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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission file number 1-12917
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Wellsford Real Properties, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 13-3926898
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
610 Fifth Avenue, New York, NY 10020
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(Address of principal executive offices)
(Zip Code)
(212) 333-2300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----------- ------------
Number of shares of common stock, $.01 par value per share, outstanding as of
August 14, 1998: 20,009,882.
Number of shares of Class A common stock, $.01 par value per share,
outstanding as of August 14, 1998: 339,806.
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WELLSFORD REAL PROPERTIES, INC.
FORM 10-Q
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INDEX
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Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Income (unaudited) for
the three and six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION 17
SIGNATURES 19
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
Real estate assets, at cost:
Land $ 13,753,000 $ 5,225,000
Buildings and improvements 84,581,740 36,338,624
--------------- --------------
98,334,740 41,563,624
Less, accumulated depreciation (1,233,065) -
--------------- --------------
97,101,675 41,563,624
Construction in progress 22,847,901 17,177,824
---------------- --------------
119,949,576 58,741,448
Notes receivable 84,241,147 105,631,611
Investment in joint ventures 63,893,577 44,779,563
---------------- --------------
Total real estate assets 268,084,300 209,152,622
Cash and cash equivalents 24,891,453 29,895,212
Restricted cash 7,404,208 7,695,910
Prepaid and other assets 5,315,555 3,229,956
--------------- --------------
Total Assets $ 305,695,516 $ 249,973,700
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 65,430,808 $ 49,255,000
Credit facility - 7,500,000
Accrued expenses and other
liabilities 12,445,344 9,763,109
--------------- --------------
Total Liabilities 77,876,152 66,518,109
--------------- --------------
Commitments and contingencies - -
Minority interest 4,320,644 2,297,295
Shareholders' Equity:
Common Stock, 197,650,000 shares
authorized - 20,009,882 shares, $.01
par value per share, issued and out-
standing at June 30, 1998 200,099 166,567
Class A Common Stock, 350,000
shares authorized - 339,806 shares,
$.01 par value per share, issued
and outstanding at June 30, 1998 3,398 3,398
Series A 8% Convertible Redeemable
Preferred Stock, $.01 par value per
share, 2,000,000 shares authorized,
no shares issued and outstanding - -
Paid in capital in excess of par
value 219,709,747 179,721,827
Retained earnings 5,633,074 1,941,518
Deferred compensation (607,500) (675,014)
Treasury stock (81,015 shares) (1,440,098) --
--------------- --------------
Total Shareholders' Equity 223,498,720 181,158,296
--------------- --------------
Total Liabilities and Shareholders'
Equity $ 305,695,516 $ 249,973,700
=============== ==============
See accompanying notes.
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
REVENUE
Rental income $ 3,453,257 $ 588,269 $ 5,944,247 $ 588,269
Interest income 2,637,606 1,187,090 6,105,918 1,587,590
----------- ----------- ----------- -----------
Total Revenue 6,090,863 1,775,359 12,050,165 2,175,859
----------- ----------- ----------- -----------
EXPENSES
Property operating
and maintenance 785,534 65,249 1,248,989 65,249
Real estate taxes 323,428 35,000 570,509 35,000
Depreciation and
amortization 828,809 113,901 1,451,463 113,901
Property management 101,048 6,459 174,707 6,459
Interest 863,752 -- 1,755,415 --
General and
administrative 1,241,665 255,119 2,424,168 255,119
----------- ----------- ----------- -----------
Total Expenses 4,144,236 475,728 7,625,251 475,728
----------- ----------- ----------- -----------
Income from joint
ventures 2,268,076 -- 2,533,942 --
----------- ----------- ----------- -----------
Income before
minority interest 4,214,703 1,299,631 6,958,856 1,700,131
Minority interest (16,436) -- (35,300) --
----------- ----------- ----------- -----------
Income before taxes 4,198,267 1,299,631 6,923,556 1,700,131
Income tax expense 1,984,000 284,000 3,232,000 284,000
----------- ----------- ----------- -----------
Net income $ 2,214,267 $ 1,015,631 $ 3,691,556 $ 1,416,131
=========== =========== =========== ===========
Net income per
common share, basic $ 0.11 $ 0.06 $ 0.19 $ 0.08
=========== =========== =========== ===========
Net income per common
share, diluted $ 0.10 $ 0.06 $ 0.18 $ 0.08
=========== =========== =========== ===========
Weighted average number
of common shares
outstanding 20,349,688 16,911,849 19,368,749 16,911,849
=========== =========== =========== ===========
See accompanying notes.
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
--------------------------------------------
1998 1997
------------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 3,691,556 $ 1,416,131
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 1,527,573 113,901
Income from joint ventures (2,533,942) --
Decrease (increase)
in assets
Restricted cash (923,391) (1,557,935)
Prepaid and other assets (2,139,048) (1,820,291)
(Decrease) increase in
liabilities
Accrued expenses and other
liabilities 3,268,292 4,735,351
---------------- -------------
Net cash provided by
operating activities 2,891,040 2,887,157
---------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investment in real estate
assets (92,148,361) (47,272,327)
Investment in notes
receivable (11,243,750) (25,000,000)
Investment in joint ventures (16,003,617) --
Repayments from notes receivable 39,313,644 --
Proceeds from sale of
real estate assets 63,993,737 --
---------------- --------------
Net cash provided by
(used in) investing
activities (16,088,347) (72,272,327)
---------------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit
facility 48,000,000 46,900,000
Repayment of credit
facility (55,500,000) (46,900,000)
Proceeds from bridge loan -- 6,000,000
Repayment of bridge loan -- (6,000,000)
Proceeds from mortgage notes
payable 16,400,000 --
Repayment of mortgage notes
payable (224,192) --
Proceeds from private offering
of common shares -- 122,284,455
Equity contributions -- 17,060,633
Distributions to minority
interest (482,260) --
--------------- -------------
Net cash provided by (used
in) financing activities 8,193,548 139,345,088
--------------- -------------
Net increase (decrease) in
cash and cash equivalents (5,003,759) 69,959,918
Cash and cash equivalents,
beginning of period 29,895,212 --
---------------- --------------
Cash and cash equivalents,
end of period $ 24,891,453 $ 69,959,918
================ ==============
SUPPLEMENTAL INFORMATION:
Cash paid during the
period for interest $ 2,194,218 $ 1,071,046
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES
Shares issued in connection
with acquisition of
commercial office properties
and notes receivable $(39,362,500) $ (2,250,000)
Warrants issued in connection
with acquisition of joint
venture investment $ (750,000) $ --
See accompanying notes.
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Wellsford Real Properties, Inc. (the "Company") was formed on January 8,
1997, as a corporate subsidiary of Wellsford Residential Property Trust
(the "Trust"). On May 30, 1997, the Trust merged (the "Merger") with
Equity Residential Properties Trust ("EQR"). Immediately prior to the
Merger, the Trust contributed certain of its assets to the Company and
the Company assumed certain liabilities of the Trust. Immediately after
the contribution of assets to the Company and immediately prior to the
Merger, the Trust distributed to its common shareholders all of the
outstanding shares of the Company owned by the Trust (the "Spin-off").
On June 2, 1997, the Company sold 12,000,000 shares of its common stock
in a private placement (the "Private Placement") to a group of
institutional investors at $10.30 per share, the Company's then book
value per share.
The Company is a real estate merchant banking firm which acquires,
develops and operates real properties and invests in the debt and equity
securities of private and public real estate companies. The Company has
established three strategic business units ("SBUs") within which it
intends to execute its business plan: an SBU for commercial property
operations which is held in its 99.9% subsidiary, Wellsford Commercial
Properties Trust ("WCPT"), an SBU for debt and equity activities and an
SBU for property development and land operations.
In August 1997, the Company, through WCPT, in a joint venture with WHWEL
Real Estate Limited Partnership ("Whitehall"), an affiliate of Goldman
Sachs & Co., formed a private real estate operating company,
Wellsford/Whitehall Properties, L.L.C. ("Wellsford Commercial").
The accompanying consolidated financial statements include the assets
and liabilities contributed to and assumed by the Company from the
Trust, from the time such assets and liabilities were acquired or
incurred, respectively, by the Trust. Such financial statements have
been prepared using the historical basis of the assets and liabilities
and the historical results of operations related to the Company's assets
and liabilities.
The accompanying consolidated financial statements and related notes of
the Company have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared under generally accepted
accounting principles have been condensed or omitted pursuant to such
rule. In the opinion of management, all adjustments considered
necessary for a fair presentation of the Company's financial position,
results of operations and cash flows have been included and are of a
normal and recurring nature. These financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
2. Industry Segments and Recent Activities
Commercial Property Operations
The Company's commercial property operations segment consists of
Wellsford Commercial, which is accounted for on the equity method.
Wellsford Commercial had net real estate assets of $434.1 million, total
assets of $447.6 million, term loans and credit facility debt of $236.5
million, mortgage debt of $68.3 million and equity of $134.6 million at
June 30, 1998. During the six months ended June 30, 1998, Wellsford
Commercial earned $20.0 million in total revenues, primarily rental
income, and incurred $7.6 million of operating expenses, $6.7 million of
interest expense, $2.4 million of depreciation, and $1.3 million of
general and administrative expense, resulting in net income of $2.0
million. As of June 30, 1998, Wellsford Commercial owned 31 properties
containing approximately 4.1 million square feet located in the New
Jersey, Boston, and Washington D.C. areas.
In February 1998, Wellsford Commercial entered into an option agreement
to enter into a contribution agreement whereby a 972,000 square foot
("SF") portfolio of thirteen office buildings was contributed to
Wellsford Commercial for $148.7 million. In May 1998, Wellsford
Commercial completed this acquisition. The acquisition was financed
with (i) the assumption of $68.3 million of mortgage debt, (ii) a $35.8
million draw on Wellsford Commercial's revolver/term loan, (iii) the
issuance of $19.0 million of Wellsford Commercial 6% convertible
preferred units, (iv) $18.0 million of capital contributions, and (v)
the issuance of $7.6 million of Wellsford Commercial common units.
In February 1998, Wellsford Commercial acquired a 65,000SF office
building in Boston, MA for $5.5 million and 19 acres of undeveloped land
in Somerset, NJ for $2.0 million, which is adjacent to four buildings
currently owned by Wellsford Commercial.
In March 1998, Wellsford Commercial purchased an 80,000SF property for
approximately $5.4 million.
In May 1998, Wellsford Commercial acquired two warehouse buildings
totaling approximately 500,000SF for $28.4 million in Needham, MA.
Wellsford Commercial currently intends to convert the facilities into
first class office buildings. The two buildings are currently leased to
the Polaroid Corporation for a period of approximately 12 months.
In June 1998, Wellsford Commercial acquired an approximately 63,000SF
office building located in Andover, MA for approximately $7.4 million
and two office buildings totaling 100,000SF located in Basking Ridge, NJ
for approximately $15.0 million.
In July 1998, Wellsford Commercial restructured its existing $375
million revolver/term loan with BankBoston and Goldman Sachs Mortgage
Company. Under the new terms, $300 million represents a senior secured
credit facility bearing interest at LIBOR +1.65% and $75 million
represents a secured mezzanine facility bearing interest at LIBOR +3.2%.
Both facilities mature on December 15, 2000 and are extendable for one
year by WCPT.
Debt and Equity Activities
In January 1998, the Company acquired a 49% interest in Creamer Realty
Consultants, a real estate advisory and consulting firm, and formed
Creamer Vitale Wellsford, L.L.C. ("Creamer Vitale Wellsford").
Creamer Realty Consultants and Creamer Vitale Wellsford, together with
Prudential Real Estate Investors ("PREI"), a division of Prudential
Investment Corporation, have established the Clairborne Investors
Mortgage Investment Program to make opportunistic investments and to
provide liquidity to participants in large syndicated mortgage loan
transactions. The parties have agreed to contribute up to $150 million
to fund acquisitions approved by the parties, of which a subsidiary of
the Company will fund 10%. Creamer Vitale Wellsford will originate, co-
invest, and manage the investments of the program.
The Company's original investment in these entities was $1.3 million of
cash and 148,000 five-year warrants to purchase the Company's common
shares at $15.175 per share, valued at approximately $0.7 million.
In February 1998, the Company completed the previously announced merger
(the "VLP Merger") with Value Property Trust ("VLP") for total
consideration of approximately $169 million. Thirteen of the twenty VLP
properties, which were under contract to an affiliate of Whitehall, were
subsequently sold for an aggregate of approximately $64 million.
Approximately $4.7 million of the purchase price was recorded as a net
deferred tax asset reflecting the value of VLP's net operating loss
carryforwards. $48 million was drawn on the Company's credit facility
to finance the VLP Merger, which was subsequently repaid primarily from
the proceeds of the mortgage on Sonterra at Williams Centre (see below)
and cash received from VLP. The Company retained seven of the VLP
properties containing an aggregate of approximately 0.6 million square
feet located primarily in the northeastern U.S.
In December 1997, a subsidiary of the Company joined with Fleet Real
Estate, Inc. to advance $19.6 million under a subordinated credit
facility to Industrial Properties Holding, L.P. In February 1998, the
Company's $9.8 million portion of this loan was repaid, at which time
the Company received a total of $0.8 million in interest and fees.
In May 1998, the Company and Morgan Guaranty Trust Company of New York
expanded their secured credit facility to affiliates of the Abbey
Company, Inc. to $120 million (the "Abbey Credit Facility"). As of June
30, 1998, approximately $38.7 million had been advanced by the Company
under the Abbey Credit Facility. An additional $5.4 million was
advanced in August 1998. Under the terms of the related participation
agreement, the Company will fund a 50% junior participation on all
advances under the Abbey Credit Facility.
In July 1998, the Company funded an $18 million participation in a $175
million loan made by Bank One to the DeBartolo Group (the "DeBartolo
Loan"). The DeBartolo Loan is secured by partnership units in Simon
DeBartolo Group, L.P., a real estate investment trust which owns
approximately 175 million square feet of mall space nationwide. The
DeBartolo Loan bears interest at 8.547%, payable quarterly, pays
principal based on a 20 year amortization schedule and is due in June
2008.
In August 1998, the Company funded a $15 million participation in a $100
million unsecured loan to First Union Real Estate Investments ("First
Union"), a publicly traded real estate investment trust which owns 22
regional malls, eight multifamily apartment properties and five office
properties nationwide (the "First Union Loan"). The First Union Loan
bears interest at 9.875% and is due in February 1999 with two three-
month extensions available to First Union. First Union has also paid a
1.5% loan fee at origination.
Land and Development Operations
In January 1998, the Company acquired Sonterra at Williams Centre, a
344-unit class A residential apartment complex in Tucson, Arizona for
approximately $20.5 million. The Company had previously held a $17.8
million mortgage on the property.
In February 1998, the Company obtained a $16.4 million mortgage on
Sonterra at Williams Centre, bearing interest at 6.87% and having a term
of 10 years and principal payments based on a 30 year amortization
schedule.
In May 1998, the Company acquired the land for Phase IV of its Palomino
Park development located in a suburb of Denver, CO for approximately
$3.2 million.
Other
In January 1998, the $7.5 million then outstanding on the Company's
credit facility was repaid.
In March 1998, the Company issued additional options to purchase common
shares of the Company to two of its officers. Each of the two officers
received 100,000 options with an exercise price of $17.50 per share and
100,000 options with an exercise price of $20.00 per share. The options
have a term of 10 years and vest, in equal amounts, over five years.
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(continued)
Selected Financial Data By Industry Seqment
(table in thousands)
Commercial Land and
Property Debt and Equity Development
Operations Activities Operations Other Consolidated
------------------- ------------------- ------------------- ------------------- -------------------
Six Months Ended Six Months Ended Six Months Ended Six Months Ended Six Months Ended
June 30, June 30, June 30, June 30, June 30,
------------------- ------------------- ------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Rental income $ -- $ 588 $ 1,904 $ -- $ 4,040 $ -- $ -- $ -- $ 5,944 $ 588
Interest income -- -- 5,804 467 -- 801 302 320 6,106 1,588
-----------------------------------------------------------------------------------------------------------
Total Income -- 588 7,708 467 4,040 801 302 320 12,050 2,176
-----------------------------------------------------------------------------------------------------------
Operating expense -- 107 763 -- 1,232 -- -- -- 1,995 107
Depreciation and
amortization -- 106 258 -- 976 -- 217 8 1,451 114
Interest -- -- 237 -- 1,486 -- 32 -- 1,755 --
General and
administrative -- -- 184 -- -- -- 2,240 255 2,424 255
-----------------------------------------------------------------------------------------------------------
Total Expenses -- 213 1,442 -- 3,694 -- 2,489 263 7,625 476
-----------------------------------------------------------------------------------------------------------
Income from joint
ventures 2,380 -- 154 -- -- -- -- -- 2,534 --
Minority interest -- -- (27) -- (8) -- -- -- (35) --
-----------------------------------------------------------------------------------------------------------
Income (loss) before
taxes $2,380 $ 375 $ 6,393 $ 467 $ 338 $ 801 $(2,187) $ 57 $ 6,924 $ 1,700
===========================================================================================================
Total Assets $61,675 $51,658 $147,412 $25,000 $85,912 $43,113 $10,697 $75,780 $305,696 $195,551
===========================================================================================================
/TABLE
3. Earnings Per Share
In 1997, Financial Accounting Standards Board Statement ("SFAS") No. 128
"Earnings per Share" was issued. SFAS 128 replaced the calculation of
primary and fully diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per
share is very similar to fully diluted earnings per share. All earnings
per share amounts for all periods have been presented to conform to the
SFAS 128 requirements.
Basic earnings per common share are computed based upon the weighted
average number of common shares outstanding during the period, including
Class A common shares.
Diluted earnings per common share for the three and six months ended
June 30, 1998 and 1997 are based upon the increased number of common
shares that would be outstanding assuming the exercise of dilutive
common share options and warrants, under the treasury stock method as
shown below.
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Dilutive common
share options 307,217 28,325 317,127 14,163
Dilutive warrants 553,900 N/A 643,533 N/A
The Company was a corporate subsidiary of the Trust prior to the Spin-
off. Earnings per share was calculated using the weighted average
number of shares outstanding assuming that the Spin-off and the Private
Placement occurred on January 1, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. General
The Company is a real estate merchant banking firm which acquires,
develops and operates real properties and invests in the debt and equity
securities of private and public real estate companies. The Company has
established three strategic business units ("SBUs") within which it
intends to execute its business plan: an SBU for commercial property
operations which is held in its 99.9% subsidiary, Wellsford Commercial
Properties Trust ("WCPT"), an SBU for debt and equity activities and an
SBU for property development and land operations.
Commercial Property Operations - WCPT
The Company, through WCPT, seeks to acquire commercial properties below
replacement cost and operate and/or resell the properties after
renovation, redevelopment and/or repositioning. The Company believes
that appropriate well-located commercial properties which are currently
underperforming can be acquired on advantageous terms and repositioned
with the expectation of achieving returns which are greater than returns
which could be achieved by acquiring a stabilized property.
Debt and Equity Activities - dba Wellsford Capital Company
The Company makes loans that constitute, or will invest in, real estate-
related senior, junior or otherwise subordinated debt instruments, which
may be unsecured or secured by liens on real estate, interests therein
or the economic benefits thereof, and which have the potential for high
yields or returns more characteristic of equity ownership. These
investments may include debt that is acquired at a discount, mezzanine
financing, commercial mortgage-backed securities ("CMBS"), secured and
unsecured lines of credit, distressed loans, and loans previously made
by foreign and other financial institutions. The Company believes that
there are opportunities to acquire real estate debt, especially in the
low or below investment grade tranches, at significant returns as a
result of inefficiencies in pricing, while utilizing management's real
estate expertise to analyze the underlying properties and thereby
effectively minimizing risk.
Property Development and Land Operations- dba Wellsford Development
Company
The Company engages in selective development activities as opportunities
arise and when justified by expected returns. The Company believes that
by pursuing selective development activities it can achieve returns
which are greater than returns which could be achieved by acquiring
stabilized properties. Certain development activities may be conducted
in joint ventures with local developers who may bear the substantial
portion of the economic risks associated with the construction,
development and initial rent-up of properties. As part of its strategy,
the Company may seek to obtain bond financing from local governmental
authorities which generally bears interest at rates substantially below
rates available from conventional financing.
The principal asset of the property development and land operations SBU
is an 80% interest in Palomino Park, an 1,800 unit class A multifamily
development located in a suburb of Denver, Colorado. The Company
currently has invested $22.7 million through June 30, 1998 in the
following multifamily development project, which is the second phase of
Palomino Park, and related infrastructure costs:
Number Estimated Estimated
Name of Units Location Total Cost Stabilization Date
Red Canyon 304 Denver $33.6 million First Qtr. 1999
This project is being developed pursuant to a fixed-price contract. The
Company is committed to purchase 100% of this project upon completion
and the achievement of certain occupancy levels, which is anticipated to
occur at the date disclosed above.
Red Canyon is owned by Red Canyon at Palomino Park LLC ("Phase II LLC"),
a limited liability company, the members of which are Wellsford Park
Highlands Corp. (99%), a majority owned and controlled subsidiary of the
Company, and Al Feld ("Feld") (1%). Feld is a Denver-based developer
specializing in the construction of luxury residential properties. Feld
has constructed over 3,000 units since 1984.
The construction loan on Red Canyon is for approximately $29.5 million,
matures on September 29, 1999 (with a 6-month extension at the option of
the Phase II LLC upon fulfillment of certain conditions), and bears
interest at LIBOR plus 1.65%. Feld has guaranteed repayment of this
loan. An affiliate of EQR has agreed to purchase the Phase II
construction loan when due (the "EQR Take-out Commitment"), assuming
completion of construction, if it is not satisfied by the Phase II LLC
or by Feld pursuant to his guarantee, for the lesser of the loan balance
or the final agreed upon construction budget.
Risks Associated with Forward-Looking Statements.
This Form 10-Q, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company or industry results
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the following, which are discussed
in greater detail in the "Risk Factors" section of the Company's
registration statement on Form S-11 (file No. 333-32445) filed with the
Securities and Exchange Commission (the "Commission") on July 30, 1997,
as may be amended, which is incorporated herein by reference: general
economic and business conditions, which will, among other things, affect
demand for commercial and residential properties, availability and
credit worthiness of prospective tenants, lease rents and the
availability of financing; difficulty of locating suitable investments;
competition; risks of real estate acquisition, development, construction
and renovation; vacancies at existing commercial properties; dependence
on rental income from real property; adverse consequences of debt
financing; risks of investments in debt instruments, including possible
payment defaults and reductions in the value of collateral; risks
associated with equity investments in and with third parties;
illiquidity of real estate investments; lack of prior operating history;
and other risks listed from time to time in the Company's reports filed
with the Commission. Therefore, actual results could differ materially
from those projected in such statements.
2. Results of Operations
Comparison of the six months ended June 30, 1998 to the six months ended
June 30, 1997.
Capitalized terms used herein which are not defined elsewhere in this
Quarterly Report on Form 10-Q shall have the meanings ascribed to them
in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
Rental income increased by $5.4 million. This increase is a result of
the acquisition of properties in connection with the VLP Merger in
February 1998, the completion of Blue Ridge (Phase I of the Company's
Palomino Park development) in December 1997 and the acquisition of
Sonterra at Williams Centre in January 1998, net of the decrease
associated with the contribution of all of the Company's then owned
commercial properties to Wellsford Commercial in August 1997.
Interest income increased by $4.5 million. This increase is primarily a
result of the issuance of approximately $94.8 million in notes
receivable during the period from April 1997 through June 1998 bearing
interest at rates between LIBOR +3% and approximately LIBOR +6%; $28.8
million of notes receivable were repaid during this period.
Property operating and maintenance expense, real estate tax expense,
depreciation and amortization, and property management expense increased
by $1.2 million, $0.5 million, $1.3 million, and $0.2 million,
respectively. These increases are a result of the factors which
affected rental income, as described above.
Interest expense increased by $1.8 million as a result of the issuance
of substantially all of the Company's debt other than the Palomino Park
Bonds subsequent to June 30, 1997. Interest on the Palomino Park Bonds
was capitalized to the Company's Palomino Park development.
General and administrative expense increased $2.2 million. This
increase is a result of the Company commencing operations subsequent to
the Spin-off in May 1997, as well as the Company's growth over the last
year.
Income from joint ventures increased by $2.5 million. This increase is
a result of the Wellsford Commercial joint venture transaction in August
1997 and the Creamer Realty Consultants joint venture transaction in
January 1998.
Minority interest is a result of EQR's 20% interest in the Company's
Palomino Park development, as well as certain limited partnership
interests (aggregating approximately 10%) in one of the Company's
commercial office properties acquired in the VLP Merger.
The income tax provision increased as a result of the increase from
approximately $0.7 million of taxable income during the period from the
Spin-off through June 30, 1997 to approximately $6.9 million of taxable
income during the six months ended June 30, 1998.
3. Liquidity and Capital Resources
The Company expects to meet its short-term liquidity requirements
generally through its working capital and cash flow provided by
operations. The Company considers its ability to generate cash to be
adequate and expects it to continue to be adequate to meet operating
requirements both in the short and long terms.
The Company expects to meet its long-term liquidity requirements such as
refinancing mortgages, financing acquisitions and development, and
financing capital improvements by long-term borrowings, through the
issuance of debt and the offering of additional debt and equity
securities.
The Company has (i) the commitment, until May 30, 2000, of an affiliate
of EQR to acquire at the Company's option up to $25 million of the
Company's Series A 8% Convertible Redeemable Preferred Stock ("Series A
Preferred"), each share of which is convertible into shares of the
Company's common stock at a price of $11.124 (the "EQR Preferred
Commitment") and (ii) a $50 million two-year line of credit (extendable
for one year) from BankBoston, N.A. and Morgan Guaranty Trust Company of
New York (the "Line of Credit") which initially bears interest at an
annual rate equal to LIBOR plus 175 basis points. The EQR Preferred
Commitment is pledged as security for the Line of Credit. If at May 30,
2000, the affiliate of EQR has purchased less than $25 million of Series
A Preferred, it has the right to purchase the remainder of the $25
million not purchased prior to that time. As of June 30, 1998, no
balance was outstanding under the Line of Credit.
Creamer Realty Consultants and Creamer Vitale Wellsford, together with
PREI, have established the Clairborne Investors Mortgage Investment
Program to make opportunistic investments and to provide liquidity to
participants in large syndicated mortgage loan transactions. The
parties have agreed to contribute up to $150 million to fund
acquisitions approved by the parties, of which a subsidiary of the
Company will fund 10%. Creamer Vitale Wellsford will originate, co-
invest, and manage the investments of the program.
Wellsford Commercial has a $375 million loan facility (the "Wellsford
Commercial Bank Facility") from BankBoston, N.A. and Goldman Sachs
Mortgage Company, consisting of a secured term loan facility of up to
$225 million and a secured revolving credit facility of up to $150
million. The term loan facility bears interest at LIBOR +1.6% and has a
term of four years; the revolving credit facility bears interest at
LIBOR +2.5% and has a term of three years, which may be renewed by
Wellsford Commercial for one additional year. As of June 30, 1998,
approximately $236.5 million was outstanding under the Wellsford
Commercial Bank Facility ($131.5 million of which was under the term
loan). The Wellsford Commercial Bank Facility was restructured in July
1998 with the same lenders. Under the new terms, $300 million
represents a senior secured credit facility bearing interest at LIBOR
+1.65% and $75 million represents a secured mezzanine facility bearing
interest at LIBOR +3.2%. Both facilities mature on December 15, 2000
and are extendable for one year by WCPT.
PART II.
OTHER INFORMATION
Item 1: Legal Proceedings - Not Applicable.
Item 2: Changes in Securities - Not Applicable.
Item 3: Defaults upon Senior Securities - Not Applicable.
Item 4: Submission of Matters to a Vote of Security Holders
On May 28, 1998, the Company held its annual meeting of
shareholders. A total of 16,228,946 common shares,
representing approximately 81% of the 20,009,882 common shares
outstanding and entitled to vote, and 339,806 Class A common
shares representing 100% of the Class A common shares
outstanding and entitled to vote, as of the record date (April
15, 1998) were represented in person or by proxy vote and
constituted a quorum. The Company's common shares and Class A
common shares are hereinafter referred to as the "Common
Shares".
At the meeting, Edward Lowenthal and Rodney F. Du Bois were
reelected as directors to terms expiring at the 2001 annual
meeting of shareholders. Each of the reelected directors
received the affirmative vote of at least 16,543,068 Common
Shares representing approximately 81% of the Common Shares
voted. The terms of the five other trustees, Jeffrey H.
Lynford, Douglas Crocker II, Mark S. Germain, Frank J.
Hoenemeyer, and Frank J. Sixt continued after the meeting.
The shareholders also ratified the appointment of Ernst &
Young LLP as the Company's independent public accountants for
the fiscal year ending December 31, 1998 by the affirmative
vote of 16,561,719 Common Shares. 2,791 Common Shares voted
against the proposal, 3,242 Common Shares abstained from
voting and 1,000 Common Shares constituted broker non-votes.
The shareholders also approved the Company's 1998 Management
Incentive Plan by the affirmative vote of 13,738,974 Common
Shares. 312,232 Common Shares voted against the proposal,
12,182 Common Shares abstained from voting and 2,505,364
Common Shares constituted broker non-votes.
Item 5: Other Information
Shareholder Proposals
Any shareholder proposal submitted outside the processes of
Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), for presentation at the
Company's 1999 Annual Meeting will be considered untimely for
purposes of Rules 14a-4 and 14a-5 under the Exchange Act if
notice of such shareholder proposal is received by the Company
after March 13, 1999.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Form 10-Q:
27.1 Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K filed by the registrant during its
fiscal quarter ended June 30, 1998:
- Form 8-K, dated and filed with the Commission on
April 28, 1998, reporting information under Item 2
and Item 7 relating to Wellsford Commercial's
acquisition of the Saracen Portfolio.
- Form 8-K/A Amendment No. 1, dated April 28, 1998 and
filed with the Commission on May 13, 1998,
containing the (i) audited combined statement of
revenues and certain expenses for the year ended
December 31, 1997 of the Saracen Properties and (ii)
unaudited pro forma consolidated income statement
for the year ended December 31, 1997 of the Company
as a result of the acquisition of the Saracen
Portfolio.
- Form 8-K/A Amendment No. 2, dated May 15, 1998 and
filed with the Commission on May 28, 1998, reporting
information under Item 2 relating to Wellsford
Commercial's closing of the acquisition of the
Saracen Portfolio.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLSFORD REAL PROPERTIES, INC.
By: /s/ Jeffrey H. Lynford
__________________________________________________
Jeffrey H. Lynford, Chairman of the Board
/s/ Gregory F. Hughes
__________________________________________________
Gregory F. Hughes, Chief Financial Officer
Dated: August 14, 1998