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 quarter ended March 31, 2001 Commission file number 0-13693
VININGS INVESTMENT PROPERTIES TRUST
-------------------------------------------------
(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)
Registrant's telephone number, including area code: (770) 984-9500
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 April 11, 2001 was 1,100,487.
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 March 31, 2001
and December 31, 2000 3
Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2001 and 2000 4
Consolidated Statement of Shareholders' Equity (unaudited)
for the three months ended March 31, 2001 5
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 3 Quantitative and Qualitative Disclosures About Market Risk 21
PART II OTHER INFORMATION/SIGNATURE
Item 6 Exhibits and Reports on Form 8-K 22
Signature 23
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
2001 2000
---------------- ----------------
Real estate assets:
Land $ 8,247,900 $8,247,900
Buildings and improvements 55,690,190 55,664,805
Furniture, fixtures & equipment 4,209,751 4,154,701
Less: accumulated depreciation (6,161,644) (5,593,555)
---------------- ----------------
Net real estate assets 61,986,197 62,473,851
Investment in unconsolidated Joint Venture 1,226,906 1,321,522
Cash and cash equivalents 369,592 813,975
Restricted cash 1,433,582 1,892,288
Receivable from Joint Venture 9,157 12,141
Receivables and other assets 373,285 286,407
Deferred financing costs, less accumulated amortization of $194,783 and
$183,307 at March 31, 2001 and December 31, 2000, respectively 94,782 82,258
Deferred leasing costs, less accumulated amortization of $81,559 and
$78,071 at March 31, 2001 and December 31, 2000, respectively 15,346 18,834
---------------- ----------------
Total assets $ 65,508,847 $66,901,276
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 54,654,583 $54,742,209
Line of credit 2,000,000 1,864,990
Accounts payable and accrued liabilities 1,367,282 1,913,845
Dividends payable to Preferred Shareholders 232,376 464,750
---------------- ----------------
Total liabilities 58,254,241 58,985,794
---------------- ----------------
Minority interests of unitholders in Operating Partnership: (288,033) (171,935)
---------------- ----------------
Shareholders' equity:
Series A convertible preferred shares of beneficial interest, (par value
$.01 per share) 2,050,000 authorized, 1,988,235 shares issued and
outstanding at March 31, 2001 and
December 31, 2000 8,867,529 8,867,529
Common shares of beneficial interest, without par or stated value,
25,000,000 authorized, 1,100,487 and 1,100,488 shares issued and
outstanding at March 31, 2001 and December 31, 2000, respectively - -
Additional paid in capital 3,288,851 3,295,966
Accumulated deficit (4,613,741) (4,076,078)
---------------- ----------------
Total shareholders' equity 7,542,639 8,087,417
---------------- ----------------
Total liabilities and shareholders' equity $ 65,508,847 $66,901,276
================ ================
<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 months ended March 31,
2001 2000
------------- --------------
REVENUES
Rental revenues $ 2,665,121 $ 2,718,309
Other property revenues 158,046 148,457
Other income 14,857 12,620
------------- --------------
2,838,024 2,879,386
------------- --------------
EXPENSES
Property operating and maintenance 1,169,170 1,103,341
Depreciation and amortization 571,577 563,408
Amortization of deferred financing costs 11,476 17,536
Interest expense 1,285,730 1,289,235
General and administrative 126,842 187,812
------------- --------------
3,164,795 3,161,332
Loss before equity in loss of unconsolidated
Joint Venture and minority interests (326,771) (281,946)
Equity in loss of unconsolidated Joint Venture (94,615) (63,707)
------------- --------------
Loss before minority interests (421,386) (345,653)
Less Minority interests in Operating Partnership:
Preferred partnership interests - 336,758
Common partnership interests (116,098) (123,240)
------------- --------------
Net loss (305,288) (559,171)
------------- --------------
Distributions to preferred shareholders 232,375 -
------------- --------------
Net loss available to common shareholders $(537,663) $(559,171)
============= ==============
NET LOSS PER SHARE - BASIC $ (0.49) $ (0.51)
============= ==============
NET LOSS PER SHARE - DILUTED $ (0.49) $ (0.51)
============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 1,100,487 1,100,491
============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 1,339,734 1,343,037
============= ==============
<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 March 31, 2001
(unaudited)
Series A Common Shares Total
Convertible of beneficial Cumulative shareholders'
Preferred Shares interest earnings equity
---------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 2000 8,867,529 3,295,966 (4,076,078) 8,087,417
Net Loss - - (537,663) (537,663)
Retirement of shares - (3) - (3)
Adjustment for redemption of minority interest
of unitholders in Operating Partnership - (7,112) - (7,112)
---------------- -------------- -------------- --------------
BALANCE AT MARCH 31, 2001 $ 8,867,529 $3,288,851 $ (4,613,741) $ 7,542,639
================ ============== ============== ==============
<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 three months ended March 31,
2001 2000
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(305,288) $ (559,171)
-------------- -------------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 571,577 563,408
Amortization of deferred financing costs 11,476 17,536
Equity in loss of unconsolidated Joint Venture 94,615 63,707
Minority interests in Operating Partnership:
Preferred partnership interests - 336,758
Common partnership interests (116,098) (123,240)
Distributions to preferred unitholders - (464,750)
Changes in assets and liabilities, net of the effect
of real estate assets acquired
Restricted cash 458,706 367,817
Receivable from Joint Venture 2,984 7,650
Receivables and other assets (86,878) (15,551)
Accounts payable and accrued liabilities (546,563) (565,019)
-------------- -------------
Total adjustments 389,819 188,316
-------------- -------------
Net cash provided (used) by operating activities 84,531 (370,855)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (80,434) (37,779)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs (24,000) (5,000)
Net proceeds from line of credit 135,010 150,000
Principal repayments on mortgage notes payable (87,626) (80,584)
Purchase of retired shares (3) (15)
Distributions to preferred shareholders (464,749) -
Redemption of minority interests of unitholders in Operating Partnership (7,112) -
-------------- -------------
Net cash provided (used) by financing activities (448,480) 64,401
-------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (444,383) (344,233)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 813,975 916,215
-------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 369,592 $571,982
============== =============
<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)
March 31, 2001
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 that are leased to
middle-income residents. 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).
Vinings currently conducts all of its operations through Vinings Investment
Properties, L.P., a Delaware limited partnership (the "Operating
Partnership"). As of March 31, 2001, the Trust was the sole 1% general
partner and a 91.81% limited partner in the Operating Partnership,
controlling 81.16% of the common partnership interests and 100% of the
preferred partnership interests (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 March 31, 2001, the average occupancy of Vinings'
portfolio, excluding the Joint Venture Properties, as hereinafter defined,
was 87%.
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 (17.84% as of March 31, 2001) multiplied by the
Operating Partnership's net assets. 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 March 31,
2001).
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 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 statement of
operations for the three months ended March 31, 2000 ($336,758) 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. The Trust however is not currently
generating taxable income and, accordingly, no provisions for federal
income taxes and deferred income taxes have 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 March 31, 2001.
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,
3-10 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
Ended March 31,
2001 2000
------------------------------
Net loss - basic $(305,288) $(559,171)
Minority interests in Operating Partnership:
Preferred partnership interests - -
Common partnership interests (123,240)
(116,098)
-----------------------------
Total minority interest (116,098) (123,240)
-----------------------------
Net loss - diluted $(421,386) $(682,411)
=============================
Weighted average shares - basic 1,100,487 1,100,491
Dilutive Securities
Weighted average Common Units 239,247 242,546
Weighted average Preferred Units/Shares - -
Share options - -
-----------------------------
Weighted average shares - diluted 1,339,734 1,343,037
=============================
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 ended March 31, 2000 and 2001, options to purchase 108,750 shares
and 102,750 shares, respectively, were excluded as the impact of such
options was antidilutive. For the three months ended March 31, 2000
Preferred Units totaling 1,988,235 and for the three months ended March 31,
2001 Preferred Shares totaling 1,988,235 were also excluded as the impact
of such units was antidilutive.
Recent Accounting Pronouncement
-------------------------------
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). FAS 133, as
amended by FAS 137, "Deferral of the Effective Date of FAS 133," is
effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. FAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is the type of hedge transaction.
The adoption of FAS 133 did not have a significant effect on the Company's
results of operations or its financial position.
On December 3, 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition, which
provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements. SAB 101 was required to be implemented in
the fourth fiscal quarter of 2000. SAB 101 did not have a significant
effect on the Company's results of operations or its financial position.
Reclassifications
-----------------
Certain 2000 financial statement amounts may have been reclassified to
conform to the current year presentation.
NOTE 3 - REAL ESTATE ASSETS
On May 1, 1999, Vinings, through its subsidiaries, acquired thirteen
multifamily communities totaling 1,064 units (collectively, 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.)
In addition, Vinings, through subsidiary partnerships of the Operating
Partnership, owns two additional multifamily communities in the
metropolitan Atlanta area with 456 units 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., a Delaware limited partnership (the "Joint Venture"),
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. The remaining limited
partnership interests in the Joint Venture are held by an unaffiliated
third party.
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 ended March 31, 2001:
For the three
months ended
March 31, 2001
---------------
Revenues $1,507,278
------------
Expenses:
Property operating and maintenance 723,314
General and administrative 13,028
Depreciation and amortization 385,156
Interest expense 858,856
------------
Total Expenses 1,980,354
------------
Net loss (473,076)
Vinings' equity percentage 20%
------------
Vinings' equity in loss of unconsolidated
Joint Venture $ (94,615)
============
Distributions received by Vinings from
Joint Venture
-
============
Cash flows provided by operating activities $ (104,057)
============
Cash flows used in investing activities $ (41,690)
============
Cash flows used in financing activities $ (57,794)
============
The following summarizes the balance sheet of the Joint Venture as of March
31, 2001:
Real estates assets, net of accumulated depreciation $44,533,837
Cash and other assets 1,257,624
-----------
Total assets $45,791,461
===========
Mortgage notes payable $38,874,197
Other liabilities 783,131
-----------
Total liabilities 39,657,328
-----------
Capital - Vinings 1,226,907
Capital - Other 4,907,226
-----------
Total capital 6,134,133
-----------
Total liabilities and capital $45,791,461
===========
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 pursuant to a Securities Purchase Agreement (the "Purchase
Agreement"), Series A Convertible Preferred Partnership interests (the
"Preferred Units"). 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 sale 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, 100% of the 1,988,235 Preferred Units were
exchanged for Series A Convertible Preferred Shares of the Trust (the
"Preferred Shares") having substantially 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 Certificate of Designation relating
to the terms of the Preferred Shares and 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
that result in the liquidation of the Trust or the Operating Partnership.
As of March 31, 2001, a total of 1,988,235 Preferred Shares were
outstanding. In addition, as of March 31, 2001 a total of $417,529 had been
accrued as a liquidation preference on the Preferred Shares.
NOTE 6 - NOTES PAYABLE
Mortgage Notes Payable
----------------------
Mortgage notes payable were secured by the following apartment communities
at March 31, 2001 and December 31, 2000, as follows:
Fixed interest rate Balance as of: Balance as of:
Maturity as of 3/31/01 3/31/01 12/31/00
------------------------ -------------------- ---------------------- ---------------- -----------------
Cottonwood 10/01/2036 8.875% $ 4,661,965 $ 4,666,546
Delta Bluff 08/01/2036 9.25 % 6,176,860 6,182,456
Foxgate I 06/01/2037 8.50 % 6,566,448 6,573,142
Hampton House 08/01/2037 8.50 % 5,143,457 5,148,819
Heritage Place 10/01/2036 8.75 % 3,126,672 3,129,845
Northwood 06/01/2034 8.75 % 4,456,039 4,461,640
River Pointe 01/01/2037 8.625% 5,952,255 5,958,353
Trace Ridge 07/01/2036 8.50 % 5,302,002 5,307,867
The Thicket 07/01/2003 9.04 % 7,114,332 7,132,347
Windrush 07/01/2024 7.50 % 6,154,553 6,181,194
--------------- ------------------
Total $54,654,583 $54,742,209
=============== ==================
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 March 31, 2001 are
as follows:
2001 $ 274,166
2002 393,425
2003 7,314,761
2004 367,596
2005 399,132
Thereafter 45,905,503
-------------
Total $54,654,583
=============
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 announced by the bank from time to time, which was
8.00% at March 31, 2001. The principal balance of the line of credit as of
March 31, 2001 and December 31, 2000 was $2,000,000 and $1,864,990,
respectively. The line of credit matured on April 30, 2001 and was renewed
until March 15, 2002.
NOTE 7 - RELATED PARTY TRANSACTIONS
Vinings has 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 3.5% of gross
revenues, plus a fee for data processing on all of the multifamily
communities and 5% of gross revenues on the business center. In addition,
effective July 1, 2000, VIP has administered 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, which were paid prior to July 1, 2000.
The following table reflects payments made to VIP:
Three months ended
March 31,
-------------------------------
2001 2000
----------------- -------------
Vinings
Management fees $ 100,797 $ 103,286
Data processing fees 16,416 16,416
Overhead reimbursements - 94,921
Advisory fee 65,006 -
----------------- -------------
Total $182,219 $214,623
================= =============
Joint Venture
Management fees $ 32,146 $ 35,427
Data processing fees 14,520 14,520
----------------- -------------
Total $ 46,666 $ 61,625
================= =============
Effective March 1, 2000, 628,927 common shares of Vinings were purchased in
a privately negotiated transaction by the officers of Vinings, an affiliate
of the officers and an affiliate of one of the Trustees of Vinings 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.
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 did not declare or pay any dividends on its common shares during
the three months ended March 31, 2000 or 2001.
Effective April 1, 2000, Vinings exchanged all of the Preferred Units for
Preferred Shares. (See Note 5). The holders of Preferred Shares are
entitled to receive cumulative preferential cash dividends at the per annum
rate of $0.4675 per Preferred Share. For the three months ended March 31,
2001, Vinings paid dividends totaling $232,376 to Preferred Shareholders.
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 March 31, 2001, at Peachtree:
2001 $380,184
2002 253,073
2002 45,018
----------
Total $678,275
==========
One tenant generated 78% of Peachtree's revenues for the period ended March
31, 2001. The same tenant accounts for 95% 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 these 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 $1,226,204 and $1,230,593 for the three months
ended March 31, 2001 and 2000, respectively.
NOTE 12 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on interest rates and other pertinent information available to
Vinings as of March 31, 2001 and December 31, 2000, 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 March 31, 2001 and December 31,
2000. 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 March 31, 2001.
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. As of March 31, 2001,
the total number of shares authorized for issuance under the Plan was
132,305. 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 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, 75,250 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,
2000 or 2001.
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.
NOTE 14 - SUBSEQUENT EVENT
On May 14, 2001, the Board of Trustees of Vinings announced that it had
approved a proposal to effect a 1-for-1000 reverse share split of both its
common shares and Series A Convertible Preferred Shares. Each holder of
common shares who, as a result of the reverse share split, would otherwise
receive a fractional common share will be entitled to receive an equivalent
amount of cash based upon a pre-split price per common share of $3.20. The
Board arrived at this price after considering the advice and a fairness
opinion from an independent financial advisor. Fractional preferred shares
will be issued as a result of the reverse share split.
The Board of Trustees approved the reverse share split as a strategy for
reducing the number of registered common shareholders below 300, which
would provide Vinings the option to cease public registration of its common
shares. The reverse share split is structured as a "going private"
transaction within the meaning of Rule 13e-3 under the Securities Exchange
Act of 1934 because it is intended to, and, if completed, will likely
result in the termination of Vinings' reporting requirements under the
Exchange Act. Vinings will be requesting that its shareholders ratify the
Board's decision at the 2001 Annual Meeting of Shareholders currently
scheduled for June 27, 2001.
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 that are leased to middle-income residents. 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' March 31, 2001
consolidated financial statements.)
Vinings currently conducts all of its operations through Vinings Investment
Properties, L.P., a Delaware limited partnership (the "Operating Partnership").
As of March 31, 2001, the Trust was the sole 1% general partner and an 91.81%
limited partner in the Operating Partnership, controlling 81.16% of the common
partnership interests and 100% of the preferred partnership interests (See Note
5 to Vinings' March 31, 2001 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 decreased $43,599 or 2%, from $2,866,766 for
the three months ended March 31, 2000 to $2,823,167 for the same period in 2001.
This decrease is due to a decline in certain market conditions in Mississippi,
which has resulted in a decrease in occupancy and revenues at three properties.
Other income increased $2,237 or 18%, from $12,620 for the three months ended
March 31, 2000 to $14,857 for the same period in 2001. This increase is all
attributable to interest earned on cash balances.
Property operating and maintenance expenses increased $65,829 or 6%, from
$1,103,341 for the three months ended March 31, 2000 to $1,169,170 for the same
period in 2001. This is due primarily to the following: (1) increased utilities
expense at a number of properties; (2) increased property and liability
insurance for the entire portfolio; (3) increased maintenance and repairs at
Windrush, an older community; and (4) increased real estate taxes as the result
of a reassessment of property values in Long Beach, Mississippi.
Depreciation and amortization increased by $8,169, or 1%, from $563,408 for the
three months ended March 31, 2000 to $571,577 for the same period in 2001 due to
depreciation on additional capital expenditures.
Amortization of deferred financing costs decreased by $6,060, or 35%, from
$17,536 for the three months ended March 31, 2000 to $11,476 for the same period
in 2001 due to additional costs associated with the line of credit in 1999,
which were amortized through April 2000.
Interest expense decreased $3,505, or 0.3%, from $1,289,235 for the three months
ended March 31, 2000 to $1,285,730 for the same period in 2001. This decrease is
due to mortgage amortization, which was partially offset by rising interest
rates on the line of credit.
General and administrative expense decreased $60,970, or 32%, from $187,812 for
the three months ended March 31, 2000 to $126,842 for the same period in 2001.
This decrease consists of: (1) overhead allocations and advisory fees paid to
VIP totaling $29,915; (2) office expense totaling $16,764; (3) professional fees
totaling $10,450; (4) investor relations expense totaling $2,327; (5) travel
expense totaling $1,469.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities increased $455,386 from net cash used
by operating activities of $370,855 for the three months ended March 31, 2000 to
net cash provided by operating activities of $84,531 for the same period in
2001. This increase is due primarily to the conversion of all of the Preferred
Units to Preferred Shares. During the first quarter of 2000, distributions
totaling $464,750 were paid by the Operating Partnership to holders of Preferred
Units, thus reducing operating cash flow.
Net cash used in investing activities increased $42,655 from $37,779 for the
three months ended March 31, 2000 to $80,434 for the same period in 2001. This
increase is due to additional capital expenditures made in the first quarter of
2001.
Net cash used by financing activities increased $512,881 from net cash provided
by financing activities of $64,401 for the three months ended March 31, 2000 to
net cash used by financing activities of $448,480 for the same period in 2001.
This increase is due primarily to: (1) the conversion of the Preferred Units to
Preferred Shares and distributions paid on those shares totaling $464,749; (2)
deferred financing costs totaling $19,000; (3) principal payments made on
mortgage notes payable totaling $7,042; and (4) the redemption of minority
interests of unitholders in the Operating Partnership totaling $7,112. These
uses were offset by fewer borrowings on the line of credit, which totaled
$14,990.
The cash held by Vinings at March 31, 2001, plus the cash flow from Vinings'
assets, is expected to provide sources of liquidity to allow Vinings to meet
current operating obligations excluding the distributions on the Preferred
Shares. While Vinings has been able to pay currently the preferred
distributions, Vinings may not have sufficient cash flow from operations to make
future distributions on the Preferred Shares. This is due to a slight decline in
revenues and the less than anticipated distributions from the Joint Venture. In
addition, as of March 31, 2001 Vining' line of credit was fully drawn. For more
information regarding the Trus's line of credit, see Note 6 to Vinings' March
31, 2001 Consolidated Financial Statements. Vinings has also received a
commitment to refinance the existing mortgage loans on one of the apartment
communities. The principal loan amount will be $8,080,000 with a fixed interest
rate of 6.99%. The term of the loan will be for ten years and is expected to
close no later than June 1, 2001. However, there can be no assurance that the
transaction will close or will close with the stated terms. In addition,
management continues to explore financing alternatives as well as continues its
efforts to increase revenues and decrease its general and administrative
expenses.Vinings has also announced plans to have its shareholders ratify a
reverse share split in order to effect a going private transaction, which will
further reduce the Trust's administrative overhead expenses. There can be no
assurance, however, that sufficient cash flow will be generated from the Trust's
operations.
Proposed Reverse Share Split
- ----------------------------
On May 14, 2001, the Board of Trustees of Vinings announced that it had approved
a proposal to effect a 1-for-1000 reverse share split of both its common shares
and Series A Convertible Preferred Shares. Each holder of common shares who, as
a result of the reverse share split, would otherwise receive a fractional common
share will be entitled to receive an equivalent amount of cash based upon a
pre-split price per common share of $3.20. The Board arrived at this price after
considering the advice and a fairness opinion from an independent financial
advisor. Fractional preferred shares will be issued as a result of the reverse
share split.
The Board of Trustees approved the reverse share split as a strategy for
reducing the number of registered common shareholders below 300, which would
provide Vinings the option to cease public registration of its common shares.
The reverse share split is structured as a "going private" transaction within
the meaning of Rule 13e-3 under the Securities Exchange Act of 1934 because it
is intended to, and, if completed, will likely result in the termination of
Vinings' reporting requirements under the Exchange Act. Vinings will be
requesting that its shareholders ratify the Board's decision at the 2001 Annual
Meeting of Shareholders currently scheduled for June 27, 2001.
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
that 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; 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' March 31, 2001
Consolidated Financial Statements. All of Vinings' borrowings are under fixed
rate instruments, except the line of credit, which is at prime plus 1%. 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
March 31, 2001 and should be read in conjunction with Vinings' Annual Report on
Form 10-K for the fiscal year ended December 31, 2000, which was filed with the
SEC:
There Fair Value
(In Thousands) 2001 2002 2003 2004 2005 after Total March 31, 2001
- -----------------------------------------------------------------------------------------------------------------------
Principal Reductions
In Mortgage Notes $274 $393 $7,315 $368 $399 $45,906 $54,655 $54,655
Average Interest
Rates 8.63% 8.63% 8.63% 8.63% 8.63% 8.58% 8.63% 8.63%
Line Of Credit $2,000 - - - - - $2,000
Interest Rate 9.00% - - - - - 9.00%
- -----------------------------------------------------------------------------------------------------------------------
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of matters to a vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
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 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).
3.3 Amended and Restated Bylaws of the Trust (incorporated by reference to
Exhibit 3.2 to Vinings' Registration Statement on Form S-11, No. 2-94776).
10.1 Tenth Amendment to the Amended and Restated Agreement of Limited
Partnership of Vinings 10.1 Investment Properties, L.P. (filed herewith).
(b) Reports on Form 8-K
None
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: May 14, 2001