As filed with the Securities and Exchange Commission on December 3, 1997
Registration No. 333-32445
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 2
to
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
WELLSFORD REAL PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Governing Instruments)
610 Fifth Avenue
New York, New York 10020
(212) 333-2300
(Address and Telephone Number of Principal Executive Offices)
Edward Lowenthal
Wellsford Real Properties, Inc.
610 Fifth Avenue
New York, New York 10020
(212) 333-2300
(Name, Address and Telephone Number of Agent for Service)
-----------------------
Copies to:
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, New York 10104
(212) 541-2000
Attention: Alan S. Pearce, Esq.
Steven G. Scheinfeld, Esq.
-----------------------
Approximate date of commencement of the proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective.
-----------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
WELLSFORD REAL PROPERTIES, INC.
Cross Reference Sheet
Showing Location in Prospectus of Information Required by Items in Form S-11
Form S-11 Item No. and Heading Location or Caption in Prospectus
----------------------------- ---------------------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page
of Prospectus . . . . . . . . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . Inside Front Cover Page; Outside
Back Cover Page; Available
Information
3. Summary Information, Risk Factors
and Ratio of Earnings to
Fixed Charges . . . . . . . . . . . . . . Outside Front Cover Page;
Prospectus Summary; Risk
Factors; The Company
4. Determination of Offering Price . . . . . Outside Front Cover Page; Plan
of Distribution
5. Dilution . . . . . . . . . . . . . . . . Not Applicable
6. Selling Security Holders . . . . . . . . Not Applicable
7. Plan of Distribution . . . . . . . . . . Outside Front Cover Page; Plan
of Distribution
8. Use of Proceeds . . . . . . . . . . . . . Use of Proceeds
9. Selected Financial Data . . . . . . . . . Selected Consolidated Financial
Data
10. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . Management's Discussion and
Analysis of Financial Condition
and Analysis of Operations
11. General Information as to Registrant . . The Company; Management
12. Policy With Respect to Certain
Activities . . . . . . . . . . . . . . . The Company; Policies with
Respect to Certain Activities
13. Investment Policies of Registrant . . . . The Company; Policies with
Respect to Certain Activities
14. Description of Real Estate . . . . . . . Business and Properties of
Wellsford/Whitehall Properties,
L.L.C.; Business and Properties
of Wellsford Capital
Corporation; Business and
Properties of Wellsford Real
Properties, Inc.
15. Operating Data . . . . . . . . . . . . . Business and Properties of
Wellsford/Whitehall Properties,
L.L.C.; Business and Properties
of Wellsford Capital
Corporation; Business and
Properties of Wellsford Real
Properties, Inc.
16. Tax Treatment of Registrant and its
Security Holders . . . . . . . . . . . Certain United States Federal
Income Tax Considerations
17. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . Dividend Policy; Price Range of
Common Stock and Dividend
History; Description of Capital
Stock; Shares Available for
Future Sale
18. Description of Registrant's
Securities . . . . . . . . . . . . . . . Description of Capital Stock;
Certain Provisions of Maryland
Law and of the Company's Charter
and Bylaws
19. Legal Proceedings . . . . . . . . . . . . Legal Proceedings
20. Security Ownership of Certain
Beneficial Owners and Management . . . . Principal Stockholders
21. Directors and Executive Officers . . . . Management
22. Executive Compensation . . . . . . . . . Management -- Executive
Compensation
23. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . Certain Transactions
24. Selection, Management and Custody of
Registrant's Investments . . . . . . . . Risk Factors; The Company;
Management; Principal
Stockholders
25. Policies With Respect to Certain
Transactions . . . . . . . . . . . . . . Certain Transactions
26. Limitations of Liability . . . . . . . . Certain Provisions of Maryland
Law and of the Company's Charter
and Bylaws -- Limitation of
Liability and Indemnification
27. Financial Statements and Information . . Prospectus Summary; Summary
Unaudited Consolidated Financial
Data; Financial Statements
28. Interests of Named Experts and
Counsel . . . . . . . . . . . . . . . . . Experts; Legal Matters
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . Certain Provisions of Maryland
Law and of the Company's Charter
and Bylaws -- Limitation of
Liability and Indemnification
<PAGE>
- -------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- -------------------------------------------------------------------------------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 3, 1997
PROSPECTUS
12,242,719 Shares
WELLSFORD REAL PROPERTIES, INC.
Common Stock
Wellsford Real Properties, Inc. (the "Company") was organized to create
and realize value by identifying and making opportunistic real estate
investments through the direct acquisition, rehabilitation, development,
financing and management of real properties and/or participation in these
activities through the purchase of debt instruments or equity interests of
entities engaged in such real estate businesses. Management is concentrating
its efforts on defining and building focused operating businesses with
recurring sources of income. The Company intends to maximize shareholder value
over time through growth in cash flow and net asset value per share.
All of the 12,242,719 shares (the "Shares") of Common Stock, $.01 par
value per share (the "Common Stock"), of the Company offered hereby are being
sold for the account of the Company's shareholders who acquired the Shares from
the Company in private placements, and for their beneficiaries, pledgees,
transferees, successors-in-interest and assignees (collectively, the "Selling
Shareholders"). See "Selling Shareholders." The Company will not receive any
of the proceeds from the sale of the Shares.
The Shares are listed on the American Stock Exchange (the "ASE") under the
symbol "WRP." On December 1, 1997, the last reported sale price of the
Company's Common Stock on the ASE was $15.50 per share.
Any sale by a Selling Shareholder will be made through customary brokerage
channels or private sales and may be made on the ASE, in the over-the-counter
market or otherwise at prices to be determined at the time of such sales. See
"Plan of Distribution."
No underwriter is being used in connection with the registration of the
Shares and, accordingly, the Shares are being offered without any underwriting
discounts. Normal brokerage commissions, discounts and fees are payable by the
Selling Shareholders.
See "Risk Factors" beginning on page 10 for certain factors relevant to an
investment in the Common Stock, including:
------------------------
o Competition in identifying and making investments and attracting tenants.
o The inability of the Company to obtain significant amounts of capital.
o Risks of excessive costs and delays associated with the acquisition,
development, construction and renovation of properties.
o Vacancies at existing properties.
o Lack of limitation on the amount of debt that may be incurred and risks
of highly leveraged investments.
o Risks associated with debt instruments held by the Company, including
possible payment defaults and reductions in the value of collateral.
o Risks associated with investments in junior secured obligations and
commercial mortgage-backed securities.
o Lack of control and risks associated with equity investments in and with
third parties.
o Illiquidity of the Company's real estate investments.
o The Company and certain of its affiliates are recently-formed entities
with little prior operating history.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION")
OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is December __, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
Business Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
Dividends to Holders of Common Stock . . . . . . . . . . . . . . . . . -7-
WELLSFORD REAL PROPERTIES, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . -8-
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
General Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
Difficulty of Locating Suitable Investments; Competition; Capital
Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
Risks of Acquisition, Development, Construction and Renovation
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
Risks of Vacancies at Existing Properties; Dependence on Rental
Income from Real Property. . . . . . . . . . . . . . . . . . . . . . .-11-
Operating Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . .-11-
Adverse Consequences of Debt Financing . . . . . . . . . . . . . . . .-12-
Risks of Investments in Debt Instruments . . . . . . . . . . . . . . .-13-
Risks of Investments in Mortgage and Other Loans . . . . . . . . . . .-13-
Lack of Control and Other Risks of Equity Investments in
and with Third Parties . . . . . . . . . . . . . . . . . . . . . . . .-13-
Risk of Loss on Investments in Commercial Mortgage-Backed
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-14-
Failure to Consummate Value Merger; Potential Adverse Effects of
Value Merger; Failure to Obtain Anticipated Benefits from Value
Merger; Failure to Consummate Sale of Certain Value Properties . . . .-14-
Nature of Investments Made by the Company May Involve High Risk;
Illiquidity of Real Estate Investments . . . . . . . . . . . . . . . .-15-
Limitations on Remedies. . . . . . . . . . . . . . . . . . . . . . . .-15-
Third-Party Bankruptcy Risks . . . . . . . . . . . . . . . . . . . . .-15-
Recently Formed Entities . . . . . . . . . . . . . . . . . . . . . . .-16-
Risk of Registration Under Investment Company Act. . . . . . . . . . .-16-
Risks of Uninsured Loss. . . . . . . . . . . . . . . . . . . . . . . .-16-
Potential Environmental Liability Related to the Properties. . . . . .-16-
Dependence on Key Personnel. . . . . . . . . . . . . . . . . . . . . .-17-
Changes in Policies Without Shareholder Approval . . . . . . . . . . .-18-
Absence of Public Market; Risk of Changes in Stock Price . . . . . . .-18-
Costs of Compliance with the Americans with Disabilities Act
and Similar Laws . . . . . . . . . . . . . . . . . . . . . . . . . . .-18-
Noncompliance with Other Laws. . . . . . . . . . . . . . . . . . . . .-18-
Effect on Common Stock Price of Shares Available for Future Sale . . .-19-
Adverse Consequences of Failure of WCPT to Qualify as a REIT . . . . .-19-
Hedging Policies/Risks . . . . . . . . . . . . . . . . . . . . . . . .-20-
Anti-Takeover Effect Resulting From a Staggered Board,
Ability of the Company to Issue Preferred Stock and Certain
Provisions of Maryland Law . . . . . . . . . . . . . . . . . . . . . .-20-
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-21-
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-21-
Business Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . .-22-
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-24-
SELLING SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .-24-
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-26-
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY. . . . . . . . . . . . . .-26-
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-27-
WELLSFORD REAL PROPERTIES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . .-28-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND ANALYSIS OF OPERATIONS. . . . . . . . . . . . . . .-30-
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . .-30-
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . .-30-
BUSINESS AND PROPERTIES OF
WELLSFORD/WHITEHALL PROPERTIES, L.L.C.. . . . . . . . . . . . . . . . . . .-31-
Management and Operation of Wellsford Office . . . . . . . . . . . . .-31-
Wellsford Office Bridge Loan . . . . . . . . . . . . . . . . . . . . .-33-
Warrant Agreement and Other Rights of Whitehall Partner
to Acquire Common Stock. . . . . . . . . . . . . . . . . . . . . . . .-33-
Properties Owned by Wellsford Office . . . . . . . . . . . . . . . . .-34-
Cyanamid Office Portfolio. . . . . . . . . . . . . . . . . . . . . . .-34-
Greenbrook Corporate Center. . . . . . . . . . . . . . . . . . . . . .-35-
Chatham, New Jersey. . . . . . . . . . . . . . . . . . . . . . . . . .-36-
Atrium Properties. . . . . . . . . . . . . . . . . . . . . . . . . . .-37-
1275 K Street. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-39-
15 Broad Street. . . . . . . . . . . . . . . . . . . . . . . . . . . .-39-
BUSINESS AND PROPERTIES OF
WELLSFORD CAPITAL CORPORATION . . . . . . . . . . . . . . . . . . . . . . .-43-
Merger with Value Property Trust . . . . . . . . . . . . . . . . . . .-43-
Agreement to Convey Certain Value Real Properties. . . . . . . . . . .-43-
Wellsford Capital Assets . . . . . . . . . . . . . . . . . . . . . . .-44-
Value Properties to be Retained by the Company. . . . . . . . . . .-44-
BUSINESS AND PROPERTIES
OF WELLSFORD REAL PROPERTIES, INC.. . . . . . . . . . . . . . . . . . . . .-45-
277 Park Loan . . . . . . . . . . . . . . . . . . . . . . . . . . .-45-
Credit Facility to Affiliates of The Abbey Company, Inc.. . . . . .-45-
Sonterra Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . .-46-
Palomino Park. . . . . . . . . . . . . . . . . . . . . . . . . . . . .-46-
LINES OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-48-
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-48-
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES . . . . . . . . . . . . . . . .-49-
Investment Policies. . . . . . . . . . . . . . . . . . . . . . . . . .-49-
Financing Policies . . . . . . . . . . . . . . . . . . . . . . . . . .-50-
Policies with Respect to Other Activities. . . . . . . . . . . . . . .-50-
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-51-
Directors and Executive Officers . . . . . . . . . . . . . . . . . . .-51-
Key Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
Compensation of Directors. . . . . . . . . . . . . . . . . . . . . . .-53-
Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . .-53-
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . .-54-
Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . .-54-
1997 Management Incentive Plan . . . . . . . . . . . . . . . . . . . .-55-
Rollover Stock Option Plan . . . . . . . . . . . . . . . . . . . . . .-56-
Compensation Committee Interlocks and Insider Participation. . . . . .-56-
PRINCIPAL STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . .-56-
CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .-59-
CERTAIN AGREEMENTS BETWEEN
THE COMPANY AND ERP OPERATING PARTNERSHIP . . . . . . . . . . . . . . . . .-59-
Common Stock and Preferred Stock Purchase Agreement. . . . . . . . . .-59-
Registration Rights Agreement. . . . . . . . . . . . . . . . . . . . .-60-
Agreement Regarding Palomino Park. . . . . . . . . . . . . . . . . . .-61-
Credit Enhancement Agreement . . . . . . . . . . . . . . . . . . . . .-63-
DESCRIPTION OF CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . .-64-
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-64-
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-64-
Classification or Reclassification of Common Stock
or Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . .-65-
Power to Issue Additional Shares of Common Stock
and Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . .-65-
Class A Common Stock . . . . . . . . . . . . . . . . . . . . . . . . .-66-
Series A 8% Convertible Redeemable Preferred Stock . . . . . . . . . .-66-
Warrants and Other Rights of Whitehall Partner . . . . . . . . . . . .-70-
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S CHARTER AND BYLAWS. . . . . . . . . . . . . . . . . . . . . .-71-
Classification of the Board of Directors . . . . . . . . . . . . . . .-71-
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . .-71-
Business Combinations. . . . . . . . . . . . . . . . . . . . . . . . .-71-
Amendment to the Charter and Bylaws. . . . . . . . . . . . . . . . . .-72-
Merger, Consolidation, Sale of Assets. . . . . . . . . . . . . . . . .-72-
Dissolution of the Company . . . . . . . . . . . . . . . . . . . . . .-72-
Advance Notice of Director Nominations and New Business. . . . . . . .-72-
Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . .-73-
Limitation of Liability and Indemnification. . . . . . . . . . . . . .-73-
SHARES AVAILABLE FOR FUTURE SALE. . . . . . . . . . . . . . . . . . . . . .-74-
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . .-75-
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . .-79-
CERTAIN ERISA CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . . .-79-
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-81-
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-81-
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . .-81-
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . F-1
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Summary and under the captions "Risk
Factors," "Business and Properties of Wellsford/Whitehall Properties, L.L.C.,"
"Business and Properties of Wellsford Capital Corporation," "Business and
Properties of Wellsford Real Properties, Inc." and elsewhere in this Prospectus
constitute "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 under "Risk
Factors" herein: general economic and business conditions, which will, among
other things, affect demand for commercial and residential properties,
availability and credit worthiness of prospective tenants, lease rents and the
availability of financing; difficulty of locating suitable investments;
competition; risks of real estate acquisition, development, construction and
renovation; vacancies at existing commercial properties; dependence on rental
income from real property; adverse consequences of debt financing; risks of
investments in debt instruments, including possible payment defaults and
reductions in the value of collateral; risks associated with equity investments
in and with third parties, such as the investment in Wellsford/Whitehall
Properties, L.L.C., a joint venture with an affiliate of Goldman, Sachs & Co.;
risk that the merger with Value Property Trust will not be consummated, and if
consummated, that the sale to Whitehall Street Real Estate Limited Partnership
VII of certain Value properties will not be consummated; illiquidity of real
estate investments; lack of prior operating history; and other changes and
factors referenced in this Prospectus.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements included elsewhere in this Prospectus.
The Company began operations in January 1997 as a subsidiary of Wellsford
Residential Property Trust ("Wellsford Residential"), a Maryland real estate
investment trust. The Company began to operate independently following
consummation of a series of transactions, including the contribution (the
"Contribution") by Wellsford Residential of certain of its assets to the
Company, the distribution (the "Distribution") to the holders of common shares
of beneficial interest of Wellsford Residential of all of the shares of Common
Stock of the Company owned by Wellsford Residential, and the subsequent merger
(the "EQR Merger") of Equity Residential Properties Trust ("EQR"), a Maryland
real estate investment trust, into Wellsford Residential. As used in this
Prospectus, except where the context requires otherwise, "Company" means
Wellsford Real Properties, Inc., a Maryland corporation, and its subsidiaries.
The discussion in this Prospectus assumes, except where the context requires
otherwise, that (i) the contemplated merger with Value Property Trust
("Value"), a Maryland real estate investment trust, has been consummated and
(ii) the contemplated sale to Whitehall Street Real Estate Limited Partnership
VII ("Whitehall Property Buyer"), a discretionary real estate fund affiliated
with Goldman, Sachs & Co., of certain of the properties acquired by the Company
in the Value merger has been consummated.
The Company
The Company was organized to create and realize value by identifying and
making opportunistic real estate investments by the direct acquisition,
rehabilitation, development, financing and management of real properties and/or
participation in these activities through the purchase of debt instruments or
equity interests of entities engaged in such real estate businesses.
Management is concentrating its efforts on defining and building focused
operating businesses with recurring sources of income. The Company intends to
maximize shareholder value over time through growth in cash flow and net asset
value per share.
The Company believes that while liquidity has returned to many real estate
markets and that the supply and demand of many real estate asset classes are in
relative equilibrium, there are specific opportunities which are expected to
continue to exist because of market inefficiencies and impediments to
investment, such as transactional complexity, time-consuming regulatory
approvals, the prospect of no or limited immediate cash flow and a lack of
available property information and market information analysis. In this
regard, the Company is organized into three strategic business units, each
covering a separate line of business which management believes currently offers
such opportunities. They are (i) acquiring underperforming office and other
commercial properties below replacement cost, renovating and/or repositioning
them, and owning, operating and/or reselling such properties, (ii) investing in
real estate-related debt instruments with the potential for high yields or
returns more characteristic of equity ownership and (iii) engaging in selective
land and property development when justified by expected returns. As
opportunities emerge, the Company may in the future expand its real estate-
related businesses and activities.
The Company currently does not intend to qualify as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). Consequently, the Company has the flexibility to respond quickly
to opportunities without the structural limitations inherent in REITs and to
operate, when deemed advantageous by management, on a more highly leveraged
basis than most REITs. The Company does intend to elect REIT status for
certain of its subsidiaries or affiliates when management deems it beneficial
to the Company's shareholders. By not qualifying as a REIT under the Code
(which would require the Company to distribute each year at least 95% of its
net taxable income, excluding capital gains), the Company has the ability and
currently intends to retain for reinvestment its cash flow generated from
operations and to sell properties without the substantial income tax penalties
which may be imposed on REITs in such transactions. In addition, the Company
differs from opportunity funds that are typically structured as private
partnerships. In that regard, the business of the Company is conducted without
the payment of acquisition, disposition or advisory fees to general partners
which should result in additional cash flow being available for reinvestment as
well as mitigate the potential for conflicts of interest. In addition, unlike
investors in opportunity funds, the Company's shareholders are expected to have
enhanced liquidity through their ability to sell or margin their stock. The
Company also hopes to attract a broader range of investors because there is no
stipulated investment minimum. However, unlike REITs and opportunity funds,
the Company is subject to corporate level taxation.
The Company's management includes the co-founders of Wellsford
Residential, Jeffrey H. Lynford, Chairman, and Edward Lowenthal, President and
Chief Executive Officer, supported by a management team experienced in real
estate acquisitions, development, asset management and finance. The Company
believes that the over 50 years of combined experience of management in real
estate, capital markets and public company operations, their knowledge,
credibility and business relationships, and their demonstrated track record of
recognizing and profiting from emerging real estate trends should help the
Company accomplish its business objectives. In analyzing potential investments
and market trends and inefficiencies, management has reviewed, and will
continue to review, current economic and market information. From the
completion by Wellsford Residential of the initial public offering of its
common shares of beneficial interest in November 1992 (the "Wellsford
Residential IPO") until consummation of the EQR Merger in May 1997, Messrs.
Lynford and Lowenthal, through Wellsford Residential, acquired 69 multifamily
properties containing 16,332 units. From calendar year 1992 through calendar
year 1996, the revenues of Wellsford Residential and its predecessors increased
from $26.5 million to $131.8 million, representing a compounded annual growth
rate of approximately 49%, and earnings before interest, depreciation and
amortization ("EBITDA") of Wellsford Residential and its predecessors increased
from $13.8 million to $72.8 million, representing a compounded annual growth
rate of approximately 52%. In addition, investors who bought their common
shares of beneficial interest of Wellsford Residential ("Wellsford Common") in
the Wellsford Residential IPO, would have received an average annual return of
approximately 23.8% on their initial investment, based upon the closing market
price of a share of Wellsford Common on the New York Stock Exchange on May 30,
1997 (the date of the EQR Merger) and assuming all distributions received on
such shares of Wellsford Common were immediately reinvested in Wellsford
Common.
The Company has demonstrated its ability to benefit from management's
experience, business relationships and access to capital markets by the sale,
without the use of a placement agent, on June 2, 1997, of 12,000,000 shares of
Common Stock in a private placement (the "Private Placement") primarily to
institutional investors at a price per share equal to $10.30 (the book value
per share of Common Stock on the date of closing of the Private Placement), for
an aggregate purchase price of $123.6 million.
To date, management of the Company has implemented its business strategy
through the following transactions: (i) the formation, together with WHWEL
Real Estate Limited Partnership ("Whitehall Partner"), an affiliate of Goldman
Sachs & Co., of Wellsford/Whitehall Properties, L.L.C. ("Wellsford Office"), a
joint venture which currently owns and operates 11 office buildings containing
an aggregate of approximately 2.1 million square feet; (ii) the merger of
Wellsford Capital Corporation ("Wellsford Capital"), a wholly-owned subsidiary
of the Company, into Value, with the surviving entity becoming a wholly-owned
subsidiary of the Company (the "Value Merger"), which transaction is expected
to be consummated in January 1998; (iii) the sale by the Company and Wellsford
Capital to Whitehall Property Buyer of 14 of the 21 properties acquired
pursuant to the Value Merger, which transaction is expected to be consummated
immediately subsequent to the Value Merger; (iv) a $25 million subordinated
secured mezzanine loan with respect to a class A office building located at 277
Park Avenue, New York City; (v) a 50% junior participation in a $70 million
secured credit facility (the "Abbey Credit Facility") with an owner and
operator of office, industrial and retail properties in Southern California;
(vi) a $17.8 million mortgage on, and option to purchase, a 344-unit class A
residential apartment complex in Tucson, Arizona; and (vii) an approximate 80%
interest in Phases I, II and III of, and in options to acquire (at fixed
prices) and develop Phases IV and V of, a 1,880-unit class A multifamily
development in a suburb of Denver, Colorado. See "Business and Properties of
Wellsford/Whitehall Properties, L.L.C.", "Business and Properties of Wellsford
Capital Corporation" and "Business and Properties of Wellsford Real Properties,
Inc."
The Company has available various sources of capital and financing,
including (i) a two-year $50 million line of credit (extendible for one year)
from BankBoston, N.A. (formerly known as The First National Bank of Boston)
("BankBoston") and Morgan Guaranty Trust Company of New York ("Morgan
Guaranty") (the "Line of Credit") which initially bears interest at an annual
rate equal to LIBOR plus 175 basis points; (ii) the agreement by Whitehall
Partner to contribute up to an additional $50 million to Wellsford Office; and
(iii) the commitment of ERP Operating Limited Partnership, an Illinois limited
partnership of which EQR is the general partner and through which EQR conducts
substantially all of its operations ("ERP Operating Partnership"), to acquire
at the Company's option up to $25 million of the Company's Series A 8%
Convertible Redeemable Preferred Stock, $.01 par value per share (liquidation
preference of $25.00 per share) ("Series A Preferred"), each share of which is
convertible into Common Stock at a price of $11.124 (representing a premium of
8% in excess of the book value per share of the Common Stock on the date of the
EQR Merger) (the "ERP Preferred Commitment"). The ERP Preferred Commitment is
pledged as security for the Line of Credit. See "Description of Capital Stock
- - Series A 8% Convertible Redeemable Preferred Stock". In addition, Wellsford
Office is currently negotiating the terms of a $375 million loan facility,
consisting of a $225 million secured term loan facility and a $150 million
secured revolving credit facility. It is currently contemplated that loans
made under the $375 million loan facility will be secured by mortgages on
certain properties of Wellsford Office. There can be no assurance that such
loan facility will be consummated. See "Lines of Credit."
Risk Factors
Prospective investors should consider the matters discussed under "Risk
Factors" on page 10 of this Prospectus prior to any investment in the Company.
Some of the significant considerations include:
o Competition in identifying and making investments and attracting
tenants.
o The inability of the Company to obtain significant amounts of
capital.
o Risks of excessive costs and delays associated with the acquisition,
development, construction and renovation of properties.
o Vacancies at existing properties.
o Lack of limitation on the amount of debt that may be incurred and
risks of highly leveraged investments.
o Risks associated with debt instruments held by the Company, including
the possibility that borrowers may not be able to make payments when due, that
the value of collateral may be less than amounts owed and that interest rates
charged may be less than the Company's cost of funds.
o Risks associated with investments in mortgage loans and junior
secured obligations, including lack of control over the collateral and any
foreclosure procedures.
o Lack of control and risks associated with equity investments in and
with third parties.
o Risks associated with investments in commercial mortgage-backed
securities, resulting, in part, from the fact that the process of rating and
servicing such securities is difficult and existing credit support is
inadequate.
o Risk that the Value Merger will not be consummated, and if
consummated, that the sale to Whitehall Property Buyer of certain Value
properties will not be consummated.
o Illiquidity of the Company's real estate investments.
o The Company, Wellsford Office and Wellsford Capital are recently-
formed entities with little prior operating history.
o Risk that the Company may have to register as an "investment company"
under the Investment Company Act of 1940, as amended.
o Risks of uninsured loss at the Company's properties.
o Potential liability for unknown or future environmental liabilities.
o The Company is dependent primarily upon the efforts of its Chairman
of the Board and its President and Chief Executive Officer.
o The ability of the Company's Board of Directors to amend or revise
the Company's investment and other policies without a vote of shareholders.
o The potential antitakeover effect of certain provisions of the
Company's Articles of Amendment and Restatement (the "Charter") and Maryland
law.
Business Strategy
In furtherance of its business strategy, the Company is organized into
three strategic business units, each covering a separate line of business. As
opportunities emerge, the Company may in the future expand or modify its real
estate-related businesses and activities.
Commercial Properties. The Company seeks to acquire commercial properties
below replacement cost and operate and/or resell the properties after
renovation, redevelopment and/or repositioning. The Company believes that
appropriate well-located commercial properties which are currently
underperforming can be acquired on advantageous terms and repositioned with the
expectation of achieving enhanced returns which are greater than returns which
could be achieved by acquiring a stabilized property.
The Company has agreed with Whitehall Partner 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
Office except, in certain circumstances, where Wellsford Office has declined
the investment opportunity. Wellsford Office currently focuses on acquiring,
redeveloping and developing office properties in the Northeast United States.
Wellsford Office seeks opportunistic acquisitions of office properties,
including underperforming or vacant properties, in excellent locations within
recovering markets, where management can create significant value through
adaptive reuse. See "Business and Properties of Wellsford/Whitehall
Properties, L.L.C.".
High Yield Debt Investments. The Company makes loans that constitute, or
will invest in real estate-related senior, junior or otherwise subordinated
debt instruments, which may be unsecured or secured by liens on real estate,
interests therein or the economic benefits thereof, and which have the
potential for high yields or returns more characteristic of equity ownership.
These investments may include debt that is acquired at a discount, mezzanine
financing, commercial mortgage-backed securities ("CMBS"), secured and
unsecured lines of credit, distressed loans, and loans previously made by
foreign and other financial institutions. The Company believes that there are
opportunities to acquire real estate debt securitized by the use of CMBS,
especially in the low or below investment grade tranches, at significant
returns as a result of inefficiencies in pricing, while utilizing management's
real estate expertise to analyze the underlying properties and thereby
effectively minimizing risk.
Property Development. The Company engages in selective development
activities as opportunities arise and when justified by expected returns. The
Company believes that by pursuing selective development activities it can
achieve returns which are greater than returns which could be achieved by
acquiring stabilized properties. Certain development activities may be
conducted in joint ventures with local developers who may bear the substantial
portion of the economic risks associated with the construction, development and
initial rent-up of properties. As part of its strategy, the Company may seek
to obtain bond financing from local governmental authorities which generally
bears interest at rates substantially below rates available from conventional
financing.
The Company may in the future make equity investments in entities owned
and/or operated by unaffiliated parties and which engage in real estate-related
businesses and activities or businesses that service the real estate industry.
Some of the entities in which the Company may invest may be start-up companies
or companies in need of additional capital. The Company may also manage and
lease properties owned by it or in which it has an equity or debt investment.
Investments
The Company has implemented its business strategy through the following
transactions:
o The formation on August 28, 1997 of Wellsford Office by the Company,
through its subsidiary, Wellsford Commercial Properties Trust ("WCPT"),
together with Whitehall Partner, an affiliate of Goldman, Sachs & Co. WCPT
intends to qualify as a REIT and has a 50.1% interest in Wellsford Office.
Wellsford Office currently focuses on acquiring, redeveloping and developing
office properties in the Northeast United States. Wellsford Office seeks
opportunistic acquisitions of office properties, including underperforming or
vacant properties, in excellent locations within recovering markets, where
management can create significant value through adaptive reuse.
Wellsford Office currently owns and operates 11 office buildings
containing an aggregate of approximately 2.1 million square feet in New Jersey
and Washington D.C. The Company contributed all six of its office buildings
containing an aggregate of approximately 949,400 square feet to Wellsford
Office, and Whitehall Partner contributed four office buildings and a contract
to purchase a fifth office building (which building has since been acquired by
Wellsford Office), containing an aggregate of approximately 1.1 million square
feet. It is currently contemplated that on or prior to December 15, 1997,
Whitehall Partner will contribute one additional office building located in
Boston containing approximately 67,000 square feet and an approximately 19 acre
parcel of land located in Northern New Jersey. Upon the acquisition of these
two properties, Wellsford Office will own 12 office buildings, 10 located in
Northern New Jersey, one in Washington, D.C. and one in Boston, containing an
aggregate of approximately 2.1 million square feet, and an approximately 19
acre vacant parcel of land located in Northern New Jersey.
WCPT manages the day-to-day business of Wellsford Office, but certain
decisions require the approval of Whitehall Partner. WCPT is entitled to
incentive compensation equal to (a) 17.5% of available cash after a return of
capital to WCPT and Whitehall Partner and a 17.5% return on equity to WCPT and
Whitehall Partner, and (b) 22.5% of available cash after a 22.5% return on
equity to WCPT and Whitehall Partner.
In connection with the formation of Wellsford Office, the Company issued
warrants (the "Warrants") to Whitehall Partner to purchase 4,132,230 shares of
Common Stock at an exercise price of $12.10 per share. The Warrants are
exercisable for five years for either, at the Company's option, shares of
Common Stock or cash. The exercise price for the Warrants is payable either
with membership units in Wellsford Office or cash.
o The Value Merger, pursuant to which the Company expects to acquire
Value for an aggregate of $130 million in cash and approximately 3,350,000
shares of Common Stock. Value currently (i) owns 21 office, industrial and
retail properties, (ii) holds approximately $64 million in cash, (iii) has
investments in mortgage loans aggregating approximately $6.7 million and (iv)
has approximately $85.5 million of net operating losses which should be
available to the Company, subject to various tax law limitations. The Value
Merger is expected to be consummated in January 1998.
Immediately subsequent to the Value Merger, the Company and Wellsford
Capital expect to sell to Whitehall Property Buyer for an aggregate purchase
price of approximately $65 million 14 of the 21 properties acquired pursuant to
the Value Merger. Subsequent to the sale, Wellsford Capital will own seven
properties (three office properties, two industrial properties, one
office/industrial property and one retail property), containing an aggregate of
approximately 600,000 square feet. These properties are located in the States
of New Jersey, New Hampshire, Massachusetts, Pennsylvania and California.
o The Term Loan Agreement with Wellsford Office, pursuant to which the
Company has agreed to provide loans of up to approximately $86.3 million to
Wellsford Office (collectively, the "Wellsford Office Bridge Loan"). The
Wellsford Office Bridge Loan presently bears interest at an annual rate equal
to LIBOR plus 400 basis points. The loans are due on February 25, 1998 and are
expected to be repaid by December 31, 1997. As of December 1, 1997,
approximately $83.4 million had been advanced by the Company.
o $25 million of an $80 million subordinated secured mezzanine loan
with respect to the approximately 1.74 million square foot, 52-story class A
office building located in mid-town Manhattan at 277 Park Avenue, New York City
(the "277 Park Loan"). The 277 Park Loan is payable in full in May, 2007 and
bears interest at the rate of approximately 12% per annum.
o A 50% junior participation in the Abbey Credit Facility, a $70
million secured credit facility with affiliates of The Abbey Company, Inc., an
owner and operator of office, industrial and retail properties in Southern
California. The Company is entitled to receive interest on its advances at an
annual rate of LIBOR plus 400 basis points. As of December 1, 1997,
approximately $48.4 million had been advanced pursuant to the Abbey Credit
Facility, of which the Company had advanced approximately $24.2 million.
o A $17.8 million mortgage loan on (the "Sonterra Loan"), and option
(the "Sonterra Option") to purchase for approximately $20.5 million through
December, 1997 and for $21 million during 1998, a 344-unit, newly constructed
class A residential apartment project located in Tucson, Arizona known as
"Sonterra at Williams Centre." The Sonterra Loan was originated in July 1996,
is payable in full on July 1, 1999 and bears interest at the rate of 9% percent
per annum.
o An approximate 80% interest in Phases I, II and III of, and in
options to acquire and develop Phases IV and V of, a 1,880-unit class A
multifamily development known as "Palomino Park," located on 182 acres, of
which 65 acres have been developed, in a suburb of Denver, Colorado. Palomino
Park is being constructed around a centrally located 24-acre park and has a
29,000-square-foot recreation center. Phase I consists of 456 units, all of
which have been constructed, approximately 94% of which are leased and
approximately 90% of which are occupied, as of December 1, 1997. Construction
on Phase II, which is to consist of 304 units, is expected to be completed in
late 1998 or early 1999. As of September 30, 1997, an aggregate of
approximately $21.9 million had been invested in Palomino Park, exclusive of
amounts advanced under the existing construction loans for Phases I and II.
ERP Operating Partnership has an approximate 20% interest in Palomino Park.
Dividends to Holders of Common Stock
The Company does not currently contemplate paying dividends on the Common
Stock. Earnings from the Company's investments are currently expected to be
reinvested by the Company in future acquisitions and investments. The Board of
Directors of the Company may determine in its discretion to pay dividends on
the Common Stock in the future, and any such determination will be dependent
upon the Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant at that time by the Company's
Board of Directors.
<PAGE>
WELLSFORD REAL PROPERTIES, INC.
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth the summary unaudited pro forma
consolidated financial data for the Company, giving effect to the Wellsford
Office joint venture transaction, the origination of the Abbey Credit Facility,
the Value Merger, the sale of certain Value assets to Whitehall Property Buyer
and the acquisition of certain properties (600 Atrium Drive, 700 Atrium Drive
and 15 Broad Street) by Wellsford Office as if they had occurred on the dates
indicated herein, after giving effect to the pro forma adjustments described in
the notes to the unaudited pro forma consolidated financial statements included
elsewhere in this Prospectus.
The summary unaudited pro forma consolidated operating data are presented
as if the Wellsford Office joint venture transaction, the origination of the
Abbey Credit Facility, the Value Merger, the sale of certain Value assets to
Whitehall Property Buyer and the acquisition of certain properties (600 Atrium
Drive, 700 Atrium Drive and 15 Broad Street) by Wellsford Office had been
consummated on January 1, 1997 and January 1, 1996 for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively.
The summary unaudited pro forma consolidated balance sheet data are
presented as if the Value Merger, the sale of certain Value assets to Whitehall
Property Buyer and the acquisition of certain properties (600 Atrium Drive and
15 Broad Street) by Wellsford Office had been consummated on September 30,
1997. In the opinion of management, all adjustments necessary to reflect the
effects of the Value Merger, the sale of certain Value assets to Whitehall
Property Buyer and the acquisition of certain properties (600 Atrium Drive and
15 Broad Street) by Wellsford Office have been made.
The summary unaudited pro forma consolidated financial data should be read
in conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements and notes thereto and historical combined
financial statements and notes thereto of the Company included in this
Prospectus.
The summary unaudited pro forma consolidated operating and balance sheet
data are presented for comparative purposes only and are not necessarily
indicative of what the actual consolidated results of the Company would have
been for the periods and as of the date presented, nor does such data purport
to represent the results of future periods.
<PAGE>
Wellsford Real Properties, Inc.
Summary Consolidated Financial Data
Pro Forma Historical Pro Forma Historical
Nine Mos. Nine Mos. Year Year
Ended Ended Ended Ended
September 30, September 30, December 31, December 31,
1997 1997 1996 1996
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
(In thousands except per share data)
OPERATING DATA:
Revenues:
Rental income $3,710 $1,260 $4,547
Other income 0 0 0
Interest income 11,802 4,125 10,992 $757
Joint venture
income (993) 160 (3,656)
----------------------------------------------------
14,519 5,545 11,883 757
----------------------------------------------------
Expenses:
Property operating
and maintenance 1,137 241 1,490
Real estate taxes 458 106 572
General and administrative 1,521 1,521 0
Depreciation 611 221 773
Interest 0 0 574
Property management 122 18 199
----------------------------------------------------
3,849 2,107 3,608 0
----------------------------------------------------
Income before
income taxes 10,670 3,438 8,275 757
Provision for
income taxes 4,192 1,003 3,315
----------------------------------------------------
Net income $6,478 $2,435 $4,960 $757
====================================================
Net income per
common share $0.32 $0.14
============================
Weighted average
common shares
outstanding 20,262 16,912
============================
Pro Forma Historical Pro Forma Historical Historical
September 30, September 30,December 31, December 31,December 31,
1997 1997 1996 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
(In thousands)
BALANCE SHEET DATA:
Real estate
(prior to
depreciation) $58,219 $21,864 $21,306 $7,955
Mortgage notes
receivable $145,880 $145,880 $17,800 $0
Joint venture
investment $32,425 $32,425 $0 $0
Cash and cash
equivalents $4,033 $5,533 $0 $0
Restricted cash $6,717 $6,717 $5,520 $10,414
Total assets $253,264 $214,402 $44,760 $18,369
Total debt $24,755 $24,755 $14,755 $14,755
Total equity $218,750 $179,888 $30,005 $3,614
OTHER DATA:
Funds from
operations $8,284 $2,656 $7,326 $757 $0
EBITDA $15,992 $3,659 $15,329 $757 $0
Cash flows
from operating
activities $10,678 $6,245 $10,493 $5,517 $4,341
Cash flows
from investing
activities ($190,121) ($149,759) ($207,043) ($31,151) ($7,955)
Cash flows
from financing
activities $187,909 $149,047 $81,896 $25,634 $3,614
<PAGE>
RISK FACTORS
Ownership of the Common Stock involves the following material risks:
General Risks
If the properties of the Company, the properties of those entities in
which it invests or the properties of those entities to which it lends
(collectively, the "Properties") do not generate revenue sufficient to meet
operating expenses, including debt service and capital expenditures, the
financial condition and results of operations of the Company may be adversely
affected. The Company's financial condition and results of operations may also
be adversely affected by a number of other factors, including international and
domestic general economic climate and local real estate conditions (such as
oversupply of or reduced demand for space and changes in market rental rates);
the perceptions of prospective tenants of the safety, convenience and
attractiveness of the Properties; the ability of the owner to provide adequate
management, maintenance and insurance; energy and supply shortages; the ability
to collect on a timely basis all rent from tenants and interest from borrowers;
the expense of periodically renovating, repairing and reletting spaces; and
increasing operating costs (including real estate taxes and utilities) which
may not be passed through to tenants. Certain significant expenditures
associated with investments in real estate (such as mortgage payments, real
estate taxes, insurance and maintenance costs) are generally not reduced when
circumstances cause a reduction in rental revenues from the investment. If a
Property is mortgaged to secure the payment of indebtedness and if the Company
or the entity in which the Company invests or to which it lends is unable to
meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property or the exercise of other remedies by the mortgagee.
In addition, real estate values and income from properties are also affected by
such factors as compliance with laws, including tax laws, interest rate levels
and the availability of financing.
Difficulty of Locating Suitable Investments; Competition; Capital Requirements
Identifying, completing and realizing on real estate investments has from
time to time been highly competitive, and involves a high degree of
uncertainty. The Company competes for investments with many public and private
real estate investment vehicles, including financial institutions (such as
mortgage banks, pension funds and REITs) and other institutional investors, as
well as individuals. There can be no assurance that the Company will be able to
locate and complete investments which satisfy the Company's rate of return
objective or realize upon their value or that it will be able to fully invest
its available capital.
Many of those with whom the Company competes for investments and its
services are far larger than the Company, may have greater financial resources
than the Company and may have management personnel with more experience than
the officers of the Company.
The success of the Company's business strategy is dependent upon being
able to obtain significant amounts of equity capital and proceeds from
borrowings on terms financially advantageous to the Company. The inability of
the Company to obtain such equity capital and debt proceeds on such terms may
have a material adverse effect on the Company.
Risks of Acquisition, Development, Construction and Renovation Activities
Acquisition. The Company intends to acquire existing properties to the
extent that they can be acquired on advantageous terms and meet the Company's
investment criteria. Acquisitions of properties entail general investment
risks associated with any real estate investment, including the risk that
investments will fail to perform as expected, that estimates of the cost of
improvements to bring an acquired property up to standards established for the
intended market position may prove inaccurate and the occupancy rates and rents
achieved may be less than anticipated.
Development, Construction and Renovation. The Company also intends to
pursue the selective development of land and the development, construction and
renovation of commercial and residential properties for its own account or the
account of, or through, entities in which it owns an equity interest as
opportunities arise. Risks associated with the Company's development,
construction and renovation activities include the risks that: the Company may
abandon development opportunities after expending resources to determine
feasibility; construction and renovation costs of a project may exceed original
estimates; occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable; and development, construction,
renovation and lease-up may not be completed on schedule (including risks
beyond the control of the Company, such as weather or labor conditions or
material shortages) resulting in increased debt service expense and
construction costs. Development, construction and renovation activities are
also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy and other
required governmental permits and authorizations. These risks could result in
substantial unanticipated delays or expenses and, under certain circumstances,
could prevent completion of development, construction and renovation activities
once undertaken, any of which could adversely affect the financial condition
and results of operations of the Company. Properties under development or
acquired for development may generate little or no cash flow from the date of
acquisition through the date of completion of development and may experience
operating deficits after the date of completion. In addition, new development
and renovation activities, regardless of whether or not they are ultimately
successful, typically require a substantial portion of management's time and
attention. Any properties developed and renovated by the Company are subject
to the risks associated with the ownership and operation of real estate
described elsewhere in this section entitled "Risk Factors."
Risks of Vacancies at Existing Properties; Dependence on Rental Income from
Real Property
Wellsford Office currently owns 11 office buildings, three of which are
vacant. The occupied buildings are approximately 88% leased, as of December 1,
1997. In the future, the Company and Wellsford Office may acquire other
properties that are vacant or not fully leased. The Company and Wellsford
Office expect to incur significant costs, including those relating to leasing
commissions and tenant improvements, in connection with the leasing of these
properties and may be required to offer tenant concessions, including free
rental periods. The failure of the Company or Wellsford Office to lease these
properties in a timely manner and on economically favorable terms may have a
material adverse effect on the Company.
The Company's cash flow, results of operations and value of its assets
would be adversely affected if a significant number of tenants of the
Properties failed to meet their lease obligations or if the Company or the
owner of a Property were unable to lease a significant amount of space on
economically favorable terms. In the event of a default by a lessee, the owner
may experience delays in enforcing its rights as lessor and may incur
substantial costs in protecting its investment. The bankruptcy or insolvency
of a major tenant may have an adverse effect on a property. At any time, a
tenant may also seek protection under the bankruptcy laws, which could result
in rejection and termination of such tenant's lease and thereby cause a
reduction in the cash flow of the property. If a tenant rejects its lease, the
owner's claim for breach of the lease would (absent collateral securing the
claim) be treated as a general unsecured claim. Generally, the amount of the
claim would be capped at the amount owed for unpaid pre-petition lease payments
unrelated to the rejection, plus the greater of one year's lease payments or
15% of the remaining lease payments payable under the lease (but not to exceed
the amount of three years' lease payments). No assurance can be given that the
Properties will not experience significant tenant defaults in the future.
Operating Risks
The Properties are subject to operating risks common to the particular
property type, any and all of which may adversely affect occupancy or rental
rates. Such properties are subject to increases in operating expenses such as
cleaning; electricity; heating, ventilation and air-conditioning; elevator
repair and maintenance; insurance and administrative costs; and other general
costs associated with security, landscaping, repairs and maintenance. While
commercial tenants are often obligated to pay a portion of these escalating
costs, there can be no assurance that they will agree to pay such costs or that
the portion that they agree to pay will fully cover such costs. If operating
expenses increase, the local rental market may limit the extent to which rents
may be increased to meet increased expenses without decreasing occupancy rates.
To the extent rents cannot be increased or costs controlled, the cash flow of
the Company and its financial condition may be adversely affected.
Adverse Consequences of Debt Financing
Leverage. Some of the Company's real estate equity investments may
utilize a leveraged capital structure, in which case a third party lender would
be entitled to cash flow generated by such investments prior to the Company
receiving a return. As a result of such leverage, the Company would be subject
to the risks normally associated with debt financing, including the risk that
cash flow from operations and investments will be insufficient to meet required
payments of principal and interest, the risk that existing debt (which in most
cases will not have been fully amortized at maturity) will not be able to be
refinanced or that the terms of such refinancings will not be as favorable to
the Company and the risk that necessary capital expenditures for such purposes
as renovations and other improvements will not be able to be financed on
favorable terms or at all. While such leverage may increase returns or the
funds available for investment by the Company, it also will increase the risk
of loss on a leveraged investment. If the Company defaults on secured
indebtedness, the lender may foreclose and the Company could lose its entire
investment in the security for such loan. Because the Company may engage in
portfolio financings where several investments are cross-collateralized,
multiple investments may be subject to the risk of loss. As a result, the
Company could lose its interests in performing investments in the event such
investments are cross-collateralized with poorly performing or nonperforming
investments. In addition, recourse debt, which the Company reserves the right
to obtain, may subject other assets of the Company to risk of loss.
Existing Debt Maturities; Foreclosures. The Company anticipates that only
a portion of the principal of the Company's indebtedness outstanding from time
to time will be repaid prior to maturity. However, the Company may not have
sufficient funds to repay such indebtedness at maturity; it may therefore be
necessary for the Company to refinance debt through additional debt financing
or equity offerings. If the Company is unable to refinance this indebtedness
on acceptable terms, the Company may be forced to dispose of properties or
other assets upon disadvantageous terms, which could result in losses to the
Company and adversely affect the amount of cash available for further
investment.
Risk of Rising Interest Rates. The Company may incur indebtedness in the
future that also bears interest at a variable rate or may be required to
refinance its debt at higher rates. Outstanding advances under the Company's
Line of Credit bear interest at a variable rate. Accordingly, increases in
interest rates could increase the Company's interest expense and adversely
effect the financial condition and results of operations of the Company.
Covenants. Various credit facilities or other debt obligations may
require the Company to comply with a number of financial and other covenants on
an ongoing basis. Failure to comply with such covenants may limit the Company's
ability to borrow funds or may cause a default under its then-existing
indebtedness.
No Limitation on Debt. The Charter and Bylaws of the Company do not
contain any limitation on the amount of indebtedness the Company may incur.
The Company also has the ability to use a more highly leveraged business
strategy than typically used by REITs. Accordingly, the Company could become
highly leveraged, resulting in an increase in debt service that could increase
the risk of default on the Company's indebtedness.
Risks of Investments in Debt Instruments
The Company intends to originate and participate in debt investments and
may acquire performing or nonperforming debt investments. In general, debt
instruments carry the risk that borrowers may not be able to make debt service
payments or to pay principal when due, the risk that the value of any
collateral may be less than the amounts owed, the risk that interest rates
payable on the debt instruments may be lower than the Company's cost of funds,
and the risk that the collateral may be mismanaged or otherwise decline in
value during periods in which the Company is seeking to obtain control of the
underlying real estate. The Company is also dependent on the ability of the
borrowers to operate successfully their properties. Such borrowers and their
properties will be subject to the other risks affecting the ownership and
operation of real estate set forth in this section entitled "Risk Factors."
Some of the loans may be structured so that all or a substantial portion of the
principal will not be paid until maturity, which increases the risk of default
at that time.
It is anticipated that a substantial portion of the debt in which the
Company invests will not be rated by any nationally-recognized rating agency.
Generally, the value of unrated classes is subject to more fluctuation due to
economic conditions than rated classes. The Company's acquisition of credit
supported classes of securitizations which are unrated at the time of
acquisition and which have lower ratings may increase the risk of nonpayment or
of a significant delay in payments on these classes. Should rated assets be
downgraded, it may adversely affect their value and may adversely affect the
financial condition and results of operations of the Company.
Risks of Investments in Mortgage and Other Loans
To the extent the Company invests in mortgage and other loans, such loans
may or may not be recourse obligations of the borrower and generally will not
be insured or guaranteed by governmental agencies or otherwise. In the event
of a default under such obligations, the Company may have to foreclose on its
mortgage or other collateral or protect its investment by acquiring title to
the collateral and, in the case of mortgage loans, thereafter making
substantial improvements or repairs in order to maximize the collateral's
investment potential. Borrowers may contest enforcement of foreclosure or
other remedies, seek bankruptcy protection against such enforcement and/or
bring claims for lender liability in response to actions to enforce mortgage
and other obligations. Relatively high "loan-to-value" ratios and declines in
the value of the collateral may prevent the Company from realizing an amount
equal to its loan upon foreclosure.
The Company may participate in loans originated by other financing
institutions. As a participant, the Company may not have the sole authority to
declare a default under the loan or to control the collateral or any
foreclosure.
Any investments in junior secured obligations which are subordinate to
liens of senior secured obligations would involve additional risks, including
the lack of control over the collateral and any related foreclosure proceeding.
In the event of a default on a senior secured obligation, the Company may make
payments to prevent foreclosure on the lien of the senior lender without
necessarily improving the Company's position with respect to the subject
collateral. In such event, the Company would be entitled to share in the
proceeds only after satisfaction of the amounts due to the holder of the senior
secured obligation.
Lack of Control and Other Risks of Equity Investments in and with Third Parties
The Company may invest in "REITs" or other entities that invest in real
estate assets, including debt instruments and equity interests. In such cases,
the Company will be relying on the assets, investments and management of the
REIT or other entity in which it is investing. Such entities and their
properties will be subject to the other risks affecting the ownership and
operation of real estate and investment in debt set forth in this section
entitled "Risk Factors."
The Company may also co-invest with third parties through partnerships,
joint ventures or other entities, acquiring non-controlling interests in or
sharing responsibility for managing the affairs of a property, partnership,
joint venture or other entity and, therefore, will not be in a position to
exercise sole decision-making authority regarding the property, partnership,
joint venture or other entity. In this regard, it should be noted that the
Company has formed Wellsford Office together with Whitehall Partner. Although
the Company is responsible for managing the day-to-day business of Wellsford
Office, certain decisions require the approval of Whitehall Partner.
Investments in partnerships, joint ventures, or other entities may, under
certain circumstances, involve risks not present were a third party not
involved, including the possibility that the Company's partners or co-venturers
might become bankrupt or otherwise fail to fund their share of required capital
contributions, that such partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company, and that such partners or co-
venturers may be in a position to take action contrary to the instructions or
the requests of the Company and contrary to the Company's policies or
objectives. Such investments may also have the potential risk of impasse on
decisions, such as a sale, because neither the Company nor the partner or co-
venturer would have full control over the partnership or joint venture.
Consequently, actions by such partner or co-venturer might result in subjecting
properties owned by the partnership or joint venture to additional risk. In
addition, the Company may in certain circumstances be liable for the actions of
its third-party partners or co-venturers.
Risk of Loss on Investments in Commercial Mortgage-Backed Securities
As noted above, the Company may seek to invest in real estate-related debt
instruments, which may include CMBS. Many of the risks of investing in CMBS
reflect the risks of investing directly in the real estate securing the
underlying mortgage loans. This may be especially true in the case of
commercial mortgage securities secured by, or evidencing an interest in, a
single commercial mortgage loan or a relatively small or less diverse pool of
commercial mortgage loans. See "-Risks of Investments in Mortgage Loans."
The risks of investing in commercial mortgage securities include risks
that the existing credit support will prove to be inadequate, either because of
unanticipated levels of losses or, if such credit support is provided by a
third party, because of difficulties experienced by such provider. Delays or
difficulties encountered in servicing commercial mortgage securities may cause
greater losses and, therefore, greater resort to credit support than was
originally anticipated, and may cause a rating agency to downgrade a security.
The Company may acquire subordinated tranches of CMBS issuances. In
general, subordinated tranches of CMBS are entitled to receive repayment of
principal only after all principal payments have been made on more senior
tranches and also have subordinated rights as to receipt of interest
distributions. In addition, an active secondary market for such subordinated
securities is not as well developed as the market for certain other mortgage-
backed securities. Accordingly, such subordinated CMBS may have limited
marketability and there can be no assurance that a more efficient secondary
market will develop.
Failure to Consummate Value Merger; Potential Adverse Effects of Value Merger;
Failure to Obtain Anticipated Benefits from Value Merger; Failure to Consummate
Sale of Certain Value Properties
Consummation of the Value Merger is subject to certain specified closing
conditions, including the approval by holders of two-thirds of the outstanding
shares of Value. There can be no assurance that the Value Merger will be
consummated as contemplated, or if consummated, that costs or other factors
associated with the integration of the two companies will not adversely affect
future combined results of operations.
The Company expects to achieve certain benefits from the consummation of
the Value Merger, including operating efficiencies resulting from a reduction
of overhead. There can be no assurance that any such benefits anticipated from
the Value Merger will be achieved or, if achieved, will be as substantial as
anticipated. In addition, Wellsford Capital is expected to have net operating
loss carryovers available following consummation of the Value Merger, subject
to various tax law limitations. There can be no assurance that there will be
income of Wellsford Capital available to utilize such net operating loss
carryovers or that any of the net operating loss carryovers will ultimately be
available to Wellsford Capital.
The Company has also agreed to sell to Whitehall Property Buyer 14 of the
21 properties that are to be acquired pursuant to the Value Merger.
Consummation of the sale of the properties to Whitehall Property Buyer is not,
however, a condition to the closing of the Value Merger. In addition,
consummation of the sale of the properties to Whitehall Property Buyer is
subject to the prior satisfaction of certain conditions. There can be no
assurance that the sale of these properties will be consummated and that the
Company will receive the anticipated approximately $65 million in proceeds
therefrom.
Nature of Investments Made by the Company May Involve High Risk;
Illiquidity of Real Estate Investments
The Company may make investments in real estate-related assets and
businesses which have experienced severe financial difficulties, which
difficulties may never be overcome. Since the Company may only make a limited
number of investments and since many of the investments may involve a high
degree of risk, poor performance by one of the investments could severely
affect the financial condition and results of operations of the Company.
Equity and debt investments in real estate may be relatively illiquid.
Such illiquidity limits the ability of the Company to modify its portfolio in
response to changes in economic or other conditions. Illiquidity may result
from the absence of an established market for the investments as well as legal
or contractual restrictions on their resale by the Company. Pursuant to the
terms of the operating agreement of Wellsford Office, the Company may not
transfer its interest in Wellsford Office, the properties owned by Wellsford
Office may not be sold or financed, nor may Wellsford Office issue equity or
debt securities, in each case without the approval of Whitehall Partner. See
"Business and Properties of Wellsford/Whitehall Properties, L.L.C. - Management
and Operation of Wellsford Office."
Limitations on Remedies
Although the Company will have certain contractual remedies upon the
default by borrowers under certain debt instruments, such as foreclosing on the
underlying real estate or other collateral or collecting rents generated
therefrom, certain legal requirements (including the risks of lender liability)
may limit the ability of the Company to effectively exercise such remedies.
The right of a mortgage lender to convert its loan position into an equity
interest may be limited or prevented by certain common law or statutory
prohibitions or delayed by legal proceedings.
Third-Party Bankruptcy Risks
Investments made in assets operating in workout modes or under Chapter 11
of the Bankruptcy Code could be subordinated or disallowed, and the Company
could be liable to third parties in such circumstances. Furthermore,
distributions made to the Company in respect of such investments could be
recovered if any such distribution is found to be a fraudulent conveyance or
preferential payment. Bankruptcy laws, including the automatic stay imposed
upon the filing of a bankruptcy petition, may delay the ability of the Company
to realize on collateral for loan positions held by it or may adversely affect
the priority of such loans through doctrines such as equitable subordination or
may result in a restructure of the debt through principles such as the
"cramdown" provisions of the bankruptcy laws.
Recently Formed Entities
It should be noted that the Company, Wellsford Office and Wellsford
Capital are recently formed entities with little prior operating history and
that their respective properties and assets have only been recently acquired.
Risk of Registration Under Investment Company Act
The Company is not registered as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"),
since management believes that the Company either is not within the definitions
of "investment company" thereunder or, alternatively, is excluded from
regulation under the Investment Company Act by one or more exemptions. In the
future, the Company will seek to continue to conduct its operations in a manner
intended not to require registration under the Investment Company Act.
Therefore, the assets that the Company may acquire or sell may be limited by
the provisions of the Investment Company Act. If the Company were to become an
investment company under the Investment Company Act and if it failed to qualify
for an exemption thereunder, it would be unable to conduct its business as
presently conducted which could have a material adverse effect on the Company
and the market price for the Common Stock.
Risks of Uninsured Loss
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to all of the properties that it owns, with
policy specifications, insured limits and deductibles customarily carried for
similar properties. There are, however, certain types of losses (such as
losses arising from acts of war or relating to pollution) that are not
generally insured because they are either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits
occur, the Company could lose its capital invested in a property, as well as
the anticipated future revenue from such property and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss would adversely affect the financial condition and
results of operations of the Company.
With respect to those properties in which the Company holds an interest
through a mortgage, as well as those properties owned by entities to whom the
Company makes unsecured loans, the borrowers will most likely be obligated to
maintain insurance on such properties and to arrange for the Company to be
covered as a named insured on such policies. The face amount and scope of such
insurance coverage may be less comprehensive than the Company would carry if it
held the fee interest in such property. Accordingly in such circumstances, or
in the event that the borrowers fail to maintain required coverage, uninsured
or underinsured losses may occur, which could have an adverse impact on the
Company's cash flow or financial condition.
Potential Environmental Liability Related to the Properties
Under various Federal, state and local laws, ordinances and regulations,
an owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
These laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's
liability therefor as to any property is generally not limited under such
enactments and could exceed the value of the property and/or the aggregate
assets of the owner. The presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
sell or rent such property or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at a disposal or treatment facility, whether or not such facility is
owned or operated by such person. Certain environmental laws govern the
removal, encapsulation or disturbance of asbestos-containing materials ("ACM")
when such materials are in poor condition, or in the event of renovation or
demolition. Such laws impose liability for release of ACM into the air and
third parties may seek recovery from owners or operators of real properties for
personal injury associated with exposure to ACM. In this regard, it should be
noted that the main headquarters building at the Cyanamid Office Portfolio
contains ACM. The Company is currently proceeding with the removal of ACM in
such building. In addition, the operation and subsequent removal of certain
aboveground and underground storage tanks are also regulated by federal and
state laws. Leaking tanks may cause water or soil contamination for which an
owner could be liable. In connection with the ownership (direct or indirect),
operation, management and development of real properties, the Company may be
considered an owner or operator of such properties or as having arranged for
the disposal or treatment of hazardous or toxic substances, and, therefore,
potentially liable for removal or remediation costs, and other related costs,
including governmental fines and payments for injury to persons or property.
One property currently owned by Value and expected to be retained by the
Company following the Value Merger, located at 19-23 Keewaydin Drive in Salem,
New Hampshire, is contaminated with volatile organic compounds ("VOCs").
Monitoring of groundwater for VOCs is being performed pursuant to a groundwater
management permit issued by the New Hampshire Department of Environmental
Services to Value. In connection with the sale of the Newark Shopping Mall in
Newark, California, by Value on July 15, 1997, perchloroethylene soil and
groundwater contamination from tenant dry cleaning operations was identified.
The new owner of the Newark Shopping Mall has agreed to release and indemnify
Value from any liability arising in connection with environmental matters at
this site. This property has also been insured to protect against
environmental liability, which insurance specifically covers the
perchloroethylene contamination. It should also be noted that in connection
with such sale, Value retained a security interest in such property. In the
event the Company, as successor to Value, forecloses on such property and takes
actions falling outside of CERCLA's lender liability safe-harbor provisions,
the Company could be liable for environmental liabilities arising at such
property.
The properties described in this Prospectus that are owned by the Company
have had Phase I or similar environmental audits and subsequent soil sampling,
drinking or ground water analysis, radon testing or asbestos surveys, as
warranted. These analyses were performed by independent environmental
consultant companies and have not revealed the presence of any environmental
condition or liability that would have a material adverse effect on the
Company's business.
Dependence on Key Personnel
The Company is dependent primarily on the efforts of Jeffrey H. Lynford,
Chairman of the Board, and Edward Lowenthal, President and Chief Executive
Officer, and the loss of either of their services could have an adverse effect
on the operations of the Company. Mr. Lynford and Mr. Lowenthal have each
entered into employment agreements with the Company having a term ending
December 31, 2002. The Company also depends upon the services of other
individuals with expertise and experience in certain activities conducted by
the Company, and the loss of the services of any of these individuals could
also have an adverse effect on the operations of the Company.
Changes in Policies Without Shareholder Approval
The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, growth, debt,
capitalization and operations, will be determined by the Company's Board of
Directors. Although it has no present intention to do so, the Board of
Directors may amend or revise these policies at any time and from time to time
at its discretion without a vote of the shareholders of the Company. A change
in these policies could adversely affect the Company's financial condition,
results of operations and the market price of the Common Stock. See "Policies
with Respect to Certain Activities."
Absence of Public Market; Risk of Changes in Stock Price
As of December 1, 1997, there were 16,572,043 shares of Common Stock
issued and outstanding. Although a trading market for the Common Stock exists,
there can be no assurance that an active trading market for the Common Stock
will be sustained in the future. In the absence of an active public trading
market, an investor may be unable to liquidate his investment in the Company.
The prices at which the Common stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
depth and liquidity of the market for the Common Stock, investor perception of
the Company and its businesses, the Company's dividend policy, interest rates
and general economic and market conditions. Prices at which the Common Stock
may trade in the future cannot be predicted.
Costs of Compliance with the Americans with Disabilities Act and Similar Laws
Under the Americans with Disabilities Act of 1980 (the "ADA"), places of
public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with ADA requirements could require both structural and non-structural changes
to the properties in which the Company invests and noncompliance could result
in imposition of fines by the United States government or an award of damages
to private litigants. Although management of the Company believes that its
properties are substantially in compliance with present requirements of the
ADA, the Company may incur additional costs of compliance in the future. A
number of additional Federal, state and local laws exist which impose further
burdens or restrictions on owners with respect to access by disabled persons
and may require modifications to properties in which the Company invests, or
restrict certain further renovations thereof, with respect to access by
disabled persons. Final regulations under the ADA have not yet been
promulgated and the ultimate amount of the cost of compliance with the ADA or
other such laws is not currently ascertainable. While such costs are not
expected to have a material effect on the Company, they could be substantial.
If required changes involve greater expense than the Company currently
anticipates, the Company's financial condition and results of operations could
be adversely affected.
Noncompliance with Other Laws
Real estate properties are also subject to various Federal, state and
local regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that its properties are currently in material
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's results of
operations.
Effect on Common Stock Price of Shares Available for Future Sale
Sales of a substantial number of shares of the Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock. In addition, upon registration of the
12,242,719 Shares offered hereby, the Shares may be sold in the public markets
from time to time. Also, (i) 3,076,235 shares of Common Stock have been
reserved for issuance pursuant to the Company's stock option plans (options to
purchase 1,923,610 of such shares have been granted, 1,326,235 of which were
granted in replacement for former Wellsford Residential share options), (ii)
approximately 5,000,000 shares of Common Stock have been reserved for issuance
upon conversion of the Series A Preferred and Class A Common Stock, $.01 par
value per share ("Class A Common"), (iii) 4,349,715 shares of Common Stock have
been reserved for issuance upon exercise by Whitehall Partner of the Warrants
granted in connection with the formation of Wellsford Office and (iv) 3,350,000
shares of Common Stock will be issued in connection with consummation of the
Value Merger. In addition, 1,612,913 shares of Common Stock will be available
for issuance to Whitehall Partner upon its exchange of certain membership units
in Wellsford Office for shares of Common Stock, assuming a price per share of
Common Stock of $15.50 (the last reported sale price of a share of Common Stock
on the ASE on December 1, 1997). See "Business and Properties of
Wellsford/Whitehall Properties, L.L.C. - Management and Operation of Wellsford
Office - Warrant Agreement and Other Rights of Whitehall Partner to Acquire
Common Stock." When issued, these reserved or otherwise available shares and
shares subject to options will be available for sale in the public markets from
time to time pursuant to exemptions from registration requirements or upon
registration. No prediction can be made about the effect that future sales of
the Common Stock will have on the market prices of the Common Stock.
Adverse Consequences of Failure of WCPT to Qualify as a REIT
The Company, through its subsidiary, WCPT, has formed Wellsford Office.
The Company intends to operate WCPT so that WCPT qualifies as a REIT under the
Code, commencing with the calendar year ending December 31, 1997. Although
management of the Company believes that WCPT was organized and will operate in
such a manner, no assurance can be given that WCPT will be treated as so
organized or will be able to operate in a manner so as to qualify or remain so
qualified. Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited judicial
or administrative interpretations and the determination of various factual
matters and circumstances not entirely within the Company's control. For
example, in order to qualify as a REIT, at least 95% of WCPT's gross income in
any year must be derived from certain specified sources and WCPT must make
distributions to its shareholders aggregating annually at least 95% of its REIT
taxable income (excluding net capital gains). In addition, no assurance can be
given that legislation, new regulations, administrative interpretations or
court decisions will not change the tax laws with respect to qualification as a
REIT or the Federal income tax consequences of such qualification. The
Company, however, is not aware of any pending tax legislation that would
adversely affect WCPT's ability to operate as a REIT.
If WCPT fails to qualify as a REIT, WCPT will be subject to Federal income
tax (including any applicable alternative minimum tax) on its taxable income at
corporate rates. In addition, unless entitled to relief under certain
statutory provisions, WCPT will also be prohibited from becoming a REIT for the
four taxable years following the year during which qualification is lost.
Failure to be treated as a REIT would reduce the net earnings of WCPT available
for investment or distribution to the Company because of the additional tax
liability to WCPT for the year or years involved. To the extent that
distributions to the Company would have been made in anticipation of WCPT's
qualifying as a REIT, WCPT might be required to borrow funds or to liquidate
certain of its investments to pay the applicable taxes.
Hedging Policies/Risks
In connection with the financing of certain real estate investments, the
Company may employ hedging techniques designed to protect the Company against
adverse movements in currency and/or interest rates. While such transactions
may reduce certain risks, such transactions themselves may entail certain other
risks. Thus, while the Company may benefit from the use of these hedging
mechanisms, unanticipated changes in interest rates, securities prices, or
currency exchange rates may result in a poorer overall performance for the
Company than if it had not entered into such hedging transactions.
Anti-Takeover Effect Resulting From a Staggered Board, Ability of the Company
to Issue Preferred Stock and Certain Provisions of Maryland Law
The Company's Board of Directors is divided into three classes. The
initial terms of the first, second and third classes will expire in 1998, 1999
and 2000, respectively. Beginning in 1998, directors for each class will be
chosen for a three-year term upon the expiration of their then current term,
and each year one class of directors will be elected by the shareholders. The
staggered terms for directors may limit the shareholders' ability to change
control of the Company even if a change of control were in the interests of
shareholders.
The Company's Charter authorizes the Board of Directors to establish one
or more series of preferred shares and to determine, with respect to any series
of preferred shares, the preferences and other terms of such series. Although
the Board of Directors has no intention at the present time, it could issue a
series of preferred shares that could, depending on the terms of such series,
impede or prevent a merger, tender offer or other transaction that some, or a
majority, of the Company's shareholders might believe to be in their best
interest or in which shareholders might receive a premium for their shares over
the then current market price of such shares.
Under the Maryland General Corporation Law ("MGCL"), certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation and any person who beneficially owns ten percent or more
of the voting power of the corporation's shares (an "Interested Stockholder")
or an affiliate thereof are prohibited for five years after the most recent
date on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, unless exempted in accordance with the MGCL, any such business
combination must be approved by two supermajority stockholder votes. The
directors of the Company have exempted from the Maryland statute any business
combinations with Jeffrey H. Lynford or Edward Lowenthal or any of their
affiliates or any other person acting in concert or as a group with any of such
persons and, consequently, the five-year prohibition and the supermajority vote
requirements will not apply to business combinations between such persons and
the Company. The directors of the Company have also exempted from the Maryland
statute any business combinations with Mutual Qualified Fund ("Mutual"), or any
affiliate of Mutual, provided that any such business combination is approved
prior to its consummation by the directors of the Company, including a majority
of the directors of the Company who are not employees or otherwise affiliated
with Mutual or any of its affiliates. See "Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws."
The provisions of the MGCL described above and the exemptions granted may
discourage a third party from making an acquisition proposal for the Company
and may have the effect of delaying, deferring or preventing a transaction with
or a change in control of the Company that might involve a premium price for
the Common Stock or otherwise be in the best interest of the stockholders.
Until May 30, 2007, pursuant to the Common Stock and Preferred Stock
Purchase Agreement between ERP Operating Partnership and the Company, the
Company has the right to direct the voting of all shares of the Series A
Preferred, the Class A Common and the Common Stock owned by ERP Operating
Partnership or any of its affiliates, except as to the election of the director
to be designated by ERP Operating Partnership or any matter relating to the
rights, preferences and privileges of the Series A Preferred or the Class A
Common. Such voting right may hinder a change in control.
THE COMPANY
General
The Company was organized to create and realize value by identifying and
making opportunistic real estate investments by the direct acquisition,
rehabilitation, development, financing and management of real properties and/or
participation in these activities through the purchase of debt instruments or
equity interests of entities engaged in such real estate businesses.
Management is concentrating its efforts on defining and building focused
operating businesses with recurring sources of income. The Company intends to
maximize shareholder value over time through growth in cash flow and net asset
value per share.
The Company believes that while liquidity has returned to many real estate
markets and that the supply and demand of many real estate asset classes are in
relative equilibrium, there are specific opportunities which are expected to
continue to exist because of market inefficiencies and impediments to
investment, such as transactional complexity, time-consuming regulatory
approvals, the prospect of no or limited immediate cash flow and a lack of
available property information and market information analysis. In this
regard, the Company is organized into three strategic business units, each
covering a separate line of business which management believes currently offers
such opportunities. They are (i) acquiring underperforming office and other
commercial properties below replacement cost, renovating and/or repositioning
them, and owning, operating and/or reselling such properties, (ii) investing in
real estate-related debt instruments with the potential for high yields or
returns more characteristic of equity ownership and (iii) engaging in selective
land and property development when justified by expected returns. As
opportunities emerge, the Company may in the future expand its real estate-
related businesses and activities.
The Company currently does not intend to qualify as a REIT under the Code.
Consequently, the Company has the flexibility to respond quickly to
opportunities without the structural limitations inherent in REITs and to
operate, when deemed advantageous by management, on a more highly leveraged
basis than most REITs. The Company does intend to elect REIT status for
certain of its subsidiaries or affiliates when management deems it beneficial
to the Company's shareholders. By not qualifying as a REIT under the Code
(which would require the Company to distribute each year at least 95% of its
net taxable income, excluding capital gains), the Company has the ability and
currently intends to retain for reinvestment its cash flow generated from
operations and to sell properties without the substantial income tax penalties
which may be imposed on REITs in such transactions. In addition, the Company
differs from opportunity funds that are typically structured as private
partnerships. In that regard, the business of the Company is conducted without
the payment of acquisition, disposition or advisory fees to general partners
which should result in additional cash flow being available for reinvestment as
well as mitigate the potential for conflicts of interest. In addition, unlike
investors in opportunity funds, the Company's shareholders are expected to have
enhanced liquidity through their ability to sell or margin their stock. The
Company also hopes to attract a broader range of investors because there is no
stipulated investment minimum. However, unlike REITs and opportunity funds,
the Company is subject to corporate level taxation.
The Company's management includes the co-founders of Wellsford
Residential, Jeffrey H. Lynford, Chairman, and Edward Lowenthal, President and
Chief Executive Officer, supported by a management team experienced in real
estate acquisitions, development, asset management and finance. The Company
believes that the over 50 years of combined experience of management in real
estate, capital markets and public company operations, their knowledge,
credibility, and business relationships, and their demonstrated track record of
recognizing and profiting from emerging real estate trends should help the
Company accomplish its business objectives. In analyzing potential investments
and market trends and inefficiencies, management has reviewed, and will
continue to review, current economic and market information. From the
Wellsford Residential IPO in November 1992 until consummation of the EQR Merger
in May 1997, Messrs. Lynford and Lowenthal, through Wellsford Residential,
acquired 69 multifamily properties containing 16,332 units. From calendar year
1992 through calendar year 1996, the revenues of Wellsford Residential and its
predecessors increased from $26.5 million to $131.8 million, representing a
compounded annual growth rate of approximately 49%, and EBITDA of Wellsford
Residential and its predecessors increased from $13.8 million to $72.8 million,
representing a compounded annual growth rate of approximately 52%. In
addition, investors who bought their shares of Wellsford Common in the
Wellsford Residential IPO would have received an average annual return of
approximately 23.8% on their initial investment, based upon the closing market
price of a share of Wellsford Common on the New York Stock Exchange on May 30,
1997 (the date of the EQR Merger), and assuming all distributions received on
such shares of Wellsford Common were immediately reinvested in Wellsford
Common.
There can be no assurance that the Company's future performance or average
rate of return achieved by its investors will be similar to Wellsford
Residential's past accomplishments or the average rate of return achieved by
its shareholders. The Company's business strategy differs substantially from
that of Wellsford Residential's which operated as a REIT and invested primarily
in multifamily properties.
The Company has demonstrated its ability to benefit from management's
experience, business relationships and access to capital markets by the sale,
without the use of a placement agent, on June 2, 1997, of 12,000,000 shares of
Common Stock in the Private Placement primarily to institutional investors at a
price per share equal to $10.30 (the book value per share of Common Stock on
the date of closing of the Private Placement), for an aggregate purchase price
of $123.6 million.
The Company is a Maryland corporation which was incorporated in January
1997. The Company's executive offices are located at 610 Fifth Avenue, New
York, New York 10020 and its telephone number is (212) 333-2300. As of
December 1, 1997, the Company had approximately 20 employees.
Business Strategy
In furtherance of its business strategy, the Company is organized into
three strategic business units, each covering a separate line of business. As
opportunities emerge and in response to changes in market, real estate and
general economic conditions, the Company may in the future retract from,
discontinue or expand its real estate related business and activities.
Commercial Properties. The Company seeks to acquire commercial properties
below replacement cost and operate and/or resell such properties after
renovation, redevelopment and/or repositioning. The Company believes that
appropriate well-located commercial properties which are currently
underperforming can be acquired on advantageous terms and repositioned with the
expectation of achieving enhanced returns which are greater than returns which
could be achieved by acquiring a stabilized property. The Company's
acquisitions to date demonstrate that the Company is able to take advantage of
existing opportunities in this area. The Company has hired Richard R. Previdi,
a former partner at Trammell Crow Co. with significant leasing and
redevelopment experience in major metropolitan areas from Washington, D.C. to
New York, to seek out such opportunities. Mr. Previdi serves as Chief
Operating Officer of WCPT.
The Company is currently seeking to apply its business strategy to office
properties. In this regard, the Company has formed Wellsford Office into which
the Company contributed all six of its office buildings located in Northern New
Jersey containing an aggregate of approximately 949,400 square feet, and
Whitehall Partner contributed or has agreed to contribute five office
buildings, an approximately 19 acre vacant parcel of land and a contract to
purchase a sixth office building (which building has since been acquired by
Wellsford Office), containing an aggregate of approximately 1.1 million square
feet. Of the buildings contributed by Whitehall Partner, four (and the vacant
parcel of land) are located in Northern New Jersey, one is located in Boston,
MA, and one is located in Washington, D.C. The Company has agreed that, except
in certain circumstances where Wellsford Office has declined the investment
opportunity, neither WCPT nor any of its affiliates (including the Company) may
make any investment in or otherwise own any commercial office building (but may
invest in or own other types of commercial properties) located in North
America, except through its interest in Wellsford Office. Wellsford Office
currently focuses on acquiring, redeveloping and developing office properties
in the Northeast United States. Wellsford Office seeks opportunistic
acquisitions of office properties, including underperforming or vacant office
properties, in excellent locations within recovering markets, where management
can create significant value through adaptive reuse. WCPT manages the day-to-
day business of Wellsford Office, with certain decisions requiring the approval
of Whitehall Partner. See "Business and Properties of Wellsford/Whitehall
Properties, L.L.C. - Management and Operation of Wellsford Office."
As opportunities arise, the Company may seek to acquire other types of
commercial properties, including industrial properties.
High Yield Debt Investments. The Company makes loans that constitute, or
will invest in real estate-related senior, junior or otherwise subordinated
debt instruments, which may be unsecured or secured by liens on real estate or
the economic benefits thereof. The Company focuses on investments of this type
which have the potential for high yields or returns more characteristic of
equity ownership. These investments may contain options to acquire, or be
convertible into the right to acquire, all or a portion of the underlying real
estate, or contain the right to participate in the cash flow and economic
return which may be derived from the real estate. These investments may
include debt that is acquired at a discount, mezzanine financing, commercial
mortgage-backed securities, secured and unsecured lines of credit, distressed
loans, and loans previously made by foreign and other financial institutions.
In some cases the Company may only acquire a participating interest in the debt
instrument. The Company believes that there are opportunities to acquire real
estate debt, especially in the low or below investment grade tranches, at
significant returns as a result of inefficiencies in pricing, while utilizing
management's real estate expertise to analyze the underlying properties and
thereby effectively minimizing risk. The Company is initially focusing on
opportunities arising in the following areas, among others. First, where
traditional CMBS buyers cannot or will not invest, such as the purchase of
subordinated real estate debt secured not by a mortgage but by other indicia of
ownership of an asset. Second, where the Company believes that the market has
mispriced an outstanding tranche of debt because of insufficient asset specific
information. The Company's investments in the 277 Park Loan, the Abbey Credit
Facility and the Sonterra Loan, demonstrate its ability to take advantage of
opportunities in this area. See "Business and Properties of Wellsford Real
Properties, Inc." The Company has hired William H. Darrow II, a former senior
executive at Banque Indosuez and Chemical Bank, with significant experience in
commercial real estate lending, to seek opportunities for this business unit.
Mr. Darrow serves as managing director of the Company.
Property Development. The Company engages in selective development
activities as opportunities arise and when justified by expected returns. The
Company believes that by pursuing selective development activities it can
achieve returns which are greater than returns which could be achieved by
acquiring stabilized properties. In this regard, the Company is continuing the
development of Palomino Park, its five-phase residential community begun by
Wellsford Residential, taking advantage of the fixed-price purchase options for
the land underlying such residential community originally obtained by Wellsford
Residential. This development may be retained for investment and operated by
the Company, sold, or converted to condominium ownership. The Company may also
acquire land for speculation, future development or subdivision. 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 obtain bond financing from local governmental
authorities which generally bears interest at rates substantially below rates
available from conventional financing. See "Business and Properties of
Wellsford Real Properties, Inc." David Strong, Vice President for Development
of the Company since its formation and a former Vice President of Wellsford
Residential, will seek opportunities for this business unit.
The Company may in the future make equity investments in entities owned by
third parties and which engage in real estate-related businesses and activities
or businesses that service the real estate industry. Some of the entities in
which the Company may invest may be start-up companies or companies in need of
additional capital. The Company may also in the future invest in retail,
residential, hotel and other types of properties and may also manage and lease
properties owned by it or in which it has an equity or debt investment.
In analyzing potential investments and market trends and inefficiencies,
management has reviewed, and will continue to review, current economic and
market information. Much of this information has been, and will continue to
be, provided by REIS Reports, Inc., a nationally recognized real estate market
database firm.
USE OF PROCEEDS
The Shares offered hereby are being registered for the account of Selling
Shareholders and, accordingly, the Company will not receive any of the proceeds
from the sale of the Shares by the Selling Shareholders.
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Shares by the Selling Shareholders as of December 1,
1997, and the number of Shares being offered by this Prospectus. Each Selling
Shareholder will receive all of the net proceeds from the sale of its
respective Shares offered hereby.
Number of
Shares
Beneficially
Owned and
Name of Selling Shareholder Being Registered
- --------------------------- ----------------
Longleaf Partners Realty Fund . . . . . . . . . . . . . 3,398,000
Mutual Qualified Fund . . . . . . . . . . . . . . . . . 2,277,184
Yale University . . . . . . . . . . . . . . . . . . . . 964,932
BancBoston Investments Inc. . . . . . . . . . . . . . . 811,000
SVP-RPC Joint Venture . . . . . . . . . . . . . . . . . 811,000
Morgan Stanley Institutional Fund U.S. Real
Estate Portfolio. . . . . . . . . . . . . . . . . . . . 654,898
Van Kampen American Capital LIT Real Estate Portfolio . 447,242
MS SICAV Real Estate. . . . . . . . . . . . . . . . . . 314,115
Morgan Stanley Real Estate Special Situations
Fund II, LP . . . . . . . . . . . . . . . . . . . . . . 210,146
Van Kampen American Capital Real Estate Securities Fund 199,020
MOAB Investments, L.P.. . . . . . . . . . . . . . . . . 173,600
Morgan Stanley Real Estate Special Situations
Fund I, LP. . . . . . . . . . . . . . . . . . . . . . . 157,609
Stichting Pensioenfonds ABP . . . . . . . . . . . . . . 156,032
Gary C. Comer . . . . . . . . . . . . . . . . . . . . . 151,300
Stichting Bedrijfspensioenfonds voor. . . . . . . . . . 104,023
J. Roderick MacArthur Foundation. . . . . . . . . . . . 97,000
Intermatic, Inc. Pension Trust. . . . . . . . . . . . . 97,000
The Eugenia II Investment Holdings LTD. - REIT. . . . . 63,630
Jesselson Foundation. . . . . . . . . . . . . . . . . . 60,000
Comer Foundation. . . . . . . . . . . . . . . . . . . . 48,500
Morgan Stanley Real Estate Special Situations Inc.. . . 48,334
Morgan Stanley U.S. Real Estate Portfolio . . . . . . . 45,351
Steven A. Karpf . . . . . . . . . . . . . . . . . . . . 38,840
Richard R. Previdi(1) . . . . . . . . . . . . . . . . . 38,840
Frederick P. Zarrilli. . . . . . . . . . . . . . . . . . 38,840
Lloyd G. Schermer as Trustee of the Lloyd G. Schermer
Declaration of Trust Dated 11/17/89 . . . . . . . . . . 38,800
Trust F/B/O A. Daniel Jesselson
U/W Ludwig Jesselson. . . . . . . . . . . . . . . . . . 37,000
Edward Lowenthal(2) . . . . . . . . . . . . . . . . . . 35,913
Jeffrey H. Lynford(3) . . . . . . . . . . . . . . . . . 35,913
Margery Germain(4). . . . . . . . . . . . . . . . . . . 30,101
Alice Albright Arlen, Trustee U/T/D 7/2/63 F/B/O Alice
Albright Arlen. . . . . . . . . . . . . . . . . . . . . 29,100
R.H. Newman Trustee or Successor Trustee under the R.H.
Newman Living Trust U/A/D 4/18/89 . . . . . . . . . . . 29,100
William M. Cockrum, Trustee of the William M. Cockrum
Trust dated 8/1/79(5) . . . . . . . . . . . . . . . . . 24,272
Susan Burkhardt Living Trust Dated 8/18/69. . . . . . . 19,400
Carol B. Cohen Trustee DTD 10/12/78 . . . . . . . . . . 19,400
Earl E. Segerdahl . . . . . . . . . . . . . . . . . . . 19,400
MRMB Charitable Remainder Trust II U/T/D 8/8/95 . . . . 19,400
Alice Albright Arlen. . . . . . . . . . . . . . . . . . 19,400
Octagon Capital Association . . . . . . . . . . . . . . 19,400
David B. Heller P/T Rollover IRA. . . . . . . . . . . . 19,400
James Amend . . . . . . . . . . . . . . . . . . . . . . 19,400
Betty A. Schermer as Trustee of the Betty A. Schermer
Declaration of Trust Dated 11/17/89 . . . . . . . . . . 19,400
Principal Asset Allocation Fund - Real Estate Account . 15,777
Bergman Charitable Trust/Betsy Lynn Rosenfield. . . . . 14,500
Bergman Charitable Trust/Robert Bergman . . . . . . . . 14,500
Richard C. Anderson . . . . . . . . . . . . . . . . . . 14,500
Bergman Charitable Trust/Carol Cohen. . . . . . . . . . 14,500
NTBG Gov Sec Endow I. . . . . . . . . . . . . . . . . . 14,500
Steven J. Stogel. . . . . . . . . . . . . . . . . . . . 12,000
Universal Funds - Real Estate Portfolio . . . . . . . . 11,007
Lloyd Schermer, IRA . . . . . . . . . . . . . . . . . . 9,700
Stephen C. Neal . . . . . . . . . . . . . . . . . . . . 9,700
Alicia M. Hoge Trust, D/T/D 12/30/83. . . . . . . . . . 9,700
NTBG Gov Sec Endow II . . . . . . . . . . . . . . . . . 9,700
The R.H.N. Corporation. . . . . . . . . . . . . . . . . 9,700
NTBG Gov Sec Endow III GVSEC 5-10 Yr. . . . . . . . . . 9,700
Barbara S. Bluhm. . . . . . . . . . . . . . . . . . . . 9,700
Douglas E. Cohen. . . . . . . . . . . . . . . . . . . . 9,700
Tanya Wexler Trust #18. . . . . . . . . . . . . . . . . 9,700
The Kampong Fund. . . . . . . . . . . . . . . . . . . . 9,700
Joseph P. Weil. . . . . . . . . . . . . . . . . . . . . 9,700
William C. Mitchell, IRA. . . . . . . . . . . . . . . . 9,700
J. Wexler Revocable Trust F/B/O Susan Wexler. . . . . . 9,700
Scott D. Cohen. . . . . . . . . . . . . . . . . . . . . 9,700
Carl C. Lang and Gail R. Lang . . . . . . . . . . . . . 4,400
Total . . . . . . . . . . . . . . . . . . . . . . 12,242,719
==========
(1) Mr. Previdi is the Chief Operating Officer of WCPT.
(2) Mr. Lowenthal is the President, the Chief Executive Officer and a director
of the Company and was the President, the Chief Executive Officer and a
trustee of Wellsford Residential.
(3) Mr. Lynford is the Chairman of the Board, the Secretary and a director of
the Company and was the Chairman of the Board, the Secretary and a trustee
of Wellsford Residential.
(4) Ms. Germain is the wife of Mark Germain, a director of the Company and a
former trustee of Wellsford Residential.
(5) Mr. Cockrum is an advisor to the Company and was an advisor to Wellsford
Residential.
DIVIDEND POLICY
The Company does not currently contemplate paying dividends on the Common
Stock. Earnings from the investments of the Company are currently expected to
be reinvested by the Company to finance future acquisitions and investments.
The Board of Directors of the Company may determine in its discretion to pay
dividends on the Common Stock in the future, and any such determination will be
dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant at that time by the
Company's Board of Directors.
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The Company's shares of Common Stock have been listed on the ASE since
June 2, 1997 under the symbol WRP. On December 1, 1997, the last reported sale
price of the shares of Common Stock on the ASE was $15.50. The following table
sets forth the high and low closing sale prices for the shares of Common Stock
for the fiscal periods indicated. No dividends were paid by the Company with
respect to such periods.
1997 High Low
---- ---- ---
June 2 to June 30 $11.19 $10.50
Third Quarter $16.13 $10.81
Fourth Quarter (through
December 1, 1997) $17.25 $14.81
As of December 1, 1997, the Company's transfer agent reported
approximately 303 record holders of Common Stock, and the Depository Trust
Company held Common Stock on behalf of approximately 6,000 beneficial owners.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 on a historical basis and as adjusted to give effect to the
Value Merger, the sale of certain Value assets to Whitehall Property Buyer and
the acquisition of certain properties (600 Atrium Drive and 15 Broad Street) by
Wellsford Office. The information set forth in the table should be read in
conjunction with the Company's combined financial statements and notes thereto,
the Company's consolidated financial statements and notes thereto and the
Company's pro forma consolidated financial statements and notes thereto, all of
which are included herein.
September 30, 1997
Actual As Adjusted
------ -----------
(In thousands)
DEBT:
Tax exempt mortgage note payable . . . . . . . . $14,755 $14,755
Credit facility. . . . . . . . . . . . . . . . . 10,000 10,000
------- --------
Total debt. . . . . . . . . . . . . . . . . . . 24,755 24,755
------- --------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value per share;
197,650,000 shares authorized - 16,572,043
and 19,922,043 shares issued and outstanding
at September 30, 1997 and as adjusted,
respectively . . . . . . . . . . . . . . . . . . 166 199
Class A Common Stock, $.01 par value per share;
350,000 shares authorized - 339,806 shares issued
and outstanding, as adjusted . . . . . . . . . . 3 3
Series A 8% Convertible Redeemable Preferred
Stock, $.01 par value per share; 2,000,000
shares authorized; no shares issued and
outstanding. . . . . . . . . . . . . . . . . . . -- --
Capital in excess of par value. . . . . . . . . . 178,288 217,117
Retained earnings . . . . . . . . . . . . . . . . 1,431 1,431
------- --------
Total stockholders' equity. . . . . . . . . . . 179,888 218,750
------- --------
Total capitalization. . . . . . . . . . . . . . $204,643 $ 243,505
======= ========
<PAGE>
WELLSFORD REAL PROPERTIES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth the selected unaudited pro forma
consolidated financial data for the Company, giving effect to the Wellsford
Office joint venture transaction, the origination of the Abbey Credit Facility,
the Value Merger, the sale of certain Value assets to Whitehall Property Buyer
and the acquisition of certain properties (600 Atrium Drive, 700 Atrium Drive
and 15 Broad Street) by Wellsford Office as if they had occurred on the dates
indicated herein, after giving effect to the pro forma adjustments described in
the notes to the unaudited pro forma consolidated financial statements included
elsewhere in this Prospectus.
The selected unaudited pro forma consolidated operating data are presented
as if the Wellsford Office joint venture transaction, the origination of the
Abbey Credit Facility, the Value Merger, the sale of certain Value assets to
Whitehall Property Buyer and the acquisition of certain properties (600 Atrium
Drive, 700 Atrium Drive and 15 Broad Street) by Wellsford Office had been
consummated on January 1, 1997 and January 1, 1996 for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively.
The selected unaudited pro forma consolidated balance sheet data are
presented as if the Value Merger, the sale of certain Value assets to Whitehall
Property Buyer and the acquisition of certain properties (600 Atrium Drive and
15 Broad Street) by Wellsford Office had been consummated on September 30,
1997. In the opinion of management, all adjustments necessary to reflect the
effects of the Value Merger, the sale of certain Value assets to Whitehall
Property Buyer and the acquisition of certain properties (600 Atrium Drive and
15 Broad Street) by Wellsford Office have been made.
The selected unaudited pro forma consolidated financial data should be
read in conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements and notes thereto and historical combined
financial statements and notes thereto of the Company included in this
Prospectus.
The selected unaudited pro forma consolidated operating and balance sheet
data are presented for comparative purposes only and are not necessarily
indicative of what the actual consolidated results of the Company would have
been for the periods and as of the date presented, nor does such data purport
to represent the results of future periods.
<PAGE>
Wellsford Real Properties, Inc.
Selected Consolidated Financial Data
Pro Forma Historical Pro Forma Historical
Nine Mos. Nine Mos. Year Year
Ended Ended Ended Ended
September 30, September 30, December 31, December 31,
1997 1997 1996 1996
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
(In thousands except per share data)
OPERATING DATA:
Revenues:
Rental income $3,710 $1,260 $4,547
Other income 0 0 0
Interest income 11,802 4,125 10,992 $757
Joint venture
income (993) 160 (3,656)
----------------------------------------------------
14,519 5,545 11,883 757
----------------------------------------------------
Expenses:
Property operating
and maintenance 1,137 241 1,490
Real estate taxes 458 106 572
General and
administrative 1,521 1,521 0
Depreciation 611 221 773
Interest 0 0 574
Property management 122 18 199
----------------------------------------------------
3,849 2,107 3,608 0
----------------------------------------------------
Income before
income taxes 10,670 3,438 8,275 757
Provision for
income taxes 4,192 1,003 3,315
----------------------------------------------------
Net income $6,478 $2,435 $4,960 $757
====================================================
Net income per
common share $0.32 $0.14
============================
Weighted average
common shares
outstanding 20,262 16,912
============================
Pro Forma Historical Pro Forma Historical Historical
September 30, September 30,December 31, December 31,December 31,
1997 1997 1996 1996 1995
---- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
(In thousands)
BALANCE SHEET DATA:
Real estate
(prior to
depreciation) $58,219 $21,864 $21,306 $7,955
Mortgage notes
receivable $145,880 $145,880 $17,800 $0
Joint venture
investment $32,425 $32,425 $0 $0
Cash and cash
equivalents $4,033 $5,533 $0 $0
Restricted cash $6,717 $6,717 $5,520 $10,414
Total assets $253,264 $214,402 $44,760 $18,369
Total debt $24,755 $24,755 $14,755 $14,755
Total equity $218,750 $179,888 $30,005 $3,614
OTHER DATA:
Funds from
operations $8,284 $2,656 $7,326 $757 $0
EBITDA $15,992 $3,659 $15,329 $757 $0
Cash flows
from operating
activities $10,678 $6,245 $10,493 $5,517 $4,341
Cash flows
from investing
activities ($190,121) ($149,759) ($207,043) ($31,151) ($7,955)
Cash flows
from financing
activities $187,909 $149,047 $81,896 $25,634 $3,614
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND ANALYSIS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Unaudited Consolidated Financial Data set forth above and the Consolidated and
Combined Financial Statements and Notes thereto included herein.
Results of Operations
Prior to the acquisition of Greenbrook and the 277 Park Loan during the
quarter ended June 30, 1997, the operations of the Company (and its
predecessor) during the nine months ended September 30, 1997 and the year ended
December 31, 1996 consisted of owning the Sonterra mortgage note receivable
originated in July, 1996 and developing two phases of the Palomino Park
multifamily community located in a suburb of Denver, Colorado with a total of
760 units under development.
During the quarter ended September 30, 1997, the Company consummated the
Wellsford Office joint venture transaction, participated in the Abbey Credit
Facility and executed a definitive Agreement and Plan of Merger with Value and
a Purchase and Sale Agreement with Whitehall Property Buyer.
Liquidity and Capital Resources
The Company expects to meet its short-term liquidity requirements
generally through its working capital and cash flow provided by operations.
The Company considers its ability to generate cash to be adequate and expects
it to continue to be adequate to meet operating requirements both in the short
and long terms.
The Company expects to meet its long-term liquidity requirements such as
refinancing mortgages, financing acquisitions and development, and financing
capital improvements and debt and equity investments in real estate companies
by long-term borrowings, through the issuance of debt and the offering of
additional debt and equity securities.
The Company has obtained a two-year $50 million credit facility from
BankBoston and Morgan Guaranty which is available to fund acquisitions, debt
and equity investments, development, capital expenditures, repayment of
indebtedness and related expenditures. The Line of Credit bears interest at an
annual rate of LIBOR plus 175 basis points and is extendible for an additional
one year. At September 30, 1997, the Company had $10 million outstanding on
the Line of Credit.
ERP Operating Partnership has agreed to acquire from the Company, at the
Company's option, up to $25 million of the Company's Series A Preferred, each
share of which is convertible into shares of Common Stock at a price of
$11.124, over the three-year period commencing on May 30, 1997. The ERP
Preferred Commitment is pledged as security for the Line of Credit. If, at May
30, 2000, ERP Operating Partnership has purchased less than $25 million of
Series A Preferred, ERP Operating Partnership has the right to purchase the
remainder of the $25 million of Series A Preferred not purchased prior to that
time.
In December 1995, the Company's predecessor marketed and sold $14.8
million of tax-exempt bonds to fund construction at Palomino Park. The bonds
have a variable rate of interest which is currently approximately 4% per annum
and a term of 40 years. At September 30, 1997, $2.5 million of the bond
proceeds were being held in escrow pending their use for the funding of
development. The bonds are backed by a letter of credit from Dresdner Bank,
AG, NY Branch ("Dresdner"). ERP Operating Partnership has made its own credit
available to Dresdner in the form of a guaranty. See "Certain Agreements
Between the Company and ERP Operating Partnership - Credit Enhancement
Agreement."
ERP Operating Partnership has also agreed to purchase the construction
loans on Phases I and II of Palomino Park for the lesser of the loan balance or
the final agreed upon budget in the event such loans are not satisfied when
due. See "Certain Agreements Between the Company and ERP Operating Partnership
- - Agreement Regarding Palomino Park."
Wellsford Office expects to meet its liquidity requirements, such as
financing renovations to the Wellsford Office properties, with operating cash
flow from its properties, equity contributions from the owners of Wellsford
Office, WCPT and Whitehall Partner, and the $375 million loan facility that
Wellsford Office is currently negotiating, consisting of a $225 million secured
term loan facility and a $150 million secured revolving credit facility. There
can be no assurance that such loan facility will be consummated.
BUSINESS AND PROPERTIES OF
WELLSFORD/WHITEHALL PROPERTIES, L.L.C.
On August 28, 1997, the Company, through its subsidiary, WCPT, formed
Wellsford Office together with Whitehall Partner, an affiliate of Goldman,
Sachs & Co. WCPT intends to qualify as a REIT and has a 50.1% interest in
Wellsford Office. Wellsford Office currently focuses on acquiring,
redeveloping and developing office properties in the Northeast United States.
Wellsford Office seeks opportunistic acquisitions of office properties,
including underperforming or vacant properties, in excellent locations within
recovering markets, where management can create significant value through
adaptive reuse. Wellsford Office's initial target markets include New York,
New Jersey, Connecticut and the Boston and Washington D.C. metropolitan areas.
Wellsford Office currently owns and operates 11 office buildings
containing an aggregate of approximately 2.1 million square feet in New Jersey
and Washington D.C. (each property owned or to be owned by Wellsford Office
called, a "Wellsford Office Property" and collectively, the "Wellsford Office
Properties"). The Company contributed all six of its office buildings to
Wellsford Office, and Whitehall Partner contributed four office buildings and a
contract to purchase a fifth office building, 700 Atrium, which was purchased
by Wellsford Office on September 25, 1997. It is currently contemplated that
on or prior to December 15, 1997, Whitehall Partner will contribute two
additional properties (the "Additional Properties") consisting of an office
building located in Boston and a vacant parcel of land located in Northern New
Jersey.
Management and Operation of Wellsford Office
The following describes certain aspects of the operating agreement of
Wellsford Office (the "Operating Agreement") entered into by WCPT and Whitehall
Partner. The following description does not purport to be complete and is
qualified in its entirety by reference to the full text of the Operating
Agreement, a copy of which has been filed with the Commission as an exhibit to
the Registration Statement of which this Prospectus is a part and is available
from the Company upon request.
Management; Power and Duties of Manager
The Operating Agreement provides that WCPT shall manage the day-to-day
business of Wellsford Office. Certain decisions of Wellsford Office, however,
require the approval of the management committee of Wellsford Office (the
"Management Committee"), which consists of four individuals from WCPT (each, a
"WCPT Committee Member") and four individuals from Whitehall Partner (each, a
"Whitehall Committee Member"). Decisions that require the affirmative approval
of no fewer than two WCPT Committee Members and two Whitehall Committee Members
include: requesting a member to make a cash contribution (a "Capital Call"),
except for Capital Calls for necessary expenditures, disposing of any property
or subsidiary, making loans, incurring any indebtedness or issuing any debt or
equity securities, acquiring any real property, or entering into a merger,
consolidation or other combination. Certain operational decisions, such as
making certain expenditures that exceed the applicable approved budget, require
the affirmative approval of no fewer than one WCPT Committee Member and
Whitehall Committee Member. Whitehall Partner may elect to remove WCPT as
manager for cause, appoint a new manager and thereafter require Wellsford
Office to sell any and all of the Wellsford Office Properties and cause the
sale of Wellsford Office as a whole.
Exclusivity
The Operating Agreement provides that until such time as Whitehall Partner
no longer owns at least a $10 million interest in Wellsford Office, neither
WCPT nor any of its affiliates (including the Company) may make any investment
in or otherwise acquire or own, directly or indirectly, any commercial office
building ("Office Property") located in North America, other than through its
interest in Wellsford Office, except for certain limited circumstances.
Capital Calls
Either WCPT or Whitehall Partner may request both members to make capital
contributions for necessary expenditures pro rata in accordance with their
percentage interest in Wellsford Office; provided, that neither WCPT nor
Whitehall Partner is required to contribute or lend any funds to Wellsford
Office for necessary expenditures (i) to the extent such member has previously
made capital contributions of at least equal to approximately $50 million
(other than the initial capital contributions of approximately $25 million made
by each of WCPT and Whitehall Partner), (ii) if such Capital Call is after
August 28, 1999 or (iii) at any time after an initial public offering by WCPT.
If either WCPT or Whitehall Partner fails to make a required capital
contribution, such member will be subject to dilution and customary "default"
provisions.
Distributions
WCPT is entitled to incentive compensation equal to (a) 17.5% of available
cash after a return of capital to WCPT and Whitehall Partner and a 17.5% return
on equity to each of them, and (b) 22.5% of available cash after a 22.5% return
on equity to WCPT and Whitehall Partner.
Transfer of Interests in Wellsford Office
The Operating Agreement provides that, with certain limited exceptions,
neither member may transfer, pledge or assign its interest in Wellsford Office
without the consent of the other member.
At any time prior to an initial public offering by WCPT and after August
28, 2001, either WCPT or Whitehall Partner may require Wellsford Office to sell
any and all of the Wellsford Office Properties.
At any time prior to an initial public offering by WCPT and after (i)
August 28, 2002 or (ii) WCPT or any of its affiliates have offered an
opportunity to Wellsford Office to purchase an Office Property and the
Whitehall Committee Members decline at least five of such opportunities each
having a purchase price of at least $15 million within a specified period of
time, then either WCPT or Whitehall Partner may require Wellsford Office to
sell any or all of the Wellsford Office Properties, and may require Wellsford
Office to be sold as a whole.
Conversion Right
Whitehall Partner has the right to require WCPT to convert part or all of
Whitehall Partner's membership units in Wellsford Office into shares of WCPT,
on a one-for-one basis, after WCPT shall have (i) shares of capital stock
issued to the public in a public offering or (ii) engaged in a merger, sale of
substantially all of its assets, or other capital transaction or an adoption of
a plan of liquidation or dissolution. Any shares in WCPT acquired by Whitehall
Partner pursuant to a conversion prior to an initial public offering of WCPT
may not be transferred unless Whitehall Partner first offers the Company the
opportunity to purchase such shares. If Whitehall Partner converts all of its
membership units at any time prior to an initial public offering by WCPT,
Whitehall Partner will be entitled to all of the same rights and powers with
respect to the management and governance of WCPT that Whitehall Partner has
been granted under the Operating Agreement.
Wellsford Office Bridge Loan
Contemporaneously with the initial contributions of the Wellsford Office
Properties, the Company entered into a Term Loan Agreement with Wellsford
Office pursuant to which the Company agreed to provide loans of up to
approximately $86.3 million. As of December 1, 1997, approximately $83.4
million had been advanced by the Company in connection with the acquisition of
the Wellsford Office Properties. Up to an additional $2.9 million may be
advanced in connection with the acquisition by Wellsford Office of the
Additional Properties to Wellsford Office. The Wellsford Office Bridge Loan
presently bears interest at an annual rate equal to LIBOR plus 400 basis
points. The Wellsford Office Bridge Loan is due on February 25, 1998 and is
expected to be repaid by December 31, 1997. It is currently anticipated that
the Wellsford Office Bridge Loan will be repaid from proceeds of a $375 million
loan facility, the terms of which Wellsford Office is currently negotiating.
See "Lines of Credit".
Warrant Agreement and Other Rights of Whitehall Partner to Acquire Common Stock
The Company issued Warrants to Whitehall Partner to purchase 4,132,230
shares of Common Stock at an exercise price of $12.10 per share. The Warrants
are exercisable for five years for either, at the Company's option, shares of
Common Stock or cash. The exercise price for the Warrants is payable either
with membership units in Wellsford Office or cash. The Company has indicated
that it does not currently intend to issue, upon the exercise of any Warrants,
Common Stock equal to 20% or more of its Common Stock outstanding on the date
of the issuance of the Warrants. The Company granted Whitehall Partner demand
registration rights at any time after June 1, 1998 and "piggy back"
registration rights at any time the Company proposes to file a registration
statement with the Commission, with respect to the Warrants and shares of
Common Stock issuable upon exercise of the Warrants. The Warrant Agreement
contains customary anti-dilution adjustment provisions.
In addition, Whitehall Partner may exchange membership units it receives
in Wellsford Office relating to capital contributions that may be made by
Whitehall Partner in Wellsford Office in excess of $50 million but less than
$75 million, for shares of the Company's Common Stock or, at the Company's
election, cash, based upon the price paid by Whitehall Partner for such
membership units and the then current market value of shares of Common Stock.
Properties Owned by Wellsford Office
Wellsford Office currently owns and operates 11 office buildings
containing an aggregate of approximately 2.1 million square feet. The Company
contributed all six of its office buildings (Point View Corporate Park
(containing two office buildings), 1700 Valley Road, 1800 Valley Road, the
Greenbrook Corporate Center and the Chatham office building), all of which are
located in Northern New Jersey, and Whitehall Partner contributed four office
buildings (300 Atrium Drive, 400 Atrium Drive, 500 Atrium Drive and 1275 K
Street), three of which are located in Northern New Jersey and one of which is
located in Washington, D.C., and a contract to purchase a fifth property (700
Atrium Drive), located in Northern New Jersey, which was acquired by Wellsford
Office on September 25, 1997. Three of the Wellsford Office Properties are
encumbered by a first mortgage lien securing loans in the aggregate principal
amount of approximately $48.1 million as of December 1, 1997; the other
Wellsford Office Properties are not encumbered by mortgage liens. As of
September 30, 1997, Wellsford Office (and the Company and Whitehall Partner, as
previous owners of the properties) had invested an aggregate of approximately
$5.5 million for renovation and repositioning of the properties. In the
opinion of the Company's management, all of the Wellsford Office Properties are
adequately covered by insurance.
It is currently contemplated that on or prior to December 15, 1997,
Whitehall Partner will contribute one additional office building located in
Boston containing approximately 67,000 square feet and an approximately 19 acre
parcel of land located in Northern New Jersey. Upon the acquisition of the
Additional Properties, Wellsford Office will own 12 office buildings, 10
located in Northern New Jersey, one in Washington, D.C. and one in Boston,
containing an aggregate of approximately 2.1 million square feet, and a vacant
parcel of land located in Northern New Jersey.
Cyanamid Office Portfolio
The Company acquired the Cyanamid Office Portfolio ("Cyanamid") located in
Wayne, N.J. in February 1997. Cyanamid, formerly the international
headquarters for American Cyanamid Company, consists of (i) Point View
Corporate Park containing an aggregate of approximately 194 acres and
consisting primarily of two office buildings ("Point View"); and (ii) Valley
Executive Center, consisting primarily of two smaller office buildings, located
at 1700 and 1800 Valley Road. Point View and 1700 Valley Road are currently
vacant. It is expected that renovations to each of these buildings will be
completed by mid-1998. Cyanamid was recently assessed for real estate tax
purposes at approximately $61.2 million in the aggregate by the local
governmental authority.
Point View
Point View consists of two parcels: (i) one parcel on which two buildings
consisting of an aggregate of approximately 560,000 square feet are situated
and (ii) an approximately 10-acre site directly across from the entrance to the
194-acre parcel, which site is zoned for approximately seven to eight single
family houses and has no existing structures. The approximately 194-acre
parcel is zoned for the development of an additional 1 million square feet of
office or research space. The larger of the two buildings on Point View (the
"Serpentine Building") was constructed in 1962, is a four-story class B+
building containing approximately 400,000 square feet. The Serpentine Building
contains a fully functional cafeteria area seating 800, separate executive
office tower, separate executive dining area and overlooks a large reservoir
and the heliport for the complex. The smaller building (the "West Building")
was constructed in 1976, is a six-story class A building containing
approximately 160,000 square feet. The West Building is connected to the
Serpentine Building by an underground passageway and has a primarily moveable
wall interior partitioning system, a fitness center and an auditorium. There
are 1,720 parking spaces currently serving both buildings.
On a pro forma basis, Point View had a federal tax basis at December 31,
1996 equal to its purchase price of $15.8 million and will be depreciated
straight-line over a 40-year estimated life. The current annual real estate
taxes on Point View are approximately $1.3 million, subject to pending
negotiations with the municipality of Wayne to reduce such taxes.
Wellsford Office is currently undertaking a number of renovations to the
Serpentine Building and the West Building to, among other things, refurbish the
exterior, add new elevators, renovate the lobby and other common areas, enable
the buildings to comply with current life safety and ADA requirements and
become more energy efficient. The Company also recently completed renovations
to eliminate potentially hazardous materials (such as spray-on asbestos
fireproofing in the Serpentine Building's structure). The estimated total cost
of all planned renovations will be approximately $10.1 million. As of
September 30, 1997, the Company and Wellsford Office had paid approximately
$2.4 million of expenses to renovate Point View.
The purchase price paid by the Company for Point View was $15.8 million,
or approximately $28.00 per square foot of building area, and together with the
cost of planned renovations, the total cost of this property is expected to be
approximately $46.25 per square foot, excluding additional tenant improvements
and related costs which will be required in connection with the execution of
future leases.
Valley Executive Center
1700 Valley Road. The 1700 Valley Road property contains a two-story,
class B+ building consisting of approximately 70,600 square feet and is
situated on a wooded nine-acre site. The building was constructed in two
stages, during 1972 and 1979, and the interior was completely refurbished in
1993. The building contains a full service dining area and 294 parking spaces.
Wellsford Office contemplates renovation of the building's facade, upgrading of
the HVAC system and various cosmetic improvements.
The purchase price paid by the Company for 1700 Valley Road was $1.0
million, or $14.00 per square foot of building area.
1800 Valley Road. The 1800 Valley Road property contains a two-story,
class B+ building consisting of approximately 54,800 square feet and is
situated on a wooded 14-acre site. The building was constructed in 1980,
contains a full service dining area and has 260 parking spaces. The property
is zoned for the development of an additional 40,000 square feet of office
space.
Reckitt & Coleman Inc., a consumer products firm, occupies the entire 1800
Valley Road property under a lease that expires in 2003 at a net rental of
$12.10 per square foot. Pursuant to the terms of lease, Wellsford Office has
recently replaced the roof, upgraded the HVAC system, and completed other
renovations. Wellsford Office will pay approximately $2.1 million for tenant
improvements, renovations and other leasing costs.
The purchase price paid by the Company for 1800 Valley Road was $2.0
million, or approximately $36.00 per square foot of building area, and together
with the cost of planned renovations, the total cost of this property is
expected to be approximately $71.00 per square foot.
Greenbrook Corporate Center
The Company acquired The Greenbrook Corporate Center ("Greenbrook") in
Fairfield, N.J. in April 1997. Greenbrook consists of (i) a class A suburban
three-story office building with approximately 201,000 square feet situated on
approximately 20 acres and (ii) a contiguous undeveloped approximately seven
acre parcel zoned for development of an additional 50,000 square feet of office
and light industrial use. The entrance to the building is a 35-foot atrium
lobby and the second and third floors have terraces overlooking a country club
which border the rear of the site.
On a pro forma basis, Greenbrook had a federal tax basis at December 31,
1996 equal to its purchase price of $23.7 million and will be depreciated
straight-line over a 40-year estimated life. The current annual real estate
taxes on Greenbrook are approximately $428,000.
Greenbrook's two largest tenants are Information Resources, Inc. ("IRI"),
a market research firm, and the S.B. Thomas division of CPC International,
whose principal business is producing baked foods. IRI occupies approximately
64,676 square feet, with an annual rent of approximately $1.3 million (or
approximately $20 per square foot), under two leases that expire December 2003.
The annual rent to be paid by IRI increases over the term of the leases to
approximately $1.5 million (or approximately $23.5 per square foot) by their
expiration in December 2003. S.B. Thomas occupies approximately 49,384 square
feet at an annual rent of approximately $.9 million (or $19 per square foot)
under a lease that expires in 2005. S.B. Thomas has the right to renew for two
successive periods of five years each, at 95% of the fair market value rent as
of October 1st of the last lease year prior to commencement of each renewal
term. Greenbrook has nine additional tenants, with aggregate annual rents of
approximately $1.2 million.
The purchase price paid by the Company for Greenbrook was $23.7 million,
or approximately $118.00 per square foot of building area.
Chatham, New Jersey
In January 1997, the Company acquired a class A three-story suburban
office building consisting of approximately 63,000 square feet located on
approximately five acres in Chatham, New Jersey. Wellsford Office currently
intends to spend approximately $3.1 million to make various renovations to
upgrade the building's status including, among other things, to add a first
class lobby and improve other common areas, renovate the facade and replace the
HVAC system and provide landscaping. The renovations were completed in
November, 1997. As of September 30, 1997, the Company and Wellsford Office had
paid approximately $2.3 million of expenses to renovate this building.
Wellsford Office is currently marketing the building for rental.
Quadrant HealthCom Inc. ("Quadrant"), a publisher of medical specialty
magazines, occupies approximately 22,000 square feet in the building, which is
approximately 34% of the gross leasable area of the building, under a lease
that expires in September, 2007 (terminable in 2004 upon lump-sum payment of
six months' rent). The annual rent to be paid by Quadrant is $26.00 per square
foot and increases to approximately $28.00 per square foot in October, 2002.
Hilton Hotels Corporation ("Hilton") has recently executed a lease for
approximately 6,450 square feet in the building. The lease is for a term of
ten years and provides for annual rent of $26.50 per square foot for years one
through five and $29.00 per square foot for years six through ten. Hilton has
the right to renew the lease for five years at an annual rent equal to the
greater of the fair market value rent or $29.00 per square foot.
Appaloosa Management, L.P. ("Appaloosa") has recently executed a lease for
approximately 7,400 square feet in the building. The lease is for a term of
ten years and provides for annual rent of $26.00 per square foot for years one
through five and $28.00 per square foot for years six through ten. Appaloosa
has the right to renew the lease for five years at an annual rent equal to the
greater of the fair market value rent or $28.00 per square foot.
The purchase price paid by the Company for the property was $5.1 million,
or approximately $81.00 per square foot of building area and together with the
cost of planned renovations, tenant improvements and leasing costs, the total
cost of this property is expected to be approximately $130.00 per square foot.
Atrium Properties
Wellsford Office owns four buildings and one vacant parcel of land on an
aggregate of approximately 67 acres, which comprises a substantial portion of
the Atrium Office Park. The properties are located on I-287 at Davidson
Avenue, approximately 20 miles southwest of Newark, New Jersey in Somerset
County and are near various hotels and the Garden State Exhibit Center with
complete dining, lodging, fitness and conferences facilities.
A mortgage currently exists in favor of Goldman Sachs Mortgage Company
with respect to 300 Atrium Drive, 400 Atrium Drive and 500 Atrium Drive
securing amounts owed by a wholly-owned subsidiary of Wellsford Office (the
"Atrium Owner") pursuant to a Loan Agreement (the "Atrium Loan Agreement").
The Atrium Loan Agreement provides for loans of up to an aggregate principal
amount of $64 million consisting of: (i) a term loan in the approximate
principal amount of $47.4 million; (ii) a capital expenditure line of credit of
up to approximately $8.8 million; and (iii) a term loan of up to approximately
$7.8 million. As of December 1, 1997, the principal amount borrowed under the
Atrium Loan Agreement is approximately $48.1 million. All principal amounts
loaned under the Atrium Term Loan are due on May 15, 2000; provided that the
Atrium Owner may extend the maturity date for up to two successive one-year
periods. Loans made under the Atrium Loan Agreement bear interest at (i) LIBOR
plus 300 basis points from May 15, 1997 to May 14, 2000; (ii) LIBOR plus 375
basis points from May 15, 2000 to May 14, 2001; and (iii) LIBOR plus 450 basis
points from May 15, 2001 to May 15, 2002. The Company is currently a party to
an interest rate protection agreement which limits LIBOR under the Atrium Loan
Agreement to 7.69% until June 15, 2000.
The Atrium Loan Agreement permits voluntary prepayment in whole or in part
at any time without penalty or premium. The Atrium Loan Agreement provides
that if the Atrium Owner transfers any of 300 Atrium Drive, 400 Atrium Drive or
500 Atrium Drive, the Atrium Owner must prepay an allocable portion of the
loan.
300 Atrium Drive
This class A four-story building consists of approximately 149,360 square
feet and is situated on an approximately 9.5 acre site and was constructed with
granite and double-glazed solar reflective glass. It has a lobby atrium and
surface parking for approximately 500 vehicles.
The largest tenants at 300 Atrium Drive are AT&T and Digital Solutions,
Inc. ("Digital"). AT&T occupies approximately 75,626 square feet at an annual
rent of $19.84 per square foot under a lease that expires in March, 2004.
Digital Solutions occupies approximately 15,244 square feet at an annual rental
of $18.75 per square foot under a lease that expires in September, 2007. The
annual rent to be paid by Digital increases over the term of the lease to
$21.00 per square foot by its expiration in September 2007. AT&T has the right
to renew for two periods of five years each, at 95% of the fair market value
rent as of the time of renewal. Digital Solutions has no right to renew its
lease.
300 Atrium Drive had a federal tax basis as of August, 1997 equal to $13.2
million and will be depreciated straight line over a 40-year estimated life.
The current annual real estate taxes on 300 Atrium Drive are approximately
$270,000.
300 Atrium Drive was acquired by Wellsford Office in August, 1997, for
$17.5 million, or approximately $117.00 per square foot of building area.
400 Atrium Drive
This class A five-story building consists of approximately 354,670 square
feet and is situated on an approximately 20.2 acre site and was constructed
with granite and double-glazed solar reflective glass. It is actually two
separate buildings connected by a full-height atrium with bridges at each
level. The building contains a full service cafeteria and there are
approximately 1,190 surface parking spaces.
The largest tenant at 400 Atrium Drive is Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). Merrill Lynch occupies approximately
177,213 square feet at an average annual rent of approximately $17.08 per
square foot under a lease that expires in December, 2001, and Merrill Lynch
occupies an additional approximately 94,590 square feet at an annual rent of
$18.75 per square foot under a lease that expires in December, 2003. Merrill
Lynch has the right to renew for two periods of five years each at 95% of the
fair market value rent as of the time of renewal.
400 Atrium Drive had a federal tax basis as of August, 1997 equal to $34.1
million and will be depreciated straight line over a 40-year estimated life.
The current annual real estate taxes on 400 Atrium Drive are approximately
$730,000.
400 Atrium Drive was acquired by Wellsford Office in August, 1997, for
$32.5 million, or approximately $92.00 per square foot of building area.
500 Atrium Drive
This class A four-story building consists of approximately 167,000 square
feet and was constructed on an irregular-shaped parcel of land containing
approximately 9.5 acres. The building features a granite and double-glazed
solar reflective glass exterior wall. The building has access to a full
service cafeteria at 400 Atrium Drive. Wellsford Office currently intends to
replace the roof, improve the sprinkler system and resurface the parking lot.
The largest tenant at 500 Atrium Drive is AT&T. AT&T occupies
approximately 138,600 square feet at an annual rent of $19.84 per square foot
under a lease that expires in December, 2003. AT&T has the right to renew for
two periods of five years each at 95% of the fair market value rent as of the
time of renewal.
500 Atrium Drive had a federal tax basis as of August, 1997 equal to $14.9
million and will be depreciated straight line over a 40-year estimated life.
The current annual real estate taxes on 500 Atrium Drive are approximately
$330,000.
500 Atrium Drive was acquired by Wellsford Office in August, 1997, for $20
million, or approximately $120.00 per square foot of building area.
600 Atrium Drive
This property consists of approximately 19 acres of vacant land zoned for
office use.
On a pro forma basis, 600 Atrium Drive had a federal tax basis at December
31, 1996 equal to its purchase price of $2 million. The current annual real
estate taxes on 600 Atrium Drive are approximately $38,000. There are
currently no mortgages or other material liens on 600 Atrium Drive.
700 Atrium Drive
This class A five-story building consists of approximately 176,300 square
feet and is situated on an approximately nine acre site and was constructed
with granite and double-glazed solar reflective glass. The building contains a
cafeteria and has parking for approximately 656 vehicles. Wellsford Office
currently intends to make renovations to comply with existing life safety code
requirements and make other cosmetic improvements.
The building's only tenant is Merck & Co., Inc. ("Merck"). Merck
occupies approximately 176,633 square feet at an annual rental of $15.50 per
square foot under a lease that expires in June, 2000. Merck has the right to
renew its lease for three years at an annual rent of $17.05 per square foot or
renew for five years at an annual rent of $17.83 per square foot.
On a pro forma basis, 700 Atrium Drive had a federal tax basis at December
31, 1996 equal to its acquisition price of $19 million, and will be depreciated
straight line over a 40-year estimated life. The current annual real estate
taxes on 700 Atrium Drive are approximately $266,000. There are currently no
mortgages or other material liens on 700 Atrium Drive.
700 Atrium Drive was acquired by Wellsford Office in September, 1997, for
$19 million, or approximately $108.00 per square foot of building area.
1275 K Street
This class B+ twelve-story building consists of approximately 270,000
square feet and is situated on a one-half acre site located in the heart of the
downtown business district of Washington, D.C. at the northeast corner of
prestigious Franklin Square. The building's exterior finish consists of solid
brick veneer and reflective glass. The building has retail establishments on
the first floor, concierge service and contains a two-story underground parking
garage that provides for 156 spaces. The lobby was recently renovated and
sprinkler systems were installed. Wellsford Office currently intends to
install new lamps for the property, upgrade signs to comply with ADA code
requirements and make various cosmetic improvements.
1275 K Street had a federal tax basis as of August, 1997 equal to $29.8
million, and will be depreciated straight line over a 40-year estimated life.
The current annual real estate taxes on 1275 K Street are approximately
$701,000. There are currently no mortgages or other material liens on 1275 K
Street.
1275 K Street was acquired by Wellsford Office in August 1997, for $32.5
million, or approximately $120.00 per square foot of building area.
15 Broad Street
This class B ten-story building consists of approximately 66,750 square
feet and is situated on an approximately .17 acre site in the central business
district of Boston, MA. The building was constructed of brick and masonry with
a concrete frame. Wellsford Office currently intends to renovate the main
lobby and the interior elevator at an estimated cost of approximately $900,000.
The largest tenants at 15 Broad Street are O'Neill Finnegan & Jordan
("O'Neill") and Arbor National Commercial Mortgage Corporation ("Arbor").
O'Neill occupies approximately 11,752 square feet at an annual rental of
approximately $16 per square foot under a lease that expires in August, 1999.
Arbor occupies approximately 6,675 square feet at an annual rental of
approximately $13.25 per square foot under a lease that expires in June, 1998.
O'Neill and Arbor each has the right to renew its lease for 5 years at a rental
rate to be agreed upon at the time of renewal.
On a pro forma basis, 15 Broad Street had a federal tax basis at December
31, 1996 equal to approximately $5.5 million, and will be depreciated straight
line over a 40-year estimated life. The current annual real estate taxes on 15
Broad Street are approximately $214,000. There are currently no mortgages or
other material liens on 15 Broad Street.
Additional information with respect to the properties currently owned by,
or expected to be contributed to, Wellsford Office is set forth below:
<PAGE>
<TABLE>
<CAPTION>
Number of Tenants
Occupying 10% or more of Principal business Average effective
Year Built/ Occupancy Area square footage & carried on, in or annual base rental
Property Rehabilitated Rate (Square Feet) their principal business from building per square foot
-------- ------------- --------- ------------- ------------------------ ------------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
300 Atrium 1983 1996 0% 149,360 1 Tenant Telecommunications 1996 N/A
1997 67% Telecommunications 1997 $19.50
400 Atrium 1985 1996 43% 354,670 1 Tenant Computer technology 1996 $16.07
1997 98% Financial brokerage and financial brokerage 1997 $17.19
500 Atrium 1984 1996 0% 167,000 1 Tenant Telecommunications 1996 N/A
1997 83% Telecommunications 1997 $19.84
Chatham 1972/1997 1996 0% 63,000 1 Tenant Publishing 1996 N/A
1997 34% Publishing 1997 $26.00
Greenbrook 1987 1996 86% 201,000 2 Tenants
1997 86% Market research and Market research and 1996 $19.67
producing baked goods producing baked goods 1997 $19.63
Pointview 1976 0% 560,000 N/A N/A N/A
1700 Valley Road 1979 0% 70,600 N/A N/A N/A
1800 Valley Road 1980 1996 0% 54,800 1 Tenant Consumer Products 1996 N/A
1997 100% Consumer products 1997 $12.10
1275 K Street 1983 1996 84.1% 270,000 None Associations, accounting 1996 $26.93
firms, attorneys and 1997 $25.05
telecommunications
600 Atrium(1) N/A N/A N/A N/A N/A N/A
700 Atrium 1985 1996 100% 176,300 1 Tenant Pharmaceuticals 1996 $15.50
1997 100% Pharmaceuticals 1997 $15.50
15 Broad 1920/1990 1996 85% 66,750 2 Tenants Mortgage underwriting, 1996 $16.53
1997 84% Mortgage underwriting insurance, telecommuni- 1997 $16.56
=== ========= and insurance cations, computer,
printing and law offices
88%(2) 2,133,480
_________________________
(1) Vacant land
(2) Represents occupancy rate for all properties, excluding properties that are currently vacant.
/TABLE
<PAGE>
Below is a schedule of lease expirations at the properties currently
owned by Wellsford Office for each of the next 10 years:
<TABLE>
<CAPTION>
LEASE EXPIRATIONS
BUILDING
-----------------------------------------------------------------------------------------------------------------
1700 1800
Green- Point- Valley Valley 1275 600 700 15
300 Atrium 400 Atrium 500 Atrium Chatham brook view(1) Road Road K Street Atrium Atrium Broad
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997
No. of
Tenants 0 0 0 0 0 N/A N/A 0 4 N/A 0 1
Total
Square Feet 7,470 1,325
Annual Rent 190,510 21,204
% of Gross
Annual 3.60% 2.4%
Rent(2)
1998
No. of
Tenants 0 4 0 0 1 N/A N/A 0 5 N/A 0 4
Total
Square Feet 60,666 2,000 18,838 11,911
Annual Rent 948,461 40,000 791,833 158,940
% of Gross
Annual 16.00% 1.0% 15.10% 18.4%
Rent(2)
1999
No. of
Tenants 0 0 0 0 0 N/A N/A 0 10 N/A 0 5
Total
Square Feet 37,018 17,312
Annual Rent 938,271 271,649
% of Gross
Annual 17.90% 31.5%
Rent(2)
2000
No. of
Tenants 0 1 0 0 2 N/A N/A 0 2 N/A 1 8
Total
Square Feet 15,302 12,575 16,585 176,623 14,627
Annual Rent 256,308 243,926 530,647 2,737,812 245,622
% of Gross
Annual 4.30% 6.98% 10.10% 100% 28.5%
Rent(2)
2001
No. of
Tenants 0 6 0 0 6 N/A N/A 0 2 N/A 0 5
Total
Square Feet 177,213 43,264 19,674 9,837
Annual Rent 3,124,543 872,931 497,800 165,057
% of Gross
Annual 52.00% 25.00% 9.50% 19.1%
Rent(2)
2002
No. of
Tenants 1 0 0 0 0 N/A N/A 0 4 N/A 0 0
Total
Square Feet 11,371 19,880
Annual Rent 233,105 470,301
% of Gross
Annual 11.80% 9.00%
Rent(2)
2003
No. of
Tenants 0 5 1 0 2 N/A N/A 1 3 N/A 0 0
Total
Square Feet 94,590 138,600 64,676 56,375 15,356
Annual Rent 1,676,028 2,749,824 1,398,024 682,137 385,702
% of Gross
Annual 27.90% 100.00% 40.00% 100.0% 7.30%
Rent(2)
2004
No. of
Tenants 1 0 0 0 0 N/A N/A 0 1 N/A 0 0
Total
Square Feet 75,626 5,111
Annual Rent 1,500,420 127,092
% of Gross
Annual 76.00% 2.40%
Rent(2)
2005
No. of
Tenants 0 0 0 0 1 N/A N/A 0 0 N/A 0 0
Total
Square Feet 49,384
Annual Rent 938,296
% of Gross
Annual 26.86%
Rent(2)
2006
No. of
Tenants 0 0 0 0 0 N/A N/A 0 0 N/A 0 0
Total
Square Feet
Annual Rent
% of Gross
Annual
Rent(2)
2007
No. of
Tenants 2 0 0 1 0 N/A N/A 0 5 N/A 0 0
Total
Square Feet 27,907 21,812 22,397
Annual Rent 605,041 614,226 850,896
% of Gross
Annual 30.70% 100% 16.20%
Rent(2)
(1) These buildings are currently vacant.
(2) All calculations of percentages are approximate.
/TABLE
<PAGE>
BUSINESS AND PROPERTIES OF
WELLSFORD CAPITAL CORPORATION
Merger with Value Property Trust
The Company and Wellsford Capital entered into an Agreement and Plan of
Merger on September 18, 1997 with Value, pursuant to which Wellsford Capital
will merge into Value. Upon consummation of the Value Merger, the name of the
surviving entity will be changed to Wellsford Capital Corporation and the
surviving entity will be a wholly-owned subsidiary of the Company. The Value
Merger is expected to be consummated in January 1998. Upon consummation of the
Value Merger, each common share of beneficial interest in Value (each, a "Value
Share" and collectively, the "Value Shares") issued and outstanding will be
converted into the right to receive its pro rata portion (based on the number
of Value Shares outstanding immediately prior to the effective time of the
Value Merger) of (a) $129,996,350 in cash and (b) 3,350,000 shares of Common
Stock (such cash and Common Stock, the "Value Merger Consideration"). Based on
the number of Value Shares outstanding as of the date hereof, each Value Share
will be converted into the right to receive $11.58 in cash and 0.2984 shares of
Common Stock. Each holder of an outstanding option to purchase Value Shares
under Value's stock option plan will be entitled to receive a cash payment for
each option equal to the excess, if any, of $15.75 over the share exercise
price of such option. Assuming the election to receive cash by holders of all
outstanding options to purchase Value Shares, such holders will be entitled to
receive an aggregate cash payment of approximately $4.7 million.
Franklin Mutual Advisers Inc. ("Franklin"), which has the right to vote
approximately 50% of the outstanding Value Shares, has entered into a voting
agreement with the Company pursuant to which Franklin has agreed to vote, and
to cause its affiliates to vote, all Value Shares over which it has voting
power in favor of the Value Merger and against any other proposed business
combination involving Value. Upon consummation of the Value Merger, Franklin
will beneficially own approximately 4,166,311 shares of Common Stock and will
have the right to vote 2,715,064 shares of Common Stock, assuming Franklin and
its affiliates receive 0.2984 shares of Common Stock for each Value Share owned
prior to the consummation of the Value Merger.
Value primarily owns 21 properties (containing approximately 2.1 million
square feet) and currently has approximately $64 million in net cash. Value's
property portfolio is diversified both by property type and geographic
location. Seven office/industrial properties containing approximately 600,000
square feet are located in Southern California, and 14 office/industrial and
retail properties containing approximately 1.5 million square feet are located
primarily throughout the mid-Atlantic region. For a description of the Value
properties expected to be retained by the Company, see "Wellsford Capital
Assets" below.
Agreement to Convey Certain Value Real Properties
On September 18, 1997, the Company and Wellsford Capital also entered into
a Purchase and Sale Agreement (the "Real Estate Agreement") with Whitehall
Property Buyer, pursuant to which, immediately subsequent to the consummation
of the Value Merger, Whitehall Property Buyer will purchase from the Company
and Wellsford Capital 14 of the 21 properties acquired pursuant to the Value
Merger. The aggregate purchase price to be paid by Whitehall Property Buyer is
$65 million, subject to certain customary adjustments at closing. Subsequent
to the sale, Wellsford Capital will own the assets described below under
"Wellsford Capital Assets."
Consummation of the sale of the properties to Whitehall Property Buyer is
not a condition to the closing of the Value Merger. In the event the Value
Merger is consummated, all or a portion of the sale to Whitehall Property Buyer
may not be consummated.
Wellsford Capital Assets
Upon consummation of the Value Merger, Wellsford Capital is expected to
(i) own seven properties, consisting of three office properties, two industrial
properties, one office/industrial property and one retail property, with an
aggregate of approximately 600,000 square feet, (ii) have investments in
mortgage loans aggregating approximately $.5 million and (iii) have
approximately $85.5 million of net operating loss carryovers, subject to
various tax law limitations.
Value Properties to be Retained by the Company
Following consummation of the Value Merger and the sale to Whitehall
Property Buyer of 14 of the properties acquired pursuant to the Value Merger,
the Company will own seven properties which are described as follows:
<PAGE>
<TABLE>
<CAPTION>
Approximate Approximate
Year Area Occupancy
Property Name Built Location Classification (Sq. Ft.) Rate(1) Other Information
------------ ----- -------- -------------- --------- ------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
19-23 Keewaydin
Drive 1973 Salem, NH Industrial 125,230 54.0% Two single-story buildings on
approximately 15 acres and an adjacent
unimproved approximately 4.4 acre
tract.
250 Turnpike Street 1980 Canton, MA Industrial 49,500 100.0% One-story light industrial/warehouse
building on approximately 2.8 acres.
Two Executive 1970 Cherry Hill, NJ Office 102,000 72.0% Four-story multi-tenant building on
approximately 10.4 acres. Newly
renovated lobby, elevators and common
areas.
421 Chestnut
Street 1857 Philadelphia, PA Office 48,254 83.0% Six-story multi-tenant building.
(Renovated Certified as historic landmark by
in 1986 Commonwealth of Pennsylvania.
and 1990
Midis/Bay City 1985 Santa Monica, CA Office/ 114,375 100.0% Interest in partnership that has
Holdings Industrial leasehold interest in property,
expiring June 30, 2051.
501 Hoes Lane 1987 Piscataway, NJ Office 37,238 87.0% Three-story multi-tenant building on
approximately 2.9 acres with 189
parking spaces.
Bradford Plaza 1990 West Chester, PA Retail 123,000 88.0% One-story "L" shaped retail center.
---------
Total 599,597
_____________________ =========
(1) As of October 30, 1997
/TABLE
<PAGE>
BUSINESS AND PROPERTIES
OF WELLSFORD REAL PROPERTIES, INC.
In addition to the properties described above under "Business and
Properties of Wellsford/Whitehall Properties, L.L.C." and "Business and
Properties of Wellsford Capital Corporation", the Company's assets consist
primarily of (i) the 277 Park Loan; (ii) the Abbey Credit Facility; (iii) the
Sonterra Option and Sonterra Loan; and (iv) an approximately 80% interest in
Phases I, II and III of, and in options to acquire and develop Phases IV and
V of, Palomino Park. In the opinion of the Company's management, both
Sonterra and Palomino Park are adequately covered by insurance.
277 Park Loan
The Company and BankBoston have provided an $80 million loan to entities
which own substantially all of the equity interests (the "Equity Interests")
in the entity which owns a 52-story, approximately 1.75 million square foot
gross leasable area, class A office building located in New York City in mid-
town Manhattan at 277 Park Avenue (the "277 Park Property"). The Company and
BankBoston have advanced $25 million and $55 million, respectively, pursuant
to the 277 Park Loan. The 277 Park Loan is secured primarily by a pledge of
the Equity Interests owned by the borrowers. There is also a limited
guarantee from the individual who indirectly owns all the Equity Interests.
The 277 Park Loan is subordinated to a 10-year $345 million first mortgage
loan (the "REMIC Loan") on the 277 Park Property, the proceeds for which were
obtained by the sale of investment grade rated commercial mortgage pass-
through certificates in a real estate mortgage investment conduit. The notes
representing the REMIC Loan bear interest at different rates which equate to
a weighted average interest rate of approximately 7.67% per annum. The 277
Park Loan bears interest at the rate of approximately 12% per annum for the
first nine years of its term and at a floating annual rate during the tenth
year equal to LIBOR plus 5.15% or BankBoston base rate plus 5.15%, as elected
by the borrowers. Interest on the 277 Park Loan is payable monthly to the
extent of available cash after payment of interest on the REMIC Loan and the
funding of various reserve accounts under the REMIC Loan and provided there
is no event of default under the REMIC Loan. To the extent funds are not
available to pay interest at a rate in excess of 10% per annum, such excess
interest will accrue and be added to the principal amount of the 277 Park
Loan. The principal amount of the 277 Park Loan and all accrued interest
will be payable on May 1, 2007 which is also the due date of the REMIC Loan.
The 277 Park Loan is prepayable only in full and then only after the fifth
year of the loan and must be repaid if the REMIC Loan is repaid or the 277
Park Property is sold. Any prepayment during the sixth through ninth years
of the loan must be accompanied by a yield maintenance payment.
The 277 Park Property is currently 100% leased to 33 tenants, including
Donaldson, Lufkin & Jenrette, Inc. which has leased approximately 47% of the
gross leasable area pursuant to a lease expiring in 2016. The 277 Park
Property was appraised for $555 million as of July 1, 1996 by an independent
nationally recognized appraiser. The appraisal was not prepared on behalf of
the Company. An appraisal is only an opinion of value made by experts,
subject to the assumptions and limiting conditions contained therein
(including assumptions relating to the discounted cash flow analysis
contained therein).
Credit Facility to Affiliates of The Abbey Company, Inc.
The Company is a 50% participant in the Abbey Credit Facility, a $70
million secured credit facility with affiliates of The Abbey Company, Inc.
(the "Abbey Entities"), an owner and operator of office, industrial and
retail properties in Southern California. The Abbey Entities are entitled to
reborrow up to $10 million after repayment of such amount, such that the
aggregate principal amount of all loans made under the credit facility
(including such reborrowings) may not exceed $80 million over the term of the
credit facility. To date, approximately $48.4 million has been advanced to
the Abbey Entities, of which the Company has advanced approximately $24.2
million. Payments on the Company's participation are subordinated to those
due Morgan Guaranty. Interest on the Abbey Credit Facility is payable
monthly and accrues at an annual rate of LIBOR plus 250 basis points;
however, under its arrangement with Morgan Guaranty, the Company is entitled
to receive interest on its advances at an annual rate of LIBOR plus 400 basis
points. The principal amount of the Abbey Credit Facility and all accrued
interest will be payable on September 1, 2000. The Abbey Credit Facility is
prepayable, in whole or in part, on any interest payment date with no
penalty.
The Abbey Credit Facility is secured primarily by a first mortgage lien
on ten office, industrial and retail properties owned by the Abbey Entities,
all of which are located in California. These properties contain an
aggregate of approximately one million square feet and range in area from
approximately 31,300 square feet to approximately 136,500 square feet. There
is also a limited guarantee from Donald D. Abbey, the indirect 90% owner of
the Abbey Entities.
The Abbey Company, Inc. is owned 90% by Donald G. Abbey and 10% by Mace
Siegal and associates. Mr. Siegal is the Chairman of The Macerich Company, a
REIT traded on the New York Stock Exchange.
Sonterra Assets
Sonterra Option Agreement
The Company owns an option to acquire Sonterra, a 344-unit class A
multifamily apartment complex located in Tucson, Arizona, construction of
which was completed in June 1996, free and clear of all mortgages and other
material liens for approximately $20.5 million through December 31, 1997 and
for approximately $21 million if the sale is consummated during 1998. ERP
Operating Partnership has a right of first offer to acquire the Sonterra
Option and a right to acquire the option if the Company does not exercise it.
If the Company acquires Sonterra, then the Company and ERP Operating
Partnership will enter into a "Right of First/Last Offer Agreement" in
substantially the same form as the Right of First/Last Offer Agreement
entered into pursuant to the Agreement Regarding Palomino Park. See "Certain
Agreements Between the Company and ERP Operating Partnership - Agreement
Regarding Palomino Park."
Sonterra Loan
The Company also holds a $17.8 million mortgage loan made to the owner
of Sonterra. The Sonterra Loan was originated in July 1996 and the principal
amount thereof is due on July 1, 1999. Until the maturity date, the borrower
is to pay interest only, monthly, at the rate of 9% percent per annum. The
loan is non-recourse and repayment of the loan is secured by a first mortgage
on Sonterra and by a personal guaranty of an individual affiliated with the
owner. Under certain circumstances, prepayment of the loan is subject to a
prepayment premium equal to 5% percent of the principal amount of the loan.
Palomino Park
Palomino Park is a master planned five-phase multifamily development
project comprising approximately 182 acres, of which 65 acres have been
developed, in suburban South East Denver, Colorado about 14 miles from
Denver's central business district. It is situated within Highlands Ranch, a
22,000 acre master planned community. Palomino Park is intended to be
developed as an integrated project comprising an 1,880-unit, class A
multifamily apartment community constructed around a centrally located 24
acre park which features tennis courts, athletic fields, a putting green and
an amphitheater. There is also a 29,000 square foot recreation center which
includes a full-size gymnasium, fitness center, indoor golf range, racquet
ball courts, and a baby-sitting facility and has an adjacent swimming pool.
Palomino Park will also have a perimeter fence with a guard at the entry
gate.
Wellsford Park Highlands Corp. ("WPHC"), currently owned 80% by the
Company and 20% by ERP Operating Partnership, acquired fixed-price options in
1995 to purchase the land underlying each of the phases (referred to
collectively as "Phases" or individually as a "Phase" or specifically as
"Phase I," "Phase II," "Phase III," "Phase IV" or "Phase V") of Palomino
Park. The land underlying Phases I, II and III has been acquired. The land
underlying Phases IV and V is subject to options which expire in May, 1998
and May, 1999, respectively. There can be no assurance that construction of
Phase III, Phase IV or Phase V will be commenced or if commenced, that it
will be completed. See "Risk Factors Risks of Acquisition, Development,
Construction and Renovation Activities". The purchase price for land
acquired with respect to any Phase is $73,500 per acre, subject to an
increase of the purchase price by 6% per annum from and after November 30,
1994. The land options should reduce the Company's exposure to market cycles
in Denver while enabling the Company to develop a signature residential
community in one of the fastest growing counties in the country.
Upon completion of any or all of the Phases, the Company will either
operate and rent apartment units or convert all or a portion of them to
condominium ownership, which a REIT could not do because of the adverse tax
consequences thereof.
The development of Palomino Park calls for construction of the 1,880
units over a period of five years at a total estimated cost of approximately
$194 million. As of September 30, 1997, the Company had invested
approximately $21.9 million in the development of Palomino Park, exclusive of
amounts advanced under the existing construction loans for Phase I and II.
Phase I, referred to as Blue Ridge, consists of 456 units, all of which
have been constructed, approximately 94% of which are leased and
approximately 90% of which are occupied, as of December 1, 1997. Rents range
from $760 per month for a one bedroom, one bathroom to $1,375 per month for a
three bedroom, two bathroom unit. Garages are available and washer and dryer
hook-ups exist in all the apartments. The total estimated cost of Blue Ridge
is approximately $42.5 million.
Phase II, referred to as Red Canyon, is expected to consist of 304
units. The total estimated cost of Red Canyon is approximately $33.6
million. Construction of Phase II has begun and is expected to be completed
in late 1998 or early 1999.
Blue Ridge is owned by Park at Highlands LLC ("Phase I LLC"), a limited
liability company, the members of which are WPHC (99%) and Al Feld ("Feld")
(1%). Red Canyon is owned by Red Canyon at Palomino Park LLC ("Phase II
LLC"), a limited liability company, the members of which are WPHC (99%) and
Feld (1%). WPHC has an option to acquire Feld's 1% interest, and Feld may
compel WPHC to buy his 1% interest, in each case after completion of the
Phase. Al Feld is a Denver-based developer specializing in the construction
of luxury residential properties. He has constructed over 3,000 units since
1984. Feld has unconditionally guaranteed completion of Phase I within 30
months and Phase II within 24 months, in each case after closing of the
construction loan, and has agreed to a one-year guarantee of such Phases
against construction defects. In addition, subject to certain conditions,
Feld has agreed to fund certain cost deficits for Phase I and Phase II.
The operating agreements provide that, except for limited exceptions for
WPHC, neither member may transfer, pledge or assign its interest in the Phase
I LLC or Phase II LLC without the consent of the other member.
The construction loan on Blue Ridge is for approximately $36.8 million,
matures on December 31, 1998 (with a six-month extension at the option of the
Phase I LLC upon fulfillment of certain conditions), and bears interest at
the prime rate, except that the Phase I LLC may elect to cause a portion of
the previously advanced principal to bear interest at LIBOR plus 175 basis
points. Feld has guaranteed repayment of this loan.
The construction loan on Red Canyon is for approximately $29.5 million,
matures on September 29, 1999 (with a six-month extension at the option of
the Phase II LLC upon fulfillment of certain conditions), and bears interest
at the prime rate, except that the Phase II LLC may elect to cause a portion
of the previously advanced principal to bear interest at LIBOR plus 165 basis
points. Feld has also guaranteed repayment of this loan.
Palomino Park Public Improvements Corporation ("PPPIC"), a Colorado non-
profit corporation, has issued $14.8 million of tax exempt bonds due on
December 1, 2035 (the "Bonds") to finance the development of the park and
certain parts of the infrastructure within Palomino Park, which have a total
cost of approximately $18.3 million. The Bonds bear interest at a floating
rate, which is currently approximately 4% per annum, but may be converted to
a term rate or a fixed rate. Subject to certain restrictions, revenue
assessment liens are imposed against the Phases to secure the obligation of
the Phase owners to repay the portion of the Bonds' debt service attributed
by PPPIC to their respective Phases.
If it is determined to proceed with construction of Phases III, IV
and/or V, the ownership and transaction structure of each such Phase is
expected to be similar to that of Phases I and II, although neither the
Company nor Feld has any obligation to continue the relationship for future
Phases.
LINES OF CREDIT
The Company has a $50 million revolving line of credit from BankBoston
and Morgan Guaranty as to which each has agreed to lend up to $25 million.
The Line of Credit is currently secured inter alia by the Company's interest
in the Sonterra Loan, the 277 Park Loan and the ERP Preferred Commitment.
Under the Line of Credit, the Company pays interest only, monthly, at an
annual rate equal to, at the Company's option, either (i) LIBOR plus 175
basis points or (ii) the higher of (A) the base rate of BankBoston or (B) 50
basis points above the federal funds effective rate. The Line of Credit is
for a term of two years and is extendible by the Company with the consent of
BankBoston and Morgan Guaranty for one additional year. It includes
customary covenants, including, among others, (i) maintaining a ratio of
liabilities to assets of not in excess of .60 to 1.0, (ii) maintaining a debt
service coverage ratio of not less than 1.5 to 1.0, (iii) a prohibition on
the payment of dividends until May 30, 1998 and (vi) a prohibition on ground-
up development or construction (other than Palomino Park).
The Company's other sources of capital to finance its acquisition,
investment, development and other activities, may include retained earnings,
funds derived from the issuance of debt and equity securities, sales of
investments and bank borrowings. See "Policies with Respect to Certain
Activities."
Wellsford Office is currently negotiating the terms of a $375 million
loan facility, consisting of a $225 million secured term loan facility and a
$150 million secured revolving credit facility. It is currently contemplated
that loans made under the $375 million loan facility will be secured by
mortgages on certain properties of Wellsford Office. There can be no
assurance that such loan facility will be consummated.
LEGAL PROCEEDINGS
Neither the Company nor the Properties are presently subject to any
material litigation nor, to the Company's knowledge, is any material
litigation threatened against the Company or the Properties, other than
routine litigation arising in the ordinary course of business and which is
expected to be covered by liability insurance.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's investment policies,
financing policies and policies with respect to certain other activities.
The Company's policies with respect to these activities have been determined
by the directors of the Company and may be amended or revised from time to
time at the discretion of the directors without a vote of the shareholders of
the Company.
Investment Policies
The Company intends to invest in real estate directly or indirectly
through entities that engage in real estate-related activities. These
investments may be in the form of debt or equity.
Debt investments may include the purchasing of mortgage loans, other
financial instruments collateralized by real estate or real estate interests,
or participations therein, real property tax liens or tax-exempt bonds
collateralized by real estate or tax-increment finance districts. These debt
instruments may be senior, junior or otherwise subordinated to the interests
of others. Further, the Company may provide credit enhancement or guarantees
of the obligations of others involved in real estate-related activities. The
Company may also invest in participating or convertible mortgages if the
Company concludes that it may benefit from the cash flow and/or any
appreciation in the value of the property. Such mortgages may be similar to
equity participations. The Company may also make mortgage loans or
participate in such loans and contemporaneously or otherwise obtain related
property purchase options.
Equity investments may include development projects directly or through
joint ventures, as well as the purchase of general or limited partnership
interests in limited partnerships, shares in publicly-traded or privately-
held corporations or interests in other entities that own real estate, make
real estate-related loans or invest in real estate-related debt instruments
or provide services or products to the real estate industry. The Company
intends to engage in active real estate businesses, which may include land
subdivisions, condominium conversions, property sales, and other businesses
considered ineligible or impractical investments for REITs. The Company may
also hold real estate or interests therein for investment. The Company may
purchase substantially leased, mostly unleased or vacant properties of any
type or geographic location. The Company intends to renovate and re-lease
the mostly unleased or vacant properties.
The activities described above often do not generate immediate cash
flow, and cash flow generated may be non-recurring. These investments may be
subject to existing debt financing and any such financing will have a
priority over the equity interests of the Company.
The Company may offer to exchange its securities for properties and
securities of other entities. Further, it may, from time to time, repurchase
its shares. The Company will seek investments generally with a duration of
one to five years.
Financing Policies
The Company will seek to finance its investments through both public and
private secured and unsecured debt financings, as well as public and private
placements of its equity securities. The equity securities will include both
common and preferred equity issuances of the Company and its subsidiaries.
The Company does not have a policy limiting the number or amount of mortgages
that may be placed on any particular property, but mortgage financing
instruments usually limit additional indebtedness on such properties. There
are currently no restrictions on the amount of debt that the Company may
incur.
Also, 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.
The Company has a two-year $50 million line of credit from BankBoston
and Morgan Guaranty. This facility is subject to certain financial and other
covenants. In the future, the Company may seek to extend, expand, reduce or
renew such facility, or obtain an additional or a replacement facility. See
"Lines of Credit."
Policies with Respect to Other Activities
The Company does not intend to qualify as a REIT, but it may, from time
to time, invest in REITs, sell properties or entities to REITs for cash
and/or securities. Further, it may spin-off to its common shareholders,
shares of its subsidiaries or shares of other entities it has acquired
through the sale of its properties, investments or otherwise. These spin-
offs may be taxable or non-taxable, depending upon the facts and
circumstances. The Company's policies with respect to its activities may be
reviewed and modified from time to time by the Company's directors without
notice to or vote of its shareholders.
<PAGE>
MANAGEMENT
Directors and Executive Officers
The executive officers and directors of the Company, their ages and
their positions are as follows:
Name Age Position Held
Jeffrey H. Lynford . . . . . . . . . . 50 Chairman of the Board,
Secretary and Director**
Edward Lowenthal . . . . . . . . . . . 52 President, Chief Executive
Officer and Director*
Gregory F. Hughes. . . . . . . . . . . 34 Chief Financial Officer
David Strong . . . . . . . . . . . . . 39 Vice President for
Development
Douglas Crocker II . . . . . . . . . . 57 Director**
Rodney F. Du Bois. . . . . . . . . . . 61 Director*
Mark S. Germain. . . . . . . . . . . . 47 Director**
Frank J. Hoenemeyer. . . . . . . . . . 78 Director***
Frank J. Sixt. . . . . . . . . . . . . 45 Director***
* Term expires 1998
** Term expires 1999
*** Term expires 2000
Jeffrey H. Lynford has been the Chairman of the Board, Secretary and
Director of the Company since its formation in January 1997. Mr. Lynford
served as the Chairman of the Board and Secretary of Wellsford Residential
from its formation in July 1992 until consummation of the EQR Merger in May
1997 and was the Chief Financial Officer of Wellsford Residential from July
1992 until December 1994. Mr. Lynford currently serves as a trustee emeritus
of the National Trust for Historic Preservation and as a director of five
mutual funds: Cohen & Steers Total Return Realty Fund, Inc., Cohen & Steers
Realty Shares, Inc., Cohen & Steers Realty Income Fund, Inc., Cohen & Steers
Special Equity Fund, Inc. and Cohen & Steers Equity Income Fund, Inc. Mr.
Lynford also serves as a trustee of EQR. He is also a member of the New York
bar. Prior to founding Wellsford Group Inc. ("WGI") in 1986, Mr. Lynford
gained real estate and investment banking experience as a partner of Bear
Stearns & Co. and a managing director of A.G. Becker Paribas, Inc.
Edward Lowenthal has been the President, Chief Executive Officer and
Director of the Company since its formation in January 1997. Mr. Lowenthal
served as the President and Chief Executive Officer and a trustee of
Wellsford Residential from its formation in July 1992 until consummation of
the EQR Merger in May 1997. Mr. Lowenthal currently serves as a director of
United American Energy Corporation, a developer, owner and operator of energy
facilities, a director of Corporate Renaissance Group, Inc., a mutual fund, a
director of Omega Healthcare, Inc., a REIT, a director of Great Lakes REIT,
Inc., a REIT that owns and operates office buildings, a trustee of Corporate
Realty Income Trust, a REIT, and a trustee of EQR. He is also a member of
The Board of Governors of NAREIT. Prior to founding WGI in 1986, Mr.
Lowenthal gained real estate and investment banking experience as a partner
of Bear Stearns & Co., a managing director of A.G. Becker Paribas, Inc., and
a partner in the law firm of Robinson Silverman Pearce Aronsohn & Berman.
Gregory F. Hughes has been the Chief Financial Officer of the Company
since its formation in January 1997. Mr. Hughes served as a Vice President -
Chief Financial Officer of Wellsford Residential from December 1994 until
consummation of the EQR Merger in May 1997. From March 1993 until December
1994 he was a Vice President and Chief Accounting Officer of Wellsford
Residential. During 1992, Mr. Hughes was a controller with Jones Lang
Wootton Realty Advisors, a firm that provides real estate asset management
and investment consultation services. From 1985 to 1991, Mr. Hughes was a
manager with Kenneth Leventhal & Company, a public accounting firm
specializing in real estate and financial services. Mr. Hughes is a
certified public accountant.
David M. Strong has been a Vice President for Development of the Company
since its formation in January 1997. Mr. Strong served as a Vice President
of Wellsford Residential from July 1995 until consummation of the EQR Merger
in May 1997. From July 1994 until July 1995 he was Acquisitions and
Development Associate of Wellsford Residential. From 1991 to 1994, Mr.
Strong was President and owner of LPI Management, Inc., a commercial real
estate company providing management and consulting services. From 1984 to
1991, he was a senior executive with the London Pacific Investment Group, a
real estate development, investment and management firm active in Southern
California and Western Canada. From 1979 to 1984, Mr. Strong was a manager
with Arthur Young, a public accounting firm. Mr. Strong is a member of the
Canadian Institute of Chartered Accountants.
Douglas Crocker II has been a director of the Company since consummation
of the EQR Merger. Mr. Crocker has been President, Chief Executive Officer
and a Trustee of EQR, the general partner of ERP Operating Partnership, since
March 1993. He is also a director of Horizon Group Incorporated, an owner,
developer and operator of outlet retail properties. Mr. Crocker has been
President and Chief Executive Officer of First Capital Financial Corporation,
a sponsor of public limited real estate partnerships ("First Capital"), since
December 1992 and a director of First Capital since January 1993. He has
been an executive vice president of Equity Financial and Management Company,
a subsidiary of Equity Group Investments, Inc., an owner, manager and
financier of real estate and corporations ("EGI"), providing strategic
direction and services for EGI's real estate and corporate activities since
November 1992. From September 1992 until November 1992, Mr. Crocker was a
managing director of investment banking with Prudential Securities, an
investment banking firm. He was a director and President of Republic Savings
Bank, a national chartered savings and loan association ("Republic"), from
December 1988 to June 1992, at which time the Resolution Trust Corporation
took control of Republic.
Rodney F. Du Bois has been a director of the Company since May 1997.
Mr. Du Bois served as a trustee of Wellsford Residential from November 1992
until consummation of the EQR Merger in May 1997. Mr. Du Bois also has been
President and co-owner of Goshawk Corporation, which provides finance and
general corporate services, since 1982. Mr. Du Bois was a founder of
Mountain Cable Company, a cable TV multiple system operator, and its Chairman
from 1985 until the company's sale in 1988. Previously Mr. Du Bois served as
Executive Vice President and a director of C. Brewer and Co., Chairman of
Alexander and Baldwin Agribusiness, Inc., a managing director of Warburg,
Paribas, Becker, Inc. and a Professor of Real Estate at the Amos Tuck School
of Business Administration at Dartmouth College.
Mark S. Germain has been a director of the Company since May 1997. Mr.
Germain served as a trustee of Wellsford Residential from November 1992 until
consummation of the EQR Merger in May 1997. Currently he is employed by
Olmstead Group L.L.C., which is a consultant to biotechnology and other high
technology companies. Mr. Germain also serves as a board member of several
privately held biotechnology companies. Previously, from 1990 to 1994, Mr.
Germain was employed by D. Blech & Company, Incorporated, a merchant bank.
From 1986 to 1989, he was President and Chief Operating Officer of The Vista
Organization, Ltd., and from 1989 to 1990, its President and Chief Executive
Officer. Mr. Germain was a partner in a New York law firm prior to 1986.
Frank J. Hoenemeyer has been a director of the Company since May 1997.
Mr. Hoenemeyer served as a trustee of Wellsford Residential from November
1992 until consummation of the EQR Merger in May 1997. Mr. Hoenemeyer also
currently serves as a director of American International Group, Inc., Mitsui
Trust Bank (U.S.A.), W.P. Carey Advisors, Inc. and Carey Fiduciary Advisors,
Inc. (subsidiaries of W.P. Carey & Co., Inc.) and ARIAD Pharmaceuticals, Inc.
and as Vice Chairman of the Investment Committee of W.P. Carey & Co., Inc.
From 1947 to 1984, he was employed by The Prudential Insurance Company of
America where he served as Vice Chairman and Chief Investment Officer prior
to his retirement.
Frank J. Sixt has been a director of the Company since May 1997. Mr.
Sixt served as a trustee of Wellsford Residential from November 1992 until
consummation of the EQR Merger in May 1997. Mr. Sixt also currently serves
as an executive director of Cheung Kong (Holdings) Limited, Cheung Kong
Infrastructure Holdings Limited and Hutchinson Whampoa Limited Group of
Companies. He also serves as a director of Husky Oil Limited, Concord
Property and Financial Company Limited and World Financial Properties
Limited. He is also a director of and Chairman of the Executive Committee of
the Board of Directors of Gordon Capital Corporation. Previously, from 1987
to 1990, Mr. Sixt was a partner in the law firm of Stikeman Elliot.
Key Employee
Richard R. Previdi has been active in seeking to acquire commercial
properties on behalf of the Company and its predecessor since September 1996.
From May 1994 until June 1996, he was a managing director of Emmes & Company,
a real estate investment company. From April 1990 until May 1994, Mr.
Previdi was a managing director of Trammell Crow N.E., Inc., and Chief
Executive Officer of that company's Northern Virginia Commercial Division.
Previously, from October 1985 until April 1990, he was first a marketing
principal, and later a partner, of Trammell Crow Company. From October 1982
until October 1985, Mr. Previdi was a manager with Arthur Young and Company,
a public accounting firm.
Compensation of Directors
The Company pays to each of its directors who are not employees of the
Company (i) an annual fee of $16,000, payable quarterly in shares of the
Common Stock, and (ii) a fee of $2,250 payable in cash for each regular
quarterly Board of Directors meeting at which such director is present in
person or by telephone. Messrs. Du Bois, Germain, Hoenemeyer and Sixt also
each received options to purchase 42,750 shares of Common Stock and Mr.
Crocker received options to purchase 21,375 shares of Common Stock, all under
the Company's 1997 Management Incentive Plan, and each will be eligible along
with other present and future directors to receive additional share options.
See "-1997 Management Incentive Plan." Directors who are employees of the
Company are not paid any directors' fees. In addition, the Company will
reimburse the directors for travel expenses incurred in connection with their
activities on behalf of the Company.
Board Committees
The Board of Directors of the Company has established an Executive
Committee, a Compensation Committee and an Audit Committee. The Board does
not have a nominating committee or a committee performing the functions of a
nominating committee; the entire Board performs the usual functions of such
committee.
Executive Committee. The Executive Committee consists of Messrs.
Lynford, Lowenthal and Hoenemeyer. The Executive Committee has the authority
to acquire, dispose of and finance investments for the Company and execute
contracts and agreements, including those related to the borrowing of money
by the Company, and generally to exercise all other powers of the directors
except for those which require action by all directors or the independent
directors under the Charter or Bylaws of the Company or under applicable law.
Compensation Committee. The Compensation Committee consists of Messrs.
Du Bois, Germain, Hoenemeyer and Sixt, none of whom are employees of the
Company. The Compensation Committee reviews the Company's compensation and
employee benefit plans, programs and policies, approves employment agreements
and monitors the performance and compensation of the executive officers and
other employees.
Audit Committee. The Audit Committee consists of Messrs. Du Bois,
Germain, Hoenemeyer and Sixt and makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
the professional services provided by the independent public accountants,
reviews the independence of the independent public accountants, considers the
range of audit and non-audit fees, reviews the adequacy of the Company's
internal accounting controls and reviews related party transactions.
Executive Compensation
The following table sets forth certain information with respect to the
Chief Executive Officer and each of the other executive officers of the
Company whose cash compensation from the Company is expected to exceed
$100,000 on an annualized basis during the fiscal year ending December 31,
1997, and all executive officers as a group.
Name of Individual Capacities in Cash
or Number in Group Which Serve Compensation
Jeffrey H. Lynford . . Chairman of the Board and Secretary $275,000
Edward Lowenthal . . . President and Chief Executive Officer $275,000
Gregory F. Hughes. . . Chief Financial Officer $200,000
David M. Strong. . . . Vice President for Development $125,000
All executive officers
as a group (consisting
of the four persons
named above) . . . . . . . . . . . . . . . . . . . . . . $875,000
The Company has also granted options to purchase 85,500 shares of Common
Stock under the 1997 Management Investment Plan to each of Messrs. Lynford,
Lowenthal, Hughes and Strong. See "-1997 Management Incentive Plan."
Employment Agreements
The Company has entered into employment agreements with Messrs. Lynford
and Lowenthal (the "Senior Executives"), pursuant to which Mr. Lynford will
serve as the Chairman of the Board of the Company and Mr. Lowenthal will
serve as its President and Chief Executive Officer. The Company has also
entered into employment agreements with Messrs. Hughes and Strong. The
employment agreements with Messrs. Lynford and Lowenthal will expire on
December 31, 2002, and the employment agreements with Messrs. Hughes and
Strong on May 29, 1999.
Each of the employment agreements is automatically extended for
additional one-year periods unless either the executive officer or the
Company gives prior notice not to extend the employment agreement, as
specified in the agreement.
Pursuant to the employment agreements, each of the executive officers is
also entitled to incentive compensation to be determined by the Compensation
Committee. Mr. Hughes is entitled to incentive compensation equal to at least
50% of his annual base salary.
In the event that either of the Senior Executives dies during the term
of his employment agreement, or if the Company elects to terminate his
employment agreement as a result of the Senior Executive's total disability,
the Company is required to pay additional compensation for the longer of 36
months after such termination or for the remaining term of his agreement at
the rate of his then annual base salary.
If a Senior Executive's employment agreement is terminated by the Senior
Executive following a "change in control of the Company" (as defined in the
agreements), then the Senior Executive shall be entitled to receive a lump
sum cash payment generally equal to the sum of (i) the amount of compensation
that he would have been entitled to had the agreement not been so terminated
and (ii) 299% of his average annual compensation of every type and form
includible in gross income received during the three year period preceding
the calendar year in which employment is terminated. If a Senior Executive's
employment agreement is terminated by the Company other than for "proper
cause" (as defined in the agreements) or death or disability, then the Senior
Executive shall be entitled to receive a lump sum cash payment generally
equal to the greater of (i) the amount of compensation that he would have
been entitled to had the agreement not been so terminated or (ii) 299% of his
average annual compensation of every type and form includible in gross income
received during the three year period preceding the calendar year in which
employment is terminated.
The Senior Executives are also entitled to reimbursement of income taxes
on certain non-cash taxable income resulting from a change in control of the
Company, including taxable income resulting from accelerated loan forgiveness
or vesting of restricted shares or options. In addition, each Senior
Executive is entitled to receive an additional sum to cover certain resulting
income and excise tax liabilities that may be incurred on all of the
foregoing.
If following a "change in control of the Company" (as defined in the
agreements), the employment agreement of either Mr. Hughes or Mr. Strong is
terminated (a) by the Company, other than for "Cause" (as defined in the
agreements) or (b) by Mr. Hughes or Mr. Strong, as the case may be, then Mr.
Hughes or Mr. Strong, as the case may be, shall be entitled to receive a lump
sum cash payment generally equal to the greater of (i) the amount of
compensation that he would have been entitled to had the agreement not been
so terminated and (ii) 200% of his average annual compensation of every type
and form includible in gross income received during the three year period
preceding the calendar year in which employment is terminated.
1997 Management Incentive Plan
The Company has established its 1997 Management Incentive Plan (the
"Management Incentive Plan") for the purpose of aligning the interests of the
Company's directors, executive officers and employees with those of the
shareholders and to enable the Company to attract, compensate and retain
directors, executive officers and employees and provide them with appropriate
incentives and rewards for their performance. The existence of the
Management Incentive Plan should enable the Company to compete more
effectively for the services of such individuals. The Management Incentive
Plan provides for administration by a committee of two or more non-employee
directors established for such purpose.
Awards to directors, executive officers and other employees under the
Management Incentive Plan may take the form of stock options, including
corresponding stock appreciation rights and reload options, restricted stock
awards and stock purchase awards. The Company may also provide stock
purchase loans to enable Management Incentive Plan participants to pay for
stock purchase awards. The maximum number of shares of Common Stock that may
be the subject of awards under the Management Incentive Plan is 1,750,000
shares. Options to acquire 597,375 shares of Common Stock have been granted
under the Management Incentive Plan to eighteen individuals, including
directors, executive officers and employees of the Company.
Rollover Stock Option Plan
The Company has established a Rollover Stock Option Plan (the "Rollover
Plan"), which is substantially similar to the Management Incentive Plan, for
the purpose of granting options and corresponding rights to purchase Common
Stock in replacement for former Wellsford Residential share options. All
1,326,235 options issuable under the Rollover Plan were granted at the
closing of the EQR Merger principally to certain executive officers and
directors of the Company.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of four independent directors of the
Company: Rodney F. Du Bois, Mark S. Germain, Frank J. Hoenemeyer and Frank J.
Sixt, none of whom is, or has been, an officer or employee of the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock by each person who is known by the Company to be
the beneficial owner of more than 5% of the aggregate number of shares of
Common Stock, by each director of the Company, by certain executive officers
of the Company and by all directors and executive officers of the Company as
a group. Except where otherwise indicated, each person named in the table
has sole voting and investment power with respect to all the Common Stock
shown as beneficially owned by such person.
Amount and Percentage Percentage
Nature of of Class of Class
Name and Address of Beneficial Prior to Following
Beneficial Owner (1) (2) Ownership Value Merger(3) Value Merger(3)
Jeffrey H. Lynford(4). . . . . . 621,384 3.56% 2.99%
Edward Lowenthal(5). . . . . . . 626,338 3.59% 3.01%
Gregory F. Hughes(6) . . . . . . 202,074 1.18% *
David M. Strong(7) . . . . . . . 130,487 * *
Rodney F. Du Bois(8)
32 Rip Road
Hanover, New Hampshire 03755. . 44,500 * *
Mark S. Germain(9)
6 Olmsted Road
Scarsdale, New York 10583. . . 111,411 * *
Frank J. Hoenemeyer(10)
7 Harwood Drive
Madison, New Jersey 07940. . . 43,683 * *
Frank J. Sixt(11)
c/o Cheung Kung (Holdings), Ltd.
China Building, 18-22 Floors
29 Queen's Road Central
Hong Kong . . . . . . . . . . . 81,265 * *
Douglas Crocker II(12)
c/o Equity Residential Properties Trust
Two North Riverside Plaza
Chicago, Illinois 60606. . . . 21,375 * *
All directors and executive
officers as a group (9 persons).1,885,004 10.15% 8.60%
Longleaf Partners Realty Fund
6075 Poplar Avenue
Memphis, TN 38119. . . . . . .3,398,000 20.10% 16.77%
Mutual Qualified Fund(13)
51 John F. Kennedy Parkway
Short Hills, NJ 07078. . . . .2,277,184(14) 13.47% 19.50%
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, NY 10036. . . . . .2,427,184 14.35% 11.98%
Yale University
230 Prospect Street
New Haven, CT 06511. . . . . . 964,932 5.71% 4.76%
Mutual Beacon Fund(15)
51 John F. Kennedy Parkway
Short Hills, NJ 07078. . . . . 80,850(16) * 6.11%
___________________
*Less than 1.0%
(1) Unless otherwise indicated, the address of each person is c/o Wellsford
Real Properties, Inc., 610 Fifth Avenue, New York, New York 10020.
(2) Whitehall Partner has the right to acquire shares of Common Stock
pursuant to the Warrant Agreement and in exchange for certain membership
units it receives in Wellsford Office; provided, however, that in either
case at the Company's election, Whitehall Partner may receive cash based
upon the market value of the Common Stock. The Company has indicated
that it does not currently intend to issue, upon the exercise of any
Warrants or the exchange right, Common Stock equal to 20% or more of its
Common Stock outstanding on the date of the issuance of the Warrants or
the exchange right. See "Business and Properties of Wellsford/Whitehall
Properties, L.L.C. - Warrant Agreement and Other Rights of Whitehall
Partner to Acquire Common Stock".
(3) Assumes the conversion of 339,806 shares of Class A Common issued to ERP
Operating Partnership pursuant to the Common Stock and Preferred Stock
Purchase Agreement (the "Stock Purchase Agreement") into 339,806 shares
of Common Stock.
(4) Includes 538,205 shares of Common Stock issuable upon the exercise of
options, none of which are currently exercisable. Options to purchase
452,705 of these shares represent replacement options for Wellsford
Residential share options which had exercise prices ranging from $18.94
to $26.375. Also includes 7,790 shares of Common Stock held by the
Lynford Family Charitable Trust, u/a dated December 16, 1984; Mr.
Lynford disclaims beneficial ownership of such shares.
(5) Includes 538,205 shares of Common Stock issuable upon the exercise of
options, none of which are currently exercisable. Options to purchase
452,705 of these shares represent replacement options for Wellsford
Residential share options which had exercise prices ranging from $18.94
to $26.375. Also includes 291 shares of Common Stock held by Ilene
Lowenthal, Mr. Lowenthal's wife and 150 shares of Common Stock held by
Jared Lowenthal, Mr. Lowenthal's son; Mr. Lowenthal disclaims beneficial
ownership of such shares.
(6) Includes 188,105 shares of Common Stock issuable upon the exercise of
options, none of which are currently exercisable. Options to purchase
102,605 of these shares represent replacement options for Wellsford
Residential share options which had exercise prices ranging from $18.94
to $29.375.
(7) Includes 126,126 shares of Common Stock issuable upon the exercise of
options, none of which are currently exercisable. Options to purchase
40,626 of these shares represent replacement options for Wellsford
Residential share options which had exercise prices ranging from $18.94
to $22.50.
(8) Includes 42,750 shares of Common Stock issuable upon the exercise of
options, all of which are immediately exercisable. Also includes 1,500
shares of Common Stock held by Carol Du Bois, Mr. Du Bois' wife; Mr. Du
Bois disclaims beneficial ownership of such shares.
(9) Includes 81,265 shares of Common Stock issuable upon the exercise of
options, all of which are immediately exercisable. Options to purchase
38,515 of these shares represent replacement options for Wellsford
Residential share options which had exercise prices ranging from $18.94
to $26.375. Also includes 30,146 shares of Common Stock held by Margery
Germain, Mr. Germain's wife; Mr. Germain disclaims beneficial ownership
of such shares.
(10) Includes 42,750 shares of Common Stock issuable upon the exercise of
options, all of which are currently exercisable. Also includes 933
shares of Common Stock held by the Frank J. Hoenemeyer Individual
Retirement Account.
(11) Represents 81,265 shares of Common Stock issuable upon the exercise of
options, all of which are immediately exercisable. Options to purchase
38,515 of these shares represent replacement options for Wellsford
Residential share options which had exercise prices ranging from $18.94
to $26.375.
(12) Represents 21,375 shares of Common Stock issuable upon exercise of
options, all of which are immediately exercisable. Excludes 339,806
shares of Class A Common issued to ERP Operating Partnership pursuant to
the Stock Purchase Agreement. Mr. Crocker is President and Chief
Executive Officer of EQR, the general partner of ERP Operating
Partnership, and disclaims beneficial ownership of such shares.
(13) Mutual Qualified Fund has granted to an unaffiliated third party an
irrevocable proxy to vote 836,500 of the shares of Common Stock that it
owns. An additional 614,747 shares of Common Stock that it owns are
subject to a voting trust, the trustee of which is an unaffiliated third
party.
Mutual Qualified Fund is one of the series comprising Franklin Mutual
Series Fund Inc., a publicly held open-end investment company registered
with the Commission under the Investment Company Act of 1940, as
amended. Its investment advisor is Franklin Mutual Advisers, Inc.
("FMAI"), an investment adviser registered with the Commission under the
Investment Advisers Act of 1940, as amended. Pursuant to an investment
advisory agreement with Mutual Qualified Fund, FMAI has sole investment
discretion and voting authority with respect to the shares owned by
Mutual Qualified Fund. FMAI has no interest in dividends or proceeds
from the sale of such securities and disclaims beneficial ownership of
all the securities owned by Mutual Qualified Fund.
(14) Following the Value Merger, Mutual Qualified Fund will beneficially own
2,277,184 shares of Common Stock and will have the right to vote 825,937
shares of Common Stock, assuming the receipt by Mutual Qualified Fund or
other advisory clients of FMAI in the Value Merger of 0.2984 shares of
Common Stock for each Value Share owned prior to the consummation of the
Value Merger. In connection with the Value Merger, 1,673,077 shares of
Common Stock will be acquired by advisory clients of FMAI. FMAI has
sole investment discretion and voting authority with respect to the
shares owned by such advisory clients. FMAI has no interest in
dividends or proceeds from the sale of such securities and disclaims
beneficial ownership of all such securities.
(15) Mutual Beacon Fund is one of the series comprising Franklin Mutual
Series Fund Inc., a publicly held open-end investment company registered
with the Commission under the Investment Company Act of 1940, as
amended. Its investment advisor is FMAI. Pursuant to an investment
advisory agreement with Mutual Beacon Fund, FMAI has sole investment
discretion and voting authority with respect to the shares owned by
Mutual Beacon Fund. FMAI has no interest in dividends or proceeds from
the sale of such securities and disclaims beneficial ownership of all
the securities owned by Mutual Beacon Fund.
(16) Following the Value Merger, Mutual Beacon Fund will beneficially own
1,238,725 shares of Common Stock, assuming the receipt by Mutual Beacon
Fund or its affiliates in the Value Merger of 0.2984 shares of Common
Stock for each Value Share owned prior to the consummation of the Value
Merger.
CERTAIN TRANSACTIONS
In February, 1997, the contracts to purchase Chatham, the Cyanamid
Office Portfolio and Greenbrook were transferred to the Company by an entity
("Wellsford Commercial") of which Messrs. Lynford and Lowenthal, the wife of
Mark Germain, and three unaffiliated parties were owners, for 218,447 shares
of Common Stock having an aggregate value of approximately $2.25 million and
the Company's agreement to repay a $1.0 million advance used for the down
payment on the Cyanamid Office Portfolio. Upon liquidation of Wellsford
Commercial, Mr. Lynford, Mr. Lowenthal and the wife of Mark Germain each
received approximately 16.4%, 16.4% and 13.8%, respectively, of the shares of
Common Stock issued to Wellsford Commercial, and the other three unaffiliated
owners received the remainder of the shares. The aggregate purchase price
for these commercial properties paid by the Company was approximately $47.6
million, including the approximately $2.25 million referred to above. The
above transfers to the Company, along with the Contribution and the purchase
of stock by ERP Operating Partnership under the Stock Purchase Agreement,
were made as part of a single plan intended to qualify as a tax-free
transaction.
On May 30, 1997, the Company made short-term loans to Messrs. Lynford
and Lowenthal in the amounts of $590,000 and $119,000, respectively. The
proceeds of these loans, which were repaid on July 1, 1997, were used to
satisfy certain withholding tax obligations.
CERTAIN AGREEMENTS BETWEEN
THE COMPANY AND ERP OPERATING PARTNERSHIP
The following describes certain aspects of the agreements entered into
by the Company and ERP Operating Partnership upon consummation of the
Distribution and EQR Merger. The following descriptions do not purport to be
complete and are qualified in their entirety by reference to the full text of
the agreements, copies of which have been filed with the Commission as
exhibits to the Registration Statement of which this Prospectus is a part and
are available from the Company upon request.
Common Stock and Preferred Stock Purchase Agreement
The Company has entered into the Stock Purchase Agreement with ERP
Operating Partnership, providing for the sale of Class A Common and Series A
Preferred to ERP Operating Partnership on the terms described below.
Class A Common Stock.
Pursuant to the terms of the Stock Purchase Agreement, ERP Operating
Partnership purchased from the Company at the closing of the EQR Merger
339,806 shares of Class A Common at a price per share equal to $10.30 (the
book value per share of the Common Stock on the date of the EQR Merger) for
an aggregate purchase price of $3.5 million. For a description of the Class
A Common, see "Description of Capital Stock - Class A Common."
Series A Preferred Stock.
Pursuant to the terms of the Stock Purchase Agreement, ERP Operating
Partnership has agreed to purchase from the Company up to 1,000,000 shares of
Series A Preferred at $25.00 per share as requested by the Company over the
three-year period (the "Commitment Period") commencing on May 30, 1997,
subject to the satisfaction of certain conditions. If at the end of the
Commitment Period, ERP Operating Partnership has purchased less than
1,000,000 shares of Series A Preferred, ERP Operating Partnership has the
right to purchase the remainder of the 1,000,000 shares of Series A Preferred
not purchased prior to that time. In addition, the Company's rights to cause
ERP Operating Partnership to purchase shares of Series A Preferred under the
Stock Purchase Agreement have been pledged to the lenders under the Line of
Credit as collateral to secure the Company's obligations under the Line of
Credit. See "Lines of Credit".
For a description of the Series A Preferred, see "Description of Capital
Stock - Class A Preferred."
Company Board Member Nominated or Elected by ERP Operating Partnership.
ERP Operating Partnership, as the holder of Class A Common, has the
right to nominate or elect an employee of ERP Operating Partnership for
election to the Company's Board of Directors. Douglas Crocker II is
currently ERP Operating Partnership's representative on the Company's Board
of Directors.
Holders of the Class A Common, as a class, may nominate or elect a
director to the Board of Directors of the Company (a "Class A Director") as
described above until May 30, 1999 or, if later, so long as (i) ERP Operating
Partnership is obligated to purchase preferred stock in the Company pursuant
to the Stock Purchase Agreement; (ii) ERP Operating Partnership has
obligations pursuant to the Agreement Regarding Palomino Park or pursuant to
the Credit Enhancement Agreement; or (iii) the aggregate liquidation value of
the shares of Series A Preferred owned by ERP Operating Partnership is
greater than $10 million.
Voting of Class A Common and Series A Preferred.
Until May 30, 2007, the Company has the right to direct the voting of
all shares of Series A Preferred, Class A Common and Common Stock owned by
ERP Operating Partnership or any of its affiliates, except as to the election
of the Class A Director or any matter relating to the rights, preferences and
privileges of the Series A Preferred or the Class A Common.
Right of First Offer.
Until May 30, 2007, the Company has the right of first offer with
respect to any shares of Common Stock, Class A Common, Series A Preferred or
warrants to purchase Common Stock proposed to be sold by ERP Operating
Partnership.
Registration Rights Agreement
The Company and ERP Operating Partnership have entered into a
Registration Rights Agreement providing for registration rights at the
Company's expense with respect to shares of Class A Common, Series A
Preferred and Common Stock.
After May 30, 1998, subject to certain limitations, upon request (a
"Demand Notice") of ERP Operating Partnership, the Company has agreed to
register Registrable Securities with the Commission. In addition, subject to
certain limitations, if the Company proposes to register any Common Stock for
public sale pursuant to an underwritten offering it will include Registrable
Securities in the registration statement upon request (a "Registration
Notice") from ERP Operating Partnership. "Registrable Securities" means any
of: (i) Series A Preferred issuable or issued; (ii) Common Stock issuable or
issued upon conversion of shares of Series A Preferred or Class A Common, or
(iii) Common Stock issuable or issued upon the exercise of warrants issued
pursuant to the Articles Supplementary.
Agreement Regarding Palomino Park
General.
The Company currently owns 80% of the shares of WPHC, consisting of
voting Class A Shares (the "Class A Shares"), and ERP Operating Partnership
owns the remaining 20% of the shares of WPHC, consisting of non-voting Class
B Shares (the "Class B Shares"). WPHC, together with Feld, are the two
members of the limited liability companies - Park at Highlands LLC and Red
Canyon at Palomino Park LLC - which own Phase I and Phase II, respectively.
The Company and ERP Operating Partnership have entered into an agreement (the
"Palomino Agreement") regarding their rights and obligations as shareholders
of WPHC and certain aspects of the development of Palomino Park, including
Phases I (Blue Ridge) and II (Red Canyon). Certain of the terms are
summarized below.
Capital Contributions.
WPHC is obligated to make capital contributions to the Phase I LLC and
Phase II LLC for certain acquisition costs, and to fund the deficit between
construction costs and construction loan proceeds, respectively. These
subsequent capital contribution obligations ("Phase Contributions") are
limited to the deficits as projected in the budgets originally adopted for
each Phase. The Company has guaranteed the Phase Contributions.
ERP Operating Partnership has no obligation to contribute capital to
WPHC.
Issuance of Additional WPHC Shares to the Company; Anti-Dilution
Provisions.
If additional shares of WPHC are issued to the Company or to one of its
subsidiaries, ERP Operating Partnership will have the right to purchase a
sufficient number of such shares to retain a 20% interest in WPHC. Any Class
A Shares acquired by ERP Operating Partnership will be converted into Class B
Shares.
Offers to Purchase Class A Shares or Class B Shares; Rights of First
Refusal; The Company's Drag Along Right.
ERP Operating Partnership may transfer all, but not part, of its Class B
Shares, except in a Tag Along transaction (described below).
The Company may transfer all or part of its Class A Shares after the
expiration of the lock-up period (i.e., the period during which ERP Operating
Partnership is liable to the construction lender under a Tri-Party Agreement,
as described below).
If the Company receives an offer to purchase all of the Class A Shares,
the Company has the right ("Drag Along Right") to compel ERP Operating
Partnership to sell all of its Class B Shares as part of that transaction to
enable the Company to effectuate a total sale of WPHC to a third party.
If ERP Operating Partnership or the Company shall receive an offer from
a bona fide third party to purchase all (or in the case of the Company any
part) of their shares in WPHC, then the selling shareholder shall be
obligated to offer to sell its shares to the other shareholder (i.e. the non-
selling shareholder) who shall have a preemptive right ("Right of First
Refusal") to purchase the offered shares on the same terms. The Right of
First Refusal granted to ERP Operating Partnership does not apply to a
written offer from a bona fide purchaser that is not an affiliate of the
Company to purchase all of the shares of WPHC owned by the Company and ERP
Operating Partnership if the Company validly exercises its Drag Along Rights
in connection therewith.
ERP Operating Partnership's Tag Along Right.
ERP Operating Partnership has a right ("Tag Along Right") to compel the
Company to include ERP Operating Partnership's Class B Shares in a sale of
the Class A Shares, in such amount as will preserve the 80%-20% ratio between
the Class A Shares held by the Company and Class B Shares held by ERP
Operating Partnership.
The Put/Call Feature of One-Half of the Class B Shares.
One-half of ERP Operating Partnership's Class B Shares (the "Put/Call
Shares") are subject to a Put/Call agreement in favor of either ERP Operating
Partnership (the Put feature) or the Company (the Call feature) at the
Put/Call Price.
Pursuant to its Put right, ERP Operating Partnership may compel the
Company to purchase from ERP Operating Partnership the Put/Call Shares at any
time after the fifth year for the Put/Call Price.
Pursuant to its Call right, the Company may compel ERP Operating
Partnership to sell to the Company the Put/Call Shares at any time for the
Put/Call Price.
The Put/Call Price equals $1.9 million (adjusted, in the case of the
Call, for inflation after the fifth year), less any amounts previously
received by ERP Operating Partnership from sale and refinancing proceeds.
Consistent with the foregoing, one-half of the Class B Shares in any
sale transaction effected by means of either the Drag Along Right or the Tag
Along Right is deemed Put/Call Stock and (i) in the case of a sale
transaction effected by means of the Drag Along Right, entitled to receive
the Put/Call Price and (ii) in the case of a sale transaction effected by
means of the Tag Along Right, entitled to receive the greater of the purchase
price in such transaction or a pro-rated portion of the Put/Call Price.
Future Acquisitions of the Remaining Overall Property.
Any future Phase acquired by WPHC will be acquired by WPHC or in a
Colorado limited liability company substantially similar to the Phase II LLC.
ERP Operating Partnership's Right of First Offer if WPHC Elects to
Assign its Interest in the Land Contract.
If the Company, through WPHC, decides not to acquire a future Phase and
instead to assign the land contract to a third party for such future Phase,
then ERP Operating Partnership, subject to the similar interests of Feld, has
a preemptive right of first offer with respect to such proposed assignment.
ERP Operating Partnership's Right of First/Last Offer for Sale of Blue
Ridge and Red Canyon.
With the exception of sales pursuant to a condominium or townhome plan,
ERP Operating Partnership is accorded certain rights of first and last offer
with respect to a sale of either WPHC's interest in the Phase I LLC or the
Phase II LLC, or the sale of fee title to Phase I or Phase II by either of
said entities.
Tri-Party Agreements and Standby Agreements.
Phase I Tri-Party Agreement. With respect to the development of Phase
I, NationsBank, N.A. ("NationsBank") has provided a construction loan of
approximately $36.8 million. ERP Operating Partnership has agreed ("Phase I
Tri-Party Agreement"), assuming completion of construction of Phase I, if the
loan is not satisfied when due, to pay NationsBank the lesser of the loan
balance or the final agreed upon budget.
Phase II Tri-Party Agreement. With respect to the development of Phase
II, NationsBank has provided a construction loan of approximately $29.5
million. ERP Operating Partnership has agreed ("Phase II Tri-Party
Agreement"), assuming completion of construction of Phase II, if the loan is
not satisfied when due, to pay NationsBank the lesser of the loan balance or
the final agreed upon budget. ERP Operating Partnership will receive a fee
of (i) 1% of the committed construction loan amount for each of the first two
years and (ii) 1-1/2% of such amount for the third year.
The Standby Agreements. If ERP Operating Partnership does, in fact, pay
off the construction loan pursuant to its obligations under the Phase I Tri-
Party Agreement or Phase II Tri-Party Agreement, ERP Operating Partnership
shall be entitled to acquire fee title to the corresponding Phase for $100.
Events of Default. Upon an event of default (as described below), ERP
Operating Partnership may exercise all remedies available to it; provided,
however, ERP Operating Partnership may not disaffirm its obligations under
the Phase I Tri-Party Agreement or the Phase II Tri-Party Agreement. An
event of default includes, among other things, a material misrepresentation
by the Company, failure to make payments after a material default by the
Company under the Palomino Agreement or any document entered into pursuant to
the Palomino Agreement, an undischarged judgment against the Company in
excess of $250,000 and a change in control of the Company.
Credit Enhancement Agreement
Pursuant to a certain agreement (the "Bank Reimbursement Agreement"),
(i) Dresdner issued a letter of credit ("Dresdner Letter of Credit") to
insure the repayment of the Bonds and (ii) the Company has undertaken to
reimburse Dresdner if the Dresdner Letter of Credit is drawn upon.
ERP Operating Partnership has entered into a Credit Enhancement
Agreement with the Company (the "Credit Enhancement Agreement") under which
ERP Operating Partnership has made its own credit available to Dresdner in
the form of a guaranty to Dresdner of the Company's obligations under the
Bank Reimbursement Agreement for a period of eight years from the
consummation of the EQR Merger (the "ERP Guaranty").
The ERP Guaranty will be revised and made available with respect to any
similar letter of credit or credit facility issued in lieu or replacement of
the Dresdner Letter of Credit.
The Company has agreed to pay ERP Operating Partnership for the ERP
Guaranty an annual credit enhancement fee, payable quarterly, equal to .5% of
the face amount of the Dresdner Letter of Credit (or the face amount of any
alternate credit arrangement). Following an event of default by the Company,
ERP Operating Partnership will have the right, among other remedies, to
select an alternate interest rate on the Bonds and to direct the actions of
PPPIC under the Credit Enhancement Agreement. In addition, pursuant to the
Credit Enhancement Agreement there are certain restrictions on the ability to
convert the rate mode of the Bonds. The Company has agreed to reimburse ERP
Operating Partnership for any amounts it pays under the ERP Guaranty or any
amendment thereto, together with interest on such amount.
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the Company's stock does not
purport to be complete and is subject to and qualified in its entirety by
reference to Maryland law and the Company's Charter and Bylaws, copies of
which have been filed with the Commission as exhibits to the Registration
Statement of which this Prospectus is a part and are available from the
Company upon request.
General
The Charter provides that the Company may issue up to 200,000,000 shares
of Common Stock, $.01 par value per share. The Board of Directors may
reclassify any unissued shares of stock in one or more classes or series of
stock. As of December 1, 1997, the Board of Directors had reclassified
350,000 shares of Common Stock as shares of Class A Common and 2,000,000
shares of Common Stock as shares of Series A Preferred. As of December 1,
1997, there were 16,572,043 shares of Common Stock issued and outstanding and
339,806 shares of Class A Common issued and outstanding. Of the 2,000,000
shares of the Series A Preferred authorized for issuance, 1,000,000 shares
are subject to issuance pursuant to the Stock Purchase Agreement and
1,000,000 shares are subject to issuance pursuant to the Company's right to
pay dividends on the Series A Preferred by the issuance of additional shares
of the Series A Preferred. In addition, up to 1,750,000 shares of Common
Stock have been reserved for issuance under the Company's 1997 Management
Incentive Plan, 1,326,235 shares of Common Stock have been reserved for
issuance under the Company's Rollover Stock Option Plan, approximately
5,000,000 shares of Common Stock have been reserved for issuance upon
conversion of the Series A Preferred and Class A Common, 4,349,715 shares of
Common Stock have been reserved for issuance upon exercise by Whitehall
Partner of the Warrants and 3,350,000 shares of Common Stock will be issued
in connection with the consummation of the Value Merger. Also, 1,612,913
shares of Common Stock will be available for issuance to Whitehall Partner
upon its exchange of certain membership units in Wellsford Office for shares
of Common Stock, assuming a price per share of Common Stock of $15.50 (the
last reported sale price of a share of Common Stock on the ASE on December 1,
1997). See "Warrant Agreement and Other Rights of Whitehall Partner to
Acquire Common Stock".
Under the MGCL, shareholders generally are not liable for the
corporation's debts and obligations.
The Common Stock is listed on the American Stock Exchange. The United
States Trust Company of New York acts as transfer agent and registrar of the
Common Stock.
The Company intends to furnish to its shareholders an annual report
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm.
Common Stock
All of the Shares have been duly authorized, and are fully paid, validly
issued and nonassessable. Subject to the preferential rights of any other
class or series of stock, holders of the Common Stock are entitled to receive
dividends on such stock if, as and when authorized and declared by the Board
of Directors of the Company out of assets legally available therefor and to
share ratably in the assets of the Company legally available for distribution
to its shareholders in the event of its liquidation, dissolution or winding
up after payment of or adequate provision for all known debts and liabilities
of the Company and payment of liquidation preferences to holders of preferred
stock.
Each outstanding share of Common Stock entitles the holder to one vote
on all matters submitted to a vote of shareholders, including the election of
directors, and, except as provided with respect to any other class or series
of stock, the holders of such shares will possess exclusive voting power.
There is no cumulative voting in the election of directors, which means that,
except with respect to the director elected by the holders of Class A Common,
the holders of a majority of the outstanding shares of Common Stock can elect
all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors. See "- Class A
Common Stock."
Holders of shares of Common Stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any securities of the Company. Except for the rights
of the Class A Common described below, shares of Common Stock will have equal
dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally may not dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course
of business unless approved by the affirmative vote of shareholders holding
at least two-thirds of the shares entitled to vote on the matter unless a
lesser percentage (but not less than a majority of all of the votes entitled
to be cast on the matter) is set forth in the corporation's charter. The
Charter provides for approval of consolidations, share exchanges, mergers in
which the Company is the successor, and amendments to the charter (except
amendments to the provisions relating to the classification and removal of
directors or any amendment reducing supermajority voting requirements) by the
affirmative vote of holders of shares entitled to cast a majority of the
votes entitled to be cast on the matter.
Classification or Reclassification of Common Stock or Preferred Stock
The Charter authorizes the Board of Directors to reclassify any unissued
shares of stock from time to time in one or more classes or series of stock.
Prior to issuance of shares of each series, the Board is required by MGCL and
the Charter to set the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series.
Thus, the Board could authorize the issuance of shares of Preferred Stock
with terms and conditions which could have the effect of delaying, deferring
or preventing a transaction with or a change in control of the Company that
might involve a premium price for the holders of Common Stock or otherwise be
in their best interest. As of December 1, 1997, no shares of Preferred Stock
were outstanding, and the Company had no plans to issue any Preferred Stock,
other than pursuant to the Stock Purchase Agreement.
Power to Issue Additional Shares of Common Stock and Preferred Stock
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock and to reclassify
any unissued shares of Common Stock and thereafter to cause the Company to
issue such reclassified shares of stock will provide the Company with
increased flexibility in structuring possible future financings and
acquisitions and in meeting other needs which might arise. The additional
classes or series, as well as the Common Stock, will be available for
issuance without further action by the Company's shareholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which the Company's securities may be listed or
traded. Although the Board of Directors has no intention at the present time
of doing so, it could authorize the Company to issue a class or series that
could, depending on the terms of such class or series, delay, defer or
prevent a transaction or a change of control of the Company that might
involve a premium price for holders of common stock or otherwise be in their
best interest.
Class A Common Stock
Rights Generally.
Each share of Class A Common entitles its holder to all the rights of a
share of Common Stock in addition to the rights described below. Holders of
Class A Common do not have any preemptive rights to acquire other securities
of the Company.
Voting Rights.
Holders of Class A Common, as a class, may nominate or elect a director
to the Board of Directors of the Company, as described in "Certain Agreements
between the Company and ERP Operating Partnership - Common Stock and
Preferred Stock Purchase Agreement".
Optional and Automatic Conversion.
Holders of Class A Common have the right, exercisable at any time and
from time to time, to convert all or any shares of Class A Common into shares
of Common Stock at a conversion rate of one share of Common Stock for each
share of Class A Common, subject to adjustment. Any outstanding shares of
Class A Common will automatically convert, at the conversion rate, into
shares of Common Stock upon the sale, transfer, pledge or other disposition
("Transfer") of such shares of Class A Common to any entity other than an
affiliate of EQR or ERP Operating Partnership.
Adjustment of Conversion Rate.
If the Company (a) reclassifies the outstanding shares of Common Stock
into shares of some other class or series of stock of the Company, (b)
subdivides the outstanding shares of Common Stock into a greater number of
shares of Common Stock or (c) combines the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, the conversion rate
immediately prior to such action shall be adjusted so that the holder of any
shares of Class A Common thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock which he would have
owned immediately following such action had such shares of Class A Common
been converted immediately prior thereto.
Purchase of Shares of Voting Stock in Excess of REIT Ownership Limit.
If an event which is undertaken or caused by the Company occurs
resulting in ERP Operating Partnership, EQR or any of their affiliates
collectively owning outstanding shares of Class A Common in excess of the
REIT ownership limits (initially 9.9% of the value of the voting stock of the
Company), then the Company will purchase such shares of Class A Common in
excess of the REIT ownership limit at the market price thereof.
Series A 8% Convertible Redeemable Preferred Stock
General.
The Board of Directors of the Company has reclassified and designated
2,000,000 shares of Common Stock as shares of a series of preferred stock
designated Series A 8% Convertible Redeemable Preferred Stock, $.01 par value
per share. The maximum number of authorized shares of Series A Preferred is
2,000,000.
Seniority.
With respect to the right to receive dividends and to participate in
distributions or payments in the event of any liquidation, dissolution or
winding up of the Company, the Series A Preferred will rank (i) junior to any
other preferred stock of the Company ranking, as to dividends and upon
liquidation, prior to the Series A Preferred, (ii) on a parity with any other
preferred stock of the Company ranking, as to dividends and upon liquidation,
on a parity with the Series A Preferred, and (iii) senior to the Common Stock
and any other class or series of shares of stock of the Company ranking, as
to dividends and upon liquidation, junior to the Series A Preferred
(collectively the "Junior Shares"). Notwithstanding the foregoing, the
Company may make distributions or pay dividends in the Common Stock or in any
other shares of the Company ranking junior to the Series A Preferred as to
distribution rights and liquidation preference at any time.
Dividends.
The holders of the Series A Preferred are entitled to receive, when and
as declared by the Company's Board of Directors out of any funds legally
available therefor, dividends at the rate of $2.00 per share per year,
payable in cash, except as provided below, in equal amounts quarterly on the
fifteenth (or, if not a business day, the next succeeding business day) of
January, April, July and October each year (each such day being called a
"Quarterly Dividend Date" and each period ending on a Quarterly Dividend Date
being called a "Dividend Period"). The amount of any dividend payable for
the initial Dividend Period and for any Dividend Period shorter than a full
Dividend Period shall be prorated.
Notwithstanding the foregoing, for any 12 Dividend Periods, the Company
has the right to pay the dividend in additional shares of the Series A
Preferred determined by dividing the total amount of the dividend to be paid
in shares by $25.00.
In the event the Company fails to pay any dividend on the Series A
Preferred on any Quarterly Dividend Date, the Company shall not pay any
dividends on any other class of stock of the Company other than (i) pro rata
with other securities of the Company ranking pari passu with the Series A
Preferred or (ii) with Junior Shares until such dividend on the Series A
Preferred has been paid.
Distributions Upon Liquidation, Dissolution or Winding Up.
Upon the voluntary or involuntary dissolution, liquidation or winding up
of the Company, the holders of shares of the Series A Preferred will be
entitled to receive and to be paid out of the assets of the Company available
for distribution to its shareholders, before any payment or distribution is
made on any Junior Shares, the amount of $25.00 per share of the Series A
Preferred ("Liquidation Value"), plus any accrued and unpaid dividends
thereon. If, upon any dissolution, liquidation, or winding up of the
Company, the amounts payable to the holders of shares of the Series A
Preferred and holders of any other shares of stock of the Company ranking as
to any such distribution on a parity with the Series A Preferred are not paid
in full, the holders of the Series A Preferred and of such other shares will
share ratably in such distribution of assets of the Company in proportion to
the full respective preference amounts to which they are entitled.
Redemption.
Optional Redemption. On and after May 30, 2002, the Company may, at its
option, redeem at any time all or any part of the outstanding the Series A
Preferred at a price per share (the "Redemption Price") equal to $25.00 per
share of the Series A Preferred, together with all accrued and unpaid
dividends to and including the date fixed for redemption (the "Redemption
Date"); provided, however, that no partial redemption of the Series A
Preferred may be effected if after giving effect thereto the aggregate
Liquidation Value of the Series A Preferred outstanding is less than
$10,000,000. The Redemption Price and all accrued and unpaid dividends will
be paid in cash; provided, however, that if (a) a holder of the Series A
Preferred desires to convert any of its Series A Preferred called for
redemption but such conversion would cause any direct or indirect holder
which is classified as a REIT under Section 856 of the Code, to own, directly
or indirectly, more than 9.9% of the outstanding voting stock of the Company
or would otherwise cause any direct or indirect holder of such outstanding
voting stock to lose its status as a REIT under the Code, and (b) such holder
has so notified the Company in writing prior to the Redemption Date, stating
the number of shares of the Series A Preferred which have been called for
redemption which such holder is unable to convert for such reason (such
shares being referred to as the "Unconvertible Shares"), then the Company
shall pay, in cash, the Redemption Price plus all accrued and unpaid
dividends for each Unconvertible Share and shall issue to such holder a
warrant to purchase the number of shares of the Common Stock equal to (i) the
fair market value of a share of the Common Stock on the Redemption Date
(calculated pursuant to the terms of the Articles Supplementary classifying
the Series A Preferred (the "Articles Supplementary")) over the Redemption
Price, multiplied by (ii) the number of shares of the Common Stock into which
the Unconvertible Shares redeemed from such holder were convertible
immediately prior to such redemption, and divided by (iii) the fair market
value of a share of the Common Stock on the Redemption Date. Such warrant
shall be exercisable without cost to the holder thereof at any time and from
time to time for a period of 10 years from the date of issuance of such
warrant. The warrant shall be on such terms and conditions as are
customarily contained in like warrants, including provisions to protect the
holder of the warrant from dilution. The Company shall have the right, at
any time, to redeem such warrant at a price equal to the fair market value of
such warrant on the date of any such redemption.
Required Redemption. Upon the (A) (i) non-payment by the Company of any
dividend on the Quarterly Dividend Date applicable to such dividend for three
Dividend Periods which need not be consecutive or (ii) failure by the Company
to comply with any term or obligations under the Articles Supplementary (the
occurrences in (i) and (ii) each called an "Event of Default") or (B) on and
after May 30, 2012, whichever comes first, the holder of any shares of the
Series A Preferred may, at its option, cause the Company to redeem at any
time all of the Series A Preferred held by such holder at $25.00 per share,
payable in cash, together with all accrued and unpaid dividends to and
including the Redemption Date. Notwithstanding the provisions of the
previous sentence, provided an Event of Default has not occurred, the Company
has the right to extend the date during which a required redemption is not
permitted for three separate additional five year periods if the dividend
rate on the Series A Preferred is changed to the then market rate of
comparable preferred stock (the "Market Rate") on the first day of each such
additional five year period; provided, however, in no event shall the
dividend be reduced to less than $2.00 per share of the Series A Preferred.
The Market Rate shall be determined by mutual agreement of the holders of the
Series A Preferred Stock and the Company or, if they cannot agree, by an
investment banking firm under the procedure set forth in the Articles
Supplementary.
Voting Rights.
Until May 30, 2007, pursuant to the Stock Purchase Agreement, the
Company has the right to direct the voting of all shares of Series A
Preferred owned by ERP Operating Partnership or any of its affiliates, except
as to any matter relating to the rights, preferences and privileges of the
Series A Preferred.
The holders of the Series A Preferred are not be entitled to vote on any
matter except as provided below; provided, however, the holders of the Series
A Preferred are not to have any voting rights to the extent such rights will
cause any holder of the Series A Preferred to own more than 9.9% of the
outstanding voting stock of the Company or otherwise cause any holder of the
Series A Preferred that is classified as a REIT under Section 856 of the Code
to lose its status as a REIT under the Code.
So long as any shares of the Series A Preferred remain outstanding, the
Company will not, without the affirmative vote of the holders of at least
two-thirds of the shares of the Series A Preferred outstanding at the time,
(i) authorize, create or issue, or increase the authorized or issued amount
of any class or series of shares of stock ranking prior to the Series A
Preferred with respect to the payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up or reclassify any
authorized shares of stock of the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing
the right to purchase any such shares; or (ii) amend, alter or repeal the
provisions of the Charter or the terms of the Series A Preferred, whether by
merger, consolidation or otherwise (an "Event"), so as to materially and
adversely affect any right, preference, privilege or voting power of the
Series A Preferred or the holders thereof; provided, however, with respect to
the occurrence of any of the Events set forth in (ii) above, so long as the
shares of the Series A Preferred remain outstanding with the terms thereof
materially unchanged, even if upon the occurrence of an Event, the Company
may not be the surviving entity, the occurrence of any such Event will not be
deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of the Series A Preferred and provided
further that (x) any increase in the amount of the authorized or issued
shares of preferred stock of the Company or the creation or issuance of any
other preferred stock of the Company, or (y) any increase in the amount of
authorized or issued shares of the Series A Preferred or any other preferred
stock of the Company, in each case ranking on a parity with or junior to the
Series A Preferred with respect to payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights, preferences, privileges or
voting powers.
Rights of Conversion.
Holders of the Series A Preferred have the right, exercisable at any
time and from time to time, except in the case of the Series A Preferred
called for redemption, to convert all or any of such the Series A Preferred
into the Common Stock at a conversion price per share of the Common Stock
equal to $11.124 (representing a premium of 8% in excess of the book value
per share of the Common Stock on the date of the EQR Merger) (the "Conversion
Price"). In the case of the Series A Preferred called for redemption,
conversion rights will expire at the close of business on the last business
day preceding the Redemption Date.
Adjustments of Conversion Rate.
The conversion rate in effect at any time for the Series A Preferred is
subject to adjustment from time to time to protect against certain dilutive
events.
In case the Company (1) pays or makes a distribution in shares of Common
Stock to holders of the Common Stock, (2) reclassifies the outstanding the
Common Stock into shares of some other class or series of shares, (3)
subdivides the outstanding the Common Stock into a greater number of shares
of the Common Stock or (4) combines the outstanding Common Stock into a
smaller number of shares of the Common Stock, the conversion rate immediately
prior to such action shall be adjusted so that the holder of any shares of
the Series A Preferred thereafter surrendered for conversion will be entitled
to receive the number of shares of the Common Stock which he would have owned
immediately following such action had such the Series A Preferred been
converted immediately prior to such event.
In case the Company issues rights, options or warrants to all holders
of the Common Stock entitling them to subscribe for or purchase the Common
Stock (or securities convertible into the Common Stock) at a price per share
less than the current market price (as determined pursuant to the Articles
Supplementary) of the Common Stock on such record date, the number of shares
of the Common Stock into which each share of the Series A Preferred is
convertible will be adjusted so that the same shall be equal to the number
determined by multiplying the number of shares of the Common Stock into which
such share of the Series A Preferred was convertible immediately prior to
such record date by a fraction of which the numerator shall be the number of
shares of the Common Stock outstanding on such record date plus the number of
additional shares of the Common Stock offered (or into which the convertible
securities so offered are convertible), and of which the denominator shall be
the number of shares of the Common Stock outstanding on such record date,
plus the number of shares of the Common Stock which the aggregate offering
price of the additional shares of the Common Stock offered (or into which the
convertible securities so offered are convertible) would purchase at such
current market price.
In case the Company distributes to all holders of the Common Stock any
class of shares of capital stock other than the Common Stock, evidences of
indebtedness or assets of the Company (other than cash distributions out of
current or retained earnings), or distributes to all holders of the Common
Stock rights or warrants to subscribe for securities other than those
referred to in the immediately preceding paragraph, then in each case the
number of shares of the Common Stock into which each share of the Series A
Preferred will be convertible will be adjusted so that the same shall equal
the number determined by multiplying the number of shares of the Common Stock
into which such share of the Series A Preferred was convertible immediately
prior to the date of such distribution by a fraction of which the numerator
shall be the current market price of the Common Stock on the record date
mentioned below, and of which the denominator shall be such current market
price of the Common Stock, less the then fair market value (as determined by
the Board of Directors) of the portion of the securities or assets so
distributed or of such subscription rights or warrants applicable to one
share of the Common Stock. Notwithstanding the foregoing, in the event that
the Company distributes rights or warrants (other than those referred to in
the immediately preceding paragraph) ("Rights") pro rata to holders of the
Common Stock, the Company may, in lieu of making any adjustment described in
this paragraph make proper provision so that each holder of a share of the
Series A Preferred who converts such share after the record date for such
distribution and prior to the expiration or redemption of the Rights shall be
entitled to receive upon such conversion, in addition to the Common Stock
issuable upon such conversion (the "Conversion Shares"), a number of Rights
to be determined as follows: (1) if such conversion occurs on or prior to
the date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"), the same
number of Rights to which a holder of a number of shares of the Common Stock
equal to the number of Conversion Shares is entitled at the time of such
conversion in accordance with the terms and provisions of and applicable to
the Rights; and (2) if such conversion occurs after the Distribution Date,
the same number of Rights to which a holder of the number of shares of the
Common Stock into which a share of the Series A Preferred so converted was
convertible immediately prior to the Distribution Date would have been
entitled on the Distribution Date in accordance with the terms and provisions
of and applicable to the Rights.
Options.
So long as any Series A Preferred is outstanding, the Company may not
issue any options to purchase shares of the Company ("Employee Stock
Options") to officers, directors or employees of, or consultants to, the
Company, whether pursuant to employee stock option or purchase plans of the
Company or employment or consulting agreements or otherwise for an exercise
price which is less than the fair market value of such shares on the date of
grant. In the event the number of shares of Common Stock subject to Employee
Stock Options (excluding any Employee Stock Options issued on the date of the
EQR Merger in exchange for Wellsford Residential share options) at any time
exceeds, in the aggregate, 10% of the Common Stock outstanding at such time,
all Employee Stock Options outstanding at such time in excess of such 10%,
shall be deemed for certain anti-dilution purposes to have an exercise price
per share equal to 20% of the average fair market value of a share of the
Common Stock on the date of grant of those shares subject to Employee Stock
Options most recently granted in excess of such 10%.
Warrants and Other Rights of Whitehall Partner
For a description of the Warrants and other rights of Whitehall Partner
to acquire Common Stock, see "Business and Properties of Wellsford/Whitehall
Properties, L.L.C. - Warrant Agreement and Other Rights of Whitehall Partner
to Acquire Common Stock".
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S CHARTER AND BYLAWS
The following is a summary of certain provisions of Maryland law and the
Company's Charter and Bylaws and is qualified in its entirety by reference to
the Company's Charter and Bylaws, copies of which have been filed with the
Commission as exhibits to the Registration Statement of which this Prospectus
is a part and are available from the Company upon request.
Classification of the Board of Directors
The Bylaws provide that the number of directors of the Company may be
established by the Board of Directors but may not be fewer than the minimum
number required by Maryland law, which is three, nor more than 15. Any
vacancy will be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the remaining directors. A vacancy
resulting from an increase in the number of directors must be filled by a
majority of the entire Board of Directors.
Pursuant to the Charter, the Board of Directors is divided into three
classes of directors. The initial terms of the first, second and third
classes will expire at the annual meetings of shareholders to be held in
1998, 1999 and 2000, respectively. Beginning in 1998, directors of each
class will be chosen for three-year terms upon the expiration of their
current terms and each year one class of directors will be elected by the
shareholders. The members of each such class will hold office until their
successors are duly elected and qualified. The Company believes that
classification of the Board of Directors will help to assure the continuity
and stability of the Company's business strategies and policies as determined
by the Board of Directors. Holders of shares of the Common Stock have no
right to cumulative voting in the election of directors. Consequently, at
each annual meeting of shareholders, the holders of a majority of the shares
of the Common Stock are able to elect all of the successors of the class of
directors whose terms expire at that meeting.
Classification of the Board of Directors could have the effect of making
the removal of incumbent directors more time-consuming and difficult, which
could discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt
might be beneficial to the Company and its shareholders. At least two annual
meetings of shareholders, instead of one, will generally be required to
effect a change in a majority of the Board of Directors. Thus, the
classified board provision could increase the likelihood that incumbent
directors will retain their positions.
Removal of Directors
The Charter provides that, except as provided in the next sentence, a
director may be removed only for cause and by the affirmative vote of at
least two-thirds of the votes entitled to be cast for the election of
directors (i.e., the votes attributable to all outstanding shares of the
Common Stock). The Class A Director may be removed, without cause, only by
the affirmative vote of at least a majority of the Class A Common electing
such Class A Director.
Business Combinations
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and an Interested Stockholder or an affiliate of the corporation
who, at any time within the two-year period prior to the date in question,
was an Interested Stockholder or an affiliate of such an Interested
Stockholder are prohibited for five years after the most recent date on which
the Interested Stockholder becomes an Interested Stockholder. Thereafter,
any such business combination must be recommended by the board of directors
of such corporation and approved by the affirmative vote of at least (a) 80%
of the votes entitled to be cast by holders of outstanding shares of voting
stock of the corporation and (b) two-thirds of the votes entitled to be cast
by holders of voting stock of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the
corporation's common shareholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the
same form previously paid by the Interested Stockholder for its shares.
These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder. The directors of the Company have exempted from the
Maryland statute any business combinations with Jeffrey H. Lynford or Edward
Lowenthal or any of their affiliates or any other person acting in concert or
as a group with any of such persons. The directors of the Company have also
exempted from the Maryland statute any business combinations with Mutual, or
any affiliate of Mutual, provided that any such business combination is
approved prior to its consummation by the directors of the Company, including
a majority of the directors of the Company who are not employees or otherwise
affiliated with Mutual or any of its affiliates.
Amendment to the Charter and Bylaws
The Charter may be amended only by the affirmative vote of a majority of
all of the votes entitled to be cast on the matter, except that any amendment
to the sections of the charter that address the number, classification or
removal of directors, or any amendment providing that the shareholders may
approve an action by a lesser percentage of votes than that required by law
will be valid only if approved by the affirmative vote of two-thirds of all
of the votes entitled to be cast on the matter. The Board of Directors of the
Company has the exclusive power to adopt, alter or repeal any provision of
the Bylaws and to make new Bylaws.
Merger, Consolidation, Sale of Assets
A sale of all or substantially all of the assets of the Company or a
merger in which the Company is not the successor must be approved by the
affirmative vote of two-thirds of all of the votes entitled to be cast on the
matter. A consolidation or share exchange or a merger in which the Company
is the successor need be approved only by the affirmative vote of holders of
shares entitled to cast a majority of all votes entitled to be cast on the
matter.
Dissolution of the Company
The dissolution of the Company must be approved by the affirmative vote
of the holders of not less than two-thirds of all the votes entitled to be
cast on the matter.
Advance Notice of Director Nominations and New Business
The Bylaws of the Company provide that (a) with respect to an annual
meeting of shareholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by shareholders may
be made only (i) pursuant to the Company's notice of the meeting, (ii) by or
at the direction of the Board of Directors or (iii) by a stockholder who is
entitled to vote at the meeting and has complied with the advance notice
procedures set forth in the Bylaws and (b) with respect to special meetings
of shareholders, only the business specified in the Company's notice of
meeting may be brought before the meeting of shareholders and nominations of
persons for election to the Board of Directors may be made only (i) pursuant
to the Company's notice of the meeting, (ii) by or at the direction of the
Board of Directors, or (iii) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a stockholder
who is entitled to vote at the meeting and has complied with the advance
notice provisions set forth in the Bylaws.
Meetings of Shareholders
The Company's Bylaws provide that annual meetings of shareholders shall
be held on a date and at the time set by the Board of Directors during the
month of May each year (commencing in May 1998). Special meetings of the
shareholders may be called by (i) the Chairman of the Board of the Company,
(ii) the President of the Company, (iii) the Chief Executive Officer of the
Company or (iv) the Board of Directors. As permitted by the MGCL, the Bylaws
provide that special meetings must be called by the Secretary of the Company
upon the written request of the holders of shares entitled also to cast not
less than a majority of all of the votes entitled to be cast at the meeting.
The Company's Bylaws provide that any stockholder of record wishing to
nominate a director or have a stockholder proposal considered at an annual
meeting (except for stockholder proposals included in the Company proxy
materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) must provide written notice and certain
supporting documentation to the Company relating to the nomination or
proposal not later than 60 days nor earlier than 90 days prior to the
anniversary date of the prior year's annual meeting or special meeting in
lieu thereof (the "Anniversary Date"). In the event that the annual meeting
is advanced by more than 30 calendar days before or delayed more than 60 days
from the Anniversary Date, shareholders generally must provide written notice
no earlier than 90 days prior to such annual meeting nor later than the later
of 60 days prior to such annual meeting or 10 days following the date on
which notice of the meeting is mailed to shareholders.
The purpose of requiring shareholders to give the Company advance notice
of nominations and other business is to afford the Board of Directors a
meaningful opportunity to consider the qualifications of the proposed
nominees or the advisability of the other proposed business and, to the
extent deemed necessary or desirable by the Board of Directors, to inform
shareholders and make recommendations about the qualifications or business,
as well as to provide a more orderly procedure for conducting meetings of
shareholders. Although the Company's Bylaws do not give the Board of
Directors any power to disapprove stockholder nominations for the election of
directors or proposals for action, they may have the effect of precluding a
contest for the election of directors or the consideration of stockholder
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect
its own slate of directors or to approve its own proposal, without regard to
whether consideration of the nominees or proposals might be harmful or
beneficial to the Company and its shareholders.
Limitation of Liability and Indemnification
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its shareholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter
contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former director or officer or (b) any individual who,
while a director of the Company, and at the request of the Company, serves or
has served another corporation, partnership, joint venture, trust, employee
benefit plan, limited liability company or any other enterprise as a
director, officer, partner, trustee, manager or member of such corporation,
partnership, joint venture, trust, employee benefit plan, limited liability
company or other enterprise. The Bylaws of the Company obligate it, to the
maximum extent permitted by Maryland law, to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity or (b) any individual
who, while a director of the Company and at the request of the Company,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan, limited liability company or any other enterprise as a
director, officer, partner, trustee, manager or member of such corporation,
partnership, joint venture, trust, employee benefit plan, limited liability
company or other enterprise and who is made a party to the proceeding by
reason of his service in that capacity. The Charter and Bylaws also permit
the Company to indemnify and advance expenses to any person who served a
predecessor of the Company in any of the capacities described above and to
any employee or agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c)
in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
a Maryland corporation may not indemnify for an adverse judgment in a suit by
or in the right of the corporation. In addition, the MGCL requires the
Company, as a condition to advancing expenses, to obtain (a) a written
affirmation by the director or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (b) a written statement by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met.
SHARES AVAILABLE FOR FUTURE SALE
As of December 1, 1997, there were 16,572,043 shares of Common Stock
issued and outstanding and 339,806 shares of Class A Common issued and
outstanding. In addition, 3,076,235 shares of Common Stock are available for
issuance under the Company's Management Incentive Plan and Rollover Stock
Option Plan (options to purchase 1,923,610 of such shares have been granted,
1,326,235 of which were granted in replacement for former Wellsford
Residential share options), approximately 5,000,000 shares of Common Stock
have been reserved for issuance upon conversion of the Series A Preferred and
Class A Common, 4,349,715 shares of Common Stock have been reserved for
issuance upon exercise by Whitehall Partner of the Warrants and 3,350,000
shares of Common Stock will be issued in connection with the consummation of
the Value Merger. Also, 1,612,913 shares of Common Stock will be available
for issuance to Whitehall Partner upon its exchange of certain membership
units in Wellsford Office for shares of Common Stock, assuming a price per
share of Common Stock of $15.50 (the last reported sale price of a share of
Common Stock on the ASE on December 1, 1997). See "Warrant Agreement and
Other Rights of Whitehall Partner to Acquire Common Stock". Upon
registration of the 12,242,719 Shares offered hereby, all of the shares of
Common Stock will be freely tradeable without registration or other
restrictions under the Securities Act, except for any of such shares of
Common Stock issued to an "affiliate" of the Company. The 3,076,235 shares
of Common Stock issuable under the Company's Management Incentive Plan and
Rollover Stock Option Plan will also be freely tradeable upon the
registration of such shares under the Securities Act.
The shares of Class A Common and Series A Preferred that have been or
will be issued to ERP Operating Partnership and the shares of Common Stock
issuable upon conversion of the Class A Common and the Series A Preferred
will be "restricted" securities ("Restricted Securities") within the meaning
of Rule 144 under the Securities Act. The Warrants that have been issued to
Whitehall Partner and the shares of Common Stock issuable to Whitehall
Partner upon exercise of the Warrants and upon exchange by Whitehall Partner
of certain membership units in Wellsford Office will also be Restricted
Securities.
The Company has agreed to file, subject to certain limitations, one or
more registration statements with the Commission for the purpose of
registering the sale of the shares of Common Stock and Series A Preferred
issued or issuable to ERP Operating Partnership. The Company has also agreed
to file, subject to certain limitations, one or more registration statements
with the Commission for the purpose of registering the sale of the Warrants
and the shares of Common Stock issued or issuable to Whitehall Partner. Upon
effectiveness of such registration statements, ERP Operating Partnership and
Whitehall Partner, as the case may be, may sell such shares in the secondary
market without being subject to the volume limitations or other requirements
of Rule 144. See "Certain Agreements Between the Company and ERP Operating
Partnership - Registration Rights Agreement" and "Business and Properties of
Wellsford/Whitehall Properties, L.L.C. - Warrant Agreement and Other Rights
of Whitehall Partner to Acquire Common Stock".
In general, under Rule 144 as currently in effect, if one year has
elapsed since the later of the date of acquisition of Restricted Securities
from the Company or the date of acquisition of Restricted Securities from any
"affiliate" of the Company, as that term is defined under the Securities Act,
the acquiror or subsequent holder is entitled to sell within any three-month
period a number of shares of Common Stock that does not exceed the greater of
1% of the then-outstanding Common Stock or the average weekly trading volume
of Common Stock on all exchanges and reported through the automated quotation
system of a registered securities association during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to certain restrictions on the manner
of sales, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the date of
acquisition of Restricted Securities from the Company or from an "affiliate"
of the Company, and the acquiror or subsequent holder thereof is deemed not
to have been an affiliate of the Company at any time during the 90 days
preceding a sale, such person would be entitled to sell such Common Stock in
the public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
The effect, if any, that future market sales of Restricted Stock or the
availability of such Restricted Stock for sale will have on the market price
prevailing from time to time cannot be predicted. Nevertheless, sales of
substantial amounts of Restricted Stock in the public market might adversely
affect prevailing market prices for the shares of Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Robinson Silverman Pearce Aronsohn & Berman LLP,
counsel to the Company, the following summarizes the material United States
federal income tax consequences of the ownership and disposition of shares of
Common Stock offered hereby applicable to U.S. Holders and Non-U.S. Holders
of the Common Stock. In general a "U.S. Holder" includes (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in the United States or under the law of the United States or any
State, (iii) an estate or trust whose income is includible in gross income
for United States federal income tax purposes regardless of its source or
(iv) a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust. In general, a "Non-U.S. Holder" is any holder other than a U.S.
Holder.
This summary is based on the Code, judicial decisions, administrative
pronouncements, and existing and proposed Treasury regulations, changes to
any of which after the date of this Prospectus could have retroactive effect.
This summary is of a general nature only and is not intended to be legal or
tax advice to any particular holder and no representation with respect to the
United States federal income tax consequences to any particular holder is
made. This summary does not address all aspects of federal income taxation
and does not address any aspects of estate taxation or of state, local or
non-U.S. tax laws, except as set forth below. This summary does not consider
any specific facts or circumstances that may apply to a particular holder
(such as banks, insurance companies, tax-exempt organizations, dealers in
securities, or the fact that in the case of a Non-U.S. Holder that is a
partnership, the United States tax consequences of holding and disposing of
shares of Common Stock may be affected by certain determinations made at the
partner level). Accordingly, prospective purchasers of Common Stock are
urged to consult their tax advisors regarding the United States federal,
state, local and non-U.S. income and other tax consequences of holding and
disposing of shares of the Common Stock.
The following discussion is based on the assumption that shares of
Common Stock are held as capital assets within the meaning of Section 1221 of
the Code.
Dividends
Distributions, if any (see "Dividend Policy"), paid on the Common Stock
will be treated as dividends taxable as ordinary income to U.S. Holders to
the extent of the Company's current or accumulated earnings and profits as
determined under federal income tax principles. While the Company
anticipates having earnings and profits for federal income tax purposes in
the current and future years, there can be no assurance that the Company will
have current or accumulated earnings and profits in any of such years. To
the extent that the amount of distributions paid on the Common Stock exceeds
the Company's current or accumulated earnings and profits, such distributions
will be treated as a nontaxable return of capital and will be applied against
and reduce the adjusted tax basis of the Common Stock in the hands of each
U.S. Holder (but not below zero). The amount of any such distribution which
exceeds the adjusted tax basis of the Common Stock in the hands of the U.S.
Holder will be treated as capital gain and will be long-term capital gain if
the U.S. Holder's holding period for the Common Stock exceeds one year.
Under current law, long-term capital gains of noncorporate taxpayers are
generally taxed at rates more favorable than those applicable to other types
of income. In the case of noncorporate taxpayers who have held the Common
Stock for more than 18 months, the maximum tax rate on capital gains is 20%
and for such taxpayers who have held the Common Stock for more than 12 months
but less than 18 months, the maximum tax rate is 28%. Under Section 243 of
the Code, corporate stockholders generally will be able, subject to certain
exceptions and restrictions, to deduct 70% of the amount of any distribution
qualifying as an ordinary income dividend.
Distributions, if any (see "Dividend Policy"), paid to a Non-U.S. Holder
generally will be subject to United States withholding tax at a 30% rate (or
a lower rate as may be prescribed by an applicable tax treaty) unless the
distributions are either (i) effectively connected with a trade or business
of the Non-U.S. Holder within the United States or (ii) if a tax treaty
applies, attributable to a United States permanent establishment maintained
by the non-U.S. holder. Distributions effectively connected with a trade or
business or attributable to such permanent establishment will generally not
be subject to withholding (if the Non-U.S. Holder properly files an executed
United States Internal Revenue Service Form 4224 with the payor of the
distribution) and generally will be subject to United States federal income
tax in the manner described above for U.S. Holders. In the case of a Non-
U.S. Holder which is a corporation, such effectively connected income also
may be subject to the branch profits tax (which is generally imposed on a
foreign corporation at a rate of 30% on the deemed repatriation from the
United States of effectively connected earnings and profits). The branch
profits tax may not apply if the recipient is a qualified resident of certain
countries with which the United States has an income tax treaty. Under
current U.S. Treasury regulations, to determine the applicability of a tax
treaty providing for a lower rate of withholding distributions paid to a
stockholder's address of record in a foreign country are presumed, under the
current IRS positions, to be paid to a resident of that country, unless the
payor has knowledge that such presumption is not warranted or an applicable
tax treaty (or United States Treasury Regulations thereunder) requires some
other method for determining a Non-U.S. Holder's residence.
Recently adopted Treasury Regulations not yet in effect (the "Final
Regulations"), would alter the foregoing rules in certain respects. In
general, the Final Regulations are effective January 1, 1999. Under the
Final Regulations, a Non-U.S. Holder seeking an exemption from withholding or
reduced rate of withholding on account of a treaty or the effectively
connected income exemption would generally be required to provide a
beneficial owner certificate on Form W-8, which form may include, among other
things, the Non-U.S. Holder's taxpayer identification number and certain
other information and representations. The Final Regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, distributions paid to a Non-U.S. Holder that
is an entity should be treated as paid to the entity or those holding an
interest in the entity.
Sale or Other Disposition of Common Stock
Gain or loss, if any, realized by a U.S. Holder on the sale or other
disposition of shares of Common Stock will be subject to United States
federal income taxation as capital gain or loss in an amount equal to the
difference between the U.S. Holder's adjusted tax basis in the shares of
Common Stock and the amount realized on the disposition. Any such gain or
loss will generally be treated as long-term or short-term capital gain or
loss, depending on whether the U.S. Holder's holding period with respect to
the shares of Common Stock is longer than one year. In the case of
noncorporate taxpayers who have held the Common Stock for more than 18
months, the maximum tax rate on capital gains is 20% and for such taxpayers
who have held the Common Stock for more than 12 months but less than 18
months, the maximum tax rate is 28%. For United States federal income tax
purposes, capital losses are subject to limitations on deductibility.
Generally, a Non-U.S. Holder will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
such holder's shares of Common Stock unless (i) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder with the
United States; (ii) the Non-U.S. Holder is an individual who holds the shares
of Common Stock as a capital asset and is present in the United States for
183 days or more in the taxable year of the disposition and to whom such gain
is United States source; (iii) the Non-U.S. Holder is subject to tax pursuant
to the provisions of U.S. tax law applicable to certain former United States
citizens or residents; or (iv) the Company is or has been a "United States
real property holding corporation" for federal income tax purposes (which the
Company believes could very well be the case) at any time during the five-
year period ending on the date of disposition (or such shorter period that
such shares were held) and, provided the Common Stock is "regularly traded"
on an established securities market, the Non-U.S. Holder held, directly or
indirectly, more than five percent of the Common Stock.
Backup Withholding and Information Reporting
In general, a noncorporate U.S. Holder of the Common Stock may be
subject to backup withholding at the rate of 31% with respect to reportable
payments of dividends accrued with respect to, or the proceeds of a sale,
exchange or redemption of, the Common Stock. The payor will be required to
deduct and withhold the prescribed amount with respect to all such reportable
payments if (i) the payee fails to furnish a taxpayer identification number
("TIN") to the payor or (ii) the Secretary of the Treasury notifies the payor
that the TIN furnished by the payee is incorrect. In addition, the payor
will also be required to deduct and withhold the prescribed amount with
respect to dividend payments if there has been a "notified payee
underreporting," or there has been a failure of the payee to certify to the
payor under the penalty of perjury that such payee is not subject to
withholding. Amounts paid as backup withholding do not constitute an
additional tax and will be credited against the U.S. Holder's federal income
tax liabilities or may be refundable. Dividends paid to Non-U.S. Holders
that are subject to United States withholding tax at the 30% statutory rate
or at a reduced tax treaty rate and dividends that are effectively connected
with the conduct of a trade or business in the United States (if certain
certification and disclosure requirements are met) are exempt from backup
withholding of U.S. federal income tax. The Company must report annually to
the IRS and to each Non-U.S. Holder and to noncorporate U.S. Holders the
amount of dividends paid to and the tax withheld, if any, with respect to
such holder. These information reporting requirements apply regardless of
whether withholding was reduced by an applicable tax treaty. Copies of these
information returns may also be available under the provisions of a specific
treaty or agreement with the tax authorities in the country in which the Non-
U.S. Holder resides.
The payment of the proceeds from the disposition of shares of Common
Stock by a Non-U.S. Holder through the United States office of a broker will
be subject to information reporting and backup withholding unless the holder,
under penalties of perjury, certifies, among other things, its status as a
Non-U.S.Holder, or otherwise establishes an exemption. Generally, the
payment of the proceeds from the disposition of shares of Common Stock by a
Non-U.S. Holder to or through a non-U.S. office of a broker will not be
subject to backup withholding and will not be subject to information
reporting. In the case of the payment of proceeds from the disposition of
shares of Common Stock by a Non-U.S. Holder through a non-U.S. office of a
broker that is a U.S. person or a "U.S.-related person," existing regulations
require information reporting (but not backup withholding) on the payment
unless the broker receives a statement from the owner, signed under penalties
of perjury, certifying, among other things, its status as a Non-U.S. Holder,
or the broker has documentary evidence in its files that the owner is a Non-
U.S. Holder and the broker has no actual knowledge to the contrary. For tax
purposes, a "U.S.-related person" is (i) a "controlled foreign corporation"
for United States federal income tax purposes or (ii) a foreign person 50% or
more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment (or for such part of
the period that the broker has been in existence) is derived from activities
that are effectively connected with the conduct of a United States trade or
business.
Under the Final Regulations (effective January 1, 1999), information
reporting and backup withholding will not apply to payments of dividends to a
Non-U.S. Holder provided (i) the withholding agent can reliably associate
such payments with a Form W-8 timely furnished by the Non-U.S. Holder in
which the Non-U.S. Holder represents that it is a foreign person, and (ii)
certain other requirements are satisfied. Also, information reporting and
backup withholding generally will apply under the Final Regulations to
payments of proceeds from a sale or disposition of the Common Stock, unless
the sale is (i) effected at an office outside the United States by a payor
that is not a U.S. person or a "U.S. related person", or certain other
entities, or (ii) effected at an office of a U.S. broker (which includes a
U.S. person and a "U.S. related person") either inside or outside the United
States and the broker can associate such payments with documentation upon
which it can rely in order to treat the payee as a foreign beneficial owner,
including a certification that the beneficial owner has not been and
reasonably expects not to be present in the United States for a period
aggregating 183 days or more during each calendar year to which the
certificate pertains, and certain other requirements are satisfied.
Discussions herein concerning the Final Regulations are not intended to be a
complete discussion thereof, and Non-U.S. Holders are urged to consult their
tax advisors concerning the application of the Final Regulations in light of
their own circumstances.
Any amount withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's United
States federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the IRS. Non-U.S.
Holders should consult their tax advisors regarding the application of these
rules to their particular situations, the availability of an exemption
therefrom and the procedures for obtaining such an exemption, if available.
State, Local and Foreign Taxation
The Company and its shareholders may be subject to state, local or
foreign taxation in various state, local or foreign jurisdictions, including
those in which it or they transact business or reside. Such state, local or
foreign taxation may differ from the Federal income tax treatment described
above. Consequently, prospective holders of shares of Common Stock should
consult their own tax advisors regarding the effect of state, local and
foreign tax laws on an investment in the Company.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale by the Selling
Shareholders of the Shares offered hereby. The Shares may be sold from time
to time to purchasers directly by any of the Selling Shareholders.
Alternatively, any of the Selling Shareholders may from time to time offer
the Shares through underwriters, dealers or agents who may receive
compensation in the form of underwriting discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom they may act as agent. The Selling Shareholders and any such
underwriters, dealers or agents who participate in the distribution of the
Shares may be deemed to be underwriters, and any profits on the sale of the
Shares by them and any discounts, commissions or concessions received by any
such underwriters, dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act.
The Shares may be sold from time to time in one or more transactions at
a fixed offering price, which may be changed, or at varying prices determined
at the time of sale or at negotiated prices. Such prices will be determined
by the Selling Shareholders or by agreement between the Selling Shareholders
and underwriters or dealers.
The Company will pay substantially all of the expenses incident to the
registration, offering and sale of the Shares to the public other than (i)
discounts, commissions, fees and expenses of underwriters, dealers or agents
and (ii) other fees and expenses of the Selling Shareholders. The Company
also has agreed to indemnify the Selling Shareholders and any underwriter
they may utilize against certain liabilities, including liabilities under the
Securities Act.
In order to comply with certain states' securities laws, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states the Shares may not be sold
unless the Shares have been registered or qualified for sale in such state,
or unless an exemption from registration or qualification is available and is
obtained.
CERTAIN ERISA CONSIDERATIONS
General Fiduciary Matters
In considering an investment in the Company of a portion of the assets
of any employee benefit plan (including a "Keogh" plan or an Individual
Retirement Account), whether or not subject to Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the Code (all hereinafter
referred to as a "Qualified Plan"), a fiduciary should consider (i) whether
the investment is in accordance with the documents and instruments governing
the Qualified Plan; (ii) whether the investment satisfies the diversification
requirements of Section 404(a)(1)(C) of ERISA, if applicable; (iii) whether
the investment provides sufficient liquidity to permit benefit payments to be
made as they become due; (iv) any requirement that the fiduciary annually
value the assets of the Qualified Plan; (v) whether the investment is
prudent, since there is a high degree of risk in purchasing the shares of
Common Stock offered hereby; and (vi) whether the investment is for the
exclusive purpose of providing benefits to participants and their
beneficiaries. Furthermore, ERISA and the Code prohibit fiduciaries of
certain Qualified Plans from engaging in various acts of self-dealing.
Accordingly, absent an exemption, the fiduciaries of a Qualified Plan should
not purchase shares of Common Stock with assets of any Qualified Plan if the
Company or any of its affiliates are a "party in interest" or "disqualified
person" with respect to the Qualified Plan.
Plan Assets
If the underlying assets of the Company (as opposed to shares of Common
Stock thereof) were to be deemed to be "plan assets" under ERISA, (i) the
prudence and other fiduciary responsibility standards of Part 4 of Subtitle B
of Title I of ERISA would extend to investments made by the Company; and
(ii) certain transactions in which the Company might seek to engage could
constitute "prohibited transactions" under ERISA and the Code.
Under the final regulation (Reg. Section 2510.3-101) (the "Final
Regulation") issued by the Department of Labor ("DOL"), the assets and
properties of corporations, partnerships and certain other entities in which
a plan makes an equity investment (other than an investment in a "publicly-
offered security" or a security issued by an investment company registered
under the 1940 Act) would be deemed to be assets of the investing plan unless
(i) the entity is an "operating company" (including a "venture capital
operating company" or a "real estate operating company") or (ii) equity
participation by benefit plan investors (e.g., Qualified Plans) is less than
25% of any class of equity of the entity, excluding equity interests held by
any person (other than a benefit plan investor) with discretionary authority
or control over the assets of the entity or any person who provides
investment advice for a fee (direct or indirect) with respect to such assets
and any affiliate thereof. For purposes of the 25% test, "benefit plan
investors" include all employee benefit plans, whether or not subject to
ERISA or the Code, including "Keogh" plans, Individual Retirement Accounts
and pension plans maintained by governmental entities or foreign
corporations, as well as any entity of which 25% or more of the value of any
class of equity interests is held by employee benefit plans. At such time,
if ever, that the Company registers the shares of Common Stock sold in the
Offering, the Company believes that the shares of Common Stock should
constitute a "publicly-offered security" and, therefore, the assets of the
Company should not be deemed to constitute "plan assets" of any Qualified
Plan that invests in the Common Stock. Because of the factual nature of the
legal issues involved, however, the Company can offer no assurances in this
regard. The Company expects that upon completion of this Offering, the
exception described in (ii) above will apply, and will continue to apply,
until such time, if ever, that the shares qualify as "publicly traded
securities." The Company cannot, however, give any assurance that this
exception will be deemed to apply.
Plan Asset Consequences - Prohibited Transactions
If the Company's assets were to constitute "plan assets" and a
prohibited transaction were to occur, or the acquisition of shares of Common
Stock in the Company by a Qualified Plan were to constitute a prohibited
transaction, then any fiduciary or other "party in interest" which has
engaged in any such prohibited transaction or caused the Company to engage in
any such prohibited transaction could be required (i) to restore to the
Qualified Plan any profit realized on the transaction and (ii) to reimburse
the Qualified Plan for any losses suffered by the Qualified Plan as a result
of such investment. In addition, each "party in interest" involved could be
subject to an excise tax equal to 5% of the amount involved in the prohibited
transaction for each year such transaction continues and, unless such
transaction were corrected within statutorily required periods, to an
additional tax of 100%. Plan fiduciaries who make the decision to invest in
shares of Common Stock of the Company could, under certain circumstances, be
liable for investing in the Company or as co-fiduciaries for actions taken by
the Company.
Furthermore, unless appropriate administrative exemptions were available
or were obtained, the Company would be restricted from acquiring an otherwise
desirable investment or from entering into an otherwise favorable
transaction, if such acquisition or transaction would constitute a
"prohibited transaction."
ANY FIDUCIARY FOR A QUALIFIED PLAN SHOULD CONSULT ITS LEGAL ADVISOR
CONCERNING THE ERISA CONSIDERATIONS DISCUSSED ABOVE BEFORE MAKING AN
INVESTMENT IN THE COMPANY.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Robinson
Silverman Pearce Aronsohn & Berman LLP, New York, New York. The legal
authorization and issuance of the Common Stock, as well as certain other
legal matters concerning Maryland law, will be passed upon for the Company by
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. In addition, the
summary of Federal income tax consequences contained in this Prospectus in
the section captioned "Certain United States Federal Income Tax
Considerations" is based upon the opinion of Robinson Silverman Pearce
Aronsohn & Berman LLP.
EXPERTS
The combined financial statements of Wellsford Real Properties, Inc.
(Predecessor) at December 31, 1996 and 1995, for the year ended December 31,
1996, and for the period from March 22, 1995 to December 31, 1995, and the
combined statement of revenues and certain expenses of the Whitehall
Properties for the year ended December 31, 1996, all appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Value Property Trust at
September 30, 1996 and for the year then ended and the combined statement of
revenues and certain expenses of the Abbey Companies for the year ended
December 31, 1996, have been included herein in reliance on the reports of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and
information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a Web sit that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the
commission's Web site is: http://www.sec.gov. In addition, the Common Stock
is listed on the American Stock Exchange and information concerning the
Company may also be inspected and copied at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a registration statement (the
"Registration Statement," which term shall include any amendments thereto) on
Form S-11 under the Securities Act, with respect to the Shares. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus as to the content of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects
by such reference and the exhibits thereto. For further information,
reference is hereby made to the Registration Statement and the exhibits
thereto.
The Company is required to furnish holders of the Common Stock with
annual reports containing audited financial statements, with a report thereon
by the Company's independent certified public accountants.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
HISTORICAL
Consolidated Balance Sheet as of September 30, 1997
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . .F-3
Consolidated Statement of Income For the
Nine Months Ended September 30, 1997 (Unaudited) . . . . . . .F-4
Consolidated Statements of Cash Flows For the
Nine Months Ended September 30, 1997 and 1996
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . .F-5
Notes to Consolidated Financial Statements . . . . . . .F-6 to F-12
PRO FORMA
Consolidated Income Statement For the Nine Months
Ended September 30, 1997 (Unaudited) . . . . . . . . F-13 to F-14
Notes to Unaudited Consolidated Income Statement . . . . . . . F-15
Consolidated Income Statement for the Year
Ended December 31, 1996 (Unaudited). . . . . . . . . . F-13, F-16
Notes to Unaudited Consolidated Income Statement . . . . . . . F-17
Consolidated Balance Sheet, September 30, 1997
(Unaudited). . . . . . . . . . . . . . . . . . . . . F-18 to F-19
Notes to Unaudited Consolidated Balance Sheet. . . . . . . . . F-20
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
HISTORICAL
Report of Independent Auditors . . . . . . . . . . . . . . . . F-21
Combined Balance Sheets as of December 31, 1996 and 1995 . . . F-22
Combined Statement of Income and Equity For the
Year Ended December 31, 1996 . . . . . . . . . . . . . . . . F-23
Combined Statements of Cash Flows For the Year
Ended December 31, 1996 and the Period
From March 22 to December 31, 1995 . . . . . . . . . . . . . F-24
Notes to Combined Financial Statements . . . . . . . . F-25 to F-28
VALUE PROPERTY TRUST
FINANCIALS FROM FORM 10-K
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1996
Reports of Independent Auditors. . . . . . . . . . . . F-29 to F-30
Consolidated Statements of Operations
(Years ended September 30, 1996, 1995 and 1994). . . . . . . F-31
Consolidated Balance Sheets (September 30, 1996 and
1995) . . . . . . . . . . . . . . . . . . . . . . . F-32 to F-33
Consolidated Statements of Cash Flows
(Years ended September 30, 1996, 1995 and 1994). . . F-34 to F-35
Consolidated Statement of Shareholders' Equity
(Years ended September 30, 1996, 1995 and 1994). . . . . . . F-36
Notes to the Consolidated Financial Statements . . . . F-37 to F-55
Schedule XI - Real Estate Accumulated Depreciation
and Amortization (September 30, 1996). . . . . . . . F-56 to F-65
Schedule XII - Mortgage Loans on Real Estate
(September 30, 1996) . . . . . . . . . . . . . . . . F-66 to F-67
FINANCIALS FROM FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1997
Consolidated Balance Sheets at June 30, 1997 (Unaudited)
and September 30, 1996 . . . . . . . . . . . . . . . . . . . F-68
Consolidated Statements of Operations for the Three
and Nine Months Ended June 30, 1997 and 1996 (Unaudited) . . F-69
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1997 and 1996 (Unaudited) . . . . . . . . . . F-70
Consolidated Statement of Shareholders' Equity for the
Nine Months Ended June 30, 1997 (Unaudited). . . . . . . . . F-71
Notes to the Consolidated Financial Statements . . . . F-72 to F-78
WELLSFORD OFFICE PROPERTIES CONTRIBUTED BY
WHITEHALL PARTNER
Report of Independent Auditors . . . . . . . . . . . . . . . . F-79
Combined Statement of Revenues and
Certain Expenses for the Year Ended
December 31, 1996 (audited) and Six Months
Ended June 30, 1997 (unaudited). . . . . . . . . . . F-80 to F-82
PROPERTIES OF THE ABBEY ENTITIES
Report of Independent Accountants. . . . . . . . . . . . . . . F-83
Combined Statement of Revenues and Certain
Expenses for the Year Ended December 31,
1996 (audited) and Nine Months Ended
September 30, 1997 (unaudited) . . . . . . . . . . . F-84 to F-87
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30,
1997
-------------------
(Unaudited)
ASSETS
Real estate assets, at cost:
Land $ --
Buildings and improvements --
-------------------
--
Less, accumulated depreciation --
-------------------
--
Construction in progress 21,864,426
-------------------
21,864,426
Notes receivable 145,879,967
Investment in joint venture 32,425,349
-------------------
Total real estate assets 200,169,742
Cash and cash equivalents 5,532,540
Restricted cash 6,717,105
Prepaid and other assets 1,982,939
-------------------
Total Assets $ 214,402,326
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 14,755,000
Credit facility 10,000,000
Accrued expenses and other liabilities 6,667,004
-------------------
Total Liabilities 31,422,004
-------------------
Commitments and contingencies --
Minority interest 3,092,105
Shareholders' Equity:
Common Stock, 197,650,000 shares authorized -
16,572,043 shares, $.01 par value per share,
issued and outstanding at September 30, 1997 165,720
Class A Common Stock, 350,000 shares
authorized - 339,806 shares, $.01 par
value per share, issued and outstanding
at September 30, 1997 3,398
Series A 8% Convertible Redeemable Preferred Stock,
$.01 par value per share, 2,000,000 shares
authorized, no shares issued and outstanding --
Paid in capital in excess of par value 178,288,032
Retained Earnings 1,431,067
-------------------
Total Shareholders' Equity 179,888,217
-------------------
Total Liabilities and Shareholders' Equity $ 214,402,326
-------------------
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended
September 30,
1997
------------
REVENUE
Rental Income $ 1,259,854
Interest income 4,124,890
-------------
Total Revenue 5,384,744
-------------
EXPENSES
Property operating and maintenance 241,257
Real estate taxes 105,692
Depreciation and amortization 220,514
Property management 18,356
General and administrative 1,521,124
-------------
Total Expenses 2,106,943
-------------
Income from joint venture 160,235
-------------
Income before taxes 3,438,036
Income tax expense 1,003,000
-------------
Net Income (loss) $ 2,435,036
=============
Net income (loss) per common share -
Note 5 $ 0.14
=============
Weighted average number of common
shares outstanding - Note 5 16,911,849
=============
See accompanying notes.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
------------ -----------
Net Income $ 2,435,036 $ 356,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 220,514 --
Decrease (increase) in assets
Restricted cash (1,197,105) 4,059,000
Prepaid and other assets (1,881,127) (134,000)
(Decrease) increase in liabilities
Accrued expenses and other liabilities 6,667,004 --
------------ -----------
Net cash provided by operating activities 6,244,322 4,281,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate assets (49,784,452) (9,073,000)
Investment in notes receivable (97,653,823) (17,800,000)
Investment in joint revenue (2,320,593) --
------------ -----------
Net cash provided by (used in)
investing activities (149,758,868) (26,873,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 56,900,000 --
Repayment of credit facility (46,900,000) --
Proceeds from bridge loan 6,000,000 --
Repayment of bridge loan (6,000,000) --
Proceeds from private offering
of common shares 121,986,453 --
Equity contributions prior to and at spin-off 17,060,633 22,592,000
------------ -----------
Net cash provided by (used in)
financing activities 149,047,086 22,592,000
------------ -----------
Net increase (decrease) in cash
and cash equivalents 5,532,540 --
Cash and cash equivalents,
beginning of period -- --
------------ -----------
Cash and cash equivalents, end of period $ 5,532,540 $ --
============ ===========
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest $ 1,233,525 $ 384,000
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Purchase price of commercial office
property acquired $ 15,870,435 $ --
Less: shares issued (2,250,000) --
------------ -----------
Cash paid $ 13,620,435 $ --
============ ===========
Gross investment in joint venture $ 32,425,349 $ --
Properties contributed (54,332,555) --
Debt contributed 30,426,144 --
Warrants issued (6,198,345) --
------------ -----------
Cash paid $ 2,320,593 $ --
============ ===========
See accompanying notes.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
Wellsford Real Properties, Inc. (the "Company") was formed on January 8,
1997, as a corporate subsidiary of Wellsford Residential Property Trust
(the "Trust"). The Trust was formed in 1992 as the successor to
Wellsford Group Inc. (and affiliates) which was formed in 1986. On May
30, 1997, the Trust merged (the "Merger") with Equity Residential
Properties Trust ("EQR"). Immediately prior to the Merger, the Trust
contributed certain of its assets to the Company and the Company assumed
certain liabilities of the Trust. Immediately after the contribution of
assets to the Company and immediately prior to the Merger, the Trust
distributed to its common shareholders all the outstanding shares of the
Company owned by the Trust (the "Spin-off"). The common shareholders of
the Trust received 0.25 common share of the Company for each common
share of the Trust owned. Upon consummation of the Spin-off and Merger,
the Company had issued and outstanding approximately 4,572,043 shares of
common stock and 339,806 shares of Class A common stock that was issued
to an affiliate of EQR.
The Company was organized to create and realize value by identifying and
making opportunistic real estate investments through the direct
acquisition, rehabilitation, development, financing and management of
real properties and/or participation in these activities through the
purchase of debt or equity securities of entities engaged in such real
estate businesses. The Company has established three strategic business
units ("SBUs") within which it intends to execute its business plan:
Wellsford Commercial Properties Trust ("WCPT"), an SBU for debt and
equity investments and an SBU for property development and land
investments. At the time of the Spin-off, the management of the Company
had implemented its business strategy by identifying, negotiating and
consummating the following initial investments: (i) five office
properties, three of which are vacant, located in Northern New Jersey
containing an aggregate of approximately 949,400 square feet and
acquired for an aggregate of approximately $47.6 million, or
approximately $50 per square foot of building area (the "Commercial
Properties"); (ii) a $25 million subordinated secured mezzanine loan
due in April 2007 and bearing interest at approximately 12% per annum
(the "277 Park Loan") with respect to a class A office building located
at 277 Park Avenue, New York City; (iii) a $17.8 million mortgage due
in July 1999 and bearing interest at 9% per annum (the "Sonterra
Mortgage") on, and option to purchase, a 344-unit class A residential
apartment complex in Tucson, Arizona and (iv) an approximate 80%
interest in Phases I, II and III of, and in options to acquire (at fixed
prices) and develop Phases IV and V of, a 1,880-unit class A multifamily
development ("Palomino Park") in a suburb of Denver, Colorado. These
investments were financed with proceeds from the Spin-off (and related
transactions), the Private Placement (Note 2), and a $14.8 million tax
exempt mortgage note payable which requires interest only payments at a
variable rate (currently approximately 4%) until it matures in December
2035 (the "Palomino Park Bonds"). The tax exempt mortgage note payable
is security for tax-exempt bonds, which are backed by a letter of credit
from a AAA rated financial institution. The Company and EQR have
guaranteed the reimbursement of the financial institution in the event
that the letter of credit is drawn upon (the latter guarantee being the
"EQR Enhancement").
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.
The accompanying consolidated financial statements and related notes of
the Company have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared under generally accepted
accounting principles have been condensed or omitted pursuant to such
rule. In the opinion of management, all adjustments considered
necessary for a fair presentation of the Company's financial position,
results of operations and cash flows have been included and are of a
normal and recurring nature. These financial statements should be read
in conjunction with the Company's Form 10 that was declared effective by
the Securities and Exchange Commission on April 24, 1997.
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information" which is effective for fiscal
years beginning after December 15, 1997. Accordingly, the Company plans
to adopt SFAS No. 131 with the fiscal year beginning January 1, 1998.
SFAS No. 131 does not have any impact on the financial results or
financial condition of the Company, but will result in certain changes
in required disclosures of segment information.
2. Capitalization
On June 2, 1997, the Company sold 12,000,000 shares of common stock in a
private placement (the "Private Placement") exempt from the registration
requirements of the Securities Act of 1933, as amended, under Regulation
D thereof, to a group of institutional investors at $10.30 per share,
the Company's then book value per share. Pursuant to a registration
rights agreement executed by the Company and the purchasers of such
shares, the Company has filed a shelf registration statement with the
Securities and Exchange Commission with respect to such shares. The
proceeds of the Private Placement of approximately $123.6 million have
been applied to (a) approximately $53 million to repay the Company's
credit facility and other debt on the date of the Private Placement, (b)
$5 million to purchase a portion of the 277 Park Loan, (c) approximately
$7 million on renovations and tenant fit-out for the Commercial
Properties, and (d) the balance towards the investments described in
Note 3 and towards working capital.
The Company has (i) the commitment, until May 30, 2000, of an affiliate
of EQR to acquire at the Company's option up to $25 million of the
Company's Series A 8% Convertible Redeemable Preferred Stock ("Series A
Preferred"), each share of Series A Preferred being convertible into
shares of common stock at a price of $11.124 (the "EQR Preferred
Commitment") and (ii) a $50 million two-year line of credit (extendible
for one year) from BankBoston and Morgan Guaranty Trust Company of New
York (the "Line of Credit") which initially bears interest at an annual
rate equal to LIBOR plus 175 basis points. The EQR Preferred Commitment
is pledged as security for the Line of Credit. If at May 30, 2000, the
affiliate of EQR has purchased less than $25 million of Series A
Preferred, it has the right to purchase the balance of the $25 million
commitment not purchased prior to that time.
3. Recent Activities
Wellsford Commercial Properties Trust ("WCPT")
On August 28, 1997, the Company, through its subsidiary WCPT, in a joint
venture with WHWEL Real Estate Limited Partnership ("Whitehall"), an
affiliate of Goldman, Sachs & Co., formed a private real estate
operating company, Wellsford/Whitehall Properties, L.L.C. ("Wellsford
Commercial"). Wellsford Commercial currently focuses on opportunistic
acquisitions of underperforming or vacant properties, in excellent
locations within recovering markets, where management can create
significant value through adaptive reuse. Wellsford Commercial's initial
target markets include New York, New Jersey, Connecticut and the Boston
and Washington D.C. metropolitan areas. WCPT manages Wellsford
Commercial on a day-to-day basis, and certain major decisions require
the consent of both partners. WCPT intends to qualify as a real estate
investment trust ("REIT") and has a 50.1% interest in Wellsford
Commercial. Except in certain limited circumstances, all of the
Company's office property activities will be conducted through Wellsford
Commercial.
Wellsford Commercial currently owns and operates ten properties
containing approximately 2.1 million square foot ("SF") of office space
in New Jersey and Washington, D.C. These properties consist of the
Commercial Properties, which were contributed by the Company upon
formation of Wellsford Commercial, and 300 Atrium Drive, 400 Atrium
Drive, 500 Atrium Drive and 1275 K Street, which were contributed by
Whitehall upon formation of Wellsford Commercial, as well as 700 Atrium
Drive which was acquired in September 1997 for $18.1 million. The
properties contributed by Whitehall were encumbered by approximately $48
million of debt bearing interest at LIBOR plus 3% which was assumed by
Wellsford Commercial. The lender on this note is Goldman Sachs Mortgage
Corporation. Wellsford Commercial has an interest rate protection
agreement related to this debt which caps LIBOR at 7.69% until June 15,
2000.
WCPT is entitled to incentive compensation equal to (a) 17.5% of
available cash after a return of capital to WCPT and Whitehall and a
17.5% return on equity to each of them, and (b) 22.5% of available cash
after a 22.5% return on equity to WCPT and Whitehall. The Company and
Whitehall have committed to make additional equity contributions of $50
million each for new acquisitions, capital needs, and working capital.
Whitehall may exchange the membership units it receives in Wellsford
Commercial relating to capital contributions in excess of an additional
$25 million up to an additional $50 million, for shares of the Company's
common stock or, in the Company's sole discretion, cash, based upon the
price paid for such membership units and the current market value of the
Company's common stock.
In connection with the transactions described above, the Company issued
warrants (the "Warrants") to Whitehall to purchase 4,132,230 shares of
common stock at an exercise price of $12.10 per share. The Warrants are
exercisable for five years for either, at the Company's option, shares
of the Company's common stock or cash. The exercise price for the
Warrants is payable either with membership units in Wellsford Commercial
or cash.
In addition, the Company entered into a Term Loan Agreement ("TLA") with
Wellsford Commercial pursuant to which the Company has agreed to loan to
Wellsford Commercial up to approximately $86.3 million for a period of
90 days ending on November 26, 1997. Approximately $78.9 million has
been advanced under the TLA as of September 30, 1997. The loan bears
interest at LIBOR plus 3% and may be extended for an additional 90 days
at LIBOR plus 4%.
See Note 7 for the September 30, 1997 financial statements of Wellsford
Commercial.
Value Property Trust
On September 18, 1997, the Company and its subsidiary, Wellsford Capital
Corporation, entered into a definitive agreement with Value Property
Trust (NYSE: VLP), a real estate investment trust, pursuant to which the
Company will acquire VLP in a merger transaction for cash and stock
valued at approximately $169 million.
Pursuant to the terms of the merger agreement, the Company will pay to
VLP shareholders approximately $130 million in cash and issue an
aggregate of approximately 3.35 million shares of its common stock
resulting in each VLP shareholder receiving $11.58 in cash and 0.2984
common shares of the Company for each share of VLP. VLP primarily owns
21 properties (with 2.1 million SF) and currently has approximately $64
million in net cash. The portfolio is diversified both by property type
and geographic location. Seven office/industrial properties with
600,000 SF are located in Southern California, and 14 office/industrial
and retail properties with 1.5 million SF are located primarily
throughout the mid-Atlantic region.
The closing of the transaction under such agreement is subject to the
satisfaction of various closing conditions, including approval of VLP
shareholders. The proposed acquisition, which will be accounted for as
a purchase, is expected to be completed by January, 1998.
The Company has entered into an agreement to sell, upon completion of
the merger, for $65 million, 13 of the VLP properties to an affiliate of
Whitehall ("Whitehall Property Buyer").
The Abbey Company
On August 28, 1997, the Company and Morgan Guaranty Trust Company of New
York ("MGT") originated a $70 million secured credit facility to
affiliates of The Abbey Company, Inc. ("Abbey"), an owner and operator
of office, industrial, and retail properties in Southern California.
The loan facility will be made available to Abbey for three years.
Advances under the facility can be made for up to 80% of the value of
the borrowing base collateral which will initially consist of 10
properties, all cross-collateralized, totaling approximately 1.1 million
SF and having an average occupancy rate of 94% as of August 28, 1997.
The initial advance under the facility was for approximately $48.4
million ($24.2 million of which represented the Company's 50%
participation). Under the terms of its participation agreement with
MGT, the Company will take a 50% junior participation on all advances
under the facility.
The Company will be entitled to receive interest on its advances under
the facility at LIBOR plus 400 basis points.
Abbey is owned 90% by Don Abbey and 10% by Mace Siegel and associates.
Mr. Siegel is the Chairman of Macerich, a REIT traded on the New York
Stock Exchange.
4. Commitments and Contingencies
The Company has entered into employment agreements with four of its
officers. Such agreements are for terms which expire between 1999 and
2002, and provide for aggregate annual fixed payments of approximately
$1.0 million, $1.0 million and $0.6 million in 1997, 1998 and 1999
through 2002, respectively.
The Company has established its 1997 Management Incentive Plan (the
"Management Incentive Plan"). Awards under the Management Incentive Plan
may take the form of stock options, including corresponding stock
appreciation rights and reload options, restricted stock awards and
stock purchase awards. The Company may also provide stock purchase
loans to enable Management Incentive Plan participants to pay for stock
purchase awards. The maximum number of shares of common stock that may
be the subject of awards under the Management Incentive Plan is
1,750,000 shares. Options to acquire 591,375 shares of common stock
were granted under the Management Incentive Plan at the closing of the
Spin-off to sixteen individuals including directors, executive officers
and employees of the Company.
The Company has established a Rollover Stock Option Plan (the "Rollover
Plan"), which is substantially similar to the Management Incentive Plan,
for the purpose of issued options and corresponding rights to purchase
common stock in replacement for former Trust share options. All
1,326,235 options issuable under the Rollover Plan were issued at the
closing of the Merger primarily to certain executive officers and
directors of the Company in exchange for existing Trust options of equal
value.
Statement of Financial Accounting Standards ("SFAS") 123 "Accounting for
Stock-Based Compensation" established a fair value based method of
accounting for share based compensation plans, including share options.
The disclosure requirements of SFAS 123 are effective for financial
statements for fiscal years beginning after December 15, 1995. However,
registrants may elect to continue accounting for share option plans
under Accounting Principles Board ("APB") 25, but are required to
provide proforma 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.
Pursuant to SFAS 123, the pro forma net income available to common
shareholders for the three and nine month periods ended September 30,
1997, as if the fair value approach to accounting for share-based
compensation had been applied, would be $0.8 million and $2.1 million,
respectively, or $0.05 and $0.12 per common share, respectively, after
income taxes. No options were outstanding prior to the Spin-off. The
fair values of the options used in calculating these amounts were
calculated using the Black-Scholes option pricing model and the
following assumptions: (i) a risk-free interest rate of 6.24%, (ii) an
expected life of 10 years, and (iii) an expected volatility of 20%. 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.
5. Earnings Per Share
The Company was a corporate subsidiary of the Trust until the Spin-off.
Net income per share for the periods ended September 30, 1997 was
calculated using the weighted average number of shares outstanding of
16,911,849, which includes the Company's common shares and Class
A common shares, for the period May 30, 1997 to September 30, 1997.
The Financial Accounting Standards Board issued SFAS 128, "Earnings per
Share," which will require the Company to change the method previously
used to compute earnings per share and to restate all prior periods as
of December 31, 1996. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. At this time, the Company does not expect that these
requirements will have a material effect on either basic or diluted
earnings per share for any prior period.
6. Income Taxes
The provision for income taxes consists of the following components:
Current federal tax $762,000
Current state tax 215,000
Deferred federal tax 20,000
Deferred state tax 6,000
----------
$1,003,000
==========
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. The Company's deferred income tax liability of $26,000 at
September 30, 1997 is included in Accrued Expenses and Other Liabilities
and is the result of rental income recorded for book purposes but not
for income tax purposes.
7. Investment in Joint Venture
As of September 30, 1997, the Company, through its subsidiary, WCPT,
owned a 50.1% interest in Wellsford Commercial (see Note 3). The
following is a summary of the financial position of Wellsford Commercial
which was formed on August 28,1997:
September 30,
1997
-------------
Real estate, net $176,915,203
Cash 1,400,644
Other assets 2,104,856
------------
Total assets $180,420,703
============
Atrium Mortgage Loan $ 48,092,954
Bridge Loan from the Company 78,899,440
Other liabilities 3,108,479
Equity 50,319,830
------------
Total liabilities and equity $180,420,703
============
The following is a summary of the results of operations of Wellsford
Commercial:
Period from August 28, 1997
(inception) to
September 30, 1997
Revenues
--------
Rental income $ 2,075,340
Other income 134,568
Expenses
--------
Operating expense (909,449)
Interest expense (673,247)
Depreciation and amortization (228,180)
General and administrative (79,202)
------------
Net income $ 319,830
============
Net income per unit $ 0.06
============
Wellsford Commercial's real estate assets are comprised of the
Commercial Properties, 300 Atrium Drive, 400 Atrium Drive, 500 Atrium
Drive, 700 Atrium Drive, and 1275 K Street as described in Note 3.
Wellsford Commercial's debt is comprised as follows:
Interest
Amount Rate Maturity Security
------------ --------- ---------- ------------
Atrium mortgage loan $ 48,092,954 LIBOR +3% 5/15/00* 300, 400 and
500 Atrium
Drive
Bridge loan from the
Company 78,899,440 LIBOR +3% 11/26/97** Unsecured
------------
Total $126,992,394
============
* extendable for two years, with each one year extension increasing the
interest rate by 0.75%.
** extendable for 90 days at LIBOR +4%.
Wellsford Commercial has 5,000,000 membership units outstanding which
were issued upon its formation at a value of $10 per unit.
Allocations of income and distributions between the members of Wellsford
Commercial are generally made in accordance with the ownership
percentages as described in its operating agreement.
Wellsford Commercial expects to meet its liquidity requirements, such as
financing renovations to its properties, with operating cash flow from
its properties, equity contributions from the owners of Wellsford
Commercial, WCPT and Whitehall, and a $375 million loan facility that
Wellsford Commercial is currently negotiating, consisting of a $225
million secured term loan facility and a $150 million secured revolving
credit facility. There can be no assurance that such loan facility will
be consummated.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENTS
For the Nine Months Ended September 30, 1997
and the Year Ended December 31, 1996
(In Thousands Except Per Share Data)
(Unaudited)
During the period from January 1, 1997 to September 30, 1997, the
Company consummated the Wellsford Office joint venture transaction,
participated in the Abbey Credit Facility and executed a definitive Agreement
and Plan of Merger with Value and a Purchase and Sale Agreement with
Whitehall Property Buyer, and Wellsford Office purchased 700 Atrium Drive, a
commercial office property.
The unaudited Pro Forma Consolidated Income Statements for the nine
months ended September 30, 1997 and the year ended December 31, 1996 are
presented as if the Company's transactions, each as referred to above, as
well as the acquisition of certain properties (600 Atrium Drive and 15 Broad
Street) by Wellsford Office had been consummated on January 1, 1997 and
January 1, 1996, respectively. All of the pro forma adjustments shown are
solely attributed to the transactions described. In the opinion of the
Company's management, all adjustments necessary to reflect the effects of
these transactions have been made.
This unaudited Pro Forma Consolidated Income Statement is presented for
comparative purposes only, and is not necessarily indicative of what the
actual consolidated results of operations of the Company would have been for
the period presented; nor does it purport to represent the results for
future periods. This unaudited Pro Forma Consolidated Income Statement
should be read in conjunction with, and is qualified in its entirety by, the
historical consolidated financial statements and notes thereto and historical
combined financial statements and notes thereto of the Company included in
this Prospectus.
<PAGE>
Wellsford Real Properties, Inc.
Pro Forma Consolidated Income Statement
Nine Months Ended September 30, 1997
(In thousands except per share data)
(Unaudited)
Whitehall Value Other
Pro Forma Pro Forma Pro Forma
Historical Adjustments Adjustments Adjustments Pro Forma
---------- ------------- ----------- ----------- ---------
REVENUE
Rental income $1,260 ($1,260) (A) $3,710 (D) $3,710
Other income 0
Interest income 4,125 5,825 (B) 38 (D) $1,814 (F) 11,802
Joint venture
income 160 (1,153) (C) (993)
----------------- -------- ------- ------
Total Revenue 5,545 3,412 3,748 1,814 14,519
----------------- -------- ------- ------
EXPENSES
Property operating
and maintenance 241 (241) (A) 1,137 (D) 1,137
Real estate taxes 106 (106) (A) 458 (D) 458
General and
administrative 1,521 1,521
Depreciation 221 (189) (A) 579 (E) 611
Interest 0
Property
management 18 (18) (A) 122 (D) 122
----------------- -------- ------- ------
Total Expenses 2,107 (554) 2,296 0 3,849
----------------- -------- ------- ------
Income before
income taxes 3,438 3,966 1,452 1,814 10,670
Provision for
income taxes 1,003 1,749 640 800 4,192(G)
----------------- -------- ------- ------
Net income $2,435 $2,217 $812 $1,014 $6,478
================= ======== ======= ======
Net income per
common share $0.14 $0.32(H)
======= ======
Weighted average
common shares
outstanding 16,912 20,262(H)
======= ======
<PAGE>
Wellsford Real Properties, Inc.
Notes to Pro Forma Consolidated Income Statement
Nine Months Ended September 30, 1997
(Unaudited)
(A) Represents the reclassification of the historical operating revenues and
expenses of Greenbrook Corporate Center to joint venture income.
(B) Represents interest income on the $86.3 million bridge loan to
Wellsford/Whitehall Properties, L.L.C. for nine months at 9% (LIBOR +
3%).
(C) Represents nine months of operations of Wellsford/Whitehall Properties,
L.L.C. as follows:
(In thousands)
Pointview, 1700 Valley Road,
1800 Valley Road, Chatham $0 Under construction during this
period.
Greenbrook Corporate Center 1,765 *
300/400/500 Atrium Drive 4,335 *
1275 K Street 1,404 *
700 Atrium Drive 1,356 *
15 Broad Street 427 *
600 Atrium Drive (33) *
General and administrative exp. (1,835) Represents the estimated
general and administrative
costs of Wellsford/Whitehall
Properties, L.L.C. for nine
months.
Depreciation expense (2,385) Represents depreciation on the
assets marked * above for nine
months utilizing a 40 year
estimated useful life.
Interest expense - Atrium loan (3,246) Represents interest on the
$48.1 million Atrium mortgage
loan for nine months at 9%
(LIBOR + 3%).
Interest exp. - Company
bridge loan (5,825) Represents interest on the
$86.3 million Company bridge
loan for nine months at 9%
(LIBOR + 3%).
Capitalized interest 2,054
------
(1,983)
Company interest through WCPT 50.10%
------
($993)
Actual September 1997 ($160)
------
($1,153)
======
* Represents historical operating revenues and
expenses of these assets (historical real
estate taxes in the case of 600 Atrium Drive)
for the nine months ended September 30, 1997.
(D) Represents historical operating revenues and expenses of the Value
assets (which are not under contract to be sold) for the nine months
ended September 30, 1997.
(E) Represents depreciation on the Value assets for nine months utilizing a
40 year estimated useful life.
(F) Represents interest income on the $24.2 million Abbey Credit Facility
for nine months at 10% (LIBOR + 4%).
(G) Represents the Company's estimated provision for federal and state
income taxes at rates of 35% and 14%, respectively.
(H) Reflects the issuance of 3.35 million common shares in connection with
the Value transaction.<PAGE>
Wellsford Real Properties, Inc.
Pro Forma Consolidated Income Statement
Year Ended December 31, 1996
(In thousands except per share data)
(Unaudited)
Whitehall Value Other
Pro Forma Pro Forma Pro Forma Pro
Historical Adjustments Adjustments Adjustments Forma
---------- ----------- ----------- ----------- -----
REVENUE
Rental income $4,547 (D) $4,547
Other income 0
Interest income $757 $7,767 (A) 50 (D) $2,418 (F) 10,992
Joint venture
income (3,656) (B) (3,656)
------------------ ------- ------ -------
Total Revenue 757 4,111 4,597 2,418 11,883
------------------ ------- ------ -------
EXPENSES
Property operating
and maintenance 1,490 (D) 1,490
Real estate taxes 572 (D) 572
General and
administrative 0
Depreciation 773 (E) 773
Interest 574 (C) 574
Property
management 199 (D) 199
------------------ ------- ------ -------
Total Expenses 0 574 3,034 0 3,608
------------------ ------- ------ -------
Income before
income taxes 757 3,537 1,563 2,418 8,275
Provision for
income taxes 1,560 689 1,066 3,315(G)
------------------ ------- ------ -------
Net income $757 $1,977 $874 $1,352 $4,960
================== ======= ======= =======
<PAGE>
Wellsford Real Properties, Inc.
Notes to Pro Forma Consolidated Income Statement
Year Ended December 31, 1996
(Unaudited)
(A) Represents interest income on the $86.3 million bridge loan to
Wellsford/Whitehall Properties, L.L.C. for one year at 9% (LIBOR + 3%).
(B) Represents one year of operations of Wellsford/Whitehall Properties,
L.L.C. as follows:
(In thousands)
Pointview, 1700 Valley Road,
1800 Valley Road, Chatham $0 Under construction during this
period.
Greenbrook Corporate Center 2,420 *
300/400/500 Atrium Drive (793) *
1275 K Street 3,916 *
700 Atrium Drive 1,860 *
15 Broad Street 320 *
600 Atrium Drive (38) *
General and administrative exp. (2,446) Represents the estimated
general and administrative
costs of Wellsford/Whitehall
Properties, L.L.C. for one
year.
Depreciation expense (3,180) Represents depreciation on the
assets marked * above for one
year utilizing a 40 year
estimated useful life.
Interest expense - Atrium loan (4,328) Represents interest on the
$48.1 million Atrium mortgage
loan for one year at 9% (LIBOR
+ 3%).
Interest exp. - Company bridge
loan (7,767) Represents interest on the
$86.3 million Company bridge
loan for one year at 9% (LIBOR
+ 3%).
Capitalized interest 2,738
------
(7,298)
Company interest through
WCPT 50.10%
------
($3,656)
======
* Represents historical operating revenues and
expenses of these assets (historical real
estate taxes in the case of 600 Atrium Drive)
for the year ended December 31, 1996.
(C) Represents interest on the portion of the credit facility draws which is
not capitalizable at 7.75% (LIBOR + 1.75%) for one year.
(D) Represents historical operating revenues and expenses of the Value
assets (which are not under contract to be sold) for the year ended
December 31, 1996.
(E) Represents depreciation on the Value assets for one year utilizing a 40
year estimated useful life.
(F) Represents interest income on the $24.2 million Abbey Credit Facility
for one year at 10% (LIBOR + 4%).
(G) Represents the Company's estimated provision for federal and state
income taxes at rates of 35% and 14%, respectively.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1997
(In Thousands)
(Unaudited)
This unaudited Pro Forma Consolidated Balance Sheet is presented as if the
Value Merger, the sale of certain Value assets to Whitehall Property Buyer
and the acquisition of certain properties (600 Atrium Drive and 15 Broad
Street) by Wellsford Office had been consummated on September 30, 1997.
This unaudited Pro Forma Consolidated Balance Sheet is presented for
comparative purposes only, and is not necessarily indicative of what the
actual consolidated financial position of the Company would have been at
September 30, 1997; nor does it purport to represent the future consolidated
financial position of the Company. This unaudited Pro Forma Consolidated
Balance Sheet should be read in conjunction with, and is qualified in its
entirety by, the historical consolidated financial statements and notes
thereto and historical combined financial statements and notes thereto of the
Company included in this Prospectus.
<PAGE>
Wellsford Real Properties, Inc.
Pro Forma Consolidated Balance Sheet
September 30, 1997
(In thousands)
(Unaudited)
Value
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS
Real estate assets, at cost:
Land $0 $5,453 $5,453
Buildings and improvements 30,902 30,902
-------- ------- --------
0 36,355 36,355
Less, accumulated depreciation 0
-------- ------- --------
0 36,355 36,355
Construction in process 21,864 21,864
-------- ------- --------
21,864 36,355 (A) 58,219
Notes receivable 145,880 145,880
Investment in joint venture 32,425 32,425
-------- ------- --------
Total real estate assets 200,169 36,355 236,524
Cash and cash equivalents 5,533 (130,000)(B) 4,033
64,000 (C)
65,000 (D)
(500)(E)
Restricted cash 6,717 6,717
Deferred tax asset 4,007 (F) 4,007
Other assets 1,983 1,983
-------- ------- --------
Total Assets $214,402 $38,862 $253,264
======== ======= ========
LIABILITIES AND EQUITY
Liabilities:
Tax exempt mortgage note payable $14,755 $14,755
Credit facility 10,000 10,000
Other liabilities 6,667 6,667
-------- ------- --------
Total Liabilities 31,422 0 31,422
-------- ------- --------
Commitments and contingencies -- -- --
Minority Interest 3,092 3,092
Equity:
Common Stock, 197,650,000 shares
authorized - 19,922,043 shares,
$.01 par value per share, issued
and outstanding as adjusted 166 33 199
Class A Common Stock, 350,000 shares
authorized - 339,806, $.01 par
value per share, issued
and outstanding as adjusted 3 3
Series A 8% Convertible Redeemable
Preferred Stock, 2,000,000 shares
authorized - no shares, $.01 par
value per share, issued and
outstanding -- --
Paid in capital in excess of
par value 178,288 38,829 217,117
Retained earnings 1,431 1,431
-------- ------- --------
Total Equity 179,888 38,862 (G) 218,750
-------- ------- --------
Total Liabilities and Equity $214,402 $38,862 $253,264
======== ======= ========
<PAGE>
Wellsford Real Properties, Inc.
Notes to Pro Forma Consolidated Balance Sheet
September 30, 1997
(In thousands)
(Unaudited)
(A) Represents real estate assets (which are not under contract to be sold)
to be acquired in the Value transaction, as follows:
Gross real estate assets to be acquired $101,355
Real estate assets to be sold (pursuant to (D) below) (65,000)
--------
Net real estate assets to be acquired $36,355
========
(B) Represents cash to be paid to the Value shareholders in the Value
transaction.
(C) Represents Value cash to be received in the Value transaction.
(D) Represents proceeds from the sale of certain Value real estate assets
which are under contract to be sold to Whitehall Property Buyer.
(E) Represents estimated stock issuance costs to be paid in connection with
the Value transaction.
(F) Represents the net deferred tax asset to be acquired in the Value
transaction, $34,927 net of allowance of $29,319 and deferred tax
liability of $1,601 (related to the Value NOL carryforward).
(G) Represents 3,350,000 Company common shares to be issued at $11.75 per
share in connection with the Value transaction, less $0.5 million of
stock issuance costs.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
Wellsford Real Properties, Inc.
We have audited the accompanying combined balance sheets of the
Predecessor to Wellsford Real Properties, Inc. (the "Company") as of December
31, 1996 and 1995, and the related combined statements of income and equity
for the year ended December 31, 1996 and cash flows for the year ended
December 31, 1996 and for the period from March 22, 1995 (the date the assets
were acquired and liabilities incurred) to December 31, 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1, no operating revenues or expenses were incurred
in the period from March 22, 1995 through December 31, 1995. Accordingly, the
statement of income for the period ended December 31, 1995 has been omitted.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the combined financial position of
the Company at December 31, 1996 and 1995, and the combined results of its
operations for the year ended December 31, 1996 and its cash flows for the
year ended December 31, 1996 and for the period from March 22, 1995 to
December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
------------------------------
New York, New York
February 28, 1997
<PAGE>
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
COMBINED BALANCE SHEETS
(In thousands)
December 31, December 31,
1996 1995
---- ----
ASSETS
Construction in process $21,306 $7,955
Restricted cash 5,520 10,414
Mortgage note and interest
receivable 17,934 0
-------- -------
Total Assets $44,760 $18,369
======== =======
LIABILITIES AND EQUITY
Tax exempt mortgage note
payable $14,755 $14,755
-------- -------
Total Liabilities 14,755 14,755
======== =======
Commitments and contingencies -- --
Equity 30,005 3,614
-------- -------
Total Equity 30,005 3,614
-------- -------
Total Liabilities and Equity $44,760 $18,369
======== =======
See accompanying notes.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
COMBINED STATEMENT OF INCOME AND EQUITY
(In thousands)
Year
Ended
December 31,
1996
Interest income $757
_______
Net income 757
_______
Equity, January 1, 1996 3,614
Contributions 25,634
_______
Equity, December 31, 1996 $30,005
=======
See accompanying notes.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOW
(In thousands)
Year Period From
Ended March 22 to
December 31, December 31,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $757 $0
Adjustments to reconcile net income to net cash
provided by operating activities:
Decrease (increase) in assets:
Debt service reserve 4,894 4,341
Interest receivable (134) 0
---------------------
Net cash provided by operating activities 5,517 4,341
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets (13,351) (7,955)
Investment in mortgage note receivable (17,800) 0
-----------------------
Net cash (used) in investing activities (31,151) (7,955)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from tax exempt mortgage note payable 0 14,755
Funding of restricted cash accounts 0 (14,755)
Equity contributions 25,634 3,614
----------------------
Net cash provided by financing activities 25,634 3,614
----------------------
Net increase (decrease) in cash and cash
equivalents 0 0
Cash and cash equivalents, beginning of period 0 0
______________________
Cash and cash equivalents, end of period $0 $0
========================
Cash paid during the period for interest $663 $335
========================
See accompanying notes.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) Organization and Basis of Presentation
Wellsford Real Properties, Inc. ("WRP Newco"), a C corporation formed on
January 8, 1997, is a subsidiary of Wellsford Residential Property
Trust ("Wellsford"). On January 16, 1997 Wellsford announced its
intention to merge with Equity Residential Properties Trust ("EQR").
Immediately prior to the Merger, Wellsford intends to contribute
certain of its assets to WRP Newco and have WRP Newco assume certain
liabilities of Wellsford. Immediately after the contribution of
assets to WRP Newco and immediately prior to the Merger, Wellsford
intends to distribute to its common shareholders all the outstanding
shares of WRP Newco owned by Wellsford. The common shareholders of
Wellsford will receive one common share of WRP Newco for each four
common shares of Wellsford owned.
The accompanying combined financial statements of the predecessor to WRP
Newco (the "Company") include the assets and liabilities to be
contributed and assumed by WRP Newco from the time the assets and
liabilities were acquired or incurred, respectively, by Wellsford or
the majority owned or controlled subsidiary of Wellsford. Such
financial statements have been prepared using the historical basis of
the assets and liabilities and historical results of operations
related to the Company's assets.
For the purpose of the Company, the assets were acquired and liabilities
incurred beginning on March 22, 1995. During the period from March
22, 1995 through December 31, 1996 the Company was principally
involved in the initial phase of construction development activities
with no operating revenues or expenses incurred. Accordingly, the
income statement for the period ended December 31, 1995 has been
omitted. The Company has earned interest income on the Sonterra
Mortgage (see Note 4) during the year ended December 31, 1996.
(2) Summary of Significant Accounting Policies
Principles of Combination. All significant intercompany transactions
between Wellsford and the majority owned or controlled subsidiaries
relating to the assets and liabilities that are to be contributed or
assumed by WRP Newco have been eliminated in combination.
Income Recognition. Residential communities are leased under operating
leases with terms generally one year or less; rental revenue is
recognized monthly as it is earned. Commercial properties are leased
under operating leases; rental revenue is recognized on a straight-
line basis over the terms of the leases.
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 to be cash and cash
equivalents.
Real Estate and Depreciation. Costs directly related to the acquisition
and improvement of real estate are capitalized, including interest
expense incurred during and related to construction and including all
improvements identified during the underwriting of a property
acquisition.
Depreciation is computed over the expected useful lives of depreciable
property on a straight line basis, principally 40 years for buildings
and improvements and 5 to 12 years for furnishings and equipment.
The Company has adopted Statement of Financial Accounting Standard
("SFAS") 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of" which 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 and that long-lived assets to be
disposed of be measured at the lower of carrying amount or net
realizable value. The adoption of SFAS 121 has not had an impact on
the Company's combined financial position or results of operations.
Mortgage Note Receivable Impairment. The Company considers a note
impaired if, based on current information and events, it is probable
that all amounts due under the note agreement are not collectable.
Impairment is measured based upon the fair value of the underlying
collateral. No impairment has been recorded through December 31,
1996.
Financing Costs. Financing and refinancing costs are capitalized and
amortized over the term of the related loan under the interest method.
Credit facility fees are capitalized and amortized over the term of
the commitment on a straight-line basis.
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.
(3) Restricted Cash
Restricted cash primarily consists of the remaining proceeds from the
Palomino Park tax-exempt mortgage note (Note 5) which are restricted
in their use to construction costs and capitalized interest related to
the Palomino Park development project (Note 4).
(4) Multifamily Communities and Mortgage Note Receivable
The Company holds a $17.8 million mortgage on a 344 unit, newly
constructed community in Tucson, Arizona known as Sonterra at Williams
Centre (the "Sonterra Mortgage"). The Sonterra Mortgage was originated
in July 1996, bears interest at 9% per annum and matures in July 1999.
The Company also has the exclusive option to purchase the community
for $20.5 million through December 1997 and $21 million during 1998.
Interest receivable of $0.1 million is included in the December 31,
1996 balance. The fair market value of the Company's mortgage note
receivable, estimated by using a discounted cash flow analysis,
approximates the carrying amount. In connection with the Sonterra
Mortgage, a $0.2 million origination fee was paid to Wellsford by the
borrower.
The Company currently has two multifamily projects under development in
a suburb of Denver, Colorado, totaling 760 apartment units
(collectively, the "Development Communities"). The Development
Communities are the first of five communities at Palomino Park, a
1,880 unit master-planned, security controlled apartment/townhome
community. The Company has the option to develop phases three through
five, but is not obligated to do so. The 181.8 acre master site
surrounds an amenity-filled, 24 acre park and an approximately 29,000
square foot recreational center to be shared by all phases. The
Development Communities are being constructed pursuant to fixed-price
contracts, with a local developer, and are estimated to cost
approximately $76.1 million in total, including certain development
and incentive fees payable to the developer. The Company is committed
to purchase 100% of the Development Communities upon completion and
the achievement of certain occupancy levels. At December 31, 1996 the
Company had invested $21 million related to the land for the
Development Communities, the recreation center and general
infrastructure work. A portion of such infrastructure will become the
property of certain local governmental entities at the date of
completion and retirement of the tax-exempt mortgage note payable
described in Note 5. In addition, approximately $21.8 million was
outstanding at December 31, 1996 on a construction loan to the
developer, which the Company would repay upon purchase assuming
completion and achievement of certain occupancy levels. During the
periods ended December 31, 1996, and December 31, 1995, respectively,
the Company capitalized $0.7 million and $0.3 million of interest to
the Development Communities. The Company expects to fund the
construction of its Development Communities from its working capital
and with proceeds from a credit facility and a $14.8 million tax-
exempt mortgage note (Note 5).
Subsequent to December 31, 1996, the Company entered into contracts on
five commercial office properties for $47.6 million in aggregate, and
has closed on four of the properties. The purchase prices for these
commercial properties include approximately $2.25 million in value of
shares of WRP Newco Common to be issued to an entity in consideration
for the assignment of the purchase contracts entered into by such
entity. Upon liquidation of such entity, each of the Chairman of the
Board and President of Wellsford, Messrs. Lynford and Lowenthal, will
receive approximately 16.4% of such shares, and the wife of Mark
Germain, a trustee of Wellsford, will receive approximately 13.8% of
such shares. Each are owners of such entity.
Greenbrook Corporate Center ($23.7 million) is a Class A, three-story
office building with a 35 foot atrium, located in Fairfield, NJ, and
comprising approximately 190,000 square feet. It is situated on a 20
acre developed site with 7 acres of additional, contiguous undeveloped
land.
Point View ($15.8 million) consists of 194 acres containing two office
buildings, totaling approximately 560,000 square feet, an adjacent 10-
acre undeveloped site, and a central utility plant located in Wayne,
NJ. The site is currently undergoing a major renovation. The
purchase of this building was closed in February 1997.
1700 Valley Road ($1.0 million) is a Class B+, two-story vacant office
building located in Wayne, NJ and comprising approximately 70,600
square feet. It is situated on a nine acre site. The purchase of
this building was closed in February 1997.
1800 Valley Road ($2.0 million) is a Class B+, two-story vacant office
building located in Wayne, NJ and comprising approximately 54,800
square feet. It is situated on a 14 acre site. The purchase of this
building was closed in February 1997.
The Chatham Building ($5.1 million) is a three-story office building
located in Chatham, NJ and comprising approximately 65,000 square
feet. The site is currently undergoing a major renovation. The
purchase of this building was closed in January 1997.
(5) Tax Exempt Mortgage Notes Payable
At December 31, 1996 and 1995, the Company had $14.8 million of tax
exempt mortgage notes payable outstanding. The Company's tax exempt
mortgage note payable is secured by certain infrastructure at the
Company's Palomino Park development and bears interest-only payments
at a variable rate (which approximates the Standard & Poor's / J.J.
Kenney index for short-term high grade tax-exempt bonds, currently
3.65 %) until it matures in December 2035.
The tax-exempt mortgage note payable is security for tax-exempt bonds
which are backed by a letter of credit from a AAA rated financial
institution. Wellsford has guaranteed the reimbursement of the
financial institution in the event that the letter of credit is drawn
upon. It is anticipated that as a result of the Merger, this guaranty
will be replaced by the guarantees of WRP Newco and EQR. These bonds
require the Company to obtain the approval of both the trustee, as
defined in the bond documents, and the above mentioned financial
institution for transactions such as those anticipated in connection
with the Merger and Distribution. The Company expects to receive such
approvals.
The fair market value of the variable rate tax exempt mortgage note is
considered to be the carrying amount.
(6) Commitments and Contingencies
WRP Newco will enter into employment agreements with certain of its
officers. Such agreements will be for terms which expire between 1999
and 2002, and will provide for aggregate annual base salaries of
$0.9 million, $0.9 million and $0.6 million in 1997, 1998 and 1999
through 2002, respectively. The Company is obligated under an
operating lease covering its corporate headquarters for $0.2 million
in 1997, $0.2 million in 1998, and $0.2 million in 1999, plus certain
operating expense escalations.
As a commercial real estate owner, the Company is subject to potential
environmental costs. The Company's Point View site contains asbestos
containing materials ("ACMs"); upon acquisition of the property, the
Company intends to proceed with the removal of all ACMs in such
property which is anticipated to cost $3.5 million. At this point in
time, management of the Company is not aware of any environmental
concerns that would have a material adverse effect on the Company's
financial position or future results of operations except as just
described.
In 1997 WRP Newco will adopt 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 will be eligible
to participate in the plan after one year of service. Employer
contributions will be made based on a discretionary amount
determined by WRP Newco's management. Employer contributions, if
any, will be based upon the amount contributed by an employee.
The Company will lend $20 million of an $80 million secured subordinated
mezzanine loan to an entity which owns substantially all of the equity
interest (the "Equity Interest") in the owner of a 52-story,
approximately 1.75 million sq.ft. Class A office building located at
277 Park Avenue, New York City (the "277 Park Loan"). The loan will
be secured primarily by a pledge of the Equity Interest owned by the
Borrower. The 277 Park Loan will be due in April 2007 and will bear
interest at the rate of approximately 12% per annum.
<PAGE>
<PAGE>
VALUE PROPERTY TRUST
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Financial Statements
Consolidated Statement of Operations
(Years ended September 30, 1996, 1995 and 1994)
Consolidated Balance Sheet
(September 30, 1996 and 1995)
Consolidated Statement of Cash Flows
(Years ended September 30, 1996, 1995 and 1994)
Consolidated Statement of Shareholder's Equity
(Years ended September 30, 1996, 1995 and 1994)
Notes to the Consolidated Financial Statements
Financial Statements Schedules
Schedule XI -- Real Estate Accumulated
Depreciation and Amortization (September 30, 1996)
Schedule XII -- Mortgage Loans on Real Estate
(September 30, 1996)
- 24 -
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders of
Value Property Trust:
We have audited the consolidated financial statements and the financial
statement schedules of Value Property Trust listed in Item 14(a) of this Form
10-K as of and for the year ended September 30, 1996. These financial statements
and financial statement schedules are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audit. The
financial statements and financial statement schedules of Value Property Trust
as of September 30, 1995, and for the years ended September 30, 1995 and 1994,
were audited by other auditors whose report dated November 10, 1995, included an
emphasis of matter paragraph which described the reorganization and the
implementation of Fresh Start Reporting as discussed in Note 1 to the financial
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Value
Property Trust as of September 30, 1996, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
related 1996 financial statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material aspects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
November 27, 1996
- 25 -
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Trustees and Shareholders
Value Property Trust
We have audited the balance sheets of Value Property Trust (formerly
Mortgage and Realty Trust) at September 30, 1995 and 1994 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in the financial statements, on September 22,
1995, the Bankruptcy Court confirmed the Trust's plan of reorganization which
was consummated on September 29, 1995 permitting the Trust to emerge from
proceedings under the Bankruptcy Code. The Trust implemented the guidance as to
the accounting for entities emerging from Chapter 11 set forth in Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("Fresh Start Reporting") as of September 30, 1995. Due to the
reorganization and the implementation of Fresh Start Reporting, assets were
recorded at reorganization value, liabilities were recorded at fair values and
outstanding obligations were discharged primarily in exchange for cash, new
indebtedness and equity. As a result, the balance sheet at September 30, 1995
reflects a new basis of accounting and, accordingly, is not comparable to
balance sheets prior to that date.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Value Property
Trust, at September 30, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1995,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 10, 1995
- 26 -
<PAGE>
<PAGE>
<TABLE>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30
(amounts in thousands except per share)
<CAPTION>
POST- PRE-
CONFIRMATION CONFIRMATION
------------ ------------------------------
1996 1995 1994
------------ | -------- --------
<S> <C> <C> <C>
Revenue: |
Rental properties: |
Rental income $ 26,925 | $ 24,608 $ 18,495
Operating expense reimbursement 3,557 | 2,286 1,705
Interest and fee income on mortgage loans 2,853 | 9,353 14,725
Interest on short-term investments 1,713 | 3,086 1,238
Other 18 | 131 114
-------- | -------- --------
35,066 | 39,464 36,277
-------- | -------- --------
Expenses: |
Interest 10,489 | 35,900 33,002
Rental properties: |
Depreciation and amortization 2,347 | 7,306 5,839
Operating 12,084 | 11,702 9,827
Other operating expenses 3,173 | 4,518 4,839
Provision for losses on mortgage loans and related investments -- | 3,000 2,000
-------- | -------- --------
28,093 | 62,426 55,507
-------- | -------- --------
Income (loss) from operations before reorganization items, |
and extraordinary item 6,973 | (22,962) (19,230)
-------- | -------- --------
Reorganization items: |
Professional fees and other -- | 6,219 2,360
Interest income -- | (441) --
Write down of invested assets to reorganization value -- | 66,597 --
-------- | -------- --------
Total reorganization items -- | 72,375 2,360
-------- | -------- --------
Income (loss) before extraordinary item 6,973 | (95,337) (21,590)
-------- | -------- --------
Extraordinary item-gain on extinguishment of debt -- | 75,304 --
-------- | -------- --------
Net income (loss) $ 6,973 | $(20,033) $(21,590)
======== | ======== ========
Net income per share* $ 0.62 |
======== |
Weighted average number of common shares outstanding 11,226 | 11,226 11,226
</TABLE>
*Net income (loss) per share for all pre-confirmation periods is not presented
because this information is not meaningful as a result of the Reorganization
and the adoption of "Fresh Start Reporting". See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
See accompanying notes to consolidated financial statements.
- 27 -
<PAGE>
<TABLE>
VALUE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30
(dollars in thousands)
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Assets Held For Sale:
Mortgage loans ........................................ $ -- $ 21,966
Investment in partnerships ............................ 10,219 5,220
Real estate owned ..................................... 38,171 42,059
-------- --------
48,390 69,245
-------- --------
Assets Held For Investment:
Mortgage loans ........................................ 663 35,013
Investment in partnerships ............................ 13,486 20,648
Real estate owned ..................................... 63,196 81,581
Notes receivable ...................................... -- 633
-------- --------
77,345 137,875
-------- --------
Total Invested Assets ...................................... 125,735 207,120
Cash and cash equivalents .................................. 29,501 9,977
Restricted cash ............................................ 12,213 6,791
Interest receivable and other assets ....................... 4,962 8,441
-------- --------
Total Assets ............................................... $172,411 $232,329
======== ========
LIABILITIES
Senior Secured Notes (Due 1999) ............................ $ 63,226 $--
Senior Secured Notes (Due 2002) ............................ -- 109,975
Mortgage payable ........................................... -- 17,535
Accounts payable and accrued expenses ...................... 1,804 4,745
Interest payable ........................................... 334 --
-------- --------
Total Liabilities .......................................... 65,364 132,255
-------- --------
Commitments and contingencies
</TABLE>
(Continued)
- 28 -
<PAGE>
<TABLE>
VALUE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30 -- Continued
(dollars in thousands)
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
SHAREHOLDERS' EQUITY
Preferred Shares, $1 par value: 3,500,000 shares authorized,
none issued .............................................. -- --
Common Shares, $1 par value: 20,000,000 shares authorized,
11,226,310 and 11,226,215 shares issued and outstanding .. 11,226 11,226
Additional paid-in capital ................................. 88,848 88,848
Accumulated earnings ....................................... 6,973 --
-------- --------
Total Shareholders' Equity ................................. 107,047 100,074
-------- --------
Total Liabilities and Shareholders' Equity ................. $172,411 $232,329
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
- 29 -
<PAGE>
<TABLE>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30
(dollars in thousands)
<CAPTION>
POST- PRE-
CONFIRMATION CONFIRMATION
------------ ---------------------------
1996 1995 1994
------------ | --------- ---------
<S> <C> <C> <C>
Net income (loss) ............................................................ $ 6,973 | $ (20,033) $ (21,590)
Adjustments to reconcile net income (loss) to net cash |
provided by (used in) operating activities: |
Write down of invested assets to reorganization value .................... -- | 66,597 --
Extraordinary item-gain on extinguishment of debt ........................ -- | (75,304) --
Depreciation and amortization on real estate ............................. 2,347 | 7,306 5,839
Provision for losses ..................................................... -- | 3,000 2,000
(Decrease) increase in accounts payable and accrued expenses ............... (2,942) | 199 (217)
Increase (decrease) in interest payable .................................... 334 | (32,568) 32,156
Decrease (increase) in receivables and other assets ........................ 2,675 | (576) (1,160)
Net change in interest reserves, deferred income ........................... -- | (162) (582)
Recoveries of charge-offs to allowance for losses .......................... -- | 631 1,019
Other ...................................................................... -- | -- (967)
--------- | --------- ---------
Total adjustments ............................................................ 2,414 | (30,877) 38,088
--------- | --------- ---------
Net cash provided by (used in) operating activities .......................... 9,387 | (50,910) 16,498
--------- | --------- ---------
|
Cash flows from investing activities: Investment in real estate: |
Real estate owned ........................................................ (4,550) | (11,283) (7,116)
Advances on mortgage loans ............................................... (73) | (733) (1,337)
Partnerships ............................................................. (344) | (2,211) --
Principal repayments on mortgage loan receivables .......................... 332 | 22,711 34,308
Proceeds from the sale of real estate ...................................... 27,093 | 3,350 6,360
Proceeds from the sale of mortgage loans and notes receivable .............. 57,047 | -- --
Repayments on notes receivable ............................................. 338 | 217 168
--------- | --------- ---------
Net cash provided by investing activities .................................... 79,843 | 12,051 32,383
--------- | --------- ---------
</TABLE>
(Continued)
- 30 -
<PAGE>
<TABLE>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30 -- Continued
(dollars in thousands)
<CAPTION>
POST- PRE-
CONFIRMATION CONFIRMATION
------------ ---------------------------
1996 1995 1994
------------ | --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities: |
Payment of mortgage payable ................................................ (17,535) | (58) --
Principal payment of senior secured notes (due 2002) ....................... (109,975) | (4,647) --
Principal payment of senior secured notes (due 1999) ....................... (4,153) | -- --
Borrowing of senior notes (due 1999) ....................................... 67,379 | -- --
Increase in restricted cash ................................................ (5,422) | (3,808) (2,983)
--------- | --------- ---------
Net cash used in financing activities ........................................ (69,706) | (8,513) (2,983)
--------- | --------- ---------
Net increase (decrease) in cash and cash equivalents ......................... 19,524 | (47,372) 45,898
Cash and cash equivalent and beginning of period ............................. 9,977 | 57,349 11,451
--------- | --------- ---------
Cash and cash equivalent at end of period .................................... $ 29,501 | $ 9,977 $ 57,349
--------- | --------- ---------
|
Supplemental schedule of non-cash investing activities: |
Charge-offs against allowance for losses ................................... $ -- | $ 5,515 $ 378
--------- | --------- ---------
Transfer of mortgage loans to real estate owned ............................ $ 5,120 | $ 10,900 $ 13,100
--------- | --------- ---------
|
Interest Paid ................................................................ $ 9,972 | $ -- $ --
--------- | --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
- 31 -
<PAGE>
<TABLE>
VALUE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(amounts in thousands)
<CAPTION>
ADDITIONAL ACCUMULATED TOTAL
COMMON SHARES PAID-IN (DEFICIT) SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 11,226 $ 11,226 $182,375 $(151,978) $ 41,623
Net loss -- -- -- (21,590) (21,590)
------ -------- -------- -------- --------
Balance at September 30, 1994 11,226 11,226 182,375 (173,568) 20,033
Net loss -- -- -- (20,033) (20,033)
Reverse stock split (10,889) (10,889) (268,905) -- (279,794)
Issuance of Common Stock 10,889 10,889 175,378 -- 186,267
Adjustment to restate
accumulated deficit to zero -- -- -- 193,601 193,601
------ -------- -------- -------- --------
====================================================================================================================================
Balance at September 30, 1995 11,226 11,226 88,848 0 100,074
------ -------- -------- -------- --------
Net income -- -- -- 6,973 6,973
------ -------- -------- -------- --------
Balance at September 30, 1996 11,226 $ 11,226 $ 88,848 $ 6,973 $107,047
====== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
- 32 -
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION
On September 29, 1995, the Trust's Prepackaged Plan of Reorganization
was declared effective by the United States Bankruptcy Court for the Central
District of California.
Under the Prepackaged Plan, holders of the Trust's $290,000,000
principal amount of Senior Secured Uncertificated Notes due 1995 received (i)
$110,000,000 principal amount of newly issued 11-1/8% Senior Secured Notes due
2002, (ii) $71,000,000 ($25,000,000 paid in April 1995) in cash and (iii)
approximately 10,889,430 newly issued Common Shares representing, in the
aggregate, approximately 97% of the Common Shares outstanding after the
effective date. In connection with the Prepackaged Plan, the Trust effected a 1
for 33.33 reverse stock split of all outstanding Common Shares.
In connection with its emergence from the Chapter 11 proceeding, the
Trust implemented Fresh Start Reporting as of September 30, 1995, as set forth
in Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code." The Trust adopted Fresh Start Reporting because (i)
the holders of existing voting shares immediately before filing and confirmation
of the Prepackaged Plan received less than 50% of the voting shares of the new
entity and (ii) the reorganization value immediately before the date of
confirmation was less than the total of all post-petition liabilities and
allowed claims, as shown below:
($ in 000)
---------
Total post-petition liabilities and allowed claims ........... $ 351,833
Reorganization value ......................................... (278,354)
---------
Excess of liabilities over reorganization value .............. $ 73,479
=========
The post-confirmation financial statements and schedules amounts have
been segregated by a black line in order to signify that the financial
statements and schedules are that of a new reporting entity and have been
prepared on a basis which is not comparable to the pre-confirmation financial
statements and schedules.
The Trust based the reorganization value of assets on the mid-point of
the range of values prepared by independent specialists in the field of real
estate valuation. The valuation of its real estate investments was prepared as
of March 31, 1995 and was adjusted to September 30, 1995 for various accounts
such as cash and cash equivalents, accounts receivable and accounts payable.
The Trust's liabilities were stated at their fair value. The difference
between reorganization value of the assets and the fair value of the liabilities
was recorded as an adjustment to shareholders' equity with the accumulated
deficit restated to zero.
- 33 -
<PAGE>
The real estate valuation analysis reflected the selection of 26 assets
which represented 81% of the Trust's book value at March 31, 1995. The selection
was divided between east coast and west coast assets and generally represented
the highest dollar values in the portfolio.
The analysis factored in, among other things, (i) the most recent
property cash flow projections for the properties selected, (ii) where
applicable, the most recent operating rent roll and other financial information
relative to the assets selected, (iii) the most recent third party, independent
appraisals, where applicable and available, (iv) discussions with the respective
asset managers to determine loan status, property characteristics, current
occupancy, existing market rental rates, new leases, current payoff discussions
and asset sales, and (v) a review of limited market information for the
properties.
The valuation of the asset portfolio assumed continued operation of the
portfolio for several years. Sales and pay-offs of certain assets occurred
throughout the analysis period (six years) and no additional investments were
made. Property cash flows, loan payments and pay-offs, and reversion amounts
(based on normalized capital expenditures in the reversion year) were discounted
to present value at 12 percent per year. Amounts do not include extraordinary
expenses for reorganization or litigation.
The going concern value was reduced by other operating expenses that
would be incurred over a six year period. The present value of expenses was
calculated by applying a capitalization rate of 10 percent to Year 6 stabilized
other expenses and discounting both the capitalized, stabilized Year 6 expenses
and the annual expenses at 12 percent. The net present value of operating
expenses was $27.3 million.
- 34 -
<PAGE>
<PAGE>
The effect of the Fresh Start Reporting on the Trust's historical cost
balance sheet at September 30, 1995 is as follows:
<TABLE>
<CAPTION>
PRE- REORGANIZATION FRESH START POST-
CONFIRMATION ADJUSTMENTS ADJUSTMENTS CONFIRMATION
------------ ----------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Assets held for sale:
Mortgage loans $ 30,225 ($ 8,259) (E) $ 21,966
Investments in partnerships 6,478 (1,258) (E) 5,220
Real estate owned 50,406 (8,347) (E) 42,059
-------- -------- --------- --------
87,109 0 (17,864) (E) 69,245
-------- -------- --------- --------
Assets held for investment:
Mortgage loans 46,721 (11,708) (E) 35,013
Investments in partnerships 26,249 (5,601) (E) 20,648
Notes receivable 700 (67) (E) 633
Real estate owned 124,484 (42,903) (E) 81,581
-------- -------- --------- --------
198,154 0 (60,279) (E) 137,875
-------- -------- --------- --------
285,263 0 (78,143) (E) 207,120
Less: allowance for losses (11,546) 11,546 (E) 0
-------- -------- --------- --------
273,717 0 (66,597) (E) 207,120
Cash and cash equivalents 56,002 (46,025) (A) 9,977
Restricted cash 6,791 6,791
Interest receivable and other assets 8,441 8,441
-------- -------- --------- --------
Total Assets $344,951 ($46,025) ($66,597) $232,329
-------- -------- --------- --------
LIABILITIES
Senior Notes Due 1995 $290,000 ($290,000) (B) $ 0
Senior Notes Due 2002 0 109,975 (B) 109,975
Mortgage payable 17,535 17,535
Interest payable 41,378 (41,378) (B) 0
Accounts payable and other 2,920 1,825 (C) 4,745
-------- -------- --------- --------
Total Liabilities 351,833 (219,578) 0 132,255
-------- -------- --------- --------
SHAREHOLDERS' EQUITY
Common Stock at par 11,226 11,226
Additional paid in capital 182,375 175,378 (D) (268,905) (F) 88,848
Accumulated deficit (200,483) (1,825) (C) 202,308 (F) 0
-------- -------- --------- --------
Total Shareholders' Equity (6,882) 173,553 (66,597) 100,074
-------- -------- --------- --------
Total Liabilities and
Shareholders' Equity $344,951 $(46,025) $ (66,597) $232,329
======== ======== ========= ========
</TABLE>
- 35 -
<PAGE>
ADJUSTMENTS TO REFLECT REORGANIZATION
(A) Reflects a $46,025 payment to creditors made at implementation of the plan.
(B) Reflects the cancellation of the Senior Secured Notes due 1995 in the face
amount of $290,000 and the related interest payable on these notes of
$41,378 and the recording of the new Senior Notes due 2002 in the face
amount of $109,975.
(C) Reflects the cost of the termination pay plan (See Note 9) ($1,325) and the
cost associated with the restructuring ($500).
(D) Reflects the conversion of amounts previously owed under the Senior Secured
Notes due 1995 converted to a 97% interest in the common shares of the
reorganized Trust as follows:
($ in 000)
---------
Face amount of Senior Notes due 1995 ......................... $ 290,000
Interest payable ............................................. 41,378
---------
Total amount payable to creditors ............................ 331,378
Less: Senior Notes due 2002 .................................. (109,975)
Less: Cash payment to creditors .............................. (46,025)
---------
Amount previously due creditors converted to equity .......... $ 175,378
=========
The following unaudited table reflects the ownership (as between holders
of Outstanding Common Shares and holders of Outstanding Notes) of the Trust's
Common Shares before and after consummation of the 1995 Restructuring.
<TABLE>
<CAPTION>
COMMON SHARES BEFORE COMMON SHARES AFTER COMMON
REVERSE STOCK SPLIT REVERSE STOCK SPLIT BUT SHARES AFTER
OR CONSUMMATION BEFORE CONSUMMATION OF CONSUMMATION
OF THE RESTRUCTURING THE RESTRUCTURING OF THE RESTRUCTURING
------------------------------ ----------------------------- -------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES COMMON SHARES SHARES COMMON SHARES SHARES COMMON SHARES
--------- ------------- --------- ------------- --------- ---------------
(in 000)
<S> <C> <C> <C> <C> <C> <C>
Holders of Outstanding
Notes 0 0 0 0 10,889 97%
Holders of Outstanding
Common Shares 11,226 100% 337 100% 337 3%
</TABLE>
- 36 -
<PAGE>
ADJUSTMENT TO REFLECT FRESH START ACCOUNTING
(E) Reflects adjustment made to carrying value of loans and owned real estate to
adjust to reorganization values.
(F) Reflects an adjustment of the accumulated deficit to zero as a result of the
restructure and the adjustment of additional paid in capital as follows:
($ in 000)
---------
Adjust accumulated deficit to reset to zero ................. $(202,308)
Adjustment to carrying value of invested assets ............. (66,597)
---------
$(268,905)
=========
The following unaudited Pro Forma Statement of Operations is presented
as if the Prepackaged Plan of Reorganization and implementation of Fresh Start
Reporting had occurred as of October 1, 1994. Such pro forma information is
based upon the historical financial statements of Value Property Trust. In
management's opinion all adjustments necessary to reflect the effects of those
transactions have been made. The following unaudited Pro Forma Statement of
Operations is not necessarily indicative of what the actual results of
operations of the Trust would have been assuming such transaction had occurred
as of October 1, 1994, nor does it purport to represent the results of
operations for future periods.
- 37 -
<PAGE>
<PAGE>
<TABLE>
PRO FORMA STATEMENT OF OPERATIONS
Year Ended September 30, 1995
(Unaudited)
(dollars in thousands except per share)
PRO FORMA
1995 ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Income of rental properties:
Rental income ................................................... $ 24,608 $ -- $ 24,608
Operating expense reimbursements ................................ 2,286 -- 2,286
Interest and fee income on mortgage loans ............................ 9,353 -- 9,353
Interest on short-term investments ................................... 3,086 (2,586) (G) 500
Other ................................................................ 131 -- 131
-------- -------- --------
39,464 (2,586) 36,878
-------- -------- --------
Expenses:
Interest ............................................................. 35,900 (21,780) (H) 14,120
Expenses of rental properties:
Depreciation and amortization ................................... 7,306 (2,390) (J) 4,916
Operating ....................................................... 11,702 -- 11,702
Other operating expenses ............................................. 4,518 -- 4,518
Provision for losses on mortgage loans and related investments ....... 3,000 (3,000) (I) --
-------- -------- --------
62,426 (27,170) 35,256
-------- -------- --------
Income (loss) from operations before
reorganization items, and extraordinary item .................... (22,962) 24,584 1,622
Reorganization items:
Professional fees and other ..................................... (6,219) 6,219 (K) --
Interest income ................................................. 441 (441) (K) --
Write down of invested assets to
reorganization value ............................................ (66,597) 66,597 (K) --
-------- -------- --------
Total reorganization items ........................................... (72,375) 72,375 --
-------- -------- --------
Income (loss) before extraordinary item .............................. (95,337) 96,959 1,622
-------- -------- --------
Extraordinary item-gain on extinguishment of debt .................... 75,304 (75,304) (L) --
-------- -------- --------
Net income (loss) .................................................... $(20,033) $ 21,655 $ 1,622
======== ======== ========
Weighted average number of common shares outstanding ................. 11,226 11,226
Net income per share ................................................. * $ .14
</TABLE>
*Net income (loss) per share is not presented because this information is not
meaningful as a result of the Reorganization and the adoption of "Fresh Start
Reporting". See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
- 38 -
<PAGE>
Notes To Unaudited Pro Forma Statement of Operations
Pro Forma Adjustments
(G) Reflects an adjustment to investment income to reflect an average cash
position of approximately $10.0 million at an average investment rate of
5.0% for fiscal 1995.
(H) Reflects the reversal of interest expense related to the Outstanding Notes
($34.0 million) which were cancelled and the addition of interest expense
for the New Senior Notes ($12.2 million) which bear interest at a fixed rate
of 11.125%.
(I) Reflects the reversal of the $3.0 million provision for losses which would
be eliminated as a result of the adjustment of invested assets to
reorganization value.
(J) Reflects an adjustment to depreciation and amortization resulting from the
reduced basis in owned real estate as a result of the adjustment of invested
assets to reorganization value.
(K) Reflects the reversal of reorganization expenses based upon the assumption
that the Restructuring was completed and no non-recurring expenses related
to the Restructuring were incurred.
(L) Reflects the reversal of gain on extinguishment of debt based upon the
assumption that the Restructuring was completed October 1, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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. The most significant of these estimates relate to the carrying
value of the assets held for sale and the estimated useful lives of assets held
for investment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accounts of the Trust and its wholly owned subsidiaries are
consolidated in the accompanying financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
INCOME TAXES
The Trust is a real estate investment trust (a "REIT") that has elected
to be taxed under Sections 856-860 of the Internal Revenue Code of 1986, as
amended. Accordingly, the Trust does not pay Federal income tax on income as
long as income distributed to shareholders is at least equal to real estate
investment trust taxable income, and pays no Federal income tax on capital gains
distributed to shareholders.
- 39 -
<PAGE>
For the fiscal years ended September 30, 1996, 1995 and 1994, there were
significant differences between taxable net loss and net income (loss) as
reported in the financial statements. The differences were related to the
recognition of bad debt deductions and accounting for reorganization costs and
Fresh Start Reporting. For financial accounting purposes, these items are
expensed currently, while for tax purposes some portion of these items are
deferred to future periods or may not be deductible. In addition, the Fresh
Start Reporting discussed in Note 1 is not recognized for tax purposes, and will
result in future years financial reporting and tax basis differences.
The Trust has approximately $102 million in net operating losses (the
"NOLs") for tax purposes attributable to losses generated in fiscal years 1991
through 1996. The NOLs attributable to each year can be carried forward up to
fifteen years from the year the loss was generated. The use of NOLs in any
taxable year (together with any recognized losses that are economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation under Internal Revenue Code section 382. The Trust estimates that
this annual limitation is approximately $6 million.
INTEREST INCOME
Interest income on each loan is recorded as earned. Interest income is
not recognized if, in the opinion of the management, collection is doubtful. The
Trust generally considers loans as delinquent if payment of interest and/or
principal, as required by the terms of the note, is more than 60 days past due.
Accrual of interest income is generally terminated and foreclosure proceedings
are started if payment is more than 60 days past due.
ALLOWANCE FOR LOSSES
Prior to the implementation of Fresh Start Reporting, the allowance for
losses on mortgage loans and related investments was determined in accordance
with The American Institute of Certified Public Accountants Statement of
Position on Accounting Practices of Real Estate Investment Trusts 75-2 ("SOP
75-2"), as amended. This statement requires adjustment of the carrying value of
mortgage loans to the lower of their carrying value or estimated net realizable
value. Estimated net realizable value is the estimated selling price of a
property offered for sale in the open market allowing a reasonable time to find
a buyer, reduced by the estimated cost to complete and hold the property
(including the estimated cost of capital), net of estimated cash income. With
the implementation of Fresh Start Reporting, as of September 30, 1995, the
allowance for losses was reset to zero.
NET INCOME PER SHARE
Net income per share is computed using the weighted average common
shares outstanding during the period. Net loss per share for all
pre-confirmation periods is not presented because this information is not
meaningful as a result of the Reorganization and the implementation of "Fresh
Start Reporting". See Note 1.
- 40 -
<PAGE>
DEPRECIATION AND AMORTIZATION
At September 30, 1995, as a result of Fresh Start Reporting, all assets
and liabilities of the Trust were restated to reflect their respective
reorganization value or fair value. The accumulated depreciation on real estate
owned was reset to zero as a result of the adoption of Fresh Start Reporting. At
September 30, 1995, the Trust segregated the real estate portfolio into two
categories: Held for Sale and Held for Investment. The Trust depreciates the
Held for Investment category over the estimated useful lives of the assets; 40
years for buildings, three to five years for other property and over the term of
the related lease for lease commissions and tenant improvements. The Held for
Sale category is not depreciated. During fiscal 1996, the Trust reclassified
seven properties totaling $18.7 million to real estate held for sale from real
estate held for investment and no longer depreciates these assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents and restricted cash include short-term
investments (high grade commercial paper, bank CDs and US Treasury Securities)
with original maturities not exceeding a term greater than 90 days.
INVESTMENT IN PARTNERSHIPS
Investment in partnerships represents the Trust's investment in real
estate partnerships. The Trust owns a majority percentage interest in most of
these partnerships and receives substantially all of the cash flow. The Trust
accounts for all of these partnerships, except one, in a similar manner as real
estate investments; the one partnership is accounted for using the equity
method.
REAL ESTATE OWNED
As of September 30, 1995, the Trust's invested assets were adjusted to
reorganization value which became the new historical cost basis. Subsequently,
real estate held for investment is carried at historical cost less depreciation.
Real estate held for sale is carried at the lower of cost or net realizable
value. In conjunction with the adoption of Fresh Start Reporting on September
30, 1995, all gains or losses for a period of one year after such adoption are
applied against the carrying value of long lived assets held for investment.
Through September 30, 1996, the Trust has reduced the carrying values of assets
Held for Investment by $12.6 million as a result of the net gains on both the
disposition of substantially all of its mortgage loan portfolio in March 1996
and the sale of nine properties classified as real estate held for sale. At
September 30, 1996, the Trust owned 31 properties of which ten are classified as
Held for Sale. The fiscal 1996 revenue and net operating income from these ten
properties were $10.3 million and $6.0 million, respectively.
DEFERRED COSTS
Included in other assets are costs incurred in obtaining debt financing
which are deferred and amortized over the term of the related debt agreement.
Amortization expense is included in interest expense in the accompanying
statement of operations for fiscal 1996. Net deferred financing costs included
in other assets in the accompanying balance sheet amounted to $2.2 million at
September 30, 1996.
- 41 -
<PAGE>
REVENUE RECOGNITION
The Trust recognizes base rental revenue for financial statement
purposes ratably as earned over the term of the lease.
INTEREST RATE SWAP AGREEMENT
The Trust is a party to an interest rate protection agreement (the
"Cap") used to hedge its interest rate exposure on floating rate debt (See Note
5 "Borrowings"). The differential to be paid or received is recognized in the
period incurred and included in interest expense.
3. MORTGAGE LOANS AND INVESTMENT IN REAL ESTATE AND PARTNERSHIPS
The following table summarizes the Trust's mortgage loan portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------- --------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF UNDERLYING SECURITY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- --------------------------- ----------- ------ ----------- ------
($000) ($000)
<S> <C> <C> <C> <C>
Apartments -- $ -- 1 $ 170
Residential/Condominium* 7 663 8 909
Office Buildings -- -- 3 4,579
Industrial Buildings -- -- 10 19,046
Research & Development Bldgs. -- -- 4 17,081
Retail Buildings -- -- 4 13,208
Hotel/Motels -- -- 1 1,986
---- ---- ---- --------
Total 7 $663 31 $ 56,979
==== ==== ==== ========
</TABLE>
- ----------------
*Includes 71 mortgage end loans on 7 investments at September 30, 1996 and 80
mortgage end loans on 8 investments at September 30, 1995.
During the second quarter of fiscal 1996, the Trust completed the
disposition of substantially all of its mortgage loan portfolio. The Trust
received $55.5 million in net cash proceeds through a series of transactions
which included loan repayments and a bulk sale of certain mortgage loans. The
carrying value of the mortgage loans involved in these transactions totaled
$50.5 million. Early in fiscal 1996, the Trust foreclosed on the two non-earning
loans totaling $5.1 million and has obtained title to the related properties.
During fiscal 1995 loans totaling $38,834,000 were extended beyond their
original contractual maturity dates. In addition, seven loans totaling
$26,101,000 had interest rate reductions due to financial difficulties of the
borrower. Loan terms are extended or modified in the normal course of business
due to financial difficulties of the borrower.
At September 30, 1996 and 1995, mortgage loans outstanding consisted of
fixed rate loans of $663,000 and $41,050,000, floating rate loans of $-0- and
$15,929,000 and participating loans of $-0- and $1,529,000, respectively. At
September 30, 1996, the mortgage loan portfolio had interest rates ranging from
6.20% to 9.50% with maturities ranging from June 2000 to June 2009.
- 42 -
<PAGE>
The following table summarizes the Trust's real estate owned, net of
accumulated depreciation of $1.9 million at September 30, 1996 and $-0- at
September 30, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------- ----------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- ---------------- ----------- -------- ----------- ----------
($000) ($000)
<S> <C> <C> <C> <C>
Apartments 2 $ 16,166 3 $ 19,517
Office Buildings 14 34,004 14 38,352
Industrial Buildings 6 14,892 9 19,904
Retail Buildings 4 36,305 5 41,133
Research & Development Bldgs -- -- 2 4,734
---- -------- ---- --------
Total 26 $101,367 33 $123,640
==== ======== ==== ========
</TABLE>
The following table summarizes the Trust's investment in partnerships,
net of accumulated depreciation of $0.3 million at September 30, 1996 and $-0-
at September 30, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------------------- ----------------------------------
NUMBER OF CARRYING NUMBER OF CARRYING
TYPE OF PROPERTY INVESTMENTS AMOUNT INVESTMENTS AMOUNT
- ---------------- ----------- -------- ----------- ----------
($000) ($000)
<S> <C> <C> <C> <C>
Industrial Buildings 3 $ 13,658 3 $ 13,988
Retail Buildings 2 10,047 2 11,880
---- -------- ---- --------
Total 5 $ 23,705 5 $ 25,868
==== ======== ==== ========
</TABLE>
The Trust may be liable for environmental problems on sold properties.
At September 30, 1996, the Trust was not aware of any environmental problems on
sold properties.
- 43 -
<PAGE>
4. ALLOWANCE FOR LOSSES
The changes in the allowance for losses for the years ended September
30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
(dollars in thousands)
<S> <C> <C>
Balance at beginning of year ......................... $13,430 $11,808
Provisions charged to expense ........................ 3,000 2,000
------- -------
16,430 13,808
Less charges against allowance, net of recoveries
or reorganization adjustments ...................... 16,430 378
------- -------
Balance at end of year ............................... $ -- $13,430
======= =======
</TABLE>
For the year ended September 30, 1996, the Trust did not provide for an
allowance for losses.
Approximately $6,276,000 of the allowance for losses at September 30,
1994 is applicable to real estate properties acquired through foreclosure.
The Trust adjusted the balance of allowance for losses at September 30,
1995 as part of "Fresh Start Reporting" (See Note 1).
5. BORROWINGS
MORTGAGE PAYABLE
On April 30, 1996, the Trust prepaid the mortgage loan of $13.9 million
(the "Mortgage Payable"). See discussion below with respect to the Trust's
prepayment of the Prior Notes.
SENIOR SECURED NOTES
The Holders of the Prior Notes had a first priority lien on all of the
Trust's collateral. The Prior Notes were governed by the Prior Indenture between
the Trust and Wilmington Trust Co., as Trustee, dated as of the effective date
of the Trust's reorganization (September 29, 1995). Interest on the Prior Notes
accrued at 11-1/8% per annum and was payable semi-annually in arrears on each
June 30 and December 31. The Prior Indenture included affirmative covenants,
negative covenants and financial covenants.
On March 28, 1996, the Trust entered into a financing agreement which
provided for the issuance of $67.4 million of new Floating Rate Notes (the
"Floating Rate Notes"), which issuance occurred on April 30, 1996. The Floating
Rate Notes bear interest at 30 day LIBOR + 1.375 percent, payable monthly, and
have a stated maturity date of May 1, 1999.
- 44 -
<PAGE>
The indenture relative to the Floating Rate Notes (the "New Indenture")
generally requires that, on a monthly basis, the Trust deposit into a Trapped
Funds Account, as defined, maintained by the indenture trustee (the "New
Indenture Trustee") for the Floating Rate Notes all Cash Flow and Asset Sale
Proceeds (each as defined in the New Indenture). Cash Flow from the Trapped
Funds Account will be distributed to pay the New Indenture Trustee's expenses,
pay all accrued but unpaid interest on the Floating Rate Notes and to maintain a
Debt Service Reserve Account before any funds are released to the Trust. In the
event of a sale of, or certain casualty, or indemnification events with respect
to any of the remaining twenty-one properties of the original twenty-four
properties mortgaged under the terms of the Floating Rate Notes (underlying
collateralized carrying value of $86.5 million at September 30, 1996), the
proceeds therefrom will be used to retire up to 125% of a portion of the
allocated debt of such property before any funds are released to the Trust. The
New Indenture includes affirmative covenants and negative covenants. At
September 30, 1996, the Trust was in compliance with the New Indenture.
The proceeds received from the Floating Rate Notes, together with
approximately $56.5 million of cash on hand, were used to prepay the Trust's
Prior Notes and Mortgage Payable. The face amount outstanding of the Prior Notes
and the Mortgage Payable at the time of repayment was $110.0 million and $13.9
million, respectively. The Prior Notes and Mortgage Payable were repaid in full
on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate
protection agreement (the "Cap") that serves to cap the floating interest
component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of
$377,000 to the counterparty to the Cap.
During fiscal 1996, the Trust sold nine real estate properties, three of
which were encumbered under the terms of the New Indenture. The Trust used a
portion of the net proceeds from the sale of the encumbered properties to prepay
a portion of the Floating Rate Notes, as required under the terms of the New
Indenture. In July of fiscal 1996, the Trust used $4.2 million of the net
proceeds and in October and November of fiscal 1997 used $2.6 million and $5.8
million, respectively of the fiscal 1996 net proceeds to prepay a portion of the
Floating Rate Notes.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board Statement No. 107 - Disclosure
of Fair Value of Financial Statements ("SFAS 107") requires disclosure of fair
value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques.
The carrying value of cash and cash equivalents approximates their fair
value because of the liquidity and short-term maturities of these instruments.
The carrying value and fair value of off-balance sheet derivative
financial instruments used to manage the interest rate sensitivity of the
Floating Rate Notes were $325,000 and $186,000 at September 30, 1996,
respectively.
- 45 -
<PAGE>
Although the off-balance sheet derivative financial instrument does not
expose the Trust to credit risk equal to the notional amount of $67.4 million,
the Trust is exposed to credit risk equal to the extent of the fair value gain
of an off-balance sheet derivative financial instrument should the counterparty
fail to perform. The Trust minimized such credit risk by dealing only with a
high quality counterparty. In addition, the Trust's policy is to require that
the Cap be governed by an International Swaps and Derivatives Association Master
Agreement. Bilateral collateral arrangements are in place for the all dealer
counterparty.
The carrying value of the Floating Rate Notes at September 30, 1996
approximates their fair value because of the floating rate of these instruments.
7. SHARE OPTION PLAN
1984 SHARE OPTION PLAN
As part of the Plan of Reorganization, the 1984 Share Option Plan was
terminated and 348,500 common stock options were canceled.
1995 SHARE OPTION PLAN
On October 2, 1995, the Board of Trustees adopted a 1995 Share Option
Plan (the "1995 Plan") for Trustees, officers, employees and other key persons
of the Trust. On February 15, 1996, the Trust's shareholders approved the
adoption of the 1995 Plan at the Trust's 1996 Annual Meeting of Shareholders.
The 1995 Plan provides for the grant of options to purchase up to
870,000 common shares at not less than 100% of the fair market value of the
common shares, subject to adjustment for share splits, share dividends and
similar events. To the extent that awards under the 1995 Plan do not vest or
otherwise revert to the Trust, the common shares represented by such awards may
be the subject of subsequent awards.
The 1995 Plan provides for the grant of incentive stock options
("Incentive Options") which qualify under Section 422 of the Code and
non-qualified stock options ("Non-Qualified Options"). Holders of options also
receive dividend equivalent rights. Under the 1995 Plan, 894,000 shares were
granted with a price ranging from $10.00 to $12.25 per share and 55,000 shares
were forfeited at a price of $10.00 per share during fiscal 1996. The weighted
average exercise price is $10.13 per share. The options vest equally over a
three year period starting one year from the date of grant. The options expire
four years from the date of grant.
- 46 -
<PAGE>
8. BENEFIT PLANS
PENSION PLANS
Effective September 30, 1989, the Trustees adopted an Employees'
Retirement Plan. On December 16, 1992, the Trustees amended and restated the
Employees' Retirement Plan effective January 1, 1992 (as amended on July 20,
1994, and effective January 1, 1994 and as may be further amended, the
"Retirement Plan"). In November 1995, the Trustees amended the Retirement Plan
effective January 1, 1996 to switch from the Pension Benefit Guaranty
Corporation ("PBGC") interest rate used for valuing lump sum distributions to
the new General Agreement on Tariffs and Trade interest rate and mortality table
for valuing lump sum distributions. As a result of this amendment, the current
market value of Retirement Plan assets approximates the current aggregate lump
sum amounts due to participants. In July 1996, the Trustees voted to terminate
the pension plan effective July 1, 1996.
All employees as of the termination date of the plan were eligible to
participate in the Retirement Plan provided that they were at least 21 years of
age and had been employed for twelve consecutive months, during which period the
employee completed at least 1000 hours of service. Under the Retirement Plan,
each eligible employee after completing five years of vesting service become
100% vested and entitled to a retirement pension.
The Trust has submitted the required applications to the PBGC to
formally terminate the plan. There were 15 former employees who received final
payouts under the plan in fiscal 1996. There are four current employees and one
former employee that are due benefits under the plan as of July 1, 1996. Upon
the formal termination of the plan, the Trust will distribute the remaining
benefits of approximately $100,000 to the remaining eligible employees.
SAVINGS AND INVESTMENT PLAN
The Trust also maintains a 401(k) profit sharing plan and trust.
Employer contributions are limited to 6% of participant's compensation, with a
maximum per year of $3,000 per participant. Profit sharing expense was $49,000,
$72,000 and $61,000 for years ended September 30, 1996, 1995 and 1994,
respectively.
INCENTIVE PLAN
During fiscal 1996, the Board of Trustees adopted the Performance
Incentive Bonus Plan (the "Bonus Plan"). All of the Trust's executive officers
and employees are eligible for an annual cash bonus under the Bonus Plan. In
determining the amount of annual cash bonuses, if any, to be paid, the
Compensation Committee, at the end of the fiscal year, reviews the performance
of the Trust to the performance measurement targeted by the Bonus Plan to
promote the long-term strategic growth of the Trust. The amount awarded under
the Bonus Plan for fiscal 1996 was $215,500.
- 47 -
<PAGE>
EMPLOYMENT AGREEMENT
The Trust entered into an Employment Agreement (the "Employment
Agreement") with George R. Zoffinger on September 29, 1995. The original term of
the Employment Agreement is three years and is automatically renewed for
additional one-year periods unless otherwise terminated by the Trust or Mr.
Zoffinger. In addition, Mr. Zoffinger is eligible for compensation in the form
of bonuses under the Trust's Performance Incentive Bonus Plan and option grants
under the 1995 Share Option Plan. Mr. Zoffinger has agreed to devote
substantially all of his business time and efforts to the business and affairs
of the Trust.
If the employment of Mr. Zoffinger is terminated by the Trust without
cause or by Mr. Zoffinger upon occurrence of certain events such as a material
breach of the Employment Agreement by the Trust, Mr. Zoffinger will be entitled
to continue to receive the Base Salary at the same rate for six (6) months.
Additionally, any unexercised vested options will remain exercisable only to the
extent provided in the applicable share option plan and option agreement.
9. EMPLOYEE TERMINATION PLAN
A termination pay plan was established to cover termination of
employment without cause during the period that the Old Notes, as defined, were
outstanding. Employees were entitled to compensation ranging from a minimum of
twelve weeks to a maximum of eighteen months pay. In addition, certain health
benefits would continue to be paid by the Trust over a period of time equal to
the employee's severance period. At September 30, 1995, the Trust accrued the
$1.3 million cost of the Termination Pay Plan. After fiscal year end, the
majority of existing employees were terminated and the Trust commenced payments
to those employees. The Trust has liquidated the termination plan by payments to
those employees terminated and the repayment of the Old Notes.
- 48 -
<PAGE>
<PAGE>
10. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The quarterly results of operations for fiscal 1996 (post-confirmation)
and 1995 (pre-confirmation) are summarized as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1996
(Post-confirmation)
Total revenue $ 9,395 $ 9,438 $ 8,462 $ 7,771
Interest expense $ 3,565 $ 3,420 $ 2,064 $ 1,440
Net income $ 1,437 $ 1,450 $ 2,016 $ 2,070
======== ======== ======== ========
Net income per share $ 0.13 $ 0.13 $ 0.18 $ 0.18
======== ======== ======== ========
====================================================================================================================================
FISCAL 1995
(Pre-confirmation)
Total revenue $ 10,002 $ 9,774 $ 10,038 $ 9,650
Interest expense $ 9,559 $ 10,273 $ 10,378 $ 5,690
Provision for losses $ -- $ 3,000 $ -- $ --
Reorganization expense $ 370 $ 1,135 $ 1,063 $ 3,651
Write down of invested assets to
reorganization value $ -- $ -- $ -- $(66,597)
Gain on extinguishment
of debt $ -- $ -- $ -- $ 75,304
Net income (loss) $ (5,454) $(10,263) $ (7,326) $ 3,010
======== ======== ======== ========
Net income (loss) per share*
</TABLE>
*Net income (loss) per share for all pre-confirmation periods is not presented
because this information is not meaningful as a result of the Reorganization
and the adoption of "Fresh Start Reporting". See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations on
Page 15.
- 49 -
<PAGE>
11. ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. An estimate of the future cash flows expected to result from the
use of the asset and its eventual disposition should be performed during a
review for recoverability. An impairment loss, based on the estimated fair
value, is recognized if the sum of expected future undiscounted cash flows is
less than the carrying amount of the asset. In addition, SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. These
assets will continue to be reported at the lower of carrying amount or net
realizable value. This statement is required for fiscal years beginning after
December 15, 1995. The Trust will adopt Statement 121 in the first quarter of
fiscal 1997 and, based on current circumstances, does not believe the effect of
adoption will have a material effect on the Trust's financial condition or
results of operations.
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which requires that the fair value of employee
stock-based compensation plans be recorded as a component of compensation
expense in the statement of income as of the date of grant of awards related to
such plans or that the impact of such fair value on net income and earnings per
share be disclosed on a pro-forma basis in a footnote to financial statements
for awards granted after December 14, 1994, if the accounting for such awards
continues to be in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). This statement is
required for fiscal years beginning after December 15, 1995. The Trust will
elect to provide footnote disclosure under the fair value method of SFAS 123.
Since the Trust expects to continue to account for employee stock compensation
under APB 25, the adoption of SFAS 123 is not expected to have a material effect
on the Trust's financial condition or results of operations.
12. LEGAL PROCEEDINGS
A discussion of events surrounding the Trust's Prior Bankruptcy Case and
an explanation of the material terms of the Trust's reorganization under the
1991 Plan are set forth in the section entitled "Previous Chapter 11 Case and
1991 Plan of Reorganization" under Item 1 above. The Prior Bankruptcy Case was
closed on November 4, 1994 pursuant to a final order of the Bankruptcy Court.
A discussion of events surrounding the Trust's 1995 prepackaged
bankruptcy filing and an explanation of the material terms of the Trust's
reorganization under the Prepackaged Plan are set forth in the section entitled
"Recent Chapter 11 Case and 1995 Prepackaged Plan of Reorganization" under Item
1 above. Notwithstanding the confirmation of the Trust's Prepackaged Plan, as of
September 29, 1995, the bankruptcy court continued to have jurisdiction among
other things, to resolve disputes that may arise under the Prepackaged Plan.
A third party has alleged the existence of a purchase contract with
respect to one of the Trust's properties which the Trust disputes. This dispute
has led to litigation. However, the Trust believes that this litigation, when
resolved, will not have a material adverse effect on the business, financial
condition or results of operations of the Trust.
- 50 -
<PAGE>
13. LEASING ARRANGEMENTS
For real estate held for investment future minimum rentals to be
received under existing non-cancelable operating leases as of September 30, 1996
are as follows:
Amount
Year (dollars in thousands)
------ ----------------------
1997 $ 13,139
1998 11,634
1999 9,976
2000 7,593
2001 6,170
thereafter 40,664
--------
Total $ 89,176
========
14. RELATED PARTY TRANSACTIONS
The Trust is subleasing a portion of the 8th floor of 120 Albany Street
from the New Brunswick Development Authority, a not-for-profit 501(c)(3)
corporation for the benefit of the City of New Brunswick of which George R.
Zoffinger, C.E.O., President and Trustee of the Trust, is Chairman of the Board
of Trustees. The sublease covers 4000 square feet at an annual rental rate of
$75,000. The sublease is in effect until December 31, 1997, at which point the
Trust has the option to renew at the same rate for another year. The Trust has
three more subsequent options to renew the sublease at the current rental rate
in December 1997, 1998 and 1999.
- 51 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(Dollars in thousands)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Apartments:
McLaughlin Apartments
Hammond, IN ............................... $3,552 $ 730 $2,929 $ 0 $ 68 $ 0
Junipers of Yarmouth
Yarmouth, ME .............................. 5,478 1,530 6,120 0 166 0
Villa Del Cresta
Florissant, MO ............................ 6,868 1,640 6,568 0 142 0
Industrial:
Parkway Business Center
Richmond, CA .............................. 2,056 430 1,730 0 43 (302)
North County
Yorba Linda, CA ........................... 0 850 3,380 0 122 0
Slauson
Whittier, CA .............................. 2,082 520 2,090 0 89 0
Moreno Valley
Moreno Valley, CA ......................... 2,490 950 3,820 0 1 (655)
Oaktree Industrial Park
San Dimas, CA ............................. 976 0 0 345 1,373 (235)
Chino Business Park
Chino, CA ................................. 1,983 0 0 670 2,818 0
Avenue Hall Executive Center
Valencia, CA .............................. 1,082 450 1,800 0 120 0
- 52 -
<PAGE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(Dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Apartments:
McLaughlin Apartments
Hammond, IN .......................... $ 0 $ 0 $ 0 $ 0 1970 N/A
Junipers of Yarmouth
Yarmouth, ME ......................... 1,530 6,286 7,816 0 1971 (b)
Villa Del Cresta
Florissant, MO ....................... 1,640 6,710 8,350 0 1967/1974 (b)
Industrial:
Parkway Business Center
Richmond, CA ......................... 430 1,471 1,901 47 1986 3-40 years
North County
Yorba Linda, CA ...................... 0 0 0 48 1987-1989 N/A
Slauson
Whittier, CA ......................... 0 0 0 48 1985 N/A
Moreno Valley
Moreno Valley, CA .................... 950 3,166 4,116 96 1993 3-40 years
Oaktree Industrial Park
San Dimas, CA ........................ 345 1,138 1,483 37 1985 3-40 years
Chino Business Park
Chino, CA ............................ 592 2,509 3,101 38 1992 (b)
Avenue Hall Executive Center
Valencia, CA ......................... 450 1,920 2,370 48 1988 (b)
</TABLE>
- 53 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Industrial:
(continued)
80 South Street
Hopkinton, MA ....................... 0 350 1,405 0 0 0
Mellen Street
Framingham, MA ...................... 0 110 430 0 49 0
900 Building
Minneapolis, MN ..................... 1,508 410 1,630 0 148 0
6950 Washington Avenue
Eden Prairie, MN .................... 0 480 1,914 0 0 0
Maryland Road
Willow Grove, PA .................... 0 310 1,220 0 9 0
Land:
L.A. Industrial
Los Angeles, CA ..................... 0 270 0 0 0 0
Office:
Stadium Towers
Anaheim, CA ......................... 1,842 700 2,810 0 403 (534)
615 Nash Street
El Segundo, CA ...................... 1,325 470 1,870 0 168 (340)
- 54 -
<PAGE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Industrial:
(continued)
80 South Street
Hopkinton, MA ...................... 0 0 0 0 1970-1974 N/A
Mellen Street
Framingham, MA ..................... 0 0 0 7 1915 N/A
900 Building
Minneapolis, MN .................... 410 1,778 2,188 0 1910 (b)
6950 Washington Avenue
Eden Prairie, MN ................... 0 0 0 0 1970 N/A
Maryland Road
Willow Grove, PA ................... 0 0 0 0 1962 N/A
Land:
L.A. Industrial
Los Angeles, CA .................... 0 0 0 0 N/A N/A
Office:
Stadium Towers
Anaheim, CA ........................ 700 2,679 3,379 100 1984 3-40 years
615 Nash Street
El Segundo, CA ..................... 470 1,698 2,168 80 1987 3-40 years
</TABLE>
- 55 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Office:
(continued)
Clarewood
Woodland Hills, CA ...................... 1,124 400 1,580 0 239 (298)
268 Summer Street
Boston, MA .............................. 823 330 1,327 0 59 (228)
250 Turnpike Street
Canton, MA .............................. 721 290 1,150 0 1 (198)
Burtonsville Commerce Center
Burtonsville, MD ........................ 2,745 920 3,670 0 33 (634)
Keewaydin Drive
Salem, NH ............................... 1,339 610 2,450 0 80 (429)
501 Hoes Lane
Piscataway, NJ .......................... 551 180 715 0 115 (136)
Two Executive Campus
Cherry Hill, NJ ......................... 894 240 939 0 27 0
Riverside Centre
Portland, OR ............................ 3,452 1,170 4,680 0 491 0
Pinebrook II
King of Prussia, PA ..................... 0 0 1,790 0 49 (251)
- 56 -
<PAGE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Office:
(continued)
Clarewood
Woodland Hills, CA ..................... 400 1,521 1,921 93 1980 3-40 years
268 Summer Street
Boston, MA ............................. 330 1,158 1,488 55 1897 3-40 years
250 Turnpike Street
Canton, MA ............................. 290 953 1,243 29 1980 3-40 years
Burtonsville Commerce Center
Burtonsville, MD ....................... 920 3,069 3,989 97 1989 3-40 years
Keewaydin Drive
Salem, NH .............................. 610 2,101 2,711 75 1973 3-40 years
501 Hoes Lane
Piscataway, NJ ......................... 180 694 874 36 1987 3-40 years
Two Executive Campus
Cherry Hill, NJ ........................ 240 966 1,206 23 1970 (b)
Riverside Centre
Portland, OR ........................... 1,170 5,171 6,341 3 1945 (b)
Pinebrook II
King of Prussia, PA .................... 0 1,588 1,588 49 1983 3-40 years
</TABLE>
- 57 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Reorganization Value (b)
-------------------- Costs Capitalized
Subsequent to
Reorganization Value
--------------------- Adjust for
Buildings & Buildings & Unreal.
Classification Encumbrances (a) Land Improvements Land Improvements Gain (b)
- -------------- ------------ ---- ------------ ---- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Office:
(continued)
421 Chestnut Street
Philadelphia, PA .................... 0 500 2,020 0 13 (347)
Southampton
Southampton, PA ..................... 0 390 1,561 0 63 0
Pinebrook I
King of Prussia, PA ................. 0 0 1,629 0 77 (232)
Six Sentry Parkway
Blue Bell, PA ....................... 0 920 3,670 0 398 (680)
Retail:
Gateway Plaza (Paseo)
Fremont, CA ......................... 14,287 4,320 17,280 300 264 (3,042)
Arcade Square
Sacramento, CA ...................... 3,384 1,120 4,460 0 544 (828)
Berdon Plaza
Fairhaven, MA ....................... 4,157 1,350 5,403 0 159 0
Bradford Plaza
West Chester, PA .................... 0 1,330 5,330 0 25 (917)
-------- -------- -------- -------- -------- --------
Total Real Estate Owned ................. $ 64,719 $ 24,270 $ 99,370 $ 1,237 $ 8,434 $(10,286)
======== ======== ======== ======== ======== ========
- 58 -
<PAGE>
<CAPTION>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
(dollars in thousands)
(Continued)
Gross Amount Carried at End of Period
-------------------------------------
Buildings & Accumulated Date of Life for
Classification Land Improvements Total Depreciation Construction Depreciation
- -------------- ---- ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Office:
(continued)
421 Chestnut Street
Philadelphia, PA ................. 500 1,686 2,186 55 1857 3-40 years
Southampton
Southampton, PA .................. 0 0 0 0 1984 N/A
Pinebrook I
King of Prussia, PA .............. 0 1,474 1,474 48 1981 3-40 years
Six Sentry Parkway
Blue Bell, PA .................... 920 3,388 4,308 130 1990 3-40 years
Retail:
Gateway Plaza (Paseo)
Fremont, CA ...................... 4,620 14,502 19,122 442 1969 3-40 years
Arcade Square
Sacramento, CA ................... 1,120 4,176 5,296 212 1955 3-40 years
Berdon Plaza
Fairhaven, MA .................... 1,350 5,562 6,912 0 1968 (b)
Bradford Plaza
West Chester, PA ................. 1,330 4,438 5,768 139 1990 3-40 years
-------- -------- -------- --------
Total Real Estate Owned .............. $ 21,497 $ 81,802 $103,299 (c,d) $ 2,035
======== ======== ======== ========
</TABLE>
- 59 -
<PAGE>
<PAGE>
VALUE PROPERTY TRUST
SCHEDULE XI
REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION AND AMORTIZATION
SEPTEMBER 30, 1996
NOTES:
(a) The encumbrances of Senior Notes due 1999 are collateralized by a first
priority Lien on 21 of the Trust's assets, including personal property and
real property held by the Trust or any subsidiary.
(b) See Note 2 "Significant Accounting Policies" to the consolidated financial
statements.
(c) Cost for federal income tax purposes is approximately $160,000,000.
(d) The changes in carrying amounts during the year ended September 30, 1996 are
summarized as follows:
Balance at September 30, 1995 ................ $123,640,000
Reclassification from foreclosure property ... 5,120,000
Additions during year:
Improvements .............................. 4,551,000
Deductions during year:
Sale of real estate ....................... $ 19,726,000
Adjustments for deferred gains ............ 10,286,000 30,012,000
------------ ------------
Balance at September 30, 1996 ................ $103,299,000
============
The changes in carrying amounts during the year ended September 30, 1995 are
summarized as follows:
Balance at September 30, 1994 ................ $ 66,880,000
Reclassification from foreclosure
property and mortgage loans ............... 109,565,000
Additions during year:
Improvements .............................. 11,283,000
Deductions during year:
Sale of real estate ....................... $ 3,350,000
Charge off against allowance for losses ... 2,881,000
Adjustments for fresh start reporting ..... 57,857,000 64,088,000
------------ ------------
Balance at September 30, 1995 ................ $123,640,000
============
- 61 -
<PAGE>
The changes in carrying amounts during the year ended September 30, 1994 are
summarized as follows:
Balance at September 30, 1993 ................ $ 65,012,000
Additions during year:
Improvements .............................. $ 1,847,000
Loan advance by construction lender .......... 21,000 1,868,000
------------ ------------
Balance at September 30, 1994 ................ $ 66,880,000
============
The change in accumulated depreciation and amortization during the year
ended September 30, 1996 is summarized as follows:
Balance at September 30, 1995 ........................... $ -0-
Additions during year:
Charge to income ..................................... 2,035,000
Deductions during year:
Adjustment for sold properties ....................... 103,000
----------
Balance at September 30, 1996 ........................... $1,932,000
==========
The change in accumulated depreciation and amortization during the year
ended September 30, 1995 is summarized as follows:
Balance at September 30, 1994 ............................. $10,023,000
Reclassification from foreclosure property ................ 8,264,000
Additions during year:
Charge to income ....................................... 6,608,000
Deductions during year:
Adjustment for fresh start reporting ................... 24,895,000
-----------
Balance at September 30, 1995 ............................. $ -0-
===========
The change in accumulated depreciation and amortization during the year
ended September 30, 1994 is summarized as follows:
Balance at September 30, 1993 .......................... $ 7,799,000
Additions during year:
Charge to income .................................... 2,224,000
-----------
Balance at September 30, 1994 .......................... $10,023,000
===========
- 62 -
<PAGE>
<PAGE>
<TABLE>
VALUE PROPERTY TRUST
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1996
<CAPTION>
PRINCIPAL
AMOUNT OF
LOANS SUBJECT
NUMBER CONTRACTUAL TO DELINQUENT
OF INTEREST FINAL AMOUNT OF PRINCIPAL
TYPE OF LOANS LOANS RATE MATURITY DATE MORTGAGES OR INTEREST
- ------------- ------ -------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS HELD FOR INVESTMENT:
Residential/Condominiums (a) 71 6.20%-9.50% June 2000-June 2009 1,008,000 --
---------- ------
Total contractual amount of mortgage loans 1,008,000 $ --
========== ======
Adjust contractual amount to
reorganization value of mortgage loans (237,000)
Adjust contractual amount to reallocate
unrealized gain on sale (108,000)
----------
Carrying value of mortgage loans and
investments $ 663,000 (b)(c)
==========
</TABLE>
- 63 -
<PAGE>
<PAGE>
VALUE PROPERTY TRUST
SCHEDULE XII
MORTGAGE LOANS ON REAL ESTATE
SEPTEMBER 30, 1996
NOTES:
(a) Consists of 71 mortgage end loans on 7 projects.
(b) The aggregate cost for federal income tax purposes is $1,008,000.
(c) The change in carrying value of mortgage loans during the year ended
September 30, 1996 were as follows:
Balance at September 30, 1995 ......................... $ 56,979,000
Advances on mortgage loans ............................ 100,000
------------
57,079,000
Collections of principal .............................. (51,188,000)
Transfer to real estate ............................... (5,120,000)
Adjustment for unrealized gains ....................... (108,000)
------------
$ 663,000
============
The change in carrying value of mortgage loans during the year ended
September 30, 1995 were as follows:
Balance at September 30, 1994 ......................... $ 69,322,000
Reclassification from in-substance foreclosure ........ 29,441,000
Advances on mortgage loans ............................ 733,000
Net change in interest reserves ....................... 162,000
------------
99,658,000
Collections of principal .............................. (22,711,000)
Adjustment for fresh start accounting ................. (19,968,000)
------------
$ 56,979,000
============
The change in carrying value of mortgage loans during the year ended
September 30, 1994 were as follows:
Balance at September 30, 1993 ......................... $104,193,000
Advances on mortgage loans ............................ --
Transfer of real estate to mortgage loans ............. 750,000
Net change in interest reserves, deferred income ...... 480,000
------------
105,423,000
Collections of principal .............................. (25,555,000)
Transfer to real estate ............................... (10,321,000)
Chargeoff against allowance for losses ................ (225,000)
------------
$ 69,322,000
============
- 64 -
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, September 30,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Assets Held for Sale:
Investment in partnerships .............................. $ 11,366 $ 10,219
Real estate owned ....................................... 23,249 38,171
-------- --------
Total Assets Held for Sale ........................ 34,615 48,390
-------- --------
Assets Held for Investment:
Mortgage loans .......................................... 583 663
Investment in partnerships .............................. -- 13,486
Real estate owned ....................................... 37,935 63,196
-------- --------
Total Assets Held for Investment .................. 38,518 77,345
-------- --------
Total Invested Assets ............................. 73,133 125,735
Cash and cash equivalents .................................. 65,932 29,501
Restricted cash ............................................ 34,734 12,213
Interest receivable and other assets ....................... 3,683 4,962
-------- --------
Total Assets ...................................... $177,482 $172,411
======== ========
LIABILITIES
Senior secured notes (due 1999) ............................ $ 42,882 $ 63,226
Accounts payable and accrued expenses ...................... 1,396 1,804
Interest payable ........................................... 244 334
-------- --------
Total Liabilities ................................. 44,522 65,364
-------- --------
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(In Thousands) (continued)
June 30, September 30,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value: 3,500,000 shares authorized,
none issued ............................................. -- --
Common shares, $1 par value: 20,000,000 shares authorized,
11,226,310 and 11,226,310 shares issued and outstanding . 11,226 11,226
Additional paid-in capital ................................. 88,848 88,848
Accumulated earnings ....................................... 32,886 6,973
-------- --------
Total Shareholders' Equity ........................ 132,960 107,047
-------- --------
Total Liabilities and Shareholders' Equity ........ $177,482 $172,411
======== ========
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Rental properties:
Rental income ....................... $ 5,052 $ 6,909 $16,701 $20,454
Operating expense reimbursements .... 843 985 2,518 2,681
Interest and fee income on mortgage loans 19 19 61 2,833
Interest on short-term investments ...... 829 543 1,943 1,310
Other ................................... 0 6 8 17
------- ------- ------- -------
Total Revenue ....................... 6,743 8,462 21,231 27,295
------- ------- ------- -------
Expenses:
Interest ................................ 1,389 2,064 4,162 9,049
Rental properties:
Operating ........................... 2,171 2,978 7,102 9,104
Depreciation and amortization ....... 377 585 1,321 1,780
Other operating expenses ................ 802 819 2,317 2,459
------- ------- ------- -------
Total Expenses ...................... 4,739 6,446 14,902 22,392
------- ------- ------- -------
Income before gain on sale of real estate .. 2,004 2,016 6,329 4,903
Gain on sale of real estate ................ 11,712 -- 19,584 --
------- ------- ------- -------
Net income ................................. $13,716 $ 2,016 $25,913 $ 4,903
======= ======= ======= =======
Per share:
Income before gain on sale of real estate .. $ .18 $ .18 $ .56 $ .44
Gain on sale of real estate ................ 1.04 -- 1.75 --
------- ------- ------- -------
Net income ................................. $ 1.22 $ .18 $ 2.31 $ .44
======= ======= ======= =======
Weighted average number of common
shares outstanding ...................... 11,226 11,226 11,226 11,226
======= ======= ======= =======
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Nine Months Ended
June 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 25,913 $ 4,903
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization on real estate ....... 1,321 1,780
Decrease in payables and accrued expenses .......... (408) (2,897)
(Decrease) increase in interest payable ............ (90) 357
Decrease in receivables and other assets ........... 1,647 3,061
Gain on sale of real estate ........................ (19,584) --
--------- ---------
Total adjustments ........................................... (17,114) 2,301
--------- ---------
Net cash provided by operating activities ........................ 8,799 7,204
--------- ---------
Cash flows from investing activities: Investment in real estate:
Real estate ............................................. (2,706) (3,403)
Partnerships ............................................ (629) (145)
Advances on mortgage loans .............................. -- (73)
Principal repayments on mortgage loans ...................... 80 2,357
Proceeds from the sale of real estate ....................... 73,752 14,677
Proceeds from the sale of mortgage loans and notes receivable -- 53,991
Principal repayments on notes receivable .................... -- 366
--------- ---------
Net cash provided by investing activities ........................ 70,497 67,770
--------- ---------
Cash flows from financing activities:
Payment of mortgage payable ................................. -- (17,535)
Prepayment of senior secured notes (due 2002) ............... -- (109,975)
Borrowing of senior secured notes (due 1999) ................ -- 67,379
Prepayment of senior secured notes (due 1999) ............... (20,344) --
Increase in restricted cash ................................. (22,521) (3,243)
--------- ---------
Net cash used in financing activities ............................ (42,865) (63,374)
--------- ---------
Net increase in cash and cash equivalents ........................ 36,431 11,600
Cash and cash equivalents at beginning of period ................. 29,501 9,977
--------- ---------
Cash and cash equivalents at end of period ....................... $ 65,932 $ 21,577
========= =========
Supplemental schedule of non-cash investment and
financing activities:
Transfer of mortgage loans to real estate owned ............. $ -- $ 5,120
========= =========
Interest paid ............................................... $ 2,747 $ 7,787
========= =========
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
(Amounts In Thousands)
For the Nine Months Ended June 30, 1997
Additional Total
Common Shares Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 ...... 11,226 $ 11,226 $ 88,848 $ 6,973 $107,047
Net income ......................... -- -- -- 25,913 25,913
-------- -------- -------- -------- --------
Balance at June 30, 1997 ........... 11,226 $ 11,226 $ 88,848 $ 32,886 $132,960
======== ======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF FINANCIAL INFORMATION AND PLAN OF REORGANIZATION
In connection with its emergence from the Chapter 11 proceeding (the
"1995 Restructuring"), the Trust implemented Fresh Start Reporting as of
September 30, 1995, as set forth in Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code." Fresh Start
Reporting was required because (1) the reorganization value of the Trust's
assets immediately before the date of confirmation was less than the total of
all post-petition liabilities, (2) there was more than a 50% change in the
ownership of the Trust, and (3) there was a permanent and substantive loss of
control by existing shareholders. As a result, all assets and liabilities were
restated to reflect their respective reorganization value or fair value.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of only normal
recurring accruals, considered necessary for a fair presentation have been
included. Operating results for the nine-month and three-month periods ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the fiscal year ending September 30, 1997. These financial statements should
be read in conjunction with the Trust's September 30, 1996 audited financial
statements and notes thereto included in the Trust's Annual Report on Form 10-K.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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. The most significant of these estimates relate to the carrying
value of the Assets Held for Sale and the estimated useful lives of Assets Held
for Investment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accounts of the Trust and its wholly owned subsidiaries are
consolidated in the accompanying financial statements. All significant
intercompany balances and transactions have been eliminated in consolidation.
INCOME TAXES
The Trust is a real estate investment trust ("REIT") that has elected
to be taxed under Sections 856-860 of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Trust does not pay Federal income tax on
income as long as income distributed to shareholders is at least equal to 95% of
real estate investment trust taxable income, and pays no Federal income tax on
capital gains distributed to shareholders.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
In July 1997, the Trust contacted the Internal Revenue Service (the
"IRS") regarding interpretative advice concerning a technical provision of the
REIT requirements of the Internal Revenue Code and, based upon such interpretive
advice, potential violations of such provision during fiscal 1994 and 1995. The
Trust does not believe that any such potential violations would have a material
adverse effect on the Trust. However, the Trust has sought the IRS'
interpretation of the technical provision of the REIT requirements and its
concurrence that, if any technical violations were deemed to have occurred, such
violations would not affect the Trust's REIT status. The Trust believes that if
its status as a REIT was terminated, potential corporate taxes for prior periods
would not be material due to the net operating losses available in prior
periods. Moreover, there should be no material adverse tax consequences to
shareholders during such prior periods since no distributions were made to
shareholders during such periods. The effect of a termination of REIT status in
current and future periods would be based upon a number of factors; because the
Trust is unable to predict the occurrence or magnitude of such factors; it is
unable to predict the effect of a termination of REIT status on the Trust or its
shareholders for such periods.
For the fiscal years ended September 30, 1996, 1995 and 1994, there
were significant differences between taxable net loss and net income (loss) as
reported in the financial statements. The differences were related to the
recognition of bad debt deductions and accounting for reorganization costs and
Fresh Start Reporting. For financial accounting purposes, these items are
expensed currently, while for tax purposes some portion of these items are
deferred to future periods or may not be deductible. In addition, the Fresh
Start Reporting discussed in Note 1 is not recognized for tax purposes, and will
result in future years financial reporting and tax basis differences.
The Trust has approximately $115 million in net operating losses (the
"NOLs") for tax purposes attributable to losses generated in fiscal years 1992
through 1996. The NOLs attributable to each year can be carried forward up to
fifteen years from the year the loss was generated. The use of NOLs in any
taxable year (together with any recognized losses that are economically
attributable to the period up to the Restructuring) will be subject to an annual
limitation under Section 382 of the Code. The Trust estimates that this annual
limitation is approximately $6 million.
INTEREST INCOME
Interest income on each loan is recorded as earned. Interest income is
not recognized if, in the opinion of the management, collection is doubtful. The
Trust generally considers loans as delinquent if payment of interest and/or
principal, as required by the terms of the note, is more than 60 days past due.
Accrual of interest income is generally terminated and foreclosure proceedings
are started if payment is more than 60 days past due.
ALLOWANCE FOR LOSSES
Impairment on mortgage loans is accounted for in accordance with
Financial Accounting Standards Board Statement No. 114 - Accounting by Creditors
for Impairment of a Loan.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NET INCOME PER SHARE
Net income per share is computed using the weighted average common
shares outstanding during the period.
DEPRECIATION AND AMORTIZATION
At September 30, 1995, as a result of Fresh Start Reporting, all assets
and liabilities of the Trust were restated to reflect their respective
reorganization value or fair value. The accumulated depreciation on real estate
owned was reset to zero as a result of the adoption of Fresh Start Reporting. At
September 30, 1995, the Trust segregated the real estate portfolio into two
categories: Held for Sale and Held for Investment. The Trust depreciates the
Held for Investment category over the estimated useful lives of the assets; 40
years for buildings, three to five years for other property and over the term of
the related lease for lease commissions and tenant improvements. The Held for
Sale category is not depreciated. During fiscal 1996, the Trust reclassified
seven real estate properties totaling $18.7 million to Assets Held for Sale from
Assets Held for Investment and no longer depreciates these assets. During the
second quarter of fiscal 1997, the Trust reclassified five real estate
properties totaling $35.7 million to Assets Held for Sale from Assets Held for
Investment and no longer depreciates these assets.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents and restricted cash include short-term
investments (high grade commercial paper, bank CDS and US Treasury and Agency
Securities) with original maturities not exceeding a term greater than 90 days.
INVESTMENT IN PARTNERSHIPS
Investment in partnerships represents the Trust's investment in real
estate partnerships. The Trust owns a majority percentage interest in most of
these partnerships and receives substantially all of the cash flow. The Trust
accounts for all of these partnerships, except one, in a similar manner as real
estate investments; the one partnership was accounted for using the equity
method.
REAL ESTATE OWNED
As of September 30, 1995, the Trust's invested assets were adjusted to
reorganization value which became the new historical cost basis. Subsequently,
Assets Held for Investment are carried at historical cost less depreciation.
Assets Held for Sale are carried at lower of cost or net realizable value. In
conjunction with the adoption of Fresh Start Reporting on September 30, 1995,
all gains or losses for a period of one year after such adoption were applied
against the carrying value of long lived assets Held for Investment. Through
September 30, 1996, the Trust reduced the carrying values of Assets Held for
Investment by $12.6 million as a result of the net gains on both the disposition
of substantially all of its mortgage loan portfolio in March 1996 and the sale
of nine real estate properties classified as Assets Held for Sale. For the nine
months ended of June 30, 1997, a gain of $19.6 million is recorded in net income
as a result of real estate property sales. At June 30, 1997, the Trust owned 23
real estate properties of which eight are classified as Assets Held for Sale.
The fiscal 1996 revenue and net operating income from these eight real estate
properties were $7.8 million and $4.4 million, respectively.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
DEFERRED COSTS
Included in other assets are costs incurred in obtaining debt financing
which are deferred and amortized over the term of the related debt agreement.
Amortization expense is included in interest expense in the accompanying
statement of operations. Net deferred financing costs included in other assets
in the accompanying balance sheet amounted to $0.7 million at June 30, 1997.
REVENUE RECOGNITION
The Trust recognizes base rental revenue for financial statement
purposes ratably as earned over the term of the lease.
INTEREST RATE SWAP AGREEMENT
The Trust is a party to an interest rate protection agreement (the
"Cap") used to hedge its interest rate exposure on floating rate debt (See Note
4 "Borrowings"). The differential to be paid or received is recognized in the
period incurred and included in interest expense.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" and SFAS No. 129, "Disclosure of Information about Capital
Structure." In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."
SFAS 128, which simplifies existing computational guidelines,
supersedes Accounting Principles Board ("APB") Opinion 15, "Earnings Per Share,"
and specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted, and all prior period EPS figures that are
presented are required to be restated. The Trust is currently evaluating SFAS
128 and believes that the adoption of SFAS 128 will not have a significant
impact on the disclosures in the financial statements of the Trust.
SFAS 129, "Disclosure of Information about Capital Structure" lists
required disclosure about capital structure that had been included in a number
of separate statements and opinions of authoritative accounting literature. SFAS
129 is effective for financial statements issued for periods ending after
December 15, 1997. The Trust believes that the adoption of SFAS 129 will not
have a significant impact on the disclosures in the financial statements of the
Trust.
SFAS No. 130, "Reporting Comprehensive Income" establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. SFAS No. 131 is effective for
financial statements issued for periods beginning after December 15, 1997.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131 is
effective for financial statements issued for periods beginning after December
15, 1997.
NOTE 3. MORTGAGE LOANS AND INVESTMENTS IN REAL ESTATE
During the second quarter of fiscal 1996, the Trust completed the
disposition of substantially all of its mortgage loan portfolio. The Trust
received $55.5 million in net cash proceeds through a series of transactions
which included loan repayments and a bulk sale of mortgage loans. The carrying
value of the mortgage loans involved in these transactions totaled $50.5
million. The Trust's remaining mortgage loan holdings are currently less than
$0.6 million.
The following table summarizes the Trust's investments in real estate
owned at June 30, 1997.
<TABLE>
<CAPTION>
Type of
Real Estate Number Carrying Accumulated Book
Property of Properties Amount Depreciation Value
-------- ------------- ------ ------------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Held for Sale:
Real Estate Owned ........ 6 $23,384 $ (135) $23,249
Investment in Partnerships 2 11,562 (196) 11,366
------- ------- ------- -------
Total .................... 8 $34,946 $ (331) $34,615
======= ======= ======= =======
Real Estate Held for Investment:
Real Estate Owned ........ 15 $40,015 $(2,080) $37,935
------- ------- ------- -------
Total .................... 15 $40,015 $(2,080) $37,935
======= ======= ======= =======
</TABLE>
NOTE 4. BORROWINGS
SENIOR SECURED NOTES
The Holders of the Prior Notes had a first priority lien on all of the
Trust's collateral. The Prior Notes were governed by the Prior Indenture between
the Trust and Wilmington Trust Co., as Trustee, dated as of the effective date
of the Trust's reorganization (September 29, 1995). Interest on the Prior Notes
accrued at 11-1/8% per annum and was payable semi-annually in arrears on each
June 30 and December 31. The Prior Indenture included affirmative covenants,
negative covenants and financial covenants.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
On March 28, 1996, the Trust entered into a financing agreement which
provided for the issuance of $67.4 million of new Floating Rate Notes (the
"Floating Rate Notes"), which issuance occurred on April 30, 1996. The Floating
Rate Notes bear interest at 30 day LIBOR + 1.375%, payable monthly, and have a
stated maturity date of May 1, 1999.
The indenture relative to the Floating Rate Notes (the "New Indenture")
generally requires that, on a monthly basis, the Trust deposit into a Trapped
Funds Account, as defined in the New Indenture, maintained by the indenture
trustee (the "New Indenture Trustee") for the Floating Rate Notes all Cash Flow
and Asset Sale Proceeds (each as defined in the New Indenture). Cash Flow from
the Trapped Funds Account will be distributed to pay the New Indenture Trustee's
expenses, pay all accrued but unpaid interest on the Floating Rate Notes and to
maintain a Debt Service Reserve Account before any funds are released to the
Trust. In the event of a sale of, or certain casualty, or indemnification events
with respect to any of the remaining sixteen real estate properties of the
original twenty-four real estate properties mortgaged under the terms of the
Floating Rate Notes (underlying collateralized value of $46.1 million at June
30, 1997), the proceeds therefrom will be used to retire up to 125% of a portion
of the allocated debt of such property before any funds are released to the
Trust. The New Indenture includes affirmative covenants and negative covenants.
At June 30, 1997, the Trust was in compliance with the New Indenture.
The proceeds received from the Floating Rate Notes, together with
approximately $56.5 million of cash on hand, were used to prepay the Trust's
Prior Notes and Mortgage Payable. The face amount outstanding of the Prior Notes
and the Mortgage Payable at the time of repayment was $110.0 million and $13.9
million, respectively. The Prior Notes and Mortgage Payable were repaid in full
on April 30, 1996.
Effective April 30, 1996, the Trust entered into an interest rate
protection agreement (the "Cap") that serves to cap the floating interest
component of the Floating Rate Notes at 8%. The Trust paid a one-time fee of
$377,000 to the counterparty to the Cap.
During fiscal 1996, the Trust sold nine real estate properties, three
of which were encumbered under the terms of the New Indenture. The Trust used a
portion of the net proceeds from the sale of encumbered real estate properties
to prepay a portion of the Floating Rate Notes, as required under the terms of
the New Indenture. In July of fiscal 1996, the Trust used $4.2 million of the
net proceeds and in October and November of fiscal 1997 used $2.6 million and
$4.4 million, respectively, of the net proceeds of fiscal 1996 sales to prepay a
portion of the Floating Rate Notes.
During the nine months ended June 30, 1997, the Trust sold five real
estate properties and three of nine buildings owned by the Trust in an
industrial park, which were encumbered under the terms of the New Indenture. In
addition, the Trust sold three real estate properties which were not encumbered
under the terms of the New Indenture. During the nine months ended June 30,
1997, the Trust used $13.3 million of the net proceeds of the encumbered sales
to prepay a portion of the Floating Rate Notes. In July of fiscal 1997, the
Trust used $22.1 million of the net proceeds of two encumbered sales which
occurred in June of fiscal 1997 to prepay a portion of the Floating Rate Notes.
<PAGE>
VALUE PROPERTY TRUST AND SUBSIDIARIES FORM 10Q
NOTE 5. SHARE OPTION PLAN
1995 SHARE OPTION PLAN
On October 2, 1995, the Board of Trustees adopted a 1995 Share Option
Plan (the "1995 Plan") for Trustees, officers, employees and other key persons
of the Trust. On February 15, 1996, the Trust's shareholders approved the
adoption of the 1995 Plan at the Trust's 1996 Annual Meeting of Shareholders.
The 1995 Plan provides for the grant of options to purchase up to
870,000 common shares at not less than 100% of the fair market value of the
common shares, subject to adjustment for share splits, share dividends and
similar events. To the extent that awards under the 1995 Plan do not vest or
otherwise revert to the Trust, the common shares represented by such awards may
be the subject of subsequent awards.
The 1995 Plan provides for the grant of incentive stock options
("Incentive Options") which qualify under Section 422 of the Code and
non-qualified stock options ("Non-Qualified Options"). Holders of options also
receive dividend equivalent rights. During fiscal 1996, 894,000 shares from the
1995 Plan were granted with a price range from $10.00 to $12.25 per share and
55,000 shares were canceled at a price of $10.00 per share. During the nine
months ended June 30, 1997, no shares from the 1995 Plan were granted or
canceled. The options expire four years from the date of grant.<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Wellsford Real Properties, Inc.
We have audited the combined statement of revenues and certain expenses of
the properties known as 1275 K Street, 300 Atrium Drive, 400 Atrium Drive,
500 Atrium Drive, 600 Atrium Drive, 700 Atrium Drive, and 15 Broad Street,
(collectively, the "Whitehall Properties"), acquired or to be acquired by
Wellsford/Whitehall Properties, L.L.C., as described in Note 1, for the year
ended December 31, 1996. This financial statement is the responsibility of
Wellsford/Whitehall Properties, L.L.C. management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in Form 8-K of Wellsford
Real Properties, Inc. and is not intended to be a complete presentation of
the Whitehall Properties' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the combined revenues and certain expenses of the
Whitehall Properties as described in Note 1 for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
October 20, 1997
<PAGE>
The Whitehall Properties
Combined Statement of Revenues and Certain Expenses
(in thousands)
(Note 1)
Six Months Year Ended
Ended June December
30, 1997 31, 1996
------------------------------
(unaudited)
Revenues:
Base rents $ 8,212 $ 11,716
Tenant escalations,
reimbursements, and parking income 823 1,695
------------------------------
Total revenues 9,035 13,411
------------------------------
Certain Expenses:
Property operating expenses 2,335 4,664
Real estate taxes 1,378 2,982
Management fees 226 498
------------------------------
Total certain expenses 3,939 8,144
------------------------------
Revenues in excess of certain expenses $ 5,096 $ 5,267
==============================
See accompanying notes.
<PAGE>
The Whitehall Properties
Notes to Combined Statement of Revenues and Certain Expenses
For the Year Ended December 31, 1996
1. Basis of Presentation
Presented herein is the combined statement of revenues and certain expenses
related to the operations of seven commercial real estate properties known as
1275 K Street, 300 Atrium Drive, 400 Atrium Drive, 500 Atrium Drive, 600
Atrium Drive, 700 Atrium Drive and 15 Broad Street (collectively, the
"Whitehall Properties"). The Whitehall Properties are not a legal entity,
but are a combination of the operations of certain real estate properties
which properties or contracts to purchase such properties were or are
expected to be contributed to Wellsford/Whitehall Properties, L.L.C.
("Wellsford Office") by WHWEL Real Estate Limited Partnership (the "Whitehall
Partner"). The Whitehall Partner has a 49.9% interest in Wellsford Office
and is an affiliate of Goldman, Sachs & Co. Wellsford Commercial Properties
Trust ("WCPT"), a subsidiary of Wellsford Real Properties, Inc. ("WRP"), has
a 50.1% interest in Wellsford Office. 1275 K Street, located in Washington,
D.C., 300 Atrium Drive, 400 Atrium Drive, 500 Atrium Drive, and the contract
to purchase 700 Atrium Drive, all located in Somerset County, New Jersey,
were contributed to Wellsford Office on the date of its formation, August 28,
1997, by the Whitehall Partner.
On September 25, 1997, Wellsford Office acquired 700 Atrium Drive. It is
currently anticipated that 600 Atrium Drive, a parcel of vacant land located
in Somerset County, New Jersey, and 15 Broad Street, an office building
located in Boston, Massachusetts, will be contributed to Wellsford Office by
the Whitehall Partner by December 15, 1997.
The accompanying financial statement has been prepared in accordance with the
applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statement excludes certain expenses that may not be comparable to those
expected to be incurred by Wellsford Office in the proposed future operations
of the Whitehall Properties. Expenses excluded consist of interest,
depreciation and general and administrative expenses not directly related to
the future operations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
The combined statement of revenues and certain expenses for the six months
ended June 30, 1997 is unaudited; however, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for
a fair presentation of the combined statement of revenues and certain
expenses for this interim period have been included. The results of interim
periods are not necessarily indicative of the results to be obtained for a
full fiscal year.
2. Lease and Revenue Recognition
The Whitehall Properties are being leased to tenants under operating leases.
Minimum rental income is generally recognized on a straight-line basis over
the term of the lease. The excess of amounts due pursuant to the underlying
leases over amounts recognized on a straight-line basis amounted to
approximately $217,000, for the year ended December 31, 1996. The lease
agreements for certain of the Whitehall Properties generally contain
provisions which provide for reimbursement of real estate taxes and operating
expenses over base year amounts, as well as fixed increases in rent.
The Whitehall Properties are principally multi-tenant office buildings with
leases expiring at various dates over the next eleven years.
3. Management and Leasing Agreements
The Whitehall Properties are managed and leased by various management
companies. These management companies provide property management services
to the Whitehall Properties at the rate of 2% to 5% of gross cash receipts.
4. Property Operating Expenses
Property operating expenses for the year ended December 31, 1996 include
approximately $227,000 for insurance, $2,198,000 for utilities, $213,000 in
general and administrative expenses, $1,676,000 in repair and maintenance
costs, and $350,000 for payroll costs.
5. Significant Tenants
Six tenants, Merck and Co., Inc., Society of Plastics Engineers, Merrill
Lynch & Co., Metzger, Hollis & Gordon, Sun Microsystems, and The Mobil
Corporation accounted for approximately 23%, 14%, 8%, 5%, 4%, and 3% of the
combined 1996 base rents on a straight line basis, respectively.
The Society of Plastics Engineers lease expired on December 31, 1996.
Metzger, Hollis & Gordon vacated its space in August 1997.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Members
The Abbey Companies
We have audited the accompanying combined statement of revenues and certain
expenses of The Abbey Companies (the "Company") for the year ended
December 31, 1996. This combined statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
statement. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for
inclusion in the Form 8-K/A of Wellsford Real Properties, Inc.) described in
Note 2 and is not intended to be a complete presentation of the Company's
revenues and expenses.
In our opinion, the combined statement referred to above presents fairly, in
all material respects, the revenues and certain expenses described in Note 2
of the Company for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 28, 1997<PAGE>
THE ABBEY COMPANIES
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
-----------
Nine Months
Year Ended Ended
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
Revenues:
Minimum rents $6,103,153 $4,829,755
Tenant recoveries 716,093 856,931
Other income 333,363 290,509
---------- ----------
Total revenues 7,152,609 5,977,195
Certain expenses:
Operating 2,085,067 1,247,304
General and administrative 1,176,150 761,013
Real property taxes 531,066 492,727
---------- ----------
3,792,283 2,501,044
---------- ----------
Revenues in excess of certain expenses $3,360,326 $3,476,151
---------- ----------
The accompanying notes are an integral part of this combined statement.
<PAGE>
THE ABBEY COMPANIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
------------
1. Organization And Basis Of Presentation:
The combined statement includes the revenues and certain expenses of
Abbey Investment, Inc., The Abbey Company, Inc. and Nittany Lion
Landscaping, Inc., all California subchapter S corporations, and Abbey
Properties, L.L.C., a limited liability company which owns 99% of 9
properties, each held in a limited liability company. Abbey Properties,
L.L.C., was formed and capitalized in July 1996, when MS Abbey, L.L.C.
contributed $1,000,000 for its 10% ownership interest and Donald G.
Abbey, an individual, contributed eight properties for his 90% ownership
interest. The properties contributed by Donald G. Abbey were recorded
at historical cost by Abbey Properties, L.L.C.
The Abbey Companies (the "Company") is a combination of these ten
limited liability companies and three corporations primarily engaged in
the acquisition and operation of commercial/retail real estate in the
Southern California area. At December 31, 1996, the Company owned and
operated 9 properties encompassing approximately 900,000 square feet
(unaudited) of commercial/retail space.
The property management and leasing are provided to the properties by
The Abbey Company, Inc. Landscaping services are provided by Nittany
Lion Landscaping, Inc. All material intercompany transactions have been
eliminated in the combined statement.
2. Summary Of Significant Accounting Policies:
The accompanying combined statement of revenues and certain expenses is
not representative of the actual operations for the year ended December
31, 1996 because certain expenses, which may not be comparable to those
expected to be incurred in the proposed future operations of the
properties, have been excluded. Expenses excluded consist of mortgage
interest, depreciation and amortization, and management fees not
directly related to future operations of the properties.
Revenue Recognition
Operating revenues and expenses are presented on the accrual basis of
accounting. Commercial and retail spaces are generally leased to
tenants under noncancellable operating leases that range from 1 to 10
years. Minimum rent revenues are recognized on a straight-line basis
over the respective lease term. Some tenants are also charged for
certain operating expenses that are subject to recovery by the Company,
including real estate taxes, insurance and common area costs.
Income Taxes
<PAGE>
THE ABBEY COMPANIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
-----------
No provision for federal and state income taxes has been made in the
accompanying combined statement since such taxes, if any, are the
liability of the individual members.
Use Of 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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Summary Of Significant Accounting Policies, Continued:
Concentration Of Risk
There are owners and developers of real estate that compete with the
Company in its trade areas. This results in competition for tenants to
occupy space. The existence of competition could have a material impact
on the Company's ability to lease space and on the level of rent that
can be achieved.
Interim Financial Data (Unaudited)
The interim financial data for the nine-month period ended September 30,
1997 is unaudited; however, in the opinion of management, the interim
data includes all adjustments, consisting of normal recurring
adjustments and eliminations necessary for a fair presentation of the
results of the period. The results of revenues and certain expenses for
the nine-month period ended September 30, 1997 are not necessarily
indicative of the results for the full year.
3. Future Rental Revenues:
Under existing noncancellable operating lease agreements, tenants are
committed to pay the following minimum rentals to the Company:
Years Ending
December 31,
------------
1997 $6,287,311
1998 5,111,538
1999 3,848,984
2000 2,808,500
2001 1,726,666
Thereafter 2,673,229
-----------
$22,456,227
===========
THE ABBEY COMPANIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
-----------
4. Commitments:
Under two existing noncancellable operating ground lease agreements, the
Company is committed to pay the following minimum rents:
Years Ending
December 31,
------------
1997 $415,535
1998 415,535
1999 415,535
2000 415,535
2001 415,535
Thereafter 13,935,459
-----------
$16,013,134
===========
Rent expense associated with ground leases was $425,434 in 1996.
<PAGE>
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Shares in any jurisdiction
where, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus, nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the facts set forth in this Prospectus or in the
affairs of the Company since the date hereof.
____________________
SUMMARY TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 24
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Price Range of Common Stock and Dividend History . . . . . . . . . . . 26
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . 28
Management's Discussion and Analysis of
Financial Condition and Analysis of Operations . . . . . . . . . . . 30
Business and Properties of Wellsford/Whitehall Properties, L.L.C.. . . 31
Business and Properties of Wellsford Capital Corporation . . . . . . . 43
Business and Properties of Wellsford Real Properties, Inc. . . . . . . 45
Lines of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Policies with Respect to Certain Activities. . . . . . . . . . . . . . 50
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 56
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 59
Certain Agreements Between The Company
and ERP Operating Partnership . . . . . . . . . . . . . . . . . . . . 59
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . 64
Certain Provisions of Maryland Law and of the
Company's Charter and Bylaws. . . . . . . . . . . . . . . . . . . . . 71
Shares Available for Future Sale . . . . . . . . . . . . . . . . . . . 74
Certain United States Federal Income Tax Considerations. . . . . . . . 75
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 79
Certain ERISA Considerations . . . . . . . . . . . . . . . . . . . . . 79
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 81
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . .F-1
<PAGE>
=============================================================================
12,242,719 Shares
WELLSFORD REAL PROPERTIES, INC.
Common Stock
----------------
PROSPECTUS
----------------
December __, 1997
=============================================================================<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 33. Recent Sales of Unregistered Securities.
The following table is a summary of certain information relating to all
securities of the Company sold by the Company within the past three years
that were not registered under the Securities Act (the "Private Placements"):
Person or Class
Type of Date Amount of of Persons to
Securities of Securities Whom Securities
Sold Sale Sold Sold Consideration
Common Stock 2/28/97 218,447(1) Wellsford Commercial (2)
Properties, L.L.C.
Class A Common 5/30/97 339,806 ERP Operating $3,500,000
Stock Partnership
Common Stock 5/30/97 24,272 William M. Cockrum, $250,000
Trustee of the
William M. Cockrum
Trust dated 8/1/79
Common Stock 6/2/97 12,000,000 "qualified institu- $123.6
tional buyers" and million
other "accredited
investors" (each as
defined under the
rules of the
Securities Act)
Warrants 8/28/97 5,000,000(3) Whitehall Property (4)
Buyer
Exchange 8/28/97 (5) Whitehall Property (4)
Rights(5) Buyer
(1) Reflects the adjustment made to the original number of shares issued to
Wellsford Commercial Properties, L.L.C., based upon the book value per
share of Common Stock on the date of the Merger.
(2) Wellsford Commercial Properties, L.L.C. transferred the contracts to
purchase the Cyanamid Office Portfolio, Greenbrook and Chatham in
exchange for shares of Common Stock having an aggregate value of
approximately $2.25 million and the Company's agreement to repay a $1.0
million advance used for the down payment on the Cyanamid Office
Portfolio.
(3) In connection with the formation of Wellsford Office, the Company issued
Warrants to Whitehall Partner to purchase 4,132,230 shares of Common
Stock at an exercise price of $12.10 per share. The Warrants are
exercisable for five years for either, at the Company's option, shares
of Common Stock or cash. The exercise price for the Warrants is payable
either with membership units in Wellsford Office or cash.
(4) In consideration for consummating the Wellsford Office joint venture
transaction with the Company.
(5) Whitehall Partner may exchange membership units it receives in Wellsford
Office relating to capital contributions made by Whitehall Partner to
Wellsford Office in excess of $50 million but less than $75 million, for
shares of Common Stock, or, at the Company's election, cash based upon
the price paid by Whitehall Partner for such membership units and the
then current market value of shares of Common Stock.
The Company conducted the Private Placements pursuant to Section 4(2) of
the Securities Act. There was no underwriter involved in the Private
Placements.
Item 34. Indemnification of Directors and Officers.
The Maryland General Corporation Law ("MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of
its directors and officers to the corporation and its stockholders for money
damages except for liability resulting from (a) actual receipt of an improper
benefit or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. The Charter contains such a provision which eliminates such
liability to the maximum extent permitted by Maryland law.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former director or officer or (b) any individual who,
while a director of the Company, and at the request of the Company, serves or
has served another corporation, partnership, joint venture, trust, employee
benefit plan, limited liability company or any other enterprise as a
director, officer, partner, trustee, manager or member of such corporation,
partnership, joint venture, trust, employee benefit plan, limited liability
company or other enterprise from and against any claim or liability to which
such person may become subject or which such person may incur by reason of
his status as a present or former director or officer of the Company. The
Bylaws of the Company obligate it, to the maximum extent permitted by
Maryland law, to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan,
limited liability company or any other enterprise as a director, officer,
partner, trustee, manager or member of such corporation, partnership, joint
venture, trust, employee benefit plan, limited liability company or other
enterprise and who is made a party to the proceeding by reason of his service
in that capacity. The Charter and Bylaws also permit the Company to
indemnify and advance expenses to any person who served a predecessor of the
Company in any of the capacities described above and to any employee or agent
of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c)
in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of
liability on the basis that personal benefit was improperly received, unless,
in either case, a court orders indemnification and then only for expenses.
In addition, the MGCL permits a corporation to advance reasonable expenses to
a director or officer upon the corporation's receipt of (a) a written
affirmation by the director or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by the corporation
as authorized by the Bylaws and (b) a written undertaking by or on his behalf
to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Item 35. Treatment of Proceeds from Stock Being Registered.
Not applicable.
Item 36. Financial Statements and Exhibits.
(a) Financial Statements, all of which are in the Prospectus
WELLSFORD REAL PROPERTIES, INC.
HISTORICAL
Consolidated Balance Sheet as of
September 30, 1997 (Unaudited)
Consolidated Statement of Income
For the Nine Months Ended
September 30, 1997 (Unaudited)
Combined Statements of Cash Flows
For the Nine Months Ended
September 30, 1997 and 1996 (Unaudited)
Notes to Consolidated Financial Statements
PRO FORMA
Consolidated Income Statement For the Nine
Months Ended September 30, 1997 (Unaudited)
Notes to Unaudited Consolidated Income Statement
Consolidated Income Statement For the Year Ended
December 31, 1996 (Unaudited)
Notes to Unaudited Consolidated Income Statement
Consolidated Balance Sheet, September 30, 1997
(Unaudited)
Notes to Unaudited Consolidated Balance Sheet
WELLSFORD REAL PROPERTIES, INC. (PREDECESSOR)
HISTORICAL
Combined Balance Sheets as of
December 31, 1996 and 1995
Combined Statement of Income and
Equity for the Year Ended December 31, 1996
Combined Statements of Cash Flows
For the Year Ended December 31, 1996 and
the Period From March 22 to December 31, 1995
Notes to Combined Financial Statements
VALUE PROPERTY TRUST
FINANCIALS FROM FORM 10-K
FOR FISCAL YEAR ENDED SEPTEMBER 30, 1996
Consolidated Statements of Operations
(Years ended September 30, 1996, 1995 and 1994)
Consolidated Balance Sheets (September 30, 1996 and 1995)
Consolidated Statements of Cash Flows
(Years ended September 30, 1996, 1995 and 1994)
Consolidated Statement of Shareholders' Equity
(Years ended September 30, 1996, 1995 and 1994)
Notes to the Consolidated Financial Statements
FINANCIALS FROM FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1997
Consolidated Balance Sheets at June 30, 1997 (Unaudited)
and September 30, 1996
Consolidated Statements of Operations for the Three and Nine Months
Ended June 30, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1997 and 1996 (Unaudited)
Consolidated Statement of Shareholders' Equity for the
Nine Months Ended June 30, 1997 (Unaudited)
Notes to the Consolidated Financial Statements
WELLSFORD OFFICE PROPERTIES CONTRIBUTED BY
WHITEHALL PARTNER
Combined Statement of Revenues and Certain Expenses
for the Year Ended December 31, 1996 (audited) and
Six Months Ended June 30, 1997 (unaudited)
PROPERTIES OF THE ABBEY ENTITIES
Combined Statement of Revenues and Certain Expenses
for the Year Ended December 31, 1996 (audited) and
Nine Months Ended September 30, 1997 (unaudited)
(b) Financial Statement Schedules.
VALUE PROPERTY TRUST
Schedule XI - Real Estate Accumulated Depreciation
and Amortization (September 30, 1996)
Schedule XII - Mortgage Loans on Real Estate
(September 30, 1996)
(c) Exhibits.
<PAGE>
Exhibit No. Description###
2.1 Limited Liability Company Operating Agreement of
Wellsford/Whitehall Properties, L.L.C., dated as of August 28,
1997.#
3.1 Articles of Amendment and Restatement of the Company.****
3.2 Articles Supplementary Classifying 335,000 Shares of Common Stock
as Class A Common Stock.****
3.3 Articles Supplementary Classifying 2,000,000 Shares of Common Stock
as Series A 8% Convertible Redeemable Preferred Stock.****
3.4 Bylaws of the Company.****
4.1 Specimen certificate for Common Stock.***
4.2 Specimen certificate for Class A Common Stock.****
4.3 Specimen certificate for Series A 8% Convertible Redeemable
Preferred Stock.****
4.4 Warrant Agreement, dated as of August 28, 1997, between Wellsford
Real Properties, Inc. and United States Trust Company of New York,
as warrant agent, and Warrant Certificate No. 1 of Wellsford Real
Properties, Inc. for 5,000,000 Warrants registered in the name of
WHWEL Real Estate Limited Partnership.#
5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding
legality.****
10.1 Agreement and Plan of Merger, dated as of September 18, 1997, among
Value Property Trust, Wellsford Real Properties, Inc. and Wellsford
Capital Corporation.##
10.2 $17.8 million Loan Agreement, dated as of June 28, 1996, by and
between Wellsford Residential Property Trust, as lender, and
Specified Properties VIII, L.P., as borrower, relating to
Sonterra.*
10.3 Option Agreement between Wellsford Residential Property Trust, as
purchaser, and Specified Properties VIII, as seller, dated as of
June 28, 1996, relating to Sonterra.*
10.4 Sonterra Agreement by and between the Company and ERP Operating
Limited Partnership dated as of May 30, 1997.****
10.5 Agreement Regarding Palomino Park by and between the Company and
ERP Operating Limited Partnership dated as of May 30, 1997.****
10.6 Operating Agreement of Park at Highlands LLC, dated as of April 27,
1995, between Wellsford Park Highlands Corp. and Al Feld, relating
to Blue Ridge.**
10.7 First Amendment to Operating Agreement of Park at Highlands LLC,
dated as of December 29, 1995, between Wellsford Park Highlands
Corp. and Al Feld, relating to Blue Ridge.*
10.8 Tri-Party Agreement by and among Park at Highlands LLC, NationsBank
of Texas, N.A., Wellsford Park Highlands Corp., Wellsford
Residential Property Trust and Al Feld dated December 29, 1995,
relating to Blue Ridge.*
10.9 Assignment and Assumption of Tri-Party Agreement by and among
Wellsford Residential Property Trust, ERP Operating Limited
Partnership, Park at Highlands LLC, Wellsford Park Highlands Corp.,
The Feld Company, Al Feld and Nationsbank of Texas, N.A. dated May
30, 1997, relating to Blue Ridge.****
10.10 Agreement and Acknowledgement Regarding Tri-Party Agreement by and
among Nationsbank of Texas, N.A., Park at Highlands LLC, Wellsford
Park Highlands Corp. and ERP Operating Limited Partnership dated
May 30, 1997, relating to Blue Ridge.****
10.11 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.*
10.12 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.****
10.13 Tri-Party Agreement by and among NationsBank of Texas, N.A., Red
Canyon at Palomino Park LLC, Wellsford Park Highlands Corp.,
Wellsford Residential Property Trust, Al Feld and The Feld Company,
dated May 29, 1997, relating to Red Canyon.****
10.14 Assignment and Assumption of Tri-Party Agreement by and among
Wellsford Residential Property Trust, ERP Operating Limited
Partnership, Red Canyon at Palomino Park LLC, Wellsford Park
Highlands Corp., The Feld Company, Al Feld and Nationsbank of
Texas, N.A. dated May 30, 1997, relating to Red Canyon.****
10.15 Agreement and Acknowledgement Regarding Tri-Party Agreement by and
among Nationsbank of Texas, N.A., Red Canyon at Palomino Park LLC,
Wellsford Park Highlands Corp. and ERP Operating Limited
Partnership dated May 30, 1997, relating to Red Canyon.****
10.16 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.*
10.17 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.**
10.18 Letter of Credit Reimbursement Agreement, dated as of December 1,
1995, between PPPIC, Wellsford Residential Property Trust and
Dresdner Bank AG, New York Branch.**
10.19 First Amendment to Letter of Credit Reimbursement Agreement, dated
as of May 30, 1997, between PPPIC, Wellsford Residential Property
Trust, Dresdner Bank AG, New York Branch and the Company.****
10.20 Amendment to Wellsford Reimbursement Agreement by and between
PPPIC, Wellsford Residential Property Trust and the Company, dated
as of May 30, 1997.****
10.21 Assignment and Assumption Agreement by and between Wellsford
Residential Property Trust and the Company, dated as of May 30,
1997.****
10.22 Credit Enhancement Agreement by and between the Company and ERP
Operating Limited Partnership, dated as of May 30, 1997, relating
to Palomino Park.****
10.23 Reimbursement and Indemnification Agreement by and among the
Company and ERP Operating Limited Partnership, dated as of May 30,
1997, relating to Palomino Park.****
10.24 Guaranty by ERP Operating Limited Partnership for the benefit of
Dresdner Bank AG, New York Branch, dated as of May 30, 1997,
relating to Palomino Park.****
10.25 Amended and Restated Promissory Note of the Company to the order of
Dresdner Bank AG, New York Branch, dated May 30, 1997, relating to
Palomino Park.****
10.26 Contribution and Distribution Agreement by and between Wellsford
Residential Property Trust and the Company dated as of May 30,
1997.****
10.27 Common Stock and Preferred Stock Purchase Agreement by and between
the Company and ERP Operating Limited Partnership dated as of May
30, 1997.****
10.28 Registration Rights Agreement by and between the Company and ERP
Operating Limited Partnership dated as of May 30, 1997.****
10.29 Credit Agreement, dated as of April 25, 1997, between 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.**
10.30 Assignment 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).**
10.31 Assignment 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).**
10.32 Stock 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).**
10.33 Stock 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.).**
10.34 Stock 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.).**
10.35 Conditional Guaranty of Payment and Performance, dated as of April
25, 1997, by Stanley Stahl, relating to 277 Park Avenue.**
10.36 Cash Collateral Account Security, Pledge and Assignment Agreement,
dated as of April 25, 1997, between 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.**
10.37 Recognition Agreement, dated as of April 25, 1997, between 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.**
10.38 Intercreditor Agreement, dated as of April 25, 1997, between the
Company and The First National Bank of Boston, as Agent, relating
to 277 Park Avenue.**
10.39 Assignment 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.****
10.40 Revolving 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.****
10.41 Agreement 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.****
10.42 Assignment of Common Stock Agreements, dated as of May 30, 1997,
between the Company and BankBoston, as agent.****
10.43 Collateral 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.****
10.44 Term Loan Agreement between Wellsford Real Properties, Inc. and
Wellsford/Whitehall Properties, L.L.C. dated as of August 28,
1997.#
10.45 $61,699,440 Term Note A, dated August 28, 1997, payable to the
order of Wellsford Real Properties, Inc. by Wellsford/Whitehall
Properties, L.L.C.#
10.46 $17,093,750 Term Note B, dated September 25, 1997, payable to the
order of Wellsford Real Properties, Inc. by Wellsford/Whitehall
Properties, L.L.C.*****
10.47 Letter Agreement, dated as of August 28, 1997, between Wellsford
Real Properties, Inc. and WHWEL Real Estate Limited Partnership,
relating to warrants to be issued to WHWEL Real Estate Limited
Partnership.#
10.48 Revolving Credit Agreement for $70 million, dated as of August 28,
1997, between AP-Anaheim LLC, AP-Arlington LLC, AP-Atlantic LLC,
AP-Cityview LLC, AP-Farrell Ramon LLC, AP-Palmdale LLC, AP-Redlands
LLC, AP-Victoria LLC, AP-Victorville LLC, and AP-Sierra LLC, each a
California limited liability company (collectively, the "Abbey
Affiliates"), as Borrower, and Morgan Guaranty Trust Company of New
York, as Lender.#
10.49 Loan Participation Agreement, dated as of August 28, 1997, between
Morgan Guaranty Trust Company of New York and Wellsford Real
Properties, Inc.#
10.50 $70 million promissory note, dated August 28, 1997, payable to the
order of Morgan Guaranty Trust Company of New York by the Abbey
Affiliates.#
10.51 Purchase and Sale Agreement, dated as of September 18, 1997, among
Wellsford Real Properties, Inc., Wellsford Capital Corporation and
Whitehall Street Real Estate Limited Partnership VII.##
10.52 1997 Management Incentive Plan of the Company.**
10.53 Rollover Stock Option Plan of the Company.**
10.54 Employment Agreement between the Company and Jeffrey H.
Lynford.****
10.55 Employment Agreement between the Company and Edward Lowenthal.****
10.56 Employment Agreement between the Company and Gregory F. Hughes.****
10.57 Employment Agreement between the Company and David M. Strong.****
21.1 Subsidiaries of the Registrant.*****
23.1 Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit
5.1).****
23.2 Consent of Robinson Silverman Pearce Aronsohn & Berman LLP. ****
23.3 Consent of Ernst & Young LLP relating to the combined financial
statements of The Predecessor to Wellsford Real Properties, Inc.
and to the combined statement of revenues and certain expenses of
the Whitehall Properties.
23.4 Consent of Ernst & Young LLP relating to the consolidated financial
statements of Value Property Trust.
23.5 Consent of Coopers & Lybrand L.L.P. relating to the combined
statement of revenues and certain expenses of the Abbey Companies.
23.6 Consent of Coopers & Lybrand L.L.P relating to the consolidated
financial statements of Value Property Trust.
24.1 Powers of Attorney.****
______________________________
* 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 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.
### The Company acquired its interest in a number of these documents by
assignment.
Item 37. Undertakings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 24(b)((1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York on
December 3, 1997.
WELLSFORD REAL PROPERTIES, INC.
By:/s/ Jeffrey H. Lynford
----------------------------
Jeffrey H. Lynford
Chairman of the Board, Secretary and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Jeffrey H. Lynford Chairman of the Board, December 3, 1997
Jeffrey H. Lynford Secretary and Director
/s/ Edward Lowenthal President, Chief Executive December 3, 1997
Edward Lowenthal Officer and Director
/s/ Gregory F. Hughes Chief Financial Officer December 3, 1997
Gregory F. Hughes
*David M. Strong Vice President for December 3, 1997
David M. Strong Development
*Douglas Crocker Director December 3, 1997
Douglas Crocker
*Rodney F. Du Bois Director December 3, 1997
Rodney F. Du Bois
*Mark S. Germain Director December 3, 1997
Mark S. Germain
*Frank J. Hoenemeyer Director December 3, 1997
Frank J. Hoenemeyer
*Frank J. Sixt Director December 3, 1997
Frank J. Sixt
*By: /s/ Jeffrey H. Lynford
-----------------------
Jeffrey H. Lynford
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document###
2.1 Limited Liability Company Operating Agreement of
Wellsford/Whitehall Properties, L.L.C., dated as of
August 28, 1997.#
3.1 Articles of Amendment and Restatement of the Company.****
3.2 Articles Supplementary Classifying 335,000 Shares of Common
Stock as Class A Common Stock.****
3.3 Articles Supplementary Classifying 2,000,000 Shares of Common
Stock as Series A 8% Convertible Redeemable Preferred
Stock.****
3.4 Bylaws of the Company.****
4.1 Specimen certificate for Common Stock.***
4.2 Specimen certificate for Class A Common Stock.****
4.3 Specimen certificate for Series A 8% Convertible Redeemable
Preferred Stock.****
4.4 Warrant Agreement, dated as of August 28, 1997, between
Wellsford Real Properties, Inc. and United States Trust
Company of New York, as warrant agent, and Warrant
Certificate No. 1 of Wellsford Real Properties, Inc. for
5,000,000 Warrants registered in the name of WHWEL Real
Estate Limited Partnership.#
5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding
legality.****
10.1 Agreement and Plan of Merger, dated as of September 18, 1997,
among Value Property Trust, Wellsford Real Properties, Inc.
and Wellsford Capital Corporation.##
10.2 $17.8 million Loan Agreement, dated as of June 28, 1996, by
and between Wellsford Residential Property Trust, as lender,
and Specified Properties VIII, L.P., as borrower, relating to
Sonterra.*
10.3 Option Agreement between Wellsford Residential Property
Trust, as purchaser, and Specified Properties VIII, as
seller, dated as of June 28, 1996, relating to Sonterra.*
10.4 Sonterra Agreement by and between the Company and ERP
Operating Limited Partnership dated as of May 30, 1997.****
10.5 Agreement Regarding Palomino Park by and between the Company
and ERP Operating Limited Partnership dated as of May 30,
1997.****
10.6 Operating Agreement of Park at Highlands LLC, dated as of
April 27, 1995, between Wellsford Park Highlands Corp. and Al
Feld, relating to Blue Ridge.**
10.7 First Amendment to Operating Agreement of Park at Highlands
LLC, dated as of December 29, 1995, between Wellsford Park
Highlands Corp. and Al Feld, relating to Blue Ridge.*
10.8 Tri-Party Agreement by and among Park at Highlands LLC,
NationsBank of Texas, N.A., Wellsford Park Highlands Corp.,
Wellsford Residential Property Trust and Al Feld dated
December 29, 1995, relating to Blue Ridge.*
10.9 Assignment and Assumption of Tri-Party Agreement by and among
Wellsford Residential Property Trust, ERP Operating Limited
Partnership, Park at Highlands LLC, Wellsford Park Highlands
Corp., The Feld Company, Al Feld and Nationsbank of Texas,
N.A. dated May 30, 1997, relating to Blue Ridge.****
10.10 Agreement and Acknowledgement Regarding Tri-Party Agreement
by and among Nationsbank of Texas, N.A., Park at Highlands
LLC, Wellsford Park Highlands Corp. and ERP Operating Limited
Partnership dated May 30, 1997, relating to Blue Ridge.****
10.11 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.*
10.12 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.****
10.13 Tri-Party Agreement by and among NationsBank of Texas, N.A.,
Red Canyon at Palomino Park LLC, Wellsford Park Highlands
Corp., Wellsford Residential Property Trust, Al Feld and The
Feld Company, dated May 29, 1997, relating to Red Canyon.****
10.14 Assignment and Assumption of Tri-Party Agreement by and among
Wellsford Residential Property Trust, ERP Operating Limited
Partnership, Red Canyon at Palomino Park LLC, Wellsford Park
Highlands Corp., The Feld Company, Al Feld and Nationsbank of
Texas, N.A. dated May 30, 1997, relating to Red Canyon.****
10.15 Agreement and Acknowledgement Regarding Tri-Party Agreement
by and among Nationsbank of Texas, N.A., Red Canyon at
Palomino Park LLC, Wellsford Park Highlands Corp. and ERP
Operating Limited Partnership dated May 30, 1997, relating to
Red Canyon.****
10.16 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.*
10.17 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.**
10.18 Letter of Credit Reimbursement Agreement, dated as of
December 1, 1995, between PPPIC, Wellsford Residential
Property Trust and Dresdner Bank AG, New York Branch.**
10.19 First Amendment to Letter of Credit Reimbursement Agreement,
dated as of May 30, 1997, between PPPIC, Wellsford
Residential Property Trust, Dresdner Bank AG, New York Branch
and the Company.****
10.20 Amendment to Wellsford Reimbursement Agreement by and between
PPPIC, Wellsford Residential Property Trust and the Company,
dated as of May 30, 1997.****
10.21 Assignment and Assumption Agreement by and between Wellsford
Residential Property Trust and the Company, dated as of May
30, 1997.****
10.22 Credit Enhancement Agreement by and between the Company and
ERP Operating Limited Partnership, dated as of May 30, 1997,
relating to Palomino Park.****
10.23 Reimbursement and Indemnification Agreement by and among the
Company and ERP Operating Limited Partnership, dated as of
May 30, 1997, relating to Palomino Park.****
10.24 Guaranty by ERP Operating Limited Partnership for the benefit
of Dresdner Bank AG, New York Branch, dated as of May 30,
1997, relating to Palomino Park.****
10.25 Amended and Restated Promissory Note of the Company to the
order of Dresdner Bank AG, New York Branch, dated May 30,
1997, relating to Palomino Park.****
10.26 Contribution and Distribution Agreement by and between
Wellsford Residential Property Trust and the Company dated as
of May 30, 1997.****
10.27 Common Stock and Preferred Stock Purchase Agreement by and
between the Company and ERP Operating Limited Partnership
dated as of May 30, 1997.****
10.28 Registration Rights Agreement by and between the Company and
ERP Operating Limited Partnership dated as of May 30,
1997.****
10.29 Credit Agreement, dated as of April 25, 1997, between 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.**
10.30 Assignment 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).**
10.31 Assignment 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).**
10.32 Stock 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).**
10.33 Stock 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.).**
10.34 Stock 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.).**
10.35 Conditional Guaranty of Payment and Performance, dated as of
April 25, 1997, by Stanley Stahl, relating to 277 Park
Avenue.**
10.36 Cash Collateral Account Security, Pledge and Assignment
Agreement, dated as of April 25, 1997, between 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.**
10.37 Recognition Agreement, dated as of April 25, 1997, between
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.**
10.38 Intercreditor Agreement, dated as of April 25, 1997, between
the Company and The First National Bank of Boston, as Agent,
relating to 277 Park Avenue.**
10.39 Assignment 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.****
10.40 Revolving 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.****
10.41 Agreement 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.****
10.42 Assignment of Common Stock Agreements, dated as of May 30,
1997, between the Company and BankBoston, as agent.****
10.43 Collateral 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.****
10.44 Term Loan Agreement between Wellsford Real Properties, Inc.
and Wellsford/Whitehall Properties, L.L.C. dated as of August
28, 1997.#
10.45 $61,699,440 Term Note A, dated August 28, 1997, payable to
the order of Wellsford Real Properties, Inc. by
Wellsford/Whitehall Properties, L.L.C.#
10.46 $17,093,750 Term Note B, dated September 25, 1997, payable to
the order of Wellsford Real Properties, Inc. by
Wellsford/Whitehall Properties, L.L.C.*****
10.47 Letter Agreement, dated as of August 28, 1997, between
Wellsford Real Properties, Inc. and WHWEL Real Estate Limited
Partnership, relating to warrants to be issued to WHWEL Real
Estate Limited Partnership.#
10.48 Revolving Credit Agreement for $70 million, dated as of
August 28, 1997, between AP-Anaheim LLC, AP-Arlington LLC,
AP-Atlantic LLC, AP-Cityview LLC, AP-Farrell Ramon LLC, AP-
Palmdale LLC, AP-Redlands LLC, AP-Victoria LLC, AP-
Victorville LLC, and AP-Sierra LLC, each a California limited
liability company (collectively, the "Abbey Affiliates"), as
Borrower, and Morgan Guaranty Trust Company of New York, as
Lender.#
10.49 Loan Participation Agreement, dated as of August 28, 1997,
between Morgan Guaranty Trust Company of New York and
Wellsford Real Properties, Inc.#
10.50 $70 million promissory note, dated August 28, 1997, payable
to the order of Morgan Guaranty Trust Company of New York by
the Abbey Affiliates.#
10.51 Purchase and Sale Agreement, dated as of September 18, 1997,
among Wellsford Real Properties, Inc., Wellsford Capital
Corporation and Whitehall Street Real Estate Limited
Partnership VII.##
10.52 1997 Management Incentive Plan of the Company.**
10.53 Rollover Stock Option Plan of the Company.**
10.54 Employment Agreement between the Company and Jeffrey H.
Lynford.****
10.55 Employment Agreement between the Company and Edward
Lowenthal.****
10.56 Employment Agreement between the Company and Gregory F.
Hughes.****
10.57 Employment Agreement between the Company and David M.
Strong.****
21.1 Subsidiaries of the Registrant.*****
23.1 Consent of Ballard Spahr Andrews & Ingersoll (contained in
Exhibit 5.1).****
23.2 Consent of Robinson Silverman Pearce Aronsohn & Berman
LLP.****
23.3 Consent of Ernst & Young LLP relating to the combined
financial statements of The Predecessor to Wellsford Real
Properties, Inc. and to the combined statement of revenues
and certain expenses of the Whitehall Properties.
23.4 Consent of Ernst & Young LLP relating to the consolidated
financial statements of Value Property Trust.
23.5 Consent of Coopers & Lybrand L.L.P. relating to the combined
statement of revenues and certain expenses of the Abbey
Companies.
23.6 Consent of Coopers & Lybrand L.L.P relating to the
consolidated financial statements of Value Property Trust.
24.1 Powers of Attorney.****
______________________________
* 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 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.
### The Company acquired its interest in a number of these documents by
assignment.
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated October 20, 1997, with respect to the combined
statement of revenues and certain expenses of the Whitehall Properties, and
February 28, 1997, with respect to the combined financial statements of The
Predecessor to Wellsford Real Properties, Inc., included in Amendment No. 2
to the Registration Statement (Form S-11 No. 333-32445) and related
Prospectus of Wellsford Real Properties, Inc. for the registration of
12,242,719 shares of its common stock.
ERNST & YOUNG LLP
New York, New York
December 3, 1997
Consent of Independent Auditors
We consent to the use of our report dated November 10, 1995, with respect to
the consolidated financial statements of Value Property Trust at September
30, 1995, and for each of the two years then ended, included in Amendment No.
2 to the Registration Statement (Form S-11 No. 333-32445) and related
Prospectus of Wellsford Real Properties, Inc. for the registration of
12,242,719 shares of its common stock.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
December 3, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement of Wellsford Real
Properties, Inc. on Form S-11 registration no. 333-32445, as amended, of our
report dated March 28, 1997 on our audit of the combined statement of
revenues and certain expenses of The Abbey Companies for the year ended
December 31, 1996. We also consent to the reference to our Firm under the
caption "Experts."
COOPERS & LYBRAND L.L.P.
Los Angeles, California
December 3, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this amendment No. 2 to registration statement
on Form S-11 (No. 333-32445) of our report dated November 27, 1996, on our
audit of the financial statements and financial statement schedules of Value
Property Trust as of and for the year ended September 30, 1996. We also
consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
December 4, 1997