UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
March 17, 1997
(Date of Report)
EQUITY RESIDENTIAL PROPERTIES TRUST
(Exact Name of Registrant as Specified in its Charter)
1-12252
(Commission File No.)
Maryland 36-3877868
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation)
Two North Riverside Plaza, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 474-1300
(Registrant's Telephone Number, Including Area Code)
ITEM 5. OTHER EVENTS
On January 16, 1997, Equity Residential Properties Trust ("EQR") entered
into an Agreement and Plan of Merger regarding the planned acquisition of the
multifamily property business of Wellsford Residential Property Trust
("Wellsford"), a Maryland real estate investment trust, by EQR through the tax
free merger of EQR and Wellsford (the "Merger"). The transaction is valued at
approximately $1 billion and includes 75 multifamily properties containing
19,004 units. In the Merger, each outstanding common share of beneficial
interest of Wellsford will be converted into .625 of a common share of the
surviving Maryland real estate investment trust in the Merger (the "Surviving
Trust"). EQR is filing the information contained herein in order to provide
investors with additional information relating to the Merger. The Merger is
subject to approval of the shareholders of EQR and Wellsford and, therefore,
completion of the Merger is conditioned upon such approval and certain other
closing conditions. Upon completion of the Merger, the current trustees of EQR,
and two current trustees of Wellsford, Jeffrey H. Lynford and Edward Lowenthal,
will become trustees of the Surviving Trust.
2
In connection with the Merger, EQR is hereby filing additional
information regarding the business and properties of Wellsford to be acquired in
the Merger.
3
Wellsford Residential Property Trust was organized on July 21, 1992 as a
Maryland real estate investment trust ("REIT") and had its initial public
offering on November 27, 1992 (the "IPO").
Wellsford Residential Property Trust and subsidiaries (the "Company") is a
fully-integrated and self-administered equity REIT which owns and operates high
quality multifamily communities located in the Southwest and Pacific Northwest
regions of the United States. The Company owns and operates 75 multifamily
communities (the "Communities") containing 18,296 apartment units with an
aggregate historical cost of approximately $710 million.
The Company's mission is to maximize long-term profitability for its
shareholders by providing quality housing and exceptional service for its
residents. The Company attempts to achieve its mission by acquiring, developing
and operating multifamily communities in target markets, applying sophisticated
management and operating techniques, and maintaining a conservative capital
structure.
Management believes, based upon careful analyses of market and economic
indicators, that multifamily communities located in the Southwest and Pacific
Northwest regions of the United States, such as the Communities, will provide
favorable investment returns due to stable demand and limited supply.
The Company generally seeks to acquire or develop high quality communities
that contain many interior and exterior amenities and are well located within
major metropolitan markets. The Company engaged in a focused acquisition program
which resulted in its portfolio increasing from 18 multifamily communities
containing 5,255 apartment units to its current level of 75 multifamily
communities containing 18,296 apartment units. The Company has taken advantage
of a favorable acquisition climate by generally purchasing communities at below
replacement cost and at yields which exceeded the cost of capital required to
finance such acquisitions.
All but one of the Communities are owned directly by the Company and none
are owned through a partnership structure commonly referred to as an umbrella
partnership or UPREIT. As a result, the Company does not require partners'
consents or have conflicts of interests with respect to selling assets or
refinancing debt, except with respect to the one Community, which contains 76
units and is owned by a partnership in which the Company has a 50%
noncontrolling interest (the "Joint Venture Community").
Acquisition and Development Strategy.
The Company attempts to purchase or develop communities with physical and market
characteristics similar to the Communities. The Company generally will seek to
acquire or develop multifamily communities that are (i) no more than ten years
of age at the time acquisition; (ii) well located in their markets; (iii)
capable of enhanced performance through intensive management and cosmetic
improvements; and (iv) capable of producing a high component of anticipated
total return derived from current income. In connection with its acquisition and
development of multifamily communities, the Company will consider such factors
as; (i) the geographic location and type of community; (ii) the age,
construction quality and cost, condition and design of the community; (iii) the
current and projected cash flow of the community and the ability to increase
cash flow; (iv) the potential for capital appreciation of the community; (v) the
terms of tenant leases, including the potential for rent increases; (vi) the
potential for economic growth and the tax and regulatory environment of the
neighborhood in which the community is located; (vii) the occupancy and demand
by tenants for communities of similar type in the vicinity; and (viii) the
prospects for liquidity through sale, financing or refinancing of the community.
The Company has generally considered acquiring a community if it meets the
criteria described above and has a minimum anticipated Initial Capitalization
Rate under current conditions of between 8.5% and 9.5%. Development of
communities would generally require anticipated Initial Capitalization Rates of
at least 10% upon stabilization of the community. "Initial Capitalization Rate"
means estimated net operating cash flow from a community for the 12 months
following acquisition or stabilization and is expressed as a percentage of the
Company's total capitalized acquisition or development costs for the community ,
which includes reserves for immediate capital improvements. The Initial
Capitalization Rate is calculated on the basis of projected rental rates,
expenses and occupancy levels, after adjustments are made
to reflect trends and to reflect occupancy rates which the Company believes are
sustainable on an ongoing basis. Therefore, an Initial Capitalization Rate
constitutes an estimate, and no assurance can be given that actual future
results will be consistent with such estimate. Nevertheless, the Company
believes that an Initial Capitalization Rate based upon careful criteria is a
reasonable estimate of the initial operating returns of a community to be
acquired or developed by the Company.
During 1995, the Company made no new acquisitions. The Company believes
that the pace of future acquisitions may continue to be moderate as a result of
a decline in Initial Capitalization Rates coupled with the increased cost of
capital required to fund acquisitions. In addition to seeking communities to
acquire in its existing markets, the Company may explore opportunities in those
states adjacent to the states in the Southwest and Pacific Northwest regions of
the United States in which it now owns communities.
The Company intends to develop selectively multifamily communities. It
is anticipated that the costs of projects under development at any time will
generally not exceed an amount equal to 10% of the total market value of the
Company's assets. The Company currently has the following four development
projects under construction (collectively, the "Development Communities"):
Estimated
Number Estimated Stabilization
Name of Units Location Total Cost Date
- --------------------------------------------------------------------------------
Summit 150 Seattle $15.0 million Dec. 1996
Seeley Lake III 182 Tacoma $ 8.9 million Oct. 1996
Bear Creek II 216 Denver $18.8 million Oct. 1996
Blue Ridge 456 Denver $42.5 million Oct. 1997
----- -------------
1,004 $85.2 million
===== =============
The Bear Creek II and Blue Ridge projects are being developed pursuant
to agreements whereby the Company has committed to purchase the projects for a
fixed price from a third-party developer upon their completion, thus reducing
its exposure to construction risk. In the State of Washington, where the Company
has substantial development experience, the Company plans to develop communities
directly. However, in its other target markets, the Company plans to explore
entering into agreements to acquire newly developed communities upon completion
and achievement of certain specified occupancy rates. The Company currently
intends to fund the acquisition and construction of the Development Communities
with working capital, proceeds from $14.8 million of tax-exempt bonds, and
proceeds from its line of credit with The First National Bank of Boston.
The Company will be subject to the risks of real estate development with
respect to the Development Communities, including the lack of financing,
construction delays, budget overruns and lease-up. The Company will be subject
to similar risks in connection with any future development of other communities.
From time to time, the Company engages in the rehabilitation of its
communities in order to reposition a community within its market or where it
believes rehabilitation will enhance its ability to increase cash flow through
higher occupancy and rental rates.
Operating Strategy and Management.
The Company aggressively manages the Communities by monitoring daily community
performance. The Company uses sophisticated management information systems to
identify and track competing properties, monitor resident satisfaction and
manage apartment inventory. Each of the Communities is equipped with an on-site
computer which compiles occupancy, tenant traffic, leasing and turnover
statistics, as well as standardized revenue and expense data. This information
is electronically transferred from the Communities to the Company's offices in
Denver, Tacoma and New York.
The Company manages all of its Communities in Arizona, Colorado, New
Mexico, Oklahoma, Washington and San Antonio, totalling approximately 84% of the
Company's portfolio. The Company has a total of approximately 540 employees, of
which approximately 460 participate in the on-site management of the
Communities, including such tasks as leasing, rent collection, maintenance and
repairs. The Company's other employees work at the Company's executive and
regional offices. The Company currently retains local property management
companies supervised by the Company for all its Communities in other locations.
The Company places special emphasis on its Resident Satisfaction Surveys to
measure the quality of its management and to obtain information about its
residents. Results from the Company's most recent Resident Satisfaction Survey,
which was returned by approximately 26% of the Company's residents, indicated
that nine out of ten residents would recommend their community to a friend.
The Company attempts to balance rent increases with high occupancy and
controlled turnover costs. The Company believes that the management techniques
described above have contributed to the strong operating performance of its
portfolio, including a weighted average physical occupancy rate in excess of 94%
for the seven year period ended December 31, 1995.
Each of the Communities is operated by a staff of approximately six to
seven individuals which includes a resident manager, assistant manager, leasing
agents, and a maintenance and apartment preparation staff. Policies and
procedures utilized at the community sites follow established federal and state
laws and regulations, including lease contracts, onsite marketing procedures,
credit collection and eviction standards. As a result of active on-site
management and strict prospective tenant qualification standards, the Company
experiences low rent loss due to delinquencies or early lease terminations.
The Company offers leases of six to 12 months in term. Individual community
lease programs are structured to respond to local market conditions. None of the
Communities are currently subject to rent control or rent stabilization
regulations. Standard lease terms stipulate due dates for rent payments, late
charges (typically with no grace period), no offset or withholding provisions,
security deposits and damage reimbursement clauses, as well as many other
provisions considered favorable to the property owner. Non-payment of rent
generally will be handled at the communities within 15 days from the beginning
of the month, with either collection or eviction occurring within that time
period.
All of the Communities are located in developed areas. There are numerous
other multifamily properties and real estate companies within the market area of
each such Community which will compete with the Company for tenants and
development and acquisition opportunities. The number of competitive
multifamily properties and real estate companies in such areas could have a
material effect on (i) the Company's ability to rent the apartments at the
Communities and the rents charged and (ii) development and acquisition
opportunities. The Company competes for tenants and acquisitions with others who
may have greater resources than the Company.
Southwest and Pacific Northwest Regions.
Management believes, based upon careful analyses of market and economic
indicators, that multifamily communities located in the Southwest and Pacific
Northwest regions of the United States, such as the Communities, will provide
favorable investment returns due to the following factors:
Stable Demand. According to data published by the U.S. Census Bureau and
National Planning Corporation, both population growth and household formation
within the Southwest and Pacific Northwest regions of the United States in the
1990s are projected to be above the national average, which should provide
stable demand for apartments. The Company expects these regions' economics to
continue to improve due to such advantages as competitive wage rates, low energy
rates, moderate tax burdens and, in certain cases, proximity to expanding Latin
American markets. The Company also believes that in addition to population
growth driven by favorable job opportunities, these regions will continue to
benefit from the relocation of people from the rest of the country.
Limited Supply. As the following information indicates, the supply of new
apartment units in certain of the Company's markets has decreased substantially
since the 1980's.
NEW APARTMENT UNITS
1982- 1989- Percentage
1988 1995 Decrease
- -------------------------------------------------------
Denver, Colorado 36,696 11,892 68%
San Antonio, Texas 39,683 5,356 87%
Phoenix, Arizona 110,941 19,378 83%
Tulsa, Oklahoma 16,099 845 95%
Oklahoma City, OK 24,279 352 99%
------- ------ ---
Total New Apartment
Units 227,698 37,823 83%
======= ====== ===
Source: The REIS Reports, Inc.
In the Seattle, Washington market, according to the REIS Reports, Inc., the
supply of new apartment units for 1994 was at a ten-year low of approximately
3,100 units, having averaged approximately 8,900 apartment units per annum
between 1984 and 1994. During 1995 there were 2,000 new apartment units in
Seattle.
Financing Strategies.
The Company seeks to maintain a well balanced, conservative and flexible capital
structure by: (i) targeting a ratio of long-term debt to total market value of
assets of approximately 35%; (ii) extending and sequencing the maturity dates of
its debt; (iii) borrowing generally at fixed rates; (iv) borrowing generally on
an unsecured basis; and (v) maintaining conservative debt service and fixed
charge coverage ratios. Furthermore, the Company's strategy of maintaining a
conservative ratio of shareholder distributions to funds from operations
applicable to common shareholders enables the Company to retain funds for
capital improvements, acquisitions, development, other investments and
scheduled payments of principal and interest on indebtedness. Management
believes that these strategies have enabled and should continue to enable the
Company to access the debt and equity capital markets for its long-term capital
requirements such as debt refinancings and financings for acquisitions and
development.
Since the IPO, the Company has demonstrated its ability to access several
different sources of financing. The proceeds from these financings have been
used to acquire and develop communities and prepay debt and for working capital
purposes. These financings have included: (i) a public offering of 2,594,000
common shares in July 1993 for an aggregate of approximately $64.9 million (the
"July 1993 Offering"), (ii) a public offering of 4,000,000 convertible preferred
shares in November 1993 for an aggregate of $100 million (the "Series A
Preferred Offering"), (iii) private offerings to domestic and foreign
institutional investors of 1,550,000 common shares in August 1994 for an
aggregate of approximately $32.6 million (the "August 1994 Private Placement"),
(iv) the sale, in four separate secured transactions, of approximately $42.7
million of tax-exempt bonds (the "Tax-Exempt Bonds"), (v) a $150 million
unsecured revolving credit facility with The First National Bank of Boston (the
"Bank of Boston Credit Facility"), (vi) the assumption of certain indebtedness,
including a $100 million non-recourse mortgage loan from General Electric
Capital Corporation ("GECC") assumed in connection with the acquisition of the
Communities located in Oklahoma (the "GECC Oklahoma Loan"), and a $115 million
non-recourse structured real estate mortgage (the "REMIC") assumed in connection
with the merger of Holly Residential Properties, Inc. into a wholly-owned
subsidiary of the Company (the "Holly Acquisition"), (vii) the issuance of
approximately 6,000,000 common shares in connection with the Holly Acquisition
at an aggregate market value of approximately $119.7 million, (viii) the
issuance of $100 million of senior unsecured notes due in 2002 (the "2002
Notes") in January 1995, (ix) the issuance of $55 million of senior unsecured
notes due in 2000 (the "2000 Notes") and $70 million of senior unsecured notes
due in 2005 (the "2005 Notes") in August 1995 and (x) a public offering of
2,300,000 preferred shares in August 1995 for an aggregate of $57.5 million (the
"Series B Preferred Offering").
Multifamily Communities.
The Company owns and operates 75 multifamily communities located in eight states
- - Washington (30 communities), Texas (11), Oklahoma (10), Colorado (10), Arizona
(7), Nevada (3), Utah (3) and New Mexico (1). Substantially all of the
Communities are located in and around the following major metropolitan areas:
Albuquerque (1 community), Dallas (2), Denver (9), Las Vegas (3), Oklahoma City
(5), Phoenix (5), Salt Lake City (3), San Antonio (9), Seattle (14), Tacoma
(16), Tucson (2), and Tulsa (5). The Communities include 47 multifamily
communities having 200 or more apartment units with the largest community having
590 apartment units. Forty-seven of the Communities were built since 1986, 26
were built between 1980 and 1985 and two were built in 1979. All of the
Communities are garden style communities except for four mid-rise buildings (345
apartment units) in downtown Seattle and the Joint Venture Community. As of
December 31, 1995, the Communities had an average physical occupancy rate of
approximately 95.4%. All of the Communities provide residents with attractive
amenities. The Company manages all of its Communities in Arizona, Colorado, New
Mexico, Oklahoma, Washington and San Antonio. The Company currently retains
local property management companies supervised by the Company for all its
Communities in the other locations.
The Company believes the Communities provide the opportunity for increased
cash flows and appreciation in value through increases in occupancy rates and
rents, as well as expense controls. The Company also believes that the
Communities are well located in their markets and are well constructed and
designed.
The Communities are geographically diversified as follows:
Number of Number Historical Cost
State Communities of Units (000's)
- ---------------------------------------------------------------------
Arizona 7 2,110 $115,643
Colorado 10 2,646 99,570
Nevada 3 966 39,317
New Mexico 1 472 17,876
Oklahoma 10 3,121 98,820
Texas 11 2,725 63,891
Utah 3 1,298 36,383
Washington 30 4,958 238,709
-- ------ --------
75 18,296 $710,209
== ====== ========
The following tables present information concerning the Communities:
Average 1994 1995
Square Acreage Year Unit Size Average Average Encumbrance
Property Units Footage (approx.) Contructed (Sq. Ft.) Occupancy Occupancy (000's)
- ----------------------------------------------------------------------------------------------------------------------------------
Albuquerque, NM
Mountain Run 472 335,744 16 1985 711 95.4% 94.7% -
Dallas, TX
Burn Brae 282 221,966 12 1984 787 98.3% 97.8% -
Calais 264 206,210 13 1986 781 94.8% 96.1% -
Denver, CO
Bear Creek Run 256 231,182 16 1987 903 97.3% 96.5% -
Cimarron Ridge 296 229,048 10 1984 774 93.5% 97.3% -
Colinas Pointe 272 213,984 13 1986 787 96.4% 96.4% -
Highland Point 318 237,886 14 1984 748 94.8% 96.1% -
Ironwood at the Ranch 226 184,081 9 1986 815 93.4% 94.4% $ 6,150
The Marks 336 289,596 16 1987 862 97.0% 94.2% $10,337
The Registry 208 156,558 9 1987 753 94.3% 96.3% -
Sterling Point 143 130,120 9 1979 910 96.9% 95.9% -
Warwick Station 332 250,432 18 1986 754 96.4% 95.0% $10,462
Fort Collins, CO
Parkwood East 259 215,064 25 1986 830 98.3% 96.1% $ 4,928
Las Vegas, NV
Catalina Shores 256 230,872 14 1989 902 98.2% 96.8% -
Crossings at Green Valley 384 330,714 15 1986 861 97.7% 97.2% -
Reflections at the Lakes 326 274,992 16 1989 844 97.9% 96.5% -
Oklahoma City, OK
Augusta 197 153,308 7 1986 778 96.4% 96.8% -
Heritage Park 452 392,218 23 1983 868 92.5% 90.5% -
Invitational 344 254,976 10 1983 741 93.2% 93.9% -
Raindance 504 327,248 22 1984 649 90.3% 91.9% -
Windrush 160 130,112 10 1982 813 90.0% 91.8% -
Phoenix, AZ
Copper Creek 144 146,024 8 1984 1014 95.1% 94.9% -
Crown Court 416 464,582 27 1987 1117 94.0% 95.1% $ 5,767
Dos Caminos 264 265,884 16 1983 1007 95.3% 96.0% -
The Pointe ASM 364 309,548 14 1988 850 90.5% 94.7% $12,900
San Tropez 316 332,080 13 1989 1051 90.5% 96.0% -
Salt Lake City, UT
Quail Cove 420 362,580 17 1987 863 95.9% 97.2% -
Settlers Point 288 263,040 16 1986 913 95.6% 95.6% -
Springs of Country Woods 590 486,648 24 1982 825 95.7% 95.9% -
San Antonio, TX
Copperfield 258 197,736 10 1984 766 96.5% 92.6% -
Countryside 220 159,214 9 1980 724 95.3% 94.0% -
Forest Valley 185 149,493 8 1983 808 94.1% 93.6% -
Landera 184 168,176 9 1983 914 94.3% 93.3% -
The Overlook(A) 411 298,133 16 1985 725 93.1% 91.5% -
Regatta(B) 200 171,634 10 1983 858 96.8% 92.7% -
Trails End 308 202,376 19 1983 657 94.1% 94.4% -
Villas of Oak Creste(C) 280 208,446 10 1979 744 92.6% 92.3% -
Waterford 133 87,376 5 1983 657 94.7% 96.4% -
Seattle, WA
North Creek Heights 114 104,306 9 1990 915 95.2% 96.4% -
Panther Ridge 260 221,000 20 1980 850 93.7% 94.4% -
Average 1994 1995
Square Acreage Year Unit Size Average Average Encumbrance
Property Units Footage (approx.) Constructed (Sq. Ft.) Occupancy Occupancy (000s)
- ------------------------------------------------------------------------------------------------------------------------------------
Seattle, WA (continued)
Highland Creste 198 192,556 10 1989 973 96.0% 94.8% -
Ridgegate 153 141,594 9 1990 925 92.9% 96.9% -
Whitedove Pointe 96 102,834 5 1992 1071 93.3% 93.3% -
Cherry Hill 108 101,390 7 1991 939 96.3% 95.0% -
Plum Tree Park 196 174,310 8 1991 889 96.9% 98.3% -
Firdale Village 386 323,522 23 1986 838 96.5% 95.1% -
Marsha Lake 155 135,662 8 1991 875 92.4% 93.6% -
Country Club Village 151 157,898 7 1991 1046 95.4% 94.0% -
2300 Elliott 91 67,403 0.5 1992 741 95.3% 93.9% -
Metropolitan Park 82 49,702 0.4 1991 606 93.4% 95.5% -
Seventh & James 96 61,282 0.7 1992 638 93.9% 92.1% -
2nd & Roy (D) 76 60,800 0.7 1993 800 89.1% 96.5% -
Tacoma, WA
Merrill Creek 149 138,867 15 1994 932 90.3% (H) 92.0% $ 5,738
Stoney Creek 231 211,580 16 1990 916 94.7% 92.1% -
Windridge 80 65,111 4 1989 814 97.2% 96.3% -
Surprise Lake Village 338 328,032 32 1986 971 95.4% 93.9% -
Cambridge 96 86,473 5 1988 901 99.0% 93.5% -
Chestnut Hills 157 143,236 8 1991 912 95.2% 91.7% -
The Hamptons 230 202,324 11 1991 880 94.3% 93.3% $ 6,100
Windemere 36 30,000 3 1987 833 98.5% 95.1% -
Crown Pointe 76 68,060 4 1987 896 92.3% 93.8% -
Gold Pointe 84 88,422 5 1990 1053 94.7% 93.0% -
The Village at Seeley Lake 340 312,627 17 1990 919 95.3% 90.9% -
Silver Ridge 44 43,208 2 1987 982 95.5% 89.0% -
The Pointe at Westridge 207 193,219 12 1989 933 94.8% 95.2% -
The Village at Westridge 318 321,805 16 1991 1012 94.7% 91.3% -
Westridge 189 171,651 10 1987 908 94.6% 93.9% -
The Ridgetop (E) 221 197,250 13 1988 893 93.6% 95.0% -
Tucson, AZ
Mission Palms 360 372,918 35 1980 1036 94.6% 94.4% -
Skyline Gateway 246 179,422 8 1985 729 98.3% 95.5% -
Tulsa, OK
Wellsford Oaks (F) 300 216,368 9 1991 721 93.7% 92.7% -
Hunnington Hollow (G) 288 180,648 9 1981 627 93.3% 92.4% -
One Eton Square 448 313,904 17 1985 701 94.2% 95.8% -
Silver Springs 200 143,704 12 1984 719 93.4% 94.6% -
Woodland Oaks 228 180,273 12 1983 791 93.6% 94.4% -
- ------------------------------------------------------------------------------------------------------------------------------------
All Communities 18,296 15,352,642 911 840 94.8% (H) 94.6% $ 62,382
====================================================================================================================================
(A) Formerly known as Springtree.
(B) Formerly known as Polo Run.
(C) Formerly known as Beacon Hill.
(D) The Community is the Joint Venture Community.
(E) During 1995, the Company combined the operations of its Ridgetop I and
Ridgetop II Communities.
(F) Formerly known as Lincoln Oaks.
(G) Formerly known as The Mill.
(H) Construction of the Community known as Merrill Creek was completed in
June 1994. The figure shown represents December, 1994 occupancy.
Consequently, occupancy information regarding Merrill Creek is not
included in the 1994 total figure.
Item 7.
A. Financial Statements of Business to be Acquired.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
Wellsford Residential Property Trust and Subsidiaries
We have audited the accompanying consolidated balance sheets of Wellsford
Residential Property Trust and subsidiaries (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. Our audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require the 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 Residential Property Trust and subsidiaries at December 31, 1995 and
1994, and the consolidated results of its operations and cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
New York, New York
February 9, 1996
In connection with the Merger, EQR is hereby filing the financial statements
and notes thereto of Wellsford for the year ended December 31, 1995 and the
quarterly period ended September 30, 1996.
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------
1995 1994
------------ -----------
ASSETS
Real Estate assets, at cost - Notes 4, 5 and 6
Land $105,121,296 $111,378,229
Buildings and improvements 605,087,385 631,032,692
------------ ------------
710,208,681 742,410,921
Less, accumulated depreciation (58,490,833) (34,777,050)
------------ ------------
651,717,848 707,633,871
Construction in progress 26,189,876 5,107,887
------------ ------------
677,907,724 712,741,758
Cash and cash equivalents 29,444,008 13,152,692
Restricted cash - Note 3 12,916,328 3,796,833
Deferred financing costs 5,928,869 13,187,727
Prepaid and other assets 3,441,408 2,875,096
------------ ------------
Total Assets $729,638,337 $745,754,106
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior unsecured notes - Note 8 $223,306,778 $ --
Mortgage notes payable - Note 5 77,136,941 208,858,306
Unsecured credit facilities - Note 7 -- 140,000,000
Accrued expenses and other liabilities 16,403,724 12,580,576
Dividends payable - Note 10 11,310,053 9,359,190
Security deposits 3,122,229 3,300,836
------------ -----------
Total Liabilities 331,279,725 374,098,908
------------ -----------
Commitments and contingencies - Notes 4, 5,
7, 8, 9, 10, 11 and 12 -- --
Shareholders' Equity:
Shares of beneficial interest,
100,000,000 shares authorized -
3,999,800 and 4,000,000 Series A Convertible
Preferred Shares, $.01 par value per share,
liquidation preference $25 per share, issued
and outstanding at December 31, 1995 and
1994, respectively; 39,998 40,000
2,300,000 Series B Preferred Shares, $.01
par value per share, liquidation preference
$25 per share, issued and outstanding; 23,000 --
17,026,342 and 16,909,311 Common Shares, $.01 par
value per share, issued and outstanding at
December 31, 1995 and 1994, respectively 170,264 169,093
Paid in capital in excess of par 459,634,825 402,013,756
Distributions in excess of net income - Note 10- (55,284,084) (24,637,963)
Deferred compensation and shareholder loans
receivable - Note 11 (6,225,391) (5,929,688)
------------ -----------
Total Shareholders' Equity 398,358,612 371,655,198
------------ ------------
Total Liabilities and Shareholders' Equity $729,638,337 $745,754,106
============ ============
See accompanying notes 12
Wellsford Residential Property Trust and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31,
------------- ------------ ------------
1995 1994 1993
------------- ------------ ------------
REVENUE
Rental income $123,566,442 $78,789,579 $39,577,804
Other income 5,441,497 3,340,899 1,644,480
Interest income 2,224,263 663,429 784,474
------------- ------------ ------------
Total Revenue 131,232,202 82,793,907 42,006,758
------------- ------------ ------------
EXPENSES
Property operating and maintenance 40,919,501 27,476,613 13,799,023
Real estate taxes 9,595,845 5,869,684 3,277,472
Depreciation and amortization 26,912,423 17,535,935 8,407,469
Property management 4,950,773 3,139,266 1,513,624
Interest 26,972,892 15,297,950 5,346,009
General and administrative 4,360,566 3,979,875 2,471,912
------------- ------------ ------------
Total Expenses 113,712,000 73,299,323 34,815,509
------------- ------------ ------------
Gain (loss) on sale of investment communities (819,288) -- 882,118
(Loss) on joint venture communities (279,594) -- --
------------- ------------ ------------
Income before extraordinary items 16,421,320 9,494,584 8,073,367
Extraordinary item - (loss) on early
extinguishment of debt - Note 5 (5,553,048) -- --
------------- ------------ ------------
Net income 10,868,272 9,494,584 8,073,367
Preferred dividends 8,972,681 7,000,000 972,400
------------- ------------ ------------
Net income available to common shareholders $ 1,895,591 $ 2,494,584 $ 7,100,967
============= ============ ============
Income per common share before
extraordinary items $0.44 $0.25 $0.91
============= ============ ============
Net income per common share $0.11 $0.25 $0.91
============= ============ ============
Weighted average number of common shares
outstanding 16,937,731 10,070,278 7,812,591
============= ============ ============
Cash dividends declared per common share $1.92 $1.80 $1.68
============= ============ ============
See accompanying notes
13
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Series A Series B
Preferred Shares Preferred Shares
--------------------- -----------------------
Shares Amount Shares Amount
JANUARY 1, 1993
Public offering of common
shares (net of issuance costs)
Public offering of Series A
preferred shares
(net of issuance costs) 4,000,000 $ 40,000
Shares issued pursuant
to deferred compensation
and shareholder loan
plans - Note 11
(net of issuance costs)
Deferred compensation
and shareholder loans receivable
Net income
Common dividends declared
Preferred dividends declared ---------------------- -----------------------
DECEMBER 31, 1993 4,000.000 40,000
Repurchase of common
shares
Private offering of common
shares (net of issuance costs)
Issuance of common shares
in connection with Holly
Acquisition (net of issuance costs)
Shares issued pursuant to
deferred compensation and
shareholder loan plans
- Note 11 (net of issuance costs)
Deferred compensation and
shareholder loans receivable
Amortization of deferred
compensation and shareholder
loans receivable
Net income
Common dividends declared
Preferred dividends declared ---------------------- -----------------------
DECEMBER 31, 1994 4,000,000 40,000
Public offering of Series B
preferred shares (net of 2,300,00 $23,000
issuance costs)
Shares issued pursuant to
dividend reinvestment plan
(net of issuance costs)
Conversion of Series A
preferred shares into
common shares (200) (2)
Shares issued pursuant to
deferred compensation and
shareholder loan plans
- Note 11 (net of issuance costs)
Deferred compensation and
shareholder loans receivable
Amortization of deferred
compensation and shareholder
loans receivable
Net income
Common dividends declared
Preferred dividends declared ---------------------- -----------------------
DECEMBER 31, 1995 3,999,800 $ 39,998 2,300,000 $23,000
====================== =======================
See accompanying notes
14
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995, 1994 AND 1993 (CONTINUED)
Distributions Total
Common Shares Paid -In In Excess of Shareholders'
-----------------------------
Shares Amount Capital Net Income Equity
------ ------ ------------ ----------------- -----------------
JANUARY 1, 1993 6,508,450 $ 65,085 $90,280,424 ($359,470) $ 89,986,039
Public offering of common
shares (net of issuance costs) 2,594,000 25,940 60,533,252 60,559,192
Public offering of Series A
preferred shares
(net of issuance costs) 95,259,530 95,299,530
Shares issued pursuant
to deferred compensation
and shareholder loan
plans - Note 11
(net of issuance costs) 104,262 1,042 2,735,360 2,736,402
Deferred compensation
and shareholder loans
receivable (2,750,000) (2,750,000)
Net income 8,073,367 8,073,367
Common dividends declared (13,156,946) (13,156,946)
Preferred dividends declared (972,400) (972,400)
----------------------------- ------------ ----------------- -----------------
DECEMBER 31, 1993 9,206,712 92,067 246,058,566 (6,415,449) 239,775,184
Repurchase of common
shares (13,819) (138) (347,548) (347,686)
Private offering of common
shares (net of issuance costs) 1,550,000 15,500 30,887,605 30,903,105
Issuance of common shares
in connection with Holly
Acquisition (net of issuance
costs) 5,985,168 59,852 119,143,508 119,203,360
Shares issued pursuant to
deferred compensation and
shareholder loan plans
- Note 11 (net of issuance
costs) 181,250 1,812 3,521,625 3,523,437
Deferred compensation and
shareholder loans receivable (3,523,437) (3,523,437)
Amortization of deferred
compensation and shareholder
loans receivable 343,749 343,749
Net income 9,494,584 9,494,584
Common dividends declared (20,717,098) (20,717,098)
Preferred dividends declared (7,000,000) (7,000,000)
------------------------------ ------------ ----------------- -----------------
DECEMBER 31, 1994 16,909,311 169,093 396,084,068 (24,637,963) 371,655,198
Public offering of Series B
preferred shares (net of
issuance costs) 55,231,512 55,254,512
Shares issued pursuant to
dividend reinvestment plan
(net of issuance costs) 81,376 814 1,584,562 1,585,376
Conversion of Series A
preferred shares into
common shares 162 2 --
Shares issued pursuant to
deferred compensation and
shareholder loan plans
- Note 11 (net of issuance costs) 35,493 355 864,370 864,725
Deferred compensation and
shareholder loans receivable (875,000) (875,000)
Amortization of deferred
compensation and shareholder
loans receivable 519,922 519,922
Net income 10,868,272 10,868,272
Common dividends declared (32,541,712) (32,541,712)
Preferred dividends declared (8,972,681) (8,972,681)
------------------------------ ------------ ----------------- -----------------
DECEMBER 31, 1995 17,026,342 $170,264 $453,409,434 $(55,284,084) $398,358,612
============================== ============ ================= =================
See accompanying notes 15
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
-------------------------------------------------
1995 1994 1993
---------------- ------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,868,272 $ 9,494,584 $ 8,073,367
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 29,966,707 20,437,548 8,956,275
(Gain) loss on sale of investment communities 819,288 -- (882,118)
Loss on early extinguishment of debt 5,553,048 -- --
Decrease (increase) in assets
Escrow cash 1,461,324 (381,590) (1,623,761)
Debt service reserve (10,580,819) (258,635) (184,014)
Rent receivables 358,678 (672,671) (118,994)
Prepaid and other assets (787,832) (1,244,275) (709,683)
(Decrease) increase in liabilities
Accounts payable 1,824,210 770,939 87,102
Accrued expenses and other liabilities 2,252,959 5,787,321 4,427,340
Security deposits 30,173 1,811,208 560,808
---------------- ------------- ----------------
Net cash provided by operating activities 41,766,008 35,744,429 18,586,322
---------------- ------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets (27,966,487) (87,044,798) (134,134,034)
Deposits on real estate assets (200,000) -- (350,400)
Net proceeds from sale of real estate assets 35,511,101 -- 7,283,073
---------------- ------------- ----------------
Net cash provided by (used in) investing
activities 7,344,614 (87,044,798) (127,201,361)
CASH FLOWS FROM FINANCING ACTIVITIES: ---------------- ------------- ----------------
Payment of deferred financing costs (4,637,168) (4,014,601) (1,353,501)
Net proceeds from sale of rate protection agreements 3,055,500 -- --
Net proceeds from mortgage notes payable 15,549,971 21,581,450 --
Net proceeds from senior unsecured notes 223,205,050 -- --
Net proceeds (payment) from credit facilities (140,000,000) 140,000,000 --
Principal payments on mortgage notes (146,090,053) (132,808,320) (20,464,315)
Prepayment premium on mortgage notes (1,178,966) -- --
Distributions to shareholders (39,563,528) (23,197,125) (10,331,479)
Net proceeds from dividend reinvestment plan 1,585,376 -- --
Net proceeds from offerings of common shares -- 30,903,105 60,559,192
Net proceeds from offerings of preferred shares 55,254,512 -- 95,299,530
Repurchase of common shares -- (347,686) --
---------------- ------------- ----------------
Net cash provided by (used in) financing
activities (32,819,306) 32,116,823 123,709,427
---------------- ------------- ----------------
Net increase (decrease) in cash and cash
equivalents 16,291,316 (19,183,546) 15,094,388
Cash and cash equivalents, beginning of year 13,152,692 32,336,238 17,241,850
---------------- ------------- ----------------
Cash and cash equivalents, end of year $ 29,444,008 $ 13,152,692 $ 32,336,238
================ ============= ================
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 19,627,141 $ 12,061,431 $ 4,511,288
Fourth quarter dividends declared $ 11,310,053 $ 9,359,190 $ 4,839,219
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Purchase money and other mortgage notes
assumed, and common shares issued, in
connection with the acquisition of certain
multifamily communities and other assets:
Cost of assets acquired $ -- $ 434,779,640 $ 28,347,158
Value of common shares issued -- (119,203,360) --
Net cash paid -- (66,594,551) (10,420,486)
---------------- ------------- ----------------
Purchase money and other mortgage notes $ -- $ 248,981,729 $ 17,926,672
================ ============= ================
See accompanying notes 16
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) ORGANIZATION AND BUSINESS
Wellsford Residential Property Trust was organized on July 21, 1992 as a
Maryland real estate investment trust ("REIT"). Wellsford Residential
Property Trust and its subsidiaries ("the Company") is a fully integrated
and self-administered equity REIT engaged in the acquisition, development
and operation of multifamily communities located in the Southwest and
Pacific Northwest regions of the United States. At December 31, 1995, the
Company owned 75 multifamily communities containing 18,296 apartment units
(the "Communities").
In December 1994, the Company consummated a merger (the "Holly
Acquisition") with Holly Residential Properties, Inc. ("Holly"), a
public REIT which owned and operated 34 multifamily communities
containing 5,223 apartment units located in the Puget Sound region of
the State of Washington (the "Holly Communities"). The merger was
financed through the issuance of approximately six million common
shares and the assumption of approximately $129.7 million of mortgage
notes.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Financial Statement Presentation
----------------------------------------------------------------
The accompanying consolidated financial statements include the accounts of
Wellsford Residential Property Trust and its wholly-owned subsidiaries.
Investments in partnerships where the Company does not have a controlling
interest are accounted for under the equity method. All significant
intercompany accounts and transactions among Wellsford Residential Property
Trust and its subsidiaries have been eliminated in consolidation.
The Holly Acquisition has been accounted for under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16.
Income Recognition
------------------
Residential communities are leased under operating leases with terms
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 community acquisition. Only those expenditures which
generally do not recur annually and/or that will increase the revenue
potential of a property or substantially extend its useful life are
capitalized.
Ordinary repairs and maintenance are expensed as incurred. Expenditures for
painting, and replacement of items such as carpets, appliances and blinds
are generally expensed; major replacements and betterments are capitalized
and depreciated over their estimated useful
17
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
lives. Depreciation is computed over the expected useful lives of
depreciable property on a straight line basis, principally 25 years for
buildings and improvements and 5 to 12 years for furnishings and equipment.
The Company has adopted Statement of Financial Accounting Standard ("SFAS")
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" which 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. The adoption of SFAS 121 has not had an impact on the
Company's consolidated financial statements.
Financing Costs
---------------
The Company has incurred costs relating to certain financings, refinancings
and two credit facilities (Notes 5, 6, 7 and 8). Financing and
refinancing costs are capitalized and amortized over the term of the
related loan under the interest method. Credit facility fees are
capitalized and amortized over the term of the commitment on a
straight-line basis.
Interest Rate Protection Agreements
-----------------------------------
In November 1992, the Company acquired a four-year interest rate protection
agreement for $1.9 million with a notional amount of $56.5 million. In
connection with the Holly Acquisition, the Company acquired an interest
rate protection agreement valued at $9.1 million. The costs of these
interest rate protection agreements were amortized over the life of the
agreements into interest expense using an effective yield method.
Share Based Compensation
------------------------
SFAS 123 "Accounting for Stock-Based Compensation" establishes a fair value
based method of accounting for share based compensation plans, including
share options. The disclosure requirements of SFAS 123 shall be effective
for financial statements for fiscal years beginning after December 15,
1995. However, registrants may elect to continue accounting for share
option plans under Accounting Principles Board ("APB") 25, but will be
required to provide proforma net income and earnings per share information
"as if" the new fair value approach had been adopted. Because the Company
intends to continue accounting for its share option plan under APB 25,
there would have been no impact on the Company's consolidated financial
statements resulting from adoption.
Income Taxes
------------
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, the Company generally
will not be subject to federal income taxation at the corporate level to
the extent it distributes annually at least 95% of its REIT taxable income,
as defined in the Code, to its shareholders and satisfies certain other
requirements. Accordingly, no provision has been made for federal income
taxes in the accompanying consolidated financial statements.
In connection with the Company's initial public offering, the tax basis of
the real estate assets has been recorded based upon the value of the
consideration paid by the Company. In connection with the Holly
Acquisition, the tax basis of the real assets has been recorded based on
Holly's tax basis. Accordingly, the tax basis of the real estate
18
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets exceeds the book basis by approximately $58.5 million.
Per Share Data
--------------
Earnings per common share are computed based upon the weighted average
number of common shares outstanding during the period and after giving
effect for the payment of dividends on the Company's preferred shares.
Primary earnings per common share are based upon the weighted average
number of such shares and the assumed equivalent shares outstanding during
the period. The assumed exercise of outstanding share options, using the
treasury stock method, is not materially dilutive and such amounts are not
presented.
Fully diluted earnings per common share are based upon the increased number
of common shares that would be outstanding assuming the exercise of common
share options and the conversion of the convertible preferred shares. Since
fully diluted earnings per share amounts are antidilutive, such amounts are
not presented.
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 escrow deposits for real estate taxes
and security deposits, and debt service reserve balances. At December 31,
1995 and 1994, escrow deposits amounted to $1,255,087 and $2,716,412,
respectively, and debt service reserve balances amounted to $11,661,241 and
$1,080,421, respectively.
(4) MULTIFAMILY COMMUNITIES
At December 31, 1992, the Company owned 20 communities containing a total
of 5,745 apartment units.
In 1993, the Company acquired 13 additional multifamily communities
containing an aggregate of 3,588 apartment units, located in Colorado (4
communities), Arizona (3), Texas (3), Nevada (2), and New Mexico (1), for a
total of approximately $151.5 million.
In December 1993, the Company sold its 208 apartment unit community in
North Carolina for approximately $7.3 million.
In March 1994, the Company acquired two multifamily communities in Phoenix,
Arizona and a multifamily community in Tucson, Arizona, containing
1,092 apartment units for an aggregate purchase price of approximately
$67.3 million.
In May 1994, the Company acquired a portfolio of eight multifamily
communities in Tulsa, Oklahoma and six multifamily communities in Oklahoma
City, Oklahoma, containing 5,101
19
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) MULTIFAMILY COMMUNITIES (CONTINUED)
apartment units for an aggregate purchase price of approximately $133
million.
In December 1994, the Company acquired the Holly Communities for
approximately $254.9 million.
In 1995, the Company combined the operations of two of its Tacoma,
Washington communities into one community known as Ridgetop, consisting of
221 apartment units.
During 1995, the Company sold four of its Oklahoma communities containing a
total of 1,980 apartment units for an aggregate of $36.7 million.
In 1995, the Company sold three of its Washington communities containing a
total of 265 apartment units for an aggregate of approximately $10.1
million. The Company held a 50% interest in two of these communities.
The Company currently has four multifamily projects under development
totaling 1,004 apartment units with an estimated cost of approximately
$85.2 million (collectively, the "Development Communities"). The Company
expects to fund the construction of its Development Communities from its
working capital and with proceeds from the Bank of Boston Credit Facility
(Note 7) and the Blue Ridge tax exempt mortgage (Note 5). Two of these
projects, Blue Ridge and Bear Creek Run II, are being developed pursuant to
fixed-price contracts and are estimated to cost approximately $59.5 million
in total, including certain development and incentive fees payable to the
developer. The Company is committed to purchase 100% of these projects upon
completion and the achievement of certain occupancy levels. During the year
ended December 31, 1995, the Company capitalized $1.2 million of interest
to the Development Communities.
20
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(5) MORTGAGE NOTES PAYABLE
Mortgage notes payable at December 31, 1995 and 1994 aggregated $77.1
million and $208.9 million, respectively, and were collateralized by 8 and
59 multifamily communities, respectively. At December 31, 1995 and 1994,
mortgage notes payable net of discounts consist of the following:
COMMUNITY SECURING MATURITY STATED INTEREST BALANCE
---------------------
DEBT DATE RATE 12/31/95 12/31/94
- --------------------- ----------- ---------------- --------- ---------
(000S) ( 0 0 0 S )
The Pointe at South
Mountain 3/2000 7.50% (A) $ 12,900 $ 12,900
Parkwood East 3/1996 (B) 9.625% 4,928 4,968
Crown Court 11/1997 9.05% 5,767 5,848
The Hamptons 11/2001 8.48% 6,100 6,100
Merrill Creek 11/1998 8.00% 5,738 5,568
Blue Ridge (C) 12/2035 Variable (D) 14,755 --
Ironwood at the Ranch (C) 12/2019 Average 7.34% 6,150 6,225
The Marks (C) 12/2018 6.00% 10,337 10,534
Warwick Station (C) 12/2018 6.00% 10,462 10,666
Key Bank Lines of Credit Repaid 2/95 Prime + 1% -- 2,487
5 Oklahoma Communities Repaid 1/95 LIBOR + 2.65% -- 28,000
REMIC (29 Communities) Repaid 9/95 LIBOR + 1.14% (E) -- 115,562
--------- ---------
TOTAL $ 77,137 $208,858
========= =========
(A) 8.0% after May 1, 1996.
(B) Loan repaid in January, 1996.
(C) Mortgage secures tax exempt bonds.
(D) Rate approximates the Standard & Poor's/J.J. Kenney index for short term
high grade tax exempt bonds (currently 3.50%).
(E) Rate was capped at 5.39%.
During 1995 the Company recognized an extraordinary loss of $5.6 million
from the early extinguishment of debt. The loss was primarily attributable
to a 1% prepayment penalty incurred for the retirement of the REMIC and a
non-cash charge for the sale of the related interest rate protection
agreement.
The tax exempt bonds which are secured by the Blue Ridge mortgage are
backed by a letter of credit from a AAA rated financial institution. The
Company has guaranteed the reimbursement of the financial institution in
the event that the letter of credit is drawn upon.
The fair market value of the fixed rate mortgage notes, estimated by
discounting cash flows and adjusting the results for subjective factors
including loan to value ratios, approximates the carrying amount of the
mortgage notes. The fair market value of the variable rate mortgage notes
is considered to be the carrying amount.
21
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) CONVERTIBLE NOTE PAYABLE
In connection with its initial public offering, the Company issued a
$56.5 million convertible note (the "Convertible Note") in
modification of approximately $56.5 million of non-recourse
participating mortgage notes secured by liens on nine of the
Communities. The holder of the Convertible Note was General Electric
Capital Corporation ("GECC"). Interest on the Convertible Note was
payable quarterly at an adjustable rate equal to LIBOR plus 1.75%
until the second anniversary of its issuance and thereafter at a rate
equal to LIBOR plus 3.75%.
In 1993, the Company prepaid $9.6 million of the Convertible Note. In
1994, the Company prepaid the remaining balance of the Convertible
Note. GECC did not exercise its option to convert any portion of the
prepaid amounts.
(7) CREDIT FACILITIES
In June 1995, the Company modified its $150 million revolving credit
facility from The First National Bank of Boston (the "Bank of
Boston Credit Facility") to reduce the interest rate on advances
under the facility to LIBOR + 1.50% and eliminate the need for
communities to serve as collateral for such borrowings. Proceeds
from the Bank of Boston Credit Facility may be used to provide
short-term financing for acquisitions, development, capital
expenditures, repayment of indebtedness and related expenditures.
All outstanding borrowings under the Bank of Boston Credit
Facility will be due and payable on June 30, 1998 with a
provision for annual one year extensions subject to bank
approval. The Company is obligated to pay a fee equal to one-
quarter of one percent (.25%) per annum on the average daily
amount of the unused portion of the commitment during the
revolving loan period. Borrowings under the facility will bear
interest at either (i) The First National Bank of Boston's base
rate (which is substantially similar to the prime rate) or (ii)
1.50% per annum above the Eurodollar Rate (which is substantially
similar to LIBOR), at the Company's option. The average interest
rate on the Bank of Boston Credit Facility during 1995 was 7.9%.
The Bank of Boston Credit Facility is a recourse obligation of the
Company. The Bank of Boston Credit Facility contains various
customary loan covenants, and requires the Company to maintain
its status as a REIT, to maintain a ratio of total consolidated
liabilities to total consolidated assets of not more than 0.55 to
1, to maintain a ratio of total consolidated secured debt to
gross consolidated real estate assets of not more than 0.4 to 1,
to maintain a ratio of total consolidated unencumbered operating
real estate assets to total consolidated unsecured debt of not
less than 1.8 to 1, and to maintain an overall debt service
coverage ratio of at least 2 to 1. The facility also limits the
number of development projects the Company may undertake. The
Bank of Boston Credit Facility is cross-defaulted with respect to
certain other borrowings of the Company. As of December 31, 1995
the Company had no balance outstanding on the Bank of Boston
Credit Facility.
In 1994, the Company terminated its $45 million credit facility with
GECC (the "GECC Credit Facility"). In connection with any advance
under the GECC Credit Facility, the Company was obligated to pay
an advance fee equal to 1% of the amount of such borrowing.
Borrowings under the facility bore interest at an adjustable rate
equal to LIBOR plus 2.50%, payable monthly.
In connection with the Holly Acquisition, the Company assumed two
unsecured credit
22
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
facilities from Key Bank of Washington which bore interest at Key
Bank's prime rate
23
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) CREDIT FACILITIES (CONTINUED)
plus one percent (1%). Both of these facilities were repaid and
terminated in February 1995.
The fair market value of the credit facilities is considered to be the
carrying amount.
(8) SENIOR UNSECURED NOTES
In January 1995, the Company sold $100 million of 9.375% investment
grade senior unsecured notes due February 1, 2002 (the "2002 Notes").
The 2002 Notes were were priced 99.396% to yield 9.495% and have an
effective interest cost to the Company of 9.65% after giving effect to
an interest rate protection agreement. The 2002 Notes, which are rated
Baa3 by Moody's and BBB by Standard & Poor's and Duff & Phelps, are
redeemable at any time after February 1, 2000, at the option of the
Company, subject to certain make whole provisions as defined in the
2002 Notes. The net proceeds from the sale of the 2002 Notes were used
to prepay the remaining balance of a mortgage on five Oklahoma
communities and to repay a portion of the Bank of Boston Credit
Facility.
In August 1995, the Company sold $125 million of investment grade
senior unsecured notes, which are rated Baa3 by Moody's and BBB by
Standard & Poor's and Duff & Phelps. $55 million of these notes (the
"2000 Notes") bear interest at 7.25%, are due on August 15, 2000, and
were priced at 99.381% to yield 7.40%. $70 million of these notes (the
"2005 Notes") bear interest at 7.75%, are due on August 15, 2005, and
were priced at 98.785% to yield 7.93%. The 2005 Notes are redeemable
at any time after August 24, 2002, at the option of the Company,
subject to certain make whole provisions as defined in the 2005 Notes.
The net proceeds from the sale of the 2000 Notes and the 2005 Notes
were used to repay the outstanding balances of the Bank of Boston
Credit Facility and the REMIC.
The 2000 Notes, 2002 Notes, and 2005 Notes contain various customary
loan covenants, and also require the Company to maintain its status as
a REIT, to maintain a ratio of total consolidated debt to total
consolidated assets of not more than 0.6 to 1, to maintain a ratio of
total consolidated secured debt to total consolidated assets of not
more than 0.4 to 1, to maintain a ratio of total consolidated
unencumbered assets to total consolidated unsecured debt of not less
than 1.5 to 1, and to maintain an overall debt service coverage ratio
of not less than 1.5 to 1.
The fair market value of the senior unsecured notes, determined by
reference to various market data, aggregates approximately $240
million at December 31, 1995.
The Company's long-term debt obligations, including the mortgage notes
payable (Note 5) and the senior unsecured notes, as of December 31,
1995, require aggregate principal (or principal sinking fund, as
applicable) payments (before giving effect to applicable discounts) as
follows:
YEAR AMOUNT
-------- -----------
1996 $ 5.6 million
1997 6.3 million
1998 6.1 million
1999 0.6 million
2000 68.6 million
Thereafter $215.3 million
24
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) TRANSACTIONS WITH AFFILIATES
In connection with the Holly Acquisition, the Company entered into a
two-year consulting agreement with David M. Kelley, the brother of the
Company's Vice Chairman, Daniel M. Kelley. Under the agreement, David
Kelley will consult with and advise the Company with respect to the
construction of certain development projects in the Puget Sound region
of the State of Washington and will receive an annual consulting fee
of $170,000. In addition, pursuant to the merger agreement with Holly,
David Kelley was granted options to purchase 100,000 common shares at
an exercise price of $21 per share.
In connection with the construction by the Company of one of its
development projects, a construction management contract was entered
into with DRK Development, Inc. ("DRK"), the stock of which is owned
solely by D. Reed Kelley, the nephew of Daniel M. Kelley. During 1995,
DRK was paid $132,000 under this contract.
(10) SHAREHOLDERS' EQUITY
In July 1993, the Company completed a public offering of 2,594,000
common shares of beneficial interest at $25 per share. The net
proceeds from this offering were approximately $60.5 million and
were used for the acquisition of communities, the repayment of
adjustable rate debt and working capital purposes.
In November 1993, the Company completed a public offering of 4,000,000
shares of Series A Cumulative Convertible Preferred Shares ("Series A
Preferred Shares") at $25 per share. The rating on the Series A
Preferred Shares was upgraded to an investment grade level of BBB- by
both Standard & Poor's and Duff & Phelps in August 1995. The holders
of the Series A Preferred Shares are entitled to an annual cash
distribution of $1.75 per share, payable quarterly, and a liquidation
preference of $25 per share plus accrued and unpaid distributions. The
Series A Preferred Shares are convertible at any time at the option of
the holder at a conversion rate of approximately .8122 common shares
for each Series A Preferred Share. The Series A Preferred Shares are
not redeemable prior to November 1, 1998. On or after November 1,
1998, the Series A Preferred Shares can be redeemed, in whole or in
part, at the option of the Company, at an initial conversion rate of
$25.875 per share and thereafter at prices declining to $25 per share
on and after November 1, 2003.
In August 1994, the Company completed a private offering to domestic
and foreign institutional investors of 1,550,000 common shares of
beneficial interest at $21 per share. The net proceeds from this
offering were approximately $31 million and were used for the
repayment of certain adjustable rate debt. These shares were
registered for trading in January, 1995.
In connection with the Holly Acquisition, the Company issued 5,985,168
common shares of beneficial interest at $20 per share in exchange for
all of the outstanding common shares of Holly.
In April 1995, the Company implemented a dividend reinvestment and
share purchase plan (the "DRIP"). One million common shares have been
allocated for the DRIP. This plan allows shareholders to acquire
additional shares by automatically reinvesting dividends and making
optional cash payments. During 1995, the Company issued 81,376 new
common shares to shareholders who elected to participate in this plan
at an average price of $20.74 per share.
25
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) SHAREHOLDERS' EQUITY (CONTINUED)
In August 1995, the Company issued 2,300,000 Series B Cumulative
Redeemable Preferred Shares ("Series B Preferred Shares") at $25 per
share. The Series B Preferred Shares carry an investment grade rating
of BBB- from both Standard & Poor's and Duff & Phelps and are rated
Ba1 by Moody's. The holders of the Series B Preferred Shares are
entitled to an annual cash distribution of $2.4125 per share, payable
quarterly, and a liquidation preference of $25 per share plus accrued
and unpaid distributions. The Series B Preferred Shares are not
redeemable prior to August 24, 2000. On or after August 24, 2000, the
Series B Preferred Shares can be redeemed, in whole or in part, at the
option of the Company, at a redemption price of $25 per share. The
Series B Preferred Shares rank pari passu with the Company's Series A
Preferred Shares.
As described in Note 2, the Company has elected to be treated, for
federal income tax purposes, as a REIT. As such, the Company is
required to distribute annually, in the form of dividends to its
shareholders, at least 95% of its taxable income. In reporting periods
where taxable income exceeds net income, shareholders' equity will be
reduced by the distributions in excess of net income in such period;
and will be increased by the excess of net income over distributions
in reporting periods where net income exceeds taxable income. For tax
reporting purposes, a portion of the dividends declared during the
years ended December 31, 1995, 1994 and 1993 represents a return of
capital.
For federal income tax purposes, the following summarizes the
taxability of dividends paid in 1995:
COMMON SHARES PREFERRED SHARES
------------- ----------------
SHARES
------ DIVIDEND PERCENTAGE DIVIDEND PERCENTAGE E
-------- ----------- -------- ------------
Ordinary Income $12.90 million 39.65% $8.93 million 99.54%
Capital Gain 0.15 million 0.46 0.04 million 0.46
Return of Capital 19.49 million 59.89 -- --
-------------- ------ -------------- ------
$32.54 million 100.00% $8.97 million 100.00%
============== ====== ============== ======
(11) SHARE OPTION PLAN, LOANS TO SHAREHOLDERS AND DEFERRED COMPENSATION
The Company has adopted certain incentive plans for the purpose of
attracting and retaining the Company's trustees, officers and employees.
The Company has established Share Option Plans (the "Option Plans") which
reserved 1,332,900 common shares for issuance under the Option Plans.
Options granted under the Option Plans expire ten years from the date of
grant and contain certain share appreciation rights. Options outstanding
for the periods ended December 31, 1995 and 1994 are as follows:
26
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) SHARE OPTION PLAN, LOANS TO SHAREHOLDERS AND DEFERRED COMPENSATION
(CONTINUED)
December 31, 1994 (issued at between
$18.94 and $29.38 per share) 813,875
Issued in 1995 (at between $21.63 and $22.50 per
share) 229,150
Exercised in 1995 --
---------
December 31, 1995 1,043,025
=========
In December 1993, five shareholders who are officers of the Company
purchased 52,131 of the Company's common shares at the average market price
of $26.375 per share. In December 1994, seven shareholders who are officers
of the Company purchased 181,250 of the Company's common shares at the
average market price of approximately $19.44 per share. In December 1995,
four shareholders who are officers of the Company purchased 38,462 of the
Company's common shares at the average market price of approximately $22.75
per share. The Company financed these purchases with loans that are secured
by the shares, bear no interest and mature in ten years. One twentieth of
each loan will be forgiven each year for ten years so long as the officer
is still employed by the Company. Approximately $244,922 of these loans
were forgiven during 1995.
In December 1995, one of these officers retired from the Company effective
February 2, 1996. At such time, the shares securing the $59,375 unforgiven
balance of his loan were returned to the Company.
In December 1993, the Company granted 52,131 restricted common shares to
its officers. The grants will vest and become unrestricted, ratably over a
five year period on each anniversary of the stock grant assuming that each
recipient is employed by the Company on such anniversary, and assuming that
the Company has achieved certain annual performance requirements based upon
growth in its Funds From Operations. The maximum vesting would be
approximately $275,000 per annum. Approximately $275,000 of these shares
vested and became unrestricted during 1995.
(12) COMMITMENTS AND CONTINGENCIES
The Company owns a 50% interest in a community containing 76 apartment
units located in downtown Seattle (the "JV Community"). The other 50%
partner is a wholly owned subsidiary of Weyerhaeuser Real Estate Company
("Weyerhaeuser").
The JV Community is subject to indebtedness in the aggregate amount of
approximately $7.5 million as of December 31, 1995 with a weighted average
interest rate of 7.7% per annum during 1995, maturing in December, 1998.
The Company and Weyerhaeuser have each provided a letter of credit of
approximately $418,000.
Two of the communities transferred to the Company, Countryside and The
Overlook (the "San Antonio Communities"), were transferred subject to
existing contract rights between the Company and affiliates of Laramie
Associates (collectively, "Laramie") which are unaffiliated with the
Company. Pursuant to these contracts, Laramie has certain rights relating
to a subsequent sale of each of the San Antonio Communities, including
consent to sale until December 1996 and a right of first refusal to match a
bona fide third party offer. In addition, Laramie could receive 1% of
annual net cash flow from operations of the San Antonio Communities and 15%
to 20% of net proceeds from sales of such San Antonio
27
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Communities based upon the achievement of certain levels of cash flow from
operations, none of which were achieved during 1995, subordinated to
significant priorities in favor of the Company.
The Company has entered into employment agreements with each of its
officers. Such agreements are for terms which expire between December 1997
and December 1998, and provide for aggregate annual base salaries of $1.2
million, $1.2 million and $1.0 million in 1996, 1997 and 1998,
respectively. One of the Company's officers retired effective February 2,
1996. Pursuant to his employment agreement, the officer is to receive
$165,000 which has been included in general and administrative expense at
December 31, 1995.
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 1994 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 1995 and 1994 the Company made contributions of
approximately $29,000 and $5,400, respectively.
28
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION
Summarized consolidated quarterly financial information for the years ended
December 31, 1995 and 1994 is as follows:
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------ ------------- ----------- ------------
1995
- ----
Revenue $33,169,285 $32,666,357 $32,654,707 $32,741,853
Expenses 27,684,240 28,927,920 28,636,040 28,743,394
Gain (loss) on sale
of communities (1,335,057) (162,849) 678,618 --
(Loss) on early
extinguishment of debt (423,684) (5,129,364) -- --
----------- ----------- ----------- -----------
Net income (loss) 3,726,304 (1,553,776) 4,697,285 3,998,459
Preferred dividends 3,137,101 2,335,580 1,750,000 1,750,000
----------- ----------- ----------- -----------
Net income (loss) available
for common shareholders $ 589,203 $(3,889,356) $ 2,947,285 $ 2,248,459
=========== =========== =========== ===========
Net income (loss) per common
share $0.03 $(0.23) $0.18 $0.13
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 16,987,603 16,944,495 16,909,403 16,909,311
=========== =========== =========== ===========
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------- ----------- -----------
1994
- ----
Revenue $25,266,114 $23,273,236 $19,285,615 $14,968,942
Expenses 22,687,287 22,338,675 16,401,383 11,871,978
----------- ----------- ----------- -----------
Net income 2,578,827 934,561 2,884,232 3,096,964
Preferred dividends 1,750,000 1,750,000 1,750,000 1,750,000
----------- ----------- ----------- -----------
Net income (loss) available
for common shareholders $ 828,827 $ (815,439) $ 1,134,232 $ 1,346,964
=========== =========== =========== ===========
Net income (loss) per common
share $0.07 $( 0.09) $0.12 $0.15
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 11,949,366 9,917,350 9,192,893 9,192,893
=========== =========== =========== ===========
29
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
-------------- ------------
ASSETS (Unaudited)
Real estate assets, at cost:
Land $107,724,296 $105,121,296
Buildings and improvements 621,593,451 605,087,385
-------------- ------------
729,317,747 710,208,681
Less, accumulated depreciation (77,391,952) (58,490,833)
-------------- ------------
651,925,795 651,717,848
Construction in progress 44,152,513 26,189,876
-------------- ------------
696,078,308 677,907,724
Cash and cash equivalents 7,979,044 29,444,008
Restricted cash 9,812,876 12,916,328
Note receivable 17,800,000 --
Deferred financing costs 5,092,396 5,928,869
Prepaid and other assets 3,060,521 3,441,408
-------------- ------------
Total Assets $739,823,145 $729,638,337
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior unsecured notes $223,446,986 $223,306,778
Mortgage notes payable 83,299,168 77,136,941
Unsecured credit facilities 26,000,000 --
Accrued expenses and other liabilities 10,812,069 16,403,724
Dividends payable 11,430,568 11,310,053
Security deposits 3,130,949 3,122,229
-------------- ------------
Total Liabilities 358,119,740 331,279,725
============== ============
Commitments and contingencies
-- --
Shareholders' Equity:
Shares of beneficial interest, 100,000,000 shares authorized -
3,999,800 Series A Convertible Preferred Shares, $.01 par value
per share, liquidation preference $25 per share, issued and
outstanding; 39,998 39,998
2,300,000 Series B Preferred Shares,
$.01 par value per share, liquidation preference $25 per share,
issued and outstanding; 23,000 23,000
17,099,935 and 17,026,342 Common Shares,
$.01 par value per share, issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 170,999 170,264
Paid in capital in excess of par value 461,298,347 459,634,825
Distributions in excess of net income (72,544,562) (55,284,084)
Deferred compensation and shareholder loans receivable (7,284,377) (6,225,391)
-------------- ------------
Total Shareholders' Equity 381,703,405 398,358,612
-------------- ------------
Total Liabilities and Shareholders' Equity $739,823,145 $729,638,337
============== ============
See accompanying notes.
30
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ------------ ----------- ------------
REVENUE
Rental income $30,867,109 $30,412,342 $91,927,097 $92,729,331
Other income 1,422,872 1,256,973 4,188,626 3,925,625
Interest income 462,684 997,042 1,036,639 1,407,961
----------- ----------- ----------- -----------
Total Revenue 32,752,665 32,666,357 97,152,362 98,062,917
----------- ----------- ----------- -----------
EXPENSES
Property operating and maintenance 10,572,609 10,946,077 30,476,387 30,416,293
Real estate taxes 2,209,733 2,223,406 7,071,939 7,225,919
Depreciation and amortization 6,613,789 6,686,373 19,630,133 20,173,985
Property management 1,078,700 1,212,780 3,450,957 3,765,085
Interest 5,745,851 7,164,290 16,908,535 21,358,191
General and administrative 783,837 623,840 2,592,795 3,067,707
----------- ----------- ----------- -----------
Total Expenses 27,004,519 28,856,766 80,130,746 86,007,180
----------- ----------- ----------- -----------
Gain (loss) on sale of communities -- (162,849) -- 515,769
(Loss) on JV communities (16,334) (71,154) (52,639) (300,174)
----------- ----------- ----------- -----------
Net income before extraordinary items 5,731,812 3,575,588 16,968,977 12,271,332
Extraordinary item - (loss) on early
extinguishment of debt -- (5,129,364) -- (5,129,364)
----------- ----------- ----------- -----------
Net income (loss) after extraordinary items 5,731,812 (1,553,776) 16,968,977 7,141,968
Preferred dividends 3,137,100 2,335,580 9,411,300 5,835,580
----------- ----------- ----------- -----------
Income (loss) available for
common shareholders $ 2,594,712 $(3,889,356) $ 7,557,677 $ 1,306,388
=========== =========== =========== ===========
Net income (loss) per common share
before extraordinary items $ 0.15 $ 0.07 $ 0.44 $ 0.38
=========== =========== =========== ===========
Net income (loss) per common share
after extraordinary items $ 0.15 $ (0.23) $ 0.44 $ 0.08
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 17,053,683 16,944,495 17,041,029 16,921,199
=========== =========== =========== ===========
Cash dividends declared per common
share $ 0.485 $ 0.480 $ 1.455 $ 1.440
=========== =========== =========== ===========
See accompanying notes.
31
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
------------- -------------
Net income $ 16,968,977 $ 7,141,968
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 20,123,736 22,552,596
Amortization of deferred compensation and
shareholder loans receivable 191,014 389,942
(Gain) loss on sale of communities -- (515,769)
Non-cash loss on early extinguishment of debt -- 3,950,399
Decrease (increase) in assets
Escrow cash 59,106 1,416,760
Debt service reserve 3,044,346 (1,077,327)
Rent receivables (176,465) 263,266
Prepaid and other assets 222,482 90,457
(Decrease) increase in liabilities
Accounts payable (1,796,054) 932,170
Accrued expenses and other liabilities (3,795,601) (2,406,278)
Security deposits 8,720 29,107
------------ -------------
Net cash provided by operating activities 34,850,261 32,767,291
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of real estate assets -- 16,633,289
Investment in real estate assets (25,671,703) (16,571,243)
Investment in note receivable (17,800,000) --
------------ -------------
Net cash provided by (used in) investing activities (43,471,703) 62,046
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage notes payable -- 794,971
Net proceeds from senior unsecured notes -- 223,205,050
Net proceeds (payment) from credit facilities 26,000,000 (140,000,000)
Payment of deferred financing costs (96,783) (4,362,601)
Principal payments on mortgage notes (5,052,056) (145,547,966)
Distributions to shareholders (34,108,941) (29,092,331)
Net proceeds from dividend reinvestment plan 404,788 784,261
Net proceeds from preferred equity offering -- 55,426,733
Net proceeds from exercise of options 9,470 --
------------ -------------
Net cash provided by (used in) financing activities (12,843,522) (38,791,883)
------------ -------------
Net (decrease) in cash and cash equivalents (21,464,964) (5,962,546)
Cash and cash equivalents, beginning of period 29,444,008 13,152,692
------------ -------------
Cash and cash equivalents, end of period $ 7,979,044 $ 7,190,146
============ =============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 22,123,549 $ 18,002,168
Third quarter dividends declared $ 11,430,568 $ 10,471,197
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Cost of assets acquired $ 17,512,162 $ --
Net cash paid (6,312,162) --
------------ -------------
Purchase money and other mortgage notes assumed $ 11,200,000 $ --
============ =============
Net sales price of assets sold $ -- $ 29,198,289
Net cash received -- (16,633,289)
------------ -------------
Note receivable $ -- $ 12,565,000
============ =============
See accompanying notes.
32
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
Wellsford Residential Property Trust and Subsidiaries (the "Company") is a
fully integrated and self administered equity real estate investment trust
("REIT") engaged in the acquisition, development and operation of
multifamily communities located in the Southwest and Pacific Northwest
regions of the United States. At September 30, 1996, the Company owned 75
multifamily communities containing 18,576 units. After the developments
completed in October 1996, described in Note 2, the Company owns 18,974
units.
The accompanying financial statements and related notes of the Company have
been prepared in accordance with generally accepted accounting principles
for interim financial reporting and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared under
generally accepted accounting principles have been condensed or omitted
pursuant to such rule. In the opinion of management, all adjustments
considered necessary for a fair presentation of the Company's financial
position, results of operations and cash flows have been included and are
of a normal and recurring nature. These financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K f or the year
ended December 31, 1995.
2. Real Estate Investments
In October 1996, the Company completed two development projects. The
Village at Bear Creek II, a Denver, Colorado apartment community contiguous
to the Company's existing Bear Creek community, contains 216 units and was
developed at a cost of $18.8 million, including settlement of the
developer's fixed price contract. The operations of the two Bear Creek
communities have been combined. Seeley Lake III, a Tacoma, Washington
apartment community developed as an expansion to the Company's Village at
Seeley Lake community, contains 182 units and was developed at a cost of
$9.5 million.
In July 1996, the Company originated a $17.8 million mortgage on a 344
unit, newly constructed community in Tucson, Arizona known as Sonterra at
Williams Centre (the "Sonterra Mortgage"). The Sonterra Mortgage bears
interest at 9% per annum, matures in June 1999 and provides the Company
with the exclusive option to purchase the community for $20.5 million
through December 1997 and $21 million until December 1998.
In May 1996, the Company purchased a parcel of land in Denver, Colorado for
$2.1 million. The land is located contiguous to the Company's Blue Ridge
development and will represent the second phase of the Company's Palomino
Park project.
In April 1996, the Company, through a wholly-owned subsidiary, acquired
Marks West, a multifamily community containing 280 units located in Denver,
Colorado, for approximately $18 million including the estimated cost for
certain capital improvements. The acquisition was funded from cash on hand
and the assumption of $11.2 million of tax-exempt bond financing. During
October 1996, the Company remarketed the bonds which now bear interest at
6.65% and have a term of 30 years. The community's operations have been
combined with those of The Marks, an existing community located contiguous
to Marks West.
33
WELLSFORD RESIDENTIAL PROPERTY TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Capitalization
In October 1996, the Company drew $20 million on its unsecured credit
facility with The First National Bank of Boston (the "Bank of Boston Credit
Facility"), primarily to settle the developer's fixed price contract on the
Company's Village at Bear Creek II development upon its completion.
In September 1996, three shareholders who are officers of the Company
purchased 54,052 of the Company's common shares at the average market price
of $23.125 per share. The Company financed these purchases with loans that
are secured by the shares, bear no interest and mature in ten years. One
twentieth of each loan will be forgiven each year for ten years so long as
the officer is still employed by the Company.
During the second and third quarters of 1996, the Company drew $26.0
million on the Bank of Boston Credit Facility to purchase a parcel of land,
fund the Sonterra Mortgage and fund certain developments.
In June 1996, the Company's Board of Trustees approved a stock repurchase
plan which authorizes the Company to repurchase up to two million common
shares. No shares have been repurchased through September 30, 1996.
In January 1996, the Company prepaid it's $4.9 million mortgage on the
community known as Parkwood East from cash on hand. This mortgage bore
interest at 9.625% and would have matured March 1996.
4. Earnings Per Share
Net income per share was calculated using the weighted average number of
shares outstanding of 17,038,070 and 16,921,199 for the nine months ended
September 30,1996 and 1995, respectively. The Company declared a common
dividend of $0.485 per common share, a Series A preferred dividend of
$0.4375 per share, and a Series B preferred dividend of $0.603125 per share
on September 17, 1996 payable to shareholders of record on September 27,
1996.
34
ITEM 7.
C. Exhibits
4.1 Indenture dated as of August 21, 1995 between Wellsford
Residential Property Trust and United States Trust Company of
New York as filed as Exhibit 10.17 to Wellsford's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated
herein by reference.
4.2 Indenture dated as of October 25, 1996 between Wellsford
Residential Property Trust and United States Trust Company of New
York as filed as Exhibit 4.3 to Wellsford's Current Report on Form
8-K dated October 31, 1996 and incorporated herein by reference.
4.3 Indenture dated as of January 30, 1995 between Wellsford
Residential Property Trust and The First National Bank of Boston
as filed as Exhibit 10.12 to Wellsford's Annual Report on Form
10-K for the year ended December 31, 1994 and incorporated herein
by reference.
23 Consent of Ernst & Young LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUITY RESIDENTIAL PROPERTIES TRUST
March 17, 1997 By: /s/ Michael J. McHugh
---------------- -----------------------------------
(Date) Michael J. McHugh
Senior Vice President, Chief Accounting
Officer and Treasurer