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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, 1999
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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)
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Delaware 52-0903424
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(State or other Jurisdiction of (I.R.S. 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, $.01 par value
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(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for at least the past 90 days. Yes X
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part 3 of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares outstanding of Registrant's common stock ($.01 par value)
at March 15, 2000 was 2,745,228 shares, and the aggregate market value of the
shares held by non-affiliates (based upon 27.50 per share, the average of the
closing bid and asked prices reported by The National Quotation Bureau) was
approximately $22,991,513.
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
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The information required by this Part will be incorporated by reference to a
definitive proxy statement which Registrant intends to file with the 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 Metropolitan Area.
Residential Land Development and Construction
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Registrant owns two partially developed residential tracts of land within
the greater Washington, D.C. area. On one of these tracts it develops
residential lots for sale and constructs townhouses as part of a residential
subdivision on the other tract Registrant develops residential lots for sale.
Registrant may decide to sell certain of its land if it determines that it is in
the best interest of Registrant to do so.
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 town homes that appeal to the entry level purchaser.
Registrant generally avoids custom features and offers a limited number of home
models.
A. Registrant's Homebuilding Projects
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1. Skyline Hill's, Prince George's County, Maryland. This project
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consisted of 179 single-family homes and 43 townhomes and has been completed.
The last 9 single-family homes and 5 townhomes were settled in 1999.
2. St. Mary's County, Maryland. This project consists of 64 subdivided
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residential lots, all of which have been sold, and 31 farmsteads, of 15 to 30
acres each. As of March 12, 2000, 9 farmsteads totaling 210 acres remain to be
sold.
3. Yorkshire Knolls, Prince George's County, Maryland. This project
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consists of 252 townhomes on a 31.5 acre tract. Clearing and grading for the
entire project is complete. 29 homes were sold and settled during 1999. As of
March 12, 2000, a total of 130 homes were settled and 27 homes are under
contract of sale. When these 27 homes are settled, 95 townhomes will remain to
be developed and sold.
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In the sale of homes Registrant utilizes furnished models. Sales are made
by independent real estate brokers to whom a commission is paid. 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
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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.
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
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("Sequoia") at Manassas, Virginia. In 1984, Registrant and Sequoia organized a
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limited partnership known as Paradise Developers ("Paradise") to develop a 418
acre tract of land in Manassas, Virginia (the "Tract"). 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. 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.
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, 1999, the balance due Registrant on the
purchase money mortgage was $1,898,808. In addition, Registrant is due
$2,263,973 in unpaid interest, which will be recognized as income when received.
1. 7800 Building. Registrant owns a 15,460 square foot office building
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known as the 7800 Building on 1.52 acres of the Tract. The building is 100%
leased.
2. Bank Building. Registrant owns a 3,478 square feet building on two
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thirds of an acre in the tract. This building is leased to a bank. The lease
terminates in December, 2001, subject to the tenant's option to renew for up to
four successive five-year terms.
3. Paradise Sudley North Office Buildings. Registrant's subsidiary is the
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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 184,888 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, 22,728 square feet, is 100% leased.
Building B, 62,420 square feet, is 65% leased.
Building C, 30,366 square feet, is 100% 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 Registrant 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 a $400,000 rent credit
during 1998.
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Since the formation of the Paradise Sudley North Building D Partnership, Sudley
has been a 50% partner. During 1998, the two non-affiliated limited partners
elected to dispose of their partnership interests. The Registrant 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.
C. 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 our policy to manage and
lease these rental properties with our own personnel. Registrant also is a
limited partner in certain properties described below, which are operated by
others.
Apartments. Registrant owns and operates two apartment complexes, one in
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Greenbelt, MD and one in Southwest Washington, DC with a total of 294 units.
Registrant constructed these apartment buildings. As of December 31, 1999,
approximately 98% of Registrant's apartment units were rented.
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 5 years. 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 has
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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 story
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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 owns a 49% interest and is the 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 space in 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 ("Mall Complex") at an annual rental of approximately $22.9
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 $7.5 million. 72,000 square feet are owned by S.E.W. Investors,
another affiliate. 173,000 square feet are owned by
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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".
The GSA Lease expires in September, 2002.
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 portions of the Mall Complex prior to the lease expiration. 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 government contractors. These
leases also will expire in September, 2002.
Registrant received $749,000 in leasing fees and $547,000 in management
fees in 1999 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 may vacate and cause Registrant to lose
substantial revenue.
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 in
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the Mall Complex between the two high rise buildings containing approximately
750,000 square feet of space of which approximately 630,000 square feet is
included in GSA Lease and the balance of which is commercial space and a small
amount of office space. Registrant's portion of this Shopping-Office Center
contains approximately 231,000 square feet of space. The center includes
approximately 1,100 parking spaces located in an underground parking garage and
adjacent parking areas, most of which is included in the GSA Lease.
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".
The ground under the Registrant's portion of the Shopping-Office Center, is
leased 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.
Southeast Section. On October 10, 1980, Registrant assigned its leasehold
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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 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
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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 limited
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partnerships which are operating low-income housing units:
1. Multi-State Projects. On November 15, 1988, Registrant purchased 99%
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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, 2000, the projects were 97% 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 was $5,270,048 in the aggregate,
which has been fully paid as of March 15, 2000.
2. Windsor, Connecticut Project. On April 27, 1989, Registrant purchased a
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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 was 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
deeded the property to the lender in 1999. As a result, the Registrant had a tax
credit recapture of approximately $147,000 which was offset by its other tax
credits, and also recognized ordinary taxable income of $1,940,000 which has
been recorded as a tax liability in prior years.
3. Orlando, Florida Project. On July 17, 1989, Registrant purchased a 90%
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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 partnership interest was $1,600,000. In August, 1999 this partnership sold
the apartment property. As a result of this sale Registrant recognized ordinary
taxable income of $5,627,000 and a tax credit recapture of approximately
$264,000 which was offset by its other tax credits. (See Management Discussion
and Analysis).
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4. St. Mary's County, Maryland Project. On November 22, 1989, Registrant
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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. 98% of the apartments were occupied as of December 31,
1999.
Competition. In each of the areas where Registrant's rental properties are
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located, there are buildings which offer similar accommodations at approximately
the same rentals. The rents charged by Registrant for its apartment 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:
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Property Managed Compensation(1) Expiration
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414 apartment units (4) 5% December, 2000 (2) (3)
20 townhouses (5) 5% December, 2000 (2) (3)
390,000 square feet of office
space(5) 3% (9) December, 2003 (2) (3)
185,000 square feet of office
space(6) 3% (9) December, 2003 (2) (3)
256 apartment units (7) 5% September, 2004 (2) (3)
105,000 square feet of
shopping-office
center (8) 3% (9) December, 2003 (2) (3)
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(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) 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 8 below) for the remainder of the contract
term.
(4) This property is located in the Southwest Washington, D.C. Urban
Renewal Area and is managed for Waterside Towers, L.L.C., an affiliate
of the Registrant.
(5) These properties are located in the Southwest Washington, D.C. Urban
Renewal Area and are managed for Trilon Plaza Company, an affiliate of the
Registrant.
(6) 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.
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(7) 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.
(8) 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.)
(9) 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 Inn
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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. Renovation was completed in December,
1997. Average occupancy in 1999 was 62%, compared to 59% in 1998. 1997
occupancy was severely impacted during the renovation period. The average daily
room revenue in 1999 was $68.40 as compared to $64.20 in 1998.
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 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 71% in 1999 compared to 75% in 1998. The average daily room
rate in 1999 was $122.82 as compared to $117.62 in 1998.
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
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". In August 1999 this partnership sold the apartment property
and recognized ordinary taxable income of $3,006,000. (See Management Discussion
and Analysis).
Convenience Stores. In June, 1986, Registrant acquired 16 parcels of real
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estate, on which Circle K Corporation operated convenience stores. These
properties are located in the southern and southeastern United States. The
aggregate purchase
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price was $3,390,000. At the time of the purchase all of the stores were under
lease through February, 2000, on a net basis, to Circle K Corporation. 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 twelve of the sixteen leases owned by Registrant.
Circle K has exercised its option to renew these four leases through February,
2005. As of March 15, 2000, five of these stores were sold, seven of these
stores are leased to unrelated parties, with one under contract of sale. The
remaining four stores have 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, 1994. The monthly rent was $48,295 for
the first five years. The monthly rent has increased to $53,245, effective June
1, 1999. Tenant has several renewal options for up to 20 additional years. The
lessee pays taxes and other operating expenses, and is responsible for 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.
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.
D. 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 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, 1999 of about $1,837,000.
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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
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On March 15, 2000, Registrant and its subsidiaries employed
approximately 120 persons.
_________________________________
Factors That May Affect Our Future Results
(Cautionary Statements Under the Private Securities Litigation Reform Act of
1995)
Certain information included in this report or in other materials we
have filed or will file with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to
be made by the Registrant) contains or may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended.
You can identify these statements by the fact that they do not relate strictly
to historical or current facts. They contain words like "anticipate,"
"estimate," "expect," "project," "intend," "plan," "believe," "may," "could,"
"might" and other words or phrases of similar meaning in connection with any
discussion of future operating or financial performance. Such statements
include information relating to plans for home building activities, land
acquisition and related activities, the renovation and releting of the
commercial space now being leased to the GSA, as well as capital spending,
financing sources and the effects of regulation and competition. From time to
time, forward-looking statements are also included in the Registrant's other
periodic reports on Forms 10-Q and 8-K, in press releases and in other material
released to the public.
Any or all of the forward-looking statements included in this report
and in any other reports or public statements of the Registrant may turn out to
be inaccurate. This can occur as a result of incorrect assumptions or as a
consequence of known or unknown risks and uncertainties. Many factors mentioned
in this report or in other reports or public statements of the Registrant, such
as government regulation and the competitive environment, will be important in
determining the Registrant's future performance. Consequently, actual results
may differ materially from those that might be anticipated from forward-looking
statements. We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
However, any further disclosures made on related subjects in our subsequent
reports on Forms 10-K, 10-Q and 8-K should be consulted. The following
cautionary discussion of risks, uncertainties and possible inaccurate
assumptions relevant to our business includes factors we believe could cause our
actual results to differ materially from expected and historical results. Other
factors beyond those listed below could also adversely affect us. This
discussion is provided as permitted by the Private Securities Litigation Reform
Act of 1995.
10
<PAGE>
We operate in a very competitive environment, which is characterized
by competition from a number of other home builders, commercial property owners
and managers and other hotel and motel properties in each market in which we
operate. Actions or changes in plans by competitors may negatively affect the
Registrant.
Our business can be affected by changes in general economic and market
conditions as well as local economic and market conditions where our operations
are conducted and where our properties are located.
The plans for future development of our residential communities and
the renovation and releting of our commercial properties in Southwest
Washington, D.C. can be affected by a number of factors including, for example,
time delays in obtaining necessary governmental permits and approvals.
The sale of homes and lots in our residential communities may be
affected by circumstances beyond our control, including weather interference,
work stoppages, labor disputes, unforeseen engineering, environmental or
geological problems, unanticipated shortages, increases in the cost of materials
and labor and the ability of our customers to finance the purchase of their
homes or lots. Any of these circumstances could give rise to delays in the
completion of or increase the cost of developing one or more of our residential
communities.
We believe that our recorded tax balances are adequate. However, it
is not possible to predict the effects of possible changes in the tax laws or
changes in their interpretation. These changes or interpretations if made,
could have a material negative effect on our operating results.
Claims have been brought against us in various legal proceedings,
which have not had, and are not expected to have material adverse effect on the
business or the financial condition of the Registrant; however, additional legal
and tax claims may arise from time to time, and it is possible that our cash
flows and results of operations could be affected from time to time by the
resolution of one or more of such matters.
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 occupies certain office space in 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-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,
11
<PAGE>
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 an appeal. Briefs were filed and oral argument
was held in October 1999. It is expected that a decision will be issued within
the next 12 to 18 months. The balance of the 19 cases will not be tried until
the appellate court decision is rendered. 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 three "copy cat" suits were filed. Two have been dismissed
with prejudice and the third suit is in discovery. Management believes this
remaining suit 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 72 Chief Executive June 2, 1970
Officer, Chairman
of the Board
and Director
Burton J. Reiner 71 President and June 2, 1970
Director
William L. Oshinsky 57 Treasurer and April 6, 1994
Director November 15, 1994
Edwin Horowitz 68 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.
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.
12
<PAGE>
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, 1998
- ----------------------------
Quarter Price
---------------------------------------------------
<S> <C> <C>
1st High 25.00
Low 20.25
---------------------------------------------------
2nd High 28.625
Low 25.00
---------------------------------------------------
3rd High 28.875
Low 27.00
---------------------------------------------------
4th High 29.50
Low 28.00
---------------------------------------------------
Year Ended December 31, 1999
- ----------------------------
Quarter Price
---------------------------------------------------
1st High 28.50
Low 27.00
---------------------------------------------------
2nd High 27.75
Low 27.25
---------------------------------------------------
3rd High 27.75
Low 27.50
---------------------------------------------------
4th High 27.75
Low 26.00
---------------------------------------------------
</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, 2000, there were 113 record holders of Common Stock.
13
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
-----------------------
1999 1998 1997/*/ 1996/*/ 1995/*/
---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues $38,682,000 $35,052,000 $35,029,000 $35,143,000 $33,824,000
Net income
(loss)
before
extra-
ordinary
item and
income taxes $19,034,000 $15,106,000 $12,823,000 $10,805,000 $ 7,491,000
Net income $11,905,000 $ 9,228,000 $ 8,265,000 $ 7,273,000 $ 6,140,000
=========== =========== =========== =========== ===========
Earning
per common
share
before
extra-
ordinary
item $ 4.30 $ 3.32 $ 2.96 $ 2.60 $ 1.57
Earnings
per common
share $ 4.30 $ 3.32 $ 2.96 $ 2.60 $ 2.18
======= ======= ======= ======= =======
Total
Assets $105,252,000 $97,886,000 $97,522,000 $94,926,000 $100,419,000
============ =========== =========== =========== ============
Long Term
Obliga-
tions $ 5,054,000 $ 5,151,000 $15,667,000 $22,238,000 $ 33,729,000
============ =========== =========== =========== ============
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 1999, Registrant entered into certain transactions beneficial to the
Company. These transactions are as follows:
Sales of Homes and Lots
- -----------------------
During 1999, Registrant sold 43 homes for $6,370,000 as compared with 41
homes in 1998 totaling $5,672,000 and 41 homes and two lots in 1997 totaling
$5,757,000.
As of March 12, 2000, Registrant owns 95 lots in Yorkshire Knolls
townhome project which are not under contract of sale. At the present rate of
sales this represents approximately a 2 to 3 year inventory. Management is
considering the possibility of purchasing additional ground for residential
construction, selling this business activity including the remaining lots, or
phasing out the home building business once the present inventory of lots is
sold.
Rental Income - Apartments and Commercial
- -----------------------------------------
Apartments. Rental income from apartments in 1999 was $2,506,000, an
----------
insignificant increase from $2,503,000 in 1998. Total units in 1999 were 294,
with an average occupancy of 94% and an average monthly income of $751, compared
with a 95% occupancy rate and average monthly income of $747 for 1998 on total
units of 294. Rental income from apartments in 1998 increased 5.0% from
$2,389,000 in 1997. Total units in 1997 were 294, with an average occupancy of
93% and an average monthly rental of $729. Rental expenses in 1999 were
$1,543,000, a 7.9% increase from $1,430, 000 in 1998. Rental expenses in 1998
decreased 4.9% compared to 1997 expenses of $1,503,000.00
Commercial. Rental income from commercial properties in 1999 was
----------
$12,133,000, a 6.6% increase from $11,379,000 in 1998. Total commercial square
footage is 540,966. Average occupancy for 1999 was 99%, with an average annual
rental of $20.37 per square foot. This compares with a 93% occupancy rate and
average annual rental of $20.28 per square foot for 1998. The increase in
commercial rental revenues in 1999 was primarily due to increased occupancy.
Commercial rental income in 1998 decreased 4.2% from $11,885,000 in 1997
primarily due to the reduction of rent to the tenant in the Sudley North Office
Building D. Average occupancy in 1997 was 93%, with an average annual rental of
$20.62 per square foot. Commercial rental income for each year described above
also included (i) rental income from Lakeview Manor nursing home of $596,442 in
1999 and $579,538 in 1998 and 1997, (ii) utility reimbursements from tenants and
property tax refunds of $305,604 in 1999, $106,026 in 1998 and $233,779 in
1997, (iii) maintenance fees of $322,535 in 1999, $282,881 in 1998 and $236,799
in 1997, and (iv) revenues from convenience store properties of $180,603 in
1999, $184,963 in 1998 and $188,636 in 1997.
The GSA Lease and related construction revenue contributed 26% and 35% of
Registrant's total revenues in 1999 and 1998, respectively. The GSA Lease
expires September, 2002. Management believes that considerable renovations will
be required in order to attract new tenants. Substantial sums will be required
to make such renovations, provide tenant improvements, pay leasing fees and
carry the space until re-rented. Although the Registrant has been husbanding
cash for these anticipated needs, the cash available may not be sufficient and
Registrant may be required to borrow funds, if available, seek joint venture
partners or sell the property. At
15
<PAGE>
this time management has begun to explore the various options but has not yet
decided which course of action to pursue.
Other Construction.
- -------------------
Other construction consists primarily of construction of tenant
improvements in the space leased to GSA. The revenue from this construction
decreased from $1,216,000 in 1998 as compared to $765,000 in 1999, a decrease of
37%, primarily because of the decreased needs of GSA as a result of the
relocation of the EPA to other facilities. It is anticipated that revenue from
other construction will decrease in the future.
Hotel.
- -----
Hotel revenues for 1999 were $7,386,000 compared to $7,224,000 for 1998
and $6,137,000 for 1997. Net income from Hotel operations was $2,211,000 for
1999, compared to $2,083,000 for 1998 and $1,219,000 for 1997.
The Holiday Inn revenues increased 11.9% in 1999 over 1998 ($2,406,000
compared to $2,151,000). This was the result of increased average room rates
and occupancy. 1998 Holiday Inn revenues increased 34.4% over 1997 revenues of
$1,411,000 as the result of the 1997 completion of the renovation to a Holiday
Inn Express. Net income (loss) from the Holiday Inn operations was $435,000 in
1999, $262,000 in 1998 and ($315,000) in 1997. Average occupancy was 62%, 59%
and 43% respectively.
The Colonnade revenues decreased 1.4% in 1999 from 1998 ($4,980,000
compared to $5,073,000). This was the result of decreased occupancy. 1998
Colonnade revenues increased 7.4% over 1997 revenues of $4,726,000 as the result
of increased average room rates and occupancy. Net income from Colonnade
operations was $1,758,000 in 1999, $1,821,000 in 1998 and $1,534,000 in 1997.
Average occupancy was 71%, 75% and 72% respectively.
Leasing Fees, Affiliates
- ------------------------
The 1997, 1998 and 1999 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 over 1997 as the result of the
amortization of the difference between the face amount of the note on Building D
and the amount paid to purchase this note. There was no significant change in
1999.
Interest - Other
- -----------------
Interest other increased from $1,561,000 in 1998 to $2,003,000 in 1999.
Interest other consists primarily of earnings on the short term investments of
cash and cash equivalents. The increase of 1999 over 1998 resulted from
increased amounts of funds available for short term investment and higher
interest rates.
Gain on Sale of Equity Investments
- ----------------------------------
During 1999 a partnership in which the Registrant holds a 90% interest
sold its 312 unit Orlando, Florida apartment complex. Registrant received
$449,000
16
<PAGE>
of cash distribution as a result of this sale. This transaction resulted in no
gain on the income statement, a reduction of $2,184,000 in deferred tax
liability. This sale reduced Registrant's low income housing tax credit carry
forward by $264,000.
During 1999 a partnership in which the Registrant holds a 64.35%
interest, sold its 160 unit Orlando, Florida apartment complex. Registrant
received $3,102,000 of cash distribution as a result of this sale. This
transaction resulted in a gain $3,006,000 on the income statement.
Income from Equity Investments
- ------------------------------
The components of this Item are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- ---------------------- --------- ---------- ----------
<S> <C> <C> <C>
Orlando, Florida Apartments (a) $ 69,000 $ (17,000)
Town Center Office Building $935,000 993,000 92,000
Tech High Leasing Company 43,000 468,000(b) 157,000
Other 19,000 91,000(c) 468,000(c)
---------- ------------- ------------
Total $997,000 $1,621,000 1,400,000
</TABLE>
(a) These properties were sold in 1999. The operating income for the
portion of 1999 prior to the sale is reflected in the gain on sale of equity
investments.
(b) The increase is due to the recognition of the gain upon the sale of
equipment under lease.
(c) 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.
Interest Expense
- ----------------
The reduction in interest expense from $868,000 in 1998 to $450,000 in 1999
is due to the 1998 consolidation of the Sudley North loans. The reduction in
interest expenses 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.
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 in 1997 and $582,000 in 1998. There
was no such write-down in 1999.
Expenses - Other
- ----------------
In 1999, Registrant expensed cash advances of $39,000 to a partnership
operating at a loss. No such advances were made in 1998 and $217,000 was
expensed
17
<PAGE>
in 1997. In 1998 $350,000 was expensed for tenant renovations.
Provision for Income Taxes
- --------------------------
The Registrant's provision for income taxes was 37.5% for 1999,
39.2% for 1998 and 35.2% for 1997.
Balance Sheet:
- --------------
Investments
- -----------
Investments consist primarily of US treasury instruments and
municipal bonds. The increase from $19,626,000 in 1998 to $35,299,000 in 1999
principally resulted from the investment of cash generated from operations.
Deferred Income
- ---------------
The liability for deferred income reduced from $544,000 at December
31, 1998 to $19,000 at December 31, 1999 as a result of the amortization of the
difference between the face amount of the note on Building D and the amount paid
to purchase this note.
Deferred Income Taxes Payable
- -----------------------------
The $6,011,000 liability in 1998 has been reduced by $2,263,000 in
1999 as a result of the sale of the 2 Orlando, Florida properties and the
default by the general partner and the termination of the Windsor, Connecticut
partnership.
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, 1999, Registrant generated cash
flow from operating activities of $16,063,000. Cash flow from operating
activities was used in investing activities of $12,740,000, which consisted of
investments in U.S. Treasury instruments, municipal bonds and other activities
of $17,696,000, less proceeds of $4,956,000 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 increase of $2,268,000 in
cash and cash equivalents and cash deposits held in escrow during the year ended
December 31, 1999.
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 a decrease of $424,000 in cash and cash equivalents
and cash deposits held in escrow during the year ended December 31, 1998.
18
<PAGE>
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.
Year 2000 Issue
- ---------------
The Registrant has not experienced any significant Year 2000
compliance issues.
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.
----------------------
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.
19
<PAGE>
A. Reports on Form 8-K. Registrant filed one report on Form 8-K during
the third quarter of fiscal 1999.
B. 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.)
20
<PAGE>
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 10-K
The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants 22
Consolidated Balance Sheets
As of December 31, 1999 and 1998 23
Consolidated Statements of Income
For the Years Ended December 31, 1999, 1998, and 1997 25
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1999, 1998, and 1997 26
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998, and 1997 27
Notes to Consolidated Financial Statements
As of December 31, 1999 and 1998 29
Schedule III - Real Estate and Accumulated Depreciation
For the Years Ended December 31, 1999 and 1998 43
Schedule IV - Mortgage Loans on Real Estate
For the Years Ended December 31, 1999, 1998, and 1997 46
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.
Exhibits 50
Shareholders may obtain a copy of any financial
schedules and any exhibits filed with Form 10-K by
writing to Edwin Horowitz, Secretary, Bresler &
Reiner, Inc., 401 M Street, S.W., Washington, D.C. 20024,
who will advise shareholders of the fee for any exhibit.
</TABLE>
21
<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, 1999 and 1998, 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, 1999. These consolidated financial statements 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bresler & Reiner,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, 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.
/s/Arthur Andersen LLP
Vienna, Virginia
March 15, 2000
22
<PAGE>
Bresler & Reiner, Inc.
Consolidated Balance Sheets
As of December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets
1999 1998
------------- ------------
<S> <C> <C>
Rental property and equipment, net $ 34,190,000 $34,871,000
Construction in process 4,244,000 7,142,000
Homes held for sale 974,000 590,000
Land held for sale 4,254,000 4,245,000
Receivables:
Mortgages and notes, affiliates 3,553,000 4,090,000
Mortgages and notes, other 385,000 800,000
Other 3,210,000 3,161,000
Investment in and advances to joint ventures and
partnerships 1,911,000 2,864,000
Cash and cash equivalents 7,606,000 5,338,000
Cash deposits held in escrow 6,035,000 9,626,000
Investments 35,806,000 19,626,000
Income taxes receivable 1,190,000 12,000
Due from affiliates 137,000 --
Deferred charges and other assets 1,757,000 5,521,000
------------ -----------
Total assets $105,252,000 $97,886,000
============ ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
23
<PAGE>
Bresler & Reiner, Inc.
Consolidated Balance Sheets
As of December 31, 1999 and 1998
Liabilities and Shareholders' Equity
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
Liabilities:
Notes payable-
Mortgages $ 5,054,000 $ 5,151,000
Accounts payable, trade 638,000 987,000
Accrued expenses 1,043,000 871,000
Tenant deposits 259,000 220,000
Deferred income 19,000 544,000
Deferred income taxes payable 3,748,000 6,011,000
Due to affiliates -- 558,000
-------------- -------------
Total liabilities 10,761,000 14,342,000
Minority interest 1,063,000 1,063,000
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 4,000,000
shares authorized; 2,839,653 shares issued;
2,745,228 and 2,780,528 shares outstanding
as of December 31, 1999 and 1998, respectively 28,000 28,000
Capital in excess of par 7,565,000 7,565,000
Retained earnings 87,475,000 75,570,000
Treasury stock (94,425 and 59,125 shares as of
December 31,1999 and 1998, respectively) (1,640,000) (682,000)
-------------- -------------
Total shareholders' equity 93,428,000 82,481,000
-------------- -------------
Total liabilities and shareholders' equity $105,252,000 $97,886,000
============== =============
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
24
<PAGE>
Bresler & Reiner, Inc.
Consolidated Statements of Income
For the Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Sales of homes and lots $ 6,370,000 $ 5,672,000 $ 5,757,000
Other construction, net 765,000 1,216,000 1,048,000
Rental income - apartments 2,506,000 2,503,000 2,389,000
Rental income - commercial 12,133,000 11,379,000 11,885,000
Hotel income 7,386,000 7,224,000 6,137,000
Management fees, affiliates 914,000 888,000 885,000
Leasing fees, affiliates 749,000 766,000 749,000
Interest-
Affiliates 1,118,000 1,178,000 852,000
Other 2,003,000 1,561,000 1,566,000
Gain on sales of realty interests, net 601,000 726,000 674,000
Equipment leasing and vending 33,000 269,000 263,000
Gain on sale of equity investment 3,006,000 -- --
Income from equity investments 997,000 1,621,000 1,400,000
Other 101,000 49,000 424,000
------------- ----------- -----------
Total revenues 38,682,000 35,052,000 34,029,000
------------- ----------- -----------
Costs and expenses:
Cost of home and lot sales 6,183,000 5,437,000 5,366,000
Rental expense - apartments 1,543,000 1,430,000 1,503,000
Rental expense - commercial 4,439,000 4,281,000 4,358,000
Hotel expense 5,175,000 5,141,000 4,918,000
Land development expense 103,000 103,000 103,000
General and administrative 1,687,000 1,796,000 1,752,000
Interest expense 450,000 868,000 1,975,000
Equipment leasing and vending 29,000 61,000 248,000
Provision for loss on real estate -- -- 650,000
Other 39,000 932,000 217,000
------------- ----------- -----------
Total costs and expenses 19,648,000 20,049,000 21,090,000
------------- ----------- -----------
Net income before income taxes and
minority interest 19,034,000 15,003,000 12,939,000
Provision for income taxes 7,129,000 5,878,000 4,558,000
------------- ----------- -----------
Net income before minority interest 11,905,000 9,125,000 8,381,000
Minority interest -- 103,000 (116,000)
------------- ----------- -----------
Net income $11,905,000 $ 9,228,000 $ 8,265,000
============= =========== ===========
Basic and diluted earnings per share $ 4.30 $ 3.32 $ 2.96
============= =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
25
<PAGE>
Bresler & Reiner, Inc.
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Capital in Total
Common Excess of Retained Treasury Shareholders'
Stock Par Earnings Stock Equity
-------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
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
Net income -- -- 11,905,000 -- 11,905,000
Purchase of treasury stock -- -- -- (958,000) (958,000)
-------- ---------- ----------- ----------- --------------
Balance, December 31, 1999 $28,000 $7,565,000 $87,475,000 $(1,640,000) $93,428,000
======== ========== =========== =========== ==============
</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, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,905,000 $ 9,228,000 $ 8,265,000
Adjustments to reconcile net income to
net cash provided by operating
activities-
Depreciation and amortization 2,304,000 2,312,000 2,364,000
Gain on sales of realty interests, net (601,000) (726,000) (674,000)
Direct financing lease payments -- -- 57,000
Amortization of investment in direct
financing leases -- -- (22,000)
Proceeds from sale of equipment under
direct financing leases -- -- 120,000
Gain on sale of equity investment (3,006,000) -- --
Income from equity investments (997,000) (1,621,000) (1,400,000)
Provision for loss on real estate -- -- 650,000
Deferred income taxes (2,263,000) 825,000 2,492,000
Changes in other assets and
liabilities:
Construction in process 2,898,000 1,452,000 (1,209,000)
Homes held for sale (384,000) 545,000 2,034,000
Land held for sale (9,000) (8,000) 533,000
Mortgages and notes receivable 1,553,000 1,743,000 1,362,000
Income taxes receivable (1,178,000) 1,144,000 (1,124,000)
Cash deposits held in escrow 3,591,000 (985,000) (5,214,000)
Other assets 3,608,000 574,000 (1,860,000)
Other liabilities (1,358,000) 21,000 (559,000)
------------ ------------ -----------
Total adjustments to reconcile net income
to net cash provided by operating
activities 4,158,000 5,276,000 (2,450,000)
------------ ------------ -----------
Net cash provided by operating activities 16,063,000 14,504,000 5,815,000
------------ ------------ -----------
Cash flows from investing activities:
Investment in joint ventures 4,956,000 2,272,000 2,251,000
Net purchases of investments and
municipal bonds (16,180,000) (5,959,000) (364,000)
Increase in rental property equipment
and other (1,516,000) (725,000) (1,876,000)
------------ ------------ -----------
Net cash (used in) provided by investing
activities (12,740,000) (4,412,000) 11,000
------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
27
<PAGE>
Bresler & Reiner, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998, and 1997
(Continued)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Repayment of notes payable $ (97,000) $(10,516,000) $(6,571,000)
Purchase of treasury stock (958,000) -- (254,000)
----------- ------------ -----------
Net cash used in financing activities (1,055,000) (10,516,000) (6,825,000)
----------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents 2,268,000 (424,000) (999,000)
Cash and cash equivalents,
beginning of year 5,338,000 5,762,000 6,761,000
----------- ------------ -----------
Cash and cash equivalents,
end of year $7,606,000 $ 5,338,000 $ 5,762,000
============ ============ ===========
Supplemental disclosures of cash
flow information:
Cash paid during the year for-
Interest $ 450,000 $ 873,000 $ 2,031,000
Income taxes 7,471,000 3,150,000 3,399,000
Supplemental disclosures of tenant
deposit activities:
Escrowed cash deposits received 146,000 177,000 192,000
Escrowed cash deposits refunded 107,000 207,000 189,000
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
28
<PAGE>
Bresler & Reiner, Inc.
Notes to Consolidated Financial Statements
As of December 31, 1999 and 1998
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,
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 the fair value. Real estate held for sale is recorded at the lower of cost
or 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 sold, in accordance with SFAS No. 67, "Accounting for Costs and
Initial Rental Operations of Real Estate Projects." The Company generally
finances its home building operations from internal cash flow.
29
<PAGE>
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 are based upon the
weighted-average number of shares outstanding during each year (2,766,429 shares
in 1999, 2,780,528 shares in 1998, and 2,789,863 shares in 1997).
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, 1999 and 1998, all investment securities, consisting of
municipal bonds, FHLMC notes, and FNMA notes, are classified as held-to-maturity
and are therefore reported at amortized cost. The fair value of these
instruments approximates carrying value at year-end. There were no unrealized
holding gains or losses. All the instruments mature within one year. There were
no sales of investment securities during 1999 or 1998.
Management's Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
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 1998 and 1997 amounts have been reclassified in order to conform to the
1999 presentation.
30
<PAGE>
2. Rental Property and Equipment, Net:
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
Land $ 3,526,000 $ 3,279,000
Buildings and improvements 56,181,000 55,519,000
Equipment 4,659,000 4,601,000
------------ -------------
64,366,000 63,399,000
Less- Accumulated depreciation (30,176,000) (28,528,000)
------------- -------------
$ 34,190,000 $ 34,871,000
============= =============
</TABLE>
Buildings and improvements and equipment are depreciated over the useful lives
of the related assets, ranging from 5 to 40 years 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:
<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Sales price $ -- $171,000 $299,000
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 601,000 662,000 486,000
--------- -------- ---------
$ 601,000 $726,000 $674,000
========== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Other construction revenues $1,714,000 $2,244,000 $1,989,000
Other construction costs 949,000 1,028,000 941,000
---------- ---------- ----------
Other construction, net $ 765,000 $1,216,000 $1,048,000
========== ========== ==========
</TABLE>
31
<PAGE>
7. Notes Payable - Mortgages:
<TABLE>
<CAPTION>
Maturities for
Debt
Outstanding as
1999 1998 of December 31, 1999
---------- ---------- ---------------------
<S> <C> <C> <C>
Mortgages payable, 8.50%(a)
collateralized by rental properties $5,054,000 $5,151,000 1999-2001
</TABLE>
(a) Interest rates relate to the 1999 balances.
None of the mortgages and notes payable are recourse to the Company at December
31, 1999. In addition, as of December 31, 1999, the Company has no recourse
obligations.
Annual contractual principal payments as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Notes Payable,
Mortgages
----------------
<S> <C>
2000 $ 106,000
2001 4,948,000
-------------
$ 5,054,000
=============
</TABLE>
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.
8. Mortgages and Notes Receivable, Affiliates:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Mortgages and notes:
Due 2009(a) $1,279,000 $1,292,000
Installment sales:
Due 1999 (b) 1,548,000 1,644,000
Due 2000 (c) 726,000 1,154,000
----------- -----------
$3,553,000 $4,090,000
=========== ===========
</TABLE>
(a) 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.
32
<PAGE>
(b) Amounts due are net of deferred gains of $1,195,000 and $1,269,000 in 1999
and 1998, respectively. The amounts are due in monthly installments of
$36,600, including interest at 9.5 percent through 2004, with a final
payment due 2004 of approximately $1,722,000 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.
(c) Amounts due are net of deferred gains of $862,000 and $1,372,000 in 1999
and 1998, respectively. The amounts are due in monthly installments of
$95,700, including interest at 10 percent through 2000, with a final payment
due of approximately $732,000 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.
9. Mortgages and Notes Receivable, Other:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Mortgages and notes:
Home sales, 8% to 12.5%, due through 2020 $ 77,000 $ 69,000
Condominium sales, 8% to 13%, net of deferred gain of
$96,000 and $114,000 in 1999 and 1998, respectively 92,000 110,000
Notes receivable:
Other, 8% to 10%, due through 2003 128,000 443,000
Tenant improvements, 10%, due through 2003 88,000 178,000
------------ -------------
$385,000 $800,000
============ =============
</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. and Baltimore, Maryland.
33
<PAGE>
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, 1999
-------------------- -------------------------------------------
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. 49% -- Owns and operates an
office building in
Southwest Washington, D.C. $8,225,000 $ 338,000 $ 7,887,000
SEW Associates 1% -- Owns and operates a
segment of a
shopping mall in
Southwest,
Washington, D.C. 4,140,000 2,015,000 2,125,000
Third Street S.W. Investors 1% -- Owns and operates
256 apt. units in
Southwest
Washington, D.C. 801,000 6,791,000 (5,990,000)
Tech High Leasing 50% -- Leveraged
equipment leasing 802,000 -- 802,000
Builders Leasing 20% -- Leveraged
equipment leasing 336,000 1,903,000 (1,567,000)
</TABLE>
11. Commitments and Contingencies:
Financial Commitments
In prior years, the Company 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 mortgage was paid off in entirety during 1999.
The Company owns interests in certain limited partnerships that operate low-
income housing units. The required capital contributions for the year 2000 is
$274,000. The amount of projected capital contributions is 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, 1999, the Company had approximately $1,057,000 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
34
<PAGE>
punitive damages. The claims of six plaintiffs were tried by 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 14 primary
plaintiffs and 3 loss of consortium plaintiffs remain to be tried. Management
believes that the claims are without merit and intends to continue to contest
the case vigorously, but the ultimate outcome of this matter is uncertain.
In prior years two "copycat" suits were filed, one of which has been dismissed
with prejudice and the other suit is in discovery. During 1998, an additional
"copycat" suit was filed. This suit has also been dismissed with prejudice.
Management believes that the claim is without merit and intends to continue to
contest the case vigorously, but the ultimate outcome of this matter is
uncertain.
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.
In aggregate, approximately 26 percent of the Company's 1999 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 is 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. 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>
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Provision for income taxes
Current tax $ 9,392,000 $5,053,000 $2,066,000
Deferred tax (2,263,000) 825,000 2,492,000
------------ ----------- -----------
Total provision for income taxes $ 7,129,000 $5,878,000 $4,558,000
============ =========== ===========
</TABLE>
35
<PAGE>
A reconciliation of the statutory federal tax rate to the Company's effective
income tax rate follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal income tax benefit 7.7 7.0 5.5
Low-income housing tax benefits (17.6) (6.9) (5.3)
Other 13.4 5.1 1.0
------- ------- -------
Effective rate 37.5% 39.2% 35.2%
======= ======= =======
</TABLE>
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 the Deferred Tax Liability Deferred Tax Liability
Year Ended (Asset) as of (Asset) as of
December 31, 1999 December 31, 1999 December 31, 1998
--------------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Basis in property $ (161,000) $1,634,000 $ 1,795,000
Investment in partnerships (2,490,000) 2,254,000 4,744,000
Installment sales 5,000 162,000 157,000
Leases (89,000) 241,000 330,000
Other 472,000 (543,000) (1,015,000)
------------- ------------ -------------
Total $(2,263,000) $3,748,000 $ 6,011,000
============= ============ =============
</TABLE>
Also, included in deferred charges and other assets in the accompanying
consolidated balance sheets are deferred tax credits earned as a result of the
Company's investments in low-income housing projects. As of December 31, 1999
and 1998, the Company's deferred tax credit totaled $584,000 and $4,813,000,
respectively. 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, 1999, 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 each. 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. In May 1999, the Company exercised its option to
purchase the land. No lease payments were made in 1999.
36
<PAGE>
Rent expense for the years ended 1999, 1998, and 1997 was approximately $43,000,
$76,000, and $78,000, 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.
Minimum rentals to be paid under all noncancelable leases at December 31, 1999,
are as follows:
<TABLE>
<CAPTION>
Amount
---------
<S> <C>
2000 $ 43,000
2001 43,000
2002 43,000
2003 43,000
2004 43,000
2005 and thereafter 2,322,000
------------
Total $ 2,537,000
============
</TABLE>
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:
<TABLE>
<CAPTION>
Noncancelable Other
Leases Leases
------------ -------------
<S> <C> <C>
2000 $11,837,000 $ --
2001 11,319,000 --
2002 3,537,000 5,596,000
2003 3,247,000 --
2004 2,263,000 --
2005 and thereafter 6,517,000 --
----------- -----------
Total $38,720,000 $5,596,000
=========== ===========
</TABLE>
37
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Revenues:
Leasing fees $749,000 $ 766,000 $749,000
Management fees 914,000 888,000 885,000
Interest -- 1,178,000 852,000
Costs and expenses:
Lumber and millwork -- -- 8,000
Insurance 579,000 520,000 453,000
</TABLE>
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 1999, 1998, and 1997 are computed as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 236,000 $ 221,000 $ 204,000
Interest cost on projected benefit obligation 238,000 216,000 196,000
Return on plan assets (250,000) (278,000) (389,000)
Amortization of unrecognized net obligation 57,000 57,000 57,000
---------- --------- ----------
Net periodic pension cost $ 281,000 $ 216,000 $ 68,000
========== ========= ==========
</TABLE>
38
<PAGE>
The following table details the Plan's net pension asset as of December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Actuarial Present Value of Benefit Obligation:
Vested benefits $ 2,851,000 $ 2,636,000
Nonvested benefits 106,000 102,000
----------- -----------
Accumulated benefit obligation 2,957,000 2,738,000
Effect of projected future compensation increases 1,183,000 1,071,000
----------- -----------
Projected benefit obligation 4,140,000 3,809,000
Plan assets at fair value 4,123,000 4,365,000
----------- -----------
(17,000) 556,000
Unrecognized net gain (372,000) (721,000)
Unrecognized net obligation at date of adoption being
recognized over 22 years 567,000 624,000
----------- -----------
Net pension asset $ 178,000 $ 459,000
=========== ===========
</TABLE>
Interest assumptions used were:
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<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,
"Disclosures 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.
39
<PAGE>
. 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 values as of December 31, 1999.
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.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------------- ------------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,606,000 $ 7,606,000 $ 5,338,000 $ 5,338,000
Cash deposits held in escrow 6,035,000 6,035,000 9,626,000 9,626,000
Investments 35,806,000 35,806,000 19,626,000 19,626,000
Receivables-
Mortgages and notes,
affiliates 3,553,000 5,610,000 4,090,000 4,578,000
Mortgages and notes,
others 385,000 574,000 800,000 948,000
Other 3,210,000 3,210,000 3,161,000 3,161,000
Financial liabilities:
Notes payable-
Mortgages 5,054,000 5,084,000 5,151,000 5,197,000
Accounts payable, trade 638,000 638,000 987,000 987,000
</TABLE>
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values. Management is concerned that reasonable
comparability between companies may not be likely due to the wide range of
permitted valuation techniques and numerous estimates that must be made given
the absence of active secondary markets for many of the financial instruments.
This lack of uniform valuation methodologies also introduces a greater degree of
subjectivity to these estimated fair values.
40
<PAGE>
17. Quarterly Results of Operations (Unaudited):
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues $8,190,000 $8,326,000 $12,096,000 $10,070,000
Net income before income
taxes and minority interest 3,706,000 4,215,000 6,969,000 4,144,000
Net income 2,277,000 2,539,000 4,503,000 2,586,000
Earnings per share 0.82 0.92 1.63 0.93
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
------------- ------------- ------------ --------------
<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>
18. Segment Information:
The Company reports segment information for the following categories: Home and
Other Construction, Commercial Rental, Residential Rentals, and Hotel
Operations. Home and Other Construction consists of residential home building as
well as renovation projects. This segment represents 16, 20, and 20 percent of
the Company's total consolidated revenue in years 1999, 1998, and 1997,
respectively. Commercial Rental focuses on providing office and retail space for
various types of tenants, ranging from retail to governmental agencies. This
segment provides 34, 36, and 38 percent of the Company's total consolidated
revenue in years 1999, 1998, and 1997, respectively. Residential Rental focuses
on providing housing for low-income families throughout the Washington, D.C.,
Metropolitan area. This segment represents 7 percent of the Company's total
consolidated revenue in years 1999, 1998 and 1997. Hotel Operations focuses on
the ownership of two hotel properties. This segment provides 16, 21, and 18
percent of the Company's total consolidated revenue in years 1999, 1998 and
1997, respectively. Other revenue is composed of various activities and
represents the remaining 35, 27, and 24 percent of the Company's total
consolidated revenue in years 1999, 1998 and 1997, 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
that offer different products. They are managed separately as each segment
requires different operating, pricing, and leasing strategies. All the
properties have been acquired separately and are incorporated into the
applicable segment.
<TABLE>
<CAPTION>
For the Years Ended December 31
--------------------------------------------------
1999 1998 1997
-------------- ------------- -----------------
<S> <C> <C> <C>
Revenues:
Home and other construction $ 7,135,000 $ 6,888,000 $ 6,687,000
Commercial rental 15,455,000 12,661,000 13,099,000
Residential rental 2,506,000 2,503,000 2,390,000
Hotel management 7,386,000 7,224,000 6,172,000
Other 9,676,000 9,677,000 8,233,000
Consolidated entries (3,476,000) (3,901,000) (2,552,000)
-------------- ------------- -------------
Total 38,682,000 35,052,000 34,029,000
-------------- ------------- -------------
Gross operating income:
Home and other construction 952,000 1,451,000 1,404,000
Commercial rental 9,267,000 6,498,000 6,994,000
Residential rental 813,000 923,000 742,000
Hotel management 2,211,000 2,083,000 1,254,000
Other 7,916,000 5,384,000 3,792,000
SG&A (1,687,000) (1,796,000) (1,751,000)
Income taxes and minority interest (7,129,000) (5,775,000) (4,674,000)
Consolidated entries (438,000) 460,000 504,000
-------------- ------------- -------------
Total 11,905,000 9,228,000 8,265,000
-------------- ------------- -------------
Assets:
Home and other construction 6,254,000 8,602,000 10,814,000
Commercial rental 55,056,000 52,683,000 49,050,000
Residential rental 1,805,000 1,924,000 2,134,000
Hotel management 10,185,000 10,455,000 10,630,000
Other 38,762,000 32,506,000 23,944,000
Income taxes receivable 1,190,000 12,000 1,156,000
Consolidated entries (8,000,000) (8,296,000) 600,000
-------------- ------------- -------------
Total $105,252,000 $97,886,000 $98,328,000
============== ============= =============
</TABLE>
42
<PAGE>
Bresler & Reiner, Inc.
Schedule III - Real Estate and Accumulated Depreciation
For the Years Ended December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Column C Column D
------------------------------- ----------------------------------------
Cost Capitalization Subsequent to
Column A Column B Initial Cost to Company Acquisition
- --------------------------- ---------------- ------------------------------- ----------------------------------------
Building and
Description Encumbrances Land Improvements Improvements Carrying Cost
- --------------------------- ---------------- -------------- --------------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1999:
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 3,388 247 --
NationsBank Building (Office
Building in Manassas,
Virginia) N/A 63 798 43 --
Paradise/Sudley North
(four 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 $ 21,528 $ 111
======= ========= ========= ======
</TABLE>
(a) Asset acquisition recorded December 31, 1993.
Bresler & Reiner, Inc.
Schedule III - Real Estate and Accumulated Depreciation
For the Years Ended December 31, 1999 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Column E
-----------------------------------------------
Gross Amount at Which Carried at Close of
Period Column F Column G Column H Column I
----------------------------------------------- ------------- ------------ ------------- ---------------
Life on Which
Depreciation on
Latest Income
Building and Accumulated Date of Statement is
Description Land Improvements Total Depreciation Construction Date Acquired Computed
- ---------------- --------- ---------------- --------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the year ended
December 31, 1999:
Charlestown North
(Apartments in
Greenbelt, Maryland) $ -- $2,448 $2,448 $1,904 -- 1971 5-40 years
Commons (Apartments in
Washington, D.C.) 387 1,643 2,030 1,129 -- 1971 5-40 years
Waterside Mall East
(Shopping Center in
Washington, D.C.) -- 15,610 15,610 10,217 1975 -- 8-40 years
Georgian Gardens
(Apartments in
Oxon Hill, Maryland) -- -- -- -- -- Various 20 years
Lakeview Manor Nursing
Home (Lakewood,
New Jersey) 100 4,026 4,126 2,671 -- 1984 5-30 years
Uptown (Hotel in
Baltimore, Maryland) -- 5,669 5,669 867 -- 1993(a) --
Allentown Road Motel
(Suitland, Maryland) 378 4,587 4,965 2,366 -- 1987 19 years
Egap (Convenience
Stores in Florida,
Louisiana, and North 391 2,202 2,593 1,509 -- 1987 19 years
Carolina)
NationsBank Building
(Office Building in
Manassas, Virginia) 90 787 877 205 1991 -- 3 1/2 years
Paradise/Sudley North
(four Office
Buildings in
Manassas, Virginia) 1,898 17,216 19,114 5,964 1987 -- 3 1/2 years
7800 Building (Office
Building in Manassas,
Virginia) 283 2,012 2,295 741 1990 -- 15-31 1/2 years
------ ------- ------- -------
$3,527 $56,200 $59,727 $27,573
====== ======= ======= =======
</TABLE>
(a) Asset acquisition recorded December 31, 1993.
43
<PAGE>
Bresler & Reiner, Inc.
Schedule III - Real Estate and Accumulated Depreciation
For the Years Ended December 31, 1999 and 1998
(Dollars in thousands)
(Continued)
<TABLE>
<CAPTION>
Column C Column D
------------------------------- ----------------------------------------
Cost Capitalization Subsequent to
Column A Column B Initial Cost to Company Acquisition
- --------------------------- ---------------- ------------------------------- ----------------------------------------
Building and
Description Encumbrances Land Improvements Improvements Carrying 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 N/A 58 3,388 -- --
Carolina)
NationsBank Building (Office
Building in Manassas,
Virginia) N/A 63 798 43 --
Paradise/Sudley North
(four 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
======= ======= ======= ========
</TABLE>
(a) Asset acquisition recorded December 31, 1993.
<TABLE>
<CAPTION>
Column E
-----------------------------------------------
Gross Amount at Which Carried at Close of
Period
-----------------------------------------------
Building and
Description Land Improvements Total
- ---------------- --------- ---------------- ---------------
<S> <C> <C> <C>
For the year ended
December 31, 1998:
Charlestown North
(Apartments in
Greenbelt, Maryland) $ -- $ 2,448 $ 2,448
Commons (Apartments in
Washington, D.C.) 387 1,628 2,015
Waterside Mall East
(Shopping Center in
Washington, D.C.) -- 15,610 15,610
Georgian Gardens
(Apartments in
Oxon Hill, Maryland) -- -- --
Lakeview Manor Nursing
Home (Lakewood,
New Jersey) 100 4,026 4,126
Uptown (Hotel in
Baltimore, Maryland) -- 5,637 5,637
Allentown Road Motel
(Suitland, Maryland) 378 4,587 4,965
Egap (Convenience Stores in
Florida, Louisiana, and North 143 2,117 2,260
Carolina)
NationsBank Building (Office
Building in Manassas,
Virginia) 90 787 877
Paradise/Sudley North
(four Office Buildings in
Manassas, Virginia) 1,898 16,669 18,567
7800 Building (Office Building
in Manassas, Virginia) 283 2,010 2,293
------- ------- -------
$3,279 $55,519 $58,798
======= ======= =======
</TABLE>
44
<PAGE>
Bresler & Reiner, Inc.
Notes to Schedule III
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Land and building and improvements:
Balance, January 1 $58,798 $59,249
Additions during period-
Improvements 929 486
------- -------
59,727 59,735
Deductions during period-
Write-off of fully depreciated assets -- --
Other -- 937
------- -------
Balance, December 31 $59,727 $58,798
======= =======
Accumulated depreciation:
Balance, January 1 $25,806 $24,802
Additions during period-
Depreciation expense 1,767 1,765
------- -------
27,573 26,567
Deductions during period-
Other -- 761
Balance, December 31 $27,573 $25,806
======= =======
</TABLE>
45
<PAGE>
Bresler & Reiner, Inc.
Schedule IV - Mortgage Loans on Real Estate
For the Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------------------- ----------- --------------- ----------------- --------------
Periodic Payment
Description Interest Maturity Date Terms Prior Liens
- ------------------------------------------------------- ----------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1999:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 2004 36,600/month(a) None
SEW Investors (S.W. Washington, D.C.) 10% 2000 95,700/month(b) None
Town Center East Investors (S.W. Washington, D.C.) 8.5% 2001 9,670/month(b) None
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 2009 11,200/month(c) None
Other-
First mortgages:
Home loans (Montgomery County, Maryland;
$50,000 to $159,000; 1 unit) 9.5% to 13.5% Various through 2013
Developed land loans (St. Mary's County, Maryland;
$20,000 to $50,000; 1 unit) 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 F Column G Column H
- ------------------------------------------------------- ----------- --------------- -----------------------
Principal Amount of
Carrying Mortgage Loans Subject
Face Amount Amount of to Delinquent Principal
Description of Mortgages Mortgages or Interest
- ------------------------------------------------------- ----------- --------------- ----------------------
<S> <C> <C> <C>
For the year ended December 31, 1999:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) $4,350,000 $1,548,000 None
SEW Investors (S.W. Washington, D.C.) 9,300,000 726,000 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 1,279,000 None
----------
$3,553,000
==========
Other-
First mortgages:
Home loans (Montgomery County, Maryland;
$50,000 to $159,000; 1 unit) $62,000 None
Developed land loans (St. Mary's County, Maryland;
$20,000 to $50,000; 1 unit) 1,000 None
Condominium loans (Oxon Hill, Maryland;
$10,000 to $20,000; 38 units) 92,000 None
----------
155,000
----------
$3,708,000
==========
</TABLE>
46
<PAGE>
Bresler & Reiner, Inc.
Schedule IV - Mortgage Loans on Real Estate
For the Years Ended December 31, 1999, 1998, and 1997
(Continued)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------------------- ----------- --------------- ----------------- --------------
Periodic Payment
Description Interest Maturity Date Terms Prior Liens
- ------------------------------------------------------- ----------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
For the year ended December 31, 1998:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 2004 36,600/month(a) None
SEW Investors (S.W. Washington, D.C.) 12.0% 2000 95,700/month(b) None
Town Center East Investors (S.W. Washington, D.C.) 8.5% 2001 9,670/month(b) None
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 2009 11,200/month(c) None
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 F Column G Column H
- ------------------------------------------------------- ----------- --------------- -----------------------
Principal Amount of
Carrying Mortgage Loans Subject
Face Amount Amount of to Delinquent Principal
Description of 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>
47
<PAGE>
Bresler & Reiner, Inc.
Schedule IV - Mortgage Loans on Real Estate
For the Years Ended December 31, 1999, 1998, and 1997
(Continued)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------------------- ----------- --------------- ----------------- --------------
Periodic Payment
Description Interest Maturity Date Terms Prior Liens
- ------------------------------------------------------- ----------- --------------- ---------------- --------------
<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.) 9.5% 1999 36,600/month(a) None
SEW Investors (S.W. Washington, D.C.) 12.0% 2000 95,700/month(b) None
Town Center East Investors (S.W. Washington, D.C.) 8.5% 2001 9,670/month(b) None
3rd Street Southwest Investors (S.W. Washington, D.C.) 9.5% 2009 11,200/month(c) None
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 F Column G
- ------------------------------------------------------- ----------- ---------------
Carrying
Face Amount Amount of
Description of Mortgages Mortgages
- ------------------------------------------------------- ----------- ---------------
<S> <C> <C>
For the year ended December 31, 1997:
Related parties-
Second mortgages:
3rd Street Southwest Investors (S.W. Washington, D.C.) $4,350,000 $1,731,000
SEW Investors (S.W. Washington, D.C.) 9,300,000 1,642,000
Town Center East Investors (S.W. Washington, D.C.) 1,200,000 308,000
3rd Street Southwest Investors (S.W. Washington, D.C.) 1,333,000 1,303,000
----------
$4,984,000
==========
Other-
First mortgages:
Home loans (Montgomery County, Maryland;
$50,000 to $159,000; 5 units) $ 215,000
Developed land loans (St. Mary's County, Maryland;
$20,000 to $50,000; 7 units) 44,000
Condominium loans (Oxon Hill, Maryland;
$10,000 to $20,000; 38 units) 129,000
----------
388,000
----------
$5,372,000
==========
</TABLE>
48
<PAGE>
Bresler & Reiner, Inc.
Notes to Schedule IV
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Carrying value at January 1 $4,269,000 $5,372,000 $6,027,000
Deductions during period-
Collections of principal 561,000 1,103,000 655,000
---------- ---------- ----------
Carrying value at December 31 $3,708,000 $4,269,000 $5,372,000
========== ========== ==========
</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 28, 2000 /s/ Charles S. Bresler
----------------------
Charles S. Bresler, Chairman
of the Board
(Chief Executive Officer)
Date: March 28, 2000 /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 28, 2000 /s/ Charles S. Bresler
----------------------
Charles S. Bresler, Director
Date: March 28, 2000 /s/ Ralph S. Childs, Jr.
------------------------
Ralph S. Childs, Jr., Director
Date: March 28, 2000 /s/ Stanley S. DeRisio
----------------------
Stanley S. DeRisio, Director
Date: March 28, 2000 /s/ Edwin Horowitz
------------------
Edwin Horowitz, Director
Date: March 28, 2000 /s/ William L. Oshinsky
-----------------------
William L. Oshinsky, Director
Date: March 28, 2000 /s/ Burton J. Reiner
--------------------
Burton J. Reiner, Director
51
<PAGE>
EXHIBIT 21. Subsidiaries of Registrant (2)
Percentage of Voting
Securities of Sub-
sidiaries Owned by
Place of Registrant as of
Name (1) Incorporation December 31, 1999
Charles Burton Builder, Inc. Maryland 100%
Town Center District of
Management Corp. Columbia 100%
Investment Company of
B & R, Inc. Delaware 100%
Allentown Road Motel (3)
Corporation Maryland 100%
Uptown Hotel Corp. (3) Maryland 100%
WMC Management Co., Inc. District of
Columbia 100%
Sudley Corporation Virginia 100%
(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.
(3) Effective December 27, 1999 these corporations were merged into Bresler &
Reiner, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
12/31/99 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,641,000
<SECURITIES> 35,806,000
<RECEIVABLES> 7,148,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 64,366,000
<DEPRECIATION> 30,176,000
<TOTAL-ASSETS> 105,252,000
<CURRENT-LIABILITIES> 0
<BONDS> 5,054,000
0
0
<COMMON> 28,000
<OTHER-SE> 93,400,000
<TOTAL-LIABILITY-AND-EQUITY> 105,252,000
<SALES> 7,135,000
<TOTAL-REVENUES> 38,682,000
<CGS> 6,183,000
<TOTAL-COSTS> 6,183,000
<OTHER-EXPENSES> 13,015,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 450,000
<INCOME-PRETAX> 19,034,000
<INCOME-TAX> 7,129,000
<INCOME-CONTINUING> 11,905,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,905,000
<EPS-BASIC> 4.30
<EPS-DILUTED> 4.30
</TABLE>
