UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10QSBA/No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period __________ to
________________
Commission File Number: 0-25074
WELLINGTON PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation)
39-6594066
(I.R.S. Employer Identification Number)
18650 West Corporate Drive, P.O. Box 0919, Brookfield,
Wisconsin 53008-0919
(Address of principal executive offices)
Issuer's telephone number: 262-792-8900
Fax number: 262-792-8930
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. Yes X No
As of October 31, 1999, 1,372,152 shares of the
issuer's common shares of beneficial interest were
outstanding.
Transitional Small Business Disclosure Format (Check
one): Yes ;No X
(Added by Exch Act Rel No. 31905, eff 4/26/93.)
This report contains 26 pages. There is one exhibit.
<PAGE>
WELLINGTON PROPERTIES TRUST
TABLE OF CONTENTS
PART I. Financial Information
Consolidated Balance Sheet -
September 30, 1999 (unaudited) Page 3
Consolidated Statements of Operations -
nine months ended September 30, 1999 and
September 30, 1998 (unaudited) Page 4
Consolidated Statements of Operations -
three months ended September 30, 1999
and September 30, 1998 (unaudited) Page 5
Consolidated Statement of Cash Flows -
nine months ended September 30, 1999
and September 30, 1998 (unaudited) Page 6
Notes to Consolidated Financial
Statements Page 7
Management's Discussion and Analysis of
Financial Condition of Operations Page 15
PART II. Other Information
Changes in Securities and Use of Proceeds Page 21
Exhibits and Reports on Form 8-K Page 21
Signatures Page 22
<PAGE>
<TABLE>
<CAPTION>
Wellington Properties Trust
Consolidated Balance Sheet
September 30, 1999
(Unaudited)
<S> <C>
Assets
Real Estate Property
Land $ 9,009,936
Building 41,540,143
Tenant improvements 43,809
Appliances and equipment 999,182
51,593,070
Accumulated depreciation (2,614,588)
48,978,482
Cash 405,709
Escrowed cash 849,762
Accounts receivable 21,498
Prepaid expenses 12,384
Investment in unconsolidated subsidiary 90,000
Deferred financing costs, net 786,747
Other assets 289,231
Total assets $ 51,433,813
Liabilities and shareholders' equity
Liabilities
Mortgage loans payable $ 31,978,999
Line of credit and other note payable 575,000
Accounts payable and accrued
liabilities 1,767,372
Related party payable 363,286
Deferred rental revenue 37,900
Tenant security deposits 160,911
Dividends/distributions payable 726,526
Total liabilities 35,609,994
Minority interests in consolidated
subsidiary 8,147,170
Shareholders' equity
Common shares - 100,000,000 authorized;
1,372,152 shares issued and
outstanding; par value $0.01 13,722
Preferred Stock - 10,000,000 authorized;
349,800 Class B Junior Cumulative
Convertible shares issued and
outstanding; par value $0.01 3,498
Additional paid in capital 13,298,524
Accumulated deficit (5,639,095)
Total shareholders' equity 7,676,649
Total liabilities and shareholders' equity $ 51,433,813
</TABLE>
The accompanying notes are an integral part of this
statement.
<PAGE>
<TABLE>
<CAPTION>
Wellington Properties Trust
Consolidated Statements of Operations
(Unaudited)
For the Nine Month Period Ended
Sept 30, 1999 Sept 30, 1998
<S> <C> <C>
Revenue:
Rental revenue and tenant reimbursements $ 5,213,100 $2,295,541
Interest and other 45,844 433
Total revenue 5,258,944 2,295,974
Expenses:
Property operating and maintenance 1,197,808 407,405
Real estate taxes and insurance 915,023 334,428
Depreciation and amortization 1,004,680 442,161
Interest expense 1,949,674 952,859
General and administrative 506,144 247,125
Management fees 259,397 140,017
Termination of advisory agreement 950,000 --
Nonrecurring expenses 2,613,383 --
Total expenses 9,396,109 2,523,995
Loss before minority interests (4,137,165) (228,021)
Minority interests 2,593,659 --
Net Loss (1,543,506) (228,021)
Net loss allocated to Preferred Shares -- --
Loss allocated to Common Shares $ (1,543,506) $ (228,021)
Loss per share: Basic and diluted $ (1.14) $ (0.20)
Weighted average number of shares:
Basic and diluted 1,353,976 1,150,138
</TABLE>
The accompanying notes are an integral part of these
statements.
<PAGE>
<TABLE>
<CAPTION>
Wellington Properties Trust
Consolidated Statements of Operations
(Unaudited)
For the Three Month Period Ended
Sept 30,1999 Sept 30,1998
<S> <C> <C>
Revenue:
Rental revenue and tenant reimbursements $ 1,798,724 $ 779,030
Interest and other 15,331 160
Total revenue 1,814,055 779,190
Expenses:
Property operating and maintenance 375,340 111,796
Real estate taxes and insurance 318,789 115,138
Depreciation and amortization 323,580 148,281
Interest expense 654,461 318,931
General and administrative 118,665 99,379
Management fees 89,382 65,502
Total expenses 1,880,217 859,027
Loss before minority interests (66,162) (79,837)
Minority interests (70,434) -
Net Loss (136,596) (79,837)
Net loss allocated to Preferred Shares - -
Net loss allocated to Common Shares $ (136,596) $ (79,837)
Loss per share: Basic and diluted $ (0.10) $ (0.07)
Weighted average number of shares: Basic
and diluted 1,360,360 1,160,830
</TABLE>
The accompanying notes are an integral part of these
statements.
<PAGE>
<TABLE>
<CAPTION>
Wellington Properties Trust
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Month Period Ended
Sept 30, 1999 Sept 30, 1998
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(4,137,165) $ (228,021)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,004,681 442,161
Non recurring costs paid through issuance
of shares
Changes in assets and liabilities: 3,498,000 --
Decrease (increase) in accounts receivable and
prepaid expenses 93,730 (106,157)
Increase(decrease) in accounts payable and
accrued liabilities 70,789 29,157
Increase in related party payable 367,109 117,590
Increase (decrease) in tenant security deposits
and deferred rents (22,935) (371)
Net cash provided by operating activities 874,209 254,359
Cash flows from investing activities:
Capital expenditures paid (115,267) (70,853)
Investment in unconsolidated subsidiary (90,000) --
Decrease (increase) in escrowed cash (5,894) 21,080
Net cash flow used in investing activities (211,161) (49,773)
Cash flows from financing activities:
Proceeds from mortgage loans and note payable 400,000 2,750,000
Loan fees (1,200) (436,285)
Payments on mortgage notes (526,152) ( 2,408,949)
Payments on line of credit (25,000) --
Dividends paid (258,888) (193,695)
Net cash flow used in financing activities (411,240) (288,929)
Net increase (decrease) in cash 251,808 (84,343)
Cash at beginning of period 153,901 113,945
Cash at end of period $ 405,709 $ 29,602
Supplemental Data:
Interest paid $1,850,428 $ 912,839
Dividends paid through issuance of
Common Shares $ (153,812) $ --
Issuance of Common Shares 153,812 --
Non recurring costs paid through issuance of
Class B Preferred Shares (3,498,000) --
Issuance of Class B Preferred Shares 3,498,000 --
$ -- $ --
</TABLE>
The accompanying notes are an integral part of these
statements.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
NOTE A - ORGANIZATION
Wellington Properties Trust ("Company") is a real
estate investment trust ("REIT") organized in the
state of Maryland. The Company was formed on March
15, 1994 to acquire, develop, own, and operate
investment real estate. As of September 30, 1999, the
Company owned two residential and three commercial
properties that contain a total of 376 apartment units
and 247,546 commercial rentable square feet. The
Company's interest in the commercial properties is
held through Wellington Properties Investments, LP
(the "Operating Partnership"), a Delaware limited
partnership formed in 1998. The Company is the
general partner of, and as of September 30, 1999, owns
an approximately 8.8% interest in the Operating
Partnership. On March 4, 1999, the Company acquired an
8% interest in Highlander Acquisition Company, LLC
("Highlander") which owns a 154 unit apartment
community.
NOTE B - BASIS OF PRESENTATION
The consolidated financial statements have been
prepared by the Company without audit pursuant to the
rules and regulations of the Securities and Exchange
Commission. Certain information and footnote
disclosures normally included in the financial
statements prepared in accordance with generally
accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations,
although the Company believes that the included
disclosures are adequate to make the information
presented not misleading. In the opinion of the
Company, all adjustments (consisting solely of normal
recurring matters, except with respect to the
nonrecurring expense discussed below) necessary to
fairly present the financial position of the Company
as of September 30, 1999, the results of its
operations for the nine month periods and three month
periods ended September 30, 1999 and 1998, and its
cash flows for the nine month periods ended September
30, 1999 and 1998 have been included. During the
second quarter of 1999, the Company concluded that
costs incurred and deferred in 1998 in connection with
the potential acquisition of twenty-eight (28)
properties had no future value because such potential
acquisitions would not occur. Such costs approximated
$2.6 million and were expensed in the second quarter
along with the costs to terminate the advisory
agreement of $950,000 (See Note H). The results of
operations for such interim periods are not
necessarily indicative of the results for a full year.
For further information, refer to the Company's
consolidated financial statements and footnotes
included in the Annual Report of Form 10-KSB/Amendment
No. 1 for the year ended December 31, 1998.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
September 30, 1999
NOTE C - ACQUISITION OF PROPERTIES
On March 4, 1999, the Company acquired an 8% interest
in Highlander at a cost of $90,000 funded in cash. The
Company believes that cost approximates fair value.
On November 20, 1998, the Company through the
Operating Partnership, acquired two office properties
and one light industrial property in the Minneapolis,
Minnesota metropolitan area. The combined purchase
price of such properties totaled approximately $31.1
million, including closing costs. Such purchase price
was funded through the issuance of an aggregate of
2,557,707 limited partnership units ("Units") in the
Operating Partnership (valued at $5.37 per Unit, or an
aggregate value of approximately $13.7 million) and
the assumption of certain third-party indebtedness of
approximately $17.1 million secured by such
properties. The Units are exchangeable, under certain
circumstances, on a one-for-one basis for common
shares of beneficial interest, $.01 par value per
share from and after the one-year anniversary of the
date of issuance. (See Note H).
NOTE D - 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 and had a principal balance as of September 30,
1999 of $12,650,174. The interest rate is fixed at
8.095% per annum. Payments are due in monthly
installments of principal and interest of $95,517 with
a final balloon payment due June 1, 2004. (See Note
I).
Lake Pointe
As of September 30, 1999, the Company was liable on a
mortgage note payable of $2,717,485. The note requires
monthly payments of $19,417 including interest at 7.6%
per annum. The mortgage is due March 2008 and is
secured by Lake Pointe and an assignment of rents.
Thresher Square East
The financing consists of Commercial Development
Revenue Refunding Bonds - Series 1996A issued by the
City of Minneapolis, Minnesota; interest payable semi-
annually at variable rates ranging from 5.25% to 7.25%
per annum; principal payable annually on or before May
1 in amounts ranging from $140,000 to $395,000 with a
final payment due May 1, 2015; collateralized by a
letter of credit, the Thresher Square East Office
Complex, equipment and an assignment of rents. As of
September 30, 1999 the principal balance was
$3,955,000.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
September 30, 1999
Thresher Square West
The financing consists of Commercial Development
Revenue Refunding Bonds - dated October 1, 1992 issued
by the City of Minneapolis, Minnesota; interest
payable semi-annually at variable rates ranging from
6.50% to 7.60% per annum; principal payable annually
on or before June 1 in amounts ranging from $170,000
to $375,000 with a final payment due June 1, 2010;
collateralized by a letter of credit, the Thresher
Square West Office Complex and an assignment of rents
and security agreement. As of September 30, 1999 the
principal balance was $2,965,000.
Cold Springs
The financing consists of a note payable to Bremer
Bank, N.A. in monthly installments of $51,518
including interest at a variable rate (effective rate
of 9.25% per annum at September 30, 1999) with a final
balloon payment due on October 1, 2000; and
collateralized by the Cold Springs Office Complex and
fixtures. As of September 30, 1999 the principal
balance was $5,504,853.
Additionally there is a note payable to Bremer
Business Financial Corp., interest payments due
monthly at a variable interest rate (effective rate of
11.25% per annum at September 30, 1999) with principal
balance due on September 30, 2000; and collateralized
by the Cold Springs Office Complex and fixtures. As
of September 30, 1999 the principal balance was
$1,875,000.
Nicollet VI
The financing consists of a mortgage note payable to
GMAC Commercial Mortgage Corporation in monthly
installments of $15,635 including interest of 7.00%
per annum; final balloon payment due February 1, 2008;
and collateralized by the Nicollet Business Campus VI
Complex and an assignment of rents and security
agreement. As of September 30, 1999 the principal
balance was $2,311,414.
Line of Credit
During 1998, the Company obtained a line of credit
for $300,000 with Milwaukee Western Bank. Payments of
$5,000 of principal plus interest are due monthly with
the final principal payment due on September 30, 1999.
The interest rate is at 0.5% above the bank's
reference rate (effective rate at September 30, 1999
of 8.75%). At September 30, 1999, the outstanding
balance was $175,000. The line of credit is
collateralized by the guarantee of Wellington
Management Corporation ("WMC").
Note Payable
As of September 30, 1999, the buyer under contract
for the pending sale of the Maple Grove property had
advanced the Company $400,000 of the cash purchase
price in exchange for a promissory note bearing
interest at the rate of 10.0% per annum. (See Note
I).
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
September 30, 1999
NOTE E - EQUITY
During 1998 and 1999, the Company entered into
agreements with American Real Estate Equities, LLC
("AREE") and WMC. Pursuant to the agreements the
Company entered into transactions with AREE and WMC
related to issuance of warrants, issuance of Common
Shares and Preferred Shares and contribution
agreements for various properties.
On November 16, 1998, the Company issued warrants to
acquire up to 791,667 Common Shares to each of AREE
and WMC. The Warrants were to become exercisable one
year after the date of issuance (November 16, 1999)
and would 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 held by each of AREE and WMC, $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. Effective June 30, 1999, all such warrants
were returned to the Company and canceled. (See Note
H).
On August 12, 1999, the Company issued 349,800 Class B
Junior Cumulative Convertible Preferred Shares ("Class
B Preferred Shares"). The Class B Preferred Shares
bear the same rights, terms and preferences as the
Class A Preferred Shares (defined below), but rank
junior as to payment of dividends and distributions
upon liquidation. (See Notes H and I).
NOTE F - DISTRIBUTIONS
On March 16, 1999, the Board of Trustees declared a
split of 4.75 Common Shares for each 3.00 Common
Shares effective on March 24, 1999 to shareholders of
record as of March 22, 1999 ("Stock Split"). The
Operating Partnership simultaneously declared a split
of 4.75 Units for each 3.00 Units effective on March
24, 1999 to unitholders of record as of March 22,
1999. All amounts herein have been adjusted to give
effect to the Stock Split.
On March 30, 1999, the Board of Trustees declared a
cash distribution of $0.11 per share totaling
approximately $148,679 to shareholders of record as of
March 31, 1999. Such distribution was paid by the
Company on August 23, 1999. The Operating Partnership
simultaneously declared a $0.11 per unit cash
distribution to holders of Units. Such distribution
totals $133,550. (See Note H).
On July 15, 1999, the Board of Trustees declared a
cash distribution of $0.11 per share totaling
approximately $148,679 to shareholders of record as of
June 30, 1999. Such distribution was paid by the
Company on August 24, 1999. The Operating Partnership
simultaneously declared a $0.11 per unit cash
distribution to holders of Units. Such distribution
totals $133,550. (See Note H).
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
September 30, 1999
On September 30, 1999, the Board of Trustees declared
a cash distribution of $0.11 per share totaling
approximately $150,937 to shareholders of record as of
September 30, 1999. Such distribution was paid by the
Company on October 15, 1999. The Operating
Partnership simultaneously declared a $0.11 per unit
cash distribution to holders of Units. Such
distribution totals $133,550. (See Note H).
NOTE G - LOSS PER COMMON SHARE
Net loss per Common Share is computed based on the
weighted average number of Common Shares outstanding
for the period. Common share equivalents, consisting
of outstanding warrants and options, are not included
in the diluted loss per Common Share as they would be
anti-dilutive.
NOTE H - RELATED PARTY TRANSACTIONS
Reimbursement of Certain Expenses by Related Parties
During 1998 and through June 30, 1999, the Operating
Partnership was in negotiations with AREE regarding
the reimbursement by the Operating Partnership to AREE
of certain expenses incurred by AREE in the potential
acquisition of properties and certain administrative
expenses.
In connection with the negotiations during 1998 by the
Company of the contribution agreement between AREE and
the Operating Partnership, a $240,000 advance was paid
to WMC by AREE for the benefit of the Operating
Partnership. As of December 31, 1998, this amount was
reflected as an advance to related party in
accompanying financial statements, with a related
liability recorded due to AREE. Under the terms of
the contribution agreement, the advance was to be
repaid to AREE in the event certain transactions
closed before December 31, 1998. Due to the
uncertainty of the collectibility of this advance,
the entire amount was reserved as uncollectible as
of December 31, 1998 and in connection with the
agreement discussed below, has been written off as
of June 30, 1999. Of the thirty-one properties to
be acquired, three properties were acquired as of
June 30, 1999. Further, in connection with the
agreements discussed below, WMC retained cash
received totaling $550,000 as partial consideration
for termination of the advisory agreement.
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
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
September 30, 1999
operations of properties owned by the Company and
receive a management fee for this service. Management
fees for the period January 1, 1999 through September
30, 1999 totaled $145,007 to Hoyt
and $114,390 to WRI. Management fees for the period
January 1, 1998 through September 30, 1998 totaled $0
to Hoyt (management agreement commenced November 1998)
and $140,017 to WRI.
Advisor Fees
On August 2, 1994, the Company contracted to retain
WMC to serve as Advisor to the Company. In payment
for these services, the Advisor receives a fee equal
to 5% of the gross proceeds of the public offering of
common shares, which terminated October 1995. No
advisor fees have been paid during 1999.
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. No Incentive
Advisory Fees have been paid during 1999.
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 had been renewed automatically each year.
The agreement was subject to termination without
cause, by either party, on 60 days written notice and
by the Company for cause immediately upon written
notice.
Termination of Advisory Agreement
In connection with the purchase of properties by the
Operating Partnership, the Company terminated the
advisory agreement with WMC on November 20, 1998. The
termination fee, payable to WMC, was estimated at $1.6
million and was to be determined by taking 1% of the
first $150,000,000 of the aggregate gross purchase
price for properties acquired by the Operating
Partnership plus 0.25% of the aggregate gross purchase
price for properties acquired in excess of
$150,000,000. See agreements as of June 30, 1999
discussed below.
Agreements: June 30, 1999
In the second quarter of 1999, due principally to the
fact that the Operating Partnership was able to
acquire only three properties since November 1998, the
Company entered into discussions with AREE and WMC.
As a result of these discussions during 1999:
- - Recipients of 838,372 Units, received in the
November 1998 acquisitions as described in Note C,
returned such Units to the Company for cancellation.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
September 30, 1999
- - AREE returned the warrant covering 791,667 Common
Shares to the Company. Further, the Company issued
254,800 Class B Preferred Shares to AREE as
consideration for an aggregate of $2,548,000
representing advances to the Company for working
capital purposes and costs incurred in connection with
the 1998 Transactions. Of the total Class B Preferred
Shares issued to AREE, 135,600 are redeemable by the
Company for $1 if certain conditions are not met prior
to June 30, 2002.
- - As consideration for the termination of the
advisory agreement between the Company and WMC, WMC
returned the warrant covering 791,667 Common Shares to
the Company, the Company issued 95,000 Class B
Preferred Shares to WMC and WMC retained cash payments
of $550,000 received during 1998.
Listing Agreement
In January 1998, the Company entered into a listing
agreement with WRI. The agreement provides that WRI
would receive a fee equal to 3% of the sales price in
the event of a sale of either of the Company's
residential properties. In connection with the
pending contract for the sale of Maple Grove
Apartments, discussed below, WRI is expected to
receive a fee totaling $501,000 upon consummation of
the sale.
NOTE I - SUBSEQUENT EVENTS
On October 28, 1999, the Company completed its public offering
of the sale of 700,000 Class A
Cumulative Convertible Preferred Shares ("Class A
Preferred Shares") to the public ("Preferred
Offering"). The Class A Preferred Shares bear a
liquidation preference of $10.00 per share and accrue a preferred
dividend equal to $0.475 per share, with such dividend
payable every six months. The Class A Preferred
Shares are convertible into the number of Common
Shares equal to the quotient obtained by dividing (1)
$10.00 plus any dividends then accrued but unpaid on
the Class A Preferred Shares, by (2) $2.90, a price
equal to 110% of the average closing bid price of
Common Shares over the 10 trading days preceding the
effective date of the registration statement covering
the Class A Preferred Shares. The Company has the
right to redeem the Class A Preferred Shares, under
certain circumstances, after the two year anniversary
date of the initial closing of the Preferred Offering.
The Registration Statement further provides for the
underwriters' representative to receive a warrant to
purchase 35,500 Class A Preferred Shares and for a 45-
day option to purchase 105,000 additional Class A
Preferred Shares solely to cover any overallotments.
The Company expects to use the net proceeds from the
Preferred Offering to fund the continued growth of the
Company.
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
CONTINUED
September 30, 1999
Maple Grove is presently under contract for sale to an
independent third party. The contract is subject to
normal closing conditions and contingencies and
provides for a purchase price of $16,700,000 to be
paid by assuming the first mortgage of approximately
$12,650,000 and paying the balance in cash at
closing. As of September 30, 1999, the buyer had
advanced the Company $400,000 of the cash purchase
price in exchange for a promissory note bearing
interest at a rate of 10.0% per annum.
No assurance can be given that the sale of Maple Grove
will be consummated and if consummated, would be on
terms described above or otherwise.
<PAGE>
WELLINGTON PROPERTIES TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF OPERATIONS
The following discussion should be read in
conjunction with the financial statements appearing
elsewhere herein. This Form 10-QSB contains forward-
looking statements intended to qualify for the
safe harbor from liability under the Private Securities
Litigation Reform Act of 1995. Such forward-looking
statements may involve known and unknown risks,
uncertainties and other factors that may cause the
actual results, performance or achievements of the
Company to be materially different from future
results, performance or achievements expressed or
implied by such forward-looking statements. Although
the Company believes that the expectations reflected
in such forward-looking statements are based upon
reasonable assumptions, there can be no assurance that
these expectations will be realized. Factors that
could cause actual results to differ materially from
current expectations include, but are not limited to,
changes in general economic conditions, changes in
interest rates, legislative and regulatory changes,
changes in monetary and fiscal policies of the U.S.
government, including policies of the U.S. Treasury
and the Federal Reserve Board, changes in local real
estate conditions (including rental rates and
competing properties), changes in industries in which
the Company's principal tenants compete, the failure
to timely lease unoccupied space, the failure to
timely re-lease occupied spaced upon expiration of
leases, the inability to generate sufficient revenues
to meet debt service payments and operating expenses,
the unavailability of equity and debt financing,
unanticipated costs associated with the Company's
acquisitions, potential liability under environmental
or other laws and regulations, the failure of the
Company to manage its growth effectively and the other
risks identified in the Company's Annual Report on
Form 10-KSB/Amendment No. 1 for the year ended
December 31, 1998.
Overview
Wellington Properties Trust is a real estate
investment trust. As of September 30, 1999, the
Company owned 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 247,546 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 September 30, 1999, the Company
held an 8.8% 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
<PAGE>
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 nine month and three month periods ended September
30, 1999 are not directly comparable to 1998.
Results of Operations
Comparison of the Nine Month Period Ended September
30, 1999 and 1998: Rental revenue increased by
approximately $2,917,559 or 127% for the nine month
period ended September 30, 1999 compared to the nine
month period ended September 30, 1998. The increased
revenue was primarily a result of the Company's
consummation of the 1998 Acquisition Properties.
Interest and other income increased by $45,411 during
these same periods, primarily due to interest earned
on escrowed funds relating to the 1998 Acquisition
Properties.
Total expenses increased from $2,523,995 for the nine
month period ended September 30, 1998 to $9,396,109
for the nine month period ended September 30, 1999, an
increase of $6,872,114 or 171% of which $3,563,383
represents non-recurring charges related to the
termination of the advisory agreement and write off of
deferred costs associated with 1998 expected
acquisitions. The remaining $3,308,732 was
attributable to increased property expenses of
$1,370,998, increased management fees of $119,380,
increased depreciation and amortization of $562,519,
increased interest expense of $996,815, and increased
general and administrative expenses of $259,019,
primarily as a result of the 1998 Transactions.
Depreciation and amortization increased from $442,161
for the nine month period ended September 30, 1998 to
$1,004,680 for the comparable period in 1999, an
increase of 127%, primarily as a result of the
Company's consummation of the 1998 Acquisition
Properties. Interest expense increased from $952,859
for the nine month period ended September 30, 1998 to
$1,949,674 for the comparable period in 1999, an
increase of 105%, primarily as a result of additional
borrowings associated with the 1998 Acquisition
Properties.
General and administrative expenses increased from
$247,125 for the nine month period ended September 30,
1998 to $506,144 for the comparable period in 1999, an
increase of 105%. In November 1998, the Company
converted from an externally advised REIT to a self-
administered REIT and commenced administrative
operations and, as a result incurred payroll expenses
of $195,000 for the nine month period ended September
30, 1999 not incurred in the previous comparable
period.
As a result of the above, net loss before minority
interests increased from ($228,021) for the nine month
period ended September 30, 1998 to a loss of
($4,137,165) for the nine month period ended September
30, 1999. Net loss allocated to Common Shares
increased from ($228,021) for the nine month period
ended September 30, 1998 to ($1,406,913) for the nine
month period ended September 30, 1999 attributable
primarily to the existence of minority interests
resulting from the new structure of the Company
following the 1998 Transactions, as well as the
factors described above.
<PAGE>
Comparison of the Three Month Period Ended September
30, 1999 and 1998: Rental revenue increased by
approximately $1,019,694 or 131% for the three month
period ended September 30, 1999 compared to the three
month period ended September 30, 1998. The increased
revenue was primarily a result of the Company's
consummation of the 1998 Acquisition Properties.
Interest and other income increased by $15,171 during
these same periods, primarily due to interest earned
on escrowed funds relating to the 1998 Acquisition
Properties.
Total expenses increased from $859,027 for the three
month period ended September 30, 1998 to $1,880,217
for the three month period ended September 30, 1999,
an increase of $1,021,190 or 119% of which was
attributable to increased property expenses of
$467,195, increased management fees of $23,880,
increased depreciation and amortization of $175,299,
increased interest expense of $335,530, and increased
general and administrative expenses of $19,286,
primarily as a result of the 1998 Transactions.
Depreciation and amortization increased from $148,281
for the three month period ended September 30, 1998 to
$323,580 for the comparable period in 1999, an
increase of 118%, as a result of the Company's
consummation of the 1998 Acquisition Properties.
Interest expense increased from $318,931 for the three
month period ended September 30, 1998 to $654,461 for
the comparable period in 1999, an increase of 105%,
primarily as a result of additional borrowings
associated with the 1998 Acquisition Properties.
General and administrative expenses increased from
$99,379 for the three month period ended September 30,
1998 to $118,665 for the comparable period in 1999, an
increase of 19%. In November 1998, the Company
converted from an externally advised REIT to a self-
administered REIT and commenced administrative
operations and, as a result incurred payroll expenses
of $45,000 for the three month period ended September
30, 1999 not incurred in the previous comparable
period.
As a result of the above, net loss before minority
interests increased from ($79,837) for the three month
period ended September 30, 1998 to a loss of ($66,162)
for the three month period ended September 30, 1999.
Net loss allocated to Common Shares increased from
($79,837) for the three month period ended September
30, 1998 to ($136,596) for the three month period
ended September 30, 1999 attributable primarily to the
existence of minority interests resulting from the new
structure of the Company following the 1998
Transactions, as well as the factors described above.
Liquidity and Capital Resources
Short Term and Long Term Liquidity
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.
<PAGE>
On October 28, 1999, the Company completed its
public offering of the sale of 700,000 Class A
Cumulative Convertible Preferred Shares ("Class A
Preferred Shares") to the public ("Preferred
Offering"). The Class A Preferred Shares bear a
liquidation preference of $10.00 per share and accrue a
preferred dividend equal to $0.475 per share, with such dividend
payable every six months. The Class A Preferred
Shares are convertible into the number of Common
Shares equal to the quotient obtained by dividing (1)
$10.00 plus any dividends then accrued but unpaid on
the Class A Preferred Shares, by (2) $2.90, a price
equal to 110% of the average closing bid price of
Common Shares over the 10 trading days preceding the
effective date of the registration statement covering
the Class A Preferred Shares. The Company has the
right to redeem the Class A Preferred Shares, under
certain circumstances, after the two year anniversary
date of the initial closing of the Preferred Offering.
The Registration Statement further provides for the
underwriters' representative to receive a warrant to
purchase 35,500 Class A Preferred Shares and for a 45-
day option to purchase 105,000 additional Class A
Preferred Shares solely to cover any overallotments.
The Company expects to use the net proceeds from the
Preferred Offering to fund the continued growth of the
Company.
On March 16, 1999, the Board of Trustees declared a
split of 4.75 Common Shares for each 3.00 Common
Shares effective on March 24, 1999 to shareholders of
record as of March 22, 1999 ("Stock Split"). The
Operating Partnership simultaneously declared a split
of 4.75 Units for each 3.00 Units effective on March
24, 1999 to unitholders of record as of March 22,
1999. All amounts herein have been adjusted to give
effect to the Stock Split.
On March 30, 1999, the Board of Trustees declared a
cash distribution of $0.11 per share totaling
approximately $148,679 to shareholders of record as of
March 31, 1999. Such distribution was paid by the
Company on August 23, 1999. The Operating Partnership
simultaneously declared a $0.11 per unit cash
distribution to holders of Units. Such distributions
total approximately $133,550.
On July 15, 1999, the Board of trustees declared a
cash distribution of $0.11 per share totaling
approximately $148,679 to shareholders of record as of
June 30, 1999. Such distribution was paid by the
Company on August 24, 1999. The Operating Partnership
simultaneously declared a $0.11 per unit cash
distribution to holders of Units. Such distributions
total approximately $133,550.
On September 30, 1999, the Board of Trustees declared
a cash distribution of $0.11 per share totaling
approximately $150,937 to shareholders of record as of
September 30, 1999. Such distribution was paid by the
Company on October 15, 1999. The Operating
Partnership simultaneously declared a $0.11 per unit
cash distribution to holders of Units. Such
distribution totals $133,550.
<PAGE>
In the second quarter of 1999, due principally to the
fact that the Operating Partnership was able to
acquire only three properties since November 1998, the
Company entered into discussions with AREE and WMC.
As a result of these discussions during 1999:
- - AREE and WMC returned the warrants, each covering
791,667 shares, to the Company.
- - Recipients of 838,372 Units, received in connection
with the November 1998 Transactions, returned such
Units to the Company for cancellation.
- - The Company issued 254,800 Class B Junior
Cumulative Convertible Preferred Shares ("Class B
Preferred Shares") to AREE as consideration for an
aggregate of $2,548,000 representing advances to the
Company for working capital purposes and costs
incurred in connection with the 1998 Transactions.
The Class B Preferred Shares bear the same rights,
terms and preferences as the Class A Preferred Shares
(defined below), but rank junior as to payment of
dividends and distributions upon liquidations. Of the
total Class B Preferred Shares issued to AREE, 135,600
are redeemable by the Company for $1 if certain
conditions are not met prior to June 30, 2002.
- - As consideration for the Termination of the
Advisory Agreement between the Company and WMC, the
Company issued 95,000 Class B Preferred Shares to WMC
and WMC retained cash payments of $550,000 received
during 1998.
Maple Grove is presently under contract for sale to an
independent third party. The contract is subject to
normal closing conditions and contingencies and
provides for a purchase price of $16,700,000 to be
paid by assuming the first mortgage of approximately
$12,650,000 and paying the balance in cash at closing.
In connection with the pending contract for the sale
of Maple Grove Apartments, WRI is expected to receive
a fee totaling $501,000 upon consummation of the sale.
As of September 30, 1999, the buyer had advanced the
Company $400,000 of the cash purchase price in
exchange for a promissory note bearing interest at a
rate of 10.0% per annum.
No assurance can be given that the sale of Maple Grove
will be consummated and if consummated, would be on
terms described above or otherwise.
The Company has no other 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, net cash proceeds from sales, additional
borrowings, additional equity issuances of Common or
Preferred Shares, and/or partnership Units.
<PAGE>
Cash Flows
During the nine month period ended September 30,
1999, the Company generated $874,209 in cash flows
from operating activities and $400,000 from proceeds
of a note payable. These cash flows were used
primarily for (i) repayments of debt obligations
aggregating $551,152 (ii) payment of cash dividends,
net of the Company's dividend reinvestment plan
$258,888; (iii) investment in unconsolidated
subsidiary aggregating $90,000; and (iv) additions to
fixed assets $115,267. As a result, the Company's
cash balances increased by $251,808 to $405,709 at
September 30, 1999 from $153,901 at December 31, 1998.
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 unconsolidated 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 nine month periods
ended September 30, 1999 and September 30, 1998
summarized in the following table.
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Month Nine Month
Period Ended Period Ended
Sept 30,1999 Sept 30, 1998
Loss before minority interests $ (4,137,165) $ (228,021)
Add: real estate related depreciation
and amortization 883,987 405,764
Non recurring expenses:
Termination of advisory agreement 950,000 -
Nonrecurring expenses 2,613,383 -
Funds from operations $ 310,205 $ 177,743
Weighted average number of shares: Basic
and diluted (1) 3,629,154 1,150,138
</TABLE>
(1) Assumes exchange of all Units, calculated on a
weighted average basis for Common Shares, adjusted to
give effect to the Stock Split.
<PAGE>
Year 2000 Compliance
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 "00" 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. Wellington
Realty, Inc., which manages the apartment properties
is fully Year 2000 compliant. Hoyt Properties, which
manages the commercial properties is in the process of
acquiring new systems to become Year 2000 compliant.
Inflation
Inflation has not generally had a significant impact
on the Company during the periods presented 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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 28, 1999, the Company completed its
public offering of 700,000 Class A
Cumulative Convertible Preferred Shares ("Class A
Preferred Shares") to the public ("Preferred
Offering"). The Class A Preferred Shares bear a
liquidation preference of $10.00 per share and accrue a
preferred dividend equal to $0.475 per share, with such dividend
payable every six months. The Class A Preferred
Shares are convertible into the number of Common
Shares equal to the quotient obtained by dividing (1)
$10.00 plus any dividends then accrued but unpaid on
the Class A Preferred Shares, by (2) $2.90, a price
equal to 110% of the average closing bid price of
Common Shares over the 10 trading days preceding the
effective date of the registration statement covering
the Class A Preferred Shares. The Company has the
right to redeem the Class A Preferred Shares, under
certain circumstances, after the two year anniversary
date of the initial closing of the Preferred Offering.
<PAGE>
The Registration Statement further provides for the
underwriters' representative to receive a warrant to
purchase 35,500 Class A Preferred Shares and for a 45-
day option to purchase 105,000 additional Class A
Preferred Shares solely to cover any overallotments.
On August 12, 1999, the Company issued 349,800 Class
B Junior Cumulative Convertible Preferred Shares
("Class B Preferred Shares"). Of the total, the Company
issued 254,800 Class B Preferred Shares to AREE as consideration
for an aggregate of $2,548,000 representing advances to the
Company for working capital purposes and costs incurred in
connection with the 1998 Transactions. The Company issued
the balance of 95,000 Class B Preferred Shares to WMC
as consideration for $950,000 representing partial consideration
for the termination of the advisory agreement between the
Company and WMC. The Class B Preferred
Shares bear the same rights, terms and preferences as
the Class A Preferred Shares, but rank junior as to
payment of dividends and distributions upon
liquidation. The issuance of the Class B Preferred Shares was
exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Financial Data Schedule EX-27
REPORTS ON FORM 8-K
None
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\ Robert F. Rice
Robert F. Rice
President
By: \S\ Garret T. Nakama
Garret T. Nakama
Chief Financial Officer
Signing on behalf of the
registrant and as principal
financial and accounting
officer.
Date: November 15, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 405,709
<SECURITIES> 0
<RECEIVABLES> 21,498
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 51,593,070
<DEPRECIATION> 2,614,588
<TOTAL-ASSETS> 51,433,813
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 13,722
<OTHER-SE> 7,662,927
<TOTAL-LIABILITY-AND-EQUITY> 51,433,813
<SALES> 0
<TOTAL-REVENUES> 5,258,944
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,446,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,949,674
<INCOME-PRETAX> (1,543,506)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,543,506)
<EPS-BASIC> (1.14)
<EPS-DILUTED> (1.14)