UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of, May 2003
------------------------------------- --------------
O&Y PROPERTIES CORPORATION
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(Exact name of Registrant as specified in its charter
or translation of Registrant's name into English)
Ontario, Canada
------------------------------------------------
(Jurisdiction of incorporation or organization)
Suite 3300, 100 King Street West, Toronto, Ontario, Canada M5X 1B1
-------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40F.
|X| Form 20-F |_| Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(1): |_|
Indicate by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule 101(b)(7): |_|
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
|_| Yes X| No
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-__________
<page>
DOCUMENT INDEX
Document Page No.
- -------- --------
1. Quarterly Report For The Three Months Ended 4
March 31, 2003
<page>
Document 1
<page>
O&Y PROPERTIES CORPORATION LOGO OMITTED
Quarterly Report
For the Three Months Ended March 31, 2003
<page>
Financial Highlights
(in thousands of dollars except per share amounts)
Three Months Three Months
Ended Ended Three Months
Mar. 31, Mar. 31, Ended
2003 2002 Dec. 31, 2002
--------------------------------------------------
Funds from operations $13,955 $12,679 $ 15,329
- - per share basic $ 0.31 $ 0.28 $ 0.35
- - per share diluted $ 0.27 $ 0.25 $ 0.30
Revenues $73,280 $73,041 $ 75,511
Net income $ 1,282 $ 1,237 $ 360
- - per share basic $ - $ - $ (0.02)
- - per share diluted $ - $ - $ (0.02)
<page>
To Our Shareholders
O&Y Properties Corporation is pleased to report its financial results for the
first quarter ended March 31, 2003.
Basic funds from operations ("FFO") for the quarter ended March 31, 2003 were
$14.0 million or $0.31 per share ($0.27 per share diluted), a 10% increase
over the prior year at $12.7 million or $0.28 per share ($0.25 per share
diluted).
O&Y Properties Corporation also announces the extension of leases with a major
law firm at First Canadian Place for 285,000 square feet of space until 2015.
Approximately 254,000 square feet of the space was scheduled to expire in
2005. The remaining 31,000 square feet expires in 2006.
The second significant lease renewal was announced by O&Y Real Estate
Investment Trust ("O&Y REIT") for its Ottawa portfolio. The REIT has reached
an agreement with the federal government, the REIT's largest tenant, for the
renewal of approximately 634,000 square feet of space in its Jean Edmonds
Towers until 2014. These leases were scheduled to expire in 2004, and the
renewal of these leases reduces the REIT's 2004 expiries to only 8% of its
portfolio from 21%.
"While we continue to face challenging business conditions in the office
sector, we are off to a great start in 2003 with strong financial results and
the renewal of leases by the second largest tenant in First Canadian Place and
the largest tenant in O&Y REIT's Ottawa portfolio," said Philip Reichmann,
Chief Executive Officer. "New leasing and renewals totalling over 1 million
square feet thus far this year will contribute to the long-term growth and
stability of our portfolio."
O&Y REIT also reported strong financial and operational results for the
quarter. Subsequent to quarter-end, O&Y REIT closed its first acquisitions for
2003. It purchased the remaining 50% interests in the Canadian Western Bank
Building and Enbridge Tower, both located in Edmonton, Alberta from its
co-owners for $23.25 million.
Subsequent to the release of its first quarter results on May 20, 2003, O&Y
REIT announced an agreement to acquire a 50% interest in Winnipeg's premier
office building, TD Centre and the adjacent land. The acquisition is expected
to be completed in June 2003.
TD Centre is located at Portage and Main, in the middle of Winnipeg's central
business district. It is a Class A, 32-storey, 506,000 square foot
multi-tenant office tower. O&Y REIT's joint venture partner for the other 50%
interest is the Asper family of Winnipeg. The total purchase price for the
property is approximately $69 million.
O&Y Properties Corporation's Board of Directors declared the quarterly
dividend of $0.05 per share on its common shares on May 21, 2003. Payment will
be made on July 15 to shareholders of record on June 30, 2003.
O&Y Properties Corporation's Board of Directors declared the quarterly
dividend of $0.05 per share on its common shares on May 21, 2003. Payment will
be made on July 15 to shareholders of record on June 30, 2003.
O&Y Properties Corporation's 2002 Annual Report and Management's Discussion
and Analysis are available on SEDAR. Review of these in conjunction with this
report will give readers a comprehensive and up-to-date discussion of O&Y
Properties Corporation's activities and financial results. Readers may also
visit O&Y Properties Corporation's Web site at www.oyp.com.
"Philip Reichmann" "Frank Hauer"
Philip Reichmann Frank Hauer
Chief Executive Officer President
Toronto, Ontario
May 26, 2003
<page>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis should be read in conjunction with the
financial statements and accompanying notes for the quarter-ended March 31,
2003 and the year-ended December 31, 2002.
Funds from Operations
For the quarter ended March 31, 2003, basic funds from operations ("FFO") were
ahead of the same quarter in the prior year at $14.0 million or $0.31 per
share ($0.27 per share diluted), compared to $12.7 million or $0.28 per share
($0.25 per share diluted) in the prior year. This increase was due to a number
of factors including the impact of property acquisitions by O&Y REIT, lower
system implementation costs and an increased current income tax recovery,
partially offset by decreased net rental income from First Canadian Place and
a decline in net real estate services income from O&Y Enterprise, its real
estate services business.
Funds from operations were $1.3 million below the fourth quarter of 2002. This
decrease related to a number of factors, including a decline in net rental
income from First Canadian Place, decreased net real estate services income
from O&Y Enterprise, a number of positive one-time adjustments recorded in the
last quarter of 2002, partially offset by lower corporate and system
implementation costs.
Under relevant accounting standards, FFO is calculated as if the Company owns
100% of O&Y REIT. If FFO is calculated on a proportionate basis, basic FFO for
the three months ended March 31, 2003 would be $9.1 million or $0.19 per share
($0.18 per share diluted), as compared to $8.7 million or $0.18 per share
($0.17 per share diluted) for the same period in the prior year, and $10.6
million or $0.23 per share ($0.21 per share diluted) in the fourth quarter of
2002.
These figures have been derived as follows:
(in thousands of dollars except per share amounts)
<table>
<caption>
Three Months Three Months Three Months
Ended Ended Ended
Mar. 31, 2003 Mar. 31, 2002 Dec. 31, 2002
-------------------------------------------------
<s> <c> <c> <c>
O&Y Properties Corporation consolidated FFO $ 13,955 $ 12,679 $ 15,329
Less: O&Y REIT FFO (10,985) (9,142) (10,775)
Add back elimination of Maritime Life Tower loan interest 1,085 1,086 1,109
Add back elimination of intercompany leasing fees 70 - 71
--------------------------------------------
FFO attributable to all other sources 4,125 4,623 5,734
Proportionate consolidation of
O&Y REIT FFO 5,525 4,580 5,409
Eliminate proportionate share of Maritime Life Tower loan
interest (546) (544) (557)
Eliminate proportionate share of intercompany leasing fees (35) - (36)
--------------------------------------------
O&Y Properties Corporation proportionately consolidated FFO $ 9,069 $ 8,659 $ 10,550
============================================
- per share basic $ 0.19 $ 0.18 0.23
============================================
- per share diluted $ 0.18 $ 0.17 $ 0.21
============================================
</table>
Net Income
Net income of $1.3 million was recorded for the quarter ended March 31, 2003,
compared to $1.2 million for the same period in the prior year. Increases in
net rental income from the O&Y REIT portfolio, lower system implementation
<page>
costs and an increased current income tax recovery, were partially offset by
decreased net rental income from First Canadian Place, lower income from the
real estate services business and higher depreciation and amortization
expense.
Net income in the first quarter of $1.3 million was $0.9 million higher than
that recorded in the fourth quarter of 2002 of $0.4 million. A decline in net
rental income from First Canadian Place and lower income from the real estate
services business were more than offset by the restructuring charge of $7.0
million (pre-tax) recorded in the fourth quarter of 2002 on the real estate
services business.
O&Y REIT
Portfolio Overview
-----------------
O&Y REIT's portfolio consists of 19 high-quality Class A and Class B
income-producing commercial office properties located in Halifax, Ottawa,
Toronto, Niagara Falls, Winnipeg, Edmonton and Calgary. The properties are
diversified both in terms of geography and tenant mix.
Despite the continuing challenging business and leasing environment, O&Y REIT
performed well during the first quarter. Leases for 108,330 square feet
expired at an average rental rate of $10.80 per square foot. During the same
period, 157,786 square feet was leased at an average rental rate of $12.43 per
square foot. The occupancy rate for the portfolio was 91.9% at March 31, 2003,
at an average rental rate in place of $13.24 per square foot. This compares to
the occupancy at December 31, 2002 of 91.0%, at an average rental rate in
place of $13.08 per square foot, and the occupancy at March 31, 2002 of 93.3%
at an average rental rate of $12.55 per square foot. The increase in occupancy
from December 31, 2002 was mainly attributable to leasing activity in the
Calgary and Winnipeg properties.
Net Rental Income
-----------------
Net Rental Income
(in thousands of dollars)
<table>
<caption>
Three Months Three Months Three Months
Ended Ended Ended
Mar. 31, 2003 Mar. 31, 2002 Dec. 31, 2002
-------------------------------------------------------
<s> <c> <c> <c>
Revenues from rental properties $29,818 $26,085 $29,550
Rental property operating costs 14,326 12,310 14,073
Ground rent 504 501 501
-------------------------------------------------------
Net rental income $14,988 $13,274 $14,976
=======================================================
</table>
Net rental income for the three months ended March 31, 2003 was $15.0 million
compared to $13.3 million in the same period in the prior year. On a
"same-store" basis, excluding the effect of acquisitions, net rental income
for the first quarter was $13.6 million, compared to $13.3 million for the
same period in the prior year. This increase primarily related to positive
leasing activity in certain Calgary and Winnipeg properties.
For the first quarter, net rental income remained constant at $15.0 million
when compared to the fourth quarter of 2002. Included in rental income in the
fourth quarter of 2002 was a lease termination fee. Excluding the impact of
this, net rental income on a "same-store" basis was $0.3 million higher than
the fourth quarter of 2002.
Acquisitions
------------
On May 9, 2003, O&Y REIT acquired the remaining 50% interest in two buildings
in downtown Edmonton, the Canadian Western Bank Building and Enbridge Tower,
from its co-owners. The total purchase price of the acquisitions was $23.25
million. The acquisitions were financed through the assumption of the vendors'
share of the mortgages, amounting to $12.3 million, with the remainder funded
through the REIT's operating/acquisition facility. The mortgages assumed carry
a weighted average interest rate of 6.58%. The expected blended yield of the
acquisition is approximately 11.25% on an unlevered basis and 17% on a levered
basis.
<page>
Both buildings are located in Edmonton's central business district. The
Canadian Western Bank Building is a Class A, 30-storey, 404,000 square foot
multi-tenant building and the head office of Canadian Western Bank. The
Enbridge Tower is a Class A, 20-storey, 182,000 square foot building leased
almost entirely to Enbridge Inc.
Financial Position
------------------
Total debt outstanding, excluding convertible debentures, was $240.7 million
at March 31, 2003, versus $239.7 million at December 31, 2002. At March 31,
2003, 13.5% of outstanding debt was at floating rates with an average interest
rate of 5.1%. This compares to floating rate debt of 12.5% with an average
interest rate of 4.7% at December 31, 2002. The weighted average interest rate
on fixed rate debt remained the same as December 31, 2002 at 7.2%. O&Y REIT's
balance sheet is strong and continues to provide it with capacity to make
property acquisitions. The debt-to-gross book value (including convertible
debentures) was 46% at March 31, 2003. Excluding the convertible debentures,
the debt-to-gross book value was 34%. The EBITDA interest coverage ratio for
the quarter was 2.90:1. EBITDA is defined as net income plus depreciation and
amortization plus financing expense.
First Canadian Place
A landmark complex at the corner of King and Bay Streets in downtown Toronto,
First Canadian Place is composed of a 72-storey Class AAA office tower and a
multi-level banking and retail podium at the base of, and surrounding, the
tower. First Canadian Place contains approximately 2.7 million square feet of
gross leaseable area.
The occupancy rate for the office component at March 31, 2003 was 93.0%, as
compared to 98.1% at March 31, 2002 and 94.3% at December 31, 2002. Average
rent in place for the office component at March 31, 2003 was $22.41 per square
foot, compared to $22.15 per square foot at March 31, 2002 and $22.28 per
square foot at December 31, 2002.
Lease expiries and the occupancy rate in the first quarter of 2003 was
impacted by the surrender of 30,000 square feet of space by BMO Financial
Group, as part of the early renewal of 423,000 square feet of their leases
announced in 2002. In the first quarter, approximately 38,000 square feet of
office leases expired at an average rate of $9.67 per square foot. This
compares to office leasing activity of 8,000 square feet completed at an
average rate of $28.53 per square foot.
Net Rental Income
-----------------
Net rental income from First Canadian Place for the three months ended March
31, 2003 was $9.5 million, compared to $10.9 million for the same period in
the prior year and $11.0 million for the fourth quarter of 2002.
The decrease from the same period in the prior year resulted from a
non-recurring positive realty tax adjustment recorded in the prior year, as
well as a higher vacancy. The decrease compared to the fourth quarter of 2002
resulted mainly from a realty tax rebate realized in the fourth quarter of
2002, as well as a non-recurring operating cost recoveries adjustment recorded
in the fourth quarter of 2002.
Real Estate Services
Real estate services income before consolidation and other adjustments for the
quarter ended March 31, 2003 was $1.4 million, compared to $1.8 million for
the same period in the prior year and $2.3 million in the fourth quarter of
2002. The decrease compared to the prior year was due to the loss of certain
property management contracts. The decrease compared to the fourth quarter of
the prior year was due mainly to a decrease in transactional revenues due to
the cyclical nature of the business.
O&Y Enterprise underwent a significant restructuring in the fourth quarter of
2002. In connection with the restructuring, O&Y Properties sold a portion of
its western regional real estate services business. The business sold was
comprised of property management contracts on approximately 120 properties,
containing over 8 million square feet of space. Management of the properties
was transferred effective January 1, 2003.
<page>
Development
The Maritime Life Tower development project in downtown Toronto was
substantially completed on March 13, 2003. The first tenants have taken
occupancy and the building is currently 50% leased.
O&Y Properties has an $82.7 million construction facility on the Maritime Life
Tower development project. Interest is at the rate of prime plus 1.5% and
matures in June 2004. At March 31, 2003, $53.0 million was drawn. The
construction facility was fully funding construction costs. In the quarter,
$6.8 million was spent on the Maritime Life Tower project.
Financing Expense
Financing expense for three months ended March 31, 2003 was $8.7 million,
compared to $8.9 million for the same period in the prior year and for the
fourth quarter of 2002. The decrease compared to the first quarter of the
prior year mainly related to higher interest capitalized to land held for
development, partly offset by interest expense on debt assumed in respect of
property acquisitions in O&Y REIT during 2002. The decrease compared to the
fourth quarter of 2002 mainly related to a mortgage that was repaid by O&Y
REIT in the fourth quarter of 2002.
Corporate Expenses
Corporate expenses for the quarter ended March 31, 2003 were consistent with
the same period in the prior year at $2.4 million. Corporate expenses of $2.4
million for the first quarter 2003 were lower than the $2.8 million recorded
in the fourth quarter of 2002. The decrease mainly related to business
development costs written-off in the fourth quarter of 2002.
Depreciation and Amortization
Depreciation and amortization for the quarter ended March 31, 2003 was $7.0
million, compared to $6.3 million in the same period in the prior year. The
increase mainly related to the impact of property acquisitions made in 2002 by
O&Y REIT, as well as higher amortization of leasing costs.
Liquidity and Capital Resources
For the O&Y REIT properties, capital expenditures during the first quarter
amounted to $0.3 million, compared to $0.5 million for the same period in the
prior year. Leasing costs for the quarter were $2.6 million compared to $0.5
million for the same period in the prior year. The increase in leasing costs
was primarily due to significant leasing activity in the portfolio, especially
in Calgary and Winnipeg, as well as higher inducements required to attract
tenants.
At First Canadian Place, $0.2 million was incurred on capital expenditures in
the first quarter of 2003, compared to $0.7 million incurred during the same
period in the prior year. Leasing costs for the quarter were $0.1 million,
compared to nil in the prior year.
Cash and cash equivalents at March 31, 2003 were $23.5 million, of which $10.7
million was not available for general corporate purposes and $6.7 million was
held by O&Y REIT.
Distributions to other unitholders in O&Y REIT during the quarter amounted to
$4.7 million, compared to $4.3 million for the same period in the prior year.
Distributions received by O&Y Properties Corporation during the quarter
amounted to $4.7 million, compared to $4.2 million for the same period in the
prior year.
O&Y Properties has a conservative balance sheet with a debt-to-equity ratio of
1.43:1 at March 31, 2003. The EBITDA interest coverage ratio for the first
quarter 2003 was 2.57:1. EBITDA is calculated as net income plus current and
future income taxes, interest of others in O&Y REIT, depreciation and
amortization and financing expense.
Outlook
O&Y Properties Corporation had a solid first quarter 2003, despite market
conditions remaining challenging. The Company is well positioned to meet this
challenge, as the fundamentals of its property portfolio remain stable and it
has the capital base to seek out new acquisitions to fuel future growth.
<page>
O&Y REIT's lease expiries for the remaining three quarters of 2003 are
expected to be approximately 232,000 square feet or 5% of the REIT's portfolio
at an average rate of $12.21 per square foot. At May 2003, O&Y REIT has
renewed or leased approximately 50% or the equivalent of 115,000 square feet
of the remaining expiring space at an average rate of $11.67 per square foot.
For the entire year, O&Y REIT has renewed or leased the equivalent of
approximately 80% of its expiries.
Scheduled portfolio lease expiries for 2003 and current leasing activity for
O&Y REIT are as follows:
<table>
<caption>
Three Months Three Months Three Months Three Months
Ended Ending Ending Ending Dec. Year Ending
Mar. 31, 2003 Jun. 30, 2003(1) Sept. 30, 2003(1) 31, 2003(1) Dec. 31, 2003
------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Expiries (sq. ft.) 108,330 156,526 29,790 45,973 340,619
Rate per sq. ft. $ 10.80 $ 12.31 $ 12.95 $ 11.40 $ 11.76
Committed Renewals/New Leasing (sq. ft.) 157,786 76,691 14,364 23,685 272,526
Rate per sq. ft. $ 12.43 $ 11.25 $ 11.83 $ 12.91 $ 12.11
Note: (1) Includes 100% of the Edmonton properties.
</table>
O&Y REIT has significantly addressed its 2004 expiries as well. Subsequent to
quarter-end, O&Y REIT reached an agreement with the federal government for the
renewal of leases in the Jean Edmonds Towers in Ottawa for 634,000 square feet
of space at $1.22 per square foot less than the rate at expiry. While there is
a step down in rates, the rollover profile in the Ottawa portfolio and its
long-term cash flows have been stabilized with this renewal by its largest
Ottawa tenant. Prior to this extension, lease expiries in 2004 were expected
to be 21% of the portfolio or the equivalent of 1,047,723 square feet of
space. As a result of this renewal, lease expiries for 2004 have been
significantly reduced to 8% or the equivalent of 413,845 square feet of space.
This renewal will also position the REIT to refinance the debt currently in
place related to the Jean Edmonds Towers, at a rate that is more favourable
than the existing rate of 7.72%. A refinancing should free up significant
capital, which can then be used to fund new accretive property acquisitions,
while also providing the REIT an opportunity to reduce the interest rate that
the current debt is carrying.
O&Y REIT's acquisition program got off to a good start in 2003, with the
acquisition of the remaining 50% interest in the Canadian Western Bank
Building and Enbridge Tower in Edmonton. The Trust looks forward to continuing
to grow its portfolio and hopes to be able to announce further accretive
acquisitions, as the year unfolds. The REIT, along with the Asper family, is a
party to an agreement in principle for each to purchase a 50% interest in the
TD Centre located in Winnipeg, Manitoba and the adjacent vacant land. The
agreement to purchase is subject to successful completion of the due diligence
process. The transaction is expected to be completed in June 2003.
O&Y REIT has also undertaken a review of all of its debt and debt maturities
and has initiated refinancings of certain properties in order to lock in
favourable interest rates, free up capital and substitute assets as collateral
for the operating/acquisition facility. The REIT is just completing the
refinancing for 840 - 7th Avenue S.W. in Calgary of a fixed-rate mortgage of
$23.25 million at an interest rate of 6.60% for a ten-year term. The
refinancing is expected to close in the last week of May. This asset is one of
the assets securing the operating/acquisition facility. It will be replaced in
the facility with Altius Centre, also in Calgary, in early June. Another
refinancing being pursued is for Acres House in Niagara Falls. O&Y REIT has a
commitment for a $6.0 million mortgage for 10 years, at a rate expected to be
between 6.25% and 6.5%. This refinancing is expected to close in June. The
REIT is also exploring a refinancing for its 18 King Street East property in
Toronto and will seek to refinance its debt on the Jean Edmonds Towers as a
result of the lease renewal. The net result of all of these refinancings is
that O&Y REIT has increased the operating/acquisition facility from $80
million to $100 million, which will give the REIT approximately $100 to $125
million in remaining acquisition capacity through the facility. As well, the
refinancing of the Jean Edmonds Towers debt is expected to create additional
acquisition capacity for the REIT over and above the operating/acquisition
facility.
<page>
O&Y REIT will continue to seek out additional accretive acquisitions and
aggressively renew and lease space in its properties to provide growth and
long-term stability for the portfolio. With respect to acquisitions, the REIT
does have another property under contract, which is presently under due
diligence. Assuming there are no issues arising from due diligence, the REIT
would expect to announce this acquisition prior to the end of May 2003.
At First Canadian Place, an agreement has been reached for the long-term
extension of leases for 285,000 square feet by a major law firm, the
building's second largest tenant, at a net effective rent of $27.49 per square
foot until 2015. Approximately 254,000 square feet was scheduled to expire in
2005, with the remaining 31,000 square feet scheduled to expire in 2006.
Currently, the law firm leases approximately 216,000 square feet of space, and
will expand into the remaining space as other tenant leases expire. The
average rate of all of the expiring space is $24.74 per square foot. This
lease extension, combined with the early lease renewals by BMO Financial Group
for 423,000 square feet, announced in the third quarter of 2002, significantly
reduces lease expiries at First Canadian Place in 2004 and 2005.
As of May 2003, scheduled office lease expiries for 2003 and current leasing
activity for First Canadian Place are as follows:
<table>
<caption>
Three Months Three Months Three Months Three Months
Ended Ending Ending Ending Dec. Year Ending
Mar. 31, 2003 Jun. 30, 2003 Sept. 30, 2003 31, 2003 Dec. 31, 2003
------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
Expiries (sq. ft.) 37,546 19,181 13,638 46,323 116,688
Rate per sq. ft. $ 9.67 $ 32.43 $ 18.66 $ 22.50 $ 19.55
Committed Renewals/New
Leasing (sq. ft.) 7,573 6,000 - - 13,573
Rate per sq. ft. $28.53 $ 33.50 - - $ 30.73
</table>
The Company remains focused on the strategies that delivered solid results
under challenging conditions and will continue to follow its disciplined
investment philosophy moving forward.
O&Y Properties Corporation is a Canadian commercial real estate company that
is focused on ownership, management and development of high-quality office
buildings. Directly and indirectly through just over 50% ownership of O&Y
REIT, O&Y Properties owns a portfolio of 20 office properties representing 8.1
million square feet in seven Canadian markets, including the 2.7 million
square foot Class AAA First Canadian Place office complex in downtown Toronto.
O&Y Properties recently completed construction of the Maritime Life Tower in
downtown Toronto. O&Y Enterprise, its real estate services division is a
leading third party commercial real estate manager, specializing in property
management services to owners of real estate; and through O&Y CB Richard
Ellis, facilities and corporate real estate services to users of real estate.
O&Y Enterprise has offices in 7 major centres across Canada and employs
approximately 1000 people, servicing its managed portfolio of more than 74
million square feet.
<page>
<table>
<caption>
O&Y PROPERTIES CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------
(unaudited)
(in thousands) Notes March 31, 2003 December 31, 2002
- ----------------------------------------------------------------------------------------------------------------------------
Assets
<s> <c> <c> <c>
Rental properties 2 $ 1,056,836 $ 1,060,722
Property under development 108,920 104,363
Land held for development 14,894 14,725
Goodwill and intangible assets 19,003 19,246
Amounts receivable 19,051 17,321
Deferred costs and other assets 3 46,161 43,426
Cash and cash equivalents 4 23,458 28,745
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,288,323 $ 1,288,548
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities
Secured debt 5 $ 576,701 $ 575,164
Accounts payable and accrued liabilities 45,358 43,530
Other liabilities 6 27,502 31,566
Future income taxes 55,623 54,123
Debentures, notes and preferred shares, liability
component 9,925 10,486
- ----------------------------------------------------------------------------------------------------------------------------
715,109 714,869
- ----------------------------------------------------------------------------------------------------------------------------
Interest of others in O&Y REIT 164,377 164,916
- ----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Debentures, notes and preferred shares, equity
component 116,622 114,672
Common shares 7 229,364 229,185
Retained earnings 60,492 62,547
Contributed surplus 2,359 2,359
- ----------------------------------------------------------------------------------------------------------------------------
408,837 408,763
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,288,323 $ 1,288,548
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</table>
<page>
<table>
<caption>
O&Y PROPERTIES CORPORATION
- ----------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
- ----------------------------------------------------------------------------------------------------------------
(unaudited) Three Months Ended March 31
(in thousands except per share amounts) Notes 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Revenues
<s> <c> <c> <c>
Rental property $ 61,885 $ 58,057
Real estate services 11,395 14,984
- ---------------------------------------------------------------------------------------------------------------
73,280 73,041
- ---------------------------------------------------------------------------------------------------------------
Expenses
Rental property operating expenses and taxes 31,170 27,060
Ground rent and entitlements 9 6,102 6,962
Real estate services 11,086 14,132
- ---------------------------------------------------------------------------------------------------------------
48,358 48,154
- ---------------------------------------------------------------------------------------------------------------
Rental and real estate services income 24,922 24,887
- ---------------------------------------------------------------------------------------------------------------
Financing expense 10 8,719 8,947
Corporate expense 2,396 2,391
System implementation costs 133 650
Depreciation of rental properties 2 3,999 3,884
Other depreciation and amortization 3 3,050 2,408
- ---------------------------------------------------------------------------------------------------------------
18,297 18,280
- ---------------------------------------------------------------------------------------------------------------
Income before the undernoted items 6,625 6,607
- ---------------------------------------------------------------------------------------------------------------
Interest of others in O&Y REIT (4,031) (3,373)
Other items 12 - (385)
- ---------------------------------------------------------------------------------------------------------------
(4,031) (3,758)
- ---------------------------------------------------------------------------------------------------------------
Income before taxation 2,594 2,849
- ---------------------------------------------------------------------------------------------------------------
Current income tax recovery (expense) 809 399
Future income tax recovery (expense) (2,121) (2,011)
- ---------------------------------------------------------------------------------------------------------------
(1,312) (1,612)
- ---------------------------------------------------------------------------------------------------------------
Net income for the period 1,282 1,237
Retained earnings, beginning of period 62,547 69,154
Dividends (2,010) (2,032)
Accretion on equity component of debentures,
notes and preferred shares, net of tax (1,327) (1,217)
- ---------------------------------------------------------------------------------------------------------------
Retained earnings, end of period $ 60,492 $ 67,142
- ---------------------------------------------------------------------------------------------------------------
Earnings per common share 8
Basic $ - -
Diluted $ - -
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</table>
<page>
<table>
<caption>
O&Y PROPERTIES CORPORATION
- ---------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FUNDS FROM OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
(unaudited) Three Months Ended March 31
(in thousands except per share amounts) Notes 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c>
Net income for the period $ 1,282 $ 1,237
- ---------------------------------------------------------------------------------------------------------------------
Non-cash items:
Depreciation and amortization of tenant
inducements and leasing costs, income
subsidy and real estate services contracts 6,521 5,823
Future income tax expense 2,121 2,011
Interest of others in O&Y REIT 4,031 3,373
- ---------------------------------------------------------------------------------------------------------------------
12,673 $ 11,207
- ---------------------------------------------------------------------------------------------------------------------
Non-operating items, net of current tax:
Loss on repurchase of convertible
unsecured subordinated debentures, net
of current tax benefit of Nil (2002 - $150) 12 - 235
- ---------------------------------------------------------------------------------------------------------------------
Funds from operations $ 13,955 $ 12,679
- ---------------------------------------------------------------------------------------------------------------------
Funds from operations per common share 8
Basic $ 0.31 $ 0.28
Diluted $ 0.27 $ 0.25
- ----- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</table>
<page>
<table>
<caption>
O&Y PROPERTIES CORPORATION
- ---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
- ---------------------------------------------------------------------------------------------------------------------------
(unaudited) Three Months Ended March 31
(in thousands except per share amounts) Notes 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operating activities
<s> <c> <c>
Funds from operations $ 13,955 $ 12,679
Amortization of deferred financing costs and
recoverable expenditures 528 469
Net change in operating working capital (4,433) (7,021)
Current tax recovery (expense) on other items - 150
Tenant inducements and leasing costs (2,582) (502)
Recoverable expenditures (369) (470)
- ---------------------------------------------------------------------------------------------------------------------------
7,099 5,305
Payment of income taxes (873) (23,978)
- ---------------------------------------------------------------------------------------------------------------------------
6,226 (18,673)
- ---------------------------------------------------------------------------------------------------------------------------
Financing activities
Construction financing 1,969 9,763
Regular principal repayments (3,009) (2,649)
Other advances (repayments) of debt 2,577 (6,000)
Debentures, notes and preferred share payments (726) (726)
Repurchase of common shares for cancellation (51) (229)
Shares issued on exercise of options 230 -
Dividends paid (2,010) -
Repurchase of convertible unsecured
subordinated debentures - (1,603)
Proceeds from equity offering of subsidiary, net - 24,325
Distribution paid to other unitholders in O&Y REIT (3,023) (2,626)
- ---------------------------------------------------------------------------------------------------------------------------
(4,043) 20,255
- ---------------------------------------------------------------------------------------------------------------------------
Investment activities
Maturities of short-term investments - 44,495
Expenditures on rental properties (113) (720)
Expenditures on furniture, fixtures and equipment (376) (2,123)
Expenditures on property under development (6,812) (11,989)
Expenditures on land held for development (169) (195)
Acquisition of rental properties, net of
mortgage assumed 2 - (7,722)
Other - 235
- ---------------------------------------------------------------------------------------------------------------------------
(7,470) 21,981
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (5,287) 23,563
during the period
Cash and cash equivalents - beginning of period 28,745 55,570
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period 4 $ 23,458 $ 79,133
- ---------------------------------------------------------------------------------------------------------------------------
Supplementary cash flow information
Cash paid for interest $ 10,983 $ 10,484
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</table>
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
1. SIGNIFICANT ACCOUNTING POLICIES
(a) General
The accompanying unaudited interim consolidated financial statements are
prepared in accordance with Canadian generally accepted accounting principles
("GAAP") and are also in accordance with the recommendations of the Canadian
Institute of Public and Private Real Estate Companies. These financial
statements are consistent with those used in the annual consolidated financial
statements. They do not include all the information and disclosure required by
Canadian GAAP for annual financial statements, and should be read in
conjunction with the annual consolidated financial statements.
(b) Consolidation
The consolidated financial statements include the accounts of O&Y Properties
Corporation ("O&Y Properties" or the "Company"), its subsidiaries and joint
ventures, of which the major ones are:
<table>
<caption>
Interest Held on
Entities March 31, 2003 Accounting Method
------------------------------------------------------------------------------------------------------------
<s> <c> <c>
O&Y Properties Inc. 100% Consolidation
O&Y FPT Inc. 100% Consolidation
O&Y Properties (Alberta) Inc. 100% Consolidation
O&Y Real Estate Investment Trust 50.3% Consolidation
O&Y CB Richard Ellis Facilities Management 60% Proportionate consolidation
Purdy's Wharf 50% Proportionate consolidation
Enbridge Tower 50% Proportionate consolidation
Canadian Western Bank Building 50% Proportionate consolidation
------------------------------------------------------------------------------------------------------------
</table>
The interest of other O&Y Real Estate Investment Trust ("O&Y REIT")
unitholders, other than O&Y Properties, in O&Y REIT are presented in these
consolidated financial statements as "Interest of others in O&Y REIT".
On March 26, 2002, O&Y REIT completed a private placement of 4,619,465 units
at $10.85 per unit, for total proceeds of $49,295,000, net of issue costs. O&Y
Properties exercised its maintenance right by subscribing to 2,314,465 units
representing 50.1% of the issue.
2. RENTAL PROPERTIES
<table>
<caption>
March 31, 2003 December 31, 2002
- ----------------------------------------------------------------------------------------------------
<s> <c> <c>
Land $ 202,339 $ 202,339
Buildings and improvements 902,491 902,378
- ----------------------------------------------------------------------------------------------------
1,104,830 1,104,717
Less accumulated depreciation (47,994) (43,995)
- ----------------------------------------------------------------------------------------------------
$ 1,056,836 $ 1,060,722
- ----------------------------------------------------------------------------------------------------
</table>
In March 2002, O&Y REIT acquired a 50% interest in two rental properties in
Edmonton, Alberta from an unrelated party. The purchase price was $22.1
million. After mortgages of $12.7 million and working capital adjustments, the
net cash outlay for the transaction was $7.7 million.
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
3. DEFERRED COSTS AND OTHER ASSETS
<table>
<caption>
March 31, 2003 December 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Tenant inducements and leasing costs $ 24,914 $ 22,332
Recoverable expenditures 13,204 12,835
Deferred financing costs 10,200 10,200
Less accumulated amortization (17,752) (16,082)
- ------------------------------------------------------------------------------------------------------------------------------
30,566 29,285
Furniture, fixtures and equipment, net of accumulated
depreciation of $8,163 (December 31, 2002 - $7,243) 9,417 9,961
Prepaid expenses and other 6,178 4,180
- ------------------------------------------------------------------------------------------------------------------------------
$ 46,161 $ 43,426
- ------------------------------------------------------------------------------------------------------------------------------
Other depreciation and amortization consists of the following:
Three Months Ended March 31
2003 2002
- ------------------------------------------------------------------------------------------------------------------------------
Amortization of real estate contracts $ 243 $ 240
Amortization of tenant inducements and leasing costs 1,142 1,143
Amortization of recoverable expenditures 295 144
Amortization of deferred financing costs 233 325
Amortization of income subsidy (note 6(b)) 217 101
Depreciation and amortization of furniture, fixtures and
equipment and other items 920 455
- ------------------------------------------------------------------------------------------------------------------------------
$ 3,050 $ 2,408
- ------------------------------------------------------------------------------------------------------------------------------
4. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include certain funds which are not available for
general corporate purposes.
These funds are held pursuant to the following conditions:
March 31, 2003 December 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------
Subject to:
Terms of joint venture agreements, a trust indenture
governing an issue of bonds
and various debt agreements $ 3,311 $ 3,525
O&Y REIT 6,660 6,126
First Canadian Place land lease 7,422 8,589
- ------------------------------------------------------------------------------------------------------------------------------
$ 17,393 $ 18,240
- ------------------------------------------------------------------------------------------------------------------------------
</table>
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
5. SECURED DEBT
Substantially all of the Company's real estate assets have been pledged as
security under various debt agreements. The secured debt consists of the
following:
<table>
<caption>
Interest rates at
March 31, 2003
---------------------------------
Range Weighted average Maturing in years
% - % % ending December 31 March 31, 2003
- ------------------------------------------------------------------------------------------------------------------------
O&Y REIT:
- --------
<s> <c> <c> <c> <c> <c> <c>
Fixed rate mortgages 5.00% - 7.81% 7.21% 2003 - 2011 $ 208,165
Bank loan B.A. + 1.85% 5.00% 2003 25,000
Bank loan Prime + 0.85% 5.60% 2003 7,577
- ------------------------------------------------------------------------------------------------------------------------
240,742
O&Y FPT Inc.:
- -----------
First Mortgage Bonds 8.06% 8.06% 2009 282,963
OYPI:
- ----
Construction financing Prime + 1.5% 6.25% 2004 52,996
- ------------------------------------------------------------------------------------------------------------------------
$ 576,701
- ------------------------------------------------------------------------------------------------------------------------
Interest rates at
December 31, 2002
---------------------------------
Range Weighted average Maturing in years
% - % % ending December 31 December 31, 2002
- ------------------------------------------------------------------------------------------------------------------------
O&Y REIT:
- --------
Fixed rate mortgages 5.98% - 7.81% 7.23% 2003 - 2011 $ 209,709
Bank loan B.A. + 1.85% 4.70% 2003 30,000
Bank loan Prime + 0.85% - 2003 -
- ------------------------------------------------------------------------------------------------------------------------
239,709
O&Y FPT Inc.:
- -----------
First Mortgage Bonds 8.06% 8.06% 2009 284,428
OYPI:
- ----
Construction financing Prime + 1.5% 6.00% 2004 51,027
- ------------------------------------------------------------------------------------------------------------------------
$ 575,164
- ------------------------------------------------------------------------------------------------------------------------
</table>
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
a) Fixed rate mortgages
Fixed rate mortgages of O&Y REIT are due as follows:
<table>
<caption>
Principal Weighted Average
Installment Balance Interest Rate
Years ending December 31, Payments Maturing Total on Debt Maturing
- -------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c>
2003 $ 9,696 $ 33,946 $ 43,642 6.62%
2004 11,697 - 11,697 -
2005 6,348 57,071 63,419 7.61%
2006 4,294 6,059 10,353 5.98%
2007 4,462 - 4,462 -
Thereafter 6,761 67,831 74,592 7.25%
--------------------------------------------------------------
$ 43,258 $ 164,907 $ 208,165 7.21%
- -------------------------------------------------------------------------------------------------------------------
</table>
b) Bank loan
O&Y REIT has a committed operating/acquisition facility available with two
Canadian Chartered Banks for up to $80 million, subject to provision of
sufficient collateral, which matures in August 2003. The facility is secured
by a pool of rental property assets. Interest is at the rate of Bankers'
Acceptances ("BA") plus 1.85% (for BA loans) or prime plus 0.85% (for
prime-based loans). O&Y REIT pays a standby fee of 0.4% per annum on the
undrawn amount of the facility.
c) First mortgage bonds
O&Y FPT Inc. First Mortgage Bonds are secured under a bond indenture by a
fixed and floating charge and security interest on all assets of O&Y FPT Inc.,
including its interest in First Canadian Place. The First Mortgage Bonds are
due as follows:
<table>
<caption>
Principal
Installment Balance
Years ending December 31, Payments Maturing Total
- ---------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
2003 $ 4,599 $ - $ 4,599
2004 6,563 - 6,563
2005 7,102 - 7,102
2006 7,686 - 7,686
2007 8,318 - 8,318
Thereafter 18,738 229,957 248,695
- ---------------------------------------------------------------------------------------------
$ 53,006 $ 229,957 $ 282,963
- ---------------------------------------------------------------------------------------------
</table>
d) Construction financing
O&Y Properties Inc. ("OYPI") has an $82.7 million construction financing
facility secured by the Maritime Life Tower development project. Interest is
payable monthly at prime plus 1.5% and the facility matures in June 2004. OYPI
has the option to pre-pay the amounts borrowed under the facility at any time.
6. OTHER LIABILITIES
<table>
<caption>
March 31, 2003 December 31, 2002
- ----------------------------------------------------------------------------------------------------
<s> <c> <c>
Restructuring provision $ 4,721 $ 7,680
PDV II income subsidy 6,825 6,608
Equipment leases 4,365 4,936
Tenant inducements and leasing costs 2,779 3,790
Construction holdbacks on property under development 5,923 5,663
Unsecured indebtedness of a subsidiary 2,889 2,889
- ----------------------------------------------------------------------------------------------------
$ 27,502 $ 31,566
- ----------------------------------------------------------------------------------------------------
</table>
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
(a) Restructuring provision
The restructuring provision primarily consists of employee severance costs
relating to the Real Estate Services Business.
(b) The PDV II income subsidy
In connection with O&Y REIT's initial public offering, OYPI agreed to provide
O&Y REIT with an income subsidy to offset the contractual reduction in revenue
of $6.97 per square foot per annum commencing on November 1, 2003, in
connection with the federal government's long-term lease of approximately
577,000 square feet expiring on October 31, 2008 at Place de Ville II ("PDV
II") located in Ottawa. The income subsidy terminates on October 31, 2008 or
earlier in the event that the amount of the income subsidy has reduced to zero
as a result of an amendment, renewal, extension or replacement of the lease by
O&Y REIT. The amount recorded in these consolidated financial statements as a
liability represents the present value of this obligation, adjusted for the
Company's ownership interest in O&Y REIT. The increase in the income subsidy
is recorded as amortization expense (Note 3).
(c) Equipment leases
The equipment leases are for computers and related equipment. They bear
interest at rates between 5.1% and 11.5% and expire between 2003 and 2006.
The repayment schedule is as follows:
Principal Interest Total
--------------------------------------------------------------------
2003 $ 1,395 $ 223 $ 1,618
2004 1,825 177 2,002
2005 718 59 777
2006 427 18 445
--------------------------------------------------------------------
$ 4,365 $ 477 $ 4,842
--------------------------------------------------------------------
(d) Unsecured indebtedness of a subsidiary
Unsecured indebtedness is comprised of $1,745,000 of bonds and $1,144,000 of
debentures (December 31, 2002 - $1,745,000 of bonds and $1,144,000 of
debentures). The bonds bear interest payable semi-annually, in arrears, at
9.22% per annum and mature in 2005. The debentures bear interest payable
semi-annually, in arrears, at 11% per annum and mature in 2015. The bonds and
debentures are direct, unsecured obligations of the Company and rank
subordinate to all other present and future indebtedness of the Company.
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
7. COMMON SHARES
The Company is authorized to issue an unlimited number of common shares. The
common shares entitle the holder to one vote per share.
The following common share transactions occurred during the three-months ended
March 31, 2003 and March 31, 2002:
<table>
<caption>
Number of Shares Amount
- --------------------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Outstanding as at December 31, 2001 40,668,672 $ 232,237
Repurchases and cancellations through a normal course issuer bid (37,300) (229)
---------------------------------------
Outstanding as at March 31, 2002 40,631,372 $ 232,008
- --------------------------------------------------------------------------------------------------------------------------
Outstanding as at December 31, 2002 40,134,241 $ 229,185
Repurchases and cancellations through a normal course issuer bid (10,400) (51)
Issued as a result of options exercised 45,815 230
---------------------------------------
Outstanding as at March 31, 2003 40,169,656 $ 229,364
- --------------------------------------------------------------------------------------------------------------------------
If the fair value of stock options issued in December 2002 of $507,000 was
recognized as an expense over the four-year vesting period, the effect on net
income for the three-months ended March 31, 2003 would have been as follows:
- --------------------------------------------------------------------------------------------------------------------------
Net income as reported $ 1,282
Stock compensation expense (32)
- --------------------------------------------------------------------------------------------------------------------------
Proforma net income $ 1,250
- --------------------------------------------------------------------------------------------------------------------------
Proforma net income per share -basic $ -
-diluted $ -
- --------------------------------------------------------------------------------------------------------------------------
</table>
8. PER SHARE AMOUNTS
The following tables set forth the computation of per share amounts:
Basic and diluted earnings per share
<table>
<caption>
Three Months Ended March 31
2003 2002
- -----------------------------------------------------------------------------------------------------------
(i) Basic earnings
- -----------------------------------------------------------------------------------------------------------
<s> <c> <c>
Net income for the period $ 1,282 $ 1,237
Accretion on equity component of convertible
securities, net of tax (1,327) (1,217)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) available to common shareholders $ (45) $ 20
- -----------------------------------------------------------------------------------------------------------
</table>
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
<table>
<caption>
Three Months Ended March 31
2003 2002
- -----------------------------------------------------------------------------------------------------------------------
(ii) Diluted earnings
- -----------------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Net income (loss) available to common shareholders $ (45) $ 20
Accretion on equity component of convertible
securities, net of tax - -
Imputed interest on liability component of
convertible securities, net of tax - -
- -----------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) available to common shareholders $ (45) $ 20
- -----------------------------------------------------------------------------------------------------------------------
(iii) Denominator
- -----------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding for basic per share amounts 40,171,404 40,640,050
Unexercised options and deferred share units - 369,388
- -----------------------------------------------------------------------------------------------------------------------
Denominator for diluted net income available to 40,171,404 41,009,438
common shareholders
- -----------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ - $ -
- -----------------------------------------------------------------------------------------------------------------------
Basic and diluted funds from operations per share
(i) Funds from operations
- -----------------------------------------------------------------------------------------------------------------------
Funds from operations for the period $ 13,955 12,679
Imputed interest on liability
component of convertible securities 165 262
Interest due on convertible
securities (1,676) (1,724)
- -----------------------------------------------------------------------------------------------------------------------
Funds from operations available
to common shareholders $ 12,444 11,217
- -----------------------------------------------------------------------------------------------------------------------
(ii) Diluted funds from operations
- -----------------------------------------------------------------------------------------------------------------------
Funds from operations available to $ 12,444 11,217
common shareholders
Interest due on convertible
securities 1,676 1,724
- -----------------------------------------------------------------------------------------------------------------------
Diluted funds from operations available to
common shareholders $ 14,120 12,941
- -----------------------------------------------------------------------------------------------------------------------
(iii) Denominator
- -----------------------------------------------------------------------------------------------------------------------
Weighted average shares
outstanding for basic per share amounts 40,171,404 40,640,050
Unexercised options and deferred
share units 161,745 369,388
Convertible securities 11,282,025 11,567,852
- -----------------------------------------------------------------------------------------------------------------------
Denominator for diluted funds from operations
available to common shareholders 51,615,174 52,577,290
- -----------------------------------------------------------------------------------------------------------------------
Basic funds from operations per share $ 0.31 $ 0.28
- -----------------------------------------------------------------------------------------------------------------------
Diluted funds from operations per share $ 0.27 $ 0.25
- -----------------------------------------------------------------------------------------------------------------------
</table>
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
The following securities were not included in the diluted per share
calculations as the effect would have been anti-dilutive:
<table>
<caption>
Number of Shares if Converted or Exercised
------------------------------------------
Weighted Three Three
Average Months Ended Months Ended
Exercise Price March 31, 2003 March 31, 2002
- -----------------------------------------------------------------------------------------------------------------
Earnings per share
<s> <c> <c> <c>
Common share options $ 5.71 2,080,898 -
Common share options $ 7.67 - 565,166
Convertible unsecured subordinated
debentures $ 11.50 7,888,086 8,173,913
Series 1 convertible preferred shares and
exchangeable notes, and Series A
convertible debentures $ 8.25 3,393,939 3,393,939
- ----------------------------------------------------------------------------------------------------------------
Funds from operations per share
Common share options $ 6.87 765,300 -
Common share options $ 7.67 - 565,166
- ----------------------------------------------------------------------------------------------------------------
</table>
9. GROUND RENT AND ENTITLEMENTS
First Canadian Place
The land lease for First Canadian Place ("FCP") provides that the other land
owner has an entitlement to certain payments to the extent cash is available
from FCP. Payments from FCP's gross receipts under the land lease consist of
eight levels, whereby the cash entitlements under each prior level must be met
before payments are made with respect to the next level in any given year.
Included in these financial statements as ground rent and entitlements expense
in respect of the FCP land lease are amounts totalling $5,598,000 (three month
period ended March 31, 2002 - $6,461,000). Payments to the other land owners
were $6,746,000 for the three month period ended March 31, 2003 (three month
period ended March 31, 2002 - $8,246,000). Remaining unpaid entitlements at
March 31, 2003 total $1,350,000 and are included in accounts payable and
accrued liabilities (March 31, 2002 - prepaid entitlements of $738,000
included in accounts receivable).
The land lease for FCP runs until 2023 or longer under certain circumstances.
At the end of the lease the other land owner has the option to acquire a 50%
interest in FCP for a nominal amount.
The land lease provides that gross receipts of FCP are to be distributed in a
specific order of priority. The order of priority for the annual entitlements
is as follows:
(a) operating costs -- annual property operating costs including capital
expenditures, tenant allowances and leasing costs.
(b) amortization of the construction amount -- an amount allocated to the
Company calculated based on an annual blended payment of principal and
interest on the construction amount. This amortized payment is
recalculated each year using the Average Interest Rate ("AIR") and an
amortization period commencing on January 1 of the year of calculation
and ending on December 31, 2023. The AIR fluctuates periodically and is
based on a formula in the land lease. The AIR for the three-month period
ended March 31, 2003 was 5.46 % (three-month period ended March 31, 2002
- 5.46%). The balance of the construction amount at March 31, 2003 is
$165,107,000 (March 31, 2002 - $169,354,000).
(c) ground rents -- annual ground rents on a pari passu basis as to 50% to
the other FCP land owner and a corresponding 50% payment to the Company.
Ground rents are adjusted when the AIR is below 9%. Payments in respect
of ground rent to the other FCP land owners during the three-month
period ended March 31, 2003 were $246,000 (three-month period ended
March 31, 2002 - $246,000).
(d) amortization of additional amounts -- an amount allocated to the Company
calculated based on annual blended payments of principal and interest on
funds advanced for certain cost overruns. The amortized payments are
recalculated each year using the AIR + 1% and an amortization period
commencing on January 1 of the year of calculation and ending on
December 31, 2023. The balance of the additional amounts at the
three-month period ended March 31, 2003 is $19,172,000 (three-month
period ended March 31, 2002 - $19,609,000).
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
(e) recovery of additional funding -- an amount allocated to the Company and
the other FCP land owner on a pari passu basis representing their
entitlements with respect to funds advanced to cover cash flow
shortfalls resulting from deficiencies in prior years. All future annual
gross receipts, after satisfaction of entitlements (a) to (d) above,
will be allocated to satisfy the entitlements remaining under this level
until the Company and the other FCP land owner are satisfied in full.
The balance of any remaining entitlements will accrue interest at the
AIR, compounded annually. The balance of the additional funding at the
three-month period ended March 31, 2003 is $3,121,000 (three-month
period ended March 31, 2002 - $20,343,000) for each of the Company and
the other FCP land owner.
(f) earnings participation-- a fixed non-cumulative annual amount allocated
to the other FCP land owner, of $887,500.
(g) recovery of the capital tax amount -- an amount allocated to the Company
representing Ontario capital tax computed upon an amount deemed to have
been borrowed to finance the costs of construction of FCP. For this
purpose, in each year, capital tax amounts are calculated based upon a
notional amount of capital which decreases over the term of the land
lease by the same percentage as the maximum capital cost allowance
permitted under the Income Tax Act. All future annual gross receipts,
after satisfaction of entitlements (a) to (f) above, will be allocated
to satisfy the remaining capital tax entitlement of the Company until it
is received in full and any remaining amounts will accrue interest at
the AIR + 1% compounded annually. The cumulative capital tax entitlement
amount at March 31, 2003 is $40,564,000 (March 31, 2002 - $37,937,000).
(h) remaining gross receipts-- any remaining gross receipts will be
allocated 50% to the Company and 50% to the other FCP land owner.
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
Changes during the period in entitlement balances are set out below:
<table>
<caption>
Three Months Three Months
Ended Ended
March 31, 2003 March 31, 2002
--------------------------------------------------------------------------------------
Other
FCP Land Owner O&Y FPT Inc. Total Total
- -------------------------------------------------------------------------------------------------------------------------------
Unamortized principal balance
of construction amount (b)
<s> <c> <c> <c> <c>
Beginning of period $ - $ 166,190 $ 166,190 $ 170,380
Interest - 2,209 2,209 2,265
Repayments - (3,292) (3,292) (3,291)
- -------------------------------------------------------------------------------------------------------------------------------
End of period $ - $ 165,107 $ 165,107 $ 169,354
- -------------------------------------------------------------------------------------------------------------------------------
Unamortized principal balance
of additional amounts (d)
Beginning of period $ - $ 19,284 $ 19,284 $ 19,714
Interest - 302 302 309
Repayments - (414) (414) (414)
- -------------------------------------------------------------------------------------------------------------------------------
End of period $ - $ 19,172 $ 19,172 $ 19,609
- -------------------------------------------------------------------------------------------------------------------------------
Additional funding (e)
Beginning of period $ 9,548 $ 9,548 $ 19,096 $ 56,092
Interest 73 73 146 594
Repayments (6,500) (6,500) (13,000) (16,000)
- -------------------------------------------------------------------------------------------------------------------------------
End of period $ 3,121 $ 3,121 $ 6,242 $ 40,686
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated capital tax amount (g)
Beginning of period $ - $ 39,893 $ 39,893 $ 37,304
Interest - 629 629 589
Capital tax - 42 42 44
- -------------------------------------------------------------------------------------------------------------------------------
End of period $ - $ 40,564 $ 40,564 $ 37,937
- -------------------------------------------------------------------------------------------------------------------------------
</table>
If all the outstanding entitlements in respect of levels (b), (d), (e) and (g)
above have been recovered as of December 31, 2023, the land lease will expire
and the other FCP land owner will have the option to acquire, for a nominal
amount, an undivided 50% beneficial interest in the office tower, retail
complex and the podium. If, however, there are amounts still to be recovered,
the land lease may be extended for a maximum of 50 years until all such
amounts have been paid.
The AIR used in the calculation of the annual amortization at levels (b) and
(d), the amount at level (c) and the remaining balances at levels (e) and (g)
is calculated in accordance with the terms of the land lease and has been
fixed for the three years ending December 31, 2004 at 5.46%.
O&Y REIT
O&Y REIT has obligations under long-term leases for land as follows:
a) Place de Ville I, a rental property in Ottawa, is on land leased from a
major life insurance company until the year 2065. Annual land rental
payments are $1.455 million until March 2006 and $2.1 million from April
2006 to March 2016. For the periods April 2016 to March 2041 and April
2041 to March 2065, the annual rental payment will be equal to 6 5/8% of
the fair market value of the land on March 31, 2015 and March 31, 2040
respectively.
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
b) 18 King Street East, a rental property in Toronto, is on land leased from
a private company until the year 2067. The rental payment is contracted at
fixed levels for the next 16 years. The rent, which has been set at
$560,000 for 2003 escalates by approximately $10,000 per year until 2010
when it reaches $650,000, where it remains until 2013. From 2014 to 2018,
the annual rental payment increases to $660,000 per year. For the 25 years
beginning December 1, 2018, the annual rental payment will be equal to 6
1/2% of the fair market value of the land at the beginning of the period
plus 2% of the gross annual income from the property for each year. In no
event will the annual rental payment be less than the average rent for the
immediately preceding 25 year period. For the 24 years beginning December
1, 2043, the annual rental payment will be calculated in the same manner
as during the immediately preceding 25 year period.
Minimum lease payments for the 5 years ended December 31, 2007 are summarized
as follows:
2003 (remainder) $ 1,511
2004 $ 2,025
2005 $ 2,035
2006 $ 2,583
2007 $ 2,750
Payments by O&Y REIT under these land leases totalled $504,000 in the three
months ended March 31, 2003 and $501,000 in the three months ended March 31,
2002.
OYPI
The Maritime Life Tower at 2 Queen Street East, Toronto is located on land
which is partially leased from a third party until 2099. The annual payments
are $295,000, adjusted every 10 years commencing in 2013 for changes in the
Consumer Price Index. OYPI has an option, exercisable every 10 years
commencing in 2023, to purchase the leased land at a price equal to the then
current annual rent, capitalized at 8%. The payments under this lease are
capitalized to the property under development until the development period
ends.
10. FINANCING EXPENSES
Financing expense is recorded net of the following items:
<table>
<caption>
Three Months Ended March 31
2003 2002
- ---------------------------------------------------------------------------------------------
<s> <c> <c>
Interest income on cash and cash equivalents $ 146 $ 318
Interest capitalized to property under development and
land held for development 1,978 1,027
- ---------------------------------------------------------------------------------------------
$ 2,124 $ 1,345
- ---------------------------------------------------------------------------------------------
</table>
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
11. SEGMENTED INFORMATION
The Company's operating segments comprise the ownership of rental properties
and the provision of real estate services, primarily to third-party commercial
property owners.
<table>
<caption>
Rental
Properties First Real
Three Months Ended Held By Canadian Estate Inter-
March 31, 2003 O&Y REIT Place Services Other Segment Total
- ----------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Real estate assets $ 570,921 $ 508,812 $ - $ 123,814 $ (22,897) $ 1,180,650
Other assets 114,263 16,971 36,172 8,320 (91,511) 84,215
Secured debt 240,742 282,963 - 52,996 - 576,701
Capital expenditures and
other 2,868 263 376 6,981 (67) 10,421
- ----------------------------------------------------------------------------------------------------------------------------
Operating revenues 29,818 33,046 12,999 (258) (2,325) 73,280
Operating expenses 14,326 17,907 11,583 474 (2,034) 42,256
Ground rent and entitlements 504 5,598 - - - 6,102
- ----------------------------------------------------------------------------------------------------------------------------
Rental and real estate 14,988 9,541 1,416 (732) (291) 24,922
services income
Depreciation and amortization 2,537 3,132 1,058 322 - 7,049
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 12,451 $ 6,409 $ 358 $ (1,054) $ (291) $ 17,873
- ----------------------------------------------------------------------------------------------------------------------------
Rental
Properties First Real
Three Months Ended Held By Canadian Estate Inter-
March 31, 2003 O&Y REIT Place Services Other Segment Total
- ----------------------------------------------------------------------------------------------------------------------------
Real estate assets $ 530,191 $ 518,678 $ - $ 84,459 $ (21,652) $ 1,111,676
Other assets 104,484 11,907 39,785 9,309 (94,766) 70,719
Secured debt 232,857 288,678 - 17,544 - 539,079
Capital expenditures and
other 1,030 662 2,123 12,184 - 15,999
- ----------------------------------------------------------------------------------------------------------------------------
Operating revenues 26,085 33,206 16,679 (321) (2,608) 73,041
Operating expenses 12,310 15,846 14,872 599 (2,435) 41,192
Ground rent and entitlements 501 6,461 - - - 6,962
- ----------------------------------------------------------------------------------------------------------------------------
Rental and real estate 13,274 10,899 1,807 (920) (173) 24,887
services income
Depreciation and amortization 2,381 3,032 614 265 - 6,292
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 10,893 $ 7,867 $ 1,193 $ (1,185) $ (173) $ 18,595
- ----------------------------------------------------------------------------------------------------------------------------
</table>
Operating income comprises net income excluding financing expense, corporate
expense, system implementation costs, other items, interest of others in O&Y
REIT and income tax expense. Other assets exclude cash and cash equivalents.
Real estate assets include rental properties, properties under development and
land held for development. Capital expenditures and other includes tenant
inducements and leasing costs, recoverable expenditures and expenditures on
rental properties, furniture, fixtures and equipment, property under
development and land held for development.
Revenues from the Federal Government under various leases on rental properties
held by O&Y REIT amount to $11.1 million for the three months ended March 31,
2003 and represent 37% of O&Y REIT's total revenues from rental properties
($10.8 million and 41% for the three months ended March 31, 2002).
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
12. REPURCHASE OF CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES
During the three-month period ended March 31, 2002, $2.0 million at face value
of convertible unsecured subordinated debentures were repurchased for $1.6
million. Details of the allocation of the purchase price are set out below:
<table>
<caption>
Three months ended March 31, 2002: Liability Equity
Component Component Total
----------------------------------------------------------
<s> <c> <c> <c>
Net book value of the debentures repurchased $ 165 $ 1,865 $ 2,030
Purchase price 550 1,053 1,603
----------------------------------------------------------
Gain (loss), before current income taxes (385) 812 427
Current income tax recovery (expense) 150 (308) (158)
----------------------------------------------------------
Gain (loss), net of current income taxes $ (235) $ 504 $ 269
----------------------------------------------------------
</table>
As the debentures are segregated into debt and equity components on the
balance sheet, the purchase price was allocated to the components at the date
of repurchase. The allocation of the purchase price was determined by a
measure of the respective fair values of the components at the date of
repurchase. The net loss on the liability component resulted in a charge to
net income. The net gain on the equity component resulted in an increase in
contributed surplus.
13. GUARANTEES
In February 2003, the CICA issued Accounting Guideline 14, Disclosure of
Guarantees ("AcG-14"), which outlines disclosure requirements for certain
contracts or obligations that meet the definition of a guarantee. AcG-14
defines a guarantee to be a contract that contingently requires the Company to
make payments (either in cash, financial instruments, or other assets, common
shares of O&Y Properties or through the provision of services) to a third
party based on changes in an underlying economic characteristic (such as
interest rates or market value) that is related to an asset, a liability or an
equity security of the other party. AcG-14 is effective for financial
statements of interim or annual periods beginning on or after January 1, 2003.
In 1998, the Company subleased its leasehold interest in a hotel (the "Hotel
Ground Lease"), situated within the Place de Ville complex in Ottawa on the
same terms and conditions as contained in the Hotel Ground Lease. This Hotel
Ground Lease expires in 2065.
The Company remains liable for rents under the ground lease in the event the
sublessee fails to honour its obligations. The maximum amount that the Company
would be required to pay for the period April 1, 2003 to March 31, 2016 is
$8.5 million. For the periods April 1, 2016 to March 31, 2041 and April 1,
2041 to March 2065, the annual rental payment would be equal to 6 5/8% of the
fair market value of the land on March 31, 2015 and March 31, 2040,
respectively. If the sublessee fails to honour its obligations, O&Y Properties
Corporation may terminate the sublease of the hotel and re-lease the property.
To date, the Company has not made any payment in connection with the Hotel
Ground Lease and no amount has been accrued in the consolidated financial
statements with respect to this guarantee.
14. SUBSEQUENT EVENTS
a) Property Acquisitions
(i) Edmonton
On May 9, 2003, O&Y REIT purchased the remaining 50% interest in the
Canadian Western Bank Building and Enbridge Tower, both located in
Edmonton, Alberta, from its unrelated co-owners. The total purchase price
for the remaining 50% interest O&Y REIT did not already own in the two
buildings is $23.25 million.
The acquisitions were financed through the assumption of the vendors'
share of the mortgages, amounting to $12.3 million, with the remainder to
be funded through the operating/acquisition facility. The mortgages
assumed carry a weighted average interest rate of 6.58%.
<page>
O&Y PROPERTIES CORPORATION
- ------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------
(unaudited)
(all tabular amounts stated in thousands unless otherwise noted)
ii) Winnipeg
On April 29, 2003, O&Y REIT reached an agreement in principle to purchase
a 50% interest in the TD Centre, a rental property in Winnipeg, Manitoba.
The transaction is subject to the due diligence process and is expected
to be completed by June 2003.
b) Normal Course Issuer Bid
O&Y REIT obtained regulatory approval for a normal course issuer bid for its
limited voting units through The Toronto Stock Exchange on April 2, 2003.
The bid commenced on April 4, 2003 and will terminate on the earlier of: (i)
April 3, 2004 and (ii) the date upon which a total of 1,777,043 limited voting
units have been purchased by O&Y REIT pursuant to the bid. The maximum number
of limited voting units which may be purchased pursuant to the bid is
1,777,043, being 5% of the current issued and outstanding limited voting
units. In addition, O&Y REIT's purchases in any 30-day period will not exceed
2% of the number of limited voting units outstanding on the first day of such
period. The actual number of limited voting units purchased and the timing of
such purchases will be determined by the Trust. All limited voting units
purchased by O&Y REIT under the bid will be cancelled.
15. COMPARATIVE AMOUNTS
Certain of the comparative amounts have been reclassified to conform with the
presentation for the current period.
<page>
CORPORATE INFORMATION
- ---------------------
CORPORATE OFFICE
- ----------------
1 First Canadian Place
Suite 3300, P.O. Box 72
Toronto, Ontario
M5X 1B1
Telephone: 416-862-6900
Fax: 416-862-6904
STOCK EXCHANGE LISTING
- ----------------------
Toronto Stock Exchange (TSX)
STOCK TRADING SYMBOL
- --------------------
Common Shares: OYP
Convertible Debentures: OYP.DB
INVESTOR RELATIONS
- ------------------
(for investor relations enquiries)
Contact investor relations at:
416-862-6900 x 6098
Toll free: 1-866-583-6098
e-mail: info@oyreit.com
Web site: www.oyreit.com
SHARE TRANSFER AGENT AND REGISTRAR
- ----------------------------------
(for change of address, registration or other shareholder enquiries)
CIBC Mellon Trust Company
Toll free throughout North America:
1-800-387-0825
e-mail: inquiries@cibcmellon.ca
AUDITORS
- --------
Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements relating to its
operations and the environment in which it operates, which are based on its
expectations, estimates, forecasts and projections. These statements are not
guarantees of future performance and involve risks and uncertainties that are
difficult to control or predict. Therefore, actual outcomes and results may
differ materially from those expressed in these forward-looking statements.
Readers, therefore, should not place undue reliance on any such
forward-looking statements. Further, a forward-looking statement speaks only
as of the date on which such statement is made. We undertake no obligation to
publicly update any such statement, to reflect new information or the
occurrence of future events or circumstances, new information or the
occurrence of future events or circumstances.
<page>
O&Y PROPERTIES CORPORATION LOGO OMITTED
www.oyp.com
<page>
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.
Date: May 30, 2003 O&Y PROPERTIES CORPORATION
By: /s/ Raghunath Davloor
-----------------------
Name: Raghunath Davloor
Title: Chief Financial Officer