-----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, KoxmqbTCbNxOsM/CsE8ozOtQ9aolpUimm2dcgkqa2yd0NnnVkNruz291u+skWEiH o3SpROY1Ase8o4fKNyyScw== 0000898430-97-003423.txt : 19970815 0000898430-97-003423.hdr.sgml : 19970815 ACCESSION NUMBER: 0000898430-97-003423 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA ANITA REALTY ENTERPRISES INC CENTRAL INDEX KEY: 0000314661 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 953520818 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08131 FILM NUMBER: 97660056 BUSINESS ADDRESS: STREET 1: 301 W HUNTINGTON DR STREET 2: STE 405 CITY: ARCADIA STATE: CA ZIP: 91007 BUSINESS PHONE: 8185745550 MAIL ADDRESS: STREET 1: 301 W HUNTINGTON DR STREET 2: STE 405 CITY: ARCADIA STATE: CA ZIP: 91007 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA ANITA OPERATING CO CENTRAL INDEX KEY: 0000313749 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 953419438 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08132 FILM NUMBER: 97660057 BUSINESS ADDRESS: STREET 1: 285 W HUNTINGTON DR STREET 2: PO BOX 808 CITY: ARCADIA STATE: CA ZIP: 91066-0808 BUSINESS PHONE: 8185747223 MAIL ADDRESS: STREET 1: 285 W HUNTINGTON DRIVE STREET 2: P O BOX 808 CITY: ARCADIA STATE: CA ZIP: 91066-0808 10-K/A 1 10-K/A-2 (AMENDMENT NO. 2 TO FORM 10-K) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A-2 (AMENDMENT NO. 2 TO FORM 10-K) (MARK ONE) [X]JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM _____________ TO ___________ COMMISSION FILE NUMBER 0-9109 COMMISSION FILE NUMBER 0-9110 SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) IN ITS CHARTER) DELAWARE DELAWARE (STATE OF INCORPORATION) (STATE OF INCORPORATION) 95-3520818 95-3419438 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.) 301 WEST HUNTINGTON DRIVE, SUITE 405 285 WEST HUNTINGTON DRIVE ARCADIA, CALIFORNIA 91007 ARCADIA, CALIFORNIA 91007 (ADDRESS OF PRINCIPAL EXECUTIVE (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE) OFFICES INCLUDING ZIP CODE) (818) 574-5550 (818) 574-7223 (REGISTRANT'S TELEPHONE NUMBER, (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY COMMON STOCK, $.10 PAR VALUE COMMON STOCK, $.10 PAR VALUE (TITLE OF EACH CLASS) (TITLE OF EACH CLASS) NEW YORK STOCK EXCHANGE NEW YORK STOCK EXCHANGE (NAME OF EACH EXCHANGE ON WHICH (NAME OF EACH EXCHANGE ON WHICH REGISTERED) REGISTERED) SANTA ANITA REALTY ENTERPRISES, INC. PREFERRED STOCK PURCHASE RIGHTS (TITLE OF CLASS) NEW YORK STOCK EXCHANGE (NAME OF EACH EXCHANGE ON WHICH REGISTERED) SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE NONE (TITLE OF EACH CLASS) (TITLE OF EACH CLASS) Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to the filing requirements for the past 90 days. Yes [X] No [_]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.__________. The aggregate market value of the paired voting stock of Santa Anita Realty Enterprises, Inc. and of Santa Anita Operating Company held by nonaffiliates on March 31, 1997 was $287,621,000. ----------- The number of shares of common stock, par value $.10 per share, outstanding as of March 31, 1997 for Santa Anita Realty Enterprises, Inc. was 11,586,375 and Santa Anita Operating Company was 11,495,675. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I................................................................... 3 Item 1. Business.................................................... 3 Introduction................................................ 3 Recent Developments......................................... 3 Realty...................................................... 4 Summary Financial Information............................... 6 Real Estate Investments..................................... 7 Santa Anita Racetrack....................................... 8 Santa Anita Fashion Park.................................... 8 Santa Anita Medical Plaza................................... 9 Assets Sold or Held For Sale................................ 10 Towson Town Center.......................................... 10 Joppa Associates............................................ 10 Neighborhood Shopping Centers............................... 10 Office Buildings............................................ 11 Land........................................................ 11 Pacific Gulf Properties Inc................................. 11 Management of Properties.................................... 11 Competitive and Other Conditions............................ 11 Environmental Matters....................................... 11 Employees................................................... 12 Seasonal Variations in Business............................. 12 Operating Company........................................... 12 Santa Anita Racetrack....................................... 13 Wagering Commissions........................................ 13 On-Track Wagering........................................... 14 Satellite Wagering--Southern California..................... 14 Satellite Wagering--Northern California..................... 14 Satellite Wagering--Out-of-State (Commingled Pools)......... 14 Satellite Wagering--Out-of-State (Separate Pools)........... 14 Competitive and Other Conditions............................ 18 Dependence on Limited Number of Customers................... 18 Employee and Labor Relations................................ 18 Seasonal Variations in Business............................. 19 Income Tax Matters.......................................... 19 Special Considerations Regarding Forward Looking Statements.................................................. 20 Item 2. Properties.................................................. 20 Item 3. Legal Proceedings........................................... 21 Item 4. Submission of Matters to a Vote of Security Holders......... 21 PART II.................................................................. 22 Market for Registrants' Common Equity and Related Item 5. Shareholder Matters......................................... 22 Item 6. Selected Financial Data..................................... 23 Item 7. Managements' Discussion and Analysis of Financial Condition and Results of Operations.................................. 25 Item 8. Financial Statements and Supplementary Data................. 33 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................... 33 PART III................................................................. 34 Item 10. Directors and Executive Officers............................ 34 Item 11. Executive Compensation...................................... 36 Security Ownership of Certain Beneficial Owners and Item 12. Management.................................................. 46 Item 13. Certain Relationships and Related Transactions.............. 47 PART IV.................................................................. 47 Exhibits, Financial Statement Schedules and Reports on Form Item 14. 8-K......................................................... 47 SIGNATURES............................................................... 48 INDEX TO FINANCIAL STATEMENTS............................................ 50 INDEX TO FINANCIAL STATEMENT SCHEDULES................................... 51 INDEX TO EXHIBITS........................................................ 125
2 SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES PART I ITEM 1. BUSINESS INTRODUCTION Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating Company ("Operating Company") are two separate companies, the stocks of which trade as a single unit under a stock-pairing arrangement on the New York Stock Exchange (symbol SAR). Realty and Operating Company were each incorporated in 1979 and are the successors of a corporation originally organized in 1934 to conduct thoroughbred horse racing in Southern California. As used herein, the terms "Realty" and "Operating Company" include wholly owned subsidiaries of Realty and Operating Company unless the context requires otherwise. References to "The Santa Anita Companies" or "Companies" refer to Realty and Operating Company, collectively. This document constitutes the annual report on Form 10- K for both Realty and Operating Company. RECENT DEVELOPMENTS In August 1996, the Companies announced that they had entered into an agreement calling for a strategic alliance with Colony Investors II, L.P. ("Colony"), a Los Angeles-based real estate investment fund administered by Colony Capital, Inc. ("Colony Capital"). Pursuant to the strategic alliance, which was subject to shareholder approval, Colony would invest, over time, a total of $138 million in the Companies. Thomas J. Barrack, Jr., then a director of the Companies, is the Chief Executive Officer of Colony Capital. The strategic alliance did not involve a transfer of control of the Companies. Concurrent with the announcement of the strategic alliance with Colony, the Companies also announced the resignation of Operating Company's Chairman and Chief Executive Officer, the retirement of Realty's Vice Chairman and Executive Vice President, and the appointment of William C. Baker as Chairman and Chief Executive Officer of Operating Company and Brian L. Fleming as Acting Chief Executive Officer and President of Realty. In September 1996, as part of its investment, Colony acquired 112,700 shares of paired common stock and 867,343 shares of paired Series A Redeemable Preferred Stock ("Preferred Stock") for $12.716 million. The Companies and Colony contemplated that the Preferred Stock would be exchanged for paired common stock following shareholder approval of the transaction. Upon the occurrence of certain events, including termination of the agreement or closing of the transaction, Colony has the option to require the Companies to redeem the Preferred Stock for cash or a combination of cash and a promissory note. Colony was also entitled to a termination fee and reimbursement of expenses if the transaction was not closed. On October 1996, the Companies received an unsolicited offer from Koll Arcadia Investors, LLC ("KAI"), an investor group comprised of Apollo Real Estate Investors II, L.P. and principals of the Koll Company, seeking to acquire control of the Companies. In response to this proposal, the Boards of Directors of the Companies formed special committees of independent directors (the "Independent Committees") to review the proposal and other proposals of a strategic nature. In January 1997, the Companies and Colony revised their agreement to allow the Companies to enter into discussions and negotiations with third parties with respect to transactions that might involve a transfer of control or other transactions that would maximize shareholder value, and therefore would be inconsistent with the Colony strategic alliance. Thereafter, the Companies commenced a process in which interested parties were invited to make proposals to the Independent Committees, which indicated that they would respond to such parties once they had an opportunity to evaluate fully all proposals. 3 In January and again in March 1997, KAI revised its offer. The March offer was announced simultaneously with an offer by Colony Capital. These offers, by their terms, expired March 28, 1997. On March 27, 1997, the Companies announced they had received confidential, written proposals from several strategic and financial buyers in addition to the previously described KAI and Colony Capital proposals and that, the Companies' Independent Committees and financial advisors had been authorized to commence final negotiations with selected potential buyers. On March 31, 1997, the August 17, 1996 agreement with Colony was terminated in accordance with its terms. The Companies paid the $4.5 million termination fee and expenses owed to Colony pursuant to the agreement. REALTY Realty is incorporated under the laws of the State of Delaware. Realty's principal executive offices are located at 301 West Huntington Drive, Suite 405, Arcadia, California 91007. Realty operates as a real estate investment trust ("REIT") under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"). As such, Realty is principally engaged in investing in and holding real property. Realty is a self-administered equity REIT. Currently, Realty owns an approximate 400 acre parcel in Arcadia, California which is the site for the Santa Anita Park racetrack, a thoroughbred horse racing facility, the Santa Anita Fashion Park Mall, a 1.1 million square foot regional mall of which Realty owns a 50 percent interest in the operations, and Santa Anita Medical Plaza, a six story, 85,000 square foot medical office building owned by Realty. Additionally, Realty owns a 32.5 percent interest in the Towson Town Center mall in Towson, Maryland, a 50 percent interest in a parcel of land adjacent to the Towson Town Center mall, two neighborhood shopping centers, and a 24 acre undeveloped land parcel in Southern California, of which all but one neighborhood center and the undeveloped land parcel are in agreements to be sold to third parties. The neighborhood center and land parcel are held for sale by Realty. Over the past three years, Realty has undergone significant changes in its asset holdings and strategic direction. In November 1993, Realty entered into an agreement to sell its multifamily and industrial operations to its wholly owned subsidiary, Pacific Gulf Properties Inc. ("Pacific"), in conjunction with Pacific's proposed public offering of common stock and debentures. This asset disposition, which was completed in 1994, resulted in Realty paying down its lines of credit by $44.4 million and transferring certain debt in the amount of $53.7 million related to the apartment and industrial properties to Pacific. Realty also received 784,419 shares of common stock of Pacific (a 16.2% interest). The senior management of Realty prior to the restructuring became senior management of Pacific, and Realty commenced the hiring of new senior management in Spring 1994. Consistent with Realty's stated strategy in 1994 to focus on development of the Arcadia property as part of the Companies' strategic direction to grow The Santa Anita Companies into a premier gaming and entertainment concern with thoroughbred racing at its core, in March 1995, Realty filed an application with the City of Arcadia for entitlements for a 1.5 million square foot development on approximately 100 acres of land adjacent to the Santa Anita Park racetrack and the Santa Anita Fashion Park regional mall. As part of the planned development, Realty entered into a lease with a movie exhibitor for a 25 screen multiplex theater and negotiations with a variety of prospective tenants, including a large screen theater, book superstore and other specialty retail stores and restaurants. Realty formed a community advisory group to facilitate community acceptance of the project and continued to engage in negotiations with the City government regarding the entitlement process. In May 1995, Realty and Operating Company, with the assistance of two nationally recognized investment banking firms, filed for registration of an underwritten public offering of paired common stock, for which the proceeds were to be used to repay bank debt and to finance the initial phase of the proposed entertainment center. The offering was withdrawn in July 1995 because of insufficient market interest. Subsequent to this period, Realty pursued financing the proposed entertainment center on a joint venture basis but elected not to enter into a joint venture arrangement. 4 In Fall 1995, management of Realty and Operating Company jointly met with the Boards of Directors to review the strategic issues facing the Companies. Issues discussed included the financing of the development of the entertainment center, the more effective utilization of the paired share structure of the Companies and the composition of Realty's asset portfolio. Realty's management and Board of Directors determined to dispose of selected real estate assets which were determined not to be part of the strategic direction of Realty. As a result of the planned sale of these non-core properties, Realty recognized in the 1995 third quarter a one-time non-cash charge of $26.3 million which charge reduced the book value of these assets to estimated realizable value. In the 1995 fourth quarter, an additional $4.0 million reduction in book value was recorded. See "Notes to Financial Statements--Note 3--Disposition of Non-Core Real Estate Assets." In addition, at this meeting, the Boards of Directors authorized management of Realty and Operating Company to retain Morgan Stanley & Co. Incorporated as a financial advisor to The Companies. Following meetings with managements of both Companies and further investigation and analyses, Morgan Stanley discussed strategic alternatives with the Boards of each of the Companies in February, 1996. Subsequent to those meetings, a committee of outside directors was formed to formulate recommendations concerning Realty's investments. As a consequence of the committee's meetings, the committee recommended that Mr. William C. Baker, a director of the Companies, be appointed Chairman of the Board and Chief Executive Officer of Realty and that the responsibilities and compensation of certain officers be modified. These changes took effect on April 1, 1996. In April 1996, Realty made the strategic decision to withdraw the 1.5 million square foot specific plan application which it had previously submitted in June 1995 to the City of Arcadia. This specific plan application concerned the development of a 1.5 million square foot retail/entertainment project on 100 acres of excess land at Santa Anita Park. The specific plan application withdrawal was made in reaction to significant mitigation costs and public use requirements likely to be imposed on the project by the City of Arcadia. Subsequent to the withdrawal, Realty continued development plans for the larger project. In September 1996, a new City general plan was adopted which provided for a commercial land use designation allowing 1.1 million square feet of commercial development. In November 1996, a public initiative was defeated which would have prevented development on the Realty property. After the defeat of this measure, Realty concluded that a smaller scale project would be supported by City management and not be subjected to mitigation costs and public use requests inherent in a larger project. Accordingly, Realty has reconfigured and downsized the project. The proposed development is in its early stages and its ultimate configuration and success, which is dependent on obtaining financing, entitlements and general economic conditions, cannot be determined. See Item 1. "Business--Special Considerations Regarding Forward Looking Statements." To date, Realty has disposed of seven of the assets in its portfolio of non- core assets held for sale and is in binding agreements to sell three additional assets in the disposition program, all three of which are anticipated at this time to close in the second quarter of 1997. See Item 1. "Business--Recent Developments" for an explanation of recent corporate developments at Realty. 5 SUMMARY FINANCIAL INFORMATION The following table sets forth certain unaudited financial information with respect to Realty: SUMMARY OF FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 1993 1992 ------- -------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues....................... $19,184(b) $ 22,426 $26,232(c) $41,961 $35,967 Net income (loss) (d).......... 1,332 (22,948) 5,256 1,840 9,318 Preferred stock dividends (a).. 12,368 -- -- -- -- Net income (loss) applicable to common shares................. (11,036) (22,948) 5,256 1,840 9,318 Funds from operations (e)...... 12,690 13,147 14,224 17,093 17,345 Per common share: Net income (loss)............ (.97) (2.03) .47 .16 .82 Dividends paid............... .80 .80 1.08 1.36 1.36 Dividends declared........... .80 .80 .94 1.36 1.36 Weighted average common shares outstanding................... 11,429 11,326 11,256 11,256 11,256
- -------- (a) See "Notes to Financial Statements--Note 16--Redeemable Preferred Stock." (b) The decline in revenues was due primarily to the sale of non-core real estate assets. See Item 1. "Business--Realty--Assets Sold or Held For Sale." (c) The decline in revenues was due primarily to the sale of properties to Pacific. See Item 1. "Business--Realty--Assets Sold or Held For Sale-- Pacific Gulf Properties Inc." (d) Net income (loss) for the years ended December 31, 1996, 1995, 1994 and 1993 each included several non-recurring items totaling a net charge of $6,219,000, $27,870,000, $1,782,000 and $5,240,000. Net income excluding nonrecurring charges was $7,551,000, $4,922,000, $7,038,000 and $7,080,000 for the years ended December 31, 1996, 1995, 1994 and 1993. (e) Calculated in accordance with the definition of funds from operations as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), except 1993 which excludes $5,734,000 received from the California Franchise Tax Board related to the settlement of certain state tax issues. Net income (computed in accordance with generally accepted accounting principles), excluding gains (losses) from debt restructuring, sales of property and nonrecurring items, plus depreciation and amortization (including Realty's portion of depreciation from unconsolidated joint ventures). 6 REAL ESTATE INVESTMENTS Realty's portfolio of real estate investments is outlined below. SUMMARY OF REAL ESTATE INVESTMENTS AS OF DECEMBER 31, 1996
PERCENT LEASABLE PERCENT NET BOOK ENCUMBRANCES LEASED AREA(A) OWNERSHIP VALUE(B) (C) ------- --------- --------- -------- ------------ (IN THOUSANDS) INVESTMENTS TO BE HELD Racing Facility: Santa Anita Racetrack, Ar- cadia, California......... 100% 312 acres 100% $ 9,180 $ -- ======= ======= Office Building: Medical Office Building, Arcadia, California....... 97 75,000 100 $12,026 $ 8,691 Land: Land underlying Fashion Park, Arcadia, California................ 100 73 acres 100 346 3,678 ------- ------- $12,372 $12,369 ======= ======= INVESTMENTS TO BE SOLD(D) Shopping Centers: Yorba Linda, California.... 91 53,000 100 $ 3,893 $ 3,398 Encinitas, California...... 84 80,000 100 4,813 4,160 Land: Temecula, California....... N/A 24 acres 50 280 480 ------- ------- $ 8,986 $ 8,038 ======= ======= INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES Anita Associates......................................... $(3,966) H-T Associates........................................... 4,047 Joppa Associates......................................... 2,216 ------- $ 2,297 ======= REAL ESTATE LOANS RECEIVABLE Principal and accrued interest........................... $13,147 Valuation allowance...................................... (2,473) ------- $10,674 =======
- -------- (a) Square feet except as indicated. (b) Net book value (total cost of project less accumulated depreciation) at December 31, 1996. (c) Amounts represent 100% of project encumbrances. (d) During 1996, Realty sold four shopping centers and two office buildings. 7 SANTA ANITA RACETRACK Santa Anita Racetrack, which is leased by Realty to Los Angeles Turf Club, Incorporated ("LATC"), a subsidiary of Operating Company, is located on approximately 312 acres, 14 miles northeast of downtown Los Angeles, adjacent to major transportation routes. LATC conducts one of the largest thoroughbred horse racing meets in the United States in terms of both average daily attendance and average daily pari-mutuel wagering. The Santa Anita Racetrack was opened for thoroughbred horse racing in 1934 by a group of investors led by Dr. Charles H. Strub. The Santa Anita Meet has been held at Santa Anita Racetrack each year since its founding except for three years during World War II. The physical plant consists of a large grandstand structure occupying approximately 970,000 square feet, stalls for approximately 2,000 horses, and a parking area covering approximately 128 acres which can accommodate approximately 20,000 automobiles. The grandstand facilities include clubhouse accommodations, a general admission area, and food and beverage facilities, which range from fast food stands to restaurants, both at outdoor terrace tables and indoor dining areas. The grandstand has seating capacity for 25,000 as well as standing room for additional patrons. The structure also houses Operating Company's executive and administrative offices. The grounds surrounding the grandstand are extensively landscaped and contain a European-style paddock and infield accommodations, including picnic facilities for special groups and the general public. During 1996, the lease rental payable to Realty by LATC was 1.5% of total live on-track wagering at Santa Anita Racetrack, including live on-track wagering during the meet conducted by Oak Tree Racing Association ("Oak Tree"). In addition, Realty receives 26.5% of LATC's revenues from satellite wagering (not to exceed 1.5% of such wagering) and the simulcasting of races originating from Santa Anita Racetrack after mandated payments to the State, to horse owners and to breeders. When LATC operates as a satellite for Hollywood Park Racetrack, Del Mar Racetrack and Pomona Fairplex, Realty receives 26.5% of LATC's wagering commissions as additional rent. The lease with LATC is scheduled to expire on December 31, 1999. The previous lease, which was in effect through 1994, provided for rent of 1.5% of the aggregate on-track wagering on live races at Santa Anita Racetrack and 40% of LATC's wagering commissions from satellite wagering on races originating at Santa Anita Racetrack. Accordingly, the rental income which Realty receives from Santa Anita Racetrack is directly affected by and dependent upon the racing activities and the wagering by patrons (see Item 1. "Business--Operating Company--Santa Anita Racetrack"). The following table shows rental earned by Realty based on the rental formula under the LATC lease for the last five years:
YEAR ENDED DECEMBER 31, ------------------------------------------ 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT FOR RACING DAYS) Combined racing days................. 114 120 117 114 121 ======= ======= ======= ======= ======= Rent from Racetrack.................. $10,861 $11,342(a) $13,070 $11,634 $12,683 ======= ======= ======= ======= =======
- -------- (a) The decrease in Rent from Racetrack in 1995 was primarily due to amended lease terms. If the amended lease terms had been in effect for the year ended December 31, 1994, racetrack rental revenues would have been $11,123,000. For a further description of thoroughbred horse racing operations, see Item 1. "Business--Operating Company--Santa Anita Racetrack." SANTA ANITA FASHION PARK Santa Anita Fashion Park is a completely enclosed, climate-controlled regional mall located adjacent to Santa Anita Racetrack with 1,102,000 square feet of leasable area. Fashion Park, apart from space occupied by anchor tenants, is owned and operated by a partnership, Anita Associates, of which Realty is a 50% limited 8 partner. The general partner of Anita Associates is Hahn-UPI, which in turn is a limited partnership of which TrizecHahn Centers Inc., a developer of shopping centers, is the general partner. Fashion Park completed a significant expansion in August 1994, including the addition of a new 136,000 square foot Nordstrom store and an additional 40,000 square feet of mall stores. Other anchor tenants are Robinsons-May (165,000 square feet), J.C. Penney (215,000 square feet) and Macy's (188,000 square feet). Since 1994, new mall tenants include The Disney Store, Williams Sonoma, Ann Taylor, the Gap, Talbots Petites, Gymboree, Jacadi and California Pizza Kitchen. During 1993, the Robinsons-May store was expanded by approximately 40,000 square feet and a food court of approximately 13,000 square feet was completed and opened. Since 1994, each of the anchor department stores has completed a major remodeling of its store. In January 1994, Anita Associates refinanced its existing debt by entering into a secured loan agreement with an insurance company. Funding under the secured loan was made in two draws of $46,577,000 at 9.0% in January 1994 and $15,778,000 at 9.25% in December 1994. The secured loan is due in January 2003. At December 31, 1996, $60,381,000 was outstanding under the agreement. There are currently 133 tenants operating mall stores. Leases are generally seven to ten years with clauses providing for escalation of the basic rent every three years. Typically, leases with mall tenants are structured to provide Anita Associates with overage rents upon attainment by the tenant of certain sales levels, which are specified under the individual leases of the various stores. Overage rents represent a fixed percentage of the gross sales of a tenant less its base rent. With the addition of Nordstrom, Fashion Park has been able to attract higher quality mall tenants at higher annual rental rates. Realty has leased the land underlying Fashion Park to Anita Associates and to three of the major tenants of Fashion Park until 2037, with two additional ten-year option periods and one additional five-year option period. The ground rent was $527,000 annually until October 1996 when the annual rent increased to $795,000 through 2007. During the remaining 30-year term and the three additional option periods, the annual ground rent may be increased up to 25% based upon the appraised value of the land. Under the provisions of the ground leases, Anita Associates is responsible for real estate taxes and other operating expenses. Robinsons-May, J.C. Penney, Macy's and Nordstrom pay their own real estate taxes. The land underlying Fashion Park is security for a loan maturing in 2009 with a balance at December 31, 1996 of $3,678,000. Payments on this indebtedness, which is without recourse to Realty, are approximately $473,000 annually. The security to the lender also includes an assignment of the ground rents received by Realty and a collateral assignment of the ground leases. The following table contains certain information pertaining to the mall stores in Fashion Park (excluding major tenants):
YEAR ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 1993 1992 ------ ------ ------ ------ ------ Number of mall tenants...................... 133 135 130 116 107 ====== ====== ====== ====== ====== Average annual rental rates per square foot including overage rents.................... $23.13 $20.81 $19.78 $16.42 $16.98 ====== ====== ====== ====== ======
SANTA ANITA MEDICAL PLAZA Realty owns a medical office building located in Arcadia, California which is adjacent to Santa Anita Park. Office leases are typically for a period of five to ten years and are offered on a full-service gross basis. In addition, tenants are given a tenant improvement allowance and rental concessions in the form of additional tenant improvement allowances or free rent. At December 31, 1996, the medical office building was 100% occupied. 9 ASSETS SOLD OR HELD FOR SALE Pursuant to the determination of the Board of Directors of Realty to dispose of certain assets, Realty sold a number of properties in 1996, has entered into contracts for sale of other properties (which transactions are scheduled to close in 1997) and continues efforts to sell other assets. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Santa Anita Realty Enterprises, Inc." for a discussion of the use of proceeds and anticipated use of proceeds of such sales and the impact of such sales on Realty's results of operations. The sales anticipated below are subject to a number of contractual conditions, including completion of due diligence by buyers that may affect whether and when the sales occur. See also Item 1 "Business--Special Considerations Regarding Forward Looking Statements." TOWSON TOWN CENTER Towson Town Center located in Towson, Maryland, is a 980,000 square-foot regional mall which opened in 1991. Realty is a 50% partner with TrizecHahn Centers Inc. in H-T Associates, a joint venture which owns a 65% interest in a partnership which owns the Towson Town Center. The anchor tenants at Towson Town Center are Nordstrom (224,000 square feet) and Hecht's (193,000 square feet) department stores. There are 165 other tenants operating mall stores with original lease terms varying up to 15 years. The average annual rental rate per square foot including overage rents was $33.96 per square foot for the operating mall stores. The mall tenant leases generally provide for escalation of the basic rent every three years and are structured to provide Towson Town Center with overage rents upon attainment by the tenant of certain sales levels, which are specified under the individual leases of the various stores. Overage rents represent a fixed percentage of the gross sales of a tenant less its base rent. Realty has executed joint and several guaranties of loans used to expand the Towson Town Center in the amount of $66,135,000. In January 1997, Realty entered into an agreement to sell its 50% partnership interest in H-T Associates to its partner (see "Notes to Financial Statements--Note 9-- Investments in Unconsolidated Joint Ventures"). Such sale is expected to close in the 1997 second quarter. JOPPA ASSOCIATES In 1988 Realty entered into a partnership for the acquisition and financing of real property to be used in the planned expansion of Towson Town Center. The partnership ceased development activities in 1995 and decided to sell the property. In 1996, the partnership entered into an agreement of sale, which is expected to close on June 30, 1997. NEIGHBORHOOD SHOPPING CENTERS Realty owns two neighborhood shopping centers located in Yorba Linda, California, and Encinitas, California. The Yorba Linda shopping center consists of two major stores, a fabric/craft retail store and a private preschool/grade school and also includes a variety of service and general merchandise stores and three restaurants. The Encinitas shopping center does not have a single major tenant but includes a variety of specialty stores, general merchandise and service stores and four restaurants. Leases on the properties range from two to ten years in duration but typically are from three to five years. They are generally triple net leases (tenant pays all operating costs, insurance and property taxes) and provide for future rental increases. At December 31, 1996, the average occupancy of the two shopping centers was 86%. In November 1995, Realty announced its intention to dispose of all of its neighborhood shopping centers and during 1996, Realty sold four such properties. In January 1997, Realty reached an agreement to sell the Yorba Linda neighborhood shopping center and anticipates closing of that sale in the 1997 second quarter. Realty continues its efforts to sell the Encinitas shopping center, and recently determined to spend approximately $1.7 million to renovate the center in anticipation of such sale. 10 OFFICE BUILDINGS During 1996, Realty sold two general use office buildings. LAND Realty is a 50% partner in French Valley Ventures, a partnership which acquired 24 acres of unimproved land located in Temecula, California. In November 1995, Realty announced its intention to dispose of its interest in this property. PACIFIC GULF PROPERTIES INC. In November 1993, Realty entered into a Purchase and Sale Agreement to sell its multifamily and industrial operations to its wholly owned subsidiary, Pacific Gulf Properties Inc. ("Pacific"), in conjunction with Pacific's proposed public offering of common stock and debentures. (see "Notes to Financial Statements--Note 8--Investment in Pacific Gulf Properties Inc."). As a result of the sale to Pacific, Realty owned 784,419 shares (or approximately 16.2%) of Pacific's outstanding common shares. On May 30, 1996, Realty sold its shares of Pacific common stock, at a gross selling price of $16.375 per share, pursuant to the terms of an underwritten, registered public offering by Pacific. MANAGEMENT OF PROPERTIES Realty manages its neighborhood shopping centers and office building directly. COMPETITIVE AND OTHER CONDITIONS The regional shopping malls, neighborhood shopping centers and office building owned by Realty encounter significant competition from similar or larger regional shopping malls, shopping centers and office buildings developed and owned by other companies. Realty's income from its real estate assets is also affected by general economic conditions. Recessionary measures could adversely impact vacancy rates, the nature of Realty's tenants, the rents Realty is able to obtain from its tenants and its financial results. Realty's properties are located in Southern California, which is an area subject to earthquakes and, therefore, there can be no assurance that any earthquakes that may occur will not damage Realty's properties or negatively impact the financial position or results of operations of Realty. ENVIRONMENTAL MATTERS Under various federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The costs of investigation, removal or remediation of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of a release of such substances at a disposal treatment facility, whether or not such facility is owned or operated by such person. Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with ACMs. In connection with the ownership (direct or indirect), operation, management and development of real properties, the Companies may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic 11 substances and therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. EMPLOYEES At December 31, 1996, Realty employed 14 persons on a full-time basis. SEASONAL VARIATIONS IN BUSINESS Realty is subject to significant seasonal variation in revenues due primarily to the seasonality of thoroughbred horse racing. The following table presents restated unaudited quarterly results of operations for Realty during 1996 and 1995 (see "Notes to Financial Statements--Note 21--Combined Quarterly Financial Information--Unaudited"):
QUARTERS ENDED 1996 -------------------------------------------- MARCH JUNE SEPT. DEC. ------------------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues................... $ 9,322 $ 4,240 $ 2,379 $ 3,243 Costs and expenses............... 2,722 2,221 2,645 1,604 Interest and other............... 944 756 502 468 Strategic alliance costs......... -- -- -- 1,090 Arcadia development costs........ -- -- -- 2,900 Program for disposition of non- core real estate assets......... -- 855 90 1,055 --------- --------- ----------- ----------- Net income (loss)................ 5,656 408 (858) (3,874) Preferred stock dividends........ -- -- 4,813 7,555 --------- --------- ----------- ----------- Net income (loss) applicable to common shares................... $ 5,656 $ 408 $ (5,671) $ (11,429) ========= ========= =========== =========== Net income (loss) per common share .......................... $ .50 $ .04 $ (.50) $ (.99) ========= ========= =========== =========== QUARTERS ENDED 1995 -------------------------------------------- MARCH JUNE SEPT. DEC. ------------------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues................... $ 9,066 $ 4,795 $ 3,009 $ 5,556 Costs and expenses............... 3,227 2,713 3,169 2,994 Interest and other............... 1,120 1,118 1,074 1,009 Costs of equity offering......... -- 700 -- -- Card club option write-off....... -- -- 2,000 -- Program for disposition of non- core real estate assets......... -- -- 26,300 4,000 --------- --------- ----------- ----------- Income (loss) before extraordinary gain.............. 4,719 264 (29,534) (2,447) Extraordinary gain on early retirement of debt.............. -- -- -- 4,050 --------- --------- ----------- ----------- Net income (loss)................ $ 4,719 $ 264 $ (29,534) $ 1,603 ========= ========= =========== =========== Net income (loss) per common share Before extraordinary gain...... $ .42 $ .02 $ (2.59) $ (.22) Extraordinary gain............. -- -- -- .36 --------- --------- ----------- ----------- $ .42 $ .02 $ (2.59) $ .14 ========= ========= =========== ===========
OPERATING COMPANY Operating Company is organized under the laws of the State of Delaware. Operating Company's principal executive offices are located at Santa Anita Racetrack, 285 West Huntington Drive, Arcadia, California 91007. Operating Company is engaged in thoroughbred horse racing. The thoroughbred horse racing operation is conducted by a wholly owned subsidiary of Operating Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases the Santa Anita Racetrack from Realty. 12 SANTA ANITA RACETRACK LATC conducts an annual 17-week thoroughbred horse racing meet which commences the day after Christmas and continues through mid-April (the "Santa Anita meet"). LATC conducts one of the largest thoroughbred horse racing meets in the United States in terms of both average daily attendance and average daily pari-mutuel wagering. LATC leases the Racetrack from Realty for the full year for a fee of 1.5% of total live on-track wagering at Santa Anita Racetrack, including live on-track wagering during the meet conducted by Oak Tree. In addition, LATC pays to Realty 26.5% of its revenues from satellite wagering (not to exceed 1.5% of such wagering) and the simulcasting of races originating from Santa Anita Racetrack after mandated payments to the State, to horse owners and to breeders. When LATC operates as a satellite for Hollywood Park Racetrack, Del Mar Racetrack and Pomona Fairplex, LATC pays to Realty 26.5% of its wagering commissions as additional rent. The lease with Realty is scheduled to expire on December 31, 1999. The previous lease, which was in effect through 1994, provided for rent of 1.5% of the aggregate on-track wagering on live races at Santa Anita Racetrack and 40% of LATC's wagering commissions from satellite wagering on races originating at Santa Anita Racetrack. LATC has sublet the racetrack to Oak Tree to conduct Oak Tree's annual thoroughbred horse racing meet (27 days in 1996), which commences in late September or early October. Oak Tree normally races five weeks in even-numbered years and six weeks in odd-numbered years. Under a sublease which expires December 31, 1999, Oak Tree makes annual rental payments to LATC equal to 1.5% of the total live on-track pari-mutuel wagering from its racing meet and 25% of its satellite and simulcast revenues after mandated payments to the State of California, to horse owners and to breeders. LATC pays to Realty 26.5% of all satellite and simulcast revenues received from Oak Tree. In addition, Oak Tree reimburses LATC an amount equal to 0.8% of its on-track pari-mutuel wagering for certain expenses of operating Santa Anita Racetrack on behalf of Oak Tree. LATC also receives supplemental rent representing Oak Tree's adjusted profits above an agreed-upon level and will rebate rent to Oak Tree if Oak Tree's adjusted profits fall below such level (see Item 1. "Business--Operating Company--Santa Anita Racetrack-- Wagering Commissions"). WAGERING COMMISSIONS The State has vested administrative authority for racing and wagering at horse racing meets with the California Horse Racing Board. The California Horse Racing Board, which consists of seven members appointed by the governor of the State, is charged with the responsibility of regulating the form of wagering, the length and conduct of meets and the distribution of the pari- mutuel wagering within the limits set by the California legislature. The California Horse Racing Board is also charged with the responsibility of licensing horse racing associations on an annual basis to conduct horse racing meets and of licensing directors, officers and persons employed by the associations to operate such meets. California law specifies the percentage distribution of pari-mutuel wagering with the percentage varying based upon the total wagering for the meet, breed of horse and type of wager. The following table sets forth the allocation of the total pari-mutuel wagering, on- and off-track, by percentage and dollar amount during the 1995-96 Santa Anita meet:
DISTRIBUTION OF PARI- MUTUEL WAGERING ------------------------- PERCENTAGE AMOUNT ---------- -------------- (IN THOUSANDS) Return to Wagerers................................. 80.87% $663,556 State of California................................ 3.22 26,384 Track Commissions to LATC.......................... 3.92 32,164 Horse Owners and Breeders.......................... 4.07 33,435 Satellite Operator and Location Fees............... 7.71 63,267 Cities and Counties................................ .21 1,750 ------ -------- 100.00% $820,556 ====== ========
13 On-Track Wagering All wagering on-track is pari-mutuel, meaning literally a mutual wager, or wagering by individuals against each other. The racetrack acts as the broker for the wagers made by the public and deducts a "take-out" or gross commission which is fixed by the State and shared with the State, the racetrack operator, the horse owners and breeders, and the municipality in which the racetrack is located. The racetrack operator has no interest in which horse wins a given race. Satellite Wagering--Southern California LATC and Oak Tree send televised racing signals to other racetracks in Southern California, non-racing fair sites in Southern California and wagering facilities on Indian reservation land in Southern California. Southern California satellite facilities commingle their wagering with the wagering on- track. LATC's and Oak Tree's share of this type of satellite wagering averages approximately 4.3% of the wagers made. During the Hollywood Park, Del Mar and Pomona Fairplex meets, LATC and other Southern California racing associations and fairs operate as satellite facilities. In addition to retaining about 1.9% of the pari-mutuel wagering at Santa Anita Racetrack as its commission, LATC receives income from admissions, parking and food and beverage sales. In 1996, Santa Anita Racetrack operated 165 days as a satellite for Hollywood Park, Del Mar and Pomona Fairplex. Satellite Wagering--Northern California In the fall of 1993, California law permitted the limited exchange between Southern and Northern California of televised racing signals on races with purses exceeding $20,000. In the summer of 1994, a change in California law permitted the unlimited exchange of racing signals between the Southern California zone and the Northern California zone. Racetracks operating a live thoroughbred race meet in the southern zone and in the northern zone receive the out-of-zone racing signal and rebroadcast the signal within their respective southern or northern zones. Each zone commingles their wagering on the out-of-zone race with the other zone. While operating a live race meeting, LATC and Oak Tree receive approximately 4.5% of wagering on-track and at Southern California satellite facilities on Northern California races. Also, during the live race meeting, LATC and Oak Tree receive 1.25% of wagering in Northern California on Santa Anita races. Satellite Wagering--Out-of-State (Commingled Pools) Legislation has been enacted in certain states permitting the transmission of pari-mutuel wagers across state lines. This format permits patrons wagering in those states on races held at Santa Anita Racetrack to participate in the same pari-mutuel pool payouts available to LATC's on-track patrons and California satellite patrons. In 1996, LATC participated in satellite wagering with Alabama, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Virginia, Washington, West Virginia, Wisconsin and Wyoming and receives a negotiated percentage of the pari-mutuel wagering at such sites. Out-of-state satellite wagering started in 1991. Total out-of-state pari- mutuel wagering was $68,689,000 in 1992 and increased to $271,632,000 in 1996. LATC's share of the commissions from out-of-state satellite wagering was $4,454,000 in 1996, or approximately 1.6% of the out-of-state wagering. Satellite Wagering--Out-of-State (Separate Pools) LATC and Oak Tree transmit their live racing signals to numerous locations in the United States, Mexico, the Caribbean, Central America and Canada. LATC's share of the commissions for transmitting its racing signal 14 was $1,481,000 in 1996 and $1,599,000 in 1995. During the Oak Tree meet, LATC receives a percentage of Oak Tree's share of simulcasting revenues. LATC is pursuing opportunities to transmit its signal to additional locations. The following tables summarize key operating statistics for the 1992-1996 Santa Anita and Oak Tree meets, together with the attendance and wagering statistics relating to the transmission of the Hollywood Park, Del Mar and Pomona Fairplex signals to Santa Anita Racetrack.
RACING MEETS ENDED IN ------------------------------------------------------ 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- LIVE RACING Santa Anita Meet: Number of racing days.. 87 88 90 83 94 ========== ========== ========== ========== ========== Attendance On-track.............. 1,071,950 1,144,568 1,257,909 1,215,208 1,531,538 Southern California satellite locations.. 1,301,990 1,388,249 1,523,220 1,332,126 1,576,763 ---------- ---------- ---------- ---------- ---------- Total............... 2,373,940 2,532,817 2,781,129 2,547,334 3,108,301 ========== ========== ========== ========== ========== Average daily......... 27,287 28,782 30,901 30,691 33,067 ========== ========== ========== ========== ========== Wagering ($000)(a) On-track.............. $ 232,711 $ 244,271 $ 270,452 $ 250,729 $ 323,223 Southern California satellite locations.. 318,526 333,630 315,731 267,346 315,851 Northern California satellite locations(b)......... 90,744 96,187 37,639 -- -- Out-of-state locations............ 376,032 309,305 263,235 135,815 112,871 ---------- ---------- ---------- ---------- ---------- Total............... $1,018,013 $ 983,393 $ 887,057 $ 653,890 $ 751,945 ========== ========== ========== ========== ========== Average daily......... $ 11,701 $ 11,175 $ 9,856 $ 7,878 $ 7,999 ========== ========== ========== ========== ========== Oak Tree Meet: Number of racing days(c)............... 27 32 27 31 27 ========== ========== ========== ========== ========== Attendance On-track.............. 336,180 394,251 377,007 499,617 425,774 Southern California satellite locations.. 352,247 428,876 378,256 444,932 390,088 ---------- ---------- ---------- ---------- ---------- Total............... 688,427 823,127 755,263 944,549 815,862 ========== ========== ========== ========== ========== Average daily......... 25,497 25,723 27,973 30,469 30,217 ========== ========== ========== ========== ========== Wagering ($000) On-track.............. $ 61,965 $ 80,084 $ 74,319 $ 99,789 $ 79,162 Southern California satellite locations.. 84,053 104,495 86,237 80,024 75,714 Northern California satellite locations(b)......... 20,246 27,000 21,715 6,403 -- Out-of-state locations............ 97,057 110,646 65,107 75,426 28,581 ---------- ---------- ---------- ---------- ---------- Total............... $ 263,321 $ 322,225 $ 247,378 $ 261,642 $ 183,457 ========== ========== ========== ========== ========== Average daily......... $ 9,753 $ 10,070 $ 9,162 $ 8,440 $ 6,795 ========== ========== ========== ========== ==========
- -------- (a) Includes wagering on races originating at other racetracks. (b) Northern California satellite wagering began in October 1993 and expanded in August 1994. (c) Oak Tree normally races five weeks in even-numbered years and six weeks in odd-numbered years. 15 Total wagering on the Santa Anita meet increased from $751.9 million in 1992 to $1,018.0 million in 1996. In 1992, $428.7 million of the total amount wagered was wagered at satellite locations with $323.2 million wagered on- track. In 1996, $785.3 million of the total amount wagered was wagered at satellite locations with $232.7 million wagered on-track. Total attendance was 3,108,000 in 1992, of which 1,577,000 was at satellite locations. By 1996, total attendance had declined to 2,374,000. Although 1,302,000 and 1,388,000 patrons attended Southern California satellite locations during the Santa Anita meets in 1996 and 1995, LATC does not share in the revenues from admissions, parking and food and beverage sales at the satellite locations.
RACING MEETS ENDED IN -------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- AS A SATELLITE Santa Anita as Satellite for Hollywood Park: Number of racing days.......... 103 97 102 99 101 ======== ======== ======== ======== ======== Attendance Total........................ 448,619 457,480 486,581 505,239 515,510 ======== ======== ======== ======== ======== Average daily.................. 4,356 4,716 4,770 5,103 5,104 ======== ======== ======== ======== ======== Wagering ($000) Total........................ $114,392 $113,899 $117,661 $112,623 $114,858 ======== ======== ======== ======== ======== Average daily.................. $ 1,111 $ 1,174 $ 1,154 $ 1,138 $ 1,137 ======== ======== ======== ======== ======== Santa Anita as Satellite for Del Mar: Number of racing days.......... 43 43 43 42 43 ======== ======== ======== ======== ======== Attendance Total........................ 188,277 200,725 212,817 223,599 242,947 ======== ======== ======== ======== ======== Average daily.................. 4,379 4,668 4,949 5,324 5,650 ======== ======== ======== ======== ======== Wagering ($000) Total........................ $ 51,763 $ 51,589 $ 52,118 $ 54,928 $ 55,435 ======== ======== ======== ======== ======== Average daily.................. $ 1,204 $ 1,200 $ 1,212 $ 1,308 $ 1,289 ======== ======== ======== ======== ========
During 1996, Santa Anita was a satellite location for Pomona Fairplex for 19 racing days. Total attendance and average daily attendance were 44,753 and 2,355. Total wagering and average daily wagering were $12,309,000 and $648,000. During the last five years, 62.6% of the annual revenues of LATC resulted from pari-mutuel and other wagering commissions. The remaining revenues resulted from admissions, parking, food and beverage sales, sale of programs and interest and other income. 16 The following table sets forth certain unaudited financial information with respect to LATC:
YEAR ENDED DECEMBER 31, --------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- (IN THOUSANDS) Revenues: Wagering commissions: On-track............................. $14,324 $15,262 $16,831 $15,878 $18,695 Southern California satellite locations........................... 14,470 14,866 13,665 12,078 13,706 Northern California satellite locations........................... 1,958 2,193 654 -- -- Out-of-state locations............... 5,935 5,127 4,719 3,238 2,792 Satellite for Hollywood Park, Del Mar and Pomona Fairplex................. 3,286 3,210 3,310 3,391 3,422 Sublease income...................... 4,808 4,929 3,917 3,843 2,724 Admission related..................... 23,825 24,060 24,750 25,842 28,795 ------- ------- ------- ------- ------- Revenues.............................. 68,606 69,647 67,846 64,270 70,134 ------- ------- ------- ------- ------- Costs and Expenses: Horse racing operating costs......... 48,735 48,686 48,352 46,696 52,254 Depreciation and amortization........ 3,212 3,196 4,251 2,768 2,732 General and administrative........... 3,223 3,216 3,125 3,973 3,739 ------- ------- ------- ------- ------- Costs and expenses................... 55,170 55,098 55,728 53,437 58,725 ------- ------- ------- ------- ------- Income from operations before rent and income taxes.......................... $13,436 $14,549 $12,118 $10,833 $11,409 ======= ======= ======= ======= =======
The mix of revenues has changed significantly from 1992 to 1996 primarily as a result of the introduction of satellite wagering on races originating at Santa Anita Racetrack, operating as a satellite location for Hollywood Park, Del Mar and Pomona Fairplex, changes in average daily pari-mutuel wagering, selective price increases, the introduction of additional exotic wagering opportunities on which the retention amount is higher than on conventional wagering and a new lease with Oak Tree, all of which have largely offset declines in commissions from on-track wagering. LATC's total expenses decreased from $58.7 million in 1992 to $55.2 million in 1996. The majority of these expenses are pari-mutuel wagering or attendance-related, the result of operating as a satellite location for Hollywood Park, Del Mar and Pomona Fairplex, and the aggregate effect of a new lease with Oak Tree. From 1992 to 1993, total costs and expenses decreased primarily due to fewer race days, lower on-track attendance and wagering and an ongoing cost reduction program begun in 1992. From 1993 to 1994, total costs and expenses increased primarily due to additional race days and increased wagering. Depreciation expense of $4.3 million in 1994 is higher than in previous years due to a $1.4 million accelerated depreciation charge on the Santa Anita turf course, which was replaced in 1995. From 1994 to 1996, total costs and expenses have remained flat. Included in the results of operations are the revenues and expenses for five charity days. As a condition of the issuance of a racing license, California law requires that a certain number of days be conducted as charity days. The net proceeds from these charity days are distributed to beneficiaries through a nonprofit organization approved by the California Horse Racing Board. California law limits the net proceeds to an amount equal to two-tenths of one percent of total on-track pari-mutuel wagering. Net proceeds in excess of two- tenths of one percent are retained by LATC. LATC is required to conduct five charity days. For further information regarding operating results, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Santa Anita Operating Company." 17 See Item 1. "Business--Recent Developments" for an explanation of recent corporate developments at Operating Company. COMPETITIVE AND OTHER CONDITIONS The Southern California area offers a wide range of leisure time spectator activities, including professional and college teams which participate in all major sports. LATC and Oak Tree compete with such sporting events for their share of the leisure time market and with other numerous leisure time activities available to the community, some of which are broadcast on television. As an outdoor activity, horse racing is more susceptible to inclement weather than some other leisure time activities. This is particularly true of the Santa Anita meet which is held during the winter. Between 1952 and 1992, LATC had never lost a racing day due to inclement weather. During the 1992- 1993 meet, LATC lost two full days and two partial days of racing because of inclement weather. During the 1994-1995 meet, LATC lost two days of racing because of inclement weather. A local Arcadia ordinance limits live horse racing to daylight hours but allows the importation of a horse racing broadcast signal two weekend evenings per week. The California Horse Racing Board has annually licensed LATC and Oak Tree to conduct racing meets at Santa Anita Racetrack. At present, the California Horse Racing Board has not licensed other thoroughbred racetracks in Southern California to conduct racing during these meets. Since 1972, however, night harness racing and night quarterhorse meets have been conducted at other racetracks in Southern California during portions of these meets. LATC and Oak Tree could be adversely affected by legislative or California Horse Racing Board action which would increase the number of competitive racing days, reduce the number of racing days available to LATC and Oak Tree, or authorize other forms of wagering. The California State Lottery Act of 1984, which provided for the establishment of a state-operated lottery, was implemented in 1985. In the opinion of management, the State lottery has had an adverse impact and will continue to have an adverse impact on total attendance and pari-mutuel wagering at Santa Anita Racetrack (see Item 1 "Business--Operating Company-- Santa Anita Racetrack"). In the future, legislation could be enacted to allow casino gaming or other forms of gaming which are competitive with pari-mutuel wagering at Santa Anita Park. Under federal law, certain types of gaming are lawful on Native American lands if conducted in conformance with a Tribal-State compact, which the applicable state must negotiate with a Native American tribe in good faith. Certain Native American tribes seeking to establish gaming in California have instituted litigation against the State of California to compel the State to permit them to do so. Federal law provides that states must allow Native American tribes within its borders to conduct gambling activities that are otherwise legal within the state, subject to the negotiated compact. If casino gaming or other forms of gaming are permitted in California, such gaming could have an adverse impact on LATC. DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS No material part of Operating Company's business is dependent upon a single customer or a few customers; therefore, the loss of any one customer would not have a materially adverse effect on the business of Operating Company. EMPLOYEE AND LABOR RELATIONS During the year ended December 31, 1996, LATC regularly employed approximately 1,550 employees. Substantially all are employed on a seasonal basis in connection with live thoroughbred horse racing or satellite meets at Santa Anita Racetrack. During the relatively short periods when live or satellite racing meets at Santa Anita Racetrack are not being conducted, LATC maintains a staff of approximately 250 employees, most of whom are engaged in maintaining or improving the physical facilities at Santa Anita Racetrack or are engaged in preparing for the next live or satellite meet. 18 All of LATC's employees, except for approximately 80 full-time management and clerical employees, are covered by collective bargaining agreements with labor unions. Fifteen of the seventeen labor agreements covering racetrack employees were renegotiated in 1995. The two remaining labor agreements were renegotiated in 1996. SEASONAL VARIATIONS IN BUSINESS Operating Company is also subject to significant seasonal variation. LATC conducts an annual meet commencing the day after Christmas and continuing through mid-April. This seasonal variation is indicated by the following restated unaudited quarterly results of operations for Operating Company during 1996 and 1995 (see "Notes to Financial Statements--Note 21--Combined Quarterly Financial Information--Unaudited"):
QUARTERS ENDED 1996 -------------------------------------------- MARCH JUNE SEPT. DEC. ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues.............. $ 38,267 $ 14,093 $ 6,549 $ 10,278 Costs and expenses.......... 35,836 13,945 7,664 12,216 Interest.................... 73 69 64 82 ---------- ---------- ---------- ---------- Net income (loss)........... 2,358 79 (1,179) (2,020) Preferred stock dividend.... -- -- 52 -- ---------- ---------- ---------- ---------- Net income (loss) applicable to common shares........... $ 2,358 $ 79 $ (1,231) $ (2,020) ========== ========== ========== ========== Net income (loss) per common share ..................... $ .21 $ .01 $ (.11) $ (.18) ========== ========== ========== ========== QUARTERS ENDED 1995 -------------------------------------------- MARCH JUNE SEPT. DEC. ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues.............. $ 37,003 $ 15,572 $ 6,269 $ 11,489 Costs and expenses.......... 34,944 15,135 6,246 12,341 Interest.................... 91 87 130 93 ---------- ---------- ---------- ---------- Income (loss) before income taxes...................... 1,968 350 (107) (945) Income tax benefit.......... -- -- -- 2,000 ---------- ---------- ---------- ---------- Net income (loss)........... $ 1,968 $ 350 $ (107) $ 1,055 ========== ========== ========== ========== Net income (loss) per common share...................... $ .18 $ .03 $ (.01) $ .09 ========== ========== ========== ==========
Operating Company records operating revenues associated with thoroughbred horse racing at Santa Anita Racetrack on a daily basis, except for season admissions which are recorded ratably over the racing season. Costs and expenses associated with thoroughbred horse racing revenues are charged against income in those interim periods in which the thoroughbred horse racing revenues are recognized. Other costs and expenses are recognized as they actually occur throughout the year. The rental fee paid by Operating Company to Realty is recognized by both Realty and Operating Company as it is earned. INCOME TAX MATTERS In 1979, prior to the pairing of the stock of Realty and Operating Company, the IRS issued a private letter ruling (the "Ruling") in which the IRS held, in effect, that the stock-pairing arrangement between the Companies and the operation of the Racetrack by an Operating Company subsidiary would not preclude Realty's qualification as a REIT. Subsequent to the issuance of the Ruling, Congress amended the Internal Revenue Code (the "Amendment") to prohibit a stock-pairing arrangement between a REIT and an operating company. However, the Amendment does not apply to the Companies since they were paired prior to June 30, 1983, the effective date of the legislation. Furthermore, the Amendment does not affect Realty's Ruling. Realty is one of only three continuing publicly-traded REITs whose stock was paired with an operating company prior to 1983 and is thus not subject to the Amendment. 19 REALTY In the opinion of management, Realty has operated in a manner which has qualified it as a REIT under Sections 856 through 860 of the Code. Realty intends to continue to operate in a manner which will allow it to qualify as a REIT under the Code. If, as intended, Realty continues to qualify as a REIT, it generally will not be subject to federal corporate income taxes on its taxable income and gains that it distributes to its shareholders. This treatment substantially eliminates the "double taxation" (once at the corporate level and again at the stockholder level) that generally results from investment in a typical corporation. Income and gains that are not so distributed will be taxed to a REIT at regular corporate rates. In addition, a REIT is subject to certain taxes on net income from "foreclosure property" (which is, in general, property acquired on default of a lease of such property), income from the sale of property held primarily for sale to customers in the ordinary course of business and excessive unqualified income. In order to qualify as a REIT, among other things, the rental income received by Realty from LATC must qualify as "rents from real property" for REIT purposes. One requirement for such qualification is that Realty may not own, directly or constructively, 10% or more of the outstanding voting power or total number of shares of stock of LATC. Realty would be treated as owning shares of stock in LATC in violation of this 10% limit if any person owns, directly or constructively, 10% or more by value of the shares of stock of Realty and Operating Company. In such an event, the rent paid to Realty by LATC could not qualify as income of the type that can be received by a REIT. In order to prevent such a situation, which would likely result in Realty's disqualification as a REIT, the by-laws of Realty and Operating Company preclude any transfer of shares which would cause any person to own, actually or constructively, shares of stock of the Companies in violation of the above limitation. OPERATING COMPANY Operating Company pays ordinary corporate income taxes on its taxable income. Any income, net of taxes, will be available for retention in Operating Company's business or for distribution to shareholders as dividends. Any dividends distributed by Operating Company will be subject to tax at ordinary rates and generally will be eligible for the dividends received deduction for corporate shareholders to the extent of Operating Company's current or accumulated earnings and profits. Distributions in excess of current or accumulated earnings and profits are treated first, as a return of investment and then, to the extent that such distribution exceeds a shareholder's investment, as gain from the sale or exchange of such shares. However, there is no tax provision which requires Operating Company to distribute any of its after-tax earnings and Operating Company does not expect to pay cash dividends in the foreseeable future. SPECIAL CONSIDERATIONS REGARDING FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K contains statements which, to the extent that they are not recitations of historical fact, constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All forward looking statements involve risks and uncertainties. The forward looking statements in this document are intended to be subject to the safe harbor protection provided by Sections 27A and 21E. Reference is made in particular to Realty's plans for future sales of its non-core assets and the use of proceeds thereof, Realty's proposed development of land adjacent to Santa Anita Park and other forward looking statements in the annual report. Such statements may be identified by the use of terms such as "may," "will," "expect," "believe," "estimate," "anticipate," "intend," "continue" or similar terms. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties. ITEM 2. PROPERTIES Information concerning property owned by Realty and Operating Company required by this Item is incorporated by reference to the information contained in Item 1. "Business" of this Report. 20 ITEM 3. LEGAL PROCEEDINGS In October 1996, a purported class action complaint was filed by Barbara J. Gignac in the Superior Court of Los Angeles County, California, naming as defendants the Companies, certain of their officers and directors and Colony Capital, Inc. The complaint alleges breaches of fiduciary duties by the individually named defendants, as a result of the proposed transaction with an affiliate of Colony Capital, Inc. ("Colony Transaction"), for not conducting an auction for control of the Companies, not negotiating with other bidders, not making adequate and truthful disclosures and not acting independently. The suit seeks certification of the class, a preliminary and permanent injunction of the Colony Transaction, directives to the defendants to issue corrective disclosures and discharge fiduciary duties, a preliminary and permanent injunction of breaching fiduciary duties, compensatory damages of an unspecified amount, costs and expenses and punitive damages. See Item 1. "Business--Recent Developments." The defendants believe the allegations in the complaint are without merit and intend to contest vigorously the claims asserted against them in this lawsuit. Certain other claims, suits and complaints arising in the ordinary course of business have been filed or were pending against Realty and/or Operating Company and its subsidiaries at December 31, 1996. In the opinion of the managements of Realty and Operating Company, all such matters are adequately covered by insurance or, if not so covered, are without merit or are of such kind, or involve such amounts, as would not have a significant effect on the financial position or results of operations of Realty and Operating Company if disposed of unfavorably. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 21 PART II ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The paired Common Stock of Realty and Operating Company is traded on the New York Stock Exchange as Santa Anita Realty Enterprises under the symbol SAR. The following table sets forth the high and low closing prices for the paired Common Stock on the New York Stock Exchange Composite Tape and the cash dividends declared by Realty for the periods indicated. Operating Company has not declared cash dividends.
CASH DIVIDENDS HIGH LOW DECLARED ------- ------- --------- 1995 1st Quarter.................................... $17 1/2 $13 3/8 $.20 2nd Quarter.................................... 17 1/8 14 3/8 .20 3rd Quarter.................................... 15 13 3/8 .20 4th Quarter.................................... 13 5/8 11 7/8 .20 ---- $.80 ==== 1996 1st Quarter.................................... $15 1/4 $ 12 $.20 2nd Quarter.................................... 15 1/8 12 3/8 .20 3rd Quarter.................................... 18 1/2 12 1/2 .20 4th Quarter.................................... 27 7/8 18 1/4 .20 ---- $.80 ==== 1997 1st Quarter.................................... $30 1/2 $26 1/4 $.20 ====
A regular quarterly dividend of $.20 per share was paid on March 28, 1997 to shareholders of record on March 6, 1997. The closing price of the paired Common Stock on the New York Stock Exchange Composite Tape on March 31, 1997 was $27.375 per share. As of March 31, 1997, there were approximately 21,000 holders of the paired Common Stock, including the beneficial owners of shares held in nominee accounts. The current policy of the Board of Directors of Realty is to declare and pay regular quarterly dividends equal to the greater of (i) $.20 per share (provided sufficient funds are legally available and not required for other purposes and provided further that such dividend payments are not prohibited by the terms of any applicable credit agreements), or (ii) an amount calculated to maintain Realty's qualification as a REIT under the Code by effecting the distribution in each year of an amount approximating 95% of its taxable income (other than net capital gains) (see item 1. "Business--Income Tax Matters--Realty"). This policy is subject to review by the Board of Directors from time to time in light of Realty's results of operations, its financial condition, its cash requirements and such other factors as the Board of Directors deems relevant. Realty's revolving credit agreement contains restrictions on the payment of dividends (see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Santa Anita Realty Enterprises, Inc."). In order to retain earnings to finance its capital improvement program and for the growth of its business, Operating Company has not paid cash dividends since its formation and does not expect to pay cash dividends in the foreseeable future. The statement on the face of this annual report on Form 10-K regarding the aggregate market value of paired voting stock of Realty and Operating Company held by nonaffiliates is based on the assumption that all directors and officers of Realty and Operating Company were, for purposes of this calculation only (and not for any other purpose), affiliates of Realty or Operating Company. 22 ITEM 6. SELECTED FINANCIAL DATA The financial data set forth on the following pages includes the information for The Santa Anita Companies, Realty and Operating Company, for each of the five years in the period ended December 31, 1996. The separate net income (loss) and related per share amounts of Realty and Operating Company cannot usually be added together to total the net income (loss) and related per share amounts of The Santa Anita Companies, because of adjustments and eliminations arising from inter-entity transactions. The following data should be read in conjunction with the information set forth elsewhere herein regarding income tax matters (see Item 1. "Business-- Income Tax Matters"). The statements of operations of The Santa Anita Companies, Realty and Operating Company for each of the five years in the period ended December 31, 1996 have been audited by Ernst & Young LLP, independent certified public accountants. The selected financial data should be read in conjunction with the other financial statements and related notes thereto included elsewhere in this Joint Annual Report. THE SANTA ANITA COMPANIES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RESTATED ------------------------------------- STATEMENTS OF OPERATIONS DATA: Total revenues................. $ 77,225 $ 81,206 $ 81,449 $ 95,011 $ 94,177 Costs and expenses............. 76,685 106,838 79,424 97,912 87,851 -------- -------- -------- -------- -------- Income (loss) before income taxes......................... 540 (25,632) 2,025 (2,901) 6,326 Income tax benefit............. -- 2,000 -- 2,523 158 -------- -------- -------- -------- -------- Income (loss) before extraordi- nary gain..................... 540 (23,632) 2,025 (378) 6,484 Extraordinary gain on early re- tirement of debt.............. -- 4,050 -- -- -- -------- -------- -------- -------- -------- Net income (loss).............. 540 (19,582) 2,025 (378) 6,484 Preferred stock dividends(a)... 12,420 -- -- -- -- -------- -------- -------- -------- -------- Net income (loss) applicable to common shares................. $(11,880) $(19,582) $ 2,025 $ (378) $ 6,484 ======== ======== ======== ======== ======== Net income (loss) per common share: Before extraordinary gain.... $ (1.05) $ (2.11) $ .18 $ (.03) $ .58 Extraordinary gain........... -- .36 -- -- -- -------- -------- -------- -------- -------- $ (1.05) $ (1.75) $ .18 $ (.03) $ .58 ======== ======== ======== ======== ======== Dividends paid by Realty per common share.................. $ .80 $ .80 $ 1.08 $ 1.36 $ 1.36 ======== ======== ======== ======== ======== Dividends declared by Realty per common share.............. $ .80 $ .80 $ .94 $ 1.36 $ 1.36 ======== ======== ======== ======== ======== Weighted average common shares outstanding................... 11,317 11,214 11,143 11,141 11,141 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Total assets(b)(c)(d).......... $ 93,481 $114,876 $142,121 $257,239 $248,043 ======== ======== ======== ======== ======== Loans payable(b)(d)............ $ 25,824 $ 51,074 $ 50,375 $153,131 $133,217 ======== ======== ======== ======== ======== Shareholders' equity(c)........ $ 14,789 $ 31,901 $ 59,720 $ 68,088 $ 83,619 ======== ======== ======== ======== ========
- -------- (a) See "Notes to Financial Statements--Note 16--Redeemable Preferred Stock." (b) The decrease in total assets and loans payable in 1996 compared with 1995 was due primarily to the sale of four neighborhood shopping centers and two office buildings and to the sale of the investment in Pacific Gulf Properties Inc. (see "Notes to Financial Statements--Note 3--Disposition of Non-Core Real Estate Assets"). (c) The decrease in total assets and shareholders' equity in 1995 compared with 1994 was due primarily to the nonrecurring charge of $30,300,000 in 1995 relating to Realty's plan to dispose of its non-core real estate assets (see "Notes to Financial Statements--Note 3--Disposition of Non- Core Real Estate Assets"). (d) The decrease in total assets and loans payable in 1994 compared with 1993 was due primarily to the sale of Realty's multifamily and industrial properties in 1994 (see "Notes to Financial Statements--Note 8--Investment in Pacific Gulf Properties Inc."). 23 SANTA ANITA REALTY ENTERPRISES, INC.
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RESTATED ------------------------------------- STATEMENTS OF OPERATIONS DATA: Revenues: Rental from racetrack....... $ 10,861 $ 11,342 $ 13,070 $ 11,634 $ 12,683 Rental property............. 6,671 8,447 11,054 25,105 21,164 Interest and other.......... 1,652 2,637 2,108 5,222 2,120 -------- -------- -------- -------- -------- Total revenues............ 19,184 22,426 26,232 41,961 35,967 -------- -------- -------- -------- -------- Costs and expenses: Rental property operating expenses................... 2,434 2,671 4,182 11,039 8,405 Depreciation and amortization............... 1,718 3,899 4,152 7,079 6,520 General and administrative.. 4,046 3,420 4,148 4,244 4,156 Interest and other.......... 2,670 4,321 5,930 9,866 9,303 Losses (earnings) from unconsolidated joint ventures................... 994 2,113 1,521 333 (609) Minority interest in losses of consolidated joint ventures................... -- -- -- (891) (1,126) Strategic alliance costs.... 1,090 -- -- -- -- Arcadia development costs... 2,900 -- -- -- -- Program for disposition of non-core real estate assets..................... 2,000 30,300 -- -- -- Costs of equity offering.... -- 700 -- -- -- Card club option write-off ........................... -- 2,000 -- -- -- Write-down of land held for development................ -- -- 1,043 -- -- Loss on disposition of multifamily and industrial operations................. -- -- -- 10,974 -- -------- -------- -------- -------- -------- Total costs and expenses.. 17,852 49,424 20,976 42,644 26,649 -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary gain......................... 1,332 (26,998) 5,256 (683) 9,318 Income tax benefit............ -- -- -- 2,523 -- -------- -------- -------- -------- -------- Income (loss) before extraordinary gain........... 1,332 (26,998) 5,256 1,840 9,318 Extraordinary gain on early retirement of debt........... -- 4,050 -- -- -- -------- -------- -------- -------- -------- Net income (loss)............. 1,332 (22,948) 5,256 1,840 9,318 Preferred stock dividends..... 12,368 -- -- -- -- -------- -------- -------- -------- -------- Net income (loss) applicable to common shares............. $(11,036) $(22,948) $ 5,256 $ 1,840 $ 9,318 ======== ======== ======== ======== ======== Net income (loss) per common share: Before extraordinary gain... $ (.97) $ (2.39) $ .47 $ .16 $ .83 Extraordinary gain.......... -- .36 -- -- -- -------- -------- -------- -------- -------- $ (.97) $ (2.03) $ .47 $ .16 $ .83 ======== ======== ======== ======== ======== Dividends paid per common share ....................... $ .80 $ .80 $ 1.08 $ 1.36 $ 1.36 ======== ======== ======== ======== ======== Dividends declared per common share ....................... $ .80 $ .80 $ .94 $ 1.36 $ 1.36 ======== ======== ======== ======== ======== Weighted average common shares outstanding.................. 11,429 11,326 11,256 11,256 11,256 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Total assets.................. $ 61,753 $ 81,072 $109,606 $220,658 $214,325 ======== ======== ======== ======== ======== Loans payable................. $ 24,957 $ 49,339 $ 47,846 $149,877 $129,299 ======== ======== ======== ======== ======== Shareholders' equity.......... $ 8,675 $ 25,842 $ 56,061 $ 61,385 $ 74,854 ======== ======== ======== ======== ========
24 SANTA ANITA OPERATING COMPANY
AS OF AND FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF OPERATIONS DATA: Revenues: Wagering commissions........ $ 44,781 $ 45,587 $ 43,096 $ 38,428 $ 41,339 Admission related........... 23,825 24,060 24,750 25,842 28,795 Interest and other.......... 581 686 565 571 747 -------- -------- -------- -------- -------- Total revenues............ 69,187 70,333 68,411 64,841 70,881 -------- -------- -------- -------- -------- Costs and expenses: Horse racing operating costs...................... 48,735 48,686 48,352 46,696 52,254 Depreciation and amortization............... 3,212 3,196 4,251 2,768 2,732 General and administrative.. 6,353 5,442 5,583 5,801 6,154 Interest and other.......... 788 401 446 493 194 Rental expense to Realty.... 10,861 11,342 13,057 11,315 12,686 -------- -------- -------- -------- -------- Total costs and expenses.. 69,949 69,067 71,689 67,073 74,020 -------- -------- -------- -------- -------- Income (loss) before income taxes........................ (762) 1,266 (3,278) (2,232) (3,139) Income tax benefit ........... -- 2,000 -- -- 243 -------- -------- -------- -------- -------- Net income (loss)............. (762) 3,266 (3,278) (2,232) (2,896) Preferred stock dividends..... 52 -- -- -- -- -------- -------- -------- -------- -------- Net income (loss) applicable to common shares............. $ (814) $ 3,266 $ (3,278) $ (2,232) $ (2,896) ======== ======== ======== ======== ======== Net income (loss) per common share........................ $ (.07) $ .29 $ (.29) $ (.20) $ (.26) ======== ======== ======== ======== ======== Dividends declared per common share........................ $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ======== Weighted average common shares outstanding.................. 11,317 11,214 11,143 11,141 11,141 ======== ======== ======== ======== ======== BALANCE SHEET DATA: Total assets.................. $ 38,807 $ 39,370 $ 38,912 $ 42,152 $ 39,458 ======== ======== ======== ======== ======== Loans payable................. $ 867 $ 1,735 $ 2,529 $ 3,254 $ 3,918 ======== ======== ======== ======== ======== Shareholders' equity.......... $ 11,186 $ 11,210 $ 9,000 $ 12,274 $ 14,506 ======== ======== ======== ======== ========
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE SANTA ANITA COMPANIES COMBINED RESULTS OF OPERATIONS--1996 COMPARED WITH 1995 AND 1994 Combined results of operations for the year ended December 31, 1996 were income of $540,000 or $.05 per share (before preferred stock dividends), compared with a loss of $23,632,000 or $2.11 per share in 1995 (before the 1995 extraordinary gain) and income of $2,025,000 or $.18 per share in 1994. All three years contained several nonrecurring charges and credits which make comparison of the results of operations difficult. Management believes that income before nonrecurring charges and extraordinary gain is a more meaningful measure of the results of operations of the combined companies. Income, before nonrecurring items, was $7,720,000 or $.68 per share in 1996, compared with $6,770,000 or $0.60 per share in 1995 (excluding the 1995 extraordinary gain), and $5,233,000, or $.47 per share in 1994, and reconciles to income (loss) before extraordinary gain as follows: 25
1996 1995 1994 -------------- ---------------- -------------- INCOME PER INCOME PER INCOME PER (LOSS) SHARE (LOSS) SHARE (LOSS) SHARE ------- ----- -------- ------ ------- ----- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RESTATED -------------------------------- Income before nonrecurring items and extraordinary gain........... $ 7,720 $ .68 $ 6,770 $ .60 $ 5,233 $.47 Nonrecurring items: Executive severance......... (1,080) (.09) -- -- -- -- Strategic alliance costs.... (1,200) (.10) -- -- -- -- Arcadia development costs... (2,900) (.26) -- -- -- -- Program for disposition of non-core real estate assets..................... (2,000) (.18) (30,300) (2.70) -- -- Costs of equity offering.... -- -- (750) (.07) -- -- Card club option write-off.. -- -- (2,000) (.17) -- -- Equity in Pacific real estate gain................ -- -- 1,080 .10 -- -- Write-down of turf course... -- -- (432) (.04) (1,426) (.13) Write-down of land held for development................ -- -- -- -- (1,043) (.09) Debt repayment costs on Fashion Park financing, net of minority interest....... -- -- -- -- (739) (.07) Franchise tax adjustments, refunds and interest....... -- -- 2,000 .17 -- -- ------- ----- -------- ------ ------- ---- Income (loss) before extraordinary gain........... $ 540 $ .05 $(23,632) $(2.11) $ 2,025 $.18 ======= ===== ======== ====== ======= ====
For additional information on the nonrecurring items, see separate "Management's Discussion and Analysis of Financial Condition and Results of Operations--Realty" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Operating Company." In April 1997, The Santa Anita Companies filed amendments to their 1996 second and third quarter Joint Quarterly Reports on Form 10-Q (see "Notes to Financial Statements--Note 21--Combined Quarterly Financial Information-- Unaudited"). SANTA ANITA REALTY ENTERPRISES, INC. The following narrative discusses Realty's results of operations for the years ended December 31, 1996, 1995 and 1994, together with liquidity and capital resources as of December 31, 1996. RESULTS OF OPERATIONS--1996 COMPARED WITH 1995 Realty's revenues are derived principally from the rental of real property. Total revenues for the year ended December 31, 1996 were $19,184,000, compared with $22,426,000 for the year ended December 31, 1995, a decrease of $3,242,000. The lower 1996 revenues were due primarily to a decrease in rental revenues from Santa Anita Racetrack (which is the most significant source of rental revenue for Realty) and to Realty selling certain non-core real estate assets in 1996. Pursuant to the terms of the lease agreement for Santa Anita Racetrack, rental revenue is determined by wagering levels (see Item 1. "Business-- Realty--Santa Anita Racetrack"). Racetrack rental revenues for 1996 were $10,861,000, a decrease of 4.2% from rental revenues of $11,342,000 in 1995 due to a decrease in wagering commissions to Operating Company (see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations--Operating Company--Results of Operations 1996 Compared with 1995"). Rental revenues from shopping center and office building real estate investments in 1996 were $6,671,000, a decrease of 21.0% from revenues of $8,447,000 in 1995. The decrease in 1996 was due primarily to the sale of three neighborhood shopping centers located in Phoenix, Arizona, in June 1996, one neighborhood shopping 26 center located in Orange, California, in November 1996, and to the sale of an office building, located in Upland, California, in August 1996, and an office building located in Santa Ana, California, in September 1996. As a result of Realty's intended disposition of non-core real estate assets, Realty anticipates that rental revenues will decline in 1997. Revenue and operating income less interest expense of the two neighborhood shopping centers held for sale were $1,474,000 and $271,000 in 1996 (see "Notes to Financial Statements--Note 3-- Disposition of Non-Core Real Estate Assets" and Item 1. "Business--Realty--Assets Sold or Held for Sale, and--Special Considerations Regarding Forward Looking Statements"). Interest and other income was $1,652,000 in 1996, a decrease of 37.4% from interest and other income of $2,637,000 in 1995. The decrease in interest and other income was due primarily to Realty's recognition of its portion of a one-time gain by Pacific in 1995. Costs and expenses for 1996 were $11,633,000, excluding executive severance of $229,000 included in general and administrative expense, and excluding nonrecurring expenses totaling $5,990,000, a decrease of 29.2% from costs and expenses for 1995 of $16,424,000, excluding nonrecurring expenses totaling $33,000,000. The 1996 decrease, excluding nonrecurring costs and expenses, resulted primarily from decreases in depreciation and amortization expense of $2,181,000, decreases in interest and other expense of $1,651,000 and decreases in losses from unconsolidated joint ventures of $1,119,000. These decreases were partially offset by an increase in general and administrative costs of $626,000. The decrease in depreciation and amortization expense was due to no depreciation being taken in 1996 on the assets held for sale, which treatment is in accordance with FAS No. 121. See "Notes to Financial Statements--Note 3--Disposition of Non-Core Real Estate Assets". The decrease in interest and other expense is due to the payoff of the mortgage loan on the Santa Ana office building in November 1995 and to the reduction of debt by using the proceeds from the 1996 sales of non-core real estate assets to payoff the mortgage loans on the three Phoenix shopping centers in May 1996, payoff the mortgage loan on the Orange shopping center in November 1996, and paydown of borrowings under the revolving credit agreement in May 1996. The decrease in losses from unconsolidated joint ventures is due to improved operating results at Santa Anita Fashion Park. Losses of the two joint ventures held for sale were $1,912,000 in 1996. The increase in general and administrative costs is due principally to costs incurred to defeat a municipal initiative concerning development of Realty's property (See "Notes to Financial Statements--Note 5-- Santa Anita Commercial Center") and termination expenses associated with personnel reductions. Executive severance costs of $229,000 related to the resignation of three executive officers in 1996. (See "Notes to Financial Statements--Note 6-- Executive Severance"). Nonrecurring expenses of $5,990,000 resulted from strategic alliance costs of $1,090,000 (See "Notes to Financial Statements-- Note 4--Strategic Alliance Transactions"), development costs for the Arcadia property of $2,900,000 (See "Notes to Financial Statements--Note 5--Santa Anita Commercial Center") and charges associated with the program for disposition of non-core real estate assets of $2,000,000 (see "Notes to Financial Statements--Note 3--Disposition of Non-Core Real Estate Assets"). RESULTS OF OPERATIONS--1995 COMPARED WITH 1994 Realty's revenues are derived principally from the rental of real property. Total revenues for the year ended December 31, 1995 were $22,426,000, compared with $26,232,000 for the year ended December 31, 1994, a decrease of $3,806,000. The lower 1995 revenues were due primarily to a decrease in Racetrack rental revenues and to Realty selling its multifamily and industrial operations to Pacific in 1994. Racetrack rental revenues for 1995 were $11,342,000, a decrease of 13.2% from rental revenues of $13,070,000 in 1994. The decrease in rental revenues resulted primarily from new lease terms with LATC. The lease with LATC for the Santa Anita Racetrack expired in December 1994 and was amended and extended through December 31, 1999. The new lease provides that Realty will receive 1.5% of the aggregate on-track wagering on live races at Santa Anita Racetrack and that the rental rate on wagering commissions from satellite wagering on races originating at Santa Anita Racetrack will be 26.5%. In addition, Realty receives 26.5% of the wagering commissions from satellite wagering on races originating from certain other racetracks. If the amended lease terms had been in effect for the year ended December 31, 1994, racetrack rental revenues would have been $11,123,000. 27 Rental revenues from other real estate investments for 1995 were $8,447,000, a decrease of 23.6% from other rental revenues of $11,054,000 in 1994. The decrease in 1995 was due primarily to Realty selling its multifamily and industrial operations in 1994 to Pacific. (See "Notes to Financial Statements--Note 8--Investment in Pacific Gulf Properties Inc."). Costs and expenses for 1995 were $16,424,000, excluding nonrecurring costs and expenses totaling $33,000,000, a decrease of 14.4% from costs and expenses for 1994 of $19,194,000, excluding nonrecurring expenses of $1,782,000. The decrease in 1995, excluding nonrecurring costs and expenses, was due primarily to cost savings from the disposition of the multifamily and industrial operations including a decrease in interest expense resulting from the $44,300,000 of associated mortgage debt which was transferred to Pacific as part of the disposition and a decrease in general and administrative expense, partially offset by an increase in losses from unconsolidated joint ventures. Nonrecurring expenses of $33,000,000 resulted from charges of $30,300,000 for the program to dispose of non-core real estate assets which was adopted by Realty in 1995 (See "Notes to Financial Statements--Note 3--Disposition of Non-Core Real Estate Assets"), costs of $700,000 for an equity offering which was not consummated and costs of $2,000,000 for a now-expired option to acquire an interest in a card club operation (See "Notes to Financial Statements--Note 7--Card Club Write Offs"). LIQUIDITY AND CAPITAL RESOURCES Realty has funds available from a combination of short- and long-term sources. Short-term sources included cash and cash equivalents of $12,921,000 at December 31, 1996. The increase in cash for the year ended December 31, 1996 was $12,754,000, compared with a decrease in cash of $2,084,000 for the year ended December 31, 1995. The comparative increase in cash of $14,838,000 was attributable to an increase of $32,059,000 in cash provided by investing activities, partially offset by a decrease of $175,000 in cash provided by operating activities and an increase of $17,046,000 in cash used in financing activities. The decrease in cash provided by operating activities of $175,000 was due primarily to a decrease in shopping center and office building operating income of $1,539,000, due to the sale of non-core real estate assets, a decrease in racetrack rental income of $481,000 and an increase in general and administrative expense of $626,000. These decreases in cash were partially offset by a decrease in interest expense of $1,651,000 and equity offering costs of $700,000 in 1995. The increase in cash provided by investing activities of $32,059,000 in 1996 was due primarily to proceeds from the sale of Pacific common stock of $12,139,000 in 1996, proceeds from the sale of non-core real estate assets of $19,069,000 in 1996, a decrease of $1,689,000 in additions to certain other assets, primarily the purchase of the option on the Bell casino in 1995, partially offset by an increase in expenditures associated with development of the Santa Anita Commercial Center, and a decrease of $1,388,000 in additions to real estate assets, primarily due to the sale of non-core real estate assets. These increases in cash provided were partially offset by an increase of $3,354,000 in investments in and advances to unconsolidated joint ventures, partially offset by an increase of $2,502,000 in capital distributions from unconsolidated joint ventures and from dividends of $1,224,000 received from Pacific in 1995. The increase in cash used in financing activities of $17,046,000 in 1996 was due primarily to repayment of borrowings under the revolving credit agreement of $16,400,000 in 1996, additional borrowings under the revolving credit agreement of $13,650,000 in 1995 and the issuance of common stock to Operating Company in 1995, valued at $1,810,000, for its use in granting restricted stock awards. These increases in cash used were partially offset by the issuance of common and preferred stock of $10,957,000 in 1996, in connection with the Colony transaction, the issuance of common stock of $1,779,000 in 1996, in connection with stock option exercises, and an increase in intercompany payables of $1,592,000 in 1996 due to working capital needs, compared with a decrease in intercompany payables of $641,000 in 1995. 28 Realty has entered into a revolving credit agreement with a commercial bank, under which it may borrow up to $20,000,000. The credit agreement terminates on June 1, 1997. Borrowings under the revolving credit agreement bear interest, at Realty's option, at the prime rate, at LIBOR plus 1 1/4%, or at a certificate of deposit rate plus 1 1/4. Realty's Racetrack rental revenues have been pledged as collateral under the credit agreement. At April 1, 1997, $11,800,000 was outstanding under the credit agreement. The revolving credit agreement contains a restriction on the payment of dividends and certain other financial ratio and maintenance restrictions. In any twelve-month period beginning on or after July 1, 1994, dividends are limited to the greater of $.80 per share or an amount calculated to maintain Realty's qualification as a REIT. Realty's current dividend policy is in compliance with this dividend restriction. Additionally, at December 31, 1996, Realty was in compliance with the other financial ratio and maintenance restrictions. Realty expects that as a result of the cash payment of the Colony termination fee on April 1, 1997 (see "Notes to Financial Statements-- Note 4--Strategic Alliance Transactions"), Realty will be in default under one financial covenant. Realty is currently in discussions with the commercial bank to resolve the prospective default, however, no assurance can be given that such a resolution can be obtained. During 1995, Realty adopted a plan to dispose of its non-core real estate assets and, accordingly, reduced the book value of these assets to their estimated realizable values, resulting in a nonrecurring charge of $30,300,000, of which $26,300,000 was recorded in the third quarter and $4,000,000 was recorded in the fourth quarter. See "Notes to Financial Statements--Note 3--Disposition of Non-Core Real Estate Assets". On August 19, 1996, the Companies announced a major transaction with Colony, a Los Angeles based real estate investment company administered by Colony Capital, Inc., which pursuant to the terms of an agreement, would have invested in the Companies, over time, a total of $138 million. This agreement was terminated effective March 31, 1997 and Colony was paid a termination fee of $4,000,000 and reimbursed expenses of $500,000 on April 1, 1997. See Item 1. "Business--Recent Developments" and "Notes to Financial Statements--Note 4--Strategic Alliance Transactions." Effective March 31, 1997, Colony has the right to redeem its 867,343 preferred shares at the average trading price of the Companies' common stock for a period preceding the date of Colony's redemption notice. The redemption price may be paid by cash of $11,254,000 and a six-month note for the balance. The Companies currently have cash on hand to pay the cash portion of the redemption price, if the shares were redeemed. The Companies expect to pay the note balance, if necessary, by a combination of additional cash on hand, proceeds from sales of non-core assets and borrowings under the revolving credit agreement. See Item 1. "Business--Realty--Assets Sold or Held for Sale" and "--Special Considerations Relating to Forward Looking Statements." On December 6, 1996, Realty reached agreement for the sale of its 50% partnership interest in H-T Associates to a third party. The buyer also agreed to assume Realty's joint and several guaranty of a loan issued to expand the Towson Town Center in the amount of $66,135,000. At December 31, 1996, Realty was in default under the minimum net worth covenant of this guaranty. The lender may, among other things, foreclose on the assets of H-T Associates and pursue other remedies under the guaranties, however, as of December 31, 1996, the lender had not exercised such rights. Under the partnership agreement, each of Realty's two partners had a right of refusal in the event Realty chose to sell its partnership interest. In January 1997, one of Realty's partners, TrizecHahn Centers Inc. exercised it right of first refusal and elected to purchase Realty's interest in the partnership, pursuant to the terms of the original sales agreement. See "Notes to Financial Statements--Note 9--Investments in Unconsolidated Joint Ventures" and See Item 1. "Business--Realty--Assets Sold or Held for Sale" and "-- Special Considerations Relating to Forward Looking Statements." During 1996, Realty contributed $5,033,000 to Joppa Associates to fund the mortgage loan payment due October 31, 1996. During 1996, Joppa Associates agreed to sell the partnership property to Heritage Properties, Inc. for $5,500,000. The sale is expected to close in the 1997 second quarter. In November 1996, one of Realty's 29 two partners assigned to Realty and Realty's other partner its partnership interest and relinquished its right to any proceeds from the sale of the partnership property. The ownership interests of Realty and Realty's other partner were increased to 50%. Realty' share of the net proceeds from the sale are estimated to be $2,500,000. At December 31, 1996, the carrying value of Realty's investment in Joppa Associates was $2,216,000. See "Notes to Financial Statements--Note 9--Investments in Unconsolidated Joint Ventures." Realty has agreed to provide Operating Company with up to $10,000,000 in short-term advances, which is dependent upon Realty's liquidity and capital resources. At December 31, 1996, Realty has guaranteed an Operating Company capital lease that will require payments of $907,000 in 1997. At December 31, 1996, Realty's secured real estate loans receivable were carried at $10,674,000, net of $2,473,000 of valuation allowances, and had maturities ranging from 1997 to 2002. For the year ended December 31, 1996, secured real estate loans receivable earned interest income of $1,088,000. See "Notes to Financial Statements--Note 11--Real Estate Loans Receivable." In the event of a "change in control, participants in the Realty and Operating Company joint non-contributory defined benefit retirement plan will become fully vested in plan benefits and participants in the thrift plan will become fully vested in matching company contributions. Additionally, all Realty stock options will become fully vested except for 200,000 Realty options whose vesting is dependent on common stock performance. Realty has entered into severance agreements with certain officers and key employees. If there is a "change in control" and under certain circumstances, one executive officer will be entitled to a lump sum payment equal to 2 1/2 times base pay, calculated as annual base salary plus average bonuses over the preceding three calendar years. In addition, one executive officer, and certain employees will be entitled to a lump sum payment equal to one times base pay, as calculated above. Pursuant to a resignation agreement with an executive officer, if there is a "change in control" on or prior to May 17, 1997, he will be entitled to an additional lump sum cash payment totaling $303,920. No provision has been accrued or funded under this agreement. Realty expects that funds provided by operating activities and the sale of non-core real estate assets will provide sufficient liquidity to meet working capital needs and reduce outstanding borrowings under the revolving credit agreement. IMPACT OF INFLATION Realty's management believes that, for the foreseeable future, revenues and income from Santa Anita Racetrack and its other real estate investments should not be adversely affected in a material way by inflationary pressures. Certain leases include clauses enabling Realty to participate in tenants' future increases and gross revenues and other leases include provisions which tie the lease payments to the Consumer Price Index or include step-up provisions. SANTA ANITA OPERATING COMPANY The following narrative discusses Operating Company's results of operations for the years ended December 31, 1996, 1995 and 1994, together with liquidity and capital resources as of December 31, 1996. RESULTS OF OPERATIONS--1996 COMPARED WITH 1995 Operating company derives its revenues from thoroughbred horse racing activities. Horse racing revenues were $68,606,000 in 1996, down 1.5% from $69,647,000 in 1995 primarily due to a decrease in live racing days and total wagering. In 1996, live thoroughbred horse racing at Santa Anita Racetrack totaled 114 days compared to 120 days in 1995. Total on-track attendance at the live racing events in 1996 was down 8.2% from the prior year and average daily attendance declined 3.3%. Total wagering was down 2.1% while average daily wagering was up 3.1% compared with 1995. Total on-track wagering decreased 9.2%, wagering at Southern California satellite locations decreased 8.3%, wagering at out-of-state locations increased 11.6% and wagering at Northern California locations decreased 9.9% in 1996 compared with 1995. See Item 1. "Business--Operating Company--Santa Anita Racetrack--Wagering Commissions." 30 Management anticipates that the movement from on-track attendance and wagering to off-site is likely to continue albeit at a slower rate. The growth rate in off-site wagering is dependent primarily upon such factors as Operating Company's ability to access new markets and the removal of various legal barriers which inhibit or restrict entry into such markets. Also, Santa Anita Racetrack operated 165 days in 1996 and 140 days in 1995 as a satellite wagering facility for Hollywood Park, Del Mar and, in 1996 only, Pomona Fairplex. Total attendance as a satellite wagering facility was up 3.6% while average daily attendance was down 12.2% in 1996 compared to 1995. Total wagering was up 7.8% while average daily wagering was down 8.5% in 1996 compared with 1995. Horse racing operating costs were $48,735,000 (or 71.0% of horse racing revenues) in 1996 versus $48,686,000 (or 69.9% of horse racing revenues) in 1995. The operating margin decline was primarily due to the decrease in horse racing revenues from 1995. Depreciation expense was $3,212,000 in 1996, $16,000 higher than the $3,196,000 in 1995. Depreciation expense includes an accelerated depreciation charge of $432,000 in 1995 on the Santa Anita Racetrack turf course, which was replaced in April 1995. General and administrative expenses were $6,353,000 in 1996, an increase of 16.7% from $5,442,000 in 1995 due to a charge of $851,000 in 1996 for executive severance costs. See "Notes to Financial Statements--Note 5-- Executive Severance." Interest expense decreased to $288,000 in 1996 from $401,000 in 1995 due to lower average borrowings. Rental expense to Realty was $10,861,000 in 1996 compared with $11,342,000 in 1995. The decrease in rental expense of 4.2% is due to the decrease in wagering commissions. See Item 1. "Business--Operating Company--Santa Anita Racetrack." RESULTS OF OPERATIONS--1995 COMPARED WITH 1994 Horse racing revenues were $69,647,000 in 1995, up 2.7% from $67,846,000 in 1994, primarily due to an increase in racing days and total wagering. In 1995, live thoroughbred horse racing at Santa Anita Racetrack totaled 120 days compared with 117 days in 1994. Total on-track attendance at the live racing events in 1995 was down 5.9% from the prior year and average daily attendance declined 11.9%. Total and average daily wagering were up 12.0% and 9.2% in 1995 compared with 1994. On-track wagering decreased 6.3%, wagering at Southern California satellite locations increased 8.8%, wagering at out-of- state locations increased 20.3% and wagering at Northern California locations increased 106.6% in 1995 compared with 1994. Also, Santa Anita Racetrack operated 140 days in 1995 and 145 days in 1994 as a satellite wagering facility for Hollywood Park and Del Mar. Total and average daily attendance as a satellite wagering facility were down 5.9% and 2.5% in 1995 compared with 1994. Total wagering was down 2.5%, while average daily wagering was up 1.0% in 1995 compared with 1994. Horse racing operating costs were $48,686,000 (or 69.9% of horse racing revenues) in 1995 versus $48,352,000 (or 71.3% of horse racing revenues) in 1994. The operating margin improvement was primarily due to the implementation of certain cost control measures. Depreciation expense was $3,196,000 in 1995, $1,055,000 lower than the $4,251,000 in 1994. Depreciation expense includes an accelerated depreciation charge of $432,000 in 1995 and $1,426,000 in 1994 on the Santa Anita Racetrack turf course, which was replaced in April 1995. General and administrative expenses were $5,442,000 in 1995, a decrease of 2.5% from $5,583,000 in 1994 due to lower executive compensation expenses in 1995. Interest expense decreased to $401,000 in 1995 from $446,000 in 1994. 31 Rental expense to Realty was $11,342,000 in 1995 compared with $13,057,000 in 1994. The decrease in rental expense of 13.1% reflected the new lease terms with Realty. Under the lease, LATC paid to Realty 1.5% of the on-track wagering on live races at Santa Anita Racetrack and 26.5% of its wagering commissions from all satellite wagering. The old lease required LATC to pay Realty the same 1.5% of the on-track wagering on live races at Santa Anita Racetrack but required 40% of its wagering commissions from satellite wagering during the live race meets. An income tax benefit of $2,000,000 was recognized in 1995, as a result of various items, the most significant of which, related to a draw down of deferred taxes relating to an expected withdrawal of Franchise Tax Board assessments for 1986 through 1988. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, Operating Company's sources of liquidity included cash and short-term investments of $10,301,000, together with a verbal commitment from Realty to provide up to $10,000,000 in short-term advances. In addition, Realty has guaranteed an Operating Company capital lease that will require payments by Operating Company of $907,000 in 1997. Operating Company's ability to borrow from Realty is dependent upon Realty's liquidity and capital resources (see Item 7. "Managements' Discussion and Analysis of Financial Condition and Results of Operations--Santa Anita Realty Enterprises, Inc.-- Liquidity and Capital Resources"). For the year ended December 31, 1996, short-term investments earned interest income of $499,000. The cash balances and related interest income from short-term investments reflect seasonal variations associated with the Santa Anita meet. During the meet, large cash balances and short-term investments are maintained by LATC, including amounts to be disbursed for payment of license fees payable to the state, purses payable to horse owners and un-cashed winning pari-mutuel tickets payable to the public. Operating Company generated $3,843,000 less cash from operations in 1996 than in 1995. Net cash provided by operating activities was $2,319,000 in 1996 compared with $6,162,000 in 1995. The decrease in cash from operations was primarily due to decreased operating income from horse racing operations. Net cash used in investment activities was $4,532,000 in 1996 compared with $5,142,000 in 1995. The $610,000 decrease in cash used in investment activities was attributable to the purchase of common stock of Realty for the grant of restricted stock during 1995, partially offset by a higher level of capital improvements at Santa Anita Racetrack during 1996. Net cash used in financing activities was $1,196,000 in 1996 compared with $153,000 in 1995. The increase is due primarily to an increase in intercompany receivables partially offset by the issuance of common and preferred stock in 1996. In the event of a "change in control, participants in the Realty and Operating Company joint non-contributory defined benefit retirement plan will become fully vested in plan benefits and participants in the thrift plan will become fully vested in matching company contributions. Additionally, all Operating Company stock options will become fully vested. Operating Company has entered into severance agreements with certain officers and key employees. If there is a "change in control" and under certain circumstances, certain executive officers will be entitled to a lump sum payment equal to 2 1/2 times base pay, calculated as annual base salary plus average bonuses over the preceding three calendar years. In addition, one officer will be entitled to a lump sum payment equal to one times base pay, as calculated above. Pursuant to resignation agreements with two executive officers, if there is a "change in control" on or prior to May 17, 1997, they will be entitled to additional lump sum cash payments totaling $355,666. No provision has been accrued or funded under these agreements. 32 IMPACT OF INFLATION LATC's expenses are heavily labor-intensive with labor rates being covered by negotiated contracts with labor unions. Labor contracts with the pari- mutuel, service and operational employees were successfully renegotiated in 1995 and 1996. Management continues to address cost containment and labor productivity in all areas. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to the information listed in the Index to Financial Statements filed with this Report. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 33 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS (a) The names, ages and business experience of the Companies' directors and executive officers during the past five years are set forth below:
PRINCIPAL BUSINESS EXPERIENCE DURING NAME AND AGE PAST 5 YEARS AND ALL POSITIONS WITH THE COMPANIES ------------ --------------------------------------------------------- William C. Baker, 63........ Chairman of the Board of Operating Company and Realty since 1996, Director since 1991; Chief Executive Officer of Operating Company since 1996; Chief Executive Officer of Realty, 1996; President, Red Robin International, Inc., 1993-1995; Chairman of the Board and Chief Executive Officer, Carolina Restaurant Enterprises, Inc. (restaurant franchisee), 1992-1996; Director, Callaway Golf Company (golf equipment) and Public Storage, Inc. (REIT). Brian L. Fleming, 53........ Director of Realty since 1996; Acting President and Chief Executive Officer of Realty since 1996; Executive Vice President, Chief Financial Officer and Secretary of Realty since 1994; Senior Vice President, Carter Hawley Hale Stores, Inc., 1987-1994. Clifford C. Goodrich, 54.... Director of Operating Company since 1989; Executive Vice President of Operating Company since 1995; Vice President of Operating Company, 1989-1995; President of Los Angeles Turf Club, Incorporated since 1989. Richard S. Cohen, 62......... Director of Operating Company and Realty since 1967; Attorney, Law Offices of Richard S. Cohen and Donna Frost Cohen since 1991; President, Four Seas Restaurants, Inc. (restaurant franchisee) since 1988. James P. Conn, 59............ Director of Operating Company and Realty since 1995; Managing Director and Chief Investment Officer, Financial Security Assurance, Inc. (insurance) since 1992; President and Chief Executive Officer, Bay Meadows Operating Company (horse racing), 1988-1992; Director, California Jockey Club (REIT); Trustee, Gabelli Equity Trust and Gabelli Global Multimedia Trust (investment companies). Arthur Lee Crowe, 73......... Director of Operating Company and Realty since 1960; Investor; Vice Chairman of Operating Company and Realty since 1988. John C. Cushman, III, 56..... Director of Operating Company and Realty since 1996; President and Chief Executive Officer, Cushman Realty Corporation since 1978; Director, National Golf Properties, Inc. (golf course management). Taylor B. Grant, 47.......... Director of Operating Company since 1996 and Realty since 1988; Senior Vice President, Beazer Homes California, Inc. since 1996; Investor; Receiver Superior Court, State of California since 1993; Chief Executive Officer, Optima Asset Management Services (property management), 1992- 1993; President, Grant Building Company, 1984-1992 (real estate development).
34
PRINCIPAL BUSINESS EXPERIENCE DURING NAME AND AGE PAST 5 YEARS AND ALL POSITIONS WITH THE COMPANIES ------------ --------------------------------------------------------- J. Terrence Lanni, 54... Director of Operating Company and Realty since 1995; Chairman and Chief Executive Officer, MGM Grand Inc. (hotel/casino) since 1995; President and Chief Operating Officer, Caesars World Inc., 1981-1995. Thomas P. Mullaney, 64.. Director of Operating Company and Realty since 1989; General Partner, Matthews, Mullaney & Co. (private investment partnership) since 1991; Director, Ducommun Incorporated (manufacturing). William D. Schulte, 64.. Director of Operating Company and Realty since 1994; Investor; former Vice Chairman, KPMG Peat Marwick LLP; Director, H.F. Ahmanson & Company (thrift) and Vastar Resources, Inc. (energy). Thomas S. Robbins, 43... Vice President--Racing of Operating Company since 1990; Vice President--Racing of LATC since 1990. Kathryn J. McMahon, 36.. General Counsel and Secretary of Operating Company since 1994; Vice President and General Counsel of LATC since 1997; Secretary of LATC since 1994; Attorney, Sheppard, Mullin, Richter & Hampton, 1986-1994. Mark T. Stephens, 34.... Vice President--Marketing and Customer Relations of LATC since 1994; Director of Marketing of LATC 1993-1994; Director of Marketing, Bay Meadows Operating Co., 1991- 1992. Tom D. Austin, 55....... Vice President Design and Construction of Realty since 1995; Director of Development of Realty, 1995; Owner, Austin Affiliates, 1992-1994; Vice President, Western Region Design and Construction, Homart Development Company, 1989-1992.
Each executive officer of Operating Company is appointed by the Operating Company Board of Directors annually and holds office until a successor is duly appointed. Each executive officer of Realty is appointed by the Board of Realty Directors annually and holds office until a successor is duly appointed. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16 (a) of the Securities Exchange Act of 1934 requires the directors and officers of the Companies to file with the Securities and Exchange Commission ("SEC") and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of common stock of the Companies. Such directors and officers are required by regulation to furnish the Companies with copies of all Section 16(a) forms they file. To the Companies' knowledge, based solely on a review of the copies of such reports furnished to the Companies and written representations that no other reports were required, during the fiscal year ended December 31, 1996, each of its directors and officers complied with all applicable Section 16(a) filing requirements except for Thomas J. Barrack, Jr., who filed on Form 5 an acquisition by an affiliate of shares in September 1996 and Tom D. Austin, who filed a Form 5 in March 1997 reporting a series of small acquisitions otherwise exempt from reporting on Form 4. 35 ITEM 11. EXECUTIVE COMPENSATION OPERATING COMPANY COMPENSATION The following table sets forth information concerning the annual and long- term compensation for services in all capacities to Operating Company for the years ended December 31, 1996, 1995, and 1994 of the Chief Executive Officers during such periods, together with the other four most highly compensated executive officers of Operating Company earning in excess of $100,000 in salary and bonus in 1996. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION ---------------------- ----------------------- RESTRICTED SECURITIES ALL OTHER NAME AND STOCK AWARDS UNDERLYING COMPENSATION PRINCIPAL POSITION SALARY BONUS ($) OPTIONS(#) (2) ------------------ -------- -------- ------------ ---------- ------------ William C. Baker........ 1996 $112,500 $125,000 $-- 150,000 $ -- President and Chief Executive Officer (3) Stephen F. Keller....... 1996 250,000 -- -- -- 681,714(5) President and Chief 1995 400,000 -- -- 10,000 Executive Officer(4) 1994 379,167 85,000 (6) 20,000 9,448 Clifford C. Goodrich.... 1996 252,000 70,000 -- -- -- Executive Vice 1995 242,000 50,000 -- 9,000 -- President 1994 231,667 40,000 (6) 15,000 -- Thomas S. Robbins....... 1996 169,000 27,000 -- -- 9,714 Vice President--Racing 1995 161,333 23,000 -- 5,000 2,429 1994 153,750 20,000 -- 8,000 9,433 Mark T. Stephens........ 1996 127,083 35,000 -- -- 7,797 Vice President--LATC(7) 1995 121,000 17,500 -- 5,000 -- 1994 111,667 17,500 -- 8,000 -- Michael J. Manning...... 1996 163,571 -- -- -- -- Vice President--LATC(8) 1995 151,333 30,000 -- 7,000 --
- -------- (1) Operating Company provides automobiles, club memberships and other perquisites to certain key employees, including the officers listed above, the value of which is not included in the table above and which in no case exceeded 10% of the annual salary and bonus of any individual for the years indicated. (2) Except as otherwise indicated, amounts shown are those expensed for financial reporting purposes under the Thrift Plan. See "Other Benefit Plans for Operating Company and Realty" for a description of the Thrift Plan. (3) Mr. Baker was appointed Chairman of the Board, President and Chief Executive Officer effective August 16, 1996. (4) Mr. Keller served as Chairman of the Board, President and Chief Executive Officer until his resignation effective August 16, 1996. (5) Includes $672,000 paid to Mr. Keller as severance pursuant to the terms of a resignation agreement. See "Resignation Agreements." (6) Pursuant to Exchange Agreements entered into as of December 15, 1994 with each of Messrs. Keller and Goodrich, Operating Company awarded 86,322 shares of Restricted Stock ("Restricted Shares") to Mr. Keller and 40,325 Restricted Shares to Mr. Goodrich under Operating Company's 1995 Share Award Plan 36 in exchange for each of such officer's agreement to release all of his rights and benefits under previous deferred compensation arrangements with Operating Company ("DCA's"). On the date of the awards (December 15, 1994), the closing market price of a share of paired Common Stock was $14.125 as reflected on the New York Stock Exchange Composite Tape. The number of Restricted Shares subject to each award was calculated on the basis of various assumptions (including, without limitation, assumptions regarding salary increases, post retirement interest, dividend and tax rates, and stock price appreciation) to provide each of Messrs. Keller and Goodrich (as of their normal retirement dates) with approximately the equivalent value of the benefits anticipated under their existing DCA's. The Restricted Shares are subject to certain restrictions on transfer, which expire as follows: In the case of Mr. Keller, the restrictions expired with respect to 50% of the Restricted Shares on July 1, 1996. Pursuant to the terms of Mr. Keller's resignation agreement, the restrictions on the remaining 50% of Restricted Shares will terminate only in the event one of the following occurs prior to May 17, 1997: (a) Mr. Keller's death, (b) Mr. Keller's total disability or (c) a change of control event. See "Resignation Agreements" for further information on Mr. Keller's agreement. If no such event occurs prior to May 17, 1997, Operating Company has the right to acquire such 43,161 Restricted Shares. In the case of Mr. Goodrich, the restrictions on such transfers expired with respect to 20% of the Restricted Shares on May 2, 1995, expired with respect to an additional 40% of such shares on July 1, 1996 and expire with respect to an additional 10% of such shares on July 1 of each year thereafter with all such restrictions terminating on July 1, 2000. The restrictions on transfer may terminate earlier upon the occurrence of certain events including termination of employment without "cause" or a voluntary termination for "good reason" as defined in the Restricted Stock Agreement. Restrictions also terminate on death or total disability. Upon a termination of employment prior to the lapse of restrictions, Operating Company has the right to acquire all Restricted Shares which are subject to the restrictions without consideration. A "change in control event" is generally defined as a 20% change in ownership of Operating Company, the replacement of a majority of the members of the incumbent board of directors of Operating Company (excluding replacement directors nominated by the incumbent board of directors) or the liquidation or dissolution of Operating Company, subject to certain exceptions. At year-end 1996, the Restricted Shares were worth $1,556,385 at the then current market value (including $1,132,976 with respect to 43,161 Restricted Shares held by Mr. Keller and $423,413 with respect to 16,130 Restricted Shares held by Mr. Goodrich) without giving effect to the diminution of value attributable to the restrictions on such shares. Dividends are paid on the Restricted Shares at the same rate payable on all other shares of Paired Common Stock. (7) Mr. Stephens, Vice President of Los Angeles Turf Club, Incorporated, a wholly-owned subsidiary of Operating Company, has been considered an executive officer of Operating Company since 1994. (8) Mr. Manning, served as Vice President of Los Angeles Turf Club, Incorporated, a wholly-owned subsidiary of Operating Company, until his resignation effective December 13, 1996. Mr. Manning had been considered an executive officer of Operating Company since 1995. STOCK OPTIONS The following table sets forth the individual grants to the named executive officers during 1996, the percentage that each grant represents of the total options granted to employees during 1996, the exercise price, the expiration date, and the potential realizable value of each of the options (assuming either a 5% or 10% annualized rate of appreciation from the date of grant). 37 OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF SHARES OF POTENTIAL REALIZABLE VALUE PAIRED AT ASSUMED ANNUAL COMMON % OF TOTAL RATES OF STOCK STOCK OPTIONS PRICE APPRECIATION UNDERLYING GRANTED TO FOR OPTION TERM(1) OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------- GRANTED FISCAL YEAR PRICE ($/SH) DATE 5% 10% ---------- ------------ ------------ ---------- ------------- ------------- William C. Baker........ 150,000(2)(3) 100% $15.25(4) (5) $ 1,041,000 $ 3,013,500 Stephen F. Keller....... -- -- -- -- -- -- Clifford C. Goodrich.... -- -- -- -- -- -- Thomas S. Robbins....... -- -- -- -- -- -- Mark T. Stephens........ -- -- -- -- -- -- Michael J. Manning...... -- -- -- -- -- --
- -------- (1) The amounts in these columns are based upon assumed rates of appreciation over the option term which are prescribed by applicable SEC regulations. Actual gains, if any, on stock option exercises are dependent on the future performance of the Paired Common Stock, overall market conditions and the option holder's continued employment through the applicable vesting periods. (2) This option grant becomes exercisable as to fifty percent of the grant on April 1, 1997 and as to the remaining fifty percent on April 1, 1998. The options become immediately exercisable if Mr. Baker is discharged without cause, resigns for good reason, dies or becomes totally disabled, or upon the occurrence of a change of control event (except to the extent the Operating Company Compensation Committee ("Committee") determines that an acceleration of the exercise date upon a change in control event would cause the deduction limits of Section 280G of the Internal Revenue code to come into effect). The provision allowing for acceleration of the vesting date for the options upon the occurrence of a change in control event is effective only through September 30, 1997, but is subject to automatic and successive 60-month extensions unless the Board of Directors of Operating Company delivers six-months advance written notice to Mr. Baker of termination of such provision. No such notice was delivered in 1997. Under the option agreement, a "change in control event" is generally defined as a 20% change in ownership of Operating Company, the replacement of a majority of the members of the incumbent board of directors of Operating Company (excluding replacement of directors nominated by the incumbent board of directors) or the liquidation or dissolution of Operating Company, subject to certain exceptions. (3) Does not include a purported grant of 200,000 performance-vesting options which were unable to be issued due to limitations in the 1995 Share Awards Plan. (4) Full payment for shares purchased upon the exercise of the options shall be made at the time of such exercise by one or a combination of the following methods (such methods other than the methods specified in clause (i) being subject to the Committee's approval): (i) cash, electronic funds transfer or check, (ii) third party payment, (iii) the delivery of shares of Operating Company stock already owned by Mr. Baker, or (iv) requesting that Operating Company reduce the number of shares of Operating Company stock otherwise issuable upon exercise by a number of shares of Operating Company stock with a fair market value equal to the option exercise price. The options are not transferable by Mr. Baker other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. (5) To the extent that any of the options are or become exercisable, they may be exercised until March 31, 2001 regardless of the status of Mr. Baker's employment with Operating Company. On or after April 1, 2001, the options may be exercised only if Mr. Baker is then employed by Operating Company except that under certain circumstances if Mr. Baker has not been terminated for cause, the options may be exercised after such date. In all events, all options expire on March 31, 2006. 38 The following table sets forth the number of stock options exercised during 1996 and the number of unexercised options held and the value of "in the money" options held as of December 31, 1996: OPTIONS EXERCISED AND FISCAL YEAR-END OPTION HOLDINGS
NUMBER OF SHARES OF PAIRED NUMBER COMMON STOCK UNDERLYING VALUE OF UNEXERCISED OF SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS ACQUIRED DECEMBER 31, 1996 AT DECEMBER 31, 1996 ON VALUE ------------------------------ ------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- --------- -------- ------------ -------------- ----------- ------------- William C. Baker........ -- $ -- -- 150,000 $ -- $1,650,000 Stephen F. Keller....... 87,400 384,229 -- 46,600(1) -- 463,122(1) Clifford C. Goodrich.... -- -- 47,800 26,200 297,025 267,925 Thomas S. Robbins....... -- -- 15,100 12,400 111,898 129,982 Mark T. Stephens........ -- -- 8,100 11,400 77,418 121,362 Michael J. Manning...... -- -- 13,500 -- 126,522 --
- -------- (1) Pursuant to the terms of a resignation agreement with Mr. Keller, all nonvested stock options held by Mr. Keller at August 31, 1996 shall remain outstanding but not be exercisable unless a change in control event occurs prior to May 17, 1997. If a change in control event occurs prior to May 17, 1997, subject to all applicable limitations relating to Section 280G of the Internal Revenue Code set forth in the share award plan, all such nonvested stock options shall become 100% vested and Mr. Keller shall have three months after such event to exercise such options; at the end of such three month period, all such options shall expire. If a change in control event does not occur prior to May 17, 1997, all such options shall expire. Under the option agreement, a "change in control event" is generally defined as a 20% change in ownership of Operating Company, the replacement of a majority of the members of the incumbent board of directors of Operating Company (excluding replacement directors nominated by the incumbent board of directors) or the liquidation or dissolution of Operating Company, subject to certain exceptions. See "Resignation Agreements." INDEBTEDNESS OF MANAGEMENT In 1990, Mr. Goodrich, Executive Vice President and Director of Operating Company, exercised stock options whereby he purchased 5,000 shares of paired Common Stock at $3.00 and $21.75 per share, respectively, by delivering cash in an amount equal to the aggregate par value of the shares and executing a promissory note in payment of the balance of the purchase price, payable in five annual installments at initial annual interest rates of 10.5% and 10.0% respectively. The promissory notes delivered to Operating Company also included amounts advanced to cover income tax liabilities occasioned by the stock option exercise. The highest amount owed by Mr. Goodrich during 1996 to Operating Company was $61,375. In 1996, Mr. Goodrich paid the note balance in full and no amount was outstanding as of December 31, 1996. The interest rate in effect during 1996 on the amount owed was 8.25%. 39 REALTY COMPENSATION The following table sets forth information concerning the annual and long- term compensation for services in all capacities to Realty for the years ended December 31, 1996, 1995, and 1994 of the Chief Executive Officers during such periods, together with the other most highly compensated executive officers of Realty earning in excess of $100,000 in salary and bonus in 1996. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) ----------------------- SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION(2) - --------------------------- ----------- ----------- ---------- --------------- Brian L. Fleming........ 1996 $ 218,370 $ 100,000 -- $ 7,894 Acting President and Chief Executive 1995 170,625 60,000 6,000 -- Officer, Executive Vice President, 1994 99,687 20,000 35,000 -- Chief Financial Officer and Secretary(3) William C. Baker........ 1996 112,500 125,000 200,000 -- President and Chief Executive Officer(4) Sherwood C. Chilling- worth.................. 1996 124,157 -- -- 206,080(6) Chief Executive Officer and Vice 1995 175,000 30,000 9,000 -- Chairman(5) 1994 129,167 30,000 45,000 -- Tom D. Austin(7)........ 1996 106,450 30,000 -- 5,570 Vice President 1995 100,000 11,000 5,000 --
- -------- (1) Realty provides automobiles or automobile allowances, club memberships and other perquisites to certain key employees, including the officers listed above, the value of which is not included in the table above and which in no case exceeded 10% of the annual salary and bonus of any individual. (2) Except as otherwise indicated, amounts shown are those expensed for financial reporting purposes under the Thrift Plan. See "Other Benefit Plans for Operating Company and Realty" for a description of the Thrift Plan. (3) Mr. Fleming joined Realty and was appointed Executive Vice President and Chief Financial Officer effective May 11, 1994. He was appointed Acting Chief Executive Officer and President effective August 16, 1996. Bonus for 1995 included a $30,000 bonus contingent upon Mr. Fleming's employment at Realty on December 31, 1995 pursuant to the terms of his employment agreement. Bonus for 1994 has been restated to reflect bonus awarded in December 1995 for services performed in 1994. (4) Mr. Baker joined Realty and was appointed Chairman of the Board, President and Chief Executive Officer effective April 1, 1996. He served until his resignation on August 16, 1996 when he was appointed Chairman of the Board, President and Chief Executive Officer of Operating Company. (5) Mr. Chillingworth joined Realty and was appointed Chief Executive Officer and Vice Chairman effective March 16, 1994. Mr. Chillingworth served as Chief Executive Officer of Realty until March 31, 1996. (6) Represents amount paid to Mr. Chillingworth as severance pursuant to the terms of his resignation agreement. See "Resignation Agreements." (7) Mr. Austin became an executive officer of Realty on May 2, 1995. Previous to that, he served as Director of Development. Mr. Austin began his employment with Realty in January 1995. 40 STOCK OPTIONS The following table sets forth the individual grants to the named executive officers during 1996, the percentage that each grant represents of the total options granted to employees during 1996, the exercise price, the expiration date, and the potential realizable value of each of the options (assuming either a 5% or 10% annualized rate of appreciation from the date of grant). OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF SHARES OF POTENTIAL REALIZABLE PAIRED VALUE AT ASSUMED COMMON % OF TOTAL ANNUAL RATES OF STOCK STOCK OPTIONS PRICE APPRECIATION UNDERLYING GRANTED TO FOR OPTIONS TERM(1) OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------- GRANTED FISCAL YEAR PRICE ($/SH) DATE 5% 10% ---------- ------------ ------------ ---------- ---------- ---------- Brian L. Fleming........ -- $-- $ -- -- $ -- $ -- William C. Baker........ 200,000(2)(3) 95% 14.04(4) (5) 1,388,000 4,018,000 Sherwood C. Chillingworth.......... -- -- -- -- -- -- Tom D. Austin........... -- -- -- -- -- --
- -------- (1) The amounts in these columns are based upon assumed rates of appreciation over the option term which are prescribed by applicable SEC regulations. Actual gains, if any, on stock option exercises are dependent on the future performance of the Paired Common Stock, overall market conditions and the option holder's continued employment through the applicable vesting periods. (2) This option grant becomes exercisable only in the following circumstances: (i) if the price of a share of paired common stock reaches or exceeds $27.50 for a period of sixty consecutive business days before April 1, 2001; (ii) immediately prior to a reorganization that is consummated before April 1, 2001 in which Realty is not the surviving entity and the shareholders of Realty receive consideration worth at least $27.50 per share of paired common stock; or (iii) immediately prior to a sale by the shareholders that occurs before April 1, 2001 of substantially all of the shares of paired common stock at a price of $27.50 or more per paired common stock. The stock price performance standard of $27.50 per share of paired common stock is subject to proportional adjustment by the Realty Compensation Committee ("Committee") in such manner and to such extent as it deems equitable in the event of any extraordinary dividend or other extraordinary distribution in respect of the paired common stock, any reclassification, recapitalization, stock split, stock dividend, reverse stock split, reorganization, merger, combination, consolidation, split-up or spin-off of Realty, any repurchase or exchange of Operating Company stock, Realty stock or other securities of the Companies or any similar extraordinary corporate transactions. The vesting schedule for the options is not subject to acceleration. (3) Does not include a grant of 150,000 time-vesting options which were granted by Realty in April 1996 (subject to shareholder approval) and surrendered by Mr. Baker in August 1996 upon the grant by Operating Company to Mr. Baker of 150,000 time-vesting options in connection with his employment by Operating Company. (4) Full payment for shares purchased upon the exercise of the options shall be made at the time of such exercise by one or a combination of the following methods (such methods other than the methods specified in clause (i) being subject to the Committee's approval), (i) cash, electronic funds transfer or check, (ii) third party payment, (iii) the delivery of shares of Realty stock already owned by Mr. Baker, or (iv) requesting that Realty reduce the number of shares of Realty stock otherwise issuable upon exercise by a number of shares of Realty stock with a fair market value equal to the option exercise price. In addition, to comply with the Pairing Agreement between Realty and Operating Company (the "Pairing Agreement"), the option agreement requires Mr. Baker, at the time he exercises an option, to purchase from Operating 41 Company a number of unpaired shares of Operating Company stock equal to the number of shares of Realty stock acquired pursuant to the exercise of the option. The shares of Operating Company stock are required to be purchased from Operating Company at their fair market value on the date of exercise of the option, as determined pursuant to the terms of the Pairing Agreement. However, in connection with any such purchase of Operating Company stock by Mr. Baker, Realty has agreed to pay to Mr. Baker an amount which is equal to the excess, if any, of the purchase price paid by Mr. Baker for such Operating Company stock over the fair market value of such Operating Company stock on the award date. The options are not transferable by Mr. Baker other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. (5) To the extent that any of the options are or become exercisable, they may be exercised until the later of March 31, 2001 or 90 days after the 60th consecutive business day on which the paired common stock has attained a price of at least $27.50 per share regardless of the status of Mr. Baker's employment with Realty. On or after the later of April 1, 2001 or the expiration of the 90-day period referred to in the preceding sentence, the options which have vested may be exercised only if Mr. Baker is then employed by Realty. In all events, the options granted expire on March 31, 2006. The following table sets forth the number of stock options exercised during 1996 and the number of unexercised options held and the value of "in the money" options held as of December 31, 1996: OPTIONS EXERCISED AND FISCAL YEAR-END OPTION HOLDINGS
NUMBER OF SHARES OF PAIRED NUMBER COMMON STOCK UNDERLYING VALUE OF UNEXERCISED OF SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED DECEMBER 31, 1996 DECEMBER 31, 1996 ON VALUE ------------------------------ ------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- --------- -------- ------------- -------------- ----------- ------------- Brian L. Fleming........ -- $-- $ 15,200 25,800 $129,100 $ 234,525 William C. Baker........ -- -- -- 200,000 -- 2,200,000 Sherwood C. Chillingworth.......... -- -- 15,000 39,000(1) 99,375 340,125 Tom D. Austin........... -- -- 1,600 6,400 17,675 70,700
- -------- (1) Pursuant to the terms of a resignation agreement with Mr. Chillingworth, all nonvested stock options held by Mr. Chillingworth at August 31, 1996 shall remain outstanding but not be exercisable unless a change in control event occurs prior to May 17, 1997. If a change in control event occurs prior to May 17, 1997, subject to all applicable limitations relating to Section 280G of the Internal Revenue Code set forth in the share award plan, all such nonvested stock options shall become 100% vested and Mr. Chillingworth shall have three months after such event to exercise such options; at the end of such three month period, all such options shall expire. If a change in control event does not occur prior to May 17, 1997, all such options shall expire. Under the option agreement, a "change in control event" is generally defined as a 20% change in ownership of Realty, the replacement of a majority of the members of the incumbent board of directors of Realty (excluding replacement directors nominated by the incumbent board of directors or the liquidation of dissolution of Realty, subject to certain exceptions. See "Resignation Agreements." OPERATING COMPANY AND REALTY RETIREMENT INCOME PLAN Operating Company and Realty have a joint defined benefit Retirement Income Plan that is non-contributory. Benefits are determined regardless of position under a formula applied uniformly to all employees of Operating Company and its participating subsidiaries, and Realty (except as otherwise required under Internal Revenue Code "top-heavy" rules relating to "key" employees), and depend upon the employee's length of service, and the five year highest average salary up to $150,000, less certain Social Security benefits. 42 Employees are eligible to participate in the plan after attaining age 21 and completing one year of service. The plan currently provides for 100% vesting of an employee's interest after five years of service (except to the extent faster vesting is required under Internal Revenue Code "top-heavy" rules). However, in the event of a change in control (as defined in the plan), the plan provides for immediate 100% vesting. The following table illustrates the estimated annual retirement benefit payable under the plan starting at age 65, after reduction for certain Social Security benefits, for participants with compensation and credited years of service shown. The benefits shown assumed retirement at age 65 as of December 31, 1996 subject to the maximum annual benefit of $120,000 shown below. This maximum annual amount is actuarially increased for participants who retire after age 65.
BENEFITS BASED ON YEARS OF SERVICE ----------------------------------- BASE SALARY 10 YEARS 20 YEARS 30 YEARS 40 YEARS ----------- -------- -------- -------- -------- $100,000............................. $18,208 $36,415 $57,222 $ 79,014 125,000............................. 23,208 46,415 72,222 99,014 150,000............................. 28,208 56,415 87,222 119,014 175,000............................. 28,208 56,415 87,222 120,000 200,000............................. 28,208 56,415 87,222 120,000 225,000............................. 28,208 56,415 87,222 120,000 250,000............................. 28,208 56,415 87,222 120,000 275,000............................. 28,208 56,415 87,222 120,000 300,000............................. 28,208 56,415 87,222 120,000 325,000............................. 28,208 56,415 87,222 120,000 350,000............................. 28,208 56,415 87,222 120,000 375,000............................. 28,208 56,415 87,222 120,000 400,000............................. 28,208 56,415 87,222 120,000 425,000............................. 28,208 56,415 87,222 120,000 450,000............................. 28,208 56,415 87,222 120,000 475,000............................. 28,208 56,415 87,222 120,000 500,000............................. 28,208 56,415 87,222 120,000
The officers under this plan as of December 31, 1996 and their years of credited service are as follows: For Operating Company: Baker--1 year; Keller--5 years; Goodrich--16 years; Robbins--13 years; Manning--15 years; and Stephens--4 years. For Realty: Fleming--3 years and Austin--1 year. THRIFT PLAN Operating Company and Realty have a joint Thrift Plan under which employees may elect to contribute up to 21% of their annual compensation on a combination before-and-after tax basis, excluding bonuses. A percentage of these contributions by the employee is matched by either Operating Company or Realty with total matching contributions not exceeding a maximum of 6% of the contributing employee's annual compensation. Matching contributions are in the form of cash, which is used by the trustee to purchase shares of Paired Common Stock. Employee contributions are invested in various funds, according to the employee's choices. The plan provides for 20% vesting of Company contributions after two years of service, increasing to 100% vesting after six years of service. However, upon a change in control, the plan provides for immediate 100% vesting. DIRECTORS' COMPENSATION In 1996, each active director who was not an employee of Operating Company or Realty received a $7,500 annual fee plus $400 for each meeting of the Board of Directors and each committee meeting attended and, in the case of Operating Company, for each separate subsidiary board meeting attended. Each director retiring subsequent to 1960 and serving Realty, Operating Company or Santa Anita Consolidated, Inc. as an outside director for at least ten years is remunerated at the annual rate of $480 times his 43 or her number of years of service. This annual payment is payable for five years. During 1996, six former directors with years of service ranging from 20 to 34 years participated in the plan. Amounts payable under the plan in 1996 totaled $68,520. SEVERANCE AGREEMENTS Operating Company has in effect severance agreements with certain officers, including Messrs. Baker, Goodrich, Robbins, and Stephens. Realty has in effect a similar severance agreement with Mr. Fleming. These agreements, which have a term of five years, become effective if there is a change in control followed by a Qualifying Termination of the named executive within three years. In that event, the executive becomes entitled to a lump sum payment equal to 2 1/2 times the sum of (1) the executive's current annual base salary rate plus (2) the executive's average bonuses over the three calendar years preceding the change in control ("Base Pay"). In addition, the executive may continue to participate in the Company's medical and dental plans for three years if the executive pays the applicable premium. The severance agreements provide that no payments shall be made to the extent such payments, together with other payments by the Company, would cause the limits of Section 280G of the Internal Revenue Code to be exceeded. Operating Company has an agreement with an officer and Realty has similar agreements with selected employees, including Mr. Austin, which have comparable terms as those described above except (a) in the event the employee becomes entitled to a lump sum payment, the payment is calculated as one times the Base Pay, rather than 2 1/2 times the Base Pay and, (b) the employee is not entitled to participate in medical and dental plans for the three year period. RESIGNATION AGREEMENTS Mr. Keller entered into a resignation agreement with Operating Company, providing for his resignation as an officer of Operating Company and a director of the Companies, effective August 16, 1996. Pursuant to the resignation agreement, Operating Company paid to Mr. Keller a cash lump sum of $672,000 and in the event a change in control occurs prior to May 17, 1997, Operating Company shall pay to Mr. Keller an additional cash lump sum of $148,333 and shall provide Mr. Keller the benefit of participating in the Company's medical and dental plans for three years if he pays the applicable premium. The resignation agreement also provided (subject to Compensation Committee approval) that the right of Operating Company to repurchase 43,161 shares of restricted shares issued to Mr. Keller would be deferred until May 17, 1997 and the restrictions on such stock would expire only in the event of the occurrence of one of the following events prior to May 17, 1997: (1) Mr. Keller's death, (2) Mr. Keller's total disability, or (3) a change in control, (generally defined as a 20% change in ownership of Operating Company, the replacement of a majority of the members of the incumbent board of directors of Operating Company (excluding replacement directors nominated by the incumbent board of directors) or the liquidation or dissolution of Realty, subject to certain exceptions). Under the agreement (and subject to Compensation Committee approval), Mr. Keller's rights to exercise his vested stock options at resignation were extended to the later of (a) May 17, 1997 and (b) three months after a change in control event and, further, in the event of a change in control prior to May 17, 1997, all stock options unvested at resignation will vest. Mr. Keller and Operating Company agreed that the resignation agreement discharged all obligations of Operating Company to Mr. Keller and Mr. Keller released Operating Company from any claims, obligations and liabilities. Mr. Chillingworth entered into a resignation agreement with Realty with terms similar to Mr. Keller's resignation agreement, except that Mr. Chillingworth was paid a cash lump sum of $206,080 by Realty and, in the event of a change in control prior to May 17, 1997, would receive an additional cash lump sum of $303,920. Mr. Chillingworth does not own any restricted shares. EMPLOYMENT AGREEMENTS Mr. Baker has an agreement for employment with Operating Company, effective August 16, 1996 and expiring March 31, 1998, subject to automatic renewal for one year periods unless either Mr. Baker or Operating Company has noticed the other of his or its desire to terminate the agreement at least six months 44 prior to its expiration and subject to earlier termination under the circumstances described below. The agreement provides that Mr. Baker shall serve as Chief Executive Officer of Operating Company and shall devote all of his time, energy and ability to the business of Operating Company. The agreement provides for various benefits to Mr. Baker, including an annual base salary, which is subject to periodic review and increase, but not to decrease below $300,000. The agreement provides that, in the Board of Directors' sole discretion, Mr. Baker may earn an annual bonus in an amount up to 100% of his annual salary, which bonus will take into consideration Mr. Baker's success in accomplishing goals with respect to Operating Company which have been established by the Compensation Committee. Mr. Baker is also entitled under the agreement to various fringe benefits and perquisites (such as car and club membership) and to participate in the savings and retirement welfare and vacation plans, programs and policies applicable generally to other peer executives of Operating Company. The agreement provides for certain supplemental retirement benefits. The agreement automatically terminates in the event of Mr. Baker's death or "disability" (as defined in the agreement). Operating Company may also terminate Mr. Baker's employment under the agreement at any time, with or without "cause" (as defined in the agreement), upon 60 days written notice. The agreement provides for various payments to Mr. Baker or his estate or beneficiaries, as applicable, in the event of termination of his employment. In the event of termination for death or disability or for cause or by voluntary termination (without "good reason"), Mr. Baker (or his legal representatives, as applicable) would be entitled to receive within 30 days of such termination a lump sum payment equal to his accrued but unpaid (i) salary and (ii) reasonable employment expenses and fringe benefit allowances (collectively, "Accrued Obligations") as well as payment of any amounts due pursuant to the terms of any applicable welfare or pension benefit plans. If Operating Company terminates Mr. Baker's employment for other than cause or death or disability, or if Mr. Baker voluntarily terminates his employment for "good reason" (as defined in the agreement), then he is entitled to receive timely payment of his Accrued Obligations, payment of any amounts due pursuant to the terms of any applicable welfare or pension benefit plans and a lump sum payment equal to 112% of his then current base salary which would otherwise be payable for the succeeding 18 months, subject to offset for any cash lump sum payment he may receive pursuant to a severance agreement with Operating Company. Mr. Goodrich has an agreement for employment with Operating Company to serve as its Vice President and with Los Angeles Turf Club, Incorporated to serve as its President and Chief Operating Officer effective January 1, 1994 and expiring December 31, 1996, subject to automatic renewal for one year periods unless either Mr. Goodrich or Operating Company has noticed the other of his or its desire to terminate the agreement at least six months prior to its expiration. No such notice was provided in 1996. The other terms of his agreement are similar to those described above for Mr. Baker, except that (a) Mr. Goodrich is entitled to receive an annual base salary which is subject to periodic review and increase, but not to decrease below $230,000, (b) Mr. Goodrich is entitled to participate in bonus and incentive plans but not in the supplemental retirement benefits provided for Mr. Baker and (c) Operating Company may terminate Mr. Goodrich's employment with or without "cause" upon 90 days' written notice. Mr. Fleming has an agreement for employment with Realty to serve as its Executive Vice President and Chief Financial Officer, commencing May 9, 1994 and, as amended, expiring December 31, 1997, subject to automatic renewal for one year periods unless either Mr. Fleming or Realty has noticed the other of his or its desire to terminate the agreement at least six months prior to its expiration. The other terms of his agreement are similar to those described above for Mr. Baker, except that (a) Mr. Fleming is entitled to receive an annual base salary which is subject to periodic review and increase, but not to decrease, (b) Mr. Fleming is entitled to participate in bonus and incentive plans but not in the supplemental retirement benefits provided for Mr. Baker and (c) Realty may terminate Mr. Fleming's employment with or without "cause" upon 90 days' written notice. Under the agreement, Mr. Fleming was entitled to a guaranteed bonus of $30,000 provided he was employed by Realty on December 31, 1995 and as a condition of the agreement, Mr. Fleming was granted options to purchase 25,000 shares of Realty stock at the fair market value of the date of grant (which was $17.125). 45 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth the number of shares of the Companies' common stock beneficially owned, directly or indirectly, by each person known to be the beneficial owner of more than five percent of any class of the Companies' voting stock, each of the named executive officers, all current directors and executive officers of Operating Company as a group and all current directors and executive officers of Realty as a group at February 28, 1997 (unless otherwise stated).
NUMBER OF PERCENT OF CLASS OF SHARES OF SHARES OF NAME STOCK STOCK(1)(2) STOCK(1)(2) - ---- --------- ----------- ----------- Apollo Real Estate Investment Fund II, L.P. Common 989,900(3) 8.6% and affiliates.............................. 1301 Avenue of the Americas New York, New York 10019 GAMCO Investors, Inc. and affiliates........ Common 794,900(4) 6.9 One Corporate Center Rye, New York 10580 Gotham Partners, L.P. and affiliates........ Common 589,300(5) 5.1 110 East 42nd Street, 18th Floor New York, New York 10017 Colony Investors, II, L.P. ................. Preferred 867,343 100.0 1999 Avenue of the Stars Common 112,700 1.0 Los Angeles, California 90067 OPERATING COMPANY MANAGEMENT William C. Baker............................ Common 81,400 * Stephen F. Keller(6)........................ Common 49,967 * Clifford C. Goodrich(7)..................... Common 86,082 * Thomas S. Robbins........................... Common 19,006 * Michael J. Manning.......................... Common 13,500 * Mark T. Stephens............................ Common 8,338 * All current directors and executive officers as a group (13 persons)(7)(8).............. Common 971,492 8.3 REALTY MANAGEMENT Brian L. Fleming............................ Common 15,348 * William C. Baker............................ Common 81,400 * Sherwood C. Chillingworth................... Common 16,000 * Tom D. Austin............................... Common 2,135 * All current directors and executive officers as a group (12 persons)(8)................. Common 870,922 7.5
- -------- * Less than one percent (1) Includes shares subject to options exercisable within 60 days of February 28, 1997, as follows: Baker--75,000; Goodrich--47,800; Robbins--15,100; Manning--13,500; Stephens--8,100; all current directors and executive officers of Operating Company as a group--149,200; Fleming--15,200; Chillingworth--15,000; Austin--1,600; and all current directors and executive officers of Realty as a group--91,800. (2) Includes fully-vested shares allocated to the named officer's accounts in the Companies' Thrift Plan as follows: Keller--1,806; Goodrich--1,957; Robbins--3,906; Stephens--238; all current directors and executive officers of Operating Company as a group--6,228; Fleming--148; Austin--95; and all current directors and executive officers of Realty as a group-- 247. (3) As disclosed in Amendment No. 4 to Schedule 13D dated April 3, 1997. 46 (4) As disclosed in Amendment No. 7 to Schedule 13D dated January 17, 1997. (5) As disclosed in Schedule 13D dated November 21, 1996. (6) Includes 5,000 shares held indirectly in a trust for which Mr. Keller acts as trustee. Includes 43,161 shares of restricted stock which provide for restrictions on transfer prior to vesting and are subject to forfeiture in certain circumstances. (7) Includes 16,130 shares of restricted stock which provide for restrictions on transfer prior to vesting and are subject to forfeiture in certain circumstances. (8) Includes 166,743 shares held in different trusts by separate directors, 159,871 shares beneficially owned by a director's spouse, 183,039 shares held in trust for the benefit of a director's non-immediate family members and a charitable organization for which a director's spouse has voting power, 91 shares owned by a director's minor children and 249,295 shares of which a director has been granted a revocable proxy to represent and vote all such shares. Excludes 100,000 shares owned by California Jockey Club of which a director is a director and shareholder. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Chillingworth, Chief Executive Officer of Realty until March 31, 1996, serves as Executive Vice President of Oak Tree. Oak Tree subleases Santa Anita Racetrack from LATC, a wholly-owned subsidiary of Operating Company, for the purpose of conducting a thoroughbred horse racing meet normally lasting between five and six weeks each year. Under the current sublease, which has been in place since January 1990 and expires in December 1999, Oak Tree made rental payments of $4,808,000 to LATC during 1996. On August 19, 1996, the Companies announced a major transaction with Colony, which, pursuant to the terms of an agreement, would have invested in the Companies, over time, a total of $138 million. Thomas J. Barrack, Jr., then a director of the Companies, is the Chief Executive Officer of Colony Capital. Mr. Barrack resigned as a director of the Companies in January 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements See Index to Financial Statements 2. Financial Statement Schedules See Index to Financial Statement Schedules 3. Exhibits See Exhibit Index (b) Reports on Form 8-K. The following reports on Form 8-K have been filed by Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company: (i) Current Report, dated October 24, 1996, reporting "Other Events" pursuant to Item 5 of Form 8-K. (ii) Current Report, dated January 7, 1997, reporting "Other Events" pursuant to Item 5 of Form 8-K. 47 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, REALTY AND OPERATING COMPANY HAVE DULY CAUSED THIS REPORT TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Santa Anita Realty Enterprises, Inc. Santa Anita Operating Company Brian L. Fleming William C. Baker By: _________________________________ By: _________________________________ Brian L. Fleming William C. Baker Acting President and Chief Executive Chairman of the Board and Chief Officer and Executive Vice President Executive Officer (Principal and Chief Financial Officer Executive Officer) (Principal Executive, Financial and Accounting Officer) Date: August 12, 1997 Date: August 12, 1997 Elizabeth P. Haug By: _________________________________ Elizabeth P. Haug Controller (Principal Financial and Accounting Officer) Date: August 12, 1997 48 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANTS AND IN THE CAPACITIES AND ON THE DATE INDICATED. SIGNATURE TITLE William C. Baker Chairman of the Board and Chief _____________________________________ Executive Officer (Principal William C. Baker Executive Officer) of Operating Company and Chairman of the Board of Realty Brian L. Fleming Acting President and Chief _____________________________________ Executive Officer and Executive Brian L. Fleming Vice President and Chief Financial Officer (Principal Executive and Financial Officer) of Realty and Director of Realty Richard S. Cohen Director of Operating Company _____________________________________ and Director of Realty Richard S. Cohen James P. Conn Director of Operating Company _____________________________________ and Director of Realty James P. Conn Arthur Lee Crowe Director of Operating Company _____________________________________ and Director of Realty Arthur Lee Crowe John C. Cushman, III Director of Operating Company _____________________________________ and Director of Realty John C. Cushman, III Clifford C. Goodrich Executive Vice President and _____________________________________ Director of Operating Company Clifford C. Goodrich Taylor B. Grant Director of Operating Company _____________________________________ and Director of Realty Taylor B. Grant J. Terrence Lanni Director of Operating Company _____________________________________ and Director of Realty J. Terrence Lanni Thomas P. Mullaney Director of Operating Company _____________________________________ and Director of Realty Thomas P. Mullaney William D. Schulte Director of Operating Company _____________________________________ and Director of Realty William D. Schulte Date: April 14, 1997 49 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE ---- INDEPENDENT AUDITORS' REPORT.............................................. 52 THE SANTA ANITA COMPANIES Combined Balance Sheets as of December 31, 1996 and 1995................ 53 Combined Statements of Operations for the years ended December 31, 1996, 1995 and 1994.......................................................... 54 Combined Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994............................................................... 55 Combined Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.......................................................... 56 SANTA ANITA REALTY ENTERPRISES, INC. Consolidated Balance Sheets as of December 31, 1996 and 1995............ 57 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994.................................................... 58 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994............................................................... 59 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.................................................... 60 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets as of December 31, 1996 and 1995............ 61 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994.................................................... 62 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994............................................................... 63 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.................................................... 64 NOTES TO FINANCIAL STATEMENTS............................................. 65 ANITA ASSOCIATES Independent Auditors' Report............................................ 100 Financial Statements and Notes.......................................... 101 H-T ASSOCIATES Independent Auditors' Report............................................ 113 Financial Statements and Notes.......................................... 114
50 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENT SCHEDULES The schedules listed below relate to Realty and Operating Company as indicated:
SCHEDULES FOR ---------------- OPERATING SCHEDULE REALTY COMPANY -------- ------ --------- (REFERENCE IS TO PAGE NUMBER) Valuation and Qualifying Accounts as of December 31, II 1996 and 1995........................................... 97 Omitted Real Estate and Accumulated Depreciation as of December III 31, 1996................................................ 98 Omitted
Schedules not listed above have been omitted because either the conditions under which they are required are absent, not applicable, or the required information is included in the financial statements and related notes thereto. 51 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company We have audited the financial statements and schedules listed on pages 50 and 51 of: (a) The Santa Anita Companies (b) Santa Anita Realty Enterprises, Inc.; and (c) Santa Anita Operating Company and Subsidiaries. These financial statements and schedules are the responsibility of the companies' management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the above-listed entities at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Further, it is our opinion that the schedules referred to above, when considered in relation to the financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 2, prior its decision to dispose of certain non-core real estate assets in 1995, Santa Anita Realty Enterprises, Inc. evaluated impairment of two investments with common ownership in unconsolidated joint ventures on a combined basis rather than evaluating impairment on a separate basis. In addition, Santa Anita Realty Enterprises, Inc. should have reflected a larger percentage of the losses of one of the unconsolidated joint ventures prior to its actual increase in ownership during 1996. Santa Anita Realty Enterprises, Inc.'s 1995 and 1994 financial statements have been restated for these items to decrease the net loss in 1995 by $7,923,000 ($.70 per share) and decrease net income in 1994 by $289,000 ($.02 per share). Ernst & Young LLP Los Angeles, California April 14, 1997 52 THE SANTA ANITA COMPANIES COMBINED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ------------- ------------- (RESTATED) ASSETS Real estate assets: Santa Anita Racetrack, less accumulated depreciation of $21,069,000 and $20,216,000................ $ 9,180,000 $ 9,030,000 Commercial properties, less accumulated depreciation of $4,203,000 and $3,631,000.................. 9,412,000 10,342,000 Commercial properties to be sold, less accumulated depreciation of $4,395,000 and $16,737,000.... 8,986,000 27,337,000 Investments in and advances to unconsolidated joint ventures................................ 2,297,000 871,000 Real estate loans receivable................... 10,674,000 10,954,000 ------------- ------------- 40,549,000 58,534,000 Cash and cash equivalents........................ 23,222,000 13,877,000 Accounts receivable.............................. 2,442,000 3,771,000 Prepaid expenses and other assets................ 6,696,000 6,494,000 Investment in Pacific Gulf Properties Inc........ -- 12,967,000 Property, plant and equipment, at cost, less accumulated depreciation of $28,059,000 and $24,968,000..... 20,572,000 19,233,000 ------------- ------------- $ 93,481,000 $ 114,876,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Real estate loans payable........................ $ 20,407,000 $ 28,389,000 Bank loans payable............................... 5,417,000 22,685,000 Accounts payable................................. 11,540,000 11,208,000 Other liabilities................................ 13,007,000 14,495,000 Income taxes..................................... -- 326,000 Dividends payable................................ 2,468,000 2,254,000 Deferred revenues................................ 1,803,000 2,379,000 Deferred income taxes............................ 1,282,000 1,239,000 ------------- ------------- 55,924,000 82,975,000 ------------- ------------- Series A Redeemable Preferred Stock, $.10 par value; 867,343 shares authorized, issued and outstanding..................................... 22,768,000 -- ------------- ------------- Shareholders' equity: Preferred stock, $.10 par value; authorized 5,132,657 shares.............................. -- -- Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,474,600 and 11,270,500 shares.............. 2,295,000 2,253,000 Additional paid-in capital..................... 139,834,000 136,552,000 Unearned compensation expense.................. (685,000) (1,209,000) Retained earnings (deficit).................... (126,655,000) (105,695,000) ------------- ------------- 14,789,000 31,901,000 ------------- ------------- $ 93,481,000 $ 114,876,000 ============= =============
See accompanying notes. 53 THE SANTA ANITA COMPANIES COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ----------- (RESTATED) Revenues: Horse racing......................... $ 68,606,000 $ 69,647,000 $67,846,000 Rental property...................... 6,671,000 8,447,000 11,054,000 Interest and other................... 1,948,000 3,112,000 2,549,000 ------------ ------------ ----------- 77,225,000 81,206,000 81,449,000 ------------ ------------ ----------- Costs and expenses: Horse racing operating costs......... 48,735,000 48,686,000 48,339,000 Rental property operating expenses... 2,434,000 2,671,000 4,182,000 Depreciation and amortization........ 4,870,000 6,905,000 8,232,000 General and administrative........... 10,289,000 8,812,000 9,731,000 Interest and other................... 3,263,000 4,601,000 6,376,000 Losses from unconsolidated joint ventures............................ 994,000 2,113,000 1,521,000 Strategic alliance costs............. 1,200,000 -- -- Arcadia development costs............ 2,900,000 -- -- Program for disposition of non-core real estate assets.................. 2,000,000 30,300,000 -- Costs of equity offering............. -- 750,000 -- Card club option write-off........... -- 2,000,000 -- Write-down of land held for development......................... -- -- 1,043,000 ------------ ------------ ----------- 76,685,000 106,838,000 79,424,000 ------------ ------------ ----------- Income (loss) before income taxes and extraordinary gain.................... 540,000 (25,632,000) 2,025,000 Income tax benefit..................... -- 2,000,000 -- ------------ ------------ ----------- Income (loss) before extraordinary gain.................................. 540,000 (23,632,000) 2,025,000 Extraordinary gain on early retirement of debt............................... -- 4,050,000 -- ------------ ------------ ----------- Net income (loss)...................... 540,000 (19,582,000) 2,025,000 Preferred stock dividends.............. 12,420,000 -- -- ------------ ------------ ----------- Net income (loss) applicable to common shares................................ $(11,880,000) $(19,582,000) $ 2,025,000 ============ ============ =========== Weighted average common shares outstanding........................... 11,316,623 11,213,943 11,143,146 ============ ============ =========== Income (loss) per common share: Before extraordinary gain............ $ (1.05) $ (2.11) $ .18 Extraordinary gain................... -- .36 -- ------------ ------------ ----------- Net income (loss) per common share..... $ (1.05) $ (1.75) $ .18 ============ ============ =========== Dividends declared per common share.... $ .80 $ .80 $ .94 ============ ============ ===========
See accompanying notes. 54 THE SANTA ANITA COMPANIES COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK ADDITIONAL RETAINED UNEARNED --------------------- PAID-IN EARNINGS COMPENSATION SHARES AMOUNT CAPITAL (DEFICIT) EXPENSE TOTAL ---------- ---------- ------------ ------------- ------------ ------------ Combined balance, December 31, 1993, as previously reported.... 11,140,853 $2,227,000 $134,554,000 $ (61,259,000) $ -- $ 75,522,000 Restatement ........... -- -- -- (7,434,000) -- (7,434,000) ---------- ---------- ------------ ------------- ----------- ------------ Combined balance, December 31, 1993, as restated............... 11,140,853 2,227,000 134,554,000 (68,693,000) -- 68,088,000 Stock issued in connection with stock option plan........... 3,000 -- 61,000 -- -- 61,000 Dividends declared on common stock.......... -- -- -- (10,454,000) -- (10,454,000) Net income, as restated.............. -- -- -- 2,025,000 -- 2,025,000 ---------- ---------- ------------ ------------- ----------- ------------ Combined balance, December 31, 1994...... 11,143,853 2,227,000 134,615,000 (77,122,000) -- 59,720,000 Stock issued in connection with restricted stock awards................ 126,647 26,000 1,937,000 -- (1,963,000) -- Amortization of unearned compensation expense............... -- -- -- -- 754,000 754,000 Dividends declared on common stock.......... -- -- -- (8,991,000) -- (8,991,000) Net loss, as restated.. -- -- -- (19,582,000) -- (19,582,000) ---------- ---------- ------------ ------------- ----------- ------------ Combined balance, December 31, 1995...... 11,270,500 2,253,000 136,552,000 (105,695,000) (1,209,000) 31,901,000 Stock issued in connection with stock option plan........... 91,400 18,000 1,917,000 -- -- 1,935,000 Stock issued in connection with Colony transaction........... 112,700 24,000 1,365,000 -- -- 1,389,000 Amortization of unearned compensation expense............... -- -- -- -- 524,000 524,000 Dividends declared on common stock.......... -- -- -- (9,080,000) -- (9,080,000) Dividends declared on preferred stock....... -- -- -- (347,000) -- (347,000) Additional preferred stock dividend........ -- -- -- (12,073,000) -- (12,073,000) Net income............. -- -- -- 540,000 -- 540,000 ---------- ---------- ------------ ------------- ----------- ------------ Combined balance, December 31, 1996...... 11,474,600 $2,295,000 $139,834,000 $(126,655,000) $ (685,000) $ 14,789,000 ========== ========== ============ ============= =========== ============
See accompanying notes. 55 THE SANTA ANITA COMPANIES COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ------------ (RESTATED) Cash flows from operating activities: Net income (loss)............... $ 540,000 $(19,582,000) $ 2,025,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.. 4,870,000 6,905,000 8,232,000 Amortization of unearned compensation expense.......... 524,000 754,000 -- Deferred income taxes.......... (283,000) (2,000,000) -- Equity in losses of unconsolidated joint ventures...................... 994,000 2,113,000 1,521,000 Equity in earnings from investment in Pacific Gulf Properties Inc................ -- (1,374,000) (203,000) Strategic alliance costs....... 1,200,000 -- -- Arcadia development costs...... 2,900,000 -- -- Program for disposition of non- core real estate assets....... 2,000,000 30,300,000 -- Card club option write-off..... -- 2,000,000 -- Extraordinary gain on early retirement of debt............ -- (4,050,000) -- Write-down of land held for development................... -- -- 1,043,000 Net decrease (increase) in certain other assets.......... 112,000 (183,000) 958,000 Net (decrease) increase in certain other liabilities..... (880,000) 1,002,000 (1,294,000) ------------ ------------ ------------ Net cash provided by operating activities..................... 11,977,000 15,885,000 12,282,000 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from disposition of multifamily and industrial operations..................... -- -- 44,425,000 Payments received on loans receivable..................... 307,000 484,000 10,216,000 Origination of loans receivable..................... -- (27,000) -- Additions and improvements to real estate assets............. (2,044,000) (3,432,000) (2,911,000) Additions to property, plant and equipment...................... (4,551,000) (3,332,000) (1,553,000) Additions to certain other assets......................... (3,836,000) (5,415,000) -- Investments in and advances to unconsolidated joint ventures.. (7,636,000) (4,282,000) (1,660,000) Capital distributions from unconsolidated joint ventures.. 4,364,000 1,862,000 3,014,000 Sale of Pacific Gulf Properties Inc. common stock.............. 12,139,000 -- -- Sale of non-core real estate assets......................... 19,069,000 -- -- Dividends received from Pacific Gulf Properties Inc............ -- 1,224,000 203,000 ------------ ------------ ------------ Net cash provided by (used in) investing activities........... 17,812,000 (12,918,000) 51,734,000 ------------ ------------ ------------ Cash flows from financing activities: Proceeds from real estate loans payable........................ -- -- 24,400,000 Proceeds from bank loans payable........................ -- 13,650,000 7,300,000 Repayment of real estate loans payable........................ (7,982,000) (8,074,000) (11,150,000) Repayment of bank loans payable........................ (17,268,000) (794,000) (78,638,000) Dividends paid.................. (9,213,000) (8,966,000) (11,993,000) Issuance of common and preferred stock.......................... 12,084,000 -- -- Exercise of stock options....... 1,935,000 -- 61,000 ------------ ------------ ------------ Net cash used in financing activities..................... (20,444,000) (4,184,000) (70,020,000) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents............ 9,345,000 (1,217,000) (6,004,000) Cash and cash equivalents at beginning of year............... 13,877,000 15,094,000 21,098,000 ------------ ------------ ------------ Cash and cash equivalents at end of year......................... $ 23,222,000 $ 13,877,000 $ 15,094,000 ============ ============ ============
See accompanying notes. 56 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ------------- ------------ (RESTATED) ASSETS Real estate assets: Santa Anita Racetrack, less accumulated depreciation of $21,069,000 and $20,216,000.... $ 9,180,000 $ 9,030,000 Commercial properties, less accumulated depreciation of $4,700,000 and $4,068,000...... 12,372,000 13,047,000 Commercial properties to be sold, less accumulated depreciation of $4,395,000 and $18,085,000.................................... 8,986,000 27,652,000 Investments in and advances to unconsolidated joint ventures................................. 2,297,000 871,000 Real estate loans receivable.................... 10,674,000 10,954,000 ------------- ------------ 43,509,000 61,554,000 Cash and cash equivalents......................... 12,921,000 167,000 Accounts receivable............................... 90,000 658,000 Prepaid expenses and other assets................. 5,233,000 5,726,000 Investment in Pacific Gulf Properties Inc......... -- 12,967,000 ------------- ------------ $ 61,753,000 $ 81,072,000 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Real estate loans payable......................... $ 20,407,000 $ 28,389,000 Bank loans payable................................ 4,550,000 20,950,000 Accounts payable.................................. 205,000 420,000 Other liabilities................................. 1,700,000 2,779,000 Dividends payable................................. 2,491,000 2,277,000 Due to Operating Company.......................... 2,007,000 415,000 ------------- ------------ 31,360,000 55,230,000 ------------- ------------ Series A Redeemable Preferred Stock, $.10 par value; 867,343 shares authorized, issued and outstanding...................................... 21,718,000 -- ------------- ------------ Shareholders' equity: Preferred stock, $.10 par value; authorized 5,132,657 shares............................... -- -- Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,586,100 and 11,383,000 shares.............................. 1,159,000 1,138,000 Additional paid-in capital...................... 121,899,000 118,881,000 Retained earnings (deficit)..................... (114,383,000) (94,177,000) ------------- ------------ 8,675,000 25,842,000 ------------- ------------ $ 61,753,000 $ 81,072,000 ============= ============
See accompanying notes. 57 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ----------- (RESTATED) Revenues: Rent from Racetrack.............. $ 10,861,000 $ 11,342,000 $13,070,000 Shopping centers................. 3,251,000 4,441,000 4,501,000 Office buildings................. 3,420,000 4,006,000 4,301,000 Apartments and industrial........ -- -- 2,252,000 Interest and other............... 1,652,000 2,637,000 2,108,000 ------------ ------------ ----------- 19,184,000 22,426,000 26,232,000 ------------ ------------ ----------- Costs and expenses: Shopping centers................. 906,000 1,045,000 1,065,000 Office buildings................. 1,528,000 1,626,000 1,862,000 Apartments and industrial........ -- -- 1,255,000 Depreciation and amortization.... 1,718,000 3,899,000 4,152,000 General and administrative....... 4,046,000 3,420,000 4,148,000 Interest and other............... 2,670,000 4,321,000 5,930,000 Losses from unconsolidated joint ventures........................ 994,000 2,113,000 1,521,000 Strategic alliance costs......... 1,090,000 -- -- Arcadia development costs........ 2,900,000 -- -- Program for disposition of non- core real estate assets......... 2,000,000 30,300,000 -- Costs of equity offering......... -- 700,000 -- Card club option write-off....... -- 2,000,000 -- Write-down of land held for development..................... -- -- 1,043,000 ------------ ------------ ----------- 17,852,000 49,424,000 20,976,000 ------------ ------------ ----------- Income (loss) before income taxes and extraordinary gain............ 1,332,000 (26,998,000) 5,256,000 Income tax benefit................. -- -- -- ------------ ------------ ----------- Income (loss) before extraordinary gain.............................. 1,332,000 (26,998,000) 5,256,000 Extraordinary gain on early retirement of debt................ -- 4,050,000 -- ------------ ------------ ----------- Net income (loss).................. 1,332,000 (22,948,000) 5,256,000 Preferred stock dividends.......... 12,368,000 -- -- ------------ ------------ ----------- Net income (loss) applicable to common shares..................... $(11,036,000) $(22,948,000) $ 5,256,000 ============ ============ =========== Weighted average common shares outstanding....................... 11,429,118 11,326,443 11,256,353 ============ ============ =========== Income (loss) per common share: Before extraordinary item........ $ (.97) $ (2.39) $ .47 Extraordinary item............... -- .36 -- ------------ ------------ ----------- Net income (loss) per common share .................................. $ (.97) $ (2.03) $ .47 ============ ============ =========== Dividends declared per common share............................. $ .80 $ .80 $ .94 ============ ============ ===========
See accompanying notes. 58 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK ADDITIONAL RETAINED --------------------- PAID-IN EARNINGS SHARES AMOUNT CAPITAL (DEFICIT) TOTAL ---------- ---------- ------------ ------------- ------------ Balance, December 31, 1993, as previously reported............... 11,256,353 $1,125,000 $117,084,000 $ (49,390,000) $ 68,819,000 Restatement............ -- -- -- (7,434,000) (7,434,000) ---------- ---------- ------------ ------------- ------------ Balance, December 31, 1993, as restated...... 11,256,353 1,125,000 117,084,000 (56,824,000) 61,385,000 Dividends declared on common stock.......... -- -- -- (10,580,000) (10,580,000) Net income, as restated.............. -- -- -- 5,256,000 5,256,000 ---------- ---------- ------------ ------------- ------------ Balance, December 31, 1994................... 11,256,353 1,125,000 117,084,000 (62,148,000) 56,061,000 Stock issued to Operating Company in connection with restricted stock awards................ 126,647 13,000 1,797,000 -- 1,810,000 Dividends declared on common stock.......... -- -- -- (9,081,000) (9,081,000) Net loss, as restated.. -- -- -- (22,948,000) (22,948,000) ---------- ---------- ------------ ------------- ------------ Balance, December 31, 1995................... 11,383,000 1,138,000 118,881,000 (94,177,000) 25,842,000 Stock issued in connection with stock option plan........... 90,400 9,000 1,770,000 -- 1,779,000 Stock issued in connection with Colony transaction........... 112,700 12,000 1,248,000 -- 1,260,000 Dividends declared on common stock.......... -- -- -- (9,170,000) (9,170,000) Dividends declared on preferred stock....... -- -- -- (347,000) (347,000) Additional preferred stock dividend........ -- -- -- (12,021,000) (12,021,000) Net income............. -- -- -- 1,332,000 1,332,000 ---------- ---------- ------------ ------------- ------------ Balance, December 31, 1996................... 11,586,100 $1,159,000 $121,899,000 $(114,383,000) $ 8,675,000 ========== ========== ============ ============= ============
See accompanying notes. 59 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ------------ (RESTATED) Cash flows from operating activities: Net income (loss).................. $ 1,332,000 $(22,948,000) $ 5,256,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.... 1,718,000 3,899,000 4,152,000 Equity in losses of unconsoli- dated joint ventures............ 994,000 2,113,000 1,521,000 Equity in earnings from invest- ment in Pacific Gulf Properties Inc............................. -- (1,374,000) (203,000) Strategic alliance costs......... 1,090,000 -- -- Arcadia development costs........ 2,900,000 -- -- Program for disposition of non- core real estate assets......... 2,000,000 30,300,000 -- Card club option write-off....... -- 2,000,000 -- Extraordinary gain on early re- tirement of debt................ -- (4,050,000) -- Write-down of land held for de- velopment....................... -- -- 1,043,000 Net decrease (increase) in cer- tain other assets............... 46,000 (87,000) 160,000 Net increase (decrease) in cer- tain other liabilities.......... (442,000) (40,000) (1,720,000) ------------ ------------ ------------ Net cash provided by operating ac- tivities.......................... 9,638,000 9,813,000 10,209,000 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from disposition of multifamily and industrial operations........................ -- -- 44,425,000 Payments received on loans receiv- able.............................. 307,000 484,000 10,216,000 Origination of loans receivable.... -- (27,000) -- Additions and improvements to real estate assets..................... (2,044,000) (3,432,000) (2,911,000) Additions to certain other assets.. (3,726,000) (5,415,000) -- Investments in and advances to unconsolidated joint ventures..... (7,636,000) (4,282,000) (1,660,000) Capital distributions from uncon- solidated joint ventures.......... 4,364,000 1,862,000 3,014,000 Sale of Pacific Gulf Properties Inc. common stock................. 12,139,000 -- -- Sale of non-core real estate as- sets.............................. 19,069,000 -- -- Dividends received from Pacific Gulf Properties Inc............... -- 1,224,000 203,000 ------------ ------------ ------------ Net cash provided by (used in) in- vesting activities................ 22,473,000 (9,586,000) 53,287,000 ------------ ------------ ------------ Cash flows from financing activities: Proceeds from real estate loans payable........................... -- -- 24,400,000 Proceeds from bank loans payable... -- 13,650,000 7,300,000 Repayment of real estate loans pay- able.............................. (7,982,000) (8,074,000) (11,150,000) Repayment of bank loans payable.... (16,400,000) -- (77,913,000) Increase (decrease) in due to Oper- ating Company..................... 1,592,000 (641,000) 1,525,000 Dividends paid..................... (9,303,000) (9,056,000) (12,117,000) Issuance of common and preferred stock............................. 10,957,000 -- -- Exercise of stock options.......... 1,779,000 -- -- Issuance of common stock to Operating Company in connection with restricted stock awards...... -- 1,810,000 -- ------------ ------------ ------------ Net cash used in financing activi- ties.............................. (19,357,000) (2,311,000) (67,955,000) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents.................... 12,754,000 (2,084,000) (4,459,000) Cash and cash equivalents at begin- ning of year........................ 167,000 2,251,000 6,710,000 ------------ ------------ ------------ Cash and cash equivalents at end of year................................ $ 12,921,000 $ 167,000 $ 2,251,000 ============ ============ ============
See accompanying notes. 60 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ----------- ASSETS Current assets: Cash and cash equivalents......................... $ 10,301,000 $13,710,000 Accounts receivable............................... 2,352,000 3,113,000 Due from Realty................................... 2,007,000 415,000 Prepaid expenses and other assets................. 1,472,000 777,000 ------------ ----------- Total current assets............................ 16,132,000 18,015,000 Investment in common stock of Realty................ 2,103,000 2,122,000 Property, plant and equipment, at cost, less accumulated depreciation of $28,059,000 and $24,968,000........................................ 20,572,000 19,233,000 ------------ ----------- $ 38,807,000 $39,370,000 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................. $ 11,335,000 $10,788,000 Other liabilities................................. 11,284,000 11,693,000 Bank loans payable................................ 867,000 868,000 Income taxes...................................... -- 326,000 ------------ ----------- Total current liabilities....................... 23,486,000 23,675,000 Bank loans payable.................................. -- 867,000 Deferred revenues................................... 1,803,000 2,379,000 Deferred income taxes............................... 1,282,000 1,239,000 ------------ ----------- 26,571,000 28,160,000 ------------ ----------- Series A Redeemable Preferred Stock, $.10 par value; 867,343 shares authorized, issued and outstanding.. 1,050,000 -- ------------ ----------- Shareholders' equity: Preferred stock, $.10 par value; authorized 5,132,657 shares................................. -- -- Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,474,600 and 11,270,500 shares........................................... 1,148,000 1,127,000 Additional paid-in capital........................ 20,981,000 20,736,000 Unearned compensation expense..................... (685,000) (1,209,000) Retained earnings (deficit)....................... (10,258,000) (9,444,000) ------------ ----------- 11,186,000 11,210,000 ------------ ----------- $ 38,807,000 $39,370,000 ============ ===========
See accompanying notes. 61 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Revenues: Wagering commissions................... $44,781,000 $45,587,000 $43,096,000 Admission related...................... 23,825,000 24,060,000 24,750,000 Interest and other..................... 581,000 686,000 565,000 ----------- ----------- ----------- 69,187,000 70,333,000 68,411,000 ----------- ----------- ----------- Costs and expenses: Horse racing operating costs........... 48,735,000 48,686,000 48,352,000 Depreciation and amortization.......... 3,212,000 3,196,000 4,251,000 General and administrative............. 6,353,000 5,442,000 5,583,000 Interest and other..................... 788,000 401,000 446,000 Rental expense to Realty............... 10,861,000 11,342,000 13,057,000 ----------- ----------- ----------- 69,949,000 69,067,000 71,689,000 ----------- ----------- ----------- Income (loss) before income taxes........ (762,000) 1,266,000 (3,278,000) Income tax benefit....................... -- 2,000,000 -- ----------- ----------- ----------- Net income (loss)........................ (762,000) 3,266,000 (3,278,000) Preferred stock dividend................. 52,000 -- -- ----------- ----------- ----------- Net income (loss) applicable to common shares.................................. $ (814,000) $ 3,266,000 $(3,278,000) =========== =========== =========== Weighted average common shares outstanding............................. 11,316,623 11,213,943 11,143,146 =========== =========== =========== Net income (loss) per common share ...... $ (.07) $ .29 $ (.29) =========== =========== ===========
See accompanying notes. 62 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK ADDITIONAL RETAINED UNEARNED --------------------- PAID-IN EARNINGS COMPENSATION SHARES AMOUNT CAPITAL (DEFICIT) EXPENSE TOTAL ---------- ---------- ----------- ------------ ------------ ----------- Balance, December 31, 1993................... 11,140,853 $1,114,000 $20,592,000 $ (9,432,000) $ -- $12,274,000 Stock issued in connection with stock option plan........... 3,000 -- 4,000 -- -- 4,000 Net loss............... -- -- -- (3,278,000) -- (3,278,000) ---------- ---------- ----------- ------------ ----------- ----------- Balance, December 31, 1994................... 11,143,853 1,114,000 20,596,000 (12,710,000) -- 9,000,000 Stock issued in connection with restricted stock awards................ 126,647 13,000 140,000 -- (1,963,000) (1,810,000) Amortization of unearned compensation expense............... -- -- -- -- 754,000 754,000 Net income............. -- -- -- 3,266,000 -- 3,266,000 ---------- ---------- ----------- ------------ ----------- ----------- Balance, December 31, 1995................... 11,270,500 1,127,000 20,736,000 (9,444,000) (1,209,000) 11,210,000 Stock issued in connection with stock option plan........... 91,400 9,000 128,000 -- -- 137,000 Stock issued in connection with Colony transaction........... 112,700 12,000 117,000 -- -- 129,000 Preferred stock dividend.............. -- -- -- (52,000) -- (52,000) Amortization of unearned compensation expense............... -- -- -- -- 524,000 524,000 Net loss............... -- -- -- (762,000) -- (762,000) ---------- ---------- ----------- ------------ ----------- ----------- Balance, December 31, 1996................... 11,474,600 $1,148,000 $20,981,000 $(10,258,000) $ (685,000) $11,186,000 ========== ========== =========== ============ =========== ===========
See accompanying notes. 63 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss)...................... $ (762,000) $ 3,266,000 $(3,278,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........ 3,212,000 3,196,000 4,251,000 Amortization of unearned compensation expense............................. 524,000 754,000 -- Deferred income taxes................ (283,000) (2,000,000) -- Net decrease (increase) in certain other assets........................ 66,000 (96,000) 798,000 Net (decrease) increase in certain other liabilities................... (438,000) 1,042,000 426,000 ----------- ----------- ----------- Net cash provided by operating activities............................ 2,319,000 6,162,000 2,197,000 ----------- ----------- ----------- Cash flows from investing activities: Additions to property, plant and equipment............................. (4,551,000) (3,332,000) (1,553,000) Purchase of common stock from Realty in connection with grant of restricted stock................................. -- (1,810,000) -- Decrease in investment in common stock of Realty............................. 19,000 -- 57,000 ----------- ----------- ----------- Net cash used in investing activities.. (4,532,000) (5,142,000) (1,496,000) ----------- ----------- ----------- Cash flows from financing activities: Repayment of bank loans payable........ (868,000) (794,000) (725,000) (Increase) decrease in due from Realty................................ (1,592,000) 641,000 (1,525,000) Issuance of common and preferred stock................................. 1,127,000 -- -- Exercise of stock options.............. 137,000 -- 4,000 ----------- ----------- ----------- Net cash used in financing activities.. (1,196,000) (153,000) (2,246,000) ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents............................ (3,409,000) 867,000 (1,545,000) Cash and cash equivalents at beginning of year................................ 13,710,000 12,843,000 14,388,000 ----------- ----------- ----------- Cash and cash equivalents at end of year................................... $10,301,000 $13,710,000 $12,843,000 =========== =========== ===========
See accompanying notes. 64 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating Company and Subsidiaries ("Operating Company") are two separate companies, the stocks of which trade as a single unit under a stock-pairing arrangement on the New York Stock Exchange (symbol SAR). Realty and Operating Company were each incorporated in 1979 and are the successors of a corporation originally organized in 1934 to conduct thoroughbred horse racing in Southern California. Currently, Realty is principally engaged in holding and investing in retail and commercial property located primarily in Southern California and Towson, Maryland. During 1994, Realty disposed of its multifamily and industrial properties. Realty operates as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986 and, accordingly, pays no income taxes on earnings distributed to shareholders. Operating Company is engaged in thoroughbred horse racing. The thoroughbred horse racing operation is conducted by a subsidiary of Operating Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases the Santa Anita Racetrack from Realty. Separate financial statements have been presented for Realty and for Operating Company. Combined Realty and Operating Company financial statements have been presented as The Santa Anita Companies. Realty and The Santa Anita Companies use an unclassified balance sheet presentation. The separate net income (loss) and related per share amounts of Realty and Operating Company cannot usually be added together to total the combined net income (loss) and related per share amounts for The Santa Anita Companies because of adjustments and eliminations arising from inter-entity transactions. All significant intercompany and inter-entity balances and transactions have been eliminated in consolidation and combination. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. REAL ESTATE AND LONG-LIVED ASSETS Effective January 1, 1996, Realty adopted Financial Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS No. 121"). FAS No. 121 requires that impairment losses be recorded on long-lived assets used in operations when events or changes in circumstances indicate that the undiscounted cash flows to be generated by these assets are less than their carrying amount. In this case an impairment loss is recognized to the extent the carrying amount exceeds the fair value of the asset. FAS No. 121 also requires that long-lived assets to be disposed of be reported at the lower of their carrying amount or fair value, less cost to sell. Depreciation of real estate assets held and used in operations is provided on a straight-line basis over the estimated useful lives of the properties, ranging primarily from 5 to 45 years. No depreciation was provided for assets held for sale. Prior to 1996, real estate assets held for investment and used in operations were carried at depreciated cost, subject to tests for impairment, and consisted of land, buildings and related improvements. The carrying values of such assets were reviewed for impairment when certain events and circumstances (including operating results and change in use) indicated that such assets might be impaired if impairment indicators were present. The sum of the undiscounted cash flows estimated to be generated by an individual asset over its remaining estimated 65 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) useful life was compared to its carrying value. If the carrying value exceeded the estimated undiscounted cash flow, then the carrying value was written down by the amount of the shortfall. Real estate assets to be sold were carried at the lower of depreciated cost or estimated sales price less costs to sell. CAPITALIZED COSTS Realty capitalizes preacquisition costs, development costs and other indirect costs in accordance with Financial Accounting Standard No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects." INVESTMENTS IN JOINT VENTURES Realty consolidates only those joint ventures over which it has control. Investments in unconsolidated joint ventures are accounted for using the equity method of accounting. CASH AND CASH EQUIVALENTS Highly liquid short-term investments, with remaining maturities of three months or less at the date of acquisition, are considered cash equivalents. PROPERTY, PLANT AND EQUIPMENT Depreciation of property, plant and equipment and the capital lease obligation is provided primarily on the straight-line method generally over the following estimated useful lives: Buildings and improvements................................. 25 to 40 years Machinery and other equipment.............................. 5 to 15 years Leasehold improvements..................................... 5 to 32 years
Expenditures which materially increase property lives are capitalized. The cost of maintenance and repairs is charged to expense as incurred. When depreciable property is retired or disposed of, the related cost and accumulated depreciation is removed from the accounts and any gain or loss is reflected in current operations. DEFERRED REVENUES Operating Company's deferred revenues consist of prepaid admission tickets and parking, which are recognized as income ratably over the period of the related race meet. Also, deferred revenue includes prepaid rent from Oak Tree which is recognized over the remaining term of the lease. SHAREHOLDERS' EQUITY The outstanding shares of Realty common stock and Operating Company common stock are only transferable and tradable in combination as a paired unit consisting of one share of Realty common stock and one share of Operating Company common stock. 66 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) OPERATING COMPANY'S REVENUES AND COSTS Operating Company records operating revenues associated with thoroughbred horse racing at Santa Anita Racetrack on a daily basis, except for season admissions which are recorded ratably over the racing season. Costs and expenses associated with thoroughbred horse racing revenues are charged against income in those interim periods in which the thoroughbred horse racing revenues are recognized. Other costs and expenses are recognized as they actually occur throughout the year. The rental fee paid by Operating Company to Realty is recognized by both Realty and Operating Company as it is earned. RENTAL PROPERTY REVENUES Rental property revenues are recorded on a straight-line basis over the related lease term. As a result, deferred rent is created when rental income is recognized during free rent periods of a lease or when the lease provides for rent escalations during the lease term. Deferred rent is included in prepaid expenses and other assets, evaluated for collectibility and amortized over the remaining term of the lease. HORSE RACING REVENUES AND DIRECT OPERATING COSTS Operating Company's horse racing revenues and direct operating costs are shown net of state and local taxes, stakes, purses and awards. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject Realty and Operating Company to concentrations of credit risk are primarily cash investments and receivables. Realty and Operating Company place their cash investments in investment grade short-term instruments and limit the amount of credit exposure to any one commercial issuer. Concentrations of credit risk with respect to accounts receivable are limited due to the number of retail and commercial tenants, satellite locations and Santa Anita group event patrons. Real estate loans receivable are secured by first trust deeds on commercial real estate located in Southern California and Phoenix, Arizona. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK Realty is an issuer of financial instruments with off-balance sheet risk in the normal course of business which exposes Realty to credit risks. These financial instruments include commitments to extend credit, financial guarantees and letters of credit. FAIR VALUE OF FINANCIAL INSTRUMENTS Management has estimated the fair value of its financial instruments using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimated values for Realty and Operating Company as of December 31, 1996 and 1995 are not necessarily indicative of the amounts that could be realized in current market exchanges. For those financial instruments for which it is practicable to estimate value, management has determined that the carrying amounts of Realty's and Operating Company's financial instruments approximate their fair value as of December 31, 1996 and 1995. 67 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION During 1996, Realty and Operating Company adopted Financial Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("FAS No. 123") which provides companies an alternative to accounting for stock-based compensation as prescribed under Accounting Principles Board Opinion No. 25 ("APB 25"). FAS No. 123 encourages, but does not require companies to recognize expense for stock-based awards based on their fair value at date of grant. FAS No. 123 allows companies to continue to follow existing accounting rules (intrinsic value method under APB 25) provided that pro-forma disclosures are made of what net income and earnings per share would have been had the new fair value method been used. The Companies have elected to adopt the disclosure requirements of FAS No. 123 but will continue to account for stock-based compensation under APB 25. The FAS No. 123 disclosure requirements are applicable to stock-based awards granted in fiscal years beginning after December 15, 1994. NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT Net income (loss) per common share was computed based upon the weighted average number of common shares outstanding during each period for each company. Stock options have not been included in the computation since they have no material dilutive effect. Operating Company holds shares of Realty's common stock which are unpaired pursuant to a stock option plan approved by the shareholders. The shares held totaled 111,500 as of December 31, 1996 and 112,500 as of December 31, 1995 and 1994. These shares affect the calculation of Realty's net income per common share and common share equivalent but are eliminated in the calculation of net income per common share for The Santa Anita Companies. NOTE 2--RESTATEMENT Historically, Realty and its partners have viewed Towson Town Center and the Joppa parcel as a common economic component since the properties had common ownership, were physically adjacent and were both commercial retail operations. Prior to Realty's decision to dispose of its non-core real estate assets in 1995, Realty's investments in H-T Associates and Joppa Associates were evaluated for impairment on a combined basis (see "Note 9--Investments in Unconsolidated Joint Ventures"). In addition, Realty historically recorded its share of Joppa Associates' losses based on Realty's 33 1/3% interest. During the preparation of Realty's 1996 financial statements, it was determined that those two investments should have been evaluated for impairment on a separate basis. Also, Realty determined that since it was probable that one of Realty's partners would not bear its share of losses, Realty should have been recording 50%, not 33 1/3%, of Joppa Associates losses. Accordingly, the impairment loss recorded in the 1995 financial statements related to Joppa Associates should have been reported in prior years when the investment was impaired as a result of reduced expansion plans for Towson Town Center and the related Joppa parcel. Realty and The Santa Anita Companies have restated their financial statements to reflect these items in the proper periods. The restatement has the following impact: 68 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 2--RESTATEMENT (CONTINUED)
REALTY THE SANTA ANITA COMPANIES ------------------------ ------------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------ ------------------------- 1995 1994 1995 1994 ------------ ---------- ------------ ----------- Losses from unconsolidated joint ventures: As originally reported.......................... $ 1,836,000 $1,232,000 $ 1,836,000 $1,232,000 As restated..................................... 2,113,000 1,521,000 2,113,000 1,521,000 Program for disposition of non-core real estate assets: As originally reported.......................... $ 38,500,000 $ -- $ 38,500,000 $ -- As restated..................................... 30,300,000 -- 30,300,000 -- Income (loss) before extraordinary gain: As originally reported.......................... $(34,921,000) $5,545,000 $(31,555,000) $2,314,000 As restated..................................... (26,998,000) 5,256,000 (23,632,000) 2,025,000 Net income (loss) applicable to common shares: As originally reported.......................... $(30,871,000) $5,545,000 $(27,505,000) $2,314,000 As restated..................................... (22,948,000) 5,256,000 (19,582,000) 2,025,000 Income (loss) per common share: Before extraordinary gain-- As originally reported........................ $ (3.09) $ .49 $ (2.81) $ .21 As restated................................... (2.39) .47 (2.11) .18 Net income (loss) per common share-- As originally reported........................ $ (2.73) $ .49 $ (2.45) $ .21 As restated................................... (2.03) .47 (1.75) .18
The effect of the restatement was a reduction in earnings of Realty and The Santa Anita Companies of $779,000 or $.07 per share in 1993, $893,000 or $.08 per share in 1992 and $5,762,000 or $.51 per share (for Realty) and $.52 per share (for The Santa Anita companies) in 1991. NOTE 3--DISPOSITION OF NON-CORE REAL ESTATE ASSETS During 1995, Realty adopted a plan to dispose of its non-core real estate assets. Realty's non-core real estate assets include all significant assets not directly associated with Santa Anita Park, its 400 acre parcel in Arcadia, California, which is the site for the Santa Anita Racetrack, the Santa Anita Fashion Park Mall and the Santa Anita Medical Plaza office building. Specific non-core real estate assets are described below. The objective of the plan was to reduce Realty's debt levels, improve financial flexibility and improve capital availability for the construction of a major commercial development on excess land at Santa Anita Park. Accordingly, Realty reduced the book value of assets intended to be sold to their estimated sales price less costs of sale, resulting in a nonrecurring charge in 1995 of $30,300,000 (after restatement) (See "Note 2--Restatement"), reflected as "Program for disposition of non-core real estate assets" in The Santa Anita Companies and Realty statements of operations. The assets to be disposed of at December 31, 1995 consisted of six neighborhood shopping centers in Southern California, and Phoenix, Arizona, two office buildings in Santa Ana and Upland, California, an investment in Joppa Associates, a partnership which owns a vacant retail facility and undeveloped land adjacent to Towson Town Center shopping center in Maryland (see "Note 9-- Investments in Unconsolidated Joint Ventures" and "Note 2--Restatement"), an investment in French Valley Ventures, a partnership which owns undeveloped land in Temecula, California (see "Note 10--Investment in Consolidated Joint Venture"), and mortgage notes receivable (see "Note 11--Real Estate Loans Receivable"). During 1996, the disposition plan was expanded to include an investment in Pacific Gulf Properties Inc. common stock (see "Note 8--Investment in Pacific Gulf Properties Inc."), and an investment in H-T Associates, a partnership that effectively owns 32.5% of Towson Town Center (see "Note 9-- Investments in Unconsolidated Joint Ventures"). 69 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--DISPOSITION OF NON-CORE REAL ESTATE ASSETS (CONTINUED) The components and changes in assets included in the program to dispose of non-core real estate assets during 1996 were as follows:
1995 1996 ------------- ---------------------------------------------------------- BEGINNING NET ASSET NET BOOK UNREALIZED ENDING (REDUCTION) VALUE ADDITIONS SALES AND REALIZED NET BOOK (AS RESTATED) (AS RESTATED) (REDUCTIONS) PROCEEDS LOSS VALUE ------------- ------------- ------------ -------- ------------ -------- (IN THOUSANDS) 1995 PROGRAM Neighborhood Shopping Centers................ $(14,580) $19,673 $ 829 $(10,736) $(1,060) $ 8,706 Office Buildings........ (13,020) 7,699 724 (8,333) (90) -- Investment in French Valley................. (200) 280 -- -- -- 280 Investment in Joppa Associates............. -- (2,235) 4,451 -- -- 2,216 Notes receivable........ (2,500) 10,954 (280) -- -- 10,674 1996 PROGRAM Investment in PGP Stock.................. -- 12,967 22 (12,139) (850) -- Investment in H-T Associates............. -- 6,415 (2,368) -- -- 4,047 -------- ------- ------- -------- ------- ------- $(30,300) $55,753 $ 3,378 $(31,208) $(2,000) $25,923 ======== ======= ======= ======== ======= =======
During the 1996 second quarter, Realty completed the sale of three neighborhood shopping centers in Phoenix, Arizona, for net proceeds totaling $8,103,000, resulting in a loss on the sale of $5,000 and sold its investment in Pacific Gulf Properties common stock for net proceeds of $12,139,000, resulting in a loss of $850,000. The total nonrecurring charge for the asset disposal program in the 1996 second quarter was $855,000. During the 1996 third quarter, Realty completed the sale of a commercial office building in Upland, California, for net proceeds of $1,419,000 and completed the sale of a commercial office building in Santa Ana, California for net proceeds of $6,914,000. The net loss on the sale of these two commercial office buildings totaling $90,000 was recorded as an additional nonrecurring charge in the 1996 third quarter. During the 1996 fourth quarter, Realty completed the sale of a neighborhood shopping center in Orange, California, for net proceeds of $2,633,000, resulting in a gain on the sale of $36,000, which was reflected in an additional nonrecurring charge in the 1996 fourth quarter. The net proceeds on the sales of the neighborhood shopping centers and commercial office buildings were used to reduce $7,511,000 of related mortgage debt and the remainder of the proceeds were used to reduce borrowings under Realty's working capital line. The net proceeds on the sale of Pacific Gulf Properties stock was principally used to reduced borrowings under Realty's working capital line. At December 31, 1996, two neighborhood shopping centers remained to be sold. In January 1997, Realty entered into an agreement to sell the center in Yorba Linda, California, which sale is expected to be completed in the 1997 second quarter. As a result of estimated net sales proceeds, the net book value of the Yorba Linda property was reduced by $700,000 in the 1996 fourth quarter. The neighborhood shopping center in Encinitas, California is undergoing a refurbishment program to promote a sale by the end of 1997. As a result of the estimated costs of the refurbishment program, the net book value of the Encinitas center was reduced by $391,000 in the 1996 fourth quarter. During the 1996 fourth quarter, Realty determined that an additional nonrecurring charge for the asset disposal program of $1,055,000 was required. This charge was comprised of $1,091,000 pertaining to the reduction in the estimated fair value of the two remaining neighborhood centers as described above, offset by the gain of $36,000 on the sale of the neighborhood shopping center in Orange, California in November 1996. 70 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--DISPOSITION OF NON-CORE REAL ESTATE ASSETS (CONTINUED) Included in the results of operations for the year ended December 31, 1996, were operating income, net of interest expense, of $1,109,000 pertaining to the commercial properties sold and $271,000 pertaining to the commercial properties to be sold, losses of $1,912,000 pertaining to investments in unconsolidated joint ventures to be sold, a loss of $65,000 pertaining to the consolidated joint venture to be sold and interest income of $1,088,000 pertaining to the notes receivable to be sold. Included in the results of operations for the year ended December 31, 1995, were operating income, net of interest expense, of $641,000 pertaining to the commercial properties to be sold, losses of $831,000 pertaining to investments in unconsolidated joint ventures to be sold, a loss of $66,000 pertaining to the consolidated joint venture to be sold and interest income of $1,057,000 pertaining to the notes receivable to be sold. NOTE 4--STRATEGIC ALLIANCE TRANSACTIONS On August 19, 1996, the Companies announced a major transaction with Colony Investors II, L.P. ("Colony"), Los Angeles based real estate investment company administered by Colony Capital, Inc., which pursuant to the terms of an agreement, would have invested in the Companies, over time, a total of $138 million. On September 5, 1996, as an initial step of the investment, Colony acquired 112,700 newly issued shares of paired common stock and 867,343 newly issued paired shares of Series A Redeemable Preferred Stock of Realty and Operating Company for $12,716,000, resulting in an ownership interest in the Companies of 8%. On October 9, 1996, the Companies received an unsolicited offer from Koll Arcadia Investors, LLC ("KAI"), an investor group comprised of Apollo Real Estate Investors II, L.P. and principals of the Koll Company, seeking to acquire control of the Companies. In response to this proposal, the Boards of Directors of the Companies formed special committees of independent directors (the "Independent Committees") to review the proposal and other proposals of a strategic nature. In January 1997, the Companies and Colony revised their agreement to allow the Companies to enter into discussions and negotiations with third parties with respect to transactions that might involve a transfer of control or other transactions that would maximize shareholder value, and therefore would be inconsistent with the Colony strategic alliance. Thereafter, the Companies commenced a process in which interested parties were invited to make proposals to the Independent Committees, which indicated that they would respond to such parties once they had an opportunity to evaluate fully all proposals. In January and again in March 1997, KAI revised its offer. The March offer was announced simultaneously with an offer by Colony Capital. These offers, by their terms, expired March 28, 1997. On March 27, 1997, the Companies announced they had received confidential, written proposals from several strategic and financial buyers in addition to the previously described KAI and Colony Capital proposals and that the Companies' Independent Committees and financial advisors had been authorized to commence final negotiations with selected potential buyers. Effective March 31, 1997, the August 1996 agreement with Colony was terminated. Pursuant to the agreement, Colony was entitled to a termination fee of $4,000,000 and reimbursement of expenses up to $500,000. The $4,500,000 was paid on April 1, 1997 and will be a charge against 1997 first quarter earnings. Colony now has the right to redeem preferred shares at the average trading price of the Companies' common stock for a period preceding the date of Colony's redemption notice. The redemption price may be paid by cash of $11,254,000 and a six-month note for the balance. 71 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--STRATEGIC ALLIANCE TRANSACTIONS (CONTINUED) During 1996, the Companies incurred $1,831,000 in strategic alliance costs associated with the Colony transaction, the issuance of common and preferred shares to Colony and the unsolicited tender offer from KAI. These costs were comprised of legal fees, investment advisory fees, other professional fees and other miscellaneous costs. Colony transaction costs and KAI tender offer costs totaling $1,200,000, charged $1,090,000 to Realty and $110,000 to Operating Company, were reflected in strategic alliance costs in The Santa Anita Companies and the Realty statements of operations and in general and administrative in the Operating Company statement of operations. Common and preferred share issuance costs totaling $631,000, charged $573,000 to Realty and $58,000 to Operating Company were reflected in shareholders' equity in The Santa Anita Companies, Realty and Operating Company balance sheets. NOTE 5--SANTA ANITA COMMERCIAL CENTER The development, construction and operation of a major commercial center on excess land at Santa Anita Park has been a corporate strategy of Realty since 1994. In March 1995, Realty submitted zoning and general plan amendment applications to the City of Arcadia for the development of a 1.5 million square foot retail/entertainment project on 125 acres. In June 1995, Realty filed with the City of Arcadia a specific plan application for the project. In April 1996, Realty made the strategic decision to withdraw the 1.5 million square foot specific plan application due to mitigation and public use requirements which were likely to be imposed on the project. Subsequent to the specific plan application withdrawal, Realty management continued development plans for the larger project and continued to pursue a land use designation in the City's general plan to accommodate the project. In September 1996, a new City general plan was adopted which provided for a commercial land use designation allowing 1.1 million square feet of commercial development on the Santa Anita property. In July 1996, a petition circulated by a group of citizens of Arcadia that would have prevented a development on the Realty property without a majority vote of the Arcadia citizens was certified and subsequently placed on the November ballot. Known as Measure M, this public initiative was defeated on November 5, 1996. Realty actively campaigned for defeat of Measure M, incurring costs of $301,000, which were included in general and administrative expense in the 1996 fourth quarter. After the defeat of Measure M, Realty management re-evaluated its relationship with the City and the financial considerations of a large scale project. At this time, Realty management concluded that a smaller scale project (approximately 500,000 square feet on 50 acres) would be more strongly supported by City government and would not be subjected to a high level of mitigation costs and public use requirements inherent in a larger project. Accordingly, Realty undertook substantial reconfiguration and downsizing of the project, including site relocation and change in tenant components. As a result of the down-sizing, Realty re-evaluated its capitalized development costs, determined which costs had continuing value in the smaller scale project and wrote off capitalized development costs that were attributable solely to the larger project totaling $2,900,000, reflected as "Arcadia development costs" in The Santa Anita Companies and Realty statements of operations. In January 1997, Realty submitted a Memorandum of Understanding, for development of a 500,000 square foot project, to the City of Arcadia. This agreement was approved by the City in March 1997. 72 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--EXECUTIVE SEVERANCE During 1996, pursuant to resignation agreements with one Realty and two Operating Company executive officers, Realty and Operating Company incurred $229,000 and $851,000 in executive severance costs which have been charged to general and administrative expense in The Santa Anita Companies, Realty and Operating Company statements of operations. Pursuant to the resignation agreements, if there is a "change in control" on or prior to May 17, 1997, the former executive officers will be entitled to additional lump sum cash payments totaling $304,000 for Realty and $356,000 for Operating Company. No provision has been accrued or funded for the contingent severance payments. NOTE 7--CARD CLUB WRITE-OFFS In August 1995, the management of Bell Jackpot Casino, which was not affiliated with Realty, citing intense competition from larger and more established nearby card clubs, closed the Bell Jackpot Casino in Bell, California. As a result of this action, during the 1995 third quarter, Realty wrote-off the $2,000,000 it paid for an option to acquire a 50% interest in the operation of the casino. The write-off has been reflected as "Card club option write-off" in the Santa Anita Companies and Realty statements of operations. Additionally, in the 1995 third quarter, Realty wrote-off $480,000 of development costs for the proposed Irwindale Palace Casino, in Irwindale, California, which has been charged to general and administrative expense in The Santa Anita Companies and Realty statements of operations. Realty discontinued its involvement in the card club following the defeat of an October 1995 Irwindale ballot measure to permit card clubs in Irwindale. NOTE 8--INVESTMENT IN PACIFIC GULF PROPERTIES INC. In November 1993, Realty entered into a Purchase and Sale Agreement to sell its multifamily and industrial operations to Pacific Gulf Properties Inc. ("Pacific"), in conjunction with Pacific's proposed public offering of common stock and debentures. In February 1994, Realty completed the first part of this transaction by selling to Pacific ten multifamily properties, containing 2,654 apartment units, located in Southern California, the Pacific Northwest and Texas and three industrial properties, containing an aggregate of 185,000 leasable square feet of industrial space, located in the State of Washington (the "Transferred Properties"). Realty's corporate headquarters building and related assets were also acquired by Pacific. In consideration of the sale of the Transferred Properties, Realty received $44,425,000 in cash and 150,000 shares of Pacific common stock and was relieved of $44,290,000 of mortgage debt on the Transferred Properties. In October 1994, Realty completed the second part of the transaction, the sale of its interest in Baldwin Industrial Park to Pacific and Pacific delivered to Realty an additional 634,419 shares of Pacific common stock as consideration for the second part of the transaction and the corporate headquarters and other net assets. The above transactions resulted in a loss of $10,974,000, which was reflected in The Santa Anita Companies and Realty statements of operations for the year ended December 31, 1993. If the transactions had occurred as of January 1, 1994, The Santa Anita Companies and Realty revenues would have decreased by $4,477,000, expenses would have decreased by $4,929,000 and net income would have increased by $452,000, for the year ended December 31, 1994. As of December 31, 1995, Realty owned 16.2% of Pacific's common stock and accounted for its investment by the equity method of accounting. Effective January 1, 1996, Realty accounted for its investment under the cost method of accounting. Realty changed its method of accounting in 1996 since it no longer had a common board member with Pacific and determined it no longer had the ability to exercise significant influence. 73 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 8--INVESTMENT IN PACIFIC GULF PROPERTIES INC. (CONTINUED) On May 30, 1996, Realty sold its 784,419 shares of Pacific common stock at a gross selling price of $16.375 per share, pursuant to the terms of an underwritten, registered public offering by Pacific. The loss on the sale of Pacific common stock of $850,000 was reflected as an additional nonrecurring charge in the 1996 second quarter (see "Note 3--Disposition of Non-Core Real Estate Assets"). NOTE 9--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES Realty's investments in unconsolidated joint ventures include investments in the following commercial real estate ventures at December 31, 1996:
OWNERSHIP NAME PERCENTAGE PROJECT ---- ---------- ------------- Anita Associates ............................ 50% Regional mall H-T Associates ................................. 50% Regional mall Joppa Associates ............................... 50% Retail
The Anita Associates partnership was formed to develop and operate Santa Anita Fashion Park in Arcadia, California. The H-T Associates partnership has a 65% ownership interest in a partnership formed to develop and operate Towson Town Center in Towson, Maryland. The Joppa Associates partnership was formed to develop an adjacent retail building and undeveloped land in an expansion of Towson Town Center. Combined condensed financial statement information for the unconsolidated joint ventures as of December 31, 1996, 1995 and 1994 and for the years then ended is as follows:
1996 1995 1994 ------------ ------------ ------------ Real estate assets............... $248,675,000 $259,168,000 $265,869,000 ============ ============ ============ Liabilities Secured real estate loans...... $225,022,000 $242,332,000 $243,061,000 Other.......................... 53,826,000 35,558,000 32,784,000 ------------ ------------ ------------ $278,848,000 $277,890,000 $275,845,000 ============ ============ ============ Partners' equity Realty......................... $(15,084,000) $ (9,359,000) $ (4,986,000) Others......................... (15,089,000) (9,363,000) (4,990,000) ------------ ------------ ------------ $(30,173,000) $(18,722,000) $ (9,976,000) ============ ============ ============ Revenues......................... $ 38,612,000 $ 36,351,000 $ 33,313,000 ============ ============ ============ Net loss Realty......................... $ (994,000) $ (2,113,000) $ (1,521,000) Others......................... (2,463,000) (3,510,000) (4,073,000) ------------ ------------ ------------ $ (3,457,000) $ (5,623,000) $ (5,594,000) ============ ============ ============
74 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 9--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED) A major expansion of Towson Town Center opened in 1991. Prior to the development of this expansion, Realty and its partners acquired and planned to develop the Joppa parcel. Subsequently, the partners actively pursued alternative retail/entertainment projects for the Joppa parcel until the 1995 third quarter, when development activities ceased and the parcel was placed for sale. Prior to this decision, no impairment loss was recognized since the expected undiscounted cash flow from the combined Towson/Joppa investment provided recovery of net book value over a period substantially less than the remaining useful life of the properties. During the preparation of the 1996 financial statements, Realty determined that the two properties should have been analyzed on a separate basis with respect to impairment (see "Note 3-- Disposition of Non-Core Real Estate Assets") and restated prior periods to reflect impairment of the Joppa property. During 1996 and 1995, Realty determined that proceeds from the sale of the Joppa property combined with partnership cash would be insufficient to pay partnership debts, primarily a mortgage on partnership property of $16,494,000 due October 31, 1996 (which mortgage was subject to a Realty corporate guarantee of $8,247,000). As a result, it was anticipated that Realty would be required to make an additional capital contribution to the partnership of approximately $4,350,000, net of estimated proceeds of $2,500,000 on sale of the Joppa property. During the 1995 fourth quarter, Realty funded $1,855,000 of this obligation. At December 31, 1995, Realty's investment balance in Joppa Associates was a credit of $2,235,000. During 1996, Realty contributed $5,033,000 to Joppa Associates to fund the mortgage loan payment due October 31, 1996. This funding represented approximately $2,500,000 more than originally anticipated since the sale of the Joppa property had not been completed. In connection with the funding, one of Realty's two partners assigned to Realty and Realty's other partner its partnership interest and relinquished its right to any proceeds from the sale of the partnership property. The ownership interests of Realty and Realty's other partner were increased to 50%. During 1996, Joppa Associates agreed to sell the partnership property for $5,500,000. The sale is expected to close in the 1997 second quarter and Realty's share of the net proceeds is estimated to be $2,500,000. At December 31, 1996, the carrying value of Realty's investment in Joppa Associates was $2,216,000. On December 6, 1996, Realty reached agreement for the sale of its 50% partnership interest in H-T Associates to a third party for $5,000,000. The agreement provided for a purchase price increase or decrease based on an increase or decrease in partnership working capital as of the closing date. At December 31, 1996, the carrying value of Realty's investment in H-T Associates was $4,047,000. The buyer also agreed to assume Realty's joint and several guaranty of a loan issued to expand the Towson Town Center in the amount of $66,135,000. Realty's two partners in the venture have also each executed repayment guaranties, although one of the partners has a limited repayment guaranty. At December 31, 1996, the loan balance to which the guaranties relate was $164,641,000. The repayment guaranties contain covenants which, among other matters, require the guarantors to maintain certain minimum levels of net worth. At December 31, 1996, Realty was in default under the minimum net worth covenant. The lender may, among other things, foreclose on the assets of H-T Associates and pursue other remedies under the guaranties, however, as of December 31, 1996, the lender had not exercised such rights. Under the partnership agreement, Realty's partner, TrizecHahn Centers, Inc., has a right of refusal in the event Realty chooses to sell its partnership interest. In January 1997, TrizecHahn Centers Inc., exercised its right of first refusal and elected to purchase Realty's interest in the partnership, pursuant to the terms of the original sales agreement. The original sales agreement provided for a $500,000 break-up fee in the event of exercise of the right of refusal. The break-up fee was paid and expensed in January 1997. Realty has held ongoing discussions with the lender concerning the assumption by TrizecHahn of Realty's repayment guaranty and expects such assumption when the transaction is consummated. 75 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 9--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED) On April 4, 1997, Realty and TrizecHahn reached agreement for a purchase price of $3,900,000 for Realty's interest in H-T Associates, which is not subject to further adjustment. The purchase price will approximate Realty's book value at the time of sale. The componenets of the change in the investment in each of the unconsolidated joint venture for the years ended December 31, 1996, 1995 and 1994 are as follows:
ANITA H-T JOPPA BALDWIN ASSOCIATES ASSOCIATES ASSOCIATES INDUSTRIAL TOTAL ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1993............ $(1,567,000) $ 8,169,000 $(3,720,000) $ 2,996,000 $ 5,878,000 1994 income (loss)................ 96,000 (1,311,000) (866,000) 560,000 (1,521,000) Additional investment............. 216,000 340,000 1,104,000 - 1,660,000 Distribution...................... (1,975,000) (340,000) (444,000) (255,000) (3,014,000) Non-cash activity................. 10,000 - - - 10,000 Sale of Baldwin Industrial........ - - - (3,301,000) (3,301,000) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1994............ (3,220,000) 6,858,000 (3,926,000) - (288,000) 1995 income (loss)................ 13,000 (1,295,000) (831,000) - (2,113,000) Additional investment............. (2,000) 1,105,000 3,179,000 - 4,282,000 Distribution...................... (100,000) (1,105,000) (657,000) - (1,862,000) Non-cash activity................. - 852,000 - - 852,000 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1995............ (3,309,000) 6,415,000 (2,235,000) - 871,000 1996 income (loss)................ 918,000 (1,320,000) (592,000) - (944,000) Additional investment............. - 720,000 6,064,000 - 6,784,000 Distribution...................... (1,575,000) (1,768,000) (1,021,000) - (4,364,000) ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996............ $(3,966,000) $ 4,047,000 $ 2,216,000 $ - $ 2,297,000 =========== =========== =========== =========== ===========
NOTE 10--INVESTMENT IN CONSOLIDATED JOINT VENTURE Realty's real estate properties include a 50% ownership interest in French Valley Ventures a real estate joint venture formed to acquire undeveloped land in Temecula, California. The financial condition and operations of the joint venture are consolidated with the financial statements of Realty and The Santa Anita Companies. Combined condensed financial information for the consolidated joint venture as of December 31, 1996, 1995 and 1994 and for the years then ended is as follows:
1996 1995 1994 --------- --------- ----------- Real estate assets..................... $ 280,000 $ 280,000 $ 480,000 ========= ========= =========== Liabilities Secured real estate loans............ $ 480,000 $ 480,000 $ 480,000 Other................................ 2,000 2,000 2,000 --------- --------- ----------- $ 482,000 $ 482,000 $ 482,000 ========= ========= =========== Partners' deficit Realty............................... $(202,000) $(202,000) $ (2,000) Others............................... -- -- -- --------- --------- ----------- $(202,000) $(202,000) $ (2,000) ========= ========= =========== Revenues............................... $ -- $ -- $ -- ========= ========= =========== Net loss Realty............................... $ (65,000) $(266,000) $(1,043,000) Others............................... -- -- -- --------- --------- ----------- $ (65,000) $(266,000) $(1,043,000) ========= ========= ===========
During 1995, a further decline in value of the undeveloped land resulted in a write down of the carrying value to its estimated market value. The resulting charge of $200,000 was reflected as part of the "Program for disposition of non-core real estate assets" in the Santa Anita Companies and Realty statements of operations (see "Note 3--Disposition of Non-Core Real Estate Assets"). During 1994, a decrease in a maturing note payable secured by land held for development by French Valley Ventures was negotiated and the carrying cost of the related land was written down to its estimated market value. The resulting net charge of $1,043,000 has been reflected as "Write-down of land held for development" in The Santa Anita Companies and Realty statements of operations. 76 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--REAL ESTATE LOANS RECEIVABLE Realty's real estate loans receivable as of December 31, 1996 and 1995 consist of the following:
DECEMBER 31, INTEREST MATURITY ------------------------ PROPERTY RATE DATE 1996 1995 -------- -------- -------- ----------- ----------- Stone Creek.................... 7.3% 11/1997 $ 6,451,000 $ 6,497,000 Anaheim Hills.................. 8.5% -- 1,477,000 1,504,000 Turf Plaza..................... 9.0% 11/2002 4,178,000 4,279,000 Bristol........................ 8.5% 9/2002 1,041,000 1,174,000 ----------- ----------- 13,147,000 13,454,000 Valuation allowance.............................. (2,473,000) (2,500,000) ----------- ----------- $10,674,000 $10,954,000 =========== ===========
During 1995, Realty determined that it was probable that Realty would not collect its real estate loans receivable in accordance with their stated terms. Realty established an allowance based on discounted cash flows using the loan's initial effective interest rate for these impaired loans. Accordingly, Realty included the real estate loans receivable as a component of its program for disposition of non-core real estate assets (see "Note 3-- Disposition of Non-Core Real Estate Assets"). Realty believes that the most effective course for disposition of these loans is to encourage refinancing or sale of related underlying assets and early discounted payoff by the existing borrowers. During 1995, Realty estimated that the net realizable value of the loans was $2,500,000 less than the face amount and accordingly, recorded an impairment loss for that amount. For each of the years ended December 31, 1996 and 1995, the average investment in impaired loans was approximately $10,814,000. Interest income in 1996 and 1995 on such loans totaled $1,088,000 and $1,057,000. Interest income on impaired loans is generally recognized using the accrual basis method of income recognition. These real estate loans originated as seller financing on commercial properties that were previously owned by Realty. Each loan is secured by a first trust deed on the related property. The Stone Creek property is a 25,400 square foot neighborhood center and a 120 unit apartment complex in Anaheim, California. The Anaheim Hills property is a 32,500 square foot neighborhood center in Anaheim Hills, California. The Turf Plaza property is a 96,300 square foot neighborhood center in Phoenix, Arizona. The Bristol property is a 29,300 square foot neighborhood center in Costa Mesa, California. The Stone Creek loan is due in November 1997 and the underlying property is not expected to provide collateral sufficient to assure full collection of this loan. Realty is assisting the borrower in a restructuring program that would grant Realty title to the 120 unit apartment complex and Realty would refinance the remaining retail property with the existing borrower. The apartment complex and commercial property are both subject to a common ground lease. This restructuring and property transfer to Realty is subject to approval of the ground lessor. Realty would sell the related apartment property upon receipt of title. Realty expects this restructuring and related asset sale to result in net proceeds of approximately $1,500,000 less than the face value of the note. The Anaheim Hills loan matured in December 1996. Realty has granted the borrower a month to month extension of the maturity date until the borrower secures refinancing. During 1997, the borrower has continued to make payments of principal and interest. Realty has received an offer from the holder of the second mortgage on the property to purchase the note for a discount. Realty expects to settle this loan during 1997. Realty has been in active discussions with the Turf Plaza borrower regarding a discounted, early payoff of the mortgage loan. These repayment discussions are subject to the borrower obtaining satisfactory financing, which is expected to occur in 1997. 77 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 11--REAL ESTATE LOANS RECEIVABLE (CONTINUED) Contractual repayments on real estate loans receivable as of December 31, 1996 are due as follows: 1997.......................................................... $ 8,115,000 1998.......................................................... 204,000 1999.......................................................... 215,000 2000.......................................................... 232,000 2001.......................................................... 253,000 Thereafter.................................................... 4,128,000 ----------- $13,147,000 ===========
NOTE 12--LOANS PAYABLE Realty's real estate loans payable as of December 31, 1996 and 1995 consist of the following:
1996 1995 ----------- ----------- 9.25% note, secured by real estate assets, due in installments through 2001....................... $ 8,691,000 $ 8,796,000 8.5% note, secured by land with assignment of ground lease and rent as collateral, due in installments through 2009....................... 3,678,000 3,831,000 9.75% note, secured by real estate assets, interest only, due in 2002...................... 480,000 480,000 7.91% variable rate notes, secured by real estate, due in installments through 2005........ 7,558,000 15,282,000 ----------- ----------- $20,407,000 $28,389,000 =========== ===========
In December 1994, Realty obtained secured loans on each of its six neighborhood shopping centers. During 1996, four of the neighborhood shopping centers were sold and the corresponding secured loans totaling $7,511,000 at the sales dates were repaid. At December 31, 1996, the remaining two secured loans had an outstanding balance of $7,558,000 and a current interest rate of 7.91%. These secured loans had initial variable interest rates of 8.25% and a 25-year amortization period. The interest rates are subject to adjustment every six months based on the six-month certificate of deposit rate in the secondary market as currently published in The Wall Street Journal. The maximum interest rate adjustment over the life of the loans is 5% and the increase in the monthly payment at each adjustment date is limited to 3.75%. Principal payments due on real estate loans payable as of December 31, 1996 are as follows: 1997.......................................................... $ 404,000 1998.......................................................... 440,000 1999.......................................................... 480,000 2000.......................................................... 522,000 2001.......................................................... 8,559,000 Thereafter.................................................... 10,002,000 ----------- $20,407,000 ===========
In November 1995, Realty completed a negotiated, early and reduced payoff of the mortgage loan on the Santa Ana office building. The mortgage holder agreed to accept a cash payment of $7,500,000 as settlement in full of the 9.375% note due in 1998. The prepayment resulted in a gain of $4,050,000, net of miscellaneous closing expenses, which was reflected as an extraordinary gain on early retirement of debt in The Santa Anita Companies and Realty statements of operations. 78 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--LOANS PAYABLE (CONTINUED) Bank loans payable consist of borrowings under the revolving credit agreement of $4,550,000 and $20,950,000 as of December 31, 1996 and 1995. In November 1994, Realty entered into a one-year $30,000,000 revolving credit agreement with a commercial bank. At December 31, 1996, amendments to the credit agreement had reduced available borrowings to $20,000,000 and had extended the term to February 1, 1997. During 1997, the agreement was extended to June 1, 1997. Borrowings under the revolving credit agreement bear interest, at Realty's option, at the prime rate, at LIBOR (London Interbank Offered Rate) plus 1 1/4%, or at the 30-day, 60-day or 90-day certificate of deposit rate plus 1 1/4%. At December 31, 1996, borrowings were at a rate of 6.8% which was based on the 30-day certificate of deposit rate at the date of borrowing plus 1 1/4%. At December 31, 1995, borrowings of $17,700,000 were at a rate of 6.9% which was based on the 30-day certificate of deposit rate plus 1% and borrowings of $3,250,000 were at the prime rate. Realty's Racetrack rental revenues have been pledged as collateral under the credit agreement. The revolving credit agreement contains a restriction on the payment of dividends and certain other financial ratio and maintenance restrictions. In any twelve-month period beginning on or after July 1, 1994, dividends declared are limited to the greater of $.80 per share or an amount calculated to maintain Realty's qualification as a REIT. Realty's current dividend policy is in compliance with this dividend restriction. Additionally, at December 31, 1996, Realty was in compliance with the other financial ratio and maintenance restrictions. Operating Company entered into a sale-leaseback transaction related to the financing of certain television, video monitoring and production equipment under a five-year lease expiring in December 1997. This financing arrangement is accounted for as a capital lease. Accordingly, the equipment and related lease obligation are reflected as machinery and other equipment and bank loans payable in The Santa Anita Companies and Operating Company balance sheets. Realty has guaranteed the capital lease obligation of $867,000. Assets relating to the capital lease are as follows:
1996 1995 ----------- ----------- Machinery and equipment......................... $ 4,000,000 $ 4,000,000 Accumulated amortization........................ (3,133,000) (1,667,000) ----------- ----------- $ 867,000 $ 2,333,000 =========== ===========
79 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 12--LOANS PAYABLE (CONTINUED) At December 31, 1996, total future minimum lease payments under the capital lease were $907,000 and the present value of the minimum lease payments was $867,000. Interest costs for the years ended December 31, 1996, 1995 and 1994 are as follows:
DECEMBER 31, 1996 -------------------------------- THE SANTA OPERATING ANITA REALTY COMPANY COMPANIES ---------- --------- ---------- Interest incurred........................ $3,016,000 $288,000 $3,109,000 Interest capitalized..................... (346,000) -- (346,000) ---------- -------- ---------- Interest expense......................... $2,670,000 $288,000 $2,763,000 ========== ======== ========== Interest paid............................ $3,095,000 $288,000 $3,188,000 ========== ======== ========== DECEMBER 31, 1995 -------------------------------- THE SANTA OPERATING ANITA REALTY COMPANY COMPANIES ---------- --------- ---------- Interest incurred........................ $4,409,000 $401,000 $4,689,000 Interest capitalized..................... (88,000) -- (88,000) ---------- -------- ---------- Interest expense......................... $4,321,000 $401,000 $4,601,000 ========== ======== ========== Interest paid............................ $4,259,000 $401,000 $4,539,000 ========== ======== ==========
At December 31, 1996 and 1995, $195,000 and $121,000, of inter-entity interest was eliminated in The Santa Anita Companies financial statements.
DECEMBER 31, 1994 -------------------------------- THE SANTA OPERATING ANITA REALTY COMPANY COMPANIES ---------- --------- ---------- Interest incurred........................ $6,012,000 $446,000 $6,458,000 Interest capitalized..................... (82,000) -- (82,000) ---------- -------- ---------- Interest expense......................... $5,930,000 $446,000 $6,376,000 ========== ======== ========== Interest paid............................ $6,227,000 $446,000 $6,673,000 ========== ======== ==========
80 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 13--OTHER LIABILITIES Other liabilities as of December 31, 1996 and 1995 consist of the following:
DECEMBER 31, 1996 ---------------------------------- THE SANTA OPERATING ANITA REALTY COMPANY COMPANIES ---------- ----------- ----------- Accrued salaries....................... $ -- $ 923,000 $ 923,000 Deferred compensation.................. 822,000 3,149,000 3,971,000 Accrued interest....................... 104,000 -- 104,000 State license fees..................... -- 1,201,000 1,201,000 Other.................................. 774,000 6,011,000 6,808,000 ---------- ----------- ----------- $1,700,000 $11,284,000 $13,007,000 ========== =========== =========== DECEMBER 31, 1995 ---------------------------------- THE SANTA OPERATING ANITA REALTY COMPANY COMPANIES ---------- ----------- ----------- Accrued salaries....................... $ 146,000 $ 947,000 $ 1,093,000 Deferred compensation.................. 947,000 3,444,000 4,391,000 Accrued interest....................... 279,000 -- 279,000 State license fees..................... -- 1,542,000 1,542,000 Other.................................. 555,000 5,760,000 6,338,000 Unconsolidated joint ventures.......... 852,000 -- 852,000 ---------- ----------- ----------- $2,779,000 $11,693,000 $14,495,000 ========== =========== ===========
NOTE 14--INCOME TAXES As a REIT, Realty is taxed only on undistributed REIT income. During each of the years ended December 31, 1996, 1995 and 1994, Realty distributed at least 95% of its REIT taxable earnings to its shareholders. For the year ended December 31, 1996, 100% of the dividends distributed to shareholders represented a distribution other than ordinary income. Depending on a shareholder's basis, the distribution could have been either a return of capital or a capital gain. For the year ended December 31, 1995, 84.6% of the dividends distributed to shareholders represented ordinary income and 15.4% represented other than ordinary income. For the year ended December 31, 1994, 55.4% of the dividends distributed to shareholders represented other than ordinary income. Pursuant to Internal Revenue Code Section 857(b)(3)(C) and the Regulations thereunder, for the year ended December 31, 1994, Realty designated 44.6% of the dividends distributed as capital gains dividends. 81 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 14--INCOME TAXES (CONTINUED) The composition of Operating Company's income tax provision (benefit) and income taxes paid for the years ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994 -------- ----------- ------- Current provision (benefit) Federal.................................. $(32,000) $ 79,000 $ -- State.................................... (22,000) 247,000 -- -------- ----------- ------- (54,000) 326,000 -- -------- ----------- ------- Deferred provision (benefit) Federal.................................. (64,000) (79,000) -- State.................................... 118,000 (2,247,000) -- -------- ----------- ------- 54,000 (2,326,000) -- -------- ----------- ------- $ -- $(2,000,000) $ -- ======== =========== ======= Income taxes paid.......................... $241,000 $ 3,000 $25,000 ======== =========== =======
Deferred income taxes arise from temporary differences in the recognition of certain items of revenues and expenses for financial statement and tax reporting purposes. The sources of temporary differences and their related tax effect for the years ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994 --------- ----------- -------- Accelerated depreciation and amortization methods utilized for tax reporting purposes..................... $ 675,000 $ (814,000) $(16,000) Reinstatement of deferred taxes due to tax net operating loss carryovers...... (784,000) 1,545,000 100,000 State income tax provision (benefit) deductible when paid for federal income tax purposes........................... -- (2,100,000) (52,000) Deductions previously deducted for book purposes, deductible for tax purposes currently.............................. 435,000 (918,000) (66,000) Income previously included for book purposes, not includable for tax purposes currently..................... (490,000) 11,000 -- Decrease in valuation allowance for deferred tax assets.................... 218,000 (50,000) 24,000 Other, net.............................. -- -- 10,000 --------- ----------- -------- $ 54,000 $(2,326,000) $ -- ========= =========== ========
82 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 14--INCOME TAXES (CONTINUED) A reconciliation of Operating Company's total income tax provision for the years ended December 31, 1996, 1995 and 1994 to the statutory federal corporate income tax rate of 34% and the state rate of 9.3% is as follows:
1996 1995 1994 --------- ----------- ----------- Computed "expected" tax provision.... $(330,000) $ 1,414,000 $(1,316,000) State income taxes, net of federal income taxes........................ -- 247,000 -- Nondeductible political contributions....................... 82,000 47,000 59,000 Decrease (increase) in cash surrender value of life insurance............. -- 3,000 34,000 Establishment (use) of tax net operating loss carryforwards........ 194,000 (1,316,000) 1,236,000 Deferred effect due primarily to benefit from reduction of state accrual............................. -- (2,326,000) -- Other, net........................... 54,000 (69,000) (13,000) --------- ----------- ----------- $ -- $(2,000,000) $ -- ========= =========== ===========
The deferred tax assets and liabilities as of December 31, 1996 and 1995 consist of the following:
1996 1995 ----------- ----------- Deferred tax assets: Compensation deductible for tax purposes when paid......................................... $ 1,465,000 $ 1,764,000 Pension contribution deductible for tax purposes when paid........................... 606,000 490,000 Contribution carryover........................ 160,000 280,000 Other......................................... 51,000 143,000 Federal tax effect of state deferred liabilities.................................. 485,000 444,000 Federal net operating loss carryovers......... 3,145,000 2,211,000 State net operating loss carryovers........... 32,000 129,000 Business reserve.............................. 217,000 -- Valuation allowance........................... (4,336,000) (4,117,000) ----------- ----------- Total deferred assets......................... 1,825,000 1,344,000 ----------- ----------- Deferred tax liabilities: Difference between tax and book depreciation.. (1,452,000) (790,000) Income previously included for book purposes, not includable for tax purposes.............. -- (148,000) State income tax deductible when paid for federal tax purposes......................... (1,655,000) (1,645,000) ----------- ----------- Total deferred tax liabilities................ (3,107,000) (2,583,000) ----------- ----------- Net liability for deferred income taxes......... $(1,282,000) $(1,239,000) =========== ===========
83 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 14--INCOME TAXES (CONTINUED) The Franchise Tax Board audited the 1986 through 1991 tax years of Operating Company. Operating Company protested the proposed assessments. In 1996, the Franchise Tax Board finalized its findings, withdrew the assessments for 1986 through 1988 and determined that there would be no proposed adjustments for the 1989 through 1991 tax years. Accruals relating to these years were reversed in 1995. At December 31, 1996, Operating Company's net operating loss carryforward, for federal income tax purposes, was $9,251,000 of which $3,246,000 expires in 2002, $99,000 in 2003, $41,000 in 2004, $103,000 in 2005, $440,000 in 2006, $3,001,000 in 2007, $1,623,000 in 2009 and $698,000 in 2010. Realty's net operating loss carryforward at December 31, 1996 was $19,033,000 of which $8,736,000 expires in 2009 and $10,297,000 in 2010. NOTE 15--COMMITMENTS AND CONTINGENCIES Realty's owned real estate investments consist of Santa Anita Racetrack, the land underlying Fashion Park, two neighborhood shopping centers, and an office building. The racetrack is leased to LATC; the land underlying Fashion Park has been ground leased for 65 years to Anita Associates; each of the neighborhood shopping centers has been leased to non-anchor tenants with terms ranging from three to five years; and, the office building has been leased with terms generally ranging from two to ten years. The minimum future lease payments to be received from Realty's owned real estate investments (excluding rentals relating to Santa Anita Racetrack which are paid by LATC to Realty) for the five years ended December 31, are as follows: 1997.............................. $3,530,000 1998.............................. 3,264,000 1999.............................. 2,716,000 2000.............................. 1,925,000 2001.............................. 1,582,000
Substantially all of the retail leases provide for additional contingent rentals based upon the gross income of the tenants in excess of stipulated minimums. Realty's share of these contingent rentals totaled $114,000 in 1996, $104,000 in 1995, and $69,000 in 1994. Realty and Operating Company have entered into severance agreements with certain officers and key employees. If there is a "change in control" and under certain circumstances, certain executive officers will be entitled to a lump sum payment equal to 2 1/2 times base pay, calculated as annual base salary plus average bonuses over the preceding three calendar years. In addition, one executive officer and officers and key employees will be entitled to a lump sum payment equal to one times base pay, as calculated above. No provision has been accrued or funded under these agreements. Certain other claims, suits and complaints arising in the ordinary course of business have been filed or are pending against Realty and Operating Company. In the opinion of management, all such matters are adequately covered by insurance or, if not covered, are without merit or are of such kind or involve such amounts as would not have a significant effect on the financial position or results of operations if disposed of unfavorably. 84 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 16--REDEEMABLE PREFERRED STOCK The shares of Series A Redeemable Preferred Stock ("Series A Preferred Stock") are paired in the same manner as the Companies' common stock, and holders thereof are entitled to participate in any dividends paid to the same extent as the holders of common stock. Holders of Series A Preferred Stock will be entitled, except as otherwise required by law, to vote together with the holders of common stock on all matters presented to the holders of the common stock. The affirmative vote of 66 2/3% of the shares of Series A Preferred Stock of Realty or Operating, as the case may be, will be required for Realty or Operating to amend its certificate of incorporation to (i) create or increase the authorized number of shares of any class or series of stock that ranks senior to the Series A Preferred Stock, (ii) amend, alter or repeal its certificate of incorporation or by-laws in a manner that would adversely affect the Series A Preferred Stock or (iii) authorize any reclassification, combination, split or division of any series of stock in a manner that would adversely affect the Series A Preferred Stock. The Series A Preferred Stock of each Company has a liquidation preference of $0.01 per share, plus all unpaid dividends. The holders of the Series A Preferred Stock may require redemption thereof at any time, at a redemption price per paired share equal to the average market price of the common stock for the 30 trading days prior to the date such shares are surrendered for redemption (the "Redemption Price"). In lieu of such redemption, Realty and Operating may, subject to shareholder approval, deliver in exchange shares of common stock on a share-for-share basis. If Realty and Operating fail to obtain shareholder approval of the exchange of the Series A Preferred Stock for common stock, they may deliver promissory notes, due in six months from the date of issue, for any portion of the redemption price in excess of the original purchase price of $12.975 per paired share of Series A Preferred Stock. Such notes will bear interest at a variable rate equal to 2% per annum in excess of the prime commercial lending rate published from time to time in The Wall Street Journal. Realty and Operating may require the exchange of the Series A Preferred Stock at any time for an equal number of shares of common stock, provided that the requisite shareholder approvals have been obtained. After September 4, 1999, paired shares of Series A Preferred Stock will be redeemable at the option of the Companies for cash at a redemption price per paired share equal to the Redemption Price as of the date the Companies call such shares for redemption, plus an amount equal to any unpaid dividends. Realty and Operating Company have excluded the Series A Preferred Stock from shareholders' equity and have reflected the carrying value at December 31, 1996 at a redemption value based on the market value of the Companies paired common shares. The excess of the redemption value over issue price of the Series A Preferred Stock has been treated as a preferred stock dividend and as a charge to retained earnings. The closing price on the New York Stock Exchange of the Companies paired common share was $26.25 on December 31, 1996. NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED BENEFIT PLANS STOCK OPTION PROGRAM During 1995, the shareholders approved the Realty 1995 Share Award Plan and the Operating Company 1995 Share Award Plan. These plans replaced the Realty and Operating Company 1984 stock option plans which expired on May 3, 1995. A maximum of 230,000 shares of common stock may be issued under the Realty 1995 Share Award Plan and a maximum of 780,000 shares of common stock may be issued under the Operating Company 1995 Share Award Plan. For both Realty and Operating Company, the maximum number of options and stock appreciation rights that may be granted to an eligible person during any one-year period shall not exceed 150,000. Under the 1995 Share Award Plans, shares are to be issued either as options, dividend equivalents, stock appreciation rights, restricted stock awards, performance share awards or stock bonuses. At December 31, 1996, under the Realty and Operating Company 1995 Share Award Plans, 191,500 shares and 430,753 shares were available for future grant. 85 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) STOCK OPTION PROGRAM (CONTINUED) Except as may be provided in the award agreement, no award made under the 1995 Share Award Plans shall be exercisable or shall vest for a period of six months after the award date. Each award shall expire on such date as determined by the Compensation Committee of the respective Board of Directors ("Committee"), but in the case of options or other rights to acquire shares of paired common stock, not later than ten years after the award date. The Committee may authorize the deferral of any payment of cash or issuance of shares of paired common stock under the 1995 Share Award Plans at the election and request of a participant. Options granted under the 1995 Share Award Plans and the 1984 stock option plans are contingent upon continuous employment and are exercisable at any time once vested, for up to three years after the date of retirement or death and for up to 90 days after resignation. During 1996, all options granted were under the 1995 Share Award Plans, except as described below. Options outstanding at December 31, 1996 expire in 1997 through 2006. In the event of a "change in control," all Realty and Operating Company options outstanding at December 31, 1996 will become fully vested, except for 200,000 Realty options whose vesting, as described below, is dependent on common stock performance. Effective April 1, 1996, Realty granted 335,756 stock options, at $15.25 per share, under two option award agreements to the new Chief Executive Officer of Realty. One option award agreement granted 200,000 stock options which will become exercisable only in the following circumstances: (i) if the price of a share of paired common stock reaches or exceeds $27.50 for a period of sixty consecutive business days before April 1, 2001; (ii) immediately prior to a reorganization that is consummated before April 1, 2001 in which Realty is not the surviving entity and the shareholders of Realty receive consideration worth at least $27.50 per share of paired common stock; or (iii) immediately prior to a sale by the shareholders that occurs before April 1, 2001 of substantially all of the shares of paired common stock at a price of $27.50 or more per paired common share. These options expire April 1, 2001. The other option award agreement granted 135,756 stock options, of which 50% would have vested on April 1, 1997 and 50% would have vested on April 1, 1998 and were scheduled to expire March 31, 2006. In addition, Realty granted 14,244 stock options, at $15.25 per share, under the 1995 Share Award Plan. Effective August 16, 1996, optionee resigned as Chief Executive Officer of Realty and became Chief Executive Officer of Operating Company. The option award agreement granting 135,756 shares and the 14,244 stock options granted under the 1995 Share Award Plan were surrendered by optionee and were replaced by stock options granted by Operating Company under similar terms and conditions. 86 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) STOCK OPTION PROGRAM (CONTINUED) Information with respect to shares under option as of December 1996, 1995 and 1994 is as follows:
REALTY OPERATING COMPANY ------------------- ------------------- SHARES WEIGHTED SHARES WEIGHTED SUBJECT TO AVERAGE SUBJECT TO AVERAGE OPTION PRICE OPTION PRICE ---------- -------- ---------- -------- Balance, December 31, 1994........ 162,006 $21.06 408,500 $19.68 Granted......................... 43,500 $13.57 78,200 $12.63 Exercised -- -- -- -- Forfeited....................... (21,230) $27.32 (1,500) $17.13 Expired......................... -- -- (13,500) $24.75 -------- ------- Balance, December 31, 1995........ 184,276 $18.57 471,700 $18.38 Granted......................... 360,000 $15.18 150,000 $15.25 Exercised....................... (2,000) $17.13 (89,400) $21.17 Forfeited....................... (194,500) $15.63 (15,500) $15.58 Expired......................... (21,276) $29.00 (18,000) $29.00 -------- ------- Balance, December 31, 1996........ 326,500 $15.91 498,800 $16.64 ======== =======
Information regarding stock options outstanding as of December 31, 1996 is as follows:
REALTY PRICE RANGE OPERATING COMPANY PRICE RANGE -------------------------- --------------------------------- $15.25 $17.13 $12.63 $17.13 $12.63 TO $16.75 TO $20.25 TO $15.25 TO $17.63 $29.00 ------ --------- --------- ---------- ---------- --------- Options Outstanding Number................ 33,500 205,000 88,000 221,600 250,700 26,500 Weighted average exercise price....... $12.63 $15.29 $18.62 $14.40 $17.31 $ 29.00 Weighted average remaining contractual life (years)......... 9.1 9.3 7.4 9.4 7.0 2.9 Options Exercisable Number................ 4,700 1,000 35,200 31,280 192,360 26,500 Weighted average exercise price....... $12.63 $16.75 $18.62 $12.63 $17.34 $ 29.00
At the time of exercise of Realty options, Realty employees also have to buy directly from Operating Company a like number of shares of Operating Company stock at the fair market value per share to pair with Realty shares. In addition, at the time of exercise of Operating Company stock options, Operating Company is required to purchase Realty shares to pair with Operating Company shares being exercised by its employees. Operating Company held 111,500 shares of Realty stock for this purpose at December 31, 1996 and 112,500 shares at December 31, 1995. Pro forma information regarding net income and earnings per share is required by Financial Accounting Standard No. 123 "Accounting and Disclosure of Stock-Based Compensation" ("FAS No. 123") and has been determined as if the Companies' had accounted for their stock options under the fair value method under FAS No. 123. The average fair values of the 1996 and 1995 stock option grants for Realty were $1.88 and $1.93 and 87 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) STOCK OPTION PROGRAM (CONTINUED) for Operating Company were $1.34 and $1.61. The fair value of stock option grants were estimated at the date of grant using the following assumptions:
OPERATING REALTY COMPANY ---------- ---------- 1996 1995 1996 1995 ---- ---- ---- ---- Risk Fee interest rates........................... 6.44% 5.54% 5.68% 5.38% Dividend yields................................... 5.29% 5.89% 5.25% 6.34% Volatility factors of expected market price of common stock..................................... .235 .231 .272 .229 Weighted average expected life (years)............ 5 5 2 5
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that require the input of highly subjective assumptions including the expected stock price volatility. Because the Companies' stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements' option, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. The Realty and Operating Company FAS No. 123 pro forma net income (loss) and related per share amounts for 1996 are as follows:
OPERATING REALTY COMPANY ------------ --------- Net income (loss) applicable to common shares, as reported ........................................ $(11,036,000) $(814,000) Pro forma stock compensation expense.............. 67,000 60,000 ------------ --------- Pro forma net loss applicable to common shares.... $(11,103,000) $(874,000) ============ ========= Pro forma net loss per share...................... $ (.97) $ (.08) ============ =========
The effects of applying FAS No. 123 to the Companies stock-based awards for 1995 results in net income and earnings per share that are not materially different from amounts reported. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The pro forma effect on net income for 1995 and 1996 will not be representative of the effect on the net income for future years since, in accordance with FAS No. 123, options granted prior to 1995 are excluded from the pro forma calculations. Options are generally granted by the companies each year and the pro forma effect on expense in future years is expected to increase as layers of amortization are added for future grants. By 1998 the pro forma calculations will include a full four years of options grants. RESTRICTED STOCK AWARDS Under the 1995 Share Award Plans, Realty and Operating Company granted no shares of common stock as Restricted Stock awards in 1996. During 1995, Realty granted none and Operating Company granted 126,647 shares of common stock as Restricted Stock Awards at a value of $15.50 per paired share. Of the shares issued in 1995, 59,291 shares vested in 1996 and 8,065 shares vested in 1995. Pursuant to a resignation agreement with an Operating Company executive, 43,161 shares will vest if one of the following occurs on or prior to May 17, 1997: (a) death or total disability of the executive or (b) a change in control event as defined in the Restricted 88 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) RESTRICTED STOCK AWARDS (CONTINUED) Stock Agreement. If one of the above does not occur, Operating Company has the right to reacquire the shares for no consideration. If such election is not made by Operating Company, the shares will vest in 1997 through 2001. The remaining 16,130 shares vest in 1997 through 2000 or immediately on a "change in control." RETIREMENT INCOME PLAN Realty and Operating Company have a joint non-contributory defined benefit retirement plan for year-round employees who are at least 21 years of age, have one or more years of service, and are not covered by collective bargaining agreements. Plan assets consist of a group annuity contract with a life insurance company. Plan benefits are based primarily on years of service and qualifying compensation during the final years of employment. Funding requirements comply with federal requirements that are imposed by law. In the event of a "change in control," participants in the defined benefit retirement plan will become fully vested in plan benefits. The net periodic pension cost for Realty and Operating Company for 1996 was $102,000 and $431,000; for 1995 was $59,000 and $325,000; and for 1994 was $85,000 and $390,000. The provisions include amortization of past service cost over 30 years. The present value of accumulated plan benefits (calculated using a rate of return of 7.5%) at December 31, 1996 was $6,620,000 and the plan's net assets available for benefits were $6,176,000. Combined net periodic pension cost for the years ended December 31, 1996, 1995 and 1994 for the retirement income plan included the following components:
1996 1995 1994 --------- --------- --------- Service cost............................. $ 342,000 $ 228,000 $ 278,000 Interest cost on projected benefit obli- gation.................................. 545,000 573,000 569,000 Actual return on plan assets............. (479,000) (342,000) (378,000) Net amortization and deferral............ 125,000 (75,000) 6,000 --------- --------- --------- Net periodic pension cost................ $ 533,000 $ 384,000 $ 475,000 ========= ========= =========
The following table sets forth the funded status of Realty's and Operating Company's retirement income plan and amounts recognized in the balance sheets at December 31, 1996 and 1995.
1996 1995 ----------- ----------- Actuarial present value of accumulated benefit obligations at December 31: Vested........................................ $ 6,451,000 $ 6,818,000 Nonvested..................................... 169,000 412,000 ----------- ----------- 6,620,000 7,230,000 Additional amounts related to projected compen- sation levels.................................. 802,000 824,000 ----------- ----------- Total actuarial projected benefit obligations for service rendered........................... 7,422,000 8,054,000 Plan assets at fair value at December 31........ 6,176,000 5,929,000 ----------- ----------- Projected benefit obligations in excess of plan assets......................................... (1,246,000) (2,125,000) Unrecognized net actuarial loss from difference in actuarial experience from that assumed...... 328,000 1,237,000 Unrecognized prior service cost................. 179,000 197,000 Initial unrecognized transition obligation being recognized over 15 years....................... 303,000 363,000 ----------- ----------- Accrued pension cost............................ $ (436,000) $ (328,000) =========== ===========
89 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) RETIREMENT INCOME PLAN (CONTINUED) Assumptions used in determining the funded status of the retirement income plan are as follows:
1996 1995 1994 ---- ---- ---- Weighted average discount rate............................ 7.5% 7.0% 8.5% Weighted average rate of increase in compensation levels.. 3.5% 3.5% 5.0% Expected long-term rate of return......................... 8.0% 8.5% 8.5%
The measurement date and related assumptions for the funded status of Realty's and Operating Company's retirement income plan were as of the end of the year. DEFERRED COMPENSATION PLAN Realty and Operating Company have defined benefit deferred compensation agreements which provide selected prior management employees with a fixed benefit at retirement age. During 1995, the outstanding agreements for active employees were curtailed and replaced by awards of restricted stock under the 1995 Share Award Plan. Plan benefits are based primarily on years of service and qualifying compensation. The net periodic pension cost for Realty and Operating Company for 1996 was $78,000 and $231,000; for 1995 was $91,000 and $300,000, and for 1994 was $121,000 and $594,000. It is the policy of Realty and Operating Company to fund only amounts sufficient to cover current deferred compensation benefits payable to covered retirees. The present value of accumulated plan benefits (calculated using a rate of 7.5%) at December 31, 1996, was $4,797,000 and Realty's and Operating Company's combined accrued liability was $3,971,000. At December 31, 1996, there were no plan net assets available for benefits. Net periodic pension cost for the years ended December 31, 1996, 1995, and 1994 for the deferred compensation plan included the following components:
1996 1995 1994 -------- -------- -------- Service costs................................. $ -- $ 24,000 $146,000 Interest cost on projected benefit obligation................................... 309,000 365,000 436,000 Amortization of unrecognized net obligation and experience losses........................ -- 2,000 133,000 -------- -------- -------- Net periodic pension cost..................... $309,000 $391,000 $715,000 ======== ======== ========
90 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 17--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED BENEFIT PLANS (CONTINUED) DEFERRED COMPENSATION PLAN (CONTINUED) The following table sets forth the funded status of Realty's and Operating Company's deferred compensation plan and amounts recognized in the balance sheets at December 31, 1996 and 1995:
1996 1995 ----------- ----------- Actuarial present value of accumulated benefit obligations at December 31: Vested...................................... $ 4,797,000 $ 4,817,000 Nonvested................................... -- -- ----------- ----------- 4,797,000 4,817,000 Additional amounts related to projected compensation levels.......................... -- -- ----------- ----------- Total actuarial projected benefit obligations for service rendered......................... 4,797,000 4,817,000 Plan assets at fair value at December 31...... -- -- ----------- ----------- Projected benefit obligations in excess of plan assets.................................. (4,797,000) (4,817,000) Unrecognized net obligation and experience losses....................................... 826,000 426,000 Unrecognized prior service cost............... -- -- ----------- ----------- Accrued pension cost.......................... $(3,971,000) $(4,391,000) =========== ===========
Assumptions used in determining the funded status of the deferred compensation plan are as follows:
1996 1995 1994 ---- ---- ---- Weighted average discount rate............................. 7.5% 7.0% 8.5% Weighted average rate of increase in compensation levels... -- 3.5% 5.0%
The measurement date and related assumptions for the funded status of Realty's and Operating Company's deferred compensation plan were as of the end of the year. NOTE 18--SHAREHOLDER RIGHTS PLAN Under a shareholder rights plan, one right was distributed to shareholders in August 1989 per outstanding share of common stock. Each right entitles the holder to purchase from Realty, initially, one one-hundredth of a share of junior participating preferred stock at a price of $100 per share, subject to adjustment. The rights are attached to all outstanding common shares, and no separate rights certificates have been or will be distributed. The rights are not exercisable or transferable apart from the common stock until the earlier of ten business days following a public announcement that a person or group has acquired beneficial ownership of 10% or more of Realty's general voting power or ten business days following the commencement of, or announcement of the intention to commence, a tender or exchange offer that would result in a person or group beneficially owning 10% or more of Realty's general voting power. Upon the occurrence of certain other events related to changes in the ownership of Realty's outstanding common stock or business combinations involving a holder of more than 10% of Realty's general voting power, each holder of a right would be entitled to purchase shares of Realty's common stock, or an acquiring corporation's common stock, having a market value of two times the exercise price of the right. 91 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 18--SHAREHOLDER RIGHTS PLAN (CONTINUED) During such time as the stock-pairing arrangement between Realty and Operating Company shall remain in effect, Operating Company will issue, on a share-for-share basis, Operating Company common shares, or, as the case may be, Operating Company junior participating preferred shares to each person receiving Realty common shares or preferred shares upon exercise or in exchange for one or more rights. Realty is entitled to redeem the rights in whole, but not in part, at a price of $.001 per right prior to the earlier of the expiration of the rights in August 1999 or the close of business ten days after the announcement that a 10% position has been acquired. NOTE 19--RELATED PARTY TRANSACTIONS LATC leases the racetrack from Realty for the full year for a fee of 1.5% of the on-track wagering on live races at Santa Anita Racetrack, which includes the Oak Tree meet. In addition, LATC pays to Realty 26.5% of its wagering commissions from satellite wagering (not to exceed 1.5% of such wagering). When LATC operates as a satellite for Hollywood Park Racetrack, Del Mar Racetrack and Pomona Fairplex, LATC pays 26.5% of its wagering commissions as additional rent to Realty. LATC has sublet the racetrack to Oak Tree to conduct Oak Tree's annual thoroughbred horse racing meet (27 days in 1996), which commences in late September or early October. Oak Tree normally races five weeks in even-numbered years and six weeks in odd-numbered years. For the years ended December 31, 1996, 1995 and 1994, LATC paid Realty (including charity days) $10,861,000, $11,342,000, and $13,070,000 in rent. The lease arrangement between LATC and Realty requires LATC to assume costs attributable to taxes, maintenance and insurance. The lease between LATC and Realty which was scheduled to expire December 31, 1994, was amended and extended through December 31, 1999. The previous lease terms required LATC to pay rent based upon 1.5% of the aggregate live on-track wagering and 40% of LATC's revenues received from simulcast and satellite wagering on races originating at Santa Anita Racetrack. If the amended lease terms had been in effect for the year ended December 31, 1994, LATC would have paid Realty (including charity days) $11,123,000 in rent. At times Realty and Operating Company have notes receivable outstanding from certain officers and/or directors resulting from their exercise of stock options. Such notes receivable as of December 31, 1996 and 1995, for Realty were none and for Operating Company were none and $61,000. On August 19, 1996, the Companies announced a major transaction with Colony which, pursuant to the terms of an agreement, would have invested in the Companies, over time, a total of $138 million. Thomas J. Barrack, Jr., then a director of the Companies, is the Chief Executive Officer of Colony Capital. Mr. Barrack resigned as a director of the Companies in January 1997. See Item 1. "Business--Recent Developments." 92 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 20--SUPPLEMENTAL CASH FLOW INFORMATION The components of the changes in certain other assets and certain other liabilities included in the operating activities section of the statements of cash flows for each of the three years ended December 31, 1996 are as follows:
YEAR ENDED DECEMBER 31, 1996 --------------------------------- THE OPERATING SANTA ANITA REALTY COMPANY COMPANIES --------- --------- ----------- (Increase) decrease in certain other assets: Accounts receivable.................... $ 568,000 $ 761,000 $1,329,000 Prepaid expenses....................... 134,000 (695,000) (561,000) Other.................................. (656,000) -- (656,000) --------- --------- ---------- $ 46,000 $ 66,000 $ 112,000 ========= ========= ========== Increase (decrease) in certain other liabilities: Accounts payable....................... $(215,000) $ 547,000 $ 332,000 Other liabilities...................... (227,000) (409,000) (636,000) Other.................................. -- (576,000) (576,000) --------- --------- ---------- $(442,000) $(438,000) $ (880,000) ========= ========= ==========
YEAR ENDED DECEMBER 31, 1995 ------------------------------------ THE OPERATING SANTA ANITA REALTY COMPANY COMPANIES ----------- ---------- ----------- (Increase) decrease in certain other assets: Accounts receivable................ $(1,227,000) $ (731,000) $(1,958,000) Prepaid expenses................... 1,140,000 266,000 1,406,000 Other.............................. -- 369,000 369,000 ----------- ---------- ----------- $ (87,000) $ (96,000) $ (183,000) =========== ========== =========== Increase (decrease) in certain other liabilities: Accounts payable................... $ (169,000) $ (12,000) $ (181,000) Other liabilities.................. 124,000 1,102,000 1,226,000 Other.............................. 5,000 (48,000) (43,000) ----------- ---------- ----------- $ (40,000) $1,042,000 $ 1,002,000 =========== ========== ===========
93 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 20--SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
YEAR ENDED DECEMBER 31, 1994 ----------------------------------- THE OPERATING SANTA ANITA REALTY COMPANY COMPANIES ----------- --------- ----------- (Increase) decrease in certain other assets: Accounts receivable................. $ 1,706,000 $800,000 $ 2,506,000 Prepaid expenses.................... (1,678,000) (2,000) (1,680,000) Other............................... 132,000 -- 132,000 ----------- -------- ----------- $ 160,000 $798,000 $ 958,000 =========== ======== =========== Increase (decrease) in certain other liabilities: Accounts payable.................... $ (146,000) $730,000 $ 584,000 Other liabilities................... (1,574,000) 474,000 (1,100,000) Other............................... -- (778,000) (778,000) ----------- -------- ----------- $(1,720,000) $426,000 $(1,294,000) =========== ======== ===========
During 1996, accretion of the redemption value of the redeemable preferred stock resulted in the following non-cash activity.
THE OPERATING SANTA ANITA REALTY COMPANY COMPANIES ------------ --------- ------------ Series A Redeemable Preferred Stock............................ $ 12,021,000 $ 52,000 $ 12,073,000 Retained earnings (deficit)....... (12,021,000) (52,000) (12,073,000)
During 1995, accrual of amounts relating to unconsolidated joint ventures resulted in the following non-cash activity for Realty. Investment in unconsolidated joint ventures.................... $852,000 Other liabilities.............................................. 852,000
During 1994, the disposition by Realty of the multifamily and industrial operations involved the transfer of the following noncash items: Real estate assets.......................................... $98,305,000 Other assets................................................ 475,000 Real estate loans payable................................... 44,290,000 Other liabilities........................................... 302,000
94 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 21--COMBINED QUARTERLY FINANCIAL INFORMATION--UNAUDITED Condensed unaudited combined quarterly results of operations for The Santa Anita Companies are as follows:
NET INCOME NET INCOME (LOSS) (LOSS) PER APPLICABLE TO COMMON QUARTER ENDED REVENUES NET INCOME(LOSS) COMMON SHARES SHARE ------------- ----------- ---------------- ----------------- ---------- 1996 (restated) December 31... $11,753,000 $ (5,902,000) $(13,457,000) $(1.18) September 30.. 8,440,000 (2,044,000) (6,909,000) (.61) June 30....... 16,246,000 479,000 479,000 .04 March 31...... 40,786,000 8,007,000 8,007,000 .71 1995 (restated) December 31... $14,834,000 $ 2,696,000 2,696,000 $ .24 September 30.. 8,833,000 (29,620,000) (29,620,000) (2.63) June 30....... 17,970,000 634,000 634,000 .06 March 31...... 39,569,000 6,708,000 6,708,000 .60 1994 (restated) December 31... $14,141,000 $ (4,254,000) (4,254,000) $ (.38) September 30.. 8,289,000 (1,015,000) (1,015,000) (.09) June 30....... 17,926,000 1,326,000 1,326,000 .12 March 31...... 41,093,000 5,968,000 5,968,000 .54
The net loss applicable to common shares and related per share amount for the 1996 third and fourth quarters have been restated to reflect a portion of the preferred stock dividends in the 1996 third quarter rather than entirely in the 1996 fourth quarter (see "Note 4--Strategic Alliance Transactions" and "Note 16--Redeemable Preferred Stock"). The net income (loss) and related per share amount for the 1996 second, third and fourth quarters have been restated to reflect the losses on the sales of non-core real estate assets in the quarters in which the transactions occurred (see "Note 3--Disposition of Non-Core Real Estate Assets"). The net income (loss) and related per share amount for each of the 1996, 1995 and 1994 quarters have been restated to reflect 50% of the Joppa Associates losses rather than 33 1/3% as had been previously recorded (see "Note 2--Restatement"). The net loss and related per share amount for the 1995 third quarter have been restated to reflect the impairment loss on Joppa Associates in the period in which the investment was impaired (see "Note 2--Restatement" and "Note 9-- Investments in Unconsolidated Joint Ventures"). In April 1997, The Santa Anita Companies filed amendments to their 1996 second and third quarter Joint Quarterly Reports on Form 10-Q to reflect the above restatements. The quarter ended December 31, 1995 includes an extraordinary gain on early retirement of debt of $4,050,000 or $.36 per share. 95 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 21--COMBINED QUARTERLY FINANCIAL INFORMATION--UNAUDITED (CONTINUED) Operating Company records operating revenues associated with thoroughbred horse racing at Santa Anita Racetrack on a daily basis, except season admissions which are recorded ratably over the racing season. Costs and expenses associated with thoroughbred horse racing revenues are charged against income in those interim periods in which the thoroughbred horse racing revenues are recognized. Other costs and expenses are recognized as they actually occur throughout the year. The rental fee paid by Operating Company to Realty is recognized by both Realty and Operating Company as it is earned. The total of the amounts shown as quarterly net income per common share may differ from the amount shown on The Santa Anita Companies statement of operations because the annual computation is made separately and is based upon the average number of shares outstanding for the year. The Santa Anita Companies are subject to significant seasonal variations in revenues and net income (loss) due primarily to the seasonality of thoroughbred horse racing. 96 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS--(CONTINUED) SANTA ANITA REALTY ENTERPRISES, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1996 AND 1995
ADDITIONS ---------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ----------- ----------- ---------- ----------- ----------- 1996: Allowance for loss on disposition of non- core real estate assets: Deducted from commercial properties.......... $27,800,000 $ 2,000,000 $-- $19,009,000 $10,791,000 Deducted from investment in unconsolidated joint ventures............ 5,762,000 -- -- -- 5,762,000 Deducted from real estate loans receivable.......... 2,500,000 -- -- 27,000 2,473,000 ----------- ----------- ---- ----------- ----------- $36,062,000 $ 2,000,000 $-- $19,036,000 $19,026,000 =========== =========== ==== =========== =========== 1995 (restated): Allowance for loss on disposition of non- core real estate assets: Deducted from commercial properties.......... $ -- 27,800,000 -- -- 27,800,000 Deducted from investment in unconsolidated joint ventures............ 5,762,000 -- -- -- 5,762,000 Deducted from real estate loans receivable.......... -- 2,500,000 -- -- 2,500,000 ----------- ----------- ---- ----------- ----------- $ 5,762,000 $30,300,000 $-- $ -- $36,062,000 =========== =========== ==== =========== ===========
97 SANTA ANITA REALTY ENTERPRISES, INC. SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1996
COSTS CAPITALIZED INITIAL COSTS TO COMPANY SUBSEQUENT TO ACQUISITION ------------------------ ------------------------------ BUILDINGS AND DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- ----------- ---------- ------------- ------------ ---------------- INVESTMENTS TO BE HELD Racing Facility: Santa Anita Racetrack(a)......... $ -- $ 549,000 $15,150,000 $ 3,545,000 $ 11,005,000 Office Building: Arcadia, California... 8,691,000 -- 9,122,000 -- 7,604,000 Land: Land underlying Fashion Park Mall, Arcadia, California.. 3,678,000 102,000 -- 244,000 -- ----------- ---------- ----------- ------------ ------------- 12,369,000 651,000 24,272,000 3,789,000 18,609,000 ----------- ---------- ----------- ------------ ------------- INVESTMENTS TO BE SOLD Shopping Centers: Yorba Linda, Califor- nia.................. 3,398,000 2,038,000 6,162,000 -- (1,741,000) Encinitas, Califor- nia.................. 4,160,000 2,842,000 8,954,000 -- (5,154,000) Land: Temecula, California.. 480,000 1,208,000 -- (928,000) -- ----------- ---------- ----------- ------------ ------------- 8,038,000 6,088,000 15,116,000 (928,000) (6,895,000) ----------- ---------- ----------- ------------ ------------- $20,407,000 $6,739,000 $39,388,000 $ 2,861,000 $ 11,714,000 =========== ========== =========== ============ =============
- -------- (a) Initial costs December 31, 1979 book value (b) Component depreciation used
1996 1995 1994 ------------ ------------ ------------- (c)Balance at beginning of period... $ 92,098,000 $117,692,000 $ 223,483,000 Additions--capital expenditures... 2,044,000 3,432,000 2,911,000 Disposals......................... (140,000) (1,226,000) (1,409,000) Allowance for loss on disposition of non-core real estate assets... (2,000,000) (27,800,000) -- Disposition of non-core real es- tate assets...................... (31,300,000) -- -- Disposition of multifamily and in- dustrial operations.............. -- -- (107,293,000) ------------ ------------ ------------- Balance at end of period.......... $ 60,702,000 $ 92,098,000 $ 117,692,000 ============ ============ ============= (d)Balance at beginning of period... $ 42,369,000 $ 39,798,000 $ 45,184,000 Additions--depreciation expense, net of amortization expense...... 1,624,000 3,797,000 3,602,000 Disposals......................... (140,000) (1,226,000) -- Disposition of non-core real es- tate assets...................... (13,689,000) -- -- Disposition of multifamily and in- dustrial operations.............. -- -- (8,988,000) ------------ ------------ ------------- Balance at end of period.......... $ 30,164,000 $ 42,369,000 $ 39,798,000 ============ ============ =============
98
GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF PERIOD - ------------------------------------- LIFE ON WHICH DEPRECIATION IN LATEST INCOME BUILDINGS AND ACCUMULATED DATE OF DATE STATEMENT IS LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED - ---- ------------- ----------- ------------ ------------ -------- --------------- $4,094,000 $26,155,000 $30,249,000 $21,069,000 1934 1934 5-35 Years(b) -- 16,726,000 16,726,000 4,700,000 1986 1987 5-45 Years 346,000 -- 346,000 -- 1934 - ---------- ----------- ----------- ----------- 4,440,000 42,881,000 47,321,000 25,769,000 - ---------- ----------- ----------- ----------- 2,038,000 4,421,000 6,459,000 2,566,000 1985 1985 2,842,000 3,800,000 6,642,000 1,829,000 1985 1985 280,000 -- 280,000 -- 1989 - ---------- ----------- ----------- ----------- 5,160,000 8,221,000 13,381,000 4,395,000 - ---------- ----------- ----------- ----------- $9,600,000 $51,102,000 $60,702,000(c) $30,164,000(d) ========== =========== =========== ===========
99 [LETTERHEAD OF KPMG Peat Marwick LLP] Independent Auditors' Report ---------------------------- To the General Partner Anita Associates: We have audited the accompanying balance sheets of Anita Associates (a California limited partnership) as of December 31, 1996 and 1995, and the related statements of income, partners' deficit and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of Anita Associates' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Anita Associates as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP San Diego, California February 7, 1997 100 ANITA ASSOCIATES ---------------- (a California limited partnership) BALANCE SHEETS --------------
December 31, ----------------------------- ASSETS 1996 1995 ------ ------------- ------------- SHOPPING CENTER PROPERTY (Notes B and D): Land $ 2,703,982 $ 2,703,982 Buildings and improvements 61,000,522 60,302,510 Deferred charges 3,919,049 3,678,022 ------------ ------------ 67,623,553 66,684,514 Less accumulated depreciation and amortization (17,987,437) (15,674,492) ------------ ------------ 49,636,116 51,010,022 CASH AND CASH EQUIVALENTS (Note F) 1,663,372 2,218,502 ACCOUNTS RECEIVABLE less allowance for doubtful accounts of $344,654 (1996) and $339,719 (1995) 22,049 166,879 DEFERRED RENT RECEIVABLE 2,382,383 1,977,913 PREPAID EXPENSES 657,460 612,103 OTHER ASSETS (Note B) 620,377 654,262 ------------ ------------ $ 54,981,757 $ 56,639,681 ============ ============ LIABILITIES AND PARTNERS' DEFICIT --------------------------------- NOTES PAYABLE (Note B) $ 60,381,040 $ 61,195,750 ACCOUNTS PAYABLE TO: TrizecHahn Centers Management Inc. 168,027 36,760 Tenants 585,984 326,408 Others 1,826,001 1,747,081 ------------ ------------ 62,961,052 63,305,999 COMMITMENTS AND CONTINGENCIES (Notes D and F) PARTNERS' DEFICIT (7,979,295) (6,666,318) ------------ ------------ $ 54,981,757 $ 56,639,681 ============ ============
See accompanying notes to financial statements. 101 ANITA ASSOCIATES ---------------- (a California limited partnership) STATEMENTS OF INCOME --------------------
Year ended December 31, ---------------------------------------- 1996 1995 1994 ----------- ----------- ------------ REVENUES: Minimum rent (Note D) $ 8,407,858 $ 7,701,809 $ 6,592,561 Overage rent (Note D) 221,828 149,783 192,454 Recoveries from tenants (Note D) 5,408,794 5,113,622 4,654,608 Other income 1,268,570 524,204 482,452 ----------- ----------- ----------- 15,307,050 13,489,418 11,922,075 ----------- ----------- ----------- EXPENSES (Note F): Operating expenses (Note D) 3,054,784 2,652,904 2,465,047 Payroll and related benefits paid to an affiliate 1,591,969 1,444,816 1,427,973 Office expense 635 27,728 140,591 Management fee paid to an affiliate 356,703 329,474 259,957 Promotion 27,193 67,575 117,310 Professional services 25,383 27,334 53,841 Professional services paid to an affiliate 12,992 15,078 5,941 Ground rent 507,714 505,465 505,465 Bad debt expense 9,983 161,216 139,819 Other expenses 134,525 155,943 114,615 Property taxes 146,088 786,404 414,612 ----------- ----------- ----------- 5,867,969 6,173,937 5,645,171 ----------- ----------- ----------- INCOME FROM OPERATIONS 9,439,081 7,315,481 6,276,904 ----------- ----------- ----------- NON-OPERATING REVENUE: Interest income 245,694 258,980 359,370 ----------- ----------- ----------- NON-OPERATING EXPENSES: Interest expense (Notes B and E) 5,507,198 5,341,999 3,498,533 Depreciation and amortization 2,317,244 2,205,710 1,457,869 Write-off of deferred charges 23,310 710 10,747 ----------- ----------- ----------- 7,847,752 7,548,419 4,967,149 ----------- ----------- ----------- INCOME BEFORE EXTRAORDINARY ITEM 1,837,023 26,042 1,669,125 Extraordinary loss from early extinguishment of debt (Note B) - - (1,477,754) ----------- ----------- ----------- NET INCOME $ 1,837,023 $ 26,042 $ 191,371 =========== =========== ===========
See accompanying notes to financial statements. 102 ANITA ASSOCIATES ---------------- (a California limited partnership) STATEMENTS OF PARTNERS' DEFICIT -------------------------------
Limited General Partner Partner -------------------------------------------- ------------- Hahn - UPI (a limited partnership) Santa Anita ------------------------------------------- Realty TrizecHahn UPI Total General Enterprises, Centers Inc. Associates Partner Inc. Total ------------ ---------- ------------- ------------ ----------- DEFICIT, January 1, 1994 $(1,186,206) $(397,324) $(1,583,530) $(1,579,443) $(3,162,973) Net income 75,936 19,749 95,685 95,686 191,371 Cash contributions 171,926 44,715 216,641 216,641 433,282 Cash distributions (1,567,360) (407,640) (1,975,000) (1,975,000) (3,950,000) ----------- --------- ----------- ----------- ----------- DEFICIT, December 31, 1994 (2,505,704) (740,500) (3,246,204) (3,242,116) (6,488,320) Net income 10,333 2,688 13,021 13,021 26,042 Cash contributions 253,770 66,001 319,771 319,771 639,542 Cash distributions (334,733) (87,058) (421,791) (421,791) (843,582) ----------- --------- ----------- ----------- ----------- DEFICIT, December 31, 1995 (2,576,334) (758,869) (3,335,203) (3,331,115) (6,666,318) Net income 728,922 189,590 918,512 918,511 1,837,023 Cash distributions (1,249,904) (325,096) (1,575,000) (1,575,000) (3,150,000) ----------- --------- ----------- ----------- ----------- DEFICIT, December 31, 1996 $(3,097,316) $(894,375) $(3,991,691) $(3,987,604) $(7,979,295) =========== ========= =========== =========== ===========
See accompanying notes to financial statements. 103 ANITA ASSOCIATES ---------------- (a California limited partnership) STATEMENTS OF CASH FLOWS ------------------------
Year ended December 31, ------------------------------------------- 1996 1995 1994 ------------ ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,837,023 $ 26,042 $ 191,371 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,317,244 2,205,710 1,457,869 Write-off of deferred charges 23,310 710 10,747 Write-off of deferred charges included in extraordinary item - - 113,700 Provision for doubtful accounts receivable 9,983 161,216 139,819 Changes in assets and liabilities: Accounts receivable from: Tenants 134,847 2,783 (224,467) Partners - - 22,356 Deferred rent receivable (404,470) (689,851) (441,197) Prepaid expenses (45,357) (44,798) 308,328 Other assets 33,885 11,042 (639,287) Accounts payable to: TrizecHahn Centers Management Inc. 131,267 (43,373) 20,979 Tenants 259,576 122,974 94,642 Others 78,920 (74,709) 419,972 ----------- ----------- ------------ Net cash provided by operating activities 4,376,228 1,677,746 1,474,832 ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to shopping center property (966,648) (1,153,212) (3,480,713) Additions to property under development - - (7,581,179) Accrued construction cost - - (528,207) ----------- ----------- ------------ Net cash used in investing activities (966,648) (1,153,212) (11,590,099) ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from new debt - - 62,355,000 Payments of notes payable (814,710) (729,636) (25,743,163) Good faith deposit - - 1,247,100 Repayments to partners - (551,787) (21,687,479) Contributions from partners - 639,542 433,282 Distributions to partners (3,150,000) (843,582) (3,950,000) ----------- ----------- ------------ Net cash (used in) provided by financing activities (3,964,710) (1,485,463) 12,654,740 ----------- ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (555,130) (960,929) 2,539,473 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,218,502 3,179,431 639,958 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,663,372 $ 2,218,502 $ 3,179,431 =========== =========== ============
(Continued) See accompanying notes to financial statements. 104 ANITA ASSOCIATES ---------------- (a California limited partnership) STATEMENTS OF CASH FLOWS ------------------------ (Continued) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION ------------------------------------------------
Year ended December 31, -------------------------------- 1996 1995 1994 -------- ---------- ----------- Interest paid on notes payable (net of amounts capitalized) $5,513,350 $5,225,886 $5,112,657 ========== ========== ==========
SUPPLEMENTAL DISCLOSURE RELATED TO NON-CASH INVESTING ACTIVITIES ---------------------------------------------------------------- Upon completion of the development project in 1994, the Partnership transferred $30,924,057 from Property Under Development to Shopping Center Property. At December 31, 1994, $997,233 of tenant improvements were completed but unpaid and are included in Shopping Center Property and Accounts Payable - Others. In addition to the above, the following non-cash activities occurred:
Reduction in Reduction Accumulated Write-off of assets: in Property Amortization - ------------------- ------------------------------ -------------------------- 1996 1995 1994 1996 1995 1994 ------- ------- -------- ------ ------ -------- Deferred charges $27,609 $7,734 $254,792 $4,299 $7,024 $130,345 ======= ====== ======== ====== ====== ========
See accompanying notes to Financial Statements 105 ANITA ASSOCIATES ---------------- (a California limited partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- Years ended December 31, 1996, 1995 and 1994 -------------------------------------------- A. Organization and Accounting Policies: ------------------------------------ Anita Associates (the "Partnership") is a California limited partnership consisting of Hahn-UPI, the general partner, and Santa Anita Realty Enterprises, Inc. (the "Limited Partner"), formed to develop and operate a regional shopping center in Arcadia, California. Hahn-UPI is a limited partnership consisting of TrizecHahn Centers Inc. ("THCI"), the general partner, and UPI Associates ("UPI"), the limited partner. UPI does not have responsibility for, or participation in, any duties, obligations or rights of approval assumed by Hahn-UPI as general partner of Anita Associates. The partnership agreement provides that the Partnership shall continue from year to year until the partners elect to terminate the Partnership. Profits and losses are shared as follows: Hahn-UPI: TrizecHahn Centers Inc. 39.68% UPI Associates 10.32% Santa Anita Realty Enterprises, Inc. 50.00% On November 21, 1996, Ernest W. Hahn, Inc. changed its name to TrizecHahn Centers Inc. Certain reclassifications of prior year amounts have been made in order to conform to the current year presentation. The Partnership's accounting policies are as follows: 1. Shopping center property and property under development are recorded at cost and include direct construction costs, interest, construction loan fees, property taxes and related expenses capitalized during the pre-opening period, as these amounts are expected to be recovered from operations. 2. The costs of shopping center buildings and improvements, less a 5% salvage value, are depreciated using the straight-line method over the estimated useful life of 40 years. 3. Direct costs of obtaining leases and permanent financing are deferred and amortized over the lease and loan periods, respectively. (Continued) 106 ANITA ASSOCIATES ---------------- (a Califiornia limited partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) A. Organization and Accounting Policies (Continued): ------------------------------------------------ 4. Maintenance and repairs are charged to operations as incurred. 5. Expenditures for betterments are capitalized and depreciated over the remaining depreciable life of the property. 6. Lease termination fees received from tenants are recognized as income when received. To the extent payments received from an incoming tenant do not represent future rentals or cost recoveries for tenant improvements, they are recorded as income when received. 7. Taxable income or loss of the Partnership is reported by, and is the responsibility of, the respective partners. Accordingly, the Partner- ship makes no provision for income taxes. 8. The Partnership recognizes scheduled rent increases on a straight-line basis. Accordingly, a deferred rent receivable and deferred payable for rents which are to be received or paid in subsequent years, respectively, are reflected in the accompanying balance sheets. The deferred payable is included in accounts payable to others. 9. The Partnership considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. 10. The Partnership agreement does not designate investment interests in units. Investment interests are calculated on a percentage basis. Accordingly, earnings or losses per unit is not presented in the accompanying financial statements. 11. The Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (Continued) 107 ANITA ASSOCIATES ---------------- (a California limited partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) A. Organization and Accounting Policies (Continued): ------------------------------------------------ 12. The Partnership's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and deferred rent receivable. Management routinely assesses the financial strength of its tenants and as a consequence, believes that its accounts receivable and deferred rent receivable credit risk exposure is limited. The Partnership places its temporary cash investments with high credit quality institutions and cash accounts with federally insured institutions. Cash balances with any one institution may be in excess of federally insured limits. The Partnership has not experienced any losses in such investments or accounts and believes it is not exposed to any significant credit risk. 13. The Partnership adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, on January 1, 1996. This Statement requires that long- lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement had no impact on the Partnership's financial position, results of operations, or liquidity. B. Notes Payable: ------------- The notes payable (collectively "the loan") at December 31, 1996 are payable in monthly payments of $527,338 including interest, with a balloon payment of $51,929,396 due January 2003. The notes, $44,975,555 and $15,405,485, bear interest at 9.0% and 9.25%, respectively, and are secured by a first lien on the leasehold estate and improvements. (Continued) 108 ANITA ASSOCIATES ---------------- (a California limited partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) B. Notes Payable (Continued): ------------------------- Annual principal payments are scheduled as follows:
Year ending December 31, Amount ------------------------ ------------ 1997 $ 891,684 1998 975,935 1999 1,068,145 2000 1,169,069 2001 1,279,532 Thereafter 54,996,675 ----------- $60,381,040 ===========
In connection with the funding of the notes in 1994, the Partnership executed a pledge agreement and deposited $638,933 in a restricted interest bearing account. The deposit balance remained unchanged during 1995. How- ever, under the debt coverage ratio requirements of the Pledge Agreement, the deposit balance was reduced to $594,593 during 1996. These amounts are included in other assets at December 31, 1996 and December 31, 1995. As part of the extinguishment of the existing debt on January 25, 1994, the Partnership was required to pay a prepayment penalty of $1,364,054. This penalty, along with the write-off of unamortized finance costs related to the extinguished debt, was recognized as an extraordinary loss during 1994. C. Fair Value of Financial Instruments: ----------------------------------- Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, requires that the fair values be disclosed for the Partnership's financial instruments. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable are reasonable estimates of their fair values due to the short-term nature of those instruments. The carrying amount of notes payable is a reasonable estimate of fair value based on management's belief that, the interest rates and terms of the notes are comparable to those commercially available to the Partnership in the marketplace for similar instruments. 109 ANITA ASSOCIATES ---------------- (a California limited partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) D. Commitments: ----------- Partnership as Lessor --------------------- The Partnership leases space to tenants in the shopping center for which it charges minimum rents and receives reimbursement for real estate taxes and certain other operating expenses. The terms of the leases vary by tenant and range from 4 to 25 years, and the majority of the leases also provide for additional overage rents during any year in which a tenant's gross sales exceed a stated amount. Future minimum rents to be received under leases in force at December 31, 1996 are as follows:
Year ending December 31, Amount ------------------------ ------------ 1997 $ 8,272,700 1998 7,820,129 1999 7,411,084 2000 6,954,831 2001 6,238,445 Thereafter 19,168,505 ----------- $55,865,694 ===========
Legal ----- The Partnership is, from time to time, involved in various claims and legal actions arising in the ordinary course of business. Although the final outcome of these legal matters cannot be determined, it is management's opinion, based in part on advice of legal counsel, that the final resolution of these matters will not have a material adverse effect on the Partnership's financial position, results of operations, or liquidity. E. Partner Advances: ---------------- In 1994, the Partnership substantially completed a $32,000,000 expansion of the shopping center. The expansion included the addition of a major department store as well as other tenant leasable area. (Continued) 110 ANITA ASSOCIATES ---------------- (a California limited partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) E. Partner Advances (Continued): ---------------------------- The Partners made advances to fund the expansion cost until construction loan funds could be obtained (Note B). Such advances bore interest at 10% per annum, compounded monthly. Advances outstanding at December 31, 1994 were $551,787 and were repaid during 1995. Interest incurred on partner advances was $16,738 and $1,671,528 for the years ended December 31, 1995 and 1994, respectively. Interest costs capitalized as part of the shopping center during 1995 and 1994, totaled $297,392 and $2,189,255, respectively, of which $1,262,587 related to advances from partners for 1994. F. Related-Party Transactions: -------------------------- Operating Costs --------------- THCI and its wholly-owned subsidiary, TrizecHahn Centers Management Inc. ("THCMI"), provide property management, leasing and various legal services to the Partnership. A summary of costs and fees earned by THCI and THCMI during 1996, 1995 and 1994 is presented as follows:
Year ended December 31, ------------------------------------ 1996 1995 1994 ---------- ---------- ---------- Payroll and related benefits $1,591,969 $1,444,816 $1,427,973 Management fee 356,703 329,474 259,957 Development fee - - 68,758 Leasing commissions 295,610 339,398 543,276 Professional services 12,992 15,078 5,941 Legal 30,010 50,544 151,405
(Continued) 111 ANITA ASSOCIATES ---------------- (a California limited partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (Continued) F. Related-Party Transactions (Continued): -------------------------------------- Ground Lease ------------ The shopping center was developed on approximately 70 acres of land leased from the Limited Partner. The leased property consists of four parcels, each covered by a separate ground lease, requiring total annual rentals of $764,746 in 1996 and $762,497 in 1995 and 1994, respectively. Three of the parcels are subleased to major department stores located in the shopping center for aggregate rentals of $257,032 annually. The sublease terms, which commenced with the opening of the shopping center and continue through October 2017 with two ten-year renewal options, are identical to the primary lease. The subleases to the major department stores are assigned to the Limited Partner. The Partnership remains the lessee on the fourth parcel. In 1993, the ground leases were amended and the area of the fourth parcel was increased by an additional 8.2 acres. Under the terms of the Amended Agreement, the monthly rental increased beginning November 1996 from $22,488 to $44,771. Net rental expense amounted to $507,714 in 1996 and $505,465 in 1995 and 1994, respectively. The minimum annual rental payments under the lease, net of sublease rentals, are as follows:
Year ending December 31, Amount ------------------------ ------------ 1997 $ 537,255 1998 537,255 1999 537,255 2000 537,255 2001 537,255 Thereafter 8,489,075 ---------- $11,175,350 ===========
Cash Equivalents ---------------- At December 31, 1996 and 1995, the Partnership had $2,289 and $1,193,598, respectively, invested in thirty day bank credit-enhanced commercial paper issued by an entity in which THCI owns an interest. 112 [LETTERHEAD OF KPMG PEAT MARWICK LLP] Independent Auditors' Report ---------------------------- To the Managing General Partner H-T Associates: We have audited the accompanying consolidated balance sheets of H-T Associates (a Maryland general partnership) and subsidiary (a Maryland general partnership) as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of H-T Associates' management. Our responsi- bility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of H-T Associates and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note G to the consolidated financial statements, the Partnership's subsidiary, Towson Town Center Associates, is in technical default on its notes payable at December 31, 1996. As such, the notes may be callable at the lender's discretion. As Towson Town Center Associates is the primary subsidiary of the Partnership, this technical default raises substantial doubt about the Partnership's ability to continue as a going concern. Management's plan in regard to this matter is also described in Note G to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG Peat Marwick LLP San Diego, California February 10, 1997 113 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) CONSOLIDATED BALANCE SHEETS ---------------------------
December 31, ----------------------------- 1996 1995 ------------ ------------- ASSETS ------ SHOPPING CENTER PROPERTY (Note B): Land $ 11,726,213 $ 11,726,213 Buildings and improvements 178,924,667 178,667,284 Deferred charges 3,091,839 2,961,418 ------------ ------------ 193,742,719 193,354,915 Less accumulated depreciation and amortization (35,255,347) (28,659,166) ------------ ------------ 158,487,372 164,695,749 CASH 947,415 2,284,753 ACCOUNTS RECEIVABLE, less allowance for doubtful accounts of $416,799 (1996) and $447,379 (1995) 667,386 1,122,092 NOTES RECEIVABLE 147,483 171,122 DEFERRED RENT RECEIVABLE 3,646,485 3,493,647 PREPAID EXPENSES 1,317,015 1,350,500 OTHER ASSETS 46,988 49,116 ------------ ------------ $165,260,144 $173,166,979 ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) ------------------------------------------- NOTES PAYABLE (Note B) $164,641,000 $164,641,000 ADVANCES FROM PARTNERS (Note E) TrizecHahn Centers Inc. 5,296,213 4,821,988 Santa Anita Realty Enterprises, Inc. 5,283,273 4,810,292 ACCOUNTS PAYABLE TO: TrizecHahn Centers Management Inc. 162,198 51,243 Tenants 131,344 136,569 Others 1,254,303 1,287,018 ------------ ------------ 176,768,331 175,748,110 COMMITMENTS AND CONTINGENCIES (Note D) MINORITY INTEREST (514,605) 2,168,603 PARTNERS' DEFICIT (10,993,582) (4,749,734) ------------ ------------ $165,260,144 $173,166,979 ============ ============
See accompanying notes to consolidated financial statements. 114 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------
Years ended December 31, ------------------------------------------ 1996 1995 1994 ------------ ------------ ------------ REVENUES: Minimum rent (Note D) $15,068,602 $15,168,774 $14,639,567 Overage rent (Note D) 395,171 418,254 377,726 Recoveries from tenants (Note D) 6,652,608 6,091,553 5,642,854 Other income 1,188,756 1,183,397 730,436 ----------- ----------- ----------- 23,305,137 22,861,978 21,390,583 ----------- ----------- ----------- EXPENSES (Note F): Operating expenses 3,519,905 3,112,414 2,705,665 Payroll and related benefits paid to an affiliate 1,572,852 1,536,176 1,585,083 Property taxes 1,282,354 1,251,686 1,223,371 Office expense - 2,309 273,673 Management fee paid to an affiliate 635,844 670,033 598,697 Promotion 27,842 90,121 153,908 Professional services 46,602 68,900 145,265 Professional services paid to an affiliate 12,803 37,045 9,056 Other expenses 301,367 142,966 179,205 ----------- ----------- ----------- 7,399,569 6,911,650 6,873,923 ----------- ----------- ----------- INCOME FROM OPERATIONS 15,905,568 15,950,328 14,516,660 ----------- ----------- ----------- NON-OPERATING REVENUE: Interest income 225,572 213,404 127,290 ----------- ----------- ----------- NON-OPERATING EXPENSES: Interest expense (Note B) 13,270,908 13,557,828 12,180,198 Interest expense incurred on advances from partners (Note E) 947,206 910,532 684,469 Depreciation and amortization 6,701,496 6,585,518 6,455,406 Write-off of assets 288,586 8,904 26,444 ----------- ----------- ----------- 21,208,196 21,062,782 19,346,517 ----------- ----------- ----------- LOSS BEFORE MINORITY INTEREST (5,077,056) (4,899,050) (4,702,567) MINORITY INTEREST 1,423,208 1,398,353 1,403,391 ----------- ----------- ----------- NET LOSS $(3,653,848) $(3,500,697) $(3,299,176) =========== =========== ===========
See accompanying notes to consolidated financial statements. 115 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) ------------------------------------------------------ Years ended December 31, 1996, 1995 AND 1994 --------------------------------------------
Santa Anita TrizecHahn Realty Centers Inc. Enterprises, Inc. Total ------------ ----------------- ---------- CAPITAL, January 1, 1994 $ 1,918,819 $ 1,918,820 $ 3,837,639 Net loss (1,649,588) (1,649,588) (3,299,176) Cash distributions (243,750) (243,750) (487,500) ----------- ----------- ------------ CAPITAL, December 31, 1994 25,481 25,482 50,963 Net loss (1,750,348) (1,750,349) (3,500,697) Cash distributions (650,000) (650,000) (1,300,000) ----------- ----------- ------------ DEFICIT, December 31, 1995 (2,374,867) (2,374,867) (4,749,734) Net loss (1,826,924) (1,826,924) (3,653,848) Cash distributions (1,295,000) (1,295,000) (2,590,000) ----------- ----------- ------------ DEFICIT, December 31, 1996 $(5,496,791) $(5,496,791) $(10,993,582) =========== =========== ============
See accompanying notes to consolidated financial statements. 116 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
Years ended December 31, ------------------------------------------ 1996 1995 1994 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,653,848) $(3,500,697) $(3,299,176) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 6,701,496 6,585,518 6,455,406 Provision for doubtful accounts receivable 145,871 (13,546) 44,832 Write-off of assets 288,586 8,904 26,444 Interest accrued on partner advances 947,206 910,532 684,469 Minority interest (1,423,208) (1,398,353) (1,403,391) Changes in assets and liabilities: Accounts receivable 308,835 333,760 (714,087) Notes receivable 23,639 23,341 196,098 Deferred rent receivable (152,838) (437,474) (513,292) Prepaid expenses 33,485 (147,071) 160,870 Other assets 2,128 (4,707) (11,045) Accounts payable to: TrizecHahn Centers Management Inc. 110,955 (40,451) (28,153) Tenants (5,225) (5,338) 59,228 Others (182,715) 334,529 (93,302) ----------- ----------- ----------- Net cash provided by operating activities 3,144,367 2,648,947 1,564,901 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to shopping center property (631,705) (1,270,471) (871,192) Decrease in construction costs receivable from tenants - 64,714 25,892 ----------- ----------- ----------- Net cash used in investing activities (631,705) (1,205,757) (845,300) ----------- ----------- -----------
(Continued) See accompanying notes to consolidated financial statements. 117 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Continued)
Years ended December 31, ------------------------------------------------------ 1996 1995 1994 --------------- --------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to minority interest $(1,260,000) $ (700,000) $ (262,500) Distributions to partners (2,590,000) (1,300,000) (487,500) ----------- ----------- ----------- Net cash used in financing activities (3,850,000) (2,000,000) (750,000) ----------- ----------- ----------- NET DECREASE IN CASH (1,337,338) (556,810) (30,399) CASH, BEGINNING OF YEAR 2,284,753 2,841,563 2,871,962 ----------- ----------- ----------- CASH, END OF YEAR $ 947,415 $ 2,284,753 $ 2,841,563 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION ------------------------------------------------ Interest paid $13,316,375 $13,681,570 $12,244,079 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES -------------------------------------------------------- During 1996 and 1995, the following non-cash activity occurred: Additions to shopping center property: 1996 1995 - ------------------------------------- ----------- ------------ Buildings and improvements $150,000 $75,000 Increase in accounts payable to others 150,000 75,000 -------- ------- $ - $ - ======== ======= Accumulated Depreciation Reduction and Write-off of assets: in Property Amortization - ------------------- ---------------------------- ---------------------------- 1996 1995 1994 1996 1995 1994 --------- -------- -------- -------- -------- -------- Buildings and improvements $191,475 $ - $18,296 $ 67,835 $ - $18,296 Deferred charges 202,426 9,540 28,650 37,480 636 2,206 -------- ------ ------- -------- ---- ------- Total $393,901 $9,540 $46,946 $105,315 $636 $20,502 ======== ====== ======= ======== ==== =======
See accompanying notes to consolidated financial statements. 118 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Years ended December 31, 1996, 1995 AND 1994 -------------------------------------------- A. Organization and Accounting Policies: ------------------------------------ H-T Associates (the "Partnership") is a Maryland general partnership formed on July 28, 1987. Its primary asset is a 65% ownership in Towson Town Center Associates ("TTCA"), formed to develop and operate a regional shopping center near Baltimore, Maryland. The general partners of the Partnership are TrizecHahn Centers Inc. and Santa Anita Realty Enterprises, Inc. The Partnership is to continue until December 31, 2087, unless terminated earlier. Profits, losses and distributions are shared as follows: TrizecHahn Centers Inc. ("THCI") 50% Santa Anita Realty Enterprises, Inc. ("Santa Anita") 50% On November 21, 1996, Ernest W. Hahn, Inc. changed its name to TrizecHahn Centers Inc. The consolidated financial statements of the Partnership include the accounts of the Partnership and TTCA. TTCA is a Maryland general partnership comprised of the Partnership and DeChiaro Associates ("DeChiaro") as 65% and 35% general partners, respectively. DeChiaro's interest is recorded as minority interest in the accompanying consolidated financial statements. All significant intercompany balances and transactions have been eliminated. Certain reclassifications of prior year amounts have been made in order to conform to the current year presentation. The Partnership's accounting policies are as follows: 1. Shopping center property is recorded at cost and includes direct construction costs, interest, construction loan fees, property taxes and related costs capitalized during the construction period, as these amounts are expected to be recovered from operations. 2. The costs of shopping center buildings and improvements, less a 5% salvage value, are depreciated using the straight-line method over the estimated useful life of 40 years. 3. Direct costs of obtaining leases and permanent financing are deferred and amortized over the lease and loan periods, respectively. 4. Maintenance and repairs are charged to operations as incurred. (Continued) 119 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) A. Organization and Accounting Policies (Continued): ------------------------------------------------ 5. Expenditures for betterments are capitalized and depreciated over the remaining depreciable life of the property. 6. Lease termination fees received from tenants are recognized as income when received. To the extent payments received from an incoming tenant do not represent future rentals or cost recoveries for tenant improvements, they are recorded as income when received. 7. Taxable income or loss of the Partnership is reported by, and is the responsibility of, the respective partners. Accordingly, the Partnership makes no provision for income taxes. 8. The Partnership recognizes scheduled rent increases on a straight-line basis. Accordingly, a deferred rent receivable for rents which are to be received in subsequent years is reflected in the accompanying consolidated balance sheets. 9. The differential to be paid or received under interest rate swap agreements is accrued as interest rates change, and is recognized over the life of the agreements (Note B). 10. The Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 11. The Partnership agreement does not designate investment interests in units. Investment interests are calculated on a percentage basis. Accordingly, earnings or losses per unit is not presented in the accompanying consolidated financial statements. 12. The Partnership's financial instruments that are exposed to concentrations of credit risk consist primarily of cash, accounts receivable and deferred rent receivable. Management routinely assesses the financial strength of its tenants and as a consequence, believes that its accounts receivable and deferred rent receivable credit risk exposure is limited. The Partnership places its temporary cash investments with high credit quality institutions and cash accounts with federally insured institutions. Cash balances with any one institution may be in excess of federally insured limits. The Partnership has not experienced any losses in such investments or accounts and believes it is not exposed to any significant credit risk. (Continued) 120 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) A. Organization and Accounting Policies (Continued): ------------------------------------------------ 13. The Partnership adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement had no impact on the Partnership's financial position, results of operations, or liquidity. B. Notes Payable: ------------- In 1990, TTCA entered into a building loan agreement with a commercial bank, secured by an indemnity deed of trust encumbering the property. TTCA can borrow up to $170,000,000. The agreement provides that TTCA can: (1) obtain funds at the then current prime rate of the commercial bank; (2) obtain funds based on the then current London Interbank Offered Rate ("LIBOR") plus a spread (as defined); or, (3) obtain funds through the issuance of commercial paper at rates based upon the interest rates offered in the commercial paper market, plus letter of credit fees. For the years ended December 31, 1996 and 1995 all funds were obtained under the commercial paper option for a total outstanding balance of $164,641,000. Interest is payable monthly and the note balance is due June 3, 1999. The variable interest rate in effect on the outstanding balance as of December 31, 1996 and 1995 was 5.6% and 6.0%, respectively. TTCA has also entered into interest rate swap agreements to reduce the impact of changes in interest rates on its loan (Note C). As of December 31, 1996 and 1995, TTCA had two interest rate swap agreements outstanding with a commercial bank which have a total notional principal amount of $82,000,000. The agreements provide for TTCA to pay fixed rates of interest of 9.3% and 8.8% on swaps of $45,000,000 and $37,000,000, respectively, and to receive floating interest based on 30-day commercial paper rates. The floating rate of interest in effect on the swap agreements as of December 31, 1996 was 5.6%. The interest rate swap agreements mature at the time the building loan matures. TTCA is exposed to credit loss in the event of non-performance by the commercial bank with respect to the interest rate swap agreements. (Continued) 121 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) B. Notes Payable (Continued): ------------------------- The net effective interest rate on amounts outstanding under the building loan agreement at December 31, 1996, 1995 and 1994, after giving effect to the interest rate swaps, was 7.9%, 8.2% and 7.4%, respectively. The differential between the amounts paid and received under the interest rate contract is included as either an addition to, or a reduction in, interest incurred. Total interest incurred was $13,270,907, $13,557,828 and $12,180,199, for the years ended December 31, 1996, 1995 and 1994, respectively. In connection with the loan, THCI and Santa Anita each executed a repayment guaranty of $66,135,000 and DeChiaro executed a limited repayment guaranty of $4,513,000. The repayment guaranties contain covenants which, among other matters, require the guarantors to maintain certain minimum levels of net worth (Note G). In addition, the building loan agreement also provides for a combined net worth of Santa Anita and THCI. The combined net worth requirement was met at December 31, 1996 and 1995. C. Fair Value of Financial Instruments: ------------------------------------ Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, requires that the fair values be disclosed for the Partnerships' financial instruments. The carrying amount of cash, accounts receivable, and accounts payable are reasonable estimates of their fair values due to the short-term nature of those instruments. The carrying amount of the notes receivable is a reasonable estimate of fair value based on management's belief that the interest rates on which the notes bear interest is not materially different than interest rates that would be used on loans to tenants with similar credit ratings. The carrying amount of the notes payable is a reasonable estimate of fair value based on management's belief that the interest rates and terms of the notes payable are comparable to those commercially available to the Partnership in the marketplace for similar instruments. Management has determined that it is not practicable to estimate the fair value of the advances from partners (Note E) due to the related-party relationship, as well as the difficulty of evaluating the timing of payments. The fair value of interest rate swaps (used for hedging purposes) is the estimated amount that the Partnership would pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current credit worthiness of the swap counterparties. The fair value of the interest rate swaps as of December 31, 1996 is a net payable of approximately $5,500,000. 122 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) D. Commitments and Contingencies: ----------------------------- Partnership as Lessor --------------------- TTCA leases space to tenants in the shopping center for which it charges minimum rents and receives reimbursement for real estate taxes and certain other operating expenses. The terms of the leases vary with the tenants and the majority of the leases also provide for overage rents during any year in which a tenant's gross sales exceed a stated amount. Future minimum rents to be received under leases in force at December 31, 1996 are as follows:
Year ending December 31 Amount ----------------------- ------------ 1997 $ 14,987,588 1998 15,257,415 1999 15,192,251 2000 14,918,996 2001 14,244,864 Thereafter 30,483,577 ------------ $105,084,691 ============
Legal ----- The Partnership is, from time to time, involved in various claims and legal actions arising in the ordinary course of business. Although the final outcome of these legal matters cannot be determined, it is management's opinion, based in part upon advice of legal counsel, that the final resolution of these matters will not have a material adverse effect on the Partnership's financial position, results of operations, or liquidity. E. Advances from Partners: ---------------------- THCI and Santa Anita have both made advances to the Partnership to finance certain construction funding requirements and other cash flow needs. These advances bear interest at 1% above the prime rate and are required to be repaid prior to any distributions to the partners. Interest incurred on the advances totaled $947,206, $910,532 and $684,469 for the years ended December 31, 1996, 1995 and 1994, respectively. The prime rate was 8.25%, 8.8% and 8.5% at December 31, 1996, 1995 and 1994, respectively. 123 H-T ASSOCIATES -------------- (a Maryland general partnership) AND SUBSIDIARY -------------- (a Maryland general partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) F. Related-Party Transactions: -------------------------- TTCA Property Management ------------------------ THCI and its wholly-owned subsidiary, TrizecHahn Centers Management Inc. ("THCMI"), provide property management, leasing and various legal services to TTCA. A summary of costs and fees earned by THCI and THCMI through TTCA during 1996, 1995, and 1994 is presented below:
Years ended December 31, ------------------------------------ 1996 1995 1994 ---------- ---------- ---------- Payroll and related benefits $1,572,852 $1,536,176 $1,585,083 Management fee 635,844 670,033 598,697 Professional services 12,803 37,045 9,056 Leasing commissions 311,088 416,174 484,074 Legal 42,550 53,628 71,745
Related Property ---------------- Certain property adjacent to TTCA's regional shopping center is owned by Joppa Associates ("Joppa"). At December 31, 1995, the partners of TTCA were also the partners of Joppa. In November 1996, DeChiaro assigned its interest in Joppa to THCI and Santa Anita in equal shares. TTCA has benefited from Joppa's ownership of the adjacent property. G. Loan Repayment Guaranty: ----------------------- As discussed in Note B, each TTCA partner's repayment guaranty agreement contains a restrictive covenant requiring the guarantor to maintain a certain minimum level of net worth. Santa Anita has failed to meet this covenant requirement under the repayment guaranty. As the guaranty agreements are considered to be an integral part of the lending documents, TTCA is in technical default on the notes payable. Consequently, the notes payable may be callable at the lender's discretion. TTCA's management believes that uncertainty exists as to whether the lender would be successful in enforcing its right to call the notes due to ambiguities within the loan documents. In the event that the lender was successful in enforcing its right, there would be substantial doubt about the ability of the Partnership to continue as a going concern. THCI is pursuing the purchase of Santa Anita's partnership interest which, if consummated, would remove the effect of Santa Anita's covenant requirement from the lending agreement. 124 EXHIBIT INDEX
EXHIBIT DOCUMENT DESCRIPTION NUMBER -------------------- ------- 2.1 Form of Amended and Restated Formation Agreement dated as of October 24, 1996 among Santa Anita Realty Enterprises, Inc., Santa Anita Operating Company and Colony Investors II, L.P. (incorporated by reference to Exhibit 2 of the Current Report on Form 8-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company, dated October 24, 1996). 2.2 First Amendment to Amended and Restated Formation Agreement, dated as of January 7, 1997 among Santa Anita Realty Enterprises, Inc., Santa Anita Operating Company and Colony Investors II, L.P. (incorporated by reference to Exhibit 2 of the Current Report on Form 8-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company, dated January 7, 1997). 3.1 Certificate of Incorporation of Santa Anita Realty Enterprises, Inc., as amended through October 1993 (incorporated by reference to Exhibit 3.1 to the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1993). 3.2 Certificate of Incorporation of Santa Anita Operating Company, as amended through October 1993 (incorporated by reference to Exhibit 3.2 to the Joint Annual Report on Form 10-K of Santa Anita realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1993). 3.3 By-laws of Santa Anita Realty Enterprises, Inc., as amended through January 15, 1997. 3.4 By-laws of Santa Anita Operating Company, as amended through January 15, 1997. 4.1 Pairing Agreement by and between Santa Anita Realty Enterprises, Inc. and Santa Anita Operating company, dated as of December 20, 1979 (incorporated by reference to Exhibit 5 to Registration Statement on Form 8-A of Santa Anita Operating Company filed February 5, 1980). 4.2 Rights Agreement, dated June 15, 1989, among Santa Anita Realty Enterprises, Inc., Santa Anita Operating Company, and Union Bank, as Rights Agent (incorporated by reference to Exhibit 2.1 to Registration Statement on Form 8-A of Santa Anita Realty Enterprises, Inc. filed June 19, 1989). 4.3 Credit Agreement dated as of November 9, 1994 between First Interstate Bank of California and Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit 10.4 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended September 30, 1994). 4.4 First Amendment dated as of May 31, 1995, to Credit Agreement dated as of November 9, 1994 between First Interstate Bank of California and Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit 4.4 of the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1995). 4.5 Second Amendment dated as of January 26, 1996, to Credit Agreement dated as of November 9, 1994 between First Interstate Bank of California and Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit 4.5 of the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1995). 4.6 Third Amendment dated as of July 1, 1996, to Credit Agreement dated as of November 9, 1994 between First Interstate Bank of California and Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit 4.1 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended June 3, 1996).
125
EXHIBIT DOCUMENT DESCRIPTION NUMBER -------------------- ------- 4.7 Letter Agreement dated February 1, 1997, extending the maturity date of the Credit Agreement dated as of November 9, 1994 between First Interstate Bank of California and Santa Anita Realty Enterprises, Inc. 4.8 Letter Agreement dated April 1, 1997, extending the maturity date of the Credit Agreement dated as of November 9, 1994 between First Interstate Bank of California and Santa Anita Realty Enterprises, Inc. 4.9 Certificate of Designations of Series A Redeemable Preferred Stock of Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit N to Exhibit 2 of the Current Report of Form 8-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company, dated October 24, 1996). 4.10 Certificate of Designations of Series A Redeemable Preferred Stock of Santa Anita Operating Company (incorporated by reference to Exhibit O to Exhibit 2 of the Current Report on Form 8-K of Santa Anita Realty Enterprises, Inc. and Santa Operating Company, dated October 24, 1996). Each other outstanding long-term indebtedness of Santa Anita Realty Enterprises, Inc. and each outstanding long-term indebtedness of Santa Anita Operating Company and its subsidiaries does not exceed 10% of the total assets of Santa Anita Realty Enterprises, Inc. or Santa Anita Operating Company and its subsidiaries on a consolidated basis, as the case may be. Each such company agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request. 10.1 Anita Associates Articles of Limited Partnership dated as of April 6, 1972 (incorporated by reference to Exhibit 6(c) to Registration Statement No. 2-65894). 10.2 First Amendment to Articles of Limited Partnership of Anita Associates, dated December 26, 1979 (incorporated by reference to Exhibit 10.13 to Registration Statement No. 2-72866). 10.3 Form of Salary Reduction and Deferral Agreement of certain officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company (incorporated by reference to Exhibit 10.4 to Registration Statement No. 33-27011). 10.4 Ground lease between Santa Anita Realty Enterprises, Inc. and Anita Associates, dated as of April 6, 1972 (incorporated by reference to Exhibit 10.5 to Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1992). 10.5 Second Amendment to ground lease between Santa Anita Realty Enterprises, Inc. and Anita Associates dated of December 29, 1993 (incorporated by reference to Exhibit 10.6 the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1993). 10.6 Amended and Restated Lease, dated as of November 9, 1994, by and between Santa Anita Realty Enterprises, Inc. and Los Angeles Turf Club, Incorporated (incorporated by reference to Exhibit 10.3 to the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended September 30, 1994). 10.7 Santa Anita Realty Enterprises, Inc. 1984 Stock Option Plan (as amended and restated September 22, 1998) (incorporated by reference to Exhibit 4.2 to Registration Statement No. 2-95228). 10.8 Amendment 1993-1 to Santa Anita Realty Enterprises, Inc. 1984 Stock Option Program (incorporated by reference to Exhibit 10.11 to the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1993). 10.9 Santa Anita Operating Company 1984 Stock Option Program (as amended and restated September 22, 1988) (incorporated by reference to Exhibit 4.3 to Registration Statement No. 2-95228).
126
EXHIBIT DOCUMENT DESCRIPTION NUMBER -------------------- ------- 10.10 Amendment 1993-1 to Santa Anita Operating Company 1984 Stock Option Program (incorporated by reference to Exhibit 4.3 to Registration Statement on Form No. S-8 No. 33-51843). 10.11 Limited Partnership Agreement, dated as of March 16, 1988, among Southern California Off Track Wagering Incorporated and the limited partners listed therein (incorporated by reference to Exhibit 10.17 to Registration Statement No. 33-27011). 10.12 Amended and Restated Partnership Agreement of H-T Associates, dated as of July 28, 1987, between Ernest W. Hahn, Inc. and Santa Anita Realty Enterprises, Inc. (incorporated by reference to Exhibit 10.18 to Registration Statement No. 33-27011). 10.13 Amended and Restated Partnership Agreement of Joppa Associates, dated as of April 14, 1988, between Ernest W. Hahn, Inc., Santa Anita Realty Enterprises, Inc. and DeChiaro Associates, a Maryland general partnership (incorporated by reference to Exhibit 10.19 to Registration Statement No. 33-27011). 10.14 Amendment dated November 1, 1989, to Partnership Agreement of H-T Associates (incorporated by reference to Exhibit 10.21 of the Joint Annual report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating company for the year ended December 31, 1989). 10.15 Partnership Agreement of French Valley Ventures dated November 1989, between Santa Anita Realty Enterprises, Inc. and William J. Rousey, Jr. (incorporated by reference to Exhibit 10.23 to the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company of the year ended December 31, 1989). 10.16 Indenture of Lease by and between Los Angeles Turf Club, Incorporated and Oak Tree Racing Association, dated as of January 1, 1990 (incorporated by reference to Exhibit 10.21 to the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1990). 10.17 Form of Severance Agreement of certain officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company (incorporated by reference to exhibit 10.22 to the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1992). 10.18 Schedule of omitted documents and difference in material details regarding Severance Agreements of certain officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company. 10.19 Purchase and Sale Agreement, dated as of November 15, 1993, between Santa Anita Realty Enterprises, Inc. and Pacific Gulf Properties Inc. (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K of Santa Anita Realty Enterprises, Inc., dated February 18, 1994). 10.20 Closing Agreement dated as of October 1, 1994, by and between Santa Anita Realty Enterprises, Inc. and Pacific Gulf Properties Inc. (incorporated by reference to Exhibit 10.2 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended September 30, 1994). 10.21 Employment Agreement between Santa Anita Operating Company, Los Angeles Turf Club, Incorporated and Clifford C. Goodrich dated as of January 1, 1994 (incorporated by reference to Exhibit 10.1 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended June 30, 1994). 10.22 Employment Agreement between Santa Anita Realty Enterprises, Inc. and Brian L. Fleming dated as of May 9, 1994 (incorporated by reference to Exhibit 10.4 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended June 30, 1994).
127
EXHIBIT DOCUMENT DESCRIPTION NUMBER -------------------- ------- 10.23 Santa Anita Realty Enterprises, Inc. 1995 Share Award Plan (incorporated by reference to Exhibit 10.28 of the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1994). 10.24 Santa Anita Operating Company 1995 Share Award Plan (incorporated by reference to Exhibit 10.29 of the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1994). 10.25 Exchange Agreement between Santa Anita Operating Company and Stephen F. Keller, dated as of December 15, 1994 (without appendix), as amended by Amendment I to the Exchange Agreement , dated as of December 15, 1994, among Santa Anita Operating Company, Stephen F. Keller and the Keller Family trust (with appendix) (incorporated by reference to Exhibit 10.30 of the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1994). 10.26 Exchange Agreement between Santa Anita Operating Company and Clifford C. Goodrich, dated as of December 15, 1994 (with appendix) (incorporated by reference to Exhibit 10.31 of the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1994). 10.27 Form of Indemnity Agreement between Santa Anita Operating Company and its directors and officers and schedule of omitted documents relating thereto (incorporated by reference to Exhibit 10.2 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended March 31, 1995). 10.28 Form of Indemnity Agreement between Santa Anita Realty Enterprises, Inc. and its directors and officers and schedule of omitted documents relating thereto (incorporated by reference to Exhibit 10.3 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended March 31, 1995). 10.29 Form of Consulting Agreement between Santa Anita Operating Company and its directors and schedule of omitted documents relating thereto (incorporated by reference to Exhibit 10.4 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended March 31, 1995). 10.30 Form of Consulting Agreement between Santa Anita Realty Enterprises, Inc. and its directors and schedule of omitted documents relating thereto (incorporated by reference to Exhibit 10.5 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended March 31, 1995). 10.31 Restricted Stock Agreement dated as of April 1, 1995 between Santa Anita Operating Company, Stephen F. Keller and the Keller Family Trust (incorporated by reference to Exhibit 10.6 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended March 31, 1995). 10.32 Restricted Stock Agreement dated as of April 1, 1995 between Santa Anita Operating Company and Clifford C. Goodrich (incorporated by reference to Exhibit 10.7 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended March 31, 1995).
128
EXHIBIT DOCUMENT DESCRIPTION NUMBER -------------------- ------- 10.33 Repayment Guaranty dated as of May 18, 1990 between Santa Anita Realty Enterprises, Inc. and The Mitsubishi Bank, Limited (incorporated by reference to Exhibit 10.39 of the Joint Annual Report on Form 10-K of Santa Anita Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1995). 10.34 First Amendment dated as of August 10, 1993 to Repayment Guaranty dated as of May 18, 1990 between Santa Anita Realty Enterprises, Inc. and The Mitsubishi Bank, Limited (incorporated by referenced to Exhibit 10.40 of the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1995). 10.35 Unconditional Guaranty of Payment dated as of December 31, 1992 between Santa Anita Realty Enterprises, Inc. and Bank of America National Trust and Savings Association (incorporated by referenced to Exhibit 10.41 of the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1995). 10.36 Employment Agreement between Santa Anita Realty Enterprises, Inc. and William C. Baker dated as of April 1, 1996 (incorporated by reference to Exhibit 10.3 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended March 31, 1996). 10.37 Nonstatutory Stock Option Agreement between Santa Anita Realty Enterprises, Inc. and William C. Baker dated as of April 1, 1996 awarding an option for 200,000 shares (incorporated by reference to the appendix to the revised definitive Joint Proxy Statement of Santa Anita Operating Company and Santa Anita Realty Enterprises, Inc. dated April 8, 1996). 10.38 Amendment No. 1 to Employment Agreement between Santa Anita Realty Enterprises, Inc. and Brian L. Fleming as of May 7, 1996 (incorporated by reference to Exhibit 10.3 of the Joint Quarterly Report on Form 10- Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended June 30, 1996). 10.39 Resignation and General Release Agreement dated August 16, 1996 between Santa Anita Operating Company and Stephen F. Keller (incorporated by reference to Exhibit 10.1 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended September 30, 1996). 10.40 Resignation and General Release Agreement dated August 16, 1996 between Santa Anita Realty Enterprises, Inc. and Sherwood C. Chillingworth (incorporated by reference to Exhibit 10.2 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended September 30, 1996). 10.41 Resignation and General Release Agreement dated August 30, 1996 between Santa Anita Operating Company, Santa Anita Realty Enterprises, Inc. and Richard D. Brumbaugh (incorporated by reference to Exhibit 10.3 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended September 30, 1996). 10.42 Agreement to Terminate Employment Agreement and Severance Agreement dated as of August 16, 1996 between Santa Anita Realty Enterprises, Inc. and William C. Baker (incorporated by reference to Exhibit 10.4 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended September 30, 1996).
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EXHIBIT DOCUMENT DESCRIPTION NUMBER -------------------- ------- 10.43 Employment Agreement dated as of August 16, 1996 between Santa Anita Operating Company and William C. Baker (incorporated by reference to Exhibit 10.5 of the Joint Quarterly Report on Form 10-Q of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the quarter ended September 30, 1996). 10.44 Form of Retention Agreement of certain officers and employees of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company and schedule of omitted documents relating thereto. 10.45 Resignation and General Release Agreement dated December 13, 1996 between Santa Anita Operating Company and Michael J. Manning. 21 Subsidiaries of Santa Anita Operating Company (incorporated by reference to Exhibit 22 to the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1992). 23.1 Consent of Ernst & Young LLP (to be incorporated by reference into the Prospectus contained in Registration Statement No. 2-95228, the Prospectus contained in Registration Statement No. 33-51843 and the Prospectus contained in Registration Statement No. 33-58995). 23.2 Consent of KPMG Peat Marwick LLP (to be incorporated by reference into the Prospectus contained in Registration Statement No. 2-95228, the Prospectus contained in Registration Statement No. 33-51843 and the Prospectus contained in Registration Statement No. 33-58995). 23.3 Consent of KPMG Peat Marwick LLP (to be incorporated by reference into the Prospectus contained in Registration Statement No. 2-95228, the Prospectus contained in Registration Statement No. 33-51843 and the Prospectus contained in Registration Statement No. 33-58995). 27(a) Financial Data Schedule for Santa Anita Realty Enterprises, Inc. 27(b) Financial Data Schedule for Santa Anita Operating Company.
130 EX-3.3 2 BYLAWS OF SANTA ANITA REALTY EXHIBIT 3.3 REVISED 1/15/97 --------------- BY-LAWS OF SANTA ANITA REALTY ENTERPRISES, INC. (a Delaware corporation) ARTICLE I Offices Section 1.1. Registered Office. The registered office shall be in ----------------- the City of Wilmington, County of New Castle, State of Delaware. Section 1.2. Other Offices. The Corporation may also have offices at ------------- such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II Business Purpose and Investment Policy Section 2.1. Corporation Taxed as Real Estate Investment Trust. The ------------------------------------------------- Corporation shall conduct its business in such a manner as to be qualified to be taxed as a real estate investment trust under Sections 856-858 of the Internal Revenue Code of 1954, as heretofore or hereafter amended. Section 2.2. Investment Policy. It is the general purpose of the ----------------- Corporation that the assets of the Corporation be invested principally in real property and interests in real estate. ARTICLE III Meetings of Stockholders Section 3.1. Place. All meetings of the stockholders for the ----- election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time or place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. 2 Section 3.2. Annual Meetings. The annual meetings of stockholders --------------- shall be held on the third Thursday in May of each year at 10 o'clock A.M. of said day, the first such meeting to be held on the third Thursday in May 1981; provided, however, that should said day fall upon a legal holiday, then any such annual meeting of stockholders shall be held at the same time and place on the next day thereafter ensuing which is a full business day. At such meetings directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted which is within the powers of the stockholders. If for any annual meeting the Board of Directors shall fix a different day or hour, such action shall be deemed an amendment of this Section 3.2 effective until the adjournment of that annual meeting sine die. ---- --- Written notice of each annual meeting shall be given to each stockholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such stockholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice. If a stockholder gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal office of the Corporation is situated, or if published at least once in some newspaper of 3 general circulation in the county in which said office is located. All such notices shall be sent to each stockholder entitled thereto not less than ten nor more than sixty days before each annual meeting. Such notices shall specify the place, the day and the hour of such meeting and shall state such other matters if any, as may be expressly required by statute. Section 3.3. Special Meetings. Special meetings of the stockholders, ---------------- for any purpose or purposes whatsoever, may be called at any time by the Board of Directors. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for annual meetings of stockholders. Notices of any special meeting shall specify, in addition to the place, day and hour of such meeting, the general nature of the business to be transacted. Section 3.4. Business To Be Brought Before Meetings. In order to be --------------------------------------- properly brought before any meeting of stockholders held pursuant to this Article III, business (including the election of directors) must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a 4 stockholder. In order for any such business to be properly brought before the meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. In order to be timely, a stockholder's notice must be received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that a meeting is called for a date other than that specified in the By-laws, and less than 75 days' prior public disclosure of such date is given, notice by the stockholder in order to be timely must be received by the Secretary of the Corporation not later than the close of business on the fifteenth (15th) calendar day following the day on which such public disclosure of the date of the meeting was made. If a stockholder intends to nominate a candidate or candidates for director at any meeting of stockholders, such stockholder's notice to the Secretary shall set forth the name, age, address and principal occupation of each such nominee and the amount and type of the Corporation's stock held by each such nominee, together with any additional information reasonably necessary to determine the eligibility of each such nominee and any information required to be disclosed in the solicitation of proxies in respect of each such nominee by Schedule 14A, as amended from time to time, or other applicable Rules and Regulations of the Securities and Exchange Commission. The notice to the Secretary shall also 5 set forth the name, address and the amount and type of beneficial ownership of the Corporation's stock of the stockholder intending to nominate the candidate or candidates identified in the notice to the Secretary. Any stockholder desiring to bring any other business before any annual meeting of stockholders shall set forth in such stockholder's notice to the Secretary (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation's stock that are beneficially owned by such stockholder, and (iv) any material interest of such stockholder in such business. In order to be properly brought before any special meeting of stockholders (other than any special meeting held for the purpose of electing directors), business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. Notwithstanding anything in the By-laws to the contrary, no business (including the election of directors) shall be conducted at the meeting except in accordance with the procedures set forth in this Section 3.4; provided however, that nothing in this Section 3.4 shall preclude or be deemed or construed to preclude discussion by any 6 stockholder of any business properly brought before the annual meeting of stockholders. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 3.4, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 3.5. List of Stockholders. The officer who has charge of the -------------------- stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7 Section 3.6. Quorum. The holders of a majority of the stock issued ------ and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute. If, however, such quorum shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 3.7. Questions Before Meeting. When a quorum is present at ------------------------ any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting unless the question is one upon which by express provision of the statutes, of these By-laws or of the Certificate of Incorporation, a different vote is 8 required, in which case such express provision shall govern and control the decision of such question. Section 3.8. Action Without Meeting. Any action required or ---------------------- permitted to be taken by holders of stock of the Corporation must be taken at a meeting of such holders and may not be taken by consent in writing. Section 3.9. Waiver of Notice. Whenever notice is required to be ---------------- given under the Delaware Corporation Law or the Certificate of Incorporation or the By-laws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation. 9 ARTICLE IV Directors Section 4.1. Size of Board. The Board of Directors shall consist of ------------- ten members, or as many as shall be determined from time to time by resolution of the Board. Section 4.2. Election of Directors. The directors shall be divided --------------------- into three classes, designated Class I, Class II, and Class III, such classes to be as nearly equal in number as possible. At the annual meeting of stockholders in 1986, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter at each annual meeting of stockholders, directors shall be chosen for a term of three years to succeed those whose terms then expire and shall hold office until the third following annual meeting of stockholders and until the election of their respective successors. Directors need not be stockholders. Section 4.3. Vacancies. Vacancies and newly created directorships --------- resulting from any increase in the authorized number of directors may be filled by a majority 10 of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office for the unexpired term of the vacant directorship, or, in the case of any increase in the number of directors, as designated by the directors then in office, consistent with the provisions of Section 4.2. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 4.4. Powers. The business of the Corporation shall be ------ managed by its Board of Directors which may exercise all such powers of the Corporation and do all 11 such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-laws directed or required to be exercised or done by the stockholders. Section 4.5. Meetings. The Board of Directors of the Corporation may -------- hold meetings, both regular and special, either within or without the State of Delaware. Section 4.6. First Meeting. The first meeting of each newly elected ------------- Board of Directors shall be held immediately following the annual meeting of stockholders at which such directors are elected and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present; or the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 4.7. Regular Meetings. Regular meetings of the Board may be ---------------- held without notice at such time and at such place as shall from time to time be determined by the Board. Section 4.8. Special Meetings. Special meetings of the Board may be ---------------- called by the Secretary at the request 12 of the Chairman of the Board or President on two business days' notice to each director, either personally or by mail, by telegram or by telephone; special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of two directors. Section 4.9. Quorum. At all meetings of the Board a majority of the ------ total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 4.10. Conference Telephone. Unless otherwise restricted by -------------------- the Certificate of Incorporation or these By-laws, members of the Board of Directors (or any committee designated by the Board) may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 13 Section 4.11. Unanimous Consent. Unless otherwise restricted by the ----------------- Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 4.12. Committees. The Board of Directors may, by resolution ---------- passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another 14 member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Section 4.13. Minutes. Each committee shall keep regular minutes of ------- its meetings and report the same to the Board of Directors when required. Section 4.14. Fees and Compensation. Directors and members of --------------------- committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board. ARTICLE V Notices Section 5.1. Methods of Notice. Whenever, under the provisions of ----------------- the Laws of the State of Delaware or of the Certificate of Incorporation or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same 15 shall be deposited in the United States mail. Notice to directors may also be given by telegram or telephone. Section 5.2. Waiver. Whenever any notice is required to be given ------ under the provisions of the statutes or of the Certificates of Incorporation or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI Officers Section 6.1. Officers. The Officers of the Corporation shall be a -------- President, a Vice President, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, one or more additional Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 6.3 and Section 6.5 of this Article. The Board of Directors may also choose, in its discretion, a Chairman of the Board and one or more Vice Chairmen of the Board. The positions of Chairman of the Board and Vice Chairman of the Board shall not constitute officers of the Corporation. One person may hold two or more offices. 16 Section 6.2. Election. The officers of the Corporation, except such -------- officers as may be appointed in accordance with the provisions of Section 6.3 or Section 6.5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 6.3. Subordinate Officers, etc. The Board of Directors may -------------------------- appoint, and may empower the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By- laws or as the Board of Directors may from time to time determine. Section 6.4. Removal and Resignation. Any officer may be removed, ----------------------- either with or without cause, by the Board of Directors, at any regular or special meeting thereof, or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors or to the President, or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of 17 such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6.5. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-laws for regular appointments to such office. Section 6.6. Salaries. The salaries and other compensation of all -------- officers of the Corporation shall be fixed by the Board of Directors. Section 6.7. Chairman of the Board. The Chairman of the Board shall, --------------------- if present, preside at all meetings of the Board of Directors. Section 6.7A. Vice Chairman of the Board. In the absence of the -------------------------- Chairman of the Board, the Vice Chairman of the Board designated by the Board of Directors shall preside at all meetings of the Board of Directors. Section 6.8. President. The President shall be the Chief Executive --------- Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. He shall preside at all 18 meetings of the stockholders and, in the absence of the Chairman of the Board and the Vice Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be ex-officio a member of all the standing committees, including the Executive Committee, if any, and shall have the general powers and duties of management usually vested in the office of the president of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-laws. Section 6.9. Vice President. In the absence or disability of the -------------- President, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-laws. Section 6.10. Secretary. The Secretary shall keep or cause to be --------- kept, at the principal office or such other place as the Board of Directors may order, a book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, 19 the names of those present at directors' meetings, the number of shares present or represented at stockholders meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and class of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board of Directors required by the By- laws or bylaw to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-laws. Section 6.11. Treasurer. The Treasurer shall keep and maintain, or --------- cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in surplus and surplus arising from a 20 reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any director. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his transactions as Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-laws. ARTICLE VII Stock and Stock Certificates Section 7.1. Right to Certificate. Every holder of stock in the -------------------- Corporation shall be entitled to have a certificate, signed by or in the name of the Corporation, by the Chairman of the Board of Directors or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the 21 Corporation, certifying the number of shares owned by him in the Corporation. Section 7.2. Statements Setting Forth Rights. If the Corporation ------------------------------- shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations and restrictions of such preferences and rights. Section 7.3. Facsimile Signatures. Any of or all the signatures on -------------------- the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has 22 signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 7.4. Lost Certificates. Except as hereinafter in this ----------------- section provided, no new certificate for shares shall be issued in lieu of an old one unless the latter is surrendered and cancelled at the same time. The Board of Directors may, however, in case any certificate for shares is lost, stolen, mutilated or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions, including reasonable indemnification of the Corporation, as the Board shall determine. Section 7.5. Transfers of Stock. ------------------ (a) Subject to paragraphs (b), (c) and (d) of this Section 7.5, upon surrender to any transfer agent of the Corporation of a certificate for shares of the Corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. 23 (b) Subject to the provisions of subparagraph (vi) of this paragraph (b), beginning at the time that (A) the merger of Santa Anita Consolidated, Inc. ("Santa Anita") into the Corporation and (B) the payment by the Corporation of the dividend in kind of the shares of Santa Anita Operating Company, a Delaware corporation ("Operating Company"), shall have both occurred (hereinafter called the "effective time of the restriction"), and continuing thereafter until such time as the limitation on transfer provided for in the Pairing Agreement between the Corporation and Operating Company shall be terminated in the manner therein provided: (i) The shares of common stock of the Corporation shall not be transferable, and shall not be transferred on the books of the Corporation, unless (1) a simultaneous transfer is made by the same transferor to the same transferee, or (2) such transferor has previously arranged with Operating Company for the transfer to the transferee, of a like number of common shares of Operating Company and such shares are paired with one another. (ii) Except for certificates representing shares of common stock of this Corporation referred to in subparagraph (vi) below, each certificate evidencing ownership of shares of common stock of this Corporation 24 (including certificates issued by Santa Anita) issued and not cancelled prior to the effective time of the restriction shall be deemed to evidence a like number of shares of common stock of Operating Company. (iii) Except for certificates representing common stock of this Corporation referred to in subparagraph (vi) below, any registered holder of a certificate evidencing ownership of shares of common stock of the Corporation (including certificates issued by Santa Anita) issued prior to the effective time of the restriction may, upon request and presentation of said certificate to the Corporation's transfer agent, obtain in substitution therefor a certificate or certificates registered in such holder's name evidencing the same number of shares of common stock of the Corporation and a like number of common shares of Operating Company. (iv) A conspicuous legend shall be placed on the face of each certificate evidencing ownership of shares of common stock of the Corporation issued after the effective time of the restriction, referring to the restrictions on transfer set forth in the Corporation's By-laws. 25 (v) For purposes of this paragraph (b) only, the terms "common stock" and "common shares" shall include preferred stock which is convertible into shares of common stock. (vi) Notwithstanding the other provisions of this paragraph (b), any stockholder whose ownership of Operating Company common stock at the effective time of the restriction would be deemed, after application of the attribution rules of the Internal Revenue Code of 1954 (the "Code"), to result in the Corporation owning, directly or indirectly, more than 9.25% of the Operating Company common stock will not be subject to the restrictions imposed by this paragraph (b) to the extent that such ownership would cause the Corporation, directly or indirectly, to be deemed to own, after application of the attribution rules of the Code, more than 9.25% of the total number of the outstanding shares of Operating Company, provided that (1) a sufficient amount of Operating Company common stock (or the right to receive such common stock) which would otherwise be paired with common stock of the Corporation is sold to a transferee so that the Corporation, directly or indirectly, after application of the attribution rules of the Code, will not own in excess of 9.25% of the outstanding Operating Company common stock, (2) all holders of the unpaired shares 26 enter into an agreement, satisfactory to the Boards of Directors of the Corporation, Operating Company and Santa Anita, providing that such shares not be transferable by sale or any other means, without arranging for such shares to be paired with an equal number of shares of Operating Company, unless such sale is made to the Corporation or Operating Company, and (3) such stockholder executes a waiver of any claims he or she may have arising out of the close business relationship between the Corporation and Operating Company and claims arising out of conflicts of interest inherent in such business relationship. The other provisions of this paragraph (b) shall apply to all shares of the Corporation otherwise held by any stockholder unless they are specifically exempted by this subparagraph (vi). (c) If the Board of Directors shall at any time and in good faith be of the opinion that direct or indirect ownership of shares of either common stock or preferred stock, or both, of the Corporation has or may become concentrated to an extent which would cause this Corporation to fail to qualify or be disqualified as a real estate investment trust by virtue of Section 856(a)(5) and (6) of the Code, or similar provisions of successor statutes, the Board of Directors shall have the power (i) by lot or other means deemed equitable by them to call for purchase from any 27 stockholder of the Corporation such number of shares sufficient in the opinion of the Board of Directors to maintain or bring the direct or indirect ownership of shares of stock of the Corporation into conformity with the requirements of said Section 856(a)(5) and (6) and (ii) to refuse to register the transfer of shares of stock to any person whose acquisition of such shares would, in the opinion of the Board of Directors, result in the Corporation being unable to conform to the requirements of said Section 856(a)(5) and (6). The purchase price for the shares of stock purchased pursuant hereto shall be equal to the fair market value of such shares as reflected in the closing price for such shares on the principal stock exchange on which such shares are listed or, if such shares are not listed, then the last bid quotation for shares of stock as of the close of business on the date fixed by the Board of Directors for such purchase or, if no quotation for the shares is available, as determined in good faith by the Board of Directors. From and after the date fixed for purchase by the Board of Directors, the holder of any shares so called for purchase shall cease to be entitled to dividends, voting rights and other benefits with respect to such shares, excepting only the right to payment of the purchase price fixed as aforesaid. In order to further assure that ownership of the shares of stock does not become so concentrated, any transfer of shares that would prevent the Corporation from continuing to be qualified as a real 28 estate investment trust by virtue of the application of Section 856(a)(5) and (6) of the Code shall be void ab initio and the intended transferee of such -- ------ shares shall be deemed never to have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such shares shall be deemed to have acted as agent on behalf of the Corporation in acquiring such shares and to hold such shares on behalf of the Corporation. For purposes of determining whether the Corporation is in compliance with Section 856(a)(5) and (6), Section 542(a)2) and Section 544 of the Code, or similar provisions of successor statutes, shall be applied. (d) In addition to the requirements of subparagraph (c) above, if the Board of Directors shall at any time and in good faith be of the opinion that direct or indirect ownership of shares of either common stock or preferred stock, or both, of the Corporation has or may become concentrated to an extent which would cause any rent to be paid to this Corporation to fail to qualify or be disqualified as rent from real property by virtue of Section 856(d)(2)(B) of the Code, or similar provisions of successor statutes, the Board of Directors shall have the power (i) by lot or other means deemed equitable by them to call for purchase from any stockholder of the Corporation such number of shares sufficient in the opinion of the Board of 29 Directors to maintain or bring the direct or indirect ownership of shares of stock of the Corporation into conformity with the requirements of Section 856(d)(2)(B) and (ii) to refuse to register the transfer of shares of stock to any person whose acquisition of such shares would, in the opinion of the Board of Directors, result in this Corporation being unable to conform to the requirements of said Section 856(d)(2)(B). The purchase price for the shares of stock purchased pursuant hereto shall be equal to the fair market value of such shares as reflected in the closing price for such shares on the principal stock exchange on which such shares are listed, or if such shares are not listed, then the last bid quotation for shares of stock, as of the close of business on the date fixed by the Board of Directors for such purchase or, if no quotation for the shares is available, as determined in good faith by the Board of Directors. From and after the date fixed for purchase by the Board of Directors, the holder of any shares so called for purchase shall cease to be entitled to dividends, voting rights and other benefits with respect to such shares, excepting only the right to payment of the purchase price fixed as aforesaid. In order to further assure that ownership of the shares of stock does not become so concentrated, any transfer of shares that would prevent this Corporation from continuing to be qualified as a real estate investment trust by virtue of the application of Section 856(d)(2)(B) of the Code shall be void ab initio and -- ------ 30 the intended transferee of such shares shall be deemed never to have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such shares shall be deemed to have acted as agent on behalf of the Corporation in acquiring such shares and to hold such shares on behalf of the Corporation. For purposes of determining whether this Corporation is in compliance with Section 856(d)(2)(B), Section 856(d)(5) of the Code, or similar provisions of successor statutes, shall be applied. (e) The stockholders of the Corporation shall upon demand disclose to the Board of Directors in writing such information with respect to their direct and indirect ownership of the stock of the Corporation as the Board of Directors deems necessary to determine whether the Corporation satisfies the provisions of Section 856(a)(5) and (6) and 856(d) of the Code and the regulations thereunder as the same shall be from time to time amended, or to comply with the requirements of any other taxing authority. Section 7.6. Form of Consideration. In purchasing such shares from --------------------- any shareholder in accordance with the foregoing provisions, the Corporation may pay consideration in the form of cash or, at the option of the Board of Directors, in the form of subordinated indebtedness 31 of the Corporation. The principal amount of such subordinated indebtedness shall be equal to the purchase price of the shares (less amounts paid in cash, if any) and it shall have such other terms as may be determined by the Board of Directors at the time of issuance. Section 7.7. Record Date. In order that the Corporation may ----------- determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereto, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 7.8. Registered Stockholders. The Corporation shall be ----------------------- entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and 32 shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Section 7.9. Transfer Agents and Registrars. The Board of Directors ------------------------------ may appoint one or more corporate transfer agents and registrars. Section 7.10. Dividends. Dividends upon the capital stock of the --------- Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock. Section 7.11. Reserves. Before payment of any dividend, there may be -------- set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 33 ARTICLE VIII Indemnification and Insurance Section 8.1. Right to Indemnification. Each person who was or is a ------------------------ party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employer or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Delaware, as the same exist or may hereafter be amended, against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of 34 his or her heirs, executors and administrators; provided, however, that, except as provided in Section 8.2 hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. 35 Section 8.2. Right of Claimant to Bring Suit. If a claim under ------------------------------- Section 8.1 of this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under Delaware law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met such standard of conduct, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet such standard of conduct. 36 Section 8.3. Non-Exclusivity of Rights. The right to indemnification ------------------------- and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 8.4. Insurance. The Corporation may maintain insurance, at --------- its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Delaware law. Section 8.5. Expenses as a Witness. To the extent that any director, --------------------- officer, employee or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. 37 Section 8.6. Indemnity Agreements. The Corporation may enter into -------------------- agreements with any director, officer, employee or agent of the Corporation providing for indemnification to the full extent permitted by Delaware law. ARTICLE IX General Provisions Section 9.1. Annual Reports. Not later than one hundred twenty -------------- (120) days after the close of each fiscal year of the Corporation, the Board of Directors shall mail a report of the business and operation of the Corporation during such fiscal year to the stockholders. The report shall be in such form and have such content as the Board deems proper. This report shall include a balance sheet and a statement of income and surplus and a statement of changes in financial position of the Corporation. Such financial statements shall be accompanied by the report of an independent certified public accountant thereon. Section 9.2. Quarterly Reports. Within 90 days after the close of ----------------- each of the first three quarters of each fiscal year of the Corporation, the Board of Directors shall send interim reports to the stockholders, having such form and content as the Board of Directors deems proper. 38 Section 9.3. Fiscal Year. The fiscal year of the Corporation shall ----------- be fixed by resolution of the Board of Directors. Section 9.4. Seal. The corporate seal shall have inscribed thereon ---- the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 9.5. Checks, Drafts, etc. All checks, drafts or other orders ------------------- for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 9.6. Representation of Shares of Other Corporations. The ---------------------------------------------- President or any Vice President and the Secretary or Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such 39 officers in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. Section 9.7. Employee Stock Purchase Plans. The Corporation may, ----------------------------- upon terms and conditions herein authorized, provide and carry out an employee stock purchase plan or plans providing for the issue and sale, or for the granting of options for the purchase, of its unissued shares, or of issued shares purchased or to be purchased or acquired, to employees of the Corporation or of any subsidiary or to a trustee on their behalf. Such plan may provide for such consideration as may be fixed therein, for the payment of such shares in installments or at one time and for aiding any such employees in paying for such shares by compensation for services or by loans from the Corporation or otherwise. Any such plan before becoming effective must be approved or authorized by the Board of Directors of the Corporation. Such plan may include, among other things, provisions determining or providing for the determination by the Board of Directors, or any committee thereof designated by the Board of Directors, of: (a) eligibility of employees (including officers and directors) to participate therein, (b) the number and class of shares which may be subscribed for or for which options may be granted under the plan, 40 (c) the time and method of payment therefor, (d) the price or prices at which such shares shall be issued or sold, (e) whether or not title to the shares shall be reserved to the Corporation until full payment therefor, (f) the effect of the death of an employee participating in the plan or termination of his employment, including whether there shall be any option or obligation on the part of the Corporation to repurchase the shares thereupon, (g) restrictions, if any, upon the transfer of the shares, and the time limits and termination of the plan, (h) termination, continuation or adjustments of the rights of participating employees upon the happening of specified contingencies, including increase or decrease in the number of issued shares of the class covered by the plan without receipt of consideration by the Corporation or any exchange of shares of such class for stock or securities of another corporation pursuant to a reorganization or merger, consolidation or dissolution of the Corporation, (i) amendment, termination, interpretation and administration of such plan by the Board of Directors or any committee thereof designated by the Board of Directors, and (j) any other matters, not repugnant to law, as may be included in the plan as approved or authorized by the Board of Directors or any such committee. 41 ARTICLE X Amendments Section 10.1. Power of Stockholders. New By-laws may be adopted or --------------------- these By-laws may be amended or repealed by the stockholders only by the affirmative vote of at least 80% of the voting power of the Corporation, except as otherwise provided by law. Any proposal to amend or repeal, or adopt any provisions inconsistent with, Article Tenth of the Certificate of Incorporation shall require for approval the affirmative vote of at least 80% of the voting power of the Corporation. Section 10.2. Power of Directors. Subject to the right of ------------------ stockholders as provided in Section 10.1 of this Article X to adopt, amend or repeal By-laws, By-laws may be adopted, amended or repealed by the Board of Directors; provided, however, that Section 7.5 of these By-laws may not be amended or repealed except with approval of the holders of 80% of the outstanding common stock of the Corporation. 42 EX-3.4 3 BYLAWS OF SANTA ANITA OPERATING COMPANY EXHIBIT 3.4 REVISED 1/15/97 --------------- BY-LAWS OF SANTA ANITA OPERATING COMPANY (a Delaware corporation) ARTICLE I Offices Section 1.1. Registered Office. The registered office shall be in ----------------- the City of Wilmington, County of New Castle, State of Delaware. Section 1.2. Other Offices. The Corporation may also have offices at ------------- such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II Meetings of Stockholders Section 2.1. Place. All meetings of the stockholders for the ----- election of directors shall be held at such place either within or without the State of Delaware as shall be designated from time to time by the Board of 1 Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time or place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.2. Annual Meetings. The annual meetings of stockholders --------------- shall be held on the third Thursday in May of each year at 10 o'clock A.M. of said day, the first such meeting to be held on the third Thursday in May 1981; provided, however, that should said day fall upon a legal holiday, then any such annual meeting of stockholders shall be held at the same time and place on the next day thereafter ensuing which is a full business day. At such meetings directors shall be elected, reports of the affairs of the Corporation shall be considered, and any other business may be transacted which is within the powers of the stockholders. If for any annual meeting the Board of Directors shall fix a different day or hour, such action shall be deemed an amendment of this Section 2.2 effective until the adjournment of that annual meeting sine die. ---- --- Written notice of each annual meeting shall be given to each stockholder entitled to vote, either personally or by mail or other means of written communication, charges prepaid, addressed to such stockholder at his address appearing on the books of the Corporation or 2 given by him to the Corporation for the purpose of notice. If a stockholder gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal office of the Corporation is situated, or if published at least once in some newspaper of general circulation in the county in which said office is located. All such notices shall be sent to each stockholder entitled thereto not less than ten nor more than sixty days before each annual meeting. Such notices shall specify the place, the day and the hour of such meeting and shall state such other matters if any, as may be expressly required by statute. Section 2.3. Special Meetings. Special meetings of the stockholders, ---------------- for any purpose or purposes whatsoever, may be called at any time by the Board of Directors. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for annual meetings of stockholders. Notices of any special meeting shall specify, in addition to the place, day and hour of such meeting, the general nature of the business to be transacted. Section 2.4. Business To Be Brought Before Meeting. In order to be ------------------------------------- properly brought before any meeting of stockholders held pursuant to this Article II, business 3 (including the election of directors) must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. In order for any such business to be properly brought before the meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. In order to be timely, a stockholder's notice must be received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that a meeting is called for a date other than that specified in the By-laws, and less than 75 days' prior public disclosure of such date is given, notice by the stockholder in order to be timely must be received by the Secretary of the Corporation not later than the close of business on the fifteenth (15) calendar day following the day on which such public disclosure of the date of the meeting was made. If a stockholder intends to nominate a candidate or candidates for director at any meeting of stockholders, such stockholder's notice to the Secretary shall set forth the name, age, address and principal occupation of each such nominee and the amount and type of the Corporation's stock held by each such nominee, together with any additional information reasonably necessary to 4 determine the eligibility of each such nominee and any information required to be disclosed in the solicitation of proxies in respect of each such nominee by Schedule 14A, as amended from time to time, or other applicable Rules and Regulations of the Securities and Exchange Commission. The notice to the Secretary shall also set forth the name, address and the amount and type of beneficial ownership of the Corporation's stock of the stockholder intending to nominate the candidate or candidates identified in the notice to the Secretary. Any stockholder desiring to bring any other business before any annual meeting of stockholders shall set forth in such stockholder's notice to the Secretary (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the Corporation's stock that are beneficially owned by such stockholder, and (iv) any material interest of such stockholder in such business. In order to be properly brought before any special meeting of stockholders (other than any special meeting held for the purpose of electing directors), business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. Notwithstanding anything in the By-laws to the contrary, no business (including the election of directors) 5 shall be conducted at the meeting except in accordance with the procedures set forth in this Section 2.4; provided, however, that nothing in this Section 2.4 shall preclude or be deemed or construed to preclude discussion by any stockholder of any business properly brought before the annual meeting of stockholders. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.4, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 2.5. List of Stockholders. The officer who has charge of the -------------------- stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is 6 to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 2.6. Quorum. The holders of a majority of the stock issued ------ and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute. If, however, such quorum shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.7. Questions Before Meeting. When a quorum is present at ------------------------ any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question 7 brought before such meeting unless the question is one upon which by express provision of the statutes, of these By-laws or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 2.8. Action Without Meeting. Any action required or ---------------------- permitted to be taken by holders of stock of the Corporation must be taken at a meeting of such holders and may not be taken by consent in writing. Section 2.9. Waiver of Notice. Whenever notice is required to be ---------------- given under the Delaware Corporation Law or the Certificate of Incorporation or the By-laws, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation. 8 ARTICLE III Directors Section 3.1. Size of Board. The Board of Directors shall consist of ------------- ten members, or as many as shall be determined from time to time by resolution of the Board. Section 3.2. Election of Directors. The directors shall be divided --------------------- into three classes, designated Class I, Class II, and Class III, such classes to be as nearly equal in number as possible. At the annual meeting of stockholders in 1986, directors of Class I shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of Class II shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of Class III shall be elected to hold office for a term expiring at the third succeeding annual meeting. Thereafter at each annual meeting of stockholders, directors shall be chosen for a term of three years to succeed those whose terms then expire and shall hold office until the third following annual meeting of stockholders and until the election of their respective successors. Directors need not be stockholders. Section 3.3. Vacancies. Vacancies and newly created directorships --------- resulting from any increase in the 9 authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office for the unexpired term of the vacant directorship, or, in the case of any increase in the number of directors, as designated by the directors then in office, consistent with the provisions of Section 3.2. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 3.4. Powers. The business of the Corporation shall be ------ managed by its Board of Directors which may exercise all such powers of the Corporation and do all such 10 lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-laws directed or required to be exercised or done by the stockholders. Section 3.5. Meetings. The Board of Directors of the Corporation may -------- hold meetings, both regular and special, either within or without the State of Delaware. Section 3.6. First Meeting. The first meeting of each newly elected ------------- Board of Directors shall be held immediately following the annual meeting of stockholders at which such directors are elected and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present; or the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 3.7. Regular Meetings. Regular meetings of the Board may be ---------------- held without notice at such time and at such place as shall from time to time be determined by the Board. Section 3.8. Special Meetings. Special meetings of the Board may be ---------------- called by the Secretary at the request 11 of the Chairman of the Board or President on two business days' notice to each director, either personally or by mail, by telegram or by telephone; special meetings shall be called by the Chairman of the Board or Secretary in like manner and on like notice on the written request of two directors. Section 3.9. Quorum. At all meetings of the Board a majority of the ------ total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.10. Conference Telephone. Unless otherwise restricted by -------------------- the Certificate of Incorporation or these By-laws, members of the Board of Directors (or any committee designated by the Board) may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of 12 which all persons participating in the meeting can hear each other. Section 3.11. Unanimous Consent. Unless otherwise restricted by the ----------------- Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.12. Committees. The Board of Directors may, by resolution ---------- passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the power of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified 13 from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Section 3.13. Minutes. Each committee shall keep regular minutes of ------- its meetings and report the same to the Board of Directors when required. Section 3.14. Fees and Compensation. Directors and members of --------------------- committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board. ARTICLE IV Notices Section 4.1. Methods of Notice. Whenever, under the provisions of ----------------- the Laws of the State of Delaware or of the Certificate of Incorporation or of these By-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such 14 notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram or telephone. Section 4.2. Waiver. Whenever any notice is required to be given ------ under the provisions of the statutes or of the Certificate of Incorporation or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V Officers Section 5.1. Officers. The Officers of the Corporation shall be a -------- Chairman of the Board, a President, a Secretary and a Treasurer. The Corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 and Section 5.5 of this Article. The Board of Directors may also choose, at its discretion, one or more Vice Chairmen of the Board, who shall not constitute officers of the Corporation. One person may hold two or more offices. 15 Section 5.2. Election. The officers of the Corporation, except such -------- officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of this Article, shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 5.3. Subordinate Officers, etc. The Board of Directors may -------------------------- appoint, and may empower the Chairman of the Board to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the By-laws or as the Board of Directors may from time to time determine. Section 5.4. Removal and Resignation. Any officer may be removed, ----------------------- either with or without cause, by the Board of Directors, at any regular or special meeting thereof, or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Board of Directors or to the Chairman of the Board, or to the Secretary of the Corporation. Any such resignation shall take effect at the date of the receipt of 16 such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5.5. Vacancies. A vacancy in any office because of death, --------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the By-laws for regular appointments to such office. Section 5.6. Salaries. The salaries and other compensation of all -------- officers of the Corporation shall be fixed by the Board of Directors. Section 5.7. Chairman of the Board. The Chairman of the Board shall --------------------- preside at all meetings of the stockholders and all meetings of the Board of Directors. He shall be an ex-officio member of all standing committees, including the Executive Committee, if any, and shall have such other powers and duties as may be prescribed by the Board of Directors or the By-laws. Section 5.7A. Vice Chairman of the Board. In the absence of the -------------------------- Chairman of the Board, the Vice Chairman of the Board designated by the Board of Directors shall preside at meetings of the Board of Directors. 17 Section 5.8. President. The President shall be the Chief Executive --------- Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the Corporation. He shall be an ex-officio member of all standing committees, including the Executive Committee, if any, shall have the general powers and duties of management usually vested in the office of the chief executive officer of a corporation, and shall have such other powers and perform such other duties as from time to time may be prescribed for him by the Board of Directors or the By- laws. Section 5.9. Vice President. In the absence or disability of the -------------- Chairman of the Board and the President, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the Chairman of the Board and the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board and the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the By-laws. Section 5.10. Secretary. The Secretary shall keep or cause to be --------- kept, at the principal office or such 18 other place as the Board of Directors may order, a book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and class of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all the meetings of the stockholders and of the Board of Directors required by the By- laws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the By-laws. Section 5.11. Treasurer. The Treasurer shall keep and maintain, or --------- cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its 19 assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. Any surplus, including earned surplus, paid-in surplus and surplus arising from a reduction of stated capital, shall be classified according to source and shown in a separate account. The books of account shall at all reasonable times be open to inspection by any director. The Treasurer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chairman of the Board and directors, whenever they request it, an account of all of his transactions as Treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or the By-laws. ARTICLE VI Stock and Stock Certificates Section 6.1. Right to Certificate. Every holder of stock in the -------------------- Corporation shall be entitled to have a certificate, signed by or in the name of the Corporation, by 20 the Chairman of the Board of Directors or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Section 6.2. Statements Setting Forth Rights. If the Corporation ------------------------------- shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that,except as otherwise provided in Section 202 of the Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations and restrictions of such preferences and rights. 21 Section 6.3 Facsimile Signatures. Any of or all the signatures on -------------------- the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 6.4. Lost Certificates. Except as hereinafter in this ----------------- section provided, no new certificate for shares shall be issued in lieu of an old one unless the latter is surrendered and cancelled at the same time. The Board of Directors may, however, in case any certificate for shares is lost, stolen, mutilated or destroyed, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions, including reasonable indemnification of the Corporation, as the Board shall determine. Section 6.5 Transfers of Stock. ------------------ (a) Subject to paragraphs (b), (c) and (d) of this Section 6.5, upon surrender to any transfer agent of the Corporation of a certificate for shares of the Corporation duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be 22 the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. (b) Beginning at the time that (A) the merger of Santa Anita Consolidated, Inc. ("Santa Anita") into Santa Anita Realty Enterprises, Inc., a Delaware corporation ("Realty"), and (B) the payment by Realty of the dividend in kind of the shares of the Corporation (the "Distribution") shall have both occurred (hereinafter called the "effective time of the restriction"), and continuing thereafter until such time as the limitation on transfer provided for in the Pairing Agreement between Realty and the Corporation shall be terminated in the manner therein provided: (i) The shares of common stock of the Corporation shall not be transferable, and shall not be transferred on the books of the Corporation, unless (1) a simultaneous transfer is made by the same transferor to the same transferee, or (2) such transferor has previously arranged with Realty for the transfer to the transferee, of a like number of shares of common stock of Realty and such shares are paired with one another. (ii) Except for certificates representing shares of common stock of Realty referred to in subparagraph (vi) below, each certificate evidencing ownership of shares of 23 common stock of Realty (including certificates issued by Santa Anita) issued and not cancelled prior to the effective time of the restriction shall be deemed to evidence a like number of shares of common stock of the Corporation. (iii) Except for certificates representing common stock of Realty referred to in subparagraph (vi) below, any registered holder of a certificate evidencing ownership of shares of common stock of Realty (including certificates issued by Santa Anita) issued prior to the effective time of the restriction may, upon request and presentation of said certificate to the Corporation's transfer agent, obtain in substitution therefor a certificate or certificates registered in such holder's name evidencing the same number of common shares of the Corporation and a like number of shares of common stock of Realty. (iv) A conspicuous legend shall be placed on the face of each certificate evidencing ownership of shares of common stock of the Corporation issued after the effective time of the restrictions, referring to the restrictions on transfer set forth in the Corporation's By-laws. (v) For purposes of this paragraph (b) only, the terms "common stock" and "common shares" shall include preferred stock which is convertible into shares of common stock. 24 (vi) Notwithstanding the other provisions of this paragraph (b), any stockholder whose ownership of the common stock of the Corporation at the effective time of the restriction would be deemed, after application of the attribution rules of the Internal Revenue Code of 1954 (the "Code"), to result in Realty owning, directly or indirectly, more than 9.25% of the common stock of the Corporation will not be subject to the restrictions imposed by this paragraph (b) to the extent that such ownership would cause Realty, directly or indirectly, to be deemed to own, after application of the attribution rules of the Code, more than 9.25% of the total number of the outstanding shares of the Corporation, provided that (1) a sufficient amount of the common stock of the Corporation (or the right to receive such common stock) which would otherwise be paired with stock of Realty is sold to third parties so that Realty, directly or indirectly, after application of the attribution rules of the Code, will not own in excess of 9.25% of the common stock of the Corporation, (2) all holders of the unpaired shares enter into an agreement, satisfactory to the Boards of Directors of Realty, the Corporation and Santa Anita, providing that such shares not be transferable by sale or any other means, without arranging for such shares to be paired with an equal number of shares of Realty, unless such sale is made to the Corporation or Realty and (3) such stockholder and any transferee of such stockholder executes a waiver of any claims he or she may have arising out of the 25 close business relationship between the Corporation and Realty and claims arising out of conflicts of interest inherent in such business relationship. The other provisions of this paragraph (b) shall apply to all shares of the Corporation otherwise held by any stockholder unless they are specifically exempted by this subparagraph (vi). (c) If the Board of Directors shall at any time and in good faith be of the opinion that direct or indirect ownership of shares of either common stock or preferred stock, or both, of the Corporation has or may become concentrated to an extent which would cause Realty to fail to qualify or be disqualified as a real estate investment trust by virtue of Section 856(a)(5) and (6) of the Code, or similar provisions of successor statutes, pertaining to the qualification of Realty as a real estate investment trust, the Board of Directors shall have the power (i) by lot or other means deemed equitable by them to call for purchase from any stockholder of the Corporation such number of shares sufficient in the opinion of the Board of Directors to maintain or bring the direct or indirect ownership of shares of stock of the Corporation into conformity with the requirements of said Section 856(a)(5) and (6) pertaining to Realty and (ii) to refuse to register the transfer of shares of stock to any person whose acquisition of such shares would, in the opinion of the Board of Directors, result in Realty being unable to conform to the requirements of said 26 Section 856(a)(5) and (6). The purchase price for the shares of stock purchased pursuant hereto shall be equal to the fair market value of such shares as reflected in the closing price for such shares on the principal stock exchange on which such shares are listed or, if such shares are not listed, then the last bid quotation for shares of stock as of the close of business on the date fixed by the Board of Directors for such purchase or, if no quotation for the shares is available, as determined in good faith by the Board of Directors. From and after the date fixed for purchase by the Board of Directors, the holder of any shares so called for purchase shall cease to be entitled to dividends, voting rights and other benefits with respect to such shares excepting only the right to payment of the purchase price fixed as aforesaid. In order to further assure that ownership of the shares of stock does not become so concentrated, any transfer of shares that would prevent Realty from continuing to be qualified as a real estate investment trust by virtue of the application of Section 856(a)(5) and (6) of the Code shall be void ab initio and the intended transferee of such -- ------ shares shall be deemed never to have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such shares shall be deemed to have acted as agent on behalf of the Corporation in acquiring such shares and to hold such shares on behalf of the Corporation. For purposes 27 of determining whether the Corporation is in compliance with Section 856(a)(5) and (6), Section 542(a)(2) and Section 544 of the Code, or similar provisions of successor statutes, shall be applied. (d) In addition to the requirements of subparagraph (c) above, if the Board of Directors shall at any time and in good faith be of the opinion that direct or indirect ownership of shares of either common stock or preferred stock, or both, of the Corporation has or may become concen trated to an extent which would cause any rent to be paid to Realty to fail to qualify or be disqualified as rent from real property by virtue of Section 856(d)(2)(B) of the Code, or similar provisions of successor statutes, pertaining to the qualification of Realty as a real estate investment trust, the Board of Directors shall have the power (i) by lot or other means deemed equitable by them to call for purchase from any stockholder of the Corporation such number of shares sufficient in the opinion of the Board of Directors to maintain or bring the direct or indirect ownership of shares of stock of the Corporation into conformity with the requirements of Section 856(d)(2)(B) pertaining to Realty and (ii) to refuse to register the transfer of shares of stock to any person whose acquisition of such shares would, in the opinion of the Board of Directors, result in Realty being unable to conform to the requirements of said Section 856(d)(2)(B). The purchase price for the shares of 28 stock purchased pursuant hereto shall be equal to the fair market value of such shares as reflected in the closing price for such shares on the principal stock exchange on which such shares are listed, or if such shares are not listed, then the last bid quotation for shares of stock, as of the close of business on the date fixed by the Board of Directors for such purchase or, if no quotation for the shares is available, as determined in good faith by the Board of Directors. From and after the date fixed for purchase by the Board of Directors, the holders of any shares so called for purchase shall cease to be entitled to dividends, voting rights and other benefits with respect to such shares, excepting only the right to payment of the purchase price fixed as aforesaid. In order to further assure that ownership of the shares of stock does not become so concentrated, any transfer of shares that would prevent Realty from continuing to be qualified as a real estate investment trust by virtue of the application of Section 856(d)(2)(B) of the Code shall be void ab initio and the -- ------ intended transferee of such shares shall be deemed never to have had an interest therein. If the foregoing provision is determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the transferee of such shares shall be deemed to have acted as agent on behalf of the Corporation in acquiring such shares and to hold such shares on behalf of the Corporation. For purposes of determining whether this Corporation is in compliance 29 with Section 856(d)(2)(B), Section 856(d)(5) of the Code, or similar provisions of successor statutes, shall be applied. (e) The stockholders of the Corporation shall upon demand disclose to the Board of Directors in writing such information with respect to their direct and indirect ownership of the stock of the Corporation as the Board of Directors deems necessary to determine whether Realty satisfies the provisions of Section 856(a)(5) and (6) and 856(d) of the Code and the regulations thereunder as the same shall be from time to time amended, or to comply with the requirements of any other taxing authority. Section 6.6. Form of Consideration. In purchasing such shares from --------------------- any shareholder in accordance with the foregoing provisions, the Corporation may pay consideration in the form of cash or, at the option of the Board of Directors, in the form of subordinated indebtedness of the Corporation. The principal amount of such subordinated indebtedness shall be equal to the purchase price of the shares (less amounts paid in cash, if any) and it shall have such other terms as may be determined by the Board of Directors at the time of issuance. Section 6.7. Record Date. In order that the Corporation may ----------- determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any 30 adjournment thereto, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6.8. Registered Stockholders. The Corporation shall be ----------------------- entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Section 6.9. Transfer Agents and Registrars. The Board of Directors ------------------------------ may appoint one or more corporate transfer agents and registrars. 31 Section 6.10. Dividends. Dividends upon the capital stock of the --------- Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock. Section 6.11. Reserves. Before payment of any dividend, there may be -------- set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VII Indemnification and Insurance Section 7.1. Right to Indemnification. Each person who was or is a ------------------------ party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal represen- 32 tative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Delaware, as the same exist or may hereafter be amended, against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 7.2 hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right and shall include the right to be paid by the Corporation the expenses 33 incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 7.2. Right of Claimant to Bring Suit. If a claim under ------------------------------- Section 7.1 of this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to 34 enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under Delaware law for the Corporation to indemnify the claimant for the amount claimed. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met such standard of conduct, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet such standard of conduct. Section 7.3. Non-Exclusivity of Rights. The right to indemnification ------------------------- and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. 35 Section 7.4. Insurance. The Corporation may maintain insurance, at --------- its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Delaware law. Section 7.5. Expenses as a Witness. To the extent that any director, --------------------- officer, employee or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. Section 7.6. Indemnity Agreements. The Corporation may enter into -------------------- agreements with any director, officer, employee or agent of the Corporation providing for indemnification to the full extent permitted by Delaware law. 36 ARTICLE VIII General Provisions Section 8.1. Annual Reports. Not later than one hundred twenty (120) -------------- days after the close of each fiscal year of the Corporation, the Board of Directors shall mail a report of the business and operation of the Corporation during such fiscal year to the stockholders. The report shall be in such form and have such content as the Board deems proper. This report shall include a balance sheet and a statement of income and surplus and a statement of changes in financial position of the Corporation. Such financial statements shall be accompanied by the report of an independent certified public accountant thereon. Section 8.2. Quarterly Reports. Within 90 days after the close of ----------------- each of the first three quarters of each fiscal year of the Corporation, the Board of Directors shall send interim reports to the stockholders, having such form and content as the Board of Directors deems proper. Section 8.3. Fiscal Year. The fiscal year of the Corporation shall ----------- be fixed by resolution of the Board of Directors. 37 Section 8.4. Seal. The corporate seal shall have inscribed thereon ---- the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 8.5. Checks, Drafts, etc. All checks, drafts or other orders -------------------- for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors. Section 8.6. Representation of Shares of Other Corporations. The ---------------------------------------------- Chairman of the Board, the President or any Vice President and the Secretary or Assistant Secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officers. 38 Section 8.7. Employee Stock Purchase Plans. The Corporation may, ----------------------------- upon terms and conditions herein authorized, provide and carry out an employee stock purchase plan or plans providing for the issue and sale, or for the granting of options for the purchase, of its unissued shares, or of issued shares purchased or to be purchased or acquired, to employees of the Corporation or of any subsidiary or to a trustee on their behalf. Such plan may provide for such consideration as may be fixed therein, for the payment of such shares in installments or at one time and for aiding any such employees in paying for such shares by compensation for services or by loans from the Corporation or otherwise. Any such plan before becoming effective must be approved or authorized by the Board of Directors of the Corporation. Such plan may include, among other things, provisions determining or providing for the determination by the Board of Directors, or any committee thereof designated by the Board of Directors, of: (a) eligibility of employees (including officers and directors) to participate therein, (b) the number and class of shares which may be subscribed for or for which options may be granted under the plan, (c) the time and method of payment therefor, (d) the price or prices at which such shares shall be issued or sold, (e) whether or not title to the shares shall be reserved to the Corporation until full payment therefor, (f) the effect of the death of an employee participating in the plan or 39 termination of his employment, including whether there shall be any option or obligation on the part of the Corporation to repurchase the shares thereupon, (g) restrictions, if any, upon the transfer of the shares, and the time limits and termination of the plan, (h) termination, continuation or adjustments of the rights of participating employees upon the happening of specified contingencies, including increase or decrease in the number of issued shares of the class covered by the plan without receipt of consideration by the Corporation or any exchange of shares of such class for stock or securities of another corporation pursuant to a reorganization or merger, consolidation or dissolution of the Corporation, (i) amendment, termination, interpretation and administration of such plan by the Board of Directors or any committee thereof designated by the Board of Directors, and (j) any other matters, not repugnant to law, as may be included in the plan as approved or authorized by the Board of Directors or any such committee. ARTICLE IX Amendments Section 9.1. Power of Stockholders. New By-laws may be adopted or --------------------- these By-laws may be amended or repealed by the stockholders only by the affirmative vote of at least 80% of the voting power of the Corporation, except as 40 otherwise provided by law. Any proposal to amend or repeal, or adopt any provisions inconsistent with, Article Tenth of the Certificate of Incorporation shall require for approval the affirmative vote of at least 80% of the voting power of the Corporation. Section 9.2. Power of Directors. Subject to the right of ------------------ stockholders as provided in Section 9.1 of this Article IX to adopt, amend or repeal By-laws, By-laws may be adopted, amended or repealed by the Board of Directors; provided, however, that Section 6.5 of these By-laws may not be amended or repealed except with the approval of the holders of 80% of the outstanding common stock of the Corporation. 41 EX-4.7 4 LETTER AGREEMENT DATED FEBRUARY 1, 1997 EXHIBIT 4.7 [LOGO OF WELLS FARGO] Flair Industrial Park Regional Commercial Banking Office 9000 Flair Drive, Suite 100 El Monte, CA 91731 February 1, 1997 Mr. Brian L. Fleming, Executive Vice President/ Chief Financial Officer Santa Anita Realty Enterprises, Inc. 301 West Huntington Drive, Suite 405 Arcadia, CA 91007 Dear Mr. Fleming: This letter is to confirm that Wells Fargo Bank, National Association, successor-by-merger to First Interstate Bank of California ("Bank") has agreed to extend the maturity date of that certain credit accommodation granted by Bank to Santa Anita Realty Enterprises, Inc. ("Borrower") in the original maximum principal amount of Thirty Million Dollars ($30,000,000.00), with said principal amount subsequently reduced to Twenty Million Dollars ($20,000,000.00) pursuant to the terms and conditions of that certain Credit Agreement between Bank and Borrower dated as of November 9, 1994, as amended from time to time (the "Agreement"). The maturity date of said credit accommodation is hereby extended until April 1, 1997. Until such date, all terms and conditions of the Agreement which pertain to said credit accommodation shall remain in full force and effect, except as expressly modified hereby. The promissory note dated as of November 9, 1994, as modified and/or amended from time to time, executed by Borrower and payable to the order of Bank which evidences said credit accommodation, a copy of which is attached hereto as Exhibit A (the "Note"), shall be deemed modified as of the date this letter is acknowledged by Borrower to reflect the new maturity date set forth above and to require that, until said new maturity date, Borrower continue to make payments of principal. All other terms and conditions of the Note remain in full force and effect, without waiver or modification. Borrower acknowledges that Bank has not committed to make any renewal or further extension of the maturity date of the above-described credit accommodation beyond the new maturity date specified herein, and that any such renewal or further extension remains in the sole discretion of Bank. This letter constitutes the entire agreement between Bank and Borrower with respect to the maturity date extension for the above-described credit Santa Anita Realty Enterprises, Inc. February 1, 1997 Page 2 accommodation, and supersedes all prior negotiations, discussions and correspondence concerning said extension. Please acknowledge your acceptance of the terms and conditions contained herein by dating and signing one copy below and returning it to my attention at the above address on or before February 15, 1997. Very truly yours, WELLS FARGO BANK NATIONAL ASSOCIATION SUCCESSOR-BY-MERGER TO FIRST INTERSTATE BANK OF CALIFORNIA By: /s/ Daniel F. Maddox ------------------------------ Daniel F. Maddox Vice President Acknowledged and accepted as of 1/23/97: ------- Santa Anita Realty Enterprises, Inc. By: /s/ Brian L. Fleming ----------------------------- Brian L. Fleming Executive Vice President/ Chief Financial Officer EX-4.8 5 LETTER AGREEMENT DATED APRIL 1, 1997 EXHIBIT 4.8 [LOGO OF WELLS FARGO] Flair Industrial Park Regional Commercial Banking Office 9000 Flair Drive, Suite 100 El Monte, CA 91731 April 1, 1997 Mr. Brian L. Fleming Executive Vice President/ Chief Financial Officer Santa Anita Realty Enterprises, Inc. 301 West Huntington Drive, Suite 405 Arcadia, CA 91007 Dear Mr. Fleming: This letter is to confirm that Wells Fargo Bank, National Association, successor-by-merger to First Interstate Bank of California ("Bank") has agreed to extend the maturity date of that certain credit accommodation granted by Bank to Santa Anita Realty Enterprises, Inc. ("Borrower") in the original maximum principal amount of Thirty Million Dollars ($30,000,000), with said principal amount subsequently reduced to Twenty Million Dollars ($20,000,000) pursuant to the terms and conditions of that certain Credit Agreement between Bank and Borrower dated as of November 9, 1994, as amended from time to time (the "Agreement"). The maturity date of said credit accommodation is hereby extended until June 1, 1997. Until such date, all terms and conditions of the Agreement which pertain to said credit accommodation shall remain in full force and effect, except as expressly modified hereby. The promissory note dated as of November 9, 1994, as modified and/or amended from time to time, executed by Borrower and payable to the order of Bank which evidences said credit accommodation, a copy of which is attached hereto as Exhibit A (the "Note"), shall be deemed modified as of the date this letter is acknowledged by Borrower to reflect the new maturity date set forth above and to require that, until said new maturity date, Borrower continue to make payments of principal. All other terms and conditions of the Note remain in full force and effect, without waiver or modification. Borrower acknowledges that Bank has not committed to make any renewal or further extension of the maturity date of the above-described credit accommodation beyond the new maturity date specified herein, and that any such renewal or further extension remains in the sole discretion of Bank. This letter constitutes the entire agreement between Bank and Borrower with respect to Santa Anita Realty Enterprises, Inc. April 1, 1997 Page 2 the maturity date extension for the above-described credit accommodation, and supersedes all prior negotiations, discussions and correspondence concerning said extension. Please acknowledge your acceptance of the terms and conditions contained herein by dating and signing one copy below and returning it to my attention at the above address on or before April 15, 1997. Very truly yours, WELLS FARGO BANK, NATIONAL ASSOCIATION SUCCESSOR-BY-MERGER TO FIRST INTERSTATE BANK OF CALIFORNIA By: /s/ Daniel F. Maddox ----------------------------------- Daniel F. Maddox Vice President Acknowledged and accepted as of 3/24/97: ------- Santa Anita Realty Enterprises, Inc. By: /s/ Brian L. Fleming ------------------------ Brian L. Fleming Executive Vice President/ Chief Financial Officer EX-10.18 6 SCHEDULE OF OMITTED DOCUMENTS & MATERIALS EXHIBIT 10.18 Schedule of Omitted Documents and Material Details Regarding Severance Agreements of Certain Officers of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company The persons listed below have entered into substantially identical forms of Severance Agreements, effective as of the dates listed opposite their names. The form of Severance Agreement is incorporated by reference to Exhibit 10.22 to the Joint Annual Report on Form 10-K of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company for the year ended December 31, 1992. William C. Baker August 16, 1996 Clifford C. Goodrich October 1, 1992 Thomas S. Robbins October 1, 1992 Mark T. Stephens December 15, 1994 Kathryn J. McMahon November 28, 1994 Brian L. Fleming May 11, 1994 EX-10.44 7 FORM OF RETENTION AGREEMENT EXHIBIT 10.44 SANTA ANITA REALTY ENTERPRISES, INC. RETENTION AGREEMENT This Retention Agreement ("Agreement") is dated as of December 16, 1996, and is entered into by and between _____________("Employee") and Santa Anita Realty Enterprises, Inc., a Delaware corporation ("Company"). Employee and Company hereby agree to the following terms and conditions: 1. Purpose of Agreement. The purpose of this Agreement is to -------------------- provide that, in the event of a "Change in Control," Employee may become entitled to receive additional benefits in the event of his or her termination. It is believed that the existence of these potential benefits will benefit Company by discouraging turnover among executives with Agreements and causing such executives to be more able to respond to the possibility of a Change in Control without being influenced by the potential effect of a Change in Control on their job security. 2. Change in Control. For the purpose of this Agreement, a "Change ----------------- in Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (1) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company (except that an acquisition by virtue of the exercise of a 1 conversion privilege shall not be considered within this paragraph unless the converted security was itself acquired directly from the Company), (2) any acquisition by the Company, (3) any acquisi tion by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (4) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in paragraphs (1) and (2) of subsection (c) of this Section 2 are satisfied; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incum bent Board shall be considered as though such individual were a member of the Incumbent Board; but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation (a "transaction"), unless, following such transaction in each case, (1) more than 80% of, respectively, the then outstanding shares of common stock of the corporation resulting from such transaction and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting 2 Securities immediately prior to such transaction and (2) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such transaction and any Person beneficially owning, immediately prior to such transaction, directly or indirectly, 20% or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such transaction or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors; or (d) Approval by the shareholders of the Company of (1) a complete liquidation or dissolution of the Company or (2) the sale or other disposition of all or substantially all of the assets of the Company, unless such assets are sold to a corporation and following such sale or other disposition, the conditions described in paragraphs (1) and (2) of subsec tion (c) of this section 2 are satisfied. 3. Rights and Obligations Prior to a Change in Control. Prior to a --------------------------------------------------- Change in Control the rights and obligations of Employee with respect to his or her employment by Company shall be whatever rights and obligations are negotiat ed between Company and Employee from time to time. The existence of this Agreement, which deals only with such rights and obligations subsequent to a Change in Control, shall not be treated as raising any inference with respect to what rights and obligations exist prior to a Change in Control. 4. Effect of a Change in Control. In the event of a Change in ----------------------------- Control, Sections 6 through 7 of this Agreement shall become applicable to Employee if his or her Qualifying Termination occurs on or after the date of the Change in Control and on or prior to the first anniversary of the date of the Change in Control. If a Qualifying Termination has occurred by that date, then, notwithstanding 3 Section 9, this Agreement shall remain in effect until Employee receives the various benefits to which he or she has become entitled under the terms of this Agreement; otherwise, upon such date this Agreement shall be of no further force or effect. 5. Qualifying Termination. If, subsequent to a Change in Control ---------------------- and during the period described in Section 4, Employee's employment with the Company terminates, such termination shall be considered a Qualifying ----- Termination if either of the following events occurs: (a) Employee voluntarily terminates employment with the Company for Good Reason. For purposes of this Section, "Good Reason" shall mean the occurrence of one of the following events without Employee's consent: (1) The assignment to Employee of any duties at Company inconsistent in any material respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as they existed in their most significant form during the 90 days preceding the Change in Control or any other action by the Company which results in an aggregate diminution in any material respect in such position, author ity, duties or responsibilities, provided that (1) an isolated and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee shall not be a violation of this paragraph and (2) a reduc tion in one element of Employee's position, authority, duties or responsibilities com pensation shall not be deemed a violation of this paragraph if a counterbalancing increase in another element of Employee's position, authority, duties or responsibilities occurs (the determination of 4 whether the increase is counterbalancing shall be determined by Employee in good faith); (2) Any reduction in Employee's total aggregate compensation from Company not agreed to by Employee, which reduction shall be deemed to occur if there is a reduction in (1) Employee's aggregate base salary or annual bonus (which shall be deemed to be reduced if the annual bonus is less than the average annual bonus for the three fiscal years preceding the Change in Control) or (2) Employee's ability to participate in employee benefit plans, receive expense reimbursements, receive other fringe benefits, receive office and support staff, or receive paid vacation, on the same terms as such benefits were applicable during the 90 days preceding the Change in Control, provided that, (1) an isolated, insubstantial, and inadvertent failure not occurring in bad faith and which is promptly remedied after notice by the Employee shall not be deemed a violation of this paragraph and (2) a reduc tion in one element of Employee's total compensation shall not be deemed a violation of this paragraph if a counterbalancing increase in another element of Employee's total compensation occurs (the determination of whether the increase is counterbalancing shall be determined by Employee in good faith); and (3) The transfer of Employee's job location to a site which is more than 30 miles away from his or her place of employment prior to the Change in Control of the Company. (b) Employee is involuntarily terminated by Company without "Cause." For purposes of this Section, 5 "Cause" shall mean (1) an act or acts of dishonesty (including but not limited to conviction of a felony) taken by Employee which materially injures or damages the Company or (2) Employee's willful failure to substantially perform Employee's duties where such willful failure results in demonstrable material injury and damage to the Company. Unless the following paragraph applies, this paragraph applies if (1) the Change in Control is described in Section 2(c) and the resulting corporation ("Successor") is not the Company or (2) the Change in Control is described in Section 2(d), substantially all of the assets are sold to a single entity ("Successor") and the Successor assumes all obligations under this Retention Agreement. If this paragraph applies, then (1) the termination of Employee's employment with the Company in connection with the Change in Control will not, in of itself, constitute a Qualifying Termination if Employee is employed by the Successor in connection with the Change in Control and (2) the term "Successor" shall be substituted for "Company" throughout this Agreement. This paragraph applies if the Change in Control results in a joint venture entity in which the Company is a partner. If this paragraph applies, then (1) the reassignment or transfer of Employee from the Company to the joint venture entity in connection with the Change in Control will not, in of itself, constitute a Qualifying Termination and (2) whether a Qualifying Termination occurs shall be determined by considering the employment of Employee by the Company and the joint venture entity in the aggregate. 6. Severance Payment. In the event of a Qualify ing Termination, ----------------- Company shall pay Employee within 30 days of the Qualifying Termination a cash lump sum equal to Employee's "Compensation" as a severance payment (the "Severance Payment"). For this purpose, "Compensation" shall equal 6 the sum of (1) the Employee's current annual base salary rate plus (2) the sum of all bonuses paid to the Employee during the three consecutive calendar year period ending on December 31 coinciding with or immediately preceding the Change in Control divided by three (provided that, if the Employee was not employed for three full calendar years, the bonus shall be based on the number of full calendar years during which the Employee was employed). The Severance Payment hereunder is in lieu of any severance payments that Employee might otherwise be entitled to from Company under the terms of any other severance pay arrangement. 7. Limitation on Severance Payments. -------------------------------- (a) Notwithstanding anything in this Agreement to the contrary, any "parachute payments" to be made to or for the benefit of the Employee, whether pursuant to this Agreement or otherwise, shall be modified to the extent necessary so that the requirements of either paragraph (1) or (2) below are satisfied: (1) the aggregate "present value" of all "parachute payments" payable to or for the benefit of the Employee, whether pursuant to this Agreement or otherwise, shall be less than three times the Employee's "base amount"; or (2) each "parachute payment" payable to or for the benefit of the Employee, whether pursuant to this Agreement or otherwise, shall be in an amount which does not exceed the "reasonable compensation" allocable to such "parachute payment." (b) Notwithstanding anything in this Agreement to the contrary, no payment described in Section 280G(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the "Code") shall be made to or for the benefit of the Employee. 7 (c) For purposes of this Agreement: (1) the term "base amount" shall have the meaning ascribed to it under Section 280G(b)(3) of the Code; (2) the term "parachute payment" shall have the meaning ascribed in Section 280G(b)(2)(A) of the Code, without regard to Section 280G(b)(2)(A)(ii) of the Code, excluding any amount not treated as a parachute payment pursuant to Section 280G(b)(4)(A) or (6) of the Code; (3) "present value" shall be determined in accordance with Section 280G(d)(4) of the Code; (4) the term "reasonable compensation" shall have the meaning ascribed to it under Section 280G(b)(4)(B) of the Code (for personal services actually rendered before the date of the Change in Control); and (5) the portion of the "base amount" and the amount of "reasonable compensation" allocable to any "parachute payment" shall be determined in accordance with Section 280G(b)(3) of the Code and Section 280G(b)(4)(B) of the Code, respectively. (d) In the event the amount of any "parachute payments" which would be payable to or for the benefit of Employee without regard to this section must be modified to comply with this section, the first payments to be modified shall be those owed to the Employee under this Agreement. (e) Unless the Employee consents in writing, Company cannot delay payment of any amounts due under this Agreement by claiming that it is difficult to calculate the precise amount due under this Agreement 8 because of the reductions that may be required by subsections (a) through (d). (f) In the event that Employee requests independent verification of Company's calculations hereunder, Company shall provide to Employee within 15 business days after such a request an opinion from a nationally recognized accounting firm selected by Employee (the "Accounting Firm"). The opinion shall state the Accounting Firm's opinion that any decrease in payments hereunder is necessary to avoid the limits of Section 280G and contain supporting calculations. The cost of such opinion shall be paid for by the Company. (g) This section shall be interpreted so as to avoid the imposition of excise taxes on the Employee under Section 4999 of the Code or the disallowance of a deduction to Company pursuant to Section 280G(a) of the Code. 8. Waiver of Invalidity; No Offset. ------------------------------- (a) Inasmuch as the injury caused to Employee in the event his employment is terminated after a Change in Control is difficult or incapable of accurate estimation at the date of this Agreement, the amounts provided to be paid hereunder are intended to be severance compensation and not a penalty, and therefore constitute a good faith forecast of the harm which might be expected to be caused to Employee. Accordingly, the Company waives any right to assert against Employee the invalidity of any payment hereunder by reason of Employee's failure to seek other employment or otherwise, nor shall the amount of any payment hereunder be reduced by reason of any compensation earned or not earned by Employee as the result of employment by another employer after the date of termina tion or otherwise. 9 (b) The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. The preceding sentence shall not apply to any obligation of Employee if the Employee agreed in writing that the Employee's obligation may be offset against payments due hereunder. 9. Term of Agreement. This Agreement shall be effective through ----------------- September 30, 1997 and may not be amended or terminated during such period except pursuant to an instrument in writing executed by all of the parties hereto. The Board of Directors of the Company may, in its sole discretion and for any reason, provide written notice of termination or amendment, effective as of the then applicable expiration date, to Employee no later than six months before the expira tion date of this Agreement. If written notice is not so provided, this Agreement shall be automatically extended for an additional period of 60 months past the expiration date. This Agreement shall continue to be automatically extended for an additional 60 months at the end of such 60- month period and each succeeding 60-month period unless notice is given in the manner described in this section. Notwithstanding the preceding sentences of this Agreement, this Agreement shall automatically be extended past an otherwise applicable expiration date if a Change in Control has occurred prior to that date. The extension referred to in the preceding sentence shall be for one year after the Change in Control. 10. Successors. The rights and obligations of Company under this ---------- Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of Company. 11. Governing Law. Except to the extent that federal law is ------------- applicable, this Agreement is made and entered 10 into in the State of California, and the laws of California shall govern its validity and interpretation in the performance by the parties hereto of their respective duties and obligations hereunder. 12. Entire Agreement. This Agreement constitutes the entire ---------------- agreement between the parties respecting the benefits due Employee in the event of a Change in Control followed by a Qualifying Termination, and there are no representations, warranties or commitments, other than those set forth herein, which relate to such benefits. This is an integrated agreement. 13. Arbitration. (a) Because it is agreed that time will be of the ----------- essence in determining whether any payments are due to Employee under this Agreement, Employee may, if he or she desires, submit any claim for payment under this Agreement or dispute regarding the interpretation of this Agreement to arbitration. This right to select arbitration shall be solely that of Employee; Employee may decide whether or not to arbitrate in his or her discretion. The "right to select arbitration" is not mandatory on Employee and Employee may choose in lieu thereof to bring an action in an appro priate civil court. Once an arbitration is commenced, how ever, it may not be discontinued without the mutual consent of both parties to the arbitration. (b) Any claim for arbitration may be submitted as follows: if Employee disagrees with the Company regarding the interpretation of this Agreement and the claim is finally denied by the Company in whole or in part, such claim may be filed in writing with an arbitrator of Employee's choice who is selected by the method described in the next four sentences. The first step of the selection shall consist of Employee submitting a list of five potential arbitrators to Company. Each of the five arbitrators must be either (1) a member of the National Academy of Arbitrators located in the State of California or (2) a retired California Superior Court or Appellate Court judge. Within one week after receipt of the list, Company shall select one of the five 11 arbitrators as the arbitrator for the dispute in question. If Company fails to select an arbitrator in a timely manner, Employee shall then designate one of the five arbitrators as the arbitrator for the dispute in question. (c) The arbitration hearing shall be held within seven days (or as soon thereafter as possible) after the picking of the arbitrator. No continuance of said hearing shall be allowed without the mutual consent of Employee and Company. Absence from or nonparticipation at the hearing by either party shall not prevent the issuance of an award. Hearing procedures which will expedite the hearing may be ordered at the arbitrator's discretion, and the arbitrator may close the hearing in his or her sole discretion when he or she decides he or she has heard sufficient evidence to satisfy issuance of an award. (d) The arbitrator's award shall be rendered as expeditiously as possible and in no event later than one week after the close of the hearing. In the event the arbitrator finds that the Company has breached this Agreement, he or she shall order the Company to immediately take the necessary steps to remedy the breach. The award of the arbitrator shall be final and binding upon the parties. The award may be enforced in any appropriate court as soon as possible after its rendition. If an action is brought to confirm the award, both the Company and Employee agree that no appeal shall be taken by either party from any decision rendered in such action. (e) Solely for purposes of determining the alloca tion of the costs described in this subsection, Company will be considered the prevailing party in a dispute if the arbitrator determines (1) that the Company has not breached this Agreement and (2) the claim by Employee was frivolous. Otherwise, Employee will be considered the prevailing party. In the event that the Company is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (excluding any attorneys' fees incurred by the Company) including stenographic reporter, if employed, shall 12 be paid by the other party. In the event that Employee is the prevailing party, the fee of the arbitrator and all necessary expenses of the hearing (including --------- all attorneys' fees incurred by Employee in pursuing his or her claim), including the fees of a stenographic reporter if employed, shall be paid by the Company. (f) If the arbitrator determines that (1) the Company has breached this Agreement and (2) the Company was unjustified in failing to make the payments required under this Agreement to Employee, Company shall pay to Employee, as liquidated damages and not as a penalty, an additional amount equal to 10% of the amount involved in the arbitration with respect to this Agreement. 14. Notices. Any notice or communications required or permitted to ------- be given to the parties hereto shall be delivered personally or be sent by United States registered or certified mail, postage prepaid and return receipt requested, and addressed or delivered as follows, or to such other addressees the party addressed may have substituted by notice pursuant to this section: (a) If to Company Santa Anita Realty Enterprises, Inc. Corporate Secretary 301 West Huntington Drive Suite 405 Arcadia, CA 91007 13 (b) If to Employee: ___________________________________ ___________________________________ Street Address ___________________________________ City, State, Zip Code 15. Captions. The captions of this Agreement are inserted for -------- convenience and do not constitute a part hereof. 16. Severability. In case any one or more of the provisions ------------ contained in this Agreement shall for any reason be held to be invalid, illegal or enforceable in other respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein and there shall be deemed substituted for such other provision as will most nearly accomplish the intent of the parties to the extent permitted by the applicable law. In case this Agree ment, or any one or more of the provisions hereof, shall be held to be invalid, illegal or unenforceable within any governmental jurisdiction or subdivision thereof, this Agreement or any such provision thereof shall not as a consequence thereof be deemed to be invalid, illegal or unenforceable in any other governmental jurisdiction or subdivision thereof. 17. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. 14 IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first written above in Arcadia, California. Company By ___________________________ Title ________________________ Employee ______________________________ 15 Schedule of Omitted Documents and Material Details Regarding Retention Agreements of Certain Employees of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company The persons listed below have entered into substantially identical forms of Retention Agreements, effective as of the dates listed opposite their names. The form of Severance Agreement is filed as a part of this exhibit. Elizabeth P. Haug December 16, 1996 Tom D. Austin December 16, 1996 Roger C. Allen December 16, 1996 Richard L. McNall December 16, 1996 Cecelia Consiglio February 13, 1997 EX-10.45 8 RESIGNATION OF GENERAL RELEASE AGREEMENT DATED 12/13/1996 EXHIBIT 10.45 RESIGNATION AND GENERAL RELEASE AGREEMENT ----------------------------------------- This Resignation and General Release Agreement ("Agreement"), made this 13th day of December, 1996, by and between Michael J. Manning ("Manning"), an individual and Los Angeles Turf Club, Incorporated (the "Company") is a resignation agreement which includes a general release of claims. In consideration of the covenants undertaken and the releases contained in this Agreement, Manning and the Company agree as follows: 1. Manning shall voluntarily resign from his position as Vice President and Assistant General Manager of the Company and as an officer of the Company's subsidiaries by executing Exhibit A attached hereto, such resignation to be effective December 13, 1996. 2. The Company and Manning agree to the following actions in full discharge of any and all of its obligations to Manning (except to the extent such obligations are carried out under this agreement, either directly or by incorporation by reference), including, without limitation, the Severance Agreement dated as of November 28, 1994. a. Manning shall remain on the Company's payroll and be paid semi-monthly, less statutory deductions, until June 15, 1997, provided that Manning does not revoke this Agreement pursuant to Section 7(d) hereof, and shall pay him one (1) month of vacation pay, less statutory deductions, within ten (10) days of execution of this Agreement. The Company will continue Manning's COBRA benefits at Manning's expense. b. Under no circumstance shall the Company pay Manning anything if a Change in Control (as defined in such Severance Agreement) occurs at any time. 3. Manning shall return to the Company and shall not take or copy in any form or manner lists of customers, prices, engineering plans, and similar confidential and proprietary materials or information. 2 4. The Company expressly denies any violation of any of its policies, procedures, state or federal laws or regulations. Accordingly, while this Agreement resolves all issues between the Company and Manning relating to any alleged violation of the Company policies or procedures or any state or federal law or regulation, this Agreement does not constitute an adjudication or finding on the merits and it is not, and shall not be construed as, an admission by the Company of any violation of its policies, procedures, state or federal laws or regulations. Moreover, neither this Agreement nor anything in this Agreement shall be construed to be or shall be admissible in any proceeding as evidence of or an admission by the Company of any violation of its policies, procedures, state or federal laws or regulations. This Agreement may be introduced, however, in any proceeding to enforce the Agreement. Such introduction shall be pursuant to an order protecting its confidentiality. 5. Except for those obligations created by or arising out of this Agreement for which receipt or satisfaction has not been acknowledged herein, Manning on behalf of himself, his descendants, dependents, heirs, executors, administrators, 3 assigns, and successors, and each of them, hereby covenants not to sue and fully releases and discharges the Company and its subsidiaries and affiliates and Santa Anita Realty Enterprises, Inc., past and present, and each of them, as well as each of their trustees, directors, officers, agents, attorneys, insurers, employees, stockholders, representatives, assigns, and successors, past and present, and each of them, hereinafter together and collectively referred to as "Releasees," with respect to and from any and all claims, wages, demands, rights, liens, agreements, contracts, covenants, actions, suits, causes of action, obligations, debts, costs, expenses, attorneys' fees, damages, judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, whether now known or unknown, suspected or unsuspected, and whether or not concealed or hidden, which he now owns or holds or he has at any time heretofore owned or held or may in the future hold as against said Releasees, arising out of or in any way connected with his employment or other relationships with the Company, or his voluntary resignation from employment or any other transactions, occurrences, acts or omissions or any loss, damage or injury whatever, known or unknown, suspected or unsuspected, resulting from any act or 4 omission by or on the part of said Releasees, or any of them, committed or omitted prior to the date of this Agreement including, without limiting the generality of the foregoing, any claim under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the California Fair Employment and Housing Act, the California Family Rights Act, or any claim for severance pay, bonus, sick leave, holiday pay, vacation pay, life insurance, health or medical insurance or any other fringe benefit, workers' compensation or disability. 6. It is the intention of Manning in executing this instrument that the same shall be effective as a bar to each and every claim, demand and cause of action hereinabove specified. In furtherance of this intention, Manning expressly waives any and all rights and benefits conferred upon him by the provisions of SECTION 1542 OF THE CALIFORNIA CIVIL CODE and expressly consents that this Agreement shall be given full force and effect according to each and all of its express terms and provisions, including those related to unknown and unsuspected claims, demands and causes of action, if any, as well as those relating 5 to any other claims, demands and causes of action hereinabove specified. SECTION 1542 provides: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." Manning acknowledges that he may hereafter discover claims or facts in addition to or different from those which he now knows or believes to exist with respect to the subject matter of this Agreement and which, if known or suspected at the time of executing this Agreement, may have materially affected this settlement. Nevertheless, Manning hereby waives any right, claim or cause of action that might arise as a result of such different or additional claims or facts. Manning acknowledges that he understands the significance and consequence of such release and such specific waiver of SECTION 1542. 6 7. Manning expressly acknowledges and agrees that, by entering into this Agreement, he is waiving any and all rights or claims that he may have arising under the Age Discrimination in Employment Act of 1967, as amended, which have arisen on or before the date of execution of this Agreement. Manning further expressly acknowledges and agrees that: a. In return for this Agreement, he will receive compensation beyond that which he was already entitled to receive before entering into this Agreement; b. He was orally advised by the Company and is hereby advised in writing by this Agreement to consult with an attorney before signing this Agreement; c. He was given a copy of this Agreement on December 11, 1996, and informed that he has twenty-one (21) days within which to consider the Agreement and by executing this Agreement hereby waives the twenty-one (21) day period; 7 d. He was informed that he has seven (7) days following the date of execution of the Agreement in which to revoke the Agreement; and 8. Manning shall make himself available, upon the request of the Company to testify or otherwise assist in litigation, arbitration, or other disputes involving the Company or any of the directors, officers, employees, subsidiaries, or parent corporation, at no additional cost until June 15, 1997 and thereafter the Company shall pay Manning $800 per day, for the above services. 9. Manning acknowledges that by reason of his position with the Company he has been given access to lists of customers, prices, engineering plans, and similar confidential or proprietary materials or information respecting the Company's business affairs. Manning represents that he has held all such information confidential and will continue to do so, and that he will not use such information and relationships for any business (which term herein includes a partnership, firm, corporation or 8 any other entity) without the prior written consent of the Company. 10. Manning agrees that the terms and conditions of this Agreement shall remain confidential as between the parties and he shall not disclose them to any other person except for his attorneys and tax advisors and his spouse. Without limiting the generality of the foregoing, Manning will not respond to or in any way participate in or contribute to any public discussion, notice or other publicity concerning, or in any way relating to, execution of this Agreement or the events (including any negotiations) which led to its execution. Without limiting the generality of the foregoing, Manning specifically agrees that he shall not disclose information regarding this Agreement to any current or former employee of Releasees. It shall not be a violation of this Agreement for Manning to state that he "resigned for personal reasons and to pursue other business opportunities." Manning hereby agrees that disclosure by him of any of the terms and conditions of the Agreement in violation of the foregoing shall constitute and be treated as a material breach of this Agreement. 9 The Company agrees that its officers shall keep confidential the terms and conditions of this Agreement among the officers and directors of the Company and said officers shall undertake their best efforts to ensure that the directors keep the terms and conditions of this Agreement confidential, except to the extent that disclosures are required by federal securities or other laws or the disclosure of the terms and conditions of this Agreement to consultants and advisors of the Company and employees of the Company other than the officers is necessary or appropriate. 11. Manning warrants and represents that Manning has not heretofore assigned or transferred to any person not a party to this Agreement any released matter or any part or portion thereof and Manning shall defend, indemnify and hold harmless the Company from and against any claim (including the payment of attorneys' fees and costs actually incurred whether or not litigation is commenced) based on or in connection with or arising out of any such assignment or transfer made, purported or claimed. 10 12. Manning and the Company acknowledge that any employment or contractual relationship between them terminated on December 13, 1996, including but not limited to the Severance Agreement dated November 28, 1994, and that they have no further employment or contractual relationship except as may arise out of this Agreement and that Manning waives any right or claim to reinstatement as an employee of the Company and will not seek employment in the future with the Company or any Releasee. 13. All payments hereunder shall be reduced by federal and state income tax withholding and other applicable withholding taxes. 14. This instrument constitutes and contains the entire agreement and understanding concerning Manning's employment, voluntary resignation from the same and the other subject matters addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements proposed or otherwise, whether written or oral, concerning the subject matters hereof. This is an integrated document. This 11 agreement may be modified only by a writing signed by the parties. 15. Manning may revoke this Agreement in its entirety during the seven days following execution of the Agreement by Manning. Any revocation of the Agreement must be in writing and hand delivered to Kathryn J. McMahon, Esq. at 285 West Huntington Drive, Arcadia, CA 91007 during the revocation period. This Agreement will become effective and enforceable seven days following execution by Manning, unless it is revoked during the seven-day period. 16. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable. 12 17. This Agreement shall be deemed to have been executed and delivered within the State of California, and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with, and governed by, the laws of the State of California without regard to principles of conflict of laws. 18. Each party has cooperated in the drafting and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against any party on the basis that the party was the drafter. 19. This Agreement may be executed in counterparts, and each counterpart, when executed, shall have the efficacy of a signed original. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose. 20. Any dispute or controversy between Manning, on the one hand, and the Company (or any other Releasee), on the other hand, in any way arising out of, related to, or connected with this Agreement or the subject matter thereof, or otherwise in any 13 way arising out of, related to, or connected with Manning's employment with the Company or the termination of Manning's employment with the Company, shall be resolved through final and binding arbitration in Los Angeles, California, pursuant to California Civil Procedure Code (S)(S) 1282-1284.2, before a mutually agreed upon arbitrator. If there is no Mutual Agreement then by alternate striking from a panel of nine (9) retired judges submitted by Endispute/J.A.M.S. or a similar organization. In the event of such arbitration, the prevailing party shall be entitled to recover all reasonable costs and expenses incurred by such party in connection therewith, including attorneys' fees. The nonprevailing party shall also be solely responsible for all costs of the arbitration, including, but not limited to, the arbitrator's fees, court reporter fees, and any and all other administrative costs of the arbitration, and promptly shall reimburse the prevailing party for any portion of such costs previously paid by the prevailing party. Any dispute as to the reasonableness of costs and expenses shall be determined by the arbitrator. 14 Except as may be necessary to enter judgment upon the award or to the extent required by applicable law, all claims, defenses and proceedings (including, without limiting the generality of the foregoing, the existence of the controversy and the fact that there is an arbitration proceeding) shall be treated in a confidential manner by the arbitrator, the parties and their counsel, and each of their agents, and employees and all others acting on behalf of or in concert with them. Without limiting the generality of the foregoing, no one shall divulge to any third party or person not directly involved in the arbitration the contents of the pleadings, papers, orders, hearings, trials, or awards in the arbitration, except as may be necessary to enter judgment upon an award as required by applicable law. Any court proceedings relating to the arbitration hereunder, including, without limiting the generality of the foregoing, to prevent or compel arbitration or to confirm, correct, vacate or otherwise enforce an arbitration award, shall be filed under seal with the court, to the extent permitted by law. 21. No waiver of any breach of any term or provision of this Agreement shall be construed to be, or shall be, a waiver 15 of any other breach of this Agreement. No waiver shall be binding unless in writing and signed by the party waiving the breach. 22. In entering this Agreement, the parties represent that they have relied upon the advice of their attorneys, who are attorneys of their own choice, and that the terms of this Agreement have been completely read and explained to them by their attorneys, and that those terms are fully understood and voluntarily accepted by them. 23. After execution of this Agreement, the Company may, but is not required to, present for approval to the Workers' Compensation Appeals Board an appropriate stipulation or compromise and release extinguishing any and all rights or claims Manning may have under applicable workers' compensation provisions. 16 24. All parties agree to cooperate fully and to execute any and all supplementary documents and to take all additional actions that may be necessary or appropriate to give full force to the basic terms and intent of this Agreement and which are not inconsistent with its terms. I have read the foregoing Agreement and I accept and agree to the provisions it contains and hereby execute it voluntarily with full understanding of its consequences. 17 EXECUTED this _____ day of December, 1996, at Los Angeles County, California. __________________________________ Michael J. Manning 18 EXECUTED this _____ day of December, 1996, at Los Angeles County, California. LOS ANGELES TURF CLUB, INCORPORATED By ___________________________ 19 ENDORSEMENT ----------- I, Michael J. Manning, hereby acknowledge that I was given 21 days to consider the foregoing Agreement and voluntarily chose to sign the Agreement prior to the expiration of the 21-day period. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. EXECUTED this ____ day of December, 1996, at Los Angeles County, California. _______________________________ Michael J. Manning 20 EXHIBIT A --------- To CLIFF GOODRICH This is to advise you that effective December 13, 1996, I hereby voluntarily resign my position as Vice President and Assistant General Manager of Los Angeles Turf Club, Incorporated. I agree that I will not seek reemployment with Los Angeles Turf Club, Incorporated or Oak Tree Racing Association or their parent corporations, or subsidiaries or affiliates. Sincerely yours, ____________________________ Michael J. Manning EX-23.1 9 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference of our report dated April 14, 1997 accompanying the financial statements and schedules of: (a) Santa Anita Companies (b) Santa Anita Realty Enterprises, Inc.; and (c) Santa Anita Operating Company and Subsidiaries appearing in the above-listed entities' Annual Report on Form 10-K for the year ended December 31, 1996, as amended, in this Form 10-K/A-2 and in the Prospectus contained in Post-Effective Amendment No. 3 to the Joint Registration Statement on Form S-8 (No. 2-95228), Joint Registration Statement on Form S-8 (No. 33-51843), and Joint Registration Statement on Form S-8 (No. 033-58995). Ernst & Young LLP Los Angeles, California August 12, 1997 EX-23.2 10 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.2 [LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE] CONSENT OF INDEPENDENT AUDITORS The Board of Directors Santa Anita Realty Enterprise, Inc. and Santa Anita Operating Company; We consent to incorporation by reference in the Joint Registration Statement (No. 2-95228) on Form S-8, as amended through Post-Effective Amendment No. 3, the Joint Registration Statement on Form S-8 (No. 33-51843), and the Joint Registration Statement on Form S-8 (No. 33-58995) of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company of our report dated February 7, 1997, relating to the balance sheets of Anita Associates as of December 31, 1996 and 1995, and the related statements of income, partners' deficit and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 Joint Annual Report on Form 10-K/A-2 of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company. KPMG Peat Marwick LLP San Diego, California August 12, 1997 EX-23.3 11 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.3 [LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE] CONSENT OF INDEPENDENT AUDITORS The Board of Directors Santa Anita Realty Enterprise, Inc. and Santa Anita Operating Company: We consent to incorporation by reference in the Joint Registration Statement (No. 2-95228) on Form S-8, as amended through Post-Effective Amendment No. 3, the Joint Registration Statement on Form S-8 (No. 33-51843), and the Joint Registration Statement on Form S-8 (No. 33-58995) of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company of our report dated February 10, 1997, relating to the consolidated balance sheets of H-T Associates and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 Joint Annual Report on Form 10-K/A-2 of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company. Our report dated February 10, 1997, contains an explanatory paragraph that states that the Partnership's primary subsidiary is in technical default on its notes payable at December 31, 1996. As such, those notes may be callable at the lender's discretion. This technical default raises substantial doubt about the Partnership's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. KPMG Peat Marwick LLP San Diego, California August 12, 1997 EX-27.A 12 FINANCIAL DATE SCHEDULE - 0000314661 - ENTERPRISES
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANTA ANITA REALTY ENTERPRISES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000314661 SANTA ANITA REALTY ENTERPRISES, INC. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 12,921,000 0 233,000 (143,000) 0 0 60,702,000 (30,164,000) 61,753,000 0 20,407,000 0 21,718,000 1,159,000 7,516,000 61,753,000 0 19,184,000 0 2,434,000 12,748,000 0 2,670,000 1,332,000 0 1,332,000 0 0 0 (11,036,000) (0.97) 0.0
EX-27.B 13 FINANCIAL DATA SCHEDULE - 0000313749 - OPERATING
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANTA ANITA OPERATING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000313749 SANTA ANITA OPERATING COMPANY YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 10,301,000 0 2,352,000 0 0 16,132,000 48,631,000 (28,059,000) 38,807,000 23,486,000 867,000 0 1,050,000 1,148,000 10,038,000 38,807,000 0 69,187,000 0 59,596,000 9,565,000 0 788,000 (762,000) 0 (762,000) 0 0 0 (814,000) (0.07) 0.0
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