to a Vote of Security Holders
The unitholders of the Ventures did not vote on any matter during the quarter
ended December 31, 2004.
PART II
Item 5. Market for the Venture's Common Equity and Related Stockholders
Matters
From the period October 26, 1984, through June 16, 1985, Portfolio I and
Portfolio II sold a total of 912 Limited Venture Interests at a price of
$150,000 per Limited Venture Interest, for a total of $136,800,000. As of
December 31, 2004 and 2003, there were 665 holders of record of Portfolio I and
257 holders of record of Portfolio II, owning 644 and 267 units, respectively.
As of December 31, 2002, there were 665 holders of record of Portfolio I and 258
holders of record of Portfolio II, owning a total of 644 and 267 units,
respectively. No public trading market has developed for the Units, and it is
not anticipated that such a market will develop in the future.
There were no cash distributions to the partners of either of the Ventures for
the years ended December 31, 2004, 2003 or 2002. 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 (see "Item 8. Financial Statements and
Supplementary Data, Note A" for further details of the order of distribution).
The source of future cash distributions will depend on the levels of net cash
generated from operations, the timing of debt maturities, property sales and/or
refinancings. The Venture's distribution policies are reviewed on a quarterly
basis. In light of the junior debt requiring payments based on cash flow and the
additional capital expenditures required at the Venture's properties as well as
the payments due under the Venture's Plan of Reorganization, it is not expected
that there will be sufficient funds to be distributed to the Venture's partners
in the foreseeable future. See "Item 2. Description of Properties - Capital
Improvements" for information relating to anticipated capital expenditures at
the properties.
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% at December 31, 2004.
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% at December 31, 2004. 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.
Item 6. Selected Financial Data (in thousands, except per interest data):
2004 2003 2002 2001 2000
Total revenues from rental
operations $ 30,574 $ 31,531 $ 32,471 $ 33,249 $ 31,015
Net loss $ (8,491) $ (7,134) $ (4,573) $ (2,910) $ (40)
Net loss per limited
Venture interest
Portfolio I - 644 $ (9,134) $ (7,674) $ (4,921) $ (3,130) $ (43)
interests
Portfolio II - 267 $ (9,135) $ (7,674) $ (4,918) $ (3,131) $ (45)
interests
Total assets $ 55,279 $ 58,010 $ 62,731 $ 68,919 $ 68,879
Mortgage loans and notes $171,387 $170,492 $174,062 $178,940 $179,809
The above selected financial data should be read in conjunction with the
combined financial statements and the related notes.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
This item should be read in conjunction with the combined financial statements
and other items contained elsewhere in this report.
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 from Operations
2004 compared with 2003
The Venture recorded a net loss for the twelve months ended December 31, 2004 of
approximately $8,491,000 compared to a net loss for the twelve months ended
December 31, 2003 of approximately $7,134,000 (see "Item 8. Financial Statements
and Supplemental Data Note I - Income Taxes" for a reconciliation of these
amounts to the Venture's federal taxable loss). The increase in net loss for
this twelve month period is due to a decrease in total revenues and an increase
in total expenses.
For the twelve months ended December 31, 2004 as compared to December 31, 2003
the decrease in total revenues is due to decreases in rental income and casualty
gains partially offset by an increase in other income. The decrease in rental
income is the result of the decrease in occupancy at eleven of the properties
along with decreases in average annual rental rates at Scotchollow, Pathfinder
Village, Terrace Gardens and The Bluffs. These decreases more than offset the
occupancy increases at four of the properties. Other income increased primarily
due to increases in utility reimbursements and lease cancellation fees offset by
a decrease in late charges by the properties.
During the twelve months ended December 31, 2004, the Venture recorded a net
casualty gain of approximately $45,000 at Terrace Garden 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
$8,000 of undepreciated property improvements and replacements being written off
and approximately $21,000 of emergency repairs made at the property.
During the twelve months ended December 31, 2003, the Venture recorded a net
casualty gain of approximately $164,000. The casualty gain resulted from fires
at both Shadowood and Pathfinder Village Apartments. In September 2002 a fire at
Shadowood Apartments caused damage to eight units at the property. A net
casualty gain of approximately $65,000 was recorded in relation to this fire.
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.
In February 2003, a fire at Pathfinder Village Apartments caused damage to five
units at the property. A net casualty gain of approximately $99,000 was recorded
in relation to this fire. The gain was a result of the receipt of insurance
proceeds of approximately $118,000 offset by approximately $19,000 of
undepreciated property improvements and replacements being written off.
Total expenses for the twelve month period ended December 31, 2004 as compared
to December 31, 2003 increased due to increases in operating, depreciation, and
property tax expenses partially offset by decreases in general and
administrative, property management fees and interest expense. Operating expense
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 eleven 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 decrease in interest expense is attributable to a
decrease in interest on the senior and junior debt due to principal reduction
payments and a decrease in the amortization of the debt discount related to the
mortgage participation liability, as a result of a change in estimate discussed
below, partially offset by an increase in interest charged on advances from an
affiliate of the Managing General Partner. Property tax expense increased due to
the increases in assessed value at ten of the Venture's properties. Property
management fees decreased as a result of the decreases in rental income on which
such fees are based.
General and administrative expense decreased for the year ended December 31,
2004 due to a decrease in the costs associated with the annual tax return. Also
included are reimbursements to the Managing General Partner allowed under the
Partnership Agreement associated with the management of the Venture. In
addition, costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement are also included.
2003 Compared with 2002
The Venture recorded a net loss for the twelve months ended December 31, 2003 of
approximately $7,134,000 compared to a net loss for the twelve months ended
December 31, 2002 of approximately $4,573,000 (see "Item 8. Financial Statements
and Supplemental Data, Note I - Income Taxes" for a reconciliation of these
amounts to the Venture's federal taxable loss). The increase in net loss for
this twelve month period was due to a decrease in total revenues and an increase
in total expenses.
For the twelve months ended December 31, 2003 as compared to December 31, 2002
the decrease in total revenues was due to decreases in rental income and
casualty gains partially offset by an increase in other income. The decrease in
rental income was the result of the decrease in occupancy at five of the
properties along with decreases in average annual rates at Scotchollow and
Pathfinder Village. These decreases more than offset the occupancy increases at
Watergate Apartments, Vista Village Apartments, Chapelle le Grande and Crosswood
Park Apartments. Other income increased primarily due to increases in various
fees charged by the properties.
During the twelve months ended December 31, 2003, the Venture recorded a net
casualty gain of approximately $164,000. The casualty gain resulted from fires
at both Shadowood and Pathfinder Village Apartments. In September 2002 a fire at
Shadowood Apartments caused damage to eight units at the property. A net
casualty gain of approximately $65,000 was recorded in relation to this fire.
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.
In February 2003, a fire at Pathfinder Village Apartments caused damage to five
units at the property. A net casualty gain of approximately $99,000 was recorded
in relation to this fire. The gain was a result of the receipt of insurance
proceeds of approximately $118,000 offset by approximately $19,000 of
undepreciated property improvements and replacements being written off.
Total expenses for the twelve month period ended December 31, 2003 as compared
to December 31, 2002 increased due to increases in operating and depreciation
expenses partially offset by decreases in interest expense and property
management fees. Property tax and general and administrative expenses remained
relatively constant for the comparable periods. Operating expense increased due
to increases in advertising, property, administrative, insurance and maintenance
expenses. Advertising expense increased due to increased usage of the internet
for advertising purposes. Property expenses increased due to increases in
natural gas and other utility costs and salaries and other related employee
expenses partially offset by decreases in lease renewal incentives and courtesy
patrol costs primarily at Towers of Westchester Park. Administrative expenses
increased due to an increase in the usage of temporary labor at Scotchollow and
Crosswood Park Apartments and legal costs related to normal business at
Scotchollow and the payment of environmental fines of approximately $55,000 at
Casa de Monterey Apartments related to lead-based paint disclosures that were
omitted from the property's lease agreements. Hazard insurance premiums
increased at all of the Venture's investment properties. Some of the properties
have suffered casualties which have additionally increased their insurance
premiums. Maintenance expenses increased due primarily to increases in yard and
ground work and plumbing and fixture repairs at many of the Venture's investment
properties. Depreciation expense increased due to property improvements and
replacements placed into service during the past twelve months which are now
being depreciated. The decrease in interest expense was attributable to a
decrease in interest on the senior and junior debt due to principal reduction
payments partially offset by an increase in the amortization of the debt
discount related to the mortgage participation liability. Property management
fees decreased due to the decrease in rental income on which these fees are
based.
Liquidity and Capital Resources
At December 31, 2004, the Venture had cash and cash equivalents of approximately
$2,064,000 as compared to approximately $1,761,000 at December 31, 2003, an
increase of approximately $303,000. The increase in cash and cash equivalents is
a result of approximately $5,003,000 of cash provided by operating activities
partially offset by approximately $1,632,000 and $3,068,000 of cash used in
financing and investing activities, respectively. 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.
In December 2002, an affiliate of the Managing General Partner loaned
approximately $3,000 to cover operating expenses at Pathfinder Village. This
amount was repaid during the first quarter of 2003. In addition, during the year
ended December 31, 2004 and in December 2001, an affiliate of the Managing
General Partner loaned the Venture's investment properties approximately
$2,742,000 and $3,605,000, respectively, to cover expenses and capital
expenditures required at all of the properties. In accordance with the terms of
the Venture Agreement, interest is charged on these loans at the prime rate plus
3% (8.25% at December 31, 2004). At December 31, 2004 and 2003, the balance of
the loans and accrued interest on the loans was approximately $7,335,000 and
$4,186,000, respectively. Interest expense amounted to approximately $407,000,
$287,000 and $290,000 for the years ended December 31, 2004, 2003 and 2002,
respectively.
Certain affiliates of the former general partners 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 Venture's 1993 bankruptcy plan. There were no property dispositions for
which proceeds were received during the years ended December 31, 2004, 2003 or
2002.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Venture and to comply with Federal,
state and local legal and regulatory requirements. 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.
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 2005 and are
included in the additional capital improvements expected to be completed for
each property, see Item 2. Capital Improvements. On November 2, 2004, the
Venture, the holder of the senior debt and AIMCO Properties, L.P., which is also
the holder of the junior debt, agreed that AIMCO Properties, L.P. 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 Properties, L.P. 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
believes that the payment of such amounts to reduce the New Mezzanine Loan
instead of the junior debt will reduce the amount of the junior debt amortized
prior to its maturity (therefore increasing the amount due) by an amount at
least equal to the principal and interest on the New Mezzanine Loan, the effect
of which will be to reduce the ultimate payment received by holders of
outstanding Bankruptcy Claims (see Item 8. Financial Statements, Note D -
Participating Mortgage Note) by a similar amount.
Each of the Venture's properties is encumbered by senior and junior debt. The
senior debt has an interest rate of 8.5% per annum and requires monthly payments
of principal and interest. The junior debt has an interest rate of 10.84% per
annum and the monthly payments are based on excess monthly cash flow for each
property. All of the loans mature on January 1, 2008, and the senior debt
includes prepayment penalties if paid prior to January 1, 2007. In 1997, these
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 in 1997,
which is the difference between the note face amounts and the agreed valuation
amounts. All the loans are cross-collateralized but they are not
cross-defaulted. Therefore, a default by one property under the terms of its
debt agreement does not in and of itself create a default under all of the
senior and junior debt agreements. However, if the proceeds upon the sale or
refinancing of any property are insufficient to fully repay the outstanding
senior and junior debt related to that property, any deficiency is to be
satisfied from the sale or refinancing of the remaining properties.
Both on a short-term and long-term basis, the Managing General Partner monitors
the rental market environment of each of the investment properties to assess the
feasibility of increasing rents, maintaining or increasing occupancy levels and
protecting the Venture from increases in expenses all of which have an impact on
the Venture's liquidity. The Venture's assets are thought to be sufficient for
any short-term needs (exclusive of capital improvements, as discussed above and
below) of the Venture. The Senior Debt encumbering all of the properties totals
approximately $99,869,000 and is being amortized over 25 years, with a balloon
payment of $93,243,000 due January 2008. The Junior Debt, which also matures
January 2008, totals approximately $22,123,000 and requires monthly payments
based upon monthly excess cash flow for each property. Per the Junior Debt
Agreements, excess cash flow is defined as revenue generated from the operation
of a property less (1) operating expenses of the property, (2) the debt service
payment for the Senior Loan, (3) tax and insurance reserve deposit, and (4)
replacement reserve deposit. The Venture anticipates that cash flow is
sufficient to meet the operating needs of the Venture as well as the
requirements of the Senior Debt with any excess cash flow being utilized to meet
the requirements of the Junior Debt.
The Venture is also obligated under (i) purchase money subordinated note (the
"Assignment Note") payable to the VMS/Stout Venture, an affiliate of the former
general partner, which was issued in exchange for the assignment by the
VMS/Stout Venture of its interest in the contract of sale to the Venture and
(ii) an unsecured, nonrecourse promissory note (the "Long-Term Loan Agreement
Fee Note") payable to the VMS/Stout Venture as consideration for arranging
long-term financing. The Assignment Note is collateralized by the pledge from
Portfolio I and Portfolio II of their respective interests in the Venture. The
Assignment Note and Long-Term Arrangement Fee Notes had an outstanding principal
balance at December 31, 2004 totaling approximately $42,060,000 are non-interest
bearing and are subordinate to the senior and junior debt.
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 $32,009,000 and
$36,518,000 for the years ended December 31, 2004 and 2003, respectively. The
Managing General Partner reevaluated the fair value of the participation feature
during the year ended December 31, 2004 and concluded that the fair value of the
participation feature should be reduced by approximately $4,509,000. 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 reduction in the fair values of
the participation feature is attributable to an increase in the estimated value
of the junior loans and advances from the Managing General Partner that will be
due at maturity partially offset by an increase in the estimated fair value of
the collateral properties. During the years ended December 31, 2004 and 2003,
the Venture amortized approximately $4,822,000 and $5,079,000, respectively, of
the mortgage participation debt discount which is included in interest expense.
The related mortgage participation debt discount at December 31, 2004 and 2003
was approximately $13,455,000 and $22,786,000, respectively.
There were no cash distributions to the partners of either of the Ventures for
the years ended December 31, 2004, 2003 or 2002. 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 (see "Item 8. Financial Statements and
Supplementary Data, Note A" for further details of the order of distribution).
The source of future cash distributions will depend on the levels of net cash
generated from operations, the timing of debt maturities, property sales and/or
refinancings. The Ventures distribution policies are reviewed on a quarterly
basis. In light of the junior debt requiring payments based on cash flow and the
additional capital expenditures required at the Venture's properties as well as
the payments due under the Venture's Plan of Reorganization, it is not expected
that there will be sufficient funds to be distributed to the Venture's partners
in the foreseeable future.
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% at December 31, 2004.
AIMCO and its affiliates currently own 67.42 units of limited partnership
interest in Portfolio II representing 25.25% at December 31, 2004 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
A summary of the Venture's significant accounting policies is included in "Note
A - Organization and Summary of Significant Accounting Policies" which is
included in the combined financial statements in "Item 8. Financial Statements".
The Managing General Partner believes that the consistent application of these
policies enables the Venture to provide readers of the financial statements with
useful and reliable information about the Venture's operating results and
financial condition. The preparation of combined financial statements in
conformity with accounting principles generally accepted in the United States
requires the Venture to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities at the date of
the financial statements as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Judgments and assessments of uncertainties are required in applying the
Venture's accounting policies in many areas. 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. The
Venture will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Rental
income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
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 7a. 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 December 31, 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 December 31,
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 $104,744,000 at December 31, 2004. However, the
Venture is precluded from refinancing the first mortgages 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. The Managing General Partner does not
believe that there have been any material changes in market risk exposure
between the current year and the preceding year.
Long-term Debt
Principal Weighted-average
(in thousands) Interest Rate
2005 $ 1,972 8.50%
2006 2,201 8.50%
2007 2,403 8.50%
2008 115,416 8.95%
$121,992
As principal payments for the junior loans are based upon monthly cash flow, all
principal is assumed to be repaid at maturity.
Item 8. Financial Statements and Supplementary Data
LIST OF COMBINED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Combined Balance Sheets - Years ended December 31, 2004 and 2003
Combined Statements of Operations - Years ended December 31, 2004, 2003
and 2002
Combined Statements of Changes in Partners' Deficit - Years ended December
31, 2004, 2003 and 2002
Combined Statements of Cash Flows - Years ended December 31, 2004, 2003
and 2002
Notes to Combined Financial Statements
Report of Independent Registered Public Accounting Firm
The Partners
VMS National Properties Joint Venture
We have audited the accompanying combined balance sheets of VMS National
Properties Joint Venture as of December 31, 2004 and 2003, and the related
combined statements of operations, changes in partners' deficit, and cash flows
for each of the three years in the period ended December 31, 2004. These
financial statements are the responsibility of the Venture's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Venture's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Venture's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of VMS National
Properties Joint Venture at December 31, 2004 and 2003, and the combined results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
March 21, 2005
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)
December 31,
2004 2003
Assets:
Cash and cash equivalents $ 2,064 $ 1,761
Receivables and deposits 2,009 1,709
Restricted escrows 1,115 896
Other assets 737 585
Investment properties (Notes B and H):
Land 13,404 13,404
Buildings and related personal property 155,459 152,044
Less accumulated depreciation (119,509) (112,389)
49,354 53,059
$ 55,279 $ 58,010
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 1,328 $ 1,154
Tenant security deposits liabilities 855 849
Accrued property taxes 695 600
Other liabilities 827 821
Accrued interest 560 798
Due to affiliate (Note F) 7,335 4,190
Mortgage notes payable, including $22,123 due to
an affiliate at 2004 and $22,521 at 2003 (Note B) 121,992 124,242
Notes payable (Note C) 42,060 42,060
Deferred gain on extinguishment of debt (Note A) 42,225 42,225
Mortgage participation liability (Note D) 18,554 13,732
Partners' Deficit (181,152) (172,661)
$ 55,279 $ 58,010
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except per limited partnership interest data)
For The Years Ended December 31,
2004 2003 2002
Revenues:
Rental income $ 28,189 $29,054 $29,692
Other income 2,340 2,313 2,266
Casualty gains (Note E) 45 164 513
Total revenues 30,574 31,531 32,471
Expenses:
Operating 11,613 11,094 9,523
Property management fees to an affiliate 1,201 1,253 1,289
General and administrative 541 594 596
Depreciation 7,147 6,984 6,769
Interest, including approximately $8,512,
$7,903 and $7,884 to an affiliate 16,383 16,732 16,877
Property taxes 2,180 2,008 1,990
Total expenses 39,065 38,665 37,044
Net loss (Note I) $ (8,491) $(7,134) $(4,573)
Net loss allocated to general partners (2%) $ (170) $ (143) $ (91)
Net loss allocated to limited partners (98%) (8,321) (6,991) (4,482)
$ (8,491) $(7,134) $(4,573)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and
outstanding) $ (9,134) $(7,674) $(4,921)
Portfolio II (267 interests issued and
outstanding) $ (9,135) $(7,674) $(4,918)
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands)
VMS National Residential Portfolio I
Limited Partners
General Accumulated Subscription
Partner Deficit Notes Total Total
Partners' deficit at December 31,
2001 $(3,577) $(109,200) $ (502) $(109,702) $(113,279)
Net loss for the year ended
December 31, 2002 (64) (3,169) -- (3,169) (3,233)
Partner's deficit at December 31,
2002 (3,641) (112,369) (502) (112,871) (116,512)
Net loss for the year ended
December 31, 2003
(101) (4,942) -- (4,942) (5,043)
Partners' deficit at December 31,
2003 (3,742) (117,311) (502) (117,813) (121,555)
Net loss for the year ended
December 31, 2004
(120) (5,882) -- (5,882) (6,002)
Partners' deficit at December 31,
2004 $(3,862) $(123,193) $ (502) $(123,695) $(127,557)
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partner Deficit Notes Total Total
Partners' deficit at December 31, $(1,497) $(45,850) $ (328) $(46,178) $ (47,675)
2001
Net loss for the year ended
December 31, 2002 (27) (1,313) -- (1,313) (1,340)
Partner's deficit at December 31,
2002 (1,524) (47,163) (328) (47,491) (49,015)
Net loss for the year ended
December 31, 2003 (42) (2,049) -- (2,049) (2,091)
Partners' deficit at December 31,
2003 (1,566) (49,212) (328) (49,540) (51,106)
Net loss for the year ended
December 31, 2004 (50) (2,439) -- (2,439) (2,489)
Partners' deficit at December 31,
2004 $(1,616) $(51,651) $ (328) (51,979) (53,595)
Combined partners' deficit at
December 31, 2004 $(5,478) $(174,844) $ (830)$(175,674) $(181,152)
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
For The Years Ended December 31,
2004 2003 2002
Cash flows from operating activities:
Net loss $(8,491) $(7,134) $(4,573)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 7,147 6,984 6,769
Amortization of mortgage discounts 4,822 5,079 4,562
Casualty gain (45) (164) (513)
Change in accounts:
Receivables and deposits (321) 45 (135)
Other assets (152) (207) (70)
Accounts payable (353) 509 (560)
Tenant security deposit liabilities 6 (44) (120)
Accrued interest 1,886 1,032 757
Accrued property taxes 95 (3) 34
Due to affiliate 403 291 291
Other liabilities 6 (1) 461
Net cash provided by operating activities 5,003 6,387 6,903
Cash flows from investing activities:
Property improvements and replacements (2,923) (2,786) (4,187)
Insurance proceeds received 74 196 656
Net (deposits to) withdrawals from restricted
escrows (219) (47) 611
Net cash used in investing activities (3,068) (2,637) (2,920)
Cash flows from financing activities:
Payments on mortgage notes payable (4,374) (4,795) (6,225)
Advances from (payments to) an affiliate 2,742 (3) 3
Net cash used in financing activities (1,632) (4,798) (6,222)
Net increase (decrease) in cash and cash
equivalents 303 (1,048) (2,239)
Cash and cash equivalents at beginning of year 1,761 2,809 5,048
Cash and cash equivalents at end of year $ 2,064 $ 1,761 $ 2,809
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately
$465, $1,600, and $1,984 paid to an affiliate $ 9,262 $10,346 $11,268
Supplemental disclosure of non-cash information:
Accrued interest added to mortgage notes payable $ 2,124 $ 937 $ 1,053
Property improvements and replacements included
in accounts payable and other liabilities $ 857 $ 330 $ 25
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2004
Note A - Organization and Summary of Significant Accounting Policies
Organization:
VMS National Properties Joint Venture (the "Venture") was formed as a general
partnership pursuant to the Uniform Venture Act of the State of Illinois and a
joint venture agreement (the "Venture Agreement") dated September 27, 1984,
between VMS National Residential Portfolio I ("Portfolio I") and VMS National
Residential Portfolio II ("Portfolio II") (collectively, the "Ventures").
Effective December 12, 1997, the managing general partner of each of the
Ventures was transferred from VMS Realty Investment, Ltd. ("VMSRIL") (formerly
VMS Realty Partners) to MAERIL, Inc. ("MAERIL" or the "Managing General
Partner"), a wholly-owned subsidiary of MAE GP Corporation ("MAE GP") and an
affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective February 25,
1998, MAE GP was merged with Insignia Properties Trust ("IPT"), which was an
affiliate of Insignia. Effective October 1, 1998 and February 26, 1999, Insignia
and IPT were respectively merged into Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust. Thus the
Managing General Partner is now a wholly-owned subsidiary of AIMCO. The Venture
Agreement provides that the Venture is to terminate on December 8, 2044, unless
terminated prior to such date. The Venture owns and operates 15 residential
apartment complexes located in or near major urban areas in the United States.
Pursuant to the terms of the Joint Venture Agreement for the Venture and the
respective Venture Agreements for Portfolio I and Portfolio II, the Managing
General Partner will manage Portfolio I, Portfolio II, VMS National Properties
and each of the Venture's operating properties. The Limited Partners do not
participate in or control the management of their respective partnership, except
that certain events must be approved by the Limited Partners. These events
include: (1) voluntary dissolution of either Portfolio I or Portfolio II, and
(2) amending substantive provisions of either Venture Agreement.
Basis of Accounting:
The accompanying financial statements represent the combined financial
statements of Portfolio I, Portfolio II, and the Venture. Significant
interpartnership accounts and transactions have been eliminated from these
combined financial statements.
Allocation of Income, Loss, and Distributions:
The operating profits and losses of VMS National Properties Joint Venture are
allocated to Portfolio I and Portfolio II based on their respective ownership of
VMS National Properties Joint Venture which is 70.69% and 29.31%, respectively.
Portfolio I and Portfolio II then combine their respective share of the
operating profits and losses of VMS National Properties Joint Venture with their
respective operating profits and losses which is then allocated 98% to the
respective limited partners and 2% to the respective general partners of both
Portfolio I and Portfolio II.
Operating cash flow distributions for Portfolio I and Portfolio II will be made
at the discretion of the Managing General Partner subject to the order of
distribution indicated in the Venture's Second Amended and Restated Plan of
Reorganization (the "Plan") as approved by the US Bankruptcy Court in September
1993. Such distributions will be allocated first to the respective Limited
Partners in an amount equal to 12% per year (on a noncumulative basis) of their
contributed capital; then, to the general partners, a subordinated incentive fee
equal to 10.45% of remaining operating cash flow; and finally, of the balance to
be distributed, 98% to the Limited Partners and 2% to the general partners.
Distributions of proceeds arising from the sale or refinancing of the Venture's
properties will be allocated to Portfolio I and Portfolio II in proportion to
their respective Venture interests subject to the order of distribution
indicated in the Plan and approved by the U.S. Bankruptcy Court. Distributions
by Portfolio I and Portfolio II will then be allocated as follows: (1) first to
the Limited Partners in an amount equal to their aggregate capital
contributions; (2) then to the general partners in an amount equal to their
aggregate capital contributions; (3) then, among the Limited Partners, an amount
equal to $62,000,000 multiplied by the respective percentage interest of
Portfolio I or Portfolio II in the Venture; and (4) finally, of the balance, 76%
to the Limited Partners and 24% to the general partners.
In any event, there shall be allocated to the general partners not less than 1%
of profits or losses.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about
Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures
about Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Venture believes that
the carrying amount of its financial instruments (except for long term debt)
approximates their fair value due to the short term maturity of these
instruments. The Venture estimates the fair value of its long term debt by
discounting future cash flows using a discount rate commensurate with that
currently believed to be available to the Venture for similar term, fully
amortizing long term debt. The fair value of the Venture's first mortgages,
after discounting the scheduled loan payments to maturity, is approximately
$104,744,000. However, the Venture is precluded from refinancing the first
mortgages 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, the Assignment Note and the Long Term Arrangement Fee Note, as there
is 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.
Cash and Cash Equivalents:
Cash and cash equivalents include cash on hand and in banks. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
At December 31, 2004 and 2003, cash balances included approximately $1,908,000
and $1,613,000, respectively, that are maintained by an affiliated management
company on behalf of affiliated entities in cash concentration accounts.
Tenant Security Deposits:
The Venture requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables and deposits. The security
deposits are refunded when the tenant vacates, provided the tenant has not
damaged its space, and is current on its rental payments.
Investment Properties:
Investment properties consist of fifteen apartment complexes and are stated at
cost. Acquisition fees are capitalized as a cost of real estate. The Venture
capitalizes all expenditures in excess of $250 that clearly relate to the
acquisition and installation of real and personal property components. These
expenditures include costs incurred to replace existing property components,
costs incurred to add a material new feature to a property, and costs that
increase the useful life or service potential of a property component. These
capitalized costs are depreciated over the useful life of the asset.
Expenditures for ordinary repairs, maintenance and apartment turnover costs are
expensed as incurred. In accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," the Venture records impairment
losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets. No adjustments for impairment of value were recorded in the years
ended December 31, 2004, 2003 or 2002.
Escrows:
In connection with the December 1997 refinancing of the Venture's 15 remaining
properties, a replacement escrow was required for each property. Each property
was required to deposit an initial lump sum amount plus make monthly deposits
over the term of the loan, which varies by property. These funds are to be used
to cover replacement costs. The balance of the replacement reserves at December
31, 2004 and 2003 is approximately $1,115,000 and $896,000, respectively,
including interest.
Depreciation:
Depreciation is computed by the straight-line method over estimated useful lives
ranging from 25 to 30 years for buildings and improvements and five to fifteen
years for personal property.
Leases:
The Venture generally leases apartment units for twelve-month terms or less. The
Venture will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Rental
income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
Deferred Costs:
Leasing commissions and other direct costs incurred in connection with
successful leasing efforts are deferred and amortized over the terms of the
related leases. Amortization of these costs is included in operating expenses.
Advertising Costs:
The Venture expenses the cost of advertising as incurred. Advertising costs of
approximately $553,000, $471,000 and $390,000, are included in operating expense
for the years ended December 31, 2004, 2003, and 2002, respectively.
Segment Reporting:
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" established standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. As defined in SFAS No. 131, the Venture has only one reportable
segment.
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.
Income Taxes:
Taxable income or loss of the Venture is reported in the income tax returns of
its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Venture.
Note B - Mortgage Notes Payable
Principal Principal Principal
Balance At Balance At Balance
December 31, December 31, Period Due At
Property 2004 2003 Amortized Maturity
(in thousands) (in thousands)
North Park Apartments
1st mortgage $ 5,750 $ 5,856 25 yrs $ 5,376
2nd mortgage 2,446 2,248 (A) (A)
Chapelle Le Grande
1st mortgage 2,955 3,005 25 yrs 2,759
2nd mortgage 1,205 1,141 (A) (A)
Terrace Gardens
1st mortgage 4,083 4,159 25 yrs 3,818
2nd mortgage 1,421 1,305 (A) (A)
Forest Ridge Apartments
1st mortgage 5,434 5,533 25 yrs 5,073
2nd mortgage 566 663 (A) (A)
Scotchollow
1st mortgage 26,834 27,326 25 yrs 25,054
2nd mortgage 8,861 8,029 (A) (A)
Pathfinder Village
1st mortgage 12,380 12,626 25 yrs 11,576
2nd mortgage 2,816 2,639 (A) (A)
Buena Vista Apartments
1st mortgage 4,562 4,646 25 yrs 4,260
2nd mortgage 62 445 (A) (A)
Mountain View Apartments
1st mortgage 6,592 6,713 25 yrs 6,154
2nd mortgage (B) -- 275 (A) (A)
Crosswood Park
1st mortgage 5,120 5,215 25 yrs 4,788
2nd mortgage 299 458 (A) (A)
Casa de Monterey
1st mortgage 3,772 3,847 25 yrs 3,479
2nd mortgage 268 496 (A) (A)
The Bluffs
1st mortgage 3,429 3,492 25 yrs 3,202
2nd mortgage 1,349 1,232 (A) (A)
Watergate Apartments
1st mortgage 2,665 2,718 25 yrs 2,492
2nd mortgage 840 768 (A) (A)
Shadowood Apartments
1st mortgage 2,074 2,109 25 yrs 1,936
2nd mortgage 88 234 (A) (A)
Vista Village Apartments
1st mortgage 3,059 3,111 25 yrs 2,856
2nd mortgage 1,215 1,103 (A) (A)
Towers of Westchester Park
1st mortgage 11,160 11,365 25 yrs 10,420
2nd mortgage 687 1,485 (A) (A)
Totals $121,992 $124,242 $93,243
(A) Payments are based on excess monthly cash flow with any unpaid balance due
at maturity. Excess monthly cash flow is defined as revenue generated from
the operation of a property less: (1) operating expenses of the property;
(2) the debt service payment for the senior loan; (3) the tax and
insurance reserve deposit; and (4) the replacement reserve deposit.
(B) Second mortgage loan was satisfied in 2004.
Interest rates are 8.50% and 10.84% for the fixed rate first and second
mortgages, respectively. All notes mature January 1, 2008.
The senior debt includes prepayment penalties if repaid prior to January 1,
2007. All of the loans are cross-collateralized, but they are not
cross-defaulted; therefore, a default by one property under the terms of its
debt agreement does not in and of itself create a default under all of the
senior and junior debt agreements. However, if the proceeds upon the sale or
refinancing of any property are insufficient to fully repay the outstanding
senior or junior debt related to that property, any deficiency is to be
satisfied from the sale or refinancing of the remaining properties.
Scheduled principal payments on mortgage notes payable subsequent to December
31, 2004 are as follows (in thousands):
2005 $ 1,972
2006 2,201
2007 2,403
2008 115,416
$121,992
As principal payments for the junior loans are based upon monthly cash flow, all
principal is assumed to be repaid at maturity.
Note C - Notes Payable
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 December 31, 2004 and 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 SOP 90-7, the
Assignment Note, the Long-Term Loan Arrangement Fee Note (as defined below) and
related accrued interest were adjusted to the present value of amounts to be
paid using an estimated current interest rate of 11.5%. 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 D - 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 $32,009,000 and
$36,518,000 for the years ended December 31, 2004 and 2003, respectively. The
Managing General Partner reevaluated the fair value of the participation feature
during the year ended December 31, 2004 and concluded that the fair value of the
participation feature should be reduced by approximately $4,509,000. 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 reduction in the fair values of
the participation feature is attributable to an increase in the estimated value
of the junior loans and advances from the Managing General Partner that will be
due at maturity partially offset by an increase in the estimated fair value of
the collateral properties. During the years ended December 31, 2004 and 2003,
the Venture amortized approximately $4,822,000 and $5,079,000, respectively, of
the mortgage participation debt discount which is included in interest expense.
The related mortgage participation debt discount at December 31, 2004 and 2003
was approximately $13,455,000 and $22,786,000, respectively.
Note E - Casualty Gain
During the twelve months ended December 31, 2004, a net casualty gain of
approximately $45,000 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 $8,000 of
undepreciated property improvements and replacements being written off and
approximately $21,000 of emergency repairs made at the property.
During the twelve months ended December 31, 2003, the Venture recorded a net
casualty gain of approximately $164,000. The casualty gain resulted from fires
at both Shadowood and Pathfinder Village Apartments.
In September 2002 a fire at Shadowood Apartments caused damage to eight units at
the property. A net casualty gain of approximately $65,000 was recorded in
relation to this fire. 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.
In February 2003, a fire at Pathfinder Village Apartments caused damage to five
units at the property. A net casualty gain of approximately $99,000 was recorded
in relation to this fire. The gain was a result of the receipt of insurance
proceeds of approximately $118,000 offset by approximately $19,000 of
undepreciated property improvements and replacements being written off.
During the twelve months ended December 31, 2002, the Venture recorded a net
casualty gain of approximately $513,000. The casualty gain resulted from both a
fire and wind damage at Chappelle Le Grande, a fire at Scotchollow and wind
damage at Terrace Gardens as discussed below.
In March 2002, a wind storm caused roof damage at Chappelle Le Grande. The gain
of approximately $62,000 associated with this casualty was the result of the
receipt of insurance proceeds of approximately $74,000 offset by approximately
$12,000 of undepreciated property improvements and replacements being written
off.
In February 2002, a fire at Chappelle Le Grande caused damage to the clubhouse
and surrounding structures. A net casualty gain of approximately $69,000 was
recorded in relation to this fire. The gain was the result of the receipt of
insurance proceeds of approximately $126,000 offset by approximately $15,000 of
undepreciated property improvements and replacements being written off and
approximately $42,000 of emergency repairs made at the property.
In January 2002, a fire caused damage to the fitness center at Scotchollow. A
net casualty gain of approximately $349,000 was recorded in relation to this
fire. The gain was a result of the receipt of insurance proceeds of
approximately $423,000 offset by approximately $74,000 of undepreciated property
improvements and replacements being written off.
During 2001, a net casualty gain of approximately $40,000 was recorded at
Terrace Gardens. The casualty gain related to wind damage in April 2001. The
gain was the result of the receipt of insurance proceeds of approximately
$58,000 offset by approximately $18,000 of undepreciated property improvements
and replacements being written off. During the twelve months ended December 31,
2002, final insurance proceeds of approximately $33,000 related to this casualty
were received and recorded as an additional casualty gain.
Note F - 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 $323,000, $325,000 and $326,000 were
earned and paid to affiliates of the Managing General Partner for the years
ended December 31, 2004, 2003 and 2002, respectively. These fees are included in
general and administrative expenses.
Affiliates of the Managing General Partner 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
$1,201,000, $1,253,000 and $1,289,000 for the years ended December 31, 2004,
2003 and 2002, respectively.
Affiliates of the Managing General Partner charged the Venture reimbursement of
accountable administrative expenses amounting to approximately $100,000 for each
of the years ended December 31, 2004, 2003 and 2002. At December 31, 2003,
approximately $4,000 of such fees were accrued by the Venture and are included
in due to affiliate on the accompanying combined balance sheet. No amounts were
owed at December 31, 2004. During the years ended December 31, 2004, 2003 and
2002, the Venture paid fees related to construction management services provided
by an affiliate of the Managing General Partner of approximately $168,000,
$130,000 and $308,000, respectively, and are included in investment properties.
The construction management service fees are calculated based on a percentage of
current year additions to investment properties.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $123,000 for each of the years ended December 31,
2004, 2003 and 2002, which are included in operating expenses.
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 December 31, 2004 and 2003, the outstanding balance
of approximately $79,000 is included in other liabilities.
In December 2002, an affiliate of the Managing General Partner loaned
approximately $3,000 to cover operating expenses at Pathfinder Village. This
amount was repaid during the first quarter of 2003. In addition, during the year
ended December 31, 2004 and in December 2001, an affiliate of the Managing
General Partner loaned the Venture's investment properties approximately
$2,742,000 and $3,605,000, respectively, to cover expenses and capital
expenditures required at all of the properties. In accordance with the terms of
the Venture Agreement, interest is charged on these loans at the prime rate plus
3% (8.25% at December 31, 2004). At December 31, 2004 and 2003, the balance of
the loans and accrued interest on the loans was approximately $7,335,000 and
$4,186,000, respectively, and is included in due to affiliate. Interest expense
amounted to approximately $407,000, $287,000 and $290,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
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 the years ended December
31, 2004, 2003 or 2002.
The junior debt of approximately $22,123,000 and $22,521,000 at December 31,
2004 and 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
years ended December 31, 2004, 2003 and 2002, the Venture recognized interest
expense on the junior debt of approximately $2,444,000, $2,534,000 and
$3,029,000, 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 years ended December 31, 2004, 2003, and 2002, the Venture was
charged by AIMCO and its affiliates approximately $423,000, $474,000 and
$574,000, respectively, for insurance coverage and fees associated with policy
claims administration.
As a result of tender offers, AIMCO and its affiliates owned 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% at December 31, 2004.
AIMCO and its affiliates owned 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% at December 31, 2004. 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 Venture 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.
Note G - Subscription Notes And Accrued Interest Receivable
Portfolio I and Portfolio II executed promissory notes requiring cash
contributions from the partners aggregating $136,800,000 to the capital of
Portfolios I and II for 644 and 267 units, respectively. Of this amount,
approximately $135,060,000 was contributed in cash through December 31, 2004,
and $910,000 was deemed uncollectible and written-off prior to December 31,
2004. The following table represents the remaining Limited Partners'
subscription notes principal balances and the related accrued interest
receivable at December 31, 2004 (in thousands):
Portfolio I Portfolio II
Subscription notes receivable $502 $328
Accrued interest receivable 63 67
Allowance for uncollectible interest
receivable (63) (67)
Total subscription notes and accrued
interest receivable $502 $328
All amounts outstanding at December 31, 2004, are considered past due and bear
interest at the default rate of 18%. No interest will be recognized until
collection is assured. The balances have been appropriately included as a
reduction of Partners' Capital.
Note H - Investment Properties and Accumulated Depreciation
Initial Cost
(in thousands)
Buildings and Costs Provision
Capitalized to
Related Subsequent to Reduce to
Personal
Description Encumbrances Land Property Acquisition Fair Value
(in thousands) (in thousands)
North Park Apartments $ 8,196 $ 557 $ 8,349 $ 2,683 $ --
Chapelle Le Grande 4,160 166 3,873 1,263 --
Terrace Garden 5,504 433 4,517 2,271 --
Forest Ridge Apartments 6,000 701 6,930 2,443 --
Scotchollow 35,695 3,510 19,344 9,060 --
Pathfinder Village 15,196 3,040 11,698 6,098 (1,250)
Buena Vista Apartments 4,624 893 4,538 1,157 --
Mountain View Apartments 6,592 1,289 8,490 2,253 --
Crosswood Park 5,419 611 8,597 3,572 (2,000)
Casa De Monterey 4,040 869 6,136 2,256 --
The Bluffs 4,778 193 3,667 1,011 --
Watergate Apartments 3,505 263 5,625 2,173 --
Shadowood Apartments 2,162 209 3,393 1,189 --
Vista Village Apartments 4,274 568 5,209 1,877 --
Towers Of Westchester 11,847 529 13,491 5,119 --
Park
TOTAL $121,992 $13,831 $113,857 $44,425 $(3,250)
Gross Amount At Which Carried
At December 31, 2004
(in thousands)
Buildings Accum-
And ulated Year of Date of
Related
Personal Deprec- Construc-Acquis- Depreciable
Description Land Property Total iation tion ition Life Years
North Park Apartments $ 557 $ 11,032 $ 11,589 $ 8,639 1968 11/14/84 5-30 yrs
Chapelle Le Grande 166 5,136 5,302 3,998 1972 12/05/84 5-30 yrs
Terrace Gardens 433 6,788 7,221 4,995 1973 10/26/84 5-30 yrs
Forest Ridge Apartments 701 9,373 10,074 7,429 1974 10/26/84 5-30 yrs
Scotchollow 3,510 28,404 31,914 22,038 1973 10/26/84 5-30 yrs
Pathfinder Village 2,753 16,833 19,586 12,644 1971 10/26/84 5-30 yrs
Buena Vista Apartments 893 5,695 6,588 4,551 1972 10/26/84 5-30 yrs
Mountain View Apartments 1,289 10,743 12,032 7,640 1978 10/26/84 5-30 yrs
Crosswood Park 471 10,309 10,780 7,292 1977 12/05/84 5-30 yrs
Casa De Monterey 869 8,392 9,261 6,603 1970 10/26/84 5-30 yrs
The Bluffs 193 4,678 4,871 3,801 1968 10/26/84 5-30 yrs
Watergate Apartments 263 7,798 8,061 5,987 1972 10/26/84 5-30 yrs
Shadowood Apartments 209 4,582 4,791 3,691 1974 11/14/84 5-30 yrs
Vista Village Apartments 568 7,086 7,654 5,617 1971 10/26/84 5-30 yrs
Towers Of Westchester 529 18,610 19,139 14,584 1971 10/26/84 5-30 yrs
Park
TOTAL $13,404 $155,459 $168,863 $119,509
The aggregate cost of the investment properties for Federal income tax purposes
at December 31, 2004 and 2003, is approximately $185,671,000 and $182,545,000,
respectively. The accumulated depreciation for Federal income tax purposes at
December 31, 2004 and 2003, is approximately $154,247,000 and $151,469,000,
respectively.
Reconciliation of Investment Properties and Accumulated Depreciation (in
thousands):
2004 2003 2002
Investment Properties
Balance at beginning of year $165,448 $162,478 $159,460
Property improvements and
replacements 3,450 3,091 3,369
Dispositions of property (35) (121) (351)
Balance at end of year $168,863 $165,448 $162,478
Accumulated Depreciation
Balance at beginning of year $112,389 $105,494 $ 98,975
Additions charged to expense 7,147 6,984 6,769
Dispositions of property (27) (89) (250)
Balance at end of year $119,509 $112,389 $105,494
Note I - Income Taxes
The following is a reconciliation of reported net loss per the financial
statements to the Federal taxable income to partners (in thousands except per
unit amounts):
2004 2003 2002
Net loss as reported $ (8,491) $ (7,134) $ (4,573)
Depreciation differences 4,368 4,120 1,437
Unearned income (62) 14 166
Casualty loss (45) (124) (566)
Residual proceeds expense 4,822 5,079 4,562
Other 33 645 63
Federal taxable income $ 625 $ 2,600 $ 1,089
Portfolio I Allocation $ 441 $ 1,836 $ 768
Portfolio II Allocation 184 764 319
Net income per limited partnership interest:
Portfolio I Allocation $ 2,772 $ 4,147 $ 2,569
Portfolio II Allocation 2,797 4,183 2,591
The following is a reconciliation between the Venture's reported amounts and
Federal tax basis of net liabilities at December 31, 2004 and 2003 (in
thousands):
2004 2003
Net liabilities as reported $(181,152) $(172,661)
Land and buildings 16,808 17,099
Accumulated depreciation (34,738) (39,079)
Syndication costs 17,650 17,650
Deferred gain 42,225 42,225
Other deferred costs 9,601 9,601
Other (52,213) (52,457)
Notes payable 4,882 4,882
Subscription notes receivable 1,837 1,837
Mortgage payable (47,727) (47,727)
Residual proceeds liability 18,554 13,732
Accrued interest 9,571 9,571
Net liabilities - Federal tax basis $(194,702) $(195,327)
Note J - Contingencies
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Managing General Partner, are defendants in an action in the
United States District Court, District of Columbia. The plaintiffs have styled
their complaint as a collective action under the Fair Labor Standards Act
("FLSA") and seek 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, plaintiffs allege 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. Discovery
relating to the certification of the collective action has concluded and
briefing is currently underway. 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.
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.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, the presence of hazardous
substances on a property could result in claims by private plaintiffs for
personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership and operation of its properties, the Venture
could potentially be liable for environmental liabilities or costs associated
with its properties.
Mold
The Venture is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Venture has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the Managing General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
its properties and the Managing General Partner believes that these measures
will eliminate, or at least minimize, the effects that mold could have on
residents. To date, the Venture has not incurred any material costs or
liabilities relating to claims of mold exposure or to abate mold conditions.
Because the law regarding mold is unsettled and subject to change the Managing
General Partner can make no assurance that liabilities resulting from the
presence of or exposure to mold will not have a material adverse effect on the
Venture's combined financial condition or results of operations.
SEC Investigation
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 K - Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Venture (in thousands, except per interest data):
1st 2nd 3rd 4th
2004 Quarter Quarter Quarter Quarter Total
(restated) (A)
Total revenues $ 7,474 $ 7,453 $ 7,764 $ 7,883 $30,574
Total expenses 9,643 9,919 9,791 9,712 39,065
Net loss $(2,169) $(2,466) $(2,027) $(1,829)$ (8,491)
Net loss per limited partnership
interest:
Portfolio I (644 interests issued
and outstanding) $(2,334) $(2,652) $(2,181) $(1,967)$ (9,134)
Portfolio II (267 interests issued
and outstanding) $(2,333) $(2,652) $(2,182) $(1,968)$ (9,135)
(A) The third quarter of 2004 has been restated to reflect a change in estimate
which resulted in a decrease in the fair value of the mortgage participation
liability effective July 1, 2004.
1st 2nd 3rd 4th
2003 Quarter Quarter Quarter Quarter Total
Total revenues $ 7,927 $ 8,041 $ 7,872 $ 7,691 $31,531
Total expenses 9,747 9,328 9,718 9,872 38,665
Net loss $(1,820) $(1,287) $(1,846) $(2,181) $(7,134)
Net loss per limited partnership interest:
Portfolio I (644 interests issued and
outstanding) $(1,958) $(1,385) $(1,986) $(2,345) $(7,674)
Portfolio II (267 interests issued
and outstanding) $(1,955) $(1,382) $(1,985) $(2,352) $(7,674)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9a. 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
fourth quarter of 2004 that have materially affected, or are reasonably likely
to materially affect, the Venture's internal control over financial reporting.
Item 9b. Other Information
None.
PART III
Item 10. Directors and Officers of the Venture
The Ventures have no directors or officers. The Managing General Partner manages
substantially all of the affairs and has general responsibility in all matters
affecting the business of the Venture. Effective December 12, 1997, the managing
general partner of each of the Ventures was transferred from VMS Realty
Investment, Ltd. ("VMSRIL") (formerly VMS Realty Partners) to MAERIL, Inc.
("MAERIL" or the "Managing General Partner"), a wholly-owned subsidiary of MAE
GP Corporation ("MAE GP") and an affiliate of Insignia Financial Group, Inc.
("Insignia"). Effective February 25, 1998, MAE GP was merged with Insignia
Properties Trust ("IPT"), which is an affiliate of Insignia. Effective October
1, 1998 and February 26, 1999; Insignia and IPT were respectively merged into
Apartment Investment and Management Company ("AIMCO"). Thus, the Managing
General Partner is now a wholly-owned subsidiary of AIMCO.
The names of the directors and executive officers of the Managing General
Partner, their ages and the nature of all positions with the Managing General
Partner presently held by them are set forth below. There are no family
relationships between or among any directors or officers.
Name Age Position
Martha L. Long 45 Director and Senior Vice President
Harry G. Alcock 43 Director and Executive Vice President
Miles Cortez 61 Executive Vice President, General Counsel
and Secretary
Patti K. Fielding 41 Executive Vice President
Paul J. McAuliffe 48 Executive Vice President and Chief
Financial Officer
Thomas M. Herzog 42 Senior Vice President and Chief Accounting
Officer
Stephen B. Waters 43 Vice President
Martha L. Long has been a Director and Senior Vice President of the Managing
General Partner since February 2004. Ms. Long has been with AIMCO since
October 1998 and has served in various capacities. From 1998 to 2001, Ms.
Long served as Senior Vice President and Controller of AIMCO and the Managing
General Partner. During 2002 and 2003, Ms. Long served as Senior Vice
President of Continuous Improvement for AIMCO.
Harry G. Alcock was appointed as a Director of the Managing General Partner in
October 2004 and was appointed Executive Vice President of the Managing General
Partner in February 2004 and has been Executive Vice President and Chief
Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock
served as a Vice President of AIMCO from July 1996 to October 1997, when he was
promoted to Senior Vice President Acquisitions where he served until October
1999. Mr. Alcock has had responsibility for acquisition and financing activities
of AIMCO since July 1994.
Miles Cortez was appointed Executive Vice President, General Counsel and
Secretary of the Managing General Partner in February 2004 and of AIMCO in
August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez
Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through
September 2001.
Patti K. Fielding was appointed Executive Vice President - Securities and Debt
of the Managing General Partner in February 2004 and of AIMCO in February 2003.
Ms. Fielding was appointed Treasurer of AIMCO in January 2005. Ms. Fielding is
responsible for debt financing and the treasury department. Ms. Fielding
previously served as Senior Vice President - Securities and Debt of AIMCO from
January 2000 to February 2003. Ms. Fielding joined AIMCO in February 1997 as a
Vice President.
Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer
of the Managing General Partner since April 2002. Mr. McAuliffe has served as
Executive Vice President of AIMCO since February 1999 and was appointed Chief
Financial Officer of AIMCO in October 1999. From May 1996 until he joined AIMCO,
Mr. McAuliffe was Senior Managing Director of Secured Capital Corp.
Thomas M. Herzog was appointed Senior Vice President and Chief Accounting
Officer of the Managing General Partner in February 2004 and of AIMCO in January
2004. Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate,
serving as Chief Accounting Officer & Global Controller from April 2002 to
January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior
to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990
until 2000.
Stephen B. Waters was appointed Vice President of the Managing General Partner
in April 2004. Mr. Waters previously served as a Director of Real Estate
Accounting since joining AIMCO in September 1999. Mr. Waters has
responsibilities for real estate and partnership accounting with AIMCO.
One or more of the above persons are also directors and/or officers of a general
partner (or general partner of a general partner) of limited partnerships which
either have a class of securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, or are subject to the reporting requirements of
Section 15(d) of such Act. Further, one or more of the above persons are also
directors and/or officers of Apartment Investment and Management Company and the
general partner of AIMCO Properties, L.P., entities that have a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, or are subject to the reporting requirements of Section 15 (d) of such
Act.
The board of directors of the Managing General Partner does not have a separate
audit committee. As such, the board of directors of the Managing General Partner
fulfills the functions of an audit committee. The board of directors has
determined that Martha L. Long meets the requirement of an "audit committee
financial expert".
The directors and officers of the Managing General Partner with authority over
the Venture are all employees of subsidiaries of AIMCO. AIMCO has adopted a code
of ethics that applies to such directors and officers that is posted on AIMCO's
website (www.AIMCO.com). AIMCO's website is not incorporated by reference to
this filing.
Item 11. Executive Compensation
No compensation or remuneration was paid by the Venture to any officer or
director of the Managing General Partner. However, reimbursements and other
payments have been made to the Venture's current and former managing general
partners and their affiliates, as described in "Item 13. Certain Relationships
and Related Transactions".
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners.
Except as noted below, no persons or entity owns of record or is known by the
Venture to own beneficially more than 5% of the outstanding Interests of either
of the Ventures as of December 31, 2004.
Entity Number of Units Percentage
National Residential Portfolio I
AIMCO Properties, L.P. 119.00 18.48%
(an affiliate of AIMCO)
National Residential Portfolio II
AIMCO Properties, L.P. 67.42 25.25%
(an affiliate of AIMCO)
AIMCO Properties, L.P. is indirectly ultimately controlled by AIMCO. Its
business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado
80237.
(b) Security ownership of management.
No officers or directors of MAERIL or of Prudential-Bache Properties, Inc., the
general partners of the Ventures, own any Limited Venture Interests in the
Ventures.
No general partners, officers or directors of the general partners of the
Venture possess the right to acquire a beneficial ownership of Interests in
either of the Ventures.
Item 13. Certain Relationships and Related Transactions
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 $323,000, $325,000 and $326,000 were
earned and paid to affiliates of the Managing General Partner for the years
ended December 31, 2004, 2003 and 2002, respectively. These fees are included in
general and administrative expenses.
Affiliates of the Managing General Partner 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
$1,201,000, $1,253,000 and $1,289,000 for the years ended December 31, 2004,
2003 and 2002, respectively.
Affiliates of the Managing General Partner charged the Venture reimbursement of
accountable administrative expenses amounting to approximately $100,000 for each
of the years ended December 31, 2004, 2003 and 2002. At December 31, 2003,
approximately $4,000 of such fees were accrued by the Venture and are included
in due to affiliate on the accompanying combined balance sheet. No amounts were
owed at December 31, 2004. During the years ended December 31, 2004, 2003 and
2002, the Venture paid fees related to construction management services provided
by an affiliate of the Managing General Partner of approximately $168,000,
$130,000 and $308,000, respectively, and are included in investment properties.
The construction management service fees are calculated based on a percentage of
current year additions to investment properties.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $123,000 for each of the years ended December 31,
2004, 2003 and 2002, which are included in operating expenses.
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 December 31, 2004 and 2003, the outstanding balance
of approximately $79,000 is included in other liabilities.
In December 2002, an affiliate of the Managing General Partner loaned
approximately $3,000 to cover operating expenses at Pathfinder Village. This
amount was repaid during the first quarter of 2003. In addition, during the year
ended December 31, 2004 and in December 2001, an affiliate of the Managing
General Partner loaned the Venture's investment properties approximately
$2,742,000 and $3,605,000, respectively, to cover expenses and capital
expenditures required at all of the properties. In accordance with the terms of
the Venture Agreement, interest is charged on these loans at the prime rate plus
3% (8.25% at December 31, 2004). At December 31, 2004 and 2003, the balance of
the loans and accrued interest on the loans was approximately $7,335,000 and
$4,186,000, respectively, and is included in due to affiliate. Interest expense
amounted to approximately $407,000, $287,000 and $290,000 for the years ended
December 31, 2004, 2003 and 2002, respectively.
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 the years ended December
31, 2004, 2003 or 2002.
The junior debt of approximately $22,123,000 and $22,521,000 at December 31,
2004 and 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
years ended December 31, 2004, 2003 and 2002, the Venture recognized interest
expense on the junior debt of approximately $2,444,000, $2,534,000 and
$3,029,000, 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 years ended December 31, 2004, 2003, and
2002, the Venture was charged by AIMCO and its affiliates approximately
$423,000, $474,000 and $574,000, respectively, for insurance coverage and fees
associated with policy claims administration.
As a result of tender offers, AIMCO and its affiliates owned 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% at December 31, 2004.
AIMCO and its affiliates owned 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% at December 31, 2004. 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 Venture 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.
Item 14. Principal Accounting Fees and Services
The Managing General Partner has reappointed Ernst & Young LLP as independent
auditors to audit the financial statements of the Partnership for 2005. The
aggregate fees billed for services rendered by Ernst & Young LLP for 2004, 2003
and 2002 are described below.
Audit Fees. Fees for audit services totaled approximately $105,000, $101,000,
and $105,000 for 2004, 2003, and 2002, respectively. Fees for audit services
also include fees for the reviews of the Partnership's Quarterly Reports on Form
10-Q.
Tax Fees. Fees for tax services totaled approximately $46,000, $55,000 and
$58,000 for 2004, 2003, and 2002, respectively.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following combined financial statements of the Venture are included in
Item 8:
Combined Balance Sheets at December 31, 2004 and 2003.
Combined Statements of Operations for the years ended December 31, 2004,
2003 and 2002.
Combined Statements of Changes in Partners' Deficit for the years ended
December 31, 2004, 2003 and 2002.
Combined Statements of Cash Flows for the years ended December 31, 2004,
2003 and 2002.
Notes to Combined Financial Statements
Schedules are omitted for the reason that they are inapplicable or
equivalent information has been included elsewhere herein.
The following items are incorporated by reference:
Part V - Amended Restated Certificate and Agreement of:
Item 1(b)(i) Limited Venture of VMS National Residential Portfolio I.
Item 1(b)(ii) Limited Venture of VMS National Residential Portfolio II.
Item 1(b)(iii) Joint Venture Agreement between VMS National Residential
Portfolio I and VMS National Residential Portfolio II.
Exhibit 3(a), VMS National Properties Joint Venture Agreement (Exhibit 3
to the Venture's Annual Report on Form 10-K for the year ended December
31, 2002, is incorporated herein by reference).
Exhibit 3(b), Amended and Restated Limited Venture Agreement and
Certificate of Limited Venture of VMS National Properties Portfolio I
(Exhibit 3 to the Venture's Annual Report on Form 10-K for the year ended
December 31, 2002, is incorporated herein by reference).
Exhibit 3(c), Amended and Restated Limited Venture Agreement and
Certificate of Limited Venture of VMS National Properties Portfolio II
(Exhibit 3 to the Venture's Annual Report on Form 10-K for the year ended
December 31, 2002, is incorporated herein by reference).
(b) Exhibits:
See Exhibit index
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
/s/Stephen B. Waters
By: Stephen B. Waters
Vice President
VMS National Residential Portfolio II
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
/s/Stephen B. Waters
By: Stephen B. Waters
Vice President
Date: March 31, 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Venture
and in the capacities and on the dates indicated.
/s/Harry G. Alcock Director and Executive Date: March 31, 2005
Harry G. Alcock Vice President
/s/Martha L. Long Director and Senior Date: March 31, 2005
Martha L. Long Vice President
/s/Stephen B. Waters Vice President Date: March 31, 2005
Stephen B. Waters
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.
10.2 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 unit data)
For the Years Ended December 31,
2004 2003 2002
VMS National Properties net loss $ (8,491) $(7,132) $(4,573)
Portfolio I net loss -- (1) --
Portfolio II net loss -- (1) --
Combined net loss $ (8,491) $(7,134) $(4,573)
Portfolio I allocation:
70.69% VMS National Properties net loss $ (6,002) $(5,042) $(3,233)
100.00% Portfolio I net loss -- (1) --
$ (6,002) $(5,043) $(3,233)
Net loss to general partner (2%) $ (120) $ (101) $ (64)
Net loss to limited partners (98%) $ (5,882) $(4,942) $(3,169)
Number of Limited Partner interests 644 644 644
Net loss per limited Venture interest $ (9,134) $(7,674) $(4,921)
Portfolio II allocation:
29.31% VMS National Properties net loss $ (2,489) $(2,090) $(1,340)
100% Portfolio II net loss -- (1) --
$ (2,489) $(2,091) $(1,340)
Net loss to general partner (2%) $ (50) $ (42) $ (27)
Net loss to limited partners (98%) $ (2,439) $(2,049) $(1,313)
Number of Limited Partner interests 267 267 267
Net loss per limited Venture interest $ (9,135) $(7,674) $(4,918)
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this annual report on Form 10-K 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: March 31, 2005
/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 annual report on Form 10-K 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: March 31, 2005
/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 Annual Report on Form 10-K of VMS National Properties
Joint Venture (the "Venture"), for the year ended December 31, 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: March 31, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: March 31, 2005
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.