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, 2003
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___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X_
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED BALANCE SHEETS
(in thousands)
September 30, December 31,
2003 2002
(Unaudited) (Note)
Assets:
Cash and cash equivalents $ 1,567 $ 2,809
Receivables and deposits 1,975 1,711
Restricted escrows 793 849
Other assets 825 378
Investment properties:
Land 13,404 13,404
Buildings and related personal property 151,293 149,074
164,697 162,478
Less accumulated depreciation (110,639) (105,494)
54,058 56,984
$ 59,218 $ 62,731
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 722 $ 340
Tenant security deposit liabilities 874 893
Accrued property taxes 941 603
Other liabilities 774 779
Accrued interest 838 703
Due to affiliate 4,114 3,902
Mortgage notes payable, including $22,585 and $24,687
due to an affiliate at September 30, 2003 and
December 31, 2002, respectively 124,739 128,100
Mortgage participation liability 12,411 8,653
Notes payable 42,060 42,060
Deferred gain on extinguishment of debt 42,225 42,225
Partners' Deficit (170,480) (165,527)
$ 59,218 $ 62,731
Note: The combined balance sheet at December 31, 2002 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Combined Financial Statements
VMS NATIONAL PROPERTIES JOINT VENTURE
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per interest data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Revenues:
Rental income $ 7,293 $ 7,435 $22,015 $22,254
Other income 579 651 1,710 1,736
Casualty gain (Note E) -- 283 115 491
Total revenues 7,872 8,369 23,840 24,481
Expenses:
Operating 2,875 2,367 8,155 7,344
Property management fee to an
affiliate 315 327 950 978
General and administrative 141 147 441 448
Depreciation 1,730 1,681 5,229 5,057
Interest 4,196 4,240 12,530 12,704
Property taxes 461 490 1,488 1,454
Total expenses 9,718 9,252 28,793 27,985
Net loss $(1,846) $ (883) $(4,953) $(3,504)
Net loss allocated to general
partners (2%) $ (37) $ (18) $ (99) $ (70)
Net loss allocated to limited
partners (98%) (1,809) (865) (4,854) (3,434)
$(1,846) $ (883) $(4,953) $(3,504)
Net loss per limited partnership interest:
Portfolio I (644 interests
issued and outstanding) $(1,986) $ (949) $(5,328) $(3,770)
Portfolio II (267 interests
issued and outstanding) $(1,985) $ (948) $(5,330) $(3,768)
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, 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 CHANGES IN PARTNERS' DEFICIT (continued)
(Unaudited)
(in thousands)
VMS National Residential Portfolio I
Limited Partners
Limited
General Accumulated Subscription Partners'
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 2002 $(3,641) $(112,369) $ (502) $(112,871) $(116,512)
Net loss for the
nine months ended
September 30, 2003 (70) (3,431) -- (3,431) (3,501)
Partners' deficit at
September 30, 2003 $(3,711) $(115,800) $ (502) $(116,302) $(120,013)
VMS National Residential Portfolio II
Limited Partners
Limited
General Accumulated Subscription Partners'
Partners Deficit Notes Total Total
Partners' deficit at
December 31, 2002 $(1,524) $ (47,163) $ (328) $ (47,491) $ (49,015)
Net loss for the
nine months ended
September 30, 2003 (29) (1,423) -- (1,423) (1,452)
Partners' deficit at
September 30, 2003 $(1,553) $ (48,586) $ (328) $ (48,914) $ (50,467)
Combined total $(5,264) $(164,386) $ (830) $(165,216) $(170,480)
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,
2003 2002
Cash flows from operating activities:
Net loss $(4,953) $(3,504)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 5,229 5,057
Amortization of discounts 3,758 3,375
Casualty gain (115) (491)
Change in accounts:
Receivables and deposits (279) (430)
Other assets (447) (319)
Accounts payable 303 (403)
Tenant security deposit liabilities (19) (93)
Due to affiliate 215 219
Accrued property taxes 338 324
Accrued interest 944 894
Other liabilities (5) 620
Net cash provided by operating activities 4,969 5,249
Cash flows from investing activities:
Property improvements and replacements (2,254) (3,571)
Net withdrawals from restricted escrows 56 348
Net insurance proceeds 160 634
Net cash used in investing activities (2,038) (2,589)
Cash flows from financing activities:
Payments on mortgage notes payable (4,170) (4,975)
Payments on advances from affiliates (3) --
Net cash used in financing activities (4,173) (4,975)
Net decrease in cash and cash equivalents (1,242) (2,315)
Cash and cash equivalents at beginning of period 2,809 5,048
Cash and cash equivalents at end of period $ 1,567 $ 2,733
Supplemental disclosure of cash flow information:
Cash paid for interest, including approximately $1,114
and $1,445 paid to an affiliate $ 7,623 $ 8,217
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable $ 809 $ 961
At September 30, 2003 and December 31, 2002 accounts payable and property
improvements and replacements were adjusted by approximately $104,000 and
$25,000, respectively.
Included in property improvements and replacements for the nine months ended
September 30, 2002 are approximately $843,000 of improvements which were
included in accounts payable at December 31, 2001.
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, 2003 are not necessarily
indicative of the results which may be expected for the year ending December 31,
2003. 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, 2002. 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, 2003 and December 31, 2002, 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
of approximately $12,411,000 as a liability net of a debt discount of
approximately $24,107,000. During the nine months ended September 30, 2003 and
2002, the Venture amortized approximately $3,758,000 and $3,375,000,
respectively, of the debt discount which is included in interest expense. The
Venture previously recognized amortization of approximately $8,653,000 related
to the debt discount as of December 31, 2002. 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 $241,000 and $246,000 were paid to
affiliates of the Managing General Partner for the nine months ended September
30, 2003 and 2002, respectively. These fees are included in general and
administrative expense.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from all of the Venture's properties as compensation for providing
property management services. The Venture paid to such affiliates approximately
$950,000 and $978,000 for the nine month periods ended September 30, 2003 and
2002, respectively, which are included in operating expenses.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $75,000 for each of the nine
month periods ended September 30, 2003 and 2002. These expenses are included in
general and administrative expense.
During the nine months ended September 30, 2003 and 2002, the Venture paid fees
related to construction management services provided by an affiliate of the
Managing General Partner of approximately $68,000 and $231,000, respectively.
The construction management service fees are calculated based on a percentage of
current additions to investment properties and are included in investment
properties.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $93,000 for each of the nine month periods ended
September 30, 2003 and 2002. These expenses are included in operating expenses.
At September 30, 2003 and December 31, 2002, the Venture owed loans of
approximately $3,606,000 and $3,609,000 to an affiliate of the Managing General
Partner plus accrued interest thereon of approximately $508,000 and $293,000,
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 $215,000 and $219,000 during the nine months ended September
30, 2003 and 2002, respectively.
Prepetition property management fees were approved by the Bankruptcy Court for
payment to a former affiliate. This allowed claim may be paid only from
available Venture cash. At September 30, 2003 and December 31, 2002, the
outstanding balance of the claim 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 month
periods ended September 30, 2003 or 2002.
The junior debt of approximately $22,585,000 at September 30, 2003 and
approximately $24,687,000 at December 31, 2002 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, 2003 and 2002, the Venture
recognized interest expense of approximately $1,916,000 and $2,344,000,
respectively.
The Venture insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty and vehicle
liability. The Venture insures its properties above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Managing General Partner. During the nine months ended September 30, 2003 and
2002, the Venture was charged by AIMCO and its affiliates approximately $474,000
and $574,000, respectively, for insurance coverage and fees associated with
policy claims administration.
Note E - Casualty Gain
During the nine months ended September 30, 2003 a net casualty gain of
approximately $65,000 was recorded at Shadowood Apartments. The casualty gain
related to a fire, occurring in September 2002, which caused damage to eight
units at the property. The gain was the result of the receipt of insurance
proceeds of approximately $78,000 offset by approximately $13,000 of
undepreciated property improvements and replacements being written off.
During the nine months ended September 30, 2003 a net casualty gain of
approximately $50,000 was recorded at Pathfinder Village Apartments. The
casualty gain related to fire damage occurring in February 2003, which caused
damage to five units at the property. The gain was a result of the receipt of
insurance proceeds of approximately $82,000 offset by approximately $17,000 of
undepreciated property improvements and replacements being written off and
approximately $15,000 of emergency repairs made at the property.
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. An additional
$25,000 of insurance proceeds were received during the fourth quarter of 2002
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 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.
Note F - Legal Proceedings
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Managing General Partner the
claims will not result in any material liability to the Venture.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
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.
Average occupancy rates for the nine months ended September 30, 2003 and 2002,
for all of the Venture's properties are as follows:
Average Occupancy
Property 2003 2002
North Park Apartments
Evansville, IN 95% 96%
Chapelle Le Grande
Merrillville, IN 95% 96%
Terrace Gardens (1)
Omaha, NE 88% 95%
Forest Ridge Apartments (2)
Flagstaff, AZ 90% 94%
Scotchollow
San Mateo, CA 92% 90%
Pathfinder Village (3)
Fremont, CA 91% 88%
Buena Vista Apartments
Pasadena, CA 97% 97%
Mountain View Apartments
San Dimas, CA 94% 96%
Crosswood Park
Citrus Heights, CA 94% 94%
Casa de Monterey
Norwalk, CA 96% 98%
The Bluffs
Milwaukie, OR 93% 94%
Watergate Apartments (4)
Little Rock, AR 95% 91%
Shadowood Apartments
Monroe, LA 95% 97%
Vista Village Apartments
El Paso, TX 98% 96%
The Towers of Westchester Park
College Park, MD 98% 98%
(1) Occupancy at Terrace Gardens decreased due to a weak economy and turnover
of management and maintenance personnel at the property. Also contributing
to the decrease is the low mortgage rates currently available which is
resulting in more tenants buying homes.
(2) The decrease in occupancy at Forest Ridge Apartments is due to job losses
caused by the closure of a major employer in the area and low mortgage
rates allowing more tenants to buy homes.
(3) Occupancy at Pathfinder Village increased due to incentives such as rent
concessions and reduced rental rates implemented to attract tenants.
(4) The increase in occupancy at Watergate Apartments is primarily
attributable to a stronger market and the implementation of more effective
lease management techniques focusing on customer retention.
Results of Operations
The Venture recorded a net loss for the nine months ended September 30, 2003 of
approximately $4,953,000 compared to a net loss for the nine months ended
September 30, 2002 of approximately $3,504,000. For the three months ended
September 30, 2003 the Venture recorded a net loss of approximately $1,846,000
as compared to a net loss of approximately $883,000 for the corresponding period
in 2002. The increase in net loss for the three and nine month periods is due to
a decrease in total revenues and an increase in total expenses.
For the three and nine months ended September 30, 2003 as compared to September
30, 2002 the decrease in total revenues is due to decreases in rental income and
other income and a decrease in the casualty gains recognized for the respective
periods. The decrease in rental income is the result of the various decreases in
occupancy at many of the properties more than outweighing the occupancy
increases at Scotchollow, Watergate Apartments, Vista Village Apartments and
Pathfinder Village. Other income decreased due to decreases in corporate unit
income, tenant deposit forfeitures and interest income partially offset by an
increase in various fees charged by the properties.
During the nine months ended September 30, 2003 a net casualty gain of
approximately $65,000 was recorded at Shadowood Apartments. The casualty gain
related to a fire, occurring in September 2002, which caused damage to eight
units at the property. The gain was the result of the receipt of insurance
proceeds of approximately $78,000 offset by approximately $13,000 of
undepreciated property improvements and replacements being written off.
During the nine months ended September 30, 2003 a net casualty gain of
approximately $50,000 was recorded at Pathfinder Village Apartments. The
casualty gain related to fire damage occurring in February 2003, which caused
damage to five units at the property. The gain was a result of the receipt of
insurance proceeds of approximately $82,000 offset by approximately $17,000 of
undepreciated property improvements and replacements being written off and
approximately $15,000 of emergency repairs made at the property.
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. An additional
$25,000 of insurance proceeds were received during the fourth quarter of 2002
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 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.
Total expenses for the nine month period ended September 30, 2003 as compared to
September 30, 2002 increased due to increases in operating, depreciation and
property tax expenses partially offset by decreases in interest expense and
property management fees. 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
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. Property
taxes increased as a result of an increase in the tax assessments for North Park
Apartments, Towers of Westchester Park and Chapelle Le Grande. The decrease in
interest expense is 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.
Total expenses for the three months ended September 30, 2003 increased compared
to the same period in 2002 due to increases in operating and depreciation
expenses partially offset by decreases in interest expense and property
management fees as discussed above as well as a decrease in property tax
expense. The decrease in property tax expense is due to the receipt of a tax
refund from prior years received during the three months ended September 30,
2003 at Vista Village Apartments partially offset by the increases at North Park
Apartments, Towers of Westchester Park and Chapelle Le Grande discussed above.
General and administrative expense remained relatively constant between the
comparable periods. Included in general and administrative expenses for the nine
months ended September 30, 2003 and 2002 are reimbursements to the Managing
General Partner allowed under the Partnership Agreement associated with its
management of the Venture. Costs associated with quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included.
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, 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.
Liquidity and Capital Resources
At September 30, 2003, the Venture had cash and cash equivalents of
approximately $1,567,000 as compared to approximately $2,733,000 at September
30, 2002. Cash and cash equivalents decreased approximately $1,242,000 for the
nine months ended September 30, 2003, from December 31, 2002. The decrease in
cash and cash equivalents is a result of approximately $4,173,000 and $2,038,000
of cash used in financing and investing activities, respectively, which was
partially offset by approximately $4,969,000 of cash provided by operating
activities. Cash used in financing activities consisted of principal payments on
the mortgages encumbering the Venture's investment properties and, to a lesser
extent, a payment on advances from affiliates loaned temporarily in December
2002. 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 the receipt of insurance proceeds related
to the casualties at Shadowood Apartments and Pathfinder Village. The Venture
invests its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the 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 service 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. Funds to pay for these expenditures were placed in escrow accounts in
prior years and the Venture resumed making monthly payments on the junior debt
to the extent of monthly excess cash flow. As of December 31, 2002, reserve
balances still existed for Terrace Gardens, The Bluffs, and Watergate Apartments
pending completion of the agreed upon work. During the nine months ended
September 30, 2003, The Bluffs and Watergate Apartments completed all their
agreed upon work.
North Park Apartments: The Venture completed approximately $82,000 in capital
expenditures at North Park Apartments during the nine months ended September 30,
2003, consisting primarily of floor covering replacements, parking area
improvements, swimming pool improvements, roof replacements and air conditioning
upgrades. These improvements were funded from operating cash flow and
replacement reserves. The Venture evaluates the capital improvement needs of the
property during the year and currently expects to complete an additional $19,000
in capital improvements during the remainder of 2003. The additional capital
improvements will consist primarily of floor covering and appliance replacements
and HVAC improvements.
Chapelle Le Grande: The Venture completed approximately $20,000 in capital
expenditures at Chapelle Le Grande during the nine months ended September 30,
2003, consisting primarily of floor covering and appliance replacements and fire
safety improvements. These improvements were funded from operating cash flow and
replacement reserves. The Venture evaluates the capital improvement needs of the
property during the year and currently expects to complete an additional $18,000
in capital improvements during the remainder of 2003. The additional capital
improvements will consist primarily of floor covering and appliance replacements
and HVAC improvements.
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, 2003 and which are estimated to cost approximately
$433,000, of which approximately $340,000 were completed as of September 30,
2003. None of these expenditures were completed during 2003. These costs were
funded out of cash flows from the property that otherwise would have been
utilized to service the junior debt. The Venture completed approximately $87,000
in capital expenditures at Terrace Gardens during the nine months ended
September 30, 2003, consisting primarily of floor covering replacements and
structural and air conditioning upgrades. These improvements were funded from
operating cash flow and replacement reserves. The Venture evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $32,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of floor
covering and appliance replacements.
Forest Ridge Apartments: The Venture completed approximately $149,000 in capital
expenditures at Forest Ridge Apartments during the nine months ended September
30, 2003, consisting primarily of floor covering replacements, plumbing fixture
upgrades, heating upgrades and countertop and water heater replacements. These
improvements were funded from operating cash flow and replacement reserves. The
Venture evaluates the capital improvement needs of the property during the year
and currently expects to complete an additional $21,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of floor covering and appliance replacements, HVAC improvements and
sidewalk additions.
Scotchollow: The Venture completed approximately $314,000 in capital
expenditures at Scotchollow during the nine months ended September 30, 2003,
consisting primarily of structural improvements, appliance and floor covering
replacements and interior decoration. These improvements were funded from
operating cash flow and replacement reserves. An additional $429,000 was spent
during the nine months ended September 30, 2003 consisting of building additions
associated with the fire that occurred in January 2002. The insurance proceeds
and asset write-offs related to this fire were recorded during 2002. The Venture
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $74,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of floor covering and appliance replacements, HVAC improvements,
cabinet upgrades, plumbing fixture upgrades, rebuilding of landings and building
renovations to improve the safety of the property.
Pathfinder Village: The Venture completed approximately $234,000 in capital
expenditures at Pathfinder Village during the nine months ended September 30,
2003, consisting primarily of floor covering replacements, countertops,
structural improvements, interior decoration and painting. These improvements
were funded from operating cash flow, replacement reserves and insurance
proceeds. The Venture evaluates the capital improvement needs of the property
during the year and expects that only necessary improvements will be made during
the remainder of 2003 in order to maintain occupancy at the property.
Buena Vista Apartments: The Venture completed approximately $52,000 in capital
expenditures at Buena Vista Apartments during the nine months ended September
30, 2003, consisting primarily of roof, floor covering and appliance
replacements and plumbing fixture upgrades. These improvements were funded from
operating cash flow and replacement reserves. The Venture evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $101,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of roof and
floor covering replacements, office equipment and pool upgrades.
Mountain View Apartments: The Venture completed approximately $208,000 in
capital expenditures at Mountain View Apartments during the nine months ended
September 30, 2003, consisting primarily of floor covering replacements, and
furnishings, water heaters and plumbing fixture upgrades. These improvements
were funded from operating cash flow and replacement reserves. The Venture
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $38,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of floor covering and appliance replacements and deck and landing
replacements.
Crosswood Park: The Venture completed approximately $250,000 in capital
expenditures at Crosswood Park during the nine months ended September 30, 2003,
consisting primarily of structural improvements, air conditioning upgrades,
swimming pool improvements, floor covering and appliance replacements and major
landscaping. These improvements were funded from operating cash flow and
replacement reserves. The Venture evaluates the capital improvement needs of the
property during the year and currently expects to complete an additional
$160,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of floor covering and appliance
replacements, water heater replacements and staircase, balcony, walkway and
structural improvements to improve the safety of the property and its buildings.
Casa de Monterey: The Venture completed approximately $85,000 in capital
expenditures at Casa de Monterey during the nine months ended September 30,
2003, consisting primarily of floor covering replacements, plumbing fixture
upgrades, HVAC improvements and asphalt resurfacing. These improvements were
funded from operating cash flow and replacement reserves. The Venture evaluates
the capital improvement needs of the property during the year and currently
expects to complete an additional $33,000 in capital improvements during the
remainder of 2003. The additional capital improvements will consist primarily of
floor covering replacements, maintenance equipment, new signs and exterior
painting.
The Bluffs: As of September 30, 2003, all capital expenditures required under
the agreement signed July 2000 were completed by March 31, 2003 with
approximately $20,000 incurred during 2003. These costs were funded out of cash
flows from the property that otherwise would have been utilized to service the
junior debt. The Venture completed approximately $63,000 in capital
expenditures, including the aforementioned capital expenditures, at The Bluffs
during the nine months ended September 30, 2003, consisting primarily of floor
covering replacements, structural improvements, ground lighting, asphalt
resurfacing and major landscaping. These improvements were funded from operating
cash flow and replacement reserves. The Venture evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $20,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of floor
covering and appliance replacements, HVAC improvements, cabinet upgrades and
storm windows.
Watergate Apartments: As of September 30, 2003, all capital expenditures
required under the agreement signed August 2000 have been completed.
Approximately $16,000 of these expenditures were completed during 2003. These
costs were funded out of cash flows from the property that otherwise would have
been utilized to service the junior debt. The Venture completed approximately
$99,000 in capital expenditures, including the aforementioned capital
expenditures, at Watergate Apartments during the nine months ended September 30,
2003, consisting primarily of structural improvements, upgrades to comply with
the Americans With Disabilities Act, air conditioning upgrades, swimming pool
upgrades, painting and floor covering replacements. These improvements were
funded from operating cash flow and replacement reserves. The Venture evaluates
the capital improvement needs of the property during the year and currently
expects to complete an additional $12,000 in capital improvements during the
remainder of 2003. The additional capital improvements will consist primarily of
floor covering and appliance replacements.
Shadowood Apartments: The Venture completed approximately $44,000 in capital
expenditures at Shadowood Apartments during the nine months ended September 30,
2003, consisting primarily of floor covering replacements, plumbing fixture and
air conditioning upgrades and wall covering replacements. An additional $87,000
was spent during the nine months ended September 30, 2003 consisting of building
improvements associated with the fire that occurred in September 2002. These
improvements were funded from operating cash flow and insurance proceeds. The
Venture evaluates the capital improvement needs of the property during the year
and currently expects to complete an additional $4,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of floor covering and appliance replacements.
Vista Village Apartments: The Venture completed approximately $60,000 in capital
expenditures at Vista Village Apartments during the nine months ended September
30, 2003, consisting primarily of floor covering, appliance and water heater
replacements and air conditioning and swimming pool upgrades. These improvements
were funded from operating cash flow and replacement reserves. The Venture
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $20,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of floor covering and appliance replacements.
Towers of Westchester Park: The Venture completed approximately $70,000 in
capital expenditures at Towers of Westchester Park during the nine months ended
September 30, 2003, consisting primarily of floor covering replacements,
cabinets, air conditioning and structural upgrades and swimming pool
improvements. These improvements were funded from operating cash flow and
replacement reserves. The Venture evaluates the capital improvement needs of the
property during the year and currently expects to complete an additional $29,000
in capital improvements during the remainder of 2003. The additional capital
improvements will consist primarily of floor covering and appliance
replacements, structural improvements and parking lot upgrades.
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 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 Venture's properties totals approximately $102,154,000
and is being amortized over 25 years, with a balloon payment of $93,243,000 due
January 2008. Not including the debt discount relating to the mortgage
participation liability, the junior debt, which also matures January 2008,
totals approximately $22,585,000 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, 2003 and 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. 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 2003 or subsequent periods.
Other
As a result of tender offers, AIMCO and its affiliates currently own 118.50
units of limited partnership interest in Portfolio I representing 18.40% of the
outstanding limited partnership interests, along with the 2% general partner
interest for a combined ownership in Portfolio I of 20.40%. AIMCO and its
affiliates currently own 66.42 units of limited partnership interest in
Portfolio II representing 24.88% of the outstanding limited partnership
interests, along with the 2% general partner interest for a combined ownership
in Portfolio II of 26.88%. The Venture is owned 70.69% by Portfolio I and 29.31%
by Portfolio II which results in AIMCO and its affiliates currently owning
22.30% 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. Pursuant to the Partnership Agreements,
unitholders holding a majority of the units of limited partnership interest are
entitled to take action with respect to a variety of matters that include, but
are not limited to, 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 Venture, the
Managing General Partner also owes fiduciary duties to AIMCO as its sole
stockholder. As a result, the duties of the Managing General Partner, as
managing general partner, to the Venture and its limited partners may come into
conflict with the duties of the Managing General Partner to AIMCO, as its sole
stockholder.
Critical Accounting Policies and Estimates
The combined financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Venture to
make estimates and assumptions. The Venture believes that of its significant
accounting policies, the following may involve a higher degree of judgment and
complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Venture will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Venture would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the Venture's
investment properties. These factors include, but are not limited to, changes in
the national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Venture's assets.
Revenue Recognition
The Venture generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned and
the Venture fully reserves all balances outstanding over thirty days. The
Venture will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
Participating Mortgage Note
The Venture has a participating mortgage note which requires it to record the
estimated fair value of the participation feature as a liability and a debt
discount. The fair value of the participation feature is calculated based upon
information currently available to the Managing General Partner and depends
largely upon the fair value of the collateral properties. These fair values are
determined using the net operating income of the properties capitalized at a
rate deemed reasonable for the type of property adjusted for market conditions,
physical condition of the property and other factors. The Managing General
Partner evaluates the fair value of the participation feature on an annual basis
or as circumstances dictate that it should be analyzed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Venture is exposed to market risks from adverse changes in interest rates.
In this regard, changes in U.S. interest rates affect the interest earned on the
Venture's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Venture does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Venture is exposed to changes in interest rates primarily
as a result of its borrowing activities used to maintain liquidity and fund
business operations. To mitigate the impact of fluctuations in U.S. interest
rates, the Venture maintains its debt as fixed rate in nature by borrowing on a
long-term basis except for advances made from an affiliate of the Managing
General Partner. These advances bear interest at the prime rate plus three basis
points. Based on interest rates at September 30, 2003, 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,
2003. 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 $109,439,000 at September 30, 2003. 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
2003 $ 402 8.50%
2004 1,832 8.50%
2005 2,022 8.50%
2006 2,201 8.50%
2007 2,403 8.50%
Thereafter 115,879 8.96%
$124,739
As principal payments for the junior loans are based upon monthly cash flow, all
principal is assumed to be repaid at maturity.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Venture's management, with the
participation of the principal executive officer and principal financial officer
of the Managing General Partner, who are the equivalent of the Venture's
principal executive officer and principal financial officer, respectively, has
evaluated the effectiveness of the Venture's disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on such evaluation, the principal executive
officer and principal financial officer of the Managing General Partner, who are
the equivalent of the Venture's principal executive officer and principal
financial officer, respectively, have concluded that, as of the end of such
period, the Venture's disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Venture's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Venture's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Managing General Partner the
claims will not result in any material liability to the Venture.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
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, 2002, is incorporated herein by
reference).
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, 2002, is incorporated herein by reference).
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, 2002, is incorporated herein by reference).
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.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2003.
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/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President
and Chief Financial 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/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President
and Chief Financial Officer
Date: November 12, 2003
Exhibit 11
VMS NATIONAL PROPERTIES JOINT VENTURE
CALCULATION OF NET LOSS PER INVESTOR
(in thousands, except per unit data)
For the Nine Months
Ended September 30,
2003 2002
VMS National Properties net loss $(4,953) $(3,504)
Portfolio I net loss -- --
Portfolio II net loss -- --
Combined net loss $(4,953) $(3,504)
Portfolio I allocation:
70.69% VMS National Properties net loss $(3,501) $(2,477)
100.00% Portfolio I net loss -- --
$(3,501) $(2,477)
Net loss to general partner (2%) $ (70) $ (49)
Net loss to limited partners (98%) $(3,431) $(2,428)
Number of Limited Partner units 644 644
Net loss per limited partnership interest $(5,328) $(3,770)
Portfolio II allocation:
29.31% VMS National Properties net loss $(1,452) $(1,027)
100.00% Portfolio II net loss -- --
$(1,452) $(1,027)
Net loss to general partner (2%) $ (29) $ (21)
Net loss to limited partners (98%) $(1,423) $(1,006)
Number of Limited Partner units 267 267
Net loss per limited partnership interest $(5,330) $(3,768)
Exhibit 31.1
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 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 registrant as of, and for, the periods presented in this report;
4. The registrant'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 registrant
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
registrant, 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 registrant'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 registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant'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 registrant'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 registrant's
internal control over financial reporting.
Date: November 12, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of MAERIL, Inc.,
equivalent of the chief executive officer of
the Venture
Exhibit 31.2
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 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 registrant as of, and for, the periods presented in this report;
4. The registrant'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 registrant
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
registrant, 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 registrant'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 registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant'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 registrant'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 registrant's
internal control over financial reporting.
Date: November 12, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of MAERIL, Inc., equivalent of the
chief financial officer of the Venture
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of VMS National Properties
Joint Venture (the "Venture"), for the quarterly period ended September 30, 2003
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 12, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 12, 2003
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.