<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
----------------
(MARK ONE)
[X]JOINT ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-9109 COMMISSION FILE NUMBER 0-9110
SANTA ANITA OPERATING COMPANY
SANTA ANITA REALTY ENTERPRISES, INC. (EXACT NAME OF REGISTRANT AS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SPECIFIED IN ITS CHARTER) DELAWARE
(STATE OR OTHER JURISDICTION OF
DELAWARE INCORPORATION OR ORGANIZATION)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) 95-3419438
(I.R.S. EMPLOYER IDENTIFICATION NO.)
95-3520818
(I.R.S. EMPLOYER IDENTIFICATION NO.)
285 WEST HUNTINGTON DRIVE
301 WEST HUNTINGTON DRIVE, SUITE 405 ARCADIA, CALIFORNIA 91007
ARCADIA, CALIFORNIA 91007 (ADDRESS OF PRINCIPAL EXECUTIVE
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
OFFICES INCLUDING ZIP CODE) (818) 574-7223
(REGISTRANT'S TELEPHONE NUMBER,
(818) 574-5550 INCLUDING AREA CODE)
(REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
COMMON STOCK $.10 PAR VALUE COMMON STOCK $.10 PAR VALUE
(TITLE OF CLASS) (TITLE OF CLASS)
NEW YORK STOCK EXCHANGE
NEW YORK STOCK EXCHANGE (NAME OF EACH EXCHANGE ON WHICH
(NAME OF EACH EXCHANGE ON WHICH REGISTERED)
REGISTERED)
SANTA ANITA REALTY ENTERPRISES, INC.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
NONE NONE
(TITLE OF EACH CLASS) (TITLE OF EACH CLASS)
NEW YORK STOCK EXCHANGE
(NAME OF EACH EXCHANGE ON WHICH
REGISTERED)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
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 III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the paired voting stock of Santa Anita Realty
Enterprises, Inc. and of Santa Anita Operating Company held by nonaffiliates
on March 15, 1996 was $145,598,000.
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the close of business on March 15, 1996:
<TABLE>
<S> <C>
Santa Anita Realty Enterprises, Inc. Common Stock 11,383,000
Santa Anita Operating Company Common Stock 11,270,500
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference in Part III of this
Joint Annual Report on Form 10-K: Joint proxy statement for the annual
meetings of shareholders of Santa Anita Realty Enterprises, Inc. and Santa
Anita Operating Company to be held on May 7, 1996.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I.................................................................... 3
Item 1.Business......................................................... 3
Introduction.......................................................... 3
General............................................................... 3
Realty................................................................ 5
Summary Financial Information....................................... 5
Real Estate Investments and Policies................................ 6
Santa Anita Racetrack............................................... 7
Regional Malls...................................................... 8
Santa Anita Fashion Park.......................................... 8
Towson Town Center................................................ 9
Neighborhood Shopping Centers....................................... 9
Office Buildings.................................................... 9
Land................................................................ 9
Pacific Gulf Properties Inc......................................... 9
Management of Properties............................................ 10
Competitive and Other Conditions.................................... 10
Environmental Matters............................................... 10
Employees........................................................... 11
Seasonal Variations in Business..................................... 11
Operating Company..................................................... 11
Santa Anita Racetrack............................................... 12
Wagering Commissions.............................................. 12
On-Track Wagering............................................... 13
Satellite Wagering--Southern California......................... 13
Satellite Wagering--Northern California......................... 13
Satellite Wagering--Out-of-State (Commingled Pools)............. 13
Satellite Wagering--Out-of-State (Separate Pools)............... 13
Competitive and Other Conditions.................................... 17
Dependence on Limited Number of Customers........................... 17
Employee and Labor Relations........................................ 17
Seasonal Variations in Business..................................... 18
Income Tax Matters.................................................... 18
Item 2.Properties....................................................... 20
Item 3.Legal Proceedings................................................ 20
Item 4.Submission of Matters to a Vote of Security Holders.............. 20
Item 4a. Executive Officers of Operating Company and Realty............. 20
PART II................................................................... 22
Item 5.Market for the Registrants' Common Equity and Related Shareholder
Matters........................................................... 22
Item 6.Selected Financial Data.......................................... 23
Item 7.Managements' Discussion and Analysis of Financial Condition and
Results of Operations............................................. 26
Item 8.Financial Statements and Supplementary Data...................... 32
Item 9.Disagreements on Accounting and Financial Disclosure............. 32
PART III.................................................................. 33
PART IV................................................................... 33
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K................................................................. 33
SIGNATURES................................................................ 34
INDEX TO FINANCIAL STATEMENTS............................................. 36
INDEX TO FINANCIAL STATEMENT SCHEDULES.................................... 37
EXHIBIT INDEX............................................................. 99
</TABLE>
2
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS
INTRODUCTION
Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating
Company ("Operating Company") are two separate companies, the stocks of which
trade as a single unit under a stock-pairing arrangement on the New York Stock
Exchange (symbol SAR). Realty and Operating Company were each incorporated in
1979 and are the successors of a corporation originally organized in 1934 to
conduct thoroughbred horse racing in Southern California. As used herein, the
terms "Realty" and "Operating Company" include wholly owned subsidiaries of
Realty and Operating Company unless the context requires otherwise. References
to "The Santa Anita Companies" or "Companies" refer to Realty and Operating
Company, collectively. This document constitutes the annual report on Form 10-
K for both Realty and Operating Company.
GENERAL
The Companies own and operate the Santa Anita Racetrack ("Racetrack"), one
of the premier thoroughbred horse racing venues in North America. Operating
Company has conducted a winter live thoroughbred horse racing meet at the
Racetrack each year since 1934 (except for three years during World War II).
In addition, the Racetrack has been the site of a fall meet conducted by Oak
Tree Racing Association ("Oak Tree") which has leased the Racetrack from
Operating Company since 1969. The Racetrack was the location of the 1986 and
1993 Breeders' Cup Championships.
The 17-week 1995 Santa Anita winter meet, which concluded April 24, 1995,
generated average daily wagering of $11.2 million, one of the highest daily
wagering levels ever attained in North American thoroughbred horse racing.
Further, average daily purses during the same meet were among the largest
distributed in North American thoroughbred horse racing. Operating Company
believes that its exceptional purse structure enables it consistently to
attract top thoroughbred horses, owners, trainers and jockeys. Santa Anita's
live races are simulcast to 16 satellite wagering sites in Southern
California, 15 sites in Northern California and 851 sites in 38 other states
and seven foreign countries. Approximately 75% of wagering at Santa Anita's
1995 winter meet was through off-site satellite wagering sites. Operating
Company believes that it is well positioned to benefit from the continued
industry trend toward satellite wagering, which has been driven by
technological developments, legislative changes and customers' desire for
convenience.
A significant portion of thoroughbred horse racing wagering and purse
distribution are concentrated at the industry's largest and best established
racetracks. In 1995, approximately 50% of total wagering nationwide was
attributable to the industry's ten largest racetracks. Santa Anita is part of
the Southern California thoroughbred racing circuit which also includes
Hollywood Park, Del Mar and Pomona Fairplex. Live racing is conducted at one
of these racetracks from four to six days during each week in the year. During
1995, 279 total days of racing were held at these racetracks, comprising in
sequential order, the Santa Anita winter meet (88 days), the Hollywood Park
spring and summer meet (67 days), the Del Mar meet (43 days), the Pomona
Fairplex meet (19 days), the Oak Tree fall meet at the Racetrack (32 days) and
the Hollywood Park fall meet (30 days). Wagering at the Southern California
race meets approximated 24% of estimated total wagering on thoroughbred horse
racing nationwide in 1995. Wagering on race meets at the Racetrack ranked
first nationwide with approximately 10% of the 1995 estimated total wagering.
As an industry leader in thoroughbred horse racing and pari-mutuel wagering,
Operating Company believes that it will continue to benefit as smaller
racetracks and other wagering sites import satellite signals from larger
racetracks that have stronger regional and national reputations.
3
<PAGE>
The Racetrack is part of Santa Anita Park, the Companies' approximately 400-
acre property located in Arcadia, California, 14 miles from downtown Los
Angeles, and close to major Southern California freeways leading to Orange
County and connecting to the San Fernando, San Gabriel and Pomona valleys.
Santa Anita Park's location offers access to more than 13 million people
within a fifty-mile radius and more than 5 million people within a twenty-mile
radius. In addition to the Racetrack, Santa Anita Park also includes Santa
Anita Fashion Park ("Fashion Park"), a one million square-foot regional mall
in which Realty has a 50% interest. Fashion Park completed a significant
expansion in August 1994, including the addition of Nordstrom as an anchor
store, and upgraded its mall tenant mix. In addition to Santa Anita Park,
Realty has a number of other commercial real estate investments including six
neighborhood shopping centers, three office buildings and a partial interest
in another major regional mall. In November 1995, Realty announced a program
for the orderly disposition of the six neighborhood centers and two office
buildings in order to reduce debt, improve financial flexibility and increase
Realty's focus on the development of its Arcadia property.
Realty has announced the proposed development of an Entertainment Center
within Santa Anita Park. The initial phase of the development is expected to
include a 25-screen AMC movie theater complex, a large screen theater, a book
superstore and other specialty retail stores and restaurants. In March 1995,
Realty submitted zoning and general plan amendment applications to the City of
Arcadia to commence the entitlement process for the development of the
Entertainment Center. While the applications provide for the development of as
many as 1.5 million leasable square feet, Santa Anita presently plans to
develop the Entertainment Center in a number of separate, independently viable
phases. It is currently Realty's expectation to receive necessary governmental
approvals by late 1996. Currently, plans for later phases of the development
contemplate expanded entertainment, restaurant and retail uses.
On May 2, 1995, Realty entered into a 20-year lease (with two ten-year
options) with AMC for an approximately 102,000 square-foot movie theater
complex at the Entertainment Center. The theater complex is expected to be one
of the largest developed by AMC, and is expected to include 25 screens and
5,500 seats and feature state-of-the art sound systems, stadium style seating
and deluxe amenities. Santa Anita is currently in lease discussions with
several other potential Entertainment Center tenants.
4
<PAGE>
REALTY
Realty is incorporated under the laws of the State of Delaware. Realty's
principal executive offices are located at 301 West Huntington Drive, Suite
405, Arcadia, California 91007.
Realty operates as a real estate investment trust ("REIT") under the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"). As
such, Realty is principally engaged in investing in and holding real property,
including Santa Anita Racetrack, the real estate underlying the Santa Anita
Fashion Park shopping center ("Fashion Park"), a 50 percent interest in the
operation of Fashion Park and a 32.5 percent interest in Towson Town Center
(major regional shopping centers) and a number of neighborhood shopping
centers and office buildings. Until February 18, 1994, Realty also owned 2,654
apartment units and 185,000 square feet of industrial space and until October
1, 1994 an additional 622,000 square feet of industrial space. Realty is a
self-administered equity REIT.
SUMMARY FINANCIAL INFORMATIOn
The following table sets forth certain unaudited financial information with
respect to Realty:
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------------
1995 1994 1993 1992 1991
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues...................... $ 22,426 $26,232 (a) $41,961 $35,967 $31,499
Net income (loss)(b).......... (30,871) 5,545 2,619 10,211 9,699
Funds from operations(c)...... 13,424 14,513 17,872 18,238 16,671
Per share:
Net income (loss)........... (2.73) .49 .23 .91 .86
Dividends paid.............. .80 1.08 1.36 1.36 2.08
Dividends declared.......... .80 .94 1.36 1.36 1.90
Weighted average shares
outstanding.................. 11,326 11,256 11,256 11,256 11,257
</TABLE>
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(a) The decline in revenues was due primarily to the sale of properties to
Pacific. See Item 1. "Business--Realty--Pacific Gulf Properties Inc."
(b) Net income (loss) for the years ended December 31, 1995, 1994 and 1993
each included several non-recurring items totaling a net charge of
$36,070,000, $1,782,000 and $5,240,000. Net income excluding nonrecurring
charges was $5,199,000, $7,327,000 and $7,859,000 for the years ended
December 31, 1995, 1994 and 1993.
(c) Calculated in accordance with the definition of funds from operations as
defined by the National Association of Real Estate Investment Trusts
("NAREIT"), except 1993 which excludes $5,734,000 received from the
California Franchise Tax Board related to the settlement of certain state
tax issues. Net income (computed in accordance with generally accepted
accounting principles), excluding gains (losses) from debt restructuring,
sales of property and nonrecurring items, plus depreciation and
amortization (including Realty's portion of depreciation from
unconsolidated joint ventures).
5
<PAGE>
REAL ESTATE INVESTMENTS
Realty's portfolio of real estate investments (excluding its interests in
Pacific Gulf Properties Inc. and certain unconsolidated joint ventures) is
outlined below.
SUMMARY OF REAL ESTATE INVESTMENTS
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
NET BOOK VALUE
PERCENT LEASABLE PERCENT (B) ENCUMBRANCES (C)
LEASED AREA (A) OWNERSHIP (IN THOUSANDS) (IN THOUSANDS)
------- --------- --------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
INVESTMENTS TO BE HELD
Racing Facility:
Santa Anita Racetrack. 100% 312 acres 100.0% $ 9,030 $ --
Office Building:
California
Medical Office
Building........... 97 75,000 100.0 12,701 8,796
Land:
California
Land underlying
Fashion Park....... 100 73 acres 100.0 346 3,831
------- -------
$22,077 $12,627
======= =======
INVESTMENTS TO BE SOLD
Shopping Centers:
California
Yorba Linda......... 91 53,000 100.0 $ 7,924 $ 3,453
Orange.............. 87 21,000 100.0 4,431 1,702
Encinitas........... 84 80,000 100.0 11,037 4,250
Arizona, Phoenix
Tatum and
Thunderbird........ 100 52,000 100.0 3,442 2,848
28th and Indian
School............. 89 31,000 100.0 2,087 1,659
67th and Indian
School............. 97 75,000 100.0 5,332 1,370
Office Buildings:
California
Civic Center Plaza
Towers............. 70 152,000 100.0 16,156 --
Upland.............. 81 36,000 100.0 4,563 --
Land:
California
Temecula............ N/A 24 acres 50.0 480 480
Allowance for loss on
disposition of non-core
real estate assets..... (27,800) --
------- -------
$27,652 $15,762
======= =======
</TABLE>
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(a) Square feet except as indicated.
(b) Net book value (total cost of project less accumulated depreciation) at
December 31, 1995.
(c) Amounts represent 100% of project encumbrances.
6
<PAGE>
SANTA ANITA RACETRACK
Santa Anita Racetrack, which is leased by Realty to the Los Angeles Turf
Club, Incorporated ("LATC"), a subsidiary of Operating Company, is located on
approximately 312 acres, 14 miles northeast of downtown Los Angeles, adjacent
to major transportation routes. LATC conducts one of the largest thoroughbred
horse racing meets in the United States in terms of both average daily
attendance and average daily pari-mutuel wagering.
The Santa Anita Racetrack was opened for thoroughbred horse racing in 1934
by a group of investors led by Dr. Charles H. Strub. The Santa Anita Meet has
been held at Santa Anita Racetrack each year since its founding except for
three years during World War II. The physical plant consists of a large
grandstand structure occupying approximately 970,000 square feet, stalls for
approximately 2,000 horses, and a parking area covering approximately 128
acres which can accommodate approximately 20,000 automobiles. The grandstand
facilities include clubhouse accommodations, a general admission area, and
food and beverage facilities, which range from fast food stands to
restaurants, both at outdoor terrace tables and indoor dining areas. The
grandstand has seating capacity for 25,000 as well as standing room for
additional patrons. The structure also houses Operating Company's executive
and administrative offices. The grounds surrounding the grandstand are
extensively landscaped and contain a European-style paddock and infield
accommodations, including picnic facilities for special groups and the general
public.
During 1995, the lease rental payable to Realty by LATC was 1.5% of total
live on-track wagering at Santa Anita Racetrack, including live on-track
wagering during the meet conducted by Oak Tree. In addition, Realty receives
26.5% of LATC's revenues from satellite wagering (not to exceed 1.5% of such
wagering) and the simulcasting of races originating from Santa Anita Racetrack
after mandated payments to the State, to horse owners and to breeders. When
LATC operates as a satellite for Hollywood Park Racetrack and Del Mar
Racetrack, Realty receives 26.5% of LATC's wagering commissions as additional
rent. The lease with LATC which was scheduled to expire December 31, 1994, was
amended and extended for an additional five years, through December 31, 1999.
The previous lease provided for rent of 1.5% of the aggregate on-track
wagering on live races at Santa Anita Racetrack and 40% of LATC's wagering
commissions from satellite wagering on races originating at Santa Anita
Racetrack. Accordingly, the rental income which Realty receives from Santa
Anita Racetrack is directly affected by and dependent upon the racing
activities and the wagering by patrons (see Item 1. "Business--Operating
Company--Santa Anita Racetrack").
Based upon the rental formula, for the year ended December 31, 1995, Realty
received $11,342,000 in rental income from horse racing, compared with
$13,070,000 received for the year ended December 31, 1994 (see Item 1.
"Business--Operating Company--Santa Anita Racetrack"). If the amended lease
terms had been in effect for the year ended December 31, 1994, racetrack
rental revenues would have been $11,123,000.
The following table shows rental earned by Realty under the LATC lease for
the last five years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT FOR RACING DAYS)
---------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Combined racing days................. 120 117 114 121 120
======= ======= ======= ======= =======
Rent from Racetrack.................. $11,342 $13,070 $11,634 $12,683 $11,817
======= ======= ======= ======= =======
</TABLE>
For a further description of thoroughbred horse racing operations, see Item
1. "Business--Operating Company--Santa Anita Racetrack."
7
<PAGE>
REGIONAL MALLS
SANTA ANITA FASHION PARK
Santa Anita Fashion Park is a completely enclosed, climate-controlled
regional mall located adjacent to Santa Anita Racetrack with 1,102,000 square
feet of leasable area. Fashion Park, apart from space occupied by anchor
tenants, is owned and operated by a partnership, Anita Associates, of which
Realty is a 50% limited partner. The general partner of Anita Associates is
Hahn-UPI, which in turn is a limited partnership of which The Hahn Company, a
developer of shopping centers, is the general partner.
Fashion Park completed a significant expansion in August 1994, including the
addition of a new 136,000 square foot Nordstrom store and an additional 40,000
square feet of mall stores. Other anchor tenants are Robinsons-May (165,000
square feet), J.C. Penney (215,000 square feet) and The Broadway (188,000
square feet). Since 1994, new mall tenants include The Disney Store, Williams
Sonoma, Ann Taylor and California Pizza Kitchen. During 1993, the Robinsons-
May store was expanded by approximately 40,000 square feet and a food court of
approximately 13,000 square feet was completed and opened. Since 1994, each of
the anchor department stores has completed a major remodeling of their stores.
In January 1994, Anita Associates refinanced its existing debt by entering
into a secured loan agreement with an insurance company. Funding under the
secured loan was made in two draws of $46,577,000 at 9.0% in January 1994 and
$15,778,000 at 9.25% in December 1994. The secured loan is due in January
2003. At December 31, 1995, $61,196,000 was outstanding under the agreement.
There are currently 135 tenants operating mall stores. Leases are generally
seven to ten years with clauses providing for escalation of the basic rent
every three years. Typically, leases with mall tenants are structured to
provide Anita Associates with overage rents upon attainment by the tenant of
certain sales levels, which are specified under the individual leases of the
various stores. Overage rents represent a fixed percentage of the gross sales
of a tenant less its base rent. With the addition of Nordstrom, Fashion Park
has been able to attract higher quality mall tenants at higher annual rental
rates.
Realty has leased the land underlying Fashion Park to Anita Associates and
to three of the major tenants of Fashion Park until 2037, with two additional
ten-year option periods and one additional five-year option period. The ground
rent is $527,000 annually until October 1996 when the annual rent will
increase to $795,000 through 2007. During the remaining 30-year term and the
three additional option periods, the annual ground rent may be increased up to
25% based upon the appraised value of the land. Under the provisions of the
ground leases, Anita Associates is responsible for real estate taxes and other
operating expenses. Robinsons-May, J.C. Penney, The Broadway and Nordstrom pay
their own real estate taxes.
The land underlying Fashion Park is security for a loan maturing in 2009
with a balance at December 31, 1995 of $3,831,000. Payments on this
indebtedness, which is without recourse to Realty, are approximately $473,000
annually. The security to the lender also includes an assignment of the ground
rents received by Realty and a collateral assignment of the ground leases.
The following table contains certain information pertaining to the mall
stores in Fashion Park (excluding major tenants):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of mall tenants................... 135 130 116 107(a) 134
====== ====== ====== ====== ======
Average annual rental rates per square
foot including overage rents............ $20.81 $19.78 $16.42 $16.98 $15.80
====== ====== ====== ====== ======
</TABLE>
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(a) Decline due primarily to certain leases not being renewed in anticipation
of the expansion completed in 1994.
8
<PAGE>
TOWSON TOWN CENTER
Towson Town Center located in Towson, Maryland, is a 980,000 square-foot
regional mall which opened in 1991. Realty is a 50% partner with The Hahn
Company in H-T Associates, a joint venture which owns a 65% interest in a
partnership which owns the Towson Town Center. The anchor tenants at Towson
Town Center are Nordstrom (224,000 square feet) and Hecht's (193,000 square
feet) department stores.
There are 171 other tenants operating mall stores with original lease terms
varying up to 15 years. The average annual rental rate per square foot
including overage rents was $32.61 per square foot for the operating mall
stores. The mall tenant leases generally provide for escalation of the basic
rent every three years and are structured to provide Towson Town Center with
overage rents upon attainment by the tenant of certain sales levels, which are
specified under the individual leases of the various stores. Overage rents
represent a fixed percentage of the gross sales of a tenant less its base
rent.
Realty has executed joint and several guaranties of loans used to expand the
Towson Town Center in the amount of $66,135,000 and property adjacent to the
Towson Town Center in the amount of $8,247,000. Annually, the guarantors may
request a reduction in the amount of the guaranty based on the economic
performance of the regional mall (see "Notes to Financial Statements--Note 6--
Investments in Unconsolidated Joint Ventures").
NEIGHBORHOOD SHOPPING CENTERS
Realty owns six neighborhood shopping centers. The shopping centers
typically consist of a major supermarket, retail store or drugstore as a major
tenant and often include a variety or general merchandise store and smaller
service store tenants. In two centers the major tenant owns its building and
the underlying land, while in the four other centers, the land or improvements
are leased to the major tenant. Leases on the properties range from two to ten
years in duration but typically are from three to five years. They are
generally triple net leases (tenant pays all operating costs, insurance and
property taxes) and provide for future rental increases. At December 31, 1995,
the average occupancy of the three shopping centers located in California was
96% and the average occupancy of the three shopping centers located in Arizona
was 87%.
In November 1995, Realty announced its intention to dispose of the six
neighborhood shopping centers.
OFFICE BUILDINGS
Realty owns three office buildings located in Arcadia, Santa Ana and Upland,
California. The office buildings in Santa Ana and Upland are for general
office use and the building in Arcadia is a medical office building. Office
leases are typically for a period of five to ten years and are offered on a
full-service gross basis. In addition, tenants are given a tenant improvement
allowance and rental concessions in the form of additional tenant improvement
allowances or free rent. At December 31, 1995, the average occupancy of the
office buildings was 77%.
In November 1995, Realty announced its intention to dispose of the Santa Ana
and Upland office buildings.
LAND
Realty is a 50% partner in French Valley Ventures, a partnership which
acquired 24 acres of unimproved land located in Temecula, California. In
December 1994, the partnership negotiated a reduction in the maturing mortgage
on this property. Additionally, the carrying cost of the investment was
written down to its estimated market value which equals the amount of the
debt.
In November 1995, Realty announced its intention to dispose of its interest
in this property.
PACIFIC GULF PROPERTIES INC.
In November 1993, Realty entered into a Purchase and Sale Agreement to sell
its multifamily and industrial operations to Pacific Gulf Properties Inc.
("Pacific"), in conjunction with Pacific's proposed public offering of common
stock and debentures.
9
<PAGE>
On February 18, 1994, Realty completed the first part of this transaction by
selling to Pacific ten multifamily properties, containing 2,654 apartment
units, located in Southern California, the Pacific Northwest, and Texas and
three industrial properties, containing an aggregate of 185,000 leasable
square feet of industrial space, located in the State of Washington (the
"Transferred Properties"). Realty's corporate headquarters building and
related assets were also acquired by Pacific.
In consideration of the sale of the Transferred Properties, Realty received
approximately $44.4 million in cash and 150,000 shares of common stock of
Pacific. In addition, Realty was relieved of approximately $44.3 million of
mortgage debt on the Transferred Properties.
In connection with the sale, the executive officers, various managers and
most other employees of Realty resigned and became officers and employees of
Pacific on February 18, 1994.
Effective October 1, 1994, Realty completed the second part of the
transaction, the sale of its interest in Baldwin Industrial Park to Pacific.
Effective October 31, 1994, Pacific delivered to Realty an additional 634,419
shares of Pacific common stock as consideration for the second part of the
transaction and the corporate headquarters and other net assets.
The two parts of the above transaction resulted in a loss of $10,974,000,
which was reflected in the Realty and The Santa Anita Companies statements of
operations for the year ended December 31, 1993.
As a result of the February 18, 1994 and October 1, 1994 sales to Pacific,
Realty owns 784,419 shares (or approximately 16.2%) of Pacific's outstanding
common shares at December 31, 1995. Pacific trades on the American Stock
Exchange (symbol PAG). On March 15, 1996, the closing price of Pacific's
common stock was $18.00.
On February 2, 1996, Realty notified Pacific of Realty's intent to sell the
Pacific shares in an orderly manner pursuant to privately negotiated or open
market transactions. Realty also exercised its right to have Pacific register
such shares pursuant to a Registration Rights Agreement dated as of February
1, 1994.
MANAGEMENT OF PROPERTIES
Realty manages its neighborhood shopping centers and office buildings
directly.
COMPETITIVE AND OTHER CONDITIONS
The regional shopping malls, neighborhood shopping centers and office
buildings owned by Realty encounter significant competition from similar or
larger regional shopping malls, shopping centers and office buildings
developed and owned by other companies.
Realty's income from its real estate assets is also affected by general
economic conditions. The recent recession adversely affected vacancy rates in
office buildings generally. Recessionary measures could adversely impact
vacancy rates, the nature of Realty's tenants, the rents Realty is able to
obtain from its tenants and its financial results.
Some of Realty's properties are located in Southern California, which is an
area subject to earthquakes and, therefore, there can be no assurance that any
earthquakes that may occur will not damage Realty's properties or negatively
impact the financial position or results of Realty.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The costs
of investigation, removal or remediation of such substances may be
substantial, and the presence of such substances, or the failure to properly
remediate such substances, may
10
<PAGE>
adversely affect the owner's ability to sell or rent such property or to
borrow using such property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of a release of such substances at a disposal
treatment facility, whether or not such facility is owned or operated by such
person. Certain environmental laws impose liability for release of asbestos-
containing materials ("ACMs") into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated
with ACMs. In connection with the ownership (direct or indirect), operation,
management and development of real properties, the Companies may be considered
an owner or operator of such properties or as having arranged for the disposal
or treatment of hazardous or toxic substances and therefore, potentially
liable for removal or remediation costs, as well as certain other related
costs, including governmental fines and injuries to persons and property.
EMPLOYEES
At December 31, 1995, Realty employed 22 persons on a full-time basis.
SEASONAL VARIATIONS IN BUSINESS
Realty is subject to significant seasonal variation in revenues due
primarily to the seasonality of thoroughbred horse racing. The following table
presents unaudited quarterly results of operations for Realty during 1995 and
1994:
<TABLE>
<CAPTION>
QUARTERS ENDED
1995
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
--------------------------------
MARCH JUNE SEPT. DEC.
------- ------ -------- -------
<S> <C> <C> <C> <C>
Total revenues............................... $ 9,066 $4,795 $ 3,009 $ 5,556
Costs and expenses........................... 3,155 2,645 3,104 2,922
Interest and other........................... 1,120 1,118 1,074 1,009
Costs of equity offering..................... -- 700 -- --
Card club option write-off................... -- -- 2,000 --
Program for disposition of non-core real
estate assets............................... -- -- 34,500 4,000
------- ------ -------- -------
Income (loss) before extraordinary gain...... 4,791 332 (37,669) (2,375)
Extraordinary gain on early retirement of
debt........................................ -- -- -- 4,050
------- ------ -------- -------
Net income (loss)............................ $ 4,791 $ 332 $(37,669) $ 1,675
======= ====== ======== =======
Net income (loss) per common share
Before extraordinary gain.................. $ .43 $ .03 $ (3.31) $ (.21)
Extraordinary gain......................... -- -- -- .36
------- ------ -------- -------
$ .43 $ .03 $ (3.31) $ .15
======= ====== ======== =======
<CAPTION>
QUARTERS ENDED
1994
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
--------------------------------
MARCH JUNE SEPT. DEC.
------- ------ -------- -------
<S> <C> <C> <C> <C>
Total revenues............................... $12,717 $5,733 $ 2,711 $ 5,071
Costs and expenses........................... 4,712 2,056 2,245 4,701
Interest expense and other................... 1,941 1,287 1,362 1,340
Write-down of land held for development...... -- -- -- 1,043
------- ------ -------- -------
Net income (loss)............................ $ 6,064 $2,390 $ (896) $(2,013)
======= ====== ======== =======
Net income (loss) per common share........... $ .54 $ .21 $ (.08) $ (.18)
======= ====== ======== =======
</TABLE>
OPERATING COMPANY
Operating Company is organized under the laws of the State of Delaware.
Operating Company's principal executive offices are located at Santa Anita
Racetrack, 285 West Huntington Drive, Arcadia, California 91007.
11
<PAGE>
Operating Company is engaged in thoroughbred horse racing. The thoroughbred
horse racing operation is conducted by a wholly owned subsidiary of Operating
Company, Los Angeles Turf Club, Incorporated ("LATC"), which leases Santa
Anita Racetrack from Realty.
SANTA ANITA RACETRACK
LATC conducts an annual 17-week thoroughbred horse racing meet which
commences the day after Christmas and continues through mid-April (the "Santa
Anita meet"). LATC conducts one of the largest thoroughbred horse racing meets
in the United States in terms of both average daily attendance and average
daily pari-mutuel wagering.
LATC leases the racetrack from Realty for the full year for a fee of 1.5% of
the on-track wagering on live races at Santa Anita Racetrack, which includes
the Oak Tree meet. In addition, LATC pays to Realty 26.5% of its wagering
commissions from satellite wagering (not to exceed 1.5% of such wagering).
When LATC operates as a satellite for Hollywood Park and Del Mar, LATC pays
26.5% of its wagering commissions as additional rent to Realty. LATC has
sublet the racetrack to Oak Tree to conduct Oak Tree's annual thoroughbred
horse racing meet (32 days in 1995), which commences in late September or
early October. Oak Tree races five weeks in even-numbered years and six weeks
in odd-numbered years.
Under a sublease which expires December 31, 1999, Oak Tree makes annual
rental payments to LATC equal to 1.5% of the total live on-track pari-mutuel
wagering from its racing meet and 25% of its satellite and simulcast revenues
after mandated payments to the State of California, to horse owners and to
breeders. LATC pays to Realty 26.5% of all satellite and simulcast revenues
received from Oak Tree. In addition, Oak Tree reimburses LATC an amount equal
to 0.8% of its on-track pari-mutuel wagering for certain expenses of operating
Santa Anita Racetrack on behalf of Oak Tree. LATC also receives supplemental
rent representing Oak Tree's adjusted profits above an agreed-upon level and
will rebate rent to Oak Tree if Oak Tree's adjusted profits fall below such
level (see Item 1. "Business--Operating Company--Santa Anita Racetrack--
Wagering Commissions").
WAGERING COMMISSIONS
The State has vested administrative authority for racing and wagering at
horse racing meets with the California Horse Racing Board. The California
Horse Racing Board, which consists of seven members appointed by the governor
of the State, is charged with the responsibility of regulating the form of
wagering, the length and conduct of meets and the distribution of the pari-
mutuel wagering within the limits set by the California legislature. The
California Horse Racing Board is also charged with the responsibility of
licensing horse racing associations on an annual basis to conduct horse racing
meets and of licensing directors, officers and persons employed by the
associations to operate such meets.
California law specifies the percentage distribution of pari-mutuel wagering
with the percentage varying based upon the total wagering for the meet, breed
of horse and type of wager. The following table sets forth the allocation of
the total pari-mutuel wagering, on- and off-track, by percentage and dollar
amount during the 1994-95 Santa Anita meet:
<TABLE>
<CAPTION>
DISTRIBUTION OF PARI-MUTUEL WAGERING
------------------------------------
DOLLAR AMOUNT
PERCENTAGE (IN THOUSANDS)
----------------- --------------------
<S> <C> <C>
Return to Wagerers........... 80.86% $ 630,354
State of California.......... 3.62 28,272
Track Commissions to LATC.... 4.21 32,796
Horse Owners and Breeders.... 4.30 33,504
Satellite Operator and
Location Fees............... 6.77 52,770
Cities and Counties.......... .24 1,850
----------------- -------------------
100.00% $ 779,546
================= ===================
</TABLE>
12
<PAGE>
On-Track Wagering
All wagering on-track is pari-mutuel, meaning literally a mutual wager, or
wagering by individuals against each other. The racetrack acts as the broker
for the wagers made by the public and deducts a "take-out" or gross commission
which is fixed by the State and shared with the State, the racetrack operator,
the horse owners and breeders, and the municipality in which the racetrack is
located. The racetrack operator has no interest in which horse wins a given
race.
Satellite Wagering--Southern California
LATC and Oak Tree send televised racing signals to other racetracks in
Southern California, non-racing fair sites in Southern California and wagering
facilities on Indian reservation land in Southern California. Southern
California satellite facilities commingle their wagering with the wagering on-
track. LATC's and Oak Tree's share of this type of satellite wagering averages
approximately 4.4%.
During the Hollywood Park and Del Mar meets, LATC and other Southern
California racing associations and fairs operate as satellite facilities. In
addition to retaining about 1.9% of the pari-mutuel wagering at Santa Anita
Racetrack as its commission, LATC receives income from admissions, parking and
food and beverage sales. In 1995, Santa Anita Racetrack operated 140 days as a
satellite for Hollywood Park and Del Mar.
Satellite Wagering--Northern California
In the fall of 1993, California law permitted the limited exchange between
Southern and Northern California of televised racing signals on races with
purses exceeding $20,000. In the summer of 1994, a change in California law
permitted the unlimited exchange of racing signals between the Southern
California zone and the Northern California zone.
Racetracks operating a live thoroughbred race meet in the southern zone and
in the northern zone receive the out-of-zone racing signal and rebroadcast the
signal within their respective southern or northern zones. Each zone
commingles their wagering on the out-of-zone race with the other zone. While
operating a live race meeting, LATC and Oak Tree receive approximately 4.5% of
wagering on-track and at Southern California satellite facilities on Northern
California races. Also, during the live race meeting, LATC and Oak Tree
receive 1.25% of wagering in Northern California on Santa Anita races.
Satellite Wagering--Out-of-State (Commingled Pools)
Legislation has been enacted in certain states permitting the transmission
of pari-mutuel wagers across state lines. This format permits patrons wagering
in those states on races held at Santa Anita Racetrack to participate in the
same pari-mutuel pool payouts available to LATC's on-track patrons and
California satellite patrons. LATC currently participates in satellite
wagering with numerous sites in Nevada and additional locations in Alabama,
Arizona, Colorado, Connecticut, Delaware, Florida, Idaho, Illinois, Iowa,
Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Montana,
Nebraska, New Hampshire, New Jersey, North Dakota, Oregon, Pennsylvania, Rhode
Island, Texas, Washington, West Virginia and Wisconsin and receives a
negotiated percentage of the pari-mutuel wagering at such sites.
Out-of-state satellite wagering started in 1991 with total pari-mutuel
wagering of $39,445,000 which increased to $202,591,000 for 1995. LATC's share
of the commissions from out-of-state satellite wagering was $3,528,000 for
1995, or approximately 1.7% of the out-of-state wagering.
Satellite Wagering--Out-of-State (Separate Pools)
LATC and Oak Tree transmit their live racing signals to numerous locations
in the United States, Mexico, the Caribbean, Central America and Canada.
LATC's share of the commissions for transmitting its racing signal was
$1,599,000 in 1995 and $1,431,000 in 1994. During the Oak Tree meet, LATC
receives a percentage of Oak Tree's share of simulcasting revenues. LATC is
pursuing opportunities to transmit its signal to additional locations.
13
<PAGE>
The following tables summarize key operating statistics for the 1991-1995
Santa Anita meets and the 1991-1995 Oak Tree meets, together with the
attendance and wagering statistics relating to the transmission of the Del Mar
and Hollywood Park signals to Santa Anita Racetrack.
<TABLE>
<CAPTION>
RACING MEETS ENDED IN
-------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
LIVE RACING
Santa Anita Meet:
Number of racing days...... 88 90 83 94 88
========= ========= ========= ========= =========
Attendance
On-track................. 1,144,568 1,257,909 1,215,208 1,531,538 2,014,618
Southern California
satellite
locations (a)........... 1,388,249 1,523,220 1,332,126 1,576,763 666,611
--------- --------- --------- --------- ---------
Total.................. 2,532,817 2,781,129 2,547,334 3,108,301 2,681,229
========= ========= ========= ========= =========
Average daily............ 28,782 30,901 30,691 33,067 30,469
========= ========= ========= ========= =========
Wagering ($000) (b)
On-track................. $ 244,271 $ 270,452 $ 250,729 $ 323,223 $ 470,471
Southern California
satellite
locations (a)........... 333,630 315,731 267,346 315,851 133,791
Northern California
satellite
locations (c)........... 96,187 37,639 -- -- --
Out-of-state locations... 309,305 263,235 135,815 112,871 72,239
--------- --------- --------- --------- ---------
Total.................. $ 983,393 $ 887,057 $ 653,890 $ 751,945 $ 676,501
========= ========= ========= ========= =========
Average daily............ $ 11,175 $ 9,856 $ 7,878 $ 7,999 $ 7,688
========= ========= ========= ========= =========
Oak Tree Meet:
Number of racing days (d).. 32 27 31 27 32
========= ========= ========= ========= =========
Attendance
On-track................. 394,251 377,007 499,617 425,774 506,833
Southern California
satellite
locations (a)........... 428,876 378,256 444,932 390,088 454,264
--------- --------- --------- --------- ---------
Total.................. 823,127 755,263 944,549 815,862 961,097
========= ========= ========= ========= =========
Average daily............ 25,723 27,973 30,469 30,217 30,034
========= ========= ========= ========= =========
Wagering ($000) (b)
On-track................. $ 80,084 $ 74,319 $ 99,789 $ 79,162 $ 102,740
Southern California
satellite
locations (a)........... 104,495 86,237 80,024 75,714 88,699
Northern California
satellite
locations (c)........... 27,000 21,715 6,403 -- --
Out-of-state locations... 110,646 65,107 75,426 28,581 24,935
--------- --------- --------- --------- ---------
Total.................. $ 322,225 $ 247,378 $ 261,642 $ 183,457 $ 216,374
========= ========= ========= ========= =========
Average daily............ $ 10,070 $ 9,162 $ 8,440 $ 6,795 $ 6,762
========= ========= ========= ========= =========
</TABLE>
- --------
(a) Southern California satellite wagering expanded to include Hollywood Park
and Los Alamitos effective with the 1991 Oak Tree meet.
(b) Includes wagering on races originating at other racetracks.
(c) Northern California satellite wagering began in October 1993 and expanded
in August 1994.
(d) Oak Tree races five weeks in even-numbered years and six weeks in odd-
numbered years.
14
<PAGE>
Total pari-mutuel wagering on the Santa Anita meet increased from $676.5
million in 1991 to $983.4 million in 1995. In 1991, $206.0 million of the
total amount wagered was wagered at satellite locations with $470.5 million
wagered on-track. In 1995, $739.1 million of the total amount wagered was
wagered at satellite locations with $244.3 million wagered on-track.
Total attendance was 2,681,000 in 1991, of which 667,000 was at satellite
locations. By 1995, total attendance had declined to 2,533,000. Although
1,388,000 and 1,523,000 patrons attended Southern California satellite
locations during the Santa Anita meets in 1995 and 1994, LATC does not share
in the revenues from admissions, parking and food and beverage sales at the
satellite locations.
Management anticipates that the general trend of increases in off-track
wagering will continue and the decrease experienced in on-track attendance and
on-track wagering will also continue, albeit at a slower rate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Santa Anita Operating Company."
<TABLE>
<CAPTION>
RACING MEETS ENDED IN
-------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
AS A SATELLITE
Santa Anita as Satellite for Del
Mar:
Number of racing days........... 43 43 42 43 43
======== ======== ======== ======== =======
Attendance
Total......................... 200,725 212,817 223,599 242,947 273,333
======== ======== ======== ======== =======
Average daily................. 4,668 4,949 5,324 5,650 6,357
======== ======== ======== ======== =======
Wagering ($000)
Total......................... $ 51,589 $ 52,118 $ 54,928 $ 55,435 $66,068
======== ======== ======== ======== =======
Average daily................. $ 1,200 $ 1,212 $ 1,308 $ 1,289 $ 1,536
======== ======== ======== ======== =======
Santa Anita as Satellite for
Hollywood Park (a):
Number of racing days........... 97 102 99 101 32
======== ======== ======== ======== =======
Attendance
Total......................... 457,480 486,581 505,239 515,510 154,233
======== ======== ======== ======== =======
Average daily................. 4,716 4,770 5,103 5,104 4,820
======== ======== ======== ======== =======
Wagering ($000)
Total......................... $113,899 $117,661 $112,623 $114,858 $36,233
======== ======== ======== ======== =======
Average daily................. $ 1,174 $ 1,154 $ 1,138 $ 1,137 $ 1,132
======== ======== ======== ======== =======
</TABLE>
- --------
(a)Began in November 1991.
During the last five years, 61% of the annual revenues of LATC resulted from
pari-mutuel and other wagering commissions. The remaining revenues resulted
from admissions, parking, food and beverage sales, sale of programs and
interest and other income.
15
<PAGE>
The following table sets forth certain unaudited financial information with
respect to LATC:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
---------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Wagering commissions:
On-track........................... $15,262 $16,831 $15,878 $18,695 $26,107
Southern California satellite
locations......................... 14,866 13,665 12,078 13,706 5,742
Northern California satellite
locations......................... 2,193 654 -- -- --
Out-of-state locations............. 5,127 4,719 3,238 2,792 2,379
Satellite for Del Mar and Hollywood
Park.............................. 3,210 3,310 3,391 3,422 2,005
Sublease income.................... 4,929 3,917 3,843 2,724 4,250
Admission related.................... 24,060 24,750 25,842 28,795 30,180
------- ------- ------- ------- -------
Revenues............................. 69,647 67,846 64,270 70,134 70,663
------- ------- ------- ------- -------
Costs and Expenses:
Horse racing operating costs......... 48,686 48,352 46,696 52,254 51,779
Depreciation and amortization........ 3,196 4,251 2,768 2,732 2,634
General and administrative........... 3,216 3,125 3,973 3,739 3,344
------- ------- ------- ------- -------
Costs and expenses................... 55,098 55,728 53,437 58,725 57,757
------- ------- ------- ------- -------
Income from operations before rent and
income taxes.......................... $14,549 $12,118 $10,833 $11,409 $12,906
======= ======= ======= ======= =======
</TABLE>
The mix of revenues has changed significantly from 1991 to 1995 primarily as
a result of the introduction of satellite wagering on races originating at
Santa Anita Racetrack, operating as a satellite location for Del Mar and
Hollywood Park, changes in average daily pari-mutuel wagering, selective price
increases, the introduction of additional exotic wagering opportunities on
which the retention amount is higher than on conventional wagering and a new
lease with Oak Tree, all of which have largely offset declines in commissions
from on-track wagering.
LATC's total expenses decreased from $57.8 million in 1991 to $55.1 million
in 1995. The majority of these expenses are pari-mutuel wagering or
attendance-related, the result of operating as a satellite location for Del
Mar and Hollywood Park and the aggregate effect of a new lease with Oak Tree.
In 1991, costs and expenses included $1.1 million in earthquake damage. From
1991 to 1992, total costs and expenses increased primarily due to the fact
that LATC operated as a satellite location for the first time for Hollywood
Park's spring thoroughbred meet and the engagement of outside consultants in
the amount of $660,000 to review LATC's operations. From 1992 to 1993, total
costs and expenses decreased primarily due to fewer race days, lower on-track
attendance and wagering and an ongoing cost reduction program begun in 1992.
From 1993 to 1994, total costs and expenses increased primarily due to
additional race days and increased wagering. Depreciation expense of $4.3
million in 1994 is higher than in previous years due to a $1.4 million
accelerated depreciation charge on the Santa Anita turf course, which was
replaced in 1995.
Included in the results of operations are the revenues and expenses for five
charity days. As a condition of the issuance of a racing license, California
law requires that a certain number of days be conducted as charity days. The
net proceeds from these charity days are distributed to beneficiaries through
a nonprofit organization approved by the California Horse Racing Board.
California law limits the net proceeds to an amount equal to two-tenths of one
percent of the total on-track wagering on live races. Net proceeds in excess
of two-tenths of one percent are retained by LATC. LATC is required to conduct
five charity days.
For further information regarding operating results, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Santa Anita Operating Company."
16
<PAGE>
COMPETITIVE AND OTHER CONDITIONS
The Southern California area offers a wide range of leisure time spectator
activities, including professional and college teams which participate in all
major sports. LATC and Oak Tree compete with such sporting events for their
share of the leisure time market and with other numerous leisure time
activities available to the community, some of which are broadcast on
television.
As an outdoor activity, horse racing is more susceptible to inclement
weather than some other leisure time activities. This is particularly true of
the Santa Anita meet which is held during the winter. Between 1952 and 1992,
LATC had never lost a racing day due to inclement weather. During the 1992-
1993 meet, LATC lost two full days and two partial days of racing because of
inclement weather. During the 1994-1995 meet, LATC lost two days of racing
because of inclement weather.
A local Arcadia ordinance limits live horse racing to daylight hours but
allows the importation of a horse racing broadcast signal two evenings per
week.
The California Horse Racing Board has annually licensed LATC and Oak Tree to
conduct racing meets at Santa Anita Racetrack. At present, the California
Horse Racing Board has not licensed other thoroughbred racetracks in Southern
California to conduct racing during these meets. Since 1972, however, night
harness racing and night quarterhorse meets have been conducted at other
racetracks in Southern California during portions of these meets. LATC and Oak
Tree could be adversely affected by legislative or California Horse Racing
Board action which would increase the number of competitive racing days,
reduce the number of racing days available to LATC and Oak Tree, or authorize
other forms of wagering.
The California State Lottery Act of 1984, which provided for the
establishment of a state-operated lottery, was implemented in 1985. In the
opinion of management, the State lottery has had an adverse impact and will
continue to have an adverse impact on total attendance and pari-mutuel
wagering at Santa Anita Racetrack (see Item 1 "Business--Operating Company--
Santa Anita Racetrack").
In the future, legislation could be enacted to allow casino gaming or other
forms of gaming which are competitive with pari-mutuel wagering at Santa Anita
Park. Under federal law, certain types of gaming are lawful on Indian lands if
conducted in conformance with a Tribal-State compact, which the applicable
state must negotiate with an Indian tribe in good faith. Certain Indian tribes
seeking to establish gaming in California have instituted litigation against
the State of California to compel the State to permit them to do so. In 1993,
one federal district court held that California has a public policy
prohibiting casino gaming and need not negotiate a compact with respect to
casino gaming. In 1994, a federal appellate court generally affirmed the
decision as to casino gaming but remanded the case to federal district court
to determine whether the existing State lottery uses gaming machines in such a
manner as to make gaming machines the proper subject of a compact. In March
1995, a State appellate court ruled that a provision of the State lottery's
keno game is the legal equivalent of a slot machine. The full ramifications of
these rulings at this time are unclear. However, federal law provides that
states must allow Indian tribes within its borders to conduct gambling
activities that are otherwise legal within the state, subject to the
negotiated compact. If casino gaming or other forms of gaming are permitted in
California, such gaming could have an adverse impact on LATC.
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS
No material part of Operating Company's business is dependent upon a single
customer or a few customers; therefore, the loss of any one customer would not
have a materially adverse effect on the business of Operating Company.
EMPLOYEE AND LABOR RELATIONS
During the year ended December 31, 1995, LATC regularly employed
approximately 1,600 employees. Substantially all are employed on a seasonal
basis in connection with live thoroughbred horse racing or satellite meets at
Santa Anita Racetrack. During the relatively short periods when live or
satellite racing meets at Santa
17
<PAGE>
Anita Racetrack are not being conducted, LATC maintains a staff of
approximately 260 employees, most of whom are engaged in maintaining or
improving the physical facilities at Santa Anita Racetrack or are engaged in
preparing for the next live or satellite meet.
All of LATC's employees, except for approximately 84 full-time management
and clerical employees, are covered by collective bargaining agreements with
labor unions. Fifteen of the seventeen labor agreements covering racetrack
employees were renegotiated in 1995. The two remaining labor agreements are
currently under renegotiation.
SEASONAL VARIATIONS IN BUSINESS
Operating Company is also subject to significant seasonal variation. LATC
conducts an annual meet commencing the day after Christmas and continuing
through mid-April. This seasonal variation is indicated by the following
unaudited quarterly results of operations for Operating Company during 1995
and 1994:
<TABLE>
<CAPTION>
QUARTERS ENDED
1995
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
-------------------------------
MARCH JUNE SEPT. DEC.
------- ------- ------ -------
<S> <C> <C> <C> <C>
Total revenues.............................. $37,003 $15,572 $6,269 $11,489
Costs and expenses.......................... 34,944 15,135 6,246 12,341
Interest.................................... 91 87 130 93
------- ------- ------ -------
Income (loss) before income taxes........... 1,968 350 (107) (945)
Income tax benefit.......................... -- -- -- 2,000
------- ------- ------ -------
Net income (loss)........................... $ 1,968 $ 350 $ (107) $ 1,055
======= ======= ====== =======
Net income (loss) per common share.......... $ .18 $ .03 $ (.01) $ .09
======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
1994
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
-------------------------------
MARCH JUNE SEPT. DEC.
------- ------- ------ --------
<S> <C> <C> <C> <C>
Total revenues.............................. $36,207 $15,294 $5,599 $ 11,311
Costs and expenses.......................... 36,062 16,126 5,469 13,586
Interest.................................... 106 112 120 108
------- ------- ------ --------
Net income (loss)........................... $ 39 $ (944) $ 10 $(2,383)
======= ======= ====== ========
Net income per common share................. $ .00 $ (.08) $ .00 $ (.21)
======= ======= ====== ========
</TABLE>
Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except for season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those interim periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.
INCOME TAX MATTERS
In 1979, prior to the pairing of the stock of Realty and Operating Company,
the IRS issued a private letter ruling (the "Ruling") in which the IRS held,
in effect, that the stock-pairing arrangement between the Companies and the
operation of the Racetrack by an Operating Company subsidiary would not
preclude Realty's qualification as a REIT. Subsequent to the issuance of the
Ruling, Congress amended the Internal Revenue Code (the "Amendment") to
prohibit a stock-pairing arrangement between a REIT and an operating company.
However, the Amendment does not apply to the Companies since they were paired
prior to June 30, 1983, the
18
<PAGE>
effective date of the legislation. Furthermore, the Amendment does not affect
Realty's Ruling. Realty is one of only three continuing REITs whose stock was
paired with an operating company prior to 1983 and is thus not subject to the
Amendment.
REALTY
In the opinion of management, Realty has operated in a manner which has
qualified it as a REIT under Sections 856 through 860 of the Code. Realty
intends to continue to operate in a manner which will allow it to qualify as a
REIT under the Code. If, as intended, Realty continues to qualify as a REIT,
it generally will not be subject to federal corporate income taxes on its
taxable income and gains that it distributes to its shareholders. This
treatment substantially eliminates the "double taxation" (once at the
corporate level and again at the stockholder level) that generally results
from investment in a typical corporation. Income and gains that are not so
distributed will be taxed to a REIT at regular corporate rates. In addition, a
REIT is subject to certain taxes on net income from "foreclosure property"
(which is, in general, property acquired on default of a lease of such
property), income from the sale of property held primarily for sale to
customers in the ordinary course of business and excessive unqualified income.
In order to qualify as a REIT, among other things, the rental income received
by Realty from LATC must qualify as "rents from real property" for REIT
purposes. One requirement for such qualification is that Realty may not own,
directly or constructively, 10% or more of the outstanding voting power or
total number of shares of stock of LATC. Realty would be treated as owning
shares of stock in LATC in violation of this 10% limit if any person owns,
directly or constructively, 10% or more by value of the shares of stock of
Realty and Operating Company. In such an event, the rent paid to Realty by
LATC could not qualify as income of the type that can be received by a REIT.
In order to prevent such a situation, which would likely result in Realty's
disqualification as a REIT, the by-laws of Realty and Operating Company
preclude any transfer of shares which would cause any person to own, actually
or constructively, shares of stock of the Companies in violation of the above
limitation.
OPERATING COMPANY
Operating Company pays ordinary corporate income taxes on its taxable
income. Any income, net of taxes, will be available for retention in Operating
Company's business or for distribution to shareholders as dividends. Any
dividends distributed by Operating Company will be subject to tax at ordinary
rates and generally will be eligible for the dividends received deduction for
corporate shareholders to the extent of Operating Company's current or
accumulated earnings and profits. Distributions in excess of current or
accumulated earnings and profits are treated first, as a return of investment
and then, to the extent that such distribution exceeds a shareholder's
investment, as gain from the sale or exchange of such shares. However, there
is no tax provision which requires Operating Company to distribute any of its
after-tax earnings and Operating Company does not expect to pay cash dividends
in the foreseeable future.
19
<PAGE>
ITEM 2. PROPERTIES
Information concerning property owned by Realty and Operating Company
required by this Item is incorporated by reference to the information
contained in Item 1. "Business" of this Report.
ITEM 3. LEGAL PROCEEDINGS
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or were pending against Realty and/or Operating
Company and its subsidiaries at December 31, 1995. In the opinion of the
managements of Realty and Operating Company, all such matters are adequately
covered by insurance or, if not so covered, are without merit or are of such
kind, or involve such amounts, as would not have a significant effect on the
financial position or results of operations of Realty and Operating Company if
disposed of unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF OPERATING COMPANY AND REALTY
(a) The names, ages and business experience of Operating Company's executive
officers during the past five years are set forth below:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING
NAME AND AGE THE PAST FIVE YEARS
------------ --------------------------
<C> <S>
Stephen F. Keller, 57....... Chairman of the Board of Directors, President
and Chief Executive Officer since 1993;
President and Chief Operating Officer 1991-
1993; Chairman of the Board of Directors of
Realty 1991-1996; Director of Realty since
1991.
Clifford C. Goodrich, 53.... Executive Vice President since 1995; Vice
President 1989-1995;
President, LATC, since 1989.
Richard D. Brumbaugh, 49.... Vice President--Finance and Chief Financial
Officer since 1994;
Vice President--Finance and Chief Financial
Officer, LATC,
since 1994; Controller, LATC, 1985-1994.
Thomas S. Robbins, 42....... Vice President--Racing since 1990; Vice
President--Racing,
LATC, since 1990.
Kathryn J. McMahon, 35...... General Counsel and Secretary since 1994;
Secretary, LATC,
since 1994; Attorney, Sheppard, Mullin,
Richter & Hampton 1986-1994.
Michael J. Manning, 48...... Vice President and Assistant General Manager,
LATC, since 1993;
Assistant General Manager, LATC, 1990-1993.
Mark T. Stephens, 32........ Vice President--Marketing and Customer
Relations, LATC, since 1994;
Director of Marketing, LATC, 1993-1994;
Director of Marketing,
Bay Meadows Operating Co., 1991-1992.
</TABLE>
Each executive officer of Operating Company is appointed by the Board of
Directors annually and holds office until a successor is duly appointed.
20
<PAGE>
(b) The names, ages and business experience of Realty's executive officers
during the past five years are set forth below:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING
NAME AND AGE THE PAST FIVE YEARS
------------ --------------------------
<C> <S>
William C. Baker, 62........ Chairman of the Board and Chief Executive
Officer since 1996;
Chairman, Carolina Restaurant Enterprises,
Inc. since 1992; Chairman, Coast Newport
Properties since 1989; President, Red Robin
International, Inc., 1993-1995.
Sherwood C. Chillingworth, Executive Vice President since 1996; Vice
69......................... Chairman of the Board since 1994; Chief
Executive Officer, 1994-1996; Executive Vice
President, Oak Tree Racing Association since
1993; Vice President and General Counsel, Oak
Tree Racing Association, 1992; President,
Chillingworth Corporation, 1975-1992.
Christopher T. Stirling, 41. President and Chief Operating Officer since
1994; Vice President, Homart
Development Company, 1989-1994.
Brian L. Fleming, 52........ Executive Vice President, Chief Financial
Officer and Secretary since 1994; Senior Vice
President, Carter Hawley Hale Stores, Inc.
1987-1994.
Tom D. Austin, 54........... Vice President Design and Construction since
1995; Director of
Development 1995; Owner, Austin Affiliates,
1992-1994;
Vice President, Western Region Design and
Construction, Homart Development Company,
1989-1992.
Frederick B. Cordova, III, Vice President Development since 1995; Manager
39......................... of Land and Planning,
Kaufman & Broad South Bay, Inc., 1994-1995;
Chief Executive Officer, Cordova Chase
Company, 1987-1994.
</TABLE>
Each executive officer of Realty is appointed by the Board of Directors
annually and holds office until a successor is duly appointed.
(c) Recent Developments
Effective April 1, 1996, the Board of Directors of Realty elected William C.
Baker Chairman and Chief Executive Officer of Realty. Mr. Baker has been a
director of both Realty and Operating Company since 1991. Mr. Chillingworth
will remain Vice Chairman of Realty and will also serve as Executive Vice
President. Mr. Keller will remain Chairman and Chief Executive Officer of
Operating Company.
21
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The paired Common Stock of Realty and Operating Company is traded on the New
York Stock Exchange as Santa Anita Realty Enterprises under the symbol SAR.
The following table sets forth the high and low closing prices for the paired
Common Stock on the New York Stock Exchange Composite Tape and the cash
dividends declared by Realty for the periods indicated. Operating Company has
not declared cash dividends.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW DECLARED
------- ------- ---------
<S> <C> <C> <C>
1994
1st Quarter.................................. $20 1/2 $17 $.34
2nd Quarter.................................. 19 3/4 17 1/8 .20
3rd Quarter.................................. 18 16 5/8 .20
4th Quarter.................................. 17 13 3/8 .20
----
$.94(a)
====
1995
1st Quarter.................................. $17 1/2 $13 3/8 $.20
2nd Quarter.................................. 17 1/8 14 3/8 .20
3rd Quarter.................................. 15 13 3/8 .20
4th Quarter.................................. 13 5/8 11 7/8 .20
----
$.80
====
1996
1st Quarter (through March 15) $14 $12 $.20
====
</TABLE>
- --------
(a) $.60 of the dividends paid per share during 1994 represented a return of
capital.
A regular quarterly dividend of $.20 per share is payable on March 29, 1996
to shareholders of record on March 8, 1996. The closing price of the paired
Common Stock on the New York Stock Exchange Composite Tape on March 15, 1996
was $13 3/4 per share. As of March 15, 1996, there were approximately 22,000
holders of the paired Common Stock, including the beneficial owners of shares
held in nominee accounts.
The current policy of the Board of Directors of Realty is to declare and pay
regular quarterly dividends equal to the greater of (i) $.20 per share
(provided sufficient funds are legally available and not required for other
purposes and provided further that such dividend payments are not prohibited
by the terms of any applicable credit agreements), or (ii) an amount
calculated to maintain Realty's qualification as a REIT under the Code by
effecting the distribution in each year of an amount approximating 95% of its
taxable income (other than net capital gains) (see item 1. "Business--Income
Tax Matters--Realty"). This policy is subject to review by the Board of
Directors from time to time in light of Realty's results of operations, its
financial condition, its cash requirements and such other factors as the Board
of Directors deems relevant.
Realty's revolving credit agreement contains restrictions on the payment of
dividends (see Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Santa Anita Realty Enterprises, Inc.--
Realty").
In order to retain earnings to finance its capital improvement program and
for the growth of its business, Operating Company has not paid cash dividends
since its formation and does not expect to pay cash dividends in the
foreseeable future.
The statement on the face of this annual report on Form 10-K regarding the
aggregate market value of paired voting stock of Realty and Operating Company
held by nonaffiliates is based on the assumption that all directors and
officers of Realty and Operating Company were, for purposes of this
calculation only (and not for any other purpose), affiliates of Realty or
Operating Company.
22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth on the following pages includes the information
for The Santa Anita Companies, Realty and Operating Company, for each of the
five years in the period ended December 31, 1995.
The separate results of operations and separate net income (loss) per share
of Realty and Operating Company cannot usually be added together to total the
results of operations and net income per share of The Santa Anita Companies,
because of adjustments and eliminations arising from inter-entity
transactions.
The following data should be read in conjunction with the information set
forth elsewhere herein regarding income tax matters (see Item 1. "Business--
Income Tax Matters").
The statements of operations of The Santa Anita Companies, Realty and
Operating Company for each of the five years in the period ended December 31,
1995 have been audited by Ernst & Young LLP, independent certified public
accountants. The selected financial data should be read in conjunction with
the other financial statements and related notes thereto included elsewhere in
this Joint Annual Report.
THE SANTA ANITA COMPANIES
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues............... $ 81,206 $ 81,449 $ 95,011 $ 94,177 $ 91,583
Costs and expenses........... 114,761 79,135 97,133 86,958 81,630
-------- -------- -------- -------- --------
Income (loss) before income
taxes....................... (33,555) 2,314 (2,122) 7,219 9,953
Benefit (provision) for
income taxes................ 2,000 -- 2,523 158 (37)
-------- -------- -------- -------- --------
Income (loss) before
extraordinary gain.......... (31,555) 2,314 401 7,377 9,916
Extraordinary gain on early
retirement of debt.......... 4,050 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)............ $(27,505) $ 2,314 $ 401 $ 7,377 $ 9,916
======== ======== ======== ======== ========
Net income (loss) per common
share
Before extraordinary gain.. $ (2.81) $ .21 $ .04 $ .66 $ .89
Extraordinary gain......... .36 -- -- -- --
-------- -------- -------- -------- --------
$ (2.45) $ .21 $ .04 $ .66 $ .89
======== ======== ======== ======== ========
Dividends paid by Realty per
common share................ $ .80 $ 1.08 $ 1.36 $ 1.36 $ 2.08
======== ======== ======== ======== ========
Dividends declared by Realty
per common share............ $ .80 $ .94 $ 1.36 $ 1.36 $ 1.90
======== ======== ======== ======== ========
Weighted average shares
outstanding................. 11,214 11,143 11,141 11,141 11,141
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets(a)(b)........... $117,171 $149,844 $264,673 $254,698 $230,108
======== ======== ======== ======== ========
Loans payable(a)............. $ 51,074 $ 50,375 $153,131 $133,217 $100,954
======== ======== ======== ======== ========
Shareholders' equity(b)...... $ 31,701 $ 67,443 $ 75,522 $ 90,274 $ 98,051
======== ======== ======== ======== ========
</TABLE>
- --------
(a) The decrease in total assets and loans payable in 1994 as compared with
1993 was due primarily to the sale of Realty's multifamily and industrial
properties in 1994 (see Item 1. "Business--Realty--Pacific Gulf Properties
Inc.").
(b) The decrease in total assets and shareholders' equity in 1995 as compared
with 1994 was due primarily to the nonrecurring charge of $38,500,000 in
1995 relating to Realty's plan to dispose of its non-core real estate
assets (see "Notes to Financial Statements--Note 2--Disposition of Non-
Core Real Estate Assets").
23
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-----------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Rental from racetrack..... $ 11,342 $ 13,070 $ 11,634 $ 12,683 $ 11,817
Rental property........... 8,447 11,054 25,105 21,164 17,369
Interest and other........ 2,637 2,108 5,222 2,120 2,313
-------- -------- -------- -------- --------
Total revenues.............. 22,426 26,232 41,961 35,967 31,499
-------- -------- -------- -------- --------
Costs and expenses
Rental property operating
expenses................. 2,671 4,182 11,039 8,405 6,612
Depreciation and
amortization............. 3,899 4,152 7,079 6,520 5,779
General and
administrative........... 3,420 4,148 4,244 4,156 4,292
Interest and other........ 4,321 5,930 9,866 9,303 8,687
Losses (earnings) from
unconsolidated joint
ventures................. 1,836 1,232 (446) (1,502) (2,472)
Minority interest in
losses of consolidated
joint ventures........... -- -- (891) (1,126) (1,098)
Costs of equity offering.. 700 -- -- -- --
Card club option write-
off...................... 2,000 -- -- -- --
Program for disposition of
non-core real estate
assets................... 38,500 -- -- -- --
Write-down of land held
for development.......... -- 1,043 -- -- --
Loss on disposition of
multifamily and
industrial operations.... -- -- 10,974 -- --
-------- -------- -------- -------- --------
Total costs and expenses.... 57,347 20,687 41,865 25,756 21,800
-------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary
gain....................... (34,921) 5,545 96 10,211 9,699
Income tax benefit.......... -- -- 2,523 -- --
-------- -------- -------- -------- --------
Income (loss) before
extraordinary gain......... (34,921) 5,545 2,619 10,211 9,699
Extraordinary gain on early
retirement of debt......... 4,050 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)........... $(30,871) $ 5,545 $ 2,619 $ 10,211 $ 9,699
======== ======== ======== ======== ========
Net income (loss) per common
share
Before extraordinary gain. $ (3.09) $ .49 $ .23 $ .91 $ .86
Extraordinary gain........ .36 -- -- -- --
-------- -------- -------- -------- --------
$ (2.73) $ .49 $ .23 $ .91 $ .86
======== ======== ======== ======== ========
Dividends paid per common
share...................... $ .80 $ 1.08 $ 1.36 $ 1.36 $ 2.08
======== ======== ======== ======== ========
Dividends declared per
common share............... $ .80 $ .94 $ 1.36 $ 1.36 $ 1.90
======== ======== ======== ======== ========
Weighted average shares
outstanding................ 11,326 11,256 11,256 11,256 11,257
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets................ $ 83,367 $117,329 $228,092 $220,980 $196,239
======== ======== ======== ======== ========
Loans payable............... $ 49,339 $ 47,846 $149,877 $129,299 $100,954
======== ======== ======== ======== ========
Shareholders' equity........ $ 25,642 $ 63,784 $ 68,819 $ 81,509 $ 86,608
======== ======== ======== ======== ========
</TABLE>
24
<PAGE>
SANTA ANITA OPERATING COMPANY
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER
31,
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Wagering commissions........... $45,587 $43,096 $38,428 $41,339 $40,483
Admission related.............. 24,060 24,750 25,842 28,795 30,180
Interest and other............. 686 565 571 747 1,457
------- ------- ------- ------- -------
Total revenues................... 70,333 68,411 64,841 70,881 72,120
------- ------- ------- ------- -------
Costs and expenses
Horse racing operating costs... 48,686 48,352 46,696 52,254 51,779
Depreciation and amortization.. 3,196 4,251 2,768 2,732 2,634
General and administrative..... 5,442 5,583 5,801 6,154 5,302
Interest....................... 401 446 493 194 179
Rental expense to Realty....... 11,342 13,057 11,315 12,686 11,930
------- ------- ------- ------- -------
Total costs and expenses......... 69,067 71,689 67,073 74,020 71,824
------- ------- ------- ------- -------
Income (loss) before income
taxes........................... 1,266 (3,278) (2,232) (3,139) 296
Benefit (provision) for income
taxes........................... 2,000 -- -- 243 (37)
------- ------- ------- ------- -------
Net income (loss)................ $ 3,266 $(3,278) $(2,232) $(2,896) $ 259
======= ======= ======= ======= =======
Net income (loss) per common
share........................... $ .29 $ (.29) $ (.20) $ (.26) $ .02
======= ======= ======= ======= =======
Dividends declared per common
share........................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Weighted average shares
outstanding..................... 11,214 11,143 11,141 11,141 11,141
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Total assets..................... $39,370 $38,912 $42,152 $39,458 $39,828
======= ======= ======= ======= =======
Loans payable.................... $ 1,735 $ 2,529 $ 3,254 $ 3,918 $ --
======= ======= ======= ======= =======
Shareholders' equity............. $11,210 $ 9,000 $12,274 $14,506 $17,402
======= ======= ======= ======= =======
</TABLE>
25
<PAGE>
ITEM 7. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE SANTA ANITA COMPANIES
COMBINED RESULTS OF OPERATIONS--1995 COMPARED WITH 1994 AND 1993
Combined results of operations before extraordinary gain for the year ended
December 31, 1995 was a loss of $31,555,000 or $2.81 per share, compared with
income for the year ended December 31, 1994 of $2,314,000 or $.21 per share
and income of $401,000 or $.04 per share for the year ended December 31, 1993.
All three years contained several nonrecurring charges and credits which make
comparison of the results of operations difficult. Management believes that
income before nonrecurring charges and extraordinary gain is a more meaningful
measure of the results of operations of the combined companies.
Income, before nonrecurring items and extraordinary gain, was $7,047,000 or
$0.63 per share in 1995, compared with $5,522,000, or $.50 per share in 1994
and $6,615,000 or $.59 per share in 1993, and reconciles to income (loss)
before extraordinary gain as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------- -------------- ---------------
INCOME PER INCOME PER INCOME PER
(LOSS) SHARE (LOSS) SHARE (LOSS) SHARE
-------- ------ ------- ----- -------- -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Income before nonrecurring
items and extraordinary
gain:...................... $ 7,047 $ .63 $ 5,522 $ .50 $ 6,615 $ .59
Nonrecurring items:
Costs of equity offering.. (750) (.07) -- -- -- --
Card club option write-
off...................... (2,000) (.17) -- -- -- --
Program for disposition of
non-core real estate
assets................... (38,500) (3.43) -- -- -- --
Equity in Pacific real
estate gain.............. 1,080 .10 -- -- -- --
Write-down of land held
for development.......... -- -- (1,043) (.09) -- --
Debt repayment costs on
Fashion Park financing,
net of minority interest. -- -- (739) (.07) -- --
Write-down of turf course. (432) (.04) (1,426) (.13) -- --
Franchise tax adjustments,
refunds and interest..... 2,000 .17 -- -- 5,734 .53
Special deferred
compensation charge...... -- -- -- -- (974) (.09)
Loss on disposition of
multifamily and
industrial operations.... -- -- -- -- (10,974) (.99)
-------- ------ ------- ----- -------- -----
Income (loss) before
extraordinary gain......... $(31,555) $(2.81) $ 2,314 $ .21 $ 401 $ .04
======== ====== ======= ===== ======== =====
</TABLE>
For additional information on the nonrecurring items, see separate
Management's Discussion and Analysis of Realty and Operating Company below.
SANTA ANITA REALTY ENTERPRISES, INC.
The following narrative discusses Realty's results of operations for the
years ended December 31, 1995, 1994 and 1993, together with liquidity and
capital resources as of December 31, 1995. Amounts for the years ended
December 31, 1994 and 1993 have been restated to conform to the amounts
reported for the year ended December 31, 1995 (see "Notes to Financial
Statements--Note 6--Investments in Unconsolidated Joint Ventures").
RESULTS OF OPERATIONS--1995 COMPARED WITH 1994
Realty's revenues are derived principally from the rental of real property.
Total revenues for the year ended December 31, 1995 were $22,426,000, compared
with $26,232,000 for the year ended December 31, 1994, a decrease of
$3,806,000. The lower 1995 revenues were due primarily to a decrease in
Racetrack rental revenues
26
<PAGE>
and to Realty selling its multifamily and industrial operations to Pacific
Gulf Properties Inc. ("Pacific"), formerly a wholly-owned subsidiary, in 1994
(see Item 1. "Business--Realty--Pacific Gulf Properties Inc." and "Notes to
Financial Statements--Note 4--Disposition of Multifamily and Industrial
Properties").
The most significant source of rental revenue is the lease of Santa Anita
Racetrack. Racetrack rental revenues for 1995 were $11,342,000, a decrease of
13.2% from rental revenues of $13,070,000 in 1994. The decrease in rental
revenues resulted primarily from new lease terms with LATC. The lease with
LATC for the Santa Anita Racetrack expired in December 1994 and was amended
and extended through December 31, 1999. The new lease provides that Realty
will receive 1.5% of the aggregate on-track wagering on live races at Santa
Anita Racetrack and that the rental rate on wagering commissions from
satellite wagering on races originating at Santa Anita Racetrack will be
26.5%. In addition, Realty receives 26.5% of the wagering commissions from
satellite wagering on races originating from certain other racetracks. If the
amended lease terms had been in effect for the year ended December 31, 1994,
racetrack rental revenues would have been $11,123,000.
Rental revenues from other real estate investments for 1995 were $8,447,000,
a decrease of 23.6% from other rental revenues of $11,054,000 in 1994. The
decrease in 1995 was due primarily to Realty selling its multifamily and
industrial operations in 1994.
Costs and expenses for 1995 were $16,147,000, excluding nonrecurring costs
and expenses totaling $41,200,000, a decrease of 14.6% from costs and expenses
for 1994 of $18,905,000, excluding nonrecurring expenses of $1,782,000. The
decrease in 1995 was due primarily to the disposition of the multifamily and
industrial operations and a decrease in interest expense, partially offset by
an increase in losses from unconsolidated joint ventures.
RESULTS OF OPERATIONS--1994 COMPARED WITH 1993
Total revenues for the year ended December 31, 1994 were $26,232,000,
compared with $41,961,000 for the year ended December 31, 1993, a decrease of
37.5%. The lower 1994 revenues were due primarily to Realty selling its
multifamily and industrial operations to Pacific in 1994 and to nonrecurring
interest earned on a California Franchise Tax Board refund received in 1993
and discussed below.
Racetrack rental revenues for 1994 were $13,070,000, an increase of 12.3%
over revenues of $11,634,000 in 1993. The increase in rental revenues resulted
from an increase in average daily wagering and more racing days in 1994.
Rental revenues from other real estate investments for 1994 were
$11,054,000, a decrease of 56.0% from other rental revenues of $25,105,000 in
1993. The decrease in 1994 was due primarily to the 1994 sale by Realty to
Pacific of its multifamily and industrial operations.
Interest and other income was $2,108,000 in 1994, compared with $5,222,000
in 1993, a decrease of 59.6%. The decrease was primarily attributable to
interest income of $3,211,000 in 1993 related to a tax settlement with the
California Franchise Tax Board. The settlement was for tax years prior to 1980
related to Realty's predecessor. In addition to interest earned on the
settlement, there was an income tax benefit of $2,523,000 in 1993.
Costs and expenses for 1994 were $18,905,000, excluding nonrecurring
expenses totaling $1,782,000, a decrease of 38.8% from costs and expenses of
$30,891,000 in 1993, excluding a nonrecurring loss of $10,974,000 on the
disposition of multifamily and industrial operations. The decrease was due
primarily to the disposition of the multifamily and industrial operations and
was partially offset by increases in interest expense attributable to
continuing operations. The increase in continuing interest expense was due to
a steady increase in interest rates throughout 1994, an increase in borrowing
levels in the 1994 and 1993 fourth quarters and debt repayment costs in 1994.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Realty has funds available from a combination of short- and long-term
sources. Short-term sources included cash of $167,000 at December 31, 1995.
The decrease in cash for the year ended December 31, 1995 was $2,084,000,
compared with a decrease in cash of $4,459,000 in 1994. The decline in the
decrease in cash of $2,375,000 was attributable to a decrease of $396,000 in
cash provided by operating activities, a decrease of $62,873,000 in cash
provided by investing activities and a decrease of $65,644,000 in cash used in
financing activities.
The decrease in cash provided by operating activities of $396,000 in 1995
was due primarily to a decrease in apartment and industrial operating income
of $997,000, due to the sale of the multifamily and industrial operations in
1994, a decrease in racetrack rental revenues of $1,728,000 in 1995, due to
new lease terms with LATC, and $700,000 of equity offering costs and $480,000
of Irwindale development costs charged to 1995 operating earnings. These
decreases in cash provided by operating activities were partially offset by a
decrease in interest expense of $1,609,000 in 1995 and a decrease in other
liabilities of $1,720,000 in 1994, compared with a decrease in other
liabilities of $40,000 in 1995.
The decrease in cash provided by investing activities of $62,873,000 in 1995
was due primarily to proceeds from the disposition of the multifamily and
industrial operations of $44,425,000 in 1994, a decrease in payments received
on loans receivable of $9,732,000, primarily repayment of Fashion Park
partnership advances in 1994, an increase in investments in and advances to
unconsolidated joint ventures of $2,622,000, a decrease in distributions from
unconsolidated joint ventures of $1,152,000 and an increase in additions to
other assets of $5,415,000 in 1995, primarily the purchase of the option on
the Bell casino and expenditures associated with the development of the Santa
Anita Entertainment Center. These decreases in cash provided by investing
activities were partially offset by an increase in dividends received from
Pacific of $1,224,000 in 1995.
The decrease in cash used in financing activities of $65,644,000 in 1995 was
due primarily to the repayment of bank loans payable of $77,913,000 in 1994,
primarily from proceeds from the disposition of the multifamily and industrial
operations. Other decreases in cash used in financing activities included
additional borrowings of $6,350,000 in 1995, under the revolving credit
agreement, a decrease in dividends paid of $3,061,000 in 1995 and the issuance
of common stock to Operating Company in 1995, valued at $1,810,000, for its
use in granting restricted stock awards. These decreases in cash used in
financing activities were partially offset by proceeds from real estate loans
payable of $24,400,000 in 1994, related to real estate loans on the six
shopping centers and refinancing the mortgage on the medical office building
and by a decrease in intercompany payables of $641,000 in 1995, compared with
an increase in intercompany payables of $1,525,000 in 1994.
In November 1994, Realty entered into a one-year $30,000,000 revolving
credit agreement with a commercial bank. In November 1995, the agreement was
extended to January 26, 1996 and in January 1996, an amendment to the
revolving credit agreement extended the term to June 30, 1996 and reduced
available borrowings to $20,000,000. Borrowings under the revolving credit
agreement bear interest, at Realty's option, at the prime rate, at LIBOR plus
1%, or at the 30-day, 60-day or 90-day certificate of deposit rate plus 1%.
Realty is in discussions with the commercial bank and expects the credit
agreement to be extended through December 31, 1996. Realty's Racetrack rental
revenues have been pledged as collateral under the credit agreement.
The revolving credit agreement contains a restriction on the payment of
dividends to the lesser of $.80 per share or $9,200,000 in any twelve-month
period beginning on or after July 1, 1994. Realty's current dividend policy is
in compliance with this dividend restriction. Additionally, at December 31,
1995, Realty was in compliance with the other financial ratio and maintenance
restrictions, except for the net worth restriction. Realty has obtained a
waiver of noncompliance from the commercial bank and has cured the
noncompliance as of January 31, 1996.
28
<PAGE>
During 1995, Realty adopted a plan to dispose of its non-core real estate
assets and, accordingly, reduced the book value of these assets to their
estimated realizable values, resulting in a nonrecurring charge of
$38,500,000, of which $34,500,000 was recorded in the third quarter and
$4,000,000 was recorded in the fourth quarter. The disposition plan is being
undertaken in an orderly manner and was influenced by Realty's increased focus
on the development of its Arcadia property. The assets to be disposed of have
an adjusted carrying value of $27,652,000 at December 31, 1995 and consist of
six neighborhood shopping centers located in Southern California and Arizona;
commercial office buildings in Santa Ana and Upland, California; and an
investment in Joppa Associates, a partnership which owns a vacant retail
facility and undeveloped land adjacent to the Towson Town Center regional
shopping center in Maryland. Included in the results of operations for the
year ended December 31, 1995 is a loss of $1,261,000 relating to the non-core
real estate assets. Also included in the nonrecurring charge was a $2,500,000
reserve for loss on disposition of notes receivable.
In November 1995, Realty completed a negotiated, early and reduced payoff of
the mortgage loan on the Santa Ana office building. The mortgage holder agreed
to accept a cash payment of $7,500,000 as settlement in full of the 9.375%
note due in 1998. The prepayment resulted in a gain of $4,050,000, net of
miscellaneous closing expenses, which was reflected as an extraordinary gain
on early retirement of debt in The Santa Anita Companies and Realty statements
of operations.
Realty has executed a joint and several guaranty of a loan issued to expand
the Towson Town Center located in Towson, Maryland (owned 65% by H-T
Associates) in the amount of $66,135,000. Realty's two partners in the venture
have also each executed repayment guaranties, although one of the partners has
a limited repayment guaranty. The loan balance to which the guaranties relate
is $164,641,000. The repayment guaranties contain covenants which, among other
matters, require the guarantors to maintain certain minimum levels of net
worth. At December 31, 1995, Realty was in default under the minimum net worth
covenant. Realty is currently in discussions with its partners and the lender
to restructure the loan and modify the net worth requirement in the guaranty.
If the discussions prove to be unsatisfactory, the lender may, among other
things, foreclose on the assets of H-T Associates and pursue other remedies
under the guaranties. The outcome of the discussions cannot presently be
determined and no adjustment has been made in the financial statements.
Since neither Realty nor either of its partners expects to have sufficient
liquidity to pay the loan when due in 1999, it is expected that the loan will
be refinanced. Ability to refinance the loan is dependent on several factors,
including value of the property, interest rates and the credit environment at
the time of refinancing. There can be no assurance that the loan can be
refinanced when due.
Realty has also executed a joint and several guaranty of a loan on property
(owned 100% by Joppa Associates) adjacent to Towson Town Center in the amount
of $8,247,000. One of Realty's other two partners, The Hahn Company, has
executed a repayment guaranty for the full amount of the loan. The loan
balance to which the guaranties relate is $16,494,000. At December 31, 1995,
Realty was in compliance with the guaranty covenants.
Realty has agreed to provide Operating Company with up to $10,000,000 in
short-term advances, which is dependent upon Realty's liquidity and capital
resources. At December 31, 1995, Realty has guaranteed an Operating Company
capital lease in the amount of $1,735,000.
At December 31, 1995, Realty's secured real estate loans receivable were
carried at $10,954,000, net of $2,500,000 of realization reserves, and had
maturities ranging from 1996 to 2002. For the year ended December 31, 1995,
secured real estate loans receivable earned interest income of $1,058,000.
At December 31, 1995, Realty's investment in 784,419 shares of Pacific
common stock was carried at $12,967,000 and has a current annual dividend rate
of $1.60 per share. On February 2, 1996, Realty notified Pacific of Realty's
intent to sell the Pacific shares in an orderly manner pursuant to privately
negotiated or open market transactions. Realty also exercised its right to
have Pacific register such shares pursuant to a Registration Rights Agreement
dated as of February 1, 1994.
29
<PAGE>
Realty expects that funds provided by operating activities and the sale of
non-core real estate assets and Pacific common stock will provide sufficient
liquidity to meet working capital needs and reduce outstanding borrowings
under the revolving credit agreement.
IMPACT OF INFLATION
Realty's management believes that, for the foreseeable future, revenues and
income from Santa Anita Racetrack and its other real estate investments should
not be adversely affected in a material way by inflationary pressures. Certain
leases include clauses enabling Realty to participate in tenants' future
increases and gross revenues and other leases include provisions which tie the
lease payments to the Consumer Price Index or include step-up provisions.
SANTA ANITA OPERATING COMPANY
The following narrative discusses Operating Company's results of operations
for the years ended December 31, 1995, 1994 and 1993 together with liquidity
and capital resources as of December 31, 1995.
RESULTS OF OPERATIONS--1995 COMPARED WITH 1994
Operating Company derives its revenues from thoroughbred horse racing
activities. Horse racing revenues were $69,647,000 in 1995, up 2.7% from
$67,846,000 in 1994, primarily due to an increase in racing days and total
wagering.
In 1995, live thoroughbred horse racing at Santa Anita Racetrack totaled 120
days compared with 117 days in 1994. Total on-track attendance at the live
racing events in 1995 was down 9.7% from the prior year and average daily
attendance declined 11.9%. Total and average daily wagering were up 12.0% and
9.2% in 1995 compared with 1994. On-track wagering decreased 6.3%, wagering at
Southern California satellite locations increased 8.8%, wagering at out-of-
state locations increased 20.3% and wagering at Northern California locations
increased 106.6% in 1995 compared with 1994.
Management anticipates that the movement from on-track attendance and
wagering to off-site is likely to continue. The growth rate in off-site
wagering is dependent primarily upon such factors as Operating Company's
ability to access new markets and the removal of various legal barriers which
inhibit or restrict entry into such markets.
Also, Santa Anita Racetrack operated 140 days in 1995 and 145 days in 1994
as a satellite wagering facility for Hollywood Park and Del Mar. Total and
average daily attendance as a satellite wagering facility were down 5.9% and
2.5% in 1995 compared with 1994. Total wagering was down 2.5%, while average
daily wagering was up 1.0% in 1995 compared with 1994.
Horse racing operating costs were $48,686,000 (or 69.9% of horse racing
revenues) in 1995 versus $48,352,000 (or 71.3% of horse racing revenues) in
1994. The operating margin improvement was primarily due to the implementation
of certain cost control measures.
Depreciation expense was $3,196,000 in 1995, $1,055,000 lower than the
$4,251,000 in 1994. Depreciation expense includes an accelerated depreciation
charge of $432,000 in 1995 and $1,426,000 in 1994 on the Santa Anita Racetrack
turf course, which was replaced in April 1995.
General and administrative expenses were $5,442,000 in 1995, a decrease of
2.5% from $5,583,000 in 1994 due to lower executive compensation expenses in
1995. Interest expense decreased to $401,000 in 1995 from $446,000 in 1994.
30
<PAGE>
Rental expense to Realty was $11,342,000 in 1995 compared with $13,057,000
in 1994. The decrease in rental expense of 13.1% reflects the new lease terms
with Realty. Under the new lease terms, LATC pays to Realty 1.5% of the on-
track wagering on live races at Santa Anita Racetrack and 26.5% of its
wagering commissions from all satellite wagering. The old lease required LATC
to pay Realty the same 1.5% of the on-track wagering on live races at Santa
Anita Racetrack but required 40% of its wagering commissions from satellite
wagering during the live race meets.
An income tax benefit of $2,000,000 was recognized in 1995, as a result of
various items, the most significant of which, related to a draw down of
deferred taxes relating to an expected withdrawal of Franchise Tax Board
assessments for 1986 through 1988.
Due to the revenue and expense items previously discussed, Operating Company
reported net income of $3,266,000, or $.29 per share in 1995, compared with a
net loss of $3,278,000, or $.29 per share for the comparable period in 1994.
RESULTS OF OPERATIONS--1994 COMPARED WITH 1993
Horse racing revenues were $67,846,000 in 1994, up 5.6% from $64,270,000 in
1993, primarily due to an increase in racing days and total wagering.
In 1994, live thoroughbred horse racing at Santa Anita Racetrack totaled 117
days compared with 114 days in 1993. Total on-track attendance at the live
racing events in 1994 was down 5.5% from the prior year and average daily
attendance was down 7.9%. Total wagering and average daily wagering during the
Santa Anita Meet were up 20.1% and 17.0% in 1994 compared with 1993. On-track
wagering decreased 3.7%, wagering at Southern California satellite locations
increased 12.4%, wagering at out-of-state locations increased 63.1% and
wagering at Northern California satellite locations increased substantially in
1994 compared with 1993.
Management anticipates that the movement from on-track attendance and
wagering to off-site is likely to continue. The growth rate in off-site
wagering is dependent primarily upon such factors as Operating Company's
ability to access new markets and the removal of various legal barriers which
inhibit or restrict entry into such markets.
Also, Santa Anita Racetrack operated 102 days in 1994 and 99 days in 1993 as
a satellite wagering facility for Hollywood Park and 43 days in 1994 and 42
days in 1993 as a satellite wagering facility for Del Mar. Total attendance as
a satellite wagering facility was down 4.0%, while wagering was up 1.3% in
1994 compared with 1993. Average daily attendance and average daily wagering
as a satellite wagering facility were down 6.7% and 1.5% in 1994 compared with
1993.
Horse racing operating costs were $48,352,000 (or 71.3% of horse racing
revenues) in 1994 versus $46,696,000 (or 72.7% of horse racing revenues) in
1993. The operating margin improvement was primarily due to the implementation
of certain cost control measures.
Depreciation expense was $4,251,000 in 1994, up 53.6% from the $2,768,000 in
1993. The $1,483,000 increase in depreciation expense was due primarily to the
accelerated depreciation charge on the Santa Anita Racetrack turf course,
which will be replaced in April 1995.
General and administrative expenses were $5,583,000 in 1994, a decrease of
3.8% from the $5,801,000 in 1993 due to the one-time charge of $759,000 in the
prior year for the post retirement benefits payable as a result of the death
of the former Chairman of the Board of Operating Company. Interest expense
decreased to $446,000 in 1994 from $493,000 in 1993. Rental expense to Realty
was $13,057,000 in 1994 compared with $11,315,000 in 1993. The increase in
rental expense of 15.4% reflects the overall increase in racing days and
wagering.
Due to the revenue and expense items previously discussed, Operating Company
reported a net loss of $3,278,000 or $.29 per share in 1994, compared with a
net loss of $2,232,000 or $.20 per share in 1993.
31
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, Operating Company's sources of liquidity included cash
and short-term investments of $13,710,000, together with a verbal commitment
from Realty to provide up to $10,000,000 in short-term advances. In addition,
Realty has guaranteed an Operating Company capital lease of $1,735,000.
Operating Company's ability to borrow from Realty is dependent upon Realty's
liquidity and capital resources (see Item 7. "Managements' Discussion and
Analysis of Financial Condition and Results of Operations--Santa Anita Realty
Enterprises, Inc.--Liquidity and Capital Resources"). As of the date of this
filing, Realty did not have sufficient liquidity and capital resources to
advance Operating Company funds. For the year ended December 31, 1995, short-
term investments earned interest income of $526,000.
The cash balances and related interest income from short-term investments
reflect seasonal variations associated with the Santa Anita meet. During the
meet, large cash balances and short-term investments are maintained by LATC,
including amounts to be disbursed for payment of license fees payable to the
state, purses payable to horse owners and un-cashed winning pari-mutuel
tickets payable to the public.
Operating Company generated $3,965,000 more cash from operations in 1995
than in 1994. Net cash provided by operating activities was $6,162,000 in 1995
compared with $2,197,000 in 1994. The increase in cash from operations was
primarily due to increased operating income from horse racing operations and
the non-cash charge resulting from the amortization of unearned compensation
expense.
Net cash used in investment activities was $5,142,000 in 1995 compared with
$1,496,000 in 1994. The $3,646,000 increase in cash used in investment
activities was attributable to a higher level of capital improvements at Santa
Anita Racetrack and the purchase of common stock of Realty for the grant of
restricted stock.
Net cash used in financing activities was $153,000 in 1995 compared with
$2,246,000 in 1994. In 1995, the repayment of a capital lease was partially
offset by the increase in the amount due from Realty.
IMPACT OF INFLATION
LATC's expenses are heavily labor-intensive with labor rates being covered
by negotiated contracts with labor unions. Labor contracts with the pari-
mutuel, service and operational employees were successfully renegotiated in
1995. Management continues to address cost containment and labor productivity
in all areas.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference to the
information listed in the Index to Financial Statements filed with this
Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
32
<PAGE>
PART III
Pursuant to General Instruction G(3) to Form 10-K, the information called
for by this Part of Form 10-K is incorporated herein by reference to such
information contained in the registrants' definitive joint proxy statement to
be filed, pursuant to Regulation 14A, with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year ended
December 31, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
See Index to Financial Statements
2. Financial Statement Schedules
See Index to Financial Statement Schedules
3.Exhibits
See Exhibit Index
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during the
last quarter of the fiscal year ended December 31, 1995.
33
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, REALTY AND OPERATING COMPANY HAVE DULY CAUSED THIS REPORT
TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
By: /s/ William C. Baker By: /s/ Stephen F. Keller
----------------------------------- --------------------------------
William C. Baker Stephen F. Keller
Chairman of the Board and Chairman of the Board, President
Chief Executive Officer and Chief Executive Officer
(Principal Executive Officer) (Principal Executive Officer)
Date: April 1, 1996 Date: April 1, 1996
By: /s/ Brian L. Fleming By: /s/ Richard D. Brumbaugh
----------------------------------- --------------------------------
Brian L. Fleming Richard D. Brumbaugh
Executive Vice President and Vice President--Finance and
Chief Financial Officer Chief Financial Officer
(Principal Financial and (Principal Financial and
Accounting Officer) Accounting Officer)
Date: April 1, 1996 Date: April 1, 1996
34
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANTS AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Stephen F. Keller Chairman of the Board, President and Chief
___________________________________________ Executive Officer (Principal Executive
Stephen F. Keller Officer) of Operating Company and
Director of Realty
/s/ William C. Baker Chairman of the Board and Chief Executive
___________________________________________ Officer (Principal Executive Officer) of
William C. Baker Realty and Director of Operating Company
/s/ Thomas J. Barrack, Jr. Director of Operating Company and Director
___________________________________________ of Realty
Thomas J. Barrack, Jr.
/s/ Sherwood C. Chillingworth Executive Vice President and Director of
___________________________________________ Realty
Sherwood C. Chillingworth
/s/ Richard S. Cohen Director of Operating Company and Director
___________________________________________ of Realty
Richard S. Cohen
/s/ James P. Conn Director of Operating Company and Director
___________________________________________ of Realty
James P. Conn
/s/ Arthur Lee Crowe Director of Operating Company and Director
___________________________________________ of Realty
Arthur Lee Crowe
/s/ John C. Cushman, III Director of Operating Company and Director
___________________________________________ of Realty
John C. Cushman, III
/s/ Clifford C. Goodrich Executive Vice President and Director of
___________________________________________ Operating Company
Clifford C. Goodrich
/s/ Taylor B. Grant Director of Realty
___________________________________________
Taylor B. Grant
/s/ J. Terrence Lanni Director of Operating Company and Director
___________________________________________ of Realty
J. Terrence Lanni
/s/ Thomas P. Mullaney Director of Operating Company and Director
___________________________________________ of Realty
Thomas P. Mullaney
/s/ William D. Schulte Director of Operating Company and Director
___________________________________________ of Realty
William D. Schulte
</TABLE>
Date: April 1, 1996
35
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT.............................................. 38
THE SANTA ANITA COMPANIES
Combined Balance Sheets as of December 31, 1995 and 1994................ 39
Combined Statements of Operations for the years ended December 31, 1995,
1994 and 1993.......................................................... 40
Combined Statements of Shareholders' Equity for the years ended December
31, 1995, 1994 and 1993................................................ 41
Combined Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993.......................................................... 42
SANTA ANITA REALTY ENTERPRISES, INC.
Consolidated Balance Sheets as of December 31, 1995 and 1994............ 43
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993.................................................... 44
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993....................................... 45
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... 46
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 1995 and 1994............ 47
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993.................................................... 48
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993....................................... 49
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... 50
NOTES TO FINANCIAL STATEMENTS............................................. 51
ANITA ASSOCIATES
Independent Auditor's Report............................................ 74
Financial Statements and Notes.......................................... 75
H-T ASSOCIATES
Independent Auditors' Report............................................ 86
Financial Statements and Notes.......................................... 87
PACIFIC GULF PROPERTIES INC.
Realty hereby incorporates by reference the consolidated financial
statements and schedule of Pacific Gulf Properties Inc. included in
such company's Annual Report on Form 10-K for the year ended December
31, 1995.
</TABLE>
36
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
The schedules listed below relate to Realty and Operating Company as
indicated:
<TABLE>
<CAPTION>
SCHEDULES FOR
------------------------------------
OPERATING
SCHEDULE REALTY COMPANY
- -------- ------ ---------
(REFERENCE IS TO PAGE NUMBER)
<S> <C> <C>
II Valuation and Qualifying Accounts as of
December 31, 1995 and 1994 71 Omitted
III Real Estate and Accumulated Depreciation as
of December 31, 1995 72 Omitted
</TABLE>
Schedules not listed above have been omitted because either the conditions
under which they are required are absent, not applicable, or the required
information is included in the financial statements and related notes thereto.
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company
We have audited the financial statements and schedules listed on pages 36
and 37 of:
(a) The Santa Anita Companies
(b) Santa Anita Realty Enterprises, Inc. ("Realty"); and
(c) Santa Anita Operating Company and Subsidiaries.
These financial statements and schedules are the responsibility of the
companies' management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the above-listed entities
at December 31, 1995 and 1994 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles. Further, it is
our opinion that the schedules referred to above, when considered in relation
to the financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note 6, certain joint ventures previously consolidated by
Realty have been reported in 1995 using the equity method and, accordingly,
prior years' financial statements have been restated to conform to this
presentation.
Ernst & Young LLP
Los Angeles, California
March 7, 1996
38
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
(RESTATED)
<S> <C> <C>
Real estate assets
Santa Anita Racetrack, less accumulated
depreciation of $20,216,000 and $19,431,000..... $ 9,030,000 $ 8,304,000
Commercial properties, less accumulated
depreciation of $3,631,000 and $3,323,000....... 10,342,000 10,612,000
Commercial properties to be sold, less
accumulated depreciation of $16,737,000 and
$15,449,000..................................... 27,337,000 54,105,000
Investments in and advances to unconsolidated
joint ventures.................................. 3,166,000 7,434,000
Real estate loans receivable..................... 10,954,000 13,911,000
------------ ------------
60,829,000 94,366,000
Cash............................................... 11,355,000 9,494,000
Short-term investments, at cost (approximates
market)........................................... 2,522,000 5,600,000
Accounts receivable................................ 3,771,000 3,037,000
Prepaid expenses and other assets.................. 6,494,000 5,056,000
Investment in Pacific Gulf Properties Inc.......... 12,967,000 12,825,000
Property, plant and equipment, at cost, less
accumulated depreciation of $24,968,000 and
$23,093,000....................................... 19,233,000 19,466,000
------------ ------------
$117,171,000 $149,844,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable.......................... $ 28,389,000 $ 40,546,000
Bank loans payable................................. 22,685,000 9,829,000
Accounts payable................................... 11,208,000 11,389,000
Other liabilities.................................. 16,967,000 12,394,000
Income taxes....................................... 326,000 --
Dividends payable.................................. 2,277,000 2,251,000
Deferred revenues.................................. 2,379,000 2,427,000
Deferred income taxes.............................. 1,239,000 3,565,000
------------ ------------
85,470,000 82,401,000
------------ ------------
Shareholders' equity
Preferred stock, $.10 par value; authorized
6,000,000 shares; none issued................... -- --
Common stock, $.10 par value; authorized
19,000,000 shares; issued and outstanding
11,270,500 and 11,143,853 shares................ 2,253,000 2,227,000
Additional paid-in capital....................... 136,552,000 134,615,000
Unearned compensation expense.................... (1,209,000) --
Retained earnings (deficit)...................... (105,895,000) (69,399,000)
------------ ------------
31,701,000 67,443,000
------------ ------------
$117,171,000 $149,844,000
============ ============
</TABLE>
See accompanying notes.
39
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
(RESTATED)
<S> <C> <C> <C>
Revenues
Horse racing.......................... $ 69,647,000 $67,846,000 $64,270,000
Rental property....................... 8,447,000 11,054,000 25,105,000
Interest and other.................... 3,112,000 2,549,000 5,636,000
------------ ----------- -----------
81,206,000 81,449,000 95,011,000
------------ ----------- -----------
Costs and expenses
Horse racing operating costs.......... 48,686,000 48,339,000 46,377,000
Rental property operating expenses.... 2,671,000 4,182,000 11,039,000
Depreciation and amortization......... 6,905,000 8,232,000 9,676,000
General and administrative............ 8,812,000 9,731,000 10,045,000
Interest and other.................... 4,601,000 6,376,000 10,359,000
Losses (earnings) from unconsolidated
joint ventures....................... 1,836,000 1,232,000 (446,000)
Costs of equity offering.............. 750,000 -- --
Card club option write-off............ 2,000,000 -- --
Program for disposition of non-core
real estate assets................... 38,500,000 -- --
Minority interest in losses of
consolidated joint ventures.......... -- -- (891,000)
Write-down of land held for
development.......................... -- 1,043,000 --
Loss on disposition of multifamily and
industrial operations................ -- -- 10,974,000
------------ ----------- -----------
114,761,000 79,135,000 97,133,000
------------ ----------- -----------
Income (loss) before income taxes and
extraordinary gain..................... (33,555,000) 2,314,000 (2,122,000)
Income tax benefit...................... 2,000,000 -- 2,523,000
------------ ----------- -----------
Income (loss) before extraordinary gain. (31,555,000) 2,314,000 401,000
Extraordinary gain on early retirement
of debt................................ 4,050,000 -- --
------------ ----------- -----------
Net income (loss)....................... $(27,505,000) $ 2,314,000 $ 401,000
============ =========== ===========
Weighted average number of common shares
outstanding............................ 11,213,943 11,143,146 11,140,853
============ =========== ===========
Income (loss) per common share..........
Before extraordinary gain............. $ (2.81) $ .21 $ .04
Extraordinary gain.................... .36 -- --
------------ ----------- -----------
Net income (loss) per common share...... $ (2.45) $ .21 $ .04
============ =========== ===========
Dividends declared per common share..... $ .80 $ .94 $ 1.36
============ =========== ===========
</TABLE>
See accompanying notes.
40
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED UNEARNED
--------------------- PAID-IN EARNINGS COMPENSATION
SHARES AMOUNT CAPITAL (DEFICIT) EXPENSE TOTAL
---------- ---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Combined balance,
December 31, 1992...... 11,140,853 $2,227,000 $134,554,000 $ (46,507,000) $ -- $ 90,274,000
Dividends declared on
common stock......... -- -- -- (15,153,000) -- (15,153,000)
Net income............ -- -- -- 401,000 -- 401,000
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1993...... 11,140,853 2,227,000 134,554,000 (61,259,000) -- 75,522,000
Stock issued in
connection with stock
option plan.......... 3,000 -- 61,000 -- -- 61,000
Dividends declared on
common stock......... -- -- -- (10,454,000) -- (10,454,000)
Net income............ -- -- -- 2,314,000 -- 2,314,000
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1994...... 11,143,853 2,227,000 134,615,000 (69,399,000) -- 67,443,000
Stock issued in
connection with
restricted stock
awards............... 126,647 26,000 1,937,000 -- (1,963,000) --
Amortization of
unearned compensation
expense.............. -- -- -- -- 754,000 754,000
Dividends declared on
common stock......... -- -- -- (8,991,000) -- (8,991,000)
Net loss.............. -- -- -- (27,505,000) -- (27,505,000)
---------- ---------- ------------ ------------- ----------- ------------
Combined balance,
December 31, 1995...... 11,270,500 $2,253,000 $136,552,000 $(105,895,000) $(1,209,000) $ 31,701,000
========== ========== ============ ============= =========== ============
</TABLE>
See accompanying notes.
41
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
(RESTATED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $(27,505,000) $ 2,314,000 $ 401,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 6,905,000 8,232,000 9,676,000
Amortization of unearned
compensation expense.............. 754,000 -- --
Deferred income taxes.............. (2,000,000) -- (108,000)
Minority interest in losses of
consolidated joint ventures....... -- -- (891,000)
Equity in losses (earnings) of
unconsolidated joint ventures..... 1,836,000 1,232,000 (446,000)
Equity in earnings from investment
in Pacific Gulf Properties Inc.... (1,374,000) (203,000) --
Card club option write-off......... 2,000,000 -- --
Program for disposition of non-core
real estate assets................ 38,500,000 -- --
Extraordinary gain on early
retirement of debt................ (4,050,000) -- --
Write-down of land held for
development....................... -- 1,043,000 --
Loss on disposition of multifamily
and industrial operations......... -- -- 10,974,000
Net (increase) decrease in certain
other assets...................... (184,000) 958,000 (543,000)
Net increase (decrease) in certain
other liabilities ................ 1,003,000 (1,294,000) 8,597,000
------------ ----------- -----------
Net cash provided by operating
activities.......................... 15,885,000 12,282,000 27,660,000
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from disposition of
multifamily and industrial
operations.......................... -- 44,425,000 --
Payments received on loans
receivable.......................... 484,000 10,216,000 4,076,000
Origination of loans receivable...... (27,000) -- (8,163,000)
Additions and improvements to real
estate assets....................... (3,432,000) (2,911,000) (17,030,000)
Additions to property, plant and
equipment........................... (3,332,000) (1,553,000) (1,450,000)
Additions to certain other assets.... (5,415,000) -- --
Investments in and advances to
unconsolidated joint ventures....... (4,282,000) (1,660,000) (2,400,000)
Capital distributions from
unconsolidated joint ventures....... 1,862,000 3,014,000 3,829,000
Dividends received from Pacific Gulf
Properties Inc. .................... 1,224,000 203,000 --
------------ ----------- -----------
Net cash (used in) provided by
investing activities................ (12,918,000) 51,734,000 (21,138,000)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from real estate loans
payable............................. -- 24,400,000 --
Proceeds from bank loans payable..... 13,650,000 7,300,000 20,981,000
Repayment of real estate loans
payable............................. (8,074,000) (11,150,000) (403,000)
Repayment of bank loans payable...... (794,000) (78,638,000) (664,000)
Dividends paid....................... (8,966,000) (11,993,000) (15,152,000)
Proceeds from stock issued in
connection with exercise of stock
options and dividend reinvestment
plan................................ -- 61,000 --
Distributions to minority interest in
consolidated joint ventures, net.... -- -- (868,000)
------------ ----------- -----------
Net cash (used in) provided by
financing activities................ (4,184,000) (70,020,000) 3,894,000
------------ ----------- -----------
Net (decrease) increase in cash and
cash equivalents...................... (1,217,000) (6,004,000) 10,416,000
Cash and cash equivalents at beginning
of year .............................. 15,094,000 21,098,000 10,682,000
------------ ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 13,877,000 $15,094,000 $21,098,000
============ =========== ===========
</TABLE>
See accompanying notes.
42
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
------------ ------------
(RESTATED)
<S> <C> <C>
Real estate assets
Santa Anita Racetrack, less accumulated
depreciation of $20,216,000 and $19,431,000..... $ 9,030,000 $ 8,304,000
Commercial properties, less accumulated
depreciation of $4,068,000 and $3,699,000....... 13,047,000 13,378,000
Commercial properties to be sold, less
accumulated depreciation of $18,085,000 and
$16,668,000..................................... 27,652,000 56,212,000
Investments in and advances to unconsolidated
joint ventures.................................. 3,166,000 7,434,000
Real estate loans receivable..................... 10,954,000 13,911,000
------------ ------------
63,849,000 99,239,000
Cash............................................... 167,000 2,251,000
Accounts receivable................................ 658,000 655,000
Prepaid expenses and other assets.................. 5,726,000 2,359,000
Investment in Pacific Gulf Properties Inc. ........ 12,967,000 12,825,000
------------ ------------
$ 83,367,000 $117,329,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable.......................... $ 28,389,000 $ 40,546,000
Bank loans payable................................. 20,950,000 7,300,000
Accounts payable................................... 420,000 589,000
Other liabilities.................................. 5,274,000 1,803,000
Dividends payable.................................. 2,277,000 2,251,000
Due to Operating Company........................... 415,000 1,056,000
------------ ------------
57,725,000 53,545,000
------------ ------------
Shareholders' equity
Preferred stock, $.10 par value; authorized
6,000,000 shares; none issued -- --
Common stock, $.10 par value; authorized
19,000,000 shares; issued and outstanding
11,383,000 and 11,256,353 shares................ 1,138,000 1,125,000
Additional paid-in capital....................... 118,881,000 117,084,000
Retained earnings (deficit)...................... (94,377,000) (54,425,000)
------------ ------------
25,642,000 63,784,000
------------ ------------
$ 83,367,000 $117,329,000
============ ============
</TABLE>
See accompanying notes.
43
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
(RESTATED)
<S> <C> <C> <C>
Revenues
Rent from Racetrack................... $ 11,342,000 $13,070,000 $11,634,000
Shopping centers...................... 4,441,000 4,501,000 4,403,000
Office buildings...................... 4,006,000 4,301,000 4,521,000
Apartments and industrial............. -- 2,252,000 16,181,000
Interest and other.................... 2,637,000 2,108,000 5,222,000
------------ ----------- -----------
22,426,000 26,232,000 41,961,000
------------ ----------- -----------
Costs and expenses
Shopping centers...................... 1,045,000 1,065,000 1,225,000
Office buildings...................... 1,626,000 1,862,000 1,804,000
Apartments and industrial............. -- 1,255,000 8,010,000
Depreciation and amortization......... 3,899,000 4,152,000 7,079,000
General and administrative............ 3,420,000 4,148,000 4,244,000
Interest and other.................... 4,321,000 5,930,000 9,866,000
Losses (earnings) from unconsolidated
joint ventures....................... 1,836,000 1,232,000 (446,000)
Costs of equity offering.............. 700,000 -- --
Card club option write-off............ 2,000,000 -- --
Program for disposition of non-core
real estate assets................... 38,500,000 -- --
Minority interest in losses of
consolidated joint ventures.......... -- -- (891,000)
Write-down of land held for
development.......................... -- 1,043,000 --
Loss on disposition of multifamily and
industrial operations................ -- -- 10,974,000
------------ ----------- -----------
57,347,000 20,687,000 41,865,000
------------ ----------- -----------
Income (loss) before income taxes and
extraordinary gain..................... (34,921,000) 5,545,000 96,000
Income tax benefit...................... -- -- 2,523,000
------------ ----------- -----------
Income (loss) before extraordinary gain. (34,921,000) 5,545,000 2,619,000
Extraordinary gain on early retirement
of debt................................ 4,050,000 -- --
------------ ----------- -----------
Net income (loss)....................... $(30,871,000) $ 5,545,000 $ 2,619,000
============ =========== ===========
Weighted average number of common shares
outstanding............................ 11,326,443 11,256,353 11,256,353
============ =========== ===========
Income (loss) per common share..........
Before extraordinary item............. $ (3.09) $ .49 $ .23
Extraordinary item.................... .36 -- --
------------ ----------- -----------
Net income (loss) per common share...... $ (2.73) $ .49 $ .23
============ =========== ===========
Dividends declared per common share..... $ .80 $ .94 $ 1.36
============ =========== ===========
</TABLE>
See accompanying notes.
44
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
--------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... 11,256,353 $1,125,000 $117,084,000 $(36,700,000) $ 81,509,000
Dividends declared on
common stock......... -- -- -- (15,309,000) (15,309,000)
Net income............ -- -- -- 2,619,000 2,619,000
---------- ---------- ------------ ------------ ------------
Balance, December 31,
1993................... 11,256,353 1,125,000 117,084,000 (49,390,000) 68,819,000
Dividends declared on
common stock......... -- -- -- (10,580,000) (10,580,000)
Net income............ -- -- -- 5,545,000 5,545,000
---------- ---------- ------------ ------------ ------------
Balance, December 31,
1994................... 11,256,353 1,125,000 117,084,000 (54,425,000) 63,784,000
Stock issued to
Operating Company in
connection with
restricted stock
awards............... 126,647 13,000 1,797,000 -- 1,810,000
Dividends declared on
common stock......... -- -- -- (9,081,000) (9,081,000)
Net loss.............. -- -- -- (30,871,000) (30,871,000)
---------- ---------- ------------ ------------ ------------
Balance, December 31,
1995................... 11,383,000 $1,138,000 $118,881,000 $(94,377,000) $ 25,642,000
========== ========== ============ ============ ============
</TABLE>
See accompanying notes.
45
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
(RESTATED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................. $(30,871,000) $ 5,545,000 $ 2,619,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization.... 3,899,000 4,152,000 7,079,000
Minority interest in losses of
consolidated joint ventures..... -- -- (891,000)
Equity in losses (earnings) of
unconsolidated joint ventures... 1,836,000 1,232,000 (446,000)
Equity in earnings from
investment in Pacific Gulf
Properties Inc.................. (1,374,000) (203,000) --
Card club option write-off....... 2,000,000 -- --
Program for disposition of non-
core real estate assets......... 38,500,000 -- --
Extraordinary gain on early
retirement of debt.............. (4,050,000) -- --
Write-down of land held for
development..................... -- 1,043,000 --
Loss on disposition of
multifamily and industrial
operations...................... -- -- 10,974,000
Net (increase) decrease in
certain other assets............ (87,000) 160,000 (474,000)
Net (decrease) increase in
certain other liabilities....... (40,000) (1,720,000) 3,858,000
------------ ------------ ------------
Net cash provided by operating
activities........................ 9,813,000 10,209,000 22,719,000
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of
multifamily and industrial
operations........................ -- 44,425,000 --
Payments received on loans
receivable........................ 484,000 10,216,000 4,076,000
Origination of loans receivable.... (27,000) -- (8,163,000)
Additions and improvements to real
estate assets..................... (3,432,000) (2,911,000) (17,030,000)
Additions to certain other assets.. (5,415,000) -- --
Investments in and advances to
unconsolidated joint ventures..... (4,282,000) (1,660,000) (2,400,000)
Capital distributions from
unconsolidated joint ventures..... 1,862,000 3,014,000 3,829,000
Dividends received from Pacific
Gulf Properties Inc............... 1,224,000 203,000 --
------------ ------------ ------------
Net cash (used in) provided by
investing activities.............. (9,586,000) 53,287,000 (19,688,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from real estate loans
payable........................... -- 24,400,000 --
Proceeds from bank loans payable... 13,650,000 7,300,000 20,981,000
Repayment of real estate loans
payable........................... (8,074,000) (11,150,000) (403,000)
Repayment of bank loans payable.... -- (77,913,000) --
(Decrease) increase in due to
Operating Company................. (641,000) 1,525,000 (1,428,000)
Dividends paid..................... (9,056,000) (12,117,000) (15,309,000)
Issuance of common stock to
Operating Company in connection
with restricted stock awards...... 1,810,000 -- --
Distributions to minority interest
in consolidated joint ventures,
net............................... -- -- (868,000)
------------ ------------ ------------
Net cash (used in) provided by
financing activities.............. (2,311,000) (67,955,000) 2,973,000
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents.................... (2,084,000) (4,459,000) 6,004,000
Cash and cash equivalents at
beginning of year................... 2,251,000 6,710,000 706,000
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 167,000 $ 2,251,000 $ 6,710,000
============ ============ ============
</TABLE>
See accompanying notes.
46
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current assets
Cash.............................................. $11,188,000 $ 7,243,000
Short-term investments, at cost (approximates
market).......................................... 2,522,000 5,600,000
Accounts receivable............................... 3,113,000 2,382,000
Due from Realty................................... 415,000 1,056,000
Prepaid expenses and other assets................. 777,000 1,043,000
----------- -----------
Total current assets............................ 18,015,000 17,324,000
Investment in common stock of Realty................ 2,122,000 2,122,000
Property, plant and equipment, at cost, less
accumulated depreciation of $24,968,000 and
$23,093,000........................................ 19,233,000 19,466,000
----------- -----------
$39,370,000 $38,912,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................. $10,788,000 $10,800,000
Other liabilities................................. 11,693,000 10,591,000
Bank loans payable................................ 868,000 794,000
Income taxes...................................... 326,000 --
----------- -----------
Total current liabilities....................... 23,675,000 22,185,000
Bank loans payable.................................. 867,000 1,735,000
Deferred revenues................................... 2,379,000 2,427,000
Deferred income taxes............................... 1,239,000 3,565,000
----------- -----------
28,160,000 29,912,000
----------- -----------
Shareholders' equity
Preferred stock, $.10 par value; authorized
6,000,000 shares; none issued.................... -- --
Common stock, $.10 par value; authorized
19,000,000 shares; issued and outstanding
11,270,500 and 11,143,853 shares................. 1,127,000 1,114,000
Additional paid-in capital........................ 20,736,000 20,596,000
Unearned compensation expense..................... (1,209,000) --
Retained earnings (deficit)....................... (9,444,000) (12,710,000)
----------- -----------
11,210,000 9,000,000
----------- -----------
$39,370,000 $38,912,000
=========== ===========
</TABLE>
See accompanying notes.
47
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Wagering commissions................... $45,587,000 $43,096,000 $38,428,000
Admission related...................... 24,060,000 24,750,000 25,842,000
Interest and other..................... 686,000 565,000 571,000
----------- ----------- -----------
70,333,000 68,411,000 64,841,000
----------- ----------- -----------
Costs and expenses
Horse racing operating costs........... 48,686,000 48,352,000 46,696,000
Depreciation and amortization.......... 3,196,000 4,251,000 2,768,000
General and administrative............. 5,442,000 5,583,000 5,801,000
Interest............................... 401,000 446,000 493,000
Rental expense to Realty............... 11,342,000 13,057,000 11,315,000
----------- ----------- -----------
69,067,000 71,689,000 67,073,000
----------- ----------- -----------
Income (loss) before income taxes........ 1,266,000 (3,278,000) (2,232,000)
Income tax benefit....................... 2,000,000 -- --
----------- ----------- -----------
Net income (loss)........................ $ 3,266,000 $(3,278,000) $(2,232,000)
=========== =========== ===========
Weighted average number of common shares
outstanding............................. 11,213,943 11,143,146 11,140,853
=========== =========== ===========
Net income (loss) per common share....... $ .29 $ (.29) $ (.20)
=========== =========== ===========
</TABLE>
See accompanying notes.
48
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED UNEARNED
--------------------- PAID-IN EARNINGS COMPENSATION
SHARES AMOUNT CAPITAL (DEFICIT) EXPENSE TOTAL
---------- ---------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992................... 11,140,853 $1,114,000 $20,592,000 $(7,200,000) $ -- $14,506,000
Net loss.............. -- -- -- (2,232,000) -- (2,232,000)
---------- ---------- ----------- ------------ ----------- -----------
Balance, December 31,
1993................... 11,140,853 1,114,000 20,592,000 (9,432,000) -- 12,274,000
Stock issued in
connection with stock
option plan 3,000 -- 4,000 -- -- 4,000
Net loss.............. -- -- -- (3,278,000) -- (3,278,000)
---------- ---------- ----------- ------------ ----------- -----------
Balance, December 31,
1994................... 11,143,853 1,114,000 20,596,000 (12,710,000) -- 9,000,000
Stock issued in
connection with
restricted stock
awards............... 126,647 13,000 140,000 -- (1,963,000) (1,810,000)
Amortization of
unearned compensation
expense.............. -- -- -- -- 754,000 754,000
Net income............ -- -- -- 3,266,000 -- 3,266,000
---------- ---------- ----------- ------------ ----------- -----------
Balance, December 31,
1995................... 11,270,500 $1,127,000 $20,736,000 $ (9,444,000) $(1,209,000) $11,210,000
========== ========== =========== ============ =========== ===========
</TABLE>
See accompanying notes.
49
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ 3,266,000 $ (3,278,000) $(2,232,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization...... 3,196,000 4,251,000 2,768,000
Amortization of unearned
compensation expense.............. 754,000 -- --
Deferred income taxes.............. (2,000,000) -- (108,000)
Net (increase) decrease in certain
other assets...................... (96,000) 798,000 (69,000)
Net increase in certain other
liabilities....................... 1,042,000 426,000 4,739,000
----------- ------------ -----------
Net cash provided by operating
activities.......................... 6,162,000 2,197,000 5,098,000
----------- ------------ -----------
Cash flows from investing activities:
Additions to property, plant and
equipment........................... (3,332,000) (1,553,000) (1,450,000)
Purchase of common stock form Realty
in connection with grant of
restricted stock.................... (1,810,000) -- --
Decrease in investment in common
stock of Realty..................... -- 57,000 --
----------- ------------ -----------
Net cash used in investing
activities.......................... (5,142,000) (1,496,000) (1,450,000)
----------- ------------ -----------
Cash flows from financing activities:.
Repayment of bank loans payable...... (794,000) (725,000) (664,000)
Decrease (increase) in due from
Realty.............................. 641,000 (1,525,000) 1,428,000
Proceeds from stock issued in
connection with exercise of stock
options............................. -- 4,000 --
----------- ------------ -----------
Net cash (used in) provided by
financing activities................ (153,000) (2,246,000) 764,000
----------- ------------ -----------
Net increase (decrease) in cash and
cash equivalents...................... 867,000 (1,545,000) 4,412,000
Cash and cash equivalents at beginning
of year............................... 12,843,000 14,388,000 9,976,000
----------- ------------ -----------
Cash and cash equivalents at end of
year.................................. $13,710,000 $ 12,843,000 $14,388,000
=========== ============ ===========
</TABLE>
See accompanying notes.
50
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating
Company and Subsidiaries ("Operating Company") are two separate companies, the
stocks of which trade as a single unit under a stock-pairing arrangement on
the New York Stock Exchange (symbol SAR). Realty and Operating Company were
each incorporated in 1979 and are the successors of a corporation originally
organized in 1934 to conduct thoroughbred horse racing in Southern California.
Currently, Realty is principally engaged in holding and investing in retail
and commercial property located primarily in Southern California, Phoenix,
Arizona and Towson, Maryland. During 1994, Realty disposed of its multifamily
and industrial properties. Realty operates as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986 and, accordingly, pays no
income taxes on earnings distributed to shareholders.
Operating Company is engaged in thoroughbred horse racing. The thoroughbred
horse racing operation is conducted by a subsidiary of Operating Company, Los
Angeles Turf Club, Incorporated ("LATC"), which leases the Santa Anita
Racetrack from Realty.
Separate financial statements have been presented for Realty and for
Operating Company. Combined Realty and Operating Company financial statements
have been presented as The Santa Anita Companies. Realty and The Santa Anita
Companies use an unclassified balance sheet presentation.
The separate results of operations and the separate net income per share of
Realty and Operating Company cannot usually be added together to total the
combined results of operations and net income per share for The Santa Anita
Companies because of adjustments and eliminations arising from inter-entity
transactions. All significant intercompany and inter-entity balances and
transactions have been eliminated in consolidation and combination.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Real Estate Assets
Investment properties are carried at the lower of cost or estimated net
realizable value and consist of land, buildings and related improvements.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the properties, ranging primarily from 15 to 40 years.
Investments in Joint Ventures
Realty consolidates only those joint ventures in which it exercises control.
Investments in unconsolidated joint ventures are accounted for using the
equity method of accounting.
Cash and Cash Equivalents
Highly liquid short-term investments, with remaining maturities of three
months or less at the date of acquisition, are considered cash equivalents.
51
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
Depreciation of property, plant and equipment and the capital lease
obligation is provided primarily on the straight-line method generally over
the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and
improvements............. 25 to 45 years
Machinery and other
equipment................ 5 to 15 years
Leasehold improvements.... 5 to 32 years
</TABLE>
Expenditures which materially increase property lives are capitalized. The
cost of maintenance and repairs is charged to expense as incurred. When
depreciable property is retired or disposed of, the related cost and
accumulated depreciation is removed from the accounts and any gain or loss is
reflected in current operations.
Income Taxes
Realty and Operating Company adopted Financial Accounting Standard ("FAS")
No. 109, "Accounting for Income Taxes," issued by the Financial Accounting
Standards Board ("FASB") effective January 1, 1993. FAS No. 109 replaces FAS
No. 96, which the company adopted in 1988. The cumulative effect of adopting
FAS No. 109 was immaterial for the year ended December 31, 1993.
Deferred Revenues
Operating Company's deferred revenues consist of prepaid admission tickets
and parking, which are recognized as income ratably over the period of the
related race meet. Also, deferred revenue includes prepaid rent from Oak Tree
which is recognized over the remaining term of the lease.
Shareholders' Equity
The outstanding shares of Realty common stock and Operating Company common
stock are only transferable and tradable in combination as a paired unit
consisting of one share of Realty common stock and one share of Operating
Company common stock.
Operating Company's Revenues and Costs
Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except for season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.
Rental Property Revenues
Rental property revenues are recorded on a straight-line basis over the
related lease term. As a result, deferred rent is created when rental income
is recognized during free rent periods of a lease or when the lease provides
for rent escalations during the lease term. Deferred rent is included in
prepaid expenses and other assets, evaluated for collectibility and amortized
over the remaining term of the lease.
52
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Horse Racing Revenues and Direct Operating Costs
Operating Company's horse racing revenues and direct operating costs are
shown net of state and local taxes, stakes, purses and awards.
Concentration of Credit Risk
Financial instruments which potentially subject Realty and Operating Company
to concentrations of credit risk are primarily cash investments and
receivables. Realty and Operating Company place their cash investments in
investment grade short-term instruments and limit the amount of credit
exposure to any one commercial issuer. Concentrations of credit risk with
respect to accounts receivable are limited due to the number of retail and
commercial tenants, satellite locations and Santa Anita group event patrons.
Real estate receivables are secured by first trust deeds on commercial real
estate located in Southern California and Phoenix, Arizona.
Financial Instruments with Off-Balance Sheet Risk
Realty is an issuer of financial instruments with off-balance sheet risk in
the normal course of business which exposes Realty to credit risks. These
financial instruments include commitments to extend credit, financial
guarantees and letters of credit.
Fair Value of Financial Instruments
Management has estimated the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated values for Realty and
Operating Company as of December 31, 1995 and 1994 are not necessarily
indicative of the amounts that could be realized in current market exchanges.
For those financial instruments for which it is practicable to estimate
value, management has determined that the carrying amounts of Realty's and
Operating Company's financial instruments approximate their fair value as of
December 31, 1995 and 1994.
Common Stock and Net Income (Loss) Per Common Share
Net income (loss) per common share is computed based upon the weighted
average number of common shares outstanding during each period for each
company. Stock options have not been included in the computation since they
have no material dilutive effect.
Operating Company holds shares of Realty's common stock which are unpaired
pursuant to a stock option plan approved by the shareholders. The shares held
totaled 112,500 as of December 31, 1995 and 1994 and 115,500 as of December
31, 1993. These shares affect the calculation of Realty's net income per
common share but are eliminated in the calculation of net income per common
share for The Santa Anita Companies.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
53
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--DISPOSITION OF NON-CORE REAL ESTATE ASSETS
During 1995, Realty adopted a plan to dispose of its non-core real estate
assets and, accordingly, reduced the book value of these assets to their
estimated realizable values, resulting in a nonrecurring charge of
$38,500,000, of which $34,500,000 was recorded in the third quarter and
$4,000,000 was recorded in the fourth quarter. The disposition plan is being
undertaken in an orderly manner and was influenced by Realty's increased focus
on the development of its Arcadia property. The assets to be disposed of have
an adjusted carrying value of $27,652,000 at December 31, 1995 and consist of
six neighborhood shopping centers located in Southern California and Arizona;
commercial office buildings in Santa Ana and Upland, California; and an
investment in Joppa Associates, a partnership which owns a vacant retail
facililty and undeveloped land adjacent to the Towson Town Center regional
shopping center in Maryland. Included in the results of operations for the
year ended December 31, 1995 is a loss of $1,261,000 relating to the non-core
real estate assets. Also included in the nonrecurring charge was a $2,500,000
reserve for loss on disposition of notes receivable.
In March 1995, the FASB issued FAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". FAS No. 121
requires that impairment losses be recorded on long-lived assets used in
operations when events or changes in circumstances indicate that the
undiscounted cash flows to be generated by these assets are less than their
carrying amount. FAS No. 121 also requires that long-lived assets to be
disposed of be reported at the lower of their carrying amount or fair value,
less cost to sell. FAS No. 121 requires adoption in the first quarter of 1996.
Realty believes that adoption of the FAS No. 121 in 1996 will not have a
material effect on its financial condition and results of operations.
NOTE 3--CARD CLUB WRITE-OFFS
In August 1995, the management of Bell Jackpot Casino, which was not
affiliated with Realty, citing intense competition from larger and more
established nearby card clubs, closed the Bell Jackpot Casino in Bell,
California. As a result of this action, during the 1995 third quarter, Realty
wrote-off the $2,000,000 it paid for an option to acquire a 50% interest in
the operation of the casino. Additionally, in the 1995 third quarter, Realty
charged $480,000 of development costs for the proposed Irwindale Palace
Casino, in Irwindale, California, to general and administrative expense.
Realty discontinued its involvement in the card club following the defeat of
an October 1995 Irwindale ballot measure to permit card clubs in Irwindale.
NOTE 4--INVESTMENT IN PACIFIC GULF PROPERTIES INC.
In November 1993, Realty entered into a Purchase and Sale Agreement to sell
its multifamily and industrial operations to Pacific Gulf Properties Inc.
("Pacific"), in conjunction with Pacific's proposed public offering of common
stock and debentures.
On February 18, 1994, Realty completed the first part of this transaction by
selling to Pacific ten multifamily properties, containing 2,654 apartment
units, located in Southern California, the Pacific Northwest and Texas and
three industrial properties, containing an aggregate of 185,000 leasable
square feet of industrial space, located in the State of Washington (the
"Transferred Properties"). Realty's corporate headquarters building and
related assets were also acquired by Pacific.
In consideration of the sale of the Transferred Properties, Realty received
$44,425,000 in cash and 150,000 shares of the common stock of Pacific. In
addition, Realty was relieved of $44,290,000 of mortgage debt on the
Transferred Properties.
Effective October 1, 1994, Realty completed the second part of the
transaction, the sale of its interest in Baldwin Industrial Park to Pacific.
Effective October 31, 1994, Pacific delivered to Realty an additional 634,419
shares of Pacific common stock as consideration for the second part of the
transaction and the corporate headquarters and other net assets.
54
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--INVESTMENT IN PACIFIC GULF PROPERTIES INC. (CONTINUED)
The above transactions resulted in a loss of $10,974,000, which was
reflected in the Realty and The Santa Anita Companies statements of operations
for the year ended December 31, 1993. If the transactions had occurred as of
January 1, 1994, Realty and The Santa Anita Companies revenues would have
decreased by $4,477,000, expenses would have decreased by $4,929,000 and net
income would have increased by $452,000, for the year ended December 31, 1994.
As of December 31, 1995 and 1994, Realty owned 16.2% and 16.3% of Pacific's
common stock and accounted for its investment by the equity method of
accounting. The closing price of Pacific's common stock, on the American Stock
Exchange, on the last trading day in 1995 was $16.25 per share.
Pacific's assets, liabilities and shareholders' equity at December 31, 1995
were $288,591,000, $216,611,000 and $71,980,000 and at December 31, 1994 were
$202,519,000, $131,659,000 and $70,860,000. Pacific's assets consist primarily
of real estate. Pacific's revenues and net income for the year ended December
31, 1995 were $37,091,000 and $8,403,000. Its revenues, income before
extraordinary item and net loss for the period from February 18, 1994, date of
inception, through December 31, 1994 were $23,857,000, $2,673,000 and
$(317,000).
On February 2, 1996, Realty notified Pacific of Realty's intent to sell the
Pacific shares in an orderly manner pursuant to privately negotiated or open
market transactions. Realty also exercised its right to have Pacific register
such shares pursuant to a Registration Rights Agreement dated as of February
1, 1994.
NOTE 5--INVESTMENTS IN CONSOLIDATED JOINT VENTURES
Realty's real estate properties include investments in the following
consolidated real estate joint venture at December 31, 1995:
<TABLE>
<CAPTION>
OWNERSHIP
NAME PERCENTAGE PROJECT
---- ---------- ---------------
<S> <C> <C>
French Valley Ventures........................ 50% Industrial land
</TABLE>
The financial condition and operations of the above joint venture are
consolidated with the financial statements of Realty and The Santa Anita
Companies.
Combined condensed financial information for the consolidated joint ventures
as of December 31, 1995, 1994 and 1993 and for the years then ended is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
Real estate assets.................. $ 280,000 $ 480,000 $19,306,000
========= =========== ===========
Liabilities
Secured real estate loans......... $ 480,000 $ 480,000 $12,679,000
Other............................. 2,000 2,000 390,000
--------- ----------- -----------
$ 482,000 $ 482,000 $13,069,000
========= =========== ===========
Partners' equity (deficit)
Realty............................ $(202,000) $ (2,000) $ 6,213,000
Others............................ -- -- 24,000
--------- ----------- -----------
$(202,000) $ (2,000) $ 6,237,000
========= =========== ===========
Revenues............................ $ -- $ -- $ 8,256,000
========= =========== ===========
Net income (loss)
Realty............................ $(266,000) $(1,043,000) $ (60,000)
Others............................ -- -- (892,000)
--------- ----------- -----------
$(266,000) $(1,043,000) $ (952,000)
========= =========== ===========
</TABLE>
55
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INVESTMENTS IN CONSOLIDATED JOINT VENTURES (CONTINUED)
In December 1994, a decrease in a maturing note payable secured by land held
for development by French Valley Ventures was negotiated and the carrying cost
of the related land was written down to its estimated market value. The
resulting net charge of $1,043,000 has been reflected in "Write-down of land
held for development" in the Realty and The Santa Anita Companies statements
of operations.
Amounts reported in 1993 also included a consolidated joint venture in which
the minority interest was acquired in January 1994.
NOTE 6--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Realty's investments in unconsolidated joint ventures include investments in
the following commercial real estate ventures at December 31, 1995:
<TABLE>
<CAPTION>
OWNERSHIP
NAME PERCENTAGE PROJECT
---- ---------- -------------
<S> <C> <C>
Anita Associates................................. 50% Regional mall
H-T Associates................................... 50% Regional mall
Joppa Associates................................. 33 1/3% Retail
</TABLE>
The Anita Associates partnership comprises the property associated with the
operations of Santa Anita Fashion Park in Arcadia, California. The H-T
Associates and Joppa Associates partnerships comprise the properties
associated with the operations of Towson Town Center in Towson, Maryland.
During 1995, Realty reevaluated its consolidation policy with respect to 50%
owned joint ventures that had been consolidated in prior years. Realty
determined that it does not have sufficient involvement in these joint
ventures to warrant consolidation and has reported these joint ventures on the
equity method at December 31, 1995. All prior year financial statements and
disclosures have been restated to conform to this presentation. The
restatement had no effect on prior years reported net income or shareholders
equity, but did have the effect of reducing Realty's assets and liabilities by
$60,804,000 in 1994 and $43,493,000 in 1993 and of reducing Realty's revenues
and expenses by $13,691,000 in 1994 and $13,352,000 in 1993.
56
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
Combined condensed financial statement information for the unconsolidated
joint ventures as of December 31, 1995, 1994 and 1993 and for the years then
ended is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Real estate assets.............. $258,952,000 $265,869,000 $268,243,000
============ ============ ============
Liabilities
Advances from Realty.......... $ -- $ 276,000 $ 10,243,000
Secured real estate loans..... 242,332,000 243,061,000 215,904,000
Other 5,515,000 7,929,000 20,763,000
------------ ------------ ------------
$247,847,000 $251,266,000 $246,910,000
============ ============ ============
Partners' equity
Realty........................ $ 6,157,000 $ 7,434,000 $ 13,291,000
Others........................ 4,948,000 7,169,000 8,042,000
------------ ------------ ------------
$ 11,105,000 $ 14,603,000 $ 21,333,000
============ ============ ============
Revenues........................ $ 36,130,000 $ 36,388,000 $ 33,657,000
============ ============ ============
Net income (loss)
Realty........................ $ (1,836,000) $ (1,232,000) $ 446,000
Others........................ (3,787,000) (4,362,000) (160,000)
------------ ------------ ------------
$ (5,623,000) $ (5,594,000) $ 286,000
============ ============ ============
</TABLE>
Realty has executed a joint and several guaranty of a loan issued to expand
the Towson Town Center located in Towson, Maryland (owned 65% by H-T
Associates) in the amount of $66,135,000. Realty's two partners in the venture
have also each executed repayment guaranties, although one of the partners has
a limited repayment guaranty. The loan balance to which the guaranties relate
is $164,641,000. The repayment guaranties contain covenants which, among other
matters, require the guarantors to maintain certain minimum levels of net
worth. At December 31, 1995, Realty was in default under the minimum net worth
covenant. Realty is currently in discussions with its partners and the lender
to restructure the loan and modify the net worth requirement in the guaranty.
If the discussions prove to be unsatisfactory, the lender may, among other
things, foreclose on the assets of H-T Associates and pursue other remedies
under the guaranties. The outcome of the discussions cannot presently be
determined and no adjustment has been made in the financial statements.
Realty has also executed a joint and several guaranty of a loan on property
(owned 100% by Joppa Associates) adjacent to Towson Town Center in the amount
of $8,247,000. One of Realty's other two partners, The Hahn Company, has
executed a repayment guaranty for the full amount of the loan. The loan
balance to which the guaranties relate is $16,494,000. At December 31, 1995,
Realty was in compliance with the guaranty covenants.
57
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--REAL ESTATE LOANS RECEIVABLE
Realty's real estate loans receivable as of December 31, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
7.6% to 8.5% loans receivable secured by trust
deeds on commercial real estate due through
2002......................................... $13,454,000 $13,635,000
Reserve for loss on disposition............... (2,500,000) --
----------- -----------
$10,954,000 $13,635,000
=========== ===========
</TABLE>
Contractual principal repayments on real estate loans receivable as of
December 31, 1995 are due as follows:
<TABLE>
<S> <C>
1996......................... $ 1,526,000
1997......................... 5,158,000
1998......................... 212,000
1999......................... 231,000
2000......................... 251,000
Thereafter................... 3,576,000
-----------
$10,954,000
===========
</TABLE>
NOTE 8--LOANS PAYABLE
Realty's real estate loans payable as of December 31, 1995 and 1994 consist
of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
9.25% note, secured by real estate assets, due in
installments through 2001....................... $ 8,796,000 $ 8,892,000
8.5% note, secured by land with assignment of
ground lease and rent as collateral, due in
installments through 2009....................... 3,831,000 3,971,000
9.75% note, secured by real estate assets,
interest only, due in 2002...................... 480,000 480,000
9.375% note, secured by real estate assets,
interest only, due in 1998...................... -- 11,703,000
8.062% variable rate notes, secured by real
estate, due in installments through 2005........ 15,282,000 15,500,000
----------- -----------
$28,389,000 $40,546,000
=========== ===========
</TABLE>
In November 1995, Realty completed a negotiated, early and reduced payoff of
the mortgage loan on the Santa Ana office building. The mortgage holder agreed
to accept a cash payment of $7,500,000 as settlement in full of the 9.375%
note due in 1998. The prepayment resulted in a gain of $4,050,000, net of
miscellaneous closing expenses, which was reflected as an extraordinary gain
on early retirement of debt in the Realty and The Santa Anita Companies
statements of operations.
In December 1994, Realty obtained secured loans on each of its six
neighborhood shopping centers. At December 31, 1995, these secured loans had
an outstanding balance of $15,282,000. The secured loans had initial variable
interest rates ranging from 8.25% to 9% and a 25-year amortization period. The
interest rates are subject
58
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LOANS PAYABLE (CONTINUED)
to adjustment every six months based on the six-month certificate of deposit
rate in the secondary market as currently published in The Wall Street
Journal. The maximum interest rate adjustment over the life of the loans is 5%
and the increase in the monthly payment at each adjustment date is limited to
3.75%.
Principal payments due on real estate loans payable as of December 31, 1995
are as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 531,000
1997.......................................................... 581,000
1998.......................................................... 632,000
1999.......................................................... 688,000
2000.......................................................... 747,000
Thereafter.................................................... 25,210,000
-----------
$28,389,000
===========
</TABLE>
Bank loans payable consist of borrowings under the revolving credit
agreement of $20,950,000 and $7,300,000 as of December 31, 1995 and 1994.
In November 1994, Realty entered into a one-year $30,000,000 revolving
credit agreement with a commercial bank. In November 1995, the agreement was
extended to January 26, 1996 and in January 1996, an amendment to the
revolving credit agreement extended the term to June 30, 1996 and reduced
available borrowings to $20,000,000. Borrowings under the revolving credit
agreement bear interest, at Realty's option, at the prime rate, at LIBOR
(London Interbank Offered Rate) plus 1%, or at the 30-day, 60-day or 90-day
certificate of deposit rate plus 1%. At December 31, 1995, borrowings of
$17,700,000 were at a rate of 6.9% which was based on the 30-day certificate
of deposit rate plus 1% and borrowings of $3,250,000 were at the prime rate.
At December 31, 1994, borrowings were at a rate of 7.25% which was based on
the 30-day certificate of deposit rate plus 1%. Realty's Racetrack rental
revenues have been pledged as collateral under the credit agreement.
The revolving credit agreement contains a restriction on the payment of
dividends and certain other financial ratio and maintenance restrictions.
Dividends are limited to the lesser of $.80 per share or $9,200,000 in any
twelve-month period beginning on or after July 1, 1994. Realty's current
dividend policy is in compliance with this dividend restriction. Additionally,
at December 31, 1995, Realty was in compliance with the other financial ratio
and maintenance restrictions, except for the net worth restriction. Realty has
obtained a waiver of non-compliance from the commercial bank and has cured the
non-compliance as of January 31, 1996.
Operating Company entered into a sale-leaseback transaction related to the
financing of certain television, video monitoring and production equipment
under a five-year lease expiring in December 1997. This financing arrangement
is accounted for as a capital lease. Accordingly, the equipment and related
lease obligation are reflected as machinery and other equipment and bank loans
payable in the Operating Company and The Santa Anita Companies balance sheets.
Realty has guaranteed the capital lease obligation of $1,735,000.
Assets relating to the capital lease are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Machinery and equipment......................... $ 4,000,000 $ 4,000,000
Accumulated amortization........................ (1,667,000) (1,154,000)
----------- -----------
$ 2,333,000 $ 2,846,000
=========== ===========
</TABLE>
59
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--LOANS PAYABLE (CONTINUED)
Total future minimum lease payments under the capital lease and the present
value of the minimum lease payments as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
For the year ending December 31,
1996........................................................ $ 989,000
1997........................................................ 907,000
----------
1,896,000
Less amount representing interest............................. (161,000)
----------
Present value of minimum lease payments....................... $1,735,000
==========
Current portion............................................... $ 868,000
Long-term portion............................................. 867,000
----------
$1,735,000
==========
</TABLE>
Interest costs for the years ended December 31, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- --------- ---------------
<S> <C> <C> <C>
Total incurred...................... $4,409,000 $401,000 $ 4,689,000
Capitalized......................... (88,000) -- (88,000)
---------- -------- -----------
Total interest expense.............. $4,321,000 $401,000 $ 4,601,000
========== ======== ===========
Total interest paid................. $4,259,000 $401,000 $ 4,539,000
========== ======== ===========
</TABLE>
At December 31, 1995, $121,000 of inter-entity interest was
eliminated in The Santa Anita Companies financial statements.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- --------- ---------------
<S> <C> <C> <C>
Total incurred...................... $6,012,000 $446,000 $ 6,458,000
Capitalized......................... (82,000) -- (82,000)
---------- -------- -----------
Total interest expense.............. $5,930,000 $446,000 $ 6,376,000
========== ======== ===========
Total interest paid................. $6,227,000 $446,000 $ 6,673,000
========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- --------- ---------------
<S> <C> <C> <C>
Total incurred...................... $9,951,000 $493,000 $10,444,000
Capitalized......................... (85,000) -- (85,000)
---------- -------- -----------
Total interest expense.............. $9,866,000 $493,000 $10,359,000
========== ======== ===========
Total interest paid................. $9,930,000 $493,000 $10,423,000
========== ======== ===========
</TABLE>
60
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--OTHER LIABILITIES
Other liabilities as of December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- ----------- ---------------
<S> <C> <C> <C>
Accrued salaries................... $ 146,000 $ 947,000 $ 1,093,000
Deferred compensation.............. 947,000 3,444,000 4,391,000
Accrued interest................... 279,000 -- 279,000
State license fees................. -- 1,542,000 1,542,000
Other.............................. 555,000 5,760,000 6,315,000
Unconsolidated joint ventures...... 3,347,000 -- 3,347,000
---------- ----------- -----------
$5,274,000 $11,693,000 $16,967,000
========== =========== ===========
<CAPTION>
DECEMBER 31, 1994
--------------------------------------
OPERATING THE SANTA ANITA
REALTY COMPANY COMPANIES
---------- ----------- ---------------
<S> <C> <C> <C>
Accrued salaries................... $ 100,000 $ 878,000 $ 978,000
Deferred compensation.............. 1,045,000 3,705,000 4,750,000
Accrued interest................... 208,000 -- 208,000
State license fees................. -- 1,695,000 1,695,000
Other.............................. 450,000 4,313,000 4,763,000
---------- ----------- -----------
$1,803,000 $10,591,000 $12,394,000
========== =========== ===========
</TABLE>
NOTE 10--INCOME TAXES
As a REIT, Realty is taxed only on undistributed REIT income. During each of
the years ended December 31, 1995, 1994 and 1993, Realty distributed at least
95% of its REIT taxable earnings to its shareholders. For the year ended
December 31, 1995, 100% of the dividends distributed to shareholders
represented ordinary income. For the years ended December 31, 1994 and 1993,
55.4% and 41.2%, of the dividends distributed to shareholders represented a
return of capital. Pursuant to Internal Revenue Code Section 857(b)(3)(C) and
the Regulations thereunder, for the year ended December 31, 1994, Realty
designated 44.6% of the dividends distributed as capital gains dividends. None
of the dividends distributed to shareholders during the year ended December
31, 1993 represented capital gains dividends.
In prior years, Realty had filed claims with the California Franchise Tax
Board for refunds with respect to the 1970 through 1979 tax years; LATC was
assessed California franchise tax and interest for the years 1980 through
1982; and, Operating Company was assessed additional franchise tax for the
years 1983 through 1985. In 1993, a refund of interest and taxes in the amount
of $6,082,000 was received from the California Franchise Tax Board in the
settlement of the above claims. Realty recognized $3,211,000 of interest
income, net of expenses of $120,000 and an income tax benefit of $2,523,000.
Operating Company recorded additional deferred taxes payable of $228,000.
61
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
The composition of Operating Company's income tax provision (benefit) and
income taxes paid for the years ended December 31, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Current provision (benefit)
Federal............................... $ 79,000 $ -- $ --
State................................. 247,000 -- 108,000
----------- --------- ---------
326,000 -- 108,000
----------- --------- ---------
Deferred provision (benefit)
Federal............................... (79,000) -- --
State................................. (2,247,000) -- (108,000)
----------- --------- ---------
(2,326,000) -- (108,000)
----------- --------- ---------
$(2,000,000) $ -- $ --
=========== ========= =========
Income taxes paid....................... $ 3,000 $ 25,000 $ 313,000
=========== ========= =========
</TABLE>
Deferred income taxes arise from temporary differences in the recognition of
certain items of revenues and expenses for financial statement and tax
reporting purposes. The sources of temporary differences and their related tax
effect for the years ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- -------- -----------
<S> <C> <C> <C>
Accelerated depreciation and
amortization methods utilized for
tax reporting purposes.............. $ (814,000) $(16,000) $ 109,000
Reinstatement of deferred taxes due
to tax net operating loss
carryovers.......................... 1,545,000 100,000 1,733,000
State income tax provision (benefit)
deductible when paid for federal
income tax purposes................. (2,100,000) (52,000) (485,000)
Deductions previously deducted for
book purposes, deductible for tax
purposes currently.................. (918,000) (66,000) --
Income previously included for book
purposes, not includable for tax
purposes currently.................. 11,000 -- --
Income resulting from settlement of
state unitary tax issues............ -- -- (1,426,000)
Decrease in valuation allowance for
deferred tax assets................. (50,000) 24,000 --
Other, net........................... -- 10,000 (39,000)
----------- -------- -----------
$(2,326,000) $ -- $ (108,000)
=========== ======== ===========
</TABLE>
62
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
A reconciliation of Operating Company's total income tax provision for the
years ended December 31, 1995, 1994 and 1993 to the statutory federal
corporate income tax rate of 34% and the state rate of 9.3% is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Computed "expected" tax provision... $ 1,414,000 $(1,316,000) $(759,000)
State income taxes, net of federal
income taxes....................... 247,000 -- 34,000
Nondeductible political
contributions...................... 47,000 59,000 28,000
Decrease (increase) in cash
surrender value of life insurance.. 3,000 34,000 (269,000)
Establishment (use) of book net
operating loss carryforwards....... (1,316,000) 1,236,000 982,000
Deferred effect due primarily to
benefit from reduction of state
accrual............................ (2,326,000) -- --
Other, net.......................... (69,000) (13,000) (16,000)
----------- ----------- ---------
$(2,000,000) $ -- $ --
=========== =========== =========
</TABLE>
The deferred tax assets and liabilities as of December 31, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets
Compensation deductible for tax purposes when
paid........................................ $ 1,764,000 $ 1,487,000
Pension contribution deductible for tax
purposes when paid.......................... 490,000 170,000
Contribution carryover....................... 280,000 78,000
Other........................................ 143,000 24,000
Federal tax effect of state deferred
liabilities................................. 444,000 1,243,000
Federal net operating loss carryovers........ 2,211,000 2,901,000
State net operating loss carryovers.......... 129,000 185,000
Valuation allowance.......................... (4,117,000) (4,167,000)
----------- -----------
Total deferred assets........................ 1,344,000 1,921,000
----------- -----------
Deferred tax liabilities
Difference between tax and book depreciation. (790,000) (1,604,000)
Income previously included for book purposes,
not includable for tax purposes............. (148,000) (137,000)
State income tax deductible when paid for
federal tax purposes........................ (1,645,000) (3,745,000)
----------- -----------
Total deferred tax liabilities............... (2,583,000) (5,486,000)
----------- -----------
Net liability for deferred income taxes........ $(1,239,000) $(3,565,000)
=========== ===========
</TABLE>
63
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
The Franchise Tax Board has audited the 1986 through 1988 tax years of
Operating Company. Operating Company has protested the proposed assessments.
These assessments have been accrued by Operating Company. In 1995, the
Franchise Tax Board proposed a withdrawal of the assessments for 1986 through
1988. In February 1994, the Franchise Tax Board initiated an audit of
Operating Company's 1989 through 1991 tax years. At December 31, 1994, the
agent has completed his review and has not proposed any adjustments for the
1989 through 1991 tax years. However, these years remain open pending
resolution of the proposed assessments for the 1986 through 1988 tax years.
At December 31, 1995, Operating Company's net operating loss carryforward,
for federal income tax purposes, was $6,503,000 of which $1,197,000 expires in
2002, $99,000 in 2003, $41,000 in 2004, $103,000 in 2005, $440,000 in 2006,
$3,000,000 in 2007 and $1,623,000 in 2009. Realty's net operating loss
carryforward at December 31, 1995 was $8,736,000 and expires in 2009.
NOTE 11--COMMITMENTS AND CONTINGENCIES
Realty's owned real estate investments consist of Santa Anita Racetrack,
various neighborhood shopping centers, and office buildings. The racetrack is
leased to LATC; the land underlying Fashion Park has been ground leased for 65
years to Anita Associates; each of the various neighborhood shopping centers
has been leased to non-anchor tenants with terms ranging from three to five
years; and, the office buildings have been leased with terms generally ranging
from two to ten years.
The minimum future lease payments to be received from Realty's owned real
estate investments (excluding rentals relating to Santa Anita Racetrack which
are paid by LATC to Realty) for the five years ended December 31, are as
follows:
<TABLE>
<S> <C>
1996.......................... $6,487,000
1997.......................... 4,912,000
1998.......................... 4,507,000
1999.......................... 3,702,000
2000.......................... 2,664,000
</TABLE>
Substantially all of the retail leases provide for additional contingent
rentals based upon the gross income of the tenants in excess of stipulated
minimums. Realty's share of these contingent rentals totaled $104,000 in 1995,
$69,000 in 1994 and $115,000 in 1993.
Realty leases the Santa Anita Racetrack to Operating Company's subsidiary,
LATC, pursuant to a lease which expires December 31, 1999. The lease rental
amounts have been eliminated in The Santa Anita Companies statement of
operations.
Realty and Operating Company have entered into severance agreements with
certain officers. Under certain circumstances, the severance agreements
provide for a lump sum payment if there is a "change in control" of the
entities. No provision under these severance agreements has been accrued or
funded.
Certain other claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against Realty and Operating Company.
In the opinion of management, all such matters are adequately covered by
insurance or, if not covered, are without merit or are of such kind or involve
such amounts as would not have a significant effect on the financial position
or results of operations if disposed of unfavorably.
64
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS
Stock Option Program
During 1995, the shareholders approved the Realty 1995 Share Award Plan and
the Operating Company 1995 Share Award Plan. These plans replace the Realty
and Operating Company 1984 Stock Option Plans which expired on May 3, 1995. A
maximum 230,000 shares of common stock may be issued under the Realty 1995
Share Award Plan and a maximum of 780,000 shares of common stock may be issued
under the Operating Company 1995 Share Award Plan. For both Realty and
Operating Company, the maximum number of options and stock appreciation rights
that may be granted to an eligible person during any one-year period shall not
exceed 150,000. Under the 1995 Share Award Plans, shares are to be issued
either as options, dividend equivalents, stock appreciation rights, restricted
stock awards, performance share awards or stock bonuses. At December 31, 1995,
under the Realty and Operating Company 1995 Share Award Plans, 186,500 shares
and 575,173 shares were available for future grant.
Except as may be provided in the award agreement, no award made under the
1995 Share Award Plans shall be exercisable or shall vest for a period of six
months after the award date. Each award shall expire on such date as
determined by the Compensation Committee of the Board of Directors
("Committee"), but in the case of options or other rights to acquire shares of
paired common stock, not later than ten years after the award date. The
Committee may authorize the deferral of any payment of cash or issuance of
shares of paired common stock under the 1995 Share Award Plans at the election
and request of a participant.
Options granted under the 1995 Share Award Plans and the 1984 Stock Option
Plans are contingent upon continuous employment and are exercisable at any
time once vested, for up to three years after the date of retirement or death
and for up to 90 days after resignation. During 1995, all options granted were
under the 1995 Share Award Plans. Options outstanding at December 31, 1995
expire in 1996 through 2005.
Information with respect to shares under option as of December 31, 1995,
1994 and 1993 is as follows:
<TABLE>
<CAPTION>
REALTY OPERATING COMPANY
-------------------------- -------------------------
SHARES
SHARES SUBJECT
SUBJECT TO TO
OPTION PRICE OPTION PRICE
---------- --------------- -------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31,
1993..................... 114,506 $17.63 - $29.00 410,500 $17.38 - $29.00
Granted................. 122,500 $17.13 - $20.25 126,000 $17.13
Exercised............... -- (3,000)
Cancelled............... (75,000) $17.63 - $29.00 (125,000) $17.38 - $29.00
------- --------
Balance, December 31,
1994..................... 162,006 $17.13 - $29.00 408,500 $17.13 - $29.00
Granted................. 43,500 $12.63 78,200 $12.63
Exercised............... -- --
Cancelled............... (21,230) $17.13 - $29.00 (15,000) $17.13 - $24.75
------- --------
Balance, December 31,
1995..................... 184,276 $12.63 - $25.00 471,700 $12.63 - $29.00
======= ========
</TABLE>
At the time of exercise of Realty options, employees also have to buy
directly from Operating Company shares of Operating Company stock at its fair
market value per share to pair with Realty shares.
In addition, Operating Company is required to purchase Realty shares to pair
with the Operating Company shares being purchased by its employees. Operating
Company has purchased 112,500 shares of Realty stock for this purpose.
65
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
Restricted Stock Awards
Under the 1995 Share Award Plans, Realty granted none and Operating Company
granted 126,647 shares of common stock as Restricted Stock Awards during 1995
at a value of $15.50 per paired share. Of the shares issued, 8,065 shares
vested in 1995. The remaining Restricted Stock Awards vest in 1996 through
2001.
Retirement Income Plan
Realty and Operating Company have a defined benefit retirement plan for the
year-round employees who are at least 21 years of age with one or more years
of service and who are not covered by collective bargaining agreements. Plan
assets consist of a group annuity contract with a life insurance company. Plan
benefits are based primarily on years of service and qualifying compensation
during the final years of employment. Funding requirements comply with federal
requirements that are imposed by law.
The net periodic pension cost for Realty and Operating Company for 1995 was
$59,000 and $325,000; for 1994 was $85,000 and $390,000; and for 1993 was
$104,000 and $367,000. The provisions include amortization of past service
cost over 30 years. The present value of accumulated plan benefits (calculated
using a rate of return of 7.0%) at December 31, 1995 was $7,230,000 and the
plan's net assets available for benefits were $5,929,000.
Combined net periodic pension cost for the years ended December 31, 1995,
1994 and 1993 for the retirement income plan included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost............................... $228,000 $278,000 $288,000
Interest cost on projected benefit
obligation................................ 573,000 569,000 569,000
Actual return on plan assets............... (342,000) (378,000) (391,000)
Net amortization and deferral.............. (75,000) 6,000 5,000
-------- -------- --------
Net periodic pension cost................ $384,000 $475,000 $471,000
======== ======== ========
</TABLE>
66
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of Realty's and Operating
Company's retirement income plan and amounts recognized in the balance sheets
at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligations at December 31:
Vested....................................... $ 6,818,000 $ 5,906,000
Nonvested.................................... 412,000 126,000
----------- -----------
7,230,000 6,032,000
Additional amounts related to projected
compensation levels........................... 824,000 1,018,000
----------- -----------
Total actuarial projected benefit obligations
for service rendered.......................... 8,054,000 7,050,000
Plan assets at fair value at December 31....... 5,929,000 6,032,000
----------- -----------
Projected benefit obligations in excess of plan
assets........................................ (2,125,000) (1,018,000)
Unrecognized net actuarial loss from difference
in actuarial experience from that assumed..... 1,237,000 300,000
Unrecognized prior service cost................ 197,000 215,000
Initial unrecognized transition obligation
being recognized over 15 years................ 363,000 424,000
----------- -----------
Accrued pension cost........................... $ (328,000) $ (79,000)
=========== ===========
</TABLE>
Assumptions used in determining the funded status of the retirement income
plan are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate............................. 7.0% 8.5% 7.5%
Weighted average rate of increase in compensation levels... 3.5% 5.0% 5.0%
Expected long-term rate of return.......................... 8.5% 8.5% 8.5%
</TABLE>
The measurement date and related assumptions for the funded status of
Realty's and Operating Company's retirement income plan were as of the end of
the year.
Deferred Compensation Plan
Realty and Operating Company have defined benefit deferred compensation
agreements which provide selected prior management employees with a fixed
benefit at retirement age. During 1995, the outstanding agreements for active
employees were curtailed and replaced by awards of restricted stock under the
1995 Share Award Plan. Plan benefits are based primarily on years of service
and qualifying compensation.
The net periodic pension cost for 1995 for Realty and Operating Company was
$91,000 and $300,000; for 1994 was $121,000 and $594,000; and for 1993 was
$263,000 and $860,000. It is the policy of Realty and Operating Company to
fund only amounts sufficient to cover current deferred compensation benefits
payable to covered retirees. The present value of accumulated plan benefits
(calculated using a rate of 7.0%) at December 31, 1995, was $4,817,000 and
Realty's and Operating Company's combined accrued liability was $4,391,000. At
December 31, 1995, there were no plan net assets available for benefits.
67
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCK OPTION PROGRAM, RESTRICTED STOCK AWARDS AND EMPLOYEE DEFINED
BENEFIT PLANS (CONTINUED)
Net periodic pension cost for the years ended December 31, 1995, 1994 and
1993 for the deferred compensation plan included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- ----------
<S> <C> <C> <C>
Service costs.............................. $ 24,000 $146,000 $ 152,000
Interest cost on projected benefit
obligation................................ 365,000 436,000 404,000
Nonrecurring charge resulting from the
death of an officer....................... -- -- 961,000
Expected return on plan assets............. -- -- (394,000)
Amortization of unrecognized net obligation
and experience losses .................... 2,000 133,000 --
-------- -------- ----------
Net periodic pension cost.................. $391,000 $715,000 $1,123,000
======== ======== ==========
</TABLE>
The following table sets forth the funded status of Realty's and Operating
Company's deferred compensation plan and amounts recognized in the balance
sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligations at December 31:
Vested..................................... $ 4,817,000 $ 4,947,000
Nonvested.................................. -- 261,000
----------- -----------
4,817,000 5,208,000
Additional amounts related to projected
compensation levels......................... -- 301,000
----------- -----------
Total actuarial projected benefit obligations
for service rendered........................ 4,817,000 5,509,000
Plan assets at fair value at December 31..... -- --
----------- -----------
Projected benefit obligations in excess of
plan assets................................. (4,817,000) (5,509,000)
Unrecognized net obligation and experience
losses...................................... 426,000 759,000
Unrecognized prior service cost.............. -- --
----------- -----------
Accrued pension cost......................... $(4,391,000) $(4,750,000)
=========== ===========
</TABLE>
Assumptions used in determining the funded status of the deferred
compensation plan are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Weighted average discount rate............................ 7.0% 8.5% 7.5%
Weighted average rate of increase in compensation levels.. 3.5% 5.0% 5.0%
Expected long-term rate of return......................... -- -- 10.0%
</TABLE>
The measurement date and related assumptions for the funded status of
Realty's and Operating Company's deferred compensation plan were as of the end
of the year.
68
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--SHAREHOLDER RIGHTS PLAN
Under a shareholder rights plan, one right was distributed in August 1989
for each outstanding share of common stock. Each right entitles the holder to
purchase from Realty, initially, one one-hundredth of a share of junior
participating preferred stock at a price of $100 per share, subject to
adjustment. The rights are attached to all outstanding common shares, and no
separate rights certificates will be distributed. The rights are not
exercisable or transferable apart from the common stock until the earlier of
ten business days following a public announcement that a person or group has
acquired beneficial ownership of 10% or more of Realty's general voting power
or ten business days following the commencement of, or announcement of the
intention to commence, a tender or exchange offer that would result in a
person or group beneficially owning 10% or more of Realty's general voting
power.
Upon the occurrence of certain other events related to changes in the
ownership of Realty's outstanding common stock or business combinations
involving a holder of more than 10% of Realty's general voting power, each
holder of a right would be entitled to purchase shares of Realty's common
stock, or an acquiring corporation's common stock, having a market value of
two times the exercise price of the right.
During such time as the stock-pairing arrangement between Realty and
Operating Company shall remain in effect, Operating Company will issue, on a
share-for-share basis, Operating Company common shares, or, as the case may
be, Operating Company junior participating preferred shares to each person
receiving Realty common shares or preferred shares upon exercise or in
exchange for one or more rights.
Realty is entitled to redeem the rights in whole, but not in part, at a
price of $.001 per right prior to the earlier of the expiration of the rights
in August 1999 or the close of business ten days after the announcement that a
10% position has been acquired.
NOTE 14--RELATED PARTY TRANSACTIONS
LATC leases the racetrack from Realty for the full year for a fee of 1.5% of
the on-track wagering on live races at Santa Anita Racetrack, which includes
the Oak Tree Racing Association ("Oak Tree") meet. In addition, LATC pays to
Realty 26.5% of its wagering commissions from satellite wagering (not to
exceed 1.5% of such wagering). When LATC operates as a satellite for Hollywood
Park Racetrack and Del Mar Racetrack, LATC pays 26.5% of its wagering
commissions as additional rent to Realty. LATC has sublet the racetrack to Oak
Tree to conduct Oak Tree's annual thoroughbred horse racing meet (32 days in
1995), which commences in late September or early October. Oak Tree races five
weeks in even-numbered years and six weeks in odd-numbered years. For the
years ended December 31, 1995, 1994 and 1993, LATC paid Realty (including
charity days) $11,342,000, $13,070,000, and $11,634,000 in rent. The lease
arrangement between LATC and Realty requires LATC to assume costs attributable
to taxes, maintenance and insurance.
The lease between LATC and Realty which was scheduled to expire December 31,
1994, was amended and extended through December 31, 1999. The previous lease
terms required LATC to pay rent based upon 1.5% of the aggregate live on-track
wagering and 40% of LATC's revenues received from simulcast and satellite
wagering on races originating at Santa Anita Racetrack. If the amended lease
terms had been in effect for the year ended December 31, 1994, LATC would have
paid Realty (including charity days) $11,123,000 in rent.
At times Realty and Operating Company have notes receivable outstanding from
certain officers and/or directors resulting from their exercise of stock
options. Such notes receivable as of December 31, 1995 and 1994, for Realty
were none and for Operating Company were $61,000 and $75,000.
69
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 15--SUPPLEMENTAL CASH FLOW INFORMATION
The disposition by Realty of the multifamily and industrial operations
during 1994 involved the transfer of the following noncash items:
<TABLE>
<S> <C>
Real estate assets........................................... $98,305,000
Other assets................................................. 475,000
Real estate loans payable.................................... 44,290,000
Other liabilities............................................ 302,000
</TABLE>
NOTE 16--COMBINED QUARTERLY FINANCIAL INFORMATION--UNAUDITED
Condensed unaudited combined quarterly results of operations for The Santa
Anita Companies are as follows:
<TABLE>
<CAPTION>
NET INCOME
NET INCOME (LOSS) PER
QUARTER ENDED REVENUES (LOSS) COMMON SHARE
------------- ----------- ------------ ------------
<S> <C> <C> <C>
1995
December 31...................... $14,834,000 $ 2,768,000 $ .25
September 30..................... 8,832,000 (37,755,000) (3.35)
June 30.......................... 17,971,000 702,000 .06
March 31......................... 39,569,000 6,780,000 .61
1994
December 31...................... $14,141,000 $ (4,376,000) $ (.39)
September 30..................... 8,289,000 (866,000) (.08)
June 30.......................... 17,926,000 1,449,000 .13
March 31......................... 41,093,000 6,107,000 .55
1993
December 31...................... $18,376,000 $(11,140,000) $(1.00)
September 30..................... 13,753,000 (170,000) (.02)
June 30.......................... 20,601,000 1,870,000 .17
March 31......................... 42,281,000 9,841,000 .88
</TABLE>
The quarter ended December 31, 1995 includes an extraordinary gain on early
retirement of debt of $4,050,000 or $.36 per share.
Operating Company records operating revenues associated with thoroughbred
horse racing at Santa Anita Racetrack on a daily basis, except season
admissions which are recorded ratably over the racing season. Costs and
expenses associated with thoroughbred horse racing revenues are charged
against income in those interim periods in which the thoroughbred horse racing
revenues are recognized. Other costs and expenses are recognized as they
actually occur throughout the year. The rental fee paid by Operating Company
to Realty is recognized by both Realty and Operating Company as it is earned.
The total of the amounts shown as quarterly net income per common share may
differ from the amount shown on The Santa Anita Companies statement of
operations because the annual computation is made separately and is based upon
the average number of shares outstanding for the year.
The Santa Anita Companies is subject to significant seasonal variations in
revenues and net income (loss) due primarily to the seasonality of
thoroughbred horse racing.
70
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995
Allowance for loss on
disposition of non-
core real estate
assets:
Deducted from
commercial
properties........ $ -- $27,800,000 $ -- $ -- $27,800,000
Deducted from
investment in
unconsolidated
joint ventures.... -- 8,200,000 -- -- 8,200,000
Deducted from real
estate loans
receivable........ -- 2,500,000 -- -- 2,500,000
----------- ----------- ---------- ----------- -----------
$ -- $38,500,000 $ -- $ -- $38,500,000
=========== =========== ========== =========== ===========
1994
Allowance for loss on
disposition of
multifamily and
industrial
operations:
Deducted from
commercial
properties........ $10,974,000 $ -- $ -- $10,974,000 $ --
=========== =========== ========== =========== ===========
</TABLE>
71
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COSTS TO COMPANY ACQUISITION
------------------------ -------------------------
BUILDINGS
AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENTS TO BE HELD
Racing Facility:
Santa Anita Racetrack
(a).................. $ -- $ 549,000 $15,150,000 $ 3,545,000 $10,002,000
Office Building:
California
Arcadia............. 8,796,000 -- 9,122,000 -- 7,647,000
Land:
California
Land underlying
Fashion Park Mall.. 3,831,000 102,000 -- 244,000 --
----------- ----------- ----------- ----------- -----------
12,627,000 651,000 24,272,000 3,789,000 17,649,000
----------- ----------- ----------- ----------- -----------
INVESTMENTS TO BE SOLD
Shopping Centers
California
Yorba Linda......... 3,453,000 2,038,000 6,162,000 2,290,000
Orange.............. 1,702,000 1,800,000 3,275,000 256,000
Encinitas........... 4,250,000 2,842,000 8,954,000 1,070,000
Phoenix, Arizona
Tatum & Thunderbird. 2,848,000 728,000 1,672,000 233,000 1,857,000
28th and Indian
School............. 1,659,000 807,000 1,793,000 228,000
67th and Indian
School............. 1,370,000 1,751,000 3,396,000 1,665,000
Office Buildings
California
Santa Ana........... -- 6,670,000 16,130,000 200,000 858,000
Upland.............. -- 1,560,000 3,440,000 193,000 1,189,000
Land
California
Temecula............ 480,000 1,208,000 (728,000)
Reserve for loss on
disposition of non-core
real estate assets..... (27,800,000)
----------- ----------- ----------- ----------- -----------
15,762,000 19,404,000 44,822,000 (102,000) (18,387,000)
----------- ----------- ----------- ----------- -----------
$28,389,000 $20,055,000 $69,094,000 $3,687,000 $ (738,000)
=========== =========== =========== =========== ===========
</TABLE>
- --------
(a) Initial costs December 31, 1979 book value
(b) Component depreciation used.
72
<PAGE>
<TABLE>
<CAPTION>
LIFE ON
GROSS AMOUNT AT WHICH CARRIED WHICH
AT CLOSE OF PERIOD DEPRECIATION
--------------------------------------- IN LATEST
BUILDINGS INCOME
AND ACCUMULATED DATE OF DATE STATEMENT IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
----------- ----------- ------------ ------------ ------------ ------------ -------- ------------
<S> <S> <C> <C> <C> <C> <C> <C>
INVESTMENTS TO BE HELD
Racing Facility:
Santa Anita Racetrack
(a).................. $ 4,094,000 $ 25,152,000 $ 29,246,000 $ 20,216,000 1934 1934 5-35 Years(b)
Office Building:
California
Arcadia............. -- 16,769,000 16,769,000 4,068,000 1986 1987 5-45 Years
Land:
California
Land underlying
Fashion Park Mall.. 346,000 -- 346,000 -- 1934
----------- ------------ ------------ ------------ ----
4,440,000 41,921,000 46,361,000 24,284,000
----------- ------------ ------------ ------------ ----
INVESTMENTS TO BE SOLD
Shopping Centers
California
Yorba Linda......... 2,038,000 8,452,000 10,490,000 2,566,000 1985 1985 3-40 Years
Orange.............. 1,800,000 3,531,000 5,331,000 900,000 1986 1985 3-40 Years
Encinitas........... 2,842,000 10,024,000 12,866,000 1,829,000 1985 1985 3-40 Years
Phoenix, Arizona
Tatum & Thunderbird. 961,000 3,529,000 4,490,000 1,048,000 1981 1983 3-40 Years
28th and Indian
School............. 807,000 2,021,000 2,828,000 741,000 1979 1983 3-40 Years(b)
67th and Indian
School............. 1,751,000 5,061,000 6,812,000 1,480,000 1968 1986 3-40 Years
Office Buildings
California
Santa Ana........... 6,870,000 16,988,000 23,858,000 7,702,000 1980 1984 5-40 Years
Upland.............. 1,753,000 4,629,000 6,382,000 1,819,000 1982 1984 5-35 Years
Land
California
Temecula............ 480,000 480,000 1989
Reserve for loss on
disposition of non-core
real estate assets..... (27,800,000) (27,800,000)
----------- ------------ ------------ ------------ ----
19,302,000 26,435,000 45,737,000 18,085,000
----------- ------------ ------------ ------------
$23,742,000 $ 69,356,000 $ 92,098,000 (c) $ 42,369,000(d)
=========== ============ ============ ============
</TABLE>
- --------
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- ------------
<S> <C> <C> <C>
(c)Balance at beginning of period... $117,692,000 $ 223,483,000 $223,028,000
Additions--capital expenditures... 3,432,000 2,911,000 17,030,000
Disposals......................... (1,226,000) (1,409,000) (5,601,000)
Allowance for loss on disposition
of non-core real estate assets... (27,800,000) -- --
Allowance for loss on disposition
of multifamily and industrial
operations....................... -- -- (10,974,000)
Disposition of multifamily and
industrial operations............ -- (107,293,000) --
------------ ------------- ------------
Balance at end of period.......... $ 92,098,000 $ 117,692,000 $223,483,000
============ ============= ============
(d)Balance at beginning of period... $ 39,798,000 $ 45,184,000 $ 42,524,000
Additions--depreciation expense,
net of amortization expense...... 3,797,000 3,602,000 7,079,000
Disposals......................... (1,226,000) -- (4,419,000)
Disposition of multifamily and
industrial operations............ -- (8,988,000) --
------------ ------------- ------------
Balance at end of period.......... $ 42,369,000 $ 39,798,000 $ 45,184,000
============ ============= ============
</TABLE>
73
<PAGE>
Independent Auditors' Report
----------------------------
To the General Partner
Anita Associates:
We have audited the accompanying balance sheets of Anita Associates (a
California limited partnership) as of December 31, 1995 and 1994, and the
related statements of income, partners' deficit, and cash flows for each of the
years in the three-year period ended December 31, 1995. These financial
statements are the responsibility of Anita Associates' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Anita Associates as of December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
February 9, 1996
74
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
ASSETS 1995 1994
------ ------------ ------------
<S> <C> <C>
SHOPPING CENTER PROPERTY (Notes C and D):
Land $ 2,703,982 $ 2,703,982
Buildings and improvements 60,302,510 59,359,379
Deferred charges 3,678,022 3,475,675
66,684,514 65,539,036
------------ ------------
Less accumulated depreciation and amortization (15,674,492) (13,475,806)
------------ ------------
51,010,022 52,063,230
CASH AND CASH EQUIVALENTS (Note F) 2,218,502 3,179,431
ACCOUNTS AND NOTES RECEIVABLE
less allowance for doubtful accounts
of $339,719 (1995) and $178,503 (1994) 166,879 330,878
DEFERRED RECEIVABLE 1,977,913 1,288,062
PREPAID EXPENSES 612,103 567,305
OTHER ASSETS (Note C) 654,262 665,304
------------ ------------
$ 56,639,681 $ 58,094,210
============ ============
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
NOTES PAYABLE (Note C) $ 61,195,750 $ 61,925,386
PARTNER ADVANCES (Note E) - 551,787
ACCOUNTS PAYABLE TO:
Ernest W. Hahn, Inc. 36,760 80,133
Tenants 326,408 203,434
Others 1,747,081 1,821,790
------------ ------------
63,305,999 64,582,530
COMMITMENTS (Notes D and F)
PARTNERS' DEFICIT
General partner (3,335,203) (3,246,204)
Limited partner (3,331,115) (3,242,116)
------------ ------------
(6,666,318) (6,488,320)
$ 56,639,681 $ 58,094,210
=========== ============
</TABLE>
See accompanying notes to financial statements
75
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES:
Minimum rent (Note D) $ 7,701,809 $ 6,592,561 $ 5,695,309
Overage rent (Note D) 149,783 192,454 257,710
Recoveries from tenants (Note D) 5,113,622 4,654,608 3,713,624
Other income 524,204 482,452 546,809
----------- ----------- -----------
13,489,418 11,922,075 10,213,452
----------- ----------- -----------
EXPENSES (Note F):
Recoverable operating expenses (Note D) 2,561,243 2,421,907 1,858,764
Payroll and related benefits
paid to an affiliate 1,444,816 1,427,973 1,259,781
Office expense 27,728 140,591 145,121
Management fee paid to an affiliate 329,474 259,957 253,408
Promotion 67,575 117,310 117,950
Professional services 42,412 59,782 44,711
Ground rent 505,465 505,465 228,193
Bad debt expense 161,216 139,819 146,056
Other expenses 247,604 157,755 97,721
Property taxes 786,404 414,612 381,436
----------- ----------- -----------
6,173,937 5,645,171 4,533,141
----------- ----------- -----------
INCOME FROM OPERATIONS 7,315,481 6,276,904 5,680,311
----------- ----------- -----------
NON-OPERATING REVENUE:
Interest income 258,980 359,370 71,348
----------- ----------- -----------
NON-OPERATING EXPENSES:
Interest expense (Notes C and E) 5,341,999 3,498,533 2,137,514
Depreciation and amortization 2,205,710 1,457,869 1,170,332
Net write-off of improvements
and deferred charges 710 10,747 113,308
----------- ----------- -----------
7,548,419 4,967,149 3,421,154
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 26,042 1,669,125 2,330,505
Extraordinary loss from early extinguishment
of debt (Note C) - (1,477,754) -
----------- ----------- -----------
NET INCOME $ 26,042 $ 191,371 $ 2,330,505
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
76
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
STATEMENTS OF PARTNERS' DEFICIT
-------------------------------
<TABLE>
<CAPTION>
Limited
General Partner Partner
--------------------------------------------- ------------
Hahn - UPI
(a limited partnership) Santa Anita
--------------------------------------------- Realty
Ernest W. UPI Total General Enterprises,
Hahn, Inc. Associates Partner Inc. Total
- ------------------------ ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DEFICIT,
January 1, 1993 $(1,264,728) $(417,746) $(1,682,474) $(1,678,388) $(3,360,862)
Net income 924,744 240,508 1,165,252 1,165,253 2,330,505
Cash contributions 264,818 68,874 333,692 333,692 667,384
Cash distributions (1,111,040) (288,960) (1,400,000) (1,400,000) (2,800,000)
----------- --------- ----------- ----------- -----------
DEFICIT,
December 31, 1993 (1,186,206) (397,324) (1,583,530) (1,579,443) (3,162,973)
Net income 75,936 19,749 95,685 95,686 191,371
Cash contributions 171,926 44,715 216,641 216,641 433,282
Cash distributions (1,567,360) (407,640) (1,975,000) (1,975,000) (3,950,000)
----------- --------- ----------- ----------- -----------
DEFICIT,
December 31, 1994 (2,505,704) (740,500) (3,246,204) (3,242,116) (6,488,320)
Net income 10,333 2,688 13,021 13,021 26,042
Cash contributions 253,770 66,001 319,771 319,771 639,542
Cash distributions (334,733) (87,058) (421,791) (421,791) (843,582)
----------- --------- ----------- ----------- -----------
DEFICIT,
December 31, 1995 $(2,576,334) $(758,869) $(3,335,203) $(3,331,115) $(6,666,318)
=========== ========= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
77
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,042 $ 191,371 $ 2,330,505
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,205,710 1,457,869 1,170,332
Net write-off of deferred charges 710 10,747 113,308
Net write-off of deferred charges included
in extraordinary item - 113,700 -
Provision for doubtful accounts receivable 161,216 139,819 146,056
Changes in assets and liabilities:
Accounts and notes receivable from:
Tenants 2,783 (224,467) (6,602)
Partners - 22,356 170,179
Deferred receivable (689,851) (441,197) (96,802)
Prepaid expenses (44,798) 308,328 (43,108)
Other assets 11,042 (639,287) 61,662
Accounts payable to:
Ernest W. Hahn, Inc. (43,373) 20,979 (65,681)
Tenants 122,974 94,642 (91,457)
Others (74,709) 419,972 (172,211)
----------- ------------ ------------
Net cash provided by operating activities 1,677,746 1,474,832 3,516,181
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to shopping center property (1,153,212) (3,480,713) (550,628)
Additions to property under development - (7,581,179) (16,004,049)
Accrued construction cost - (528,207) 528,207
----------- ------------ ------------
Net cash used in investing activities (1,153,212) (11,590,099) (16,026,470)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new debt - 62,355,000 -
Payments of notes payable (729,636) (25,743,163) (473,063)
Good faith deposit - 1,247,100 (1,247,100)
Repayments to partners (551,787) (21,687,479) 16,513,264
Contributions from partners 639,542 433,282 667,384
Distributions to partners (843,582) (3,950,000) (2,800,000)
----------- ------------ ------------
Net cash (used in) provided by
financing activities (1,485,463) 12,654,740 12,660,485
----------- ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (960,929) 2,539,473 150,196
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,179,431 639,958 489,762
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,218,502 $ 3,179,431 $ 639,958
=========== ============ ============
</TABLE>
See accompanying notes to financial statements
78
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
STATEMENTS OF CASH FLOWS (CONTINUED)
------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid on notes payable
(net of amounts capitalized) $5,225,886 $5,112,657 $2,140,984
</TABLE>
SUPPLEMENTAL DISCLOSURE RELATED TO NON-CASH INVESTING
-----------------------------------------------------
AND FINANCING ACTIVITIES
------------------------
Upon completion of the development project in 1994, the Partnership transferred
$30,924,057 from Property Under Development to Shopping Center Property.
At December 31, 1994, $997,233 of tenant improvements were completed but unpaid
and are included in Shopping Center Property and Accounts Payable - Others.
In addition to the above, the following non-cash activities occurred:
<TABLE>
<CAPTION>
Reduction in
Reduction Accumulated
Write off of assets: in Property Amortization
- ----------------------- ------------------------------- -------------------------------
1995 1994 1993 1995 1994 1993
------ -------- ---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Buildings and
improvements $ - $ - $ 85,263 $ - $ - $ 25,579
Deferred charges 7,734 254,792 1,441,117 7,024 130,345 1,387,493
------ -------- ---------- ------ -------- ----------
Total $7,734 $254,792 $1,526,380 $7,024 $130,345 $1,413,072
====== ======== ========== ====== ======== ==========
</TABLE>
See accompanying notes to financial statements
79
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
A. Organization and Accounting Policies:
------------------------------------
Anita Associates (the "Partnership") is a California limited partnership
consisting of Hahn-UPI, the general partner, and Santa Anita Realty
Enterprises, Inc. (the "Limited Partner"), formed to develop and operate a
regional shopping center in Arcadia, California. Hahn-UPI is a limited
partnership consisting of Ernest W. Hahn, Inc. ("Hahn"), the general partner,
and UPI Associates ("UPI"), the limited partner. UPI does not have
responsibility for, or participation in, any duties, obligations or rights of
approval assumed by Hahn-UPI as general partner of Anita Associates. The
partnership agreement provides that the Partnership shall continue from year
to year until the partners elect to terminate the Partnership. Profits and
losses are shared as follows:
Hahn-UPI:
Ernest W. Hahn, Inc. 39.68%
UPI Associates 10.32%
Santa Anita Realty Enterprises, Inc. 50.00%
Certain reclassifications of prior year amounts have been made in order to
conform to the current year presentation.
The Partnership's accounting policies are as follows:
1. Shopping center property and property under development are recorded at
cost and include direct construction costs, interest, construction loan
fees, property taxes and related expenses capitalized during the pre-
opening period, as these amounts are expected to be recovered from
operations.
2. The costs of shopping center buildings and improvements, less a 5%
salvage value, are depreciated using the straight-line method over the
estimated useful life of 40 years.
3. Direct costs of obtaining leases and permanent financing are deferred and
are being amortized over the lease and loan periods, respectively.
4. Maintenance and repairs are charged to operations as incurred.
5. Expenditures for betterments are capitalized and depreciated over the
remaining depreciable life of the property.
80
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
A. Organization and Accounting Policies (Continued):
------------------------------------------------
6. Costs incurred in connection with early termination of a tenant lease
are amortized over the life of the lease with the replacement tenant.
To the extent payments received from an incoming tenant do not
represent future rentals or cost recoveries for tenant improvements,
they are recorded as income when received.
7. Taxable income or loss of the Partnership is reported by and is the
responsibility of the respective partners. Accordingly, the
Partnership makes no provision for income taxes.
8. The Partnership recognizes scheduled rent increases on a straight-line
basis. Accordingly, a deferred receivable and deferred payable for
rents which are to be received or paid in subsequent years,
respectively, are reflected in the accompanying balance sheets. The
deferred payable is included in accounts payable to others.
9. The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
10. The Partnership agreement does not designate investment interests in
units. Investment interests are calculated on a percentage basis.
Accordingly, earnings or losses per unit is not presented in the
accompanying financial statements.
11. The Partnership has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could
differ from those estimates.
12. The Partnership financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents and trade and deferred receivables. The Partnership places
its temporary cash investments with high credit quality institutions
and cash accounts with federally insured institutions. Cash balances
with any one institution may be in excess of federally insured limits.
The Partnership has not experienced any losses in such investments or
accounts and believes it is not exposed to any significant credit
risk. Management routinely assesses the financial strength of its
tenants and as a consequence, believes that its trade and deferred
receivable credit risk exposure is limited.
81
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
B. Fair Value of Financial Instruments:
-----------------------------------
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" requires that the fair values be disclosed
for the Partnership's financial instruments. The carrying amount of cash and
cash equivalents, accounts receivable, notes receivable and accounts payable
are reasonable estimates of their fair values because of the short maturity
of these instruments. The carrying amount of notes payable is a reasonable
estimation of fair value based on management's belief that, on average,
fixed interest rates are not materially different than market rates
available to the Partnership.
C. Notes Payable:
-------------
The notes payable (collectively "the loan") at December 31, 1995 are payable
in monthly payments of $527,338 including interest, with a balloon payment
of $51,929,396 due January 2003. The loan was funded in two draws of
$46,577,193 and $15,777,807, bearing interest at 9.0% and 9.25%,
respectively. The loan is secured by a first lien on the leasehold estate
and improvements. In connection with the funding of the final draw in
December 1994, the Partnership executed a pledge agreement and deposited
$638,933 in a restricted interest bearing account. This amount is included
in other assets at December 31, 1995 and December 31, 1994.
As part of the extinguishment of the existing debt on January 25, 1994, the
Partnership was required to pay a prepayment penalty of $1,364,054. This
penalty, along with the write-off of unamortized finance costs related to
the extinguished debt, was recognized as an extraordinary loss during 1994.
Annual principal payments are scheduled as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ -----------
<S> <C>
1996 $ 814,710
1997 891,684
1998 975,935
1999 1,068,145
2000 1,169,069
Thereafter 56,276,207
-----------
$61,195,750
===========
</TABLE>
82
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
D. Commitments:
-----------
Partnership as Lessor:
---------------------
The Partnership leases space to tenants in the shopping center for which it
charges minimum rents and receives reimbursement for real estate taxes and
certain other operating expenses. The terms of the leases range from 4 to 25
years, and the majority of the leases also provide for additional overage
rents during any year in which a tenant's gross sales exceed a stated
amount.
Future minimum rental revenues to be received under leases in force at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ -----------
<S> <C>
1996 $ 7,520,600
1997 7,608,856
1998 7,218,329
1999 6,775,746
2000 6,300,422
Thereafter 21,668,192
-----------
$57,092,145
===========
</TABLE>
In the ordinary course of business, the Partnership is, from time to time,
involved in various litigation. Although the final outcome of these legal
matters cannot be determined, it is management's opinion, based in part upon
advise from legal counsel, that the final resolution of these matters will
not have a material adverse effect on the Partnership's financial position
and results of operations.
83
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
E. Partner Advances:
----------------
In 1994, the Partnership substantially completed a $32,000,000 expansion of
the shopping center. The expansion included the addition of a major
department store as well as other tenant leasable area.
The Partners made advances to fund the expansion cost until construction
loan funds could be obtained. Such advances bore interest at 10% per annum,
compounded monthly. Advances outstanding at December 31, 1995, 1994 and 1993
were $0, $551,787 and $22,239,266, respectively. Interest incurred on
partner advances was $16,738, $1,671,528 and $1,211,718 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Interest costs capitalized as part of the shopping center totaled $297,392,
$2,189,255 and $1,396,033 during 1995, 1994 and 1993, respectively, of which
$0, $1,262,587 and $1,211,718 related to advances from partners for 1995 and
1994, respectively.
F. Related Party Transactions:
--------------------------
Operating Costs
---------------
Hahn and its wholly-owned subsidiary, Hahn Property Management Corporation
("HPMC"), provide property management, leasing and various legal services to
the Partnership. A summary of costs and fees incurred by Hahn and HPMC
during 1995, 1994 and 1993 is presented below:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Management fee $ 329,474 $ 259,957 $ 253,408
Development fee - 68,758 308,030
Payroll and related benefits 1,444,816 1,427,973 1,259,781
Leasing commissions 339,398 543,276 340,825
Professional services 15,078 5,941 17,446
Legal 50,544 151,405 58,698
---------- ---------- ----------
$2,179,310 $2,457,310 $2,238,188
========== ========== ==========
</TABLE>
84
<PAGE>
ANITA ASSOCIATES
----------------
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
F. Related Party Transactions (Continued):
--------------------------------------
Ground Lease
------------
The shopping center was developed on approximately 70 acres of land leased
from the Limited Partner. The leased property consists of four parcels, each
covered by a separate ground lease, requiring total annual rentals of
$762,497, during 1995 and 1994. Three of the parcels are subleased to major
department stores located in the shopping center for aggregate rentals of
$257,032 annually. The sublease terms, which commenced with the opening of
the shopping center and continue through October 2017 with two ten-year
renewal options, are identical to the primary lease. The subleases to the
major department stores are assigned to the Limited Partner. The Partnership
remains the lessee on the fourth parcel. In 1993, the ground leases were
amended and the area of the fourth parcel was increased by an additional 8.2
acres; consequently, the monthly rental increased from $18,321 to $22,488.
Net rental expense amounted to $505,465 in 1995 and 1994, respectively and
$228,193 in 1993. The minimum annual rental payments under the lease, net of
sublease rentals, are as follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
------------------------ -----------
<S> <C>
1996 $ 323,116
1997 537,255
1998 537,255
1999 537,255
2000 537,255
Thereafter 9,026,330
----------
$11,498,466
===========
</TABLE>
Cash Equivalents:
----------------
At December 31, 1995 and 1994, the Partnership had $1,193,598 and
$1,900,000, respectively, invested in thirty day bank credit-enhanced
commercial paper issued by an entity in which Hahn owns an interest.
85
<PAGE>
Independent Auditors' Report
----------------------------
To the Partners
H-T Associates:
We have audited the accompanying consolidated balance sheets of H-T Associates
(a Maryland general partnership) and subsidiary (a Maryland general partnership)
as of December 31, 1995 and 1994, and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each of the years in
the three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of H-T Associates' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of H-T Associates and
subsidiary as of December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1995 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note H
to the consolidated financial statements, the Partnership's subsidiary, Towson
Town Center Associates, is in technical default on its notes payable at December
31, 1995. As such, those notes may be callable at the lender's discretion. As
Towson Town Center Associates is the primary subsidiary of the Partnership,
this technical default raises substantial doubt about the Partnership's ability
to continue as a going concern. Management's plan in regard to this matter is
also described in Note H to the consolidated financial statements. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
San Diego, California
February 9, 1996
86
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1995 1994
------
<S> <C> <C>
SHOPPING CENTER PROPERTY (Note C):
Land $ 11,726,213 $ 11,726,213
Buildings and improvements 178,667,284 177,767,286
Deferred charges 2,961,418 2,525,485
------------ ------------
193,354,915 192,018,984
Less accumulated depreciation and
amortization (28,659,166) (22,074,284)
------------ ------------
164,695,749 169,944,700
CASH 2,284,753 2,841,563
ACCOUNTS RECEIVABLE, less allowance for
doubtful accounts of $447,379 (1995)
and $559,939 (1994) 1,122,092 1,442,306
NOTES RECEIVABLE 171,122 194,463
CONSTRUCTION COSTS RECEIVABLE FROM TENANTS - 64,714
DEFERRED RENT RECEIVABLE 3,493,647 3,056,173
PREPAID EXPENSES 1,350,500 1,203,429
OTHER ASSETS 49,116 44,409
------------ ------------
$173,166,979 $178,791,757
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
- -------------------------------------------
NOTES PAYABLE (Note C) $164,641,000 $164,641,000
ADVANCES FROM PARTNERS (Note E)
Ernest W. Hahn, Inc. 4,821,988 4,366,127
Santa Anita Realty Enterprises, Inc. 4,810,292 4,355,621
ACCOUNTS PAYABLE TO:
Ernest W. Hahn, Inc. 51,243 91,694
Tenants 136,569 141,907
Others 1,287,018 877,489
------------ ------------
175,748,110 174,473,838
COMMITMENTS (Note D)
MINORITY INTEREST 2,168,603 4,266,956
PARTNERS' CAPITAL (DEFICIT) (Note F) (4,749,734) 50,963
------------ ------------
$173,166,979 $178,791,757
============ ============
</TABLE>
See notes to consolidated financial statements.
87
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Minimum rent (Note D) $15,168,774 $14,639,567 $14,198,970
Overage rent (Note D) 418,254 377,726 366,600
Recoveries from tenants (Note D) 6,091,553 5,642,854 4,845,865
Other income 1,183,397 730,436 579,235
----------- ----------- -----------
22,861,978 21,390,583 19,990,670
----------- ----------- -----------
EXPENSES (Note G):
Operating expenses 3,077,479 2,673,305 2,246,574
Payroll and related benefits
paid to an affiliate 1,536,176 1,585,083 1,444,592
Property taxes 1,251,126 1,223,371 1,212,191
Office expense 2,309 273,673 249,677
Management fee paid to an affiliate 670,033 598,697 545,964
Promotion 90,121 153,908 134,078
Professional services 68,860 145,265 46,339
Professional services paid to an affiliate 37,045 9,056 33,071
Other expenses 178,501 211,565 652,589
----------- ----------- -----------
6,911,650 6,873,923 6,565,075
----------- ----------- -----------
INCOME FROM OPERATIONS 15,950,328 14,516,660 13,425,595
----------- ----------- -----------
NON-OPERATING REVENUE:
Interest income 213,404 127,290 233,305
----------- ----------- -----------
NON-OPERATING EXPENSES:
Interest expense (Notes C and E) 14,468,360 12,864,667 11,923,884
Depreciation and amortization 6,585,518 6,455,406 6,350,407
Net write-off of assets 8,904 26,444 39,186
----------- ----------- -----------
21,062,782 19,346,517 18,313,477
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (4,899,050) (4,702,567) (4,654,577)
MINORITY INTEREST 1,398,353 1,403,391 1,382,472
----------- ----------- -----------
NET LOSS $(3,500,697) $(3,299,176) $(3,272,105)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
88
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
-----------------------------------------------------
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
<TABLE>
<CAPTION>
Santa Anita
Ernest W. Realty
Hahn, Inc. Enterprises, Inc. Total
----------- ----------------- -----------
<S> <C> <C> <C>
BALANCE, January 1, 1993 $ 4,654,871 $ 4,654,872 $ 9,309,743
Net loss (1,636,052) (1,636,053) (3,272,105)
Cash distributions (Note F) (1,100,000) (1,099,999) (2,199,999)
----------- ----------- -----------
BALANCE, December 31, 1993 1,918,819 1,918,820 3,837,639
Net loss (1,649,588) (1,649,588) (3,299,176)
Cash distributions (Note F) (243,750) (243,750) (487,500)
----------- ----------- -----------
BALANCE, December 31, 1994 25,481 25,482 50,963
Net loss (1,750,348) (1,750,349) (3,500,697)
Cash distributions (Note F) (650,000) (650,000) (1,300,000)
----------- ----------- -----------
BALANCE, December 31, 1995 $(2,374,867) $(2,374,867) $(4,749,734)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
89
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,500,697) $(3,299,176) $(3,272,105)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 6,585,518 6,455,406 6,350,407
Provision for doubtful accounts
receivable (13,546) 44,832 531,345
Net write-off of assets 8,904 26,444 39,186
Interest accrued on partner
advances 910,532 684,469 540,553
Minority interest (1,398,353) (1,403,391) (1,382,472)
Changes in assets and liabilities:
Accounts receivable 333,760 (714,087) (376,955)
Notes receivable 23,341 196,098 177,267
Deferred rent receivable (437,474) (513,292) (1,186,021)
Prepaid expenses (147,071) 160,870 1,080,653
Other assets (4,707) (11,045) (803)
Accounts payable to:
Ernest W. Hahn, Inc. (40,451) (28,153) (28,810)
Tenants (5,338) 59,228 (26,981)
Others 409,529 (93,302) (38,533)
----------- ----------- -----------
Net cash provided by operating
activities 2,723,947 1,564,901 2,406,731
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to shopping center
property (1,345,471) (871,192) (1,573,048)
Decrease in construction
costs receivable from tenants 64,714 25,892 51,126
Decrease in accrued construction costs - - (20,000)
----------- ----------- -----------
Net cash used in investing
activities (1,280,757) (845,300) (1,541,922)
----------- ----------- -----------
</TABLE>
(continued)
See notes to consolidated financial notes.
90
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - - 5,168,000
Distributions to minority interest (700,000) (262,500) (4,706,354)
Distributions to partners (1,300,000) (487,500) (2,199,999)
----------- ---------- -----------
Net cash used in financing
activities (2,000,000) (750,000) (1,738,353)
----------- ---------- -----------
NET DECREASE IN CASH (556,810) (30,399) (873,544)
CASH, BEGINNING OF YEAR 2,841,563 2,871,962 3,745,506
----------- ---------- -----------
CASH, END OF YEAR $ 2,284,753 $2,841,563 $ 2,871,962
=========== ========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Interest paid $13,681,570 $12,244,079 $10,443,161
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES
-------------------------------------------------------
During 1995 and 1994, the following non-cash activity occurred:
<TABLE>
<CAPTION>
Reduction in
Accumulated
Depreciation
Reduction and
Write-off of assets: in Property Amortization
---------------- ---------------
1995 1994 1995 1994
------ ------- ----- -------
<S> <C> <C> <C> <C>
Buildings and improvements $ - $18,296 $ - $18,296
Deferred charges 9,540 28,650 636 2,206
------ ------- ----- -------
Total $9,540 $46,946 $ 636 $20,502
====== ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
91
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1995, 1994 AND 1993
--------------------------------
A. Organization and Accounting Policies:
------------------------------------
H-T Associates (the "Partnership") is a Maryland general partnership formed
on July 28, 1987. Its primary asset is a 65% ownership in Towson Town Center
Associates ("TTCA"), formed to develop and operate a regional shopping
center near Baltimore, Maryland. The general partners of the Partnership are
Ernest W. Hahn, Inc. and Santa Anita Realty Enterprises, Inc. The
Partnership is to continue until December 31, 2087, unless terminated
earlier. Profits and losses are shared as follows:
Ernest W. Hahn, Inc. ("Hahn") 50%
Santa Anita Realty Enterprises, Inc.
("Santa Anita") 50%
The consolidated financial statements of the Partnership include the
accounts of the Partnership and TTCA. TTCA is a Maryland general partnership
comprised of the Partnership and DeChiaro Associates ("DeChiaro") as 65% and
35% general partners, respectively. DeChiaro's interest is recorded as
minority interest in the accompanying consolidated financial statements. All
significant intercompany balances and transactions have been eliminated.
Certain reclassifications of prior year amounts have been made in order to
conform to the current year presentation.
The Partnership's accounting policies are as follows:
1. Shopping center property is recorded at cost and includes direct
construction costs, interest, construction loan fees, property taxes
and related costs capitalized during the construction period, as these
amounts are expected to be recovered from operations.
2. The costs of shopping center buildings and improvements, less a 5%
salvage value, are depreciated using the straight-line method over the
estimated useful life of 40 years.
3. Direct costs of obtaining leases and permanent financing are deferred
and are being amortized over the lease and loan periods, respectively.
4. Maintenance and repairs are charged to operations as incurred.
5. Expenditures for betterments are capitalized and depreciated over the
remaining depreciable life of the property.
(continued)
92
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
A. Organization and Accounting Policies (Continued):
------------------------------------------------
6. Costs incurred in connection with the early termination of a tenant
lease are amortized over the life of the lease with the replacement
tenant. To the extent payments received from an incoming tenant do not
represent future rentals or cost recoveries for tenant improvements,
they are recorded as income when received.
7. Taxable income or loss of the Partnership is reported by, and is the
responsibility of, the respective partners. Accordingly, the
Partnership makes no provision for income taxes.
8. The Partnership recognizes scheduled rent increases on a straight-line
basis. Accordingly, a deferred receivable for rents which are to be
received in subsequent years is reflected in the accompanying
consolidated balance sheets.
9. The differential to be paid or received under interest rate swap
agreements is accrued as interest rates change, and is recognized over
the life of the agreements (Note C).
10. The Partnership has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
11. The Partnership agreement does not designate investment interests in
units. Investment interests are calculated on a percentage basis.
Accordingly, earnings or losses per unit is not presented in the
accompanying consolidated financial statements.
12. The Partnership's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and trade and
deferred receivables. The Partnership places its temporary cash
investments with high credit quality institutions and cash accounts
with federally insured institutions. Cash balances with any one
institution may be in excess of federally insured limits. The
Partnership has not experienced any losses in such investments or
accounts and believes it is not exposed to any significant credit risk.
Management routinely assesses the financial strength of its tenants and
as a consequence, believes that its trade and deferred receivable
credit risk exposure is limited.
93
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
B. Fair Value of Financial Instruments:
------------------------------------
Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" requires that the fair values be disclosed
for the partnerships' financial instruments. The carrying amount of cash,
accounts receivable, and accounts payable are reasonable estimates of their
fair values due to the short-term nature of these instruments.
The carrying amount of the notes receivable is a reasonable estimation of
fair value based on management's belief that the interest rates on which the
notes bear interest is not materially different than interest rates that
would be used on loans to tenants with similar credit ratings.
The carrying amount of the notes payable and advances from partners is a
reasonable estimation of fair value as the notes and advances bear interest
based on a variable market rate.
The fair value of interest rate swaps (used for hedging purposes) is the
estimated amount that the Partnership would pay to terminate the swap
agreements at the reporting date, taking into account current interest rates
and the current credit worthiness of the swap counterparties. The fair value
of the interest rate swaps as of December 31, 1995 is a net payable of
approximately $9,100,000.
C. Notes Payable:
-------------
In 1990, TTCA entered into a building loan agreement with a commercial bank,
secured by an indemnity deed of trust encumbering the property. TTCA can
borrow up to $170,000,000. The agreement, as amended, requires principal
payments of $1,741,000 in 1998, and $162,900,000 in 1999. The agreement
provides that TTCA can: (1) obtain funds at the then current prime rate of
the commercial bank; (2) obtain funds based on the then current London
Interbank Offered Rate ("LIBOR") plus a spread (as defined); or, (3) obtain
funds through the issuance of commercial paper at rates based upon the
interest rates offered in the commercial paper market plus letter of credit
fees. For the years ended December 31, 1995 and 1994, all funds were
obtained under the commercial paper option for a total outstanding balance
of $164,641,000. Interest is payable monthly. The variable interest rate in
effect on the outstanding balance as of December 31, 1995 and 1994 was 6.0%
and 5.8%, respectively.
In connection with the loan, Hahn and Santa Anita each executed a repayment
guaranty of $66,135,000 and DeChiaro executed a limited repayment guaranty
of $4,513,000. The repayment guaranties contain covenants which, among other
matters, require the guarantors to maintain certain minimum levels of net
worth (Note H).
94
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
C. Notes Payable (Continued):
-------------------------
TTCA has also entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its loan (Note B). As of December 31,
1995 and 1994, TTCA had two interest rate swap agreements outstanding with a
commercial bank which have a total notional principal amount of $82,000,000.
The agreements provide for TTCA to pay fixed rates of interest of 9.3% and
8.8% on swaps of $45,000,000 and $37,000,000, respectively, and to receive
floating interest based on 30 day commercial paper rates. The variable rate
of interest in effect on the swap agreements as of December 31, 1995 was
5.8%. The interest rate swap agreements mature at the time the building loan
matures. TTCA is exposed to credit loss in the event of nonperformance by
the commercial bank with respect to the interest rate swap agreements.
The net effective interest rate on amounts outstanding under the building
loan agreement at December 31, 1995, 1994 and 1992, after giving effect to
the interest rate swaps, was 8.2%, 7.4% and 6.9%, respectively.
The differential between the amounts paid and received under the interest
rate contract is included as either an addition to, or a reduction in,
interest incurred. Total interest incurred was $13,557,828, $12,180,199 and
$11,383,329, for the years ended December 31, 1995, 1994 and 1993,
respectively.
D. Commitments:
-----------
Partnership as Lessor:
---------------------
TTCA leases space to tenants in the shopping center for which it charges
minimum rents and receives reimbursement for real estate taxes and certain
other operating expenses. The terms of the leases range from five to thirty
years and generally provide for additional overage rents during any year
that tenants' gross sales exceed stated amounts.
(continued)
95
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
D. Commitments (Continued):
------------------------
Partnership as Lessor (Continued):
---------------------------------
Future minimum rental revenues to be received under leases in force at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year ending December 31 Amount
----------------------- ------------
<S> <C>
1996 $15,017,857
1997 14,931,927
1998 15,087,664
1999 14,985,425
2000 14,656,553
Thereafter 42,867,062
-----------
$117,546,488
=============
</TABLE>
In the ordinary course of business, the Partnership is, from time to time,
involved in various litigation. Although the final outcome of these legal
matters cannot be determined, it is management's opinion, based in part upon
advise from legal counsel, that the final resolution of these matters will not
have a material adverse effect on the Partnership's financial position and
results of operations.
Property Under Development:
--------------------------
During 1991, TTCA completed a major expansion and renovation of the previously
existing shopping center. Pursuant to the Development Manager's Agreement
between TTCA and Hahn, Hahn received $5,080,619 as compensation for managing the
development of the project through 1993.
E. Advances from Partners:
----------------------
Hahn and Santa Anita have both made advances to the Partnership to finance
certain construction funding requirements and other cash flow needs. These
advances bear interest at 1% above the prime rate and are required to be repaid
prior to any distributions to the partners, other than distributions of Net Cash
Flow from Operations (Note F). Interest incurred on the advances totaled
$910,532, $684,469 and $540,553 for the years ended December 31, 1995, 1994 and
1993, respectively. The prime rate was 8.8%, 8.5% and 6.0% at December 31,
1995, 1994 and 1993, respectively.
96
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
F. Partnership Distributions:
-------------------------
Distributions of Net Cash Flow from Operations of the Partnership (as defined
by the Amended and Restated Partnership Agreement) are subject to certain
priorities. The period from inception of the Partnership through October 16,
1992 (the Grand Opening Date of the shopping center) is referred to as the
Initial Term. During the Initial Term, both partners were entitled to a
cumulative, compounded return (at the Prime Rate, as defined) on their capital
contributions. A $500,000 distribution was made during the Initial Term. The
"Primary Term" follows the Initial Term, and ends when cash flow for a
consecutive 12 month period exceeds the sum of $1,192,000 plus any unpaid
cumulative returns. During the "Primary Term", Santa Anita receives a
cumulative return of $447,000 for the first year, $521,500 for the second year,
and $596,000 for each year thereafter. Hahn receives non-cumulative returns of
the same amounts. Following the Primary Term, distributions of Net Cash Flow
from Operations are made to the partners in accordance with their percentage
interests.
G. Related Party Transactions:
--------------------------
Hahn and its wholly-owned subsidiary, Hahn Property Management Corporation
("HPMC"), provide property management, leasing and various legal services to
TTCA. A summary of costs and fees incurred by Hahn and HPMC by TTCA during 1995,
1994 and 1993 is presented below:
<TABLE>
<CAPTION>
Years ended December 31
------------------------------------
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Payroll and related benefits $1,536,176 $1,585,083 $1,444,592
Management fee 670,033 598,697 545,964
Professional services 37,045 9,056 33,071
Leasing commissions 416,174 484,074 399,345
Legal 53,628 71,745 111,043
Development fee - - 38,827
</TABLE>
Related Property:
- ----------------
Certain property adjacent to TTCA's regional shopping center is owned by Joppa
Associates ("Joppa"). The partners of TTCA are also the partners of Joppa.
TTCA has benefited from Joppa's ownership of the adjacent property.
97
<PAGE>
H-T ASSOCIATES
--------------
(a Maryland general partnership)
AND SUBSIDIARY
(a Maryland general partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
H. Ability to Continue as a Going Concern and Management's Plan:
------------------------------------------------------------
As discussed in Note C, the Partnership's repayment guaranty agreement
contains restrictive covenants which include a requirement for the guarantors to
maintain certain minimum levels of net worth. Santa Anita failed to meet this
covenant requirement which has placed the Partnership in technical default.
Consequently, the notes payable may be callable at the lender's discretion. The
partners are currently negotiating with the lender to restructure the loan and
modify the net worth requirement in the guaranty. There is no assurance that
these negotiations will be completed on terms satisfactory to the Partnership.
98
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
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<C> <S> <C>
3.1 Certificate of Incorporation of Santa Anita Realty
Enterprises, Inc., as amended through October 1993
(incorporated by reference to Exhibit 3.1 to the Joint
Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1993).
3.2 Certificate of Incorporation of Santa Anita Operating
Company, as amended through October 1993 (incorporated by
reference to Exhibit 3.2 to the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December
31, 1993).
3.3 By-laws of Santa Anita Realty Enterprises, Inc., as
amended through February 1996.
3.4 By-laws of Santa Anita Operating Company, as amended
through February 1996.
4.1 Pairing Agreement by and between Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company,
dated as of December 20, 1979 (incorporated by reference
to Exhibit 5 to Registration Statement on Form 8-A of
Santa Anita Operating Company filed February 5, 1980).
4.2 Rights Agreement, dated June 15, 1989, among Santa Anita
Realty Enterprises, Inc., Santa Anita Operating Company,
and Union Bank, as Rights Agent (incorporated by
reference to Exhibit 2.1 to Registration Statement on
Form 8-A of Santa Anita Realty Enterprises, Inc. filed
June 19, 1989).
4.3 Credit Agreement dated as of November 9, 1994 between
First Interstate Bank of California and Santa Anita
Realty Enterprises, Inc. (incorporated by reference to
Exhibit 10.4 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended September 30,
1994).
4.4 First Amendment dated as of May 31, 1995, to Credit
Agreement dated as of November 9, 1994 between First
Interstate Bank of California and Santa Anita Realty
Enterprises, Inc.
4.5 Second Amendment dated as of January 26, 1996, to Credit
Agreement dated as of November 9, 1994 between First
Interstate Bank of California and Santa Anita Realty
Enterprises, Inc.
Each other outstanding long-term indebtedness of Santa Anita Realty
Enterprises, Inc. and each outstanding long-term indebtedness of Santa Anita
Operating Company and its subsidiaries does not exceed 10% of the total assets
of Santa Anita Realty Enterprises, Inc. or Santa Anita Operating Company and
its subsidiaries on a consolidated basis, as the case may be. Each such company
agrees to furnish copies of such instruments to the Securities and Exchange
Commission upon request.
10.1 Anita Associates Articles of Limited Partnership dated as
of April 6, 1972 (incorporated by reference to Exhibit
6(c) to Registration Statement No. 2-65894).
10.2 First Amendment to Articles of Limited Partnership of
Anita Associates, dated December 26, 1979 (incorporated
by reference to Exhibit 10.13 to Registration Statement
No. 2-72866).
10.3 Form of Compensation Agreement of certain officers of
Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company (incorporated by reference to Exhibit
10.3 to Registration Statement No. 33-27011).
10.4 Form of Salary Reduction and Deferral Agreement of
certain officers of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company (incorporated by
reference to Exhibit 10.4 to Registration Statement No.
33-27011).
</TABLE>
99
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<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
10.5 Ground lease between Santa Anita Realty Enterprises, Inc.
and Anita Associates, dated as of April 6, 1972
(incorporated by reference to Exhibit 10.5 to Joint
Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1992).
10.6 Second Amendment to ground lease between Santa Anita
Realty Enterprises, Inc. and Anita Associates dated as of
December 29, 1993 (incorporated by reference to Exhibit
10.6 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1993).
10.7 Amended and Restated Lease, dated as of November 9, 1994,
by and between Santa Anita Realty Enterprises, Inc. and
Los Angeles Turf Club, Incorporated (incorporated by
reference to Exhibit 10.3 to the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended
September 30, 1994).
10.8 Santa Anita Realty Enterprises, Inc. 1984 Stock Option
Plan (as amended and restated September 22, 1988)
(incorporated by reference to Exhibit 4.2 to Registration
Statement No. 2-95228).
10.9 Amendment 1993-1 to Santa Anita Realty Enterprises, Inc.
1984 Stock Option Program (incorporated by reference to
Exhibit 10.11 to the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1993).
10.10 Santa Anita Operating Company 1984 Stock Option Program
(as amended and restated September 22, 1988)
(incorporated by reference to Exhibit 4.3 to Registration
Statement No. 2-95228).
10.11 Amendment 1993-1 to Santa Anita Operating Company 1984
Stock Option Program (incorporated by reference to
Exhibit 4.3 to Registration Statement on Form S-8 No. 33-
51843).
10.12 Limited Partnership Agreement, dated as of March 16,
1988, among Southern California Off Track Wagering
Incorporated and the limited partners listed therein
(incorporated by reference to Exhibit 10.17 to
Registration Statement No. 33-27011).
10.13 Amended and Restated Partnership Agreement of H-T
Associates, dated as of July 28, 1987, between Ernest W.
Hahn, Inc. and Santa Anita Realty Enterprises, Inc.
(incorporated by reference to Exhibit 10.18 to
Registration Statement No. 33-27011).
10.14 Amended and Restated Agreement of Joppa Associates, dated
as of April 14, 1988, between Ernest W. Hahn, Inc., Santa
Anita Realty Enterprises, Inc. and DeChiaro Associates, a
Maryland general partnership (incorporated by reference
to Exhibit 10.19 to Registration Statement No. 33-27011).
10.15 Amendment dated November 1, 1989, to Partnership
Agreement of H-T Associates (incorporated by reference to
Exhibit 10.21 of the Joint Annual Report on Form 10-K of
Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1989).
10.16 Partnership Agreement of French Valley Ventures dated
November 1989, between Santa Anita Realty Enterprises,
Inc. and William J. Rousey, Jr. (incorporated by
reference to Exhibit 10.23 to the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December
31, 1989).
</TABLE>
100
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
10.17 Indenture of Lease by and between Los Angeles Turf Club,
Incorporated and Oak Tree Racing Association, dated as of
January 1, 1990 (incorporated by reference to Exhibit
10.21 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1990).
10.18 Form of Severance Agreement of Certain Officers of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company (incorporated by reference to Exhibit 10.22 to
the Joint Annual Report on Form 10-K of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1992).
10.19 Schedule of omitted documents and differences in material
details regarding Severance Agreements of Certain
Officers of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company (incorporated by reference
to Exhibit 10.1 of the joint Quarterly Report on Form 10-
Q of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended September 30,
1994).
10.20 Purchase and Sale Agreement, dated as of November 15,
1993, between Santa Anita Realty Enterprises, Inc., and
Pacific Gulf Properties Inc. (incorporated by reference
to Exhibit 1 to the Current Report on Form 8-K of Santa
Anita Realty Enterprises, Inc., dated February 18, 1994).
10.21 Registration Rights Agreement, dated as of February 1,
1994, between Santa Anita Realty Enterprises, Inc. and
Pacific Gulf Properties Inc. (incorporated by reference
to Exhibit 10.24 to the Joint Annual Report on Form 10-K
of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the year ended December 31, 1993).
10.22 Closing Agreement dated as of October 1, 1994, by and
between Santa Anita Realty Enterprises, Inc. and Pacific
Gulf Properties Inc. (incorporated by reference to
Exhibit 10.2 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended September 30,
1994).
10.23 Employment Agreement between Santa Anita Realty
Enterprises, Inc. and Sherwood C. Chillingworth dated as
of March 16, 1994 (incorporated by reference to Exhibit
10.25 to the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1993).
10.24 Employment Agreement between Santa Anita Operating
Company, Los Angeles Turf Club, Incorporated and Clifford
C. Goodrich dated as of January 1, 1994 (incorporated by
reference to Exhibit 10.1 of the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended June
30, 1994).
10.25 Employment Agreement between Santa Anita Operating
Company and Stephen F. Keller dated as of January 1, 1994
(incorporated by reference to Exhibit 10.2 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the quarter ended June 30, 1994).
10.26 Employment Agreement between Santa Anita Realty
Enterprises, Inc. and Christopher T. Stirling dated as of
March 25, 1994 (incorporated by reference to Exhibit 10.3
of the Joint Quarterly Report on Form 10-Q of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating
Company for the quarter ended June 30, 1994).
10.27 Employment Agreement between Santa Anita Realty
Enterprises, Inc. and Brian L. Fleming dated as of May 9,
1994 (incorporated by reference to Exhibit 10.4 of the
Joint Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the quarter ended June 30, 1994).
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
10.28 Santa Anita Realty Enterprises, Inc. 1995 Share Award
Plan (incorporated by reference to Exhibit 10.28 of the
Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1994).
10.29 Santa Anita Operating Company 1995 Share Award Plan
(incorporated by reference to Exhibit 10.29 of the Joint
Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1994).
10.30 Exchange Agreement between Santa Anita Operating Company
and Stephen F. Keller, dated as of December 15, 1994
(without appendix), as amended by Amendment I to the
Exchange Agreement, dated as of December 15, 1994, among
Santa Anita Operating Company, Stephen F. Keller and the
Keller Family Trust (with appendix) (incorporated by
reference to Exhibit 10.30 of the Joint Annual Report on
Form 10-K of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the year ended December
31, 1994).
10.31 Exchange Agreement between Santa Anita Operating Company
and Clifford C. Goodrich, dated as of December 15, 1994
(with appendix) (incorporated by reference to Exhibit
10.31 of the Joint Annual Report on Form 10-K of Santa
Anita Realty Enterprises, Inc. and Santa Anita Operating
Company for the year ended December 31, 1994).
10.32 Form of Indemnity Agreement between Santa Anita Operating
Company and its directors and officers and schedule of
omitted documents relating thereto (incorporated by
reference to Exhibit 10.2 of the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended March
31, 1995).
10.33 Form of Indemnity Agreement between Santa Anita Realty
Enterprises, Inc. and its directors and officers and
schedule of omitted documents relating thereto
(incorporated by reference to Exhibit 10.3 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the quarter ended March 31, 1995).
10.34 Form of Consulting Agreement between Santa Anita
Operating Company and its directors and schedule of
omitted documents relating thereto (incorporated by
reference to Exhibit 10.4 of the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended March
31, 1995).
10.35 Form of Consulting Agreement between Santa Anita Realty
Enterprises, Inc. and its directors and schedule of
omitted documents relating thereto (incorporated by
reference to Exhibit 10.5 of the Joint Quarterly Report
on Form 10-Q of Santa Anita Realty Enterprises, Inc. and
Santa Anita Operating Company for the quarter ended March
31, 1995).
10.36 Restricted Stock Agreement dated as of April 1, 1995
between Santa Anita Operating Company, Stephen F. Keller
and the Keller Family Trust (incorporated by reference to
Exhibit 10.6 of the Joint Quarterly Report on Form 10-Q
of Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company for the quarter ended March 31, 1995).
</TABLE>
102
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<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
10.37 Restricted Stock Agreement dated as of April 1, 1995
between Santa Anita Operating Company and Clifford C.
Goodrich (incorporated by reference to Exhibit 10.7 of
the Joint Quarterly Report on Form 10-Q of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating
Company for the quarter ended March 31, 1995).
10.38 Lease dated as of May 2, 1995 between Santa Anita Realty
Enterprises, Inc. and American Multi-Cinema, Inc.
(incorporated by reference to Exhibit 10.8 of the Joint
Quarterly Report on Form 10-Q of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the quarter ended March 31, 1995).
10.39 Repayment Guaranty dated as of May 18, 1990 between Santa
Anita Realty Enterprises, Inc. and The Mitsubishi Bank,
Limited.
10.40 First Amendment dated as of August 10, 1993 to Repayment
Guaranty dated as of May 18, 1990 between Santa Anita
Realty Enterprises, Inc. and The Mitsubishi Bank,
Limited.
10.41 Unconditional Guaranty of Payment dated as of December
31, 1992 between Santa Anita Realty Enterprises, Inc. and
Bank of America National Trust and Savings Association.
22 Subsidiaries of Santa Anita Operating Company
(incorporated by reference to Exhibit 22 to the Joint
Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for
the year ended December 31, 1992).
23.1 Consent of Ernst & Young LLP (to be incorporated by
reference into the Prospectus contained in Registration
Statement No. 2-95228, the Prospectus contained in
Registration Statement No. 33-51843 and the Prospectus
contained in Registration Statement No. 33-58995).
23.2 Consent of Ernst & Young LLP (to be incorporated by
reference into the Prospectus contained in Registration
Statement No. 2-95228, the Prospectus contained in
Registration Statement No. 33-51843 and the Prospectus
contained in Registration Statement No. 33-58995).
23.3 Consent of KPMG Peat Marwick LLP (to be incorporated by
reference into the Prospectus contained in Registration
Statement No. 2-95228, the Prospectus contained in
Registration Statement No. 33-51843 and the Prospectus
contained in Registration Statement No. 33-58995).
23.4 Consent of KPMG Peat Marwick LLP (to be incorporated by
reference into the Prospectus contained in Registration
Statement No. 2-95228, the Prospectus contained in
Registration Statement No. 33-51843 and the Prospectus
contained in Registration Statement No. 33-58995).
27(a) Financial Data Schedule for Santa Anita Realty
Enterprises, Inc.
27(b) Financial Data Schedule for Santa Anita Operating
Company.
99.1 Consolidated financial statements and schedule of Pacific
Gulf Properties Inc. included in such company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995 (to be filed by amendment).
</TABLE>
103
<PAGE>
EXHIBIT 3.3
REVISED 2/15/96
---------------
BY-LAWS
OF
SANTA ANITA REALTY ENTERPRISES, INC.
(a Delaware corporation)
ARTICLE I
Offices
Section 1.1. Registered Office. The registered office shall be in the
-----------------
City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at such
-------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Business Purpose and Investment Policy
Section 2.1. Corporation Taxed as Real Estate Investment Trust. The
-------------------------------------------------
Corporation shall conduct its business in such a manner as to be qualified to be
taxed as
-1-
<PAGE>
a real estate investment trust under Sections 856-858 of the Internal Revenue
Code of 1954, as heretofore or hereafter amended.
Section 2.2. Investment Policy. It is the general purpose of the
-----------------
Corporation that the assets of the Corporation be invested principally in real
property and interests in real estate.
ARTICLE III
Meetings of Stockholders
Section 3.1. Place. All meetings of the stock-holders for the election of
-----
directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time or place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 3.2. Annual Meetings. The annual meetings of stockholders shall
---------------
be held on the third Thursday in May of each year at 10 o'clock A.M. of said
day, the first such meeting to be held on the third Thursday in May
-2-
<PAGE>
1981; provided, however, that should said day fall upon a legal holiday, then
any such annual meeting of stockholders shall be held at the same time and place
on the next day thereafter ensuing which is a full business day. At such
meetings directors shall be elected, reports of the affairs of the Corporation
shall be considered, and any other business may be transacted which is within
the powers of the stockholders. If for any annual meeting the Board of
Directors shall fix a different day or hour, such action shall be deemed an
amendment of this Section 3.2 effective until the adjournment of that annual
meeting sine die.
---- ---
Written notice of each annual meeting shall be given to each stockholder
entitled to vote, either personally or by mail or other means of written
communication, charges prepaid, addressed to such stockholder at his address
appearing on the books of the Corporation or given by him to the Corporation for
the purpose of notice. If a stockholder gives no address, notice shall be
deemed to have been given him if sent by mail or other means of written
communication addressed to the place where the principal office of the
Corporation is situated, or if published at least once in some newspaper of
general circulation in the county in which said office is located. All such
notices shall be sent to each stockholder entitled thereto not less than ten nor
more than sixty days before each annual meeting. Such notices shall specify the
-3-
<PAGE>
place, the day and the hour of such meeting and shall state such other matters
if any, as may be expressly required by statute.
Section 3.3. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes whatsoever, may be called at any time by the Board of
Directors. Except in special cases where other express provision is made by
statute, notice of such special meetings shall be given in the same manner as
for annual meetings of stockholders. Notices of any special meeting shall
specify, in addition to the place, day and hour of such meeting, the general
nature of the business to be transacted.
Section 3.4. Business To Be Brought Before Meetings. In order to be
---------------------------------------
properly brought before any meeting of stockholders held pursuant to this
Article III, business (including the election of directors) must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. In order for any such
business to be properly brought before the meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. In order to be timely, a
-4-
<PAGE>
stockholder's notice must be received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that a meeting is called for a date other
than that specified in the By-laws, and less than 75 days' prior public
disclosure of such date is given, notice by the stockholder in order to be
timely must be received by the Secretary of the Corporation not later than the
close of business on the fifteenth (15th) calendar day following the day on
which such public disclosure of the date of the meeting was made. If a
stockholder intends to nominate a candidate or candidates for director at any
meeting of stockholders, such stockholder's notice to the Secretary shall set
forth the name, age, address and principal occupation of each such nominee and
the amount and type of the Corporation's stock held by each such nominee,
together with any additional information reasonably necessary to determine the
eligibility of each such nominee and any information required to be disclosed in
the solicitation of proxies in respect of each such nominee by Schedule 14A, as
amended from time to time, or other applicable Rules and Regulations of the
Securities and Exchange Commission. The notice to the Secretary shall also set
forth the name, address and the amount and type of beneficial ownership of the
Corporation's stock of the stockholder intending to nominate the candidate or
candidates identified in the notice to the Secretary. Any
-5-
<PAGE>
stockholder desiring to bring any other business before any annual meeting of
stockholders shall set forth in such stockholder's notice to the Secretary (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the meeting, (ii) the
name and record address of the stockholder proposing such business, (iii) the
class and number of shares of the Corporation's stock that are beneficially
owned by such stockholder, and (iv) any material interest of such stockholder in
such business. In order to be properly brought before any special meeting of
stockholders (other than any special meeting held for the purpose of electing
directors), business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors.
Notwithstanding anything in the By-laws to the contrary, no business
(including the election of directors) shall be conducted at the meeting except
in accordance with the procedures set forth in this Section 3.4; provided
however, that nothing in this Section 3.4 shall preclude or be deemed or
construed to preclude discussion by any stockholder of any business properly
brought before the annual meeting of stockholders.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business
-6-
<PAGE>
was not properly brought before the meeting in accordance with the provisions of
this Section 3.4, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
Section 3.5. List of Stockholders. The officer who has charge of the
--------------------
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 3.6. Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by
-7-
<PAGE>
statute. If, however, such quorum shall not be present or represented at any
meeting of stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally noticed. If the
adjournment is for more than thirty days or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 3.7. Questions Before Meeting. When a quorum is present at any
------------------------
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting unless the question is one upon which by express provision
of the statutes, of these By-laws or of the Certificate of Incorporation, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 3.8. Action Without Meeting. Any action required or permitted to
----------------------
be taken by holders of stock of the
-8-
<PAGE>
Corporation must be taken at a meeting of such holders and may not be taken by
consent in writing.
Section 3.9. Waiver of Notice. Whenever notice is required to be given
----------------
under the Delaware Corporation Law or the Certificate of Incorporation or the
By-laws, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation.
ARTICLE IV
Directors
Section 4.1. Size of Board. The Board of Directors shall consist of twelve
-------------
members, or as many as shall be determined from time to time by resolution of
the Board.
-9-
<PAGE>
Section 4.2. Election of Directors. The directors shall be divided into
---------------------
three classes, designated Class I, Class II, and Class III, such classes to be
as nearly equal in number as possible. At the annual meeting of stockholders in
1986, directors of Class I shall be elected to hold office for a term expiring
at the next succeeding annual meeting, directors of Class II shall be elected to
hold office for a term expiring at the second succeeding annual meeting, and
directors of Class III shall be elected to hold office for a term expiring at
the third succeeding annual meeting. Thereafter at each annual meeting of
stockholders, directors shall be chosen for a term of three years to succeed
those whose terms then expire and shall hold office until the third following
annual meeting of stockholders and until the election of their respective
successors. Directors need not be stockholders.
Section 4.3. Vacancies. Vacancies and newly created directorships
---------
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office for the
unexpired term of the vacant directorship, or, in the case of any increase in
the number of directors, as designated by the directors then in office,
consistent with the provisions of Section 4.2. If there are no directors in
office, then an election of directors may be
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held in the manner provided by statute. If, at the time of filling any vacancy
or any newly created directorship the directors then in office shall constitute
less than a majority of the whole Board (as constituted immediately prior to any
such increase), the Court of Chancery may, upon application of any stockholder
or stockholders holding at least ten percent of the total number of the shares
at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
Section 4.4. Powers. The business of the Corporation shall be managed by
------
its Board of Directors which may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these By-laws directed or required to be exercised or
done by the stockholders.
Section 4.5. Meetings. The Board of Directors of the Corporation may hold
--------
meetings, both regular and special, either within or without the State of
Delaware.
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Section 4.6. First Meeting. The first meeting of each newly elected Board
-------------
of Directors shall be held immediately following the annual meeting of
stockholders at which such directors are elected and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present; or the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 4.7. Regular Meetings. Regular meetings of the Board may be held
----------------
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 4.8. Special Meetings. Special meetings of the Board may be
----------------
called by the Secretary at the request of the Chairman of the Board or President
on two business days' notice to each director, either personally or by mail, by
telegram or by telephone; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
directors.
Section 4.9. Quorum. At all meetings of the Board a majority of the total
------
number of directors shall
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constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 4.10. Conference Telephone. Unless otherwise restricted by the
--------------------
Certificate of Incorporation or these By-laws, members of the Board of Directors
(or any committee designated by the Board) may participate in a meeting of the
Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
Section 4.11. Unanimous Consent. Unless other-wise restricted by the
-----------------
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto
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in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 4.12. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the power of the Board of Directors in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; provided, however,
that in the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Section 4.13. Minutes. Each committee shall keep regular minutes of its
-------
meetings and report the same to the Board of Directors when required.
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Section 4.14. Fees and Compensation. Directors and members of committees
---------------------
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board.
ARTICLE V
Notices
Section 5.1. Methods of Notice. Whenever, under the provisions of the
-----------------
Laws of the State of Delaware or of the Certificate of Incorporation or of these
By-laws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram or
telephone.
Section 5.2. Waiver. Whenever any notice is required to be given under
------
the provisions of the statutes or of the Certificates of Incorporation or of
these By-laws, a waiver thereof in writing, signed by the person or persons
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entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VI
Officers
Section 6.1. Officers. The Officers of the Corporation shall be a
--------
President, a Vice President, a Secretary and a Treasurer. The Corporation may
also have, at the discretion of the Board of Directors, one or more additional
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 6.3 and Section 6.5 of this Article. The Board of
Directors may also choose, in its discretion, a Chairman of the Board and one or
more Vice Chairmen of the Board. The positions of Chairman of the Board and Vice
Chairman of the Board shall not constitute officers of the Corporation. One
person may hold two or more offices.
Section 6.2. Election. The officers of the Corporation, except such
--------
officers as may be appointed in accordance with the provisions of Section 6.3 or
Section 6.5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold his office until he shall
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resign or shall be removed or otherwise disqualified to serve, or his successor
shall be elected and qualified.
Section 6.3. Subordinate Officers, etc. The Board of Directors may
--------------------------
appoint, and may empower the President to appoint, such other officers as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the By-
laws or as the Board of Directors may from time to time determine.
Section 6.4. Removal and Resignation. Any officer may be removed, either
-----------------------
with or without cause, by the Board of Directors, at any regular or special
meeting thereof, or, except in the case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the President, or to the Secretary of the Corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
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Section 6.5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-laws for regular appointments to such office.
Section 6.6. Salaries. The salaries and other compensation of all
--------
officers of the Corporation shall be fixed by the Board of Directors.
Section 6.7. Chairman of the Board. The Chairman of the Board shall, if
---------------------
present, preside at all meetings of the Board of Directors.
Section 6.7A. Vice Chairman of the Board. In the absence of the Chairman
--------------------------
of the Board, the Vice Chairman of the Board designated by the Board of
Directors shall preside at all meetings of the Board of Directors.
Section 6.8. President. The President shall be the Chief Executive
---------
Officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
officers of the Corporation. He shall preside at all meetings of the
stockholders and, in the absence of the Chairman of the Board and the Vice
Chairman of the Board, or if there be none, at all meetings of the Board of
Directors. He shall be ex-officio a member of all the standing
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committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of the
president of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the By-laws.
Section 6.9. Vice President. In the absence or disability of the
--------------
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors or, if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the By-laws.
Section 6.10. Secretary. The Secretary shall keep or cause to be kept, at
---------
the principal office or such other place as the Board of Directors may order, a
book of minutes of all meetings of directors and stockholders, with the time and
place of holding, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at stockholders meetings, and the
proceedings thereof. The Secretary shall keep, or cause to be kept, at the
principal office or at the
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office of the Corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the stockholders and their addresses, the
number and class of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the stockholders and of the Board of Directors required by the By-laws or
bylaw to be given, and he shall keep the seal of the Corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or by the By-laws.
Section 6.11. Treasurer. The Treasurer shall keep and maintain, or cause
---------
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account shall at all
reasonable times be open to inspection by any director.
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<PAGE>
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the Corporation with such depositories as may be designated by
the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, shall render to the President and
directors, whenever they request it, an account of all of his transactions as
Treasurer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or the By-laws.
ARTICLE VII
Stock and Stock Certificates
Section 7.1. Right to Certificate. Every holder of stock in the
--------------------
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board of Directors or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation.
Section 7.2. Statements Setting Forth Rights. If the Corporation shall be
-------------------------------
authorized to issue more than one class of stock or more than one series of any
class, the
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designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and rights shall be set forth in
full or summarized on the face or back of the certificate which the Corporation
shall issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the Corporation Law of Delaware, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations and restrictions of such preferences
and rights.
Section 7.3. Facsimile Signatures. Any of or all the signatures on the
--------------------
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
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<PAGE>
Section 7.4. Lost Certificates. Except as hereinafter in this section
-----------------
provided, no new certificate for shares shall be issued in lieu of an old one
unless the latter is surrendered and cancelled at the same time. The Board of
Directors may, however, in case any certificate for shares is lost, stolen,
mutilated or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions, including reasonable indemnification of
the Corporation, as the Board shall determine.
Section 7.5. Transfers of Stock.
------------------
(a) Subject to paragraphs (b), (c) and (d) of this Section 7.5, upon
surrender to any transfer agent of the Corporation of a certificate for shares
of the Corporation duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
(b) Subject to the provisions of subparagraph (vi) of this paragraph (b),
beginning at the time that (A) the merger of Santa Anita Consolidated, Inc.
("Santa Anita") into the Corporation and (B) the payment by the Corporation of
the dividend in kind of the shares of Santa Anita Operating Company, a Delaware
corporation ("Operating
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Company"), shall have both occurred (hereinafter called the "effective time of
the restriction"), and continuing thereafter until such time as the limitation
on transfer provided for in the Pairing Agreement between the Corporation and
Operating Company shall be terminated in the manner therein provided:
(i) The shares of common stock of the Corporation shall not be
transferable, and shall not be transferred on the books of the Corporation,
unless (1) a simultaneous transfer is made by the same transferor to the
same transferee, or (2) such transferor has previously arranged with
Operating Company for the transfer to the transferee, of a like number of
common shares of Operating Company and such shares are paired with one
another.
(ii) Except for certificates representing shares of common stock
of this Corporation referred to in subparagraph (vi) below, each
certificate evidencing ownership of shares of common stock of this
Corporation (including certificates issued by Santa Anita) issued and not
cancelled prior to the effective time of the restriction shall be deemed to
evidence a like number of shares of common stock of Operating Company.
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(iii) Except for certificates representing common stock of this
Corporation referred to in subparagraph (vi) below, any registered holder
of a certificate evidencing ownership of shares of common stock of the
Corporation (including certificates issued by Santa Anita) issued prior to
the effective time of the restriction may, upon request and presentation of
said certificate to the Corporation's transfer agent, obtain in
substitution therefor a certificate or certificates registered in such
holder's name evidencing the same number of shares of common stock of the
Corporation and a like number of common shares of Operating Company.
(iv) A conspicuous legend shall be placed on the face of each
certificate evidencing ownership of shares of common stock of the
Corporation issued after the effective time of the restriction, referring
to the restrictions on transfer set forth in the Corporation's By-laws.
(v) For purposes of this paragraph (b) only, the terms "common
stock" and "common shares" shall include preferred stock which is
convertible into shares of common stock.
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<PAGE>
(vi) Notwithstanding the other provisions of this paragraph (b),
any stockholder whose ownership of Operating Company common stock at the
effective time of the restriction would be deemed, after application of the
attribution rules of the Internal Revenue Code of 1954 (the "Code"), to
result in the Corporation owning, directly or indirectly, more than 9.25%
of the Operating Company common stock will not be subject to the
restrictions imposed by this paragraph (b) to the extent that such
ownership would cause the Corporation, directly or indirectly, to be deemed
to own, after application of the attribution rules of the Code, more than
9.25% of the total number of the outstanding shares of Operating Company,
provided that (1) a sufficient amount of Operating Company common stock (or
the right to receive such common stock) which would otherwise be paired
with common stock of the Corporation is sold to a transferee so that the
Corporation, directly or indirectly, after application of the attribution
rules of the Code, will not own in excess of 9.25% of the outstanding
Operating Company common stock, (2) all holders of the unpaired shares
enter into an agreement, satisfactory to the Boards of Directors of the
Corporation, Operating Company and Santa Anita, providing that such shares
not be transferable by sale or any other means, without arranging for such
shares to be paired with an equal
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number of shares of Operating Company, unless such sale is made to the
Corporation or Operating Company, and (3) such stockholder executes a
waiver of any claims he or she may have arising out of the close business
relationship between the Corporation and Operating Company and claims
arising out of conflicts of interest inherent in such business
relationship. The other provisions of this paragraph (b) shall apply to
all shares of the Corporation otherwise held by any stockholder unless they
are specifically exempted by this subparagraph (vi).
(c) If the Board of Directors shall at any time and in good faith be
of the opinion that direct or indirect ownership of shares of either common
stock or preferred stock, or both, of the Corporation has or may become
concentrated to an extent which would cause this Corporation to fail to qualify
or be disqualified as a real estate investment trust by virtue of Section
856(a)(5) and (6) of the Code, or similar provisions of successor statutes, the
Board of Directors shall have the power (i) by lot or other means deemed
equitable by them to call for purchase from any stockholder of the Corporation
such number of shares sufficient in the opinion of the Board of Directors to
maintain or bring the direct or indirect ownership of shares of stock of the
Corporation into conformity with the requirements of said Section 856(a)(5) and
(6) and (ii) to
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refuse to register the transfer of shares of stock to any person whose
acquisition of such shares would, in the opinion of the Board of Directors,
result in the Corporation being unable to conform to the requirements of said
Section 856(a)(5) and (6). The purchase price for the shares of stock purchased
pursuant hereto shall be equal to the fair market value of such shares as
reflected in the closing price for such shares on the principal stock exchange
on which such shares are listed or, if such shares are not listed, then the last
bid quotation for shares of stock as of the close of business on the date fixed
by the Board of Directors for such purchase or, if no quotation for the shares
is available, as determined in good faith by the Board of Directors. From and
after the date fixed for purchase by the Board of Directors, the holder of any
shares so called for purchase shall cease to be entitled to dividends, voting
rights and other benefits with respect to such shares, excepting only the right
to payment of the purchase price fixed as aforesaid. In order to further assure
that ownership of the shares of stock does not become so concentrated, any
transfer of shares that would prevent the Corporation from continuing to be
qualified as a real estate investment trust by virtue of the application of
Section 856(a)(5) and (6) of the Code shall be void ab initio and the intended
-- ------
transferee of such shares shall be deemed never to have had an interest therein.
If the foregoing provision is determined to be void or invalid by
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virtue of any legal decision, statute, rule or regulation, then the transferee
of such shares shall be deemed to have acted as agent on behalf of the
Corporation in acquiring such shares and to hold such shares on behalf of the
Corporation. For purposes of determining whether the Corporation is in
compliance with Section 856(a)(5) and (6), Section 542(a)2) and Section 544 of
the Code, or similar provisions of successor statutes, shall be applied.
(d) In addition to the requirements of subparagraph (c) above, if the
Board of Directors shall at any time and in good faith be of the opinion that
direct or indirect ownership of shares of either common stock or preferred
stock, or both, of the Corporation has or may become concentrated to an extent
which would cause any rent to be paid to this Corporation to fail to qualify or
be disqualified as rent from real property by virtue of Section 856(d)(2)(B) of
the Code, or similar provisions of successor statutes, the Board of Directors
shall have the power (i) by lot or other means deemed equitable by them to call
for purchase from any stockholder of the Corporation such number of shares
sufficient in the opinion of the Board of Directors to maintain or bring the
direct or indirect ownership of shares of stock of the Corporation into
conformity with the requirements of Section 856(d)(2)(B) and (ii) to refuse to
register the transfer of shares of stock to any person whose acquisition of such
shares would, in the
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opinion of the Board of Directors, result in this Corporation being unable to
conform to the requirements of said Section 856(d)(2)(B). The purchase price
for the shares of stock purchased pursuant hereto shall be equal to the fair
market value of such shares as reflected in the closing price for such shares on
the principal stock exchange on which such shares are listed, or if such shares
are not listed, then the last bid quotation for shares of stock, as of the close
of business on the date fixed by the Board of Directors for such purchase or, if
no quotation for the shares is available, as determined in good faith by the
Board of Directors. From and after the date fixed for purchase by the Board of
Directors, the holder of any shares so called for purchase shall cease to be
entitled to dividends, voting rights and other benefits with respect to such
shares, excepting only the right to payment of the purchase price fixed as
aforesaid. In order to further assure that ownership of the shares of stock
does not become so concentrated, any transfer of shares that would prevent this
Corporation from continuing to be qualified as a real estate investment trust by
virtue of the application of Section 856(d)(2)(B) of the Code shall be void ab
--
initio and the intended transferee of such shares shall be deemed never to have
- ------
had an interest therein. If the foregoing provision is determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
transferee of such shares shall be deemed to have acted as agent on
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behalf of the Corporation in acquiring such shares and to hold such shares on
behalf of the Corporation. For purposes of determining whether this Corporation
is in compliance with Section 856(d)(2)(B), Section 856(d)(5) of the Code, or
similar provisions of successor statutes, shall be applied.
(e) The stockholders of the Corporation shall upon demand disclose to
the Board of Directors in writing such information with respect to their direct
and indirect ownership of the stock of the Corporation as the Board of Directors
deems necessary to determine whether the Corporation satisfies the provisions of
Section 856(a)(5) and (6) and 856(d) of the Code and the regulations thereunder
as the same shall be from time to time amended, or to comply with the
requirements of any other taxing authority.
Section 7.6. Form of Consideration. In purchasing such shares from
---------------------
any shareholder in accordance with the foregoing provisions, the Corporation may
pay consideration in the form of cash or, at the option of the Board of
Directors, in the form of subordinated indebtedness of the Corporation. The
principal amount of such subordinated indebtedness shall be equal to the
purchase price of the shares (less amounts paid in cash, if any) and it shall
have such other terms as may be determined by the Board of Directors at the time
of issuance.
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Section 7.7. Record Date. In order that the Corporation may
-----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereto, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 7.8. Registered Stockholders. The Corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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Section 7.9. Transfer Agents and Registrars. The Board of Directors
------------------------------
may appoint one or more corporate transfer agents and registrars.
Section 7.10. Dividends. Dividends upon the capital stock of the
---------
Corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock.
Section 7.11. Reserves. Before payment of any dividend, there may be
--------
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE VIII
Indemnification and Insurance
Section 8.1. Right to Indemnification. Each person who was or is a
------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding,
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whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employer or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 8.2 hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors
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of the Corporation. The right to indemnification conferred in this Article
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
Section 8.2. Right of Claimant to Bring Suit. If a claim under
-------------------------------
Section 8.1 of this Article is not paid in full by the Corporation within thirty
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to
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recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Delaware law for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met such standard of conduct, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such standard of conduct, shall be a defense to the action or create a
presumption that the claimant has failed to meet such standard of conduct.
Section 8.3. Non-Exclusivity of Rights. The right to indemnification
-------------------------
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive
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of any other right which any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, by-law, agreement, vote
of stockholders or disinterested directors or otherwise.
Section 8.4. Insurance. The Corporation may maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 8.5. Expenses as a Witness. To the extent that any director,
---------------------
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.
Section 8.6. Indemnity Agreements. The Corporation may enter into
--------------------
agreements with any director, officer, employee or agent of the Corporation
providing for
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indemnification to the full extent permitted by Delaware law.
ARTICLE IX
General Provisions
Section 9.1. Annual Reports. Not later than one hundred twenty
--------------
(120) days after the close of each fiscal year of the Corporation, the Board of
Directors shall mail a report of the business and operation of the Corporation
during such fiscal year to the stockholders. The report shall be in such form
and have such content as the Board deems proper. This report shall include a
balance sheet and a statement of income and surplus and a statement of changes
in financial position of the Corporation. Such financial statements shall be
accompanied by the report of an independent certified public accountant thereon.
Section 9.2. Quarterly Reports. Within 90 days after the close of
-----------------
each of the first three quarters of each fiscal year of the Corporation, the
Board of Directors shall send interim reports to the stockholders, having such
form and content as the Board of Directors deems proper.
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Section 9.3. Fiscal Year. The fiscal year of the Corporation shall
-----------
be fixed by resolution of the Board of Directors.
Section 9.4. Seal. The corporate seal shall have inscribed thereon
----
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 9.5. Checks, Drafts, etc. All checks, drafts or other orders
-------------------
for payment of money, notes or other evidences of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board of Directors.
Section 9.6. Representation of Shares of Other Corporations. The
----------------------------------------------
President or any Vice President and the Secretary or Assistant Secretary of this
Corporation are authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such
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officers in person or by any other person authorized so to do by proxy or power
of attorney duly executed by said officers.
Section 9.7. Employee Stock Purchase Plans. The Corporation may,
-----------------------------
upon terms and conditions herein authorized, provide and carry out an employee
stock purchase plan or plans providing for the issue and sale, or for the
granting of options for the purchase, of its unissued shares, or of issued
shares purchased or to be purchased or acquired, to employees of the Corporation
or of any subsidiary or to a trustee on their behalf. Such plan may provide for
such consideration as may be fixed therein, for the payment of such shares in
installments or at one time and for aiding any such employees in paying for such
shares by compensation for services or by loans from the Corporation or
otherwise. Any such plan before becoming effective must be approved or
authorized by the Board of Directors of the Corporation.
Such plan may include, among other things, provisions determining or
providing for the determination by the Board of Directors, or any committee
thereof designated by the Board of Directors, of: (a) eligibility of employees
(including officers and directors) to participate therein, (b) the number and
class of shares which may be subscribed for or for which options may be granted
under the plan,
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(c) the time and method of payment therefor, (d) the price or prices at which
such shares shall be issued or sold, (e) whether or not title to the shares
shall be reserved to the Corporation until full payment therefor, (f) the effect
of the death of an employee participating in the plan or termination of his
employment, including whether there shall be any option or obligation on the
part of the Corporation to repurchase the shares thereupon, (g) restrictions, if
any, upon the transfer of the shares, and the time limits and termination of the
plan, (h) termination, continuation or adjustments of the rights of
participating employees upon the happening of specified contingencies, including
increase or decrease in the number of issued shares of the class covered by the
plan without receipt of consideration by the Corporation or any exchange of
shares of such class for stock or securities of another corporation pursuant to
a reorganization or merger, consolidation or dissolution of the Corporation, (i)
amendment, termination, interpretation and administration of such plan by the
Board of Directors or any committee thereof designated by the Board of
Directors, and (j) any other matters, not repugnant to law, as may be included
in the plan as approved or authorized by the Board of Directors or any such
committee.
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ARTICLE X
Amendments
Section 10.1. Power of Stockholders. New By-laws may be adopted or
---------------------
these By-laws may be amended or repealed by the stockholders only by the
affirmative vote of at least 80% of the voting power of the Corporation, except
as otherwise provided by law. Any proposal to amend or repeal, or adopt any
provisions inconsistent with, Article Tenth of the Certificate of Incorporation
shall require for approval the affirmative vote of at least 80% of the voting
power of the Corporation.
Section 10.2. Power of Directors. Subject to the right of
------------------
stockholders as provided in Section 10.1 of this Article X to adopt, amend or
repeal By-laws, By-laws may be adopted, amended or repealed by the Board of
Directors; provided, however, that Section 7.5 of these By-laws may not be
amended or repealed except with approval of the holders of 80% of the
outstanding common stock of the Corporation.
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EXHIBIT 3.4
REVISED 2/15/96
---------------
BY-LAWS
OF
SANTA ANITA OPERATING COMPANY
(a Delaware corporation)
ARTICLE I
Offices
Section 1.1. Registered Office. The registered office shall be in the
-----------------
City of Wilmington, County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at such
-------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Meetings of Stockholders
Section 2.1. Place. All meetings of the stockholders for the election of
-----
directors shall be held at such place either within or without the State of
Delaware as
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shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may
be held at such time or place, within or without the State of Delaware, as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2.2. Annual Meetings. The annual meetings of stockholders shall
---------------
be held on the third Thursday in May of each year at 10 o'clock A.M. of said
day, the first such meeting to be held on the third Thursday in May 1981;
provided, however, that should said day fall upon a legal holiday, then any such
annual meeting of stockholders shall be held at the same time and place on the
next day thereafter ensuing which is a full business day. At such meetings
directors shall be elected, reports of the affairs of the Corporation shall be
considered, and any other business may be transacted which is within the powers
of the stockholders. If for any annual meeting the Board of Directors shall fix
a different day or hour, such action shall be deemed an amendment of this
Section 2.2 effective until the adjournment of that annual meeting sine die.
---- ---
Written notice of each annual meeting shall be given to each stockholder
entitled to vote, either personally or by mail or other means of written
communication, charges prepaid, addressed to such stockholder at
2
<PAGE>
his address appearing on the books of the Corporation or given by him to the
Corporation for the purpose of notice. If a stockholder gives no address,
notice shall be deemed to have been given him if sent by mail or other means of
written communication addressed to the place where the principal office of the
Corporation is situated, or if published at least once in some newspaper of
general circulation in the county in which said office is located. All such
notices shall be sent to each stockholder entitled thereto not less than ten nor
more than sixty days before each annual meeting. Such notices shall specify the
place, the day and the hour of such meeting and shall state such other matters
if any, as may be expressly required by statute.
Section 2.3. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes whatsoever, may be called at any time by the Board of
Directors. Except in special cases where other express provision is made by
statute, notice of such special meetings shall be given in the same manner as
for annual meetings of stockholders. Notices of any special meeting shall
specify, in addition to the place, day and hour of such meeting, the general
nature of the business to be transacted.
Section 2.4. Business To Be Brought Before Meeting. In order to be
-------------------------------------
properly brought before any meeting
3
<PAGE>
of stockholders held pursuant to this Article II, business (including the
election of directors) must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder. In order for any such business to be properly brought before the
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. In order to be timely, a
stockholder's notice must be received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that a meeting is called for a date other
than that specified in the By-laws, and less than 75 days' prior public
disclosure of such date is given, notice by the stockholder in order to be
timely must be received by the Secretary of the Corporation not later than the
close of business on the fifteenth (15) calendar day following the day on which
such public disclosure of the date of the meeting was made. If a stockholder
intends to nominate a candidate or candidates for director at any meeting of
stockholders, such stockholder's notice to the Secretary shall set forth the
name, age, address and principal occupation of each such nominee and the amount
and type of the Corporation's stock held by each such nominee, together
4
<PAGE>
with any additional information reasonably necessary to determine the
eligibility of each such nominee and any information required to be disclosed in
the solicitation of proxies in respect of each such nominee by Schedule 14A, as
amended from time to time, or other applicable Rules and Regulations of the
Securities and Exchange Commission. The notice to the Secretary shall also set
forth the name, address and the amount and type of beneficial ownership of the
Corporation's stock of the stockholder intending to nominate the candidate or
candidates identified in the notice to the Secretary. Any stockholder desiring
to bring any other business before any annual meeting of stockholders shall set
forth in such stockholder's notice to the Secretary (i) a brief description of
the business desired to be brought before the annual meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's stock that are beneficially owned by such stockholder, and (iv)
any material interest of such stockholder in such business. In order to be
properly brought before any special meeting of stockholders (other than any
special meeting held for the purpose of electing directors), business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors.
5
<PAGE>
Notwithstanding anything in the By-laws to the contrary, no business
(including the election of directors) shall be conducted at the meeting except
in accordance with the procedures set forth in this Section 2.4; provided,
however, that nothing in this Section 2.4 shall preclude or be deemed or
construed to preclude discussion by any stockholder of any business properly
brought before the annual meeting of stockholders.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2.4, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 2.5. List of Stockholders. The officer who has charge of the
--------------------
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held,
6
<PAGE>
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 2.6. Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute. If, however,
such quorum shall not be present or represented at any meeting of stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 2.7. Questions Before Meeting. When a quorum is present at any
------------------------
meeting, the vote of the holders of
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<PAGE>
a majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting unless the question
is one upon which by express provision of the statutes, of these By-laws or of
the Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 2.8. Action Without Meeting. Any action required or permitted to
----------------------
be taken by holders of stock of the Corporation must be taken at a meeting of
such holders and may not be taken by consent in writing.
Section 2.9. Waiver of Notice. Whenever notice is required to be given
----------------
under the Delaware Corporation Law or the Certificate of Incorporation or the
By-laws, a written waiver, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written
8
<PAGE>
waiver of notice unless so required by the Certificate of Incorporation.
ARTICLE III
Directors
Section 3.1. Size of Board. The Board of Directors shall consist of eleven
-------------
members, or as many as shall be determined from time to time by resolution of
the Board.
Section 3.2. Election of Directors. The directors shall be divided into
---------------------
three classes, designated Class I, Class II, and Class III, such classes to be
as nearly equal in number as possible. At the annual meeting of stockholders in
1986, directors of Class I shall be elected to hold office for a term expiring
at the next succeeding annual meeting, directors of Class II shall be elected to
hold office for a term expiring at the second succeeding annual meeting, and
directors of Class III shall be elected to hold office for a term expiring at
the third succeeding annual meeting. Thereafter at each annual meeting of
stockholders, directors shall be chosen for a term of three years to succeed
those whose terms then expire and shall hold office until the third following
annual meeting of stockholders and until the election of their respective
successors. Directors need not be stockholders.
9
<PAGE>
Section 3.3. Vacancies. Vacancies and newly created directorships
---------
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office for the
unexpired term of the vacant directorship, or, in the case of any increase in
the number of directors, as designated by the directors then in office,
consistent with the provisions of Section 3.2. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
10
<PAGE>
Section 3.4. Powers. The business of the Corporation shall be managed by
------
its Board of Directors which may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these By-laws directed or required to be exercised or
done by the stockholders.
Section 3.5. Meetings. The Board of Directors of the Corporation may hold
--------
meetings, both regular and special, either within or without the State of
Delaware.
Section 3.6. First Meeting. The first meeting of each newly elected Board
-------------
of Directors shall be held immediately following the annual meeting of
stockholders at which such directors are elected and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present; or the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 3.7. Regular Meetings. Regular meetings of the Board may be held
----------------
without notice at such time and at such place as shall from time to time be
determined by the Board.
11
<PAGE>
Section 3.8. Special Meetings. Special meetings of the Board may be
----------------
called by the Secretary at the request of the Chairman of the Board or President
on two business days' notice to each director, either personally or by mail, by
telegram or by telephone; special meetings shall be called by the Chairman of
the Board or Secretary in like manner and on like notice on the written request
of two directors.
Section 3.9. Quorum. At all meetings of the Board a majority of the total
------
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 3.10. Conference Telephone. Unless otherwise restricted by the
--------------------
Certificate of Incorporation or these By-laws, members of the Board of Directors
(or any committee designated by the Board) may participate in a meeting of the
Board or committee by means of conference
12
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telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other.
Section 3.11. Unanimous Consent. Unless other-wise restricted by the
-----------------
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 3.12. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution, shall
have and may exercise the power of the Board of Directors in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; provided, however,
that in the absence or disqualification of any member of such committee or
committees, the member or
13
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members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
Section 3.13. Minutes. Each committee shall keep regular minutes of its
-------
meetings and report the same to the Board of Directors when required.
Section 3.14. Fees and Compensation. Directors and members of committees
---------------------
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board.
ARTICLE IV
Notices
Section 4.1. Methods of Notice. Whenever, under the provisions of the
-----------------
Laws of the State of Delaware or of the Certificate of Incorporation or of these
By-laws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records
14
<PAGE>
of the Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram or telephone.
Section 4.2. Waiver. Whenever any notice is required to be given under
------
the provisions of the statutes or of the Certificate of Incorporation or of
these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
Officers
Section 5.1. Officers. The Officers of the Corporation shall be a
--------
Chairman of the Board, a President, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 and Section 5.5 of this Article. The Board of
Directors may also choose, at its discretion, one or more Vice Chairmen of the
Board, who shall not constitute officers of the Corporation. One person may
hold two or more offices.
15
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Section 5.2. Election. The officers of the Corporation, except such
--------
officers as may be appointed in accordance with the provisions of Section 5.3 or
Section 5.5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 5.3. Subordinate Officers, etc. The Board of Directors may
--------------------------
appoint, and may empower the Chairman of the Board to appoint, such other
officers as the business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the By-laws or as the Board of Directors may from time to time
determine.
Section 5.4. Removal and Resignation. Any officer may be removed, either
-----------------------
with or without cause, by the Board of Directors, at any regular or special
meeting thereof, or, except in the case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the Chairman of the Board, or to the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of
16
<PAGE>
such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 5.5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the By-laws for regular appointments to such office.
Section 5.6. Salaries. The salaries and other compensation of all
--------
officers of the Corporation shall be fixed by the Board of Directors.
Section 5.7. Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the stockholders and all meetings of the Board of
Directors. He shall be an ex-officio member of all standing committees,
including the Executive Committee, if any, and shall have such other powers and
duties as may be prescribed by the Board of Directors or the By-laws.
Section 5.7A. Vice Chairman of the Board. In the absence of the Chairman
--------------------------
of the Board, the Vice Chairman of the Board designated by the Board of
Directors shall preside at meetings of the Board of Directors.
17
<PAGE>
Section 5.8. President. The President shall be the Chief Executive
---------
Officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the Corporation.
He shall be an ex-officio member of all standing committees, including the
Executive Committee, if any, shall have the general powers and duties of
management usually vested in the office of the chief executive officer of a
corporation, and shall have such other powers and perform such other duties as
from time to time may be prescribed for him by the Board of Directors or the By-
laws.
Section 5.9. Vice President. In the absence or disability of the Chairman
--------------
of the Board and the President, the Vice Presidents in order of their rank as
fixed by the Board of Directors or, if not ranked, the Vice President designated
by the Board of Directors, shall perform all the duties of the Chairman of the
Board and the President, and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Chairman of the Board and the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors or the By-laws.
Section 5.10. Secretary. The Secretary shall keep or cause to be kept, at
---------
the principal office or such
18
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other place as the Board of Directors may order, a book of minutes of all
meetings of directors and stockholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at stockholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or at the
office of the Corporation's transfer agent, a share register, or a duplicate
share register, showing the names of the stockholders and their addresses, the
number and class of shares held by each, the number and date of certificates
issued for the same, and the number and date of cancellation of every
certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the stockholders and of the Board of Directors required by the By-laws or by
law to be given, and he shall keep the seal of the Corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by the By-laws.
Section 5.11. Treasurer. The Treasurer shall keep and maintain, or cause
---------
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its
19
<PAGE>
assets, liabilities, receipts, disbursements, gains, losses, capital, surplus
and shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account shall at all
reasonable times be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the Corporation with such depositories as may be designated by
the Board of Directors. He shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, shall render to the Chairman of the Board
and directors, whenever they request it, an account of all of his transactions
as Treasurer and of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or the By-laws.
ARTICLE VI
Stock and Stock Certificates
Section 6.1. Right to Certificate. Every holder of stock in the
--------------------
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by
20
<PAGE>
the Chairman of the Board of Directors or the President or a Vice President, and
by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation.
Section 6.2. Statements Setting Forth Rights. If the Corporation shall be
-------------------------------
authorized to issue more than one class of stock or more than one series of any
class, the designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and rights shall
be set forth in full or summarized on the face or back of the certificate which
the Corporation shall issue to represent such class or series of stock, provided
that,except as otherwise provided in Section 202 of the Corporation Law of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations and restrictions of
such preferences and rights.
21
<PAGE>
Section 6.3 Facsimile Signatures. Any of or all the signatures on the
--------------------
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
Section 6.4. Lost Certificates. Except as hereinafter in this section
-----------------
provided, no new certificate for shares shall be issued in lieu of an old one
unless the latter is surrendered and cancelled at the same time. The Board of
Directors may, however, in case any certificate for shares is lost, stolen,
mutilated or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions, including reasonable indemnification of
the Corporation, as the Board shall determine.
Section 6.5 Transfers of Stock.
------------------
(a) Subject to paragraphs (b), (c) and (d) of this Section 6.5, upon
surrender to any transfer agent of the Corporation of a certificate for shares
of the Corporation duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be
22
<PAGE>
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
(b) Beginning at the time that (A) the merger of Santa Anita Consolidated,
Inc. ("Santa Anita") into Santa Anita Realty Enterprises, Inc., a Delaware
corporation ("Realty"), and (B) the payment by Realty of the dividend in kind of
the shares of the Corporation (the "Distribution") shall have both occurred
(hereinafter called the "effective time of the restriction"), and continuing
thereafter until such time as the limitation on transfer provided for in the
Pairing Agreement between Realty and the Corporation shall be terminated in the
manner therein provided:
(i) The shares of common stock of the Corporation shall not be
transferable, and shall not be transferred on the books of the Corporation,
unless (1) a simultaneous transfer is made by the same transferor to the same
transferee, or (2) such transferor has previously arranged with Realty for the
transfer to the transferee, of a like number of shares of common stock of Realty
and such shares are paired with one another.
(ii) Except for certificates representing shares of common stock of Realty
referred to in subparagraph (vi) below, each certificate evidencing ownership of
shares of
23
<PAGE>
common stock of Realty (including certificates issued by Santa Anita) issued and
not cancelled prior to the effective time of the restriction shall be deemed to
evidence a like number of shares of common stock of the Corporation.
(iii) Except for certificates representing common stock of Realty referred
to in subparagraph (vi) below, any registered holder of a certificate evidencing
ownership of shares of common stock of Realty (including certificates issued by
Santa Anita) issued prior to the effective time of the restriction may, upon
request and presentation of said certificate to the Corporation's transfer
agent, obtain in substitution therefor a certificate or certificates registered
in such holder's name evidencing the same number of common shares of the
Corporation and a like number of shares of common stock of Realty.
(iv) A conspicuous legend shall be placed on the face of each certificate
evidencing ownership of shares of common stock of the Corporation issued after
the effective time of the restrictions, referring to the restrictions on
transfer set forth in the Corporation's By-laws.
(v) For purposes of this paragraph (b) only, the terms "common stock" and
"common shares" shall include preferred stock which is convertible into shares
of common stock.
24
<PAGE>
(vi) Notwithstanding the other provisions of this paragraph (b), any
stockholder whose ownership of the common stock of the Corporation at the
effective time of the restriction would be deemed, after application of the
attribution rules of the Internal Revenue Code of 1954 (the "Code"), to result
in Realty owning, directly or indirectly, more than 9.25% of the common stock of
the Corporation will not be subject to the restrictions imposed by this
paragraph (b) to the extent that such ownership would cause Realty, directly or
indirectly, to be deemed to own, after application of the attribution rules of
the Code, more than 9.25% of the total number of the outstanding shares of the
Corporation, provided that (1) a sufficient amount of the common stock of the
Corporation (or the right to receive such common stock) which would otherwise be
paired with stock of Realty is sold to third parties so that Realty, directly or
indirectly, after application of the attribution rules of the Code, will not own
in excess of 9.25% of the common stock of the Corporation, (2) all holders of
the unpaired shares enter into an agreement, satisfactory to the Boards of
Directors of Realty, the Corporation and Santa Anita, providing that such shares
not be transferable by sale or any other means, without arranging for such
shares to be paired with an equal number of shares of Realty, unless such sale
is made to the Corporation or Realty and (3) such stockholder and any transferee
of such stockholder executes a waiver of any claims he or she may have arising
out of the
25
<PAGE>
close business relationship between the Corporation and Realty and claims
arising out of conflicts of interest inherent in such business relationship.
The other provisions of this paragraph (b) shall apply to all shares of the
Corporation otherwise held by any stockholder unless they are specifically
exempted by this subparagraph (vi).
(c) If the Board of Directors shall at any time and in good faith be of
the opinion that direct or indirect ownership of shares of either common stock
or preferred stock, or both, of the Corporation has or may become concentrated
to an extent which would cause Realty to fail to qualify or be disqualified as a
real estate investment trust by virtue of Section 856(a)(5) and (6) of the Code,
or similar provisions of successor statutes, pertaining to the qualification of
Realty as a real estate investment trust, the Board of Directors shall have the
power (i) by lot or other means deemed equitable by them to call for purchase
from any stockholder of the Corporation such number of shares sufficient in the
opinion of the Board of Directors to maintain or bring the direct or indirect
ownership of shares of stock of the Corporation into conformity with the
requirements of said Section 856(a)(5) and (6) pertaining to Realty and (ii) to
refuse to register the transfer of shares of stock to any person whose
acquisition of such shares would, in the opinion of the Board of Directors,
result in Realty being unable to conform to the requirements of said
26
<PAGE>
Section 856(a)(5) and (6). The purchase price for the shares of stock purchased
pursuant hereto shall be equal to the fair market value of such shares as
reflected in the closing price for such shares on the principal stock exchange
on which such shares are listed or, if such shares are not listed, then the last
bid quotation for shares of stock as of the close of business on the date fixed
by the Board of Directors for such purchase or, if no quotation for the shares
is available, as determined in good faith by the Board of Directors. From and
after the date fixed for purchase by the Board of Directors, the holder of any
shares so called for purchase shall cease to be entitled to dividends, voting
rights and other benefits with respect to such shares excepting only the right
to payment of the purchase price fixed as aforesaid. In order to further assure
that ownership of the shares of stock does not become so concentrated, any
transfer of shares that would prevent Realty from continuing to be qualified as
a real estate investment trust by virtue of the application of Section 856(a)(5)
and (6) of the Code shall be void ab initio and the intended transferee of such
-- ------
shares shall be deemed never to have had an interest therein. If the foregoing
provision is determined to be void or invalid by virtue of any legal decision,
statute, rule or regulation, then the transferee of such shares shall be deemed
to have acted as agent on behalf of the Corporation in acquiring such shares and
to hold such shares on behalf of the Corporation. For purposes
27
<PAGE>
of determining whether the Corporation is in compliance with Section 856(a)(5)
and (6), Section 542(a)(2) and Section 544 of the Code, or similar provisions of
successor statutes, shall be applied.
(d) In addition to the requirements of subparagraph (c) above, if the
Board of Directors shall at any time and in good faith be of the opinion that
direct or indirect ownership of shares of either common stock or preferred
stock, or both, of the Corporation has or may become concentrated to an extent
which would cause any rent to be paid to Realty to fail to qualify or be
disqualified as rent from real property by virtue of Section 856(d)(2)(B) of the
Code, or similar provisions of successor statutes, pertaining to the
qualification of Realty as a real estate investment trust, the Board of
Directors shall have the power (i) by lot or other means deemed equitable by
them to call for purchase from any stockholder of the Corporation such number of
shares sufficient in the opinion of the Board of Directors to maintain or bring
the direct or indirect ownership of shares of stock of the Corporation into
conformity with the requirements of Section 856(d)(2)(B) pertaining to Realty
and (ii) to refuse to register the transfer of shares of stock to any person
whose acquisition of such shares would, in the opinion of the Board of
Directors, result in Realty being unable to conform to the requirements of said
Section 856(d)(2)(B). The purchase price for the shares of
28
<PAGE>
stock purchased pursuant hereto shall be equal to the fair market value of such
shares as reflected in the closing price for such shares on the principal stock
exchange on which such shares are listed, or if such shares are not listed, then
the last bid quotation for shares of stock, as of the close of business on the
date fixed by the Board of Directors for such purchase or, if no quotation for
the shares is available, as determined in good faith by the Board of Directors.
From and after the date fixed for purchase by the Board of Directors, the
holders of any shares so called for purchase shall cease to be entitled to
dividends, voting rights and other benefits with respect to such shares,
excepting only the right to payment of the purchase price fixed as aforesaid.
In order to further assure that ownership of the shares of stock does not become
so concentrated, any transfer of shares that would prevent Realty from
continuing to be qualified as a real estate investment trust by virtue of the
application of Section 856(d)(2)(B) of the Code shall be void ab initio and the
-- ------
intended transferee of such shares shall be deemed never to have had an interest
therein. If the foregoing provision is determined to be void or invalid by
virtue of any legal decision, statute, rule or regulation, then the transferee
of such shares shall be deemed to have acted as agent on behalf of the
Corporation in acquiring such shares and to hold such shares on behalf of the
Corporation. For purposes of determining whether this Corporation is in
compliance
29
<PAGE>
with Section 856(d)(2)(B), Section 856(d)(5) of the Code, or similar provisions
of successor statutes, shall be applied.
(e) The stockholders of the Corporation shall upon demand disclose to the
Board of Directors in writing such information with respect to their direct and
indirect ownership of the stock of the Corporation as the Board of Directors
deems necessary to determine whether Realty satisfies the provisions of Section
856(a)(5) and (6) and 856(d) of the Code and the regulations thereunder as the
same shall be from time to time amended, or to comply with the requirements of
any other taxing authority.
Section 6.6. Form of Consideration. In purchasing such shares from any
---------------------
shareholder in accordance with the foregoing provisions, the Corporation may pay
consideration in the form of cash or, at the option of the Board of Directors,
in the form of subordinated indebtedness of the Corporation. The principal
amount of such subordinated indebtedness shall be equal to the purchase price of
the shares (less amounts paid in cash, if any) and it shall have such other
terms as may be determined by the Board of Directors at the time of issuance.
Section 6.7. Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any
30
<PAGE>
adjournment thereto, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6.8. Registered Stockholders. The Corporation shall be entitled
-----------------------
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
Section 6.9. Transfer Agents and Registrars. The Board of Directors may
------------------------------
appoint one or more corporate transfer agents and registrars.
31
<PAGE>
Section 6.10. Dividends. Dividends upon the capital stock of the
---------
Corporation may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock.
Section 6.11. Reserves. Before payment of any dividend, there may be set
--------
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE VII
Indemnification and Insurance
Section 7.1. Right to Indemnification. Each person who was or is a party
------------------------
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal represen-
32
<PAGE>
tative, is or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action or inaction in an official
capacity or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by the laws of Delaware, as the same exist or may
hereafter be amended, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in Section 7.2
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Article shall
be a contract right and shall include the right to be paid by the Corporation
the expenses
33
<PAGE>
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law requires, the
payment of such expenses incurred by a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
Section 7.2. Right of Claimant to Bring Suit. If a claim under Section
-------------------------------
7.1 of this Article is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to
34
<PAGE>
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Delaware law for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met such standard of conduct, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such standard of conduct, shall be a defense to the action or create a
presumption that the claimant has failed to meet such standard of conduct.
Section 7.3. Non-Exclusivity of Rights. The right to indemnification and
-------------------------
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
35
<PAGE>
Section 7.4. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.
Section 7.5. Expenses as a Witness. To the extent that any director,
---------------------
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.
Section 7.6. Indemnity Agreements. The Corporation may enter into
--------------------
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Delaware law.
36
<PAGE>
ARTICLE VIII
General Provisions
Section 8.1. Annual Reports. Not later than one hundred twenty (120) days
--------------
after the close of each fiscal year of the Corporation, the Board of Directors
shall mail a report of the business and operation of the Corporation during such
fiscal year to the stockholders. The report shall be in such form and have such
content as the Board deems proper. This report shall include a balance sheet
and a statement of income and surplus and a statement of changes in financial
position of the Corporation. Such financial statements shall be accompanied by
the report of an independent certified public accountant thereon.
Section 8.2. Quarterly Reports. Within 90 days after the close of each of
-----------------
the first three quarters of each fiscal year of the Corporation, the Board of
Directors shall send interim reports to the stockholders, having such form and
content as the Board of Directors deems proper.
Section 8.3. Fiscal Year. The fiscal year of the Corporation shall be
-----------
fixed by resolution of the Board of Directors.
37
<PAGE>
Section 8.4. Seal. The corporate seal shall have inscribed thereon the
----
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
Section 8.5. Checks, Drafts, etc. All checks, drafts or other orders for
--------------------
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
Section 8.6. Representation of Shares of Other Corporations. The Chairman
----------------------------------------------
of the Board, the President or any Vice President and the Secretary or Assistant
Secretary of this Corporation are authorized to vote, represent and exercise on
behalf of this Corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this Corporation. The
authority herein granted to said officers to vote or represent on behalf of this
Corporation any and all shares held by this Corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
38
<PAGE>
Section 8.7. Employee Stock Purchase Plans. The Corporation may, upon
-----------------------------
terms and conditions herein authorized, provide and carry out an employee stock
purchase plan or plans providing for the issue and sale, or for the granting of
options for the purchase, of its unissued shares, or of issued shares purchased
or to be purchased or acquired, to employees of the Corporation or of any
subsidiary or to a trustee on their behalf. Such plan may provide for such
consideration as may be fixed therein, for the payment of such shares in
installments or at one time and for aiding any such employees in paying for such
shares by compensation for services or by loans from the Corporation or
otherwise. Any such plan before becoming effective must be approved or
authorized by the Board of Directors of the Corporation.
Such plan may include, among other things, provisions determining or
providing for the determination by the Board of Directors, or any committee
thereof designated by the Board of Directors, of: (a) eligibility of employees
(including officers and directors) to participate therein, (b) the number and
class of shares which may be subscribed for or for which options may be granted
under the plan, (c) the time and method of payment therefor, (d) the price or
prices at which such shares shall be issued or sold, (e) whether or not title to
the shares shall be reserved to the Corporation until full payment therefor, (f)
the effect of the death of an employee participating in the plan or
39
<PAGE>
termination of his employment, including whether there shall be any option or
obligation on the part of the Corporation to repurchase the shares thereupon,
(g) restrictions, if any, upon the transfer of the shares, and the time limits
and termination of the plan, (h) termination, continuation or adjustments of the
rights of participating employees upon the happening of specified contingencies,
including increase or decrease in the number of issued shares of the class
covered by the plan without receipt of consideration by the Corporation or any
exchange of shares of such class for stock or securities of another corporation
pursuant to a reorganization or merger, consolidation or dissolution of the
Corporation, (i) amendment, termination, interpretation and administration of
such plan by the Board of Directors or any committee thereof designated by the
Board of Directors, and (j) any other matters, not repugnant to law, as may be
included in the plan as approved or authorized by the Board of Directors or any
such committee.
ARTICLE IX
Amendments
Section 9.1. Power of Stockholders. New By-laws may be adopted or these
---------------------
By-laws may be amended or repealed by the stockholders only by the affirmative
vote of at least 80% of the voting power of the Corporation, except as
40
<PAGE>
otherwise provided by law. Any proposal to amend or repeal, or adopt any
provisions inconsistent with, Article Tenth of the Certificate of Incorporation
shall require for approval the affirmative vote of at least 80% of the voting
power of the Corporation.
Section 9.2. Power of Directors. Subject to the right of stockholders as
------------------
provided in Section 9.1 of this Article IX to adopt, amend or repeal By-laws,
By-laws may be adopted, amended or repealed by the Board of Directors; provided,
however, that Section 6.5 of these By-laws may not be amended or repealed except
with the approval of the holders of 80% of the outstanding common stock of the
Corporation.
41
<PAGE>
EXHIBIT 4.4
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
This amendment is entered into as of May 31, 1995 between First Interstate Bank
of California ("Bank") and Santa Anita Realty Enterprises, Inc. ("Borrower"):
Recitals
--------
A. Bank and Borrower entered into a certain Credit Agreement dated November
9, 1994 (the "Agreement").
B. Bank and Borrower desire to amend the Agreement as set forth below.
Agreement
---------
1. Section 6.02(h) is hereby amended to read:
(h) Dividends, Etc. Declare or pay dividends, purchase or otherwise
---------------
acquire for value its capital stock now or hereafter outstanding, or make
a distribution of assets to its stockholders, or permit any of its
Subsidiaries to purchase or otherwise acquire for value any stock of
Borrower, except that Borrower may (i) declare and deliver dividends and
distributions payable in capital stock of Borrower, (ii) acquire
restricted shares of paired common stock pursuant to Borrower's 1995
Share Aware Plan that are returned to Borrower pursuant to the terms of
such plan and (iii) declare or pay cash dividends to its stockholders in
an aggregate amount not to exceed, in any twelve (12) month period
commencing on or after July 1, 1994, the greater of (A) the amount
determined by multiplying $0.80 per share times the number of all of
Borrower's outstanding shares, or (B) the minimum amount necessary to
maintain Borrower's status as a real estate investment trust or to
avoid the imposition of federal income tax or excise tax on Borrower.
2. All other terms of the Agreement as amended or modified in writing remain
in full force and effect.
In Witness Whereof, the parties hereto have executed this Amendment as of the
day and year first written above.
First Interstate Bank of California Santa Anita Realty Enterprises, Inc.
By: /s/ Jutta S. Graham By: /s/ Brian L. Fleming
----------------------------- -----------------------------
Title: Vice President Title: Executive VP & CFO
----------------------------- -----------------------------
<PAGE>
EXHIBIT 4.5
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement is entered into on the 26th day
of January, 1996, by and among SANTA ANITA REALTY ENTERPRISES, INC., a
California corporation ("Borrower") and FIRST INTERSTATE BANK OF CALIFORNIA, a
California banking corporation ("Lender") with reference to the following:
RECITALS
A. Borrower and Lender previously entered into that certain Credit
Agreement, dated November 9, 1994, as amended by that certain First Amendment
thereto, dated May 31, 1995 (jointly, the "Agreement").
B. Borrower and Lender wish to further amend the Agreement, subject
to all the terms and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. The term "Maturity Date," as defined in Section 1.01 is hereby
deleted in its entirety and the following substituted therefor:
"Maturity Date": June 30, 1996.
-------------
2. The term "Revolving Commitment," as defined in Section 1.01 is
hereby deleted in its entirety and the following substituted therefor:
"Revolving Commitment": For the period of time from and including
--------------------
January 26, 1996, through and including June 30, 1996, the amount
of $20,000,000, as such amount may be reduced pursuant to Section
2.01 (d).
3. A new Section 5.01 (I) is hereby added to the Agreement to read as
follows:
(I) Borrower operates as a real estate investment trust
under the provisions of the Internal Revenue Code of 1986, as
amended ("Code"), and Borrower has complied with any and all
conditions and requirements to maintain its status as a REIT under
the Code.
<PAGE>
4. Section 6.01 (a)(vii) is hereby deleted in its entirety and the
following substituted therefor:
"(vii) as soon as practicable, and in any event within 30
days after the end of each fiscal year, commencing with the fiscal
year ended December 31, 1995, projected consolidated balance
sheets and statements of operations (or comparable statements) and
cash flows of the Borrower, its Subsidiaries, and for Operating
Company, all in form and detail acceptable to the Bank; and"
5. A new section 6.01 (h) is hereby added to the Agreement to read as
follows:
(h) Mandatory Loan Repayment Upon Transfer of Certain
-------------------------------------------------
Real Property. Immediately, upon each sale, conveyance, grant,
-------------
lease contribution, assignment or transfer (collectively "Transfer")
of all or any portion of Borrower's interest in all or any of the
real property described in Exhibit "6.02(h)" attached hereto and
incorporated herein, deliver all of Borrower's proceeds from any and
all Transfers to Lender. All proceeds delivered to Lender shall be
applied to the payment of any and all outstanding Loans, which
proceeds shall first be applied to any and all fees or charges
thereunder, then to accrued but unpaid interest on the Loans and
then to principal. After full payment of all amounts outstanding
under any Loans, including, without limitation, fees accrued
interest and principal, any excess proceeds received by Lender shall
be returned to Borrower.
6. A new Section 6.01 (i) is hereby added to the Agreement to read as
follows:
(i) Mandatory Loan Repayment Upon Transfer of Certain
-------------------------------------------------
Stock. Immediately, upon each sale, conveyance, grant, lease,
-----
contribution, assignment or transfer (collectively "Stock Transfer")
of all or any portion of Borrower's interest in all or any of the
outstanding securities issued by Pacific Gulf Properties, Inc., a
Maryland corporation, or its successors and assigns, deliver all of
Borrower's proceeds from any and all Stock Transfer to Lender. All
proceeds delivered to Lender shall be applied to the payment of any
and all outstanding Loans, which proceeds shall first be applied to
any and all fees or charges thereunder, then to accrued but unpaid
interest on the Loans and then to principal. After full payment of
all amounts outstanding under any Loans, including, without
limitation, fees, accrued interest and principal, any excess
proceeds received by Lender shall be returned to Borrower.
7. Section 6.02 (a) is hereby deleted in its entirety.
<PAGE>
8. Section 6.02 (b) is hereby deleted in its entirety and the
following substituted therefore:
(b) (i) Leverage Ratio I.
----------------
(1) For the period ending December 31, 1995, permit the
ratio of Consolidated Liabilities to Consolidated Tangible Net
Worth at any time to be more than 4.25:1.00; and
(2) For the period commencing January 1, 1996 through
March 31, 1996, permit the ratio of Consolidated Liabilities to
Consolidated Tangible Net Worth at any time to be more than
3.75:1.00; and
(3) For the period commencing April 1, 1996 and
thereafter, permit the ratio of Consolidated Liabilities to
Tangible Net Worth at any time to be more than 3.5:1.00.
(ii) Leverage Ratio II.
-----------------
(1) For the period ending December 31, 1995, permit the
ratio of Consolidated Liabilities (less the total liabilities of
Anita Associates, a California limited partnership ("Anita") to
Consolidated Tangible Net Worth (as adjusted for the assets and
liabilities of Anita, such adjustment to be approved by Lender)
at any time to be more than 2.75:1.00; and
(2) For the period commencing January 1, 1996 through
March 31, 1996, permit the ratio of Consolidated Liabilities (less
the total liabilities of Anita) to Consolidated Tangible Net
Worth (as adjusted for the assets and liabilities of Anita, such
adjustment to be approved by Lender), at any time to be more than
2.5:1.00.
(3) For the period commencing April 1, 1996 and
thereafter, permit the ratio of Consolidated Liabilities (less
the total liabilities of Anita) to Consolidated Tangible Net
Worth (as adjusted for the assets and liabilities of Anita, such
adjustment to be approved by Lender) at any time to be more than
2.0:1.00.
9. Section 2 (c) is hereby deleted in its entirety and the following
substituted therefor:
(c) Interest Coverage Ratio. As at the end of any
-----------------------
quarter of the Borrower, permit the ratio of (i) Consolidated
Cash Flow (less non-cash income) for the four quarters ending on
any
<PAGE>
date of determination, to (ii) interest expense plus the current
portion of long term debt, for such four quarters, to be less than
2.00:1.00.
10. In Section 6.02 (d), the number "$60,000,000" is hereby deleted and
substituted with the number "$26,000,000."
11. Borrower hereby represents and warrants to Lender that as of the
date of this Second Amendment, Borrower operates and is qualified to operate as
a real estate investment trust under the provisions of the Internal Revenue Code
of 1986, as amended ("Code"), and Borrower has complied with any and all
conditions and requirements to maintain its status as a REIT under the Code.
12. Borrower specifically covenants that as of the date of this Second
Amendment, Borrower is not in default under any of the terms and conditions
contained in the Agreement.
13. Except as specifically amended in this Second Amendment or to the
extent necessary to be consistent with the provisions of this Second Amendment,
the Agreement shall continue in full force and effect and be binding upon
Borrower and Lender notwithstanding the execution and delivery of this Second
Amendment.
IN WITNESS WHEREOF, the parties hereto have duly executed this Second
Amendment as of the day and year first hereinabove written.
SANTA ANITA REALTY ENTERPRISES, INC.,
a California corporation
By: /s/ Brian L. Fleming
----------------------------------------
Its: Executive VP and CFO
----------------------------------------
FIRST INTERSTATE BANK OF CALIFORNIA,
a California banking corporation
By: /s/ Jutta S. Graham
----------------------------------------
Its: Vice President
----------------------------------------
<PAGE>
EXHIBIT 10.39
REPAYMENT GUARANTY
------------------
THIS REPAYMENT GUARANTY (the "Guaranty") is executed as of the 18th
day of May, 1990 by SANTA ANITA REALTY ENTERPRISES, INC., a Delaware corporation
("Guarantor"), for the benefit of THE MITSUBISHI BANK, LIMITED ("Lender"), with
reference to the following facts:
A. Pursuant to that certain Building Loan Agreement of even date
herewith (the "Loan Agreement"), Lender has agreed to lend up to $170,000,000
(the "Loan") to Towson Town Center, Inc., a Delaware corporation ("Borrower"),
to enable Borrower to advance such funds to Towson Town Center Associates, a
Maryland general partnership ("Owner"), to allow Owner to finance (i) repayment
of certain acquisition costs, (ii) rehabilitation, (iii) construction and
(iv) expansion of an existing regional shopping mall located on approximately
twenty-eight (28) acres of land at the intersection of Fairmount Avenue,
Dulaney Valley Road, and Joppa Road, in Baltimore County, State of Maryland
("Property"). The Loan is evidenced by a Promissory Note of even date herewith
in the principal amount of the Loan (the "Note"), repayment of which is secured
by, among other things, a Secured Guaranty of even date herewith from the Owner
for the benefit of the Lender. The Secured Guaranty is secured by an Indemnity
Deed of Trust and Security Agreement and Assignment of Leases and Rents of even
date herewith from the Owner for the benefit of the Lender, encumbering the
Property ("Deed of Trust"). In connection with the Loan, Lender shall also issue
from time to time a letter or letters of credit in an amount not to exceed
$170,000,000 (the "Letter of Credit"), to support the sale of commercial paper
by Borrower pursuant to the terms of that certain Credit Facility and
Reimbursement Agreement ("Reimbursement Agreement"), and other documents
referred to therein. The proceeds from the sale of commercial paper will be used
by Borrower for the same purposes set forth above with respect to Loan proceeds.
The maximum amount of proceeds available under the Loan Agreement and the
Reimbursement Agreement shall not, at any one time, exceed $170,000,000, unless
expressly authorized by Lender. (The Note, the Loan Agreement, the Letter of
Credit, the Reimbursement Agreement, the Secured Guaranty, the Deed of Trust and
all documents and instruments executed by Borrower, Owner, Guarantor, or any
other guarantor as described below in connection with the Loan and the Letter of
Credit are herein collectively referred to as "Loan Documents.")
B. As a condition to the making of the Loan and to the issuance of
the Letter of Credit, Lender has required that (i) Guarantor guarantee the
obligations of Borrower and Owner
<PAGE>
in accordance with the terms of this Guaranty, (ii) ERNEST W. HAHN, INC., a
California corporation d/b/a THE HAHN COMPANY, also jointly and severally
guarantee the obligations of Borrower and Owner in accordance with the terms of
that certain Repayment Guaranty of even date herewith and (iii) DECHIARO
ASSOCIATES, a Maryland general partnership, also jointly and severally (but up
to a limited principal amount) guarantee the obligations of Borrower and Owner
in accordance with the terms of that certain Limited Repayment Guaranty of even
date herewith.
NOW, THEREFORE, in consideration of Lender's agreement to make the
Loan and issue the Letter of Credit, and as an inducement to Lender to do so,
Guarantor covenants and agrees with Lender, for the benefit of the holder from
time to time of the Note, and the issuer of the Letter of Credit, as follows:
ARTICLE I. REPRESENTATIONS AND WARRANTIES
------------------------------
Guarantor makes the following representations and warranties which
shall be continuing representations and warranties until this Guaranty expires
in accordance with the provisions contained herein:
1.01. Existence and Rights. Guarantor is a corporation duly
--------------------
incorporated and validly existing under the laws of the State of Delaware
without limitation as to the duration of its existence and is in good standing.
Guarantor has corporate powers and adequate authority, rights and franchises to
own its property and to carry on its business as now owned and carried on and is
duly qualified and in good standing in each jurisdiction in which the property
owned by it or the business conducted by it makes such qualification necessary,
and Guarantor has the corporate power and adequate authority to make and carry
out this Guaranty.
1.02. Guaranty Authorized and Binding. The execution, delivery and
-------------------------------
performance of this Guaranty are duly authorized and do not require the consent
or approval of any governmental body or other regulatory authority; are not in
contravention of, or in conflict with, any law or regulation or any term or
provision of the Articles of Incorporation or Bylaws of Guarantor; and this
Guaranty is a valid and legally binding obligation of Guarantor enforceable in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency and other similar laws affecting
the rights of creditors generally.
1.03. No Conflict. The execution and delivery of this Guaranty are
-----------
not, and the performance of this Guaranty
2
<PAGE>
will not be, in contravention of, or in conflict with, any agreement, indenture
or undertaking to which Guarantor is a party or by which it or any of its
property is or may be bound or affected and do not, and will not cause any
security interest, lien or other encumbrance to be created or imposed upon any
such property.
1.04. Litigation. There is no litigation or other proceeding
----------
pending or, to the best knowledge of Guarantor, threatened against, or
affecting, it or its properties which, if determined adversely to Guarantor,
would have a materially adverse effect on the financial condition, properties,
businesses or operations of Guarantor or which prevents or interferes with or
adversely affects Guarantor's entering into this Guaranty or the validity of
this Guaranty or the carrying out of the terms hereof, and Guarantor is not in
default with respect to any order, writ, injunction, decree or demand of any
court or other governmental or regulatory authority.
1.05. Financial Condition. Guarantor's financial statements,
-------------------
dated December 31, 1989, which have heretofore been submitted in writing by
Guarantor to Lender in connection herewith, are true and correct and fairly
present the financial condition of Guarantor for the period covered thereby.
Since the date of said financial statements, there has been no materially
adverse change in Guarantor's financial condition. Guarantor has no knowledge
of any material liabilities, contingent or otherwise, as of the date of said
financial statements which are not reflected in said financial statements; and,
Guarantor has not entered into any commitments or contracts which may have a
materially adverse effect upon its financial condition, operations or business
as now conducted. Said financial statements reflect a net worth of Guarantor,
determined in accordance with generally accepted accounting principles
consistently applied, of approximately $105,000,000.
1.06. Solvency. The execution and delivery of this Guaranty will
--------
not (i) render Guarantor insolvent under generally accepted accounting
principles nor render it insolvent (as defined below), (ii) leave Guarantor with
remaining assets which constitute unreasonably small capital given the nature of
Guarantor's business, and (iii) result in the incurrence of Debts beyond
Guarantor's ability to pay them when and as they mature. For the purposes of
this Section, "Insolvent" means that the present fair salable value of assets
is less than the amount that will be required to pay the probable liability on
existing Debts as they become absolute and matured. For the purposes of this
Section, "Debts" include any legal liability for indebtedness, whether matured
or unmatured, liquidated or unliquidated, absolute, fixed or contingent.
3
<PAGE>
1.07. Financial or other Benefit or Advantage.
---------------------------------------
Guarantor hereby acknowledges and warrants that it has derived or expects to
derive a financial or other benefit or advantage from the Loan and from each
and every renewal, extension, release of collateral or other relinquishment of
legal rights made or granted or to be made or granted by Lender to Borrower or
Owner in connection with the Loan.
ARTICLE II. AGREEMENTS
----------
2.01. Guaranty. Guarantor hereby unconditionally and irrevocably
--------
guarantees (a) the due and punctual payment of the Guaranteed Debt (as defined
---------------
in Section 2.02), as reduced from time to time in accordance with Sections 2.02,
2.03 or 2.04 hereof and (b) the full and faithful performance by Borrower of the
payment obligations arising pursuant to Section 1.15 of the Loan Agreement (the
"Guaranteed Obligations"). This is a guaranty of payment and performance and
not of collection only.
2.02. Guaranteed Debt.
---------------
(a) Prior to the date of Completion (as defined in the Loan
Agreement), and thereafter if there is either an Event of Default (as defined in
the Loan Agreement) existing as of the date of Completion or an event or
condition existing as of the date of Completion which, but for the giving of
notice or lapse of time, or both, would constitute an Event of Default, and such
Event of Default, event or condition is continuing, the term "Guaranteed Debt"
means all amounts due under the Note and all monetary payments required to be
made under the Loan Documents, as such documents may be modified, extended or
otherwise amended, other than Guaranteed Obligations.
(b) After the date of Completion, and provided no Event of Default
or event or condition which, but for the giving of notice or lapse of time or
both, would constitute an Event of Default under the Loan Agreement, exists as
of the date of Completion and is continuing, the term "Guaranteed Debt" means
principal, interest, Administration Fees (as defined in the Reimbursement
Agreement), late charges, default interest and breakage fees due or to become
due pursuant to the Note or Reimbursement Agreement, or any interest rate swap
agreement hereafter executed by Borrower, as such documents may be modified,
extended or otherwise amended (including with respect to breakage fees all costs
and charges payable in accordance with the Note in the event of voluntary or
involuntary prepayment of any Eurodollar borrowing, any interest rate swap
agreement as referred to in Section 2.03(b) hereof, or any interest rate
protection product obtained from Lender).
4
<PAGE>
"Guaranteed Debt," as such term is used in this subsection, is subject to
reduction from time to time in accordance with Sections 2.02(c)-(e), 2.03, and
2.04.
(c) After (i) one (1) year after the date of Completion (as such term
is defined in the Loan Agreement), but in no event prior to January 1, 1993, and
(ii) Nordstrom and Hecht's (or a similar replacement anchor approved by Lender
in accordance with the Loan Agreement), have each executed a Reciprocal Easement
Agreement in form and substance approved by Lender in accordance with the Loan
Agreement (the "REA"), which REA is then recorded in the Land Records of the
Baltimore County Recorder's office, and each is in full occupancy and open for
business on its respective site in accordance with the provisions of said REA,
and (iii) provided no Event of Default (as such term is defined in the Loan
Agreement), or event or condition which, but for the lapse of time or giving of
notice, or both, would become an Event of Default under the Loan Agreement, is
then existing and continuing, Guarantor may on an annual (calendar year) basis
upon written notice to Lender on or prior to April 30 in any year at least one
(1) year following the Completion Date (or semi-annual basis as set forth in
Section 2.02(d) hereof) request a reduction in Guaranteed Debt. Concurrently
with such notice, Guarantor shall furnish or cause to be furnished an audited
financial statement reasonably acceptable to Lender for the Property covering
the prior fiscal year, from Deloitte and Touche or another nationally
recognized public accounting firm reasonably acceptable to Lender. Within
fifteen (15) business days thereafter, Lender shall notify Guarantor in writing
if any reduction in the principal component of Guaranteed Debt is warranted in
accordance with the formula set forth below by furnishing to Guarantor a
certificate specifying the new principal component of Guaranteed Debt and the
effective date of such reduction. If a reduction of the principal component of
Guaranteed Debt is warranted, such reduction shall be retroactive to the first
day of the fiscal year following the year with respect to which the calculations
were made. If a reduction in Guaranteed Debt is not warranted, Lender shall
notify Guarantor in writing within such fifteen (15) business day period, which
notice shall state the reasons that the reduction is not warranted. Reductions
in the principal component of Guaranteed Debt shall be determined by multi-
plying $170,000,000 by a fraction, the numerator of which is the Annual
Audited Cash Flow (as hereinafter defined), for the prior fiscal year and
the denominator of which is the Annual Pro Forma Cash Flow Projection (as
hereinafter defined), for such prior fiscal year. The difference obtained by
subtracting the product of such formula from $170,000,000 shall be principal
component of Guaranteed Debt; provided, however, in no event shall the
principal component of Guaranteed Debt be
5
<PAGE>
reduced below the principal amount of $25,000,000 pursuant to this Section
2.02(c) until such time as the conditions set forth in Section 2.03 have been
fully satisfied. Guaranteed Debt shall be rounded up to the nearest $1,000.
For example, if Annual Audited Cash Flow in 1992 is $9,000,000, and
Annual Pro Forma Cash Flow is $11,500,000, the reduction in the principal
component of Guaranteed Debt effective as of January 1, 1993 (assuming a
calendar fiscal year), would be determined as follows:
$ 9,000,000 x $170,000,000 = $133,043,478.30 reduction
------------
$ 11,500,000
$170,000,000 - $133,043,478.30 = $36,956,521.70
The principal component of Guaranteed Debt under the foregoing example
is $36,957,000.00.
If, on the other hand, Annual Audited Cash Flow in 1992 is
$11,000,000, and Annual Pro Forma Cash Flow is $11,500,000, the $25,000,000
minimum would apply (unless the conditions set forth in Section 2.03 have been
fully satisfied), and the reduction in the principal component of Guaranteed
Debt effective as of January 1, 1993 would be determined as follows:
$ 11,000,000 x $170,000,000 = $162,608,695.60 reduction
------------
$ 11,500,000
$170,000,000 - $162,608,695.60 = $7,391,304.40
but $7,391,304.40 is less than $25,000,000, so the principal component of
Guaranteed Debt under the foregoing example is $25,000,000.
By way of further example, if Audited Annual Cash Flow in 1993 is
$13,000,000 Annual Pro Forma Cash Flow is $15,850,000, the reduction in the
principal component of Guaranteed Debt effective as of January 1, 1994, would
be determined as follows:
$ 13,000,000 x $170,000,000 = $139,432,176.60 reduction
------------
$ 15,850,000
$170,000,000 - $139,432,176.60 = $30,567,823.40
The principal component of Guaranteed Debt under the foregoing example
is the lesser of $30,568,000.00, or the principal component of Guaranteed Debt
in the prior fiscal year.
6
<PAGE>
(d) Commencing eighteen (18) months after the Completion Date, but no
earlier than July 1, 1993, and continuing thereafter until Guaranteed Debt is
reduced to zero, provided the conditions for reduction set forth in subsection
2.02(c)(i)-(iii) above have been satisfied, Guarantor may at its election upon
written notice to Lender request semi-annual reductions in Guaranteed Debt
based upon periods of operations from January 1 through June 30, and July 1
through December 31, of each fiscal year. Concurrently with such notice,
Guarantor shall furnish or cause to be furnished an audited financial statement
acceptable to Lender for the Property covering the applicable six (6) month
period, from Deloitte and Touche or another nationally recognized accounting
firm reasonably acceptable to Lender. Within fifteen (15) business days
thereafter, Lender shall notify Guarantor in writing if any reduction in the
principal component of Guaranteed Debt is warranted in accordance with the
formula set forth below by furnishing to Guarantor a certificate specifying
the new principal component of Guaranteed Debt and the effective date of such
reduction. If a reduction in the principal component of Guaranteed Debt is
warranted, such reduction shall be retroactive to the first day of the semi-
annual period following the semi-annual period with respect to which the
calculations were made. If a reduction in Guaranteed Debt is not warranted,
Lender shall notify Guarantor in writing within such fifteen (15) business day
period, which notice shall state the reasons that the reduction is not
warranted. Reductions in the principal component of Guaranteed Debt shall be
determined by multiplying $170,000,000 by a fraction, the numerator of which
is the Semi-Annual Cash Flow (as hereinafter defined) for the applicable six
(6) month period and the denominator of which is the Semi-Annual Pro Forma Cash
Flow Projection (as hereinafter defined) for the applicable six (6) month
period. The difference obtained by subtracting the product of such formula
from $170,000,000 shall be the remaining principal component of Guaranteed
Debt; provided, however, in no event shall the principal component of
Guaranteed Debt be reduced below the principal amount of $25,000,000 pursuant
to this Section 2.02(d) until such time as the conditions set forth in Section
2.03 have been fully satisfied.
(e) Whenever Guarantor is entitled to a reduction in the principal
component of Guaranteed Debt, the guaranteed portion of interest, letter of
credit fees, default interest, late charges and breakage fees, if any, shall
likewise be reduced in the same proportion as the reduction in the principal
component of Guaranteed Debt.
7
<PAGE>
(f) Once reduced, but subject to the provisions of Section 2.05, the
principal component of Guaranteed Debt shall not subsequently be increased.
(g) "Annual Audited Cash Flow" or "Semi-Annual Audited Cash Flow"
shall mean the Net Cash Flow (as defined below) of the Property for the given
period, as applicable, as evidenced by an audit of the Property in form and
substance satisfactory to Lender and prepared by Deloitte and Touche or another
firm of independent public accountants of recognized standing reasonably
acceptable to Lender.
(h) "Gross Income" shall mean gross revenues determined on an accrual
basis in accordance with generally accepted accounting principles (including
deductions for bad debt and uncollected receivables) which revenues shall
include, without limitation, rentals, additional and percentage rents, revenues
received for common area maintenance charges and other expense pass-through
charges, lease extension and option payments, forfeited security deposits,
utilities, storage rental and other rental received from tenants occupying
leased space, garages or parking spaces located on the Property, and payments on
rentals received from concessionaires, licensees or lessees or from any source
whatsoever in connection with the operation of the Property, or any part thereof
for the period in question, but specifically excluding unforfeited security
deposits, Loan or commercial paper proceeds advanced to Owner by Borrower or any
other lender and any amounts paid by or for the account of Borrower, Guarantor,
or any other guarantor, or any third party affiliated with Borrower, Guarantor,
or any other guarantor except to the extent that such payments are for leased
space in the Property and do not exceed amounts that would be paid by
independent third parties for such space, or as otherwise specifically approved
by Lender, and specifically excluding accruals for delinquent rental amounts.
However, prior period Gross Income may be adjusted so as to include delinquent
rental amounts received during a subsequent period.
(i) "Operating Expenses" shall mean all disbursements actually made
or accrued in accordance with generally accepted accounting principles, or which
should have been made or accrued in the normal operation of the Property as a
first-class shopping center, plus tenant improvements amortized in accordance
with generally accepted accounting principles during the period in question, in
connection with the operations and maintenance of the Property in a first class
manner including but not limited to taxes, maintenance expenses, replacement
expenses, utility charges, insurance premiums, supplies, payroll expenses,
tenant improvement costs (amortized over the initial term of the lease for which
such tenant
8
<PAGE>
improvements have been made), unless such costs are funded from (A) the Loan or
(B) by Owner out of its own funds (and not funds from the Property) as a part of
the initial construction of the Property, capital expenditures (or reserves
therefor as agreed to in the Loan Agreement) amortized over their useful life in
accordance with generally accepted accounting principles consistently applied,
unless such costs are funded from (A) the Loan or (B) by Owner out of its own
funds (and not funds from the Property) as a part of the initial construction of
the Property, property management fees charged in accordance with property
management agreement for the Property or other agreement to be approved by
Lender, and all other amounts reasonably expended in connection with the
ownership, operation and maintenance of the Property for the period in question,
but excluding debt service.
(j) "Net Cash Flow" shall mean the difference obtained by subtracting
Operating Expenses from Gross Income, or zero, whichever is greater.
(k) As used herein, "Annual Pro Forma Cash Flow" or "Semi-Annual Pro
Forma Cash Flow" means for any given period in question the pro forma Net Cash
Flow shown in Exhibit "A" attached hereto.
2.03. Final Release of Obligation to Repay Guaranteed Debt.
-----------------------------------------------------
Reductions in the principal component of Guaranteed Debt below
$25,000,000 may be requested by Guarantor annually or semi-annually in
accordance with Section 2.02(c) or (d), but there shall be no reductions in the
principal component of Guaranteed Debt below $25,000,000 pursuant thereto unless
the following conditions apply:
(a) The principal component of Guaranteed Debt would be
below $25,000,000 pursuant to Sections 2.02(c) or 2.02 (d) but
for the existence of the $25,000,000 minimum guarantee provision
contained herein;
(b) Interest on 100% of the Loan (including, outstanding
commercial paper and amounts outstanding under the Reimbursement
Agreement) is payable by Borrower at a fixed rate or rates of
interest pursuant to an interest rate swap or swaps or similar
agreement or agreements obtained by Borrower and approved by
Lender for a period or periods all of which expire no earlier than
eighteen (18) months prior to the Maturity Date (as defined in the
Loan Agreement);
9
<PAGE>
(c) The Property has achieved a minimum debt coverage ratio
(i.e., annual Net Cash Flow to debt service) of not less than
1.15:1, based upon the actual fixed rate of interest obtained by
Borrower and the Annual Audited Cash Flow for the prior fiscal
year;
(d) A minimum of 90% of the gross rentable square footage
of the improvements constructed or to be constructed on the Property
pursuant to the Loan Agreement (excluding Anchors, as that term is
defined in the Loan Agreement) shall be leased to tenants in
occupancy and paying the full monthly rent required under the
terms of each tenant's respective lease;
(e) Hecht's and Nordstrom (or a similar replacement anchor
approved by Lender in accordance with the Loan Agreement) have
each executed the REA (which is to be recorded in the Land Records
of the Baltimore County Recorder's office) and each is in full
occupancy and open for business on its respective site in
accordance with the provisions of said REA;
(f) The minimum appraised value of the Property, as of the
date of reduction, as determined by an independent M.A.I.
appraiser employed by a nationally recognized appraisal firm
(such as Coldwell Banker, Cushman Wakefield, or any other
appraisal firm of similar nationally recognized standing)
selected by Lender, which appraisal shall be procured by Lender
upon request by Guarantor (which request may not be given more
frequently than Guarantor is permitted to request reductions
in the principal component of Guaranteed Debt), and paid for
by Guarantor or any other guarantor within thirty (30) days of
Lender's request and which appraisal results in a loan to value
ratio of not greater than 75% (for purposes of computing such
loan to value ratio, the term "loan" means the outstanding
balance of the Loan plus outstanding commercial paper together
with any other obligations secured by the Property if permitted
by Lender); and
(g) No Event of Default under any Loan Document (other than
any guaranty executed by DeChiaro Associates, a Maryland general
partnership), or event which with the lapse of time or giving
of notice, or both, would become an Event of Default under any
such Loan Document, shall have occurred and be continuing.
10
<PAGE>
Upon satisfaction of the foregoing conditions, the Guaranteed Debt shall be
reduced, or eliminated, as applicable, without further execution of any
additional documents or amendments hereto.
Notwithstanding anything herein to the contrary, including, without
limitation Section 2.04 below, in the event Guarantor successfully satisfies all
of the conditions set forth in Sections 2.03(b)-(g) inclusive, Guarantor may pay
to Lender the full amount of the Guaranteed Debt outstanding at such time of
payment, and thereafter be fully released from its obligations hereunder.
2.04. Application of Payments.
-----------------------
(a) All payments other than payments made by Guarantor or by any
other guarantor, whether by regular monthly installments, prepayments,
foreclosure proceeds or otherwise made on the Loan or pursuant to the
Reimbursement Agreement or other Loan Documents shall be credited, to the extent
of the amount thereof, in the following manner:
(i) First, to the payment of any costs or expenses incurred by
Lender in collecting amounts due pursuant to the Loan Documents including,
without limitation, late charges, default interest and attorneys' fees, as
provided in the Loan Documents, or costs incurred pursuant to the Deed of Trust;
(ii) Second, to that portion of accrued but unpaid interest, late
charges, any fees due under the Reimbursement Agreement and breakage fees as to
which Guarantor is not personally liable;
(iii) Third, to that portion of Guaranteed Debt then due and payable
other than the principal component of Guaranteed Debt;
(iv) Fourth, to that portion of the principal balance of debt as to
which Guarantor is not personally liable; and
(v) Fifth, to the principal component of Guaranteed Debt.
Lender may allocate such payments between the Note and the Reimbursement
Agreement or other Loan Documents as Lender in its sole discretion deems
appropriate.
11
<PAGE>
(b) Guarantor may at any time and from time to time, without premium
or penalty except to the extent otherwise stated in the Loan Documents,
elect to prepay or repay principal or interest on the Loan or repay
principal or interest evidenced by the Reimbursement Agreement or any other
sums due under the Loan Documents, provided, how-ever, that Lender shall
apply any payments received from Guarantor or from any other guarantor
(including, without limitation, payments received upon enforcement of this
Guaranty or any other guaranty) in the following order of priority:
(i) First, to the payment of costs or expenses incurred by Lender
pursuant to Section 3.01 hereof or pursuant to any similar section
included in a written guaranty agreement executed by Guarantor or any
other guarantor;
(ii) Second, to Guaranteed Obligations then due and payable, if
any;
(iii) Third, to that portion of Guaranteed Debt then due and
payable other than the principal compo-nent of Guaranteed Debt;
(iv) Fourth, to the principal component of Guar-anteed Debt;
provided, however, that notwithstanding the foregoing, in no event
shall the principal compo-nent of Guaranteed Debt be reduced below
$25,000,000 unless each of the conditions set forth in Section 2.03
has been satisfied, or the aggregate balance then outstanding under
the Loan Documents has been reduced to an equivalent level less than
$25,000,000, and Borrower has no further rights to reborrow
thereunder.
Subject to the foregoing, Lender may allocate such payments between
the Note and the Reimbursement Agreement or other Loan Documents as Lender
in its sole discretion deems appropriate.
2.05. Liability for Interest on Guaranteed Debt.
-----------------------------------------
Amounts paid in reduction of Guaranteed Obligations or that portion of
Guaranteed debt other than the principal component thereof shall not reduce the
principal component of Guaranteed Debt hereunder, and the principal component of
Guaranteed Debt shall likewise continue to bear interest in accordance with the
Loan Documents until paid in full.
12
<PAGE>
2.06. Obligations Absolute. The obligations of Guarantor hereunder
--------------------
shall remain in full force and effect without regard to, and shall not be
affected or impaired by the following, any of which may be taken without the
consent of, or notice to, Guarantor, nor shall any of the following give Guar-
antor any recourse or right of action against Lender:
(a) Any express or implied amendment, modification, renewal, addition,
supplement, extension (including, without limitation, extensions beyond
the original term) or acceleration of or to any of the Loan Documents;
(b) Any exercise or non-exercise by Lender of any right or privilege
under this Guaranty or any of the Loan Documents;
(c) Any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
Guarantor, Owner, or Borrower, or any other guarantor (which term shall
include any other party at any time directly or contingently liable for any
of the Borrower's obligations under the Loan Documents) or any affiliate of
Borrower or Owner, or any action taken with respect to this Guaranty by any
trustee or receiver, or by any court, in any such proceeding, whether or
not Guarantor shall have had notice or knowledge of any of the foregoing;
(d) Any release or discharge of the Borrower from its liability under
any of the Loan Documents or any release or discharge of any endorser,
Owner or any other guarantor or of any other party at any time directly or
contingently liable for the Guaranteed Debt or Guaranteed Obligations;
(e) Any subordination, compromise, release (by operation of law or
otherwise), discharge, compound, collection, or liquidation of any or all
of the Property or other collateral described in any of the Loan Documents
or otherwise in any manner, or any substitution with respect thereto;
(f) Any assignment or other transfer of this Guaranty in whole or in
part or of any of the Loan Documents;
(g) Any acceptance of partial payment of Guaranteed Debt or partial
performance of the Guaranteed Obligations;
13
<PAGE>
(h) Any consent to the transfer of the Property or any portion thereof
or any other collateral described in the Loan Documents or otherwise; and
(i) Any bid or purchase at any sale of the Property or any other
collateral described in the Loan Documents or otherwise.
2.07. Waivers. Guarantor unconditionally waives any defense to the
-------
enforcement of this Guaranty, including, without limitation:
(a) Except as provided in Section 3.05, below, all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty;
(b) Any right to require Lender to proceed against Borrower, Owner, or
any other guarantor at any time or to proceed against or exhaust any
security held by Lender at any time or to pursue any other remedy
whatsoever at any time;
(c) The defense of any statute of limitations affecting the liability
of Guarantor hereunder, the liability of Borrower, Owner, or any other
guarantor under the Loan Documents, or the enforcement hereof, to the
extend permitted by law;
(d) Any defense arising by reason of any invalidity or
unenforceability of any of the Loan Documents or any disability of
Borrower, Owner, or any other guarantor or of any manner in which Lender
has exercised its rights and remedies under the Loan Documents, or by any
cessation from any cause whatsoever of the liability of Borrower, Owner, or
any other guarantor;
(e) Any defense based upon an election of remedies by Lender,
including, without limitation, any election to proceed by judicial or
nonjudicial foreclosure of any security, whether real property or personal
property security, or by deed in lieu thereof, and whether or not every
aspect of any foreclosure sale is commercially reasonable, or any election
of remedies, including but not limited to remedies relating to real
property or personal property security, which destroys or otherwise impairs
the subrogation rights of Guarantor or the rights of Guarantor to proceed
against Borrower, Owner, or any other guarantor for reimbursement, or both;
14
<PAGE>
(f) Any duty of Lender to advise Guarantor of any information known to
Lender regarding the financial condition of Borrower or Owner or any other
guarantor and all other circumstances affecting Borrower's, Owner's or any
other guarantor's ability to perform its obligations to Lender, it being
agreed that Guarantor assumes the responsibility for being and keeping
informed regarding such condition or any such circumstances;
(g) Any rights of subrogation, reimbursement, exoneration,
contribution and indemnity, and any rights or claims of any kind or nature
against Borrower, Owner, or any other guarantor which arise out of or are
caused by this Guaranty, and any rights to enforce any remedy which Lender
now has or may hereafter have against Borrower, Owner, or any other
guarantor and any benefit of, and any right to participate in, any security
now or hereafter held by Lender, until all Guaranteed Debt and Guaranteed
Obligations have been fully paid and performed whereupon all such rights
shall be fully restored to Guarantor; and
(h) Without limiting the generality of the foregoing or any other
provision hereof, any rights and benefits which might otherwise be
available to Guarantor under applicable law; and
(i) Any defense based on failure of Lender to give notice of any
default hereunder or under any of the provisions of the Loan Documents,
and any indulgence with respect thereto, or failure to give any and all
other notices and demands which may otherwise be required by law to be
given or made.
2.08. Subrogation. Guarantor understands that the exercise by Lender
-----------
of certain rights and remedies may affect or eliminate Guarantor's right of
subrogation against Borrower, Owner, or any other guarantor and that Guarantor
may therefore incur partially or totally nonreimbursable liability hereunder.
Nevertheless, Guarantor hereby authorizes and empowers Lender, its successors,
endorsees and/or assigns, to exercise in its or their sole discretion, any
rights and remedies, or any combination thereof, which may then be available,
it being the purpose and intent of Guarantor that the obligations hereunder
shall be absolute, continuing, independent and unconditional under any and all
circumstances.
2.09. Additional Waivers. Guarantor shall not be released or
------------------
discharged, either in whole or in part, by Lender's failure or delay to
(i) perfect or continue the perfection of any lien or security interest in any
collateral which secures
15
<PAGE>
the obligations of the Borrower, Owner, Guarantor, or any other guarantor, or
(ii) protect the property covered by such lien or security interest.
2.10. Independent and Separate Obligations. The obligations of
------------------------------------
Guarantor hereunder are independent of the respective obligations of Borrower
and Owner and the other guarantors and, in the event of any default hereunder, a
separate action or actions may be brought and prosecuted against Guarantor
whether or not Guarantor is the alter ego of Borrower or any other guarantor and
whether or not Borrower or any other guarantor is joined therein or a separate
action or actions are brought against Borrower or any other guarantor; provided,
however, that as it may be reduced from time to time, the maximum liability of
all guarantors, collectively, shall not exceed the aggregate amount of the
Guaranteed Debt plus the Guaranteed Obligations except to the extent otherwise
specifically provided in Section 9.14 of the Loan Agreement or in the Note.
Lender's rights hereunder shall not be exhausted until all Guaranteed Debt has
and Guaranteed Obligations have been fully and finally paid and performed.
Subject to the provisions of this Section 2.10, the obligations of Guarantor and
any other guarantor of the Loan Documents, shall also be joint and several. Any
reductions in Guaranteed Debt or Guaranteed Obligations attributable to
payments received from other guarantors or attributable to the procedures set
forth in subsections 2.02(c), 2.02(d) or Section 2.03 hereof, regardless of
whether such reduction was requested by Guarantor or any other guarantor, shall
likewise reduce Guaranteed Debt or Guaranteed Obligations for which Guarantor
is liable, provided, however, that notwithstanding the foregoing, no payments
made by any other guarantor shall reduce Guaranteed Debt or Guaranteed Obliga
tions below $25,000,000 hereunder unless each of the conditions set forth in
Section 2.03 hereunder was satisfied (except as otherwise provided in Section
2.03) at the time such payment was received by Lender or otherwise as set forth
in Section 2.04(b)(iv).
2.11. Bankruptcy No Discharge; Repayments. So long as any of the
-----------------------------------
obligations guaranteed hereunder shall be owing to Lender, Guarantor shall not,
without the prior written consent of Lender, commence or join with any other
party in commencing any bankruptcy, reorganization or insolvency proceedings
of or against Borrower or Owner. Guarantor understands and acknowledges that by
virtue of this Guaranty, it has specifically assumed any and all risks of a
bankruptcy or reorganization case or proceeding with respect to Borrower or
Owner. As an example and not in any way of limitation, a subsequent modification
of the Guaranteed Debt or the Guaranteed Obligations in any reorganization case
concerning Borrower shall not
16
<PAGE>
affect the obligation of Guarantor to pay and perform the Guaranteed Debt and
the Guaranteed Obligations in accordance with their respective original terms.
If claim is ever made upon Lender for repayment of any amount or amounts
received by Lender in payment of the obligations under the Loan Documents which
are guaranteed hereunder and Lender repays all or any part of said amount, then,
notwithstanding any revocation or termination of this Guaranty or the
cancellation of the Note or any other instrument evidencing the Loan, or the
Reimbursement Agreement, Guarantor shall be and remain liable to Lender for the
amount so repaid to the same extent as if such amount had never originally been
received by Lender.
2.12. Setoff. Lender shall have a right of setoff against, and
------
Guarantor hereby grants a security interest in, all moneys, securities and other
property of Guarantor now or hereafter in the possession of, or on deposit with
Lender, whether held in a general or special account or deposit, or for
safekeeping or otherwise. Such right is in addition to any right of setoff
Lender may have by law. All rights of setoff may be exercised without notice or
demand to Guarantor. No right of setoff shall be deemed to have been waived by
any act or conduct on the part of Lender, or by any neglect to exercise such
right of setoff, or by any delay in doing so. Every right of setoff shall
continue in full force and effect until specifically waived or released by an
instrument in writing executed by Lender.
2.13. Subordination. In the event any default, or event which upon the
-------------
giving of notice or the lapse of time or both could become a default, shall
exist in the performance of the Loan Documents, any indebtedness of Borrower,
Owner, or any other guarantor now or hereafter held by Guarantor is hereby
subordinated to the obligations of Borrower, Owner, and such other guarantor
under the Loan Documents. If requested by Lender, such indebtedness shall be
collected, enforced and received by Guarantor as trustee for Lender and paid
over to Lender on account of the Loan Documents. However, no such payment shall
reduce or affect in any manner the absolute, unconditional and independent
liability of Guarantor hereunder except to the extent such payment is applied
against amounts due pursuant to the Loan Documents.
2.14. Payments. It is understood that the obligations of Borrower to
--------
Lender may at any time and from time to time exceed the aggregate liability of
Guarantor hereunder without impairing this Guaranty. Guarantor agrees that
whenever Guarantor shall make any payment to Lender hereunder on account of the
liability hereunder, Guarantor will deliver such payment to Lender at the
address provided in Section 3.07 below
17
<PAGE>
and notify Lender in writing that such payment is made under this Guaranty for
such purpose. It is understood that Lender, without impairing this Guaranty, may
apply payments from Borrower to the Guaranteed Debt or the Guaranteed
Obligations in such amounts and in such order as Lender in its complete dis-
cretion determines. No payment made hereunder by Guarantor to Lender shall
constitute Guarantor as a creditor of Lender.
2.15. Financial Statements. Guarantor covenants and agrees to provide
--------------------
Lender with its financial statements as required pursuant to Section 3.15(ii) of
the Loan Agreement. Guarantor further covenants and agrees to immediately notify
Lender of any material adverse change in Guarantor's financial condition.
2.16. Net Worth Maintenance. Guarantor covenants and agrees that until
---------------------
such time as Guaranteed Debt is reduced to zero, it will maintain net worth in
an amount not less than $80,000,000, as determined in accordance with Section
2.15, above.
ARTICLE III. MISCELLANEOUS
-------------
3.01. Expenses. Guarantor agrees to pay all costs and expenses,
--------
including reasonable attorneys' fees, which may be incurred by Lender in any
effort to collect or enforce any of the Loan Documents or the obligations of
Guarantor hereunder, whether or not any lawsuit is filed, including, without
limitation, all costs and attorneys' fees incurred by Lender in any bankruptcy
proceeding (including, without limitation, any action for relief from the
automatic stay of any bankruptcy proceeding) and in any judicial or nonjudicial
foreclosure action. Such amounts shall bear interest until paid at a rate equal
to the Default Rate as set forth in the Note.
3.02. Amendments; Successors. Neither this instrument nor any term
----------------------
hereof may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. All of the terms of this
instrument shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. The term "Borrower" shall mean both
the named Borrower and any other person or entity at any time assuming or
otherwise becoming primarily liable on all or any part of the obligations set
forth in the Loan Documents. No delay or failure by Lender to exercise any
remedy against Borrower, Owner, or Guarantor or any other guarantor will be
construed as a waiver of that right or remedy. All remedies of Lender are
cumulative. In the event that the provisions of this Guaranty are claimed or
held to be
18
<PAGE>
inconsistent with any other instrument evidencing or securing either the Loan,
the commercial paper reimbursement obligations, or the obligations of
Guarantor, the terms of this Guaranty shall remain fully valid and effective.
If Guarantor consists of more than one person or entity, the obligations here-
under shall be joint and several. When the context in which the words are used
in this Guaranty indicates that such is the intent, words in the singular number
shall include the plural and vice-versa. If any one or more of the provisions of
this Guaranty should be determined to be illegal or unenforceable, all other
provisions shall remain effective. The Guarantor shall not have the right to
assign any of its rights or obligations under this Guaranty.
3.03. Choice of Law and Choice of Forum.
---------------------------------
a. This Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and be governed by the law
of the State of New York, including both matters of internal law and con-
flict of laws. Any legal action or proceeding with respect to this
Agreement may be brought in the courts of the State of New York or of the
United States for the Southern District of New York, and, by execution and
delivery of this Agreement, each party hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each party hereto further
irrevocably consents to the service of process out of any of the afore-
mentioned courts in any such action by registered or certified mail,
postage prepaid, to the respective party at its address for notices
pursuant to this Agreement. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
b. Each party hereto hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement in the courts referred to in paragraph (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
19
<PAGE>
3.04. Assignability by Lender. Lender may, at any time and from time
-----------------------
to time, assign, conditionally or otherwise, all of the rights of Lender under
the Note and under this Guaranty, whereupon such assignee shall succeed to all
rights of Lender hereunder to the extent that such rights may be assigned to it.
Lender, or each successor holder of the Note, may give written notice to
Guarantor of any such assignment, but any failure to give, or delay in giving,
such notice shall not affect the validity or enforceability of any such
assignment.
3.05. Demands. Each demand by Lender for performance or payment
-------
hereunder shall be in writing and shall be made in the manner set forth in
Section 3.07 below. A dated statement signed by an officer of Lender setting
forth the amount of indebtedness at the time owing to Lender by Borrower under
the Loan Documents and the amount of Guaranteed Debt or Guaranteed Obligations
for which Guarantor is personally liable shall be conclusive evidence thereof as
between Guarantor and Lender in any legal proceedings against Guarantor in
connection with this Guaranty.
3.06. Term. The obligations of Guarantor under this Guaranty shall
----
continue in full force and effect until the earlier of (i) the obligations
under the Loan Documents shall have been fully paid and performed and Lender's
commitment to make advances under the Loan Documents shall have been terminated
or shall have expired or (ii) the date the Guaranteed Debt and the Guaranteed
Obligations have been finally reduced to zero.
3.07. Notices. All notices and demands hereunder shall be deemed to
----
have been duly given (except as set forth in Section 3.03, above) if personally
delivered or mailed by United States registered or certified mail, with return
receipt requested, postage prepaid, or sent by prepaid nationally recognized
air courier, to the parties at the following addresses (or at such other
addresses as shall be given by written notice by any party to the others) and
shall be deemed complete upon any such mailing:
To Guarantor: SANTA ANITA REALTY
ENTERPRISES, INC.
600 West Santa Ana Boulevard
Suite 950
Santa Ana, California 92701
Attention: Glen Carpenter
20
<PAGE>
With a copy to: Paone, Callahan, McHolm & Winton
19100 Von Karman, Suite 800
P.O. Box 19613
Irvine, California 92713-9613
Attention: Steven A. McHolm, Esq.
To Lender: The Mitsubishi Bank, Limited
c/o The Bank of California
550 South Flower Street
Los Angeles, California 90071
Attention: Cathy Chase
With a copy to: Lillick & McHose
725 South Figueroa Street
Suite 1100
Los Angeles, California 90017
Attention: Neil R. Tucker, Esq.
21
<PAGE>
3.08. Completed Agreement. This Guaranty supersedes
-------------------
any prior negotiations, discussions or communications between
Guarantor and Lender and constitutes the entire agreement
between Lender and Guarantor with respect to the Guaranteed
Obligations.
IN WITNESS WHEREOF, the undersigned has executed this
Guaranty as of the date first above written.
SANTA ANITA REALTY ENTERPRISES, INC.
a Delaware corporation
By: /s/ Glenn L. Carpenter
---------------------------------
Glenn L. Carpenter
President and Chief Operating Officer
By: /s/ Royce B. McKinley
---------------------------------
Royce B. McKinley
Chairman of the Board and
Chief Executive Officer
22
<PAGE>
EXHIBIT 10.40
FIRST AMENDMENT TO REPAYMENT GUARANTY
-------------------------------------
This FIRST AMENDMENT TO REPAYMENT GUARANTY ("Amendment") is entered into as
of the 10th day of August, 1993 by and between SANTA ANITA REALTY ENTERPRISES,
----
INC., a Delaware Corporation ("Guarantor") and THE MITSUBISHI BANK, LIMITED
--------------------
("Lender") with respect to the following facts:
A. On or about May 18, 1990 Guarantor delivered that certain Repayment
Guaranty ("Guaranty") for the benefit of Lender in connection with that certain
$170,000,000 loan ("Loan") made by Lender to Towson Town Center, Inc.
Capitalized words used but not otherwise defined herein shall have the meaning
afforded them in the Guaranty.
B. Pursuant to the terms of Sections 2.02(c), (d) and (e) of the Guaranty,
the Guaranteed Debt may be reduced from time to time.
C. Guarantor has requested a reduction in the Guaranteed Debt pursuant to
the terms of the Guaranty and Guarantor and Lender wish to enter into this
Amendment to reflect such reduction.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Lender and Guarantor hereby agree as follows:
1. Effective as of January 1, 1993 the Guaranteed Debt shall hereby be
deemed to be $66,135,000, plus interest accruing thereon from time to time
pursuant to the terms of the documents evidencing and securing repayment of the
Loan ("Loan Documents"), and a pro rata portion of any letter of credit fees,
late charges, breakage fees if any, and any other costs due and payable under
the Loan Documents, based upon a Guaranteed Debt of $66,135,000 and the actual
amount from time to time outstanding under the Loan Documents. Notwithstanding
the foregoing, default interest, as it accrues on the Guaranteed Debt, shall be
fully payable by Guarantor if and when due under the Loan Documents.
2. Notwithstanding anything in this Amendment to the contrary, any and all
costs of collection incurred by Lender, as more particularly set forth in
Section 3.01 of the Guaranty, shall remain the full and complete obligation of
Guarantor.
3. Except as modified herein, the Guaranty remains in
full force and effect and is hereby ratified and affirmed by
Guarantor. Guarantor hereby certifies that as of the date
hereof there are no Events of Default under the Guaranty nor
events, that with notice, the passage of time of both, will
constitute an Event of Default under the Guaranty.
<PAGE>
4. The Guaranty shall remain in full force and effect
until repayment in full of all amounts due under the Loan
Documents, and expiration of any preference or other period
applicable to debtors.
IN WITNESS WHEREOF, the parties hereto have entered into
this First Amendment to Repayment Guaranty as of the date first
set forth above.
THE MITSUBISHI BANK, LIMITED,
Los Angeles Branch
By: /s/ Cathy L. Chase
-------------------------
Its: Authorized Signatory
-------------------------
SANTA ANITA REALTY ENTERPRISES, INC.,
a Delaware Corp.
----------------------
By: /s/ Glenn L. Carpenter
-------------------------
Its: Pres.-CEO
-------------------------
By: /s/ Donald G. Herman
-------------------------
Its: VP Finance
-------------------------
-2-
<PAGE>
EXHIBIT 10.41
BORROWER: JOPPA ASSOCIATES
GUARANTOR: Santa Anita Realty Enterprises, Inc.
UNCONDITIONAL GUARANTY OF PAYMENT
---------------------------------
THIS UNCONDITIONAL GUARANTY OF PAYMENT (the "Guaranty") is made as of
the 31st day of December, 1992, by and between SANTA ANITA REALTY ENTERPRISES,
---- --------
INC. ("Guarantor"), a Delaware corporation, for the benefit of BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank"), a national banking association.
RECITALS
A. Bank is the holder of that certain Promissory Note dated April 20,
1988, from Joppa Associates ("Borrower"), a Maryland general partnership, in the
principal amount of Eighteen Million Dollars ($18,000,000) (the "Loan"), which
Promissory Note was amended and restated by that certain Amended and Restated
Promissory Note dated as of June 2, 1989, by and between Borrower and Bank.
(Said Promissory Note as amended and restated is hereinafter referred to as the
"Note".)
B. The Note is secured by, among other things, that certain Deed of
Trust dated April 20, 1988, from Borrower to Continental Auxiliary Company
("Trustee"), a California corporation, for the benefit of Bank, recorded in the
land records of Baltimore County (the "Land Records") in Liber 7855 at folio
802, and encumbering certain real property (the "Property") and the
improvements thereon (the "Improvements") located in Baltimore County as more
particularly described in Exhibit A attached to said Deed of Trust. Said Deed of
Trust was amended and restated by that certain Amended and Restated Deed of
Trust and Security Agreement dated as of June 2, 1989, by and among Borrower,
Trustee, and Bank, and recorded in the Land Records in Liber 8229 at folio 512.
(Said Deed of Trust as amended and restated is hereinafter referred to as the
"Deed of Trust".)
C. The proceeds of the Note are being disbursed to Borrower pursuant to
that certain Loan Agreement dated April 20, 1988, between Borrower and Bank,
which Loan Agreement was amended and restated by that certain Amended and
Restated Loan Agreement dated as of June 2, 1989. (Said Loan Agreement as
amended and restated is hereinafter referred to as the "Loan Agreement".)
D. Bank and Borrower have agreed to amend the Loan Agreement and have
this date entered into the following loan documents (the "Amendment Documents")
to, among other things, amend the terms and conditions of the Loan Agreement
1
<PAGE>
and to spread the lien of the Deed of Trust to certain "Additional Property"
described therein:
(i) First Amendment to Amended and Restated Loan Agreement
dated as of even date herewith;
(ii) First Amendment to Amended and Restated Deed of Trust and
Security Agreement;
(iii) First Amendment to Assignment of Lessor's Interest in Leases
and Rents;
(iv) UCC-3 Financing Statements.
E. As a condition of entering into the Amendment Documents, Bank has
required that Guarantor execute and deliver this Guaranty.
F. Guarantor is a partner of Borrower and has all requisite corporate
power and authority to execute and deliver this Guaranty.
G. Guarantor executes and delivers this Guaranty to induce Bank to enter
into the Amendment Documents.
H. The foregoing recitals are an integral part of this Guaranty.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor hereby agrees as
follows:
(1) Until the Loan shall have been repaid to Bank in full, Guarantor
unconditionally guarantees and promises to pay to Bank, on order or demand, in
lawful money of the United States up to fifty percent (50%) of the outstanding
total amount of principal and interest and any other amounts that may become due
under the Note, the Deed of Trust or the Loan Agreement from time to time until
the Loan has been fully paid and the period of time has expired during which any
payment made by Borrower or Guarantor to Bank may be determined to be a
Preferential Payment (as hereinafter defined). In determining the fifty percent
maximum liability of Guarantor under this Guaranty prior to a suit for a
deficiency judgment, the outstanding total amount of the Loan for such
calculation shall be reduced by any amount realized as a result of foreclosure
or the exercise of any other remedies against Borrower or any other guarantor;
however, Bank shall have no obligation (i) to proceed against Borrower or any
other guarantor, (ii) to proceed against or exhaust any security held by
Borrower, or (iii) to pursue any other remedy in Bank's power whatsoever
2
<PAGE>
as a condition of exercising Bank's rights under this Guaranty. For example,
if immediately prior to foreclosure, the outstanding balance of the Loan is
$18,000,000 and $1,000,000 in accrued and unpaid interest, late charges and
other accounts owed to Bank are due and payable on the Loan, the maximum
liability of Guarantor shall be $9,500,000 (50% of $19,000,000), and a judgment
(or arbitration award pursuant to Section 11 of this Guaranty) in such amount
shall be fully enforceable notwithstanding Bank's subsequent actions to
foreclose or to pursue other remedies under the documents evidencing and
securing the Loan (collectively, the "Loan Documents"). If Lender realizes
$8,000,000 from a foreclosure sale, the deficiency would be $11,000,000
($19,000,000 minus $8,000,000); therefore, Guarantor's liability for the Loan
would be limited to $5,500,000, and a judgment (or arbitration award pursuant to
Section 11 of this Guaranty) in such amount shall be fully enforceable,
notwithstanding Bank's subsequent actions to pursue other remedies against
Borrower (subject to Section 13.14 of the Loan Agreement) or any other
guarantor. Notwithstanding the foregoing, if Bank forecloses on the Property and
the Improvements after receiving a judgment or award against Guarantor pursuant
to the terms of this Guaranty, Guarantor shall be entitled to an offset against
such judgment or award equal to fifty percent (50%) of the amount realized by
Bank from the foreclosure sale. For example, if in the example above, Bank
obtains a judgment against Guarantor in the amount of $9,500,000 (50% of the
total amount due under the Loan), and Bank subsequently realizes $8,000,000 from
a foreclosure sale, Guarantor's liability under the judgment would be reduced
amount by $4,000,000 to $5,500,000.
(2) This Guaranty is irrevocable and is made whether Borrower may be
liable individually or jointly with others, or whether recovery on the
indebtedness described in Section (1) may be or hereafter may become barred by
any statute of limitations, or whether such indebtedness may be or hereafter may
become otherwise unenforceable. Furthermore, Guarantor acknowledges that it may
be liable as a partner of Borrower under the Loan Documents (subject to Section
13.14 of the Loan Agreement) and that the limitation on Guarantor's liability
under Section (1) of this Guaranty shall not in any way limit Guarantor's
liability as a partner of Borrower under the Loan Documents, nor shall any
limitation on Borrower's liability under the Loan Documents in any way limit
Guarantor's liability under this Guaranty.
(3) The obligations hereunder are independent of the obligations of
Borrower or any other guarantor. A separate action or actions may be brought and
prosecuted against Guarantor whether or not action is brought against Borrower
or any other guarantor or whether or not Borrower or any other guarantor is
joined in any such action or
3
<PAGE>
actions. Guarantor waives the benefit of any statute of limitations affecting
its liability hereunder or the enforcement thereof. Guarantor further agrees
that to the extent Borrower, Guarantor or any other guarantor makes any payment
to Bank in connection with the indebtedness and all or any part of such payment
is subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid by Bank or paid over to a trustee, receiver or
any other entity, whether under any bankruptcy act or otherwise (any such
payment is hereinafter referred to as a "Preferential Payment"), then this
Guaranty shall continue to be effective or shall be reinstated, as the case may
be, and, to the extent of such payment or repayment by Bank, the indebtedness or
part thereof intended to be satisfied by such Preferential Payment shall be
revived and continued in full force and effect as if said Preferential Payment
had not been made. In no event, however, shall Guarantor's liability under this
Guaranty ever exceed the amount determined pursuant to Section (1) of this
Guaranty.
(4) Guarantor authorizes Bank, without notice or demand and without
affecting its liability hereunder, from time to time to (a) renew, compromise,
extend, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the Note, the Deed of Trust or the Loan Agreement or any
other guaranty; (b) take and hold security for the payment of this Guaranty or
the indebtedness guaranteed, and exchange, enforce, waive and release any such
security; (c) apply such security and direct the order or manner of sale thereof
as Bank in its discretion may determine; and (d) release or substitute any one
or more of the endorsers or Guarantor. Notwithstanding the foregoing, Bank shall
not terminate the Guaranty of Payment (the "Hahn Guaranty") dated as of even
date herewith from Ernest W. Hahn, Inc., unless this Guaranty is also
terminated; however, Bank shall not be required to pursue its remedies under the
Hahn Guaranty as a condition of exercising its rights under this Guaranty. Bank
may without notice assign this Guaranty in whole or in part.
(5) Guarantor waives any right to require Bank to (a) proceed against
Borrower or any other guarantor; (b) proceed against or exhaust any security
held from Borrower; or (c) pursue any other remedy in Bank's power whatsoever.
Except for a defense that all or a portion of the Loan has been paid prior to
entry of a judgment (or a determination of an arbitration award pursuant to
Section 11 of this Guaranty) against Guarantor, Guarantor waives any defense
arising by reason of any disability or other defense of Borrower or any other
guarantor or by reason of the cessation from any cause whatsoever of the
liability of Borrower or any other guarantor. Until all indebtedness of Borrower
to Bank shall have been paid in full, Guarantor
4
<PAGE>
shall have no right of subrogation, and waives any right to enforce any remedy
which Bank now has or may hereafter have against Borrower, and waives any
benefit of, and any right to participate in, any security now or hereafter held
by Bank. Bank may foreclose, either by judicial foreclosure or by exercise of
power of sale, any deed of trust securing the indebtedness, and, even though the
foreclosure may destroy or diminish Guarantor's rights against Borrower,
Guarantor shall be liable to Bank for any part of the Loan remaining unpaid
after the foreclosure sale has been ratified in accordance with Maryland law.
Guarantor waives all presentments, demands for performance, notices of non-
performance, protests, notices or protest, notices of dishonor, and notices of
acceptance of this Guaranty and of the existence, creation, or incurring of new
or additional indebtedness. In no event, however, shall Guarantor's liability
under this Guaranty ever exceed the amount determined pursuant to Section (1) of
this Guaranty.
(6) Neither Guarantor's obligation to make payment in accordance with
the terms of this Guaranty nor any remedy for the enforcement hereof shall be
impaired, modified, changed, released or limited in any manner whatsoever by
Borrower's bankruptcy or by any impairment, modification, change, release or
limitation of (a) the liability of Borrower, any party assuming the obligations
of Borrower under the Note, or Borrower's estate in bankruptcy, or (b) any
remedy for the enforcement of the Note, either of which result from the
operation of any present or future provision of the Bankruptcy Reform Act of
1978 or other statute, or from the decision of any court.
(7) (a) Notwithstanding any other provision of this Guaranty to the
contrary, Guarantor hereby waives any claim or other rights which Guarantor may
now have or hereafter acquire against Borrower that arise from the existence or
performance of Guarantor's obligations under this Guaranty or any other loan
document (all such claims and rights are referred to as "Guarantor's Conditional
Rights"), including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, or indemnification, any right to
participate in any claim or remedy of Bank against Borrower or any collateral
which Bank now has or hereafter acquires, whether or not such claim, remedy or
right arises in equity or under contract, statute or common law, by any payment
made hereunder or otherwise, including without limitation, the right to take or
receive from Borrower, directly or indirectly, in cash or other property or by
setoff or in any other manner, payment or security on account of such claim or
other rights; provided, however, that nothing contained in this Section 7(a)
shall impair Guarantor's rights against Ernest W. Hahn, Inc., and DeChiaro
Associates for reimbursement, contribution or
5
<PAGE>
otherwise, subject to the provisions of subsections 7(a)(i) and (ii) below.
If, notwithstanding the foregoing provisions, any amount shall be paid to
Guarantor on account of Guarantor's Conditional Rights and either (i) such
amount is paid to Guarantor at any time when the indebtedness shall not have
been paid or performed in full, or (ii) regardless of when such amount is paid
to Guarantor, any payment made by Borrower to Bank is at any time determined to
be a Preferential Payment, then such amount paid to Guarantor shall be held in
trust for the benefit of Bank and shall forthwith be paid to Bank to be credited
and applied upon the indebtedness, whether matured or unmatured, in such order
as Bank, in its sole and absolute discretion, shall determine.
(b) To the extent that any of the provisions of subparagraph (a) of this
section shall not be enforceable, Guarantor agrees that until such time as the
indebtedness has been paid and performed in full and the period of time has
expired during which any payment made by Borrower or Guarantor to Bank may be
determined to be a Preferential Payment, Guarantor's Conditional Rights to the
extent not validly waived shall be subordinate to Bank's right to full payment
and performance of the indebtedness, and Guarantor shall not enforce Guarantor's
Conditional Rights during such period.
(8) Where any one or more of the partners of Borrower are corporations or
partnerships it is not necessary for Bank to inquire into the powers of Borrower
or of the officers, directors, partners or agents acting or purporting to act on
their behalf, and any indebtedness made or created in favor of Bank in reliance
upon the professed exercise of such power shall be guaranteed hereunder.
(9) Guarantor hereby consents to the exercise of personal jurisdiction
over it by any federal or state court in the State of Maryland and consents to
the laying of venue in any jurisdiction or locality in the State of Maryland.
Guarantor irrevocably appoints Corporation Trust, Incorporated, having an
address at 32 South Street, Baltimore, Maryland 21202, as Guarantor's agent for
receipt of service of process on Guarantor's behalf in connection with any suit,
writ, attachment, execution or discovery or supplementary proceedings in
connection with the enforcement of this Guaranty. Service shall be effected by
any means permitted by the court in which any action is filed, or, at Bank's
option, by mailing process, postage prepaid, by certified mail, return receipt
requested to Guarantor's agent at the foregoing address and in addition to
Guarantor at Guarantor's address set forth in the "Notices" provision of the
Deed of Trust. Service shall be deemed effective upon receipt. Guarantor may
designate a change of address
6
<PAGE>
for purposes of this paragraph by written notice to Bank by certified mail,
return receipt requested, at least ten (10) days before such change of address
is to become effective.
(10) Guarantor agrees to pay all reasonable attorney's fees and all
other costs and expenses which may be incurred by Bank in the enforcement of
this Guaranty.
(11) (a) Any controversy or claim arising out of or relating to this
Guaranty or any agreements or instruments relating hereto or delivered in
connection herewith, including but not limited to a claim based on or arising
from an alleged tort, shall at the request of any party be determined by
arbitration in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Guaranty, and the
commercial rules of the American Arbitration Association. Subject to Section 3
of this Guaranty, the arbitrator(s) shall give effect to statutes of limitation
in determining any claims. Any controversy concerning whether an issue is
arbitrable shall be determined by the arbitrator(s). Judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction.
(b) No provision of this Section 11 shall limit the right of any
party to this Guaranty to exercise self-help remedies such as setoff,
foreclosure against or sale of any real or personal property collateral or
security, or to apply for and obtain provisional or ancillary remedies from a
court of competent jurisdiction before, after, or during the pendency of any
arbitration. Foreclosure under any deed of trust or mortgage shall not
constitute a waiver of any right to arbitration under this Section. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(12) This Guaranty shall be governed by and construed according to the
laws of the State of Maryland, the jurisdiction of which the parties hereto
submit.
7
<PAGE>
IN WITNESS WHEREOF, this Unconditional Guaranty of Payment has been
executed as of the date first above written.
WITNESS OR ATTEST: SANTA ANITA REALTY
ENTERPRISES, INC.,
a Delaware corporation
/s/ Cindy L. Smith By: /s/ Glenn L. Carpenter [SEAL]
- --------------------- --------------------------
Name: Glenn L. Carpenter
Title: Pres.
By: /s/ Donald G. Herman
--------------------------
Name: Donald G. Herman
Title: VP Finance
8
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated March 7, 1996
accompanying the financial statements and schedules of:
(a) The Santa Anita Companies
(b) Santa Anita Realty Enterprises, Inc; and
(c) Santa Anita Operating Company and Subsidiaries
appearing in the above-listed entities's Joint Annual Report on Form 10-K for
the year ended December 31, 1995, in the Prospectus contained in Post-Effective
Amendment No. 3 to the Joint Registration Statement on Form S-8 (No. 2-95228),
Joint Registration Statement on Form S-8 (No. 33-51853), and Joint Registration
Statement on Form S-8 (No. 033-58995).
Ernst & Young LLP
Los Angeles, California
April 1, 1996
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated February 9,
1996 with respect to the financial statements and schedule of Pacific Gulf
Properties Inc., in the Joint Annual Report on Form 10-K of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company for the year ended December
31, 1995, in the Prospectus contained in Post-Effective Amendment No. 3 to the
Joint Registration Statement on Form S-8 (No. 2-95228), Joint Registration
Statement on Form S-8 (No. 33-51843), and Joint Registration Statement on Form
S-8 (No. 033-58995).
Ernst & Young LLP
Newport Beach, California
April 1, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Santa Anita Realty Enterprise, Inc.
and
Santa Anita Operating Company:
We consent to incorporation by reference in the Joint Registration Statement
(No. 2-95228) on Form S-8, as amended through Post-Effective Amendment No. 3,
the Joint Registration Statement on Form S-8 (No. 33-51843), and the Joint
Registration Statement on Form S-8 (No. 33-58995) of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company of our report dated February
9, 1996, relating to the balance sheets of Anita Associates as of December 31,
1995 and 1994, and the related statements of income, partners' deficit and cash
flows for each of the years in the three-year period ended December 31, 1995,
which report appears in the December 31, 1995 Joint Annual Report on Form 10-K
of Santa Anita Realty Enterprises, Inc. and Santa Anita Operating Company.
KPMG Peat Marwick LLP
Santa Diego, California
March 28, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Santa Anita Realty Enterprises, Inc.
and
Santa Anita Operating Company:
We consent to incorporation by reference in the Joint Registration Statement
(No. 2-95228) on Form S-8, as amended through Post-Effective Amendment No. 3,
the Joint Registration Statement on Form S-8 (No. 33-51843), and the Joint
Registration Statement on Form S-8 (No. 33-58995) of Santa Anita Realty
Enterprises, Inc. and Santa Anita Operating Company of our report dated February
9, 1996, relating to the consolidated balance sheets of H-T Associates and
subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of operations, partners' capital (deficit) and cash flows for each
of the years in the three-year period ended December 31, 1995, which report
appears in the December 31, 1995 Joint Annual Report on Form 10-K of Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company. Our report dated
February 9, 1996, contains an explanatory paragraph that states that the
Partnership's primary subsidiary is in technical default on its notes payable at
December 31, 1995. As such, those notes may be callable at the lender's
discretion. This technical default raises substantial doubt about the
Partnership's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG Peat Marwick LLP
San Diego, California
March 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANTA ANITA
REALTY ENTERPRISES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000314661
<NAME> SANTA ANITA REALTY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 167,000
<SECURITIES> 0
<RECEIVABLES> 615,000
<ALLOWANCES> (270,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 92,098,000
<DEPRECIATION> (42,369,000)
<TOTAL-ASSETS> 83,367,000
<CURRENT-LIABILITIES> 0
<BONDS> 23,389,000
0
0
<COMMON> 1,138,000
<OTHER-SE> 24,504,000
<TOTAL-LIABILITY-AND-EQUITY> 83,367,000
<SALES> 0
<TOTAL-REVENUES> 22,426,000
<CGS> 0
<TOTAL-COSTS> 2,671,000
<OTHER-EXPENSES> 50,355,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,321,000
<INCOME-PRETAX> (34,921,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34,921,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,050,000
<CHANGES> 0
<NET-INCOME> (30,871,000)
<EPS-PRIMARY> (2.73)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SANTA ANITA
OPERATING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000313749
<NAME> SANTA ANITA OPERATING
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,188,000
<SECURITIES> 2,522,000
<RECEIVABLES> 3,113,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,015,000
<PP&E> 44,201,000
<DEPRECIATION> (24,968,000)
<TOTAL-ASSETS> 39,370,000
<CURRENT-LIABILITIES> 23,675,000
<BONDS> 1,735,000
0
0
<COMMON> 1,127,000
<OTHER-SE> 10,083,000
<TOTAL-LIABILITY-AND-EQUITY> 39,370,000
<SALES> 0
<TOTAL-REVENUES> 70,333,000
<CGS> 0
<TOTAL-COSTS> 60,028,000
<OTHER-EXPENSES> 8,638,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401,000
<INCOME-PRETAX> 1,266,000
<INCOME-TAX> (2,000,000)
<INCOME-CONTINUING> 3,266,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,266,000
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0
</TABLE>
