UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 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
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WELLSFORD REAL PROPERTIES, INC.
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(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
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(Address of Principal Executive Offices) (Zip Code)
(212) 838-3400
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(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
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The number of the registrant's shares of common stock outstanding was 6,455,994
as of November 13, 2003 (including 169,903 shares of class A-1 common stock).
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TABLE OF CONTENTS
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Page
Number
------
PART I. FINANCIAL INFORMATION:
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2003 (unaudited)
and December 31, 2002.........................................3
Consolidated Statements of Operations (unaudited) for the
Three and Nine Months Ended September 30, 2003 and 2002.......4
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended September 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....................................19
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......31
Item 4. Controls and Procedures..........................................32
PART II. OTHER INFORMATION:
-----------------
Item 1. Legal Proceedings................................................33
Item 6. Exhibits and Reports on Form 8-K.................................33
Signatures ........................................................35
Exhibits ........................................................36
-2-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2003 2002
---- ----
(unaudited)
ASSETS
Real estate assets, at cost:
Land ........................................................ $ 18,735,969 $ 19,402,840
Buildings and improvements .................................. 113,546,773 117,320,307
------------- -------------
132,282,742 136,723,147
Less:
Accumulated depreciation ................................. (15,711,418) (12,833,600)
------------- -------------
116,571,324 123,889,547
Residential units held for sale ............................ 11,352,378 14,541,634
Land held for future development ........................... 5,410,831 5,410,831
------------- -------------
133,334,533 143,842,012
Notes receivable ............................................... 3,096,000 28,612,000
Assets held for sale ........................................... 2,293,585 6,255,666
Investment in joint ventures ................................... 94,664,999 94,180,991
------------- -------------
Total real estate and investments .............................. 233,389,117 272,890,669
Cash and cash equivalents ...................................... 81,412,662 38,581,841
Restricted cash and investments ................................ 9,792,669 9,543,934
Prepaid and other assets ....................................... 9,260,296 11,758,599
------------- -------------
Total assets ................................................... $ 333,854,744 $ 332,775,043
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ...................................... $ 109,856,643 $ 112,232,830
Accrued expenses and other liabilities, including
the liability for deferred compensation of
$9,479,400 and $8,933,607 ................................. 16,447,992 15,312,782
Liabilities attributable to assets held for sale ............ 311,979 224,007
------------- -------------
Total liabilities .............................................. 126,616,614 127,769,619
------------- -------------
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 .............................................. 3,380,641 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 - 6,285,171 and 6,280,683 shares
issued and outstanding .................................... 125,703 125,614
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 ...................... 162,745,742 162,751,498
Retained earnings ........................................... 22,445,607 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 ...... (75,659) (253,500)
Deferred compensation ....................................... (63,168) (277,664)
Treasury stock, 306,843 and 311,624 shares .................. (6,324,134) (6,399,134)
------------- -------------
Total shareholders' equity ..................................... 178,857,489 176,567,297
------------- -------------
Total liabilities and shareholders' equity ..................... $ 333,854,744 $ 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 Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
2003 2002 2003 2002
---- ---- ---- ----
REVENUES
Rental revenue .................................. $ 3,377,304 $ 3,977,916 $ 10,883,629 $ 11,060,724
Revenue from sales of residential units ......... 5,980,221 2,977,451 9,637,360 7,301,305
Interest revenue ................................ 5,310,401 1,002,588 7,209,551 3,113,400
Fee revenue ..................................... 243,958 200,082 1,122,528 462,091
------------ ------------ ------------ -------------
Total revenues ............................... 14,911,884 8,158,037 28,853,068 21,937,520
------------ ------------ ------------ -------------
COSTS AND EXPENSES
Cost of sales of residential units .............. 5,070,294 2,699,273 8,251,025 6,637,991
Property operating and maintenance .............. 1,406,083 1,381,916 3,689,070 3,702,953
Real estate taxes ............................... 338,745 326,433 1,044,711 987,589
Depreciation and amortization ................... 1,209,475 1,283,644 4,644,296 3,741,955
Property management ............................. 67,869 122,089 219,156 339,375
Interest ........................................ 1,663,247 1,455,288 4,916,993 4,404,098
General and administrative ...................... 1,452,835 1,649,572 4,377,913 4,981,412
------------ ------------ ------------ ------------
Total costs and expenses ..................... 11,208,548 8,918,215 27,143,164 24,795,373
------------ ------------ ------------ ------------
Income from joint ventures ........................ 576,330 505,283 2,911,625 1,255,068
------------ ------------ ------------ ------------
Income (loss) before minority interest, income taxes,
accrued distributions and amortization of costs
on Convertible Trust Preferred Securities and
discontinued operations ......................... 4,279,666 (254,895) 4,621,529 (1,602,785)
Minority interest benefit .......................... 16,137 13,206 57,486 84,653
------------ ------------ ------------ ------------
Income (loss) before income taxes, accrued
distributions and amortization of costs on
Convertible Trust Preferred Securities
and discontinued operations ..................... 4,295,803 (241,689) 4,679,015 (1,518,132)
Income tax expense ................................. 1,654,000 75,000 1,843,000 37,000
------------ ------------ ----------- ------------
Income (loss) before accrued distributions and
amortization of costs on Convertible Trust
Preferred Securities and discontinued
operations ....................................... 2,641,803 (316,689) 2,836,015 (1,555,132)
Accrued distributions and amortization of costs
on Convertible Trust Preferred Securities,
net of income tax benefit of $330,000, $105,000,
$540,000 and $315,000, respectively .............. 194,954 419,954 1,034,861 1,259,861
------------ ------------ ----------- -----------
Income (loss) from continuing operations ............ 2,446,849 (736,643) 1,801,154 (2,814,993)
(Loss) income from discontinued operations,
net of income tax expense (benefit) of
$4,000, $(15,000), $14,000 and $12,000
respectively .................................... (12,564) (61,751) 27,368 46,799
------------ ------------ ----------- -----------
Net income (loss) .................................. $ 2,434,285 $ (798,394) $ 1,828,522 $(2,768,194)
============ ============ ============ ============
Per share amounts, basic and diluted:
Income (loss) from continuing operations ......... $ 0.38 $ (0.11) $ 0.28 $ (0.44)
(Loss) income from discontinued operations ....... -- (0.01) -- 0.01
------------ ------------ ----------- -----------
Net income (loss) ................................ $ 0.38 $ (0.12) $ 0.28 $ (0.43)
============ ============ ============ =============
Weighted average number of common shares
outstanding:
Basic ............................................ 6,455,074 6,449,206 6,453,643 6,432,094
============ ============ =========== ============
Diluted .......................................... 6,456,818 6,449,206 6,454,424 6,432,094
============ ============ =========== ============
See notes to Consolidated Financial Statements
-4-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
------------------------
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations .................... $ 1,801,154 $ (2,814,993)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by operating activities:
Depreciation and amortization ......................... 4,672,282 3,769,941
Amortization of deferred compensation ................. 214,496 932,499
Undistributed joint venture income .................... (1,555,662) (630,086)
Undistributed minority interest benefit ............... (57,486) (84,653)
Shares issued for director compensation ............... 69,333 68,000
Changes in assets and liabilities:
Restricted cash and investments .................... (248,735) (1,741,705)
Residential units held for sale .................... 7,226,235 5,351,848
Prepaid and other assets ........................... 2,683,020 1,219,039
Accrued expenses and other liabilities ............. 1,135,210 (3,053,245)
------------ ------------
Net cash provided by operating activities ............. 15,939,847 3,016,645
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate assets ............................ (9,379) (318,302)
Investments in joint ventures and other entities:
Capital contributions ................................. -- (209,800)
Repayments of notes receivable ............................... 25,516,000 6,172,727
------------ ------------
Net cash provided by investing activities ............. 25,506,621 5,644,625
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing from mortgage notes payable ....................... 40,000,000 --
Deferred financing costs .................................... (316,881) --
Repayment of mortgage notes payable ......................... (42,376,187) (6,714,907)
Interest funded by construction loan......................... -- 431,120
Proceeds from option exercises .............................. -- 676,446
Distributions of minority interest .......................... -- (15,231)
------------ ------------
Net cash (used in) financing activities ............... (2,693,068) (5,622,572)
------------ ------------
Net cash provided by continuing operations ..................... 38,753,400 3,038,698
Net cash provided by (used in) discontinued operations ......... 4,077,421 (347,353)
------------ ------------
Net increase in cash and cash equivalents ...................... 42,830,821 2,691,345
Cash and cash equivalents, beginning of period ................. 38,581,841 36,092,309
------------ ------------
Cash and cash equivalents, end of period ....................... $ 81,412,662 $ 38,783,654
============ ============
SUPPLEMENTAL INFORMATION:
Cash paid during the period for interest .................... $ 4,911,321 $ 4,172,115
============ ============
Tax refunds in excess of payments for income taxes........... $ 1,903,268 $ 75,046
============ ============
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 ....... $ 177,841 $ (144,868)
============ ============
Reclassification of Silver Mesa units from land, building
and improvements and accumulated depreciation to
residential units available for sale in 2003 and 2002,
respectively ......................................... $ 4,036,979 $10,368,808
============ ============
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 nine months ended September 30, 2003 and 2002 and cash flows for the
nine months ended September 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 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 in July 2003, and the Company expects that it will be able to sell the
other property by June 30, 2004. Additionally, the Company determined that
the remaining impairment reserve at September 30, 2003 of $2,153,000 is
adequate for the remaining unsold property.
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.
Recently Issued Pronouncements. 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 period ending after December 15, 2003 for
variable interest entities in which the Company held 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
results 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 for required quarterly disclosures.
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. SFAS
No. 150 is effective for interim periods beginning after June 15, 2003. The
Company has determined that this statement will not have any impact on its
financial position or results of operations.
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.
-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
----------- ----------- ----------- ------ ------------
September 30, 2003
----------------------
Investment properties:
Real estate held for investment,
net ............................. $ -- $ -- $121,982 $ -- $121,982
Residential units held for
sale ............................ -- -- 11,352 -- 11,352
-------- -------- -------- -------- --------
Real estate, net ...................... -- -- 133,334 -- 133,334
Notes receivable ...................... -- 3,096 -- -- 3,096
Assets held for sale**................. -- 2,294 -- -- 2,294
Investment in joint ventures .......... 55,130 39,535 -- -- 94,665
Cash and cash equivalents ............. -- 36,284 815 44,314 81,413
Restricted cash and investments ....... -- -- 313 9,480 9,793
Prepaid and other assets .............. -- 8,617 1,376 (733) 9,260
-------- -------- -------- -------- --------
Total assets .......................... $ 55,130 $ 89,826 $135,838 $ 53,061 $333,855
======== ======== ======== ======== ========
Mortgage notes payable ................ $ -- $ -- $109,857 $ -- $109,857
Accrued expenses and other liabilities. -- 4,654 2,712 9,082 16,448
Liabilities attributable to assets held
for sale**.......................... -- 312 -- -- 312
Convertible Trust Preferred Securities. -- -- -- 25,000 25,000
Minority interest ..................... 6 -- 3,375 -- 3,381
Equity ................................ 55,124 84,860 19,894 18,979 178,857
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity ............................. $ 55,130 $ 89,826 $135,838 $ 53,061 $333,855
======== ======== ======== ======== ========
December 31, 2002
------------------------
Investment properties:
Real estate held for investment,
net.............................. $ -- $ -- $129,300 $ -- $129,300
Residential units held 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 $2,153 and $2,175
at September 30, 2003 and December 31, 2002, respectively.
-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 September 30, 2003
---------------------------
Rental revenue ........................ $ -- $ -- $ 3,378 $ -- $ 3,378
Revenue from sales of residential
units .............................. -- -- 5,980 -- 5,980
Interest revenue ...................... -- 5,202 -- 108 5,310
Fee revenue ........................... -- 244 -- -- 244
------- ------- ------- ------- -------
Total revenues ........................ -- 5,446 9,358 108 14,912
------- ------- ------- ------- -------
Cost of sales of residential units .... -- -- 5,070 -- 5,070
Operating expenses .................... -- -- 1,813 -- 1,813
Depreciation and amortization ......... 76 2 1,112 19 1,209
Interest .............................. -- -- 1,533 130 1,663
General and administrative ............ -- 6 -- 1,447 1,453
------- ------- ------- ------- -------
Total costs and expenses ........... 76 8 9,528 1,596 11,208
------- ------- ------- ------- -------
(Loss) income from joint ventures ..... (93) 669 -- -- 576
Minority interest benefit ............. -- -- 16 -- 16
------- ------- ------- ------- -------
(Loss) income before income taxes,
accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities and
discontinued operations ............ $ (169) $ 6,107 $ (154) $(1,488) $ 4,296
======= ======= ======= ======= =======
Loss from discontinued operations
before taxes ...................... $ -- $ (9) $ -- $ -- $ (9)
======= ======= ======= ======= =======
For the Three Months
Ended September 30, 2002
---------------------------
Rental revenue ........................ $ -- $ -- $ 3,978 $ -- $ 3,978
Revenue from sales of residential
units .............................. -- -- 2,977 -- 2,977
Interest revenue ...................... -- 845 -- 158 1,003
Fee revenue ........................... -- 192 (14) 22 200
------- ------- ------- ------- -------
Total revenues ..................... -- 1,037 6,941 180 8,158
------- ------- ------- ------- -------
Cost of sales of residential units .... -- -- 2,699 -- 2,699
Operating expenses .................... -- -- 1,830 -- 1,830
Depreciation and amortization ......... 110 2 1,153 19 1,284
Interest .............................. -- -- 1,408 47 1,455
General and administrative ............ -- 9 -- 1,641 1,650
------- ------- ------- ------- -------
Total costs and expenses ........... 110 11 7,090 1,707 8,918
------- ------- ------- ------- -------
Income from joint ventures ............ 173 332 -- -- 505
Minority interest benefit ............ -- -- 13 -- 13
------- ------- ------- ------- -------
Income (loss) before income taxes,
accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities and
discontinued operations ............ $ 63 $ 1,358 $ (136) $(1,527) $ (242)
======= ======= ======= ======= =======
Loss from discontinued operations
before taxes ...................... $ -- $ (77) $ -- $ -- $ (77)
======= ======= ======= ======= =======
- ----------
* 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 Nine Months
Ended September 30, 2003
----------------------------
Rental revenue ........................ $ -- $ -- $10,884 $ -- $10,884
Revenue from sales of residential
units .............................. -- -- 9,637 -- 9,637
Interest revenue ...................... -- 6,875 -- 335 7,210
Fee revenue ........................... -- 702 (10) 430 1,122
------- ------- ------- ------- -------
Total revenues ..................... -- 7,577 20,511 765 28,853
------- ------- ------- ------- -------
Cost of sales of residential units .... -- -- 8,251 -- 8,251
Operating expenses .................... -- -- 4,953 -- 4,953
Depreciation and amortization ......... 1,248 5 3,335 56 4,644
Interest .............................. -- -- 4,619 298 4,917
General and administrative ............ -- 23 -- 4,355 4,378
------- ------- ------- ------- -------
Total costs and expenses ........... 1,248 28 21,158 4,709 27,143
------- ------- ------- ------- -------
Income from joint ventures ............ 1,346 1,566 -- -- 2,912
Minority interest benefit ............. -- -- 57 -- 57
------- ------- ------- ------- -------
Income (loss) before income taxes,
accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities and
discontinued operations ............ $ 98 $ 9,115 $ (590) $(3,944) $ 4,679
======= ======= ======= ======= =======
Income from discontinued operations
before taxes ....................... $ -- $ 41 $ -- $ -- $ 41
======= ======= ======= ======= =======
For the Nine Months
Ended September 30, 2002
----------------------------
Rental revenue ........................ $ -- $ -- $11,061 $ -- $11,061
Revenue from sales of residential
units .............................. -- -- 7,301 -- 7,301
Interest revenue ...................... -- 2,651 -- 462 3,113
Fee revenue ........................... -- 474 (41) 29 462
------- ------- ------- ------- -------
Total revenues ..................... -- 3,125 18,321 491 21,937
------- ------- ------- ------- -------
Cost of sales of residential units .... -- -- 6,638 -- 6,638
Operating expenses .................... -- -- 5,029 -- 5,029
Depreciation and amortization ......... 361 6 3,321 55 3,743
Interest .............................. -- 7 4,285 112 4,404
General and administrative ............ -- 28 -- 4,953 4,981
------- ------- ------- ------- -------
Total costs and expenses ........... 361 41 19,273 5,120 24,795
------- ------- ------- ------- -------
Income from joint ventures ............ 534 721 -- -- 1,255
Minority interest benefit ............ -- -- 85 -- 85
------- ------- ------- ------- -------
Income (loss) before income taxes,
accrued distributions and
amortization of costs on Convertible
Trust Preferred Securities and
discontinued operations ............ $ 173 $ 3,805 $ (867) $(4,629) $(1,518)
======= ======= ======= ======= =======
Income from discontinued operations
before taxes ....................... $ -- $ 59 $ -- $ -- $ 59
======= ======= ======= ======= =======
- ----------
* 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 September 30,
2003.
The Company's investment in Wellsford/Whitehall, which is accounted for on
the equity method, was approximately $55,130,000 and $55,592,000 at
September 30, 2003 and December 31, 2002, respectively. The following table
details the changes in the Company's investment in Wellsford/Whitehall
during the nine months ended September 30, 2003:
Investment balance at January 1, 2003 ............. $ 55,592,000
Contributions.................................... --
Distributions.................................... (738,000)
Share of:
(Loss) from continuing operations............. (510,000)
Net gain from asset sales..................... 2,951,000
(Loss) from discontinued operations*.......... (1,095,000)
Other comprehensive income.................... 178,000
Amortization..................................... (1,248,000)
------------
Investment balance at September 30, 2003............ $ 55,130,000
============
-------------------------
*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 $22,000 during the
three months ended September 30, 2002 and $430,000 and $29,000 during the
nine months ended September 30, 2003 and 2002, respectively. The Company
did not earn any fees during the three months ended September 30, 2003.
-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 September 30, 2003 December 31, 2002
---------------------------- ------------------ -----------------
Real estate, net ........... $ 357,286 $ 351,997
Cash and cash equivalents .. 10,820 16,169
Assets held for sale ....... -- 164,696
Other assets .............. 22,930 24,457
Total assets ............... 391,036 557,319
Mortgages payable .......... 95,908 96,826
Credit facility ............ 106,078 132,349
Liabilities attributable to
properties held for
sale ..................... -- 140,825
Common equity .............. 181,607 179,742
Accumulated other
comprehensive loss ....... (388) (1,297)
For the Three Months Ended September 30, For the Nne Months Ended September 30,
---------------------------------------- --------------------------------------
Condensed Operating Data 2003 2002* 2003 2002*
------------------------ ---- ---- ---- ----
Total revenues................... $ 11,277 $ 11,926 $ 33,010 $ 36,046
-------- -------- --------- ---------
Operating expenses .............. 5,371 5,113 15,177 14,168
Depreciation and amortization ... 1,736 2,646 7,557 7,853
Interest ........................ 2,885 3,256 8,658 9,727
General and administrative ...... 1,393 697 3,184 3,235
--------- -------- --------- ---------
Total expenses ................ 11,385 11,712 34,576 34,983
--------- -------- --------- ---------
(Loss) income from continuing
operations .................... (108) 214 (1,566) 1,063
(Loss) income from discontinued
operations .................... (292) 317 (373) 820
Net gain (loss) from asset
sales (A)...................... 116 -- 9,055 (259)
Write-off of deferred debt costs
and prepayment penalties from
debt pay-offs upon sales of
assets ........................ -- -- (2,987) --
--------- -------- -------- ---------
Net (loss) income ............... $ (284) $ 531 $ 4,129 $ 1,624
========= ======== ======== =========
- ----------
*Asset sold in 2002 not treated as a discontinued operation.
(A) Net gains during the three months ended September 30, 2003 primarily
result from subsequent realization of contingent sales proceeds.
-12-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
At September 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 nine months ended September
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
----- ------------------------------ --------------------------- ----------- ----------- -----------
January Decatur ....................... Decatur, GA 10,000 $ 2,370 $ 234
--------- ---------
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
--------- --------
March 60 Turner Street .............. Waltham, MA 16,000 1,300 81
--------- --------
May 79 Milk Street (B)............. Boston, MA 65,000
24 Federal Street (B).......... Boston, MA 75,000
---------
140,000 33,000 236
--------- --------
June Greenbrook land................ Fairfield, NJ -- 785 --
--------- --------
1,122,000 $174,290
========= ========
- ----------
(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 September 30, 2003, the Company had the following investments: (i)
direct debt investment of $3,096,000 which bore interest at 8.25% per annum
as of September 30, 2003 and had a remaining term to maturity of 2.3 years;
(ii) approximately $32,743,000 of equity investments in companies which
were organized to invest in debt instruments, including $29,114,000 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
approximately $3,630,000 in Clairborne Fordham Tower, L.L.C. ("Clairborne
Fordham"), a company organized to provide $34,000,000 in mezzanine
financing for a highrise condominium project in Chicago; and (iii)
approximately $6,791,000 invested in Reis, Inc., a real estate information
and database company ("Reis"). In addition, the Company owns and operates
one commercial property with a net book value of approximately $1,930,000
totaling approximately 50,000 square feet located in Philadelphia,
Pennsylvania, which is held for sale at September 30, 2003 and is reflected
in discontinued operations in the accompanying financial statements.
-13-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
277 Park Loan
During September 2003, the 277 Park loan was prepaid by the borrower. The
Company's share of the loan was $25,000,000 and bore interest at 12.00% per
annum with a stated maturity of May 2007. Pursuant to the terms of the
loan, WRP received a yield maintenance penalty of $4,368,000 which is
included in interest revenue for the three and nine months ended September
30, 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 decisions. The
Company's investment was approximately $29,114,000 and $28,166,000 at
September 30, 2003 and December 31, 2002, respectively and includes
undistributed earnings of approximately $3,141,000 and $2,192,000 at
September 30, 2003 and December 31, 2002, respectively. The Company's share
of income from Second Holding was approximately $578,000 and $241,000 for
the three months ended September 30, 2003 and 2002, respectively and
$1,297,000 and $452,000 for the nine months ended September 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 $244,000 and $178,000 for the three
months ended September 30, 2003 and 2002, respectively and $693,000 and
$433,000 for the nine months ended September 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 September 30, 2003 December 31, 2002
---------------------------- ------------------ -----------------
Cash and cash equivalents..... $ 100,992 $ 16,876
Investments................... 1,809,231 1,785,758
Other assets (A).............. 30,677 37,462
Total assets.................. 1,940,900 1,840,096
Medium-term notes (B)......... 1,757,619 1,552,945
Long-term debt (C)(D)......... 117,532 169,988
Total equity.................. 57,813 55,910
-14-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
For the Three Months Ended September 30, For the Nine Months Ended September 30,
--------------------------------------- ---------------------------------------
Condensed Operating Data 2003 2002 2003 2002
------------------------ ---- ---- ---- ----
Interest...................... $ 10,686 $11,490 $ 32,394 $ 29,612
-------- ------- --------- ---------
Total revenue ................ 10,686 11,490 32,394 29,612
-------- ------- --------- ---------
Interest expense ............. 7,669 9,701 24,749 25,387
Fees and other ............... 1,251 1,028 3,662 2,761
-------- ------- --------- ---------
Total expenses ............... 8,920 10,729 28,411 28,148
-------- ------- --------- ---------
Net income attributable
to members (D)............. $ 1,766 $ 761 $ 3,983 $ 1,464
======== ======= ========= =========
- ----------
(A) Other assets include an interest rate swap asset with a fair value of
$19,460 and $22,638 at September 30, 2003 and December 31, 2002,
respectively.
(B) At September 30, 2003, the net reported amount of medium-term notes
includes the face amount of such notes of $1,760,000, offset by unamortized
discounts and debt issuance costs of $2,381. 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 September
30, 2003 and December 31, 2002, respectively. The effect of fair value
adjustments for the long-term debt (which is primarily an offset to the
fair value of the interest rate swap asset as described in (A) above) was
$19,460 and $22,125 at September 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 (see (C))) 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 except if
any of its credit enhancement obligations is required to be paid.
Clairborne Fordham Tower, L.L.C
In October 2000, the Company and Prudential Real Estate Investors ("PREI"),
an affiliate of Prudential Life Insurance, organized Clairborne Fordham which
provided an aggregate of $34,000,000 of mezzanine financing for the construction
of Fordham Tower, a 50-story, 244 unit, luxury condominium apartment project to
be built on Chicago's near northside ("Fordham Tower"). The Company fully funded
its $3,400,000 share of the loan. The loan, which matured in October 2003, bore
interest at a fixed rate of 10.50% per annum with provisions for additional
interest to PREI and the Company and is secured by a lien on the equity
interests of the owner of Fordham Tower. The Company may earn fees from PREI's
additional interest based upon certain levels of returns on the project. Such
additional interest and fees have not been accrued by the Company or Clairborne
Fordham. The Company's investment in the Clairborne Fordham venture is accounted
for on the equity method. The Company's share of income from Clairborne Fordham
was approximately $91,000 and $92,000 for the three months ended September 30,
2003 and 2002, respectively and $270,000 and $270,000 for the nine months ended
September 30, 2003 and 2002, respectively.
Construction is complete and delivery of certain units commenced in December
2002. As of September 30, 2003, no units were under contract and 220 units
(including nine penthouses and 211 standard units) had closed for gross proceeds
of approximately $152,300,000. The remaining unsold units consist of five
standard units, 13 penthouses and six townhouses. In addition, the owner of
Fordham Tower is seeking to sell the 12,000 square feet of retail space and a
200 space commercial parking facility, both of which are part of the project.
-15-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
The loan was not repaid at maturity and the venture has negotiated an amended
loan agreement, subject to final signatures, extending the loan to December 31,
2004. The amended terms provide for the placement of a first mortgage lien on
the project, no interest to be accrued after September 30, 2003 and for the
borrower to add to the existing principal amount the additional interest due
Clairborne Fordham at September 30, 2003 of approximately $19,240,000. The
Company's share of such additional interest including fees could be
approximately $3,000,000 depending upon the amount and timing of project
proceeds. In lieu of interest after September 30, 2003 Clairborne Fordham will
also participate in additional cash flow, as defined, if earned from net sales
proceeds of the Fordham Tower project.
The agreement provides for a $3,000,000 additional capital contribution by the
borrower and use of an existing cash collateral account to pay off the existing
construction loan, any unpaid construction costs and to make an immediate
principal payment to Clairborne Fordham of approximately $4,600,000, of which
the Company's share is approximately $460,000. The principal payments were made
on October 3, 2003. The agreement provides for all proceeds after project costs
to be first applied to payment in full of the loan and the additional interest
to Clairborne Fordham before any sharing of project cash flow with the borrower.
The Company and Clairborne Fordham have concluded that their respective
investment and loan balances are not impaired at September 30, 2003.
Value Property Trust ("VLP")
In July 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 utilized
$22,000 of the impairment reserve. The remaining impairment reserve balance of
approximately $2,153,000 is available for the Philadelphia, Pennsylvania asset.
Development and Land Investments-Wellsford Development
- ------------------------------------------------------
At September 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 196 units
through September 30, 2003 and, although all remaining units have been included
in residential units held for sale at September 30, 2003, 22 of the unsold units
are available for rent and will be included in rental 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 Nine Months Ended
September 30, September 30,
-------------------------- ------------------------- Project
2003 2002 2003 2002 Totals
---- ---- ---- ---- -------
Number of units sold ........... 27 14 43 34 196
Gross proceeds ................. $ 5,980,000 $ 2,977,000 $ 9,637,000 $ 7,301,000 $ 42,204,000
Principal paydown on Silver Mesa
Conversion Loan*............. $ -- $ 2,487,000 $ 4,318,000 $ 6,100,000 $ 32,000,000
- ----------
* The Company prepaid the remaining principal balance during May 2003 with
proceeds from Silver Mesa unit sales and available cash.
-16-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
The following table details operating information related to the Silver
Mesa units being rented. As the Company continues to sell units, rental
revenues and corresponding operating expenses will diminish.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Rental revenue.................. $145,000 $ 343,000 $ 617,000 $1,137,000
Net operating income (A)........ $ 57,000 $ 170,000 $ 370,000 $ 636,000
- ----------
(A) Net operating income is defined as rental revenue, less property operating
and maintenance expenses, real estate taxes and property management fees.
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
nine months ended September 30, 2003 and 2002, respectively.
The following table details the components of comprehensive income (loss):
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) ...................... $ 2,434,285 $ (798,394) $ 1,828,522 $ (2,768,194)
Share of unrealized income (loss) on
interest rate protection contract
purchased by joint venture investment,
net of income tax benefit............ 25,230 (23,254) 177,841 (144,868)
------------ ------------ ----------- --------------
Comprehensive income (loss) ............ $ 2,459,515 $ (821,648) $ 2,006,363 $ (2,913,062)
============ ============ =========== ==============
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 Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) - as reported......... $ 2,434 $ (798) $ 1,829 $ (2,768)
Expense................................. 39 125 121 550
------- -------- --------- ----------
Net income (loss) - pro forma........... $ 2,395 $ (923) $ 1,708 $ (3,318)
======= ======== ========== ==========
Net income (loss) per common share,
basic and diluted:
As reported......................... $ 0.38 $ (0.12) $ 0.28 $ (0.43)
======== ======== ========== ==========
Pro forma........................... $ 0.37 $ (0.14) $ 0.26 $ (0.52)
======== ======== ========== ==========
-17-
WELLSFORD REAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
6. Income Taxes
The income tax expense for the three and nine month periods ended September
30, 2003 results from state and local taxes based upon income, minimum
state and local taxes based upon capital and a provision for Federal income
taxes at a 34% rate. The income tax expense for the three and nine month
periods ended September 30, 2002 results from the Federal tax benefit of
the costs of the Convertible Trust Preferred Securities at Alternative
Minimum Tax ("AMT") rates of 20%, plus minimum state and local taxes based
upon capital, partially offset by expected refundable Federal income taxes
arising from carryback claims at AMT rates.
Income tax benefit attributable to the Convertible Trust Preferred
Securities and the tax expense or benefit of discontinued operations are
based upon the expected Federal tax rates in the respective periods.
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 Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Numerator:
Income (loss) from continuing operations .... $ 2,446,849 $ (736,643) $ 1,801,154 $ (2,814,993)
Income (loss) income from discontinued
operations, net of income tax expense
(benefit) of $4,000, $(15,000), $14,000
and $12,000, respectively ................ (12,564) (61,751) 27,368 46,799
------------- ----------- ------------ ------------
Net income (loss) ........................... $ 2,434,285 $ (798,394) $ 1,828,522 $ (2,768,194)
============= ============ ============ =============
Denominator:
Denominator for net income (loss) per
common share, basic--weighted average
common shares ......................... 6,455,074 6,449,206 6,453,643 6,432,094
Effect of dilutive securities:
Employee stock options .............. 1,744 -- 781 --
Convertible Trust Preferred
Securities ........................ -- -- -- --
------------ ------------ ----------- ---------
Denominator for net income (loss) per
common share, diluted--weighted
average common shares ................. 6,456,818 6,449,206 6,454,424 6,432,094
============ ============ =========== ==========
Per share amounts, basic and diluted:
Income (loss) from continuing
operatings. ......................... $ 0.38 $ (0.11) $ 0.28 $ (0.44)
(Loss) income from discontinued -- (0.01) -- 0.01
operations .......................... ------------ ------------ ----------- -----------
Net income (loss)...................... $ 0.38 $ (0.12) $ 0.28 $ (0.43)
============ ============ =========== ===========
-18-
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 September 30, 2003.
The Company's investment in Wellsford/Whitehall, which is accounted for on the
equity method, was approximately $55,130,000 and $55,592,000 at September 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 Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2003 2002* 2003 2002*
---- ---- ---- ----
(Loss) income from continuing operations.. $ (34,000) $ 69,000 $ (510,000) $ 347,000
(Loss) income from discontinued
operations............................. (96,000) 104,000 (122,000) 268,000
Net gain (loss) from asset sales.......... 37,000 -- 2,951,000 (81,000)
Write-off of deferred debt costs and
prepayment penalties from debt pay-
offs upon sales of assets.............. -- -- (973,000) --
------------- ------------- ------------- --------------
(Loss) income from
Wellsford/Whitehall................. $ (93,000) $ 173,000 $ 1,346,000 $ 534,000
============== ============= ============= ==============
- ---------------
* 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 $22,000 during the three months ended
September 30, 2002 and $430,000 and $29,000 during the nine months ended
September 30, 2003 and 2002, respectively. The Company did not earn any fees
during the three months ended September 30, 2003.
-19-
At September 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 nine months ended September 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
----- ------------------------------ --------------------------- ----------- ----------- -----------
January Decatur ....................... Decatur, GA 10,000 $ 2,370 $ 234
------- ---------
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
-------- ---------
March 60 Turner Street .............. Waltham, MA 16,000 1,300 81
-------- ---------
May 79 Milk Street (B)............. Boston, MA 65,000
24 Federal Street (B).......... Boston, MA 75,000
--------
140,000 33,000 236
-------- ---------
June Greenbrook land................ Fairfield, NJ -- 785 --
-------- ---------
1,122,000 $ 174,290
========= =========
- ----------
(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 September 30, 2003, the Company had the following investments: (i) direct
debt investment of $3,096,000 which bore interest at 8.25% per annum as of
September 30, 2003 and had a remaining term to maturity of approximately 2.3
years; (ii) approximately $32,743,000 of equity investments in companies which
were organized to invest in debt instruments, including $29,114,000 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 approximately
$3,630,000 in Clairborne Fordham Tower, L.L.C. ("Clairborne Fordham"), a company
organized to provide $34,000,000 of
-20-
mezzanine financing for a highrise condominium project in Chicago; and (iii)
approximately $6,791,000 invested in Reis, Inc., a real estate information and
database company ("Reis"). In addition, the Company owns and operates one
commercial property with a net book value of approximately $1,930,000 totaling
approximately 50,000 square feet located in Philadelphia, Pennsylvania, which is
held for sale at September 30, 2003 and is reflected in discontinued operations
in the accompanying financial statements.
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 September 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 196 units
through September 30, 2003 and, although all remaining units have been included
in residential units held for sale at September 30, 2003, 22 of the unsold units
are available for rent and will be included in rental 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
----------- ----------- ----------- ----------- ----------- -----
September 30, 2003.... 73% 2,206,000 48% 50,000 91% 1,184
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
September 30, 2002 ... 79% 3,328,000 60% 175,000 94% 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 September 30, 2003,
June 30, 2003, March 31, 2003, December 31, 2002, September 30, 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 rate for the remaining asset acquired from Value Property Trust
("VLP") held in this SBU.
(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 September
30, 2003, the average concession was approximately 2.5 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.
-21-
Results of Operations
- ---------------------
Comparison of the three months ended September 30, 2003 to the three months
ended September 30, 2002
Rental revenue decreased $601,000. This decrease is due to the impact of rent
concessions in excess of the 2002 period at all phases of Palomino Park in the
Wellsford Development SBU ($225,000), reduced rental operations at the Silver
Mesa phase resulting from unit sales and fewer units being rented in the 2003
period as compared to the 2002 period ($218,000) and decreased average physical
occupancy at the Blue Ridge, Red Canyon and Green River phases during the 2003
period to 89% occupied as compared to 94% in the 2002 period ($158,000).
Revenues from sales of residential units and the associated cost of sales from
such units were $5,980,000 and $5,070,000, respectively, from 27 sales during
the three months ended September 30, 2003 and were $2,977,000 and $2,699,000,
respectively, from 14 sales during the corresponding 2002 period. The average
pre-tax income from 2003 unit sales was approximately $13,800 greater per unit
than in the corresponding 2002 period as a result of sales of larger units, a
reduced commission rate on the units sold and declining interest costs included
in cost of sales as the average outstanding debt balance was being reduced over
the 2002 period until its ultimate repayment in May 2003. There was no interest
in cost of sales during the 2003 period from the Silver Mesa Conversion Loan as
such loan was repaid in May 2003.
Interest revenue increased $4,308,000. This increase is due to the receipt of a
yield maintenance penalty of $4,368,000 from the prepayment of the 277 Park loan
at September 30, 2003, offset by reduced interest of $10,000 earned on loans
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 $50,000 from
lower base interest rates during the current period versus the comparable 2002
period.
Fee revenue increased $44,000. The Company's management fees for its role in the
Second Holding investment increased $66,000 from the growth of assets under
management in that venture, offset by reduced fees payable by Whitehall derived
from Wellsford/Whitehall as no asset sales or purchases occurred in the 2003
period, however, the Company earned $22,000 of fees in the 2002 period from an
asset purchase by a Whitehall affiliate.
Property operating and maintenance expenses increased $24,000. This increase is
primarily the result of additional tenant replacement costs, advertising costs,
rising insurance premiums and the Company absorbing higher utility costs in 2003
because of an 89% average physical occupancy compared to 94% in the 2002 period.
The increase in real estate taxes of $12,000 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 $74,000. 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 ($54,000) and reduced amortization of joint
venture costs attributable to assets sold by Wellsford/Whitehall during 2003
($34,000), offset by additional depreciation for fixed asset additions to the
other Palomino Park phases ($14,000).
Property management expenses decreased $54,000. 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
the 2003 quarter, the decrease would have been $34,000 less.
-22-
Interest expense increased $208,000. 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 ($223,000). This increase was partially
offset by lower average outstanding principal balances with respect to the other
Palomino Park phases ($15,000).
General and administrative expenses decreased $197,000 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 $71,000. An analysis of the increase is as
follows:
For The Three Months Ended September 30,
-----------------------------------------
Increase
2003 2002 (Decrease)
---- ---- ----------
Wellsford/Whitehall:
(Loss) income from continuing
operations (A)............................ $ (34,000) $ 69,000 $ (103,000)
Net gain from asset sales (B)............... 37,000 -- 37,000
(Loss) income from discontinued
operations (A)..... ...................... (96,000) 104,000 (200,000)
---------- ---------- -----------
(Loss) income from Wellsford/Whitehall.... (93,000) 173,000 (266,000)
Second Holding (C)............................. 578,000 241,000 337,000
Clairborne Fordham Tower....................... 91,000 92,000 (1,000)
Other.......................................... -- (1,000) 1,000
----------- ---------- -----------
Income from joint ventures .................... $ 576,000 $ 505,000 $ 71,000
=========== ========== ===========
----------
(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) Net gains during the three months ended September 30, 2003 primarily result
from subsequent realization of contingent sales proceeds.
(C) The increase in earnings is a result of an increase in average invested
assets generating increased income for that venture.
Minority interest remained relatively unchanged as the loss from the Wellsford
Development SBU was consistent in both periods.
Income tax expense increased $1,579,000 primarily from the Company having income
in 2003 compared to a loss in the 2002 period, offset in part by 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 a $62,000 loss in the fiscal 2002 period compared to a loss of $13,000 in
the 2003 period. The change resulted primarily from the sale in July 2003 of one
of the two properties held for sale.
The change in after tax cost of the Convertible Trust Preferred Securities
results from utilizing a 34% tax benefit in 2003 and a 20% tax benefit in 2002.
The change in net income per share, basic and diluted of $0.50 per share from a
loss in 2002 of $(0.12) per share to income in 2003 of $0.38 per share is
attributable to current period income of $2,434,000, whereas in the 2002 period
the loss was $(798,000).
Comparison of the nine months ended September 30, 2003 to the nine months ended
September 30, 2002
Rental revenue decreased $177,000. This decrease is due to the impact of rent
concessions in excess of the 2002 period at all phases of Palomino Park in the
Wellsford Development SBU ($1,285,000) and reduced rental operations at the
Silver Mesa phase resulting from unit sales and fewer units being rented in the
2003 period as
-23-
compared to the 2002 period ($469,000), offset by commenced operations at the
Green River phase at Palomino Park effective January 1, 2002 as such revenues in
the fiscal 2003 period are in excess of the 2002 period ($1,005,000) and
increased physical occupancy at the Blue Ridge and Red Canyon phases at Palomino
Park ($572,000).
Revenues from sales of residential units and the associated cost of sales from
such units were $9,637,000 and $8,251,000, respectively, from 43 sales during
the nine months ended September 30, 2003 and were $7,301,000 and $6,638,000,
respectively, from 34 sales during the corresponding 2002 period. The average
pre-tax income from 2003 unit sales was approximately $12,700 greater per unit
than in the corresponding 2002 period as a result of sales of larger units, a
reduced commission rate on the units sold and declining interest costs included
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 increased $4,096,000. This increase is due to the receipt of a
yield maintenance penalty of $4,368,000 from the prepayment of the 277 Park Loan
at September 30, 2003, offset by reduced interest of $167,000 earned on loans
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 $105,000 from
lower base interest rates during the current period versus the comparable 2002
period.
Fee revenue increased $661,000. Sales fees payable by Whitehall derived from
Wellsford/Whitehall sales amounted to $430,000 during the nine months ended
September 30, 2003, with only $29,000 earned in the corresponding 2002 period.
Additionally, the Company's management fees for its role in the Second Holding
investment increased $260,000 from the growth of assets under management in that
venture.
Property operating and maintenance expense decreased $14,000. 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 90% average physical occupancy compared to 83% in the 2002 period
and payroll reductions from a smaller property operating staff, almost entirely
offset by additional tenant replacement and advertising costs and rising
insurance premiums.
The increase in real estate taxes of $57,000 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 $902,000. This increase is
attributable to amortization of joint venture costs attributable to the seven
assets sold during the nine months ended September 30, 2003 which were still
subject to amortization treatment with only one such property sold by
Wellsford/Whitehall during the 2002 period ($887,000), 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 ($81,000), 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 ($259,000).
Property management expenses decreased $120,000. 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 revenues in the 2003
period (see above rental revenue discussion). If the fee had remained at 3% for
2003, the decrease would have been $109,000 less.
Interest expense increased $513,000. 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 2002 period, the
variable interest rate and the average outstanding balance on the construction
financing were both lower than the 2003 amounts ($613,000). In addition there
was a higher average base interest rate on the Palomino Park Bonds in the 2003
period as compared to the 2002 period ($19,000). These increases were partially
offset by reduced interest expense from a lower average outstanding principal
balance and a lower base 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 ($48,000).
-24-
General and administrative expenses decreased $603,000 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 $1,657,000. An analysis of the increase is
as follows:
For The Nine Months Ended September 30,
-----------------------------------------
Increase
2003 2002 (Decrease)
---- ---- ----------
Wellsford/Whitehall:
(Loss) income from continuing
operations (A)............................ $ (510,000) $ 347,000 $ (857,000)
Net gain (loss) from asset sales (B)........ 2,951,000 (81,000) 3,032,000
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)............................ (122,000) 268,000 (390,000)
---------- ---------- -------------
Income from Wellsford/Whitehall........... 1,346,000 534,000 812,000
Second Holding (C)............................. 1,297,000 452,000 845,000
Clairborne Fordham Tower....................... 270,000 270,000 --
Other.......................................... (1,000) (1,000) --
------------ ---------- -------------
Income from joint ventures..................... $ 2,912,000 $1,255,000 $ 1,657,000
============ ========== =============
------------------------
(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. The asset sold in 2002
was 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 $28,000 from a benefit of $85,000 in the 2002 period
to a benefit of $57,000 in the 2003 period, attributable to a smaller loss in
the Wellsford Development SBU in 2003 as compared to the 2002 period.
Income tax expense increased $1,806,000 primarily from the Company having a
pre-tax profit in 2003 and a loss in 2002 in which the tax benefit from an
estimated carry back of losses was more than offset by minimum state and local
taxes.
Income from discontinued operations after taxes amounted to $47,000 in the 2002
period and $27,000 in the 2003 period. The decrease is primarily attributable to
the sale in July 2003 of one of the two properties held for sale.
The change in after tax cost of the Convertible Trust Preferred Securities
results from an estimated 34% tax benefit in 2003 and a 20% tax benefit in 2002.
The increase in net income per share, basic and diluted of $0.71 per share from
a loss in 2002 of $(0.43) per share to income in 2003 of $0.28 per share, is
attributable to current period income of $1,829,000, whereas in the 2002 period,
the loss was $(2,768,000).
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 (proceeds from such
-25-
sales have increased from approximately 10% of net sales proceeds to 100% when
the Silver Mesa Conversion Loan was fully repaid in May 2003) 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 financing requirements through the use of available cash, receipt of
payments related to notes receivable, sales of residential units in the
Wellsford Development SBU, sale of the remaining VLP asset in the Wellsford
Capital SBU, 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, tenant improvements and
leasing costs of its properties, repayments of debt maturities and operating
expenses with available cash, operating cash flow from its properties,
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 equity 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 if certain operating ratios were met; such ability expired at June
30, 2003 with no funds being advanced. 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 extending the maturity
date of the loan. Wellsford/Whitehall expects to sign a new agreement with GECC
in November 2003, but no definitive agreement has been executed as of the date
hereof. The draft agreement provides for an extension of the loan maturity to
June 2006, interest at LIBOR plus 3.25% per annum (currently, LIBOR plus 2.90%
per annum) and for a $16 million line of credit to fund certain leasing related
capital improvements if defined operating income is achieved. No distributions
are allowed to be made to members and excess cash flow, as defined, from the
properties collateralizing the GECC facility can only be used for capital
expenditures for such properties. There can be no assurance as to whether
Wellsford/Whitehall will achieve the operating results which will allow for
capital expenditure financing under the amended terms. The Company and Whitehall
have agreed to commit an additional $10,000,000 to Wellsford/Whitehall, but
there can be no assurance that this amount will be sufficient. Any additional
amounts to be contributed by the partners will require mutually satisfactory
documentation. At September 30, 2003, Wellsford/Whitehall's cash and cash
equivalents balance was approximately $10,820,000 and restricted cash available
for certain capital improvements was approximately $12,500,000.
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
September 30, 2003. The nature of Second Holding's business results in the
entity being highly leveraged.
The Company's retained earnings included approximately $3,141,000 of
undistributed earnings from Second Holding at September 30, 2003 as
distributions are limited to 48.25% of earnings.
Other Items Impacting the Company's Liquidity and Resources
277 Park Loan
During September 2003, the 277 Park Loan was prepaid by the borrower. The
Company's share of the loan was $25,000,000 and bore interest at 12.00% per
annum with a stated maturity of May 2007. Pursuant to the terms of the loan, WRP
received a yield maintenance penalty of $4,368,000 which is included in interest
revenue for the three and nine months ended September 30, 2003.
-26-
This note would have provided for $767,000 of interest revenue in the fourth
quarter of 2003 and $3,042,000 for future annual periods to May 2006 for both
the Wellsford Capital SBU and the Company's consolidated statement of
operations. Additionally, as a result of the prepayment and no expected
near-term replacement of this investment's revenue and income impact, it is
anticipated that the Company will not meet the existing debt service
requirements under the terms of the agreement with the credit enhancer for the
Palomino Park Bonds during one of the quarterly tests in 2004. The Company has
formally requested an amendment to the covenant terms which would have the
effect of offsetting the loss of such income for the six fiscal quarters
beginning with the December 31, 2003 quarter. An agreement to effect such a
change is being prepared, but no definitive agreement has been executed as of
the date hereof. The current enhancement term expires in May 2005.
Second Holding Investments
The following table details the allocation of investments for Second Holding:
September 30, 2003 December 31, 2002
---------------------------- ----------------------------
Amount Percent Amount Percent
----------- ----------- ----------- -----------
Security for Investments (A)
- ----------------------------
Real Estate ................ $ 591,985,000 33% $ 587,358,000 33%
Corporate debt ............. 437,030,000 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%
Aircraft loans and leases .. 94,625,000 5% 80,000,000 4%
Sovereign debt ............. 73,000,000 4% 100,960,000 6%
Fuel/oil receivables ....... 35,000,000 2% 35,000,000 2%
Other asset-backed
securities ............... 347,591,000 19% 290,399,000 16%
-------------- ----------- -------------- ----------
Total investments(B)........ $1,809,231,000 100% $1,785,758,000 100%
============== =========== ============== ==========
Total assets(C)............. $1,940,900,000 $1,840,096,000
============== ==============
Standard & Poor's
Ratings of Investments
- -----------------------------
AAA ........................ $1,278,921,000 71% $1,267,616,000 71%
AA+ ........................ 63,808,000 4% 35,000,000 2%
AA ......................... 208,765,000 12% 163,581,000 9%
AA- ........................ 116,002,000 6% 164,223,000 9%
A+ ......................... 24,922,000 1% 24,922,000 1%
A .......................... 79,813,000 4% 97,092,000 6%
A- ......................... 37,000,000 2% 33,324,000 2%
-------------- ----------- -------------- ----------
Total investments(B)........ $1,809,231,000 100% $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 1.75% and 2.21% at September 30, 2003 and December 31, 2002,
respectively.
(C) Includes $100,992,000 of cash and cash equivalents and $30,677,000 of other
assets at September 30, 2003. The December 31, 2002 amount includes
$16,876,000 of cash and cash equivalents and $37,462,000 of other assets.
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 $1,875,151,000 and $1,722,933,000 at September 30, 2003 and
December 31, 2002, respectively, including junior subordinated bonds due in
April 2010 of $100,000,000 and $150,000,000 at September 30, 2003 and December
31, 2002, respectively. Second Holding debt had a weighted average annual
interest rate of 1.20% and 1.69% at September 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 committed 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 have a material
-27-
impact on the business and operations of Second Holding as a result of that
partner's commitment to the venture.
Clairborne Fordham Tower, L.L.C
In October 2000, the Company and Prudential Real Estate Investors ("PREI"), an
affiliate of Prudential Life Insurance, organized Clairborne Fordham which
provided an aggregate of $34,000,000 of mezzanine financing for the construction
of Fordham Tower, a 50-story, 244 unit, luxury condominium apartment project to
be built on Chicago's near northside ("Fordham Tower"). The Company fully funded
its $3,400,000 share of the loan. The loan, which matured in October 2003, bore
interest at a fixed rate of 10.50% per annum with provisions for additional
interest to PREI and the Company and is secured by a lien on the equity
interests of the owner of Fordham Tower. The Company may earn fees from PREI's
additional interest based upon certain levels of returns on the project. Such
additional interest and fees have not been accrued by the Company or Clairborne
Fordham. The Company's investment in the Clairborne Fordham venture is accounted
for on the equity method. The Company's share of income from Clairborne Fordham
was approximately $91,000 and $92,000 for the three months ended September 30,
2003 and 2002 and $270,000 and $270,000 for the nine months ended September 30,
2003 and 2002, respectively.
Construction is complete and delivery of certain units commenced in December
2002. As of September 30, 2003, no units were under contract and 220 units
(including nine penthouses and 211 standard units) had closed for gross proceeds
of approximately $152,300,000. The remaining unsold units consist of five
standard units, 13 penthouses and six townhouses. In addition, the owner of
Fordham Tower is seeking to sell the 12,000 square feet of retail space and a
200 space commercial parking facility, both of which are part of the project.
The loan was not repaid at maturity and the venture has negotiated an amended
loan agreement, subject to final signatures, extending the loan to December 31,
2004. The amended terms provide for the placement of a first mortgage lien on
the project, no interest to be accrued after September 30, 2003 and for the
borrower to add to the existing principal amount the additional interest due
Clairborne Fordham at September 30, 2003 of approximately $19,240,000. The
Company's share of such additional interest including fees could be
approximately $3,000,000 depending upon the amount and timing of project
proceeds. In lieu of interest after September 30, 2003 Clairborne Fordham will
also participate in additional cash flow, as defined, if earned from net sales
proceeds of the Fordham Tower project.
The agreement provides for a $3,000,000 additional capital contribution by the
borrower and use of an existing cash collateral account to pay off the existing
construction loan, any unpaid construction costs and to make an immediate
principal payment to Clairborne Fordham of approximately $4,600,000, of which
the Company's share is approximately $460,000. The principal payments were made
on October 3, 2003. The agreement provides for all proceeds after project costs
to be first applied to payment in full of the loan and the additional interest
to Clairborne Fordham before any sharing of project cash flow with the borrower.
The Company and Clairborne Fordham have concluded that their respective
investment and loan balances are not impaired at September 30, 2003.
Silver Mesa Condominium Sales and Rental Operations
During the three months ended September 30, 2003, the Company sold 27 Silver
Mesa units and received net proceeds of approximately $5,547,000. During the
nine months ended September 30, 2003, the Company sold 43 Silver Mesa units and
received net proceeds of $6,992,000. 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 generally available for working capital
purposes.
The Company's sales of residential units at Silver Mesa have a seasonal trend
where sales are generally higher in the summer and fall months than during the
winter and early spring. Therefore, the third quarter 2003 results may not be
indicative of the sales pace in future quarters.
-28-
The following table details operating information related to the Silver Mesa
units being rented. As the Company continues to sell units, rental revenues and
corresponding operating expenses will diminish.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2003 2002 2003 2002
---- ---- ---- ----
Rental revenue.............. $ 145,000 $ 343,000 $ 617,000 $1,137,000
Net operating income (A).... $ 57,000 $ 170,000 $ 370,000 $ 636,000
-----------
(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 nine months ended September 30, 2003
Cash flow provided by operating activities of $15,940,000 primarily consists of
(i) income from continuing operations of $1,801,000, (ii) a decrease in the
balance of residential units available for sale of $7,226,000, (iii)
depreciation and amortization of $4,672,000, (iv) a decrease in the balance of
prepaid and other assets of $2,683,000 (including approximately $1,942,000 from
the receipt of refundable Federal income taxes), (v) an increase in the balance
of accrued expenses and other liabilities of $1,135,000, (vi) amortization of
deferred compensation of $215,000, (vii) shares issued for director compensation
of $69,000, partially offset by (i) undistributed joint venture income of
$1,555,000, (ii) an increase in the balance of restricted cash and investments
of $249,000, and (iii) undistributed minority interest benefit of $57,000.
Cash flow provided by investing activities of $25,507,000 consists of repayments
of notes receivable of $25,516,000 (including the $25,000,000 mezzanine loan on
277 Park Avenue), offset by additional investments in real estate assets of
$9,000.
Cash flow used in financing activities of $2,693,000 consists of principal
payments of mortgage notes payable of $42,376,000 (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 $317,000 on the new
Green River loan, offset by borrowings under such loan of $40,000,000.
Net cash provided by discontinued operations of $4,077,000 is the net change in
cash, other assets, liabilities, operating income and the sale proceeds from one
of the two VLP assets held for sale in the Wellsford Capital SBU.
-29-
For the nine months ended September 30, 2002
Cash flow provided by operating activities of $3,017,000 primarily consists of
(i) a net decrease in residential units available for sale of $5,352,000, (ii)
depreciation and amortization of $3,770,000, (iii) a decrease in prepaid and
other assets of $1,219,000, (iv) amortization of deferred compensation of
$932,000 and (v) shares issued for director compensation of $68,000, offset by
(vi) a loss from continuing operations of $2,815,000, (vii) a decrease in
accrued expenses and other liabilities of $3,053,000, (viii) an increase in
restricted cash and investments of $1,741,000, (ix) undistributed joint venture
income of $630,000 and (x) undistributed minority interest benefit of $85,000.
Cash flow provided by investing activities of $5,645,000 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 $318,000.
Cash flow used in financing activities of $5,623,000 consists of principal
payments of mortgage notes payable of $6,715,000 (including $6,100,000 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 used in discontinued operations of $347,000 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 associated
with ability to renew or obtain necessary credit enhancements from third
parties; risks of subordinate loans; risks of leverage; risks associated with
equity investments in and with third parties; risks associated with our reliance
on joint venture partners including, but not limited to, the inability to obtain
consent from partners for certain business decisions, reliance on partners who
are solely responsible for the books, records and financial statements of such
ventures, the potential risk that our partners may become bankrupt, have
economic or other business interests and objectives which may be inconsistant
with those of the Company and our partners being in a position to take action
contrary to our instructions or requests; 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; illiquidity of real estate investments; the risks of seasonality on
the Company's ability to sell condominium units; 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.
-30-
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
One of the Company's primary market risk exposures 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
September 30, Rate on Income
2003 (Expense)
-------------- ----------------
Consolidated assets and liabilities:
Notes receivable:
Fixed rate.............................. $ 3,096 $ --
============ --------------
Mortgage notes payable:
Variable rate........................... $ 12,680 (127)
Fixed rate.............................. 97,177 --
------------ --------------
$ 109,857 (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........................ $ 924,766 9,248
============
Debt:
Variable rate........................ $ 950,291 (9,503)
============ --------------
Net effect from Second Holding.......... (255)
--------------
Wellsford/Whitehall:
Debt:
Variable rate, with LIBOR cap (A).... $ 39,414 (394)
Fixed rate........................... 26,413 --
------------ --------------
$ 65,827
============
Effect from Wellsford/Whitehall......... (394)
--------------
Fordham Tower:
Fixed rate(B)........................... $ 3,400 --
============ --------------
Net decrease in annual income, before minority
interest and income tax benefit............ (776)
Minority interest............................. 18
Income tax benefit............................ 303
--------------
Net decrease in annual net income............. $ (455)
==============
Per share, basic and diluted.................. $ (0.07)
==============
- -----------
(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 1.12% at September 30, 2003.
(B) In October 2003, the Company's investment in Fordham Tower was reduced to
$2,945 as a result of a partial principal payment, as provided in the
amended loan agreement. For purposes of this disclosure, the balance will
be presented as a fixed rate investment as the balance does not accrue
interest and future earnings from this venture by the Company will be based
upon future profits from sales of units or other capital events.
-31-
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.
-32-
Part II. Other Information:
-----------------
Item 1: Legal Proceedings.
The Company is not presently a party 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.
None.
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).
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).
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.
-33-
(b) Reports on Form 8-K.
During the quarter ended September 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
------------------------ -------------- ----------
August 6, 2003 The Company furnished August 6, 2003
(August 6, 2003) under Item 9, a copy of
the press release
reporting results for the
second quarter ended
June 30, 2003.
-34-
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: November 13, 2003
-35-