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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20001
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 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 0-6201
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BRESLER & REINER, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-0903424
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(State or other Jurisdiction of (IRS Employer Identification number)
incorporation or organization)
401 M Street, S.W.
Waterside Mall
Washington, D.C. 20024
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(Address of principal executive Office) (Zip Code)
Registrant's telephone number including area code: (202) 488-8800
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for at least the past 90 days. Yes X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part 3 of this Form 10-K or any amendment to this
Form 10-K. [X]
The number of shares outstanding of Registrant's common stock ($.01 par value)
at March 15, 1999 was 2,839,653 shares, and the aggregate market value of the
shares held by non-affiliates (based upon 29.5625 per share, the average of the
closing bid and asked prices reported by The National Quotation Bureau) was
approximately $27,507,315.
Documents Incorporated by Reference:
Part III - Item 10. Directors and Executive Officers of Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
The information required by this Part will be incorporated by
reference to a definitive proxy statement which Registrant intends to file with
the
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Commission pursuant to Regulation 14A involving the election of directors within
120 days after the end of its fiscal year.
The Exhibit Index is found on page 50.
PART I
ITEM 1. BUSINESS
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Registrant has two principal activities, Residential Land Development
and Construction and Rental Property Ownership and Management, primarily in the
Washington, DC Metropoliton Area.
Residential Land Development and Construction
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Registrant owns several partially developed residential tracts of land
within the greater Washington, D.C. area. On these tracts, it develops
residential lots for sale and constructs and develops single family homes and
townhouses as part of residential subdivisions. Registrant may decide to sell
certain of its land if it determines that it is in the best interest of
Registrant to do so.
While the following information represents Registrant's current
intentions, the number of units, commencement dates, and other specific details
of a project may vary, depending on Registrant's ability to secure adequate
financing on acceptable terms, labor conditions, approval of land use plans, and
other regulatory requirements, general economic conditions, demand for housing
and other factors.
Registrant designs and constructs its homes in accordance with its
periodic evaluation of the prevailing market for new homes. Its current plan is
to continue to build homes that appeal to the entry level homeowner, which will
give the purchaser the maximum amount of space for the purchase price.
Registrant generally avoids custom features and offers a limited number of home
models. It also generally does not build homes in advance of sales contracts
other than models and certain units for immediate sales.
A. Registrant's Homebuilding Projects
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1. Skyline Hill's, Prince George's County, Maryland. This project
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consists of 179 single-family homes and 43 townhomes. 3 single-family homes and
11 townhouses were sold and settled in 1998. As of March 12, 1999, 2 townhouses
were under contract of sale. 6 single-family lots and 1 townhouse, together
with one single family model and 1 townhouse model, remain unsold.
2. St. Mary's County, Maryland. This project consists of 64
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subdivided lots, all of which have been sold, and 31 farmsteads, of 15 to 30
acres each. As of March 12, 1999, 9 farmsteads totaling 210 acres remain to be
sold.
3. Oak Hill Towns, Prince George's County, Maryland. This 83 townhome
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development has been completed. The last 7 townhomes were sold and settled in
1998.
4. Yorkshire Knolls, Prince George's County, Maryland. This project
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consists of 252 townhouses on a 31.5 acre tract. Clearing and grading for the
entire project is complete. 20 homes were sold and settled during 1998. As of
March 12, 1999, a total of 103 homes were settled and 20 homes are under
contract
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of sale. When these 20 homes are settled, 129 townhomes will remain to be
developed and sold.
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In the sale of homes by Registrant and entities controlled by it,
Registrant has utilized furnished model homes at each site. Sales are made by
independent real estate brokers to whom a commission is paid. In its production
of homes for sale, Registrant competes with numerous builders, which range from
well financed and managed regional and national firms to small speculative
builders.
When Registrant enters into an agreement of sale for a home, it
generally receives a deposit of $500 to $2,000 as is customary in its area of
business. These deposits may be refundable under certain circumstances,
including Registrant's inability to complete construction within specified time
periods, or the purchaser's inability to secure financing. Registrant generally
receives the balance of the purchase price in cash upon the closing of the sale,
but has in the past occasionally taken a note secured by a junior mortgage for a
portion of the purchase price.
Although it is the responsibility of the home purchaser to obtain
financing for his purchase, Registrant seeks to obtain mortgage commitments from
lending institutions for its customers (subject to verification of individual
customer credit status) for purchases of homes in its developments. Registrant
may also be required to pay the lender a discount or points at the closing of
each loan, which in the case of loans insured by the Federal Housing
Administration, or the Veterans Administration, cannot be charged to customers.
There can be no assurances that Registrant will in the future be able
to secure acceptable permanent mortgage commitments for its customers, and the
absence of such commitments could adversely affect its sale of homes.
Because of its seasonal nature, home sales generally decline in the
first quarter of Registrant's fiscal year.
B. Joint Ventures with Sequoia Building Corporation of Virginia ("Sequoia")
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at Manassas, Virginia. Starting in 1984, Registrant entered into a series of
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joint ventures and partnerships with Sequoia in Manassas, Prince William County,
Virginia. In 1984, Registrant and Sequoia organized a limited partnership known
as Paradise Developers ("Paradise") to develop a 418 acre tract of land in
Manassas, Virginia (the "Tract"). The Tract yielded approximately 243 acres of
residential land and 100 acres of commercial land after streets, recreation
facilities, parks and schools.
Registrant's subsidiary is the sole general partner and managing
general partner, owning a 50% partnership interest. Sequoia is a limited partner
owning a 50% partnership interest.
Registrant originally owned the Tract and Paradise purchased the Tract
in two stages from Registrant in December, 1985 and September, 1986. The
consideration for this purchase was a subordinated non-recourse mortgage and
note ("purchase money mortgage") in the original principal amount of
$11,525,616. As of December 31, 1998, the balance due Registrant on the
purchase money mortgage was $1,898,808. In addition, Registrant is due
$1,862,047 in unpaid interest, which will be recognized as income when received.
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All of the residential land and 51 acres of the commercial land was sold
prior to 1993. Paradise developed 18 acres of land into three commercial
projects; the 7800 Building, a bank building and Paradise Sudley North Office
Park. 31 acres of commercial land remain to be sold or developed.
1. 7800 Building. Paradise constructed a 15,460 square foot office
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building known as the 7800 Building on 1.52 acres of the Tract. The building is
82% leased.
2. Bank Building. This building of 3,478 rentable square feet on two
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thirds of an acre is leased to NationsBank. The lease terminates in December,
2001, subject to NationsBank's option to renew for up to four successive five-
year terms.
3. Paradise Sudley North Office Buildings. Registrant's subsidiary is
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the sole general partner of Paradise Sudley North Limited Partnership
("Sudley"), owner of a 16.35 acre parcel of the Tract. Registrant owns 98.75% of
this partnership. A former employee of Sequoia owns the remaining 1.25%
interest.
Sudley has developed on this site four office buildings, which contain
approximately 187,000 square feet of space. Buildings A, B and C are owned by
Sudley. Building D is owned by Paradise Sudley North Building D Partnership, a
joint venture in which Sudley is a 50% partner and a Limited Liability Company
controlled by the Chief Executive Officer of Registrant is the owner of the
remaining 50%.
Building A, 22,608 square feet, is 53% leased.
Building B, 62,420 square feet, is 61% leased.
Building C, 33,120 square feet, is 78% leased.
Building D, 69,374 square feet, is 100% leased to the Prince
William County, Virginia government ("PWC"). The original lease expired December
31, 1998. Prior to the lease expiration, the Company negotiated a new ten (10)
year lease to expire December 31, 2009. PWC, at its option, may extend the term
for an additional five (5) years. In consideration of the new lease and in lieu
of the owner having to refit the building, PWC was given $400,000 rent credit
during 1998. The new lease reduces the rental to the original lease rent and
requires PWC to pay for utilities. Since the formation of the Paradise Sudley
North Building D Partnership, Sudley has been a 50% partner with a right of
return on the value of its capital contribution before distribution to other
partners. There were two non-affiliated limited partners each of whom owned a
25% limited partnership interest. During 1998, the non-affiliated partners
elected to dispose of their partnership interests. The Company decided not to
purchase these partnership interests. The 50% non-affiliates' interests were
purchased by the Bresler Family Investors Limited Liability Company ("LLC").
Charles S. Bresler, the Company's Chief Executive Officer, is the manager of
this LLC.
Rental Property Ownership and Management
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Registrant owns and manages apartment buildings, for itself and others.
In the Southwest Washington, DC urban renewal area, as described below,
Registrant holds a 49% interest in an office building, and owns and manages a
portion of an enclosed shopping-office center. It is the policy of Registrant
to manage and lease these rental properties through its own personnel.
Registrant also is a
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limited partner in certain properties described below, which are operated by
others.
Apartments. Registrant owns and operates two apartment complexes, one
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in Greenbelt, MD and one in Southwest Washington, DC with a total of 294 units.
Registrant constructed these apartment buildings.
As of December 31, 1998, approximately 95% of Registrant's apartment
units were rented. In renting apartment units Registrant employs rental agents
and uses model apartments, advertising in local newspapers and displays on the
site. Each building or complex has a project manager employed by Registrant who
supervises rentals and general operations.
Apartment leases generally provide for a fixed monthly rental over a
one-year term and the tenant normally gives a security deposit. Registrant
estimates that the average length of occupancy of an apartment by its tenants is
approximately 30 months. Registrant pays for all utilities, except that certain
tenants pay for their own electricity. All of Registrant's properties are in
good condition, and in the opinion of Registrant, are adequately covered by fire
and other casualty insurance.
Southwest Washington, D.C. Urban Renewal Area. Since 1964, Registrant
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has been the redeveloper of a portion of the Southwest Washington, D.C. Urban
Renewal Area (the "Area"), located immediately south of the "Federal Mall" which
extends from the United States Capitol Building to the Washington Monument.
Registrant has performed each of its principal business activities, as well as
building construction for others, in this Area.
High Rise Office Buildings. Located in the Area are two matching 14
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story office buildings, which are leased and managed by Registrant. One
building, with approximately 153,000 square feet, is owned by Trilon Plaza
Company ("Trilon") an affiliate; the other building, with approximately, 173,000
square feet, is owned by Town Center East Investors ("TCELP"), a limited
partnership in which Registrant holds a 49% interest and serves as the 1%
general partner.
Trilon is a limited partnership, in which a substantial majority
interest is owned by Messrs. Bresler and Reiner, whose wholly owned corporation
is the general partner (other officers of Registrant hold minor interests) and
the balance is owned by non-affiliates. Trilon's principal assets are its
leasehold interests in the Area and the projects developed thereon.
GSA Lease. The United States General Services Administration ("GSA")
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leases all of the two high rise buildings, as well as the second and third
floors of the adjacent shopping-office center and a portion of another smaller
structure (see "Shopping Center") at an annual rental of approximately $22.6
million for approximately 955,000 square feet plus 216,000 square feet of
parking space (the "GSA Lease"). The GSA lease covers 89.4% of the total
commercial and office space in the project. Approximately 327,550 square feet of
the portion of the shopping center owned by Registrant (97.1% of Registrant's
portion of the project) is included in the GSA lease at an annual rental of
approximately $7.4 million. 72,000 square feet are owned by S.E.W. Investors,
another affiliate. 173,000 square feet are owned by TCELP, in which Registrant
has a 49% interest. Registrant acts as managing and leasing agent for Trilon,
TCELP and S.E.W. Investors for their portions of the leased space. All four
owners, including Registrant, are jointly and severally liable as landlord to
GSA under the Lease. See "Management of Rental Properties".
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The GSA lease expires in September, 2002, and provides that the GSA may,
on one year's notice, terminate portion of the lease at any time after
September, 2000. The GSA has not given any notice of early termination.
The Environmental Protection Agency ("EPA"), the principal occupant
under the GSA lease, is in the process of relocating to new facilities and
expects to vacate Registrant's buildings by some time in 2001. The GSA has
placed other tenants in portions of the EPA space as it has been vacated.
In January, 1997 and February, 1998, the GSA leased an additional 5,000
square feet and 45,000 square feet, respectively, for use by the EPA. This
office space was previously leased to unrelated commercial government
contractors. These leases also will expire in September, 2002 and are subject to
cancellation after September, 2000.
Total GSA rental from Registrant's portion of the mall complex is
currently $7.4 Million. Registrant also received $766,000 in leasing fees and
$535,000 in management fees in 1998 as the result of the GSA lease. The
commercial tenants in the mall complex also rely heavily on the GSA lease
occupants. If GSA does not place other tenants in the space being vacated by
EPA, the commercial tenants and Registrant may lose substantial revenue.
The Southwest Community Council, in concert with the District of
Columbia government, has commissioned a study by the Urban Land Institute
("ULI") to provide a detailed study and recommendations as to the use of the
Waterside Mall complex, when the GSA lease terminates. The ULI study commenced
on March 1, 1998. The written report has been published. There is an assurance
that the recommendations of the ULI will be undertaken or are feasible.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS- RENTAL INCOME- COMMERCIAL" for more information.
Shopping-Office Center. An enclosed shopping-office center is located
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between the two high rise buildings containing approximately 750,000 square feet
of space. The center includes approximately 1,100 parking spaces located in an
underground parking garage and adjacent parking areas.
Registrant acts as managing and leasing agent for Trilon and for S.E.W.
Investors, a limited partnership ("S.E.W. Investors") (see "Southeast Section"
below) for their portions of the shopping-office center, part of which is leased
to the GSA as described above and the balance is leased to other commercial
tenants. See "Management of Rental Properties".
Registrant's portion of the shopping-office center, consisting of
231,023 square feet, is leased by Registrant from the District of Columbia
Redevelopment Land Agency ("RLA") for a term expiring in 2058. Under the lease,
Registrant is responsible for all expenses related to the land, including real
estate taxes and utilities. Registrant must obtain the approval of RLA before
constructing additional improvements on these tracts.
Southeast Section. On October 10, 1980, Registrant assigned its
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leasehold interest in a portion ("Southeast Section") of the shopping-office
center to S.E.W. Investors. The Southeast Section contains approximately
105,000 square feet of rentable space in the three story and basement building,
of which approximately 49,000 square feet were completed prior to 1981. Tenant
occupancy commenced in February, 1982, including 56,000 square feet leased to
the GSA. S.E.W. Investors was organized by Registrant to acquire the Southeast
Section. Registrant
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is the sole general partner, with a 1% interest. Of the limited partnership
interests, 62% is held by non-affiliates and the remaining 37% is held by
certain directors and officers of Registrant, including Charles S. Bresler, its
Chairman of the Board and principal shareholder, and Burton J. Reiner, its
President, director and principal shareholder. Registrant manages this building.
See "Management of Rental Properties".
Town Center East Apartment Buildings. On August 1, 1979, Registrant
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assigned its leasehold interest in two high rise apartment buildings in the
redevelopment area, with 256 units, known as Town Center East Apartments, to
Third Street Southwest Investors, a limited partnership. Registrant is the sole
general partner in this limited partnership, with a 1% interest, and acts as
management agent for the project. In this partnership, 90% of the limited
partnership interests are held by unaffiliated persons, and the remaining 9% of
the limited partnership interests are held by certain directors and officers of
Registrant, including Charles S. Bresler, Chairman and Chief Executive Officer
of Registrant and Burton J. Reiner, its President. Registrant manages these
buildings. See "Management of Rental Properties".
Low Income Housing. Registrant has interests in the following
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limited partnerships which are operating low-income housing units:
1. Multi-State Projects. On November 15, 1988, Registrant purchased
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99% limited partnership interests in each of seven limited partnerships, which
collectively have constructed 266 rental apartments. The projects are located
in small communities in Maryland (3), Pennsylvania (1), Virginia (2) and West
Virginia (1). At March 1, 1999, the projects were 99% occupied. The projects
are financed by Farmers Home Administration mortgages and enjoy the benefits of
low income housing credits against federal income tax authorized under Section
42 of the Internal Revenue Code of 1986, as amended, (the "Code"). The purchase
price for such limited partnership interests is approximately $5,168,000 in the
aggregate, of which $4,996,254 has been paid as of March 15, 1999. It is
payable in annual installments over the ten years such tax credit is available,
commencing in March 1990, and is to be adjusted annually based on the annual tax
benefits generated.
2. Windsor, Connecticut Project. On April 27, 1989, Registrant
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purchased a 97% limited partnership interest in a Connecticut limited
partnership. This partnership converted a former schoolhouse into 40 residential
apartments in Windsor, Connecticut, a suburb of Hartford. The partnership
received the certificate of occupancy for the apartments and is eligible for
both Federal historic tax credit and Federal low income housing credits against
Federal income tax as authorized under Section 42 of the Code. The purchase
price for the partnership interest, payable in installments over the ten (10)
years the credits are available, is approximately $1,130,000, of which $664,000
was paid as of December 31, 1998. The purchase price is to be adjusted based on
the tax benefits generated annually. The loan has been in default. The general
partner has indicated that it may deliver a deed for property to the lender in
1999. In the event the property is deeded to the lender, the partnership may
have a tax recapture.
3. Orlando, Florida Project. On July 17, 1989, Registrant purchased a
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90% limited partnership interest in a Florida limited partnership. The general
partners of the partnership are three individuals and PAC Land Development
Corporation, a Florida real estate development company ("PAC"). The partnership
developed and constructed a 28 acre, 312 unit apartment project in Orlando,
Florida, of which 63 units are eligible for Federal low income housing credits
and the balance of 249 units are market rate apartments. The purchase price for
the
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partnership interest was $1,600,000. The purchase price, other than the first
installment, is to be adjusted based on the tax benefits generated annually,
which may result in additional payments in the future. 92% of the apartments
were occupied as of December 31, 1998.
4. St. Mary's County, Maryland Project. On November 22, 1989,
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Registrant purchased a 79% limited partnership interest in Foxchase Village
Associates Limited Partnership, which has constructed a 134 unit apartment
project in St. Mary's County, Maryland. The project is eligible for Federal low
income housing credits against Federal income tax authorized under Section 42 of
the Code over the first ten years after occupancy. The purchase price for the
partnership interest was $3,200,000. 93% of the apartments were occupied as of
December 31, 1998.
Competition. In each of the areas where Registrant's rental properties
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are located, there are buildings which offer similar accommodations at
approximately the same rentals. The rents charged by Registrant for its
properties in the District of Columbia are subject to rent control regulation.
Management of Rental Properties. Registrant, through a subsidiary, has
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contracts to act as managing agent and, in certain cases, leasing agent, for
residential and commercial projects of certain partnerships in which Registrant
is a general partner, and of certain partnerships in which Charles S. Bresler
and Burton J. Reiner, officers, directors, and principal shareholders of
Registrant, have substantial interests and other directors and officers have
minor interests as follows:
<TABLE>
<CAPTION>
Property Managed Compensation(1) Expiration
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<S> <C> <C>
414 apartment units (5) 5% December, 2000 (2) (3)
20 townhouses (6) 5% December, 2000 (2) (3)
390,000 square feet of office
space(6) 3% (10) December, 2003 (2) (4)
185,000 square feet of office
space(7) 3% (10) December, 2003 (2) (4)
256 apartment units (8) 5% September, 1999 (2) (3)
105,000 square feet of
shopping-office
center (9) 3% (10) December, 2003 (2) (4)
</TABLE>
(1) As a percentage of gross rent collected.
(2) These contracts renew automatically for additional five-year terms
unless either party gives notice of termination at the end of the term
stated above.
(3) This contract may be terminated at any time by the Federal Housing
Commissioner or the mortgagee.
(4) These contracts may be terminated by the owners on 60 days prior
written notice, subject to payment of the present value of the
leasing fees (see note 9 below) for the remainder of the contract
term.
(5) This property is located in the Southwest Washington, D.C. Urban
Renewal Area and is managed for Waterside Towers, L.L.C., an affiliate
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of the Registrant.
(6) These properties are located in the Southwest Washington, D.C. Urban
Renewal Area and are managed for Trilon Plaza Company and Waterside
Towers, L.L.C., affiliates of the Registrant.
(7) The project is described in "Southwest Washington, D.C. Urban
Renewal Area" and is managed for TCELP, a partnership in which
Registrant has a 49% interest and is the general partner.
(8) These buildings are the Town Center East Apartments described in
"Southwest Washington, D.C. Urban Renewal Area" and are managed for
a partnership in which Registrant has a 1% interest and is general
partner.
(9) This property is managed for a partnership in which Registrant has a
1% interest and is a general partner. (See "Southwest Washington,
D.C. Urban Renewal Area - Southeast Section" above.)
(10) In addition, Registrant earns leasing fees of 5% of gross rents
collected on the GSA Lease for these properties.
Holiday Inn Express. Registrant owns and operates a 151 room Holiday
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Inn Express motel located in Camp Springs, Maryland, suburban Washington, D.C.,
opposite the main entrance to Andrews Air Force Base and an interchange of the
Capital Beltway. The motel commenced business in March, 1970.
In March, 1997 Registrant commenced conversion of the facility from a
Holiday Inn to a Holiday Inn Express. The conversion required substantial
renovation of the Holiday Inn facility. Renovation was completed in December,
1997. Average occupancy in 1998 was 59%, compared to 43% in 1997. 1997
occupancy was severely impacted during the renovation period. The average daily
room revenue in 1998 was $64.20 as compared to $58.20 in 1997
Under Registrant's franchise license agreement with Holiday Inns, Inc.,
Registrant pays Holiday Inns a monthly royalty, and additional payments for
advertising and trading services. The Holiday Inn Express license agreement
will expire in March, 2007.
There are three other motels in the immediate vicinity of Registrant's
Holiday Inn property. The motel business in the Washington, D.C. area is highly
competitive.
The Colonnade, Baltimore, Maryland. The Colonnade is a multi-purpose
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condominium apartment, hotel, office and retail building across from the Johns
Hopkins University campus in Baltimore, Maryland. Registrant's portion of the
building consists of 125 hotel rooms operated by Registrant as a Doubletree
Hotel, a 5,200 square foot restaurant, leased to an unrelated operator, 7,600
square feet of retail and office space and a 137 parking space garage. Hotel
occupancy averaged 75% in 1998 compared to 72% in 1997. The average daily room
rate in 1998 was $108.89 as compared to $98.89 in 1997.
Pine Club Phase II Limited Partnership, Orlando, Florida. Registrant
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holds a 64.35% limited partnership interest in Pine Club Phase II, Ltd., a
Florida limited partnership. The general partners of this partnership are three
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unaffiliated individuals and PAC, who own with others, in the aggregate, a
35.65% partnership interest.
The partnership has constructed 160 residential apartment units on
approximately 14 acres of land in Orlando, Orange County, Florida. This land is
contiguous to Registrant's low-income housing and market rate housing project in
Orlando, Florida previously discussed under "Low Income Housing - Orlando,
Florida Project". The Project was completed in January, 1991, and is 93%
occupied as of February 28, 1999.
Convenience Stores. In June, 1986, Registrant acquired 16 Circle K
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convenience store locations, in the southern and southeastern United States, for
an aggregate consideration of $3,390,000. Registrant acquired title to each
store building, but holds leasehold interests in the underlying parcels of land.
All of the stores were under lease through February, 2000, on a net basis, to
Circle K Corporation, a large convenience store chain which operates the stores
under the name "Circle K." On May 15, 1990, Circle K and certain of its
affiliates filed Petitions under Chapter 11 of the Bankruptcy Code. One of
Circle K's rights under the Bankruptcy Code was to affirm or reject the rental
leases on its stores. At various times, Circle K rejected a total of 12 of the
sixteen leases owned by Registrant. As of March 15, 1999, five of these stores
are leased to unrelated parties. Registrant has sold six stores. The remaining
store has not yet been sold or leased.
Nursing Home. Registrant owns a New Jersey nursing home facility,
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Lakeview Manor, which it leases to an unaffiliated operating company.
Lakeview Manor is a 120-bed nursing home facility in Lakewood, New
Jersey. The skilled and intermediate care facility is located on State Road 88,
Ocean County, New Jersey, approximately 60 miles south of New York City. The
one-story building of approximately 37,000 square feet, with brick exterior, is
situated on 11 acres of land.
Registrant has leased the nursing home to an unaffiliated operator for a
term of 10 years, commencing June 1, 1989. The monthly rent is $48,295 for the
first five years with increased rent thereafter. Tenant has several renewal
options for up to 20 additional years. The lessee pays taxes and other operating
expenses, and all structural and nonstructural repairs and replacements. The
lessee has a right of first refusal in the event Registrant seeks to sell the
property. The lessee may assign the lease to another experienced nursing home
operator, subject to certain conditions. The monthly rent increases to $53,245
effective June 1, 1999.
There are several other nursing homes in Lakewood, New Jersey. The
Nursing Home business is highly competitive. Nursing homes operate under state
licenses and are subject to extensive governmental regulations. Should Lakeview
Manor not be in compliance with these regulations, it would be subject to
termination of its qualification for federal assistance payment or termination
of its operating license by federal or state regulators.
Equipment Leasing and Vending
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Registrant previously engaged in personal property leveraged equipment
leasing, both directly and through subsidiaries and general partnerships.
In December, 1983, Registrant, with others, organized a general
partnership to engage in equipment leasing known as Builders Leasing Company,
and
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agreed to act as its managing partner with a 20% interest. The initial $2
million capital of the partnership was contributed by each partner, in
proportion to his percentage interest, over five years in semiannual
installments. In addition to the initial capitalization, the partners
contributed $1,150,000 to the capital of the partnership in 1988, 1989 and 1990.
Registrant's capital contribution to date totals $630,000. Certain directors and
officers of Registrant also hold an aggregate of 27% of the partnership
interests, including Charles S. Bresler, Chairman of the Board and principal
shareholder (20%), and Burton J. Reiner, President, director and principal
shareholder (5%).
Builders Leasing Company owns transportation barges and petroleum
transportation vehicles. The partners are personally liable for debt of
Builders Leasing, with a balance at December 31, 1998 of about $2,198,000.
In February 1984 Registrant organized Tech-High Leasing Company, a
general partnership in which it holds a 50% interest. The other 50% is held by a
non-affiliated corporation. Registrant and its partner have each contributed
$1,100,000.
Neither Registrant nor these partnerships are currently entering into
new equipment leases. The lease portfolios have been substantially reduced.
Registrant, through a wholly owned subsidiary, has since August,1987,
conducted a coin operated telephone business, primarily in the Washington, D.C.
metropolitan area. The telephones are now being serviced by a management company
in Maryland.
Employment
- ----------
On March 12, 1999, Registrant and its subsidiaries employed
approximately 117 persons.
_________________________________
Registrant's business is substantially dependent on general economic
conditions, and the availability of construction labor and materials in the area
served. The development of unimproved real estate is subject to Registrant's
obtaining appropriate governmental approvals, and availability of utilities,
including sewers.
ITEM 2. PROPERTIES.
----------
Rental properties of Registrant are described under "Rental Property
Ownership and Management" in Item 1.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
Registrant, S.E.W. Investors, Town Center Management Company (a
subsidiary of Registrant), Bresler and Reiner Companies (a subsidiary of
Registrant), and Trilon Plaza Company are defendants in a civil suit case no.
90-CA10594 filed October 12, 1990 in the Superior Court of the District of
Columbia by Joanne Bahura, et. al. (the "Plaintiffs"). The Plaintiffs are 19
individuals who state they are all present or former employees of the
Environmental Protection Agency, which leases certain office space at a high
rise office building in Washington, D.C. known as the "Waterside Mall Complex."
Four spouses of such employees are also plaintiffs. See "Management of Rental
Properties", "Southwest Washington, D.C. Urban Renewal Area", "High Rise Office
Buildings", "Shopping-
11
<PAGE>
Office Center" and "Southeast Section" in Item 1 above. The Complaint, as
amended (the "Complaint"), alleges that (i) the defendants are the owners of the
Waterside Mall Complex and (ii) certain renovations and reconstruction to the
Waterside Mall Complex were done in such a manner as to cause the Plaintiffs
multiple physiological and physical symptoms.
The Complaint seeks damages aggregating $40,000,000 under claims of
negligence, breach of warranty of habitability, breach of contract, strict
liability, loss of consortium and punitive damages. The claims of six
plaintiffs were tried to a jury from October 25 to December 23, 1993, with
verdicts for plaintiffs totaling $948,000. No punitive damages were awarded.
The judgments in favor of four defendants were overturned following trial,
reducing the total award to $232,000. Plaintiffs have filed a notice of appeal,
and appeals are pending. The cases of fourteen primary plaintiffs and three loss
of consortium plaintiffs remain to be tried. Management believes the claims are
without merit and intends to continue to contest the case vigorously.
In prior years two "copy cat" suits were filed, one of which has been
dismissed with prejudice and the other of which has been stayed. During 1998,
an additional "copy cat" suit was filed. This suit is in the early stages of
discovery. Management believes the claim is without merit and intends to contest
the case vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not Applicable.
______________________________
Executive Officers of Registrant
(included pursuant to instruction 3 to Item
401(b) of Regulation S-K)
<TABLE>
<CAPTION>
Present Positions
and Offices with Date Elected
Name Age Registrant to Office____
- ---- --- ----------------- -----------------
<S> <C> <C> <C>
Charles S. Bresler 71 Chief Executive June 2, 1970
Officer, Chairman
of the Board
and Director
Burton J. Reiner 70 President and June 2, 1970
Director
William L. Oshinsky 56 Treasurer and April 6, 1994
Director November 15, 1994
Edwin Horowitz 67 Secretary and June 2, 1970
Director
</TABLE>
In accordance with Article V of the By-Laws of Registrant, each officer
was elected to serve until his successor is chosen and shall have qualified or
until his earlier resignation or removal.
12
<PAGE>
There is no family relationship as defined in the instructions to this
Item between any of the above officers, except Mr. Oshinsky is the brother-in-
law of Mr. Reiner.
Each officer has held the above positions as his principal occupation
for more than the past five years, except Mr. Oshinsky, who, prior to his
election as Treasurer, served as an officer of subsidiaries of Registrant for
more than the past five years.
PART II
-------
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
------------------------------------------------------------
MATTERS.
-------
Registrant's Common Stock is traded in the over-the-counter market. The
following table presents the high and low bid quotations for the periods shown,
as reported by the National Quotation Bureau, Inc. No dividends were declared
or paid during the years reported.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
- ------------------------------
Quarter Price
-------------------------------------
<S> <C> <C>
1st High 11.50
Low 11.00
-------------------------------------
2nd High 21.00
Low 12.00
-------------------------------------
3rd High 21.50
Low 21.00
-------------------------------------
4th High 21.50
Low 20.25
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
- ------------------------------
Quarter Price
-------------------------------------
<S> <C> <C>
1/st/ High 25.00
Low 20.25
-------------------------------------
2/nd/ High 28.625
Low 25.00
-------------------------------------
3/rd/ High 28.875
Low 27.000
-------------------------------------
4/th/ High 29.50
Low 28.00
-------------------------------------
</TABLE>
The above quotations, as reported by National Quotation Bureau, Inc.,
represent prices between dealers and do not include retail markup, markdown or
commissions and do not represent actual transactions.
As of March 15, 1999, there were 137 record holders of Common Stock.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997/*/ 1996/*/ 1995/*/ 1994/*/
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 35,052,000 $ 34,029,000 $ 35,143,000 $ 33,824,000 $ 39,563,000
Net income
(loss)
before
extra-
ordinary
item and
income taxes $ 15,106,000 $ 12,823,000 $ 10,805,000 $ 7,491,000 $ (6,445,000)
Net income $ 9,228,000 $ 8,265,000 $ 7,273,000 $ 6,140,000 $ 3,404,000
============= ============= ============= ============= =============
Earning
per common
share
before
extra-
ordinary
item $ 3.32 $ 2.96 $ 2.60 $ 1.57 $ (1.45)
Earnings
per common
share $ 3.32 $ 2.96 $ 2.60 $ 2.18 $ 1.20
============= ============= ============= ============= =============
Total
Assets $ 97,886,000 $ 97,522,000 $ 94,926,000 $ 100,419,000 $ 102,425,000
============= ============= ============= ============= =============
Long Term
Obliga-
tions $ 5,151,000 $ 15,667,000 $ 22,238,000 $ 33,729,000 $ 42,495,000
============= ============= ============= ============= =============
Cash divi-
dends per
common
share (1) (1) (1) (1) (1)
============= ============= ============= ============= =============
</TABLE>
(1) No dividends have been declared or paid.
/*/ Restated to reflect reclassifications.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
- -------------
Results of Operation
- --------------------
During 1998, Registrant entered into certain transaction beneficial to the
Company. These transactions are as follows:
1. In May 1998, Registrant purchased a loan on Building "D" (Paradise Sudley
North Office Buildings) from the lender at a discount of $978,000. The
discount will be reflected as income over the life of the original mortgage.
2. During November 1998, Registrant purchased the loan on Building "A" (Paradise
Sudley North Office Buildings) from the lender.
Sales of Homes and Lots
- -----------------------
During 1998, Registrant sold 41 homes for $5,672,000 as compared with 41
homes and two lots in 1997 totaling $5,757,000 and 63 homes in 1996 totaling
$8,669,000.
Rental Income - Apartments and Commercial
- -----------------------------------------
Apartments. Rental income from apartments in 1998 was $2,503,000, a 5.0%
----------
increase from $2,389,000 in 1997. Total units in 1998 were 294, with an average
occupancy of 95% and an average monthly income of $747, compared with an 93%
occupancy rate and average monthly income of $729 for 1997. The increase in
revenues in 1998 was primarily due to increased occupancy. Rental income from
apartments in 1997 increased 2.0% from $2,342,000 in 1996. Total units in 1996
were 370, with an average occupancy of 86% and an average monthly rental of
$614. Rental expenses in 1998 were $1,430,000, a 4.9% decrease from $1,503, 000
in 1997.
Commercial. Rental income from commercial properties in 1998 was
----------
$11,379,000, a 4.2% decrease from $11,885,000 in 1997. Total commercial square
footage is 543,600. Average occupancy for 1998 was 91.3%, with an average
annual rental of $19.93 per square foot. This compares with an 92.4% occupancy
rate and average annual rental of $20.50 per square foot for 1997. The decrease
in commercial rental revenues in 1998 was primarily due to the reduction of rent
to the tenant in the Sudley North Office Building D. Commercial rental income in
1997 increased 0.4% from $11,282,000 in 1996. Average occupancy in 1996 was
89.5%, with an average annual rental of $20.10 per square foot. Commercial
rental income for each year described above also included (i) rental income from
Lakeview Manor nursing home of $579,538 per year, (ii) utility reimbursements
from tenants and property tax refunds of $114,865 in 1998, $233,779 in 1997 and
$143,798 in 1996, (iii) maintenance fees of $282,881 in 1998, $236,799 in 1997
and $188,811 in 1996, and (iv) revenues from convenience store properties of
$189,503 in 1998, $188,636 in 1997 and $174,196 in 1996.
The GSA lease contributed 35% and 28% of Registrant's total revenues in 1998
and 1997, respectively.
Hotel. Hotel revenues for 1998 were $7,224,000 compared to $6,137,000 for
-----
1997 and $5,890,000 for 1996. Net income from Hotel operations was $2,083,000
for 1998, compared to $1,219,000 for 1997 and $1,021,000 for 1996.
The Holiday Inn 1997 and 1996 results reflect reduced revenues as the
result of undergoing renovation to a Holiday Inn Express format.
15
<PAGE>
The Colonnade revenues increased 7% in 1998 over 1997 ($5,073,000 compared
to $4,726,000). This was the result of increased average room rates and
occupancy. 1997 Colonnade revenues increased 12% over 1996 revenues of
$4,217,000 as the result of increased average room rates. Net income from
Colonnade operations was $1,821,000 in 1998, $1,534,000 in 1997 and $928,000 in
1996. Average occupancy was 75%, 72% and 69% respectively.
Leasing Fees, Affiliates
- -------------------------
The 1996,1997 and 1998 results consist of a 5% real estate leasing fee
earned by Registrant resulting from the GSA lease. These fees are recorded as
earned over the life of the lease, as rent is collected. See "Rentals --
Apartments and Commercial".
Interest, Affiliates
- --------------------
Interest affiliates for 1998 increased as the result of the note on Building
D.
Income from Equity Investments
- ------------------------------
The components of this Item are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
---------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Orlando, Florida Apartments $ 69,000 $ (17,000) $ (14,000)
Town Center Office Building 993,000 792,000 779,000
Tech High Leasing Company 468,000(a) 157,000 42,000
Other 91,000(b) 468,000(b) 14,000
------------- ------------- ------------
Total $1,621,000 $1,400,000 $ 821,000
</TABLE>
(A) The increase is due to the recognition of the gain upon the sale of
equipment under lease.
(b) In accordance with generally accepted accounting principles, distributions
in excess of basis from a partnership of $31,000 were included in 1998 "Other"
income and $461,000 in 1997 "Other" income.
Revenue - Other
- ---------------
Included for 1997 is $377,000 consisting of a payment from the settlement
between the FDIC and commercial paper creditors resulting from the 1990 failure
of Washington Bancorp. Included for 1996 is $232,000 from a non-recurring
settlement.
Interest Expense
- ----------------
The reduction in interest expense from $1,975,000 in 1997 to $868,000 in
1998 is due to the 1998 payoff of the Holiday Inn loan, the payoff of the Third
Street Investors loan and the consolidation of the Sudley North loans. The
reduction in interest expenses from $2,898,000 in 1996 to $1,975,000 in 1997 is
primarily due to the 1996 payoff of the Colonnade mortgage.
Provision for Loss on Real Estate
- ---------------------------------
In accordance with GAAP, Registrant writes down the costs of substantially-
completed residential construction projects in excess of the market value of
unsold units. The write-down was $650,000, $60,000 in 1997 and 1996,
respectively.
16
<PAGE>
Expenses- Other
- ---------------
In 1997, Registrant expensed cash advances of $217,000 to a partnership
operating at a loss. No such advances were made in 1998.
Balance Sheet:
- --------------
Notes Payable-Mortgages
- -----------------------
The decrease in this item resulted from the payoff in 1998 of the mortgages
secured by the Registrant's Holiday Inn, Town Center East Apartment Buildings
and the purchase of the notes on two of the Sudley properties.
Liquidity and Capital Resources
- -------------------------------
Registrant continues to fund its obligations out of current cash flow. The
banking and finance communities continue to be adverse to most real estate
lending, requiring increased coverage on debt and significant owner investment
in properties. There is no assurance that Registrant will be able to meet all
of its needs out of cash flow or that additional funding will be available to
Registrant if needed.
During the year ended December 31, 1998, Registrant generated cash flow
from operating activities of $14,504,000. Cash flow from operating activities
was used in investing activities of $4,412,000, which consisted of investments
in U.S. Treasury instruments and other activities of $6,684,000, less proceeds
of $2,272,000 related to investment in joint ventures. The remaining cash flow
from operating activities was used in financing activities for the repayment of
notes payable. Overall, cash flow from operating, investing and financing
resulted in an decrease of $424,000 in cash and cash equivalents and cash
deposits held in escrow during the year ended December 31, 1998.
During the year ended December 31, 1997, Registrant generated cash flow
from operating activities of $5,815,000. Cash flow of $11,000 was provided from
investing activities, which consisted of investments in U.S. Treasury
instruments and other activities of $2,240,000, less proceeds of $2,251,000
related to investment in joint ventures. The remaining cash flow from operating
activities was used in financing activities for the repayment of notes payable
and the purchase of treasuring stock. Overall, cash flow from operating,
investing and financing resulted in a decrease of $999,000 in cash and cash
equivalents and cash deposits held in escrow during the year ended December 31,
1997.
During the year ended December 31, 1996, Registrant generated $20,998,000
Cash flow from operating activities was used in investing activities of
$11,793,000, which consisted of investments in U.S. Treasury instruments and
other activities of $12,481,000, less proceeds of $688,000 related to
investments in joint ventures. The remaining cash flow from operating activities
was used in financing activities for the repayment of notes. Overall, cash flow
from operating, investing and financing resulted in a decrease of $2,786,000 in
cash and cash equivalents and cash deposits held in escrow during the year ended
December 31, 1996.
Year 2000 Issue
- ---------------
In 1997, the Registrant began a comprehensive review of its year 2000
compliance issues utilizing an overlapping, three-phased approach. Phase I
involves assessments of building infrastructure and internal computer systems
including both
17
<PAGE>
hardware and software to identify possible compliance failures. Phase II
involves vendor compliance and actual testing of hardware and software
applications including significant electronic interfaces. Phase III involves
identifying remaining company-wide risks and development of contingency plans.
The Registrant expects to complete Phases I and II of its Year 2000 review in
mid-1999. Phase III is expected to run from March 1999 through December 1999.
Based on the review plan as well as the expected success of remediation efforts
currently underway, management believes the Registrant has no material risks
related to the ability of its hardware and software to recognize the year 2000
and beyond as valid dates.
The Registrant's primary financial and operational software programs are
purchased from outside vendors who have already resolved year 2000 issues. The
Registrant has received letters from these vendors indicating that their
software is Year 2000 compliant.
As part of Phase II, the Registrant has initiated steps to identify and contact
key vendors whose inability to provide service in the year 2000 could have a
material adverse effect on the Registrant's business operations. With the
exception of utility services, the Registrant believes that there are no other
critical suppliers whose inability to provide service would materially affect
business operations. This is due primarily to the physical nature of the
Registrant's product as well as the availability of multiple suppliers of
property services. The Registrant does not have a contingency plan to address
the possibility that utility services may not be available. However, management
believes that this is a very unlikely scenario. Readers are cautioned that these
conclusions involve numerous subjective assumptions and there can be no
assurances that management has adequately identified or addressed all possible
contingencies.
The Registrant's Year 2000 compliance efforts have been primarily conducted
with internal staff. Accordingly, the costs have been immaterial and are
expensed as incurred.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The financial statements are listed under Item 14 in this annual
report and are included therein.
No supplementary data are supplied because none are required.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
----------------------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
----------------------------------------------
The information required by this item will be incorporated by
reference to a definitive proxy statement involving the election of directors
which is expected to be filed by the Company pursuant to Regulation 14A within
120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
18
<PAGE>
The information required by this item will be incorporated by
reference to a definitive proxy statement involving the election of directors
which is expected to be filed by the Company pursuant to Regulation 14A within
120 days after the close of its fiscal year, except for the information
contained under such definitive proxy statement under the captions "Board
Compensation Committee Report on Executive Compensation" and "Performance
Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------------------------------------
The information required by this item will be incorporated by
reference to a definitive proxy statement involving the election of directors
which is expected to be filed by the Company pursuant to Regulation 14A within
120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information required by this item will be incorporated by
reference to a definitive proxy statement involving the election of directors
which is expected to be filed by the Company pursuant to Regulation 14A within
120 days after the close of its fiscal year.
B. Reports on Form 8-K. Registrant filed no reports on Form 8-K during the
fourth quarter of fiscal 1997.
C. Exhibits.
Index to Exhibits
-----------------
Exhibit 3
(i) Articles of Incorporation
A. Restated Certificate of Incorporation of Registrant filed
February 23, 1971, Amendment filed August 12, 1987, and Amendment filed May 31,
1991.
(Incorporated by reference to Exhibit 3A of Registrant's Quarterly
Report on Form 10Q for the second quarter of 1991, dated August 14, 1991, filed
with the Securities and Exchange Commission.)
(ii) By-Laws
B. Revised By-laws of Registrant.
(Incorporated by reference to Exhibit 3B of Registrant's Report on
Form 10-K for 1994, dated March 31, 1995, filed with the Securities and Exchange
Commission.)
19
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C>
A. The following documents are filed as part of this report:
1. Financial Statements
Bresler & Reiner, Inc. Consolidated Financial Statements:
Report of Independent Public Accountants 21
Consolidated Balance Sheets 22-23
Consolidated Statements of Income 24
Consolidated Statements of Changes in Shareholders' Equity 25
Consolidated Statements of Cash Flows 26-27
Notes to Consolidated Financial Statements 28-42
2. Financial Statement Schedules III and IV 43-49
Schedules other than those listed above have been omitted
because they are not required, not applicable, or the
required information is set forth in the financial
statements or notes thereto.
3. Exhibits 50
</TABLE>
SHAREHOLDERS MAY OBTAIN A COPY OF ANY FINANCIAL STATEMENT
SCHEDULES AND ANY EXHIBITS FILED WITH FORM 10-K BY WRITING TO
EDWIN HOROWITZ, SECRETARY, BRESLER & REINER, INC., AT 401 M
STREET, S.W., WASHINGTON, D.C. 20024, WHO WILL ADVISE SHAREHOLDERS
OF THE FEE FOR ANY EXHIBIT.
-20-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Bresler & Reiner, Inc.:
We have audited the accompanying consolidated balance sheets of Bresler &
Reiner, Inc. (a Delaware corporation, the "Company") and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These consolidated financial statements and
the schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index of financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not a required part of the
basic consolidated financial statements. This information has been subjected to
the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic consolidated financial statements taken as a
whole.
Washington, D.C.
March 19, 1999
-21-
<PAGE>
BRESLER & REINER, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
----------- -----------
<S> <C> <C>
RENTAL PROPERTY AND EQUIPMENT, net $34,871,000 $36,250,000
CONSTRUCTION IN PROCESS 7,142,000 8,594,000
HOMES HELD FOR SALE 590,000 1,135,000
LAND HELD FOR SALE 4,245,000 4,237,000
RECEIVABLES:
Mortgages and notes, affiliates 4,090,000 4,984,000
Mortgages and notes, other 800,000 923,000
Other 3,161,000 3,124,000
INVESTMENT IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS 2,864,000 3,515,000
CASH AND CASH EQUIVALENTS 5,338,000 5,762,000
CASH DEPOSITS HELD IN ESCROW 9,626,000 8,641,000
INVESTMENTS 19,626,000 13,667,000
INCOME TAXES RECEIVABLE 12,000 1,156,000
DEFERRED CHARGES AND OTHER ASSETS 5,521,000 6,340,000
----------- -----------
Total assets $97,886,000 $98,328,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-22-
<PAGE>
BRESLER & REINER, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
LIABILITIES:
Notes payable-
Mortgages $ 5,151,000 $ 15,667,000
Accounts payable, trade 987,000 1,810,000
Accrued expenses 871,000 691,000
Tenant deposits 220,000 249,000
Deferred income 544,000 341,000
Deferred income taxes payable 6,011,000 5,186,000
Due to affiliates 558,000 16,000
---------- ----------
Total liabilities 14,342,000 23,960,000
MINORITY INTEREST 1,063,000 1,115,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value: 4,000,000 shares authorized, 2,839,653
shares issued, 2,780,528 and 2,780,528 shares outstanding as of December
31, 1998 and 1997, respectively
28,000 28,000
Capital in excess of par 7,565,000 7,565,000
Retained earnings 75,570,000 66,342,000
Treasury stock (682,000) (682,000)
------------ ------------
Total shareholders' equity 82,481,000 73,253,000
------------ ------------
Total liabilities and shareholders' equity $ 97,886,000 $ 98,328,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-23-
<PAGE>
BRESLER & REINER, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Sales of homes and lots $ 5,672,000 $ 5,757,000 $ 8,669,000
Other construction, net 1,216,000 1,048,000 1,097,000
Rental income - apartments 2,503,000 2,389,000 2,342,000
Rental income - commercial 11,379,000 11,885,000 11,282,000
Hotel income 7,224,000 6,137,000 5,890,000
Management fees, affiliates 888,000 885,000 852,000
Leasing fees, affiliates 766,000 749,000 749,000
Interest-
Affiliates 1,178,000 852,000 943,000
Other 1,561,000 1,566,000 1,400,000
Gain on sales of realty interests, net 726,000 674,000 436,000
Equipment leasing and vending 269,000 263,000 357,000
Income from equity investments 1,621,000 1,400,000 821,000
Other 49,000 424,000 305,000
------------ ------------- ------------
Total revenues 35,052,000 34,029,000 35,143,000
------------ ------------- ------------
COSTS AND EXPENSES:
Cost of home and lot sales 5,437,000 5,366,000 8,147,000
Rental expense - apartments 1,430,000 1,503,000 1,712,000
Rental expense - commercial 4,281,000 4,358,000 4,407,000
Hotel expense 5,141,000 4,918,000 4,869,000
Land development expense 103,000 103,000 103,000
General and administrative 1,796,000 1,752,000 1,764,000
Interest expense 868,000 1,975,000 2,898,000
Equipment leasing and vending 61,000 248,000 321,000
Provision for loss on real estate - 650,000 60,000
Other 932,000 217,000 -
------------ ------------- ------------
Total costs and expenses 20,049,000 21,090,000 24,281,000
------------ ------------- ------------
NET INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 15,003,000 12,939,000 10,862,000
PROVISION FOR INCOME TAXES 5,878,000 4,558,000 3,532,000
------------ ------------- ------------
NET INCOME BEFORE MINORITY INTEREST 9,125,000 8,381,000 7,330,000
MINORITY INTEREST 103,000 (116,000) (57,000)
------------ ------------- ------------
NET INCOME $ 9,228,000 $ 8,265,000 $ 7,273,000
============ ============= ============
$ 3.32 $ 2.96 $ 2.60
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-24-
<PAGE>
BRESLER & REINER, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMMON EXCESS OF RETAINED TREASURY SHAREHOLDERS'
STOCK PAR EARNINGS STOCK EQUITY
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $ 28,000 $ 7,565,000 $ 50,804,000 $ (428,000) $ 57,969,000
Net income -- -- 7,273,000 -- 7,273,000
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 28,000 7,565,000 58,077,000 (428,000) 65,242,000
Net income -- -- 8,265,000 -- 8,265,000
Purchase of treasury stock -- -- -- (254,000) (254,000)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 28,000 7,565,000 66,342,000 (682,000) 73,253,000
Net income -- -- 9,228,000 -- 9,228,000
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 $ 28,000 $ 7,565,000 $ 75,570,000 $ (682,000) $ 82,481,000
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
-25-
<PAGE>
BRESLER & REINER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,228,000 $ 8,265,000 $ 7,273,000
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization 2,312,000 2,364,000 2,315,000
Gain on sales of realty interests, net (726,000) (674,000) (436,000)
Direct financing lease payments - 57,000 705,000
Amortization of investment in direct financing leases - (22,000) (8,000)
Proceeds from sale of equipment under direct financing
leases - 120,000 230,000
Income from equity investments (1,621,000) (1,400,000) (821,000)
Provision for loss on real estate - 650,000 60,000
Deferred income taxes 825,000 2,492,000 (177,000)
Changes in other assets and liabilities-
Construction in process 1,452,000 (1,209,000) 2,103,000
Homes held for sale 545,000 2,034,000 481,000
Land held for sale (8,000) 533,000 (412,000)
Mortgages and notes receivable 1,743,000 1,362,000 1,040,000
Income taxes receivable 1,144,000 (1,124,000) 959,000
Cash deposits held in escrow (985,000) (5,214,000) 7,788,000
Other assets 574,000 (1,860,000) 527,000
Other liabilities 21,000 (559,000) (629,000)
------------ ------------ ------------
Total adjustments to reconcile net income to net
cash provided by operating activities 5,276,000 (2,450,000) 13,725,000
------------ ------------ ------------
Net cash provided by operating activities $ 14,504,000 $ 5,815,000 $ 20,998,000
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
-26-
<PAGE>
BRESLER & REINER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint ventures $ 2,272,000 $ 2,251,000 $ 688,000
Net purchases of investments (5,959,000) (364,000) (11,929,000)
Decrease in rental property and equipment and other (725,000) (1,876,000) (552,000)
------------- ------------ ------------
Net cash (used in) provided by investing
activities (4,412,000) 11,000 (11,793,000)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (10,516,000) (6,571,000) (11,991,000)
Purchase of treasury stock - (254,000) -
------------- ------------ ------------
Net cash (used in) provided by
financing activities (10,516,000) (6,825,000) (11,991,000)
------------- ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (424,000) (999,000) (2,786,000)
CASH AND CASH EQUIVALENTS, beginning of year 5,762,000 6,761,000 9,547,000
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 5,338,000 $ 5,762,000 $ 6,761,000
============= ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 873,000 $ 2,031,000 $ 3,021,000
Income taxes 3,150,000 3,399,000 1,610,000
SUPPLEMENTAL DISCLOSURES OF TENANT DEPOSIT ACTIVITIES:
Escrowed cash deposits received 177,000 192,000 136,000
Escrowed cash deposits refunded 207,000 189,000 156,000
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
-27-
<PAGE>
BRESLER & REINER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bresler & Reiner,
Inc., and its wholly and majority-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
The Company's activities include residential land development and construction
and rental property ownership and management and hotel ownership and management
primarily in Maryland, Virginia and the District of Columbia.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS
The Company includes its share of the earnings or losses of unconsolidated joint
ventures and partnerships under the equity method of accounting.
REVENUE RECOGNITION
The Company accounts for revenue from sales of homes and condominiums and sales
of real property in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 66, "Accounting for Sales of Real Estate."
Rental, construction, and management service fees are generally recorded when
earned. Leasing fees are recorded over the life of the lease.
RENTAL PROPERTY AND EQUIPMENT
Rental property and equipment are stated at cost. Depreciation is recorded using
the straight-line method over the estimated useful lives of the related assets.
The Company evaluates the recoverability of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability is measured based on net, undiscounted expected
cash flows. Assets are considered to be impaired if the undiscounted expected
cash flows are less than the carrying amount of the assets. Impairment charges
are recorded based upon the difference between the carrying value of the asset
and fair value. Real estate for sale is recorded based on its estimated fair
value less cost to sell.
CONSTRUCTION IN PROCESS
When construction commences, costs are transferred to construction in process
where they are accumulated by project. Other project costs included in
construction in process include property taxes, materials, labor, and allocated
overhead. These costs are charged to costs of homes sold on a pro rata basis as
homes are
-28-
<PAGE>
sold, in accordance with SFAS No. 67, "Accounting for Costs and Initial Rental
Operations of Real Estate Projects." The Company generally finances its
homebuilding operations from internal cash flow. The Company reviews its
accumulated costs to ensure that costs in excess of net realizable value are
charged to operations.
INCOME TAXES
Deferred income taxes result principally from temporary differences related to
the timing of the recognition of real estate sales, lease income, interest
expense and real estate taxes during development and depreciation for tax and
financial reporting purposes.
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share," was issued in February 1997. This statement
establishes new standards for computing, presenting and disclosing earnings per
share. The Company has no dilutive securities, therefore, basic and diluted
earnings per share are identical. Earnings per common share is based upon the
weighted average number of shares outstanding during each year (2,780,528 shares
in 1998, 2,789,863 shares in 1997 and 2,792,653 shares in 1996).
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
CASH DEPOSITS HELD IN ESCROW
Amounts include deposits held in escrow for tenants and deposits on homes held
for sale.
INVESTMENTS
As of December 31, 1998 and 1997, all investment securities, consisting of FHLMC
notes and FNMA notes, are classified as held-to-maturity and are therefore
reported at amortized cost. Fair value of these instruments approximates
carrying value at year end. There were no unrealized holding gains or losses.
All of the instruments mature within one year. There were no sales of investment
securities during 1998 or 1997.
MANAGEMENT'S 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 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.
RECLASSIFICATIONS
Certain 1997 and 1996 amounts have been reclassified in order to conform to the
1998 presentation.
-29-
<PAGE>
2. RENTAL PROPERTY AND EQUIPMENT, NET:
1998 1997
------------ -------------
Land $ 3,279,000 $ 3,278,000
Buildings and improvements 55,519,000 55,971,000
Equipment 4,601,000 4,197,000
------------ -------------
63,399,000 63,446,000
Less- Accumulated depreciation (28,528,000) (27,196,000)
------------ -------------
$ 34,871,000 $ 36,250,000
============ =============
Buildings and improvements and equipment are depreciated over the useful lives
of the related assets ranging from 5 to 40 and 3 to 12 years, respectively.
3. LAND HELD FOR SALE:
Land held for sale represents land intended to be sold on the open market. The
land is recorded at the lower of cost or estimated fair value less cost to sell.
4. HOMES HELD FOR SALE:
Homes held for sale represent homes that have been substantially completed for
over one year and are held for sale on the open market. These homes are recorded
at the lower of cost or estimated fair value less cost to sell.
5. GAIN ON SALES OF REALTY INTERESTS, NET:
1998 1997 1996
---------- --------- ---------
Sales price $171,000 $299,000 (a) $ -
Cost of sales 107,000 111,000 -
---------- --------- ---------
Gain recognized, current year
transactions 64,000 188,000 -
Gain recognized from prior years'
sales recorded using the
installment method 662,000 486,000 436,000
---------- --------- ---------
$726,000 $674,000 $436,000
========== ========= =========
(a) In 1997, the Company sold the remaining 12.8 acres of the Meredith
property, the full sales price of which was received in cash and is
therefore accounted for using the full accrual method.
6. OTHER CONSTRUCTION, NET:
The Company engages in certain construction activities for the benefit of its
tenants. Revenues and costs related to these activities are as follows:
1998 1997 1996
---------- ---------- ----------
Other construction revenues $2,244,000 $1,989,000 $1,850,000
-30-
<PAGE>
Other construction costs 1,028,000 941,000 753,000
---------- ---------- ----------
Other construction, net $1,216,000 $1,048,000 $1,097,000
========== ========== ==========
7. NOTES PAYABLE - MORTGAGES:
<TABLE>
<CAPTION>
MATURITIES FOR
DEBT OUTSTANDING
AS OF DECEMBER 31,
1998 1997 1998
----------- ------------ -----------------------
<S> <C> <C> <C>
Mortgages payable, 5.25% to 9.75%*
collateralized by rental properties $5,151,000 $15,667,000 1999-2001
</TABLE>
* Interest rates relate to the 1998 balances.
None of the mortgages and notes payable are recourse to the Company at December
31, 1998. In addition, as of December 31, 1998, the Company has no recourse
obligations.
Annual contractual principal payments as of December 31, 1998, are as follows:
NOTES
PAYABLE,
MORTGAGES
---------------
1999 $ 97,000
2000 106,000
2001 4,948,000
-----------
$5,151,000
===========
. During 1998, the Company retired approximately $10 million in debt due
throughout the years 1998 to 2001. There was no extraordinary gain or loss
associated with this transaction.
-31-
<PAGE>
8. MORTGAGES AND NOTES RECEIVABLE, AFFILIATES:
1998 1997
------------ -----------
Mortgages and notes:
Due 2001 (a) $ -- $ 308,000
Due 2009 (b) 1,292,000 1,303,000
Installment sales:
Due 1999 (c) 1,644,000 1,731,000
Due 2000 (d) 1,154,000 1,642,000
------------ -----------
$ 4,090,000 $4,984,000
============ ===========
(a) In payment of construction costs, the Company accepted a second mortgage
note with an office building pledged as collateral. The note was due in
monthly installments of principal and interest of $9,670, at 8.5 percent,
from a limited partnership in which the Company is the general partner and
has a 49.6 percent interest. Certain of the Company's officers and
directors own 4.5 percent of the limited partnership. The note was paid off
in 1998.
(b) Amounts due in monthly installments of $11,200, including interest at 9.5
percent through 2009, with a final payment due 2009 of approximately
$1,074,000 from a limited partnership in which the Company is the sole
general partner and has a 1 percent interest. Certain of the Company's
officers and directors own 9 percent of the limited partnership.
(c) Amounts due are net of deferred gains of $1,269,000 and $1,337,000 in 1998
and 1997, respectively. The amounts are due in monthly installments of
$36,600, including interest at 9.5 percent through 1999, with a final
payment due 1999 of approximately $2,838,000, from a limited partnership in
which the Company is the sole general partner and has a 1 percent interest.
The building sold is pledged as collateral for the note with no further
recourse to the partnership. Certain of the Company's officers and
directors own 9 percent of the limited partnership.
(d) Amounts due are net of deferred gains of $1,372,000 and $1,951,000 in 1998
and 1997, respectively. The amounts are due in monthly installments of
$95,700 including interest at 10 percent through 2000, with a final payment
of approximately $1,031,000, from a limited partnership in which the
Company is a sole general partner and has a 1 percent interest. The
building sold is pledged as collateral for the note with no further
recourse to the partnership. Certain of the Company's officers and
directors own 37 percent of the limited partnership.
-32-
<PAGE>
9. MORTGAGES AND NOTES RECEIVABLE, OTHER:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Mortgages and notes:
Home sales, 8% to 12.5%, due through 2020 $ 69,000 $259,000
Condominium sales, 8% to 13%, net of deferred gain of $114,000
and $134,000 in 1998 and 1997, respectively
110,000 129,000
Notes receivable:
Other, 8% to 10%, due through 2003 443,000 487,000
Tenant improvements, 10%, due through 2003 178,000 48,000
---------- ----------
$800,000 $923,000
========== ==========
</TABLE>
Substantially all notes are collateralized by first trusts on houses,
residential property or undeveloped land.
10. INVESTMENT IN AND ADVANCES TO JOINT VENTURES AND PARTNERSHIPS:
The Company has general and limited partnership interests in entities that are
developing or operating properties located in Northern Virginia, Washington,
D.C., Baltimore, Maryland, and Orlando, Florida.
The following is a summary of joint ventures and partnerships in which the
Company holds ownership interests.
<TABLE>
<CAPTION>
COMPANY INTERESTS AS OF DECEMBER 31, 1998
----------------- -----------------------------------------
PARTNERSHIP
GENERAL LIMITED CURRENT STATUS OF EQUITY
PARTNER PARTNER PARTNERSHIPS ASSETS DEBT (DEFICIT)
------- ------- ----------------- ------ ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Town Center East, L.P. 1% 48.6% Owns and operates an
office building in
Southwest Washington,
D.C. $6,825,000 $ 317,000 $ 6,508,000
SEW Associates 1% - Owns and operates a
segment of a shopping
mall in Southwest,
Washington, D.C. 4,327,000 2,751,000 1,576,000
Third Street S.W. Investors 1% - Owns and operates 256
Apt. units in Southwest
Washington, D.C. 972,000 5,529,000 (4,557,000)
Tech High Leasing 50% - Leveraged equipment
leasing 715,000 - 715,000
Builders Leasing 20% - Leveraged equipment
leasing 596,000 2,217,000 (1,621,000)
Pine Club II - 64% Owns and operates 160
Apt. units in Orlando, 5,736,000 5,274,000 462,000
FL
</TABLE>
-33-
<PAGE>
11. COMMITMENTS AND CONTINGENCIES:
FINANCIAL COMMITMENTS
The Company has pledged its interests in the General Services Administration's
("GSA") lease to the lender as security for Trilon Plaza Company's (an entity
affiliated with the Company) mortgages totaling $1.9 million.
The Company owns interests in certain limited partnerships which operate low-
income housing units. The required capital contributions over the next two years
are projected to aggregate $811,000. The amount of projected capital
contributions are to be adjusted annually to be a percentage of tax benefits
derived. The Company anticipates that the annual tax benefits will be more than
sufficient to fund the annual capital contributions.
At December 31, 1998, the Company had approximately $1,520,000 of outstanding
letters of credit representing performance guarantees for land improvements in
home building and land development operations.
LITIGATION
The Company and other related entities are defendants in suits filed by certain
present and former employees of the Environmental Protection Agency ("EPA"),
which occupies office space at the Waterside Mall Complex (a portion of which is
owned by the Company). The complaint seeks damages aggregating $40,000,000 under
claims of negligence, breach of warranty of habitability, breach of contract,
strict liability, loss of consortium and punitive damages. The claims of six
plaintiffs were tried to a jury from October 25 to December 23, 1993, with
verdicts for plaintiffs totaling $948,000. No punitive damages were awarded. The
judgments in favor of four defendants were overturned following trial, reducing
the total award to $232,000. Plaintiffs have filed a notice of appeal, and
appeals are pending. The cases of fourteen primary plaintiffs and three loss of
consortium plaintiffs remain to be tried. Management believes the claims are
without merit and intends to continue to contest the case vigorously.
In prior years two "copy cat" suits were filed, one of which has been dismissed
with prejudice and the other of which has been stayed. During 1998, an
additional "copy cat" suit was filed. This suit is in the early stages of
discovery. Management believes the claim is without merit and intends to contest
the case vigorously.
Also, in the normal course of business, the Company is involved in other types
of litigation. In the opinion of management, based on its assessment and
consultation with outside counsel, the litigation that is currently pending
against the Company will not have a material impact on the financial position or
future operations of the Company as a whole.
SIGNIFICANT LEASE
The EPA occupies a significant amount of the space subject to a GSA lease in the
Company's portion of the Waterside Mall Complex. The EPA also occupies a
significant amount of space at properties owned by several affiliated entities
in which the Company has an equity interest. In total, the GSA leases
approximately 1.2 million square feet in the Waterside Mall Complex. The EPA is
the GSA's tenant. The Company's lease with the GSA was for a five-year period
beginning September 1992. The lease has been extended to the year September
2002.
-34-
<PAGE>
In aggregate, approximately 35 percent of the Company's 1998 revenues, including
related leasing and management fees and construction income, are from office
space leased by the GSA. As such, a significant portion of the Company's
operations are dependent on the continuation of the lease and if the lease is
not renewed or replaced by new tenants at similar terms, the Company's financial
position could be adversely affected.
12. INCOME TAXES:
SFAS No. 109, "Accounting for Income Taxes," establishes financial accounting
and reporting standards for the effects of income taxes that result from the
Company's activities during the current and preceding years. It requires an
asset and liability approach in accounting for income taxes, as such, balance
sheet accruals for income taxes are adjusted to reflect changes in tax rates in
the period such changes are enacted.
The Company and its subsidiaries file a consolidated Federal income tax return.
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Provision for income taxes
Current tax $5,053,000 $2,066,000 $3,355,000
Deferred tax 825,000 2,492,000 177,000
---------- ---------- ----------
Total provision for income taxes $5,878,000 $4,558,000 $3,532,000
========== ========== ==========
</TABLE>
A reconciliation of the statutory Federal tax rate to the Company's effective
income tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of Federal income tax benefit 7.0 5.5 6.2
Low income housing tax benefits (6.9) (5.3) (4.5)
Other 5.1 1.0 (3.2)
------ ----- -----
Effective rate 39.2% 35.2% 32.5%
====== ===== =====
</TABLE>
-35-
<PAGE>
Deferred income taxes result from temporary differences in the recognition of
revenue and expense for income tax and financial statement reporting purposes.
The sources of these differences and the estimated tax effect of each are as
follows:
<TABLE>
<CAPTION>
DEFERRED INCOME TAX
PROVISION (BENEFIT) FOR DEFERRED TAX LIABILITY DEFERRED TAX LIABILITY
THE YEAR ENDED (ASSET) AS OF (ASSET) AS OF
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------- ---------------------- -----------------------
<S> <C> <C> <C>
Basis in property $ (138,000) $ 1,795,000 $ 1,933,000
Investment in partnerships 1,383,000 4,744,000 3,361,000
Installment sales 19,000 157,000 138,000
Leases (38,000) 330,000 368,000
Other (401,000) (1,015,000) (614,000)
----------- ----------- -----------
Total $ 825,000 $ 6,011,000 $ 5,186,000
=========== =========== ===========
</TABLE>
Also, included in deferred charges and other assets on the accompanying
consolidated balance sheets are deferred tax credits earned as a result of the
Company's investments in low income housing projects. The realizability of these
credits is dependent upon the Company's ability to produce taxable income in the
future.
13. OPERATING LEASES:
AS A LESSEE
At December 31, 1998, the Company was obligated under a land lease, on which the
Company owns commercial properties, with the District of Columbia Redevelopment
Land Agency with aggregate annual rental payments of approximately $43,000 plus
certain expenses. The lease expires in 2058.
At December 31, 1998, the Company was obligated under a land lease for seven
parcels, on which the Company owns commercial property. The lease expires in
2000 and contains three renewal options of five years. Pursuant to the terms of
the lease, the aggregate annual rental is approximately $32,000, and the Company
has the option to purchase the land parcels at any time during the initial lease
term or renewal periods.
Rent expense for the years ended 1998, 1997, and 1996 was approximately $76,000,
$78,000 and $88,000, respectively.
Although certain leases require the Company to pay real estate taxes, insurance
and certain other operating expenses of the properties, the basic rental payment
for each lease is used in presenting minimum rentals below.
-36-
<PAGE>
Minimum rentals to be paid under all noncancelable leases at December 31, 1998,
are as follows:
AMOUNT
---------
1999 $ 75,000
2000 48,000
2001 43,000
2002 43,000
2003 43,000
2004 and thereafter 2,365,000
----------
Total $2,617,000
==========
AS A LESSOR
Substantially all noncancelable leases of residential property are for a term of
one year or less. Other leases are subject to cancellation at the lessee's
option under certain conditions. Minimum future rentals to be received for
commercial property subject to noncancelable and other leases are as follows:
NONCANCELABLE OTHER
LEASES LEASES
-------------- -----------
1999 $11,428,000 $ -
2000 3,528,000 7,407,000
2001 3,123,000 7,407,000
2002 2,750,000 5,555,000
2003 2,466,000 -
2004 and thereafter 8,067,000 -
-------------- -----------
Total $31,362,000 $20,369,000
============== ===========
14. TRANSACTIONS WITH AFFILIATES:
The Company has business transactions with several affiliates that are owned in
part by certain of the Company's shareholders, officers, and/or directors. These
transactions are summarized as follows:
1998 1997 1996
---------- ---------- ---------
Revenues:
Leasing fees $ 766,000 $ 749,000 $ 749,000
Management fees 888,000 885,000 841,000
Interest 1,178,000 852,000 943,000
Costs and expenses:
Lumber and millwork - 8,000 8,000
Insurance 520,000 453,000 303,000
-37-
<PAGE>
15. PENSION PLAN:
The Company and certain of its subsidiaries have a noncontributory defined
benefit pension plan (the "Plan") covering substantially all full-time
employees. The Plan provides for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company and their
compensation rates for the five years preceding retirement. The Company's
funding policy is consistent with the funding requirements of Federal law and
regulations. Plan assets consist principally of mortgage notes receivable and
cash equivalents.
The net periodic pension costs for 1998, 1997, and 1996 are computed as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ---------
<S> <C> <C> <C>
Service cost-benefits earned during the year
$221,000 $ 204,000 $181,000
Interest cost on projected benefit obligation
216,000 196,000 179,000
Return on Plan assets (278,000) (389,000) (284,000)
Amortization of unrecognized net obligation
57,000 57,000 57,000
-------- --------- --------
Net periodic pension cost $216,000 $ 68,000 $133,000
======== ========= ========
</TABLE>
The following table details the Plan's net pension asset as of December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation:
Vested benefits $ 2,636,000 $ 2,411,000
Nonvested benefits 102,000 100,000
----------- -----------
Accumulated benefit obligation 2,738,000 2,511,000
Effect of projected future compensation increases
1,071,000 937,000
----------- -----------
Projected benefit obligation 3,809,000 3,448,000
Plan assets at fair value 4,365,000 4,129,000
----------- -----------
Plan assets in excess of projected benefit obligation
556,000 681,000
Unrecognized net gain (721,000) (687,000)
Unrecognized net obligation at date of adoption being
recognized over 22 years 624,000 681,000
----------- -----------
Net pension asset $ 459,000 $ 675,000
=========== ===========
</TABLE>
-38-
<PAGE>
Interest assumptions used were:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Preretirement discount rate 6.00% 6.00%
Postretirement discount rate 6.00 6.00
Rate of increase in future compensation 4.00 4.00
Long-term rate of return on Plan assets 7.00 7.00
</TABLE>
16. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
In December 1991, the Financial Accounting Standards Board issued SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments." SFAS No. 107 requires
all entities to disclose the fair value of financial instruments, both assets
and liabilities, recognized and not recognized in the statements of financial
condition, for which it is practicable to estimate fair value. If estimating
fair value is not practicable, SFAS No. 107 requires disclosure of descriptive
information pertinent to estimating the fair value of a financial instrument.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
. CASH AND CASH EQUIVALENTS AND CASH DEPOSITS HELD IN ESCROW
Cash balances represent demand and short-term deposits with depository
institutions as well as short-term liquid investments. The carrying amount
is a reasonable estimate of fair value.
. INVESTMENTS
The carrying amount approximates fair value because of the short maturity
of these instruments.
. RECEIVABLES
The fair value of mortgage receivables is estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. For short-term mortgage receivables, defined as those maturing
or repricing in 90 days or less, the carrying amount is a reasonable
estimate of fair value. Other receivables represent short-term receivables
for which the carrying amount is a reasonable estimate of fair value.
. NOTES PAYABLE
Based on borrowing rates currently available to the Company for financing
on similar terms for borrowers with similar credit ratings, the fair value
of the notes payable approximates their carrying value as of December 31,
1998. Additionally, for short-term notes payable, the carrying amount is a
reasonable estimate of fair value.
. ACCOUNTS PAYABLE, TRADE
The fair value of accounts payable, trade is the carrying amount payable at
the reporting date.
-39-
<PAGE>
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 5,338,000 $ 5,338,000 $ 5,762,000 $ 5,762,000
Cash deposits held in escrow 9,626,000 9,626,000 8,641,000 8,641,000
Investments 19,626,000 19,626,000 13,667,000 13,667,000
Receivables-
Mortgages and notes, affiliates 4,090,000 4,578,000 4,984,000 5,267,000
Mortgages and notes, others 800,000 948,000 923,000 1,034,000
Other 3,161,000 3,161,000 3,124,000 3,124,000
Financial liabilities:
Notes payable-
Mortgages 5,151,000 5,197,000 15,667,000 15,724,000
Accounts payable, trade 987,000 987,000 1,810,000 1,810,000
</TABLE>
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values. Much of the information used to determine fair
value is subjective and judgmental in nature. Therefore, fair value estimates
may vary. In addition, the amounts actually realized or paid upon settlement or
maturity could be significantly different.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
---------- ---------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenues $7,680,000 $8,566,000 $9,526,000 $ 9,280,000
Net income before income taxes and
minority interest 3,220,000 3,905,000 4,240,000 3,638,000
Net income 1,966,000 2,440,000 2,405,000 2,417,000
Earnings per share 0.71 0.88 0.86 0.87
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
------------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues $7,742,000 $8,038,000 $8,422,000 $9,827,000
Net income before income taxes and
minority interest 2,813,000 3,222,000 3,166,000 3,738,000
Net income 1,658,000 2,117,000 1,957,000 2,533,000
Earnings per share 0.59 0.76 0.70 0.91
</TABLE>
18. SEGMENT INFORMATION:
The Company reports segment information for the following categories: Home and
Other Construction, Commercial Rental, Residential Rental and Hotel Operations.
Home and Other Construction consists of residential home building as well as
renovation projects. This segment represents 20, 20 and 27 percent of the
Company's total consolidated revenue in years 1998, 1997 and 1996, respectively.
Commercial Rental focuses on providing office and retail space for various types
of tenants ranging from retail to governmental agencies. This segment provides
36, 38 and 36 percent of the Company's total consolidated revenue in years 1998,
1997 and 1996, respectively. Residential Rental focuses on providing housing for
low income families throughout the Washington Metropolitan area. This segment
represents 7 percent of the Company's total consolidated revenue in years 1998,
1997 and 1996. Hotel Operations focuses on the ownership of two hotel
properties. This segment provides 21, 18 and 17 percent of the Company's total
consolidated revenue in years 1998, 1997 and 1996, respectively. Other revenue
is comprised of various activities and represents the remaining 27, 24 and 22
percent of the Company's total consolidated revenue in years 1998, 1997 and
1996, respectively. The Company is not involved in any operations in countries
other than the United States.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based upon gross operating income from the combined properties in each segment.
-41-
<PAGE>
The Company's reportable segments are a consolidation of related subsidiaries
which offer different products. They are managed separately as each segment
requires different operating, pricing and leasing strategies. All of the
properties have been acquired separately and are incorporated into the
applicable segment.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------------------
1998 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Home and other construction $ 6,888,000 $ 6,687,000 $ 9,619,000
Commercial rental 12,661,000 13,099,000 12,515,000
Residential rental 2,503,000 2,390,000 2,341,000
Hotel management 7,224,000 6,172,000 5,881,000
Other 9,677,000 8,233,000 7,627,000
Consolidated entries (3,901,000) (2,552,000) (2,840,000)
-------------- ------------ ------------
Total 35,052,000 34,029,000 35,143,000
-------------- ------------ ------------
Gross operating income:
Home and other construction 1,451,000 1,404,000 1,412,000
Commercial rental 6,498,000 6,994,000 6,496,000
Residential rental 923,000 742,000 488,000
Hotel management 2,083,000 1,254,000 1,021,000
Other 5,384,000 3,792,000 3,044,000
SG&A (1,796,000) (1,751,000) (1,764,000)
Income taxes and minority interest (5,775,000) (4,674,000) (3,589,000)
Consolidated entries 460,000 504,000 165,000
-------------- ------------ ------------
Total 9,228,000 8,265,000 7,273,000
-------------- ------------ ------------
Assets:
Home and other construction 8,602,000 10,814,000 12,287,000
Commercial rental 52,683,000 49,050,000 43,164,000
Residential rental 1,924,000 2,134,000 2,076,000
Hotel management 10,455,000 10,630,000 10,598,000
Other 32,506,000 23,944,000 25,897,000
Income taxes receivable 12,000 1,156,000 32,000
Consolidated entries (8,296,000) 600,000 872,000
-------------- ------------ ------------
Total $ 97,886,000 $98,328,000 $94,926,000
============== ============ ============
</TABLE>
-42-
<PAGE>
Bresler & Reiner, Inc.
Schedule III - Real Estate and Accumulated Depreciationthe Years
Ended December 31, 1998 and 1997in thousands)
<TABLE>
<CAPTION>
COLUMN C COLUMN D
--------------------------- -----------------------------
COST CAPITALIZATION
COLUMN A COLUMN B INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION
- ----------------------------------------- ------------------- --------------------------- -----------------------------
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST
- ----------------------------------------- ------------------- ----------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Charlestown North (Apartments in Greenbelt,
Maryland) N/A $ - $ 2,179 $ 466 $ -
Commons (Apartments in Washington, D.C.) N/A 277 1,047 673 -
Waterside Mall East (Shopping Center in
Washington, D.C.) N/A - 6,631 13,259 111
Georgian Gardens (Apartments in Oxon Hill,
Maryland) N/A - 289 430 -
Lakeview Manor Nursing Home (Lakewood, New
Jersey) N/A 100 4,026 - -
Uptown (Hotel in Baltimore, Maryland) N/A - 7,368 220 -
Allentown Road Motel (Suitland, Maryland) N/A 378 2,793 1,613 -
Egap (Convenience Stores in Florida,
Louisiana, and North Carolina) N/A 58 3,388 - -
Nations Bank Building (Office Building in
Manassas, Virginia) N/A 63 798 43 -
Paradise/Sudley North (4 Office Buildings
in Manassas, Virginia) N/A 2,216 12,679 4,085 -
7800 Building (Office Building in Manassas,
Virginia) N/A 317 1,636 492 -
------- ------------ ----------- ---------
$ 3,409 $ 42,834 $ 21,281 $ 111
======= ============ =========== =========
<CAPTION>
COLUMN E
---------------------------------------------
GROSS AMOUNT AT WHICH
COLUMN A CARRIED AT CLOSE OF PERIOD COLUMN F COLUMN G
- ----------------------------------------- --------------------------------------------- ----------------- --------------------
BUILDING AND ACCUMULATED DATE OF
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION
- ----------------------------------------- ----------- ---------------- --------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Charlestown North (Apartments in Greenbelt,
Maryland) $ - $ 2,448 $ 2,448 $ 1,826 -
Commons (Apartments in Washington, D.C.) 387 1,628 2,015 1,062 -
Waterside Mall East (Shopping Center in
Washington, D.C.) - 15,610 15,610 9,912 1975
Georgian Gardens (Apartments in Oxon Hill,
Maryland) - - - - -
Lakeview Manor Nursing Home (Lakewood, New
Jersey) 100 4,026 4,126 2,536 -
Uptown (Hotel in Baltimore, Maryland) - 5,637 5,637 724 -
Allentown Road Motel (Suitland, Maryland) 378 4,587 4,965 2,120 -
Egap (Convenience Stores in Florida,
Louisiana, and North Carolina) 143 2,117 2,260 1,398 -
Nations Bank Building (Office Building in
Manassas, Virginia) 90 787 877 179 1991
Paradise/Sudley North (4 Office Buildings
in Manassas, Virginia) 1,898 16,669 18,567 5,376 1987
7800 Building (Office Building in Manassas,
Virginia) 283 2,010 2,293 673 1990
------- ----------- ----------- -----------
$ 3,279 $ 55,519 $ 58,798 $ 25,806
======= =========== =========== ===========
<CAPTION>
COLUMN A COLUMN H COLUMN I
- ---------------------------------------- ---------------- ----------------
LIFE ON WHICH
DEPRECIATION ON
LATEST INCOME
DATE STATEMENT IS
DESCRIPTION ACQUIRED COMPUTED
- ----------------------------------------- ---------------- ----------------
<S> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Charlestown North (Apartments in Greenbelt,
Maryland) 1971 5-40 years
Commons (Apartments in Washington, D.C.) 1971 5-40 years
Waterside Mall East (Shopping Center in
Washington, D.C.) - 8-40 years
Georgian Gardens (Apartments in Oxon Hill,
Maryland) Various 20 years
Lakeview Manor Nursing Home (Lakewood, New
Jersey) 1984 5-30 years
Uptown (Hotel in Baltimore, Maryland) 1993 (a) -
Allentown Road Motel (Suitland, Maryland)
1987 19 years
Egap (Convenience Stores in Florida,
Louisiana, and North Carolina) 1987 19 years
Nations Bank Building (Office Building in
Manassas, Virginia) - 31 1/2 years
Paradise/Sudley North (4 Office Buildings
in Manassas, Virginia) - 31 1/2 years
7800 Building (Office Building in Manassas,
Virginia) - 15-31 1/2 years
</TABLE>
(a) Asset acquisition December 31, 1993
-43-
<PAGE>
Bresler & Reiner, Inc.
Schedule III - Real Estate and Accumulated Depreciation
For the Years Ended December 31, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
COLUMN C COLUMN D
--------------------------- ----------------------------
COST CAPITALIZATION
COLUMN A COLUMN B INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION
- ------------------------------------------ -------------- ---------------------------- ----------------------------
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST
- ------------------------------------------ -------------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
Charlestown North (Apartments in Greenbelt,
Maryland) N/A $ - $ 2,179 $ 358 $ -
Commons (Apartments in Washington, D.C.) N/A 277 1,047 651 -
Waterside Mall East (Shopping Center in
Washington, D.C.) N/A - 6,631 13,259 111
Georgian Gardens (Apartments in Oxon Hill,
Maryland) N/A - 289 425 -
Lakeview Manor Nursing Home (Lakewood, New
Jersey) N/A 100 4,026 - -
Uptown (Hotel in Baltimore, Maryland) N/A - 7,368 220 -
Allentown Road Motel (Suitland, Maryland) N/A 378 2,793 1,442 -
Egap (Convenience Stores in Florida,
Louisiana, and North Carolina) N/A 58 3,388 - -
Nations Bank Building (Office Building in
Manassas, Virginia) N/A 63 798 43 -
Paradise/Sudley North (4 Office Buildings
in Manassas, Virginia) N/A 2,216 12,679 3,952 -
7800 Building (Office Building in Manassas,
Virginia) N/A 317 1,636 481 -
------ -------- -------- ----
$3,409 $ 42,834 $ 20,831 $111
====== ======== ======== ====
<CAPTION>
COLUMN E
----------------------------------------
GROSS AMOUNT AT WHICH CARRIED AT
CLOSE OF PERIOD COLUMN F
---------------------------------------- ----------------
BUILDING AND ACCUMULATED
LAND IMPROVEMENTS TOTAL DEPRECIATION
-------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
Charlestown North (Apartments in Greenbelt,
Maryland) $ - $ 2,340 $ 2,340 $ 1,748
Commons (Apartments in Washington, D.C.) 387 1,605 1,992 997
Waterside Mall East (Shopping Center in
Washington, D.C.) - 15,610 15,610 9,598
Georgian Gardens (Apartments in Oxon Hill,
Maryland) - 696 696 623
Lakeview Manor Nursing Home (Lakewood, New
Jersey) 100 4,026 4,126 2,400
Uptown (Hotel in Baltimore, Maryland) - 5,637 5,637 583
Allentown Road Motel (Suitland, Maryland) 378 4,416 4,794 1,874
Egap (Convenience Stores in Florida,
Louisiana, and North Carolina) 142 2,319 2,461 1,417
Nations Bank Building (Office Building in
Manassas, Virginia) 90 787 877 153
Paradise/Sudley North (4 Office Buildings
in Manassas, Virginia) 1,898 16,536 18,434 4,804
7800 Building (Office Building in Manassas,
Virginia) 283 1,999 2,282 605
----- ------- ------- -------
3,278 $55,971 $59,249 $24,802
===== ======= ======= =======
<CAPTION>
COLUMN G COLUMN H COLUMN I
--------------- ----------- ------------------
LIFE ON WHICH
DEPRECIATION ON
LATEST INCOME
DATE OF DATE STATEMENT IS
CONSTRUCTION ACQUIRED COMPUTED
--------------- ----------- ------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
Charlestown North (Apartments in Greenbelt,
Maryland) - 1971 5 - 40 years
Commons (Apartments in Washington, D.C.) - 1971 5 - 40 years
Waterside Mall East (Shopping Center in
Washington, D.C.) 1975 - 8 - 40 years
Georgian Gardens (Apartments in Oxon Hill,
Maryland) - Various 20 years
Lakeview Manor Nursing Home (Lakewood, New
Jersey) - 1984 5 - 30 years
Uptown (Hotel in Baltimore, Maryland) - 1993(a) -
Allentown Road Motel (Suitland, Maryland) - 1987 19 years
Egap (Convenience Stores in Florida,
Louisiana, and North Carolina) - 1987 19 years
Nations Bank Building (Office Building in
Manassas, Virginia) 1991 - 31 1/2years
Paradise/Sudley North (4 Office Buildings
in Manassas, Virginia) 1987 - 31 1/2years
7800 Building (Office Building in Manassas,
Virginia) 1990 - 15 - 31 1/2years
</TABLE>
(a) Asset acquisition recorded December 31, 1993.
44
<PAGE>
BRESLER & REINER, INC.
NOTES TO SCHEDULE III
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
LAND AND BUILDING AND IMPROVEMENTS:
Balance, January 1 $ 59,249 $ 58,434
Additions during period-
Improvements 486 819
---------- ----------
59,735 59,253
Deductions during period-
Write-off of fully depreciated assets - 4
Other 937 -
---------- ----------
Balance, December 31 $ 58,798 $ 59,249
========== ==========
ACCUMULATED DEPRECIATION:
Balance, January 1 $ 24,802 $ 23,054
Additions during period-
Depreciation expense 1,765 1,748
---------- ----------
26,567 24,802
Deductions during period-
Other 761 -
---------- ----------
Balance, December 31 $ 25,806 $ 24,802
========== ==========
</TABLE>
-45-
<PAGE>
BRESLER & REINER, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C
- ------------------------------------------------------------------------- -------------------------- ----------------------
DESCRIPTION INTEREST MATURITY DATE
- ------------------------------------------------------------------------- -------------------------- -----------------------
<S> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 1999
SEW Investors (S.W. Washington, D.C.) 12.0% 2000
Town Center East Investors (S.W. Washington, D.C.) 8.5% 2001
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 2009
Other-
First mortgages:
Home loans (Montgomery County, Maryland) ($50,000 to $159,000)
(3 units) 9.5% to 13.5% Various through 2013
Developed land loans (St. Mary's County, Maryland) ($20,000 to
$50,000) (6 units) 14.5% Various through 2013
Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)
(38 units) 8.0% to 13.0% 2004
<CAPTION>
COLUMN A COLUMN D COLUMN E
- ------------------------------------------------------------------------- ------------------------- --------------------
PERIODIC PAYMENT PRIOR
DESCRIPTION TERMS LIENS
- ------------------------------------------------------------------------- ------------------------- ---------------------
<S> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) $36,600/month(a) None
SEW Investors (S.W. Washington, D.C.) 95,700/month(b) None
Town Center East Investors (S.W. Washington, D.C.) 9,670/month(b) None
3rd Street Southwest Investors (S.W. Washington, D.C.) 11,200/month(c) None
Other-
First mortgages:
Home loans (Montgomery County, Maryland) ($50,000 to $159,000)
(3 units)
Developed land loans (St. Mary's County, Maryland) ($20,000 to
$50,000) (6 units)
Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)
(38 units)
<CAPTION>
COLUMN A COLUMN F COLUMN G COLUMN H
- ------------------------------------------------------------------ ----------------- ------------------ -------------------
PRINCIPAL AMOUNT OF
MORTGAGE LOANS
FACE CARRYING SUBJECT TO
AMOUNT OF AMOUNT OF DELINQUENT PRINCIPAL
DESCRIPTION MORTGAGES MORTGAGES OR INTEREST
- ------------------------------------------------------------------ ----------------- ------------------ --------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) $4,350,000 $ 1,644,000 None
SEW Investors (S.W. Washington, D.C.) 9,300,000 1,154,000 None
Town Center East Investors (S.W. Washington, D.C.) 1,200,000 - None
3rd Street Southwest Investors (S.W. Washington, D.C.) 1,333,000 1,292,000 None
------------
$ 4,090,000
------------
Other-
First mortgages:
Home loans (Montgomery County, Maryland) ($50,000 to $159,000)
(3 units) $ 64,000 None
Developed land loans (St. Mary's County, Maryland) ($20,000 to
$50,000) (6 units) 5,000 None
Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)
(38 units) 110,000 None
------------
179,000
------------
$ 4,269,000
============
</TABLE>
-46-
<PAGE>
BRESLER & REINER, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- ---------------------------------------------------------------------- ----------------- -------------------- --------------------
PERIODIC PAYMENT
DESCRIPTION INTEREST MATURITY DATE TERMS
- ---------------------------------------------------------------------- ----------------- -------------------- --------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 1999 $36,600/mo(a)
SEW Investors (S.W. Washington, D.C.) 12.0% 2000 95,700/mo(b)
Town Center East Investors (S.W. Washington, D.C.) 8.5% 2001 9,670/mo(b)
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 2009 11,200/mo(c)
Other-
First mortgages:
Home loans (Montgomery County, Maryland) ($50,000 to $159,000)
(5 units) 9.5% to 13.5% Various through 2013
Developed land loans (St. Mary's County, Maryland) ($20,000 to
$50,000) (7 units) 14.5% Various through 2013
Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)
(38 units) 8.0% to 13.0% 2004
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
- ---------------------------------------------------------------------- --------- ------------- ----------- ----------------------
PRINCIPAL AMOUNT OF
MORTGAGE LOANS
FACE CARRYING SUBJECT TO
PRIOR AMOUNT OF AMOUNT OF DELINQUENT PRINCIPAL
DESCRIPTION LIENS MORTGAGES MORTGAGES OR INTEREST
- ---------------------------------------------------------------------- --------- ------------- ----------- ----------------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1997:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) None $4,350,000 $1,731,000 None
SEW Investors (S.W. Washington, D.C.) None 9,300,000 1,642,000 None
Town Center East Investors (S.W. Washington, D.C.) None 1,200,000 308,000 None
3rd Street Southwest Investors (S.W. Washington, D.C.) None 1,333,000 1,303,000 None
-----------
$4,984,000
===========
Other-
First mortgages:
Home loans (Montgomery County, Maryland) ($50,000 to $159,000)
(5 units) $ 215,000 None
Developed land loans (St. Mary's County, Maryland) ($20,000 to
$50,000) (7 units) 44,000 None
Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)
(38 units) 129,000 None
-----------
388,000
-----------
$5,372,000
===========
</TABLE>
-47-
<PAGE>
BRESLER & REINER, INC.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- ---------------------------------------------------------------------- ----------------- -------------------- --------------------
PERIODIC PAYMENT
DESCRIPTION INTEREST MATURITY DATE TERMS
- ---------------------------------------------------------------------- ----------------- -------------------- --------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 1999 $36,600/mo(a)
SEW Investors (S.W. Washington, D.C.) 12.0% 2000 95,700/mo(b)
Town Center East Investors (S.W. Washington, D.C.) 8.5% 2001 9,670/mo
3rd Street Southwest Investors 9.5% 2009 11,200/mo(c)
Other-
First mortgages:
Home loans (Montgomery County, Maryland) ($50,000 to $159,000)
(8 units) 9.5% to 13.5% Various through 2013
Developed land loans (St. Mary's County, Maryland) ($20,000 to
$50,000) (11 units) 14.5% Various through 2013
Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)
(38 units) 8.0% to 13.0% 2004
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
- ---------------------------------------------------------------------- --------- ------------- ----------- ----------------------
PRINCIPAL AMOUNT OF
MORTGAGE LOANS
FACE CARRYING SUBJECT TO
PRIOR AMOUNT OF AMOUNT OF DELINQUENT PRINCIPAL
DESCRIPTION LIENS MORTGAGES MORTGAGES OR INTEREST
- ---------------------------------------------------------------------- --------- ------------- ----------- ----------------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) None $4,350,000 $1,810,000 None
SEW Investors (S.W. Washington, D.C.) None 9,300,000 1,984,000 None
Town Center East Investors (S.W. Washington, D.C.) None 1,200,000 394,000 None
3rd Street Southwest Investors None 1,333,000 1,313,000 None
-----------
$5,501,000
===========
Other-
First mortgages:
Home loans (Montgomery County, Maryland) ($50,000 to $159,000)
(8 units) $ 291,000 None
Developed land loans (St. Mary's County, Maryland) ($20,000 to
$50,000) (11 units) 77,000 None
Condominium loans (Oxon Hill, Maryland) ($10,000 to $20,000)
(38 units) 158,000 None
-----------
526,000
-----------
$6,027,000
===========
</TABLE>
-48-
<PAGE>
BRESLER & REINER, INC.
NOTES TO SCHEDULE IV
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CARRYING VALUE AT JANUARY 1 $5,372,000 $6,027,000 $6,593,000
Deductions during period-
Collections of principal 1,103,000 655,000 566,000
------------ ------------ ------------
CARRYING VALUE AT DECEMBER 31 $4,269,000 $5,372,000 $6,027,000
============ ============ ============
</TABLE>
(a) The terms of this agreement call for a final payment of $2,838,000 due in
1999.
(b) The terms of this agreement call for a final payment of $1,031,000 due in
2000.
(c) The terms of this agreement call for a final payment of $1,074,000 due in
2009.
-49-
<PAGE>
Exhibit 10 - Material Contracts.
C. (i) Amendment No. 1 to Agreement of December 2, 1974 among Trilon
Plaza Company, Town Center East Investors and Registrant, dated April 14, 1982.
(ii) Amendment dated March 10, 1983 to Agreement of December 2,
1974, among Trilon Plaza Company, Town Center East Investors and Registrant.
(Exhibits C(i) and C(ii) are incorporated by reference to Exhibits 19A and B to
Registrant's Report on Form 10-K for 1982, dated March 23, 1983, filed with the
62 Securities and Exchange Commission).
D. Partnership Agreement of Builders Leasing Company dated December
14, 1983 among the Registrant and Robert J. Schattner, Charles Bresler, Philip
Friedman, Edwin Horowitz, Lloyd Needle and Burton J. Reiner.
(Incorporated by reference to Exhibit 10D to Registrant's Report on
Form 10-K for 1983, dated March 21, 1984, filed with the Securities and Exchange
Commission).
E. (i) Deed of Trust Note dated September 3, 1986 from Paradise
Developers to Paradise Associates, Inc. (Manassas property)
(Incorporated by reference to Exhibit 10E(i) to Registrant's Report on
Form 10-K for 1986, dated March 24, 1987, filed with the Securities and Exchange
Commission.)
(ii) Deferred Purchase Money Deed of Trust dated September 3, 1986
from Paradise Developers to Paradise Associates, Inc.
(Incorporated by reference to Exhibit 10E(ii) to Registrant's Report
on Form 10-K for 1986 dated March 24, 1987, filed with the Securities and
Exchange Commission.)
Exhibit 21 Subsidiaries of Registrant.
Exhibit 27 Financial Data Schedule.
50
<PAGE>
S I G N A T U R E S
-------------------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BRESLER & REINER, INC.
----------------------------
(Registrant)
Date: March 25, 1999 /s/ Charles S. Bresler
----------------------------
Charles S. Bresler, Chairman
of the Board
(Chief Executive Officer)
Date: March 25, 1999 /s/ William L. Oshinsky
----------------------------
William L. Oshinsky, Treasurer
(Chief Financial and Chief
Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
Registrant and in the capacities and on the dates indicated.
The following persons constitute a majority of the Board of Directors
of Registrant.
Date: March 25, 1999 /s/ Charles S. Bresler
----------------------------
Charles S. Bresler, Director
Date: March 25, 1999 /s/ William L. Oshinsky
----------------------------
William L. Oshinsky, Director
Date: March 25, 1999 /s/ Edwin Horowitz
----------------------------
Edwin Horowitz, Director
Date: March 25, 1999 /s/ Burton J. Reiner
----------------------------
Burton J. Reiner, Director
Date: March 25, 1999 /s/ Stanley S. Derisio
----------------------------
Stanley S. DeRisio, Director
Date: March 25, 1999 /s/ Ralph S. Childs, Jr.
----------------------------
Ralph S. Childs, Jr., Director
51
<PAGE>
EXHIBIT 21. Subsidiaries of Registrant
<TABLE>
<CAPTION>
Percentage of Voting
Securities of Sub-
sidiaries Owned by
Registrant as of
Place of December 31, 1998
Name Incorporation
<S> <C> <C>
Charles Burton Builder Maryland 100%
, Inc.
Town Center District of
Management Corp. Columbia 100%
Bresler & Reiner
Investment Co., Inc. Delaware 100%
Maplewood Manor
Convalescent Center,
Inc. Pennsylvania 100%
Allentown Road Motel
Corporation Maryland 100%
Uptown Hotel Corp. Maryland 100%
WMC Management Co., Inc. District of
Columbia 100%
Sudley Corporation Virginia 100%
</TABLE>
(1) The names of certain subsidiaries have been omitted because, considered in
the aggregate as a single subsidiary, they do not constitute a significant
subsidiary.
(2) Included in the consolidated financial statements as significant
subsidiaries.
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
12/31/98 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,964,000
<SECURITIES> 19,626,000
<RECEIVABLES> 8,051,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 63,399
<DEPRECIATION> 28,528
<TOTAL-ASSETS> 97,886
<CURRENT-LIABILITIES> 0
<BONDS> 5,151,000
0
0
<COMMON> 28,000
<OTHER-SE> 82,453,000
<TOTAL-LIABILITY-AND-EQUITY> 97,886,000
<SALES> 6,888,000
<TOTAL-REVENUES> 35,052,000
<CGS> 5,437,000
<TOTAL-COSTS> 5,437,000
<OTHER-EXPENSES> 13,744,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 868,000
<INCOME-PRETAX> 15,003,000
<INCOME-TAX> 5,878,000
<INCOME-CONTINUING> 9,228,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,228,000
<EPS-PRIMARY> 3.32
<EPS-DILUTED> 3.32
</TABLE>
