<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 June 30, 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
in its charter) specified 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 August 12, 1997 were:
Santa Anita Realty Enterprises, Inc. 11,601,925
Santa Anita Operating Company 11,476,424
<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 June 30, 1997 and 4
December 31, 1996
Combined Statements of Operations for the three months 5
and six months ended June 30, 1997 and 1996
Combined Statements of Cash Flows for the six months 6
ended June 30, 1997 and 1996
SANTA ANITA REALTY ENTERPRISES, INC.
Consolidated Balance Sheets as of June 30, 1997 and 7
December 31, 1996
Consolidated Statements of Operations for the three months 8
and six months ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows for the six months 9
ended June 30, 1997 and 1996
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of June 30, 1997 and 10
December 31, 1996
Consolidated Statements of Operations for the three months 11
and six months ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows for the six months 12
ended June 30, 1997 and 1996
NOTES TO FINANCIAL STATEMENTS 13
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 18
PART II. OTHER INFORMATION 27
SIGNATURES 29
</TABLE>
2
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying balance sheets as of June 30, 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 and six months
ended June 30, 1997 and 1996, and the related statements of cash flows for the
six months ended June 30, 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/A-2 of Realty and
Operating Company for the year ended December 31, 1996.
3
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets
Santa Anita Racetrack, less accumulated depreciation
of $21,742,000 and $21,069,000 $ 8,507,000 $ 9,180,000
Commercial properties, less accumulated depreciation
of $4,547,000 and $4,203,000 9,146,000 9,412,000
Commercial properties to be sold, less accumulated
depreciation of $4,395,000 9,163,000 8,986,000
Investments in and advances to unconsolidated joint ventures 1,876,000 2,297,000
Real estate loans receivable 10,541,000 10,674,000
------------ ------------
39,233,000 40,549,000
Cash and cash equivalents 18,974,000 23,222,000
Accounts receivable 2,106,000 2,442,000
Prepaid expenses and other assets 6,596,000 6,696,000
Property, plant and equipment, less accumulated
depreciation of $30,576,000 and $28,059,000 19,551,000 20,572,000
------------ ------------
$ 86,460,000 $ 93,481,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable $ 20,210,000 $ 20,407,000
Bank loans payable 6,653,000 5,417,000
Accounts payable 5,974,000 11,540,000
Other liabilities 13,394,000 13,007,000
Dividends payable 2,469,000 2,468,000
Deferred revenues 721,000 1,803,000
Deferred income taxes 1,362,000 1,282,000
------------ ------------
50,783,000 55,924,000
------------ ------------
Series A Redeemable Preferred Stock, $.10 par value;
867,343 shares authorized, issued and outstanding, at redemption value 25,540,000 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 11,475,664 and
11,474,600 shares 2,295,000 2,295,000
Additional paid-in capital 139,933,000 139,834,000
Unearned compensation expense (96,000) (685,000)
Retained earnings (deficit) (131,995,000) (126,655,000)
------------ ------------
10,137,000 14,789,000
------------ ------------
$ 86,460,000 $ 93,481,000
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues
Horse racing $13,959,000 $13,891,000 $50,266,000 $51,972,000
Rental property 1,013,000 1,971,000 2,046,000 3,987,000
Interest and other 701,000 384,000 1,171,000 1,073,000
----------- ----------- ----------- -----------
15,673,000 16,246,000 53,483,000 57,032,000
----------- ----------- ----------- -----------
Costs and expenses
Horse racing operating costs 11,597,000 10,309,000 36,351,000 35,199,000
Rental property operating expenses 293,000 682,000 551,000 1,372,000
Depreciation and amortization 981,000 982,000 3,580,000 3,457,000
General and administrative 1,674,000 1,925,000 4,464,000 5,292,000
Interest and other 619,000 753,000 1,240,000 1,704,000
Losses from unconsolidated
joint ventures 264,000 261,000 419,000 667,000
Program for disposition of non-core
real estate assets (375,000) 855,000 125,000 855,000
Strategic alliance termination fee
and expense - - 4,500,000 -
----------- ----------- ----------- -----------
15,053,000 15,767,000 51,230,000 48,546,000
----------- ----------- ----------- -----------
Net income 620,000 479,000 2,253,000 8,486,000
Preferred stock dividends 936,000 - 3,119,000 -
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shares $ (316,000) $ 479,000 $ (866,000) $ 8,486,000
=========== =========== =========== ===========
Weighted average common shares
outstanding 11,479,876 11,270,500 11,479,995 11,270,500
=========== =========== =========== ===========
Net income (loss) per common share $ (.03) $ .04 $ (.08) $ .75
=========== =========== =========== ===========
Dividends declared per common share $ .20 $ .20 $ .40 $ .40
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,253,000 $ 8,486,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,580,000 3,457,000
Amortization of unearned compensation expense 31,000 355,000
Equity in losses of unconsolidated joint ventures 419,000 667,000
Deferred income taxes 80,000 (404,000)
Program for disposition of non-core real estate assets (375,000) 855,000
Net increase in certain other assets 767,000 (591,000)
Net decrease in certain other liabilities (5,728,000) (5,132,000)
----------- ------------
Net cash provided by operating activities 1,027,000 7,693,000
----------- ------------
Cash flows from investing activities:
Payments received on loans receivable 135,000 143,000
Additions and improvements to real estate assets (255,000) (717,000)
Additions to property, plant and equipment (1,496,000) (868,000)
Additions to certain other assets (379,000) (1,859,000)
Investments in and advances to unconsolidated joint (1,055,000) (734,000)
ventures
Capital distributions from unconsolidated joint ventures 1,432,000 1,560,000
Sale of Pacific Gulf Properties Inc. common stock - 12,139,000
Sale of non-core real estate assets - 8,103,000
----------- ------------
Net cash (used in) provided by investing activities (1,618,000) 17,767,000
----------- ------------
Cash flows from financing activities:
Repayment of real estate loans payable (197,000) (6,094,000)
Proceeds from (repayment of) bank loans payable 1,236,000 (19,074,000)
Dividends paid (4,911,000) (4,508,000)
Exercise of stock options 215,000 -
----------- ------------
Net cash used in financing activities (3,657,000) (29,676,000)
----------- ------------
Net decrease in cash and cash equivalents (4,248,000) (4,216,000)
Cash and cash equivalents at beginning of year 23,222,000 13,877,000
----------- ------------
Cash and cash equivalents at June 30, $18,974,000 $ 9,661,000
=========== ============
</TABLE>
See accompanying notes.
6
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Real estate assets
Santa Anita Racetrack, less accumulated depreciation
of $21,742,000 and $21,069,000 $ 8,507,000 $ 9,180,000
Commercial properties, less accumulated depreciation
of $5,082,000 and $4,700,000 12,068,000 12,372,000
Commercial properties to be sold, less accumulated
depreciation of $4,395,000 9,163,000 8,986,000
Investments in and advances to unconsolidated joint ventures 1,876,000 2,297,000
Real estate loans receivable 10,541,000 10,674,000
------------- -------------
42,155,000 43,509,000
Cash and cash equivalents 11,887,000 12,921,000
Accounts receivable 38,000 90,000
Prepaid expenses and other assets 6,352,000 5,233,000
------------- -------------
$ 60,432,000 $ 61,753,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable $ 20,210,000 $ 20,407,000
Bank loans payable 6,250,000 4,550,000
Accounts payable 218,000 205,000
Other liabilities 1,537,000 1,700,000
Dividends payable 2,494,000 2,491,000
Due to Operating Company 1,487,000 2,007,000
------------- -------------
32,196,000 31,360,000
------------- -------------
Series A Redeemable Preferred Stock, $.10 par value;
867,343 shares authorized, issued and outstanding, at redemption value 24,263,000 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 11,601,925 and
11,586,100 shares 1,160,000 1,159,000
Additional paid-in capital 122,181,000 121,899,000
Retained earnings (deficit) (119,368,000) (114,383,000)
------------- -------------
3,973,000 8,675,000
------------- -------------
$ 60,432,000 $ 61,753,000
============= =============
</TABLE>
See accompanying notes.
7
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
1997 1996 1997 1996
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues
Rent from Racetrack $ 1,991,000 $ 1,992,000 $ 8,431,000 $ 8,707,000
Shopping centers 570,000 936,000 1,150,000 1,949,000
Office buildings 443,000 1,035,000 896,000 2,038,000
Interest and other 616,000 277,000 1,048,000 868,000
----------- ----------- ----------- -----------
3,620,000 4,240,000 11,525,000 13,562,000
----------- ----------- ----------- -----------
Costs and expenses
Shopping centers 137,000 254,000 264,000 531,000
Office buildings 156,000 428,000 287,000 841,000
Depreciation and amortization 374,000 381,000 1,101,000 1,114,000
General and administrative 803,000 897,000 1,564,000 1,790,000
Interest and other 586,000 756,000 1,141,000 1,700,000
Losses from unconsolidated joint
ventures 264,000 261,000 419,000 667,000
Program for disposition of non-core
real estate assets (375,000) 855,000 125,000 855,000
Strategic alliance termination fee
and expense - - 4,080,000 -
----------- ----------- ----------- -----------
1,945,000 3,832,000 8,981,000 7,498,000
----------- ----------- ----------- -----------
Net income 1,675,000 408,000 2,544,000 6,064,000
Preferred stock dividends 709,000 - 2,892,000 -
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shares $ 966,000 $ 408,000 $ (348,000) $ 6,064,000
=========== =========== =========== ===========
Weighted average common shares
outstanding 11,587,743 11,383,000 11,586,969 11,383,000
=========== =========== =========== ===========
Net income (loss) per common share $ .08 $ .04 $ (.03) $ .53
=========== =========== =========== ===========
Dividends declared per common share $ .20 $ .20 $ .40 $ .40
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
8
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,544,000 $ 6,064,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,101,000 1,114,000
Equity in losses of unconsolidated joint ventures 419,000 667,000
Program for disposition of non-core real estate assets (375,000) 855,000
Net increase in certain other assets (736,000) (28,000)
Net decrease in certain other liabilities (150,000) (632,000)
----------- ------------
Net cash provided by operating activities 2,803,000 8,040,000
----------- ------------
Cash flows from investing activities:
Payments received on loans receivable 135,000 143,000
Additions and improvements to real estate assets (255,000) (717,000)
Additions to certain other assets (379,000) (1,859,000)
Investments in and advances to unconsolidated joint ventures (1,055,000) (734,000)
Capital distributions from unconsolidated joint ventures 1,432,000 1,560,000
Sale of Pacific Gulf Properties Inc. common stock - 12,139,000
Sale of non-core real estate assets - 8,103,000
----------- ------------
Net cash (used in) provided by investing activities (122,000) 18,635,000
----------- ------------
Cash flows from financing activities:
Repayment of real estate loans payable (197,000) (6,094,000)
Proceeds from (repayment of) bank loans payable 1,700,000 (18,650,000)
Increase (decrease) in due to Operating Company (520,000) 2,580,000
Dividends paid (4,981,000) (4,553,000)
Exercise of stock options 283,000 -
----------- ------------
Net cash used in financing activities (3,715,000) (26,717,000)
----------- ------------
Net decrease in cash and cash equivalents (1,034,000) (42,000)
Cash at beginning of year 12,921,000 167,000
----------- ------------
Cash and cash equivalents at June 30, $11,887,000 $ 125,000
=========== ============
</TABLE>
See accompanying notes.
9
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,087,000 $ 10,301,000
Accounts receivable 2,068,000 2,352,000
Prepaid expenses and other assets 253,000 1,472,000
Due from Realty 1,487,000 2,007,000
------------ ------------
Total current assets 10,895,000 16,132,000
Investment in common stock of Realty, at cost 2,184,000 2,103,000
Property, plant and equipment, less accumulated
depreciation of $30,576,000 and $28,059,000 19,551,000 20,572,000
------------ ------------
$ 32,630,000 $ 38,807,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,756,000 $ 11,335,000
Other liabilities 11,832,000 11,284,000
Bank loans payable 403,000 867,000
------------ ------------
Total current liabilities 17,991,000 23,486,000
Deferred revenues 721,000 1,803,000
Deferred income taxes 1,362,000 1,282,000
------------ ------------
20,074,000 26,571,000
------------ ------------
Series A Redeemable Preferred Stock, $.10 par value,
867,343 shares authorized, issued and outstanding, at redemption value 1,277,000 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 11,475,664 and
11,474,600 shares 1,148,000 1,148,000
Additional paid-in capital 20,994,000 20,981,000
Unearned compensation expense (96,000) (685,000)
Retained earnings (deficit) (10,767,000) (10,258,000)
------------ ------------
11,279,000 11,186,000
------------ ------------
$ 32,630,000 $ 38,807,000
============ ============
</TABLE>
See accompanying notes.
10
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1997 1996 1997 1996
-------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues
Wagering commissions $ 8,408,000 $ 8,257,000 $34,552,000 $35,611,000
Admission related 5,551,000 5,634,000 15,714,000 16,361,000
Interest and other 125,000 202,000 173,000 388,000
----------- ----------- ----------- -----------
14,084,000 14,093,000 50,439,000 52,360,000
----------- ----------- ----------- -----------
Costs and expenses
Horse racing operating costs 11,597,000 10,309,000 36,351,000 35,199,000
Depreciation and amortization 626,000 616,000 2,517,000 2,373,000
General and administrative 871,000 1,028,000 2,900,000 3,502,000
Interest 48,000 69,000 102,000 142,000
Strategic alliance termination fee
and expense - - 420,000 -
Rental expense to Realty 1,991,000 1,992,000 8,431,000 8,707,000
----------- ----------- ----------- -----------
15,133,000 14,014,000 50,721,000 49,923,000
----------- ----------- ----------- -----------
Net income (loss) (1,049,000) 79,000 (282,000) 2,437,000
Preferred stock dividends 227,000 - 227,000 -
----------- ----------- ----------- -----------
Net income (loss) applicable to $(1,276,000) $ 79,000 $ (509,000) $ 2,437,000
common shares =========== =========== =========== ===========
Weighted average common shares
outstanding 11,479,876 11,270,500 11,479,995 11,270,500
=========== =========== =========== ===========
Net income (loss) per common share $ (.11) $ .01 $ (.04) $ .22
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
11
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (282,000) $ 2,437,000
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 2,517,000 2,373,000
Amortization of unearned compensation expense 31,000 355,000
Deferred income taxes 80,000 (404,000)
Net decrease (increase) in certain other assets 1,503,000 (563,000)
Net decrease in certain other liabilities (5,555,000) (4,500,000)
----------- -----------
Net cash used in operating activities (1,706,000) (302,000)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,496,000) (868,000)
Increase in investment in common stock of Realty (81,000) -
----------- -----------
Net cash used in investment activities (1,577,000) (868,000)
----------- -----------
Cash flows from financing activities:
Repayment of bank loans payable (464,000) (424,000)
Decrease (increase) in due from Realty 520,000 (2,580,000)
Exercise of stock options 13,000 -
----------- -----------
Net cash provided by (used in) financing activities 69,000 (3,004,000)
----------- -----------
Net decrease in cash and cash equivalents (3,214,000) (4,174,000)
Cash and cash equivalents at beginning of year 10,301,000 13,710,000
----------- -----------
Cash and cash equivalents at June 30, $ 7,087,000 $ 9,536,000
=========== ===========
</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 - 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 June
30, 1997 consisted of two neighborhood shopping centers in Southern California,
an investment in Joppa Associates, a partnership which sold the underlying
partnership property in June 1997, resulting in a gain to Realty of $375,000
(see "Note 3 - Investments in Unconsolidated Joint Ventures"), an investment in
H-T Associates, a partnership that owns 65% of Towson Town Center, which
investment was sold in July 1997 (see "Note 3 - 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 six months ended
June 30, 1997.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
-------------------------------------------------------------------
Beginning Unrealized Ending
Net Book Additions Sales and Realized Net Book
Value (Reductions) Proceeds Gain (Loss) Value
----------- ------------ -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Neighborhood Shopping Centers $ 8,706,000 $ 177,000 $ - $ - $ 8,883,000
Investment in French Valley Ventures 280,000 - - - 280,000
Investment in Joppa Associates 2,216,000 23,000 375,000 2,614,000
Investment in H-T Associates 4,047,000 (633,000) - - 3,414,000
Notes Receivable 10,674,000 (133,000) - - 10,541,000
----------- --------- -------- -------- -----------
$25,923,000 $(566,000) $ - $375,000 $25,732,000
=========== ========= ======== ======== ===========
</TABLE>
In January 1997, Realty entered into an agreement to sell the neighborhood
shopping center in Yorba Linda, California, which sale is expected to be
completed in the 1997 third quarter. The neighborhood shopping center in
Encinitas, California, is undergoing a refurbishment program to promote a sale
by the end of 1997.
13
<PAGE>
NOTE TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - DISPOSITION OF NON-CORE REAL ESTATE ASSETS (CONTINUED)
Included in the results of operations for the three months and six months
ended June 30, 1997 and 1996, were the following items of revenue and expense
pertaining to the non-core real estate assets sold or to be sold:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, Six Months Ended June 30,
----------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating income, net of interest expense, of:
Commercial properties sold $ - $ 136,000 $ - $ 255,000
Commercial properties to be sold 88,000 405,000 199,000 771,000
Joint venture operating income (loss) of:
Consolidated joint venture to be sold 10,000 (21,000) (7,000) (32,000)
Unconsoldiated joint ventures to be sold (346,000) (186,000) (634,000) (387,000)
Interest income of notes receivable to be sold 263,000 269,000 527,000 535,000
</TABLE>
NOTE 3 - INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Realty's investments in unconsolidated joint ventures include investments
in the following commercial real estate ventures at June 30, 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. Joppa Associates sold the underlying
partnership property on June 30, 1997.
Combined condensed financial statement information for unconsolidated
joint ventures as of June 30, 1997 and December 31, 1996, and for the six months
ended June 30, 1997 and 1996, is as follows (unaudited except for financial
statement information as of December 31, 1996):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Real estate assets $221,758,000 $248,675,000
============ ============
Liabilities
Secured real estate loans $224,586,000 $225,022,000
Other 13,207,000 53,826,000
------------ ------------
$237,793,000 $278,848,000
============ ============
Partners' deficit
Realty $ (8,015,000) $(15,084,000)
Others (8,020,000) (15,089,000)
------------ ------------
$(16,035,000) $(30,173,000)
============ ============
</TABLE>
14
<PAGE>
NOTE TO FINANCIAL STATEMENTS (CONTINUED
NOTE 3 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Revenues $18,375,000 $18,124,000
=========== ===========
Net Loss
Realty $ (419,000) $ (667,000)
Others (1,123,000) (1,326,000)
----------- -----------
$(1,542,000) $(1,993,000)
=========== ===========
</TABLE>
During 1996, Joppa Associates agreed to sell the partnership property for
$5,500,000. The sale of the partnership property was completed on June 30,
1997. The transaction resulted in a gain to Realty of $375,000, which has been
reflected as "Program for disposition of non-core real estate assets" in The
Santa Anita Companies and Realty statements of operations for the three months
and six months ended June 30, 1997. On July 1, 1997, Realty received
$2,590,000, substantially all of its share of the net proceeds from the sale.
These proceeds were used to repay borrowings under the revolving credit
agreement. At June 30, 1997, the carrying value of Realty's investment in Joppa
Associates was $2,614,000.
In December 1996, Realty reached agreement for the 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 $66,135,000 pertaining to a loan issued to expand Towson Town Center.
Realty's two partners in the venture have also each executed repayment
guaranties, although one of the partners has a limited repayment guaranty. At
June 30, 1997, the loan balance to which the guaranties related was
$164,641,000. The repayment guaranties contained covenants which, among other
matters, required the guarantors to maintain minimum levels of net worth. At
June 30, 1997, Realty was in default under the minimum net worth covenant and
the lender could have, among other things, foreclosed on the assets of H-T
Associates and pursued other remedies under the guaranties; however, as of June
30, 1997, the lender had not exercised such rights.
Under the H-T Associates partnership agreement, Realty's partner,
TrizecHahn Centers, Inc. ("TrizecHahn"), had a right of first refusal in the
event Realty chose to sell its partnership interest. In January 1997, TrizecHahn
exercised its right of 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 and has been
reflected as "Program for disposition of non-core real estate assets" in The
Santa Anita Companies and Realty statements of operations for the three months
ended March 31, 1997 and the six months ended June 30, 1997.
On April 4, 1997, Realty and TrizecHahn reached an agreement for a purchase
price of $3,900,000 for Realty's interest in H-T Associates. On July 15, 1997,
Realty completed the sale of its partnership interest to TrizecHahn at the
agreed purchase price and expects to report a gain of approximately $475,000 in
the 1997 third quarter. In addition, as part of the transaction, the lender
released Realty from all obligations relating to the repayment guaranties.
Proceeds from the sale were used to repay borrowings under the revolving credit
agreement. At June 30, 1997, Realty's investment in H-T Associates was
$3,414,000.
NOTE 4 - 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 accepted by the City in March 1997, but at June 30, 1997 had
not been executed. At June 30, 1997, $3,418,000 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.
15
<PAGE>
NOTE TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - 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
paired shares of Series A Redeemable Preferred Stock ("Preferred Stock") of
Realty and Operating Company for $12,716,000, resulting in an ownership interest
in the Companies of 8%.
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
fee and expense" in The Santa Anita Companies, Realty and Operating Company
statements of operations for the three months ended March 31, 1997 and the six
months ended June 30, 1997. Colony currently has the right to redeem its
Preferred Stock 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 6 - AGREEMENT AND PLAN OF MERGER
On April 13, 1997, The Santa Anita Companies entered into a definitive
Agreement and Plan of Merger which was subsequently amended on April 22, 1997
and June 20, 1997 (the "Merger Agreement") with Meditrust and its wholly-owned
subsidiaries, Meditrust Acquisition Corporation IV and Meditrust Acquisition
Company (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 initial value of the transaction to
shareholders of The Santa Anita Companies was calculated at approximately $383
million, or $31.00 per share. On August 1, 1997, the closing price of Meditrust
was $40.187. Upon consummation of the merger, the surviving corporations will
be named Meditrust Corporation and Meditrust Operating Company.
Under the Merger Agreement, Meditrust has agreed to acquire up to 9.8% of
the paired common shares of The Santa Anita Companies by acquiring newly issued
paired shares, at a purchase price of $31.00 per share, or currently outstanding
paired shares through open-market or privately negotiated transactions. In
addition, The Santa Anita Companies have agreed to sell to one or more
independent parties designated by Meditrust up to 19.6% of the paired common
shares of The Santa Anita Companies (less any newly issued paired shares
purchased by Meditrust) by issuing paired common shares at a purchase price of
$31.00 per 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 newly issued paired shares acquired pursuant
to the merger agreement) to be used by The Santa Anita Companies for a cash
election to their shareholders at a price of $31.00 per paired common share.
16
<PAGE>
NOTES TO FINANCIAL STATEMENT (CONTINUED)
NOTE 6 - AGREEMENT AND PLAN OF MERGER (CONTINUED)
The transaction, which has been approved unanimously by the Boards of
Directors of The Santa Anita Companies and the Boards of Trustees of Meditrust,
is subject to 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 mail proxy materials for the proposed transaction during the
1997 third quarter. The transaction is expected to close during the 1997 fourth
quarter.
NOTE 7 - 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 and six months ended June 30, 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
second quarter and six months ended June 30, 1997 and 1996, together with
liquidity and capital resources as of June 30, 1997.
RESULTS OF OPERATIONS - SECOND QUARTER 1997 COMPARED WITH SECOND QUARTER 1996
Realty's revenues are derived principally from the rental of real property.
Total revenues for the three months ended June 30, 1997 were $3,620,000,
compared with $4,240,000 for the three months ended June 30, 1996, a decrease of
$620,000. The lower 1997 revenues were due primarily 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 $1,991,000, compared with
rental revenues of $1,992,000 in 1996. 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 - Second Quarter 1997 Compared with Second Quarter 1996").
Rental revenues from shopping center and office building real estate
investments in 1997 were $1,013,000, a decrease of 48.6% from revenues of
$1,971,000 in 1996. The decrease in 1997 was due primarily to the sale of three
neighborhood shopping centers located in Phoenix, Arizona, in June 1996, one
shopping center located in Orange, California, in November 1996, and 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
$570,000 in the 1997 second quarter. See "Notes to Financial Statements - Note 2
- - Disposition of Non-Core Real Estate Assets."
Costs and expenses for 1997 were $2,320,000 (excluding income associated
with the program for disposition of non-core real estate assets of $375,000), a
decrease of 22.1% from costs and expenses for 1996 of $2,977,000 (excluding
costs associated with the program for disposition of non-core real estate assets
of $855,000). The decrease in 1997 resulted primarily from decreases in shopping
center and office building operating expenses of $389,000 and interest and other
expense of $170,000.
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.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX
MONTHS ENDED JUNE 30, 1996
Total revenues for the six months ended June 30, 1997 were $11,525,000,
compared with $13,562,000 for the six months ended June 30, 1996, a decrease of
$2,037,000. 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.
18
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations - Six Months Ended June 30, 1997 Compared with Six
Months Ended JUNE 30, 1996 (CONTINUED)
Racetrack rental revenues for 1997 were $8,431,000, a decrease of 3.2% from
rental revenues of $8,707,000 in 1996. The decrease in rental revenues was due
to a 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
- - Six Months Ended June 30, 1997 Compared with Six Months Ended June 30, 1996").
Rental revenues from shopping center and office building real estate
investments in 1997 were $2,046,000, a decrease of 48.7% from revenues of
$3,987,000 in 1996. The decrease in 1997 was due primarily to the sale of three
neighborhood shopping centers located in Phoenix, Arizona, in June 1996, one
shopping center located in Orange, California, in November 1996, and 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
$1,150,000 in the six months ended June 30, 1997. See "Notes to Financial
Statements - Note 2 - Disposition of Non-Core Real Estate Assets."
Costs and expenses for 1997 were $4,776,000 (excluding costs associated
with the program for disposition of non-core real estate assets of $125,000 and
strategic alliance termination fee and expense of $4,080,000), a decrease of
28.1% from costs and expenses for 1996 of $6,643,000 (excluding costs associated
with the program for disposition of non-core real estate assets of $855,000).
The decrease in 1997 resulted primarily from decreases in shopping center and
office building operating expenses of $821,000 and interest and other expense of
$559,000.
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.
In addition, Realty had a charge of $4,080,000 in the 1997 first quarter
relating to a contractually obligated payment made to Colony Investors II, L.P.
("Colony"), which has been reflected as "Strategic alliance termination fee and
expense" in The Santa Anita Companies and Realty statements of operations (see
"Notes to Financial Statements - Note 5 - Strategic Alliance Transactions").
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 $11,887,000 at June
30, 1997.
The decrease in cash for the six months ended June 30, 1997, was
$1,034,000, compared with a decrease in cash of $42,000 for the six months ended
June 30, 1996. The comparative decrease in cash of $992,000 was attributable to
a decrease of $5,237,000 in cash provided by operating activities and a decrease
of $18,757,000 in cash provided by investing activities partially offset by a
decrease of $23,002,000 in cash used in financing activities.
19
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
The decrease in cash provided by operating activities of $5,237,000 was due
primarily to a decrease in operating earnings of shopping centers and office
buildings of $1,120,000, a charge of $4,080,000 for the Colony termination fee,
a charge of $500,000 for the H-T Associates break-up fee and an increase in
other assets, primarily accounts receivable and prepaid expenses, of $736,000 in
1997 compared with an increase in other assets, primarily accounts receivable
and prepaid expenses, of $28,000 in 1996. These decreases in cash provided by
operating activities were partially offset by a decrease in other liabilities,
primarily accounts payable and accrued liabilities, of $150,000 in 1997 compared
with a decrease in other liabilities, primarily accounts payable and accrued
liabilities, of $632,000 in 1996.
The decrease in cash provided by investing activities of $18,757,000 was
due primarily to cash received on the sale of Pacific Gulf Properties Inc.
common stock of $12,139,000 and on the sale of non-core real estate assets of
$8,103,000 in 1996. These decreases were partially offset by a decrease of
$1,480,000 in additions to certain other assets, primarily expenditures
associated with development of the Santa Anita Commercial Center, and a decrease
of $462,000 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 $23,002,000 was due
primarily to repayment of borrowings under the revolving credit agreement of
$18,650,000 in 1996 compared with additional borrowings under the revolving
credit agreement of $1,700,000 in 1997 and a decrease in the repayment of
mortgage loans of $5,897,000. These decreases in cash used were partially
offset by a decrease in intercompany payables of $520,000 in 1997, compared with
an increase in intercompany payables of $2,580,000 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 December 31, 1997. 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 June 30, 1997,
$6,250,000 was outstanding under the credit agreement.
The revolving credit agreement contains a restriction on the payment of
dividends and certain other financial ratio, use 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 June 30, 1997, Realty was also in
compliance with the other financial ratio, use and maintenance restrictions.
In April 1997, Realty agreed to sell Realty's 50% partnership interest in
H-T Associates to another partner, TrizecHahn Centers Inc ("TrizecHahn"), for a
purchase price of $3,900,000, and TrizecHahn's agreement to assume Realty's
joint and several guaranty of $66,135,000 pertaining to a loan to H-T
Associates. At June 30, 1997, Realty was in default under the minimum net worth
covenant of this guaranty. As a result, the lender could have, among other
things, foreclosed on the assets of H-T Associates and pursued other remedies
under the guaranty. As of June 30, 1997, the lender had not exercised such
rights, and on July 15, 1997 the sale to TrizecHahn of Realty's interest was
completed and Realty was released from the loan guaranty. Proceeds from the sale
were used to repay borrowings under the revolving credit agreement. See "Notes
to Financial Statements - Note 3 - Investments in Unconsolidated Joint
Ventures."
During 1996, Joppa Associates agreed to sell its sole asset to Heritage
Properties Inc. for $5,500,000. This sale was completed on June 30, 1997 and on
July 1, 1997, Realty received a distribution of $2,590,000, substantially all of
its share of the net proceeds from the sale of the assets of Joppa Associates.
The proceeds were used to repay borrowings under the revolving credit agreement.
See "Notes to Financial Statements - Note 2 - Disposition of Non-Core Real
Estate Assets" and " - Note 3 - Investments in Unconsolidated Joint Ventures."
20
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
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. In addition, at June 30, 1997, Realty has guaranteed an Operating
Company capital lease of $403,000.
At June 30, 1997, Realty's secured real estate loans receivable were
carried at $10,541,000, net of $2,471,000 of valuation allowances, and had
maturities ranging from 1997 to 2002. For the six months ended June 30, 1997,
secured real estate loans receivable earned interest income of $527,000.
In September 1996, as part of a strategic alliance with Colony, the
Companies issued 867,343 paired shares of Series A Redeemable Preferred Stock to
Colony ("Preferred Stock"). See "Notes to Financial Statements - Note 5 -
Strategic Alliance Transactions." Colony has the right to redeem the Preferred
Stock at a price measured by the trading price of the Companies' common stock.
If the redemption price were measured by the closing price of the Companies'
common stock on August 1, 1997, the total redemption price would be $27,863,000.
This price must be paid within thirty days of Colony's redemption notice, and
may be paid wholly in cash or by payment of $11,254,000 in cash and a six-month
note for the balance. The Companies also have the option to deliver shares of
paired common stock in exchange for the Preferred Stock if shareholders approve
such exchange prior to the date of delivery.
If the Preferred Stock is redeemed, the Companies will deliver shares of
paired common stock if the requisite shareholder approval is obtained. The
Companies currently have cash on hand to pay the cash portion of the redemption
price. If the Companies issue a note in payment of the balance of the
redemption price, it is anticipated that the note would be paid by a combination
of additional cash-on-hand, plus proceeds from sales of non-core assets and
borrowings secured by Realty's unencumbered real estate assets. Realty's
revolving credit agreement prohibits Realty from using proceeds from revolving
credit agreement borrowings for the redemption of Preferred Stock or the payment
of notes relating to the redemption of Preferred Stock. As described in "Notes
to Financial Statements - Note 6 - Agreement and Plan of Merger," the Companies
have entered into a merger agreement with Meditrust. The Companies anticipate
that Meditrust's capital resources, which are substantially greater than those
of the companies, will be available to pay any unpaid redemption price of the
Preferred Stock. See "Managements' Discussion and Analysis of Financial
Condition and Results of Operations - Santa Anita Operating Company - Liquidity
and Capital Resources."
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.
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. No provision has been accrued or funded under these
agreements.
The mergers contemplated by the Meditrust merger agreement will constitute
a change of control for purposes of these benefits plans and severance
agreements. If such mergers, for any reason, do not occur, there will be no
"change of control" and no amounts will be payable. Realty anticipates that
Meditrust's capital resources, which are substantially greater than Realty's,
will be available to pay any amounts that are payable by reasons of a "change of
control" following the mergers.
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.
21
<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, the sale of
non-core real estate assets and any borrowings secured by Realty's unencumbered
real estate assets will provide sufficient liquidity to meet working capital
needs, reduce outstanding borrowings under the revolving credit agreement, and
provide amounts which may be required for the redemption of Preferred Stock.
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 from Realty.
The following narrative discusses Operating Company's results of operations
for the second quarter and six months ended June 30, 1997 and 1996 together with
liquidity and capital resources as of June 30, 1997.
RESULTS OF OPERATIONS - SECOND QUARTER 1997 COMPARED WITH SECOND QUARTER 1996
Operating Company derives its revenues from thoroughbred horse racing
activities. Horse racing revenues in the second quarter of 1997 were
$13,959,000 up 0.5% from $13,891,000, primarily due to an increase in on-track
attendance, partially offset by a decline in total wagering.
In the second quarter of 1997 and 1996, live thoroughbred horse racing at
Santa Anita Racetrack totaled 16 days. Total and average daily on-track
attendance at the live racing events in the second quarter of 1997 were up 5.9%
from the comparable year ago period. Total and average daily wagering in the
second quarter of 1997 were down 2.8% compared with the same period last year.
In the second quarter of 1997 compared with the same period last year: total
and average daily on-track wagering decreased 3.7%; total and average daily
wagering at Southern California satellite locations decreased 5.3%; total and
average daily wagering at out-of-state locations increased 1.2%; and total and
average daily wagering at Northern California locations decreased 4.2%.
Also, in the second quarter ended June 30, Santa Anita Racetrack operated
50 days in 1997 and 51 days in 1996 as a satellite wagering facility for
Hollywood Park. Total attendance as a satellite wagering facility was down 7.1%
while average daily attendance was down 5.2% compared with the year ago period.
Total wagering was down 6.1% while average daily wagering was down 4.2% for the
second quarter of 1997 compared with the same period last year.
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 second quarter of 1997 were $11,597,000
(or 83.1% of horse racing revenues) compared with $10,309,000 (or 74.2% of horse
racing revenues) in the same period last year. The operating margin decline
in the second quarter of 1997 compared with the same period last year
22
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - SECOND QUARTER 1997 COMPARED WITH SECOND QUARTER
1996 (CONTINUED)
was primarily due to a charge of $1,045,000 relating to an accelerated facility
renovation program in progress at the Santa Anita Racetrack. Also contributing
to the operating margin decline was the focus on increasing on-track attendance
which resulted in higher marketing costs than the year ago period.
Depreciation expense in the second quarter of 1997 was $626,000, $10,000
higher than the $616,000 in the comparable period last year.
General and administrative expense was $871,000 in the second quarter of
1997, a decrease of 15.3% from the $1,028,000 in the comparable period last year
due to lower executive compensation expense in 1997. Interest expense decreased
to $48,000 in the second quarter of 1997 from $69,000 in the second quarter of
1996.
Rental expense to Realty was $1,991,000 in the second quarter of 1997
compared with $1,992,000 in the same period last year. 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.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX
MONTHS ENDED JUNE 30, 1996
Horse racing revenues in the first six months of 1997 were $50,266,000,
down 3.3% from $51,972,000 in 1996. Approximately $700,000 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 ("TOC") and the Nevada Pari-Mutuel Association ("NPMA"), which
encompassed the simulcast signal from all California thoroughbred race tracks.
In July 1997, TOC and NPMA resolved the issue with respect to one of the
thoroughbred race tracks and Operating Company believes that it will be able to
simulcast it's signal to the state of Nevada at its upcoming race meet. In
addition, the decrease in race days from 82 in the first six months of 1996 to
81 in the first six months of 1997 and the decrease in admissions related
revenues, discussed in the following paragraph, resulted in a decline in
revenues.
In the first six months of 1997, live thoroughbred horse racing at Santa
Anita Racetrack totaled 81 days compared with 82 days in the same period last
year. Total on-track attendance at the live racing events in the first six
months of 1997 was down 1.0% and average daily on-track attendance was up 0.2%
from the comparable year ago period. Total and average daily wagering in the
first six months of 1997 were down 3.5% and 2.3% compared with the same period
last year. In the first six months of 1997 compared with the same period last
year: total and average daily on-track wagering decreased 5.3% and 4.1%; total
and average daily wagering at Southern California satellite locations decreased
6.6% and 5.4%; total and average daily wagering at out-of-state locations
increased 2.8% and 4.0%; and total and average wagering at Northern California
locations decreased 6.3% and 5.2%.
Also, in the six months ended June 30, Santa Anita Racetrack operated 50
days in 1997 and 51 days in 1996 as a satellite wagering facility for Hollywood
Park. Total attendance as a satellite wagering facility was down 7.1% while
average daily attendance was down 5.2% compared with the year ago period. Total
wagering was down 6.1% while average daily wagering was down 4.2% for the six
months ended 1997 compared with the same period last year.
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.
23
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX
MONTHS ENDED JUNE 30, 1996 (CONTINUED)
Horse racing operating costs in the first six months of 1997 were
$36,351,000 (or 72.3% of horse racing revenues) compared with $35,199,000 (or
67.7% of horse racing revenues) in the same period last year. The operating
margin decline in the first six months of 1997 compared with the same period
last year was due to a charge of $1,045,000 relating to an accelerated
renovation program in progress at the Santa Anita Racetrack. Also contributing
to the operating margin decline was the decrease in horse racing revenues.
Depreciation expense in the first six months of 1997 was $2,517,000,
$144,000 higher than the $2,373,000 in the comparable period last year. The
increase in depreciation expense is due to the addition of fixed assets during
1996.
General and administrative expense was $2,900,000 in the first six months
of 1997, a decrease of 17.2% from the $3,502,000 in the comparable period last
year due to lower executive compensation expense in 1997. Interest expense
decreased to $102,000 in the first six months of 1997 from $142,000 in the first
six months of 1996.
Rental expense to Realty was $8,431,000 in the first six months of 1997
compared with $8,707,000 in the same period last year. The decrease in rental
expense of 3.2% 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 six
months 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 (see
"Notes to Financial Statements - Note 5 - Strategic Alliance Transactions").
SEASONALITY
Operating Company's operations are subject to seasonal fluctuations.
Operating Company recognizes the majority of its revenues in the second 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 June 30, 1997, Operating Company's sources of liquidity included cash
and short-term investments of $7,087,000, 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 $403,000. 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 six months ended
June 30, 1997, short-term investments earned interest income of $224,000.
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.
24
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
Operating Company generated $1,404,000 less cash from operations in the
first six months of 1997 compared with the same period last year. Net cash used
in operating activities was $1,706,000 in 1997 compared with $302,000 in 1996.
The decrease in cash from operations was primarily due to decreased operating
income from horse racing operations.
Net cash used in investment activities was $1,577,000 in the first six
months of 1997 compared with $868,000 in the same period last year. The $709,000
increase in cash used in investment activities was attributable to an increase
in capital improvements at Santa Anita Racetrack.
Net cash provided by financing activities was $69,000 in the first six
months of 1997 compared with net cash used in financing activities of $3,004,000
in the same period last year. The fluctuation is due primarily to Operating
Company prepaying its rental payments due to Realty in the first six months of
1996. Operating Company did not prepay those rental payments in the six months
of 1997.
In May 1997, Operating Company commenced a major renovation program of the
Racetrack facility which is expected to cost in excess of $10,000,000. To
finance the program, Operating Company will borrow a substantial amount of the
renovation costs under its agreement with Realty. Operating Company's ability to
utilize Realty's line of credit is dependent upon Realty's liquidity and capital
resources. The remainder of the renovation costs will be funded from cash
currently on hand.
See "Managements' Discussion and Analysis of Financial Condition and
Results of Operations - Santa Anita Realty Enterprises, Inc. - Liquidity and
Capital Resources" for discussion of the possible redemption of Preferred Stock.
If the preferred stock is redeemed, Operating Company's ability to meet its
obligations upon a cash redemption is dependent on Realty's ability to provide
short-term loans to Operating Company
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.
No provision has been accrued or funded under these agreements.
The mergers contemplated by the Meditrust merger agreement will constitute
a change of control for purposes of these benefits plans and severance
agreements. If such mergers, for any reason, do not occur, there will be no
"change of control" and no amounts will be payable. Operating Company
anticipates that Meditrust's capital resources, which are substantially greater
than Operating Company's, will be available to pay any amounts that are payable
by reasons of a "change of control" following the mergers.
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.
25
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 1933 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 "may," "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
26
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1997, a first amended purported class action complaint was filed
by Barbara J. Gignac, William Steiner and Crandon Capital Partners in the
Superior Court for Los Angeles County, California, naming as defendants the
Companies and certain of their officers and directors. The amended complaint
alleges breaches of fiduciary duties by the individually named defendants, as a
result of the proposed transaction with Meditrust ("Meditrust Transaction"), for
not conducting a full auction process for change of control of the Companies,
not fully investigating the terms of the Meditrust Transaction and not engaging
in further negotiations with respect to a publicly announced competing bid. The
suit seeks certification of the class and certification of the plaintiffs as
representatives of the class, declaration that the defendants have breached
their fiduciary duties, a preliminary and permanent injunction from consummating
the Meditrust Transaction and disseminating a proxy to solicit votes to approve
the Meditrust Transaction until defendants have properly negotiated with all
offerors for control of the Companies, rescission of the Meditrust Transaction
in the event it is consummated, compensatory damages of an unspecified amount
and costs and expenses. The defendants believe the allegations in the first
amended complaint are without merit and intend to contest vigorously the claims
asserted against them in this lawsuit.
In May 1997, a complaint was filed by 13 Nevada corporations (the "Pari-
Mutuel Books") against Los Angeles Turf Club, Incorporated ("LATC") and a third
party in the District Court of Clark County, Nevada, alleging breach of
contract. In June 1997, the Pari-Mutuel Books amended the complaint to include
additional legal claims, all related to LATC's non-delivery of audiovisual
signals of races conducted at Santa Anita Racetrack to the Pari-Mutuel Books.
The litigation has now been removed to Federal District Court in the State of
Nevada. The suit seeks compensatory and punitive damages of an unspecified
amount, injunctive relief, specific performance, an order that certain approvals
are not required by law for the delivery of live video signals to the Pari-
Mutuel Books and costs and expenses. LATC believes the allegations are without
merit and intends to contest vigorously the claims asserted against it in this
lawsuit.
27
<PAGE>
PART II. OTHER INFORMATION (Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
Exhibit
Number
--------
4.1 Fourth Amendment dated as of June 1, 1997, to Credit Agreement
dated as of November 9, 1994 between First Interstate Bank of
California and Santa Anita Realty Enterprises, Inc.
10.1 Second Amended and Restated Agreement and Plan of Merger, dated
as of April 13, 1997, by and between Santa Anita Realty
Enterprises, Inc., Santa Anita Operating Company, Meditrust,
Meditrust Acquisition Company and Meditrust Acquisition
Corporation IV (incorporated by reference to Exhibit 1 of Item
7 of Amendment No. 2 to Schedule 13D filed by Meditrust dated
June 19, 1997)
27 (a) Financial Data Schedule for Santa Anita Realty Enterprises,
Inc.
27 (b) Financial Data Schedule for Santa Anita Operating Company.
(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 April 13, 1997, reporting "Other Events"
pursuant to Item 5 of Form 8-K.
ii) Current Report, dated April 13, 1997, reporting "Financial Statements
and Exhibits" pursuant to Item 7 of Form 8-K.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Realty and Operating Company have duly caused this report
to be signed on their behalf by the undersigned, thereunto duly authorized.
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
By: /s/ 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 and Chief Executive Officer
Executive Vice President and (Principal Executive Officer)
Chief Financial Officer
(Principal Executive, Financial and
Accounting Officer)
Date: August 12, 1997 Date: August 12, 1997
By: /s/ ELIZABETH P. HAUG
-----------------------------
Elizabeth P. Haug
Controller
(Principal Financial and
Accounting Officer)
Date: August 12, 1997
29
<PAGE>
EXHIBIT 4.1
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of June 1, 1997 by and between Santa Anita Realty Enterprises, Inc., a
Delaware corporation ("Borrower") and Wells Fargo Bank, National Association,
successor-by-merger to First Interstate Bank of California ("Bank").
RECITALS
--------
WHEREAS, Borrower is presently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank dated as
of November 9, 1994, as such agreement may be amended from time to time (the
"Credit Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the Credit
Agreement to reflect such changes;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. The term "Maturity Date" as defined in Section 1.01 of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
"Maturity Date": December 31, 1997.
-------------
2. The term "Revolving Commitment" as defined in Section 1.01 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
"Revolving Commitment": For the period of time from and including June
--------------------
30, 1996 through and including the Maturity Date, the amount of
$20,000,000, as such amount my be reduced pursuant to Section 2.01(d).
3. Bank and Borrower hereby agree for the fiscal quarters ending June 30,
1997, September 30, 1997 and December 31, 1997, Borrower may exclude from the
calculation of Interest Coverage
<PAGE>
Ratio set forth in Section 6.02(c) of the Credit Agreement the $4,500,000 paid
by Borrower to Colony Investors II, L.P. on April 1, 1997.
4. The following provision is hereby added to the Credit Agreement as
Section 6.02(o), to read as follows:
(o) Redemption of Stock. Utilize any part of the proceeds of any
-------------------
Loans to redeem preferred stock or pay promissory notes evidencing
indebtedness relating to the redemption of preferred stock currently owned
by Colony Investors II, L.P.
5. Borrower shall pay to Bank a commitment fee for the Revolving Commitment
equal to $29,315.07, which fee shall be due and payable in full on the date
Borrower executes this Amendment.
6. Borrower shall reimburse Bank immediately upon demand for all costs and
expenses, including reasonable attorneys' fees (to include outside counsel fees
and all allocated costs of Bank's in-house counsel) expended or incurred by Bank
in connection with this Amendment.
7. Except as specifically provided herein, all terms and conditions of the
Credit Agreement and the other Loan Documents remain in full force and effect,
without waiver or modification. All terms defined in the Credit Agreement shall
have the same meaning when used in this Amendment. This Amendment and the Credit
Agreement shall be read together, as one document.
8. Borrower hereby remakes all representations and warranties contained in
the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further represents and warrants that as of the date of this Amendment there
exists no Event of Default as defined in the Credit Agreement, nor any
condition, act or event which with the giving of notice or the passage of time
or both would constitute any such Event of Default.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
SANTA ANITA REALTY WELLS FARGO BANK,
ENTERPRISES, INC. NATIONAL ASSOCIATION
By: /s/ Brian L. Fleming By: /s/ Daniel F. Maddox
---------------------------- ---------------------
Title: Executive Vice President Daniel F. Maddox
------------------------ Vice President
<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 JUNE 30, 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> JUN-30-1997
<CASH> 11,887,000
<SECURITIES> 0
<RECEIVABLES> 155,000
<ALLOWANCES> (117,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 60,957,000
<DEPRECIATION> (31,219,000)
<TOTAL-ASSETS> 60,432,000
<CURRENT-LIABILITIES> 0
<BONDS> 20,210,000
0
24,263,000
<COMMON> 1,160,000
<OTHER-SE> 2,813,000
<TOTAL-LIABILITY-AND-EQUITY> 60,432,000
<SALES> 0
<TOTAL-REVENUES> 11,525,000
<CGS> 0
<TOTAL-COSTS> 551,000
<OTHER-EXPENSES> 7,289,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,141,000
<INCOME-PRETAX> 2,544,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,544,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (348,000)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
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<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 JUNE 30, 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> JUN-30-1997
<CASH> 7,087,000
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<RECEIVABLES> 2,068,000
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<CURRENT-ASSETS> 10,895,000
<PP&E> 50,127,000
<DEPRECIATION> (30,576,000)
<TOTAL-ASSETS> 32,630,000
<CURRENT-LIABILITIES> 17,991,000
<BONDS> 403,000
0
1,277,000
<COMMON> 1,148,000
<OTHER-SE> 10,131,000
<TOTAL-LIABILITY-AND-EQUITY> 32,630,000
<SALES> 0
<TOTAL-REVENUES> 50,439,000
<CGS> 0
<TOTAL-COSTS> 44,782,000
<OTHER-EXPENSES> 5,837,000
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<INTEREST-EXPENSE> 102,000
<INCOME-PRETAX> (282,000)
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<NET-INCOME> (509,000)
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