BF Enterprises, Inc. and its subsidiaries (collectively the "Company") currently are engaged primarily in the real estate business, including the last stages of the development of a large tract of land, known as Meadow Pointe, in suburban Tampa, Florida, and, as owner and landlord, leasing of a 220,000 square foot building on 16 acres in Tempe, Arizona. In addition, the Company owns approximately 21 acres of undeveloped land in suburban Nashville, Tennessee.

At December 31, 2003, the Company's assets also included approximately $14.7 million of cash, cash equivalents and marketable securities, which the Company intends to use for general corporate purposes.

Real Estate

The Company's principal real estate assets consist of the following:

Meadow Pointe . As of February 29, 2004, the Company owned approximately 92 acres in a master planned unit development, encompassing approximately 1,724 acres, known as Meadow Pointe, in Pasco County, Florida. Since 1992, the Company has sold 3,356 residential lots, consisting of approximately 675 acres; a 40-acre commercial tract; and 834 acres to the two community development districts described below. In addition, the Company sold a one acre tract to a local utility, a two acre tract to a church and a one acre parcel to a day

Infrastructure construction at Meadow Pointe began in late February 1992, and the initial sales of residential lots to homebuilders

closed in June 1992. The Company sold 120 lots in 2003, 195 lots in 2002, 447 lots in 2001, 353 lots in 2000, 457 lots in 1999, 314 lots in 1998, 297 lots in 1997, 269 lots in 1996, 211 lots in 1995, 284 lots in 1994, 267 lots in 1993 and 99 lots during the last seven months of 1992 for prices ranging from approximately $15,000 to $50,000.

 

Two community development districts, both local units of Florida special purpose government, have been formed in conjunction with the development of Meadow Pointe. These districts, whose jurisdiction is limited to the Meadow Pointe project, together encompass all of the 1,724 acres within the project. During the period February 1992 through May 2000, the two community development districts issued an aggregate $79.6 million of capital improvement revenue bonds, of which approximately $19 million was outstanding at December 31, 2003. Of this amount of bonds outstanding, approximately $5 million is secured by a lien on Company-owned land. The bonds were issued to finance the acquisition of property, and the construction of roads, utilities, recreation facilities and other infrastructure systems within the districts. These infrastructure improvements have been essential to the development of finished lots by the Company and the sale of those lots to homebuilders. Approximately $22 million of the aggregate $79.6 million of capital improvement revenue bonds issued by the districts are payable in equal annual installments of principal and interest over 20 years. The balance of the bonds are payable over a fixed term, but must be prepaid in part each time a developed lot or other land is sold. Annual bond installments are paid by special assessments levied against individual parcels of land within the district areas. These special assessments are collected either directly by the districts or by the Pasco County Assessor, in the same manner as county property taxes, on behalf of the districts. The outstanding bonds are secured by a first lien upon and pledge of the special assessments.

 

The Company has been actively marketing its multi-family tract and its three remaining commercial tracts, the largest of which is a 14-acre tract bordering County Road 581 near a 40 acre commercial tract sold by the Company in 2001. The Company does not expect that it will engage in any construction on these parcels. The Company has engaged a major real estate brokerage firm on a commission basis to assist with the marketing of the three commercial parcels. Contracts with two homebuilders for the sale of the 85 remaining townhome lots (as of February 29, 2004) have been signed and lot takedowns continue in accordance with such contracts.

 

Commercial Building in Tempe. The Company owns a 220,000 square foot commercial building, with approximately 1,000 parking spaces, on 16 acres in the Hohokam Industrial Park in Tempe, Arizona, which is currently subject to a 10-year triple net lease to Bank One, Arizona, NA, a subsidiary of Banc One Corporation. The lease became effective March 1, 1995, and provided for the tenant's phased occupancy of space during 1995. Base rents due under the lease are: $1,452,000 in 1996; $1,628,000 in 1997; $1,707,200 in 1998; $1,826,000 in 1999; $1,848,000 in 2000; $1,936,000 in 2001; $1,953,600 in 2002; $1,975,600 in 2003; $1,980,000 in 2004; and $330,000 for the two months ending February 28, 2005, when the original lease term ends. During the term of the lease, the Company is amortizing income from the lease and the $423,000 cost of a related advisory fee on a straight-line basis, as required by accounting principles generally accepted in the United States. Accordingly, in 2001, 2002 and 2003, the Company reported - and in the remaining year of the original lease term will report - rental income from the lease of $1,815,000, the average rental during the period January 1, 1996 through February 28, 2005. The Company is reporting annual lease amortization expense of $46,000 over the same period. The lease also allows the tenant two five-year renewal periods, with base rents
   

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equal to the market rental rates then in effect in the metropolitan Phoenix area. The Company has received verbal notification that the tenant expects to vacate the premises upon expiration of the current lease term. Therefore, the Company cannot provide any assurance that the lease will be renewed or that the property will be re-leased at rental rates equal to or above the current rental rates. The Company has engaged a major real estate brokerage firm on a commission basis to assist with the re-leasing of the building.

     Other Real Estate . The Company also owns approximately 21 acres of undeveloped land in suburban Nashville, Tennessee, of which 15acres are zoned high density residential or office and 6 acres are zoned commercial/retail. Site development permits have been obtained for the entire parcel. The Company has been actively marketing the property since certain permitting and development issues were resolved in 2001 and is currently engaged in active discussions with a developer who may purchase the entire acreage. There can be no assurance, however, that such a proposed transaction will be consummated.

Mortgage Loans Receivable. In March 2002, the Company’s Board of Directors authorized and approved the participation of the Company in certain mortgage loans (“Loans”), with Graham Mortgage Corporation, a Texas corporation (“Graham Mortgage”). Pursuant to a Master Participation Agreement, by and between the Company and Graham Mortgage, dated as of March 14, 2002, the Company’s ten participating interests (collectively, the “Participating Interests”) at December 31, 2003, were: $150,000 in each of six Loans, $200,000 in each of two Loans and two other Loans of $250,000 and $500,000, respectively. The Loans are for terms of 24 to 30 months with yields to the Company, net of a one-half percent administrative fee, ranging from 9.75% to 14.50% per annum, and are secured by First Deeds of Trust in real property located in Texas. The aggregate principal balance of the Participating Interests at December 31, 2003 was $1,672,000. The average effective return recorded in 2003 from mortgage loans was approximately 13% of the net carrying value of the loans. The Company may purchase more participating interests in Loans in the future.

Employees

Currently, the Company has nine employees, all of which are employed on a full-time basis.

Competition

The Company competes with many other firms and individuals who develop real estate or hold undeveloped or developed property for lease or sale, many of whom have greater resources than the Company. While competitive conditions vary substantially, depending upon the geographical area and the type of real estate asset, within a particular market the most significant competitive factors generally are location, price and zoning

Completion of the Meadow Pointe project may take several more years and is dependent upon, among other things, the strength of the general economy and employment growth in the Tampa area, mortgage interest rates, competitive commercial and residential developments serving the same group of commercial developers and residential buyers and other factors related to the local Tampa real estate market. There are several other commercial and residential projects in the same market area as Meadow Pointe, along or near County Road 581. Competition from these projects may have an adverse impact on the rate of sales at Meadow Pointe.

Other Information

The Company's current business constitutes a single business segment, real estate, consisting of several properties.

 

Revenues from the Company’s lease agreement with Bank One covering the 220,000 square foot Tempe commercial building represent 60% of the Company’s 2003 revenues. Except for the foregoing, the Company's business is not dependent upon a single customer or a limited number of customers, and is not seasonal. The Company does not utilize raw materials, has no order backlog, and no material 
  

 

A downturn in economic conditions would adversely affect the Company’s business. Moreover, the Company’s

ability to generate sales revenues is directly related to the real estate market, primarily in Florida and to the economy in general. Considerable economic and political uncertainties currently exist. These uncertainties could have adverse effects on consumer buying habits, construction costs, availability of labor and materials and other factors affecting us and the real estate industry in general.

 

The Company’s real estate development activities entail risks that include, among other things, the following factors: construction delays or cost overruns, which may increase project development costs; rising interest rates; an inability to obtain required governmental permits and authorizations; an inability of prospective purchasers to secure tenants or anchor tenants necessary to support the project; failure to achieve anticipated occupancy levels or rents; and, among other things, an inability to sell our inventory of commercial parcels.

 

The Company maintains workers compensation, commercial general liability, fire, extended coverage, rental loss, and directors’ and officers’insurance. Management believes the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice. The Company does not carry earthquake coverage, nor does the Company carry insurance for losses such as pollution, contamination, asbestos and seepage and terrorism. Some of our policies are subject to limitations involving large deductibles or co-payments and policy limits. If the Company experiences a loss, which is uninsured or which exceeds policy limits, the Company could lose the capital invested in the damaged property as well as the anticipated future cash flows from any such property.

 

These forward-looking statements are subject to factors beyond the Company’s control (such as weather, market and economic forces) and, with respect to the future development of the Company’s land, the availability of financing and the ability to obtain various governmental entitlements. No assurance can be given that the actual future results will not differ materially from the forward-looking statements .

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