SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ending December 31, 1998 Commission file number 0-13693
- ------------------------------------------- ------------------------------
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
(Exact name of registrant as specified in its 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
--------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest without par value
(Title of Class)
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
Based on the average bid and asking price on March 4, 1999 the aggregate market
value of the Registrant's shares held by non-affiliates of the Registrant was
$4,470,802.
The number of shares outstanding as of March 15, 1999 was 1,100,505.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Trust's Proxy Statement
relating to its 1999 Annual Meeting
of Shareholders are incorporated by
reference into Part III.
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
INDEX TO FORM 10-K
PART I............................................................... ..3
ITEM 1 - Business..................................................3
ITEM 2 - Properties................................................8
ITEM 3 - Legal Proceedings.........................................8
ITEM 4 - Submission of Matters to a Vote of Shareholders...........8
PART II.............................................................. ..9
ITEM 5 - Market for Registrant's Shares of Beneficial Interest.....9
ITEM 6 - Selected Financial Information...........................10
ITEM 7 - Management's Discussion and Analysis of Financial
ITEM 7A - Quantitative and Qualitative Disclosures About
Market Risk..............................................19
ITEM 8 - Financial Statements and Supplementary Data..............19
ITEM 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................19
PART III...............................................................20
ITEM 10 - Directors and Executive Officers of the Registrant.......20
ITEM 11 - Executive Compensation...................................20
ITEM 12 - Security Ownership of Certain Beneficial Owners
and Management...........................................20
ITEM 13 - Certain Relationships and Related Transactions...........20
PART IV................................................................21
ITEM 14 - Exhibits, Financial Statements and Schedule and
Reports on Form 8-K....................................................21
Signatures ............................................................24
This Form 10-K 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. The Trust's actual results could differ materially from those projected
in the forward-looking statements. Certain factors that might cause such a
difference are set forth in the section entitled "Certain Factors Affecting
Future Operating Results," in the relevant paragraphs of "Management's
Discussion and Analysis of Results of Operations and Financial Condition," and
elsewhere in this report.
PART I
======
ITEM 1 - BUSINESS
- -----------------
General Development of Business
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Vinings Investment Properties Trust, a Massachusetts business trust ("Vinings"
or the "Trust") (formerly known as Mellon Participating Mortgage Trust,
Commercial Properties Series 85/10), was organized on December 7, 1984 as a
twenty year finite-life real estate investment trust ("REIT"). Its 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; provided,
however, that the Trustees would have the absolute discretion to determine in
good faith such termination date as would be in the best interests of the
shareholders of the Trust. 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, which was sold on January 3, 1996.
In connection with the liquidation, per share final distributions of $15.60 and
$1.28 (adjusted for the Share Split, as hereinafter defined) were paid on
February 2, 1996 and March 8, 1996, respectively. The remaining assets of the
Trust were Peachtree Business Center ("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 at a price of $0.47 per Share ($3.76
adjusted for the Share Split, as hereinafter defined). The Tender Offer expired
in accordance with its terms at midnight on February 28, 1996. The Purchaser
accepted an aggregate of 6,337,279 Shares (792,159 Shares adjusted for the Share
Split, as hereinafter defined) validly tendered pursuant to the Tender Offer,
representing approximately 73.3% of the outstanding Shares.
The purpose of the Tender Offer was for the Purchaser to acquire control of the
Trust and to rebuild Vinings' assets by expanding into the multifamily property
markets. In connection with the consummation of the Tender Offer, all of the
trustees and officers of the Trust resigned and were replaced with designees of
the Purchaser. In addition, prior to the Tender Offer, 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 the Trust became self-administered.
On June 11, 1996, Vinings Investment Properties, L.P. (the "Operating
Partnership"), a Delaware limited partnership, was organized. The Trust is the
sole general partner and an 80.94% limited partner in the Operating Partnership
at December 31, 1998. During the fourth quarter of the fiscal year ended
December 31, 1997 ("fiscal 1997"), 242,546 limited partnership units in the
Operating Partnership ("Units") were issued, of which 224,330 Units were issued
in connection with the acquisition of Windrush, as defined below. The Units are
redeemable by their holders for Shares of the Trust on a one-for-one basis or
for cash, at the option of the Trust. (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 pursuant to which shareholders of
the Trust 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 December 31, 1998, fractional Shares totaling 120 had been repurchased and
retired and 1,100,505 Shares were outstanding.
At December 31, 1998, approximately ninety two percent (92%) of Vinings' total
assets were invested in three real estate assets. They were: (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; and (3) Peachtree, an approximately 75,000 square foot, single-story
business park located in Atlanta, Georgia, owned by the Operating Partnership.
On June 18, 1998 Vinings entered into 18 separate contracts to purchase 14
multifamily communities totaling 2,184 units located in various markets in
Mississippi. On February 15, 1999, Vinings renegotiated 17 of the contracts to
purchase 13 communities totaling 2,032 units (the "Portfolio") and terminated
one of the contracts. The renegotiated purchase price of the Portfolio is
$94,300,000, consisting of cash and the assumption of approximately $81,000,000
in existing debt (the "Acquisition Transaction"). Five of the communities,
totaling 976 units, will be purchased through a joint venture structure between
the Operating Partnership and a private investor and the remaining eight
communities, totaling 1,056 units, will be purchased by subsidiaries of the
Operating Partnership. In connection with the Acquisition Transaction, an
acquisition fee will be paid to an entity affiliated with Management, however,
the amount and form of such fee have not yet been determined.
Vinings has completed its due diligence review and the contracts are subject
only to satisfactory title conditions. Vinings has received conditional
commitments for most of its equity financing and is in the process of finalizing
its equity commitments. If Vinings receives all approvals and obtains sufficient
capital to finance the transaction, the closing of the Portfolio could take
place early in the second quarter of 1999, however, there can be no assurance
that the Acquisition Transaction will take place.
Vinings has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended. As a REIT, 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 it distributes at least 95% of its taxable income to
its shareholders and satisfies certain other requirements.
Vinings' executive offices are located at 3111 Paces Mill Road, Suite A-200,
Atlanta, Georgia 30339, (770) 984-9500.
Financial Information About Industry Segments
- ---------------------------------------------
Vinings' operations and identifiable long-term assets have been attributed to
the real estate industry for the entirety of its existence. While investments
prior to the Tender Offer were primarily mortgage loans, currently Vinings'
assets are equity investments. Management plans to continue making equity
investments in the multifamily real estate markets.
Narrative Description of Business
- --------------------------------
Vinings' primary objective is to continue to expand into the multifamily real
estate markets through the acquisition of garden style apartment communities,
which are leased to middle-income residents. The middle-income resident is a
more stable and broader based market, often referred to as "the renter by
necessity." Management believes that middle market properties provide greater
potential for appreciation through increased revenues and cash flows than the
more expensive high-end apartment communities, which cater to "the renter by
choice."
Management believes that these investments will provide attractive sources of
income to Vinings, which will not only provide cash available for future
distributions, but will increase the value of Vinings' real estate portfolio as
well.
In the past, Vinings has reviewed each real estate investment in its portfolio
on a quarterly basis. Management plans to continue this review as well as to
carefully review each acquisition to insure that Vinings makes sound investments
on behalf of its shareholders. In this regard, Vinings has established an
Acquisition Committee comprised of four members of the Board of Trustees, one of
which is also an officer. The Board has also established certain investment
criteria, which must be met. The Acquisition Committee must review and approve
each potential acquisition before it is presented to the Board for final
approval.
Growth and Expansion Strategy
- -----------------------------
Management intends to implement its growth and expansion strategy by targeting
properties that have been under managed and/or under maintained, and purchase
such properties at a price which is below replacement cost. Through strategic
value added and return oriented capital improvements and intensive property
management, the Trust believes that cash flow, and in turn value, will be
increased.
Vinings currently anticipates that future acquisitions may include certain
properties within the existing multifamily property portfolios of entities that
are affiliated with Management, as well as properties acquired from unaffiliated
third parties such as the Acquisition Transaction. These properties may be
acquired either for cash, through debt financing, in exchange for Shares of the
Trust or Units or any combination thereof. In addition, the Trust may seek to
raise capital through private offerings for specific acquisitions.
Competition
- -----------
Vinings competes with a number of housing alternatives for its residents
including other multifamily communities and single family homes available for
rent as well as purchase. This competition could have an effect not only on the
properties' ability to lease rental units but also on the rents charged. Vinings
also competes with other investors for potential acquisitions, some of which may
have greater resources with which to purchase projects that the Trust may be
interested in acquiring.
Advisory and Property Management Services
- -----------------------------------------
Since the consummation of the Tender Offer, Vinings has been self-administered.
Vinings has entered into management agreements with an affiliate of certain
officers and trustees of the Trust for property management services for Thicket,
Windrush and Peachtree for a fee equal to a percentage of gross revenues
collected. Up until December 31, 1998, Peachtree was managed by a third-party
property management firm not affiliated with management. In addition, as a
commitment to the rebuilding of the Trust, The Vinings Group, Inc., also an
affiliate of certain officers and trustees of the Trust, has provided numerous
services to the Trust during the fiscal year ended December 31, 1998 ("fiscal
1998") relating to administration, acquisition, and capital and asset advisory
services at little cost to Vinings. The Trust does not anticipate that these
services will continue to be provided free of charge. However, while Vinings has
been in its rebuilding stages, the officers and trustees have been committed to
providing as many services as possible to promote the Trust's growth.
Employees
- ---------
Vinings does not currently have its own employees as The Vinings Group, Inc. has
been providing services to the Trust as described above. However, employees have
been hired through the managing agent to provide on-site property management
services for Vinings. At December 31, 1998, Thicket and Windrush had 11
employees who performed these on-site management services for the communities
and were paid with funds generated from Thicket and Windrush. In addition,
during fiscal 1998 the Trust paid a total of $45,000 to affiliated entities for
shareholder services performed exclusively for the Trust by one of its employees
and a total of $105,000 for the reimbursement of overhead expenses, which
includes salaries and benefits for other employees hired by The Vinings Group,
Inc. for the benefit of the Trust. The only compensation received by the
officers of Vinings from the Trust for their services was in the form of a Share
bonus totaling $80,000. (See Notes 6 and 13 to Vinings' December 31, 1998
Consolidated Financial Statements.)
Environmental Policy
- --------------------
Investments in real property create a potential for environmental liability on
the part of the Trust. Owners of real property may be held liable for all costs
and liabilities relating to hazardous substances present on or emanating from
their properties. Current management assesses on an as needed basis, measures
that may need to be taken to comply with environmental laws and regulations. In
the event that there is a potential of environmental responsibility, the costs
to comply with environmental laws and regulations would be estimated at that
time. At December 31, 1998, Vinings was not aware of any potential environmental
contamination relating to investments in its portfolio.
Certain Factors Affecting Future Operating Results
- --------------------------------------------------
This Form 10-K 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.
ITEM 2 - PROPERTIES
- -------------------
As of December 31, 1998, all of Vinings investments were equity investments in
real estate. While Vinings still owns Peachtree, a single-story business park,
it intends to continue investing only in multifamily communities. Vinings' real
estate investments are summarized below by property:
---------- ---------- -----------
Amount of Investment Occupancy
Investment Percentage at 12/31/98
---------- ---------- -----------
The Thicket Apartments $ 7,997,056 45% 98%
Windrush Apartments 7,428,038 42% 98%
Peachtree Business Center 2,219,640 13% 100%
============ ========
Totals $17,644,734 100%
============ ========
The above investment amounts are net of accumulated depreciation. Both Thicket
and Windrush are encumbered by fixed rate mortgage loans and Peachtree serves as
security for the line of credit. Vinings incorporates herein by reference the
description of owned real property on Schedule III and the notes thereto.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
None of Vinings' properties are presently subject to any material litigation
nor, to Vinings' knowledge, is any material litigation threatened against the
Trust or any of its properties, other than routine actions or claims and
administrative proceedings arising in the ordinary course of business. Some of
these claims are expected to be covered by insurance and all of which
collectively are not expected to have a material adverse effect on the business,
the financial condition, or the results of operations of Vinings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
- --------------------------------------------------------
No matters were submitted to a vote of the Trust's shareholders during the
fourth quarter of fiscal 1998.
PART II
=======
ITEM 5 - MARKET FOR REGISTRANT'S SHARES OF BENEFICIAL INTEREST
- --------------------------------------------------------------
Stock Quotation
- ---------------
Vinings' Shares are currently traded on the Over-the-Counter Bulletin Board
under the symbol "VIPIS." On March 31, 1999, the closing sales price for
Vinings' Shares, as reported on the Over-the-Counter Bulletin Board, was $4.00.
Market Information
- ------------------
The high and low sales prices for each quarterly period during fiscal 1998 and
fiscal 1997, which reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions,
are as follows:
--------------------- ---------------------
1998 1997
--------------------- ---------------------
Quarter Ended High Low High Low
- ------------- ---- --- ---- ---
March 31 5 3 1/4 4 5/8 4 3/8
June 30 5 3 4 7/8 4 3/8
September 30 5 7/8 3 3/4 4 7/8 4
December 31 4 3/4 3 7/8 5 1/4 3 3/4
Dividends
- ---------
No dividends were declared or paid during fiscal 1998. In an effort to rebuild
the Trust's 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.
Holders
- -------
Vinings had 704 holders of record of its Shares as of March 23, 1999.
ITEM 6 - SELECTED FINANCIAL INFORMATION
- ---------------------------------------
The following table sets forth selected financial information for Vinings and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations, " as well as Vinings' December
31, 1998 Consolidated Financial Statements, which are made a part of this
report. All share and per share information have been restated to reflect the
Share Split.
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For the year ended December 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
Revenues $4,102,003 $2,478,824 $1,796,917 $3,244,908 $4,159,170
Expenses 3,998,110 3,146,005 2,580,195 1,779,475 2,477,923
------------- ------------- ------------- ------------- -------------
Income (loss) before loss on
real estate investments 103,893 (667,181) (783,278) 1,465,433 1,681,247
Loss on real estate investments - - (26,800) (886,887) (816,307)
------------- ------------- ------------- ------------- -------------
Income (loss) before minority interest 103,893 (667,181) (810,078) 578,546 864,940
Minority interest (18,900) 5,464 - - -
------------- ------------- ------------- ------------- -------------
Net income (loss) $ 84,993 $ (661,717) $ (810,078) $ 578,546 $ 864,940
============= ============= ============= ============= =============
Net income (loss) per share -
basic and diluted $ 0.08 $ (0.61) $ (0.75) $ 0.54 $ 0.80
============= ============= ============= ============= =============
Weighted average shares
outstanding - basic 1,090,701 1,080,513 1,080,528 1,080,625 1,080,625
============= ============= ============= ============= =============
Weighted average shares
outstanding - diluted 1,336,391 1,089,435 1,080,528 1,080,625 1,080,625
============= ============= ============= ============= =============
Dividends declared and paid:
Ordinary income $ - $ - $ - $ - $ 0.08
Return of capital - - 16.88 12.24 24.64
------------- ------------- ------------- ------------- -------------
Total dividends declared and paid $ - $ - $ 16.88 $ 12.24 $ 24.72
============= ============= ============= ============= =============
Total assets $19,148,178 $18,989,558 $11,519,469 $21,878,357 $34,348,242
============= ============= ============= ============= =============
Shareholders' equity $ 2,426,972 $ 2,268,803 $ 2,232,548 $21,284,112 $33,932,908
============= ============= ============= ============= =============
ITEM 7 - 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 liquidate and 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") which expired in accordance
with its terms at midnight on February 28, 1996. The Purchaser accepted
approximately 73.3% of the outstanding Shares and appointed new trustees and
officers ("Management").
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"), was organized with the Trust as the sole general partner in an
effort to facilitate acquisitions. This structure is commonly referred to as an
umbrella partnership REIT or "UPREIT".
Much of Management's efforts during the fiscal year ended December 31, 1997
("fiscal 1997") were focused on the acquisition of Windrush Apartments, a
202-unit apartment community located in Atlanta, Georgia ("Windrush"), Vinings'
first UPREIT transaction in exchange for units in the Operating Partnership
("Units"). In addition, Management spent a good portion of fiscal 1997
negotiating for a 2,365-unit portfolio, the contract for which was terminated by
the seller thirty days prior to closing (the "Portfolio Transaction"). (See Note
14 to Vinings' December 31, 1998 Consolidated Financial Statements). The costs
incurred during fiscal 1997 associated with the Portfolio Transaction are
included in the results of operations for fiscal 1997.
During the first half of the fiscal year ended December 31, 1998 ("fiscal 1998")
Management focused on the settlement of the Portfolio Transaction. The proceeds
received, net of litigation costs incurred during fiscal 1998, have been
included in the results of operations for fiscal 1998. During the second half of
fiscal 1998, Management aggressively pursued its growth strategy by negotiating
contracts for the acquisition of 13 multifamily communities totaling 2,032 units
located in various markets in Mississippi (the "Portfolio"). The aggregate
purchase price of the Portfolio is $94,300,000, consisting of cash and the
assumption of the existing debt (the "Acquisition Transaction"). Five of the
communities, totaling 976 units, will be purchased through a joint venture
structure between the Operating Partnership and a private investor and the
remaining eight communities, totaling 1,056 units, will be purchased by
subsidiaries of the Operating Partnership. (See Note 10 to Vinings' December 31,
1998 Consolidated Financial Statements). However, there can be no assurance that
the Acquisition Transaction 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
- ---------------------
Because Vinings has begun to implement its growth and expansion strategy, net
income has increased steadily from fiscal year ended December 31, 1996 ("fiscal
1996") to fiscal 1997 and fiscal 1998. In addition, the nature of the operating
expenses has shifted from administrative expenses and advisory fees to property
operating expenses and mortgage interest expense connected with Vinings' income
producing assets.
As a result of the liquidation of assets, change in management, and the
redirection of the Trust's business objectives, substantially all of the income
producing assets held prior to the Tender Offer are no longer held by Vinings,
with the exception of Peachtree.
Comparison of Operating Results of 1998 to Operating Results of 1997
- --------------------------------------------------------------------
Total revenues increased $1,623,179, or 65%, from $2,478,824 to $4,102,003
primarily due to the fact that Vinings continued to implement its growth and
expansion strategy with the acquisition of Windrush in December, 1997.
Rental and other property revenues increased $1,623,174, or 66%, from $2,476,746
to $4,099,920 due primarily to the revenues generated in connection with
Vinings' ownership of Windrush for an entire year during fiscal 1998 as compared
to less than one month during fiscal 1997. Revenues from Thicket and Peachtree
also increased by $122,340 and $29,190, respectively.
Property operating and maintenance expense increased $659,281, or 66%, from
$992,926 to $1,652,207. Of this increase, $633,662 represents expenses generated
in connection with Vinings' ownership of Windrush for an entire year during
fiscal 1998 as compared to less than one month during fiscal 1997. Peachtree's
operating and maintenance expense increased $24,889 from fiscal 1997 to fiscal
1998 due to various maintenance and repair items, while Thicket's remained
constant.
Depreciation and amortization increased $214,749, or 50%, from $433,011 to
$647,760. Of this increase, $193,541 relates to Vinings' ownership of Windrush
for an entire year during fiscal 1998 as compared to less than one month during
fiscal 1997. Depreciation on Thicket and Peachtree increased only slightly due
to additional improvements made during fiscal 1998.
Interest expense increased $512,726, or 63% from $816,551 to $1,329,277
primarily due to Vinings' ownership of Windrush for an entire year during fiscal
1998 as compared to less than one month during fiscal 1997. Interest expense on
the line of credit increased $22,894 due to the increased balance during fiscal
1998.
General and administrative expense increased $262,498 or 78%, from $336,375 to
$598,873. Of this increase, $105,000 represents overhead reimbursements to The
Vinings Group (see Note 6 to Vinings' December 31, 1998 Consolidated Financial
Statements); $80,000 represents compensation expense relating to the Restricted
Stock awarded on July 1, 1998 (see Note 13 to Vinings' December 31, 1998
Consolidated Financial Statements); $51,589 represents legal and accounting
fees; and $23,628 relates to travel and abandoned pursuit costs.
The unusual item, net included in operating expenses in fiscal 1998 relates to
the costs incurred, net of the settlement proceeds received in connection with
the Portfolio Transaction totaling $260,910. The costs incurred during fiscal
1997 of $532,185 include due diligence costs incurred in connection with the
Portfolio Transaction such as environmental and engineering reports, independent
financial analysis, investor appraisal costs and legal contract negotiations.
The net cost to Vinings in connection with the entire Portfolio Transaction
totaled $271,275. (See Note 14 to Vinings' December 31, 1998 Consolidated
Financial Statements).
Vinings had income before minority interest of $103,893 for fiscal 1998 as
compared to a loss of $667,181 for fiscal 1997, representing an increase of
$771,074. The minority interest of ($5,464) for fiscal 1997 represents the
allocation of losses for the short period in December 1997 during which Units in
the Operating Partnership were held. The minority interest for fiscal 1998
totaled $18,900.
Comparison of Operating Results of 1997 to Operating Results of 1996
- --------------------------------------------------------------------
Total revenues increased $681,907, or 38%, from $1,796,917 to $2,478,824 due
to the fact that Vinings had begun to pursue its growth and expansion strategy.
Rental and other property revenues increased $924,263, or 60%, from $1,552,483
to $2,476,746 due primarily to the revenues generated in connection with
Vinings' ownership of Thicket for an entire year during fiscal 1997 as compared
to six months during fiscal 1996. Revenues from Peachtree remained fairly
constant. Immaterial amounts of revenue were generated for the twelve days
Windrush was owned during fiscal 1997.
Interest income decreased by $90,579, or 98%, from $92,657 to $2,078. In fiscal
1996, interest income was generated from cash investments primarily in the first
two months of the year, prior to the payment of liquidating dividends. Since
that time there have been relatively small cash balances.
Property operating and maintenance expense increased $406,496, or 69%, from
$586,430 to $992,926, primarily due to the expenses generated in connection with
Vinings' ownership of Thicket for an entire year during fiscal 1997 as compared
to six months during fiscal 1996.
Depreciation and amortization increased $188,901, or 77%, from $244,110 to
$433,011. Depreciation on Thicket increased $185,165 due to Vinings' ownership
of Thicket for an entire year during fiscal 1997 as compared to six months
during fiscal 1996 as well as additional depreciation on improvements made
during fiscal 1997. Depreciation on Peachtree decreased slightly.
Interest expense increased $407,832, or 100% from $408,719 to $816,551 due to
Vinings' ownership of Thicket for an entire year during fiscal 1997 as compared
to six months during fiscal 1996.
General and administrative expense decreased $651,598 or 66%, from $987,973 to
$336,375. The majority of the decrease relates to costs associated with the
Tender Offer and structural reorganization of the Trust during fiscal 1996 that
did not recur during fiscal 1997. The following expense categories included in
general and administrative decreased from fiscal 1996 to fiscal 1997:
professional fees by $398,733, directors' and officers' insurance by $176,768,
trustee expense by $31,312, annual report and proxy costs by $27,361 and filing
fees by $17,425.
There were no investment advisor's fees incurred during fiscal 1997. All of the
advisor's fees during fiscal 1996 were incurred during January and February as
the services of the Advisor were terminated at the consummation of the Tender
Offer.
The unusual item, net of $532,185 included in operating expenses during fiscal
1997 relates to costs incurred in connection with the Portfolio Transaction.
These expenses include due diligence costs such as environmental and engineering
reports, independent financial analysis, investor appraisal costs and legal
contract negotiations. (See Note 14 to Vinings' December 31, 1998 Consolidated
Financial Statements).
There were no gains or losses on real estate investments during fiscal 1997. The
loss on real estate investment of $26,800 in fiscal 1996 represents commissions
and fees on the sale of the Hawthorne Note. (See Note 4 to Vinings' December 31,
1998 Consolidated Financial Statements).
Vinings incurred a loss before minority interest of $667,181 for fiscal 1997 as
compared to $810,078 for fiscal 1996, representing a decrease of $142,897, even
with the unusual item described above. Had Vinings not incurred the unusual item
associated with the Portfolio Transaction, the loss before minority interest for
fiscal 1997 would have been $134,996. The minority interest of ($5,464)
represents the allocation of losses for the short period in December 1997 during
which Units in the Operating Partnership were held.
Liquidity and Capital Resources
- -------------------------------
Operating activities provided net cash of $624,783 for fiscal 1998 as compared
to $152,536 for fiscal 1997. As discussed previously, the settlement proceeds,
litigation costs and transaction costs relating to the Portfolio Transaction
have been included in operating activities and totaled a net amount of $260,910
in income during fiscal 1998 and $532,185 in expense during fiscal 1997. (See
Note 14 to Vinings' December 31, 1998 Consolidated Financial Statements). The
balance of the increased cash provided by operating activities for fiscal 1998
relates to Vinings' ownership of Windrush for an entire year during fiscal 1998
as compared to less than one month during fiscal 1997.
As a result of the implementation of Management's growth and expansion strategy,
cash flows from investing and financing activities have changed dramatically
from fiscal years 1996 to 1997 to 1998. In fiscal 1996, $673,200 was generated
from the sale of investments in connection with prior management's liquidation
of the Trust's assets and approximately $8,700,000 was invested in Thicket.
While Windrush was acquired during fiscal 1997, it was not acquired with cash
but through the assumption of debt and the issuance of Units. Approximately
$3,800 in cash was spent in connection with the Windrush acquisition and
approximately $135,000 was used to make improvements to Thicket and Peachtree.
During fiscal 1998, $612,000 was invested in the Acquisition Transaction and
approximately $146,000 was used to make improvements to the existing assets.
Cash flows provided by or used in financing activities were comprised of (1)
distributions to shareholders, and (2) debt incurred. Final liquidating
dividends totaling $18,240,950 were made to shareholders during fiscal 1996,
with no distributions during fiscal 1997 or fiscal 1998. During fiscal 1996,
Vinings received net proceeds of $7,392,000 from a mortgage note payable, in
addition to $1,568,104 in proceeds from a secured line of credit, all of which
were used in the acquisition of Thicket. During fiscal 1997, an additional
$150,000 was drawn from the line of credit. In addition, during fiscal 1997, a
mortgage note in the amount of $6,464,898, was assumed in connection with the
acquisition of Windrush and is not considered a cash transaction. During fiscal
1998, $281,896 was drawn from the line of credit and mortgage notes payable were
reduced by $144,501.
Many of the costs associated with the liquidation of the Trust's assets and the
subsequent Tender Offer and organizational restructuring that were incurred
during fiscal 1996, have not continued into fiscal 1997 or 1998. The cash held
by Vinings at December 31, 1998, plus the cash flow from Vinings' assets,
including the Acquisition Transaction, is expected to provide sources of
liquidity to allow the Trust to meet current operating obligations. The line of
credit held by the Trust, which expired in December 1998,was purchased from the
bank by one of the Trustees. The line in now due on demand and Vinings is paying
interest monthly to the Trustee on the outstanding balance at an annual rate of
8.50%. The Trustee has agreed that he will not demand payment on the note prior
to January 1, 2000, unless alternate financing is arranged or Peachtree, which
serves as security for the note, is sold. Vinings has agreed that it will use
its best efforts to obtain a new line of credit or alternative financing to
repay the outstanding balance. (For additional information regarding the line of
credit see Note 5 to Vinings December 31, 1998 Consolidated Financial
Statements.) In addition, Vinings continues negotiations with a number of
capital sources regarding the Acquisition Transaction and intends to continue
ongoing discussions with capital sources, both public and private, as well as
explore financing alternatives, so as to allow Vinings to expand and grow its
income producing investments. (See "Growth and Expansion Strategy".)
Recent Accounting Pronouncements
- --------------------------------
Vinings adopted Statements of Financial Accounting Standards ("SFAS") No. 130,
"Reporting of Comprehensive Income," during 1998, which establishes standards
for reporting and display of comprehensive income and its components.
Comprehensive income is the total of net income and all other nonowner changes
in shareholders' equity. As of December 31, 1998, Vinings had no items of other
comprehensive income.
Vinings also adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," during 1998, which establishes new standards for
disclosure of segment information on the so called "management approach." The
management approach is based on the way that the chief operating decision maker
organizes segments within a company for making operating decisions and assessing
performance. Since Vinings' real estate portfolio has similar economic
characteristics, customers, and products and services, Vinings evaluates the
operating performance of its real estate portfolio as one reportable segment, on
the same basis of presentation for internal and external reporting. Therefore,
no additional segment information is presented herein.
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 of 1998.
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
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 has been implemented, 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 prioritize those risks; 3)
determine what steps need to be taken in order to bring remaining software,
hardware and systems, including embedded systems, into Year 2000 compliance; 4)
implement, test and re-evaluate all solutions in time to minimize any
significant detrimental effects on operations; and 5) determine a contingency
plan in the event that the Trust or any of its material suppliers or third party
vendors will not be Year 2000 compliant (the "Compliance Program"). Vinings
believes that its testing of all systems should be complete by the end of the
third quarter, 1999.
Vinings believes that most of its 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. Any additional costs to upgrade or modify
these systems are not expected to be material.
Vinings is still in the process of determining 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 has been in contact with the suppliers and
manufacturers of these systems and believes that 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 suppliers' operations due to Year 2000 issues could have a
material adverse effect on the Trust's future financial condition and results of
operations. Vinings' has taken steps to evaluate the status of suppliers'
efforts in order to determine whether any of these suppliers will have an
adverse material effect. Once evaluation is complete, Vinings will determine any
required 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.
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-K 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.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
Vinings is exposed to market risk from changes in interest rates, which may
adversely affect its financial position, results of operations and cash flows.
In seeking to minimize the risks from interest rate fluctuations, Vinings
manages exposures through its regular operating and financing activities.
Vinings does not use financial instruments for trading or other speculative
purposes. Vinings is exposed to interest rate risk primarily through its
borrowing activities, which are described in Note 5 to Vinings' December 31,
1998 Consolidated Financial Statements. All of Vinings' borrowings are under
fixed rate instruments. Vinings has determined that there is no material market
risk exposure to its consolidated financial position, results of operations or
cash flows.
The following table presents principal reductions and related weighted average
interest rates by year of expected maturity for Vinings' debt obligations:
- ---------------------------------------------------------------------------------------------------------------------------
There- Fair Value
(In Thousands) 1999 2000 2001 2002 2003 after Total December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Principal Reductions
In Mortgage Notes $ 157 $170 $184 $200 $7,103 $5,826 $13,640 $13,640
Average Interest Rates 8.27% 8.27% 8.27% 8.27% 8.27% 7.5% 8.27% 8.27%
Line Of Credit $2,000 - - - - - $ 2,000 $ 2,000
Interest Rate(1) 8.50% - - - - - 8.50% 8.50%
<FN>
- --------------------------------------
(1) Based on prime rate as of 12/31/98
</FN>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements and supplementary data are listed
under Item 14(a) and filed as part of this report on the pages indicated.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ----------------------------------------------------------
The information required by this Item 9 was previously reported in a
Current Report on Form 8-K filed with the Securities and Exchange Commission
on January 14, 1997.
PART III
========
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information concerning the Trustees and Executive Officers of the Registrant
required by Item 10 shall be included in the Proxy Statement to be filed
relating to the 1999 Annual Meeting of the Registrant's shareholders and is
incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
The information concerning the Trustees and Executive Officers of the Registrant
required by Item 11 shall be included in the Proxy Statement to be filed
relating to the 1999 Annual Meeting of the Registrant's shareholders and is
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information concerning Ownership of Certain Beneficial Owners and Management
required by Item 12 shall be included in the Proxy Statement to be filed
relating to the 1999 Annual Meeting of the Registrant's shareholders and is
incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information concerning Certain Relationships and Related Transactions
required by Item 13 shall be included in the Proxy Statement to be filed
relating to the 1999 Annual Meeting of the Registrant's shareholders and is
incorporated herein by reference.
PART IV
=======
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULE AND
REPORTS ON FORM 8-K
- ---------------------------------------------------------
14(a) (1) and (2) Index to Consolidated Financial
Statements and Schedule Page
----
Report of Independent Public Accountants 25
Consolidated Balance Sheets--As of December 31, 1998 and 1997 26
Consolidated Statements of Operations--For the years ended
December 31, 1998, 1997 and 1996 27
Consolidated Statements of Shareholders' Equity--For the years ended
December 31, 1998, 1997 and 1996 28
Consolidated Statements of Cash Flows--For the years ended
December 31, 1998, 1997 and 1996 29
Notes to Consolidated Financial Statements--For the years ended
December 31, 1998, 1997 and 1996 30
Consolidated Financial Statement Schedule 48
14(a) (3) Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Second Amended and Restated Declaration of Trust of Vinings (filed herewith).
3.2 Amendment No. 1 to the Second Amended and Restated Declaration of Trust of the Trust
(filed herewith).
3.3 Amendment No. 2 to the Second Amended and Restated Declaration of Trust of the Trust
(filed herewith).
3.4 Amended and Restated Bylaws of the Trust (incorporated by reference to Exhibit 3.2 to
Vinings' Registration Statement on Form S-11, No. 2-94776).
10.1 Amended and Restated Agreement of Limited Partnership of Vinings Investment Properties,
L.P. (incorporated by reference to Exhibit 10.1 to Vinings' Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, No. 0-13693).
10.2 First Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (incorporated by reference to Exhibit 10.2 to the Vinings'
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 0-13693).
10.3 Second Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (incorporated by reference to Exhibit 10.3 to the Vinings'
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 0-13693).
10.4 Third Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (filed herewith).
10.5 Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (filed herewith).
10.6 Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (filed herewith)
10.7 Agreement to Contribute, dated April 1, 1997, between Vinings Investment Properties,
L.P. and Windrush Partners, Ltd. (incorporated by reference to Exhibit 10.1 to the
Trust's Current Report on Form 8-K filed December 29, 1997, No. 0-13693).
10.8 Amendment to Agreement to Contribute, dated August 11, 1997, between Vinings Investment
Properties, L.P. and Windrush Partners, Ltd. (incorporated by reference to Exhibit 10.2
to the Trust's Report on Form 8-K filed December 29, 1997, No. 0-13693).
10.9 Second Amendment to Agreement to Contribute, dated October 30, 1997, between Vinings
Investment Properties, L.P. and Windrush Partners, Ltd. (incorporated by reference to
Exhibit 10.3 to the Trust's Report on Form 8-K filed December 29, 1997, No. 0-13693).
10.10 Management Contract dated December 19, 1997 between Vinings Communities, L.P. and
Vinings Properties, Inc. (incorporated by reference to Exhibit 10.10 to Vinings' Annual
Report on Form 10-K for the fiscal year ended December 31 1997, No. 0-13693).
10.11 Management Contract dated January 1, 1999, between Thicket Apartments, L.P. and VIP
Management, LLC (filed herewith).
10.12 Management Contract dated January 1, 1999, between Vinings Communities, L.P. and VIP
Management, LLC (filed herewith).
10.13 Management Contract dated January 1, 1999, between Vinings Investment Properties, L.P.
and VIP Management, LLC (filed herewith).
10.14 Form of Amended and Restated Agreement of Purchase and Sale for The Acquisition
Transition with attached Schedule of Material Differences For All Properties (filed
herewith).
10.15 Commercial Credit Agreement between Hardwick Bank and Trust Company and the Trustees of
the Trust dated June 28, 1997 (incorporated by reference to Exhibit 10.13 to Vinings'
Annual Report on Form 10-K for the fiscal year ended December 31 1997, No. 0-13693).
10.16 Amendment to Commercial Credit Agreement between Hardwick Bank and Trust Company and the
Trustees of the Trust dated July 1, 1998 (filed herewith).
21.1 Subsidiaries of the Trust (filed herewith).
27 Financial Data Schedule (filed herewith).
14(b) Reports on Form 8-K
-------------------------
Current Report on Form 8-K/A, originally dated December 29, 1997, was
filed with the Securities and Exchange Commission on March 3, 1998,
with respect to the Trust's acquisition of Windrush.
SIGNATURES
==========
Pursuant to the requirements of Sections 13 or 15(d) 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/ Peter D. Anzo
- ---------------------
Peter D. Anzo
President and
Chief Executive Officer
Dated: April 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Peter D. Anzo Chief Executive Officer, April 15, 1999
- ------------------------- President and Trustee
Peter D. Anzo
/s/ Stephanie A. Reed Vice President, Treasurer, April 15, 1999
- ------------------------- Secretary and Trustee
Stephanie A. Reed
/s/ Phill D. Greenblatt Trustee April 15, 1999
- -------------------------
Phill D. Greenblatt
/s/ Henry Hirsch Trustee April 15, 1999
- -----------------
Henry Hirsch
/s/ Martin H. Petersen Trustee April 15, 1999
- -------------------------
Martin H. Petersen
/s/ James D. Ross Trustee April 15, 1999
- -------------------------
James D. Ross
/s/ Gilbert H. Watts, Jr. Trustee April 15, 1999
- -------------------------
Gilbert H. Watts, Jr.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
========================================
To Vinings Investment Properties Trust:
We have audited the accompanying consolidated balance sheets of Vinings
Investment Properties Trust and subsidiaries (the "Trust") as of December 31,
1998 and 1997 and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These consolidated financial statements and the
schedule referred to below are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Vinings Investment
Properties Trust and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 26, 1999
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
===================================
----------------------------------
December 31,
----------------------------------
1998 1997
--------------- ---------------
ASSETS
Real estate assets:
Land $ 2,884,500 $ 2,884,500
Buildings and improvements 15,399,690 15,267,009
Furniture, fixtures & equipment 1,025,222 1,011,483
Less: accumulated depreciation (1,664,678) (1,036,311)
--------------- ---------------
Net real estate assets 17,644,734 18,126,681
Cash and cash equivalents 286,481 282,851
Cash escrows 330,698 314,684
Receivables and other assets 694,998 63,402
Deferred financing costs, less accumulated amortization of $77,258 and
$54,459 at December 31, 1998 and 1997, respectively 139,064 169,968
Deferred leasing costs, less accumulated amortization of $32,861 and
$39,087 at December 31, 1998 and 1997, respectively 52,203 31,972
--------------- ---------------
Total assets $ 19,148,178 $18,989,558
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 13,640,065 $13,784,566
Line of credit 2,000,000 1,718,104
Accounts payable and accrued liabilities 546,249 708,876
--------------- ---------------
Total liabilities 16,186,314 16,211,546
--------------- ---------------
Minority interest of unitholders in Operating Partnership 534,892 509,209
--------------- ---------------
Commitments and Contingencies (Note 10)
Shareholders' equity:
Shares of beneficial interest, without par value, unlimited shares
authorized, 1,100,505 and 1,080,512 shares issued and outstanding
at December 31, 1998 and 1997, respectively 19,502,911 19,429,735
Cumulative earnings 37,302,590 37,217,597
Cumulative distributions (54,378,529) (54,378,529)
--------------- ---------------
Total shareholders' equity 2,426,972 2,268,803
--------------- ---------------
Total liabilities and shareholders' equity $ 19,148,178 $18,989,558
=============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
=====================================
-----------------------------------------------
For the years ended December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -----------
REVENUES
Rental revenues $ 3,946,828 $ 2,392,072 $ 1,482,419
Other property revenues 153,092 84,674 70,064
Interest income 1,519 2,078 92,657
Other income 564 - 151,777
------------- ------------- -----------
4,102,003 2,478,824 1,796,917
------------- ------------- -----------
EXPENSES
Property operating and maintenance 1,652,207 992,926 586,430
Depreciation and amortization 647,760 433,011 244,110
Amortization of deferred financing costs 30,903 34,957 19,502
Interest expense 1,329,277 816,551 408,719
General and administrative 598,873 336,375 987,973
Investment advisor's fee - - 333,461
Unusual item, net (260,910) 532,185 -
------------- ------------- -----------
3,998,110 3,146,005 2,580,195
------------- ------------- -----------
Loss on real estate investments - - (26,800)
Income (loss) before minority interest 103,893 (667,181) (810,078)
------------- ------------- -----------
Minority interest of unitholders in Operating Partnership (18,900) 5,464 -
------------- ------------- -----------
Net income (loss) $ 84,993 $ (661,717) $(810,078)
============= ============= ===========
NET INCOME (LOSS) PER SHARE - BASIC $ 0.08 $ (0.61) $ (0.75)
============= ============= ===========
NET INCOME (LOSS) PER SHARE - DILUTED $ 0.08 $ (0.61) $ (0.75)
============= ============= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 1,090,701 1,080,513 1,080,528
============= ============= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 1,336,391 1,089,435 1,080,528
============= ============= ===========
The accompanying notes are an integral part of these consolidated financial
statements.
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1997 and 1998
====================================================
-------------- -------------- -------------- --------------
Shares of Total
beneficial Cumulative Cumulative shareholders'
interest earnings distributions equity
-------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 1995 $36,973,249 $38,689,392 $(54,378,529) $21,284,112
Net loss - (810,078) - (810,078)
Retirement of shares (536) - - (536)
Distributions to shareholders
($16.88 per share return of capital
for federal income tax purposes) (18,240,950) - (18,240,950)
-------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 1996 18,731,763 37,879,314 (54,378,529) 2,232,548
Adjustment for minority interest of unitholders
and issuance of units in Operating Partnership 698,056 698,056
Net loss - (661,717) - (661,717)
Retirement of shares (84) - - (84)
-------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 1997 19,429,735 37,217,597 (54,378,529) 2,268,803
Net income - 84,993 - 84,993
Adjustment for minority interest of
unitholders in Operating Partnership (6,781) - - (6,781)
Issuance of shares to officers and directors 80,000 - - 80,000
Retirement of shares (43) - - (43)
-------------- -------------- -------------- --------------
BALANCE AT DECEMBER 31, 1998 $19,502,911 $37,302,590 $(54,378,529) $2,426,972
============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
=====================================
-----------------------------------------
For the years ended December 31,
-----------------------------------------
1998 1997 1996
---------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $84,993 $(661,717) $ (810,078)
---------- ----------- ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 647,760 433,011 244,110
Amortization of deferred financing costs 30,903 34,957 19,502
Minority interest of unitholders in Operating Partnership 18,900 (5,464) -
(Gain) loss on real estate investments - - 26,800
Noncash compensation expense 80,000 - -
Changes in assets and liabilities:
Cash escrows (16,014) 75,745 (192,611)
Receivables and other assets (19,511) 22,600 260,055
Capitalized leasing costs (39,621) (36,931) (5,639)
Accounts payable and accrued liabilities (162,627) 290,335 (247,104)
---------- ----------- ------------
Total adjustments 539,790 814,253 105,113
---------- ----------- ------------
Net cash provided by (used in) operating activities 624,783 152,536 (704,965)
---------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of the Thicket Apartments - - (8,660,900)
The Thicket capital expenditures (46,129) (109,333) (49,635)
Peachtree capital expenditures (33,712) (26,205) (29,862)
Windrush capital expenditures (66,579) (3,791) -
Refundable deposits and acquisition costs (612,085) - -
Sale proceeds from real estate investments - - 673,200
---------- ----------- ------------
Net cash used in investing activities (758,505) (139,329) (8,067,197)
---------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit 281,896 150,000 1,568,104
Net proceeds from mortgage note payable - - 7,392,000
Deferred financing costs - - (224,427)
Principal repayments on mortgage notes payable (144,501) (52,008) (20,324)
Purchase of retired shares (43) (84) (536)
Distributions to shareholders - - (18,240,950)
---------- ----------- ------------
Net cash provided by (used in) financing activities 137,352 97,908 (9,526,133)
---------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,630 111,115 (18,298,295)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 282,851 171,736 18,470,031
---------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $286,481 $282,851 $ 171,736
========== =========== ============
<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
December 31, 1998, 1997 and 1996
==========================================
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 that 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
December 31, 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 December 31, 1998, Thicket, Windrush and Peachtree were 98%, 98% 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 December 31, 1998,
fractional Shares totaling 120 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 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
December 31, 1998) multiplied by the Operating Partnership's net
assets. The minority interest of the unitholders in the income or loss
of the Operating Partnership on the accompanying statement of
operations is calculated based on the weighted average number of Shares
and Units (as hereinafter defined) outstanding during the period. The
term "Vinings" or "Trust" hereinafter refers to Vinings Investment
Properties Trust and its subsidiaries, including the Operating
Partnership.
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 December 31, 1998.
Ordinary repairs and maintenance are expensed as incurred. Major
improvements and replacements are capitalized and depreciated over
their estimated useful lives when they extend the useful life, increase
capacity or improve efficiency of the related asset. Depreciation is
computed on a straight-line basis over the useful lives of the real
estate assets (buildings and improvements, 5-40 years; furniture,
fixtures and equipment, 3-5 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
---------------------------
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:
----------------------------------------
1998 1997 1996
----------------------------------------
Net income (loss) - basic $ 84,993 $(661,717) $(810,078)
Minority interest 18,900 (5,464) -
-----------------------------------------
Net income (loss) - diluted $103,893 $(667,181) $(810,078)
=========================================
Weighted average shares - basic 1,090,701 1,080,513 1,080,528
Dilutive Securities
Weighted average Units in
Operating Partnership 242,546 8,922 -
Share options 3,144 - -
-----------------------------------------
Weighted average shares - diluted 1,336,391 1,089,435 1,080,528
=========================================
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 twelve months ended December 31,
1998 options to purchase 27,500 shares were excluded and for the twelve
months ended December 31, 1997 options to purchase 26,000 shares were
excluded as the impact of such options was antidilutive.
Recent Accounting Pronouncement
-------------------------------
Vinings adopted Statements of Financial Accounting Standards ("SFAS")
No. 130, "Reporting of Comprehensive Income," during 1998, which
establishes a standard for reporting and display of comprehensive
income and its components. Comprehensive income is the total of net
income and all other nonowner changes in shareholders' equity. As of
December 31, 1998, Vinings had no items of other comprehensive income.
Vinings also adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," during 1998, which establishes new
standards for disclosure of segment information on the so called
"management approach." The management approach is based on the way that
the chief operating decision maker organizes segments within a company
for making operating decisions and assessing performance. Since
Vinings' real estate portfolio has similar economic characteristics,
customers, and products and services, Vinings evaluates the operating
performance of its real estate portfolio as one reportable segment, on
the same basis of presentation for internal and external reporting.
Therefore, no additional segment information is presented herein.
Reclassification
----------------
Certain 1997 and 1996 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 have been capitalized.
Acquisition Transaction
-----------------------
Vinings has entered into 17 separate contracts to purchase 13
multifamily communities totaling 2,032 units located in various markets
in Mississippi (the "Portfolio"). The aggregate purchase price of the
Portfolio is $94,300,000, consisting of cash and the assumption of
existing debt (the "Acquisition Transaction"). Five of the communities,
totaling 976 units, will be purchased through a joint venture structure
between the Operating Partnership and a private investor, and the
remaining eight communities, totaling 1,056 units, will be purchased by
subsidiaries of the Operating Partnership. For more information
regarding the Acquisition Transaction, see Note 10 to Vinings December
31, 1998 Consolidated Financial Statements.
NOTE 4 - REAL ESTATE INVESTMENTS
- --------------------------------
Hawthorne Note
--------------
The Trust acquired the Hawthorne Research and Development Complex
("Hawthorne") in 1992 through foreclosure of its mortgage note. The
Trust's investment in the property was written down from 1992 through
1994 to $4,605,702 to reflect its anticipated net realizable value. On
March 30, 1995, the Trust sold Hawthorne for $5,095,000 of which
$3,500,000 was paid at closing. The balance of $1,595,000 (the
"Hawthorne Note") was payable pursuant to a nonrecourse purchase money
note and was subordinate to first mortgage liens totaling $10,360,000.
In connection with the sale of Hawthorne, the Trust reported a gain of
$152,825. In connection with the liquidation of assets, the Trust
entered into an agreement with the first mortgage lien holder to sell
the Hawthorne Note for $700,000. At December 31, 1995, the Trust
established a valuation allowance of $895,000 to reflect its net
realizable value of $700,000. On January 3, 1996, the Trust closed on
the sale of the Hawthorne Note and recorded commissions and fees for a
loss on the sale of $26,800.
NOTE 5 - NOTES PAYABLE
- ---------------------
Mortgage Notes Payable
----------------------
At December 31, 1998, Vinings had the following mortgage notes payable:
1) 9.04% mortgage note payable in the original principal amount
of $7,392,000, which is secured by Thicket and which matures on July
1, 2003. Principal and interest are payable in monthly installments of
$59,691.
2) 7.5% mortgage note payable which was assumed on December 19,
1997 with a principal balance of $6,464,898, which is secured by
Windrush and which matures on July 1, 2024. Principal and interest are
payable in monthly installments of $47,457.
At December 31, 1998, the total outstanding principal for both notes
was $13,640,065. Scheduled maturities of the mortgage notes payable as
of December 31, 1998 are as follows:
1999 $ 156,664
2000 169,860
2001 184,179
2002 199,716
2003 7,103,494
Thereafter 5,826,152
------------
Total $13,640,065
============
Line of Credit
-------------
On June 28, 1998 Vinings renewed its line of credit in the amount of
$2,000,000 for six months, which expired on December 28, 1998. Vinings
did not renew the line of credit at that time and the bank informally
extended the due date to February 4, 1999 with interest continuing to
be paid monthly until Vinings secured alternate financing. On February
4, 1999 one of the independent Trustees purchased the line of credit
from the bank and Vinings is now paying interest to the Trustee monthly
at the annual rate of 8.50%. The Trustee has agreed that he will not
demand payment on the line of credit prior to January 1, 2000, unless
Vinings obtains alternative finanacing or unless the Trust sells
Peachtree, which secures the note. Vinings has agreed that is will use
its best efforts to obtain a new line of credit or alternative
financing as soon as possible, which if obtained will be used to repay
the outstanding indebtedness.
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Vinings entered into management agreements with Vinings Properties,
Inc., an affiliate of certain officers and Trustees of Vinings, 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.
A total of $188,032, $93,235 and $44,459 in management fees and
$27,360, $15,240 and $7,620 in data processing fees were incurred by
Vinings during 1998, 1997 and 1996, respectively. On January 1, 1999,
Vinings entered into new management agreements with VIP Management,
LLC, also an affiliate of certain officers and Trustees of Vinings, to
provide property management services for Thicket, Windrush and
Peachtree on substantially the same terms as the previous agreements.
In addition, as a commitment to the rebuilding of Vinings, prior to
1998 The Vinings Group, Inc., the parent corporation of Vinings
Properties, Inc. (collectively, "The Vinings Group"), provided numerous
services at no cost to Vinings relating to administration, acquisition,
and capital and asset advisory services. Certain direct costs paid on
Vinings' behalf were reimbursed to The Vinings Group and beginning
January 1, 1998, The Vinings Group charged Vinings for 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 $45,000, $45,000 and
$15,000 was paid for 1998, 1997 and 1996, 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
$105,000 has been incurred for the year ended December 31, 1998 to The
Vinings Group for the reimbursement of overhead expenses, which
includes salaries and benefits for other employees hired by The Vinings
Group for the benefit of the Trust. The officers of the Trust have not
received compensation from Vinings for their services during the three
year period ended December 31, 1998 except for the Restricted Stock, as
hereinafter defined, which was awarded on July 1, 1998. (See Note 13.)
On February 4, 1999 one of the independent Trustees purchased the
Trust's line of credit, which expired on December 28, 1998 and Vinings
is now paying interest to the Trustee monthly at the annual rate of
8.50%. (See Note 5.)
On December 19, 1997, the Trust acquired Windrush from Windrush
Partners, Ltd. (the "Partnership"), a Georgia limited partnership,
whose general partner was Hallmark Group Services Corp ("Hallmark"). At
the time of the transaction, Hallmark was an affiliate of the officers
and certain trustees of the Trust. In connection with the acquisition
of Windrush, an advisor's fee of $75,550 was paid by the Partnership to
MFI Realty, Inc.("MFI"), a wholly owned subsidiary of The Vinings
Group, Inc.
In connection with the acquisition of Thicket on June 28, 1996, a
broker's commission of $150,000 was paid by the seller of the property
to MFI.
In addition, the Trust paid a total of $21,000 during 1997 to
Northshore Communications, Inc., a company affiliated with one of the
Trustees, for the design and production of Vinings' 1996 annual report.
NOTE 7 - ADVISORY AGREEMENT
- ---------------------------
Prior to the consummation of the Tender Offer, the Trust had engaged
the Advisor to provide investment advisory services and act as the
administrator of Trust operations. The agreement with the Advisor,
which was terminated upon consummation of the Tender Offer, provided
for the payment of administrative, asset management and other servicing
fees to the Advisor for services rendered in administering the Trust's
operations. The Advisor earned administrative, asset management,
special services, and mortgage servicing fees aggregating $333,461 for
the year ended December 31, 1996.
NOTE 8 - DISTRIBUTIONS
- ---------------------
There were no distributions declared or distributed for the years ended
December 31, 1998 and 1997. Distributions declared and distributed for
the year ended December 31, 1996 aggregated $18,240,950, or $16.88 per
share. For federal income tax purposes, all distributions received by
shareholders for the year ended December 31, 1996 represented a return
of capital.
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 9 - LEASING ACTIVITY
- -------------------------
The following is a schedule of future minimum rents due under operating
leases that have initial or remaining noncancellable lease terms in
excess of one year as of December 31, 1998, at Peachtree:
1999 $ 541,410
2000 412,217
2001 313,573
2002 120,557
------------
Total $1,387,757
============
One tenant generated 50% of Peachtree's revenues for the period
ended December 31, 1998. The same tenant accounts for 70% of the
future minimum lease payments.
NOTE 10 - Commitments and CONTINGENCIES
- ---------------------------------------
Acquisition Transaction
-----------------------
On June 18, 1998 Vinings entered into 18 separate contracts to purchase
14 multifamily communities totaling 2,184 units located in various
markets in Mississippi. On February 15, 1999, Vinings renegotiated 17
of the contracts to purchase 13 communities totaling 2,032 units (the
"Portfolio") and terminated one of the contracts. The renegotiated
purchase price of the Portfolio is $94,300,000, consisting of cash and
the assumption of existing debt (the "Acquisition Transaction"). Five
of the communities, totaling 976 units, will be purchased through a
joint venture structure between the Operating Partnership and a private
investor and the remaining eight communities, totaling 1,056 units,
will be purchased by subsidiaries of the Operating Partnership.
Vinings has completed its due diligence review and the contracts are
subject only to satisfactory title conditions. Vinings has received
conditional commitments for most of its equity financing and is in the
process of finalizing its equity commitments. If Vinings receives all
approvals and obtains sufficient capital to finance the transaction,
the closing of the Portfolio could take place early in the second
quarter of 1999, however, there can be no assurance that the
Acquisition Transaction will take place.
Miscellaneous
-------------
Vinings is, from time to time, subject to various claims that arise in
the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted
with certainty, management believes that the final outcome of such
matters will not have a material adverse effect on the financial
position or results of operations of Vinings.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------
Vinings paid interest of $1,299,005, $800,388 and $353,032 during 1998,
1997 and 1996, respectively.
In connection with the December 19, 1997 Windrush acquisition, Vinings
assumed a mortgage note payable in the amount of $6,464,898 and related
cash escrow accounts. In addition, 242,546 limited partnership units in
the Operating Partnership were issued during 1997 valued at $1,212,729.
NOTE 12 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------
Based on interest rates and other pertinent information available to
Vinings as of December 31, 1998 and 1997, 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 December 31, 1998
and 1997. Although management is not aware of any factors that would
significantly affect its estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of these financial
statements since December 31, 1998.
NOTE 13 - 1997 STOCK OPTION AND INCENTIVE PLAN
- ----------------------------------------------
Vinings' 1997 Stock Option and Incentive Plan (the "Plan") provides
incentives to officers, employees, Trustees, and other key persons
including the grant of share options, share appreciation rights,
restricted and unrestricted share awards, performance share awards, and
dividend equivalent rights.
Under the Plan, the maximum number of shares that may be reserved and
available for issuance is 10% of the total number of outstanding shares
at any time plus 10% of the number of Units outstanding at any time
that are subject to redemption rights. At December 31, 1998 the total
number of shares available for issuance under the Plan was 134,305.
Options granted under the Plan expire ten years from the date of grant.
During 1998 and 1997, Vinings granted non-qualified share options to
the officers, Trustees and certain key persons. The options vest in
full after one year from the date of the grant. Of the options granted
in 1998, 81,250 have an exercise price of $4.00 per share as compared
to a fair value of $3.63 on the date of the grant and 1,500 have an
exercise price of $4.75 per share, which is equal to the fair value on
the date of grant. The options granted in 1997 have an exercise price
of $5.00 per share as compared to a fair value of $4.56 per share on
the date of the grant.
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 December 31, 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.
The Trust accounts for share options issued under the Plan in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," under which no compensation cost has been recognized since
all options have been granted with an exercise price equal to or above
the fair value of the Trust's shares on the date of grant.
In accordance with SFAS No. 123 "Accounting for Stock-Based
Compensation," the Trust has estimated the fair value of the Options
using a binomial option pricing model with the following weighted
average assumptions:
---------- ----------
1998 1997
---------- ----------
Risk free rate 5.50% 6.12%
Expected life 5 years 5 years
Expected volatility 30% 30%
Expected dividend yield 3.6% 3.6%
Using these assumptions, the estimated fair value of the options
granted were $87,112 and $38,000 for 1998 and 1997, respectively, which
would be included in compensation expense over the life of the vesting
period. Accordingly, had Vinings accounted for the Plan under SFAS 123,
Vinings' pro forma net income (loss) and net income (loss) per share
for the year ended December 31, 1998 and 1997 would have been as
follows:
------------------- ---------------
1998 1997
------------------- ---------------
Net income:
As reported $84,993 ($661,717)
=================== ===============
Pro forma $29,799 ($680,717)
=================== ===============
Net income per share:
As reported $0.08 ($0.61)
=================== ===============
Pro forma $0.03 ($0.63)
=================== ===============
The pro forma annual compensation cost included in determining pro
forma net income may not be representative of future pro forma annual
compensation cost since the estimated fair value of stock options is
included in compensation expense over the vesting period, and
additional stock options may be granted in future years.
A summary of stock option activity under the Plan is presented in the
following table:
-------------------------------------- -----------------------------------
1998 1997
------------ ------------------------- ---------- ------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
Options outstanding,
beginning of year 26,000 $ 5.00 - -
Granted 82,750 $ 4.01 26,000 $5.00
------------ ------------------------- ---------- ------------------------
Options outstanding,
end of year 108,750 $ 4.25 26,000 $5.00
============ ========================= ========== ========================
Options exercisable,
end of year 26,000 $ 5.00 - -
============ ========================= ========== ========================
Weighted average per share
value of options granted $ 1.05 $1.46
========================= ========================
Options outstanding:
Exercise price range $4.00-$5.00 $5.00
========================= ========================
Weighted average
remaining life 9.11 9.5
========================= ========================
NOTE 14 - 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. Because of the
uncertainty of the legal action at December 31, 1997, Vinings expensed
as unrecoverable due diligence, contract negotiation and other
acquisition costs totaling $532,185 which has been shown as Unusual
item, net on the Statement of Operations for 1997.
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, net of
legal fees incurred in connection with the litigation, totaled
$260,910, which has been shown as Unusual item, net on the Statement of
Operations for 1998.
VININGS INVESTMENT PROPERTIES TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
=======================================================
---------------------------
Initial Cost to Trust
---------------------------
Improvements
Capitalized
Building and Subsequent to
Description Encumbrance Land Improvements Acquisition Land
- -------------------------------------------------------------------------- -------------- -------------
Peachtree Business Center $ 2,000,000 $ 400,000 $ 1,300,000 $1,121,835 $ 400,000
The Thicket Apartments 7,262,759 1,070,500 7,590,400 205,098 1,070,500
Windrush Apartments 6,377,306 1,414,000 6,141,000 66,579 1,414,000
--------------------------------------------- -------------- -------------
$15,640,065 $2,884,500 $15,031,400 $1,393,512 $2,884,500
============================================= ============== =============
----------------------------------------------
Gross amounts at which
carried at close of period
----------------------------------------------
Life on
which Date of
Building and Accumulated Depreciation Date Original
Description Improvements Total Depreciation is Computed Acquired Construction
- ----------------------------------------------------------------------------------------------------------------------------------
Peachtree Business Center $ 2,421,835 $ 2,821,835 $ 602,195 5-40 Years 4/90 1984
The Thicket Apartments 7,795,498 8,865,998 868,942 5-40 Years 6/96 1989
Windrush Apartments 6,207,579 7,621,579 193,541 5-40 Years 12/97 1983
----------------------------------------------
$16,424,912 $19,309,412 $1,664,678
==============================================
<FN>
The accompanying notes are an integral part of this schedule.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
NOTES TO SCHEDULE III
December 31, 1998
===================================
(A) The Peachtree investment was acquired through a deed in-lieu of
foreclosure of an original mortgage note investment. In June 1996, the
Trust obtained a $2,000,000 line of credit, which was secured
by Peachtree. At December 31, 1998, $2,000,000 was outstanding on
the line.
(B) The Thicket Apartments was acquired on June 28, 1996 for a purchase
price of $8,650,000. It was financed by a mortgage loan in the original
amount of $7,392,000 and borrowings from the Trust's line of credit,
which is secured by Peachtree.
(C) Windrush Apartments was acquired on December 19, 1997, 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.
(D) Gross capitalized costs of real estate assets are summarized as follows:
---------------------------------------------
1998 1997 1996
---------------------------------------------
Balance at beginning of period $19,162,992 $11,472,454 $ 2,732,057
-------------- -------------- -------------
Additions during period:
Additions - 7,555,000 8,660,900
Improvements 146,420 135,538 79,497
-------------- -------------- -------------
Total additions 146,420 7,690,538 8,740,397
-------------- -------------- -------------
Balance at close of period $19,309,412 $19,162,992 $11,472,454
============== ============== =============
(E) Accumulated depreciation on real estate assets is as follows:
------------- ------------ -------------
1998 1997 1996
------------- ------------ -------------
Balance at beginning of period $1,036,311 $ 613,918 $374,524
------------- -------------- -------------
Additions during period:
Peachtree Business Center 76,979 74,263 76,429
The Thicket Apartments 357,847 348,130 162,965
Windrush Apartments 193,541 - -
------------- ------------ -------------
Total additions 628,367 422,393 239,394
------------- ------------ -------------
Balance at close of period $1,664,678 $1,036,311 $613,918
============= ============ =============
INDEX TO EXHIBITS
=================
Exhibit No. Description
- ----------- -----------
3.1 Second Amended and Restated Declaration of Trust of Vinings (filed herewith).
3.2 Amendment No. 1 to the Second Amended and Restated Declaration of Trust of the Trust
(filed herewith).
3.3 Amendment No. 2 to the Second Amended and Restated Declaration of Trust of the Trust
(filed herewith).
3.4 Amended and Restated Bylaws of the Trust (incorporated by reference to Exhibit 3.2 to
Vinings' Registration Statement on Form S-11, No. 2-94776).
10.1 Amended and Restated Agreement of Limited Partnership of Vinings Investment Properties,
L.P. (incorporated by reference to Exhibit 10.1 to Vinings' Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, No. 0-13693).
10.2 First Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (incorporated by reference to Exhibit 10.2 to the Vinings'
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 0-13693).
10.3 Second Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (incorporated by reference to Exhibit 10.3 to the Vinings'
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, No. 0-13693).
10.4 Third Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (filed herewith).
10.5 Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (filed herewith).
10.6 Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of Vinings
Investment Properties, L.P. (filed herewith)
10.7 Agreement to Contribute, dated April 1, 1997, between Vinings Investment Properties,
L.P. and Windrush Partners, Ltd. (incorporated by reference to Exhibit 10.1 to the
Trust's Current Report on Form 8-K filed December 29, 1997, No. 0-13693).
10.8 Amendment to Agreement to Contribute, dated August 11, 1997, between Vinings Investment
Properties, L.P. and Windrush Partners, Ltd. (incorporated by reference to Exhibit 10.2
to the Trust's Report on Form 8-K filed December 29, 1997, No. 0-13693).
10.9 Second Amendment to Agreement to Contribute, dated October 30, 1997, between Vinings
Investment Properties, L.P. and Windrush Partners, Ltd. (incorporated by reference to
Exhibit 10.3 to the Trust's Report on Form 8-K filed December 29, 1997, No. 0-13693).
10.10 Management Contract dated December 19, 1997 between Vinings Communities, L.P. and
Vinings Properties, Inc. (incorporated by reference to Exhibit 10.10 to Vinings' Annual
Report on Form 10-K for the fiscal year ended December 31 1997, No. 0-13693).
10.11 Management Contract dated January 1, 1999, between Thicket Apartments, L.P. and VIP
Management, LLC (filed herewith).
10.12 Management Contract dated January 1, 1999, between Vinings Communities, L.P. and VIP
Management, LLC (filed herewith).
10.13 Management Contract dated January 1, 1999, between Vinings Investment Properties, L.P.
and VIP Management, LLC (filed herewith).
10.14 Form of Amended and Restated Agreement of Purchase and Sale for The Acquisition
Transition with attached Schedule of Material Differences For All Properties (filed
herewith).
10.15 Commercial Credit Agreement between Hardwick Bank and Trust Company and the Trustees of
the Trust dated June 28, 1997 (incorporated by reference to Exhibit 10.13 to Vinings'
Annual Report on Form 10-K for the fiscal year ended December 31 1997, No. 0-13693).
10.16 Amendment to Commercial Credit Agreement between Hardwick Bank and Trust Company and the
Trustees of the Trust dated July 1, 1998 (filed herewith).
21.1 Subsidiaries of the Trust (filed herewith).
27 Financial Data Schedule (filed herewith).