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, 1998 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.)
3111 Paces Mill Road, Suite A-200, 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___
Shares of Beneficial Interest outstanding at April 30, 1998: 1,080,508
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
INDEX OF FINANCIAL INFORMATION
------------------------------
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1998 and 1997 4
Consolidated Statements of Shareholders' Equity for the
three months ended March 31, 1998 (unaudited) 5
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II OTHER INFORMATION/SIGNATURE
Item 1 Legal Proceedings 20
Item 6 Exhibits and Reports on Form 8-K 20
Signature 21
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
1998 1997
--------------- ----------------
ASSETS
Real estate assets:
Land $ 2,884,500 $ 2,884,500
Buildings and improvements 15,290,619 15,267,009
Furniture, fixtures & equipment 1,013,195 1,011,483
Less: accumulated depreciation (1,191,392) (1,036,311)
--------------- -------------
Net real estate assets 17,996,922 18,126,681
Cash and cash equivalents 341,338 282,851
Cash escrows 350,421 314,684
Receivables and other assets 93,268 63,402
Deferred financing costs, less accumulated amortization of $54,081 and
$54,459 at March 31, 1998 and December 31, 1997, respectively 162,242 169,968
Deferred leasing costs, less accumulated amortization of $17,134 and
$39,087 at March 31, 1998 and December 31, 1997, respectively 28,306 31,972
--------------- -------------
Total assets $ 18,972,497 $ 18,989,558
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 13,749,527 $ 13,784,566
Line of credit 1,718,104 1,718,104
Accounts payable and accrued liabilities 773,942 708,876
--------------- -------------
Total liabilities 16,241,573 16,211,546
--------------- -------------
Minority interest in Operating Partnership 500,578 509,209
--------------- -------------
Contingencies (Note 8)
Shareholders' equity:
Shares of beneficial interest, without par value, unlimited shares
authorized, 1,080,508 and 1,080,512 shares issued and outstanding
at March 31, 1998 and December 31, 1997, respectively 19,429,721 19,429,735
Cumulative earnings 37,179,154 37,217,597
Cumulative distributions (54,378,529) (54,378,529)
--------------- --------------
Total shareholders' equity 2,230,346 2,268,803
--------------- --------------
Total liabilities and shareholders' equity $ 18,972,497 $ 18,989,558
=============== ==============
<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,
------------------------------------
1998 1997
------------- --------------
REVENUES
Rental revenues $ 976,815 $ 576,505
Other property revenues 39,316 19,325
Interest income 597 534
------------- --------------
1,016,728 596,364
------------- --------------
EXPENSES
Property operating and maintenance 372,670 256,563
Depreciation and amortization 158,748 106,844
Amortization of deferred financing costs 7,725 9,751
Interest expense 331,491 199,710
General and administrative 193,166 75,316
------------- --------------
1,063,800 648,184
------------- --------------
Loss before minority interest (47,072) (51,820)
------------- --------------
Minority interest (8,629) -
------------- --------------
Net loss $ (38,443) $ (51,820)
============= ==============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.04) $ (0.05)
============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 1,080,510 1,080,517
============= ==============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 1,323,056 1,080,517
============= ==============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three months ended March 31, 1998
(unaudited)
Shares of Total
beneficial Cumulative Cumulative shareholders'
interest earnings distributions equity
--------------- --------------- ---------------- --------------
BALANCE AT DECEMBER 31, 1997 $ 19,429,735 $ 37,217,597 $ (54,378,529) $ 2,268,803
--------------- --------------- ---------------- --------------
Net loss - (38,443) - (38,443)
Retirement of shares (14) - - (14)
--------------- --------------- ---------------- --------------
BALANCE AT MARCH 31, 1998 $ 19,429,721 $ 37,179,154 $ (54,378,529) $ 2,230,346
=============== =============== ================ ==============
<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,
-------------------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net loss $ (38,443) $ (51,820)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 158,748 106,844
Amortization of deferred financing costs 7,725 9,751
Minority interest of unitholders in Operating Partnership (8,629) -
Changes in assets and liabilities:
Cash escrows (35,737) 20,665
Receivables and other assets (29,866) 24,484
Capitalized leasing costs - (5,032)
Accounts payable and accrued liabilities 65,066 15,436
----------- -----------
Total adjustments 157,307 172,148
----------- -----------
Net cash provided by operating activities 118,864 120,328
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
The Thicket capital expenditures (9,368) (61,511)
Peachtree capital expenditures (8,752) -
Windrush capital expenditures (7,204) -
----------- -----------
Net cash used in investing activities (25,324) (61,511)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Principal repayments on mortgage payable (35,039) (12,567)
Purchase of retired shares (14) (58)
----------- -----------
Net cash used in investing activities (35,053) (12,625)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 58,487 46,192
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 282,851 171,736
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 341,338 $ 217,928
=========== ==========
<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, 1998
NOTE 1 - FORMATION AND ORGANIZATION
- -----------------------------------
Vinings Investment Properties Trust ("Vinings" or the "Trust") was
organized on December 7, 1984 under the laws of the Commonwealth of
Massachusetts as a twenty-year finite-life real estate investment trust
("REIT") under the Internal Revenue Code of 1986. The Trust was
originally organized for the purpose of making real estate investments
consisting primarily of mortgage loans and was to liquidate at the end
of approximately ten years in accordance with its Declaration of Trust,
provided, however, that the Trustees would have the absolute discretion
to determine in good faith such termination date as would be in the
best interests of the shareholders. On January 3, 1997, the final asset
to be liquidated was sold and final dividends were declared.
On January 31, 1996, Vinings Investment Properties, Inc. (the
"Purchaser") commenced a tender offer for a minimum of a majority and a
maximum of 85% of the issued and outstanding shares of beneficial
interest without par value of the Trust (the "Shares"), at a purchase
price of $0.47 per share ($3.76 per share adjusted for the Share Split,
as hereinafter defined) (the "Tender Offer"). The Tender Offer expired
in accordance with its terms on February 28, 1996, and, in connection
therewith, the Purchaser accepted an aggregate of 6,337,279 Shares
(792,159 Shares adjusted for the Share Split, as hereinafter defined),
representing approximately 73.3% of the outstanding Shares, for a total
acquisition price of $2,978,521. The remaining assets of the Trust were
Peachtree Business Center ("Peachtree") and approximately $163,000 in
cash. The purpose of the Tender Offer was for the Purchaser to acquire
control of the Trust and to rebuild Vinings' assets by expanding into
the multifamily property markets. In connection with the consummation
of the Tender Offer, all of the Trustees and officers of the Trust
resigned and were replaced with designees of the Purchaser.
Until the consummation of the Tender Offer, Vinings was an externally
advised REIT for which it paid advisory fees to an unrelated third
party (the "Advisor"). Upon consummation of the Tender Offer, the
relationship with the Advisor was terminated and Vinings became
self-administered.
On June 11, 1996, Vinings Investment Properties, L.P. (the "Operating
Partnership"), a Delaware limited partnership, was organized. As of
March 31, 1998, the Trust was the sole 1% general partner and an 80.67%
limited partner in the Operating Partnership. (This structure is
commonly referred to as an umbrella partnership REIT or "UPREIT").
Vinings currently owns three real estate assets, which are (1) The
Thicket Apartments ("Thicket"), a 254-unit apartment complex located in
Atlanta, Georgia, owned through Thicket Apartments, L.P., a Delaware
limited partnership of which the Operating Partnership is a 99% limited
partner and Thicket Holdings, Inc., a Delaware corporation and
wholly-owned subsidiary of the Trust, is the sole general partner; (2)
Windrush Apartments ("Windrush"), a 202-unit apartment community
located in Atlanta, Georgia owned through Vinings Communities, L.P., a
Delaware limited partnership of which the Operating Partnership is a
99% limited partner and the Trust is the sole general partner; and (3)
Peachtree, an approximately 75,000 square foot, single-story business
park located in Atlanta, Georgia, owned by the Operating Partnership.
At March 31, 1998, Thicket, Windrush and Peachtree were 99%, 96% and
100% leased, respectively.
On July 1, 1996, Vinings effected a 1-for-8 reverse share split (the
"Share Split") of its 8,645,000 outstanding Shares. Shareholders
tendered their Shares and received one Share for every eight Shares
owned. Vinings has purchased and continues to purchase any fractional
Shares at a cost of $5.50 per share. As of March 31, 1998, fractional
Shares totaling 117 had been repurchased and retired leaving 1,080,508
Shares outstanding. All share and per share data included in the
accompanying financial statements and notes thereto have been restated
to reflect the Share Split.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of Presentation
---------------------
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary (consisting only of normal recurring adjustments)
for a fair presentation have been included. Operating results for the
three month period ended March 31, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31,
1998.
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. The minority interest of the unitholders in the
Operating Partnership on the accompanying balance sheet is calculated
based on the minority interest ownership percentage (18.33% as of March
31, 1998) multiplied by the Operating Partnership's net assets. The
minority interest of the unitholders in the income or loss of the
Operating Partnership on the accompanying statement of operations is
calculated based on the weighted average number of Shares and Units (as
hereinafter defined) outstanding during the period. The term "Vinings"
or "Trust" hereinafter refers to Vinings Investment Properties Trust
and its subsidiaries, including the Operating Partnership.
These financial statements should be read in conjunction with Vinings'
audited consolidated financial statements and footnotes thereto
included in Vinings' Annual Report on Form 10-K for the year ended
December 31, 1997.
Income Taxes
------------
Vinings has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, Vinings will
generally not be subject to federal income taxation on that portion of
its income that qualifies as REIT taxable income to the extent that
Vinings distributes at least 95% of its taxable income to its
shareholders and satisfies certain other requirements. 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.
Cash Escrows
------------
Cash escrows consist of real estate tax, insurance and replacement
reserve escrows held by mortgagees. These escrows are funded monthly
from property operations and released solely for the purpose for which
they were established.
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 the Trust's real
estate assets as of March 31, 1998.
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, 5 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 Income (Loss) Per Share
---------------------------
Effective beginning with the quarter and year ended December 31, 1997,
Vinings computes net income (loss) per share under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." As prescribed by SFAS No. 128, all prior period net income
(loss) per share data has been restated to conform with the provisions
of SFAS No. 128. Under SFAS No. 128, basic net income (loss) per share
is computed based upon the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is
computed to reflect the potential dilution of all instruments or
securities which are convertible into common shares of the Trust.
Previously reported net income (loss) per share under prior accounting
standards was equal to basic and diluted net income (loss) per share
under SFAS No. 128.
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,
---------------------------
1998 1997
---------- -----------
Net loss - basic $(38,443) $(51,820)
Minority interest (8,629) -
========== ===========
Net loss - diluted $(47,072) $(51,820)
========== ===========
Weighted average shares - basic 1,080,510 1,080,517
Dilutive Securities
Weighted average Units in Operating
Partnership 242,546 -
Share options - -
========== ===========
Weighted average shares - diluted 1,323,056 1,080,517
========== ===========
Units in the Operating Partnership held by the minority unitholders are
redeemable for Shares of the Trust on a one-for-one basis, or for cash,
at the option of the Trust. The dilutive effect of the share options on
Vinings' net loss per share calculation was excluded, as the impact of
such share options was antidilutive.
Reclassification
----------------
Certain 1997 financial statement amounts have been reclassified to
conform with the current year presentation.
NOTE 3 - REAL ESTATE ASSETS
- ---------------------------
Windrush Apartments
-------------------
On December 19, 1997, Vinings acquired Windrush for a purchase price of
$7,555,000 consisting of the assumption of an existing mortgage loan in
the amount of $6,464,898 and other liabilities and the issuance of
224,330 limited partnership units in the Operating Partnership.
The Thicket Apartments
----------------------
On June 28, 1996, Vinings acquired Thicket for a purchase price of
$8,650,000. The acquisition was financed by a mortgage loan on the
property in the amount of $7,392,000 and borrowings from Vinings' line
of credit.
Peachtree Business Center
-------------------------
Vinings acquired Peachtree through a deed-in-lieu of foreclosure on
April 12, 1990. Peachtree was recorded at $1,700,000, its fair market
value, which was less than the book value of the Trust's mortgage
investment at the date of foreclosure. Subsequent to the acquisition,
approximately $1,096,000 of improvements has been capitalized.
NOTE 4 - NOTES PAYABLE
- ----------------------
Mortgage Notes Payable
----------------------
At March 31, 1998, Vinings had the following mortgage notes payable:
1) 9.04% mortgage note payable in the original principal amount of
$7,392,000, which is secured by Thicket and which matures on July
1, 2003. Principal and interest are payable in monthly installments
of $59,691.
2) 7.5% mortgage note payable which was assumed on December 19, 1997
with a principal balance of $6,464,898, which is secured by
Windrush and which matures on July 1, 2024. Principal and interest
are payable in monthly installments of $47,457.
At March 31, 1998, the total outstanding principal for both notes was
$13,749,527. Scheduled maturites of the mortgage notes payable as of
March 31, 1998 are as follows:
1998 $ 109,462
1999 156,664
2000 169,860
2001 184,179
2002 199,716
Thereafter 12,929,646
=============
Total $13,749,527
=============
Line of Credit
--------------
Vinings renewed its one-year line of credit in the amount of $2,000,000
on June 27, 1997, which bears interest at the bank's base rate which
approximates prime. At March 31, 1998, the interest rate was 8.50%.
Interest is payable monthly with the entire principal balance due on
June 28, 1998. It is anticipated that the line of credit will be
renewed at that time. The line of credit is secured by Peachtree. At
March 31, 1998, the outstanding balance of the line of credit was
$1,718,104.
NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Vinings entered into management agreements with Vinings Properties,
Inc. to provide property management services for Thicket and Windrush
for a fee equal to five percent of gross revenues plus a fee for data
processing. Vinings Properties, Inc. is an affiliate of certain
officers and Trustees of Vinings. A total of $53,538 and $22,471 in
management fees and $6,840 and $3,810 in data processing fees were
incurred by Vinings during the three month periods ended March 31, 1998
and 1997, respectively.
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, "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 have been reimbursed to The Vinings Group and beginning
January 1, 1998, The Vinings Group has charged Vinings nominal amounts
for the reimbursement of certain overhead charges. However, while
Vinings has been in its initial growth stages, The Vinings Group has
been committed to providing as many services as possible to promote the
Trust's growth. A total of $11,250 and $11,250 were paid for the three
month periods ended March 31, 1998 and 1997, respectively, to The
Vinings Group for shareholder services provided for the sole benefit of
Vinings by one of The Vinings Group's employees. In addition, a total
of $15,000 has been accrued for the three month period ended March 31,
1998 to The Vinings Group for the reimbursement of overhead expenses.
The officers did not receive compensation from Vinings for their
services during the first quarter of 1998.
NOTE 6 - DISTRIBUTIONS
- ----------------------
There were no distributions declared or distributed for the periods
ended March 31, 1998 and 1997. Since the consummation of the Tender
Offer, management has not declared any dividends. In an effort to
rebuild Vinings' assets, all operating cash flow has been reserved for
future growth and expansion. However, as assets are acquired and
operating cash flow increases, Vinings intends to pay distributions to
shareholders in amounts at least sufficient to enable the Trust to
qualify as a REIT.
NOTE 7 - 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, 1998, at Peachtree:
1998 $ 379,151
1999 503,749
2000 369,477
2001 287,531
2002 120,559
------------
Total $1,660,467
============
One tenant generated 57% of Peachtree's revenues for the period ended
March 31, 1998. The same tenant accounts for 71% of the future minimum
lease payments.
NOTE 8 - 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.
In August 1997, Vinings, through the Operating Partnership, began
contract negotiations for the acquisition of a 2,365-unit portfolio of
16 multifamily properties. The sellers, which were 16 individual
partnerships (the "Sellers"), were to contribute the properties to the
Operating Partnership in exchange for a combination of Units and/or
cash and the assumption of existing mortgage indebtedness (the
"Portfolio Transaction"). The officers of Vinings spent substantial
amounts of time and the Trust spent substantial amounts of money in its
due diligence on the properties and in contract negotiations
specifically for this portfolio. Vinings believes that it secured a
binding commitment from the Sellers for the Portfolio Transaction.
Conditional commitments for equity financing were obtained and Vinings
was prepared to close on the transaction in early 1998. Within thirty
days of closing, the general partner of the Sellers terminated the
contract for reasons Vinings believes to be pretextual, in breach of
the contract and not in the best interests of the partners of the
selling partnerships or the shareholders of the Trust.
On February 3, 1998, Vinings commenced an action against the Sellers,
their general partners and a related property management company
seeking specific enforcement of the contract and damages for the
defendant's willful breach of contract, lack of good faith negotiation
and tortious interference in connection with the breach and termination
of the contract. In a related case, the Sellers filed an action on
January 29, 1998 seeking a declaratory judgement that the contract is
not valid, binding and enforceable against them. Vinings is vigorously
pursuing its claim. However, there can be no assurances that Vinings
will prevail in its action or recover any damages.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------
Vinings paid interest of $323,553 and $199,710 for the three months
ended March 31, 1998 and 1997, respectively.
NOTE 10 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------
Based on interest rates and other pertinent information available to
Vinings as of March 31, 1998, 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, 1998.
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 December 31, 1997.
NOTE 11 - 1997 STOCK OPTION AND INCENTIVE PLAN
- ----------------------------------------------
At the 1997 annual shareholders meeting held on July 1, 1997, Vinings
adopted the Vinings Investment Properties Trust 1997 Stock Option and
Incentive Plan (the "Plan") in order to provide incentives to officers,
employees, Trustees, and other key persons. The Plan provides for 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 March 31, 1998 the total
number of shares available for issuance under the Plan was 132,305.
On July 1, 1997, Vinings granted a total of 26,000 non-qualified share
options (the "Options") to the officers, Trustees and certain key
persons. The Options are exercisable at a price of $5.00 (based on a
closing sales price of a share of the Trust on the Nasdaq SmallCap
Market on June 30, 1997 of $4.56) and become exercisable in full on
July 1, 1998. No options had been exercised as of March 31, 1998.
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 twenty year finite-life real estate investment trust
("REIT") whose original purpose was to invest in participating, shared
appreciation, convertible and fixed rate mortgages and joint venture financing
secured by office, industrial and retail facilities located throughout the
United States. The Declaration of Trust provided, among other things, that the
Trustees would use their best efforts to terminate the Trust within
approximately ten years. The Trustees proceeded with the orderly liquidation of
assets and the distribution of proceeds to the shareholders. As of December 31,
1995, all of the assets to be liquidated had been sold except the Hawthorne
Note, as hereinafter defined, which was sold on January 3, 1996. The remaining
assets of the Trust were Peachtree Business Center, a 75,000 square foot
business park located in Atlanta, Georgia ("Peachtree") and approximately
$163,000 in cash.
On January 31, 1996, Vinings Investment Properties, Inc. (the "Purchaser")
commenced a cash tender offer (the "Tender Offer") for a minimum of a majority
and a maximum of 85% of the outstanding shares of beneficial interest, without
par value (the "Shares"), of the Trust. The Tender Offer expired in accordance
with its terms at midnight on February 28, 1996, and the Purchaser accepted
approximately 73.3% of the outstanding Shares. In connection with the
consummation of the Tender Offer, all of the Trustees and officers of the Trust
resigned and were replaced with designees of the Purchaser ("Management"). In
addition, the Trust was an externally advised REIT for which it paid advisory
fees to an unrelated third party (the "Advisor"). Upon consummation of the
Tender Offer, the relationship with the Advisor was terminated and Vinings
became self-administered.
The purpose of the Tender Offer was for Management to acquire control of the
Trust and 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. 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.
On June 11, 1996, Vinings Investment Properties, L.P. (the "Operating
Partnership"), a Delaware limited partnership, was organized. As of March 31,
1998, Vinings was the sole 1% general partner and an 80.67% limited partner in
the Operating Partnership. (This structure is commonly referred to as an
umbrella partnership REIT or "UPREIT").
On July 1, 1996, Vinings effected a 1-for-8 reverse share split (the "Share
Split") of its 8,645,000 outstanding Shares. Shareholders tendered their Shares
and received one Share for every eight Shares owned. Vinings has purchased and
continues to purchase any fractional Shares at a cost of $5.50 per share. As of
March 31, 1998, fractional Shares totaling 117 had been repurchased and retired
leaving 1,080,508 Shares outstanding.
At March 31, 1998, Vinings' real estate assets were The Thicket Apartments, a
254-unit apartment community located in Atlanta, Georgia ("Thicket"), Windrush
Apartments, a 202-unit apartment community located in Atlanta, Georgia
("Windrush") and Peachtree, which were 99%, 96% and 100% leased, respectively.
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
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Vinings' net loss for the three months ended March 31, 1998 decreased $13,377,
or 26%, from $51,820 for the three months ended March 31, 1997 to $38,443 for
the three months ended March 31, 1998.
Rental and other property revenues increased $420,301, or 71%, from $595,830 for
the three month period ended March 31, 1997 to $1,016,131 for the three month
period ended March 31, 1998. This increase is due primarily to the revenues
generated in connection with Vinings' ownership of Windrush during 1998 which
was not in Vinings' portfolio during the first quarter of 1997. In addition to
the increased revenues generated from Windrush, revenues from both Thicket and
Peachtree increased due to occupancy and rental rate increases.
Property operating and maintenance expense increased $116,107, or 45%, from
$256,563 for the three months ended March 31, 1997 to $372,670 for the three
months ended March 31, 1998. This increase is due primarily to the expenses
generated in connection with Vinings' ownership of Windrush during 1998, which
was not in Vinings' portfolio during the first quarter of 1997.
Depreciation and amortization increased by $51,904, or 49%, from $106,844 for
the three months ended March 31, 1997 to $158,748 for the three months ended
March 31, 1998, which is directly attributable to the acquisition of Windrush on
December 19, 1997.
Depreciation and amortization from Peachtree and Thicket remained fairly
constant.
Interest expense increased $131,781, or 66%, from $199,710 for the three months
ended March 31, 1997 to $331,491 for the three months ended March 31, 1998, due
primarily to the interest on the mortgage note secured by Windrush. Interest on
Vinings' line of credit increased slightly due to the increased balance of the
line of credit at March 31, 1998.
General and administrative expense increased $117,850, or 156%, from $75,316 for
the three months ended March 31, 1997 to $193,166 for the three months ended
March 31, 1998. Of this increase, $104,529 is legal and accounting, the majority
of which is legal expense incurred in connection with the litigation involving
the Portfolio Transaction. See Part II, Item 1 - Legal Proceedings and Note 8 to
the Consolidated Financial Statements. The remainder of the increase is the
accrual of overhead reimbursements to The Vinings Group totaling $15,000. See
Note 5 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
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Net cash provided by operating activities decreased $1,464, or 1%, from $120,328
for the three months ended March 31, 1997 to $118,864 for the three months ended
March 31, 1998.
Cash flows used in investing activities was $25,324 for the three months ended
March 31, 1998, as compared to $61,511 for the three months ended March 31,
1997. All of the cash used in investing activities was used for capital
expenditures at the properties.
Cash flows used in financing activities increased $22,428 from $12,625 for the
three months ended March 31, 1997 to $35,053 for the three months ended March
31, 1998. These funds were used to make principal repayments on the mortgage
notes payable and to retire shares of beneficial interest in the Trust. The
increase is due to the principal payments made on the mortgage note payable
secured by Windrush, which Vinings did not hold at March 31, 1997.
Net cash increased $58,487 for the three months ended March 31, 1998, compared
to an increase of $46,192 for the three months ended March 31, 1997.
The cash held by Vinings at March 31, 1998, plus the cash flow from Vinings'
assets, is expected to provide sources of liquidity to allow Vinings to meet all
current operating obligations. In addition, the remaining balance of $281,896 on
Vinings' $2,000,000 line of credit may be drawn for working capital needs or
acquisition funding. It is anticipated that the line of credit, which is due in
June 1998, will be renewed, refinanced or repaid through the issuance of new
equity. (For additional information regarding the line of credit see Note 4 to
Vinings' March 31, 1998 Consolidated Financial Statements). Management intends
to continue ongoing discussions with capital sources, both public and private,
as well as explore financing alternatives, so as to allow the Trust to expand
and grow its income producing investments.
RECENT ACCOUNTING PRONOUNCEMENTS
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In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
supersedes the authoritative literature and related interpretations for earnings
per share under Accounting Principles Board Opinion No. 15. Effective for the
quarter and year ended December 31, 1997, the Trust computes net income (loss)
per share under the provisions of SFAS No. 128. As prescribed by SFAS No. 128,
all prior period net income (loss) per share data has been restated to conform
with the provisions of SFAS No. 128. Under SFAS No. 128, basic net income (loss)
per share is computed based upon the weighted average number of common shares
outstanding during the period. Diluted net income (loss) per share is computed
to reflect the potential dilution of all instruments or securities which are
convertible into common shares of the Trust. Previously reported net income
(loss) per share under prior accounting standards was equal to basic and diluted
net income (loss) per share under SFAS no. 128.
OTHER MATTERS
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Vinings was informed on April 3, 1998 by NASDAQ that its shares no longer met
certain maintenance requirements for continued listing on the SmallCap Market.
Although the Trust believes that all requirements have been met, it made the
strategic decision not to submit a proposal for achieving compliance so that its
listing would be transferred from the SmallCap Market to the Over-the-Counter
Bulletin Board. Vinings made this decision because it feels that its growth
would have been severely hindered by newly implemented SmallCap requirements
pertaining to shareholder approval of new share issuances. Therefore, effective
April 28, 1998, Vinings' shares are traded on the Bulletin Board under the
symbol "VIPIS."
Vinings is currently assessing the potential impact of the year 2000 on the
processing of date sensitive information. The year 2000 issue is the result of
many computer programs recognizing a date ending with "00" as the year 1900
rather than the year 2000, causing potential system failures or miscalculations
which could result in disruptions of normal business operations. However, year
2000 computer issues are not expected to have a material adverse impact on
Vinings' financial position, results of operations or cash flows in future
periods. Vinings' software systems are either currently year 2000 compliant or
will be compliant well in advance of January 1, 2000.
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 within existing multifamily property portfolios of entities
affiliated with Management which will have a strategic fit with Vinings, the
inability of Vinings to identify unaffiliated properties for acquisition, 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'
present growth and expansion strategy, the cyclical nature of the real estate
market generally and locally in Georgia and the surrounding southeastern states,
the national economic climate, the local economic climate in Georgia and the
surrounding southeastern states, and the local real estate conditions and
competition in Georgia and the surrounding southeastern states. 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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In August 1997, Vinings, through the Operating Partnership, began contract
negotiations for the acquisition of a 2,365-unit portfolio of 16 multifamily
properties. The sellers, which were 16 individual partnerships (the "Sellers"),
were to contribute the properties to the Operating Partnership in exchange for a
combination of Units and/or cash and the assumption of existing mortgage
indebtedness (the "Portfolio Transaction"). The officers of Vinings spent
substantial amounts of time and the Trust spent substantial amounts of money in
its due diligence on the properties and in contract negotiations specifically
for this portfolio. Vinings believes that it secured a binding commitment from
the Sellers for the Portfolio Transaction. Conditional commitments for equity
financing were obtained and Vinings was prepared to close on the transaction in
early 1998. Within thirty days of closing, the general partner of the Sellers
terminated the contract for reasons Vinings believes to be pretextual, in breach
of the contract and not in the best interests of the partners of the selling
partnerships or the shareholders of the Trust.
On February 3, 1998, Vinings commenced an action against the Sellers, their
general partners and a related property management company seeking specific
enforcement of the contract and damages for the defendant's willful breach of
contract, lack of good faith negotiation and tortious interference in connection
with the breach and termination of the contract. In a related case, the Sellers
filed an action on January 29, 1998 seeking a declaratory judgement that the
contract is not valid, binding and enforceable against them. Vinings is
vigorously pursuing its claim. However, there can be no assurances that Vinings
will prevail in its action or recover any damages.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended March
31, 1998.
SIGNATURE
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
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Stephanie A. Reed
Vice President and Treasurer
Dated: March 15, 1998