UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25074
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 Identification
Number)
18650 West Corporate Drive, P.O. Box 0919, Brookfield, Wisconsin 53008
Address of principal executive offices) (zip code)
Issuer's telephone number: 414-792-8900 Fax number: 414-792-8930
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
As of September 30, 1997 704,852.112 shares of the issuer's common stock were
outstanding.
Transitional Small Business Disclosure Format(Check one): Yes ;NoX (Added by
Exch Act Rel No. 31905, eff 4/26/93.)
This report contains 13 pages. There is one exhibit.
<PAGE>
WELLINGTON PROPERTIES TRUST
FORM 10QSB
For the Quarter Ended September 30, 1997
INDEX
PART I. Financial Information:
Consolidated Balance Sheet - September 30, 1997 Page 3
Consolidated Statement of Operations -
nine months ended September 30, 1997 (unaudited) Page 4
Consolidated Statement of Cash Flows -
nine months ended September 30, 1997 (unaudited) Page 5
Notes to Financial Statements Page 6
Management's Discussion and Analysis or
Plan of Operations Page 11
PART II. Other Information
Other Information Page 12
Exhibits and Reports on Form 8-K Page 12
Signatures Page 13
<PAGE>
<TABLE>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
ASSETS
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
RENTAL PROPERTY - AT COST
LAND $2,775,878 $3,033,557
BUILDING 16,674,817 17,432,250
APPLIANCES AND EQUIPMENT 837,050 728,574
20,287,745 21,194,381
ACCUMULATED DEPRECIATION (977,180) (585,160)
NET PROPERTY AND EQUIPMENT 19,310,565 20,609,221
CASH 74,954 168,073
PREPAID EXPENSES 249,977 414,214
LAND CONTRACT RECEIVABLE 0 0
OTHER 33,931 21,052
ORGANIZATION COSTS NET OF ACCUMULATED
AMORTIZATION 230,218 78,823
589,079 682,162
TOTAL ASSETS $19,899,644 $21,291,383
LIABILITIES AND EQUITY
MORTGAGE NOTE PAYABLE $15,422,902 $16,054,269
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 670,141 599,915
ACCOUNTS PAYABLE - RELATED PARTY 23,081 158,121
TENANT SECURITY DEPOSITS 120,286 128,295
TOTAL LIABILITIES $16,236,409 $16,940,600
EQUITY
COMMON STOCK - 100,070,000 AUTHORIZED
708,552 AND 704,852 SHARES ISSUED AND
OUTSTANDING, RESPECTIVELY; PAR VALUE
$0.01 7,060 6,778
PREFERRED STOCK - 500,000 SHARES AUTHORIZED;
NO SHARES ISSUED OR OUTSTANDING; PAR
VALUE $0.01 0 0
ADDITIONAL PAID - IN CAPITAL 6,195,947 6,087,876
EXCESS OF PURCHASE PRICE OVER
AFFILIATES'S BASIS IN PROPERTY ACQUIRED 0 (152,615)
DIVIDENDS PAID (1,278,999) (727,538)
ACCUMULATED DEFICIT (1,260,773) (863,718)
3,663,235 4,350,784
TOTAL LIABILITIES AND EQUITY $19,899,644 $21,291,383
</TABLE>
(SEE ACCOMPANYING NOTES)
<PAGE>
<TABLE>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
SIX SIX
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
RENTAL INCOME $2,242,005 $1,859,590
INTEREST INCOME AND OTHER 209,230 7,859
TOTAL REVENUE $2,451,236 $1,867,449
EXPENSES
PROPERTY OPERATING AND
MAINTENANCE 550,207 516,784
REAL ESTATE TAXES AND
INSURANCE 325,035 369,485
DEPRECIATION AND AMORTIZATION 453,927 349,924
INTEREST EXPENSE 1,073,217 887,519
GENERAL AND ADMINISTRATIVE 200,781 211,551
TOTAL EXPENSES $2,603,166 $2,335,263
NET OPERATING INCOME/(LOSS) ($151,931) ($467,814)
LOSS PER COMMON SHARE:
NET LOSS ($0.22) ($0.71)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 696,642 656,165
</TABLE>
(SEE ACCOMPANYING NOTES)
<PAGE>
<TABLE>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH JUNE 30, 1997
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
NET LOSS ($151,931) ($467,814)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
GAIN ON SALE (182,649) 0
DEPRECIATION AND AMORTIZATION 453,927 349,924
CHANGES IN ASSETS AND LIABILITIES
NET OF EFFECT OF ASSETS AND
LIABILITIES ASSUMED
PREPAID EXPENSES 81,193 (113,498)
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES (101,961) 119,832
ACCOUNTS PAYABLE - RELATED PARTY (187,953) 56,416
TENANT SECURITY DEPOSITS (10,644) 42,964
51,912 454,964
NET CASH USED IN OPERATING
ACTIVITIES (100,018) (12,850)
CASH FLOWS USED BY INVESTING ACTIVITIES:
PROCEEDS ON SALE OF ASSETS 1,917,227 0
LAND CONTRACT RECEIVABLE 0 0
APPLIANCE AND EQUIPMENT ACQUISITION (62,938) (7,243,010)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES: 1,854,289 (7,243,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENTS ON MORTGAGE NOTE PAYABLE (14,854,048) (23,105)
ISSUANCE OF COMMON STOCK 184,907 1,929,449
DIVIDENDS PAID (440,546) (388,517)
PROCEEDS FROM MORTGAGE NOTE PAYABLE 13,231,664 5,337,462
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,878,023) 6,855,289
NET DECREASE IN CASH (123,752) (400,571)
CASH AT BEGINNING OF PERIOD 198,706 568,644
CASH AT END OF PERIOD $74,954 $168,073
</TABLE>
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
For the period January 1, 1997 through September 30, 1997
(Unaudited)
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Wellington Properties Trust (Trust) is a real estate investment trust organized
in the state of Maryland. It was formed on March 15, 1994 to acquire, develop,
own and operate investment real estate. The Trust's year end is December 31.
During the quarter covered by this report, the Trust owned a 72 unit apartment
complex in Schofield, Wisconsin acquired on January 5, 1996 ("Lake Pointe") and
a property in Madison, Wisconsin with 304 apartments ("Maple Grove")
(collectively the "Properties"). It is the intention of the Trust to continue
to seek well located properties for future acquisitions.
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. The Properties use a 40-year estimated life for buildings
and a ten-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. Initial direct leasing costs are expensed as incurred and such expense
approximates the deferral and amortization of initial direct leasing costs over
the lease terms.
2. Organization Costs
The costs incurred in connection with the formation of the Trust are being
amortized on a straight-line basis over a period of five years.
3. Financial Investments
Financial investments consisting of cash and mortgage notes payable are
recorded at cost, which approximates fair market value.
4. Revenue Recognition
Rental income attributable to leases is recorded when due from tenants and
interest income is recorded on an accrual basis.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the period January 1, 1997 through September 30, 1997
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
5. Income Taxes
The Trust 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. The Trust qualifies for taxation as a REIT, and
as such 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.
6. Loss Per Share
Net loss per share is computed based on the weighted average number of shares
of common stock outstanding for the period.
Acquisition of Forest Downs
Forest Downs was acquired by Wellington Management Corporation on May 19, 1993,
as an operating property. On March 31, 1994, Wellington Management Corporation
sold Forest Downs to the Trust at a cost of $1,890,000. On April 10, 1997, the
Trust sold Forest Downs for $2,000,000.
Arnold K. Leas, who was the sole stockholder of the Trust prior to the stock
offering discussed in Note E and is President and Chairman of the Board of
Trustees of the Trust and is the President/CEO and a Director of Wellington
Management Corporation (WMC). WMC Realty Inc. (Realty) and Wellington
Investment Services Corp. (WISC) are wholly-owned subsidiaries of Wellington
Management Corporation.
Due to the common control, the Trust's basis in Forest Downs was 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.
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.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the period January 1, 1997 through September 30, 1997
NOTE B - RELATED PARTY TRASACTIONS - Continued
The Trust assumed the mortgage note payable on the property of $1,856,760
(note C), 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
WMC was issued 70,000 shares of common stock of the Trust. In consideration
thereof, WMC has: 1) assigned, to the Trust, its rights in a certain
Acquisition Property Contract related to the purchase of a 292 unit apartment
complex, known as Maple Grove, located in Madison, Wisconsin; 2) assigned, to
the Trust, its rights in a certain Option Agreement; and 3) agreed to reduce
its note receivable from the Trust, by $300,000.
Management Fees
The Trust has entered into a Property Management Agreement with Realty 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 period January 1, 1997 through September 30, 1997 were $109,219.56.
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, which is in process.
Advisor fees for the period March 15, 1995 through December 31, 1995 were
$206,555.82. Fees for the period January 1, 1996 through December 31, 1996
were $3,316.00. No Advisor fees have been paid during 1997.
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. 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 was 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.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For period January 1, 1997 through September 30, 1997
NOTE B - RELATED PARTY TRANSACTIONS - Continued
Commission
WISC 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 year ended
December 31, 1995 were $179,720.25 and for the period January 1, 1996 through
December 31, 1996 were $8,224.96. No Commissions have been paid in 1997.
NOTE C - MORTGAGE NOTES PAYABLE AND OTHER FINANCING
Forest Downs
The mortgage note payable at December 31, 1994 is collateralized by Forest
Downs and an assignment of rents agreement. The 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 insurance institutions from the
Federal Home Loan Bank of Chicago 7th District, but never more than 12% nor
less than 6%. The weighted average interest rate for the period from March 15,
1994 through December 31, 1994 and the effective rate at December 31, 1994 is
8%. The rate at June 30, 1997 was 8%. 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. Payments are due in monthly
installments of $9,759 including interest, with a final balloon payment due
June 1, 2003. The note was repaid in full in July 1997.
Maple Grove
The mortgage payable with respect to Maple Grove is collateralized by Maple
Grove and an assignment of rents. The interest rate is fixed at 8.095%.
Payments are due in monthly installments of principal and interest of $95,516.53
with a final Balloon payment due June 1, 2004.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the period January 1, 1997 through September 30, 1997
Lake Pointe
As of January 5, 1996, Wellington Properties Trust was liable on a mortgage
note payable of $1,856,760. The note requres monthly payments of $13,770
including interest at 7.87%. Beginning July 1998, the monthly payment amount
and interest rate will be adjusted simi-annually to a rate of 3% over prime
with a maximum interest rate of 12% and a minimum interest rate of 6%. The
mortgage is due July 2003 and is secured by the rental property and an
assignment of rents.
The aggregate maturities on the mortgage note payable for the five years and
thereafter following December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Lake Maple Total
Pointe Grove
<S> <C> <C> <C>
1997 21,292 51,810 472,512
1998 23,029 110,106 180,973
1999 24,908 119,358 196,074
2000 26,941 129,386 212,436
2001 29,139 140,258 230,162
thereafter 1,713,348 12,349,781 14,734,110
1,838,657 12,900,700 16,026,267
</TABLE>
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
December 31, 1997. The interest rate is at .5% above the bank's reference rate
(effective rate at September 30, 1997 of 9%). At September 30, 1997, the
outstanding balance was $725,000. The line of credit is collateralized by a
second mortgage on the Lake Pointe Apartment Complex and the guarantee of WMC.
NOTE D - COMMITMENTS
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the period January 1, 1997 through September 30, 1997
NOTE E - COMMON STOCK
On August 2, 1994, the Board of Trustees approved an increase in the number of
shares of authorized common stock of the Trust to 100,070,000 shares. As of
September 31, 1997 there were 704,852.112 Common Shares outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company marketed the Common Shares until October 25, 1995 and as offering
proceeds were available it acquired investment real estate. To date the
Company has acquired 410 apartment units located in three properties (Forest
Downs, Lake Pointe and Maple Grove). On April 10, 1997, the Trust sold Forest
Downs for $2,000,000.
On May 1, 1995 the Company acquired 172 apartment units at Maple Grove. The
property was 96.5% occupied on that date. On June 30, 1995 the Company
acquired an additional 36 units at Maple Grove. On October 2, 1995 it acquired
an additional 24 units at Maple Grove, plus land and plans for an additional 60
units. Construction of the final 60 units at Maple Grove was completed on
approximately August 31, 1996. On December 30, 1996 the Company acquired the
final 12 units at Maple Grove for $792,000. The Company used available cash and
the proceeds of a line of credit from Milwaukee Western Bank to purchase the
property.
The Company acquired Lake Pointe Apartments in January 1996 by an assumption of
debt and issuance of its stock to the owners. Lake Pointe consists of 72 units.
Due to the Company's rapid expansion a comparison with comparable prior
periods is not meaningful. Occupancy at the properties has remained consistant
with respect to the six months ended September 30, 1997. Occupancy at Maple
Grove was 90% and Lake Pointe was 98.2%.
Until October 25, 1995, the Company offered its Common Shares to the public.
The proceeds of the offering were used: (i) to reduce existing debt; (ii) to
acquire additional properties; and (iii) to establish reserves as deemed
appropriate.
With Maple Grove nearing stabalized occupancy, Management is aggressively
pursuing additional acquisition opportunities. There are ongoing negotiations
with respect to several properties. Management is also negotiating a credit
facility to be used to fund acquisitions with a major finanical institution.
On May 6, 1997 the Company obtained permanent financing with respect to Maple
Grove in the amount of $12,900,700. The loan provides for monthly payments of
principal and interest based on a 30 year amortization schedule with a Balloon
at the end of the seventh year. Interest is fixed at 8.095% per annum for the
term of the loan.
The proceeds from the sale of Forest Downs were used to retire the first
mortgage with respect to Forest Downs and to reduce the line of credit with
Milwaukee Western Bank and various accrued payables.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the period January 1, 1997 through September 30, 1997
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
At its regular meeting on September 23, 1997, the Board of Trustees voted to pay
a dividend to Common Shareholders with respect to the quarter ended September
30, 1997 of $.1750 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no Reports filed on Form 8-K during the quarter.
EXHIBIT INDEX
FINANCIAL DATA SCHEDULE EX-27
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant 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
Date: November 5, 1997 By: \S\Garret Nakama
Garret Nakama
Chief Financial Officer
Signing on behalf of the registrant and as principal financial and accounting
officer.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 74,954
<SECURITIES> 0
<RECEIVABLES> 33,931
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 358,861
<PP&E> 20,517,963
<DEPRECIATION> 977,180
<TOTAL-ASSETS> 19,899,644
<CURRENT-LIABILITIES> 845,154
<BONDS> 0
0
0
<COMMON> 7,060
<OTHER-SE> 3,656,175
<TOTAL-LIABILITY-AND-EQUITY> 19,899,644
<SALES> 0
<TOTAL-REVENUES> 2,451,236
<CGS> 0
<TOTAL-COSTS> 1,529,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,073,217
<INCOME-PRETAX> (151,930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (151,930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,930)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
