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, 1998
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
Identification Number)
18650 W. Corporate Drive, Suite 300, P.O. Box 0919, Brookfield, Wisconsin
53008-0919 (Address of principal executive offices) (zip code)
Issuer's telephone number: 414-792-8900 Fax number: 414-792-8936
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.
<PAGE>
Issuer's revenues for its most recent fiscal year will be filed by amendment.
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based upon the market price as of April 12, 1999 -
$6,007,626.
Number of Common Shares outstanding as of April 12, 1999 - 1,351,625 (adjusted
to give effect to the Company's 4.75 for 3.00 stock split to shareholders of
record on March 22, 1999).
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
1998 FORM 10-KSB
TABLE OF CONTENTS
PART I
Page
Item 1 Description of Business I-1
Item 2 Description of Property I-2
Item 3 Legal Proceedings I-3
Item 4 Submission of Matters to a Vote of Securities Holders I-3
PART II
Item 5 Market for Common Equity and Related II-1
Security Holder Matters
Item 6 Management's Discussion and Analysis or Plan of Operation II-2
Item 7 Financial Statements II-6
Item 8 Changes In and Disagreements with Accountants on Accounting II-6
and Financial Disclosure
PART III
Item 9 Directors, Executive Officers, Promoters and Control III-1
Persons,Compliance With Section 16(a) of the Exchange Act
Item 10 Executive Compensation III-4
Item 11 Security Ownership of Certain Beneficial Owners III-8
and Management
Item 12 Certain Relationships and Related Transactions III-10
Item 13 Exhibits and Reports on Form 8-K III-11
SIGNATURES III-13
<PAGE>
PART I
Item 1. Description of Business.
Wellington Properties Trust (the "Company") is a Maryland trust formed
on March 15, 1994.
Effective January 1, 1996 the Company has operated as a real estate investment
trust ("REIT") and expects to continue to operate as a REIT under Section
856 through 860 of the Internal Revenue Code. Under such provisions, the
Company must distribute at least 95% of its taxable income to its
shareholders and meet certain other asset and income tests. As a REIT, the
Company generally is not subject to federal income tax.
As of December 31, 1998, the Company owns two residential and three commercial
properties. The Company owns the residential properties through two
wholly owned subsidiaries. The Company's interests in the commercial
properties are held through its subsidiary partnership, Wellington Properties
Investments, L.P., a Delaware limtied partnership (the "Operating Partnership").
Effective August 31, 1998, the Company entered into a certain Amended and
Restated Master Contribution Agreement by and among the Company, the Operating
Partnership, American Real Estate Equities, a Delaware limited liability
company ("AREE") and certain other unrelated parties (the "Master
Contribution Agreement"). Further effective August 31, 1998, the Company
entered into a certain Contribution Agreement (the "WMC Contribution Agreement")
by and between the Operating Partnership and Wellington Management Corporation,
a Wisconsin corporation ("WMC"). In connection therewith, the Company held
a special meeting of Shareholders on November 16, 1998, at which the
Shareholders approved, among other things, the transactions contemplated by
the Master Contribution Agreement and the WMC Contribution Agreement. As
a result, the Company expanded its Board of Trustees from five to seven
members. The shareholders of the Company elected Paul T. Lambert and Steven
B. Hoyt to fill these two newly created positions, with terms expiring in
2001 and 2002, respectively. Also in connection with the Master Contribution
Agreement, Duane H. Lund was elected Chief Executive Officer of the Company
and Robert F. Rice was elected President. Arnold K. Leas, formerly the
President of the Company, remains as the Chairman of the Board of Trustees of
the Company.
I-1
<PAGE>
As contemplated by the Master Contribution Agreement, on November 16, 1998,
the Company issued to AREE 166,666 common shares of beneficial interest, $0.01
par value per share ("Common Shares") in exchange for $1,000,000.
Furthermore, the Company issued warrants to acquire up to 791,667 Common
Shares to each of AREE and WMC. The Warrants will become exercisable one
year after the date of issuance (November 16, 1999) and will be exercisable
for a nine-year period thereafter, at an exercise price of $5.37 per Common
Share with respect to 395,833 Warrants held by each of AREE and WMC, $6.47
per Common Share with respect to 197,917 Warrants, $7.74 per Common Share
with respect to 118,750 Warrants held by each of AREE and WMC and $9.32 per
Common Share with respect to 79,167 Warrants held by each of AREE and WMC.
Arnold K. Leas, the Chairman of the Board of Trustees of the Company, is the
President and Chief Executive Officer of WMC and owns, together with members
of his immediate family and trusts for the benefit of such persons,
approximately 41.8% of the outstanding capital stock of WMC.
Also as contemplated by the Master Contribution Agreement and the WMC
Contribution Agreement during 1998, the Company terminated its advisory fee
arrangements between the Company and WMC, paid WMC $310,000 as partial
consideration thereof and, effective November 16, 1998, the Company became
self administered.
On November 20, 1998, pursuant to the Master Contribution Agreement, the
Company, through the Operating Partnership acquired three commercial properties
(the "1998 Acquisition Properties" or the "Commercial Properties") in
exchange for issuance of the Operating Partnership of 2,557,707 limited
partnership units ("Units") and the assumption of debt aggregating
$17,066,000. The Units are exchangeable, under certain circumstances, on
a one-for-one basis for Common Shares in the Company, from and after the
one-year anniversary of the date of issuance.
AREE is owned in equal thirds by WLPT Funding, LLC, a Delaware limited
liability company, ("WLPT Funding"), Lambert Equities II, LLC, a Delaware
limited liability company ("Lambert Equities") and Steven B. Hoyt, a Trustee
of the Company. As a result of the 1998 acquisitions, 204,904 Units were
issued to AREE, 483,412 Units were issued to WLPT Funding, 483,412 Units
were issued to Lambert Equities and 1,239,248 Units were issued to Mr. Hoyt
and his wife. Each of AREE, WLPT Funding, Lambert Equities and Mr. Hoyt
have agreed not to transfer any of these Units for a two-year period after
the date of issuance.
Properties owned by the Company will compete with other rental properties.
On December 31, 1998 the Company had 12 employees.
Item 2. Description of Property.
As of December 31, 1998 the Company owned interests in the properties
described below.
% Leased as
Location of 12/31/98 Description of Property/Ownership Interest
Residential:
Madison, Wisconsin 95.3% Maple Grove Apartments, 304 unit apartment
community.
Schofield, Wisconsin 98.2% Lake Pointe Apartments, 72 unit apartment
community.
I-2
<PAGE>
Commercial:
Rentable Square Tenants Leasing 10%
Feet or More of Rentable
(Office)/Gross Sq. Ft. as of
% Leased as Leaseable Area 11/30/98 & Lease
Property Location of 12/31/98 (Industrial) Expiration Date
Cold Springs Office 99% 77,533 Cold Springs Granite
Center (55%)-4/02; Central
St. Cloud, MN (the MN ECSU (14%)-9/02;
"Cold Springs Center") First American Bank
(17%)-4/05
Thresher Square East/West 100% 119,272 BRW, Inc.(48%)-7/01;
Minneapolis, MN ("Thresher Search Institute
Square") (16%)-8/02
Nicollet Business VI 100% 50,291 Wakata Design
Burnsville, MN ("Nicollet Systems (19%)-3/02;
VI") Quickdraw Design,
Inc. (30%)-8/02;
Xata Corp. (41%)-
6/04
As of December 31, 1998 the properties of the Company are encumbered as follows:
Residential:
Maple Grove Apartments Mortgage Note to American Property
Financing Inc in the amount of
$12,738,783 maturing June 1, 2004
Lake Pointe Apartments Mortgage Note to First Union National
Bank in the amount of $2,734,512
maturing March 11, 2008
Commercial:
Cold Springs Center Mortgage Note to Bremmer Bank N.A.
in the amount of $5,596,633 maturing
October 1, 2000
Cold Springs Center Mortgage Note to Bremmer Business
Financial Corp. in the amount of
$1,875,000 maturing September 30,
2000
Thresher Square (East) Commercial Development Revenue
Refunding Bonds in the amount of
$4,095,000 maturing May 1, 2015
Thresher Square (West) Commercial Development Revenue
Refunding Bonds in the amount of
$3,135,000 maturing June 1, 2010
Nicollet VI Mortgage Note to GMAC in the amount
of $2,330,224 maturing February 1,
2008
I-3
<PAGE>
The Apartment Properties are generally occupied under leases having a
term of one year or less. The Commercial Properties have leases of varying
terms.
The Properties are all less than 7 years old or have been renovated
within the last seven years and therefore there are no plans for significant
improvements or renovations.
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.
The following matters were submitted to a vote of security holders during
the Company's fourth quarter:
(a) Meeting type and date Special meeting held on November 16, 1998
(b) Directors elected at meeting See discussion below
(c) Description of each matter voted on at meeting:
1. Approve a transaction (the "Transaction") the principal components
of which of which are as follows: (a) Wellington Properties Investments, L.P.,
a Delaware limited partnership in which the Company is the sole general
partner (the "Operating Partnership"), or one or more of the Operating
Partnership's wholly owned subsidiaries will acquire 31 office and light
industrial properties in exchange for the issuance of 15,612,993
partnership units that will be exchangeable, under certain circumstances, on
a one-for-one basis, for Common Shares of the Company, the payment of
approximately $35.2 million in cash, and the assumption of approximately
$71.8 million in indebtedness; (b) the Company will issue warrants to
acquire up to 1,583,334 Common Shares; (c) the Company will issue 166,666
Common Shares; (d) the Company will enter into a new credit facility; (e) the
Company will pay to an affiliate of the Company a cash termination fee of
approximately $1.6 million, and the advisory agreement between the Company and
such affiliate will be terminated; (f) the Company will enter into employment
agreements with Duane H. Lund and Robert F. Rice to serve as the Company's
Chief Executive Officer and President, respectively; and (g) the Company will
enter into property management agreements with various persons and entities
with respect to the day-to-day operations and leasing of the properties to
be acquired.
I-4
<PAGE>
Results of votes:
1. (a)
For 407,258.170
Against or withheld 4,050.993
Abstentions and broker non-votes 14,690.766
1. (b)
For 406,126.490
Against or withheld 4,762.993
Abstentions and broker non-votes 15,110.441
1. (c)
For 406,652.490
Against or withheld 4,050.993
Abstentions and broker non-votes 15,296.441
1. (d)
For 406,919.170
Against or withheld 4,050.993
Abstentions and broker non-votes 15,029.766
1. (e)
For 402,237.260
Against or withheld 5,509.607
Abstentions and broker non-votes 18,253.065
1. (f)
For 405,614.420
Against or withheld 5,009.300
Abstentions and broker non-votes 15,376.208
1. (g)
For 407,258.170
Against or withheld 4,050.993
Abstentions and broker non-votes 14,690.766
2. Approve certain amendments to the Company's Declaration of Trust, including
classification of the Board of Trustees, which amendments are set forth in
Articles of Amendment and Restatement that shall take effect only upon
consummation of the initial closing in connection with the Transaction.
Results of votes:
For 407,804.120
Against or withheld 4,050.993
Abstentions and broker non-votes 14,144.815
I-5
<PAGE>
3. Elect two additional members of the Board of Trustees of the Company and
to elect certain of the current members of the Board of Trustees to serve
extended terms, which elections shall take effect only upon consummation of
the initial closing in connection with the Transaction.
Results of votes:
For 400,872.510
Against or withheld 12,892.605
Abstentions and broker non-votes 971.204
4. Approve the adoption of Wellington Properties Trust 1998 Share Option Plan.
Results of votes:
For 403,655.390
Against or withheld 6,947.915
Abstentions and broker non-votes 15,396.626
I-6
<PAGE>
PART II
Item 5. The Common Shares are listed on NASDAQ Small Cap under the symbol
"WLPT".
"The Nasdaq Stock Market" or "Nasdaq" is a highly-regulated electronic
securities market comprised of competing Market Makers whose trading is
supported by a communications network linking them to quotation dissemination,
trade reporting, and order execution systems. This market also provides
specialized automation services for screen-based negotiations of transactions,
online comparison of transactions, and a range of informational services
tailored to the needs of the securities industry, investors and issuers.
The Nasdaq Stock Market consists of two distinct market tiers: the Nasdaq
National Market and the Nasdaq SmallCap Market. The Nasdaq Stock Market is
operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the
National Association of Securities Dealers, Inc.
The following table sets forth the range of the high and low last reported
sale prices as reported on NASDAQ, as well as the quarterly distributions per
Common Share declared and paid.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash Dividends
Declared Per
Quarter High(1) Low(1) Common Share(1)
First Quarter, 1997 $ 6.87 $4.58 $0.13
Second Quarter, 1997 $ 6.00 $4.58 $0.13
Third Quarter, 1997 $ 5.84 $4.58 $0.11
Fourth Quarter, 1997 $ 5.76 $4.50 $0.11
First Quarter, 1998 $ 5.61 $3.95 $0.11
Second Quarter, 1998 $10.58 $4.58 $0.11
Third Quarter, 1998 $ 6.79 $5.53 $0.11
Fourth Quarter, 1998 $ 6.24 $3.79 $0.11
</TABLE>
(1)Adjusted to give effect to the Stock Split
The number of holders of record of the Common Shares of the Company was
352 and the Company estimates it has approximately 665 holders of beneficial
interest as of April 12, 1999.
On March 16, 1999, the Company declared a 4.75 for 3.00 share split payable
on March 24, 1999 to shareholders of record as of March 22, 1999 (the "Stock
Split"). All amounts herein have been adjusted to give effect to the Stock
Split.
II-1
<PAGE>
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 which financial statements and notes will be
filed by amendment.
This report may contain certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act
of 1995, and is including this statement for purposes of indicated such intent.
Forward-looking statements that are based on certain assumptions, and describe
future plans, strategies and expectations of the Company, are generally
identifiable by use of the words "believe", "expect", "intend", "anticipate",
"estimate", "project" or similar expressions. The Company's ability to
predict results or the actual effect of future prospects of the Company
include, but are not limited to, changes in interest rates, general
economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board, the quality of composition of the Company's
portfolio of finance receivables, the ability of the Company to obtain debt
or other financing, competition, demand for financial services in the Company's
market area and accounting principles, policies and guidelines. These risks
and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in other Company filings with the Securities and Exchange Commission.
Wellington Properties Trust is a real estate investment trust. As of December
31, 1998, the Company owns a portfolio of two residential and three commercial
properties. The residential properties are located in Wisconsin and contain an
aggregate of 376 units. The commercial properties are located in Minnesota
and contain an aggregate of 247,096 square feet.
The Company's interest in the commercial properties is held through Wellington
Properties Investments, LP (the "Operating Partnership"). The Company is the
sole general partner of the Operating Partnership and, as of December 31, 1998,
the Company held a 6.1% interest in the Operating Partnership.
On November 20, 1998, pursuant to the Master Contribution Agreement with
American Real Estate Equities, LLC ("AREE"), the Company, through the Operating
Partnership acquired three commercial properties (the "1998 Acquisition
Properties" or the "Commercial Properties") in exchange for issuance by the
Operating Partnership of 2,557,707 limited partnership units ("Units") and the
assumption of debt aggregating $17,066,000. In connection with these
acquisitions, the Company issued 166,666 common shares of beneficial interest
("Common Shares") to AREE in exchange for $1,000,000 and further issued
warrants (the "Warrants") for 791,667 Common Shares each to AREE, and
representatives thereof, and to Wellington Management Corporation ("WMC").
Simultaneously, WMC received a termination fee and the advisory agreement
between the Company and WMC was terminated. (Collectively, these transactions
are referred to herein as the "1998 Transactions").
The Company accounted for the 1998 Acquisition Properties under purchase
accounting requirements; therefore, the operating results of the Company for
the year ended December 31, 1998 are not directly comparable to 1997.
II-2
<PAGE>
Results of Operations
A discussion of the Company's results of operations for the year ended
December 31, 1998 compared to the year ended December 31, 1997 will be filed
by amendment.
Liquidity and Capital Resources
Cash provided by operations and borrowings from affiliates and lending
institutions have generally provided the primary sources of liquidity to the
Company. Historically, the Company has used these sources to fund operating
expenses, satisfy its debt service obligations and fund distributions to
shareholders.
On November 20, 1998, the Company completed the 1998 Transactions including
the assumption of $17,066,000 in debt and the issuance of $13,731,000 in Units.
The aggregate purchase price for the 1998 Acquisition Properties was $30,797,000
excluding closing costs. Additionally the Company completed the issuance of
$1,000,000 in Common Shares providing the Operating Partnership with
$1,000,000 of cash for working capital.
II-3
<PAGE>
As of December 31, 1998, the Company has approximately $32.7 million of debt
outstanding consisting of (i) seven mortgage loans totaling $32.5 million
(which had a weighted average interest rate of 7.7% and will mature between
September 30, 2000 and May 1, 2015) and (ii) a line of credit totaling
$200,000 due currently. Additionally, the Company through the operating
partnership has approximately $1.2 million in accrued liabilities as of
December 31, 1998 which liabilities primarily represent amounts due in
connection with the Company's negotiations with AREE during 1998 and the
Special Meeting of Shareholders held on November 16, 1998.
Further, the Company is in negotiations with AREE and WMC regarding the
reimbursement by the Operating Partnership to AREE and WMC of certain
expenses aggregating approximately $1.7 million incurred by AREE and WMC and
the Company or the Operating Partnership during 1998 in connection with the
potential acquisition of properties and certain administrative expenses.
Except as discussed above, the Company has no contractual obligations for
property acquisition or material capital costs, other than tenant improvements
in the ordinary course of business. The Company expects to meet its long-term
capital needs through a combination of cash from operations, additional
borrowings, additional equity issuances of Common or Preferred Shares, and/or
partnership Units.
On March 25, 1998, June 18, 1998 and September 23, 1998, the Company declared
distributions of $0.1105 per share per declaration. On December 15, 1998
the Company declared a distribution of $0.1137 per share. On March 16, 1999,
the Company declared a 4.75 for 3.00 share split payable on March 24, 1999 to
shareholders of record as of March 22, 1999 (the "Stock Split"). All amounts
herein have been adjusted to give effect to the Stock Split.
Cash Flows
As of December 31, 1998, the Company had approximately $153,901 in cash and
cash equivalents. A discussion of the Company's results of operations for the
year ended December 31, 1998 will be filed by amendment.
Funds from Operations
The Company considers FFO to be helpful to investors as a measure of the
financial performance of an equity REIT. In accordance with NAREIT's
definition, FFO is defined as net income (loss) computed in accordance with GAAP
excluding gains (or losses) from debt restructuring and sales of property, plus
real estate-related depreciation and amortization and after adjustments for
uncolsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities determined in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance
or to cash flow from operating activities (determined in accordance with
GAAP) as a measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make cash
distributions. Other REITs may not define FFO in accordance with the current
NAREIT definition or may interpret the current NAREIT definition differently
from the Company.
Funds from operations for the year ended December 31, 1998 will be filed
by amendment. Funds from operations for the year ended December 31, 1997
is summarized in the following table (in thousands, except for share data).
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Year Ended
December 31,
1997
Loss before minority interests $ (275,579)
Deduct: Gain on sale of real estate (166,753)
Add: Real estate related depreciation
and amortization 560,730
Funds from operations $ 118,398
Weighted average Common Shares/
Units outstanding (1) 1,129,061
</TABLE>
(1) adjusted to give effect to the Stock Split
Inflation
Inflation has not generally had a significant impact during the periods
presented on the Company because of the relatively low inflation rates
in the markets in which the Company's properties operate. Most of the
Company's tenants in the residential properties represent short-term
leases and most of the Company's tenants in the Commercial properties are
contractually obligated to pay their share of operating expenses thereby
reducing exposure to increases in such costs resulting from inflation.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"OO" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
The Company has upgraded its current information systems to be Year 2000
compliant. The Company intends to review any and all purchases in this regard
to ensure Year 2000 compliance. The Company does not believe that the impact
of the recognition of the Year 2000 by its information and operating
technology systems will have a material adverse affect on the Company's
systems.
The Company is also requiring that all vendors and, in particular, third party
property managers upgrade their systems to be Year 2000 compliant. WMC Realty,
Inc., which manages the apartment properties is fully Year 2000 compliant. Hoyt
Properties, which manages the commerical properties is in the process of
acquiring new systems to become Year 2000 compliant.
II-5
<PAGE>
Item 7. Financial Statements
The required audited financial statements of the Company will be filed by
amendment upon resolution of outstanding fees to the Company's certifying
accountants, Grant Thornton LLP.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
II-6
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act.
Board of Trustees, Executive Officers, Significant Employees and Family
Relationships
The Trustees and Officers of the Company, their ages (at April 12, 1999) and
their positions and offices with the Company are as follows:
Originally Term
Name Age Elected Expires Position and Offices Held
Arnold K. Leas 65 1994 2001 Chairman of the Board of
Trustees/President
Steven B. Hoyt 46 1998 2000 Trustee
Paul T. Lambert 45 1998 2001 Trustee
Lyle W. Larcheid 70 1994 1999 Trustee
Peter Ogden 40 1994 1999 Trustee
Robert P. Ripp 72 1994 2000 Trustee
Gerald Sobczak 50 1994 1999 Trustee
Duane H. Lund 34 1998 n/a Chief Executive Officer
Robert F. Rice 48 1994 n/a President and Secretary
Garret T. Nakama 54 1994 n/a Treasurer
Arnold K. Leas, Chairman of the Board of Trustees of the Company, has served
in such capacity since the Company's inception in 1994. Mr. Leas served
as President of the Company from the Company's inception through November
20, 1998. Mr. Leas has also served as a director, Chief Executive Officer
and President of WMC since WMC's inception in 1988. WMC and its subsidiary,
Wellington Investment Services Corp., currently manage over $100 million of
investors' funds. From 1984 to 1988, Mr. Leas was Executive Vice President
of Decade Securities, Inc., a Milwaukee company that was involved primarily
in the syndication of multi-family apartment complexes throughout the United
States. Mr. Leas is on the Board of Directors of the Metropolitan Milwaukee
Association of Commerce Council of Small Business Executives and is a graduate
of the Realtors Institute.
III-1
<PAGE>
Steven B. Hoyt, Trustee of the Company since November 20, 1998, has served as
managing general partner of Hoyt Development (from 1979 to 1989) and Chief
Executive Officer of Hoyt Properties, Inc. ("HPI") (from 1989 to present).
HPI currently owns over 1,000,000 square feet of industrial and office property
in Minnesota and has developed over 5,000,000 square feet of commercial property
since its inception. From 1994 to 1995, Mr. Hoyt served as a Senior Regional
Director of First Industrial Realty Trust Inc., a Maryland corporation ("First
Industrial"). Mr. Hoyt is a member of the Board of Directors of the Better
Business Bureau and has served in numerous state and national positions for
the National Association of Industrial and Office Parks (NAIOP).
Paul T. Lambert, Trustee of the Company since November 20, 1998, served on
the Board of Directors and was the Chief Operating Officer of First Industiral
from its initial public stock offering in June 1994 to the end of 1995.
Mr. Lambert was one of the largest contributors to the formation of First
Industiral and one of its founding shareholders. Prior to forming First
Industrial, Mr. Lambert was Managing Partner of the Midwest region for The
Shidler Group, a national private real estate investment company ("Shidler").
Prior to joining Shidler, Mr. Lambert was a commercial real estate developer
with Dillingham Corporation and, prior to such time, was a consultant with
The Boston Consulting Group. Mr. Lambert was also a founding shareholder of
CGA Group, Ltd., a holding company whose subsidiary is a AAA-rated financial
guarantor based in Bermuda.
III-2
<PAGE>
Lyle W. Larcheid, Trustee of the Company, has served in such capacity since
1994. Mr. Larcheid has served as Senior Vice President of lending at
Wauwatosa Savings Bank in Wauwatosa, Wisconsin since 1986. Prior to 1986,
Mr. Larcheid was Senior Executive Vice President at St. Francis Savings and
Loan in St. Francis, Wisconsin.
Peter Ogden, Trustee of the Company, has served in such capacity since the
Company's inception in 1994. Mr. Ogden has served as the President and Owner
of Ogden & Company since 1990 and Vice President, Treasurer and owner of
Ogden Development Group, Inc. since 1986, both of which are Milwaukee-
based providers of real estate brokerage, leasing and property management
services and which manage over 2,500 apartment and condominium units, in
addition to shopping centers and offices, industrial and mixed-use buildings.
Robert R. Ripp, Trustee of the Company, has served in such capacity since
the Company's inception in 1994. Mr. Ripp 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.
Gerald Sobczak, Trustee of the Company, has served in such capacity since
the Company's inception in 1994. Since 1990, Mr. Sobczak has been a self-
employed real estate investor, owning and operating apartment units. From
1989-1990, Mr. Sobczak served as Building Manager for American Landmark
Properties, and from 1984-1988 was an Asset/Property Manager for Eastmore
Real Estate.
Duane H. Lund, Chief Executive Officer of the Company since November 20, 1998,
was founding shareholder of First Industrial and served as a Senior Regional
Director of First Industrial from 1994 to June 1998. In such capacity, Mr.
Lund acquired and managed over 11,000,000 square feet of commercial property
with a value in excess of $750 million. From 1989 to 1994, Mr. Lund was an
Acquisition Partner with Shidler, where he was involved in coordinating the
underwriting and due diligence for over $200 million of commercial property.
Prior to 1989, Mr. Lund was a tax consultant with Peat Marwick Main & Company.
Mr. Lund is a member of the Boards of Directors of the Wisconsin Real Estate
Alumni Association and National Association of Industrial and Office Properties
Minnesota Chapter and is a member of the advisory boards of Midwest Real
Estate News, Minnesota Real Estate Journal and KPMG Peat Marwick Alumni
Association.
Robert F. Rice, President and Secretary of the Company,
has served as Secretary of the Company since its inception in 1994 and as
President of the Company since November 20, 1998. Mr. Rice served as Executive
Vice President of the Company from May 1997 through November 20, 1998. Prior
to the Company's formation, Mr. Rice served as Vice President/General Counsel to
WMC beginning in November 1993. From 1989 to October 1993, Mr. Rice provided
advice with respect to Resolution Trust Corporation matters through
Resource Alternatives, Inc., a provider of legal and consluting services to the
real estate industry. From 1984 to 1989, Mr. Rice served as a director, officer
and general counsel for various affiliates of St. Francis Bank, F.S.B.
Garret T. Nakama, Controller and Treasurer of the Company, has served
in such capacities since the Company's inception in 1994. From 1991 to the
present, Mr. Nakama has served as Vice President/Finance for WMC. From 1986
to 1991, Mr. Nakama was employed as Controller of Nassco, Inc., a New Berlin,
Wisconsin supplier of equipment.
Section 16(a) Beneficial Ownership Reporting Compliance
Each of (i) WMC; (ii) Arnold K. Leas, Lyle W. Larcheid, Peter Ogden, Robert
P. Ripp, and Gerald Sobczak, each a Trustee of the Company, (iii) Robert
F. Rice and Garret T. Nakama, each a current executive officer of the Company,
and (iv)Gregory S. Leas, a former executive officer of the Company failed
to timely file their respective Forms 3, Form 4 and Form 5 for the period
1994 through October, 1998. All such filings have since been made. The
company cannot estimate the number of such Forms or the number of transactions
that were required to be filed but were not so filed.
III-3
<PAGE>
Item 10. Executive Compensation
Since its inception through July 31, 1998, the Company paid
no compensation to any of its executive officers. The following table sets
forth the compensation paid from August 1, 1998 to December
31, 1998 and current base annual compensation for each of the officers of
the Company.
<TABLE>
Summary Compensation Table
<CAPTION>
Name and Principal Securities Underlying
Position Year Salary Options
<S> <C> <C> <C>
Duane H. Lund 1998 $18,750(1) --
Chief Executive Officer
Robert F. Rice 1998 $62,500(2) 7,917(3)
President and Secretary
Arnold K. Leas 1998 $ -- 9,500(3)
Chairman of the Board(4)
</TABLE>
(1) Amount represents base annual salary of $150,000. Mr. Lund became the
Chief Executive Officer of the Company on November 20, 1998.
(2) Amount represents base annual salary of $150,000. Mr. Rice was paid by
the Company commencing August 1, 1998. Mr. Rice has served as Secretary of
the Company since the inception of the Company in 1994 and as President
of the Company since November 20, 1998. For the period commencing May 1997 and
through November 20, 1998, Mr. Rice served as Executive Vice President of the
Company.
(3) Options reported were granted under the Company's plan in effect at May 27,
1998. All options were granted on May 27, 1998 and bear an exercise price of
$5.44 per Common Share. Market value per share on the date of grant was $5.37.
All such options are currently exercisable.
(4) Mr. Leas was the Chief Executive Officer of the Company from the inception
of the Company in 1994 until November 20, 1998.
III-4
<PAGE>
<TABLE>
Options/SAR Grants in Last Fiscal Year
<CAPTION>
Number of Percentage of
Underlying Total Options
Name and principal Options Granted to
position Granted Employees in Exercise Expiration
Fiscal Year Price Date
<S> <C> <C> <C> <C>
Duane H. Lund
Chief Executive
Officer -- -- -- --
Robert F. Rice
President and
Secretary 7,917 14.56% $ 5.44 May 26, 2008
Arnold K. Leas
Chairman of the
Board 9,500 17.47% $ 5.44 May 26, 2008
</TABLE>
III-5
<PAGE>
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values
<CAPTION>
Common # of Securities Value of
Shares Underlying unexercised
Name and principal Acquired on Value Options/SARs at in-the-money
position Exercise Realized Fiscal Year End options/SARs
Exercisable(1) at Fiscal Year
End ($)
Exercisable/
Unexercisable(2)
<S> <C> <C> <C> <C>
Duane H. Lund -- -- --
Chief Executive
Officer
Robert F. Rice -- -- 7,917 $0/$0
President and
Secretary
Arnold K Leas -- -- 9,500 $0/$0
Chairman of the
Board
</TABLE>
(1) All of the options held by the named executive officers are currently
exercisable.
(2) Calculations are based upon the closing bid price of $4.30 per share as
of December 31, 1998.
Committees of the Board of Trustees
Audit Committee.
The Audit Committee, for the period January 1, 1998 through
November 20, 1998, consisted of Messrs. Larcheid, Sobczak and Nakama and for
the period November 20, 1998 to date consists of Messrs. Larcheid, Sobczak and
Ogden. The Audit Committee reviews related party transactions, makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants, the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls.
III-6
<PAGE>
Compensation Committee.
The Compensation Committee, for the period January 1, 1998 through November
20, 1998, consisted of Messrs. Leas, Ogden and Ripp and for the period
November 20, 1998 to date consists on Messrs. Leas, Hoyt and Lambert. The
Compensation Committee makes recommendations and exercises all powers of the
Board of Directors in connection with certain compensation matters, including
incentive compensation and benefit plans. The Compensation Committee
administers, and has authority to grant awards under, the Company's 1998
Stock Incentive Plan and the Company's 1998 Option Plan. The Compensation
Committee met one time in 1998, on May 26, 1998.
Meetings of Trustees.
The Trustees held seven meetings in 1998. Each of Messrs. Leas, Ripp and
Sobczak attended all seven meetings. Mr. Ogden attended six and Mr. Larcheid
attended five of the meetings of the Board of Trustees. Each of Messrs. Hoyt
and Lambert attended the one meeting of the Board of Trustees held during his
tenure as Trustee in 1998.
Compensation of Trustees.
In 1998, Trustees who were also employees of the Company or its affiliates
received no additional compensation for their services as Trustees, while
non-employee Trustees of the Company received a fee of $250 per Board of
Trustee or committee meeting attended.
Employment Agreements
On November 16, 1998, the Company entered into employment agreements (the
"Employment Agreements") with Duane H. Lund and Robert F. Rice. The
Employment Agreements provide for an initial base salary of $150,000
and a discretionary performance bonus of up to 200% of base salary. In
addition, each Employment Agreement provides that the officers shall receive
those health, life and disability and other benefits extended by the Board of
Trustees to other similarly situated executives. Each Employment Agreement
has an evergreen term of three years. In the event of termination of the
respective officer's employment by the Company without cause or in the event
such person's employment discontinues following a change in control of the
Company, the Company or, in the case of a change in control, its successor,
will be obligated to pay to such officer an amount equal to three year's base
salary and performance bonus and continue his benefits for three years.
III-7
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information, as of April 12, 1999, with
respect to: (i) each person who is known by the Company to own beneficially
more than 5% of the Company's outstanding Common Shares; (ii) the
beneficial ownership of Common Shares by each of the Trustees and executive
officers; and (iii) the beneficial ownership by all Trustees 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Shares Beneficially Percent of
Name Owned (1) Class (1)
Arnold K. Leas (2) (6) 190,624 14.0%
Steven B. Hoyt (3) --- ---
Paul T. Lambert (4) --- ---
Lyle W. Larcheid (2) (7) 3,167 *
Peter Ogden (2) (7) 3,167 *
Robert P. Ripp (2) (8) 4,148 *
Gerald Sobczak (2) (7) 3,167 *
Duane H. Lund (5) (9) 166,666 12.3%
Garret T. Nakama (2) (7) 6,333 *
Robert F. Rice (2) (10) 9,500 *
American Real Estate
Equities, LLC (11) 166,666 12.3%
Esor and Company (12) 70,693 5.2%
Wellington Management
Corporation (13) 143,767 10.6%
All Trustees and Executive
Officers as a Group (10 persons) 386,772 27.9%
</TABLE>
*Represents less than one percent
III-8
<PAGE>
(1) Based on 1,351,625 total outstanding Common Shares as of April 12, 1999.
Also assumes exercise by only the shareholder or group names in each row of
all options and warrants for the purchase of Common Shares held by such
shareholder or group and exercisable within 60 days.
(2) The business address for Messrs. Leas, Larcheid, Ogden, Ripp, Sobczak,
Nakama and Rice is 18560 W. Corporate Drive, Suite 300, P.O. Box 0919,
Brookfield, Wisconsin 53008-0919.
<PAGE>
(3) The business address for Mr. Hoyt is 708 S. 3rd Street, Suite 108,
Minneapolis, Minnesota 55415.
(4) The business address for Mr. Lambert is 4155 E. Jewel, Suite 104, Denver,
Colorado 80222.
(5) The business address for Mr. Lund is 11000 Prairie Lakes Drive, Suite 610,
Minneapolis, Minnesota 55344.
(6) Includes 31,885 Common Shares held by Mr. Leas, 3,114 Common Shares held by
Mr. Leas' wife, 2,358 Common Shares held by Mr. Leas and his wife as joint
tenants, options to purchase 9,500 Common Shares and 143,767 Common Shares
held by WMC, of which Mr. Leas is the President and Chief Executive Officer
and with respect to which Mr. Leas, members of his immediate family and
trusts for the benefit of such persons own approximately 41.8% of the
outstanding capital stock. Mr. Leas disclaims beneficial ownership of the
Common Shares held by his wife.
(7) Consists solely of options to purchase Common Shares.
(8) Includes options to purchase 3,167 Common Shares and 981 Common Shares
held by Mr. Ripp.
(9) Includes 166,666 Common Shares held by American Real Estate Equities, LLC,
of which Mr. Lund is the President.
(10) Includes options to purchase 7,917 Common Shares and 1,583 Common Shares
held by Mr. Rice.
(11) The business address for American Real Estate Equities, LLC is
11000 Prairie Lakes Drive, Suite 610, Minneapolis, MN 55344.
(12) The business address for Esor and Company is 1100 W. Wells Street,
Milwaukee, Wisconsin 53233.
(13) The business address for Wellington Management Corporation is 18650 W.
Corporate Drive, Suite 300, P.O. Box 0919, Brookfield, Wisconsin 53008-0919.
III-9
<PAGE>
Item 12. Certain Relationships and Related Transactions.
Management Fees
The Company has entered into Property Management Agreements with WMC Realty,
Inc. (WRI), a wholly-owned subsidiary of WMC, an affiliate of the Company
in which Arnold Leas (Chairman of the Board of Trustees) is President and
Chief Executive Officer, and Hoyt Properties Inc. (Hoyt), an entity controlled
by Steve Hoyt (a Trustee of the Company) to serve as property managers of
properties owned by the Company. The property managers manage the day to day
operations of properties owned by the Company and receive a management fee
for this service. Management fees totaled $31,503 to Hoyt and $149,386 to WRI
for the year ended December 31, 1998 and $122,391 to WRI for the year ended
December 31, 1997.
Advisor Fees
On August 2, 1994, the Company contracted to retain WMC to serve as Advisor
to the Trust. In payment for these services, the Advisor received a fee
equal to 5% of the gross proceeds of the public share offering. Advisor fees
for the years ended December 31, 1998 and 1997 were $0. 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 Company. 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. Incentive advisory fees for the years ended December
31, 1998 and 1997 were $0 and $18,265, respectively.
In addition, the Advisor is entitled to recover certain expenses including
travel, legal, accounting and insurance. These expenses totaled $149,178
and $114,133 for the years ended December 31, 1998 and 1997, 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.
Termination Fees
In connection with the 1998 Acquisitions, the Company terminated the advisory
agreement with WMC on November 20, 1998. The termination fee, payable to WMC,
is determined by taking 1% of the first $150,000,000 of the aggregate gross
purchase price for properties acquired in connection with the Master
Contribution Agreement and the WMC Contribution Agreement plus 0.25% of the
aggregate gross purchase price for properties acquired in excess of
$150,000,000. Termination fees paid to WMC, which are expenses as incurred,
amounted to $310,000 for the year ended December 31, 1998.
Reimbursement of Certain Expenses by Related Parties
Further, the Company is in negotiations with AREE and WMC regarding the
reimbursement by the Operating Partnership to AREE and WMC of certain
expenses aggregating approximately $1.7 million incurred by AREE and WMC and
the Company or the Operating Partnership during 1998 in connection with the
potential acquisition of properties and certain administrative expenses.
III-10
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
2.1 Amended and Restated Contribution Agreement between the Company, the
Operating Partnership, AREE and other limited partnership Unit
recipients dated as of August 31, 1998 (filed as Exhibit A with the
Company's Schedule 14A on November 6, 1998 and incorporated herein
by reference)
3.1 Declaration of Trust (filed with the Company's Registration Statement
on Form SB-2 (Commission File No. 33-82888C) and incorporated herein
by reference)
3.2 Bylaws of the Company (filed with the Company's Registration Statement
on Form SB-2 (Commission file No. 33-82888C) and incorporated herein
by reference)
3.3 Articles of Amendment and Restatement of the Declaration of Trust
(filed as Exhibit E with the Company's Schedule 14A on November 6, 1998
and incorporated herein by reference)
10.1 Agreement of Limited Partnership of the Operating Partnership dated
as of August 31, 1998 (filed as Exhibit C with the Company's Schedule
14A on November 6, 1998 and incorporated herein by reference)
10.2 Contribution Agreement between the Operating Partnership and WMC dated
as of August 31, 1998 (filed as Exhibit B with the Company's Schedule
14A on November 6, 1998 and incorporated herein by reference)
10.3 Master Registration Rights Agreement dated as of August 31, 1998
(filed as Exhibit E of Exhibit C with the Company's Schedule 14A on
November 6, 1998 and incorporated herein by reference)
10.4 Form of Warrant (filed as Exhibit D with the Company's Schedule 14A
on November 6, 1998 and incorporated herein by reference)
10.5 Business Credit Agreement by and between Milwaukee Western Bank and
the Company dated March 6, 1998 (filed with the Company's Current
Report on Form 8-K on August 31, 1998, and incorporated herein by
reference)
10.6 Letter from Credit Suisse First Boston Mortgage Capital LLC to the
Company dated March 2, 1998 (filed with the Company's Current Report
on Form 8-K on August 31, 1998 and incorporated herein by reference)
10.7 Guaranty by the Company for the benefit of Credit Suisse First Boston
Mortgage Capital LLC dated March 5, 1998 (filed with the Company's
Current Report on Form 8-K on August 31, 1998 and incorporated herein
by reference)
III-11
<PAGE>
10.8 Promissory Note for $2,750,000 by Lake Pointe Apartment Homes, Inc. to
Credit Suisse First Boston Mortgage Capital, LLC dated March 5, 1998
(filed with the Company's Current Report on Form 8-K on August 31, 1998
and incorporated herein by reference)
10.9 Mortgage, Assignment of Leases and Rents and Security Agreement by and
between Lake Pointe Apartment Homes, Inc. to Credit Suisse First Boston
Mortgage Capital, LLC dated March 5, 1998 (filed with the Company's
Current Report on Form 8-K on August 31, 1998 and incorporated herein
by reference)
10.10 Common Stock Purchase Warrant by the Company to Credit Suisse First
Boston Mortgage Capital LLC, dated March 5, 1998 (filed with the
Company's Current Report on Form 8-K on August 31, 1998 and
incorporated herein by reference)
10.11 Registration Rights Agreement by and between the Company and Credit
Suisse First Boston Mortgage Capital, LLC dated March 5, 1998 (filed
with the Company's Current Report on Form 8-K on August 31, 1998 and
incorporated herein by reference)
10.12 Note by and between Maple Grove Apartment Homes, Inc. and American
Property Financing, Inc. dated May 6, 1997 (filed with the Company's
Current Report on Form 8-K on August 31, 1998 and incorporated herein
by reference)
10.13 Mortgage, Assignment of Leases and Rents and Security Agreement by and
between Maple Grove Apartment Homes, Inc. and American Property
Financing, Inc., dated May 6, 1997 (filed with the Company's Current
Report on Form 8-K on August 31, 1998 and incorporated herein by
reference)
27.1 Financial Data Schedule (to be filed by amendment)
Shareholders may obtain a copy of any exhibit listed in Item 13(a) by writing
to Robert F. Rice, Secretary of the Company. Reasonable expenses will be
charged for copies and postage.
(b) Reports on Form 8-K
During the fourth quarter ended December 31, 1998 and through April 12, 1999,
the Company filed the following Current Reports on Form 8-K:
Items 2, 5 and 7 in connection with the purchase of the 1998 Acquisitions
filed December 4, 1998 and amended February 2, 1999 to include relevant
financial statements and pro forma financial information.
III-12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WELLINGTON PROPERTIES TRUST
Signature Title Date
/s/ Duane H. Lund Chief Executive Officer April 15, 1999
Duane H. Lund (Principal Executive
Officer)
/s/ Robert F. Rice President April 15, 1999
Robert F. Rice
/s/ Garret T. Nakama Treasurer (Principal April 15, 1999
Garret T. Nakama Financial and Accounting
Officer)
/s/ Arnold K. Leas Chairman of the Board April 15, 1999
Arnold K. Leas
/s/ Steven B. Hoyt Trustee April 15, 1999
Steven B. Hoyt
/s/ Paul T. Lambert Trustee April 15, 1999
Paul T. Lambert
/s/ Lyle W. Larcheid Trustee April 15, 1999
Lyle W. Larcheid
/s/ Peter Ogden Trustee April 15, 1999
Peter Ogden
/s/ Robert P. Ripp Trustee April 15, 1999
Robert P. Ripp
/s/ Gerald Sobczak Trustee April 15, 1999
Gerald Sobczak
III-13
