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.
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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, [email protected]. 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
----- -------- ----------- ---------- ----------- --------------- ----
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.
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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 decreases from the Liberty Hampshire/Second Holding
Joint Venture investments ($496,000) and CVW ($456,000), offset by an increase
in the Company's proportionate share of Wellsford/Whitehall operating income
($1,206,000) and income from the Fordham Tower construction loan during the
fourth quarter of 2000 ($85,000).
The income tax provision decreased $520,000. This decrease is primarily the
result of lower pretax income and the utilization of state and local income tax
carryforwards.
During the year ended December 31, 2000, the Company repurchased 1,318,732
shares of its outstanding common stock. The effect of these repurchases resulted
in a $0.09 per share increase in net income per share--basic and diluted,
excluding the impact of lost interest income on cash used for such repurchases.
INCOME TAXES
The Company has recorded a net deferred tax asset of $5,081,000 as of December
31, 2001 which is included in prepaid and other assets in the accompanying
consolidated balance sheets. Such amount is net of a valuation allowance of
$18,765,000 and $17,472,000 at December 31, 2001 and 2000, respectively,
established with respect to the uncertainty of realizing the benefit of existing
net operating loss carryforwards and future tax deductions under deferred
compensation arrangements.
At December 31, 2001, the Company has available net operating loss carryforwards
of $64,700,000, which will expire between 2007 and 2012. The Company has
recorded a deferred tax asset of approximately $7,722,000 or 76% of the total
recorded deferred tax asset of $10,085,000 at December 31, 2001, attributable to
the tax benefit, after reserves, of a portion of such net operating loss
carryforwards. As a result of certain limitations under Section 382 of the
Internal Revenue Code, as it applies to the VLP acquisition, the Company may
only use $6,200,000 of such loss carryforwards each year. Any amounts not
utilized in a year may be carried forward to subsequent years. The deferred tax
asset associated with the deferred compensation deductions has been fully
reserved because of the expected timing of the deductibility of such items. The
majority of the remaining
27
$2,263,000 asset is expected to be realized in 2002 or 2003 upon the sale of the
remaining two VLP assets and the scheduled payments of certain severance
accruals.
During the year, the Company increased its valuation allowance by $1,292,000
principally as a result of additional deferred compensation costs, the tax
benefit of which was fully reserved. In order to realize the recorded deferred
tax asset, the Company would have to realize approximately $28,500,000 of
taxable income by 2007 and 2012 when the majority of the net operating loss
carryforwards expire. The Company expects to be able to meet these amounts based
upon the expected taxable income levels from recognition of existing deferred
taxable income and from gains on the sales of properties and other assets.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company expects to meet its short-term liquidity requirements generally
through its available cash, sales of properties and distributions of cash from
Wellsford/Whitehall, sales of properties in the Wellsford Capital SBU, sales of
residential units in the Wellsford Development SBU, cash flow provided by
operations and repayments of notes receivable.
The Company expects to meet its long-term liquidity requirements such as
refinancing mortgages, financing acquisitions and development, financing capital
improvements and joint venture loan requirements, through the use of available
cash, repayments of notes receivable at maturity, sales of properties in the
Wellsford/Whitehall SBU, the issuance of debt and the offering of additional
debt and equity securities. The Company considers its ability to generate cash
to be adequate and expects it to continue to be adequate to meet operating
requirements both in the short and long terms.
Wellsford/Whitehall expects to meet its liquidity requirements, such as
financing additional renovations to its properties and acquisitions of new
properties, if any, with available cash, operating cash flow from its
properties, financing available under the Wellsford/Whitehall GECC Facility,
proceeds from any asset sales and draws from the $10,000,000 commitment of
additional financing or preferred equity from the principal owners of
Wellsford/Whitehall, if required. At December 31, 2001, the Company and
Whitehall each had funded their entire respective capital commitments. The loan
commitment, of which the Company's share is $4,000,000, is fully available to
Wellsford/Whitehall until December 31, 2003. Cash and cash equivalents were
approximately $32,723,000 at December 31, 2001, of which approximately
$4,200,000 was distributed to the partners on February 8, 2002 from previously
closed sales transactions.
Wellsford/Whitehall has agreed to maintain certain tax indemnities for one of
the joint venture partners relating to assets acquired from this partner in
1998. This indemnity was preserved during 2001 as the acquisitions of six
properties related to the completion of the purchase requirements with respect
to properties sold in February and April 2001 as part of tax-free exchanges.
Wellsford/Whitehall and the Company will continue to monitor asset sales and
debt levels with respect to these tax indemnities.
Second Holding expects to meet its liquidity requirements for purchases of
investments with proceeds from the issuance of bonds and medium term notes.
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
28
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.
The Company's retained earnings included approximately $1,823,000 of
undistributed retained earnings at December 31, 2001 from Second Holding, as
such distributions are limited to 48% of earnings.
RECURRING AND NON-RECURRING CAPITAL EXPENDITURES
WELLSFORD DEVELOPMENT
Regarding the Company's Blue Ridge, Red Canyon, Silver Mesa and Green River
rental phases, the Company expects to incur approximately $140 per unit in
apartment preparation costs from turnover of tenant leases during the year
ending December 31, 2002, which will be charged to property operations.
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.
WELLSFORD CAPITAL
The Company expects to incur approximately $1,583,000 of total capital
expenditures with respect to the two remaining VLP properties during 2002. Of
this amount $1,154,000 is for required base building work at both properties.
Recurring capital expenditures of $429,000 are as follows:
PER
AMOUNT SQUARE FOOT
------ -----------
Tenant improvements........... $ 266,000 $ 6.03
Leasing commissions........... 163,000 3.70
----------
$ 429,000
==========
WELLSFORD/WHITEHALL
Wellsford/Whitehall expects to incur approximately $63,300,000 of capital
expenditures during the year ending December 31, 2002. Of that amount,
Wellsford/Whitehall expects to incur approximately $25,215,000 of non-recurring
capital expenditures. This work includes new building developments, asset
repositioning through significant upgrades to the base building and amenities
and the conversion of three single-tenant structures to multi-tenant use
properties. Recurring capital expenditures of $38,085,000 are as follows:
AMOUNT PER SQUARE FOOT*
------ ----------------
Maintenance capital $ 5,867,000 $ 2.75
Tenant improvements 23,549,000 27.37
Leasing commissions 8,669,000 10.07
-----------
$38,085,000
===========
- ----------
* Per square foot amount represents applicable cost by category for expected
square footage to be maintained or leased during the year.
To the extent that available cash, cash flows from operations, sales and
borrowings from financial institutions are not available to finance such capital
projects, the Company and Whitehall will be required to provide up to $4,000,000
and $6,000,000, respectively, under the existing agreement with Whitehall.
29
OTHER USES
RESTRUCTURING CHARGE
The Company anticipates payments of approximately $2,800,000 by the end of the
first quarter of 2002 in connection with restructuring charges, with the
remaining accrued balance expected to be paid during the first quarter of 2003.
The Company expects to utilize available cash for these payments.
CAPITAL COMMITMENTS
At December 31, 2001, the Company had capital commitments to certain joint
venture investments. The Company may make additional equity investments subject
to board approval if deemed prudent to do so to protect or enhance its existing
investment. At December 31, 2001, capital commitments are as follows:
COMMITMENT AMOUNT
---------- ------
Wellsford/Whitehall............... $ 4,000,000 (A)
Clairborne Prudential equity...... 10,208,000 (B)
- ----------
(A) Pursuant to the Agreement, the Company could provide for up to 40% of a
$10,000,000 loan to, or preferred equity in, the venture with its joint
venture partner. Whitehall committed to fund the remaining $6,000,000.
(B) Capital calls are subject to the Company's approval of such investments.
STOCK REPURCHASE PROGRAM
In April 2000, the Company's Board of Directors authorized the repurchase of up
to 1,000,000 additional shares of its outstanding common stock. The Company
intends to repurchase the shares, from time to time, by means of open market
purchases depending on availability of shares, the Company's cash position, the
price per share and other corporate matters. No minimum number or value of
shares to be repurchased has been fixed. Pursuant to this program, 29,837 shares
have been repurchased as of December 31, 2001; none during the year ended
December 31, 2001. In addition, during June 2001, the Board of Directors
authorized the repurchase of 2,020,784 shares of the Company's common stock at
$18.10 per share (aggregating approximately $36,576,000) from an institutional
shareholder. Cash used to repurchase such shares came from available working
capital.
RESOURCES
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 have an outstanding
balance of $12,680,000 at December 31, 2001 and 2000. In June 2000, the Company
obtained a five-year AAA rated letter of credit from Commerzbank AG to secure
the Palomino Park Bonds. This letter of credit replaced an expiring letter of
credit. An affiliate of EQR has guaranteed Commerzbank AG's letter of credit.
During October 2001, the Company and Commerzbank AG amended the letter of credit
agreement to include the $25,000,000 of Convertible Trust Preferred Securities
in shareholders' equity in the determination of the minimum shareholders' equity
covenant. As of December 31, 2001, the Company was in compliance with the
covenants under the letter of credit agreement.
In January 1999, a wholly-owned subsidiary of the Company obtained a $35,000,000
loan facility (the "Wellsford Finance Facility") from a predecessor of Fleet
National Bank. In June 2000, the Company modified the terms of the Wellsford
Finance Facility and reduced the maximum borrowing amount to $20,000,000. The
Wellsford Finance Facility was secured by a $25,000,000 note receivable, bore
interest at LIBOR + 2.75% per annum and expired in January 2002. The Company
paid an origination fee of $75,000 and is obligated to pay a fee equal to 0.25%
per annum on the average daily amount of the unused portion of the facility
until maturity. At
30
December 31, 2000, the outstanding balance under the Wellsford Finance Facility
was $12,000,000. There was no balance outstanding at December 31, 2001.
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 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 Green River
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%. 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.
The Company sold four of the VLP properties during the year ended December 31,
2001 and received proceeds, net of selling costs, of $18,553,000. During the
year ended December 31, 2001, 105 residential units were sold and the Company
received net proceeds of approximately $1,681,000, after the repayment of
principal on the Silver Mesa Conversion Loan of approximately $18,648,000 and
selling costs. Net proceeds received by the Company from the above sales are
available for working capital purposes.
CASH FLOWS
- ----------
2001 CASH FLOWS
Cash flow provided by operating activities of $26,602,000 consists of (i) the
recovery of $16,449,000 of costs from the sales of residential units, (ii)
depreciation and amortization of $5,126,000, (iii) a decrease in restricted cash
of $2,368,000, (iv) an increase in accrued expenses and other liabilities of
$2,363,000, (v) amortization of deferred compensation of $1,578,000, (vi) a
decrease in prepaid and other assets of $855,000, (vii) undistributed minority
interest of $283,000, (viii) distributions received in excess of joint venture
income of $164,000, (ix) shares issued for director compensation of $80,000 and
(x) non-cash charges included in the restructuring charge of $61,000, offset by
a net loss of $2,725,000.
Cash flow provided by investing activities of $4,647,000 consists of returns of
capital from joint venture investments of $31,617,000, proceeds from the sale of
real estate assets of $18,553,000 and repayments of notes receivables of
$3,589,000, partially offset by investments in real estate assets of $40,047,000
capital contributions to joint ventures of $8,566,000 and investments in notes
receivable of $500,000.
Cash flow used in financing activities of $31,469,000 consists of (i) the
repurchase of common shares from an institutional investor of $36,576,000, (ii)
repayments of the Wellsford Finance Facility of $24,000,000, (iii) principal
payments of mortgage notes payable of $19,421,000 (including $18,648,000 for the
Silver Mesa Conversion Loan), (iv) registration statement costs of $123,000, (v)
costs incurred to repurchase warrants of $80,000 and (vi) distribution to
minority interests of $16,000, partially offset by borrowings from mortgage
notes payable of $36,747,000 and the Wellsford Finance Facility of $12,000,000.
31
2000 CASH FLOWS
Cash flow provided by operating activities of $10,023,000 primarily consists of
net income of $6,468,000 plus (i) depreciation and amortization of $4,980,000,
(ii) an increase in accrued expenses and other liabilities of $2,662,000, (iii)
distributions received in excess of joint venture income of $1,493,000, (iv)
amortization of deferred compensation of $907,000 and (v) decreases in
restricted cash of $506,000, partially offset by the gain on sale of assets (net
of impairment provision of $4,725,000) of $6,135,000 and increases in prepaid
and other assets of $1,003,000.
Cash flow used in investing activities of $22,778,000 consists of (i)
investments in real estate assets of $39,026,000, (ii) investments in notes
receivable of $28,833,000 and (iii) capital contributions to joint venture
investments of $12,895,000 partially offset by repayments of notes receivables
of $32,408,000, $21,650,000 of proceeds from the sales of real estate assets,
returns of capital from joint venture investments of $2,886,000 and proceeds
from the sale of joint venture interests of $1,032,000.
Cash flow provided by financing activities of $14,383,000 primarily consists of
(i) proceeds from the Silver Mesa Conversion Loan of $32,000,000, (ii) proceeds
from the issuance of Convertible Trust Preferred Securities of $25,000,000 and
(iii) proceeds from draws on the Company's credit facility of $12,000,000,
partially offset by the repayment of mortgage notes payable of $30,940,000,
repurchases of the Company's common stock of $21,119,000, the establishment of
an interest reserve for the Silver Mesa Conversion Loan of $1,960,000 and
deferred financing costs principally associated with the issuance of the
Convertible Trust Preferred Securities of $544,000.
1999 CASH FLOWS
Cash flow provided by operating activities of $13,857,000 primarily consists of
net income of $8,861,000 plus (i) depreciation and amortization of $5,937,000
and (ii) amortization of deferred compensation of $848,000, offset by
undistributed joint venture income of $675,000, increases in restricted cash of
$459,000 and prepaid and other assets of $498,000 and a decrease in accrued
expenses and other liabilities of $297,000.
Cash flow provided by investing activities of $40,834,000 consists of repayments
of notes receivable of $112,741,000, the proceeds from sale of real estate
assets of $7,238,000 and returns of capital from joint ventures of $6,091,000,
offset by additional investments in (i) notes receivable of $49,295,000, (ii)
real estate assets of $18,975,000 and (iii) capital contributions to joint
ventures of $16,968,000.
Cash flow used in financing activities of $30,072,000 primarily consists of (i)
repayment of credit facilities of $54,000,000, (ii) the repurchase of common
shares of $12,209,000 and (iii) repayment of mortgage notes payable of $862,000,
offset by borrowings from credit facilities of $37,000,000.
See the accompanying consolidated statements of cash flows included in the
consolidated financial statements for a reconciliation of the Company's cash
position for the years described therein.
ENVIRONMENTAL
- -------------
In December 2001, the Company submitted a report to the New Hampshire Department
of Environmental Services ("NHDES") that summarized the findings of an
environmental testing firm engaged by the Company with respect to groundwater
and surface water monitoring and testing which took place during 2001 on one of
its owned properties. The NHDES responded in January 2002 with concerns about
surface water contamination, volatile organic chemical ("VOC") migration off of
the property and air quality. The NHDES mandated further testing before a
remediation action plan is considered. Further preliminary testing conducted by
the environmental testing firm since the NHDES response suggests that the
surface water contamination is caused by the groundwater contamination and that
the VOC contamination may be migrating off of the property. Once the Company's
"Scope of Work" plans have been approved, the Company will conduct further
testing to address
32
the NHDES's concerns. Following that testing, the Company will present the
findings and a recommended plan of remediation to the NHDES. At this time, it is
too early to conclude the form of remediation that will be required, or the cost
thereof, but in all likelihood, the remediation required will be a more
aggressive one than natural attenuation. During 2001, the Company incurred
approximately $48,000 of costs principally for its environmental testing firm,
with respect to this matter.
TERRORISM INSURANCE
- -------------------
The Company is covered under its all risk property insurance policies for acts
of terrorism on its consolidated real estate assets through June 30, 2002.
Terrorism coverage is available for the Wellsford/Whitehall portfolio through
June 30, 2002 as well. The Company and Wellsford/Whitehall expect that similar
coverage will not be available in connection with an all risk policy and will
need to make an assessment of the cost benefit of obtaining terrorism insurance
on such assets at that time. The underwriting procedures utilized by the Company
and Second Holding have been modified to evaluate the impact of the lack of, or
inability to obtain terrorism insurance by property owners on single assets or
small collateral pools for its debt investments. Most real estate
collateralizing such investments is currently not insured for acts of terrorism
or is expected to lose such coverage as current policies expire and asset owners
evaluate the cost of obtaining new policies.
INFLATION
- ---------
Substantially all of Wellsford Capital's and Wellsford/Whitehall's leases with
their tenants provide for separate escalations of real estate taxes and
operating expenses over a base amount. In addition, many of the office leases
provide for fixed base rent increases or indexed escalations (based on the CPI
or other measures). The Company believes that inflationary increases in expenses
will generally be offset by the expense reimbursements and contractual rent
increases described above.
A substantial majority of the leases at the Company's multifamily properties are
for a term of one year or less which may enable the Company to seek increased
rents upon renewal or re-letting of apartment units. Such short-term leases
generally minimize the risk to the Company of the adverse effects of inflation.
TRENDS
- ------
The markets in which the Company owns and operates its assets (or has
investments in entities which own and operate assets) are subjected to general
and local economic business conditions. Based upon the current economic
environment, these conditions may negatively impact the occupancy levels and
amount of concessions at properties in the Wellsford Development and Wellsford
Capital SBUs or negatively impact 2002 property sales in the Wellsford Capital
SBU and the sale of residential units at Silver Mesa in the Wellsford
Development SBU. Wellsford/Whitehall would be similarly impacted by such
conditions.
NET CASH FLOW
- -------------
The Company considers Net Cash Flow to be an important measure of its
performance, to be considered in addition to Net Income, predicated on Generally
Accepted Accounting Principles. Net Cash Flow, for the Company's purposes,
represents Net Income as prescribed by Generally Accepted Accounting Principles,
plus depreciation and amortization on real estate assets, the provision for
impairment, share of depreciation and amortization from unconsolidated
partnerships and joint ventures, offset by accumulated depreciation and recovery
of impairment provisions on assets sold. Included in such cash flow is the
Company's share of undistributed cash retained by the unconsolidated
partnerships and joint ventures for continuing investment in lieu of future
fundings as well as cash obtained from gains on sales of properties. Net Cash
Flow should not be considered a replacement for Net Income as an indicator of
the Company's operating performance and is not necessarily indicative of cash
available to fund cash needs.
33
The following table reconciles Net Income and Net Cash Flow:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
Net (loss) income ......................... $ (2,724,616) $ 6,468,045 $ 8,860,801
Add/(deduct):
Depreciation and amortization .......... 5,016,125 4,855,778 5,384,782
Provision for impairment (A) ........... -- 4,725,000 --
Accumulated depreciation and recovery of
impairment provision on assets sold . (3,991,414) (2,533,737) --
Share of joint venture depreciation and
amortization, net ................... 5,026,532 5,292,254 5,238,357
------------ ------------ ------------
Net cash flow ............................. $ 3,326,627 $ 18,807,340 $ 19,483,940
============ ============ ============
Weighted average number of common shares
outstanding for net cash flow, basic ... 7,213,029 8,507,631 10,321,012
============ ============ ============
Weighted average number of common shares
outstanding for net cash flow, diluted . 7,238,334 8,516,321 10,328,744
============ ============ ============
- ----------
(A) The Company recorded a provision for impairment of $4,725,000 in 2000,
attributable to expected sales proceeds being less than the respective
carrying amounts on four of the six unsold VLP properties at December 31,
2000.
Below are the Company's cash flows provided by operating activities as disclosed
in the Consolidated Statements of Cash Flows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
Operating activities .... $26,601,838 $10,023,485 $13,856,594
=========== =========== ===========
34
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS.
This Form 10-K, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following,
which are discussed in greater detail in the "Risk Factors" section of the
Company's registration statement on Form S-3 (file No. 333-73874) filed with the
Securities and Exchange Commission ("SEC") on December 14, 2001, as may be
amended, which is incorporated herein by reference: general and local economic
and business conditions, which will, among other things, affect demand for
commercial and residential properties, availability and credit worthiness of
prospective tenants, lease rents and the availability and cost of financing;
ability to find suitable investments; competition; risks of real estate
acquisition, development, construction and renovation including construction
delays and cost overruns; ability to comply with zoning and other laws;
vacancies at commercial and multifamily properties; dependence on rental income
from real property; adverse consequences of debt financing including, without
limitation, the necessity of future financings to repay debt obligations;
inability to meet financial and valuation covenants; inability to repay
financings; risks of investments in debt instruments, including possible payment
defaults and reductions in the value of collateral; uncertainty pertaining to
the WTC Certificates, including scheduled interest payments, the ultimate
repayment of principal, adequate insurance coverages, the ability of insurers to
pay claims and effects of changes in ratings from Standard & Poor's and Fitch;
risks of subordinate loans; risks of leverage; risks associated with equity
investments in and with third parties; availability and cost of financing;
interest rate risks; demand by prospective buyers of condominium and commercial
properties; inability to realize gains from the real estate assets held for
sale; lower than anticipated sales prices; inability to close on sales of
properties under contract; illiquidity of real estate investments; environmental
risks; and other risks listed from time to time in the Company's reports filed
with the SEC. Therefore, actual results could differ materially from those
projected in such statements.
35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is to changes in interest rates. The
Company manages this risk by offsetting its investments and financing exposures
as well as by strategically timing and structuring its transactions. The
following table presents the effect of a 1.00% increase in the base rates on all
variable rate notes receivable and debt and its impact on annual net income:
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EFFECT OF 1% EFFECT OF 1%
BALANCE AT INCREASE IN BASE BALANCE AT INCREASE IN BASE
DECEMBER 31, RATE ON INCOME DECEMBER 31, RATE ON INCOME
2001 (EXPENSE) 2000 (EXPENSE)
---- --------- ---- ---------
Consolidated assets and liabilities:
Notes receivable:
Variable rate .............................. $ 4,973 $ 50 $ 7,996 $ 80
Fixed rate ................................. 29,812 -- 29,828 --
--------- --------- --------- ---------
$ 34,785 50 $ 37,824 80
========= --------- ========= ---------
Mortgage notes payable:
Variable rate .............................. $ 62,780 (628) $ 56,680 (567)
Fixed rate ................................. 58,951 -- 59,724 --
--------- --------- --------- ---------
$ 121,731 (628) $ 116,404 (567)
--------- --------- --------- ---------
Convertible Trust Preferred Securities:
Fixed rate ................................. $ 25,000 -- $ 25,000 --
========= --------- ========= ---------
Proportionate share of assets and liabilities from
investments in joint ventures:
Second Holding:
Investments:
Variable rate ........................... $ 486,174 4,862 $ 115,953 1,160
Fixed rate .............................. -- -- 1,047 --
--------- --------- --------- ---------
$ 486,174 4,862 $ 117,000 1,160
========= =========
Debt:
Variable rate ........................... $ 487,335 (4,873) $ 127,727 (1,277)
========= --------- ========= ---------
Net effect from Second Holding ................ (11) (117)
--------- ---------
Wellsford/Whitehall:
Debt:
Variable rate ........................... $ -- -- $ 900 (9)
Variable rate, with LIBOR cap (A) (B) ... 91,162 (912) 119,100 (810)
Fixed rate .............................. 29,424 -- 31,154 --
--------- --------- --------- ---------
$ 120,586 $ 151,154
========= =========
Effect from Wellsford/Whitehall ............... (912) (819)
--------- ---------
Net decrease in annual income, before income tax
benefit ....................................... (1,501) (1,423)
Income tax benefit ............................... 600 569
--------- ---------
Net decrease in annual net income ................ $ (901) $ (854)
========= =========
Per share, basic and diluted ..................... $ (0.12) $ (0.10)
========= =========
- ----------
(A) In July 2001, Wellsford/Whitehall entered into an interest rate protection
contract for a notional amount of $285,000, which limits
Wellsford/Whitehall's LIBOR exposure to 5.83% until June 2003 and 6.83% for
the following year to June 2004. The above calculation assumes exposure of
1.00% on the Company's proportionate share of debt based upon 30-day LIBOR
of 1.88% at December 31, 2001.
(B) In May 2000, Wellsford/Whitehall entered into an interest rate protection
agreement which caps LIBOR at 7.50% on $300,000 until March 15, 2001 and is
reduced to $200,000 for the period March 16, 2001 to May 15, 2001.
Calculation assumes exposure of 0.68% on the Company's proportionate share
of $300,000 based on LIBOR of 6.82% at December 31, 2000.
36
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item 8 is included as a separate section of this annual
report on Form 10-K (see page F-1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company, their ages and their
positions are as follows:
NAME AGE POSITIONS AND OFFICES HELD
---- --- --------------------------
Jeffrey H. Lynford.... 54 Chairman of the Board, Secretary and Director*
Edward Lowenthal...... 57 President, Chief Executive Officer and Director***
James J. Burns........ 62 Senior Vice President, Chief Financial Officer
David M. Strong....... 43 Vice President for Development
Mark P. Cantaluppi.... 31 Vice President, Chief Accounting Officer
Martin Bernstein...... 64 Director**
Douglas Crocker II.... 61 Director*
Rodney F. Du Bois..... 66 Director***
Richard S. Frary...... 54 Director**
Meyer S. Frucher...... 55 Director**
Mark S. Germain....... 51 Director*
- ----------
* Term expires 2002.
** Term expires 2003.
*** Term expires 2004.
The information contained in the sections captioned "Nominees for Election as
Directors", "Other Directors", "Executive Officers", and "Key Employees" of the
Company's definitive proxy statement for the 2002 annual meeting of shareholders
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the sections captioned "Executive Compensation",
"Compensation of Directors", "Board Committees", "Employment Agreements", and
"Management Incentive Plans" of the Company's definitive proxy statement for the
2002 annual meeting of shareholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the section captioned "Security Ownership of
Certain Beneficial Owners and Management" of the Company's definitive proxy
statement for the 2002 annual meeting of shareholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the section captioned "Certain Transactions" of the
Company's definitive proxy statement for the 2002 annual meeting of shareholders
is incorporated herein by reference.
38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS
The following consolidated financial information is included as a
separate section of this annual report on Form 10-K:
Consolidated Balance Sheets as of December 31, 2001 and 2000.
Consolidated Statements of Income for the years ended December 31,
2001, 2000 and 1999.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
Wellsford/Whitehall Group, L.L.C. Consolidated Financial Statements
and Notes.
(2) FINANCIAL STATEMENT SCHEDULES
III. Real Estate and Accumulated Depreciation
IV. Mortgage Loans on Real Estate
All other schedules have been omitted because the required
information of such other schedules is not present, is not
present in amounts sufficient to require submission of the
schedule or is included in the consolidated financial statements.
(3) EXHIBITS
(a) EXHIBIT NO. DESCRIPTION+++
----------- --------------
3.1 Articles of Amendment and Restatement of the Company.
****
3.2 Articles Supplementary Classifying 350,000 Shares of
Common Stock as Class A Common Stock. ****
3.3 Articles Supplementary Classifying 2,000,000 Shares of
Common Stock as Series A 8% Convertible Redeemable
Preferred Stock. ****
3.4 Bylaws of the Company. ****
4.1 Specimen certificate for Common Stock. ***
4.2 Specimen certificate for Class A Common Stock. ****
4.3 Specimen certificate for Series A 8% Convertible
Redeemable Preferred Stock. ****
4.4 Warrant Sale Agreement, dated as of December 21, 2000,
between Wellsford and W/W Group Holdings, L.L.C.
("Holding Co.") relating to the transfer to Wellsford
of warrants issued by Wellsford to Holding Co. pursuant
to that certain Warrant Agreement dated as of May 28,
1999, by and between Wellsford and United States Trust
Company of New York (the "Warrant Agent"). ++++++
39
EXHIBIT NO. DESCRIPTION+++ (CONTINUED)
----------- --------------------------
4.5 Warrant Sale Agreement, dated as of December 21, 2000,
between Wellsford and Holding Co. relating to the
transfer to Wellsford of warrants issued by Wellsford
to Holding Co. pursuant to that certain Warrant
Agreement dated as of August 28, 1997, by and between
Wellsford and the Warrant Agent, as amended on July 16,
1998, and as further amended on May 28, 1999. ++++++
4.6 Agreement, dated as of December 21, 2000, terminating
the Registration Rights Agreement between Wellsford and
Holding Co., dated as of May 28, 1999. ++++++
10.1 Operating Agreement of Red Canyon at Palomino Park LLC
between Wellsford Park Highlands Corp. and Al Feld,
dated as of April 17, 1996, relating to Red Canyon. *
10.2 First Amendment to Operating Agreement of Red Canyon at
Palomino Park LLC between Wellsford Park Highlands
Corp. and Al Feld, dated as of May 19, 1997, relating
to Red Canyon. ****
10.3 Second Amendment to Operating Agreement of Red Canyon
at Palomino Park LLC between Wellsford Park Highlands
Corp. and Al Feld, dated as of November 16, 1998.
10.4 Second Amended and Restated Vacant Land Purchase and
Sale Agreement between Mission Viejo Company and The
Feld Company dated March 23, 1995, as amended by First
Amendment, dated May 1, 1996, relating to the land
underlying Palomino Park. *
10.5 Trust Indenture, dated as of December 1, 1995, between
Palomino Park Public Improvements Corporation ("PPPIC")
and United States Trust Company of New York, as
trustee, securing Wellsford Residential Property
Trust's Assessment Lien Revenue Bonds Series 1995 -
$14,755,000. **
10.6 Amendment to Wellsford Reimbursement Agreement by and
between PPPIC, Wellsford Residential Property Trust and
the Company, dated as of May 30, 1997. ****
10.7 Assignment and Assumption Agreement by and between
Wellsford Residential Property Trust and the Company,
dated as of May 30, 1997. ****
10.8 Credit Enhancement Agreement by and between the Company
and ERP Operating Limited Partnership, dated as of May
30, 1997, relating to Palomino Park. ****
10.9 Reimbursement and Indemnification Agreement by and
between the Company and ERP Operating Limited
Partnership, dated as of May 30, 1997, relating to
Palomino Park. ****
10.10Common Stock and Preferred Stock Purchase Agreement by
and between the Company and ERP Operating Limited
Partnership dated as of May 30, 1997. ****
10.11Registration Rights Agreement by and between the
Company and ERP Operating Limited Partnership dated as
of May 30, 1997. ****
10.12Credit Agreement, dated as of April 25, 1997, by and
among Park Avenue Financing Company LLC, PAMC
Co-Manager Inc., PAFC Management, Inc., Stanley Stahl,
The First National Bank of Boston, the Company, other
banks that may become parties to the Agreement and The
First National Bank of Boston, as Agent, relating to
277 Park Avenue. **
10.13Assignment of Member's Interest, dated as of April 25,
1997, by PAFC Management, Inc. and Stanley Stahl to The
First National Bank of Boston, relating to 277 Park
Avenue (relating to interests in the Park Avenue
Financing Company, LLC). **
40
EXHIBIT NO. DESCRIPTION+++ (CONTINUED)
----------- --------------------------
10.14Assignment of Member's Interest, dated as of April 25,
1997, by PAMC Co-Manager Inc. and Park Avenue
Financing, LLC to The First National Bank of Boston,
relating to 277 Park Avenue (relating to interests in
277 Park Avenue, LLC). **
10.15Stock Pledge Agreement, dated as of April 25, 1997, by
Stanley Stahl to The First National Bank of Boston,
relating to 277 Park Avenue (relating to stock in Park
Avenue Management Corporation). **
10.16Stock Pledge Agreement, dated as of April 25, 1997, by
Stanley Stahl to The First National Bank of Boston,
relating to 277 Park Avenue (relating to stock in PAMC
Co-Manager Inc.). **
10.17Stock Pledge Agreement, dated as of April 25, 1997, by
Stanley Stahl to The First National Bank of Boston,
relating to 277 Park Avenue (relating to stock in PAFC
Management, Inc.). **
10.18Conditional Guaranty of Payment and Performance, dated
as of April 25, 1997, by Stanley Stahl, relating to 277
Park Avenue. **
10.19Cash Collateral Account Security, Pledge and
Assignment Agreement, dated as of April 25, 1997, by
and among 277 Park Avenue, LLC, Park Avenue Management
Corporation, Park Avenue Financing Company LLC, PAMC
Co-Manager Inc., Stanley Stahl and The First National
Bank of Boston, relating to 277 Park Avenue. **
10.20Recognition Agreement, dated as of April 25, 1997, by
and among The First National Bank of Boston, the
Company, Column Financial, Inc., Park Avenue Financing
Company LLC, PAMC Co-Manager, Inc. and 277 Park Avenue,
LLC, relating to 277 Park Avenue. **
10.21Intercreditor Agreement, dated as of April 25, 1997,
between the Company and The First National Bank of
Boston, as Agent, relating to 277 Park Avenue. **
10.22Assignment and Acceptance Agreement, dated June 19,
1997, between BankBoston, N.A. (formerly known as The
First National Bank of Boston) ("BankBoston") and the
Company, relating to 277 Park Avenue. ****
10.23Revolving Credit Agreement by and among the Company,
BankBoston, Morgan Guaranty Trust Company of New York
("Morgan Guaranty"), other banks which may become
parties and BankBoston, as agent, and Morgan Guaranty,
as co-agent dated as of May 30, 1997. ****
10.24Agreement Regarding Common Stock and Preferred Stock
Purchase Agreement, dated as of May 30, 1997, among ERP
Operating Limited Partnership, the Company and
BankBoston, as agent. ****
10.25Assignment of Common Stock Agreements, dated as of May
30, 1997, between the Company and BankBoston, as agent.
****
10.26Collateral Assignment of Documents, Rights and Claims
(including Collateral Assignment of Deed of Trust,
Assignment of Leases and Rents, Security Agreement and
Fixture Filing), made as of May 30, 1997, by the
Company to BankBoston, as agent. ****
10.27First Amended and Restated Loan Agreement, dated as of
July 16, 1998 (the "First Amended and Restated Loan
Agreement"), among Wellsford/Whitehall Holdings,
L.L.C., as Borrower, and BankBoston, Goldman Sachs
Mortgage Company, and other banks, as Banks, and
BankBoston, as Administrative Agent and Co-Arranger and
Co-Syndication Agent, and Goldman Sachs Mortgage
Company, as Co-Arranger and Co-Syndication Agent. ++
10.28Form of promissory note payable to the order of eight
lenders by Wellsford/Whitehall Properties, L.L.C. under
the First Amended and Restated Loan Agreement. ++
41
EXHIBIT NO. DESCRIPTION+++ (CONTINUED)
----------- --------------------------
10.29Amended and Restated Assignment of Member's Interest
under the First Amended and Restated Loan Agreement,
dated as of July 16, 1998, by Wellsford/Whitehall
Holdings, L.L.C. to BankBoston, as Agent. ++
10.30Amended and Restated Cash Collateral Agreement under
the First Amended and Restated Loan Agreement, dated as
of July 16, 1998, by and among Wellsford/Whitehall
Holdings, L.L.C., WASH Manager L.L.C., Wells Avenue
Holdings L.L.C. and BankBoston, as Agent. ++
10.31Indemnity Agreement Regarding Hazardous Materials
under the First Amended and Restated Loan Agreement,
dated as of July 16, 1998, by Wellsford/Whitehall
Holdings, L.L.C., Wellsford Commercial Properties Trust
and WHWEL Real Estate Limited Partnership for the
benefit of BankBoston. ++
10.32Conditional Guaranty of Payment under the First
Amended and Restated Loan Agreement, dated as of July
16, 1998, by Wellsford Commercial Properties Trust,
WHWEL Real Estate Limited Partnership, the Company,
Whitehall Street Real Estate Limited Partnership V,
Whitehall Street Real Estate Limited Partnership VI,
Whitehall Street Real Estate Limited Partnership VII
and Whitehall Street Real Estate Limited Partnership
VIII in favor of BankBoston and Goldman Sachs Mortgage
Company. ++
10.33Indemnity and Guaranty Agreement under the First
Amended and Restated Loan Agreement, dated as of July
16, 1998, by Wellsford Commercial Properties Trust and
WHWEL Real Estate Limited Partnership in favor of
BankBoston, Goldman Sachs Mortgage Company and Other
Banks. ++
10.34Mezzanine Loan Agreement, dated as of July 16, 1998
(the "Mezzanine Loan Agreement"), among
Wellsford/Whitehall Holdings II, L.L.C., as Borrower,
and BankBoston, Goldman Sachs Mortgage Company, and
other banks, as Banks, and BankBoston, as
Administrative Agent and Co-Arranger and Co-Syndication
Agent, and Goldman Sachs Mortgage Company, as
Co-Arranger and Co-Syndication Agent. ++
10.35Form of promissory note payable to the order of five
lenders by Wellsford/Whitehall Properties II, L.L.C.
under the Mezzanine Loan Agreement. ++
10.36Assignment of Member's Interest under the Mezzanine
Loan Agreement, dated as of July 16, 1998, between
Wellsford/Whitehall Properties II, L.L.C. and
BankBoston, as Agent. ++
10.37Indemnity Agreement Regarding Hazardous Materials
under the Mezzanine Loan Agreement, dated as of July
16, 1998, by Wellsford/Whitehall Properties II, L.L.C.,
Wellsford Commercial Properties Trust and WHWEL Real
Estate Limited Partnership for the benefit of
BankBoston. ++
10.38Nomura Conditional Guaranty of Payment under the
Mezzanine Loan Agreement, dated as of July 16, 1998, by
Wellsford Commercial Properties Trust, WHWEL Real
Estate Limited Partnership, the Company, Whitehall
Street Real Estate Limited Partnership V, Whitehall
Street Real Estate Limited Partnership VI, Whitehall
Street Real Estate Limited Partnership VII and
Whitehall Street Real Estate Limited Partnership VIII
in favor of BankBoston and Goldman Sachs Mortgage
Company. ++
42
EXHIBIT NO. DESCRIPTION+++ (CONTINUED)
----------- --------------------------
10.39Conditional Guaranty of Payment under the Mezzanine
Loan Agreement, dated as of July 16, 1998, by Wellsford
Commercial Properties Trust, WHWEL Real Estate Limited
Partnership, the Company, Whitehall Street Real Estate
Limited Partnership V, Whitehall Street Real Estate
Limited Partnership VI, Whitehall Street Real Estate
Limited Partnership VII and Whitehall Street Real
Estate Limited Partnership VIII in favor of BankBoston
and Goldman Sachs Mortgage Company. ++
10.40Indemnity and Guaranty Agreement under the Mezzanine
Loan Agreement, dated as of July 16, 1998, by Wellsford
Commercial Properties Trust and WHWEL Real Estate
Limited Partnership in favor of BankBoston, Goldman
Sachs Mortgage Company and other banks. ++
10.401 First Amendment to Mezzanine Loan Agreement, dated as
of May 28, 1999 by and among Wellsford/Whitehall
Properties II, L.L.C., Wellsford Commercial Properties
Trust, WHWEL Real Estate Limited Partnership, Wellsford
Real Properties, Inc., Whitehall Street Real Estate
Limited Partnership V, Whitehall Street Real Estate
Limited Partnership VI, Whitehall Street Real Estate
Limited Partnership VII, Whitehall Street Real Estate
Limited Partnership VIII, Wells Avenue Holdings,
L.L.C., Wash Manager L.L.C., BankBoston, N.A., Goldman
Sachs Mortgage Company, BHF-Bank Aktiengesellschaft,
Morgan Stanley Senior Funding Inc., and PAM Capital
Funding LP. +++
10.402 Contribution Agreement, dated as of February 12,
1998, among Saracen Properties, Inc., Saraceno Holding
Trust General Partnership, Dominic J. Saraceno, 150
Wells Avenue Realty Trust, River Park Realty Trust,
Seventy Wells Avenue LLC, Newton Acquisition LLC I,
Saracen Portland L.L.C., KSA Newton Acquisition Limited
Partnership II and KSA Newton Limited Partnership I, as
Contributor, and Wellsford/Whitehall Properties,
L.L.C., as Contributee. ++++
10.41$50 million Revolving Credit Agreement, dated as of
January 12, 1999, among Wellsford Finance, Inc., as
Borrower, and BankBoston and other banks, as Lender,
and BankBoston, as Agent. ++
10.42$50 million promissory note, dated January 12, 1999,
payable to BankBoston by Wellsford Finance, Inc. ++
10.43Amended and Restated Revolving Credit Agreement, dated
as of June 28, 2000, among Wellsford Finance, LLC, as
Borrower and Fleet National Bank and other lenders
which may become parties to this agreement, as Lenders
and Fleet National Bank, as Agent. #
10.44Collateral Assignment of Documents, Rights and Claims,
dated January 12, 1999, from Wellsford Finance, Inc. to
BankBoston, as Agent. ++
10.441 Limited Liability Company Operating Agreement of
Wellsford/Whitehall Group, L.L.C., dated as of May 28,
1999. +++
10.442 First Amendment to the Limited Liability Company
Operating Agreement of WWG, dated as of December 21,
2000, among WHWEL Real Estate Limited Partnership,
Wellsford Commercial Properties Trust, WXI/WWG Realty,
L.L.C., Holding Co. and WP Commercial, L.L.C., dated as
of May 28, 1999 (excluding exhibits and schedules).
++++++
10.45First Amendment of Fixed Rate Loan Agreement, dated as
of January 8, 1999, among First Union Real Estate
Equity and Mortgage Investments, as Borrower, Bankers
Trust Company, Wellsford Capital and BankBoston, as
Lenders, and Bankers Trust Company, as Agent. ++
43
EXHIBIT NO. DESCRIPTION+++ (CONTINUED)
----------- --------------------------
10.46Letter dated January 8, 1999, among First Union Real
Estate Equity and Mortgage Investments, as Borrower,
Bankers Trust Company, Wellsford Capital and
BankBoston, as Lenders, and Bankers Trust Company, as
Agent. ++
10.47Revolving Credit Agreement, dated as of March 28,
1998, among Safeguard Capital Fund, L.P., as Borrower,
and Morgan Guaranty Trust Company of New York, as
Lender. ++
10.48$90 million promissory note, dated March 28, 1998,
payable to Morgan Guaranty Trust Company of New York by
Safeguard Capital Fund, L.P. ++
10.49Loan Participation Agreement, dated as of December 1,
1998, between Morgan Guaranty Trust Company of New York
and Wellsford Capital. ++
10.50Program Agreement for Clairborne Investors Mortgage
Program between Creamer Realty Consultants and The
Prudential Investment Corporation, dated as of December
10, 1997. +
10.51$34,500,000 Multifamily Note, dated December 24, 1997,
payable to the order of GMAC Commercial Mortgage
Corporation by Park at Highlands L.L.C. +
10.52Multifamily Deed of Trust, Assignment of Rents and
Security Agreement, dated December 24, 1997, by Park at
Highlands L.L.C. in favor of GMAC Commercial Mortgage
Corporation. +
10.53 1998 Management Incentive Plan of the Company. ++
10.54 1997 Management Incentive Plan of the Company. **
10.55 Rollover Stock Option Plan of the Company. **
10.56Employment Agreement between the Company and Jeffrey
H. Lynford. ****
10.57Employment Agreement between the Company and Edward
Lowenthal. ****
10.58Employment Agreement between the Company and David M.
Strong. ****
10.59Employment Agreement between the Company and Rodney F.
Du Bois. +++
10.60Employment Agreement between the Company and James J.
Burns.
10.61Employment Agreement between the Company and Mark P.
Cantaluppi.
10.62Certificate of Trust of WRP Convertible Trust I, as
filed with the Secretary of State of the State of
Delaware on May 5, 2000. +++++
10.63Declaration of Trust of WRP Convertible Trust I, dated
as of May 5, 2000, by and among Rodney F. Du Bois and
James J. Burns as Regular Trustees, Wilmington Trust
Company as both Delaware Trustee and Institutional
Trustee and Wellsford Real Properties, Inc., as
Sponsor. +++++
10.64Indenture for 8.25% Convertible Junior Subordinated
Debentures, dated as of May 5, 2000, by and between
Wellsford Real Properties, Inc. and Wilmington Trust
Company, as Trustee. +++++
10.65Preferred Securities Purchase Agreement, dated as of
May 5, 2000, by and among Wellsford Real Properties,
Inc., WRP Convertible Trust I and ERP Operating Limited
Partnership. +++++
10.66Preferred Securities Guarantee, dated as of May 5,
2000, by and between Wellsford Real Properties, Inc.
and Wilmington Trust Company, as Trustee. +++++
10.67Common Securities Guarantee, dated as of May 5, 2000,
by Wellsford Real Properties, Inc. +++++
10.68Amendment to Registration Rights Agreement, dated as
of May 5, 2000, by and between Wellsford Real
Properties, Inc. and ERP Operating Limited Partnership.
+++++
10.69Articles Supplementary reclassifying and designating
350,000 shares of unissued Common Stock as Class A-1
Common Stock, dated as of May 5, 2000. +++++
44
EXHIBIT NO. DESCRIPTION+++ (CONTINUED)
----------- --------------------------
10.70Bond Pledge and Security Agreement, dated June 16,
2000, among Palomino Park Public Improvements
Corporation, as Bond Issuer, Wellsford Real Properties,
Inc., together with Bond Issuer, as Pledgor,
Commerzbank AG, as Bank, and United States Trust
Company of New York, as Bond Trustee. #
10.71Letter of Credit Reimbursement Agreement, dated June
16, 2000, among Palomino Park Public Improvements
Corporation, as Bond Issuer, Wellsford Real Properties,
Inc., together with Bond Issuer, as Account Parties,
and Commerzbank AG, as Bank. #
10.72Unconditional Guaranty of Payment and Performance,
dated June 28, 2000, between Wellsford Real Properties,
Inc., as Guarantor, and Fleet National Bank, as Lender.
#
10.73Promissory Note, dated June 16, 2000, between
Wellsford Real Properties, Inc. and Commerzbank AG. #
10.74Letter Agreement dated September 30, 2000, between
Wellsford Real Properties, Inc. and Creamer Vitale
Wellsford L.L.C. relating to the sale and subsequent
assignment of SX Advisors, LLC's interest in Creamer
Vitale Wellsford L.L.C. to Wellsford Real Properties,
Inc. ##
10.75Assignment of Membership Interest, dated as of October
1, 2000, between SX Advisors, LLC and Wellsford Fordham
Tower, L.L.C., whereby SX Advisors, LLC assigned its
interest in Creamer Vitale Wellsford L.L.C. to
Wellsford Real Properties, Inc. ##
10.76Memorandum of Understanding, dated October 25, 2000,
among Wellsford Real Properties, Inc., Wellsford
Commercial Properties Trust, WHWEL Real Estate Limited
Partnership, WXI/WWG Realty, L.L.C. and W/W Group
Holdings, L.L.C., relating to Wellsford/Whitehall
Group, L.L.C. ##
10.77Operating Agreement of Silver Mesa at Palomino Park
LLC between Wellsford Park Highlands Corp. and Al Feld,
dated as of December 10, 1998.
10.78First Amendment to the Operating Agreement of Silver
Mesa at Palomino Park LLC between Wellsford Park
Highlands Corp. and Al Feld, dated as of December 19,
2000.
10.79Loan Agreement dated as of December 20, 2000, between
Silver Mesa at Palomino Park LLC and KeyBank National
Association. ++++
10.80$32,000,000 Promissory Note dated as of December 20,
2000, payable to KeyBank National Association by Silver
Mesa at Palomino Park LLC. ++++
10.81Guaranty dated December 20, 2000, by Wellsford Capital
for the benefit of KeyBank National Association. ++++
10.82Sale-Purchase Agreement and Joint Escrow Instructions
dated as of December 8, 2000, between Wellsford Capital
Properties, L.L.C. and Dial Advisory Group, Inc. for
the sale of properties located at 1651 Sixteenth Street
and 900 Colorado Avenue, Santa Monica, California. ++++
10.83Sale-Purchase Agreement dated as of December 4, 2000,
between Wellsford Capital Properties, L.L.C. and CRC
Communities, Inc. for the sale of 501 Hoes Lane,
Piscataway, New Jersey. ++++
10.84Sale-Purchase Agreement dated as of November 27, 2000,
between Wellsford Capital Properties, L.L.C. and
Windswept Development, LLC for the sale of the Bradford
Plaza Shopping Center, West Chester, Pennsylvania. ++++
10.85Amendment to Employment Agreement between the Company
and Rodney F. Du Bois. ###
10.86Sale-Purchase Agreement dated as of December 5, 2000
between Wellsford Capital Properties, L.L.C. and
Keystone Real Estate Management, Inc. for the sale of
Two Executive Campus, Cherry Hill, New Jersey. ###
45
EXHIBIT NO. DESCRIPTION+++ (CONTINUED)
----------- --------------------------
10.87Letter Agreement, dated as of June 7, 2001 between
Wellsford Real Properties, Inc. and Mutual Beacon Fund,
Mutual Qualified Fund and Mutual Beacon Fund (Canada).
####
10.88Loan Agreement (including Joinder Agreement signed by
the Company), dated as of June 25, 2001, between
General Electric Capital Corporation and
Wellsford/Whitehall Holdings, L.L.C. ^
10.89Promissory Note, dated June 25, 2001, between General
Electric Capital Corporation and Wellsford/Whitehall
Holdings, L.L.C. ^
10.90Guaranty, dated as of June 25, 2001, made by WWG 401
North Washington LLC in favor of General Electric
Capital Corporation. ^
10.91Hazardous Substances Indemnity Agreement, dated as of
June 25, 2001, by Wellsford/Whitehall Holdings, L.L.C.,
WWG 401 North Washington LLC, Wellsford/Whitehall
Group, L.L.C. and Wellsford/Whitehall Properties II,
L.L.C. for the benefit of General Electric Capital
Corporation. ^
10.92Indemnification Agreement, dated as of June 25, 2001,
between Whitehall Street Real Estate Limited
Partnership V, Whitehall Street Real Estate Limited
Partnership VI, Whitehall Street Real Estate Limited
Partnership VII, Whitehall Street Real Estate Limited
Partnership VIII, Whitehall Street Real Estate Limited
Partnership XI, Whitehall Street Real Estate Limited
Partnership XII and Wellsford Real Properties, Inc. in
favor of General Electric Capital Corporation. ^
10.93Indemnity Regarding Guaranty Obligations, dated as of
June 25, 2001, between Wellsford/Whitehall Holdings,
L.L.C. and WWG 401 North Washington LLC. ^
10.94October 2001 Amendment to the Letter of Credit
Reimbursement Agreement, dated October 26, 2001 among
PPPIC, Wellsford Real Properties, Inc. and Commerzbank
AG. ^^
10.95Employment Separation Agreement dated as of December
7, 2001 by and between Wellsford Real Properties, Inc.
and Edward Lowenthal. ^^^
10.96Amended and Restated Employment Agreement dated as of
December 7, 2001 by and between Wellsford Real
Properties, Inc. and Jeffrey H. Lynford. ^^^
10.97Sale-Purchase Agreement dated as of November 5, 2001
between Wellsford Capital Properties, L.L.C. and The
Judge Rotenberg Educational Center, Inc. for the sale
of 250 Turnpike Street, Canton, Massachusetts.
10.98Indemnity Agreement dated as of December 31, 2001 by
and between Wellsford Park Highlands Corp., Wellsford
Real Properties, Inc. and Al Feld for the Green River
Construction Loan.
10.99Operating Agreement of Green River at Palomino Park
LLC between Wellsford Park Highlands Corp. and Al Feld,
dated as of January 5, 2000.
10.100 First Amendment to the Operating Agreement of Green
River at Palomino Park LLC between Wellsford Park
Highlands Corp. and Al Feld, dated as of February 11,
2002.
10.101 $27,000,000 Multifamily Note, dated November 20,
1998, payable to the order of GMAC Commercial Mortgage
Corporation by Red Canyon at Palomino Park LLC.
10.102 Multifamily Deed of Trust, Assignment of Rents and
Security Agreement, dated November 20, 1998, by Red
Canyon at Palomino Park LLC in favor of GMAC Commercial
Mortgage Corporation.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
46
EXHIBIT NO. DESCRIPTION+++ (CONTINUED)
----------- --------------------------
99.1 "Risk Factors" section of the Company's Registration
Statement on Form S-3 (file no. 333-73874), as may be
amended.
- ----------
* Previously filed as an exhibit to the Form 10 filed on April 23, 1997.
** Previously filed as an exhibit to the Form 10/A Amendment No. 1 filed on
May 21, 1997.
*** Previously filed as an exhibit to the Form 10/A Amendment No. 2 filed on
May 28, 1997.
**** Previously filed as an exhibit to the Form S-11 filed on July 30, 1997.
*****Previously filed as an exhibit to Amendment No. 1 to Form S-11 filed on
November 14, 1997.
+ Previously filed as an exhibit to the Form 8-K filed on September 11, 1997.
++ Previously filed as an exhibit to the Form 8-K filed on September 23, 1997.
+++ Wellsford acquired its interest in a number of these documents by
assignment.
++++ Previously filed as an exhibit to the Form 8-K filed on April 28, 1998.
+++++ Previously filed as an exhibit to the Form 8-K filed on May 11, 2000.
++++++ Previously filed as an exhibit to the Form 8-K filed on January 11, 2001.
+ Previously filed as an exhibit to the Form 10-K filed on March 31, 1998.
++ Previously filed as an exhibit to the Form 10-K filed on March 31, 1999.
+++ Previously filed as an exhibit to the Form 10-K filed on March 29, 2000.
++++ Previously filed as an exhibit to the Form 10-K filed on March 22, 2001.
# Previously filed as an exhibit to the Form 10-Q filed on August 2, 2000.
## Previously filed as an exhibit to the Form 10-Q filed on November 3, 2000.
### Previously filed as an exhibit to the Form 10-Q filed on May 4, 2001.
#### Previously filed as an exhibit to the Form 8-K filed on June 14, 2001.
^ Previously filed as an exhibit to the Form 10-Q filed on August 10, 2001.
^^ Previously filed as an exhibit to the Form 10-Q filed on November 6, 2001.
^^^ Previously filed as an exhibit to the Form 8-K filed on December 10, 2001.
(b) During the last quarter of the period covered by this report, the
Company filed the following reports on Form 8-K:
Date of Report
(Date of Earliest Event) Items Reported Date Filed
- ------------------------ -------------- ----------
December 10, 2001 Senior management changes at December 10, 2001
(December 7, 2001) Wellsford Real Properties, Inc.
(c) The following exhibits are filed as exhibits to this Form 10-K: See
Item 14 (a) (3) above.
(d) The following documents are filed as a part of this report:
None.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WELLSFORD REAL PROPERTIES, INC.
By: /s/ James J. Burns
----------------------
James J. Burns
Senior Vice President, Chief Financial Officer
By: /s/ Mark P. Cantaluppi
----------------------
Mark P. Cantaluppi
Vice President, Chief Accounting Officer
Dated: March 12, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Jeffrey H. Lynford Chairman of the Board, Secretary and Director March 12, 2002
- -------------------------
Jeffrey H. Lynford
/s/ Edward Lowenthal President, Chief Executive Officer and Director March 12, 2002
- ------------------------- (Principal Executive Officer)
Edward Lowenthal
/s/ Martin Bernstein Director March 12, 2002
- -------------------------
Martin Bernstein
/s/ Douglas Crocker II Director March 12, 2002
- -------------------------
Douglas Crocker II
/s/ Rodney F. Du Bois Director March 12, 2002
- -------------------------
Rodney F. Du Bois
/s/ Richard S. Frary Director March 12, 2002
- -------------------------
Richard S. Frary
/s/ Meyer S. Frucher Director March 12, 2002
- -------------------------
Meyer S. Frucher
/s/ Mark S. Germain Director March 12, 2002
- -------------------------
Mark S. Germain
48
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The following is a list of subsidiaries of the registrant with the respective
state of organization as of December 31, 2001:
SUBSIDIARY STATE
---------- -----
Wellsford Real Properties, Inc.............. Maryland
Wellsford Capital........................... Maryland
Wellsford Capital Properties, L.L.C......... Delaware
Wellsford Capital Corporation............... Maryland
Wellsford Finance, L.L.C.................... Delaware
Second Holding Company, LLC................. Delaware
Belford Capital Management, L.L.C........... Delaware
Belford ZMTN Company, L.L.C................. Delaware
Wellsford CRC Holding Corp.................. Maryland
Clairborne Fordham Tower, LLC............... Delaware
Creamer Vitale Wellsford L.L.C.............. Delaware
Clairborne North Capital, L.L.C............. Delaware
Wellsford Fordham Tower, L.L.C.............. Delaware
Wellsford Park Highlands Corp............... Colorado
Park at Highlands L.L.C..................... Colorado
Red Canyon at Palomino Park L.L.C........... Colorado
Silver Mesa at Palomino Park L.L.C.......... Colorado
Green River at Palomino Park L.L.C.......... Colorado
Gold Peak at Palomino Park L.L.C............ Colorado
Palomino Park Telecom L.L.C................. Colorado
Parkside Cafe at Palomino Park, Inc......... Colorado
Palomino Park Owners Assoc.................. Colorado
Silver Mesa Homeowners Assoc................ Colorado
Wellsford Commercial Properties Trust....... Maryland
Wellsford/Whitehall Group, L.L.C............ Delaware
Wellsford Ventures, Inc..................... Maryland
WRP Convertible Trust I..................... Delaware
49
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 333-73874) of Wellsford Real Properties, Inc. and in the related
Prospectus of our report dated March 8, 2002, with respect to the consolidated
financial statements and schedules of Wellsford Real Properties, Inc. included
in this Annual Report (Form 10-K) for the year ended December 31, 2001.
/s/ ERNST & YOUNG LLP
New York, New York
March 22, 2002
50
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
Wellsford Real Properties, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-3, No. 333-73874, of Wellsford Real Properties, Inc., of our report dated
February 21, 2002, with respect to the consolidated balance sheets of Second
Holding Company, LLC and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, members' equity and cash flows for
the years then ended, which report appears in the December 31, 2001 annual
report on Form 10-K of Wellsford Real Properties, Inc.
/s/ KPMG LLP
Chicago, Illinois
March 20, 2002
51
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO. IN
FORM 10-K
---------
Report of Independent Auditors...........................................F-2
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 because the required information is included in
the consolidated financial statements.
F-1
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Wellsford Real Properties, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Wellsford Real
Properties, Inc. and subsidiaries (the "Company") as of December 31, 2001 and
2000, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. Our audits also included the financial statement
schedules listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits. We did not audit the financial statements of Second Holding Company,
LLC, a 51% owned joint venture of the Company, for which the Company's net
investment is $27,862,508 and $27,867,597 as of December 31, 2001 and 2000,
respectively, and equity in (loss) earnings of $(162,933) and $1,431,835,
respectively, for the years then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the data included for Second Holding Company, LLC, is based solely on
the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Wellsford Real Properties, Inc. and
subsidiaries at December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ERNST & YOUNG LLP
New York, New York
March 8, 2002
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Managers
Second Holding Company, LLC:
We have audited the consolidated balance sheet of Second Holding Company, LLC
and subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of income, members' equity and cash flows for the years then ended
(not presented separately herein). These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Second Holding
Company, LLC and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
KPMG LLP
Chicago, Illinois
February 21, 2002
F-3
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------
2001 2000
---- ----
ASSETS
Real estate assets, at cost:
Land ....................................................................... $ 23,113,670 $ 17,519,701
Buildings and improvements ................................................. 139,223,965 110,405,567
------------- -------------
162,337,635 127,925,268
Less:
Accumulated depreciation ................................................ (9,873,232) (8,248,184)
Impairment reserve relating to assets held for sale ..................... (2,174,853) (4,725,000)
------------- -------------
150,289,550 114,952,084
Residential units available for sale ....................................... 5,400,951 21,849,581
Construction in progress ................................................... 5,399,631 22,229,368
------------- -------------
161,090,132 159,031,033
Notes receivable .............................................................. 34,784,727 37,824,291
Investment in joint ventures .................................................. 95,806,509 120,969,017
------------- -------------
Total real estate and investments ............................................. 291,681,368 317,824,341
Cash and cash equivalents ..................................................... 36,148,529 36,368,706
Restricted cash and investments ............................................... 7,553,159 9,921,506
Prepaid and other assets ...................................................... 10,455,101 11,655,024
------------- -------------
Total assets .................................................................. $ 345,838,157 $ 375,769,577
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ..................................................... $ 121,730,604 $ 104,403,970
Credit facility ............................................................ -- 12,000,000
Accrued expenses and other liabilities, including the liability for deferred
compensation of $6,604,106 and $7,008,336 ............................... 17,532,211 15,152,759
------------- -------------
Total liabilities ............................................................. 139,262,815 131,556,729
------------- -------------
Company-obligated, mandatorily redeemable, convertible preferred
securities of WRP Convertible Trust I, holding solely 8.25% junior
subordinated debentures of Wellsford Real Properties, Inc. ("Convertible
Trust Preferred Securities") ............................................... 25,000,000 25,000,000
Minority interest ............................................................. 3,496,640 3,230,499
Commitments and contingencies
Shareholders' equity:
Series A 8% convertible redeemable preferred stock, $.01 par value per
share, 2,000,000 shares authorized, no shares issued and outstanding .... -- --
Common stock, 98,825,000 shares authorized, $.02 par value per share -
6,235,338 and 8,180,475 shares issued and outstanding ................... 124,707 163,610
Class A-1 common stock, 175,000 shares authorized, $.02 par value per
share - 169,903 shares issued and outstanding ........................... 3,398 3,398
Paid in capital in excess of par value ..................................... 162,083,959 196,282,360
Retained earnings .......................................................... 23,989,504 26,714,120
Accumulated other comprehensive income (loss); share of unrealized loss
on interest rate protection contract purchased by joint venture
investment, net of income tax benefit ................................... (102,736) --
Deferred compensation ...................................................... (1,520,996) (1,788,005)
Treasury stock, 317,997 and 257,935 shares ................................. (6,499,134) (5,393,134)
------------- -------------
Total shareholders' equity .................................................... 178,078,702 215,982,349
------------- -------------
Total liabilities and shareholders' equity .................................... $ 345,838,157 $ 375,769,577
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
REVENUES
Rental revenue ......................................... $ 13,768,411 $ 18,681,250 $ 17,874,272
Revenue from sales of residential units ................ 21,932,050 -- --
Interest revenue ....................................... 5,175,162 6,256,739 12,295,771
Fee revenue ............................................ 617,376 685,800 600,000
------------ ------------ ------------
Total revenues ...................................... 41,492,999 25,623,789 30,770,043
------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales of residential units ..................... 19,363,647 -- --
Property operating and maintenance ..................... 3,791,740 4,351,150 4,027,842
Real estate taxes ...................................... 1,051,060 1,609,649 1,545,822
Depreciation and amortization .......................... 5,307,394 4,967,821 6,154,549
Property management .................................... 557,255 798,761 673,726
Interest ............................................... 4,355,864 7,076,122 9,398,630
General and administrative ............................. 8,466,948 7,377,168 7,725,876
Restructuring charge ................................... 3,526,772 -- --
------------ ------------ ------------
Total costs and expenses ............................ 46,420,680 26,180,671 29,526,445
Gain on sale of assets, net of impairment provision of
$4,725,000 in 2000 ..................................... -- 6,134,851 --
Income from joint ventures ................................ 4,564,406 3,246,758 9,621,952
------------ ------------ ------------
(Loss) income before minority interest, income taxes and
accrued distributions and amortization of costs on
Convertible Trust Preferred Securities ................. (363,275) 8,824,727 10,865,550
Minority interest ......................................... (282,526) (66,221) (54,749)
------------ ------------ ------------
(Loss) income before taxes and accrued distributions and
amortization of costs on Convertible Trust Preferred
Securities .......................................... (645,801) 8,758,506 10,810,801
Income tax expense ........................................ 699,000 1,430,000 1,950,000
------------ ------------ ------------
(Loss) income before accrued distributions and amortization
of costs on Convertible Trust Preferred Securities .. (1,344,801) 7,328,506 8,860,801
Accrued distributions and amortization of costs on
Convertible Trust Preferred Securities, net of income
tax benefit of $720,000 and $510,000 ................ 1,379,815 860,461 --
------------ ------------ ------------
Net (loss) income ......................................... $ (2,724,616) $ 6,468,045 $ 8,860,801
============ ============ ============
Net (loss) income per common share, basic ................. $ (0.38) $ 0.76 $ 0.86
============ ============ ============
Net (loss) income per common share, diluted ............... $ (0.38) $ 0.76 $ 0.86
============ ============ ============
Weighted average number of common shares outstanding,
basic ............................................... 7,213,029 8,507,631 10,321,012
============ ============ ============
Weighted average number of common shares outstanding,
diluted ............................................. 7,213,029 8,516,321 10,328,744
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
ACCUMULATED
COMMON SHARES* OTHER
-------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL** EARNINGS INCOME (LOSS)
------ ------ --------- -------- -------------
BALANCE, JANUARY 1, 1999 ............. 10,375,206 $ 207,504 $ 223,272,068 $ 11,385,274 $ --
Director and employee share grants ... 17,306 346 334,987 -- --
Shares repurchased from former
officer and cancellation of share
grants ............................ (43,115) (862) (853,810) -- --
Amortization of deferred
compensation ...................... -- -- -- -- --
Issuance of warrants ................. -- -- 480,992 -- --
Shares repurchased and cancelled ..... (738,247) (14,765) (12,119,645) -- --
Net income ........................... -- -- -- 8,860,801 --
--------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 ........... 9,611,150 192,223 211,114,592 20,246,075 --
Director and employee share grants ... 57,960 1,159 911,841 -- --
Amortization of deferred
compensation ...................... -- -- -- -- --
Shares repurchased and cancelled ..... (1,318,732) (26,374) (21,137,207) -- --
Net income ........................... -- -- -- 6,468,045 --
--------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 2000 ........... 8,350,378 167,008 190,889,226 26,714,120 --
Director and employee share grants ... 75,647 1,513 1,434,487 -- --
Amortization of deferred
Compensation*** ................... -- -- -- -- --
Shares repurchased and cancelled ..... (2,020,784) (40,416) (36,535,776) -- --
Registration costs ................... -- -- (123,112) -- --
Warrants repurchased and cancelled ... -- -- (80,000) -- --
Share of unrealized loss on interest
rate protection contract purchased
by joint venture investment, net of
income tax benefit of $68,491 ..... -- -- -- -- (102,736)
Net loss ............................. -- -- -- (2,724,616) --
--------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 2001 ........... 6,405,241 $ 128,105 $ 155,584,825 $ 23,989,504 $ (102,736)
========= ============= ============= ============= =============
TOTAL
DEFERRED SHAREHOLDERS' COMPREHENSIVE
COMPENSATION EQUITY INCOME (LOSS)
------------ ------ -------------
BALANCE, JANUARY 1, 1999 ............. $ (3,240,023) $ 231,624,823 $ --
Director and employee share grants ... (250,000) 85,333 --
Shares repurchased from former
officer and cancellation of share
grants ............................ 780,003 (74,669) --
Amortization of deferred
compensation ...................... 848,343 848,343 --
Issuance of warrants ................. -- 480,992 --
Shares repurchased and cancelled ..... -- (12,134,410) --
Net income ........................... -- 8,860,801 8,860,801
------------- ------------- -------------
BALANCE, DECEMBER 31, 1999 ........... (1,861,677) 229,691,213 $ 8,860,801
=============
Director and employee share grants ... (833,000) 80,000 $ --
Amortization of deferred
compensation ...................... 906,672 906,672 --
Shares repurchased and cancelled ..... -- (21,163,581) --
Net income ........................... -- 6,468,045 6,468,045
------------- ------------- -------------
BALANCE, DECEMBER 31, 2000 ........... (1,788,005) 215,982,349 $ 6,468,045
=============
Director and employee share grants ... (1,356,000) 80,000 $ --
Amortization of deferred
Compensation*** ................... 1,623,009 1,623,009 --
Shares repurchased and cancelled ..... -- (36,576,192) --
Registration costs ................... -- (123,112) --
Warrants repurchased and cancelled ... -- (80,000) --
Share of unrealized loss on interest
rate protection contract purchased
by joint venture investment, net of
income tax benefit of $68,491 ..... -- (102,736) (102,736)
Net loss ............................. -- (2,724,616) (2,724,616)
------------- ------------- -------------
BALANCE, DECEMBER 31, 2001 ........... $ (1,520,996) $ 178,078,702 $ (2,827,352)
============= ============= =============
- ----------
* Includes 169,903 Class A-1 Common Shares.
** Net of treasury stock.
*** Includes $45,000 charged to the restructuring charge related to early
retirement.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ............................................. $ (2,724,616) $ 6,468,045 $ 8,860,801
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................... 5,126,018 4,979,927 5,936,944
Amortization of deferred compensation ................... 1,578,009 906,672 848,343
Non-cash charges in restructuring charge ................ 61,081 -- --
Undistributed joint venture income ...................... -- -- (674,788)
Distributions received in excess of joint venture income 163,695 1,493,056 --
Undistributed minority interest ......................... 282,526 66,221 54,749
Shares issued for director compensation ................. 80,000 80,000 85,333
Gain on sale of assets, net of impairment provision of
$4,725,000 in 2000 ................................... -- (6,134,851) --
Changes in assets and liabilities:
Restricted cash and investments ...................... 2,368,347 506,338 (459,242)
Residential units available for sale ................. 16,448,630 -- --
Prepaid and other assets ............................. 855,258 (1,003,471) (498,434)
Accrued expenses and other liabilities ............... 2,362,890 2,661,548 (297,112)
------------- ------------- -------------
Net cash provided by operating activities ............... 26,601,838 10,023,485 13,856,594
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets ............................. (40,046,696) (39,026,039) (18,974,593)
Investments in joint ventures:
Capital contributions .................................... (8,565,877) (12,895,201) (16,967,948)
Returns of capital ....................................... 31,616,900 2,886,017 6,091,481
Investments in notes receivable ............................... (500,000) (28,833,000) (49,295,088)
Repayments of notes receivable ................................ 3,589,255 32,408,296 112,741,492
Proceeds from sale of joint venture investment ................ -- 1,032,000 --
Proceeds from sale of real estate assets ...................... 18,553,458 21,650,257 7,238,329
------------- ------------- -------------
Net cash (used in) provided by investing activities ...... 4,647,040 (22,777,670) 40,833,673
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Convertible Trust Preferred Securities ............ -- 25,000,000 --
Deferred financing costs ...................................... -- (544,360) --
Borrowings from credit facilities ............................. 12,000,000 12,000,000 37,000,000
Repayment of credit facilities ................................ (24,000,000) -- (54,000,000)
Borrowings from mortgage notes payable ........................ 36,747,451 32,000,000 --
Interest reserve from mortgage note proceeds .................. -- (1,960,752) --
Repayment of mortgage notes payable ........................... (19,420,817) (30,939,713) (861,861)
Distributions to minority interest ............................ (16,385) (8,569) (1,498)
Costs incurred for reverse stock split ........................ -- (44,364) --
Costs to repurchase warrants .................................. (80,000) -- --
Registrations costs ........................................... (123,112) -- --
Repurchase of common shares ................................... (36,576,192) (21,119,217) (12,209,079)
------------- ------------- -------------
Net cash (used in) provided by financing activities ..... (31,469,055) 14,383,025 (30,072,438)
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents ............. (220,177) 1,628,840 24,617,829
Cash and cash equivalents, beginning of year ..................... 36,368,706 34,739,866 10,122,037
------------- ------------- -------------
Cash and cash equivalents, end of year ........................... $ 36,148,529 $ 36,368,706 $ 34,739,866
============= ============= =============
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest, including amounts
capitalized of $1,610,359, $2,347,000 and $1,071,000,
respectively ............................................... $ 5,849,094 $ 9,044,373 $ 10,410,110
============= ============= =============
Cash paid during the year for income taxes, net of tax refunds $ 1,154,461 $ (107,095) $ 4,229,164
============= ============= =============
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Warrants issued in connection with joint venture investments .. $ 480,992
Notes receivable contributed for joint venture interest ....... $ 24,218,113
Note received upon sale of joint venture interest ............. $ 4,128,000
Mortgage note payable assumed upon sale of real estate asset .. $ 15,971,245
Other comprehensive loss; share of unrealized loss on interest
rate protection contract purchased by joint venture
investment, net of tax benefit ............................. $ 102,736
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND 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 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 has established three strategic business units ("SBUs") within
which it executes its business plan: (i) commercial property operations
which are held in the Company's subsidiary, Wellsford Commercial Properties
Trust, through its ownership interest in Wellsford/Whitehall Group, L.L.C.
("Wellsford/Whitehall"); (ii) debt and equity activities through the
Wellsford Capital SBU; and (iii) property development and land operations
through the Wellsford Development SBU.
In December 2000, the Company and various entities affiliated with the
Whitehall Funds ("Whitehall"), private real estate funds sponsored by The
Goldman Sachs Group, Inc. ("Goldman Sachs"), executed definitive agreements
modifying the terms of the Wellsford/Whitehall joint venture effective
January 1, 2001 (the "Amendments"). The key features of the Amendments
provide for the Company to retain its economic interest in
Wellsford/Whitehall, while an affiliate of Whitehall will become
responsible for day-to-day operations. The Company will maintain its
current membership on Wellsford/Whitehall's management committee and must
agree to specified "Major Decisions." Also, as part of the Amendments,
warrants to purchase 2,128,099 of the Company's stock, which had previously
been issued to Whitehall, were returned and cancelled. Whitehall has also
agreed to pay the Company certain specified fees when Wellsford/Whitehall
assets are sold as well as when certain new assets are acquired by
Whitehall affiliates in a newly formed entity.
See Note 12 for additional 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.
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 September
30, 2004.
F-8
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION. The
accompanying 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 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.
CASH AND CASH EQUIVALENTS. The Company considers all demand and money
market accounts and short term investments in government funds with an
original maturity of three months or less at the date of purchase to be
cash and cash equivalents.
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.
Depreciation and amortization expense was approximately $5,307,000,
$4,968,000 and $6,155,000 in 2001, 2000 and 1999, respectively, and
included approximately $1,950,000, $664,000 and $1,510,000 of amortization
of certain costs capitalized to the Company's Investment in Joint Ventures
in 2001, 2000 and 1999, respectively.
F-9
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. During the fourth quarter of
2000, the Company made the strategic decision to sell the seven assets
which were originally acquired as part of the 1998 merger with Value
Property Trust ("VLP"). The Company sold one property in December 2000 and
four other properties during 2001. The Company determined that the
aggregate carrying amount of certain of the assets was less than the
amounts expected to be ultimately realized upon sale, less selling
expenses. Accordingly, the Company recorded an impairment provision in the
fourth quarter of 2000 of $4,725,000 which is reflected in the accompanying
consolidated statements of operations as an offset to the gain on the
property sold in December 2000 of approximately $4,943,000. At December 31,
2001, approximately $2,175,000 of the provision was remaining on the two
unsold assets, both of which the Company expects to sell during 2002. The
net book value of the two unsold properties was approximately $5,560,000 at
December 31, 2001. The Company determined that no additional impairment
provision is required at December 31, 2001.
During the year ended December 31, 1999, the Company determined that one of
its joint venture investments, Creamer Vitale Wellsford, L.L.C. ("CVW") was
impaired due to lower than expected operating results and accordingly wrote
the asset down by approximately $912,000 to its then estimated fair value
by recording additional depreciation and amortization expense in the
accompanying consolidated financial statements. Fair value was based on
estimated future cash flows to be generated by the long-lived asset,
discounted at a market rate. In September 2000, the Company recorded
additional depreciation and amortization expense of $145,000 as one of the
two principals left CVW to pursue other employment and the venture was
terminated.
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.
DEFERRED FINANCING COSTS. Deferred financing costs consist of costs
incurred to obtain financing or financing commitments, including the
issuance of the Convertible Trust Preferred Securities. Such costs are
amortized over the expected term of the respective agreements.
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. No impairment has been recorded during the years
ended December 31, 2001, 2000 and 1999.
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 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.
F-10
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHARE BASED COMPENSATION. Statement of Financial Accounting Standard
("SFAS") 123 "Accounting for Stock-Based Compensation" establishes a fair
value based method of accounting for share based compensation plans,
including share options. However, registrants may elect to continue
accounting for share option plans under Accounting Principles Board Opinion
("APB") 25, but are required to provide pro forma net income and earnings
per share information "as if" the new fair value approach had been adopted.
Because the Company has elected to continue to account for its share based
compensation plans under APB 25, there has been no impact on the Company's
consolidated financial statements resulting from SFAS 123.
Shares issued pursuant to the Company's deferred compensation plan are
recorded at the market price on the date of issuance and amortized over the
respective vesting periods.
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.
DERIVATIVE AND HEDGING ACTIVITIES. In June 1998, SFAS No. 133--ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES was issued. In June 1999,
SFAS No. 137--ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133 (AN
AMENDMENT OF FASB STATEMENT NO. 133) was issued. SFAS No. 137 extended the
required date of adoption of SFAS No. 133 to the fiscal year beginning June
15, 2000. The Company and its joint venture investments have adopted SFAS
No. 133 effective January 1, 2001. SFAS No. 133 requires the Company and
its joint venture investments to recognize all derivatives on the balance
sheet at fair value. The Company's derivative investments are currently
made by its joint venture investments and are primarily interest rate
hedges where changes in the fair value of the derivative are offset against
the changes in the fair value of the hedged debt or a cash flow hedge which
limits the base rate of variable rate debt. For a cash flow hedge, the
ineffective portion of a derivative's change in fair value is immediately
recognized in earnings, if applicable and the effective portion of the fair
value difference of the derivative is reflected separately in shareholders'
equity as accumulated other comprehensive income (loss), net of income tax
benefit (cost).
F-11
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PER SHARE DATA. Basic earnings per common share are computed based upon the
weighted average number of common shares outstanding during the period,
including class A-1 common shares. Diluted earnings per common share are
based upon the increased number of common shares that would be outstanding
assuming the exercise of dilutive common share options, warrants and
Convertible Trust Preferred Securities.
The following table details the computation of earnings per share, basic
and diluted:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
Numerator for net (loss) income per common share, basic and
diluted ................................................ $(2,724,616) $ 6,468,045 $ 8,860,801
=========== =========== ===========
Denominator:
Denominator for net income per common share, basic--
Weighted average common shares .................... 7,213,029 8,507,631 10,321,012
Effect of dilutive securities:
Employee stock options ............................ -- 8,690 7,732
Convertible Trust Preferred Securities ............ -- -- --
Warrants .......................................... -- -- --
----------- ----------- -----------
Denominator for net income per common share, diluted--
Weighted average common shares .................... 7,213,029 8,516,321 10,328,744
=========== =========== ===========
Net (loss) income per common share, basic ................. $ (0.38) $ 0.76 $ 0.86
=========== =========== ===========
Net (loss) income per common share, diluted ............... $ (0.38) $ 0.76 $ 0.86
=========== =========== ===========
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.
RECENTLY ISSUED PRONOUNCEMENTS NOT YET ADOPTED. In August 2001, SFAS No.
144--ACCOUNTING FOR THE IMPAIRMENT OF DISPOSAL OR LONG-LIVED ASSETS was
issued. SFAS No. 144 supersedes SFAS No. 121--ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The
provisions of SFAS No. 144 are effective for financial statements issued
for fiscal years beginning after December 15, 2001. The Company does not
anticipate that the adoption of SFAS No. 144 will have a material effect on
its results of operations or financial position.
RECLASSIFICATION. Amounts in certain accounts have been reclassified to
conform to the current year presentation. Fees of $600,000 received from
Wellsford/Whitehall in 2000 and 1999 have been reflected as revenues
compared to the previous treatment as an offset to general and
administrative expenses in the accompanying Consolidated Statements of
Operations.
F-12
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments primarily consists of deferred compensation
arrangement deposits and debt service and construction reserve balances. At
December 31, 2001 and 2000, deferred compensation arrangement deposits
amounted to approximately $6,604,000 and $7,008,000, respectively, and
reserve balances amounted to approximately $949,000 and $2,913,000,
respectively. Deferred compensation arrangement deposits, are made in cash,
but can be directed to be used to purchase other investments including
equity securities, bonds and partnership interests.
4. NOTES RECEIVABLE
At December 31, 2001 and 2000, notes receivable consisted of the following:
INTEREST BALANCE AT DECEMBER 31,
STATED RATE IN PAYMENT -----------------------
NOTES RECEIVABLE (A) INTEREST RATE EFFECT (B) MATURITY DATE TERMS 2001 2000
-------------------- ------------- ---------- ------------- ----- ---- ----
277 Park Loan ............. 12.00% 12.00% May 2007 Interest only $25,000,000 $25,000,000
Patriot Loan .............. LIBOR + 4.75% 6.89% July 2002 (C) 4,972,727 5,000,000
Guggenheim ................ 8.25% 8.25% December 2005 (D) 3,612,000 4,128,000
Safeguard Credit Facility . LIBOR + 4.00% -- April 2001 Interest only -- 2,900,000
Other ..................... Various -- Various Various (E) 1,200,000 796,291
----------- -----------
$34,784,727 $37,824,291
=========== ===========
- ----------
(A) For additional information regarding notes receivable, see Footnote 12,
"Segment Information, Debt and Equity Investments."
(B) At December 31, 2001 based upon then in effect fixed rates and LIBOR
contracts.
(C) Principal amortization commenced August 2001 based on a 25-year
amortization schedule. Prior to August 2001, payments were interest only.
(D) Provides for annual principal paydowns and interest from the sale of equity
interests in The Liberty Hampshire Company, L.L.C. ("Liberty Hampshire").
(E) On January 18, 2002, the $1,200,000 balance was repaid in full.
F-13
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. DEBT
At December 31, 2001 and 2000, the Company's debt consisted of the
following:
BALANCE AT DECEMBER 31,
-----------------------
DEBT/PROJECT MATURITY DATE STATED INTEREST RATE 2001 2000
------------ ------------- -------------------- ---- ----
Wellsford Finance Facility .............. January 2002 LIBOR + 2.75% (A) $ -- $ 12,000,000
============ ============
Mortgage and notes payable:
Palomino Park Bonds (B) .............. December 2035 Variable (C) $ 12,680,000 $ 12,680,000
Blue Ridge Mortgage .................. January 2008 6.92% (D) 32,916,492 33,354,235
Red Canyon Mortgage .................. December 2008 6.68% (D) 26,034,695 26,369,735
Silver Mesa Conversion Loan .......... December 2003 LIBOR + 2.00% (E) 13,351,966 32,000,000
Green River Construction Loan ........ January 2003 LIBOR + 1.75% (F) 36,747,451 --
------------ ------------
Total mortgage notes payable ............ $121,730,604 $104,403,970
============ ============
Total debt .............................. $121,730,604 $116,403,970
============ ============
Carrying amount of real estate assets
collateralizing mortgage notes payable $155,530,004 $135,448,371
============ ============
- ----------
(A) Effective interest rate approximated 6.82% at December 31, 2000.
(B) Tax-exempt bonds are secured by liens on four of the five phases of
Palomino Park.
(C) Rate approximates the Standard & Poor's / J.J. Kenney index for short-term
high grade tax-exempt bonds (average annual rate was approximately 2.72%
and 4.15% for 2001 and 2000, respectively).
(D) Principal payments are made based on a 30-year amortization schedule.
(E) Effective interest rates approximated 4.14% and 8.68% at December 31, 2001
and 2000, respectively. Principal payments are based on approximately 90%
of net sales proceeds from condominium sales. Loan is extendable for six
months for a 0.25% extension fee.
(F) Effective interest rate was 3.76% at December 31, 2001. Additional interest
of $861,000 can be accrued into the principal balance of the loan. Loan is
extendable for six months for a 0.375% extension fee.
In December 1995, the Trust marketed and sold $14,755,000 of tax-exempt
bonds to fund construction at Palomino Park (the "Palomino Park Bonds"). In
June 2000, the Company obtained a five-year AAA rated letter of credit from
Commerzbank AG to secure the Palomino Park Bonds. This letter of credit
replaced an expiring letter of credit. The Company will incur an annual fee
of approximately $142,000 related to this enhancement and paid an
origination fee of approximately $158,000 upon closing. The letter of
credit agreement provides for the Company to meet certain financial
operating and balance sheet covenants. The agreement requires the Company
to maintain minimum shareholders' equity of $180,000,000, as defined.
During October 2001, the Company and Commerzbank AG amended the letter of
credit agreement to include the $25,000,000 of Convertible Trust Preferred
Securities in shareholders' equity in the determination of the minimum
shareholders' equity covenant. An affiliate of EQR has guaranteed
Commerzbank AG's letter of credit. The Company incurred aggregate fees of
$226,000, $392,000 and $246,000 for the years ended December 31, 2001, 2000
and 1999 respectively, related to all of the credit enhancements for the
Palomino Park Bonds.
In November 2000, in conjunction with the conversion of the Silver Mesa
phase to a condominium project, the Company made a repayment of $2,075,000
of bond principal.
F-14
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DEBT (CONTINUED)
In January 1999, a wholly-owned subsidiary of the Company obtained a
$35,000,000 loan facility (the "Wellsford Finance Facility") from a
predecessor of Fleet National Bank. In June 2000, the Company modified the
terms of the Wellsford Finance Facility and reduced the maximum borrowing
amount to $20,000,000. The Wellsford Finance Facility was secured by a
$25,000,000 note receivable, bore interest at LIBOR + 2.75% per annum and
expired in January 2002. The Company paid an origination fee of $75,000 and
is obligated to pay a fee equal to 0.25% per annum on the average daily
amount of the unused portion of the facility until maturity. At December
31, 2000, the outstanding balance under the Wellsford Finance Facility was
$12,000,000. There was no balance outstanding at December 31, 2001.
The Company's long-term mandatory maturities of debt for the next five
years and thereafter are as follows:
SILVER MESA GREEN RIVER WELLSFORD
FOR THE YEARS ENDED CONVERSION CONSTRUCTION FINANCE
DECEMBER 31, MORTGAGES LOAN (A) LOAN FACILITY (B) TOTAL
------------ --------- -------- ---- ------------ -----
2002 ..... $ 827,000 $ -- $ -- $ -- $ 827,000
2003 ..... 885,000 13,352,000 37,608,000 -- 51,845,000
2004 ..... 948,000 -- -- -- 948,000
2005 ..... 1,014,000 -- -- -- 1,014,000
2006 ..... 1,086,000 -- -- -- 1,086,000
Thereafter 54,191,000 -- -- -- 54,191,000
- ----------
(A) Approximately 90% of net sales proceeds per unit goes toward principal
repayments. The Company expects such payments to exceed the above required
minimum principal repayments in each year.
(B) The Wellsford Finance Facility expired on January 12, 2002.
The Company capitalizes interest related to buildings and condominiums
under construction and renovation to the extent such assets qualify for
capitalization. Total interest capitalized on consolidated assets during
the years ended December 31, 2001, 2000 and 1999 was approximately
$1,610,000, $2,347,000 and $1,071,000, respectively.
6. CONVERTIBLE TRUST PREFERRED SECURITIES
In May 2000, the Company privately placed with a subsidiary of EQR
1,000,000 8.25% Convertible Trust Preferred Securities, representing
beneficial interests in the assets of WRP Convertible Trust I, a Delaware
statutory business trust which is a consolidated subsidiary of the Company
("WRP Trust I"), with an aggregate liquidation amount of $25,000,000 (the
"Convertible Trust Preferred Securities"). WRP Trust I also issued 31,000
8.25% Convertible Trust Common Securities to the Company, representing
beneficial interests in the assets of WRP Trust I, with an aggregate
liquidation amount of $775,000. The proceeds from both transactions were
used by WRP Trust I to purchase $25,775,000 of the Company's 8.25%
Convertible Junior Subordinated Debentures ("Convertible Debentures"),
which mature on May 4, 2022. The transactions between WRP Trust I and the
Company are eliminated in the consolidated financial statements of the
Company. The Company incurred approximately $450,000 of costs in connection
with the issuance of the securities which are being amortized through May
2012.
F-15
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
CONVERTIBLE TRUST PREFERRED SECURITIES (CONTINUED)
The Convertible Trust Preferred Securities are convertible into 1,123,696
common shares at $22.248 per share and are redeemable in whole or in part
by the Company on or after May 30, 2002. EQR can require redemption on or
after May 30, 2012 unless the Company exercises one of its two five-year
extensions (subject to an interest adjustment to the then prevailing market
rates if higher than 8.25% per annum). The redemption rights are subject to
certain other terms and conditions contained in the related agreements.
7. INCOME TAXES
The components of the income tax provision are as follows:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
Current federal tax (A) .... $ (633,000) $ 3,005,000 $ 700,000
Current state and local tax (171,000) 905,000 930,000
Deferred federal tax ....... 1,353,000 (1,820,000) 240,000
Deferred state and local tax 150,000 (660,000) 80,000
----------- ----------- -----------
$ 699,000 $ 1,430,000 $ 1,950,000
=========== =========== ===========
The reconciliation of income tax computed at the U.S. federal statutory
rate to income tax expense is as follows:
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2001 2000 1999
-------------------- ----------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
Tax (benefit) at U.S. statutory rate (A) $ (226,000) (35.00%) $ 3,065,000 35.00% $ 3,785,000 35.00%
State taxes, net of federal benefit .... 150,000 23.22% 335,000 3.82% 660,000 6.11%
State and local tax operating loss
carryforwards, net of federal taxes . (171,000) (26.48%) (175,000) (1.99%) -- --
Change in valuation allowance, net ..... 806,000 124.81% (1,742,000) (19.89%) (2,425,000) (22.43%)
Non-deductible/non-taxable items, net .. 131,000 20.28% 35,000 0.39% (70,000) (0.64%)
Effect of difference in tax rate ....... 9,000 1.39% (88,000) (1.00%) -- --
----------- ------ ----------- ----- ----------- -----
$ 699,000 108.24% $ 1,430,000 16.33% $ 1,950,000 18.04%
=========== ====== =========== ===== =========== =====
- ----------
(A) The aforementioned income tax expense for 2001 and 2000 is prior to the tax
benefit aggregating $720,000 and $510,000, respectively, attributable to
the Convertible Trust Preferred Securities distributions and amortization.
The Company has net operating loss ("NOL") carryforwards, for Federal
income tax purposes, resulting from the Company's merger with VLP in 1998.
The NOLs aggregate $64,700,000 at December 31, 2001, expire in the years
2007 through 2012 and are subject to an annual and aggregate limit on
utilization of NOLs after an ownership change, pursuant to Section 382 of
the Internal Revenue Code. Any annual amounts not used in one year can be
carried forward to future years.
F-16
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
DECEMBER 31,
------------
2001 2000
---- ----
Deferred Tax Assets
- -------------------
Net operating loss ............................... $ 22,000,950 $ 22,000,950
Deferred compensation and severance arrangements . 5,176,437 3,193,971
Value Property Trust asset basis differences ..... 1,235,355 1,253,478
Other ............................................ 437,121 418,558
------------ ------------
28,849,863 26,866,957
Valuation allowance .............................. (18,764,516) (17,472,331)
------------ ------------
Total deferred tax assets ........................ 10,085,347 9,394,626
------------ ------------
Deferred Tax Liabilities
- ------------------------
Palomino Park asset basis differences ............ 2,402,269 (846,397)
Wellsford/Whitehall net income in excess
of taxable income ............................. 1,525,303 (1,874,731)
Deferred gain on sale of Liberty Hampshire Company 1,040,342 --
Other ............................................ 36,211 (89,558)
------------ ------------
Total deferred tax liabilities ................... 5,004,125 (2,810,686)
------------ ------------
Net deferred tax asset ........................... $ 5,081,222 $ 6,583,940
============ ============
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
if, based on the weight of the evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Accordingly, management has determined that a $18,764,516 and $17,472,331
valuation allowance at December 31, 2001 and 2000, respectively, is
necessary. The valuation allowance relates to the NOL carryforwards and
certain deferred compensation and severance arrangements. The Company's net
deferred tax asset is included in prepaid and other assets in the
accompanying consolidated balance sheets.
F-17
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. TRANSACTIONS WITH AFFILIATES
The following table details revenues and costs for transactions with
affiliates for the years ended December 31, 2001, 2000 and 1999:
(amounts in thousands)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
REVENUES
Wellsford/Whitehall:
Interest revenue ................. $ -- $ 703 $ 517
Management fee revenue ........... -- 600 600
WP Commercial:
Asset acquisition fee revenue .... 23 86 --
Asset disposition fee revenue .... 365 -- --
Second Holding fees, net of fees to
Reis of $180,000 per annum ....... 217 (182) (179)
------- ------- -------
$ 605 $ 1,207 $ 938
======= ======= =======
COSTS*
Whitehall affiliates:
Management fees for VLP properties $ 142 $ 242 $ 140
EQR:
Credit enhancement ............... 81 92 79
------- ------- -------
$ 223 $ 334 $ 219
======= ======= =======
- ----------
* The term cost is used as certain items are expensed directly to operations
such as the management fees and portions of the other items may be
capitalized into the basis of development projects.
As part of the terms of the Merger, two of the Company's executive officers
are on the board of directors of EQR. In addition, the president of EQR is
a member of the Company's board of directors. EQR had a 14.15% interest in
the Company's residential project in Denver, Colorado at December 31, 2001
and 2000, respectively.
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.
See Note 12 for additional related party information.
F-18
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. SHAREHOLDERS' EQUITY
On June 9, 2000, 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 the financial statements and the notes
thereto have been adjusted for the impact of the split, for all periods
presented.
The Company may repurchase shares from time to time by means of open market
purchases depending on availability of shares, the Company's cash position,
the price per share and other corporate matters. No minimum number or value
of shares to be repurchased has been fixed.
The following table summarizes the stock repurchase activity by the Company
and approvals by the Company's Board of Directors during the years ended
December 31, 2001, 2000 and 1999:
PURCHASE AGGREGATE
REPURCHASES ACTUAL NUMBER OF PRICE PER PURCHASE
PURCHASED FROM APPROVED REPURCHASES TRANSACTIONS SHARE PRICE (A)
-------------- -------- ----------- ------------ ----- ---------
2001
June ..... Institutional shareholder 2,020,784 2,020,784 1 $ 18.10 $ 36,576,000
--------- --------- -------------
2000
January .. Open market -- 2,079 Various 17.74 37,000
February . Institutional shareholder 1,286,816 1,286,816 1 16.00 20,589,000
April .... 1,000,000 -- -- -- --
Various .. Open market purchases -- 29,837 Various 16.28 486,000
--------- --------- -------------
2,286,816 1,318,732 16.01 21,112,000
--------- --------- -------------
1999
November . 1,000,000 -- -- -- --
November/ Open market/
December Odd lot holders (B) -- 738,247 Various 16.44 12,134,000
--------- --------- -------------
1,000,000 738,247 12,134,000
--------- --------- -------------
TOTAL ....... 5,307,600 4,077,763 $ 17.12 $ 69,822,000
========= ========= ========= =============
- ----------
(A) Excluding expenses.
(B) The odd-lot share program approved in 1999 offered identified eligible
shareholders owning fewer than 50 shares the opportunity to sell all of
their shares back to the Company.
In July 1999, the Company purchased 3,598 common shares at the current
market price of $20.75 per share from an officer who resigned.
F-19
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SHAREHOLDERS' EQUITY (CONTINUED)
The Company has issued shares to executive officers and other employees
through annual bonus and/or deferred compensation awards, as well as
certain shares issued at the date of the Merger, pursuant to the Company's
non-qualified deferred compensation plan. At December 31, 2001, an
aggregate of 317,977 shares, which had an aggregate market value of
approximately $6,112,000 at the respective dates of issuance, have been
classified as Treasury Stock in the Company's consolidated financial
statements. Such shares are generally held in a Rabbi Trust and are
accounted for pursuant to existing accounting literature. The bonus awards
vest immediately and the deferred compensation awards vest over various
periods ranging from two to five years or sooner based upon certain change
in control provisions, as long as the officer or employee is still employed
by the Company. A summary of activity for the three years ended December
31, 2001 follows:
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
2001 2000 1999
------------------------- ------------------- -------------------------
NUMBER VALUE AT NUMBER VALUE AT NUMBER VALUE AT
OF DATE OF OF DATE OF OF DATE OF
SHARES ISSUANCE SHARES ISSUANCE SHARES ISSUANCE
------ -------- ------ -------- ------ --------
Shares issued pursuant to plan,
January 1 ................... 257,935 208,380 244,836
Shares issued as deferred
compensation awards ......... 71,087 $19.08 53,305 $15.69 12,941 $20.00/$15.88
Shares re-acquired at termination
of employment ............... -- -- (39,517) $17.75/$31.50
Shares released under terms of
agreements .................. (11,025) $ 20.00/$15.69 (3,750) $20.00 (9,880) $17.75/$31.50
------- ------- -------
Balance at December 31 .......... 317,997 257,935 208,380
======= ======= =======
Shares vested at December 31 .... 231,297 155,084 110,492
======= ======= =======
During the years ended December 31, 2001, 2000 and 1999, the Company
recorded costs approximating $1,578,000, $907,000 and $848,000,
respectively, pursuant to the issuances under the deferred compensation
arrangements. Such amounts are included in General and Administrative
expenses in the Company's consolidated financial statements.
The Company issued an aggregate of 4,560 and 4,655 common shares during
2001 and 2000, as part of the non-cash compensation arrangements to the
non-employee members of the Company's Board of Directors, which were valued
in the aggregate at $80,000 in each period.
In prior years, the Company had issued a total of 2,202,099 warrants
(including 61,984 issued during 1999), to purchase shares of common stock
to certain joint venture partners, including 2,128,099 to Whitehall and
74,000 to its partners in CVW. Pursuant to the December 2000 Amendments,
the Whitehall Warrants were returned and cancelled. The warrants issued to
the CVW partners were repurchased in July 2001 for $80,000 and cancelled.
In May 2000, the Company exchanged the 169,903 shares of class A common
stock held by EQR for a like number of shares of the Company's class A-1
common stock. The class A-1 common stock's par value is $0.02 per share and
has rights substantially similar to the class A common stock.
The Company's retained earnings included approximately $1,823,000 of
undistributed retained earnings at December 31, 2001 from Second Holding,
as such distributions are limited to 48% of earnings.
The Company did not declare or distribute any dividends during 2001, 2000
or 1999.
F-20
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. SHARE OPTION PLANS
The Company has adopted certain incentive plans (the "Incentive Plans") for
the purpose of attracting and retaining the Company's directors, officers
and employees under which it has reserved 2,538,118 common shares for
issuance. Options granted under the Incentive Plans expire ten years from
the date of grant, vest over periods ranging generally from six months to
five years, and generally contain the right to receive reload options under
certain conditions.
The following table presents the changes in options outstanding by year, as
well as other plan data:
2001 2000 1999
----------------------- ----------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
Outstanding at January 1 ............. 1,761,655 $ 24.20 1,794,680 $ 24.16 1,779,305 $ 25.58
Granted .............................. 12,500 19.25 19,250 16.15 206,125 17.33
Exercised ............................ -- -- -- -- -- --
Forfeited/cancelled (A) .............. (633,531) (28.92) (52,275) (21.00) (190,750) (30.08)
Expired .............................. -- -- -- -- -- --
--------- --------- ---------
Outstanding at December 31 ........... 1,140,624 21.52 1,761,655 24.20 1,794,680 24.16
========= ========= =========
Options exercisable at December 31 ... 922,261 $ 21.48 1,234,096 $ 23.51 672,825 $ 24.22
========= ========= ========= ========= ========= =========
Weighted average fair value of options
granted (per option) ............ $ 10.72 $ 9.57 $ 10.28
========= ========= =========
Weighted average remaining
contractual life at December 31 .. 6.0 years 6.9 years 7.9 years
- ----------
(A) 2001 amount primarily includes 284,551 options repurchased and cancelled in
connection with Mr. Lowenthal's separation arrangements from the Company
and 290,000 options cancelled pursuant to Mr. Lynford's amended employment
agreement.
Pursuant to SFAS 123, described in Note 2, the pro forma net (loss) income
available to common shareholders as if the fair value approach to
accounting for share-based compensation had been applied (as well as the
assumptions to calculate fair value using the Black-Scholes option pricing
model) is as follows:
(amounts in thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
Net (loss) income - as reported......................... $ (2,725) $ 6,468 $ 8,861
Expense................................................. 1,677 2,045 2,112
----------- -------------- --------------
Net (loss) income - pro forma........................... $ (4,402) $ 4,423 $ 6,749
=========== ============== ==============
Net (loss) income per common share, basic and diluted:
As reported......................................... $ (0.38) $ 0.76 $ 0.86
=========== ============== ==============
Pro forma........................................... $ (0.61) $ 0.52 $ 0.66
=========== ============== ==============
Assumptions:
Expected volatility ranges.......................... 34% 37% to 38% 36% to 37%
Expected life....................................... 10 years 10 years 10 years
Risk-free interest rate ranges...................... 5.17% 5.45% to 6.24% 4.68% to 6.08%
Expected dividend yield............................. -- -- --
F-21
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SHARE OPTION PLANS (CONTINUED)
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions including the expected share price
volatility. Because the Company's employee share options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee share options.
11. COMMITMENTS AND CONTINGENCIES
The Company has entered into employment agreements with six of its officers
and employees. Such agreements are for terms which expire between 2002 and
2004, and provide for aggregate minimum annual fixed payments of
approximately $1,994,000, $1,624,000 and $643,000 in 2002, 2003 and 2004,
respectively.
In connection with his retirement, Mr. Lowenthal and the Company entered
into an employment separation agreement which, among other benefits,
provides for (a) a severance payment to him on March 31, 2002 of
$1,650,000, (b) the Company's repurchase of 284,551 of his stock options
during 2002 at $2.3827 per option, or an aggregate of $678,000 and (c) the
Company's repurchase, at Mr. Lowenthal's option, of his remaining 284,551
stock options on or after January 2, 2003, for the same amount per option
as the initial stock option repurchase. Upon entering the employment
separation agreement, the 569,102 options had an average remaining term of
six years and a Black-Scholes valuation of approximately $3,300,000. For
the consulting services to be performed by Mr. Lowenthal after his
retirement, he will receive payments at the rate of $100,000 per annum
through December 31, 2004. In connection with these arrangements and other
personnel changes, the Company recorded a non-recurring charge of
approximately $3,527,000 in the fourth quarter of 2001.
Mr. Lynford's employment arrangement has been modified pursuant to an
Amended and Restated Employment Agreement (the "Restated Agreement") and
provides, among other things, for the maintenance of his current base
salary of $318,000 per year and an annual minimum bonus of $325,000
throughout the term of the agreement through December 31, 2004. In
addition, Mr. Lynford will be entitled to receive a severance payment of
$1,929,000 in the event (a) he terminates his employment by reason of a
change in control of the Company (as defined in the Restated Agreement),
(b) the Company terminates his employment other than for proper cause (as
defined in the Restated Agreement) or (c) his employment is terminated by
reason of his death or disability. The provisions in the prior employment
agreement providing for the reimbursement to Mr. Lynford of excise and
certain income taxes with respect to the severance payments have been
eliminated. On December 31, 2001, the Company issued $1,356,000 of
restricted shares of common stock (which equates to 71,087 shares at
$19.075 per share), one third of which are to vest on each of December 31,
2001, June 30, 2002 and January 1, 2003. Mr. Lynford has also agreed to the
cancellation of 290,000 of the 569,102 options to acquire the Company's
common stock held by him. The 290,000 options had a Black-Scholes valuation
of approximately $1,400,000 at the date of cancellation.
F-22
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
As commercial real estate owners, the Company and its principal joint
venture are subject to potential environmental costs. In December 2001, the
Company submitted a report to the New Hampshire Department of Environmental
Services ("NHDES") that summarized the findings of an environmental testing
firm engaged by the Company with respect to groundwater and surface water
monitoring and testing which took place during 2001 on one of its owned
properties. The NHDES responded in January 2002 with concerns about surface
water contamination, volatile organic chemical ("VOC") migration off of the
property and air quality. The NHDES mandated further testing before a
remediation action plan is considered. Further preliminary testing
conducted by the environmental testing firm since the NHDES response
suggests that the surface water contamination is caused by the groundwater
contamination and that the VOC contamination may be migrating off of the
property. Once the Company's "Scope of Work" plans have been approved, the
Company will conduct further testing to address the NHDES's concerns.
Following that testing, the Company will present the findings and a
recommended plan of remediation to the NHDES. At this time, it is too early
to conclude the form of remediation that will be required, or the cost
thereof, but in all likelihood, the remediation required will be a more
aggressive one than natural attenuation. During 2001, the Company incurred
approximately $48,000 of costs principally for its environmental testing
firm, with respect to this matter.
From time-to-time, legal actions are brought against the Company in the
ordinary course of business. In the opinion of management, such matters
will not have a material effect on the Company's financial condition,
results of operations or cash flows.
In 1997 the Company adopted a defined contribution savings plan pursuant to
Section 401 of the Internal Revenue Code. Under such a plan there are no
prior service costs. All employees are eligible to participate in the plan
after three months of service. Employer contributions are made based on a
discretionary amount determined by the Company's management. Employer
contributions, if any, are based upon the amount contributed by an
employee. During the years ended December 31, 2001, 2000 and 1999, the
Company made contributions of approximately $43,000, $35,000 and $43,000,
respectively.
The Company is a tenant under operating leases for its New York and Denver
offices. Rent expense was approximately $866,000, $853,000 and $812,000 for
the years ended December 31, 2001, 2000 and 1999, respectively, which
includes base rent plus other charges. Future minimum lease payments under
operating leases at December 31, 2001 are as follows:
FOR THE YEARS ENDED DECEMBER 31, AMOUNT
-------------------------------- ------
2002..................................... $ 758,000
2003..................................... 753,000
2004..................................... 815,000
2005..................................... 815,000
2006..................................... 815,000
Thereafter............................... 1,495,000
F-23
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 2001, the Company had capital commitments to certain joint
venture investments. The Company may make additional equity investments
subject to board approval if deemed prudent to do so to protect or enhance
its existing investment. At December 31, 2001, capital commitments are as
follows:
COMMITMENT AMOUNT
---------- ------
Wellsford/Whitehall.................. $ 4,000,000 (A)
Clairborne Prudential equity......... 10,208,000 (B)
- ----------
(A) Pursuant to the Amendments, the Company could provide for up to 40% of a
$10,000,000 loan to, or preferred equity investment in, the venture with
its joint venture partner. Whitehall committed to fund the remaining
$6,000,000.
(B) Capital calls are subject to the Company's approval of such investments.
Wellsford/Whitehall has agreed to maintain certain tax indemnities for one
of the joint venture partners relating to assets acquired from this partner
in 1998. This indemnity was preserved during 2001 as the acquisitions of
six properties related to the completion of the purchase requirements with
respect to properties sold in February and April 2001 as part of tax-free
exchanges. Wellsford/Whitehall and the Company will continue to monitor
asset sales and debt levels with respect to these tax indemnities.
See Note 12 for additional commitments and contingencies.
F-24
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. SEGMENT INFORMATION
The Company's operations are organized into three SBUs. The following table
presents condensed balance sheet and operating data for these SBUs for
2001, 2000 and 1999:
(amounts in thousands)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
DECEMBER 31, 2001
-----------------
Investment properties:
Real estate held for investment, net .. $ -- $ -- $ 150,129 $ -- $ 150,129
Real estate held for sale** ........... -- 5,560 -- -- 5,560
Residential units available for sale .. -- -- 5,401 -- 5,401
--------- --------- --------- --------- ---------
Real estate, net ......................... -- 5,560 155,530 -- 161,090
Notes receivable ......................... -- 34,785 -- -- 34,785
Investment in joint ventures ............. 57,790 38,017 -- -- 95,807
Cash and cash equivalents ................ 11 8,217 442 27,479 36,149
Restricted cash and investments .......... -- -- 949 6,604 7,553
Other assets ............................. -- 9,331 2,066 (943) 10,454
--------- --------- --------- --------- ---------
Total assets ............................. $ 57,801 $ 95,910 $ 158,987 $ 33,140 $ 345,838
========= ========= ========= ========= =========
Mortgage notes payable ................... $ -- $ -- $ 121,731 $ -- $ 121,731
Credit facility .......................... -- -- -- -- --
Accrued expenses and other liabilities ... -- 3,641 3,942 9,949 17,532
Convertible Trust Preferred Securities ... -- -- -- 25,000 25,000
Minority interest ........................ 21 -- 3,475 -- 3,496
Equity ................................... 57,780 92,269 29,839 (1,809) 178,079
--------- --------- --------- --------- ---------
Total liabilities and equity ............. $ 57,801 $ 95,910 $ 158,987 $ 33,140 $ 345,838
========= ========= ========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 2001
------------------------------------
Rental revenue ........................... $ -- $ 2,019 $ 11,750 $ -- $ 13,769
Revenue from sales of residential units .. -- -- 21,932 -- 21,932
Interest revenue ......................... -- 4,166 -- 1,009 5,175
Fee revenue .............................. -- 283 (54) 388 617
--------- --------- --------- --------- ---------
Total revenues ........................... -- 6,468 33,628 1,397 41,493
--------- --------- --------- --------- ---------
Cost of sales of residential units ....... -- -- 19,364 -- 19,364
Operating expenses ....................... -- 1,403 3,997 -- 5,400
Depreciation and amortization ............ 1,947 7 3,066 287 5,307
Interest ................................. -- 300 4,027 29 4,356
General and administrative ............... -- 65 -- 8,402 8,467
Restructuring charge ..................... -- -- -- 3,527 3,527
--------- --------- --------- --------- ---------
Total costs and expenses ................. 1,947 1,775 30,454 12,245 46,421
--------- --------- --------- --------- ---------
Income from joint ventures ............... 4,367 197 -- -- 4,564
Minority interest ........................ -- -- (282) -- (282)
--------- --------- --------- --------- ---------
Income (loss) before taxes and accrued
distributions and amortization of
costs on Convertible Trust Preferred
Securities ............................ $ 2,420 $ 4,890 $ 2,892 $ (10,848) $ (646)
========= ========= ========= ========= =========
- ----------
* Includes corporate cash, restricted cash and investments, other assets,
accrued expenses and other liabilities, general and administrative
expenses, restructuring charge, interest income and interest expense that
has not been allocated to the operating segments.
** Real estate held for sale in the Debt and Equity Investments SBU is net of
the remaining impairment reserve of $2,175.
F-25
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
(amounts in thousands)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
DECEMBER 31, 2000
-----------------
Investment properties:
Real estate held for investment, net . $ -- $ -- $ 113,598 $ -- $ 113,598
Real estate held for sale, at expected
net sales value** .................. -- 23,583 -- -- 23,583
Residential units available for sale . -- -- 21,850 -- 21,850
--------- --------- --------- --------- ---------
Real estate, net ........................ -- 23,583 135,448 -- 159,031
Notes receivable ........................ -- 37,824 -- -- 37,824
Investment in joint venture ............. 82,820 38,149 -- -- 120,969
Cash and cash equivalents ............... 93 9,830 168 26,278 36,369
Restricted cash and investments ......... -- 445 2,468 7,009 9,922
Other assets ............................ -- 10,437 1,109 109 11,655
--------- --------- --------- --------- ---------
Total assets ............................ $ 82,913 $ 120,268 $ 139,193 $ 33,396 $ 375,770
========= ========= ========= ========= =========
Mortgage notes payable .................. $ -- $ -- $ 104,404 $ -- $ 104,404
Credit facilities ....................... -- 12,000 -- -- 12,000
Accrued expenses and other
liabilities ......................... -- 4,380 2,124 8,649 15,153
Convertible Trust Preferred
Securities .......................... -- -- -- 25,000 25,000
Minority interest ....................... 37 -- 3,193 -- 3,230
Equity .................................. 82,876 103,888 29,472 (253) 215,983
--------- --------- --------- --------- ---------
Total liabilities and equity ............ $ 82,913 $ 120,268 $ 139,193 $ 33,396 $ 375,770
========= ========= ========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 2000
------------------------------------
Rental revenue .......................... $ -- $ 6,096 $ 12,585 $ -- $ 18,681
Interest revenue ........................ -- 4,436 -- 1,821 6,257
Fee revenue ............................. -- -- -- 686 686
--------- --------- --------- --------- ---------
Total revenues .......................... -- 10,532 12,585 2,507 25,624
--------- --------- --------- --------- ---------
Operating expenses ...................... -- 2,658 4,102 -- 6,760
Depreciation and amortization ........... 409 1,355 3,097 107 4,968
Interest ................................ -- 3,118 4,858 (900) 7,076
General and administrative .............. -- 171 -- 7,206 7,377
--------- --------- --------- --------- ---------
Total expenses .......................... 409 7,302 12,057 6,413 26,181
--------- --------- --------- --------- ---------
Gain on sale of assets, net of
impairment provision of $4,725*** ... -- 2,710 3,425 -- 6,135
Income from joint ventures .............. 1,674 1,573 -- -- 3,247
Minority interest ....................... -- -- (66) -- (66)
--------- --------- --------- --------- ---------
Income (loss) before taxes and accrued
distributions and amortization of
costs on Convertible Trust Preferred
Securities ........................... $ 1,265 $ 7,513 $ 3,887 $ (3,906) $ 8,759
========= ========= ========= ========= =========
- ----------
* Includes corporate cash, restricted cash and investments, other assets,
accrued expenses and other liabilities, general and administrative
expenses, interest income and interest expense that has not been allocated
to the operating segments.
** Real estate held for sale in the Debt and Equity Investments SBU is net of
a $4,725 impairment reserve.
*** Impairment provision pertains to assets in the Debt and Equity Investments
SBU.
F-26
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
(amounts in thousands)
COMMERCIAL DEBT AND DEVELOPMENT
PROPERTY EQUITY AND LAND
INVESTMENTS INVESTMENTS INVESTMENTS OTHER* CONSOLIDATED
----------- ----------- ----------- ------ ------------
DECEMBER 31, 1999
-----------------
Real estate, net ..................... $ -- $ 38,103 $ 121,479 $ -- $ 159,582
Notes receivable ..................... -- 37,260 -- -- 37,260
Investment in joint ventures ......... 79,688 34,702 -- -- 114,390
Cash and cash equivalents ............ 67 28,694 172 5,807 34,740
Restricted cash and investments ...... -- 1,072 1,059 6,335 8,466
Other assets ......................... -- 7,070 822 4,001 11,893
--------- --------- --------- --------- ---------
Total assets ......................... $ 79,755 $ 146,901 $ 123,532 $ 16,143 $ 366,331
========= ========= ========= ========= =========
Mortgage notes payable ............... $ -- $ 28,000 $ 91,315 $ -- $ 119,315
Accrued expenses and other liabilities -- 1,908 1,396 10,587 13,891
Minority interest .................... 46 -- 3,388 -- 3,434
Equity ............................... 79,709 116,993 27,433 5,556 229,691
--------- --------- --------- --------- ---------
Total liabilities and equity ......... $ 79,755 $ 146,901 $ 123,532 $ 16,143 $ 366,331
========= ========= ========= ========= =========
FOR THE YEAR ENDED DECEMBER 31, 1999
- ------------------------------------
Rental revenue ....................... $ -- $ 5,545 $ 12,329 $ -- $ 17,874
Interest revenue ..................... -- 11,707 -- 589 12,296
Fee revenue .......................... -- -- -- 600 600
--------- --------- --------- --------- ---------
Total revenues ....................... -- 17,252 12,329 1,189 30,770
--------- --------- --------- --------- ---------
Operating expenses ................... -- 2,561 3,686 -- 6,247
Depreciation and amortization ........ 337 2,509 2,999 309 6,154
Interest ............................. -- 4,346 4,827 226 9,399
General and administrative ........... -- 1,131 -- 6,595 7,726
--------- --------- --------- --------- ---------
Total expenses ....................... 337 10,547 11,512 7,130 29,526
--------- --------- --------- --------- ---------
Gain on sale of assets ............... -- -- -- -- --
Income from joint ventures ........... 7,183 2,439 -- -- 9,622
Minority interest .................... -- (1) (54) -- (55)
--------- --------- --------- --------- ---------
Income (loss) before taxes ........... $ 6,846 $ 9,143 $ 763 $ (5,941) $ 10,811
========= ========= ========= ========= =========
- ----------
* Includes corporate cash, restricted cash and investments, other assets,
accrued expenses and other liabilities, general and administrative
expenses, interest income and interest expense that has not been allocated
to the operating segments.
COMMERCIAL PROPERTY OPERATIONS - WELLSFORD/WHITEHALL
----------------------------------------------------
The Company's commercial property operations currently consist solely of
its interest in Wellsford/Whitehall, a joint venture among the Company,
various entities affiliated with Whitehall, private real estate funds
sponsored by 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.
F-27
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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. The following table details the
changes in the Company's investment in Wellsford/Whitehall:
(amounts in thousands)
2001 2000
---- ----
Investment balance at January 1,............... $ 82,820 $ 79,688
Contributions............................... 8,468 3,763
Income from operations...................... 302 1,583
Gains from asset sales...................... 10,321 92
Impairment provision........................ (6,256) --
Amortization................................ (1,778) (409)
Distributions............................... (35,984) (1,897)
Accumulated other comprehensive income...... (103) --
--------- ---------
Investment balance at December 31,............. $ 57,790 $ 82,820
========= =========
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
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.
During the year ended December 31, 2001, Wellsford/Whitehall paid the
following fees to WP Commercial:
Administrative management..................... $ 6,850,000
===========
Construction, construction management,
development and leasing.................... $ 1,787,000
===========
F-28
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
WP Commercial leases space at three buildings owned by Wellsford/Whitehall
at each of its geographic regions for management and administration,
including one building sold in November 2001. Aggregate rent received
during 2001 by Wellsford/Whitehall amounted to $542,000 for the period of
ownership.
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.
The following table presents a condensed balance sheet and operating data
for the Wellsford/Whitehall segment:
(amounts in thousands)
DECEMBER 31,
------------
CONDENSED BALANCE SHEET DATA 2001 2000
---------------------------- ---- ----
Real estate, net ........................... $ 511,648 $ 589,154
Cash and cash equivalents .................. 32,723 6,161
Other assets (A) ........................... 27,740 26,821
Total assets ............................... 572,111 622,136
Mortgages payable .......................... 111,949 136,490
Credit facility ............................ 258,060 244,250
Preferred equity (B) ....................... -- 18,323
Common equity .............................. 183,815 201,044
Other comprehensive loss ................... (526) --
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
CONDENSED OPERATING DATA 2001 2000 1999
------------------------ ---- ---- ----
Rental revenue (C) ......................... $ 78,459 $ 77,087 $ 73,356
Interest and other income (D) .............. 5,051 5,363 1,320
--------- --------- ---------
Total revenues ............................. 83,510 82,450 74,676
--------- --------- ---------
Operating expenses ......................... 30,328 28,774 27,432
Depreciation and amortization .............. 17,323 13,215 11,702
Interest ................................... 26,559 25,994 25,586
General and administration ................. 7,345 9,598 8,142
--------- --------- ---------
Total expenses ............................. 81,555 77,581 72,862
Gain on sale of assets ..................... 27,336 239 15,642
Impairment provisions ...................... (16,545) -- --
--------- --------- ---------
Income before preferred equity distributions $ 12,746 $ 5,108 $ 17,456
========= ========= =========
- ----------
(A) Includes the marked to market value of an interest rate protection contract
of $1,089 at December 31, 2001.
(B) Preferred equity converted to common equity in September 2001.
(C) Includes a reduction in income of $262 and an increase in income of $1,271
and $1,218 from the straight-lining of tenant rents for the years ended
December 31, 2001, 2000 and 1999, respectively.
(D) Includes lease cancellation income of $4,012, $4,037, and $395 for the
years ended December 31, 2001, 2000 and 1999, respectively.
F-29
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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 net 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.
The following table presents property information summarized by geographic
region:
NUMBER OF PROPERTIES
------------------------------------------------------ TOTAL
LAND PORTFOLIO UNDEPRECIATED
TOTAL PARCELS OFFICE RETAIL SQUARE FEET COST BASIS
----- ------- ------ ------ ----------- ----------
As of December 31, 2001
New Jersey ........... 17 2 13 2 2,140,000 $272,851,000
Boston, MA ........... 10 -- 10 -- 1,203,000 209,551,000
Maryland/Washington DC 5 -- 4 1 531,000 65,578,000
Other ................ 3 -- -- 3 31,000 8,219,000
-- -- -- -- --------- ------------
35 2 27 6 3,905,000 $556,199,000
== == == == ========= ============
As of December 31, 2000
New Jersey ........... 19 2 17 -- 3,059,000 $353,268,000
Boston, MA ........... 16 -- 16 -- 1,361,000 221,225,000
Maryland/Washington DC 4 -- 4 -- 509,000 43,002,000
Other ................ 1 -- 1 -- 24,000 2,158,000
-- -- -- -- --------- ------------
40 2 38 -- 4,953,000 $619,653,000
== == == == ========= ============
F-30
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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
----- -------- ----------- ---------- -------------- --------------- ---------
April Various 54,000 5 $ 18.7 $ 342.20 100%
October Decatur, GA 10,000 1 2.3 231.51 100%
------ - -------
64,000 6 $ 21.0 324.91 100%
====== = =======
Sales:
Gross Leasable Number of Sales Price per
Month Location Square Feet Properties Sales Price Square Foot Gain (Loss)
----- -------- ----------- ---------- ----------- ----------- -----------
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
--------- -- -------- -------
1,129,000 11 $ 146.0 129.32 $ 27.3
========= == ======== =======
- ----------
(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 above).
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
----- -------- ----------- ---------- ----------- --------------- ----
August Columbia, MD 38,000 1 $ 4.9 $ 128 $ 0.2
====== = ========= ========= ======
F-31
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
1999 ACTIVITY
Purchases:
Gross
Leasable Number of Purchase Purchase Price
Month Type Location Square Feet Properties Price (1) per Square Foot
----- ---- -------- ----------- ---------- --------- ---------------
May Office/Flex Warren, NJ 129,000 1 $ 8.0 $ 62
June Office Boston, MA 64,000 1 10.2 159
June Office Boston, MA 68,000 1 13.1 193
July Office/Land Columbia, MD 97,000 1 10.7 110
July Office Owings Mills, MD 32,000 1 3.9 122
August Land Hanover, NJ 19.2 acres 1 2.0 --
August Office Hanover, NJ 96,000 1 13.3 139
September Flex Columbia, MD 144,000 1 3.8 26
November Office Rockville, MD 236,000 1 19.9 84
------- - -------
Total purchases 866,000 9 $ 84.9 --
======= = =======
Total, excluding land 866,000 8 $ 82.9 96
======= = =======
Sales:
Gross Leasable Number of Sales Price per
Month Location Square Feet Properties Sales Price Square Foot Gain
----- -------- ----------- ---------- ----------- ----------- ----
February Wayne, NJ 2.58 acres (2) 1 $ 0.3 $ -- $ 0.2
May Boston, MA 65,000 1 8.1 125 2.3
August Needham, MA 261,000 1 26.0 100 5.6
November Washington, D.C. 225,000 1 43.4 193 7.5
------- - ------- -------
Total sales 551,000 4 $ 77.8 -- $ 15.6
======= = ======= =======
Total, excluding land 551,000 3 $ 77.5 141 $ 15.4
======= = ======= =======
- ----------
(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 June 2001, Wellsford/Whitehall obtained a three-year, $353,000,000
revolving credit facility from General Electric Capital Corporation 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.
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.
F-32
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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.
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 eliminated.
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.
F-33
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
DEBT AND EQUITY ACTIVITIES--WELLSFORD CAPITAL
---------------------------------------------
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 at December 31, 2001.
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 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.
F-34
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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.
F-35
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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 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 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.
F-36
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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 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.
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 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.
F-37
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
The following table presents a condensed balance sheet and operating data
for Second Holding:
(amounts in thousands)
DECEMBER 31,
------------
CONDENSED BALANCE SHEET DATA 2001 2000
---------------------------- ---- ----
Cash and cash equivalents ............ $ 76,487 $ 73,136
Investments .......................... 926,453 229,003
Other assets (A) ..................... 19,943 4,795
Total assets ......................... 1,022,883 306,934
Debt ................................. 962,465 244,867
Total equity ......................... 54,581 54,492
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
CONDENSED OPERATING DATA 2001 2000 1999
------------------------ ---- ---- ----
Interest ............................. $ 30,528 $ 7,383 $ 3,243
Interest from Reis ................... -- 169 506
---------- ---------- ----------
Total revenue ........................ 30,528 7,552 3,749
---------- ---------- ----------
Interest expense ..................... 28,017 3,665 --
Fees and other ....................... 2,422 1,084 812
---------- ---------- ----------
Total expenses ....................... 30,439 4,749 812
---------- ---------- ----------
Net income attributable to members (B) $ 89 $ 2,803 $ 2,937
========== ========== ==========
- ----------
(A) Other assets includes an interest rate swap asset with a fair value of
$13,531 at December 31, 2001.
(B) A partner which was admitted in the latter part of 2000 is entitled to a
cumulative preference on earnings; accordingly all fiscal 2001 income is
allocable to this partner.
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 which was
included in cash and cash equivalents in the Condensed Balance Sheet Data.
The investment-grade assets and commercial paper investments are variable
rate based and have 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.
F-38
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
The following table details the allocation of investments at December 31,
2001 and 2000 for Second Holding:
DECEMBER 31,
------------
2001 2000
---- ----
SECURITY FOR INVESTMENTS (A)
----------------------------
Real estate............................... $ 334,601,000 $ 146,954,000
Corporate debt............................ 135,686,000 --
Sovereign debt............................ 73,000,000 --
Bank deposits............................. 70,000,000 --
Aircraft leases........................... 70,000,000 30,000,000
Fuel/oil receivables...................... 35,000,000 --
Consumer receivables...................... 33,500,000 --
Other asset-backed securities............. 174,666,000 52,049,000
------------- -------------
$ 926,453,000 $ 229,003,000
============= =============
STANDARD & POOR'S RATINGS OF INVESTMENTS
----------------------------------------
AAA....................................... $ 759,241,000 $ 150,000,000
AA........................................ 42,750,000 40,000,000
AA-....................................... 28,000,000 --
A......................................... 60,210,000 --
A-........................................ 34,441,000 --
Other..................................... 1,811,000 39,003,000
------------- -------------
$ 926,453,000 $ 229,003,000
============= =============
- ----------
(A) Investments may be secured by the assets, interests in such assets or their
respective economic benefit.
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.
F-39
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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.
REIS
The Company has direct and indirect investments in a real estate
information and database company, 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 $6,575,000, or 22% of Reis' equity on an as
converted basis. A portion of the investment is held directly by the
Company and the remainder is held by Reis Capital Holdings, LLC ("Reis
Capital"), a company which was organized to hold this investment (the Reis
Capital investment was transferred from Second Holding). The Company has an
approximate 51.1% non-controlling interest in Reis Capital at December 31,
2001.
A summary of the Company's direct and indirect investments in Reis follows:
REIS CAPITAL
DIRECT AND ------------------------------
INDIRECT AMOUNTS
COMPANY INVESTED BY TOTAL
OWNERSHIP OTHER PARTNERS INVESTMENT
--------- -------------- ----------
Notes purchased through Reis Capital during 1999
converted to Series A Preferred shares in April 2000 (A) $2,555,000 $2,445,000 $5,000,000
Notes purchased through Reis Capital during 1999
converted to Series B Preferred shares in April 2000 (B) 766,000 734,000 1,500,000
Accrued interest on above notes converted to Series C
Preferred shares in April 2000 (C) ..................... 466,000 447,000 913,000
Series C Preferred shares purchased directly in April
2000 (D) ............................................... 2,022,000
Series C Preferred shares purchased through Reis Capital
in April 2000 (E) ...................................... 766,000 734,000 1,500,000
---------- ---------- ----------
Total investment .......................................... $6,575,000 $4,360,000 $8,913,000
========== ========== ==========
- ----------
All preferred series have an 8% cumulative dividend; no dividends have been
declared or paid since issuance.
(A) Issued 50,000 shares at $100 per share; convertible into common shares at
$1.76 per share.
(B) Issued 15,000 shares at $100 per share; convertible into common shares at
$3.00 per share.
(C) Issued 9,120 shares at $100 per share; convertible into common shares at
$4.00 per share.
(D) Issued 20,220 shares at $100 per share; convertible into common shares at
$4.00 per share.
(E) Issued 15,000 shares at $100 per share; convertible into common shares at
$4.00 per share.
F-40
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
The Company's Chairman is the brother of the president of Reis. The
Company's President was appointed to the board of directors of Reis during
the third quarter of 2000. At the time of the April 2000 investments noted
above, the management of Reis offered certain persons the opportunity to
make an individual investment in Reis, including, but not limited to,
certain directors and officers of the Company who purchased an aggregate of
$410,000 of Series C Preferred shares. The investments of the Company's
officers and directors together with shares of common stock previously held
by the Company's Chairman represent approximately 3.5% of Reis' equity, on
an as converted basis. Additionally, a company controlled by the Chairman
of EQR purchased Series C Preferred shares with a 4.5% converted interest
for a cost of $2,000,000. The president of EQR is a director of the
Company. The Chairman, President and directors whom have invested directly
in Reis have and will continue to recuse themselves from any investment
decisions made by the Company pertaining to Reis. All of the above
transactions of preferred shares took place on the same date upon the
completion of a capital restructuring of Reis.
The following is a summary of investments in Reis made during 1999 and
2000:
Company:
Direct .............................. $ 2,022,000
Through Reis Capital ................ 4,553,000
-----------
Total Company investment ......... 6,575,000
Others:
Partners in Reis Capital ............ 4,360,000
Officers and directors of the Company 410,000*
Institutional companies ............. 4,500,000*
Individuals ......................... 420,000*
-----------
Total 1999 and 2000 investments .. $16,265,000
===========
- ----------
* All investments are in Series C Preferred shares.
The aggregate amounts raised have been utilized by Reis to carry out its
business plan to expand the number of real estate markets covered by its
services, move to an internet-based delivery system to its customers and to
increase marketing of its products to expand its customer base. Since the
April 2000 capital raise, it has introduced a new product line, utilizing
its database information to meet underwriting and valuation requirements of
real estate professionals for multi-asset transactions. Reis is currently
in the process of attempting to raise up to an additional $2,000,000 from
the same institutional investors holding the Series C Preferred shares
including the Company. The purpose is to accelerate the introduction of its
new product line, develop a new product related to its existing business
and for general corporate purposes.
Second Holding uses the services of Reis in making investment decisions.
Second Holding incurred fees of $360,000 in connection with such services
for each of the years ended December 31, 2001, 2000 and 1999. The Company
pays one-half of such fees. For 2002, the fees will be reduced to $240,000
per year, with the Company continuing to pay one-half.
F-41
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
CREAMER VITALE WELLSFORD/CLAIRBORNE INVESTORS
In January 1998, the Company formed 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, 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 LOAN
In October 2000, the Company and PREI organized a new venture which
provided an aggregate of $34,000,000 of mezzanine financing for the
construction of Fordham Tower, a 50-story, 244 unit, luxury condominium
apartment project to be built on Chicago's near northside ("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.
F-42
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
OTHER INVESTMENTS
VALUE PROPERTY TRUST
In February 1998, the Company completed the merger with Value Property
Trust ("VLP") (the "VLP Merger") for total consideration of approximately
$169,000,000, which was accounted for as a purchase. Thirteen of the twenty
VLP properties, which were under contract to an affiliate of Whitehall,
were subsequently sold for an aggregate of approximately $64,000,000. The
Company retained seven of the VLP properties with an allocated value upon
purchase of approximately $38,300,000 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
---------------------------------------------------------------
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.
F-43
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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.
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%. 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.
F-44
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION (CONTINUED)
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.
F-45
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the historical cost and fair value of the
Company's financial instruments at December 31, 2001 and 2000:
(AMOUNTS IN THOUSANDS)
HISTORICAL COST AT DECEMBER 31, FAIR VALUE AT DECEMBER 31,
------------------------------- --------------------------
NOTES RECEIVABLE (A) 2001 2000 2001 2000
-------------------- ---- ---- ---- ----
Fixed rate:
277 Park Loan ............... $ 25,000 $ 25,000 $ 25,900 (C) $ 25,900 (C)
Guggenheim .................. 3,612 4,128 3,692 (C) 4,128 (D)
Other ....................... 1,200 700 1,200 (E) 700 (D)
-------- -------- -------- --------
Total fixed rate notes ......... 29,812 29,828 30,792 30,728
-------- -------- -------- --------
Floating rate:
Patriot Loan ................ 4,973 5,000 4,973 (F) 5,000 (F)
Safeguard Loan .............. -- 2,900 -- 2,900 (F)
Other ....................... -- 96 -- 96 (F)
-------- -------- -------- --------
Total floating rate notes ...... 4,973 7,996 4,973 7,996
-------- -------- -------- --------
Total notes receivable ......... $ 34,785 $ 37,824 $ 35,765 $ 38,724
======== ======== ======== ========
DEBT (B)
--------
Floating rate:
Wellsford Finance Facility .. $ -- $ 12,000 $ -- $ 12,000 (G)
Palomino Park Bonds ......... 12,680 12,680 12,680 (G) 12,680 (G)
Silver Mesa Conversion Loan . 13,352 32,000 13,352 (G) 32,000 (G)
Green River Construction Loan 36,748 -- 36,748 (G) --
-------- -------- -------- --------
Total floating rate debt ....... 62,780 56,680 62,780 56,680
-------- -------- -------- --------
Fixed rate:
Blue Ridge Mortgage ......... 32,916 33,354 33,648 (H) 33,164 (H)
Red Canyon Mortgage ......... 26,035 26,370 26,143 (H) 25,801 (H)
-------- -------- -------- --------
Total fixed rate debt .......... 58,951 59,724 59,791 58,965
-------- -------- -------- --------
Total debt ..................... $121,731 $116,404 $122,571 $115,645
======== ======== ======== ========
- ---------
(A) For more information regarding the Company's note receivables, see Footnote
5.
(B) For more information regarding the Company's debt, see Footnote 6.
(C) The fair value of the Company's fixed rate investments was determined by
reference to various market data.
(D) The fair value is considered to be its carrying amount as this is a
recently executed transaction reflective of current market conditions.
(E) This $1,200 loan was paid in full on January 18, 2002. The Company
considers the fair value of this repaid loan at its face value.
(F) The fair value of the Company's floating rate investments is considered to
be their carrying amounts.
(G) The fair value of the Company's floating rate debt is considered to be
their carrying amounts.
(H) The fair value of the Company's fixed rate debt was determined by reference
to various market data.
F-46
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION (UNAUDITED)
Summarized consolidated quarterly financial information for the years ended
December 31, 2001 and 2000 is as follows:
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------------
2001 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------------------------------- -------- ------- ------------ -----------
Revenues ........................................... $ 11,900,234 $ 13,131,882 $ 8,606,792 $ 7,854,091
Costs and expenses* ................................ 11,276,217 13,468,374 9,057,870 12,618,219
Income (loss) from joint ventures .................. 1,946,058 758,816 (763,377) 2,622,909
Minority interest .................................. (91,639) (93,662) (44,570) (52,655)
------------ ------------ ------------ ------------
Income (loss) before taxes and accrued distributions
and amortization of costs on Convertible
Trust Preferred Securities ...................... 2,478,436 328,662 (1,259,025) (2,193,874)
Income tax expense (benefit) ....................... 465,000 (193,000) 122,000 305,000
Accrued distributions and amortization of costs on
Convertible Trust Preferred Securities, net of
income tax benefit .............................. 349,954 342,953 346,954 339,954
------------ ------------ ------------ ------------
Net income (loss) .................................. $ 1,663,482 $ 178,709 $ (1,727,979) $ (2,838,828)
============ ============ ============ ============
Net income (loss) per common share, basic** ........ $ 0.20 $ 0.02 $ (0.27) $ (0.45)
============ ============ ============ ============
Net income (loss) per common share, diluted** ...... $ 0.20 $ 0.02 $ (0.27) $ (0.45)
============ ============ ============ ============
Weighted average number of common shares
outstanding, basic .............................. 8,351,623 7,864,302 6,333,094 6,334,927
============ ============ ============ ============
Weighted average number of common shares
outstanding, diluted ............................ 8,356,001 7,873,327 6,333,094 6,334,927
============ ============ ============ ============
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------------
2000 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------------------------------- -------- ------- ------------ -----------
Revenues ........................................... $ 6,092,239 $ 6,103,532 $ 6,534,460 $ 6,893,558
Expenses ........................................... 6,346,998 5,838,444 6,746,142 7,249,087
Income (loss) from joint ventures .................. 1,260,909 804,764 1,551,955 (370,870)
Gain on sale of assets, net of impairment provision -- -- -- 6,134,851
Minority interest .................................. (9,668) 571 (8,338) (48,786)
------------ ------------ ------------ ------------
Income before taxes and accrued distributions and
amortization of costs on Convertible Trust
Preferred Securities ............................ 996,482 1,070,423 1,331,935 5,359,666
Income tax expense ................................. 18,000 372,000 283,000 757,000
Accrued distributions and amortization of costs on
Convertible Trust Preferred Securities, net of
income tax benefit .............................. -- 211,000 352,507 296,954
------------ ------------ ------------ ------------
Net income ......................................... $ 978,482 $ 487,423 $ 696,428 $ 4,305,712
============ ============ ============ ============
Net income per common share, basic** ............... $ 0.11 $ 0.06 $ 0.08 $ 0.52
============ ============ ============ ============
Net income per common share, diluted** ............. $ 0.11 $ 0.06 $ 0.08 $ 0.52
============ ============ ============ ============
Weighted average number of common shares
outstanding, basic .............................. 9,101,393 8,321,888 8,296,507 8,315,172
============ ============ ============ ============
Weighted average number of common shares
outstanding, diluted ............................ 9,107,082 8,326,980 8,313,555 8,325,747
============ ============ ============ ============
- ----------
* Costs and expenses for the three months ended December 31, 2001 includes a
restructuring charge of $3,527,000 in connection with arrangements with the
Company's President for his early retirement.
** Aggregate quarterly earnings per share amounts may not equal annual amounts
presented elsewhere in these consolidated financial statements due to
rounding differences.
F-47
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000 WITH REPORT OF INDEPENDENT AUDITORS
F-48
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
--------
Report of Independent Auditors.............................................F-50
Consolidated Balance Sheets................................................F-51
Consolidated Statements of Income..........................................F-52
Consolidated Statements of Changes in Members' Equity......................F-53
Consolidated Statements of Cash Flows......................................F-54
Notes to Consolidated Financial Statements.................................F-56
F-49
REPORT OF INDEPENDENT AUDITORS
To the Members of
Wellsford/Whitehall Group, L.L.C. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Wellsford/Whitehall Group, L.L.C. (formerly Wellsford/Whitehall Properties II,
L.L.C.) and Subsidiaries (the "Company") as of December 31, 2001 and 2000, and
the related consolidated statements of income, changes in members' equity and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Wellsford/Whitehall Group, L.L.C. and Subsidiaries at December 31, 2001 and 2000
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
New York, New York
February 15, 2002
F-50
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------
2001 2000
---- ----
ASSETS
Real estate assets, at cost:
Land............................................... $ 67,403,646 $ 66,547,270
Buildings and improvements......................... 483,071,868 450,575,368
------------- -------------
550,475,514 517,122,638
Less accumulated depreciation................... (44,550,895) (30,498,428)
------------- -------------
505,924,619 486,624,210
Construction in progress........................... 5,723,067 102,530,148
------------- -------------
511,647,686 589,154,358
Real estate held for transfer to New Venture, net..... -- 7,835,884
Cash and cash equivalents............................. 32,723,263 6,160,768
Restricted cash....................................... 9,845,420 8,980,244
Deferred costs, less accumulated amortization......... 8,265,860 2,250,769
Receivables, prepaids and other assets, net........... 9,628,307 7,753,659
------------- -------------
Total assets.......................................... $ 572,110,536 $ 622,135,682
============= =============
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgages payable.................................. $ 111,948,662 $ 136,490,353
Secured senior credit facility .................... -- 181,728,228
Secured mezzanine credit facility ................. -- 62,521,799
Portfolio loan..................................... 258,060,434 --
Accrued expenses and other liabilities............. 11,814,405 16,915,187
Distributions payable.............................. 4,221,364 2,515,281
Ground lease obligation............................ 1,124,981 1,120,213
Security deposits.................................. 1,651,181 1,477,629
------------- -------------
Total liabilities..................................... 388,821,027 402,768,690
------------- -------------
Commitments and contingencies
Members' equity:
Membership units, $.01 par value per unit.......... 192,662 143,035
Paid in capital.................................... 275,752,333 201,667,531
Other comprehensive loss........................... (525,560) --
Series A convertible preferred membership units.... -- 18,322,550
Excess of distribution over earnings............... (92,129,926) (766,124)
------------- -------------
Total members' equity................................. 183,289,509 219,366,992
------------- -------------
Total liabilities and members' equity................. $ 572,110,536 $ 622,135,682
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-51
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
Revenues:
Rental income ................................. $ 78,458,718 $ 77,087,349 $ 73,355,970
Interest and other income ..................... 5,051,328 5,363,354 1,319,987
------------ ------------ ------------
Total revenues ......................... 83,510,046 82,450,703 74,675,957
------------ ------------ ------------
Expenses:
Property operations and maintenance ........... 20,067,281 18,993,827 18,141,650
Real estate taxes ............................. 8,744,809 8,282,532 7,891,159
Depreciation and amortization ................. 17,323,039 13,215,194 11,701,917
Property and asset management ................. 1,515,727 1,497,279 1,398,399
Interest ...................................... 26,558,656 25,993,982 25,586,242
General and administrative .................... 7,345,226 9,598,690 8,142,147
------------ ------------ ------------
Total expenses ......................... 81,554,738 77,581,504 72,861,514
------------ ------------ ------------
Income available before gains on dispositions and
preferred distributions ....................... 1,955,308 4,869,199 1,814,443
Gains on dispositions, net of losses on impairment 10,790,576 238,829 15,642,149
Income available for members before preferred
distributions ................................. 12,745,884 5,108,028 17,456,592
Preferred distributions .......................... (757,541) (1,099,353) (1,140,000)
------------ ------------ ------------
Net income available for members ................. $ 11,988,343 $ 4,008,675 $ 16,316,592
============ ============ ============
Net income per membership unit, basic ............ $ 0.77 $ 0.30 $ 1.42
============ ============ ============
Net income per membership unit, diluted .......... $ 0.77 $ 0.30 $ 1.39
============ ============ ============
Weighted average number of membership units
outstanding, basic ............................ 15,527,652 13,457,410 11,526,864
============ ============ ============
Weighted average number of membership units
outstanding, diluted .......................... 16,200,451 14,439,499 12,545,264
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-52
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
SERIES A
CONVERTIBLE
MEMBERSHIP UNITS PREFERRED
---------------------- PAID-IN MEMBERSHIP
UNITS AMOUNT CAPITAL UNITS
----- ------ ------- -----
December 31, 1998 ...... 9,940,325 $ 99,403 $ 130,032,663 $ 19,000,000
Additional equity
contributions, net .. 3,270,756 32,708 51,808,785 --
Net income ............. -- -- -- 1,140,000
Distributions .......... -- -- -- (1,140,000)
---------- ------------- ------------- -------------
December 31, 1999 ...... 13,211,081 132,111 181,841,448 19,000,000
Additional equity
contributions, net .. 1,109,108 11,091 19,898,466 --
Redemption of equity ... (16,717) (167) (72,383) (677,450)
Net income ............. -- -- -- 1,099,353
Distributions .......... -- -- -- (1,099,353)
---------- ------------- ------------- -------------
December 31, 2000 ...... 14,303,472 143,035 201,667,531 18,322,550
Additional equity
contributions, net .. 3,980,435 39,804 55,772,075 --
Conversion of equity ... 982,286 9,823 18,312,727 (18,322,550)
Net income ............. -- -- -- 757,541
Other comprehensive loss -- -- -- --
Distributions .......... -- -- -- (757,541)
---------- ------------- ------------- -------------
December 31, 2001 ...... 19,266,193 $ 192,662 $ 275,752,333 --
========== ============= ============= =============
EXCESS OF
DISTRIBUTIONS OTHER TOTAL
OVER COMPREHENSIVE MEMBERS'
EARNINGS LOSS EQUITY
-------- ---- ------
December 31, 1998 ...... $ 2,733,768 $ -- $ 151,865,834
Additional equity
contributions, net .. -- -- 51,841,493
Net income ............. 16,316,592 -- 17,456,592
Distributions .......... (19,284,324) -- (20,424,324)
------------- ------------- -------------
December 31, 1999 ...... (233,964) -- 200,739,595
Additional equity
contributions, net .. -- -- 19,909,557
Redemption of equity ... -- -- (750,000)
Net income ............. 4,008,675 -- 5,108,028
Distributions .......... (4,540,835) -- (5,640,188)
------------- ------------- -------------
December 31, 2000 ...... (766,124) -- 219,366,992
Additional equity
contributions, net .. -- -- 55,811,879
Conversion of equity ... -- -- --
Net income ............. 11,988,343 -- 12,745,884
Other comprehensive loss -- (525,560) (525,560)
Distributions .......... (103,352,145) -- (104,109,686)
------------- ------------- -------------
December 31, 2001 ...... $ (92,129,926) $ (525,560) $ 183,289,509
============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-53
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Income available for members before preferred
distributions .............................................. $ 12,745,884 $ 5,108,028 $ 17,456,592
Adjustments to reconcile net income available for members
to net cash (used in) provided by operating activities:
Gains on dispositions of real estate assets ................ (27,335,636) (238,829) (15,642,149)
Depreciation and amortization .............................. 17,323,039 13,215,194 11,701,917
Loss on impairment of assets ............................... 16,545,060 -- --
Amortization of deferred financing costs ................... 3,186,126 1,943,783 2,826,429
Deferred rental revenue .................................... (697,047) (1,321,837) (1,217,697)
(Increase) decrease in assets:
Receivables, prepaids and other assets .................. (4,010,596) (691,787) 40,372
(Decrease) increase in liabilities:
Accrued expenses and other liabilities .................. (4,146,577) 2,873,333 777,086
Security deposits ....................................... 173,552 304,547 421,848
------------- ------------- -------------
Net cash provided by operating activities .................. 13,783,805 21,192,432 16,364,398
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of real estate assets ............................ (21,032,951) -- (74,232,052)
Acquisitions of and improvements to real estate assets held
for transfer to New Venture ................................ -- (15,145,322) --
Cash received for transfer of real estate assets to New
Venture .................................................... 5,277,002 11,250,000 --
Cash transferred with assets transferred to New Venture ....... (306,791) -- --
Prepaid acquisition costs refunded (paid) ..................... 479,419 (608,832) --
Disposal of real estate assets, net of selling expenses ....... 139,305,312 4,562,255 71,957,877
Improvements to real estate assets ............................ (47,066,583) (56,325,217) (39,730,980)
------------- ------------- -------------
Net cash provided by (used in) investing activities ........ 76,655,408 (56,267,116) (42,005,155)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage loans .................................. 16,919,774 22,371,095 35,645,000
Proceeds from secured senior credit facility .................. -- 6,099,963 5,913,930
Proceeds from secured mezzanine credit facility ............... -- 1,524,991 1,478,482
Proceeds from Portfolio loan .................................. 272,912,000 -- --
Repayment of mortgage loans ................................... (37,423,221) (711,591) (623,205)
Repayment of secured senior credit facility ................... (181,728,228) (1,632,730) (35,942,780)
Repayment of secured mezzanine credit facility ................ (62,521,799) (403,462) (8,985,695)
Repayment of Portfolio loan ................................... (14,851,566) -- --
Increase in restricted cash ................................... (865,176) (3,484,944) (3,321,274)
Deferred financing costs ...................................... (9,726,778) (1,431,948) (183,242)
Preferred distributions ....................................... (757,541) (1,113,093) (1,140,000)
Member distributions .......................................... (101,646,062) (7,610,848) (16,984,104)
Equity contributions, net ..................................... 55,811,879 19,909,557 51,841,493
Redemption of equity .......................................... -- (750,000) --
------------- ------------- -------------
Net cash (used in) provided by financing activities ........... (63,876,718) 32,766,990 27,698,605
------------- ------------- -------------
Net increase (decrease) increase in cash and cash equivalents . 26,562,495 (2,307,694) 2,057,848
Cash and cash equivalents, beginning of period ................ 6,160,768 8,468,462 6,410,614
------------- ------------- -------------
Cash and cash equivalents, end of period ...................... $ 32,723,263 $ 6,160,768 $ 8,468,462
============= ============= =============
F-54
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest......................................... $ 28,276,227 $ 34,362,662 $ 28,615,307
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Seller financing - 2nd Mortgage - One Mall..................... $ 2,750,000
Assumption of Mortgage IDS Loan - One Mall..................... 5,015,719
Capitalized Lease Obligation - Airport Park.................... 1,108,099
-------------
$ 8,873,818
=============
Seller financing - real estate held for transfer to New
Venture.................................................. $ 4,000,000
=============
Conversion of Series A convertible preferred membership
units....................................................... $ 18,322,550
=============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-55
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Wellsford/Whitehall Group, L.L.C. and subsidiaries (the "Company") was
formed in May 1999 by the then members of Wellsford/Whitehall Properties
II, L.L.C. ("Properties"). Properties was a joint venture between Wellsford
Commercial Properties Trust ("WCPT"), a subsidiary of Wellsford Real
Properties, Inc. ("WRP"), WHWEL Real Estate Limited Partnership ("WHWEL"),
an affiliate of The Goldman Sachs Group Inc. (the "Whitehall Members"), and
the Saracen Members (collectively, the "Properties' Members"). Properties
(formerly Wellsford/Whitehall Properties, L.L.C.) was formed on August 28,
1997 as a private real estate investment company. WCPT intends to qualify
as a real estate investment trust ("REIT").
On May 28, 1999, the Properties' Members assigned their interests in
Properties to the Company and two affiliates of WHWEL contributed two
office buildings, located in Warren, NJ with an aggregate value of
approximately $7.9 million in exchange for membership units. No other
changes occurred in the operations of the owned properties at that time.
On December 21, 2000, the Company's Members agreed to a number of
modifications to the existing operating agreement, and WRP and the
Whitehall Members entered into several other agreements. Among other items,
WRP and the Whitehall Members agreed to extend their capital commitments to
the Company for one year to December 31, 2001 and to provide an aggregate
of $10 million of additional financing or preferred equity to the Company
through December 2003, if required. All employees working on Company
business were transferred from WRP to WP Commercial, L.L.C. ("WP"), the new
management company, which is owned by affiliates of the Whitehall Members
and senior management of WP. Effective January 1, 2001, WP replaced WCPT as
the Manager of the Company on a day-to-day basis; certain major and
operational decisions require the consent of the Members. At the same time,
WHWEL transferred part of its interests in the Company to WP. WP also
provides management, construction, development and leasing services to the
Company as well as to third parties, including tenants of the Company,
based upon an agreed upon fee schedule and also provides such services to a
new venture organized by certain of the Whitehall Members ("New Venture").
The Company no longer pays a $600,000 annual administrative fee to WRP
after December 31, 2000. However, the Whitehall Members have agreed to
separately pay WRP fees for assets sold by the Company equal to 25 basis
points of the sales proceeds and up to 60 basis points (30 basis points are
deferred pending certain hurdles being reached) for each purchase of real
estate made by the New Venture until such purchases aggregate $400 million.
The Whitehall Members also returned to WRP approximately 2.1 million
warrants to purchase common shares of WRP.
Under the terms of the agreements, it is expected that the Company will not
purchase any new real estate assets, except in limited cases, to replace
certain assets being sold or assets that compliment presently owned real
estate assets. The Members have agreed to an orderly disposal of the
Company's assets over time and WCPT and the Whitehall Members agreed to a
buy/sell agreement effective after December 31, 2003 with respect to any
remaining assets. In connection with the agreements, the Company
transferred to the New Venture three previously acquired assets at costs
plus interest. These assets were held solely for the benefit of the New
Venture and were acquired for a total of $15.2 million, net of $4 million
seller financing on one asset. The assets are shown, net of aggregate
deposits of $11.3 million received by the Company in December 2000, on the
accompanying Consolidated Balance Sheets as real estate held for transfer
to New Venture. The transfer occurred on January 4, 2001 at an aggregate
amount of $16.5 million.
F-56
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ORGANIZATION AND BUSINESS (CONTINUED)
On May 15, 1998, thirteen office buildings located in suburban Boston with
an aggregate value of approximately $148.7 million were contributed to
Properties for a combination of cash, Series A convertible preferred
membership units and membership units (the "Saracen Transaction"). In
connection with this transaction, several shareholders of the Saracen
Companies (the "Saracen Members") were issued both Series A convertible
preferred membership units and membership units and Properties assumed a
mortgage loan on six of the properties aggregating approximately $68.3
million. On September 7, 2001, all of the holders of the Series A
Convertible preferred membership units exercised their conversion rights
and were issued membership units.
The Company will terminate on December 31, 2045, unless sooner by the
written consent of WHWEL, WXI/WWG Realty, L.L.C., W/W Group Holdings,
L.L.C., WP and WCPT or by the triggering of the aforementioned buy/sell
agreement.
At December 31, 2001, the Company owned 27 office properties, totaling
approximately 3,840,000 square feet, six drugstores totaling approximately
64,800 square feet, and approximately 34 acres of land under development.
The office properties are located in Northern New Jersey (13), Downtown and
Suburban Boston (10) and Suburban Baltimore and Washington, DC (4). The
drugstores are located in the Middle Atlantic (3) and Southern (3) regions
of the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries and Properties and its wholly owned subsidiaries for their
respective periods of ownership. All significant inter-company accounts and
transactions among the Company and Properties and their subsidiaries have
been eliminated in consolidation.
CASH AND CASH EQUIVALENTS. The Company considers all demand and money
market accounts and short-term investments in government funds with an
original maturity of three months or less when purchased to be cash and
cash equivalents.
RESTRICTED CASH. Restricted cash primarily consists of debt service reserve
balances.
REAL ESTATE AND DEPRECIATION. Real estate assets are stated at cost. Costs
directly related to the acquisition and improvement of real estate are
capitalized, including the purchase price, legal fees, acquisition costs,
interest, property taxes and other operational costs during the period of
development and until the lease up of the acquired development properties.
Ordinary repairs and maintenance items are expensed as incurred.
Replacements and betterments are capitalized and depreciated over their
estimated useful lives. Tenant improvements and leasing commissions are
capitalized and amortized over the terms of the related leases.
Depreciation is computed over the expected useful lives of the depreciable
property on a straight-line basis, principally 40 years for commercial
properties and 5 to 12 years for furnishings and equipment. Statement of
Financial Accounting Standard ("SFAS") 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" requires
that long-lived assets to be held and used be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Write downs as a result of
impairments have been shown as an adjustment to gains on dispositions in
the accompanying consolidated financial statements.
F-57
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED COSTS. Deferred costs consist primarily of costs incurred to
obtain financing. Such deferred financing costs are amortized over the
expected term of the respective agreements; such amortization is included
in interest expense in the accompanying Consolidated Statements of Income.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments
consist of cash and cash equivalents and long-term debt. The Company
believes that the carrying amount of cash and cash equivalents approximates
fair value due to the short maturity of this item. In addition, the Company
believes that the carrying values of its portfolio loan and certain
mortgages approximate fair values because such debt consists of variable
rate debt that reprices frequently. The Company believe that the fair
values of the remainder of the mortgage loans is in excess of their
carrying values, based upon various market data analysis.
PROFIT AND REVENUE RECOGNITION. Sales of real estate assets are recognized
at closing, subject to the receipt of down payments and other requirements
in accordance with applicable accounting guidelines. Commercial properties
are leased under operating leases. Rental revenue is recognized on a
straight-line basis over the terms of the respective leases.
INCOME TAXES. The Company is a limited liability company as were the
predecessor companies. In accordance with the tax law regarding such
entities, each of the Company's membership unit holders is responsible for
reporting their share of the Company's taxable income or loss on their
separate tax returns. Accordingly, the Company has recorded no provision
for Federal, state or local income taxes.
PER UNIT DATA. Net income per membership unit is computed based upon the
weighted average number of membership units outstanding during the period.
The assumed conversion of the Series A convertible preferred membership
units is dilutive in 1999, and anti-dilutive in 2001 and 2000.
ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the 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.
DERIVATIVE AND HEDGING ACTIVITIES. In June 1998, SFAS No. 133--Accounting
for Derivative Instruments and Hedging Activities was issued. In June 1999,
SFAS No. 137--Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133 (an
amendment of FASB Statement No. 133) was issued. SFAS No. 137 extended the
required date of adoption of SFAS No. 133 to the fiscal year beginning June
15, 2000. The Company has adopted SFAS No. 133 effective January 1, 2001.
SFAS No. 133 requires the Company to recognize all derivatives on the
balance sheet at fair market value. The Company's derivative investments
are primarily interest rate protection agreements which limit the base rate
of variable rate debt. The ineffective portion of a derivative's change in
fair market value is immediately recognized in earnings, if applicable. The
effective portion of the fair market value difference of the derivative is
reflected separately in shareholders' equity as other comprehensive loss.
F-58
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In October 2001, SFAS No. 144 -
Accounting for the Impairment or Disposal of Long-Lived Assets was issued.
SFAS No. 144 provides accounting guidance for financial accounting and
reporting for impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121 - Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 retains
the fundamental provisions of SFAS No. 121 related to the recognition and
measurement of the impairment of long-lived assets to be held and used. In
addition, SFAS No. 144 provides more guidance on estimating cash flows when
performing a recoverability test and establishes more restrictive criteria
to classify an asset as held for sale. The Company will adopt SFAS No. 144
on January 1, 2002. The Company has determined that the adoption of the new
statement will not have a material effect on the financial position or
results of operations of the Company.
RECLASSIFICATIONS. Certain reclassifications have been made to the prior
period presentation to conform with the current year.
F-59
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. COMMERCIAL PROPERTIES
The Company owns the following properties at December 31, 2001 and 2000:
Properties Collateralizing Portfolio Loan at December 31, 2001*
---------------------------------------------------------------
(amounts in thousands, except square foot amounts)
YEAR CONSTRUCTED/ GROSS INVESTMENT
SQUARE FEET (UNAUDITED) ----------------- ----------------
----------------------- REHABILITATED (000s)
PROPERTY LOCATION 2001 2000 (UNAUDITED) 2001 2000
-------- -------- ---- ---- ----------- ---- ----
1800 Valley Road .......... Wayne, NJ -- 56,000 1980 $ -- $ 5,520
Greenbrook Corporate Center Fairfield, NJ 201,000 201,000 1987 25,712 25,370
Chatham Executive Center .. Chatham, NJ -- 63,000 1972/1997 -- 10,898
300 Atrium Drive .......... Somerset, NJ 147,000 150,000 1983 19,551 19,214
400 Atrium Drive .......... Somerset, NJ 355,000 355,000 1985 36,136 35,395
500 Atrium Drive .......... Somerset, NJ 169,000 169,000 1984 21,108 21,144
700 Atrium Drive .......... Somerset, NJ 181,000 181,000 1985 18,735 18,167
Mountain Heights Center I . Berkeley Hts, NJ 183,000 183,000 1968/1986/1998 26,226 25,700
Mountain Heights Center II Berkeley Hts, NJ 123,000 123,000 1968/1986/2000 21,815 21,775
Garden State Exhibit Center Somerset, NJ 82,000 82,000 1968/1989 6,134 6,159
60/74 Turner Street ....... Waltham, MA 16,000 16,000 1970 2,154 2,154
117 Kendrick Street ....... Needham, MA 210,000 210,000 1963/2000 35,789 30,511
180/188 Mt Airy Road ...... Basking Ridge, NJ 104,000 104,000 1980 16,378 16,101
377/379 Campus Drive ...... Franklin Twp, NJ 199,000 199,000 1984 23,309 23,309
105 Challenger Road ....... Ridgefield Park, NJ 147,000 147,000 1992 21,269 21,231
79 Milk Street ............ Boston, MA 65,000 64,000 1920/1998/2000 14,284 13,224
24 Federal Street ......... Boston, MA 74,000 68,000 1921/1997/2000 21,069 19,806
401 North Washington ...... Rockville, MD 248,000 236,000 1972/2001 35,258 23,479
--------- --------- --------- ---------
2,504,000 2,607,000 344,927 339,157
--------- --------- --------- ---------
Properties Collateralizing the Nomura Loan at December 31, 2001*
----------------------------------------------------------------
(amounts in thousands, except square foot amounts)
YEAR CONSTRUCTED/ GROSS INVESTMENT
SQUARE FEET (UNAUDITED) ----------------- ----------------
----------------------- REHABILITATED (000s)
PROPERTY LOCATION 2001 2000 (UNAUDITED) 2001 2000
-------- -------- ---- ---- ----------- ---- ----
333 Elm Street............. Dedham, MA 48,000 48,000 1983 5,974 5,958
Dedham Place............... Dedham, MA 160,000 160,000 1987 28,302 27,328
128 Technology Center...... Waltham, MA 218,000 218,000 1986 37,302 36,250
201 University Avenue...... Westwood, MA 82,000 82,000 1982 10,363 10,363
7/57 Wells Avenue.......... Newton, MA 88,000 88,000 1982 12,651 12,407
75/85/95 Wells Avenue...... Newton, MA 242,000 242,000 1976/1986 41,663 41,559
--------- --------- --------- ---------
838,000 838,000 136,255 133,865
--------- --------- --------- ---------
F-60
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
COMMERCIAL PROPERTIES (CONTINUED)
Properties Collateralizing Other Mortgages or Unencumbered at December 31, 2001
-------------------------------------------------------------------------------
YEAR CONSTRUCTED/ GROSS INVESTMENT
SQUARE FEET (UNAUDITED) ----------------- ----------------
----------------------- REHABILITATED (000s)
PROPERTY LOCATION 2001 2000 (UNAUDITED) 2001 2000
-------- -------- ---- ---- ----------- ---- ----
Pointview Corporate Center. Wayne, NJ -- 564,000 1976/1998 $ -- $ 45,551
Morris Technology Center... Parsippany, NJ -- 257,000 1963/1977/2000 -- 32,170
600 Atrium Drive (land)**.. Somerset, NJ N/A N/A N/A 2,695 2,651
150 Wells Avenue........... Newton, MA -- 11,000 1987 -- 1,292
72 River Park.............. Needham, MA -- 22,000 1983 -- 2,638
70 Wells Avenue............ Newton, MA -- 29,000 1979 -- 3,930
160 Wells Avenue........... Newton, MA -- 19,000 1970/1997 -- 3,416
2331 Congress Street....... Portland, ME -- 24,000 1980 -- 2,158
100 Wells Avenue........... Newton, MA -- 21,000 1978 -- 2,556
Shattuck Office Center..... Andover, MA -- 63,000 1985 -- 7,833
150 Mount Bethel Road...... Warren, NJ 129,000 129,000 1981 9,059 8,056
McDonough Crossroads....... Owings Mills, MD 32,000 32,000 1988 3,842 3,840
Airport Park............... Hanover Twp, NJ 96,000 96,000 1979 13,637 12,503
Airport Park-Land**........ Hanover Twp, NJ N/A N/A N/A 3,028 2,354
One Mall North............. Columbia, MD 97,000 97,000 1978/1998 12,823 11,504
Oakland Ridge.............. Columbia, MD 144,000 144,000 1972 8,879 4,179
CVS........................ Essex, MD 10,125 N/A 2000 4,776 --
CVS........................ Pennsauken, NJ 12,150 N/A 2001 3,925 --
CVS........................ Runnemede, NJ 12,150 N/A 2001 4,134 --
CVS........................ Wetumpka, AL 10,125 N/A 2000 2,681 --
CVS........................ Richmond, VA 10,125 N/A 2001 3,194 --
CVS........................ Decatur, GA 10,125 N/A 2001 2,344 --
--------- --------- --------- ---------
562,800 1,508,000 75,017 146,631
--------- --------- --------- ---------
Total Commercial Properties 3,904,800 4,953,000 $ 556,199 $ 619,653
========= ========= ========= =========
- ----------
*The properties encumbered by the Nomura Loan will also be encumbered by the
Portfolio Loan once certain operating results are achieved and initial proceeds
are drawn from the Portfolio Loan related to these properties.
**Unencumbered.
No individual tenant aggregated greater than 8% of rental revenue in 2001.
In 2000, one telecommunications tenant aggregated 11% of rental revenue.
This tenant's lease was terminated during 2001 and the Company received
approximately $3,700,000 in lease termination fees.
The Company capitalizes interest related to buildings under renovation to
the extent such assets qualify for capitalization. Total interest incurred
and capitalized was $27,089,010 and $3,716,480, $33,004,102 and $8,953,903,
$28,627,209 and $5,867,396 respectively, for the years ended December 31,
2001, 2000 and 1999, respectively.
F-61
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
COMMERCIAL PROPERTIES (CONTINUED)
The Company sold the following buildings and properties:
YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
---- ---- ----
Number of buildings (including a small land parcel in 1999) 11 1 4
============ ============ ============
Net sales proceeds (approximate) .......................... $139,305,000 $ 4,562,000 $ 71,958,000
============ ============ ============
Gains on sales ............................................ $ 27,335,636 $ 238,829 $ 15,642,149
============ ============ ============
The Company recorded a $16,545,060 impairment provision during the year on
three assets; the Pointview Corporate Center, 2331 Congress St. and
McDonough Crossroads. The Pointview Corporate Center property and 2331
Congress St. were sold in September 2001 and May 2001, respectively.
4. LEASES
Office space in the properties is generally leased to tenants under lease
terms which provide for the tenants to pay base rents plus increases in
operating expenses in excess of specified amounts.
Non-cancelable operating leases with tenants expire on various dates
through 2024. The future minimum lease payments to be received under leases
existing as of December 31, 2001, are as follows:
(amounts in thousands)
PROPERTIES COLLATERALIZING
--------------------------
PORTFOLIO NOMURA
FOR THE YEARS ENDED DECEMBER 31, TOTAL LOAN LOAN OTHER
- -------------------------------- ----- ---- ---- -----
2002............................ $ 62,262 $ 44,383 $ 11,012 $ 6,867
2003............................ 59,893 43,037 9,726 7,130
2004............................ 47,321 31,040 9,332 6,949
2005............................ 40,002 26,255 6,904 6,843
2006............................ 30,253 20,102 4,453 5,698
Thereafter...................... 83,930 35,621 7,572 40,737
--------- --------- -------- --------
Total........................... $ 323,661 $ 200,438 $ 48,999 $ 74,224
========= ========= ======== ========
The above future minimum lease payments do not include specified payments
for tenant reimbursements of operating expenses which amounted to
approximately $7,295,000, $7,895,000 and $6,543,000 for the years ended
December 31, 2001, 2000 and 1999, respectively. These amounts have been
included in rental income in the accompanying consolidated statements of
income.
F-62
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. GROUND LEASES
The leasehold interests in two buildings totaling 291,000 square feet and
15.22 acres of developable land are subject to ground leases. At December
31, 2001, aggregate future minimum rental payments under the leases which
expire in October 2066, April 2077 and January 2084, are as follows:
(amounts in thousands)
FOR THE YEARS ENDED DECEMBER 31, AMOUNT
-------------------------------- ------
2002........................ $ 216
2003........................ 218
2004........................ 231
2005........................ 233
2006........................ 234
Thereafter.................. 27,859
-------
Total....................... $28,991
=======
6. LONG TERM DEBT
The Company's long-term debt consisted of the following:
(amounts in thousands)
DECEMBER 31,
------------
DEBT MATURITY DATE 2001 2000
---- ------------- ---- ----
Portfolio Loan .................. June 2004 $258,060 $ --
Secured Senior Credit Facility .. December 2001 -- 181,728
Secured Mezzanine Credit Facility December 2001 -- 62,522
Nomura Loan ..................... February 2027 66,189 66,863
Other Mortgage Loans ............ May 2002 - January 2024 45,760 69,627
-------- --------
$370,009 $380,740
======== ========
In December 1997, the Company obtained a $375 million loan facility (the
"Prior Bank Facility") consisting of a secured term loan facility ("Secured
Term Loan") of up to $225 million and a secured revolving credit facility
("Secured Revolving Credit Facility") of up to $150 million. The term loan
facility bore interest at LIBOR + 1.60% and had a term of four years; the
revolving credit facility bore interest at LIBOR + 2.50% and had a term of
three years. Interest expense on the Prior Bank Facility was $7,456,062 in
1998.
In July 1998, the Company modified its then existing $375 million loan
facility with Fleet National Bank and Goldman Sachs Mortgage (the "Prior
Bank Facility") to provide for a secured senior credit facility ("Secured
Senior Credit Facility") of up to $300 million and a secured mezzanine
credit facility ("Secured Mezzanine Credit Facility") of up to $75 million
(collectively, the "Bank Facility"). The loans bore interest at LIBOR +
1.65% and LIBOR + 3.20%, respectively, and were due on December 15, 2001
after a one year extension granted under the terms of the existing
agreements, in December 2000. The proceeds from the Bank Facility were used
to repay amounts outstanding under the Prior Bank Facility. Interest
expense on the Secured Senior Credit Facility and the Secured Mezzanine
Credit Facility was $5,989,255 and $2,552,047, respectively, in 2001,
$14,929,905 and $6,122,440, respectively, in 2000 and $15,293,524 and
$6,088,260, respectively, in 1999.
F-63
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
LONG TERM DEBT (CONTINUED)
In June 2001, the Company obtained a loan with General Electric Capital
Real Estate for up to $353 million (the "Portfolio Loan"). The loan bears
interest at a rate of LIBOR + 2.90% and has an initial term of three years.
The loan also provides for two 12-month extension options, subject to
meeting certain operating and valuation covenants. The loan had an initial
funding of $273 million, before transaction costs, and the remaining
balance is available to be drawn to fund certain capital expenditures and
upon achieving certain operating results from six properties. The net
proceeds were used to repay amounts due under the Bank Facility and two
mortgages; the remainder was distributed to the Members. Interest expense
on the Portfolio Loan was $8,310,059 in 2001.
The 30-day LIBOR rate was 1.88%, 6.57% and 6.30%, respectively, on December
31, 2001, 2000 and 1999. The average 30-day LIBOR rate was 3.72%, 6.43% and
5.16%, respectively, for the years ended December 31, 2001, 2000 and 1999.
In connection with the Saracen transaction, the Company assumed a mortgage
loan held by Nomura Asset Capital Corporation in the original amount of
approximately $68.3 million (the "Nomura Loan"). The loan bears interest at
a rate of 8.03% and requires monthly payments of principal and interest
until maturity in February 2027.
In April 2001, the Company obtained mortgages on five of its owned
drugstores (the "Drugstore Mortgages"). The interest rate on the Drugstore
Mortgages is 7.28%, and matures in January 2024.
During 2000 and 1999, the Company obtained eight mortgages to acquire and
improve eight properties including one second mortgage provided by the
seller on one property (collectively, with the Drugstore Mortgages, the
"Other Mortgage Loans"). The interest rates on the Other Mortgage Loans
range from LIBOR + 2.05% to 10.50% and the maturity dates range from May
2002 to January 2024. Two of the Other Mortgage Loans were repaid in June
2001 in connection with obtaining the Portfolio Loan described above. The
Company expects to refinance the two mortgage loans maturing in 2002.
As of December 31, 2001 and 2000, the Company was in compliance with the
terms of covenants under all loan agreements.
Based upon various market analysis, the fair market value of the Company's
long term debt is approximately $396,976,000 and $380,740,000 at December
31, 2001 and 2000, respectively.
The aggregate maturities for the Company's long-term debt obligations for
each of the next five years and thereafter are as follows:
(amounts are in thousands)
PORTFOLIO OTHER MORTGAGE
FOR THE YEARS ENDED DECEMBER 31, TOTAL LOAN NOMURA LOAN LOANS
- -------------------------------- ----- ---- ----------- -----
2002 .......................... $ 10,082 $ -- $ 731 $ 9,351
2003 .......................... 13,884 -- 793 13,091
2004 .......................... 262,091 258,060 844 3,187
2005 .......................... 1,402 -- 931 471
2006 .......................... 1,518 -- 1,010 508
Thereafter..................... 81,032 -- 61,880 19,152
-------- -------- -------- --------
Total ......................... $370,009 $258,060 $ 66,189 $ 45,760
======== ======== ======== ========
F-64
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
LONG TERM DEBT (CONTINUED)
In July 2001, the Company entered into an interest rate protection
agreement (the "Cap") at a cost of $1,780,000, which limits 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 fair market value of the Cap
was approximately $1,089,000. The ineffective portion of the Cap's change
in fair market value was recorded as an adjustment to interest expense of
$17,347 in 2001. The effective portion of the Cap's change in fair market
value, which was recorded as an adjustment to other comprehensive loss
during 2001, is $525,560. An affiliate of the Whitehall Members is the
counterparty under the Cap. Prior to December 31, 2000 the Company entered
into two interest rate protection agreements (the "Prior Caps"). The first
interest rate protection agreement capped LIBOR at 7.50% for up to $300
million through March 15, 2001 and for up to $200 million through May 15,
2001. The other interest rate protection agreement, which was entered into
capped LIBOR at 7.69% for up to $64 million through June 15, 2000. The cost
of the Prior Caps was amortized over their lives. The interest rate swap
agreement fixed LIBOR at 5.90% for up to $220 million until May 15, 2000.
The amortization of the interest rate protection agreements and the net
settlement amount of the interest rate swap agreement, which was recorded
as an adjustment to interest expense in 2000 and 1999 aggregated
approximately $416,000 and $1,354,000, respectively.
7. TRANSACTIONS WITH AFFILIATES
As discussed in Note 1, WP performs management, development and leasing
services to the Company. The Company pays WP an administrative cost and
expense management fee equal to 0.93% of an agreed upon initial aggregate
asset value of $700 million of the Company's real estate assets. The fee
will be reduced six months after any asset is sold pursuant to an agreed
upon formula. The Company incurred an aggregate of $6,421,577 in 2001
related to these fees. Pursuant to the agreements discussed in Note 1, the
Company also pays WP for construction management, development and leasing
based upon a schedule of rates in which each geographic area the Company
operates. The Company incurred an aggregate of $1,786,814 in 2001 related
to these services. All amounts have been capitalized as part of real estate
assets.
Pursuant to the agreements discussed in Note 1, WP currently leases space
at three buildings owned by the Company and at one building previously
owned by the Company, which was sold in November 2001. Rental income under
those leases was $542,450 for the year ended December 31, 2001.
In connection with the formation of the Company in 1997 and the new capital
commitment from Whitehall in 1999, WRP issued warrants to Whitehall to
purchase a total of 2,128,098 shares of WRP's common stock at an exercise
price of $24.20 per share, payable in cash or in exchange for membership
units of the Company. These warrants were not exercised and were
surrendered on December 21, 2000, pursuant to the agreements discussed in
Note 1.
Affiliates of the Whitehall Members provide debt placement, environmental
and insurance services for the Company. During the years ended December 31,
2000 and 1999, these affiliates provided only environmental and insurance
services. The Company incurred $3,406,884, $590,014 and $203,069,
respectively, for these services for the years ended December 31, 2001,
2000 and 1999. In addition, an affiliate of the Whitehall Members is the
counter-party of the Cap discussed in Note 6.
Under the terms of the joint venture, WCPT, as managing member of the
Company, was entitled to an administrative fee of $600,000 per year for the
reimbursement of salaries and costs incurred relating to the operation of
the Company through December 31, 2000. Such fees were $600,000 in each of
the years ended December 31, 2000 and 1999, respectively.
F-65
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Company earned interest income of approximately $675,000 in 2000 at
LIBOR + 4.00% based upon the total investment in the three real estate
assets transferred to the New Venture on January 4, 2001, as discussed in
Note 1.
The Company incurred aggregate interest to WRP on short-term advances
during the years ended December 31, 2000 and 1999 of approximately $703,000
and $517,000, respectively. The interest rate charged was LIBOR + 5.00%.
Affiliates of the Saracen Members performed asset management and property
management services for the Company. Fees paid during 1999 amounted to
$495,000 which included asset management fees through January 21, 1999,
when the asset management agreement was terminated. Upon termination, the
Company agreed to pay $1 million in 2004, plus quarterly interest at 10%
per annum paid currently. Property management fees amounted to
approximately $337,000 and $528,000, respectively for the years ended
December 31, 2001 and 2000.
At December 31, 2001 the Company has approximately $742,000 payable to its
Members or their affiliates, and at December 31, 2000 the Company had
approximately $978,000 of receivables from its Members or their affiliates.
These amounts are in included accrued expenses and other liabilities and in
receivables, prepaids and other assets, respectively on the accompanying
consolidated balance sheets.
Affiliates of the Saracen Members lease space at 7/57 Wells Avenue. Revenue
related to these leases for the years ended December 31, 2001, 2000 and
1999, amounted to $47,258, $44,826 and $43,650, respectively.
See Notes 1, 6, 8 and 9 for additional related party interest information.
8. MEMBERS' EQUITY
WRP, through WCPT, and WP are entitled to receive incentive compensation,
payable out of distributions, made by the Company to WCPT and the Whitehall
members (the "Promote") after return of capital and minimum annual returns
of at least 15% to 17.5% on such capital balances to WCPT and Whitehall (as
defined in the Company's Operating Agreement). To date, neither WRP nor WP
have earned or received any distribution of the Promote.
At December 31, 2001, all capital commitments have been fully funded. WCPT
or WRP and the Whitehall Members have also agreed to contribute an
aggregate of $10 million on a revolving, as needed basis ("Revolving
Equity") through December 31, 2003. This Revolving Equity accrues dividends
at a rate of LIBOR + 5.00% and is senior to the membership units.
At the formation of the Company, 2,505,000 membership units were issued to
WCPT, representing its 50.1% interest, and 2,495,000 units were issued to
Whitehall, representing its 49.9% interest. Subsequently, an additional
3,771,780 and 9,060,287 units were issued to WCPT and Whitehall (603,768
and 3,376,668, respectively, in 2001), respectively, in connection with net
additional capital contributions used to fund acquisitions and renovations.
F-66
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
MEMBERS' EQUITY (CONTINUED)
In connection with the Saracen Transaction, 468,557 membership units and
760,000 Series A convertible preferred membership units were issued to the
Saracen Members. The membership units were issued at a price of $16.22 per
membership unit. The Series A convertible preferred membership units were
convertible into membership units at a price of $18.65 per membership unit.
These units also provided for cumulative dividend payments of the greater
of (a) 6% or (b) the dividend payable to membership unitholders, calculated
on an as converted basis, payable quarterly in arrears, and had a
liquidation preference of $25.00 per Series A convertible preferred
membership unit plus accrued and unpaid distributions. In February 2000,
the Company redeemed the 16,717 membership units and 27,098 Series A
convertible preferred membership units held by one of the Saracen members
for an aggregate amount of $750,000.
In September 2001, the holders of the Series A convertible preferred
membership units exercised their conversion option; 982,286 membership
units were issued in connection with the conversion.
The number of membership units issued and outstanding are as follows:
DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
WCPT .......... 6,276,780 5,673,012 5,463,413
Whitehall ..... 11,555,287 8,178,620 7,279,111
Saracen Members 1,434,126 451,840 468,557
---------- ---------- ----------
Total ......... 19,266,193 14,303,472 13,211,081
========== ========== ==========
During 2001, 2000 and 1999, distributions of $103,352,145, $4,540,834 and
$19,284,324, respectively, were declared, of which $4,221,364, $2,253,520
and $5,323,534 remained unpaid at December 31, 2001, 2000 and 1999,
respectively.
9. COMMITMENTS AND CONTINGENCIES
Under the terms of the Company's joint venture agreement, Whitehall may
require the Company to sell any and all of its properties to an independent
third party purchaser, subject to certain restrictions. Subsequent to
December 31, 2003, Whitehall may trigger the sale of all of the Company's
membership units or remaining assets to either WCPT or Whitehall, subject
to certain conditions.
As of December 31, 2001, the Company has an obligation to perform certain
repair and maintenance items at the Pointview property pursuant to the
terms of the sale of the property, which occurred in September 2001. These
items are estimated to be approximately $671,000 in the aggregate, and are
shown in accrued expenses and other liabilities in the accompanying
consolidated balance sheets.
As a commercial real estate owner, the Company is subject to potential
environmental costs. At December 31, 2001, management of the Company is not
aware of any environmental concerns that would have a material adverse
effect on the Company's consolidated financial condition, consolidated
results of operations or consolidated cash flows.
From time to time, legal actions are brought against the Company in the
ordinary course of business. In the opinion of management, such matters
will not have a material effect on the Company's consolidated financial
condition, consolidated results of operations or consolidated cash flows.
F-67
WELLSFORD/WHITEHALL GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has management agreements with unaffiliated property management
companies to manage the operations of the properties. Management fees are
generally based on 2% to 3% of gross rentals collected and are generally
terminable on 30 days notice.
See Notes 1, 6, 7 and 8 for additional commitments and contingencies.
F-68
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(amounts in thousands, except square footage and units)
COST
INITIAL COST CAPITALIZED
UNITS/ -------------------------------- SUBSEQUENT
DATE YEAR SQUARE DEPRECIABLE BUILDING AND TO
DESCRIPTION ACQUIRED BUILT FEET LIFE LAND IMPROVEMENTS TOTAL ACQUISITION
----------- -------- ----- ---- ---- ---- ------------ ----- -----------
DEVELOPMENT
Blue Ridge -
Garden Apts Dec-
Denver, CO ...... 1997 1997 456 27.5 yrs $ 5,225 $ 36,339 $ 41,564 $ 201
Red Canyon -
Garden Apts Nov-
Denver, CO ...... 1998 1998 304 27.5 yrs 5,060 28,844 33,904 (196)
Silver Mesa -
Garden Apts Dec-
Denver, CO ...... 2000 2000 136 27.5 yrs 3,343 18,959 22,302 1
Green River -
Garden Apts Dec-
Denver, CO ...... 2001 2001 424 27.5 yrs 8,451 47,889 56,340 --
------- -------- -------- -------- --------
TOTAL
DEVELOPMENT ..... 1,320 22,079 132,031 154,110 6
======= -------- -------- -------- --------
OFFICE AND
INDUSTRIAL
Two properties- Feb-
Office/Industrial 1998 Var. 175,183 40 yrs 1,035 5,865 6,900 1,322
======= -------- -------- -------- --------
TOTAL ............. $ 23,114 $137,896 $161,010 $ 1,328
======== ======== ======== ========
TOTAL COST
-------------------------------- PROVISION
BUILDING AND FOR ACCUMULATED
DESCRIPTION LAND IMPROVEMENTS TOTAL IMPAIRMENT NET DEPRECIATION ENCUMBRANCE
----------- ---- ------------ ----- ---------- --- ------------ -----------
DEVELOPMENT
Blue Ridge -
Garden Apts
Denver, CO ...... $ 5,225 $ 36,540 $ 41,765 $ -- $ 41,765 $ 5,309 $ 32,917(A)
Red Canyon -
Garden Apts
Denver, CO ...... 5,060 28,648 33,708 -- 33,708 3,213 26,035(A)
Silver Mesa -
Garden Apts
Denver, CO ...... 3,343 18,960 22,303 -- 22,303 864 13,352(A)(B)
Green River -
Garden Apts
Denver, CO ...... 8,451 47,889 56,340 -- 56,340 -- 36,747(A)
--------- -------- -------- --------- -------- -------- --------
TOTAL
DEVELOPMENT ..... 22,079 132,037 154,116 -- 154,116 9,386 109,051
--------- -------- -------- --------- -------- -------- --------
OFFICE AND
INDUSTRIAL
Two properties-
Office/Industrial 1,035 7,187 8,222 (2,175)(C) 6,047 487 --(D)
--------- -------- -------- --------- -------- -------- --------
TOTAL ............. $ 23,114 $139,224 $162,338 $ (2,175) $160,163 $ 9,873 $109,051
========= ======== ======== ======== ======== ======== ========
- ----------
(A) Encumbrance balances exclude the Palomino Park Bonds, which are secured by
each phase. The balance of the Palomino Park Bonds was $12,680 at December
31, 2001.
(B) Debt is also collateralized by the condominium portion of the project with
a carrying amount of approximately $5,401; individual units are currently
held for sale.
(C) Provision for impairment relates to excess of carrying amounts over
estimated individual net sale prices of assets held for sale.
(D) These properties are unencumbered at December 31, 2001.
S-1
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
The following is a reconciliation of real estate assets and accumulated
depreciation:
(amounts in thousands)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---- ---- ----
REAL ESTATE
Balance at beginning of period.......... $ 123,201 $ 135,418 $ 134,239
Additions:
Acquisitions and transfers from
construction in progress.......... 56,340 22,302 7,238
Recovery of impairment reserve....... 2,550 -- --
Capital improvements................. 537 1,993 1,179
---------- ---------- ----------
182,628 159,713 142,656
Less:
Provision for impairment............. -- (4,725) --
Cost of real estate sold............. 22,465 (31,787) (7,238)
---------- ---------- ----------
Balance at end of period................ $ 160,163(A) $ 123,201 $ 135,418
========== ========== ==========
ACCUMULATED DEPRECIATION
Balance at beginning of period.......... $ 8,248 $ 6,584 $ 2,707
Additions:
Charged to operating expense......... 3,066 4,198 3,877
---------- ---------- ----------
11,314 10,782 6,584
Less:
Accumulated depreciation on real
estate sold....................... 1,441 2,534 --
---------- ---------- ----------
Balance at end of period............... $ 9,873(A) $ 8,248 $ 6,584
========== ========== ==========
- ----------
(A) The aggregate depreciated cost for federal income tax purposes was
approximately $3,200 less at December 31, 2001.
S-2
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
SCHEDULE IV
MORTGAGE NOTES ON REAL ESTATE
(amounts in thousands)
NOTES TYPE OF
RECEIVABLE SECURITY INTEREST RATE MATURITY DATE PAYMENT TERMS
---------- -------- ------------- ------------- -------------
277 Park Loan . Office(B) 12.00% May 2007(C) Interest Only
Patriot Loan .. Office(D) LIBOR + 4.75% July 2002 Principal & Interest(E)
Guggenheim Loan (F) 8.25% December 2005 Principal & Interest(G)
Other ......... Various Various Various Various
TOTAL .........
CARRYING TOTAL PRINCIPAL
AMOUNT SUBJECT TO
NOTES OF PRIOR CARRYING DELINQUENT
RECEIVABLE LIENS FACE AMOUNT AMOUNT(A) PAYMENTS
---------- ----- ----------- --------- --------
277 Park Loan . $320,994 $ 25,000 $ 25,000 $ --
Patriot Loan .. 72,514 5,000 4,973 --
Guggenheim Loan -- 4,128 3,612 --
Other ......... -- 1,200 1,200 1,200(H)
-------- -------- -------- --------
TOTAL ......... $393,508 $ 35,328 $ 34,785(I) $ 1,200
======== ======== ======== ========
- ----------
(A) The aggregate carrying amount for federal income tax purposes is equal to
the total face amount reflected in this schedule.
(B) This loan is secured by certain equity interests in an entity which owns a
52-story, approximately 1.75 million square foot office building in New
York, NY.
(C) This loan precludes prepayments until May 2003. From May 2003 to April
2006, a prepayment penalty based on a yield maintenance formula (as defined
in the related documents) is applicable. From May 2006 to maturity, no
prepayment penalty is applicable. The prior lien amount includes only
mortgage obligations.
(D) This loan is secured by a fee interest in an office property totaling
607,668 square feet located in Boston, MA.
(E) This loan commenced principal and interest payments in August 2001, prior
to which the loan terms provided for payments of interest only.
(F) This loan is secured by an equity interest in The Liberty Hampshire
Company, L.L.C.
(G) This loan has scheduled annual principal and interest payments (as defined
in the related documents).
(H) On January 18, 2002, a $1,200 note was repaid in full.
(I) Reconciliation of carrying amount:
Balance at January 1, 1999............... $ 124,707
Additions:
New loans............................. 49,295
Amortization of discount.............. 217
Deductions:
Collection of principal............... (112,741)
Contributions for joint venture
interests........................... (24,218)
-----------
Balance at December 31, 1999............. 37,260
Additions:
New loans............................. 32,961
Amortization of discount.............. 12
Deductions:
Collection of principal............... (32,409)
-----------
Balance at December 31, 2000............. 37,824
Additions:
New loans............................. 500
Amortization of discount.............. 50
Deductions:
Collection of principal............... (3,589)
-----------
Balance at December 31, 2001............. $ 34,785
===========
S-3