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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, 2000 OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________.
Commission File Number 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
$.02 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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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. |_|
The aggregate market value of the voting shares held by non-affiliates of the
registrant was approximately $135,714,000 based on the closing price on the
American Stock Exchange for such shares on March 14, 2001.
THE NUMBER OF THE REGISTRANT'S SHARES OF COMMON STOCK OUTSTANDING WAS 8,351,623
AS OF MARCH 14, 2001 (INCLUDING 169,903 SHARES OF CLASS A-1 COMMON STOCK).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Annual Shareholders' Meeting
to be held on June 15, 2001 are incorporated by reference into Part III.
1
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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.............................................................15
3. Legal Proceedings......................................................19
4. Submission of Matters to a Vote of Security Holders....................19
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters..20
6. Selected Consolidated Financial Data...................................21
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................22
7a. Quantitative and Qualitative Disclosures about Market Risk.............31
8. Consolidated Financial Statements and Supplementary Data...............31
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .........................31
PART III
10. Directors and Executive Officers of the Registrant.....................32
11. Executive Compensation.................................................32
12. Security Ownership of Certain Beneficial Owners and Management.........32
13. Certain Relationships and Related Transactions.........................32
PART IV
14. Exhibits, Financial Statement Schedules and Reports of Form 8-K........33
FINANCIAL STATEMENTS
14a. Consolidated Balance Sheets as of December 31, 2000 and 1999...........F-4
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998................................F-5
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998....................F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998................................F-7
Notes to Consolidated Financial Statements.............................F-8
Wellsford/Whitehall Group, L.L.C. Consolidated Financial
Statements and Notes...........................................F-41
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.
2
PART I
ITEM 1. BUSINESS
On June 9, 2000, the shareholders of Wellsford Real Properties, Inc., a Maryland
corporation, approved a reverse stock split whereby every two outstanding shares
of common stock and class A-1 common stock were converted into one share of
outstanding common stock and class A-1 common stock. The par value of both
classes of stock increased from $0.01 per share to $0.02 per share and the
number of authorized shares was halved from 197,650,000 to 98,825,000 for common
shares and from 350,000 to 175,000 for class A-1 common shares. The reverse
split was effective for trading beginning June 12, 2000. Resulting fractional
shares were redeemed for cash.
All share and per share amounts in this filing, including the financial
statements and the notes thereto, have been adjusted for the impact of the
split, for all periods presented.
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 6,000,000 shares of its
common stock in a private placement (the "Private Placement") to a group of
institutional investors at $20.60 per share, the Company's then book value per
share.
The Company is a real estate merchant banking firm headquartered in New York
City which acquires, develops, finances and operates real properties and
organizes and invests in private and public real estate companies. The Company's
operations are organized into three Strategic Business Units ("SBUs"). The
portfolio of investments held in each SBU at December 31, 2000 includes:
Wellsford/Whitehall Group, L.L.C.
A 39.7% interest in a private joint venture that owned and
operated 40 office properties totaling approximately 4,953,000
square feet (including approximately 1,522,000 square feet under
renovation), primarily located in New Jersey, Massachusetts and
Maryland. In December 2000, the Company and various entities
affiliated with the Whitehall Funds, private real estate funds
sponsored by Goldman, Sachs & Co. ("Whitehall"), executed
definitive agreements modifying the terms of their joint venture,
Wellsford/Whitehall Group, L.L.C. ("Wellsford/Whitehall")
effective January 1, 2001 (the "Amendments").
Wellsford Capital
o $69,122,000 of debt related investments including $37,824,000 of
direct debt investments which bore interest at an average yield
of 11.45% during 2000 and $31,298,000 in companies which were
organized to invest in debt instruments;
o Venture capital investments of approximately $6,851,000 in a real
estate e-commerce company and other real estate-related ventures;
and
o Six commercial properties totaling approximately 482,000 square
feet located in the Northeastern United States, two of which were
sold in January 2001. A seventh property, located in California,
was sold in December 2000.
3
Wellsford Development
An 85.85% interest in Palomino Park, a five phase, 1,800 unit
multifamily residential development in Highlands Ranch, a south
suburb of Denver, Colorado. Two phases containing 760 units are
completed and operational. The third phase consists of 264 units
which the Company is converting into condominiums and expects to
sell as individual units over the next 24 months. The 424 unit
fourth phase is under construction and the land for the remaining
approximate 352 unit phase is being prepared for sale or possible
future development.
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 19 employees on January
1, 2001.
COMMERCIAL PROPERTY OPERATIONS - WELLSFORD/WHITEHALL
The Company's commercial property operations segment consists of
Wellsford/Whitehall, which is accounted for on the equity method.
In 1997, 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 Whitehall 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. Prior to the Amendments, the Company
managed Wellsford/Whitehall on a day-to-day basis. The Company had a 39.7%
interest in Wellsford/Whitehall at December 31, 2000.
In December 2000, the Company and Whitehall executed the Amendments, which,
among other items, provided for the Company and Whitehall to extend their
existing capital commitments to Wellsford/Whitehall for one year to December 31,
2001 and to provide an aggregate of $10,000,000 of additional financing or
preferred equity to Wellsford/Whitehall through December 2003, if required. As a
result of the Amendments, an affiliate of Whitehall replaced the Company as the
managing member of Wellsford/Whitehall. All employees working on
Wellsford/Whitehall business were transferred from the Company to WP Commercial,
L.L.C. ("WP"), the new management company, which is owned by affiliates of
Whitehall and senior management of WP. WP will provide management, construction,
development and leasing services to Wellsford/Whitehall based upon an agreed
upon fee schedule. WP will also provide similar services to a new venture formed
by Whitehall (the "New Venture").
Wellsford/Whitehall discontinued payment of a $600,000 annual administrative fee
to the Company as of December 31, 2000; however, Whitehall has agreed to pay the
Company fees with respect to assets sold by Wellsford/Whitehall equal to 25
basis points of the sales proceeds and up to 60 basis points (30 basis points
are deferred pending certain return on investment hurdles being reached) for
each purchase of real estate made by certain other affiliates of Whitehall,
until such purchases aggregate $400,000,000. Also, as part of the Amendments,
warrants to purchase 2,128,099 of the Company's common stock, which had
previously been issued to Whitehall, were returned and cancelled.
Under the terms of the Amendments, it is expected that Wellsford/Whitehall will
not purchase any new real estate assets, except in limited cases, to replace
certain assets being sold or acquisitions that compliment presently owned real
estate assets. The Amendments provide for an orderly disposal of the
Wellsford/Whitehall's assets and the Company and Whitehall agreed to a buy/sell
agreement effective after December 31, 2003 with respect to any remaining
assets.
4
As of December 31, 2000, Wellsford/Whitehall owned and operated 40 office
properties totaling approximately 4,953,000 square feet (including approximately
1,522,000 square feet under renovation), primarily located in New Jersey,
Massachusetts, and Maryland.
During the years ended December 31, 2000, 1999 and 1998, Wellsford/Whitehall
participated in the following transactions:
(amounts in millions, except square feet and per square foot amounts)
2000 ACTIVITY
Purchases:
Purchases that were made during the year ended December 31, 2000, were
transferred to the New Venture, pursuant to the Amendments.
Sale:
Gross Leasable Sales Price
Square Number of Sales per Square
Month Location Feet Properties Price Foot Gain
----- -------- ---- ---------- ----- ---- ----
August ....... Columbia, MD 38,000 1 $ 4.9 $ 128 $ 0.2
====== = ======== ========= ========
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
------- - ------------ --------
Total purchases .. 866,000 9 $ 84.9
======= = ============
Total, excluding land .. 866,000 8 $ 82.9 $ 96
======= = ============ ========
Sales:
Gross Leasable Sales Price
Square Number of Sales per Square
Month Location Feet Properties 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
------- - -------- --------
Total sales ... 551,000 4 $ 77.8 -- $ 15.6
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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 a first mortgage financing on five of the properties and
seller financing in the form of a second mortgage on one of the properties
in the aggregate amount of $43,401,000 and additional capital contributions
by the Company and Whitehall.
(2) Sale of vacant land.
5
1998 ACTIVITY
Purchases:
Gross
Leasable
Square Number of Cost per
Month Type Location Feet Properties Cost (1) Square 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
--------- -- --------- --------
Total purchases .. 2,145,000 25 $ 257.1
========= == =========
Total, excluding land .. 2,145,000 24 $ 255.1 $ 119
========= == ========= ========
Sale:
Gross Leasable Sales Price
Square Number of Sales per Square
Month Location Feet Properties 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 by (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.
In March 2000, Wellsford/Whitehall obtained a $23,500,000 loan from Principal
Capital Management, L.L.C. for the rehabilitation of Gateway Tower, a 236,000
square foot, nine-story office building located at 401 North Washington Street,
Rockville, Maryland. At December 31, 2000, $15,500,000 was drawn upon this loan.
The non-recourse loan is secured by a first mortgage on the property, has a term
of three years, plus two six-month extensions at Wellsford/Whitehall's option
and bears interest at LIBOR + 3.50% per annum.
In September 2000, Wellsford/Whitehall obtained a $8,150,000 loan from Provident
Bank of Maryland, of which $4,371,000 was drawn upon at December 31, 2000. The
non-recourse loan, which will be used to rehabilitate the property, is secured
by the leasehold interest in the 144,000 square foot Oakland Ridge office park,
a four building office complex located in Columbia, Maryland, has a term of 2.5
years, plus one twelve-month extension at Wellsford/Whitehall's option and bears
interest at LIBOR + 2.00% per annum, which is capitalized into the loan.
The Company made temporary advances to Wellsford/Whitehall during 2000 and 1999
which bore interest at LIBOR + 5.00% per annum. The balance of the advances was
repaid in full by December 31, 2000 and 1999, respectively.
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% per annum and $75,000,000 represents
a second mezzanine facility bearing interest at LIBOR + 3.20% per annum. As of
December 31, 2000, approximately $244,250,000 was outstanding under the
Wellsford/Whitehall Bank Facility (approximately $181,728,000 of which was under
the senior facility). At March 31, 2000, the ability to draw on this facility
expired. Wellsford/Whitehall exercised its right under the agreements to have
the due date of both facilities extended for one year to December 15, 2001.
Wellsford/Whitehall is presently seeking to refinance the
6
facility. The Wellsford/Whitehall Bank Facility provides for the meeting of
certain operating and balance sheet covenants and limits the amount of
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. Pursuant to the Amendments, the Company
will be entitled to earn 53.3% to 57.5% of the Promote. 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 or received.
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
$8,468,000 remained to be contributed as of December 31, 2000 and Whitehall's
total portion is $165,000,000 of which $47,249,000 remained to be contributed as
of December 31, 2000.
In connection with the formation of Wellsford/Whitehall, the Company issued
warrants (the "Whitehall Warrants") to Whitehall to purchase 2,066,115 shares of
the Company's common stock at an exercise price of $24.20 per share, exercisable
until August 28, 2002 and payable in cash or membership units in
Wellsford/Whitehall. As part of the new capital commitment from Whitehall in
1999, the Company issued additional warrants to purchase an additional 61,984
shares of the Company's common stock at an exercise price of $24.20 per share,
exercisable until May 28, 2004 and payable in cash or membership units of
Wellsford/Whitehall. Pursuant to the Amendments, all 2,128,099 Whitehall
Warrants were returned and cancelled. In addition, Whitehall's right to convert
$25,000,000 of membership units in Wellsford/Whitehall for shares of the
Company's common stock, or cash at the Company's election, was terminated.
As a condition to the formation of Wellsford/Whitehall in 1997, the Company had
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. Whitehall has agreed
to waive this condition in connection with the Amendments.
DEBT AND EQUITY ACTIVITIES - WELLSFORD CAPITAL
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The Company, through the Wellsford Capital SBU, 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, tax exempt bonds secured by real estate 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, 2000, the Company had the following investments: (i)
approximately $37,824,000 of direct debt investments which bore interest at an
average yield of 11.45% during 2000 and had an average remaining term to
maturity of approximately five years; (ii) approximately $31,298,000 in
companies which were organized to invest in debt instruments, including Second
Holding Company, LLC (formerly Belford Capital Holdings, LLC) ("Second
Holding"); and (iii) approximately $6,851,000 in a real estate e-commerce
company and other real estate related ventures. Following is information
regarding these investments.
7
DEBT INVESTMENTS
277 PARK LOAN
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
(unamortized balance of $327,004,000 at December 31, 2000) first mortgage loan
(the "REMIC Loan") on the 277 Park Property.
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 rate during the tenth year equal to
LIBOR + 5.15% per annum or the Fleet National Bank base rate plus 5.15% per
annum, 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 $3,050,000, $3,042,000 and
$3,042,000 per year of interest income from the 277 Park Loan during 2000, 1999
and 1998, respectively, or 12.2%, 10.1% and11.7% of its total non-joint venture
revenues during such periods.
PATRIOT LOAN
In September 1999, the Company and Fleet National Bank originated a $10,000,000
second mortgage loan. Pursuant to this second mortgage loan, the Company
advanced $5,000,000 (its 50% share) which is subordinate to a $75,000,000 first
mortgage with Fleet National Bank (unamortized balance of $73,668,000 at
December 31, 2000). The loan bears interest at LIBOR + 4.75% per annum 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 second mortgage lien on a 608,000
square foot mixed-use property in Boston, Massachusetts. The Company earned
approximately $564,000 and $189,000 of interest income from the Patriot Loan
during 2000 and 1999, respectively, or 2.3% and 0.6% of its total non-joint
venture revenues during such periods.
THE ABBEY COMPANY CREDIT FACILITY
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. Advances under the facility were 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. The Company's
portion of the outstanding balance was approximately $4,300,000 at December 31,
1999. In August 2000, the remaining balance was repaid and the facility was
terminated.
The Company was entitled to interest on its advances under the Abbey Credit
Facility at LIBOR + 4.00% per annum. The Company earned approximately $295,000,
$2,941,000 and $3,920,000 of interest income from the Abbey Credit Facility
during 2000, 1999 and 1998, respectively, or 1.2%, 9.8% and 15.1% of its total
non-joint venture revenues during such periods.
8
SAFEGUARD CREDIT FACILITY
In December 1998, the Company and MGT originated a $90,000,000 credit facility
secured by cross-collateralized first mortgages on nine properties (the
"Safeguard Credit Facility") to Safeguard Capital Fund, L.P. ("Safeguard"). The
Safeguard Credit Facility which was made available to Safeguard until April 2001
was terminated on January 30, 2001 when the outstanding balance of $2,900,000
was repaid. Advances under the facility were made for up to 75% of the value of
the borrowing base collateral which consists of nine self-storage properties
totaling approximately 608,000 square feet. The Company was entitled to interest
on its advances under the Safeguard Credit Facility at LIBOR + 4.00% per annum.
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,
Second Holding. 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, 2000 and 1999,
respectively. The Company earned approximately $306,000, $292,000 and $46,000 of
interest income from the Safeguard Credit Facility during 2000, 1999 and 1998,
respectively, or 1.2%, 1.0% and 0.2% of its total non-joint venture revenues
during such periods.
DEBARTOLO LOAN
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 shopping malls nationwide. The DeBartolo Loan bears
interest at 8.547% per annum, 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 Second
Holding. The Company earned approximately $360,000 and $716,000 of interest
income from the DeBartolo Loan during 1999 and 1998, respectively, or 1.2% and
2.8% of its total non-joint venture revenues during such periods.
WOODLANDS LOAN
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%
per annum. The principal amount of the Woodlands Second Secured Loan was repaid
in full prior to December 31, 1999. The Company earned approximately $1,295,000
and $1,517,000 of interest income from the Woodlands Second Secured Loan during
1999 and 1998, respectively, or 4.3% and 5.8% of its total non-joint venture
revenues during such periods.
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 owned 22 regional malls, eight multifamily apartment
properties and
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five office properties nationwide. This loan bore interest at 9.875% per annum
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 increased the interest rate to 12.00% per
annum. 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. The Company earned
approximately $1,050,000 and $749,000 of interest income from the REIT Bridge
Loan during 1999 and 1998, respectively, or 3.5% and 2.9% of its total non-joint
venture revenues during such periods.
BROOMFIELD LOAN
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 $401,000 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% per annum 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 on
the Broomfield transaction during 1999 and 1998, respectively, or 5.2% and 1.5%
of its total non-joint venture revenues during such periods.
SECOND HOLDING
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"), Second Holding, 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 Second
Holding. The other partners contributed their respective shares of their capital
contributions in cash.
The Company's investment in Second Holding, which is accounted for on the equity
method, was approximately $27,868,000 and $30,932,000 at December 31, 2000 and
1999, respectively.
Second Holding has been organized to purchase investment and non-investment
grade rated real estate debt. In September 2000 an affiliate of Second Holding
privately placed a ten-year $150,000,000 junior subordinated bond issue. The
bonds were issued at an effective annual interest rate of LIBOR + 0.90%. By
December 31, 2000, $100,000,000 of medium term notes were issued at an effective
annual interest rate of LIBOR + 0.06%.
By December 31, 2000, Second Holding invested $190,000,000 in a variety of
collateralized debt obligations and commercial mortgage backed securities which
earn interest at a weighted average interest rate of LIBOR + 0.55% per annum.
Through February 28, 2001, Second Holding purchased an additional $35,000,000 of
securities which earn interest at a weighted average interest rate of LIBOR +
0.52%. The aggregate investments of $225,000,000 have a weighted average life of
approximately 7.1 years. Of the $225,000,000 purchased, $185,000,000 has a AAA
rating with the remainder having a AA- or better.
LIBERTY HAMPSHIRE
In July and August 1998, the Company invested a total of approximately
$2,100,000 for an approximate 4.20% equity interest in Liberty Hampshire, which
structures, establishes and provides management and services for SPFCs formed to
invest in financial assets. In December 2000, the Company sold this interest to
the majority owner of Liberty Hampshire for $5,160,000 and recorded a gain of
approximately $2,500,000. The Company received $1,032,000 of cash and a note for
the remaining balance of $4,128,000 which bears interest at 8.25% per annum, is
due in December 2005 and has scheduled annual principal and interest payments
(the "Guggenheim Loan").
10
VENTURE CAPITAL INVESTMENTS
At December 31, 2000, the Company had venture capital investments of $6,851,000
in a real estate e-commerce company and other real estate-related ventures.
Following is information regarding these investments.
REIS REPORTS, INC.
The Company has direct and indirect investments 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, 2000, the
Company's aggregate investment in Reis was $6,575,000, or 22% of Reis' equity on
an as converted basis. The primary shareholder of Reis is the brother of Mr.
Lynford, Chairman of the Company. The Company's President was appointed to the
board of directors of Reis during the third quarter of 2000. The Chairman,
President and certain directors of the Company who have invested directly in
Reis have and will continue to recuse themselves from any investment decisions
made by the Company pertaining to Reis.
CREAMER VITALE WELLSFORD/CLAIRBORNE INVESTORS
In January 1998, the Company formed Creamer Vitale Wellsford, L.L.C. ("CVW") in
which it had a 49% interest and acquired the same interest in a related real
estate advisory and consulting firm. In September 2000, one of the two
principals left CVW to pursue other employment and the venture was terminated.
The Company will continue to conduct business through relationships that CVW
created.
CVW, together with Prudential Real Estate Investors ("PREI"), an affiliate of
Prudential Life Insurance Company, 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 agreed to contribute up to $150,000,000 to fund acquisitions approved by
the parties, of which PREI would fund 90% and a subsidiary of the Company would
fund 10%. CVW was to 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
74,000 five-year warrants to purchase the Company's common shares at $30.35 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% per annum 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.
FORDHAM TOWER LOAN
In October 2000, the Company and PREI organized a new venture which provided an
aggregate of $34,000,000 of mezzanine financing for the construction of Fordham
Tower, a 50-story, 244 unit, luxury condominium apartment project to be built on
Chicago's near northside. The Company fully funded its share of the loan of
$3,400,000. The loan, which matures in October 2003, bears interest at a fixed
rate of 10.50% per annum with provisions for additional interest to PREI and the
Company and fees to the Company, based upon certain levels of returns on the
project and is secured by a lien on equity interests in the borrower.
11
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 with one property located in California and the remaining six
properties located in the northeastern United States. VLP had cash of
$60,800,000 and other net assets of $5,900,000 at the close of the transaction.
In October 1998, the Company obtained a $28,000,000 loan, which was
cross-collateralized by the seven VLP properties, bore interest at LIBOR + 2.75%
per annum and matures in October 2001.
During the fourth quarter of 2000, the Company made the strategic decision to
sell the seven VLP properties. One of the properties was sold in December 2000
and two of the properties were sold in January 2001. The Company recorded a gain
of approximately $4,943,000 on the December transaction which was offset by a
provision for impairment of $4,725,000 recorded in 2000, attributable to
expected sales proceeds being less than the respective carrying amounts on four
of the remaining six unsold VLP properties at December 31, 2000. The Company
repaid in full the $28,000,000 loan in December 2000 which was
cross-collateralized by the seven properties and expensed all of the remaining
unamortized deferred loan costs associated with the financing.
PROPERTY DEVELOPMENT AND LAND OPERATIONS - WELLSFORD DEVELOPMENT
- ----------------------------------------------------------------
The Company, through the Wellsford Development SBU, engages in selective
development activities as opportunities arise and when justified by expected
returns. The Company believes that by pursuing selective development activities,
it can achieve returns which are greater than returns which could be achieved by
acquiring stabilized properties. Certain development activities may be conducted
in joint ventures with local developers who may bear the substantial portion of
the economic risks associated with the construction, development and initial
rent-up of properties. As part of its strategy, the Company may seek to issue
tax-exempt bond financing authorized by local governmental authorities which
generally bears interest at rates substantially below rates available from
conventional financing.
PALOMINO PARK
The Company currently owns an 85.85% interest in a five phase 1,800 unit class A
multifamily development ("Palomino Park") in Highlands Ranch, a south suburb of
Denver, Colorado. Effective October 1, 2000, EQR elected not to make a capital
contribution attributable to the last three phases of Palomino Park and its
ownership interest was reduced from 20.00% to 14.15%. In December 1995, the
Trust marketed and sold $14,755,000 of tax-exempt bonds to fund construction at
Palomino Park (the "Palomino Park Bonds"). In June 2000, the Company obtained a
five-year AAA rated letter of credit from Commerzbank AG to provide additional
collateral for the Palomino Park Bonds. This letter of credit replaced an
expiring letter of credit. An affiliate of EQR has guaranteed Commerzbank AG's
letter of credit.
In December 1997, Phase I, the 456 unit phase 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% per annum. Principal payments are based
on a 30-year amortization schedule.
In November 1998, Phase II, the 304 unit phase 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")
12
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% per annum. Principal
payments are based on a 30-year amortization schedule.
In October 2000, Phase III, the 264 unit phase known as Silver Mesa was
substantially completed. The Company made the strategic decision to convert
Silver Mesa into condominium units and sell them to individual buyers. In
conjunction with this decision, the Company has prepared 128 units to be sold
and will begin to sell them upon receipt of appropriate approvals and will
continue to rent the remaining 136 units during the sellout period until the
initial inventory has been significantly reduced and additional units need to be
prepared for sale. In conjunction with this decision, the Company made a payment
of $2,075,000 to reduce the outstanding balance on the tax-exempt bonds in order
to obtain the release of the Silver Mesa phase from the Palomino Park Bond
collateral. The allocable cost associated with the units being rented and the
units available for sale was approximately $22,301,000 and $21,850,000 at
December 31, 2000, respectively. In December 2000, the Company obtained a
$32,000,000 loan from KeyBank National Association (the "Silver Mesa Conversion
Loan") which bears interest at LIBOR + 2.00% per annum, is collateralized by the
unsold units, matures in December 2003 and provides for one six-month extension
at the Company's option. Approximately 90% of sales proceeds per unit goes
toward principal repayments until the loan is paid in full.
In February 2001, the Company commenced sales of units at Silver Mesa. Through
February 28, 2001, 23 units were sold for gross proceeds of approximately
$4,292,000, approximately $3,890,000 of which was used to pay down principal on
the Silver Mesa Conversion Loan.
The estimated total costs of the remaining two multifamily development phases at
Palomino Park and related infrastructure costs at completion of these phases,
including the Company's gross investment at December 31, 2000, are as follows:
ESTIMATED COMPANY'S
TOTAL CONSTRUCTION IN ESTIMATED
NAME UNITS PHASE COST PROGRESS (A) COMPLETION DATE
---- ----- ---------- ------------ ---------------
Phase IV ("Green River") ....... 424 $56,000,000 $16,420,000 Third Quarter 2002
Phase V ("Gold Peak") .......... 352 6,900,000 5,809,000 (B)
--- ----------- -----------
776 $62,900,000 $22,229,000
=== =========== ===========
- ----------
(A) Includes land and costs that the Company has funded for the development of
the phase, plus other infrastructure and overhead costs capitalized during
construction such as interest and taxes.
(B) The Company has not determined if it will construct this phase or sell the
improved land. The $6,900,000 estimated phase cost only reflects the
improved land costs.
The fourth phase of this project is being developed pursuant to a fixed-price
contract. The Company is committed to purchase 100% of the improvements upon
completion. In addition, the Company was obligated to fund the first 20% of
development costs on the phase as incurred.
SONTERRA AT WILLIAMS CENTRE ("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 located in
Tucson, Arizona.
In January 1998, the Company exercised its option and acquired Sonterra for
approximately $20,500,000, including satisfaction of the mortgage. In February
1998, the Company closed on $16,400,000 of first mortgage financing (the
"Sonterra Mortgage") on this property, bearing interest at 6.87% and maturing in
March 2008. Principal payments were based on a 30-year amortization schedule.
In November 2000, the Company sold the Sonterra property for $22,550,000 and
recorded a pre-income tax gain of approximately $3,500,000. The buyer assumed
the Sonterra Mortgage, which had an unamortized balance of approximately
$15,971,000, and paid the balance of the purchase price in cash.
13
SEGMENT FINANCIAL INFORMATION
See Note 13 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 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.
14
ITEM 2. PROPERTIES.
The following property information is presented by SBU.
WELLSFORD/WHITEHALL
As of December 31, 2000, Wellsford/Whitehall owned and operated 40 office
properties, totaling approximately 4,953,000 square feet. The following table
sets forth certain information related to these properties at December 31, 2000
(excluding assets transferred to the New Venture, pursuant to the Amendments):
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
OPERATING PROPERTIES
Greenbrook Corporate Center .. Office Fairfield, NJ 201,000 1987 15 97.7%
1800 Valley Road ............. Office Wayne, NJ 56,000 1980 (D) (D)
Chatham Executive Center...... Office Chatham, NJ 63,000 1972/1997 7 100.0%
300 Atrium Drive ............. Office Somerset, NJ 150,000 1983 5 93.1%
400 Atrium Drive ............. Office Somerset, NJ 355,000 1985 14 99.1%
500 Atrium Drive ............. Office Somerset, NJ 169,000 1984 4 94.8%
700 Atrium Drive ............. Office Somerset, NJ 181,000 1985 1 100.0%
Mountain Heights Center #1 ... Office Berkeley Hts, NJ 183,000 1968/1986/1998 15 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 5 100.0%
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 2 78.2%
60/74 Turner Street .......... Office/Land Waltham, MA 16,000 1970 1 100.0%
100 Wells Avenue ............. Office Newton, MA 21,000 1978 0 0.00%
333 Elm Street ............... Office Dedham, MA 48,000 1983 8 100.0%
Dedham Place ................. Office Dedham, MA 160,000 1987 10 13.6%
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT* ENCUMBRANCES
-------- ------- ---------- ---- ---- ----- ------------
OPERATING PROPERTIES
Greenbrook Corporate Center . Information Resources December 2003 $ 20.80 $ 23.31 $ 23.00 (A)
1800 Valley Road ............ (D) (D) (D) (D) 21.25 (A)
Chatham Executive Center..... Quadrant July 2009 26.87 29,47 29.50 (A)
300 Atrium Drive ............ AT&T March 2004 18.22 21.12 23.00 (A)
400 Atrium Drive ............ Merrill Lynch December 2001 & 2003 18.49 21.23 23.50 (A)
500 Atrium Drive ............ AT&T December 2003 20.01 23.77 23.00 (A)
700 Atrium Drive ............ Merck June 2005 16.25 19.50 23.00 (A)
Mountain Heights Center #1 .. The Santa Cruz September 2006 22.73 24.70 28.00 (A)
Garden State Exhibit Center . N/A N/A 28.47 -- -- (A)
150 Wells Avenue ............ Linx Communications September 2001 19.50 22.01 25.25 (A)
72 River Park ............... JH Albert, Ins. November 2004 21.84 22.52 25.25 (A)
70 Wells Avenue ............. Renaissance Worldwide, Inc. November 2002 22.39 23.04 25.25 (A)
160 Wells Avenue ............ New England Cable December 2013 22.59 23.37 25.25 (A)
2331 Congress Street ........ Clark Associates April 2002 13.33 14.65 15.50 (A)
60/74 Turner Street ......... Brandeis University June 2002 8.00 8.00 10.00 (A)
100 Wells Avenue ............ N/A N/A -- -- 25.25 (A)
333 Elm Street .............. Lojack May 2001 23.56 25.00 28.00 (A)(B)
Dedham Place ................ AZC Advisory Group January 2001 18.11 22.84 31.50 (A)(B)
15
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 1 100.0%
7/57 Wells Avenue ........... Office Newton, MA 88,000 1982 16 90.7%
75/85/95 Wells Avenue ....... Office Newton, MA 242,000 1976/1986 13 99.9%
Shattuck Office Center ...... Office Andover, MA 63,000 1985 14 94.9%
180/188 Mt Airy Road ........ Office Basking Ridge, NJ 104,000 1980 16 98.9%
377/379 Campus Drive ........ Office Franklin Twp, NJ 199,000 1984 2 100.0%
105 Challenger Road ......... Office Ridgefield Park, NJ 147,000 1992 4 100.0%
150 Mt. Bethel Road ......... Office/Flex Warren, NJ 129,000 1981 9 81.5%
One Mall North .............. Office Columbia, MD 97,000 1978/1998 34 73.7%
McDonough Crossroads ........ Office Owings Mills, MD 32,000 1988 3 46.2%
Oakland Ridge ............... Flex Columbia, MD 144,000 1972 7 23.9%
Airport Park ................ Office Hanover Twp, NJ 96,000 1979 23 91.2%
--------- --- ----
SUBTOTAL--OPERATING PROPERTIES 3,431,000 235 86.9%
--------- --- ----
PROPERTIES UNDER RENOVATION
Pointview Corporate Center .. Office Wayne, NJ 564,000 1976/1998 (E) --
Morris Technology Center .... Office Parsippany, NJ 257,000 1963/1977/2000 (F) (F)
Mountain Heights Center #2 .. Office Berkeley Hts, NJ 123,000 1968/1998/2000 1 100.0%
117 Kendrick Street ......... Office Needham, MA 210,000 1963/2000 3 94.6%
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 (G) .... Office Rockville, MD 236,000 1972 1 26.2%
79 Milk Street .............. Office Boston, MA 64,000 1920/1998 13 49.8%
24 Federal Street ........... Office Boston, MA 68,000 1921/1997 9 29.7%
--------- --- ----
SUBTOTAL--PROPERTIES UNDER RENOVATION 1,522,000 27 28.6%
--------- --- ----
2000 TOTAL/AVERAGE 4,953,000 262 86.9%
========= === ====
(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 June 2001 22.10 25.69 42.00 (A)(B)
201 University Avenue ....... RCN Corp. December 2009 15.00 17.26 18.00 (A)(B)
7/57 Wells Avenue ........... GEO Centers November 2004 25.75 25.89 34.00 (A)(B)
75/85/95 Wells Avenue ....... Marcam April 2005 27.90 28.61 34.00 (A)(B)
Shattuck Office Center ...... Codman Research Group March 2005 20.08 22.09 28.00 (A)
180/188 Mt Airy Road ........ Lucent Technology October 2004 21.74 23.79 28.00 (A)
377/379 Campus Drive ........ AT&T August 2003 11.34 11.34 13.50 (A)
105 Challenger Road ......... Samsung America, Inc. December 2003 26.79 30.07 28.50 (A)
150 Mt. Bethel Road ......... TMS Mortgage June 2003 9.30 12.19 16.00 (C)
One Mall North .............. GSA November 2005 22.37 23.29 26.00 (A)(C)
McDonough Crossroads ........ Kiddie Academy February 2006 15.51 17.46 19.05 (C)
Oakland Ridge ............... Romay Corp. July 2001 10.48 13.12 10.50 (C)
Airport Park ................ Gemini Consulting January 2006 20.01 23.68 28.00 (C)
--------- --------- ---------
SUBTOTAL--OPERATING PROPERTIES 21.40 22.65 27.72
--------- --------- ---------
PROPERTIES UNDER RENOVATION
Pointview Corporate Center .. -- -- -- -- 16.50 (A)
Morris Technology Center .... (F) (F) (F) (F) 22.50 (A)
Mountain Heights Center #2 .. Compaq August 2010 30.04 31.67 29.50 (A)
117 Kendrick Street ......... March First Inc. December 2010 29.70 30.41 32.80 (A)
600 Atrium Drive ............ -- -- -- -- -- (A)
Airport Park ................ -- -- -- -- -- (C)
401 North Washington (G) .... GE Information Services April 2004 6.74 9.50 27.00 (C)
79 Milk Street .............. J.M. Forbes January 2002 30.34 33.69 44.00 (C)
24 Federal Street ........... American Express December 2006 -- -- 44.00 (C)
--------- --------- ---------
SUBTOTAL--PROPERTIES UNDER RENOVATION N/A N/A N/A
--------- --------- ---------
2000 TOTAL/AVERAGE $ 21.40 $ 22.65 $ 27.72
========= ========= =========
(I) (I)
- ----------
(A) Encumbered by the Wellsford/Whitehall Bank Facility.
(B) Encumbered by the Nomura Mortgage.
(C) Encumbered by other mortgages.
(D) Lease with Boron Lepore commenced February 2, 2001 for 100% of the leasable
building square feet with a triple net rent of $21.25 per square foot.
Lease expires January 2011.
(E) Building under renovation.
(F) Lease with New York Life will commence in May 2001 for 100% of leasable
building square feet with an average base rent of $28.76 per square foot
over the term of the lease. Lease expires April 2016.
(G) Lease with ADP will commence in April 2001 for approximately 73,000 square
feet (approximately 31% of leasable building square feet) at a base rent of
$27.00 per square foot. Lease expires March 2005.
(H) Land is held for development.
(I) Properties under renovation not included in 2000 Total/Average.
* Company's internal judgment as to specific property market rent per square
foot as of December 31, 2000.
16
The following table sets forth historical Wellsford/Whitehall portfolio
information by year:
SQUARE FEET OF OCCUPANCY
TOTAL BUILDING OPERATING OF OPERATING
DECEMBER 31, SQUARE FEET PROPERTIES PROPERTIES
------------ ----------- ---------- ----------
2000............. 4,953,000 3,431,000 87%
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 6.7 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, 2000 lease expirations for each of the next ten years, assuming
tenants do not exercise any renewal options:
LEASABLE ANNUAL BASE RENT OF EXPIRING LEASES
NUMBER OF SQUARE FEET PERCENTAGE OF -----------------------------------
EXPIRING OF EXPIRING TOTAL LEASED PER SQUARE
YEAR LEASES LEASES SQUARE FEET TOTAL FOOT
---- ------ ------ ----------- ----- ----
2001......... 74 782,000 20% $ 14,962,000 $ 19.41
2002......... 32 194,000 5% 3,939,000 20.28
2003......... 50 835,000 24% 15,920,000 19.06
2004......... 19 295,000 8% 5,926,000 20.09
2005......... 29 468,000 12% 10,543,000 22.52
2006......... 26 390,000 10% 10,439,000 26.79
2007......... 16 166,000 4% 3,940,000 23.67
2008......... 5 32,000 1% 990,000 30.48
2009......... 6 153,000 4% 3,712,000 24.24
2010......... 3 252,000 6% 7,609,000 30.23
No tenant in the Wellsford/Whitehall portfolio accounted for more than 11% and
7% of rental revenues for the years ended December 31, 2000 and 1999,
respectively.
17
WELLSFORD CAPITAL
Wellsford Capital owned the following commercial properties at December 31,
2000:
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF PRINCIPAL
PROPERTY* TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY TENANTS
--------- ---- -------- ---- ------------- ------- --------- -------
Hoes Lane*** Office Piscataway, NJ 37,632 1987 10 98% A
Bradford Plaza*** Retail West Chester, PA 123,885 1990 17 88% B
Chestnut Street Office Philadelphia, PA 50,053 1857/1990 8 94% C
Keewaydin Drive Industrial Salem, NH 125,230 1973 4 57% D
Turnpike Street Industrial Canton, MA 43,160 1980 1 53% E
Two Executive Office Cherry Hill, NJ 102,310 1970 13 70% F
------- -- --
2000 TOTAL/AVERAGE 482,270 53 74%
======= == ==
1999 TOTAL/AVERAGE 596,645 74 76%
======= == ==
1998 TOTAL/AVERAGE 596,645 80%
======= ==
ESCALATED MARKET RENT
LEASE BASE RENT PER RENT PER PER
PROPERTY* EXPIRATION SQUARE FOOT SQUARE FOOT SQUARE FOOT**
--------- ---------- ----------- ----------- -------------
Hoes Lane*** March 2004 $ 14.64 $ 15.26 $ 17.00
Bradford Plaza*** June 2011 9.70 11.26 12.50
Chestnut Street December 2001 13.53 15.54 14.50
Keewaydin Drive January 2004 6.19 7.92 6.50
Turnpike Street January 2001 9.20 13.78 10.25
Two Executive March 2007 12.24 12.50 14.00
--------- --------- -----------
2000 TOTAL/AVERAGE $ 10.49 $ 11.98 $ 12.19
========= ========= ===========
1999 TOTAL/AVERAGE $ 10.70 $ 13.40
========= =========
1998 TOTAL/AVERAGE $ 9.51 $ 11.33
========= =========
- ----------
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)
* The $28,000,000 mortgage which was cross-collateralized by the seven VLP
properties was repaid by the Company in December 2000.
** Company's internal judgment as to specific property market rent per square
foot as of December 31, 2000.
*** Property sold in January 2001.
18
No tenant in the Wellsford Capital portfolio accounts for more than 2.3% and
6.8% of rental revenues for the years ended December 31, 2000 and 1999,
respectively.
WELLSFORD DEVELOPMENT
The Company owned the following multifamily properties at December 31, 2000:
AVERAGE RENT
PROPERTY LOCATION UNITS YEAR CONSTRUCTED OCCUPANCY PER UNIT ENCUMBRANCE
-------- -------- ----- ---------------- --------- -------- -----------
Blue Ridge ................ Denver, CO 456 1997 93% $ 1,079 $33,354,235
Red Canyon ................ Denver, CO 304 1998 97% 1,228 26,369,736
Silver Mesa (A) ........... Denver, CO 136 2000 79% 1,782 32,000,000
----- -- ----------- -----------
2000 TOTAL/AVERAGE 896 93% $ 1,224 $91,723,971
===== == =========== ===========
1999 TOTAL/AVERAGE 1,104 89% $ 1,001 $76,559,929
===== == =========== ===========
1998 TOTAL/AVERAGE 1,104 92% $ 984 $77,421,790
===== == =========== ===========
- ----------
(A) The Silver Mesa phase information excludes the 128 units which are
available for sale. The occupancy and average rent per unit reflects the
status of only the 136 rental units. The $32,000,000 encumbrance is on the
entire 264 unit phase. As individual units are sold, they are released from
the Silver Mesa Conversion Loan collateral.
The average lease term of the tenants' leases range from six to fourteen months.
Security deposits are generally required for all leases.
There are two additional phases of Palomino Park which, if both constructed,
will include an additional 776 units. Development of the fourth phase, Green
River, has begun and will include 424 units to be completed in the third quarter
of 2002. Estimated total construction costs for this phase is approximately
$56,000,000. The land for the 352 unit fifth phase, Gold Peak, is being prepared
for sale or possible future development. The estimated total cost of the
improved land and allocated infrastructure is $6,900,000.
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. However, the
Company is a party to routine litigation arising in the ordinary course of
business, which is expected to be covered by liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
19
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, 2000 and 1999 are as follows:
COMMON SHARES
---------------------------------
2000 HIGH LOW DIVIDENDS
---- ---- --- ---------
1st Quarter $ 18.13 $ 15.00 None
2nd Quarter $ 18.13 $ 15.13 None
3rd Quarter $ 19.75 $ 15.75 None
4th Quarter $ 19.63 $ 15.31 None
COMMON SHARES
---------------------------------
1999 HIGH LOW DIVIDENDS
---- ---- --- ---------
1st Quarter $ 21.00 $ 17.00 None
2nd Quarter $ 24.50 $ 15.75 None
3rd Quarter $ 21.50 $ 15.50 None
4th Quarter $ 18.75 $ 15.25 None
HOLDERS
- -------
The approximate number of holders of record of the common shares and class A-1
common shares (collectively, "Common Shares" or " Common Stock") were 3,900 and
1, respectively, as of December 31, 2000.
DIVIDENDS
- ---------
The Company did not declare or distribute any dividends during 2000, 1999 or
1998. 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.
20
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,
--------------- --------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues ................................ $ 25,024 $ 30,170 $ 26,016 $ 9,070 $ 757
Expenses ................................ (25,581) (28,926) (17,306) (3,819) --
Income from joint ventures .............. 3,247 9,622 3,523 15 --
Gain on sale of assets, net of impairment
provision of $4,725,000 in 2000 ..... 6,135 -- 139 -- --
Minority interest ....................... (66) (55) (78) -- --
-------- -------- -------- -------- --------
Income before taxes and Convertible
Trust Preferred Securities ........... 8,759 10,811 12,294 5,266 757
Income tax expense ...................... (1,430) (1,950) (2,850) (2,213) --
Convertible Trust Preferred Securities
distributions, net of tax benefit .... (861) -- -- -- --
-------- -------- -------- -------- --------
Net income .............................. $ 6,468 $ 8,861 $ 9,444 $ 3,053 $ 757
======== ======== ======== ======== ========
Net income per common share, basic ...... $ 0.76 $ 0.86 $ 0.95 $ 0.36 $ 0.09
======== ======== ======== ======== ========
Net income per common share, diluted .... $ 0.76 $ 0.86 $ 0.93 $ 0.35 $ 0.09
======== ======== ======== ======== ========
Cash dividends declared per common
share ................................ $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
Weighted average number of common
shares outstanding, basic ............ 8,508 10,321 9,943 8,461 8,456
======== ======== ======== ======== ========
Weighted average number of common
shares outstanding, diluted .......... 8,516 10,329 10,190 8,674 8,456
======== ======== ======== ======== ========
SUMMARY CONSOLIDATED BALANCE
SHEET DATA DECEMBER 31,
---------- ------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
Real estate, at cost ................. $ 159,031 $ 159,582 $ 150,322 $ 58,741 $ --
Accumulated depreciation ............. (8,248) (6,584) (2,707) -- --
Notes receivable ..................... 37,824 37,260 124,706 105,632 17,800
Investment in joint ventures ......... 120,969 114,390 80,776 44,780 --
Total assets ......................... 375,770 366,331 384,971 249,974 44,760
Mortgage notes payable ............... 104,404 119,315 120,177 49,255 14,755
Credit facility ...................... 12,000 -- 17,000 7,500 --
Convertible Trust Preferred Securities 25,000 -- -- -- --
Shareholders' equity ................. 215,982 229,691 231,625 181,158 30,005
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.
21
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, 2000 TO THE YEAR ENDED DECEMBER 31,
1999
Rental income increased by $807,000. This increase is primarily due to three
months of operations during 2000 for the Silver Mesa rental phase which was put
into service on October 1, 2000 ($592,000) and increased rental revenues on the
VLP properties ($552,000), partially offset by a reduction in the rental income
on the Sonterra property from 10.5 months of income in the current year as it
was sold in November 2000 ($224,000).
Interest income decreased by $6,039,000. This decrease is primarily the result
of decreased lending activity by the Wellsford Capital SBU starting in the
second half of 1999 and continuing in 2000 with loans being repaid in part or in
full during 1999 and 2000 ($7,063,000) and decreased interest income from
investments contributed to Second Holding in 1999 ($653,000), partially offset
by new investments in 2000 and investments held for a longer period during 2000
than in 1999 ($1,384,000) and increased income on cash and cash equivalents from
higher interest rates and greater outstanding balances ($229,000).
Property operating and maintenance expense increased by $323,000. This increase
is primarily due to three months of operations for an asset put into service
during 2000 (Silver Mesa) plus an increase in Denver office overhead costs
directly charged to operations in 2000.
Real estate taxes increased by $64,000. This increase is primarily due to three
months of operations for an asset put into service during 2000 (Silver Mesa) and
an increase in taxes at certain properties during 2000.
Depreciation and amortization decreased by $1,187,000. This decrease is due to
(i) the write-down of the CVW asset by $912,000 to its then estimated fair value
in 1999, (ii) increased amortization during 1999 associated with the Company's
deferred financing costs of $680,000 and (iii) 10.5 months of depreciation on
the Sonterra property, which was sold, of $76,000, partially offset by
additional depreciation on the VLP properties of $225,000, increased
amortization of $145,000 attributable to one of the two principals leaving CVW
to pursue other employment and the subsequent wind-down of the venture in 2000,
and three months of depreciation on an asset put into service during 2000
(Silver Mesa) of $173,000.
Property Management expense increased $125,000. This increase is primarily due
to three months of operations for an asset put in service during 2000 (Silver
Mesa) and additional fees on the VLP properties during 2000.
Interest expense decreased by $2,323,000. This decrease is primarily due to (i)
interest on higher average borrowing balances under the Company's credit
facilities in 1999 than in 2000 ($2,038,000), (ii) additional capitalized
interest due to a higher average construction in progress balance in 2000
($919,000) and (iii) only 10.5 months of interest on the Sonterra property
mortgage before it was assumed by the buyer at the time the property was sold
($151,000), partially offset by an increase in expense from variable rate debt
($462,000), the write-off of unamortized deferred financing costs on the VLP
debt in December 2000 ($247,000) when the related debt was prepaid and three
months of interest for an asset put into service during 2000 (Silver Mesa)
($122,000).
22
General and administrative expenses decreased by $349,000. This decrease is
primarily due to a decrease in professional fees of $264,000, charitable
contributions of $232,000 and other corporate expenses across all expense
categories of $194,000, offset by increases in compensation and benefits of
$341,000.
Gain on sale of investments in 2000 results from the sale of (i) the Sonterra
property for a gain of $3,500,000, (ii) the investment in Liberty Hampshire for
a gain of $2,492,000 and (iii) a net gain of $218,000 from the sale of one of
the VLP properties ($4,943,000) offset by the impairment recorded on certain of
the remaining VLP assets available for sale ($4,725,000).
Income from joint ventures decreased by $6,375,000. This decrease is primarily
due to the Company's proportionate share of gains of $6,806,000 on the sale of
assets from Wellsford/Whitehall in 1999, which was in excess of the 2000 share
of gains of $92,000, plus decreases from the Liberty Hampshire/Second Holding
Joint Venture investments ($496,000) and CVW ($456,000), offset by an increase
in the Company's proportionate share of Wellsford/Whitehall operating income
($1,206,000) and income from the Fordham Tower Loan during the fourth quarter of
2000 ($85,000).
The income tax provision decreased $520,000. This decrease is primarily the
result of lower pretax income and the utilization of state and local income tax
carryforwards.
During the year ended December 31, 2000, the Company repurchased 1,318,732
shares of its outstanding common stock. The effect of these repurchases resulted
in a $0.09 per share increase in net income per share--basic and diluted,
excluding the impact of lost interest income on cash used for such repurchases.
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 decreased interest income
from investments contributed to Second Holding ($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 joint venture investments, CVW, 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), the mortgage on the
VLP properties was
23
obtained in October 1998 ($2,025,000), the mortgage on Red Canyon was secured in
November 1998 ($1,628,000) and there was a higher average outstanding balance on
credit facilities ($1,283,000), 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 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/Second Holding 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.
INCOME TAXES
The Company has recorded a net deferred tax asset of $6,600,000 as of December
31, 2000. Such amount is after reserves aggregating $17,500,000 established with
respect to the utilization of existing tax net operating losses and future tax
deductions under deferred compensation arrangements. While the deferred
compensation deductions have been fully reserved because of the long term
expected timing of deductibility, the Company has a recorded deferred tax asset
of approximately $7,700,000 or 82% of the total recorded deferred tax asset of
$9,400,000 at December 31, 2000. The majority of the remaining $1,700,000 asset
is expected to be realized in 2001 upon the sale of the remaining VLP portfolio.
During the year, the Company reduced its income tax asset valuation allowance by
$1,500,000 principally as a result of the utilization of the annual utilizable
amount of net operating carry forwards. In order to realize the remaining
recorded deferred tax asset, the Company would have to realize $22,700,000 of
taxable income by 2007 and 2012 when the majority of the tax carryforwards
expire. The Company expects to be able to meet these amounts based upon current
and expected income levels.
The Company has available at December 31, 2000, net operating loss carryforwards
aggregating $64,700,000, which as a result of limitations under ss.382 of the
Internal Revenue Service Code, as it applies to the VLP acquisition, the Company
can only use $6,200,000 of such loss carryforwards each year. Any such amounts
not utilized in a year can be carried forward to subsequent years.
The Company's major timing tax differences related to costs associated with the
deferred compensation plan as well as income recognizable for income tax
purposes on the $7,000,000 of assets currently in the deferred compensation plan
arrangements of the Company. Such amounts aggregated $1,100,000 in 2000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company expects to meet its short-term liquidity requirements generally
through its working capital, sales of commercial and residential properties,
cash flow provided by operations and if required, from draws on the $20,000,000
loan facility. The Company considers its ability to generate cash to be adequate
and expects it to continue to be adequate to meet operating requirements both in
the short and long terms.
The Company expects to meet its long-term liquidity requirements such as
refinancing mortgages, financing acquisitions and development, 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.
24
Approximately $2,712,000 of the Company's retained earnings at December 31, 2000
relates to undistributed earnings of the Company's joint venture investments.
Distributions from Second Holding are limited to 48% of earnings. The balance
above principally reflects this retained amount.
RECURRING AND NON-RECURRING CAPITAL EXPENDITURES
WELLSFORD DEVELOPMENT
Regarding the Company's Blue Ridge, Red Canyon and Silver Mesa phases, the
Company expects to incur approximately $140 per unit in apartment preparation
costs from turnover of tenant leases during the year ending December 31, 2001,
which will be charged to property operations.
The estimated total costs of the remaining two multifamily development phases at
Palomino Park and related infrastructure costs at completion of these phases,
including the Company's gross investment at December 31, 2000 are as follows:
ESTIMATED COMPANY'S
TOTAL CONSTRUCTION IN ESTIMATED
NAME UNITS PHASE COST PROGRESS (A) COMPLETION DATE
---- ----- ---------- ------------ ---------------
Phase IV ("Green River") .... 424 $56,000,000 $16,420,000 Third Quarter 2002
Phase V ("Gold Peak") ....... 352 6,900,000 5,809,000 (B)
--- ----------- -----------
776 $62,900,000 $22,229,000
=== =========== ===========
- ----------
(A) Includes land and costs that the Company has funded for the development of
the phase, plus other infrastructure and overhead costs capitalized during
construction such as interest and taxes.
(B) The Company has not determined if it will construct this phase or sell the
improved land. The $6,900,000 estimated phase cost only reflects the
improved land cost.
The fourth phase of this project is being constructed pursuant to a fixed-price
contract. The Company is committed to purchase 100% of the improvements upon
completion. In addition, the Company was obligated to fund the first 20% of
construction costs on the phase as incurred.
WELLSFORD CAPITAL
The Company expects to incur approximately $1,069,000 of total capital
expenditures with respect to the remaining VLP properties through their expected
sale dates during 2001.
25
WELLSFORD/WHITEHALL
In connection with its fully operational properties, Wellsford/Whitehall expects
to incur approximately $47,004,000 of capital expenditures during the year
ending December 31, 2001. Of that amount, Wellsford/Whitehall expects to incur
approximately $16,346,000 of non-recurring capital expenditures on three
operational properties during the year ending December 31, 2001. This work
includes adding approximately 56,000 square feet to one building and cosmetic
overhauls on the other two buildings. Recurring capital expenditures of
$30,658,000 are as follows:
AMOUNT PER SQUARE FOOT
------ ---------------
Maintenance capital........... $12,290,000 $ 4.73
Tenant improvements........... 13,583,000 4.39
Leasing commissions........... 4,785,000 1.55
----------- -----------
$30,658,000 $ 10.67
=========== ===========
Wellsford/Whitehall is currently involved in several projects to renovate,
expand or reposition properties which are classified as properties under
renovation. For the year ending December 31, 2001, Wellsford/Whitehall expects
to incur approximately $26,779,000 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 15.2% of unfunded costs under the
existing agreement with Whitehall, limited to the committed amounts.
CAPITAL COMMITMENTS
At December 31, 2000, the Company had capital commitments to certain joint
venture investments. The Company may make additional equity investments subject
to board approval if deemed prudent to do so to protect or enhance its existing
investment. At December 31, 2000, capital commitments are as follows:
COMMITMENT AMOUNT
---------- ------
Wellsford/Whitehall equity............ $ 8,468,000
Wellsford/Whitehall loan.............. 4,000,000 (A)
Clairborne Prudential equity.......... 10,208,000 (B)
- ----------
(A) Pursuant to the Agreement, the Company could provide for up to 40% of a
$10,000,000 loan to, or equity in, the venture with its joint venture
partner, Whitehall committed to fund the remaining $6,000,000.
(B) Capital calls are subject to the Company's approval of such investments.
STOCK REPURCHASE PROGRAM
In April 2000, the Company's Board of Directors authorized the repurchase of up
to 1,000,000 additional shares of its outstanding common stock. The Company
intends to repurchase the shares from time to time by means of open market
purchases depending on availability of shares, the Company's cash position, the
price per share and other corporate matters. No minimum number or value of
shares to be repurchased has been fixed. Pursuant to this program, 29,837 shares
have been repurchased as of December 31, 2000.
26
RESOURCES
In January 1999, a wholly-owned subsidiary of the Company obtained a $35,000,000
loan facility (the "Wellsford Finance Facility") from Fleet National Bank. In
June 2000, the Company modified the terms of the Wellsford Finance Facility and
reduced the maximum borrowing amount to $20,000,000. The Wellsford Finance
Facility which is secured by a $25,000,000 note receivable, bears interest at
LIBOR + 2.75% per annum and matures in January 2002. The Company paid an
origination fee of $75,000 and is obligated to pay a fee equal to 0.25% per
annum on the average daily amount of the unused portion of the facility until
maturity. At December 31, 2000, the outstanding balance under the Wellsford
Finance Facility was $12,000,000. The balance was completely repaid on January
4, 2001. This facility provides for the Company to meet certain financial
operating and balance sheet covenants.
In December 1995, the Trust marketed and sold $14,755,000 of tax-exempt bonds to
fund construction at Palomino Park (the "Palomino Park Bonds"). In June 2000,
the Company obtained a five-year AAA rated letter of credit from Commerzbank AG
to secure the Palomino Park Bonds. This letter of credit replaced an expiring
letter of credit. An affiliate of EQR has guaranteed Commerzbank AG's letter of
credit.
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% per annum and $75,000,000 represents
a second mezzanine facility bearing interest at LIBOR + 3.20% per annum. As of
December 31, 2000, approximately $244,250,000 was outstanding under the
Wellsford/Whitehall Bank Facility (approximately $181,728,000 of which was under
the senior facility). At March 31, 2000, the ability to draw on this facility
expired. Wellsford/Whitehall has exercised its right under the agreements to
have the due date of both facilities extended for one year to December 15, 2001.
Wellsford/Whitehall is presently seeking to refinance the facility. The
Wellsford/Whitehall Bank Facility provides for the meeting of certain operating
and balance sheet covenants and limits the amount of distributions to members.
Wellsford/Whitehall expects to meet its other liquidity requirements, such as
financing additional renovations to its properties and acquisitions of new
properties, if any, with operating cash flow from its properties, proceeds from
financings of unencumbered properties, proceeds from any asset sales and equity
contributions from the owners of Wellsford/Whitehall.
PROPERTY SALES
During the fourth quarter of 2000, the Company made the strategic decision to
sell the seven assets which were originally acquired as part of the 1998 merger
with Value Property Trust ("VLP"). The Company sold one asset in December 2000
and two other properties during January 2001. The Company has determined that
the aggregate carrying amount of one of the assets sold in 2001 and three of the
four other assets which remain available for sale is less than the amounts
expected to be ultimately realized upon sale, less selling expenses. The Company
anticipates selling the remaining four properties during 2001. Accordingly, the
Company has recorded an impairment provision of $4,725,000 which is reflected in
the accompanying consolidated statements of income as an offset to the gain on
the property sold in December 2000 of approximately $4,943,000. The Company will
not record depreciation expense in 2001 related to these assets.
CASH FLOWS
- ----------
2000 CASH FLOWS
Cash flow provided by operating activities of $10,023,000 primarily consists of
net income of $6,468,000 plus (i) depreciation and amortization of $4,980,000,
(ii) an increase in accrued expenses and other liabilities of $2,662,000, (iii)
distributions received in excess of joint venture income of $1,493,000, (iv)
amortization of deferred compensation of $907,000 and (v) decreases in
restricted cash of $506,000, partially offset by the gain
27
on sale of assets (net of impairment provision of $4,725,000) of $6,135,000 and
increases prepaid and other assets $1,003,000.
Cash flow used in investing activities of $22,778,000 consists of (i)
investments in real estate assets of $39,026,000, (ii) investments in notes
receivable of $28,833,000 and (iii) capital contributions to joint venture
investments of $12,895,000 partially offset by (i) repayments of notes
receivables of $32,408,000, (ii) $21,650,000 of proceeds from the sale of real
estate assets, (iii) returns of capital from joint venture investments of
$2,886,000 and (iv) proceeds from the sale of joint venture interests of
$1,032,000.
Cash flow provided by financing activities of $14,383,000 primarily consists of
(i) proceeds from mortgage notes payable of $32,000,000, (ii) proceeds from the
issuance of Convertible Trust Preferred Securities of $25,000,000 and (iii)
proceeds from draws on the Company's credit facility of $12,000,000, partially
offset by the repayment of mortgage notes payable of $30,940,000, repurchases of
the Company's common stock of $21,119,000 and deferred financing costs
principally associated with the issuance of the Convertible Trust Preferred
Securities of $544,000.
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.
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) a 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.
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
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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
28
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.
NET CASH FLOW
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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,
the provision for impairment and depreciation and amortization from
unconsolidated partnerships and joint ventures offset by accumulated
depreciation on assets sold. 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,
--------------------------------
2000 1999 1998
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Net income.................................. $ 6,468,045 $ 8,860,801 $ 9,443,756
Add:
Depreciation and amortization............... 4,855,778 5,384,782 3,115,555
Provision for impairment (A)................ 4,725,000 -- --
Accumulated depreciation on assets sold..... (2,533,737) -- --
Share of JV depreciation and amortization... 5,292,254 5,238,357 3,564,206
------------- ------------- ------------
Net cash flow............................... $ 18,807,340 $ 19,483,940 $ 16,123,517
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