-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+pNEeqIA4+/UvdUUTCLMigGysF40B2CDFr3IVzMCTXrTnLPyzSDVor2D6nY5ybK XvVu4aQDXgnxt45IaKjzog== 0000910643-99-000076.txt : 19990517 0000910643-99-000076.hdr.sgml : 19990517 ACCESSION NUMBER: 0000910643-99-000076 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WELLSFORD REAL PROPERTIES INC CENTRAL INDEX KEY: 0001038222 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133926898 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12917 FILM NUMBER: 99623720 BUSINESS ADDRESS: STREET 1: 610 FIFTH AVENUE SEVENTH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2123332300 MAIL ADDRESS: STREET 1: 610 FIFTH AVENUE SEVENTH FLOOR CITY: NEW YORK STATE: NY ZIP: 10020 10-Q 1 WELLSFORD REAL PROPERTIES, INC. 10-Q ENDED 3/31/99 ============================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 - ----------------------------------------------------------------------------- | FORM 10-Q | - ----------------------------------------------------------------------------- {X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 -------------------------------------- OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number 1-12917 ------------------------------------------ Wellsford Real Properties, Inc. - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Maryland 13-3926898 - --------------------------------------------- ---------------------- (State or other jurisdiction of incorporation (IRS Employer or organization) Identification No.) 535 Madison Avenue, New York, NY 10022 - ----------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 838-3400 - ----------------------------------------------------------------------------- (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 ______ Number of shares of common stock, $.01 par value per share, outstanding as of May 14, 1999: 20,410,615. Number of shares of Class A common stock, $.01 par value per share, outstanding as of May 14, 1999: 339,806. PAGE WELLSFORD REAL PROPERTIES, INC. FORM 10-Q - ----------------------------------------------------------------------------- | INDEX | - ----------------------------------------------------------------------------- Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1999 (unaudited) and December 31, 1998 3 Consolidated Statements of Income (unaudited) for the three months ended March 31, 1999 and 1998 4 Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 1999 and 1998 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosure of Market Risk 14 PART II. OTHER INFORMATION 15 SIGNATURES 16 PAGE WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 1999 1998 ------------ ------------ ASSETS (Unaudited) Real estate assets, at cost: Land $ 18,813,000 $ 18,813,000 Buildings and improvements 115,477,870 115,425,760 --------------- -------------- 134,290,870 134,238,760 Less, accumulated depreciation (3,725,550) (2,707,390) --------------- -------------- 130,565,320 131,531,370 Construction in progress 23,202,311 18,791,075 ---------------- -------------- 153,767,631 150,322,445 Real estate held for sale 7,230,490 - Notes receivable 99,315,649 124,706,499 Investment in joint ventures 108,756,211 80,776,338 ---------------- -------------- Total real estate assets 369,069,981 355,805,282 Cash and cash equivalents 14,166,469 10,122,037 Restricted cash 7,921,300 8,007,850 Prepaid and other assets 12,045,787 11,035,489 --------------- -------------- Total Assets $ 403,203,537 $ 384,970,658 =============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $ 119,945,129 $ 120,176,790 Credit facilities 35,000,000 17,000,000 Accrued expenses and other liabilities 9,781,714 12,788,324 --------------- -------------- Total Liabilities 164,726,843 149,965,114 --------------- -------------- Commitments and contingencies - - Minority interest 4,209,849 3,380,721 Shareholders' Equity: Series A 8% Convertible Redeemable Preferred Stock, $.01 par value per share, 2,000,000 shares authorized, no shares issued and outstanding - - Common Stock, 197,650,000 shares authorized - 20,410,605 shares, $.01 par value per share, issued and out- standing at March 31, 1999 204,106 204,106 Class A Common Stock, 350,000 shares authorized - 339,806 shares, $.01 par value per share, issued and outstanding at March 31, 1999 3,398 3,398 Paid in capital in excess of par value 228,212,205 228,212,205 Retained earnings 13,993,523 11,385,274 Deferred compensation (3,206,250) (3,240,023) Treasury stock, 489,671 shares (4,940,137) (4,940,137) --------------- -------------- Total Shareholders' Equity 234,266,845 231,624,823 --------------- -------------- Total Liabilities and Shareholders' Equity $ 403,203,537 $ 384,970,658 =============== ============== See accompanying notes. WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31, -------------------------------------------- 1999 1998 ------------------- ---------------- REVENUE Rental income $ 4,341,454 $ 2,490,990 Interest income 3,610,213 3,468,312 ------------ ------------ Total Revenue 7,951,667 5,959,302 ------------ ------------ EXPENSES Property operating and maintenance 857,081 463,455 Real estate taxes 421,611 247,081 Depreciation and amortization 1,163,019 622,654 Property management 166,070 73,659 Interest 1,906,652 891,663 General and administrative 974,907 1,182,503 ------------- ------------- Total Expenses 5,489,340 3,481,015 ------------- ------------- Income from joint ventures 1,016,794 265,866 ------------- ------------- Income before minority interest 3,479,121 2,744,153 Minority interest (7,872) (18,864) ------------- ------------- Income before taxes 3,471,249 2,725,289 Income tax expense 863,000 1,248,000 ------------- ------------- Net income $ 2,608,249 $ 1,477,289 ============= ============= Net income per common share, basic $ 0.13 $ 0.08 ============= ============= Net income per common share, diluted $ 0.13 $ 0.08 ============= ============= Weighted average number of common shares outstanding 20,750,411 18,376,910 ============= ============= See accompanying notes. PAGE WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, -------------------------------------------- 1999 1998 ------------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,608,249 $ 1,477,289 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,213,843 660,923 Undistributed joint venture income (557,070) (265,866) Decrease (increase) in assets Restricted cash 86,550 (948,124) Prepaid and other assets (1,138,030) (2,717,768) (Decrease) increase in liabilities Accrued expenses and other liabilities (2,183,856) 3,429,423 ---------------- ------------- Net cash provided by operating activities 29,686 1,635,877 ---------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in real estate assets (11,693,836) (87,775,709) Investment in notes receivable (2,150,000) (2,233,751) Investment in joint ventures (3,285,712) (2,909,505) Repayments from notes receivable 3,375,955 27,653,521 Proceeds from sale of real estate assets - 59,018,737 ---------------- -------------- Net cash provided by (used in) investing activities (13,753,593) (6,246,707) ---------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facilities 35,000,000 48,000,000 Repayment of credit facilities (17,000,000) (55,500,000) Proceeds from mortgage notes payable - 16,400,000 Repayment of mortgage notes payable (231,661) (86,684) --------------- ------------- Net cash provided by (used in) financing activities 17,768,339 8,813,316 --------------- ------------- Net increase (decrease) in cash and cash equivalents 4,044,432 4,202,486 Cash and cash equivalents, beginning of period 10,122,037 29,895,212 ---------------- -------------- Cash and cash equivalents, end of period $ 14,166,469 $ 34,097,698 ================ ============== SUPPLEMENTAL INFORMATION: Cash paid during the period for interest $ 2,147,186 $ 903,728 Cash paid during the period for income taxes $ 1,831,585 $ 625,428 SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Shares issued in connection with acquisition of commercial office properties and notes receivable $ - $(39,362,500) Warrants issued in connection with acquistion of joint venture investment $ - $ (750,000) Notes receivable contributed to joint venture $(24,218,113) $ - See accompanying notes. PAGE WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General Wellsford Real Properties, Inc. (the "Company") was formed on January 8, 1997, as a corporate subsidiary of Wellsford Residential Property Trust (the "Trust"). On May 30, 1997, the Trust merged (the "Merger") with Equity Residential Properties Trust ("EQR"). Immediately prior to the Merger, the Trust contributed certain of its assets to the Company and the Company assumed certain liabilities of the Trust. Immediately after the contribution of assets to the Company and immediately prior to the Merger, the Trust distributed to its common shareholders all of the outstanding shares of the Company owned by the Trust (the "Spin-off"). On June 2, 1997, the Company sold 12,000,000 shares of its common stock in a private placement (the "Private Placement") to a group of institutional investors at $10.30 per share, the Company's then book value per share. The Company is a real estate merchant banking firm headquartered in New York City which acquires, develops, finances and operates real properties and organizes and invests in private and public real estate companies. The Company has established three strategic business units ("SBUs") within which it intends to execute its business plan: an SBU for commercial property operations which is held in its subsidiary, Wellsford/Whitehall Properties II, L.L.C. ("Wellsford/Whitehall"), an SBU for debt and equity activities and an SBU for property development and land operations. In August 1997, the Company, in a joint venture with WHWEL Real Estate Limited Partnership ("Whitehall"), an affiliate of Goldman Sachs & Co., formed a private real estate operating company, Wellsford/Whitehall. The Company had a 47.8% interest in Wellsford/Whitehall at March 31, 1999. 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 related notes of the Company have been prepared in accordance with generally accepted accounting principles for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles have been condensed or omitted pursuant to such rule. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included and are of a normal and recurring nature. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1998. WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued) 2. Industry Segments and Recent Activities Commercial Property Operations The Company's commercial property operations segment consists of Wellsford/Whitehall, which is accounted for on the equity method. Wellsford/Whitehall had net real estate assets of $497.0 million, total assets of $511.9 million, credit facility debt of $276.0 million, mortgage debt of $67.9 million and equity of $159.3 million at March 31, 1999. During the three months ended March 31, 1999, Wellsford/Whitehall earned $18.1 million in total revenues, primarily rental income, and incurred $6.5 million of operating expenses, $6.4 million of interest expense, $2.7 million of depreciation, and $1.6 million of general and administrative expense, and had a gain on sale of $0.2 million, resulting in net income of $1.1 million (before preferred dividends of $0.3 million). As of March 31, 1999, Wellsford/Whitehall owned 35 properties containing approximately 4.6 million square feet ("SF"), including approximately 1.4 million SF under renovation, located in the New Jersey, Boston and Washington D.C. areas. Debt and Equity Activities At March 31, 1999, the Company had $99.3 million of debt investments which bore interest at an average yield of approximately 5.2% over LIBOR and had an average remaining term to maturity of 3.0 years. In January 1999, the Company modified its existing $15 million participation in a $100 million unsecured loan to extend the maturity date from February 1999 to August 1999 and increase the interest rate from 9.875% to 12%. A 1% loan fee was paid by the borrower upon modification. In January 1999, the Company acquired a parcel of land in Broomfield, CO for approximately $7.2 million. In connection with this transaction, the Company collected $0.4 million of consulting fees in 1998 and expects to receive a minimum of $0.9 million in 1999. A third party has an option to purchase this parcel of land for $7.2 million until June 30, 1999. In January 1999, a wholly owned subsidiary of the Company obtained a $35 million secured loan facility (the "Wellsford Finance Bank Facility") from BankBoston, N.A., which can potentially be increased to $50 million. The Wellsford Finance Bank Facility bears interest at LIBOR +2.75% and has a term of 3 years. The Company immediately drew $35 million on this line, the proceeds of which were used (a) to repay the $17 million balance of the Company's $50 million line of credit, and (b) for working capital purposes. 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 Bank Facility until maturity. In March 1999, the Company made a $24.2 million contribution to its joint venture ("Belford Capital") with the Liberty Hampshire Company, L.L.C. This contribution was comprised of two of the Company's debt investments, the $17.6 million DeBartolo Loan and the $8.0 million outstanding balance of the Safeguard Loan, net of $1.4 million of cash received back from Belford Capital. Belford Capital also assumed the first $25.0 million of the Company's commitment to fund the Safeguard Loan (including amounts advanced to date), while the Company retained the remaining $20.0 million commitment. WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued) Development and Land Operations At March 31, 1999, the Company owned three multifamily properties, totalling 1,104 units, and had one multifamily project under development, containing 264 units.
Selected Financial Data By Industry Segment (table in thousands) Commercial Development Property Debt and Equity and Land Operations Activities Operations Other Consolidated ------------------- ------------------- ------------------- ------------------- ------------------- Three Months Ended Three Months Ended Three Months Ended Three Months Ended Three Months Ended March 31, March 31, March 31, March 31, March 31, ------------------- ------------------- ------------------- ------------------- ------------------- 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Rental income $ -- $ -- $ 1,408 $ 454 $ 2,933 $ 2,037 $ -- $ -- $ 4,341 $ 2,491 Interest income 1 -- 3,466 3,076 -- -- 143 391 3,610 3,467 ----------------------------------------------------------------------------------------------------------- Total Income 1 -- 4,874 3,530 2,933 2,037 143 391 7,951 5,958 ----------------------------------------------------------------------------------------------------------- Operating expense -- -- 670 204 774 580 -- -- 1,444 784 Depreciation and amortization 44 -- 344 64 750 487 25 72 1,163 623 Interest -- -- 606 237 1,272 655 29 -- 1,907 892 General and administrative -- -- 138 13 -- -- 837 1,169 975 1,182 ----------------------------------------------------------------------------------------------------------- Total Expenses 44 -- 1,758 518 2,796 1,722 891 1,241 5,489 3,481 ----------------------------------------------------------------------------------------------------------- Income from joint ventures 428 187 589 79 -- -- -- -- 1,017 266 Minority interest -- -- -- (8) (8) (10) -- -- (8) (18) ----------------------------------------------------------------------------------------------------------- Income (loss) before taxes $ 385 $ 187 $ 3,705 $ 3,083 $ 129 $ 305 $ (748) $ (850) $ 3,471 $ 2,725 =========================================================================================================== Total Assets $73,248 $46,486 $193,928 $152,513 $119,445 $81,823 $16,583 $23,406 $403,204 $304,228 =========================================================================================================== /TABLE 3. 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 for the three months ended March 31, 1999 and 1998 are based upon the increased number of common shares that would be outstanding assuming the exercise of dilutive common share options and warrants, under the treasury stock method as shown below. Three Months Ended March 31, 1999 1998 ---- ---- Dilutive common share options 22,980 317,127 Dilutive warrants -- 643,533 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1. General 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: an SBU for commercial property operations which is held in its subsidiary, Wellsford/Whitehall, an SBU for debt and equity activities and an SBU for property development and land operations. Commercial Property Operations - Wellsford/Whitehall The Company seeks to acquire commercial properties below replacement cost and operate and/or resell the properties after renovation, redevelopment and/or repositioning. 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 returns which are greater than returns which could be achieved by acquiring a stabilized property. Debt and Equity Activities - dba Wellsford Capital The Company makes loans that constitute, or will invest in, real estate- related senior, junior or otherwise subordinated debt instruments, which may be unsecured or secured by liens on real estate, interests therein or the economic benefits thereof, and which have the potential for high yields or returns more characteristic of equity ownership. These investments may include debt that is acquired at a discount, mezzanine financing, commercial mortgage-backed securities ("CMBS"), 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. Property Development and Land Operations - dba 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The principal asset of the property development and land operations SBU is an 80% interest in Palomino Park, an 1,800 unit class A multifamily development located in a suburb of Denver, Colorado. The Company currently has a gross investment of approximately $23.2 million at March 31, 1999 in the following multifamily development project, which is the third phase of Palomino Park, and related infrastructure costs: Number Estimated Estimated Name of Units Location Total Cost Stabilization Date ---- -------- --------- ---------- ------------------ Silver Mesa 264 Denver, CO $40.0 million Second Qtr. 2000 This project is being developed pursuant to a fixed-price contract. The Company is committed to purchase 100% of this project upon completion, which is anticipated to occur in the second quarter of 2000. In addition, the Company is obligated to fund the first 20% of the construction costs on this project as they are incurred. Silver Mesa is owned by Silver Mesa at Palomino Park LLC ("Phase III LLC"), a limited liability company, the members of which are Wellsford Park Highlands Corp. (99%), a majority owned and controlled subsidiary of the Company, and Al Feld ("Feld") (1%). Feld is a Denver-based developer specializing in the construction of luxury residential properties. Feld has constructed over 3,000 units since 1984. The construction loan on Silver Mesa is for approximately $27.7 million, matures in June 2001 (with a 6-month extension at the option of the Phase III LLC upon fulfillment of certain conditions), and bears interest at LIBOR +1.50%. Feld has guaranteed repayment of this loan. 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 (the "Commission") 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; difficulty of locating suitable investments; competition; risks of real estate acquisition, development, construction and renovation; vacancies at existing commercial properties; dependence on rental income from real property; adverse consequences of debt financing; 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; lack of prior operating history; 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 2. Results of Operations Comparison of the three months ended March 31, 1999 to the three months ended March 31, 1998. 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, 1998. Rental income increased by $1.9 million. 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. Interest income increased by $0.1 million. This increase is primarily a result of the acquisition of approximately $76.1 million in notes receivable during the period from January 1998 through March 1999 offset by the disposition of $82.7 million of notes receivable during this period ($25.6 million 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 $0.4 million, $0.2 million, $0.5 million, and $0.1 million, respectively. These increases are a result of the factors which affected rental income, as described above. Interest expense increased by $1.0 million 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 $0.2 million. 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 $0.8 million. 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 $0.4 million primarily as a result of the effects of the utilization of the net operating loss carry forwards acquired in the VLP Merger. 3. 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The Company expects to meet its long-term liquidity requirements such as refinancing mortgages, financing acquisitions and development, and financing capital improvements by long-term borrowings, through the issuance of debt and the offering of additional debt and equity securities. The Company has (i) the commitment, until May 30, 2000, of an affiliate of EQR to acquire at the Company's option up to $25 million of the Company's Series A 8% Convertible Redeemable Preferred Stock ("Series A Preferred"), each share of which is convertible into shares of the Company's common stock at a price of $11.124 (the "EQR Preferred Commitment") and (ii) a $50 million two-year line of credit from BankBoston, N.A. and Morgan Guaranty Trust Company of New York (the "WRP Bank Facility") which initially bears interest at an annual rate equal to LIBOR +1.75%. The EQR Preferred Commitment is pledged as security for the WRP Bank Facility. If at May 30, 2000, the affiliate of EQR has purchased less than $25 million of Series A Preferred, it has the right to purchase the remainder of the $25 million not purchased prior to that time. As of March 31, 1999, no balance was outstanding under the WRP Bank Facility. Wellsford/Whitehall has a $375 million loan facility (the "Wellsford/Whitehall Bank Facility") from BankBoston, N.A. and Goldman Sachs Mortgage Company, consisting of a senior secured credit facility of up to $300 million and a secured mezzanine facility of up to $75 million. The senior facility bears interest at LIBOR +1.65%; the mezzanine facility bears interest at LIBOR +3.2%. As of March 31, 1999, approximately $276.0 million was outstanding under the Wellsford/Whitehall Bank Facility ($207.1 million of which was under the senior facility). Both facilities mature on December 15, 2000 and are extendable for one year by Wellsford/Whitehall. Year 2000 The Company has developed a plan to modify its information technology, primarily its accounting software, to recognize the year 2000. The Company currently expects the project to be substantially complete by the end of the second quarter of 1999 at a cost of less than $0.1 million which will be funded from operations, including costs incurred to date. The Company does not expect this project to have a significant effect on its operations. The timing and cost of this project will be closely monitored and are based on management's best estimates. Actual results, however, could differ from those anticipated. The Company also has initiated discussions with its third-party property management companies (the "Managers") to ensure that those parties have appropriate plans to allay any year 2000 issues that may impact the Company's operations. These issues would include both accounting/management software and non-information technology ("IT") systems such as fire safety, security and elevator systems. Wellsford/Whitehall has completed its analysis of such systems and has determined that no material adverse consequences will likely result from its year 2000 issues. Wellsford Capital and Wellsford Development have initiated such analysis, which is expected to be completed by the end of the second quarter of 1999. Under the most reasonably likely worst case scenario, wherein the Managers fail to update their software and non-IT systems, the Company has the ability to convert its accounting and management systems to a spreadsheet-based system on a temporary basis and to utilize its building engineers to manually override any non-IT systems which fail. While the Company believes its planning efforts are adequate to address its year 2000 concerns, there can be no guarantee that the systems of other companies on which the Company's systems and operations rely, primarily its banks, payroll processing company, creditors, and debtors, will be converted on a timely basis and will not have a material effect on the Company. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK In January 1999, the Company modified its existing $15 million participation in a $100 million unsecured loan to extend the maturity date from February 1999 to August 1999 and increase the interest rate from 9.875% to 12%. A 1% loan fee was paid by the borrower upon modification. In January 1999, a wholly owned subsidiary of the Company obtained a $35 million secured loan facility (the "Wellsford Finance Bank Facility") from BankBoston, N.A., which can potentially be increased to $50 million. The Wellsford Finance Bank Facility bears interest at LIBOR +2.75% and has a term of 3 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 Bank Facility until maturity. Such transactions were conducted under market conditions and fall within the parameters of the Company's strategy for managing its market risk. PART II. OTHER INFORMATION Item 1: Legal Proceedings - None. Item 2: Changes in Securities - None. 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 filed by the registrant during its fiscal quarter ended March 31, 1999: - None. 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. Dated: May 14, 1999 WELLSFORD REAL PROPERTIES, INC. By: /s/ Jeffrey H. Lynford _________________________________________ Jeffrey H. Lynford, Chairman of the Board /s/ Gregory F. Hughes _________________________________________ Gregory F. Hughes, Chief Financial Officer EX-27 2
5 This Schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of operation and is qualified in its entirety by reference to such financial statements. 1 3-MOS DEC-31-1999 MAR-31-1999 22,087,769 0 99,315,649 0 0 34,133,556 164,723,671 (3,725,550) 403,203,537 9,781,714 154,945,129 207,504 0 0 234,059,341 403,203,537 0 8,968,461 0 2,607,781 974,907 0 1,906,652 3,471,249 863,000 2,608,249 0 0 0 2,608,249 0.13 0.13
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