<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-9109 Commission file number 0-9110
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
------------------------------------ ------------------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
Delaware Delaware
------------------------------------ ------------------------------------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
95-3520818 95-3419438
------------------------------------ ------------------------------------
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
301 West Huntington Drive, Suite 405 285 West Huntington Drive
Arcadia, California 91007 Arcadia, California 91007
------------------------------------ ------------------------------------
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(818) 574-5550 (818) 574-7223
------------------------------------ ------------------------------------
(Registrant's telephone number, (Registrant's telephone number,
including area code) including area code)
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
---- ----
The number of shares outstanding of each of the issuers' classes of common
stock, as of the close of business on May 2, 1997 were:
Santa Anita Realty Enterprises, Inc. 11,586,925
Santa Anita Operating Company 11,496,225
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION 3
THE SANTA ANITA COMPANIES
Combined Balance Sheets as of March 31, 1997 and 4
December 31, 1996
Combined Statements of Operations for the three months ended 5
March 31, 1997 and 1996
Combined Statements of Cash Flows for the three months ended 6
March 31, 1997 and 1996
SANTA ANITA REALTY ENTERPRISES, INC.
Consolidated Balance Sheets as of March 31, 1997 and 7
December 31, 1996
Consolidated Statements of Operations for the three months ended 8
March 31, 1997 and 1996
Consolidated Statements of Cash Flows for the three months ended 9
March 31, 1997 and 1996
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of March 31, 1997 and 10
December 31, 1996
Consolidated Statements of Operations for the three months ended 11
March 31, 1997 and 1996
Consolidated Statements of Cash Flows for the three months ended 12
March 31, 1997 and 1996
NOTES TO FINANCIAL STATEMENTS 13
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL 18
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION 24
SIGNATURES 25
</TABLE>
2
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1997
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying balance sheets as of March 31, 1997 and December 31,
1996 of The Santa Anita Companies (the "Companies"), Santa Anita Realty
Enterprises, Inc. ("Realty") and Santa Anita Operating Company and Subsidiaries
("Operating Company"), the statements of operations for the three months ended
March 31, 1997 and 1996, and the related statements of cash flows for the three
months ended March 31, 1997 and 1996, were prepared by management and, except
for the balance sheet as of December 31, 1996, are unaudited. In the opinion of
management, the accompanying financial statements include all adjustments,
including normal recurring items, considered necessary for a fair presentation.
The following financial statements should be read in conjunction with
the accompanying notes and the Joint Annual Report on Form 10-K of Realty and
Operating Company for the year ended December 31, 1996.
3
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets
Santa Anita Racetrack, less accumulated depreciation
of $21,582,000 and $21,069,000 $ 8,667,000 $ 9,180,000
Commercial properties, less accumulated depreciation
of $4,376,000 and $4,203,000 9,273,000 9,412,000
Commercial properties to be sold, less accumulated
depreciation of $4,395,000 9,076,000 8,986,000
Investments in and advances to unconsolidated joint ventures 2,154,000 2,297,000
Real estate loans receivable 10,609,000 10,674,000
------------ -----------
39,779,000 40,549,000
Cash and cash equivalents 36,991,000 23,222,000
Accounts receivable 4,953,000 2,442,000
Prepaid expenses and other assets 6,532,000 6,696,000
Property, plant and equipment, less accumulated
depreciation of $29,950,000 and $28,059,000 19,697,000 20,572,000
------------ -----------
$107,952,000 $ 93,481,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable $ 20,309,000 $ 20,407,000
Bank loans payable 7,938,000 5,417,000
Accounts payable 19,970,000 11,540,000
Other liabilities 20,073,000 13,007,000
Dividends payable - 2,468,000
Deferred revenues 1,139,000 1,803,000
Deferred income taxes 1,362,000 1,282,000
------------ ------------
70,791,000 55,924,000
------------ ------------
Series A Redeemable Preferred Stock, $.10 per value;
867,343 shares authorized, issued and outstanding 24,778,000 22,768,000
------------ ------------
Shareholders' equity
Preferred stock, $.10 par value; authorized 5,132,657 shares - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,495,675 and
11,474,600 shares 2,297,000 2,295,000
Additional paid-in capital 140,443,000 139,834,000
Unearned compensation expense (670,000) (685,000)
Retained earnings (deficit) (129,687,000) (126,655,000)
------------ ------------
12,383,000 14,789,000
------------ ------------
$107,952,000 $ 93,481,000
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
(Restated)
<S> <C> <C>
Revenues
Horse racing $36,307,000 $38,081,000
Rental property 1,033,000 2,016,000
Interest and other 470,000 689,000
----------- -----------
37,810,000 40,786,000
----------- -----------
Costs and expenses
Horse racing operating costs 24,754,000 24,890,000
Rental property operating expenses 258,000 690,000
Depreciation and amortization 2,599,000 2,475,000
General and administrative 2,790,000 3,367,000
Interest and other 621,000 951,000
Losses from unconsolidated joint ventures 155,000 406,000
Program for disposition of non-core real estate assets 500,000 -
Strategic alliance termination fee and expense 4,500,000 -
----------- -----------
36,177,000 32,779,000
----------- -----------
Net income 1,633,000 8,007,000
Preferred stock dividends 2,183,000 -
----------- -----------
Net income (loss) applicable to common shares $ (550,000) $ 8,007,000
=========== ===========
Weighted average common shares outstanding 11,480,116 11,270,500
=========== ===========
Net income (loss) per common share $ (.05) $ .71
=========== ===========
Dividends declared per common share $ .20 $ .20
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,633,000 $ 8,007,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,599,000 2,475,000
Amortization of unearned compensation expense 15,000 177,000
Equity in losses of unconsolidated joint ventures 155,000 406,000
Deferred income taxes 80,000 (316,000)
Strategic alliance termination fee and expense 4,500,000 -
Net increase in certain other assets (2,198,000) (2,019,000)
Net increase in certain other liabilities 10,332,000 12,127,000
----------- -----------
Net cash provided by operating activities 17,116,000 20,857,000
----------- -----------
Cash flows from investing activities:
Payments received on loans receivable 66,000 77,000
Additions and improvements to real estate assets (124,000) (349,000)
Additions to property, plant and equipment (1,016,000) (438,000)
Additions to certain other assets (172,000) (924,000)
Investments in and advances to unconsolidated joint ventures (512,000) (369,000)
Capital distributions from unconsolidated joint ventures 500,000 341,000
----------- -----------
Net cash used in investing activities (1,258,000) (1,662,000)
----------- -----------
Cash flows from financing activities:
Repayment of real estate loans payable (98,000) (126,000)
Proceeds from (repayment of) bank loans payable 2,521,000 (5,160,000)
Dividends paid (4,939,000) (4,508,000)
Exercise of stock options 427,000 -
----------- -----------
Net cash used in financing activities (2,089,000) (9,794,000)
----------- -----------
Net increase in cash and cash equivalents 13,769,000 9,401,000
Cash and cash equivalents at beginning of year 23,222,000 13,877,000
----------- -----------
Cash and cash equivalents at March 31, $36,991,000 $23,278,000
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets
Santa Anita Racetrack, less accumulated depreciation
of $21,582,000 and $21,069,000 $ 8,667,000 $ 9,180,000
Commercial properties, less accumulated depreciation
of $4,892,000 and $4,700,000 12,214,000 12,372,000
Commercial properties to be sold, less accumulated
depreciation of $4,395,000 9,076,000 8,986,000
Investments in and advances to unconsolidated joint ventures 2,154,000 2,297,000
Real estate loans receivable 10,609,000 10,674,000
------------- -------------
42,720,000 43,509,000
Cash and cash equivalents 13,558,000 12,921,000
Accounts receivable 103,000 90,000
Prepaid expenses and other assets 5,527,000 5,233,000
Due from (to) Operating Company 359,000 (2,007,000)
------------- -------------
$ 62,267,000 $ 59,746,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable $ 20,309,000 $ 20,407,000
Bank loans payable 7,300,000 4,550,000
Accounts payable 319,000 205,000
Other liabilities 5,567,000 1,700,000
Dividends payable - 2,491,000
------------- -------------
33,495,000 29,353,000
------------- -------------
Series A Redeemable Preferred Stock, $.10 par value;
867,343 shares authorized, issued and outstanding 23,728,000 21,718,000
------------- -------------
Shareholders' equity
Preferred stock, $.10 par value; authorized 5,132,657 shares - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,586,375 and
11,586,100 shares 1,159,000 1,159,000
Additional paid-in capital 121,902,000 121,899,000
Retained earnings (deficit) (118,017,000) (114,383,000)
------------- -------------
5,044,000 8,675,000
------------- -------------
$ 62,267,000 $ 59,746,000
============= =============
</TABLE>
See accompanying notes.
7
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- -----------
(Restated)
<S> <C> <C>
Revenues
Rent from Racetrack $ 6,440,000 $ 6,715,000
Shopping Centers 580,000 1,013,000
Office Buildings 453,000 1,003,000
Interest and other 432,000 591,000
----------- -----------
7,905,000 9,322,000
----------- -----------
Costs and expenses
Shopping centers 127,000 277,000
Office buildings 131,000 413,000
Depreciation and amortization 727,000 733,000
General and administrative 761,000 893,000
Interest and other 555,000 944,000
Losses from unconsolidated joint ventures 155,000 406,000
Program for disposition of non-core real estate assets 500,000 -
Strategic alliance termination fee and expense 4,080,000 -
----------- -----------
7,036,000 3,666,000
----------- -----------
Net income 869,000 5,656,000
Preferred stock dividends 2,183,000 -
----------- -----------
Net income (loss) applicable to common shares $(1,314,000) $ 5,656,000
=========== ===========
Weighted average common shares outstanding 11,586,186 11,383,000
=========== ===========
Net income (loss) per common share $ (.11) $ .50
=========== ===========
Dividends declared per common share $ .20 $ .20
=========== ===========
</TABLE>
See accompanying notes.
8
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 869,000 $ 5,656,000
Adjustments to reconcile net income to net
cash provided by operating activities: 727,000 733,000
Depreciation and amortization
Equity in losses of unconsolidated joint ventures 155,000 406,000
Strategic alliance termination fee and expense 4,080,000 -
Net increase in certain other assets (158,000) (61,000)
Net (decrease) increase in certain other liabilities (99,000) 245,000
----------- -----------
Net cash provided by operating activities 5,574,000 6,979,000
----------- -----------
Cash flows from investing activities:
Payments received on loans receivable 66,000 77,000
Additions and improvements to real estate assets (124,000) (349,000)
Additions to certain other assets (172,000) (924,000)
Investments in and advances to unconsolidated joint ventures (512,000) (369,000)
Capital distributions from unconsolidated joint ventures 500,000 341,000
---------- -----------
Net cash used in investing activities (242,000) (1,224,000)
---------- -----------
Cash flows from financing activities:
Repayment of real estate loans payable (98,000) (126,000)
Proceeds from (repayment of) bank loans payable 2,750,000 (4,950,000)
Increase (decrease) in due to Operating Company (2,366,000) 4,298,000
Dividends paid (4,984,000) (4,553,000)
Exercise of stock options 3,000 -
----------- -----------
Net cash used in financing activities (4,695,000) (5,331,000)
----------- -----------
Net increase in cash and cash equivalents 637,000 424,000
Cash at beginning of year 12,921,000 167,000
----------- -----------
Cash and cash equivalents at March 31, $13,558,000 $ 591,000
=========== ===========
</TABLE>
See accompanying notes.
9
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $23,433,000 $ 10,301,000
Accounts receivable 4,850,000 2,352,000
Prepaid expenses and other assets 1,014,000 1,472,000
----------- ------------
Total current assets 29,297,000 14,125,000
Investment in common stock of Realty 1,711,000 2,103,000
Property, plant and equipment, less accumulated
depreciation of $29,950,000 and $28,059,000 19,697,000 20,572,000
----------- ------------
$50,705,000 $ 36,800,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $19,651,000 $ 11,335,000
Other liabilities 14,506,000 11,284,000
Bank loans payable 638,000 867,000
Due to (from) Realty 359,000 (2,007,000)
----------- ------------
Total current liabilities 35,154,000 21,479,000
Deferred revenues 1,139,000 1,803,000
Deferred income taxes 1,362,000 1,282,000
----------- ------------
37,655,000 24,564,000
----------- ------------
Series A Redeemable Preferred Stock, $.10 par value,
867,343 shares authorized, issued and outstanding 1,050,000 1,050,000
----------- ------------
Shareholders' equity
Preferred stock, $.10 par value; authorized 5,132,657 shares - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,495,675 and
11,474,600 shares 1,150,000 1,148,000
Additional paid-in capital 21,011,000 20,981,000
Unearned compensation expense (670,000) (685,000)
Retained earnings (deficit) (9,491,000) (10,258,000)
----------- ------------
12,000,000 11,186,000
----------- ------------
$50,705,000 $ 36,800,000
=========== ============
</TABLE>
See accompanying notes.
10
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues
Wagering commissions $26,144,000 $27,354,000
Admission related 10,163,000 10,727,000
Interest and other 48,000 186,000
----------- -----------
36,355,000 38,267,000
----------- -----------
Costs and expenses
Horse racing operating costs 24,754,000 24,890,000
Depreciation and amortization 1,891,000 1,757,000
General and administrative 2,029,000 2,474,000
Interest 54,000 73,000
Strategic alliance termination fee and expense 420,000 -
Rental expense to Realty 6,440,000 6,715,000
----------- -----------
35,588,000 35,909,000
----------- -----------
Net income applicable to common shares $ 767,000 $ 2,358,000
=========== ===========
Weighted average common shares outstanding 11,480,116 11,270,500
=========== ===========
Net income per common share $ .07 $ .21
=========== ===========
</TABLE>
See accompanying notes.
11
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 767,000 $ 2,358,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,891,000 1,757,000
Amortization of unearned compensation expense 15,000 177,000
Deferred income taxes 80,000 (316,000)
Strategic alliance termination fee and expense 420,000 -
Net increase in certain other assets (2,040,000) (1,958,000)
Net increase in certain other liabilities 10,454,000 11,905,000
----------- -----------
Net cash provided by operating activities 11,587,000 13,923,000
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,016,000) (438,000)
Decrease in investment of common stock of Realty 392,000 -
----------- -----------
Net cash used in investing activities (624,000) (438,000)
----------- -----------
Cash flows from financing activities:
Repayment of bank loans payable (229,000) (210,000)
(Increase) decrease in due from Realty 2,366,000 (4,298,000)
Proceeds from stock options 32,000 -
----------- -----------
Net cash provided by (used in) financing activities 2,169,000 (4,508,000)
----------- -----------
Net increase in cash and cash equivalents 13,132,000 8,977,000
Cash and cash equivalents at beginning of year 10,301,000 13,710,000
----------- -----------
Cash and cash equivalents at March 31, $23,433,000 $22,687,000
=========== ===========
</TABLE>
See accompanying notes.
12
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1 - Interim Period Accounting Policy
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. Certain prior
period amounts have been reclassified to conform to current period presentation.
In the opinion of management, all adjustments (including normal recurring
items) considered necessary for the fair presentation of financial position,
results of operations and cash flows have been included.
Note 2 - Restatement
Historically, Realty and its partners have viewed Towson Town Center and
the Joppa parcel as a common economic component since the properties had common
ownership, were physically adjacent and were both commercial retail operations.
Prior to Realty's decision to dispose of its non-core real estate assets in
1995, Realty's investments in H-T Associates and Joppa Associates were evaluated
for impairment on a combined basis. In addition, Realty historically recorded
its share of Joppa Associates' losses based on Realty's 33 1/3% interest.
During 1996, it was determined that those two investments should have been
evaluated for impairment on a separate basis. Also, Realty determined that
since it was probable that one of Realty's partners would not bear its share of
losses, Realty should have been recording 50%, not 33 1/3%, of Joppa Associates
losses. Realty has restated its financial statements to reflect the 50%
ownership interest in Joppa Associates resulting in the following impact on the
three months ended March 31, 1996:
<TABLE>
<S> <C>
Losses from unconsolidated joint ventures:
As originally reported $ 339,000
As restated 406,000
Net income:
As originally reported $5,723,000
As restated 5,656,000
Net income per common share:
As originally reported $ .50
As restated .50
</TABLE>
Note 3 - Disposition of Non-Core Real Estate Assets
During 1995, Realty adopted a plan to dispose of its non-core real estate
assets. The objective of the plan was to reduce Realty's debt levels, improve
financial flexibility and improve capital availability for the construction of a
major commercial development on excess land at Santa Anita Park. Accordingly,
Realty reduced the book value of assets intended to be sold to their estimated
sales price less costs of sale. The assets remaining to be disposed of at March
31, 1997 consisted of two neighborhood shopping centers in Southern California,
an investment in Joppa Associates, a partnership which owns a vacant retail
facility and undeveloped land adjacent to Towson Town Center shopping center in
Maryland (see "Note 4 - Investments in Unconsolidated Joint Ventures" and "Note
2 - Restatement"), an investment in H-T Associates, a partnership that owns 65%
of the Towson Town Center (see "Note 4 - Investments in Unconsolidated Joint
Ventures"), an investment in French Valley Ventures, a partnership which owns
undeveloped land in Temecula, California, and mortgage notes receivable. There
were no sales of non-core real estate assets during the three months ended March
31, 1997.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 3 - Disposition of Non-Core Real Estate Assets (Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
------------------------------------------------------------------------------
Unrealized
Beginning and Ending
Net Book Additions Sales Realized Net Book
Value (Reductions) Proceeds Gain(Loss) Value
---------------- -------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Neighborhood Shopping Centers $ 8,706,000 $ 90,000 $ - $ - $ 8,796,000
Investment in French Valley Ventures 280,000 - - - 280,000
Investment in Joppa Associates 2,216,000 23,000 - 2,239,000
Investment in H-T Associates 4,047,000 (299,000) - - 3,748,000
Notes Receivable 10,674,000 (65,000) - - 10,609,000
----------- -------- -------- ---------- -----------
$25,923,000 $(251,000) $ - $ - $25,672,000
=========== ========== ======== ========== ===========
</TABLE>
At March 31, 1997, two neighborhood shopping centers remained to be sold.
In January 1997, Realty entered into an agreement to sell the center in Yorba
Linda, California, which sale is expected to be completed in the 1997 second
quarter. The neighborhood shopping center in Encinitas, California is
undergoing a refurbishment program to promote a sale by the end of 1997.
Included in the results of operations for the three months ended March 31,
1997, were operating income, net of interest expense, of $111,000 pertaining to
the commercial properties to be sold, losses of $288,000 pertaining to
investments in unconsolidated joint ventures to be sold, a loss of $17,000
pertaining to the consolidated joint venture to be sold and interest income of
$264,000 pertaining to the notes receivable to be sold. Included in the results
of operations for the three months ended March 31, 1996, were operating income,
net of interest expense, of $485,000 pertaining to the commercial properties to
be sold, losses of $545,000 pertaining to investments in unconsolidated joint
ventures to be sold, a loss of $11,000 pertaining to the consolidated joint
venture to be sold and interest income of $266,000 pertaining to the notes
receivable to be sold.
Note 4 - Investments in Unconsolidated Joint Ventures
Realty's investments in unconsolidated joint ventures include investments
in the following commercial real estate ventures at March 31, 1997:
<TABLE>
<CAPTION>
NAME OWNERSHIP PROJECT
------------------- ---------- -------------
<S> <C> <C>
Anita Associates 50% Regional mall
H-T Associates 50% Regional mall
Joppa Associates 50% Retail
</TABLE>
The Anita Associates partnership was formed to develop and operate Santa
Anita Fashion Park in Arcadia, California. The H-T Associates partnership has a
65% ownership interest in a partnership formed to develop and operate Towson
Town Center in Towson, Maryland. The Joppa Associates partnership was formed to
develop an adjacent retail building and undeveloped land in an expansion of
Towson Town Center.
Combined condensed financial statement information for unconsolidated joint
ventures as of March 31, 1996 and December 31, 1995, and for the three months
ended March 31, 1996 and 1995, is as follows (unaudited except for financial
statement information as of December 31, 1995):
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 4 - Investment in Unconsolidated Joint Ventures (Continued)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------------- ---------------
<S> <C> <C>
Real estate assets $247,895,000 $ 248,675,000
============ =============
Liabilities
Secured real estate loans $224,807,000 $ 225,022,000
Other 54,572,000 53,826,000
------------ -------------
$279,379,000 $ 278,848,000
============ =============
Partners' equity
Realty $(15,740,000) $ (15,084,000)
Others (15,744,000) (15,089,000)
------------ -------------
$(31,484,000) $ (30,173,000)
============ =============
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
------------ -------------
(Restated)
<S> <C> <C>
Revenues $ 9,277,000 $ 8,988,000
============ =============
Net Loss
Realty $ (155,000) $ (406,000)
Others (491,000) (780,000)
------------ -------------
$ (646,000) $ (1,186,000)
============ =============
</TABLE>
During 1996, Joppa Associates agreed to sell the partnership property for
$5,500,000. The sale is expected to close in the 1997 second quarter and
Realty's share of the net proceeds is estimated to be $2,500,000. At March 31,
1997, the carrying value of Realty's investment in Joppa Associates was
$2,239,000.
In December 1996, Realty reached agreement for sale of its 50% partnership
interest in H-T Associates to a third party ("original sales agreement"). The
buyer also agreed to assume Realty's joint and several guaranty of a loan issued
to expand Towson Town Center 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. At March 31, 1997, the loan balance
to which the guaranties relate was $164,641,000. The repayment guaranties
contain covenants which, among other matters, require the guarantors to maintain
minimum levels of net worth. At March 31, 1997, Realty was in default under the
minimum net worth covenant. The lender may, among other things, foreclose on the
assets of H-T Associates and pursue other remedies under the guaranties,
however, as of March 31, 1997, the lender had not exercised such rights.
Under the partnership agreement, Realty's partner, TrizecHahn Centers,
Inc., had a right of refusal in the event Realty chose to sell its partnership
interest. In January 1997, TrizecHahn Centers Inc., exercised its right of first
refusal and elected to purchase Realty's interest in the partnership, pursuant
to the terms of the original sales agreement. The original sales agreement
provided for a $500,000 break-up fee in the event of exercise of the right of
refusal. The break-up fee was paid in January 1997 resulting in a charge to
earnings which has been reflected as "Program for disposition of non-core real
estate assets" in The Santa Anita Companies and Realty statements of operations.
At March 31, 1997, Realty's investment in H-T Associates
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 4 - Investment in Unconsolidated Joint Ventures (Continued)
was $3,863,000. The lender has approved, subject to acceptable
documentation from TrizecHahn, the assumption by TrizecHahn of Realty's
repayment guaranty. Realty expects such assumption when the transaction is
consummated.
On April 4, 1997, Realty and TrizecHahn reached agreement for a purchase
price of $3,900,000 for Realty's interest in H-T Associates, which is not
subject to further adjustment.
Note 5 - Santa Anita Commercial Center
In January 1997, Realty submitted a Memorandum of Understanding for
development of a 500,000 square foot Commercial Center, to the City of Arcadia.
This agreement was approved by the City in March 1997. At March 31, 1997,
$3,215,000 of Commercial Center development costs associated with entitlement,
planning and leasing activities have been reflected in "Prepaid expenses and
other assets" in The Santa Anita Companies and Realty balance sheets.
Note 6 - Strategic Alliance Transactions
On August 19, 1996, the Companies announced a major transaction with Colony
Investors II, L.P. ("Colony"), a Los Angeles based real estate investment
company administered by Colony Capital, Inc., which pursuant to the terms of an
agreement, would have invested in the Companies, over time, a total of $138
million.
On September 5, 1996, as an initial step of the investment, Colony acquired
112,700 newly issued shares of paired common stock and 867,343 newly issued
shares of Series A Redeemable Preferred Stock of Realty and Operating Company
for $12,716,000, resulting in an ownership interest in the Companies of 8%.
On October 9, 1996, the Companies received an unsolicited offer from Koll
Arcadia Investors, LLC ("KAI"), an investor group comprised of Apollo Real
Estate Investors II, L.P. and principals of the Koll Company, seeking to acquire
control of the Companies. In response to this proposal, the Boards of Directors
of the Companies formed special committees of independent directors (the
"Independent Committees") to review the proposal and other proposals of a
strategic nature.
In January 1997, the Companies and Colony revised their agreement to allow
the Companies to enter into discussions and negotiations with third parties with
respect to transactions that might involve a transfer of control or other
transactions that would maximize shareholder value, and therefore would be
inconsistent with the Colony strategic alliance. Thereafter, the Companies
commenced a process in which interested parties were invited to make proposals
to the Independent Committees, which indicated that they would respond to such
parties once they had an opportunity to evaluate fully all proposals.
In January and again in March 1997, KAI revised its offer. The March offer
was announced simultaneously with an offer by Colony Capital. These offers, by
their terms, expired March 28, 1997.
On March 27, 1997, the Companies announced they had received confidential,
written proposals from several strategic and financial buyers in addition to the
previously described KAI and Colony Capital proposals and that the Companies'
Independent Committees and financial advisors had been authorized to commence
final negotiations with selected potential buyers.
Effective March 31, 1997, the August 1996 agreement with Colony was
terminated. Pursuant to the agreement, Colony was entitled to a termination fee
of $4,000,000 and reimbursement of expenses up to $500,000. The $4,500,000 was
paid on April 1, 1997 and has been reflected as "Strategic alliance termination
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6 - Strategic Alliance Transactions (Continued)
fee and expense in The Santa Anita Companies, Realty and Operating Company
statements of operations. Colony now has the right to redeem preferred shares
at the average trading price of the Companies' common stock for a period
preceding the date of Colony's redemption notice. The redemption price may be
paid by cash of $11,254,000 and a six-month note for the balance.
Note 7 - Recent Developments
In February 1997, The Financial Accounting Standards Board issued
Statement No.128, "Earnings per Share" ("FAS NO. 128"), which is required to be
adopted on december 31, 1997. At that time, The Santa Anita Companies, Realty
and Operating Company will be required to change the method currently used to
compute earnings per share and to resale all prior periods. Adoption of FAS No.
128 will have no impact on the computation of primary earnings per share for the
three months ended March 31, 1997 and 1996. Additionally, FAS No. 128 is not
expected to have a material effect on the competition of fully diluted earnings
per share for these periods .
On April 13, 1997, The Santa Anita Companies entered into a definitive
Agreement and Plan of Merger (the "Merger Agreement") with Meditrust and its
wholly owned subsidiary, Meditrust Acquisition Corporation IV (collectively
"Meditrust"). Under the terms of the Merger Agreement, Meditrust will be merged
with and into The Santa Anita Companies, and shareholders of Meditrust will
receive 1.2016 paired common shares of The Santa Anita Companies for each share
of Meditrust. This exchange is intended to be a tax-free exchange of shares.
Based upon the closing price of Meditrust on April 11, 1997 of $37.25 per share,
the transaction will have an initial value to shareholders of The Santa Anita
Companies of approximately $383 million, or $31.00 per share. Upon consummation
of the merger, the surviving corporations will be named Meditrust Corporation
and Meditrust Operating Company.
Meditrust has agreed to purchase approximately 1.2 million paired common
shares of The Santa Anita Companies at a purchase price of $31.00 per paired
common share. In addition, The Santa Anita Companies have agreed to sell to one
or more independent parties designated by Meditrust approximately 1.0 million
paired common shares at a price of $31.00 per paired common share.
The Merger Agreement also provides that, if requested by The Santa Anita
Companies, Meditrust will make available to The Santa Anita Companies $100
million (less the purchase price of the approximately 1.2 million paired common
shares acquired by Meditrust) to be used by The Santa Anita Companies for a cash
self tender or cash election to its shareholders at a price of $31.00 per paired
common share.
The transaction, which has been approved unanimously by the Boards of
Directors of The Santa Anita Companies and the Board of Trustees of Meditrust,
is subject to regulatory approvals and approvals by the shareholders of both The
Santa Anita Companies and Meditrust. The merger is not subject to any financing
conditions. The parties intend to file proxy materials for the proposed
transaction as soon as possible. The transaction is expected to close in the
fall of 1997.
Note 8 - Earnings Per Share
In February 1997, The Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("FAS No. 128"), which is required to be adopted
on December 31, 1997. At that time, The Santa Anita Companies, Realty and
Operating Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Adoption of FAS No.
128 will have no impact on the computation of primary earnings per share for the
three months ended March 31, 1997 and 1996. Additionally, FAS No. 128 is not
expected to have a material effect on the computation of fully diluted earnings
per share for these periods.
17
<PAGE>
Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SANTA ANITA REALTY ENTERPRISES, INC.
The following narrative discusses Realty's results of operations for the
three months ended March 31, 1997 and 1996, together with liquidity and capital
resources as of March 31, 1997.
Results of Operations - First Quarter 1997 Compared with First Quarter 1996
(Restated)
Realty's revenues are derived principally from the rental of real property.
Total revenues for the three months ended March 31, 1997 were $7,905,000,
compared with $9,322,000 for the three months ended March 31, 1996, a decrease
of $1,417,000. The lower 1997 revenues were due primarily to a decrease in
rental revenues from Santa Anita Racetrack and to Realty selling certain non-
core real estate assets in 1996.
The most significant source of rental revenue is the lease of Santa Anita
Racetrack. Racetrack rental revenues for 1997 were $6,440,000, a decrease of
4.1% from rental revenues of $6,715,000 in 1996. The decrease in rental
revenues was due to the decrease in total wagering. Pursuant to the terms of
the lease agreement for Santa Anita Racetrack, rental revenues are determined by
wagering levels and commission rates (see "Managements' Discussion and Analysis
of Financial Condition and Results of Operations - Operating Company - Results
of Operations - First Quarter 1997 Compared with First Quarter 1996").
Rental revenues from shopping center and office building real estate
investments in 1997 were $1,033,000, a decrease of 48.8% from revenues of
$2,016,000 in 1996. The decrease in 1997 was due primarily to the sale of three
neighborhood shopping centers located in Phoenix, Arizona, in June 1996 and one
shopping center located in Orange, California, in November 1996, and to the sale
of two office buildings located in Upland, California, in August 1996, and in
Santa Ana, California, in September 1996. As a result of Realty's intended
disposition of the remaining two shopping centers, Realty anticipates that
rental revenues will continue to decline in the remainder of 1997. Revenue from
shopping centers was $580,000 in the 1997 first quarter (see "Notes to Financial
Statements - Note 3 - Disposition of Non-Core Real Estate Assets").
Interest and other income was $432,000 in 1997, a decrease of 26.9% from
interest and other income of $591,000 in 1996. The decrease in interest and
other income was due primarily to a 1996 common stock dividend on Pacific Gulf
Properties Inc. common stock which was sold in 1996, partially offset by
interest earned on proceeds of preferred stock sold to Colony in September 1996.
Costs and expenses for 1997 were $2,456,000 (excluding costs associated
with the program for disposition of non-core real estate assets of $500,000 and
strategic alliance termination fee and expense of $4,080,000), a decrease of
33.0% from costs and expenses for 1996 of $3,666,000. The decrease in 1997
resulted primarily from decreases in shopping center and office building
operating expenses of $432,000, interest and other expense of $389,000 and
losses from unconsolidated joint ventures of $251,000.
The decrease in shopping center and office building operating costs was due
to the sale of four shopping centers and two office buildings in the 1996
second, third and fourth quarters. The decrease in interest and other expense
was due to the reduction of debt by using the proceeds from the 1996 sales of
non-core real estate assets to payoff the mortgage loans on the three Phoenix
shopping centers in June 1996 and the Orange shopping center in November 1996,
and paydown of borrowings under the revolving credit agreement. The decrease in
losses from unconsolidated joint ventures is due to improved results from Joppa
Associates.
In addition, Realty had a charge of $4,080,000 in the first quarter of 1997
relating to a contractually obligated payment made to Colony, which has been
reflected as "Strategic alliance termination fee and expense" in The Santa Anita
Companies and Realty statements of operations.
18
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources
Realty has funds available from a combination of short- and long-term
sources. Short-term sources included cash and equivalents of $13,558,000 at
March 31, 1997.
The increase in cash for the three months ended March 31, 1997, was
$637,000, compared with an increase in cash of $424,000 for the three months
ended March 31, 1996. The comparative increase in cash of $213,000 was
attributable to a decrease of $1,405,000 in cash provided by operating
activities which was more than offset by decreases of $982,000 and $636,000 in
cash used in investing activities and financing activities.
The decrease in cash provided by operating activities of $1,405,000 was due
primarily to a decrease in Santa Anita Racetrack rental revenues of $275,000, a
decrease in operating earnings of shopping centers and office buildings of
$551,000, a charge of $500,000 for the H-T Associates break-up fee and a
decrease in other liabilities, primarily accounts payable and accrued
liabilities, of $99,000 in 1997 compared with an increase in other liabilities,
primarily accounts payable and accrued liabilities, of $245,000 in 1996. These
decreases in cash provided were partially offset by a decrease in interest
expense of $389,000.
The decrease in cash used in investing activities of $982,000 was due
primarily to a decrease of $752,000 in additions to certain other assets,
primarily expenditures associated with development of the Santa Anita Commercial
Center and a decrease of $225,000 in additions to real estate assets, primarily
due to the sale of non-core real estate assets.
The decrease in cash used in financing activities of $636,000 was due
primarily to repayment of borrowings under the revolving credit agreement of
$4,950,000 in 1996 and additional borrowings under the revolving credit
agreement of $2,750,000 in 1997. These decreases in cash used were partially
offset by an increase in dividends paid, primarily due to the issuance of
preferred stock in September 1996, and an increase in intercompany receivables
of $2,366,000 in 1997, compared with an increase in intercompany payables of
$4,298,000 in 1996.
Realty has entered into a revolving credit agreement with a commercial
bank, under which it may borrow up to $20,000,000. The credit agreement
terminates on June 1, 1997. Realty is in discussions with the commercial bank
and expects to obtain an extension of the termination date, although no
assurance can be given that such an agreement will be reached. Borrowings under
the revolving credit agreement bear interest, at Realty's option, at the prime
rate, at LIBOR plus 1 1/4%, or at a certificate of deposit rate plus 1 1/4%.
Realty's Racetrack rental revenues have been pledged as collateral under the
credit agreement. At March 31, 1997, $7,300,000 was outstanding under the
credit agreement.
The revolving credit agreement contains a restriction on the payment of
dividends and certain other financial ratio and maintenance restrictions. In any
twelve-month period beginning on or after July 1, 1994, dividends are limited to
the greater of $.80 per share or an amount calculated to maintain Realty's
qualification as a REIT. Realty's current dividend policy is in compliance with
this dividend restriction. At March 31, 1997, Realty was in compliance with the
other financial ratio and maintenance restrictions. Realty expects that as a
result of the cash payment of the Colony termination fee on April 1, 1997,
Realty will be in default under one financial covenant. Realty is currently in
discussions with the commercial bank to resolve the prospective default,
however, no assurance can be given that such resolution can be obtained.
On August 19, 1996, the Companies announced a major transaction with
Colony, a Los Angeles based real estate investment company administered by
Colony Capital, Inc., which pursuant to the terms of an agreement, would have
provided for Colony to invest in the Companies, over time, a total of $138
million. The agreement was terminated effective March 31, 1997 and Colony was
paid a termination fee of $4,000,000 and reimbursed expenses of $500,000 on
April 1, 1997. See "Notes to Financial Statements - Note 6 - Strategic Alliance
Transactions".
19
<PAGE>
Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (continued)
Effective March 31, 1997, Colony has the right to redeem its 867,343
preferred shares at the average trading price of the Companies' common stock for
a period preceding the date of Colony's redemption notice. The redemption price
may be paid by cash of $11,254,000 and a six-month note for the balance. The
Companies currently have cash on hand to pay the cash portion of the redemption
price, if the shares were redeemed. The Companies expect to pay the note
balance, if necessary, by a combination of additional cash on hand, proceeds
from sales of non-core assets and borrowings under the revolving credit
agreement.
On December 6, 1996, Realty reached agreement for the sale of its 50%
partnership interest in H-T Associates to a third party. The buyer also agreed
to assume Realty's joint and several guaranty of a loan issued to expand
Towson Town Center in the amount of $66,135,000. At March 31, 1997, Realty was
in default under the minimum net worth covenant of this guaranty. The lender
may, among other things, foreclose on the assets of H-T Associates and pursue
other remedies under the guaranties, however, as of March 31, 1997 the lender
had not exercised such rights.
Under the partnership agreement, each of Realty's two partners had a right
of refusal in the event Realty chose to sell its partnership interest. In
January 1997, one of Realty's partners, TrizecHahn Centers Inc. exercised its
right of first refusal and elected to purchase Realty's interest in the
partnership, pursuant to the terms of the original sales agreement. See "Notes
to Financial Statements - Note 4 - Investments in Unconsolidated Joint
Ventures".
During 1996, Joppa Associates agreed to sell the partnership property to
Heritage Properties, Inc. for $5,500,000. The sale is expected to close in the
1997 second quarter. Realty's share of the net proceeds from the sale are
estimated to be $2,500,000. At March 31, 1997, the carrying value of Realty's
investment in Joppa Associates was $2,239,000. See "Notes to Financial
Statements - Note 4 - Investments in Unconsolidated Joint Ventures".
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 March 31, 1997, Realty has guaranteed an Operating Company
capital lease of $638,000.
At March 31, 1997, Realty's secured real estate loans receivable were
carried at $10,609,000, net of $2,472,000 of valuation allowances, and had
maturities ranging from 1997 to 2002. For the three months ended March 31,
1997, secured real estate loans receivable earned interest income of $264,000.
In the event of a "change in control", participants in the Realty and
Operating Company joint non-contributory defined benefit retirement plan will
become fully vested in plan benefits and participants in the thrift plan will
become fully vested in matching company contributions. Additionally, all Realty
stock options will become fully vested except for 200,000 Realty options whose
vesting is dependent on common stock performance.
Realty has entered into severance agreements with certain officers and key
employees. If there is a "change in control" and under certain circumstances,
one executive officer will be entitled to a lump sum payment equal to 2 1/2
times base pay, calculated as annual base salary plus average bonuses over the
preceding three calendar years. In addition, one executive officer and certain
employees will be entitled to a lump sum payment equal to one times base pay, as
calculated above. Pursuant to a resignation agreement with an executive
officer, if there is a "change in control" on or prior to May 17, 1997, he will
be entitled to an additional lump sum cash payment totaling $303,920. No
provision has been accrued or funded under this agreement.
Realty expects that proceeds from the sale of non-core real estate assets
will be used to reduce mortgage debt, to reduce borrowings under the revolving
credit agreement and for other corporate purposes.
20
<PAGE>
Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Realty expects that the funds provided by operating activities and the sale
of non-core real estate assets 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 AND SUBSIDIARIES
Operating Company is engaged in thoroughbred horse racing through its
wholly-owned subsidiary, Los Angeles Turf Club, Incorporated ("LATC"), which
leases the Santa Anita Racetrack ("Santa Anita") from Realty.
The following narrative discusses Operating Company's results of operations
for the three months ended March 31, 1997 and 1996 together with liquidity and
capital resources as of March 31, 1997.
Results of Operations - First Quarter 1997 Compared with First Quarter 1996
Operating Company derives its revenues from thoroughbred horse racing
activities. Horse racing revenues in the first quarter of 1997 were
$36,307,000, down 4.7% from $38,081,000. $600,000 of this decline was due to
the racetrack being unable to simulcast its racing signal to the state of Nevada
because of a lingering rate dispute between the Thoroughbred Owners of
California and the Nevada Pari-Mutuel Association. Management expects this
dispute to be resolved prior to the fall 1997 Oak Tree Meeting. In addition, the
decrease in race days from 66 in the first quarter of 1996 to 65 in the first
quarter of 1997 and the decrease in admissions related revenues, discussed in
the following paragraph, resulted in a decline in revenues.
In the first quarter of 1997, live thoroughbred horse racing at Santa Anita
Racetrack totaled 65 days compared with 66 days in the same period last year.
Total and average daily on-track attendance at the live racing events in the
first quarter of 1997 were down 2.9% and 1.4% from the comparable year ago
period. Total and average daily wagering in the first quarter of 1997 were down
3.6% and 2.1% compared with the same period last year. In the first quarter of
1997 compared with the same period last year: total on-track wagering decreased
5.7% while average daily wagering decreased 4.2%; total wagering at Southern
California satellite locations decreased 6.9% while average daily wagering
decreased 5.5%; total and average daily wagering at out-of-state locations
increased 3.2% and 4.8%; and total and average daily wagering at Northern
California locations decreased 6.9% and 5.4%.
Management anticipates that the movement from on-track attendance and
wagering to off-site is likely to continue albeit at a slower rate. 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 entry into such markets.
Horse racing operating costs in the first quarter of 1997 were $24,754,000
(or 68.2% of horse racing revenues) compared with $24,890,000 (or 65.4% of horse
racing revenues) in the same period last year. The operating margin decline in
the first quarter of 1997 compared with the same period last year was primarily
due to the decrease in horse racing revenues.
21
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Results of Operations - First Quarter 1997 Compared with First Quarter 1996
(Continued)
Depreciation expense in the first quarter of 1997 was $1,891,000, $134,000
higher than the $1,757,000 in the comparable period last year. The increase in
depreciation expense is due to the addition of fixed assets during 1996.
General and administrative expenses were $2,029,000 in the first quarter of
1997, a decrease of 18.0% from the $2,474,000 in the comparable period last year
due to lower executive compensation expenses in 1997. Interest expense
decreased to $54,000 in the first quarter of 1997 from $73,000 in the first
quarter of 1996.
Rental expense to Realty was $6,440,000 in the first quarter of 1997
compared with $6,715,000 in the same period last year. The decrease in rental
expense of 4.1% was due to the decrease in total wagering. Under the lease
terms between LATC and Realty, 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.
In addition, Operating Company had a charge of $420,000 in the first
quarter of 1997 relating to a contractually obligated payment made to Colony,
which has been reflected as "Strategic alliance termination fee and expense" in
The Santa Anita Companies and Operating Company statements of operations.
Seasonality
Operating Company's operations are subject to seasonal fluctuations.
Operating Company recognizes the majority of its revenues in the first quarter
due to live racing activity at Santa Anita Racetrack. Therefore, the results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the full year.
Liquidity and Capital Resources
At March 31, 1997, Operating Company's sources of liquidity included cash
and short-term investments of $23,433,000, together with a verbal commitment
from Realty to provide up to $10,000,000 in short-term borrowings. In addition,
Realty has guaranteed an Operating Company capital lease of $638,000. Operating
Company's ability to utilize Realty's line of credit is dependent upon Realty's
liquidity and capital resources. (See Item 2. "Managements' Discussion and
Analysis of Financial Condition and Results of Operations - Santa Anita Realty
Enterprises, Inc. - Liquidity and Capital Resources"). For the three months
ended March 31, 1997, short-term investments earned interest income of $97,000.
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 $2,336,000 less cash from operations in the
first quarter of 1997 compared with the same period last year. Net cash
provided by operating activities was $11,587,000 in 1997 compared with
$13,923,000 in 1996. The decrease in cash from operations was primarily due to
decreased operating income from horse racing operations and a decrease in
deferred revenues.
Net cash used in investment activities was $624,000 in the first quarter of
1997 compared with $438,000 in the same period last year. The $186,000 increase
in cash used in investment activities was attributable to an increase in capital
improvements at Santa Anita Racetrack partially offset by the utilization of
Realty stock held by Operating Company for the exercise of stock options.
22
<PAGE>
Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Net cash provided by financing activities was $2,169,000 in the first
quarter of 1997 compared with net cash used in financing activities of
$4,508,000 in the same period last year. The fluctuation is due primarily to
Operating Company prepaying its rental payments due to Realty in the first
quarter of 1996. Operating Company did not prepay those rental payments in the
first quarter of 1997.
In the event of a "change in control", participants in the Realty and
Operating Company joint non-contributory defined benefit retirement plan will
become fully vested in plan benefits and participants in the thrift plan will
become fully vested in matching company contributions. Additionally, all
Operating Company stock options will become fully vested .
Operating Company has entered into severance agreements with certain
officers and key employees. If there is a "change in control" and under certain
circumstances, executive officers will be entitled to a lump sum payment equal
to 2 1/2 times base pay, calculated as annual base salary plus average bonuses
over the preceding three calendar years. In addition, one officer will be
entitled to a lump sum payment equal to one times base pay, as calculated above.
Pursuant to resignation agreements with two executive officers, if there is a
"change in control" on or prior to May 17, 1997, they will be entitled to
additional lump sum cash payments totaling $355,666. No provision has been
accrued or funded under these agreements.
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
and 1996. Management continues to address cost containment and labor
productivity in all areas.
SPECIAL CONSIDERATIONS REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements which, to the extent
that they are not recitations of historical fact, constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1993 and
Section 21E of the Securities Exchange Act of 1934. All forward looking
statements involve risks and uncertainties. The forward looking statements in
this document are intended to be subject to the safe harbor protection provided
by Sections 27A and 21E. Reference is made in particular to Realty's plans for
future sales of its non-core assets and the use of proceeds thereof, Realty's
proposed development of land adjacent to Santa Anita Park and other forward
looking statements in the quarterly report. Such statements may be identified
by the use of terms such as "many," "will," "expect," "believe," "estimate,"
"anticipate," "intend," "continue," or similar terms. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties
23
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SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 1997
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit
Number
-------------------
<S> <C>
10.1 Memorandum of Agreement by and between Santa
Anita Realty Enterprises, Inc. and TrizecHahn
Centers, Inc., dated as of January 27, 1997, as
amended by Third Amendment dated April 4, 1997.
10.2 Amended and Restated Agreement and Plan of
Merger, dated as of April 13, 1997, by and among
Santa Anita Realty Enterprises, Inc., Santa
Anita Operating Company, Meditrust and Meditrust
Acquisition Corporation IV (incorporated by
reference to Exhibit 2 to the Current Report on
Form 8-K of Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company dated April
13, 1997).
</TABLE>
b) The following reports on Form 8-K have been filed by Santa Anita
Realty Enterprises, Inc. and Santa Anita Operating Company:
i) Current Report, dated January 7, 1997, reporting "Other Events"
pursuant to Item 5 of Form 8-K.
ii) Current Report, dated April 13, 1997, reporting "Other Events"
pursuant to Item 5 of Form 8-K.
iii) Current Report, dated April 13, 1997, reporting "Financial
Statements and Exhibits" pursuant to Item 7 of Form 8-K.
24
<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, SANTA ANITA OPERATING COMPANY
INC.
By: /s/ BRIAN L. FLEMING By: /s/ WILLIAM C. BAKER
---------------------------- --------------------------
Brian L. Fleming William C. Baker
Acting President and Chief Chairman of the Board
Executive Officer and Chief Executive Officer
and Executive Vice President (Principal Executive Officer)
Chief Financial Officer
(Principal Executive and
Financial Officer)
Date: May 2, 1997 Date: May 2, 1997
By: /s/ ROGER C. ALLEN By: /s/ ELIZABETH P. HAUG
---------------------------- ---------------------------
Roger C. Allen Elizabeth P. Haug
Controller Controller
(Principal Accounting Officer) (Principal Financial and
Accounting Officer)
Date: May 2, 1997 Date: May 2, 1997
25
<PAGE>
Exhibit 10.1
MEMORANDUM OF AGREEMENT
This Memorandum of Agreement ("AGREEMENT") is made as of the 27th day of
January, 1997, by and between Santa Anita Realty Enterprises, Inc., a Delaware
corporation ("SANTA ANITA"), and TrizecHahn Centers, Inc. (formerly known as
Ernest W. Hahn, Inc.), a California corporation ("HAHN"), with respect to the
following facts:
RECITALS
A. Santa Anita is the owner of a fifty percent (50%) interest (the
"INTEREST") in H-T Associates, a Maryland general partnership (the
"PARTNERSHIP"), of which, pursuant to the Amended and Restated Partnership
Agreement of H-T Associates, a Maryland general partnership, dated as of July
28, 1987 (the "PARTNERSHIP AGREEMENT"), the managing general and only other
partner is Hahn.
B. The Partnership owns a sixty-five percent (65%) managing partner's
interest (the "65% INTEREST") in Towson Town Center Associates, a Maryland
general partnership ("TTCA"), the only other partner in which, holding a thirty-
five percent (35%) partner's interest, is DeChiaro Associates, a Maryland
general partnership formerly known as Rachuba Associates ("DECHIARO"), pursuant
to the Restated Agreement of General Partnership of Towson Town Center
Associates, dated as of July 28, 1987, as modified by a letter agreement dated
March 26, 1991, and a Settlement Agreement dated as of November 14, 1996, and as
amended by that certain First Amendment to Restated Agreement of General
Partnership of Towson Town Center Associates dated as of November 14, 1996 (as
so modified and amended, "TTCA PARTNERSHIP AGREEMENT").
C. TTCA is the owner and operator of a regional mall located in the City
of Towson, County of Baltimore, State of Maryland and commonly known as Towson
Town Center (the "PROJECT").
D. Hahn currently acts as the property manager for the Project and is
responsible for all of TTCA's management, leasing and construction activities in
connection with the Project.
E. Hahn and Santa Anita are also partners in Joppa Associates, a Maryland
general partnership ("JOPPA"), which is the owner of property adjacent to the
Project, and consisting of a currently vacant retail building (the "JOPPA
PROPERTY").
F. The Project is subject to a loan in favor of The Bank of Tokyo-
Mitsubishi, Limited, formerly known as The Mitsubishi Bank, Limited ("BANK") in
the original amount of $170,000,000, and with a current principal balance of
approximately $164,641,000 (the "BANK LOAN"), secured inter alia by an Indemnity
----- ----
Deed of Trust (the "DEED OF TRUST"), a limited repayment guaranty, as amended,
by DeChiaro (the "DECHIARO LIMITED REPAYMENT
1
<PAGE>
GUARANTY"), repayment guarantees, as amended, by Hahn (the "HAHN REPAYMENT
GUARANTY") and Santa Anita (the "SANTA ANITA REPAYMENT GUARANTY") and other loan
documents (collectively, with the foregoing guarantees, the "BANK LOAN
DOCUMENTS"). Pursuant to First Amendment to Repayment Guaranty dated as of
August 10, 1993, "Guaranteed Debt" under the Santa Anita Repayment Guaranty is
currently in the amount of $66,135,000 principal, plus other amounts due as
specified therein. Pursuant to the Loan Documents, Bank's consent to Santa
Anita's sale of the Interest to Hahn is not required, and Bank shall release
Santa Anita from the Santa Anita Repayment Guaranty if (i) Hahn provides an
equivalent guaranty to Bank, and (ii) Hahn's creditworthiness is acceptable to
Bank.
G. For purposes of this Agreement, and except as set forth in Paragraph
28 of this Agreement, the Interest shall be deemed to include all of Santa
Anita's right, title and interest of every kind and nature in, to and with
respect to, and any and all claims of Santa Anita against, and all of Santa
Anita's obligations, duties and liabilities with respect to, the Partnership,
TTCA and the Project, including without limitation, claims for money borrowed,
and amounts shown on the books and records of the Partnership under "Advances
from Partners" as having been advanced by Santa Anita.
H. Pursuant to a Memorandum of Agreement dated as of December 6, 1996,
between Santa Anita and The Macerich Partnership, L.P. ("MACERICH"), a copy of
which was delivered to Hahn, Macerich offered acquired to acquire the Interest
on the terms and conditions specified therein. Pursuant to Section 10.2 of the
Partnership Agreement, Hahn has exercised its right of first refusal to acquire
the Interest, and Santa Anita and Hahn are entering into this Agreement to set
forth their agreement regarding the purchase and sale of the Interest.
NOW, THEREFORE, in consideration of the foregoing recitals, the covenants
and agreements set forth below, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Santa Anita and
Hahn hereby agree as follows:
AGREEMENT
1. PURCHASE AND SALE. On the "Closing Date," as defined below, for
-----------------
the "Purchase Price," as defined below, and on the other terms and conditions
set forth below, Santa Anita hereby agrees to sell, and Hahn hereby agrees to
purchase, the Interest.
2. PURCHASE PRICE.
--------------
2.1 Recognizing that the Interest reflects an indirect beneficial
ownership of 32.5% ("SANTA ANITA'S SHARE") of TTCA's assets and liabilities, and
of 50% ("SANTA ANITA'S PARTNERSHIP SHARE") of the Partnership's assets and
liabilities not included in TTCA's assets and liabilities, and direct ownership
of 100% of the obligations of TTCA and
2
<PAGE>
the Partnership to Santa Anita, the parties have agreed that the purchase price
for the Interest ("PURCHASE PRICE") shall be calculated as follows:
(a) $5,000,000 (the "BASE PRICE"); increased or decreased by the
following adjustments ("ADJUSTMENTS"), calculated based on the
Partnership's and TTCA's assets and liabilities as of the Closing Date;
(b) The Base Price shall be increased by the following
Adjustments:
(i) Santa Anita's Share (32.5%) of any decrease in the
principal amount of the Bank Loan below $164,641,000;
(ii) Santa Anita's Share (32.5%) of the amount by which
TTCA's "Adjusted Working Capital" (defined below) exceeds $3,227,000;
and
(iii) Santa Anita's Partnership Share (50.0%) of the
Partnership's positive Adjusted Working Capital (to the extent not
included in the calculation of TTCA's Adjusted Working Capital) in
excess of $227,000.
(c) The Base Price shall be decreased by the following
Adjustments:
(i) Santa Anita's Share (32.5%) of the amount by which
Adjusted Working Capital of TTCA is less than $3,227,000;
(ii) Santa Anita's Partnership Share (50%) of any negative
Adjusted Working Capital of the Partnership (to the extent not
included in the calculation of TTCA's Adjusted Working Capital) below
$227,000; and
(iii) Santa Anita's Share (32.5%) of any increase in the
principal amount of the Bank Loan above $164,641,000.
(d) Attached hereto as Attachment A is a worksheet showing the
calculation of the Purchase Price under this Paragraph 2.1, assuming a
Closing Date of June 30, 1996, which is included only as an example to
confirm the parties' understanding of the method of calculating the
Purchase Price, and does not represent any agreement by the parties as to
the accuracy of the amounts used in the worksheet.
2.2 For purposes of this Agreement, "Adjusted Working Capital" means
the following assets less the following liabilities, calculated as of the
Closing Date:
(a) Assets shall include the following:
(i) Cash; plus
3
<PAGE>
(ii) Billed accounts receivable net of customary and
appropriate allowances for doubtful accounts and costs of collection
("ALLOWANCES"); plus
(iii) Accrued but unbilled accounts receivable, net of
Allowances and excluding any deferred rents receivable; plus
(iv) Notes receivable net of Allowances; plus
(v) Prepaid expenses, excluding capitalized leasing costs,
capitalized legal costs, capitalized leasing commissions, other
deferred assets, and other assets.
(b) Liabilities shall include the following:
(i) Accrued but unpaid interest, loan fees, and swap
interest payable;
(ii) Accounts payable to Hahn, excluding Hahn's capital
account;
(iii) Accounts payable to tenants, including tenant
deposits of every kind and nature, except for security deposits in the
form of letters of credit, promissory notes or separate deposit
accounts to the extent the same are not cash obligations of TTCA and
are not reflected as assets on TTCA's books and records;
(iv) Accounts payable to others, excluding DeChiaro's
capital account;
(v) Other accrued liabilities, including unexpended but
committed tenant improvement allowances, unused rent concessions or
abatements and other commitments; and
(vi) The amount of any commitment, formal or informal, to
which the assets are subject, and which commitment does not relate
directly to operations of the Project. Without limitation of the
foregoing, any funds intended for the benefit of Joppa or the Joppa
Property shall be deemed not to relate directly to the operations of
the Project.
2.3 In calculating assets and liabilities, the accrual method shall
be utilized, including, without limitation, accruals for base rent, percentage
rent, CAM recoveries, tenant loan payments (but, consistent with Paragraph
2.2(a)(v) above, there shall not be any accrual asset for "straight lining" of
rents), real and personal property taxes and assessments, insurance, business
license taxes, security deposits, unused rental concessions, unpaid
4
<PAGE>
obligations to tenants for improvement allowances, reimbursements or otherwise,
and unpaid brokerage or leasing fees and the like, effectively prorated as of
the Closing Date in substantially the same manner as if Santa Anita owned the
Project and were selling it to Hahn pursuant to a real estate purchase agreement
subject to customary prorations.
2.4 Approximately five (5) days prior to Closing, the parties will,
to the best of their ability, calculate the Adjustments and the Purchase Price,
utilizing the 1995 audited statements for the Partnership, the most recent
monthly unaudited statement for the Partnership, and such additional available
information as may be appropriate. The Purchase Price will be estimated
initially, based on a Pre-Closing Balance Sheet prepared in accordance with such
calculations and initialled by the parties, subject to further adjustment based
upon the Audited Closing Date Balance Sheet described below.
3. AUDITED CLOSING DATE BALANCE SHEET.
----------------------------------
3.1 Hahn will cause the Partnership's outside independent certified
public accountants to prepare and issue a report ("ACCOUNTANT'S REPORT") within
ninety (90) days following the Closing, certifying an "Audited Closing Date
Balance Sheet." The cost of such certification will be borne 50% by Santa Anita
and 50% by Hahn, and each party agrees to pay its share within fifteen (15) days
of invoice therefor.
3.2 The Purchase Price will be adjusted positively or negatively on a
retroactive basis to reflect the amount, if any, by which the Purchase Price
calculated as per the Audited Closing Date Balance Sheet is greater or less than
the Purchase Price estimated pursuant to the Pre-Closing Balance Sheet
initialled by the parties. If the Audited Closing Date Balance Sheet shows a
decrease in the Purchase Price, then Santa Anita shall pay to Hahn the amount
thereof (the "SANTA ANITA POST-CLOSING PAYMENT") within fifteen (15) days of its
receipt of the Accountant's Report. If the change in Purchase Price is an
increase, then Hahn shall pay to Santa Anita the amount thereof (the "HAHN POST-
CLOSING PAYMENT") within fifteen (15) days of Hahn's receipt of the Accountant's
Report.
4. EARNEST MONEY DEPOSIT; ESCROW. Concurrently herewith, Hahn is
-----------------------------
delivering to First American Title Insurance Company, Los Angeles, California
("ESCROW HOLDER") an earnest money deposit against the Purchase Price in the
amount of $500,000, to be placed in an interest-bearing account, interest to
accrue for the benefit of Hahn (inclusive of accrued interest, the "DEPOSIT").
At the Closing described below, the Deposit shall be transferred to Santa Anita
as a portion of the Purchase Price. In the event Santa Anita shall default in
its obligations hereunder, in the event Hahn shall disapprove timely the results
of the Due Diligence Review, or in the event the Closing shall not occur by the
Closing Date specified in Paragraph 13 below, for any other reason save Hahn's
default hereunder, the Deposit shall be returned to Hahn, which shall have no
further obligations hereunder save and except as set forth in Paragraph 8 below.
5. RELEASE OF SANTA ANITA GUARANTY. From and after the date hereof,
-------------------------------
Santa Anita and Hahn will cooperate to obtain (i) the Bank's agreement that upon
Hahn's
5
<PAGE>
acquisition of the Interest and Hahn's assumption of the Santa Anita Repayment
Guaranty, or Hahn's execution of a repayment guaranty on terms that are
equivalent to the Santa Anita Repayment Guaranty, Santa Anita will be released
from the Santa Anita Repayment Guaranty (the "RELEASE OF SANTA ANITA GUARANTY"),
and (ii) the Bank's acknowledgment that (x) upon Santa Anita's transfer of the
Interest to Hahn and Hahn's assumption of the Santa Anita Repayment Guaranty (or
Hahn's execution of a repayment guaranty on terms that are equivalent to the
Santa Anita Repayment Guaranty), the Bank Loan will not be in default and, from
and after such date, the representations, warranties and covenants contained in
the Santa Anita Repayment Guaranty no longer will be applicable to Santa Anita,
(y) all payments due under the Bank Loan as of the date of such Bank Agreement
have been made and that no default interest is due or payable, and (z) the only
amounts payable as of the date thereof (which are then not yet due) are the
principal balance in the approximate amount of $164,641,000 and accrued interest
from the date of the last regular monthly payment (the "BANK AGREEMENT").
6. REPRESENTATIONS AND WARRANTIES OF HAHN. Hahn hereby represents
--------------------------------------
and warrants for the benefit of Santa Anita, its successors and assigns, all
such representations and warranties to be deemed made again at Closing, and to
survive any investigation by Santa Anita and the Closing for a period of one (1)
year, as follows:
6.1 Hahn is a corporation duly organized, validly existing and in
good standing under the laws of the State of California, with full power to own
and operate its assets and business and duly qualified to conduct business in
all jurisdictions in which such qualification is required in order for Hahn
properly to carry on its business therein.
6.2 Hahn's Board of Directors has approved the execution of this
Agreement and the consummation of the transactions contemplated hereby, and no
consent of any third party is necessary to permit Hahn to perform its
obligations hereunder.
6.3 Hahn is acquiring the Interest for investment, for its own
account, and not with a view to any distribution or sale to the public, or in
violation of applicable federal or state securities laws.
6.4 Hahn has not received any priority return or other
disproportionate distributions in excess of its pro rata share of any cash flow
or other distributions by the Partnership, such that Santa Anita is entitled to
any disproportionate share of any future distributions by the Partnership.
6.5 To the best knowledge of Hahn, the foregoing representations and
warranties do not misstate a material fact or omit to state a material fact
necessary to make such representations and warranties not misleading.
6.6 Hahn acknowledges the following:
6
<PAGE>
(a) Hahn is the managing partner of the Partnership and the
property manager and leasing agent for the Project, and is responsible for
day-to-day management, operation and leasing of the Project;
(b) The representatives of Santa Anita responsible for
negotiating the terms of the Partnership Agreement and Santa Anita's
involvement in the Partnership and the Project and for overseeing Santa
Anita's investment in the Partnership and the Project at the inception of
the Partnership and for several years thereafter are no longer employed by
Santa Anita and Santa Anita's knowledge regarding the condition, operation
and management of the Project is limited thereby.
6.7 Hahn further acknowledges that:
(a) Hahn is a sophisticated investor experienced in the
acquisition, management, operation and leasing of regional malls similar to
the Project;
(b) Except for Santa Anita's express representations and
warranties made in this Agreement and in other written agreements prepared
for this transaction, Hahn will be relying upon its status as the managing
partner of the Partnership, its management of the Project in its capacity
as property manager, and the results of its own due diligence review, and
not on any statements, promises or representations of Santa Anita or its
representatives;
(c) Hahn has had, and prior to the Closing, will have had, the
opportunity to consult with counsel and consultants of its choosing with
respect to the transaction contemplated by this Agreement; and
(d) Except as expressly set forth in this Agreement or other
written agreement prepared for this transaction, Santa Anita's sale of the
Interest to Hahn is being made on an "AS IS, WHERE IS" basis.
6.8 The term "best knowledge of Hahn," as used in this Agreement,
refers to knowledge of Wendy Godoy, Chris Schardt and Douglas Hageman, and such
individuals are the most knowledgeable executives as to the development,
operation, leasing and management of the Partnership, TTCA and the Project.
7. REPRESENTATIONS AND WARRANTIES OF SANTA ANITA. Santa Anita
---------------------------------------------
hereby represents and warrants for the benefit of Hahn, its successors and
assigns, all such representations and warranties to be deemed made again at
Closing, and to survive any investigation by Hahn and the Closing for a period
of one (1) year, as follows:
7.1 Santa Anita is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full power to own
and operate its assets and business and duly qualified to conduct business in
all jurisdictions in which
7
<PAGE>
such qualification is required in order for Santa Anita properly to carry on its
business therein.
7.2 Santa Anita's Board of Directors has approved the execution of
this Agreement and the consummation of the transactions contemplated hereby;
except for approval by Santa Anita's lender, Wells Fargo Bank, N.A. ("WELLS
FARGO") of the transactions contemplated hereby (the "WELLS FARGO CONSENT"), no
consent from any third party is necessary to permit the performance of Santa
Anita of its obligations hereunder.
7.3 Except as disclosed in Schedule 7.3, Santa Anita is not subject
to any written claim or pending litigation which would affect its rights and
obligations hereunder. Santa Anita is solvent and will not be rendered insolvent
by the consummation of the transactions contemplated hereby.
7.4 Except as disclosed in Schedule 7.4 and except for litigation
that has been brought by the Partnership or the Project against a tenant, and
with respect to which there has been no counter-claim or cross-claim brought by
the tenant against the Partnership, the Project, TTCA or Santa Anita, to the
best of Santa Anita's knowledge, none of the Partnership, TTCA or the Project is
subject to any written claim or pending litigation affecting the Partnership,
TTCA or the Project.
7.5 With the exception of that certain letter agreement dated
November 1, 1989 by and between Hahn and Santa Anita, the Partnership Agreement
has not been amended from the Amended and Restated Partnership Agreement of H-T
Associates dated as of July 28, 1987, and is in full force and effect, and Santa
Anita is not in default thereunder in any material respect.
7.6 Except as disclosed in Recital B above, the TTCA Partnership
Agreement has not been amended from the Restated Agreement of General
Partnership of Towson Town Center Associates dated as of July 28, 1987, and is
in full force and effect, and to the best of Santa Anita's knowledge, neither
the Partnership nor DeChiaro is in default thereunder, in any material respect.
7.7 Santa Anita is not in material default of any of its obligations
in connection with the Project, TTCA, the Partnership or the Bank Loan
Documents, save only and except to the extent of its not maintaining the net
worth required by the Santa Anita Repayment Guaranty. The Bank Loan Documents
listed in Attachment B have not been amended in any respect, and except as set
forth above, are currently in full force and effect without material default
thereunder by any party thereto (except that Santa Anita is not making any
representation regarding such matters with respect to Hahn). As to parties other
than Santa Anita, such representation is given as to Santa Anita's best
knowledge.
7.8 To the best knowledge of Santa Anita, there are not any material
inaccuracies in the audited financial statements of H-T Associates and
Subsidiary as of
8
<PAGE>
December 31, 1995, as certified by KPMG Marwick, LLP, and dated February 9,
1996, or in the unaudited statements and rent roll for the Project dated as of
June 30, 1996.
7.9 The Partnership has not received any priority return or other
disproportionate distributions in excess of its pro rata share of any cash flow
or other distributions by TTCA, such that DeChiaro is entitled to any
disproportionate share of any future distributions by TTCA.
7.10 Santa Anita has not received any priority return or other
disproportionate distributions in excess of its pro rata share of any cash flow
or other distributions by the Partnership, such that Hahn is entitled to any
disproportionate share of any future distributions by the Partnership.
7.11 All contributions required to be made to the Partnership by Santa
Anita as of the date hereof have in fact been made, and Santa Anita is not in
any way indebted to the Partnership.
7.12 To the best knowledge of Santa Anita, (i) all contributions
required to be made by the Partnership or DeChiaro to TTCA as of the date hereof
have been made, and (ii) neither the Partnership nor DeChiaro has any
unsatisfied obligation to TTCA.
7.13 Except as set forth in Schedule 7.13, and except such "Major
Decisions" (as defined in the Partnership Agreement and the TTCA Partnership
Agreement) as do not involve obligations of the Partnership, Santa Anita, the
Project or TTCA which are executory as of the date hereof, Santa Anita has not
approved any "Major Decisions" by the Partnership or TTCA, and to the best
knowledge of Santa Anita, no Major Decisions have been taken by the Partnership
or TTCA without Santa Anita's approval.
7.14 To the best knowledge of Santa Anita, all Major Decisions taken
by the Partnership or TTCA not involving executory obligations and not listed in
Schedule 7.14, are appropriately reflected in (i) the physical condition of the
Project, (ii) the leases currently in effect at the Project and included in
TTCA's books and records, or (iii) the financial books and records of TTCA.
7.15 Except for discussions with Macerich in connection with the
agreement described in Recital H, Santa Anita has not had any discussions with
any other person or firm concerning sale of the Interest or the Partnership's
interest in TTCA, or the Project to such person or firm or to a client or
associate of such person or firm.
7.16 To the best knowledge of Santa Anita, (i) the Project has not
been used for, or subject to, the storage or release of any Hazardous Substances
(as that term is defined in Attachment C) in violation of applicable law, and
(ii) neither TTCA nor the Partnership or Santa Anita has received any written
notice to the contrary.
9
<PAGE>
7.17 The Interest is held by Santa Anita free and clear of any and
all claims, liens or encumbrances except those imposed by the Partnership
Agreement, and represents all right, title and interest of Santa Anita and its
affiliates in and to the Partnership, TTCA and the Project.
7.18 Except as disclosed in the title insurance policy issued to TTCA,
the Project is not subject to any secured indebtedness except pursuant to the
Deed of Trust.
7.19 To the best knowledge of Santa Anita, neither TTCA nor the
Partnership is subject to any indebtedness except as set forth in the audited
financial statements of H-T Associates and Subsidiary dated as of December 31,
1995, and as may have been incurred in the ordinary course of business since
that date.
7.20 Other than this Agreement, no offer is currently pending under
Section 10.2 or Article 11 of the Partnership Agreement, or under Section 11.4
or Article 12 of the TTCA Partnership Agreement.
7.21 To the best knowledge of Santa Anita, the representations and
warranties set forth above do not misstate a material fact or fail to state a
material fact necessary to make such representations and warranties not
misleading.
7.22 The term "best knowledge of Santa Anita," as used in this
Agreement, refers to knowledge of William C. Baker and Brian L. Fleming. Mr.
Baker and Mr. Fleming of Santa Anita are the most knowledgeable executives as to
the matters set forth herein requiring the knowledge of Santa Anita.
8. DUE DILIGENCE REVIEW. The parties acknowledge that, as the
--------------------
managing partner of the Partnership and the property manager of the Project,
Hahn is in possession of the documentation concerning current operations of the
Project, TTCA and the Partnership. Hahn shall have the following periods to
conduct a due diligence review, at Hahn's sole cost and expense, and to satisfy
itself in its good faith discretion, as to the following matters (collectively,
the "DUE DILIGENCE REVIEW"): (i) until 5:00 p.m. Los Angeles time on March 12,
1997 (other than with respect to the matters described hereinafter in clause
(ii), which shall be subject to the time period set forth in that clause) with
respect to the current status of the Partnership, TTCA and the Project,
including, without limitation, copies of leases and lease files, property
management files, financial statements and back up data, property tax files, tax
returns, litigation files, governmental land use files, insurance files, Bank
Loan Documents, minutes of Partnership, TTCA and committee meetings,
correspondence relating to all of the foregoing, and such other matters
customarily subject to review in connection with the acquisition of a regional
shopping center mall, the acquisition of partnership interests, and the review
of real estate and loan documentation; and (ii) until 5:00 p.m. Los Angeles time
on March 27, 1997 with respect to the current physical and environmental
condition of the Project and title and survey matters (other than with respect
to title or survey documents on which Hahn or one of its affiliates is a
signatory). Hahn shall diligently pursue completion of its Due Diligence Review.
Promptly after the execution of this
10
<PAGE>
Agreement, Santa Anita shall deliver to Hahn copies of documents (if any) in
Santa Anita's possession and relating to the Project, the Partnership or TTCA
and not otherwise in the possession of Hahn or its affiliates. The Due Diligence
Review shall be subject to the rights of the tenants under leases of space at
the Project. Hahn shall indemnify, defend and hold harmless Santa Anita and
DeChiaro from and against any and all claims, demands, damages, losses,
liabilities, costs and expenses, including reasonable attorneys' fees, to the
extent arising out of any actual physical damage to property or injury or death
of persons caused by, or from any mechanics or materialmen's liens arising from
the acts of, Hahn or its employees, consultants or agents in conducting the Due
Diligence Review (which indemnification shall survive the Closing and the
termination of this Agreement). If Hahn fails to terminate this Agreement prior
to the respective dates set forth above, Hahn shall be deemed to have approved
the results of the Due Diligence Review.
9. PRE-CLOSING COVENANTS BY SANTA ANITA. Promptly following
------------------------------------
execution hereof, Santa Anita will:
9.1 Notify and furnish Bank with a copy of this Agreement and request
the Release of Santa Anita Guaranty and the Bank Agreement.
9.2 Notify and furnish Wells Fargo with a copy of this Agreement and
request the Wells Fargo Consent (and Santa Anita shall diligently pursue
obtaining the Wells Fargo Consent).
9.3 Transmit to DeChiaro and request its execution of an estoppel
statement as called for by the TTCA Partnership Agreement in form attached as
Attachment D (the "DECHIARO ESTOPPEL STATEMENT").
9.4 Continue to make available to Hahn any and all documentation
concerning the Partnership, TTCA or the Project which is now or which
subsequently comes into Santa Anita's possession or control and which Hahn or
its affiliates do not already possess.
9.5 Contact and work with the title insurance company which issued
the policy of title insurance currently held by TTCA in order to obtain the
"TITLE ENDORSEMENT" (defined below).
10. PRE-CLOSING COVENANTS OF HAHN. Promptly following execution
-----------------------------
hereof, Hahn will cooperate with Santa Anita to obtain the Release of Santa
Anita Guaranty and the Bank Agreement (including providing appropriate
information requested by Bank in connection therewith).
11. SANTA ANITA CONDITIONS PRECEDENT. The obligations of Santa Anita
--------------------------------
to transfer the Interest to Hahn shall be subject to satisfaction or waiver by
Santa Anita of the following conditions precedent (the "SANTA ANITA CONDITIONS
PRECEDENT"):
11
<PAGE>
11.1 Performance by Hahn of its covenants and agreements to be
performed prior to the Closing Date.
11.2 The continued truth and accuracy as of the Closing Date of the
representations and warranties of Hahn hereunder.
11.3 The receipt of the Release of Santa Anita Guaranty and the Bank
Agreement.
11.4 The obtaining of the Wells Fargo Consent.
11.5 Hahn's approval of the Pre-Closing Balance Sheet (it being
understood that such approval shall not supersede or waive the final audit as
reflected in the Audited Closing Date Balance Sheet).
11.6 The absence of litigation against the Partnership, TTCA, Santa
Anita or Hahn which seeks to preclude consummation of the transactions
contemplated hereby.
11.7 The execution and delivery to Santa Anita of an opinion of
counsel to Hahn in customary form for transactions of the type contemplated
hereby.
12. HAHN CONDITIONS PRECEDENT. Performance by Hahn of its obligations
-------------------------
to purchase the Interest from Santa Anita shall be subject to satisfaction or
waiver by Hahn of the following conditions precedent ("HAHN CONDITIONS
PRECEDENT"):
12.1 Performance by Santa Anita of its covenants and agreements to be
performed prior to the Closing Date.
12.2 The continued truth and accuracy as of the Closing Date of the
representations and warranties of Santa Anita hereunder.
12.3 The receipt of the Bank Agreement.
12.4 The execution and delivery by DeChiaro of the DeChiaro Estoppel
Statement.
12.5 Delivery by Santa Anita and reasonable approval by Hahn of the
Pre-Closing Balance Sheet.
12.6 Hahn's approval in its good faith discretion (or deemed approval)
of the results of the Due Diligence Review on or before the respective dates set
forth in Paragraph 8.
12.7 The issuance to Hahn if commercially available, of the Title
Endorsement.
12
<PAGE>
12.8 The absence of any material adverse change in the business or
assets of the Partnership, TTCA, or the Project (with the understanding that
documents or agreements executed by Hahn or Hahn's affiliates will not be
considered a material adverse change).
12.9 The absence of litigation against the Partnership, TTCA, Santa
Anita or Hahn which seeks to preclude consummation of the transactions
contemplated hereby.
12.10 The execution and delivery to Hahn of an opinion of counsel to
Santa Anita in customary form for transactions of the type contemplated hereby.
13. CLOSING. The purchase and sale of the Interest (the "CLOSING")
-------
will take place at the offices of O'Melveny & Myers LLP, 400 South Hope Street,
Los Angeles, California, at the hour of 10:00 a.m. on the tenth (10th) day
following Hahn's approval or deemed approval of the Due Diligence Review (the
"CLOSING DATE"), or at such other time and place as the parties may agree, and
provided, however, that Hahn shall not be obligated to close unless all of the
Hahn Conditions Precedent have been met or waived five (5) business days prior
to the scheduled Closing Date. Santa Anita and Hahn agree to use their good
faith efforts to cause the Closing Date to occur prior to April 9, 1997. If
despite the parties' respective good faith efforts, the Closing has not occurred
prior to June 30, 1997, then either Santa Anita or Hahn may cancel this
Agreement, and Hahn be entitled to receive the return of the Deposit.
13.1 At the Closing, Santa Anita will deliver to Hahn the following:
(a) An assignment of the Interest;
(b) An assignment of any and all claims of Santa Anita against
the Partnership, TTCA and the Project;
(c) an initialled copy of the Pre-Closing Balance Sheet;
(d) To the extent not theretofore delivered to Hahn, the
documents referenced in Paragraphs 12.3, 12.4, 12.5, 12.7 and 12.10; and
(e) Such other documents effecting the purposes of this Agreement
as counsel for Hahn may reasonably request.
13.2 At the Closing, Hahn will deliver to Santa Anita:
(a) The remainder of the Purchase Price by wire transfer of
immediately available funds;
(b) An Assumption of Santa Anita's obligations under the
Partnership Agreement, accruing from and after the Closing Date;
13
<PAGE>
(c) An Assumption of the obligations of Santa Anita under the
Santa Anita Repayment Guaranty occurring from and after the Closing Date
(or, if requested by Bank, a new repayment guaranty on terms that are
equivalent to the Santa Anita Repayment Guaranty);
(d) An initialled copy of the Pre-Closing Balance Sheet;
(e) The opinion of counsel referenced in Paragraph 11.7; and
(f) Such other documents effecting the purposes of this Agreement
as counsel for Santa Anita may reasonably request.
13.3 All documents to be delivered at the Closing shall be in form and
substance reasonably satisfactory to counsel for the party to whom they are to
be delivered.
13.4 Santa Anita shall pay any and all transfer fees or recording
costs which may be imposed (whether on Santa Anita, Hahn, the Partnership or
TTCA) by a governmental agency as a result of the transfer of the Interest from
Santa Anita to Hahn, the assignment to Hahn of the obligations owed by the
Partnership to Santa Anita, and the withdrawal of Santa Anita as a partner in
the Partnership (collectively, "TRANSFER FEES"). Santa Anita shall also pay the
cost of an appropriate endorsement, if commercially available, on TTCA's policy
of title insurance, dating down the policy to the Closing Date and reflecting
Hahn's acquisition of the Interest (the "TITLE ENDORSEMENT"). Santa Anita's
responsibility for payment of the Transfer Fees and the cost of the Title
Endorsement may be discharged at Closing by a debit in the aggregate amounts
thereof against the Purchase Price.
14. POST-CLOSING COVENANTS OF SANTA ANITA. Following the Closing,
-------------------------------------
Santa Anita will:
14.1 Make available upon request to representatives of Hahn for review
and copying any and all books and records of the Partnership or Santa Anita
pertaining to the Project, TTCA or the Partnership in Santa Anita's possession
or control and not otherwise in the possession of Hahn or its affiliates.
14.2 Pay to Hahn, if and when due, the Santa Anita Post-Closing
Payment.
14.3 Subject to the full and faithful performance by Hahn of its
obligations hereunder, and subject to the limitations set forth in Paragraph
14.6 below, defend, indemnify and hold Hahn harmless from and against any and
all claims, demands, damages, losses, liabilities, costs and expenses, including
reasonable attorneys' fees, arising out of or in connection with, Santa Anita's
ownership or operation of the Interest prior to the Closing Date, including
without limitation, any obligations to Bank under the Santa Anita Repayment
Guaranty accruing prior to the Closing Date, provided that notice of such
claims, etc. is provided in writing by Hahn to Santa Anita within one (1) year
after the Closing.
14
<PAGE>
14.4 Defend, indemnify and hold Hahn harmless from and against the
claims of any broker or any other person claiming a fee in connection with the
purchase and sale of the Interest by reason of the alleged engagement by Santa
Anita of such person or entity.
14.5 Subject to the limitations set forth in Paragraph 14.6 below,
defend, indemnify and hold Hahn harmless from and against any and all claims,
demands, damages, losses, liabilities, costs and expenses, including reasonable
attorneys' and consultants' fees, resulting from the breach by Santa Anita of
its obligations hereunder, provided that any claims, etc. relating to a breach
by Santa Anita of its representations and warranties under this Agreement may be
brought only if Hahn has notified Santa Anita of such claimed breach within one
(1) year after the Closing.
14.6 Notwithstanding the provisions of Paragraphs 14.3 and 14.5,
above, no such claim may be brought for a breach of a representation, or
warranty of Santa Anita to the extent that Hahn is aware of such breach prior to
the Closing Date and nevertheless elects to complete the Closing. Further, no
claim shall be brought under Paragraph 14.3 or Paragraph 14.5, except to the
extent, and then only to the extent that (i) Hahn did not know of such matter
prior to the Closing Date, and (ii) aggregate damages from all such claims by
Hahn under such paragraphs exceed the sum of $100,000.
15. POST-CLOSING COVENANTS OF HAHN. Following the Closing, Hahn
------------------------------
will:
15.1 Make available upon request to representatives of Santa Anita,
for review and copying, copies of any and all books and records of the
Partnership for periods ending on or prior to the last day of the fiscal year in
which the Closing Date occurs.
15.2 Pay to Santa Anita, if and when due, the Hahn Post-Closing
Payment.
15.3 Defend, indemnify and hold Santa Anita harmless from and
against the claims of any broker or any other person claiming a fee in
connection with the purchase and sale of the Interest by reason of the alleged
engagement by Hahn of such person or entity.
15.4 Subject to the full and faithful performance by Santa Anita of
its obligations hereunder, defend, indemnify and hold Santa Anita harmless from
and against any and all claims, demands, damages, losses, liabilities, costs and
expenses, including reasonable attorneys' and consultants' fees, arising out of
or in connection with operations of the Partnership, TTCA or the Project from
and after the Closing Date, including, without limitation, any obligations to
Bank under the Bank Loan Documents accruing after the Closing Date.
15.5 Subject to the full and faithful performance by Santa Anita of
its obligations hereunder, defend, indemnify and hold Santa Anita harmless from
and against any and all claims, demands, damages, losses, liabilities, costs and
expenses, including reasonable attorneys' and consultants' fees, arising out of
or in connection with, the payment of principal, interest or other charges under
the Bank Loan Documents, first coming due
15
<PAGE>
from and after the Closing Date, including without limitation, any liability
under the Santa Anita Repayment Guaranty.
15.6 Defend, indemnify and hold Santa Anita harmless from and
against any and all claims, demands, damages, losses, liabilities, costs and
expenses, including reasonable attorneys' and consultants' fees, resulting from
the breach by Hahn of its obligations hereunder, provided that any claims, etc.
relating to a breach by Hahn of its representations and warranties under this
Agreement may be brought only if Santa Anita has notified Hahn of such claimed
breach within one (1) year after the Closing.
15.7 With the cooperation and at the expense of Santa Anita, cause
to be filed as appropriate, notice of Santa Anita's withdrawal from the
Partnership and cause to be paid (at Santa Anita's expense as set forth in
Paragraph 13.4) any Transfer Fees in connection therewith.
15.8 Notwithstanding the provisions of Paragraph 15.3 and 15.6, no
such claim may be brought by Santa Anita for a breach of a representation or
warranty by Hahn to the extent that Santa Anita is aware of such breach prior to
the Closing Date, and nevertheless elects to complete the Closing.
16. NO BROKERS. Each of Santa Anita and Hahn represents to the
----------
other that it has not engaged the services of any broker, finder or similar
person or entity in connection with this Agreement or the subject matter hereof,
and each agrees to indemnify and hold the other harmless from and against any
and all claims, demands, damages, losses, liabilities, costs and expenses,
including reasonable attorneys' and consultants' fees, arising out of or in
connection with the assertion by any person, firm or entity that is entitled to
a brokerage fee, finder's fee, commission or similar payment by reason of the
actions of the indemnifying party.
17. COSTS AND EXPENSES. Except as otherwise set forth herein with
------------------
respect to the covenants and agreements (including, without limitation,
agreements to indemnify and hold harmless) by one party in favor of the other,
and except for Santa Anita's payment of Transfer Fees and the cost of the Title
Endorsement, each party shall be responsible for the payment of its own costs
and expenses incurred in connection with the preparation and negotiation of this
Agreement, including the fees and expenses of its counsel.
18. ATTORNEYS' FEES. In the event action be commenced to enforce
---------------
this Agreement, the prevailing party shall be entitled to recover its costs of
enforcement, including reasonable attorneys' fees.
19. GOVERNING LAW. This Agreement shall be construed and governed by
-------------
the laws of California applicable to contracts made and to be performed in that
State.
20. CONSTRUCTION. Each party to this Agreement has been represented
------------
by independent counsel of its own choosing, and this Agreement shall be
construed fairly in
16
<PAGE>
accordance with its terms and not strictly construed as against either party or
with regard to any presumption against the drafter.
21. COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, all of which together shall constitute a single agreement.
22. FURTHER ASSURANCES. In connection with this Agreement, as well
------------------
as all transactions contemplated hereby, each party agrees to execute and
deliver such additional documents and instruments and to perform such additional
acts as may be necessary or appropriate to effectuate, carry out or perform all
of the terms, reasons and conditions hereof, and all such transactions.
23. NOTICES. Any notice or other communication with this Agreement
-------
shall be in writing and shall be considered given when hand delivered, three (3)
days after mailing by registered or certified mail, return receipt requested,
one (1) day after pre-paid delivery to a reputable overnight courier, or upon
delivery during normal business hours of a facsimile transmission, provided the
same be followed by a mailing as set forth above, in each case to the respective
party at the following address (or at such other address as such party may have
previously specified by notice to the other party in accordance with the terms
hereof):
(a) If to Santa Anita:
Santa Anita Realty Enterprises, Inc.
301 West Huntington Drive
Suite 405
Arcadia, California 91007
Attention: Brian L. Fleming
Facsimile No.: (818) 574-0634
with a copy to:
Patricia Frobes, Esq.
Jack B. Hicks III, Esq.
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Facsimile No.: (213) 669-6407
(b) If to Hahn:
TrizecHahn Centers, Inc.
4350 La Jolla Village Drive
Suite 400
San Diego, California 92122-1233
Attention: Wendy M. Godoy
17
<PAGE>
Facsimile No.: (619) 546-3307
with copy to:
Michael C. Pruter, Esq.
Allen, Matkins, Leck, Gamble & Mallory LLP
501 West Broadway
Suite 900
San Diego, California 92101
Facsimile No.: (619) 233-1158
24. HEADINGS. All headings are inserted only for convenience and
--------
ease of reference, and are not to be considered in the construction or
interpretation of any provision of this Agreement.
25. NO THIRD PARTIES. The provisions of this Agreement are intended
----------------
to be for the sole benefit of the parties hereto, and none of the provisions of
this Agreement are intended to be, nor shall they be construed to be, for the
benefit of any third party.
26. EXCLUSIVE DEALING. Pending the Closing Date and any extension
-----------------
thereof, Santa Anita will not solicit, accept, negotiate or discuss with other
prospective purchasers any potential sale of all or any portion of the Interest,
the Project or TTCA's interest therein. The foregoing restriction shall not
apply to Santa Anita's disclosures to and discussions with (i) Colony Capital,
Inc. concerning the proposed business combination between Colony Capital, Inc.
and Santa Anita, or (ii) Koll Company and Apollo Real Estate Advisors in
connection with an offer made by such entities to invest in Santa Anita.
27. DEFINITIVE AGREEMENT. This Agreement is intended to be and shall
--------------------
be construed as a binding agreement between the parties, enforceable in
accordance with its terms.
28. JOPPA ASSOCIATES; RESERVATION OF RIGHTS. The Interest does not
---------------------------------------
include any interest of Santa Anita in Joppa or the Joppa Property, or any of
Santa Anita's rights or obligations with respect thereto. Furthermore, (i)
nothing in this Agreement shall be deemed or construed to amend, modify, limit,
supersede or alter in any way the Partnership Agreement, the TTCA Partnership
Agreement, or the respective rights, duties and obligations of the parties
thereunder with respect to matters arising prior to the Closing Date, and (ii)
notwithstanding anything to the contrary in this Agreement or in the documents
delivered by Santa Anita and Hahn on the Closing Date, the Interest does not
include, and Hahn and Santa Anita each hereby expressly reserves, all rights,
claims and remedies (including, without limitation, claims for indemnity or
contribution) that either party now has or hereafter may have under the
Partnership Agreement and/or the TTCA Partnership Agreement, and/or with respect
to their status as partners in the Partnership, for any matters relating to the
Project, the Partnership or TTCA and arising prior to the Closing Date.
18
<PAGE>
29. CONFIDENTIALITY. Prior to the Closing, except as expressly
---------------
contemplated herein, neither party will, without the consent of the other,
disclose this Agreement or the contents or subject matter hereof, except to the
extent the same may be required by legal process or federal securities laws of
which the party intending to disclose any such information shall have given the
other party written notice immediately upon being advised any intended,
attempted or actual service of such process or immediately upon considering
whether and to what extent federal securities laws may require such disclosure,
as the case may be.
30. SURVIVAL. The indemnifications set forth in Paragraphs 14 and 15
--------
shall survive the Closing.
IN WITNESS WHEREOF, the undersigned have caused the execution of this
Agreement as of the day and year first above written by their officers thereunto
duly authorized.
SANTA ANITA REALTY ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Brian L. Fleming
-------------------------------------
Its: Executive Vice President & CFO
-------------------------------
TRIZECHAHN CENTERS, INC.,
a California corporation
By: /s/ Wendy M. Godoy
-------------------------------------
Its: Senior Vice President Finance
-------------------------------
By: /s/ Douglas L. Hageman
-------------------------------------
Its: Senior Vice President and
General Counsel
-------------------------------
19
<PAGE>
ATTACHMENT A
TO
MEMORANDUM OF AGREEMENT BETWEEN
SANTA ANITA REALTY ENTERPRISES, INC.
AND
TRIZECHAHN CENTERS, INC.
EXAMPLE OF PURCHASE PRICE CALCULATIONS
A-1
<PAGE>
TOWSON TOWN CENTER
EXAMPLE OF PURCHASE
PRICE CALCULATION
<TABLE>
<S> <C> <C> <C>
Purchase price 5,000,000
working capital adjustment: TTC
based on 6-30-96 balance sheet:
cash 5,039,715
billed a/r 782,634
unbilled a/r 105,061
notes receivable 159,543
other a/r (2,416)
allowance for doubtful a/cs (478,647)
prepaids:
property taxes 5,621
prepaid int. and swap exp 192,377
prepaid cam expense 331,307
LESS:
interest, Ican fees + swap expense payable (445,694)
A/P tenants (124,511)
other accrued liabilities (1,203,038)
A/P Hahn 1,567
----------
subtotal - working capital 4,363,509
less 3,227,000
----------
working capital adj- TTC 1,136,509 32.50% 369,365
==========
working capital adjustment- TTC
based on 6-30-96 balance sheet:
cash 266,801
less 227,001
----------
working capital adj- HT 39,800 50.00% 39,801
==========
---------
TOTAL PURCHASE PRICE AS ADJUSTED 5,409,166
=========
</TABLE>
<PAGE>
ATTACHMENT B
TO
MEMORANDUM OF AGREEMENT BETWEEN
SANTA ANITA REALTY ENTERPRISES, INC.
AND
TRIZECHAHN CENTERS, INC.
BANK LOAN DOCUMENTS
1. Building Loan Agreement, dated as of May 18, 1990.
-----------------------
2. Building Loan Note, dated as of May 18, 1990.
------------------
3. Indemnity Deed of Trust and Security Agreement and Assignment of Leases and
---------------------------------------------------------------------------
Rents, dated as of May 18, 1990.
-----
4. Interest Rate and Currency Exchange Agreement, dated as of June 5, 1990.
---------------------------------------------
5. Secured Repayment Guaranty, dated as of May 18, 1990, executed by Towson
--------------------------
Town Center Associates for the benefit of The Mitsubishi Bank, Limited.
6. Repayment Guaranty, dated as of May 18, 1990, executed by Ernest W. Hahn,
------------------
Inc., for the benefit of The Mitsubishi Bank, Limited.
7. Repayment Guaranty, dated as of May 18, 1990, executed by DeChiaro
------------------
Associates for the benefit of The Mitsubishi Bank, Limited.
9. Pledge Agreement, dated as of May 18, 1990.
----------------
10. Completion Guaranty, dated as of May 18, 1990, executed by Santa Anita
-------------------
Realty Enterprises, Inc.
11. Completion Guaranty, dated as of May 18, 1990, executed by Ernest W. Hahn,
-------------------
Inc.
12. Environmental Guaranty, dated as of May 18, 1990, executed by Santa Anita
----------------------
Realty Enterprises, Inc.
13. Credit Facility and Reimbursement Agreement, dated as of May 18, 1990.
-------------------------------------------
14. Letter of Credit, dated as of __________________.
----------------
B-1
<PAGE>
ATTACHMENT C
TO
MEMORANDUM OF AGREEMENT BETWEEN
SANTA ANITA REALTY ENTERPRISES, INC.
AND
TRIZECHAHN CENTERS, INC.
HAZARDOUS SUBSTANCES
1. Environmental Law. "Environmental Law" shall mean any applicable
-----------------
federal, state, regional or local law, rule, regulation, code, ordinance,
injunction, decree or order now in effect or from time to time adopted or
amended, concerning protection of the environment or the regulation, control,
remediation or reporting of pollution or other impairment to air, soil, water
(including groundwater), public health and safety, occupational health and
safety, or the generation, storage, treatment, disposal, transportation,
handling, release, discharge or emission of any hazardous substance or other
pollutant, contaminant or waste.
2. Hazardous Substance. "Hazardous Substance" shall mean any substance
-------------------
regulated by or subject to any Environmental Law, including without limitation,
any substance defined as a "regulated substance," "hazardous substance,"
"hazardous waste," "extremely hazardous waste," "designated waste," "hazardous
material," "toxic substance," "pollutant," "toxic pollutant" or "pesticide" or
otherwise regulated by or subject to the Resource Conservation and Recovery Act,
--------------------------------------
and the Comprehensive Environmental Response, Compensation and Liability Act.
--------------------------------------------------------------------
Hazardous Substance shall mean petroleum, including crude oil or any fraction
thereof, and any petroleum product, by-product, feedstock, waste or residue and
shall include waste oil.
C-1
<PAGE>
ATTACHMENT D
TO
MEMORANDUM OF AGREEMENT BETWEEN
SANTA ANITA REALTY ENTERPRISES, INC.
AND
TRIZECHAHN CENTERS, INC.
DECHIARO ESTOPPEL STATEMENT
To be furnished.
D-1
<PAGE>
SCHEDULE 7.3
TO
MEMORANDUM OF AGREEMENT BETWEEN
SANTA ANITA REALTY ENTERPRISES, INC.
AND
TRIZECHAHN CENTERS, INC.
None
<PAGE>
SCHEDULE 7.4
TO
MEMORANDUM OF AGREEMENT BETWEEN
SANTA ANITA REALTY ENTERPRISES, INC.
AND
TRIZECHAHN CENTERS, INC.
1. McLernon v. Towson Town Center Associates, filed August 6, 1996 as Case
No., 03-C-96-007957 OT.
<PAGE>
SCHEDULE 7.13
TO
MEMORANDUM OF AGREEMENT BETWEEN
SANTA ANITA REALTY ENTERPRISES, INC.
AND
TRIZECHAHN CENTERS, INC.
None.
<PAGE>
THIRD AMENDMENT
TO
MEMORANDUM OF AGREEMENT
This THIRD AMENDMENT TO MEMORANDUM OF AGREEMENT ("Agreement"), is entered
into effective as of April 4, 1997, by and between SANTA ANITA REALTY
ENTERPRISES, INC. a Delaware corporation ("Santa Anita"), and TRIZECHAHN CENTERS
INC. (formerly known as "Ernest W. Hahn, Inc."), a California corporation
("Hahn"), with respect to the following facts:
R E C I T A L S:
- - - - - - - -
A. Santa Anita and Hahn entered into that certain Memorandum of Agreement
dated January 27, 1997, as amended by that certain First Amendment to
Memorandum of Agreement, dated March 12, 1997, and by that certain
Second Amendment to Memorandum of Agreement, dated March 27, 1997
(collectively, the "Purchase Agreement"), concerning the purchase and
sale of the "Interest" (as such term is defined in the Purchase
Agreement). Terms used in this Amendment and not otherwise defined
herein shall have the same meaning as set forth in the Purchase
Agreement.
B. The parties desire to amend the Purchase Agreement as hereinafter set
forth.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Due Diligence Review. Hahn has completed and hereby approves the results
--------------------
of its Due Diligence Review.
2. Purchase Price. Sections 2, 3, 11.5, 12.5, 13.1(c), 13.2(d), 14.2, 15.2
--------------
and Attachment A of the Purchase Agreement are hereby deleted. The
Purchase Price for the Interest shall be Three Million Nine Hundred
Thousand and No/100 Dollars ($3,900,000.00). Santa Anita shall not
receive any distributions or payments from the Partnership with respect
to the Interest (it being understood that the Purchase Price has been
adjusted partially to account for Santa Anita's share of the working
capital of the Partnership); provided, however, that if the sale of the
Interest to Hahn fails to close for any reason, this sentence shall be
of no force or effect, and Santa Anita shall have all of its rights to
receive such distributions and payments in the manner set forth in the
Partnership Agreement.
<PAGE>
3. Closing. Santa Anita and Hahn agree to use their good faith efforts to
-------
cause the Closing Date to occur prior to April 30, 1997.
4. Effect of Amendment. To the extent there is any inconsistency between
-------------------
the terms of this Amendment and the terms of the Purchase Agreement,
the terms of this Amendment shall control. All references to the
Purchase Agreement in this Amendment shall refer to the Purchase
Agreement as amended by this Agreement.
5. Counterparts. This Amendment may be executed in multiple counterparts,
------------
each of which shall be deemed an original, but all of which, together,
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first-above written.
"Santa Anita" SANTA ANITA REALTY ENTERPRISES, INC.
a Delaware corporation
By: BRIAN L. FLEMING
----------------------------------------
Name: Brian L. Fleming
----------------------------------
Title: Executive Vice President & CFO
----------------------------------
"Hahn" TRIZECHAHN CENTERS INC. (formerly known
as "Ernest W. Hahn, Inc."), a California
corporation
By: WENDY M. GODOY
----------------------------------------
Name: Wendy M. Godoy
----------------------------------
Title: Senior Vice President, Finance
----------------------------------
By: DOUGLAS L. HAGEMAN
----------------------------------------
Name: Douglas L. Hageman
----------------------------------
Title:Senior Vice President and
----------------------------------
General Counsel
----------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SANTA ANITA REALTY ENTERPRISES, INC., FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000314661
<NAME> SANTA ANITA REALTY ENTERPRISES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,558,000
<SECURITIES> 0
<RECEIVABLES> 275,000
<ALLOWANCES> (172,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 60,826,000
<DEPRECIATION> (30,869,000)
<TOTAL-ASSETS> 62,267,000
<CURRENT-LIABILITIES> 0
<BONDS> 20,309,000
0
23,728,000
<COMMON> 1,159,000
<OTHER-SE> 3,885,000
<TOTAL-LIABILITY-AND-EQUITY> 62,267,000
<SALES> 0
<TOTAL-REVENUES> 7,905,000
<CGS> 0
<TOTAL-COSTS> 258,000
<OTHER-EXPENSES> 6,223,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 555,000
<INCOME-PRETAX> 869,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 869,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,314,000)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SANTA ANITA OPERATING COMPANY, FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000313749
<NAME> SANTA ANITA OPERATING COMPANY
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 23,433,000
<SECURITIES> 0
<RECEIVABLES> 4,850,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,297,000
<PP&E> 49,647,000
<DEPRECIATION> (29,950,000)
<TOTAL-ASSETS> 50,705,000
<CURRENT-LIABILITIES> 35,154,000
<BONDS> 638,000
0
1,050,000
<COMMON> 1,150,000
<OTHER-SE> 10,850,000
<TOTAL-LIABILITY-AND-EQUITY> 50,705,000
<SALES> 0
<TOTAL-REVENUES> 36,355,000
<CGS> 0
<TOTAL-COSTS> 31,194,000
<OTHER-EXPENSES> 4,340,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,000
<INCOME-PRETAX> 767,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 767,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 767,000
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0
</TABLE>
