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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 001-12917
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WELLSFORD REAL PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 13-3926898
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(State of organization) (I.R.S. employer identification number)
535 MADISON AVENUE, NEW YORK, NY 10022
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 838-3400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock American Stock Exchange
$.01 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such 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. |X|
The aggregate market value of the voting shares held by non-affiliates of the
registrant was approximately $126,900,000 based on the closing price on the
American Stock Exchange for such shares on February 29, 2000.
THE NUMBER OF THE REGISTRANT'S SHARES OF COMMON STOCK OUTSTANDING WAS 16,644,370
AS OF FEBRUARY 29, 2000 (INCLUDING 339,806 SHARES OF CLASS A COMMON STOCK).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Annual Shareholders' Meeting
to be held on June 9, 2000 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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FORM
10-K
ITEM REPORT
NO. PAGE
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PART I
1. Business .............................................................3
2. Properties...........................................................12
3. Legal Proceedings ...................................................16
4. Submission of Matters to a Vote of Security-Holders..................16
PART II
5. Market for Registrant's Common Equity
and Related Shareholder Matters.............................17
6. Selected Consolidated Financial Data.................................18
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................19
7a. Quantitative and Qualitative Disclosures about Market Risk...........26
8. Consolidated Financial Statements and Supplementary Data.............26
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................26
PART III
10. Directors and Executive Officers of the Registrant...................27
11. Executive Compensation...............................................27
12. Security Ownership of Certain Beneficial Owners and Management.......27
13. Certain Relationships and Related Transactions ......................27
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......28
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1999 and 1998........F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997...........................F-4
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997...............F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997...........................F-6
Notes to Consolidated Financial Statements..........................F-7
Wellsford/Whitehall Group, L.L.C. Consolidated Financial
Statements and Notes .....................................F-35
FINANCIAL STATEMENT SCHEDULES
III. Real Estate and Accumulated Depreciation............................S-1
IV. Mortgage Loans on Real Estate.......................................S-3
All other schedules have been omitted because the required information for such
other schedules is not present, is not present in amounts sufficient to require
submission of the schedule or is included in the consolidated financial
statements.
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PART I
ITEM 1. BUSINESS
Wellsford Real Properties, Inc. and subsidiaries, collectively, the "Company"
was formed on January 8, 1997, as a corporate subsidiary of Wellsford
Residential Property Trust (the "Trust"). The Trust was formed in 1992 as the
successor to Wellsford Group Inc. and affiliates, which was formed in 1986. On
May 30, 1997, the Trust merged (the "Merger") with Equity Residential Properties
Trust ("EQR"). Immediately prior to the Merger, the Trust contributed certain of
its assets to the Company and the Company assumed certain liabilities of the
Trust. Immediately after the contribution of assets to the Company and
immediately prior to the Merger, the Trust distributed to its common
shareholders all of the outstanding shares of the Company owned by the Trust
(the "Spin-off"). On June 2, 1997, the Company sold 12,000,000 shares of its
common stock in a private placement (the "Private Placement") to a group of
institutional investors at $10.30 per share, the Company's then book value per
share.
The Company is a real estate merchant banking firm headquartered in New York
City which acquires, develops, finances and operates real properties and
organizes and invests in private and public real estate companies. The Company's
operations are organized into three Strategic Business Units ("SBUs"). The
portfolio of investments held in each SBU at December 31, 1999 includes:
Wellsford/Whitehall Group, L.L.C.
o A 41.4% interest in a private joint venture that owned and operated 41
office properties totaling approximately 4,920,000 square feet,
including approximately 1,451,000 square feet under renovation,
primarily located in New Jersey, Massachusetts and Maryland.
Wellsford Capital
o $65,000,000 of debt related investments including $37,300,000 of
direct debt investments which bore interest at an average yield of
11.31% and $27,700,000 in a company which was organized to invest in
debt instruments;
o Venture capital investments of approximately $7,000,000 in a real
estate e-commerce company and other real estate-related ventures; and
o Seven commercial properties totaling approximately 597,000 square feet
primarily located in the Northeastern United States and California.
Wellsford Development
o An 80% interest in Palomino Park, a five phase, 1,800 unit multifamily
residential development in a suburb of Denver, Colorado. Two phases
containing 760 units are completed and operational, two phases
containing 688 units are under construction and the remaining
approximate 352 unit phase is being prepared for development ; and
o A 344-unit operational multifamily residential development in Tucson,
Arizona.
See the accompanying consolidated financial statements for certain financial
information regarding the Company's industry segments.
The Company's executive offices are located at 535 Madison Avenue, New York, New
York, 10022; telephone, (212) 838-3400. The Company has 49 employees, 32 of
whom are dedicated fully to the operations and management of
Wellsford/Whitehall Group, L.L.C.
COMMERCIAL PROPERTY OPERATIONS - WELLSFORD/WHITEHALL
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The Company seeks to acquire commercial properties and create value through
adaptive reuse. The Company believes that appropriate well-located commercial
properties which are currently underperforming can be acquired on advantageous
terms and repositioned with the expectation of achieving enhanced returns which
are greater than
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returns which could be achieved by acquiring stabilized properties. The
Company's current target markets include New York, New Jersey, Connecticut,
Boston, Philadelphia, Baltimore and the Washington D.C. metropolitan areas.
The Company's commercial property operations segment consists of
Wellsford/Whitehall Group, L.L.C. ("Wellsford/Whitehall"), which is accounted
for on the equity method.
At the time of the Spin-off, the Company owned six commercial office buildings,
five of which were then vacant, containing an aggregate of approximately 949,400
square feet which were acquired for an aggregate of approximately $47,600,000
(the "WRP Commercial Properties").
In August 1997, the Company, in a joint venture with WHWEL Real Estate Limited
Partnership ("Whitehall"), an affiliate of The Goldman Sachs Group Inc., formed
a private real estate operating company, Wellsford/Whitehall. The Company
contributed the WRP Commercial Properties and Whitehall contributed four
commercial properties upon formation of Wellsford/Whitehall. The Company manages
Wellsford/Whitehall on a day-to-day basis, and certain major decisions require
the consent of both primary partners. The Company had a 41.4% interest in
Wellsford/Whitehall at December 31, 1999.
As of December 31, 1999, Wellsford/Whitehall owned and operated 41 office
properties totaling approximately 4,920,000 square feet, including approximately
1,451,000 square feet under renovation, primarily located in New Jersey,
Massachusetts, and Maryland.
During the years ended December 31, 1999, 1998 and 1997, Wellsford/Whitehall
participated in the following transactions:
(amounts in millions, except square feet and per square foot amounts)
1999 ACTIVITY:
Purchases:
Gross
Leasable
Square Number of Cost per
Month Type Location Feet Properties Cost (1) Square Foot
----- ---- -------- ---- ---------- -------- -----------
May ......... Office/Flex Warren, NJ 129,000 1 $ 8.0 $ 62
June ........ Office Boston, MA 64,000 1 10.2 159
June ........ Office Boston, MA 68,000 1 13.1 193
July ........ Office/Land Columbia, MD 97,000 1 10.7 110
July ........ Office Owings Mills, MD 32,000 1 3.9 122
August ...... Land Hanover, NJ 19.2 acres 1 2.0 --
August ...... Office Hanover, NJ 96,000 1 13.3 139
September ... Flex Columbia, MD 144,000 1 3.8 26
November .... Office Rockville, MD 236,000 1 19.9 84
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Total purchases 866,000 9 $ 84.9 --
======= = =======
Total, excluding land 866,000 8 $ 82.9 96
======= = =======
Sales:
Sales Price
Gross Leasable per
Square Number of Square
Month Location Feet Properties Sales Price Foot Gain
----- -------- ---- ---------- ----------- ---- ----
February .... Wayne, NJ 2.58 acres (2) 1 $ 0.3 $-- $ 0.2
May ......... Boston, MA 65,000 1 8.1 125 2.3
August ...... Needham, MA 261,000 1 26.0 100 5.6
November .... Washington, D.C. 225,000 1 43.4 193 7.5
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Total sales 551,000 4 $ 77.8 -- $ 15.6
======= = ======= =======
Total, excluding land 551,000 3 $ 77.5 141 $ 15.4
======= = ======= =======
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(1) The 1999 Wellsford/Whitehall acquisitions described above were funded
with proceeds from first mortgage financing on five of the properties
and seller financing in the form of a second mortgage on one of the
properties of $43,401,000 and additional capital contributions by the
Company and Whitehall.
(2) Sale of vacant land.
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1998 ACTIVITY:
Purchases:
Gross
Leasable Cost per
Square Number of Square
Month Type Location Feet Properties Cost (1) Foot
----- ---- -------- ---- ---------- -------- ----
February .... Office Boston, MA 65,000 1 $ 5.5 $ 85
February .... Land Somerset, NJ 19 acres 1 2.0 --
March ....... Office Somerset, NJ 82,000 1 5.4 66
May ......... Office Boston, MA 977,000 13 148.7 (2) 152
May ......... Warehouse Needham, MA 470,000 2 28.4 60
June ........ Office Andover, MA 63,000 1 7.4 117
June ........ Office Basking Ridge, NJ 104,000 2 15.0 144
September ... Office Franklin Township, NJ 199,000 2 22.8 115
November .... Office Columbia, MD 38,000 1 2.6 68
December .... Office Ridgefield Park, NJ 147,000 1 19.3 131
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Total purchases 2,145,000 25 $ 257.1 --
========= == ========
Total, excluding land 2,145,000 24 $ 255.1 119
========= == ========
Sale:
Sales Price
Gross Leasable per
Square Number of Square
Month Location Feet Properties Sales Price Foot Gain
----- -------- ---- ---------- ----------- ---- ----
May ......... Wayne, NJ 69,000 1 $ 5.0 $ 72 $ 2.9
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(1) The 1998 Wellsford/Whitehall acquisitions described above, other than
the May Boston transaction, were funded primarily by capital
contributions from the Company and Whitehall, and by draws on the
Wellsford/Whitehall Bank Facility with Fleet National Bank as agent
for itself and several other financial institutions
("Wellsford/Whitehall Bank Facility").
(2) The Boston portfolio of 13 office buildings was financed with (i) the
assumption of $68,300,000 of mortgage debt, (ii) a $35,800,000 draw on
the Wellsford/Whitehall Bank Facility, (iii) the issuance of
$19,000,000 of Wellsford/Whitehall 6% convertible preferred units to
the sellers, (iv) $18,000,000 of capital contributions by Whitehall
and the Company and (v) the issuance of $7,600,000 of
Wellsford/Whitehall common units.
1997 ACTIVITY:
Purchases (1):
Gross
Leasable Cost per
Square Number of Square
Month Type Location Feet Properties Cost (2) Foot
----- ---- -------- ---- ---------- -------- ----
September Office Somerset, NJ 181,000 1 $ 18.1 $ 100
December Office Berkeley Hts, NJ 297,000 2 29.1 98
December Industrial Parsippany, NJ 244,000 1 7.1 29
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Total purchases 722,000 4 $ 54.3 75
======= = =========
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(1) Exclusive of properties contributed by the Company and Whitehall upon
formation of the joint venture.
(2) The Wellsford/Whitehall transactions described above were funded
primarily by capital contributions from the Company and Whitehall, the
assumption of $48,000,000 in mortgage debt which encumbered certain of
the properties contributed by Whitehall and the proceeds of a term
loan agreement (the "Wellsford/Whitehall Bridge Loan") by the Company
to Wellsford/Whitehall.
In July 1998, Wellsford/Whitehall modified the Wellsford/Whitehall Bank
Facility. Under the new terms, $300,000,000 represents a senior secured credit
facility bearing interest at LIBOR + 1.65% and $75,000,000 represents a secured
mezzanine facility bearing interest at LIBOR + 3.20%. Both facilities mature on
December 15, 2000 and are extendable for one year by Wellsford/Whitehall. As of
December 31, 1999 and 1998, approximately $238,700,000 and $276,200,000,
respectively, was outstanding under the Wellsford/Whitehall Bank Facility
(approximately $177,300,000 and $207,300,000, respectively, of which was under
the senior facility). At December 31, 1999, Wellsford/Whitehall expected to
borrow an additional $8,000,000 for tenant improvements and leasing commissions
through March 31, 2000, when the ability to draw on this facility expires under
the current terms of the Wellsford/Whitehall Bank Facility. The
Wellsford/Whitehall Bank Facility contains certain financial covenants including
limitations on distributions to members.
The Company is entitled to receive incentive compensation payable out of
distributions made by Wellsford/Whitehall (the "Promote") after return of
capital and minimum annual returns of at least 15% to 17.5% on such capital
balances to the Company and Whitehall (as defined in the Wellsford/Whitehall
Operating Agreement
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(the "Operating Agreement")). Pursuant to the Operating Agreement, the Company
is required to distribute to officers and employees of Wellsford/Whitehall and
the Company, 50% or, in some cases, 55% of the Promote it receives. To date, the
Company has not earned or received any distribution of the Promote and there can
be no assurance that such Promote will be earned.
In June 1999, the capital commitment requirements of Wellsford/Whitehall were
modified from an aggregate of $150,000,000 ($75,000,000 by each partner) to an
aggregate of $250,000,000. The Company's total portion is $85,000,000 of which
$72,769,000 was contributed as of December 31, 1999 and Whitehall's total
portion is $165,000,000 of which $101,604,000 was contributed as of December 31,
1999. These commitments expire December 31, 2000.
In connection with the formation of Wellsford/Whitehall, the Company issued
warrants (the "Whitehall Warrants") to Whitehall to purchase 4,132,230 shares of
the Company's common stock at an exercise price of $12.10 per share. The
Whitehall Warrants are exercisable until August 28, 2002. The exercise price for
the Whitehall Warrants is payable in cash or membership units in
Wellsford/Whitehall. As part of the new capital commitment from Whitehall in
1999, the Company issued to Whitehall additional warrants to purchase an
additional 123,967 shares of the Company's common stock exercisable at $12.10
per share, payable in cash or in exchange for membership units of
Wellsford/Whitehall, held by Whitehall based upon Wellsford/Whitehall's value as
defined. These additional warrants are exercisable for five years and expire on
May 28, 2004. Whitehall may exchange an additional $25,000,000 of the membership
units it owns in Wellsford/Whitehall for shares of the Company's common stock or
cash at the Company's sole discretion, based upon the price paid for such
membership units and the current market value of the Company's common stock. As
of December 31, 1999, no units have been converted.
The Company has agreed with Whitehall to conduct its business and activities
relating to office properties (but not other types of commercial properties)
located in North America solely through its interest in Wellsford/Whitehall
except, in certain circumstances, where Wellsford/Whitehall has declined the
investment opportunity.
DEBT AND EQUITY ACTIVITIES - WELLSFORD CAPITAL
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DEBT INVESTMENTS
The Company makes loans that constitute, or will invest in, real estate related
senior, junior or otherwise subordinated debt instruments, which may be
unsecured or secured by liens on real estate, interests therein or the economic
benefits thereof, and which have the potential for high yields or returns more
characteristic of equity ownership. These investments may include debt that is
acquired at a discount, mezzanine financing, commercial mortgage-backed
securities, secured and unsecured lines of credit, distressed loans and loans
previously made by foreign and other financial institutions. The Company
believes that there are opportunities to acquire real estate debt, especially in
the low or below investment grade tranches, at significant returns as a result
of inefficiencies in pricing, while utilizing management's real estate expertise
to analyze the underlying properties and thereby effectively minimizing risk.
At December 31, 1999, the Company had approximately $65,000,000 of debt related
investments, including $37,300,000 of direct debt investments which bore
interest at an average yield of 11.31% and had an average remaining term to
maturity of 4.8 years and $27,700,000 in a company which was organized to invest
in debt instruments. Following is information regarding these investments.
277 PARK
In April 1997, the Company and Fleet National Bank originated an $80,000,000
loan (the "277 Park Loan") to entities which own substantially all of the equity
interests (the "Equity Interests") in the entity which owns a 1,750,000 square
foot office building located in New York City (the "277 Park Property"). The
Company has advanced $25,000,000 pursuant to the 277 Park Loan. The 277 Park
Loan is secured primarily by a pledge of the Equity Interests owned by the
borrowers. The 277 Park Loan is subordinated to a 10-year $345,000,000
(amortized balance of $332,580,000 at December 31, 1999) first mortgage loan
(the "REMIC Loan") on the 277 Park Property.
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The 277 Park Loan bears interest at the rate of 12.00% per annum for the first
nine years of its term and at a floating annual rate during the tenth year equal
to LIBOR + 5.15% or the Fleet National Bank base rate plus 5.15%, as elected by
the borrowers. The principal amount of the 277 Park Loan and all accrued
interest will be payable in May 2007; the REMIC Loan is also due in May 2007.
The Company earned approximately $3,042,000, $3,042,000 and $2,000,000 per year
in interest income, or 10.1%, 11.7% and 22.1% of its total non-joint venture
revenues from the 277 Park Loan during 1999, 1998 and 1997, respectively.
PATRIOT
In September 1999, the Company and Fleet National Bank originated a $10,000,000
second mortgage. The Company has advanced $5,000,000 (its 50% share) pursuant to
the second mortgage. The second mortgage is subordinate to a $75,000,000 first
mortgage with Fleet National Bank. The loan bears interest at LIBOR + 4.75% with
payments of interest only through August 2001 and principal and interest based
on a 25-year amortization through the loan's maturity in July 2002 (the "Patriot
Loan"). The Patriot Loan is secured by a fee interest in a 608,000 square foot
mixed-use property in Boston, Massachusetts.
THE ABBEY COMPANY
In August 1997, the Company and Morgan Guaranty Trust Company of New York
("MGT") originated a $70,000,000 credit facility secured by first mortgages (the
"Abbey Credit Facility") to affiliates of The Abbey Company, Inc. ("Abbey"). In
May 1998, the Company and MGT expanded the Abbey Credit Facility to
$120,000,000. In December 1998, Abbey repaid $20,000,000, thereby reducing the
total available balance to $100,000,000. In September 1999, an additional
$83,500,000 was repaid, thereby reducing the total available balance to
$16,500,000. The Abbey Credit Facility will be made available to Abbey until
September 2000. Advances under the facility can be made for up to 65% of the
value of the borrowing base collateral which consisted of first mortgage loans
on three properties (one each of office, industrial and retail), all cross
collateralized, totaling approximately 250,000 square feet at December 31, 1999.
The Company's portion of the outstanding balance is approximately $4,300,000 and
$46,000,000 at December 31, 1999 and 1998, respectively. Under the terms of its
participation agreement with MGT, the Company will fund a 50% junior
participation on all advances under the Abbey Credit Facility. The Company is
entitled to receive interest on its advances under the Abbey Credit Facility at
LIBOR + 4.00%. The Company earned approximately $2,941,000, $3,920,000 and
$827,000, or 9.8%, 15.1% and 9.1% of its total non-joint venture revenues from
the Abbey Credit Facility during 1999, 1998 and 1997, respectively.
SAFEGUARD
In December 1998, the Company and MGT originated a $90,000,000 credit facility
secured by first mortgages (the "Safeguard Credit Facility") to Safeguard
Capital Fund, L.P. ("Safeguard"). The Safeguard Credit Facility will be made
available to Safeguard until April 2001. Advances under the facility can be made
for up to 75% of the value of the borrowing base collateral which consists of
nine self-storage properties, all cross-collateralized, totaling approximately
608,000 square feet at December 31, 1999. Under the terms of its participation
agreement with MGT, the Company will fund a 50% junior participation on all
advances under the Safeguard Credit Facility. The Company is entitled to receive
interest on its advances under the Safeguard Credit Facility at LIBOR + 4.00%.
Approximately $5,900,000 had been advanced by the Company under the Safeguard
Credit Facility at December 31, 1998, with additional advances made of
approximately $2,200,000 through March 1999, at which time, the loan with a
balance of $8,100,000 was contributed to the Company's joint venture investment,
Belford Capital Holdings, L.L.C. ("Belford Capital"). This venture also assumed
the first $25,000,000 of the Company's commitment to fund additional advances
under the Safeguard Credit Facility (including amounts advanced through December
31, 1999). The Company retained the remaining $20,000,000 commitment, of which
$2,900,000 was advanced to Safeguard in September 1999 and was outstanding at
December 31, 1999.
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DEBARTOLO
In July 1998, the Company, Bank One, N.A. and several other financial
institutions originated a $175,000,000 loan, in which the Company had an
$18,000,000 participation (the "DeBartolo Loan"), to entities owned by Simon
DeBartolo Group, L.P. The DeBartolo Loan is secured by partnership units in
Simon DeBartolo Group, L.P., the operating partnership of a real estate
investment trust which owns mall space nationwide. The DeBartolo Loan bears
interest at 8.547%, is payable quarterly, pays principal based on a 20-year
amortization schedule and is due in July 2008. In March 1999, the amortized loan
balance of approximately $17,600,000 was contributed to Belford Capital.
WOODLANDS
In December 1997, the Company, Fleet National Bank, Morgan Stanley Senior
Funding, Inc. and certain other lenders made available to the owners and
developers of a 25,000 acre master-planned residential community located north
of Houston (the "Woodlands Property"), loans in the aggregate principal amount
of $369,000,000 (the "Woodlands Loan"). The Woodlands Loan consisted of a
revolving credit loan in the principal amount of $179,000,000 (the "Revolving
Loan"), a secured term loan in the principal amount of $130,000,000 (the
"Secured Loan"), and a second secured term loan in the principal amount of
$60,000,000 (the "Second Secured Loan"). The Company advanced $15,000,000
pursuant to the Second Secured Loan. The Second Secured Loan was subordinate to
the Revolving Loan and the Secured Loan and bore interest equal to LIBOR +
4.40%. The principal amount of the Woodlands Loan was repaid in full prior to
December 31, 1999. The Company earned approximately $1,295,000 and $1,517,000,
or 4.3% and 5.8% of its total non-joint venture revenues from the Woodlands
Second Secured Loan during 1999 and 1998, respectively.
REIT BRIDGE LOAN
In August 1998, the Company, Deutsche Bank, N.A. and certain other lenders
originated a $100,000,000 unsecured loan in which the Company had a $15,000,000
participation (the "REIT Bridge Loan") to a publicly traded real estate
investment trust which owns 22 regional malls, eight multifamily apartment
properties and five office properties nationwide. This loan bore interest at
9.875% and was due in February 1999, with two three-month extensions available
to the borrower. In January 1999, the REIT Bridge Loan was modified to extend
the maturity date to August 1999 and increase the interest rate to 12.00%. The
borrower paid a 1.50% loan fee at origination and a 1.00% loan fee upon
modification. This loan was repaid in full in July 1999.
BROOMFIELD
In January 1999, the Company acquired a parcel of land in Broomfield, Colorado
for approximately $7,200,000 pursuant to an outstanding standby commitment
issued in 1998. In connection with this transaction, the Company collected
approximately $400,000 of fees in 1998. In July 1999, the Company sold this land
for $7,200,000 to a third party ("Buyer") and simultaneously collected an
additional $1,100,000 in fees. The Company then purchased $11,740,000 of
tax-exempt notes, bearing interest at 6.25% and due in December 1999. These
notes were issued by a quasi-governmental agency partially controlled by the
Buyer and were guaranteed by a AA rated bank. The notes were repaid in full in
December 1999. The Company earned approximately $1,555,000 and $401,000, or 5.2%
and 1.5% of its total non-joint venture revenues, on the Broomfield transaction
during 1999 and 1998, respectively.
BELFORD CAPITAL
The Company contributed approximately $24,200,000 and $4,900,000 in 1999 and
1998, respectively, to a 51% owned joint venture special purpose finance company
("SPFC"), Belford Capital, with The Liberty Hampshire Company, L.L.C. ("Liberty
Hampshire") owning 10% and another entity owning the remaining 39%. The 1999
contribution was comprised of two of the Company's debt investments, the
$17,600,000 DeBartolo Loan and the $8,100,000 outstanding balance of the
Safeguard Credit Facility, net of $1,500,000 of cash received back from Belford
Capital. The other partners contributed their respective shares of their capital
contributions in cash. Belford Capital also assumed the first $25,000,000 of the
Company's commitment to fund the Safeguard Credit Facility (including amounts
advanced to date).
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VENTURE CAPITAL INVESTMENTS
At December 31, 1999, the Company had venture capital investments of $7,000,000
in a real estate e-commerce company and other real estate-related ventures.
Following is information regarding these investments.
LIBERTY HAMPSHIRE
In July and August 1998, the Company invested a total of approximately
$2,100,000 for a 4.20% interest in Liberty Hampshire, which structures,
establishes and provides management and services for SPFCs formed to invest in
financial assets.
REIS REPORTS, INC.
Belford Capital has invested $6,500,000 in a real estate market research
internet company, Reis Reports, Inc. ("Reis"), a leading provider of real estate
market information to institutional investors, at December 31, 1999. The
Company's share of this investment was approximately $3,321,000 at December 31,
1999. The primary shareholder of Reis is the brother of Mr. Lynford, Chairman of
the Company; Mr. Lynford recused himself from the Reis investment decisions.
CREAMER VITALE WELLSFORD/CLAIRBORNE INVESTORS
In January 1998, the Company formed Creamer Vitale Wellsford, L.L.C. ("Creamer
Vitale Wellsford") in which it has a 49% interest and acquired the same interest
in a related real estate advisory and consulting firm.
Creamer Vitale Wellsford, together with Prudential Real Estate Investors
("PREI"), an affiliate of Prudential Life Insurance Company, have established
the Clairborne Investors Mortgage Investment Program ("Clairborne") to make
opportunistic investments and to provide liquidity to lenders and participants
in mortgage loan transactions. The parties have agreed to contribute up to
$150,000,000 to fund acquisitions approved by the parties, of which PREI will
fund 90% and a subsidiary of the Company will fund 10%. Creamer Vitale Wellsford
will originate, co-invest, and manage the investments of the program.
The Company's original investment in these entities was $1,250,000 of cash and
148,000 five-year warrants to purchase the Company's common shares at $15.175
per share, valued at approximately $750,000 at that time. In November 1998,
Clairborne acquired an approximate $17,000,000 participation in a $56,000,000
mortgage, bearing interest at LIBOR + 1.75% and due in 3.5 years, at a
significant discount to face value. The Company funded approximately $1,400,000
of the cost of this participation, which was prepaid entirely at the face amount
during 1999 by the borrower.
OTHER INVESTMENTS
VALUE PROPERTY TRUST
In February 1998, the Company completed the merger with Value Property Trust
("VLP") (the "VLP Merger") for total consideration of approximately
$169,000,000, which was accounted for as a purchase. Thirteen of the twenty VLP
properties, which were under contract to an affiliate of Whitehall, were
subsequently sold for an aggregate of approximately $64,000,000. The Company
retained seven of the VLP properties with an allocated value upon purchase of
approximately $38,300,000, containing an aggregate of approximately 597,000
square feet located primarily in the northeastern United States and California.
VLP had cash of $60,800,000 and other net assets of $5,900,000 at the close of
the transaction.
PROPERTY DEVELOPMENT AND LAND OPERATIONS - WELLSFORD DEVELOPMENT
- ----------------------------------------------------------------
The Company engages in selective development activities as opportunities arise
and when justified by expected returns. The Company believes that by pursuing
selective development activities, it can achieve returns which are greater than
returns which could be achieved by acquiring stabilized properties. Certain
development activities may be conducted in joint ventures with local developers
who may bear the substantial portion of the economic risks
-9-
associated with the construction, development and initial rent-up of properties.
As part of its strategy, the Company may seek to issue tax-exempt bond financing
authorized by local governmental authorities which generally bears interest at
rates substantially below rates available from conventional financing.
PALOMINO PARK
The Company owns an approximate 80% interest in Phases I, II, III, IV and V of a
1,800-unit class A multifamily development ("Palomino Park") in a suburb of
Denver, Colorado. EQR owns the remaining 20% interest. The Company has a related
$14,755,000 tax exempt mortgage note payable which requires interest only
payments at a variable rate (average rate for 1999 was approximately 3.4%) until
it matures in December 2035 (the "Palomino Park Bonds"). The tax exempt mortgage
note payable is security for tax-exempt bonds, which are backed by a letter of
credit from a AAA rated financial institution. The Company and an affiliate of
EQR have guaranteed the reimbursement of the financial institution in the event
that the letter of credit is drawn upon (the latter guarantee being the "EQR
Enhancement").
In December 1997, Phase I, known as Blue Ridge, was completed at a cost of
approximately $41,500,000. At that time, the Company obtained a $34,500,000
permanent loan (the "Blue Ridge Mortgage") secured by a first mortgage on Blue
Ridge. The Blue Ridge Mortgage matures in January 2008 and bears interest at a
fixed rate of 6.92%. Principal payments are based on a 30-year amortization
schedule.
In November 1998, Phase II, known as Red Canyon, was completed at a cost of
approximately $33,900,000. At that time, the Company acquired the Red Canyon
improvements and the related construction loan was repaid with the proceeds of a
$27,000,000 permanent loan (the "Red Canyon Mortgage") secured by a first
mortgage on Red Canyon. The Red Canyon Mortgage matures in December 2008 and
bears interest at a fixed rate of 6.68%. Principal payments are based on a
30-year amortization schedule.
The estimated total costs of the remaining three multifamily development phases
at Palomino Park and related infrastructure costs at completion of these phases,
including the Company's gross investment, which is included in construction in
progress on the Company's consolidated financial statements, of approximately
$30,748,000 at December 31, 1999, are as follows:
ESTIMATED ESTIMATED
TOTAL COMPLETION
NAME UNITS COST DATE
---- ----- ---- ----
Phase III ("Silver Mesa") .... 264 $ 40,000,000 July 2000
Phase IV ("Green River") ..... 424 55,000,000 Fourth Quarter 2001
Phase V ("Gold Peak") ........ 352 42,000,000 Fourth Quarter 2002
----- -------------
1,040 $ 137,000,000
===== =============
The third and fourth phases of this project are being developed pursuant to
fixed-price contracts. The Company is committed to purchase 100% of the
improvements upon completion and the achievement of certain occupancy levels of
these phases. In addition, the Company is obligated to fund the first 20% of
development costs on these phases as they are incurred.
In May 1997, the Company acquired the land for Silver Mesa for approximately
$2,100,000. In May 1998, the Company acquired the land for Green River for
approximately $3,200,000. In May 1999, the Company acquired the land for Gold
Peak for approximately $2,600,000. Construction in progress related to these
three phases, including the cost of land, was approximately $30,748,000 at
December 31, 1999.
SONTERRA
From the time of the Spin-off, the Company held a $17,800,000 mortgage on, and
option to purchase, a 344-unit class A residential apartment complex ("Sonterra
at Williams Centre") located in Tucson, Arizona.
In January 1998, the Company exercised its option and acquired Sonterra at
Williams Centre for approximately $20,500,000, including satisfaction of the
mortgage. In February 1998, the Company closed on $16,400,000 of first
-10-
mortgage financing (the "Sonterra Mortgage") on this property, bearing interest
at 6.87% and maturing in March 2008. Principal payments are based on a 30-year
amortization schedule.
SEGMENT FINANCIAL INFORMATION
See Note 10 to the Company's consolidated financial statements for additional
information regarding the Company's industry segments.
FUTURE INVESTMENTS
The Company may in the future make equity investments in entities owned and/or
operated by unaffiliated parties and which engage in real estate-related
businesses and activities or businesses that service the real estate industry.
Some of the entities in which the Company may invest may be start-up companies
or companies in need of additional capital. The Company may also manage and
lease properties owned by it or in which it has an equity or debt investment.
-11-
ITEM 2. PROPERTIES.
The following property information is presented by SBU.
WELLSFORD/WHITEHALL
Wellsford/Whitehall owned and operated 41 office properties, totaling
approximately 4,920,000 square feet at December 31, 1999. The following table
sets forth certain information related to these properties at December 31, 1999:
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
OPERATING PROPERTIES
1800 Valley Road ............ Office Wayne, NJ 56,000 1980 1 100.0%
Greenbrook Corporate Center . Office Fairfield, NJ 201,000 1987 12 96.6%
Chatham Executive Center .... Office Chatham, NJ 63,000 1972/1997 6 100.0%
300 Atrium Drive ............ Office Somerset, NJ 150,000 1983 4 82.4%
400 Atrium Drive ............ Office Somerset, NJ 355,000 1985 2 99.1%
500 Atrium Drive ............ Office Somerset, NJ 169,000 1984 3 94.2%
700 Atrium Drive ............ Office Somerset, NJ 181,000 1985 1 100.0%
Mountain Heights Center #1 .. Office Berkeley Hts, NJ 183,000 1986 13 99.7%
Garden State Exhibit Center . Flex Somerset, NJ 82,000 1968/1989 N/A N/A
150 Wells Avenue ............ Office Newton, MA 11,000 1987 1 100.0%
72 River Park ............... Office Needham, MA 22,000 1983 4 100.0%
70 Wells Avenue ............. Office Newton, MA 29,000 1979 2 100.0%
160 Wells Avenue ............ Office Newton, MA 19,000 1970/1997 1 100.0%
2331 Congress Street ........ Office Portland, ME 24,000 1980 3 84.4%
60/74 Turner Street ......... Office/Land Waltham, MA 16,000 1970 1 100.0%
100 Wells Avenue ............ Office Newton, MA 21,000 1978 1 100.0%
333 Elm Street .............. Office Dedham, MA 48,000 1983 7 96.3%
Dedham Place ................ Office Dedham, MA 160,000 1987 8 97.2%
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT* ENCUMBRANCES
-------- ------- ---------- ---- ---- ----- ------------
OPERATING PROPERTIES
1800 Valley Road ............ Rickitt & Coleman December 2003 $ 12.10 $ 14.41 $ 13.00 (A)
Greenbrook Corporate Center . Information Resources December 2003 20.14 22.18 22.50 (A)
Chatham Executive Center .... Quadrant July 2009 26.54 28.16 30.00 (A)
300 Atrium Drive ............ AT&T March 2004 17.93 19.82 21.50 (A)
400 Atrium Drive ............ Merrill Lynch December 2001 & 2003 17.39 19.90 21.50 (A)
500 Atrium Drive ............ AT&T December 2003 18.78 22.88 21.50 (A)
700 Atrium Drive ............ Merck June 2005 15.12 18.39 21.50 (A)
Mountain Heights Center #1 .. The Santa Cruz September 2006 20.54 22.57 28.50 (A)
Garden State Exhibit Center . N/A N/A 28.39 28.39 28.39 (A)
150 Wells Avenue ............ Linx Communications September 2001 19.50 19.99 22.50 (A)
72 River Park ............... JH Albert, Ins. November 2004 20.32 20.99 25.50 (A)
70 Wells Avenue ............. Renaissance Worldwide, Inc. November 2002 22.14 23.74 24.50 (A)
160 Wells Avenue ............ New England Cable December 2013 22.00 23.76 24.50 (A)
2331 Congress Street ........ Clark Associates April 2002 12.64 13.37 15.25 (A)
60/74 Turner Street ......... Brandeis University June 2002 7.00 7.00 9.00 (A)
100 Wells Avenue ............ The Larkin Group December 2002 21.25 22.53 24.50 (A)
333 Elm Street .............. Lojack May 2001 18.81 19.21 27.00 (A)(B)
Dedham Place ................ Harvard Pilgrim Healthcare September 2001 24.85 30.23 28.75 (A)(B)
-12-
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
128 Technology Center ....... Office Waltham, MA 218,000 1986 2 100.0%
201 University Avenue ....... Office Westwood, MA 82,000 1982 (E) (E)
7/57 Wells Avenue ........... Office Newton, MA 88,000 1982 15 74.1%
75/85/95 Wells Avenue ....... Office Newton, MA 242,000 1976/1986 12 99.9%
Shattuck Office Center ...... Office Andover, MA 63,000 1985 11 100.0%
180/188 Mt Airy Road ........ Office Basking Ridge, NJ 104,000 1980 12 98.8%
377/379 Campus Drive ........ Office Franklin Twp, NJ 199,000 1984 1 100.0%
105 Challenger Road ......... Office Ridgefield Park, NJ 147,000 1992 3 100.0%
6301 Stevens Forest ......... Office Columbia, MD 38,000 1980 2 100.0%
150 Mt. Bethel Road ......... Office/Flex Warren, NJ 129,000 1981 6 64.3%
One Mall North .............. Office Columbia, MD 97,000 1978/1998 40 95.6%
McDonough Crossroads ........ Office Owings Mills, MD 32,000 1988 5 100.0%
Oakland Ridge ............... Flex Columbia, MD 144,000 1972 9 66.6%
Airport Park ................ Office Hanover Twp, NJ 96,000 1979 17 98.5%
--------- --- ----
SUBTOTAL--OPERATING PROPERTIES ................................... 3,469,000 205 92.3%
--------- --- ----
PROPERTIES UNDER RENOVATION
Pointview Corporate Center .. Office Wayne, NJ 515,000 1976/1998 (F) --
Morris Technology Center .... Office Parsippany, NJ 244,000 1963/1977/1998 (F) --
Mountain Heights Center #2 .. Office Berkeley Hts, NJ 115,000 1968/1998 (G) (G)
117 Kendrick Street ......... Office Needham, MA 209,000 1963 (F) --
600 Atrium Drive ............ Land Somerset, NJ N/A N/A (H) --
Airport Park ................ Land Hanover Twp, NJ N/A N/A (H) --
401 North Washington ........ Office Rockville, MD 236,000 1972 1 26.2%
79 Milk Street .............. Office Boston, MA 64,000 1920/1998 28 83.7%
24 Federal Street ........... Office Boston, MA 68,000 1921/1997 (F) --
--------- --- ----
SUBTOTAL-PROPERTIES UNDER RENOVATION ............................. 1,451,000 29 8.1%
--------- --- ----
1999 TOTAL/AVERAGE ............................................... 4,920,000 234 92.3%
========= === ====
(I)
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT* ENCUMBRANCES
-------- ------- ---------- ---- ---- ----- ------------
128 Technology Center ....... Parametric Technology October 2001 21.13 23.75 31.25 (A)(B)
201 University Avenue ....... (E) (E) (E) (E) (E) (A)(B)
7/57 Wells Avenue ........... GEO Centers November 2004 28.89 28.94 30.00 (A)(B)
75/85/95 Wells Avenue ....... Marcam April 2005 24.20 24.26 31.00 (A)(B)
Shattuck Office Center ...... Codman Research Group March 2000 17.64 19.14 22.50 (A)
180/188 Mt Airy Road ........ Lucent Technology October 2004 22.90 24.64 26.50 (A)
377/379 Campus Drive ........ AT&T August 2003 11.00 11.00 13.50 (A)
105 Challenger Road ......... Samsung America, Inc. December 2003 21.79 23.93 27.50 (A)
6301 Stevens Forest ......... SecurityLink from Ameritech July 2005 14.59 14.78 16.50 (A)
150 Mt. Bethel Road ......... TMS Mortgage June 2003 11.71 13.69 15.00 (A)(C)
One Mall North .............. Alco Pharmaceuticals May 2000 17.61 17.99 21.00 (A)
McDonough Crossroads ........ Giancarlo Versacchi June 2002 15.75 16.60 19.00 (A)(C)
Oakland Ridge ............... Nightmare Graphics, Inc. December 2001 4.41 4.68 9.50 (D)
Airport Park ................ Gemini Consulting January 2006 19.92 21.56 25.00 (A)(C)
--------- -------- --------
SUBTOTAL--OPERATING PROPERTIES ................................... 18.73 20.56 23.26
--------- -------- --------
PROPERTIES UNDER RENOVATION
Pointview Corporate Center .. -- -- -- -- -- (A)
Morris Technology Center .... -- -- -- -- -- (A)
Mountain Heights Center #2 .. (G) (G) (G) (G) -- (A)
117 Kendrick Street ......... -- -- -- -- -- (A)
600 Atrium Drive ............ -- -- -- -- -- (A)
Airport Park ................ -- -- -- -- -- (D)
401 North Washington ........ GE Information Services April 2004 7.27 7.47 25.25 (D)
79 Milk Street .............. J.M. Forbes January 2002 21.46 22.59 40.75 (A)(C)
24 Federal Street ........... -- -- -- -- -- (A)(C)
--------- -------- --------
SUBTOTAL-PROPERTIES UNDER RENOVATION ............................. N/A N/A N/A
--------- -------- --------
1999 TOTAL/AVERAGE ............................................... $ 18.73 $ 20.56 $ 23.26
========= ======== ========
(I) (I) (I)
- ----------
(A) Encumbered by the Wellsford/Whitehall Bank Facility.
(B) Encumbered by the Nomura Mortgage.
(C) Encumbered by other mortgages.
(D) Unencumbered.
(E) Lease with RCN-Becocom L.L.C. commenced January 1, 2000 for 100% of the
leasable building square feet with a triple net rent of $15.00 per square
foot. Lease term expires December 2009.
(F) Building under renovation.
(G) Subsequent to December 31, 1999, lease was signed with Compaq for 100% of
the leasable building square feet, with a base rent of $28.95 per square
foot. Tenant to take possession of space in stages throughout 2000. Lease
term expires August 2010.
(H) Land is held for development.
(I) Properties under renovation not included in 1999 Total/Average.
* Company's internal judgement as to specific property market rent per square
foot as of December 31, 1999.
-13-
The following table sets forth historical Wellsford/Whitehall portfolio
information by year:
TOTAL BUILDING LEASABLE BUILDING
DECEMBER 31, SQUARE FEET SQUARE FEET OCCUPANCY
------------ ----------- ----------- ---------
1999 ..... 4,920,000 3,469,000 92%
1998 ..... 4,605,000 3,219,000 92%
1997 ..... 2,412,000 1,330,000 89%
The average lease term of the tenants' leases is approximately 8.6 years. Leases
typically provide for step-ups in base rent periodically over the term of a
lease and pass throughs to tenants of their pro rata share of increases in
certain expenses (real estate taxes and operating expenses) over a base year.
Leases may also provide for improvement allowances for all or a portion of the
tenant's initial construction of its premises. The following table sets forth as
of December 31, 1999 lease expirations for each of the next ten years, assuming
tenants do not exercise any renewal options:
ANNUAL BASE RENT
OF EXPIRING LEASES
LEASABLE PERCENTAGE ------------------
NUMBER OF SQUARE FEET OF TOTAL PER
EXPIRING OF EXPIRING LEASED SQUARE
YEAR LEASES LEASES SQUARE FEET TOTAL FOOT
---- ------ ------ ----------- ----- ----
2000........ 62 211,055 6% $ 3,583,720 $ 16.98
2001........ 58 785,474 23% 15,185,385 19.33
2002........ 28 205,820 6% 4,039,558 19.62
2003........ 51 928,401 28% 17,692,938 19.05
2004........ 18 294,474 9% 5,766,837 19.58
2005........ 14 456,367 14% 10,030,521 21.98
2006........ 12 183,307 5% 4,269,990 23.29
2007........ 6 39,868 1% 988,924 24.80
2008........ 5 34,938 1% 935,528 26.79
2009........ 3 60,167 2% 1,600,814 26.61
No tenant in the Wellsford/Whitehall portfolio accounts for more than 7% of 1999
rental revenues.
-14-
WELLSFORD CAPITAL
Wellsford Capital owned the following commercial properties at December 31,
1999:
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
Hoes Lane ........ Office Piscataway, NJ 37,632 1987 12 100%
Bradford Plaza ... Retail West Chester, PA 123,885 1990 16 82%
Chestnut Street .. Office Philadelphia, PA 50,053 1857/1990 7 91%
Keewaydin Drive .. Industrial Salem, NH 125,230 1973 3 49%
Turnpike Street .. Industrial Canton, MA 43,160 1980 2 100%
Two Executive .... Office Cherry Hill, NJ 102,310 1970 11 60%
Bay City Holdings Office Santa Monica, CA 114,375 1985 23 91%
------- --
1999 TOTAL/AVERAGE 596,645 74 76%
======= == ==
1998 TOTAL/AVERAGE 596,645 80%
======= ==
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT* ENCUMBRANCES
-------- ------- ---------- ---- ---- ----- ------------
Hoes Lane ........ A March 2004 $ 14.20 $ 15.70 $ 16.50 $ 1,340,000
Bradford Plaza ... B June 2011 10.80 13.00 13.00 8,400,000
Chestnut Street .. C December 2001 13.30 15.60 14.50 2,000,000
Keewaydin Drive .. D January 2004 5.70 7.50 7.25 2,420,000
Turnpike Street .. E January 2001 7.10 11.50 9.50 1,940,000
Two Executive .... F March 2007 12.10 12.30 14.50 2,300,000
Bay City Holdings G June 2010 16.10 19.10 25.00 9,600,000
-----------
1999 TOTAL/AVERAGE ........................ $ 10.70 $ 13.40 $ 13.90 $28,000,000
========= ========= ========= ===========
1998 TOTAL/AVERAGE ........................ $ 9.51 $ 11.33 $28,000,000
========= ========= ===========
- ----------
Legend: Principal Tenants
- --------------------------
A .. Innovex-DAS, Inc. (13,645 square feet)
B .. Fleming Foods and CVS (42,616 square feet)
C .. Kittredge Donley (14,449 square feet)
D .. New Hampshire College (27,555 square feet)
E .. Techmar Communications (22,918 square feet)
F .. Computer Learning Center (20,983 square feet)
G .. Santa Monica Malibu School District (42,597 square feet)
*Company's internal judgement as to specific property market rent per square
foot as of December 31, 1999.
-15-
The average lease term of the tenants' leases is approximately 6.9 years. Leases
typically provide for step-ups in base rent periodically over the term of a
lease and pass throughs to tenants of their pro rata share of increases in
certain expenses (real estate taxes and operating expenses) over a base year.
Leases may also provide for improvement allowances for all or a portion of the
tenant's initial construction of its premises. The following table, as of
December 31, 1999, details lease expirations for each of the next ten years,
assuming tenants do not exercise any renewal options:
ANNUAL BASE RENT
OF EXPIRING LEASES
LEASABLE PERCENTAGE ------------------
NUMBER OF SQUARE FEET OF TOTAL PER
EXPIRING OF EXPIRING LEASED SQUARE
YEAR LEASES LEASES SQUARE FEET TOTAL FOOT
---- ------ ------ ----------- ----- ----
2000........ 12 24,773 6% $ 411,042 $ 16.59
2001........ 11 69,971 16% 1,072,238 15.32
2002........ 25 112,577 25% 1,462,953 13.00
2003........ 9 43,713 10% 475,082 10.87
2004........ 5 47,275 10% 562,426 11.90
2005........ 3 20,511 5% 280,075 13.65
2006........ -- -- -- -- --
2007........ 3 37,990 8% 465,099 12.24
2008........ -- -- -- -- --
2009........ -- -- -- -- --
No tenant in the Wellsford Capital portfolio accounts for more than 6.8% of 1999
rental revenues.
WELLSFORD DEVELOPMENT
The Company owned the following multifamily properties at December 31, 1999:
AVERAGE RENT
PROPERTY LOCATION UNITS YEAR CONSTRUCTED OCCUPANCY PER UNIT ENCUMBRANCE
-------- -------- ----- ---------------- --------- -------- -----------
Blue Ridge .................. Denver, CO 456 1997 86% $1,089 $33,762,792
Red Canyon .................. Denver, CO 304 1998 85% 1,235 26,683,184
Sonterra .................... Tucson, AZ 344 1995 96% 704 16,113,953
----- -----------
1999 TOTAL/AVERAGE 1,104 89% $1,001 $76,559,929
===== == ====== ===========
1998 TOTAL/AVERAGE 1,104 92% $ 984 $77,421,790
===== == ====== ===========
The average lease term of the tenants' leases range from six to fourteen months.
Security deposits are generally required for all leases.
The Company is developing three additional phases at its property in Denver,
Colorado, which will include an additional 1,040 units. The Silver Mesa phase,
which consists of 264 units, is expected to be completed July 2000. Development
of the fourth phase, Green River, has begun and will include 424 units to be
completed in the fourth quarter of 2001. Development of the fifth phase, Gold
Peak, will include approximately 352 units and is expected to be completed in
the fourth quarter of 2002. Estimated total construction costs for these three
phases is approximately $137,000,000.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor Wellsford/Whitehall are presently defendants in any
material litigation nor, to the Company's knowledge, is any material litigation
threatened against the Company or its other equity investments other than
routine litigation arising in the ordinary course of business and which is
expected to be covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
-16-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
MARKET INFORMATION
- ------------------
The Company's common shares are traded on the American Stock Exchange under the
symbol "WRP". The high and low sales prices for the common shares on the
American Stock Exchange and the dividends declared for the years ended December
31, 1999 and 1998 are as follows:
COMMON SHARES
---------------------------
1999 HIGH LOW DIVIDENDS
---- ---- --- ---------
1st Quarter.................. $10.50 $8.50 None
2nd Quarter.................. $12.25 $7.88 None
3rd Quarter.................. $10.75 $7.75 None
4th Quarter.................. $ 9.38 $7.63 None
COMMON SHARES
---------------------------
1998 HIGH LOW DIVIDENDS
---- ---- --- ---------
1st Quarter.................. $15.63 $13.25 None
2nd Quarter.................. $15.38 $13.00 None
3rd Quarter.................. $14.88 $ 9.00 None
4th Quarter.................. $10.50 $ 6.75 None
HOLDERS
- -------
The approximate number of holders of record of the common shares and Class A
common shares (collectively, "Common Shares" or " Common Stock") were 2,773 and
1, respectively, as of December 31, 1999.
DIVIDENDS
- ---------
The Company did not declare or distribute any dividends during 1999, 1998 or
1997. The Company does not plan to distribute dividends for the foreseeable
future, which will permit it to accumulate, for reinvestment, cash flow from
investments, disposition of investments and other business activities.
-17-
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the consolidated financial
statements included elsewhere in this Form 10-K.
Prior to the Company's 1997 investments, the Company's operations consisted of
earning interest income on the Sonterra Mortgage (originated in July 1996) and
the initial phase of construction development activity with respect to Palomino
Park.
SUMMARY CONSOLIDATED STATEMENT OF
OPERATIONS DATA FOR THE YEARS ENDED DECEMBER 31,
--------------- ----------------------------------------------------
1999 1998 1997 1996
(in thousands, except per share data) ---- ---- ---- ----
Revenues ............................ $ 30,170 $ 26,154 $ 9,070 $ 757
Expenses ............................ (28,981) (17,383) (3,819) --
Income from joint ventures .......... 9,622 3,523 15 --
-------- -------- -------- -------
Income before taxes ................. $ 10,811 $ 12,294 $ 5,266 $ 757
======== ======== ======== =======
Net income .......................... $ 8,861 $ 9,444 $ 3,053 $ 757
======== ======== ======== =======
Net income per common share, basic .. $ 0.43 $ 0.47 $ 0.18 $ 0.04
======== ======== ======== =======
Net income per common share, diluted $ 0.43 $ 0.46 $ 0.18 $ 0.04
======== ======== ======== =======
Cash dividends declared per common
share ............................ $ -- $ -- $ -- $ --
======== ======== ======== =======
Weighted average number of
common shares outstanding, basic .. 20,642 19,886 16,922 16,912
======== ======== ======== =======
Weighted average number of
common shares outstanding, diluted 20,657 20,379 17,348 16,912
======== ======== ======== =======
SUMMARY CONSOLIDATED STATEMENT OF
OPERATIONS DATA DECEMBER 31,
--------------- -------------------------------------------------------
1999 1998 1997 1996 1995
(in thousands) ---- ---- ---- ---- ----
Real estate, at cost ....... $ 159,582 $ 150,322 $ 58,741 $ -- $ --
Accumulated depreciation ... (6,584) (2,707) -- -- --
Notes receivable ........... 37,260 124,706 105,632 17,800 --
Investment in joint ventures 114,390 80,776 44,780 -- --
Total assets ............... 366,331 384,971 249,974 44,760 18,369
Mortgage notes payable ..... 119,315 120,177 49,255 14,755 14,755
Credit facility ............ -- 17,000 7,500 -- --
Shareholders' equity ....... 229,691 231,625 181,158 30,005 3,614
The earnings per share amounts conform with Statement of Financial Accounting
Standards No. 128 "Earnings per share". For further discussion of earnings per
share and the impact of Statement No. 128, see the notes to the consolidated
financial statements.
-18-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
- --------
The following discussion should be read in conjunction with the "Selected
Consolidated Financial Data" and the Company's Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Form 10-K.
RESULTS OF OPERATIONS
- ---------------------
The accompanying consolidated financial statements include the assets and
liabilities contributed to and assumed by the Company from the Trust, from the
time such assets and liabilities were acquired or incurred, respectively, by the
Trust. Such financial statements have been prepared using the historical basis
of the assets and liabilities and the historical results of operations related
to the Company's assets and liabilities.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998
Rental income increased by $4,747,000. This increase is primarily due to a full
year of operations during 1999 for assets acquired or put into service during
1998. The seven VLP properties were acquired in February 1998 ($833,000
increase) and Red Canyon was completed and placed into service in November 1998
($3,818,000 increase).
Interest income decreased by $593,000. This decrease is primarily the result of
loans being repaid in part or in full ($2,609,000) and from investments
contributed to Belford Capital ($356,000) offset by investments held for a
longer period during 1999 than in 1998 ($1,107,000), additional interest and fee
income from the Broomfield investment ($1,153,000) and increased income on cash
and cash equivalents ($112,000).
Property operating and maintenance expense increased by $1,241,000. This
increase is primarily due to a full year of operations during 1999 for assets
acquired or put into service during 1998.
Real estate taxes increased by $345,000. This increase is primarily due to a
full year of operations during 1999 for assets acquired or put into service
during 1998, offset by reduced taxes at certain properties during 1999.
Depreciation and amortization increased by $2,997,000. This increase is
primarily due to a full year of operations during 1999 for assets acquired or
put in service during 1998 ($1,168,000 increase), as well as increased
amortization during 1999 associated with the Company's joint venture investments
and deferred financing costs ($249,000 and $639,000 increases, respectively) and
the write-down of one of its long-lived assets by $912,000 to its estimated fair
value.
Property Management expense increased $175,000. This increase is primarily due
to a full year of operations during 1999 for assets acquired or put in service
during 1998.
Interest expense increased by $4,799,000. This increase is primarily due to debt
that was outstanding for the full year in 1999 and only a partial year during
1998 as well as higher average outstanding balances. The Sonterra at Williams
Centre debt was outstanding from February 1998 ($174,000 increase), the mortgage
on the VLP properties was secured in October 1998 ($2,025,000 increase), the
mortgage on Red Canyon was secured in November 1998 ($1,628,000 increase) and
there was a higher average outstanding balance on credit facilities ($1,283,000
increase), offset by additional interest capitalized to the Company's remaining
phases at Palomino Park ($268,000).
General and administrative expenses increased by $2,063,000. This increase is
primarily due to overhead costs, primarily rent, resulting from the increase in
the size of the Company's headquarters, salary increases related to an
-19-
increased number of employees in Wellsford Capital, as well as an increase in
professional fees from costs related to transactions the Company is no longer
pursuing.
Gain on sale of investments in 1998 results from the sale of certain notes
receivable acquired in the VLP merger.
Income from joint ventures increased by $6,099,000. This increase is primarily
due to the Company's proportionate share of the increase in gains of $5,339,000
on the sale of assets from Wellsford/Whitehall, in excess of 1998 share of
gains, plus growth from the Liberty Hampshire/Belford Capital Joint Venture
investments ($2,006,000 increase) offset by a decrease in the Company's
proportionate share of Wellsford/Whitehall operating income ($968,000 decrease).
The income tax provision decreased $900,000. This decrease is primarily the
result of lower pretax income, a reduction of the valuation allowance
attributable to the utilization of available net operating loss carryforwards,
and a lower effective state and local tax rate.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997
Rental income increased by $11,800,000. This increase is a result of the
acquisition of properties in connection with the VLP Merger in February 1998
($4,700,000 increase), the completion of Blue Ridge ($5,300,000 increase) and
Red Canyon ($400,000 increase) (Phases I and II of the Company's Palomino Park
development) in December 1997 and November 1998, respectively, and the
acquisition of Sonterra at Williams Centre in January 1998 ($2,700,000
increase), net of the decrease associated with the contribution of all of the
Company's then owned commercial properties to Wellsford/Whitehall in August
1997.
Interest income increased by $5,100,000. This increase is primarily a result of
the acquisition of approximately $157,500,000 in notes receivable during the
period from April 1997 through December 1998 bearing interest at rates between
LIBOR + 2.00% and approximately LIBOR + 6.00% offset by the repayment of
$60,000,000 of notes receivable during this period.
Property operating and maintenance expense, real estate tax expense,
depreciation and amortization, and property management expense increased by
$2,500,000, $1,100,000, $2,900,000, and $500,000, respectively. These increases
are a result of the factors which affected rental income, as described above.
Interest expense increased by $4,600,000 as a result of the issuance of
substantially all of the Company's debt other than the Palomino Park Bonds on or
after December 31, 1997. All of the interest on the Company's debt prior to
December 31, 1997 was capitalized to the Company's Palomino Park development.
General and administrative expense increased by $1,900,000. This increase is a
result of the Company commencing operations subsequent to the Spin-off in May
1997, as well as the Company's growth over the last year.
Gain on sale of investments results from the sale of certain notes receivable
acquired in the VLP Merger.
Income from joint ventures increased by $3,500,000. This increase is a result of
the Wellsford/Whitehall joint venture transaction in August 1997, the Creamer
Vitale Wellsford joint venture transaction in January 1998 and the Liberty
Hampshire joint venture transaction in July 1998.
Minority interest is a result of EQR's 20% interest in the Company's Palomino
Park development, as well as certain limited partnership interests (aggregating
approximately 10%) in one of the Company's commercial office properties acquired
in the VLP Merger. These limited partnership interests were bought out by the
Company in October 1998 for approximately $1,100,000.
-20-
The income tax provision increased $600,000 as a result of the increase from
approximately $4,200,000 of taxable income during the period from the Spin-off
through December 31, 1997 to approximately $12,300,000 of taxable income during
the year ended December 31, 1998, net of the effects of the utilization of the
net operating loss carry forwards acquired in the VLP Merger ($2,200,000).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company expects to meet its short-term liquidity requirements generally
through its working capital and cash flow provided by operations. The Company
considers its ability to generate cash to be adequate and expects it to continue
to be adequate to meet operating requirements both in the short and long terms.
The Company utilized approximately $20,589,000 of available cash and cash
equivalents to purchase 2,573,632 shares of its outstanding common stock from an
institutional investor on February 25, 2000.
The Company expects to meet its long-term liquidity requirements such as
refinancing mortgages, financing acquisitions and development, financing capital
improvements and joint venture capital requirements by long-term borrowings,
through available cash, the issuance of debt and the offering of additional debt
and equity securities.
RECURRING AND NON-RECURRING CAPITAL EXPENDITURES
WELLSFORD DEVELOPMENT
Regarding the Company's Blue Ridge (456 units), Red Canyon (304 units) and
Sonterra at Williams Centre (344 units) properties, the Company expects to incur
approximately $134 per unit in apartment preparation costs between tenant leases
during the year ending December 31, 2000 which will be charged to property
operations.
The estimated total costs of the remaining three multifamily development phases
at Palomino Park and related infrastructure costs at completion of these phases,
including the Company's gross investment, which is included in construction in
progress on the Company's consolidated financial statements, of approximately
$30,748,000 at December 31, 1999 are as follows:
ESTIMATED ESTIMATED
NAME UNITS TOTAL COST COMPLETION DATE
---- ----- ---------- ---------------
Phase III ("Silver Mesa") . 264 $ 40,000,000 July 2000
Phase IV ("Green River") .. 424 55,000,000 Fourth Quarter 2001
Phase V ("Gold Peak") ..... 352 42,000,000 Fourth Quarter 2002
----- --------------
1,040 $ 137,000,000
===== ==============
The third and fourth phases of this project are being constructed pursuant to
fixed-price contracts. The Company is committed to purchase 100% of the
improvements upon completion and the achievement of certain occupancy levels of
these phases. In addition, the Company is obligated to fund the first 20% of
construction costs on these phases as they are incurred.
WELLSFORD CAPITAL
The Company expects to incur approximately $1,730,000 of total capital
expenditures with respect to the seven VLP properties during the year ending
December 31, 2000 as follows:
AMOUNT PER SQUARE FOOT
------ ---------------
Maintenance capital ...... $ 611,000 $ 1.02
Tenant improvements ...... 796,000 1.33
Leasing commissions ...... 323,000 0.54
------------- --------
$ 1,730,000 $ 2.89
============= ========
-21-
WELLSFORD/WHITEHALL
In connection with its fully operational properties, Wellsford/Whitehall expects
to incur approximately $28,714,000 of capital expenditures during the year
ending December 31, 2000 as follows:
AMOUNT PER SQUARE FOOT
------ ---------------
Maintenance capital ...... $13,427,000 $ 3.45
Tenant improvements ...... 11,257,000 2.90
Leasing commissions ...... 4,030,000 1.04
----------- --------
$28,714,000 $ 7.39
=========== ========
Wellsford/Whitehall is currently involved in several projects to renovate,
expand or reposition certain of its properties. For the year ending December 31,
2000, Wellsford/Whitehall expects to incur approximately $36,933,000 in
connection with these projects.
To the extent that cash flows from operations and borrowings from financial
institutions are not available to finance such capital projects, the Company
will be required to provide approximately 20% of unfunded costs under the
existing agreement with Whitehall.
OTHER CAPITAL COMMITMENTS
At December 31, 1999, the Company had the following discretionary capital
commitments. Draws under the Abbey Credit Facility and Safeguard Credit Facility
require additional collateral to be made available to the Company which is
subject to the Company's approval. Capital calls related to investments to be
made by the Company's joint ventures are also subject to the Company's approval
of such investments. At December 31, 1999, discretionary capital commitments are
as follows:
COMMITMENT AMOUNT
---------- ------
Abbey Credit Facility ......... $ 8,980,000
Safeguard Credit Facility ..... 17,100,000
Wellsford/Whitehall equity .... 12,231,000
Creamer Vitale Wellsford equity 13,608,000
Reis .......................... 1,500,000
RESOURCES
The Company has the option to put to an affiliate of EQR until May 30, 2000, up
to $25,000,000 of the Company's Series A 8% Convertible Redeemable Preferred
Stock ("Series A Preferred"), each share of which is convertible into shares of
common stock at a price of $11.124 (the "EQR Preferred Commitment"). If at May
30, 2000, the affiliate of EQR has purchased less than $25,000,000 of Series A
Preferred, it has the option to call the remainder of the $25,000,000 not
purchased prior to that time. The Company expects EQR to purchase the full
amount of the Series A Preferred.
In May 1999, the Company modified the $50,000,000 secured loan facility from
Fleet National Bank and MGT (the "WRP Bank Facility") to extend the maturity
date to May 2000. The modified WRP Bank Facility bears interest at LIBOR + 1.75%
and the Company is obligated to pay a fee equal to three-eighths of one percent
(0.375%) per annum on the average daily amount of the unused portion of the WRP
Bank Facility until maturity. As of December 31, 1999, there was no outstanding
balance under the WRP Bank Facility.
-22-
The WRP Bank Facility contains various customary loan covenants. The WRP Bank
Facility also limits the amount of undeveloped land the Company may hold. The
Company does not expect to borrow funds under this facility prior to its
expiration.
In January 1999, a wholly-owned subsidiary of the Company obtained a $35,000,000
secured loan facility (the "Wellsford Finance Facility") from Fleet National
Bank, as agent, which can potentially be increased to $50,000,000 to finance
note receivable investments under its debt program. The Wellsford Finance
Facility bears interest at LIBOR + 2.75% and has a term of three years. The
Company is obligated to pay a fee equal to one-quarter of one percent (0.25%)
per annum on the average daily amount of the unused portion of the Wellsford
Finance Facility until maturity. The facility contains various loan covenants
including covenants which are restrictive under existing competitive market
conditions. Accordingly, the facility terms require modification for the Company
to fully utilize the facility. As of December 31, 1999, there was no outstanding
balance under the Wellsford Finance Facility.
In July 1998, Wellsford/Whitehall modified the Wellsford/Whitehall Bank
Facility. Under the new terms, $300,000,000 represents a senior secured credit
facility bearing interest at LIBOR + 1.65% and $75,000,000 represents a second
mezzanine facility bearing interest at LIBOR + 3.20%. Both facilities mature on
December 15, 2000 and are extendable for one year by Wellsford/Whitehall. As of
December 31, 1999 and 1998, approximately $238,700,000 and $276,200,000,
respectively, was outstanding under the Wellsford/Whitehall Bank Facility
(approximately $177,300,000 and $207,300,000, respectively, of which was under
the senior facility). At December 31, 1999, Wellsford/Whitehall expected to
borrow an additional $8,000,000 for tenant improvements and leasing commissions
through March 31, 2000, when the ability to draw on this facility expires under
the current terms of the Bank Facility. The Bank Facility contains certain
financial covenants including limitations on distributions to members.
Wellsford/Whitehall expects to meet its liquidity requirements, such as
financing additional renovations to its properties and acquisitions of new
properties, with operating cash flow from its properties, proceeds from
financings of unencumbered properties, proceeds from any asset sales, the
remaining commitment of the Wellsford/Whitehall Bank Facility and equity
contributions from the owners of Wellsford/Whitehall. At December 31, 1999 the
Company's unfunded capital commitment is approximately $12,231,000 and the
Whitehall unfunded capital commitment is approximately $63,396,000.
CASH FLOWS
- ----------
1999 CASH FLOWS
Cash flow provided by operating activities of $13,857,000 primarily consists of
net income of $8,861,000 plus (i) depreciation and amortization of $5,937,000
and (ii) amortization of deferred compensation of $848,000, offset by
undistributed joint venture income of $675,000, increases in restricted cash of
$459,000 and prepaid and other assets of $498,000 and a decrease in accrued
expenses and other liabilities of $297,000.
Cash flow provided by investing activities of $40,834,000 consists of repayments
of notes receivable of $112,741,000, the proceeds from sale of real estate
assets of $7,238,000 and returns of capital from joint ventures of $6,091,000,
offset by additional investments in (i) notes receivable of $49,295,000, (ii)
real estate assets of $18,975,000 and (iii) capital contributions to joint
ventures of $16,968,000.
Cash flow used in financing activities of $30,072,000 primarily consists of (i)
repayment of credit facilities of $54,000,000, (ii) the repurchase of common
shares of $12,209,000 and (iii) repayment of mortgage notes payable of $862,000,
offset by borrowings from credit facilities of $37,000,000.
-23-
1998 CASH FLOWS
Cash flow provided by operating activities of $7,005,000 primarily consists of
net income of $9,444,000 plus depreciation and amortization of $3,034,000, an
increase in accrued expenses and other liabilities of $4,031,000 and share
grants of $775,000, offset by an increase in prepaid and other assets of
$6,525,000 and undistributed joint venture income of $3,515,000.
Cash flow used in investing activities of $107,115,000 consists of additional
investments in (i) real estate assets of $125,514,000, (ii) notes receivable of
$67,230,000 and (iii) joint ventures of $33,512,000, offset by proceeds from the
sale of real estate of $64,133,000 and repayments of notes receivable of
$55,009,000.
Cash flow provided by financing activities of $80,337,000 primarily consists of
proceeds from (i) credit facility of $86,500,000 and (ii) mortgage notes payable
of $71,400,000 offset by repayments of (i) credit facilities of $77,000,000 and
(ii) mortgage notes payable of $478,000.
1997 CASH FLOWS
Cash flow provided by operating activities of $6,005,000 primarily consists of
net income of $3,053,000 plus additional accrued expenses and other liabilities
of $7,116,000 and share grants of $897,000, offset by decreases in (i) prepaid
and other assets of $3,164,000 and (ii) restricted cash of $2,176,000.
Cash flow used in investing activities of $156,912,000 consists of investments
in (i) notes receivable of $162,846,000, (ii) real estate assets of $85,552,000
and (iii) joint ventures of $13,955,000, offset by repayments of notes
receivable of $105,441,000.
Cash flow provided by financing activities of $180,802,000 consists of proceeds
from (i) common shares issued of $121,695,000, (ii) credit facilities of
$64,400,000, (iii) mortgage notes payable of $34,500,000, (iv) the bridge loan
of $6,000,000 and (v) equity contributions of $17,108,000, offset by repayments
of (i) credit facilities of $56,900,000 and (ii) the bridge loan of $6,000,000.
See the accompanying consolidated statements of cash flows included in the
consolidated financial statements for a reconciliation of the Company's cash
position for the years described therein.
INFLATION
- ---------
Substantially all of Wellsford Capital's and Wellsford/Whitehall's office leases
provide for separate escalations of real estate taxes and operating expenses
over a base amount. In addition, many of the office leases provide for fixed
base rent increases or indexed escalations (based on the CPI or other measures).
The Company believes that inflationary increases in expenses will generally be
offset by the expense reimbursements and contractual rent increases described
above.
A substantial majority of the leases at the Company's multifamily properties are
for a term of one year or less which may enable the Company to seek increased
rents upon renewal or re-letting of apartment units. Such short-term leases
generally minimize the risk to the Company of the adverse effects of inflation.
YEAR 2000
- ---------
During 1999, the Company developed a plan to modify its information technology
("IT"), primarily its accounting software, to recognize the year 2000 ("Y2K"). A
Y2K compliant version of the accounting software was obtained, along with
certain upgraded computer equipment to accommodate the new software. The Company
completed the installation and testing of the new system software and hardware
during the fourth quarter of 1999. Total project costs were approximately
$100,000 which were funded from operations.
The Company also had extensive discussions with its third-party property
management companies (the "Managers") to ensure that those parties had
appropriate plans to allay any Y2K issues that may impact the
-24-
Company's operations. These issues included both accounting/management software
and non-IT systems such as fire safety, security and elevator systems.
Wellsford/Whitehall, Wellsford Capital and Wellsford Development, which
constitute all of the Company's property operations, had completed their
analyses of such systems by September 30, 1999 and determined that no material
adverse consequences were likely to result from their Y2K issues. Under the most
reasonably likely worst case scenario, wherein the Managers failed to update
their software and non-IT systems, the Company had the ability to convert its
accounting and management systems to a spreadsheet-based system on a temporary
basis and to utilize its building engineers to manually override any non-IT
systems which fail.
Furthermore, the Company had contacted its key vendors, tenants, banks, joint
venture partners, creditors, and debtors and had obtained Y2K compliance
certification (either verbal or written) from the majority of them.
Subsequent to December 31, 1999, the Company did not encounter any Y2K related
problems from its accounting software or hardware, from the operations of its
properties, or from other companies on which the Company's systems and
operations rely, primarily its banks, payroll processing company, joint venture
partners, creditors, and debtors.
NET CASH FLOW
- -------------
The Company considers Net Cash Flow to be an important measure of its
performance, to be considered in addition to Net Income predicated on generally
accepted accounting principles. Net Cash Flow, for the Company's purposes,
represents net income, plus depreciation and amortization on real estate assets,
and depreciation and amortization from unconsolidated partnerships and joint
ventures. Included in such cash flow is the Company's share of undistributed
cash retained by the unconsolidated partnerships and joint ventures for
continuing investment in lieu of future fundings. Net Cash Flow should not be
considered a replacement for Net Income as an indicator of the Company's
operating performance and is not necessarily indicative of cash available to
fund cash needs.
The following table reconciles Net Income and Net Cash Flow:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
Net income .............................. $ 8,860,801 $ 9,443,756 $ 3,053,077
Add:
Depreciation and amortization ........... 5,384,782 3,115,555 259,731
Share of JV depreciation and amortization 5,238,357 3,564,206 611,144
----------- ----------- -----------
Net Cash Flow ........................... $19,483,940 $16,123,517 $ 3,923,952
=========== =========== ===========
- ----------
Note: The number of shares that should be used for determining Net Cash
Flow per share, basic and diluted, are the same number of shares used
for Net Income per share, basic and diluted.
Below are the Company's cash flows provided by operating activities as disclosed
in the Consolidated Statements of Cash Flows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---- ---- ----
Operating activities $13,856,594 $ 7,004,813 $ 6,005,116
=========== =========== ===========
-25-
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS.
This Form 10-K, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following,
which are discussed in greater detail in the "Risk Factors" section of the
Company's registration statement on Form S-11 (file No. 333-32445) filed with
the Securities and Exchange Commission ("SEC") on July 30, 1997, as may be
amended, which is incorporated herein by reference: general economic and
business conditions, which will, among other things, affect demand for
commercial and residential properties, availability and credit worthiness of
prospective tenants, lease rents and the availability and cost of financing;
ability to find suitable investments; competition; risks of real estate
acquisition, development, construction and renovation; ability to comply with
zoning and other laws; vacancies at commercial and multifamily properties;
dependence on rental income from real property; adverse consequences of debt
financing including, without limitation, the necessity of future financings to
repay debt obligations; risks of investments in debt instruments, including
possible payment defaults and reductions in the value of collateral; risks
associated with equity investments in and with third parties: illiquidity of
real estate investments; environmental risks; and other risks listed from time
to time in the Company's reports filed with the SEC. Therefore, actual results
could differ materially from those projected in such statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is to changes in interest rates. The
Company manages this risk by offsetting its investments and financing exposures
as well as by strategically timing and structuring its transactions.
The Company had investments in $12,151,000 of LIBOR-based instruments and
$42,755,000 of LIBOR and other variable rate based financings as of December 31,
1999. The Company had investments in $25,000,000 of fixed rate instruments and
has $76,560,000 of fixed rate financings as of December 31, 1999. These
exposures substantially offset one another as a one-percent increase in the base
rates used to determine the interest rates of both the variable rate notes
receivable and debt would result in a net decrease in the Company's net income
of $306,000 ($0.01 per diluted share).
The Company had investments in $67,028,000 of LIBOR-based instruments and
$59,755,000 of LIBOR and other variable rate based financings as of December 31,
1998. The Company had investments in $57,678,000 of fixed rate instruments and
$77,422,000 of fixed rate financings as of December 31, 1998. These exposures
substantially offset one another as a one-percent increase in the base rates
used to determine the interest rates of both the variable rate notes receivable
and debt would result in a net increase in the Company's net income of $73,000
(no change in the per share amount).
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item 8 is included as a separate section of this annual
report on Form 10-K (see page F-1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-26-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company, their ages and their
positions are as follows:
Name Age Positions and Offices Held
---- --- --------------------------
Jeffrey H. Lynford................. 52..... Chairman of the Board, Secretary and Director***
Edward Lowenthal................... 55..... President, Chief Executive Officer and Director**
Rodney F. Du Bois.................. 64..... Vice Chairman, Chief Financial Officer and Director**
James J. Burns..................... 60..... Senior Vice President, Chief Accounting Officer
David M. Strong.................... 41..... Vice President for Development
Douglas Crocker II................. 59..... Director***
Richard S. Frary................... 52..... Director*
Mark S. Germain.................... 49..... Director***
Frank J. Hoenemeyer................ 80..... Director*
Frank J. Sixt...................... 48..... Director*
- ----------
*........Term expires 2000.
**.......Term expires 2001.
***......Term expires 2002.
The information contained in the sections captioned "Nominees for Election as
Directors", "Other Directors", "Executive Officers", and "Key Employees" of the
Company's definitive proxy statement for the 2000 annual meeting of shareholders
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the sections captioned "Executive Compensation",
"Compensation of Directors", "Board Committees", "Employment Agreements", and
"Management Incentive Plans" of the Company's definitive proxy statement for the
2000 annual meeting of shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the section captioned "Security Ownership of
Certain Beneficial Owners and Management" of the Company's definitive proxy
statement for the 2000 annual meeting of shareholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the section captioned "Certain Transactions" of the
Company's definitive proxy statement for the 2000 annual meeting of shareholders
is incorporated herein by reference.
-27-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) (1) FINANCIAL STATEMENTS
The following consolidated financial information is included
as a separate section of this annual report on Form 10-K:
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Wellsford/Whitehall Group, L.L.C. Consolidated Financial
Statements and Notes.
(2) FINANCIAL STATEMENT SCHEDULES
III. Real Estate and Accumulated Depreciation
IV. Mortgage Loans on Real Estate
All other schedules have been omitted because the required
information of such other schedules is not present, is not
present in amounts sufficient to require submission of the
schedule or is included in the consolidated financial
statements.
(3) EXHIBITS
(a) EXHIBIT NO. DESCRIPTION+++
----------- -----------
3.1 Articles of Amendment and Restatement of the Company.****
3.2 Articles Supplementary Classifying 350,000 Shares of Common Stock
as Class A Common Stock.****
3.3 Articles Supplementary Classifying 2,000,000 Shares of Common
Stock as Series A 8% Convertible Redeemable Preferred Stock.****
3.4 Bylaws of the Company.****
4.1 Specimen certificate for Common Stock.***
4.2 Specimen certificate for Class A Common Stock.****
4.3 Specimen certificate for Series A 8% Convertible Redeemable
Preferred Stock.****
4.4 Warrant Agreement, dated as of August 28, 1997, between the
Company and United States Trust Company of New York, as warrant
agent, and Warrant Certificate No. 1 of the Company for 5,000,000
Warrants registered in the name of WHWEL Real Estate Limited
Partnership.+
-28-
EXHIBIT NO. DESCRIPTION+++ (continued)
----------- -----------
4.41 Amendment No. 2 to the Warrant Agreement dated as of August 28,
1997 by and between Wellsford Real Properties, Inc. and United
States Trust Company, dated as of May 28, 1999.
4.42 Warrant Agreement by and between Wellsford Real Properties, Inc.
and United States Trust Company, dated as of May 28, 1999.
4.43 Registration Rights Agreement by and between Wellsford Real
Properties, Inc. and W/W Group Holdings, L.L.C., dated as of May
28, 1999.
4.44 Letter Agreement dated May 28, 1999 between WHWEL Real Estate
Limited Partnership and Wellsford Real Properties, Inc.,
confirming that Wellsford Real Properties, Inc. will exchange
shares of its stock for Excess Membership Units held by WHWEL.
4.5 Registration Rights Agreement, dated as of February 23, 1998,
among the Company and Franklin Mutual Advisors, Inc. and Angelo
Gordon & Co., L.P.+
10.1 Operating Agreement of Red Canyon at Palomino Park LLC between
Wellsford Park Highlands Corp. and Al Feld, dated as of April 17,
1996, relating to Red Canyon.*
10.2 First Amendment to Operating Agreement of Red Canyon at Palomino
Park LLC between Wellsford Park Highlands Corp. and Al Feld,
dated as of May 19, 1997, relating to Red Canyon.****
10.3 Tri-Party Agreement by and among NationsBank of Texas, N.A., Red
Canyon at Palomino Park LLC, Wellsford Park Highlands Corp.,
Wellsford Residential Property Trust, Al Feld and The Feld
Company, dated May 29, 1997, relating to Red Canyon.****
10.4 Assignment and Assumption of Tri-Party Agreement by and among
Wellsford Residential Property Trust, ERP Operating Limited
Partnership, Red Canyon at Palomino Park LLC, Wellsford Park
Highlands Corp., The Feld Company, Al Feld and Nation