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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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| FORM 10-Q/A |
| Amendment No. 1 |
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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 September 30, 1998
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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
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(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
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 per share, outstanding as of
November 13, 1998: 20,009,882.
Number of shares of Class A common stock, $.01 par value per share,
outstanding as of November 13, 1998: 339,806.
PAGE
<PAGE>
WELLSFORD REAL PROPERTIES, INC.
FORM 10-Q/A
Amendment No. 1
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| INDEX |
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Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Income (unaudited) for the
three and nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION 17
SIGNATURES 18
PAGE
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
Real estate assets, at cost:
Land $ 13,753,000 $ 5,225,000
Buildings and improvements 84,625,330 36,338,624
--------------- --------------
96,378,330 41,563,624
Less, accumulated depreciation (1,914,185) -
--------------- --------------
96,464,145 41,563,624
Construction in progress 23,198,821 17,177,824
---------------- --------------
119,662,966 58,741,448
Notes receivable 125,043,083 105,631,611
Investment in joint ventures 75,893,344 44,779,563
---------------- --------------
Total real estate assets 320,599,393 209,152,622
Cash and cash equivalents 1,501,307 29,895,212
Restricted cash 7,271,892 7,695,910
Prepaid and other assets 6,983,454 3,229,956
--------------- --------------
Total Assets $ 336,356,046 $ 249,973,700
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 65,304,909 $ 49,255,000
Credit facility 28,500,000 7,500,000
Accrued expenses and other
liabilities 10,282,528 9,763,109
--------------- --------------
Total Liabilities 104,087,437 66,518,109
--------------- --------------
Commitments and contingencies - -
Minority interest 4,294,346 2,297,295
Shareholders' Equity:
Common Stock, 197,650,000 shares
authorized - 20,009,882 shares, $.01
par value per share, issued and out-
standing at September 30, 1998 200,099 166,567
Class A Common Stock, 350,000
shares authorized - 339,806 shares,
$.01 par value per share, issued
and outstanding at
September 30, 1998 3,398 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 221,134,799 179,721,827
Retained earnings 8,649,814 1,941,518
Deferred compensation (573,750) (675,014)
Treasury stock, 81,015 shares (1,440,097) --
--------------- --------------
Total Shareholders' Equity 227,974,263 181,158,296
--------------- --------------
Total Liabilities and Shareholders'
Equity $ 336,356,046 $ 249,973,700
=============== ==============
See accompanying notes.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
REVENUE
Rental income $ 3,379,479 $ 671,585 $ 9,323,726 $ 1,259,854
Interest income 3,064,664 2,537,300 9,170,582 4,124,890
----------- ----------- ----------- -----------
Total Revenue 6,444,143 3,208,885 18,494,308 5,384,744
----------- ----------- ----------- -----------
EXPENSES
Property operating
and maintenance 752,503 176,008 2,001,492 241,257
Real estate taxes 351,775 70,692 922,284 105,692
Depreciation and
amortization 787,536 106,613 2,238,999 220,514
Property management 178,996 11,897 353,703 18,356
Interest 1,097,922 -- 2,853,337 --
General and
administrative 1,614,916 1,266,005 4,039,084 1,521,124
----------- ----------- ----------- -----------
Total Expenses 4,783,648 1,631,215 12,408,899 2,106,943
----------- ----------- ----------- -----------
Income from joint
ventures 333,679 160,235 2,867,621 160,235
----------- ----------- ----------- -----------
Income before
minority interest 1,994,174 1,737,905 8,953,030 3,438,036
Minority interest (6,434) -- (41,734) --
----------- ----------- ----------- -----------
Income before taxes 1,987,740 1,737,905 8,911,296 3,438,036
Income tax expense
(benefit) (1,029,000) 719,000 2,203,000 1,003,000
----------- ----------- ----------- -----------
Net income $ 3,016,740 $ 1,018,905 $ 6,708,296 $ 2,435,036
=========== =========== =========== ===========
Net income per
common share, basic $ 0.15 $ 0.06 $ 0.34 $ 0.14
=========== =========== =========== ===========
Net income per common
share, diluted $ 0.15 $ 0.06 $ 0.33 $ 0.14
=========== =========== =========== ===========
Weighted average number
of common shares
outstanding 20,349,688 16,911,849 19,699,322 16,911,849
=========== =========== =========== ===========
See accompanying notes.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------------------------------
1998 1997
------------------- ----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 6,708,296 $ 2,435,036
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 2,294,750 220,514
Income from joint ventures (2,867,621) --
Decrease (increase)
in assets
Restricted cash 424,018 (1,197,105)
Prepaid and other assets (3,832,992) (1,881,127)
(Decrease) increase in
liabilities
Accrued expenses and other
liabilities 1,308,151 6,667,004
---------------- -------------
Net cash provided by
operating activities 4,034,602 6,244,322
---------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investment in real estate
assets (92,542,871) (49,784,452)
Investment in notes
receivable (57,368,749) (97,653,823)
Investment in joint ventures (27,757,061) (2,320,593)
Repayments from notes receivable 44,697,801 --
Proceeds from sale of
real estate assets 63,993,737 --
---------------- --------------
Net cash provided by
(used in) investing
activities (68,977,143) (149,758,868)
---------------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from credit
facility 76,500,000 56,900,000
Repayment of credit
facility (55,500,000) (46,900,000)
Proceeds from bridge loan -- 6,000,000
Repayment of bridge loan -- (6,000,000)
Proceeds from mortgage notes
payable 16,400,000 --
Repayment of mortgage notes
payable (350,091) --
Proceeds from private offering
of common shares -- 121,986,453
Equity contributions -- 17,060,633
Distributions to minority
interest (501,273) --
--------------- -------------
Net cash provided by (used
in) financing activities 36,548,636 149,047,086
--------------- -------------
Net increase (decrease) in
cash and cash equivalents (28,393,905) 5,532,540
Cash and cash equivalents,
beginning of period 29,895,212 --
---------------- --------------
Cash and cash equivalents,
end of period $ 1,501,307 $ 5,532,540
================ ==============
SUPPLEMENTAL INFORMATION:
Cash paid during the
period for interest $ 3,507,578 $ 1,233,525
Cash paid during the
period for income taxes $ 1,613,936 $ --
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES
Shares issued in connection
with acquisition of
commercial office properties
and notes receivable $(39,362,500) $ (2,250,000)
Warrants issued in connection
with acquisition of joint
venture investment $ (750,000) $ (6,198,345)
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"). On May 30, 1997, the Trust merged (the "Merger") with
Equity Residential Properties Trust ("EQR"). Immediately prior to the
Merger, the Trust contributed certain of its assets to the Company and
the Company assumed certain liabilities of the Trust. Immediately after
the contribution of assets to the Company and immediately prior to the
Merger, the Trust distributed to its common shareholders all of the
outstanding shares of the Company owned by the Trust (the "Spin-off").
On June 2, 1997, the Company sold 12,000,000 shares of its common stock
in a private placement (the "Private Placement") to a group of
institutional investors at $10.30 per share, the Company's then book
value per share.
The Company is a real estate merchant banking firm headquartered in New
York City which acquires, develops, finances and operates real
properties and organizes and invests in private and public real estate
companies. The Company has established three strategic business units
("SBUs") within which it intends to execute its business plan: an SBU
for commercial property operations which is held in its 99.9%
subsidiary, Wellsford Commercial Properties Trust ("WCPT"), an SBU for
debt and equity activities and an SBU for property development and land
operations.
In August 1997, the Company, through 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, now known
as Wellsford/Whitehall Properties II, L.L.C. ("Wellsford Commercial").
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 Annual Report on Form 10-K for the
year ended December 31, 1997.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
2. Industry Segments and Recent Activities
Commercial Property Operations
The Company's commercial property operations segment consists of
Wellsford Commercial, which is accounted for on the equity method.
Wellsford Commercial had net real estate assets of $461.4 million, total
assets of $477.3 million, credit facility debt of $255.5 million,
mortgage debt of $68.2 million and equity of $147.1 million at September
30, 1998. During the nine months ended September 30, 1998, Wellsford
Commercial earned $35.9 million in total revenues, primarily rental
income, and incurred $13.6 million of operating expenses, $12.8 million
of interest expense, $4.6 million of depreciation, and $2.0 million of
general and administrative expense, resulting in net income of $2.9
million. As of September 30, 1998, Wellsford Commercial owned 33
properties containing approximately 4.3 million square feet located in
the New Jersey, Boston and Washington D.C. areas.
In February 1998, Wellsford Commercial acquired a 65,000SF office
building in Boston, MA for $5.5 million and 19 acres of undeveloped land
in Somerset, NJ for $2.0 million, which is adjacent to four buildings
currently owned by Wellsford Commercial.
In March 1998, Wellsford Commercial purchased an 82,000SF property in
Somerset, NJ for approximately $5.4 million.
In May 1998, Wellsford Commercial completed the acquisition of a 972,000
square foot ("SF") portfolio of thirteen office buildings for $148.7
million. The acquisition was financed with (i) the assumption of $68.3
million of mortgage debt, (ii) a $35.8 million draw on Wellsford
Commercial's revolver/term loan, (iii) the issuance of $19.0 million of
Wellsford Commercial 6% convertible preferred units, (iv) $18.0 million
of capital contributions and (v) the issuance of $7.6 million of
Wellsford Commercial common units.
In May 1998, Wellsford Commercial acquired two warehouse buildings
totaling approximately 470,000SF for $28.4 million in Needham, MA.
Wellsford Commercial currently intends to convert the facilities into
first class office buildings. The two buildings are currently leased to
the Polaroid Corporation for a period of approximately 12 months.
In June 1998, Wellsford Commercial acquired an approximately 63,000SF
office building located in Andover, MA for approximately $7.4 million
and two office buildings totaling 104,000SF located in Basking Ridge, NJ
for approximately $15.0 million.
In July 1998, Wellsford Commercial restructured its existing $375
million revolver/term loan with BankBoston and Goldman Sachs Mortgage
Company. Under the new terms, $300 million represents a senior secured
credit facility bearing interest at LIBOR +1.65% and $75 million
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
represents a secured mezzanine facility bearing interest at LIBOR +3.2%.
Both facilities mature on December 15, 2000 and are extendable for one
year by WCPT.
In September 1998, Wellsford Commercial purchased two office buildings
totaling approximately 199,000SF in Franklin Township, NJ for
approximately $22.8 million.
Debt and Equity Activities
In January 1998, the Company acquired a 49% interest in Creamer Realty
Consultants, a real estate advisory and consulting firm, and formed
Creamer Vitale Wellsford, L.L.C. ("Creamer Vitale Wellsford").
Creamer Realty Consultants and Creamer Vitale Wellsford, together with
Prudential Real Estate Investors ("PREI"), a division of Prudential
Investment Corporation, have established the Clairborne Investors
Mortgage Investment Program to make opportunistic investments and to
provide liquidity to participants in large syndicated mortgage loan
transactions. The parties have agreed to contribute up to $150 million
to fund acquisitions approved by the parties, of which a subsidiary of
the Company will fund 10%. Creamer Vitale Wellsford will originate, co-
invest, and manage the investments of the program.
The Company's original investment in these entities was $1.3 million of
cash and 148,000 five-year warrants to purchase the Company's common
shares at $15.175 per share, valued at approximately $0.7 million.
In February 1998, the Company completed the previously announced merger
(the "VLP Merger") with Value Property Trust ("VLP") for total
consideration of approximately $169 million. Thirteen of the twenty VLP
properties, which were under contract to an affiliate of Whitehall, were
subsequently sold for an aggregate of approximately $64 million.
Approximately $4.7 million of the purchase price was recorded as a net
deferred tax asset reflecting the value of VLP's net operating loss
carryforwards. $48 million was drawn on the Company's credit facility
to finance the VLP Merger, which was subsequently repaid primarily from
the proceeds of the mortgage on Sonterra at Williams Centre (see below)
and cash received from VLP. The Company retained seven of the VLP
properties containing an aggregate of approximately 0.6 million square
feet located primarily in the northeastern U.S.
In December 1997, a subsidiary of the Company joined with Fleet Real
Estate, Inc. to advance $19.6 million under a subordinated credit
facility to Industrial Properties Holding, L.P. In February 1998, the
Company's $9.8 million portion of this loan was repaid, at which time
the Company received a total of $0.8 million in interest and fees.
In May 1998, the Company and Morgan Guaranty Trust Company of New York
expanded their secured credit facility to affiliates of the Abbey
Company, Inc. to $120 million (the "Abbey Credit Facility"). As of
September 30, 1998, approximately $52.1 million had been advanced by the
Company under the Abbey Credit Facility, which bears interest at LIBOR +
4.0%. Under the terms of the related participation agreement, the
Company will fund a 50% junior participation on all advances under the
Abbey Credit Facility.
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
In July 1998, the Company purchased an $18 million participation in a
$175 million loan (the "DeBartolo Loan"). The DeBartolo Loan is secured
by partnership units in Simon DeBartolo Group, L.P., the operating
partnership of a real estate investment trust which owns approximately
175 million square feet of mall space nationwide. The DeBartolo Loan
bears interest at 8.547%, payable quarterly, pays principal based on a
20 year amortization schedule and is due in July 2008.
In August 1998, the Company funded a $15 million participation in a $100
million unsecured loan to a publicly traded real estate investment trust
which owns 22 regional malls, eight multifamily apartment properties and
five office properties nationwide. This loan bears interest at 9.875%
and is due in February 1999 with two three-month extensions available to
the borrower. The borrower has also paid a 1.5% loan fee at
origination.
In August 1998, the Company's $5.1 million Park 80 note receivable was
repaid.
In July and August 1998, the Company invested a total of $2.1 million in
The Liberty Hampshire Company, L.L.C. ("Liberty Hampshire") which
structures, establishes and provides management and services for special
purpose finance companies ("SPFCs") formed to invest in financial
assets. The Company also invested a total of $4.4 million in a joint
venture SPFC with Liberty Hampshire. This SPFC has invested in a
participation in the Debartolo Loan and has acquired an interest in REIS
Reports, Inc., a leading provider of real estate market information to
institutional investors.
In October 1998, the Company closed on $28 million of non-recourse
financing on a portfolio of seven commercial properties acquired in the
VLP Merger. The loan bears interest at LIBOR + 2.75% and has a term of
three years. The proceeds were used to repay amounts outstanding on the
Company's credit facility and for working capital purposes.
Development and Land Operations
In January 1998, the Company acquired Sonterra at Williams Centre, a
344-unit class A residential apartment complex in Tucson, Arizona for
approximately $20.5 million. The Company had previously held a $17.8
million mortgage on the property.
In February 1998, the Company obtained a $16.4 million mortgage on
Sonterra at Williams Centre, bearing interest at 6.87% and having a term
of 10 years and principal payments based on a 30 year amortization
schedule.
In May 1998, the Company acquired the land for Phase IV of its Palomino
Park development located in a suburb of Denver, CO for approximately
$3.2 million.
In August 1998, the Company committed to a $27 million permanent loan
(the "Red Canyon Loan") for Red Canyon, the 304-unit second phase of the
Company's 1800-unit Palomino Park
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
development, located in a suburb of Denver, CO. The Red Canyon Loan is
expected to be funded upon completion of construction, estimated to
occur in December 1998, bear interest at 6.75%, mature in 10 years, and
pay principal based on a 30 year amortization schedule. The Company
paid an approximately $0.6 million commitment fee in connection with
this transaction.
Other
In January 1998, the $7.5 million then outstanding on the Company's
credit facility was repaid.
In March 1998, the Company issued additional options to purchase common
shares of the Company to two of its officers. Each of the two officers
received 100,000 options with an exercise price of $17.50 per share and
100,000 options with an exercise price of $20.00 per share. The options
have a term of 10 years and vest, in equal amounts, over five years.
In August and September 1998, the Company drew a total of $28.5 million
on its credit facility to fund the above described transactions. In
October 1998, $21.5 million of these advances were repaid from proceeds
of the $28 million financing of the properties acquired in the VLP
Merger described above.
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data By Industry Segment
(table in thousands)
Commercial Development
Property Debt and Equity and Land
Operations Activities Operations Other Consolidated
------------------- ------------------- ------------------- ------------------- -------------------
Nine Months Ended Nine Months Ended Nine Months Ended Nine Months Ended Nine Months Ended
September 30, September 30, September 30, September 30, September 30,
------------------- ------------------- ------------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income $ -- $ 1,260 $ 3,354 $ -- $ 5,970 $ -- $ -- $ -- $ 9,324 $ 1,260
Interest income 1 -- 8,765 1,917 -- 1,202 404 1,006 9,170 4,125
-----------------------------------------------------------------------------------------------------------
Total Income 1 1,260 12,119 1,917 5,970 1,202 404 1,006 18,494 5,385
-----------------------------------------------------------------------------------------------------------
Operating expense -- 365 1,456 -- 1,822 -- -- -- 3,278 365
Depreciation and
amortization 131 189 581 -- 1,463 -- 64 32 2,239 221
Interest -- -- 512 -- 2,299 -- 42 -- 2,853 --
General and
administrative -- -- 217 -- -- -- 3,822 1,521 4,039 1,521
-----------------------------------------------------------------------------------------------------------
Total Expenses 131 554 2,766 -- 5,584 -- 3,928 1,553 12,409 2,107
-----------------------------------------------------------------------------------------------------------
Income from joint
ventures 2,643 160 225 -- -- -- -- -- 2,868 160
Minority interest -- -- (45) -- 3 -- -- -- (42) --
-----------------------------------------------------------------------------------------------------------
Income (loss) before
taxes $ 2,513 $ 866 $ 9,533 $ 1,917 $ 389 $ 1,202 $(3,524) $ (547) $ 8,911 $ 3,438
===========================================================================================================
Total Assets $67,154 $32,425 $176,227 $128,765 $85,675 $42,336 $ 7,300 $10,876 $336,356 $214,402
===========================================================================================================
/TABLE
<PAGE>
<PAGE>
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
3. Earnings Per Share
In 1997, Financial Accounting Standards Board Statement ("SFAS") No. 128
"Earnings per Share" was issued. SFAS 128 replaced the calculation of
primary and fully diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per
share is very similar to fully diluted earnings per share. All earnings
per share amounts for all periods have been presented to conform to the
SFAS 128 requirements.
Basic earnings per common share are computed based upon the weighted
average number of common shares outstanding during the period, including
Class A common shares.
Diluted earnings per common share for the three and nine months ended
September 30, 1998 and 1997 are based upon the increased number of
common shares that would be outstanding assuming the exercise of
dilutive common share options and warrants, under the treasury stock
method as shown below.
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Dilutive common
share options 154,302 217,598 258,952 81,903
Dilutive warrants -- 52,240 396,787 17,413
The Company was a corporate subsidiary of the Trust prior to the Spin-
off. Earnings per share was calculated using the weighted average
number of shares outstanding assuming that the Spin-off and the Private
Placement occurred on January 1, 1997.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. General
The Company is a real estate merchant banking firm headquartered in New
York City which acquires, develops, finances and operates real
properties and organizes and invests in private and public real estate
companies. The Company has established three strategic business units
("SBUs") within which it intends to execute its business plan: an SBU
for commercial property operations which is held in its 99.9%
subsidiary, Wellsford Commercial Properties Trust ("WCPT"), an SBU for
debt and equity activities and an SBU for property development and land
operations.
Commercial Property Operations - WCPT
The Company, through WCPT, 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 returns which are greater than returns
which could be achieved by acquiring a stabilized property.
Debt and Equity Activities - dba Wellsford Capital Company
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, 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 and Land Operations- dba Wellsford Development
Company
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 issue tax-exempt bond financing authorized by
local governmental authorities which generally bears interest at rates
substantially below rates available from conventional financing.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The principal asset of the property development and land operations SBU
is an 80% interest in Palomino Park, an 1,800 unit class A multifamily
development located in a suburb of Denver, Colorado. The Company
currently has a gross investment of approximately $23.2 million at
September 30, 1998 in the following multifamily development project,
which is the second phase of Palomino Park, and related infrastructure
costs:
Number Estimated Estimated
Name of Units Location Total Cost Stabilization Date
---- -------- --------- ---------- ------------------
Red Canyon 304 Denver $33.6 million First Qtr. 1999
This project is being developed pursuant to a fixed-price contract. The
Company is committed to purchase 100% of this project upon completion
and the achievement of certain occupancy levels, which is anticipated to
occur at the date disclosed above.
Red Canyon is owned by Red Canyon at Palomino Park LLC ("Phase II LLC"),
a limited liability company, the members of which are Wellsford Park
Highlands Corp. (99%), a majority owned and controlled subsidiary of the
Company, and Al Feld ("Feld") (1%). Feld is a Denver-based developer
specializing in the construction of luxury residential properties. Feld
has constructed over 3,000 units since 1984.
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 LIBOR plus 1.65%. Feld has guaranteed repayment of this
loan. An affiliate of EQR has agreed to purchase the Phase II
construction loan when due (the "EQR Take-out Commitment"), assuming
completion of construction, if it is not satisfied by the Phase II LLC
or by Feld pursuant to his guarantee, for the lesser of the loan balance
or the final agreed upon construction budget.
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 (the "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 and cost of financing; difficulty of locating suitable
investments; competition; risks of
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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; 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 those projected
in such statements.
2. Results of Operations
Comparison of the nine months ended September 30, 1998 to the nine
months ended September 30, 1997.
Capitalized terms used herein which are not defined elsewhere in this
Quarterly Report on Form 10-Q shall have the meanings ascribed to them
in the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
Rental income increased by $8.1 million. This increase is a result of
the acquisition of properties in connection with the VLP Merger in
February 1998, the completion of Blue Ridge (Phase I of the Company's
Palomino Park development) in December 1997 and the acquisition of
Sonterra at Williams Centre in January 1998, net of the decrease
associated with the contribution of all of the Company's then owned
commercial properties to Wellsford Commercial in August 1997.
Interest income increased by $5.0 million. This increase is primarily a
result of the issuance of approximately $141.2 million in notes
receivable during the period from April 1997 through September 1998
bearing interest at rates between LIBOR +2% and approximately LIBOR +6%;
$34.1 million of notes receivable were repaid during this period.
Property operating and maintenance expense, real estate tax expense,
depreciation and amortization, and property management expense increased
by $1.8 million, $0.8 million, $2.0 million, and $0.3 million,
respectively. These increases are a result of the factors which
affected rental income, as described above.
Interest expense increased by $2.9 million as a result of the issuance
of substantially all of the Company's debt other than the Palomino Park
Bonds subsequent to September 30, 1997. Interest on the Palomino Park
Bonds was capitalized to the Company's Palomino Park development.
General and administrative expense increased by $2.5 million. This
increase is a result of the Company commencing operations subsequent to
the Spin-off in May 1997, as well as the Company's growth over the last
year.
Income from joint ventures increased by $2.7 million. This increase is
a result of the Wellsford Commercial joint venture transaction in August
1997 and the Creamer Realty Consultants joint venture transaction in
January 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Minority interest is a result of EQR's 20% interest in the Company's
Palomino Park development, as well as certain limited partnership
interests (aggregating approximately 10%) in one of the Company's
commercial office properties acquired in the VLP Merger. These limited
partnership interests were bought out by the Company in October 1998.
The income tax provision increased as a result of the increase from
approximately $1.4 million of taxable income during the period from the
Spin-off through September 30, 1997 to approximately $8.9 million of
taxable income during the nine months ended September 30, 1998, net of
the effects of the net operating loss carry forwards acquired in the VLP
Merger.
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 which is convertible into shares of the
Company's 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, N.A. 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 remainder of the $25
million not purchased prior to that time. As of September 30, 1998,
approximately $28.5 million was outstanding under the Line of Credit. In
October 1998, $21.5 million of this amount was repaid.
Creamer Realty Consultants and Creamer Vitale Wellsford, together with
PREI, have established the Clairborne Investors Mortgage Investment
Program to make opportunistic investments and to provide liquidity to
participants in large syndicated mortgage loan transactions. The
parties have agreed to contribute up to $150 million to fund
acquisitions approved by the parties, of which a subsidiary of the
Company will fund 10%. Creamer Vitale Wellsford will originate, co-
invest, and manage the investments of the program.
Wellsford Commercial has a $375 million loan facility (the "Wellsford
Commercial Bank Facility") from BankBoston, N.A. and Goldman Sachs
Mortgage Company, consisting of a senior secured credit facility of up
to $300 million and a secured mezzanine facility of up to $75 million.
The senior facility bears interest at LIBOR +1.65%; the mezzanine
facility bears interest at LIBOR +3.2%. As of September 30, 1998,
approximately $255.5 million was outstanding under the
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Wellsford Commercial Bank Facility ($190.7 million of which was under
the senior facility). Both facilities mature on December 15, 2000 and
are extendable for one year by WCPT.
Year 2000
The Company has developed a plan to modify its information technology,
primarily its accounting software, to recognize the year 2000. The
Company currently expects the project to be substantially complete by
the end of the second quarter of 1999 and to cost less than $0.1
million. The Company does not expect this project to have a significant
effect on its operations. The timing and cost of this project will be
closely monitored and are based on management's best estimates. Actual
results, however, could differ from those anticipated.
The Company also has initiated discussions with its third-party property
management companies to ensure that those parties have appropriate plans
to allay any year 2000 issues that may impact the company's operations.
These issues would include both accounting/management software and non-
information technology systems such as fire safety, security and
elevator systems. Wellsford Commercial has completed its analysis of
such systems and has determined that no material adverse consequences
will likely result from its year 2000 issues. Wellsford Capital Company
and Wellsford Development Company have initiated but not yet completed
such analysis. The Company has the ability to convert its accounting and
management systems to a spreadsheet-based system on a temporary basis in
the event that any unforeseen year 2000 problems arise. While the
Company believes its planning efforts are adequate to address its year
2000 concerns, there can be no guarantee that the systems of other
companies on which the Company's systems and operations rely, primarily
its banks, creditors, and debtors, will be converted on a timely basis
and will not have a material effect on the Company.
<PAGE>
<PAGE>
PART II.
OTHER INFORMATION
Item 1: Legal Proceedings - None.
Item 2: Changes in Securities - None.
Item 3: Defaults upon Senior Securities - None.
Item 4: Submission of Matters to a Vote of Security Holders - None.
Item 5: Other Information
Shareholder Proposals
Any shareholder proposal submitted outside the processes of
Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), for presentation at the
Company's 1999 Annual Meeting will be considered untimely
for purposes of Rules 14a-4 and 14a-5 under the Exchange Act
if notice of such shareholder proposal is received by the
Company after March 13, 1999.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Form 10-Q/A:
27.1 Financial Data Schedule (EDGAR Filing Only)
(b) Reports on Form 8-K filed by the registrant during
its fiscal quarter ended September 30, 1998:
- Form 8-K, dated and filed with the Commission
on August 6, 1998, reporting information under
Item 5 relating to Wellsford Commercial's
acquisition of two office properties.
<PAGE>
<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: November 19, 1998
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<ARTICLE> 5
<LEGEND> This Schedule contains summary financial information extracted from
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is qualified in its entirety by reference to such financial statements.
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<MULTIPLIER> 1
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
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