UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number: 33-82888C
WELLINGTON PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 39-6594066
(State or other jurisdiction of incorporation) (I.R.S. Employer I.d. Number)
18650 W. Corporate Drive, Suite 300, Brookfield, Wisconsin 53045
(Address of principal executive offices) (zip code)
Issuer's telephone number: 414-792-8900 Fax number: 414-792-8930
Securities registered under Section 12(b) of the Act: None
Securities registered under to Section 12(g) of the Act: Common Shares,
$.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to the filing requirements for the past 90 days. YesX No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year: $2,566,114
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based upon the price at which it was originally sold, as of
March 17, 1997 - $6,105,046
Number of shares of Common Stock outstanding as of March 17, 1997
- - 692,599.589
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference: None
Transitional Small Business Disclosure Format(Check one): Yes ;NoX
(Added by Exch Act Rel No. 31905, eff 4/26/93.)
<PAGE>
WELLINGTON PROPERTIES TRUST
1996 FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1 Description of Business I-1
Item 2 Description of Property I-1
Item 3 Legal Proceedings I-2
Item 4 Submission of Matters to a Vote of Securities Holders I-2
PART II
Item 5 Market for Common Equity and Related
Security Holder Matters II-1
Item 6 Management's Discussion and Analysis or Plan of
Operation II-1
Item 7 Financial Statements II-2
Item 8 Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure II-3
PART III
Item 9 Directors, Executive Officers, Promoters and
Control Persons, Compliance With Section 16(a)
of the Exchange Act III-1
Item 10 Executive Compensation III-4
Item 11 Security Ownership of Certain Beneficial
Owners and Management III-4
Item 12 Certain Relationships and Related Transactions III-4
Item 13 Exhibits and Reports on Form 8-K III-5
SIGNATURES
(i)
<PAGE>
PART I
Item 1. Description of Business.
Wellington Properties Trust (the "Registrant") is a Maryland real estate
investment trust formed on March 15, 1994 under the Maryland real estate
investment trust law. The Registrant was formed to acquire, operate and hold
income producing investment real estate. The Registrant had 684,070 common
shares ("Common Shares") outstanding as of December 31, 1996 initially sold
pursuant to a Registration Statement on Form SB-2, effective October 25,
1994, under the Securities Act of 1933 (Registration No. 33-82888C.) The
Registration Statement, including amendments and exhibits and the Definitive
Prospectus dated October 25, 1994, (the "Prospectus") together with all
amendments and supplements thereto is incorporated by reference.
The public offering was terminated on October 25, 1995.
On January 5, 1996, the Registrant acquired a 72 unit apartment community
located in Schofield, Wisconsin ("Lake Pointe") in exchange for the assumption
of $1,858,342.07 of debt and 167,700 Common Shares.
On December 30, 1996 the Registrant acquired the final 12 units at Maple Grove
Apartments in Madison, Wisconsin.
Properties owned by the Registrant will compete with other rental properties
in the Madison, Wisconsin area. The Registrant is well positioned in the market
and intends to continue offering apartment homes designed to appeal to a broad
cross section of the population.
On December 31, 1996 the Registrant had 12 employees.
Item 2. Description of Property.
As of December 31, 1996 the Registrant had acquired an interest in the
properties described below. The transactions were described in the
Prospectus, Post Effective Amendment No. 1 and Forms 8-K dated March 21, 1995,
May 3, 1995, October 5, 1995, January 10, 1996, March 4, 1996 and January 13,
1997 all of which are incorporated herein by reference.
Location Description of Property/Ownership Interest
Fitchburg, Wisconsin Forest Downs Apartments, 34 unit apartment community.
The Registrant holds a fee simple interest in this
property.
Madison, Wisconsin Maple Grove Apartments, 304 unit apartment community.
The Registrant holds a fee simple interest in 184 units
of this property and the Vendee's interest under land
contracts with respect to the balance.
Schofield, Wisconsin Lake Pointe Apartments, 72 unit apartment community.
The Registrant holds a fee simple interest in this
property.
I-1
<PAGE>
On December 31, 1996 Forest Downs Apartments was encumbered by a mortgage which
secured a mortgage note payable to Security Bank, S.S.B. in the principal amount
of $1,286,909.76 and Maple Grove was encumbered by a mortgage which secured a
mortgage note payable to Firstar Bank in the principal amount of $6,250,000
and land and construction contracts held by Monson Construction, Inc. in the
aggregate principal amount of $6,676,911. Lake Pointe Apartments were also
encumbered by a mortgage note payable to Security Bank, S.S.B. in the principal
amount of $1,838,656.82. Reference is hereby made to Note D of the Registrant's
financial statements included herewith.
The Properties are generally occupied under leases having a term of one year or
less. The Properties are all less than 6 years old and therefore there are no
plans for improvements or renovations. Construction was completed on the final
60 apartment units at Maple Grove Apartments in the Summer of 1996. The cost of
construction was approximately $3,500,000.
In the opinion of Management the Properties are adequately insured.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
I-2
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
(a) The Registrant is listed on NASDAQ. The Registrant has been assigned the
symbol WLPT.
(b) As of December 31, 1996, the Registrant has issued 685,434 shares of
Common Stock (615,449 to the public and 69,985 to an affiliate). As of December
31, 1996 there were approximately 470 holders of record.
(c) The Registrant declared quarterly distributions to holders of record equal
to $.2125 for all quarters of 1996.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion should be read in conjunction with financial statements
and notes thereto included elsewhere in this Form 10-KSB.
The Registrant completed its initial offering and acquisition stage on October
25, 1995 and thus operational results for the year 1995 should not be considered
indicative of future results. Construction of the final 60 units at Maple Grove
were completed in the Summer of 1996 and stabilized occupancy is not expected to
be achieved until Spring of 1997 and thus operational results for 1996 should
not be considered indicative of future results.
Plan of Operation
The Registrant will stabilize occupancy at Maple Grove by the middle of 1997.
Lake Pointe and Forest Downs will continue to be owned and operated by the
Registrant consistent with prior operations.
The Registrant will continue to look for opportunities to acquire quality
apartment communities located in the State of Wisconsin and elsewhere.
Results of Operations
The Registrant acquired Forest Downs on March 31, 1994 via 100% financing from
Wellington Management Corporation ("WMC"). The loan from WMC to the Registrant
was reduced by $300,000 on July 18, 1994 in exchange for 70,000 Common Shares.
The Registrant also received an assignment of the Purchase Agreements for Maple
Grove and the Option Agreement as part of the transaction. The balance of the
acquisition loans from WMC and WMC Realty, Inc. ("Realty") were paid off on
December 20, 1994 when the Minimum Offering of Common Shares was achieved.
Forest Downs remains subject to a mortgage in the amount of $1,286,909.76
(as of December 31, 1996) held by Security Bank, S.S.B. The terms of the
Security Bank S.S.B. mortgage previously required that it be paid down to
$887,500 on or before May 1, 1995. That provision has been waived until
December 31, 1997.
II-1
<PAGE>
The Registrant acquired the first 172 units of Maple Grove on May 1, 1995.
The Registrant executed a mortgage note, secured by a mortgage, with Firstar
Bank in the amount of $6,250,000. The note matures on May 1, 1997 and allows
for two 6 month extensions upon the payment of additional loan fees and
principal reduction to $6,000,000.
The Registrant acquired the next 60 units of Maple Grove, plus the land on
which the final 60 units were constructed as of August 1, 1995 by land contracts
in the aggregate principal amount of $3,342,947. The Registrant reduced the
principal of the land contracts by $153,506 during 1995 and by $668,000 in 1997.
Occupancy at Forest Downs during 1996 was 93.5%. Occupancy in the first 172
units of Maple Grove during 1996 was 91.6%. Phase II of Maple Grove, consisting
of 60 units completed in 1995 was 91.6% occupied in 1996. Phase III of Maple
Grove, consisting of 60 units, was not completed until the summer of 1996 and
was not fully stabilized. On December 31, 1996 occupancy of Phase III was 83.3%.
Occupancy at Lake Pointe during 1996 was 98.5%.
The issuance of common shares provided a substantial portion of the Registrant's
cash flow until the offering was terminated on October 25, 1995. The Registrant
now relies primarily on its operational activities for cash flow.
Liquidity and Capital Resources
At December 31, 1996 the Trust had cash of $198,706. The land contracts related
to Maple Grove have been extended until May 6, 1997. The Registrant is in the
process of obtaining a Fannie Mae loan in the approximate principal amount of
$13,100,000 amortized over 30 years for a term of 7 years to replace the loan
with Firstar Bank, the land contracts and notes related to construction.
On January 15, 1997 the Trust made a distribution to a Shareholders of record
as of December 31, 1996. The distribution was equal to 8.5% per annum based
on the issue price of $10.00 per Common Share. The Trust anticipates that the
next distribution will occur on April 15, 1997 and will be for the quarter ended
March 31, 1997.
Inflation
The Trust leases apartments to its tenants under lease terms which generally
do not exceed 12 months. Management believes that such short term lease
contracts lessen the impact of inflation due to the ability to adjust rates to
market levels as leases expire.
Item 7. Financial Statements.
Index Page
Report of Independent Accountants II-4
Balance Sheets as of December 31, 1996 and 1995 II-5
II-2
<PAGE>
Statements of Operations and Accumulated Deficit for the years
ended December 31, 1996 and December 31, 1995 II-7
Statement of Stockholders' Equity for the years ended
December 31, 1996 and December 31, 1995 II-8
Statement of Cash flows for the years ended December 31, 1996
and December 31, 1995 II-9
Notes to Financial Statements II-11
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
None
II-3
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees
Wellington Properties Trust
We have audited the accompanying balance sheet of Wellington Properties Trust as
of December 31, 1996, and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wellington Properties Trust
as of December 31, 1996, and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
/s/GRANT THORNTON LLP
Fond du Lac, Wisconsin
January 23, 1997
II-4
<PAGE>
Wellington Properties Trust
BALANCE SHEET
December 31, 1996
<TABLE>
<CAPITON>
<C> <S>
ASSETS
Rental property - at cost (notes A1, B,C, D, E and G)
Land and land improvements $ 3,110,509
Buildings 17,958,742
Appliances and equipment 932,729
22,001,980
Accumulated depreciation (753,053)
21,248,927
Cash 198,706
Rent receivable 8,485
Prepaid expenses 6,436
Property tax escrow 351,541
Organization costs and loan fees, net of accumulated
amortization of $108,999 (note A2) 56,729
Total assets $21,870,824
</TABLE>
The accompanying notes are an integral part of this statement.
II-5
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
LIABILITIES AND EQUITY
Line of credit (note G) $ 784,729
Mortgage notes payable (notes C and D) 9,375,567
Land contract and business note obligations (notes C and E) 6,676,911
Accounts payable
Trade 66,979
Related party 198,155
265,134
Tenant security deposits 130,930
Deferred rental revenue 95,587
Accrued liabilities
Property taxes 267,835
Interest 217,825
Other 14,240
499,900
Cash dividends declared 145,510
17,974,268
Stockholders' Equity
Common stock - authorized, 100,070,000 shares of $.01 par
value; issued, 684,752 shares 6,848
Preferred stock - authorized, 500,000 shares of $.01 par
value; no shares issued or outstanding -
Additional paid-in capital 6,018,071
Excess of purchase price over affiliate's basis in
property acquired (note B) (152,615)
Accumulated deficit (1,968,930)
3,903,374
Less cost of 682 shares of common stock in treasury (6,818)
3,896,556
Total liabilities and equity $21,870,824
</TABLE>
II-6
<PAGE>
Wellington Properties Trust
STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
<C> <C>
1996 1995
Revenues (note A3)
Rental income $2,556,938 $1,208,940
Interest income and other 9,176 12,351
2,566,114 1,221,291
Expenses
Property, operating and maintenance 611,544 351,729
Advertising and promotion 66,823 42,374
Property taxes and insurance 396,497 218,177
Depreciation and amortization 552,412 235,691
Interest expense 1,338,919 579,563
General and administrative 312,857 163,125
3,279,052 1,590,659
NET LOSS $ (712,938) $ (369,368)
Loss per common share
Net loss $ (1.07) $ (1.12)
Weighted average number of common shares outstanding
(note A5) 663,247 328,355
</TABLE>
The accompanying notes are an integral part of these statements.
II-7
<PAGE>
Wellington Properties Trust
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<C> <C> <C> <C>
Excess of
purchase price
Additional over affiliate's
Common Preferred paid-in basis in property
stock stock capital acquired
Balance at January 1, 1995 $1,514 $ - $1,026,134 $(152,615)
Cash dividends declared - - - -
Issuance of common stock in
connection with the public
offering, less syndication
costs of $331,660 3,316 - 2,981,626 -
Net loss - - - - -
Balance at December 31, 1995 4,830 - 4,007,760 (152,615)
Cash dividends declared - - - -
Issuance of common stock in
connection with public
offering, less syndication
costs of $11,619 346 - 340,323 -
Issuance of 167,166 shares
of common stock in
connection with Lake Pointe
purchase (note B) 1,672 - 1,669,988 -
Cost of 682 shares of common
stock acquired for
treasury - - - -
Net loss - - - -
Balance at December 31, 1996 $6,848 $ - $6,018,071 $(152,615)
Accumulated Treasury
Deficit Stock Total
Balance at January 1, 1995 $ (26,536) $ - $ 848,497
Cash dividends declared (289,053) - (289,053)
Issuance of Common stock
in connection with the
public offering, less
syndication costs of
$331,660
Net loss (369,368) - (369,368)
Balance at December 31, 1995 (684,957) - 3,175,018
Cash dividends declared (571,035) - (571,035)
Issuance of common stock in - - 340,669
connection with public
offering, less syndication
costs of $11,619
Issuance of 167,166 shares of - - 1,671,660
common stock in connection
with Lake Pointe purchase
(note B)
Cost of 682 shares of common
stock acquired for treasury
Net loss (712,938) - (712,938)
Balance at December 31, 1996 $1,968,930 $6,818 $3,896,556
</TABLE>
The accompanying notes are an integral part of this statement.
II-8
<PAGE>
Wellington Properties Trust
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
<C> <C>
1996 1995
Cash flows from operating activities:
Net loss $ (712,938) $ (369,368)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 552,412 235,691
Increase in rent receivable (1,944) (6,541)
(Increase) decrease in prepaid expenses 3,319 (7,640)
Increase in property tax escrow (102,485) (249,056)
Increase in accounts payable:
Trade 40,634 24,827
Related party 46,450 148,477
Increase in tenant security deposits 44,925 64,135
Increase in deferred rental revenue 60,911 32,101
Increase in accrued liabilities 137,253 352,202
781,475 594,196
Net cash provided by operating activities 68,537 224,828
Cash flows from investing activities:
Organization costs - (47,710)
Acquisition of rental property (992,389) (8,873,314)
Net cash used in investing activities (992,389) (8,921,024)
Cash flows from financing activities:
Proceeds from mortgage notes - 250,000
Proceeds from line of credit 784,729 -
Repayments on mortgage notes payable (31,664) (12,522)
Repayments on land contract obligations - (153,506)
Payment of loan fees (54,830) (62,400)
Issuance of common stock 340,669 2,984,942
Cash dividends paid - common stock (528,172) (186,406)
Purchase of treasury stock (6,818) -
Net cash provided by financing activities 503,914 8,820,108
</TABLE>
The accompanying notes are an integral part of these statements.
II-9
<PAGE>
Wellington Properties Trust
STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
<TABLE>
<CAPTION>
<C> <C>
1996 1995
NET INCREASE (DECREASE) IN CASH $ (419,938) $ 123,912
Cash at beginning of year 618,644 494,732
Cash at end of year $ 198,706 $ 618,644
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $1,201,856 $509,246
</TABLE>
Supplemental non-cash investing and financing activities:
Involving three separate transactions dated May 1, 1995, June 30, 1995 and
October 2, 1995, Wellington Properties Trust purchased a 304 unit apartment
complex from Monson Construction Company for $12,162,038. Wellington Properties
Trust financed the purchase of the property by issuing a mortgage note for
$6,250,000, and also by entering into two land contract obligations with
Monson Construction Company totaling $3,342,947.
During 1996, 60 of the above units were completed at an additional purchase
price of $3,487,470. Pursuant to this transaction, Wellington Properties
Trust entered into business note agreements with Monson Construction Company,
the seller, totaling $3,487,470.
On January 5, 1996, Wellington Properties Trust purchased an apartment complex
from Wellington Realty Income Limited Partnership 90-1 for $3,600,000.
Wellington Properties Trust assumed the mortgage note payable on the property
of $1,856,760 and issued 167,166 shares of common stock of the Trust to
Wellington Realty Income Limited Partnership 90-1 for a $1,671,660 reduction in
the cash amount due.
The Trust has dividends payable of $145,510 and $102,647 as of December 31,
1996 and 1995, respectively.
II-10
<PAGE>
Wellington Properties Trust
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Wellington Properties Trust (Trust) is a real estate investment trust organized
under the laws of the state of Maryland. It was formed on March 15, 1994 to
acquire, develop, own and operate investment real estate. The Trust currently
owns one 34-unit apartment complex located in Fitchburg, Wisconsin, one 304-unit
apartment complex located in Madison, Wisconsin, and one 72-unit apartment
complex located in Schofield, Wisconsin (Complexes). It is the intention of the
Trust to continue to seek properties located primarily in Wisconsin for future
acquisitions.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows:
1. Rental Property
Rental property is recorded at cost, less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets for financial reporting purposes. The Complexes use a
40-year estimated life for buildings and a seven-year estimated life for
appliances and equipment. Expenditures for ordinary maintenance and repairs are
expensed to operations as incurred and significant renovations and improvements
that improve and/or extend the useful life of the asset are capitalized and
depreciated over their estimated useful life. A combination of straight-line
and accelerated methods is used for income tax purposes.
2. Organization Costs and Loan Fees
The costs incurred in connection with the formation of the Trust are being
amortized on a straight-line basis over a period of fifteen years.
Costs incurred in obtaining and securing financing for a mortgage note payable
and a land contract obligation are being amortized over 5 years or the related
term of the loan, whichever is shorter, using the straight-line method.
II-11
<PAGE>
Wellington Properties Trust
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Continued
3. Revenue Recognition
Rental income attributable to leases is recorded when due from tenants and
interest income is recorded on an accrual basis.
4. Income Taxes
The Trust has made an election to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended, commencing with its
taxable year ending December 31, 1995. As a REIT, the Trust generally will not
be subject to Federal income tax if it distributes at least 95% of its REIT
taxable income (excluding capital gains) to its shareholders.
5. Loss Per Share
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding for the period.
6. Financial Instruments
The carrying amount of financial instruments at December 31, 1996 approximates
fair value.
NOTE B - RELATED PARTY TRANSACTIONS
Acquisition of Forest Downs
The Complex was acquired by Wellington Management Corporation (WMC) on May 19,
1993, as an operating property. On March 31, 1994, Wellington Management
Corporation sold the Complex to the Trust at a cost of $1,890,000.
Arnold K. Leas, who was the sole stockholder of the Trust prior to the public
stock offering and is President and Chairman of the Board of Trustees of the
Trust, also owns 12.27% (his wife owns an additional 28.6%) of WMC and is the
President/CEO of WMC.
Due to the common control, the Trust's basis in the Complex is the same as WMC's
basis. The historical cost basis of the assets purchased from WMC, including
accumulated depreciation of $40,055, are reflected on the balance sheet of the
Trust. The $152,615 excess of the purchase price over WMC's basis has been
recorded as a reduction of stockholders' equity.
II-12
<PAGE>
Wellington Properties Trust
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE B - RELATED PARTY TRANSACTIONS - Continued
Acquisition of Lake Pointe
On January 5, 1996, Wellington Properties Trust purchased the apartment complex
from a related party, Wellington Realty Income Limited Partnership 90-1, for
$3,600,000.
The Trust assumed the mortgage note payable on the property of $1,856,760
(note D), and issued 167,166 shares of common stock of the Trust to Wellington
Realty Income Limited Partnership 90-1 for a $1,671,660 reduction in the cash
amount due.
Issuance of Stock
Wellington Management Corporation (WMC) was issued 70,000 shares of common stock
of the Trust. In consideration thereof, WMC: 1) assigned, to the Trust, its
rights in a certain Acquisition Property Contract related to the purchase of
a 304 unit apartment complex, known as Maple Grove, located in Madison,
Wisconsin (note C); 2) assigned, to the Trust, its rights in a certain Option
Agreement; and 3) agreed to reduce a note receivable from the Trust, by
$300,000.
Management Fees
The Trust has entered into a Property Management Agreement with WMC Realty,
Inc., a wholly-owned subsidiary of WMC, to serve as the Property Manager of
properties owned by the Trust. The Property Manager will manage the day to day
operations of properties owned by the Trust, and will receive a management
fee equal to 5% of the gross rental receipts collected in connection with the
operation of each property. Management fees for the years ended December 31,
1996 and 1995 were $125,074 and $58,866, respectively.
II-13
<PAGE>
Wellington Properties Trust
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE B - RELATED PARTY TRANSACTIONS - Continued
Advisor Fees
On August 2, 1994, the Trust contracted to retain WMC to serve as Advisor to the
Trust. In payment for these services, the Advisor receives a fee equal to 5% of
the gross proceeds of the public stock offering. Advisor fees for the years
ended December 31, 1996 and 1995 were $8,251 and $167,462, respectively. In
addition, the Advisor is entitled to receive an Incentive Advisory Fee equal to
10% of the realized gain with respect to each sale or refinancing of property
owned by the Trust. In the event a property is sold at a loss, no Incentive
Advisory Fees will be paid until the amount of the loss has been offset by gains
from other sales.
In addition, the Advisor is entitled to recover certain expenses including
travel, legal, accounting, and insurance. These expenses totaled $70,012 and
$53,844 for the years ended December 31, 1996 and 1995, respectively. Fees for
services, such as legal and accounting, provided by the Advisor's employees, in
the opinion of the Advisor, may not exceed fees that would have been charged
by independent third parties. The initial term of the agreement ended on
December 31, 1995 and is renewed automatically each year. The agreement may
be terminated without cause, by either party, on 60 days written notice and by
the Trust for cause immediately upon written notice.
Commission
Wellington Investment Services Corporation (WISC), a wholly-owned subsidiary of
WMC, is entitled to receive a commission of 5% of the proceeds of the common
stock of the Trust that it sells. Commissions paid to WISC for the years ended
December 31, 1996 and 1995 were $8,225 and $144,087, respectively.
NOTE C - ACQUISITION OF MAPLE GROVE
The 304-unit complex, located in Madison, Wisconsin, was acquired in four
separate transactions dated May 1, 1995, June 30, 1995, October 2, 1995 and
December 30, 1996. The total purchase price was $12,953,713. Pursuant to this
acquisition, the Trust entered into a mortgage note agreement for $6,250,000.
The note is due on May 1, 1997, with interest payable monthly at a rate of 2.25%
in excess of LIBOR (London Interbank Offer Rate) (note D). The Trust also
entered into two land contracts with Monson Construction Company, the seller,
for $1,692,000 and $1,650,947 (note E).
During 1996, 60 of the above units were completed at an additional purchase
price of $3,487,470. Pursuant to this transaction, the Trust entered into
business note agreements with Monson Construction Company, the seller, totaling
$3,487,470 (note E).
II-14
<PAGE>
Wellington Properties Trust
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE D - MORTGAGE NOTES PAYABLE
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
<C> <S>
Mortgage note payable to Firstar Bank in monthly interest only
installments; variable interest rate at 2.25% over LIBOR (effective
rate at December 31, 1996 of 7.9375%); final payment due May 1,
1997; collateralized by buildings 1-6 of the Maple Grove
Apartment Complex and an assignment of rents agreement $6,250,000
Mortgage note payable to Security Bank S.S.B. in monthly
installments of $13,770 including interest; final balloon payment
due July 1, 2003; collateralized by the Lake Pointe Apartment
Complex and an assignment of rents agreement 1,838,657
Mortgage note payable to Security Bank S.S.B. in monthly
installments of $9,759 including interest; final balloon payment
due June 1, 2003; collateralized by the Forest Downs Apartment
Complex and an assignment of rents agreement 1,286,910
9,375,567
Less current maturities 6,285,979
$3,089,588
</TABLE>
The Lake Pointe Apartment Complex mortgage note payable interest rate is fixed
at 7.87% until July 1, 1998, at which time it may be adjusted semi-annually
to 3% over the monthly average cost of funds for SAIF insured institutions
from the Federal Home Loan Bank of Chicago 7th District, but never more than 12%
nor less than 6%.
The Forest Downs Apartment Complex mortgage note payable interest rate is fixed
at 8% until June 1, 1998, at which time it may be adjusted semi-annually to
3% over the monthly average cost of funds for SAIF insured institutions from
the Federal Home Loan Bank of Chicago 7th District, but never more than 12%
nor less than 6%. The mortgage note payable contains a provision which
required that on the date the property was transferred to the real estate
investment trust, the note be paid down to a balance of $887,500. The Trust
obtained a waiver from the bank allowing them to delay the paydown of the note
until December 31, 1997. In addition, WMC must continue as primary mortgagor
until the loan paydown occurs. All other terms and conditions of the note
remain unchanged.
II-15
<PAGE>
Wellington Properties Trust
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE E - LAND CONTRACT AND BUSINESS NOTE OBLIGATIONS
In connection with the acquisition of the Maple Grove Apartment Complex, the
Trust entered into two land contracts in 1995 with Monson Construction Company,
the seller. The two land contracts amounted to $1,692,000 and $1,650,947 and
required the Trust to make monthly interest-only payments beginning on August 1,
1995 and November 1, 1995, respectively. The land contracts contain a provision
that unpaid principal bears interest after maturity until paid at the same rate
of interest as paid by the seller on its mortgages that encumber the property
plus 5% (effective rate at December 31, 1996 of 14%). Balances were due in full
on April 1, 1996 and July 1, 1996, respectively. These land contracts have been
extended until May 6, 1997. During 1995, the Trust made a principal payment of
$153,506 for one of the land contracts. The total balance outstanding at
December 31, 1996 is $3,189,441.
In 1996, four business notes totaling $3,487,470 with Monson Construction
Company were entered into. These notes, in the amounts of $698,190,
$697,320, $697,320 and $1,394,640, require the Trust to make monthly interest-on
only payments beginning on May 31, 1996, July 31, 1996, May 31, 1996, and August
31, 1996, respectively, at the prime rate plus .75%. Balances were due in
full on July 1, 1996, August 1, 1996, July 1, 1996 and September 1, 1996,
respectively. These notes have been extended until May 6, 1997. The business
notes contain a provision that unpaid principal bears interest after maturity
until paid at the rate which would otherwise be applicable plus 2% (effective
rate at December 31, 1996 of 11%). The notes are collateralized by an
assignment of a land contract for Maple Grove Apartment Complex. The total
balance outstanding at December 31, 1996 is $3,487,470.
NOTE F - MORTGAGE NOTE, LAND CONTRACT AND BUSINESS NOTE OBLIGATIONS
The aggregate maturities on the mortgage note, land contract and business note
obligations for the five years and thereafter following December 31, 1996 are
as follows:
<TABLE>
<CAPTION> <C> <C> <C> <C>
Mortgage Land Contract Business Note Total
1997 $6,285,979 $3,189,441 $3,487,470 $12,962,890
1998 38,935 - - 38,935
1999 42,134 - - 42,134
2000 45,597 - - 45,597
2001 49,344 - - 49,344
Thereafter 2,913,578 - - 2,913,578
$9,375,567 $3,189,441 $3,487,470 $16,052,478
</TABLE>
II-16
<PAGE>
Wellington Properties Trust
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE G - LINE OF CREDIT
During 1996, the Trust obtained a line of credit for $1,000,000 with Milwaukee
Western Bank. Interest-only payments are due monthly with the principal due on
June 30, 1997. The interest rate is at .5% above the bank's reference rate
(effective rate at December 31, 1996 of 8.75%). At December 31, 1996, the
outstanding balance was $784,729. The line of credit is collateralized by a
second mortgage on the Lake Pointe Apartment Complex and the guarantee of WMC.
II-17
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act.
(a, b, c)
Board of Trustees, Executive Officers, Significant Employees and Family
Relationships
The Trustees and officers of the Registrant, their ages (at March 31, 1997)
and their positions and offices with the Trust are as follows:
Name Age Originally Position and
Elected Offices Held
Arnold K. Leas 63 1994 Chairman of the Board of
Trustees/President
Robert P. Ripp 70 1994 Trustee
Peter Ogden 38 1994 Independent Trustee
Gerald Sobczak 48 1994 Independent Trustee
Lyle W. Larcheid 68 1994 Independent Trustee
Gregory S. Leas 36 1994 Executive Vice President
Dale Pinkalla 40 1994 Vice President, Property
Management
Joseph L. Griese 41 1996 Vice President,
Acquisitions
Garret Nakama 52 1994 Treasurer
Robert F. Rice 46 1994 Secretary
Pursuant to the terms of the Organizational Documents, the Board of Trustees
consists of five persons, a majority of which must be independent from the
Registrant, WMC and their Affiliates. Trustees and officers are elected for
one year terms which expire at the annual meeting of the Registrant.
The Organizational Documents expressly permit the Trustees and officers to
engage in other activities including those relating to the ownership and
operation of investment properties. No policy of the Registrant restricts
Trustees from conducting, for their own accounts or on behalf of others, other
business activities including those relating to the ownership and operation
of investment properties.
III-1
<PAGE>
Arnold K. Leas (age 63), President, has been the President/CEO and a Director of
WMC since 1988. Since its inception WMC and its Affiliates have grown to
include approximately 137 employees and sales agents with offices located in
Brookfield, Grafton, Wisconsin and Oak Brook, Illinois. WMC currently manages
over $18.2 million dollars of investors' funds. Mr. Leas is a 1958 graduate of
Spencerian College with a B.B.A. degree. Since 1969, Mr. Leas has earned the
real estate designation of graduate of the Realtor Institute (GRI) and has been
involved in various aspects of the real estate industry, including acting as
Sales Director for one of Wisconsin's largest real estate firms and operating
his own firm, Wellington Realty Company. Mr. Leas has transacted real estate
acquisition and sales, directly and indirectly, in excess of $100 million.
From 1984 - 1988, Mr. Leas was Executive Vice President of a Milwaukee based
company, Decade Securities, Inc. which was involved primarily in the syndication
of multi-family apartment complexes throughout the United States in excess of
$100 million.
Robert P. Ripp (age 70) is the owner of RESI Realtor, a Milwaukee based real
estate brokerage firm. Prior to forming RESI Realtor in 1985, Mr. Ripp was the
Vice President/General Sales Manager for Wauwatosa Realty, a real estate
brokerage firm with 27 offices in the State of Wisconsin. Mr. Ripp is a Senior
Member and Past President of the Society of Real Estate Appraisers-Milwaukee
Chapter, was a member of the Board of Trustees of First Milwaukee Savings and
Loan Association, and a past President of the Wisconsin Realtors Association.
He is a graduate of Marquette University.
Peter Ogden (age 38) joined Ogden & Company in 1981 and is the President and
owner and the Vice President and owner of Ogden Development Group, Inc. which
are Milwaukee based providers of real estate services. The companies provide
real estate brokerage, leasing and property management services. They manage
over 2500 apartment and condominium units plus shopping centers, office,
industrial and mixed use buildings. Mr. Ogden is a graduate of the University
of Denver.
Gerald Sobczak (age 48) is a self employed real estate investor who owns and
operates 80 apartment units. From 1989-1990 Mr. Sobczak served as Building
Manager for American Landmark Properties and from 1984-1988 he was an Asset/
Property Manager for Eastmore Real Estate. In 1970 he received a B.A. in
Business Specialization from Marquette University.
Lyle W. Larcheid (age 68) has served as Vice President of lending at Wauwatosa
Savings Bank in Wauwatosa, Wisconsin since 1986. Prior to that time he was
Senior Executive Vice President at St. Francis Savings and Loan which acquired
First Milwaukee Savings in 1981. Mr. Larcheid served as President of First
Milwaukee Savings from 1974 until the time of the merger. Mr. Larcheid is an
SRA, licensed real estate broker, and a member of the Wisconsin Mortgage
Bankers.
Gregory S. Leas (age 36), Executive Vice President, joined WMC in 1990 and
actively participates in the management of WMC and, its Affiliates, including
the eleven operational WMC sponsored partnerships. Mr. Leas is a 1983 graduate
of the University of Wisconsin-Madison and received his J.D. degree in 1990 from
Brooklyn Law School. During 1986 - 1990 Mr. Leas was employed in the
litigation department at the New York City law firm of Fried, Frank, Harris,
Shriver & Jacobson. Mr. Leas is a member of the Wisconsin Bar Association.
III-2
<PAGE>
Garret T. Nakama (age 52), Treasurer, joined WMC in 1991 and is the Vice
President/Finance for WMC and its Affiliates, including the eleven operational
WMC sponsored entities. Mr. Nakama is a 1970 graduate of California State
University of Los Angeles and received his CPA in 1981. Mr. Nakama has had a
broad range of financial experience in private and public accounting. Prior to
joining WMC, he was employed at Nassco, Inc., a New Berlin, Wisconsin supplier
of equipment, as Controller from 1986 - 1991.
Joseph L. Griese (age 41) joined WMC in 1996 as Vice President of Acquisitions.
Mr. Griese identifies, originates, analyzes, negotiates and closes real estate
equity investments. He is a senior real estate development and investment
manager with 19 years experience with companies which owned, developed and
managed over 25,000 residential units and 3 million square feet of commercial
real estate with value in excess of $3 billion. From 1984 to 1995, he worked
for Citibank in Chicago where his responsibilities included restructuring and
completing numerous development projects and investments throughout the nation.
From 1980 to 1984, he worked for Balcor/American Express in acquisitions,
project management and asset management. Mr. Griese holds an MBA from DePaul
University and a B.S. Agricultural Engineering-Construction Administration from
the University of Wisconsin - Madison.
Dale Pinkalla (age 40) joined WMC as Director of Real Estate in 1993. Mr.
Pinkalla actively participates in all aspects of property management with
respect to investment real estate owned by WMC Affiliates and partnerships.
He received a B.A. Finance degree from the University of Wisconsin - Madison
in 1980. Mr. Pinkalla has a broad base of experience in real estate and
business. In 1981 and 1982 he worked as Broker/Sales person for Louis Gral
Investment Real Estate. From 1983-1989 he worked as a Mortgage Banking Officer/
Vice President for Wells Fargo Bank, Realty Finance. In 1989 Mr. Pinkalla
joined Blueport Development Corporation and was a partner/project manager of a
$25 million neighborhood shopping center. Upon completion of that project in
1992, he rejoined Wells Fargo Bank as an account officer for the Real Estate
Group.
Robert F. Rice, (age 46), Secretary, is Vice President and General Counsel,
joined WMC in 1993 and provides legal and other advice to WMC and its
Affiliates. He is also responsible for overseeing the Wellington real estate
operations. Mr. Rice received his B.S. degree from the University of Wisconsin
- - Milwaukee in 1973 and a J.D. degree from Marquette University Law School in
1976. Mr. Rice is a member of the Wisconsin Bar and has a broad range of
experience in both the private practice of law and as in-house counsel. From
1984 until 1989 he served as a member of the Board of Directors, officer, and
General Counsel for various affiliates of St. Francis Bank, F.S.B. The
affiliates included a real estate development company, St. Francis Development
Corporation, a real estate syndication firm, S-B-F Partners, and a property
management Company, S-B-F Management, Inc. As chief operating officer of S-B-F
Management, Inc., Mr. Rice was responsible for a portfolio of approximately $50
million of investment real estate. The portfolio was diverse as to the type and
location and included 11 shopping centers, 3 office buildings, 3 multi-family
properties, 3 nursing homes and 1 hotel located in 7 states. In 1989 Mr. Rice
formed Resource Alternatives, Inc., which provided legal and consulting services
to the real estate industry and served as an RTC contractor.
Arnold K. Leas is the father of Gregory S. Leas.
(d) Involvement in Certain Legal Proceedings
Not applicable
III-3
<PAGE>
Item 10. Executive Compensation.
The Registrant paid no compensation to its executive officers.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The Following table sets forth certain information, as of March 17, 1997,
with respect to: (i) each person who is known by the Registrant to own
beneficially more than 5% of the outstanding shares of the Registrant's Common
Shares; (ii) the beneficial ownership of Common Shares by each of the directors
and executive officers; and (iii) the beneficial ownership by all directors and
executive officers as a group. Except as noted below, all shares are owned
directly, and the owner has sole voting and investment power with respect to
such shares.
Name Number of Shares % of Class (1)
Principal Shareholders 73,835 10.66%
Wellington Management
Corporation(2)
18650 W. Corporate Drive
Suite 300
Brookfield, WI 53045
Esor & Company(3) 44,648 6.45%
P.O. Box 19006
Green Bay, WI 54307
Trustees
Arnold K. Leas 7,898 1.14%
Directors
Gregory S. Leas 362 0.05%
All Directors and Officers 8,260 1.19%
as a group (10 total)
(1) Based on total outstanding Common Shares as of March 17, 1997 of
692,599.589.
(2) The principal shareholders of Wellington Management Corporation ('WMC")
are: Arnold K. Leas (12.3%); Rose Marie Leas, wife of Arnold K. Leas
(14.3%); Rose Marie Leas Irrevocable Trust (14.3%); Herbert A. Geiger, John P.
Hartwick, M.D.; Marion Huggins, Jr.; Jack Metz; and Milton C. Zilis (5.8%
each). Mr. Leas is an officer and director of WMC. Mr. Huggins is a director
of WMC.
(3) Esor & Company is the agent of Catholic Knights Insurance Society.
Item 12. Certain Relationships and Related Transactions.
Reference is hereby made to Note B of the Registrant's financial statements
included herewith.
III-4
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
(1) Underwriting Agreement -
.1 Managing Placement Agent Agreement
.2 Selected Placement Agent Agreement
(3) .1 Articles of Incorporation -
Declaration of Trust
.2 Bylaws
.3 Stock Recontribution Agreement
(4) Instruments defining rights of Security
holders - Reference is hereby made to
the Declaration of Trust and Bylaws
(10) Material Contracts:
.1 Advisory Agreement
.2 Amendments to Real Estate Sale Contract
(Maple Grove)
.3 Assignment and Assumption Agreement
(Maple Grove)
.4 Assignment of Option Agreement
Old Sauk)
.5 Apartment Management Agreement
(Forest Downs)
.6 Apartment Management Agreement (Form)
.7 Real Estate Sale Contract (Forest Downs)
.8 Real Estate Sale Contract (Lake Pointe)
.9 Real Estate Sale Contract (12 Unit Property)
.10 Real Estate Sale Contract (Phase II)
(23) Consents of Experts and Counsel:
.1 Grant Thornton
(99) Additional Exhibits:
.1 Escrow Agreement
.2 Forest Downs Appraisal
*Incorporated by reference to the Registration Statement.
Shareholders may obtain a copy of any exhibit listed in Item 13(a) by writing to
Robert F. Rice, Secretary of the Registrant. Reasonable expenses will be
charged for copies and postage.
(b) Reports on Form 8-K
A report on Form 8-K dated March 21, 1995 was filed on March 21, 1995 which
reported the potential acquisition of Maple Grove Apartments the following
financial statements relating to Maple Grove were included in the report:
III-5
<PAGE>
Maple Grove Apartment Complex
Report of Independent Certified Public Accountant dated November 14, 1994
Statements of Revenue and Certain Expenses for years ended September 30, 1992,
1993 and 1994 and for the three months ended December 31, 1993 and 1994
Note to Statements of Revenue and Certain Expenses
A report on Form 8-K dated May 3, 1995 was filed on May 3, 1995 reported the
acquisition of the first 172 units of Maple Grove Apartments and included the
financial statements described above.
A report on Form 8-K dated October 5, 1995 was filed on October 5, 1995 reported
the acquisition of an additional 60 units at Maple Grove Apartments plus
the land on which to build the final 60 units and included the financial
statements above.
A report on Form 8-K dated January 10, 1996 and filed on January 15, 1996
reported the acquisition of Lake Pointe Apartments.
A report on Form 8-K dated March 4, 1996 and filed March 4, 1996 reported the
acquisition of Lake Pointe Apartments and included the following financial
statements:
Lake Pointe Apartments
Statements of Revenue and Certain Expenses for the years ended December 31,
1993, 1994 and 1995.
Note to Statements of Revenue and Certain Expenses.
A report on Form 8-K dated January 13, 1997 and filed on January 13, 1997
reported the acquisition of the final 12 units at Maple Grove Apartment
Homes, Madison, Wisconsin.
III-6
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WELLINGTON PROPERTIES TRUST
By:/s/Arnold K. Leas
Arnold K. Leas, President
Dated: March 31, 1997
KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Arnold K. Leas and Gregory S. Leas, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Report on Form 10-KSB
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/Arnold K. Leas Chief Executive Officer and March 31, 1997
Arnold K. Leas Trustee (Principal Executive
Officer)
/s/Garret Nakama Treasurer (Principal March 31, 1997
Garret Nakama Financial and Accounting
Officer)
/s/Lyle Larcheid Trustee March 31, 1997
Lyle Larcheid
/s/Peter Ogden Trustee March 31, 1997
Peter Ogden
/s/Robert Ripp Trustee March 31, 1997
Robert Ripp
/s/Gerald Sobczak Trustee March 31, 1997
Gerald Sobczak
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JAN-01-1996
<CASH> 198,708
<SECURITIES> 0
<RECEIVABLES> 8,485
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 565,169
<PP&E> 22,001,980
<DEPRECIATION> 753,053
<TOTAL-ASSETS> 21,870,824
<CURRENT-LIABILITIES> 14,884,682
<BONDS> 0
0
0
<COMMON> 6,848
<OTHER-SE> 3,889,706
<TOTAL-LIABILITY-AND-EQUITY> 21,870,824
<SALES> 0
<TOTAL-REVENUES> 2,566,114
<CGS> 0
<TOTAL-COSTS> 1,940,454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,338,597
<INCOME-PRETAX> (712,938)
<INCOME-TAX> 0
<INCOME-CONTINUING> (712,938)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (712,938)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
