<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, 1996
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 1,347,964
- -------------------------------------------- -----------------------------
(Class) (Outstanding at July 5, 1996)
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements for the period ended May 31,
1996, 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,
1996 1995
------------ ------------
Assets (unaudited) (audited)
<S> <C> <C>
Real estate
Held for investment, net of accumulated depreciation
($5,095 in 1996 and $4,660 in 1995) . . . . . . . . . . $ 22,264 $ 18,244
Held for sale, net of accumulated depreciation
($40 in 1996 and $612 in 1995) . . . . . . . . . . . . . 8,547 13,683
------------ ------------
30,811 31,927
Less - allowance for estimated losses . . . . . . . . . . . . (241) (241)
------------ ------------
30,570 31,686
Notes and interest receivable . . . . . . . . . . . . . . . . 736 737
Cash and cash equivalents . . . . . . . . . . . . . . . . . . 746 2,847
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,705 1,708
------------ ------------
$ 33,757 $ 36,978
============ ============
Liabilities and Shareholders' Equity
Liabilities
Notes, debentures, and interest payable . . . . . . . . . . . $ 23,501 $ 26,491
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 859 1,231
------------ ------------
24,360 27,722
Commitments and contingencies . . . . . . . . . . . . . . . .
Shareholders' equity
Shares of beneficial interest, no par value; authorized
shares, unlimited; issued and outstanding, 1,347,987
shares in 1996 and 1,392,006 shares in 1995 . . . . . . . 2,244 2,318
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 43,731 43,876
Accumulated distributions in excess of
accumulated earnings . . . . . . . . . . . . . . . . . . . (36,578) (36,938)
------------ ------------
9,397 9,256
------------ ------------
$ 33,757 $ 36,978
============ ============
</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,
-------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Rentals . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,327 $ 1,908 $ 4,656 $ 3,745
Interest . . . . . . . . . . . . . . . . . . . . . . . . 31 35 78 60
Equity in income of partnership . . . . . . . . . . . . 28 - 32 -
---------- ---------- ---------- ----------
2,386 1,943 4,766 3,805
Expenses
Property operations . . . . . . . . . . . . . . . . . . 1,318 1,247 2,744 2,526
Interest . . . . . . . . . . . . . . . . . . . . . . . . 479 303 940 586
Depreciation . . . . . . . . . . . . . . . . . . . . . . 225 226 434 451
Advisory fee to affiliate . . . . . . . . . . . . . . . 85 24 145 61
General and administrative . . . . . . . . . . . . . . . 101 77 225 158
---------- ---------- ---------- ----------
2,208 1,877 4,488 3,782
---------- ---------- ---------- ----------
Income before (loss) on sale of real
estate and extraordinary gain . . . . . . . . . . . . . 178 66 278 23
(Loss) on sale of real estate . . . . . . . . . . . . . . . 22 - (171) -
---------- ---------- ---------- ----------
Income from continuing operations . . . . . . . . . . . . . 200 66 107 23
Extraordinary gain . . . . . . . . . . . . . . . . . . . . - - 253 -
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 200 $ 66 $ 360 $ 23
========== ========== ========== ==========
Earnings per share
Income from continuing operations . . . . . . . . . . . . . $ .15 $ .05 $ .08 $ .02
Extraordinary gain . . . . . . . . . . . . . . . . . . . . - - .18 -
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ .15 $ .05 $ .26 $ .02
========== ========== ========== ==========
Weighted average shares of
beneficial interest used in
computing earnings per share . . . . . . . . . . . . . . 1,348,389 1,392,006 1,363,194 1,392,006
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
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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,
1995 (audited) . . . . . 1,392,006 $ 2,318 $ 43,876 $ (36,938) $ 9,256
Share repurchases . . . . . . (44,019) (74) (145) - (219)
Net income . . . . . . . . . - - - 360 360
----------- ---------- ---------- ----------- ----------
Balance, May 31,
1996 (unaudited) . . . . 1,347,987 $ 2,244 $ 43,731 $ (36,578) $ 9,397
=========== ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
4
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VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended May 31,
------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Rentals collected . . . . . . . . . . . . . . . . . . . $ 4,603 $ 3,709
Interest collected . . . . . . . . . . . . . . . . . . . 78 58
Interest paid . . . . . . . . . . . . . . . . . . . . . (833) (589)
Payments for property operations . . . . . . . . . . . . (2,966) (2,380)
General and administrative expenses paid . . . . . . . . (208) (188)
Advisory fee paid to affiliate . . . . . . . . . . . . . (151) (73)
Advisory fee received from prior advisor . . . . . . . . - 59
Deferred financing costs paid . . . . . . . . . . . . . - (77)
----------- -----------
Net cash provided by operating activities . . . . . . 523 519
Cash Flows from Investing Activities
Acquisition of real estate . . . . . . . . . . . . . . . (1,763) (10)
Cash account received in connection with purchase
of real estate . . . . . . . . . . . . . . . . . . . . - 47
Sale of real estate . . . . . . . . . . . . . . . . . . 66 -
Earnest money deposit received . . . . . . . . . . . . . 75 -
Real estate improvements . . . . . . . . . . . . . . . . (311) (384)
Funding of notes receivable . . . . . . . . . . . . . . - (133)
Collections of notes receivable . . . . . . . . . . . . 2 179
Acquisition of partnership interest . . . . . . . . . . . (414) -
----------- -----------
Net cash (used in) investing activities . . . . . . . (2,345) (301)
Cash Flows from Financing Activities
Proceeds from borrowings . . . . . . . . . . . . . . . . - 1,370
Payments of notes payable . . . . . . . . . . . . . . . (149) (800)
Replacement reserve receipts (deposits), net . . . . . . 89 (31)
Share repurchases . . . . . . . . . . . . . . . . . . . (219) -
Redemption of uncertificated obligations . . . . . . . . - (91)
----------- -----------
Net cash (used in) provided by financing activities . . (279) 448
----------- -----------
Net (decrease) increase in cash and cash equivalents . . . (2,101) 666
Cash and cash equivalents, beginning of the period . . . . 2,847 209
----------- -----------
Cash and cash equivalents, end of the period . . . . . . . $ 746 $ 875
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
5
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VINLAND PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended May 31,
-----------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 360 $ 23
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . (253) -
Loss on sale of real estate . . . . . . . . . . . . . . . . . 171 -
Equity in income of partnership . . . . . . . . . . . . . . . (32) -
Depreciation and amortization . . . . . . . . . . . . . . . . 493 538
Changes in other assets and liabilities, net of effects
of noncash investing and financing activities
Decrease in other assets . . . . . . . . . . . . . . . . . 116 70
(Decrease) in other liabilities . . . . . . . . . . . . . (403) (84)
Increase (decrease) in interest payable . . . . . . . . . 71 (28)
----------- -----------
Net cash provided by operating activities . . . . . . . . . . . $ 523 $ 519
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired and liabilities assumed in connection
with the acquisition of real estate
Real estate . . . . . . . . . . . . . . . . . . . . . . . . $ 4,344 $ 2,496
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 39 77
Notes and interest payable . . . . . . . . . . . . . . . . . (2,510) (2,383)
Other liabilities . . . . . . . . . . . . . . . . . . . . . (110) (227)
----------- -----------
Cash paid . . . . . . . . . . . . . . . . . . . . . . . . $ 1,763 $ 10
=========== ===========
Assets written off and liabilities released in connection
with the sale of real estate
Real estate . . . . . . . . . . . . . . . . . . . . . . . . $ 5,337 $ -
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 156 -
Notes and interest payable . . . . . . . . . . . . . . . . . (5,362) -
Other liabilities . . . . . . . . . . . . . . . . . . . . . (147) -
Loss on sale . . . . . . . . . . . . . . . . . . . . . . . . (171) -
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . 253 -
----------- -----------
Cash received . . . . . . . . . . . . . . . . . . . . . . $ 66 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
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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, 1996, are
not necessarily indicative of the results that may be expected for the fiscal
year ending November 30, 1996. 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, 1995.
Certain 1995 balances have been reclassified to conform to the 1996
presentation.
Earnings per share have been computed based on the weighted average number of
shares of beneficial interest outstanding for the three and six month periods
ended May 31, 1996 and 1995. Effective December 1, 1995, the Board of Trustees
approved a one-for-five reverse share split of all the Trust's shares of
beneficial interest on the basis of one new share (a "Post-Split Share") for
each five shares then outstanding (each an "Old Share"). All 1995 share and
per share data have been restated to give effect to such reverse share split.
NOTE 2. INVESTMENT IN PARTNERSHIP
In December 1995, the Trust acquired an effective 57% interest in Larchmont
Associates Limited Partnership for a cash investment of $414,000. The
partnership owns Larchmont West Apartments, a 504-unit complex in Toledo, Ohio,
which collateralizes nonrecourse mortgage debt of $5.5 million. The mortgage
loan bears interest at 8.02% per annum, calls for monthly payments of interest
and principal of $42,136, and matures in January 2006. The partnership
investment is accounted for under the equity method and has been included in
"Other assets" in the accompanying May 31, 1996, Consolidated Balance Sheet.
NOTE 3. REAL ESTATE AND DEPRECIATION
In September 1995, the Trust ceased payments on the mortgage debt secured by
the Villas at Central Park Apartments, a 288-unit complex located in Orlando,
Florida, as the Trust determined that further investment in the property could
not be justified without substantial modification of the debt, consisting of a
$2.4 million first lien and a $3.0 million second lien. In January 1996, the
complex was sold to a third party for $5.3 million. Pursuant to the sale
contract, the second lien holder agreed to discount the mortgage debt assumed
by the purchaser. In connection with the sale, the Trust recorded an
extraordinary gain of $253,000 due to the debt forgiveness and a loss on the
sale of $171,000 equal to the amount by which the carrying value plus the
costs to sell the property exceeded the sales price.
In August 1995, the Trust and the borrower on a $2.0 million mortgage note
receivable agreed to a settlement of the outstanding balance. Under the terms
of the agreement, the Trust paid $175,000 to the borrower ($75,000 in August
1995 and $100,000 in February 1996) and obtained title to the collateral
property, the Polynesia Village Apartments, a 448-unit complex located in
Tacoma, Washington, which is subject to $5.8 million senior underlying debt.
In exchange, the Trust released the borrower from any further obligation under
the mortgage note.
7
<PAGE> 8
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
On April 1, 1996, the Trust consummated the acquisition of Holly House
Apartments, a 57-unit complex located in North Miami, Florida, for cash of $1.5
million from the Trust's general working capital, including closing costs and
an acquisition fee of $14,500 to Tarragon Realty Advisors, Inc. ("Tarragon"),
the Trust's advisor.
On May 1, 1996, the Trust purchased Mission Trace Apartments, a 96-unit
property in Tallahassee, Florida. The $2.8 million purchase price was financed
with $2.5 million in mortgage debt provided by the seller, and the remainder
was paid in cash from the Trust's general working capital. The $2.2 million
first lien mortgage loan and the $290,000 second lien mortgage loan bear
interest at initial rates of 8.25% and 8.5%, respectively, which are to be
adjusted every two years during the loan terms. The loans are payable in
monthly installments of principal and interest which initially total $30,825
and mature in May 2006. In connection with this acquisition, the Trust will
pay an acquisition fee of $28,900 to Tarragon.
NOTE 4. SHARE OPTIONS
In November and December 1995, pursuant to its Independent Trustee Share Option
Plan, the Trust issued to each Independent Trustee options to purchase up to
900 Post-Split Shares at an exercise price equal to the market price at the
date of grant. The options expire on the earlier of the first anniversary of
the date on which a Trustee ceases to be a Trustee of the Trust or ten years
from the date of grant (the "Termination Date") and are exercisable at any time
between the date of grant and the Termination Date.
In January 1996, pursuant to its Share Option and Incentive Plan, the Trust
issued options to certain officers of the Trust and key employees of Tarragon
covering 22,000 Post-Split Shares. These options are exercisable beginning one
year after the date of grant, have an exercise price equal to the market price
at the date of grant, and expire in five years on December 31, 2000. All
options awarded pursuant to the Incentive Plan are determined by the Option
Committee, which is comprised of three Trustees including Messrs. William S.
Friedman, John A. Doyle, and Michael E. Smith.
NOTE 5. SHARE REPURCHASES
During the first half of fiscal 1996, the Trust repurchased 44,019 shares at a
total cost of $219,000, which included 43,696 shares related to the Odd-Lot
Offer, as described below, and 323 shares representing fractional shares
related to the December 1995 reverse share split.
Following the December 1, 1995, one-for-five reverse share split, the Trust
offered to purchase all shares of beneficial interest, no par value, of each
shareholder holding 99 or fewer Post-Split Shares (or less than 500 Old Shares)
either of record or beneficially on December 1, 1995. Under such offer (the
"Odd-Lot Offer"), the Trust agreed to purchase all Post-Split Shares duly
tendered prior to February 29, 1996, at a price equal to the next closing price
of the Post-Split Shares on the day the Trust received the tendered shares.
8
<PAGE> 9
VINLAND PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 6. INCOME TAXES
No provision has been made for federal income taxes because the Trust's
management believes the Trust has qualified as a Real Estate Investment Trust,
as defined in Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended, 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]
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
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, 1996, consisted of fourteen properties,
including eleven 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 Phoenix Apartments, Holly House 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 in needed improvements
to the current real estate portfolio. The Trust intends to use additional
funds, generated from property operations, sales, and refinancings, to make
selective acquisitions, both residential and commercial, with a preference for
properties in the same geographical regions of the United States in which the
Trust currently operates. 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 increase
the size of its portfolio in the coming fiscal year.
Liquidity and Capital Resources
Cash and cash equivalents totaled $746,000 at May 31, 1996, as compared to $2.8
million at November 30, 1995. The Trust's principal sources of cash have been
property operations, mortgage receivable collections, and refinancing proceeds.
Management believes that cash on hand along with funds provided by property
operations and anticipated external sources, such as property sales and
refinancings, is 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 $1.3 million for the six months ended May
31, 1995, to $1.6 million for the six months ended May 31, 1996. This
improvement resulted primarily from the addition of seven properties, including
Riverside Apartments which had been leased since August 1994, to the Trust's
multifamily portfolio during 1995 and 1996. The Trust also incurred higher
interest payments due to the mortgage debt obtained or assumed in connection
with certain of these acquisitions.
Funds from operations ("FFO") increased 61% from $472,000 for the six months
ended May 31, 1995, to $761,000 for the six months ended May 31, 1996. FFO, as
defined by the National Association of Real Estate Investment Trusts ("NAREIT")
in February 1995, equals net income (loss), computed in accordance with
generally accepted accounting principles, excluding gains (losses) from debt
restructuring and sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. FFO for
unconsolidated partnerships and joint ventures is calculated in the same
manner. Amortiztion of deferred financing expenses and prepaid leasing
commissions is not added to net income (loss)
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Operating Activities (Continued)
in the Trust's calculation of FFO. This treatment is consistent with the
Trust's historical calculation of FFO. FFO does not represent cash flow from
operating activities and should not be considered as an alternative to net
income as an indicator of the Trust's operating performance or to cash flow as
a measure of liquidity or the ability to pay dividends.
Investing Activities
During the second quarter of fiscal 1996, the Trust purchased two real estate
properties comprising 153 apartment units for an aggregate purchase price of
$4.3 million, the cash portion of which was $1.8 million.
The Trust paid $311,000 for capital improvements to its properties during the
first half of fiscal 1996 as compared to $384,000 during the first half of
fiscal 1995 and anticipates an additional $200,000 will be incurred during the
remainder of 1996.
Collections of notes receivable decreased from $179,000 for the six months
ended May 31, 1995, to $2,000 for the six months ended May 31, 1996. Two of
the Trust's mortgage loans were 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 except in connection with and to facilitate the sale of
real estate.
In December 1995, the Trust acquired an effective 57% interest in Larchmont
Associates Limited Partnership in consideration for a cash investment of
$414,000. The partnership owns Larchmont West Apartments, a 504-unit complex
in Toledo, Ohio, which collateralizes nonrecourse mortgage debt of $5.5
million.
Financing Activities
The Board of Trustees (the "Board") approved a one-for-five reverse share split
of all of the Trust's shares of beneficial interest which was effective at the
close of business on December 1, 1995, on the basis of one new share (a
"Post-Split Share") for each five shares then outstanding (each an "Old
Share").
Following the one-for-five reverse share split, on December 1, 1995, the Trust
offered to purchase all shares of beneficial interest, no par value, of each
shareholder holding 99 or fewer Post-Split Shares (or less than 500 Old Shares)
either of record or beneficially on December 1, 1995. Under such offer (the
"Odd-Lot Offer"), the Trust agreed to purchase all Post-Split Shares duly
tendered prior to February 29, 1996, at a price equal to the next closing price
of the Post-Split Shares on the day the Trust received the tendered shares.
During the first half of fiscal 1996, the Trust repurchased 44,019 shares,
including 43,696 shares related to the Odd-Lot Offer and 323 shares
representing fractional shares related to the December 1995 reverse share
split, at a total cost of $219,000.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations
For the three and six months ended May 31, 1996, the Trust reported net income
of $200,000 and $360,000, respectively, as compared with net income of $66,000
and $23,000 for the corresponding periods in 1995, as more fully discussed in
the following paragraphs.
Net rental income (rental revenue less property operating expenses) increased
from $661,000 and $1.2 million for the three and six month periods ended May
31, 1995, to $1.0 million and $1.9 million for the three and six month periods
ended May 31, 1996. Increases of $349,000 and $629,000 are attributable to the
operations of the properties added to the Trust's multifamily portfolio during
1995 and 1996, while decreases of $148,000 and $256,000 resulted from the sale
of Villas at Central Park in January 1996. Properties held in both 1995 and
1996 reported overall increases of $148,000 and $321,000. Higher rental rates
at certain properties and a reduction in leasing expenses contributed to this
improvement. Occupancy levels for these properties increased slightly in 1996
as compared to 1995.
Interest expense increased from $303,000 and $586,000, respectively, for the
three and six month periods ended May 31, 1995, to $479,000 and $940,000 for
the corresponding periods in 1996. Of these increases, $179,000 and $338,000
resulted from interest expense associated with loans obtained or assumed in
connection with the 1995 and 1996 property acquisitions. Properties held in
both years reported overall increases of $114,000 and $252,000 mainly due to
the refinancing of the mortgage debt secured by Southern Elms Apartments and
Aspentree Apartments during 1995, which increased mortgage debt by a total of
$3.9 million. These increases were partially offset by decreases of $117,000
and $236,000 due to the sale of the Villas at Central Park.
Advisory fees to Tarragon Realty Advisors, Inc., ("Tarragon") were $24,000 and
$61,000, respectively, for the three and six month periods ended May 31, 1995,
as compared to $85,000 and $145,000 for the corresponding periods in 1996.
Since March 1, 1994, Tarragon has provided advisory services to the Trust under
an advisory agreement approved by the Board. Under the current advisory
agreement, the Trust pays an incentive advisory fee equal to 16% per annum of
adjusted funds from operations, as defined in the advisory agreement. Under
the initial advisory agreement, through the first fiscal quarter of 1995, the
Trust also paid an annual base advisory fee of $50,000. 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 is also a Trustee of the
Trust. The Friedman and Doyle families together own approximately 27% of the
outstanding shares of the Trust. A majority of the officers of the Trust are
also officers of Tarragon.
General and administrative expenses increased from $77,000 and $158,000 for the
three and six month periods ended May 31, 1995, to $101,000 and $225,000 for
the three and six month periods ended May 31, 1996. These increases are
primarily due to legal fees and share transfer fees associated with the
December 1995 one-for-five reverse share split and the Odd-Lot Offer.
During the first half of fiscal 1996, the Trust recorded a loss on the sale of
real estate of $171,000 and an extraordinary gain of $253,000 both related to
the sale of Villas at Central Park Apartments in January 1996.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Allowance for Estimated Losses and Provisions for Losses
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 the lower of its cost or its estimated
fair value. In those instances in which estimates of fair value of the Trust's
mortgage loans or properties held for sale are less than the carrying values
thereof at the time of evaluation, an allowance for loss is provided by a
charge against operations. The estimates of fair value of the mortgage loans
are 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 property's cash flow and 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 its 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.
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
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 1, 1996 May 16, 1996 Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
</TABLE>
[This space intentionally left blank.]
14
<PAGE> 15
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: July 15, 1996 By: /s/ William S. Friedman
----------------------------- ---------------------------------
William S. Friedman
President, Chief Executive
Officer, and Trustee
Date: July 15, 1996 By: /s/ Bruce A. Schnitz
----------------------------- ---------------------------------
Bruce A. Schnitz
Chief Operating Officer and
Principal Financial Officer
15
<PAGE> 16
VINLAND PROPERTY TRUST
INDEX TO EXHIBITS
EXHIBIT 27.0 Financial Data Schedule Page 17
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<CASH> 746
<SECURITIES> 0
<RECEIVABLES> 736
<ALLOWANCES> (241)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,946
<DEPRECIATION> (5,135)
<TOTAL-ASSETS> 33,757
<CURRENT-LIABILITIES> 0
<BONDS> 23,501
<COMMON> 0
0
0
<OTHER-SE> 9,397
<TOTAL-LIABILITY-AND-EQUITY> 33,757
<SALES> 0
<TOTAL-REVENUES> 4,766
<CGS> 0
<TOTAL-COSTS> 2,744
<OTHER-EXPENSES> 579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 940
<INCOME-PRETAX> 107
<INCOME-TAX> 0
<INCOME-CONTINUING> 107
<DISCONTINUED> 0
<EXTRAORDINARY> 253
<CHANGES> 0
<NET-INCOME> 360
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
