<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 MAY 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 July 7, 1995)
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements for the period ended May 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>
May 31, November 30,
------------- ------------
1995 1994
------------- ------------
Assets (unaudited) (audited)
------
<S> <C> <C>
Real Estate
Held for investment, net of accumulated depreciation
($4,562 in 1995 and $4,141 in 1994) . . . . . . . . . . $ 21,181 $ 18,761
Held for sale, net of accumulated depreciation
($170 in 1995 and $140 in 1994) . . . . . . . . . . . . 1,610 1,601
------------- ------------
22,791 20,362
Notes and interest receivable
Performing . . . . . . . . . . . . . . . . . . . . . . . . 740 919
Nonperforming, nonaccruing . . . . . . . . . . . . . . . . . 1,895 1,739
------------- ------------
2,635 2,658
Less - allowance for estimated losses . . . . . . . . . . . . (1,802) (1,802)
------------- ------------
833 856
Cash and cash equivalents. . . . . . . . . . . . . . . . . . 875 209
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,262 1,311
------------- ------------
$ 25,761 $ 22,738
============= ============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities
Notes, debentures and interest payable . . . . . . . . . . . $ 15,276 $ 12,442
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 1,233 1,067
------------- ------------
16,509 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 . . . . . . . . . . . . . . . . . . . (36,942) (36,965)
------------ ------------
9,252 9,229
------------- ------------
$ 25,761 $ 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 Six Months
Ended May 31, Ended May 31,
-------------------------------------- ---------------------------------
1995 1994 1995 1994
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Revenue
Rentals . . . . . . . . . . . . . . . $ 1,908 $ 1,545 $ 3,745 $ 2,996
Interest . . . . . . . . . . . . . . 35 105 60 186
---------------- ---------------- -------------- ----------------
1,943 1,650 3,805 3,182
Expenses
Property operations . . . . . . . . . 1,247 973 2,526 2,056
Interest . . . . . . . . . . . . . . 303 311 586 597
Depreciation . . . . . . . . . . . . 226 234 451 473
Advisory fee to affiliate . . . . . . 24 33 61 33
Advisory fee to prior advisor . . . . - - - 40
General and administrative . . . . . . 77 59 158 166
---------------- ---------------- -------------- ----------------
1,877 1,610 3,782 3,365
---------------- ---------------- -------------- ----------------
Net income (loss) . . . . . . . . . . . $ 66 $ 40 $ 23 $ (183)
================ ================ ============== ================
Earnings per share
Net income (loss) per share . . . . . . $ .01 $ .01 $ - $ (.03)
================ ================ ============== ================
Weighted average shares of
beneficial interest used in
computing earnings per share . . . . 6,960,034 6,959,820 6,960,034 6,724,598
================ ================ ============== ================
</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 . . . . . . . . - - - 23 23
--------- ----------- --------- -------------- ----------------
Balance, May 31,
1995 (unaudited) . . . 6,960,034 $ 2,318 $ 43,876 $ (36,942) $ 9,252
========= =========== ========= ============== ================
</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)
<TABLE>
<CAPTION>
For the Six Months
Ended May 31,
--------------------------------------
1995 1994
----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Rentals collected . . . . . . . . . . . . . . . . . . . . . $ 3,668 $ 2,832
Interest collected . . . . . . . . . . . . . . . . . . . . 58 147
Interest paid . . . . . . . . . . . . . . . . . . . . . . . (589) (538)
Payments for property operations . . . . . . . . . . . . . . (2,389) (1,868)
General and administrative expenses paid . . . . . . . . . (188) (147)
Advisory fee paid to affiliate . . . . . . . . . . . . . . (73) (70)
Advisory fee received from (paid to) prior advisor . . . . 59 (50)
Deferred financing costs paid . . . . . . . . . . . . . . (58) (13)
---------------- ----------------
Net cash provided by operating activities . . . . . . . 488 293
Cash Flows from Investing Activities
Collections of notes receivable . . . . . . . . . . . . . . 179 378
Real estate improvements . . . . . . . . . . . . . . . . . (384) (327)
Funding of notes receivable . . . . . . . . . . . . . . . . (133) -
Cash account acquired in connection with purchase
of real estate, net of earnest money deposit paid . . . 37 -
---------------- ----------------
Net cash (used in) provided by investing activities . . (301) 51
Cash Flows from Financing Activities
Proceeds from borrowings . . . . . . . . . . . . . . . . . 1,370 -
Payments of notes payable . . . . . . . . . . . . . . . . . (800) (186)
Exercise of share purchase rights . . . . . . . . . . . . . - 279
Redemption of uncertificated obligations . . . . . . . . . (91) -
---------------- ----------------
Net cash provided by financing activities . . . . . . . 479 93
---------------- ----------------
Net increase in cash and cash equivalents . . . . . . . . . . 666 437
Cash and cash equivalents, beginning of the period . . . . . 209 134
---------------- ----------------
Cash and cash equivalents, end of the period . . . . . . . . $ 875 $ 571
================ ================
</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)
<TABLE>
<CAPTION>
For the Six Months
Ended May 31,
---------------------------------
1995 1994
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Reconciliation of net income (loss) to net cash provided by
operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 23 $ (183)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation . . . . . . . . . . . . . . . . . . . . . . 451 473
Change in other assets and liabilities, net of
effects from purchase of real estate
(Increase) in interest receivable . . . . . . . . . - (37)
Decrease in other assets . . . . . . . . . . . . . . 126 1
(Decrease) increase in other liabilities . . . . . . (84) 12
(Decrease) increase in interest payable . . . . . . (28) 27
------------- -------------
Net cash provided by operating activities . . . . . . . $ 488 $ 293
============= =============
Supplemental schedule of noncash investing and financing
activities
Increase in note receivable balance for accrued but
unpaid legal fees . . . . . . . . . . . . . . . . . . . $ 23 $ -
Assets acquired and liabilities assumed in connection
with the acquisition of real estate
Real estate . . . . . . . . . . . . . . . . . . . . $ 2,496 $ -
Cash . . . . . . . . . . . . . . . . . . . . . . . . 47 -
Other assets . . . . . . . . . . . . . . . . . . . . 77 -
Mortgage debt . . . . . . . . . . . . . . . . . . . (2,363) -
Accrued interest . . . . . . . . . . . . . . . . . . (20) -
Other liabilities . . . . . . . . . . . . . . . . . (72) -
Earnest money deposit paid . . . . . . . . . . . . . (10) -
------------- -------------
Cash purchase price due at May 31, 1995 . . . . . $ 155 $ -
============= =============
Conversion of Convertible Debentures and Obligations . . . $ - $ 447
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
<PAGE> 7
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 six-month period ended May 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.
NOTE 2. NOTES AND INTEREST RECEIVABLE
On May 2, 1995, the Trust and the borrower finalized the restructured terms of
the $1.8 million note receivable secured by a second lien mortgage on the
Polynesia Village Apartments (the "Property") in Tacoma, Washington. The
Property is subject to senior underlying debt, not presently in default, in the
amount of $5.9 million. The agreed upon terms of the restructured loan will
result in, among other things, the reinstatement of the Trust's mortgage note
receivable, the Trust advancing up to $150,000 of additional funds for painting
and exterior property improvements, and the Trust's participation in 50% of any
proceeds from the sale or refinance of the property in excess of the Trust's
note receivable. The reinstated mortgage note of $2.6 million at May 31, 1995,
including all past due interest and certain legal fees, will continue to bear
interest at 9% per annum and mature November 1997. Funds advanced by the Trust
for painting and exterior property improvements, as well as certain other
attorney fees and bankruptcy expenses incurred by the Trust, will be reimbursed
by the borrower through the creation of two new notes in amounts equal to two
times the amounts expended. These new loans will not bear interest and mature
November 1997. The Trust is also authorized to make further additional
advances to the borrower for property repairs, and any such advances made will
be added to the principal balance of the Trust's note receivable.
The Trust expects the Property's monthly cash flow to be insufficient to meet
the monthly interest payments called for under the restructured mortgage loan
agreement and, as such, continues to classify this note receivable as
nonperforming. In the event the Property is sold or the Trust takes possession
of the Property, the Trust does not anticipate incurring a loss as the
estimated fair value of the Property, less the senior underlying debt,
approximates the carrying value of the Trust's mortgage note receivable.
NOTE 3. REAL ESTATE
On May 30, 1995, the Trust purchased Collegewood Apartments, Florida Towers
Apartments and Jefferson Towers Apartments, subject to an existing nonrecourse
wrap mortgage of $2.4 million, located in Tallahassee, Florida for $2.5
million. The Trust assumed the existing mortgage loan and, on June 9, 1995,
paid the remaining purchase price of $155,000 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.
7
<PAGE> 8
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.
NOTE 4. NOTES, DEBENTURES AND INTEREST PAYABLE
As disclosed in the Trust's 1994 Form 10-K, in January 1995, the Trust
completed the refinancing of 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 as previously disclosed in the Trust's 1994 Form 10-K, 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 May
31, 1995, the principal balance of the Debentures outstanding was $929,000.
8
<PAGE> 9
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5. INCOME TAXES
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
Section 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.
The Trust had a loss for federal income tax purposes for the six months ended
May 31, 1994 and 1995; therefore the Trust recorded no tax provisions.
NOTE 6. 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]
9
<PAGE> 10
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 May 31, 1995 consisted of twelve properties, ten of
which are being held for investment. These properties include nine 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 but has accelerated 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 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 the second quarter of 1995, the Trust added three residential
properties totaling 162 units to the portfolio. 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 $875,000 at May 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. As such, 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 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 $964,000 for the six months ended May 31,
1994 to $1.3 million for the six months ended May 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
the three apartment complexes purchased in May 1995 also improved the Trust's
1995 net cash flow as compared to the same period in 1994.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Investing Activities
During the six months ended May 31, 1994, the Trust paid $327,000 for capital
improvements primarily related to the renovation of the One Turtle Creek Office
Complex, which was completed during 1994. The Trust paid $384,000 for capital
improvements to its properties during the six months ended May 31, 1995 and
anticipates an additional $400,000 will be incurred during the remainder of
1995.
Collections of notes receivable decreased from $378,000 for the six months
ended May 31, 1994 to $179,000 for the six months ended May 31, 1995, primarily
due to the note receivable which was secured by certain condominium units. In
accordance with the mortgage loan terms, as the collateral units were sold, the
sales proceeds were applied as a reduction to the Trust's mortgage loan
balance. The Trust collected $326,000 and $110,000, respectively, related to
this note during the six months ended May 31, 1994 and 1995. Also, one of the
Trust's other mortgage loans was paid in full during the first half 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 the second fiscal quarter of 1995 and,
in conjunction with the restructured terms of the existing mortgage loan
secured by the Polynesia Village Apartments, the Trust funded a $133,000
mortgage loan. Under the restructured terms, the Trust advanced these funds
for exterior painting and repairs to be repaid with the Trust's second lien
mortgage in November 1997.
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 $155,000 purchase price in cash
in June 1995. The assumed mortgage loan bears interest at 10% per annum and
matures June 1997. The Trust expects to further increase the size of its
portfolio through additional acquisitions and intends to continue its efforts
to dispose of the Briarwest Shopping Center in Houston, Texas during fiscal
1995.
Financing Activities
At November 30, 1994, mortgage principal payments totaling $3.0 million were
scheduled for fiscal 1995. During the six months ended May 31, 1995, mortgage
principal payments totaling $800,000 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, and
hopes to complete this refinancing during 1995.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Financing Activities (Continued)
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 4. "NOTES,
DEBENTURES AND INTEREST PAYABLE".
The Trust's management, on a quarterly basis, reviews the carrying value of the
Trust's mortgage loans, properties held for investment and properties held for
sale. Generally accepted accounting principles require that the carrying value
of an investment cannot exceed its cost or its estimated net realizable value.
In those instances in which estimates of net realizable value of the Trust's
properties are less than the carrying value thereof at the time of evaluation,
a provision for loss is recorded by a charge against operations. The estimate
of net realizable value of the mortgage loans is based on management's review
and evaluation of the collateral properties securing the mortgage loans. The
review generally includes selective property 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 net
realizable value.
Results of Operations
For the three and six months ended May 31, 1995, the Trust reported net income
of $66,000 and $23,000, respectively, as compared with net income of $40,000
and a net loss of $183,000 for the corresponding periods in 1994, as more fully
discussed in the following paragraphs.
Net rental income (rental income less property operating expenses) increased
from $572,000 and $940,000 for the three and six month periods ended May 31,
1994 to $661,000 and $1.2 million for the three and six month periods ended May
31, 1995. With respect to properties held in both 1994 and 1995, the Trust
benefited from higher rental rates and a reduction in rental concessions.
Occupancy levels for these properties remained relatively stable from 1994 as
compared to 1995. Additionally, the Trust's net rental income increased due to
the Riverside Apartments in Austin, Texas, leased by the Trust in August 1994,
and the May 1995 acquisition of three apartment complexes in Tallahassee,
Florida.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Interest income decreased from $105,000 and $186,000 for the three and six
months ended May 31, 1994 to $35,000 and $60,000 for the three and six months
ended May 31, 1995. Interest income related to the Trust's note receivable
secured by a second lien mortgage on the Polynesia Village Apartments decreased
$58,000 and $103,000, 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 has been paid pursuant to the first lien
mortgage and then toward any property repairs and maintenance items. Also, in
April 1995 two mortgage notes receivable with principal balances totaling
$176,000 were paid in full.
Advisory fees to Tarragon were $61,000 for the six months ended May 31, 1995
and $33,000 for the six months ended May 31, 1994. Advisory fees to Basic
Capital Management, Inc. ("BCM") were $40,000 for the six months ended May 31,
1994. 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.
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
Section 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.
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.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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". The statement
requires that long-lived assets be reviewed for impairment "...whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized," by a charge against earnings, equal to "...the
amount by which the carrying amount of the asset exceeds the fair value of the
asset." If impairment of a long-lived asset is recognized, the carrying value
of the asset shall be reduced by the amount of the impairment and shall be
accounted for as the asset's "new cost", and such new cost shall be depreciated
over the asset's remaining useful life.
SFAS No. 121 also requires that long-lived assets held for sale "...be reported
at the lower of carrying amount or fair value less cost to sell." If a
reduction in a held for sale asset's carrying value to fair value less cost to
sell is required, a provision for loss shall be recognized by a charge against
earnings. Subsequent revisions, either upward or downward, to a held for sale
asset's fair value less cost to sell shall result in adjustments to the asset's
carrying value with a corresponding charge or credit to earnings, but the
adjusted carrying value may not exceed the asset's carrying value when
originally classified as held for sale. Long-lived assets held for sale are
not to be depreciated.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995.
The Trust has not fully evaluated the effects of adopting SFAS No. 121 but
anticipates that the Trust's policy with regard to the classification of
revenue producing properties as assets held for sale prior to entering into a
firm contract of sale may require reevaluation.
The Trust estimates that if SFAS No. 121 had been adopted effective December 1,
1994, its depreciation would have been reduced by $30,000 and net income would
have increased by like amount for the six months ended May 31, 1995, and a
provision for loss for either impairment of its properties held for investment
or a decline in estimated fair value less cost to sell of its properties held
for sale would not have been required.
14
<PAGE> 15
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> <C>
April 1, 1995 April 28, 1995 5. Other Events
May 17, 1995 May 22, 1995 5. Other Events
6. Resignation of Registrant's Directors
May 30, 1995 June 2, 1995 2. Acquisition or Disposition of Assets
7. Financial Statements and Exhibits
</TABLE>
[This space intentionally left blank.]
15
<PAGE> 16
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: By:/s/ William S. Friedman
------------------------- -----------------------------
William S. Friedman
President, Chief Executive
Officer and Trustee
Date: By:/s/ John A. Doyle
------------------------- ------------------------------
John A. Doyle
Chief Financial Officer,
Chief Operating Officer and
Trustee
Date: By:/s/ Katie Jackson
------------------------- ------------------------------
Katie Jackson
Vice President and
Chief Accounting Officer
<PAGE> 17
INDEX TO EXHIBITS
EXHIBIT 27 -- FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> MAY-31-1995
<CASH> 875
<SECURITIES> 0
<RECEIVABLES> 2,635
<ALLOWANCES> (1,802)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 27,523
<DEPRECIATION> (4,732)
<TOTAL-ASSETS> 25,761
<CURRENT-LIABILITIES> 0
<BONDS> 15,276
<COMMON> 0
0
0
<OTHER-SE> 9,252
<TOTAL-LIABILITY-AND-EQUITY> 25,761
<SALES> 0
<TOTAL-REVENUES> 3,805
<CGS> 0
<TOTAL-COSTS> 2,526
<OTHER-EXPENSES> 512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 586
<INCOME-PRETAX> 23
<INCOME-TAX> 0
<INCOME-CONTINUING> 23
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
