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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission file number 1-12917
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Wellsford Real Properties, Inc.
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(Exact name of registrant as specified in its charter)
Maryland 13-3926898
- ------------------------------------- ----------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
610 Fifth Avenue, New York, NY 10020
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(Address of principal executive offices)
(Zip Code)
(212) 333-2300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----------- ------------
Number of shares of common stock, $.01 par value, outstanding as of August 11,
1997: 16,572,043.
Number of shares of Class A common stock, $.01 par value, outstanding as of
August 11, 1997: 339,806.
===============================================================================<PAGE>
WELLSFORD REAL PROPERTIES, INC.
FORM 10-Q
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INDEX
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Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996 3
Consolidated Statements of Operations (unaudited) for
the three and six months ended June 30, 1997 4
Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 15
SIGNATURES 17
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
------------ ------------
ASSETS (Unaudited)
Real estate assets, at cost:
Land $ 3,375,000 $ --
Buildings and improvements 20,340,649 --
--------------- --------------
23,715,649 --
Less, accumulated depreciation (105,941) --
--------------- --------------
23,609,708 --
Construction in progress 50,157,533 21,306,000
---------------- --------------
73,767,241 21,306,000
Notes receivable 42,800,000 17,800,000
---------------- --------------
Total real estate assets 116,567,241 39,106,000
Cash and cash equivalents 69,959,918 --
Restricted cash 7,077,935 5,520,000
Prepaid and other assets 1,946,331 134,000
--------------- --------------
Total Assets $ 195,551,425 $ 44,760,000
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 14,755,000 $ 14,755,000
Accrued expenses and other
liabilities 4,710,947 --
Security deposits 24,404 --
--------------- --------------
Total Liabilities 19,490,351 14,755,000
--------------- --------------
Commitments and contingencies -- --
Minority interest 3,044,855 --
Shareholders' Equity: 30,005,000
Common Stock, 197,650,000 shares
authorized - 16,572,043 shares, $.01
par value per share, issued and out-
standing at June 30, 1997 165,720 --
Class A Common Stock, 350,000
shares authorized - 339,806 shares,
$.01 par value per share, issued
and outstanding at June 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 172,434,939 --
Retained Earnings 412,162 --
--------------- --------------
Total Shareholders' Equity 173,016,219 30,005,000
--------------- --------------
Total Liabilities and Shareholders'
Equity $ 195,551,425 $ 44,760,000
=============== ==============
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1997 1997
------------------- ----------------
REVENUE
Rental income $ 529,814 $ 529,814
Other income 58,455 58,455
Interest income 1,187,090 1,587,590
------------ ------------
Total Revenue 1,775,359 2,175,859
------------ ------------
EXPENSES
Property operating and
maintenance 65,249 65,249
Real estate taxes 35,000 35,000
Depreciation and amortization 113,901 113,901
Property management 6,459 6,459
General and administrative 255,119 255,119
------------- -------------
Total Expenses 475,728 475,728
------------- -------------
Net income before taxes 1,299,631 1,700,131
Income tax expense 284,000 284,000
------------- -------------
Income (loss) available for
common shareholders $ 1,015,631 $ 1,416,131
============= =============
Net income (loss) per common
share - Note 4 $ 0.06 $ 0.08
============= =============
Weighted average number of
common shares outstanding -
Note 4 16,911,849 16,911,849
============= =============
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
--------------------------------------------
1997 1996
---------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,416,131 $ --
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 113,901 --
Decrease (increase)
in assets
Restricted cash (1,557,935) 2,061,000
Prepaid and other assets (1,820,291) --
(Decrease) increase in
liabilities
Accrued expenses and other
liabilities 4,710,947 --
Security deposits 24,404 --
---------------- -------------
Net cash provided by
operating activities 2,887,157 2,061,000
---------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investment in real estate
assets (47,272,327) (5,065,000)
Investment in notes
receivable (25,000,000) --
---------------- --------------
Net cash provided by
(used in) investing
activities (72,272,327) (5,065,000)
---------------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit
facility 46,900,000 --
Prepayment 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 122,284,455 --
Equity contributions prior
to and at spin-off 17,060,633 3,004,000
--------------- -------------
Net cash provided by (used
in) financing activities 139,345,088 3,004,000
--------------- -------------
Net (increase) in cash and
cash equivalents 69,959,918 --
Cash and cash equivalents,
beginning of period -- --
Cash and cash equivalents, ---------------- --------------
end of period $ 69,959,918 $ --
================ ==============
SUPPLEMENTAL INFORMATION:
Cash paid during the
period for interest $ 1,071,046 $ 159,000
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 $ --
============== =============
<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"). 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 though the purchase of
debt or equity securities of entities engaged in such real estate
businesses. To date, the management of the Company has implemented its
business strategy by identifying, negotiating and consummating the
following initial investments: (i) five office properties, four of which
are vacant, located in Northern New Jersey containing an aggregate of
approximately 940,400 gross square feet and acquired for an aggregate of
approximately $47.6 million, or approximately $50 per gross 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 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 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.
During the three and six month periods ended June 30, 1996, the Company
was principally involved in the initial phase of construction development
activities with no operating revenues or expenses incurred. Accordingly,
the income statements for these periods have been omitted.
The accompanying 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.
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 (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, and (c) towards the approximately $19
million being spent on renovations and tenant fit-out for the Commercial
Properties. Approximately $46.6 million of such proceeds is being held
for additional investments and 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 Class A Preferred, it has the right
to purchase the balance of the $25 million commitment not purchased prior
to that time.
3. Commitments and Contingencies
The Company has entered into employment agreements with certain 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 547,375 shares of common stock were granted under the
Management Incentive Plan at the closing of the Merger to 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 granting 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 granted at the closing of
the Merger principally to certain executive officers and directors of the
Company.
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 six month periods ended June 30, 1997, as
if the fair value approach to accounting for share-based compensation had
been applied, would be $0.9 million and $1.3 million, respectively, or
$0.06 and $0.08 per common share, respectively, after income taxes. 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.
4. Earnings Per Share
The Company was a corporate subsidiary of the Trust until the Spin-off.
Net income per share for all periods presented 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 June 30, 1997.
In February 1997, the Financial Accounting Standards Board issued SFAS
128, "Earnings per share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate
all prior periods. 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 primary or fully diluted earnings per
share.
5. Income Taxes
The provision for income taxes consists of the following components:
Current federal tax $218,000
Current state tax 61,000
Deferred federal tax 4,000
Deferred state tax 1,000
--------
$284,000
========
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 $5,000 at June 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. General
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 though the purchase of
debt or equity securities 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 initially focusing
its investments on three distinct aspects of the real estate business
which management believes currently offer 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
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. 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 will be no stipulated investment minimum. However, unlike
REITs and opportunity funds, the Company is subject to corporate level
taxation.
Commercial Properties. The Company will seek to acquire office and other
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 also believes that these types of properties are
not attractive acquisition candidates of REITs because the properties have
no or limited cash flow as a result of required rehabilitation or their
not being substantially leased.
High Yield Debt Investments. The Company will make 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 will engage 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.
To date, the management of the Company has implemented its business
strategy by identifying, negotiating and consummating the following
initial investments: (i) five office properties, four of which are vacant,
located in Northern New Jersey containing an aggregate of approximately
940,400 gross square feet and acquired for an aggregate of approximately
$47.6 million, or approximately $50 per gross square foot of building area
(the "Commercial Properties"); (ii) a $25 million subordinated secured
mezzanine loan (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 (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.
The Company currently has the following two multifamily development
projects on which it has invested $ 22.1 million through June 30, 1997:
Estimated
Number Estimated Stabilization
Name of Units Location Total Cost Date
------------ -------- -------- ------------- ---------------
Blue Ridge 456 Denver $42.5 million First Qtr. 1998
Red Canyon 304 Denver 33.6 million First Qtr. 1999
--- -------------
760 $76.1 million
=== =============
These projects are being developed pursuant to fixed-price contracts. The
Company is committed to purchase 100% of these projects upon completion
and the achievement of certain occupancy levels, which is anticipated to
occur at the dates disclosed above.
Blue Ridge is owned by Park at Highlands LLC ("Phase I LLC"), a limited
liability company, the members of which are Wellsford Park Highlands
Corp. ("WPHC") (99%), a subsidiary of the Company 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%). Al Feld is a Denver-based developer specializing in the
construction of luxury residential properties. He has constructed over
3,000 units since 1984.
The construction loan on Blue Ridge is for approximately $36.8 million,
matures on December 31, 1998 (with a 6-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 6-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 guaranteed repayment of this loan.
An affiliate of EQR has agreed to purchase the Phase I loan and the Phase
II loan when due, assuming completion of construction, if they are not
paid off by the Phase I LLC (in the case of the Phase I loan) or the Phase
II LLC (in the case of the Phase II loan) or by Feld pursuant to his
guaranties, for the lesser of the loan balance or the final agreed upon
budget.
In addition, four of the five commercial office properties purchased by
the Company are undergoing renovations and are included in the
construction in progress balance at June 30, 1997.
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.
Risks Associated with Forward-Looking Statements.
This Form 10-Q, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following, which are discussed in greater
detail in the "Risk Factors" section of the Company's registration
statement on Form S-11 (File No. 333-32445) filed with the Securities and
Exchange Commission on July 30, 1997, as may be amended, which is
incorporated herein by reference: general economic and business
conditions, which will, among other things, affect demand for commercial
and residential properties, availability and credit worthiness of
prospective tenants, lease rents and the availability 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; illiquidity of real estate investments; lack of
prior operating history; and other risks listed from time to time in the
Company's reports filed with the SEC. Therefore, actual results could
differ materially from projected in such statements.
2. Results of Operations
Comparison of the six months ended June 30, 1997 to the six months ended
June 30, 1996.
Prior to the acquisition of the Company's operating Commercial Property
and the 277 Park Loan during the quarter ended June 30, 1997, the
Company's operations consisted of earning interest income on the Sonterra
Mortgage (originated in July 1996) and the initial phase of construction
development activity with respect to Palomino Park. Therefore, the
increase in operating revenues and expenses reflected in the financial
statements is a result of the acquisition of the Company's operating
assets subsequent to June 30, 1996.
3. 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 by long-term borrowings, through the
issuance of debt and the offering of additional debt and equity
securities.
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 Class A Preferred, it has the right
to purchase the remainder of the $25 million not purchased prior to that
time.
<PAGE>
PART II.
OTHER INFORMATION
Item 1: Legal Proceedings - Not Applicable.
Item 2: Changes in 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"):
Persons or
Type of Date Amount of Class of
Securities of Securities Persons to Whom
Sold Sale Sold Securities Sold Consideration
- ---------- -------- ---------- ------------------ -------------
Common Stock 2/28/97 218,447(1) Wellsford Commercial
Properties, L.L.C. (2)
Class A
Common Stock 5/30/97 339,806 ERP Operating
Partnership $3,500,000
Common Stock 5/30/97 24,272 William M. Cockrum,
Trustee of the
William M. Cockrum
Trust dated 8/1/79 $250,000
Common Stock 6/2/97 12,000,000 "qualified institutional
buyers" and other
"accredited investors"
(each as defined under
the rules of the
Securities Act) $123.6 million
(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.
The Company conducted the Private Placement pursuant to Section 4(2) of
the Securities Act. There was no underwriter involved in the Private
Placements.
Item 3: Defaults upon Senior Securities - Not Applicable.
Item 4: Submission of Matters to a Vote of Security Holders - Not Applicable.
Item 5: Other Information - Not Applicable.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Form 10-Q:
27.1 Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K filed by the registrant during
its fiscal quarter ended June 30, 1997:
o Form 8-K filed June 13, 1997 relating to
the Private Placement.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLSFORD REAL PROPERTIES, INC.
By: /s/ Jeffrey H. Lynford
--------------------------------------------------
Jeffrey H. Lynford, Chairman of the Board
/s/ Gregory F. Hughes
--------------------------------------------------
Gregory F. Hughes, Chief Financial Officer
Dated: August 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This Schedule contains summary financial information
extracted from the consolidated balance sheets and consolidated
statements of operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 77,037,853
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,984,184
<PP&E> 73,873,182
<DEPRECIATION> 105,941
<TOTAL-ASSETS> 195,551,425
<CURRENT-LIABILITIES> 4,735,351
<BONDS> 14,755,000
<COMMON> 165,720
0
0
<OTHER-SE> 172,850,499
<TOTAL-LIABILITY-AND-EQUITY> 195,551,425
<SALES> 0
<TOTAL-REVENUES> 1,775,359
<CGS> 0
<TOTAL-COSTS> 106,708
<OTHER-EXPENSES> 113,901
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,299,631
<INCOME-TAX> 284,000
<INCOME-CONTINUING> 1,015,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,015,631
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
