UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14194
VMS NATIONAL PROPERTIES JOINT VENTURE
(Exact name of registrant as specified in its charter)
Illinois 36-3311347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)
September 30, December 31,
2002 2001
(Unaudited) (Note)
Assets:
Cash and cash equivalents $ 2,733 $ 5,048
Receivables and deposits 2,006 1,618
Restricted escrows 1,112 1,460
Other assets 627 308
Investment properties:
Land 13,404 13,404
Buildings and related personal property 148,482 146,056
161,886 159,460
Less accumulated depreciation (103,782) (98,975)
58,104 60,485
$ 64,582 $ 68,919
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 521 $ 1,718
Tenant security deposit liabilities 920 1,013
Accrued property taxes 893 569
Other liabilities 938 318
Accrued interest 932 999
Due to affiliate 3,827 3,608
Mortgage notes payable, including $25,392 and $28,250
due to an affiliate at September 30, 2002 and
December 31, 2001, respectively 129,258 133,272
Mortgage participation liability 7,466 4,091
Notes payable 42,060 42,060
Deferred gain on extinguishment of debt 42,225 42,225
Partners' Deficit (164,458) (160,954)
$ 64,582 $ 68,919
Note: The combined balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
Revenues:
Rental income $ 7,435 $ 7,809 $22,254 $23,571
Other income 651 481 1,736 1,379
Casualty gain 283 39 491 63
Total revenues 8,369 8,329 24,481 25,013
Expenses:
Operating 2,367 2,499 7,344 7,213
Property management fee to an
affiliate 327 335 978 1,000
General and administrative 147 158 448 471
Depreciation 1,681 1,584 5,057 4,685
Interest 4,240 4,240 12,704 12,341
Property taxes 490 472 1,454 1,336
Total expenses 9,252 9,288 27,985 27,046
Net loss $ (883) $ (959) $(3,504) $(2,033)
Net loss allocated to general
partners (2%) $ (18) $ (19) $ (70) $ (41)
Net loss allocated to limited
partners (98%) (865) (940) (3,434) (1,992)
$ (883) $ (959) $(3,504) $(2,033)
Net loss per limited partnership interest:
Portfolio I (644 interests
issued and outstanding) $ (949) $(1,031) $(3,770) $(2,186)
Portfolio II (267 interests
issued and outstanding) $ (948) $(1,030) $(3,768) $(2,187)
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
VMS National Residential Portfolio I
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 2000 $(3,536) $(107,184) $ (502) $(107,686) $(111,222)
Net loss for the
nine months ended
September 30, 2001 (29) (1,408) -- (1,408) (1,437)
Partners' deficit at
September 30, 2001 $(3,565) $(108,592) $ (502) $(109,094) $(112,659)
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 2000 $(1,480) $ (45,014) $ (328) $ (45,342) $ (46,822)
Net loss for the
nine months ended
September 30, 2001 (12) (584) -- (584) (596)
Partners' deficit at
September 30, 2001 $(1,492) $ (45,598) $ (328) $ (45,926) $ (47,418)
Combined total $(5,057) $(154,190) $ (830) $(155,020) $(160,077)
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (continued)
(Unaudited)
(in thousands)
VMS National Residential Portfolio I
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 2001 $(3,577) $(109,200) $ (502) $(109,702) $(113,279)
Net loss for the
nine months ended
September 30, 2002 (49) (2,428) -- (2,428) (2,477)
Partners' deficit at
September 30, 2002 $(3,626) $(111,628) $ (502) $(112,130) $(115,756)
VMS National Residential Portfolio II
Limited Partners
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 2001 $(1,497) $ (45,850) $ (328) $ (46,178) $ (47,675)
Net loss for the
nine months ended
September 30, 2002 (21) (1,006) -- (1,006) (1,027)
Partners' deficit at
September 30, 2002 $(1,518) $ (46,856) $ (328) $ (47,184) $ (48,702)
Combined total $(5,144) $(158,484) $ (830) $(159,314) $(164,458)
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net loss $(3,504) $(2,033)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 5,057 4,685
Amortization of discounts 3,375 3,026
Casualty gain (491) (63)
Change in accounts:
Receivables and deposits (430) (172)
Other assets (319) (137)
Accounts payable (403) 462
Tenant security deposit liabilities (93) (22)
Due to affiliate 219 --
Accrued property taxes 324 356
Accrued interest 894 772
Other liabilities 620 126
Net cash provided by operating activities 5,249 7,000
Cash flows from investing activities:
Property improvements and replacements (3,571) (5,187)
Net withdrawals from restricted escrows 348 2,122
Net insurance proceeds 634 88
Net cash used in investing activities (2,589) (2,977)
Cash flows used in financing activities:
Payments on mortgage notes payable (4,975) (4,402)
Net decrease in cash and cash equivalents (2,315) (379)
Cash and cash equivalents at beginning of period 5,048 2,153
Cash and cash equivalents at end of period $ 2,733 $ 1,774
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $1,445
and $1,676 paid to an affiliate $ 8,217 $ 8,533
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable $ 961 $ 815
At September 30, 2002 and December 31, 2001 accounts payable and property
improvements and replacements were adjusted by approximately $49,000 and
$843,000, respectively.
Included in property improvements and replacements for the nine months ended
September 30, 2001 are approximately $499,000 of improvements which were
included in accounts payable at December 31, 2000.
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited combined financial statements of VMS National
Properties Joint Venture (the "Venture" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of MAERIL, Inc. ("MAERIL" or the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 2002, are not necessarily
indicative of the results which may be expected for the year ending December 31,
2002. For further information, refer to the combined financial statements and
footnotes thereto included in the Venture's Annual Report on Form 10-K for the
year ended December 31, 2001. The Managing General Partner is a wholly owned
subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust.
Note B - Deferred Gain and Notes Payable
Deferred Gain on Extinguishment of Debt:
When the senior and junior loans refinanced in 1997, the senior loans were
recorded at the agreed valuation amount of $110,000,000, which was less than the
$152,225,000 face amount of the senior debt. If the Venture defaults on the
mortgage notes payable or is unable to pay the outstanding agreed valuation
amounts upon maturity, then the note face amounts become due. Accordingly, the
Venture deferred recognition of a gain of $42,225,000, which is the difference
between the note face amounts and the agreed valuation amounts.
Assignment Note:
The Venture executed a purchase money subordinated note (the "Assignment Note")
payable to the VMS/Stout Venture, an affiliate of the former general partner, in
exchange for the assignment by the VMS/Stout Venture of its interest in the
contract of sale to the Venture. The Assignment Note is collateralized by the
pledge from Portfolio I and Portfolio II of their respective interests in the
Venture.
In November 1993, VMS Realty Partners assigned its 50% interest in the VMS/Stout
Venture to the Partners Liquidating Trust which was established for the benefit
of the former creditors of VMS Realty Partners and its affiliates.
At September 30, 2002 and December 31, 2001, the remaining $38,810,000 of the
Assignment Note is non-interest bearing and is payable only after payment of
debt of higher priority, including the senior and junior 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 C - Participating Mortgage Note
AIMCO Properties LP, which owns the Managing General Partner and which is a
controlled affiliate of AIMCO, purchased (i) the junior debt on November 19,
1999; (ii) a significant interest in the residual value of the properties on
November 16, 1999, and (iii) a significant interest in the Bankruptcy Claims (as
defined below) effective September 2000. These transactions occurred between
AIMCO Properties, LP 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, LP. 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, LP.
The Venture has recorded the estimated fair value of the participation feature
as a liability and a debt discount of approximately $36,518,000. During the nine
months ended September 30, 2002 and 2001, the Venture amortized approximately
$3,375,000 and $3,026,000, respectively, of the debt discount which is included
in interest expense. The Venture previously recognized amortization of
approximately $4,091,000 related to the debt discount as of December 31, 2001.
The fair value of the participation feature was calculated based upon
information currently available to the Managing General Partner and depends
largely upon the fair value of the collateral properties. These fair values were
determined using the net operating income of the properties capitalized at a
rate deemed reasonable for the type of property adjusted for market conditions,
the physical condition of the property and other factors. The Managing General
Partner evaluates the fair value of the participation feature on an annual basis
or as circumstances dictate that it should be analyzed.
Note D - Transactions with Affiliated Parties
The Venture has no employees and is dependent 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 $246,000 and $225,000 were paid to
affiliates of the Managing General Partner for the nine months ended September
30, 2002 and 2001, respectively. These fees are included in general and
administrative expense.
Affiliates of the Managing General Partner are entitled to receive a percentage
of the gross receipts from all of the Registrant's properties as compensation
for providing property management services. The Registrant paid to such
affiliates approximately $978,000 and $1,000,000 for the nine months ended
September 30, 2002 and 2001, respectively. These fees are included in operating
expense.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $75,000 and $84,000 for the
nine month periods ended September 30, 2002 and 2001, respectively. These
expenses are included in general and administrative expense.
During the nine months ended September 30, 2002 and 2001, the Venture paid fees
related to construction management services provided by an affiliate of the
Managing General Partner of approximately $231,000 and $342,000, respectively.
The construction management service fees are calculated based on a percentage of
current additions to investment properties and are included in investment
properties.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $93,000 for each of the nine months ended
September 30, 2002 and 2001. These expenses are included in operating expense.
At September 30, 2002 and December 31, 2001, the Venture owed loans of
approximately $3,606,000 to an affiliate of the Managing General Partner plus
accrued interest thereon of approximately $221,000 and $2,000, respectively,
which are included in due to affiliate on the combined balance sheets. These
loans were made in accordance with the Joint Venture Agreement and bear interest
at the prime rate plus 3%. The Venture recognized interest expense of
approximately $219,000 during the nine months ended September 30, 2002. No such
interest was earned by the affiliate during the nine months ended September 30,
2001.
Prepetition property management fees were approved by the Bankruptcy Court for
payment to a former affiliate. This allowed claim may be paid only from
available Venture cash. At September 30, 2002 and December 31, 2001, the
outstanding balance of $79,000 is included in other liabilities.
Certain affiliates of the former general partners and the VMS/Stout Venture may
be entitled to receive various fees upon disposition of the properties. These
fees will be paid from the disposition proceeds and are subordinated to the
distributions required by the bankruptcy plan. There were no property
dispositions for which proceeds were received during either of the nine months
ended September 30, 2002 or 2001.
The junior debt is held by an affiliate of the Managing General Partner. The
monthly principal and interest payments are based on monthly excess cash flow
for each property, as defined in the mortgage agreement. During the nine months
ended September 30, 2002 and 2001, the Venture recognized interest expense of
approximately $2,344,000 and $2,459,000, respectively.
Beginning in 2001, the Venture began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Venture insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the nine months ended
September 30, 2002 and 2001, the Venture was charged by AIMCO and its affiliates
approximately $440,000 and $308,000, respectively, for insurance coverage and
fees associated with policy claims administration.
Note E - Casualty Gain
During the nine months ended September 30, 2002, the Partnership recorded a net
casualty gain of approximately $491,000. 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 $44,000 was
recorded in relation to this fire. The gain was the result of the receipt of
insurance proceeds of approximately $101,000 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. The Managing
General Partner is in discussions with the insurance carrier and anticipates
that additional insurance proceeds to cover the emergency repairs will be
received related to this casualty.
In January 2002, a fire caused damage to the fitness center at Scotchollow. A
net casualty gain of approximately $352,000 was recorded in relation to this
fire. The gain was a result of the receipt of insurance proceeds of
approximately $426,000 offset by approximately $74,000 of undepreciated property
improvements and replacements being written off.
During the nine months ended September 30, 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 nine months ended September 30, 2002, final insurance proceeds of
approximately $33,000 related to this casualty were received and recorded as an
additional casualty gain.
During the nine months ended September 30, 2001, a net casualty gain of
approximately $23,000 was recorded at Watergate Apartments. The casualty gain
related to damage caused by an ice storm in December 2000. The gain was a result
of the receipt of net insurance proceeds of approximately $30,000 offset by
approximately $7,000 of undepreciated fixed assets being written off.
Note F - Legal Proceedings
The Venture is not aware of any pending or outstanding litigation that is not of
a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. 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. The discussions of the Registrant's business and results
of operations, including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and results of operations. 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; 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.
Average occupancy rates for the nine months ended September 30, 2002 and 2001,
for all of the Venture's properties are as follows:
Average Occupancy
Property 2002 2001
North Park Apartments (1)
Evansville, IN 96% 89%
Chapelle Le Grande (2)
Merrillville, IN 96% 92%
Terrace Gardens
Omaha, NE 95% 93%
Forest Ridge Apartments (3)
Flagstaff, AZ 94% 98%
Scotchollow (4)
San Mateo, CA 90% 95%
Pathfinder (4)
Fremont, CA 88% 97%
Buena Vista Apartments (1)
Pasadena, CA 97% 93%
Mountain View Apartments
San Dimas, CA 96% 98%
Crosswood Park
Citrus Heights, CA 94% 96%
Casa de Monterey (1)
Norwalk, CA 98% 95%
The Bluffs (1)
Milwaukie, OR 94% 90%
Watergate Apartments
Little Rock, AR 91% 93%
Shadowood Apartments
Monroe, LA 97% 97%
Vista Village Apartments (5)
El Paso, TX 96% 88%
The Towers of Westchester Park
College Park, MD 98% 98%
(1) The increase in occupancy at North Park Apartments, The Bluffs, Buena
Vista Apartments and Casa de Monterey is due to aggressive resident
retention and marketing programs implemented by the property management
teams.
(2) The increase in occupancy at Chapelle Le Grande is due to several units
being uninhabitable during the first and second quarters of 2001 due to
water damage. The units were occupied during the first and second quarters
of 2002.
(3) The decrease in occupancy at Forest Ridge Apartments is due primarily to a
slow market caused by a warm winter affecting the local skiing industry in
early 2002.
(4) Scotchollow and Pathfinder Village are both located in the San Francisco
Bay area which was significantly impacted by layoffs in the airline
industry as a result of the terrorist attacks of September 11, 2001. In
addition, several local companies in the high tech industry have laid off
employees. Both complexes have experienced slight increases in occupancy
in the third quarter.
(5) The increase in occupancy at Vista Village Apartments is a result of
concessions offered to potential tenants in order to better compete in the
local market.
Results of Operations
The Venture recorded a net loss for the nine months ended September 30, 2002 of
approximately $3,504,000 compared to a net loss of approximately $2,033,000 for
the corresponding period in 2001. For the three months ended September 30, 2002
the Venture recorded a net loss of approximately $883,000 as compared to a net
loss of approximately $959,000 for the corresponding period in 2001. The
increase in net loss for the nine month period above is due to an increase in
total expenses and a decrease in total revenues. The decrease in net loss for
the three month period above is due to an increase in total revenues and a
decrease in total expenses.
For the nine months ended September 30, 2002 as compared to September 30, 2001
the increase in total expenses is primarily attributable to increases in
interest, operating, depreciation and property tax expenses. Interest expense
increased due to an increase in the amortization of the debt discount related to
the mortgage participation liability and to the interest recognized on the loan
made to the Partnership in December 2001 by the Managing General Partner.
Operating expenses increased primarily due to increases in insurance costs at
ten of the Venture's fifteen properties and increased maintenance expenses,
especially interior painting costs, at Scotchollow, Pathfinder Village and
Crosswood Park offset by decreased natural gas costs at eight of the Venture's
properties, and a decrease in salaries and related employee expenses.
Depreciation expense increased due to property improvements and replacements
placed into service during the past twelve months which are now being
depreciated. Property tax expense increased due to an increase in the assessed
value and tax rates by the local taxing authorities at Scotchollow, Crosswood
Park and Casa de Monterey. Total revenues decreased primarily due to decreases
in occupancy at Forest Ridge, Scotchollow and Pathfinder Village and decreases
in rental rates at seven of the Venture's properties. These decreases were
partially offset by the casualty gain at Scotchollow, Chapelle Le Grande and
Terrace Gardens as discussed below and increases in other income which consist
primarily of increased utility reimbursements.
For the three months ended September 30, 2002 as compared to September 30, 2001,
the increase in total revenues is due to the recognition of casualty gains at
Scotchollow, Chappelle Le Grande and Terrace Gardens and an increase in other
income offset by a decrease in rental income as discussed above. The decrease in
total expenses is primarily attributable to a decrease in natural gas costs
included in operating expenses at eight of the Venture's properties offset by an
increase in depreciation expense as discussed above.
During the nine months ended September 30, 2002, the Partnership recorded a net
casualty gain of approximately $491,000. 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 $44,000 was
recorded in relation to this fire. The gain was the result of the receipt of
insurance proceeds of approximately $101,000 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. The Managing
General Partner is in discussions with the insurance carrier and anticipates
that additional insurance proceeds to cover the emergency repairs will be
received related to this casualty.
In January 2002, a fire caused damage to the fitness center at Scotchollow. A
net casualty gain of approximately $352,000 was recorded in relation to this
fire. The gain was a result of the receipt of insurance proceeds of
approximately $426,000 offset by approximately $74,000 of undepreciated property
improvements and replacements being written off.
During the nine months ended September 30, 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 nine months ended September 30, 2002, final insurance proceeds of
approximately $33,000 related to this casualty were received and recorded as an
additional casualty gain.
During the nine months ended September 30, 2001, a net casualty gain of
approximately $23,000 was recorded at Watergate Apartments. The casualty gain
related to damage caused by an ice storm in December 2000. The gain was a result
of the receipt of net insurance proceeds of approximately $30,000 offset by
approximately $7,000 of undepreciated fixed assets being written off.
As part of the ongoing business plan of the Venture, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Venture from increases in
expenses. As part of this plan, the Managing General Partner attempts to protect
the Venture from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 2002, the Venture had cash and cash equivalents of
approximately $2,733,000 as compared to approximately $1,774,000 at September
30, 2001. Cash and cash equivalents decreased approximately $2,315,000 for the
nine months ended September 30, 2002, from December 31, 2001. The decrease in
cash and cash equivalents is a result of approximately $4,975,000 and $2,589,000
of cash used in financing and investing activities, respectively, which was
partially offset by approximately $5,249,000 of cash provided by operating
activities. Cash used in financing activities consisted of principal payments on
the mortgages encumbering the Venture's investment properties. Cash used in
investing activities consisted of property improvements and replacements
partially offset by net withdrawals from restricted escrow accounts maintained
by the mortgage lender and by the receipt of insurance proceeds related to the
casualties at Scotchollow, Chapelle Le Grande and Terrace Gardens.
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 and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. 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, including increased legal and audit fees. Capital improvements
planned for each of the Venture's properties are detailed below.
The Venture is restricted to annual capital improvements of $300 per unit for
all of the properties, which is the limit set by the junior debt for funding of
capital improvements. The Venture, the holder of the junior debt encumbering the
properties and the servicer of the senior debt encumbering the properties have
agreed to a procedure to assess whether or not capital expenditures, in addition
to those permitted under the $300 per unit limit, are needed at the properties
and the methodology for funding any such capital expenditures. During 1999, the
Venture and the holders of the junior and senior debt agreed that additional
capital expenditures were required and that these expenditures would be funded
out of the cash flows from the properties that otherwise would have been
utilized to pay debt services on the junior debt. In November 1999, an agreement
was signed relating to the required capital expenditures at Towers of
Westchester Park. In July 2000, similar agreements were signed relating to North
Park Apartments, Scotchollow, Pathfinder Village, Buena Vista Apartments,
Mountain View Apartments, Casa de Monterey and The Bluffs. In August 2000,
agreements were signed relating to Shadowood Apartments, Crosswood Park, Vista
Village Apartments, Watergate Apartments, Chapelle Le Grande, and Forest Ridge
Apartments and in September 2000, an agreement was signed relating to Terrace
Gardens. As of September 30, 2002, funds to pay for these expenditures have been
set aside and the Venture has resumed making monthly payments on the junior debt
to the extent of monthly excess cash flow.
North Park Apartments: All capital expenditures required under the agreement
signed in July 2000, as discussed above, were completed in 2001. Approximately
$85,000 is budgeted for capital improvements for the year ending December 31,
2002, consisting primarily of floor covering and appliance replacements, air
conditioning upgrades and interior decorations. The Venture completed
approximately $121,000 in budgeted and unbudgeted capital expenditures at North
Park Apartments during the nine months ended September 30, 2002, consisting
primarily of floor covering and door replacements, air conditioning and swimming
pool upgrades and structural improvements. These improvements were funded from
operating cash flow and replacement reserves.
Chapelle Le Grande: All capital expenditures required under the agreement signed
in August 2000, as discussed above, were completed in 2001. Approximately
$32,000 is budgeted for capital improvements for the year ending December 31,
2002, consisting primarily of floor covering and appliance replacements. The
Venture completed approximately $211,000 in budgeted and unbudgeted capital
expenditures at Chapelle Le Grande during the nine months ended September 30,
2002, consisting primarily of building improvements, floor covering replacements
and office computers. These improvements were funded from operating cash flow,
replacement reserves and insurance proceeds.
Terrace Gardens: The methodology discussed above for funding the required
capital expenditures has been applied to Terrace Gardens. The parties agreed
that this property required capital expenditures which have a revised completion
date of December 31, 2002 and which are estimated to cost approximately
$433,000, of which approximately $340,000 were completed as of September 30,
2002. Approximately $23,000 of these expenditures were completed during 2002.
These costs were funded out of cash flows from the property that otherwise would
have been utilized to service the junior debt. In addition, approximately
$38,000 is budgeted for capital improvements for the year ending December 31,
2002, consisting primarily of floor covering replacements. The Venture completed
approximately $79,000 in budgeted and unbudgeted capital expenditures, including
the aforementioned capital expenditures, at Terrace Gardens during the nine
months ended September 30, 2002, consisting primarily of floor covering
replacements. These improvements were funded from operating cash flow and
replacement reserves.
Forest Ridge Apartments: All capital expenditures required under the agreement
signed in August 2000, as discussed above, were completed in 2001. Approximately
$83,000 was originally budgeted for capital improvements for the year ending
December 31, 2002, consisting primarily of floor covering and appliance
replacements, water heaters and plumbing fixtures. During the third quarter of
2002 an additional $45,000 was approved for plumbing and other structural work.
The Venture completed approximately $156,000 in budgeted and unbudgeted capital
expenditures at Forest Ridge Apartments during the nine months ended September
30, 2002, consisting primarily of floor covering replacements, water heaters,
plumbing fixtures, and structural improvements. These improvements were funded
from operating cash flow and replacement reserves.
Scotchollow: As of September 30, 2002, all capital expenditures required under
the agreement signed in July 2000, as discussed above, have been completed.
Approximately $7,000 of these expenditures were completed during 2002. In
addition, approximately $133,000 is budgeted for capital improvements for the
year ending December 31, 2002, consisting primarily of floor covering and
appliance replacements, interior decoration, plumbing fixtures and other
structural improvements. The Venture completed approximately $617,000 in
budgeted and unbudgeted capital expenditures, including the aforementioned
capital expenditures, at Scotchollow during the nine months ended September 30,
2002 and expenditures related to a fire at the property during January 2002
which resulted in approximately $300,000 of replacement costs. The capital
expenditures to date consist primarily of floor covering and appliance
replacements, structural improvements, plumbing fixtures, interior decoration,
and major landscaping. These improvements were funded from insurance proceeds,
operating cash flow and replacement reserves.
Pathfinder Village: As of September 30, 2002, all capital expenditures required
under the agreement signed in July 2000, as discussed above, have been
completed. Approximately $38,000 of these expenditures were completed during
2002. In addition, approximately $128,000 is budgeted for capital improvements
for the year ending December 31, 2002, consisting primarily of floor covering
and appliance replacements, interior decoration, plumbing fixtures and other
structural improvements. The Venture completed approximately $573,000 in
budgeted and unbudgeted capital expenditures, including the aforementioned
expenditures, at Pathfinder Village during the nine months ended September 30,
2002, consisting primarily of building improvements, floor covering, appliance
and roof replacements, structural improvements, window dressings, cabinets and
countertops. These improvements were funded from operating cash flow and
replacement reserves.
Buena Vista Apartments: All capital expenditures required under the agreement
signed in July 2000, as discussed above, were completed in 2001. Approximately
$46,000 is budgeted for capital improvements for the year ending December 31,
2002, consisting primarily of floor covering and appliance replacements. The
Venture completed approximately $42,000 in capital expenditures at Buena Vista
Apartments during the nine months ended September 30, 2002, consisting primarily
of floor covering and appliance replacements and plumbing fixtures. These
improvements were funded from operating cash flow and replacement reserves.
Mountain View Apartments: All capital expenditures required under the agreement
signed in July 2000, as discussed above, were completed in 2001. Approximately
$68,000 is budgeted for capital improvements for the year ending December 31,
2002, consisting primarily of floor covering and appliance replacements,
plumbing fixtures, water heaters, air conditioning and cabinet upgrades and
furniture and fixtures. The Venture completed approximately $146,000 in budgeted
and unbudgeted capital expenditures at Mountain View Apartments during the nine
months ended September 30, 2002, consisting primarily of floor covering
replacements, water heaters, structural improvements and plumbing fixtures.
These improvements were funded from operating cash flow and replacement
reserves.
Crosswood Park: The methodology discussed above for funding the required capital
expenditures has been applied to Crosswood Park. The parties agreed that this
property required capital expenditures which have a revised completion date of
December 31, 2002 and which are estimated to cost approximately $301,000, of
which approximately $283,000 were completed as of September 30, 2002.
Approximately $35,000 of these expenditures were completed during 2002. These
costs were funded out of cash flows from the property that otherwise would have
been utilized to service the junior debt. In addition, approximately $132,000 is
budgeted for capital improvements for the year ending December 31, 2002,
consisting primarily of floor covering and appliance replacements, structural
improvements, major landscaping, patio improvements and air conditioning
upgrades. The Venture completed approximately $209,000 in budgeted and
unbudgeted capital expenditures, including the aforementioned capital
expenditures, at Crosswood Park during the nine months ended September 30, 2002,
consisting primarily of structural improvements, air conditioning upgrades,
floor covering and appliance replacements and major landscaping. These
improvements were funded from operating cash flow and replacement reserves.
Casa de Monterey: All capital expenditures required under the agreement signed
in July 2000, as discussed above, were completed in 2001. Approximately $43,000
is budgeted for capital improvements for the year ending December 31, 2002,
consisting primarily of floor covering and appliance replacements, office
computers, plumbing and air conditioning upgrades. The Venture completed
approximately $112,000 in budgeted and unbudgeted capital expenditures at Casa
de Monterey during the nine months ended September 30, 2002, consisting
primarily of floor covering and appliance replacements, structural improvements,
air conditioning upgrades, plumbing fixtures and parking lot improvements. These
improvements were funded from operating cash flow and replacement reserves.
The Bluffs: The methodology discussed above for funding the required capital
expenditures has been applied to The Bluffs. The parties agreed that this
property required capital expenditures which have a revised completion date of
December 31, 2002 and which are estimated to cost approximately $52,000, of
which approximately $30,000 were completed as of September 30, 2002.
Approximately $13,000 of these expenditures were completed during 2002. These
costs were funded out of cash flows from the property that otherwise would have
been utilized to service the junior debt. In addition, approximately $41,000 is
budgeted for capital improvements for the year ending December 31, 2002,
consisting primarily of floor covering replacements, interior decoration and
plumbing fixtures. The Venture completed approximately $81,000 in budgeted and
unbudgeted capital expenditures, including the aforementioned capital
expenditures, at The Bluffs during the nine months ended September 30, 2002,
consisting primarily of floor covering and appliance replacements, interior
decorations, plumbing fixtures, and structural improvements. These improvements
were funded from operating cash flow and replacement reserves.
Watergate Apartments: The methodology discussed above for funding the required
capital expenditures has been applied to Watergate Apartments. The parties
agreed that this property required capital expenditures which have a revised
completion date of December 31, 2002 and which are estimated to cost
approximately $186,000, of which approximately $132,000 were completed as of
September 30, 2002. Approximately $46,000 of these expenditures were completed
during 2002. These costs were funded out of cash flows from the property that
otherwise would have been utilized to service the junior debt. In addition,
approximately $125,000 is budgeted for capital improvements for the year ending
December 31, 2002, consisting primarily of roof repairs, floor covering and
appliance replacements and air conditioning and heating upgrades. The Venture
completed approximately $120,000 in capital expenditures, including the
aforementioned capital expenditures, at Watergate Apartments during the nine
months ended September 30, 2002, consisting primarily of roof repairs, floor
covering and appliance replacements, water heaters and structural improvements.
These improvements were funded from operating cash flow and replacement
reserves.
Shadowood Apartments: All capital expenditures required under the agreement
signed in August 2000, as discussed above, were completed in 2001. Approximately
$39,000 is budgeted for capital improvements for the year ending December 31,
2002, consisting primarily of floor covering and appliance replacements, water
heaters and air conditioning upgrades. The Venture completed approximately
$42,000 in budgeted and unbudgeted capital expenditures at Shadowood Apartments
during the nine months ended September 30, 2002, consisting primarily of floor
covering and appliance replacements, plumbing fixtures and air conditioning
upgrades. These improvements were funded from operating cash flow.
Vista Village Apartments: All capital expenditures required under the agreement
signed in August 2000, as discussed above, were completed in 2001. Approximately
$83,000 is budgeted for capital improvements for the year ending December 31,
2002, consisting primarily of floor covering replacements and parking lot
resurfacing. The Venture completed approximately $106,000 in budgeted and
unbudgeted capital expenditures at Vista Village Apartments during the nine
months ended September 30, 2002, consisting primarily of parking lot
resurfacing, water heaters, air conditioning upgrades, floor covering and
appliance replacements and swimming pool improvements. These improvements were
funded from operating cash flow and replacement reserves.
Towers of Westchester Park: All capital expenditures required under the
agreement signed in November 1999, as discussed above, were completed in 2001.
Approximately $106,000 is budgeted for capital improvements for the year ending
December 31, 2002, consisting primarily of cabinet, floor covering and appliance
replacements, interior decorations, heating and air conditioning upgrades and
plumbing fixtures. The Venture completed approximately $162,000 in budgeted and
unbudgeted capital expenditures at Towers of Westchester Park during the nine
months ended September 30, 2002, consisting primarily of heating and air
conditioning upgrades, plumbing fixtures, interior decorations, and floor
covering and appliance replacements. These improvements were funded from
operating cash flow and replacement reserves.
The Venture initially budgeted $888,000 ($300 per unit) for all of the
properties which is equal to the limit set by the junior notes for funding of
capital improvements. As the Venture identifies properties which require
additional improvements discussions are held with the holders of both the senior
and junior mortgage notes for approval to perform agreed upon capital
improvements.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The senior debt
encumbering all of the properties totals approximately $103,866,000 and is being
amortized over 25 years, with a balloon payment of $93,243,000 due January 2008.
Not including the debt discount relating to the mortgage participation
liability, the junior debt, which also matures January 2008, totals
approximately $25,392,000 and requires monthly payments based upon monthly
excess cash flow for each property. The Assignment Note and Long-Term
Arrangement Fee Notes totaling approximately $42,060,000 are non-interest
bearing and are subordinate to the senior and junior debt and are only payable
from the proceeds of the sale or refinancing of the properties.
There were no cash distributions to the partners of either of the Partnerships
for the nine months ended September 30, 2002 and 2001. In accordance with the
respective Agreements of Limited Partnership, there are no material restrictions
on the Partnerships' ability to make cash distributions. Future cash
distributions are subject to the order of distributions as stipulated by the
Venture's Plan of Reorganization. The source of future distributions will depend
upon the levels of net cash generated from operations, the availability of cash
reserves, and timing of debt maturities, refinancings and/or property sales. The
Partnerships' distribution policies are reviewed on a quarterly basis. There can
be no assurance that the Partnerships will generate sufficient funds from
operations, after required capital expenditures and the order of distributions
as stipulated by the Venture's Plan of Reorganization, to permit any
distributions to partners during the remainder of 2002 or subsequent periods.
Other
As a result of tender offers, AIMCO and its affiliates currently own 66.50 units
of limited partnership interest in Portfolio I representing 10.33% of the
outstanding limited partnership interests, along with the 2% general partner
interest for a combined ownership in Portfolio I of 12.33%. AIMCO and its
affiliates currently own 37.83 units of limited partnership interest in
Portfolio II representing 14.17% of the outstanding limited partnership
interests, along with the 2% general partner interest for a combined ownership
in Portfolio II of 16.17%. The Venture is owned 70.69% by Portfolio I and 29.31%
by Portfolio II which results in AIMCO and its affiliates currently owning
13.46% 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 Partnership in exchange for cash or a combination of cash and
units in 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
Partnership Agreement and voting to remove the Managing General Partner.
Although the Managing General Partner owes fiduciary duties to the limited
partners of the Partnership, the Managing General Partner also owes fiduciary
duties to AIMCO as its sole stockholder. As a result, the duties of the Managing
General Partner, as managing general partner, to the Venture and its limited
partners may come into conflict with the duties of the Managing General Partner
to AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
The combined financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Venture to
make estimates and assumptions. The Venture believes that of its significant
accounting policies, the following may involve a higher degree of judgment and
complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Venture will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Venture would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the Venture's
investment properties. These factors include changes in the national, regional
and local economic climate; local conditions, such as an oversupply of
multifamily properties; competition from other available multifamily property
owners and changes in market rental rates. Any adverse changes in these factors
could cause an impairment in the Venture's assets.
Revenue Recognition
The Venture generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Venture will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
Participating Mortgage Note
The Venture has a participating mortgage note which requires it to record the
estimated fair value of the participation feature as a liability and a debt
discount. The fair value of the participation feature is calculated based upon
information currently available to the Managing General Partner and depends
largely upon the fair value of the collateral properties. These fair values are
determined using the net operating income of the properties capitalized at a
rate deemed reasonable for the type of property adjusted for market conditions,
physical condition of the property and other factors. The Managing General
Partner evaluates the fair value of the participation feature on an annual basis
or as circumstances dictate that it should be analyzed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Venture is exposed to market risks from adverse changes in interest rates.
In this regard, changes in U.S. interest rates affect the interest earned on the
Venture's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Venture does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Venture is exposed to changes in interest rates primarily
as a result of its borrowing activities used to maintain liquidity and fund
business operations. To mitigate the impact of fluctuations in U.S. interest
rates, the Venture maintains its debt as fixed rate in nature by borrowing on a
long-term basis except for advances made from an affiliate of the Managing
General Partner. These advances bear interest at the prime rate plus three basis
points. Based on interest rates at September 30, 2002, an increase or decrease
of 100 basis points in market interest rates would not have a material impact on
the Venture.
The following table summarizes the Venture's debt obligations at September 30,
2002. 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 $109,247,000 at September 30, 2002. However, the
Venture is precluded from refinancing the first mortgage until January 2007. The
Managing General Partner believes that it is not appropriate to use the
Venture's incremental borrowing rate for the second mortgages, as there is
currently no market in which the Venture could obtain similar financing.
Therefore, the Managing General Partner considers estimation of fair value to be
impracticable for this indebtedness.
Long-term Debt
Principal Weighted-average
(in thousands) Interest Rate
2002 $ 409 8.50%
2003 1,705 8.50%
2004 1,832 8.50%
2005 2,022 8.50%
2006 2,201 8.50%
Thereafter 121,089 8.99%
$129,258
As principal payments for the junior loans are based upon monthly cash flow, all
principal is assumed to be repaid at maturity.
ITEM 4. CONTROLS AND PROCEDURES
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, within 90 days of
the filing date of this quarterly report, evaluated the effectiveness of the
Venture's disclosure controls and procedures (as defined in Exchange Act Rules
(13a-14(c) and (15d-14(c)) and have determined that such disclosure controls and
procedures are adequate. There have been no significant changes in the Venture's
internal controls or in other factors that could significantly affect the
Venture's internal controls since the date of evaluation. The Venture does not
believe any significant deficiencies or material weaknesses exist in the
Venture's internal controls. Accordingly, no corrective actions have been taken.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3(a), VMS National Properties Joint Venture Agreement
(Exhibit 3 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 2001, is incorporated herein by
reference).
Exhibit 3(b), Amended and Restated Limited Partnership
Agreement and Certificate of Limited Partnership of VMS
National Properties Portfolio I (Exhibit 3 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
2001, is incorporated herein by reference).
Exhibit 3(c), Amended and Restated Limited Partnership
Agreement and Certificate of Limited Partnership of VMS
National Properties Portfolio II (Exhibit 3 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001, is incorporated herein by reference).
Exhibit 11, Calculation of Net Loss Per Investor.
Exhibit 99, Certification of Chief Executive Officer and Chief
Financial Officer.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VMS NATIONAL PROPERTIES JOINT VENTURE
(Registrant)
VMS National Residential Portfolio I
By: MAERIL, Inc.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
VMS National Residential Portfolio II
By: MAERIL, Inc.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: November 13, 2002
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-Q of VMS National Properties
Joint Venture;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
_______________________
Patrick J. Foye
Executive Vice President of MAERIL, Inc.,
equivalent of the chief executive officer of
the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of VMS National Properties
Joint Venture;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
_______________________
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of MAERIL, Inc., equivalent of the
chief financial officer of the Partnership
Exhibit 11
VMS NATIONAL PROPERTIES JOINT VENTURE
CALCULATION OF NET LOSS PER INVESTOR
(in thousands, except unit data)
For the Nine Months
Ended September 30,
2002 2001
VMS National Properties net loss $(3,504) $(2,033)
Portfolio I net loss -- --
Portfolio II net loss -- --
Combined net loss $(3,504) $(2,033)
Portfolio I allocation: 70.69% $(2,477) $(1,437)
Net loss to general partner (2%) $ (49) $ (29)
Net loss to limited partners (98%) $(2,428) $(1,408)
Number of Limited Partner units 644 644
Net loss per limited partnership interest $(3,770) $(2,186)
Portfolio II allocation: 29.31% $(1,027) $ (596)
Net loss to general partner (2%) $ (21) $ (12)
Net loss to limited partners (98%) $(1,006) $ (584)
Number of Limited Partner units 267 267
Net loss per limited partnership interest $(3,768) $(2,187)
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of VMS National Properties
Joint Venture (the "Venture"), for the quarterly period ended September 30, 2002
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Patrick J. Foye, as the equivalent of the chief executive officer of
the Venture, and Paul J. McAuliffe, 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/ Patrick J. Foye
Name: Patrick J. Foye
Date: November 13, 2002
/s/ Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 13, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Venture for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.