-----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, Tdi2w0OD0f5oX5F2G6dnVB/fKdNU1F5RNT1mnfQgEmOPR94fftfLi5p8QarGc4qk j3QwGJHtogsz+A89qMd/zw== 0001038222-99-000010.txt : 19991115 0001038222-99-000010.hdr.sgml : 19991115 ACCESSION NUMBER: 0001038222-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99747520 BUSINESS ADDRESS: STREET 1: 535 MADISON AVENUE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: (212)838-3400 MAIL ADDRESS: STREET 1: 535 MADISON AVENUE STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 3RD QUARTER REPORT 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 September 30, 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 (IRS Employer Identification No.) incorporation or organization) 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 November 11, 1999: 20,351,521. Number of shares of Class A common stock, $.01 par value per share, outstanding as of November 11, 1999: 339,806. ================================================================================ 1 WELLSFORD REAL PROPERTIES, INC. FORM 10-Q - -------------------------------------------------------------------------------- INDEX - -------------------------------------------------------------------------------- Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 3 Consolidated Statements of Income (unaudited) for the three and nine months ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 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 11 Item 3. Quantitative and Qualitative Disclosure of Market Risk 17 PART II. OTHER INFORMATION 18 SIGNATURES 19 2 WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1999 1998 ---- ---- ASSETS (Unaudited) Real estate assets, at cost: Land .............................................. $ 18,813,000 $ 18,813,000 Buildings and improvements ........................ 115,897,382 115,425,760 ------------- ------------- 134,710,382 134,238,760 Less, accumulated depreciation ................. (5,597,725) (2,707,390) ------------- ------------- 129,112,657 131,531,370 Construction in progress .......................... 26,741,400 18,791,075 ------------- ------------- 155,854,057 150,322,445 Notes receivable ..................................... 68,948,594 124,706,499 Investment in joint ventures ......................... 116,305,221 80,776,338 ------------- ------------- Total real estate assets ............................. 341,107,872 355,805,282 Cash and cash equivalents ............................ 22,311,485 10,122,037 Restricted cash ...................................... 8,090,847 8,007,850 Prepaid and other assets ............................. 13,322,030 11,035,489 ------------- ------------- Total Assets ......................................... $ 384,832,234 $ 384,970,658 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable ............................ $ 119,527,564 $ 120,176,790 Credit facilities ................................. 9,750,000 17,000,000 Accrued expenses and other liabilities ............ 10,732,841 12,788,324 ------------- ------------- Total Liabilities .................................... 140,010,405 149,965,114 ------------- ------------- Commitments and contingencies ........................ -- -- Minority interest .................................... 4,854,805 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 - 20,351,571 shares, $.01 par value per share, issued and outstanding at September 30, 1999 ..... 203,516 204,106 Class A Common Stock, 350,000 shares authorized - 339,806 shares, $.01 par value per share, issued and outstanding at September 30, 1999 ..... 3,398 3,398 Paid in capital in excess of par value .............. 227,533,781 228,212,205 Retained earnings ................................... 18,620,641 11,385,274 Deferred compensation ............................... (2,034,178) (3,240,023) Treasury stock, 430,637 shares at September 30, 1999 (4,360,134) (4,940,137) ------------- ------------- Total Shareholders' Equity ........................... 239,967,024 231,624,823 ------------- ------------- Total Liabilities and Shareholders' Equity ........... $ 384,832,234 $ 384,970,658 ============= =============
See accompanying notes 3 WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- REVENUE Rental income .................... $ 4,622,491 $ 3,379,479 $ 13,436,403 $ 9,323,726 Interest and other income ........ 2,251,046 3,064,664 9,969,015 9,170,582 ----------- ----------- ------------ ----------- Total Revenue ................. 6,873,537 6,444,143 23,405,418 18,494,308 ----------- ----------- ------------ ----------- EXPENSES Property operating and maintenance 1,013,422 752,503 2,833,292 2,001,492 Real estate taxes ................ 419,942 351,775 1,234,098 922,284 Depreciation and amortization .... 1,180,366 787,536 3,573,827 2,238,999 Property management .............. 170,930 178,996 503,821 353,703 Interest ......................... 2,366,635 1,097,922 7,389,805 2,853,337 General and administrative ....... 1,951,272 1,614,916 4,361,021 4,039,084 ----------- ----------- ------------ ----------- Total Expenses ................ 7,102,567 4,783,648 19,895,864 12,408,899 ----------- ----------- ------------ ----------- Income from joint ventures .......... 3,160,343 333,679 6,082,656 2,867,621 ----------- ----------- ------------ ----------- Income before minority interest ..... 2,931,313 1,994,174 9,592,210 8,953,030 Minority interest ................... (43,405) (6,434) (60,843) (41,734) ----------- ----------- ------------ ----------- Income before taxes ................. 2,887,908 1,987,740 9,531,367 8,911,296 Income tax expense .................. 702,000 (1,029,000) 2,296,000 2,203,000 ----------- ----------- ------------ ----------- Net Income .......................... $ 2,185,908 $ 3,016,740 $ 7,235,367 $ 6,708,296 =========== =========== ============ =========== Net income per common share, basic .. $ 0.11 $ 0.15 $ 0.35 $ 0.34 =========== =========== ============ =========== Net income per common share, diluted $ 0.11 $ 0.15 $ 0.35 $ 0.33 =========== =========== ============ =========== Weighted average number of common shares outstanding ............... 20,697,390 20,349,688 20,736,866 19,699,322 =========== =========== ============ ===========
See accompanying notes. 4 WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................... $ 7,235,367 $ 6,708,296 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................... 4,207,118 2,294,750 Undistributed joint venture income ................ (3,353,002) (2,867,621) Decrease (increase) in assets Restricted cash ................................ (82,997) 424,018 Prepaid and other assets ....................... (1,296,110) (3,832,992) (Decrease) increase in liabilities Accrued expenses and other liabilities ......... (2,055,483) 1,308,151 ------------ ------------ Net cash provided by operating activities ......... 4,654,893 4,034,602 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Investment in real estate assets ..................... (15,660,276) (92,542,871) Investment in notes receivable ....................... (41,270,501) (57,368,749) Investment in joint ventures ......................... (7,838,451) (27,757,061) Repayments from notes receivable ..................... 72,964,680 44,697,801 Proceeds from sale of real estate assets ............. 7,238,329 63,993,737 ------------ ------------ Net cash provided by (used in) investing activities 15,433,781 (68,977,143) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facilities ...................... 35,000,000 76,500,000 Repayment of credit facilities ....................... (42,250,000) (55,500,000) Proceeds from mortgage notes payable ................. -- 16,400,000 Repayment of mortgage notes payable .................. (649,226) (350,091) Distributions to minority interest ................... -- (501,273) ------------ ------------ Net cash (used in) provided by financing activities (7,899,226) 36,548,636 ------------ ------------ Net increase (decrease) in cash and cash equivalents . 12,189,448 (28,393,905) Cash and cash equivalents, beginning of period ....... 10,122,037 29,895,212 ------------ ------------ Cash and cash equivalents, end of period ............. $ 22,311,485 $ 1,501,307 ============ ============ SUPPLEMENTAL INFORMATION: Cash paid during the period for interest ............. $ 8,492,862 $ 3,507,578 Cash paid during the period for income taxes ........ $ 3,292,841 $ 1,613,936 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 joint venture activities .......................... $ (480,892) $ (750,000) Notes receivable contributed to joint venture ......... $(24,218,113) $ -- Receivable for minority interest capital contribution . $ 1,413,241 $ --
See accompanying notes. 5 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 Commercial Properties Trust ("WCPT"), an SBU for debt and equity activities and an SBU for property development and land operations. In August 1997, the Company, through WCPT, 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 43.6% interest in Wellsford/Whitehall at September 30, 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 (the "Current 10-K"). 6 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 $549.3 million, total assets of $573.5 million, credit facility debt of $262.5 million, mortgage debt of $102.7 million and equity of $190.1 million at September 30, 1999. During the nine months ended September 30, 1999, Wellsford/Whitehall earned $55.3 million in total revenues, primarily rental income, and incurred $20.2 million of operating expenses, $18.6 million of interest expense, $8.5 million of depreciation and amortization, and $5.1 million of general and administrative expense, and had gains on sales of $7.4 million, resulting in net income of $10.2 million (before preferred dividends of $0.9 million). As of September 30, 1999, Wellsford/Whitehall owned 40 properties containing approximately 4.9 million square feet ("SF"), including approximately 1.1 million SF under renovation, located in the New Jersey, Boston and Washington D.C. areas. During the nine months ended September 30, 1999, Wellsford/Whitehall participated in the following transactions:
Purchases --------- Cost Month Type Location Square Feet (millions) ----- ---- -------- ----------- ---------- May Office Flex Warren, NJ 129,000 $ 8.0 June Office Boston, MA 64,000 10.2 June Office Boston, MA 68,000 13.1 July Office/Developable Land Columbia, MD 99,000 10.6 July Office Owings Mills, MD 31,000 3.9 August Office Hanover, NJ 93,000 13.3 September Flex Columbia, MD 144,000 3.8 Subsequent Sales ---------------- Sales Price Gain Month Location Square Feet (millions) (millions) ----- -------- ----------- ---------- ---------- May Boston, MA 65,000 $ 8.1 $2.2 August Needham, MA 261,000 21.8 4.9
In June 1999, the Members modified the capital commitment requirements of Wellsford/Whitehall whereby an aggregate of $250 million was committed. The Company's portion is $85 million of which $69 million was contributed as of September 30, 1999. As part of the new capital commitment from Whitehall, the Company agreed to issue to Whitehall a warrant to purchase 123,967 shares of the Company's Common Stock exercisable at $12.10 per share, or in exchange for membership units of Wellsford/Whitehall, held by Whitehall based upon Wellsford/Whitehall's value as defined. The warrants expire May 28, 2004 and are in addition to the warrants to purchase 4,132,230 shares of Common Stock of the Company issued to Whitehall at the time of the formation of Wellsford/Whitehall. 7 WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) DEBT AND EQUITY ACTIVITIES -------------------------- At September 30, 1999, the Company had $68.9 million of debt investments which bore interest at an average yield approximating 10.7% and had an average remaining term to maturity of approximately 3.4 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. This loan was fully repaid in July 1999. In January 1999, the Company acquired a parcel of land in Broomfield, Colorado for approximately $7.2 million pursuant to an outstanding standby commitment issued in 1998. In connection with this transaction, the Company collected $0.4 million of fees in 1998. In July 1999, the Company sold this land for $7.2 million to a third party ("Buyer") and simultaneously collected an additional $1.1 million in fees. The Company then purchased $11.7 million of tax-exempt notes, bearing interest at 6.25% and due in December 1999. These notes were issued by a quasi-governmental agency partially controlled by the Buyer and are guaranteed by an independent bank. 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 three 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. During the three months ended September 30, 1999, $25.3 million was repaid by the Company. 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 an additional $24.2 million contribution to its 50% owned 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 Credit Facility 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, of which $2.9 million had been loaned directly to Safeguard during the three months ended September 30, 1999. Belford Capital has agreed to invest up to $6.5 million in a real estate market research Internet company, whose chief executive officer is the brother of the Company's Chairman. DEVELOPMENT AND LAND OPERATIONS ------------------------------- At September 30, 1999, the Company owned three multifamily properties, totalling 1,104 units with a weighted average occupancy of 96.1%, and had one multifamily project under construction, containing 264 units. 8 WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) In May 1999, the Company exercised its option to purchase the land for the fifth and final phase of its Palomino Park development in a suburb of Denver, Colorado for approximately $2.8 million. This phase will be known as Gold Peak and has entitlements for up to 352 apartments. The Company also owns the land for the fourth phase, Green River, which has entitlements for up to 424 apartments. INCOME TAXES ------------ The income tax provisions for the nine months ended September 30, 1999 and 1998 are after the benefit of the utilization of Federal income tax loss carryforwards available from the Value Property Trust ("VLP") acquisition in February 1998 and are reflected as a reduction in the income tax valuation allowance recorded at the time of the acquisition. The credit for the three months ended September 30, 1998 results from the full acquisition to date 1998 benefit being reflected in the three-month period. OTHER ----- In May 1999, the Company modified its $50 million line of credit from BankBoston, N.A. and Morgan Guaranty Trust Company (the "WRP Bank Facility") to extend the maturity date to May 2000. The WRP Bank Facility now bears interest at LIBOR +2.25% and the Company is obligated to pay a fee equal to three-eighths of one percent (0.375%) per annum on the average daily amount of the unused portion of the WRP Bank Facility until maturity. The WRP Bank Facility is secured by the EQR Preferred Commitment and the 277 Park Loan (as described in the Current 10-K). In May 1999, the Company appointed Mr. Rodney F. Du Bois to the position of Vice Chairman. Mr. Du Bois received a grant of 20,000 restricted shares, which were issued to the Company's non-qualified deferred compensation plan. Based upon the market price on the date of grant of $10.00 per common share, this grant had a market value of $200,000. These shares vest quarterly over two years. Mr. Du Bois also received 100,000 10-year options to purchase the Company's common stock at $10.06 per share. These options vest over two years. Simultaneously, Messrs. Lynford and Lowenthal each voluntarily surrendered 50,000 10-year options previously granted to them in March 1998 with a strike price of $20.00 per share. In June 1999, one officer resigned from the Company. In July 1999, in connection with this resignation, 79,034 unvested restricted common shares previously granted to this officer under the deferred incentive compensation plan were repurchased by the Company for $0.01 per share. In addition, this officer's previously granted but unvested stock options were cancelled. 9 WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) SELECTED FINANCIAL DATA BY INDUSTRY SEGMENT - ------------------------------------------- (TABLE IN THOUSANDS)
COMMERCIAL DEBT AND EQUITY DEVELOPMENT PROPERTY OPERATIONS ACTIVITIES AND LAND OPERATIONS ------------------- ---------- ------------------- Nine Months Ended Nine Months Ended Nine Months Ended September 30, September 30, September 30, ------------- ------------- ------------- 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- Rental income ...... $ -- $ -- $ 4,258 $ 3,354 $ 9,178 $ 5,970 Interest and other income ....... 6 1 9,489 8,765 -- -- --------- --------- --------- --------- --------- --------- Total Income ....... 6 1 13,747 12,119 9,178 5,970 --------- --------- --------- --------- --------- --------- Operating expense .. -- -- 1,888 1,456 2,684 1,822 Depreciation and amortization . 291 131 881 581 2,248 1,463 Interest ........... -- -- 3,739 512 3,651 2,299 General and administrative -- -- 602 217 -- -- --------- --------- --------- --------- --------- --------- Total Expenses ..... 291 131 7,110 2,766 8,583 5,584 --------- --------- --------- --------- --------- --------- Income from joint ventures ..... 4,131 2,643 1,952 225 -- -- Minority interest .. -- -- -- (45) (61) 3 --------- --------- --------- --------- --------- --------- Income (loss) before taxes ........ $ 3,846 $ 2,513 $ 8,589 $ 9,533 $ 534 $ 389 ========= ========= ========= ========= ========= ========= Total Assets ....... $ 79,681 $ 67,154 $ 161,281 $ 176,227 $ 119,366 $ 85,675 ========= ========= ========= ========= ========= ========= OTHER CONSOLIDATED ----- ------------ Nine Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- Rental income ...... $ -- $ -- $ 13,436 $ 9,324 Interest and other income ....... 474 404 9,969 9,170 --------- --------- --------- --------- Total Income ....... 474 404 23,405 18,494 --------- --------- --------- --------- Operating expense .. -- -- 4,571 3,278 Depreciation and amortization . 153 64 3,574 2,239 Interest ........... -- 42 7,390 2,853 General and administrative 3,759 3,822 4,361 4,039 --------- --------- --------- --------- Total Expenses ..... 3,912 3,928 19,896 12,409 --------- --------- --------- --------- Income from joint ventures ..... -- -- 6,083 2,868 Minority interest .. -- -- (61) (42) --------- --------- --------- --------- Income (loss) before taxes ........ $ (3,438) $ (3,524) $ 9,531 $ 8,911 ========= ========= ========= ========= Total Assets ....... $ 19,533 $ 7,300 $ 384,832 $ 336,356 ========= ========= ========= =========
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 and nine months ended September 30, 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 Nine Months Ended September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ---- ---- ---- ---- Dilutive common share options . 25,620 154,302 28,344 258,952 Dilutive warrants ............. -- -- -- 396,787 10 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 SBUs within which it intends to execute its business plan: an SBU for commercial property operations which is held in its subsidiary, WCPT, through its investment in 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. 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 $26.7 million at 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) September 30, 1999 in the following multifamily development project, which is the third phase of Palomino Park, as well as related infrastructure costs and the land for the fourth and fifth phases: 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. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 2. RESULTS OF OPERATIONS COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 TO THE NINE MONTHS ENDED SEPTEMBER 30, 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 Current 10-K. Rental income increased by $4.1 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 and other income increased by $0.8 million. This increase is primarily a result of the acquisition of approximately $94.0 million in notes receivable during the period from January 1998 through September 1999 offset by the collection of $137.5 million of notes receivable during this period. The acquisitions took place primarily in 1998, while a significant portion of the collections occurred in 1999. In addition, 1999 includes $1.1 million of fee income related to the Company's Broomfield investment. Property operating and maintenance expense, real estate tax expense, depreciation and amortization, and property management expense increased by $0.8 million, $0.3 million, $1.3 million, and $0.2 million, respectively. These increases are a result of the factors which affected rental income, as described above. Interest expense increased by $4.5 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 increased by $0.3 million. This is a result of the increased size of the Company offset in part by a decline in accrued compensation. Income from joint ventures increased by $3.2 million. This increase is a result of the growth of the Wellsford/Whitehall joint venture since January 1998 (including gains from sales of properties), 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 in 1998 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 increased $0.1 million primarily as a result of the effects of increased pre-tax income offset by the full period utilization of the net operating loss carry forwards acquired in the VLP Merger. 13 2. RESULTS OF OPERATIONS (CONTINUED) COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998. Rental income increased by $1.2 million. This increase is primarily a result of the completion of Red Canyon (Phase II of the Company's Palomino Park development) in November 1998. Interest and other income decreased by $0.8 million. This decrease is primarily a result of the acquisition of approximately $94.0 million in notes receivable during the period from January 1998 through September 1999 offset by the collection of $137.5 million of notes receivable during this period. The acquisitions took place primarily in 1998, while a significant portion of the collections occurred in 1999, including $44.3 million during the three months ended September 30, 1999. Property operating and maintenance expense, real estate tax expense and depreciation and amortization expense increased by $0.3 million, $0.1 million, and $0.4 million, respectively. These increases are a result of the factors which affected rental income, as described above. Interest expense increased by $1.3 million as a result of the Red Canyon debt and the financing of the VLP properties in October 1998. General and administrative expense increased by $0.2 million. This is the result of the increased size of the Company. Income from joint ventures increased by $2.8 million. This increase is a result of the growth of the Wellsford/Whitehall joint venture since January 1998 (including a significant gain from the sale of a property during the three months ended September 30, 1999), 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 in 1998 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 was $0.7 million compared to a $1.0 million credit in the 1998 three-month period. The $1.7 million increase was the result of increased pre-tax income and the tax benefit arising from the utilization of the VLP acquired net operating loss tax carryforwards being reflected from the date of acquisition (February 28, 1998) in the 1998 three-month period. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 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. 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 line of credit under the WRP Bank Facility which bears interest at an annual rate equal to LIBOR +2.25% and matures in May 2000. 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 September 30, 1999, no balance was outstanding under the WRP Bank Facility. In addition, the Company has approximately $25 million available under its Wellsford Finance Bank Facility as of September 30, 1999. 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 September 30, 1999, approximately $262.4 million was outstanding under the Wellsford/Whitehall Bank Facility ($196.3 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 ("Y2K"). A Y2K compliant version of the accounting software has been obtained, along with certain upgraded computer equipment to accommodate the new software. The Company is currently installing and testing the new system software and hardware. The project is in the final phase of completion, with a total project 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 are being closely monitored and are based on management's best estimates. Actual results, however, could differ from those anticipated. The Company also has had extensive discussions with its third-party property management companies (the "Managers") to ensure that those parties have appropriate plans to allay any Y2K issues that may impact the Company's operations. These issues would include both 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) accounting/management software and non-information technology ("IT") systems such as fire safety, security and elevator systems. Wellsford/Whitehall, Wellsford Capital and Wellsford Development, which constitute all of the Company's property operations, have completed their analyses of such systems and have determined that no material adverse consequences will likely result from their Y2K issues. 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. Furthermore, the Company has contacted its key vendors, tenants, banks, joint venture partners, creditors, and debtors and has obtained Y2K compliance certification (either verbal or written) from the majority of them. While the Company believes its planning efforts are adequate to address its Y2K 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, joint venture partners, creditors, and debtors, will be (or have been) converted on a timely basis and will not have a material effect on the Company. 16 QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK During the nine months ended September 30, 1999, the Company made two loans to third parties aggregating $7,900,000. The loans, which mature in 2001 and 2002, provide for interest at 30-day LIBOR plus 4% and 4.75%. 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 three years. The Company is obligated to pay a fee equal to one-quarter of one percent (0.25%) per annum on the average daily amount of the unused portion of the Wellsford Finance Bank Facility until maturity. In May 1999, the Company modified the WRP Bank Facility to extend the maturity date to May 2000. The WRP Bank Facility now bears interest at LIBOR +2.25% and the Company is obligated to pay a fee equal to three-eighths of one percent (0.375%) per annum on the average daily amount of the unused portion of the WRP Bank Facility until maturity. Such transactions were conducted under market conditions and fall within the parameters of the Company's strategy for managing its market risk. 17 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 September 30, 1999: o None. 18 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WELLSFORD REAL PROPERTIES, INC. By: /s/ Jeffrey H. Lynford -------------------------------------------------- Jeffrey H. Lynford, Chairman of the Board /s/ James J. Burns -------------------------------------------------- James J. Burns, Chief Accounting Officer Dated: November 11, 1999 19 EX-27 2 FDS --
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. 0001038222 Wellsford Real Properties, Inc. 1 9-MOS Dec-31-1999 Jan-01-1999 Sep-30-1999 30,402,332 0 68,948,594 0 0 43,724,362 161,451,782 (5,597,725) 384,832,234 10,732,841 129,277,564 0 0 206,914 239,760,110 384,832,234 0 29,488,074 0 8,145,038 4,361,021 0 7,389,805 9,531,367 2,296,000 7,235,367 0 0 0 7,235,367 0.35 0.35
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