<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . to . . . . . . . . .
Commission File Number 0-8003
VINLAND PROPERTY TRUST
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2432628
- --------------------------------------------- --------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3878 Oak Lawn , Suite 300, Dallas, TX 75219
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 522-9910
----------------------------------------------------
(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, No par value 6,960,034
- ------------------------------------------- --------------------------------
(Class) (Outstanding at October 6, 1995)
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements for the period ended August
31, 1995, have not been audited by independent certified public accountants,
but in the opinion of the management of Vinland Property Trust (the "Trust"),
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the Trust's consolidated financial position, consolidated
results of operations, and consolidated cash flows at the dates and for the
periods indicated, have been included.
VINLAND PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
August 31, November 30,
------------ ------------
1995 1994
------------ ------------
Assets (unaudited) (audited)
------
<S> <C> <C>
Real Estate
Held for investment, net of accumulated depreciation
($4,979 in 1995 and $4,141 in 1994) . . . . . . . . . . $ 23,768 $ 18,761
Held for sale, net of accumulated depreciation
($0 in 1995 and $140 in 1994) . . . . . . . . . . . . . 8,225 1,601
-------- --------
31,993 20,362
Less - allowance for estimated losses . . . . . . . . . . . . (241) -
-------- --------
31,752 20,362
Notes and interest receivable
Performing . . . . . . . . . . . . . . . . . . . . . . . . 739 919
Nonperforming, nonaccruing . . . . . . . . . . . . . . . . - 1,739
-------- --------
739 2,658
Less - allowance for estimated losses . . . . . . . . . . . . - (1,802)
-------- --------
739 856
Cash and cash equivalents. . . . . . . . . . . . . . . . . . 95 209
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,434 1,311
-------- --------
$ 34,020 $ 22,738
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities
Notes, debentures and interest payable . . . . . . . . . . . $ 23,555 $ 12,442
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 1,145 1,067
-------- --------
24,700 13,509
Commitments and contingencies . . . . . . . . . . . . . . . .
Shareholders' equity
Shares of beneficial interest, no par value; authorized
shares, unlimited; issued and outstanding
(6,960,034 shares in 1995 and in 1994) . . . . . . . . . . 2,318 2,318
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 43,876 43,876
Accumulated distributions in excess of
accumulated earnings . . . . . . . . . . . . . . . . . . . (36,874) (36,965)
-------- --------
9,320 9,229
-------- --------
$ 34,020 $ 22,738
======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
2
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VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended August 31, Ended August 31,
------------------------ -------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue
Rentals . . . . . . . . . . . . . . . . . . $ 2,072 $ 1,657 $ 5,817 $ 4,652
Interest . . . . . . . . . . . . . . . . . 37 93 97 280
--------- --------- --------- ---------
2,109 1,750 5,914 4,932
Expenses
Property operations . . . . . . . . . . . . 1,483 1,093 4,009 3,149
Interest . . . . . . . . . . . . . . . . . 362 310 948 907
Depreciation . . . . . . . . . . . . . . . 247 234 698 707
Advisory fee to affiliate . . . . . . . . . 41 42 102 75
Advisory fee to prior advisor . . . . . . . - 35 - 75
General and administrative . . . . . . . . . 98 126 256 292
Provision for losses . . . . . . . . . . . (190) - (190) -
--------- --------- --------- ---------
2,041 1,840 5,823 5,205
--------- --------- --------- ---------
Net income (loss) . . . . . . . . . . . . . . $ 68 $ (90) $ 91 $ (273)
========= ========= ========= =========
Earnings per share
Net income (loss) per share . . . . . . . . . $ .01 $ (.01) $ .01 $ (.04)
========= ========= ========= =========
Weighted average shares of
beneficial interest used in
computing earnings per share . . . . . . . 6,960,034 6,960,034 6,960,034 6,803,649
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
<PAGE> 4
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Shares of Distributions
Beneficial Interest in Excess of
---------------------- Paid-in Accumulated Shareholders'
Shares Amount Capital Earnings Equity
-------- -------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 1,
1994 . . . . . . 6,960,034 $ 2,318 $ 43,876 $ (36,965) $ 9,229
Net income . . . . . . . . - - - 91 91
--------- ------- -------- --------- -------
Balance, August 31,
1995 (unaudited) 6,960,034 $ 2,318 $ 43,876 $ (36,874) $ 9,320
========= ======= ======== ========= =======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
4
<PAGE> 5
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended August 31,
---------------------------
1995 1994
------- -------
<S> <C> <C>
Cash Flows from Operating Activities
Rentals collected . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,819 $ 4,553
Interest collected . . . . . . . . . . . . . . . . . . . . . . . . . . 93 226
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (964) (849)
Payments for property operations . . . . . . . . . . . . . . . . . . . (4,082) (3,183)
General and administrative expenses paid . . . . . . . . . . . . . . . (246) (322)
Advisory fee paid to affiliate . . . . . . . . . . . . . . . . . . . . (117) (90)
Advisory fee received from (paid to) prior advisor . . . . . . . . . . 91 (30)
Deferred financing costs paid . . . . . . . . . . . . . . . . . . . . (105) (61)
------- -------
Net cash provided by operating activities . . . . . . . . . . . . . 489 244
Cash Flows from Investing Activities
Collections of notes receivable . . . . . . . . . . . . . . . . . . . . 180 579
Real estate improvements . . . . . . . . . . . . . . . . . . . . . . . (382) (897)
Funding of notes receivable . . . . . . . . . . . . . . . . . . . . . (196) -
Acquisition of real estate . . . . . . . . . . . . . . . . . . . . . . (231) -
------- -------
Net cash (used in) investing activities . . . . . . . . . . . . . . (629) (318)
Cash Flows from Financing Activities
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . 1,370 -
Payments of notes payable . . . . . . . . . . . . . . . . . . . . . . . (1,253) (280)
Exercise of share purchase rights . . . . . . . . . . . . . . . . . . . - 279
Redemption of uncertificated obligations . . . . . . . . . . . . . . . (91) -
------- -------
Net cash provided by (used in) financing activities . . . . . . . . 26 (1)
------- -------
Net (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . (114) (75)
Cash and cash equivalents, beginning of the period . . . . . . . . . . . 209 134
------- -------
Cash and cash equivalents, end of the period . . . . . . . . . . . . . . $ 95 $ 59
======= =======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
5
<PAGE> 6
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended August 31,
------------------------------
1995 1994
-------- -------
<S> <C> <C>
Reconciliation of net income (loss) to net cash provided by
operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91 $ (273)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 820 770
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . (190) -
Change in other assets and liabilities, net of
effects of noncash investing activity
(Increase) in interest receivable . . . . . . . . . . . . . . . . . - (53)
(Increase) in other assets . . . . . . . . . . . . . . . . . . . . . (105) (208)
(Decrease) in other liabilities . . . . . . . . . . . . . . . . . . (72) (30)
(Decrease) increase in interest payable . . . . . . . . . . . . . . (55) 38
-------- -------
Net cash provided by operating activities . . . . . . . . . . . . . . $ 489 $ 244
======== =======
Supplemental schedule of noncash investing and financing
activities:
Changes in assets and liabilities in connection with:
In-substance foreclosure - Polynesia Village
Apartments
Carrying value of real estate . . . . . . . . . . . . . . . . . . . . $ 7,984 $ -
Net carrying value of notes receivable . . . . . . . . . . . . . . . . (1,935) -
Mortgage debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,837) -
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . (37) -
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (100) -
-------- -------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75 $ -
======== =======
Acquisition of real estate
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,496 $ -
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 -
Mortgage debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,363) -
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) -
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (72) -
-------- -------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 118 $ -
======== =======
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
<PAGE> 7
VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Supplemental schedule of noncash investing and financing
activities (continued):
For the Nine Months
Ended August 31,
------------------------------
1995 1994
-------- -------
<S> <C> <C>
Tax-free exchange
Real estate acquired . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,348 $ -
Real estate disposed of . . . . . . . . . . . . . . . . . . . . . . . . . (510) -
Other assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . 65 -
Mortgage debt assumed . . . . . . . . . . . . . . . . . . . . . . . . . . (2,885) -
Other liabilities released . . . . . . . . . . . . . . . . . . . . . . . 20 -
-------- -------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38 $ -
======== =======
Obligation assumed in connection with property exchange . . . . . . . . . . $ - $ 240
Conversion of Convertible Debentures and Obligations . . . . . . . . . . . $ - $ 447
</TABLE>
[This space intentionally left blank.]
The accompanying notes are an integral part of these
Consolidated Financial Statements.
7
<PAGE> 8
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying 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. Operating results for the nine-month period ended August 31, 1995,
are not necessarily indicative of the results that may be expected for the
fiscal year ending November 30, 1995. For further information, refer to the
Consolidated Financial Statements and Notes thereto included in the Trust's
Annual Report on Form 10-K for the fiscal year ended November 30, 1994 (the
"1994 Form 10-K").
Certain 1994 balances have been reclassified to conform to the 1995
presentation.
Earnings per share have been computed based on the weighted average number of
shares of beneficial interest outstanding for the three and nine months ended
August 31, 1995 and 1994.
NOTE 2. NOTES AND INTEREST RECEIVABLE
In August 1995, the Trust and the borrower agreed to a settlement of the $1.9
million note receivable secured by a second lien mortgage on the Polynesia
Village Apartments (the "Property"). The Property, a 448-unit apartment complex
located in Tacoma, Washington, is subject to senior underlying debt in the
amount of $5.8 million. Pursuant to the terms of the agreement, in August 1995,
the Trust paid the borrower $75,000 and gained control of the Property.
Simultaneously, the deed to the Property was placed in escrow to be transferred
to the Trust upon payment of an additional $100,000, due between January 1,
1996, and February 22, 1996. At August 31, 1995, the Trust recorded an
in-substance foreclosure of the Property classified with real estate held for
sale on the Trust's Consolidated Balance Sheet. As the estimated fair value of
the property exceeded the Trust's recorded investment in the mortgage note, a
previously established allowance for estimated loss of $1.0 million was
reversed with a corresponding credit to provision for losses.
NOTE 3. REAL ESTATE
In May 1995, the Trust purchased three apartment complexes: Collegewood,
Florida Towers, and Jefferson Towers, located in Tallahassee, Florida for $2.5
million, subject to an existing nonrecourse wrap mortgage of $2.4 million. The
Trust assumed the existing mortgage loan and paid the remaining purchase price,
along with closing costs, of $118,000 in cash from the general working capital
of the Trust. Concurrently with the execution of the loan assumption, on June
5, 1995, the Trust paid the lender $300,000 in cash reducing the principal
balance by the same amount. The mortgage loan calls for monthly interest
payments calculated at 10% per annum and matures June 1997.
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VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE (Continued)
The Trust purchased the above properties from Investors Florida Capitol Fund
II, Ltd., a Florida limited partnership (the "Seller"). Investors General, Inc.
("IGI"), which owns a 1% general partnership interest in the Seller, is owned
by Investors General Acquisition Corporation ("IGAC"). John A. Doyle, Trustee,
Chief Financial Officer, and Chief Operating Officer of the Trust, is a 62.5%
stockholder of IGAC. Mr. Doyle also serves as Director, President, and Chief
Operating Officer of Tarragon Realty Advisors, Inc. ("Tarragon"), the Trust's
advisor since March 1, 1994. Tarragon is owned by Lucy N. Friedman, William S.
Friedman's wife, and Mr. Doyle. Mr. Friedman serves as President, Chief
Executive Officer, and Trustee of the Trust and Director and Chief Executive
Officer of Tarragon. The Friedman and Doyle families together own approximately
23% of the outstanding shares of the Trust. The purchase price of the
properties was based on their fair market values, and the entire transaction
was approved by a majority of the limited partners of the Seller as well as the
unaffiliated Trustees of the Trust. IGI and Messrs. Friedman and Doyle
abstained in the votes.
As previously disclosed in the Trust's 1994 Form 10-K, in August 1994, the
Trust entered into a tax-free exchange contract involving Westover Valley
Apartments ("Westover") in Fort Worth, Texas and the Riverside Apartments
("Riverside") in Austin, Texas. On August 18, 1995, the exchange was completed
whereby the Riverside title was transferred to the Trust and accordingly the
Westover title was relinquished by the Trust. In connection with the exchange
closing, the Trust assumed the $2.9 million mortgage note secured by a first
lien on Riverside. The note bears interest at 8.5% per annum, calls for monthly
principal and interest payments of $24,157, and matures September 1999. Also
at the closing, the notes payable assumed by the Trust upon entering into the
exchange contract of $240,000 had been paid in full and the collateral pledged,
one of the Trust's mortgage notes in the principal amount of $600,000, was
released. The Trust recognized no gain or loss on the exchange.
During the third quarter of 1995, the Trust determined that the availability of
mortgage financing and the appreciation in retail rents in Houston, Texas, made
holding the Briarwest Shopping Center ("Briarwest") in the best interest of the
Trust and, accordingly, the Trust reclassified Briarwest from real estate held
for sale to real estate held for investment.
NOTE 4. ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS FOR LOSSES
Activity in the allowance for estimated losses during the nine months ended
August 31, 1995, was as follows:
<TABLE>
<S> <C>
Balance December 1, 1994 . . . . . $ 1,802
Amounts reversed . . . . . . . . . . . . (1,561)
-------
Balance August 31, 1995 . . . . . . . . $ 241
=======
</TABLE>
9
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VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS FOR LOSSES (Continued)
In August 1995, the Trust determined a permanent impairment in value existed on
the Villas at Central Park, a 288-unit apartment complex located in Orlando,
Florida. A provision for loss of $1.4 million was recorded in the third fiscal
quarter of 1995 by a charge against current earnings reducing the carrying
value of the property to its then estimated fair value. The property
collateralizes mortgage debt totaling $5.4 million, which is not currently in
default. The Trust is negotiating with the lender on the second lien totaling
$3.0 million to obtain a modification of the mortgage debt, as the Trust
believes further investment in the property cannot be justified without
substantial modification of the debt. If the Trust is unsuccessful in these
negotiations, the Trust intends to dispose of the property by sale or
conveyance to either the first or second mortgage holder or to some third party
in any event for nominal consideration. Regardless of the manner of
disposition, the Trust anticipates that no additional loss would be incurred.
After further review of the Trust's assets as of August 31, 1995, the Trust
concluded that the remaining $802,000 balance in the allowance for estimated
losses was no longer required against notes receivable. The Trust ascertained
that a $241,000 allowance against the carrying value of the Cochonour Horse
Farm and residence, acquired in September 1994 as partial settlement on one of
the Trust's mortgage notes receivable, was necessary to reduce its carrying
value to its estimated fair value. As a result, a reversal of $561,000 of the
allowance for estimated losses was recorded in August 1995 as a credit to
current earnings.
NOTE 5. NOTES, DEBENTURES AND INTEREST PAYABLE
In January 1995, the Trust completed the refinancing of the mortgage debt
secured by the Southern Elms Apartments located in Tulsa, Oklahoma. The Trust
received net refinancing proceeds of $869,000 after the payoff of the existing
$451,000 mortgage loan that bore interest at 12% per annum and was scheduled to
mature in fiscal 1995. The remainder of the refinancing proceeds were used to
fund escrows for replacements and repairs and to pay closing costs associated
with the refinancing. The new $1.4 million nonrecourse mortgage loan bears
interest at 9.68% per annum, requires monthly principal and interest payments
of $12,100, and matures in February 2002. The Trust paid a refinancing fee of
$13,700 to Tarragon based upon the new $1.4 million first mortgage financing.
Also in January 1995, the Trust extended the maturity date of the $1.9 million
nonrecourse mortgage secured by the One Turtle Creek Office Complex. The
mortgage loan, originally scheduled to mature in March 1995, will continue to
accrue interest at 9% per annum, requires monthly payments of principal and
interest totaling $16,850, and matures February 2005.
In October 1993, the Trust paid shareholders a taxable distribution of $0.25
per share of beneficial interest (the "Shares" and each a "Share") in the form
of either the Trust's 9% Series A Convertible Subordinated Debentures
("Debentures") or Uncertificated Convertible Subordinated Obligations
("Obligations"). The Debentures and Obligations were convertible at a price of
$0.80 per Share and the conversion privilege of each expired January 13, 1994.
Nonconverted Debentures and Obligations, scheduled to mature June 30, 2003,
call for interest payments semi-annually and are redeemable by the Trust at any
time at 100% of the principal amount together with accrued but unpaid interest.
In December 1994, the Trust redeemed all the outstanding Obligations. At August
31, 1995, the principal balance of the Debentures outstanding was $929,000.
10
<PAGE> 11
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. INCOME TAXES
The Trust has elected and, in the opinion of the Trust's management, qualified
to be taxed as a Real Estate Investment Trust ("REIT") as defined under
Sections 856 through 860 of the Internal Revenue Code of 1986 and, as such,
will not taxed for federal income tax purposes on that portion of its taxable
income which is distributed to shareholders provided that at least 95% of its
REIT taxable income is distributed.
No provision has been made for federal income taxes because the Trust believes
it has qualified as a REIT and expects that it will continue to do so.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Trust is a party to various claims and routine litigation arising in the
ordinary course of business. Management of the Trust does not believe that the
results of these claims and litigation, individually or in the aggregate, will
have a material adverse effect on its business or financial position.
[This space intentionally left blank]
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Vinland Property Trust (the "Trust") was organized on July 18, 1973 to invest
in real estate through acquisitions, leases and partnerships and, to a lesser
extent, in mortgage loans on real estate. The Trust commenced operations on
April 2, 1974.
The Trust's real estate at August 31, 1995 consisted of thirteen properties,
eleven of which are being held for investment. These properties include ten
apartment complexes, one shopping center, one combination office building and
shopping center, and one farm and luxury residence. All of the Trust's real
estate, except for the Phoenix Apartments and the farm and luxury residence, is
pledged to secure first mortgage notes payable.
The Trust's management continues to focus on the capital appreciation of the
Trust's existing portfolio and the search for additional investments.
Management's first priority is to invest surplus funds on needed improvements
to the Trust's current real estate portfolio. The Trust intends to use any
additional funds, generated from property operations and refinancings, to make
selective acquisitions, both residential and commercial, in the same
geographical regions of the United States in which the Trust currently
operates. During 1995, the Trust added three residential properties and
consummated the tax-free exchange for the Riverside Apartments in Austin,
Texas, increasing the Trust's multifamily portfolio by a total of 307 units.
Management anticipates future acquisitions; however, because of various real
estate industry conditions, including competing entities and the overall
volatility of the real estate market, there is no assurance that the Trust will
be able to continue to increase the size of its portfolio during the remainder
of the fiscal year.
Liquidity and Capital Resources
Cash and cash equivalents totaled $95,000 at August 31, 1995, as compared with
$209,000 at November 30, 1994. The Trust's principal sources of cash have been
property operations and the collection of mortgage notes receivable. The Trust
does not anticipate making additional mortgage loans. Accordingly, as existing
mortgage loans are paid off, the Trust's portfolio of mortgage notes receivable
is expected to continue to decrease, and this source of cash will also decline.
The Trust's mortgage loan portfolio decreased significantly during the third
fiscal quarter of 1995 due to the in-substance foreclosure of the Polynesia
Village Apartments, discussed in more detail below under "Investing
Activities". The Trust expects cash provided by property operations, along with
funds from anticipated external sources, such as property sales and
refinancings, will be sufficient to fund any needed property maintenance and
capital improvements as well as meet the Trust's debt service obligations.
Operating Activities
Net cash flow from property operations (rentals collected less payments for
property operations) increased from $1.4 million for the nine months ended
August 31, 1994, to $1.7 million for the nine months ended August 31, 1995.
This increase is primarily attributable to higher common area cost recovery
collections from the Trust's commercial properties and reduced rental
concessions during 1995. The operations of Riverside Apartments, leased by the
Trust in August of 1994 and acquired in August 1995, and the three apartment
complexes purchased in May 1995 also improved the Trust's 1995 cash flow from
operations as compared to the same period in 1994.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Investing Activities
During the nine months ended August 31, 1994, the Trust paid $897,000 for
capital improvements primarily related to the renovation of the One Turtle
Creek Office Complex, which was completed during 1994. The Trust paid $382,000
for capital improvements to its properties during the nine months ended August
31, 1995, and anticipates an additional $100,000 will be incurred during the
remainder of 1995.
Collections of notes receivable decreased from $579,000 for the nine months
ended August 31, 1994, to $180,000 for the nine months ended August 31, 1995,
primarily due to the Cochonour note receivable ("Cochonour"), secured by
several condominium units. In accordance with the terms of the Cochonour
mortgage loan, as the collateral condominium units were sold, the associated
sales proceeds were paid to the Trust as principal reductions to the Trust's
note receivable balance. During the nine months ended August 31, 1994 and 1995,
the Trust collected $326,000 and $110,000, respectively, related to this note.
Also, two of the Trust's other mortgage loans were paid in full, one in the
amount of $200,000 in the third quarter of 1994, and one in the amount of
$66,000 in the second quarter of 1995. The Trust expects note receivable
collections to continue to decline as existing mortgage loans are paid off and
does not anticipate funding additional loans in the future. However, during
1995 and pursuant to the restructured terms of the mortgage loan secured by a
second lien on the Polynesia Village Apartments (the "Property"), the Trust
funded an additional $196,000 to the borrower for exterior painting and
repairs. In August 1995, the Trust and the borrower agreed to a settlement of
the mortgage loan balance whereby the Trust paid the borrower $75,000 and
gained control of the Property. Simultaneously, the deed to the Property was
placed in escrow to be transferred to the Trust upon payment of an additional
$100,000 due between January 1, 1996, and February 22, 1996. At August 31,
1995, the Trust recorded an in-substance foreclosure of the Property.
In May 1995, the Trust purchased three apartment complexes, subject to an
existing nonrecourse wrap mortgage of $2.4 million, comprising 162 units
located in Tallahassee, Florida for $2.5 million. The Trust assumed the
existing mortgage loan and paid the remaining purchase price, along with
closing costs, of $118,000 in cash. The assumed mortgage loan bears interest at
10% per annum and matures June 1997.
In August 1995, the Trust completed the exchange of the Westover Valley
Apartments ("Westover") in Fort Worth, Texas, for the Riverside Apartments
("Riverside") in Austin, Texas. In connection with the exchange, the Trust
assumed the $2.9 million mortgage loan secured by a first lien on Riverside.
The loan bears interest at 8.5% per annum and matures September 1999. The Trust
paid a loan assumption fee and other costs associated with the exchange closing
totaling $38,000.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Financing Activities
At November 30, 1994, mortgage principal payments totaling $3.0 million were
scheduled for fiscal 1995. It is the Trust's intention to either pay the
mortgages when due or seek to extend the due dates one, two or more years while
attempting to obtain long-term financing. During the nine months ended August
31, 1995, mortgage principal payments totaling $1.3 million were paid and
included the $451,000 payoff of the mortgage loan secured by the Southern Elms
Apartments, which was refinanced in January 1995. In connection with this
refinancing, the Trust received net cash of $869,000 and paid Tarragon Realty
Advisors, Inc. ("Tarragon"), the Trust's advisor since March 1, 1994, a
refinancing fee of $13,700 based upon the new $1.4 million first mortgage.
Also, in January 1995, the Trust extended the maturity date of the $1.9 million
mortgage note, secured by One Turtle Creek Office Complex, from March 1995 to
February 2005. The Trust is continuing to pursue the refinancing of the
mortgage loan secured by the Aspentree Apartments in Dallas, Texas, which
matures in June 1996. However, there is no assurance that the Trust will be
successful in this regard.
In October 1993, the Trust issued share purchase rights to shareholders owning
400 shares of beneficial interest (the "Shares" and each a "Share") or more.
Four share purchase rights entitled the holder to purchase one additional Share
at a price of $0.73. Holders of fewer than 400 Shares received a $0.01 per
Share cash payment in lieu of share purchase rights. The share purchase rights
expired on January 13, 1994. The Trust received $278,900 in 1994 in cash and
new equity from the exercise of the share purchase rights, which resulted in
the issuance of 381,333 Shares in 1994.
Also in October 1993, the Trust paid shareholders a taxable distribution of
$0.25 per Share totaling $1.5 million in the form of either the Trust's 9%
Series A Convertible Subordinated Debentures ("Debentures") or Uncertificated
Convertible Subordinated Obligations ("Obligations"). The conversion privilege
expired January 13, 1994 and for nonconverted Debentures and Obligations,
interest is payable semi-annually. The Debentures and Obligations mature June
30, 2003 and are redeemable by the Trust at any time at 100% of the principal
amount together with accrued but unpaid interest. On December 30, 1994, the
Trust redeemed all the outstanding Obligations. See NOTE 5. "NOTES, DEBENTURES
AND INTEREST PAYABLE".
Results of Operations
For the three and nine months ended August 31, 1995, the Trust reported net
income of $68,000 and $91,000, respectively, as compared with net losses of
$90,000 and $273,000 for the corresponding periods in 1994, as more fully
discussed in the following paragraphs.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Net rental income (rental revenue less property operating expenses) increased
from $564,000 and $1.5 million for the three and nine month periods ended
August 31, 1994 to $589,000 and $1.8 million for the three and nine month
periods ended August 31, 1995. These increases are primarily due to the
acquisition of Riverside Apartments, leased by the Trust in August 1994 and
acquired in August 1995, and the May 1995 acquisitions of the three multifamily
properties in Florida. With respect to Trust properties held in both years, net
rental income improved as a result of increased common area cost recovery
income and a reduction in rental concessions, predominantly related to the
Trust's commercial properties. Rental rates also increased slightly in 1995.
These increases were partially offset by higher operating expenses, primarily
repair and maintenance expenses in an effort to raise occupancy levels, which
remained relatively stable for properties held in both years.
Interest income decreased from $93,000 and $280,000 for the three and nine
month periods ended August 31, 1994, to $37,000 and $97,000 for the three and
nine month periods ended August 31, 1995. Interest income related to the
Trust's note receivable secured by a second lien mortgage on the Polynesia
Village Apartments decreased $57,000 and $160,000, respectively, as a result of
the associated borrower's Plan of Reorganization. In accordance with the terms
of the Plan, since September 1994, any excess cash flow was paid pursuant to
the first lien mortgage and then toward any property repairs and maintenance
items. On August 31, 1995, the Trust recorded an in-substance foreclosure of
the Polynesia Village Apartments. See NOTE 2. "NOTES AND INTEREST RECEIVABLE".
Also, in April 1995, two mortgage notes receivable with principal balances
totaling $176,000 were paid in full.
Interest expense increased from $310,000 and $907,000 for the three and nine
month periods ended August 31, 1994, to $362,000 and $948,000 for the
corresponding periods in 1995. Of these increases, $65,000 and $71,000 resulted
from the interest expense associated with loans assumed in connection with the
1995 property acquisitions. In addition, interest expense increased due to the
refinancing of the mortgage debt secured by the Southern Elms Apartments,
increasing the mortgage loan balance by $1.0 million.
Advisory fees decreased from $150,000 for the nine months ended August 31,
1994, of which $75,000 was to Tarragon and $75,000 was to Basic Capital
Management, Inc. ("BCM"), to $102,000 for the nine months ended August 31,
1995. Since March 1, 1994, Tarragon has provided advisory services to the Trust
under an advisory agreement approved by the Trust's Board of Trustees. William
S. Friedman, President, Chief Executive Officer and Trustee of the Trust,
serves as a Director and Chief Executive Officer of Tarragon. Tarragon is owned
by Lucy N. Friedman, Mr. Friedman's wife, and John A. Doyle, who serves as a
Director, President and Chief Operating Officer of Tarragon and Chief Financial
Officer, Chief Operating Officer and Trustee of the Trust. The Friedman and
Doyle families together own approximately 23% of the outstanding shares of the
Trust. A majority of the officers of the Trust are also officers of Tarragon.
General and administrative expenses decreased from $126,000 and $292,000 for
the three and nine month periods ended August 31, 1994, to $98,000 and $256,000
for the corresponding periods in 1995 primarily due to decreases in
reimbursable expenses of the advisor.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
The Trust recorded a provision for loss credit of $190,000 in August 1995 as a
result of the following events. A reversal of a previously recorded provision
for loss of $1.0 million related to the Trust's mortgage loan secured by a
second lien mortgage on the Polynesia Village Apartments, and a $1.4 million
provision for loss due to permanent impairment on one of the Trust's
multifamily properties, were both recorded in August 1995. Finally, the Trust
determined that the remaining $802,000 balance of the allowance for estimated
losses was no longer required against the Trust's mortgage note receivable
portfolio, while a $241,000 allowance for estimated losses was necessary
against the carrying value of one of its properties held for sale. As such, the
Trust recorded a reversal of $561,000 in August 1995. See NOTE 2. "NOTES AND
INTEREST RECEIVABLE" and NOTE 4. "ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS
FOR LOSSES" in the Notes to the Consolidated Financial Statements for a more
detailed discussion.
The Trust's management, on a quarterly basis, reviews the carrying values of
the Trust's mortgage loans and properties held for sale. Generally accepted
accounting principles require that the carrying value of a mortgage loan or a
property held for sale cannot exceed its cost or its estimated fair value. In
those instances in which estimates of fair value of the Trust's properties held
for sale or mortgage loans are less than the carrying values thereof at the
time of evaluation, a provision for loss is recorded by a charge against
operations. The estimate of fair value of the mortgage loans is based on
management's review and evaluation of the collateral properties securing the
mortgage loans. The review of collateral properties and properties held for
sale generally includes selective site inspections, a review of the property's
current rents compared to market rents, a review of the property's expenses, a
review of maintenance requirements, discussions with the manager of the
property, and a review of the surrounding area. Future quarterly reviews could
cause the Trust's management to adjust current estimates of fair value.
The Trust's management also reviews the Trust's properties held for investment
for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. This review generally
consists of a review of the properties' cash flow, current and projected market
conditions, as well as any changes in general and local economic conditions. If
an impairment loss exists based on the results of this review, a loss is
recognized by a charge against current earnings and a corresponding reduction
in the respective asset's carrying value. The amount of this impairment loss is
equal to the amount by which the carrying value of the property exceeds the
estimated fair value.
Income Tax Aspects
The Trust has elected and, in the opinion of the Trust's management, qualified
to be treated as a Real Estate Investment Trust ("REIT") as defined under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"). The Code requires a REIT to distribute at least 95% of its REIT
taxable income plus 95% of its net income from foreclosure property, as defined
in Section 857 of the Code, to its shareholders.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Trust may be potentially liable for removal or remediation
costs, as well as certain other potential costs (including governmental fines
and injuries to persons and property) relating to hazardous or toxic substances
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the
air, and third parties may seek recovery from the Trust for personal injury
associated with such materials.
The Trust's management is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the Trust's
business, assets or results of operations.
Recent Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 114 - "Accounting by Creditors
for Impairment of a Loan", which amends SFAS No. 5 - "Accounting for
Contingencies" and SFAS No. 15 - "Accounting by Debtors and Creditors for
Troubled Debt Restructurings". The statement requires that notes receivable be
considered impaired when "based on current information and events, it is
probable that a creditor will be unable to collect all amounts due, both
principal and interest, according to the contractual terms of the loan
agreement". Impairment is to be measured either on the present value of
expected future cash flows, discounted at the note's effective interest rate
or, if the note is collateral dependent, on the fair value of the collateral.
In October 1994, the FASB issued SFAS No. 118 - "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure" which amends SFAS No.
114. SFAS No. 118 eliminates the income recognition provisions of SFAS No. 114,
substituting disclosure of the creditor's policy of income recognition on
impaired notes. SFAS No. 114 and SFAS No. 118 are both effective for fiscal
years beginning after December 15, 1994. The Trust's management has not fully
evaluated the effects of implementing these statements, but expects that they
will not affect the Trust's interest income recognition policy but may require
the classification of otherwise performing loans as impaired.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts.
SFAS No. 121 also requires long-lived assets expected to be disposed of to be
carried at the lower of carrying amount or fair value less cost to sell and to
not be depreciated. The Trust will adopt SFAS No. 121 in the first quarter of
1996 and, based on current circumstances, does not believe the effect of
adoption will be material.
The Trust estimates that if SFAS No. 121 had been adopted effective December 1,
1994, its depreciation would have been reduced by $46,000 and its net income
increased by a like amount for the nine months ended August 31, 1995, and no
additional provisions for losses for either impairment of its properties held
for investment or declines in estimated fair value less cost to sell of its
properties held for sale would have been required.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27.0 - Financial Data Schedule.
(b) Reports on Form 8-K.
The following current reports on Form 8-K were filed during the period
covered by this report or with respect to events which occurred during
the period covered by this report:
<TABLE>
<CAPTION>
Date of Event Date Filed Items Reported
------------- ---------- --------------
<S> <C> <C>
May 30, 1995 July 13, 1995 2. Acquisition or Disposition of Assets
7. Financial Statements and Exhibits
</TABLE>
[This space intentionally left blank.]
18
<PAGE> 19
SIGNATURE PAGE
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.
VINLAND PROPERTY TRUST
Date: October 13, 1995 By: /s/ WILLIAM S. FRIEDMAN
-----------------------------------
William S. Friedman
President, Chief Executive
Officer and Trustee
Date: October 13, 1995 By: /s/ JOHN A. DOYLE
-----------------------------------
John A. Doyle
Chief Financial Officer,
Chief Operating Officer and
Trustee
Date: October 13, 1995 By: /s/ KATIE JACKSON
-----------------------------------
Katie Jackson
Vice President and
Chief Accounting Officer
19
<PAGE> 20
VINLAND PROPERTY TRUST
INDEX TO EXHIBITS
EXHIBIT 27.0 Financial Data Schedule Page 21
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> AUG-31-1995
<CASH> 95
<SECURITIES> 0
<RECEIVABLES> 739
<ALLOWANCES> (241)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 36,972
<DEPRECIATION> (4,979)
<TOTAL-ASSETS> 34,020
<CURRENT-LIABILITIES> 0
<BONDS> 23,555
<COMMON> 0
0
0
<OTHER-SE> 9,320
<TOTAL-LIABILITY-AND-EQUITY> 34,020
<SALES> 0
<TOTAL-REVENUES> 5,914
<CGS> 0
<TOTAL-COSTS> 4,009
<OTHER-EXPENSES> 800
<LOSS-PROVISION> (190)
<INTEREST-EXPENSE> 948
<INCOME-PRETAX> 91
<INCOME-TAX> 0
<INCOME-CONTINUING> 91
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
