SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
******************************************
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
******************************************
For the periods ended SEPTEMBER 30, 1999
Commission file number 0-13693
------------------------------
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
-------------------------------------------
(Exact name of registrant as specified in charter)
Massachusetts 13-6850434
------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3111 Paces Mill Road, Suite A-200, Atlanta, GA 30339
- ---------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(770) 984-9500
-------------------
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No___
Shares of Beneficial Interest outstanding at October 22, 1999: 1,100,495
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
INDEX OF FINANCIAL INFORMATION
PART I FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Condensed Consolidated Balance Sheets (unaudited) as of
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations (unaudited)
for the three and nine months ended September 30, 1999 and
September 30, 1998 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II OTHER INFORMATION/SIGNATURE
Item 6 Exhibits and Reports on Form 8-K 20
Signature 21
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
-------------- -------------
1999 1998
-------------- -------------
Real estate assets:
Land $ 8,247,900 $ 2,884,500
Buildings and improvements 55,671,351 15,399,690
Furniture, fixtures & equipment 3,746,176 1,025,222
Less: accumulated depreciation (2,801,133) (1,664,678)
-------------- -------------
Net real estate assets 64,864,294 17,644,734
Investment in unconsolidated Joint Venture 1,614,550 -
Cash and cash equivalents 238,941 158,302
Restricted cash 1,895,568 458,877
Receivables and other assets 362,876 694,998
Deferred financing costs, less accumulated amortization of $112,620 and
$77,258 at September 30, 1999 and December 31, 1998, respectively 132,945 139,064
Deferred leasing costs, less accumulated amortization of $52,835 and
$32,861 at September 30, 1999 and December 31, 1998, respectively 44,439 52,203
-------------- -------------
Total assets $69,153,613 $19,148,178
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $55,153,838 $13,640,065
Line of credit 976,000 2,000,000
Accounts payable and accrued liabilities 1,787,971 546,249
Distributions payable to Preferred Unitholders 232,375 -
Acquisition advances from Joint Venture 363,837 -
-------------- -------------
Total liabilities 58,514,021 16,186,314
-------------- -------------
Minority interests of unitholders in Operating Partnership:
Preferred partnership interests 8,625,621 -
Common partnership interests 363,709 534,892
-------------- -------------
Total minority interests 8,989,330 534,892
Shareholders' equity:
Common shares of beneficial interest, without par or stated value,
25,000,000 authorized, 1,100,499 and 1,100,505 shares issued and
outstanding at September 30, 1999 and December 31, 1998, respectively - -
Additional paid in capital 3,351,079 3,406,103
Accumulated deficit (1,700,817) (979,131)
-------------- -------------
Total shareholders' equity 1,650,262 2,426,972
-------------- -------------
Total liabilities and shareholders' equity $69,153,613 $19,148,178
============== =============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
REVENUES
Rental revenues $ 2,866,225 $ 988,340 $ 6,034,948 $ 2,952,715
Other property revenues 194,898 34,602 340,764 108,952
Other income 4,867 316 23,137 1,945
------------ ----------- ------------ -------------
3,065,990 1,023,258 6,398,849 3,063,612
------------ ----------- ------------ -------------
EXPENSES
Property operating and maintenance 1,203,329 409,629 2,447,411 1,213,273
Depreciation and amortization 562,557 163,482 1,156,428 482,706
Amortization of deferred financing costs 15,036 7,726 35,361 23,177
Interest expense 1,270,653 337,114 2,559,036 998,829
General and administrative 178,140 155,422 439,977 455,133
Unusual item - 476 - (260,910)
------------ ----------- ------------ -------------
3,229,715 1,073,849 6,638,213 2,912,208
------------ ----------- ------------ -------------
Income (loss) before equity in loss of unconsolidated
Joint Venture and minority interests (163,725) (50,591) (239,364) 151,404
Equity in loss of unconsolidated Joint Venture (57,022) - (74,790) -
------------ ----------- ------------ -------------
Income (loss) before minority interests (220,747) (50,591) (314,154) 151,404
Less Minority interests in Operating Partnership:
Preferred partnership interests 336,757 - 566,587 -
Common partnership interests (100,682) (9,136) (159,056) 27,613
------------ ----------- ------------ -------------
Net income (loss) $ (456,822) $ (41,455) $ (721,685) $ 123,791
============ =========== ============ =============
NET INCOME (LOSS) PER SHARE - BASIC $ (0.42) $ (0.04) $ (0.66) $ 0.11
============ =========== ============ =============
NET INCOME (LOSS) PER SHARE - DILUTED $ (0.42) $ (0.04) $ (0.66) $ 0.11
============ =========== ============ =============
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 1,100,499 1,100,508 1,100,504 1,087,348
============ =========== ============ =============
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 1,343,045 1,343,054 1,343,050 1,334,961
============ =========== ============ =============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months
ended September 30,
---------------------------
1999 1998
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (721,685) $ 123,791
----------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,156,428 482,706
Amortization of deferred financing costs 35,361 23,177
Equity in loss of unconsolidated Joint Venture 74,790 -
Minority interests in Operating Partnership:
Preferred partnership interests 566,587 -
Common partnership interests (159,056) 27,613
Distributions to common unitholders (12,127) -
Distributions to preferred unitholders (158,591) -
Noncash compensation expense - 80,000
Changes in assets and liabilities, net of the effect
of real estate assets acquired
Restricted cash (411,220) (76,951)
Receivables and other assets (194,470) (43,293)
Capitalized leasing costs (12,213) (24,821)
Accounts payable and accrued liabilities 442,603 (96,620)
----------- ----------
Total adjustments 1,328,092 371,811
----------- ----------
Net cash provided by operating activities 606,407 495,602
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate assets (6,066,073) -
Capital expenditures (297,196) (120,779)
Refundable deposits and acquisition costs - (640,463)
Investment in unconsolidated Joint Venture (1,705,100) -
Distributions from Joint Venture 15,760 -
Acquisition advances from Joint Venture 363,837 -
----------- ----------
Net cash used in investing activities (7,688,772) (761,242)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs (29,242) -
Net proceeds (repayments) on line of credit (1,024,000) 281,796
Principal repayments on mortgage notes payable (178,730) (107,274)
Purchase of retired shares (3) (17)
Proceeds from issuance of preferred partnership interests 8,450,000 -
Distributions to shareholders (55,021) -
----------- ----------
Net cash provided by financing activities 7,163,004 174,505
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 80,639 (91,135)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 158,302 164,843
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 238,941 $ 73,708
=========== ==========
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
VININGS INVESTMENT PROPERTIES TRUST
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 1999
NOTE 1 - BUSINESS AND ORGANIZATION
Vinings Investment Properties Trust ("Vinings" or the "Trust") was
organized on December 7, 1984 as a mortgage real estate investment
trust ("REIT") whose original plan was to liquidate within
approximately ten years. On February 28, 1996, Vinings Investment
Properties, Inc. completed a tender offer to acquire control of the
Trust in order to rebuild Vinings assets by expanding into the
multifamily real estate markets through the acquisition of garden style
apartment communities which are leased to middle-income residents.
Current 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.
Currently Vinings conducts all of its operations through Vinings
Investment Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership. As of September 30, 1999, 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").
On April 29, 1999, the Operating Partnership offered, in a private
transaction pursuant to a Securities Purchase Agreement (the "Purchase
Agreement"), Series A Convertible Preferred Partnership interests (the
"Preferred Units"), the proceeds from which were used to acquire
thirteen multifamily communities (collectively, the "Portfolio
Properties") from seventeen limited partnerships and limited liability
companies. Eight of the Portfolio Properties were purchased through
subsidiary partnerships of the Operating Partnership. The remaining
Portfolio Properties were purchased through a joint venture structure.
(See Notes 3 and 4.) As of September 30, 1999, a total of 1,988,235
Preferred Units had been issued for an aggregate purchase price of
$8,450,000. (See Note 5.)
Vinings currently owns, through wholly owned subsidiaries, ten
apartment communities totaling 1,520 units and a 75,000 square foot,
single story business park. In addition, Vinings holds a 20% interest
in and is the general partner of an unconsolidated joint venture, which
owns through subsidiary partnerships five additional apartment
communities totaling 968 units. (See Note 4.) At September 30, 1999,
the average occupancy of Vinings' portfolio, including the communities
held by the unconsolidated joint venture, was 94 %.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments necessary (consisting only of normal
recurring adjustments) for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1999
are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
The accompanying condensed consolidated financial statements of Vinings
include the consolidated accounts of the Trust and its subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation. Vinings accounts for its investment in the
unconsolidated joint venture using the equity method of accounting. The
term "Vinings" or "Trust" hereinafter refers to Vinings Investment
Properties Trust and its subsidiaries, including the Operating
Partnership.
The minority interests of the common unitholders in the Operating
Partnership (the "Common Units") reflected on the accompanying balance
sheets are calculated based on the common unitholders' minority
interest ownership percentage (18.06% as of September 30, 1999)
multiplied by the Operating Partnership's net assets. The minority
interests of the preferred unitholders on the accompanying balance
sheet represent cash contributed in exchange for those units and the
accrued liquidation preference of $0.21 per Preferred Unit ($175,621 at
September 30, 1999). The minority interests of the common unitholders
in the income or loss of the Operating Partnership on the accompanying
statements of operations is calculated based on the weighted average
minority interest ownership percentage (approximately 18% for all
periods presented) multiplied by income (loss) before minority
interests after subtracting income allocated to the preferred
partnership interests. The minority interests of the preferred
unitholders on the statements of operations represents the accrued
preferred 11% return on the Preferred Units ($232,375 and $390,966 for
the three and nine month periods ended September 30, 1999,
respectively) and the accrued pro rata liquidation preference of $0.21
per Preferred Unit ($104,382 and $175,621 for the three and nine month
periods ended September 30, 1999, respectively.) (See Note 5.)
These financial statements should be read in conjunction with Vinings'
audited consolidated financial statements and footnotes thereto
included in Vinings' Annual Report on Form 10-K for the year ended
December 31, 1998.
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:
For the three months For the nine months
ended September 30, ended September 30,
--------------------------- -------------------------
1999 1998 1999 1998
--------------------------- -------------------------
Net income (loss) - basic $(456,822) $(41,455) $(721,685) $123,791
Minority interests in Operating Partnership:
Preferred partnership interests - - - -
Common partnership interests (100,682) (9,136) (159,056) 27,613
-------------------------- -------------------------
Total minority interest (100,682) (9,136) (159,056) 27,613
-------------------------- -------------------------
Net income (loss) - diluted $(557,504) $(50,591) $(880,741) $151,404
========================== =========================
Weighted average shares - basic 1,100,499 1,100,508 1,100,504 1,087,348
Dilutive Securities:
Weighted average Common Units 242,546 242,546 242,546 242,546
Weighted average Preferred Units - - - -
Share options - - - 5,067
========================== =========================
Weighted average shares - diluted 1,343,045 1,343,054 1,343,050 1,334,961
========================== =========================
Both common and preferred units in the Operating Partnership held by
the minority unitholders are redeemable for shares of beneficial
interest of the Trust ("Shares") on a one-for-one basis, or for cash,
at the option of the Trust. For the three months and the nine months
ended September 30, 1999 options to purchase 107,750 shares were
excluded and for the three months and the nine months ended September
30, 1998 options to purchase 108,750 shares were excluded as the impact
of such options was antidilutive. For the three months and the nine
months ended September 30, 1999 the Preferred Units totaling 1,988,235
were also excluded as the impact of such units was antidilutive.
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 condensed consolidated financial statements.
Reclassifications
-----------------
Certain 1998 financial statement amounts have been reclassified to
conform with the current year presentation.
NOTE 3 - ACQUISITION
On May 1, 1999, Vinings, through its subsidiaries, completed the
acquisition of the Portfolio Properties from seventeen limited
partnerships and limited liability companies. Eight of the Portfolio
Properties (the "Vinings Properties") were purchased through subsidiary
partnerships of the Operating Partnership. The remaining Portfolio
Properties (the "Joint Venture Properties") were purchased through a
joint venture structure. (See Note 4.)
The Vinings Properties, totaling 1,064 units, were purchased by eight
individual partnerships in each of which Vinings Holdings, Inc., a
wholly owned subsidiary of the Trust, owns a .1% general partnership
interest and the Operating Partnership owns a 99.9% limited partnership
interest. The aggregate purchase price for the Vinings Properties was
$47,665,396 (excluding closing costs), which included the assumption of
debt of approximately $41,693,000 and the balance being paid in cash,
which was funded by the issuance of the Preferred Units. A total of
approximately $749,200 in escrows held by the mortgagees was also
purchased.
NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
On May 1, 1999, Vinings also purchased, through a joint venture
structure, five apartment communities, totaling 968 units (the "Joint
Venture Properties"). The Joint Venture Properties were purchased by
nine individual partnerships in each of which Vinings Holdings, Inc., a
wholly owned subsidiary of the Trust, owns a .1% general partnership
interest and Vinings/CMS Master Partnership, L.P. (collectively, the
"Joint Venture"), a Delaware limited partnership, owns a 99.9% limited
partnership interest. The Operating Partnership has a .1% general
partner interest and a 19.98% limited partner interest in the Joint
Venture, for which it paid $1,705,100. This investment was funded by
the issuance of the Preferred Units. The remaining limited partnership
interests in the Joint Venture are held by an unaffiliated third party.
The Joint Venture was formed on March 22, 1999, primarily to acquire
the limited partner interest in limited partnerships that acquire,
operate, manage, hold and sell certain real property, specifically the
Joint Venture Properties. The aggregate purchase price paid by the
property partnerships for the Joint Venture Properties was $46,634,603
(excluding closing costs), which included the assumption of
approximately $39,265,000 of debt and the balance being paid in cash. A
total of approximately $716,400 in escrows held by the mortgagees was
also purchased.
Vinings accounts for its investment in the Joint Venture using the
equity method of accounting. The following is a summary of the results
of operations of the Joint Venture and Vinings' share of the equity in
the loss from the Joint Venture for the three month period from July 1,
1999 to September 30, 1999 and the five month period from May 1, 1999
to September 30, 1999:
For the three For the five
months ended months ended
September 30, September 30,
1999 1999
------------------- ----------------
Revenues $1,753,513 $ 2,944,209
Expenses:
Property operating and maintenance 799,583 1,254,519
Depreciation and amortization 373,220 620,742
Interest expense 865,818 1,442,895
------------------ -----------------
Total Expenses 2,038,621 3,318,156
------------------ -----------------
Net loss (285,108) (373,947)
Vinings' equity percentage 20% 20%
------------------ -----------------
Vinings' equity in loss of unconsolidated Joint Venture $ (57,022) $ (74,790)
================== =================
Distributions received by Vinings from Joint Venture $ 15,760 $ 15,760
================== =================
Cash flows provided by operating activities $ 313,975
=================
Cash flows used in investing activities $(8,567,210)
=================
Cash flows provided by financing activities $ 8,342,098
=================
The following summarizes the balance sheet of the Joint Venture as of
September 30, 1999:
Real estates assets, net of accumulated depreciation $46,542,732
Cash and other assets 1,898,991
-----------------
Total assets $48,441,723
=================
Mortgage notes payable $39,185,580
Other liabilities 1,183,790
-----------------
Total liabilities 40,369,370
-----------------
Capital - Vinings 1,614,550
Capital - Other 6,457,802
-----------------
Total capital 8,072,352
-----------------
Total liabilities and capital $48,441,723
=================
Mortgage notes payable held by the Joint Venture are non-recourse fixed
rate notes secured by the individual properties. All of the notes
except one are insured by the U.S. Department of Housing and Urban
Development ("HUD") and therefore distributions from the properties are
subject to "surplus cash" as defined by HUD. The maturity dates of the
notes payable range from June 2007 to November 2037 and interest rates
range from 8.00% to 8.75%.
NOTE 5 - SHAREHOLDERS' EQUITY AND PREFERRED PARTNERSHIP INTERESTS
On April 29, 1999, the Operating Partnership offered in a private
transaction Preferred Units. The holders of Preferred Units are
entitled to receive cumulative preferential cash distributions at the
per annum rate of $0.4675 per Preferred Unit. Upon the occurrence of
certain triggering events, the holders of Preferred Units are entitled
to receive, in addition to an amount equal to any accumulated and
unpaid distributions on such holder's Preferred Units, a liquidation
preference of $4.46 per Preferred Unit, or, if any such triggering
event occurs prior to one year from the date of issuance $4.25 per
Preferred Unit.
Under certain circumstances, the holders of Preferred Units may convert
any part or all of such Preferred Units into Common Units, Common
Shares, or shares of preferred interests of Vinings ("Preferred
Shares"). In lieu of converting Preferred Units into Common Shares, the
Operating Partnership, in its sole discretion, may satisfy its
conversion obligations through certain cash payments, as further set
forth in the partnership agreement of the Operating Partnership.
Generally, the holders of Preferred Units do not have the right to vote
on any matter on which any general or limited partner of the Operating
Partnership may vote. The holders of Preferred Units do, however, have
the right to vote as a separate class of Partnership Interests on
certain transactions including, without limitation, certain
authorizations and issuances of preferred units of Partnership
Interests designated as ranking senior to the Preferred Units, certain
amendments to the Partnership Agreement, and certain sales or other
dispositions of assets of the Operating Partnership, certain mergers or
consolidations of the Operating Partnership, and transactions which
result in the liquidation of the Partnership.
As of September 30, 1999, a total of 1,988,235 Preferred Units had been
issued for an aggregate purchase price of $8,450,000. The Operating
Partnership used the proceeds of such sales of Preferred Units to pay
the cash consideration for the Operating Partnership's interests in the
property partnerships that acquired the Vinings Properties, and its
interest in the Joint Venture. (See Notes 3 and 4.)
At the annual meeting of shareholders held on June 29, 1999, Vinings'
shareholders approved proposals to amend the Trust's Declaration of
Trust to decrease the total number of common shares of beneficial
interest authorized from an unlimited amount to 25,000,000 and to
authorize a new class of 7,050,000 preferred shares of beneficial
interest which, upon the affirmative vote of two-thirds of the Board of
Trustees, may be issued in such amounts, in one or more series, and
with such designations, preferences, limitations and relative rights
for each series as the Board of Trustees shall determine.
NOTE 6 - NOTES PAYABLE
Mortgage Notes Payable
----------------------
Mortgage notes payable were secured by the following apartment
communities at September 30, 1999 and December 31, 1998, as follows:
Fixed Interest
Rate as of Principal Balance as of
Maturity 9/30/99 9/30/99 12/31/98
------------ ----------------- ------------------ ----------------
The Thicket 07/01/2003 9.04 % $ 7,216,585 $ 7,262,759
Windrush 07/01/2024 7.50 % 6,307,177 6,377,306
Cottonwood 10/01/2036 8.875% 4,687,989 -
Delta Bluff 08/01/2036 9.25 % 6,208,578 -
Foxgate I 06/01/2037 8.50 % 6,604,571 -
Hampton House 08/01/2037 8.50 % 5,173,990 -
Heritage Place 10/01/2036 8.75 % 3,144,710 -
Northwoods 06/01/2034 8.75 % 4,487,885 -
River Pointe 01/01/2037 8.625% 5,986,952 -
Trace Ridge 07/01/2036 8.50 % 5,335,401 -
------------------ ----------------
Total $55,153,838 $13,640,065
================== ================
All of the notes except The Thicket are insured by HUD and therefore
distributions from the properties are subject to "surplus cash" as
defined by HUD.
Scheduled maturities of the mortgage notes payable as of September 30,
1999 are as follows:
1999 $ 78,915
2000 332,715
2001 361,792
2002 393,425
2003 7,314,761
Thereafter 46,672,230
-------------
Total $55,153,838
=============
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 and on February 4, 1999 one of the
independent Trustees purchased the line of credit from the bank and
Vinings paid interest to the Trustee monthly at the annual rate of
8.50% from such date through April 27, 1999, at which time Vinings
obtained a new line of credit in the amount of $2,000,000 from a
financial institution. The independent Trustee who purchased the line
of credit was repaid in full on April 27, 1999. The interest rate on
the line of credit is one percent over prime as posted in The Wall
Street Journal, which was 9.25% at September 30, 1999. The principal
balance of the line of credit as of September 30, 1999 was $976,000 and
the maturity date is April 27, 2000.
NOTE 7 - RELATED PARTY TRANSACTIONS
On January 1, 1999, Vinings entered into management agreements with VIP
Management, LLC ("VIP"), an affiliate of the officers, who are also
Trustees of Vinings, to provide property management services for a fee
equal to varying percentages ranging from three and one half to six
percent of gross revenues, plus a fee for data processing. Prior to
January 1, 1999, Vinings had entered into management agreements with
Vinings Properties, Inc., also an affiliate of the officers of Vinings,
to provide property management services on substantially the same terms
as the current 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 with VIP,
"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. Beginning January 1, 1998 the Vinings Group has
charged Vinings for certain overhead charges. Beginning August 1, 1999,
the Trust has also paid for its own rent, administrative and other
overhead charges as well as salaries for the officers and other
employees providing services to Vinings.
The following table reflects payments made to The Vinings Group:
Three months Nine months
ended September 30, ended September 30,
1999 1998 1999 1998
-------------- ------------- ---------------- -------------
Vinings
Management fees $126,036 $61,449 $281,497 $161,656
Data processing fees 14,288 6,840 36,480 20,520
Overhead reimbursements 17,750 44,250 124,250 96,750
============== ============= ================ =============
Total $158,074 $112,539 $442,227 $278,926
============== ============= ================ =============
Joint Venture
Management fees $77,400 - $126,036 -
Data processing fees 14,520 - 24,200 -
============== ============= ================ =============
Total $91,920 - $150,236 -
============== ============= ================ =============
On February 4, 1999 one of the independent Trustees purchased the
Trust's line of credit, which expired on December 28, 1998 and Vinings
paid interest to the Trustee monthly at the annual rate of 8.50%
through April 27, 1999, at which time the Trustee was repaid in full.
For more information regarding the line of credit see Note 6.
In connection with the acquisition of the Portfolio Properties, MFI
Realty, Inc., an affiliate of the officers, received fees totaling
$400,276 of which $167,103 was paid by the Operating Partnership and
$233,173 was paid by the Joint Venture.
NOTE 8 - DISTRIBUTIONS
On August 6, 1999, Vinings declared a dividend of five cents per share
which was paid September 1, 1999 to shareholders of record on August
16, 1999. Vinings intends to continue to pay distributions to
shareholders in amounts at least sufficient to enable the Trust to
qualify as a REIT. (See Note 2.)
NOTE 9 - CONTINGENCIES
Vinings is, from time to time, subject to various claims that arise in
the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted
with certainty, management believes that the final outcome of such
matters will not have a material adverse effect on the financial
position or results of operations of Vinings.
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Vinings paid interest of $2,453,449 and $998,829 for the nine months
ended September 30, 1999 and 1998, respectively. In connection with the
acquisition of the Vinings Properties, Vinings assumed mortgage
indebtedness totaling $41,692,503.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
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Vinings Investment Properties Trust ("Vinings" or the "Trust") was organized on
December 7, 1984 as a mortgage real estate investment trust ("REIT") whose
original plan was to liquidate within approximately ten years. On February 28,
1996, Vinings Investment Properties, Inc. completed a tender offer to acquire
control of the Trust 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. Current
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.
Currently Vinings conducts all of its operations through Vinings Investment
Properties, L.P. (the "Operating Partnership"). As of September 30, 1999, 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").
On April 29, 1999, the Operating Partnership offered, in a private transaction
pursuant to a Securities Purchase Agreement (the "Purchase Agreement"), Series A
Preferred Partnership interests (the "Preferred Units"). See Note 5 to Vinings'
September 30, 1999 Condensed Consolidated Financial Statements. As of September
30, 1999, a total of 1,988,235 Preferred Units had been issued for an aggregate
purchase price of $8,450,000, the proceeds from which were used to acquire
thirteen multifamily communities (collectively, the "Portfolio Properties") from
seventeen limited partnerships and limited liability companies. Eight of the
Portfolio Properties (the "Vinings Properties") were purchased through
subsidiary partnerships of the Operating Partnership. The remaining Portfolio
Properties (the "Joint Venture Properties") were purchased through a joint
venture in which the Operating Partnership has a 20% limited partner interest
and is the general partner (the "Joint Venture"). See Notes 3 and 4 to Vinings'
September 30, 1999 Condensed Consolidated Financial Statements.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying condensed
consolidated financial statements of Vinings and the notes thereto.
Results of Operations
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Rental and other property revenues increased $2,038,181 or 199%, from $1,022,942
for the three months ended September 30, 1998 to $3,061,123 for the same period
in 1999, and $3,314,045 or 108%, from $3,061,667 for the nine months ended
September 30, 1998 to $6,375,712 for the same period in 1999. This increase is
due primarily to the revenues generated in connection with the Trust's ownership
of the Vinings Properties for the five months ended September 30, 1999, which
were not in Vinings' portfolio during 1998. There were slight increases to
Windrush and Thicket's rental and other property revenues for the three and nine
months ended September 30, 1999.
Other income increased $4,551 from $316 for the three months ended September 30,
1998 to $4,867 for the same period of 1999, and $21,192 from $1,945 for the nine
months ended September 30, 1998 to $23,137 for the same period in 1999. The
increase for the three months ended September 30, 1999 was due to interest
earned mainly on security deposit escrow accounts. The increase for the nine
months ended September 30, 1999 was due to interest earned on earnest money
deposits held in escrow in connection with the acquisition of the Portfolio
Properties, and security deposit escrow accounts.
Property operating and maintenance expense increased by $793,700, or 194%, from
$409,629 for the three months ended September 30, 1998, to $1,203,329 for the
same period in 1999, and $1,234,138, or 102%, from $1,213,273 for the nine
months ended September 30, 1998 to $2,447,411 for the same period in 1999. Of
this increase, $1,267,041 was due to expenses generated in connection with the
Trusts' ownership of the Vinings Properties for the five months ended September
30, 1999, which were not in Vinings' portfolio during 1998. This increase was
offset by a decrease in operating expenses of $15,782 for the three months and
$32,904 for the nine months ended September 30, 1999, due primarily to savings
in Thicket's cable TV and salary and benefits incurred in 1998.
Depreciation and amortization increased by $399,075 or 244% from $163,482 for
the three months ended September 30, 1998 to $562,557 for the same period in
1999, and $673,722 or 140%, from $482,706 for the nine months ended September
30, 1998 to $1,156,428 for the same period in 1999. This increase is due
primarily to depreciation generated in connection with the Trusts' ownership of
the Vinings Properties for the five months ended September 30, 1999, which were
not in Vinings' portfolio during 1998. There was a slight increase in Windrush
and Thicket's depreciation due to additional capital expenditures.
Amortization of deferred financing costs increased by $7,310 or 95% from $7,726
for the three months ended September 30, 1998 to $15,036 for the same period in
1999, and $12,184 or 53% from $23,177 for the nine months ended September 30,
1998 to $35,361 for the same period in 1999, due to costs incurred in connection
with the refinancing of the line of credit.
Interest expense increased $933,539, or 277%, from $337,114 for the three months
ended September 30, 1998 to $1,270,653 for the same period in 1999, and
$1,560,207, or 156%, from $998,829 for the nine months ended September 30, 1998
to $2,559,036, for the same period in 1999, due primarily to the mortgage
interest generated in connection with the Trusts' ownership of the Vinings
Properties for the five months ended September 30, 1999, which were not in the
Vinings' portfolio during 1998. In addition, interest on Vinings' line of credit
decreased slightly due to the reduced balance on the line of credit. Windrush
and Thicket had slight decreases in interest expense due to mortgage
amortization.
General and administrative expense increased $22,718 or 15%, from $155,422 for
the three months ended September 30, 1998 to $178,140 for the same period in
1999, and decreased $15,156, or 3% from $455,133 for the nine months ended
September 30, 1998 to $439,977 for the same period in 1999. For the three months
ended September 30, 1999, this increase consists of: (1) compensation expense
relating to the direct payment of Trust associates totaling $69,570; and (2)
rent expense totaling $5,000. This increase is offset by the following
decreases: (1) professional fees totaling $14,450; (2) corporate communication
and investor relations costs totaling $15,900; (3) overhead reimbursements
totaling $19,000 as these expenses were eliminated when the Trust began paying
direct associate salaries; and (4) abandoned projects totaling $4,100. For the
nine months ended September 30, 1999, the decrease consists of: (1) $10,430 in
compensation expense consisting of $69,570 relating to the direct payment of
Trust associates less $80,000 in Restricted Stock awarded on July 1, 1998; (2)
corporate communications and investor relations costs totaling $32,300; (3)
travel expense totaling $9,200; and (4) professional fees totaling $6,200; This
decrease is offset by the following increases: (1) overhead reimbursements
totaling $35,000; (2) rent expense totaling $5,000 and (3) trustee expense
totaling $4,660.
The Unusual item of $476 for the three months and ($260,910) for the nine months
ended September 30, 1998, relates to cost incurred, net of settlement proceeds,
in connection with litigation involving an acquisition in which the seller
breached its contract with the Trust. There were no costs incurred in this
regard during the three months or nine months ended September 30, 1999.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities increased $156,664 or 35%, from
$449,743 for the nine months ended September 30, 1998 to $606,407 for the nine
months ended September 30, 1999. This increase is due primarily to the Trust's
ownership of the Vinings Properties for the five months ended September 30,
1999, which were not in the Trust's portfolio during 1998.
Cash flows used in investing activities are made up of the following items: (1)
the cash used to purchase the Vinings Properties during the second quarter of
1999 totaling $6,066,073; (2) the cash investment in the Joint Venture totaling
$1,705,100 during the second quarter of 1999; (3) cash advances from the Joint
Venture relating to the acquisition of the Joint Venture Properties totaling
$363,837; (4) distributions received from the Joint Venture in the third quarter
of $15,760; and (5) cash used for capital expenditures at the properties, which
increased $176,417 or 146%, from $120,779 for the nine months ended September
30, 1998 to $297,196 for the nine months ended September 30, 1999 due primarily
to the ownership of the Vinings Properties for the five months ended September
30, 1999, which were not in Trust's portfolio during 1998.
Cash flows provided by financing activities increased by $6,988,499 for the nine
months ended September 30, 1999 as compared to the same period in 1998. Of this
increase, $8,450,000 was provided by the issuance of the Preferred Units, which
was offset by cash used for: (1) deferred financing costs totaling $29,242
relating to the refinancing of the line of credit during the second quarter of
1999; (2) cash used to make principal repayments on the line of credit totaling
$1,024,000 during the first nine months of 1999 as compared to draw downs on the
line of credit totaling $281,796 for the same period during 1998; (3) cash used
to make principal repayments on mortgage notes payable totaling $178,730 during
the first nine months of 1999 as compared to principal repayments on mortgage
notes payable totaling $107,274 for the same period during 1998; and (4)
distributions to common shareholders totaling $55,021.
The cash held by Vinings at September 30, 1999, plus the cash flow from Vinings'
assets, including the investment in the Joint Venture, is expected to provide
sources of liquidity to allow Vinings to meet all current operating obligations.
Management plans to continue ongoing discussions with capital sources, both
public and private, as well as explore financing alternatives, so as to allow
the Trust to continue to expand and grow its income producing investments.
Year 2000
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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 phrase 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
continuing its assessment of the potential impact Year 2000 will have on its
operations. A compliance program has been implemented, to (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 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 $72,000. 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 a shared cost between the Trust and The Vinings Group. Any
additional costs to upgrade or modify these systems are not expected to be
material.
Vinings is continuing its process of determining whether its other operational
systems are Year 2000 compliant. These systems include administrative systems as
well as mechanical systems. 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 by December 31, 1999. However, Vinings
cannot determine at this time the potential impact on the Trust's financial
condition and results of operations if any of these systems were not compliant.
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
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This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Vinings' actual results could differ materially from those set forth in
the forward-looking statements. Certain factors that might cause such a
difference include the following: the inability of Vinings to identify
properties within existing multifamily property portfolios of entities
affiliated with management which will have a strategic fit with Vinings, the
inability of Vinings to identify unaffiliated properties for acquisition, the
inability of Vinings to continue to acquire properties 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, Mississippi and the surrounding
southeastern states, the national economic climate, the local economic climate
in Georgia, Mississippi and the surrounding southeastern states, the local real
estate conditions and competition in Georgia, Mississippi and the surrounding
southeastern states, and the ability of Vinings to identify and correct all
potential Year 2000 sensitive problems. 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 6 to Vinings' September 30,
1999 Condensed Consolidated Financial Statements. All of Vinings' borrowings are
under fixed rate instruments, except the line of credit, which is at prime plus
1%. As of September 30, 1999 Vinings exposure to market risk has changed due to
the acquisition of the Vinings Properties and the assumption of the related
mortgage indebtedness. However, Vinings has determined that there is no material
market risk exposure to its consolidated financial position, results of
operations or cash flows due to changes in interest rates because of the fixed
rate nature of its long-term debt.
The following table presents principal reductions and related weighted average
interest rates by year of expected maturity for Vinings' debt obligations as of
September 30, 1999 and should be read in conjunction with Vinings' December 31,
1998 SEC form 10-K:
Fair Value
There- September
(In Thousands) 1999 2000 2001 2002 2003 after Total 30, 1999
- ----------------------------------------------------------------------------------------------------------------------
Principal Reductions
In Mortgage Notes $ 79 $333 $362 $393 $7,315 $46,672 $55,154 $55,154
Average Interest Rates 8.63% 8.63% 8.63% 8.63% 8.63% 8.58% 8.63% 8.63%
Line Of Credit $ 976 - - - - - $ 976 $ 976
Interest Rate 9.25% - - - - - 9.25% 9.25%
- ----------------------------------------------------------------------------------------------------------------------
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 - Third Amended and Restated Declaration of Trust of the Trust
effective July 1, 1999 (filed herewith)
27 - Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K, dated April 29, 1999, was filed with the Securities
and Exchange Commission on May 10, 1999, and Amendment No. 1 was filed with the
Securities and Exchange Commission on July 15, 1999, with respect to the
Vinings' issuance of Preferred Partnership Units and the acquisition of the
Portfolio Properties.
SIGNATURE
Pursuant to the requirements of The Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Vinings Investment Properties Trust
By: /s/ Stephanie A. Reed
----------------------------
Stephanie A. Reed
Vice President and Treasurer
Dated: November 15, 1999