SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________________ to _________________
Commission File Number 0-9109 Commission File Number 0-9110
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
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(Exact name of registrant (Exact name of registrant
as specified in its charter) as specified in its charter)
DELAWARE DELAWARE
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(State or other jurisdiction (State or other jurisdiction
of incorporation or organization) of incorporation or organization)
95-3520818 95-3419438
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(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
285 West Huntington Drive,
363 San Miguel Drive, Suite 100 P.O. Box 60014
Newport Beach, California 92660-7803 Arcadia, California 91066-6014
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(Address of principal executive (Address of principal executive
offices including ZIP code) offices including ZIP code)
(714) 721-2700 (818) 574-7223
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(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
Securities registered pursuant to Section 12(b) of the Act:
Santa Anita Realty Enterprises, Inc. Santa Anita Operating Company
Common Stock $.10 par value Common Stock $.10 par value
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(Title of class) (Title of class)
New York Stock Exchange New York Stock Exchange
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(Name of each exchange (Name of each exchange
on which registered) on which registered)
Santa Anita Realty Enterprises, Inc.
Preferred Stock Purchase Rights
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(Title of class)
New York Stock Exchange
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(Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None None
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(Title of each class) (Title of each class)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the paired voting stock of Santa Anita Realty
Enterprises, Inc. and of Santa Anita Operating Company held by nonaffiliates on
March 8, 1994 was $186,886,000.
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the close of business on March 8, 1994:
Santa Anita Realty Enterprises, Inc. Common Stock 11,256,353
Santa Anita Operating Company Common Stock 11,140,853
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in Part III of this Joint
Annual Report on Form 10-K:
Joint proxy statement for the annual meetings of shareholders of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company to be held on May 3,
1994.
TABLE OF CONTENTS
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Page
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PART I 3
Item 1. Business 3
Introduction 3
Realty 3
Pacific Gulf Properties Inc. 3
Summary Financial Information 5
Real Estate Investments and Policies 6
Santa Anita Racetrack 7
Regional Malls 8
Santa Anita Fashion Park 8
Towson Town Center 9
Shopping Centers 10
Office Buildings 10
Land 10
Apartments 10
Industrial 11
Management of Properties 11
Competitive and Other Conditions 12
Employees 12
Seasonal Variations in Business 13
Operating Company 14
Santa Anita Racetrack 14
Pari-Mutuel Wagering 18
On-Track Wagering 18
Satellite Wagering - California 19
Satellite Wagering - Interstate 19
Simulcasting 19
Canterbury Downs 19
Competitive and Other Conditions 20
Dependence on Limited Number of Customers 20
Employee and Labor Relations 20
Seasonal Variations in Business 21
Income Tax Matters 22
Item 2. Properties 27
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 4a. Executive Officers of Realty and Operating Company 28
PART II 29
Item 5. Market for the Registrants' Common Equity and Related
Shareholder Matters 29
Item 6. Selected Financial Data 30
Item 7. Managements' Discussion and Analysis of Financial
Condition and Results of Operations 34
Item 8. Financial Statements and Supplementary Data 39
Item 9. Disagreements on Accounting and Financial Disclosure 39
PART III 40
PART IV 40
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 40
SIGNATURES 41
INDEX TO FINANCIAL STATEMENTS 43
INDEX TO FINANCIAL STATEMENT SCHEDULES 44
EXHIBIT INDEX 109
2
SANTA ANITA REALTY ENTERPRISES, INC.
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
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INTRODUCTION
Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating
Company ("Operating Company") are two separate companies, the stocks of which
trade as a single unit under a stock-pairing arrangement on the New York Stock
Exchange. Realty and Operating Company were each incorporated in 1979 and are
the successors of a corporation originally organized in 1934 to conduct
thoroughbred horse racing in Southern California. As used herein, the terms
"Realty" and "Operating Company" include wholly owned subsidiaries of Realty
and Operating Company, respectively, unless the context requires otherwise.
This document constitutes the annual report on Form 10-K for both Realty and
Operating Company.
REALTY
Realty is incorporated under the laws of the State of Delaware. Realty's
principal executive offices are located at 363 San Miguel Drive, Suite 100,
Newport Beach, California 92660-7805.
Realty operates as a real estate investment trust ("REIT") under the
provisions of the Internal Revenue Code of 1986 (the "Code"). As such, Realty
is principally engaged in investing in and holding real property, including
Santa Anita Racetrack, 622,000 square feet of industrial space, the real estate
underlying the Santa Anita Fashion Park shopping center ("Fashion Park"), a 50
percent interest in the operation of Fashion Park and a 32.5 percent interest in
Towson Town Center (major regional shopping centers), and a number of
neighborhood shopping centers and office buildings. Until February 18, 1994,
Realty also owned 2,654 apartment units and an additional 185,000 square feet of
industrial space. Realty is a self-administered equity REIT.
PACIFIC GULF PROPERTIES INC.
In June 1993, Realty's Board of Directors approved management's
recommendation to recapitalize certain assets of Realty. Pursuant to this
recapitalization, in November 1993, Realty entered into a Purchase and Sale
Agreement to sell its multifamily and industrial operations to Pacific Gulf
Properties Inc. ("Pacific"), in conjunction with Pacific's proposed public
offering of common stock. The transaction was structured into two parts: (1)
Realty would sell all of its apartments and industrial properties to Pacific
with the exception of Realty's interest in the Baldwin Industrial Park joint
venture; and (2) Pacific would enter into a binding agreement to buy Realty's
interest in Baldwin Industrial Park.
On February 18, 1994, Realty completed the first part of this transaction
by selling to Pacific ten multifamily properties, containing 2,654 apartment
units, located in Southern California, the Pacific Northwest, and Texas and
three industrial properties, containing an aggregate of 185,000 leasable square
feet of industrial space, located in the State of Washington (the "Transferred
Properties"). Realty's corporate headquarters building and related assets were
also acquired by Pacific. The sale of the Transferred Properties followed the
public offerings of common stock and convertible subordinated debentures by
Pacific.
Pursuant to the Purchase and Sale Agreement, Pacific agreed to buy Realty's
interest in Baldwin Industrial Park subject to satisfaction of certain
conditions, for a minimum price of $8.9 million payable in additional shares of
Pacific common stock, with the final price dependent upon completion of
negotiations with other owners of Baldwin Industrial Park and an appraisal
process. Management believes the sale of Realty's interest in Baldwin
Industrial Park will be completed in the second half of 1994. Pacific is
required to issue to Realty non-refundable letters of credit totaling up to $2.5
million by March 31, 1994 to secure its obligation to
3
ITEM 1. BUSINESS (CONTINUED)
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acquire Realty's interest in Baldwin Industrial Park and pay for the corporate
headquarters building and other assets related to the Transferred Properties.
In consideration of the sale of the Transferred Properties, Realty received
approximately $44.4 million in cash and 149,900 shares of the common stock of
Pacific. In addition, Realty was relieved of approximately $44.3 million of
mortgage debt on the Transferred Properties. Realty will also receive, at the
time the acquisition of Baldwin Industrial Park is completed, up to $1.2 million
in additional common stock of Pacific as consideration for its corporate
headquarters and other net assets related to the Transferred Properties.
The two parts of the above transaction will result in a loss of
$10,974,000. This loss has been reflected in the Realty and Realty and
Operating Company combined statements of operations for the year ended December
31, 1993. If the Baldwin Industrial Park portion of the transaction described
above does not occur, an additional loss of approximately $5,900,000 will be
recognized by Realty in 1994. (See "Notes to Financial Statements - Note 2 -
Disposition of Multifamily and Industrial Properties Subsequent to Year End.")
In connection with the sale, the executive officers, various managers and
most other employees of Realty resigned and became officers and employees of
Pacific on February 18, 1994.
Realty and Pacific have also entered into a one-year management agreement
whereby Pacific has agreed to provide management services to Realty. Finally,
with respect to the common stock of Pacific owned by Realty, Pacific has entered
into a registration rights agreement with Realty which, under certain
circumstances, allows Realty to require the registration of the Pacific stock it
owns.
As a result of the February 18, 1994 sale to Pacific, Realty owns
approximately 3.6% of Pacific's outstanding common shares. Upon completion of
Pacific's acquisition of Baldwin Industrial Park assuming a price per share
equal to $18.25 (the public offering price of Pacific's common shares) and the
minimum price for Realty's interest in Baldwin Industrial Park and the corporate
headquarters building and certain other assets related to the Transferred
Properties, Realty will own approximately 14.9% of Pacific's outstanding common
shares. The February 18, 1994 sale also accomplished the following objectives:
(1) the transaction de-leveraged Realty by paying down its lines of credit by
$44.4 million and transferring certain debt in the amount of $44.3 million
related to the apartment and industrial properties to Pacific; (2) Realty's
existing shareholders' interest in Santa Anita Racetrack and Fashion Park was
not diluted; and (3) Realty shareholders will participate in the potential
growth of Pacific through Realty's ownership position.
4
Item 1. Business (continued)
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SUMMARY FINANCIAL INFORMATION
The following table sets forth certain unaudited financial information with
respect to Realty:
SUMMARY OF FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
-----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Revenues $55,578 $50,291 $45,408 $44,101 $41,594
Net income 2,619(a) 10,211 9,699 13,861 14,290
Funds from operations (b) 18,647(c) 19,167 17,273 19,113 20,500
Per share:
Net income .23 .91 .86 1.23 1.35
Dividends paid 1.36 1.36 2.08 2.08 2.08
Dividends declared 1.36 1.36 1.90 2.08 2.08
Weighted average shares
outstanding 11,256 11,256 11,257 11,224 10,582
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(a) See Item 1. "Business - Realty - Pacific Gulf Properties."
(b) Calculated in accordance with the definition of funds from operations as
defined by the National Association of Real Estate Investment Trusts
("NAREIT"), except 1993 which excludes $5,734,000 received from the
California Franchise Tax Board related to the settlement of certain state
tax issues. Net income (computed in accordance with generally accepted
accounting principles), excluding gains (losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated joint ventures were calculated by adding distributions from
unconsolidated joint ventures net of equity in the earnings (losses) of the
venture and excluding distributions associated with the sale of property by
the venture.
(c) Pro forma funds from operations for the year ended December 31, 1993, after
giving effect to the Pacific transaction, was $16,151,000.
5
ITEM 1. BUSINESS (CONTINUED)
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REAL ESTATE INVESTMENTS AND POLICIES
Realty's portfolio of real estate investments is outlined below.
Information with respect to the real estate investments subject to the Pacific
transaction are separately listed:
SUMMARY OF REAL ESTATE INVESTMENTS
AS OF DECEMBER 31, 1993
NET BOOK
PERCENT LEASABLE PERCENT VALUE (B) ENCUMBRANCES (C)
LEASED AREA (A) OWNERSHIP (IN THOUSANDS) (IN THOUSANDS)
-------- ---------- ------------- -------------- ----------------
REALTY
RACING FACILITY:
Santa Anita Racetrack 100% 312 acres 100.0% $ 6,997 $ -
REGIONAL MALLS:
California
Fashion Park 92 900,000 50.0 42,552 25,314 (d)
Land underlying Fashion Park 100 73 acres 100.0 102 4,100
Maryland
Towson Town Center (e) 91 980,000 32.5 (f) 175,555 164,641
Joppa Associates (g) - 240,000 33.3 28,834 16,495
SHOPPING CENTERS:
California
Yorba Linda 91 66,000 100.0 7,881 -
Orange 100 21,000 100.0 4,633 -
Encinitas 83 79,000 100.0 11,158 -
Arizona, Phoenix
Tatum and Thunderbird 98 25,000 100.0 3,735 -
28th and Indian School 100 31,000 100.0 2,141 870
67th and Indian School 79 74,000 100.0 5,699 -
OFFICE BUILDINGS:
California
Civic Center Plaza Towers 79 166,000 100.0 16,976 11,822
Upland 94 37,000 100.0 4,629 -
Medical Office Building 81 72,000 100.0 12,989 10,000
LAND:
California
Temecula N/A 24 acres 50.0 (h) 1,788 857
PACIFIC
APARTMENTS:
California
Santa Ana 85 406 units 100.0 26,428 -
Washington
Everett 95 504 units 100.0 22,496 15,625
Burien 96 380 units 100.0 16,447 12,900
Oregon
Beaverton 95 279 units 100.0 11,295 8,042
Texas
San Antonio 96 224 units 100.0 4,958 -
San Antonio 94 327 units 100.0 4,951 -
Houston 94 278 units 100.0 7,542 2,997
Austin 96 256 units 100.0 6,772 -
OFFICE BUILDING:
California
Newport Beach (i) 7,000 100.0 1,019 -
INDUSTRIAL:
California
Baldwin Park 90 622,000 50.0 (f)(j) 8,988 9,454
Washington
Seattle 95 185,000 100.0 7,314 4,751
ALLOWANCE FOR LOSS ON DISPOSITION OF (10,974)
MULTIFAMILY AND INDUSTRIAL OPERATIONS --------
$107,236
========
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(a) Square feet except as indicated.
(b) Net book value (total cost of project less accumulated depreciation) at
December 31, 1993. Amounts represent 100% of project net book value.
(c) Amounts represent 100% of project encumbrances.
(d) Subsequent to December 31, 1993, the loan was refinanced (see Item 1.
"Business - Realty - Regional Malls - Santa Anita Fashion Park").
(e) A major shopping center which was expanded into a 980,000 square foot
regional mall. Expanded mall area opened in October 1991. Additional anchor
tenant opened in fall of 1992.
(f) Realty is entitled to receive a preferred return on its equity investment.
(g) A retail building adjacent to the Towson Town Center project that is
expected to become part of the regional mall described in (e) above.
(h) Pacific has an option to acquire this property (see Item 1. "Business -
Realty - Land").
(i) Corporate offices of Realty and Pacific.
(j) Pacific has agreed to acquire this property during 1994 (see Item 1.
"Business - Realty - Pacific Gulf Properties").
6
ITEM 1. BUSINESS (CONTINUED)
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The following table presents information with respect to Realty's wholly
owned and consolidated joint venture projects, other than Santa Anita Racetrack,
by type as of December 31, 1993. Information with respect to the projects
subject to the Pacific transaction is separately listed. Information on the
consolidated joint venture projects represents 100% of the projects' leasable
area and net operating income.
SQUARE FOOTAGE
-------------------------
PERCENT NET OPERATING
LEASABLE AREA OF TOTAL INCOME (a)
--------------- -------- --------------
Realty
Regional mall 900,000 (b) 21 $ 6,116,000
Shopping centers 296,000 7 2,741,000
Office buildings 275,000 6 2,721,000
Pacific
Apartments (c) 2,080,000 48 8,139,000
Industrial (d) 807,000 18 3,463,000
Office building 7,000 - 27,000
--------- --- -----------
Total 4,365,000 100 $23,207,000
========= === ===========
- ----------------------
(a) Rental property revenues less rental property operating expenses for all
wholly owned properties and consolidated joint venture properties.
(b) Does not include square footage in Towson Town Center (980,000 square
feet) or Joppa Associates (240,000 square feet), or land underlying
Fashion Park of 73 acres.
(c) Net operating income includes only actual number of months of activity for
each project.
(d) Includes - property Pacific has agreed to acquire during 1994 (see Item 1.
"Business - Realty - Pacific Gulf Properties").
The disposition of the multifamily and industrial operations to Pacific is
consistent with Realty's plan to focus its efforts on the Santa Anita Racetrack
and related property in Arcadia. Realty's current investment policy is to focus
its efforts on the Santa Anita Racetrack and related property in Arcadia.
Realty's investment policies are subject to ongoing review by its Board of
Directors and may be changed in the future depending on various factors,
including the general climate for real estate investments.
SANTA ANITA RACETRACK
Santa Anita Racetrack, which is leased by Realty to the Los Angeles Turf
Club, Incorporated ("LATC"), a subsidiary of Operating Company, is located on
approximately 312 acres, 14 miles northeast of downtown Los Angeles, adjacent to
major transportation routes. LATC conducts one of the largest thoroughbred
horse racing meets in the United States in terms of both average daily
attendance and average daily pari-mutuel wagering.
The Santa Anita Racetrack was opened for thoroughbred horse racing in 1934
by a group of investors led by Dr. Charles H. Strub. The Santa Anita Meet has
been held at Santa Anita Racetrack each year since its founding except for three
years during World War II. Over the years, the racetrack facilities have been
expanded. At present, the physical plant consists of a large grandstand
structure, stalls for approximately 2,000 horses, and a parking area covering
approximately 128 acres which can accommodate approximately 20,000 automobiles.
The grandstand facilities include clubhouse and Turf Club accommodations, a
general admission
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Item 1. Business (continued)
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area, and food and beverage facilities, which range from fast food stands to
restaurants, both at outdoor terrace tables and indoor dining areas. The
grandstand has seating capacity for 25,000 as well as standing room for
additional patrons. The structure also contains Operating Company's executive
and administrative offices. The grounds surrounding the grandstand are
extensively landscaped and contain a European-style paddock and infield
accommodations, including picnic facilities for special groups and the general
public.
The lease rental payable to Realty by LATC is 1.5% of total live on-track
wagering at Santa Anita Racetrack, including live on-track wagering during the
meet conducted by the Oak Tree Racing Association ("Oak Tree"). In addition,
Realty receives 40% of LATC's revenues from satellite wagering (not to exceed
1.5% of such wagering) and the simulcasting of races originating from Santa
Anita Racetrack after mandated payments to the State, to horse owners and to
breeders. Accordingly, the rental income which Realty receives from Santa Anita
Racetrack is directly affected by and dependent upon the racing activities and
the wagering by patrons (see Item 1. "Business -- Operating Company -- Santa
Anita Racetrack").
Based upon the rental formula for the year ended December 31, 1993, Realty
received approximately $11.6 million in rental income from horse racing. The
lease expires in December 1994 at which time it is expected to be renewed on
terms to be renegotiated by Realty and LATC which, in light of Operating
Company's declining profitability, may result in reduced revenue to Realty (see
Item 1. "Business -- Operating Company" and Item 6. "Selected Financial Data -
- - Operating Company").
The following table shows rental earned by Realty under the LATC lease for the
last five years:
RACING MEETS ENDED IN
(IN THOUSANDS, EXCEPT FOR RACING DAYS)
----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Combined racing days 114 121 120 117 122
======= ======= ======= ======= =======
Santa Anita Meet $ 9,233 $10,955 $ 9,928 $10,436 $10,283
Oak Tree Meet and Charity
Days (a) 2,401 1,728 1,889 2,069 2,863
------- ------- ------- ------- -------
Total $11,634 $12,683 $11,817 $12,505 $13,146
======= ======= ======= ======= =======
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(a) Oak Tree races five weeks in even-numbered years and six weeks in odd-
numbered years.
For a further description of the Santa Anita Meet and the Oak Tree Meet,
see Item 1. "Business -- Operating Company -- Santa Anita Racetrack."
REGIONAL MALLS
SANTA ANITA FASHION PARK
Santa Anita Fashion Park is a completely enclosed, climate-controlled
regional mall located adjacent to Santa Anita Racetrack with approximately
900,000 square feet of leasable area. Fashion Park is owned and operated by a
partnership, Anita Associates, of which Realty is a 50% limited partner. The
general partner of Anita Associates is Hahn-UPI, which in turn is a limited
partnership of which The Hahn Company, a developer of shopping centers, is the
general partner.
Fashion Park is currently undergoing an expansion which is anticipated to
be completed in the fall of 1994. In addition to the existing major tenants,
Robinsons/May, J.C. Penney and Broadway, a new 146,000 square foot Nordstrom
store is being added. During 1993, the Robinsons/May store was expanded by
8
Item 1. Business (continued)
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approximately 40,000 square feet. In 1994, an additional 45,000 square feet of
mall stores will be completed with the Nordstrom expansion. During 1993, a food
court of approximately 13,000 square feet was completed and opened.
In January 1994, the partnership refinanced its existing debt by entering
into a loan agreement with an insurance company whereby a maximum of $62,355,000
may be borrowed, bearing interest at 9%, with repayment over ten years. On
January 25, 1994, $46,577,193 of the total loan amount was drawn.
There are currently 116 tenants operating mall stores with original lease
terms varying up to 10 years. New leases are generally seven to ten years with
clauses providing for escalation of the basic rent every three years.
Typically, leases with mall tenants are structured to provide Anita Associates
with overage rents upon attainment by the tenant of certain sales levels, which
are specified under the individual leases of the various stores. Overage rents
represent a fixed percentage of the gross sales of a tenant less its base rent.
Realty has leased the land underlying Fashion Park to Anita Associates and
to the major tenants of Fashion Park until 2037, with two additional ten-year
option periods and one additional five-year option period. The ground rent is
$527,000 annually until 1996 when the annual rent will increase to $794,000
through 2007. During the remaining 30-year term and the three additional option
periods, the annual ground rent may be increased up to 25% based upon the
appraised value of the land. Under the provisions of the ground leases, Anita
Associates is responsible for real estate taxes and other operating expenses.
Robinsons/May, J. C. Penney and The Broadway pay their own real estate taxes.
The following table contains certain information pertaining to the mall
stores in Fashion Park (excluding major tenants):
Year Ended December 31,
----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Number of mall tenants 116 107(a) 134 139 141
======== ======== ======== ======== ========
Average annual rental rates per square
foot including overage rents $16.42 $16.98 $15.80 $14.99 $14.70
-------- -------- -------- -------- --------
- -------------------
(a) Decline due primarily to certain leases not being renewed in anticipation
of the expansion discussed above.
The land underlying Fashion Park is security for a loan maturing in 2009
with a balance at December 31, 1993 of $4,100,000. Payments on this
indebtedness, which is without recourse to Realty, are approximately $473,000
annually. The security to the lender also includes an assignment of the ground
rents received by Realty and a collateral assignment of the ground leases.
TOWSON TOWN CENTER
Towson Town Center located in Towson, Maryland, is a 563,000 square foot
(excluding major tenants) regional mall which opened in 1991. Realty is a 50%
partner with The Hahn Company in H-T Associates, a joint venture which owns a
65% interest in a partnership which owns the Towson Town Center. Realty has
invested a total of $7.5 million in H-T Associates. The major tenants at Towson
Town Center are Nordstrom and Hecht's department stores.
There are 183 other tenants operating mall stores with original lease terms
varying up to 15 years. The average annual rental rate per square foot including
overage rents was $28.23 per square foot for the operating mall stores. The mall
tenant leases generally provide for escalation of the basic rent every three
years and are structured to provide Towson Town Center with overage rents upon
attainment by the tenant of certain sales levels, which are specified under the
individual leases of the various stores. Overage rents represent a fixed
percentage of the gross sales of a tenant less its base rent.
9
ITEM 1. BUSINESS (CONTINUED)
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Realty is a joint and several guarantor of loans used to expand the Towson
Town Center and a department store and land adjacent to the Towson Town Center
in the amount of $82,630,000. In 1993 the guarantee amount was reduced by
$93,337,000. Annually, the guarantors may request a reduction in the amount of
the guaranty based on the economic performance of the regional mall (see "Notes
to Financial Statements -- Note 3 -- Investments in Joint Ventures").
SHOPPING CENTERS
Realty owns a portfolio of six neighborhood shopping centers. The shopping
centers typically consist of a major supermarket, retail store or drugstore as a
major tenant and often include a variety or general merchandise store and
smaller service store tenants. The major tenant in two centers owns its building
and the underlying land, while in the four other centers, the land or
improvements are leased to the major tenant. Leases on the properties range from
two to ten years in duration, but typically are from three to five years. They
are generally triple net leases (tenant pays all operating costs, insurance and
property taxes) and provide for future rental increases. At December 31, 1993,
the average occupancy of the three shopping centers located in California was
88% and the average occupancy of the three shopping centers located in Arizona
was 90%.
OFFICE BUILDINGS
Realty owns interests in four office buildings located in Arcadia, Santa
Ana, Upland and Newport Beach, California. The office buildings in Santa Ana and
Upland are for general office use, the building in Arcadia is a medical office
building and the building in Newport Beach was occupied by Realty in March 1993
and was sold to Pacific on February 18, 1994. Office leases are typically for a
period of five to ten years and are offered on a full-service gross basis. In
addition, tenants are given a tenant improvement allowance and rental
concessions in the form of additional tenant improvement allowances or free
rent. At December 31, 1993, the occupancy of the office buildings, was 82%.
Effective as of December 31, 1993, Realty acquired the minority partnership
interest in the office building located in Santa Ana. The partnership interest
was acquired in consideration for the cancellation of certain receivables from
the minority partner, payment of $250,000 and the assumption of the minority
partner's capital account.
LAND
Realty is a 50% partner in French Valley Ventures, a partnership which
acquired 24 acres of unimproved land located in Temecula, California. The
partnership is actively seeking the necessary entitlements on the property and
is reviewing the possibility of developing an industrial project on the site.
Subsequent to year-end, Realty granted to Pacific an option to acquire this
partnership interest in the undeveloped parcel of land for $1,957,000. The
option is exercisable beginning March 1, 1994 and expires December 31, 1994.
APARTMENTS
On July 1, 1993, Realty acquired a 256-unit apartment complex located in
Austin, Texas, which was subsequently sold to Pacific. Realty acquired the
project for $6,750,000. At December 31, 1993 the complex was 96% leased.
During 1993, prior to the sale of its apartments to Pacific, Realty
acquired the minority partnership interests in Applewood Village Partners and
SAREFIM, partnerships which owned 406 and 504 units, respectively, from the
minority partners. The partnership interests were acquired in consideration for
cash, the cancellation of certain receivables from the minority partners and the
assumption of the minority partners' share of the excess of partnership
liabilities over assets.
10
ITEM 1. BUSINESS (CONTINUED)
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INDUSTRIAL
BALDWIN INDUSTRIAL PARK
Realty is a 50% limited partner in a partnership formed to develop an
industrial park on a 45-acre parcel of land in Baldwin Park, California. The
land is leased from one of the partners for a period of 55 years. The
industrial park is comprised of a total of approximately 622,000 square feet of
office and industrial space in a complex of buildings ranging in size from
25,000 to 65,000 square feet. The park is currently 90% leased to tenants which
include Gerber's Foods, Federal Express and Home Savings of America ("Home").
Home, the current lessee of a ten-acre parcel in the industrial park and of a
55,656 square foot building in the industrial park, has options to purchase both
the ten-acre parcel and the building and land underlying the building under the
terms of its leases. Home has exercised its options under both agreements.
Under the partnership agreement, Realty is entitled to receive 80% of the
cash flow from the partnership in order to provide Realty with a cumulative
return of 12% per annum on its invested capital. To the extent there is
sufficient cash flow for Realty to receive its 12% cumulative return, the
remaining partners are entitled to 80% of the excess cash flow to provide them
with a cumulative annual return equal to that received by Realty. Additional
cash flow is to be divided equally between Realty and the remaining partners.
The partnership exercised an option to buy the land underlying the Home
parcel in 1991 and has the option to acquire the remaining parcels in 1994. If
the partnership does not exercise any portion of its option to acquire the land,
Realty then has the right to exercise that portion of the option under the same
terms as the partnership. In addition to the above-mentioned partnership
option, Realty has an option to purchase the partnership interests of the other
partners in 1994 at the fair market value of the interests in 1994.
Subsequent to year-end, Realty agreed to sell its interest in the
partnership and assigned its option to purchase the partnership interest of the
other partners to Pacific. (See Item 1. "Business - Realty-Pacific Gulf
Properties Inc." and "Notes to Financial Statements - Note 2 - Disposition of
Multifamily and Industrial Operations Subsequent to Year End"). Pacific has
exercised this option to purchase the partnership interest of the other
partners.
SEATTLE INDUSTRIAL BUILDINGS
During 1993, prior to the sale of its industrial properties to Pacific,
Realty acquired the minority partnership interest in SARESAM Ventures, a
partnership which owned 185,000 square feet of industrial buildings located in
the Seattle, Washington area. The partnership interest was acquired in
consideration for the cancellation of certain receivables from the minority
partners and the assumption of the minority partners' share of the excess of
partnership liabilities over assets.
MANAGEMENT OF PROPERTIES
Realty manages its shopping centers (other than the regional malls) and
office buildings directly. Based on a normal property management fee charged by
outside managers, Realty believes it realizes an economic benefit as well as the
benefits of direct control by managing the properties directly.
11
ITEM 1. BUSINESS (CONTINUED)
- ----------------
COMPETITIVE AND OTHER CONDITIONS
The industrial buildings, regional shopping malls, shopping centers and
office buildings owned by Realty encounter significant competition from similar
or larger industrial buildings, regional shopping malls, shopping centers and
office buildings developed and owned by other companies.
Realty's income from its real estate assets is also affected by general
economic conditions. The current recession has adversely affected vacancy rates
in office buildings and industrial parks generally. The current recession and
other competitive conditions have also affected the rent payable by LATC (see
Item 1. "Business -- Operating Company -- Competitive and Other Conditions").
Continuation of the recession could adversely impact vacancy rates, the nature
of Realty's tenants, the rents Realty is able to obtain from its tenants and its
financial results.
Some of Realty's properties are located in Southern California, which is an
area prone to earthquakes. To date, none of Realty's projects have sustained any
significant damage as a result of earthquakes. However, there can be no
assurance that any potential earthquakes will not damage Realty's properties or
negatively impact the financial position or results of Realty.
EMPLOYEES
At December 31, 1993, Realty employed 58 persons on a full-time basis. In
connection with the sale to Pacific, the executive officers, various managers
and most other employees of Realty resigned and became officers and employees of
Pacific on February 18, 1994. Realty has entered into a one-year management
agreement with Pacific to assure an orderly transaction, and, as of March 16,
1994, appointed a new Chief Executive Officer (see Item 4a. "Executive Officers
of Realty and Operating Company"). Realty believes that relations with its
employees are satisfactory.
12
Item 1. Business (continued)
SEASONAL VARIATIONS IN BUSINESS
Realty is subject to significant seasonal variation in revenues due
primarily to the seasonality of thoroughbred horse racing. The following table
presents unaudited quarterly results of operations for Realty during 1993 and
1992:
Quarters Ended
1993
(in thousands, except per share figures)
----------------------------------------------
March June Sept. Dec.
--------- --------- --------- ----------
Total revenues $18,876 $12,822 $10,452 $ 13,428
Costs and expenses 7,123 7,241 7,227 10,440
Interest and other 3,277 3,350 3,100 2,750
Loss on disposition of multifamily and
industrial operations - - - 10,974
------- ------- ------- --------
Income (loss) before income taxes 8,476 2,231 125 (10,736)
Benefit for income taxes (1,458) (1,065) - -
------- ------- ------- --------
Net income (loss) $ 9,934 $ 3,296 $ 125 $(10,736)
======= ======= ======= ========
Net income (loss) per common share $.88 $ .29 $ .01 $ (.95)
======= ======= ======= ========
Quarters Ended
1992
(in thousands, except per share figures)
---------------------------------------------
March June Sept. Dec.
------- ------ ------- ----------
Total revenues $16,544 $11 ,243 $ 9,501 $ 13,003
Costs and expenses 6,488 6,299 6,845 8,117
Interest expense and other 2,967 3,113 3,874 2,377
------- ------- ------- --------
Net income (loss) $ 7,089 $ 1,831 $(1,218) $ 2,509
======= ======= ======= ========
Net income (loss) per common share $.63 $ .16 $ (.11) $ .23
======= ======= ======= ========
13
ITEM 1. BUSINESS (CONTINUED)
- ----------------
Operating Company
Santa Anita Operating Company ("Operating Company") is organized under the
laws of the State of Delaware. Operating Company's principal executive offices
are located at Santa Anita Racetrack, 285 West Huntington Drive, Post Office Box
60014, Arcadia, California 91066-6014.
Operating Company is engaged in thoroughbred horse racing. The thoroughbred
horse racing operation is conducted by a subsidiary of Operating Company, Los
Angeles Turf Club, Incorporated ("LATC"), which leases Santa Anita Racetrack
from Realty. The lease expires in December 1994 when its terms will be
renegotiated (see Item 1. "Business -- Realty -- Santa Anita Racetrack").
SANTA ANITA RACETRACK
LATC conducts an annual 17-week thoroughbred horse racing meet which
commences immediately after Christmas and continues through mid-April. LATC
conducts one of the largest thoroughbred racing meets in the United States in
terms of both average daily attendance and average daily pari-mutuel wagering.
LATC leases the racetrack from Realty for the full year under a master
lease for a fee of 1.5% of the total live on-track wagering at Santa Anita
Racetrack, which includes the Oak Tree meet. In addition, LATC pays to Realty
40% of its revenues from satellite wagering (not to exceed 1.5% of such
wagering) and the simulcasting of races originating from Santa Anita Racetrack
after mandated payments to the State, to horse owners and to breeders. When LATC
operates as a satellite for Hollywood Park Racetrack ("Hollywood Park") and Del
Mar Racetrack ("Del Mar"), LATC does not pay any additional rent to Realty. LATC
has sublet the racetrack to Oak Tree to conduct its annual thoroughbred horse
racing meet (31 days in 1993), which commences in late September or early
October. Oak Tree races five weeks in even-numbered years and six weeks in odd-
numbered years.
Under a sublease which expires in 2000, Oak Tree makes annual rental
payments to LATC equal to 1.5% of the total live on-track pari-mutuel wagering
from its racing meet and 25% of its satellite and simulcast revenues after
mandated payments to the State, to horse owners and to breeders. LATC pays to
Realty 40% of all satellite and simulcast revenues received from Oak Tree.
Because the rental received from Oak Tree's on-track pari-mutuel wagering is
identical to the rental paid to Realty, LATC does not reflect these amounts in
its financial statements. In addition, Oak Tree reimburses LATC an amount equal
to 0.8% of its on-track pari-mutuel wagering for certain expenses of operating
Santa Anita Racetrack on behalf of Oak Tree. LATC also receives supplemental
rent representing Oak Tree's adjusted profits above an agreed-upon level and
will rebate rent to Oak Tree if Oak Tree's adjusted profits fall below such
level (see Item 1. "Business -- Operating Company -- Santa Anita Racetrack --
Pari-Mutuel Wagering").
The number of racing days at the Santa Anita meet declined from 90 in 1989
to 83 in 1993. Total pari-mutuel wagering on the Santa Anita meet decreased
from $654.1 million in 1989 to $613.5 million in 1993. For all years prior to
1989, all of Santa Anita pari-mutuel wagering was conducted on-track. In 1989,
$122.1 million of the total amount wagered was wagered at satellite locations
with $532.0 million being wagered on-track. In 1993, $362.8 million of the total
amount wagered was wagered at satellite locations with $250.7 million being
wagered on-track.
Total attendance was 2.9 million in 1989, of which 621,000 was at satellite
locations. By 1993, on-track attendance had declined to 1.2 million, down from
1.5 million in 1992. Although 1,332,126 and 1,576,763 patrons attended
satellite locations during the Santa Anita meets in 1993 and 1992, respectively,
LATC does not share in the revenues from admissions, parking and food and
beverage sales at the satellite locations.
14
Item 1. Business (continued)
- ----------------------------
The following tables summarize key operating statistics for the 1989-1993
Santa Anita meets and the 1989-1993 Oak Tree meets, together with the attendance
and wagering statistics relating to the transmission of the Del Mar and
Hollywood Park signals to Santa Anita Racetrack.
Racing Meets Ended in
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
LIVE RACING
- -----------
SANTA ANITA MEET:
Number of racing day 83 94 88 90 90
== == == == ==
Attendance
On-track 1,215,208 1,531,538 2,014,618 2,157,583 2,291,700
Satellite locations 1,332,126 1,576,763 666,611 707,675 620,734
---------- ---------- ---------- ---------- ----------
Total 2,547,334 3,108,301 2,681,229 2,865,258 2,912,434
========== ========== ========== ========== ==========
Average daily (a) 30,698 33,067 30,524 31,915 32,360
========== ========== ========== ========== ==========
Wagering ($000) (b)
On-track $ 250,729 $ 323,223 $ 470,471 $ 519,443 $ 531,977
Satellite locations (c) 267,346 315,851 133,791 144,303 122,101
Interstate locations (d) 95,411 68,689 39,445 - -
---------- ---------- ---------- ---------- ----------
Total $ 613,486 $ 707,763 $ 643,707 $ 663,746 $ 654,078
========== ========== ========== ========== ==========
Average daily (a) $ 7,767 $ 7,716 $ 7,366 $ 7,391 $ 7,268
========== ========== ========== ========== ==========
OAK TREE MEET:
Number of racing days (e) 31 27 32 27 32
== == == == ==
Attendance (c)
On-track 499,617 425,774 506,833 590,743 700,891
Satellite locations 444,932 390,088 454,264 171,177 199,607
---------- ---------- ---------- ---------- ----------
Total 944,549 815,862 961,097 761,920 900,498
========== ========== ========== ========== ==========
Average daily (a) 30,598 30,389 30,417 28,219 28,475
========== ========== ========== ========== ==========
Wagering ($000) (b)(c)
On-track $ 99,789 $ 79,162 $ 102,740 $ 133,644 $ 160,523
Satellite locations 86,427 75,714 88,699 33,555 38,599
Interstate locations (d) 58,467 20,198 17,445 6,878 -
---------- ---------- ---------- ---------- ----------
Total $ 244,683 $ 175,074 $ 208,884 $ 174,077 $ 199,122
========== ========== ========== ========== ==========
Average daily (a) $ 8,567 $ 6,676 $ 6,767 $ 6,620 $ 6,268
========== ========== ========== ========== ==========
- ------------------
(a) Total handle or total attendance divided by the number of race days will
produce a different average daily result due to the fact that satellite
locations may not have operated from the beginning of the Santa Anita meet,
therefore, average daily attendance and wagering is calculated based upon
the number of days each satellite location is open.
(b) Includes simulcast wagering on races originating at other racetracks.
(c) Satellite wagering expanded to include Hollywood Park and Los Alamitos
effective with the 1991 Oak Tree meet.
(d) Interstate wagering (common pooling) began in October 1990.
(e) Oak Tree races five weeks in even-numbered years and six weeks in odd-
numbered years.
15
Racing Meets Ended in
-----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
AS A SATELLITE
- ---------------------------
SANTA ANITA AS SATELLITE
FOR DEL MAR RACETRACK:
Number of racing days 42 43 43 43 43
== == == == ==
Attendance
Total 223,599 242,947 273,333 271,525 279,163
======== ======== ======== ======== ========
Average daily 5,324 5,650 6,357 6,315 6,492
======== ======== ======== ======== ========
Wagering ($000)
Total $ 54,928 $ 55,435 $ 66,068 $ 68,807 $ 72,648
======== ======== ======== ======== ========
Average daily $ 1,308 $ 1,289 $ 1,536 $ 1,600 $ 1,689
======== ======== ======== ======== ========
SANTA ANITA AS SATELLITE
FOR HOLLYWOOD PARK (a):
Number of racing days 99 101 32
== === ==
Attendance
Total 505,239 515,510 154,233
======== ======== ========
Average daily 5,103 5,104 4,820
======== ======== ========
Wagering ($000)
Total $112,623 $114,858 $ 36,233
======== ======== ========
Average daily $ 1,138 $ 1,137 $ 1,132
======== ======== ========
- -------------------
(a) Began in November 1991.
Management anticipates that the general trend of increases in off-track
wagering will continue and the decrease experienced in on-track attendance and
on-track wagering will also continue albeit at a slower rate.
16
During the last five years, 54% of the annual revenues of LATC resulted
from pari-mutuel and other wagering commissions. The remaining revenues resulted
from admissions, parking, food and beverage sales, sale of programs and interest
and other income.
The following table sets forth certain unaudited financial information with
respect to LATC:
Year Ended December 31,
(in thousands)
-------------------------------------------------------------
1993 1992 1991 1990 1989
-------- --------- --------- --------- ---------
REVENUES:
Pari-mutuel and other wagering
commissions:
On-track $15,327 $18,031 $25,277 $29,256 $29,368
Satellite origination 11,106 13,158 5,501 5,577 4,391
Simulcasting 3,120 2,738 2,284 1,416 1,208
Satellite for Del Mar and
Hollywood Park 3,391 3,422 2,005 1,376 1,453
Admission-related 27,833 28,923 30,262 28,630 29,625
Interest and other 326 1,075 2,655 3,684 1,464
------- ------- ------- ------- -------
Total revenues 61,103 67,347 67,984 69,939 67,509
------- ------- ------- ------- -------
COSTS AND EXPENSES:
Direct operating costs 44,436 48,551 48,648 48,863 46,872
Plant rental 9,233 10,955 9,928 10,436 10,283
Other 7,879 8,678 7,544 7,771 6,683
------- ------- ------- ------- -------
Total costs and expenses 61,548 68,184 66,120 67,070 63,838
------- ------- ------- ------- -------
Income (loss) before taxes $ (445) $ (837) $ 1,864 $ 2,869 $ 3,671
======= ======= ======= ======= =======
The mix of revenues has changed significantly from 1989 to 1993 primarily
as a result of the introduction of satellite wagering on races originating at
Santa Anita Racetrack, operating as a satellite location for Del Mar and
Hollywood Park, changes in average daily pari-mutuel wagering, selective price
increases, the introduction of additional exotic wagering opportunities on which
the retention amount is higher than on conventional wagering and a new lease
with Oak Tree, all of which have largely offset declines in commissions from on-
track wagering. In addition, LATC recognized $400,000 in 1990 and $1,000,000 in
1991 from the 1990 sale of the Canterbury Downs management consulting contract.
Also, interest income has fluctuated as a function of cash balances available
for investments and changing interest rates.
LATC's total expenses decreased from $63.8 million in 1989 to $61.5 million
in 1993. The majority of these expenses are pari-mutuel wagering or attendance-
related, the result of operating as a satellite location for Del Mar and
Hollywood Park and the aggregate effect of a new lease with Oak Tree. In 1991,
costs and expenses included $1.1 million in earthquake damage. From 1991 to
1992, total costs and expenses increased by $2,064,000 primarily due to the fact
that LATC operated as a satellite location for the first time for Hollywood
Park's spring thoroughbred meet, the engagement of outside consultants in the
amount of $660,000 to review the company's operations, and additional rent paid
to Realty in the amount of $1,027,000. From 1992 to 1993, total costs and
expenses decreased primarily due to fewer race days and lower on-track
attendance and wagering.
17
ITEM 1. BUSINESS (CONTINUED)
- ----------------
For further information regarding operating results, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Santa Anita Operating Company."
PARI-MUTUEL WAGERING
Pari-mutuel means literally a mutual wager, or wagering by individuals
against each other. The racetrack acts as the broker for the wagers made by the
public and deducts a "take-out" or gross commission which is fixed by the State
and shared with the State, the racetrack operator, the horse owners and
breeders, and the municipality in which the racetrack is located. The racetrack
operator has no interest in which horse wins a given race.
As a condition of the issuance of a racing license, California law requires
that a certain number of racing days be conducted as charity days. The net
proceeds from these charity days are distributed to beneficiaries through a
nonprofit organization approved by the California Horse Racing Board (the "Horse
Racing Board"). LATC is required to conduct five charity days.
ON-TRACK WAGERING
The State has vested administrative authority for racing and wagering at
horse racing meets with the Horse Racing Board. The Horse Racing Board, which
consists of seven members appointed by the governor of the State, is charged
with the responsibility of regulating the form of wagering, the length and
conduct of meets and the distribution of the pari-mutuel wagering within the
limits set by the California legislature. The Horse Racing Board is also charged
with the responsibility of licensing horse racing associations on an annual
basis to conduct horse racing meets and of licensing directors, officers and
persons employed by the associations to operate such meets.
California law specifies the percentage distribution of pari-mutuel
wagering with the percentage varying based upon the total wagering for the meet,
breed of horse and type of wager. The following table sets forth the allocation
of the total pari-mutuel wagering, on- and off-track, by percentage and dollar
amount during the 1992-93 Santa Anita meet:
DISTRIBUTION OF PARI-MUTUEL WAGERING
--------------------------------------
DOLLAR
AMOUNT
PERCENTAGE (IN THOUSANDS)
---------- --------------
Return to Wagerers 81.05% $497,224
State of California 4.37 26,809
Track Commissions 4.71 28,877
Horse Owners and Breeders 4.74 29,087
Satellite Operator and Location Fees 4.85 29,780
Others .28 1,709
------ --------
100.00% $613,486
====== ========
18
ITEM 1. BUSINESS (CONTINUED)
- ----------------
SATELLITE WAGERING - CALIFORNIA
LATC and Oak Tree send televised racing signals to other southern
California racetracks, wagering facilities on Indian reservation land in
California and non-racing fair sites in central and southern California. Pari-
mutuel wagering at a satellite facility is included in the pari-mutuel pools at
the host racing associations. LATC's and Oak Tree's share of the satellite
wagering was approximately 4.3% of the satellite pari-mutuel wagering on races
originating at Santa Anita Racetrack.
In the fall of 1993, California law permitted LATC and Oak Tree to send and
receive televised racing signals on races with purses exceeding $20,000 to and
from northern California racetracks and nonracing fairs. In 1993, Bay Meadows,
San Mateo, California became an additional satellite location during the Santa
Anita meet. LATC's commission on the northern California satellite wagering was
about 3.3%.
LATC has been advised that other Indian tribes are planning satellite
wagering facilities on reservation land in southern California. Any other
facilities opened by an Indian tribe must obtain approval from the State and
must enter into an agreement with the racing associations with respect to the
pari-mutuel operations.
During the Hollywood Park and Del Mar meets, LATC and other Southern
California racing associations and fairs operate as satellite facilities. In
addition to retaining 2% of the pari-mutuel wagering at Santa Anita Racetrack as
its commission, LATC receives income from admissions, parking and food and
beverage sales. In 1993, Santa Anita Racetrack operated 141 days as a satellite
for Hollywood Park and Del Mar.
SATELLITE WAGERING - INTERSTATE
Legislation has been enacted in certain states permitting the transmission
of pari-mutuel wagers across state lines. This format permits patrons wagering
in those states on races held at Santa Anita Racetrack to participate in the
same pari-mutuel pool payouts available to LATC's on-track patrons and Southern
California satellite patrons. LATC currently participates in satellite wagering
with numerous sites in Nevada, and additional locations in Alabama, Arizona,
Colorado, Connecticut, Delaware, Florida, Idaho, Iowa, Kansas, Louisiana,
Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New York,
North Dakota, Oregon, Pennsylvania, Rhode Island, Texas, Washington and West
Virginia and receives a negotiated percentage of the pari-mutuel wagering at
such sites.
Interstate satellite wagering started in 1991 with total pari-mutuel
wagering of $39,445,000 which increased to $95,411,000 for 1993. LATC's share of
the commissions from interstate satellite wagering was $1,811,000 for 1993.
SIMULCASTING
In 1993, LATC and Oak Tree transmitted their live racing signals
(simulcast) to numerous locations in the United States, Mexico and Canada.
LATC's share of the commissions for transmitting its racing signal, was
$1,280,000 in 1993 and $1,416,000 in 1992. During the Oak Tree meet, LATC
receives 25% of Oak Tree's share of simulcasting revenues. LATC is pursuing the
opportunity to transmit its signal to other locations.
CANTERBURY DOWNS
In 1984, LATC entered into a management consulting contract with Minnesota
Racetrack, Inc. ("MRI"). MRI developed and owned a horse racing facility,
Canterbury Downs, in the Minneapolis area of Minnesota, which opened in June
1985. In 1990, LATC sold its interest in the management consulting contract with
Canterbury Downs and recognized $400,000 as income. In 1991, LATC recognized an
additional $1,000,000 as income.
19
ITEM 1. BUSINESS (CONTINUED)
- ----------------
COMPETITIVE AND OTHER CONDITIONS
The southern California area offers a wide range of leisure time spectator
activities, including professional and college teams which participate in all
major sports. LATC and Oak Tree compete with such sporting events for their
share of the leisure time market and with other numerous leisure time activities
available to the community, some of which are broadcast on television.
As an outdoor activity, horse racing is more susceptible to inclement
weather than some other leisure time activities. This is particularly true of
the Santa Anita meet which is held during the winter. Prior to the 1992-1993
meet, LATC had never lost a race due to inclement weather. During the 1992-1993
meet, LATC lost two full days and two partial days of racing because of
inclement weather. A local Arcadia ordinance presently limits live horse racing
to daylight hours but allows the importation of a horse racing broadcast signal
one evening per week.
The Horse Racing Board has annually licensed LATC and Oak Tree to conduct
racing meets at Santa Anita Racetrack. At present, the Horse Racing Board has
not licensed other thoroughbred racetracks in Southern California to conduct
racing during these meets. Since 1972, however, night harness racing and night
quarterhorse meets have been conducted at other racetracks in Southern
California during portions of these meets. LATC and Oak Tree could be adversely
affected by legislative or Horse Racing Board action which would increase the
number of competitive racing days, reduce the number of racing days available to
LATC and Oak Tree, or authorize other forms of wagering.
The California State Lottery Act of 1984, which provides for the
establishment of a state-operated lottery, was implemented in 1985. In the
opinion of management, the State lottery has had an adverse impact and will
continue to have an adverse impact on total attendance and pari-mutuel wagering
at Santa Anita Racetrack (see Item 1 "Business -- Operating Company -- Santa
Anita Racetrack"). Although it is unaware of any empirical studies, management
believes that the State lottery has had and will continue to have an adverse
impact on many other businesses in the State of California.
In the future, legislation could be enacted to allow casino gaming or other
forms of gaming which are competitive with pari-mutuel wagering at Santa Anita
Park. Under federal law, certain types of gaming are lawful on Indian lands if
conducted in conformance with a Tribal-State compact, which the applicable state
must negotiate with an Indian tribe in good faith. Certain Indian tribes
seeking to establish gaming in California have instituted litigation against the
State of California to compel the State to permit them to do so. In 1993, one
court held that California has a public policy prohibiting casino gaming and
need not negotiate a compact with respect to casino gaming. However, the court
also held that certain other forms of gaming were the proper subject of a
compact. Other courts are not bound by that decision and may hold differently.
If the Indian tribes are successful in establishing casino gaming or other forms
of gaming in California, such gaming could have an adverse impact on LATC.
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS
No material part of Operating Company's business is dependent upon a single
customer or a few customers; therefore, the loss of any one customer would not
have a materially adverse effect on the business of Operating Company.
EMPLOYEE AND LABOR RELATIONS
During the year ended December 31, 1993, LATC regularly employed
approximately 1,600 employees. Substantially all are employed on a seasonal
basis in connection with live thoroughbred horse racing or satellite meets at
Santa Anita Racetrack. During the relatively short periods when live or
satellite racing meets at Santa Anita Racetrack are not being conducted, LATC
maintains a staff of approximately 260 employees, most of
20
whom are engaged in maintaining or improving the physical facilities at Santa
Anita Racetrack or are engaged in preparing for the next live or satellite meet.
All of LATC's employees, except for approximately 70 full-time management
and clerical employees, are covered by collective bargaining agreements with
labor unions. A majority of the current labor agreements covering racetrack
employees will expire in April 1995 after the Santa Anita meet.
SEASONAL VARIATIONS IN BUSINESS
Operating Company is also subject to significant seasonal variation. LATC
conducts an annual meet commencing immediately after Christmas and continuing
through mid-April. This seasonal variation is indicated by the following
unaudited quarterly results of operations for Operating Company during 1993 and
1992:
Quarters Ended
1993
(in thousands, except per share figures)
----------------------------------------------
March June Sept. Dec.
------- ------- ------- -------
Total revenues $33,164 $13,542 $ 5,334 $ 9,307
Costs and expenses 33,633 14,362 5,473 9,618
Interest 145 132 119 97
------- ------- ------- -------
Net loss $ (614) $ (952) $ (258) $ (408)
======= ======= ======= =======
Net loss per common share $ (.06) $ (.09) $ (.02) $ (.04)
======= ======= ======= =======
Quarters Ended
1992 (Restated)
(in thousands, except per share figures)
------------------------------------------
March June Sept. Dec.
------- ------- ------- -------
Total revenues $37,030 $16,407 $ 5,576 $ 8,641
Costs and expenses 34,797 17,437 6,954 11,411
Interest 45 44 45 60
------- ------- ------- -------
Income (loss) before income taxes 2,188 (1,074) (1,423) (2,830)
Provision (benefit) for income taxes 209 (105) (133) (214)
------- ------- ------- -------
$ 1,979 $ (969) $(1,290) $(2,616)
Net income (loss) ======= ======= ======= =======
Net income (loss) per common share $ .18 $ (.09) $ (.12) $ (.23)
======= ======= ======= =======
In 1993, revenues and cost of sales from food and beverage operations have
been reflected as a separate component in Operating Company's and Combined
Realty and Operating Company's statement of operations. In prior years these
operations were in horse racing revenues. All prior year and interim financial
statements and disclosures for Operating Company and Combined Realty and
Operating Company have been restated to reflect this reclassification.
Operating Company has adopted an accounting practice whereby the revenues
associated with thoroughbred horse racing at Santa Anita Racetrack are reported
as they are earned. Costs and expenses associated with thoroughbred horse racing
revenues are charged against income in those interim periods in which the
thoroughbred horse racing revenues are recognized. Other costs and expenses are
recognized as they actually occur throughout the year.
21
ITEM 1. BUSINESS (CONTINUED)
- ----------------
INCOME TAX MATTERS
In the opinion of management, Realty has operated in a manner which has
qualified it as a REIT under Sections 856 through 860 of the Code. Realty
intends to continue to operate in a manner which will allow it to qualify as a
REIT under the Code. Under these sections, a corporation that is principally
engaged in the business of investing in real estate and that, in any taxable
year, meets certain requirements that qualify it as a REIT generally is not
subject to federal income tax on its taxable income and gains that it
distributes to its shareholders. Income and gains that are not so distributed
will be taxed to a REIT at regular corporate rates. In addition, a REIT is
subject to certain taxes on net income from "foreclosure property" as defined in
the Code, income from the sale of property held primarily for sale to customers
in the ordinary course of business and excessive unqualified income.
REIT REQUIREMENTS
To qualify for tax treatment as a REIT under the Code, Realty at a minimum
must meet the following requirements:
(1) At least 95% of Realty's gross income each taxable year (excluding
gains from the sale of property other than foreclosure property held
primarily for sale to customers in the ordinary course of its trade or
business) must be derived from:
(a) rents from real property;
(b) gain from the sale or disposition of real property that is
not held primarily for sale to customers in the ordinary course of
business;
(c) interest on obligations secured by mortgages on real
property (with certain minor exceptions);
(d) dividends or other distributions from, or gains from the
sale of, shares of qualified REITs that are not held primarily for sale to
customers in the ordinary course of business;
(e) abatements and refunds of real property taxes;
(f) income and gain derived from foreclosure property;
(g) most types of commitment fees related to either real
property or mortgage loans;
(h) gains from sales or dispositions of real estate assets
that are not "prohibited transactions" under the Code;
(i) income attributable to stock or debt instruments acquired
with the proceeds from the sale of stock or certain debt obligations ("new
capital") of Realty received during a one-year period beginning on the day
such proceeds were received ("qualified temporary investment income");
(j) dividends;
(k) interest on obligations other than those secured by
mortgages on properties; and
(l) gains from sales or dispositions of securities not held
primarily for sale to customers in the ordinary course of business.
22
ITEM 1. BUSINESS (CONTINUED)
- ----------------
In addition, at least 75% of Realty's gross income each taxable year
(excluding gains from the sale of property other than foreclosure property
held primarily for sale to customers in the ordinary course of its trade or
business) must be derived from items (a) through (i) above. For purposes
of these requirements, the term "rents from real property" is defined in
the Code to include charges for services customarily furnished or rendered
in connection with the rental of real property, whether or not such charges
are separately stated, and rent attributable to incidental personal
property that is leased under, or in connection with, a lease of real
property, provided that the rent attributable to such personal property for
the taxable year does not exceed 15% of the total rent for the taxable year
attributable to both the real and personal property leased under such
lease. The term "rents from real property" is also defined to exclude: (i)
any amount received or accrued with respect to real property, if the
determination of such amount depends in whole or in part on the income or
profits derived by any person from the property (except that any amount so
received or accrued shall not be excluded from "rents from real property"
solely by reason of being determined on the basis of a fixed percentage of
receipts or sales); (ii) any amount received or accrued, directly or
indirectly, from any person or corporation if ownership of a 10% or greater
interest in the stock, assets or net profits of such person or corporation
is attributed to Realty; (iii) any amount received or accrued from property
that Realty manages or operates or for which Realty furnishes services to
the tenants, which would constitute unrelated trade or business income if
received by certain tax-exempt entities, either itself or through another
person who is not an "independent contractor" (as defined in the Code) from
whom Realty does not derive or receive income; and (iv) any amount received
or accrued from property with respect to which Realty furnishes (whether or
not through an independent contractor) services not customarily rendered to
tenants in properties of a similar class in the geographic market in which
the property is located.
If Realty should fail to satisfy the foregoing income tests but
otherwise satisfies the requirements for taxation as a REIT and if such
failure is held to be due to reasonable cause and not willful neglect and
if certain other requirements are met, then Realty would continue to
qualify as a REIT but would be subject to a 100% tax on the excessive
unqualified income reduced by an approximation of the expenses incurred in
earning that income.
(2) Less than 30% of Realty's gross income during any taxable year can
be derived from the sale or disposition of: (i) stock or securities held
for less than one year; (ii) property held primarily for sale to customers
in the ordinary course of business (other than foreclosure property); and
(iii) real property (including interests in mortgages on each property)
held for less than four years (other than foreclosure property and gains
arising from involuntary conversions).
(3) At the end of each calendar quarter, at least 75% of the value of
Realty's total assets must consist of real estate assets (real property,
interests in real property, interests in mortgages on real property, shares
in qualified real estate investment trusts and stock or debt instruments
attributable to the temporary investment of new capital), cash and cash
items (including receivables) and government securities. With respect to
securities that are not included in the 75% asset class, Realty may not at
the end of any calendar quarter own either (i) securities representing more
than 10% of the outstanding voting securities of any one issuer or (ii)
securities of any one issuer having a value that is more than 5% of the
value of Realty's total assets. Realty's share of income earned or assets
held by a partnership in which Realty is a partner will be characterized by
Realty in the same manner as they are characterized by the partnership for
purposes of the assets and income requirements described in this paragraph
(3) and in paragraphs (1) and (2) above.
(4) The shares of Realty must be "transferable" and beneficial
ownership of them must be held by 100 or more persons during at least 335
days of each taxable year (or a proportionate part of a short taxable
year). More than 50% of the outstanding stock may not be owned, directly or
indirectly, actually or constructively, by or for five or fewer
"individuals" at any time during the last half of any taxable year. For the
purpose of such determination, shares owned directly or indirectly by or
for a
23
ITEM 1. BUSINESS (CONTINUED)
- ----------------
corporation, partnership, estate or trust are considered as being owned
proportionately by its shareholders, partners or beneficiaries; an
individual is considered as owning shares directly or indirectly owned by
or for members of his family; and the holder of an option to acquire shares
is considered as owning such shares. In addition, because of the lessor-
lessee relationship between Realty and LATC, no person may own, actually or
constructively, 10% or more of the outstanding voting power or total number
of shares of stock of the two companies. The bylaws of Operating Company
and Realty preclude any transfer of shares which would cause the ownership
of shares not to be in conformity with the above requirements. Each year
Realty must demand written statements from the record holders of designated
percentages of its shares disclosing the actual owners of the shares and
must maintain, within the Internal Revenue District in which it is required
to file its federal income tax return, permanent records showing the
information it has thus received as to the actual ownership of such shares
and a list of those persons failing or refusing to comply with such demand.
(5) Realty must distribute to its shareholders dividends in an amount at
least equal to the sum of 95% of its "real estate investment trust taxable
income" before deduction of dividends paid (i.e., taxable income less any
net capital gain and less any net income from foreclosure property or from
property held primarily for sale to customers, and subject to certain other
adjustments provided in the Code); plus (i) 95% of the excess of the net
income from foreclosure property over the tax imposed on such income by the
Code; less (ii) a portion of certain noncash items of Realty that are
required to be included in income, such as the amounts includable in gross
income under Section 467 of the Code (relating to certain payments for use
of property or services). The distribution requirement is reduced by the
amount by which the sum of such noncash items exceeds 5% of real estate
investment trust taxable income. Such undistributed amount remains subject
to tax at the tax rate then otherwise applicable to corporate taxpayers.
During 1993, Realty has, or will be deemed to have, distributed at least
95% of its real estate investment trust taxable income as adjusted.
For this purpose, certain dividends paid by Realty after the
close of the taxable year may be considered as having been paid during the
taxable year. However, if Realty does not actually distribute each year at
least the sum of (i) 85% of its real estate investment taxable income, (ii)
95% of its capital gain net income and (iii) any undistributed taxable
income from prior periods, then the amount by which such sums exceed the
actual distributions during the taxable year will be subject to a 4% excise
tax.
If a determination (by a court or by the Internal Revenue
Service) requires an adjustment to Realty's taxable income that results in
a failure to meet the percentage distribution requirements (e.g., a
determination that increases the amount of Realty's real estate investment
taxable income), Realty may, by following the "deficiency dividend"
procedure of the Code, cure the failure to meet the annual percentage
distribution requirement by distributing a dividend within 90 days after
the determination, even though this deficiency dividend is not distributed
to the shareholders in the same taxable year as that in which income was
earned. Realty will, however, be liable for interest based on the amount of
the deficiency dividend.
(6) The directors of Realty must have authority over the management of
Realty, the conduct of its affairs and, with certain limitations, the
management and disposition of Realty's property.
(7) Realty must have the calendar year as its annual accounting period.
(8) Realty must satisfy certain procedural requirements.
TAXATION OF REALTY AS A REIT
In any year in which Realty qualifies under the requirements summarized
above, it generally will not be taxed on that portion of its ordinary income or
net capital gain that is distributed to shareholders, other than net income from
foreclosure property, excess unqualified income and gains from property held
primarily for sale.
24
ITEM 1. BUSINESS (CONTINUED)
- ----------------
Realty will be taxed at applicable corporate rates on any undistributed taxable
income or net capital gain and will not be entitled to carry back any net
operating losses. It also will be taxed at the highest rate of tax applicable to
corporations on any net income from foreclosure property and, subject to the
safe harbor described below, at the rate of 100% on any income derived from the
sale or other disposition of property, other than foreclosure property, held
primarily for sale. In computing its net operating losses and the income subject
to these latter taxes, Realty will not be allowed a deduction for dividends paid
or received.
Although Realty will also be subject to a 100% tax on the gain derived from
the sale of property (other than foreclosure property) held primarily for sale,
a safe harbor is provided such that gains from the sale of real property are
excluded from this 100% tax for a given year if each of the following conditions
is satisfied:
(a) the property has been held by Realty for at least four years;
(b) total capital expenditures with respect to the property during
the four-year period preceding the date of sale do not exceed 30% of the
net selling price of the property;
(c) either (i) Realty does not make more than seven sales of
properties (other than foreclosure property) during the taxable year or
(ii) the aggregate adjusted bases (as determined for purposes of computing
earnings and profits) of property (other than foreclosure property) sold by
Realty during the taxable year do not exceed 10% of the aggregate adjusted
bases (as so determined) of all of the assets of Realty as of the beginning
of the taxable year;
(d) if the property has not been acquired through foreclosure or
lease termination, the property has been held by Realty for the production
of rental income for at least four years; and
(e) if the requirement of paragraph (c)(i) is not satisfied,
substantially all of the marketing and development expenditures with
respect to the sold properties were made through independent contractors
from whom Realty does not derive or receive any income.
TERMINATION OR REVOCATION OF REIT STATUS
If, in any taxable year after it has filed an election with the Internal
Revenue Service to be treated as a REIT, Realty fails to so qualify, Realty's
election will be terminated, and Realty will not be permitted to file a new
election to obtain such tax treatment until the fifth taxable year following the
termination. However, if Realty's failure to qualify was due to reasonable cause
and not due to willful neglect and if certain other requirements are met, Realty
would be permitted to file a new election to be treated as a REIT for the year
following the termination. If Realty voluntarily revokes its election for any
year, it will not be eligible to file a new election until the fifth taxable
year following such revocation.
If Realty fails to qualify for taxation as a REIT in any taxable year and
the above relief provisions do not apply, then Realty would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders of Realty with respect
to any year in which Realty failed to qualify would not be deductible by Realty
nor would they be required to be made. In such event, distributions to
shareholders, to the extent out of current or accumulated earnings and profits,
would be taxed as ordinary income and subject to certain limitations of the
Code, eligible for the dividends-received deduction for corporations (see
"Taxation of Realty's Shareholders"). Failure to qualify could result in Realty
incurring substantial indebtedness (to the extent borrowings are feasible) or
disposing of substantial investments, in order to pay the resulting taxes or, in
the discretion of Realty, to maintain the level of Realty's distributions to its
shareholders.
25
ITEM 1. BUSINESS (CONTINUED)
- ----------------
TAXATION OF REALTY'S SHAREHOLDERS
So long as Realty qualifies for taxation as a REIT, distributions made to
its shareholders out of current or accumulated earnings and profits (or deemed
to be from current or accumulated earnings or profits), other than capital gain
dividends (discussed below), will be dividends taxable as ordinary income.
Distributions to shareholders of a REIT are not eligible for the dividends-
received deduction for a corporation. Dividends to shareholders that are
properly designated by Realty as capital gain dividends generally will be
treated as long-term capital gain (to the extent they do not exceed Realty's
actual net capital gain for the taxable year) regardless of how long a
shareholder has owned his or her shares. However, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. In general, any gain or loss realized upon a taxable disposition of
shares will be treated as long-term capital gain or loss if the shares have been
held for more than twelve months and otherwise as short-term capital gain or
loss. However, if a shareholder receives a long-term capital gain dividend and
such shareholder has held his or her stock for six months or less, any loss
realized on the subsequent sale of the shares will, to the extent of the gain,
be treated as long-term capital loss. Certain constructive ownership rules apply
to determine the holding period.
In the event that Realty distributes cash generated by its activities which
exceeds its net earnings, and provided there are no undistributed current or
accumulated earnings and profits and the distribution does not qualify as a
"deficiency dividend," such distributions will constitute a return of capital to
the extent they do not exceed a shareholder's tax basis for the shareholder's
shares and will be tax free to the shareholder. In such event, the tax basis of
the shares held by each shareholder must be reduced correspondingly by the
amount of such distributions. If such distributions exceed the tax basis of the
shares of a shareholder, the shareholder will recognize capital gain in an
amount equal to such excess, provided the shareholder holds the shares as a
capital asset. Shareholders may not include on their own returns any of
Realty's ordinary or capital losses. Realty will notify each shareholder after
the close of its taxable year as to the portions of the distributions that
constitute ordinary income, return of capital and capital gain. For this
purpose, any dividends declared in October, November or December of a year,
which are payable to shareholders of record on any day of such a month, shall be
treated as if they had been paid and received on December 31 of such year,
provided such dividends are actually paid in January of the following year.
Shareholders are required to include on their own returns any ordinary dividends
in the taxable year in which such dividends are received.
If in any taxable year Realty does not qualify as a REIT, it will be taxed
as a corporation, and distributions to its shareholders will neither be required
to be made nor will they be deductible by Realty in computing its taxable
income, with the result that the assets of Realty and the amounts available for
distribution to shareholders would be reduced to the extent of any tax payable.
Disqualification as a REIT could occur even though Realty had previously
distributed to its shareholders all of its income for such year, or years, in
which it did not qualify as a REIT. In such circumstances, distributions, to the
extent made out of Realty's current or accumulated earnings and profits, would
be taxable to the shareholders as dividends, but, subject to certain limitations
of the Code, would be eligible for the dividends-received deduction for
corporations.
TAX-EXEMPT INVESTORS
The Internal Revenue Service has ruled that amounts distributed by a REIT
to a tax-exempt employee's pension trust do not constitute ''unrelated trade or
business income" and should therefore be nontaxable to such trust. This ruling
does not apply to the extent the tax-exempt investor has borrowed to acquire
shares of the REIT's stock. Moreover, the application of this ruling is subject
to additional limitations that are beyond the scope of this disclosure.
26
ITEM 1. BUSINESS (CONTINUED)
- ----------------
STATE AND TERRITORIAL TAXES
The state or territorial income tax treatment of Realty and its
shareholders may not conform to the federal income tax treatment above. As a
result, prospective shareholders should consult their own tax advisors for an
explanation of the effect of state and territorial tax laws on their investment
in Realty.
FOREIGN INVESTORS
The preceding discussion does not address the federal income tax
consequences to foreign investors of an investment in Realty. Foreign investors
should consult their own tax advisors concerning the federal income tax
considerations to them of the ownership of shares in Realty.
BACKUP WITHHOLDING
The Code imposes a modified form of "backup withholding" for payments of
interest and dividends. This withholding applies only if a shareholder, among
other things: (i) fails to furnish Realty with a properly certified taxpayer
identification number; (ii) furnishes Realty with an incorrect taxpayer
identification number; (iii) fails to report properly interest or dividends from
any source or; (iv) under certain circumstances, fails to provide Realty or his
or her securities broker with a certified statement, under penalty of perjury,
that he or she is not subject to backup withholding. The backup withholding rate
is 31% of "reportable payments" which include dividends. Shareholders should
consult their tax advisors as to the procedure for ensuring that Realty
distributions to them will not be subject to backup withholding.
TAXATION OF OPERATING COMPANY
Operating Company pays ordinary corporate income taxes on its taxable
income. Any income, net of taxes, will be available for retention in Operating
Company's business or for distribution to shareholders as dividends. Any
dividends distributed by Operating Company will be subject to tax at ordinary
rates and generally will be eligible for the dividends received deduction for
corporate shareholders to the extent of Operating Company's current or
accumulated earnings and profits. Distributions in excess of current or
accumulated earnings and profits are treated first, as a return of investment
and then, to the extent that such distribution excludes a shareholder's
investment, as gain from the sale or exchange of such shares. However, there is
no tax provision which requires Operating Company to distribute any of its
after-tax earnings and Operating Company does not expect to pay cash dividends
in the foreseeable future.
FUTURE LEGISLATION
It should be noted that future legislation could be enacted or regulations
promulgated, the nature and likelihood of which cannot be predicted, that might
change in whole or in part, the income tax consequences summarized herein and
reduce or eliminate the advantages which may be derived from the ownership of
paired common stock.
The foregoing is a summary of some of the more significant provisions of
the Code as it relates to REITs and is qualified in its entirety by reference to
the Code and regulations promulgated thereunder.
ITEM 2. PROPERTIES
- -------------------
Information concerning property owned by Realty and Operating Company may
be found under Item 1. "Business."
27
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or were pending against Realty and/or Operating Company
and its subsidiaries at December 31, 1993. In the opinion of the managements of
Realty and Operating Company, all such matters are adequately covered by
insurance or, if not so covered, are without merit or are of such kind, or
involve such amounts, as would not have a significant effect on the financial
position or results of operations of Realty and Operating Company if disposed of
unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF REALTY AND OPERATING COMPANY
- -----------------------------------------------------------
(a) The names, ages and business experience of Realty's executive
officers during the past five years are set forth below:
NAME AND AGE BUSINESS EXPERIENCE DURING
------------ THE PAST FIVE YEARS
-----------------------------------------------
Sherwood C. Chillingworth, 67 Vice Chairman of the Board and Chief Executive
Officer since March 16, 1994; Executive Vice
President, Oak Tree Racing Association January
1993-present; Vice President and General
Counsel, Oak Tree Racing Association April 1992-
December 1992; President, Chillingworth
Corporation 1975-1992.
Glennon E. King, 50 Acting Chief Financial Officer since March
16,1994; Acting Chief Executive Officer February
18-March 15, 1994; Vice President-Finance of
Operating Company 1982-1993; Controller of
Operating Company 1973-1993.
Each executive officer of Realty is appointed by the Board of Directors
annually and holds office until his successor is duly appointed.
(b) The names, ages and business experience of Operating Company's
executive officers during the past five years are set forth below:
NAME AND AGE BUSINESS EXPERIENCE DURING
------------ THE PAST FIVE YEARS
-----------------------------------------------
Stephen F. Keller, 55 President and Chief Executive Officer since
February 1993; President and Chief Operating
Officer 1991-February 1993; Attorney, Fulbright
& Jaworski, of counsel, 1991; Attorney, Lillick
& McHose, 1962-1990; Vice Chairman, Seidler
Amdec Securities, Inc. 1988-1990.
Clifford C. Goodrich, 51 Vice President since 1989; President, LATC since
1989; Executive Vice President and General
Manager, LATC, 1989; Vice President and
Assistant General Manager, LATC, 1980-1988.
Alexander W. Ingle, 51 Vice President since 1986; Secretary/Treasurer
since 1979.
Richard D. Brumbaugh, 47 Vice President - Finance since March 1, 1994;
Controller, LATC, since 1985; Assistant
Controller, LATC 1972-1985.
Each executive officer of Operating Company is appointed by the Board of
Directors annually and holds office until a successor is duly appointed.
28
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
- --------------------------------------------------------------------------
MATTERS
- -------
The paired Common Stock of Realty and Operating Company is traded on the
New York Stock Exchange as Santa Anita Realty Enterprises under the symbol SAR.
The following table sets forth the high and low closing prices for the paired
Common Stock on the New York Stock Exchange Composite Tape and the cash
dividends declared by Realty for the periods indicated. Operating Company has
not declared cash dividends.
CASH
DIVIDENDS
HIGH LOW DECLARED
----- ----- -----------
1992
1st Quarter $20-7/8 $17-1/2 $ .34
2nd Quarter 18-5/8 16-7/8 .34
3rd Quarter 18-1/2 17-1/2 .34
4th Quarter 18-3/4 17-1/8 .34
-------
$ 1.36(a)
=======
1993
1st Quarter $21-5/8 $17-1/2 $ .34
2nd Quarter 20-3/8 16 .34
3rd Quarter 19-1/8 16-5/8 .34
4th Quarter 19-1/2 17-3/8 .34
-------
$ 1.36(b)
=======
1994
1st Quarter (through March 8) $18-1/8 $16-3/4 $ .34
=======
- ----------
(a) $.56 of the dividends paid per share during 1992 represented a return
of capital.
(b) $.56 of the dividends paid per share during 1993 represented a return
of capital.
A regular quarterly dividend of $.34 per share is payable on April 8, 1994
to shareholders of record on March 8, 1994. The closing price of the paired
Common Stock on the New York Stock Exchange Composite Tape on March 8, 1994 was
$17- 5/8 per share. As of March 8, 1994, there were approximately 22,000
holders of the paired Common Stock, including the beneficial owners of shares
held in nominee accounts.
Realty intends to pay regular quarterly dividends based upon a percentage
of management's estimate of funds from operations for the entire year and, if
necessary, to pay special dividends after the close of the year to effect
distribution of at least 95% of its taxable income (other than net capital
gains) (see item 1. "Business -- Income Tax Matters -- REIT Requirements").
In order to retain earnings to finance its capital improvement program and
for the growth of its business, Operating Company has not paid cash dividends
since its formation and does not expect to pay cash dividends in the foreseeable
future.
29
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
- --------------------------------------------------------------------------
MATTERS (CONTINUED)
- -------
The statement on the face of this annual report on Form 10-K regarding the
aggregate market value of paired voting stock of Realty and Operating Company
held by nonaffiliates is based on the assumption that all directors and officers
of Realty and Operating Company were, for purposes of this calculation only (and
not for any other purpose), affiliates of Realty or Operating Company.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
The financial data set forth on the following pages includes the
information for Realty and Operating Company combined and separate for the five-
year period ended December 31, 1993.
The separate results of operations and separate net income (loss) per share
of Realty and Operating Company cannot usually be added together to total the
combined results of operations and net income per share because of adjustments
and eliminations arising from inter-entity transactions.
The following data should be read in conjunction with the information set
forth elsewhere herein regarding income tax matters (see item 1. "Business --
Income Tax Matters").
The statements of operations of Realty and Operating Company combined and
separate for each of the five years ended December 31, 1993 have been audited by
Kenneth Leventhal & Company, independent certified public accountants. The
selected financial data should be read in conjunction with the other financial
statements and related notes thereto included elsewhere in this Joint Annual
Report.
30
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
- --------------------------------
REALTY AND OPERATING COMPANY COMBINED
Year Ended December 31,
(in thousands, except per share figures)
---------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- ---------
STATEMENTS OF OPERATIONS DATA:
Total revenues $107,535 $107,002 $103,814 $103,928 $ 98,855
Costs and expenses 109,657 99,783 93,861 88,131 82,070
-------- -------- -------- -------- --------
Income (loss) before income taxes (2,122) 7,219 9,953 15,797 16,785
Provision (benefit) for income taxes (2,523) (158) 37 206 -
-------- -------- -------- -------- --------
Net income $ 401 $ 7,377 $ 9,916 $ 15,591 $ 16,785
======== ======== ======== ======== ========
Net income per common share $ .04 $ .66 $ .89 $ 1.41 $ 1.61
======== ======== ======== ======== ========
Dividends paid by Realty per common share $ 1.36 $ 1.36 $ 2.08 $ 2.08 $ 2.08
======== ======== ======== ======== ========
Dividends declared by Realty per common share $ 1.36 $ 1.36 $ 1.90 $ 2.08 $ 2.08
======== ======== ======== ======== ========
Weighted average shares outstanding 11,141 11,141 11,141 11,092 10,426
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets $308,266 $288,931 $263,646 $255,987 $260,366
======== ======== ======== ======== ========
Loans payable $187,898 $168,505 $136,718 $113,491 $114,489
======== ======== ======== ======== ========
Shareholders' equity $ 75,522 $ 90,274 $ 98,051 $109,461 $113,332
======== ======== ======== ======== ========
31
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
- -------------------------------
SANTA ANITA REALTY ENTERPRISES, INC.
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ----------- ----------- -----------
STATEMENTS OF OPERATIONS DATA:
Revenues
Rental property $ 38,953 $ 35,290 $ 30,882 $ 28,093 $ 22,253
Rental income from Operating Company (a) 11,634 12,683 11,817 12,505 13,146
Interest and other 4,991 2,318 2,709 3,503 6,195
-------- -------- -------- -------- --------
Total revenues 55,578 50,291 45,408 44,101 41,594
-------- -------- -------- -------- --------
Costs and expenses
Rental property operating expense 16,522 13,533 12,039 10,636 7,616
Depreciation and amortization 8,795 8,156 7,418 6,563 5,875
General and administrative 4,244 4,156 4,292 3,952 3,002
Interest and other 12,477 12,331 11,991 10,497 10,655
Losses (earnings) from
unconsolidated joint ventures 1,993 1,446 83 (1,311) (115)
Minority interest in earnings
(losses) of consolidated joint ventures 477 458 (114) (97) 271
Loss on disposition of
multifamily and industrial operations 10,974 - - - -
-------- -------- -------- -------- --------
Total costs and expenses 55,482 40,080 35,709 30,240 27,304
-------- -------- -------- -------- --------
Income before income taxes 96 10,211 9,699 13,861 14,290
Benefit for income taxes (2,523) - - - -
-------- -------- -------- -------- --------
Net income $ 2,619 $ 10,211 $ 9,699 $ 13,861 $ 14,290
======== ======== ======== ======== ========
Net income per common share $.23 $.91 $.86 $1.23 $1.35
======== ======== ======== ======== ========
Dividends paid per common share $1.36 $1.36 $2.08 $2.08 $2.08
======== ======== ======== ======== ========
Dividends declared per common share $1.36 $1.36 $1.90 $2.08 $2.08
======== ======== ======== ======== ========
Weighted average shares outstanding 11,256 11,256 11,257 11,224 10,582
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets $271,685 $254,254 $229,736 $219,400 $229,445
======== ======== ======== ======== ========
Loans payable $184,644 $164,587 $136,718 $113,491 $114,489
======== ======== ======== ======== ========
Shareholders' equity $ 68,819 $ 81,509 $ 86,608 $ 98,447 $105,808
======== ======== ======== ======== ========
- ----------
(a) includes LATC, Oak Tree and charity days
32
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
- --------------------------------
SANTA ANITA OPERATING COMPANY
YEAR ENDED DECEMBER 31,
(IN THOUSANDS,EXCEPT PER SHARE FIGURES)
------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- -------- -------- --------
STATEMENTS OF OPERATIONS DATA:
Revenues
Horse racing $49,081 $53,683 $51,521 $52,562 $52,345
Food and beverage 11,695 12,589 13,808 13,693 13,700
Interest and other 571 1,382 3,224 4,329 1,953
------- ------- ------- ------- -------
Total revenues 61,347 67,654 68,553 70,584 67,998
------- ------- ------- ------- -------
Costs and expenses
Direct operating costs 40,981 45,089 45,093 45,351 43,325
Food and beverage cost
of sales 3,411 3,462 3,555 3,512 3,547
Depreciation and amortization 2,768 2,732 2,634 2,403 2,058
General and administrative 6,693 8,361 6,868 6,683 5,834
Interest 493 194 179 119 203
Rental expense to Realty 9,233 10,955 9,928 10,436 10,283
------- ------- ------- ------- -------
Total costs and expenses 63,579 70,793 68,257 68,504 65,250
------- ------- ------- ------- -------
Income (loss) before income taxes (2,232) (3,139) 296 2,080 2,748
Provision (benefit) for income taxes - (243) 37 206 -
------- ------- ------- ------- -------
Net income (loss) $(2,232) $(2,896) $ 259 $ 1,874 $ 2,748
======= ======= ======= ======= =======
Net earnings (loss)
per common share $ (.20) $ (.26) $ .02 $ .17 $ .26
======= ======= ======= ======= =======
Dividends declared
per common share $ - $ - $ - $ - $ -
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets $42,621 $39,458 $39,828 $42,752 $38,497
======= ======= ======= ======= =======
Loans payable $ 3,254 $ 3,918 $ - $ - $ -
======= ======= ======== ======== ========
Shareholders' equity $12,274 $14,506 $17,402 $17,150 $14,591
======= ======= ======= ======= =======
33
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
SANTA ANITA REALTY ENTERPRISES, INC.
The following narrative discusses Realty's results of operations for
the years ended December 31, 1993, 1992 and 1991, together with the liquidity
and capital resources as of December 31, 1993.
RESULTS OF OPERATIONS -- 1993 COMPARED WITH 1992
Realty's revenues are derived principally from the rental of real
property and interest on investments. Total revenues for the year ended
December 31, 1993 were $55,578,000 compared with $50,291,000 reported for the
year ended December 31, 1992, a 10.5% increase. The higher 1993 revenues
were primarily due to increases in rental revenue from real estate properties
along with the interest earned on the California Franchise Tax Board refund
discussed below.
Rental revenue from real estate properties accounted for $50,587,000
of the total revenues for the year ended December 31, 1993, a 5.4% increase
from the $47,973,000 recorded for 1992.
The most significant source of rental revenue is the lease of Santa
Anita Racetrack. Revenues for the year ended December 31, 1993 were
$11,634,000, a decrease of 8.3% from the $12,683,000 reported for the year
ended December 31, 1992. The decrease in rental income resulted from a
decline in average daily wagering and fewer race days. Management believes
that the decline is attributable to a weak California economy and the
continued negative effect of inter-track wagering on the on-track attendance
and wagering. The lease with LATC for Santa Anita Racetrack expires in 1994.
It is anticipated by management that the lease will be renewed on terms
which, in light of Operating Company's declining profitability, may result in
reduced revenue to Realty (see Item 1. "Business - Operating Company" and
Item 6. "Selected Financial Data - Operating Company").
Rental revenues from other real estate investments for the year ended
December 31, 1993 were $38,953,000, an increase of 10.4% from those reported
in 1992 of $35,290,000. The 1993 increases are due primarily to additional
revenues from a new multifamily property acquisition in 1993 and the full
year inclusion of several multifamily properties acquired in 1992.
Interest and other income increased 115.3% to $4,991,000 for the year
ended December 31, 1993 from $2,318,000 reported for 1992. The increase is
primarily attributable to $3,211,000 of interest income in 1993 on a tax
settlement from the California Franchise Tax Board. The settlement was for
tax years prior to 1980 related to Realty's predecessor. In addition to the
interest earned on the settlement, Realty recorded a $2,523,000 income tax
benefit.
Costs and expenses of $55,482,000 for the year ended December 31,
1993 increased 38.4% from those reported for 1992 of $40,080,000. The
increase is primarily due to the loss on the disposition of the multifamily
and industrial operations to Pacific and increases in depreciation and rental
property operating expenses associated with the acquisitions of real estate
projects noted above.
In June 1993, Realty's Board of Directors approved management's
recommendation to recapitalize certain assets of Realty. Pursuant to this
recapitalization, in November 1993, Realty entered into a Purchase and Sale
Agreement to sell its multifamily and industrial operations to Pacific Gulf
Properties Inc. ("Pacific"), in conjunction with its proposed public offering
of common stock. The transaction was scheduled to be completed in two parts:
(1) Realty would sell all of its apartments and industrial properties to
Pacific with the exception of Realty's interest in the Baldwin Industrial
Park joint venture; and (2) Pacific would enter into a binding agreement to
buy Realty's interest in Baldwin Industrial Park.
On February 18, 1994, Realty completed the first part of this
transaction by selling to Pacific ten multifamily properties, containing
2,654 apartment units, located in Southern California, the Pacific Northwest,
and Texas and three industrial properties, containing an aggregate of 185,000
leasable square feet of industrial
34
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
space, located in the State of Washington (the "Transferred Properties").
Realty's corporate headquarters building and related assets were also
acquired by Pacific. The sale of the Transferred Properties followed the
public offerings of common stock and convertible subordinated debentures by
Pacific.
Pursuant to the Purchase and Sale Agreement, Pacific agreed to buy
Realty's interest in Baldwin Industrial Park subject to satisfaction of
certain conditions, for a minimum price of $8.9 million payable in additional
shares of Pacific common stock with the final price dependent upon completion
of negotiations with other owners of Baldwin Industrial Park and an appraisal
process. Management believes the sale of Realty's interest in Baldwin
Industrial Park will be completed in the second half of 1994. Pacific is
required to issue to Realty non-refundable letters of credit totaling up to
$2.5 million by March 31, 1994 to secure its obligation to acquire Realty's
interest in Baldwin Industrial Park and pay for the corporate headquarters
building and other assets related to the Transferred Properties.
In consideration of the sale of the Transferred Properties, Realty
received approximately $44.4 million in cash and 149,900 shares of the common
stock of Pacific. In addition, Realty was relieved of approximately $44.3
million of mortgage debt on the Transferred Properties. Realty will also
receive, at the time the acquisition of Baldwin Industrial Park is completed,
up to $1.2 million in additional common stock of Pacific as consideration for
its corporate headquarters and other net assets related to the Transferred
Properties.
The two parts of the above transaction will result in a loss of
$10,974,000. This loss has been reflected in the Realty and Realty and
Operating Company combined statements of operations for the year ended
December 31, 1993. If the Baldwin Industrial Park portion of the transaction
described above does not occur, an additional loss of approximately
$5,900,000 will be recognized by Realty in 1994. (See "Notes to Financial
Statements - Note 2 - Disposition of Multifamily and Industrial Properties
Subsequent to Year End.")
In connection with the sale, the executive officers, various managers
and most other employees of Realty resigned and became officers and employees
of Pacific on February 18, 1994.
Realty and Pacific have also entered into a one-year management
agreement whereby Pacific has agreed to provide management services to
Realty. Finally, with respect to the common stock of Pacific owned by
Realty, Pacific has entered into a registration rights agreement with Realty
which, under certain circumstances, allows Realty to require the registration
of the Pacific stock it owns.
Net income for the year ended December 31, 1993 was $2,619,000, a
decrease of 74.4% compared with the $10,211,000 reported in 1992 due to the
factors described above.
RESULTS OF OPERATIONS -- 1992 COMPARED WITH 1991
Realty's revenues were derived principally from the rental of real
property. Total revenues for the year ended December 31, 1992 were
$50,291,000 compared with $45,408,000 reported for the year ended December
31, 1991, a 10.8% increase.
Rental revenue from real estate properties amounted to $47,973,000
for the year ended December 31, 1992, up 12.4% from the year-earlier level of
$42,699,000.
In 1992, the most significant source of rental revenue was the lease
with Santa Anita Racetrack. Revenues for 1992 rose to $12,683,000, up 7.3%
from $11,817,000 reported in 1991. The increase resulted from an increase in
total wagering at Santa Anita Racetrack due to six additional racing days
during 1992 and increases in out-of-state simulcast revenues.
Rental revenues from other real estate investments for 1992 increased
to $35,290,000, up 14.3% from $30,882,000 in 1991. This increase was due
primarily to additional revenues from new property
35
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
---------------------
acquisitions, the receipt of previously reserved past due rents and increased
revenues from Santa Anita Fashion Park.
Interest and other income declined 14.4% to $2,318,000 in 1992 from
$2,709,000 in 1991. The decrease is due to reduced funds held for investment
and lower interest rates on funds held for investment, offset in part by the
sale of a neighborhood shopping center in Phoenix, Arizona, net of a loss on
a lease agreement, which generated a net gain of $646,000 (net of cost of
$4,475,000). Realty reported a gain of $177,000 (net of cost of $223,000) in
1991 from the sale of a small land parcel in Southern California.
Costs and expenses increased 12.2 percent to $40,080,000 in 1992, up
from $35,709,000 in 1991. The increase is due primarily to higher levels of
depreciation, interest and rental property operating expenses associated with
the acquisition of 1,109 new apartment units, and the expensing in 1992 of
$580,000 of nonrecurring charges for the engagement of consultants to review
the operations of the Realty and to assist in preparing a long range
strategic plan. Realty reported a loss of $1,446,000 from the Towson Town
Center unconsolidated joint venture primarily due to depreciation (the
project was under construction in the prior periods).
Net income for the year ended December 31, 1992 increased 5.3% to
$10,211,000 compared with income of $9,699,000 reported in 1991 due to the
factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Realty had liquidity available from a combination of short- and long-
term sources. Short-term sources included cash of $7,633,000 at December
31, 1993.
In connection with the sale of properties to Pacific, Realty paid
down its lines of credit by $44.4 million and transferred to Pacific $44.3
million of indebtedness associated with the multifamily and industrial
properties. As of December 31, 1993, Realty was not in compliance with
certain covenants contained in its credit agreements. The banks have waived
such noncompliance through April 30, 1994 conditioned, among other things, on
no additional borrowings under the credit agreements (at December 31, 1993,
$78,361,000 loans and letters of credit were outstanding under these
agreements). Realty is in the process of renegotiating these credit
agreements. Management is of the opinion that Realty has sufficient
liquidity from other sources to assure that its operations will not be
adversely affected pending this renegotiation.
Realty had approximately $13,591,000 of long-term receivables at
December 31, 1993, with maturities ranging from 1994 to 2002. For the year
ended December 31, 1993, long-term receivables earned interest income of
$996,000.
In the opinion of management, as of December 31, 1993 Realty's real
estate investments had a market value substantially in excess of the
historical costs and indebtedness related to such real estate investments.
Management believes that this provides significant additional borrowing
capacity.
IMPACT OF INFLATION
Realty's management believes that, for the foreseeable future,
revenues and income from Santa Anita Racetrack, Fashion Park and its other
real estate should not be adversely affected in a material way by
inflationary pressures. Leases at Fashion Park include clauses enabling
Realty to participate in tenants' future increases and gross revenues.
Tenant leases on many other properties include provisions which tie the lease
payments to the Consumer Price Index or include step-up provisions.
36
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
- ---------------------
SANTA ANITA OPERATING COMPANY
Operating Company is engaged in thoroughbred horse racing through its
wholly owned subsidiary, Los Angeles Turf Club, Incorporated ("LATC") which
leases the Santa Anita Racetrack ("Santa Anita") from Realty.
The following narrative discusses Operating Company's results of operations
for the years ended December 31, 1993, 1992 and 1991 together with liquidity and
capital resources as of December 31, 1993.
RESULTS OF OPERATIONS -- 1993 COMPARED WITH 1992
Operating Company derives its revenues from thoroughbred horse racing
activities. Total revenues were $61,347,000 in 1993, down 9.3% from $67,654,000
in 1992. In 1993, live thoroughbred horse racing at Santa Anita Racetrack
totaled 83 days compared with 94 days in 1992. Total and average daily on-
track attendance at the live racing events in 1993 were down 20.4% and 9.8%,
respectively, from 1992. Total wagering at the live racing events was down
10.6% while average daily wagering increased 1.2% in 1993 compared with 1992.
On-track wagering and inter-track wagering declined 20.2% and 13.6%,
respectively, while interstate wagering increased 43.8% in 1993 compared with
1992.
In addition to a weak California economy and the continued negative effect
of inter-track wagering on the on-track attendance and wagering, management
believes the declines in average daily attendance and wagering were the result
of inclement weather (in excess of 41 inches of rain, three times normal) during
much of the 1992-1993 race meet, which caused the cancellation of two full race
days and two partial race days in January.
Also, Santa Anita Racetrack operated 42 days in 1993 and 43 days in 1992 as
a satellite wagering facility for Del Mar and 99 days in 1993 and 101 days in
1992 as a satellite wagering facility for Hollywood Park. Total attendance and
wagering as a satellite wagering facility were down 3.5% and 2.5%, respectively,
in 1993 compared with 1992. Average daily attendance and wagering were down
1.4% and 0.4%, respectively, in 1993 compared with 1992.
Horse racing revenues and direct operating costs declined in 1993 compared
with 1992 due to fewer race days, lower attendance and lower wagering at both
the live racing events and as a satellite wagering facility. Horse racing
revenues in 1993 were $49,081,000 down 8.6% from $53,683,000 in 1992. Direct
horse racing operating costs in 1993 were $40,981,000, down 9.1% from
$45,089,000 in 1992.
Food and beverage revenues and cost of sales were also lower in 1993
compared with 1992 due to the factors described above. As a percentage of
sales, cost of sales increased to 29.2% in 1993 compared with 27.5% in 1992.
General and administrative expenses were $6,693,000 in 1993, down 19.9%
from $8,361,000 in 1992 due to administrative staff reductions in 1993 and to
the costs related to the engagement of outside consultants in the prior year to
review the Operating Company's operations. Partially offsetting the declines in
general and administrative expenses, however, was the one-time charge of
$759,000 in 1993 for the post-retirement benefits payable as a result of the
death of the former Chairman of the Board of Operating Company.
Interest expense increased to $493,000 in 1993 from $194,000 in 1992 due to
a higher level of debt at LATC.
Rental expense to Realty was $9,233,000 in 1993 compared with $10,955,000
in 1992. The decrease in rental expense of $1,722,000 reflects the decline in
wagering.
37
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
- ---------------------
Due to the revenue and expense items previously discussed, Operating
Company reported a net loss of $2,232,000 or $.20 per share in 1993 compared
with a net loss of $2,896,000 or $.26 per share in 1992.
RESULTS OF OPERATIONS -- 1992 COMPARED WITH 1991
In 1992, the expansion of intertrack wagering within Los Angeles and Orange
Counties caused intertrack revenues to increase $7,657,000 while on-track
revenues decreased $7,246,000. On-track attendance-related revenues declined as
a result of a 24.0% drop in on-track attendance at the 1991-1992 Santa Anita
race meet and a decline in on-track wagering of $147,248,000, or 31.3 percent at
the same meet. The on-track attendance and wagering decreases were, in part,
caused by the continuing economic recession in Southern California. These
changes, combined with a decline in interest income of $1,842,000 as a result of
declining interest rates, primarily account for the total decline of $899,000 in
total revenues to $67,654,000 for the year ended December 31, 1992.
The decline in revenues from live racing events was partially offset by an
increase in revenue by Santa Anita Racetrack operating as a satellite location,
selected price increases and increased interstate simulcasting revenues. Santa
Anita Racetrack operated as a satellite location for Hollywood Park for an
additional 69 days in 1992.
Direct operating costs related to horse racing operations were $45,089,000
in 1992, virtually equal with $45,093,000 reported in 1991, in spite of the fact
Santa Anita Racetrack operated as a satellite location for Hollywood Park for an
additional 69 days.
General and administrative expenses were $8,361,000 for 1992, an increase
of $1,493,000 or 21.7 percent, compared with the $6,868,000 in 1991. The
increase resulted primarily from the expanded satellite racing season at Santa
Anita Racetrack and the engagement of outside consultants ($660,000) to review
the company's operations, including cost efficiencies, and to identify
opportunities to enhance revenue.
Depreciation and amortization expenses were $2,732,000 for 1992, an
increase of $98,000 or 3.7 percent, compared with $2,634,000 reported for 1991.
These non-cash charges resulted from the ongoing capital improvement program at
Santa Anita Racetrack.
Total rent paid to Realty was $10,955,000 for the year ended December 31,
1992, compared with $9,928,000 in 1991. The increase of $1,027,000 reflects
increases in interstate simulcast revenues offset by decreases in the on-track
and intertrack wagering.
Due to the revenue and expense items previously discussed, Operating
Company reported a net loss of $2,896,000 or $.26 per share in 1992 compared
with net income of $259,000 or $.02 per share in 1991.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1993, Operating Company's sources of liquidity included
cash and short-term investments of $14,388,000 and an unsecured line of credit
with Realty of $10,000,000, of which approximately $3,500,000 was utilized in
connection with a guarantee of a capital lease. Operating Company's ability to
utilize Realty's line of credit is dependent upon Realty's liquidity and capital
resources. As a result of Realty's noncompliance with certain covenants
contained within its credit agreements, Realty is currently unable to borrow
additional moneys under its lines of credit. Accordingly, borrowings by Realty
under these agreements would not provide a source of liquidity for Operating
Company. Realty is in the process of renegotiating its credit agreements. (See
Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Realty - Liquidity and Capital Resources"). For the
year ended December 31, 1993, short-term investments earned interest income of
$326,000.
38
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (continued)
- ---------------------
The cash balances and related interest income from short-term investments
reflect seasonal variations associated with the Santa Anita meet. During the
meet, large cash balances and short-term investments are maintained by LATC,
including amounts to be disbursed, for payment of license fees payable to the
state, purses payable to horse owners and uncashed winning pari-mutuel tickets
payable to the public.
IMPACT OF INFLATION
LATC's expenses are heavily labor-intensive with labor rates being covered
by negotiated contracts with labor unions. Labor contracts with the pari-
mutuel, service and operational employees were successfully renegotiated in
April 1992. These new contracts expire in 1995. Management continues to
address cost containment and labor productivity in all areas.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
See Index to Financial Statements for a listing of the financial statements
and supplementary data filed with this report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- -------------------------------------------------------------
Not applicable.
39
PART III
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this part of Form 10-K is incorporated herein by reference to the
registrants' definitive joint proxy statement to be filed, pursuant to
Regulation 14A, with the Securities and Exchange Commission not later than 120
days after the end of the year ended December 31, 1993.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements
See Index to Financial Statements
2. Financial Statement Schedules
See Index to Financial Statement Schedules
3. Exhibits
See Exhibit Index
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the last quarter of the fiscal year ended December 31, 1993.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Realty and Operating Company have duly caused this report to be
signed on their behalf by the undersigned, thereunto duly authorized.
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
By: /s/ SHERWOOD C. CHILLINGWORTH By: /s/ STEPHEN F. KELLER
----------------------------- ----------------------------
Sherwood C. Chillingworth Stephen F. Keller
Vice Chairman of the Board and Chairman of the Board, President
Chief Executive Officer and Chief Executive Officer
(Principal Executive Officer) (Principal Executive Officer)
March 29, 1994 March 29, 1994
---------------------------- ----------------------------
Date Date
By: /s/ GLENNON E. KING /s/ RICHARD D. BRUMBAUGH
---------------------------- ----------------------------
Glennon E. King Richard D. Brumbaugh
Acting Chief Financial Officer Vice President-Finance
(Principal Financial and (Principal Financial and
Accounting Officer) Accounting Officer)
March 29, 1994 March 29, 1994
---------------------------- -----------------------------
Date Date
41
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrants and in the capacity and on the date indicated.
/s/ STEPHEN F. KELLER Chairman of the Board and Director of Realty, President, Chief
- ------------------------ Executive Officer (Principal Executive Officer), and Director
Stephen F. Keller of Operating Company
/s/ WILLIAM C. BAKER Director of Operating Company and Director of Realty
- ------------------------
William C. Baker
/s/ RICHARD S. COHEN Director of Operating Company and Director of Realty
- ------------------------
Richard S. Cohen
/s/ ARTHUR LEE CROWE Director of Operating Company and Director of Realty
- ------------------------
Arthur Lee Crowe
/s/ CLIFFORD C. GOODRICH Vice President and Director of Operating Company and Director
- ------------------------ of Realty
Clifford C. Goodrich
/s/ ROBERT H. GRANT Director of Operating Company and Director of Realty
- ------------------------
Robert H. Grant
/s/ TAYLOR B. GRANT Director of Realty
- ------------------------
Taylor B. Grant
/s/ LINDA K. MENNIS Director of Operating Company
- ------------------------
Linda K. Mennis
/s/ ROBERT E. MORGAN Director of Operating Company and Director of Realty
- ------------------------
Robert E. Morgan
/s/ THOMAS P. MULLANEY Director of Operating Company and Director of Realty
- ------------------------
Thomas P. Mullaney
/s/ CHARLES H. STRUB II Director of Realty
- ------------------------
Charles H. Strub II
/s/ JOHN M. STRUB Director of Operating Company
- ------------------------
John M. Strub
/s/ ROBERT H. STRUB Director of Realty
- ------------------------
Robert H. Strub
Date: March 29, 1994
---------------
42
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT 45
SANTA ANITA REALTY ENTERPRISES, INC.
Consolidated Balance Sheets as of December 31,1993 and 1992 46
Consolidated Statements of Operations for the years ended
December 31, 1993, 1992 and 1991 47
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991 48
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991 49
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1993 and 1992 50
Consolidated Statements of Operations for the years ended
December 31, 1993, 1992 and 1991 51
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991 52
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991 53
SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING
COMPANY AND SUBSIDIARIES COMBINED
Combined Balance Sheets as of December 31, 1993 and 1992 54
Combined Statements of Operations for the years ended
December 31, 1993, 1992 and 1991 55
Combined Statements of Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991 56
Combined Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991 57
NOTES TO FINANCIAL STATEMENTS 58
H-T ASSOCIATES
Independent Auditors' Reports 96
--Current Year Auditor
--Predecessor Auditors
Financial Statements and Notes 99
43
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
The schedules listed below relate to Realty and Operating Company as indicated:
SCHEDULES FOR
---------------------------
SCHEDULE OPERATING
- --------- REALTY COMPANY
------------ ------------
(REFERENCE IS TO PAGE NUMBER)
I Marketable Securities - Other Investments as of
December 31, 1993 Omitted 84
II Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees Other Than
Related Parties for the years ended December 31,
1993, 1992 and 1991 85 87
V Property, Plant and Equipment for the years ended
December 31, 1993, 1992 and 1991 Omitted 89
VI Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment for the years ended
December 31, 1993, 1992 and 1991 Omitted 90
VIII Valuation and Qualifying Accounts as of December 31,
1993 91 Omitted
X Supplementary Income Statement Information for the years
ended December 31, 1993, 1992 and 1991 92 93
XI Real Estate and Accumulated Depreciation as of
December 31, 1993 94 Omitted
Schedules not listed above have been omitted because either the conditions under
which they are required are absent, not applicable, or the required information
is included in the financial statements and related notes thereto.
44
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company
We have audited the financial statements and the related financial statement
schedules, listed on pages 42 and 43 of:
(a) Santa Anita Realty Enterprises, Inc.;
(b) Santa Anita Operating Company and Subsidiaries; and
(c) Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
and Subsidiaries Combined.
These financial statements and financial statement schedules are the
responsibility of the companies' management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the above-listed entities at
December 31, 1993 and 1992 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. Further, it is our
opinion that the financial statement schedules referred to above present fairly,
in all material respects, the information set forth therein.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
March 1, 1994
45
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
ASSETS
1993 1992
------------- --------------
Real estate assets
Santa Anita Racetrack, less accumulated depreciation of
$18,670,000 and $18,006,000, respectively
(Schedule XI) $ 6,997,000 $ 8,349,000
Commercial properties, less accumulated depreciation
of $42,503,000 and $41,032,000, respectively (Notes 2,
3, 8 and Schedule XI) 221,876,000 206,677,000
Investments in unconsolidated joint ventures (Note 3) 3,616,000 5,925,000
Real estate loans and advances receivable (Note 4) 22,084,000 24,855,000
------------ ------------
254,573,000 245,806,000
Cash (Note 5) 7,633,000 1,671,000
Accounts receivable 4,305,000 2,716,000
Due from a former officer and a former officer of Operating
Company (Note 11 and Schedule II) 81,000 184,000
Prepaid expenses and other assets 4,624,000 4,836,000
Due from (to) Operating Company 469,000 (959,000)
------------ ------------
$271,685,000 $254,254,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable (Note 5 and Schedule XI) $106,731,000 $107,655,000
Other loans payable (Note 5) 77,913,000 56,932,000
Accounts payable 3,678,000 2,301,000
Other liabilities (Notes 6 and 9) 15,346,000 4,820,000
Dividends payable 3,788,000 3,788,000
------------ ------------
207,456,000 175,496,000
------------ ------------
Minority interest in consolidated joint ventures (Note 3) (4,590,000) (2,751,000)
Commitments and contingencies (Note 8)
Shareholders' equity (Note 10)
Preferred stock, $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
and 40,000,000 shares, respectively; issued and
outstanding 11,256,353 and 11,256,353 shares,
respectively 1,125,000 1,125,000
Additional paid-in capital 117,084,000 117,084,000
Retained earnings (deficit) (49,390,000) (36,700,000)
------------ ------------
68,819,000 81,509,000
------------ ------------
$271,685,000 $254,254,000
============ ============
See accompanying notes.
46
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
------------- ------------ -------------
Revenues
Rental property (Note 8) $38,953,000 $35,290,000 $30,882,000
Rental income from Operating Company
(Note 11) 11,634,000 12,683,000 11,817,000
Interest and other (Note 7) 4,991,000 2,318,000 2,709,000
----------- ----------- -----------
55,578,000 50,291,000 45,408,000
----------- ----------- -----------
Costs and expenses
Rental property operating expenses 16,522,000 13,533,000 12,039,000
Depreciation and amortization 8,795,000 8,156,000 7,418,000
General and administrative 4,244,000 4,156,000 4,292,000
Interest and other (Note 5) 12,477,000 12,331,000 11,991,000
Losses from unconsolidated joint ventures
(Note 3) 1,993,000 1,446,000 83,000
Minority interest in earnings (losses) of
consolidated joint ventures (Note 3) 477,000 458,000 (114,000)
Loss on disposition of multifamily and
industrial operations (Note 2) 10,974,000 - -
----------- ----------- -----------
55,482,000 40,080,000 35,709,000
----------- ----------- -----------
Income before income taxes 96,000 10,211,000 9,699,000
Benefit for income taxes (Note 7) (2,523,000) - -
----------- ----------- -----------
Net income $ 2,619,000 $10,211,000 $ 9,699,000
=========== =========== ===========
Weighted average number of common shares
outstanding 11,256,353 11,256,413 11,256,520
=========== =========== ===========
Net income per common share $.23 $.91 $.86
=========== =========== ===========
Dividends declared per common share $1.36 $1.36 $1.90
=========== =========== ===========
See accompanying notes.
47
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COMMON STOCK ADDITIONAL RETAINED
------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ------------- -------------- -------------- -------------
Balance,
December 31, 1990 11,256,586 $1,125,000 $117,233,000 $(19,911,000) $ 98,447,000
Dividend reinvestment
plan, net (Note 1) (121) - (148,000) - (148,000)
Dividends declared
on common stock - - - (21,390,000) (21,390,000)
Net income - - - 9,699,000 9,699,000
---------- ---------- ------------ ------------ ------------
Balance,
December 31, 1991 11,256,465 1,125,000 117,085,000 (31,602,000) 86,608,000
Dividend reinvestment
plan, net (Note 1) (112) - (1,000) - (1,000)
Dividends declared
on common stock - - - (15,309,000) (15,309,000)
Net income - - - 10,211,000 10,211,000
---------- ---------- ------------ ------------ ------------
Balance,
December 31, 1992 11,256,353 1,125,000 117,084,000 (36,700,000) 81,509,000
Dividends declared
on common stock - - - (15,309,000) (15,309,000)
Net income - - - 2,619,000 2,619,000
---------- ---------- ------------ ------------ ------------
Balance,
December 31, 1993 11,256,353 $1,125,000 $117,084,000 $(49,390,000) $ 68,819,000
========== ========== ============ ============ ============
48
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
------------ ------------- ------------
Cash flows from operating activities:
Net income $ 2,619,000 $ 10,211,000 $ 9,699,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,795,000 8,156,000 7,418,000
Net gain on sale of real estate - (646,000) (177,000)
Loss on disposition of multifamily and
industrial operations 10,974,000 - -
Minority interest in earnings (losses) of
consolidated joint ventures 477,000 458,000 (114,000)
Equity in losses of unconsolidated joint
ventures 1,993,000 1,446,000 83,000
Distributions from unconsolidated joint
ventures - - 250,000
Net decrease (increase) in certain other
assets (1,455,000) 18,000 191,000
Net increase in certain other liabilities 2,268,000 602,000 805,000
------------ ------------ ------------
Net cash provided by operating activities 25,671,000 20,245,000 18,155,000
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of real estate - 5,425,000 400,000
Payments received on loans and advances
receivable 4,076,000 1,152,000 362,000
Origination of loans and advances receivable (1,305,000) (9,345,000) (3,176,000)
Additions and improvements to real estate assets (33,424,000) (35,588,000) (24,544,000)
Investments in unconsolidated joint ventures (1,100,000) (664,000) (5,950,000)
Capital distributions from unconsolidated joint
ventures 1,405,000 664,000 -
------------ ------------ ------------
Net cash used in investing activities (30,348,000) (38,356,000) (32,908,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from real estate loans payable - 11,191,000 13,789,000
Proceeds from other loans payable 20,981,000 22,832,000 34,100,000
Repayment of real estate loans payable (924,000) (6,154,000) (24,865,000)
Net increase (decrease) in due from Operating
Company (1,428,000) 1,000,000 (12,000)
Net increase in certain other liabilities 9,635,000 728,000 1,409,000
Dividends paid (15,309,000) (15,309,000) (23,416,000)
Distributions to minority interest in consolidated
joint ventures, net (2,316,000) (81,000) (1,086,000)
Proceeds from stock issued in connection with
exercise of stock options and dividend
reinvestment plan, net - (1,000) (148,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities 10,639,000 14,206,000 (229,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 5,962,000 (3,905,000) (14,982,000)
Cash and cash equivalents at beginning of year 1,671,000 5,576,000 20,558,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 7,633,000 $ 1,671,000 $ 5,576,000
============ ============ ============
See accompanying notes.
49
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
ASSETS
1993 1992
------------- -------------
Current Assets
Cash $ 9,695,000 $ 6,226,000
Short-term investments, at cost (approximates market)
(Schedule I) 4,693,000 3,750,000
Accounts receivable 2,789,000 1,657,000
Due from officers and a former officer (Note 11 and Schedule II) 393,000 890,000
Prepaid expenses and other assets 1,041,000 1,607,000
------------ ------------
Total current assets 18,611,000 14,130,000
------------ ------------
Investment in common stock of Realty 2,179,000 2,179,000
Property, plant and equipment, at cost (Note 5 and Schedule V)
Machinery and other equipment 21,943,000 21,524,000
Leasehold improvements 20,976,000 19,968,000
------------ ------------
42,919,000 41,492,000
Less accumulated depreciation (Schedule VI) (21,088,000) (18,343,000)
------------ ------------
21,831,000 23,149,000
------------ ------------
$ 42,621,000 $ 39,458,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 10,070,000 $ 7,455,000
Other liabilities (Notes 6 and 9) 10,117,000 7,735,000
Other loans payable (Note 5) 726,000 663,000
Due to (from) Realty 469,000 (959,000)
------------ ------------
Total current liabilities 21,382,000 14,894,000
------------ ------------
Other loans payable (Note 5) 2,528,000 3,255,000
Deferred revenues 2,872,000 3,130,000
Deferred income taxes (Note 7) 3,565,000 3,673,000
------------ ------------
30,347,000 24,952,000
------------ ------------
Commitments and contingencies (Note 8)
Shareholders' Equity (Note 10)
Preferred stock, $.10 par value; authorized 6,000,000 shares;
none issued - -
Common stock, $.10 par value; authorized 19,000,000 and
40,000,000 shares, respectively; issued and outstanding
11,140,853 and 11,140,853 shares, respectively 1,114,000 1,114,000
Additional paid-in capital 20,592,000 20,592,000
Retained earnings (deficit) (9,432,000) (7,200,000)
------------ ------------
12,274,000 14,506,000
------------ ------------
$ 42,621,000 $ 39,458,000
============ ============
See accompanying notes.
50
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31 ,1993, 1992 AND 1991
1993 1992 1991
------------- ------------- ------------
Revenues
Horse racing (Note 2) $49,081,000 $53,683,000 $51,521,000
Food and beverage 11,695,000 12,589,000 13,808,000
Interest and other 571,000 1,382,000 3,224,000
----------- ----------- -----------
61,347,000 67,654,000 68,553,000
----------- ----------- -----------
Costs and expenses
Direct horse racing operating costs 40,981,000 45,089,000 45,093,000
Food and beverage cost of sales 3,411,000 3,462,000 3,555,000
Depreciation and amortization (Schedule VI) 2,768,000 2,732,000 2,634,000
General and administrative 6,693,000 8,361,000 6,868,000
Interest (Note 5) 493,000 194,000 179,000
Rental expense to Realty (Note 11) 9,233,000 10,955,000 9,928,000
----------- ----------- -----------
63,579,000 70,793,000 68,257,000
----------- ----------- -----------
Income (loss) before income taxes (2,232,000) (3,139,000) 296,000
Provision (benefit) for income taxes (Note 7) - (243,000) 37,000
----------- ----------- -----------
Net income (loss) $(2,232,000) $(2,896,000) $ 259,000
=========== =========== ===========
Weighted average number of common shares
outstanding 11,140,853 11,140,913 11,141,020
=========== =========== ===========
Net income (loss) per common share $(.20) $(.26) $.02
=========== =========== ===========
See accompanying notes.
51
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COMMON STOCK ADDITIONAL RETAINED
--------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------- ------------ ------------- ------------- -------------
Balance,
December 31, 1990 11,141,086 $1,114,000 $20,594,000 $(4,558,000) $17,150,000
Dividend reinvestment
plan, net (Note 1) (121) - (2,000) (5,000) (7,000)
Net income - - - 259,000 259,000
---------- ---------- ----------- ----------- -----------
Balance,
December 31, 1991 11,140,965 1,114,000 20,592,000 (4,304,000) 17,402,000
Dividend reinvestment
plan, net (Note 1) (112) - - - -
Net loss - - - (2,896,000) (2,896,000)
---------- ---------- ----------- ----------- -----------
Balance,
December 31, 1992 11,140,853 1,114,000 20,592,000 (7,200,000) 14,506,000
Net loss - - - (2,232,000) (2,232,000)
---------- ---------- ----------- ----------- -----------
Balance,
December 31, 1993 11,140,853 $1,114,000 $20,592,000 $(9,432,000) $12,274,000
========== ========== =========== =========== ===========
See accompanying notes.
52
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
------------- ------------- -------------
Cash flows from operating activities:
Net income (loss) $(2,232,000) $(2,896,000) $ 259,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,768,000 2,732,000 2,634,000
Deferred income taxes (108,000) (141,000) (31,000)
Net (increase) decrease in certain
other assets (69,000) 931,000 (1,334,000)
Net increase (decrease) in certain
other liabilities 4,739,000 708,000 (3,123,000)
----------- ----------- -----------
Net cash provided by (used in) operating
activities 5,098,000 1,334,000 (1,595,000)
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment, net (1,450,000) (6,030,000) (3,348,000)
----------- ----------- -----------
Net cash used in investing activities (1,450,000) (6,030,000) (3,348,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from other loans payable - 4,000,000 -
Repayment of other loans payable (664,000) (82,000) -
Net (increase) decrease in due from Realty 1,428,000 (1,000,000) 12,000
----------- ----------- -----------
Net cash provided by financing activities 764,000 2,918,000 12,000
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 4,412,000 (1,778,000) (4,931,000)
Cash and cash equivalents at beginning of year 9,976,000 11,754,000 16,685,000
----------- ----------- -----------
Cash and cash equivalents at end of year $14,388,000 $ 9,976,000 $11,754,000
=========== =========== ===========
See accompanying notes.
53
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
ASSETS
1993 1992
--------------- ---------------
Real estate assets
Santa Anita Racetrack, less accumulated depreciation of $18,670,000 and $18,006,000,
respectively $ 6,997,000 $ 8,349,000
Commercial properties, less accumulated depreciation of $41,079,000 and $39,779,000,
respectively (Notes 2, 3 and 8) 216,832,000 201,462,000
Investments in unconsolidated joint ventures (Note 3) 3,616,000 5,925,000
Real estate loans and advances receivable (Note 4) 22,084,000 24,855,000
------------ ------------
249,529,000 240,591,000
Cash (Note 5) 17,328,000 7,897,000
Short-term investments, at cost (approximates market) 4,693,000 3,750,000
Accounts receivable 7,094,000 4,373,000
Due from officers and former officers (Note 11) 474,000 1,074,000
Prepaid expenses and other assets 7,019,000 8,097,000
Property, plant and equipment, at cost, less accumulated
depreciation of $21,088,000 and $18,343,000, respectively (Note 5) 22,129,000 23,149,000
------------ ------------
$308,266,000 $288,931,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable (Note 5) $106,731,000 $107,655,000
Other loans payable (Note 5) 81,167,000 60,850,000
Accounts payable 13,748,000 9,757,000
Other liabilities (Notes 6 and 9) 25,463,000 12,555,000
Dividends payable 3,788,000 3,788,000
Deferred revenues 2,872,000 3,130,000
Deferred income taxes (Note 7) 3,565,000 3,673,000
------------ ------------
237,334,000 201,408,000
------------ ------------
Minority interest in consolidated joint ventures (Note 3) (4,590,000) (2,751,000)
Commitments and contingencies (Note 8)
Shareholders' equity (Note 10)
Preferred stock $.10 par value; authorized 6,000,000 shares
none issued - -
Common stock, $.10 par value; authorized 19,000,000 and
40,000,000 shares, respectively; issued and outstanding 11,140,853 and 11,140,853 shares,
respectively 2,227,000 2,227,000
Additional paid-in capital 134,554,000 134,554,000
Retained earnings (deficit) (61,259,000) (46,507,000)
------------ ------------
75,522,000 90,274,000
------------ ------------
$308,266,000 $288,931,000
============ ============
See accompanying notes.
54
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
------------- ------------- -------------
Revenues
Horse racing (Note 2) $ 49,081,000 $ 53,683,000 $ 51,521,000
Rental property (Note 8) 41,354,000 37,018,000 32,771,000
Food and beverage 11,695,000 12,589,000 13,808,000
Interest and other (Note 7) 5,405,000 3,712,000 5,714,000
------------ ------------ ------------
107,535,000 107,002,000 103,814,000
------------ ------------ ------------
Costs and expenses
Direct horse racing operating costs 40,981,000 45,089,000 45,093,000
Rental property operating expenses 16,522,000 13,533,000 12,039,000
Food and beverage cost of sales 3,411,000 3,462,000 3,555,000
Depreciation and amortization 11,392,000 10,753,000 9,875,000
General and administrative 10,937,000 12,517,000 11,160,000
Interest and other (Note 5) 12,970,000 12,525,000 12,170,000
Losses from unconsolidated joint
ventures (Note 3) 1,993,000 1,446,000 83,000
Minority interest in earnings (losses) of
consolidated joint ventures (Note 3) 477,000 458,000 (114,000)
Loss on disposition of multifamily and
industrial operations (Note 2) 10,974,000 - -
------------ ------------ ------------
109,657,000 99,783,000 93,861,000
------------ ------------ ------------
Income (loss) before income taxes (2,122,000) 7,219,000 9,953,000
Provision (benefit) for income taxes (Note 7) (2,523,000) (158,000) 37,000
------------ ------------ ------------
Net income $ 401,000 $ 7,377,000 $ 9,916,000
============ ============ ============
Weighted average number of common shares
outstanding 11,140,853 11,140,913 11,141,020
============ ============ ============
Net income per common share $.04 $.66 $.89
==== ==== ====
Dividends declared per common share $1.36 $1.36 $1.90
===== ===== =====
See accompanying notes.
55
SANTA ANITA REALTY ENTERPRISES INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COMMON STOCK ADDITIONAL RETAINED
------------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------------------- -------------- ------------- --------------
Combined balance,
December 31, 1990 11,141,086 $2,227,000 $134,705,000 $(27,471,000) $109,461,000
Dividends declared
on common stock - - - (21,176,000) (21,176,000)
Dividend reinvestment
plan, net (Note 1) (121) - (150,000) - (150,000)
Net income - - - 9,916,000 9,916,000
---------- ---------- ------------ ------------ ------------
Combined balance,
December 31, 1991 11,140,965 2,227,000 134,555,000 (38,731,000) 98,051,000
Dividends declared
on common stock - - - (15,153,000) (15,153,000)
Dividend reinvestment
plan, net (Note 1) (112) - (1,000) - (1,000)
Net income - - - 7,377,000 7,377,000
---------- ---------- ------------ ------------ ------------
Combined balance,
December 31, 1992 11,140,853 2,227,000 134,554,000 (46,507,000) 90,274,000
Dividends declared
on common stock - - - (15,153,000) (15,153,000)
Net income - - - 401,000 401,000
---------- ---------- ------------ ------------ ------------
Combined balance,
December 31, 1993 11,140,853 $2,227,000 $134,554,000 $(61,259,000) $ 75,522,000
========== ========== ============ ============ ============
See accompanying notes.
56
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
------------- ------------- -------------
Cash flows from operating activities:
Net income $ 401,000 $ 7,377,000 $ 9,916,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 11,392,000 10,753,000 9,875,000
Net gain on sale of real estate - (646,000) (177,000)
Loss on disposition of multifamily
and industrial operations 10,974,000 - -
Deferred income taxes (108,000) (141,000) (31,000)
Minority interest in earnings (losses)
of consolidated joint ventures 477,000 458,000 (114,000)
Equity in losses of unconsolidated joint
ventures 1,993,000 1,446,000 83,000
Distributions from unconsolidated
joint ventures - - 250,000
Net decrease (increase) in certain
other assets (1,523,000) 1,866,000 (1,143,000)
Net increase (decrease) in certain other
liabilities 7,007,000 310,000 (2,316,000)
------------ ------------ ------------
Net cash provided by operating activities 30,613,000 21,423,000 16,343,000
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of real estate - 5,425,000 400,000
Payments received on loans and advances
receivable 4,076,000 1,152,000 362,000
Origination of loans and advances receivable (1,305,000) (9,345,000) (3,176,000)
Additions and improvements to real estate assets (33,424,000) (35,588,000) (24,544,000)
Additions to property, plant and equipment (1,450,000) (6,030,000) (3,348,000)
Investments in unconsolidated joint ventures (1,100,000) (664,000) (5,950,000)
Capital distributions from unconsolidated
joint ventures 1,405,000 664,000 -
------------ ------------ ------------
Net cash used in investing activities (31,798,000) (44,386,000) (36,256,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from real estate loans payable - 11,191,000 13,789,000
Proceeds from other loans payable 20,981,000 26,832,000 34,100,000
Repayment of real estate loans payable (924,000) (6,154,000) (24,865,000)
Repayment of other loans payable (664,000) (82,000) -
Distributions to minority interest in consolidated
joint ventures, net (2,316,000) (81,000) (1,086,000)
Net increase in certain other liabilities 9,635,000 728,000 1,409,000
Dividends paid (15,153,000) (15,153,000) (23,197,000)
Proceeds from stock issued in connection with
exercise of stock options and dividend
reinvestment plan, net - (1,000) (150,000)
------------ ------------ ------------
Net cash provided by financing activities 11,559,000 17,280,000 -
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 10,374,000 (5,683,000) (19,913,000)
Cash and cash equivalents at beginning of year 11,647,000 17,330,000 37,243,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 22,021,000 $ 11,647,000 $ 17,330,000
============ ============ ============
See accompanying notes.
57
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31 , 1993, 1992 AND 1991
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating
Company and Subsidiaries ("Operating Company") are two separate companies, the
stock of which trades as a single unit under a stock-pairing arrangement on the
New York Stock Exchange. Realty and Operating Company were each incorporated in
1979 and are the successors of a corporation originally organized in 1934 to
conduct thoroughbred horse racing in Southern California.
Realty is principally engaged in holding and investing in retail,
commercial, industrial and multifamily real property located primarily in the
western United States. Subsequent to year-end Realty disposed of its
multifamily and industrial properties (Note 2). Realty operates as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986 and,
accordingly, pays no income taxes on earnings distributed to shareholders.
Operating Company is engaged in thoroughbred horse racing. The thoroughbred
horse racing operation is conducted by a subsidiary of Operating Company, Los
Angeles Turf Club, Incorporated ("LATC"), which leases the Santa Anita Racetrack
from Realty.
Separate and combined financial statements have been presented for Realty
and Operating Company. Realty and Combined Realty and Operating Company use an
unclassified balance sheet presentation.
The separate results of operations and the separate net income per share of
Realty and Operating Company cannot usually be added together to total the
combined results of operations and net income per share because of adjustments
and eliminations arising from inter-entity transactions. All significant
intercompany and inter-entity balances and transactions have been eliminated in
consolidation and combination.
REAL ESTATE ASSETS
Investment properties are carried at cost and consist of land, buildings,
and related improvements. Depreciation is provided on a straight-line basis over
the estimated useful lives of the properties, ranging primarily from 15 to 40
years.
INVESTMENTS IN JOINT VENTURES
All joint ventures in which Realty exercises significant control and has a
50% or greater ownership interest are consolidated. The ownership interests of
outside partners in Realty's consolidated joint ventures are reflected as
minority interest (excess of liabilities over assets) on the balance sheets for
Realty and Combined Realty and Operating Company.
Investments in unconsolidated joint ventures are accounted for using the
equity method of accounting.
58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Highly liquid short-term investments, with maturities of three months or
less, at the date of acquisition, are considered cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment and the capital lease
obligation is provided primarily on the straight-line method generally over the
following estimated useful lives:
Building and improvements 25 to 45 years
Machinery and other equipment 5 to 15 years
Leasehold improvements 5 to 32 years
Expenditures which materially increase property lives are capitalized. The
cost of maintenance and repairs is charged to expense as incurred. When
depreciable property is retired or disposed of, the related cost and accumulated
depreciation is removed from the accounts and any gain or loss is reflected in
current operations.
INCOME TAXES
Realty and Operating Company adopted SFAS No. 109, "Accounting for Income
Taxes," effective January 1, 1993. The new standard of accounting replaces SFAS
No. 96 which the company adopted in 1988. The cumulative effect of adopting
Statement 109 was immaterial for the year ended December 31, 1993.
DEFERRED REVENUES
Operating Company's deferred revenues consist of prepaid admission tickets
and parking, which are recognized as income ratably over the period of the
related race meets. Also, deferred revenue includes prepaid rent from Oak Tree
which is recognized over the remaining term of the lease.
SHAREHOLDERS' EQUITY
The outstanding shares of Realty common stock and Operating Company common
stock are only transferable and tradable in combination as a paired unit
consisting of one share of Realty common stock and one share of Operating
Company common stock.
OPERATING COMPANY'S REVENUES AND COSTS
Operating Company has adopted an accounting policy whereby the revenues
associated with thoroughbred horse racing at Santa Anita Racetrack are reported
as they are earned. Costs and expenses associated with thoroughbred horse racing
revenues are charged against income in those periods in which the thoroughbred
horse racing revenues are recognized. Other costs and expenses are recognized as
they actually occur throughout the year. The rental fee paid by Operating
Company to Realty is recognized by both Realty and Operating Company as it is
earned.
59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RENTAL PROPERTY REVENUES
Rental property revenues are recorded on a straight-line basis over the
related lease term. As a result, deferred rent is created when rental income is
recognized during free rent periods of a lease. The deferred rent is included in
prepaid expenses and other assets, evaluated for collectibility and amortized
over the remaining term of the lease.
HORSE RACING REVENUES AND DIRECT OPERATING COSTS
Operating Company's horse racing revenues and direct operating costs are
shown net of state and local taxes, stakes, purses and awards.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Realty and Operating
Company to concentrations of credit risk are primarily cash investments and
receivables. Realty and Operating Company place their cash investments in
investment grade short-term instruments and limit the amount of credit exposure
to any one commercial issuer. Concentrations of credit risk with respect to
accounts receivable are limited due to the number of retail, commercial and
residential tenants, and Santa Anita catering patrons. Real estate receivables
are secured by first trust deeds on commercial real estate located in Southern
California, and Phoenix, Arizona. Advances to unconsolidated joint ventures are
unsecured and due from partnerships in which Realty is a 50% or less general
partner.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Realty is an issuer of financial instruments with off-balance sheet risk in
the normal course of business which exposes Realty to credit risks. These
financial instruments include commitments to extend credit, financial guarantees
and letters of credit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has estimated the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated values for Realty and
Operating Company as of December 31, 1993 are not necessarily indicative of the
amounts that could be realized in current market exchanges.
For those financial instruments for which it is practicable to estimate
value, management has determined that the carrying amounts of Realty's and
Operating Company's financial instruments approximate their fair value as of
December 31,1993.
DIVIDEND REINVESTMENT PLAN
In November 1992 Realty and Operating Company terminated their dividend
reinvestment and stock purchase plan (the "Plan") which had enabled shareholders
to reinvest dividends and purchase shares of Realty and Operating Company stock.
Since October 1990, shares issued under the terms of the Plan had been purchased
in the open market. Prior to that date, new shares had been issued.
60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMMON STOCK AND NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during each period for each company.
Stock options have not been included in the computation since they have no
material dilutive effect.
Operating Company holds shares of Realty's common stock which are unpaired
pursuant to a stock option plan approved by the shareholders. The shares held
totaled 115,500 as of December 31, 1993, 1992 and 1991, respectively. These
shares affect the calculation of Realty's net income per common share but are
eliminated in the combined calculation of net income per common share.
RECLASSIFICATIONS
Certain prior year amounts have been restated to conform to current year
presentation.
NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL PROPERTIES SUBSEQUENT TO YEAR
END
In November 1993, Realty entered into a Purchase and Sale Agreement to sell
its multifamily and industrial operations to Pacific Gulf Properties Inc.
("Pacific"), in conjunction with Pacific's proposed public offering of common
stock and debentures. The transaction was structured into two parts: (1)
Realty would sell all of its apartments and industrial properties to Pacific
with the exception of Realty's interest in the Baldwin Industrial Park joint
venture; and (2) Pacific would enter into a binding agreement to buy Realty's
interest in Baldwin Industrial Park.
On February 18, 1994, Realty completed the first part of this transaction
by selling to Pacific ten multifamily properties, containing 2,654 apartment
units, located in Southern California, the Pacific Northwest, and Texas and
three industrial properties, containing an aggregate of 185,000 leasable square
feet of industrial space, located in the State of Washington (the "Transferred
Properties"). Realty's corporate headquarters building and related assets were
also acquired by Pacific. The sale of the Transferred Properties followed the
public offerings of common stock and convertible subordinated debentures by
Pacific.
Pursuant to the Purchase and Sale Agreement, Pacific agreed to buy Realty's
interest in Baldwin Industrial Park subject to satisfaction of certain
conditions, for a minimum price of $8.9 million payable in additional shares of
Pacific common stock, with the final price dependent upon completion of
negotiations with the other owners of Baldwin Industrial Park and an appraisal
process. Management believes the sale of Realty's interest in Baldwin
Industrial Park will be completed in the second half of 1994. Pacific is
required to issue to Realty non-refundable letters of credit totaling $2.5
million by March 31, 1994 to secure its obligation to acquire Realty's interest
in Baldwin Industrial Park and pay for the corporate headquarters building and
other assets related to the Transferred Properties.
In consideration of the sale of the Transferred Properties, Realty received
approximately $44.4 million in cash and 149,900 shares of the common stock of
Pacific. In addition, Realty was relieved of approximately $44.3 million of
mortgage debt on the Transferred Properties. Realty will also receive, at the
time the acquisition of Baldwin Industrial Park is completed, up to $1.2 million
in additional common stock of Pacific as consideration for its corporate
headquarters and other net assets related to the Transferred Properties.
61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS SUBSEQUENT TO YEAR
END (CONTINUED)
The two parts of the above transaction will result in a loss of
$10,974,000. This loss has been reflected in the Realty and Realty and
Operating Company combined statements of operations for the year ended
December 31, 1993. If the Baldwin Industrial Park portion of the transaction
described above does not occur, an additional loss will be recognized by Realty
in 1994. The loss could approximate $5,900,000, depending upon whether the $2.5
million in letters of credit are drawn.
Realty and Pacific have also entered into a one-year management agreement
whereby Pacific has agreed to provide management services to Realty. Finally,
with respect to the common stock of Pacific owned by Realty, Pacific has entered
into a registration rights agreement with Realty which, under certain
circumstances, allows Realty to require the registration of the Pacific stock it
owns.
The following unaudited pro forma condensed balance sheets of Realty and
Realty and Operating Company combined are presented as if both parts of the
transaction had occurred on December 31, 1993. The unaudited pro forma
condensed balance sheets are not necessarily indicative of what the actual
financial position of Realty or Realty and Operating Company combined would have
been at December 31, 1993 nor do they purport to represent the future financial
position of Realty or Realty and Operating Company combined.
December 31, 1993
-------------------------------------------------
Realty Realty
Historical Pro Forma
Cost Basis Adjustments (a) (Unaudited)
-------------- ---------------- --------------
Real estate assets
Santa Anita Racetrack, net $ 6,997,000 $ - $ 6,997,000
Commercial properties, net 221,876,000 (107,593,000) 114,283,000
Investments in unconsolidated joint
ventures 3,616,000 - 3,616,000
Real estate loans and advances
receivable 22,084,000 - 22,084,000
------------ ------------- ------------
254,573,000 (107,593,000) 146,980,000
------------ ------------- ------------
Cash 7,633,000 (703,000) 6,930,000
Other assets 9,479,000 (1,387,000) 8,092,000
Investment in Pacific Gulf Properties Inc. (b) - 12,802,000 12,802,000
------------ ------------- ------------
$271,685,000 $ (96,881,000) $174,804,000
============ ============= ============
Real estate loans payable $106,731,000 $ (53,769,000) $ 52,962,000
Other loans payable 77,913,000 (44,425,000) 33,488,000
Other liabilities 22,812,000 (1,719,000) 21,093,000
------------ ------------- ------------
207,456,000 (99,913,000) 107,543,000
------------ ------------- ------------
Minority interest in consolidated
joint ventures (4,590,000) 3,032,000 (1,558,000)
Shareholders' equity 68,819,000 - 68,819,000
------------ ------------- ------------
$271,685,000 $ (96,881,000) $174,804,000
============ ============= ============
The accompanying notes are an integral part of this pro forma balance sheet.
62
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS SUBSEQUENT TO YEAR
END (CONTINUED)
December 31, 1993
-------------------------------------------------
Combined Combined
Historical Pro Forma
Cost Basis Adjustments (a) (Unaudited)
-------------- ---------------- --------------
Real estate assets
Santa Anita Racetrack, net $ 6,997,000 $ - $ 6,997,000
Commercial properties, net 216,832,000 (107,593,000) 109,239,000
Investments in unconsolidated joint
ventures 3,616,000 - 3,616,000
Real estate loans and advances
receivable 22,084,000 - 22,084,000
------------ ------------- ------------
249,529,000 (107,593,000) 141,936,000
------------ ------------- ------------
Cash and short-term investments 22,021,000 (703,000) 21,318,000
Other assets 36,716,000 (1,387,000) 35,329,000
Investment in Pacific Gulf Properties Inc. (b) - 12,802,000 12,802,000
------------ ------------- ------------
$308,266,000 $ (96,881,000) $211,385,000
============ ============= ============
Real estate loans payable $106,731,000 $ (53,769,000) $ 52,962,000
Other loans payable 81,167,000 (44,425,000) 36,742,000
Other liabilities 49,436,000 (1,719,000) 47,717,000
------------ ------------- ------------
237,334,000 (99,913,000) 137,421,000
------------ ------------- ------------
Minority interest in consolidated
joint ventures (4,590,000) 3,032,000 (1,558,000)
Shareholders' equity 75,522,000 - 75,522,000
------------ ------------- ------------
$308,266,000 $ (96,881,000) $211,385,000
============ ============= ============
Notes:
- ------
(a) Reflects the disposition of the assets and liabilities of the Multifamily
and Industrial Operations as if both parts of the transaction had occurred
on December 31, 1993. The amounts reflected represent the assets and
liabilities directly identifiable with the Multifamily and Industrial
Operations transferred by Realty to Pacific.
(b) As a result of the February 18, 1994 sale to Pacific, Realty will have an
investment in the common shares of Pacific totaling $2,738,000. Upon
completion of Realty's disposition of Baldwin Industrial Park, assuming a
price per share equal to $18.25 (the initial public offering price of
Pacific's common shares) and the minimum price for Realty's interest in
Baldwin Industrial Park and the corporate headquarters building and certain
other assets related to the Transferred Properties, Realty will receive
additional Pacific stock totaling approximately $10,064,000.
63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS SUBSEQUENT TO YEAR
END (CONTINUED)
The following unaudited pro forma statements of operation of Realty and Realty
and Operating Company combined are presented as if both parts of the transaction
had occurred on January 1, 1993. The unaudited pro forma statements of
operation are not necessarily indicative of what the actual results of
operations would have been if the transaction had been consummated on January 1,
1993 nor do they purport to represent the results of operations of Realty or
Realty and Operating Company combined for any future period.
For the Year Ended December 31, 1993
-----------------------------------------------
Realty Realty
Historical Pro Forma
Cost Basis Adjustments (1) (Unaudited)
------------- --------------- -------------
Revenues
Rental property $38,953,000 $(20,007,000) $18,946,000
Rental income from Operating Company 11,634,000 - 11,634,000
Interest and other (2) 4,991,000 695,000 5,686,000
----------- ------------ -----------
55,578,000 (19,312,000) 36,266,000
----------- ------------ -----------
Costs and expenses
Rental property operating expenses 16,522,000 (8,562,000) 7,960,000
Depreciation and amortization 8,795,000 (3,264,000) 5,531,000
General and administrative 4,244,000 (1,538,000) 2,706,000
Interest and other (3) 12,477,000 (7,005,000) 5,472,000
Losses from unconsolidated joint ventures 1,993,000 - 1,993,000
Minority interest in earnings of
consolidated joint ventures (4) 477,000 289,000 766,000
Loss on disposition of multifamily and
industrial operations 10,974,000 - 10,974,000
----------- ------------ -----------
55,482,000 (20,080,000) 35,402,000
----------- ------------ -----------
Income before income tax benefit 96,000 768,000 864,000
Income tax benefit (2,523,000) - (2,523,000)
----------- ------------ -----------
Net income $ 2,619,000 $ 768,000 $ 3,387,000
=========== ============ ===========
The accompanying notes are an integral part of this pro forma statement of
operations.
64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - DISPOSITION OF MULTIFAMILY AND INDUSTRIAL OPERATIONS SUBSEQUENT TO YEAR
END (CONTINUED)
For the Year Ended December 31, 1993
-----------------------------------------------
Combined Combined
Historical Pro Forma
Cost Basis Adjustments (1) (Unaudited)
------------- --------------- -------------
Revenues
Horse racing $ 49,081,000 $ - $49,081,000
Rental property 41,354,000 (20,007,000) 21,347,000
Food and beverage 11,695,000 - 11,695,000
Interest and other (2) 5,405,000 695,000 6,100,000
------------ ------------ -----------
107,535,000 (19,312,000) 88,223,000
------------ ------------ -----------
Costs and expenses
Direct horse racing operating costs 40,981,000 - 40,981,000
Rental property operating expenses 16,522,000 (8,562,000) 7,960,000
Food and beverage cost of sales 3,411,000 - 3,411,000
Depreciation and amortization 11,392,000 (3,264,000) 8,128,000
General and administrative 10,937,000 (1,538,000) 9,399,000
Interest and other (3) 12,970,000 (7,005,000) 5,965,000
Losses from unconsolidated joint ventures 1,993,000 - 1,993,000
Minority interest in earnings of
consolidated joint ventures (4) 477,000 289,000 766,000
Loss on disposition of multifamily and
industrial operations 10,974,000 - 10,974,000
------------ ------------ -----------
109,657,000 (20,080,000) 89,577,000
------------ ------------ -----------
Income (loss) before income tax benefit (2,122,000) 768,000 (1,354,000)
Income tax benefit (2,523,000) - (2,523,000)
------------ ------------ -----------
Net income $ 401,000 $ 768,000 $ 1,169,000
============ ============ ===========
Notes:
- ------
(1) Reflects the operations for the year ended December 31, 1993 of the
Multifamily and Industrial Operations directly identifiable with, and
allocations of other costs and expenses related to, the Multifamily and
Industrial Operations being transferred by Realty to Pacific.
(2) Estimated annual distributions to be received on Realty's investment in
Pacific ($1.56 per common share) less the amount of such distributions
estimated to represent the return of capital ($.56 per common share).
(3) Elimination of interest expense on real estate and other loans payable
repaid or assumed by Pacific.
(4) Elimination of the minority interest in earnings of joint ventures resulting
from Realty's acquisition of the Partnership interests and subsequent
transfer to Pacific.
65
NOTES TO FINANCIAL STATEMENTS (continued)
Note 3 - Investments in Joint Ventures
Realty's real estate properties include investments in the following
consolidated real estate joint ventures:
OWNERSHIP
NAME PERCENTAGE PROJECT
- ---- ---------- ---------------
Anita Associates 50% Regional mall
Baldwin Industrial Properties 50% Industrial park
French Valley Partners 50% Industrial land
The financial condition and operations of the above-listed joint
ventures are consolidated with the financial statements of Realty and Combined
Realty and Operating Company.
Combined condensed financial information for consolidated joint
ventures as of December 31, 1993, 1992 and 1991 and for the years then ended is
as follows:
1993 1992 1991
------------- -------------- --------------
Real estate assets $74,570,000 $115,778,000 $115,366,000
=========== ============ ============
Liabilities $71,532,000 $ 89,741,000 $ 90,693,000
=========== ============ ============
Partners' equity (deficit)
Realty $ 7,628,000 $ 28,788,000 $ 27,801,000
Others (4,590,000) (2,751,000) (3,128,000)
----------- ------------ ------------
$ 3,038,000 $ 26,037,000 $ 24,673,000
=========== ============ ============
Revenues $21,992,000 $ 23,912,000 $ 23,668,000
=========== ============ ============
Net income (loss)
Realty $ 2,113,000 $ 2,727,000 $ 2,202,000
Others 477,000 458,000 (114,000)
----------- ------------ ------------
$ 2,590,000 $ 3,185,000 $ 2,088,000
=========== ============ ============
66
NOTE 3 - INVESTMENTS IN JOINT VENTURES (CONTINUED)
During 1993, Realty acquired the partnership interests of its minority
partners in the following joint ventures: SARESAM, SAREFIM, Applewood Village
Partners and Hubanita. The partnership interests were acquired in consideration
for cash, the cancellation of certain receivables from the minority partners and
the assumption of the minority partners' capital account and payment of $250,000
related to Hubanita. The financial statements of Realty and Combined Realty and
Operating Company reflect the acquisition of the minority interests.
Realty's investments in unconsolidated joint ventures include investments in
the following commercial real estate ventures:
OWNERSHIP
NAME PERCENTAGE PROJECT
- ----------------- ----------- -------------
33-1/3% Retail
Joppa Associates
H-T Associates 50% Regional mall
Unaudited combined condensed financial statement information for
unconsolidated joint ventures as of December 31, 1993, 1992 and 1991 and for the
years then ended is as follows:
1993 1992 1991
-------------- -------------- --------------
Real estate assets $212,979,000 $216,137,000 $206,184,000
============ ============ ============
Liabilities
Advances from Realty $ 8,375,000 $ 7,030,000 $ 6,215,000
Other 200,735,000 197,971,000 185,642,000
------------ ------------ ------------
$209,110,000 $205,001,000 $191,857,000
============ ============ ============
Partners' equity
Realty $ 3,616,000 $ 5,925,000 $ 7,390,000
Others 253,000 5,211,000 6,937,000
------------ ------------ ------------
$ 3,869,000 $ 11,136,000 $ 14,327,000
============ ============ ============
Revenues $ 19,991,000 $ 15,666,000 $ 7,501,000
============ ============ ============
Net loss
Realty $ (1,993,000) $ (1,446,000) $ (83,000)
Others (1,263,000) (418,000) (581,000)
------------ ------------ ------------
$ (3,256,000) $ (1,864,000) $ (664,000)
============ ============ ============
67
NOTE 3 - INVESTMENTS IN JOINT VENTURES (CONTINUED)
Realty is a joint and several guarantor of loans issued to expand the Towson
Town Center located in Towson, Maryland (owned 65% by H-T Associates) and a
department store and land (owned 100% by Joppa Associates) adjacent to Towson
Town Center in the amount of $82,630,000. The maximum loan balance to which the
guarantees relate is $188,500,000. Realty's two partners in the ventures have
also each executed repayment guarantees, although one of the partners has a
limited repayment guaranty. Annually, the guarantors may request a reduction in
the amount of the guaranty based on the economic performance of the regional
mall.
NOTE 4 - REAL ESTATE LOANS AND ADVANCES RECEIVABLE
Realty's real estate loans and advances receivable as of December 31, 1993 and
1992 consist of the following:
1993 1992
------------ ------------
6.5% to 8.5% notes receivable secured by trust deeds on
commercial real estate due through 2002 $13,824,000 $17,825,000
Unsecured advances to unconsolidated joint ventures, bearing
interest at prime plus 2%, interest and principal due on
demand 8,260,000 7,030,000
----------- -----------
$22,084,000 $24,855,000
=========== ===========
Contractual principal repayments on real estate loans and advances
receivable as of December 31, 1993 are due as follows:
1994 $8,494,000
1995 243,000
1996 1,736,000
1997 6,614,000
1998 212,000
Thereafter 4,785,000
The prime rate was 6.0% during 1993 and at December 31, 1993.
68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - LOANS PAYABLE
Realty's real estate loans payable related to real estate as of December
31, 1993 and 1992 consist of the following:
1993 1992
------------- -------------
Realty
9.75% note, secured by real estate assets, interest only,
due in 1994 $ 10,000,000 $ 10,000,000
8.5% note, secured by land with assignment of ground lease
and rent as collateral, due in installments through 2009 4,100,000 4,218,000
10.375% notes, secured by real estate assets, due
in installments through 2008 870,000 896,000
10% note, secured by real estate assets, interest only, due in
1994 857,000 857,000
9.375% note, secured by real estate assets, interest only,
due in 1998 11,822,000 11,932,000
8.5% notes, secured by real estate assets, due in installments
through 2011 15,269,000 15,647,000
10% note, secured by real estate assets, due in installments
through 1998 10,044,000 10,140,000
------------ ------------
52,962,000 53,690,000
------------ ------------
Loans subject to the Pacific transaction
9.5% note, secured by real estate assets, interest only,
due in 1999 8,625,000 8,625,000
10.5% notes, secured by real estate assets, due in installments
through 1996 4,751,000 4,758,000
9.5% note, secured by real estate assets, interest only through
1995, installments through 2000 7,000,000 7,000,000
9.25% note, secured by real estate assets, interest only,
due in 1996 12,900,000 12,900,000
8.25% note, secured by real estate assets, interest only,
due in 1997 8,042,000 8,128,000
8% - 10% note, secured by real estate assets, due in
installments through 1998 2,997,000 3,052,000
11.1% note, secured by real estate assets, interest only,
due in 1996 889,000 889,000
11.2% note, secured by real estate assets, due in installments
through 1995 8,565,000 8,613,000
------------ ------------
53,769,000 53,965,000
------------ ------------
$106,731,000 $107,655,000
============ ============
69
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - LOANS PAYABLE (CONTINUED)
Realty's other loans payable as of December 31, 1993 and 1992 consist of the
following:
1993 1992
---- ----
Realty
Unsecured notes, subject to lines
of credit agreements, interest
only, due on various dates
through 1996 $33,488,000 $22,782,000
Other loans payable subject to the
Pacific transaction
Unsecured notes, subject to
lines of credit agreements,
interest only, due on various
dates through 1996 44,425,000 34,150,000
----------- -----------
$77,913,000 $56,932,000
=========== ===========
Principal payments due on real estate and other loans payable as of
December 31,1993 are as follows:
1994 $55,230,000
1995 9,609,000
1996 54,155,000
1997 8,979,000
1998 24,396,000
Thereafter 32,275,000
As of December 31, 1993, Realty was not in compliance with certain
covenants contained in its credit agreements. The banks have waived such
noncompliance through April 30, 1994 conditioned, among other things, on no
additional borrowings under the credit agreements. Realty is in the process of
renegotiating these credit agreements. Management is of the opinion that Realty
has sufficient liquidity from other sources to assure that its operations will
not be adversely affected pending this renegotiation.
Under the terms of these agreements, Realty may borrow funds, at Realty's
option, based upon prime rates, LIBOR (London Interbank Offered Rate) based
rates or Certificate of Deposit rates. At December 31, 1993, all funds are
borrowed on prime or LIBOR-based rates. LIBOR-based rates ranged from 2.80% to
3.84% and the prime rate was 6.0% at December 31, 1993.
The revolving lines of credit require certain compensating balances. Under
the lines of credit agreements, the compensating balance requirements at
December 31, 1993, which represent cash balances that are not available for
withdrawal, amounted to $1,000,000. In addition, Realty is required to pay
annual commitment fees ranging from 0.15% to 0.25% on the unused portion of
these lines of credit.
Operating Company entered into a sale-leaseback transaction related to the
financing of certain television, video monitoring and production equipment under
a five-year lease expiring in December 1997. This financing arrangement is
accounted for as a capital lease. Accordingly, the equipment and related lease
obligation are reflected as machinery and other equipment and other loans
payable, respectively, on Operating Company's and Realty and Operating Company's
combined balance sheets. Realty has guaranteed $3,500,000 of the lease
obligation.
70
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - LOANS PAYABLE (CONTINUED)
The assets recorded under this capital lease are:
1993 1992
------------ ------------
Equipment leased under capital lease $4,000,000 $4,000,000
Accumulated amortization (513,000) (128,000)
---------- ----------
$3,487,000 $3,872,000
========== ==========
Total future minimum lease payments under this capital lease and the
present value of the minimum lease payments as of December 31, 1993 consist of
the following:
For the year ending December 31,
1994 $ 989,000
1995 989,000
1996 989,000
1997 907,000
-----------
3,874,000
Less amount representing interest (620,000)
-----------
Present value of minimum lease payments $ 3,254,000
===========
Current portion $ 726,000
Long-term portion 2,528,000
-----------
$ 3,254,000
===========
Interest costs for the years ended December 31, 1993, 1992 and 1991 are as
follows:
DECEMBER 31, 1993
------------------------------------------
OPERATING
REALTY COMPANY COMBINED
------ -------- --------
Total incurred $13,959,000 $493,000 $14,452,000
Capitalized (1,482,000) - (1,482,000)
----------- -------- -----------
Total interest expense $12,477,000 $493,000 $12,970,000
=========== ======== ===========
Total interest paid $12,463,000 $493,000 $12,956,000
=========== ======== ===========
71
NOTES TO FINANCIAL STATEMENTS (COINTINUED)
NOTE 5 - LOANS PAYABLE (CONTINUED)
DECEMBER 31, 1992
-----------------------------------------
OPERATING
REALTY COMPANY COMBINED
------------- --------- -------------
Total incurred $13,000,000 $194,000 $13,194,000
Capitalized (669,000) - (669,000)
----------- -------- -----------
Total interest expense $12,331,000 $194,000 $12,525,000
=========== ======== ===========
Total interest paid $12,670,000 $194,000 $12,864,000
=========== ======== ===========
DECEMBER 31, 1991
---------------------------------------
OPERATING
REALTY COMPANY COMBINED
----------- --------- -----------
Total incurred $12,265,000 $179,000 $12,444,000
Capitalized (274,000) - (274,000)
----------- -------- -----------
Total interest expense $11,991,000 $179,000 $12,170,000
=========== ======== ===========
Total interest paid $11,891,000 $179,000 $12,070,000
=========== ======== ===========
NOTE 6 - OTHER LIABILITIES
Other liabilities as of December 31, 1993 and 1992 consist of the following:
DECEMBER 31, 1993
------------------------------------------
OPERATING
REALTY COMPANY COMBINED
------------ ------------ -----------
Accrued salaries $ - $ 765,000 $ 765,000
Deferred compensation (Note 9) 1,075,000 3,682,000 4,757,000
Accrued interest 554,000 - 554,000
State license fees - 1,500,000 1,500,000
Other 678,000 4,170,000 4,848,000
Advances payable 11,997,000 - 11,997,000
Accrued liabilities subject to the
Pacific transaction 1,042,000 - 1,042,000
----------- ----------- -----------
$15,346,000 $10,117,000 $25,463,000
=========== =========== ===========
72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - OTHER LIABILITIES (CONTINUED)
DECEMBER 31, 1992
----------------------------------------
OPERATING
REALTY COMPANY COMBINED
----------- ----------- ------------
Accrued salaries $ 4,000 $ 750,000 $ 754,000
Deferred compensation (Note 9) 589,000 2,405,000 2,994,000
Accrued interest 540,000 - 540,000
State license fees - 752,000 752,000
Other 474,000 3,828,000 4,302,000
Advances payable 2,362,000 - 2,362,000
Accrued liabilities subject to the Pacific
transaction 851,000 - 851,000
---------- ---------- -----------
$4,820,000 $7,735,000 $12,555,000
========== ========== ===========
Advances payable represent amounts due to Realty's other partner in Anita
Associates. The amount is expected to be repaid from the proceeds of the
refinancing of Anita Associates' existing debt. The advances bear interest at
10% and are unsecured.
NOTE 7 - INCOME TAXES
As a REIT, Realty is taxed only on undistributed REIT income. During each
of the years ended December 31, 1993, 1992 and 1991, Realty distributed at least
95% of its REIT taxable earnings to its shareholders. For the years ended
December 31, 1993, 1992 and 1991, 41.2%, 41.2% and 52.9%, respectively, of the
dividends distributed to shareholders represented a return of capital. None of
the dividends distributed to shareholders during 1993, 1992 and 1991 represented
capital gains.
The composition of Combined Realty and Operating Company's income tax
provision (benefit) and income taxes paid for the years ended December 31, 1993,
1992 and 1991 is as follows:
1993 1992 1991
------------- ----------- ---------
Current state provision (benefit) $(2,415,000) $ (17,000) $ 6,000
Deferred provision (benefit) (108,000) (141,000) 31,000
----------- --------- --------
$(2,523,000) $(158,000) $ 37,000
=========== ========= ========
Income taxes paid $ 313,000 $ 5,000 $148,000
=========== ========= ========
73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - INCOME TAXES (CONTINUED)
Deferred income taxes arise from temporary differences in the recognition
of certain items of revenues and expenses for financial statement and tax
reporting purposes. The sources of temporary differences and their related tax
effect for the years ended December 31, 1993, 1992 and 1991 are as follows:
1993 1992 1991
------------ ----------- -----------
Accelerated depreciation and amortization
methods utilized for tax reporting purposes $ 109,000 $ (92,000) $(102,000)
Reinstatement (reduction) of deferred taxes
due to tax net operating loss carryovers 1,733,000 173,000 (228,000)
State income tax provision (benefit) deductible
when paid for federal income tax purposes (485,000) (191,000) 86,000
Income previously included for tax purposes,
includable for book purposes currently - 34,000 340,000
Income resulting from settlement of state
unitary tax issues (1,426,000) - -
Other, net (39,000) (65,000) (65,000)
----------- --------- ---------
$ (108,000) $(141,000) $ 31,000
=========== ========= =========
A reconciliation of Combined Realty and Operating Company's total income
tax provision for the years ended December 31, 1993, 1992 and 1991 to the
statutory federal corporate income tax rate of 34% follows:
1993 1992 1991
------------- ------------- ----------
Computed "expected" tax provision $ (759,000) $(1,067,000) $100,000
State income taxes, net of federal income taxes 34,000 (271,000) 29,000
Nondeductible political contributions 28,000 49,000 30,000
Increase in cash surrender value of life
insurance (269,000) (28,000) (60,000)
Establishment (utilization) of book net operating
loss carryforwards 982,000 1,169,000 (28,000)
Other, net (16,000) (10,000) (34,000)
Settlement of state unitary tax issues (2,523,000) - -
----------- ----------- --------
$(2,523,000) $ (158,000) $ 37,000
=========== =========== ========
74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - INCOME TAXES (CONTINUED)
The deferred tax assets (liabilities) as of December 31, 1993 and 1992
consist of the following:
1993 1992
------------- -------------
Deferred tax assets
Income previously included for tax purposes, not includable for
book purposes $ 32,000 $ 32,000
Difference between tax and book depreciation and amortization 26,000 (7,000)
----------- -----------
58,000 25,000
----------- -----------
Deferred tax liabilities
State income tax provisions deductible when paid for federal tax
purposes (3,307,000) (3,478,000)
Compensation deductible for tax purposes when paid (291,000) (172,000)
Other (25,000) (48,000)
----------- -----------
(3,623,000) (3,698,000)
----------- -----------
Net liability for deferred income taxes $(3,565,000) $(3,673,000)
=========== ===========
In prior years, Realty had filed claims with the California Franchise Tax
Board for refunds with respect to the 1970 through 1979 tax years; LATC was
assessed California franchise tax and interest for the years 1980 through 1982;
and, Operating Company was assessed additional franchise tax for the years 1983
through 1985. In 1993, a refund of interest and taxes in the amount of
$6,082,000 was received from the California Franchise Tax Board in the
settlement of the above claims. Realty has recognized $3,211,000 of interest
income, net of expenses of $120,000 and an income tax benefit in the amount of
$2,523,000. Operating Company has recorded additional deferred taxes payable in
the amount of $228,000.
The Franchise Tax Board has audited the 1986 through 1988 tax years of
Operating Company. Operating Company has protested these proposed assessments.
The additional assessment has been accrued by Operating Company.
In February 1994, the Franchise Tax Board initiated an audit of Operating
Company's 1989 through 1991 tax years.
At December 31, 1993, for federal income tax purposes, Operating Company's
net operating loss carryforward is approximately $6,504,000 which substantially
expires in 2004.
75
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Realty's wholly owned and consolidated real estate investments consist of
Santa Anita Racetrack, Fashion Park (a regional mall), various neighborhood
shopping centers, industrial parks, apartment complexes and office buildings.
The racetrack is leased to LATC (Note 11); the land underlying Fashion Park has
been ground leased for 65 years; each of the various neighborhood shopping
centers has been leased to non-anchor tenants with terms ranging from three to
five years; and, the office buildings have been leased with terms generally
ranging from two to ten years.
The minimum future lease payments to be received from Realty's wholly owned
and consolidated real estate investments (excluding rentals relating to the
Santa Anita Racetrack which are paid by LATC to Realty) for the five years
ending December 31, are as follows:
1994 $14,990,000
1995 12,853,000
1996 11,229,000
1997 9,598,000
1998 8,247,000
Substantially all of the retail leases provide for additional contingent
rentals based upon the gross income of the tenants in excess of stipulated
minimums. Realty's share of these contingent rentals totaled $258,000 in 1993,
$337,000 in 1992 and $362,000 in 1991.
Realty leases the Santa Anita Racetrack to Operating Company's subsidiary,
LATC. The lease provides for a rental fee of 1.5% of the total gross on-track
pari-mutuel wagering generated at the racetrack. The lease, which is subject to
renewal, expires in 1994. Realty also receives 40% of LATC's revenues from
satellite wagering and the simulcasting of races originating from the Santa
Anita Racetrack after mandated payments to the State of California and to horse
owners. The lease amounts are eliminated in combination.
Realty has entered into several general and limited partnerships to own and
operate real estate. As of December 31, 1993, Realty has committed to invest an
additional $307,000 in these partnerships.
Realty has obtained a standby letter of credit totaling $448,000 related to
financing on a real estate investment.
In 1992, Realty and Operating Company entered into severance agreements
with certain officers. Under certain circumstances, the severance agreements
provide for a lump sum payment if there is a "change in control" of the
entities. No provision under these severance agreements has been accrued or
funded.
Certain other claims, suits and complaints arising in the ordinary course
of business have been filed or are pending against Realty and Operating
Company. In the opinion of management, all such matters are adequately covered
by insurance or, if not so covered, are without merit or are of such kind or
involve such amounts as would not have a significant effect on the financial
position or results of operations if disposed of unfavorably.
76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS
STOCK OPTION PROGRAM
During 1984, Realty reserved 400,000 shares of common stock for sale under
its Stock Incentive Plan. During 1984, Operating Company also reserved 400,000
shares for sale under its Stock Option Program. Each company also reserved
400,000 shares for issuance under the other company's plan. During 1993,
Operating Company reserved an additional 222,820 shares for sale. The shares
are to be issued either as Incentive Stock Options or Non-Qualified Stock
Options.
The options, which are contingent upon continuous employment, are
exercisable at any time once vested, for up to three years after the date of
retirement or death and for up to 90 days after resignation. For both Realty and
Operating Company, Incentive Stock Options and Non-Qualified Stock Options
expire in 1995 through 2003.
Information with respect to shares under option as of December 31, 1993,
1992 and 1991 is as follows:
REALTY OPERATING COMPANY
----------------------------------------- ---------------------------
AVAILABLE AVAILABLE
SHARES FOR SHARES FOR
SUBJECT TO FUTURE SUBJECT TO FUTURE
OPTION (A) PRICE GRANT OPTION PRICE GRANT
----------- --------------- --------- ----------- --------------- ---------
Outstanding
December 31, 1991 67,506 $24.75 - $29.00 321,000 160,000 $24.75 - $29.55 155,500
Granted 47,000 $ 17.63 158,500 $ 17.63
Exercised - -
Canceled - (3,000) $ 29.00
Outstanding
December 31, 1992 114,506 $17.63 - $29.00 274,000 315,500 $17.63 - $29.55 -
Granted - 111,000 $ 17.38
Exercised - -
Canceled - (74,400) $17.63 - $29.00
Outstanding
December 31, 1993 114,506 $17.63 - $29.00 274,000 130,100 $17.38 - $29.55 186,220
(a) In connection with the disposition of the multifamily and industrial
operations (Note 2), the executive officers of Realty resigned effective
February 18, 1994. In accordance with the stock option program, the
nonvested portion of their stock options terminated on February 18, 1994.
The nonvested stock options totaled 41,200 as of December 31, 1993. The
unexercised vested portion of their stock options still outstanding 90
days subsequent to the resignation date will be terminated on that date.
As of December 31, 1993 the vested portion of their stock options totaled
33,800.
Certain officers and/or directors of Realty and Operating Company have
exercised stock options. At the time of the exercise, the individuals signed
notes for the purchase price of the stock (Note 11).
At the time of exercise of Realty options, employees also have to buy
directly from Operating Company shares of Operating Company stock at its fair
market value per share to pair with Realty shares.
77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED)
In addition, Operating Company is required to purchase Realty shares to
pair with the Operating Company shares being purchased by its employees. In
1984, Operating Company purchased 200,000 shares of Realty stock for this
purpose.
RETIREMENT INCOME PLAN
Realty and Operating Company have a defined benefit retirement plan for
year-round employees who are at least 21 years of age with one or more years of
service and who are not covered by collective bargaining agreements. Plan assets
consist of investments in a life insurance group annuity contract. Plan benefits
are based primarily on years of service and qualifying compensation during the
final years of employment. Funding requirements comply with federal requirements
that are imposed by law.
The net periodic pension cost for 1993 for Realty and Operating Company was
$104,000 and $367,000 respectively; for 1992 was $109,000 and $339,000,
respectively; and for 1991 was $87,000 and $300,000, respectively. The
provisions include amortization of past service cost over 30 years. Based upon
an actuarial valuation date of January 1, 1993, the present value of accumulated
plan benefits (calculated using a rate of return of 8.5%) at December 31, 1993
was $6,280,000, and the plan's net assets available for benefits were
$5,607,000.
The combined net periodic pension cost for the years ended December 31,
1993, 1992 and 1991 for the retirement income plan included the following
components:
1993 1992 1991
---------- ---------- ----------
Service cost $ 288,000 $ 286,000 $ 278,000
Interest cost on projected benefit obligation 569,000 550,000 500,000
Expected return on plan assets (464,000) (466,000) (469,000)
Amortization of unrecognized prior service
cost and unrecognized net obligation 78,000 78,000 78,000
--------- --------- ---------
Net periodic pension cost $ 471,000 $ 448,000 $ 387,000
========= ========= =========
78
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of Realty's and
Operating Company's retirement income plan and amounts recognized in the balance
sheets at December 31, 1993 and 1992:
1993 1992
---------- -----------
Actuarial present value of accumulated benefit
obligations at January 1:
Vested $ 5,897,000 $ 5,676,000
Nonvested 383,000 46,000
----------- -----------
6,280,000 5,722,000
Additional amounts related to projected
compensation levels at January 1 937,000 1,272,000
----------- -----------
Total actuarial projected benefit obligations
for service rendered 7,217,000 6,994,000
Plan assets at fair value at January 1 5,607,000 5,367,000
----------- -----------
Projected benefit obligations in excess
of plan assets (1,610,000) (1,627,000)
Unrecognized net actuarial loss from
difference in actual experience from
that assumed 540,000 571,000
Unrecognized prior service cost 251,000 269,000
Initial unrecognized transition obligation
being recognized over 15 years 545,000 606,000
----------- -----------
Accrued pension liability $ (274,000) $ (181,000)
=========== ===========
Assumptions used in determining the funded status of the retirement income
plan are as follows:
1993 1992 1991
---- ---- ----
Weighted average discount rate 7.5% 8.5% 8.5%
Weighted average rate of increase in
compensation levels 6.0% 6.0% 6.0%
Expected long-term rate of return on
plan assets 8.5% 9.0% 9.5%
79
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED)
DEFERRED COMPENSATION PLAN
Realty and Operating Company have defined benefit deferred compensation
agreements which provide selected management employees with a fixed benefit at
retirement. Plan benefits are based primarily on years of service and qualifying
compensation during the final years of employment.
The net periodic pension cost for 1993 for Realty and Operating Company was
$263,000 and $860,000, respectively; for 1992 was $93,000 and $243,000,
respectively; and for 1991 was $98,000 and $233,000 respectively. During 1993,
Realty and Operating Company recorded a combined $961,000 of pension expense,
net of $793,000 of life insurance proceeds as a nonrecurring charge to the plan
resulting from the death of an officer. It is the policy of Realty and
Operating Company to fund only amounts sufficient to cover current deferred
compensation benefits payable to retirees. The present value of unfunded
benefits at December 31, 1993, based upon an actuarial valuation date of January
1, 1993, was $4,280,000 (calculated using a rate of return of 10%) and Realty's
and Operating Company's combined accrued liability totaled $3,792,000.
Net periodic pension cost for the years ended December 31, 1993, 1992 and
1991 for the deferred compensation plan included the following components:
1993 1992 1991
------------ ---------- ----------
Service costs $ 152,000 $ 199,000 $ 189,000
Interest cost on projected benefit obligation 404,000 409,000 384,000
Nonrecurring charge resulting from the death
of an officer 961,000 - -
Expected return on plan assets (394,000) (354,000) (324,000)
Amortization of unrecognized prior service
cost and unrecognized net obligation - 82,000 82,000
---------- --------- ---------
Net periodic pension cost $1,123,000 $ 336,000 $ 331,000
========== ========= =========
80
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - STOCK OPTION PROGRAM AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of Realty's and
Operating Company's deferred compensation plan and amounts recognized in the
balance sheets at December 31, 1993 and 1992:
1993 1992
------------- ------------
Actuarial present value of accumulated benefit obligations
at January 1:
Vested $3,481,000 $3,537,000
Nonvested 93,000 84,000
---------- ----------
3,574,000 3,621,000
Additional amounts related to projected compensation
levels at January 1 706,000 697,000
---------- ----------
Total actuarial projected benefit obligations for service rendered 4,280,000 4,318,000
Plan accrued liability at January 1 3,792,000 3,412,000
---------- ----------
Projected benefit obligations in excess of plan accrued liability (488,000) (906,000)
Initial unrecognized transition obligation being recognized over
six years - 82,000
---------- ----------
Accrued pension liability $ (488,000) $ (824,000)
========== ==========
Assumptions used in determining the funded status of the deferred
compensation plan are as follows:
1993 1992 1991
---- ---- ----
Weighted average discount rate 10% 10% 10%
Weighted average rate of increase in compensation levels 6% 6% 6%
Long-term rate of return 10% 10% 10%
NOTE 10 - SHAREHOLDER RIGHTS PLAN
In June 1989, the Board of Directors of Realty adopted a shareholder
rights plan and declared the distribution of one right for each outstanding
share of common stock. The distribution was made in August 1989. Each right
entitles the holder to purchase from Realty, initially, one one-hundredth of a
share of junior participating preferred stock at a price of $100 per share,
subject to adjustment. The rights are attached to all outstanding common shares,
and no separate rights certificates will be distributed. The rights are not
exercisable or transferable apart from the common stock until the earlier of ten
business days following a public announcement that a person or group has
acquired beneficial ownership of 10% or more of Realty's general voting power or
ten business days following the commencement of, or announcement of the
intention to commence, a tender or exchange offer that would result in a person
or group beneficially owning 10% or more of Realty's general voting power.
Upon the occurrence of certain other events related to changes in the
ownership of Realty's outstanding common stock or business combinations
involving a holder of more than 10% of Realty's general voting power, each
holder of a right would be entitled to purchase shares of Realty's common stock,
or an acquiring corporation's common stock, having a market value of two times
the exercise price of the right.
81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - SHAREHOLDER RIGHTS PLAN (CONTINUED)
During such time as the stock-pairing arrangement between Realty and
Operating Company shall remain in effect, Operating Company will issue, on a
share-for-share basis, Operating Company common shares, or, as the case may be,
Operating Company junior participating preferred shares to each person receiving
Realty common shares or preferred shares upon exercise or in exchange for one or
more rights.
Realty is entitled to redeem the rights in whole, but not in part, at a
price of $.001 per right prior to the earlier of the expiration of the rights in
August 1999 or the close of business ten days after the announcement that a 10%
position has been acquired.
NOTE 11 - RELATED PARTY TRANSACTIONS
LATC leases the Santa Anita Racetrack from Realty. Rent is based upon
1.5% of the aggregate live on-track wagering and 40% of LATC's revenues received
from simulcast and satellite wagering on races originating at Santa Anita
Racetrack. For the years ended December 31, 1993, 1992 and 1991, LATC paid
Realty (including charity days) $11,634,000, $12,683,000 and $11,817,000,
respectively, in rent, of which $9,233,000, $10,955,000 and $9,928,000,
respectively, were attributable to the Santa Anita meets (exclusive of charity
days), with the remainder being attributable to the Oak Tree meets and charity
days. The lease arrangement between LATC and Realty requires LATC to assume
costs attributable to taxes, maintenance and insurance.
Both Realty and Operating Company have notes receivable from certain
officers, former officers and/or former directors resulting from their exercise
of stock options (Note 9). Notes receivable from officers, former officers
and/or former directors as of December 31, 1993 and 1992, for Realty were
$81,000 and $184,000, respectively, and for Operating Company were $393,000 and
$ 890,000, respectively.
NOTE 12 - COMBINED QUARTERLY FINANCIAL INFORMATION - UNAUDITED
Condensed combined unaudited quarterly results of operations for Combined
Realty and Operating Company are as follows:
NET INCOME
NET INCOME PER
QUARTER ENDED REVENUES (LOSS) COMMON SHARE
- ------------- ---------- -------------- ------------
1993
December 31 $22,243,000 $(11,140,000) $(1.00)
=========== ============ ======
September 30 $15,757,000 $ (170,000) $ (.02)
=========== ============ ======
June 30 $24,447,000 $ 2,387,000 $ .21
=========== ============ ======
March 31 $45,088,000 $ 9,324,000 $ .84
=========== ============ ======
1992 (Restated)
December 31 $21,270,000 $ (60,000) $ (.01)
=========== ============ ======
September 30 $15,003,000 $ (2,502,000) $ (.22)
=========== ============ ======
June 30 $24,966,000 $ 866,000 $ .08
=========== ============ ======
March 31 $45,763,000 $ 9,073,000 $ .81
=========== ============ ======
1991 (Restated)
December 31 $21,921,000 $ 2,241,000 $ .20
=========== ============ ======
September 30 $13,472,000 $ (1,527,000) $ (.14)
=========== ============ ======
June 30 $19,079,000 $ (236,000) $ (.02)
=========== ============ ======
March 31 $49,342,000 $ 9,438,000 $ .85
=========== ============ ======
82
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - COMBINED QUARTERLY FINANCIAL INFORMATION - UNAUDITED (CONTINUED)
In 1993, revenues and cost of sales from food and beverage operations
have been reflected as a separate component in Operating Company's and Combined
Realty and Operating Company's statements of operations. In prior years these
operations were reflected in horse racing revenues. All prior year and interim
financial statements and disclosures for Operating Company and Combined Realty
and Operating Company have been restated to reflect this reclassification.
Operating Company adopted an accounting practice whereby the revenues
associated with thoroughbred horse racing at Santa Anita Racetrack are reported
as they are earned. Costs and expenses associated with thoroughbred horse racing
revenues are charged against income in those interim periods in which the
thoroughbred horse racing revenues are recognized. Other costs and expenses are
recognized as they actually occur throughout the year.
The total of the amounts shown above as quarterly net income per common
share may differ from the amount shown on the Combined Statements of Operations
because the annual computation is made separately and is based upon the average
number of shares outstanding for the year.
Realty and Operating Company are subject to significant seasonal
variations in revenues and net income (loss) due primarily to the seasonality of
thoroughbred horse racing.
83
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS
DECEMBER 31, 1993
- ------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
AMOUNT AT
WHICH EACH
PORTFOLIO OF
EQUITY SECURITY
NUMBER OF ISSUES AND EACH
SHARES OR UNITS -- MARKET VALUE OF OTHER SECURITY
PRINCIPAL EACH ISSUE AT ISSUE CARRIED IN
NAME OF ISSUER AND TITLE AMOUNT OF COST BALANCE SHEET THE BALANCE
OF EACH ISSUE BONDS AND NOTES OF EACH ISSUE DATE SHEET
- ---------------------------------- ------------------ -------------- --------------- ----------------
Commercial paper (a) $4,693,000 $4,693,000 $4,693,000 $4,693,000
- -------------------
(a) Federal Home Loan $2,546,000
Transamerica Finance Corporation 1,249,000
So. California Edison 898,000
----------
$4,693,000
==========
84
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
BALANCE AT
DEDUCTIONS END OF PERIOD
BALANCE AT ------------------------ -------------------------
BEGINNING OF AMOUNTS AMOUNTS
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
-------------- ------------ --------- ---------- ----------- ----------- -----------
1993
R. B. McKinley, a Director of Operating Company
and Director of Realty (a) (b) $ 88,000 $ - $ 88,000 $ - $ - $ -
R.B. McKinley, a Director of Operating Company
and Director of Realty (c) 96,000 - 15,000 - 81,000 -
-------- --------- -------- ----------- -------- -------
$184,000 $ - $103,000 $ - $ 81,000 $ -
======== ========= ======== =========== ======== =======
1992
R. B. McKinley, a Director of Operating Company
and a Director of Realty (a) $103,000 $ - $ 15,000 $ - $ 88,000 $ -
R.B. McKinley, a Director of Operating Company
and a Director of Realty (c) 109,000 - 13,000 - 14,000 82,000
R.P. Strub, Vice Chairman of the Board of
Directors of Realty, Chairman of the Board of
Directors and Chief Executive Office of
Operating Company (d) 78,000 - 78,000 - - -
-------- --------- -------- ----------- -------- -------
$290,000 $ - $106,000 $ - $102,000 $82,000
======== ========= ======== =========== ======== =======
- --------------
(a) Note receivable at the prime rate, adjusted annually, payable in five
annual installments through 1993, arising from the exercise of stock
options of Realty.
(b) Resigned effective December 27, 1993.
(c) Note receivable at the prime rate, adjusted annually, payable in five
annual installments through 1994, arising from the exercise of stock
options of Realty.
(d) Note receivable at 7% interest, payable in five annual installments through
1992, arising from the exercise of stock options of Realty.
85
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------- ------
BALANCE AT
DEDUCTIONS END OF PERIOD
BALANCE AT ------------------------ -------------------------
BEGINNING OF AMOUNTS AMOUNTS
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
-------------- ------------ --------- ---------- ----------- ----------- -----------
1991
R. B McKinley, a Director of Operating Company
and Chairman of the Board of Directors and
Chief Executive Officer of Realty (a) $133,000 $ - $30,000 - $ 15,000 $ 88,000
R.B. McKinley, a Director of Operating Company
and Chairman of the Board of Directors and
Chief Executive Officer of Realty (b) 122,000 - 13,000 - 13,000 96,000
R.P. Strub, Vice Chairman of the Board of
Directors of Realty, Chairman of the Board of
Directors and Chief Executive Officer of
Operating Company (c) 91,000 - 13,000 - 78,000 -
-------- --------- ------- --------- -------- --------
$346,000 $ - $56,000 $ - $106,000 $184,000
======== ========= ======= ========= ======== ========
- --------------
(a) Note receivable at the prime rate, adjusted annually, payable in five
annual installments through 1993, arising from the exercise of stock
options of Realty.
(b) Note receivable at the prime rate, adjusted annually, payable in five
annual installments through 1994, arising from the exercise of stock
options of Realty.
(c) Note receivable at 7% interest, payable in five annual installments through
1992, arising from the exercise of stock options of Realty.
86
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B COL. C COL. D COL. E
------- --------- ------ -------- ------
BALANCE AT
DEDUCTIONS END OF PERIOD
BALANCE AT ------------------------ -------------------------
BEGINNING OF AMOUNTS AMOUNTS
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
-------------- ------------ --------- ---------- ----------- ----------- -----------
1993
C. Goodrich, Director and Vice President of
Operating Company and President of a
subsidiary of Operating Company (a) $ 100,000 $ 6,000 $ 18,000 $ - $ 13,000 $ 75,000
A.W. Ingle, an officer of Operating
Company (b) 89,000 4,000 93,000 - - -
R.P. Strub, Vice Chairman of the Board of
Directors of Realty and Chairman of the
Board of Directors and Chief Executive
Officer of Operating Company (c) 701,000 42,000 438,000 - 60,000(d) 245,000
---------- ------- -------- ---------- -------- --------
$ 890,000 $52,000 $549,000 $ - $ 73,000 $320,000
========== ======= ======== ========== ======== ========
1992
C. Goodrich, Director and Vice President of
Operating Company and President of a
subsidiary of Operating Company (a) $ 141,000 $11,000 $ 52,000 $ - $ 13,000 $ 87,000
A.W. Ingle, an officer of Operating
Company (b) 102,000 7,000 20,000 - 89,000 -
R.P. Strub, Vice Chairman of the Board of
Directors of Realty and Chairman of the
Board of Directors and Chief Executive
Officer of Operating Company (a) 843,000 48,000 190,000 - 92,000 609,000
---------- ------- -------- ---------- -------- --------
$1,086,000 $66,000 $262,000 $ - $194,000 $696,000
========== ======= ======== ========== ======== ========
- --------------
(a) Note receivable at the prime rate, adjusted annually, payable in five annual
installments through 1995, arising from the exercise of stock options of
Operating Company.
(b) Note receivable at the prime rate, adjusted annually, payable in five annual
installments through 1993, arising from the exercise of stock options of
Operating Company.
(c) Decreased May 5, 1993.
(d) The balance of Mr. Strub's note will be reduced at the rate of $5,000 per
month by his widow, Mrs. Elizabeth Strub, who has personally guaranteed the
note. Additionally, irrevocable escrow instructions have been executed by
the trustee of Mr. Strub's estate wherein escrow proceeds arising from the
sale of a single family residence will be applied to the outstanding
balance.
87
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
BALANCE AT
DEDUCTIONS END OF PERIOD
BALANCE AT ------------------------ -------------------------
BEGINNING OF AMOUNTS AMOUNTS
NAME OF DEBTOR PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
-------------- ------------ --------- ---------- ----------- ----------- -----------
1991
C. Goodrich, Director and Vice President of
Operating Company and President of a
subsidiary of Operating Company (a) (b) $ 159,000 $ 14,000 $ 32,000 $ - $ 43,000 $ 98,000
A.W. Ingle, an officer of Operating Company (c) 120,000 10,000 28,000 - 14,000 88,000
R.P. Strub, Vice Chairman of the Board of
Directors of Realty and Chairman of the Board
of Directors and Chief Executive Officer of
Operating Company (b) (d) 942,000 80,000 179,000 - 147,000 696,000
---------- -------- -------- ----------- -------- --------
$1,221,000 $104,000 $239,000 $ - $204,000 $882,000
========== ======== ======== =========== ======== ========
- --------------
(a) Note receivable at the prime rate, adjusted annually, payable in five annual
installments through 1992, arising from the exercise of stock options of
Operating Company.
(b) Note receivable at the prime rate, adjusted annually, payable in five annual
installments through 1995, arising from the exercise of stock options of
Operating Company.
(c) Note receivable at the prime rate, adjusted annually, payable in five annual
installments through 1993, arising from the exercise of stock options of
Operating Company.
(d) Note receivable at 7% interest, payable in five annual installments through
1992, arising from the exercise of stock options of Operating Company.
88
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
BALANCE AT BALANCE AT
BEGINNING OF ADDITIONS END OF
CLASSIFICATION PERIOD AT COST RETIREMENTS PERIOD
- --------------------------------------- ------------ ----------- ----------- ------------
For the year ended December 31, 1993
Machinery and other equipment $21,524,000 $ 442,000 $ 23,000 $21,943,000
Leasehold improvements 19,968,000 1,008,000 - 20,976,000
----------- ---------- -------- -----------
$41,492,000 $1,450,000 $ 23,000 $42,919,000
=========== ========== ======== ===========
For the year ended December 31, 1992
Machinery and other equipment $15,046,000 $6,527,000 $ 49,000 $21,524,000
Leasehold improvements 20,679,000 170,000 881,000 19,968,000
----------- ---------- -------- -----------
$35,725,000 $6,697,000 $930,000 $41,492,000
=========== ========== ======== ===========
For the year ended December 31, 1991
Machinery and other equipment $13,107,000 $1,943,000 $ 4,000 $15,046,000
Leasehold improvements 19,274,000 1,405,000 - 20,679,000
----------- ---------- -------- -----------
$32,381,000 $3,348,000 $ 4,000 $35,725,000
=========== ========== ======== ===========
89
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES RETIREMENTS PERIOD
- --------------------------------------- ------------ ----------- ----------- ------------
For the year ended December 31, 1993
Machinery and other equipment $11,054,000 $1,588,000 $ 23,000 $12,619,000
Leasehold improvements 7,289,000 1,180,000 - 8,469,000
----------- ---------- -------- -----------
$18,343,000 $2,768,000 $ 23,000 $21,088,000
=========== ========== ======== ===========
For the year ended December 31, 1992
Machinery and other equipment $ 9,700,000 $1,390,000 $ 36,000 $11,054,000
Leasehold improvements 6,174,000 1,342,000 227,000 7,289,000
----------- ---------- -------- -----------
$15,874,000 $2,732,000 $263,000 $18,343,000
=========== ========== ======== ===========
For the year ended December 31, 1991
Machinery and other equipment $ 8,443,000 $1,261,000 $ 4,000 $ 9,700,000
Leasehold improvements 4,801,000 1,373,000 - 6,174,000
----------- ---------- -------- -----------
$13,244,000 $2,634,000 $ 4,000 $15,874,000
=========== ========== ======== ===========
90
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
------- ------ ------ ------ ------
Additions
Balance at -----------------------------------
Beginning Charged to Charged to Balance at
Descriptions of Period Costs and Expenses Other Accounts Deductions End of Period
- --------------------------------------- ---------- ------------------ -------------- ---------- -------------
Deducted from commercial properties:
Allowance for loss on
disposition of multifamily
and industrial operations $ - $ 10,974,000 $ - $ - $ 10,974,000
========== ================= ============== ========== =============
91
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B
------ ------
CHARGED TO COSTS AND EXPENSES
---------------------------------------
1993 1992 1991
----------- ----------- -----------
Property Taxes $2,331,000 $2,742,000 $2,271,000
========== ========== ==========
92
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COL. A COL. B
------- ------
CHARGED TO COSTS AND EXPENSES
---------------------------------------
1993 1992 1991
----------- ----------- -----------
Maintenance and repairs $2,344,000 $2,566,000 $2,325,000
========== ========== ==========
Advertising costs $2,631,000 $3,400,000 $3,955,000
========== ========== ==========
Property taxes $ 692,000 $ 687,000 $1,210,000
========== ========== ==========
93
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
COSTS CAPITALIZED
INITIAL COSTS TO COMPANY SUBSEQUENT TO ACQUISITION
----------------------------- -----------------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------------------------- ------------ ------------ -------------- ------------ --------------
REALTY
RACING FACILITY
Santa Anita Racetrack (a) $ - $ 549,000 $ 15,150,000 $2,665,000 $ 7,303,000
REGIONAL MALLS
California
Fashion Park (a)(c) 25,313,000 17,688,000 36,929,000
Land underlying
Fashion Park 4,100,000 102,000
SHOPPING CENTERS
California
Yorba Linda 2,038,000 6,162,000 1,689,000
Orange 1,800,000 3,275,000 246,000
Encinitas 2,842,000 8,954,000 479,000
Phoenix, Arizona
Tatum &
Thunderbird 728,000 1,672,000 233,000 1,800,000
28th and Indian
School 870,000 807,000 1,793,000 140,000
67th and Indian
School 1,751,000 3,396,000 1,553,000
OFFICE BUILDINGS
California
Santa Ana 11,822,000 6,670,000 16,130,000 200,000 661,000
Upland 1,560,000 3,440,000 193,000 1,077,000
Arcadia 10,000,000 9,122,000 6,989,000
LAND
California
Temecula 857,000 1,208,000 580,000
------------ ----------- ------------- ---------- ------------
52,962,000 20,055,000 86,782,000 3,871,000 58,866,000
------------ ----------- ------------- ---------- ------------
SUBJECT TO THE PACIFIC
TRANSACTION
Apartments
California
Santa Ana 7,089,000 16,861,000 1,339,000 5,031,000
Santa Ana 345,000
Washington
Everett 15,625,000 7,709,000 14,541,000 84,000 2,269,000
Burien 12,900,000 2,945,000 14,203,000 385,000
Oregon
Beaverton 8,042,000 1,127,000 9,048,000 1,540,000
Texas
San Antonio 950,000 3,750,000 425,000
San Antonio 1,465,000 3,035,000 593,000
Houston 2,997,000 2,005,000 4,645,000 1,025,000
Austin 1,359,000 5,472,000 19,000
California
Vista, Ontario,
Rancho Cucamonga 12,000
OFFICE BUILDING
California
Newport Beach 211,000 531,000 329,000
INDUSTRIAL
Washington
Seattle 4,751,000 2,349,000 4,700,000 26,000 1,117,000
California
Baldwin Park
(c) (d) (e) 9,454,000 10,000,000 999,000 1,913,000
ALLOWANCE FOR LOSS ON
DISPOSITION OF
MULTIFAMILY AND INDUSTRIAL
OPERATIONS (10,974,000)
------------ ----------- ------------- ---------- ------------
53,769,000 27,209,000 87,143,000 2,448,000 3,672,000
------------ ----------- ------------- ---------- ------------
$106,731,000 $47,264,000 $173,925,000 $6,319,000 $ 62,538,000
============ =========== ============ ========== ============
GROSS AMOUNT OF WHICH CARRIED
AT CLOSE OF PERIOD
------------------------------------------------
BUILDINGS AND ACCUMULATED
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION
- ----------------------------- ------------ -------------- ------------ -----------------
REALTY
RACING FACILITY
Santa Anita Racetrack (a) $ 3,214,000 $ 22,453,000 $ 25,667,000 $18,670,000
REGIONAL MALLS
California
Fashion Park (a)(c) 54,617,000 54,617,000 12,065,000
Land underlying
Fashion Park 102,000 102,000
SHOPPING CENTERS
California
Yorba Linda 2,038,000 7,851,000 9,889,000 2,008,000
Orange 1,800,000 3,521,000 5,321,000 688,000
Encinitas 2,842,000 9,433,000 12,275,000 1,117,000
Phoenix, Arizona
Tatum &
Thunderbird 961,000 3,472,000 4,433,000 698,000
28th and Indian
School 807,000 1,933,000 2,740,000 599,000
67th and Indian
School 1,751,000 4,949,000 6,700,000 1,001,000
OFFICE BUILDINGS
California
Santa Ana 6,870,000 16,791,000 23,661,000 6,685,000
Upland 1,753,000 4,517,000 6,270,000 1,641,000
Arcadia 16,111,000 16,111,000 3,122,000
LAND
California
Temecula 1,788,000 1,788,000
----------- ------------ ------------ -----------
23,926,000 145,648,000 169,574,000 48,294,000
----------- ------------ ------------ -----------
SUBJECT TO THE PACIFIC
TRANSACTION
Apartments
California
Santa Ana 8,428,000 21,892,000 30,320,000 3,892,000
Santa Ana 345,000 345,000
Washington
Everett 7,793,000 16,810,000 24,603,000 2,107,000
Burien 2,945,000 14,588,000 17,533,000 1,087,000
Oregon
Beaverton 1,127,000 10,588,000 11,715,000 420,000
Texas
San Antonio 950,000 4,175,000 5,125,000 167,000
San Antonio 1,465,000 3,628,000 5,093,000 142,000
Houston 2,005,000 5,670,000 7,675,000 132,000
Austin 1,359,000 5,491,000 6,850,000 78,000
California
Vista, Ontario,
Rancho Cucamonga 12,000 12,000
OFFICE BUILDING
California
Newport Beach 211,000 860,000 1,071,000 52,000
INDUSTRIAL
Washington
Seattle 2,375,000 5,817,000 8,192,000 878,000
California
Baldwin Park
(c) (d) (e) 999,000 11,913,000 12,912,000 3,924,000
ALLOWANCE FOR LOSS ON
DISPOSITION OF
MULTIFAMILY AND INDUSTRIAL
OPERATIONS (10,974,000) (10,974,000)
----------- ------------ ------------ -----------
29,657,000 90,815,000 120,472,000 12,879,000
----------- ------------ ------------ -----------
$53,583,000 $236,463,000 $290,046,000 (f) $61,173,000 (g)
=========== ============ ============ ===========
LIFE ON WHICH
DEPRECIATION IN
LATEST INCOME
DATE OF DATE STATEMENT IS
DESCRIPTION CONSTRUCTION ACQUIRED COMPUTED
- ----------------------------- ------------------------- ------------- ---------------------------------
REALTY
RACING FACILITY
Santa Anita Racetrack (a) 1934 1934 5-35 Years (b)
REGIONAL MALLS
California
Fashion Park (a)(c) 1974 1974 40 Years
Land underlying
Fashion Park 1934
SHOPPING CENTERS
California
Yorba Linda 1985 1985 3-40 Years
Orange 1986 1985 3-40 Years
Encinitas 1985 1985 3-40 Years
Phoenix, Arizona
Tatum &
Thunderbird 1981 1983 3-40 Years
28th and Indian
School 1979 1983 3-40 Years (b)
67th and Indian
School 1968 1986 3-40 Years
OFFICE BUILDINGS
California
Santa Ana 1980 1984 5-40 Years
Upland 1982 1984 5-35 Years
Arcadia 1986 1987 5-45 Years
LAND
California
Temecula 1989
SUBJECT TO THE PACIFIC
TRANSACTION
Apartments
California
Santa Ana 1972 1986 40 Years
Santa Ana 1990
Washington
Everett 1988, 1986 1989 35 Years
Burien 1987 1991 40 Years
Oregon
Beaverton 1990 1992 40 Years
Texas
San Antonio 1983 1992 40 Years
San Antonio 1979 1992 40 Years
Houston 1978 1992 40 Years
Austin 1986 1993 40 Years
California
Vista, Ontario,
Rancho Cucamonga 1990, 1991, 1990
OFFICE BUILDING
California
Newport Beach 1970 1992 5-40 Years
INDUSTRIAL
Washington
Seattle 1986, 1981 1990 3-31 Years
California
Baldwin Park
(c) (d) (e) 1986 1981 5-30 Years
ALLOWANCE FOR LOSS ON
DISPOSITION OF
MULTIFAMILY AND INDUSTRIAL
OPERATIONS
The accompanying notes are an integral part of this schedule.
94
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993 (CONTINUED)
- ------------
Notes
(a) Initial costs December 31, 1979 book value
(b) Component depreciation used
(c) All dollar figures represent 100% of amounts attributable to the property
(d) Initial costs December 31, 1987 book value
(e) Property subject to Pacific transaction (Note 2)
1993 1992 1991
-------------- -------------- --------------
(f) Balance at beginning of period $274,064,000 $242,812,000 $218,726,000
Additions - capital expenditures 33,424,000 35,588,000 24,544,000
Disposals (6,468,000) (4,336,000) (400,000)
Allowance for loss on disposition of
multifamily and industrial
operations (10,974,000) - -
Other - - (58,000)
------------ ------------ ------------
Balance at end of period $290,046,000 $274,064,000 $242,812,000
============ ============ ============
(g) Balance at beginning of period $ 59,038,000 $ 50,811,000 $ 44,009,000
Additions - depreciation expense 8,795,000 8,156,000 7,418,000
Disposals (6,660,000) 71,000 (616,000)
------------ ------------ ------------
Balance at end of period $ 61,173,000 $ 59,038,000 $ 50,811,000
============ ============ ============
95
INDEPENDENT AUDITORS' REPORT
-----------------------------
To the Partners
H-T Associates
We have audited the accompanying consolidated balance sheet of H-T Associates (a
Maryland general partnership) and subsidiary (a Maryland general partnership) as
of December 31, 1993, and the related consolidated statements of operations,
partners' capital and cash flows for the year then ended. These consolidated
financial statements are the responsibility of H-T Associates' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of H-T Associates and
subsidiary as of December 31, 1993, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK
San Diego, California
February 11, 1994
96
INDEPENDENT AUDITORS' REPORT
-----------------------------
To the Partners
H-T Associates
San Diego, California
We have audited the accompanying consolidated balance sheet of H-T Associates (a
Maryland general partnership) and subsidiary (a Maryland general partnership) as
of December 31, 1992, and the related consolidated statements of operations,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of H-T Associates' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1992 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
H-T Associates and subsidiary as of December 31, 1992, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KENNETH LEVENTHAL & COMPANY
Newport Beach, California
January 28, 1993
97
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners
H-T Associates
San Diego, California
We have audited the accompanying consolidated statements of operations,
partners' capital and cash flows of H-T Associates (a Maryland general
partnership) and subsidiary (a Maryland general partnership) for the year ended
December 31, 1991. These financial statements are the responsibility of H-T
Associates' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1991 consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of H-T
Associates and subsidiary for the year ended December 31, 1991, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE
San Diego, California
February 3, 1992
98
H-T ASSOCIATES
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS December 31
------ -------------------------------
1993 1992
-------------- --------------
SHOPPING CENTER PROPERTY (Note B):
Land $ 11,726,213 $ 11,726,213
Buildings and improvements 177,052,996 175,971,397
Deferred charges 2,415,529 1,968,632
------------ ------------
191,194,738 189,666,242
Less accumulated depreciation and amortization (15,639,380) (9,294,339)
------------ ------------
175,555,358 180,371,903
CASH 2,871,962 3,745,506
ACCOUNTS RECEIVABLE, less allowance for doubtful
accounts of $1,000,277 (1993) and $656,080 (1992) 773,051 927,441
NOTES RECEIVABLE 390,561 567,828
CONSTRUCTION COSTS RECEIVABLE FROM TENANTS 90,606 141,732
DEFERRED RENT RECEIVABLE 2,542,881 1,356,860
PREPAID EXPENSES AND OTHER ASSETS 1,397,663 2,477,513
------------ ------------
$183,622,082 $189,588,783
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
NOTES PAYABLE (Note B) $164,641,000 $159,473,000
ADVANCES FROM PARTNERS (Note D)
Ernest W. Hahn, Inc. 4,021,196 3,746,479
Santa Anita Realty Enterprises, Inc. 4,016,083 3,750,247
ACCOUNTS PAYABLE TO
Ernest W. Hahn, Inc. 119,847 148,657
Tenants 82,679 109,660
Others 970,791 1,009,324
Accrued construction costs - 20,000
------------ ------------
173,851,596 168,257,367
COMMITMENTS (Note C)
MINORITY INTEREST 5,932,847 12,021,673
PARTNERS' CAPITAL (Note E) 3,837,639 9,309,743
------------ ------------
$183,622,082 $189,588,783
============ ============
See notes to consolidated financial statements.
99
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Years Ended December 31,
---------------------------------------------
1993 1992 1991
------------- ------------- -------------
REVENUES:
Minimum rent (Note C) $14,198,970 $10,561,845 $ 4,068,533
Overage rent (Note C) 366,600 213,501 339,161
Recoveries from tenants (Note C) 4,845,865 4,688,655 1,699,943
Other income 579,235 456,634 102,414
----------- ----------- -----------
19,990,670 15,920,635 6,210,051
----------- ----------- -----------
EXPENSES:
Operating expenses 3,691,166 3,586,645 1,727,378
Property taxes 1,212,191 1,112,832 456,240
Office and management 795,641 674,366 414,929
Promotion 134,078 178,196 58,067
Professional services 79,410 154,154 39,429
Other expenses 652,589 386,396 242,865
----------- ----------- -----------
6,565,075 6,092,589 2,938,908
----------- ----------- -----------
INCOME FROM OPERATIONS 13,425,595 9,828,046 3,271,143
----------- ----------- -----------
NON-OPERATING REVENUE:
Interest income 233,305 185,833 147,854
----------- ----------- -----------
NON-OPERATING EXPENSES:
Interest expense (Notes B and D) 11,923,884 8,487,995 2,607,650
Depreciation and amortization 6,350,407 4,107,219 1,692,761
Write-off of assets 39,186 - -
----------- ----------- -----------
18,313,477 12,595,214 4,300,411
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (4,654,577) (2,581,335) (881,414)
MINORITY INTEREST 1,382,472 700,534 (299,341)
----------- ----------- -----------
NET LOSS $(3,272,105) $(1,880,801) $(1,180,755)
=========== =========== ===========
See notes to consolidated financial statements.
100
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
--------------------------------------------
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
--------------------------------------------
Santa Anita
Realty
Ernest W. Enterprises,
Hahn, Inc. Inc. Total
------------ ------------- -------------
$ 7,099,837 $ 7,099,838 $14,199,675
BALANCE, December 31, 1990
(590,377) (590,378) (1,180,755)
Net loss
Cash distributions (Note E) (250,000) (250,000) (500,000)
----------- ----------- -----------
BALANCE, December 31, 1991 6,259,460 6,259,460 12,518,920
Net loss (940,401) (940,400) (1,880,801)
Cash distributions (Note E) (664,188) (664,188) (1,328,376)
----------- ----------- -----------
BALANCE, December 31, 1992 4,654,871 4,654,872 9,309,743
Net loss (1,636,052) (1,636,053) (3,272,105)
Cash distributions (Note E) (1,100,000) (1,099,999) (2,199,999)
----------- ----------- -----------
BALANCE, December 31, 1993 $ 1,918,819 $ 1,918,820 $ 3,837,639
=========== =========== ===========
See notes to consolidated financial statements.
101
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended December 31
---------------------------------------------
1993 1992 1991
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(3,272,105) $(1,880,801) $ (1,180,755)
Adjustments to reconcile net loss
to net cash provided by (used
in) operating activities:
Depreciation and amortization 6,350,407 4,107,219 1,692,761
Provision for doubtful accounts
receivable 531,345 291,976 110,087
Write-down of assets 39,186 - -
Minority interest (1,382,472) (700,534) 299,341
Changes in assets and liabilities:
Accounts receivable (376,955) 443,023 (1,225,524)
Notes receivable 177,267 (401,520) (107,873)
Deferred rent receivable (1,186,021) (804,426) (197,036)
Prepaid expenses and other assets 1,079,850 (1,594,283) (601,312)
Accounts payable to:
Ernest W. Hahn, Inc. (28,810) (421,392) 459,677
Tenants (26,981) 84,020 16,358
Others (38,533) (386,854) 685,047
----------- ----------- ------------
Net cash provided by (used in)
operating activities 1,866,178 (1,263,572) (49,229)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property under
development - - (53,275,972)
Additions to shopping center
property (1,573,048) (9,271,754) (439,080)
Decrease (increase) in construction
costs receivable from tenants 51,126 688,235 (828,105)
Decrease in accrued construction
costs (20,000) (741,522) (7,103,494)
----------- ----------- ------------
Net cash used in investing activities (1,541,922) (9,325,041) (61,646,651)
----------- ----------- ------------
(continued)
See notes to consolidated financial statements.
102
H-T ASSOCIATES
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
Years Ended December 31
----------------------------------------
1993 1992 1991
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 5,168,000 16,889,993 60,600,757
Advances from partners 540,553 812,078 2,094,719
Repayment of partner advances - (1,876,657) -
Distributions to minority interest (4,706,354) (3,626,011) (269,232)
Distributions to partners (2,199,999) (1,328,376) (500,000)
----------- ---------- ----------
Net cash provided by (used in) financing
activities (1,197,800) 10,871,027 61,926,244
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (873,544) 282,414 230,364
CASH, BEGINNING OF YEAR 3,745,506 3,463,092 3,232,728
----------- ----------- -----------
CASH, END OF YEAR $ 2,871,962 $ 3,745,506 $ 3,463,092
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
Interest paid (net of amounts
capitalized) $10,443,161 $10,474,729 $ 1,612,772
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
--------------------------------------------------------
During 1993, the following non-cash activity occurred:
Reduction in
Reduction Accumulated
in Depreciation
Property and Amortization
--------- ----------------
Write-down of assets:
Buildings and improvements $36,452 $4,556
Deferred charges 8,100 810
------- ------
Total $44,552 $5,366
======= ======
See notes to consolidated financial statements.
103
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1993, 1992 AND 1991
--------------------------------
A. Organization and Accounting Policies:
------------------------------------
H-T Associates (the "Partnership") is a Maryland general partnership
formed on July 28, 1987. Its primary asset is a 65% ownership in
Towson Town Center Associates ("TTCA"), formed to develop and operate
a regional shopping center near Baltimore, Maryland. The general
partners of the Partnership are Ernest W. Hahn, Inc. and Santa Anita
Realty Enterprises, Inc. The Partnership is to continue until
December 31, 2087, unless terminated earlier. Profits and losses are
shared as follows:
Ernest W. Hahn, Inc. ("Hahn") 50%
Santa Anita Realty Enterprises, Inc.
("Santa Anita") 50%
The consolidated financial statements of the Partnership include the
accounts of the Partnership and TTCA. TTCA is a Maryland general
partnership comprised of the Partnership and DeChiaro Associates
("DeChiaro") as 65% and 35% general partners, respectively. All
significant intercompany balances and transactions have been
eliminated.
Certain reclassifications of prior year amounts have been made in
order to conform with the current year presentation.
The Partnership's accounting policies are as follows:
1. Shopping center property is recorded at cost and includes direct
construction costs, interest, construction loan fees, property
taxes and related costs capitalized during the construction
period, as these amounts are expected to be recovered from
operations.
2. The costs of shopping center buildings and improvements, less a
5% salvage value, are depreciated using the straight-line method
over the estimated useful life of 40 years.
3. Direct costs of obtaining leases and permanent financing are
deferred and are being amortized over the lease and loan periods,
respectively.
4. Maintenance and repairs are charged to operations as incurred.
5. Expenditures for betterments are capitalized and
depreciated over the remaining depreciable life of the
property.
6. Costs incurred in connection with early termination of a tenant
lease are amortized over the life of the lease with the
replacement tenant. To the extent payments received from an
incoming tenant do not represent future rentals or cost
recoveries for tenant improvements, they are recorded as income
when received.
104
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
A. Organization and Accounting Policies: (continued)
------------------------------------
7. Taxable income or loss of the Partnership is reported by, and
is the responsibility of, the respective partners. Accordingly,
the Partnership makes no provision for income taxes.
8. The Partnership recognizes scheduled rent increases on a
straight-line basis. Accordingly, a deferred receivable for rents
which are to be received in subsequent years is reflected in the
accompanying consolidated balance sheets.
9. The differential to be paid or received under interest rate swap
agreements is accrued as interest rates change, and is recognized
over the life of the agreements (Note B).
B. Notes payable:
-------------
In 1990, TTCA entered into a building loan agreement with a commercial
bank, secured by an indemnity deed of trust encumbering the property.
In connection with the loan, Hahn and Santa Anita executed a repayment
guaranty of $66,135,000 each and DeChiaro executed a limited repayment
guaranty of $4,513,000. TTCA can borrow up to $170,000,000. The
principal balance of the loan is due May 1999. The agreement provides
that TTCA can: (1) obtain funds at the then current prime rate of the
commercial bank; (2) obtain funds based on the then current London
Interbank Offered Rate ("LIBOR") plus a spread (as defined); or, (3)
obtain funds through the issuance of commercial paper at rates based
upon the interest rates offered in the commercial paper market plus
letter of credit fees. For the years ended December 31, 1993 and
1992, all funds were obtained under the commercial paper option for a
total outstanding balance of $164,641,000 and $159,473,000,
respectively. Interest is payable monthly. The variable interest
rate in effect on the outstanding balance as of December 31, 1993 and
1992 was 3.2% and 3.7%, respectively.
TTCA has also entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its loan. As of December 31,
1993 and 1992, TTCA had two interest rate swap agreements outstanding
with a commercial bank which have a total notional principal amount of
$82,000,000.
The agreements provide for TTCA to pay fixed rates of interest of 9.3%
and 8.8% on swaps of $45,000,000 and $37,000,000, respectively, and to
receive floating interest based on 30 day commercial paper rates. The
effective variable rate of interest on the swap agreements as of
December 31, 1993 is 3.2%. The interest rate swap agreements mature
at the time the building loan matures. TTCA is exposed to credit loss
in the event of nonperformance by the commercial bank with the
interest rate swap agreements.
The net effective interest rates on amounts outstanding under the
building loan agreement at December 31, 1993, 1992 and 1991, after
giving effect to the interest rate swaps, was 6.9%, 6.4% and 8.3%,
respectively.
105
H-T ASSOCIATES
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. Notes payable: (continued)
-------------
The differential between the amounts paid and received under the
interest rate contract is included as either an addition to, or a
reduction in, interest incurred. Total interest incurred was
$11,383,329, $11,420,746, and $10,419,887 of which $0, $3,491,669 and
$8,515,010 was capitalized, for the years ended December 31, 1993,
1992, and 1991, respectively.
C. Commitments:
------------
Partnership as Lessor:
---------------------
TTCA leases space to tenants in the shopping center for which it
charges minimum rents and receives reimbursement for real estate
taxes and certain other operating expenses. The terms of the
leases range from 5 to 30 years and generally provide for additional
overage rents during any year that tenants' gross sales exceed stated
amounts.
Future minimum rental revenues to be received under leases
in force at December 31, 1993 are as follows:
Year ending
December 31 Amount
--------------- -------------
1994 $ 13,985,642
1995 14,089,510
1996 14,055,103
1997 13,712,487
1998 13,683,948
Thereafter 60,989,803
------------
$130,516,493
============
Property Under Development:
---------------------------
During 1991, TTCA completed a major expansion and renovation of the
previously existing shopping center. Pursuant to the Development
Manager's Agreement between TTCA and Hahn, Hahn is to receive an
estimated $5.1 million as compensation for managing the development of
the project. Of this amount $5,080,619, $5,041,792 and $4,682,015
were incurred as of December 31, 1993, 1992 and 1991, respectively.
106
H-T ASSOCIATES
--------------
(a Maryland general partnersip)
AND SUBSIDIARY
(A Maryland general partnership)
D. Advances from Partners:
----------------------
Hahn and Santa Anita have both made advances to the Partnership to
finance certain construction funding requirements and other cash flow
needs. These advances bear interest at 1% above the prime rate and
they are required to be repaid prior to any distributions to the
partners, other than distributions of Net Cash Flow from Operations
(Note E). Interest incurred on the advances totaled $540,555,
$558,918 and $702,773 for the years ended December 31, 1993, 1992 and
1991, respectively. The prime rate was 6.0%, 6.0% and 6.5% at
December 31, 1993, 1992 and 1991, respectively.
E. Partnership Distributions:
-------------------------
Distributions of Net Cash flow from Operations of the Partnership (as
defined by the Amended and Restated Partnership Agreement) are subject
to certain priorities. The period from inception of the Partnership
through October 16, 1991 (the Grand Opening Date of the shopping
center) is referred to as the Initial Term. During the Initial Term,
both partners were entitled to a cumulative, compounded return (at
the Prime Rate, as defined) on their capital contributions. A
$500,000 distribution was made during the Initial Term. The "Primary
Term" follows the Initial Term, and ends when cash flow for a
consecutive 12-month period exceeds the sum of $1,192,000 plus any
unpaid cumulative returns. During the "Primary Term," Santa Anita
receives a cumulative return of $447,000 for the first year, $521,500
for the second year, and $596,000 for each year thereafter. Hahn
receives non-cumulative returns of the same amounts. Following the
Primary Term, distributions of Net Cash Flow from Operations are made
to the partners in accordance with their percentage interests.
F. Related Party Transactions:
--------------------------
Hahn and its wholly owned subsidiary, Hahn Property Management
Corporation ("HMPC"), provide property management, leasing and various
legal services to TTCA. A summary of costs and fees incurred by Hahn
and HMPC by TTCA during 1993, 1992 and 1991 is presented below:
Years ended December 31
---------------------------------------
1993 1992 1991
----------- ----------- -----------
Payroll and related benefits $1,444,592 $1,608,788 $1,405,067
Management fee 545,964 410,277 156,291
Professional service 33,071 15,644 79,095
Leasing commissions 399,345 532,818 782,378
Legal 111,043 87,456 117,736
Development fee (Note C) 38,827 359,777 2,082,740
107
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
F. Related Party Transactions: (continued)
--------------------------
Related Property:
-----------------
Certain property adjacent to TTCA's regional shopping center is owned
by Joppa Associates ("Joppa"). The partners of TTCA are also the
partners of Joppa. TTCA has benefitted from Joppa's ownership of the
adjacent property. The partners consider the two properties one
project.
G. Disclosures About the Fair Value of Financial Instruments:
---------------------------------------------------------
In the opinion of management, the carrying amounts of TTCA's financial
instruments approximate fair value except:
Interest Rate Swaps (Note B):
----------------------------
The fair value of interest rate swaps (used for hedging purposes)
is the estimated amount that TTCA would pay to terminate the swap
agreements at the reporting date, taking into account current interest
rates and the current credit worthiness of the swap counterparties.
The fair value of the interest rate swaps is a net payable of
$13,593,031.
108
EXHIBIT INDEX
Exhibit
Number
- -------
3.1 Certificate of Incorporation of Santa Anita Realty Enterprises, Inc., as
amended through October 1993.
3.2 Certificate of Incorporation of Santa Anita Operating Company, as amended
through October 1993.
3.3 Bylaws of Santa Anita Realty Enterprises, Inc., as amended through
February 1994.
3.4 Bylaws of Santa Anita Operating Company, as amended through February
1994.
4.1 Pairing Agreement by and between Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company, dated as of December 20, 1979
(incorporated by reference to Exhibit 5 to Registration Statement on Form
8-A of Santa Anita Operating Company filed February 5, 1980).
4.2 Rights Agreement, dated June 15, 1989, among Santa Anita Realty
Enterprises, Inc., Santa Anita Operating Company, and Union Bank, as
Rights Agent (incorporated by reference to Exhibit 2.1 to Registration
Statement on Form 8-A of Santa Anita Realty Enterprises, Inc. filed
June 19, 1989).
4.3 Amended and Restated Credit Agreement, dated November 14, 1989,
between Wells Fargo Bank, N.A. and Santa Anita Realty Enterprises, Inc.
(incorporated by reference to Exhibit 4.4 to the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1989).
4.4 Revolving Credit and Term Note Agreement, dated November 21, 1989,
between The Bank of California, N.A. and Santa Anita Realty Enterprises,
Inc. (incorporated by reference to Exhibit 4.5 to the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1989).
4.5 Revolving Credit Agreement, dated October 29, 1991, between Santa Anita
Realty Enterprises, Inc. and Union Bank (incorporated by reference to
Exhibit 3.2 to the Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the year ended
December 31, 1991). Each other outstanding long-term indebtedness of
Santa Anita Realty Enterprises, Inc. and each outstanding long-term
indebtedness of Santa Anita Operating Company and its subsidiaries does
not exceed 10% of the total assets of Santa Anita Realty Enterprises, Inc.
or Santa Anita Operating Company and its subsidiaries on a consolidated
basis, as the case may be. Each such company agrees to furnish copies of
such instruments to the Securities and Exchange Commission upon
request.
4.6 Letter Agreement, dated March 25, 1994, between Wells Fargo Bank, N.A. and
Santa Anita Realty Enterprises, Inc.
4.7 Letter Agreement, dated March 25, 1994, between The Bank of California, N.A.
and Santa Anita Realty Enterprises, Inc.
4.8 Letter Agreement, dated March 25, 1994, between Union Bank and Santa Anita
Realty Enterprises, Inc.
109
EXHIBIT INDEX (CONTINUED)
Exhibit
Number
- -------
10.1 Anita Associates Articles of Limited Partnership dated as of April 6, 1972
(incorporated by reference to Exhibit 6(c) to Registration Statement No.
2-65894).
10.2 First Amendment to Articles of Limited Partnership of Anita Associates,
dated December 26, 1979 (incorporated by reference to Exhibit 10.13 to
Registration Statement No. 2-72866).
10.3 Form of Compensation Agreement of certain officers of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company (incorporated by
reference to Exhibit 10.3 to Registration Statement No. 33-27011).
10.4 Form of Salary Reduction and Deferral Agreement of certain officers of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
(incorporated by reference to Exhibit 10.4 to Registration Statement No. 33-
27011).
10.5 Ground lease between Santa Anita Realty Enterprises, Inc. and Anita
Associates, dated as of April 6, 1972 (incorporated by reference to Exhibit
10.5 to Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc., and Santa Anita Operating Company for the year ended
December 31, 1992).
10.6 Second Amendment to ground lease between Santa Anita Realty
Enterprises, Inc., and Anita Associates dated as of December 29, 1993.
10.7 Lease between Los Angeles Turf Club, Incorporated and Santa Anita
Realty Enterprises, Inc., dated as of January 1, 1980 (incorporated by
reference to Exhibit 10.12 to Registration Statement No. 2-72866).
10.8 Lease Amendment between Santa Anita Realty Enterprises, Inc. and Los
Angeles Turf Club, Incorporated, dated as of December 31, 1987, to the
Lease between Los Angeles Turf Club, Incorporated and Santa Anita
Realty Enterprises, Inc., dated as of January 1, 1980 (incorporated by
reference to Exhibit 10.8 to Registration Statement No. 33-27011).
10.9 Lease Amendment between Santa Anita Realty Enterprises, Inc. and Los
Angeles Turf Club, Incorporated, dated as of December 26, 1989, to the
Lease between Los Angeles Turf Club, Incorporated and Santa Anita
Realty Enterprises, Inc., dated as of January 1, 1980 (incorporated by
reference to Exhibit 10.8 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the
year ended December 31, 1989).
10.10 Santa Anita Realty Enterprises, Inc. 1984 Stock Option Plan (as amended
and restated September 22,1988) (incorporated by reference to Exhibit 4.2
to Registration Statement No. 2-95228).
110
EXHIBIT INDEX (CONTINUED)
Exhibit
Number
- --------
10.11 Amendment 1993-1 to Santa Anita Realty Enterprises, Inc. 1984 Stock
Option Program.
10.12 Santa Anita Operating Company 1984 Stock Option Program (as amended
and restated September 22, 1988) (incorporated by reference to Exhibit 4.3
to Registration Statement No. 2-95228).
10.13 Amendment 1993-1 to Santa Anita Operating Company 1984 Stock Option
Program (incorporated by reference to Exhibit 4.3 to Registration Statement
on Form S-8 No. 33-51843).
10.14 First Amended Certificate and Agreement of Limited Partnership of Baldwin
Industrial Properties, Ltd., dated November 2, 1981 (incorporated by
reference to Exhibit 10.12 to Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the
year ended December 31, 1992).
10.15 Limited Partnership Agreement, dated as of March 16, 1988, among
Southern California Off Track Wagering Incorporated and the limited
partners listed therein (incorporated by reference to Exhibit 10.17 to
Registration Statement No. 33-27011).
10.16 Amended and Restated Partnership Agreement of H-T Associates, dated as
of July 28, 1987, between Ernest W. Hahn, Inc. and Santa Anita Realty
Enterprises, Inc. (incorporated by reference to Exhibit 10.18 to Registration
Statement No. 33-27011).
10.17 Amended and Restated Agreement of Joppa Associates, dated as of April
14, 1988, between Ernest W. Hahn, Inc., Santa Anita Realty Enterprises,
Inc. and Dechiaro Associates, a Maryland general partnership (incorporated
by reference to Exhibit 10.19 to Registration Statement No. 33-27011).
10.18 Amendment dated November 1, 1989, to Partnership Agreement of H-T
Associates (incorporated by reference to Exhibit 10.21 of the Joint Annual
Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company for the year ended December 31, 1989).
10.19 Partnership Agreement of French Valley Ventures dated November 1989,
between Santa Anita Realty Enterprises, Inc. and William J. Rousey, Jr.
(incorporated by reference to Exhibit 10.23 to the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1989).
111
EXHIBIT INDEX (CONTINUED)
Exhibit
Number
- --------
10.20 Indenture of Lease by and between Los Angeles Turf Club, Incorporated
and Oak Tree Racing Association, dated as of January 1, 1990
(incorporated by reference to Exhibit 10.21 to the Joint Annual Report
on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1990).
10.21 Form of Severance Agreement of Certain Officers of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company (incorporated by
reference to Exhibit 10.22 to the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1992).
10.22 Purchase and Sale Agreement, dated as of November 15, 1993, between
Santa Anita Realty Enterprises, Inc., and Pacific Gulf Properties Inc.
(incorporated by reference to Exhibit 1 to the Current Report on Form
8-K of Santa Anita Realty Enterprises, Inc., dated February 18,
1994) .
10.23 Management Agreement, dated as of February 17, 1994, between Santa
Anita Realty Enterprises, Inc., and Pacific Gulf Properties Inc.
10.24 Registration Rights Agreement, dated as of February 1, 1994, between
Santa Anita Realty Enterprises, Inc. and Pacific Gulf Properties Inc.
10.25 Employment Agreement between Santa Anita Realty Enterprises, Inc. and
Sherwood C. Chillingworth, dated as of March 16, 1994.
22 Subsidiaries of Santa Anita Operating Company (incorporated by
reference to Exhibit 22 to the Joint Annual Report on form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company
for the year ended December 31, 1992).
23.1 Consent of Kenneth Leventhal & Company (to be incorporated by
reference into the Prospectus contained in Registration Statement No.
2-95228 and the Prospectus contained in Registration Statement No.
33-51843).
23.2 Consent of Deloitte & Touche (to be incorporated by reference into the
Prospectus contained in Registration Statement No. 2-95228 and the
Prospectus contained in Registration Statement No. 33-51843).
23.3 Consent of KPMG Peat Marwick (to be incorporated by reference into the
Prospectus contained in Registration Statement No. 2-95228 and the
Prospectus contained in Registration Statement No. 33-51843).
112