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 September 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 November 6, 1998: 1,100,507
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
INDEX OF FINANCIAL INFORMATION
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Operations (unaudited) for the
three and nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Shareholders' Equity for the
nine months ended September 30, 1998 (unaudited) 5
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 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 17
PART II OTHER INFORMATION/SIGNATURE
Item 1 Legal Proceedings 23
Item 6 Exhibits and Reports on Form 8-K 23
Signature 24
PAGE 3
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
1998 1997
------------- -------------
ASSETS
- ------
Real estate assets:
Land $ 2,884,500 $ 2,884,500
Buildings and improvements 15,376,032 15,267,009
Furniture, fixtures & equipment 1,023,239 1,011,483
Less: accumulated depreciation (1,505,911) (1,036,311)
------------- ------------
Net real estate assets 17,777,860 18,126,681
Cash and cash equivalents 195,885 282,851
Cash escrows 387,466 314,684
Receivables and other assets 747,158 63,402
Deferred financing costs, less accumulated amortization of $69,532 and
$54,459 at September 30, 1998 and December 31, 1997, respectively 146,790 169,968
Deferred leasing costs, less accumulated amortization of $26,573 and
$39,087 at September 30, 1998 and December 31, 1997, respectively 43,679 31,972
------------- ------------
Total assets $ 19,298,838 $18,989,558
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Mortgage notes payable $ 13,677,292 $13,784,566
Line of credit 1,999,900 1,718,104
Accounts payable and accrued liabilities 612,256 708,876
------------- ------------
Total liabilities 16,289,448 16,211,546
------------- ------------
Minority interest in Operating Partnership 543,474 509,209
------------- ------------
Contingencies (Note 8)
Shareholders' equity:
Shares of beneficial interest, without par value, unlimited shares
authorized, 1,100,507 and 1,080,512 shares issued and outstanding
at September 30, 1998 and December 31, 1997, respectively 19,503,057 19,429,735
Cumulative earnings 37,341,388 37,217,597
Cumulative distributions (54,378,529) (54,378,529)
------------- ------------
Total shareholders' equity 2,465,916 2,268,803
------------- ------------
Total liabilities and shareholders' equity $ 19,298,838 $18,989,558
============= ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
PAGE 4
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended For the nine months ended
September 30 September 30
-------------------------- ----------------------------
1998 1997 1998 1997
---------- ------------- ------------- -------------
REVENUES
- --------
Rental revenues $ 988,340 $ 613,118 $2,952,715 $1,765,491
Other property revenues 34,602 21,679 108,952 64,751
Other income 316 939 501,945 1,903
---------- ------------- ------------- -------------
1,023,258 635,736 3,563,612 1,832,145
---------- ------------- ------------- -------------
EXPENSES
- --------
Property operating and maintenance 409,629 247,440 1,213,273 759,954
Depreciation and amortization 163,482 108,436 482,706 323,839
Amortization of deferred financing costs 7,726 7,726 23,177 27,231
Interest expense 337,114 200,280 998,829 600,196
General and administrative 155,898 90,479 694,223 250,540
---------- ------------- ------------- -------------
1,073,849 654,361 3,412,208 1,961,760
---------- ------------- ------------- -------------
Income (loss) before minority interest (50,591) (18,625) 151,404 (129,615)
---------- ------------- ------------- -------------
Minority interest (9,136) - 27,613 -
---------- ------------- ------------- -------------
Net income (loss) $ (41,455) $ (18,625) $ 123,791 $ (129,615)
========== ============= ============= =============
NET INCOME (LOSS) PER SHARE - BASIC $ (0.04) $ (0.02) $ 0.11 $ (0.12)
========== ============= ============= =============
NET INCOME (LOSS) PER SHARE - DILUTED $ (0.04) $ (0.02) $ 0.11 $ (0.12)
========== ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 1,100,508 1,080,513 1,087,348 1,080,516
========== ============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 1,346,650 1,080,513 1,334,961 1,080,516
========== ============= ============= =============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
PAGE 5
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the nine months ended September 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 - 123,791 - 123,791
Adjustment for minority interest of unitholders (6,661) - - (6,661)
Issuance of shares to officers and directors 80,000 - - 80,000
Retirement of shares (17) - - (17)
---------------- ----------------- ----------------- ----------------
BALANCE AT SEPTEMBER 30, 1998 $ 19,503,057 $ 37,341,388 $(54,378,529) $ 2,465,916
================ ================= ================= ================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
PAGE 6
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months
ended September 30,
-----------------------
1998 1997
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 123,791 $(129,615)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 482,706 323,839
Amortization of deferred financing costs 23,177 27,231
Minority interest of unitholders in Operating Partnership 27,613 -
Non cash compensation expense 80,000 -
Changes in assets and liabilities:
Cash escrows (72,782) (63,442)
Receivables and other assets (43,293) (20,540)
Capitalized leasing costs (24,821) (34,034)
Accounts payable and accrued liabilities (96,620) 66,583
----------- --------
Total adjustments 375,980 299,637
----------- --------
Net cash provided by operating activities 499,771 170,022
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
The Thicket capital expenditures (36,473) (82,250)
Peachtree capital expenditures (33,711) (25,892)
Windrush capital expenditures (50,595) -
Refundable deposits and acquisition costs (640,463) -
----------- --------
Net cash used in investing activities (761,242) (108,142)
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit 281,796 -
Principal repayments on mortgage notes payable (107,274) (38,564)
Purchase of retired shares (17) (81)
----------- --------
Net cash provided by (used in) investing activities 174,505 (38,645)
----------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (86,966) 23,235
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 282,851 171,736
----------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 195,885 $194,971
=========== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
PAGE 7
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 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. 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
September 30, 1998, the Trust was the sole 1% general partner and an
80.94% 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 September 30, 1998, Thicket, Windrush and Peachtree were 100%, 97%
and 100% leased, respectively.
PAGE 8
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 September 30, 1998,
fractional Shares totaling 118 had been repurchased and retired. 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
nine month period ended September 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 (18.06% as of
September 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.
PAGE 9
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 September 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, 3-5 years; and tenant improvements, generally
over the life of the related lease.)
PAGE 10
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 nine months
Ended September 30, Ended September 30,
-------------------------------- ---------------------------------
1998 1997 1998 1997
-------------------------------- ---------------------------------
Net income (loss) - basic $(41,455) $(18,625) $123,791 $(129,615)
Minority interest (9,136) - 27,613 -
-------------------------------- --------------------------------
Net income (loss) - diluted $(50,591) $(18,625) $151,404 $(129,615)
================================ ================================
Weighted average shares - basic 1,100,508 1,080,513 1,087,348 1,080,516
Dilutive Securities
Weighted average Units in
Operating Partnership 242,546 - 242,546 -
Share options 3,596 - 5,067 -
-------------------------------- --------------------------------
Weighted average shares - diluted 1,346,650 1,080,513 1,334,961 1,080,516
================================ ================================
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 the nine months ended
September 30, 1998 options to purchase 27,500 shares were excluded and
for the three and the nine months ended September 30, 1997 options to
purchase 26,000 shares were excluded as the impact of such options was
antidilutive.
PAGE 11
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 $1,121,800 of improvements has 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
aggregate purchase price of the Portfolio is $104,434,605, consisting
of cash and the assumption of existing debt (the "Acquisition
Transaction"). Vinings has completed its due diligence review and is in
the process of obtaining its equity financing. As of October 31, 1998
Vinings had terminated the contracts to prevent its earnest money
deposits from becoming non-refundable. However, the seller of the
Portfolio has indicated its willingness to reinstate the contracts and
extend the dates for closing. If Vinings obtains sufficient capital to
finance the transaction, the closing of the Portfolio could take place
during the fourth quarter of 1998 or early 1999. However, Vinings has
not yet obtained an equity commitment and there can be no assurance
that the Acquisition Transaction will take place.
PAGE 12
NOTE 4 - NOTES PAYABLE
Mortgage Notes Payable
- ----------------------
At September 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 September 30, 1998, the total outstanding principal for both notes
was $13,677,292. Scheduled maturities of the mortgage notes payable as
of September 30, 1998 are as follows:
1998 $ 37,227
1999 156,664
2000 169,860
2001 184,179
2002 199,716
Thereafter 12,929,646
-----------
Total $13,677,292
===========
Line of Credit
--------------
On June 28, 1998 Vinings renewed its line of credit in the amount of
$2,000,000 for six months. The line of credit bears interest at the
bank's base rate, which approximates prime. At September 30, 1998, the
interest rate was 8.50%. The interest rate decreased to 8.25% on
October 1, 1998. Interest is payable monthly with the entire principal
balance due on December 28, 1998. Management anticipates that the line
of credit will either be renewed or be repaid from new equity sources
prior to its expiration. The line of credit is secured by Peachtree. At
September 30, 1998, the outstanding balance of the line of credit was
$1,999,900.
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 a percentage 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 $138,395 and $69,300 in
management fees and $20,520 and $11,430 in data processing fees were
incurred by Vinings during the nine month periods ended September 30,
1998 and 1997, respectively.
PAGE 13
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 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 $33,750 was paid for each of the nine month periods
ended September 30, 1998 and 1997, 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 $63,000 has been accrued for
the nine month period ended September 30, 1998 to The Vinings Group for
the reimbursement of overhead expenses, which includes salaries and
benefits for employees hired by The Vinings Group for the sole benefit
of the Trust. The officers of the Trust have not received compensation
from Vinings for their services during 1998 except for the restricted
stock, as hereinafter defined, awarded on July 1, 1998. (See Note 11 to
Vinings' September 30, 1998 Consolidated Financial Statements.)
NOTE 6 - DISTRIBUTIONS
There were no distributions declared or distributed for the periods
ended September 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 September 30, 1998, at Peachtree:
1998 $127,362
1999 517,110
2000 387,463
2001 292,422
2002 120,557
----------
Total $1,444,914
==========
One tenant generated 50% of Peachtree's revenues for the period ended
September 30, 1998. The same tenant accounts for 72% of the future
minimum lease payments.
PAGE 14
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.
NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION
Vinings paid interest of $998,829 and $600,196 for the nine months
ended September 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 September 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 September 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 September 30, 1998.
NOTE 11 - 1997 STOCK OPTION AND INCENTIVE PLAN
Vinings' 1997 Stock Option and Incentive Plan (the "Plan") provides
incentives to officers, employees, Trustees, and other key persons
including the grant of share options, share appreciation rights,
restricted and unrestricted share awards, performance share awards, and
dividend equivalent rights.
Under the Plan, the maximum number of shares that may be reserved and
available for issuance is 10% of the total number of outstanding shares
at any time plus 10% of the number of Units outstanding at any time
that are subject to redemption rights. At September 30, 1998 the total
number of shares available for issuance under the Plan was 134,305.
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 fully vested and
exercisable in on July 9, 1998. No options had been exercised as of
September 30, 1998.
PAGE 15
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
a closing sales price of a share of the Trust on the Over-the-Counter
Bulletin Board on June 8, 1998 of $3.63) and become exercisable in full
on June 9, 1999.
On September 1, 1998, Vinings granted 1,500 additional non-qualified
share options (the "Additional 1998 Options") to certain key persons.
The Additional 1998 Options are exercisable at a price of $4.75 (based
on a closing sales price of a share of the Trust on the
Over-the-Counter Bulletin Board on August 30, 1998 of $4.75) and become
exercisable in full on September 1, 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 has been reflected in
compensation expense in the second quarter and in shareholders' equity
as of September 30, 1998. The Restricted Stock was awarded as
compensation for services to the Trust provided by such officers and
trustees as well as by The Vinings Group.
NOTE 12 - UNUSUAL ITEM
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.
PAGE 16
NOTE 13 - SUBSEQUENT EVENT
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 totaled $19,500,000
and consisted of the assumption of the existing debt on one of the
communities and the remainder in cash. After completing its due
diligence review, Vinings determined that it was not in the
shareholders' best interests to go forward with the transaction. The
contracts were cancelled on September 21, 1998 and earnest money
deposits totaling $50,000 were returned to Vinings in October 1998.
PAGE 17
VININGS INVESTMENT PROPERTIES TRUST
AND ITS SUBSIDIARIES
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. 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 September
30, 1998, Vinings was the sole 1% general partner and an 80.94% 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
September 30, 1998, fractional Shares totaling 118 had been repurchased and
retired.
PAGE 18
At September 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 100%, 97% and 100% leased, respectively.
On June 18, 1998 Vinings entered into 18 separate contracts to purchase 14
multifamily communities totaling 2,184 units (the "Portfolio"). The aggregate
purchase price of the Portfolio is $104,434,605, consisting of cash and the
assumption of existing debt (the "Acquisition Transaction"). Vinings has
completed its due diligence review and is in the process of obtaining its equity
financing. As of October 31, 1998 Vinings has terminated the contracts to
prevent its earnest money deposits from becoming non-refundable. However, the
seller of the Portfolio has indicated its willingness to reinstate the contracts
and extend the dates for closing. If Vinings obtains sufficient capital to
finance the transaction, the closing of the Portfolio could take place during
the fourth quarter of 1998 or early 1999. However, Vinings has not yet obtained
an equity commitment and there can be no assurance that the Acquisition
Transaction 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 totaled $19,500,000 and consisted of
the assumption of the existing debt on one of the communities and the remainder
in cash. After completing its due diligence review, Vinings determined that it
was not in the shareholders' best interests to go forward with the transaction.
The contracts were cancelled on September 21, 1998 and earnest money deposits
totaling $50,000 were returned to Vinings in October 1998.
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 $388,145, or 61%, from $634,797 for
the three months ended September 30, 1997 to $1,022,942 for the same period in
1998, and $1,231,425, or 67%, from $1,830,242 for the nine months ended
September 30, 1997 to $3,061,667 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 until December 19,
1997. In addition to the increased revenues generated from Windrush, revenues
from Thicket increased $24,559 for the three months and $93,668 for the nine
months ended September 30, 1998 due to occupancy and rental rate increases.
Other income of $501,945 for the nine months ended September 30, 1998 was
generated 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 12 to Vinings' September 30,
1998 Consolidated Financial Statements.)
PAGE 19
Property operating and maintenance expense increased by $162,189, or 66%, from
$247,440 for the three months ended September 30, 1997, to $409,629 for the same
period in 1998, and $453,319, or 60%, from $759,954 for the nine months ended
September 30, 1997 to $1,213,273 for the same period in 1998. This increase is
due primarily to expenses generated in connection with Vinings' ownership of
Windrush during 1998, which was not in Vinings' portfolio until December 19,
1997.
Depreciation and amortization increased by $55,046, or 51%, from $108,436 for
the three months ended September 30, 1997 to $163,482 for the same period in
1998, and $158,867, or 49%, from $323,839 for the nine months ended September
30, 1997 to $482,706 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 until December 19, 1997.
Depreciation from Thicket and Peachtree increased slightly for both the three
and the nine month periods ended September 30, 1998 due to capitalized
additions. Amortization of capitalized lease commissions at Peachtree also
increased slightly.
Interest expense increased $136,834, or 68%, from $200,280 for the three months
ended September 30, 1997 to $337,114 for the same period in 1998, and $398,633,
or 66%, from $600,196 for the nine months ended September 30, 1997 to $998,829
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 $65,419 or 72%, from $90,479 for
the three months ended September 30, 1997 to $155,898 for the same period in
1998, and $443,683, or 177% from $250,540 for the nine months ended September
30, 1997 to $694,223 for the same period in 1998. Of this increase, $22,889 and
$286,171, for the three months and nine months ended September 30, 1998,
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 12 to Vinings' September 30,
1998 Consolidated Financial Statements.) $33,000 and $63,000, for the three
months and nine months ended September 30, 1998, respectively, are overhead
reimbursements to The Vinings Group. (See Note 5 to Vinings' September 30, 1998
Consolidated Financial Statements.) In addition, $80,000 of the increase for the
nine months ended September 30, 1998 is compensation expense relating to the
Restricted Stock awarded on July 1, 1998. (See Note 11 to Vinings' September 30,
1998 Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities increased $329,749, from $170,022 for
the nine months ended September 30, 1997 to $499,771 for the nine months ended
September 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 increased $653,100, from $108,142 for
the nine months ended September 30, 1997 to $761,242 for the nine months ended
September 30, 1998. This increase is due to funds invested in refundable
deposits and costs associated with potential acquisitions. Cash totaling
$174,505 was generated from financing activities for the nine months ended
September 30, 1998 as compared to cash used in financing activities totaling
$38,645 for the same period in 1997. This change was due to net proceeds drawn
on the line of credit, which were used for refundable acquisition deposits.
PAGE 20
The cash held by Vinings at September 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. This assumes that The Vinings Group will continue
to provide the same services to the Trust that it is currently providing. It is
anticipated that the line of credit, which is due to expire in December 1998,
will either be renewed or 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' September 30, 1998
Consolidated Financial Statements). In addition, it is anticipated that the
Acquisition Transaction 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 September 30, 1998 Consolidated Financial Statements). It is
also anticipated that new sources of equity will be raised to fund future
acquisitions. There can be no assurance, however, that Vinings will be able to
raise the necessary equity to finance the Acquisition Transaction or such future
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.
YEAR 2000
- ---------
The statements in the following section include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
The "Year 2000 issue" is the term used to describe the various problems caused
from the improper processing of dates and date sensitive information by
computers and other machinery and equipment. 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
PAGE 21
which could result in disruptions of normal business operations. Vinings is
currently assessing the potential impact Year 2000 will have on its operations.
A compliance program is in the process of being designed, which will 1)
determine Vinings state of readiness for the Year 2000, including the Trust's
information technology ("IT") systems, its non-IT systems and the state of
readiness of Vinings material suppliers and third party vendors; 2) assess where
potential risks may occur, recognizing that date sensitive systems may fail at
different points in time depending on their function; and 3) determine what
steps need to be taken in order to bring remaining software, hardware and
systems, including embedded systems, into Year 2000 compliance in time to
minimize any significant detrimental effects on operations (the "Compliance
Program"). It is anticipated that the Compliance Program will be complete and in
place by the end of 1998. In addition, Vinings is in the process of determining
a plan of action in the event that the Trust will not be Year 2000 compliant
(the "Contingency Plan"), which should be complete shortly after the
implementation of the Compliance Program.
Many of Vinings computer systems and related software are already Year 2000
compliant. These systems include the on-site resident management software and
associated hardware as well as corporate financial and accounting software and
related hardware. The costs incurred to date for new on-site hardware and
software total approximately $6,200. The financial and accounting systems are
shared with The Vinings Group. The costs incurred to upgrade these systems total
approximately $70,000 and are in the form of monthly lease payments of $1,178,
which expire in November 2002. Currently these lease payments are not a cost of
the Trust.
Vinings has not yet determined whether many of its other operational systems are
Year 2000 compliant and therefore cannot determine at this time the potential
impact on the Trust's financial condition and results of operations. These
systems include administrative systems as well as mechanical systems. However,
Vinings believes that once its Compliance Program has been implemented, all
material systems within its control will be Year 2000 compliant well in advance
of January 1, 2000.
Vinings' most reasonably likely worst case scenario relates to Year 2000
non-compliance by third party vendors and service providers. Vinings' relies on
a number of suppliers for utility services, financial services, materials etc.
Interruption of supplier operations due to Year 2000 issues could have a
material adverse effect on the Trust's future financial condition and results of
operations. However, Vinings' Compliance Program will include steps to evaluate
the status of suppliers' efforts and will determine alternatives and contingency
plan requirements.
The information provided above regarding Vinings' Year 2000 compliance includes
forward-looking statements based on management's best estimates of future
events. Such forward-looking statements involve risks and uncertainties
including the availability of resources, the ability to identify and correct
potential Year 2000 sensitive problems that could have a serious impact on
operations and the ability of third party suppliers to bring their systems into
Year 2000 compliance. There can be no assurance that any of the factors or
statements regarding the Trust's Year 2000 preparedness will not change and that
any change will not affect the accuracy of the Trust's forward-looking
statements.
PAGE 22
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 believed that all requirements were 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."
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 failure of the Trust's systems or
software, or the systems and software of a third party on which the Trust
relies, to be Year 2000 compliant, the inability of Vinings to identify
multifamily properties or property portfolios for acquisition which will have a
strategic fit with Vinings, the inability of Vinings to close the transactions
currently anticipated, including the Acquisition Transaction 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.
PAGE 23
VININGS INVESTMENT PROPERTIES TRUST
AND ITS SUBSIDIARIES
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 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
September 30, 1998.
PAGE 24
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: November 16, 1998