SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
- --------------------------------------------------------------------------
FORM 10-K
- --------------------------------------------------------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998 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 001-12917
WELLSFORD REAL PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 13-3926898
(State of organization) (I.R.S. employer
identification number)
535 Madison Avenue, New York, NY 10022
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 838-3400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock
$.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 and (2) has 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 voting shares held by non-affiliates of the
registrant was approximately $192.4 million based on the closing price on the
American Stock Exchange for such shares on March 8, 1999.
The number of the Registrant's shares of Common Stock outstanding was
20,750,411 as of March 8, 1999 (including 339,806 shares of Class A Common
Stock).
Documents Incorporated By Reference
Portions of the Definitive Proxy Statement for the Annual Shareholders'
Meeting to be held May 17, 1999 are incorporated by reference into Part III.
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
- ---------------------------------------------------------------------------
Form
10-K
Item Report
No. Page
- ---- ------
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . .10
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . .11
4. Submission of Matters to a Vote of Security-Holders . . . .11
PART II
5. Market for Registrant's Common Equity
and Related Shareholder Matters. . . . . . . . . . . .12
6. Selected Consolidated Financial Data. . . . . . . . . . . .13
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . .14
7a. Quantitative and Qualitative Disclosures about Market
Risk . . . . . . . . . . . . . . . . . . . . . . . . . . ..20
8. Consolidated Financial Statements and Supplementary Data. .21
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . .21
PART III
10. Directors and Executive Officers of the Registrant. . . . .22
11. Executive Compensation. . . . . . . . . . . . . . . . . . .22
12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . .22
13. Certain Relationships and Related Transactions. . . . . . .22
PART IV
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . .23
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1998 and
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . F-4
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 1998, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . F-7
Wellsford/Whitehall Properties II, L.L.C. Consolidated
Financial Statements and Notes . . . . . . . . . . . . .F-28
FINANCIAL STATEMENTS SCHEDULE
III. Real Estate and Accumulated Depreciation. . . . . . . . . S-1
IV. Mortgage Loans on Real Estate . . . . . . . . . . . . . . S-2
All other schedules have been omitted because the required information for
such other schedules is not present, is not present in amounts sufficient to
require submission of the schedule or is included in the consolidated
financial statements.
PART I
Item 1. Business
Wellsford Real Properties, Inc. (and subsidiaries, collectively, the
"Company") was formed on January 8, 1997, as a corporate subsidiary of
Wellsford Residential Property Trust (the "Trust"). The Trust was formed in
1992 as the successor to Wellsford Group Inc. (and affiliates) which was
formed in 1986. 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 headquartered in New York
City which acquires, develops, finances and operates real properties and
organizes and invests in private and public real estate companies. The
Company has established three strategic business units ("SBUs") within which
it executes its business plan: an SBU for commercial property operations
which is held in its subsidiary, Wellsford/Whitehall Properties II, L.L.C.,
an SBU for debt and equity activities and an SBU for property development and
land operations. The Company currently has approximately 35 employees and
offices in New York, NY, Boston, MA, Chatham, NJ and Denver, CO.
See the accompanying consolidated financial statements for certain financial
information regarding the Company's industry segments.
Commercial Property Operations - Wellsford/Whitehall
- ----------------------------------------------------
The Company 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.
In August 1997 the Company, in a joint venture with WHWEL Real Estate Limited
Partnership ("Whitehall"), an affiliate of Goldman, Sachs & Co., formed a
private real estate operating company, now known as Wellsford/Whitehall
Properties II, L.L.C. ("Wellsford/Whitehall"). Wellsford/Whitehall's initial
target markets include New York, New Jersey, Connecticut and the Boston and
Washington D.C. metropolitan areas. The Company manages Wellsford/Whitehall
on a day-to-day basis, and certain major decisions require the consent of
both partners. The Company had a 47.7% interest in Wellsford/Whitehall at
December 31, 1998.
Wellsford/Whitehall owned and operated 35 office buildings containing
approximately 4.6 million square feet ("SF") of office space in its target
markets as of December 31, 1998, including approximately 1.4 million SF under
renovation, with an aggregate gross book value of approximately $501.7
million.
In February 1998, Wellsford/Whitehall 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/Whitehall.
In March 1998, Wellsford/Whitehall purchased an 82,000SF property in
Somerset, NJ for approximately $5.4 million.
In May 1998, Wellsford/Whitehall completed the acquisition of a 977,000SF
portfolio of 13 office buildings for $148.7 million (the "Boston Portfolio").
The Boston Portfolio was financed with (i) the assumption of $68.3 million of
mortgage debt (the "Nomura Mortgage"), (ii) $35.8 million of borrowings on
Wellsford/Whitehall's revolver/term loan, (iii) the issuance of $19.0 million
of Wellsford/Whitehall 6% convertible preferred units, (iv) $18.0 million of
capital contributions and (v) the issuance of $7.6 million of
Wellsford/Whitehall common units.
In May 1998, Wellsford/Whitehall acquired two warehouse buildings totaling
approximately 470,000SF for $28.4 million in Needham, MA.
Wellsford/Whitehall intends to convert the facilities into office buildings.
The two buildings were concurrently leased to the Polaroid Corporation for a
period of approximately 12 months.
In June 1998, Wellsford/Whitehall acquired an approximately 63,000SF office
building located in Andover, MA for approximately $7.4 million and two office
buildings totaling 104,000SF located in Basking Ridge, NJ for approximately
$15.0 million.
In July 1998, Wellsford/Whitehall modified its existing $375 million
revolver/term loan with BankBoston, N.A. ("BankBoston") and Goldman Sachs
Mortgage Company (the "Wellsford/Whitehall Bank Facility"). 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 Wellsford/Whitehall. As of
December 31, 1998, approximately $276.2 million was outstanding under the
Wellsford/Whitehall Bank Facility ($207.3 million of which was under the
senior facility).
In September 1998, Wellsford/Whitehall purchased two office buildings
totaling approximately 199,000SF in Franklin Township, NJ for approximately
$22.8 million.
In November 1998, Wellsford/Whitehall purchased a 38,000SF office building in
Columbia, MD for approximately $2.6 million.
In December 1998, Wellsford/Whitehall purchased a 147,000SF office building
in Ridgefield Park, NJ for approximately $19.3 million.
The 1998 Wellsford/Whitehall acquisitions described above, other than the
Boston Portfolio, were funded primarily by capital contributions from the
Company and Whitehall, and by borrowing on the Wellsford/Whitehall Bank
Facility.
The Company is entitled to incentive compensation equal to (a) 17.5% of
available cash after a return of capital to the Company and Whitehall and a
17.5% return on equity to each of them, and (b) 22.5% of available cash after
a 22.5% return on equity to the Company and Whitehall. The Company and
Whitehall have committed to make additional equity contributions of $50
million each for new acquisitions, capital needs, and working capital, of
which $13.6 million remained unfunded by each at December 31, 1998. Whitehall
may exchange the membership units it receives in Wellsford/Whitehall relating
to capital contributions in excess of an additional $25 million up to an
additional $50 million, for shares of the Company's common stock or, in the
Company's sole discretion, cash, based upon the price paid for such
membership units and the current market value of the Company's common stock.
In connection with the formation of Wellsford/Whitehall, the Company issued
warrants (the "Whitehall Warrants") to Whitehall to purchase 4,132,230 shares
of the Company's common stock at an exercise price of $12.10 per share. The
Whitehall Warrants are exercisable for five years for either, at the
Company's option, shares of the Company's common stock or cash. The exercise
price for the Whitehall Warrants is payable in cash or, after August 28,
1999, either with cash or membership units in Wellsford/Whitehall.
The Company has agreed with Whitehall to conduct its business and activities
relating to office properties (but not other types of commercial properties)
located in North America solely through its interest in Wellsford/Whitehall
except, in certain circumstances, where Wellsford/Whitehall has declined the
investment opportunity.
Debt and Equity Activities - dba Wellsford Capital
- --------------------------------------------------
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. At December 31, 1998,
the Company had $124.7 million of debt investments which bore interest at an
average yield of approximately 4.6% over LIBOR and had an average remaining
term to maturity of 4.1 years.
277 Park
The Company and BankBoston have provided an $80 million loan (the "277 Park
Loan") to entities which own substantially all of the equity interests (the
"Equity Interests") in the entity which owns an approximately 1.75 million SF
office building located in New York City (the "277 Park Property"). The
Company has advanced $25 million pursuant to the 277 Park Loan. The 277 Park
Loan is secured primarily by a pledge of the Equity Interests owned by the
borrowers. The 277 Park Loan is subordinated to a 10-year $345 million first
mortgage loan (the "REMIC Loan") on the 277 Park Property. The 277 Park Loan
bears interest at the rate of approximately 12% per annum for the first nine
years of its term and at a floating annual rate during the tenth year equal
to LIBOR plus 5.15% or BankBoston base rate plus 5.15%, as elected by the
borrowers. The principal amount of the 277 Park Loan and all accrued
interest will be payable in May 2007; the REMIC Loan is also due in May 2007.
The Abbey Company
In August 1997, the Company and Morgan Guaranty Trust Company of New York
("MGT") originated a $70 million secured credit facility (the "Abbey Credit
Facility") to affiliates of The Abbey Company, Inc. ("Abbey"). In May 1998,
the Company and MGT expanded the Abbey Credit Facility to $120 million. In
December 1998, Abbey repaid $20 million, thereby reducing the total available
to $100 million.
The Abbey Credit Facility will be made available to Abbey until September
2000. Advances under the facility can be made for up to 65% of the value of
the borrowing base collateral which consisted of 24 properties, all cross-
collateralized, totaling approximately 1.7 million SF at December 31, 1998.
As of December 31, 1998, approximately $46.0 million had been advanced by the
Company under the Abbey Credit Facility. Under the terms of its
participation agreement with MGT, the Company will fund a 50% junior
participation on all advances under the Abbey Credit Facility.
The Company is entitled to receive interest on its advances under the Abbey
Credit Facility at LIBOR plus 4%.
IPH Mezzanine Facility
In December 1997, Wellsford Ventures, Inc. ("Ventures"), a wholly-owned
subsidiary of the Company, joined with Fleet Real Estate, Inc. ("FRE"), a
subsidiary of Fleet Financial Group, to issue an approximately $32.5 million
subordinated credit facility (the "IPH Mezzanine Facility") to Industrial
Properties Holding, L.P. ("IPH"). Each of Ventures and FRE were committed to
advance up to 50% of the IPH Mezzanine Facility. Ventures advanced
approximately $9.8 million under the JPH Mezzanine Facility. The IPH
Mezzanine Facility was repaid in February 1998, at which time the Company
received a total of $0.8 million in interest and fees. Advances under the IPH
Mezzanine Facility bore interest at an annual rate of LIBOR plus 5%.
Woodlands
In December 1997, BankBoston, Morgan Stanley Senior Funding, Inc. and certain
other lenders made available to the owners and developers of a 25,000 acre
master-planned residential community located north of Houston (the "Woodlands
Property"), loans in the aggregate principal amount of $369 million (the
"Woodlands Loan"). The Woodlands Loan consists of a revolving credit loan in
the principal amount of $179 million (the "Revolving Loan"), a secured term
loan in the principal amount of $130 million (the "Secured Loan"), and a
second secured term loan in the principal amount of $60 million (the "Second
Secured Loan"). The Company has advanced $15 million pursuant to the Second
Secured Loan. The Second Secured Loan is subordinate to the Revolving Loan
and the Secured Loan and bears interest equal to LIBOR plus 4.40%. Interest
on the Second Secured Loan is payable monthly to the extent there is
available cash after payment of interest on the Revolving Loan and the
Secured Loan and provided no event of default has occurred under the
Woodlands Loan. The principal amount of the Woodlands Loan and all accrued
interest thereon will be payable on July 31, 2000, with two, one-year
extension options available to the borrower.
Park 80
In December 1997, the Company originated a $5.1 million loan bearing interest
at LIBOR plus 3% which was repaid in August 1998 (the "Park 80 Loan"). The
Park 80 Loan was secured by a mortgage on an 80,000SF mid-rise office
building in Saddlebrook, New Jersey.
Value Property Trust
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. As of December 31, 1998, approximately $5.1
million was recorded as a net deferred tax asset reflecting the value of
VLP's net operating loss carryforwards. 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. 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 October 1998, the Company closed on $28 million of non-recourse mortgage
financing (the "Wellsford Capital Mortgage") on the portfolio of seven
commercial properties acquired in the VLP Merger. The loan bears interest at
LIBOR + 2.75 % and has a term of three years. The proceeds were used to repay
amounts outstanding on the Company's credit facility and for working capital
purposes.
Clairborne Investors
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 November 1998,
Creamer Vitale Wellsford acquired a $17 million participation in a $56
million mortgage, bearing interest at LIBOR + 1.75% and due in 3.5 years, at
a significant discount to face value. The Company funded approximately $1.4
million of this participation.
DeBartolo
In July 1998, the Company purchased an $18 million participation in a $175
million loan (the "DeBartolo Loan"). The DeBartolo Loan is secured by
partnership units in Simon DeBartolo Group, L.P., the operating partnership
of 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 July 2008.
REIT Bridge Loan
In August 1998, the Company funded a $15 million participation in a $100
million unsecured loan (the "REIT Bridge Loan") to a publicly traded real
estate investment trust which owns 22 regional malls, eight multifamily
apartment properties and five office properties nationwide. This loan bore
interest at 9.875% and was due in February 1999 with two three-month
extensions available to the borrower. In January 1999, the REIT Bridge Loan
was modified to extend the maturity date to August 1999 and increase the
interest rate to 12%. The borrower paid a 1.5% loan fee at origination and a
1% loan fee upon modification.
Liberty Hampshire
In July and August 1998, the Company invested a total of $2.1 million in The
Liberty Hampshire Company, L.L.C. ("Liberty Hampshire") which structures,
establishes and provides management and services for special purpose finance
companies ("SPFCs") formed to invest in financial assets. The Company also
invested a total of $5.0 million in a joint venture SPFC with Liberty
Hampshire. This SPFC has invested in a participation in the DeBartolo Loan
and has acquired an interest in REIS Reports, Inc., a leading provider of
real estate market information to institutional investors.
Safeguard
In December 1998, the Company and MGT originated a $90 million secured credit
facility (the "Safeguard Credit Facility") to Safeguard Capital Fund, L.P.
("Safeguard").
The Safeguard Credit Facility will be made available to Safeguard until April
2001. Advances under the facility can be made for up to 75% of the value of
the borrowing base collateral which consisted of 4 properties, all cross-
collateralized, totaling approximately 0.3 million SF at December 31, 1998.
As of December 31, 1998, approximately $5.9 million had been advanced by the
Company under the Safeguard Credit Facility. Under the terms of its
participation agreement with MGT, the Company will fund a 50% junior
participation on all advances under the Safeguard Credit Facility.
The Company is entitled to receive interest on its advances under the
Safeguard Credit Facility at LIBOR plus 4%.
Property Development and Land Operations - dba Wellsford Development
- --------------------------------------------------------------------
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
issue tax-exempt bond financing authorized by local governmental authorities
which generally bears interest at rates substantially below rates available
from conventional financing.
Palomino Park
The Company owns an approximate 80% interest in Phases I, II, III and IV of,
and in an option to acquire (at a fixed price) and develop phase V of, a
1,800-unit class A multifamily development ("Palomino Park") in a suburb of
Denver, Colorado. The Company has a related $14.8 million tax exempt
mortgage note payable which requires interest only payments at a variable
rate (currently approximately 4%) until it matures in December 2035 (the
"Palomino Park Bonds"). The tax exempt mortgage note payable is security for
tax-exempt bonds, which are backed by a letter of credit from a AAA rated
financial institution. The Company and an affiliate of EQR have guaranteed
the reimbursement of the financial institution in the event that the letter
of credit is drawn upon (the latter guarantee being the "EQR Enhancement").
In December 1997, Phase I, known as Blue Ridge, was completed at a cost of
approximately $41.5 million. At that time, the Company obtained a $34.5
million permanent loan (the "Blue Ridge Mortgage") secured by a mortgage on
Blue Ridge. The Blue Ridge Mortgage matures in January 2008 and bears
interest at a fixed rate of 6.92%. Principal payments are based on a 30-year
amortization schedule.
In November 1998, Phase II, known as Red Canyon, was completed at a cost of
approximately $33.9 million. At that time, the Company acquired Red Canyon
and the related construction loan was repaid with the proceeds of a $27
million permanent loan (the "Red Canyon Mortgage") secured by a mortgage on
Red Canyon. The Red Canyon Mortgage matures in December 2008 and bears
interest at a fixed rate of 6.68%. Principal payments are based on a 30-year
amortization schedule.
The Company has a gross investment of approximately $18.8 million at December
31, 1998 in the following multifamily development project, which is a phase
of Palomino Park, and related infrastructure costs:
Number of Estimated Estimated
Name Units Location Total Cost Stabilization Date
- ---- --------- -------- ---------- ------------------
Silver Mesa 264 Denver $40.0 million Second Qtr. 2000
This project is being developed pursuant to a fixed-price contract. The
Company is committed to purchase 100% of this project upon completion, which
is anticipated to occur in the second quarter of 2000. In addition, the
Company is obligated to fund the first 20% of construction costs on this
project as they are incurred.
Silver Mesa is owned by Silver Mesa at Palomino Park LLC ("Phase III 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 Silver Mesa is for approximately $27.7 million,
matures in June 2001 (with a 6-month extension at the option of the Phase III
LLC upon fulfillment of certain conditions), and bears interest at LIBOR plus
1.50%. Feld has guaranteed repayment of this loan.
In May 1998, the Company acquired the land for Phase IV for approximately
$3.2 million.
Sonterra
From the time of the Spin-off, the Company held a $17.8 million mortgage (the
"Sonterra Loan") on, and option to purchase, a 344-unit class A residential
apartment complex ("Sonterra at Williams Centre") located in Tucson, Arizona.
In January 1998, the Company exercised its option and acquired Sonterra at
Williams Centre for approximately $20.5 million, including satisfaction of
the mortgage. In February 1998, the Company closed on $16.4 million of
mortgage financing (the "Sonterra Mortgage") on this property, bearing
interest at 6.87% and maturing in March 2008. Principal payments are based
on a 30-year amortization schedule.
Segment Financial Information
See Note 10 to the Company's consolidated financial statements for additional
information regarding the Company's industry segments.
Future Investments
The Company may in the future make equity investments in entities owned
and/or operated by unaffiliated parties and which engage in real estate-
related businesses and activities or businesses that service the real estate
industry. Some of the entities in which the Company may invest may be start-
up companies or companies in need of additional capital. The Company may
also manage and lease properties owned by it or in which it has an equity or
debt investment.
Item 2. Properties.
Wellsford/Whitehall owned the following commercial properties and land
parcels at December 31, 1998:
Decem-
ber
Year 31,
Gross Con- 1998
Area structed/ 1998 En-
(square Rehabili- Occu- cum-
Property Location feet) tated pancy brance
- -------- -------- ------- --------- ----- ---
1800 Valley Road Wayne, NJ 56,000 1980 100% (A)
Greenbrook Fairfield, NJ 201,000 1987 91% (A)
Chatham Chatham, NJ 63,000 1972/1997 52% (A)
300 Atrium Drive Somerset, NJ 149,000 1983 77% (A)
400 Atrium Drive Somerset, NJ 355,000 1985 97% (A)
500 Atrium Drive Somerset, NJ 167,000 1984 87% (A)
700 Atrium Drive Somerset, NJ 181,000 1985 97% (A)
1275 K Street Washington, DC 225,000 1983 78% (A)
Mountain Heights #1 Berkeley Hts, NJ 183,000 1986 92% (A)
15 Broad Street Boston, MA 65,000 1920/1984 81% (A)
GS Exhibit Center Somerset, NJ 82,000 1968/1989 52% (A)
150 Wells Newton, MA 11,000 1987 100% (A)
72 River Park Needham, MA 22,000 1983 100% (A)
70 Wells Newton, MA 29,000 1979 100% (A)
160 Wells Newton, MA 19,000 1970/1997 100% (A)
2331 Congress Portland, ME 24,000 1980 84% (A)
60/74 Turner Waltham, MA 16,000 1970 100% (A)
100 Wells Newton, MA 21,000 1978 100% (A)
333 Elm (Norfolk Pl) Dedham, MA 48,000 1983 92% (A)(B)
Dedham Place Dedham, MA 160,000 1987 99% (A)(B)
128 Technology Ctr Waltham, MA 218,000 1986 100% (A)(B)
201 University Westwood, MA 82,000 1982 100% (A)(B)
7/57 Wells Newton, MA 88,000 1982 88% (A)(B)
75/85/95 Wells Newton, MA 242,000 1976/1986 100% (A)(B)
Shattuck Andover, MA 63,000 1985 100% (A)
Mt Airy Basking Ridge, NJ 104,000 1980 75% (A)
Campus Drive Franklin Twp, NJ 199,000 1984 100% (A)
Samsung Ridgefield Park, NJ 147,000 1992 66% (A)
Pointview Wayne, NJ 515,000 1976/1998 N/A* (A)
Morris Tech Ctr Parsippany, NJ 244,000 1963/77/98 N/A* (A)
Mountain Heights #2 Berkeley Hts, NJ 115,000 1968/1998 N/A* (A)
117 Kendrick St Needham, MA 209,000 1963 100%* (A)
140 Kendrick St Needham, MA 261,000 1963 100%* (A)
600 Atrium Drive
(land) Somerset, NJ N/A N/A N/A* (A)
6301 Stevens Forest Columbia, MD 38,000 1980 N/A* (A)
---------- ---
TOTAL/AVERAGE 4,602,000 90%
========== ===
*Building under renovation, not included in average.
(A) Encumbered by the Wellsford/Whitehall Bank Facility.
(B) Encumbered by the Nomura Mortgage.
Wellsford Capital owned the following commercial properties at December 31,
1998, which are encumbered by the $28.0 million Wellsford Capital Mortgage:
Year
Gross Con-
Area structed/ 1998
(square Reha- Occu-
Property Location feet) bilitated pancy
- -------- -------- ------- --------- -----
Hoes Lane Piscataway, NJ 37,000 1987 83%
Bradford Plaza West Chester, PA 124,000 1990 83%
Chestnut Street Philadelphia, PA 50,000 1857/1990 90%
Keewaydin Drive Salem, NH 125,000 1973 54%
Turnpike Street Canton, MA 43,000 1980 100%
Two Executive Cherry Hill, NJ 102,000 1970 68%
Bay City Holdings Santa Monica, CA 114,000 1985 100%
------- ----
TOTAL/AVERAGE 595,000 80%
======= ====
The Company owned the following multifamily properties at December 31, 1998:
Year
Con- December
structed/ 31, 1998
Reha- 1998 Encum-
Property Location Units bilitated Occupancy brance
-------- -------- ----- --------- --------- ---------
Blue Ridge Denver, CO 456 1997 93% $34,144,108
Red Canyon Denver, CO 304 1998 96%(A) 27,000,000
Sonterra Tucson, AZ 344 1995 94% 16,277,682
----- -------------------------
TOTAL/AVERAGE 1,104 93% $77,421,790
===== =========================
(A) Property acquired in November 1998, not included in average occupancy.
Item 3. Legal Proceedings.
Neither the Company nor Wellsford/Whitehall are presently defendants in any
material litigation nor, to the Company's knowledge, is any material
litigation threatened against the Company or Wellsford/Whitehall other than
routine litigation arising in the ordinary course of business and which is
expected to be covered by liability insurance.
Item 4. Submission of Matters to a Vote of Security-Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.
(C) Market Information
The Company's common shares are traded on the American Stock Exchange under
the symbol "WRP". The high and low sales prices for the common shares on the
American Stock Exchange and the dividends declared since the Company's
inception are as follows:
Common Shares
---------------------------------
1998 High Low Dividends
---- ---- --- ---------
1st Quarter $15.63 $13.25 N/A
2nd Quarter $15.38 $13.00 N/A
3rd Quarter $14.88 $ 9.00 N/A
4th Quarter $10.50 $ 6.75 N/A
Common Shares
---------------------------------
1997 High Low Dividends
---- ---- --- ---------
June 2 - June 30 $11.19 $10.50 N/A
3rd Quarter $16.13 $10.81 N/A
4th Quarter $17.25 $14.25 N/A
(D) Holders
The approximate number of holders of record of the common shares and Class A
common shares (collectively, "Common Shares" or "Common Stock") were 3,200
and 1, respectively, as of March 8, 1999. These holders represent the
interests of approximately 7,000 beneficial shareholders.
(C) Dividends
The Company paid no dividends during 1997 or 1998. The Company does not plan
to distribute dividends for the foreseeable future, which will permit it to
accumulate, for reinvestment, cash flow from investments, disposition of
investments and other business activities.
Item 6. Selected Consolidated Financial Data.
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the consolidated financial
statements included elsewhere in this Form 10-K.
Prior to the Company's 1997 investments, the Company's operations consisted
of earning interest income on the Sonterra Mortgage (originated in July 1996)
and the initial phase of construction development activity with respect to
Palomino Park.
Summary
Consolidated Statement of
Operations Data Year Ended December 31,
- ------------------------- ---------------------------------------------
(in thousands except per share data)
1998 1997 1996
---- ---- ----
Revenues $ 26,154 $ 9,070 $ 757
Expenses (17,383) (3,819) --
Income from joint ventures 3,523 15 --
--------- --------- --------
Income before taxes $ 12,294 $ 5,266 $ 757
========= ========= ========
Net income $ 9,444 $ 3,053 $ 757
========= ========= ========
Net income per
common share, basic $ 0.47 $ 0.18 $ 0.04
========= ========= ========
Net income per common
share, diluted $ 0.46 $ 0.18 $ 0.04
========= ========= ========
Weighted average number of
common shares outstanding 19,886 16,922 16,912
====== ====== ======
Summary
Consolidated Balance
Sheet Data December 31,
- ---------------------- ---------------------------------------------------
(in thousands except per share data)
1998 1997 1996 1995
---- ---- ---- ----
Real estate $150,322 $ 58,741 $ -- $ --
Notes receivable 124,706 105,632 17,800 --
Investment in joint ventures 80,776 44,780 -- --
Total assets 384,971 249,974 44,760 18,369
Mortgage notes payable 120,177 49,255 14,755 14,755
Credit facility 17,000 7,500 -- --
Shareholders' equity 231,625 181,158 30,005 3,614
The earnings per share amounts conform with Statement of Financial Accounting
Standards No. 128 "Earnings per share". For further discussion of earnings
per share and the impact of Statement No. 128, see the notes to the
consolidated financial statements beginning on page F-7.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Form 10-K.
Results of Operations
- ---------------------
Prior to the Company's 1997 investments, the Company's operations consisted
of earning interest income on the Sonterra Loan (originated in July 1996) and
the initial phase of construction development activity with respect to
Palomino Park. Therefore, the increases in operating revenues and expenses
between 1996 and 1997 reflected in the financial statements are the result of
the acquisition of primarily all of the Company's operating assets during
1997.
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.
Comparison of the year ended December 31, 1998 to the year ended December 31,
1997.
Rental income increased by $11.8 million. This increase is a result of the
acquisition of properties in connection with the VLP Merger in February 1998
($4.7 million), the completion of Blue Ridge ($5.3 million) and Red Canyon
($0.4 million) (Phases I and II of the Company's Palomino Park development)
in December 1997 and November 1998, respectively, and the acquisition of
Sonterra at Williams Centre in January 1998 ($2.7 million), net of the
decrease associated with the contribution of all of the Company's then owned
commercial properties to Wellsford/Whitehall in August 1997.
Interest income increased by $5.1 million. This increase is primarily a
result of the acquisition of approximately $157.5 million in notes receivable
during the period from April 1997 through December 1998 bearing interest at
rates between LIBOR +2% and approximately LIBOR +6% offset by the repayment
of $60.0 million of notes receivable during this period.
Property operating and maintenance expense, real estate tax expense,
depreciation and amortization, and property management expense increased by
$2.5 million, $1.1 million, $2.9 million, and $0.5 million, respectively.
These increases are a result of the factors which affected rental income, as
described above.
Interest expense increased by $4.6 million as a result of the issuance of
substantially all of the Company's debt other than the Palomino Park Bonds on
or after December 31, 1997. All of the interest on the Company's debt prior
to December 31, 1997 was capitalized to the Company's Palomino Park
development.
General and administrative expense increased by $1.9 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.
Gain on sale of investments results from the sale of certain notes receivable
acquired in the VLP Merger.
Income from joint ventures increased by $3.5 million. This increase is a
result of the Wellsford/Whitehall joint venture transaction in August 1997,
the Creamer Realty Consultants joint venture transaction in January 1998 and
the Liberty Hampshire joint venture transaction in July 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. These limited partnership interests
were bought out by the Company in October 1998 for approximately $1.1
million.
The income tax provision increased $0.6 million as a result of the increase
from approximately $4.2 million of taxable income during the period from the
Spin-off through December 31, 1997 to approximately $12.3 million of taxable
income during the year ended December 31, 1998, net of the effects of the
utilization of the net operating loss carry forwards acquired in the VLP
Merger ($2.2 million).
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 common stock at a price of
$11.124 (the "EQR Preferred Commitment") and (ii) a $50 million two-year line
of credit (extendible for one year) from BankBoston and MGT (the "WRP Bank
Facility") which initially bears interest at an annual rate equal to LIBOR
+175 basis points. The EQR Preferred Commitment is pledged as security for
the WRP Bank Facility. 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 December 31, 1998, $17 million was outstanding under the WRP Bank
Facility which was repaid in January 1999.
With respect to its Palomino Park investment, the Company has obtained a
guarantee provided by the EQR Enhancement of $14.8 million.
The Company's long-term debt matures as follows: $17.8 million in 1999
(including the $17.0 million balance of the WRP Bank Facility which was
repaid in January 1999), $0.9 million in 2000, $29.0 million in 2001, $1.0
million in 2002, $1.1 million in 2003 and $87.4 million thereafter.
The WRP Bank Facility contains various customary loan covenants and requires
the Company to maintain a ratio of total consolidated liabilities to total
consolidated assets of not more than 0.6 to 1, to maintain an overall debt
service coverage ratio of at least 1.5 to 1 and to meet certain minimum
borrowing base and equity level requirements. The WRP Bank Facility also
limits the amount of undeveloped land the Company may hold.
For a discussion of the Company's development communities and related capital
commitments, see "Item 1. Business - Property Development and Land
Investments - dba Wellsford Development."
On June 2, 1997, the Company completed a Private Placement. The proceeds of
the Private Placement of approximately $123.6 million were applied to (a)
approximately $53 million to repay the WRP Bank Facility and other debt on
the date of the Private Placement and (b) the balance towards certain 1997
investments and working capital.
In December 1997, the Company closed on the Blue Ridge Mortgage.
In January 1998, the Company closed on the Sonterra Mortgage.
In February 1998, the Company completed the VLP Merger.
In October 1998, the Company closed on the Wellsford Capital Mortgage.
In November 1998, the Company closed on the Red Canyon Mortgage.
In January 1999, a wholly-owned subsidiary of the Company obtained a $35
million secured loan facility (the "Wellsford Finance Bank Facility") from
BankBoston, which can potentially be increased to $50 million. The Wellsford
Finance Bank Facility bears interest at LIBOR + 2.75% and has a term of 3
years. The Company immediately drew $35 million on this line, the proceeds
of which were used (a) to repay the $17 million balance of the WRP Bank
Facility, and (b) for working capital purposes. The Company is obligated to
pay a fee equal to one-quarter of one percent (0.25%) per annum on the
average daily amount of the unused portion of the Wellsford Finance Bank
Facility until maturity.
Wellsford/Whitehall expects to meet its liquidity requirements, such as
financing renovations to its properties, with operating cash flow from its
properties, equity contributions from the owners of Wellsford/Whitehall, and
the Wellsford/Whitehall Bank Facility.
The net cash flow of the Company provided by operating activities increased
from $6.0 million for the year ended December 31, 1997 to $7.0 million for
the year ended December 31, 1998 and increased from $5.5 million for the year
ended December 31, 1996 to $6.0 million for the year ended December 31, 1997.
These increases generally resulted from the acquisition of the Company's
investments as described in "Item 1. Business." Above.
Investing activities of the Company used $107.1 million, $156.9 million and
$31.2 million during the years ended December 31, 1998, 1997 and 1996,
respectively. Investing activities consisted primarily of the acquisition
and development of properties and the investments made in certain debt and
equity instruments, net of proceeds from the sale of certain assets and the
repayment of certain debt instruments. The Company currently has one
multifamily community under development.
Financing activities of the Company provided $80.3 million, $180.8 million
and $25.6 million during the years ended December 31, 1998, 1997 and 1996,
respectively. The Spin-off, Private Placement, Blue Ridge Mortgage, Sonterra
Mortgage, Wellsford Capital Mortgage, Red Canyon Mortgage and WRP Bank
Facility served as the primary sources of cash flow from financing
activities.
See the accompanying consolidated statements of cash flows included in the
consolidated financial statements for a reconciliation of the Company's cash
position for the years described therein.
Recurring Capital Expenditures
- ------------------------------
Regarding the Company's Blue Ridge (456 units), Red Canyon (304 units) and
Sonterra at Williams Centre (344 units) properties, the Company expects to
incur approximately $235 per unit in capital expenditures during the year
ending December 31, 1999.
Wellsford Capital expects to incur approximately $1.5 million of capital
expenditures, tenant improvements, and leasing commissions with respect to
the properties acquired in the VLP Merger during the year ending December 31,
1999.
Wellsford/Whitehall
Wellsford/Whitehall is currently involved in several projects to renovate,
expand or reposition certain of its properties. For the year ending December
31, 1999, Wellsford/Whitehall expects to incur approximately $66.4 million in
connection with these projects.
In connection with its fully operating properties, Wellsford/Whitehall
expects to incur approximately $3.1 million of capital expenditures,
approximately $7.2 million of tenant improvement expenditures, and
approximately $3.5 million of leasing costs during the year ending December
31, 1999.
Other Capital Commitments
- -------------------------
At December 31, 1998, the Company had the following discretionary capital
commitments. Draws under the Abbey Credit Facility and Safeguard Credit
Facility require additional collateral to be made available to the Company
which is subject to the Company's approval. Capital calls related to
investments to be made by the Company's joint ventures are also subject to
the Company's approval of such investments.
Item Amount
- ---- ------
Undrawn Abbey Credit Facility commitment $ 4.0 million
Undrawn Safeguard Credit Facility commitment $ 39.1 million
Undrawn Wellsford/Whitehall equity commitment $ 13.6 million
Undrawn Creamer Vitale Wellsford equity commitment $ 13.6 million
Undrawn Liberty Hampshire SPFC JV equity commitment $ 23.1 million
Inflation
Substantially all of Wellsford Capital's and Wellsford/Whitehall's office
leases provide for separate escalations of real estate taxes and operating
expenses over a base amount. In addition, many of the office leases provide
for fixed base rent increases or indexed escalations (based on the CPI or
other measures). The Company believes that inflationary increases in
expenses will generally be offset by the expense reimbursements and
contractual rent increases described above.
A substantial majority of the leases at the Company's multifamily properties
are for a term of one year or less which may enable the Company to seek
increased rents upon renewal or re-letting of apartment units. Such short-
term leases generally minimize the risk to the Company of the adverse effects
of inflation.
Approximately 66% of the Company's investments in debt securities bear
interest at floating rates or have remaining terms to maturity of less than
one year. As such, the Company expects the rates of interest earned to
increase in the event of high inflation.
Year 2000
- ---------
The Company has developed a plan to modify its information technology,
primarily its accounting software, to recognize the year 2000. The Company
currently expects the project to be substantially complete by the end of the
second quarter of 1999 at a cost of less than $0.1 million which will be
funded from operations, including costs incurred to date. The Company does
not expect this project to have a significant effect on its operations. The
timing and cost of this project will be closely monitored and are based on
management's best estimates. Actual results, however, could differ from those
anticipated.
The Company also has initiated discussions with its third-party property
management companies (the "Managers") to ensure that those parties have
appropriate plans to allay any year 2000 issues that may impact the Company's
operations. These issues would include both accounting/management software
and non-information technology ("IT") systems such as fire safety, security
and elevator systems. Wellsford/Whitehall has completed its analysis of such
systems and has determined that no material adverse consequences will likely
result from its year 2000 issues. Wellsford Capital and Wellsford Development
have initiated such analysis, which is expected to be completed by the end of
the second quarter of 1999. Under the most reasonably likely worst case
scenario, wherein the Managers fail to update their software and non-IT
systems, the Company has the ability to convert its accounting and management
systems to a spreadsheet-based system on a temporary basis and to utilize its
building engineers to manually override any non-IT systems which fail. While
the Company believes its planning efforts are adequate to address its year
2000 concerns, there can be no guarantee that the systems of other companies
on which the Company's systems and operations rely, primarily its banks,
payroll processing company, creditors, and debtors, will be converted on a
timely basis and will not have a material effect on the Company.
Funds From Operations
- ---------------------
The Company considers Funds From Operations ("FFO") to be one appropriate
measure of the performance of real estate companies because it is predicated
on a cash flow analysis, as opposed to a measure predicated on generally
accepted accounting principles ("GAAP"), which gives effect to non-cash items
such as depreciation. FFO, for the Company's purposes, represents net income
(loss) (computed in accordance with GAAP), plus real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures, and reflects gains (or losses) from the sale
of real estate assets included in the Company's consolidated net income since
the strategic sale of such assets is integral to the Company's operations.
Adjustments for unconsolidated partnerships and joint ventures are calculated
to reflect FFO on the same basis. FFO does not represent cash generated from
operating activities in accordance with GAAP and therefore should not be
considered an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity and is not necessarily indicative of cash available to fund cash
needs.
Summary Statements of Operating Data
Year Ended December 31,
1998 1997 1996
---- ---- ----
Revenues $ 26,154,351 $ 9,070,375 $757,000
Expenses (17,383,369) (3,819,426) -
Income from joint ventures 3,523,072 15,131 -
------------ ----------- --------
Income before taxes 12,294,054 5,266,084 757,000
Income tax expense ( 2,850,298) (2,213,007) -
------------ ----------- --------
Net income $ 9,443,756 $ 3,053,077 $757,000
Add:
Depreciation and amortization 3,115,555 259,731 -
JV depreciation and
amortization 3,564,206 611,144 -
------------ ----------- ---------
Funds From Operations $ 16,123,517 $ 3,923,952 $757,000
============ =========== =========
Risks Associated with Forward-Looking Statements.
This Form 10-K, 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 ("SEC") 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 and cost of financing;
difficulty of locating suitable investments; competition; risks of real
estate acquisition, development, construction and renovation; vacancies at
existing commercial and multifamily 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 SEC. Therefore, actual
results could differ materially from those projected in such statements.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.
The Company held the following market risk sensitive instruments at December
31, 1998:
Balance Interest Maturity Fair Value
Item (thousands) Rate Date Other Terms (thousands)
- ---- ---------- -------- -------- ----------- ----------
277 Park Loan $ 25,000 12% 5/2007 Interest only $27,580(C)
Abbey Credit
Facility 46,019 LIBOR+ 4% 9/2000 Interest only 46,019(D)
Woodlands Loan 15,000 LIBOR+4.4% 7/2000 Interest only 15,000(D)
REIT Bridge
Loan 15,000 9.875%* 2/1999* Interest only 15,000(E)
DeBartolo Loan 17,678 8.547% 7/2008 20 Year Amort. 16,916(F)
Safeguard Loan 5,913 LIBOR+ 4% 4/2001 Interest only 5,913(D)
-------- --------
Total Notes Rec $124,610 $126,428
========= ========
WRP Bank
Facility $ 17,000 LIBOR+1.75% 5/1999 (B) $ 17,000(G)
Palomino Park
Bonds 14,755 (A) 12/2035 Interest only 14,755(G)
Blue Ridge Mtge 34,144 6.92% 1/2008 30 Yr. Amort. 34,144(H)
Red Canyon Mtge. 27,000 6.68% 12/2008 30 Yr. Amort. 27,000(I)
Wellsford Cap.
Mtge. 28,000 LIBOR+2.75% 10/2001 Interest only 28,000(G)
Sonterra Mtge. 16,278 6.87% 3/2008 30 Yr. Amort. 16,278(H)
-------- --------
Total Debt $137,177 $137,177
======== ========
* In January 1999, the interest rate and maturity date of this loan were
modified to 12% and August 1999, respectively.
(A) Rate approximates the Standard & Poor's/J.J. Kenney index for short-
term high grade tax-exempt bonds (currently approximately 4%).
(B) For more information on the WRP Bank Facility, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results
of Operations." above.
(C) The fair value of this investment was determined by reference to
various market data.
(D) The fair value of the Company's floating rate investments is considered
to be their carrying amount.
(E) The fair value of this short term investment is considered to be its
carrying amount.
(F) The fair value of this investment was determined by reference to
various market data.
(G) The fair value of the Company's floating rate debt is considered to be
its carrying amount.
(H) The fair value of this mortgage is considered to be its carrying amount
since it is similar in both terms and collateral to the Red Canyon
Mortgage which reflects current market conditions (see I below)
(I) The fair value of this mortgage is considered to be its carrying amount
as it is a recently executed transaction reflective of current market
conditions.
The Company's primary market risk exposure is to changes in interest rates.
The Company manages this risk by offsetting its investments and financing
exposures as well as by strategically timing and structuring its
transactions.
The Company has invested in $66.9 million of LIBOR-based debt instruments and
has obtained $45 million of LIBOR-based financing as of December 31, 1998.
The Company has invested in $57.7 million of fixed rate debt instruments and
has obtained $77.4 million of fixed rate financing as of December 31, 1998.
These exposures substantially offset one another. The Company believes that
its net exposure to both LIBOR-based and fixed rate instruments is minimal
because interest rates are currently near historical lows and increases in
interest rates would be beneficial to the Company's net exposures, subject to
credit risk.
Item 8. Consolidated Financial Statements and Supplementary Data.
The response to this Item 8 is included as a separate section of this annual
report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The executive officers and directors of the Company, their ages and their
positions are as follows:
Name Age Positions and Offices Held
---- --- --------------------------
Jeffrey H. Lynford 51 Chairman of the Board, Secretary and
Director *
Edward Lowenthal 54 President, Chief Executive Officer
and Director***
Gregory F. Hughes 35 Chief Financial Officer
David M. Strong 40 Vice President for Development
Douglas Crocker II 58 Director*
Rodney F. Du Bois 63 Director***
Richard S. Frary 51 Director****
Mark S. Germain 48 Director*
Frank J. Hoenemeyer 79 Director**
Frank J. Sixt 47 Director**
- ----------------------
* Term expires 1999.
** Term expires 2000.
*** Term expires 2001.
**** Mr. Frary joined the board effective December 1, 1998. He will stand for
re-election at the Company's 2000 annual meeting of shareholders.
The information contained in the sections captioned "Nominees for Election as
Directors", "Other Directors", "Executive Officers", and "Key Employees" of
the Company's definitive proxy statement for the 1999 annual meeting of
shareholders is incorporated herein by reference.
Item 11. Executive Compensation.
The information contained in the sections captioned "Executive
Compensation", "Compensation of Directors", "Board Committees", "Employment
Agreements", and "Management Incentive Plans" of the Company's definitive
proxy statement for the 1999 annual meeting of shareholders is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained in the section captioned "Security Ownership of
Certain Beneficial Owners and Management" of the Company's definitive proxy
statement for the 1999 annual meeting of shareholders is incorporated herein
by reference.
Item 13 Certain Relationships and Related Transactions.
The information contained in the section captioned "Certain Transactions" of
the Company's definitive proxy statement for the 1999 annual meeting of
shareholders is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
The following consolidated financial information is included as a
separate section of this annual report on Form 10-K:
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules
III. Real Estate and Accumulated Depreciation
IV. Mortgage Loans on Real Estate
All other schedules have been omitted because the required
information of such other schedules is not present, is not present
in amounts sufficient to require submission of the schedule or is
included in the consolidated financial statements.
(3) Exhibits
(a) Exhibit No. Description+++
----------- --------------
3.1 Articles of Amendment and Restatement of the Company.****
3.2 Articles Supplementary Classifying 335,000 Shares of
Common Stock as Class A Common Stock.****
3.3 Articles Supplementary Classifying 2,000,000 Shares of
Common Stock as Series A 8% Convertible Redeemable
Preferred Stock.****
3.4 Bylaws of the Company.****
4.1 Specimen certificate for Common Stock.***
4.2 Specimen certificate for Class A Common Stock.****
4.3 Specimen certificate for Series A 8% Convertible
Redeemable Preferred Stock.****
4.4 Warrant Agreement, dated as of August 28, 1997, between
the Company and United States Trust Company of New York,
as warrant agent, and Warrant Certificate No. 1 of the
Company for 5,000,000 Warrants registered in the name of
WHWEL Real Estate Limited Partnership.+
4.5 Registration Rights Agreement, dated as of February 23,
1998, among the Company and Franklin Mutual Advisors,
Inc. and Angelo Gordon & Co., L.P.++++
10.1 Operating Agreement of Red Canyon at Palomino Park LLC
between Wellsford Park Highlands Corp. and Al Feld, dated
as of April 17, 1996, relating to Red Canyon.*
10.2 First Amendment to Operating Agreement of Red Canyon at
Palomino Park LLC between Wellsford Park Highlands Corp.
and Al Feld, dated as of May 19, 1997, relating to Red
Canyon.****
10.3 Tri-Party Agreement by and among NationsBank of Texas,
N.A., Red Canyon at Palomino Park LLC, Wellsford Park
Highlands Corp., Wellsford Residential Property Trust, Al
Feld and The Feld Company, dated May 29, 1997, relating
to Red Canyon.****
10.4 Assignment and Assumption of Tri-Party Agreement by and
among Wellsford Residential Property Trust, ERP Operating
Limited Partnership, Red Canyon at Palomino Park LLC,
Wellsford Park Highlands Corp., The Feld Company, Al Feld
and NationsBank of Texas, N.A. dated May 30, 1997,
relating to Red Canyon.****
10.5 Agreement and Acknowledgment Regarding Tri-Party
Agreement by and among NationsBank of Texas, N.A., Red
Canyon at Palomino Park LLC, Wellsford Park Highlands
Corp. and ERP Operating Limited Partnership dated May 30,
1997, relating to Red Canyon.****
10.6 Second Amended and Restated Vacant Land Purchase and Sale
Agreement between Mission Viejo Company and The Feld
Company dated March 23, 1995, as amended by First
Amendment, dated May 1, 1996, relating to the land
underlying Palomino Park.*
10.7 Trust Indenture, dated as of December 1, 1995, between
Palomino Park Public Improvements Corporation ("PPPIC")
and United States Trust Company of New York, as trustee,
securing Wellsford Residential Property Trust's
Assessment Lien Revenue Bonds Series 1995 -
$14,755,000.**
10.8 Letter of Credit Reimbursement Agreement, dated as of
December 1, 1995, between PPPIC, Wellsford Residential
Property Trust and Dresdner Bank AG, New York Branch.**
10.9 First Amendment to Letter of Credit Reimbursement
Agreement, dated as of May 30, 1997, between PPPIC,
Wellsford Residential Property Trust, Dresdner Bank AG,
New York Branch and the Company.****
10.10 Amendment to Wellsford Reimbursement Agreement by and
between PPPIC, Wellsford Residential Property Trust and
the Company, dated as of May 30, 1997.****
10.11 Assignment and Assumption Agreement by and between
Wellsford Residential Property Trust and the Company,
dated as of May 30, 1997.****
10.12 Credit Enhancement Agreement by and between the Company
and ERP Operating Limited Partnership, dated as of May
30, 1997, relating to Palomino Park.****
10.13 Reimbursement and Indemnification Agreement by and among
the Company and ERP Operating Limited Partnership, dated
as of May 30, 1997, relating to Palomino Park.****
10.14 Guaranty by ERP Operating Limited Partnership for the
benefit of Dresdner Bank AG, New York Branch, dated as of
May 30, 1997, relating to Palomino Park.****
10.15 Amended and Restated Promissory Note of the Company to
the order of Dresdner Bank AG, New York Branch, dated May
30, 1997, relating to Palomino Park.****
10.16 Common Stock and Preferred Stock Purchase Agreement by
and between the Company and ERP Operating Limited
Partnership dated as of May 30, 1997.****
10.17 Registration Rights Agreement by and between the Company
and ERP Operating Limited Partnership dated as of May 30,
1997.****
10.18 Credit Agreement, dated as of April 25, 1997, between
Park Avenue Financing Company LLC, PAMC Co-Manager Inc.,
PAFC Management, Inc., Stanley Stahl, The First National
Bank of Boston, the Company, Other Banks that may become
parties to the Agreement and The First National Bank of
Boston, as Agent, relating to 277 Park Avenue.**
10.19 Assignment of Member's Interest, dated as of April 25,
1997, by PAFC Management, Inc. and Stanley Stahl to The
First National Bank of Boston, relating to 277 Park
Avenue (relating to interests in the Park Avenue
Financing Company, LLC).**
10.20 Assignment of Member's Interest, dated as of April 25,
1997, by PAMC Co-Manager Inc. and Park Avenue Financing,
LLC to The First National Bank of Boston, relating to 277
Park Avenue (relating to interests in 277 Park Avenue,
LLC).**
10.21 Stock Pledge Agreement, dated as of April 25, 1997, by
Stanley Stahl to The First National Bank of Boston,
relating to 277 Park Avenue (relating to stock in Park
Avenue Management Corporation).**
10.22 Stock Pledge Agreement, dated as of April 25, 1997, by
Stanley Stahl to The First National Bank of Boston,
relating to 277 Park Avenue (relating to stock in PAMC
Co-Manager Inc.).**
10.23 Stock Pledge Agreement, dated as of April 25, 1997, by
Stanley Stahl to The First National Bank of Boston,
relating to 277 Park Avenue (relating to stock in PAFC
Management, Inc.).**
10.24 Conditional Guaranty of Payment and Performance, dated as
of April 25, 1997, by Stanley Stahl, relating to 277 Park
Avenue.**
10.25 Cash Collateral Account Security, Pledge and Assignment
Agreement, dated as of April 25, 1997, between 277 Park
Avenue, LLC, Park Avenue Management Corporation, Park
Avenue Financing Company LLC, PAMC Co-Manager Inc.,
Stanley Stahl and The First National Bank of Boston,
relating to 277 Park Avenue.**
10.26 Recognition Agreement, dated as of April 25, 1997,
between The First National Bank of Boston, the Company,
Column Financial, Inc., Park Avenue Financing Company
LLC, PAMC Co-Manager, Inc. and 277 Park Avenue, LLC,
relating to 277 Park Avenue.**
10.27 Intercreditor Agreement, dated as of April 25, 1997,
between the Company and The First National Bank of
Boston, as Agent, relating to 277 Park Avenue.**
10.28 Assignment and Acceptance Agreement, dated June 19, 1997,
between BankBoston, N.A. (formerly known as The First
National Bank of Boston) ("BankBoston") and the Company,
relating to 277 Park Avenue.****
10.29 Revolving Credit Agreement by and among the Company,
BankBoston, Morgan Guaranty Trust Company of New York
("Morgan Guaranty"), other banks which may become parties
and BankBoston, as agent, and Morgan Guaranty, as co-
agent dated as of May 30, 1997.****
10.30 Agreement Regarding Common Stock and Preferred Stock
Purchase Agreement, dated as of May 30, 1997, among ERP
Operating Limited Partnership, the Company and
BankBoston, as agent.****
10.31 Assignment of Common Stock Agreements, dated as of May
30, 1997, between the Company and BankBoston, as
agent.****
10.32 Collateral Assignment of Documents, Rights and Claims
(including Collateral Assignment of Deed of Trust,
Assignment of Leases and Rents, Security Agreement and
Fixture Filing), made as of May 30, 1997, by the Company
to BankBoston, as agent.****
10.33 First Amended and Restated Loan Agreement, dated as of
July 16, 1998 (the "First Amended and Restated Loan
Agreement"), among Wellsford/Whitehall Holdings, L.L.C.,
as Borrower, and BankBoston, Goldman Sachs Mortgage
Company, and Other Banks, as Banks, and BankBoston, as
Administrative Agent and Co-Arranger and Co-Syndication
Agent, and Goldman Sachs Mortgage Company, as Co-Arranger
and Co-Syndication Agent.
10.34 Form of promissory note payable to the order of eight
lenders by Wellsford/Whitehall Properties, L.L.C. under
the First Amended and Restated Loan Agreement.
10.35 Amended and Restated Assignment of Member's Interest
under the First Amended and Restated Loan Agreement,
dated as of July 16, 1998, by Wellsford/Whitehall
Holdings, L.L.C. to BankBoston, as Agent.
10.36 Amended and Restated Cash Collateral Agreement under the
First Amended and Restated Loan Agreement, dated as of
July 16, 1998, by and among Wellsford/Whitehall Holdings,
L.L.C., WASH Manager L.L.C., Wells Avenue Holdings L.L.C.
and BankBoston, as Agent.
10.37 Indemnity Agreement Regarding Hazardous Materials under
the First Amended and Restated Loan Agreement, dated as
of July 16, 1998, by Wellsford/Whitehall Holdings,
L.L.C., Wellsford Commercial Properties Trust and WHWEL
Real Estate Limited Partnership for the benefit of
BankBoston.
10.38 Conditional Guaranty of Payment under the First Amended
and Restated Loan Agreement, dated as of July 16, 1998,
by Wellsford Commercial Properties Trust, WHWEL Real
Estate Limited Partnership, the Company, Whitehall Street
Real Estate Limited Partnership V, Whitehall Street Real
Estate Limited Partnership VI, Whitehall Street Real
Estate Limited Partnership VII and Whitehall Street Real
Estate Limited Partnership VIII in favor of BankBoston
and Goldman Sachs Mortgage Company.
10.39 Indemnity and Guaranty Agreement under the First Amended
and Restated Loan Agreement, dated as of July 16, 1998,
by Wellsford Commercial Properties Trust and WHWEL Real
Estate Limited Partnership in favor of BankBoston,
Goldman Sachs Mortgage Company and Other Banks.
10.40 Mezzanine Loan Agreement, dated as of July 16, 1998 (the
"Mezzanine Loan Agreement"), among Wellsford/Whitehall
Holdings II, L.L.C., as Borrower, and BankBoston, Goldman
Sachs Mortgage Company, and Other Banks, as Banks, and
BankBoston, as Administrative Agent and Co-Arranger and
Co-Syndication Agent, and Goldman Sachs Mortgage Company,
as Co-Arranger and Co-Syndication Agent.
10.41 Form of promissory note payable to the order of five
lenders by Wellsford/Whitehall Properties II, L.L.C.
under the Mezzanine Loan Agreement.
10.42 Assignment of Member's Interest under the Mezzanine Loan
Agreement, dated as of July 16, 1998, between
Wellsford/Whitehall Properties II, L.L.C. and BankBoston,
as Agent.
10.43 Indemnity Agreement Regarding Hazardous Materials under
the Mezzanine Loan Agreement, dated as of July 16, 1998,
by Wellsford/Whitehall Properties II, L.L.C., Wellsford
Commercial Properties Trust and WHWEL Real Estate Limited
Partnership for the benefit of BankBoston.
10.44 Nomura Conditional Guaranty of Payment under the
Mezzanine Loan Agreement, dated as of July 16, 1998, by
Wellsford Commercial Properties Trust, WHWEL Real Estate
Limited Partnership, the Company, Whitehall Street Real
Estate Limited Partnership V, Whitehall Street Real
Estate Limited Partnership VI, Whitehall Street Real
Estate Limited Partnership VII and Whitehall Street Real
Estate Limited Partnership VIII in favor of BankBoston
and Goldman Sachs Mortgage Company.
10.45 Conditional Guaranty of Payment under the Mezzanine Loan
Agreement, dated as of July 16, 1998, by Wellsford
Commercial Properties Trust, WHWEL Real Estate Limited
Partnership, the Company, Whitehall Street Real Estate
Limited Partnership V, Whitehall Street Real Estate
Limited Partnership VI, Whitehall Street Real Estate
Limited Partnership VII and Whitehall Street Real Estate
Limited Partnership VIII in favor of BankBoston and
Goldman Sachs Mortgage Company.
10.46 Indemnity and Guaranty Agreement under the Mezzanine Loan
Agreement, dated as of July 16, 1998, by Wellsford
Commercial Properties Trust and WHWEL Real Estate Limited
Partnership in favor of BankBoston, Goldman Sachs
Mortgage Company and Other Banks.
10.47 $50 million Revolving Credit Agreement, dated as of
January 12, 1999, among Wellsford Finance, Inc., as
Borrower, and BankBoston and Other Banks, as Lender, and
BankBoston, as Agent.
10.48 $50 million promissory note, dated January 12, 1999,
payable to BankBoston by Wellsford Finance, Inc.
10.49 Collateral Assignment of Documents, Rights and Claims,
dated January 12, 1999, from Wellsford Finance, Inc. to
BankBoston, as Agent.
10.50 Limited Liability Company Operating Agreement of
Wellsford/Whitehall Properties II, L.L.C., dated as of
July 16, 1998.
10.51 Letter Agreement, dated as of July 16, 1998, between the
Company and WHWEL Real Estate Limited Partnership,
relating to warrants to be issued to WHWEL Real Estate
Limited Partnership.
10.52 Fixed Rate Loan Agreement, dated as of August 11, 1998
(the "Fixed Rate Loan Agreement"), by and among First
Union Real Estate Equity and Mortgage Investments, as
Borrower, Bankers Trust Company, as Agent, and Bankers
Trust Company, Wellsford Capital and BankBoston, as
Lenders.
10.53 $15 million promissory note, dated August 11, 1998,
payable to the order of Wellsford Capital by First Union
Real Estate Equity and Mortgage Investments under the
Fixed Rate Loan Agreement.
10.54 First Amendment of Fixed Rate Loan Agreement, dated as of
January 8, 1999, among First Union Real Estate Equity and
Mortgage Investments, as Borrower, Bankers Trust Company,
Wellsford Capital and BankBoston, as Lenders, and Bankers
Trust Company, as Agent.
10.55 Letter dated January 8, 1999, among First Union Real
Estate Equity and Mortgage Investments, as Borrower,
Bankers Trust Company, Wellsford Capital and BankBoston,
as Lenders, and Bankers Trust Company, as Agent.
10.56 Revolving Credit Agreement for $70 million, dated as of
August 28, 1997, between AP-Anaheim LLC, AP-Arlington
LLC, AP-Atlantic LLC, AP-Cityview LLC, AP-Farrell Ramon
LLC, AP-Palmdale LLC, AP-Redlands LLC, AP-Victoria LLC,
AP-Victorville LLC, and AP-Sierra LLC, each a California
limited liability company (collectively, the "Abbey
Affiliates"), as Borrower, and Morgan Guaranty Trust
Company of New York, as Lender.+
10.57 Amendment to Revolving Credit Agreement, dated as of
April 6, 1998, by AP-Diamond Bar LLC, AP-Edinger LLC, AP-
Glendora LLC, AP- Anaheim LLC, AP- Arlington LLC, AP-
Atlantic LLC, AP- Cityview LLC, AP- Redlands LLC, AP-
Palmdale LLC, AP- Farrell Ramon LLC, AP- Sierra LLC, AP-
Victoria LLC and AP- Victorville LLC (collectively, the
"Amended Abbey Affiliates"), as Borrower, and Morgan
Guaranty Trust Company of New York, as Lender.
10.58 Loan Participation Agreement, dated as of August 28,
1997, between Morgan Guaranty Trust Company of New York
and the Company.+
10.59 First Amendment to Participation Agreement, dated as of
April 7, 1998, between Morgan Guaranty Trust Company of
New York and Wellsford Capital.
10.60 $70 million promissory note, dated August 28, 1997,
payable to the order of Morgan Guaranty Trust Company of
New York by the Abbey Affiliates.+
10.61 Amendment to Promissory Note, dated as of April 6, 1998,
between the Amended Abbey Affiliates and Morgan Guaranty
Trust Company of New York.
10.62 Purchase and Sale Agreement, dated as of September 18,
1997, among the Company, Wellsford Capital Corporation
and Whitehall Street Real Estate Limited Partnership
VII.++
10.63 First Amended and Restated Master Credit Agreement, dated
December 30, 1997, effective as of July 31, 1997, among
The Woodlands Commercial Properties Company, L.P., The
Woodlands Land Development Company, L.P., and BankBoston,
Morgan Stanley Senior Funding, Inc., as Documentation
Agent, and Other Banks, and BankBoston, as Managing Agent
and Syndication Agent.++++
10.64 Intercreditor Agreement, dated December 30, 1997,
effective as of July 31, 1997, by and between BankBoston,
Morgan Stanley Senior Funding, Inc. and the Other
Lenders, relating to Woodlands.++++
10.65 $4,186,991.87 Commercial Company Second Secured Term Loan
Note, dated December 30, 1997, payable to the order of
the Company by The Woodlands Commercial Properties
Company, L.P. and The Woodlands Land Development Company,
L.P.++++
10.66 $10,813,008.13 Land Company Second Secured Term Loan
Note, dated December 30, 1997, payable to the order of
the Company by The Woodlands Land Development Company,
L.P. and The Woodlands Commercial Properties Company,
L.P.++++
10.67 Revolving Credit Agreement, dated as of March 28, 1998,
among Safeguard Capital Fund, L.P., as Borrower, and
Morgan Guaranty Trust Company of New York, as Lender.
10.68 $90 million promissory note, dated March 28, 1998,
payable to Morgan Guaranty Trust Company of New York by
Safeguard Capital Fund, L.P.
10.69 Loan Participation Agreement, dated as of December 1,
1998, between Morgan Guaranty Trust Company of New York
and Wellsford Capital.
10.70 Program Agreement for Clairborne Investors Mortgage
Program between Creamer Realty Consultants and The
Prudential Investment Corporation, dated as of December
10, 1997.++++
10.71 Amended and Restated General Partnership Agreement of
Creamer Realty Consultants, dated as of January 1, 1998,
by and between Wellsford CRC Holding Corp. and FGC Realty
Consultants, Inc.++++
10.72 Limited Liability Company Agreement of Creamer Vitale
Wellsford, L.L.C., dated as of January 20, 1998, by and
between Wellsford CRC Holding Corp. and SX Advisors,
LLC.++++
10.73 Loan Agreement, dated as of February 27, 1998, between
Wellsford Sonterra L.L.C., as Borrower, and Nationsbank,
N.A., as Lender.++++
10.74 $16,400,000 promissory note, dated February 27, 1998,
payable to the order of NationsBank, N.A., by Wellsford
Sonterra, L.L.C.++++
10.75 Deed of Trust, Assignment of Leases and Rents and
Security Agreement, dated February 27, 1998 by Wellsford
Sonterra, L.L.C. in favor of NationsBank, N.A.++++
10.76 $34,500,000 Multifamily Note, dated December 24, 1997,
payable to the order of GMAC Commercial Mortgage
Corporation by Park at Highlands L.L.C.++++
10.77 Multifamily Deed of Trust, Assignment of Rents and
Security Agreement, dated December 24, 1997, by Park at
Highlands L.L.C. in favor of GMAC Commercial Mortgage
Corporation.++++
10.78 $28 million secured promissory note, dated October 22,
1998, payable to the order of Lehman Brothers Holdings
Inc. by Wellsford Capital Properties, L.L.C.
10.79 Conditional Guarantee, dated as of October 22, 1998, by
Wellsford Capital in favor of Lehman Brothers Holdings
Inc.
10.80 Mortgage and Security Agreement, dated as of October 22,
1998, by Wellsford Capital Properties, L.L.C. to Lehman
Brothers Holdings Inc.
10.81 1998 Management Incentive Plan of the Company.
10.82 1997 Management Incentive Plan of the Company.**
10.83 Rollover Stock Option Plan of the Company.**
10.84 Employment Agreement between the Company and Jeffrey H.
Lynford.****
10.85 Employment Agreement between the Company and Edward
Lowenthal.****
10.86 Employment Agreement between the Company and Gregory F.
Hughes.****
10.87 Employment Agreement between the Company and David M.
Strong.****
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
99.1 "Risk Factors" section of Amendment No. 2 to the
Company's Registration Statement on Form S-11 (file no.
333-32445), as may be amended.+++++
- --------------------------
* Previously filed as an exhibit to the Form 10 filed on April 23,
1997.
** Previously filed as an exhibit to the Form 10/A Amendment No. 1
filed on May 21, 1997.
*** Previously filed as an exhibit to the Form 10/A Amendment No. 2
filed on May 28, 1997.
**** Previously filed an exhibit to the Form S-11 filed on July 30,
1997.
***** Previously filed as an exhibit to Amendment No. 1 to Form S-11
filed on November 14, 1997.
+ Previously filed as an exhibit to the Form 8-K filed on September
11, 1997.
++ Previously filed as an exhibit to the Form 8-K filed on September
23, 1997.
+++ Wellsford acquired its interest in a number of these documents by
assignment.
++++ Previously filed as an exhibit to the Form 10-K filed on March 31,
1998.
+++++ Previously filed as part of Amendment No. 2 to the Registration
Statement on Form S-11 filed on December 3, 1997.
(b) During the last quarter of the period covered by this report,
the Company filed the following reports on Form 8-K:
Form 8-K dated December 1, 1998, regarding the addition of
Richard S. Frary to the Company's board of directors.
(c) The following exhibits are filed as exhibits to this Form 10-
K: See Item 14 (a)(3) above.
(d) The following documents are filed as a part of this report:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, Secretary
and Director
Dated: March 26, 1999
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
registrant and in the capacities and on the dates indicated.
Name Title Date
- ---------------------- ------------------------------ -------
/s/ Jeffrey H. Lynford Chairman of the Board, March 26, 1999
- ---------------------- Secretary and Director
(Jeffrey H. Lynford)
/s/ Edward Lowenthal President, Chief Executive March 26, 1999
- ---------------------- Officer and Director
(Edward Lowenthal) (Principal Executive Officer)
/s/ Gregory F. Hughes Chief Financial Officer March 26, 1999
- ---------------------- (Principal Financial and
(Gregory F. Hughes) Accounting Officer)
/s/ Rodney F. Du Bois Director March 26, 1999
- ---------------------
(Rodney F. Du Bois)
/s/ Mark S. Germain Director March 26, 1999
- ---------------------
(Mark S. Germain)
/s/ Frank J. Hoenemeyer Director March 26, 1999
- -----------------------
(Frank J. Hoenemeyer)
/s/ Frank J. Sixt Director March 26, 1999
- -----------------
(Frank J. Sixt)
/s/ Douglas Crocker II Director March 26, 1999
- ----------------------
(Douglas Crocker II)
/s/ Richard S. Frary Director March 26, 1999
- -------------------
(Richard S. Frary)
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No. in
Form 10-K
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . .F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 . . . . . .F-3
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . .F-4
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . .F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .F-7
Wellsford/Whitehall Properties II, L.L.C.
Consolidated Financial Statements and Notes. . . . . . . . . . . . . . F-28
FINANCIAL STATEMENT SCHEDULES
III - Real Estate and Accumulated Depreciation. . . . . . . . . . . . S-1
IV- Mortgage Loans on Real Estate . . . . . . . . . . . . . . . . . . S-2
All other schedules have been omitted because the required information for
such other schedules is not present, is not present in amounts sufficient to
require submission of the schedule or because the required information is
included in the consolidated financial statements.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Wellsford Real Properties, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Wellsford
Real Properties, Inc. and subsidiaries (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. Our audits also included the financial statement
schedules listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
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 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Wellsford Real Properties, Inc. and subsidiaries at December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
February 12, 1999
WELSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------------
1998 1997
-------------- --------------
ASSETS
Real estate assets,
at cost - Note 10
Land $ 18,813,000 $ 5,225,000
Buildings and improvements 115,425,760 36,338,624
-------------- --------------
134,238,760 41,563,624
Less, accumulated depreciation (2,707,390) -
-------------- --------------
131,531,370 41,563,624
Construction in progress 18,791,075 17,177,824
-------------- --------------
150,322,445 58,741,448
Notes receivable - Notes 4 and 10 124,706,499 105,631,611
Investment in joint ventures - Note 10 80,776,338 44,779,563
-------------- --------------
Total real estate assets 355,805,282 209,152,622
Cash and cash equivalents 10,122,037 29,895,212
Restricted cash - Note 3 8,007,850 7,695,910
Prepaid and other assets 11,035,489 3,229,956
------------- --------------
Total Assets $ 384,970,658 $ 249,973,700
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable - Notes 5 and 10 $ 120,176,790 $ 49,255,000
Credit facility - Notes 4 and 5 17,000,000 7,500,000
Accrued expenses and other liabilities 12,788,324 9,763,109
------------ --------------
Total Liabilities 149,965,114 66,518,109
------------- --------------
Commitments and contingencies -
Notes 4,5,6,7,8,9,10,11 and 13 - -
Minority Interest - Note 10 3,380,721 2,297,295
Shareholders' Equity:
Series A 8% Convertible Redeemable
Preferred Stock, $.01 par value per
share, 2,000,000 shares authorized,
no shares issued and outstanding
at December 31, 1998 or 1997 - -
Common Stock
197,650,000 shares authorized-
20,410,605 and 16,656,707 shares,
$.01 par value per share, issued
and outstanding at December 31, 1998
and 1997, respectively 204,106 166,567
Class A Common Stock, 350,000 shares
authorized - 339,806 shares, $.01
par value per share, issued
and outstanding at December 31,
1998 and 1997 3,398 3,398
Paid in capital in excess of
par value 228,212,205 179,721,827
Retained earnings 11,385,274 1,941,518
Deferred compensation - Note 7 (3,240,023) (675,014)
Treasury stock, 489,671 shares -
Note 7 (4,940,137) -
-------------- --------------
Total Shareholders' Equity -
Notes 1 and 7 231,624,823 181,158,296
-------------- --------------
Total Liabilities and
Shareholders' Equity $ 384,970,658 $ 249,973,700
============== ==============
See Accompanying Notes
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
--------------------------------------
1998 1997 1996
------------- ---------- -----------
REVENUE
Rental income $ 13,126,974 $1,291,354 $ -
Interest income 12,888,607 7,779,021 757,000
------------ ---------- ----------
Total Revenue 26,015,581 9,070,375 757,000
------------ ---------- ----------
EXPENSES
Property operating
and maintenance 2,786,839 241,257 -
Real estate taxes 1,201,051 105,692 -
Depreciation and amortization 3,157,129 294,563 -
Property management 498,596 18,356 -
Interest 4,599,309 - -
General and administrative 5,062,895 3,159,558 -
------------ ---------- ----------
Total Expenses 17,305,819 3,819,426 -
Gain on sale of investment 138,770 - -
Income from joint ventures 3,523,072 15,135 -
------------ ---------- ----------
Income before minority interest 12,371,604 5,266,084 757,000
Minority interest (77,550) - -
------------ ---------- ----------
Income before taxes 12,294,054 5,266,084 757,000
Income tax expense - Note 2 2,850,298 2,213,007 -
------------ ---------- ----------
Net income $ 9,443,756 $3,053,077 $ 757,000
============ ========== ==========
Net income per common share,
basic - Note 2 $ 0.47 $ 0.18 $ 0.04
============ ========== ==========
Net income per common share,
diluted - Note 2 $ 0.46 $ 0.18 $ 0.04
============ ========== ==========
Weighted average number of common
shares outstanding - Note 2 19,886,305 16,922,135 16,911,849
============ ========== ==========
See Accompanying Notes
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Common Shares* Total
------------------ Paid-in Retained Deferred Shareholders'
Shares Amount Capital** Earnings Compensation Equity
-------- -------- ------------- ------------ ------------- ------------
December 31, 1995 - $ - $ 3,614,000 $ - $ - $ 3,614,000
Equity contributions - - 25,634,000 - - 25,634,000
Net income - - - 757,000 - 757,000
--------- --------- ------------- ------------ ------------- -----------
December 31, 1996 - - 29,248,000 757,000 - 30,005,000
Equity contributions
prior to Spin-off -
Note 1 - - 19,310,633 - - 19,310,633
Net income prior to
Spin-off - Note 1 - - - 1,111,559 - 1,111,559
Spin-off - Note 1 4,887,577 48,875 1,819,684 (1,868,559) - -
Private offering of
common shares (net
of issuance costs)
- Note 7 12,000,000 120,000 121,574,562 - - 121,694,562
Issuance of Warrants
- Note 7 - - 6,198,345 - - 6,198,345
Director and officer
share grants
- Note 7 108,936 1,090 1,570,603 - (675,014) 896,679
Net income subsequent
to Spin-off - - - 1,941,518 - 1,941,518
----------- --------- ------------- ------------ ----------- ------------
December 31, 1997 16,996,513 169,965 179,721,827 1,941,518 (675,014) 181,158,296
Shares issued in
connection with
VLP merger -
Note 7 3,350,000 33,500 39,329,000 - - 39,362,500
Issuance of warrants
- Note 7 - - 750,000 - - 750,000
Director and officer
share grants
- Note 7 403,898 4,039 3,471,241 - (2,700,023) 775,257
Amortization of
deferred compensation
- Note 7 - - - - 135,014 135,014
Net income - - - 9,443,756 - 9,443,756
----------- --------- ------------- ------------ ----------- ------------
December 31, 1998 20,750,411 $ 207,504 $ 223,272,068 $ 11,385,274 $(3,240,023) $231,624,823
=========== ========= ============= ============ =========== ============
*Includes 339,806 Class A Common Shares.
**Net of treasury stock
See Accompanying Notes
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years Ended December 31,
------------------------------------------------------
1998 1997 1996
--------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,443,756 $ 3,053,077 $ 757,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,168,583 294,563 -
Undistributed joint venture
income (2,083,506) (15,135) -
Share grants 931,350 896,679 -
Gain on sale of investments (138,770) - -
Decrease (increase) in assets
Restricted cash (311,940) (2,175,910) 4,894,000
Prepaid and other assets (7,957,209) (3,164,296) (134,000)
(Decrease) increase in liabilities
Accrued expenses and
other liabilities 3,952,549 7,116,138 -
------------- ----------- -------------
Net cash provided by operating
activities 7,004,813 6,005,116 5,517,000
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets (125,514,325) (85,551,813) (13,351,000)
Investments in joint ventures (33,511,554) (13,955,069) -
Investments in notes receivable (67,230,199) (162,845,982) (17,800,000)
Repayments of notes receivable 55,008,523 105,440,515 -
Proceeds from sale of real estate
assets 64,132,507 - -
------------- --------------------------------------
Net cash (used in)
investing activities (107,115,048) (156,912,349) (31,151,000)
------------- --------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit facility 86,500,000 64,400,000 -
Repayment of credit facility (77,000,000) (56,900,000) -
Proceeds from bridge loan - 6,000,000 -
Repayment of bridge loan - (6,000,000) -
Proceeds from mortgage
notes payable 71,400,000 34,500,000 -
Repayment of mortgage notes
payable (478,210) - -
Equity contributions prior to
Spin-off - 17,060,633 25,634,000
Equity contributions from
minority interest - 47,250 -
Distributions to minority
interest (84,730) - -
Proceeds from common shares - 121,694,562 -
-------------- --------------------------------------
Net cash provided by financing
activities 80,337,060 180,802,445 25,634,000
-------------- --------------------------------------
Net increase (decrease) in cash
and cash equivalents (19,773,175) 29,895,212 -
Cash and cash equivalents,
beginning of year 29,895,212 - -
-------------- ---------------------------------------
Cash and cash equivalents,
end of year $ 10,122,037 $ 29,895,212 $ -
============== =======================================
SUPPLEMENTAL INFORMATION:
Cash paid during the year
for interest $ 5,017,279 $ 1,506,508 $ 663,000
Cash paid during the year
for income taxes $ 2,228,336 $ 2,242,000 $ -
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
investments $ (750,000) $ (6,198,345) $ -
See accompanying notes
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Business
Wellsford Real Properties, Inc. (and subsidiaries, collectively the
"Company") was formed on January 8, 1997, as a corporate subsidiary of
Wellsford Residential Property Trust (the "Trust"). The Trust was
formed in 1992 as the successor to Wellsford Group Inc. (and
affiliates) which was formed in 1986. 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 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
(Note 7).
The Company is a real estate merchant banking firm headquartered in New
York City which acquires, develops, finances and operates real
properties and organizes and invests in private and public real estate
companies. The Company has established three strategic business units
("SBUs") within which it executes its business plan: an SBU for
commercial property operations which is held in its subsidiary,
Wellsford/Whitehall Properties II, L.L.C., an SBU for debt and equity
activities and an SBU for property development and land operations.
See Note 10 for additional information regarding the Company's industry
segments.
(2) Summary of Significant Accounting Policies
Principles of Consolidation and Financial Statement Presentation. The
accompanying consolidated financial statements include the accounts of
Wellsford Real Properties, Inc. and its majority-owned and controlled
subsidiaries. Investments in entities where the Company does not have a
controlling interest, including Wellsford/Whitehall (see Note 10), are
accounted for under the equity method. All significant inter-company
accounts and transactions among Wellsford Real Properties, Inc. and its
subsidiaries have been eliminated in consolidation.
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.
Income Recognition. Commercial properties are leased under operating
leases. Rental revenue is recognized on a straight-line basis over the
terms of the respective leases. Residential communities are leased
under operating leases with terms of generally one year or less. Rental
revenue is recognized monthly as it is earned.
Cash and Cash Equivalents. The Company considers all demand and money
market accounts and short term investments in government funds with an
original maturity of three months or less to be cash and cash
equivalents.
Real Estate and Depreciation. Costs directly related to the acquisition
and improvement of real estate are capitalized, including all
improvements identified during the underwriting of a property
acquisition. Ordinary repairs and maintenance are expensed as incurred.
Tenant improvements and leasing commissions related to commercial
properties are capitalized and depreciated over the terms of the related
leases.
Depreciation is computed over the expected useful lives of depreciable
property on a straight line basis, principally 27.5 years for
residential buildings and improvements, 40 years for commercial
properties and 5 to 12 years for furnishings and equipment.
Depreciation expense was $3.2 million and $0.3 million in 1998 and 1997,
respectively, and included $0.3 million and $0.1 million of amortization
of certain assets capitalized to the Company's Investment in Joint
Ventures in 1998 and 1997, respectively.
The Company reviews its real estate assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. No impairment was recorded during the
years 1998, 1997 or 1996.
Mortgage Note Receivable Impairment. The Company considers a note
impaired if, based on current information and events, it is probable
that all amounts due under the note agreement are not collectable.
Impairment is measured based upon the fair value of the underlying
collateral. No impairment has been recorded through December 31, 1998.
Share Based Compensation. Statement of Financial Accounting Standard
("SFAS") 123 "Accounting for Stock-Based Compensation" establishes a
fair value based method of accounting for share based compensation
plans, including share options. However, registrants may elect to
continue accounting for share option plans under Accounting Principles
Board Opinion ("APB") 25, but are required to provide pro forma net
income and earnings per share information "as if" the new fair value
approach had been adopted (see Note 8). Because the Company has elected
to continue to account for its share based compensation plans under APB
25, there has been no impact on the Company's consolidated financial
statements resulting from SFAS 123.
Segment Reporting. Effective January 1, 1997, the Company adopted SFAS
131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 superseded SFAS 14 "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 establishes standards for
the way that public business enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments
in interim financial reports. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. The adoption of SFAS 131 did not affect results of
operations or financial position, but did affect the disclosure of
segment information. See Note 10.
Income Taxes. The Company accounts for income taxes under SFAS 109
"Accounting for Income Taxes." Deferred income tax assets and
liabilities are determined based upon differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The components of the income tax provision are as follows:
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Current federal tax $2,756,165 $1,776,595
Current state and local tax 909,197 456,838
Deferred federal tax (693,965) (16,239)
Deferred state and local tax (121,099) (4,187)
----------- -----------
$2,850,298 $2,213,007
=========== ===========
The reconciliation of income tax computed at the U.S. federal statutory
rate to income tax expense is as follows:
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
Tax at U.S. statutory rate $4,302,919 35.00% $1,454,084 35.00%
State taxes, net of federal
benefit 944,153 7.68% 374,711 9.02%
Change in valuation (2,345,007) (19.07%) 381,490 9.18%
allowance
Non-deductible items 12,355 0.10% 2,722 0.07%
Effect of change in state
tax rate (64,122) (0.53%) -- --
----------- -------- ---------- -------
$2,850,298 23.18% $2,213,007 53.27%
=========== ======== ========== =======
The Company has net operating loss carryforwards of $76,557,331 for
income tax purposes at December 31, 1998, that expire in the years 2005
through 2012. The Company's net operating loss carryforwards reflect a
limit on utilization pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended, which limits the amount of losses available
after an ownership change. Those carryforwards resulted from the
Company's acquisition of Value Property Trust in 1998, and are limited
in their use by the amount of income generated by Value Property Trust
(see Note 10).
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Deferred Tax Assets:
Net operating loss $32,674,669 $ --
Deferred compensation plan 2,794,787 3,021,641
AMT credit carryforward 377,612 --
Restricted share grant 341,440 --
Other 407,844 32,908
------------ ------------
Subtotal 36,596,352 3,054,549
Valuation allowance (28,132,547) (2,361,603)
------------ ------------
Total deferred tax assets $ 8,463,805 $ 692,946
============ ============
Deferred tax liabilities:
Acquisition of Value Property
Trust $(2,236,945) $ --
Built-in gain on stock in
deferred compensation plan (640,200) (660,037)
Undistributed Whitehall joint
venture net income (595,506) --
Other (149,066) (12,483)
------------ -----------
Total deferred tax liabilities $(3,621,717) $ (672,520)
------------ -----------
Net deferred tax asset $ 4,842,088 $ 20,426
============ ===========
SFAS 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more
likely than not that some portion or all of the deferred tax assets will
not be realized. After consideration of all the evidence, both positive
and negative, management has determined that a $28,132,547 and
$2,361,603 valuation allowance at December 31, 1998 and 1997,
respectively, is necessary to reduce the deferred tax assets to the
amount that will more likely than not be realized. The valuation
allowance relates to NOL carryforwards and the deferred compensation
plan. The $25,770,944 change in the valuation allowance in 1998 is
primarily due to the Company's acquisition of Value Property Trust.
This acquisition resulted in an increase in the net deferred tax asset
of $4,006,598.
Per Share Data. In 1997, SFAS 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.
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 are based upon the increased number of
common shares that would be outstanding assuming the exercise of
dilutive common share options (196,082 in 1998 and 169,264 in 1997) and
warrants (296,775 in 1998 and 256,899 in 1997), under the treasury stock
method.
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 Private
Placement (Note 7) occurred on January 1, 1996.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(3) Restricted Cash
Restricted cash primarily consists of retirement plan deposits and debt
service and construction reserve balances. At December 31, 1998 and
1997, retirement plan deposits amounted to $5,965,095 and $6,017,785,
respectively, and reserve balances amounted to $2,042,755 and $1,678,125
respectively. Retirement plan deposits are made solely by, and at the
discretion of, the Company's officers who participate in the plan.
(4) Notes Receivable
At December 31, 1998 and 1997, notes receivable consisted of the
following:
Interest Maturity Payment Balance
Note Rate Date Terms December 31,
- ---- -------- -------- ------- ------------------------
1998 1997
---- ----
277 Park Loan 12% 5/2007 Interest Only $ 25,000,000 $ 25,000,000
Abbey Credit
Facility LIBOR +4% 9/2000 Interest Only 46,019,350 28,626,650
IPH Mezzanine
Facility LIBOR +5% 6/1998* Interest Only - 9,821,036
Woodlands
Loan LIBOR +4.4% 7/2000 Interest Only 15,000,000 15,000,000
Park 80 Loan LIBOR +3% 3/1998 Interest Only - 5,100,000
Wellsford/
Whitehall
Bridge Loan LIBOR +4% 2/1998 Interest Only - 4,283,925
Sonterra Loan** 9% 7/1999** Interest Only - 17,800,000
REIT Bridge
Loan 9.875%*** 2/1999*** Interest Only 15,000,000 -
DeBartolo Loan 8.547% 7/2008 20 Year Amort. 17,677,943 -
Safeguard
Credit Fac. LIBOR +4% 4/2001 Interest Only 5,912,500 -
Other Various Various Various 96,706 -
------------ -----------
$124,706,499 $105,631,611
=========================
* Repaid in February 1998.
**Effectively repaid in January 1998 as part of the Sonterra
acquisition. See Note 12.
***In January 1999, the interest rate and maturity date of this loan
were modified to 12% and August 1999, respectively.
For additional information on the Company's notes receivable, see Note
10.
(5) Debt
At December 31, 1998 and 1997, the Company's debt consisted of the
following:
Maturity Stated Balance
Debt Date Interest Rate December 31,
---- -------- ------------- ------------------------
- -
1998 1997
---- ----
WRP Bank Facility (A) 5/1999 LIBOR +1.75% $ 17,000,000 $ 7,500,000
Palomino Park Bonds (B) 12/2035 Variable (C) 14,755,000 14,755,000
Blue Ridge Mortgage 1/2008 6.92% (D) 34,144,108 34,500,000
Red Canyon Mortgage 12/2008 6.68% (D) 27,000,000 -
Wellsford Capital Mtge. 10/2001 LIBOR +2.75% 28,000,000 -
Sonterra Mortgage 3/2008 6.87% (D) 16,277,682 -
------------ -----------
$137,176,790 $56,755,000
============ ===========
- ----------------------------
(A) The balance of the WRP Bank Facility was repaid in January 1999.
(B) Mortgage secures tax exempt bonds.
(C) Rate approximates the Standard & Poor's / J.J. Kenney index for
short-term high grade tax-exempt bonds (currently approximately
4%).
(D) Principal payments are made based on a 30-year amortization
schedule.
In December 1995, the Trust marketed and sold $14.8 million of tax-
exempt bonds to fund construction at Palomino Park. At December 31,
1998, $1.1 million of the bond proceeds were being held in escrow
pending their use for the funding of development. The bonds are secured
by a letter of credit from Dresdner Bank, AG, NY Branch ("Dresdner").
An affiliate of EQR has made its own credit available to Dresdner in the
form of a guaranty.
The Blue Ridge Mortgage is secured by the Blue Ridge property (Note 10).
The Red Canyon Mortgage is secured by the Red Canyon property (note 10).
The Sonterra Mortgage is secured by the Sonterra property (Note 10).
The Wellsford Capital Mortgage is secured by the properties acquired in
the VLP Merger (Note 10).
In May 1997, the Company obtained 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 "WRP Bank Facility"). The WRP Bank
Facility is secured by the EQR Preferred Commitment (Note 7) and the 277
Park Loan. The Company is obligated to pay a fee equal to one-quarter
of one percent (0.25%) per annum on the average daily amount of the
unused portion of the WRP Bank Facility until maturity.
The WRP Bank Facility contains various customary loan covenants and
requires the Company to maintain a ratio of total consolidated
liabilities to total consolidated assets of not more than 0.6 to 1, to
maintain an overall debt service coverage ratio of at least 1.5 to 1 and
to meet certain minimum borrowing base and equity level requirements.
The WRP Bank Facility also limits the amount of undeveloped land the
Company may hold.
The Company's long-term debt matures as follows: $17.8 million in 1999
(including the $17.0 million balance of the WRP Bank Facility which was
repaid in January 1999), $0.9 million in 2000, $29.0 million in 2001,
$1.0 million in 2002, $1.1 million in 2003 and $87.4 million thereafter.
The Company capitalizes interest related to buildings under construction
and renovation to the extent such assets qualify for capitalization.
Total interest capitalized during the years ended December 31, 1998,
1997 and 1996 was $0.8 million, $1.7 million and $0.7 million,
respectively.
(6) Transactions With Affiliates
In February 1997, the contracts to purchase certain commercial
properties were transferred to the Company by an entity ("Commercial
Partnership") of which Messrs. Lynford and Lowenthal and the wife of
Mark Germain (a director of the Company) are owners, for 218,447 shares
of common stock having an aggregate value of approximately $2.25 million
and the Company's agreement to repay a $1.0 million advance used for the
down payment on one of the properties. Upon liquidation of Commercial
Partnership, Mr. Lynford, Mr. Lowenthal and the wife of Mark Germain
each received approximately 16.4%, 16.4% and 13.8%, respectively, of the
shares of common stock issued to Commercial Partnership. The aggregate
purchase price for these commercial properties paid by the Company was
approximately $47.6 million, including the approximately $2.25 million
referred to above.
On May 30, 1997, the Company made short-term loans to Messrs. Lynford
and Lowenthal in the amounts of $590,000 and $119,000, respectively.
The proceeds of these loans, which were repaid on July 1, 1997, were
used to satisfy certain withholding tax obligations.
The Company earned approximately $0.1 million and $2.1 million in
interest income and $0.3 million and $0.1 million in management fees
during 1998 and 1997, respectively, from Wellsford/Whitehall (Note 10).
(7) Shareholders' Equity
On June 2, 1997, the Company completed the Private Placement. The
proceeds of the Private Placement of approximately $123.6 million have
been applied to (a) approximately $53 million to repay the WRP Bank
Facility and other debt on the date of the Private Placement and (b) the
balance towards certain investments described in Note 10 and working
capital.
In February 1998, the Company issued 3,350,000 shares of its common
stock in connection with the VLP Merger (see Note 10).
The WRP Bank Facility (Note 5) is secured by an affiliate of EQR's
commitment, until May 30, 2000, 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 common stock at a price of $11.124 (the "EQR
Preferred Commitment"). 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.
In December 1997, three of the Company's executive officers each
received a grant of 14,286 restricted common shares, which were issued
to the Company's non-qualified deferred compensation plan. Twenty
percent (20%) of each executive officer's restricted common shares vest
on each anniversary date of the grant (December 5, 1997) over a 5-year
period provided that the executive officer is still employed by the
Company (otherwise, any unvested restricted common shares will be
redeemed by the Company at $.01 per share). Based upon the market price
on the date of grant of $15.75 per common share, the restricted common
shares granted to each of the executive officers had a market value of
$225,000. The total deferred compensation is included in "Deferred
Compensation" and "General and Administrative Expense" on the Company's
consolidated financial statements.
In December 1998, four of the Company's executive officers received
grants of restricted common shares, which aggregated 304,228 shares and
were issued to the Company's non-qualified deferred compensation plan.
One third of each executive officer's restricted common shares vest on
each anniversary date of the grant (December 10, 1998) over a 3-year
period provided that the executive officer is still employed by the
Company (otherwise, any unvested restricted common shares will be
redeemed by the Company at $.01 per share). Based upon the market price
on the date of grant of $8.875 per common share, the restricted common
shares granted to the executive officers had an aggregate market value
of $2.7 million. The total deferred compensation is included in
"Deferred Compensation" and "General and Administrative Expense" on the
Company's consolidated financial statements.
In December 1997, two of the Company's executive officers each received
a grant of 19,048 common shares, which were issued to the Company's non-
qualified deferred compensation plan. Based upon the market price on
the date of grant of $15.75 per common share, the common shares granted
to each of the executive officers had a market value of approximately
$300,000, which is included in "General and Administrative" expense in
the Company's consolidated financial statements.
In December 1998, three of the Company's executive officers received
grants of common shares, which aggregated 90,142 shares and were issued
to the Company's non-qualified deferred compensation plan. Based upon
the market price on the date of grant of $8.875 per common share, the
common shares granted to the executive officers had an aggregate market
value of approximately $800,000, which is included in "General and
Administrative" expense in the Company's consolidated financial
statements.
The total value at the date of issuance of the Company's shares issued
to the Company's non-qualified deferred compensation plan, including
certain shares which were issued at the date of the Merger, is
approximately $4.9 million. Pursuant to Emerging Issues Task Force
Issue No. 97-14 (and 97-14A), "Accounting for Deferred Compensation
Arrangements where Amounts Earned are Held in a Rabbi Trust and
Invested," this amount has been classified as Treasury Stock in the
Company's consolidated financial statements.
In December 1998, the Company issued an aggregate of 6,353 common
shares, as compensation to the non-employee members of the Company's
board of directors pursuant to their related agreements, which were
valued at an aggregate of approximately $81,000.
Approximately $3.5 million of the Company's retained earnings relate to
the Company's joint venture investments.
The Company has warrants outstanding to issue a total of 4,280,230
shares of common stock (see Note 10).
The Company did not distribute any dividends during 1998 or 1997.
(8) Share Option Plan
The Company has adopted certain incentive plans for the purpose of
attracting and retaining the Company's directors, officers and
employees. The Company has established share option and management
incentive plans (the "Incentive Plans") which reserved 5,076,235 common
shares for issuance under the Incentive Plans. Options granted under
the Incentive Plans expire ten years from the date of grant, vest over
periods ranging generally from 6 months to 5 years, and generally
contain the right to receive reload options under certain conditions.
At December 31, 1998 and 1997, 572,117 and 115,545 of the Company's
outstanding options were exercisable, respectively. Options outstanding
for the periods ended December 31, 1998 and 1997, which had a weighted
average vesting period of approximately 4.1 years and 3.7 years,
respectively, are as follows:
Issued in 1997 as replacement options for Trust options
(exercise prices between $6.67 and $10.30 per share,
weighted average fair value of $5.19 per share) 1,326,235
Granted in 1997 (exercise prices between $10.30 and
$15.81 per share, weighted average fair value of
$7.31 per share) 1,622,375
Exercised in 1997 --
Forfeited in 1997 (1,000)
Expired in 1997 --
----------
December 31, 1997 (weighted average
exercise price of $12.20) 2,947,610
Granted in 1998 (exercise prices between $8.91 and
$20.00 per share, weighted average fair value of
$5.63 per share) 636,000
Exercised in 1998 --
Forfeited in 1998 (25,000)
Expired in 1998 --
----------
December 31, 1998 (weighted average exercise
price of $12.79) 3,558,610
=========
Pursuant to SFAS 123, described in Note 2, the pro forma net income
available to common shareholders as if the fair value approach to
accounting for share-based compensation had been applied would be $7.4
million or $0.37 per common share ($0.36 per diluted common share) in
1998 and $2.5 million or $0.14 per common share, basic and diluted, in
1997. The fair values of the options used in calculating these amounts
were calculated using the Black-Scholes option pricing model and the
following assumptions: (i) a risk-free interest rate of between 4.89%
and 6.27%, depending on the data available on the date of grant, (ii)
an expected life of 10 years, and (iii) an expected volatility between
20% and 38%, depending on the data available on the date of grant. The
Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and
are fully transferable. In addition, option pricing models require the
input of highly subjective assumptions including the expected share
price volatility. Because the Company's employee share options have
characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of its employee share options.
(9) Commitments and Contingencies
The Company has entered into employment agreements with four of its
officers. Such agreements are for terms which expire between 1999 and
2002, and provide for aggregate annual fixed payments of approximately
$1.0 million, $1.0 million and $0.6 million in 1997, 1998 and 1999
through 2002, respectively.
As a commercial real estate owner, the Company is subject to potential
environmental costs. At this point in time, management of the Company
is not aware of any environmental concerns that would have a material
adverse effect on the Company's financial position or future results of
operations.
In 1997 the Company adopted a defined contribution savings plan pursuant
to Section 401 of the Internal Revenue Code. Under such a plan there
are no prior service costs. All employees are eligible to participate
in the plan after one year of service. Employer contributions are made
based on a discretionary amount determined by the Company's management.
Employer contributions, if any, are based upon the amount contributed by
an employee. During 1998 and 1997, the Company made contributions of
approximately $12,000 and $4,000, respectively.
The Company has entered into an operating lease for its New York
headquarters. The lease is for 10 years and requires aggregate minimum
rental payments of $7.3 million over that period.
At December 31, 1998, the Company had the following discretionary
capital commitments. Draws under the Abbey Credit Facility and
Safeguard Credit Facility require additional collateral to be made
available to the Company which is subject to the Company's approval.
Capital calls related to investments to be made by the Company's joint
ventures are also subject to the Company's approval of such investments.
Item Amount
---- ------
Undrawn Abbey Credit Facility commitment $ 4.0 million
Undrawn Safeguard Credit Facility commitment $39.1 million
Undrawn Wellsford/Whitehall equity commitment $13.6 million
Undrawn Creamer Vitale Wellsford equity commitment $13.6 million
Undrawn Liberty Hampshire SPFC JV equity commitment $23.1 million
(10) Segment Information
Wellsford/ Commercial Debt and Development
Whitehall Property Equity and Land
Properties II, L.L.C.* Investments Investments Investments Other Consolidated
---------------------- ----------- ----------- ----------- ----- ------------
December 31, 1998 (000s)
- ------------------------
Real estate, net $ 493,177 $ - $ 37,666 $ 112,657 $ - $ 150,323
Notes receivable - - 124,707 - - 124,707
Investment in joint ventures - 69,529 11,248 - - 80,777
Cash and cash equivalents 8,585 49 2,999 1,528 13,553 18,129
Other assets 9,619 - 7,412 882 2,741 11,035
----------------- ---------- ---------- ------------ -------- ----------
Total assets $ 511,381 $ 69,578 $ 184,032 $ 115,067 $ 16,294 $ 384,971
================= ========== ========== ============ ======== ==========
Mortgage notes payable $ 68,043 $ - $ 28,000 $ 92,177 $ - $ 120,177
Credit facilities 276,197 - - - 17,000 17,000
Accrued expenses and
other liabilities 15,275 - 2,660 2,451 7,677 12,788
Minority interest - 47 - 3,334 - 3,381
Equity 151,866 69,531 153,372 17,105 (8,383) 231,625
----------------- ---------- ---------- ------------ -------- ----------
Total liabilities and equity $ 511,381 $ 69,578 $ 184,032 $ 115,067 $ 16,294 $ 384,971
================= ========== ========== ============ ======== ==========
Year Ended December 31, 1998 (000s)
- -----------------------------------
Rental income $ 53,460 $ - $ 4,761 $ 8,366 $ - $ 13,127
Interest income 163 - 12,130 401 357 12,888
----------------- ---------- ---------- ------------ -------- ----------
Total income 53,623 - 16,891 8,767 357 26,015
----------------- ---------- ---------- ------------ -------- ----------
Operating expenses 20,279 - 2,087 2,399 - 4,486
Depreciation and amortization 7,387 175 842 2,040 100 3,157
Interest 19,085 - 1,285 3,272 42 4,599
General and administrative 3,299 - 397 - 4,666 5,063
----------------- ---------- ---------- ------------ -------- ----------
Total expenses 50,050 175 4,611 7,711 4,808 17,305
----------------- ---------- ---------- ------------ -------- ----------
Gain on sale of investments 2,866 - 139 - - 139
Income from joint venture - 2,812 711 - - 3,523
Minority Interest - - (50) (28) - (78)
----------------- ---------- ---------- ------------ -------- ----------
Income (loss) before taxes $ 6,439 $ 2,637 $ 13,080 $ 1,028 $(4,451) $ 12,294
================= ========== ========== ============ ======== ==========
December 31, 1997 (000s)
- --------------------------
Real estate, net $ 218,846 $ - $ - $ 58,741 $ - $ 58,741
Notes receivable - - 87,832 17,800 - 105,632
Investment in joint venture - 44,780 - - - 44,780
Cash and cash equivalents 2,878 - - - 29,896 29,896
Other assets 7,311 - 1,313 3,040 6,572 10,925
----------------- ---------- ---------- ------------ -------- ----------
Total assets $ 229,035 $ 44,780 $ 89,145 $ 79,581 $ 36,468 $ 249,974
================= ========== ========== ============ ======== ==========
Mortgage notes payable $ 4,284 $ - $ - $ 49,255 $ - $ 49,255
Credit facilities 146,909 - - 7,500 - 7,500
Accrued expenses and
other liabilities 3,717 - - 1,838 7,925 9,763
Minority interest - - - 2,297 - 2,297
Equity 74,125 44,780 89,145 18,691 28,543 181,159
----------------- ---------- ---------- ------------ -------- ----------
Total liabilities and equity $ 229,035 $ 44,780 $ 89,145 $ 79,581 $ 36,468 $ 249,974
================= ========== ========== ============ ======== ==========
Year Ended December 31, 1997 (000s)
- -----------------------------------
Rental income $ 8,504 $ 1,291 $ - $ - $ - $ 1,291
Interest income 24 - 5,002 1,602 1,175 7,779
----------------- ---------- ---------- ------------ -------- ----------
Total income 8,528 1,291 5,002 1,602 1,175 9,070
----------------- ---------- ---------- ------------ -------- ----------
Operating expenses 3,494 365 - - - 365
Depreciation and amortization 1,220 188 - - 106 294
Interest 2,949 - - - - -
General and administrative 835 - - - 3,160 3,160
----------------- ---------- ---------- ------------ -------- ----------
Total expenses 8,498 553 - - 3,266 3,819
----------------- ---------- ---------- ------------ -------- ----------
Income from joint venture - 15 - - - 15
----------------- ---------- ---------- ------------ -------- ----------
Income (loss) before taxes $ 30 $ 753 $ 5,002 $ 1,602 $(2,091) $ 5,266
================= ========== ========== ============ ======== ==========
* The Company accounts for its investment in this joint venture under the equity method. This investment is held in the
Company's "Commercial Property Investments" segment.
/TABLE
(10) Segment Information (continued)
Commercial Property Operations - Wellsford/Whitehall
Wellsford/Whitehall Properties II, L.L.C. ("Wellsford/Whitehall") owned
and operated 35 office buildings containing approximately 4.6 million
square feet ("SF") of office space as of December 31, 1998, including
approximately 1.4 million SF under renovation, with an aggregate gross
book value of approximately $501.7 million.
At the time of the Spin-off, the Company owned six commercial office
buildings, five of which were vacant at that time, containing an
aggregate of approximately 949,400SF and acquired for an aggregate of
approximately $47.6 million (the "WRP Commercial Properties").
In August 1997, the Company, 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.
The Company contributed the WRP Commercial Properties and Whitehall
contributed four commercial properties upon formation of
Wellsford/Whitehall. The Company manages Wellsford/Whitehall on a day-
to-day basis, and certain major decisions require the consent of both
partners. The Company had a 47.7% interest in Wellsford/Whitehall at
December 31, 1998.
Two properties, 700 Atrium Drive and Mountain Heights (two buildings),
were acquired in September and December 1997, respectively, for $18.1
million and $29.1 million, respectively. In addition,
Wellsford/Whitehall purchased an industrial warehouse in New Jersey in
December 1997 for $7.1 million.
The Wellsford/Whitehall transactions described above were funded
primarily by capital contributions from the Company and Whitehall, by
$48 million in debt which encumbered certain of the properties
contributed by Whitehall (the "Atrium Loan") which was assumed by
Wellsford/Whitehall, and by a term loan agreement (the
"Wellsford/Whitehall Bridge Loan") between the Company and
Wellsford/Whitehall.
The Atrium Loan bore interest at LIBOR +3%. Wellsford/Whitehall has an
interest rate protection agreement which was related to this loan which
caps LIBOR at 7.69% on a notional balance of $64 million until June 15,
2000. The lender on this loan was Goldman Sachs Mortgage Company. The
Atrium Loan was repaid in December 1997. Wellsford/Whitehall has
retained the interest rate protection agreement to hedge other floating
rate borrowings.
Pursuant to the Wellsford/Whitehall Bridge Loan, the Company agreed to
loan Wellsford/Whitehall up to approximately $86.3 million bearing
interest at LIBOR +3% until November 26, 1997 and at LIBOR +4% until
maturity. The Wellsford/Whitehall Bridge Loan was fully repaid in 1998.
In December 1997, Wellsford/Whitehall obtained a $375 million loan
facility (the "Wellsford/Whitehall Bank Facility") from BankBoston 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 bore interest at LIBOR
+1.6% and had a term of four years; the revolving credit facility bore
interest at LIBOR +2.5% and had a term of three years.
In February 1998, Wellsford/Whitehall acquired a 65,000SF 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/Whitehall.
In March 1998, Wellsford/Whitehall purchased an 82,000 SF property in
Somerset, NJ for approximately $5.4 million.
In May 1998, Wellsford/Whitehall completed the acquisition of a
977,000SF portfolio of thirteen office buildings for $148.7 million (the
"Boston Portfolio"). The Boston Portfolio was financed with (i) the
assumption of $68.3 million of mortgage debt, (ii) a $35.8 million draw
on the Wellsford/Whitehall Bank Facility, (iii) the issuance of $19.0
million of Wellsford/Whitehall 6% convertible preferred units, (iv)
$18.0 million of capital contributions and (v) the issuance of $7.6
million of Wellsford/Whitehall common units.
In May 1998, Wellsford/Whitehall acquired two warehouse buildings
totaling approximately 470,000SF for $28.4 million in Needham, MA.
In June 1998, Wellsford/Whitehall acquired an approximately 63,000SF
building located in Andover, MA for approximately $7.4 million and two
office buildings totaling 104,000SF located in Basking Ridge, NJ for
approximately $15.0 million.
In July 1998, Wellsford/Whitehall modified the Wellsford/Whitehall Bank
Facility. 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 Wellsford/Whitehall. As of December 31, 1998, approximately
$276.2 million was outstanding under the Wellsford/Whitehall Bank
Facility ($207.3 million of which was under the senior facility).
In September 1998, Wellsford/Whitehall purchased two office buildings
totaling approximately 199,000SF in Franklin Township, NJ for
approximately $22.8 million.
In November 1998, Wellsford/Whitehall purchased a 38,000SF office
building in Columbia, MD for approximately $2.6 million.
In December 1998, Wellsford/Whitehall purchased a 147,000SF office
building in Ridgefield Park, NJ for approximately $19.3 million.
The 1998 Wellsford/Whitehall acquisitions described above, other than
the Boston Portfolio, were funded primarily by capital contributions
from the Company and Whitehall, and by draws on the Wellsford/Whitehall
Bank Facility.
The Company is entitled to incentive compensation equal to (a) 17.5% of
available cash after a return of capital to the Company and Whitehall
and a 17.5% return on equity to each of them, and (b) 22.5% of available
cash after a 22.5% return on equity to the Company and Whitehall. The
Company and Whitehall have committed to make additional equity
contributions of $50 million each for new acquisitions, capital needs,
and working capital, of which $13.6 million remained unfunded by each at
December 31, 1998. Whitehall may exchange the membership units it
receives in Wellsford/Whitehall relating to capital contributions in
excess of an additional $25 million up to an additional $50 million, for
shares of the Company's common stock or, in the Company's sole
discretion, cash, based upon the price paid for such membership units
and the current market value of the Company's common stock.
In connection with the formation of Wellsford/Whitehall, the Company
issued warrants (the "Whitehall Warrants") to Whitehall to purchase
4,132,230 shares of the Company's common stock at an exercise price of
$12.10 per share. The Whitehall Warrants are exercisable for five years
for either, at the Company's option, shares of the Company's common
stock or cash. The exercise price for the Whitehall Warrants is payable
in cash or, after August 28, 1999, either with cash or membership units
in Wellsford/Whitehall.
The Company has agreed with Whitehall to conduct its business and
activities relating to office properties (but not other types of
commercial properties) located in North America solely through its
interest in Wellsford/Whitehall except, in certain circumstances, where
Wellsford/Whitehall has declined the investment opportunity.
Debt and Equity Activities
At December 31, 1998, the Company had $124.7 million of debt investments
which bore interest at an average yield of approximately 4.6% over LIBOR
and had an average remaining term to maturity of 4.1 years.
277 Park
The Company and BankBoston have provided an $80 million loan (the "277
Park Loan") to entities which own substantially all of the equity
interests (the "Equity Interests") in the entity which owns an
approximately 1.75 million SF office building located in New York City
(the "277 Park Property"). The Company has advanced $25 million
pursuant to the 277 Park Loan. The 277 Park Loan is secured primarily
by a pledge of the Equity Interests owned by the borrowers. The 277
Park Loan is subordinated to a 10-year $345 million first mortgage loan
(the "REMIC Loan") on the 277 Park Property. The 277 Park Loan bears
interest at the rate of approximately 12% per annum for the first nine
years of its term and at a floating annual rate during the tenth year
equal to LIBOR +5.15% or the BankBoston base rate plus 5.15%, as elected
by the borrowers. The principal amount of the 277 Park Loan and all
accrued interest will be payable in May 2007; the REMIC Loan is also due
in May 2007. The Company earned approximately $3.0 million in interest
income, or 11.5% of its total non-joint venture revenues, on the 277
Park Loan during 1998.
The Abbey Company
In August 1997, the Company and Morgan Guaranty Trust Company of New
York ("MGT") originated a $70 million secured credit facility (the
"Abbey Credit Facility") to affiliates of The Abbey Company, Inc.
("Abbey"). In May 1998, the Company and MGT expanded the Abbey Credit
Facility to $120 million. In December 1998, Abbey repaid $20 million,
thereby reducing the total available to $100 million.
The Abbey Credit Facility will be made available to Abbey until
September 2000. Advances under the facility can be made for up to 65%
of the value of the borrowing base collateral which consisted of 24
properties, all cross-collateralized, totaling approximately 1.7 million
SF at December 31, 1998.
As of December 31, 1998, approximately $46.0 million had been advanced
by the Company under the Abbey Credit Facility. Under the terms of its
participation agreement with MGT, the Company will fund a 50% junior
participation on all advances under the Abbey Credit Facility.
The Company is entitled to receive interest on its advances under the
Abbey Credit Facility at LIBOR +4%. The Company earned approximately
$3.9 million, or 15.0% of its total non-joint venture revenues, on the
Abbey Credit Facility during 1998.
IPH Mezzanine Facility
In December 1997, Wellsford Ventures, Inc. ("Ventures"), a wholly-owned
subsidiary of the Company, joined with Fleet Real Estate, Inc. ("FRE"),
a subsidiary of Fleet Financial Group, to issue an approximately $32.5
million subordinated credit facility (the "IPH Mezzanine Facility") to
Industrial Properties Holding, L.P. ("IPH"). Each of Ventures and FRE
were committed to advance up to 50% of the IPH Mezzanine Facility.
Ventures advanced approximately $9.8 million under the IPH Mezzanine
Facility. The IPH Mezzanine Facility was repaid in February 1998, at
which time the Company received a total of $0.8 million in interest and
fees. Advances under the IPH Mezzanine Facility bore interest at an
annual rate of LIBOR +5%.
Woodlands
In December 1997, BankBoston, Morgan Stanley Senior Funding, Inc. and
certain other lenders made available to the owners and developers of a
25,000 acre master-planned residential community located north of
Houston (the "Woodlands Property"), loans in the aggregate principal
amount of $369 million (the "Woodlands Loan"). The Woodlands Loan
consists of a revolving credit loan in the principal amount of $179
million (the "Revolving Loan"), a secured term loan in the principal
amount of $130 million (the "Secured Loan"), and a second secured term
loan in the principal amount of $60 million (the "Second Secured Loan").
The Company has advanced $15 million pursuant to the Second Secured
Loan. The Second Secured Loan is subordinate to the Revolving Loan and
the Secured Loan and bears interest equal to LIBOR +4.40%. Interest on
the Second Secured Loan is payable monthly to the extent there is
available cash after payment of interest on the Revolving Loan and the
Secured Loan and provided no event of default has occurred under the
Woodlands Loan. The principal amount of the Woodlands Loan and all
accrued interest thereon will be payable on July 31, 2000, with two,
one-year extension options available.
Park 80
In December 1997, the Company originated a $5.1 million loan bearing
interest at LIBOR +3% which was repaid in August 1998 (the "Park 80
Loan"). The Park 80 Loan was secured by a mortgage on an 80,000SF mid-
rise office building in Saddlebrook, New Jersey.
Value Property Trust
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, which was accounted for as
a purchase. As of December 31, 1998, approximately $5.1 million was
recorded as a net deferred tax asset reflecting the value of VLP's net
operating loss carryforwards. 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. 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. The following is a schedule by years of future
minimum rentals on non-cancelable operating leases related to these
properties as of December 31, 1998:
Year ending December 31:
1999 $ 3,932,869
2000 3,332,939
2001 2,719,396
2002 1,724,215
2003 1,152,237
Later years 3,981,242
-----------
Total minimum
future rentals $16,842,898
===========
In October 1998, the Company closed on $28 million of non-recourse
financing (the "Wellsford Capital Mortgage") on the portfolio of seven
commercial properties acquired in the VLP Merger. The loan bears
interest at LIBOR +2.75% and has a term of three years. The proceeds
were used to repay amounts outstanding on the WRP Bank Facility and for
working capital purposes.
Clairborne Investors
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
November 1998, Creamer Vitale Wellsford acquired a $17 million
participation in a $56 million mortgage, bearing interest at LIBOR
+1.75% and due in 3.5 years, at a significant discount to face value.
The Company funded approximately $1.4 million of this participation.
DeBartolo
In July 1998, the Company purchased an $18 million participation in a
$175 million loan (the "DeBartolo Loan"). The DeBartolo Loan is secured
by partnership units in Simon DeBartolo Group, L.P., the operating
partnership of a real estate investment trust which owns approximately
175 million SF 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 July 2008.
REIT Bridge Loan
In August 1998, the Company funded a $15 million participation in a $100
million unsecured loan (the "REIT Bridge Loan") to a publicly traded
real estate investment trust which owns 22 regional malls, eight
multifamily apartment properties and five office properties nationwide.
This loan bore interest at 9.875% and was due in February 1999 with two
three-month extensions available to the borrower. In January 1999, the
REIT Bridge Loan was modified to extend the maturity date to August 1999
and increase the interest rate to 12%. The borrower paid a 1.5% loan
fee at origination and a 1% loan fee upon modification.
Liberty Hampshire
In July and August 1998, the Company invested a total of $2.1 million in
the Liberty Hampshire Company, L.L.C. ("Liberty Hampshire") which
structures, establishes and provides management and services for special
purpose finance companies ("SPFCs") formed to invest in financial
assets. The Company also invested a total of $4.4 million in a joint
venture SPFC with Liberty Hampshire. This SPFC has invested in a
participation in the DeBartolo Loan and has acquired an interest in REIS
Reports, Inc.("REIS"), a leading provider of real estate market
information to institutional investors. The primary shareholder of REIS
is the brother of Mr. Lynford; Mr. Lynford recused himself from the REIS
investment decision.
Safeguard
In December 1998, the Company and MGT originated a $90 million secured
credit facility (the "Safeguard Credit Facility") to Safeguard Capital
Fund, L.P. ("Safeguard").
The Safeguard Credit Facility will be made available to Safeguard until
April 2001. Advances under the facility can be made for up to 75% of
the value of the borrowing base collateral which consisted of 4
properties, all cross-collateralized, totaling approximately 0.3 million
SF at December 31, 1998.
As of December 31, 1998, approximately $5.9 million had been advanced by
the Company under the Safeguard Credit Facility. Under the terms of its
participation agreement with MGT, the Company will fund a 50% junior
participation on all advances under the Safeguard Credit Facility.
The Company is entitled to receive interest on its advances under the
Safeguard Credit Facility at LIBOR +4%.
Property Development and Land Operations
Palomino Park
The Company owns an approximate 80% interest in Phases I, II, III and IV
of, and in an option to acquire (at a fixed price) and develop phase V
of, a 1,800-unit class A multifamily development ("Palomino Park") in a
suburb of Denver, Colorado. The Company has a related $14.8 million
tax exempt mortgage note payable which requires interest only payments
at a variable rate (currently approximately 4%) until it matures in
December 2035 (the "Palomino Park Bonds"). The tax exempt mortgage note
payable is security for tax-exempt bonds, which are backed by a letter
of credit from a AAA rated financial institution. The Company and an
affiliate of EQR have guaranteed the reimbursement of the financial
institution in the event that the letter of credit is drawn upon (the
latter guarantee being the "EQR Enhancement").
In December 1997, Phase I, known as Blue Ridge, was completed at a cost
of approximately $41.5 million. At that time, the Company obtained a
$34.5 million permanent loan (the "Blue Ridge Mortgage") secured by a
mortgage on Blue Ridge. The Blue Ridge Mortgage matures in January 2008
and bears interest at a fixed rate of 6.92%. Principal payments are
based on a 30-year amortization schedule.
In November 1998, Phase II, known as Red Canyon, was completed at a cost
of approximately $33.9 million. At that time, the Company acquired Red
Canyon and the related construction loan was repaid with the proceeds of
a $27 million permanent loan (the "Red Canyon Mortgage") secured by a
mortgage on Red Canyon. The Red Canyon Mortgage matures in December
2008 and bears interest at a fixed rate of 6.68%. Principal payments
are based on a 30-year amortization schedule.
The Company had a gross investment of approximately $18.8 million
at December 31, 1998 in one multifamily development project, Silver
Mesa, which is Phase III of Palomino Park consisting of 264 units,
and related infrastructure costs. 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. In addition, the Company is obligated
to fund the first 20% of construction costs on this project as they
are incurred. Silver Mesa is owned by Silver Mesa at Palomino Park
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 (1%).
In May 1997, the Company acquired the land for Silver Mesa for
approximately $2.1 million.
In May 1998, the Company acquired the land for Phase IV for
approximately $3.2 million.
Sonterra
From the time of the Spin-off, the Company held a $17.8 million mortgage
on, and option to purchase, a 344-unit class A residential apartment
complex ("Sonterra at Williams Centre") in Tucson, Arizona.
In January 1998, the Company exercised its option and acquired Sonterra
at Williams Centre for approximately $20.5 million, including
satisfaction of the mortgage. In February 1998, the Company closed on
$16.4 million of mortgage financing (the "Sonterra Mortgage") on this
property, bearing interest at 6.87% and maturing in March 2008.
Principal payments are based on a 30-year amortization schedule.
(11) Fair Value of Financial Instruments
The Company held the following financial instruments at December 31,
1998:
Balance Interest Maturity Other Fair Value
Item (thousands) Rate Date Terms (thousands)
---- ----------- -------- --------- ------ -----------
277 Park Loan $ 25,000 12% 5/2007 Interest only $ 27,580 (C)
Abbey Credit
Facility 46,019 LIBOR+ 4% 9/2000 Interest only 46,019 (D)
Woodlands Loan 15,000 LIBOR +4.4% 7/2000 Interest only 15,000 (D)
REIT Bridge Loan 15,000 9.875%* 2/1999* Interest only 15,000 (E)
DeBartolo Loan 17,678 8.547% 7/2008 20 Year Amort. 16,916 (F)
Safeguard Credit
Fac. 5,913 LIBOR+ 4% 4/2001 Interest only 5,913 (D)
------- --------
Total Notes Rec. $124,610 $126,428
======== =========
WRP Bank Facility $ 17,000 LIBOR+1.75% 5/1999 (B) $ 17,000 (G)
Palomino Park
Bonds 14,755 (A) 12/2035 Interest only 14,755 (G)
Blue Ridge Mtge. 34,144 6.92% 1/2008 30 Year Amort. 34,144 (H)
Red Canyon Mtge. 27,000 6.68% 12/2008 30 Year Amort. 27,000 (I)
Wellsford Cap.
Mtge. 28,000 LIBOR + 2.75% 10/2001 Interest Only 28,000 (G)
Sonterra Mortgage 16,278 6.87% 3/2008 30 Year Amort. 16,278 (H)
------- --------
Total Debt $137,177 $137,177
======= ========
*In January 1999, the interest rate and maturity date of this loan were
modified to 12% and August 1999, respectively.
(A) Rate approximates the Standard & Poor's/J.J. Kenney index for
short-term high grade tax-exempt bonds (currently approximately
4%).
(B) For more information on the WRP Bank Facility, see Note 5.
(C) The fair value of this investment was determined by reference to
various market data.
(D) The fair value of the Company's floating rate investments is
considered to be their carrying amount.
(E) The fair value of this short term investment is considered to be
its carrying amount.
(F) The fair value of this investment was determined by reference to
various market data.
(G) The fair value of the Company's floating rate debt is considered to
be its carrying amount.
(H) The fair value of this mortgage is considered to be its carrying
amount since it is similar in both terms and collateral to the Red
Canyon Mortgage, which reflects current market conditions (see (I)
below).
(I) The fair value of this mortgage is considered to be its carrying
amount as it is a recently executed transaction reflective of
current market conditions.
(12) Summarized Consolidated Quarterly Information (Unaudited)
Summarized consolidated quarterly financial information for the years
ended December 31, 1998 and 1997 is as follows:
Three Months Ended (Unaudited)
---------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1998
- ----------------
Revenue $ 6,225,168 $ 8,358,939 $ 6,777,822 $ 8,315,494
Expenses 3,499,879 4,160,672 4,790,082 4,932,736
----------- ----------- ----------- -----------
Income before taxes 2,725,289 4,198,267 1,987,740 3,382,758
Income tax expense 1,248,000 1,984,000 (1,029,000) 647,298
----------- ----------- ----------- -----------
Net income avail-
able for common
shareholders $ 1,477,289 $ 2,214,267 $ 3,016,740 $ 2,735,460
=========== =========== =========== ===========
Net income per
common share,
basic* $ 0.08 $ 0.11 $ 0.15 $ 0.13
=========== =========== =========== ===========
Net income per
common share,
diluted* $ 0.08 $ 0.10 $ 0.15 $ 0.13
=========== =========== =========== ===========
Weighted average
number of common
shares out-
standing 18,376,910 20,349,688 20,349,688 20,441,157
========== ========== ========== ==========
Three Months Ended (Unaudited)
------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1997
- ----------------
Revenue $ 400,500 $ 1,775,359 $ 3,369,120 $ 3,540,531
Expenses -- 475,728 1,631,215 1,712,483
----------- ----------- ----------- -----------
Income before taxes 400,500 1,299,631 1,737,905 1,828,048
Income tax expense -- 284,000 719,000 1,210,007
----------- ----------- ----------- -----------
Net income available
for common
shareholders $ 400,500 $ 1,015,631 $ 1,018,905 $ 618,041
=========== =========== =========== ===========
Net income per
common share,
basic* $ 0.02 $ 0.06 $ 0.06 $ 0.04
=========== =========== =========== ===========
Net income per
common share,
diluted* $ 0.02 $ 0.06 $ 0.06 $ 0.03
=========== =========== =========== ===========
Weighted average
number of common
shares out-
standing 16,911,849 16,911,849 16,911,849 16,935,776
=========== =========== =========== ===========
All earnings per share amounts conform with SFAS 128 requirements (Note 2).
* Aggregate quarterly earnings per share amounts may not equal annual
amounts presented elsewhere in these consolidated financial statements
due to rounding differences.
(13) Subsequent Events
In January 1999, the Company acquired a parcel of land in Broomfield, CO
for approximately $7.2 million. In connection with this transaction,
the Company collected $0.4 million of consulting fees in 1998 and
expects to receive a minimum of $0.9 million in 1999. A third party has
an option to purchase this parcel of land for $7.2 million until April
30, 1999.
In January 1999, a wholly-owned subsidiary of the Company obtained a $35
million secured loan facility (the "Wellsford Finance Bank Facility")
from BankBoston, which can potentially be increased to $50 million. The
Wellsford Finance Bank Facility bears interest at LIBOR + 2.75% and has
a term of 3 years. The Company immediately drew $35 million on this
line, the proceeds of which were used (a) to repay the $17 million
balance of the WRP Bank Facility, and (b) for working capital purposes.
The Company is obligated to pay a fee equal to one-quarter of one
percent (0.25%) per annum on the average daily amount of the unused
portion of the Wellsford Finance Bank Facility until maturity.
In January 1999, the REIT Bridge Loan was modified as described in Note
10.
Consolidated Financial Statements
Wellsford/Whitehall Properties II, L.L.C.
and Subsidiaries
December 31, 1998
with Report of Independent Auditors
WELLSFORD/WHITEHALL PROPERTIES II, L.L.C. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Page No.
--------
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . .3
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Income. . . . . . . . . . . . . . . . . . . .5
Consolidated Statements of Changes in Members' Equity. . . . . . . . . .6
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . .7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .9
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Members of Wellsford/Whitehall Properties II, L.L.C.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Wellsford/Whitehall Properties II, L.L.C. (formerly Wellsford/Whitehall
Properties, L.L.C.) and subsidiaries (the "Company") as of December 31, 1998
and 1997, and the related consolidated statements of income, changes in
members' equity and cash flows for the year ended December 31, 1998 and for
the period from August 28, 1997 (Inception) to December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Wellsford/Whitehall Properties II, L.L.C. and subsidiaries at December 31,
1998 and 1997, and the consolidated results of their operations and their
cash flows for the year ended December 31, 1998 and for the period from
August 28, 1997 (Inception) to December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 12, 1999
Wellsford/Whitehall Properties II, L.L.C. and Subsidiaries
Consolidated Balance Sheets
December 31,
--------------------------------
1998 1997
-------------- --------------
ASSETS
Real estate assets,
at cost - Notes 3,4,5 and 6
Land $ 61,131,765 $ 26,884,000
Buildings and improvements 387,897,683 161,567,641
-------------- --------------
449,029,448 188,451,641
Less, accumulated depreciation (8,484,889) (1,219,849)
-------------- --------------
440,544,559 187,231,792
Construction in progress 52,662,902 31,510,074
-------------- --------------
493,207,461 218,741,866
Cash and cash equivalents 6,410,614 2,878,259
Restricted cash 2,174,026 --
Deferred costs, net of
accumulated amortization 3,764,980 4,774,774
Receivables, prepaids
and other assets (Note 7) 5,823,846 2,639,634
------------- --------------
Total Assets $ 511,380,927 $ 229,034,533
============== ==============
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgage loan (Note 6) $ 68,043,333 $ --
Secured revolving credit
facility (Note 6) -- 38,984,000
Secured term loan (Note 6) -- 107,925,000
Secured senior credit facility (Note 6) 207,289,846 --
Secured mezzanine credit
facility (Note 6) 68,907,482 --
Unsecured loan (Note 6) -- 4,283,925
Accrued expenses and other liabilities
(Note 7) 11,224,384 3,122,371
Distributions payable (Note 8) 3,298,814 --
Security deposits 751,234 594,094
------------ --------------
Total Liabilities 359,515,093 154,909,390
------------- --------------
Commitments and contingencies -
Notes 6, 8, 9 and 11 -- --
Members' Equity (Note 8):
Membership units, $.01 par
value per unit 99,403 64,855
Paid in capital 130,032,663 74,030,079
Series A convertible preferred
membership units 19,000,000 --
Retained earnings 2,733,768 30,209
-------------- --------------
Total Members' Equity 151,865,834 74,125,143
-------------- --------------
Total Liabilities and
Members' Equity $ 511,380,927 $ 229,034,533
============== ==============
See Accompanying Notes
Wellsford/Whitehall Properties II, L.L.C. and Subsidiaries
Consolidated Statements of Income
For the
Period From
For the August 28, 1997
Year Ended (Inception) to
December 31, 1998 December 31, 1997
----------------- -----------------
Revenues:
Rental income (Note 4) $ 52,514,859 $ 8,334,619
Interest and other income 1,108,437 193,086
--------------- ----------------
Total revenues 53,623,296 8,527,705
--------------- ----------------
Expenses:
Property operations and maintenance 13,379,303 2,346,644
Real estate taxes 5,550,662 970,501
Depreciation and amortization 7,387,077 1,219,849
Property and asset management 1,348,552 175,873
Interest (Note 6) 19,085,016 2,949,280
General and administrative 3,299,496 835,349
--------------- ----------------
Total Expenses 50,050,106 8,497,496
--------------- ----------------
Income before gain on disposition
and distributions to Series A
convertible preferred
membership unit holders 3,573,190 30,209
Gain on disposition (Note 3) 2,866,183 --
--------------- ----------------
Net income before distributions
to Series A convertible preferred
membership unit holders 6,439,373 30,209
Distributions to Series A convertible
preferred membership unit holders (728,333) --
--------------- ----------------
Net income available for membership
unit holders $ 5,711,040 $ 30,209
=============== ================
Net income per membership unit
(Note 2) $ 0.69 $ 0.01
=============== ================
Weighted average number of
membership units outstanding
(Note 2) $ 8,291,273 $ 5,277,314
=============== ================
See Accompanying Notes
Wellsford/Whitehall Properties II, L.L.C. and Subsidiaries
Consolidated Statement of Changes in Members' Equity
For the Period from August 28, 1997 (Inception) to December 31, 1998
Series A
Convertible
Membership Units Preferred Total
-------------------- Paid-in Membership Retained Members'
Units Amount Capital Units Earnings Equity
--------- --------- ------------ ----------- --------- ------------
Initial equity
contributions -
August 28, 1997 5,000,000 $50,000 $49,950,000 $ -- $ -- $50,000,000
(Inception)
Additional equity
contributions 1,485,508 14,855 24,080,079 -- -- 24,094,934
Net income -- -- -- -- 30,209 30,209
-------- ------- ------------ ----------- --------- ------------
December 31, 1997 6,485,508 64,855 74,030,079 -- 30,209 74,125,143
Issuance of membership
units in connection
with contribution of
assets 468,557 4,686 7,595,309 19,000,000 -- 26,599,995
Additional equity
contributions 2,986,260 29,862 48,407,275 -- -- 48,437,137
Net income -- -- -- 728,333 5,711,040 6,439,373
Distributions -- -- -- (728,333) (3,007,481) (3,735,814)
---------- ------- ------------ ----------- ---------- ------------
December 31, 1998 9,940,325 $99,403 $130,032,663 $19,000,000 $2,733,768 $151,865,834
========== ======= ============ =========== ========== ============
See Accompanying Notes
Wellsford/Whitehall Properties II, L.L.C. and Subsidiaries
Consolidated Statement of Cash Flows
For the
Period From
For the August 28, 1997
Year Ended (Inception) to
December 31, 1998 December 31, 1997
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Basic Earnings $ 6,439,373 $ 30,209
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on disposal of real estate
assets (2,866,183) --
Depreciation and amortization 7,387,077 1,233,889
Amortization of deferred
financing costs 1,672,413 --
Deferred rental revenue (1,476,178) (380,103)
Decrease (increase) in assets:
Receivables, prepaids and other
assets (851,453) 192,076
(Decrease) increase in liabilities:
Accrued expenses and other
liabilities 4,828,066 1,285,498
Security deposits 157,140 --
-------------- ------------
Net cash provided by operating
activities 15,290,255 2,361,569
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of real estate assets (163,082,206) (46,768,417)
Prepaid acquisition costs (1,124,579) --
Disposal of real estate assets, net of
selling expenses 4,561,013 --
Improvements to real estate assets (22,066,915) (15,519,011)
------------- ------------
Net cash used in investing activities (181,712,687) (62,287,428)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term loans 23,587,620 107,925,000
Proceeds from credit facilities 67,037,844 38,984,000
Proceeds from mortgage loans -- 375,602
Proceeds from unsecured loan -- 48,025,000
Proceeds from secured senior credit
facility 207,289,846 --
Proceeds from secured mezzanine credit
facility 68,907,482 --
Repayment of term loans (131,512,620) --
Repayment of credit facilities (106,021,844) --
Repayment of mortgage loans (297,483) (48,468,556)
Repayment of unsecured loan (4,283,925) (105,440,515)
Increase in restricted cash (2,174,026) --
Deferred financing and organization
costs (578,244) (4,774,774)
Preferred distributions (437,000) --
Initial cash contribution -- 2,083,427
Equity contributions 48,437,137 24,094,934
------------- ------------
Net cash provided by financing
activities 169,954,787 62,804,118
------------- ------------
Net increase in cash & cash
equivalents 3,532,355 2,878,259
Cash & cash equivalents, beginning
of period 2,878,259 --
------------- ------------
Cash & cash equivalents, end of period $ 6,410,614 $ 2,878,259
============= ============
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest $ 18,296,284 $ 2,953,786
============= ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Initial contribution of real estate
assets $157,927,131
Initial contribution of other assets 968,786
Assumption of unsecured loan (61,699,440)
Assumption of mortgage (48,092,954)
Assumption of other liabilities (1,186,950)
Initial equity contribution (50,000,000)
------------
Initial cash contribution $ (2,083,427)
============
Membership units issued in exchange
for contribution of real estate
assets $ 7,599,995
Series A convertible preferred
membership units issued in exchange
for contribution of real estate
assets 19,000,000
Assumption of mortgage loan 68,340,816
Purchase of real estate assets (94,940,811)
-------------
$ 0
=============
See Accompanying Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WELLSFORD/WHITEHALL PROPERTIES II, L.L.C. AND SUBSIDIARIES
DECEMBER 31, 1998
(1) Organization and Business
Wellsford/Whitehall Properties II, L.L.C. (formerly Wellsford/Whitehall
Properties, L.L.C.) and subsidiaries (the "Company") was formed on
August 28, 1997 as a private real estate operating company. The Company
is a joint venture between Wellsford Commercial Properties Trust
("WCPT"), a subsidiary of Wellsford Real Properties, Inc. ("WRP"), and
WHWEL Real Estate Limited Partnership ("Whitehall"), an affiliate of
Goldman, Sachs & Co (the "Members"). The Company will terminate on
December 31, 2045, unless sooner by the written consent of the Members.
The Company seeks to acquire commercial properties and create value
through adaptive reuse. 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 enhanced returns which are greater than returns which could be
achieved by acquiring a stabilized property. The Company's current
target markets include New York, New Jersey, Connecticut and the Boston,
Baltimore and Washington D.C. metropolitan areas. WCPT manages the
Company on a day-to-day basis, and certain major and operational
decisions require the consent of both partners. WCPT intends to qualify
as a real estate investment trust ("REIT").
On May 15, 1998 thirteen office buildings located in suburban Boston
with an aggregate value of approximately $148.7 million were contributed
to the Company for a combination of cash, Series A convertible preferred
membership units and membership units (the "Saracen Transaction"). In
connection with this transaction, several shareholders of the Saracen
Companies (the "Saracen Members") were issued both Series A convertible
preferred membership units and membership units and the Company assumed
a mortgage loan on six of the properties aggregating approximately $68.3
million.
The Company currently owns and operates 35 commercial buildings
containing approximately 4.6 million square feet ("SF") of office space
in the Northeastern United States, including approximately 1.4 million
SF under renovation. The properties are located in Northern New Jersey
(16), Downtown Boston (1), Suburban Boston (16), Suburban Baltimore (1)
and Washington, D.C. (1).
(2) Summary of Significant Accounting Policies
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of Wellsford/Whitehall Properties II,
L.L.C. and its wholly owned subsidiaries. All significant inter-company
accounts and transactions among Wellsford/Whitehall Properties II,
L.L.C. and its subsidiaries have been eliminated in consolidation.
Income Recognition. Commercial properties are leased under operating
leases. Rental revenue is recognized on a straight-line basis over the
terms of the respective leases.
Cash and Cash Equivalents. The Company considers all demand and money
market accounts and short term investments in government funds with an
original maturity of three months or less to be cash and cash
equivalents.
Restricted Cash. Restricted cash primarily consists of debt service
reserve balances.
Real Estate and Depreciation. Real estate assets are stated at cost.
Costs directly related to the acquisition and improvement of real estate
are capitalized, including the purchase price, legal fees, acquisition
costs, interest, property taxes and other costs during the period of
development.
Ordinary repairs and maintenance items are expensed as incurred.
Replacements and betterments are capitalized and depreciated over their
estimated useful lives. Tenant improvements and leasing commissions are
capitalized and depreciated over the terms of the related leases.
Depreciation is computed over the expected useful lives of depreciable
property on a straight-line basis, principally 40 years for commercial
properties and 5 to 12 years for furnishings and equipment.
Statement of Financial Accounting Standard ("SFAS") 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of" requires that long-lived assets to be held and used be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
SFAS 121 has not had an impact on the Company's consolidated financial
statements at December 31, 1998.
Deferred Costs. Deferred costs consist primarily of costs incurred to
obtain financing. Such deferred financing costs are amortized on a
straight-line basis over the term of the respective agreement and such
amortization is included in interest expense in the accompanying
Consolidated Statements of Income.
Fair Value of Financial Instruments. The Company's financial
instruments consist of cash and cash equivalents and long term debt.
The Company believes that the carrying amount of cash and cash
equivalents approximates fair value due to the short maturity of this
item. In addition, the Company believes that the carrying values of its
senior secured credit facility and its secured mezzanine credit facility
approximate fair value because such debt consists of variable rate debt
that reprices frequently. The Company believes that the carrying value
of its mortgage loan approximates fair value based upon an analysis of
various market data.
Interest-Rate Swap Agreement. To reduce the impact of certain changes
in interest rates on its long-term debt, the Company has entered into an
interest-rate swap agreement. This agreement involves the exchange of
amounts based on a variable interest rate for amounts based on a fixed
interest rate over the life of the agreement without an exchange of the
notional amount upon which the payments are based. The differential to
be paid or received as interest rates change is settled quarterly and
recognized as an adjustment to interest expense (the accrual accounting
method). The fair value of the swap agreements and changes in the fair
value as a result of changes in market interest rates are not recognized
in the accompanying financial statements. There have been no gains or
losses on terminations of interest-rate swap agreements in 1998.
Income Taxes. The Company is a limited liability company. In
accordance with the tax law regarding such entities, each of the
Company's membership unit holders is responsible for reporting their
share of the Company's taxable income or loss on their separate tax
returns. Accordingly, the Company has recorded no provision for
federal, state or local income taxes.
Per Unit Data. Net income per membership unit is computed based upon
the weighted average number of membership units outstanding during the
period. Conversion of the Series A convertible preferred membership
units is antidilutive and, accordingly, is not included in the
calculation.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications. Certain reclassifications have been made to the
prior period presentation to make it consistent with the current year.
Recently Issued Accounting Pronouncements. In June 1998 SFAS 133
"Accounting for Derivative Instruments and Hedging Activities" was
issued. SFAS 133 is required to be adopted in years beginning after
June 15, 1999. SFAS 133 permits early adoption as of the beginning of
any fiscal quarter after its issuance. The Company expects to adopt
SFAS 133 effective January 1, 2000. The Company does not anticipate
that the adoption of FAS 133 will have a material impact on its
financial position or results of operations.
(3) Commercial Properties
The Company owns the following commercial properties at December 31, 1998:
Year
Gross Area Constructed/ Gross
(square feet) Rehabilitated Investment
Property Location (unaudited) (unaudited) (000's)
- -------- -------- ------------- ------------- ----------
Pointview Corporate Center Wayne, NJ 515,000 1976/1998 $ 32,369
(2 buildings)
1800 Valley Road Wayne, NJ 56,000 1980 4,122
Greenbrook Corporate Center Fairfield, NJ 201,000 1987 24,472
Chatham Executive Center Chatham, NJ 63,000 1972/1997 10,855
300 Atrium Drive Somerset, NJ 149,000 1983 18,489
400 Atrium Drive Somerset, NJ 355,000 1985 32,795
500 Atrium Drive Somerset, NJ 167,000 1984 20,721
700 Atrium Drive Somerset, NJ 181,000 1985 18,167
1275 K Street Washington, DC 225,000 1983 35,422
Mountain Heights Center Berkeley Hts, NJ 298,000 1968/1986/1998 35,196
(2 buildings)
Morris Technology Center Parsippany, NJ 244,000 1963/1977/1998 8,417
15 Broad Street Boston, MA 65,000 1920/1984 5,599
600 Atrium Drive (land) Somerset, NJ N/A N/A 2,075
Garden State Exhibit Center Somerset, NJ 82,000 1968/1989 5,832
150 Wells Avenue Newton, MA 11,000 1987 1,273
72 River Park Needham, MA 22,000 1983 2,630
70 Wells Avenue Newton, MA 29,000 1979 3,930
160 Wells Avenue Newton, MA 19,000 1970/1997 3,421
2331 Congress Street Portland, ME 24,000 1980 2,158
60/74 Turner Street Waltham, MA 16,000 1970 2,153
100 Wells Avenue Newton, MA 21,000 1978 2,548
333 Elm Street Dedham, MA 48,000 1983 5,814
Dedham Place Dedham, MA 160,000 1987 27,189
128 Technology Center Waltham, MA 218,000 1986 36,138
201 University Avenue Westwood, MA 82,000 1982 9,677
7/57 Wells Avenue Newton, MA 88,000 1982 12,089
75/85/95 Wells Avenue Newton, MA 242,000 1976/1986 40,127
117 Kendrick Street Needham, MA 209,000 1963 13,292
140 Kendrick Street Needham, MA 261,000 1963 16,266
Shattuck Office Center Andover, MA 63,000 1985 7,597
180/188 Mt Airy Road Basking Ridge, NJ 104,000 1980 15,649
377/379 Campus Drive Franklin Twp, NJ 199,000 1984 22,934
6301 Stevens Forest Lane Columbia, MD 38,000 1980 2,640
105 Challenger Road Ridgefield Park, NJ 147,000 1992 19,636
--------- --------
4,602,000 $501,692
========= ========
No individual tenant aggregated greater than 9% of rental revenue in 1998.
All of the above properties are encumbered by the Bank Facility (Note
6). In addition, 333 Elm Street, Dedham Place, 128 Technology Center,
201 University Avenue, 7/57 Wells Avenue and Wells Research Center are
encumbered by the Nomura Loan (Note 6).
The Company capitalizes interest related to buildings under renovation
to the extent such assets qualify for capitalization. Total interest
incurred and capitalized was $20,385,672 and $2,973,069, respectively,
for the year ended December 31, 1998 and $4,207,793 and $1,258,513,
respectively, for the period from August 28, 1997 (Inception) to
December 31, 1997 (the "Period").
In May 1998, the Company sold one office building to a prospective
tenant for net proceeds of approximately $4,561,000 and recorded a gain
of approximately $2.9 million.
(4) Leases
Office space in the properties is generally leased to tenants under
lease terms which provide for the tenants to pay base rents plus
increases in operating expenses in excess of specified amounts.
Non-cancelable operating leases with tenants expire on various dates
through 2013. The future minimum lease payments to be received under
leases existing as of December 31, 1998 are as follows (in 000s):
1999 $ 55,151
2000 50,055
2001 42,355
2002 30,961
2003 27,179
Thereafter 36,528
--------
Total $242,229
========
The above future minimum lease payments do not include specified
payments for tenant reimbursements of operating expenses which amounted
to approximately $4,878,000 and $602,000 for the year ended December 31,
1998 and the Period, respectively.
(5) Ground Lease
The leasehold interest in a 147,000 SF property located in Ridgefield
Park, NJ is subject to a ground lease held by the local municipality.
Future minimum rental payments under the lease until its expiration in
January 2084 are as follows (in 000s):
1999 $ 125
2000 125
2001 125
2002 125
2003 125
Thereafter 18,349
-------
Total $18,974
=======
(6) Long Term Debt
At December 31, 1998, the Company's long term debt consisted of the
following:
Balance
Maturity Stated (000s)
Debt Date Interest Rate 12/31/98
- ---- -------- ------------- --------
Mortgage Loan 2/2027 8.03% $ 68,043
Secured Senior Credit Facility 12/2000 LIBOR + 1.65% 207,290
Secured Mezzanine Credit Facility 12/2000 LIBOR + 3.20% 68,907
--------
$344,240
========
The Company's transactions described in Note 1 were funded primarily by
capital contributions from WCPT and Whitehall, by $48 million in debt
which encumbered certain of the properties contributed by Whitehall (the
"Atrium Loan") which was assumed by the Company, and by a mortgage
("Mortgage") between the Company and WRP.
The Atrium Loan bore interest at LIBOR +3% and was due on May 15, 2000.
The lender on this loan was Goldman Sachs Mortgage Company. This loan
was repaid in December 1997.
Pursuant to an unsecured loan, WRP had agreed to loan the Company up to
approximately $86.3 million bearing interest at LIBOR plus 3% until
November 1997 and at LIBOR plus 4% until maturity in June 1998 (the
"Unsecured Loan"). This loan, aggregating $4,283,925 at December 31,
1997, was repaid in June 1998. Interest expense on the Unsecured Loan
was $145,321 and $2,137,488 in 1998 and the Period, respectively.
In December 1997, the Company obtained the $375 million loan facility
(the "Prior Bank Facility") consisting of a secured term loan facility
("Secured Term Loan") of up to $225 million and a secured revolving
credit facility ("Secured Revolving Credit Facility") of up to $150
million. The term loan facility bore interest at LIBOR +1.6% and had a
term of four years; the revolving credit facility bore interest at LIBOR
+2.5% and had a term of three years. The Prior Bank Facility was
modified and repaid in July 1998.
In July 1998, the Company modified the Prior Bank Facility with
BankBoston and Goldman Sachs Mortgage to provide for a secured senior
credit facility ("Secured Senior Credit Facility") of up to $300 million
and a secured mezzanine credit facility ("Secured Mezzanine Credit
Facility") of up to $75 million (collectively, the "Bank Facility").
The loans bear interest at LIBOR + 1.65% and LIBOR + 3.20%,
respectively, and have a term of twenty-nine months, which may be
renewed by the Company for an additional twelve months, subject to
certain conditions. The proceeds from the Bank Facility were used to
repay amounts outstanding under the Prior Bank Facility.
In connection with the Saracen transaction, the Company assumed a
mortgage loan held by Nomura Asset Capital Corporation in the original
amount of approximately $68,341,000 (the "Nomura Loan"). The loan bears
interest at a rate of 8.03% and requires monthly payments of principal
and interest until maturity in February 2027.
The Bank Facility, the Prior Bank Facility and the Nomura Loan contain
various customary covenants regarding the ratio of liabilities to
assets, debt service coverage and minimum equity. As of December 31,
1998 and 1997, the Company was in compliance with the terms of these
covenants.
The aggregate maturities for the Company's long-term debt obligations
for each of the next five years and thereafter at December 31, 1998 are
as follows (in 000s):
1999 $ 574
2000 276,804
2001 674
2002 731
2003 793
Thereafter 64,664
--------
Total $344,240
========
To reduce the impact of certain changes in interest rates on its long-
term debt, the Company has an interest rate swap agreement and an
interest rate protection agreement. The interest rate swap agreement
fixes LIBOR at 5.9% for up to $220 million until May 2000. The interest
rate protection agreement caps LIBOR at 7.69% for up to $64 million
until June 15, 2000. The cost of the interest rate protection agreement
is being amortized on a straight-line basis over its life. The net
settlement amount of the interest-rate swap agreement and the
amortization of the interest rate protection agreement which is recorded
as an adjustment of interest expense in 1998 and 1997 aggregated
approximately $459,000 and $14,000, respectively. At December 31, 1998,
the fair value of the interest rate swap agreement was approximately
($2,700,000).
(7) Transactions With Affiliates
In connection with the transactions described in Note 1, on August 28,
1997 WRP issued 5,000,000 warrants (the "Warrants") to Whitehall to
purchase 4,132,230 shares of WRP common stock at an exercise price of
$12.10 per share. Such exercise price was based on the fair value of
the membership units of the Company at their issuance date. The
Warrants are exercisable for five years for either, at WRP's option,
shares of WRP's common stock or cash.
The exercise price for the Warrants is payable in cash or, after August
28, 1999, either with cash or membership units in the Company. Such
transaction would have no net impact on the number of membership units
outstanding.
Under the terms of the joint venture, WCPT is entitled to an
administrative fee of $300,000 per year for the reimbursement of
salaries and costs incurred relating to the operation of the Company.
The fees incurred by the Company were $300,000 for the year ended
December 31, 1998 and $100,000 for the Period. Such amounts were paid
during the first quarter of the subsequent year.
An affiliate of Whitehall performed asset management services for the
Company for which the Company incurred fees of approximately $133,000
for the year ended December 31, 1998 and $292,000 for the Period. This
contract expired February 25, 1998.
Affiliates of the Saracen Members performed asset management and
property management services for the Company. These fees amounted to
approximately $649,000 for the year ended December 31, 1998.
At December 31, 1998 and 1997, the Company has approximately $408,023
and $1,252,000, respectively, of receivables from its Members, which
amount is included in receivables, prepaids and other assets on the
accompanying Consolidated Balance Sheets.
WCPT leases space at Chatham Executive Center. Revenue related to this
lease for the year ended December 31, 1998 and for the Period amounted
to $0.
Affiliates of the Saracen Members lease space at 7/57 Wells Avenue.
Revenue related to these leases for the year ended December 31, 1998
amounted to $67,572.
(8) Members' Equity
WCPT is entitled to incentive compensation equal to (a) 17.5% of
available cash after a return of capital to WCPT and Whitehall and a
17.5% return on equity to each of them, and (b) 22.5% of available cash
after a 22.5% return on equity to WCPT and Whitehall. At December 31,
1998, WCPT and Whitehall have committed to make additional equity
contributions of approximately $13,633,000 and $13,835,000,
respectively, for new acquisitions, capital needs, and working capital.
Whitehall may exchange the membership units it receives in the Company
relating to capital contributions in excess of an additional $25 million
up to an additional $50 million, for shares of WRP's common stock or, at
WRP's sole discretion, cash, based upon the price paid for such
membership units and the current market value of WRP's common stock.
Such transaction would have no net impact on the number of membership
units outstanding.
At the formation of the Company, 2,505,000 membership units were issued
to WCPT, representing its 50.1% interest, and 2,495,000 units were
issued to Whitehall, representing its 49.9% interest.
Subsequently an additional 2,239,028 and 2,232,740 units were issued to
WCPT and Whitehall (1,495,966 and 1,490,294, respectively, in 1998),
respectively, in connection with additional capital contributions used
to fund acquisitions and renovations.
In connection with the Saracen Transaction, 468,557 membership units and
760,000 Series A convertible preferred membership units were issued to
the Saracen Members. The membership units were issued at a price of
$16.22 per membership unit. The Series A convertible preferred
membership units are convertible into membership units at a price of
$18.65 per membership unit. These units also provide for cumulative
dividend payments of the greater of (a) 6% or (b) the dividend payable
to membership unit holders, calculated on an as converted basis, payable
quarterly in arrears, and have a liquidation preference of $25 per
Series A convertible preferred membership unit plus accrued and unpaid
distributions.
The number of membership units issued and outstanding as of December 31,
1998 and 1997 is as follows:
December 31,
1998 1997
---- ----
[S] [C] [C]
WCPT 4,744,028 3,248,062
Whitehall 4,727,740 3,237,446
Saracen Members 468,557 --
--------- ---------
Total 9,940,325 6,485,508
========= =========
During the year ended December 31, 1998, preferred distributions of
$728,333 were declared. Of that amount, $437,000 was paid during the
year. The remainder was paid during first quarter 1999.
Distributions of $3,007,481 were declared on November 19, 1998 to
membership unit holders on record as of that date. These were paid
during first quarter 1999.
(9) Commitments and Contingencies
Under the terms of the joint venture agreement at any time prior to an
initial public offering by WCPT and after August 28, 2001, either WCPT
or Whitehall may require the Company to sell any and all of its
properties.
As a commercial real estate owner, the Company is subject to potential
environmental costs. At this point in time, management of the Company
is not aware of any environmental concerns that would have a material
adverse effect on the Company's financial position or future results of
operations.
The Company has management agreements with unaffiliated property
management companies to manage the operations of the properties.
Management fees are generally based on 2% to 3% of gross rentals
collected and are generally terminable on 30 days notice.
In November 1998, the Company entered into a contract to purchase a
property located in Morristown, NJ for $14 million. The property
consists of a 97,000 SF building and 15 acres of developable land.
The Company participates in WRP's defined contribution savings plan
which was established pursuant to Section 401 of the Internal Revenue
Code. All of the Company's employees are eligible to participate after
one year of service. Employer contributions are made based upon a
discretionary amount determined by the Company's management. Employer
contributions, if any, are based upon the amount contributed by an
employee. During 1998, the Company made contributions of approximately
$14,000.
(10) Subsequent Events
In February 1999, the Company executed an agreement to purchase two
properties located in Suburban Baltimore totaling 127,000 SF for $13.8
million. The purchase may be completed by May 1999, subject to certain
contingencies.
(11) Year 2000 (unaudited)
The Company has developed a plan to modify its information technology
("IT"), primarily its accounting software, to recognize the year 2000.
The Company currently expects the project to be substantially complete
by the end of the second quarter of 1999 at a cost of less than $0.1
million which will be funded from operations, including costs incurred
to date. The Company does not expect this project to have a significant
effect on its operations. The timing and cost of this project will be
closely monitored and are based on management's best estimates. Actual
results, however, could differ from those anticipated.
The Company also has initiated discussions with its third-party property
management companies (the "Managers") to ensure that those parties have
appropriate plans to allay any year 2000 issues that may impact the
Company's operations. These issues would include both
accounting/management software and non-information technology systems
such as fire safety, security and elevator systems. Wellsford/Whitehall
has completed its analysis of such systems and has determined that no
material adverse consequences will likely result from its year 2000
issues. Under the most reasonably likely worst case scenario, wherein
the Managers fail to update their software and non-IT systems, the
Company has the ability to convert its accounting and management systems
to a spreadsheet-based system on a temporary basis and to utilize its
building engineers to manually override any non-IT systems which fail.
While the Company believes its planning efforts are adequate to address
its year 2000 concerns, there can be no guarantee that the systems of
other companies on which the Company's systems and operations rely,
primarily its banks, payroll processing company, creditors, and debtors,
will be converted on a timely basis and will not have a material effect
on the Company.
Schedule III
Date Year # Of # Of
Property Name Acquired Location Built Sq. Ft. Units
- ------------- -------- -------- ----- ------- -----
Blue Ridge - Garden Apts. 12/97 Denver, CO 1997 N/A 456
Red Canyon - Garden Apts. 11/98 Denver, CO 1998 N/A 304
Sonterra - Garden Apts. 1/98 Tucson, AZ 1995 N/A 344
Hoes Lane - Office 2/98 Piscataway, NJ 1987 37,238 N/A
Bradford Plaza - Retail 2/98 West Chester, PA 1990 123,881 N/A
Chestnut Street - Office 2/98 Philadelphia, PA 1857 (B) 49,953 N/A
Keewaydin Drive - Industrial 2/98 Salem, NH 1973 125,230 N/A
Turnpike Street - Industrial 2/98 Canton, MA 1980 43,160 N/A
Two Executive - Office 2/98 Cherry Hill, NJ 1970 102,310 N/A
Bay City Holdings - Office 2/98 Santa Monica, CA 1985 114,375 N/A
------- -----
Total 596,147 1,104
======= =====
December 31, 1998 (thousands)
----------------------------------------------------------------------------------------------------
Cost
Initial Cost Capitalized Total Cost (A) Total Cost
----------------------- Subsequent ------------------------ Net of
Bldgs & to Bldgs & Accum Accumulated
Property Name Land Improve Total Acquisition Land Improve Total Depr Depreciation Encumbrances
- ------------- ---- ------- ----- ----------- ---- ------- ----- ----- ------------ ------------
Blue Ridge - Garden Apts. $5,225 $36,339 $41,564 $91 $5,225 $36,430 $41,655 $1,325 $40,330 $34,144
Red Canyon - Garden Apts. $5,060 $28,844 $33,904 $0 $5,060 $28,844 $33,904 $87 $33,817 $27,000
Sonterra - Garden Apts. $3,075 $17,272 $20,347 $0 $3,075 $17,272 $20,347 $628 $19,719 $16,278
Hoes Lane - Office $289 $1,652 $1,941 $5 $289 $1,657 $1,946 $34 $1,912 (D)
Bradford Plaza - Retail $1,692 $9,628 $11,320 $11 $1,692 $9,639 $11,331 $200 $11,131 (D)
Chestnut Street - Office $533 $3,018 $3,551 $1 $533 $3,019 $3,552 $63 $3,489 (D)
Keewaydin Drive - Industrial $502 $2,847 $3,349 $0 $502 $2,847 $3,349 $59 $3,290 (D)
Turnpike Street - Industrial $359 $3,037 $3,396 $0 $359 $3,037 $3,396 $64 $3,332 (D)
Two Executive - Office $517 $3,013 $3,530 $3 $517 $3,016 $3,533 $63 $3,470 (D)
Bay City Holdings - Office $1,561 $9,640 $11,201 $25 $1,561 $9,665 $11,226 $184 $11,042 (D)
------- -------- -------- ---- ------- -------- -------- ------ -------- -------
Total $18,813 $115,290 $134,103 $136 $18,813 $115,426 $134,239 $2,707 $131,532 $77,422
======= ======== ======== ==== ======= ======== ======== ====== ======== =======
(C)
(A) The aggregate cost for federal income tax purposes is $133.0 million.
(B) Renovated in 1986 and 1990.
(C) Reconciliation of carrying amount:
Balance at January 1, 1997 $0
Additions:
Acquisitions 85,552
Deductions:
Cost of real estate sold (43,988)
--------
Balance at January 1, 1998 41,564
Additions:
Acquisitions 156,533
Capital improvements 136
Deductions:
Cost of real estate sold (63,994)
--------
Balance at December 31, 1998 $134,239
========
(D) These properties are encumbered by the $28.0 million Wellsford Capital Mortgage.
Schedule IV
- -----------
December, 31, 1998 (thousands)
-----------------------------------------------
Total
Principal
Type Subject To
of Interest Maturity Payment Prior Face Carrying Delinquent
Note Receivable Security Rate Date Terms Liens Amount Amount(A) Payments
- --------------- -------- -------- -------- ------- ----- ------ --------- ----------
277 Park Loan Office(B) 12.000% 5/07(I) Interest Only $345,000 $25,000 $25,000 $0
Abbey Credit Facility Mixed(C) LIBOR + 4% 9/00 Interest Only $0 $46,019(M) $46,019 $0
Woodlands Loan Mixed(D) LIBOR + 4.4% 7/00(J) Interest Only $309,000 $15,000 $15,000 $0
DeBartolo Loan Mixed(E) 8.547% 7/08(K) P & I(L) $0 $17,678 $17,678 $0
REIT Bridge Loan Unsecured(F) 9.875%(H) 2/99(H) Interest Only $444,600 $15,000 $14,949 $0
Safeguard Credit
Facility Storage Fac.(G) LIBOR + 4% 4/01 Interest Only $0 $5,913(N) $5,913 $0
REMICs Coops/condos Various Various Various $0 $253 $148 $21
---------- -------- -------- ---
Total $1,098,600 $124,863 $124,707 $21
(O)
(A) The aggregate carrying amount for federal income tax purposes is equal to the total face amount reflected in this schedule.
(B) This loan is secured by certain equity interests in an entity which owns a 52-story, 1.75 million sq. ft. office building in New
York, NY.
(C) This loan is secured by first mortgage liens on 24 office, industrial and retail properties located in CA and aggregating 1.7
million sq. ft.
(D) This loan is secured by certain equity interests and other collateral in a 25,000 acre master-planned community in Houston, TX.
(E) This loan is secured by certain equity interests in an entity which owns 175 million square feet of regional malls and other
invesetments.
(F) The borrower is an entity which owns regional malls, multifamily and office properties.
(G) This loan is secured by first mortgage liens on 4 storage facilities located in the U.S. and aggregating 0.3 million sq. ft.
(H) In January 1999, the interest rate and maturity date of this loan were modified to 12% and August 1999, respectively.
(I) This loan precludes prepayments until May 2003. From May 2003 to April 2006, a prepayment penalty based on a yield maintenance
formula (as defined in the related documents) is applicable. From May 2006 to maturity, no prepayment penalty is applicable.
(J) Two one-year extension options are available to the borrower.
(K) This loan requires any prepayments to be accompanied by a prepayment penalty based on a yield maintenance formula (as defined in
the related documents).
(L) This loan requires principal payments of varying amounts and a $12.6 million balloon payment at maturity.
(M) The maximum balance of the Company's 50% portion of this facility is $50 million.
(N) The maximum balance of the Company's 50% portion of this facility is $45 million.
(O) Reconcoliation of carrying amount.
Balance at January 1, 1997 $17,800
Additions:
New loans 164,645
Funding of credit facilities 28,627
Deductions:
Collection of principal (105,440)
----------
Balance at January 1, 1998 105,632
Additions:
New loans 40,604
Funding of credit facilities 33,305
Amortization of discount 410
Deductions:
Collection of principal (55,244)
----------
Balance at December 31, 1998 $124,707
==========
/TABLE
EXHIBIT INDEX
Exhibit No. Description+++
- ---------- --------------
3.1 Articles of Amendment and Restatement of the Company.****
3.2 Articles Supplementary Classifying 335,000 Shares of Common
Stock as Class A Common Stock.****
3.3 Articles Supplementary Classifying 2,000,000 Shares of Common
Stock as Series A 8% Convertible Redeemable Preferred
Stock.****
3.4 Bylaws of the Company.****
4.1 Specimen certificate for Common Stock.***
4.2 Specimen certificate for Class A Common Stock.****
4.3 Specimen certificate for Series A 8% Convertible Redeemable
Preferred Stock.****
4.4 Warrant Agreement, dated as of August 28, 1997, between the
Company and United States Trust Company of New York, as
warrant agent, and Warrant Certificate No. 1 of the Company
for 5,000,000 Warrants registered in the name of WHWEL Real
Estate Limited Partnership.+
4.5 Registration Rights Agreement, dated as of February 23, 1998,
among the Company and Franklin Mutual Advisors, Inc. and
Angelo Gordon & Co., L.P.++++
10.1 Operating Agreement of Red Canyon at Palomino Park LLC between
Wellsford Park Highlands Corp. and Al Feld, dated as of April
17, 1996, relating to Red Canyon.*
10.2 First Amendment to Operating Agreement of Red Canyon at
Palomino Park LLC between Wellsford Park Highlands Corp. and
Al Feld, dated as of May 19, 1997, relating to Red Canyon.****
10.3 Tri-Party Agreement by and among NationsBank of Texas, N.A.,
Red Canyon at Palomino Park LLC, Wellsford Park Highlands
Corp., Wellsford Residential Property Trust, Al Feld and The
Feld Company, dated May 29, 1997, relating to Red Canyon.****
10.4 Assignment and Assumption of Tri-Party Agreement by and among
Wellsford Residential Property Trust, ERP Operating Limited
Partnership, Red Canyon at Palomino Park LLC, Wellsford Park
Highlands Corp., The Feld Company, Al Feld and NationsBank of
Texas, N.A. dated May 30, 1997, relating to Red Canyon.****
10.5 Agreement and Acknowledgment Regarding Tri-Party Agreement by
and among NationsBank of Texas, N.A., Red Canyon at Palomino
Park LLC, Wellsford Park Highlands Corp. and ERP Operating
Limited Partnership dated May 30, 1997, relating to Red
Canyon.****
10.6 Second Amended and Restated Vacant Land Purchase and Sale
Agreement between Mission Viejo Company and The Feld Company
dated March 23, 1995, as amended by First Amendment, dated May
1, 1996, relating to the land underlying Palomino Park.*
10.7 Trust Indenture, dated as of December 1, 1995, between
Palomino Park Public Improvements Corporation ("PPPIC") and
United States Trust Company of New York, as trustee, securing
Wellsford Residential Property Trust's Assessment Lien Revenue
Bonds Series 1995 - $14,755,000.**
10.8 Letter of Credit Reimbursement Agreement, dated as of December
1, 1995, between PPPIC, Wellsford Residential Property Trust
and Dresdner Bank AG, New York Branch.**
10.9 First Amendment to Letter of Credit Reimbursement Agreement,
dated as of May 30, 1997, between PPPIC, Wellsford Residential
Property Trust, Dresdner Bank AG, New York Branch and the
Company.****
10.10 Amendment to Wellsford Reimbursement Agreement by and between
PPPIC, Wellsford Residential Property Trust and the Company,
dated as of May 30, 1997.****
10.11 Assignment and Assumption Agreement by and between Wellsford
Residential Property Trust and the Company, dated as of May
30, 1997.****
10.12 Credit Enhancement Agreement by and between the Company and
ERP Operating Limited Partnership, dated as of May 30, 1997,
relating to Palomino Park.****
10.13 Reimbursement and Indemnification Agreement by and among the
Company and ERP Operating Limited Partnership, dated as of May
30, 1997, relating to Palomino Park.****
10.14 Guaranty by ERP Operating Limited Partnership for the benefit
of Dresdner Bank AG, New York Branch, dated as of May 30,
1997, relating to Palomino Park.****
10.15 Amended and Restated Promissory Note of the Company to the
order of Dresdner Bank AG, New York Branch, dated May 30,
1997, relating to Palomino Park.****
10.16 Common Stock and Preferred Stock Purchase Agreement by and
between the Company and ERP Operating Limited Partnership
dated as of May 30, 1997.****
10.17 Registration Rights Agreement by and between the Company and
ERP Operating Limited Partnership dated as of May 30,
1997.****
10.18 Credit Agreement, dated as of April 25, 1997, between Park
Avenue Financing Company LLC, PAMC Co-Manager Inc., PAFC
Management, Inc., Stanley Stahl, The First National Bank of
Boston, the Company, Other Banks that may become parties to
the Agreement and The First National Bank of Boston, as Agent,
relating to 277 Park Avenue.**
10.19 Assignment of Member's Interest, dated as of April 25, 1997,
by PAFC Management, Inc. and Stanley Stahl to The First
National Bank of Boston, relating to 277 Park Avenue (relating
to interests in the Park Avenue Financing Company, LLC).**
10.20 Assignment of Member's Interest, dated as of April 25, 1997,
by PAMC Co-Manager Inc. and Park Avenue Financing, LLC to The
First National Bank of Boston, relating to 277 Park Avenue
(relating to interests in 277 Park Avenue, LLC).**
10.21 Stock Pledge Agreement, dated as of April 25, 1997, by Stanley
Stahl to The First National Bank of Boston, relating to 277
Park Avenue (relating to stock in Park Avenue Management
Corporation).**
10.22 Stock Pledge Agreement, dated as of April 25, 1997, by Stanley
Stahl to The First National Bank of Boston, relating to 277
Park Avenue (relating to stock in PAMC Co-Manager Inc.).**
10.23 Stock Pledge Agreement, dated as of April 25, 1997, by Stanley
Stahl to The First National Bank of Boston, relating to 277
Park Avenue (relating to stock in PAFC Management, Inc.).**
10.24 Conditional Guaranty of Payment and Performance, dated as of
April 25, 1997, by Stanley Stahl, relating to 277 Park
Avenue.**
10.25 Cash Collateral Account Security, Pledge and Assignment
Agreement, dated as of April 25, 1997, between 277 Park
Avenue, LLC, Park Avenue Management Corporation, Park Avenue
Financing Company LLC, PAMC Co-Manager Inc., Stanley Stahl and
The First National Bank of Boston, relating to 277 Park
Avenue.**
10.26 Recognition Agreement, dated as of April 25, 1997, between The
First National Bank of Boston, the Company, Column Financial,
Inc., Park Avenue Financing Company LLC, PAMC Co-Manager, Inc.
and 277 Park Avenue, LLC, relating to 277 Park Avenue.**
10.27 Intercreditor Agreement, dated as of April 25, 1997, between
the Company and The First National Bank of Boston, as Agent,
relating to 277 Park Avenue.**
10.28 Assignment and Acceptance Agreement, dated June 19, 1997,
between BankBoston, N.A. (formerly known as The First National
Bank of Boston) ("BankBoston") and the Company, relating to
277 Park Avenue.****
10.29 Revolving Credit Agreement by and among the Company,
BankBoston, Morgan Guaranty Trust Company of New York ("Morgan
Guaranty"), other banks which may become parties and
BankBoston, as agent, and Morgan Guaranty, as co-agent dated
as of May 30, 1997.****
10.30 Agreement Regarding Common Stock and Preferred Stock Purchase
Agreement, dated as of May 30, 1997, among ERP Operating
Limited Partnership, the Company and BankBoston, as agent.****
10.31 Assignment of Common Stock Agreements, dated as of May 30,
1997, between the Company and BankBoston, as agent.****
10.32 Collateral Assignment of Documents, Rights and Claims
(including Collateral Assignment of Deed of Trust, Assignment
of Leases and Rents, Security Agreement and Fixture Filing),
made as of May 30, 1997, by the Company to BankBoston, as
agent.****
10.33 First Amended and Restated Loan Agreement, dated as of July
16, 1998 (the "First Amended and Restated Loan Agreement"),
among Wellsford/Whitehall Holdings, L.L.C., as Borrower, and
BankBoston, Goldman Sachs Mortgage Company, and Other Banks,
as Banks, and BankBoston, as Administrative Agent and Co-
Arranger and Co-Syndication Agent, and Goldman Sachs Mortgage
Company, as Co-Arranger and Co-Syndication Agent.
10.34 Form of promissory note payable to the order of eight lenders
by Wellsford/Whitehall Properties, L.L.C. under the First
Amended and Restated Loan Agreement.
10.35 Amended and Restated Assignment of Member's Interest under the
First Amended and Restated Loan Agreement, dated as of July
16, 1998, by Wellsford/Whitehall Holdings, L.L.C. to
BankBoston, as Agent.
10.36 Amended and Restated Cash Collateral Agreement under the First
Amended and Restated Loan Agreement, dated as of July 16,
1998, by and among Wellsford/Whitehall Holdings, L.L.C., WASH
Manager L.L.C., Wells Avenue Holdings L.L.C. and BankBoston,
as Agent.
10.37 Indemnity Agreement Regarding Hazardous Materials under the
First Amended and Restated Loan Agreement, dated as of July
16, 1998, by Wellsford/Whitehall Holdings, L.L.C., Wellsford
Commercial Properties Trust and WHWEL Real Estate Limited
Partnership for the benefit of BankBoston.
10.38 Conditional Guaranty of Payment under the First Amended and
Restated Loan Agreement, dated as of July 16, 1998, by
Wellsford Commercial Properties Trust, WHWEL Real Estate
Limited Partnership, the Company, Whitehall Street Real Estate
Limited Partnership V, Whitehall Street Real Estate Limited
Partnership VI, Whitehall Street Real Estate Limited
Partnership VII and Whitehall Street Real Estate Limited
Partnership VIII in favor of BankBoston and Goldman Sachs
Mortgage Company.
10.39 Indemnity and Guaranty Agreement under the First Amended and
Restated Loan Agreement, dated as of July 16, 1998, by
Wellsford Commercial Properties Trust and WHWEL Real Estate
Limited Partnership in favor of BankBoston, Goldman Sachs
Mortgage Company and Other Banks.
10.40 Mezzanine Loan Agreement, dated as of July 16, 1998 (the
"Mezzanine Loan Agreement"), among Wellsford/Whitehall
Holdings II, L.L.C., as Borrower, and BankBoston, Goldman
Sachs Mortgage Company, and Other Banks, as Banks, and
BankBoston, as Administrative Agent and Co-Arranger and Co-
Syndication Agent, and Goldman Sachs Mortgage Company, as Co-
Arranger and Co-Syndication Agent.
10.41 Form of promissory note payable to the order of five lenders
by Wellsford/Whitehall Properties II, L.L.C. under the
Mezzanine Loan Agreement.
10.42 Assignment of Member's Interest under the Mezzanine Loan
Agreement, dated as of July 16, 1998, between
Wellsford/Whitehall Properties II, L.L.C. and BankBoston, as
Agent.
10.43 Indemnity Agreement Regarding Hazardous Materials under the
Mezzanine Loan Agreement, dated as of July 16, 1998, by
Wellsford/Whitehall Properties II, L.L.C., Wellsford
Commercial Properties Trust and WHWEL Real Estate Limited
Partnership for the benefit of BankBoston.
10.44 Nomura Conditional Guaranty of Payment under the Mezzanine
Loan Agreement, dated as of July 16, 1998, by Wellsford
Commercial Properties Trust, WHWEL Real Estate Limited
Partnership, the Company, Whitehall Street Real Estate Limited
Partnership V, Whitehall Street Real Estate Limited
Partnership VI, Whitehall Street Real Estate Limited
Partnership VII and Whitehall Street Real Estate Limited
Partnership VIII in favor of BankBoston and Goldman Sachs
Mortgage Company.
10.45 Conditional Guaranty of Payment under the Mezzanine Loan
Agreement, dated as of July 16, 1998, by Wellsford Commercial
Properties Trust, WHWEL Real Estate Limited Partnership, the
Company, Whitehall Street Real Estate Limited Partnership V,
Whitehall Street Real Estate Limited Partnership VI, Whitehall
Street Real Estate Limited Partnership VII and Whitehall
Street Real Estate Limited Partnership VIII in favor of
BankBoston and Goldman Sachs Mortgage Company.
10.46 Indemnity and Guaranty Agreement under the Mezzanine Loan
Agreement, dated as of July 16, 1998, by Wellsford Commercial
Properties Trust and WHWEL Real Estate Limited Partnership in
favor of BankBoston, Goldman Sachs Mortgage Company and Other
Banks.
10.47 $50 million Revolving Credit Agreement, dated as of January
12, 1999, among Wellsford Finance, Inc., as Borrower, and
BankBoston and Other Banks, as Lender, and BankBoston, as
Agent.
10.48 $50 million promissory note, dated January 12, 1999, payable
to BankBoston by Wellsford Finance, Inc.
10.49 Collateral Assignment of Documents, Rights and Claims, dated
January 12, 1999, from Wellsford Finance, Inc. to BankBoston,
as Agent.
10.50 Limited Liability Company Operating Agreement of
Wellsford/Whitehall Properties II, L.L.C., dated as of July
16, 1998.
10.51 Letter Agreement, dated as of July 16, 1998, between the
Company and WHWEL Real Estate Limited Partnership, relating to
warrants to be issued to WHWEL Real Estate Limited
Partnership.
10.52 Fixed Rate Loan Agreement, dated as of August 11, 1998 (the
"Fixed Rate Loan Agreement"), by and among First Union Real
Estate Equity and Mortgage Investments, as Borrower, Bankers
Trust Company, as Agent, and Bankers Trust Company, Wellsford
Capital and BankBoston, as Lenders.
10.53 $15 million promissory note, dated August 11, 1998, payable to
the order of Wellsford Capital by First Union Real Estate
Equity and Mortgage Investments under the Fixed Rate Loan
Agreement.
10.54 First Amendment of Fixed Rate Loan Agreement, dated as of
January 8, 1999, among First Union Real Estate Equity and
Mortgage Investments, as Borrower, Bankers Trust Company,
Wellsford Capital and BankBoston, as Lenders, and Bankers
Trust Company, as Agent.
10.55 Letter dated January 8, 1999, among First Union Real Estate
Equity and Mortgage Investments, as Borrower, Bankers Trust
Company, Wellsford Capital and BankBoston, as Lenders, and
Bankers Trust Company, as Agent.
10.56 Revolving Credit Agreement for $70 million, dated as of August
28, 1997, between AP-Anaheim LLC, AP-Arlington LLC, AP-
Atlantic LLC, AP-Cityview LLC, AP-Farrell Ramon LLC, AP-
Palmdale LLC, AP-Redlands LLC, AP-Victoria LLC, AP-Victorville
LLC, and AP-Sierra LLC, each a California limited liability
company (collectively, the "Abbey Affiliates"), as Borrower,
and Morgan Guaranty Trust Company of New York, as Lender.+
10.57 Amendment to Revolving Credit Agreement, dated as of April 6,
1998, by AP-Diamond Bar LLC, AP-Edinger LLC, AP- Glendora LLC,
AP- Anaheim LLC, AP- Arlington LLC, AP- Atlantic LLC, AP-
Cityview LLC, AP- Redlands LLC, AP- Palmdale LLC, AP- Farrell
Ramon LLC, AP- Sierra LLC, AP- Victoria LLC and AP-
Victorville LLC (collectively, the "Amended Abbey
Affiliates"), as Borrower, and Morgan Guaranty Trust Company
of New York, as Lender.
10.58 Loan Participation Agreement, dated as of August 28, 1997,
between Morgan Guaranty Trust Company of New York and the
Company.+
10.59 First Amendment to Participation Agreement, dated as of April
7, 1998, between Morgan Guaranty Trust Company of New York and
Wellsford Capital.
10.60 $70 million promissory note, dated August 28, 1997, payable to
the order of Morgan Guaranty Trust Company of New York by the
Abbey Affiliates.+
10.61 Amendment to Promissory Note, dated as of April 6, 1998,
between the Amended Abbey Affiliates and Morgan Guaranty Trust
Company of New York.
10.62 Purchase and Sale Agreement, dated as of September 18, 1997,
among the Company, Wellsford Capital Corporation and Whitehall
Street Real Estate Limited Partnership VII.++
10.63 First Amended and Restated Master Credit Agreement, dated
December 30, 1997, effective as of July 31, 1997, among The
Woodlands Commercial Properties Company, L.P., The Woodlands
Land Development Company, L.P., and BankBoston, Morgan Stanley
Senior Funding, Inc., as Documentation Agent, and Other Banks,
and BankBoston, as Managing Agent and Syndication Agent.++++
10.64 Intercreditor Agreement, dated December 30, 1997, effective as
of July 31, 1997, by and between BankBoston, Morgan Stanley
Senior Funding, Inc. and the Other Lenders, relating to
Woodlands.++++
10.65 $4,186,991.87 Commercial Company Second Secured Term Loan
Note, dated December 30, 1997, payable to the order of the
Company by The Woodlands Commercial Properties Company, L.P.
and The Woodlands Land Development Company, L.P.++++
10.66 $10,813,008.13 Land Company Second Secured Term Loan Note,
dated December 30, 1997, payable to the order of the Company
by The Woodlands Land Development Company, L.P. and The
Woodlands Commercial Properties Company, L.P.++++
10.67 Revolving Credit Agreement, dated as of March 28, 1998, among
Safeguard Capital Fund, L.P., as Borrower, and Morgan Guaranty
Trust Company of New York, as Lender.
10.68 $90 million promissory note, dated March 28, 1998, payable to
Morgan Guaranty Trust Company of New York by Safeguard Capital
Fund, L.P.
10.69 Loan Participation Agreement, dated as of December 1, 1998,
between Morgan Guaranty Trust Company of New York and
Wellsford Capital.
10.70 Program Agreement for Clairborne Investors Mortgage Program
between Creamer Realty Consultants and The Prudential
Investment Corporation, dated as of December 10, 1997.++++
10.71 Amended and Restated General Partnership Agreement of Creamer
Realty Consultants, dated as of January 1, 1998, by and
between Wellsford CRC Holding Corp. and FGC Realty
Consultants, Inc.++++
10.72 Limited Liability Company Agreement of Creamer Vitale
Wellsford, L.L.C., dated as of January 20, 1998, by and
between Wellsford CRC Holding Corp. and SX Advisors, LLC.++++
10.73 Loan Agreement, dated as of February 27, 1998, between
Wellsford Sonterra L.L.C., as Borrower, and Nationsbank, N.A.,
as Lender.++++
10.74 $16,400,000 promissory note, dated February 27, 1998, payable
to the order of NationsBank, N.A., by Wellsford Sonterra,
L.L.C.++++
10.75 Deed of Trust, Assignment of Leases and Rents and Security
Agreement, dated February 27, 1998 by Wellsford Sonterra,
L.L.C. in favor of NationsBank, N.A.++++
10.76 $34,500,000 Multifamily Note, dated December 24, 1997, payable
to the order of GMAC Commercial Mortgage Corporation by Park
at Highlands L.L.C.++++
10.77 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement, dated December 24, 1997, by Park at Highlands
L.L.C. in favor of GMAC Commercial Mortgage Corporation.++++
10.78 $28 million secured promissory note, dated October 22, 1998,
payable to the order of Lehman Brothers Holdings Inc. by
Wellsford Capital Properties, L.L.C.
10.79 Conditional Guarantee, dated as of October 22, 1998, by
Wellsford Capital in favor of Lehman Brothers Holdings Inc.
10.80 Mortgage and Security Agreement, dated as of October 22, 1998,
by Wellsford Capital Properties, L.L.C. to Lehman Brothers
Holdings Inc.
10.81 1998 Management Incentive Plan of the Company.
10.82 1997 Management Incentive Plan of the Company.**
10.83 Rollover Stock Option Plan of the Company.**
10.84 Employment Agreement between the Company and Jeffrey H.
Lynford.****
10.85 Employment Agreement between the Company and Edward
Lowenthal.****
10.86 Employment Agreement between the Company and Gregory F.
Hughes.****
10.87 Employment Agreement between the Company and David M.
Strong.****
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
99.1 "Risk Factors" section of Amendment No. 2 to the Company's
Registration Statement on Form S-11 (file no. 333-32445), as
may be amended.+++++
- --------------------------
* Previously filed as an exhibit to the Form 10 filed on April
23, 1997.
** Previously filed as an exhibit to the Form 10/A Amendment No.
1 filed on May 21, 1997.
*** Previously filed as an exhibit to the Form 10/A Amendment No.
2 filed on May 28, 1997.
**** Previously filed an exhibit to the Form S-11 filed on July 30,
1997.
***** Previously filed as an exhibit to Amendment No. 1 to Form S-11
filed on November 14, 1997.
+ Previously filed as an exhibit to the Form 8-K filed on
September 11, 1997.
++ Previously filed as an exhibit to the Form 8-K filed on
September 23, 1997.
+++ Wellsford acquired its interest in a number of these documents
by assignment.
++++ Previously filed as an exhibit to the Form 10-K filed on March
31, 1998.
+++++ Previously filed as part of Amendment No. 2 to the
Registration Statement on Form S-11 filed on December 3, 1997.