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 June 30, 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 8,295,009
as of August 1, 2000 (including 169,903 shares of class A-1 common stock).
1
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TABLE OF CONTENTS
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Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999 ..........................................3
Consolidated Statements of Income (unaudited) for the
Three and Six Months Ended June 30, 2000 and 1999...............4
Consolidated Statements of Cash Flows (unaudited) for the
Six Months Ended June 30, 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......................................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....23
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings..............................................24
Item 4. Submission of Matters to a Vote of Security Holders............24
Item 6. Exhibits and Reports on Form 8-K...............................25
Signatures ...........................................................26
2
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
ASSETS
Real estate assets, at cost:
Land ............................................................. $ 18,813,000 $ 18,813,000
Buildings and improvements ....................................... 117,898,817 116,605,231
------------- -------------
136,711,817 135,418,231
Less, accumulated depreciation ................................... (8,521,755) (6,584,328)
------------- -------------
128,190,062 128,833,903
Construction in progress ......................................... 35,650,179 30,747,867
------------- -------------
163,840,241 159,581,770
Notes receivable .................................................... 44,201,290 37,259,587
Investment in joint ventures ........................................ 118,476,357 114,390,298
------------- -------------
Total real estate assets ............................................ 326,517,888 311,231,655
Cash and cash equivalents ........................................... 22,011,735 34,739,866
Restricted cash ..................................................... 7,796,729 8,467,092
Prepaid and other assets ............................................ 12,289,128 11,892,713
------------- -------------
Total assets ........................................................ $ 368,615,480 $ 366,331,326
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ........................................... $ 118,872,373 $ 119,314,929
Credit facility .................................................. -- --
Accrued expenses and other liabilities ........................... 10,468,304 13,891,212
------------- -------------
Total liabilities ................................................ 129,340,677 133,206,141
------------- -------------
Company-obligated, mandatorily redeemable, convertible preferred
securities of WRP Convertible Trust I, holding solely 8.25% junior
subordinated debentures of Wellsford Real Properties, Inc.
("Convertible Trust Preferred Securities") ....................... 25,000,000 --
Minority interest ................................................... 3,436,817 3,433,972
Commitments and contingencies
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, 98,825,000 shares authorized $.02 par value per
share - 8,145,106 and 9,441,247 shares, issued and outstanding. 162,902 188,825
Class A-1 common stock, 175,000 shares authorized $.02
par value per share - 169,903 shares, issued and outstanding .. 3,398 3,398
Paid in capital in excess of par value ........................... 194,928,181 215,674,726
Retained earnings ................................................ 21,711,980 20,246,075
Deferred compensation ............................................ (1,408,341) (1,861,677)
Treasury stock, 208,587 and 208,587 shares ....................... (4,560,134) (4,560,134)
------------- -------------
Total shareholders' equity .......................................... 210,837,986 229,691,213
------------- -------------
Total liabilities and shareholders' equity .......................... $ 368,615,480 $ 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 FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
REVENUE
Rental income .............................. $ 4,458,334 $ 4,474,084 $ 8,989,582 $ 8,815,538
Interest income ............................ 1,495,198 4,106,129 2,906,189 7,716,342
------------ ------------ ------------ ------------
Total revenue ........................... 5,953,532 8,580,213 11,895,771 16,531,880
------------ ------------ ------------ ------------
EXPENSES
Property operating and maintenance ......... 1,131,544 962,787 1,953,165 1,819,868
Real estate taxes .......................... 416,711 392,545 838,289 814,156
Depreciation and amortization .............. 1,034,506 1,230,442 2,139,826 2,393,461
Property management ........................ 211,040 166,822 387,177 332,892
Interest ................................... 1,541,331 3,116,518 3,355,010 5,023,170
General and administrative ................. 1,353,312 1,434,842 3,211,975 2,409,749
------------ ------------ ------------ ------------
Total expenses .......................... 5,688,444 7,303,956 11,885,442 12,793,296
------------ ------------ ------------ ------------
Income from joint ventures .................... 804,764 1,905,519 2,065,673 2,922,313
------------ ------------ ------------ ------------
Income before minority interest, income taxes
and accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities .............. 1,069,852 3,181,776 2,076,002 6,660,897
Minority interest ............................. 571 (9,566) (9,097) (17,438)
------------ ------------ ------------ ------------
Income before taxes and accrued distributions
and amortization of costs on Convertible
Trust Preferred Securities .............. 1,070,423 3,172,210 2,066,905 6,643,459
Income tax expense ............................ 372,000 731,000 390,000 1,594,000
------------ ------------ ------------ ------------
Income before accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities .............. 698,423 2,441,210 1,676,905 5,049,459
Accrued distributions and amortization of
costs on Convertible Trust Preferred
Securities, net of income tax benefit
of $110,000 ............................. 211,000 -- 211,000 --
------------ ------------ ------------ ------------
Net income .................................... $ 487,423 $ 2,441,210 $ 1,465,905 $ 5,049,459
============ ============ ============ ============
Net income per common share, basic ............ $ 0.06 $ 0.24 $ 0.17 $ 0.49
============ ============ ============ ============
Net income per common share, diluted .......... $ 0.06 $ 0.23 $ 0.17 $ 0.49
============ ============ ============ ============
Weighted average number of common shares
outstanding, basic ...................... 8,321,888 10,381,689 8,711,641 10,378,465
============ ============ ============ ============
Weighted average number of common shares
outstanding, diluted .................... 8,326,980 10,398,978 8,717,036 10,392,871
============ ============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 1,465,905 $ 5,049,459
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ....................... 2,133,826 2,472,507
Amortization of deferred compensation ............... 453,336 403,361
Undistributed joint venture income .................. (1,126,400) (824,706)
Undistributed minority interest ..................... 9,097 17,438
Share grants ........................................ 40,000 --
Changes in assets and liabilities:
Restricted cash .................................. 670,363 (317,297)
Prepaid and other assets ......................... (29,085) (5,434,821)
Accrued expenses and other liabilities ........... (2,022,908) (3,373,920)
------------ ------------
Net cash provided by (used in) operating activities . 1,594,134 (2,007,979)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets ......................... (7,595,898) (14,793,958)
Investments in joint ventures:
Capital contributions ............................... (5,687,791) (7,741,692)
Returns of capital .................................. 2,584,517 --
Investments in notes receivable ........................... (15,333,000) (2,150,000)
Repayments of notes receivable ............................ 8,397,297 16,010,594
------------ ------------
Net cash used in investing activities ............... (17,634,875) (8,675,056)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Convertible Trust Preferred Securities ........ 25,000,000 --
Deferred financing costs .................................. (426,114) --
Proceeds from credit facilities ........................... -- 35,000,000
Repayment of credit facilities ............................ -- (17,000,000)
Repayment of mortgage notes payable ....................... (442,556) (440,213)
Distributions to minority interest ........................ (6,252) (1,498)
Costs incurred for reverse stock split .................... (8,244) --
Repurchases of common shares .............................. (20,804,224) --
------------ ------------
Net cash provided by financing activities .................... 3,312,610 17,558,289
------------ ------------
Net (decrease) increase in cash and cash equivalents ......... (12,728,131) 6,875,254
Cash and cash equivalents, beginning of period ............... 34,739,866 10,122,037
------------ ------------
Cash and cash equivalents, end of period ..................... $ 22,011,735 $ 16,997,291
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest .................. $ 4,218,956 $ 5,442,757
============ ============
(Income tax refunds) cash paid during the period for income
taxes, net ............................................. $ (15,060) $ 3,003,658
============ ============
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. REVERSE STOCK SPLIT
On June 9, 2000, the Company's shareholders approved a reverse stock
split whereby every two outstanding shares of common stock and class
A-1 common stock were converted into one share of outstanding common
stock and class A-1 common stock. The par value of both classes of
stock increased from $0.01 per share to $0.02 per share and the number
of authorized shares was halved from 197,650,000 to 98,825,000 for
common shares and from 350,000 to 175,000 for class A-1 common shares.
The reverse split was effective for trading beginning June 12, 2000.
Resulting fractional shares were redeemed in cash.
All share and per share amounts in the financial statements and the
notes there to have been adjusted for the impact of the split, for all
periods presented.
2. 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 6,000,000
shares of its common stock in a private placement (the "Private
Placement") to a group of institutional investors at $20.60 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 4 for additional information regarding the
Company's industry segments.
3. 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 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.
6
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 for the three and six month
periods ended June 30, 2000 and cash flows for the six month period
ended June 30, 2000, are not necessarily indicative of a full year's
results.
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 periods. Actual results
could differ from those estimates.
RECLASSIFICATION. Amounts in certain accounts have been reclassified to
conform to the current period presentation.
7
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
4. 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
----------- ----------- ----------- ------ ------------
JUNE 30, 2000
-------------
Real estate, net ............... $ -- $ 38,960 $ 124,880 $ -- $ 163,840
Notes receivable ............... -- 44,201 -- -- 44,201
Investment in joint ventures ... 80,959 37,517 -- -- 118,476
Cash and cash equivalents ...... 86 2,555 123 19,248 22,012
Restricted cash and other assets -- 7,442 1,352 11,292 20,086
--------- --------- --------- --------- ---------
Total assets ................... $ 81,045 $ 130,675 $ 126,355 $ 30,540 $ 368,615
========= ========= ========= ========= =========
Mortgage notes payable ......... $ -- $ 28,000 $ 90,872 $ -- $ 118,872
Accrued expenses and other
liabilities ................. -- 1,375 1,080 8,013 10,468
Convertible Trust Preferred
Securities .................. -- -- -- 25,000 25,000
Minority interest .............. 40 -- 3,397 -- 3,437
Equity ......................... 81,005 101,300 31,006 (2,473) 210,838
--------- --------- --------- --------- ---------
Total liabilities and equity ... $ 81,045 $ 130,675 $ 126,355 $ 30,540 $ 368,615
========= ========= ========= ========= =========
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
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
========= ========= ========= ========= =========
- ----------
<FN>
*Includes corporate cash, other assets, accrued expenses and other
liabilities that have not been allocated to the operating segments.
</FN>
8
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
(AMOUNTS IN THOUSANDS)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
FOR THE THREE MONTHS
ENDED JUNE 30, 2000
-------------------
Rental income ................. $ -- $ 1,520 $ 2,938 $ -- $ 4,458
Interest income ............... -- 1,127 -- 368 1,495
--------- --------- --------- --------- ---------
Total income .................. -- 2,647 2,938 368 5,953
--------- --------- --------- --------- ---------
Operating expenses ............ -- 663 1,096 -- 1,759
Depreciation and amortization . 46 213 751 25 1,035
Interest ...................... -- 692 1,310 (461) 1,541
General and administrative .... -- 289 -- 1,064 1,353
--------- --------- --------- --------- ---------
46 1,857 3,157 628 5,688
--------- --------- --------- --------- ---------
Income from joint ventures .... 446 358 -- -- 804
Minority interest ............. -- -- 1 -- 1
--------- --------- --------- --------- ---------
Income (loss) before taxes and
accrued distributions and
amortization of costs on
Convertible Trust Preferred
Securities ................. $ 400 $ 1,148 $ (218) $ (260) $ 1,070
========= ========= ========= ========= =========
FOR THE THREE MONTHS
ENDED JUNE 30, 1999
-------------------
Rental income ................. $ -- $ 1,426 $ 3,048 $ -- $ 4,474
Interest income ............... -- 3,678 -- 428 4,106
--------- --------- --------- --------- ---------
Total income .................. -- 5,104 3,048 428 8,580
--------- --------- --------- --------- ---------
Operating expenses ............ -- 562 960 -- 1,522
Depreciation and amortization . 179 254 750 47 1,230
Interest ...................... -- 1,221 1,867 29 3,117
General and administrative .... -- 204 -- 1,231 1,435
--------- --------- --------- --------- ---------
179 2,241 3,577 1,307 7,304
--------- --------- --------- --------- ---------
Income from joint ventures .... 1,480 426 -- -- 1,906
Minority interest ............. -- (2) (8) -- (10)
--------- --------- --------- --------- ---------
Income (loss) before taxes and
accrued distributions and
amortization of costs on
Convertible Trust Preferred
Securities ................. $ 1,301 $ 3,287 $ (537) $ (879) $ 3,172
========= ========= ========= ========= =========
<FN>
- ----------
*Includes general and administrative expenses, interest income and
interest expense that have not been allocated to the operating
segments.
</FN>
9
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
(AMOUNTS IN THOUSANDS)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
FOR THE SIX MONTHS
ENDED JUNE 30, 2000
-------------------
Rental income ................. $ -- $ 3,078 $ 5,912 $ -- $ 8,990
Interest income ............... -- 2,482 -- 424 2,906
--------- --------- --------- --------- ---------
Total income .................. -- 5,560 5,912 424 11,896
--------- --------- --------- --------- ---------
Operating expenses ............ -- 1,254 1,925 -- 3,179
Depreciation and amortization . 92 490 1,501 57 2,140
Interest ...................... -- 1,350 2,426 (421) 3,355
General and administrative .... -- 504 -- 2,708 3,212
--------- --------- --------- --------- ---------
92 3,598 5,852 2,344 11,886
--------- --------- --------- --------- ---------
Income from joint ventures .... 1,048 1,018 -- -- 2,066
Minority interest ............. -- -- (9) -- (9)
--------- --------- --------- --------- ---------
Income (loss) before taxes and
accrued distributions and
amortization of costs on
Convertible Trust Preferred
Securities ................. $ 956 $ 2,980 $ 51 $ (1,920) $ 2,067
========= ========= ========= ========= =========
FOR THE SIX MONTHS
ENDED JUNE 30, 1999
-------------------
Rental income ................. $ -- $ 2,835 $ 5,981 $ -- $ 8,816
Interest income ............... -- 7,143 -- 573 7,716
--------- --------- --------- --------- ---------
Total income .................. -- 9,978 5,981 573 16,532
--------- --------- --------- --------- ---------
Operating expenses ............ -- 1,233 1,734 -- 2,967
Depreciation and amortization . 223 598 1,499 74 2,394
Interest ...................... -- 2,408 2,490 125 5,023
General and administrative .... -- 342 -- 2,068 2,410
--------- --------- --------- --------- ---------
223 4,581 5,723 2,267 12,794
--------- --------- --------- --------- ---------
Income from joint ventures .... 1,908 1,014 -- -- 2,922
Minority interest ............. -- (1) (16) -- (17)
--------- --------- --------- --------- ---------
Income (loss) before taxes and
accrued distributions and
amortization of costs on
Convertible Trust Preferred
Securities ................. $ 1,685 $ 6,410 $ 242 $ (1,694) $ 6,643
========= ========= ========= ========= =========
<FN>
- ----------
*Includes general and administrative expenses, interest income and
interest expense that have not been allocated to the operating
segments.
</FN>
10
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (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. 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 41.3% interest in
Wellsford/Whitehall at June 30, 2000.
The following table presents condensed balance sheets and operating
data for the Wellsford/Whitehall segment:
(AMOUNTS IN THOUSANDS)
JUNE 30, DECEMBER 31,
CONDENSED BALANCE SHEET DATA 2000 1999
---------------------------- ---- ----
Real estate, net................ $ 577,802 $ 551,152
Cash and cash equivalents....... 7,725 8,468
Total assets.................... 602,461 572,279
Mortgage notes payable.......... 129,982 110,831
Credit facility................. 246,286 238,661
Equity.......................... 204,178 200,740
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
CONDENSED OPERATING DATA 2000 1999 2000 1999
------------------------ ---- ---- ---- ----
Rental income................... $ 20,193 $ 18,221 $ 39,801 $ 36,158
Operating expenses.............. 6,724 6,315 13,513 12,806
Depreciation and amortization... 3,285 2,771 6,418 5,494
Interest........................ 6,867 6,094 12,939 12,504
Total expenses.................. 19,039 17,075 36,989 34,240
Gain on sale of investments..... -- 2,257 -- 2,504
Income before distributions..... 1,332 3,465 3,077 4,603
As of June 30, 2000, Wellsford/Whitehall owned 42 office properties
totaling approximately 5,138,000 square feet (including approximately
1,670,000 square feet under renovation), primarily located in New
Jersey, Massachusetts and Maryland.
During the six months ended June 30, 2000, Wellsford/Whitehall
purchased the following property:
GROSS LEASABLE NUMBER
SQUARE OF
MONTH TYPE LOCATION FEET PROPERTIES COST
----- ---- -------- ---- ---------- ----
May Office/Flex Hanover, NJ 148,000 1 $8,149,000
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%.
11
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
The Company has made temporary advances to Wellsford/Whitehall. At
June 30, 2000, the balance of the advances which pay interest at LIBOR
+ 5.00% amounted to approximately $6,945,000 and are included in Notes
Receivable in the accompanying balance sheet of the Company.
DEBT AND EQUITY ACTIVITIES--WELLSFORD CAPITAL
---------------------------------------------
At June 30, 2000, the Company had approximately $71,800,000 of debt
related investments, including approximately $44,200,000 of direct debt
investments which bore interest at an average yield of approximately
11.66% and had an average remaining term to maturity of approximately
5.0 years and $27,600,000 in Belford Capital Holdings, L.L.C. ("Belford
Capital"), a company which was organized to invest in debt instruments.
The Company also had approximately $9,900,000 of venture capital
investments of which approximately $6,575,000 was in a real estate
related e-commerce company with the remainder invested in 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 with a depreciated book value of
approximately $39,000,000.
The Company had an approximate 51.1% interest in Belford Capital at
June 30, 2000. The following table presents condensed balance sheets
and operating data for Belford Capital:
(AMOUNTS IN THOUSANDS)
JUNE 30, DECEMBER 31,
CONDENSED BALANCE SHEET DATA 2000 1999
---------------------------- ---- ----
Investments..................... $ 38,565 $ 40,143
Investment in Reis.............. -- 6,500
Total assets.................... 53,947 60,870
Total equity.................... 53,904 60,639
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
CONDENSED OPERATING DATA 2000 1999 2000 1999
------------------------ ---- ---- ---- ----
Interest........................ $ 1,052 $ 1,173 $ 2,072 $ 1,231
Interest from Reis.............. 7 112 169 248
----------- ----------- ----------- -----------
Total revenue................... 1,059 1,285 2,241 1,479
Total expenses.................. 240 372 456 374
----------- ----------- ----------- -----------
Net income...................... $ 819 $ 913 $ 1,785 $ 1,105
=========== =========== =========== ===========
12
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
REIS REPORTS, INC. ("REIS")
The Company's aggregate investment in Reis at June 30, 2000 is
approximately $6,575,000 or 22% of Reis' equity on an as converted
basis. A portion of the investment is held directly by the Company and
the remainder is held by Reis Capital Holdings, LLC ("Reis Capital"), a
company which was organized to hold this investment. The Company has an
approximate 51.1% interest in Reis Capital at June 30, 2000. The
following table details the components of the Company's and Reis
Capital's investments in Reis.
COMPANY SHARE REIS CAPITAL
------------- ------------
April 2000 investments:
Direct investment in 8% Series C
Convertible Preferred Shares
("Series C Preferred") (A) ........ $2,022,000 $ --
Indirect investments:
Series C Preferred (B) ......... 766,000 1,500,000
Series C Preferred (C) ......... 466,000 913,000
---------- ----------
1,232,000 2,413,000
---------- ----------
Total April 2000 investments ............ 3,254,000 2,413,000
---------- ----------
Prior investments: (C)
8% Series A Preferred Shares (D) 2,555,000 5,000,000
8% Series B Preferred Shares (E) 766,000 1,500,000
---------- ----------
3,321,000 6,500,000
---------- ----------
Total investments at June 30, 2000 ...... $6,575,000 $8,913,000
========== ==========
<FN>
- ----------
(A) Issued 15,000 shares at $100 per share; convertible into common shares
at $4.00 per share.
(B) Capital commitment made in 1999 and funded in April 2000.
(C) Notes receivable and accrued interest through April 2000, held by
Belford Capital, were converted into equity and were distributed to
Reis Capital at that time.
(D) Issued 50,000 shares at $100 per share; convertible into common shares
at $1.76 per share.
(E) Issued 15,000 shares at $100 per share; convertible into common
shares at $3.00 per share.
</FN>
At the time of the investments noted above, 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 $410,000
of Series C Preferred in April 2000. The investments of the Company's
officers and directors together with shares of common stock previously
held by the Company's Chairman represent approximately 3.5% of Reis'
equity, on an as converted basis upon completion of the aforementioned
investments. Additionally, a company controlled by the Chairman of EQR
purchased a 4.5% 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.
13
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
DEVELOPMENT AND LAND OPERATIONS--WELLSFORD DEVELOPMENT
------------------------------------------------------
At June 30, 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, one 264 unit phase is substantially completed (which the
Company is currently considering converting to a condominium project
and selling individual units), a 424 unit phase that is under
construction which is 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.
5. FINANCING ARRANGEMENTS
In May 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 are eliminated in the
consolidated financial statements of the Company.
The Convertible Trust Preferred Securities are convertible into
1,123,696 common shares at $22.248 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").
In May 2000, the Company exchanged the 169,903 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 $0.02 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.
In June 2000, the Company modified the terms of the Wellsford Finance
Facility and reduced the maximum borrowing amount to $20,000,00. The
Wellsford Finance Facility which is collateralized by the 277 Park Loan
of $25,000,000, bears interest at LIBOR + 2.75% and matures in January
2002. The Company paid an origination fee of $75,000 and is obligated
to pay a fee equal to 0.25% per annum on the average daily amount of
the unused portion of the facility until maturity. As of June 30, 2000,
there was no outstanding balance under the Wellsford Finance Facility.
This facility provides for the Company to meet certain financial
operating and balance sheet covenants.
14
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
FINANCING ARRANGEMENTS (CONTINUED)
In June 2000, the Company obtained a five-year AAA rated letter of
credit from Commerzbank AG to secure $14,755,000 of tax-exempt bonds.
This letter of credit replaced an expiring letter of credit. The
Company will incur an annual fee of approximately $142,000 related to
this enhancement and paid an origination fee of approximately $158,000
upon closing. The letter of credit agreement provides for the Company
to meet certain financial operating and balance sheet covenants.
6. SHAREHOLDERS' EQUITY
In February 2000, the Company repurchased 1,286,816 shares of its
outstanding common stock from an institutional investor for
approximately $20,589,000 or $16.00 per common share.
In April 2000, the Company's Board of Directors authorized the
repurchase of up to 1,000,000 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. Pursuant to
this program, 9,779 shares had been repurchased at an average price of
$16.00 per share as of June 30, 2000.
The Company did not declare or distribute any dividends for the six
months ended June 30, 2000 and 1999.
7. INCOME TAXES
The income tax provision for the three and six months ended June 30,
2000 and 1999 reflects the reduction in the valuation allowance
attributable to the utilization of available net operating loss
carryforwards.
8. 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-1 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.
15
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
EARNINGS PER SHARE (CONTINUED)
The following tables detail the computation of earnings per share,
basic and diluted:
FOR THE THREE MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
Numerator for net income per common share, basic and diluted $ 487,423 $ 2,441,210
=========== ===========
Denominator:
Denominator for net income per common share, basic--
weighted average common shares ..................... 8,321,888 10,381,689
Effect of dilutive securities:
Employee stock options ............................. 5,092 17,289
Convertible Trust Preferred Securities ............. -- --
Warrants ........................................... -- --
----------- -----------
Denominator for net income per common share, diluted--
weighted average common shares ..................... 8,326,980 10,398,978
=========== ===========
Net income per common share, basic ......................... $ 0.06 $ 0.24
=========== ===========
Net income per common share, diluted ....................... $ 0.06 $ 0.23
=========== ===========
FOR THE SIX MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
Numerator for net income per common share, basic and diluted $ 1,465,905 $ 5,049,459
=========== ===========
Denominator:
Denominator for net income per common share, basic--
weighted average common shares ..................... 8,711,641 10,378,465
Effect of dilutive securities:
Employee stock options ............................. 5,395 14,406
Convertible Trust Preferred Securities ............. -- --
Warrants ........................................... -- --
----------- -----------
Denominator for net income per common share, diluted--
weighted average common shares ..................... 8,717,036 10,392,871
=========== ===========
Net income per common share, basic ......................... $ 0.17 $ 0.49
=========== ===========
Net income per common share, diluted ....................... $ 0.17 $ 0.49
=========== ===========
16
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 41.3% interest in
Wellsford/Whitehall at June 30, 2000.
As of June 30, 2000, Wellsford/Whitehall owned 42 office properties
totaling approximately 5,138,000 square feet (including approximately
1,670,000 square feet under renovation), primarily located in New
Jersey, Massachusetts and Maryland.
Wellsford/Whitehall leased 674,000 square feet in the six months ended
June 30, 2000 including significant single tenant leases at Morris
Technology Center and at 117 Kendrick Street as detailed below. The
other two leases detailed below are for tenants which took possession
of previously unoccupied significant space 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 (A)
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
117 Kendrick Street, Needham, MA ........... 120,000 57%(B) December 2000 February 2011 31.00
<FN>
- ----------
(A) Triple net rent.
(B) Building is 95% leased including this lease at June 30, 2000.
</FN>
17
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 June 30, 2000, the Company had approximately $71,800,000 of debt
related investments, including approximately $44,200,000 of direct debt
investments which bore interest at an average yield of approximately
11.66% and had an average remaining term to maturity of approximately
5.0 years and $27,600,000 in Belford Capital Holdings, L.L.C. ("Belford
Capital"), a company which was organized to invest in debt instruments.
The Company also had approximately $9,900,000 of venture capital
investments of which approximately $6,575,000 was in a real estate
related e-commerce company with the remainder invested in 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 with a depreciated book value of
approximately $39,000,000.
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 June 30, 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, one 264 unit phase is substantially completed (which the
Company is currently considering converting to a condominium project
and selling individual units), a 424 unit phase that is under
construction which is 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.
18
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
----------- ------------- ----------------
June 30, 2000 ... 93% 77% 90%
March 31, 2000 .. 93% 76% 91%
December 31, 1999 92% 76% 89%
June 30, 1999 ... 91% 75% 98%
March 31, 1999 .. 93% 75% 94%
December 31, 1998 92% 80% 92%
<FN>
- ----------
* Excludes properties under renovation.
** Occupancy rates for the seven VLP assets held in this SBU.
</FN>
See Note 4 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 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 JUNE 30, 2000 TO THE THREE MONTHS
ENDED JUNE 30, 1999.
Rental income decreased by $16,000. This decrease is primarily the
result of lower occupancy at the Company's residential properties in
suburban Denver, Colorado, offset by retenanting of space at higher
rental rates on the VLP properties owned and operated by the Wellsford
Capital SBU.
Interest income decreased by $2,611,000. This decrease is primarily the
result of (i) decreased lending activity by the Wellsford Capital SBU
starting in the second half of 1999 and continuing in 2000 with loans
being repaid in part or in full during 1999 ($2,722,000) and (ii) a
decrease in income on cash and cash equivalents from lower outstanding
balances in 2000 ($218,000), offset by loans which generated income in
the current period which did not exist in the prior period ($348,000).
Property operating and maintenance expense increased by $169,000. This
increase is primarily due to increases in advertising and promotion,
payroll and repairs and maintenance at the Company's consolidated
properties.
Depreciation and amortization expense decreased by $196,000. This
decrease is primarily due to decreased amortization associated with the
Company's joint venture investments.
Interest expense decreased by $1,575,000. This decrease is primarily
due to credit facility balances outstanding during the period in 1999
with none outstanding during the period in 2000 ($668,000) and by an
increase in capitalized interest of $394,000 in 2000 and an adjustment
to capitalized interest of $650,000 during the three month period in
1999. Such amounts were offset by an increase in expense on the VLP
properties mortgage due to an increase in LIBOR ($104,000).
19
General and administrative expenses decreased by $81,000. This decrease
is primarily the result of the elimination of amortization of deferred
compensation related to a former employee in 1999, offset by additional
professional fees.
Income from joint ventures decreased by $1,101,000. This decrease is
primarily due to $1,196,000 share of gains on sale of properties by
Wellsford/Whitehall in 1999 with no corresponding sales in 2000 and 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 ($281,000), offset by an increase in the Company's
proportionate share of recurring income from Wellsford/Whitehall
($162,000) and the Liberty Hampshire/Belford Capital Joint Venture
investments ($214,000).
The income tax provision decreased by $359,000. This is primarily the
result of a reduction in income before taxes of $2,102,000, 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 SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS
ENDED JUNE 30, 1999.
Rental income increased by $174,000. 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 SBU, offset by
lower occupancy at the Company's residential properties in suburban
Denver, Colorado.
Interest income decreased by $4,810,000. This decrease is primarily the
result of (i) decreased lending activity by the Wellsford Capital SBU
starting in the second half of 1999 and continuing in 2000 with loans
being repaid in part or in full during 1999 ($4,771,000) (ii) from
investments contributed to Belford Capital in March 1999 ($565,000) and
(iii) a decrease in income on cash and cash equivalents from lower
outstanding balances in 2000 ($115,000), offset by loans which
generated income in the current period which did not exist in the prior
period ($590,000).
Property operating and maintenance expense increased by $133,000. This
increase is primarily due to increases in advertising and promotion,
payroll and repairs and maintenance at the Company's residential
properties.
Depreciation and amortization expense decreased by $254,000. This
decrease is primarily due to decreased amortization associated with the
Company's joint venture investments.
Interest expense decreased by $1,668,000. This decrease is primarily
due to credit facility balances outstanding during the period in 1999
with none outstanding during the period in 2000 ($1,267,000) and an
increase in capitalized interest of $588,000, partially offset by an
increase in expense on the VLP properties mortgage due to an increase
in LIBOR ($152,000).
General and administrative expenses increased by $802,000. 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 decreased by $857,000. This decrease is
primarily due to $1,196,000 share of gains on sale of properties by
Wellsford/Whitehall in 1999 with no corresponding sales in 2000 and 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 ($365,000), offset by an increase in the Company's
proportionate share of recurring income from Wellsford/Whitehall
($335,000) and the Liberty Hampshire/Belford Capital Joint Venture
investments ($369,000).
20
The income tax provision decreased by $1,204,000. This is primarily the
result of a reduction in income before taxes of $4,577,000, 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to meet its short-term liquidity requirements
generally through its existing 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 maturing mortgages, financing acquisitions and development,
financing capital improvements and joint venture capital requirements
by borrowings, through the use of available cash, sales of properties,
the issuance of additional debt and possibly the offering of equity
securities.
STOCK REPURCHASE PROGRAM
In April 2000, the Company's Board of Directors authorized the
repurchase of up to 1,000,000 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. Pursuant to
this program, 9,779 shares had been repurchased at an average price of
$16.00 per share as of June 30, 2000.
LETTER OF CREDIT
In June 2000, the Company obtained a five-year AAA rated letter of
credit from Commerzbank AG to secure $14,755,000 of tax-exempt bonds.
This letter of credit replaced an expiring letter of credit. The
Company will incur an annual fee of approximately $142,000 related to
this enhancement and paid an origination fee of approximately $158,000
upon closing. The letter of credit agreement provides for the Company
to meet certain financial operating and balance sheet covenants.
DISCRETIONARY CAPITAL COMMITMENTS
At June 30, 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 June 30, 2000, discretionary capital commitments are as
follows:
COMMITMENT AMOUNT
---------- ------
Abbey Credit Facility.................... $ 8,980,000
Safeguard Credit Facility................ 17,100,000
Wellsford/Whitehall equity.............. 11,916,000
Creamer Vitale Wellsford equity.......... 13,608,000
RESOURCES
In June 2000, the Company modified the terms of the Wellsford Finance
Facility and reduced the maximum borrowing amount to $20,000,000, which
is collateralized by the 277 Park Loan of $25,000,000. The
21
Wellsford Finance Facility bears interest at LIBOR + 2.75% and has a
maturity of January 2002. The Company is obligated to pay a fee equal
to 0.25% per annum on the average daily amount of the unused portion
of the facility until maturity. As of June 30, 2000, there was no
outstanding balance under the Wellsford Finance Facility. The facility
provides for the Company to meet certain financial operating and
balance sheet covenants.
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 June 30, 2000, approximately
$246,286,000 was outstanding under the Wellsford/Whitehall Bank
Facility (approximately $183,361,000 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 June 30, 2000 the Company's unfunded capital
commitment is approximately $11,916,000 and the Whitehall unfunded
capital commitment is approximately $62,044,000.
CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000.
Cash flow provided by operating activities of $1,594,000 primarily
consists of net income of $1,466,000 plus (i) depreciation and
amortization of $2,134,000, (ii) amortization of deferred compensation
of $453,000 and (iii) a decrease in restricted cash of $670,000,
substantially offset by undistributed joint venture income of
$1,126,000 and a decrease in accrued expenses and other liabilities of
$2,023,000.
Cash flow used in investing activities of $17,635,000 consists of
additional investments in (i) real estate assets of $7,596,000, (ii)
notes receivable of $15,333,000 and (iii) capital contributions to
joint ventures of $5,688,000, offset by repayments of notes receivable
of $8,397,000 and returns of capital from joint ventures of $2,585,000.
Cash flow provided by financing activities of $3,313,000 primarily
consists of the issuance of $25,000,000 of Convertible Trust Preferred
Securities, offset by (i) the repurchase of common shares of
$20,804,000, (ii) principal payments of mortgage notes payable of
$443,000 and (iii) deferred financing costs associated with the
issuance of the Convertible Trust Preferred Securities of $426,000.
FOR THE SIX MONTHS ENDED JUNE 30, 1999.
Cash flow used in operating activities of $2,008,000 primarily consists
of net income of $5,049,000 plus (i) depreciation and amortization of
$2,473,000 and (ii) amortization of deferred compensation of $403,000,
offset by undistributed joint venture income of $825,000, increases in
restricted cash of $317,000 and prepaid and other assets of $5,435,000
and a decrease in accrued expenses and other liabilities of $3,374,000.
Cash flow used in investing activities of $8,765,000 consists of
additional investments in (i) real estate assets of $14,794,000, (ii)
capital contributions to joint ventures of $7,742,000 and (iii) notes
receivable of $2,150,000, offset by repayments of notes receivable of
$16,011,000.
22
Cash flow provided by financing activities of $17,558,000 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 $440,000.
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
factors, 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 $19,201,000 of LIBOR-based notes receivable and
$25,000,000 of fixed rate notes receivable at June 30, 2000. A
one-percent increase in the base rate used to determine the interest
rate on the variable rate notes receivable would result in an increase
in interest income of approximately $192,000 per annum. The Company had
$42,755,000 of LIBOR and other variable rate based debt and $76,117,000
of fixed rate debt at June 30, 2000. A one-percent increase in the base
rates used to determine the interest rate on the variable rate debt
would result in an increase in interest expense of approximately
$428,000 per annum. The Company's proportionate share of variable and
fixed rate notes receivable from Belford Capital was $14,051,000 and
$5,652,000, respectively, at June 30, 2000. The Company's proportionate
share of variable and fixed rate debt from Wellsford/Whitehall was
$122,839,000 and $32,560,000, respectively, at June 30, 2000. A
one-percent increase in the base rate used to determine the interest
rate of the Company's proportionate share of variable rate notes
receivable and debt would result in a net decrease in the Company's
annual income from joint ventures of $1,088,000. The net decrease in
the Company's annual net income, after income taxes, as a result of
such increases in the base rates on all of the aforementioned notes
receivable and debt would be approximately $794,000 ($0.09 per diluted
share).
23
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.
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
One June 9, 2000, the Company held its annual meeting
of shareholders. A total of 14,111,568 common shares,
representing approximately 85% of the 16,632,440
common shares outstanding and entitled to vote
(including 339,806 class A-1 common shares), as of
the record date (April 24, 2000) were represented in
person or by proxy vote and constituted a quorum. The
Company's common shares and class A-1 common shares
are hereinafter referred to as the "Common Shares."
Shares disclosed in this item, which represent the
results from voting on the three proposals, are
reflective of the actual number of votes cast, not
adjusted for the effect of the one for two reverse
stock split.
At the meeting, Richard S. Frary, Martin Bernstein
and Meyer "Sandy" Frucher were elected as directors
to serve terms of three years expiring at the 2002
annual meeting of shareholders or, until their
respective successors are duly elected and qualify.
Each of the elected directors received the
affirmative vote of at least 14,064,551 Common
Shares. These elected directors join the following
existing directors until their terms expire; Edward
Lowenthal and Rodney F. Du Bois terms expire in 2001;
Jeffrey H. Lynford, Douglas Crocker II and Mark S.
Germain terms expire in 2002.
The shareholders approved the proposal to amend the
Company's Charter to: i) effect a reverse stock split
whereby each two outstanding shares of common stock,
par value $0.01 per share, would be automatically
converted into one share of outstanding common stock
and each two shares of class A-1 common stock, par
value $0.01 per share, would be automatically
converted into one share of outstanding class A-1
common stock; ii) reduce in the same proportion as
the outstanding shares are reduced by the reverse
stock split, the number of authorized shares of
common stock of the Company from 197,650,000 to
98,825,000 and the number of authorized shares of
class A-1 common stock of the Company from 350,000 to
175,000; and iii) increase the par value of the
common stock and class A-1 common stock from $0.01
per share to $0.02 per share. The affirmative vote
was 13,904,634 Common Shares, votes cast against the
proposal were 183,684 Common Shares and 23,250 Common
Shares abstained from voting.
The shareholders also ratified the appointment of
Ernst & Young LLP as the Company's independent public
accountants for the fiscal year ending December 31,
2000 by the affirmative vote of 14,081,160 Common
Shares. Votes cast against the proposal were 24,487
Common Shares and 2,921 Common Shares abstained from
voting.
24
ITEM 5: OTHER INFORMATION.
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits filed with this Form 10-Q:
10.97 Amended and Restated Revolving Credit
Agreement, dated as of June 28, 2000, among
Wellsford Finance, LLC, as Borrower and
Fleet National Bank and other lenders which
may become parties to this agreement, as
Lenders and Fleet National Bank, as Agent.
10.98 Bond Pledge and Security Agreement, dated
June 16, 2000, among Palomino Park Public
Improvements Corporation, as Bond Issuer,
Wellsford Real Properties, Inc., together
with Bond Issuer, as Pledgor, Commerzbank
AG, as Bank, and United States Trust Company
of New York, as Bond Trustee.
10.99 Letter of Credit Reimbursement Agreement,
dated June 16, 2000, among Palomino Park
Public Improvements Corporation, as Bond
Issuer, Wellsford Real Properties, Inc.,
together with Bond Issuer, as Account
Parties, and Commerzbank AG, as Bank.
10.100 Unconditional Guaranty of Payment and
Performance, dated June 28, 2000, between
Wellsford Real Properties, Inc., as
Guarantor, and Fleet National Bank, as
Lender.
10.101 Promissory Note, dated June 16, 2000,
between Wellsford Real Properties, Inc. and
Commerzbank AG.
27.1 Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K.
During the quarter ended June 30 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
--------------------------------- ------------- ----------
May 11, 2000 Issuance of 1,000,000 8.25% May 11, 2000
(May 5, 2000) Convertible Trust Preferred Securities
by WRP Convertible Trust I, a
consolidated subsidiary of Wellsford
Real Properties, Inc., the proceeds
of which were used to purchase the
Company's 8.25% Convertible Junior
Subordinated Debentures, which mature
on May 4, 2022.
June 16, 2000 Approval of one for two reverse stock June 16, 2000
(June 9, 2000) split and appointment of new members
to the board of directors by the
shareholders of Wellsford Real
Properties, Inc.
25
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,
Chief Financial Officer
/s/ James J. Burns
------------------
James J. Burns
Senior Vice President,
Chief Accounting Officer
Dated: August 3, 2000