SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12917
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WELLSFORD REAL PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Maryland 13-3926898
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
535 Madison Avenue, New York, NY 10022
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(Address of principal executive offices)
(Zip Code)
(212) 838-3400
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
The number of the Registrant's share of Common Stock outstanding was 16,649,575
as of May 1, 2000 (including 339,806 shares of Class A Common Stock).
1
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999 ..........................................3
Consolidated Statements of Income (unaudited) for the Three
Months Ended March 31, 2000 and 1999............................4
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 2000 and 1999......................5
Notes to Consolidated Financial Statements (unaudited)..........6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....19
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings..............................................20
Item 6. Exhibits and Reports on Form 8-K...............................21
Signatures ................................................................22
2
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
ASSETS
Real estate assets, at cost:
Land ..................................................... $ 18,813,000 $ 18,813,000
Buildings and improvements ............................... 117,368,202 116,605,231
------------- -------------
136,181,202 135,418,231
Less, accumulated depreciation ........................... (7,585,455) (6,584,328)
------------- -------------
128,595,747 128,833,903
Construction in progress ................................. 33,916,548 30,747,867
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162,512,295 159,581,770
Notes receivable ............................................ 37,257,751 37,259,587
Investment in joint ventures ................................ 116,045,131 114,390,298
------------- -------------
Total real estate assets .................................... 315,815,177 311,231,655
Cash and cash equivalents ................................... 8,601,158 34,739,866
Restricted cash ............................................. 7,979,400 8,467,092
Prepaid and other assets .................................... 11,276,779 11,892,713
------------- -------------
Total assets ................................................ $ 343,672,514 $ 366,331,326
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ................................... $ 119,095,537 $ 119,314,929
Credit facility .......................................... -- --
Accrued expenses and other liabilities ................... 10,849,154 13,891,212
------------- -------------
Total liabilities ........................................... 129,944,691 133,206,141
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Commitments and contingencies
Minority interest ........................................... 3,437,388 3,433,972
Shareholders' equity:
Series A 8% convertible redeemable preferred stock,
$.01 par valu per share, 2,000,000 shares authorized,
no shares issued and outstanding ...................... -- --
Common stock, 197,650,000 shares authorized-
16,307,469 and 18,882,493 shares, $.01 par value per
share, issued and outstanding .......................... 163,075 188,825
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 ................... 195,094,548 215,674,726
Retained earnings ........................................ 21,224,557 20,246,075
Deferred compensation .................................... (1,635,009) (1,861,677)
Treasury stock, 417,174 and 416,759 shares ............... (4,560,134) (4,560,134)
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Total shareholders' equity .................................. 210,290,435 229,691,213
------------- -------------
Total liabilities and shareholders' equity .................. $ 343,672,514 $ 366,331,326
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
---------
2000 1999
---- ----
REVENUE
Rental income ....................... $ 4,531,248 $ 4,341,454
Interest income ..................... 1,410,991 3,610,213
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Total revenue .................... 5,942,239 7,951,667
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EXPENSES
Property operating and maintenance .. 821,621 857,081
Real estate taxes ................... 421,578 421,611
Depreciation and amortization ....... 1,105,320 1,163,019
Property management ................. 176,137 166,070
Interest ............................ 1,813,679 1,906,652
General and administrative .......... 1,858,663 974,907
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Total expenses ................... 6,196,998 5,489,340
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Income from joint ventures ............. 1,260,909 1,016,794
------------ ------------
Income before minority interest ........ 1,006,150 3,479,121
Minority interest ...................... (9,668) (7,872)
------------ ------------
Income before taxes .................... 996,482 3,471,249
Income tax expense ..................... 18,000 863,000
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Net income ............................. $ 978,482 $ 2,608,249
============ ============
Net income per common share, basic ..... $ 0.05 $ 0.13
============ ============
Net income per common share, diluted ... $ 0.05 $ 0.13
============ ============
Weighted average number of common shares
outstanding, basic ............... 18,202,787 20,750,411
============ ============
Weighted average number of common shares
outstanding, diluted ............. 18,214,164 20,773,391
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 978,482 $ 2,608,249
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ......................... 1,102,320 1,180,070
Amortization of deferred compensation ................. 226,668 33,773
Undistributed joint venture income .................... (781,730) --
Joint venture distributions in excess of current period
income ............................................. -- 868,430
Undistributed minority interest ....................... 9,668 7,872
Share grants .......................................... 20,000 --
Changes in assets and liabilities:
Restricted cash .................................... 487,692 86,550
Prepaid and other assets ........................... 583,548 (2,569,904)
Accrued expenses and other liabilities ............. (1,642,058) (2,183,856)
------------ ------------
Net cash provided by operating activities ............. 984,590 31,184
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets ........................... (5,331,652) (11,693,836)
Investments in joint ventures:
Capital contributions .................................. (944,910) (3,285,712)
Returns of capital ..................................... -- --
Investments in notes receivable ............................. (3,853,000) (2,150,000)
Repayments of notes receivable .............................. 3,857,836 3,375,955
------------ ------------
Net cash used in investing activities .................. (6,271,726) (13,753,593)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities ............................. -- 35,000,000
Repayment of credit facilities .............................. -- (17,000,000)
Repayment of mortgage notes payable ......................... (219,391) (231,661)
Distributions to minority interest .......................... (6,252) (1,498)
Repurchase of common shares ................................. (20,625,929) --
------------ ------------
Net cash (used in) provided by financing activities ... (20,851,572) 17,766,841
------------ ------------
Net (decrease) increase in cash and cash equivalents ........... (26,138,708) 4,044,432
Cash and cash equivalents, beginning of period ................. 34,739,866 10,122,037
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Cash and cash equivalents, end of period ....................... $ 8,601,158 $ 14,166,469
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest .................... $ 2,087,838 $ 2,147,186
============ ============
Cash paid during the period for income taxes ................ $ 108,435 $ 1,831,585
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Notes receivable contributed for joint venture interest ..... $ -- $ 24,218,113
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 3 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 intercompany 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.
The accompanying consolidated financial statements and notes of the
Company have been prepared in accordance with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information
and footnote disclosures normally included in financial statements
prepared under generally accepted accounting principles have been
condensed or omitted pursuant to such rules. In the opinion of
management, all adjustments considered necessary for a fair
presentation of the Company's financial position, results of operations
and cash flows have been included and are of a normal and recurring
nature. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1999, as filed with the Securities and Exchange
Commission. The results of operations and cash flows for the three
months ended March 31, 2000 are not necessarily indicative of a full
year results.
6
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 period presentation.
3. SEGMENT INFORMATION
The Company's operations are organized into three SBUs. The following
table presents condensed balance sheet and operating data for these
SBUs:
(AMOUNTS IN THOUSANDS)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
MARCH 31, 2000
--------------
Real estate, net .............. $ -- $ 38,615 $123,897 $ -- $162,512
Notes receivable .............. -- 37,258 -- -- 37,258
Investment in joint ventures .. 81,188 34,857 -- -- 116,045
Total assets .................. 81,274 125,796 125,678 10,925 343,673
Mortgage notes payable ........ -- 28,000 91,096 -- 119,096
Equity ........................ 81,234 96,258 29,924 2,874 210,290
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
Total assets .................. 79,755 146,901 123,532 16,143 366,331
Mortgage notes payable ........ -- 28,000 91,315 -- 119,315
Equity ........................ 79,709 116,993 27,433 5,556 229,691
- ----------
<FN>
*Includes corporate cash, other assets, accrued expenses and other
liabilities that have not been allocated to the operating segments.
</FN>
7
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
FOR THE THREE MONTHS
ENDED MARCH 31, 2000
--------------------
Rental income ................. $ -- $ 1,558 $ 2,973 $ -- $ 4,531
Interest income ............... -- 1,355 -- 56 1,411
------- ------- ------- ------- -------
Total income .................. -- 2,913 2,973 56 5,942
------- ------- ------- ------- -------
Operating expenses ............ -- 591 828 -- 1,419
Depreciation and amortization . 46 277 751 31 1,105
Interest ...................... -- 659 1,115 40 1,814
General and administrative .... -- 215 -- 1,644 1,859
------- ------- ------- ------- -------
46 1,742 2,694 1,715 6,197
------- ------- ------- ------- -------
Income from joint ventures .... 601 660 -- -- 1,261
Minority interest ............. -- -- (10) -- (10)
------- ------- ------- ------- -------
Income (loss) before taxes .... $ 555 $ 1,831 $ 269 $(1,659) $ 996
======= ======= ======= ======= =======
FOR THE THREE MONTHS
ENDED MARCH 31, 1999
--------------------
Rental income ................. $ -- $ 1,409 $ 2,933 $ -- $ 4,342
Interest income ............... -- 3,465 -- 145 3,610
------- ------- ------- ------- -------
Total income .................. -- 4,874 2,933 145 7,952
------- ------- ------- ------- -------
Operating expenses ............ -- 670 774 -- 1,444
Depreciation and amortization . 44 343 750 26 1,163
Interest ...................... -- 1,188 622 97 1,907
General and administrative -- 138 -- 837 975
------- ------- ------- ------- -------
44 2,339 2,146 960 5,489
------- ------- ------- ------- -------
Income from joint ventures .... 428 588 -- -- 1,016
Minority interest ............. -- -- (8) -- (8)
------- ------- ------- ------- -------
Income (loss) before taxes .... $ 384 $ 3,123 $ 779 $ (815) $ 3,471
======= ======= ======= ======= =======
<FN>
- ----------
*Includes general and administrative expenses, interest income and
interest expense that have not been allocated to the operating
segments.
</FN>
COMMERCIAL PROPERTY OPERATIONS--WELLSFORD/WHITEHALL
The Company's commercial property operations segment consists of
Wellsford/Whitehall, which is accounted for on the equity method. 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 had a 40.9% interest in
Wellsford/Whitehall at March 31, 2000.
8
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
The following table presents condensed balance sheets and operating
data for the Wellsford/Whitehall segment:
(AMOUNTS IN THOUSANDS)
CONDENSED BALANCE SHEET DATA MARCH 31, 2000 DECEMBER 31, 1999
---------------------------- -------------- -----------------
Real estate, net ........................... $558,708 $551,152
Total assets ............................... 596,641 572,279
Mortgage notes payable ..................... 126,151 110,831
Credit facility ............................ 246,286 238,661
Equity ..................................... 206,447 200,740
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
CONDENSED OPERATING DATA 2000 1999
------------------------ ---- ----
Rental income .............................. $ 19,608 $ 17,937
Operating expenses ......................... 6,789 6,491
Depreciation and amortization .............. 3,133 2,723
Interest ................................... 6,072 6,410
Total expenses ............................. 17,950 17,165
Gain on sale of investments ................ -- 247
Income before distributions ................ 1,745 1,138
As of March 31, 2000, Wellsford/Whitehall owned 41 office properties
totaling approximately 4,920,000 square feet (including approximately
1,451,000 square feet under renovation), located in New Jersey,
Massachusetts and Maryland.
In March 2000, Wellsford/Whitehall obtained a $23,500,000 loan from
Principal Capital Management, L.L.C. for the rehabilitation of Gateway
Tower, a 236,000 square foot, nine-story office building located at 401
North Washington Street, Rockville, Maryland. The non-recourse loan has
a term of three years, plus two six-month extension options and bears
interest at LIBOR + 3.50%.
DEBT AND EQUITY ACTIVITIES--WELLSFORD CAPITAL
At March 31, 2000, the Company had approximately $65,200,000 of debt
related investments, including approximately $37,300,000 of direct debt
investments which bore interest at an average yield of approximately
11.35% and had an average remaining term to maturity of approximately
5.2 years and $27,900,000 in Belford Capital Holdings, L.L.C. ("Belford
Capital"), a company which was organized to invest in debt instruments.
The Company also had venture capital investments of approximately
$6,900,000 in a real estate related e-commerce company and other real
estate-related ventures. In addition, the Company owned and operated
seven commercial properties (Value Property Trust--"VLP") totaling
approximately 597,000 square feet primarily located in the Northeastern
United States and California.
9
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
The Company had an approximate 51.1% interest in Belford Capital at
March 31, 2000. The following table presents condensed balance sheets
and operating data for Belford Capital:
(AMOUNTS IN THOUSANDS)
CONDENSED BALANCE SHEET DATA MARCH 31, 2000 DECEMBER 31, 1999
---------------------------- -------------- -----------------
Investments .............................. $39,361 $40,143
Investment in Reis ....................... 6,500 6,500
Total assets ............................. 61,206 60,870
Total equity ............................. 61,156 60,639
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
CONDENSED OPERATING DATA 2000 1999
------------------------ ---- ----
Interest ................................. $ 1,020 $ 58
Interest from Reis ....................... 162 136
------- -------
Total revenue ............................ 1,182 194
Total expenses ........................... 216 2
------- -------
Net income ............................... $ 966 $ 192
======= =======
DEVELOPMENT AND LAND OPERATIONS--WELLSFORD DEVELOPMENT
At March 31, 2000, the Company had 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
(with one 264 unit phase expected to be completed in July 2000 and the
other 424 unit phase expected to be completed in the fourth quarter of
2001) and the remaining approximate 352 unit final phase being prepared
for development. The Company also owned a 344 unit operational
multifamily residential development in Tucson, Arizona.
4. SHAREHOLDERS' EQUITY
In February 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.
The Company did not declare or distribute any dividends for the three
months ended March 31, 2000 and 1999.
5. INCOME TAXES
The income tax provision for the three months ended March 31, 2000 and
1999 reflects the reduction in the valuation allowance attributable to
the pro-rata annual utilization of the net operating loss
carryforwards.
6. EARNINGS PER SHARE
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.
10
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
The following table details the computation of earnings per share,
basic and diluted:
FOR THE THREE MONTHS ENDED
MARCH 31,
---------
2000 1999
---- ----
Numerator for net income per common share, basic and diluted $ 978,482 $ 2,608,249
=========== ===========
Denominator:
Denominator for net income per common share, basic--
weighted average common shares ..................... 18,202,787 20,750,411
Effect of dilutive securities:
Employee stock options ............................. 11,377 22,980
Warrants ........................................... -- --
----------- -----------
Denominator for net income per common share, diluted--
weighted average common shares ..................... 18,214,164 20,773,391
=========== ===========
Net income per common share, basic ......................... $ 0.05 $ 0.13
=========== ===========
Net income per common share, diluted ....................... $ 0.05 $ 0.13
=========== ===========
7. SUBSEQUENT EVENTS
STOCK REPURCHASE PROGRAM
On April 20, 2000, the Company's Board of Directors authorized the
repurchase of up to 2,000,000 additional shares of its outstanding
common stock. The Company intends to repurchase the shares from time to
time by means of open market purchases depending on availability of
shares, the Company's cash position and the price per share. No minimum
number or value of shares to be repurchased has been fixed.
REIS REPORTS, INC. ("REIS")
On April 25, 2000, the Company through its investment in Belford
Capital, invested approximately $1,788,000, its proportionate share of
a $3,500,000 investment in 35,000 shares of 8% Series C Convertible
Preferred Shares issued by Reis at $100.00 per share ("Series C
Preferred"). Each Series C Preferred share is convertible into 25
common shares. In addition, approximately $900,000 of accrued interest
on the existing $6,500,000 notes held by Belford Capital was converted
into 8,940 shares of Series C Preferred. Further, the notes held by
Belford Capital were converted into 50,000 shares of 8% Series A
Preferred Shares aggregating $5,000,000 (2,840,909 shares at $1.76 per
share on an as converted basis) and 15,000 shares of 8% Series B
Preferred Shares, aggregating $1,500,000 (500,000 shares at $3.00 per
share on an as converted basis). Belford Capital's investment in Reis
upon completion of these transactions on an as converted basis was
38.8% of equity (of which the Company's approximate 51% share was
19.8%). Separately on April 25, 2000, the Company directly invested
approximately $1,000,000 for 10,000 shares of Series C Preferred. The
Company's aggregate pro-rata and direct equity investment in Reis upon
completion of these transactions is approximately 22.0% of equity or
approximately 2,518,000 common shares on an as converted basis.
11
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
At the time of the investments by Belford Capital and the Company, the
management of Reis offered certain persons the opportunity to make an
individual investment in Reis, including, but not limited to, certain
directors and officers of the Company, or their affiliates, by issuing
4,100 shares of Series C Preferred on April 25, 2000 for $410,000. The
investments of the Company's officers and directors together with
shares of common stock previously held by the Company's Chairman
represent approximately 3.4% of Reis' equity, on an as converted
basis, at April 25, 2000. Additionally, a company controlled by the
Chairman of EQR purchased a 4.4% interest on that date.
The Company's Chairman is the brother of the President of Reis. The
Chairman and those directors investing directly in Reis recused
themselves from the Reis investment decisions.
ISSUANCE OF SECURITIES
On May 5, 2000, the Company privately placed with a subsidiary of EQR
1,000,000 8.25% Convertible Trust Preferred Securities, representing
beneficial interests in the assets of WRP Convertible Trust I, a
Delaware statutory business trust which is a consolidated subsidiary of
the Company ("WRP Trust I"), with an aggregate liquidation amount of
$25,000,000 (the "Convertible Trust Preferred Securities"). WRP Trust I
also issued 31,000 8.25% Convertible Trust Common Securities to the
Company, representing beneficial interests in the assets of WRP Trust
I, with an aggregate liquidation amount of $775,000. The proceeds from
both transactions were used by WRP Trust I to purchase $25,775,000 of
the Company's 8.25% Convertible Junior Subordinated Debentures
("Convertible Debentures"), which mature on May 4, 2022. The net
proceeds from the sale of the Convertible Debentures, after transaction
costs, will be used by the Company for general corporate purposes. The
transactions between WRP Trust I and the Company will be eliminated in
the consolidated financial statements of the Company.
The Convertible Trust Preferred Securities are convertible into
2,247,393 common shares at $11.124 per share and are redeemable in
whole or in part by the Company on or after May 30, 2002. EQR can
require redemption on or after May 30, 2012 unless the Company
exercises one of its two five-year extensions, subject to an interest
adjustment to the then prevailing market rates if higher than 8.25%.
The redemption rights are subject to certain other terms and conditions
contained in the related agreements. In connection with this issuance,
the Company simultaneously terminated the $50,000,000 secured loan
facility from Fleet National Bank and Morgan Guaranty Trust Company of
New York (the "WRP Bank Facility"). As of March 31, 2000, there was no
outstanding balance under the WRP Bank Facility.
On May 5, 2000, the Company entered into an agreement to exchange the
339,806 shares of Class A Common Stock held by EQR for a like number of
shares of the Company's Class A-1 Common Stock. The Class A-1 Common
Stock's par value is $0.01 per share and has rights substantially
similar to the Class A Common Stock. All prior obligations of EQR to
acquire 1,000,000 shares of the Company's Series A 8% Convertible
Redeemable Preferred Stock, $25 par value, have been terminated.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
Capitalized terms used herein which are not defined elsewhere in this
Quarterly Report on Form 10-Q shall have the meanings ascribed to them
in the Company's annual report on Form 10-K for the year ended December
31, 1999, as filed with the Securities and Exchange Commission.
BUSINESS
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 intends to execute its business plan: (i)
commercial property operations which are held in the Company's
subsidiary, Wellsford/Whitehall; (ii) debt and other equity activities;
and (iii) property development and land operations.
COMMERCIAL PROPERTY OPERATIONS - WELLSFORD/WHITEHALL
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.
The Company's commercial property operations segment consists of
Wellsford/Whitehall, which is accounted for on the equity method. 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 had a 40.9% interest in
Wellsford/Whitehall at March 31, 2000.
As of March 31, 2000, Wellsford/Whitehall owned 41 office properties
totaling approximately 4,920,000 square feet (including approximately
1,451,000 square feet under renovation), located in New Jersey,
Massachusetts and Maryland.
Wellsford/Whitehall entered into the following significant leases in
2000:
LEASABLE PERCENTAGE LEASE BASE RENT
SQUARE OF COMMENCEMENT LEASE PER
PROPERTY FEET BUILDING DATE EXPIRATION SQUARE FOOT
-------- ---- -------- ---- ---------- -----------
201 University Avenue, Westwood, MA ........ 82,000 100% January 2000 December 2009 $ 15.00*
Mountain Heights Center #2, Berkeley Hts, NJ 115,000 100% January 2000 August 2010 28.95
Morris Technology Center, Parsippany, NJ ... 257,000 100% February 2001 January 2016 28.76
<FN>
- ----------
* Triple net rent.
</FN>
13
DEBT AND EQUITY ACTIVITIES - WELLSFORD CAPITAL
The Company originates, 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 March 31, 2000, the Company had approximately $65,200,000 of debt
related investments, including approximately $37,300,000 of direct debt
investments which bore interest at an average yield of approximately
11.35% and had an average remaining term to maturity of approximately
5.2 years and $27,900,000 in Belford Capital Holdings, L.L.C. ("Belford
Capital"), a company which was organized to invest in debt instruments.
The Company also had venture capital investments of approximately
$6,900,000 in a real estate related e-commerce company and other real
estate-related ventures. In addition, the Company owned and operated
seven commercial properties (Value Property Trust--"VLP") totaling
approximately 597,000 square feet primarily located in the Northeastern
United States and California.
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 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.
At March 31, 2000, the Company had 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
(with one 264 unit phase expected to be completed in July 2000 and the
other 424 unit phase expected to be completed in the fourth quarter of
2001) and the remaining approximate 352 unit final phase being prepared
for development. The Company also owned a 344 unit operational
multifamily residential development in Tucson, Arizona.
SEGMENT INFORMATION
The following table provides occupancy rates as of each specified date
by SBU:
COMMERCIAL PROPERTY DEBT AND EQUITY DEVELOPMENT AND
OPERATIONS INVESTMENTS* LAND INVESTMENTS
---------- ------------ ----------------
March 31, 2000 ....................... 93% 76% 91%
December 31, 1999 .................... 92% 76% 89%
March 31, 1999 ....................... 93% 75% 94%
December 31, 1998 .................... 92% 80% 92%
<FN>
- ----------
*Occupancy rates for the seven VLP assets held in this SBU.
</FN>
14
See Note 3 of the Company's unaudited consolidated financial statements
for quarterly financial 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.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS
ENDED MARCH 31, 1999.
Rental income increased by $190,000. This increase is primarily the
result of retenanting of space at higher rental rates on the VLP
properties owned and operated by the Wellsford Capital segment.
Interest income decreased by $2,199,000. This decrease is primarily the
result of loans being repaid in part or in full during 1999
($2,048,000) and from investments contributed to Belford Capital in
February 1999 ($456,000) offset by loans which generated income in the
current period which did not exist in the prior period ($170,000) and
increased income on cash and cash equivalents ($135,000).
Depreciation and amortization expense decreased by $58,000. This
decrease is primarily due to decreased amortization associated with the
Company's joint venture investments.
Interest expense decreased by $93,000. This decrease is primarily due
to credit facility balances outstanding during the period in 1999 with
none outstanding during the period in 2000 ($599,000) offset by a
decrease in capitalized interest of $454,000 and an increase in expense
on the VLP properties mortgage due to an increase in LIBOR ($44,000).
General and administrative expenses increased by $884,000. This
increase is primarily the result of salary costs related to additional
employees in Wellsford Capital, the addition of the chief accounting
officer position, additional amortization from deferred compensation
arrangements and additional professional fees.
Income from joint ventures increased by $244,000. This increase is
primarily due to an increase in the Company's proportionate share of
income from Wellsford/Whitehall ($173,000) and the Liberty
Hampshire/Belford Capital Joint Venture investments ($155,000) offset
by a decrease in the Company's proportionate share of income from
Creamer Vitale Wellsford as a result of the prepayment of an investment
in 1999, previously held by this venture, with no corresponding income
in the current period.
The income tax provision decreased by $845,000. This is primarily the
result of a reduction in income before taxes of $2,475,000 partially
offset by losses at certain companies at the state and local tax level
without benefit as well as taxes based upon net worth for such
companies.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1999 TO THE THREE MONTHS
ENDED MARCH 31, 1998.
Rental income increased by $1,850,000. This increase is primarily a
result of the acquisition of properties in connection with the VLP
Merger in February 1998 and the completion of Red Canyon (Phase II of
the Company's Palomino Park development) in November 1998.
15
Interest income increased by $142,000. This increase is primarily a
result of the acquisition of approximately $76,100,000 in notes
receivable during the period from January 1998 through March 1999
offset by the disposition of $82,700,000 of notes receivable during
this period ($25,600,000 of which was disposed on March 30, 1999--see
Notes to Consolidated Financial Statements).
Property operating and maintenance expense, real estate tax expense,
depreciation and amortization, and property management expense
increased by $436,000, $175,000, $540,000, and $95,000, respectively.
These increases are a result of the factors which affected rental
income, as described above.
Interest expense increased by $1,015,000 as a result of the issuance of
substantially all of the Company's debt other than the Palomino Park
Bonds and the Blue Ridge Loan subsequent to December 31, 1997. Interest
on the Palomino Park Bonds was capitalized to the Company's Palomino
Park development.
General and administrative expense decreased by $208,000. This decrease
is a result of an increased allocation of such costs to
Wellsford/Whitehall and a decline in accrued compensation.
Income from joint ventures increased by $751,000. This increase is a
result of the growth of the Wellsford/Whitehall joint venture since
January 1998, 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.
The income tax provision decreased $385,000 primarily as a result of
the effects of the utilization of the net operating loss carry forwards
acquired in the VLP Merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to meet its short-term liquidity requirements
generally through its working capital and cash flow provided by
operations. The Company considers its ability to generate cash to be
adequate and expects it to continue to be adequate to meet operating
requirements both in the short and long terms.
The Company expects to meet its long-term liquidity requirements such
as refinancing mortgages, financing acquisitions and development,
financing capital improvements and joint venture capital requirements
by long-term borrowings, through the use of available cash, the
issuance of debt and the offering of additional debt and equity
securities.
STOCK REPURCHASE PROGRAM
On April 20, 2000, the Company's Board of Directors authorized the
repurchase of up to 2,000,000 additional shares of its outstanding
common stock. The Company intends to repurchase the shares from time to
time by means of open market purchases depending on availability of
shares, the Company's cash position and the price per share. No minimum
number or value of shares to be repurchased has been fixed.
16
DISCRETIONARY CAPITAL COMMITMENTS
At March 31, 2000, 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 of Directors
approval if deemed prudent to do so to protect or enhance its existing
investment. At March 31, 2000, discretionary capital commitments are as
follows:
COMMITMENT AMOUNT
---------- ------
Abbey Credit Facility.................... $ 8,980,000
Safeguard Credit Facility................ 17,100,000
Wellsford/Whitehall equity.............. 11,286,000
Creamer Vitale Wellsford equity.......... 13,608,000
Reis..................................... 2,788,000*
<FN>
- ----------
*Commitment fully funded as of April 25, 2000.
</FN>
RESOURCES
On May 5, 2000, the Company privately placed with a subsidiary of EQR
1,000,000 8.25% Convertible Trust Preferred Securities, representing
beneficial interests in the assets of WRP Convertible Trust I, a
Delaware statutory business trust which is a consolidated subsidiary of
the Company ("WRP Trust I"), with an aggregate liquidation amount of
$25,000,000 (the "Convertible Trust Preferred Securities"). WRP Trust I
also issued 31,000 8.25% Convertible Trust Common Securities to the
Company, representing beneficial interests in the assets of WRP Trust
I, with an aggregate liquidation amount of $775,000. The proceeds from
both transactions were used by WRP Trust I to purchase $25,775,000 of
the Company's 8.25% Convertible Junior Subordinated Debentures
("Convertible Debentures"), which mature on May 4, 2022. The net
proceeds from the sale of the Convertible Debentures, after transaction
costs, will be used by the Company for general corporate purposes. The
transactions between WRP Trust I and the Company will be eliminated in
the consolidated financial statements of the Company.
The Convertible Trust Preferred Securities are convertible into
2,247,393 common shares at $11.124 per share and are redeemable in
whole or in part by the Company on or after May 30, 2002. EQR can
require redemption on or after May 30, 2012 unless the Company
exercises one of its two five-year extensions, subject to an interest
adjustment to the then prevailing market rates if higher than 8.25%.
The redemption rights are subject to certain other terms and conditions
contained in the related agreements. In connection with this issuance,
the Company simultaneously terminated the $50,000,000 secured loan
facility from Fleet National Bank and Morgan Guaranty Trust Company of
New York (the "WRP Bank Facility"). As of March 31, 2000, there was no
outstanding balance under the WRP Bank Facility.
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. The Company is in the process of modifying the terms of
this facility which would include transferring an existing unencumbered
note receivable to the subsidiary to serve as collateral under the
facility and reducing the maximum
17
borrowing amount to $20,000,000. There can be no assurance that the
negotiations will be successful. As of March 31, 2000, 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 March 31, 2000,
approximately $246,286,000 was outstanding under the
Wellsford/Whitehall Bank Facility (approximately $62,925,000 of which
was under the senior facility). At March 31, 2000, the ability to draw
on this facility expired. The Wellsford/Whitehall 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 and equity contributions from the principal owners of
Wellsford/Whitehall. At March 31, 2000 the Company's unfunded capital
commitment is approximately $11,286,000 and the Whitehall unfunded
capital commitment is approximately $59,341,000.
CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000.
Cash flow provided by operating activities of $985,000 primarily
consists of net income of $978,000 plus (i) depreciation and
amortization of $1,102,000, (ii) amortization of deferred compensation
of $227,000, (iii) a decrease in restricted cash of $488,000 and (iv) a
decrease in prepaid and other assets of $584,000 offset by
undistributed joint venture income of $782,000, and a decrease in
accrued expenses and other liabilities of $1,642,000.
Cash flow used in investing activities of $6,272,000 consists of
additional investments in (i) real estate assets of $5,332,000, (ii)
notes receivable of $3,853,000 and (iii) capital contributions to joint
ventures of $945,000 offset by repayments of notes receivable of
$3,858,000.
Cash flow used in financing activities of $20,852,000 primarily
consists of (i) the repurchase of common shares of $20,626,000 and (ii)
principal payments of mortgage notes payable of $219,000.
FOR THE THREE MONTHS ENDED MARCH 31, 1999.
Cash flow provided by operating activities of $31,000 primarily
consists of net income of $2,608,000 plus (i) depreciation and
amortization of $1,180,000, (ii) joint venture distributions in excess
of current period income of $868,000, (iii) amortization of deferred
compensation of $34,000 and (iv) a decrease in restricted cash of
$87,000 offset by increases in prepaid and other assets of $2,570,000
and a decrease in accrued expenses and other liabilities of $2,184,000.
Cash flow used in investing activities of $13,754,000 consists of
additional investments in (i) real estate assets of $11,694,000, (ii)
capital contributions to joint ventures of $3,286,000 and (iii) notes
receivable of $2,150,000 offset by repayments of notes receivable of
$3,376,000.
Cash flow provided by financing activities of $17,767,000 primarily
consists of borrowings from credit facilities of $35,000,000 offset by
(i) repayment of credit facilities of $17,000,000 and (ii) repayment of
mortgage notes payable of $232,000.
18
YEAR 2000
For the three months ended March 31, 2000, the Company did not
encounter any Year 2000 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.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Form 10-Q, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company or industry
results to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following, which
are discussed in greater detail in the "Risk Factors" section of the
Company's registration statement on Form S-11 (file No. 333-32445)
filed with the Securities and Exchange Commission ("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 3. 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
March 31, 2000. The Company had investments in $25,000,000 of fixed
rate instruments and $76,341,000 of fixed rate financings as of March
31, 2000. 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 annual net income of approximately
$172,000 ($0.01 per diluted share).
19
PART II. OTHER INFORMATION
ITEM 1: 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.
ITEM 2: CHANGES IN SECURITIES.
On May 5, 2000, the Company privately placed with ERP
Operating Limited Partnership ("ERPOLP"), the
operating partnership of Equity Residential
Properties Trust (NYSE: EQR), a real estate
investment trust, (the "Private Placement") 1,000,000
8.25% Convertible Trust Preferred Securities,
representing undivided beneficial interests in the
assets of WRP Convertible Trust I, a Delaware
statutory business trust which is a consolidated
subsidiary of the Company ("WRP Trust I"), with an
aggregate liquidation amount of $25,000,000 (the
"Preferred Securities").
The proceeds obtained from the Private Placement,
together with the proceeds obtained from the issuance
and sale by WRP Trust I to the Company of 31,000
8.25% Convertible Trust Common Securities,
representing undivided beneficial interests in the
assets of WRP Trust I, with an aggregate liquidation
amount of $775,000 (the "Common Securities" and
together with the Preferred Securities, the
"Securities").
The proceeds from the Securities were used by WRP
Trust I to purchase the Company's 8.25% Convertible
Junior Subordinated Debentures in the aggregate
principal amount of $25,775,000, which mature on May
4, 2022 (the "Convertible Debentures").
The net proceeds from the sale of the Convertible
Debentures, after transaction costs, will be used by
the Company for general corporate purposes.
Distributions and amounts payable upon liquidation or
redemption and otherwise, with respect to the
Securities are guaranteed by the Company.
In the event of a default with respect to the
Convertible Debentures and Securities, including,
default in the payment of interest, distributions and
principal, the Company will be prohibited from (x)
declaring or paying dividends or making other
distributions on, or redeeming, purchasing or making
liquidation payments with respect to, its capital
stock and (y) paying interest, principal or premium
on, or repaying, repurchasing, or redeeming any of
the Company's debt securities ranking pari passu with
or junior to the Convertible Debentures or making any
guarantee payments with respect to any guarantee by
the Company of the debt securities of any of the
Company's subsidiaries if such guarantee ranks pari
passu with or junior in interest to the Convertible
Debentures.
The Securities will be convertible into Convertible
Debentures on the basis of one Security per $25
principal amount of Convertible Debentures and the
Convertible Debentures will be convertible into
shares of common stock of the Company, $.01 par value
per share, ("Common Shares") at a rate of 2.2474
Common Shares per $25 principal amount of Convertible
Debentures (which is equivalent to a conversion price
of $11.124 per Common Share), subject to certain
adjustments.
20
In connection with the transactions described herein,
the Company and ERPOLP have exchanged the 339,806
shares of Class A Common Stock of the Company held by
ERPOLP for an equal number of the Company's Class A-1
Common Stock issued pursuant to the Articles
Supplementary with respect to the Company's Class A-1
Common Stock, which were filed with the State of
Maryland on May 5, 2000. The terms and conditions of
the Class A-1 Common Stock are substantially similar
to those of the Class A Common Stock. As was the case
with the Class A Common Stock, each share of Class
A-1 Common Stock is convertible into one Common
Share. The Class A-1 Common Stock differs from the
Class A Common Stock primarily in that the Class A-1
Common Stock takes into account the issuance of the
Preferred Securities and Convertible Debentures.
The Securities, Convertible Debentures and the shares
of Class A-1 Common Stock were issued pursuant to an
exemption from the registration requirements under
the Securities Act of 1933, as amended (the "Act")
pursuant to Section 4(2) thereof, and may not be
offered or sold in the United States without
registration under, or an applicable exemption from
the registration requirements of the Act and
applicable state securities laws.
The transactions set forth herein are more completely
described in the Company's Current Report on Form 8-K
dated May 11, 2000 and filed with the Securities and
Exchange Commission on May 11, 2000, which Current
Report is hereby incorporated into this Form 10-Q by
reference.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5: OTHER INFORMATION.
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits filed with this Form 10-Q:
27.1 Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K.
During the quarter ended March 31, 2000, Wellsford
Real Properties, Inc. filed the following reports
on Form 8-K:
Date of Report
(Date of Earliest Event Reported) Item Reported Date Filed
- --------------------------------- ------------- ----------
February 29, 2000 Repurchase of 2,573,632 shares of February 29, 2000
(February 25, 2000) outstanding common stock by
Wellsford Real Properties, Inc.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLSFORD REAL PROPERTIES, INC.
By: /s/ Jeffrey H. Lynford
------------------------
Jeffrey H. Lynford
Chairman of the Board
/s/ James J. Burns
------------------------
James J. Burns
Senior Vice President,
Chief Accounting Officer
Dated: May 12, 2000
22