UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
- --------------------------------------------------------------------------------
FORM 10-Q
- --------------------------------------------------------------------------------
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
------------------------------------------------
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- -------------------
Commission file number 001-12917
---------------------------------------------------------
WELLSFORD REAL PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Maryland 13-3926898
- ---------------------------------- ----------------------------------------
(State of Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
535 Madison Avenue, New York, NY 10022
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 838-3400
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----------- -----------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
----------- -----------
The number of the registrant's shares of common stock outstanding was 6,455,074
as of August 6, 2003 (including 169,903 shares of class A-1 common stock).
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Number
------
PART I. FINANCIAL INFORMATION:
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2003 (unaudited)
and December 31, 2002.........................................3
Consolidated Statements of Operations (unaudited) for the
Six Months Ended June 30, 2003 and 2002.......................4
Consolidated Statements of Cash Flows (unaudited) for the
Six Months Ended June 30, 2003 and 2002.......................5
Notes to Consolidated Financial Statements (unaudited)............6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......29
Item 4. Controls and Procedures..........................................30
PART II. OTHER INFORMATION:
-----------------
Item 1. Legal Proceedings................................................31
Item 4. Submission of Matters to a Vote of Security Holders..............31
Item 6. Exhibits and Reports on Form 8-K.................................31
Signatures ........................................................33
Exhibits ........................................................34
-2-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2003 2002
---- ----
(unaudited)
ASSETS
Real estate assets, at cost:
Land ........................................................ $ 19,402,840 $ 19,402,840
Buildings and improvements .................................. 117,329,686 117,320,307
------------- -------------
136,732,526 136,723,147
Less:
Accumulated depreciation ................................. (15,026,939) (12,833,600)
------------- -------------
121,705,587 123,889,547
Residential units available for sale ........................ 11,809,796 14,541,634
Construction in progress .................................... 5,410,831 5,410,831
------------- -------------
138,926,214 143,842,012
Notes receivable ............................................... 28,096,000 28,612,000
Assets held for sale ........................................... 6,277,699 6,255,666
Investment in joint ventures ................................... 94,408,974 94,180,991
------------- -------------
Total real estate and investments .............................. 267,708,887 272,890,669
Cash and cash equivalents ...................................... 40,801,059 38,581,841
Restricted cash and investments ................................ 9,412,800 9,543,934
Prepaid and other assets ....................................... 11,075,783 11,758,599
------------- -------------
Total assets ................................................... $ 328,998,529 $ 332,775,043
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ...................................... $ 110,203,140 $ 112,232,830
Accrued expenses and other liabilities, including
the liability for deferred compensation of
$9,249,761 and $8,933,607 ................................. 13,913,765 15,312,782
Liabilities attributable to assets held for sale ............ 171,370 224,007
------------- -------------
Total liabilities .............................................. 124,288,275 127,769,619
------------- -------------
Company-obligated, mandatorily redeemable convertible preferred
securities of WRP Convertible Trust I, holding solely
8.25% junior subordinated debentures of Wellsford Real
Properties, Inc. ("Convertible Trust Preferred Securities").. 25,000,000 25,000,000
Minority interest .............................................. 3,396,778 3,438,127
Commitments and contingencies
Shareholders' equity:
Series A 8% convertible redeemable preferred stock,
$.01 par value per share, 2,000,000 shares authorized,
no shares issued and outstanding .......................... -- --
Common stock, 98,825,000 shares authorized, $.02 par
value per share - 6,283,827 and 6,280,683 shares
issued and outstanding .................................... 125,677 125,614
Class A-1 common stock, 175,000 shares authorized,
$.02 par value per share - 169,903 shares
issued and outstanding .................................... 3,398 3,398
Paid in capital in excess of par value ...................... 162,724,435 162,751,498
Retained earnings ........................................... 20,011,322 20,617,085
Accumulated other comprehensive loss; share of unrealized
loss on interest rate protection contract purchased by
joint venture investment, net of income tax benefit ...... (100,889) (253,500)
Deferred compensation ....................................... (126,333) (277,664)
Treasury stock, 306,843 and 311,624 shares .................. (6,324,134) (6,399,134)
------------- -------------
Total shareholders' equity ..................................... 176,313,476 176,567,297
------------- -------------
Total liabilities and shareholders' equity ..................... $ 328,998,529 $ 332,775,043
============= =============
See notes to Consolidated Financial Statements
-3-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
REVENUES
Rental revenue .................................. $ 3,592,216 $ 3,664,692 $ 7,506,325 $ 7,082,808
Revenue from sales of residential units ......... 2,461,139 2,245,269 3,657,139 4,323,854
Interest revenue ................................ 941,107 1,042,645 1,899,150 2,110,812
Fee revenue ..................................... 313,172 145,029 878,570 262,009
------------ ------------ ------------ -------------
Total revenues ............................... 7,307,634 7,097,635 13,941,184 13,779,483
------------ ------------ ------------ -------------
COSTS AND EXPENSES
Cost of sales of residential units .............. 2,125,977 2,033,158 3,180,731 3,938,718
Property operating and maintenance .............. 1,311,937 1,165,445 2,282,987 2,321,035
Real estate taxes ............................... 374,971 337,712 705,966 661,156
Depreciation and amortization ................... 1,208,605 1,250,434 3,434,821 2,458,311
Property management ............................. 73,364 112,769 151,287 217,286
Interest ........................................ 1,668,659 1,455,074 3,253,746 2,948,810
General and administrative ...................... 1,414,875 1,658,177 2,925,078 3,331,840
------------ ------------ ------------ ------------
Total costs and expenses ..................... 8,178,388 8,012,769 15,934,616 15,877,156
------------ ------------ ------------ ------------
(Loss) income from joint ventures .................. (790,177) 329,582 2,335,295 749,785
------------ ------------ ------------ ------------
(Loss) income before minority interest, income taxes,
accrued distributions and amortization of costs
on Convertible Trust Preferred Securities and
discontinued operations ......................... (1,660,931) (585,552) 341,863 (1,347,888)
Minority interest benefit .......................... 47,124 25,977 41,349 71,447
------------ ------------ ------------ ------------
(Loss) income before income taxes, accrued
distributions and amortization of costs on
Convertible Trust Preferred Securities
and discontinued operations ..................... (1,613,807) (559,575) 383,212 (1,276,441)
Income tax (benefit) expense ....................... (676,000) (4,000) 189,000 (38,000)
------------ ------------ ----------- ------------
(Loss) income before accrued distributions and
amortization of costs on Convertible Trust
Preferred Securities and discontinued
operations ....................................... (937,807) (555,575) 194,212 (1,238,441)
Accrued distributions and amortization of costs
on Convertible Trust Preferred Securities,
net of income tax benefit of $30,000, $105,000,
$210,000 and $210,000, respectively .............. 494,953 419,953 839,907 839,907
------------ ------------ ----------- -----------
(Loss) from continuing operations ................... (1,432,760) (975,528) (645,695) (2,078,348)
(Loss) income from discontinued operations,
net of income tax (benefit) expense of
$(13,000), $20,000, $10,000 and $27,000,
respectively .................................... (5,542) 82,142 39,932 108,548
------------ ------------ ----------- -----------
Net (loss) ......................................... $ (1,438,302) $ (893,386) $ (605,763) $(1,969,800)
============ ============ =========== ============
Per share amounts, basic and diluted:
(Loss) from continuing operations ................ $ (0.22) $ (0.15) $ (0.10) $ (0.32)
(Loss) income from discontinued operations ....... -- 0.01 0.01 0.01
------------ ------------ ----------- -----------
Net (loss) ....................................... $ (0.22) $ (0.14) $ (0.09) $ (0.31)
============ ============ =========== ============
Weighted average number of common shares
outstanding, basic and diluted .................. 6,453,730 6,437,390 6,452,916 6,423,397
============ ============ =========== ============
See notes to Consolidated Financial Statements
-4-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
June 30,
------------------------
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations ............................. $ (645,695) $ (2,078,348)
Adjustments to reconcile (loss) from continuing operations
to net cash provided by (used in) operating activities:
Depreciation and amortization ......................... 3,453,478 2,476,968
Amortization of deferred compensation ................. 151,331 621,666
Undistributed joint venture income .................... (1,247,946) (570,407)
Undistributed minority interest benefit ............... (41,349) (71,447)
Shares issued for director compensation ............... 48,000 44,000
Changes in assets and liabilities:
Restricted cash and investments .................... 131,134 (1,756,463)
Residential units available for sale ............... 2,731,838 3,099,325
Prepaid and other assets ........................... 922,132 1,424,938
Accrued expenses and other liabilities ............. (1,399,017) (3,633,686)
------------ ------------
Net cash provided by (used in) operating activities ... 4,103,906 (443,454)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets ........................... (9,379) (204,288)
Investments in joint ventures and other entities:
Capital contributions ................................. -- (209,800)
Repayments of notes receivable .............................. 516,000 6,172,727
------------ ------------
Net cash provided by investing activities ............. 506,621 5,758,639
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing from mortgage notes payable ....................... 40,000,000 --
Deferred financing costs .................................... (326,881) --
Repayment of mortgage notes payable ......................... (42,029,690) (4,019,067)
Interest funded by construction loan......................... -- 431,120
Proceeds from option exercises .............................. -- 676,446
Distributions to minority interest .......................... -- (15,232)
------------ ------------
Net cash (used in) financing activities ............... (2,356,571) (2,926,733)
------------ ------------
Net cash provided by continuing operations ..................... 2,253,956 2,388,452
Net cash (used in) provided by discontinued operations ......... (34,738) 81,606
------------ ------------
Net increase in cash and cash equivalents ...................... 2,219,218 2,470,058
Cash and cash equivalents, beginning of period ................. 38,581,841 36,092,309
------------ ------------
Cash and cash equivalents, end of period ....................... $ 40,801,059 $ 38,562,367
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest .................... $ 3,266,993 $ 2,645,385
============ ============
Cash paid during the period for income taxes, net of tax
refunds ................................................... $ 34,412 $ (120,278)
============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Release of shares held in deferred compensation plan ..... $ 75,000 $ 50,000
============ ===========
Other comprehensive income (loss); share of unrealized loss
on interest rate protection contract purchased
by joint venture investment, net of tax benefit ....... $ 152,611 $ (121,614)
============ ============
Net reclass of 28 Silver Mesa units from land, building
and improvements and accumulated depreciation to
residential units available for sale in 2002 .......... $ -- $ 4,413,808
============ ============
See notes to Consolidated Financial Statements
-5-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Business
Wellsford Real Properties, Inc. (and its subsidiaries, collectively the
"Company"), was formed as a Maryland corporation on January 8, 1997 as a
corporate subsidiary of Wellsford Residential Property Trust (the "Trust").
On May 30, 1997, the Trust merged (the "Merger") with Equity Residential
Properties Trust ("EQR"). Immediately prior to the Merger, the Trust
contributed certain of its assets to the Company and the Company assumed
certain liabilities of the Trust. Immediately after the contribution of
assets to the Company and immediately prior to the Merger, the Trust
distributed to its common shareholders all the outstanding shares of the
Company owned by the Trust (the "Spin-off"). On June 2, 1997, the Company
sold 6,000,000 shares of its common stock in a private placement to a group
of institutional investors at $20.60 per share, the Company's then book
value per share.
The Company is a real estate merchant banking firm headquartered in New
York City which acquires, develops, finances and operates real properties
and organizes and invests in private and public real estate companies. The
Company has established three strategic business units ("SBUs") within
which it executes its business plan: (i) Commercial Property Investments
which are held in the Company's subsidiary, Wellsford Commercial Properties
Trust, through its ownership interest in Wellsford/Whitehall Group, L.L.C.
("Wellsford/Whitehall"); (ii) Debt and Equity Investments-Wellsford Capital
SBU; and (iii) Development and Land Investments-Wellsford Development SBU.
See Note 3 for additional information regarding the Company's SBUs.
2. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION AND FINANCIAL STATEMENT PRESENTATION. The
accompanying consolidated financial statements include the accounts of the
Company and its majority-owned and controlled subsidiaries. Investments in
entities where the Company does not have a controlling interest are
accounted for under the equity method of accounting. These investments are
initially recorded at cost and are subsequently adjusted for the Company's
proportionate share of the investment's income (loss), additional
contributions or distributions. Investments in entities where the Company
does not have the ability to exercise significant influence are accounted
for under the cost method. All significant inter-company accounts and
transactions among the Company and its subsidiaries have been eliminated in
consolidation.
The accompanying consolidated financial statements include the assets and
liabilities contributed to and assumed by the Company from the Trust, from
the time such assets and liabilities were acquired or incurred,
respectively, by the Trust. Such financial statements have been prepared
using the historical basis of the assets and liabilities and the historical
results of operations related to the Company's assets and liabilities.
The accompanying consolidated financial statements and notes of the Company
have been prepared in accordance with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared under
generally accepted accounting principles have been condensed or omitted
pursuant to such rules. In the opinion of management, all adjustments
considered necessary for a fair presentation of the Company's financial
position, results of operations and cash flows have been included and are
of a normal and recurring nature. These consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 2002, as filed with the Securities and Exchange
Commission. The results of operations for the three and six months ended
June 30, 2003 and 2002 and cash flows for the six months ended June 30,
2003 and 2002 are not necessarily indicative of a full year results.
-6-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Summary of Significant Accounting Policies (continued)
ASSETS HELD FOR SALE/DISCONTINUED OPERATIONS. The Company has reclassified
two properties in the Wellsford Capital SBU as a discontinued operation at
June 30, 2003. Accordingly, the Company reclassified the December 31, 2002
balance sheet and prior period presentation of its statements of operations
and cash flows in accordance with SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." One of the properties was
sold on July 2, 2003, and the Company expects that it will be able to sell
the other property within the next twelve months. Additionally, the Company
determined that the remaining impairment reserve of $2,175,000 is adequate.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
RECLASSIFICATION. Amounts in certain accounts in the Consolidated Balance
Sheets, Consolidated Statements of Operations, the Consolidated Statements
of Cash Flows and certain tables in the footnote disclosures have been
reclassified to conform to the current period presentation.
RECENTLY ISSUED PRONOUCEMENTS. In January 2003, the Financial Accounting
Standards Board issued Interpretation No. 46 "Consolidation of Variable
Interest Entities" ("FIN 46"). The provisions of FIN 46 are effective
immediately for variable interest entities formed or acquired after January
31, 2003 and in the interim period beginning after June 15, 2003 for
variable interest entities in which the Company holds such an interest
before February 1, 2003. The Company is in the process of determining if
any of its investments are variable interest entities, however the Company
does not currently anticipate that the adoption of FIN 46 will result in a
change in its accounting for such interests.
In December 2002, SFAS No. 148 "Accounting for Stock-Based
Compensation--Transition and Disclosure" was issued as an amendment to SFAS
No. 123. The provisions of SFAS No. 148 are effective for financial
statements for fiscal years ending after December 15, 2002. The Company has
determined that the prospective method of transition will be used to
account for stock-based compensation on a fair value basis in the future.
This method would result in the Company applying the provision of SFAS No.
123 to all future grants and significant modifications to the terms of
previously granted options by expensing the determined fair value of the
options over the future vesting periods. SFAS No. 148 also requires
companies to disclose the effect of expensing options on the statement of
operations in interim periods as if the provisions of SFAS No. 123 were
adopted in prior years. See Note 5.
In May 2003, SFAS No. 150 "Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity" was issued. SFAS No.
150 defines the appropriate balance sheet classification of instruments
with both debt and equity components and the appropriate expense
classification for any dividend, interest or fair value adjustments. The
Company has determined that the Convertible Trust Preferred Securities will
be included as a liability and distributions payable will be included as a
component of interest expense upon adoption of the pronouncement. SFAS No.
150 is effective for interim periods beginning after June 15, 2003. The
Company does not believe that the reclassification will impact its only
existing debt covenant compliance ratio.
-7-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
3. Segment Information
The Company's operations are organized into three SBUs. The following
tables present condensed balance sheet and operating data for these SBUs:
(amounts in thousands)
Commercial Debt and Development
Property Equity and Land
Investments Investments Investments Other* Consolidated
----------- ----------- ----------- ------ ------------
June 30, 2003
----------------------
Investment properties:
Real estate held for investment,
net ............................. $ -- $ -- $127,116 $ -- $127,116
Residential units available for
sale ............................ -- -- 11,810 -- 11,810
-------- -------- -------- -------- --------
Real estate, net ...................... -- -- 138,926 -- 138,926
Notes receivable ...................... -- 28,096 -- -- 28,096
Assets held for sale**................. -- 6,278 -- -- 6,278
Investment in joint ventures .......... 55,274 39,135 -- -- 94,409
Cash and cash equivalents ............. -- 6,731 573 33,497 40,801
Restricted cash and investments ....... -- -- 163 9,250 9,413
Prepaid and other assets .............. -- 8,791 1,398 887 11,076
-------- -------- -------- -------- --------
Total assets .......................... $ 55,274 $ 89,031 $141,060 $ 43,634 $328,999
======== ======== ======== ======== ========
Mortgage notes payable ................ $ -- $ -- $110,203 $ -- $110,203
Accrued expenses and other liabilities. -- 3,331 2,286 8,297 13,914
Liabilities attributable to assets held
for sale**.......................... -- 171 -- -- 171
Convertible Trust Preferred Securities. -- -- -- 25,000 25,000
Minority interest ..................... 6 -- 3,391 -- 3,397
Equity ................................ 55,268 85,529 25,180 10,337 176,314
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity ............................. $ 55,274 $ 89,031 $141,060 $ 43,634 $328,999
======== ======== ======== ======== ========
December 31, 2002
------------------------
Investment properties:
Real estate held for investment,
net.............................. $ -- $ -- $129,300 $ -- $129,300
Residential units available for
sale ............................ -- -- 14,542 -- 14,542
-------- -------- -------- -------- --------
Real estate, net ...................... -- -- 143,842 -- 143,842
Notes receivable ...................... -- 28,612 -- -- 28,612
Assets held for sale**................. -- 6,256 -- -- 6,256
Investment in joint ventures .......... 55,592 38,589 -- -- 94,181
Cash and cash equivalents ............. -- 6,158 166 32,258 38,582
Restricted cash and investments ....... -- -- 610 8,934 9,544
Prepaid and other assets .............. -- 8,958 1,669 1,131 11,758
-------- -------- -------- -------- --------
Total assets .......................... $ 55,592 $ 88,573 $146,287 $ 42,323 $332,775
======== ======== ======== ======== ========
Mortgage notes payable ................ $ -- $ -- $112,233 $ -- $112,233
Accrued expenses and other liabilities. -- 3,378 2,637 9,298 15,313
Liabilities attributable to assets held
for sale**.......................... -- 224 -- -- 224
Convertible Trust Preferred Securities. -- -- -- 25,000 25,000
Minority interest ..................... 6 -- 3,432 -- 3,438
Equity ................................ 55,586 84,971 27,985 8,025 176,567
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity ............................. $ 55,592 $ 88,573 $146,287 $ 42,323 $332,775
======== ======== ======== ======== ========
- ----------
* Includes corporate cash, restricted cash and investments, other assets,
accrued expenses and other liabilities that have not been allocated to the
operating segments.
** Represents real estate held for sale in the Debt and Equity Investments SBU
and the asset balance is net of an impairment reserve of $2,175 at June 30,
2003 and December 31, 2002.
-8-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands)
Commercial Debt and Development
Property Equity and Land
Investments Investments Investments Other* Consolidated
----------- ----------- ----------- ------ ------------
For the Three Months
Ended June 30, 2003
------------------------
Rental revenue ........................ $ -- $ -- $ 3,592 $ -- $ 3,592
Revenue from sales of residential
units .............................. -- -- 2,461 -- 2,461
Interest revenue ...................... -- 826 -- 116 942
Fee revenue ........................... -- 233 (4) 84 313
------- ------- ------- ------- -------
Total revenues ........................ -- 1,059 6,049 200 7,308
------- ------- ------- ------- -------
Cost of sales of residential units .... -- -- 2,126 -- 2,126
Operating expenses .................... -- -- 1,760 -- 1,760
Depreciation and amortization ......... 76 2 1,112 19 1,209
Interest .............................. -- -- 1,575 94 1,669
General and administrative ............ -- 6 -- 1,409 1,415
------- ------- ------- ------- -------
Total costs and expenses ........... 76 8 6,573 1,522 8,179
------- ------- ------- ------- -------
(Loss) income from joint ventures ..... (1,247) 457 -- -- (790)
Minority interest benefit ............. -- -- 47 -- 47
------- ------- ------- ------- -------
(Loss) income before income taxes,
accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities and
discontinued operations ............ $(1,323) $ 1,508 $ (477) $(1,322) $(1,614)
======= ======= ======= ======= =======
Loss from discontinued operations
before taxes ...................... $ -- $ (19) $ -- $ -- $ (19)
======= ======= ======= ======= =======
For the Three Months
Ended June 30, 2002
------------------------
Rental revenue ........................ $ -- $ -- $ 3,665 $ -- $ 3,665
Revenue from sales of residential
units .............................. -- -- 2,245 -- 2,245
Interest revenue ...................... -- 888 -- 155 1,043
Fee revenue ........................... -- 152 (14) 7 145
------- ------- ------- ------- -------
Total revenues ..................... -- 1,040 5,896 162 7,098
------- ------- ------- ------- -------
Cost of sales of residential units .... -- -- 2,033 -- 2,033
Operating expenses .................... -- -- 1,615 -- 1,615
Depreciation and amortization ......... 110 4 1,120 19 1,253
Interest .............................. -- -- 1,420 35 1,455
General and administrative ............ -- 8 -- 1,650 1,658
------- ------- ------- ------- -------
Total costs and expenses ........... 110 12 6,188 1,704 8,014
------- ------- ------- ------- -------
Income from joint ventures ............ 119 211 -- -- 330
Minority interest benefit ............ -- -- 26 -- 26
------- ------- ------- ------- -------
Income (loss) before income taxes,
accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities and
discontinued operations ............ $ 9 $ 1,239 $ (266) $(1,542) $ (560)
======= ======= ======= ======= =======
Income from discontinued operations
before taxes ...................... $ -- $ 102 $ -- $ -- $ 102
======= ======= ======= ======= =======
- ----------
* Includes interest revenue, fee revenue, depreciation and amortization
expense, interest expense and general and administrative expenses that have
not been allocated to the operating segments.
-9-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands)
Commercial Debt and Development
Property Equity and Land
Investments Investments Investments Other* Consolidated
----------- ----------- ----------- ------ ------------
For the Six Months
Ended June 30, 2003
------------------------
Rental revenue ........................ $ -- $ -- $ 7,506 $ -- $ 7,506
Revenue from sales of residential
units .............................. -- -- 3,657 -- 3,657
Interest revenue ...................... -- 1,672 -- 227 1,899
Fee revenue ........................... -- 459 (10) 430 879
------- ------- ------- ------- -------
Total revenues ........................ -- 2,131 11,153 657 13,941
------- ------- ------- ------- -------
Cost of sales of residential units .... -- -- 3,181 -- 3,181
Operating expenses .................... -- -- 3,140 -- 3,140
Depreciation and amortization ......... 1,171 3 2,223 37 3,434
Interest .............................. -- -- 3,086 168 3,254
General and administrative ............ -- 17 -- 2,908 2,925
------- ------- ------- ------- -------
Total costs and expenses ........... 1,171 20 11,630 3,113 15,934
------- ------- ------- ------- -------
Income from joint ventures ............ 1,438 897 -- -- 2,335
Minority interest expense ............. -- -- 41 -- 41
------- ------- ------- ------- -------
Income (loss) before income taxes,
accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities and
discontinued operations ............ $ 267 $ 3,008 $ (436) $(2,456) $ 383
======= ======= ======= ======= =======
Income from discontinued operations
before taxes ....................... $ -- $ 50 $ -- $ -- $ 50
======= ======= ======= ======= =======
For the Six Months
Ended June 30, 2002
------------------------
Rental revenue ........................ $ -- $ -- $ 7,083 $ -- $ 7,083
Revenue from sales of residential
units .............................. -- -- 4,324 -- 4,324
Interest revenue ...................... -- 1,806 -- 305 2,111
Fee revenue ........................... -- 282 (27) 7 262
------- ------- ------- ------- -------
Total revenues ..................... -- 2,088 11,380 312 13,780
------- ------- ------- ------- -------
Cost of sales of residential units .... -- -- 3,939 -- 3,939
Operating expenses .................... -- -- 3,199 -- 3,199
Depreciation and amortization ......... 251 3 2,168 36 2,458
Interest .............................. -- 7 2,877 65 2,949
General and administrative ............ -- 19 -- 3,313 3,332
------- ------- ------- ------- -------
Total costs and expenses ........... 251 29 12,183 3,414 15,877
------- ------- ------- ------- -------
Income from joint ventures ............ 361 389 -- -- 750
Minority interest benefit ............ -- -- 71 -- 71
------- ------- ------- ------- -------
Income (loss) before income taxes
accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities and
discontinued operations ............ $ 110 $ 2,448 $ (732) $(3,102) $(1,276)
======= ======= ======= ======= =======
Income from discontinued operations
before taxes ....................... $ -- $ 136 $ -- $ -- $ 136
======= ======= ======= ======= =======
- ----------
* Includes interest revenue, fee revenue, depreciation and amortization
expense, interest expense and general and administrative expenses that have
not been allocated to the operating segments.
-10-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
Commercial Property Investments-Wellsford/Whitehall
---------------------------------------------------
The Company's commercial property investments currently consist solely of
its interest in Wellsford/Whitehall, a joint venture by and among the
Company, various entities affiliated with the Whitehall Funds
("Whitehall"), private real estate funds sponsored by The Goldman Sachs
Group, Inc. ("Goldman Sachs"), as well as a family based in New England.
The Company had a 32.59% interest in Wellsford/Whitehall at June 30, 2003.
The Company's investment in Wellsford/Whitehall, which is accounted for on
the equity method, was approximately $55,274,000 and $55,592,000 at June
30, 2003 and December 31, 2002, respectively. The following table details
the changes in the Company's investment in Wellsford/Whitehall during the
six months ended June 30, 2003:
Investment balance at January 1, 2003 .............. $ 55,592,000
Contributions.................................... --
Distributions.................................... (738,000)
Share of:
(Loss) from continuing operations............. (476,000)
Net gain from asset sales..................... 2,913,000
(Loss) from discontinued operations*.......... (999,000)
Accumulated other comprehensive income........ 153,000
Amortization..................................... (1,171,000)
------------
Investment balance at June 30, 2003................. $ 55,274,000
============
-------------------------
*After loan prepayment costs and write-off of deferred debt costs upon
sales of assets.
Pursuant to an amended operating agreement executed in December 2000,
Whitehall has agreed to pay the Company fees with respect to assets sold by
Wellsford/Whitehall equal to 25 basis points of the sales proceeds and up
to 60 basis points (30 basis points are deferred pending certain return on
investment thresholds being reached) for each purchase of real estate made
by certain other affiliates of Whitehall, until such purchases aggregate
$400,000,000. The Company earned fees of approximately $84,000 and $430,000
related to asset sales during the three and six months ended June 30, 2003,
respectively. The Company earned fees of approximately $7,000 related to
one asset sale during the three and six months ended June 30, 2002.
-11-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
The following table presents condensed balance sheets and operating data
for the Wellsford/Whitehall segment:
(amounts in thousands)
Condensed Balance Sheet Data June 30, 2003 December 31, 2002
---------------------------- ------------------ -----------------
Real estate, net ........... $ 354,569 $ 351,997
Cash and cash equivalents .. 28,679 16,169
Assets held for sale ....... -- 164,696
Other assets .............. 7,437 24,457
Total assets ............... 390,685 557,319
Mortgages payable .......... 96,215 96,826
Credit facility ............ 106,978 132,349
Liabilities attributable to
properties held for
sale ..................... -- 140,825
Common equity .............. 181,890 179,742
Other comprehensive loss ... (516) (1,297)
For the Three Months Ended June 30, For the Six Months Ended June 30,
----------------------------------- ---------------------------------
Condensed Operating Data 2003 2002* 2003 2002*
------------------------ ---- ---- ---- ----
Rental revenue (A) .............. $ 10,512 $ 11,872 $ 21,465 $ 23,776
Interest and other income (B) ... 119 157 268 344
-------- -------- --------- ---------
Total revenues ................ 10,631 12,029 21,733 24,120
-------- -------- --------- ---------
Operating expenses .............. 4,711 4,146 9,806 9,055
Depreciation and amortization ... 2,892 2,758 5,821 5,207
Interest ........................ 2,842 3,237 5,773 6,471
General and administrative ...... 999 1,171 1,791 2,538
--------- -------- --------- ---------
Total expenses ................ 11,444 11,312 23,191 23,271
--------- -------- --------- ---------
(Loss) income from continuing
operations .................... (813) 717 (1,458) 849
(Loss) income from discontinued
operations .................... (549) (108) (81) 502
Net gain (loss) from asset
sales ......................... (2,169) (259) 8,939 (259)
Write-off of deferred debt costs
and prepayment penalties from
debt pay-offs upon sales of
assets ........................ (317) -- (2,987) --
--------- -------- -------- ---------
Net (loss) income ............... $ (3,848) $ 350 $ 4,413 $ 1,092
========= ======== ======== =========
- ----------
*Asset sold in 2002 not treated as a discontinued operation.
(A) Includes income (including amounts in discontinued operations) of $33
and $500 from the straight-lining of tenant rents for the three months
ended June 30, 2003 and 2002, respectively and $101 and $636 for the
six months ended June 30, 2003 and 2002, respectively.
(B) Includes lease cancellation income (including amounts in discontinued
operations) of $21 for the three months ended June 30, 2002, and $87
and $321 for the six months ended June 30, 2003 and 2002,
respectively. No lease cancellation income was recorded for the three
months ended June 30, 2003.
-12-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
At June 30, 2003, Wellsford/Whitehall owns and operates 25 properties
(including 17 office properties, five retail properties and three land
parcels) aggregating approximately 2,752,000 square feet of improvements
(including approximately 546,000 square feet under renovation), primarily
located in New Jersey, Massachusetts and Maryland. Wellsford/Whitehall
completed the following asset sales during the six months ended June 30,
2003:
(amounts in thousands, except square feet and per share foot amounts)
Month Gross Sales Price
of Leasable Per
Sale Property Location Square Feet Sales Price Square Foot Gain (Loss)
----- ------------------------------ --------------------------- ----------- ----------- ----------- -----------
January Decatur ....................... Decatur, GA 10,000 $ 2,370 $ 234 $ 10
-------- --------- --------
February Portfolio sale (A):
Mountain Heights Center #1 .. Berkeley Hts, NJ 183,000
Mountain Heights Center #2 .. Berkeley Hts, NJ 123,000
Greenbrook Corporate Center . Fairfield, NJ 201,000
180/188 Mt. Airy Road ....... Basking Ridge, NJ 104,000
One Mall North .............. Columbia, MD 97,000
Gateway Tower ............... Rockville, MD 248,000
--------
Total portfolio sale .......... 956,000 136,835 143 11,081
-------- -------- -------
March 60 Turner Street .............. Waltham, MA 16,000 1,300 81 56
-------- -------- -------
May 79 Milk Street (B)............. Boston, MA 65,000
24 Federal Street (B).......... Boston, MA 75,000
--------
140,000 33,000 236 (1,339)
-------- -------- --------
June Greenbrook land................ Fairfield, NJ -- 785 -- (869)
-------- -------- --------
1,122,000 $174,290 $ 8,939
======== ========= ========
- ----------
(A) The portfolio sale of assets was to a single purchaser.
(B) Sale to a single purchaser. In addition to the indicated loss,
Wellsford/Whitehall recorded an impairment provision of $1,273 in the
fourth quarter of fiscal 2002 with respect to these amounts.
Debt and Equity Investments-Wellsford Capital
---------------------------------------------
At June 30, 2003, the Company had the following investments: (i) direct
debt investments of $28,096,000 which bore interest at a weighted average
annual yield of approximately 11.75% as of June 30, 2003 and had an average
remaining term to maturity of 3.7 years, including a $25,000,000 loan with
an annual interest rate of 12.00% which matures in May 2007; (ii)
approximately $32,344,000 of equity investments in companies which were
organized to invest in debt instruments, including $28,714,000 in Second
Holding Company, LLC, a company which was organized to purchase investment
and non-investment grade rated real estate debt instruments and
investment-grade rated other asset-backed securities ("Second Holding");
and (iii) approximately $6,791,000 invested in Reis, Inc., a real estate
information and database company ("Reis"). In addition, the Company owned
and operated two commercial properties with a net book value of
approximately $6,026,000 totaling approximately 175,000 square feet located
in Salem, New Hampshire and Philadelphia, Pennsylvania, both of which are
held for sale at June 30, 2003 and are reflected in discontinued operations
in the accompanying financial statements. The New Hampshire property was
sold on July 2, 2003.
Second Holding
The Company accounts for its investment in Second Holding on the equity
method of accounting as its interests are represented by two of eight board
seats with one-quarter of the vote on any major business
-13-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
decisions. The Company's investment was approximately $28,714,000 and
$28,166,000 at June 30, 2003 and December 31, 2002, respectively and
includes undistributed earnings of approximately $2,741,000 and $2,192,000
at June 30, 2003 and December 31, 2002, respectively. The Company's share
of income from Second Holding was approximately $368,000 and $121,000 for
the three months ended June 30, 2003 and 2002, respectively and $719,000
and $211,000 for the six months ended June 30, 2003 and 2002, respectively.
The Company also earns management fees for its role in analyzing real
estate-related investments for Second Holding. The net fees earned by the
Company, which are based upon the total assets of Second Holding, amounted
to approximately $229,000 and $138,000 for the three months ended June 30,
2003 and 2002, respectively and $449,000 and $255,000 for the six months
ended June 30, 2003 and 2002, respectively.
The following table presents condensed balance sheets and operating data
for Second Holding:
(amounts in thousands)
Condensed Balance Sheet Data June 30, 2003 December 31, 2002
---------------------------- ------------------ -----------------
Cash and cash equivalents..... $ 107,482 $ 16,876
Investments................... 1,816,743 1,785,758
Other assets (A).............. 82,775 37,462
Total assets.................. 2,007,000 1,840,096
Medium-term notes (B)......... 1,822,561 1,552,945
Long-term debt (C)(D)......... 121,107 169,988
Total equity.................. 56,808 55,910
For the Three Months Ended June 30, For the Six Months Ended June 30,
---------------------------------- ---------------------------------
Condensed Operating Data 2003 2002 2003 2002
------------------------ ---- ---- ---- ----
Interest...................... $ 10,624 $ 9,696 $ 21,708 $ 18,122
-------- ------- --------- ---------
Total revenue ................ 10,624 9,696 21,708 18,122
-------- ------- --------- ---------
Interest expense ............. 8,277 8,370 17,080 15,686
Fees and other ............... 1,214 902 2,411 1,733
-------- ------- --------- ---------
Total expenses ............... 9,491 9,272 19,491 17,419
-------- ------- --------- ---------
Net income attributable
to members (D)............. $ 1,133 $ 424 $ 2,217 $ 703
======== ======= ========= =========
- ----------
(A) Other assets include an interest rate swap asset with a fair value of
$23,104 and $22,638 at June 30, 2003 and December 31, 2002,
respectively.
(B) At June 30, 2003, the net reported amount of medium-term notes
includes the face amount of such notes of $1,825,000, less a fair
value adjustment for swaps of $25, offset by unamortized discounts and
debt issuance costs of $2,414. At December 31, 2002, the net reported
amount of medium-term notes included the face amount of such notes of
$1,555,000, plus a fair value adjustment for swaps of $513, offset by
unamortized discounts and debt issuance costs of $2,568.
(C) Long-term debt outstanding is a privately placed ten-year junior
subordinated bond-issue maturing April 2010, issued at a fixed rate of
7.96% per annum with a face amount of $100,000 and $150,000 at June
30, 2003 and December 31, 2002, respectively. The effect of fair value
adjustments for the long-term debt was $23,079 and $22,125 at June 30,
2003 and December 31, 2002, respectively, net of unamortized debt
issuance costs.
(D) The partner which was admitted in the latter part of 2000 (who is
committed through April 2010 to provide an insurance policy, through
one of its affiliates, for the payment of principal and interest for
the junior subordinated bond-issue of $100,000) is entitled to 35% of
net income, as defined by the operating agreement, while other
partners, including the Company, share in the remaining 65%. The
Company's allocation of income is approximately 51.1% of the remaining
65%, however, the Company's share of losses is approximately 51.1% of
the total loss as this other partner does not participate in any
losses of the venture.
-14-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
Value Property Trust ("VLP")
On July 2, 2003, the Company sold the Salem, New Hampshire property, one of
the two remaining real estate assets from the Company's 1998 merger with
VLP. The net sales price for this asset was approximately $4,100,000 and
the Company anticipates that no gain or loss will be recorded from this
transaction in the third quarter of 2003. The remaining impairment reserve
balance of approximately $2,175,000 is available for the Philadelphia,
Pennsylvania asset.
Development and Land Investments--Wellsford Development
-------------------------------------------------------
At June 30, 2003, the Company had an 85.85% interest as the managing owner
in a five phase, 1,800 unit class A multifamily development ("Palomino
Park") in Highlands Ranch, a south suburb of Denver, Colorado. Three phases
aggregating 1,184 units are completed and operational as a rental property.
A 264 unit fourth phase is being converted into condominiums. The Company
sold 169 units as of June 30, 2003 and 40 of the unsold units are available
for rent and included in operations until the sales inventory has to be
replenished. The land for the remaining approximate 352 unit fifth phase is
being held for possible future development or sale.
Sales of condominium units at the Silver Mesa phase of Palomino Park
commenced in February 2001. The following table provides information
regarding sales of Silver Mesa units:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------ Project
2003 2002 2003 2002 Totals
---- ---- ---- ---- -------
Number of units sold ........... 11 11 16 20 169
Gross proceeds ................. $ 2,461,000 $ 2,245,000 $ 3,657,000 $ 4,324,000 $ 36,224,000
Principal paydown on Silver Mesa
Conversion Loan*............. $ 3,327,000 $ 1,872,000 $ 4,318,000 $ 3,613,000 $ 32,000,000
- ----------
* The Company prepaid the remaining principal balance during May 2003 with
proceeds from Silver Mesa unit sales and available cash.
The following table details operating information related to the Silver
Mesa units being rented. As the Company continues to sell units, future
rental revenues and corresponding operating expenses will diminish.
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
Rental revenue.................. $198,000 $ 359,000 $ 472,000 $ 794,000
Net operating income (A)........ $116,000 $ 208,000 $ 313,000 $ 466,000
- ----------
(A) Net operating income is defined as rental revenue, less property operating
and maintenance expenses, real estate taxes and property management fees.
-15-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
In February 2003, the Company obtained a $40,000,000 permanent loan secured
by a first mortgage on Green River (the "Green River Mortgage"). The Green
River Mortgage matures in March 2013 and bears interest at a fixed rate of
5.45% per annum. Principal payments are based on a 30-year amortization
schedule. Proceeds were used to repay maturing construction debt of
approximately $37,111,000, with excess proceeds available for working
capital purposes.
4. Shareholders' Equity
The Company did not declare or distribute any dividends for the three or
six months ended June 30, 2003 and 2002, respectively.
The following table details the components of comprehensive (loss):
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net (loss) ............................. $ (1,438,302) $ (893,386) $ (605,763) $ (1,969,800)
Share of unrealized income (loss) on
interest rate protection contract
purchased by joint venture investment,
net of income tax benefit............ 23,458 (79,777) 152,611 (121,614)
------------ ------------ ----------- --------------
Comprehensive (loss) ................... $ (1,414,844) $ (973,163) $ (453,152) $ (2,091,414)
============ ============ =========== ==============
5. Share Option Plans
Pursuant to the provisions of SFAS No. 148, as described in Note 2, the pro
forma net income (loss) available to common shareholders as if the fair
value approach to accounting for share-based compensation had been applied
for grants of options in prior years is as follows:
(amounts in thousands, except per share amounts)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net (loss) - as reported................ $ (1,438) $ (893) $ (606) $ (1,970)
Expense................................. 41 196 82 425
------- -------- --------- ----------
Net (loss) - pro forma.................. $ (1,479) $ (1,089) $ (688) $ (2,395)
======= ======== ========== ==========
Net income (loss) per common share,
basic and diluted:
As reported......................... $ (0.22) $ (0.14) $ (0.09) $ (0.31)
======== ======== =========== ==========
Pro forma........................... $ (0.23) $ (0.17) (0.11) $ (0.37)
======== ======== =========== ==========
6. Income Taxes
The income tax benefit for the three and six months ended June 30, 2002,
results from expected refundable income taxes arising from the losses for
the periods, offset by minimum state and local taxes based upon capital of
the Company. The income tax expense for the six months ending June 30, 2003
results from state and local taxes based upon income, minimum state and
local taxes based upon capital and the expected tax benefit of the
Convertible Trust Preferred Securities costs. The benefit for income taxes
for the three months ended June 30, 2003 results primarily from a reversal
of the
-16-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Income Taxes (continued)
provision for Federal income taxes provided in the three months ended March
31, 2003 and as a result of the pre-tax loss in the June 30, 2003 quarter
as well as a reduction in the estimate of the current minimum state and
local taxes.
Income tax/benefit attributable to the Convertible Trust Preferred
Securities is based upon the expected tax rate benefits in the respective
periods.
Income taxes attributable to discontinued operations are based upon the
rates of Federal income taxes expected to be paid or refunded based upon
aggregate pre-tax income or loss.
7. Earnings Per Share
Basic earnings per common share are computed based upon the weighted
average number of common shares outstanding during the period, including
class A-1 common shares. Diluted earnings per common share are based upon
the increased number of common shares that would be outstanding assuming
the exercise of dilutive common share options and Convertible Trust
Preferred Securities.
The following table details the computation of earnings per share, basic
and diluted:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
Numerator:
(Loss) from continuing operations ............ $ (1,432,760) $ (975,528) $ (645,695) $ (2,078,348)
(Loss) income from discontinued
operations, net of income tax (benefit)
expense of $(13,000), $20,000, $10,000
and $27,000, respectively................. (5,542) 82,142 39,932 108,548
------------- ----------- ------------ ------------
Net (loss) per common share,
basic and diluted......................... $ (1,438,302) $ (893,386) $ (605,763) $ (1,969,800)
============= ============ ============ =============
Denominator:
Denominator for net (loss) per
common share, basic--weighted average
common shares .......................... 6,453,730 6,437,390 6,452,916 6,423,397
Effect of dilutive securities:
Employee stock options ............... -- -- -- --
Convertible Trust Preferred
Securities ......................... -- -- -- --
----------- ------------ ---------- ---------
Denominator for net (loss) per common
share, diluted--weighted average
common shares .......................... 6,453,730 6,437,390 6,452,916 6,423,397
============ ============ ============ ==========
Per share amounts, basic and diluted:
(Loss) from continuing operatings....... $ (0.22) $ (0.15) $ (0.10) $ (0.32)
(Loss) income from discontinued -- 0.01 0.01 0.01
operations........................... ------------ ------------ ------------ -----------
Net (loss)............................. $ (0.22) $ (0.14) $ (0.09) $ (0.31)
============ ============ ============ ===========
-17-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
- -------
Capitalized terms used herein which are not defined elsewhere in this quarterly
report on Form 10-Q shall have the meanings ascribed to them in the Company's
annual report on Form 10-K for the year ended December 31, 2002, as filed with
the Securities and Exchange Commission on March 26, 2003.
Business
- --------
The Company is a real estate merchant banking firm headquartered in New York
City which acquires, develops, finances and operates real properties and
organizes and invests in private and public real estate companies. The Company
has established three strategic business units ("SBUs") within which it executes
its business plan: (i) Commercial Property Investments which are held in the
Company's subsidiary, Wellsford Commercial Properties Trust, through its
ownership interest in Wellsford/Whitehall Group, L.L.C. ("Wellsford/Whitehall");
(ii) Debt and Equity Investments-Wellsford Capital SBU; and (iii) Development
and Land Investments-Wellsford Development SBU.
Commercial Property Investments-Wellsford/Whitehall
The Company's commercial property investments currently consist solely of its
interest in Wellsford/Whitehall, a joint venture by and among the Company,
various entities affiliated with the Whitehall Funds ("Whitehall"), private real
estate funds sponsored by The Goldman Sachs Group, Inc. ("Goldman Sachs"), as
well as a family based in New England. The Company had a 32.59% interest in
Wellsford/Whitehall at June 30, 2003.
The Company's investment in Wellsford/Whitehall, which is accounted for on the
equity method, was approximately $55,274,000 and $55,592,000 at June 30, 2003
and December 31, 2002, respectively. The Company's share of (loss) income from
Wellsford/Whitehall follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002* 2003 2002*
---- ---- ---- ----
(Loss) income from continuing operations.. $ (260,000) $ 236,000 $ (476,000) $ 278,000
(Loss) income from discontinued
operations............................. (177,000) (35,000) (26,000) 164,000
Net (loss) gain from asset sales.......... (707,000) (82,000) 2,913,000 (81,000)
Write-off of deferred debt costs and
prepayment penalties from debt pay-
offs upon sales of assets.............. (103,000) -- (973,000) --
------------- ------------- ------------- --------------
(Loss) income from
Wellsford/Whitehall................. $ (1,247,000) $ 119,000 $ 1,438,000 $ 361,000
============== ============= ============= ==============
- ---------------
* Asset sold in 2002 not treated as a discontinued operation.
Pursuant to an amended operating agreement executed in December 2000, Whitehall
has agreed to pay the Company fees with respect to assets sold by
Wellsford/Whitehall equal to 25 basis points of the sales proceeds and up to 60
basis points (30 basis points are deferred pending certain return on investment
thresholds being reached) for each purchase of real estate made by certain other
affiliates of Whitehall, until such purchases aggregate $400,000,000. The
Company earned fees of approximately $84,000 and $430,000 related to asset sales
during the three and six months ended June 30, 2003, respectively. The Company
earned fees of approximately $7,000 related to one asset sale during the three
and six months ended June 30, 2002.
-18-
At June 30, 2003, Wellsford/Whitehall owns and operates 25 properties (including
17 office properties, five retail properties and three land parcels) aggregating
approximately 2,752,000 square feet of improvements (including approximately
546,000 square feet under renovation), primarily located in New Jersey,
Massachusetts and Maryland. Wellsford/Whitehall completed the following asset
sales during the six months ended June 30, 2003:
(amounts in thousands, except square feet and per share foot amounts)
Month Gross Sales Price
of Leasable Per
Sale Property Location Square Feet Sales Price Square Foot Gain (Loss)
----- ------------------------------ --------------------------- ----------- ----------- ----------- -----------
January Decatur ....................... Decatur, GA 10,000 $ 2,370 $ 234 $ 10
------- --------- -------
February Portfolio sale (A):
Mountain Heights Center #1 .. Berkeley Hts, NJ 183,000
Mountain Heights Center #2 .. Berkeley Hts, NJ 123,000
Greenbrook Corporate Center . Fairfield, NJ 201,000
180/188 Mt. Airy Road ....... Basking Ridge, NJ 104,000
One Mall North .............. Columbia, MD 97,000
Gateway Tower ............... Rockville, MD 248,000
--------
Total portfolio sale .......... 956,000 136,835 143 11,081
-------- --------- --------
March 60 Turner Street .............. Waltham, MA 16,000 1,300 81 56
-------- --------- -------
May 79 Milk Street (B)............. Boston, MA 65,000
24 Federal Street (B).......... Boston, MA 75,000
--------
140,000 33,000 236 (1,339)
-------- --------- --------
June Greenbrook land................ Fairfield, NJ -- 785 -- (869)
-------- --------- --------
1,122,000 $ 174,290 $ 8,939
======== ========= ========
- ----------
(A) The portfolio sale of assets was to a single purchaser.
(B) Sale to a single purchaser. In addition to the indicated loss,
Wellsford/Whitehall recorded an impairment provision of $1,273 in the
fourth quarter of fiscal 2002 with respect to these amounts.
Debt and Equity Investments-Wellsford Capital
The Company, through the Debt and Equity Investments-Wellsford Capital SBU,
makes debt investments directly, or through joint ventures, predominantly in
real estate related senior, junior or otherwise subordinated debt instruments
and also in investment grade rated commercial mortgage backed securities and
other asset-backed securities. The debt investments may be unsecured or secured
by liens on real estate, liens on equity interests in real estate, pools of
mortgage loans, or various other assets including, but not limited to, leases on
aircraft, truck or car fleets, leases on equipment, consumer receivables, pools
of corporate bonds and loans and sovereign debt, as well as interests in such
assets or their economic benefits. Junior and subordinated loans and investments
generally have the potential for high yields or returns more characteristic of
equity ownership. They may include debt that is acquired at a discount,
mezzanine financing, commercial mortgage-backed securities, secured and
unsecured lines of credit, distressed loans, tax exempt bonds secured by real
estate and loans previously made by foreign and other financial institutions.
The Company believes that there are opportunities to acquire real estate debt
and other debt, especially in the low or below investment grade tranches, at
significant returns as a result of inefficiencies in pricing in the marketplace,
while utilizing the expertise of both the Company and its joint venture partners
to analyze the underlying assets and thereby effectively minimizing risk.
At June 30, 2003, the Company had the following investments: (i) direct debt
investments of $28,096,000 which bore interest at a weighted average annual
yield of approximately 11.75% as of June 30 2003 and had an average remaining
term to maturity of approximately 3.7 years, including a $25,000,000 loan with
an annual interest rate of 12.00% which matures in May 2007; (ii) approximately
$32,344,000 of equity investments in companies which were organized to invest in
debt instruments, including $28,714,000 in Second Holding
-19-
Company, LLC, a company which was organized to purchase investment and
non-investment grade rated real estate debt instruments and investment-grade
rated other asset-backed securities ("Second Holding"); and (iii) approximately
$6,791,000 invested in Reis, Inc., a real estate information and database
company ("Reis"). In addition, the Company owned and operated two commercial
properties with a net book value of approximately $6,026,000 totaling
approximately 175,000 square feet located in Salem, New Hampshire and
Philadelphia, Pennsylvania, both of which are held for sale at June 30, 2003 and
are reflected in discontinued operations in the accompanying financial
statements. The New Hampshire property was sold on July 2, 2003.
Development and Land Investments-Wellsford Development
The Company, through the Development and Land Investments-Wellsford Development
SBU, engages in selective development activities as opportunities arise and when
justified by expected returns. The Company believes that by pursuing selective
development activities, it can achieve returns which are greater than returns
that could be achieved by acquiring stabilized properties. As part of its
strategy, the Company may seek to issue tax-exempt bond financing authorized by
local governmental authorities which generally bears interest at rates
substantially below rates available from conventional financing.
At June 30, 2003, the Company had an 85.85% interest as the managing owner in a
five phase, 1,800 unit class A multifamily development ("Palomino Park") in
Highlands Ranch, a south suburb of Denver, Colorado. Three phases aggregating
1,184 units are completed and operational as a rental property. A 264 unit
fourth phase is being converted into condominiums. The Company sold 169 units as
of June 30, 2003 and 40 of the unsold units are available for rent and included
in operations until the sales inventory has to be replenished. The land for the
remaining approximate 352 unit fifth phase is being held for possible future
development or sale.
Other Segment Information
The following table provides occupancy rates and gross leasable square
footage/gross rentable units by SBU as of each specified date:
Commmercial Property Development and
Investments (A) Debt and Equity Investments (B) Land Investments (C)
-------------- ------------------------------- --------------------
Gross Gross Gross
Leasable Leasable Rentable
Occupancy % Square Feet Occupancy % Square Feet Occupancy % Units
----------- ----------- ----------- ----------- ----------- -----
June 30, 2003 ........ 73% 2,206,000 49% 175,000 87% 1,184
March 31, 2003 ....... 73% 2,346,000 58% 175,000 93% 1,184
December 31, 2002 .... 76% 3,328,000 60% 175,000 95% 1,184
June 30, 2002 ........ 80% 3,328,000 62% 175,000 84% 1,184
March 31, 2002 ....... 75% 3,300,000 62% 175,000 76% 1,292
December 31, 2001..... 69% 3,307,000 62% 175,000 77% 896
- ----------
(A) Occupancy % and Gross Leasable Square Feet exclude square feet for
properties under renovation of 546,000 square feet at June 30, 2003,
March 31, 2003, December 31, 2002 and June 30, 2002, respectively, and
605,000 and 598,000 square feet at March 31, 2002 and December 31,
2001, respectively.
(B) Occupancy rates for the remaining assets acquired from Value Property
Trust ("VLP") held in this SBU. After the sale of the Salem, New
Hampshire property on July 2, 2003, the occupancy of the remaining
50,000 square foot building is 47%.
(C) Increases in the physical occupancy rate since June 30, 2002 were
achieved, in part, by an increase in concessions during the period. As
of June 30, 2003, the average concession was approximately three
months of rent on a 12-month lease.
See Note 3 of the Company's unaudited consolidated financial statements for
quarterly financial information regarding the Company's industry segments.
-20-
Results of Operations
- ---------------------
Comparison of the three months ended June 30, 2003 to the three months ended
June 30, 2002
Rental revenue decreased $72,000. This decrease is primarily due to the impact
of rent concessions ($429,000) and reduced rental operations at the Silver Mesa
phase at Palomino Park in the Wellsford Development SBU resulting from unit
sales and fewer units being rented in the 2003 period as compared to the 2002
period ($132,000). Such decrease was partially offset by commenced operations at
the Green River phase at Palomino Park effective January 1, 2002 and reflects
revenues in the fiscal 2003 period in excess of the 2002 period ($368,000) and
increased physical occupancy at the Blue Ridge and Red Canyon phases at Palomino
Park ($121,000).
Revenues from sales of residential units and the associated cost of sales from
such units were $2,461,000 and $2,126,000, respectively, from eleven sales
during the three months ended June 30, 2003 and were $2,245,000 and $2,033,000,
respectively, from eleven sales during the corresponding 2002 period. Although
unit sales were the same in both periods, the average pre-tax income from 2003
unit sales was approximately $11,200 greater per unit than in the corresponding
2002 period as a result of sales of larger units and declining interest costs in
cost of sales as the average outstanding debt balance was being reduced over the
periods until its ultimate repayment in May 2003.
Interest revenue decreased $102,000. This decrease is due to reduced income
earned on loans of $58,000 from lower average outstanding loan balances in the
2003 period as compared to the 2002 period, as well as reduced interest earned
on cash of $43,000 from lower interest rates during the current period versus
the comparable 2002 period.
Fee revenue increased $168,000. The Company's management fees for its role in
the Second Holding investment increased $91,000 from the growth of assets under
management in that venture. Additionally, sales fees payable by Whitehall
derived from Wellsford/Whitehall sales amounted to $84,000 during the three
months ended June 30, 2003, with only $7,000 earned in the corresponding 2002
period.
Property operating and maintenance expenses increased $146,000. This increase is
primarily the result of additional tenant replacement and advertising costs and
rising insurance premiums, offset by refunds for water charges by the
municipality of Palomino Park coupled with the Company absorbing lower utility
costs in 2003 because of an 87% average physical occupancy compared to 83% in
the 2002 period.
The increase in real estate taxes of $37,000 is primarily attributable to higher
assessments and a rise in rates in the 2003 period as compared to the 2002
period for all of the phases at Palomino Park.
Depreciation and amortization expense decreased $42,000. This decrease is
attributable to a reduced depreciation basis resulting from the transfer of 96
Silver Mesa units from operations to residential units available for sale during
the year ended December 31, 2002 ($102,000) and reduced amortization of joint
venture costs attributable to one asset sale by Wellsford/Whitehall during the
2002 period and no amortization for sales in the 2003 period since such amounts
were expensed at December 31, 2002 in connection with an impairment charge on
such assets at the venture level ($34,000), offset by additional Green River
depreciation as the final sections of this phase were put in service during the
2002 period ($64,000) and depreciation on fixed asset additions to the other
Palomino Park phases ($30,000).
Property management expenses decreased $39,000. Such decrease is primarily due
to the reduction in contractual management fees beginning October 1, 2002 from a
3% annual fee of gross receipts to a 2% annual fee for the Palomino Park
operational phases in addition to a decrease in net rental revenue in the 2003
period (see above rental revenue discussion). If the fee had remained at 3% for
2003, the decrease would have been $36,000 less.
-21-
Interest expense increased $214,000. This increase is attributable to the Green
River phase as the 2003 period includes interest at a higher fixed rate from
February 2003 on permanent financing, whereas in the 2002 period, the variable
interest rate and the average outstanding balance on the construction financing
were both lower than the 2003 amounts ($254,000). Additionally, there was a
higher average interest rate on the Palomino Park Bonds in the 2003 period as
compared to the 2002 period ($9,000). These increases were partially offset by
reduced interest expense from a lower average outstanding principal balance and
a reduced interest rate on the Silver Mesa Conversion Loan, which was fully
repaid in May 2003 ($35,000) and lower average outstanding principal balances
with respect to the other Palomino Park phases ($14,000).
General and administrative expenses decreased $243,000 primarily from reduced
amortization of stock compensation as a result of most of the restricted stock
grants fully vesting by December 31, 2002.
(Loss) income from joint ventures decreased $1,120,000. An analysis of the
decrease follows:
For The Three Months Ended June 30,
-----------------------------------------
Increase
2003 2002 (Decrease)
---- ---- ----------
Wellsford/Whitehall:
(Loss) income from continuing
operations (A)............................ $ (260,000) $ 236,000 $ (496,000)
Net (loss) from asset sales (B)............. (707,000) (82,000) (625,000)
Write-off of deferred debt costs and
prepayment penalties from debt pay-offs
upon sales of assets (B).................. (103,000) -- (103,000)
(Loss) from discontinued operations (A)..... (177,000) (35,000) (142,000)
---------- ---------- -----------
(Loss) income from Wellsford/Whitehall.... (1,247,000) 119,000 (1,366,000)
Second Holding (C)............................. 368,000 121,000 247,000
Clairborne Fordham Tower....................... 90,000 90,000 --
Other.......................................... (1,000) -- (1,000)
----------- ---------- -----------
(Loss) income from joint ventures.............. $ (790,000) $ 330,000 $(1,120,000)
=========== ========== ===========
----------
(A) The 2003 period was impacted by the sale of properties during 2003,
lower occupancy and lower rental rates than the corresponding 2002
period.
(B) Two properties and one land parcel were sold during the three months
ended June 30, 2003 with one sale in the corresponding 2002 period.
Asset sold in 2002 not treated as a discontinued operation. The
write-off of deferred debt costs is only related to the two properties
which were encumbered.
(C) The increase in earnings is a result of an increase in average
invested assets generating increased income for that venture.
Minority interest changed $21,000 from a benefit of $26,000 in the 2002 period
to a benefit of $47,000 in the 2003 period, attributable to a larger loss in the
Wellsford Development SBU in 2003 as compared to the 2002 period.
Income tax benefit increased $672,000 from a benefit of $4,000 in 2002, to a
benefit of $676,000 in 2003 primarily from the Company having a larger loss in
2003 and reversing the Federal tax provision provided in the first quarter of
2003 as well as a reduction in the estimate of annual minimum state and local
taxes payable.
(Loss) income from discontinued operations, after income tax expense or benefit
was $82,000 of income in the fiscal 2002 period compared to a loss of $6,000 in
the 2003 period. The change resulted primarily from decreased occupancy and
higher operating costs.
-22-
The increase in net loss per share, basic and diluted of $(0.08) per share is
attributable to a current period loss of $1,438,000, whereas in the 2002 period
the loss was $893,000.
Comparison of the six months ended June 30, 2003 to the six months ended June
30, 2002
Rental revenue increased $424,000. This increase is primarily due to commenced
operations at the Green River phase at Palomino Park in the Wellsford
Development SBU effective January 1, 2002 and reflects revenues in the fiscal
2003 period in excess of the 2002 period ($1,090,000) and increased physical
occupancy at the Blue Ridge and Red Canyon phases at Palomino Park ($644,000).
Such increase was partially offset by the impact of rent concessions in excess
of the 2002 period ($1,060,000) and reduced rental operations at the Silver Mesa
phase at Palomino Park resulting from unit sales and fewer units being rented in
the 2003 period as compared to the 2002 period ($250,000).
Revenues from sales of residential units and the associated cost of sales from
such units were $3,657,000 and $3,181,000, respectively, from sixteen sales
during the six months ended June 30, 2003 and were $4,324,000 and $3,939,000,
respectively, from twenty sales during the corresponding 2002 period. Although
four fewer units were sold in the current period, the average pre-tax income
from 2003 unit sales was approximately $10,500 greater per unit than in the
corresponding 2002 period as a result of sales of larger units and declining
interest costs in cost of sales as the average outstanding debt balance was
being reduced over the periods until its ultimate repayment in May 2003.
Interest revenue decreased $212,000. This decrease is due to reduced income
earned on loans of $160,000 from lower average outstanding loan balances in the
2003 period as compared to the 2002 period, as well as reduced interest earned
on cash of $52,000 from lower interest rates during the current period versus
the comparable 2002 period.
Fee revenue increased $617,000. The Company's management fees for its role in
the Second Holding investment increased $194,000 from the growth of assets under
management in that venture. Additionally, sales fees payable by Whitehall
derived from Wellsford/Whitehall sales amounted to $430,000 during the six
months ended June 30, 2003, with only $7,000 earned in the corresponding 2002
period.
Property operating and maintenance expense decreased $38,000. This decrease is
primarily the result of refunds for water charges by the municipality for
Palomino Park coupled with the Company absorbing lower utility costs in 2003
because of a 91% average physical occupancy compared to 78% in the 2002 period
and payroll reductions from a smaller property operating staff, offset by
additional tenant replacement and advertising costs and rising insurance
premiums.
The increase in real estate taxes of $45,000 is primarily attributable to higher
assessments and rates in the 2003 period as compared to the 2002 period for all
of the phases at Palomino Park.
Depreciation and amortization expense increased $977,000. This increase is
attributable to amortization of joint venture costs attributable to the seven
assets sold during the six months ended June 30, 2003 which were still subject
to amortization treatment with only one such property sold by
Wellsford/Whitehall during the 2002 period ($922,000), additional Green River
depreciation as the final sections of this phase were put in service during the
2002 period ($193,000) and fixed asset additions to the other Palomino Park
phases ($67,000), offset by a reduced depreciation basis resulting from the
transfer of 96 Silver Mesa units from operations to residential units available
for sale during the year ended December 31, 2002 ($205,000).
Property management expenses decreased $66,000. Such decrease is due to the
reduction in contractual management fees beginning October 1, 2002 from a 3%
annual fee of gross receipts to a 2% annual fee for the Palomino Park
operational phases, offset by increased net rental revenues in the 2003 period
(see above rental revenue discussion). If the fee had remained at 3% for 2003,
the decrease would have been $75,000 less.
Interest expense increased $305,000. This increase is primarily attributable to
the Green River phase as the 2003 period includes interest at a higher fixed
rate from February 2003 on permanent financing, whereas in the
-23-
2002 period, the variable interest rate and the average outstanding balance on
the construction financing were both lower than the 2003 amounts ($390,000).
Additionally, there was a higher average interest rate on the Palomino Park
Bonds in the 2003 period as compared to the 2002 period ($20,000). These
increases were partially offset by reduced interest expense from a lower average
outstanding principal balance and a reduced interest rate on the Silver Mesa
Conversion Loan, which was fully repaid in May 2003 ($71,000) and lower average
outstanding principal balances with respect to the other Palomino Park phases
($34,000).
General and administrative expenses decreased $407,000 primarily from reduced
amortization of stock compensation as a result of most of the restricted stock
grants fully vesting by December 31, 2002.
Income from joint ventures increased $1,585,000. An analysis of the increase
follows:
For The Six Months Ended June 30,
-----------------------------------------
Increase
2003 2002 (Decrease)
---- ---- ----------
Wellsford/Whitehall:
(Loss) income from continuing
operations (A)............................ $ (476,000) $ 278,000 $ (754,000)
Net gain (loss) from asset sales (B)........ 2,913,000 (81,000) 2,994,000
Write-off of deferred debt costs and
prepayment penalties from debt pay-offs
upon sales of assets (B).................. (973,000) -- (973,000)
(Loss) income from discontinued
operations (A)............................ (26,000) 164,000 (190,000)
---------- ---------- -------------
Income from Wellsford/Whitehall........... 1,438,000 361,000 1,077,000
Second Holding (C)............................. 719,000 211,000 508,000
Clairborne Fordham Tower....................... 179,000 178,000 1,000
Other.......................................... (1,000) -- (1,000)
------------ ---------- -------------
Income from joint ventures..................... $ 2,335,000 $ 750,000 $ 1,585,000
============ ========== =============
------------------------
(A) The 2003 period was impacted by the sale of ten properties during
2003, lower occupancy and lower rental rates than the corresponding
2002 period.
(B) Ten properties and one land parcel were sold during the 2003 period
with one sale in the corresponding 2002 period. Asset sold in 2002 not
treated as a discontinued operation. The write-off of deferred debt
costs is only related to nine of the ten properties which were
encumbered.
(C) The increase in earnings is a result of an increase in average
invested assets generating increased income for that venture.
Minority interest changed $30,000 from a benefit of $71,000 in the 2002 period
to a benefit of $41,000 in the 2003 period, attributable to a smaller loss in
the Wellsford Development SBU in 2003 as compared to the 2002 period.
Income taxes changed from a benefit of $38,000 in 2002, to an expense of
$189,000 in 2003 primarily from the Company having a pre-tax profit before
Convertible Trust Preferred Securities costs in 2003.
Income from discontinued operations after taxes amounted to $109,000 in 2002 and
$40,000 in 2003. The decrease is primarily attributable to declining occupancy
and higher operating costs for the VLP assets.
The decrease in net loss per share, basic and diluted of $(0.22) per share is
attributable to a current period loss of $606,000, whereas in the 2002 period,
the loss was $1,970,000.
-24-
Liquidity and Capital Resources
- -------------------------------
The Company expects to meet its short-term liquidity requirements, such as
operating expenses, generally through its available cash, sales of residential
units in the Wellsford Development SBU and cash provided by operations.
The Company expects to meet its long-term liquidity requirements such as
maturing mortgages, financing acquisitions, new investments and development,
financing capital improvements, minority interest distributions and joint
venture loan requirements through the use of available cash, receipt of payments
related to notes receivable, sales of residential units in the Wellsford
Development SBU (proceeds from such sales have increased from approximately 10%
of net sales proceeds to 100% when the Silver Mesa Conversion Loan was fully
repaid in May 2003), sales of the two remaining VLP assets in the Wellsford
Capital SBU (including approximately $4,100,000 from the sale of one property on
July 2, 2003), refinancings and the issuance of debt and the offering of
additional debt and equity securities. The Company considers its ability to
generate cash to be adequate and expects it to continue to be adequate to meet
operating requirements both in the short and long terms.
Wellsford/Whitehall expects to meet its short and long-term liquidity
requirements, such as financing additional renovations and tenant improvements
to its properties, repayments of debt maturities and operating expenses with
available cash, operating cash flow from its properties, proceeds from any asset
sales, refinancing of existing loans and draws from the $10,000,000 commitment
of additional financing or preferred equity from the principal owners of
Wellsford/Whitehall, if required. At December 31, 2001, the Company and
Whitehall each had completed funding their entire respective capital
commitments. The additional financing/preferred equity commitment, of which the
Company's share is $4,000,000, is fully available to Wellsford/Whitehall until
December 31, 2003. Prior to June 30, 2003 the Wellsford/Whitehall GECC Facility
provided for additional financing to fund certain capital expenditures related
to its properties; such ability expired at June 30, 2003. Wellsford/Whitehall is
in the process of negotiating an extension to the period for the funding of
capital additions for tenant improvements and leasing commissions, as well as
the initial maturity date of the loan. There can be no assurance that these
provisions can be extended at all, or if extended on terms similar to those that
previously existed under the expired funding agreement and whether
Wellsford/Whitehall will achieve the operating results which will allow for
capital expenditure financing under the amended terms. At June 30, 2003,
Wellsford/Whitehall's cash and cash equivalents balance was approximately
$12,018,000 and restricted cash available for certain capital improvements was
approximately $11,900,000.
Second Holding expects to meet its liquidity requirements for purchases of
investments with proceeds from the issuance of bonds, medium-term notes and
commercial paper. Liquidity for the repayments of bonds, medium-term notes and
commercial paper is expected to be provided from principal repayments, from
amortization of investments and upon repayment of investments at maturity.
Second Holding also has $375,000,000 available on its line of credit at June 30,
2003. The nature of Second Holding's business results in the entity being highly
leveraged.
The Company's retained earnings included approximately $2,741,000 of
undistributed earnings from Second Holding at June 30, 2003 as distributions are
limited to 48.25% of earnings.
-25-
Other Items Impacting the Company's Liquidity and Resources
Second Holding Investments
The following table details the allocation of investments for Second Holding:
June 30, 2003 December 31, 2002
---------------------------- ----------------------------
Amount Percent Amount Percent
----------- ----------- ----------- -----------
Security for Investments (A)
- ----------------------------
Real Estate ................ $ 611,599,000 34% $ 587,358,000 33%
Corporate debt ............. 441,179,000 24% 462,041,000 26%
Consumer/trade receivables . 125,000,000 7% 125,000,000 7%
Bank deposits .............. 105,000,000 6% 105,000,000 6%
Sovereign debt ............. 100,960,000 6% 100,960,000 6%
Aircraft loans and leases .. 94,819,000 5% 80,000,000 4%
Fuel/oil receivables ....... 35,000,000 2% 35,000,000 2%
Other asset-backed
securities ............... 303,186,000 16% 290,399,000 16%
-------------- ----------- -------------- ----------
Total (B) .................. $1,816,743,000 100% $1,785,758,000 100%
============== =========== ============== ==========
Standard & Poor's
Ratings of Investments
- -----------------------------
AAA ........................ $1,297,308,000 72% $1,267,616,000 71%
AA+ ........................ 42,272,000 2% 35,000,000 2%
AA ......................... 204,372,000 11% 163,581,000 9%
AA- ........................ 111,002,000 6% 164,223,000 9%
A+ ......................... 24,922,000 1% 24,922,000 1%
A .......................... 79,867,000 5% 97,092,000 6%
A- ......................... 57,000,000 3% 33,324,000 2%
-------------- ----------- -------------- ----------
Total (B) .................. $1,816,743,000 100% $1,785,758,000 100%
============== =========== ============== ==========
- -----------------------------
(A) Investments may be secured by the assets or interests in such assets or
their respective economic benefit.
(B) Investments are variable rate based at a weighted average annual interest
rate of 1.81% and 2.21% at June 30, 2003 and December 31, 2002,
respectively.
Second Holding utilizes funds from the issuance of bonds, medium term notes and
commercial paper to make investments. Second Holding had total debt of
approximately $1,943,668,000 and $1,722,933,000 at June 30, 2003 and December
31, 2002, respectively, including junior subordinated bonds due in April 2010 of
$100,000,000 and $150,000,000 at June 30, 2003 and December 31, 2002,
respectively. Second Holding debt had a weighted average annual interest rate of
1.26% and 1.69% at June 30, 2003 and December 31, 2002, respectively, after the
effect of swaps on fixed rate debt to a floating rate. One of the partners of
Second Holding is commited through April 2010 to provide credit enhancement,
through the issuance of an insurance policy by one of its affiliates, for the
payment of principal and interest of the junior subordinated bond issue of
$100,000,000. The parent company of this partner announced that its subsidiary
(the partner of Second Holding) will no longer write new credit enhancement
business, however it will continue to support its existing book of credit
enhancement business. The Company does not believe that this decision will
impact the business and operations of Second Holding.
Silver Mesa Condominium Sales and Rental Operations
During the three months ended June 30, 2003, the Company sold eleven Silver Mesa
units and received net proceeds of approximately $1,334,000. During the six
months ended June 30, 2003, the Company sold sixteen Silver Mesa units and
received net proceeds of $1,445,000. During May 2003, the Company repaid the
remaining principal balance of the Silver Mesa conversion loan with proceeds
from Silver Mesa unit sales and available cash. Net proceeds received by the
Company from the above sales are available for working capital purposes.
-26-
The following table details operating information related to the Silver Mesa
units being rented. As the Company continues to sell units, future rental
revenues and corresponding operating expenses will diminish.
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
Rental revenue.............. $ 198,000 $ 359,000 $ 472,000 $ 794,000
Net operating income (A).... $ 116,000 $ 208,000 $ 313,000 $ 466,000
-----------
(A) Net operating income is defined as rental revenue, less property
operating and maintenance expenses, real estate taxes and property
management fees.
Green River Mortgage
In February 2003, the Company obtained a $40,000,000 permanent loan secured by a
first mortgage on Green River (the "Green River Mortgage"). The Green River
Mortgage matures in March 2013 and bears interest at a fixed rate of 5.45% per
annum. Principal payments are based on a 30-year amortization schedule. Proceeds
were used to repay maturing construction debt of approximately $37,111,000, with
excess proceeds available for working capital purposes.
Restructuring Charge
The Company recorded a non-recurring charge of approximately $3,527,000 during
the fourth quarter of 2001 related to the retirement of the Company's former
President and Chief Executive Officer and other personnel changes. The Company
made payments of approximately $2,767,000 during the year ended December 31,
2002, reducing the accrual balance from $3,466,000 at December 31, 2001 to
approximately $699,000 at December 31, 2002. The remaining balance of such
obligations were paid by March 31, 2003. The Company utilized available cash for
payments made in 2002 and 2003.
Cash Flows
- ----------
For the six months ended June 30, 2003
Cash flow provided by operating activities of $4,104,000 primarily consists of
(i) depreciation and amortization of $3,453,000, (ii) a decrease in the balance
of residential units available for sale of $2,732,000, (iii) a decrease in the
balance of prepaid and other assets of $922,000, (iv) amortization of deferred
compensation of $151,000, (v) a decrease in the balance of restricted cash and
investments of $131,000 and (vi) shares issued for director compensation of
$48,000, partially offset by (vii) the impact of a net loss from continuing
operations of $646,000, (viii) a decrease in the balance of accrued expenses and
other liabilities of $1,399,000, (ix) undistributed joint venture income of
$1,247,000 and (x) undistributed minority interest benefit of $41,000.
Cash flow provided by investing activities of $507,000 consists of repayments of
notes receivable of $516,000, offset by additional investments in real estate
assets of $9,000.
Cash flow used in financing activities of $2,357,000 consists of principal
payments of mortgage notes payable of $42,030,000 (including $37,111,000 for a
maturing construction loan on the Green River property and $4,318,000 for the
Silver Mesa Conversion Loan) and deferred financing costs of $327,000 on the new
Green River loan, offset by borrowings under such loan of $40,000,000.
-27-
Net cash used in discontinued operations of $35,000 is the net change in cash,
other assets and liabilities and income from the two VLP assets held for sale in
the Wellsford Capital SBU.
For the six months ended June 30, 2002
Cash flow used in operating activities of $443,000 primarily consists of (i) a
loss from continuing operations of $2,078,000, (ii) a decrease in accrued
expenses and other liabilities of $3,634,000, (iii) an increase in restricted
cash and investments of $1,756,000, (iv) undistributed joint venture income of
$570,000 and (v) undistributed minority interest benefit of $71,000, almost
entirely offset by (vi) a net decrease in residential units available for sale
of $3,099,000, (vii) depreciation and amortization of $2,477,000, (viii) a
decrease in prepaid and other assets of $1,424,000, (ix) amortization of
deferred compensation of $622,000 and (x) shares issued for director
compensation of $44,000.
Cash flow provided by investing activities of $5,759,000 consists of repayments
of notes receivable of $6,173,000, offset by a capital contribution to Reis of
$210,000 and additional investments in real estate assets of $204,000.
Cash flow used in financing activities of $2,927,000 consists of principal
payments of mortgage notes payable of $4,019,000 (including $3,613,000 for the
Silver Mesa Conversion Loan) and distributions of minority interests of $15,000,
offset by proceeds received upon the exercise of options of $676,000 and
interest funded by a construction loan of $431,000.
Net cash provided by discontinued operations of $82,000 is the net change in
cash, other assets and liabilities and income from the two VLP assets held for
sale in the Wellsford Capital SBU.
Risks Associated with Forward-Looking Statements
- ------------------------------------------------
This Form 10-Q, together with other statements and information publicly
disseminated by the Company, contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following,
which are discussed in greater detail in the "Risk Factors" section of the
Company's registration statement on Form S-3 (file No. 333-73874) filed with the
Securities and Exchange Commission ("SEC") on December 14, 2001, as may be
amended, which is incorporated herein by reference: general and local economic
and business conditions, which will, among other things, affect demand for
commercial and residential properties, availability and credit worthiness of
prospective tenants, lease rents and the availability and cost of financing;
ability to find suitable investments; competition; risks of real estate
acquisition, development, construction and renovation including construction
delays and cost overruns; ability to comply with zoning and other laws;
vacancies at commercial and multifamily properties; dependence on rental income
from real property; the risk of inflation in operating expenses, including, but
not limited to, energy, water and insurance; the availability of insurance
coverages; adverse consequences of debt financing including, without limitation,
the necessity of future financings to repay maturing debt obligations; inability
to meet financial and valuation covenants contained in loan agreements;
inability to repay financings; risks of investments in debt instruments,
including possible payment defaults and reductions in the value of collateral;
uncertainties pertaining to debt investments, including, but not limited to the
WTC Certificates, including scheduled interest payments, the ultimate repayment
of principal, adequate insurance coverages, the ability of insurers to pay
claims and effects of changes in ratings from rating agencies; risks of
subordinate loans; risks of leverage; risks associated with equity investments
in and with third parties; availability and cost of financing; interest rate
risks; demand by prospective buyers of condominium and commercial properties;
inability to realize gains from the real estate assets held for sale; lower than
anticipated sales prices; inability to close on sales of properties under
contract; illiquidity of real estate investments; environmental risks; and other
risks listed from time to time in the Company's reports filed with the SEC.
Therefore, actual results could differ materially from those projected in such
statements.
-28-
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company's primary market risk exposure is to changes in interest rates. The
Company and its joint venture investments each manage this risk by offsetting
its investments and financing exposures to the extent possible as well as by
strategically timing and structuring its transactions. The following table
presents the effect of a 1.00% increase in the base rates on all variable rate
notes receivable and debt and its impact on annual net income:
(amounts in thousands, except per share amounts)
Effect of 1%
Balance at Increase in Base
June 30, Rate on Income
2003 (Expense)
-------------- ----------------
Consolidated assets and liabilities:
Notes receivable:
Fixed rate.............................. $ 28,096 $ --
============ --------------
Mortgage notes payable:
Variable rate........................... $ 12,680 (127)
Fixed rate.............................. 97,523 --
------------ --------------
$ 110,203 (127)
============ --------------
Convertible Trust Preferred Securities:
Fixed rate.............................. $ 25,000 --
============ --------------
Proportionate share of assets and liabilities
from investments in joint ventures:
Second Holding:
Investments:
Variable rate........................ $ 928,190 9,282
============
Debt:
Variable rate........................ $ 983,500 (9,835)
============ --------------
Net effect from Second Holding.......... (553)
--------------
Wellsford/Whitehall:
Debt:
Variable rate, with LIBOR cap (A).... $ 39,431 (394)
Fixed rate........................... 26,497 --
------------ --------------
$ 65,928
============
Effect from Wellsford/Whitehall......... (394)
--------------
Fordham Tower:
Fixed rate.............................. $ 3,400 --
============ --------------
Net decrease in annual income, before minority
interest and income tax benefit............ (1,074)
Minority interest............................. 18
Income tax benefit............................ 423
--------------
Net decrease in annual net income............. $ (633)
==============
Per share, basic and diluted.................. $ (0.10)
==============
- -----------
(A) In July 2001, Wellsford/Whitehall entered into an interest rate
protection contract for a notional amount of $285,000, which limits
Wellsford/Whitehall's LIBOR exposure to 5.83% until June 2003 and
6.83% for the following year to June 2004. The above calculation
assumes exposure of 1.00% on the Company's proportionate share of debt
based upon the in-effect 30-day LIBOR contract of 1.32% at June 30,
2003.
-29-
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of its chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
on this evaluation, the Company's chief executive officer and chief financial
officer concluded that the disclosure controls and procedures are effective in
timely alerting them to material information required to be included in the
Company's periodic reports filed with the Securities and Exchange Commission.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date the Company carried out its last evaluation.
-30-
Part II Other Information:
-----------------
Item 1: Legal Proceedings.
The Company is not presently a defendant in any material
litigation.
Item 2: Changes in Securities and Use of Proceeds.
None.
Item 3: Defaults upon Senior Securities.
None.
Item 4: Submission of Matters to a Vote of Security Holders.
On June 9, 2003, the Company held its annual meeting of
shareholders. A total of 6,053,457 common shares, representing
approximately 93.8% of the 6,453,730 common shares outstanding
and entitled to vote (including 169,903 class A-1 common shares),
as of the record date (April 21, 2003) were represented in person
or by proxy vote and constituted a quorum. The Company's common
shares and class A-1 common shares are hereinafter referred to as
the "Common Shares".
At the meeting, Bonnie R. Cohen and Meyer "Sandy" Frucher were
elected as directors to serve terms of three years expiring at
the 2006 annual meeting of shareholders or, until their
respective successors are duly elected and qualify. Each of the
elected directors received the affirmative vote of at least
6,015,075 Common Shares. These elected directors join the
following existing directors until their terms expire: Edward
Lowenthal, whose term expires in 2004 and Jeffrey H. Lynford,
Douglas Crocker II and Mark S. Germain, whose terms expire in
2005.
The shareholders also ratified the appointment of Ernst & Young
LLP as the Company's independent public accountants for the
fiscal year ending December 31, 2003 by the affirmative vote of
6,034,807 Common Shares. Votes cast against the proposal were
3,101 Common Shares and 15,549 Common Shares abstained from
voting.
Item 5: Other Information.
None.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits filed with this Form 10-Q:
Exhibit No. Description
----------- -----------
3.1 Articles of Amendment and Restatement of the Company
(incorporated by reference to an exhibit to Amendment
No. 1 to Form S-11 filed on November 14, 1997).
3.2 Articles Supplementary classifying 350,000 Shares of
Common Stock as Class A Common Stock (incorporated by
reference to an exhibit to Amendment No. 1 to Form S-11
filed on November 14, 1997).
-31-
Exhibit No. Description (continued)
----------- ----------------------
3.3 Articles Supplementary classifying 2,000,000 shares of
Common Stock as Series A 8% Convertible Redeemable
Preferred Stock (incorporated by reference to an exhibit
to Amendment No. 1 to Form S-11 filed on November 14,
1997).
3.4 Bylaws of the Company (incorporated by reference to an
exhibit to Amendment No. 1 to Form S-11 filed on
November 14, 1997).
10.85 Sale-Purchase Agreement dated as of March 14, 2003
between Wellsford Capital Properties, L.L.C. and 955
Perimeter Road Realty, LLC for the sale of 15, 19 and 23
Keewaydin Drive, Salem, New Hampshire.
10.86 Third Amendment to Sale-Purchase Agreement dated as of
June 3, 2003 between Wellsford Capital Properties,
L.L.C. and 955 Perimeter Road Realty, LLC for the sale
of 15, 19 and 23 Keewaydin Drive, Salem, New Hampshire.
31.1 Chief Executive Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer and Chief Financial Officer
Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
During the quarter ended June 30, 2003, Wellsford Real Properties,
Inc. filed the following reports on Form 8-K:
Date of Report
(Date of Earliest Event) Items Reported Date Filed
------------------------ -------------- ----------
May 8, 2003 The Company furnished May 8, 2003
(May 7, 2003) under Item 9, a copy of
the press release
reporting results for the
first quarter ended
March 31, 2003.
June 9, 2003 The Company furnished June 9, 2003
(June 9, 2003) under Item 9, a copy of
the press release
announcing changes to
the Board of Directors.
-32-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLSFORD REAL PROPERTIES, INC.
By: /s/ James J. Burns
----------------------------------------------
James J. Burns
Senior Vice President, Chief Financial Officer
By: /s/ Mark P. Cantaluppi
----------------------------------------------
Mark P. Cantaluppi
Vice President, Chief Accounting Officer
Dated: August 6, 2003
-33-
Exhibit 31.1
CERTIFICATION
I, Jeffrey H. Lynford, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wellsford Real
Properties, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 6, 2003
/s/ Jeffrey H. Lynford
----------------------
Jeffrey H. Lynford
Chief Executive Officer
-34-
Exhibit 31.2
CERTIFICATION
I, James J. Burns, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wellsford Real
Properties, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 6, 2003
/s/ James J. Burns
-------------------
James J. Burns
Chief Financial Officer
-35-
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Wellsford Real Properties, Inc. (the
"Company") on Form 10-Q for the period ending June 30, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we,
Jeffrey H. Lynford, Chief Executive Officer of the Company and James J. Burns,
Chief Financial Officer of the Company, certify, to the best of our knowledge,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Jeffrey H. Lynford
-------------------------------
Jeffrey H. Lynford
Chief Executive Officer
Wellsford Real Properties, Inc.
/s/ James J. Burns
-------------------------------
James J. Burns
Chief Financial Officer
Wellsford Real Properties, Inc.
August 11, 2003
A signed original of this written statement required by Section 906 has been
provided to Wellsford Real Properties, Inc. and will be retained by Wellsford
Real Properties, Inc. and furnished to the Securities and Exchange Commission or
its staff upon request.
-36-