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, 2001 OR
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
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 $134,300,000 based on the closing price on the
American Stock Exchange for such shares on March 13, 2002.
THE NUMBER OF THE REGISTRANT'S SHARES OF COMMON STOCK OUTSTANDING WAS 6,409,281
AS OF MARCH 13, 2002 (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 May 28, 2002 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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FORM
10-K
ITEM REPORT
NO. PAGE
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PART I
1. Business................................................................3
2. Properties.............................................................16
3. Legal Proceedings......................................................20
4. Submission of Matters to a Vote of Security Holders....................20
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters..21
6. Selected Consolidated Financial Data...................................22
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations ..................................................23
7a. Quantitative and Qualitative Disclosures about Market Risk.............36
8. Consolidated Financial Statements and Supplementary Data...............37
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................37
PART III
10. Directors and Executive Officers of the Registrant.....................38
11. Executive Compensation.................................................38
12. Security Ownership of Certain Beneficial Owners and Management.........38
13. Certain Relationships and Related Transactions.........................38
PART IV
14. Exhibits, Financial Statement Schedules and Reports of Form 8-K........39
FINANCIAL STATEMENTS
14a. Consolidated Balance Sheets as of December 31, 2001 and 2000..........F-4
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999...............................F-5
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999...................F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999...............................F-7
Notes to Consolidated Financial Statements............................F-8
Wellsford/Whitehall Group, L.L.C. Consolidated Financial
Statements and Notes..........................................F-48
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
Wellsford Real Properties, Inc. and subsidiaries, (collectively, the "Company")
was formed as a Maryland corporation on January 8, 1997, as a corporate
subsidiary of Wellsford Residential Property Trust (the "Trust"). On May 30,
1997, the Trust merged (the "Merger") with Equity Residential Properties Trust
("EQR"). Immediately prior to the Merger, the Trust contributed certain of its
assets to the Company and the Company assumed certain liabilities of the Trust.
Immediately after the contribution of assets to the Company and immediately
prior to the Merger, the Trust distributed to its common shareholders all of the
outstanding shares of the Company owned by the Trust (the "Spin-off"). On June
2, 1997, the Company sold 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") within
which it executes its business plan. The portfolio of investments held in each
SBU at December 31, 2001 includes:
Commercial Property Operations--Wellsford/Whitehall Group, L.L.C.
A 32.58% interest in a private joint venture that owned and operated
35 properties (primarily office properties) totaling approximately
3,905,000 square feet (including approximately 598,000 square feet
under renovation), primarily located in New Jersey, Massachusetts and
Maryland.
Debt and Equity Activities--Wellsford Capital
o Approximately $34,785,000 of direct debt investments which bore
interest at an average yield of 11.38% during 2001 and had an average
remaining term to maturity of 4.3 years;
o Approximately $31,233,000 in companies which were organized to invest
in debt instruments including $27,803,000 in Second Holding Company,
L.L.C., a company which was organized to purchase investment and
non-investment grade rated real estate debt instruments and investment
grade rated other asset-backed securities;
o Venture capital investments of approximately $6,784,000 in a real
estate information and database company and another real
estate-related venture; and
o Two commercial properties totaling approximately 175,000 square feet
located in Salem, New Hampshire and Philadelphia, Pennsylvania.
Property Development and Land Operations--Wellsford Development
An 85.85% interest as managing owner 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 264 unit third phase is being converted
into condominiums. The Company has sold 105 units as of December 31,
2001 and 136 of the unsold units are available for rent and included
in operations until the sales inventory needs to be replenished. The
424 unit fourth phase is in lease-up. The land for the remaining
approximate 352 unit fifth 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.
As announced in December 2001, Rodney Du Bois, the Company's Vice Chairman,
retired on December 31, 2001 and Edward Lowenthal, the Company's co-founder,
Chief Executive Officer and President will retire on March 31, 2002. Jeffrey H.
Lynford, currently Chairman of the Board, will also assume the positions and
duties of Chief Executive Officer and President upon Mr. Lowenthal's retirement.
Mr. Lynford's employment agreement has been modified and extended through
December 31, 2004.
3
Messrs. Lowenthal and Du Bois will continue as members of the Board of Directors
of the Company. Additionally, Mr. Lowenthal will be available to provide
consulting services at the request of the Company through December 31, 2004 for
which he will be paid $100,000 per annum.
On June 9, 2000, the shareholders of the Company 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.
The Company's executive offices are located at 535 Madison Avenue, New York, New
York, 10022; telephone, (212) 838-3400; e-mail, wrpny@wellsford.com. The Company
has 19 employees on December 31, 2001.
COMMERCIAL PROPERTY OPERATIONS - WELLSFORD/WHITEHALL
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The Company's commercial property operations consist solely of its interest in
Wellsford/Whitehall Group, L.L.C. ("Wellsford/Whitehall"), a joint venture among
the Company, various entities affiliated with the Whitehall Funds ("Whitehall"),
private real estate funds sponsored by The Goldman Sachs Group, Inc. ("Goldman
Sachs"), as well as a family based in New England. The Company had a 32.58%
interest in Wellsford/Whitehall as of December 31, 2001. The manager of the
joint venture is a Whitehall affiliate. At December 31, 2001,
Wellsford/Whitehall owned and operated 35 properties (primarily office
properties) totaling approximately 3,905,000 square feet (including
approximately 598,000 square feet under renovation), primarily located in New
Jersey, Massachusetts and Maryland. Wellsford/Whitehall leases and re-leases
space, performs construction for tenant improvements, expands buildings,
re-develops properties and based on general and local economic conditions and
specific conditions in the real estate industry, may from time to time sell
properties for an appropriate price. It is not expected that Wellsford/Whitehall
will purchase any new assets, except in limited cases.
The Company's investment in Wellsford/Whitehall, which is accounted for on the
equity method, was approximately $57,790,000 and $82,820,000 at December 31,
2001 and 2000, respectively.
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. Initial capital aggregating $150,000,000
was committed by the partners including the net amount of contributed
properties, net of assumed debt. Prior to December 31, 2000, the Company managed
Wellsford/Whitehall on a day-to-day basis.
In December 2000, the Company and Whitehall executed definitive agreements
modifying the terms of the joint venture, effective January 1, 2001 (the
"Amendments"). 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
Commercial"), the new management company, which is owned by affiliates of
Whitehall and senior management of WP Commercial. WP Commercial is providing
management, construction, development and leasing services to
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Wellsford/Whitehall based upon an agreed upon fee schedule. WP Commercial is
also providing similar services to a new venture formed by Whitehall (the "New
Venture") as well as to third parties, including tenants of Wellsford/Whitehall
and new owners of properties sold by Wellsford/Whitehall.
Wellsford/Whitehall, pursuant to the terms of the Amendments, 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. The Amendments included a buy/sell agreement between the
Company and Whitehall effective after December 31, 2003 with respect to any
remaining assets.
During the years ended December 31, 2001, 2000 and 1999, Wellsford/Whitehall
participated in the following transactions:
(amounts in millions, except square feet and per square foot amounts)
2001 ACTIVITY
Purchases (1):
Gross Leasable Number of Purchase Price
Month Location Square Feet Properties Purchase Price per Square Foot Occupancy
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April Various 54,000 5 $ 18.7 $ 342.20 100%
October Decatur, GA 10,000 1 2.3 231.51 100%
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64,000 6 $ 21.0 324.91 100%
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Sales:
Gross Leasable Number of Sales Price per
Month Location Square Feet Properties Sales Price Square Foot Gain (Loss)
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February Newton, MA 102,000 5 $ 18.0 $ 176.47 $ 3.5
April Portland, ME 24,000 1 1.6 66.67 --
May Parsippany, NJ 257,000 1 61.5 239.30 17.9
August Andover, MA 63,000 1 9.2 146.03 1.5
September Wayne, NJ (Pointview) 564,000 1 35.5 62.94 --(2)
November Wayne, NJ 56,000 1 8.2 146.43 2.4
November Chatham, NJ 63,000 1 12.0 190.48 2.0
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1,129,000 11 $ 146.0 129.32 $ 27.3
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(1) Acquisitions of these six properties completed the purchase requirements
with respect to properties sold in February and April 2001 as part of a
tax-free exchange pursuant to the rules of the Internal Revenue Code.
(2) Loss reflected as part of impairment provision (see below).
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 Number of Sales Price
Month Location Square Feet Properties Sales Price per Square Foot Gain
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August Columbia, MD 38,000 1 $ 4.9 $ 128 $ 0.2
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5
1999 ACTIVITY
Purchases:
Gross
Leasable Number of Purchase Purchase Price
Month Type Location Square Feet Properties Price (1) per Square Foot
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May Office/Flex Warren, NJ 129,000 1 $ 8.0 $ 62
June Office Boston, MA 64,000 1 10.2 159
June Office Boston, MA 68,000 1 13.1 193
July Office/Land Columbia, MD 97,000 1 10.7 110
July Office Owings Mills, MD 32,000 1 3.9 122
August Land Hanover, NJ 19.2 acres 1 2.0 --
August Office Hanover, NJ 96,000 1 13.3 139
September Flex Columbia, MD 144,000 1 3.8 26
November Office Rockville, MD 236,000 1 19.9 84
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Total purchases 866,000 9 $ 84.9 --
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Total, excluding land 866,000 8 $ 82.9 96
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Sales:
Gross Leasable Number of Sales Price per
Month Location Square Feet Properties Sales Price Square Foot Gain
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February Wayne, NJ 2.58 acres (2) 1 $ 0.3 $ -- $ 0.2
May Boston, MA 65,000 1 8.1 125 2.3
August Needham, MA 261,000 1 26.0 100 5.6
November Washington, D.C. 225,000 1 43.4 193 7.5
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Total sales 551,000 4 $ 77.8 -- $ 15.6
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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.
During July 2001, Wellsford/Whitehall entered into a contract to sell the
Pointview property, a 194 acre complex with two buildings totaling approximately
564,000 square feet, located in Wayne, New Jersey. This property, which was a
major development project of Wellsford/Whitehall, had been unoccupied since its
purchase in 1997. In anticipation of the consummation of the sale,
Wellsford/Whitehall recorded a $15,561,000 impairment provision at June 30,
2001, of which the Company's allocable share was approximately $5,908,000. This
impairment arose from the change in the intended mixed-use of the property from
office space, a conference center and residential development to an available
for sale headquarters complex. The sale was completed in September 2001. As a
result of a sales price adjustment and cost savings during the third and fourth
quarters of 2001, Wellsford/Whitehall recorded an additional impairment
provision of $178,000, of which the Company's share was $64,000. Aggregate
impairment provisions recorded during 2001, including the Pointview provision
noted above, was $16,545,000, of which the Company's share was $6,256,000.
During June 2001, Wellsford/Whitehall obtained a three-year, $353,000,000
revolving credit facility from General Electric Capital Corporation
("Wellsford/Whitehall GECC Facility") with an initial funding of approximately
$273,000,000 before transaction costs. The remaining balance will be available
to be drawn to fund certain capital expenditures and upon achieving certain
operating results from six properties. The facility bears interest at LIBOR +
2.90% per annum (4.78% at December 31, 2001) and matures in June 2004 with two
12-month extension options, subject to meeting certain operating and valuation
covenants. The facility was secured by interests in twenty-four commercial
office properties in the Wellsford/Whitehall portfolio upon its initial funding.
This facility replaces the previously existing facility which was due to mature
in December 2001. The outstanding balance of this facility was $258,060,000 at
December 31, 2001, the reduction resulting from paydowns of $14,852,000 from two
asset sales; such assets were released from the collateral pool. This financing
was arranged by Goldman Sachs, to whom Wellsford/Whitehall paid a fee of
approximately $2,644,500.
6
In July 2001, Wellsford/Whitehall entered into an interest rate protection
contract at a cost of $1,780,000 (the "Cap"), which limits Wellsford/Whitehall's
LIBOR exposure to 5.83% until June 2003 and 6.83% for the following year to June
2004 on $285,000,000 of debt. At December 31, 2001 the market value of the Cap
was approximately $1,089,000. This Cap was purchased from Goldman Sachs.
In September 2000, Wellsford/Whitehall obtained a $8,150,000 loan from Provident
Bank of Maryland, of which $4,649,000 was drawn upon at December 31, 2001. 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 (3.88% at December 31, 2001), 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. The Company earned
approximately $703,000 and $517,000 of interest income during 2000 and 1999,
respectively from such advances.
In July 1998, Wellsford/Whitehall modified the Wellsford/Whitehall Bank Facility
with a predecessor of Fleet National Bank ("Wellsford/Whitehall Fleet
Facility"). Under the terms, $300,000,000 represented a senior secured credit
facility which bore interest at LIBOR + 1.65% per annum and $75,000,000
represented a second mezzanine facility which bore interest at LIBOR + 3.20% per
annum. As of December 31, 2000, approximately $244,250,000 was outstanding under
the Wellsford/Whitehall Fleet 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. In June 2001, the Wellsford/Whitehall Fleet Facility was repaid in full,
terminated and replaced with the Wellsford/Whitehall GECC Facility.
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 of $85,000,000 and
Whitehall's total portion of $165,000,000 were fully funded as of December 31,
2001.
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.
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DEBT AND EQUITY ACTIVITIES - WELLSFORD CAPITAL
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The Company, through the Wellsford Capital SBU, makes loans directly, or through
joint ventures, predominantly in real estate related senior, junior or otherwise
subordinated debt instruments and also in investment grade rated other
asset-backed securities. The debt instruments may be unsecured or secured by
liens on real estate or various other assets including, but not limited to,
leases on aircraft, truck or car fleets, leases on equipment, consumer
receivables, pools of corporate bonds and loans and sovereign debt, as well as
interests in such assets or their economic benefits. Junior and subordinated
loans and investments generally have the potential for high yields or returns
more characteristic of equity ownership. They 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 and other debt, especially in the low or below investment grade tranches,
at significant returns as a result of inefficiencies in pricing, while utilizing
both our and our joint venture partners' expertise to analyze the underlying
assets and thereby effectively minimizing risk.
At December 31, 2001, the Company had the following investments: (i)
approximately $34,785,000 of direct debt investments which bore interest at an
average yield of approximately 11.38% for the year ended December 31, 2001 and
had an average remaining term to maturity of approximately 4.3 years; (ii)
approximately $31,233,000 in companies which were organized to invest in debt
instruments, including $27,803,000 in Second Holding Company, L.L.C., a company
which was organized to purchase investment and non-investment grade rated real
estate debt instruments and investment grade rated other asset-backed securities
("Second Holding"); and (iii) approximately $6,784,000 in a real estate
information and database company and another real estate-related venture. In
addition, the Company owned and operated two commercial properties with a net
book value of approximately $5,560,000, totaling approximately 175,000 square
feet located in Salem, New Hampshire and Philadelphia, Pennsylvania.
DEBT INVESTMENTS
277 PARK LOAN
In April 1997, the Company and a predecessor of 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 and thus is junior to a 10-year $345,000,000 (amortized balance
of $320,994,000 at December 31, 2001) 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 $3,042,000, $3,050,000 and
$3,042,000 per year of interest income from the 277 Park Loan during 2001, 2000
and 1999, respectively, or 7.3%, 12.2% and 10.1% 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 (amortized balance of approximately
$72,514,000 at December 31, 2001). The loan bears interest at LIBOR + 4.75% per
annum (6.89% at December 31, 2001) with
8
payments of interest only through August 2001 and thereafter, 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 loan
balance due to the Company on December 31, 2001 was approximately $4,973,000.
The Company earned approximately $449,000, $564,000 and $189,000 of interest
income from the Patriot Loan during 2001, 2000 and 1999, respectively, or 1.1%,
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 a predecessor of J.P. Morgan Chase ("JPMC")
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 JPMC 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 Abbey Credit Facility were made for up to 65% of the value of the
borrowing base collateral which consisted of first mortgage loans on office,
industrial and retail properties, 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 Abbey Credit 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
and $2,941,000 of interest income from the Abbey Credit Facility during 2000 and
1999, respectively, or 1.2% and 9.8% of its total non-joint venture revenues
during such periods.
SAFEGUARD CREDIT FACILITY
In December 1998, the Company and JPMC 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 consisted 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 Safeguard Credit Facility was repaid in full in January 2001.
The Company earned approximately $25,000, $306,000 and $292,000 of interest
income from the Safeguard Credit Facility during 2001, 2000 and 1999,
respectively, or 0.1%, 1.2% and 1.0% 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 was 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 bore
interest at 8.547% per annum, was payable quarterly, paid principal based on a
20-year amortization schedule and was due in July 2008. In March 1999, the
amortized loan balance of
9
approximately $17,600,000 was contributed to Second Holding. The DeBartolo Loan
was sold at par during 2001. The Company earned approximately $360,000 of
interest income from the DeBartolo Loan during 1999, or 1.2% of its total
non-joint venture revenues during the period.
WOODLANDS LOAN
In December 1997, the Company, a predecessor of 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, Texas (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 of interest income from the Woodlands Second
Secured Loan during 1999, or 4.3% of its total non-joint venture revenues during
the period.
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 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 of interest income from the REIT Bridge
Loan during 1999, or 3.5% of its total non-joint venture revenues during the
period.
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 on the Broomfield
transaction during 1999, or 5.2% of its total non-joint venture revenues during
the period.
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 unrelated 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. During the latter part of 2000, an additional partner was
admitted to the venture, who received a share of income, as defined, pursuant to
a cumulative preference on earnings in return for providing credit enhancement
to certain debt issued by Second Holding.
10
Effective January 1, 2002, the owners of Second Holding modified the terms of
how income is allocated among the partners to remove the cumulative preference
on earnings to the aforementioned partner. This one partner is entitled to 35%
of net income as defined by the agreement, while the other partners, including
the Company, share in the remaining 65%. The Company's allocation of income is
approximately 51% of the remaining 65%.
The Company's investment in Second Holding, which is accounted for on the equity
method, was approximately $27,803,000 and $27,868,000 at December 31, 2001 and
2000, respectively.
Second Holding has been organized to purchase investment and non-investment
grade rated real estate debt instruments and investment grade rated other
asset-backed securities. These other asset-backed securities that Second Holding
may purchase may be secured by, but not limited to, leases on aircraft, truck or
car fleets, leases on equipment, consumer receivables, pools of corporate bonds
and loans and sovereign debt.
At December 31, 2001, Second Holding had real estate debt and other asset-backed
securities investments of approximately $926,453,000 and also had approximately
$25,000,000 invested in commercial paper. The investment-grade assets and
commercial paper investments are variable rate based and earn interest at a
weighted average annual interest rate of 2.75% at December 31, 2001.
Second Holding utilizes funds from the issuance of bonds and medium term notes
to make investments. At December 31, 2001, Second Holding had total debt of
approximately $962,465,000 which is primarily comprised of (i) a privately
placed ten-year $150,000,000 junior subordinated bond issue maturing April 2010
with a fair value of $163,531,000 at December 31, 2001 and an effective annual
interest rate of LIBOR + 0.90% (3.29% at December 31, 2001), (ii) approximately
$745,000,000 of medium term notes with a weighted average annual interest rate
of 1.91% and (iii) approximately $58,858,000 of commercial paper with a weighted
average annual interest rate of 2.07%, all of which are offset by unamortized
issuance costs and discounts of approximately $4,924,000. The weighted average
annual interest rate on Second Holding's debt was 2.14% at December 31, 2001.
In August 2001, Second Holding purchased an aggregate of $24,825,000 in two
classes of Mortgage Pass-Through Certificates, Series 2001--WTC (the "WTC
Certificates") (the Company's share of which is $12,683,000). The WTC
Certificates, rated AA and A at issuance, were part of a total bond offering of
$563,000,000 which was used to finance the acquisition of the leasehold interest
in towers 1 and 2 and buildings 4 and 5 of the World Trade Center in New York
City. Subsequent to the events of September 11, 2001 which resulted in the
destruction of these buildings, the Company has been informed by GMAC Commercial
Mortgage Corporation, the master and special servicer, that the WTC Certificates
are not in default. The property casualty and business interruption insurance
obtained in connection with the WTC Certificates does not exclude acts of
terrorism and such insurance is from a consortium of 22 insurers. As of December
31, 2001, the rating agencies did not change their ratings on the WTC
Certificates. The Company believes that the insurance coverage is sufficient to
cover Second Holding's investment and that an impairment reserve is not
required. Both Second Holding and the Company will continue to evaluate the
ultimate collectibility of the principal and interest.
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, a
venture 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"). The balance of the Guggenheim Loan
was $3,612,000 at December 31, 2001. The Company earned approximately $345,000
of interest income from the Guggenheim Loan during 2001 or 0.8% of its total
non-joint venture revenues during the period.
11
REIS, INC.
The Company has direct and indirect investments in a real estate information and
database company, Reis, Inc. ("Reis"), a leading provider of real estate market
information to institutional investors. At December 31, 2001 and 2000, the
Company's aggregate investment in Reis, which is accounted for under the cost
method, was approximately $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 percentage interest in a
related real estate advisory and consulting firm. 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 September 2000, one of
the two principals of CVW left CVW to pursue other employment and the venture
was terminated. In July 2001, the warrants issued to the CVW partners were
repurchased for $80,000 and cancelled. The Company may continue to conduct
business through CVW in certain circumstances.
In November 1998, Clairborne acquired an approximate $17,000,000 participation
in a $56,000,000 mortgage, which bore 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
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 ("Fordham Tower"). Construction is in process and
delivery of initial units is projected for November 2002. As of December 31,
2001, the project was approximately 90% presold. 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 and the two former
principals of CVW, based upon certain levels of returns on the project and is
secured by a lien on equity interests in the property. Such additional interest
has not been earned or accrued by the Company. The Company's investment in the
Fordham Tower venture is accounted for on the equity method. The Company's share
of income from Fordham Tower was approximately $361,000 and $85,000 for the
years ended December 31, 2001 and 2000, respectively.
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
12
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, aggregating 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 was scheduled to
mature 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 four other properties were sold during 2001, leaving two properties unsold
at December 31, 2001. The Company recorded a gain of approximately $4,943,000 on
the December 2000 transaction which was offset by a provision for impairment of
$4,725,000, also 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 and expensed all of the remaining unamortized deferred
loan costs associated with the financing. The net book value of the two unsold
properties was approximately $5,560,000 at December 31, 2001, net of the
remaining impairment reserve of $2,175,000. The Company determined that no
additional impairment provision was required at December 31, 2001.
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
At present, the Company's Wellsford Development activities consist solely of an
interest in a five phase 1,800 unit class A multifamily development ("Palomino
Park") in Highlands Ranch, a south suburb of Denver, Colorado. At December 31,
2001, the Company had an 85.85% interest as the managing owner in this project
and an affiliate of EQR had the remaining 14.15% interest. 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") 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.
13
In October 2000, Phase III, the 264 unit phase known as Silver Mesa was
completed at a cost of approximately $44,200,000. 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
certain units to be sold and will continue to rent certain of the remaining
unsold units during the sellout period until the available for sale 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 $21,438,000 and $5,401,000 at
December 31, 2001 and $22,129,000 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 (4.14% at December 31, 2001), is
collateralized by the unsold units, matures in December 2003 and provides for
one six-month extension at the Company's option. Generally, 90% of net sales
proceeds per unit is applied to principal repayments until the loan is paid in
full. The balance of the Silver Mesa Conversion Loan was $13,352,000 and
$32,000,000 at December 31, 2001 and 2000, respectively.
In February 2001, the Company commenced sales of units at Silver Mesa. The
Company sold 105 units through December 31, 2001, for gross proceeds of
approximately $21,932,000, approximately $18,648,000 of which was used to pay
down principal on the Silver Mesa Conversion Loan.
At December 31, 2001, there were 23 units in available for sale inventory. The
Company anticipates releasing 28 units from the rental pool to increase the
available for sale inventory during the first quarter of 2002.
In December 2001, Phase IV, the 424 unit phase known as Green River, was
completed at a cost of approximately $56,400,000. Effective December 31, 2001,
the Company (i) became obligated for the construction loan, (ii) released the
developer of the economic risks it bore during construction and initial lease-up
as the developer carried the construction loan and a significant portion of the
costs incurred on its balance sheet and (iii) the developer no longer
participated in any positive operating income generated during the period.
Accordingly, the Company acquired the improvements and assumed the related
construction loan, which had a balance of $36,747,000 at December 31, 2001,
bears interest at LIBOR + 1.75% per annum (3.76% at December 31, 2001), matures
in January 2003 and is extendable for six months for a fee of 0.375% (the "Green
River Construction Loan"). Additional interest of $861,000 can be accrued into
the principal balance of the loan, after which time, payments of interest only
are required until maturity (it is anticipated that the Company will commence
interest payments during the third quarter of 2002). Green River is in the
lease-up phase and was 52% occupied at December 31, 2001.
On December 31, 2001, Phase V, the improved 29.8 acre parcel of land zoned for
up to 352 units, known as Gold Peak, had a cost basis of approximately
$5,400,000. The Company has not determined if it will construct this phase or
sell the improved land.
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.
14
SEGMENT FINANCIAL INFORMATION
See Note 12 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 may 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.
Some investments may be in entities which make investments in non-real estate
assets, such as certain of the investments that Second Holding engages in.
15
ITEM 2. PROPERTIES.
The following property information is presented by SBU.
WELLSFORD/WHITEHALL
As of December 31, 2001, Wellsford/Whitehall owned and operated 35 properties
(primarily office properties), totaling approximately 3,905,000 square feet. The
following table sets forth certain information related to these properties at
December 31, 2001:
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
OPERATING PROPERTIES - OFFICE
Greenbrook Corporate Center .... Office Fairfield, NJ 201,000 1987 14 97%
300 Atrium Drive ............... Office Somerset, NJ 147,000 1983 5 100%
400 Atrium Drive** ............. Office Somerset, NJ 355,000 1985 2 59%
500 Atrium Drive ............... Office Somerset, NJ 169,000 1984 4 95%
700 Atrium Drive ............... Office Somerset, NJ 181,000 1985 1 100%
Mountain Heights Center #1 ..... Office Berkeley Hts, NJ 183,000 1968/1986/1998 14 97%
Mountain Heights Center #2 ..... Office Berkeley Hts, NJ 123,000 1968/1998/2000 1 100%
Garden State Exhibit Center .... Flex Somerset, NJ 82,000 1968/1989 N/A N/A
60/74 Turner Street ............ Office/Land Waltham, MA 16,000 1970 1 100%
333 Elm Street ................. Office Dedham, MA 48,000 1983 7 69%
Dedham Place ................... Office Dedham, MA 160,000 1987 4 14%
128 Technology Center** ........ Office Waltham, MA 218,000 1986 -- 0%
201 University Avenue .......... Office Westwood, MA 82,000 1982 1 100%
7/57 Wells Avenue .............. Office Newton, MA 88,000 1982 14 93%
75/85/95 Wells Avenue .......... Office Newton, MA 242,000 1976/1986 9 92%
180/188 Mt Airy Road ........... Office Basking Ridge, NJ 104,000 1980 11 95%
377/379 Campus Drive** ......... Office Franklin Twp, NJ 199,000 1984 -- 0%
105 Challenger Road ............ Office Ridgefield Park, NJ 147,000 1992 3 100%
150 Mt. Bethel Road ............ Office/Flex Warren, NJ 129,000 1981 5 59%
One Mall North ................. Office Columbia, MD 97,000 1978/1998 27 77%
Crossroads ..................... Office Owings Mills, MD 32,000 1988 2 45%
Oakland Ridge .................. Flex Columbia, MD 144,000 1972 1 18%
Airport Park ................... Office Hanover Twp, NJ 96,000 1979 12 86%
--------- --- ---
SUBTOTAL--OPERATING PROPERTIES - OFFICE 3,243,000 138 69%
--------- --- ---
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT * ENCUMBRANCES
-------- ------- ---------- ---- ---- ------ ------------
OPERATING PROPERTIES - OFFICE
Greenbrook Corporate Center .... Information Resources December 2003 & 2008 $ 21.29 $ 23.50 $ 23.25 (A)
300 Atrium Drive ............... AT&T March 2004 20.39 22.88 23.50 (A)
400 Atrium Drive** ............. Merrill Lynch (B) December 2003 18.55 20.80 23.50 (A)
500 Atrium Drive ............... Computer Science December 2003 20.01 24.36 23.50 (A)
700 Atrium Drive ............... Merck June 2005 17.39 20.76 23.50 (A)
Mountain Heights Center #1 ..... The Santa Cruz Org. September 2006 24.26 26.31 29.25 (A)
Mountain Heights Center #2 ..... Compaq August 2010 28.50 30.84 29.25 (A)
Garden State Exhibit Center .... N/A N/A 24.58 24.58 24.50 (A)
60/74 Turner Street ............ Brandeis University June 2002 8.00 8.00 10.00 (A)
333 Elm Street ................. RNK, Inc. June 2006 25.66 28.80 27.00 (C)
Dedham Place ................... ARC Advisory Group November 2006 18.64 19.78 29.25 (C)
128 Technology Center** ........ -- -- -- 35.50 (C)
201 University Avenue .......... RCN Corp. December 2009 18.00 20.28 18.00 (C)
7/57 Wells Avenue .............. GEO Centers November 2004 25.84 27.72 30.00 (C)
75/85/95 Wells Avenue .......... Wonderware Corp. April 2005 28.90 30.56 30.00 (C)
180/188 Mt Airy Road ........... Avaya Comm. October 2004 25.61 27.82 28.25 (A)
377/379 Campus Drive** ......... (D) December 2001 11.90 11.90 15.25 (A)
105 Challenger Road ............ Samsung America, Inc. December 2003 26.88 30.99 28.50 (A)
150 Mt. Bethel Road ............ GMAC March 2008 14.58 16.64 16.00 (E)
One Mall North ................. GSA November 2005 20.92 22.27 25.00 (E)
Crossroads ..................... Kiddie Academy February 2006 17.85 19.57 19.50 (E)
Oakland Ridge .................. Wells Fargo (F) 17.00 17.75 19.35 (E)
Airport Park ................... Gemini Consulting January 2006 21.34 25.52 27.00 (E)
---------- --------- ---------
SUBTOTAL--OPERATING PROPERTIES - OFFICE 22.43 23.90 25.01
---------- --------- ---------
16
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
OPERATING PROPERTIES - RETAIL
Essex .......................... Retail Essex, MD 10,000 2000 1 100%
Pennsauken ..................... Retail Pennsauken, NJ 12,000 2001 1 100%
Runnemeade ..................... Retail Runnemeade, NJ 12,000 2001 1 100%
Wetumpa ........................ Retail Wetumpa, AL 10,000 2000 1 100%
Richmond ....................... Retail Richmond, VA 10,000 2001 1 100%
Decauter ....................... Retail Decauter, GA 10,000 2001 1 100%
--------- --- ---
SUBTOTAL--OPERATING PROPERTIES - RETAIL 64,000 6 100%
--------- --- ---
SUBTOTAL--OPERATING PROPERTIES 3,307,000 144 69%
--------- --- ---
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT * ENCUMBRANCES
-------- ------- ---------- ---- ---- ------ ------------
OPERATING PROPERTIES - RETAIL
Essex .......................... CVS January 2024 36.86 36.86 36.86 (E)
Pennsauken ..................... CVS January 2024 24.75 24.75 24.75 (E)
Runnemeade ..................... CVS January 2024 25.96 25.96 25.96 (E)
Wetumpa ........................ CVS January 2024 20.38 20.38 20.38 (E)
Richmond ....................... CVS January 2024 24.30 24.30 24.30 (E)
Decauter ....................... CVS April 2019 17.48 17.48 17.48 (G)
----- ----- -----
SUBTOTAL--OPERATING PROPERTIES - RETAIL 24.98 24.98 24.98
----- ----- -----
SUBTOTAL--OPERATING PROPERTIES 22.49 23.92 25.01
----- ----- -----
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY
-------- ---- -------- ---- ------------- ------- ---------
PROPERTIES UNDER RENOVATION
117 Kendrick Street ............. Office Needham, MA 211,000 1963/2000 3 84%
600 Atrium Drive ................ Land Somerset, NJ N/A N/A (H) --
Airport Park .................... Land Hanover Twp, NJ N/A N/A (H) --
401 North Washington ............ Office Rockville, MD 248,000 1972 5 70%
79 Milk Street .................. Office Boston, MA 65,000 1920/1998 11 54%
24 Federal Street ............... Office Boston, MA 74,000 1921/1997 9 67%
--------- --- --
SUBTOTAL--PROPERTIES UNDER RENOVATION 598,000 28 73%
--------- --- --
2001 TOTAL/PORTFOLIO AVERAGE AT DECEMBER 31, 2001 3,905,000 172 70%
========= === ==
BASE ESCALATED MARKET
RENT PER RENT PER RENT PER
PRINCIPAL LEASE SQUARE SQUARE SQUARE
PROPERTY TENANTS EXPIRATION FOOT FOOT FOOT * ENCUMBRANCES
-------- ------- ---------- ---- ---- ------ ------------
PROPERTIES UNDER RENOVATION
117 Kendrick Street ............. Key3 Media September 2008 30.12 30.32 31.00 (A)
600 Atrium Drive ................ -- -- -- -- -- (G)
Airport Park .................... -- -- -- -- -- (G)
401 North Washington ............ ADP February 2009 19.90 20.58 27.00 (A)
79 Milk Street .................. IDG February 2009 39.73 41.13 41.75 (A)
24 Federal Street ............... IDG February 2009 45.07 45.38 41.75 (A)
--------- --------- -------
SUBTOTAL--PROPERTIES UNDER RENOVATION 28.78 29.32 31.84
--------- --------- -------
2001 TOTAL/PORTFOLIO AVERAGE AT DECEMBER 31, 2001 $ 23.57 $ 24.85 $ 26.06
========= ========= =======
- ----------
(A) Encumbered by the Wellsford/Whitehall GECC Bank Facility.
(B) Leases for approximately 142,000 square feet expired on December 31, 2001;
such expiration is reflected in the 59% occupancy rate.
(C) Encumbered by a $66,189,000 mortgage.
(D) AT&T leased 100% of space and paid rent through December 31, 2001, at which
time the lease was terminated. Wellsford/Whitehall received a payment from
AT&T for this early termination of $3,700,000.
(E) Encumbered by other mortgages.
(F) Expected lease commencement in mid-2002.
(G) Unencumbered.
(H) Land zoned for office development.
* Wellsford/Whitehall's internal judgment as to specific property market rent
per square foot as of December 31, 2001.
** Wellsford/Whitehall plans to convert building from single to multi-tenant.
17
The following table sets forth historical Wellsford/Whitehall portfolio
information by year:
SQUARE FEET OF OCCUPANCY
TOTAL BUILDING OPERATING OF OPERATING
AT DECEMBER 31, SQUARE FEET PROPERTIES PROPERTIES
--------------- ----------- ---------- ----------
2001 .............. 3,905,000 3,307,000 69%
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 7.7 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, 2001 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
---- ------ ------ ----------- ----- ----
2002 ........... 55 306,822 11% $ 5,693,000 $ 18.55
2003 ........... 35 485,588 17% 10,908,000 22.46
2004 ........... 17 273,153 10% 5,365,000 19.64
2005 ........... 29 480,782 17% 10,788,000 22.44
2006 ........... 30 322,373 12% 9,183,000 28.49
2007 ........... 20 234,615 8% 6,963,000 29.68
2008 ........... 11 229,418 8% 7,514,000 32.75
2009 ........... 5 131,351 5% 3,066,000 23.34
2010 ........... 2 124,643 4% 3,674,000 29.47
2011 ........... 5 45,919 2% 1,826,000 39.76
No tenant in the Wellsford/Whitehall portfolio accounted for more than 8% and
11% of rental revenues of Wellsford/Whitehall for the years ended December 31,
2001 and 2000, respectively.
18
WELLSFORD CAPITAL
Wellsford Capital owned the following commercial properties at December 31,
2001; both properties are available for sale:
LEASABLE
BUILDING YEAR NUMBER
SQUARE CONSTRUCTED/ OF PRINCIPAL LEASE
PROPERTY TYPE LOCATION FEET REHABILITATED TENANTS OCCUPANCY TENANTS EXPIRATION
-------- ---- -------- ---- ------------- ------- --------- ------- ----------
Chestnut Street ...... Office Philadelphia, PA 49,953 1857/1990 5 77% A December 2001
Keewaydin Drive ...... Industrial Salem, NH 125,230 1973 4 57% B January 2004
------- --
TOTAL/AVERAGE AT DECEMBER 31,
2001 ......... 175,183 9 62%
======= == ==
2000 ......... 482,270 53 74%
======= == ==
1999 ......... 596,645 74 76%
======= == ==
1998 ......... 596,645 80%
======= ==
ESCALATED MARKET RENT
BASE RENT PER RENT PER RENT PER
PROPERTY SQUARE FOOT SQUARE FOOT SQUARE FOOT*
-------- ----------- ----------- ------------
Chestnut Street ...... $ 14.20 $ 15.42 $ 16.00
Keewaydin Drive ...... 6.43 8.13 6.70
TOTAL/AVERAGE AT DECEMBER 31,
2001 ......... $ 9.16 $ 10.69
========= =========
2000 ......... $ 10.49 $ 11.98
========= =========
1999 ......... $ 10.70 $ 13.40
========= =========
1998 ......... $ 9.51 $ 11.33
========= =========
A...... Kittredge Donley (14,449 square feet)
B...... New Hampshire University (27,555 square feet)
* The Company's internal judgment as to specific property market rent per
square foot as of December 31, 2001.
19
No tenant in the Wellsford Capital portfolio accounts for more than 2.2% and
2.3% of consolidated rental revenues for the years ended December 31, 2001 and
2000, respectively.
WELLSFORD DEVELOPMENT
The Company owned the following multifamily properties at December 31, 2001:
YEAR EFFECTIVE RENT
PROPERTY LOCATION UNITS CONSTRUCTED OCCUPANCY PER UNIT ENCUMBRANCE (A)
-------- -------- ----- ----------- --------- -------- ---------------
Stabilized phases:
Blue Ridge ............... Denver, CO 456 1997 80% $ 1,123 $ 32,916,492
Red Canyon ............... Denver, CO 304 1998 82% 1,294 26,034,695
Silver Mesa (B) .......... Denver, CO 136 2000 60% 1,827 13,351,966
----- ------------
Total stabilized phases ..... 896 77% 1,288 72,303,153
----- ------------
Phases in lease-up:
Green River .............. Denver, CO 424 2001 52% 1,224 36,747,451
----- ------------
Total phases in lease-up .... 424 52% 1,224 36,747,451
----- ------------
TOTAL/AVERAGE AT DECEMBER 31,
2001 ......... 1,320 77% (C) $ 1,267 $109,050,604
===== == ======== ============
2000 ......... 896 93% $ 1,224 $ 91,723,970
===== == ======== ============
1999 ......... 1,104 89% $ 1,001 $ 76,559,929
===== == ======== ============
1998 ......... 1,104 92% $ 984 $ 77,421,790
===== == ======== ============
- ----------
(A) Encumbrance balances exclude the Palomino Park Bonds which are secured by
each phase. The balance of the Palomino Park Bonds was $12,680,000 at
December 31, 2001 and 2000 and $14,755,000 for each prior year presented.
(B) The Silver Mesa phase information excludes units which are available for
sale. The occupancy and average rent per unit reflects the status of only
the 136 rental units. At December 31, 2001, there were 23 units in
available for sale inventory. The Company anticipates releasing 28 units
from the rental pool to increase the available for sale inventory during
the first quarter of 2002. The encumbrance is on all of the unsold units,
including rentals in the phase (aggregating 159 units at December 31,
2001). As individual units are sold, they are released from the Silver Mesa
Conversion Loan collateral.
(C) Phases in lease-up not included in 2001 Total/Average occupancy.
The average lease term of the tenants' leases range from six to fourteen months.
Security deposits are generally required for all leases.
On December 31, 2001, Phase V, the improved 29.8 acre parcel of land zoned for
up to 352 units, known as Gold Peak, had a cost basis of approximately
$5,400,000. The Company has not determined if it will construct this phase or
sell the improved land.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
20
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 closing sales prices for the common shares on the
American Stock Exchange and the dividends declared for the years ended December
31, 2001 and 2000 are as follows:
COMMON SHARES
---------------------------------
2001 HIGH LOW DIVIDENDS
- --------------------- ---- --- ---------
1st Quarter.......... $17.50 $15.50 None
2nd Quarter.......... $19.35 $15.80 None
3rd Quarter.......... $20.00 $17.90 None
4th Quarter.......... $19.60 $18.05 None
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
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 4,200 and
1, respectively, as of December 31, 2001.
DIVIDENDS
- ---------
The Company did not declare or distribute any dividends during 2001 or 2000. 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.
21
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 May 1997 investments, the Company's operations consisted
of earning interest income on a mortgage and the initial phase of construction
development activity with respect to Palomino Park.
SUMMARY CONSOLIDATED STATEMENT OF
OPERATIONS DATA (A) FOR THE YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues ................................ $ 41,493 $ 25,624 $ 30,770 $ 26,316 $ 9,170
Costs and expenses (B) .................. (46,420) (26,181) (29,526) (17,606) (3,919)
Income from joint ventures .............. 4,564 3,247 9,622 3,523 15
Gain on sale of assets, net of impairment
provision of $4,725 in 2000 .......... -- 6,135 -- 139 --
Minority interest ....................... (283) (66) (55) (78) --
--------- --------- --------- --------- ---------
(Loss) income before taxes and
Convertible Trust Preferred Securities (646) 8,759 10,811 12,294 5,266
Income tax expense ...................... (699) (1,430) (1,950) (2,850) (2,213)
Convertible Trust Preferred Securities
distributions, net of tax benefit of
$720 and $510 ........................ (1,380) (861) -- -- --
--------- --------- --------- --------- ---------
Net (loss) income ....................... $ (2,725) $ 6,468 $ 8,861 $ 9,444 $ 3,053
========= ========= ========= ========= =========
Net (loss) income per common share,
basic ................................ $ (0.38) $ 0.76 $ 0.86 $ 0.95 $ 0.36
========= ========= ========= ========= =========
Net (loss) income per common share,
diluted .............................. $ (0.38) $ 0.76 $ 0.86 $ 0.93 $ 0.35
========= ========= ========= ========= =========
Cash dividends declared per common
Share ................................ $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Weighted average number of common
shares outstanding, basic ............ 7,213 8,508 10,321 9,943 8,461
========= ========= ========= ========= =========
Weighted average number of common
shares outstanding, diluted .......... 7,213 8,516 10,329 10,190 8,674
========= ========= ========= ========= =========
SUMMARY CONSOLIDATED BALANCE
SHEET DATA DECEMBER 31,
---------- ----------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(IN THOUSANDS)
Real estate, at cost .................... $ 170,963 $ 167,279 $ 166,166 $ 153,030 $ 58,741
Accumulated depreciation ................ (9,873) (8,248) (6,584) (2,707) --
Notes receivable ........................ 34,785 37,824 37,260 124,706 105,632
Cash and cash equivalents ............... 36,149 36,369 34,740 10,122 29,895
Investment in joint ventures ............ 95,807 120,969 114,390 80,776 44,780
Total assets ............................ 345,838 375,770 366,331 384,971 249,974
Mortgage notes payable .................. 121,731 104,404 119,315 120,177 49,255
Credit facility ......................... -- 12,000 -- 17,000 7,500
Convertible Trust Preferred Securities .. 25,000 25,000 -- -- --
Shareholders' equity .................... 178,079 215,982 229,691 231,625 181,158
- ----------
(A) See Item 7. - Management's Discussion and Analysis of Financial Condition
and Results of Operations for significant changes in revenues and expenses
of the Company.
(B) Includes a restructuring charge of $3,527 during the year ended December
31, 2001, with no similar charges in other periods presented.
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.
22
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.
SELECTED SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Management has selected the following accounting policies which it believes are
significant in order to understand the Company's activities, financial position
and operating results.
PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION. The
consolidated financial statements include the accounts of Wellsford Real
Properties, Inc. and its majority-owned and controlled subsidiaries. Investments
in entities where the Company does not have a controlling interest are accounted
for under the equity method of accounting. These investments are initially
recorded at cost and are subsequently adjusted for the Company's proportionate
share of the investment's income (loss), additional contributions or
distributions. Investments in entities where the Company does not have the
ability to exercise significant influence are accounted for under the cost
method. All significant inter-company accounts and transactions among Wellsford
Real Properties, Inc. and its subsidiaries have been eliminated in
consolidation.
The 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.
REAL ESTATE AND DEPRECIATION AND AMORTIZATION. Costs directly related to the
acquisition, development and improvement of real estate are capitalized,
including interest and other costs incurred during the construction period.
Ordinary repairs and maintenance are expensed as incurred.
Tenant improvements and leasing commissions related to commercial properties are
capitalized and amortized over the terms of the related leases. Costs incurred
to acquire investments in joint ventures are capitalized and amortized over the
expected life of the related assets. Additional amortization is charged as
assets are sold in cases where the joint venture would cease to exist when all
assets are sold or otherwise disposed of. Depreciation is computed over the
expected useful lives of depreciable property on a straight-line basis,
principally 27.5 years for residential buildings and improvements, 40 years for
commercial properties and three to twelve years for furnishings and equipment.
The Company reviews its real estate assets, investments in joint ventures and
other investments (collectively its "long-lived assets") for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
REAL ESTATE - RESIDENTIAL UNITS AVAILABLE FOR SALE. The Company's residential
units available for sale are recorded at the lower of historical cost or market
value based upon current conditions. As units are sold, the cost of each unit is
charged to cost of sales based upon its relative sales value.
MORTGAGE NOTE RECEIVABLE IMPAIRMENT. The Company considers a note impaired if,
based on current information and events, it is probable that all amounts due,
including future interest, payable under the note agreement are not collectable.
Impairment is measured based upon the fair value of the underlying collateral.
INCOME RECOGNITION. Commercial properties are leased under operating leases.
Rental revenue is recognized on a straight-line basis over the terms of the
respective leases. Residential communities are leased under operating leases
with terms of generally six to 14 months. Rental revenue is recognized monthly
as it is earned. Interest
23
income is recorded on an accrual basis over the life of the loan. Sales of real
estate assets are recognized at closing, subject to receipt of down payments and
other requirements in accordance with applicable accounting guidelines.
INCOME TAXES. The Company accounts for income taxes under SFAS 109 "Accounting
for Income Taxes." Deferred income tax assets and liabilities are determined
based upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
estimated to be in effect when the differences are expected to reverse.
Valuation allowances with respect to deferred income tax assets are recorded
when deemed appropriate and adjusted based upon periodic evaluations.
ESTIMATES. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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, 2001 TO THE YEAR ENDED DECEMBER 31,
2000
Rental revenue decreased $4,913,000. This decrease is primarily due to the sale
of five properties that were in operations for substantially the full year of
2000 offset by a new operational rental phase at Palomino Park. Reductions from
the sale of one of the VLP properties in December 2000, two during January 2000
and one during May 2001 (a fifth property was sold in December 2001 but was in
operations for the full year) resulted in a reduction in rental revenue of
$4,078,000. These properties are part of the Wellsford Capital SBU. The
disposition of the Sonterra at Williams Centre property ("Sonterra") in the
Wellsford Development SBU during November 2000 accounted for a decrease of
$2,395,000. These reductions were offset by the commencement of operations of
the Silver Mesa rental units, which were included in operations for the full
year in 2001 and only three months during 2000 (an increase of $1,632,000).
Revenues from the sales of 105 Silver Mesa condominium units and the related
cost of sales from such units were $21,932,000 and $19,364,000, respectively.
Sales commenced in February 2001.
Interest revenue decreased by $1,082,000. This decrease is primarily due to
interest earned on loans outstanding for all or a portion of 2000 and repaid in
the latter part of 2000 or during 2001 ($1,279,000), lower interest revenue
earned on cash due to lower interest rates and lower average cash balances
during 2001 ($206,000) and lower interest earned on variable rate based
mortgages receivable due to the reduction of interest rates over the course of
2001 ($115,000). Such amounts are partially offset by new loans made in late
2000 and during 2001 ($528,000).
Fee revenue decreased $68,000. Of this balance, fees from Wellsford/Whitehall
related activities decreased $298,000 as the 2000 period includes $600,000 of
fees for the Company's role as managing member under the prior
Wellsford/Whitehall Operating Agreement. Under the Amendments, the Company now
earns fees payable by Whitehall from sales by Wellsford/Whitehall and certain
asset purchases by the New Venture. Such amended fees were $388,000 during 2001
and $86,000 during 2000. Additionally, the Company earned $217,000 of management
fees for its role in the Second Holding investment and $13,000 from fees earned
on the modification of the Patriot Loan, both of which are in the Wellsford
Capital SBU.
Property operating and maintenance expense decreased $559,000. This decrease is
due to the sale of Sonterra ($659,000) and four of the VLP properties as noted
above ($608,000), offset by full year operations from the Silver Mesa rental
units ($361,000), increased operating expenses at the other operational
properties principally from
24
increased insurance costs ($263,000) and increased period costs for the
available for sale Silver Mesa units ($84,000).
Real estate taxes decreased $559,000. This decrease is due to the sale of four
VLP properties noted above ($434,000) and the sale of Sonterra ($283,000),
offset by full year operations from the Silver Mesa rental units ($90,000) and
increases at the other Palomino Park phases ($68,000).
Depreciation and amortization expense increased ($340,000). This increase is
primarily due to additional amortization of deferred costs attributable to asset
sales at Wellsford/Whitehall ($1,431,000), full year depreciation of the Silver
Mesa rental units ($518,000) and additional depreciation of corporate furniture,
fixtures and equipment ($185,000), offset by no current year depreciation
expense on the VLP properties, as they are held for sale ($1,101,000), no
depreciation on Sonterra in 2001 as it was sold in 2000 ($556,000) and
amortization in the prior period attributable to one of the two principals
leaving Creamer Vitale Wellsford to pursue other employment and the subsequent
wind-down of the venture ($145,000).
Property management expenses decreased $242,000. This decrease is primarily
attributable to the sale of the four VLP properties ($213,000) and Sonterra
($74,000), partially offset by full year operations from the Silver Mesa rental
units ($49,000).
Interest expense decreased $2,720,000. This decrease is attributable to the
repayment of the $28,000,000 loan in December 2000, which was
cross-collateralized by the VLP properties ($3,083,000), the sale of Sonterra
($982,000), reduced interest rates on other variable rate based debt ($239,000)
and declines in the Blue Ridge and Red Canyon mortgage interest from lower
outstanding debt balances ($49,000), partially offset by interest incurred on
the Silver Mesa Conversion Loan in excess of the prior year ($1,115,000),
decreased capitalized interest ($379,000) and interest on draws under the
Company's line of credit ($137,000).
General and administrative expenses increased $1,090,000. This increase is due
to additional amortization of deferred stock compensation issued during December
2000 and on December 31, 2001 ($671,000) plus increases in wages, health
insurance, incentive compensation and general insurance costs.
The restructuring charge in 2001 of $3,527,000 is for costs incurred pursuant to
the early retirement of the Company's President and other personnel changes.
Such costs are comprised of severance arrangements including the repurchase of
stock options and the write-off of unamortized deferred stock compensation. Of
the expected aggregate cash payments of $3,466,000, the Company anticipates
payments of approximately $2,800,000 by the end of the first quarter 2002 with
the remaining accrued balance expected to be paid during the first quarter of
2003. The Company expects general and administrative expenses to be reduced by
approximately $800,000 annually as a result of the restructuring.
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 then remaining VLP assets available for sale ($4,725,000). There were no
corresponding gains recorded in the 2001 period, and no additional impairment
provision was required.
Income from joint ventures increased $1,318,000. This increase is primarily the
result of (i) net gains on the sales of properties of $4,065,000 in the current
period from Wellsford/Whitehall (the Company's share of gains of $10,321,000 is
offset by the Company's share of impairment provisions of $6,256,000) which was
in excess of gains in the prior year's period of $92,000, (ii) increased income
from the Fordham Tower construction loan of $276,000 through the Clairborne
Prudential program (the Company made this investment in the fourth quarter of
2000) and (iii) prior year net management fee expense related to the Company's
role in the Second Holding venture ($182,000). The impairment provision
adjustment is the Company's allocable share arising from the change in intended
mixed-use of the property from office space, a conference center and residential
development to an available for sale headquarters complex in June 2001 and its
ultimate sale in September 2001. These increases were partially offset by (i)
decreased operating income at Wellsford/Whitehall of $1,281,000,
25
(ii) a current period loss of $164,000 from Second Holding which had income in
the prior period of $1,432,000 (as a partner was admitted into the venture in
the latter part of 2000 whom is entitled to a cumulative preference on earnings)
and (iii) $241,000 of income in the prior period from the investment in The
Liberty Hampshire Company, L.L.C. which the Company sold in December 2000. The
Wellsford/Whitehall investment is in the Commercial Property Investments SBU and
the other ventures are in the Debt and Equity Investments SBU.
Minority interest expense increased $216,000, primarily attributable to income
from the sale of residential units at Silver Mesa, with no corresponding sales
during 2000.
Income tax expense decreased $731,000 because of the Company incurring a loss in
the current year. Such loss did not result in a tax benefit because the tax
benefit attributable to certain costs of the Company's deferred compensation
program, including a portion of the restructuring charge, has been fully
reversed because of the long-term ultimate tax deductibility of such items. This
resulted in income tax expense of $699,000 in 2001.
Accrued distributions and amortization of costs on Convertible Trust Preferred
Securities, net of income tax benefit, increased $519,000, as these securities
were issued in May 2000 and were outstanding for the entire year of 2001.
The decrease in net income per share - basic and diluted of $1.14 per share is
attributable to a current year net loss of $2,725,000 whereas in the 2000
period, the Company reported income of $6,468,000, offset by the effect of a
lower weighted average number of common shares outstanding in the current period
from the repurchase of approximately 1,319,000 shares of common stock during
2000 and 2,021,000 shares of common stock during 2001. The effect of the 2001
share repurchases resulted in a $0.05 per share increase in net loss 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, 2000 TO THE YEAR ENDED DECEMBER 31,
1999
Rental revenue 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 2000 as it was sold in
November 2000 ($224,000).
Interest revenue 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 in
2000 from higher interest rates and greater outstanding balances ($229,000).
Fee revenue increased by $86,000. This increase is a result of fees payable to
the Company from the purchase of two office properties by a Whitehall affiliate.
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
26
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).
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 decrease