SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 001-12917
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WELLSFORD REAL PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 13-3926898
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(State of organization) (I.R.S. employer identification number)
535 MADISON AVENUE, NEW YORK, NY 10022
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 838-3400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock American Stock Exchange
$.01 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting shares held by non-affiliates of the
registrant was approximately $126,900,000 based on the closing price on the
American Stock Exchange for such shares on February 29, 2000.
THE NUMBER OF THE REGISTRANT'S SHARES OF COMMON STOCK OUTSTANDING WAS 16,644,370
AS OF FEBRUARY 29, 2000 (INCLUDING 339,806 SHARES OF CLASS A COMMON STOCK).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Annual Shareholders' Meeting
to be held on June 9, 2000 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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FORM
10-K
ITEM REPORT
NO. PAGE
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PART I
1. Business .............................................................3
2. Properties...........................................................12
3. Legal Proceedings ...................................................16
4. Submission of Matters to a Vote of Security-Holders..................16
PART II
5. Market for Registrant's Common Equity
and Related Shareholder Matters.............................17
6. Selected Consolidated Financial Data.................................18
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................19
7a. Quantitative and Qualitative Disclosures about Market Risk...........26
8. Consolidated Financial Statements and Supplementary Data.............26
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................26
PART III
10. Directors and Executive Officers of the Registrant...................27
11. Executive Compensation...............................................27
12. Security Ownership of Certain Beneficial Owners and Management.......27
13. Certain Relationships and Related Transactions ......................27
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......28
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1999 and 1998........F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997...........................F-4
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997...............F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997...........................F-6
Notes to Consolidated Financial Statements..........................F-7
Wellsford/Whitehall Group, L.L.C. Consolidated Financial
Statements and Notes .....................................F-35
FINANCIAL STATEMENT SCHEDULES
III. Real Estate and Accumulated Depreciation............................S-1
IV. Mortgage Loans on Real Estate.......................................S-3
All other schedules have been omitted because the required information for such
other schedules is not present, is not present in amounts sufficient to require
submission of the schedule or is included in the consolidated financial
statements.
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PART I
ITEM 1. BUSINESS
Wellsford Real Properties, Inc. and subsidiaries, collectively, the "Company"
was formed on January 8, 1997, as a corporate subsidiary of Wellsford
Residential Property Trust (the "Trust"). The Trust was formed in 1992 as the
successor to Wellsford Group Inc. and affiliates, which was formed in 1986. On
May 30, 1997, the Trust merged (the "Merger") with Equity Residential Properties
Trust ("EQR"). Immediately prior to the Merger, the Trust contributed certain of
its assets to the Company and the Company assumed certain liabilities of the
Trust. Immediately after the contribution of assets to the Company and
immediately prior to the Merger, the Trust distributed to its common
shareholders all of the outstanding shares of the Company owned by the Trust
(the "Spin-off"). On June 2, 1997, the Company sold 12,000,000 shares of its
common stock in a private placement (the "Private Placement") to a group of
institutional investors at $10.30 per share, the Company's then book value per
share.
The Company is a real estate merchant banking firm headquartered in New York
City which acquires, develops, finances and operates real properties and
organizes and invests in private and public real estate companies. The Company's
operations are organized into three Strategic Business Units ("SBUs"). The
portfolio of investments held in each SBU at December 31, 1999 includes:
Wellsford/Whitehall Group, L.L.C.
o A 41.4% interest in a private joint venture that owned and operated 41
office properties totaling approximately 4,920,000 square feet,
including approximately 1,451,000 square feet under renovation,
primarily located in New Jersey, Massachusetts and Maryland.
Wellsford Capital
o $65,000,000 of debt related investments including $37,300,000 of
direct debt investments which bore interest at an average yield of
11.31% and $27,700,000 in a company which was organized to invest in
debt instruments;
o Venture capital investments of approximately $7,000,000 in a real
estate e-commerce company and other real estate-related ventures; and
o Seven commercial properties totaling approximately 597,000 square feet
primarily located in the Northeastern United States and California.
Wellsford Development
o An 80% interest in Palomino Park, a five phase, 1,800 unit multifamily
residential development in a suburb of Denver, Colorado. Two phases
containing 760 units are completed and operational, two phases
containing 688 units are under construction and the remaining
approximate 352 unit phase is being prepared for development ; and
o A 344-unit operational multifamily residential development in Tucson,
Arizona.
See the accompanying consolidated financial statements for certain financial
information regarding the Company's industry segments.
The Company's executive offices are located at 535 Madison Avenue, New York, New
York, 10022; telephone, (212) 838-3400. The Company has 49 employees, 32 of
whom are dedicated fully to the operations and management of
Wellsford/Whitehall Group, L.L.C.
COMMERCIAL PROPERTY OPERATIONS - WELLSFORD/WHITEHALL
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The Company seeks to acquire commercial properties and create value through
adaptive reuse. The Company believes that appropriate well-located commercial
properties which are currently underperforming can be acquired on advantageous
terms and repositioned with the expectation of achieving enhanced returns which
are greater than
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returns which could be achieved by acquiring stabilized properties. The
Company's current target markets include New York, New Jersey, Connecticut,
Boston, Philadelphia, Baltimore and the Washington D.C. metropolitan areas.
The Company's commercial property operations segment consists of
Wellsford/Whitehall Group, L.L.C. ("Wellsford/Whitehall"), which is accounted
for on the equity method.
At the time of the Spin-off, the Company owned six commercial office buildings,
five of which were then vacant, containing an aggregate of approximately 949,400
square feet which were acquired for an aggregate of approximately $47,600,000
(the "WRP Commercial Properties").
In August 1997, the Company, in a joint venture with WHWEL Real Estate Limited
Partnership ("Whitehall"), an affiliate of The Goldman Sachs Group Inc., formed
a private real estate operating company, Wellsford/Whitehall. The Company
contributed the WRP Commercial Properties and Whitehall contributed four
commercial properties upon formation of Wellsford/Whitehall. The Company manages
Wellsford/Whitehall on a day-to-day basis, and certain major decisions require
the consent of both primary partners. The Company had a 41.4% interest in
Wellsford/Whitehall at December 31, 1999.
As of December 31, 1999, Wellsford/Whitehall owned and operated 41 office
properties totaling approximately 4,920,000 square feet, including approximately
1,451,000 square feet under renovation, primarily located in New Jersey,
Massachusetts, and Maryland.
During the years ended December 31, 1999, 1998 and 1997, Wellsford/Whitehall
participated in the following transactions:
(amounts in millions, except square feet and per square foot amounts)
1999 ACTIVITY:
Purchases:
Gross
Leasable
Square Number of Cost per
Month Type Location Feet Properties Cost (1) Square Foot
----- ---- -------- ---- ---------- -------- -----------
May ......... Office/Flex Warren, NJ 129,000 1 $ 8.0 $ 62
June ........ Office Boston, MA 64,000 1 10.2 159
June ........ Office Boston, MA 68,000 1 13.1 193
July ........ Office/Land Columbia, MD 97,000 1 10.7 110
July ........ Office Owings Mills, MD 32,000 1 3.9 122
August ...... Land Hanover, NJ 19.2 acres 1 2.0 --
August ...... Office Hanover, NJ 96,000 1 13.3 139
September ... Flex Columbia, MD 144,000 1 3.8 26
November .... Office Rockville, MD 236,000 1 19.9 84
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Total purchases 866,000 9 $ 84.9 --
======= = =======
Total, excluding land 866,000 8 $ 82.9 96
======= = =======
Sales:
Sales Price
Gross Leasable per
Square Number of Square
Month Location Feet Properties Sales Price Foot Gain
----- -------- ---- ---------- ----------- ---- ----
February .... Wayne, NJ 2.58 acres (2) 1 $ 0.3 $-- $ 0.2
May ......... Boston, MA 65,000 1 8.1 125 2.3
August ...... Needham, MA 261,000 1 26.0 100 5.6
November .... Washington, D.C. 225,000 1 43.4 193 7.5
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Total sales 551,000 4 $ 77.8 -- $ 15.6
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Total, excluding land 551,000 3 $ 77.5 141 $ 15.4
======= = ======= =======
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<FN>
(1) The 1999 Wellsford/Whitehall acquisitions described above were funded
with proceeds from first mortgage financing on five of the properties
and seller financing in the form of a second mortgage on one of the
properties of $43,401,000 and additional capital contributions by the
Company and Whitehall.
(2) Sale of vacant land.
</FN>
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1998 ACTIVITY:
Purchases:
Gross
Leasable Cost per
Square Number of Square
Month Type Location Feet Properties Cost (1) Foot
----- ---- -------- ---- ---------- -------- ----
February .... Office Boston, MA 65,000 1 $ 5.5 $ 85
February .... Land Somerset, NJ 19 acres 1 2.0 --
March ....... Office Somerset, NJ 82,000 1 5.4 66
May ......... Office Boston, MA 977,000 13 148.7 (2) 152
May ......... Warehouse Needham, MA 470,000 2 28.4 60
June ........ Office Andover, MA 63,000 1 7.4 117
June ........ Office Basking Ridge, NJ 104,000 2 15.0 144
September ... Office Franklin Township, NJ 199,000 2 22.8 115
November .... Office Columbia, MD 38,000 1 2.6 68
December .... Office Ridgefield Park, NJ 147,000 1 19.3 131
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Total purchases 2,145,000 25 $ 257.1 --
========= == ========
Total, excluding land 2,145,000 24 $ 255.1 119
========= == ========
Sale:
Sales Price
Gross Leasable per
Square Number of Square
Month Location Feet Properties Sales Price Foot Gain
----- -------- ---- ---------- ----------- ---- ----
May ......... Wayne, NJ 69,000 1 $ 5.0 $ 72 $ 2.9
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<FN>
(1) The 1998 Wellsford/Whitehall acquisitions described above, other than
the May Boston transaction, were funded primarily by capital
contributions from the Company and Whitehall, and by draws on the
Wellsford/Whitehall Bank Facility with Fleet National Bank as agent
for itself and several other financial institutions
("Wellsford/Whitehall Bank Facility").
(2) The Boston portfolio of 13 office buildings was financed with (i) the
assumption of $68,300,000 of mortgage debt, (ii) a $35,800,000 draw on
the Wellsford/Whitehall Bank Facility, (iii) the issuance of
$19,000,000 of Wellsford/Whitehall 6% convertible preferred units to
the sellers, (iv) $18,000,000 of capital contributions by Whitehall
and the Company and (v) the issuance of $7,600,000 of
Wellsford/Whitehall common units.
</FN>
1997 ACTIVITY:
Purchases (1):
Gross
Leasable Cost per
Square Number of Square
Month Type Location Feet Properties Cost (2) Foot
----- ---- -------- ---- ---------- -------- ----
September Office Somerset, NJ 181,000 1 $ 18.1 $ 100
December Office Berkeley Hts, NJ 297,000 2 29.1 98
December Industrial Parsippany, NJ 244,000 1 7.1 29
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Total purchases 722,000 4 $ 54.3 75
======= = =========
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<FN>
(1) Exclusive of properties contributed by the Company and Whitehall upon
formation of the joint venture.
(2) The Wellsford/Whitehall transactions described above were funded
primarily by capital contributions from the Company and Whitehall, the
assumption of $48,000,000 in mortgage debt which encumbered certain of
the properties contributed by Whitehall and the proceeds of a term
loan agreement (the "Wellsford/Whitehall Bridge Loan") by the Company
to Wellsford/Whitehall.
</FN>
In July 1998, Wellsford/Whitehall modified the Wellsford/Whitehall Bank
Facility. Under the new terms, $300,000,000 represents a senior secured credit
facility bearing interest at LIBOR + 1.65% and $75,000,000 represents a secured
mezzanine facility bearing interest at LIBOR + 3.20%. Both facilities mature on
December 15, 2000 and are extendable for one year by Wellsford/Whitehall. As of
December 31, 1999 and 1998, approximately $238,700,000 and $276,200,000,
respectively, was outstanding under the Wellsford/Whitehall Bank Facility
(approximately $177,300,000 and $207,300,000, respectively, of which was under
the senior facility). At December 31, 1999, Wellsford/Whitehall expected to
borrow an additional $8,000,000 for tenant improvements and leasing commissions
through March 31, 2000, when the ability to draw on this facility expires under
the current terms of the Wellsford/Whitehall Bank Facility. The
Wellsford/Whitehall Bank Facility contains certain financial covenants including
limitations on distributions to members.
The Company is entitled to receive incentive compensation payable out of
distributions made by Wellsford/Whitehall (the "Promote") after return of
capital and minimum annual returns of at least 15% to 17.5% on such capital
balances to the Company and Whitehall (as defined in the Wellsford/Whitehall
Operating Agreement
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(the "Operating Agreement")). Pursuant to the Operating Agreement, the Company
is required to distribute to officers and employees of Wellsford/Whitehall and
the Company, 50% or, in some cases, 55% of the Promote it receives. To date, the
Company has not earned or received any distribution of the Promote and there can
be no assurance that such Promote will be earned.
In June 1999, the capital commitment requirements of Wellsford/Whitehall were
modified from an aggregate of $150,000,000 ($75,000,000 by each partner) to an
aggregate of $250,000,000. The Company's total portion is $85,000,000 of which
$72,769,000 was contributed as of December 31, 1999 and Whitehall's total
portion is $165,000,000 of which $101,604,000 was contributed as of December 31,
1999. These commitments expire December 31, 2000.
In connection with the formation of Wellsford/Whitehall, the Company issued
warrants (the "Whitehall Warrants") to Whitehall to purchase 4,132,230 shares of
the Company's common stock at an exercise price of $12.10 per share. The
Whitehall Warrants are exercisable until August 28, 2002. The exercise price for
the Whitehall Warrants is payable in cash or membership units in
Wellsford/Whitehall. As part of the new capital commitment from Whitehall in
1999, the Company issued to Whitehall additional warrants to purchase an
additional 123,967 shares of the Company's common stock exercisable at $12.10
per share, payable in cash or in exchange for membership units of
Wellsford/Whitehall, held by Whitehall based upon Wellsford/Whitehall's value as
defined. These additional warrants are exercisable for five years and expire on
May 28, 2004. Whitehall may exchange an additional $25,000,000 of the membership
units it owns in Wellsford/Whitehall for shares of the Company's common stock or
cash at the Company's sole discretion, based upon the price paid for such
membership units and the current market value of the Company's common stock. As
of December 31, 1999, no units have been converted.
The Company has agreed with Whitehall to conduct its business and activities
relating to office properties (but not other types of commercial properties)
located in North America solely through its interest in Wellsford/Whitehall
except, in certain circumstances, where Wellsford/Whitehall has declined the
investment opportunity.
DEBT AND EQUITY ACTIVITIES - WELLSFORD CAPITAL
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DEBT INVESTMENTS
The Company makes loans that constitute, or will invest in, real estate related
senior, junior or otherwise subordinated debt instruments, which may be
unsecured or secured by liens on real estate, interests therein or the economic
benefits thereof, and which have the potential for high yields or returns more
characteristic of equity ownership. These investments may include debt that is
acquired at a discount, mezzanine financing, commercial mortgage-backed
securities, secured and unsecured lines of credit, distressed loans and loans
previously made by foreign and other financial institutions. The Company
believes that there are opportunities to acquire real estate debt, especially in
the low or below investment grade tranches, at significant returns as a result
of inefficiencies in pricing, while utilizing management's real estate expertise
to analyze the underlying properties and thereby effectively minimizing risk.
At December 31, 1999, the Company had approximately $65,000,000 of debt related
investments, including $37,300,000 of direct debt investments which bore
interest at an average yield of 11.31% and had an average remaining term to
maturity of 4.8 years and $27,700,000 in a company which was organized to invest
in debt instruments. Following is information regarding these investments.
277 PARK
In April 1997, the Company and Fleet National Bank originated an $80,000,000
loan (the "277 Park Loan") to entities which own substantially all of the equity
interests (the "Equity Interests") in the entity which owns a 1,750,000 square
foot office building located in New York City (the "277 Park Property"). The
Company has advanced $25,000,000 pursuant to the 277 Park Loan. The 277 Park
Loan is secured primarily by a pledge of the Equity Interests owned by the
borrowers. The 277 Park Loan is subordinated to a 10-year $345,000,000
(amortized balance of $332,580,000 at December 31, 1999) first mortgage loan
(the "REMIC Loan") on the 277 Park Property.
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The 277 Park Loan bears interest at the rate of 12.00% per annum for the first
nine years of its term and at a floating annual rate during the tenth year equal
to LIBOR + 5.15% or the Fleet National Bank base rate plus 5.15%, as elected by
the borrowers. The principal amount of the 277 Park Loan and all accrued
interest will be payable in May 2007; the REMIC Loan is also due in May 2007.
The Company earned approximately $3,042,000, $3,042,000 and $2,000,000 per year
in interest income, or 10.1%, 11.7% and 22.1% of its total non-joint venture
revenues from the 277 Park Loan during 1999, 1998 and 1997, respectively.
PATRIOT
In September 1999, the Company and Fleet National Bank originated a $10,000,000
second mortgage. The Company has advanced $5,000,000 (its 50% share) pursuant to
the second mortgage. The second mortgage is subordinate to a $75,000,000 first
mortgage with Fleet National Bank. The loan bears interest at LIBOR + 4.75% with
payments of interest only through August 2001 and principal and interest based
on a 25-year amortization through the loan's maturity in July 2002 (the "Patriot
Loan"). The Patriot Loan is secured by a fee interest in a 608,000 square foot
mixed-use property in Boston, Massachusetts.
THE ABBEY COMPANY
In August 1997, the Company and Morgan Guaranty Trust Company of New York
("MGT") originated a $70,000,000 credit facility secured by first mortgages (the
"Abbey Credit Facility") to affiliates of The Abbey Company, Inc. ("Abbey"). In
May 1998, the Company and MGT expanded the Abbey Credit Facility to
$120,000,000. In December 1998, Abbey repaid $20,000,000, thereby reducing the
total available balance to $100,000,000. In September 1999, an additional
$83,500,000 was repaid, thereby reducing the total available balance to
$16,500,000. The Abbey Credit Facility will be made available to Abbey until
September 2000. Advances under the facility can be made for up to 65% of the
value of the borrowing base collateral which consisted of first mortgage loans
on three properties (one each of office, industrial and retail), all cross
collateralized, totaling approximately 250,000 square feet at December 31, 1999.
The Company's portion of the outstanding balance is approximately $4,300,000 and
$46,000,000 at December 31, 1999 and 1998, respectively. Under the terms of its
participation agreement with MGT, the Company will fund a 50% junior
participation on all advances under the Abbey Credit Facility. The Company is
entitled to receive interest on its advances under the Abbey Credit Facility at
LIBOR + 4.00%. The Company earned approximately $2,941,000, $3,920,000 and
$827,000, or 9.8%, 15.1% and 9.1% of its total non-joint venture revenues from
the Abbey Credit Facility during 1999, 1998 and 1997, respectively.
SAFEGUARD
In December 1998, the Company and MGT originated a $90,000,000 credit facility
secured by first mortgages (the "Safeguard Credit Facility") to Safeguard
Capital Fund, L.P. ("Safeguard"). The Safeguard Credit Facility will be made
available to Safeguard until April 2001. Advances under the facility can be made
for up to 75% of the value of the borrowing base collateral which consists of
nine self-storage properties, all cross-collateralized, totaling approximately
608,000 square feet at December 31, 1999. Under the terms of its participation
agreement with MGT, the Company will fund a 50% junior participation on all
advances under the Safeguard Credit Facility. The Company is entitled to receive
interest on its advances under the Safeguard Credit Facility at LIBOR + 4.00%.
Approximately $5,900,000 had been advanced by the Company under the Safeguard
Credit Facility at December 31, 1998, with additional advances made of
approximately $2,200,000 through March 1999, at which time, the loan with a
balance of $8,100,000 was contributed to the Company's joint venture investment,
Belford Capital Holdings, L.L.C. ("Belford Capital"). This venture also assumed
the first $25,000,000 of the Company's commitment to fund additional advances
under the Safeguard Credit Facility (including amounts advanced through December
31, 1999). The Company retained the remaining $20,000,000 commitment, of which
$2,900,000 was advanced to Safeguard in September 1999 and was outstanding at
December 31, 1999.
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DEBARTOLO
In July 1998, the Company, Bank One, N.A. and several other financial
institutions originated a $175,000,000 loan, in which the Company had an
$18,000,000 participation (the "DeBartolo Loan"), to entities owned by Simon
DeBartolo Group, L.P. The DeBartolo Loan is secured by partnership units in
Simon DeBartolo Group, L.P., the operating partnership of a real estate
investment trust which owns mall space nationwide. The DeBartolo Loan bears
interest at 8.547%, is payable quarterly, pays principal based on a 20-year
amortization schedule and is due in July 2008. In March 1999, the amortized loan
balance of approximately $17,600,000 was contributed to Belford Capital.
WOODLANDS
In December 1997, the Company, Fleet National Bank, Morgan Stanley Senior
Funding, Inc. and certain other lenders made available to the owners and
developers of a 25,000 acre master-planned residential community located north
of Houston (the "Woodlands Property"), loans in the aggregate principal amount
of $369,000,000 (the "Woodlands Loan"). The Woodlands Loan consisted of a
revolving credit loan in the principal amount of $179,000,000 (the "Revolving
Loan"), a secured term loan in the principal amount of $130,000,000 (the
"Secured Loan"), and a second secured term loan in the principal amount of
$60,000,000 (the "Second Secured Loan"). The Company advanced $15,000,000
pursuant to the Second Secured Loan. The Second Secured Loan was subordinate to
the Revolving Loan and the Secured Loan and bore interest equal to LIBOR +
4.40%. The principal amount of the Woodlands Loan was repaid in full prior to
December 31, 1999. The Company earned approximately $1,295,000 and $1,517,000,
or 4.3% and 5.8% of its total non-joint venture revenues from the Woodlands
Second Secured Loan during 1999 and 1998, respectively.
REIT BRIDGE LOAN
In August 1998, the Company, Deutsche Bank, N.A. and certain other lenders
originated a $100,000,000 unsecured loan in which the Company had a $15,000,000
participation (the "REIT Bridge Loan") to a publicly traded real estate
investment trust which owns 22 regional malls, eight multifamily apartment
properties and five office properties nationwide. This loan bore interest at
9.875% and was due in February 1999, with two three-month extensions available
to the borrower. In January 1999, the REIT Bridge Loan was modified to extend
the maturity date to August 1999 and increase the interest rate to 12.00%. The
borrower paid a 1.50% loan fee at origination and a 1.00% loan fee upon
modification. This loan was repaid in full in July 1999.
BROOMFIELD
In January 1999, the Company acquired a parcel of land in Broomfield, Colorado
for approximately $7,200,000 pursuant to an outstanding standby commitment
issued in 1998. In connection with this transaction, the Company collected
approximately $400,000 of fees in 1998. In July 1999, the Company sold this land
for $7,200,000 to a third party ("Buyer") and simultaneously collected an
additional $1,100,000 in fees. The Company then purchased $11,740,000 of
tax-exempt notes, bearing interest at 6.25% and due in December 1999. These
notes were issued by a quasi-governmental agency partially controlled by the
Buyer and were guaranteed by a AA rated bank. The notes were repaid in full in
December 1999. The Company earned approximately $1,555,000 and $401,000, or 5.2%
and 1.5% of its total non-joint venture revenues, on the Broomfield transaction
during 1999 and 1998, respectively.
BELFORD CAPITAL
The Company contributed approximately $24,200,000 and $4,900,000 in 1999 and
1998, respectively, to a 51% owned joint venture special purpose finance company
("SPFC"), Belford Capital, with The Liberty Hampshire Company, L.L.C. ("Liberty
Hampshire") owning 10% and another entity owning the remaining 39%. The 1999
contribution was comprised of two of the Company's debt investments, the
$17,600,000 DeBartolo Loan and the $8,100,000 outstanding balance of the
Safeguard Credit Facility, net of $1,500,000 of cash received back from Belford
Capital. The other partners contributed their respective shares of their capital
contributions in cash. Belford Capital also assumed the first $25,000,000 of the
Company's commitment to fund the Safeguard Credit Facility (including amounts
advanced to date).
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VENTURE CAPITAL INVESTMENTS
At December 31, 1999, the Company had venture capital investments of $7,000,000
in a real estate e-commerce company and other real estate-related ventures.
Following is information regarding these investments.
LIBERTY HAMPSHIRE
In July and August 1998, the Company invested a total of approximately
$2,100,000 for a 4.20% interest in Liberty Hampshire, which structures,
establishes and provides management and services for SPFCs formed to invest in
financial assets.
REIS REPORTS, INC.
Belford Capital has invested $6,500,000 in a real estate market research
internet company, Reis Reports, Inc. ("Reis"), a leading provider of real estate
market information to institutional investors, at December 31, 1999. The
Company's share of this investment was approximately $3,321,000 at December 31,
1999. The primary shareholder of Reis is the brother of Mr. Lynford, Chairman of
the Company; Mr. Lynford recused himself from the Reis investment decisions.
CREAMER VITALE WELLSFORD/CLAIRBORNE INVESTORS
In January 1998, the Company formed Creamer Vitale Wellsford, L.L.C. ("Creamer
Vitale Wellsford") in which it has a 49% interest and acquired the same interest
in a related real estate advisory and consulting firm.
Creamer Vitale Wellsford, together with Prudential Real Estate Investors
("PREI"), an affiliate of Prudential Life Insurance Company, have established
the Clairborne Investors Mortgage Investment Program ("Clairborne") to make
opportunistic investments and to provide liquidity to lenders and participants
in mortgage loan transactions. The parties have agreed to contribute up to
$150,000,000 to fund acquisitions approved by the parties, of which PREI will
fund 90% and a subsidiary of the Company will fund 10%. Creamer Vitale Wellsford
will originate, co-invest, and manage the investments of the program.
The Company's original investment in these entities was $1,250,000 of cash and
148,000 five-year warrants to purchase the Company's common shares at $15.175
per share, valued at approximately $750,000 at that time. In November 1998,
Clairborne acquired an approximate $17,000,000 participation in a $56,000,000
mortgage, bearing interest at LIBOR + 1.75% and due in 3.5 years, at a
significant discount to face value. The Company funded approximately $1,400,000
of the cost of this participation, which was prepaid entirely at the face amount
during 1999 by the borrower.
OTHER INVESTMENTS
VALUE PROPERTY TRUST
In February 1998, the Company completed the merger with Value Property Trust
("VLP") (the "VLP Merger") for total consideration of approximately
$169,000,000, which was accounted for as a purchase. Thirteen of the twenty VLP
properties, which were under contract to an affiliate of Whitehall, were
subsequently sold for an aggregate of approximately $64,000,000. The Company
retained seven of the VLP properties with an allocated value upon purchase of
approximately $38,300,000, containing an aggregate of approximately 597,000
square feet located primarily in the northeastern United States and California.
VLP had cash of $60,800,000 and other net assets of $5,900,000 at the close of
the transaction.
PROPERTY DEVELOPMENT AND LAND OPERATIONS - WELLSFORD DEVELOPMENT
- ----------------------------------------------------------------
The Company engages in selective development activities as opportunities arise
and when justified by expected returns. The Company believes that by pursuing
selective development activities, it can achieve returns which are greater than
returns which could be achieved by acquiring stabilized properties. Certain
development activities may be conducted in joint ventures with local developers
who may bear the substantial portion of the economic risks
-9-
associated with the construction, development and initial rent-up of properties.
As part of its strategy, the Company may seek to issue tax-exempt bond financing
authorized by local governmental authorities which generally bears interest at
rates substantially below rates available from conventional financing.
PALOMINO PARK
The Company owns an approximate 80% interest in Phases I, II, III, IV and V of a
1,800-unit class A multifamily development ("Palomino Park") in a suburb of
Denver, Colorado. EQR owns the remaining 20% interest. The Company has a related
$14,755,000 tax exempt mortgage note payable which requires interest only
payments at a variable rate (average rate for 1999 was approximately 3.4%) until
it matures in December 2035 (the "Palomino Park Bonds"). The tax exempt mortgage
note payable is security for tax-exempt bonds, which are backed by a letter of
credit from a AAA rated financial institution. The Company and an affiliate of
EQR have guaranteed the reimbursement of the financial institution in the event
that the letter of credit is drawn upon (the latter guarantee being the "EQR
Enhancement").
In December 1997, Phase I, known as Blue Ridge, was completed at a cost of
approximately $41,500,000. At that time, the Company obtained a $34,500,000
permanent loan (the "Blue Ridge Mortgage") secured by a first mortgage on Blue
Ridge. The Blue Ridge Mortgage matures in January 2008 and bears interest at a
fixed rate of 6.92%. Principal payments are based on a 30-year amortization
schedule.
In November 1998, Phase II, known as Red Canyon, was completed at a cost of
approximately $33,900,000. At that time, the Company acquired the Red Canyon
improvements and the related construction loan was repaid with the proceeds of a
$27,000,000 permanent loan (the "Red Canyon Mortgage") secured by a first
mortgage on Red Canyon. The Red Canyon Mortgage matures in December 2008 and
bears interest at a fixed rate of 6.68%. Principal payments are based on a
30-year amortization schedule.
The estimated total costs of the remaining three multifamily development phases
at Palomino Park and related infrastructure costs at completion of these phases,
including the Company's gross investment, which is included in construction in
progress on the Company's consolidated financial statements, of approximately
$30,748,000 at December 31, 1999, are as follows:
ESTIMATED ESTIMATED
TOTAL COMPLETION
NAME UNITS COST DATE
---- ----- ---- ----
Phase III ("Silver Mesa") .... 264 $ 40,000,000 July 2000
Phase IV ("Green River") ..... 424 55,000,000 Fourth Quarter 2001
Phase V ("Gold Peak") ........ 352 42,000,000 Fourth Quarter 2002
----- -------------
1,040 $ 137,000,000
===== =============
The third and fourth phases of this project are being developed pursuant to
fixed-price contracts. The Company is committed to purchase 100% of the
improvements upon completion and the achievement of certain occupancy levels of
these phases. In addition, the Company is obligated to fund the first 20% of
development costs on these phases as they are incurred.
In May 1997, the Company acquired the land for Silver Mesa for approximately
$2,100,000. In May 1998, the Company acquired the land for Green River for
approximately $3,200,000. In May 1999, the Company acquired the land for Gold
Peak for approximately $2,600,000. Construction in progress related to these
three phases, including the cost of land, was approximately $30,748,000 at
December 31, 1999.
SONTERRA
From the time of the Spin-off, the Company held a $17,800,000 mortgage on, and
option to purchase, a 344-unit class A residential apartment complex ("Sonterra
at Williams Centre") located in Tucson, Arizona.
In January 1998, the Company exercised its option and acquired Sonterra at
Williams Centre for approximately $20,500,000, including satisfaction of the
mortgage. In February 1998, the Company closed on $16,400,000 of first
-10-
mortgage financing (the "Sonterra Mortgage") on this property, bearing interest
at 6.87% and maturing in March 2008. Principal payments are based on a 30-year
amortization schedule.
SEGMENT FINANCIAL INFORMATION
See Note 10 to the Company's consolidated financial statements for additional
information regarding the Company's industry segments.
FUTURE INVESTMENTS
The Company may in the future make equity investments in entities owned and/or
operated by unaffiliated parties and which engage in real estate-related
businesses and activities or businesses that service the real estate industry.
Some of the entities in which the Company may invest may be start-up companies
or companies in need of additional capital. The Company may also manage and
lease properties owned by it or in which it has an equity or debt investment.
-11-
ITEM 2. PROPERTIES.
The following property information is presented by SBU.
WELLSFORD/WHITEHALL
Wellsford/Whitehall owned and operated 41 office properties, totaling
approximately 4,920,000 square feet at December 31, 1999. The following table
sets forth certain information related to these properties at December 31, 1999:
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
OPERATING PROPERTIES
1800 Valley Road ............ Office Wayne, NJ 56,000 1980 1 100.0%
Greenbrook Corporate Center . Office Fairfield, NJ 201,000 1987 12 96.6%
Chatham Executive Center .... Office Chatham, NJ 63,000 1972/1997 6 100.0%
300 Atrium Drive ............ Office Somerset, NJ 150,000 1983 4 82.4%
400 Atrium Drive ............ Office Somerset, NJ 355,000 1985 2 99.1%
500 Atrium Drive ............ Office Somerset, NJ 169,000 1984 3 94.2%
700 Atrium Drive ............ Office Somerset, NJ 181,000 1985 1 100.0%
Mountain Heights Center #1 .. Office Berkeley Hts, NJ 183,000 1986 13 99.7%
Garden State Exhibit Center . Flex Somerset, NJ 82,000 1968/1989 N/A N/A
150 Wells Avenue ............ Office Newton, MA 11,000 1987 1 100.0%
72 River Park ............... Office Needham, MA 22,000 1983 4 100.0%
70 Wells Avenue ............. Office Newton, MA 29,000 1979 2 100.0%
160 Wells Avenue ............ Office Newton, MA 19,000 1970/1997 1 100.0%
2331 Congress Street ........ Office Portland, ME 24,000 1980 3 84.4%
60/74 Turner Street ......... Office/Land Waltham, MA 16,000 1970 1 100.0%
100 Wells Avenue ............ Office Newton, MA 21,000 1978 1 100.0%
333 Elm Street .............. Office Dedham, MA 48,000 1983 7 96.3%
Dedham Place ................ Office Dedham, MA 160,000 1987 8 97.2%
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT* ENCUMBRANCES
-------- ------- ---------- ---- ---- ----- ------------
OPERATING PROPERTIES
1800 Valley Road ............ Rickitt & Coleman December 2003 $ 12.10 $ 14.41 $ 13.00 (A)
Greenbrook Corporate Center . Information Resources December 2003 20.14 22.18 22.50 (A)
Chatham Executive Center .... Quadrant July 2009 26.54 28.16 30.00 (A)
300 Atrium Drive ............ AT&T March 2004 17.93 19.82 21.50 (A)
400 Atrium Drive ............ Merrill Lynch December 2001 & 2003 17.39 19.90 21.50 (A)
500 Atrium Drive ............ AT&T December 2003 18.78 22.88 21.50 (A)
700 Atrium Drive ............ Merck June 2005 15.12 18.39 21.50 (A)
Mountain Heights Center #1 .. The Santa Cruz September 2006 20.54 22.57 28.50 (A)
Garden State Exhibit Center . N/A N/A 28.39 28.39 28.39 (A)
150 Wells Avenue ............ Linx Communications September 2001 19.50 19.99 22.50 (A)
72 River Park ............... JH Albert, Ins. November 2004 20.32 20.99 25.50 (A)
70 Wells Avenue ............. Renaissance Worldwide, Inc. November 2002 22.14 23.74 24.50 (A)
160 Wells Avenue ............ New England Cable December 2013 22.00 23.76 24.50 (A)
2331 Congress Street ........ Clark Associates April 2002 12.64 13.37 15.25 (A)
60/74 Turner Street ......... Brandeis University June 2002 7.00 7.00 9.00 (A)
100 Wells Avenue ............ The Larkin Group December 2002 21.25 22.53 24.50 (A)
333 Elm Street .............. Lojack May 2001 18.81 19.21 27.00 (A)(B)
Dedham Place ................ Harvard Pilgrim Healthcare September 2001 24.85 30.23 28.75 (A)(B)
-12-
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
128 Technology Center ....... Office Waltham, MA 218,000 1986 2 100.0%
201 University Avenue ....... Office Westwood, MA 82,000 1982 (E) (E)
7/57 Wells Avenue ........... Office Newton, MA 88,000 1982 15 74.1%
75/85/95 Wells Avenue ....... Office Newton, MA 242,000 1976/1986 12 99.9%
Shattuck Office Center ...... Office Andover, MA 63,000 1985 11 100.0%
180/188 Mt Airy Road ........ Office Basking Ridge, NJ 104,000 1980 12 98.8%
377/379 Campus Drive ........ Office Franklin Twp, NJ 199,000 1984 1 100.0%
105 Challenger Road ......... Office Ridgefield Park, NJ 147,000 1992 3 100.0%
6301 Stevens Forest ......... Office Columbia, MD 38,000 1980 2 100.0%
150 Mt. Bethel Road ......... Office/Flex Warren, NJ 129,000 1981 6 64.3%
One Mall North .............. Office Columbia, MD 97,000 1978/1998 40 95.6%
McDonough Crossroads ........ Office Owings Mills, MD 32,000 1988 5 100.0%
Oakland Ridge ............... Flex Columbia, MD 144,000 1972 9 66.6%
Airport Park ................ Office Hanover Twp, NJ 96,000 1979 17 98.5%
--------- --- ----
SUBTOTAL--OPERATING PROPERTIES ................................... 3,469,000 205 92.3%
--------- --- ----
PROPERTIES UNDER RENOVATION
Pointview Corporate Center .. Office Wayne, NJ 515,000 1976/1998 (F) --
Morris Technology Center .... Office Parsippany, NJ 244,000 1963/1977/1998 (F) --
Mountain Heights Center #2 .. Office Berkeley Hts, NJ 115,000 1968/1998 (G) (G)
117 Kendrick Street ......... Office Needham, MA 209,000 1963 (F) --
600 Atrium Drive ............ Land Somerset, NJ N/A N/A (H) --
Airport Park ................ Land Hanover Twp, NJ N/A N/A (H) --
401 North Washington ........ Office Rockville, MD 236,000 1972 1 26.2%
79 Milk Street .............. Office Boston, MA 64,000 1920/1998 28 83.7%
24 Federal Street ........... Office Boston, MA 68,000 1921/1997 (F) --
--------- --- ----
SUBTOTAL-PROPERTIES UNDER RENOVATION ............................. 1,451,000 29 8.1%
--------- --- ----
1999 TOTAL/AVERAGE ............................................... 4,920,000 234 92.3%
========= === ====
(I)
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT* ENCUMBRANCES
-------- ------- ---------- ---- ---- ----- ------------
128 Technology Center ....... Parametric Technology October 2001 21.13 23.75 31.25 (A)(B)
201 University Avenue ....... (E) (E) (E) (E) (E) (A)(B)
7/57 Wells Avenue ........... GEO Centers November 2004 28.89 28.94 30.00 (A)(B)
75/85/95 Wells Avenue ....... Marcam April 2005 24.20 24.26 31.00 (A)(B)
Shattuck Office Center ...... Codman Research Group March 2000 17.64 19.14 22.50 (A)
180/188 Mt Airy Road ........ Lucent Technology October 2004 22.90 24.64 26.50 (A)
377/379 Campus Drive ........ AT&T August 2003 11.00 11.00 13.50 (A)
105 Challenger Road ......... Samsung America, Inc. December 2003 21.79 23.93 27.50 (A)
6301 Stevens Forest ......... SecurityLink from Ameritech July 2005 14.59 14.78 16.50 (A)
150 Mt. Bethel Road ......... TMS Mortgage June 2003 11.71 13.69 15.00 (A)(C)
One Mall North .............. Alco Pharmaceuticals May 2000 17.61 17.99 21.00 (A)
McDonough Crossroads ........ Giancarlo Versacchi June 2002 15.75 16.60 19.00 (A)(C)
Oakland Ridge ............... Nightmare Graphics, Inc. December 2001 4.41 4.68 9.50 (D)
Airport Park ................ Gemini Consulting January 2006 19.92 21.56 25.00 (A)(C)
--------- -------- --------
SUBTOTAL--OPERATING PROPERTIES ................................... 18.73 20.56 23.26
--------- -------- --------
PROPERTIES UNDER RENOVATION
Pointview Corporate Center .. -- -- -- -- -- (A)
Morris Technology Center .... -- -- -- -- -- (A)
Mountain Heights Center #2 .. (G) (G) (G) (G) -- (A)
117 Kendrick Street ......... -- -- -- -- -- (A)
600 Atrium Drive ............ -- -- -- -- -- (A)
Airport Park ................ -- -- -- -- -- (D)
401 North Washington ........ GE Information Services April 2004 7.27 7.47 25.25 (D)
79 Milk Street .............. J.M. Forbes January 2002 21.46 22.59 40.75 (A)(C)
24 Federal Street ........... -- -- -- -- -- (A)(C)
--------- -------- --------
SUBTOTAL-PROPERTIES UNDER RENOVATION ............................. N/A N/A N/A
--------- -------- --------
1999 TOTAL/AVERAGE ............................................... $ 18.73 $ 20.56 $ 23.26
========= ======== ========
(I) (I) (I)
- ----------
<FN>
(A) Encumbered by the Wellsford/Whitehall Bank Facility.
(B) Encumbered by the Nomura Mortgage.
(C) Encumbered by other mortgages.
(D) Unencumbered.
(E) Lease with RCN-Becocom L.L.C. commenced January 1, 2000 for 100% of the
leasable building square feet with a triple net rent of $15.00 per square
foot. Lease term expires December 2009.
(F) Building under renovation.
(G) Subsequent to December 31, 1999, lease was signed with Compaq for 100% of
the leasable building square feet, with a base rent of $28.95 per square
foot. Tenant to take possession of space in stages throughout 2000. Lease
term expires August 2010.
(H) Land is held for development.
(I) Properties under renovation not included in 1999 Total/Average.
* Company's internal judgement as to specific property market rent per square
foot as of December 31, 1999.
</FN>
-13-
The following table sets forth historical Wellsford/Whitehall portfolio
information by year:
TOTAL BUILDING LEASABLE BUILDING
DECEMBER 31, SQUARE FEET SQUARE FEET OCCUPANCY
------------ ----------- ----------- ---------
1999 ..... 4,920,000 3,469,000 92%
1998 ..... 4,605,000 3,219,000 92%
1997 ..... 2,412,000 1,330,000 89%
The average lease term of the tenants' leases is approximately 8.6 years. Leases
typically provide for step-ups in base rent periodically over the term of a
lease and pass throughs to tenants of their pro rata share of increases in
certain expenses (real estate taxes and operating expenses) over a base year.
Leases may also provide for improvement allowances for all or a portion of the
tenant's initial construction of its premises. The following table sets forth as
of December 31, 1999 lease expirations for each of the next ten years, assuming
tenants do not exercise any renewal options:
ANNUAL BASE RENT
OF EXPIRING LEASES
LEASABLE PERCENTAGE ------------------
NUMBER OF SQUARE FEET OF TOTAL PER
EXPIRING OF EXPIRING LEASED SQUARE
YEAR LEASES LEASES SQUARE FEET TOTAL FOOT
---- ------ ------ ----------- ----- ----
2000........ 62 211,055 6% $ 3,583,720 $ 16.98
2001........ 58 785,474 23% 15,185,385 19.33
2002........ 28 205,820 6% 4,039,558 19.62
2003........ 51 928,401 28% 17,692,938 19.05
2004........ 18 294,474 9% 5,766,837 19.58
2005........ 14 456,367 14% 10,030,521 21.98
2006........ 12 183,307 5% 4,269,990 23.29
2007........ 6 39,868 1% 988,924 24.80
2008........ 5 34,938 1% 935,528 26.79
2009........ 3 60,167 2% 1,600,814 26.61
No tenant in the Wellsford/Whitehall portfolio accounts for more than 7% of 1999
rental revenues.
-14-
WELLSFORD CAPITAL
Wellsford Capital owned the following commercial properties at December 31,
1999:
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
Hoes Lane ........ Office Piscataway, NJ 37,632 1987 12 100%
Bradford Plaza ... Retail West Chester, PA 123,885 1990 16 82%
Chestnut Street .. Office Philadelphia, PA 50,053 1857/1990 7 91%
Keewaydin Drive .. Industrial Salem, NH 125,230 1973 3 49%
Turnpike Street .. Industrial Canton, MA 43,160 1980 2 100%
Two Executive .... Office Cherry Hill, NJ 102,310 1970 11 60%
Bay City Holdings Office Santa Monica, CA 114,375 1985 23 91%
------- --
1999 TOTAL/AVERAGE 596,645 74 76%
======= == ==
1998 TOTAL/AVERAGE 596,645 80%
======= ==
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT* ENCUMBRANCES
-------- ------- ---------- ---- ---- ----- ------------
Hoes Lane ........ A March 2004 $ 14.20 $ 15.70 $ 16.50 $ 1,340,000
Bradford Plaza ... B June 2011 10.80 13.00 13.00 8,400,000
Chestnut Street .. C December 2001 13.30 15.60 14.50 2,000,000
Keewaydin Drive .. D January 2004 5.70 7.50 7.25 2,420,000
Turnpike Street .. E January 2001 7.10 11.50 9.50 1,940,000
Two Executive .... F March 2007 12.10 12.30 14.50 2,300,000
Bay City Holdings G June 2010 16.10 19.10 25.00 9,600,000
-----------
1999 TOTAL/AVERAGE ........................ $ 10.70 $ 13.40 $ 13.90 $28,000,000
========= ========= ========= ===========
1998 TOTAL/AVERAGE ........................ $ 9.51 $ 11.33 $28,000,000
========= ========= ===========
- ----------
<FN>
Legend: Principal Tenants
- --------------------------
A .. Innovex-DAS, Inc. (13,645 square feet)
B .. Fleming Foods and CVS (42,616 square feet)
C .. Kittredge Donley (14,449 square feet)
D .. New Hampshire College (27,555 square feet)
E .. Techmar Communications (22,918 square feet)
F .. Computer Learning Center (20,983 square feet)
G .. Santa Monica Malibu School District (42,597 square feet)
*Company's internal judgement as to specific property market rent per square
foot as of December 31, 1999.
</FN>
-15-
The average lease term of the tenants' leases is approximately 6.9 years. Leases
typically provide for step-ups in base rent periodically over the term of a
lease and pass throughs to tenants of their pro rata share of increases in
certain expenses (real estate taxes and operating expenses) over a base year.
Leases may also provide for improvement allowances for all or a portion of the
tenant's initial construction of its premises. The following table, as of
December 31, 1999, details lease expirations for each of the next ten years,
assuming tenants do not exercise any renewal options:
ANNUAL BASE RENT
OF EXPIRING LEASES
LEASABLE PERCENTAGE ------------------
NUMBER OF SQUARE FEET OF TOTAL PER
EXPIRING OF EXPIRING LEASED SQUARE
YEAR LEASES LEASES SQUARE FEET TOTAL FOOT
---- ------ ------ ----------- ----- ----
2000........ 12 24,773 6% $ 411,042 $ 16.59
2001........ 11 69,971 16% 1,072,238 15.32
2002........ 25 112,577 25% 1,462,953 13.00
2003........ 9 43,713 10% 475,082 10.87
2004........ 5 47,275 10% 562,426 11.90
2005........ 3 20,511 5% 280,075 13.65
2006........ -- -- -- -- --
2007........ 3 37,990 8% 465,099 12.24
2008........ -- -- -- -- --
2009........ -- -- -- -- --
No tenant in the Wellsford Capital portfolio accounts for more than 6.8% of 1999
rental revenues.
WELLSFORD DEVELOPMENT
The Company owned the following multifamily properties at December 31, 1999:
AVERAGE RENT
PROPERTY LOCATION UNITS YEAR CONSTRUCTED OCCUPANCY PER UNIT ENCUMBRANCE
-------- -------- ----- ---------------- --------- -------- -----------
Blue Ridge .................. Denver, CO 456 1997 86% $1,089 $33,762,792
Red Canyon .................. Denver, CO 304 1998 85% 1,235 26,683,184
Sonterra .................... Tucson, AZ 344 1995 96% 704 16,113,953
----- -----------
1999 TOTAL/AVERAGE 1,104 89% $1,001 $76,559,929
===== == ====== ===========
1998 TOTAL/AVERAGE 1,104 92% $ 984 $77,421,790
===== == ====== ===========
The average lease term of the tenants' leases range from six to fourteen months.
Security deposits are generally required for all leases.
The Company is developing three additional phases at its property in Denver,
Colorado, which will include an additional 1,040 units. The Silver Mesa phase,
which consists of 264 units, is expected to be completed July 2000. Development
of the fourth phase, Green River, has begun and will include 424 units to be
completed in the fourth quarter of 2001. Development of the fifth phase, Gold
Peak, will include approximately 352 units and is expected to be completed in
the fourth quarter of 2002. Estimated total construction costs for these three
phases is approximately $137,000,000.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor Wellsford/Whitehall are presently defendants in any
material litigation nor, to the Company's knowledge, is any material litigation
threatened against the Company or its other equity investments other than
routine litigation arising in the ordinary course of business and which is
expected to be covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
-16-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
MARKET INFORMATION
- ------------------
The Company's common shares are traded on the American Stock Exchange under the
symbol "WRP". The high and low sales prices for the common shares on the
American Stock Exchange and the dividends declared for the years ended December
31, 1999 and 1998 are as follows:
COMMON SHARES
---------------------------
1999 HIGH LOW DIVIDENDS
---- ---- --- ---------
1st Quarter.................. $10.50 $8.50 None
2nd Quarter.................. $12.25 $7.88 None
3rd Quarter.................. $10.75 $7.75 None
4th Quarter.................. $ 9.38 $7.63 None
COMMON SHARES
---------------------------
1998 HIGH LOW DIVIDENDS
---- ---- --- ---------
1st Quarter.................. $15.63 $13.25 None
2nd Quarter.................. $15.38 $13.00 None
3rd Quarter.................. $14.88 $ 9.00 None
4th Quarter.................. $10.50 $ 6.75 None
HOLDERS
- -------
The approximate number of holders of record of the common shares and Class A
common shares (collectively, "Common Shares" or " Common Stock") were 2,773 and
1, respectively, as of December 31, 1999.
DIVIDENDS
- ---------
The Company did not declare or distribute any dividends during 1999, 1998 or
1997. The Company does not plan to distribute dividends for the foreseeable
future, which will permit it to accumulate, for reinvestment, cash flow from
investments, disposition of investments and other business activities.
-17-
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the consolidated financial
statements included elsewhere in this Form 10-K.
Prior to the Company's 1997 investments, the Company's operations consisted of
earning interest income on the Sonterra Mortgage (originated in July 1996) and
the initial phase of construction development activity with respect to Palomino
Park.
SUMMARY CONSOLIDATED STATEMENT OF
OPERATIONS DATA FOR THE YEARS ENDED DECEMBER 31,
--------------- ----------------------------------------------------
1999 1998 1997 1996
(in thousands, except per share data) ---- ---- ---- ----
Revenues ............................ $ 30,170 $ 26,154 $ 9,070 $ 757
Expenses ............................ (28,981) (17,383) (3,819) --
Income from joint ventures .......... 9,622 3,523 15 --
-------- -------- -------- -------
Income before taxes ................. $ 10,811 $ 12,294 $ 5,266 $ 757
======== ======== ======== =======
Net income .......................... $ 8,861 $ 9,444 $ 3,053 $ 757
======== ======== ======== =======
Net income per common share, basic .. $ 0.43 $ 0.47 $ 0.18 $ 0.04
======== ======== ======== =======
Net income per common share, diluted $ 0.43 $ 0.46 $ 0.18 $ 0.04
======== ======== ======== =======
Cash dividends declared per common
share ............................ $ -- $ -- $ -- $ --
======== ======== ======== =======
Weighted average number of
common shares outstanding, basic .. 20,642 19,886 16,922 16,912
======== ======== ======== =======
Weighted average number of
common shares outstanding, diluted 20,657 20,379 17,348 16,912
======== ======== ======== =======
SUMMARY CONSOLIDATED STATEMENT OF
OPERATIONS DATA DECEMBER 31,
--------------- -------------------------------------------------------
1999 1998 1997 1996 1995
(in thousands) ---- ---- ---- ---- ----
Real estate, at cost ....... $ 159,582 $ 150,322 $ 58,741 $ -- $ --
Accumulated depreciation ... (6,584) (2,707) -- -- --
Notes receivable ........... 37,260 124,706 105,632 17,800 --
Investment in joint ventures 114,390 80,776 44,780 -- --
Total assets ............... 366,331 384,971 249,974 44,760 18,369
Mortgage notes payable ..... 119,315 120,177 49,255 14,755 14,755
Credit facility ............ -- 17,000 7,500 -- --
Shareholders' equity ....... 229,691 231,625 181,158 30,005 3,614
The earnings per share amounts conform with Statement of Financial Accounting
Standards No. 128 "Earnings per share". For further discussion of earnings per
share and the impact of Statement No. 128, see the notes to the consolidated
financial statements.
-18-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
- --------
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the Company's Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
- ---------------------
The accompanying consolidated financial statements include the assets and
liabilities contributed to and assumed by the Company from the Trust, from the
time such assets and liabilities were acquired or incurred, respectively, by the
Trust. Such financial statements have been prepared using the historical basis
of the assets and liabilities and the historical results of operations related
to the Company's assets and liabilities.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998
Rental income increased by $4,747,000. This increase is primarily due to a full
year of operations during 1999 for assets acquired or put into service during
1998. The seven VLP properties were acquired in February 1998 ($833,000
increase) and Red Canyon was completed and placed into service in November 1998
($3,818,000 increase).
Interest income decreased by $593,000. This decrease is primarily the result of
loans being repaid in part or in full ($2,609,000) and from investments
contributed to Belford Capital ($356,000) offset by investments held for a
longer period during 1999 than in 1998 ($1,107,000), additional interest and fee
income from the Broomfield investment ($1,153,000) and increased income on cash
and cash equivalents ($112,000).
Property operating and maintenance expense increased by $1,241,000. This
increase is primarily due to a full year of operations during 1999 for assets
acquired or put into service during 1998.
Real estate taxes increased by $345,000. This increase is primarily due to a
full year of operations during 1999 for assets acquired or put into service
during 1998, offset by reduced taxes at certain properties during 1999.
Depreciation and amortization increased by $2,997,000. This increase is
primarily due to a full year of operations during 1999 for assets acquired or
put in service during 1998 ($1,168,000 increase), as well as increased
amortization during 1999 associated with the Company's joint venture investments
and deferred financing costs ($249,000 and $639,000 increases, respectively) and
the write-down of one of its long-lived assets by $912,000 to its estimated fair
value.
Property Management expense increased $175,000. This increase is primarily due
to a full year of operations during 1999 for assets acquired or put in service
during 1998.
Interest expense increased by $4,799,000. This increase is primarily due to debt
that was outstanding for the full year in 1999 and only a partial year during
1998 as well as higher average outstanding balances. The Sonterra at Williams
Centre debt was outstanding from February 1998 ($174,000 increase), the mortgage
on the VLP properties was secured in October 1998 ($2,025,000 increase), the
mortgage on Red Canyon was secured in November 1998 ($1,628,000 increase) and
there was a higher average outstanding balance on credit facilities ($1,283,000
increase), offset by additional interest capitalized to the Company's remaining
phases at Palomino Park ($268,000).
General and administrative expenses increased by $2,063,000. This increase is
primarily due to overhead costs, primarily rent, resulting from the increase in
the size of the Company's headquarters, salary increases related to an
-19-
increased number of employees in Wellsford Capital, as well as an increase in
professional fees from costs related to transactions the Company is no longer
pursuing.
Gain on sale of investments in 1998 results from the sale of certain notes
receivable acquired in the VLP merger.
Income from joint ventures increased by $6,099,000. This increase is primarily
due to the Company's proportionate share of the increase in gains of $5,339,000
on the sale of assets from Wellsford/Whitehall, in excess of 1998 share of
gains, plus growth from the Liberty Hampshire/Belford Capital Joint Venture
investments ($2,006,000 increase) offset by a decrease in the Company's
proportionate share of Wellsford/Whitehall operating income ($968,000 decrease).
The income tax provision decreased $900,000. This decrease is primarily the
result of lower pretax income, a reduction of the valuation allowance
attributable to the utilization of available net operating loss carryforwards,
and a lower effective state and local tax rate.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997
Rental income increased by $11,800,000. This increase is a result of the
acquisition of properties in connection with the VLP Merger in February 1998
($4,700,000 increase), the completion of Blue Ridge ($5,300,000 increase) and
Red Canyon ($400,000 increase) (Phases I and II of the Company's Palomino Park
development) in December 1997 and November 1998, respectively, and the
acquisition of Sonterra at Williams Centre in January 1998 ($2,700,000
increase), net of the decrease associated with the contribution of all of the
Company's then owned commercial properties to Wellsford/Whitehall in August
1997.
Interest income increased by $5,100,000. This increase is primarily a result of
the acquisition of approximately $157,500,000 in notes receivable during the
period from April 1997 through December 1998 bearing interest at rates between
LIBOR + 2.00% and approximately LIBOR + 6.00% offset by the repayment of
$60,000,000 of notes receivable during this period.
Property operating and maintenance expense, real estate tax expense,
depreciation and amortization, and property management expense increased by
$2,500,000, $1,100,000, $2,900,000, and $500,000, respectively. These increases
are a result of the factors which affected rental income, as described above.
Interest expense increased by $4,600,000 as a result of the issuance of
substantially all of the Company's debt other than the Palomino Park Bonds on or
after December 31, 1997. All of the interest on the Company's debt prior to
December 31, 1997 was capitalized to the Company's Palomino Park development.
General and administrative expense increased by $1,900,000. This increase is a
result of the Company commencing operations subsequent to the Spin-off in May
1997, as well as the Company's growth over the last year.
Gain on sale of investments results from the sale of certain notes receivable
acquired in the VLP Merger.
Income from joint ventures increased by $3,500,000. This increase is a result of
the Wellsford/Whitehall joint venture transaction in August 1997, the Creamer
Vitale Wellsford joint venture transaction in January 1998 and the Liberty
Hampshire joint venture transaction in July 1998.
Minority interest is a result of EQR's 20% interest in the Company's Palomino
Park development, as well as certain limited partnership interests (aggregating
approximately 10%) in one of the Company's commercial office properties acquired
in the VLP Merger. These limited partnership interests were bought out by the
Company in October 1998 for approximately $1,100,000.
-20-
The income tax provision increased $600,000 as a result of the increase from
approximately $4,200,000 of taxable income during the period from the Spin-off
through December 31, 1997 to approximately $12,300,000 of taxable income during
the year ended December 31, 1998, net of the effects of the utilization of the
net operating loss carry forwards acquired in the VLP Merger ($2,200,000).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company expects to meet its short-term liquidity requirements generally
through its working capital and cash flow provided by operations. The Company
considers its ability to generate cash to be adequate and expects it to continue
to be adequate to meet operating requirements both in the short and long terms.
The Company utilized approximately $20,589,000 of available cash and cash
equivalents to purchase 2,573,632 shares of its outstanding common stock from an
institutional investor on February 25, 2000.
The Company expects to meet its long-term liquidity requirements such as
refinancing mortgages, financing acquisitions and development, financing capital
improvements and joint venture capital requirements by long-term borrowings,
through available cash, the issuance of debt and the offering of additional debt
and equity securities.
RECURRING AND NON-RECURRING CAPITAL EXPENDITURES
WELLSFORD DEVELOPMENT
Regarding the Company's Blue Ridge (456 units), Red Canyon (304 units) and
Sonterra at Williams Centre (344 units) properties, the Company expects to incur
approximately $134 per unit in apartment preparation costs between tenant leases
during the year ending December 31, 2000 which will be charged to property
operations.
The estimated total costs of the remaining three multifamily development phases
at Palomino Park and related infrastructure costs at completion of these phases,
including the Company's gross investment, which is included in construction in
progress on the Company's consolidated financial statements, of approximately
$30,748,000 at December 31, 1999 are as follows:
ESTIMATED ESTIMATED
NAME UNITS TOTAL COST COMPLETION DATE
---- ----- ---------- ---------------
Phase III ("Silver Mesa") . 264 $ 40,000,000 July 2000
Phase IV ("Green River") .. 424 55,000,000 Fourth Quarter 2001
Phase V ("Gold Peak") ..... 352 42,000,000 Fourth Quarter 2002
----- --------------
1,040 $ 137,000,000
===== ==============
The third and fourth phases of this project are being constructed pursuant to
fixed-price contracts. The Company is committed to purchase 100% of the
improvements upon completion and the achievement of certain occupancy levels of
these phases. In addition, the Company is obligated to fund the first 20% of
construction costs on these phases as they are incurred.
WELLSFORD CAPITAL
The Company expects to incur approximately $1,730,000 of total capital
expenditures with respect to the seven VLP properties during the year ending
December 31, 2000 as follows:
AMOUNT PER SQUARE FOOT
------ ---------------
Maintenance capital ...... $ 611,000 $ 1.02
Tenant improvements ...... 796,000 1.33
Leasing commissions ...... 323,000 0.54
------------- --------
$ 1,730,000 $ 2.89
============= ========
-21-
WELLSFORD/WHITEHALL
In connection with its fully operational properties, Wellsford/Whitehall expects
to incur approximately $28,714,000 of capital expenditures during the year
ending December 31, 2000 as follows:
AMOUNT PER SQUARE FOOT
------ ---------------
Maintenance capital ...... $13,427,000 $ 3.45
Tenant improvements ...... 11,257,000 2.90
Leasing commissions ...... 4,030,000 1.04
----------- --------
$28,714,000 $ 7.39
=========== ========
Wellsford/Whitehall is currently involved in several projects to renovate,
expand or reposition certain of its properties. For the year ending December 31,
2000, Wellsford/Whitehall expects to incur approximately $36,933,000 in
connection with these projects.
To the extent that cash flows from operations and borrowings from financial
institutions are not available to finance such capital projects, the Company
will be required to provide approximately 20% of unfunded costs under the
existing agreement with Whitehall.
OTHER CAPITAL COMMITMENTS
At December 31, 1999, the Company had the following discretionary capital
commitments. Draws under the Abbey Credit Facility and Safeguard Credit Facility
require additional collateral to be made available to the Company which is
subject to the Company's approval. Capital calls related to investments to be
made by the Company's joint ventures are also subject to the Company's approval
of such investments. At December 31, 1999, discretionary capital commitments are
as follows:
COMMITMENT AMOUNT
---------- ------
Abbey Credit Facility ......... $ 8,980,000
Safeguard Credit Facility ..... 17,100,000
Wellsford/Whitehall equity .... 12,231,000
Creamer Vitale Wellsford equity 13,608,000
Reis .......................... 1,500,000
RESOURCES
The Company has the option to put to an affiliate of EQR until May 30, 2000, up
to $25,000,000 of the Company's Series A 8% Convertible Redeemable Preferred
Stock ("Series A Preferred"), each share of which is convertible into shares of
common stock at a price of $11.124 (the "EQR Preferred Commitment"). If at May
30, 2000, the affiliate of EQR has purchased less than $25,000,000 of Series A
Preferred, it has the option to call the remainder of the $25,000,000 not
purchased prior to that time. The Company expects EQR to purchase the full
amount of the Series A Preferred.
In May 1999, the Company modified the $50,000,000 secured loan facility from
Fleet National Bank and MGT (the "WRP Bank Facility") to extend the maturity
date to May 2000. The modified WRP Bank Facility bears interest at LIBOR + 1.75%
and the Company is obligated to pay a fee equal to three-eighths of one percent
(0.375%) per annum on the average daily amount of the unused portion of the WRP
Bank Facility until maturity. As of December 31, 1999, there was no outstanding
balance under the WRP Bank Facility.
-22-
The WRP Bank Facility contains various customary loan covenants. The WRP Bank
Facility also limits the amount of undeveloped land the Company may hold. The
Company does not expect to borrow funds under this facility prior to its
expiration.
In January 1999, a wholly-owned subsidiary of the Company obtained a $35,000,000
secured loan facility (the "Wellsford Finance Facility") from Fleet National
Bank, as agent, which can potentially be increased to $50,000,000 to finance
note receivable investments under its debt program. The Wellsford Finance
Facility bears interest at LIBOR + 2.75% and has a term of three years. The
Company is obligated to pay a fee equal to one-quarter of one percent (0.25%)
per annum on the average daily amount of the unused portion of the Wellsford
Finance Facility until maturity. The facility contains various loan covenants
including covenants which are restrictive under existing competitive market
conditions. Accordingly, the facility terms require modification for the Company
to fully utilize the facility. As of December 31, 1999, there was no outstanding
balance under the Wellsford Finance Facility.
In July 1998, Wellsford/Whitehall modified the Wellsford/Whitehall Bank
Facility. Under the new terms, $300,000,000 represents a senior secured credit
facility bearing interest at LIBOR + 1.65% and $75,000,000 represents a second
mezzanine facility bearing interest at LIBOR + 3.20%. Both facilities mature on
December 15, 2000 and are extendable for one year by Wellsford/Whitehall. As of
December 31, 1999 and 1998, approximately $238,700,000 and $276,200,000,
respectively, was outstanding under the Wellsford/Whitehall Bank Facility
(approximately $177,300,000 and $207,300,000, respectively, of which was under
the senior facility). At December 31, 1999, Wellsford/Whitehall expected to
borrow an additional $8,000,000 for tenant improvements and leasing commissions
through March 31, 2000, when the ability to draw on this facility expires under
the current terms of the Bank Facility. The Bank Facility contains certain
financial covenants including limitations on distributions to members.
Wellsford/Whitehall expects to meet its liquidity requirements, such as
financing additional renovations to its properties and acquisitions of new
properties, with operating cash flow from its properties, proceeds from
financings of unencumbered properties, proceeds from any asset sales, the
remaining commitment of the Wellsford/Whitehall Bank Facility and equity
contributions from the owners of Wellsford/Whitehall. At December 31, 1999 the
Company's unfunded capital commitment is approximately $12,231,000 and the
Whitehall unfunded capital commitment is approximately $63,396,000.
CASH FLOWS
- ----------
1999 CASH FLOWS
Cash flow provided by operating activities of $13,857,000 primarily consists of
net income of $8,861,000 plus (i) depreciation and amortization of $5,937,000
and (ii) amortization of deferred compensation of $848,000, offset by
undistributed joint venture income of $675,000, increases in restricted cash of
$459,000 and prepaid and other assets of $498,000 and a decrease in accrued
expenses and other liabilities of $297,000.
Cash flow provided by investing activities of $40,834,000 consists of repayments
of notes receivable of $112,741,000, the proceeds from sale of real estate
assets of $7,238,000 and returns of capital from joint ventures of $6,091,000,
offset by additional investments in (i) notes receivable of $49,295,000, (ii)
real estate assets of $18,975,000 and (iii) capital contributions to joint
ventures of $16,968,000.
Cash flow used in financing activities of $30,072,000 primarily consists of (i)
repayment of credit facilities of $54,000,000, (ii) the repurchase of common
shares of $12,209,000 and (iii) repayment of mortgage notes payable of $862,000,
offset by borrowings from credit facilities of $37,000,000.
-23-
1998 CASH FLOWS
Cash flow provided by operating activities of $7,005,000 primarily consists of
net income of $9,444,000 plus depreciation and amortization of $3,034,000, an
increase in accrued expenses and other liabilities of $4,031,000 and share
grants of $775,000, offset by an increase in prepaid and other assets of
$6,525,000 and undistributed joint venture income of $3,515,000.
Cash flow used in investing activities of $107,115,000 consists of additional
investments in (i) real estate assets of $125,514,000, (ii) notes receivable of
$67,230,000 and (iii) joint ventures of $33,512,000, offset by proceeds from the
sale of real estate of $64,133,000 and repayments of notes receivable of
$55,009,000.
Cash flow provided by financing activities of $80,337,000 primarily consists of
proceeds from (i) credit facility of $86,500,000 and (ii) mortgage notes payable
of $71,400,000 offset by repayments of (i) credit facilities of $77,000,000 and
(ii) mortgage notes payable of $478,000.
1997 CASH FLOWS
Cash flow provided by operating activities of $6,005,000 primarily consists of
net income of $3,053,000 plus additional accrued expenses and other liabilities
of $7,116,000 and share grants of $897,000, offset by decreases in (i) prepaid
and other assets of $3,164,000 and (ii) restricted cash of $2,176,000.
Cash flow used in investing activities of $156,912,000 consists of investments
in (i) notes receivable of $162,846,000, (ii) real estate assets of $85,552,000
and (iii) joint ventures of $13,955,000, offset by repayments of notes
receivable of $105,441,000.
Cash flow provided by financing activities of $180,802,000 consists of proceeds
from (i) common shares issued of $121,695,000, (ii) credit facilities of
$64,400,000, (iii) mortgage notes payable of $34,500,000, (iv) the bridge loan
of $6,000,000 and (v) equity contributions of $17,108,000, offset by repayments
of (i) credit facilities of $56,900,000 and (ii) the bridge loan of $6,000,000.
See the accompanying consolidated statements of cash flows included in the
consolidated financial statements for a reconciliation of the Company's cash
position for the years described therein.
INFLATION
- ---------
Substantially all of Wellsford Capital's and Wellsford/Whitehall's office leases
provide for separate escalations of real estate taxes and operating expenses
over a base amount. In addition, many of the office leases provide for fixed
base rent increases or indexed escalations (based on the CPI or other measures).
The Company believes that inflationary increases in expenses will generally be
offset by the expense reimbursements and contractual rent increases described
above.
A substantial majority of the leases at the Company's multifamily properties are
for a term of one year or less which may enable the Company to seek increased
rents upon renewal or re-letting of apartment units. Such short-term leases
generally minimize the risk to the Company of the adverse effects of inflation.
YEAR 2000
- ---------
During 1999, the Company developed a plan to modify its information technology
("IT"), primarily its accounting software, to recognize the year 2000 ("Y2K"). A
Y2K compliant version of the accounting software was obtained, along with
certain upgraded computer equipment to accommodate the new software. The Company
completed the installation and testing of the new system software and hardware
during the fourth quarter of 1999. Total project costs were approximately
$100,000 which were funded from operations.
The Company also had extensive discussions with its third-party property
management companies (the "Managers") to ensure that those parties had
appropriate plans to allay any Y2K issues that may impact the
-24-
Company's operations. These issues included both accounting/management software
and non-IT systems such as fire safety, security and elevator systems.
Wellsford/Whitehall, Wellsford Capital and Wellsford Development, which
constitute all of the Company's property operations, had completed their
analyses of such systems by September 30, 1999 and determined that no material
adverse consequences were likely to result from their Y2K issues. Under the most
reasonably likely worst case scenario, wherein the Managers failed to update
their software and non-IT systems, the Company had the ability to convert its
accounting and management systems to a spreadsheet-based system on a temporary
basis and to utilize its building engineers to manually override any non-IT
systems which fail.
Furthermore, the Company had contacted its key vendors, tenants, banks, joint
venture partners, creditors, and debtors and had obtained Y2K compliance
certification (either verbal or written) from the majority of them.
Subsequent to December 31, 1999, the Company did not encounter any Y2K related
problems from its accounting software or hardware, from the operations of its
properties, or from other companies on which the Company's systems and
operations rely, primarily its banks, payroll processing company, joint venture
partners, creditors, and debtors.
NET CASH FLOW
- -------------
The Company considers Net Cash Flow to be an important measure of its
performance, to be considered in addition to Net Income predicated on generally
accepted accounting principles. Net Cash Flow, for the Company's purposes,
represents net income, plus depreciation and amortization on real estate assets,
and depreciation and amortization from unconsolidated partnerships and joint
ventures. Included in such cash flow is the Company's share of undistributed
cash retained by the unconsolidated partnerships and joint ventures for
continuing investment in lieu of future fundings. Net Cash Flow should not be
considered a replacement for Net Income as an indicator of the Company's
operating performance and is not necessarily indicative of cash available to
fund cash needs.
The following table reconciles Net Income and Net Cash Flow:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
Net income .............................. $ 8,860,801 $ 9,443,756 $ 3,053,077
Add:
Depreciation and amortization ........... 5,384,782 3,115,555 259,731
Share of JV depreciation and amortization 5,238,357 3,564,206 611,144
----------- ----------- -----------
Net Cash Flow ........................... $19,483,940 $16,123,517 $ 3,923,952
=========== =========== ===========
- ----------
<FN>
Note: The number of shares that should be used for determining Net Cash
Flow per share, basic and diluted, are the same number of shares used
for Net Income per share, basic and diluted.
</FN>
Below are the Company's cash flows provided by operating activities as disclosed
in the Consolidated Statements of Cash Flows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
Operating activities $13,856,594 $ 7,004,813 $ 6,005,116
=========== =========== ===========
-25-
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS.
This Form 10-K, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following,
which are discussed in greater detail in the "Risk Factors" section of the
Company's registration statement on Form S-11 (file No. 333-32445) filed with
the Securities and Exchange Commission ("SEC") on July 30, 1997, as may be
amended, which is incorporated herein by reference: general economic and
business conditions, which will, among other things, affect demand for
commercial and residential properties, availability and credit worthiness of
prospective tenants, lease rents and the availability and cost of financing;
ability to find suitable investments; competition; risks of real estate
acquisition, development, construction and renovation; ability to comply with
zoning and other laws; vacancies at commercial and multifamily properties;
dependence on rental income from real property; adverse consequences of debt
financing including, without limitation, the necessity of future financings to
repay debt obligations; risks of investments in debt instruments, including
possible payment defaults and reductions in the value of collateral; risks
associated with equity investments in and with third parties: illiquidity of
real estate investments; environmental risks; and other risks listed from time
to time in the Company's reports filed with the SEC. Therefore, actual results
could differ materially from those projected in such statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is to changes in interest rates. The
Company manages this risk by offsetting its investments and financing exposures
as well as by strategically timing and structuring its transactions.
The Company had investments in $12,151,000 of LIBOR-based instruments and
$42,755,000 of LIBOR and other variable rate based financings as of December 31,
1999. The Company had investments in $25,000,000 of fixed rate instruments and
has $76,560,000 of fixed rate financings as of December 31, 1999. These
exposures substantially offset one another as a one-percent increase in the base
rates used to determine the interest rates of both the variable rate notes
receivable and debt would result in a net decrease in the Company's net income
of $306,000 ($0.01 per diluted share).
The Company had investments in $67,028,000 of LIBOR-based instruments and
$59,755,000 of LIBOR and other variable rate based financings as of December 31,
1998. The Company had investments in $57,678,000 of fixed rate instruments and
$77,422,000 of fixed rate financings as of December 31, 1998. These exposures
substantially offset one another as a one-percent increase in the base rates
used to determine the interest rates of both the variable rate notes receivable
and debt would result in a net increase in the Company's net income of $73,000
(no change in the per share amount).
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item 8 is included as a separate section of this annual
report on Form 10-K (see page F-1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-26-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company, their ages and their
positions are as follows:
Name Age Positions and Offices Held
---- --- --------------------------
Jeffrey H. Lynford................. 52..... Chairman of the Board, Secretary and Director***
Edward Lowenthal................... 55..... President, Chief Executive Officer and Director**
Rodney F. Du Bois.................. 64..... Vice Chairman, Chief Financial Officer and Director**
James J. Burns..................... 60..... Senior Vice President, Chief Accounting Officer
David M. Strong.................... 41..... Vice President for Development
Douglas Crocker II................. 59..... Director***
Richard S. Frary................... 52..... Director*
Mark S. Germain.................... 49..... Director***
Frank J. Hoenemeyer................ 80..... Director*
Frank J. Sixt...................... 48..... Director*
- ----------
<FN>
*........Term expires 2000.
**.......Term expires 2001.
***......Term expires 2002.
</FN>
The information contained in the sections captioned "Nominees for Election as
Directors", "Other Directors", "Executive Officers", and "Key Employees" of the
Company's definitive proxy statement for the 2000 annual meeting of shareholders
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the sections captioned "Executive Compensation",
"Compensation of Directors", "Board Committees", "Employment Agreements", and
"Management Incentive Plans" of the Company's definitive proxy statement for the
2000 annual meeting of shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the section captioned "Security Ownership of
Certain Beneficial Owners and Management" of the Company's definitive proxy
statement for the 2000 annual meeting of shareholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the section captioned "Certain Transactions" of the
Company's definitive proxy statement for the 2000 annual meeting of shareholders
is incorporated herein by reference.
-27-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) (1) FINANCIAL STATEMENTS
The following consolidated financial information is included
as a separate section of this annual report on Form 10-K:
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Wellsford/Whitehall Group, L.L.C. Consolidated Financial
Statements and Notes.
(2) FINANCIAL STATEMENT SCHEDULES
III. Real Estate and Accumulated Depreciation
IV. Mortgage Loans on Real Estate
All other schedules have been omitted because the required
information of such other schedules is not present, is not
present in amounts sufficient to require submission of the
schedule or is included in the consolidated financial
statements.
(3) EXHIBITS
(a) EXHIBIT NO. DESCRIPTION+++
----------- -----------
3.1 Articles of Amendment and Restatement of the Company.****
3.2 Articles Supplementary Classifying 350,000 Shares of Common Stock
as Class A Common Stock.****
3.3 Articles Supplementary Classifying 2,000,000 Shares of Common
Stock as Series A 8% Convertible Redeemable Preferred Stock.****
3.4 Bylaws of the Company.****
4.1 Specimen certificate for Common Stock.***
4.2 Specimen certificate for Class A Common Stock.****
4.3 Specimen certificate for Series A 8% Convertible Redeemable
Preferred Stock.****
4.4 Warrant Agreement, dated as of August 28, 1997, between the
Company and United States Trust Company of New York, as warrant
agent, and Warrant Certificate No. 1 of the Company for 5,000,000
Warrants registered in the name of WHWEL Real Estate Limited
Partnership.+
-28-
EXHIBIT NO. DESCRIPTION+++ (continued)
----------- -----------
4.41 Amendment No. 2 to the Warrant Agreement dated as of August 28,
1997 by and between Wellsford Real Properties, Inc. and United
States Trust Company, dated as of May 28, 1999.
4.42 Warrant Agreement by and between Wellsford Real Properties, Inc.
and United States Trust Company, dated as of May 28, 1999.
4.43 Registration Rights Agreement by and between Wellsford Real
Properties, Inc. and W/W Group Holdings, L.L.C., dated as of May
28, 1999.
4.44 Letter Agreement dated May 28, 1999 between WHWEL Real Estate
Limited Partnership and Wellsford Real Properties, Inc.,
confirming that Wellsford Real Properties, Inc. will exchange
shares of its stock for Excess Membership Units held by WHWEL.
4.5 Registration Rights Agreement, dated as of February 23, 1998,
among the Company and Franklin Mutual Advisors, Inc. and Angelo
Gordon & Co., L.P.+
10.1 Operating Agreement of Red Canyon at Palomino Park LLC between
Wellsford Park Highlands Corp. and Al Feld, dated as of April 17,
1996, relating to Red Canyon.*
10.2 First Amendment to Operating Agreement of Red Canyon at Palomino
Park LLC between Wellsford Park Highlands Corp. and Al Feld,
dated as of May 19, 1997, relating to Red Canyon.****
10.3 Tri-Party Agreement by and among NationsBank of Texas, N.A., Red
Canyon at Palomino Park LLC, Wellsford Park Highlands Corp.,
Wellsford Residential Property Trust, Al Feld and The Feld
Company, dated May 29, 1997, relating to Red Canyon.****
10.4 Assignment and Assumption of Tri-Party Agreement by and among
Wellsford Residential Property Trust, ERP Operating Limited
Partnership, Red Canyon at Palomino Park LLC, Wellsford Park
Highlands Corp., The Feld Company, Al Feld and NationsBank of
Texas, N.A. dated May 30, 1997, relating to Red Canyon.****
10.5 Agreement and Acknowledgment Regarding Tri-Party Agreement by and
among NationsBank of Texas, N.A., Red Canyon at Palomino Park
LLC, Wellsford Park Highlands Corp. and ERP Operating Limited
Partnership dated May 30, 1997, relating to Red Canyon.****
10.6 Second Amended and Restated Vacant Land Purchase and Sale
Agreement between Mission Viejo Company and The Feld Company
dated March 23, 1995, as amended by First Amendment, dated May 1,
1996, relating to the land underlying Palomino Park.*
10.7 Trust Indenture, dated as of December 1, 1995, between Palomino
Park Public Improvements Corporation ("PPPIC") and United States
Trust Company of New York, as trustee, securing Wellsford
Residential Property Trust's Assessment Lien Revenue Bonds Series
1995 - $14,755,000.**
10.8 Letter of Credit Reimbursement Agreement, dated as of December 1,
1995, between PPPIC, Wellsford Residential Property Trust and
Dresdner Bank AG, New York Branch.**
10.9 First Amendment to Letter of Credit Reimbursement Agreement,
dated as of May 30, 1997, between PPPIC, Wellsford Residential
Property Trust, Dresdner Bank AG, New York Branch and the
Company.****
10.10 Amendment to Wellsford Reimbursement Agreement by and between
PPPIC, Wellsford Residential Property Trust and the Company,
dated as of May 30, 1997.****
-29-
EXHIBIT NO. DESCRIPTION+++ (continued)
----------- -----------
10.11 Assignment and Assumption Agreement by and between Wellsford
Residential Property Trust and the Company, dated as of May 30,
1997.****
10.12 Credit Enhancement Agreement by and between the Company and ERP
Operating Limited Partnership, dated as of May 30, 1997, relating
to Palomino Park.****
10.13 Reimbursement and Indemnification Agreement by and between the
Company and ERP Operating Limited Partnership, dated as of May
30, 1997, relating to Palomino Park.****
10.14 Guaranty by ERP Operating Limited Partnership for the benefit of
Dresdner Bank AG, New York Branch, dated as of May 30, 1997,
relating to Palomino Park.****
10.15 Amended and Restated Promissory Note of the Company to the order
of Dresdner Bank AG, New York Branch, dated May 30, 1997,
relating to Palomino Park.****
10.16 Common Stock and Preferred Stock Purchase Agreement by and
between the Company and ERP Operating Limited Partnership dated
as of May 30, 1997.****
10.17 Registration Rights Agreement by and between the Company and ERP
Operating Limited Partnership dated as of May 30, 1997.****
10.18 Credit Agreement, dated as of April 25, 1997, by and among Park
Avenue Financing Company LLC, PAMC Co-Manager Inc., PAFC
Management, Inc., Stanley Stahl, The First National Bank of
Boston, the Company, Other Banks that may become parties to the
Agreement and The First National Bank of Boston, as Agent,
relating to 277 Park Avenue.**
10.19 Assignment of Member's Interest, dated as of April 25, 1997, by
PAFC Management, Inc. and Stanley Stahl to The First National
Bank of Boston, relating to 277 Park Avenue (relating to
interests in the Park Avenue Financing Company, LLC).**
10.20 Assignment of Member's Interest, dated as of April 25, 1997, by
PAMC Co-Manager Inc. and Park Avenue Financing, LLC to The First
National Bank of Boston, relating to 277 Park Avenue (relating to
interests in 277 Park Avenue, LLC).**
10.21 Stock Pledge Agreement, dated as of April 25, 1997, by Stanley
Stahl to The First National Bank of Boston, relating to 277 Park
Avenue (relating to stock in Park Avenue Management
Corporation).**
10.22 Stock Pledge Agreement, dated as of April 25, 1997, by Stanley
Stahl to The First National Bank of Boston, relating to 277 Park
Avenue (relating to stock in PAMC Co-Manager Inc.).**
10.23 Stock Pledge Agreement, dated as of April 25, 1997, by Stanley
Stahl to The First National Bank of Boston, relating to 277 Park
Avenue (relating to stock in PAFC Management, Inc.).**
10.24 Conditional Guaranty of Payment and Performance, dated as of
April 25, 1997, by Stanley Stahl, relating to 277 Park Avenue.**
10.25 Cash Collateral Account Security, Pledge and Assignment
Agreement, dated as of April 25, 1997, by and among 277 Park
Avenue, LLC, Park Avenue Management Corporation, Park Avenue
Financing Company LLC, PAMC Co-Manager Inc., Stanley Stahl and
The First National Bank of Boston, relating to 277 Park Avenue.**
-30-
EXHIBIT NO. DESCRIPTION+++ (continued)
----------- -----------
10.26 Recognition Agreement, dated as of April 25, 1997, by and among
The First National Bank of Boston, the Company, Column Financial,
Inc., Park Avenue Financing Company LLC, PAMC Co-Manager, Inc.
and 277 Park Avenue, LLC, relating to 277 Park Avenue.**
10.27 Intercreditor Agreement, dated as of April 25, 1997, between the
Company and The First National Bank of Boston, as Agent, relating
to 277 Park Avenue.**
10.28 Assignment and Acceptance Agreement, dated June 19, 1997,
between BankBoston, N.A. (formerly known as The First National
Bank of Boston) ("BankBoston") and the Company, relating to 277
Park Avenue.****
10.29 Revolving Credit Agreement by and among the Company, BankBoston,
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"),
other banks which may become parties and BankBoston, as agent,
and Morgan Guaranty, as co-agent dated as of May 30, 1997.****
10.30 Agreement Regarding Common Stock and Preferred Stock Purchase
Agreement, dated as of May 30, 1997, among ERP Operating Limited
Partnership, the Company and BankBoston, as agent.****
10.31 Assignment of Common Stock Agreements, dated as of May 30, 1997,
between the Company and BankBoston, as agent.****
10.32 Collateral Assignment of Documents, Rights and Claims (including
Collateral Assignment of Deed of Trust, Assignment of Leases and
Rents, Security Agreement and Fixture Filing), made as of May 30,
1997, by the Company to BankBoston, as agent.****
10.33 First Amended and Restated Loan Agreement, dated as of July 16,
1998 (the "First Amended and Restated Loan Agreement"), among
Wellsford/Whitehall Holdings, L.L.C., as Borrower, and
BankBoston, Goldman Sachs Mortgage Company, and Other Banks, as
Banks, and BankBoston, as Administrative Agent and Co-Arranger
and Co-Syndication Agent, and Goldman Sachs Mortgage Company, as
Co-Arranger and Co-Syndication Agent.++
10.34 Form of promissory note payable to the order of eight lenders by
Wellsford/Whitehall Properties, L.L.C. under the First Amended
and Restated Loan Agreement. ++
10.35 Amended and Restated Assignment of Member's Interest under the
First Amended and Restated Loan Agreement, dated as of July 16,
1998, by Wellsford/Whitehall Holdings, L.L.C. to BankBoston, as
Agent. ++
10.36 Amended and Restated Cash Collateral Agreement under the First
Amended and Restated Loan Agreement, dated as of July 16, 1998,
by and among Wellsford/Whitehall Holdings, L.L.C., WASH Manager
L.L.C., Wells Avenue Holdings L.L.C. and BankBoston, as Agent. ++
10.37 Indemnity Agreement Regarding Hazardous Materials under the
First Amended and Restated Loan Agreement, dated as of July 16,
1998, by Wellsford/Whitehall Holdings, L.L.C., Wellsford
Commercial Properties Trust and WHWEL Real Estate Limited
Partnership for the benefit of BankBoston. ++
10.38 Conditional Guaranty of Payment under the First Amended and
Restated Loan Agreement, dated as of July 16, 1998, by Wellsford
Commercial Properties Trust, WHWEL Real Estate Limited
Partnership, the Company, Whitehall Street Real Estate Limited
Partnership V, Whitehall Street Real Estate Limited Partnership
VI, Whitehall Street Real Estate Limited Partnership VII and
Whitehall Street Real Estate Limited Partnership VIII in favor of
BankBoston and Goldman Sachs Mortgage Company. ++
-31-
EXHIBIT NO. DESCRIPTION+++ (continued)
----------- -----------
10.39 Indemnity and Guaranty Agreement under the First Amended and
Restated Loan Agreement, dated as of July 16, 1998, by Wellsford
Commercial Properties Trust and WHWEL Real Estate Limited
Partnership in favor of BankBoston, Goldman Sachs Mortgage
Company and Other Banks. ++
10.40 Mezzanine Loan Agreement, dated as of July 16, 1998 (the
"Mezzanine Loan Agreement"), among Wellsford/Whitehall Holdings
II, L.L.C., as Borrower, and BankBoston, Goldman Sachs Mortgage
Company, and Other Banks, as Banks, and BankBoston, as
Administrative Agent and Co-Arranger and Co-Syndication Agent,
and Goldman Sachs Mortgage Company, as Co-Arranger and
Co-Syndication Agent. ++
10.41 Form of promissory note payable to the order of five lenders by
Wellsford/Whitehall Properties II, L.L.C. under the Mezzanine
Loan Agreement. ++
10.42 Assignment of Member's Interest under the Mezzanine Loan
Agreement, dated as of July 16, 1998, between Wellsford/Whitehall
Properties II, L.L.C. and BankBoston, as Agent. ++
10.43 Indemnity Agreement Regarding Hazardous Materials under the
Mezzanine Loan Agreement, dated as of July 16, 1998, by
Wellsford/Whitehall Properties II, L.L.C., Wellsford Commercial
Properties Trust and WHWEL Real Estate Limited Partnership for
the benefit of BankBoston. ++
10.44 Nomura Conditional Guaranty of Payment under the Mezzanine Loan
Agreement, dated as of July 16, 1998, by Wellsford Commercial
Properties Trust, WHWEL Real Estate Limited Partnership, the
Company, Whitehall Street Real Estate Limited Partnership V,
Whitehall Street Real Estate Limited Partnership VI, Whitehall
Street Real Estate Limited Partnership VII and Whitehall Street
Real Estate Limited Partnership VIII in favor of BankBoston and
Goldman Sachs Mortgage Company. ++
10.45 Conditional Guaranty of Payment under the Mezzanine Loan
Agreement, dated as of July 16, 1998, by Wellsford Commercial
Properties Trust, WHWEL Real Estate Limited Partnership, the
Company, Whitehall Street Real Estate Limited Partnership V,
Whitehall Street Real Estate Limited Partnership VI, Whitehall
Street Real Estate Limited Partnership VII and Whitehall Street
Real Estate Limited Partnership VIII in favor of BankBoston and
Goldman Sachs Mortgage Company. ++
10.46 Indemnity and Guaranty Agreement under the Mezzanine Loan
Agreement, dated as of July 16, 1998, by Wellsford Commercial
Properties Trust and WHWEL Real Estate Limited Partnership in
favor of BankBoston, Goldman Sachs Mortgage Company and Other
Banks. ++
10.461 First Amendment to Mezzanine Loan Agreement, dated as of May
28, 1999 by and among Wellsford/Whitehall Properties II, L.L.C.,
Wellsford Commercial Properties Trust, WHWEL Real Estate Limited
Partnership, Wellsford Real Properties, Inc., Whitehall Street
Real Estate Limited Partnership V, Whitehall Street Real Estate
Limited Partnership VI, Whitehall Street Real Estate Limited
Partnership VII, Whitehall Street Real Estate Limited Partnership
VIII, Wells Avenue Holdings, L.L.C., Wash Manager L.L.C.,
BankBoston, N.A., Goldman Sachs Mortgage Company, BHF-Bank
Aktiengesellschaft, Morgan Stanley Senior Funding Inc., and PAM
Capital Funding LP.
-32-
EXHIBIT NO. DESCRIPTION+++ (continued)
----------- -----------
10.462 Contribution Agreement, dated as of February 12, 1998, among
Saracen Properties, Inc., Saraceno Holding Trust General
Partnership, Dominic J. Saraceno, 150 Wells Avenue Realty Trust,
River Park Realty Trust, Seventy Wells Avenue LLC, Newton
Acquisition LLC I, Saracen Portland L.L.C., KSA Newton
Acquisition Limited Partnership II and KSA Newton Limited
Partnership I, as Contributor, and Wellsford/Whitehall
Properties, L.L.C., as Contributee.++++
10.47 $50 million Revolving Credit Agreement, dated as of January 12,
1999, among Wellsford Finance, Inc., as Borrower, and BankBoston
and Other Banks, as Lender, and BankBoston, as Agent. ++
10.48 $50 million promissory note, dated January 12, 1999, payable to
BankBoston by Wellsford Finance, Inc. ++
10.49 Collateral Assignment of Documents, Rights and Claims, dated
January 12, 1999, from Wellsford Finance, Inc. to BankBoston, as
Agent.++
10.50 Limited Liability Company Operating Agreement of
Wellsford/Whitehall Group, L.L.C., dated as of May 28, 1999.
10.51 Letter Agreement, dated as of July 16, 1998, between the Company
and WHWEL Real Estate Limited Partnership, relating to warrants
to be issued to WHWEL Real Estate Limited Partnership. ++
10.52 Fixed Rate Loan Agreement, dated as of August 11, 1998 (the
"Fixed Rate Loan Agreement"), by and among First Union Real
Estate Equity and Mortgage Investments, as Borrower, Bankers
Trust Company, as Agent, and Bankers Trust Company, Wellsford
Capital and BankBoston, as Lenders. ++
10.53 $15 million promissory note, dated August 11, 1998, payable to
the order of Wellsford Capital by First Union Real Estate Equity
and Mortgage Investments under the Fixed Rate Loan Agreement. ++
10.54 First Amendment of Fixed Rate Loan Agreement, dated as of
January 8, 1999, among First Union Real Estate Equity and
Mortgage Investments, as Borrower, Bankers Trust Company,
Wellsford Capital and BankBoston, as Lenders, and Bankers Trust
Company, as Agent. ++
10.55 Letter dated January 8, 1999, among First Union Real Estate
Equity and Mortgage Investments, as Borrower, Bankers Trust
Company, Wellsford Capital and BankBoston, as Lenders, and
Bankers Trust Company, as Agent. ++
10.56 Revolving Credit Agreement for $70 million, dated as of August
28, 1997, between AP-Anaheim LLC, AP-Arlington LLC, AP-Atlantic
LLC, AP-Cityview LLC, AP-Farrell Ramon LLC, AP-Palmdale LLC,
AP-Redlands LLC, AP-Victoria LLC, AP-Victorville LLC, and
AP-Sierra LLC, each a California limited liability company
(collectively, the "Abbey Affiliates"), as Borrower, and Morgan
Guaranty Trust Company of New York, as Lender.+
10.57 Amendment to Revolving Credit Agreement, dated as of April 6,
1998, by AP-Diamond Bar LLC, AP-Edinger LLC, AP- Glendora LLC,
AP- Anaheim LLC, AP- Arlington LLC, AP- Atlantic LLC, AP-
Cityview LLC, AP- Redlands LLC, AP- Palmdale LLC, AP- Farrell
Ramon LLC, AP- Sierra LLC, AP- Victoria LLC and AP- Victorville
LLC (collectively, the "Amended Abbey Affiliates"), as Borrower,
and Morgan Guaranty Trust Company of New York, as Lender. ++
10.58 Loan Participation Agreement, dated as of August 28, 1997,
between Morgan Guaranty Trust Company of New York and the
Company.+
-33-
EXHIBIT NO. DESCRIPTION+++ (continued)
----------- -----------
10.59 First Amendment to Loan Participation Agreement, dated as of
April 7, 1998, between Morgan Guaranty Trust Company of New York
and Wellsford Capital.++
10.60 $70 million promissory note (the "Promissory Note"), dated
August 28, 1997, payable to the order of Morgan Guaranty Trust
Company of New York by the Abbey Affiliates.+
10.61 Amendment to Promissory Note, dated as of April 6, 1998, between
the Amended Abbey Affiliates and Morgan Guaranty Trust Company of
New York. ++
10.62 Purchase and Sale Agreement, dated as of September 18, 1997,
among the Company, Wellsford Capital Corporation and Whitehall
Street Real Estate Limited Partnership VII.++
10.63 First Amended and Restated Master Credit Agreement, dated
December 30, 1997, effective as of July 31, 1997, among The
Woodlands Commercial Properties Company, L.P., The Woodlands Land
Development Company, L.P., and BankBoston, Morgan Stanley Senior
Funding, Inc., as Documentation Agent, and Other Banks, and
BankBoston, as Managing Agent and Syndication Agent.+
10.64 Intercreditor Agreement, dated December 30, 1997, effective as
of July 31, 1997, by and between BankBoston, Morgan Stanley
Senior Funding, Inc. and the Other Lenders, relating to
Woodlands.+
10.65 $4,186,991.87 Commercial Company Second Secured Term Loan Note,
dated December 30, 1997, payable to the order of the Company by
The Woodlands Commercial Properties Company, L.P. and The
Woodlands Land Development Company, L.P.+
10.66 $10,813,008.13 Land Company Second Secured Term Loan Note, dated
December 30, 1997, payable to the order of the Company by The
Woodlands Land Development Company, L.P. and The Woodlands
Commercial Properties Company, L.P.+
10.67 Revolving Credit Agreement, dated as of March 28, 1998, among
Safeguard Capital Fund, L.P., as Borrower, and Morgan Guaranty
Trust Company of New York, as Lender. ++
10.68 $90 million promissory note, dated March 28, 1998, payable to
Morgan Guaranty Trust Company of New York by Safeguard Capital
Fund, L.P. ++
10.69 Loan Participation Agreement, dated as of December 1, 1998,
between Morgan Guaranty Trust Company of New York and Wellsford
Capital. ++
10.70 Program Agreement for Clairborne Investors Mortgage Program
between Creamer Realty Consultants and The Prudential Investment
Corporation, dated as of December 10, 1997.+
10.71 Amended and Restated General Partnership Agreement of Creamer
Realty Consultants, dated as of January 1, 1998, by and between
Wellsford CRC Holding Corp. and FGC Realty Consultants, Inc.+
10.72 Limited Liability Company Operating Agreement of Creamer Vitale
Wellsford, L.L.C., dated as of January 20, 1998, by and between
Wellsford CRC Holding Corp. and SX Advisors, LLC. +
10.73 Loan Agreement, dated as of February 27, 1998, between Wellsford
Sonterra L.L.C., as Borrower, and Nationsbank, N.A., as Lender.+
10.74 $16,400,000 promissory note, dated February 27, 1998, payable to
the order of NationsBank, N.A., by Wellsford Sonterra, L.L.C.+
-34-
EXHIBIT NO. DESCRIPTION+++ (continued)
----------- -----------
10.75 Deed of Trust, Assignment of Leases and Rents and Security
Agreement, dated February 27, 1998 by Wellsford Sonterra, L.L.C.
in favor of NationsBank, N.A.+
10.76 $34,500,000 Multifamily Note, dated December 24, 1997, payable
to the order of GMAC Commercial Mortgage Corporation by Park at
Highlands L.L.C.+
10.77 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement, dated December 24, 1997, by Park at Highlands L.L.C.
in favor of GMAC Commercial Mortgage Corporation.+
10.78 $28 million secured promissory note, dated October 22, 1998,
payable to the order of Lehman Brothers Holdings Inc. by
Wellsford Capital Properties, L.L.C. ++
10.79 Conditional Guarantee, dated as of October 22, 1998, by
Wellsford Capital in favor of Lehman Brothers Holdings Inc. ++
10.80 Mortgage and Security Agreement, dated as of October 22, 1998,
by Wellsford Capital Properties, L.L.C. to Lehman Brothers
Holdings Inc. ++
10.81 1998 Management Incentive Plan of the Company. ++
10.82 1997 Management Incentive Plan of the Company.**
10.83 Rollover Stock Option Plan of the Company.**
10.84 Employment Agreement between the Company and Jeffrey H.
Lynford.****
10.85 Employment Agreement between the Company and Edward
Lowenthal.****
10.86 Employment Agreement between the Company and David M.
Strong.****
10.87 Employment Agreement between the Company and Rodney F. Du Bois.
10.88 Employment Agreement between the Company and James J. Burns.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
99.1 "Risk Factors" section of the Company's Registration Statement on
Form S-11 (file no. 333-32445), as may be amended.
- ----------
* Previously filed as an exhibit to the Form 10 filed on April 23, 1997.
** Previously filed as an exhibit to the Form 10/A Amendment No. 1 filed on
May 21, 1997.
*** Previously filed as an exhibit to the Form 10/A Amendment No. 2 filed on
May 28, 1997.
**** Previously filed as an exhibit to the Form S-11 filed on July 30, 1997.
*****Previously filed as an exhibit to Amendment No. 1 to Form S-11 filed on
November 14, 1997.
+ Previously filed as an exhibit to the Form 8-K filed on September 11, 1997.
++ Previously filed as an exhibit to the Form 8-K filed on September 23, 1997.
+++ Wellsford acquired its interest in a number of these documents by
assignment.
++++ Previously filed as an exhibit to the Form 8-K filed on April 28, 1998.
+ Previously filed as an exhibit to the Form 10-K filed on March 31, 1998.
++ Previously filed as an exhibit to the Form 10-K filed on March 31, 1999.
(b) During the last quarter of the period covered by this report, the Company
filed the following reports on Form 8-K:
None.
(c) The following exhibits are filed as exhibits to this Form 10-K: See Item 14
(a)(3) above.
(d) The following documents are filed as a part of this report:
None.
-35-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WELLSFORD REAL PROPERTIES, INC.
By: /s/ James J. Burns
-----------------------------------------------
James J. Burns
Senior Vice President, Chief Accounting Officer
Dated: March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Jeffrey H. Lynford Chairman of the Board, Secretary and March 17, 2000
- ------------------------ Director
(Jeffrey H. Lynford)
/s/ Edward Lowenthal President, Chief Executive Officer and March 17, 2000
- ------------------------ Director (Principal Executive Officer)
(Edward Lowenthal)
/s/ Rodney F. Du Bois Vice Chairman, Chief Financial Officer March 17, 2000
- ------------------------ and Director
(Rodney F. Du Bois)
/s/ Mark S. Germain Director March 17, 2000
- ------------------------
(Mark S. Germain)
/s/ Frank J. Hoenemeyer Director March 17, 2000
- ------------------------
(Frank J. Hoenemeyer)
/s/ Frank J. Sixt Director March 17, 2000
- ------------------------
(Frank J. Sixt)
/s/ Douglas Crocker II Director March 17, 2000
- ------------------------
(Douglas Crocker II)
/s/ Richard S. Frary Director March 17, 2000
- ------------------------
(Richard S. Frary)
-36-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO. IN
FORM 10-K
---------
Report of Independent Auditors............................................F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998..............F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.....................................F-4
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended December 31, 1999, 1998 and 1997.....................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.....................................F-6
Notes to Consolidated Financial Statements................................F-7
Wellsford/Whitehall Group, L.L.C.
Consolidated Financial Statements and Notes ........................F-35
FINANCIAL STATEMENT SCHEDULES
III - Real Estate and Accumulated Depreciation............................S-1
IV - Mortgage Loans on Real Estate........................................S-3
All other schedules have been omitted because the required information for such
other schedules is not present, is not present in amounts sufficient to require
submission of the schedule or because the required information is included in
the consolidated financial statements.
F-1
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Wellsford Real Properties, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Wellsford Real
Properties, Inc. and subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedules listed in the Index at Item 14(a)(2). These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wellsford Real
Properties, Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 17, 2000
F-2
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
1999 1998
---- ----
ASSETS
Real estate assets, at cost:
Land ................................................... $ 18,813,000 $ 18,813,000
Buildings and improvements ............................. 116,605,231 115,425,760
------------- -------------
135,418,231 134,238,760
Less, accumulated depreciation ......................... (6,584,328) (2,707,390)
------------- -------------
128,833,903 131,531,370
Construction in progress ............................... 30,747,867 18,791,075
------------- -------------
159,581,770 150,322,445
Notes receivable .......................................... 37,259,587 124,706,499
Investment in joint ventures .............................. 114,390,298 80,776,338
------------- -------------
Total real estate assets .................................. 311,231,655 355,805,282
Cash and cash equivalents ................................. 34,739,866 10,122,037
Restricted cash ........................................... 8,467,092 8,007,850
Prepaid and other assets .................................. 11,892,713 11,035,489
------------- -------------
Total assets .............................................. $ 366,331,326 $ 384,970,658
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ................................. $ 119,314,929 $ 120,176,790
Credit facility ........................................ -- 17,000,000
Accrued expenses and other liabilities ................. 13,891,212 12,788,324
------------- -------------
Total liabilities ......................................... 133,206,141 149,965,114
------------- -------------
Commitments and contingencies
Minority interest ......................................... 3,433,972 3,380,721
Shareholders' equity:
Series A 8% convertible redeemable preferred stock,
$.01 par value per share, 2,000,000 shares authorized,
no shares issued and outstanding ..................... -- --
Common stock, 197,650,000 shares authorized-
18,882,493 and 20,410,605 shares, $.01 par value per
share, issued and outstanding ........................ 188,825 204,106
Class A common stock , 350,000 shares authorized -
339,806 shares, $.01 par value per share,
issued and outstanding ............................... 3,398 3,398
Paid in capital in excess of par value ................. 215,674,726 228,212,205
Retained earnings ...................................... 20,246,075 11,385,274
Deferred compensation .................................. (1,861,677) (3,240,023)
Treasury stock, 416,759 and 489,671 shares ............. (4,560,134) (4,940,137)
------------- -------------
Total shareholders' equity ................................ 229,691,213 231,624,823
------------- -------------
Total liabilities and shareholders' equity ................ $ 366,331,326 $ 384,970,658
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
REVENUE
Rental income ....................... $ 17,874,272 $ 13,126,974 $ 1,291,354
Interest income ..................... 12,295,771 12,888,607 7,779,021
------------ ------------ ------------
Total revenue .................... 30,170,043 26,015,581 9,070,375
------------ ------------ ------------
EXPENSES
Property operating and maintenance .. 4,027,842 2,786,839 241,257
Real estate taxes ................... 1,545,822 1,201,051 105,692
Depreciation and amortization ....... 6,154,549 3,157,129 294,563
Property management ................. 673,726 498,596 18,356
Interest ............................ 9,398,630 4,599,309 --
General and administrative .......... 7,125,876 5,062,895 3,159,558
------------ ------------ ------------
Total expenses ................... 28,926,445 17,305,819 3,819,426
Gain on sale of investment ............. -- 138,770 --
Income from joint ventures ............. 9,621,952 3,523,072 15,135
------------ ------------ ------------
Income before minority interest ........ 10,865,550 12,371,604 5,266,084
Minority interest ...................... (54,749) (77,550) --
------------ ------------ ------------
Income before taxes .................... 10,810,801 12,294,054 5,266,084
Income tax expense ..................... 1,950,000 2,850,298 2,213,007
------------ ------------ ------------
Net income ............................. $ 8,860,801 $ 9,443,756 $ 3,053,077
============ ============ ============
Net income per common share, basic ..... $ 0.43 $ 0.47 $ 0.18
============ ============ ============
Net income per common share, diluted ... $ 0.43 $ 0.46 $ 0.18
============ ============ ============
Weighted average number of common shares
outstanding, basic ................ 20,642,023 19,886,305 16,922,135
============ ============ ============
Weighted average number of common shares
outstanding, diluted .............. 20,657,488 20,379,162 17,348,298
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
COMMON SHARES*
-------------- PAID-IN
SHARES AMOUNT CAPITAL**
------ ------ ---------
BALANCE, JANUARY 1, 1997 .................... -- $ -- $ 29,248,000
Equity contributions prior to Spin-off ...... -- -- 19,310,633
Net income prior to Spin-off ................ -- -- --
Spin-off .................................... 4,887,577 48,875 1,819,684
Private offering of common shares (net of
issuance costs) ......................... 12,000,000 120,000 121,574,562
Issuance of warrants ........................ -- -- 6,198,345
Director and officer share grant ............ 108,936 1,090 1,570,603
Net income subsequent to Spin-off ........... -- -- --
---------- ------------- -------------
BALANCE, DECEMBER 31, 1997 .................. 16,996,513 169,965 179,721,827
Shares issued in connection with VLP Merger . 3,350,000 33,500 39,329,000
Issuance of warrants ........................ -- -- 750,000
Director and officer share grants ........... 403,898 4,039 3,471,241
Amortization of deferred compensation ....... -- -- --
Net income .................................. -- -- --
---------- ------------- -------------
BALANCE, DECEMBER 31, 1998 .................. 20,750,411 207,504 223,272,068
Director and officer share grants ........... 34,612 346 334,987
Shares repurchased from former officer and
cancellation of share grants ............ (86,231) (862) (853,810)
Amortization of deferred compensation ....... -- -- --
Issuance of warrants ........................ -- -- 480,992
Shares repurchased and cancelled ............ (1,476,493) (14,765) (12,119,645)
Net income .................................. -- -- --
---------- ------------- -------------
BALANCE, DECEMBER 31, 1999 .................. 19,222,299 $ 192,223 $ 211,114,592
========== ============= =============
TOTAL
RETAINED DEFERRED SHAREHOLDERS'
EARNINGS COMPENSATION EQUITY
-------- ------------ ------
BALANCE, JANUARY 1, 1997 .................... $ 757,000 $ -- $ 30,005,000
Equity contributions prior to Spin-off ...... -- -- 19,310,633
Net income prior to Spin-off ................ 1,111,559 -- 1,111,559
Spin-off .................................... (1,868,559) -- --
Private offering of common shares (net of
issuance costs) ......................... -- -- 121,694,562
Issuance of warrants ........................ -- -- 6,198,345
Director and officer share grant ............ -- (675,014) 896,679
Net income subsequent to Spin-off ........... 1,941,518 -- 1,941,518
------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 .................. 1,941,518 (675,014) 181,158,296
Shares issued in connection with VLP Merger . -- -- 39,362,500
Issuance of warrants ........................ -- -- 750,000
Director and officer share grants ........... -- (2,700,023) 775,257
Amortization of deferred compensation ....... -- 135,014 135,014
Net income .................................. 9,443,756 -- 9,443,756
------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 .................. 11,385,274 (3,240,023) 231,624,823
Director and officer share grants ........... -- (250,000) 85,333
Shares repurchased from former officer and
cancellation of share grants ............ -- 780,003 (74,669)
Amortization of deferred compensation ....... -- 848,343 848,343
Issuance of warrants ........................ -- -- 480,992
Shares repurchased and cancelled ............ -- -- (12,134,410)
Net income .................................. 8,860,801 -- 8,860,801
------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 .................. $ 20,246,075 $ (1,861,677) $ 229,691,213
============= ============= =============
<FN>
*Includes 339,806 Class A Common Shares.
**Net of treasury stock.
</FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 8,860,801 $ 9,443,756 $ 3,053,077
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 5,936,944 3,033,569 294,563
Amortization of deferred compensation ............ 848,343 135,014 --
Undistributed joint venture income ............... (674,788) (3,515,359) (15,135)
Undistributed minority interest .................. 54,749 77,550 --
Share grants ..................................... 85,333 775,257 896,679
Gain on sale of investments ...................... -- (138,770) --
Changes in assets and liabilities:
Restricted cash ............................... (459,242) (311,940) (2,175,910)
Prepaid and other assets ...................... (498,434) (6,525,355) (3,164,296)
Accrued expenses and other liabilities ........ (297,112) 4,031,091 7,116,138
------------- ------------- -------------
Net cash provided by operating activities ........ 13,856,594 7,004,813 6,005,116
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets ...................... (18,974,593) (125,514,325) (85,551,813)
Investments in joint ventures:
Capital contributions ............................. (16,967,948) (33,511,554) (13,955,069)
Returns of capital ................................ 6,091,481 -- --
Investments in notes receivable ........................ (49,295,088) (67,230,199) (162,845,982)
Repayments of notes receivable ......................... 112,741,492 55,008,523 105,440,515
Proceeds from sale of real estate assets ............... 7,238,329 64,132,507 --
------------- ------------- -------------
Net cash provided by (used in) investing activities 40,833,673 (107,115,048) (156,912,349)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities ........................ 37,000,000 86,500,000 64,400,000
Repayment of credit facilities ......................... (54,000,000) (77,000,000) (56,900,000)
Proceeds from bridge loan .............................. -- -- 6,000,000
Repayment of bridge loan ............................... -- -- (6,000,000)
Proceeds from mortgage notes payable ................... -- 71,400,000 34,500,000
Repayment of mortgage notes payable .................... (861,861) (478,210) --
Equity contributions prior to Spin-off ................. -- -- 17,060,633
Equity contributions from minority interest ............ -- -- 47,250
Distributions to minority interest ..................... (1,498) (84,730) --
Proceeds from common shares ............................ -- -- 121,694,562
Repurchase of common shares ............................ (12,209,079) -- --
------------- ------------- -------------
Net cash (used in) provided by financing activities (30,072,438) 80,337,060 180,802,445
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ...... 24,617,829 (19,773,175) 29,895,212
Cash and cash equivalents, beginning of year .............. 10,122,037 29,895,212 --
------------- ------------- -------------
Cash and cash equivalents, end of year .................... $ 34,739,866 $ 10,122,037 $ 29,895,212
============= ============= =============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest ................. $ 10,410,110 $ 5,017,279 $ 1,506,508
============= ============= =============
Cash paid during the year for income taxes ............. $ 4,229,164 $ 2,228,336 $ 2,242,000
============= ============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Shares issued in connection with acquisition of
commercial office properties and notes receivable . $ -- $ (39,362,500) $ (2,250,000)
Warrants issued in connection with joint venture
investments ....................................... $ (480,992) $ (750,000) $ (6,198,345)
Notes receivable contributed for joint venture interest. $ (24,218,113) $ -- $ --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Wellsford Real Properties, Inc. (and subsidiaries, collectively the
"Company") was formed on January 8, 1997, as a corporate subsidiary of
Wellsford Residential Property Trust (the "Trust"). The Trust was
formed in 1992 as the successor to Wellsford Group Inc. (and
affiliates) which was formed in 1986. On May 30, 1997, the Trust merged
(the "Merger") with Equity Residential Properties Trust ("EQR").
Immediately prior to the Merger, the Trust contributed certain of its
assets to the Company and the Company assumed certain liabilities of
the Trust. Immediately after the contribution of assets to the Company
and immediately prior to the Merger, the Trust distributed to its
common shareholders all the outstanding shares of the Company owned by
the Trust (the "Spin-off"). On June 2, 1997, the Company sold
12,000,000 shares of its common stock in a private placement (the
"Private Placement") to a group of institutional investors at $10.30
per share, the Company's then book value per share.
The Company is a real estate merchant banking firm headquartered in New
York City which acquires, develops, finances and operates real
properties and organizes and invests in private and public real estate
companies. The Company has established three strategic business units
("SBUs") within which it executes its business plan: (i) commercial
property operations which are held in the Company's subsidiary,
Wellsford Commercial Properties Trust, through its ownership interest
in Wellsford/Whitehall Group, L.L.C. ("Wellsford/Whitehall"); (ii) debt
and other equity activities; and (iii) property development and land
operations.
See Note 10 for additional information regarding the Company's industry
segments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION. The
accompanying consolidated financial statements include the accounts of
Wellsford Real Properties, Inc. and its majority-owned and controlled
subsidiaries. Investments in entities where the Company does not have a
controlling interest, including Wellsford/Whitehall, are accounted for
under the equity method of accounting. These investments are initially
recorded at cost and are subsequently adjusted for the Company's
proportionate share of the investment's income (loss), additional
contributions or distributions. All significant inter-company accounts
and transactions among Wellsford Real Properties, Inc. and its
subsidiaries have been eliminated in consolidation.
The accompanying consolidated financial statements include the assets
and liabilities contributed to and assumed by the Company from the
Trust, from the time such assets and liabilities were acquired or
incurred, respectively, by the Trust. Such financial statements have
been prepared using the historical basis of the assets and liabilities
and the historical results of operations related to the Company's
assets and liabilities.
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 at the date of purchase to be
cash and cash equivalents.
REAL ESTATE AND DEPRECIATION AND AMORTIZATION. Costs directly related
to the acquisition, development and improvement of real estate are
capitalized, including interest and other costs incurred during the
construction period. Ordinary repairs and maintenance are expensed as
incurred.
F-7
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Tenant improvements and leasing commissions related to commercial
properties are capitalized and amortized over the terms of the related
leases. Costs incurred to acquire investments in joint ventures are
capitalized and if ascribed to tangible assets are amortized over the
life of the related assets and if ascribed to intangible assets are
amortized over a ten-year period. Depreciation is computed over the
expected useful lives of depreciable property on a straight-line basis,
principally 27.5 years for residential buildings and improvements, 40
years for commercial properties and five to twelve years for
furnishings and equipment.
Depreciation and amortization expense was approximately $6,155,000,
$3,157,000 and $295,000 in 1999, 1998 and 1997, respectively, and
included $1,510,000, $390,000 and $295,000 of amortization of certain
assets capitalized to the Company's Investment in Joint Ventures in
1999, 1998 and 1997, respectively.
The Company reviews its real estate assets and investments in joint
ventures (collectively its "long-lived assets") for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. During the year ended December 31,
1999, the Company determined that one of its long-lived assets was
impaired due to lower than expected operating results and accordingly
wrote the asset down by approximately $912,000 to its estimated fair
value by recording additional depreciation and amortization expense in
the accompanying consolidated financial statements. Fair value was
based on estimated future cash flows to be generated by the long-lived
asset, discounted at a market rate. There were no such impairment
provisions recorded during the years ended December 31, 1998 or 1997.
MORTGAGE NOTE RECEIVABLE IMPAIRMENT. The Company considers a note
impaired if, based on current information and events, it is probable
that all amounts due under the note agreement are not collectable.
Impairment is measured based upon the fair value of the underlying
collateral. No impairment has been recorded during the years ended
December 31, 1999, 1998 and 1997.
INCOME RECOGNITION. Commercial properties are leased under operating
leases. Rental revenue is recognized on a straight-line basis over the
terms of the respective leases. Residential communities are leased
under operating leases with terms of generally six to 14 months. Rental
revenue is recognized monthly as it is earned. Interest income is
recorded on an accrual basis over the life of the loan. Sales of real
estate assets are recognized at closing, subject to receipt of down
payments and other requirements in accordance with applicable
accounting guidelines.
SHARE BASED COMPENSATION. Statement of Financial Accounting Standard
("SFAS") 123 "Accounting for Stock-Based Compensation" establishes a
fair value based method of accounting for share based compensation
plans, including share options. However, registrants may elect to
continue accounting for share option plans under Accounting Principles
Board Opinion ("APB") 25, but are required to provide pro forma net
income and earnings per share information "as if" the new fair value
approach had been adopted. Because the Company has elected to continue
to account for its share based compensation plans under APB 25, there
has been no impact on the Company's consolidated financial statements
resulting from SFAS 123.
Shares issued pursuant to the Company's deferred compensation plan are
recorded at the market price on the date of issuance and amortized over
the respective vesting periods. Such amortization does not impact the
Company's results of operations.
F-8
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES. The Company accounts for income taxes under SFAS 109
"Accounting for Income Taxes." Deferred income tax assets and
liabilities are determined based upon differences between financial
reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The components of the income tax provision are as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
Current federal tax ........ $ 700,000 $ 2,756,165 $ 1,776,595
Current state and local tax 930,000 909,197 456,838
Deferred federal tax ....... 240,000 (693,965) (16,239)
Deferred state and local tax 80,000 (121,099) (4,187)
----------- ----------- -----------
$ 1,950,000 $ 2,850,298 $ 2,213,007
=========== =========== ===========
The reconciliation of income tax computed at the U.S. federal
statutory rate to income tax expense is as follows:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997
---------------------- --------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
Tax at U.S. statutory rate .......... $ 3,785,000 35.00% $ 4,302,919 35.00% $ 1,454,084 35.00%
State taxes, net of federal benefit . 660,000 6.11% 944,153 7.68% 374,711 9.02%
Change in valuation allowance ....... (2,425,000) (22.43%) (2,345,007) (19.07%) 381,490 9.18%
Non-deductible/non-taxable items, net (70,000) (0.64%) 12,355 0.10% 2,722 0.07%
Effect of change in state tax rate .. -- -- (64,122) (0.53%) -- --
----------- ----- ----------- ----- ----------- -----
$ 1,950,000 18.04% $ 2,850,298 23.18% $ 2,213,007 53.27%
=========== ===== =========== ===== =========== =====
The Company has net operating loss ("NOL") carryforwards, for Federal
income tax purposes, resulting from the Company's merger with Value
Property Trust ("VLP") in 1998. The NOLs aggregate $70,374,315 at
December 31, 1999, expire in the years 2005 through 2012 and are
subject to an annual and aggregate limit on utilization of NOLs after
an ownership change, pursuant to Section 382 of the Internal Revenue
Code.
F-9
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows:
DECEMBER 31,
------------
Deferred Tax Assets 1999 1998
------------------- ---- ----
Net operating loss ....................................... $ 23,927,267 $ 32,674,669
Deferred compensation arrangements ....................... 2,779,540 2,496,027
AMT credit carryforward .................................. 549,799 377,612
Deferred interest deduction .............................. 378,779 --
Other .................................................... 628,077 407,844
------------ ------------
28,263,462 35,956,152
Valuation allowance ...................................... (18,984,217) (28,132,547)
------------ ------------
Total deferred tax assets ................................ 9,279,245 7,823,605
------------ ------------
Deferred Tax Liabilities
------------------------
Acquisition of Value Property Trust ...................... (1,992,584) (2,236,945)
Wellsford/Whitehall net income in excess of taxable income (2,411,104) (595,506)
Other .................................................... (410,112) (149,066)
------------ ------------
Total deferred tax liabilities ........................... (4,813,800) (2,981,517)
------------ ------------
Net deferred tax asset ................................... $ 4,465,445 $ 4,842,088
============ ============
SFAS 109 requires a valuation allowance to reduce the deferred tax
assets if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. Accordingly, management has determined that a $18,984,517 and
$28,132,547 valuation allowance at December 31, 1999 and 1998,
respectively, is necessary to reduce the deferred tax assets to the
amount that will more likely than not be realized. The valuation
allowance relates to the NOL carryforwards and the deferred
compensation arrangements. The $9,148,030 reduction in the valuation
allowance in 1999 is primarily due to the utilization of the available
NOL carryforwards for Federal income tax purposes and the determination
by the Company during 1999 that the NOL carryforwards acquired as part
of the VLP merger, for the most part, are not available at the state
and local tax level. There was a corresponding reduction in the
computation of the gross deferred tax asset as is indicated above.
PER SHARE DATA. Basic earnings per common share are computed based upon
the weighted average number of common shares outstanding during the
period, including Class A common shares. Diluted earnings per common
share are based upon the increased number of common shares that would
be outstanding assuming the exercise of dilutive common share options
and warrants.
F-10
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table details the computation of earnings per share,
basic and diluted:
(amounts in thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
Numerator for net income per common share, basic and diluted $ 8,861 $ 9,444 $ 3,053
======= ======= =======
Denominator:
Denominator for net income per common share, basic--
Weighted average common shares ..................... 20,642 19,886 16,922
Effect of dilutive securities:
Employee stock options ............................. 15 196 169
Warrants ........................................... -- 297 257
------- ------- -------
Denominator for net income per common share, diluted--
Weighted average common shares ..................... 20,657 20,379 17,348
======= ======= =======
Net income per common share, basic ......................... $ 0.43 $ 0.47 $ 0.18
======= ======= =======
Net income per common share, diluted ....................... $ 0.43 $ 0.46 $ 0.18
======= ======= =======
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.
RECLASSIFICATION. Amounts in certain accounts have been reclassified
to conform to the current year presentation.
3. RESTRICTED CASH
Restricted cash primarily consists of deferred compensation arrangement
deposits and debt service and construction reserve balances. At
December 31, 1999 and 1998, deferred compensation arrangement deposits
amounted to approximately $6,335,000 and $5,965,000, respectively, and
reserve balances amounted to approximately $2,132,000 and $2,043,000,
respectively. Deferred compensation arrangement deposits are made
solely by, and at the discretion of, the Company's officers who
participate in the plan.
F-11
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. NOTES RECEIVABLE
At December 31, 1999 and 1998, notes receivable consisted of the
following:
BALANCE AT DECEMBER 31,
STATED -----------------------
NOTES RECEIVABLE (A) INTEREST RATE MATURITY DATE PAYMENT TERMS 1999 1998
-------------------- ------------- ------------- ------------- ---- ----
277 Park Loan ........... 12.00% May 2007 Interest only $ 25,000,000 $ 25,000,000
Patriot Loan ............ LIBOR + 4.75% July 2002 Interest only 5,000,000 --
Abbey Credit Facility ... LIBOR + 4.00% September 2000 Interest only 4,251,486 46,019,350
Safeguard Credit Facility LIBOR + 4.00% April 2001 (B) Interest only 2,900,000 5,912,500
DeBartolo Loan .......... 8.54% July 2008 (B) 20 year amort. -- 17,677,943
Woodlands Loan .......... LIBOR + 4.40% July 2000 (C) Interest only -- 15,000,000
REIT Bridge Loan ........ 12.00% August 1999 (D) Interest only -- 15,000,000
Other ................... Various Various Various 108,101 96,706
------------ ------------
$ 37,259,587 $124,706,499
============ ============
- ----------
<FN>
(A) For additional information regarding notes receivable, see Footnote
10, "Segment Information, Debt and Equity Investments."
(B) In March 1999, these notes were contributed to the Company's joint
venture investment, Belford Capital Holdings, L.L.C. ("Belford
Capital").
(C) Repaid in December 1999.
(D) In January 1999, the interest rate and maturity date of this loan were
modified to 12.00% from 9.88% and August 1999 from February 1999,
respectively. This loan was repaid in July 1999.
</FN>
5. DEBT
At December 31, 1999 and 1998, the Company's debt consisted of the
following:
BALANCE AT DECEMBER 31,
-----------------------
DEBT MATURITY DATE STATED INTEREST RATE 1999 1998
---- ------------- -------------------- ---- ----
WRP Bank Facility .............. May 2000 LIBOR + 1.75% (A) $ -- $ 17,000,000
Wellsford Finance Bank Facility January 2002 LIBOR + 2.75% (A) -- --
Palomino Park Bonds (B) ........ December 2035 Variable (C) 14,755,000 14,755,000
Blue Ridge Mortgage ............ January 2008 6.92% (D) 33,762,791 34,144,108
Red Canyon Mortgage ............ December 2008 6.68% (D) 26,683,184 27,000,000
Wellsford Capital Mortgage (E) . October 2001 LIBOR + 2.75% (A) 28,000,000 28,000,000
Sonterra Mortgage .............. March 2008 6.87% (D) 16,113,953 16,277,682
------------ ------------
$119,314,928 $137,176,790
============ ============
- ----------
<FN>
(A) Applicable LIBOR rates approximated 6.30% and 4.94% at December 31,
1999 and 1998, respectively.
(B) Mortgage secures tax-exempt bonds.
(C) Rate approximates the Standard & Poor's / J.J. Kenney index for
short-term high grade tax-exempt bonds (average rate for 1999 was
approximately 3.4%).
(D) Principal payments are made based on a 30-year amortization schedule.
(E) Secured by the seven properties acquired in the VLP Merger.
</FN>
In December 1995, the Trust marketed and sold $14,755,000 of tax-exempt
bonds to fund construction at Palomino Park. At December 31, 1999,
$647,000 of the bond proceeds were being held in escrow pending their
use for the funding of development or other bond-related costs. The
bonds are secured by a letter of credit from a bank. An affiliate of
EQR has made its own credit available to the bank in the form of a
guaranty. The Company incurs annual fees of approximately $214,000 for
these enhancements.
F-12
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DEBT (CONTINUED)
In May 1997, the Company obtained a $50,000,000 two-year line of credit
(extendable for one year) from Fleet National Bank and Morgan Guaranty
Trust Company of New York (the "WRP Bank Facility"). The WRP Bank
Facility is secured by a capital contribution commitment and a
$25,000,000 note receivable. In May 1999, the Company modified the WRP
Bank Facility to extend the maturity date to May 2000. The modified WRP
Bank Facility bears interest at LIBOR + 1.75% and the Company is
obligated to pay a fee equal to three-eighths of one percent (0.375%)
per annum on the average daily amount of the unused portion of the WRP
Bank Facility until maturity. Prior to the modification, the Company
was obligated to pay a fee equal to one-quarter of one percent (0.25%)
per annum on the average daily amount of the unused portion of the WRP
Bank Facility. The Company does not expect to borrow funds under this
facility prior to its expiration.
In January 1999, a wholly-owned subsidiary of the Company obtained a
$35,000,000 loan facility (the "Wellsford Finance Facility") from Fleet
National Bank, which can potentially be increased to $50,000,000 to
finance note receivable investments under its debt program. The
Wellsford Finance Facility bears interest at LIBOR + 2.75% and has a
term of three years. The Company is obligated to pay a fee equal to
one-quarter of one percent (0.25%) per annum on the average daily
amount of the unused portion of the Wellsford Finance Facility until
maturity. The facility contains various loan covenants including
covenants which are restrictive under existing competitive market
conditions. Accordingly, the facility terms require modification for
the Company to fully utilize the facility. As of December 31, 1999,
there was no outstanding balance under the Wellsford Finance Facility.
The Company's long-term debt maturities for the next five years and
thereafter are as follows:
FOR THE YEARS ENDED DECEMBER 31, AMOUNT
-------------------------------- ------
2000............................. $ 894,256
2001............................. 28,960,676
2002............................. 1,028,540
2003............................. 1,101,199
2004............................. 1,175,895
Thereafter....................... 86,154,362
The Company capitalizes interest related to buildings under
construction and renovation to the extent such assets qualify for
capitalization. Total interest capitalized during the years ended
December 31, 1999, 1998 and 1997 was approximately $1,071,000, $803,000
and $1,158,000, respectively.
6. TRANSACTIONS WITH AFFILIATES
The Company earned approximately $517,000, $36,000 and $2,137,000 in
interest income and $600,000, $300,000 and $100,000 in management fees
during the years ended December 31, 1999, 1998 and 1997, respectively,
from Wellsford/Whitehall. Approximately $463,000 and $300,000 was due
to the Company from Wellsford/Whitehall for interest and management
fees at December 31, 1999 and 1998, respectively.
In September 1999, the Company purchased a commercial liability
insurance policy for all of the Company's assets, through an affiliate
of one of its joint venture partners in Wellsford/Whitehall. The total
expense related to this policy was approximately $45,000 in 1999.
F-13
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
TRANSACTIONS WITH AFFILIATES (CONTINUED)
The seven VLP properties are managed by an affiliate of one of the
Company's joint venture partners in Wellsford/Whitehall. Management
fees incurred during the years ended December 31, 1999 and 1998, were
approximately $140,000 and $115,000, respectively. Simultaneous with
the VLP merger transaction in February 1998, the Company sold 13 of the
20 VLP properties to another affiliate of one of its joint venture
partners in Wellsford/Whitehall for an aggregate of approximately
$64,000,000.
As part of the terms of the Merger, two of the Company's executive
officers are on the board of directors of EQR. In addition, the
president of EQR is a member of the Company's board of directors. EQR
has a 20% interest in the Company's residential project in Denver,
Colorado.
During 1999, the Company, through one of its joint venture investments,
has agreed to invest up to $6,500,000 in a real estate market research
internet company, Reis Reports, Inc. ("Reis"), a provider of real
estate market information to institutional investors. The primary
shareholder of Reis is the brother of the Company's chairman, who
recused himself from the Reis investment decisions.
7. SHAREHOLDERS' EQUITY
The Company has issued shares to executive officers through annual
bonus and deferred compensation awards, as well as certain shares
issued at the date of the Merger, pursuant to the Company's
non-qualified deferred compensation plan. At December 31, 1999, an
aggregate of 416,759 shares, which had an aggregate market value of
approximately $4,560,000 at the respective dates of issuance, have
been classified as Treasury Stock in the Company's consolidated
financial statements. Such shares are held in a Rabbi Trust and are
accounted for pursuant to existing accounting literature. The bonus
awards vest immediately and the deferred compensation awards vest over
various periods ranging from two to five years as long as the officer
is still employed by the Company; any unvested shares at termination
are purchased at $0.01 per share. A summary of activity for the three
years ended December 31, 1999 follows:
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997
----------------------- ------------------ -------------------
NUMBER VALUE AT NUMBER VALUE AT NUMBER VALUE AT
OF DATE OF OF DATE OF OF DATE OF
SHARES ISSUANCE SHARES ISSUANCE SHARES ISSUANCE
------ -------- ------ -------- ------ --------
Shares issued pursuant to plan,
January 1 ................... 489,671 92,126 11,172
Shares issued as bonus awards ... -- 93,317 $ 8.875 38,096 $ 15.75
Shares issued as deferred
compensation awards ......... 25,882 $ 10.00/$8.50 304,228 $ 8.875 42,858 $ 15.75
Shares re-acquired at termination
of employment ............... (79,034) $ 8.875/$15.75 -- --
Shares released at termination of
employment .................. (19,760) $ 8.875/$15.75 -- --
------- ------- ------
Balance at December 31 .......... 416,759 489,671 92,126
======= ======= ======
Shares vested at December 31 .... 235,749 151,159 49,268
======= ======= ======
During the years ended December 31, 1999, 1998 and 1997, the Company
recorded costs of approximately $848,000, $963,000 and $600,000,
respectively, pursuant to the issuances under the deferred compensation
arrangements. Such amounts are included in General and Administrative
expenses in the Company's consolidated financial statements.
F-14
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SHAREHOLDERS' EQUITY (CONTINUED)
In July 1999, the Company purchased 7,197 common shares at the current
market price of $10.375 per share from an officer who resigned.
The Company implemented two separate programs to repurchase an
aggregate of 2,000,000 outstanding shares of its common stock during
1999. One program allows the Company to repurchase common shares on
the open market, while the odd-lot share program offered identified
eligible shareholders owning fewer than 100 shares the opportunity to
sell all of their shares back to the Company. These programs resulted
in 1,476,493 shares being repurchased and cancelled by December 31,
1999, at an average purchase price of $8.18 per common share.
The Company issued an aggregate of 8,730 and 6,353 common shares during
1999 and 1998, as part of the non-cash compensation arrangements to the
non-employee members of the Company's Board of Directors, which were
valued at an aggregate of approximately $85,000 and $81,000,
respectively.
In February 1998, the Company issued 3,350,000 shares of its common
stock in connection with the VLP Merger.
The Company has issued a total of 4,404,197 warrants, including 123,967
issued during 1999, to purchase shares of common stock to certain joint
venture partners through December 31, 1999, including 4,256,197 to one
of its joint venture partners in Wellsford/Whitehall and 148,000 to its
partners in the Creamer Vitale Wellsford joint venture. Such warrants
are exercisable over a five-year period.
The Company has the option to put to an affiliate of EQR, until May 30,
2000, up to $25,000,000 of the Company's Series A 8% Convertible
Redeemable Preferred Stock ("Series A Preferred"), each share of which
is convertible into shares of common stock at a price of $11.124 (the
"EQR Preferred Commitment"). If at May 30, 2000, the affiliate of EQR
has purchased less than $25,000,000 of Series A Preferred, it has the
option to call the remainder of the $25,000,000 not purchased prior to
that time. The Company expects EQR to purchase the full amount of the
Series A Preferred.
Approximately $13,145,000, $3,523,000 and $15,000 of the Company's
retained earnings at December 31, 1999, 1998 and 1997, respectively,
relate to the Company's joint venture investments.
The Company did not declare or distribute any dividends during 1999,
1998 or 1997.
On February 25, 2000, the Company repurchased 2,573,632 shares of its
outstanding Common Stock from an institutional investor for
approximately $20,589,000, or $8.00 per common share.
8. SHARE OPTION PLANS
The Company has adopted certain incentive plans for the purpose of
attracting and retaining the Company's directors, officers and
employees. The Company has established share option and management
incentive plans (the "Incentive Plans") which reserved 5,076,235 common
shares for issuance under the Incentive Plans. Options granted under
the Incentive Plans expire ten years from the date of grant, vest over
periods ranging generally from six months to five years, and generally
contain the right to receive reload options under certain conditions.
F-15
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SHARE OPTION PLANS (CONTINUED)
The following table presents the changes in options outstanding by
year, as well as other plan data:
1999 1998 1997
----------------------- ------------------------ -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
Outstanding at January 1 .......... 3,558,610 $ 12.79 2,947,610 $ 12.20 -- $ --
Replacement options from Trust .... -- -- -- -- 1,326,235 10.30
Granted ........................... 412,250 8.66 636,000 15.58 1,622,375 13.89
Exercised ......................... -- -- -- -- --
Forfeited ......................... (381,500) 15.04 (25,000) 13.65 (1,000) 10.30
Expired ........................... -- -- -- -- -- --
----------- ---------- ----------
Outstanding at December 31 ........ 3,589,360 12.08 3,558,610 12.79 2,947,610 12.20
=========== ========== ==========
Options exercisable at December 31 1,345,649 12.11 572,117 12.36 115,545 10.30
=========== ========== ==========
Weighted average fair value of
options granted (per option) . $ 5.14 $ 5.63 $ 7.31
=========== ========== ==========
Weighted average remaining
contractual life at December 31 7.9 years 7.7 years 7.6 years
Pursuant to SFAS 123, described in Note 2, the pro forma net income
available to common shareholders as if the fair value approach to
accounting for share-based compensation had been applied (as well as
the assumptions to calculate fair value using the Black-Scholes option
pricing model) is as follows:
(amounts in thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
Net income - as reported ............ $ 8,861 $ 9,444 $ 3,053
Expense ............................. 2,112 2,024 601
------------ ----------- ------------
Net income - pro forma .............. $ 6,749 $ 7,420 $ 2,452
============ =========== ============
Net income per common share, basic:
As reported ..................... $ 0.43 $ 0.47 $ 0.18
============ =========== ============
Pro forma ....................... $ 0.33 $ 0.37 $ 0.14
============ =========== ============
Net income per common share, diluted:
As reported ..................... $ 0.43 $ 0.46 $ 0.18
============ =========== ============
Pro forma ....................... $ 0.33 $ 0.36 $ 0.14
============ =========== ============
Assumptions:
Expected volatility ranges....... 36% to 37% 26% to 38% 20% to 29%
Expected life.................... 10 years 10 years 10 years
Risk-free interest rate ranges... 4.68% to 6.08% 4.89% to 5.79% 5.84% to 6.27%
Expected dividend yield.......... -- -- --
F-16
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SHARE OPTION PLANS (CONTINUED)
The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option pricing
models require the input of highly subjective assumptions including the
expected share price volatility. Because the Company's employee share
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee share options.
9. COMMITMENTS AND CONTINGENCIES
The Company has entered into employment agreements with five of its
officers. Such agreements are for terms which expire between 2000 and
2002, and provide for aggregate minimum annual fixed payments of
approximately $1,061,000, $818,000 and $601,000 in 2000, 2001 and 2002,
respectively.
As a commercial real estate owner, the Company and its principal joint
venture are subject to potential environmental costs. At December 31,
1999, management of the Company is not aware of any environmental
concerns that would have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
From time-to-time, legal actions are brought against the Company in the
ordinary course of business. In the opinion of management, such matters
will not have a material effect on the Company's financial condition,
results of operations or cash flows.
In 1997 the Company adopted a defined contribution savings plan
pursuant to Section 401 of the Internal Revenue Code. Under such a plan
there are no prior service costs. All employees are eligible to
participate in the plan after one year of service. Employer
contributions are made based on a discretionary amount determined by
the Company's management. Employer contributions, if any, are based
upon the amount contributed by an employee. During the years ended
December 31, 1999 and 1998, the Company made contributions of
approximately $43,000 and $12,000, respectively.
The Company is a tenant under operating leases for its New York and
Denver offices. Rent expense was approximately $812,000, $233,000 and
$112,000 for the years ended December 31, 1999, 1998 and 1997. Future
minimum lease payments under operating leases at December 31, 1999 are
as follows:
FOR THE YEARS ENDED DECEMBER 31, AMOUNT
-------------------------------- ------
2000............................. $ 763,881
2001............................. 753,081
2002............................. 753,081
2003............................. 753,081
2004............................. 815,262
Thereafter....................... 3,125,171
F-17
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and its joint venture partner, WHWEL Real Estate Limited
Partnership ("Whitehall"), an affiliate of The Goldman Sachs Group
Inc., each have made limited guarantees for certain debt obligations on
behalf of Wellsford/Whitehall. The Company and Whitehall each have
guaranteed joint and severally up to a 50% share of the principal
amount of $24,500,000 and 50% share of interest on the $375,000,000
term and mezzanine loans in the event of certain defaults or
non-compliance by Wellsford/Whitehall.
At December 31, 1999, the Company had the following discretionary
capital commitments. Draws under the Abbey Credit Facility and
Safeguard Credit Facility require additional collateral to be made
available to the Company which is subject to the Company's approval.
Capital calls related to investments to be made by the Company's joint
ventures are also subject to the Company's approval of such
investments. The Company may make additional equity investments subject
to board approval if deemed prudent to do so to protect or enhance its
existing investment. At December 31, 1999, discretionary capital
commitments are as follows:
COMMITMENT AMOUNT
----------- ------
Abbey Credit Facility............. $ 8,980,000
Safeguard Credit Facility......... 17,100,000
Wellsford/Whitehall equity........ 12,231,000
Creamer Vitale Wellsford equity... 13,608,000
Reis ............................. 1,500,000
F-18
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. SEGMENT INFORMATION
The Company's operations are organized into three SBUs. The following
table presents condensed balance sheet and operating data for these
SBUs for 1999, 1998 and 1997:
(amounts in thousands)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
DECEMBER 31, 1999
- -----------------
Real estate, net ................ $ -- $ 38,103 $ 121,479 $ -- $ 159,582
Notes receivable ................ -- 37,260 -- -- 37,260
Investment in joint ventures .... 79,688 34,702 -- -- 114,390
Cash and cash equivalents ....... 67 28,694 172 5,807 34,740
Restricted cash and other assets -- 8,142 1,881 10,336 20,359
--------- --------- --------- --------- ---------
Total assets .................... $ 79,755 $ 146,901 $ 123,532 $ 16,143 $ 366,331
========= ========= ========= ========= =========
Mortgage notes payable .......... $ -- $ 28,000 $ 91,315 $ -- $ 119,315
Credit facilities ............... -- -- -- -- --
Accrued expenses and other
liabilities ................. -- 1,908 1,396 10,587 13,891
Minority interest ............... 46 -- 3,388 -- 3,434
Equity .......................... 79,709 116,993 27,433 5,556 229,691
--------- --------- --------- --------- ---------
Total liabilities and equity .... $ 79,755 $ 146,901 $ 123,532 $ 16,143 $ 366,331
========= ========= ========= ========= =========
YEAR ENDED DECEMBER 31, 1999
- ----------------------------
Rental income ................... $ -- $ 5,545 $ 12,329 $ -- $ 17,874
Interest income ................. -- 11,707 -- 589 12,296
--------- --------- --------- --------- ---------
Total income .................... -- 17,252 12,329 589 30,170
--------- --------- --------- --------- ---------
Operating expenses .............. -- 2,561 3,686 -- 6,247
Depreciation and amortization ... 337 2,509 2,999 309 6,154
Interest ........................ -- 4,346 4,827 226 9,399
General and administrative ...... -- 1,131 -- 5,995 7,126
--------- --------- --------- --------- ---------
337 10,547 11,512 6,530 28,926
--------- --------- --------- --------- ---------
Gain on sale of investments ..... -- -- -- -- --
Income from joint ventures ...... 7,183 2,439 -- -- 9,622
Minority interest ............... -- (1) (54) -- (55)
--------- --------- --------- --------- ---------
Income (loss) before taxes ...... $ 6,846 $ 9,143 $ 763 $ (5,941) $ 10,811
========= ========= ========= ========= =========
- ----------
<FN>
*Includes corporate cash, other assets, accrued expenses and other
liabilities, general and administrative expenses, interest income and
interest expense that has not been allocated to the operating segments.
</FN>
F-19
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
(amounts in thousands)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
DECEMBER 31, 1998
- -----------------
Real estate, net ................ $ -- $ 37,666 $ 112,657 $ -- $ 150,323
Notes receivable ................ -- 124,707 -- -- 124,707
Investment in joint ventures .... 69,529 11,248 -- -- 80,777
Cash and cash equivalents ....... 49 2,333 153 7,588 10,123
Other assets .................... -- 8,078 2,257 8,706 19,041
--------- --------- --------- --------- ---------
Total assets .................... $ 69,578 $ 184,032 $ 115,067 $ 16,294 $ 384,971
========= ========= ========= ========= =========
Mortgage notes payable .......... $ -- $ 28,000 $ 92,177 $ -- $ 120,177
Credit facilities ............... -- -- -- 17,000 17,000
Accrued expenses and
other liabilities ........... -- 2,660 2,451 7,677 12,788
Minority interest ............... 47 -- 3,334 -- 3,381
Equity .......................... 69,531 153,372 17,105 (8,383) 231,625
--------- --------- --------- --------- ---------
Total liabilities and equity .... $ 69,578 $ 184,032 $ 115,067 $ 16,294 $ 384,971
========= ========= ========= ========= =========
YEAR ENDED DECEMBER 31, 1998
- ----------------------------
Rental income ................... $ -- $ 4,761 $ 8,366 $ -- $ 13,127
Interest income ................. -- 12,130 401 357 12,888
--------- --------- --------- --------- ---------
Total income .................... -- 16,891 8,767 357 26,015
--------- --------- --------- --------- ---------
Operating expenses .............. -- 2,087 2,399 -- 4,486
Depreciation and amortization ... 175 842 2,040 100 3,157
Interest ........................ -- 472 3,272 855 4,599
General and administrative ...... -- 397 -- 4,666 5,063
--------- --------- --------- --------- ---------
Total expenses .................. 175 3,798 7,711 5,621 17,305
--------- --------- --------- --------- ---------
Gain on sale of investments ..... -- 139 -- -- 139
Income from joint venture ....... 2,812 711 -- -- 3,523
Minority interest ............... -- (50) (28) -- (78)
--------- --------- --------- --------- ---------
Income (loss) before taxes ...... $ 2,637 $ 13,893 $ 1,028 $ (5,264) $ 12,294
========= ========= ========= ========= =========
- ----------
<FN>
*See footnote * on page F-19.
</FN>
F-20
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
(amounts in thousands)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
DECEMBER 31, 1997
- -----------------
Real estate, net ................ $ -- $ -- $ 58,741 $ -- $ 58,741
Notes receivable ................ -- 87,832 17,800 -- 105,632
Investment in joint venture ..... 44,780 -- -- -- 44,780
Cash and cash equivalents ....... -- -- -- 29,896 29,896
Other assets .................... -- 1,313 3,040 6,572 10,925
--------- --------- --------- --------- ---------
Total assets .................... $ 44,780 $ 89,145 $ 79,581 $ 36,468 $ 249,974
========= ========= ========= ========= =========
Mortgage notes payable .......... $ -- $ -- $ 49,255 $ -- $ 49,255
Credit facilities ............... -- -- 7,500 -- 7,500
Accrued expenses and other
liabilities ................. -- -- 1,838 7,925 9,763
Minority interest ............... -- -- 2,297 -- 2,297
Equity .......................... 44,780 89,145 18,691 28,543 181,159
--------- --------- --------- --------- ---------
Total liabilities and equity .... $ 44,780 $ 89,145 $ 79,581 $ 36,468 $ 249,974
========= ========= ========= ========= =========
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
Rental income ................... $ 1,291 $ -- $ -- $ -- $ 1,291
Interest income ................. -- 5,002 1,602 1,175 7,779
--------- --------- --------- --------- ---------
Total income .................... 1,291 5,002 1,602 1,175 9,070
--------- --------- --------- --------- ---------
Operating expenses .............. 365 -- -- -- 365
Depreciation and amortization ... 188 -- -- 106 294
Interest ........................ -- -- -- -- --
General and administrative ...... -- -- -- 3,160 3,160
--------- --------- --------- --------- ---------
Total expenses .................. 553 -- -- 3,266 3,819
--------- --------- --------- --------- ---------
Income from joint venture ....... 15 -- -- -- 15
--------- --------- --------- --------- ---------
Income (loss) before taxes ...... $ 753 $ 5,002 $ 1,602 $ (2,091) $ 5,266
========= ========= ========= ========= =========
- ----------
<FN>
*See footnote * on page F-19.
</FN>
F-21
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
COMMERCIAL PROPERTY OPERATIONS - WELLSFORD/WHITEHALL
----------------------------------------------------
The Company's commercial property operations segment consists of
Wellsford/Whitehall, which is accounted for on the equity method.
At the time of the Spin-off, the Company owned six commercial office
buildings, five of which were then vacant, containing an aggregate of
approximately 949,400 square feet which were acquired for an aggregate
of approximately $47,600,000 (the "WRP Commercial Properties").
In August 1997, the Company, in a joint venture with Whitehall, formed
a private real estate operating company, Wellsford/Whitehall. The
Company contributed the WRP Commercial Properties and Whitehall
contributed four commercial properties upon formation of
Wellsford/Whitehall. The Company manages Wellsford/Whitehall on a
day-to-day basis, and certain major decisions require the consent of
both primary partners. The Company had a 41.4% interest in
Wellsford/Whitehall at December 31, 1999.
The following table presents a condensed balance sheet and operating
data for the Wellsford/Whitehall segment:
(amounts in thousands)
CONDENSED BALANCE SHEET DATA DECEMBER 31,
---------------------------- ------------
1999 1998
---- ----
Real estate, net................... $ 551,152 $ 493,207
========= =========
Total assets....................... $ 572,279 $ 511,381
========= =========
Mortgage notes payable............. $ 110,831 $ 68,043
========= =========
Credit facility.................... $ 238,661 $ 276,197
========= =========
Equity............................. $ 200,740 $ 151,866
========= =========
Total liabilities and equity....... $ 572,279 $ 511,381
========= =========
CONDENSED OPERATING DATA FOR THE YEARS ENDED DECEMBER 31,
------------------------ --------------------------------
1999 1998 1997*
---- ---- -----
Rental income.................... $ 74,148 $ 53,460 $ 8,540
========= ========= ========
Operating expenses............... $ 27,431 $ 20,279 $ 3,494
========= ========= ========
Depreciation and amortization.... $ 11,702 $ 7,387 $ 1,220
========= ========= ========
Interest......................... $ 25,586 $ 19,085 $ 2,949
========= ========= ========
Total expenses................... $ 72,862 $ 50,050 $ 8,498
========= ========= ========
Gain on sale of investments...... $ 15,642 $ 2,866 $ --
========= ========= ========
Income before distributions...... $ 17,457 $ 6,439 $ 30
========= ========= ========
- ----------
<FN>
*From inception.
</FN>
As of December 31, 1999, Wellsford/Whitehall owned and operated 41
office properties totaling approximately 4,920,000 square feet,
including approximately 1,451,000 square feet under renovation,
primarily located in New Jersey, Massachusetts and Maryland.
F-22
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
During the years ended December 31, 1999, 1998 and 1997,
Wellsford/Whitehall participated in the following transactions:
(amounts in millions, except square feet and per square foot amounts)
1999 ACTIVITY:
Purchases:
Gross
Leasable
Square Number of Cost per
Month Type Location Feet Properties Cost (1) Square Foot
----- ---- -------- ---- ---------- -------- -----------
May ......... Office/Flex Warren, NJ 129,000 1 $ 8.0 $ 62
June ........ Office Boston, MA 64,000 1 10.2 159
June ........ Office Boston, MA 68,000 1 13.1 193
July ........ Office/Land Columbia, MD 97,000 1 10.7 110
July ........ Office Owings Mills, MD 32,000 1 3.9 122
August ...... Land Hanover, NJ 19.2 acres 1 2.0 --
August ...... Office Hanover, NJ 96,000 1 13.3 139
September ... Flex Columbia, MD 144,000 1 3.8 26
November .... Office Rockville, MD 236,000 1 19.9 84
------- - -------
Total purchases 866,000 9 $ 84.9 --
======= = =======
Total, excluding land 866,000 8 $ 82.9 96
======= = =======
Sales:
Sales Price
Gross Leasable per
Square Number of Square
Month Location Feet Properties Sales Price Foot Gain
----- -------- ---- ---------- ----------- ---- ----
February .... Wayne, NJ 2.58 acres (2) 1 $ 0.3 $-- $ 0.2
May ......... Boston, MA 65,000 1 8.1 125 2.3
August ...... Needham, MA 261,000 1 26.0 100 5.6
November .... Washington, D.C. 225,000 1 43.4 193 7.5
------- - ------- -------
Total sales 551,000 4 $ 77.8 -- $ 15.6
======= = ======= =======
Total, excluding land 551,000 3 $ 77.5 141 $ 15.4
======= = ======= =======
- ----------
<FN>
(1) The 1999 Wellsford/Whitehall acquisitions described above were funded
with proceeds from first mortgage financing on five of the properties
and seller financing in the form of a second mortgage on one of the
properties of $43,401,000 and additional capital contributions by the
Company and Whitehall.
(2) Sale of vacant land.
</FN>
F-23
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
1998 ACTIVITY:
Purchases:
Gross
Leasable Cost per
Square Number of Square
Month Type Location Feet Properties Cost (1) Foot
----- ---- -------- ---- ---------- -------- ----
February .... Office Boston, MA 65,000 1 $ 5.5 $ 85
February .... Land Somerset, NJ 19 acres 1 2.0 --
March ....... Office Somerset, NJ 82,000 1 5.4 66
May ......... Office Boston, MA 977,000 13 148.7 (2) 152
May ......... Warehouse Needham, MA 470,000 2 28.4 60
June ........ Office Andover, MA 63,000 1 7.4 117
June ........ Office Basking Ridge, NJ 104,000 2 15.0 144
September ... Office Franklin Township, NJ 199,000 2 22.8 115
November .... Office Columbia, MD 38,000 1 2.6 68
December .... Office Ridgefield Park, NJ 147,000 1 19.3 131
--------- -- --------
Total purchases 2,145,000 25 $ 257.1 --
========= == ========
Total, excluding land 2,145,000 24 $ 255.1 119
========= == ========
Sale:
Sales Price
Gross Leasable per
Square Number of Square
Month Location Feet Properties Sales Price Foot Gain
----- -------- ---- ---------- ----------- ---- ----
May ......... Wayne, NJ 69,000 1 $ 5.0 $ 72 $ 2.9
- ----------
<FN>
(1) The 1998 Wellsford/Whitehall acquisitions described above, other than
the May Boston transaction, were funded primarily by capital
contributions from the Company and Whitehall, and by draws on the
Wellsford/Whitehall Bank Facility.
(2) The Boston portfolio of 13 office buildings was financed with (i) the
assumption of $68,300,000 of mortgage debt, (ii) a $35,800,000 draw on
the Wellsford/Whitehall Bank Facility, (iii) the issuance of $19,000,000
of Wellsford/Whitehall 6% convertible preferred units to the sellers,
(iv) $18,000,000 of capital contributions by Whitehall and the Company
and (v) the issuance of $7,600,000 of Wellsford/Whitehall common units.
</FN>
1997 ACTIVITY:
Purchases (1):
Gross
Leasable Cost per
Square Number of Square
Month Type Location Feet Properties Cost (2) Foot
----- ---- -------- ---- ---------- -------- ----
September Office Somerset, NJ 181,000 1 $ 18.1 $ 100
December Office Berkeley Hts, NJ 297,000 2 29.1 98
December Industrial Parsippany, NJ 244,000 1 7.1 29
------- - ---------
Total purchases 722,000 4 $ 54.3 75
======= = =========
- ----------
<FN>
(1) Exclusive of properties contributed by the Company and Whitehall upon
formation of the joint venture.
(2) The Wellsford/Whitehall transactions described above were funded
primarily by capital contributions from the Company and Whitehall, the
assumption of $48,000,000 in mortgage debt which encumbered certain of
the properties contributed by Whitehall and the proceeds of a term
loan agreement (the "Wellsford/Whitehall Bridge Loan") by the Company
to Wellsford/Whitehall.
</FN>
F-24
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
In July 1998, Wellsford/Whitehall modified the Wellsford/Whitehall Bank
Facility. Under the new terms, $300,000,000 represents a senior secured
credit facility bearing interest at LIBOR + 1.65% and $75,000,000
represents a secured mezzanine facility bearing interest at LIBOR +
3.20%. Both facilities mature on December 15, 2000 and are extendable
for one year by Wellsford/Whitehall. As of December 31, 1999 and 1998,
approximately $238,700,000 and $276,200,000, respectively, was
outstanding under the Wellsford/Whitehall Bank Facility (approximately
$177,300,000 and $207,300,000, respectively, of which was under the
senior facility). At December 31, 1999, Wellsford/Whitehall expects to
borrow an additional $8,000,000 for tenant improvements and leasing
commissions through March 31, 2000, when the ability to draw on this
facility expires under the current terms of the Wellsford/Whitehall
Bank Facility. The Wellsford/Whitehall Bank Facility contains certain
financial covenants including limitations on distributions to members.
The Company is entitled to receive incentive compensation payable out
of distributions made by Wellsford/Whitehall (the "Promote") after
return of capital and minimum annual returns of at least 15% to 17.5%
on such capital balances to the Company and Whitehall (as defined in
the Wellsford/Whitehall Operating Agreement (the "Operating
Agreement")). Pursuant to the Operating Agreement, the Company is
required to distribute to officers and employees of Wellsford/Whitehall
and the Company, 50% or, in some cases, 55% of the Promote it receives.
To date, the Company has not earned or received any distribution of the
Promote and there can be no assurance that such Promote will be earned.
In June 1999, the capital commitment requirements of
Wellsford/Whitehall were modified from an aggregate of $150,000,000
($75,000,000 by each partner) to an aggregate of $250,000,000. The
Company's total portion is $85,000,000 of which $72,769,000 was
contributed as of December 31, 1999 and Whitehall's total portion is
$165,000,000 of which $101,604,000 was contributed as of December 31,
1999.
In connection with the formation of Wellsford/Whitehall, the Company
issued warrants (the "Whitehall Warrants") to Whitehall to purchase
4,132,230 shares of the Company's common stock at an exercise price of
$12.10 per share. The Whitehall Warrants are exercisable until August
28, 2002. The exercise price for the Whitehall Warrants is payable in
cash or membership units in Wellsford/Whitehall. As part of the new
capital commitment from Whitehall in 1999, the Company issued to
Whitehall additional warrants to purchase an additional 123,967 shares
of the Company's common stock exercisable at $12.10 per share, payable
in cash or in exchange for membership units of Wellsford/Whitehall,
held by Whitehall based upon Wellsford/Whitehall's value as defined.
These additional warrants are exercisable for five years and expire on
May 28, 2004. Whitehall may exchange an additional $25,000,000 of the
membership units it owns in Wellsford/Whitehall for shares of the
Company's common stock or cash at the Company's sole discretion, based
upon the price paid for such membership units and the current market
value of the Company's common stock. As of December 31, 1999, no units
have been converted.
The Company has agreed with Whitehall to conduct its business and
activities relating to office properties (but not other types of
commercial properties) located in North America solely through its
interest in Wellsford/Whitehall except, in certain circumstances, where
Wellsford/Whitehall has declined the investment opportunity.
F-25
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
DEBT AND EQUITY ACTIVITIES--WELLSFORD CAPITAL
---------------------------------------------
At December 31, 1999, the Company had approximately $65,000,000 of
debt related investments, including approximately $37,300,000 of
direct debt investments which bore interest at an average yield of
approximately 11.31% and had an average remaining term to maturity of
approximately 4.8 years and $27,700,000 in a company which was
organized to invest in debt instruments. The Company also had venture
capital investments of approximately $7,000,000 in a real estate
related e-commerce company and other real estate-related ventures. In
addition, the Company owned and operated seven commercial properties
totaling approximately 597,000 square feet primarily located in the
Northeastern United States and California.
277 PARK
In April 1997, the Company and Fleet National Bank originated an
$80,000,000 loan (the "277 Park Loan") to entities which own
substantially all of the equity interests (the "Equity Interests") in
the entity which owns a 1,750,000 square foot office building located
in New York City (the "277 Park Property"). The Company has advanced
$25,000,000 pursuant to the 277 Park Loan. The 277 Park Loan is secured
primarily by a pledge of the Equity Interests owned by the borrowers.
The 277 Park Loan is subordinated to a 10-year $345,000,000 (amortized
balance of $332,580,000 at December 31, 1999) first mortgage loan (the
"REMIC Loan") on the 277 Park Property. The 277 Park Loan bears
interest at the rate of 12.00% per annum for the first nine years of
its term and at a floating annual rate during the tenth year equal to
LIBOR + 5.15% or the Fleet National Bank base rate plus 5.15%, as
elected by the borrowers. The principal amount of the 277 Park Loan and
all accrued interest will be payable in May 2007; the REMIC Loan is
also due in May 2007. The Company earned approximately $3,042,000,
$3,042,000 and $2,000,000 per year in interest income, or 10.1%, 11.7%
and 22.1% of its total non-joint venture revenues from the 277 Park
Loan during 1999, 1998 and 1997, respectively.
PATRIOT
In September 1999, the Company and Fleet National Bank originated a
$10,000,000 second mortgage. The Company has advanced $50,000,000 (its
50% share) pursuant to the second mortgage. The second mortgage is
subordinate to a $75,000,000 first mortgage with Fleet National Bank.
The loan bears interest at LIBOR + 4.75% with payments of interest only
through August 2001 and principal and interest based on a 25-year
amortization through the loan's maturity in July 2002 (the "Patriot
Loan"). The Patriot Loan is secured by a fee interest in a 608,000
square foot mixed-use property in Boston, Massachusetts.
THE ABBEY COMPANY
In August 1997, the Company and Morgan Guaranty Trust Company of New
York ("MGT") originated a $70,000,000 credit facility secured by first
mortgages (the "Abbey Credit Facility") to affiliates of The Abbey
Company, Inc. ("Abbey"). In May 1998, the Company and MGT expanded the
Abbey Credit Facility to $120,000,000. In December 1998, Abbey repaid
$20,000,000, thereby reducing the total available balance to
$100,000,000. In September 1999, an additional $83,500,000 was repaid,
thereby reducing the total available balance to $16,500,000. The Abbey
Credit Facility will be made available to Abbey until September 2000.
Advances under the facility can be made for up to 65% of the value of
the borrowing base collateral which consisted of first mortgage loans
on three properties (one each of office, industrial and retail), all
cross-collateralized, totaling approximately 250,000 square feet at
December 31, 1999.
F-26
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
The Company's portion of the outstanding balance is approximately
$4,300,000 and $46,000,000 at December 31, 1999 and 1998, respectively.
Under the terms of its participation agreement with MGT, the Company
will fund a 50% junior participation on all advances under the Abbey
Credit Facility. The Company is entitled to receive interest on its
advances under the Abbey Credit Facility at LIBOR + 4.00%. The Company
earned approximately $2,941,000, $3,920,000 and $827,000, or 9.8%,
15.1% and 9.1% of its total non-joint venture revenues from the Abbey
Credit Facility during 1999, 1998 and 1997, respectively.
SAFEGUARD
In December 1998, the Company and MGT originated a $90,000,000 credit
facility secured by first mortgages (the "Safeguard Credit Facility")
to Safeguard Capital Fund, L.P. ("Safeguard"). The Safeguard Credit
Facility will be made available to Safeguard until April 2001. Advances
under the facility can be made for up to 75% of the value of the
borrowing base collateral which consists of nine self-storage
properties, all cross-collateralized, totaling approximately 608,000
square feet at December 31, 1999. Under the terms of its participation
agreement with MGT, the Company will fund a 50% junior participation on
all advances under the Safeguard Credit Facility. The Company is
entitled to receive interest on its advances under the Safeguard Credit
Facility at LIBOR + 4.00%.
Approximately $5,900,000 had been advanced by the Company under the
Safeguard Credit Facility at December 31, 1998, with additional
advances made of approximately $2,200,000 through March 1999, at which
time the loan with a balance of $8,100,000 was contributed to the
Company's joint venture investment, Belford Capital. This venture also
assumed the first $25,000,000 of the Company's commitment to fund
additional advances under the Safeguard Credit Facility (including
amounts advanced through December 31, 1999). The Company retained the
remaining $20,000,000 commitment, of which $2,900,000 was advanced to
Safeguard in September 1999 and was outstanding at December 31, 1999.
DEBARTOLO
In July 1998, the Company, Bank One, N.A. and several other financial
institutions originated a $175,000,000 loan, in which the Company had
an $18,000,000 participation (the "DeBartolo Loan"), to entities owned
by Simon DeBartolo Group, L.P. The DeBartolo Loan is secured by
partnership units in Simon DeBartolo Group, L.P., the operating
partnership of a real estate investment trust which owns mall space
nationwide. The DeBartolo Loan bears interest at 8.547%, is payable
quarterly, pays principal based on a 20-year amortization schedule and
is due in July 2008. In March 1999, the amortized loan balance of
approximately $17,600,000 was contributed to Belford Capital.
F-27
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
WOODLANDS
In December 1997, the Company, Fleet National Bank, Morgan Stanley
Senior Funding, Inc. and certain other lenders made available to the
owners and developers of a 25,000 acre master-planned residential
community located north of Houston (the "Woodlands Property"), loans in
the aggregate principal amount of $369,000,000 (the "Woodlands Loan").
The Woodlands Loan consisted of a revolving credit loan in the
principal amount of $179,000,000 (the "Revolving Loan"), a secured term
loan in the principal amount of $130,000,000 (the "Secured Loan"), and
a second secured term loan in the principal amount of $60,000,000 (the
"Second Secured Loan"). The Company advanced $15,000,000 pursuant to
the Second Secured Loan. The Second Secured Loan was subordinate to the
Revolving Loan and the Secured Loan and bore interest equal to LIBOR +
4.40%. The principal amount of the Woodlands Loan was repaid in full
prior to December 31, 1999. The Company earned approximately $1,295,000
and $1,517,000, or 4.3% and 5.8% of its total non-joint venture
revenues from the Woodlands Loan during 1999 and 1998, respectively.
REIT BRIDGE LOAN
In August 1998, the Company, Deutsche Bank, N.A. and certain other
lenders originated a $100,000,000 unsecured loan in which the Company
had a $15,000,000 participation (the "REIT Bridge Loan") to a publicly
traded real estate investment trust which owns 22 regional malls, eight
multifamily apartment properties and five office properties nationwide.
This loan bore interest at 9.875% and was due in February 1999, with
two three-month extensions available to the borrower. In January 1999,
the REIT Bridge Loan was modified to extend the maturity date to August
1999 and increase the interest rate to 12.00%. The borrower paid a
1.50% loan fee at origination and a 1.00% loan fee upon modification.
This loan was repaid in full in July 1999.
BROOMFIELD
In January 1999, the Company acquired a parcel of land in Broomfield,
Colorado for approximately $7,200,000 pursuant to an outstanding
standby commitment issued in 1998. In connection with this transaction,
the Company collected approximately $400,000 of fees in 1998. In July
1999, the Company sold this land for $7,200,000 to a third party
("Buyer") and simultaneously collected an additional $1,100,000 in
fees. The Company then purchased $11,740,000 of tax-exempt notes,
bearing interest at 6.25% and due in December 1999. These notes were
issued by a quasi-governmental agency partially controlled by the Buyer
and were guaranteed by a AA rated bank. The notes were repaid in full
in December 1999. The Company earned approximately $1,555,000 and
$401,000, or 5.2% and 1.5% of its total non-joint venture revenues, on
the Broomfield transaction during 1999 and 1998, respectively.
F-28
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
BELFORD CAPITAL
The Company contributed approximately $24,200,000 and $4,900,000 in
1999 and 1998, respectively, to a 51% owned joint venture special
purpose finance company ("SPFC"), Belford Capital, with The Liberty
Hampshire Company, L.L.C. ("Liberty Hampshire") owning 10% and another
entity owning the remaining 39%. The 1999 contribution was comprised of
two of the Company's debt investments, the $17,600,000 DeBartolo Loan
and the $8,100,000 outstanding balance of the Safeguard Credit
Facility, net of $1,500,000 of cash received back from Belford Capital.
The other partners contributed their respective shares of their capital
contributions in cash. Belford Capital also assumed the first
$25,000,000 of the Company's commitment to fund the Safeguard Credit
Facility (including amounts advanced to date).
LIBERTY HAMPSHIRE
In July and August 1998, the Company invested a total of approximately
$2,100,000 for a 4.20% interest in Liberty Hampshire, which structures,
establishes and provides management and services for SPFCs formed to
invest in financial assets.
REIS REPORTS, INC.
Belford Capital has invested $6,500,000 in Reis at December 31, 1999.
The Company's share of this investment was approximately $3,321,000 at
December 31, 1999.
The following table presents a condensed balance sheet and operating
data for Belford Capital (1998 amounts are unaudited):
(amounts in thousands)
DECEMBER 31,
------------
CONDENSED OPERATING DATA 1999 1998
------------------------ ---- ----
Investments...................... $ 40,143 $ 3,924
============ ===========
Investment in Reis............... $ 6,500 $ 5,000
============ ===========
Total assets..................... $ 60,870 $ 9,951
============ ===========
Total equity..................... $ 60,639 $ 9,928
============ ===========
Total liabilities and equity..... $ 60,870 $ 9,951
============ ===========
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
CONDENSED OPERATING DATA 1999 1998*
------------------------ ---- -----
Interest.................. $ 3,243 $ 126
Interest from Reis........ 506 205
----------- ----------
Total revenue............. 3,749 331
Total expenses............ 812 1
----------- ----------
Net income................ $ 2,937 $ 330
=========== ==========
- ----------
<FN>
*From inception of investment.
</FN>
F-29
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
CREAMER VITALE WELLSFORD/CLAIRBORNE INVESTORS
In January 1998, the Company formed Creamer Vitale Wellsford, L.L.C.
("Creamer Vitale Wellsford") in which it has a 49% interest and
acquired the same interest in a related real estate advisory and
consulting firm.
Creamer Vitale Wellsford, together with Prudential Real Estate
Investors ("PREI"), an affiliate of Prudential Life Insurance Company,
have established the Clairborne Investors Mortgage Investment Program
("Clairborne") to make opportunistic investments and to provide
liquidity to lenders and participants in mortgage loan transactions.
The parties have agreed to contribute up to $150,000,000 to fund
acquisitions approved by the parties, of which PREI will fund 90% and a
subsidiary of the Company will fund 10%. Creamer Vitale Wellsford will
originate, co-invest, and manage the investments of the program.
The Company's original investment in these entities was $1,250,000 of
cash and 148,000 five-year warrants to purchase the Company's common
shares at $15.175 per share, valued at approximately $750,000 at that
time. In November 1998, Clairborne acquired an approximate $17,000,000
participation in a $56,000,000 mortgage, bearing interest at LIBOR +
1.75% and due in 3.5 years, at a significant discount to face value.
The Company funded approximately $1,400,000 of the cost of this
participation, which was prepaid entirely at the face amount during
1999 by the borrower.
VALUE PROPERTY TRUST
In February 1998, the Company completed the merger with VLP (the "VLP
Merger") for total consideration of approximately $169,000,000, which
was accounted for as a purchase. Thirteen of the twenty VLP properties,
which were under contract to an affiliate of Whitehall, were
subsequently sold for an aggregate of approximately $64,000,000. The
Company retained seven of the VLP properties with an allocated value
upon purchase of approximately $38,300,000 containing an aggregate of
approximately 597,000 square feet located primarily in the northeastern
United States and California. VLP had cash of $60,800,000 and net other
assets of $5,900,000 at the close of the transaction.
Contractual future minimum lease payments from tenants of the VLP
properties with operating leases for the next five years and thereafter
are as follows:
FOR THE YEARS ENDED DECEMBER 31, AMOUNT
-------------------------------- ------
2000..................................... $ 4,306,000
2001..................................... 3,733,000
2002..................................... 2,422,000
2003..................................... 1,552,000
2004..................................... 979,000
Thereafter............................... 1,156,000
F-30
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
PROPERTY DEVELOPMENT AND LAND OPERATIONS--WELLSFORD DEVELOPMENT
---------------------------------------------------------------
PALOMINO PARK
The Company owns an approximate 80% interest in Phases I, II, III, IV
and V of a 1,800-unit class A multifamily development ("Palomino Park")
in a suburb of Denver, Colorado. EQR owns the remaining 20% interest.
The Company has a related $14,755,000 tax exempt mortgage note payable
which requires interest only payments at a variable rate (average rate
for 1999 was approximately 3.4%) until it matures in December 2035 (the
"Palomino Park Bonds"). The tax exempt mortgage note payable is
security for tax-exempt bonds, which are backed by a letter of credit
from a AA rated financial institution. The Company and an affiliate of
EQR have guaranteed the reimbursement of the financial institution in
the event that the letter of credit is drawn upon (the latter guarantee
being the "EQR Enhancement").
In December 1997, Phase I, known as Blue Ridge, was completed at a cost
of approximately $41,500,000. At that time, the Company obtained a
$34,500,000 permanent loan (the "Blue Ridge Mortgage") secured by a
first mortgage on Blue Ridge. The Blue Ridge Mortgage matures in
January 2008 and bears interest at a fixed rate of 6.92%. Principal
payments are based on a 30-year amortization schedule.
In November 1998, Phase II, known as Red Canyon, was completed at a
cost of approximately $33,900,000. At that time, the Company acquired
the Red Canyon improvements and the related construction loan was
repaid with the proceeds of a $27,000,000 permanent loan (the "Red
Canyon Mortgage") secured by a first mortgage on Red Canyon. The Red
Canyon Mortgage matures in December 2008 and bears interest at a fixed
rate of 6.68%. Principal payments are based on a 30-year amortization
schedule.
The estimated total costs of the remaining three multifamily
development phases at Palomino Park and related infrastructure costs at
completion of these phases, including the Company's gross investment,
which is included in construction in progress on the Company's
consolidated financial statements, of approximately $30,748,000 at
December 31, 1999, are as follows:
ESTIMATED ESTIMATED
NAME UNITS TOTAL COST COMPLETION DATE
---- ----- ---------- ---------------
Phase III ("Silver Mesa") . 264 $ 40,000,000 July 2000
Phase IV ("Green River") .. 424 55,000,000 Fourth Quarter 2001
Phase V ("Gold Peak") ..... 352 42,000,000 Fourth Quarter 2002
----- --------------
1,040 $ 137,000,000
===== ==============
The third and fourth phases of this project are being developed
pursuant to fixed-price contracts. The Company is committed to purchase
100% of the improvements upon completion and the achievement of certain
occupancy levels of these phases. In addition, the Company is obligated
to fund the first 20% of development costs on these phases as they are
incurred.
F-31
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
In May 1997, the Company acquired the land for Silver Mesa for
approximately $2,100,000. In May 1998, the Company acquired the land
for Green River for approximately $3,200,000. In May 1999, the Company
acquired the land for Gold Peak for approximately $2,600,000.
Construction in progress related to these three phases, including the
cost of land, was approximately $30,748,000 at December 31, 1999.
SONTERRA
From the time of the Spin-off, the Company held a $17,800,000 mortgage
on, and option to purchase, a 344-unit class A residential apartment
complex ("Sonterra at Williams Centre") located in Tucson, Arizona.
In January 1998, the Company exercised its option and acquired Sonterra
at Williams Centre for approximately $20,500,000, including
satisfaction of the mortgage. In February 1998, the Company closed on
$16,400,000 of first mortgage financing (the "Sonterra Mortgage") on
this property, bearing interest at 6.87% and maturing in March 2008.
Principal payments are based on a 30-year amortization schedule.
F-32
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the historical cost and fair value of the
Company's financial instruments at December 31, 1999 and 1998:
(amounts in thousands)
HISTORICAL COST AT DECEMBER 31, FAIR VALUE AT DECEMBER 31,
------------------------------- --------------------------
NOTES RECEIVABLE (A) 1999 1998 1999 1998
- -------------------- ---- ---- ---- ----
Fixed rate:
277 Park Loan .......... $ 25,000 $ 25,000 $ 25,508 (C) $ 27,580 (C)
REIT Bridge Loan ....... -- 15,000 -- 15,000 (G)
DeBartolo Loan ......... -- 17,678 -- 16,916 (C)
-------- -------- -------- --------
Total fixed rate notes .... 25,000 57,678 25,508 59,496
-------- -------- -------- --------
Floating rate:
Patriot Loan ........... 5,000 -- 5,000 (D) --
Abbey Credit Facility .. 4,251 46,019 4,251 (D) 46,019 (D)
Safeguard Loan ......... 2,900 5,913 2,900 (D) 5,913 (D)
Woodlands Loan ......... -- 15,000 -- 15,000 (D)
Other .................. 109 96 109 (D) 96 (D)
-------- -------- -------- --------
Total floating rate notes . 12,260 67,028 12,260 67,028
-------- -------- -------- --------
Total notes receivable .... $ 37,260 $124,706 $ 37,768 $126,524
======== ======== ======== ========
DEBT (B)
--------
WRP Bank Facility ......... $ -- $ 17,000 $ -- $ 17,000 (E)
Wellsford Finance Bank
Facility ............. -- -- -- --
Wellsford Capital Mortgage 28,000 28,000 28,000 (E) 28,000 (E)
Palomino Park Bonds ....... 14,755 14,755 14,755 (E) 14,755 (E)
-------- -------- -------- --------
Total floating rate debt .. 42,755 59,755 42,755 59,755
-------- -------- -------- --------
Blue Ridge Mortgage ....... 33,763 34,144 34,813 (F) 34,144 (H)
Red Canyon Mortgage ....... 26,683 27,000 28,063 (F) 27,000 (I)
Sonterra Mortgage ......... 16,114 16,278 16,615 (F) 16,278 (H)
-------- -------- -------- --------
Total fixed rate debt ..... 76,560 77,422 79,491 77,422
-------- -------- -------- --------
Total debt ................ $119,315 $137,177 $122,246 $137,177
======== ======== ======== ========
- ----------
[FN]
(A) For more information, see Footnote 4.
(B) For more information, see Footnote 5.
(C) The fair value of the Company's fixed rate investment was determined
by reference to various market data.
(D) The fair value of the Company's floating rate investments is
considered to be their carrying amount.
(E) The fair value of the Company's floating rate debt is considered to be
its carrying amount.
(F) The fair value of the Company's fixed rate debt was determined by
reference to various market data.
(G) The fair value of this short-term investment is considered to be its
carrying amount.
(H) The fair value of this mortgage is considered to be its carrying
amount since it is similar in both terms and collateral to the Red
Canyon Mortgage, which reflects current market conditions (see (I)
below).
(I) The fair value of this mortgage is considered to be its carrying
amount as it is a recently executed transaction reflective of current
market conditions.
</FN>
F-33
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
Summarized consolidated quarterly financial information for the years
ended December 31, 1999 and 1998 is as follows:
1999 FOR THE THREE MONTHS ENDED
---- -------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenue ............................. $ 7,951,667 $ 8,580,213 $ 6,873,537 $ 6,764,625
Expenses ............................ 5,489,340 7,303,956 7,102,567 9,030,581
Income from joint ventures .......... 1,016,794 1,905,519 3,160,343 3,539,296
Minority interest ................... (7,872) (9,566) (43,405) 6,094
------------ ------------ ------------ ------------
Income before taxes ................. 3,471,249 3,172,210 2,887,908 1,279,434
Income tax expense (credit) ......... 863,000 731,000 702,000 (346,000)
------------ ------------ ------------ ------------
Net income .......................... $ 2,608,249 $ 2,441,210 $ 2,185,908 $ 1,625,434
============ ============ ============ ============
Net income per common share, basic* $ 0.13 $ 0.12 $ 0.11 $ 0.08
============ ============ ============ ============
Net income per common share, diluted* $ 0.13 $ 0.12 $ 0.11 $ 0.08
============ ============ ============ ============
Weighted average number of common
shares outstanding, basic ....... 20,750,411 20,763,378 20,697,390 20,367,236
============ ============ ============ ============
Weighted average number of common
shares outstanding, diluted ..... 20,773,391 20,797,955 20,723,010 20,375,850
============ ============ ============ ============
1998 FOR THE THREE MONTHS ENDED
---- -------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenue ............................. $ 5,959,302 $ 6,090,863 $ 6,444,143 $ 7,521,273
Expenses ............................ 3,481,015 4,144,236 4,783,648 4,896,920
Income from joint ventures .......... 265,866 2,268,076 333,679 655,451
Gain on sale of investment .......... -- -- -- 138,770
Minority interest ................... (18,864) (16,436) (6,434) (35,816)
------------ ------------ ------------ ------------
Income before taxes ................. 2,725,289 4,198,267 1,987,740 3,382,758
Income tax expense (credit).......... 1,248,000 1,984,000 (1,029,000) 647,298
------------ ------------ ------------ ------------
Net income .......................... $ 1,477,289 $ 2,214,267 $ 3,016,740 $ 2,735,460
============ ============ ============ ============
Net income per common share, basic* $ 0.08 $ 0.11 $ 0.15 $ 0.13
============ ============ ============ ============
Net income per common share, diluted* $ 0.08 $ 0.10 $ 0.15 $ 0.13
============ ============ ============ ============
Weighted average number of common
shares outstanding, basic ....... 18,376,910 20,349,688 20,349,688 20,441,157
============ ============ ============ ============
Weighted average number of common
shares outstanding, diluted ..... 19,337,976 21,210,805 20,503,990 20,450,680
============ ============ ============ ============
- ----------
<FN>
*Aggregate quarterly earnings per share amounts may not equal annual
amounts presented elsewhere in these consolidated financial statements
due to rounding differences.
</FN>
F-34
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
--------
Report of Independent Auditors............................................F-36
Consolidated Balance Sheets...............................................F-37
Consolidated Statements of Income.........................................F-38
Consolidated Statements of Changes in Members' Equity.....................F-39
Consolidated Statements of Cash Flows.....................................F-40
Notes to Consolidated Financial Statements................................F-42
F-35
REPORT OF INDEPENDENT AUDITORS
To the Members of
Wellsford/Whitehall Group, L.L.C. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Wellsford/Whitehall Group, L.L.C. (formerly Wellsford/Whitehall Properties II,
L.L.C.) and subsidiaries (the "Company") as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in members' equity and
cash flows for the years ended December 31, 1999 and 1998, and for the period
from August 28, 1997 (Inception) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Wellsford/Whitehall Group, L.L.C. and subsidiaries at December 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
the years ended December 31, 1999 and 1998, and for the period from August 28,
1997 (Inception) to December 31, 1997, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
New York, New York
February 15, 2000
F-36
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------
1999 1998
---- ----
ASSETS
Real estate assets, at cost:
Land .......................................... $ 64,399,873 $ 61,131,765
Buildings and improvements .................... 392,057,176 387,897,683
------------- -------------
456,457,049 449,029,448
Less accumulated depreciation .............. (17,650,723) (8,484,889)
------------- -------------
438,806,326 440,544,559
Construction in progress ...................... 112,345,379 52,662,902
------------- -------------
551,151,705 493,207,461
Cash and cash equivalents ........................ 8,468,462 6,410,614
Restricted cash .................................. 5,495,300 2,174,026
Deferred costs, less accumulated amortization ... 1,932,440 3,764,980
Receivables, prepaids and other assets ........... 5,230,859 5,823,846
------------- -------------
Total assets ..................................... $ 572,278,766 $ 511,380,927
============= =============
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgages payable ............................. $ 110,830,847 $ 68,043,333
Secured senior credit facility ................ 177,260,995 207,289,846
Secured mezzanine credit facility ............. 61,400,270 68,907,482
Accrued expenses and other liabilities ........ 14,166,844 11,224,384
Distributions payable ......................... 5,599,034 3,298,814
Ground lease obligation ....................... 1,108,099 --
Security deposits ............................. 1,173,082 751,234
------------- -------------
Total liabilities ................................ 371,539,171 359,515,093
------------- -------------
Commitments and contingencies .................... -- --
Members' equity:
Membership units, $.01 par value per unit ..... 132,111 99,403
Paid in capital ............................... 181,841,448 130,032,663
Series A convertible preferred membership units 19,000,000 19,000,000
Retained earnings/(deficit) ................... (233,964) 2,733,768
------------- -------------
Total members' equity ............................ 200,739,595 151,865,834
------------- -------------
Total liabilities and members' equity ............ $ 572,278,766 $ 511,380,927
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-37
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIOD FROM
FOR THE YEARS ENDED DECEMBER 31, AUGUST 28, 1997
-------------------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1997
---- ---- -----------------
Revenues:
Rental income ............................ $ 73,355,970 $ 52,514,859 $ 8,334,619
Interest and other income ................ 1,319,987 1,108,437 193,086
------------ ------------ ------------
Total revenues .................... 74,675,957 53,623,296 8,527,705
------------ ------------ ------------
Expenses:
Property operations and maintenance ...... 18,141,650 13,379,303 2,346,644
Real estate taxes ........................ 7,891,159 5,550,662 970,501
Depreciation and amortization ............ 11,701,917 7,387,077 1,219,849
Property and asset management ............ 1,398,399 1,348,552 175,873
Interest ................................. 25,586,242 19,085,016 2,949,280
General and administrative ............... 8,142,147 3,299,496 835,349
------------ ------------ ------------
Total expenses .................... 72,861,514 50,050,106 8,497,496
------------ ------------ ------------
Income available before gains on dispositions
and preferred distributions .............. 1,814,443 3,573,190 30,209
Gains on dispositions ....................... 15,642,149 2,866,183 --
------------ ------------ ------------
Income available for members before
preferred distributions .................. 17,456,592 6,439,373 30,209
Preferred distributions ..................... (1,140,000) (728,333) --
------------ ------------ ------------
Net income available for members ............ $ 16,316,592 $ 5,711,040 $ 30,209
============ ============ ============
Net income per membership unit, basic ....... $ 1.42 $ 0.69 $ 0.01
============ ============ ============
Net income per membership unit, diluted ..... $ 1.39 $ 0.69 $ 0.01
============ ============ ============
Weighted average number of membership
units outstanding, basic ................. 11,526,864 8,291,273 5,277,314
============ ============ ============
Weighted average number of membership units
outstanding, diluted ..................... 12,545,264 8,291,273 5,277,314
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-38
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE PERIOD FROM AUGUST 28, 1997 (INCEPTION) TO DECEMBER 31, 1999
SERIES A
CONVERTIBLE
MEMBERSHIP UNITS PREFERRED RETAINED TOTAL
---------------- PAID-IN MEMBERSHIP EARNINGS/ MEMBERS'
UNITS AMOUNT CAPITAL UNITS (DEFICIT) EQUITY
----- ------ ------- ----- --------- ------
Initial equity contributions -
August 28, 1997 (Inception) 5,000,000 $ 50,000 $ 49,950,000 $ -- $ -- $ 50,000,000
Additional equity contributions 1,485,508 14,855 24,080,079 -- -- 24,094,934
Net income ..................... -- -- -- -- 30,209 30,209
---------- -------- ------------- ------------- ------------- -------------
December 31, 1997 .............. 6,485,508 64,855 74,030,079 -- 30,209 74,125,143
Issuance of membership units in
connection with contribution
of assets ................... 468,557 4,686 7,595,309 19,000,000 -- 26,599,995
Additional equity contributions 2,986,260 29,862 48,407,275 -- -- 48,437,137
Net income ..................... -- -- -- 728,333 5,711,040 6,439,373
Distributions .................. -- -- -- (728,333) (3,007,481) (3,735,814)
---------- -------- ------------- ------------- ------------- -------------
December 31, 1998 .............. 9,940,325 99,403 130,032,663 19,000,000 2,733,768 151,865,834
Additional equity contributions,
net ......................... 3,270,756 32,708 51,808,785 -- -- 51,841,493
Net income ..................... -- -- -- 1,140,000 16,316,592 17,456,592
Distributions .................. -- -- -- (1,140,000) (19,284,324) (20,424,324)
---------- -------- ------------- ------------- ------------- -------------
December 31, 1999 .............. 13,211,081 $132,111 $ 181,841,448 $ 19,000,000 $ (233,964) $ 200,739,595
========== ======== ============= ============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-39
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM
FOR THE YEARS ENDED DECEMBER 31, AUGUST 28, 1997
-------------------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1997
---- ---- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Basic Earnings ........................................ $ 17,456,592 $ 6,439,373 $ 30,209
Adjustments to reconcile basic earnings to net cash
provided by operating activities:
Gain on disposal of real estate assets ........... (15,642,149) (2,866,183) --
Depreciation and amortization .................... 11,701,917 7,387,077 1,233,889
Amortization of deferred financing costs ......... 2,826,429 1,672,413 --
Deferred rental revenue .......................... (1,217,697) (1,476,178) (380,103)
Decrease (increase) in assets:
Receivables, prepaids and other assets ........ 40,372 (851,453) 192,076
Increase in liabilities:
Accrued expenses and other liabilities ........ 777,086 4,828,066 1,285,498
Security deposits ............................. 421,848 157,140 --
------------- ------------- -------------
Net cash provided by operating activities ........ 16,364,398 15,290,255 2,361,569
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of real estate assets .................... (74,232,052) (163,082,206) (46,768,417)
Prepaid acquisition costs ............................. -- (1,124,579) --
Disposal of real estate assets, net of selling expenses 71,957,877 4,561,013 --
Improvements to real estate assets .................... (39,730,980) (22,066,915) (15,519,011)
------------- ------------- -------------
Net cash used in investing activities ............ (42,005,155) (181,712,687) (62,287,428)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from term loans .............................. -- 23,587,620 107,925,000
Proceeds from credit facilities ....................... -- 67,037,844 38,984,000
Proceeds from mortgage loans .......................... 35,645,000 -- 375,602
Proceeds from unsecured loan .......................... -- -- 48,025,000
Proceeds from secured senior credit facility .......... 5,913,930 207,289,846 --
Proceeds from secured mezzanine credit facility ....... 1,478,482 68,907,482 --
Repayment of term loans ............................... -- (131,512,620) --
Repayment of credit facilities ........................ -- (106,021,844) --
Repayment of mortgage loans ........................... (623,205) (297,483) (48,468,556)
Repayment of unsecured loan ........................... -- (4,283,925) (105,440,515)
Repayment of secured senior credit facility ........... (35,942,780) -- --
Repayment of secured mezzanine credit facility ........ (8,985,695) -- --
Increase in restricted cash ........................... (3,321,274) (2,174,026) --
Deferred financing and organization costs ............. (183,242) (578,244) (4,774,774)
Preferred distributions ............................... (1,140,000) (437,000) --
Member distributions .................................. (16,984,104) -- --
Initial cash contribution ............................. -- -- 2,083,427
Equity contributions, net ............................. 51,841,493 48,437,137 24,094,934
------------- ------------- -------------
Net cash provided by financing activities ............. 27,698,605 169,954,787 62,804,118
------------- ------------- -------------
Net increase in cash and cash equivalents ............ 2,057,848 3,532,355 2,878,259
Cash and cash equivalents, beginning of period ........ 6,410,614 2,878,259 --
------------- ------------- -------------
Cash and cash equivalents, end of period .............. $ 8,468,462 $ 6,410,614 $ 2,878,259
============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-40
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
FOR THE PERIOD FROM
FOR THE YEARS ENDED DECEMBER 31, AUGUST 28, 1997
-------------------------------- (INCEPTION) TO
1999 1998 DECEMBER 31, 1997
---- ---- -----------------
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest................................. $ 28,615,307 $ 18,296,284 $ 2,953,786
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Initial contribution of real estate assets............. $ 157,927,131
Initial contribution of other assets................... 968,786
Assumption of unsecured loan........................... (61,699,440)
Assumption of mortgage................................. (48,092,954)
Assumption of other liabilities........................ (1,186,950)
Initial equity contribution............................ (50,000,000)
-------------
Initial cash contribution.............................. $ (2,083,427)
=============
Membership units issued in exchange for contribution
of real estate assets..................... $ 7,599,995
Series A convertible preferred membership units issued
in exchange for contribution of real estate assets 19,000,000
Assumption of mortgage loan............................ 68,340,816
Purchase of real estate assets......................... (94,940,811)
-------------
$ --
=============
Seller financing - 2nd Mortgage - One Mall............. $ 2,750,000
Assumption of Mortgage IDS Loan - One Mall............. 5,015,719
Capitalized Lease Obligation - Airport Park........... 1,108,099
-------------
$ 8,873,818
=============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-41
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Wellsford/Whitehall Group, L.L.C. and subsidiaries (the "Company") was
formed in May 1999 by the then members of Wellsford/Whitehall
Properties II, L.L.C. ("Properties"). Properties was a joint venture
between Wellsford Commercial Properties Trust ("WCPT"), a subsidiary
of Wellsford Real Properties, Inc. ("WRP"), WHWEL Real Estate Limited
Partnership ("Whitehall"), an affiliate of The Goldman Sachs Group
Inc., and the Saracen Members (the "Members"). Properties (formerly
Wellsford/Whitehall Properties, L.L.C.) was formed on August 28, 1997
as a private real estate operating company.
On May 28, 1999 the Whitehall interests were partially transferred to
two of its affiliates and all the Members assigned their interests in
Properties to the Company. No other changes occurred in the operations
of the owned properties at that time. The Company will terminate on
December 31, 2045, unless sooner by the written consent of the Members.
On May 15, 1998 thirteen office buildings located in suburban Boston
with an aggregate value of approximately $148,700,000 were contributed
to Properties for a combination of cash, Series A convertible preferred
membership units and membership units (the "Saracen Transaction"). In
connection with this transaction, several shareholders of the Saracen
Companies (the "Saracen Members") were issued both Series A convertible
preferred membership units and membership units and Properties assumed
a mortgage loan on six of the properties aggregating approximately
$68,300,000.
The Company seeks to acquire commercial properties and create value
through adaptive reuse. The Company believes that appropriate
well-located commercial properties which are currently underperforming
can be acquired on advantageous terms and repositioned with the
expectation of achieving enhanced returns which are greater than
returns which could be achieved by acquiring stabilized properties. The
Company's current target markets include New York, New Jersey,
Connecticut, Boston, Philadelphia, Baltimore and the Washington D.C.
metropolitan areas. WCPT manages the Company through WRP on a
day-to-day basis, and certain major and operational decisions require
the consent of the Members. WCPT intends to qualify as a real estate
investment trust ("REIT").
As of December 31, 1999, the Company owned and operated 41 office
properties totaling approximately 4,920,000 square feet, including
approximately 1,451,000 square feet under renovation. The properties
are located in Northern New Jersey (19), Downtown and Suburban Boston
(17), and Suburban Baltimore (5).
F-42
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries and Properties and its wholly-owned subsidiaries for their
respective periods of ownership. All significant inter-company accounts
and transactions among the Company and Properties and their
subsidiaries have been eliminated in the consolidation.
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 when purchased to be cash
and cash equivalents.
RESTRICTED CASH. Restricted cash primarily consists of debt service
reserve balances.
REAL ESTATE AND DEPRECIATION. Real estate assets are stated at cost.
Costs directly related to the acquisition and improvement of real
estate are capitalized, including the purchase price, legal fees,
acquisition costs, interest, property taxes and other operational costs
during the period of development and until the lease up of the acquired
development properties.
Ordinary repairs and maintenance items are expensed as incurred.
Replacements and betterments are capitalized and depreciated over their
estimated useful lives. Tenant improvements and leasing commissions are
capitalized and amortized over the terms of the related leases.
Depreciation is computed over the expected useful lives of the
depreciable property on a straight-line basis, principally 40 years for
commercial properties and 5 to 12 years for furnishings and equipment.
Statement of Financial Accounting Standard ("SFAS") 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of" requires that long-lived assets to be held and used be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
SFAS 121 has not had an impact on the accompanying consolidated
financial statements.
DEFERRED COSTS. Deferred costs consist primarily of costs incurred to
obtain financing. Such deferred financing costs are amortized over the
expected term of the respective agreement; such amortization is
included in interest expense in the accompanying Consolidated
Statements of Income.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial
instruments consist of cash and cash equivalents and long term debt.
The Company believes that the carrying amount of cash and cash
equivalents approximates fair value due to the short maturity of this
item. In addition, the Company believes that the carrying values of its
senior secured credit facility, its secured mezzanine credit facility
and certain mortgages approximate fair values because such debt
consists of variable rate debt that reprices frequently. The Company
believes that the carrying values of the remainder of the mortgage
loans approximate fair values based upon various market data analysis.
F-43
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST-RATE SWAP AGREEMENT. To reduce the impact of certain changes
in interest rates on its long-term debt, the Company has entered into
an interest-rate swap agreement during 1998. This agreement involves
the exchange of amounts based on a variable interest rate for amounts
based on a fixed interest rate over the life of the agreement without
an exchange of the notional amount upon which the payments are based.
The differential to be paid or received as interest rates change is
settled quarterly and recognized as an adjustment to interest expense
(the accrual accounting method). The fair value of the swap agreement
and changes in the fair value as a result of changes in market interest
rate are not recognized in the accompanying financial statements. There
have been no gains or losses on termination of interest-rate swap
agreements in 1999 or 1998.
PROFIT AND REVENUE RECOGNITION. Sales of real estate assets are
recognized at closing, subject to the receipt of down payments and
other requirements in accordance with applicable accounting guidelines.
Commercial properties are leased under operating leases. Rental revenue
is recognized on a straight-line basis over the terms of the respective
leases.
INCOME TAXES. The Company is a limited liability company as were the
predecessor companies. In accordance with the tax law regarding such
entities, each of the Company's membership unit holders is responsible
for reporting their share of the Company's taxable income or loss on
their separate tax returns. Accordingly, the Company has recorded no
provision for federal, state or local income taxes.
PER UNIT DATA. Net income per membership unit is computed based upon
the weighted average number of membership units outstanding during the
period. The assumed conversion of the Series A convertible preferred
membership units is dilutive in 1999 and anti-dilutive in 1998. The
Company had no dilutive securities during 1997.
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 the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
RECLASSIFICATIONS. Certain reclassifications have been made to the
prior period presentation to conform with the current year.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In June 1998, SFAS 133
"Accounting for Derivative Instruments and Hedging Activities" was
issued. SFAS 133 was required to be adopted in years beginning after
June 15, 2000. SFAS 133 permits early adoption as of the beginning of
any fiscal quarter after its issuance. The Company expects to adopt
SFAS 133 effective January 1, 2000. The Company does not anticipate
that the adoption of SFAS 133 will have a material impact on its
consolidated financial position or consolidated results of operations.
F-44
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. COMMERCIAL PROPERTIES
The Company owns the following commercial properties at December 31,
1999 and 1998:
Properties Collateralizing Bank Facility*
-----------------------------------------
(amounts in thousands, except square foot amounts)
YEAR
SQUARE FEET (UNAUDITED) CONSTRUCTED/ GROSS INVESTMENT
----------------------- REHABILITATED ----------------
PROPERTY LOCATION 1999 1998 (UNAUDITED) 1999 1998
-------- -------- ---- ---- ----------- ---- ----
Pointview Corporate Center .. Wayne, NJ 515,000 515,000 1976/1998 $ 38,935 $ 32,369
1800 Valley Road ............ Wayne, NJ 56,000 56,000 1980 4,070 4,122
Greenbrook Corporate Center.. Fairfield, NJ 201,000 201,000 1987 24,617 24,472
Chatham Executive Center .... Chatham, NJ 63,000 63,000 1972/1997 10,840 10,855
300 Atrium Drive ............ Somerset, NJ 150,000 150,000 1983 18,976 18,489
400 Atrium Drive ............ Somerset, NJ 355,000 355,000 1985 35,519 32,795
500 Atrium Drive ............ Somerset, NJ 169,000 169,000 1984 21,239 20,721
700 Atrium Drive ............ Somerset, NJ 181,000 181,000 1985 18,167 18,167
1275 K Street ............... Washington, DC -- 225,000 1983 -- 35,422
Mountain Heights Center I ... Berkeley Hts, NJ 183,000 183,000 1968/1986/1998 25,544 25,394
Mountain Heights Center II .. Berkeley Hts, NJ 115,000 115,000 1968/1986/1998 18,086 9,802
Morris Technology Center .... Parsippany, NJ 244,000 244,000 1963/1977/1998 14,757 8,417
15 Broad Street ............. Boston, MA -- 65,000 1920/1984 -- 5,599
600 Atrium Drive (land) ..... Somerset, NJ N/A N/A N/A 2,336 2,075
Garden State Exhibit Center . Somerset, NJ 82,000 82,000 1968/1989 5,841 5,832
150 Wells Avenue ............ Newton, MA 11,000 11,000 1987 1,273 1,273
72 River Park ............... Needham, MA 22,000 22,000 1983 2,630 2,630
70 Wells Avenue ............. Newton, MA 29,000 29,000 1979 3,930 3,930
160 Wells Avenue ............ Newton, MA 19,000 19,000 1970/1997 3,421 3,421
2331 Congress Street ........ Portland, ME 24,000 24,000 1980 2,158 2,158
60/74 Turner Street ......... Waltham, MA 16,000 16,000 1970 2,153 2,153
100 Wells Avenue ............ Newton, MA 21,000 21,000 1978 2,548 2,548
333 Elm Street .............. Dedham, MA 48,000 48,000 1983 5,836 5,814
Dedham Place ................ Dedham, MA 160,000 160,000 1987 27,190 27,189
128 Technology Center ....... Waltham, MA 218,000 218,000 1986 36,186 36,138
201 University Avenue ....... Westwood, MA 82,000 82,000 1982 10,227 9,677
7/57 Wells Avenue ........... Newton, MA 88,000 88,000 1982 12,390 12,089
75/85/95 Wells Avenue ....... Newton, MA 242,000 242,000 1976/1986 40,315 40,127
117 Kendrick Street ......... Needham, MA 209,000 209,000 1963 22,247 13,292
140 Kendrick Street ......... Needham, MA -- 261,000 1963 -- 16,266
Shattuck Office Center ...... Andover, MA 63,000 63,000 1985 7,646 7,597
180/188 Mt Airy Road ........ Basking Ridge, NJ 104,000 104,000 1980 15,782 15,649
377/379 Campus Drive ........ Franklin Twp, NJ 199,000 199,000 1984 22,934 22,934
6301 Stevens Forest Lane .... Columbia, MD 38,000 38,000 1980 4,519 2,640
One Mall North .............. Columbia, MD 97,000 -- 1978/1998 10,733 --
105 Challenger Road ......... Ridgefield Park, NJ 147,000 147,000 1992 21,002 19,636
--------- --------- ------- -------
4,151,000 4,605,000 494,047 501,692
========= ========= ======= =======
F-45
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
COMMERCIAL PROPERTIES (CONTINUED)
Properties Collateralizing Other Mortgages or Unencumbered
----------------------------------------------------------
YEAR
SQUARE FEET (UNAUDITED) CONSTRUCTED/ GROSS INVESTMENT
----------------------- REHABILITATED ----------------
PROPERTY LOCATION 1999 1998 (UNAUDITED) 1999 1998
-------- -------- ---- ---- ----------- ---- ----
150 Mount Bethel Road ....... Warren, NJ 129,000 -- 1981 8,037 --
79 Milk Street .............. Boston, MA 64,000 -- 1920/1998 10,408 --
24 Federal Street ........... Boston, MA 68,000 -- 1921/1997 13,895 --
McDonough Crossroads ........ Owings Mills, MD 32,000 -- 1988 3,893 --
Airport Park ................ Hanover Twp, NJ 96,000 -- 1979 12,554 --
Airport Park-Land** ......... Hanover Twp, NJ N/A -- N/A 2,089 --
Oakland Ridge** ............. Columbia, MD 144,000 -- 1972 3,962 --
401 North Washington** ...... Rockville, MD 236,000 -- 1972 19,917 --
--------- --------- ---------- ---------
769,000 -- 74,755 --
--------- --------- ---------- ---------
Total Commercial Properties ..................... 4,920,000 4,605,000 $ 568,802 $ 501,692
========= ========= ========== =========
- ----------
<FN>
*In addition, 333 Elm Street, Dedham Place, 128 Technology Center, 201
University Avenue, 7/57 Wells Avenue and 75/85/95 Wells Avenue are also
encumbered by the Nomura Loan.
**Unencumbered.
</FN>
No individual tenant aggregated greater than 7% of rental revenue in
1999 and 9% in 1998.
The Company capitalizes interest related to buildings under renovation
to the extent such assets qualify for capitalization. Total interest
incurred and capitalized was $28,627,209 and $5,867,396 and $20,385,672
and $2,973,069 respectively, for the years ended December 31, 1999 and
December 31, 1998 and $4,207,793 and $1,258,513, respectively, for the
period from August 28, 1997 (Inception) to December 31, 1997 (the
"Period").
The Company sold the following buildings and properties:
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---- ----
Number of buildings (including a small land parcel in 1999) 4 1
=========== ===========
Net sales proceeds (approximate) .......................... $71,958,000 $ 4,561,000
=========== ===========
Gains on sales ............................................ $15,642,149 $ 2,866,183
=========== ===========
4. LEASES
Office space in the properties is generally leased to tenants under
lease terms which provide for the tenants to pay base rents plus
increases in operating expenses in excess of specified amounts.
F-46
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
LEASES (CONTINUED)
Non-cancelable operating leases with tenants expire on various dates
through 2015. The future minimum lease payments to be received under
leases existing as of December 31, 1999 are as follows:
(amounts in thousands)
PROPERTIES COLLATERALIZING
FOR THE YEARS --------------------------
ENDED BANK
DECEMBER 31, TOTAL FACILITY OTHER
------------ ----- -------- -----
2000 ..... $ 64,178 $ 59,292 $ 4,886
2001 ..... 62,764 58,636 4,128
2002 ..... 59,931 56,765 3,166
2003 ..... 44,390 41,803 2,587
2004 ..... 26,592 24,850 1,742
Thereafter 57,676 55,925 1,751
-------- -------- --------
Total .... $315,531 $297,271 $ 18,260
======== ======== ========
The above future minimum lease payments do not include specified
payments for tenant reimbursements of operating expenses which
amounted to approximately $6,543,000, $4,878,000 and $602,000 for the
years ended December 31, 1999 and 1998 and the Period, respectively.
5. GROUND LEASE
The leasehold interests in two buildings totaling 291,000 square feet
and 15.22 acres of developable land are subject to ground leases. At
December 31, 1999, future minimum rental payments under the leases
which expire in October 2066, April 2077 and January 2084, are as
follows:
(amounts in thousands)
FOR THE YEARS ENDED DECEMBER 31, AMOUNT
-------------------------------- ------
2000 .......................... $ 214
2001 .......................... 215
2002 .......................... 216
2003 .......................... 218
2004 .......................... 231
Thereafter .................... 27,749
-------
Total ......................... $28,843
=======
6. LONG TERM DEBT
The Company's long term debt consisted of the following:
(amounts in thousands)
DECEMBER 31,
------------
DEBT MATURITY DATE 1999 1998
---- ------------- ---- ----
Secured Senior Credit Facility .. December 2000 $177,261 $207,290
Secured Mezzanine Credit Facility December 2000 61,400 68,907
Nomura Loan ..................... February 2027 67,469 68,043
Other Mortgage Loans ............ May 2002 - May 2019 43,362 --
-------- --------
$349,492 $344,240
======== ========
F-47
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
LONG TERM DEBT (CONTINUED)
The Company's transactions described in Note 1 were funded primarily by
capital contributions from WCPT and Whitehall, by approximately
$47,600,000 in debt which encumbered certain of the properties
contributed by Whitehall (the "Atrium Loan") which was assumed by the
Company, and by a mortgage ("Mortgage") between the Company and WRP.
The Atrium Loan bore interest at LIBOR + 3.00% and was due on May 15,
2000. The lender on this loan was Goldman Sachs Mortgage Company. This
loan was repaid in December 1997.
Pursuant to an unsecured loan, WRP had agreed to loan the Company up to
approximately $86,300,000 bearing interest at LIBOR + 3.00% until
November 1997 and at LIBOR + 4.00% until maturity in June 1998 (the
"Unsecured Loan"). This loan, aggregating $4,283,925 at December 31,
1997, was repaid in June 1998. Interest expense on the Unsecured Loan
was $145,321 and $2,137,488 in 1998 and the Period, respectively.
In December 1997, the Company obtained a $375,000,000 loan facility
(the "Prior Bank Facility") consisting of a secured term loan facility
("Secured Term Loan") of up to $225,000,000 and a secured revolving
credit facility ("Secured Revolving Credit Facility") of up to
$150,000,000. The term loan facility bore interest at LIBOR + 1.60% and
had a term of four years; the revolving credit facility bore interest
at LIBOR + 2.50% and had a term of three years. Interest expense on the
Prior Bank Facility was $7,456,062 in 1998.
In July 1998, the Company modified the Prior Bank Facility with Fleet
National Bank and Goldman Sachs Mortgage to provide for a secured
senior credit facility ("Secured Senior Credit Facility") of up to
$300,000,000 and a secured mezzanine credit facility ("Secured
Mezzanine Credit Facility") of up to $75,000,000 (collectively, the
"Bank Facility"). The loans bear interest at LIBOR + 1.65% and LIBOR +
3.20%, respectively, are due on December 15, 2000 and may be renewed by
the Company for an additional twelve months, subject to certain
conditions. The proceeds from the Bank Facility were used to repay
amounts outstanding under the Prior Bank Facility. At December 31,
1999, the Company expected to borrow an additional $8,000,000 for
tenant improvements and leasing commisions, through March 31, 2000,
when the ability to draw on this facility expires under the current
terms of the Bank Facility. Interest expense on the Secured Senior
Credit Facility and the Secured Mezzanine Credit Facility was
$15,293,524 and $6,088,260, respectively, in 1999 and $6,643,428 and
$2,697,381, respectively, in 1998. The 30-day LIBOR was 6.30% and 4.94%
at December 31, 1999 and 1998, respectively.
WRP and Whitehall each have made limited guarantees of the Bank
Facility on behalf of the Company. WRP and Whitehall each have
guaranteed joint and severally up to a 50% share of the principal
amount of $24,500,000 and 50% share of interest on the $375,000,000
term and mezzanine loans in the event of certain defaults or
non-compliance by the Company.
In connection with the Saracen transaction, the Company assumed a
mortgage loan held by Nomura Asset Capital Corporation in the original
amount of approximately $68,341,000 (the "Nomura Loan"). The loan bears
interest at a rate of 8.03% and requires monthly payments of principal
and interest until maturity in February 2027.
F-48
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
LONG TERM DEBT (CONTINUED)
During 1999, the Company obtained six mortgages to acquire and improve
five properties including one second mortgage provided by the seller on
one property (the "Other Mortgage Loans"). The interest rates on the
Other Mortgage Loans range from the LIBOR + 2.05% to 10.50% and the
maturity dates range from May 30, 2002 to May 31, 2019.
The Bank Facility and the Nomura Loan contain various customary
covenants including the ratio of liabilities to assets, debt service
coverage, minimum equity, and the amount of distributions that can be
paid to Members among other covenants. As of December 31, 1999 and
1998, the Company was in compliance with the terms of covenants under
all loan agreements.
The aggregate maturities for the Company's long-term debt obligations
for each of the next five years and thereafter are as follows:
(amounts in thousands)
SECURED SECURED
SENIOR MEZZANINE OTHER
FOR THE YEARS CREDIT CREDIT NOMURA MORTGAGE
ENDED DECEMBER 31, TOTAL FACILITY FACILITY LOAN LOANS
------------------ ----- -------- -------- ---- -----
2000 ............... $239,373 $177,261 $ 61,400 $ 607 $ 105
2001 ............... 788 -- -- 674 114
2002 ............... 28,200 -- -- 731 27,469
2003 ............... 9,228 -- -- 793 8,435
2004 ............... 3,742 -- -- 845 2,897
Thereafter ......... 68,161 -- -- 63,819 4,342
-------- -------- -------- -------- --------
Total .............. $349,492 $177,261 $ 61,400 $ 67,469 $ 43,362
======== ======== ======== ======== ========
To reduce the impact of certain changes in interest rates on its
long-term debt, the Company has an interest rate swap agreement (see
Note 2) and an interest rate protection agreement. The interest rate
swap agreement fixes LIBOR at 5.90% for up to $220,000,000 until May
2000. The interest rate protection agreement caps LIBOR at 7.69% for
up to $64,000,000 until June 15, 2000. The cost of the interest rate
protection agreement is being amortized over its life. The net
settlement amount of the interest-rate swap agreement and the
amortization of the interest rate protection agreement which is
recorded as an adjustment of interest expense in 1999 and 1998
aggregated approximately $1,354,000 and $459,000, respectively. At
December 31, 1999 and 1998, the fair value of the interest rate swap
agreement was approximately $202,000 and ($2,700,000), respectively.
7. TRANSACTIONS WITH AFFILIATES
In connection with the formation of the Company, WRP issued warrants
(the "Warrants") to Whitehall to purchase 4,132,230 shares of WRP's
common stock at an exercise price of $12.10 per share. The Warrants
are exercisable until August 28, 2002. The exercise price for the
Warrants is payable in cash or membership units in the Company. As
part of the new capital commitment from Whitehall in 1999, WRP issued
to Whitehall additional warrants to purchase an additional 123,967
shares of WRP's common stock exercisable at $12.10 per share, payable
in cash or in exchange for membership units of the Company, held by
Whitehall based upon the Company's value as defined. These additional
warrants are exercisable for five years and expire on May 28, 2004.
F-49
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
v
TRANSACTIONS WITH AFFILIATES (CONTINUED)
Under the terms of the current joint venture, WCPT or WRP is entitled
to an administrative fee of $600,000 per year for the reimbursement of
salaries and costs incurred relating to the operation of the Company.
Such fees were $600,000 and $300,000 for the years ended December 31,
1999 and 1998, respectively, and $100,000 for the Period.
The Company incurred aggregate interest to WRP on short term advances
during the year ended December 31, 1999 of approximately $517,000. The
interest rate charged was LIBOR + 5.00%.
See Note 6 for additional related party interest information.
An affiliate of Whitehall performed asset management services for the
Company for which the Company incurred fees of approximately $133,000
for the year ended December 31, 1998. This contract expired February
25, 1998.
Affiliates of the Saracen Members performed asset management and
property management services for the Company. These fees amounted to
approximately $649,000 for the year ended December 31, 1998. Fees paid
during 1999 amounted to $495,000 which included asset management fees
through January 21, 1999, when the asset management agreement was
terminated. Upon termination, the Company agreed to pay $1,000,000 in
2004 plus quarterly interest at 10% per annum paid currently.
At December 31, 1998, the Company has $408,023 of receivables from its
Members, which amount is included in receivables, prepaids and other
assets on the accompanying consolidated balance sheets. At December 31,
1999, the Company had aggregate accrued expenses and other liabilities
approximating $462,791 due to Members or affiliated companies for
unpaid fees, interest and other items.
Affiliates of the Saracen Members lease space at 7/57 Wells Avenue.
Revenue related to these leases for the years ended December 31, 1999
and 1998, amounted to $43,650 and $67,572, respectively.
8. MEMBERS' EQUITY
WRP, through WCPT, is entitled to receive incentive compensation,
payable out of distributions, made by the Company to WCPT and the
Whitehall members (the "Promote") after return of capital and minimum
annual returns of at least 15% to 17.5% on such capital balances to
WCPT and Whitehall (as defined in the Company's Operating Agreement
(the "Operating Agreement")). Pursuant to the Operating Agreement, WRP
is required to distribute to certain officers and employees of the
Company and WRP 50%, and in some cases, 55% of the Promote it
receives. To date, WRP has not earned or received any distribution of
the Promote.
At December 31, 1999, WCPT and the Whitehall entities have committed to
make additional equity contributions through December 31, 2000, of
approximately $12,231,000 and $63,396,000, respectively, for new
acquisitions, renovations, and working capital.
Whitehall may exchange an additional $25,000,000 of the membership
units it owns in the Company for shares of WRP's common stock or cash
at WRP's sole discretion, based upon the price paid for such
membership units and the current market value of WRP's common stock.
Such transaction would have no net impact on the number of membership
units outstanding.
F-50
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MEMBERS' EQUITY (CONTINUED)
At the formation of the Company, 2,505,000 membership units were issued
to WCPT, representing its 50.1% interest, and 2,495,000 units were
issued to Whitehall, representing its 49.9% interest. Subsequently, an
additional 2,958,413 and 4,784,111 units were issued to WCPT and the
Whitehall entities (719,385 and 2,551,371, respectively, in 1999),
respectively, in connection with net additional capital contributions
used to fund acquisitions and renovations.
In connection with the Saracen Transaction, 468,557 membership units
and 760,000 Series A convertible preferred membership units were issued
to the Saracen Members. The membership units were issued at a price of
$16.22 per membership unit. The Series A convertible preferred
membership units are convertible into membership units at a price of
$18.65 per membership unit. These units also provide for cumulative
dividend payments of the greater of (a) 6% or (b) the dividend payable
to membership unit holders, calculated on an as converted basis,
payable quarterly in arrears, and have a liquidation preference of
$25.00 per Series A convertible preferred membership unit plus accrued
and unpaid distributions.
The number of membership units issued and outstanding are as follows:
DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
WCPT ............... 5,463,413 4,744,028 3,248,062
Whitehall .......... 7,279,111 4,727,740 3,237,446
Saracen Members .... 468,557 468,557 --
---------- --------- ---------
Total .............. 13,211,081 9,940,325 6,485,508
========== ========= =========
Distributions of $3,007,481 were declared on November 19, 1998 to
membership unit holders on record as of that date. These distributions
were paid during the first quarter 1999. During 1999, additional
distributions of $19,284,324 were declared, of which $5,323,534
remained unpaid at December 31, 1999.
9. COMMITMENTS AND CONTINGENCIES
Under the terms of the joint venture agreement either WCPT or
Whitehall may require the Company to sell any and all of its
properties.
As a commercial real estate owner, the Company is subject to potential
environmental costs. At December 31, 1999, management of the Company is
not aware of any environmental concerns that would have a material
adverse effect on the Company's consolidated financial condition,
consolidated results of operations or consolidated cash flows.
From time to time, legal actions are brought against the Company in the
ordinary course of business. In the opinion of management, such matters
will not have a material effect on the Company's consolidated financial
condition, consolidated results of operations or consolidated cash
flows.
The Company has management agreements with unaffiliated property
management companies to manage the operations of the properties.
Management fees are generally based on 2% to 3% of gross rentals
collected and are generally terminable on 30 days notice.
F-51
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company participates in WRP's defined contribution savings plan
which was established pursuant to Section 401 of the Internal Revenue
Code. All of the Company's employees are eligible to participate after
90 days of service. Employer contributions are made based upon a
discretionary amount determined by the Company's management. Employer
contributions, if any, are based upon the amount contributed by an
employee. During 1999 and 1998, the Company made contributions of
approximately $20,000 and $14,000, respectively.
10. YEAR 2000 (UNAUDITED)
During 1999, management of the Company developed a plan to modify its
information technology ("IT"), primarily its accounting software, to
recognize the year 2000 ("Y2K"). A Y2K compliant version of the
accounting software was obtained, along with certain upgraded computer
equipment to accommodate the new software. Installation and testing of
the new system software and hardware was completed during the fourth
quarter of 1999. Total project costs for WRP and the Company were
approximately $100,000, which were funded from operations.
Management had extensive discussions with its third-party property
management companies (the "Managers") to ensure that those parties had
appropriate plans to allay any issues that may impact the Company's
operations. These issues included both accounting/management software
and non-IT technology systems such as fire safety, security and
elevator systems. The analysis of the Company's systems was completed
September 30, 1999 and it was determined that no material adverse
consequences were likely to result from Y2K issues. Under the most
reasonably likely worst case scenario, wherein the Managers failed to
update their software and non-IT systems, the Company had the ability
to convert its accounting and management systems to a spreadsheet-based
system on a temporary basis and to utilize its building engineers to
manually override any non-IT systems which failed.
Furthermore, Management had contacted its key vendors, tenants, banks,
joint venture partners, creditors, and debtors and had obtained Y2K
compliance certifications (either verbal or written) from the majority
of them.
Subsequent to December 31, 1999, the Company did not encounter any Y2K
related problems from its accounting software or hardware, from the
operations of its properties, or from other companies on which the
Company's systems and operations rely, primarily its banks, payroll
processing company, joint venture partners, creditors, and debtors.
F-52
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SQUARE FOOTAGE AND UNITS)
Number of Initial Cost
Units/ --------------------------------
Date Year Square Depreciable Buildings and
Description Acquired Built Footage Life Land Improvements Total
----------- -------- ----- ------- ---- ---- ------------ -----
DEVELOPMENT
Blue Ridge - Garden Apts .......
Denver, CO .................. December 1997 1997 456 27.5 years $ 5,225 $ 36,339 $ 41,564
Red Canyon - Garden Apts .......
Denver, CO .................. November 1998 1998 304 27.5 years 5,060 28,844 33,904
Sonterra - Garden Apts .........
Tucson, AZ .................. January 1998 1995 344 27.5 years 3,075 17,272 20,347
------- -------- -------- --------
TOTAL DEVELOPMENT ................. 1,104 13,360 82,455 95,815
======= -------- -------- --------
OFFICE, RETAIL AND INDUSTRIAL
Hoes Lane - Office
Piscataway, NJ .............. February 1998 1987 37,632 40 years 289 1,652 1,941
Bradford Plaza - Retail
West Chester, PA ............ February 1998 1990 123,885 40 years 1,692 9,628 11,320
Chestnut Street - Office
Philadelphia, PA ............ February 1998 1857 (B) 50,053 40 years 533 3,018 3,551
Keewaydin Drive - Industrial
Salem, NH ................... February 1998 1973 125,230 40 years 502 2,847 3,349
Turnpike Street - Industrial
Canton, MA .................. February 1998 1980 43,160 40 years 359 3,037 3,396
Two Executive - Office
Cherry Hill, NJ ............. February 1998 1970 102,310 40 years 517 3,013 3,530
Bay City Holdings - Office
Santa Monica, CA ............ February 1998 1985 114,375 40 years 1,561 9,640 11,201
------- -------- -------- --------
TOTAL OFFICE, RETAIL AND INDUSTRIAL 596,645 5,453 32,835 38,288
======= -------- -------- --------
TOTAL ............................. $ 18,813 $115,290 $134,103
======== ======== ========
Cost
Capitalized Total Cost
Subsequent -------------------------------
to Buildings and Accumulated
Description Acquisition Land Improvements Total Depreciation Encumbrances
----------- ----------- ---- ------------ ----- ------------ ------------
DEVELOPMENT
Blue Ridge - Garden Apts .......
Denver, CO .................. $ 100 $ 5,225 $ 36,442 $ 41,667 $ 2,650 $ 33,763
Red Canyon - Garden Apts .......
Denver, CO .................. (198) 5,060 28,647 33,707 1,129 26,683
Sonterra - Garden Apts .........
Tucson, AZ .................. -- 3,075 17,320 20,395 1,260 16,114
-------- -------- -------- -------- -------- -----------
TOTAL DEVELOPMENT ................. (98) 13,360 82,409 95,769 5,039 76,560
-------- -------- -------- -------- -------- -----------
OFFICE, RETAIL AND INDUSTRIAL
Hoes Lane - Office
Piscataway, NJ .............. 300 289 1,952 2,241 95 1,340 (A)
Bradford Plaza - Retail
West Chester, PA ............ 54 1,692 9,683 11,375 444 8,400 (A)
Chestnut Street - Office
Philadelphia, PA ............ 96 533 3,114 3,647 144 2,000 (A)
Keewaydin Drive - Industrial
Salem, NH ................... 341 502 3,205 3,707 133 2,420 (A)
Turnpike Street - Industrial
Canton, MA .................. 118 359 3,155 3,514 142 1,940 (A)
Two Executive - Office
Cherry Hill, NJ ............. 444 517 3,457 3,974 159 2,300 (A)
Bay City Holdings - Office
Santa Monica, CA ............ (10) 1,561 9,630 11,191 428 9,600 (A)
-------- -------- -------- -------- -------- -----------
TOTAL OFFICE, RETAIL AND INDUSTRIAL 1,343 5,453 34,196 39,649 1,545 28,000
-------- -------- -------- -------- -------- -----------
TOTAL ............................. $ 1,245 $ 18,813 $116,605 $135,418 $ 6,584 $ 104,560
======== ======== ======== ======== ======== ===========
- ----------
<FN>
(A) These encumbrances are cross collateralized under a blanket mortgage
in the amount of $28,000 at December 31, 1999. Individual amounts have
been allocated based upon the mortgage agreement.
(B) Renovated in 1986 and 1990.
</FN>
S-1
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
The following is a reconciliation of real estate assets and accumulated
depreciation:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
REAL ESTATE
Balance at beginning of period ................. $ 134,239 $ 41,564 $ --
Additions:
Acquisitions ............................... 7,238 156,533 85,552
Capital improvements ....................... 1,179 136 --
--------- --------- ---------
142,656 198,233 85,552
Less:
Cost of real estate sold ................... (7,238) (63,994) (43,988)
--------- --------- ---------
Balance at end of period ....................... $ 135,418 (A) $ 134,239 $ 41,564
========= ========= =========
ACCUMULATED DEPRECIATION
Balance at beginning of period ................. $ 2,707 $ -- $ --
Additions:
Charged to operating expense ............... 3,877 2,707 --
--------- --------- ---------
6,584 2,707 --
Less:
Accumulated depreciation on real estate sold -- -- --
--------- --------- ---------
Balance at end of period ....................... $ 6,584 (A) $ 2,707 $ --
========= ========= =========
- ----------
<FN>
(A) The aggregate depreciated cost for federal income tax purposes approximated
$121,900 at December 31, 1999.
</FN>
S-2
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
NOTES RECEIVABLE TYPE OF SECURITY INTEREST RATE MATURITY DATE PAYMENT TERMS
---------------- ---------------- ------------- ------------- -------------
277 Park Loan ........... Office (B) 12.00% May 2007 (C) Interest Only
Abbey Credit Facility ... Mixed (D) LIBOR + 4.00% September 2000 Interest Only
Safeguard Credit Facility StorageFacility (F) LIBOR + 4.00% April 2001 Interest Only
Patriot Games ........... Office (H) LIBOR + 4.75% July 2002 Interest Only
REMICs .................. Coops/Condos Various Various Various
TOTAL ...................
TOTAL PRINCIPAL
SUBJECT TO
CARRYING DELINQUENT
NOTES RECEIVABLE PRIOR LIENS FACE AMOUNT AMOUNT(A) PAYMENTS
---------------- ----------- ----------- --------- --------
277 Park Loan ........... $345,000 $ 25,000 $ 25,000 $ --
Abbey Credit Facility ... -- 46,019 (E) 4,251 --
Safeguard Credit Facility -- 2,900 (G) 2,900 --
Patriot Games ........... -- 5,000 5,000 --
REMICs .................. -- 248 109 21
-------- -------- -------- --------
TOTAL ................... $345,000 $ 79,167 $ 37,260 (I) $ 21
======== ======== ======== ========
- ----------
<FN>
(A) The aggregate carrying amount for federal income tax purposes is equal to
the total face amount reflected in this schedule.
(B) This loan is secured by certain equity interests in an entity which owns a
52-story, 1.75 million square foot office building in New York, NY.
(C) This loan precludes prepayments until May 2003. From May 2003 to April
2006, a prepayment penalty based on a yield maintenance formula (as defined
in the related documents) is applicable. From May 2006 to maturity, no
prepayment penalty is applicable.
(D) This loan is secured by first mortgage liens on one office, one retail and
one industrial building totaling 249,709 square feet located in Palm
Springs, Santa Maria and Long Beach, CA .
(E) The maximum balance of the Company's 50% portion of this facility is
$60,000.
(F) This loan is secured by first mortgage liens on 2 self-storage facilities
totaling 141,721 square feet located in Marrero and New Orleans, LA.
(G) The maximum balance of the Company's portion of this facility is $20,000.
(H) This loan is secured by a fee interest in an office property totaling
607,668 square feet located in Boston, MA.
(I) Reconciliation of carrying amount:
Balance at January 1, 1997 ................. $ 17,800
Additions:
New loans ............................... 164,645
Funding of credit facilities ............ 28,627
Deductions:
Collection of principal ................. (105,440)
---------
Balance at January 1, 1998 ................. 105,632
Additions:
New loans ............................... 40,604
Funding of credit facilities ............ 33,305
Amortization of discount ................ 410
Deductions:
Collection of principal ................. (55,244)
---------
Balance at January 1, 1999 ................. 124,707
Additions:
New loans ............................... 49,295
Amortization of discount ................ 217
Deductions:
Collection of principal ................. (112,741)
Contributions for joint venture interests (24,218)
---------
Balance at December 31, 1999 ............... $ 37,260
=========
</FN>
S-3