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 June 30, 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 August 8, 1998: 1,100,508
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
INDEX OF FINANCIAL INFORMATION
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations (unaudited) for the
three and six months ended June 30, 1998 and June 30, 1997 4
Consolidated Statements of Shareholders' Equity for the
six months ended June 30, 1998 (unaudited) 5
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 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 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 6 Exhibits and Reports on Form 8-K 22
Signature 23
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
1998 1997
-------------- -------------
ASSETS
Real estate assets:
Land $ 2,884,500 $ 2,884,500
Buildings and improvements 15,333,328 15,267,009
Furniture, fixtures & equipment 1,015,454 1,011,483
Less: accumulated depreciation (1,347,661) (1,036,311)
-------------- -------------
Net real estate assets 17,885,621 18,126,681
Cash and cash equivalents 344,280 282,851
Cash escrows 435,590 314,684
Receivables and other assets 76,535 63,402
Deferred financing costs, less accumulated amortization of $61,806 and
$54,459 at June 30, 1998 and December 31, 1997, respectively 154,516 169,968
Deferred leasing costs, less accumulated amortization of $21,341 and
$39,087 at June 30, 1998 and December 31, 1997, respectively 37,070 (12,979)
============== =============
Total assets $ 18,933,612 $ 18,944,607
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 13,713,775 $ 13,784,566
Line of credit 1,463,104 1,718,104
Accounts payable and accrued liabilities 776,749 708,876
-------------- -------------
Total liabilities 15,953,628 16,211,546
-------------- -------------
Minority interest in Operating Partnership 546,231 509,209
-------------- -------------
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 June 30, 1998 and December 31, 1997, respectively 19,429,721 19,429,735
Cumulative earnings 37,382,561 37,217,597
Cumulative distributions (54,378,529) (54,378,529)
-------------- -------------
Total shareholders' equity 2,433,753 2,268,803
-------------- -------------
Total liabilities and shareholders' equity $ 18,933,612 $ 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 For the six months
Ended June 30, Ended June 30,
----------------------------- -------------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
REVENUES
Rental revenues $ 987,560 $ 575,868 $ 1,964,375 $ 1,152,373
Other property revenues 35,034 23,747 74,350 43,072
Other income 501,032 431 501,629 965
----------- ------------ ------------ ------------
1,523,626 600,046 2,540,354 1,196,410
----------- ------------ ------------ ------------
EXPENSES
Property operating and maintenance 430,974 255,952 803,644 512,515
Depreciation and amortization 160,475 108,559 319,223 215,403
Amortization of deferred financing costs 7,727 9,755 15,452 19,506
Interest expense 330,224 200,206 661,715 399,916
General and administrative 345,159 84,745 538,325 160,061
----------- ------------ ------------ ------------
1,274,559 659,217 2,338,359 1,307,401
----------- ------------ ------------ ------------
Income (loss) before minority interest 249,067 (59,171) 201,995 (110,991)
----------- ------------ ------------ ------------
Minority interest 45,660 - 37,031 -
----------- ------------ ------------ ------------
Net income (loss) $ 203,407 $ (59,171) $ 164,964 $ (110,991)
=========== ============ ============ ============
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED $ 0.19 $ (0.05) $ 0.15 $ (0.10)
=========== ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 1,080,508 1,080,516 1,080,509 1,080,518
=========== ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 1,323,054 1,080,516 1,323,055 1,080,518
=========== ============ ============ ============
<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 six months ended June 30, 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 income - 164,964 - 164,964
Retirement of shares (14) - - (14)
---------------- ----------------- ----------------- ----------------
BALANCE AT JUNE 30, 1998 $ 19,429,721 $ 37,382,561 $ (54,378,529) $ 2,433,753
================ ================= ================= ================
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended June 30,
-------------------------------------
1998 1997
-------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 164,964 $ (110,991)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 319,223 215,403
Amortization of deferred financing costs 15,452 19,506
Minority interest of unitholders in Operating Partnership 37,031 -
Changes in assets and liabilities:
Cash escrows (120,906) (8,538)
Receivables and other assets (13,133) 29,406
Capitalized leasing costs (12,979) (21,352)
Accounts payable and accrued liabilities 67,873 43,949
-------------- ------------
Total adjustments 292,561 278,374
-------------- ------------
Net cash provided by operating activities 457,525 167,383
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
The Thicket capital expenditures (21,444) (73,851)
Peachtree capital expenditures (26,869) -
Windrush capital expenditures (21,978) -
-------------- ------------
Net cash used in investing activities (70,291) (73,851)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on line of credit (255,000) -
Principal repayments on mortgage payable (70,791) (25,419)
Purchase of retired shares (14) (70)
-------------- ------------
Net cash used in investing activities (325,805) (25,489)
-------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 61,429 68,043
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 282,851 171,736
-------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 344,280 $ 239,779
============== ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 1998
NOTE 1 - FORMATION AND ORGANIZATION
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
June 30, 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 June 30, 1998, Thicket, Windrush and Peachtree were 98%, 95% 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 June 30, 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
six month period ended June 30, 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 June
30, 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 Vinings' real
estate assets as of June 30, 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 income (loss) available to the
common shareholders and the weighted average shares used in Vinings'
basic and diluted net income (loss) per share computations:
For the three months For the six months
Ended June 30, Ended June 30,
-------------------------------- -----------------------------------
1998 1997 1998 1997
--------------------------------------------------------------------
Net income (loss) - basic $203,407 $(59,171) $164,964 $(110,991)
Minority interest 45,660 - 37,031 -
===================================================================
Net income (loss) - diluted $249,067 $(59,171) $201,995 $(110,991)
===================================================================
Weighted average shares - basic 1,080,508 1,080,516 1,080,509 1,080,518
Dilutive Securities
Weighted average Units in
Operating Partnership 242,546 - 242,546 -
Share options - - - -
===================================================================
Weighted average shares - diluted 1,323,054 1,080,516 1,323,055 1,080,518
===================================================================
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. For the three and six months ended June 30,
1998, the dilutive effect of share options on Vinings' net income per
share calculations were 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
("Units").
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 $1,115,000 of improvements have been capitalized.
Acquisition Transaction
-----------------------
On June 18, 1998 Vinings entered into 18 separate contracts to purchase
14 multifamily communities totaling 2,184 units (the "Portfolio"). The
Portfolio will be acquired for an aggregate purchase price of
$104,434,605, consisting of cash and the assumption of existing debt
(the "Acquisition Transaction"). Vinings is currently in the process of
conducting its due diligence. The contracts are subject to various
approvals from third parties for the assumption of the mortgage notes,
as well as certain customary conditions, including without limitation,
satisfactory due diligence review. If Vinings is satisfied with its due
diligence review, obtains sufficient capital to finance the transaction
and certain other closing conditions are met, the closing of the
Portfolio could take place during the third and fourth quarters of
1998. However, there can be no assurance that the Portfolio acquisition
will take place.
NOTE 4 - NOTES PAYABLE
Mortgage Notes Payable
----------------------
At June 30, 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 June 30, 1998, the total outstanding principal for both notes was
$13,713,775. Scheduled maturites of the mortgage notes payable as of
June 30, 1998 are as follows:
1998 $ 73,710
1999 156,664
2000 169,860
2001 184,179
2002 199,716
Thereafter 12,929,646
-----------
Total $13,713,775
===========
Line of Credit
--------------
Vinings renewed for six months its line of credit in the amount of
$2,000,000, which expired on June 28, 1998. The line of credit bears
interest at the bank's base rate, which approximates prime. At June 30,
1998, the interest rate was 8.50%. Interest is payable monthly with the
entire principal balance due on December 28, 1998. It is anticipated
that the line of credit will be repaid from new equity sources prior to
its expiration. The line of credit is secured by Peachtree. At June 30,
1998, the outstanding balance of the line of credit was $1,463,104.
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 $100,207 and $45,560 in
management fees and $13,680 and $7,620 in data processing fees were
incurred by Vinings during the six month periods ended June 30, 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 $22,500 and $22,500 were paid for the six
month periods ended June 30, 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 $30,000 has been accrued for the six month period ended June 30,
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 and second quarters of 1998 except for the
restricted stock, as hereinafter defined, awarded on July 1, 1998. (
See Note 11 to Vinings June 30, 1998 Consolidated Financial
Statements.)
NOTE 6 - DISTRIBUTIONS
There were no distributions declared or distributed for the periods
ended June 30, 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 June 30, 1998, at Peachtree:
1998 $ 254,415
1999 516,577
2000 396,903
2001 292,052
2002 120,559
-----------
Total $1,580,506
===========
One tenant generated 53% of Peachtree's revenues for the period ended
June 30, 1998. The same tenant accounts for 70% 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 was
not valid, binding and enforceable against them.
On June 3, 1998, a settlement was agreed to between the parties
pursuant to a Settlement Agreement and Mutual Release, the terms of
which are confidential. All pending claims have been dismissed. Amounts
received under the Settlement Agreement and Mutual Release are included
in other income in the accompanying statement of operations.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Vinings paid interest of $650,130 and $399,916 for the six months ended
June 30, 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 June 30, 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 June 30, 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 June 30, 1998.
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 June 30, 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 "1997 Options") to the officers, Trustees and certain key
persons. The 1997 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 became exercisable in full on
July 9, 1998. No options had been exercised as of June 30, 1998.
On June 9, 1998, Vinings granted a total of 81,250 non-qualified share
options (the "1998 Options") to the officers, Trustees and certain key
persons. The 1998 Options are exercisable at a price of $4.00 (based on
the Fair Market Value of a share of the Trust on the grant date) and
become exercisable in full on June 9, 1999.
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 accrued on June
30, 1998. The Restricted Stock was awarded as compensation for services
provided to the Trust by such officers and certain trustees as well as
The Vinings Group.
NOTE 12 - SUBSEQUENT EVENT
In addition to the Acquisition Transaction described in Note 3, on
August 11, 1998 Vinings entered into contracts for the purchase of two
apartment communities in Atlanta, Georgia totaling 482 units (the
"Atlanta Properties"). The combined purchase price totals $19,500,000
and consists of the assumption of the existing debt on one of the
communities and the remainder in cash. Vinings has just begun its due
diligence review. The contracts are subject to various approvals from
third parties for the assumption of the mortgage note, as well as
certain customary conditions, including without limitation,
satisfactory due diligence review. If Vinings is satisfied with its due
diligence review, obtains sufficient capital to finance the transaction
and certain other closing conditions are met, management anticipates
that the closing of the Atlanta Properties could take place either
simultaneously with or shortly after the closing of the Acquisition
Transaction. However, there can be no assurance that the acquisition
will take place.
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 June 30,
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
June 30, 1998, fractional Shares totaling 117 had been repurchased and retired
leaving 1,080,508 Shares outstanding.
At June 30, 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 98%, 95% and 100% leased, respectively.
On June 18, 1998 Vinings entered into 18 contracts to purchase 14 multifamily
communities totaling 2,184 units (the "Portfolio"). The Portfolio will be
acquired for an aggregate purchase price of $104,434,605, consisting of cash and
the assumption of existing debt. Vinings is currently in the process of
conducting its due diligence. The contracts are subject to various approvals
from third parties for the assumption of the mortgage notes, as well as certain
customary conditions, including without limitation, satisfactory due diligence
review. If Vinings is satisfied with its due diligence review, obtains
sufficient capital to finance the transaction and certain other closing
conditions are met, the closing of the Acquisition Transaction could take place
during the third and fourth quarters of 1998. However, there can be no assurance
that the acquisition will take place.
On August 11, 1998 Vinings entered into contracts for the purchase of two
apartment communities in Atlanta, Georgia totaling 482 units (the "Atlanta
Properties"). The combined purchase price totals $19,500,000 and consists of the
assumption of the existing debt on one of the communities and the remainder in
cash. Vinings has just begun its due diligence review. The contracts are subject
to various approvals from third parties for the assumption of the mortgage note,
as well as certain customary conditions, including without limitation,
satisfactory due diligence review. If Vinings is satisfied with its due
diligence review, obtains sufficient capital to finance the transaction and
certain other closing conditions are met, management anticipates that the
closing of the Atlanta Properties could take place either simultaneously with or
shortly after the closing of the Acquisition Transaction. However, there can be
no assurance that the acquisition will take place.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying consolidated
financial statements of Vinings and the notes thereto.
RESULTS OF OPERATIONS
- ---------------------
Rental and other property revenues increased $422,979, or 71%, from $599,615 for
the three months ended June 30, 1997 to $1,022,594 for the same period in 1998,
and $843,280, or 71%, from $1,195,445 for the six months ended June 30, 1997 to
$2,038,725 for the same period in 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 and second quarters 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.
Other income of $501,032 was generated for the three months and $501,629 for the
six months ended June 30, 1998 due primarily to proceeds received from the
settlement of the previously disclosed litigation in connection with the
Portfolio Transaction. (See Part II, Item 1 - Legal Proceedings and Note 8 to
Vinings' June 30, 1998 Consolidated Financial Statements.)
Property operating and maintenance expense increased by $175,022, or 68%, from
$255,952 for the three months ended June 30, 1997, to $430,974 for the same
period in 1998, and $291,129, or 57%, from $512,515 for the six months ended
June 30, 1997 to $803,644 for the same period in 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 and
second quarters of 1997.
Depreciation and amortization increased by $51,916, or 48%, from $108,559 for
the three months ended June 30, 1997 to $160,475 for the same period in 1998,
and $103,820, or 48%, from $215,403 for the six months ended June 30, 1997 to
$319,223 for the same period in 1998. This increase is due primarily to
depreciation generated in connection with Vinings' ownership of Windrush during
1998, which was not in Vinings' portfolio during the first and second quarters
of 1997. Amortization of capitalized lease commissions at Peachtree also
increased slightly.
Interest expense increased $130,018, or 65%, from $200,206 for the three months
ended June 30, 1997 to $330,224 for the same period in 1998, and $261,799, or
65%, from $399,916 for the six months ended June 30, 1997 to $661,715 for the
same period in 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.
General and administrative expense increased $260,414 or 307%, from $84,745 for
the three months ended June 30, 1997 to $345,159 for the same period in 1998,
and $378,264, or 236% from $160,061 for the six months ended June 30, 1997 to
$538,325 for the same period in 1998. Of this increase, $158,752 and $263,282,
for the three months and six months ended respectively, 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 Vinings June 30, 1998 Consolidated Financial
Statements.) In addition, $80,000 of the increase is the accrual of compensation
expense relating to the Restricted Stock awarded on July 1, 1998. (See Note 11
to Vinings June 30, 1998 Consolidated Financial Statements.) The remainder of
the increase is the accrual of overhead reimbursements to The Vinings Group
totaling $15,000 and $30,000 for the three months and six months ended June 30,
1998, respectively. (See Note 5 to Vinings June 30, 1998 Consolidated Financial
Statements.)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities increased $290,142, or 173%, from
$167,383 for the six months ended June 30, 1997 to $457,525 for the six months
ended June 30, 1998. This increase is due primarily to the proceeds from the
Portfolio Transaction settlement, net of litigation costs. Property operations
from Windrush also contributed to this increase.
Cash flows used in investing activities are for capital expenditures at the
properties and remained fairly constant for the six months ended June 30, 1997
and 1998.
Cash flows used in financing activities increased $300,316 from $25,489 for the
six months ended June 30, 1997 to $325,805 for the same period in 1998. Of this
increase, $255,000 is due to principal repayments on the line of credit and
$45,372 is attributable to the principal repayments made on the mortgage note
payable secured by Windrush, which Vinings did not hold at June 30, 1997.
The cash held by Vinings at June 30, 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 $536,896 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
December 1998, will be repaid through the issuance of new equity in connection
with the Acquisition Transaction. (For additional information regarding the line
of credit see Note 4 to Vinings' June 30, 1998 Consolidated Financial
Statements). It is anticipated that the Acquisition Transaction and the
acquisition of the Atlanta Properties will be funded through the assumption of
existing debt and cash provided by the issuance of new equity in a private
transaction. (See Note 3 to Vinings June 30, 1998 Consolidated Financial
Statements). There can be no assurance, however, that Vinings will be able to
raise the necessary equity to finance these transactions.
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
- --------------------------------
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
- -------------
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 had 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
inability of Vinings to close the transactions currently under contract,
including the Acquisition Transaction and the Atlanta Properties or such other
contracts as Vinings may enter into in the future, the less than satisfactory
performance of any property which might be acquired by Vinings, the inability to
access the capital markets in order to fund Vinings' 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
- --------------------------
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 was not valid, binding and enforceable against them.
On June 3, 1998, a settlement was agreed to between the parties pursuant to a
Settlement Agreement and Mutual Release, the terms of which are confidential.
All pending claims have been dismissed.
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------
The Trust held its annual meeting of shareholders (the "Annual Meeting") on June
2, 1998. At the Annual Meeting, the shareholders voted to elect Peter D. Anzo,
Stephanie A. Reed, Martin H. Petersen, Gilbert H. Watts, Jr., Phill D.
Greenblatt, Henry Hirsch and James D. Ross to serve as Trustees of the Trust
until the 1999 annual meeting of shareholders. The following table sets forth
the results of the shareholder votes with respect to the election of the
Trustees.
TRUSTEES FOR AGAINST
-------- --- -------
Peter D. Anzo 999,621 5,551
Stephanie A. Reed 1,000,821 4,351
Martin H. Petersen 913,509 91,663
Gilbert H. Watts, Jr. 1,000,821 4,351
Phill D. Greenblatt 1,000,821 4,351
Henry Hirsch 1,000,821 4,351
James D. Ross 1,000,758 4,414
Item 6. Exhibits and Reports on Form 8-K
(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 June
30, 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
-------------------------
Stephanie A. Reed
Vice President and Treasurer
Dated: August 14, 1998