SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
******************************************
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
******************************************
For the period ended JUNE 30, 2000
Commission file number 0-13693
------------------------------
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
-------------------------------------------
(Exact name of registrant as specified in charter)
Massachusetts 13-6850434
------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2839 Paces Ferry Road, Suite 1170, Atlanta, GA 30339
- - ---------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(770) 984-9500
-------------------
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
The number of shares outstanding as of August 7, 2000 was 1,100,491.
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
INDEX OF FINANCIAL INFORMATION
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets (unaudited) as of June 30, 2000
and December 31, 1999 3
Consolidated Statements of Operations (unaudited)
for the three and six months ended June 30, 2000 and 1999 4
Consolidated Statement of Shareholders' Equity (unaudited)
for the six months ended June 30, 2000 5
Consolidated Statements of Cash Flows (unaudited)
for the three and six months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
PART II OTHER INFORMATION/SIGNATURE
Item 6 Exhibits and Reports on Form 8-K 23
Signature 24
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2000 1999
------------- ---------------
Real estate assets:
Land $ 8,247,900 $ 8,247,900
Buildings and improvements 55,588,622 55,545,257
Furniture, fixtures & equipment 4,039,936 3,968,848
Less: accumulated depreciation (4,468,137) (3,351,811)
------------- ---------------
Net real estate assets 63,408,321 64,410,194
Investment in unconsolidated Joint Venture 1,435,234 1,551,974
Cash and cash equivalents 783,041 916,215
Restricted cash 1,739,526 1,816,102
Receivable from Joint Venture 16,540 27,356
Receivables and other assets 188,248 236,900
Deferred financing costs, less accumulated amortization of $160,355 and
$127,656 at June 30, 2000 and December 31, 1999, respectively 105,210 117,908
Deferred leasing costs, less accumulated amortization of $70,857 and
$59,240 at June 30, 2000 and December 31, 1999, respectively 26,047 37,665
------------- ---------------
Total assets $ 67,702,167 $69,114,314
============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 54,912,036 $55,074,923
Line of credit 1,865,000 1,715,000
Accounts payable and accrued liabilities 1,523,418 1,899,937
Distributions payable to Preferred Unitholders 232,375 464,750
Dividends payable to Preferred Shareholders 232,375 -
------------- ---------------
Total liabilities 58,765,204 59,154,610
------------- ---------------
Minority interests of unitholders in Operating Partnership:
Preferred partnership interests - 8,730,003
Common partnership interests 12,535 222,084
------------- ---------------
Total minority interests 12,535 8,952,087
------------- ---------------
Shareholders' equity:
Series A convertible preferred shares of beneficial interest, 8,867,529 -
(par value $.01 per share) 2,050,000 authorized, 1,988,235
and 0 shares issued and outstanding at June 30, 2000 and
December 31, 1999, respectively
Common shares of beneficial interest, without par or stated value,
25,000,000 authorized, 1,100,491 and 1,100,493 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively
Additional paid in capital 3,295,976 3,295,998
Accumulated deficit (3,239,077) (2,288,381)
------------- ---------------
Total shareholders' equity 8,924,428 1,007,617
------------- ---------------
Total liabilities and shareholders' equity $ 67,702,167 $69,114,314
============= ===============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three For the six
months ended June 30, months ended June 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ---------- ----------- -----------
REVENUES
Rental revenues $ 2,807,741 $2,170,334 $ 5,538,273 $ 3,168,723
Other property revenues 164,704 105,492 300,938 145,866
Other income 14,811 6,270 27,431 18,270
----------- ---------- ----------- -----------
2,987,256 2,282,096 5,866,642 3,332,859
----------- ---------- ----------- -----------
EXPENSES
Property operating and maintenance 1,104,805 846,533 2,208,146 1,244,082
Depreciation and amortization 564,535 427,314 1,127,943 593,871
Amortization of deferred financing costs 15,163 12,599 32,699 20,325
Interest expense 1,293,920 956,304 2,583,155 1,288,383
General and administrative 178,115 118,300 365,927 261,837
----------- ---------- ----------- -----------
3,156,538 2,361,050 6,317,870 3,408,498
Loss before equity in loss of unconsolidated
Joint Venture and minority interests (169,282) (78,954) (451,228) (75,639)
Equity in loss of unconsolidated Joint Venture (43,033) (17,768) (106,740) (17,768)
----------- ---------- ----------- -----------
Loss before minority interests (212,315) (96,722) (557,968) (93,407)
Less Minority interests in Operating Partnership:
Preferred partnership interests - 229,830 336,758 229,830
Common partnership interests (86,309) (58,973) (209,549) (58,374)
----------- ---------- ----------- -----------
Net loss (126,006) (267,579) (685,177) (264,863)
----------- ---------- ----------- -----------
Dividends to preferred shareholders 232,375 - 232,375 -
Accretion to preferred shareholders 33,144 - 33,144 -
----------- ---------- ----------- -----------
Net loss available to common shareholders $(391,525) $(267,579) $(950,696) $(264,863)
=========== ========== =========== ===========
NET LOSS PER SHARE - BASIC $ (0.36) $ (0.24) $ (0.86) $ (0.24)
=========== ========== =========== ===========
NET LOSS PER SHARE - DILUTED $ (0.36) $ (0.24) $ (0.86) $ (0.24)
=========== ========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 1,100,490 1,100,503 1,100,491 1,100,504
=========== ========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 1,343,036 1,343,049 1,343,037 1,343,050
=========== ========== =========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY For the three
months ended June 30, 2000
(unaudited)
Series A Additional Total
Convertible paid in Accumulated Shareholders'
Preferred Shares capital deficit equity
----------------- -------------- -------------- -------------
BALANCE AT DECEMBER 31, 1999 $ - $ 3,295,998 $ (2,288,381) $ 1,007,617
Net loss - - (950,696) (950,696)
Conversion of preferred units to
preferred shares 8,867,529 8,867,529
Retirement of shares - (22) - (22)
BALANCE AT JUNE 30, 2000 $ 8,867,529 $ 3,295,976 $ (3,239,077) $ 8,924,428
================ ============= ============== ================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended June 30,
2000 1999
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (685,177) $ (264,863)
------------- -------------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 1,127,943 593,871
Amortization of deferred financing costs 32,699 20,325
Equity in loss of unconsolidated Joint Venture 106,740 17,768
Minority interests in Operating Partnership:
Preferred partnership interests 336,758 229,830
Common partnership interests (209,549) (58,374)
Distributions to preferred unitholders (464,750) -
Changes in assets and liabilities, net of the effect
of real estate assets acquired
Restricted cash 76,576 (235,645)
Receivable from Joint Venture 10,816 -
Receivables and other assets 48,652 (5,307)
Capitalized leasing costs - (12,213)
Accounts payable and accrued liabilities (376,519) 297,565
------------- ------------
Total adjustments 689,366 847,820
------------- ------------
Net cash provided by operating activities 4,189 582,957
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate assets - (6,066,073)
Capital expenditures (114,453) (191,848)
Investment in unconsolidated Joint Venture - (1,705,100)
Acquisition advances from Joint Venture - 363,837
Distributions from Joint Venture 10,000 -
------------- ------------
Net cash used in investing activities (104,453) (7,599,184)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs (20,000) (29,242)
Net proceeds (repayments) from/to line of credit 150,000 (1,065,000)
Principal repayments on mortgage notes payable (162,888) (101,449)
Purchase of retired shares (22) (3)
Proceeds from issuance of preferred partnership interests - 8,450,000
------------- ---------------
Net cash provided (used) by financing activities (32,910) 7,254,306
------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (133,174) 238,079
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 916,215 158,302
------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 783,041 $ 396,381
============= ==============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 2000
NOTE 1 - BUSINESS AND ORGANIZATION
Vinings Investment Properties Trust ("Vinings" or the "Trust") was
organized on December 7, 1984 as a mortgage real estate investment
trust ("REIT") whose original plan was to liquidate within
approximately ten years. On February 28, 1996, Vinings Investment
Properties, Inc. completed a tender offer to acquire control of the
Trust in order to rebuild Vinings assets by expanding into the
multifamily real estate markets through the acquisition of garden style
apartment communities which are leased to middle-income residents.
Current management believes that these investments will provide
attractive sources of income to Vinings which will not only increase
net income and provide cash available for future distributions, but
will increase the value of Vinings' real estate portfolio as well.
Effective July 1, 2000 Vinings no longer qualifies as a REIT for
federal income tax purposes and will be taxed as a corporation (See
Note 2).
Currently Vinings conducts all of its operations through Vinings
Investment Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership. As of June 30, 2000, the Trust was the sole 1%
general partner and an 92.72% limited partner in the Operating
Partnership, controlling 80.94% of the common partnership interests and
100% of the preferred partnership interests (See Note 5).
On April 29, 1999, the Operating Partnership offered, in a private
transaction pursuant to a Securities Purchase Agreement (the "Purchase
Agreement"), Series A Convertible Preferred Partnership interests (the
"Preferred Units"), the proceeds from which were used to acquire
thirteen multifamily communities (collectively, the "Portfolio
Properties") from seventeen limited partnerships and limited liability
companies. Eight of the Portfolio Properties were purchased through
subsidiary partnerships of the Operating Partnership. The remaining
Portfolio Properties were purchased through a joint venture structure.
Effective April 1, 2000, 100% of the 1,988,235 Preferred Units were
converted to Series A Convertible Preferred Shares of the Trust (the
"Preferred Shares") with the same rights, preferences and privileges as
the Preferred Units (See Note 5).
Vinings currently owns, through wholly owned subsidiaries, ten
apartment communities totaling 1,520 units and a 75,000 square foot,
single story business park. In addition, Vinings holds a 20% interest
in and is the general partner of an unconsolidated joint venture, which
owns through subsidiary partnerships five additional apartment
communities totaling 968 units (See Note 4). At June 30, 2000, the
average occupancy of Vinings' portfolio, including the communities held
by the unconsolidated joint venture, was 94%.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and with the instructions
to Form 10-Q and Article 10 of Regulation S-X.
The accompanying consolidated financial statements of Vinings include
the consolidated accounts of the Trust and its subsidiaries. All
significant intercompany balances and transactions have been eliminated
in consolidation. Vinings accounts for its investment in the
unconsolidated joint venture using the equity method of accounting. The
term "Vinings" or "Trust" hereinafter refers to Vinings Investment
Properties Trust and its subsidiaries, including the Operating
Partnership.
The minority interests of the common unitholders in the Operating
Partnership (the "Common Units") reflected on the accompanying balance
sheets are calculated based on the common unitholders' minority
interest ownership percentage as compared to the total common
unitholders interest (18.06% as of June 30, 2000) multiplied by the
Operating Partnership's net assets. The minority interests of the
preferred unitholders at December 31, 1999 on the accompanying balance
sheet represents cash contributed in exchange for those units and the
accrued liquidation preference of $0.21 per Preferred Unit ($280,003 at
December 31, 1999) The Preferred Units were exchanged for Preferred
Shares effective April 1, 2000 and are reflected on the accompanying
balance sheet as the cash contributed and the accrued liquidation
preference of $0.21 per Preferred Share ($417,529 at June 30, 2000).
The minority interests of the common unitholders in the income or loss
of the Operating Partnership on the accompanying statements of
operations is calculated based on the weighted average minority
interest ownership percentage (approximately 18% for all periods
presented) multiplied by income (loss) before minority interests after
subtracting income allocated to the preferred partnership interests.
The minority interests of the preferred unitholders on the statements
of operations for the three months ended June 30, 1999 ($229,830) and
for the six months ended June 30, 1999 and 2000 ($229,830 and $336,758
respectively) represents the accrued preferred 11% return on the
Preferred Units and the accrued pro rata liquidation preference of
$0.21 per Preferred Unit.
Income Taxes
------------
Prior to June 30, 2000, Vinings had elected to be taxed as a REIT under
the Internal Revenue Code of 1986, as amended (the "Code"). As a
result, Vinings was generally not subject to federal income taxation on
that portion of its income that qualified as REIT taxable income to the
extent that Vinings distributed at least 95% of its taxable income to
its shareholders and satisfied certain other requirements. Effective
July 1, 2000 Vinings no longer qualifies as a REIT for federal income
tax purposes and will be taxed as a corporation. However, the Trust is
not currently generating taxable income and accordingly, no provision
for federal income taxes has been included in the accompanying
consolidated financial statements.
Cash and Cash Equivalents
-------------------------
Vinings considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted Cash
---------------
Restricted cash consists of real estate tax, insurance and replacement
reserve escrows held by mortgagees, which are funded monthly from
property operations and released solely for the purpose for which they
were established. Restricted cash also includes security deposits
collected and held on behalf of the residents and tenants.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Real Estate Assets
------------------
Real estate assets are stated at depreciated cost less reductions for
impairment, if any. In identifying potential impairment, management
considers such factors as declines in a property's operating
performance or market value, a change in use, or adverse changes in
general market conditions. In determining whether an asset is impaired,
management estimates the future cash flows expected to be generated
from the asset's use and its eventual disposition. If the sum of these
estimated future cash flows on an undiscounted basis is less than the
asset's carrying cost, the asset is written down to its fair value. In
management's opinion, there has been no impairment of Vinings' real
estate assets as of June 30, 2000.
Ordinary repairs and maintenance are expensed as incurred. Major
improvements and replacements are capitalized and depreciated over
their estimated useful lives when they extend the useful life, increase
capacity or improve efficiency of the related asset. Depreciation is
computed on a straight-line basis over the useful lives of the real
estate assets (buildings and improvements, 5-40 years; furniture,
fixtures and equipment, 3-7 years; and tenant improvements, generally
over the life of the related lease).
Revenue Recognition
-------------------
All leases are classified as operating leases and rental income is
recognized when earned which materially approximates revenue
recognition on a straight-line basis.
Deferred Financing Costs and Amortization
-----------------------------------------
Deferred financing costs include fees and costs incurred to obtain
financing and are capitalized and amortized over the term of the
related debt.
Net Loss Per Share
------------------
The following is a reconciliation of net loss available to the common
shareholders and the weighted average shares used in Vinings' basic and
diluted net loss per share computations:
For the three months For the six months
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------------------------------------------------------------
Net loss - basic $(391,525) $(267,579) $ (950,696) $(264,863)
Minority interests in Operating Partnership:
Preferred partnership interests - - - -
Common partnership interests (86,309) (58,973) (209,549) (58,374)
-------------------------------------------------------------
Total minority interest (86,309) (58,973) (209,549) (58,374)
-------------------------------------------------------------
Net loss - diluted $(477,834) $(326,552) $ (1,160,245) $(323,237)
=============================================================
Weighted average shares - basic 1,100,490 1,100,503 1,100,491 1,100,504
Dilutive Securities
Weighted average Common Units 242,546 242,546 242,546 242,546
Weighted average Preferred Units/Shares - - - -
Share options - - - -
-------------------------------------------------------------
Weighted average shares - diluted 1,343,036 1,343,049 1,343,037 1,343,050
=============================================================
Both common units and preferred units in the Operating Partnership
held by the minority unitholders and preferred shares of the Trust are
redeemable for common shares of beneficial interest of the Trust
("Shares") on a one-for-one basis, or for cash, at the option of the
Trust. For the three months and six months ended June 30, 1999, and
2000, options to purchase 107,250 shares and 103,500 shares,
respectively were excluded as the impact of such options was
antidilutive. For the three months ended June 30, 1999 and six months
ended June 30, 1999 and 2000 Preferred Units totaling 1,988,235 and
for the three months ended June 30, 2000 Preferred Shares totaling
1,988,235 were also excluded as the impact of such units was
antidilutive.
Recent Accounting Pronouncement
-------------------------------
Vinings adopted Statements of Financial Accounting Standards ("SFAS")
No. 130, "Reporting of Comprehensive Income," during 1998, which
establishes a standard for reporting and display of comprehensive
income and its components. Comprehensive income is the total of net
income and all other nonowner changes in shareholders' equity. As of
June 30, 2000 and 1999, Vinings had no items of other comprehensive
income.
Vinings also adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," during 1998, which establishes
new standards for disclosure of segment information on the so called
"management approach." The management approach is based on the way
that the chief operating decision maker organizes segments within a
company for making operating decisions and assessing performance.
Since Vinings' real estate portfolio has similar economic
characteristics, customers, and products and services, Vinings
evaluates the operating performance of its real estate portfolio as
one reportable segment, on the same basis of presentation for internal
and external reporting. Therefore, no additional segment information
is presented herein.
Reclassifications
-----------------
Certain 1999 financial statement amounts have been reclassified to
conform with the current year presentation.
NOTE 3 - REAL ESTATE ASSETS
On May 1, 1999, Vinings, through its subsidiaries, completed the
acquisition of the Portfolio Properties from seventeen limited
partnerships and limited liability companies. Eight of the Portfolio
Properties (the "Mississippi Properties") were purchased through
subsidiary partnerships of the Operating Partnership. The remaining
Portfolio Properties (the "Joint Venture Properties") were purchased
through a joint venture structure. (See Note 4.)
The Mississippi Properties, totaling 1,064 units, were purchased by
eight individual partnerships in each of which Vinings Holdings, Inc.,
a wholly owned subsidiary of the Trust, owns a .1% general partnership
interest and the Operating Partnership owns a 99.9% limited
partnership interest. The aggregate purchase price for the Mississippi
Properties was $47,665,396 (excluding closing costs), which included
the assumption of debt of approximately $41,693,000 with the balance
paid in cash, which was funded by the issuance of the Preferred Units.
A total of approximately $749,200 in escrows held by the mortgagees
was also purchased.
In addition Vinings owns, also through subsidiary partnerships of the
Operating Partnership, two additional multifamily communities in the
metropolitan Atlanta area for a total of 1,520 units in ten
communities, as well as a 75,000 square foot business center. All of
the multifamily communities are encumbered by fixed rate mortgage
financing and the business center is security for the line of credit.
NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
On May 1, 1999, Vinings purchased, through a joint venture structure,
five apartment communities, totaling 968 units (the "Joint Venture
Properties"). The Joint Venture Properties were purchased by nine
individual partnerships in each of which Vinings Holdings, Inc., a
wholly owned subsidiary of the Trust, owns a .1% general partnership
interest and Vinings/CMS Master Partnership, L.P. (collectively, the
"Joint Venture"), a Delaware limited partnership, owns a 99.9% limited
partnership interest. The Operating Partnership has a .1% general
partner interest and a 19.98% limited partner interest in the Joint
Venture, for which it paid $1,705,100. This investment was funded by
the issuance of the Preferred Units, which effective April 1, 2000
were converted to Preferred Shares (See Note 5). The remaining limited
partnership interests in the Joint Venture are held by an unaffiliated
third party. The Joint Venture was formed on March 22, 1999, primarily
to acquire the limited partner interest in limited partnerships that
acquire, operate, manage, hold and sell certain real property,
specifically the Joint Venture Properties. The aggregate purchase
price paid by the property partnerships for the Joint Venture
Properties was $46,634,603 (excluding closing costs), which included
the assumption of approximately $39,265,000 of debt with the balance
paid in cash. A total of approximately $716,400 in escrows held by the
mortgagees was also purchased.
Vinings accounts for its investment in the Joint Venture using the
equity method of accounting. The following is a summary of the results
of operations of the Joint Venture and Vinings' share of the equity in
the loss from the Joint Venture for the three months and six months
ended June 30, 2000:
For the three For the six
months ended months ended
June 30, 2000 June 30, 2000
----------------- ---------------
Revenues $ 1,734,856 $3,388,714
Expenses:
Property operating and maintenance 696,314 1,414,153
General and administrative 11,971 25,661
Depreciation and amortization 378,702 755,471
Interest expense 863,038 1,727,130
---------------- -------------
Total Expenses 1,950,025 3,922,415
---------------- -------------
Net loss (215,169) (533,701)
Vinings' equity percentage 20% 20%
---------------- -------------
Vinings' equity in loss of unconsolidated Joint Venture $ (43,033) $ (106,740)
================== =============
Distributions received by Vinings from Joint Venture $ 10,000 $ 10,000
================== =============
Cash flows provided by operating activities $ 54,756
=============
Cash flows used in investing activities $ (90,399)
=============
Cash flows used in financing activities $ (157,935)
=============
The following summarizes the balance sheet of the Joint Venture as of
June 30, 2000:
Real estates assets, net of accumulated depreciation $45,552,034
Cash and other assets 1,584,385
-------------
Total assets $47,136,419
=============
Mortgage notes payable $39,051,275
Other liabilities 909,374
-------------
Total liabilities 39,960,649
-------------
Capital - Vinings 1,435,234
Capital - Other 5,740,536
-------------
Total capital 7,175,770
-------------
Total liabilities and capital $47,136,419
=============
Mortgage notes payable held by the Joint Venture are non-recourse
fixed rate notes secured by the individual properties. All of the
notes except one are insured by the U.S. Department of Housing and
Urban Development ("HUD") and, therefore, distributions from the
properties are subject to "surplus cash" as defined by HUD. The
maturity dates of the notes payable range from June 2007 to November
2037 and interest rates range from 8.00% to 8.75%.
NOTE 5 - SHAREHOLDERS' EQUITY AND PREFERRED PARTNERSHIP INTERESTS
On April 29, 1999, the Operating Partnership offered in a private
transaction Preferred Units pursuant to the Purchase Agreement. A
total of 1,988,235 Preferred Units were issued for an aggregate
purchase price of $8,450,000. The Operating Partnership used the
proceeds of the sales of the Preferred Units to pay the cash
consideration for the Operating Partnership's interests in the
property partnerships that acquired the Mississippi Properties, and
its interest in the Joint Venture. (See Notes 3 and 4.)
Effective April 1, 2000, in accordance with the Purchase Agreement,
Vinings converted all of the Preferred Units to Preferred Shares
having the same rights, preferences and privileges as the Preferred
Units. The holders of Preferred Shares are entitled to receive
cumulative preferential cash distributions at the per annum rate of
$0.4675 per Preferred Share. Upon the occurrence of certain triggering
events, the holders of Preferred Shares are entitled to receive, in
addition to an amount equal to any accumulated and unpaid
distributions on such holder's Preferred Shares, a liquidation
preference of $4.46 per Preferred Share.
Under certain circumstances, the holders of Preferred Shares may
convert any part or all of such Preferred Shares into common shares.
In lieu of converting Preferred Shares into common shares, the Trust,
in its sole discretion, may satisfy its conversion obligations through
certain cash payments, as further set forth in the Declaration of
Trust.
Generally, the holders of Preferred Shares do not have the right to
vote on any matter on which any of the holders of common shares may
vote. The holders of Preferred Shares do, however, have the right to
vote as a separate class of shareholders on certain transactions
including, without limitation, certain authorizations and issuances of
preferred shares designated as ranking senior to the Preferred Shares,
certain amendments to the Declaration of Trust, and certain sales or
other dispositions of assets of the Trust or the Operating
Partnership, certain mergers or consolidations of the Trust or the
Operating Partnership, and transactions which result in the
liquidation of the Trust or the Operating Partnership.
As of June 30, 2000, a total of 1,988,235 Preferred Shares were
outstanding. In addition, as of June 30, 2000 a total of $417,529 had
been accrued as a liquidation preference on the Preferred Shares.
At the annual meeting of shareholders held on June 29, 1999, Vinings'
shareholders approved proposals to amend the Trust's Declaration of
Trust to decrease the total number of common shares of beneficial
interest authorized from an unlimited amount to 25,000,000 and to
authorize a new class of 7,050,000 preferred shares of beneficial
interest which, upon the affirmative vote of two-thirds of the Board
of Trustees, may be issued in such amounts, in one or more series, and
with such designations, preferences, limitations and relative rights
for each series as the Board of Trustees shall determine.
NOTE 6 - NOTES PAYABLE
Mortgage Notes Payable
----------------------
Mortgage notes payable were secured by the following apartment
communities at June 30, 2000 and December 31, 1999, as follows:
Fixed interest rate as Principal Balance as of:
Maturity of 6/30/00 6/30/00 12/31/99
-------------------- ------------------------ -------------- ---------------
Cottonwood 10/01/2036 8.875% $ 4,675,409 $ 4,683,888
Delta Bluff 08/01/2036 9.25 % 6,193,267 6,203,591
Foxgate I 06/01/2037 8.50 % 6,586,115 6,598,549
Hampton House 08/01/2037 8.50 % 5,159,208 5,169,167
Heritage Place 10/01/2036 8.75 % 3,135,986 3,141,865
Northwood 06/01/2034 8.75 % 4,472,482 4,482,862
River Pointe 01/01/2037 8.625% 5,970,148 5,981,475
Trace Ridge 07/01/2036 8.50 % 5,319,232 5,330,125
The Thicket 07/01/2003 9.04 % 7,167,185 7,200,487
Windrush 07/01/2024 7.50 % 6,233,004 6,282,914
-------------- ---------------
Total $54,912,036 $55,074,923
============== ===============
All of the notes except The Thicket are insured by HUD and, therefore,
distributions from the properties are subject to "surplus cash" as
defined by HUD.
Scheduled maturities of the mortgage notes payable as of June 30, 2000
are as follows:
2000 $ 169,827
2001 361,792
2002 393,425
2003 7,314,761
2004 367,596
Thereafter 46,304,635
-------------
Total $54,912,036
=============
Line of Credit
--------------
On April 27, 1999 Vinings obtained a line of credit in the amount of
$2,000,000 from a financial institution. The line of credit is secured
by Peachtree Business Center. The interest rate on the line of credit
is one percent over prime as posted in The Wall Street Journal, which
was 9.50% at June 30, 2000. The principal balance of the line of
credit as of June 30, 2000 and December 31, 1999 was $1,865,000 and
$1,715,000, respectively. The line of credit expired on April 27, 2000
and was renewed until April 30, 2001.
NOTE 7 - RELATED PARTY TRANSACTIONS
On January 1, 1999, Vinings entered into management agreements with
VIP Management, LLC ("VIP"), an affiliate of the officers, who are
also Trustees of Vinings, to provide property management services for
a fee equal to varying percentages ranging from three and one half to
six percent of gross revenues, plus a fee for data processing.
Effective January 1, 2000, the management fee percentages were reduced
to three and one half percent on all of the multifamily communities.
Prior to January 1, 1999, Vinings had entered into management
agreements with Vinings Properties, Inc., also an affiliate of the
officers of Vinings, to provide property management services on
substantially the same terms as the current agreements. In addition,
as a commitment to the rebuilding of Vinings, prior to 1998 The
Vinings Group, Inc., the parent corporation of Vinings Properties,
Inc. (collectively with VIP, "The Vinings Group"), provided numerous
services at no cost to Vinings relating to administration,
acquisition, and capital and asset advisory services. Certain direct
costs paid on Vinings' behalf were reimbursed to The Vinings Group.
Beginning January 1, 1998 the Vinings Group has charged Vinings for
certain overhead charges. Beginning August 1, 1999, the Trust has also
paid for its pro-rata share of rent, administrative and other overhead
charges, which includes reimbursing The Vinings Group for a pro-rata
portion of salaries and benefits for the officers and other employees
providing services to Vinings. Effective July 1, 2000 Vinings
restructured its relationship with VIP who will administer the Trust
for an advisory fee equal to 1 1/2% of gross revenues, including the
revenues from the Joint Venture Properties. The advisory fee is in
lieu of reimbursing VIP for all overhead, salaries and other indirect
costs attributable to the Trust's operations. (See Note 14)
The following table reflects payments made to The Vinings Group:
Three months ended Six months ended
June 30, June 30,
------------------------ --------------------------
2000 1999 2000 1999
----------- ---------- ------------ ------------
VININGS
Management fees $105,720 $ 97,111 $209,006 $153,295
Data processing fees 16,416 15,352 32,832 22,192
Overhead reimbursements 94,298 53,250 106,500
189,219
----------- ----------- ------------- ------------
Total $216,434 $165,713 $431,057 $281,987
=========== =========== ============= ============
JOINT VENTURE
Management fees $70,855 $ 48,636 $142,680 $ 48,636
Data processing fees 14,520 9,680 29,040 9,680
----------- ----------- ------------- ------------
Total $ 85,375 $ 58,316 $171,720 $ 58,316
=========== =========== ============= ============
On February 4, 1999 one of the independent Trustees purchased the
Trust's line of credit, which expired on December 28, 1998 and Vinings
paid interest to the Trustee monthly at the annual rate of 8.50%
through April 27, 1999, at which time the Trustee was repaid in full.
In connection with the acquisition of the Portfolio Properties, MFI
Realty, Inc., an affiliate of the officers of Vinings, received fees
totaling $400,276 of which $167,103 was paid by the Operating
Partnership and $233,173 was paid by the Joint Venture.
Effective March 1, 2000, 628,927 shares of Vinings were purchased in a
privately negotiated transaction by the Officers, one of their
affiliates and an affiliate of one of the Trustees from a limited
number of shareholders, which included three of the Trustees and
certain of their affiliates (the "Stock Transaction"). In connection
with the Stock Transaction, the three selling Trustees -- James D.
Ross, Martin H. Petersen and Gilbert H. Watts, Jr. -- resigned from
the Board of Trustees.
As a result of the Stock Transaction, fewer than five shareholders own
in excess of 50% of the equity in Vinings. On March 15, 2000, the
Board of Trustees voted to waive the ownership limitations in Vinings'
Declaration of Trust with respect to shareholders acquiring shares in
the Stock Transaction, as well as with respect to certain holders of
Preferred Shares.
NOTE 8 - DISTRIBUTIONS
Vinings has not declared or paid any dividends during the three and
six months ended June 30, 2000. Vinings declared two dividends of five
cents per share each, which were paid September 1, 1999 and December
8, 1999, respectively to shareholders of record on August 16, 1999 and
November 26, 1999, respectively. For federal income tax purposes these
distributions represented a return of capital.
NOTE 9 - LEASING ACTIVITY
The following is a schedule of future minimum rents due under
operating leases that have initial or remaining noncancellable lease
terms in excess of one year as of June 30, 2000, at Peachtree:
2000 $192,972
2001 386,175
2002 148,236
-----------
Total $727,383
============
One tenant generated 48% of Peachtree's revenues for the period ended
June 30, 2000. The same tenant accounts for 76% of the future minimum
lease payments.
NOTE 10 - CONTINGENCIES
Vinings is, from time to time, subject to various claims that arise in
the ordinary course of business. These matters are generally covered
by insurance. While the resolution of these matters cannot be
predicted with certainty, management believes that the final outcome
of such matters will not have a material adverse effect on the
financial position or results of operations of Vinings.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
Vinings paid interest of $2,465,771 and $1,241,232 for the six months
ended June 30, 2000 and 1999, respectively.
NOTE 12 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on interest rates and other pertinent information available to
Vinings as of June 30, 2000 and December 31, 1999 the Trust estimates
that the carrying value of cash and cash equivalents, the mortgage
notes payable, the line of credit, and other liabilities approximate
their fair values when compared to instruments of similar type, terms
and maturity.
Disclosure about fair value of financial instruments is based on
pertinent information available to management as of June 30, 2000 and
December 31, 1999. Although management is not aware of any factors
that would significantly affect its estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of these
financial statements since June 30, 2000.
NOTE 13 - 1997 STOCK OPTION AND INCENTIVE PLAN
Vinings' 1997 Stock Option and Incentive Plan (the "Plan") provides
incentives to officers, employees, Trustees, and other key persons
including the grant of share options, share appreciation rights,
restricted and unrestricted share awards, performance share awards,
and dividend equivalent rights.
Under the Plan, the maximum number of shares that may be reserved and
available for issuance is 10% of the total number of outstanding
shares at any time plus 10% of the number of Units outstanding at any
time that are subject to redemption rights. At June 30, 2000 the total
number of shares available for issuance under the Plan was 134,305.
Options granted under the Plan expire ten years from the date of
grant.
During 1998 and 1997, Vinings granted non-qualified share options to
the officers, Trustees and certain key persons. The options were
vested in full after one year from the date of the grant. A total of
26,000 options were granted in 1997, which have an exercise price of
$5.00 per share as compared to a fair value of $4.56 per share on the
date of the grant. Of the options granted in 1998, 76,000 have an
exercise price of $4.00 per share as compared to a fair value of $3.63
on the date of the grant and 1,500 have an exercise price of $4.75 per
share, which was equal to the fair value on the date of grant. There
were no options granted during 1999 or 2000.
On July 1, 1998 Vinings awarded 20,000 shares of restricted stock to
the officers and certain trustees (the "Restricted Stock"),
representing a total value of $80,000 (based on the fair market value
of a share of the Trust on the award date) which was reflected in
compensation expense and shareholders' equity in 1998. The Restricted
Stock was awarded as compensation for services to the Trust provided
by such officers and trustees as well as by The Vinings Group.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
- - --------
Vinings Investment Properties Trust ("Vinings" or the "Trust") was organized on
December 7, 1984 as a mortgage real estate investment trust ("REIT") whose
original plan was to liquidate within approximately ten years. On February 28,
1996, Vinings Investment Properties, Inc. completed a tender offer to acquire
control of the Trust in order to rebuild Vinings assets by expanding into the
multifamily real estate markets through the acquisition of garden style
apartment communities which are leased to middle-income residents. Current
management believes that these investments will provide attractive sources of
income to Vinings which will not only increase net income and provide cash
available for future distributions, but will increase the value of Vinings' real
estate portfolio as well. Effective July 1, 2000 Vinings no longer qualifies as
a REIT for federal income tax purposes and will be taxed as a corporation. (See
Note 2 to Vinings' June 30, 2000 consolidated financial statements.)
Currently Vinings conducts all of its operations through Vinings Investment
Properties, L.P. (the "Operating Partnership"), a Delaware limited partnership.
As of June 30, 2000, the Trust was the sole 1% general partner and an 92.72%
limited partner in the Operating Partnership, controlling 80.94% of the common
partnership interests and 100% of the preferred partnership interests (See Note
5 to Vinings' June 30, 2000 consolidated financial statements.)
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying consolidated
financial statements of Vinings and the notes thereto.
Results of Operations
- - ---------------------
Rental and other property revenues increased $696,619 or 31%, from $2,275,826
for the three months ended June 30, 1999 to $2,972,445 for the same period in
2000, and $2,524,622 or 76%, from $3,314,589 for the six months ended June 30,
1999 to $5,839,211 for the same period in 2000. This increase is due primarily
to the revenues generated in connection with the Trust's ownership of the
Mississippi Properties for the three and six months ended June 30, 2000, which
were only in Vinings' portfolio during May and June of 1999.
Other income increased $8,541 or 136%, from $6,270 for the three months ended
June 30, 1999 to $14,811 for the same period of 2000, and $9,161 or 50% from
$18,270 for the six months ended June 30, 1999 to $27,431 for the same period in
2000. This increase is due interest earned on cash balances.
Property operating and maintenance expense increased by $258,272, or 31%, from
$846,533 for the three months ended June 30, 1999, to $1,104,805 for the same
period in 2000, and $964,064 or 77% from $1,244,082 for the six months ended
June 30, 1999 to $2,208,146 for the same period in 2000. Of this increase,
$974,632 was due to expenses generated in connection with the Trusts' ownership
of the Mississippi Properties for the six months ended June 30, 2000, which were
only in Vinings' portfolio during May and June of 1999. This increase was offset
by a decrease in operating expenses of $10,568 for the six months ended June 30,
2000 due primarily to savings in Windrush and Thicket's management fee expense.
Depreciation and amortization increased by $137,221, or 32%, from $427,314 for
the three months ended June 30, 1999 to $564,535 for the same period in 2000,
and $534,072 or 90 % from $593,871 for the six months ended June 30, 1999 to
$1,127,943 for the same period in 2000. This increase is due primarily to
depreciation generated in connection with the Trusts' ownership of the
Mississippi Properties for the three months ended June 30, 2000, which were only
in Vinings' portfolio during May and June of 1999. There was a slight increase
in Windrush and Thicket's depreciation due to additional capital expenditures.
Amortization of deferred financing costs increased by $2,564, or 20%, from
$12,599 for the three months ended June 30, 1999 to $15,163 for the same period
in 2000, and $12,374 or 61% from $20,325 for the six months ended June 30, 1999
to $32,699 for the same period in 2000. This increase is due to costs incurred
in connection with the refinancing of the line of credit.
Interest expense increased $337,616, or 35%, from $956,304 for the three months
ended June 30, 1999 to $1,293,920 for the same period in 2000, and $1,294,772 or
100% from $1,288,383 for the six months ended June 30, 1999 to $2,583,155 for
the same period in 2000. This increase is due primarily to the mortgage interest
generated in connection with the Trusts' ownership of the Mississippi Properties
for the three and six months ended June 30, 2000, which were only in the
Vinings' portfolio during May and June of 1999. In addition, interest on
Vinings' line of credit increased slightly due to rising interest rates.
Windrush and Thicket had slight decreases in interest expense due to mortgage
amortization.
General and administrative expense increased $59,815, or 51%, from $118,300 for
the three months ended June 30, 1999 to $178,115 for the same period in 2000,
and $104,090 or 40% from $261,837 for the six months ended June 30, 1999 to
$365,927 for the same period in 2000. For the three months ended June 30, 2000,
this increase consists of (1) overhead allocations paid to The Vinings Group
totaling $41,059; (2) office expense totaling $11,981; (3) professional fees
totaling $3,833; and (4) corporate communications expense totaling $8,507. This
increase is offset by a decrease in trustee expense totaling $5,652. The
increase for the six months ending June 30, 2000 consists of (1) overhead
allocations paid to The Vinings Group totaling $82,730; (2) professional fees
totaling $14,595; and (3) office expense totaling $21,070. This increase is
offset by the following decreases: (1) corporate communications expense totaling
$6,252; and (2) trustee expense totaling $10,776.
Liquidity and Capital Resources
- - -------------------------------
Net cash was provided by operating activities of $4,189 for the six months ended
June 30, 2000 as compared to net cash provided by operating activities of
$582,957 for the six months ended June 30, 1999. This change is due primarily to
the distribution paid to the holders of Preferred Units made by the Operating
Partnership. This distribution was for the six month period from July 1, 1999 to
December 31, 1999 totaling $464,750 and was paid during the first quarter of
2000.
Net cash was used in investing activities of $104,453 for the six months ended
June 30, 2000 as compared to net cash used in investing activities of $7,599,184
for the six months ended June 30,1999, due primarily to the purchase of the
Mississippi Properties in May, 1999 and higher capital expenditures for the
first six months of 1999.
Net cash was used by financing activities of $32,909 for the six months ended
June 30, 2000 as compared to net cash used by financing activities of $7,254,306
for the same period in 1999. The cash provided by financing activities for the
six months ended June 30, 1999, consists of $8,450,000 proceeds from issuance of
preferred partnership interests which was offset by (1) $1,065,000 pay down on
the line of credit; (2) $29,242 deferred financing costs relating primarily to
the line of credit and; (3) $101,449 repayments on mortgage notes payable. The
cash used by financing activities for the six months ended June 30, 2000, is due
primarily to a draw of $150,000 on the line of credit, which was offset by
principal payments made on mortgage notes payable totaling $162,888 and deferred
financing costs on the line of credit totaling $20,000.
The cash held by Vinings at June 30, 2000, plus the cash flow from Vinings'
assets, including the investment in the Joint Venture, is expected to provide
sources of liquidity to allow Vinings to meet current operating obligations
excluding the distributions to the preferred shareholders. While Vinings has
been able to pay currently the preferred distributions from the Trust's cash
flow, Vinings may not have sufficient cash flow from operations to make future
distributions on the Preferred Shares. This is due to the assimilation of the
Portfolio Properties into Vinings' operations, which has taken longer than
expected as well as less than anticipated distributions from the Joint Venture.
However, if the current trend of increasing revenues and net operating income
continues, management believes that sufficient cash flow may be generated in the
future to make the scheduled distribution on the Preferred Shares without
drawing on the line of credit. However, there can be no assurance that
sufficient cash flow will be generated from the Trust's operations. In addition,
management plans to continue ongoing discussions with capital sources, both
public and private, as well as explore financing alternatives, so as to allow
the Trust to continue to grow its income producing investments.
Other Matters
- - -------------
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Vinings' actual results could differ materially from those set forth in
the forward-looking statements. Certain factors that might cause such a
difference include the following: the inability of Vinings to identify
properties for acquisition; the inability of Vinings to continue to acquire
properties in the future; the less than satisfactory performance of any property
which might be acquired by Vinings; the inability to access the capital markets
in order to fund Vinings' growth and expansion strategy; the cyclical nature of
the real estate market generally and locally in Georgia, Mississippi and the
surrounding southeastern states; the national economic climate; the local
economic climate in Georgia, Mississippi and the surrounding southeastern
states; the local real estate conditions and competition in Georgia, Mississippi
and the surrounding southeastern states; the ability of Vinings to identify and
correct all potential Year 2000 sensitive problems; and the ability of Vinings
to generate sufficient cash flow to pay the entire preferred distribution. There
can be no assurance that, as a result of the foregoing factors, Vinings' growth
and expansion strategy will be successful or that the business and operations of
Vinings will not be adversely affected thereby.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Vinings is exposed to market risk from changes in interest rates, which may
adversely affect its financial position, results of operations and cash flows.
In seeking to minimize the risks from interest rate fluctuations, Vinings
manages exposures through its regular operating and financing activities.
Vinings does not use financial instruments for trading or other speculative
purposes. Vinings is exposed to interest rate risk primarily through its
borrowing activities, which are described in Note 6 to Vinings' June 30, 2000
Consolidated Financial Statements. All of Vinings' borrowings are under fixed
rate instruments, except the line of credit, which is at prime plus 1%. As of
June 30, 2000 Vinings' exposure to market risk has changed due to the
acquisition of the Vinings Properties and the assumption of the related mortgage
indebtedness. However, Vinings has determined that there is no material market
risk exposure to its consolidated financial position, results of operations or
cash flows due to changes in interest rates because of the fixed rate nature of
its long-term debt.
The following table presents principal reductions and related weighted average
interest rates by year of expected maturity for Vinings' debt obligations as of
June 30, 2000 and should be read in conjunction with Vinings' December 31, 1999
SEC form 10-K:
Fair Value
There June 30,
(In Thousands) 2000 2001 2002 2003 2004 -after Total 2000
- - -----------------------------------------------------------------------------------------------------------------------
Principal Reductions
In Mortgage Notes $ 170 $362 $393 $7,315 $367 $ 46,305 $54,912 $54,912
Average Interest Rates 8.63% 8.63% 8.63% 8.63% 8.63% 8.58% 8.63% 8.63%
Line Of Credit $ 1,865 - - - - - $ 1,865 $ 1,865
Interest Rate 9.50% - - - - - 9.50% 9.50%
- - -----------------------------------------------------------------------------------------------------------------------
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 - Third Amended and Restated Declaration of Trust of Vinings effective
July 1, 1999 (incorporated by reference to Exhibit 3.1 to Vinings' Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999, No. 0-13693).
3.2 - Eighth Amendment to the Amended and Restated Agreement of Limited
Partnership of Vinings Investment Properties, L.P. (incorporated by reference to
Exhibit 3.2 to Vinings' Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000, No. 0-13693).
3.3 - Ninth Amendment to the Amended and Restated Agreement of Limited
Partnership of Vinings Investment Properties, L.P. (filed herewith).
3.4 - Certificate of Designation Classifying and designating a series of
Preferred Shares as Series A Convertible Preferred Shares of the Trust
(incorporated by reference to Exhibit 3.3 to Vinings' Quarterly Report on Form
10-Q for the quarter ended March 31, 2000, No. 0-13693).
27 - Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended June 30,
2000.
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.
Vinings Investment Properties Trust
By: /s/ Stephanie A. Reed
-------------------------
Stephanie A. Reed
Vice President and
Treasurer
Dated: August 14, 2000