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 March 31, 1998
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 March 31, 1998 720,214 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 March 31, 1998
INDEX
PART I. Financial Information:
Consolidated Balance Sheet - March 31, 1998 Page 3
Consolidated Statement of Operations -
three months ended March 31, 1998 (unaudited) Page 4
Consolidated Statement of Cash Flows -
three months ended March 31, 1998 (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
MARCH 31, 1998
ASSETS
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
RENTAL PROPERTY - AT COST
LAND $2,793,582 $3,110,508
BUILDING 16,674,817 17,958,742
APPLIANCES AND EQUIPMENT 840,962 932,729
20,309,361 22,001,980
ACCUMULATED DEPRECIATION (1,248,278) (898,713)
NET PROPERTY AND EQUIPMENT 19,061,083 21,103,267
CASH 60,734 14,048
PREPAID EXPENSES 198,611 271,610
OTHER 26,458 18,319
ORGANIZATION COSTS NET OF ACCUMULATED
AMORTIZATION 642,423 68,489
928,225 372,466
TOTAL ASSETS $19,989,309 $21,475,733
LIABILITIES AND EQUITY
MORTGAGE NOTE PAYABLE $15,872,190 $16,832,325
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 635,229 699,204
ACCOUNTS PAYABLE - RELATED PARTY 23,106 137,417
TENANT SECURITY DEPOSITS 122,230 136,161
TOTAL LIABILITIES $16,652,755 $17,775,106
EQUITY
COMMON STOCK - 100,070,000 AUTHORIZED
720,214 SHARES OUTSTANDING,
RESPECTIVELY; PAR VALUE
$0.01 7,202 6,919
PREFERRED STOCK - 500,000 SHARES AUTHORIZED;
NO SHARES ISSUED OR OUTSTANDING; PAR
VALUE $0.01 0 0
ADDITIONAL PAID - IN CAPITAL 6,317,764 6,082,835
EXCESS OF PURCHASE PRICE OVER
AFFILIATES'S BASIS IN PROPERTY ACQUIRED 0 (152,615)
DIVIDENDS PAID (1,529,080) (1,159,737)
ACCUMULATED DEFICIT (1,459,332) (1,076,776)
3,336,554 3,700,627
TOTAL LIABILITIES AND EQUITY $19,989,309 $21,475,733
</TABLE>
(SEE ACCOMPANYING NOTES)
<PAGE>
<TABLE>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES
RENTAL INCOME $765,930 $807,559
INTEREST INCOME AND OTHER 63 254
TOTAL REVENUE $765,993 807,812
EXPENSES
PROPERTY OPERATING AND
MAINTENANCE 198,098 183,555
REAL ESTATE TAXES AND
INSURANCE 109,645 113,824
DEPRECIATION AND AMORTIZATION 145,596 151,191
INTEREST EXPENSE 314,417 407,959
GENERAL AND ADMINISTRATIVE 73,147 71,833
TOTAL EXPENSES $840,904 $928,361
NET OPERATING INCOME/(LOSS) ($74,911) ($120,549)
LOSS PER COMMON SHARE:
NET LOSS ($0.10) ($0.17)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 719,317 690,724
</TABLE>
(SEE ACCOMPANYING NOTES)
<PAGE>
<TABLE>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD FROM JANUARY 1, THROUGH MARCH 31,
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
NET LOSS ($74,911) ($120,549)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
DEPRECIATION AND AMORTIZATION 145,596 151,191
CHANGES IN ASSETS AND LIABILITIES
NET OF EFFECT OF ASSETS AND
LIABILITIES ASSUMED
PREPAID EXPENSES 35,763 1,554
ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES (66,658) (62,787)
ACCOUNTS PAYABLE - RELATED PARTY 3,732 (63,269)
TENANT SECURITY DEPOSITS 770 5,231
119,204 31,920
NET CASH USED IN OPERATING
ACTIVITIES 44,293 (88,629)
CASH FLOWS USED BY INVESTING ACTIVITIES:
OTHER 0 0
APPLIANCE AND EQUIPMENT ACQUISITION (2,638) (17,292)
(2,638) (17,292)
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENTS ON MORTGAGE NOTE PAYABLE (2,344,065) (676,730)
MORTGAGE NOTE PAYABLE 2,313,715 671,847
ISSUANCE OF COMMON STOCK 59,529 71,654
DIVIDENDS PAID (124,046) (145,510)
NET CASH PROVIDED BY
FINANCING ACTIVITIES (94,867) (78,738)
NET DECREASE IN CASH (53,211) (184,659)
CASH AT BEGINNING OF PERIOD 113,945 198,706
CASH AT END OF PERIOD $60,734 $14,048
</TABLE>
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
For the period January 1, 1998 through March 31, 1998
(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"). The Trust also has a contract pending to
purchase 144 units in Des Moine. The closing is expected to occur in June
1998. It is the intention of the Trust to continue to seek well located
properties for future acquistions.
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, 1998 through March 31, 1998
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.
NOTE B - RELATED PARTY TRANSACTIONS
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, 1998 through March 31, 1998
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, 1998 through March 31, 1998 were $37,608.07.
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 or 1998.
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, 1998 through March 31, 1998
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 or
1998.
NOTE C - MORTGAGE NOTES PAYABLE AND OTHER FINANCING
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, 1998 through March 31, 1998
Lake Pointe
As of March 30, 1998, Wellington Properties Trust was liable on a mortgage
note payable of $2,750,000. The note requires monthly payments of $19,417.06
including interest at 7.6%. The mortgage is due March 2008 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, 1998 are as follows:
<TABLE>
<CAPTION>
Lake Maple Total
Pointe Grove
<S> <C> <C> <C>
1998 15,488.08 110,106.41 125,594.49
1999 23,110.97 119,357.77 142,468.74
2000 24,956.04 129,386.45 154,342.49
2001 26,948.43 140,257.76 167,206.19
2002 29,099.88 152,042.49 181,142.37
thereafter 2,630,396.60 12,197,738.86 14,828,135.46
2,750,000.00 12,848,889.74 15,598,889.74
</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, 1998. The interest rate is at .5% above the bank's reference
rate (effective rate at March 31, 1998 of 9%). At March 31, 1998, the
outstanding balance was $300,000. The line of credit is collateralized by
the guarantee of WMC.
NOTE D - COMMITMENTS
None
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the period January 1, 1998 through March 31, 1998
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
March 31, 1998 there were 720,214 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 three months ended March 31, 1998. Occupancy at Maple
Grove was 94.1% and Lake Pointe was 100%.
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 having achieved substantial stabilized occupancy, Management
is aggressively pursuing additional acquisition opportunities. There are
ongoing negotiations with respect to several properties and the Trust has
entered into a contract to purchase 144 units in Des Moines, Iowa, subject to
due diligence. Management has negotiated a credit facility to be used to
fund acquisitions with a major finanical institution. The credit facility
makes approximately $14,250,000 available to the Trust to acquire additional
properties.
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.
On March 5, 1998 the Trust completed the refinancing of Lake Pointe for
$2,750,000 with interest fixed at 7.6% per annum for 10 years. A balloon
payment will be due on March 11, 2008. Monthly payments of principal and
interest of $19,417.06 are based on a 30 year amortization schedule.
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, 1998 through March 31, 1998
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
At its regular meeting on March 25, 1998, the Board of Trustees voted to pay
a dividend to Common Shareholders with respect to the quarter ended March
31, 1998 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: May 14, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 60,734
<SECURITIES> 0
<RECEIVABLES> 26,458
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 928,225
<PP&E> 20,309,362
<DEPRECIATION> 1,248,278
<TOTAL-ASSETS> 19,989,309
<CURRENT-LIABILITIES> 863,971
<BONDS> 0
0
0
<COMMON> 7,202
<OTHER-SE> 3,329,352
<TOTAL-LIABILITY-AND-EQUITY> 19,989,309
<SALES> 0
<TOTAL-REVENUES> 765,993
<CGS> 0
<TOTAL-COSTS> 526,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 314,417
<INCOME-PRETAX> (74,911)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,911)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
