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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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: 0-5537
INVESTMENT PROPERTIES ASSOCIATES
-----------------------------------------------------
(Exact Name of Registrant as specified in its charter)
A New York Limited Partnership 13-2647723
- ------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
60 East 42nd Street, New York, New York 10165
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 687-6400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
820,000 Participations in Limited Partnership Interest
------------------------------------------------------
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant -- Not applicable.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes_________ No_________
Documents Incorporated by Reference -- None.
PART I
This report contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of any number of factors discussed herein including, without
limitation, under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." When used in this
report, the words "anticipate," "estimate," "intend," "believe," "project," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected, estimated, intended, believed or projected.
Recent Development
- ------------------
Registrant announced on April 12, 2000 that, subject to a variety of
conditions, including due diligence and definitive documentation, it has agreed
in principle to sell 245 Fifth Avenue, New York, New York and 261 Fifth Avenue,
New York, New York to a fund controlled by Koll Bren Schreiber Realty Advisors
Inc., a Delaware corporation.
At this time, Registrant can make no assurances that the conditions to
the agreement in principle will be satisfied or that the sale will be
consummated. If all conditions are met, it is expected that the closing will
occur within the next forty days. Registrant will continue to update all
material events concerning this transaction.
Item 1. Business.
Investment Properties Associates ("IPA" or "Registrant") is a New York
limited partnership formed pursuant to a Limited Partnership Agreement dated as
of May 15, 1969, as amended on October 2, 1969, October 31, 1969, December 3,
1969, and May 30, 1997 (the "Partnership Agreement").
Harry B. Helmsley, a General Partner of Registrant, died on January 4,
1997. Upon his death, Mr. Helmsley's general partnership interest in Registrant
was converted to a special limited partner interest, which was inherited by his
spouse, Leona M. Helmsley, from Mr. Helmsley's estate as of December 31, 1997
(the "Converted Special L.P. Interest"). Under the terms of the Partnership
Agreement as in effect on the date of Mr. Helmsley's death, the General Partners
were required to create a new limited partnership with the same attributes as
Registrant and to convey all of the assets and liabilities of Registrant to such
entity. Such action would
2
have involved substantial transfer tax, insurance premium costs and other
related expenses and no benefit to the partners of Registrant or to the holders
of Participation Interests ("Participation Interests" or "PPIs") in the limited
partnership interest of the limited partner of Registrant. Accordingly,
Registrant obtained the approval of the holders of a majority of the PPIs to,
among other things, amend the Agreement to permit the remaining General Partners
to elect to continue the business of Registrant in the event of the death of a
General Partner and to make such election with respect to the death of Mr.
Helmsley. Such amendments were effective on May 30, 1997 (the "Amendments"). As
contemplated by the amended Partnership Agreement, effective July 3, 1997, H
Associates L.L.C. ("H Associates"), an entity owned by Leona M. Helmsley, was
admitted as a General Partner of Registrant. H Associates' economic interest in
Registrant was acquired from Helmsley-Noyes Company, Inc., also a General
Partner of Registrant.
On June 10, 1998, ScogBell Acquisition, L.L.C., a Delaware limited
liability company ("ScogBell"), purchased from Leona Helmsley all of her
interests in Registrant. The interests from this sale that were acquired by
ScogBell from Leona Helmsley included, among other things, general partnership
interests (0.05%), special limited partnership interests (33.29%) and an
aggregate of 282,377 PPIs. Also on June 10, 1998, ScogBell acquired 28,550 PPIs
in the over-the-counter market. As a result, ScogBell became a beneficial owner
of 310,927 PPIs in Registrant which represents 37.9% of the outstanding PPIs.
At December 31, 1999, Registrant owned fee titles to, or leasehold
estates in, three commercial properties, a 50% interest in one commercial
property, and fee title to two unimproved real properties (collectively, the
"Properties"). The Properties are located in New York, New York; Houston, Texas;
and Newark, New Jersey. During 1999, Registrant sold three of its properties.
3
On April 14, 1999, Registrant sold the Mojud Building in Long Island
City, New York for a sales price of $6,500,000. In connection with the sale,
Registrant paid sales commissions of $162,500 to an affiliate of one of the
General Partners and other closing costs of approximately $239,000.
On May 18, 1999, Registrant sold the Midland Savings Building in
Midland, Texas for a sales price of $300,000. In connection with the sale,
Registrant paid closing costs of approximately $2,000.
On December 16, 1999, Registrant sold its 1440 Broadway, New York, New
York property for a sales price of $152,000,000. In connection with the sale,
Registrant repaid mortgage debt of approximately $17,347,500 and paid sales
commissions of $3,800,000 to an affiliate of one of the General Partners and
other closing costs of approximately $5,047,000.
In addition, Registrant declared a special distribution of the net
proceeds from the sales of the Mojud, Midland and 1440 Broadway properties on
December 16, 1999 to the General Partner, Special Limited Partners and holders
of record of its PPIs as of the close of business on December 31, 1999. The PPIs
traded ex-dividend on January 19, 2000. The total distribution declared was
$128,000,000, of which $64,000,000 was distributed to the General and Special
Limited Partners on December 16, 1999 and $64,000,000 was distributed to the
holders of PPIs in January 2000.
On December 1, 1994, Chase loaned $10,750,000 to Registrant, which
funds were used by Registrant to repay its 9% Junior Mortgage Bonds (the
"Bonds") in full on such date. Chase also agreed to extend the maturity date of
Registrant's mortgage loans relating to its 1440 Broadway, 245 Fifth Avenue and
261 Fifth Avenue properties in New York, New York, and to its One North Dearborn
and One LaSalle buildings in Chicago, Illinois (collectively, the "Chase
4
Loans") from January 2, 1995 to January 2, 1997. On April 25, 1995, Registrant
and Chase entered into a Note Modification Agreement providing for the extension
of the maturity of the Chase Loans and the cross collateralization and cross
defaults among the properties that secure the Chase Loans. In addition, the
Registrant was given the option of paying interest on the Chase Loans based on
LIBOR plus 2.25% or prime plus 0.375%. Pursuant to a Second Note Modification
Agreement, the maturity of the Chase Loans was extended to January 2, 1999.
On January 2, 1999, a Third Note Modification to the Agreement was made
between Registrant and Chase, which extended the maturity date of the loan to
January 2, 2000 and provided for principal payments with respect to the mortgage
loans of $3,000,000 during 1999. Scheduled principal repayments aggregating
$2,500,000 were made through September 15, 1999, with the entire remaining
balance of the loan being repaid on December 16, 1999 with proceeds from the
sale of the Mojud, Midland and 1440 Broadway properties.
The $8,000,000 first mortgage loan with Apple Bank secured by the
building at 1328 Broadway (in which Registrant had a 50% tenancy in common
interest) and which bore interest only at a rate of 8.5% per annum became due on
April 30, 1999. Registrant continued to make payments of interest only through
December 31, 1999 pending formal resolution with Apple Bank. Registrant repaid
its 50% share of such loan on January 18, 2000 upon the sale of its 50% tenancy
in common interest in the 1328 Broadway property.
(b) Financial Information About Segments. Registrant's sole business is
the ownership and operation of commercial real estate. All of Registrant's
revenues, operating profit or loss and assets relate solely to such industry
segment.
(c) Narrative Description of Business. Registrant's only business is
the ownership and operation of commercial real properties which it leases to
various tenants.
5
Registrant's principal source of revenues is rent received from such
tenants. The primary costs associated with owning and leasing commercial real
estate are real estate taxes, utilities, interest on indebtedness, property
management and leasing fees, payroll and related expenses, repair and
maintenance expenses and depreciation. All of the properties owned and operated
by Registrant are set forth in Item 2.
Registrant's Properties taken as a whole are leased to large numbers of
lessees and Registrant is not dependent upon any single lessee, the loss of
which would have a material adverse effect on Registrant. Due to the nature of
its business, Registrant has only one identifiable market segment and has no new
products, uses no raw materials, owns no patents, trademarks, licenses,
franchises or concessions and expends no sums for research and development. No
material portion of Registrant's business is seasonal in nature.
Registrant's needs for working capital are similar to those of other
owners and operators of commercial real property and, generally, are provided
for with cash generated from operations and, in some cases, borrowings.
Each property owned by Registrant competes with real properties of
similar function and quality in its geographic area. Commercial rental
properties within a given geographic area tend to compete on the basis of
location, amenities and price. Demand for commercial rental space is also
dependent upon economic conditions prevailing in the particular geographical
area and the quantity of suitable space in such area.
Registrant employs approximately 31 people who handle maintenance of
its properties. All of the Registrant's other operating functions, which consist
primarily of property leasing and property management services, are performed by
Helmsley-Spear, Inc. ("HSI") or affiliates of HSI, which entities may be deemed
to be affiliates of Registrant. Management fees
6
and leasing commissions charged by HSI aggregated approximately $1,288,000
during the fiscal year ended December 31, 1999, $1,969,600 in 1998 and
$2,098,300 in 1997. HSI also earned $3,962,500 and $3,025,000 in brokerage
commissions in 1999 and 1998, respectively, in connection with the sale of the
Mojud and 1440 Broadway properties in 1999 and the Chicago Properties in 1998.
Registrant believes that such services are supplied at prices that approximate
those that would be available from non-affiliates. See Item 13.
Item 2. Properties.
General. At December 31, 1999, Registrant's Properties included fee
titles to, or leasehold estates in, three commercial properties, a 50% interest
in one commercial property, (which was sold in January 2000) and fee title to
two unimproved real properties. The Properties are located in New York, New
York; Houston, Texas; and Newark, New Jersey. The Properties have a total
rentable area of approximately 1,236,000 square feet.
The table below sets forth a description of each of the Properties
owned by Registrant on December 31, 1999, its location, type of ownership and
rentable area in square feet.
Total Rentable
Property Description Ownership Area (Sq. Ft.)
New York, New York
261 Fifth Avenue 25-story office bldg. Fee 402,000
245 Fifth Avenue 26-story office bldg. Fee 287,000
1328 Broadway (1)
Marbridge Building 11-story office bldg. 50% of Fee 357,000
- ----------
(1) On January 18, 2000, Registrant sold its 50% tenancy in common interest in
1328 Broadway.
7
Total Rentable
Property Description Ownership Area (Sq. Ft.)
Texas
Edgewood Shopping Center
(Houston) Unimproved Land Fee --
Bellway Shopping Center
(Houston) Unimproved Land Fee --
New Jersey
570 Broad Street (Newark)(2) 14-story office bldg. Fee 190,000
Additional Property Information. Four of Registrant's Properties
individually accounted for 10% or more of its total assets or revenues at
December 31, 1999. Such properties are referred to above as 1440 Broadway, New
York, New York, 261 Fifth Avenue, New York, New York, 245 Fifth Avenue, New
York, New York and 1328 Broadway, New York, New York.
The estimated occupancy rate for the Registrant's 1440 Broadway
property (sold on December 16, 1999) for 1999, 1998, 1997, 1996 and 1995 was
approximately 71%, 74%, 74%, 61% and 73%, respectively. The average annual base
rent per leased square foot at such property was approximately $23.59 in 1999,
$22.90 in 1998, $26.91 in 1997, $28.10 in 1996 and $23.94 in 1995.
The estimated occupancy rate for the Registrant's 261 Fifth Avenue
property for 1999, 1998, 1997, 1996 and 1995 was approximately 86%, 84%, 80%,
80% and 78%,
- ----------
(2) Vacant since 1996.
8
respectively. The average rental per square foot at such property
was approximately $23.50 in 1999, $22.88 in 1998, $22.61 in 1997, $21.28 in 1996
and $21.25 in 1995.
The estimated occupancy rate for the Registrant's 245 Fifth Avenue
property for 1999, 1998, 1997, 1996 and 1995 was approximately 93%, 78%, 74%,
67%, and 57%, respectively. The average rental per square foot at such property
was approximately $27.59 in 1999, $25.03 in 1998, $22.17 in 1997, $20.84 in 1996
and $20.38 in 1995.
The estimated occupancy rate for the Registrant's 1328 Broadway
property for 1999 was approximately 59%. The average rental per square foot at
such property was approximately $31.30 in 1999. Registrant sold its 50% tenancy
in common interest in this property on January 18, 2000.
Registrant's 1440 Broadway property, which was sold on December 16,
1999, is a 25 story commercial office building in midtown Manhattan. Three
separate tenants, all of which are retailers, occupied 10% or more of the
rentable area of such property. The 1999 rent of the first retailer was
$4,256,000. The 1999 rent of the second retailer was approximately $1,889,000.
The 1999 rent of the third retailer was $1,421,000. Registrant's 261 Fifth
Avenue property is a 25 story building located in midtown Manhattan. No single
tenant of such property occupies 10% or more of its rentable area.
Registrant's 245 Fifth Avenue property is a 26 story building located
in midtown Manhattan. One tenant occupied 10% or more of the rentable area of
such property during the year ended December 31, 1999 and its 1999 rent was
approximately $1,222,000. This tenant has eight leases, six of which expired
December 31, 1999 (with respect to rent of approximately $926,000) and two of
which expire September 30, 2002 (with respect to rent of approximately
$296,000).
9
Registrant's 1328 Broadway property is an 11 story commercial office
building in midtown Manhattan. No single tenant of such property occupies 10% or
more of the rentable area of such property.
While the New York commercial real estate market is highly competitive,
Registrant has achieved occupancy and rental rates at its New York properties
which have enabled it to operate these properties profitably. Registrant
believes that rental rates will remain high enough to operate these properties
profitably for the foreseeable future, although there can be no assurances in
this regard.
The following table sets forth certain information concerning lease
expirations for the Registrant's principal properties at December 31, 1999:
261 Fifth Avenue
----------------
Number of Total Leased % of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
2000 19 59,400 $1,409,159 15.5%
2001 12 41,574 933,300 10.2
2002 16 43,957 1,060,654 11.6
2003 7 17,011 492,409 5.4
2004 12 43,712 1,242,028 13.6
2005 5 55,666 1,445,041 15.8
2006 1 4,344 143,921 1.6
2007 7 86,622 2,053,222 22.5
2008 0 0 0 0.0
2009 or later 2 8,585 350,007 3.8
--- ------- ---------- -----
Totals 81 360,871 $9,129,741 100.0
======= ========== =====
10
245 Fifth Avenue
----------------
Number of Total Leased %of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
2000 10 25,282 $ 616,366 7.7%
2001 18 62,935 1,615,415 20.2
2002 17 53,968 1,521,656 19.0
2003 7 24,527 758,446 9.5
2004 6 34,076 1,235,526 15.4
2005 2 4,705 139,213 1.8
2006 2 7,067 178,160 2.2
2007 1 12,456 450,284 5.6
2008 0 0 0 0.0
2009 or later 4 39,426 1,488,406 18.6
-- ------- ---------- -----
Totals 67 264,442 $8,003,472 100.0
== ======= ========== =====
1328 Broadway
-------------
Number of Total Leased %of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
2000 90 59,558 $1,439,745 23.1%
2001 57 69,572 1,684,857 27.0
2002 14 49,466 1,756,137 28.1
2003 3 3,625 77,144 1.2
2004 1 7,900 791,982 12.7
2005 0 0 0 0.0
2006 0 0 0 0.0
2007 1 3,165 491,572 7.9
2008 0 0.0
2009 or later 0 0.0
Totals 166 193,286 $6,241,437 100.0
=== ======= ========== =====
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which Registrant is
a party or of which any of Registrant's property is the subject.
11
Item 4. Submission of Matters to a Vote of Security Holders.
No Matters were submitted to a vote of holders of PPIs at a meeting or
otherwise during the fourth quarter of 1999.
PART II
Item 5. Market for the Registrant's Participation Interests and Related Security
Holder Matters.
As discussed above, Registrant is a limited partnership. PPIs, which
represent the beneficial interest of the Registrant's sole Limited Partner, are
traded in the over-the-counter market on the National Association of Securities
Dealers Automated Quotations System ("NASDAQ") under the symbol "IVPA." There is
no regular market for these securities and quotations are limited and sporadic.
The range of high and low closing bid quotations for PPIs in the
over-the-counter market for the two most recent years was as follows:
1999 1998
---- ----
High Low High Low
---- --- ---- ---
First Qtr. 117 69 85 70 1/8
Second Qtr. 119 1/2 105 102 72 1/2
Third Qtr. 120 105 119 99 1/2
Fourth Qtr. 150 114 110 61
The foregoing over-the-counter quotations represent prices between
dealers, do not include retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. As of December 31, 1999, there were
526 holders of record of PPIs.
Pursuant to the Partnership Agreement, Registrant is required to make
certain cash distributions to holders of PPIs. Net operating revenues for each
calendar year are distributable to the partners of Registrant approximately as
follows:
12
General Partners (as a group): .55%
Irving Schneider
Minlyn, Inc.
ScogBell AG, Inc. (formerly known as
Helmsley-Noyes Company, Inc.)
ScogBell
Converted Special L.P. Interest
ScogBell .95%
Special Limited Partners (as a group): 48.50%
ScogBell
Irving Schneider
Limited Partner (nominee for
holders of PPIs): 50.0%
The Limited Partner is the nominee for the holders of PPIs and all
distributions to the Limited Partner are distributed ratably to the holders of
820,000 Participation Interests. If with respect to any calendar year the
Limited Partner's distributive share (computed on the same basis as that used in
preparing Registrant's Federal income tax return) of income (loss), plus
one-half of such partner's distributive share of long-term capital gains,
exceeds the net operating revenue allocated to the Limited Partner as referred
to in the preceding paragraph, then Registrant must also distribute additional
funds in an amount equal to such excess to the holders of PPIs. If Registrant
does not have funds for such distribution (from cash on hand or borrowings), the
Partnership Agreement obligates the General Partners to lend or contribute funds
to Registrant for such purpose.
13
In 1999, Registrant had "net operating revenues" of $12,606,987, of
which $6,949,055 in the aggregate (or $8.47 per PPI) was distributed on March
31, 2000 to the holders of record of PPIs as of December 31, 1999 and an
aggregate of $6,949,055 was also distributed to the Special Limited Partners and
General Partners on that date. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In 1998, Registrant had "net operating revenues" (as defined below) of
$9,803,570, of which $5,442,159 in the aggregate (or $6.64 per PPI) was
distributed on March 31, 1999 to the holders of record of PPIs as of December
31, 1998. An aggregate of $5,442,159 was distributed to the Special Limited
Partners and General Partners identified above. Accrued distributions with
respect to net operating revenues for 1994, 1995, 1996 and 1997 aggregating
$20,310,705 were paid to the General Partners and Special Limited Partners, in
1998 using the proceeds of the sale of the Chicago Properties. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
"Net operating revenues" is defined in Registrant's partnership
agreement as follows: for any year, (i) net taxable income of the Registrant,
plus (ii) depreciation and amortization expenses allowable for income tax
purposes during such year (but only to the extent of mortgage repayments), (iii)
plus amortization of Bond issuance costs and Bond discount (which is not
relevant after 1994), (iv) plus amortization of financing costs, (v) less
principal repayments on mortgages. In recent years, cash distributions to
Registrant's partners have generally exceeded the amount defined as net
operating revenues. See "Item 7" below.
14
Item 6. Selected Financial Data.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Income Statement Data
Gross revenues from real $ 31,640,834 $ 43,454,081 $46,463,473 $ 52,216,081 $53,879,055
estate
Net Income transferred to $150,779,832 $112,747,733 $ 8,726,836 $ 8,452,069 $ 9,331,341
Partner's capital accounts
Net operating revenues, as $ 12,606,987 $ 9,803,570 $ 9,174,787 $ 8,342,911 $ 9,857,034
defined
Net income per PPI: $ 87.8823 $ 60.4848 $ 5.5280 $ 5.8636 $ 5.8446
Balance Sheet Data
Total assets $102,611,031 $ 49,762,234 $53,585,976 $ 55,393,657 $55,061,349
Mortgages payable $ 4,000,000 $ 23,847,488 $36,847,488 $ 40,314,558 $43,363,342
Affiliate Loans $ -- $ -- $18,000,000 $ 18,000,000 $18,000,000
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources:
Historically, Registrant's income for operations has been sufficient to
provide for its expenses. From time to time, however, Registrant has borrowed
funds to meet its short term liquidity needs. Registrant believes that its
properties are not overly leveraged and that under normal market conditions it
will be able to obtain additional financing as needed. The Registrant has sold
significant assets during 1999 and may sell assets in the future to discharge
its obligations.
On April 14, 1999, Registrant sold the Mojud Building located in Long
Island City, New York for a sales price of $6,500,000. In connection with the
sale, Registrant paid sales
15
commissions of $162,500 to an affiliate of one of the General Partners and other
closing costs of approximately $239,000.
On May 18, 1999, Registrant sold the Midland Savings Building located
in Midland, Texas for a sales price of $300,000.
On December 16, 1999, Registrant sold the 1440 Broadway property for
$152,000,000. In connection with the sale, Registrant repaid its outstanding
mortgage debt with Chase of approximately $17,347,500, sales commissions of
$3,800,000 paid to an affiliate of one of the General partners and other closing
costs of approximately $5,047,000.
The Registrant's mortgage loan with Apple Bank pertaining to its 1328
Broadway property in New York City was repaid in January 18, 2000 using the
proceeds from Registrant's sale of its 50% tenancy in common interest in such
property.
Registrant is required to make certain cash distributions to its
partners for each year. See "Item 5." On December 16, 1999, Registrant declared
a special distribution to its partners of approximately $128,000,000 of which
$64,000,000 was paid to the General Partners and Special Limited Partners in
December 1999 and $64,000,000 was accrued for the holders of Participation
Interests, and was subsequently paid in January 2000. In addition, on January
18, 2000, Registrant declared a special distribution of $37,000,000 to its
partners in connection with the sale on such date of Registrant's 50% interest
in 1328 Broadway, of which $18,500,000 was paid to the General Partners and
Special Limited Partners in January 2000 and $18,500,000 was paid to the holders
of PPIs in February 2000.
Registrant anticipates satisfying its working capital requirements for
fiscal year 2000 generally through cash from operations and/or the sale of its
Properties.
16
Net cash provided by operating activities was approximately $12.4
million in 1999, as compared to $9.4 million in 1998. Such increase in cash
provided by operating activities in 1999 was primarily due to continued
improvement in the operations of Registrant's Properties in New York. Net cash
provided by investing activities was approximately $148.2 million in 1999, as
compared to $115.6 million in 1998. Such increase was primarily attributable to
a net increase in the proceeds received from the sales of properties of $31.8
million. Net cash used in financing activities was approximately $94.7 million
in 1999, as compared to $113.4 million in 1998. Such decrease was due to the net
decrease in the repayment of indebtedness of approximately $11.2 million in 1999
and a net decrease in the payment of distributions of approximately $7.6
million.
At December 31, 1998, Registrant had outstanding mortgage indebtedness
in connection with its Chase Loans of $19,847,488 which was secured by three of
the New York properties. The Chase Loans bore interest at LIBOR plus 2.25%.
Through September 15, 1999, Registrant made scheduled repayments of $2,500,000.
On December 16, 1999, Registrant repaid the remaining principal balance of
$17,347,488 using the proceeds from the sale of the 1440 Broadway property.
Registrant is also obligated for one-half of the $8,000,000 mortgage
payable to Apple Bank which bears interest at 8.5% and which had a maturity date
of April 30, 1999. Registrant repaid its $4,000,000 share of such loan on
January 18, 2000 using the proceeds from the sale of its interest in the 1328
Broadway property.
Impact of Year 2000:
In prior years, Registrant discussed the nature and progress of its
plans to become Year 2000 ready, and reported that it had been informed by its
vendors that each had developed a
17
plan to address the affected informational (accounting, billing, payroll) and
operational (HVAC, fire alarms, security, elevators, and lighting) systems of
Registrant. As a result of those planning and implementation efforts, Registrant
experienced no significant disruptions in information technology systems and
non-information technology systems and believes those systems successfully
responded to the Year 2000 date change. Registrant is not aware of any material
problems arising from Year 2000 issues, either with its internal systems or the
products and services of third parties. Registrant will continue to monitor its
mission critical computer applications and those of its suppliers and vendors
throughout the Year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly. The cost of Registrant's compliance for Year 2000
matters was not material.
Results of Operations:
1999 Compared to 1998
Gross revenues from rentals for 1999 decreased approximately
$11,813,000 (approximately 27%) as compared to 1998, primarily due to decreases
in revenue due to the impact of the sale of the Chicago Properties (sold in
September 1998) and the sale of the Mojud Building (sold in April 1999), offset
in part by increases in revenue from Registrant's other New York properties. Net
income for 1999 increased approximately $38,032,000 primarily due to an increase
of $35,139,000 in the gain on sale of properties. Total expenses decreased by
approximately $14,764,000 (approximately 45%) as a result of the sale of the
Chicago Properties in September 1998 and the Mojud Building in April 1999.
During 1999, Registrant's rental income was generated primarily by the
operations of its New York properties. Leasing activity remains active in New
York and Registrant anticipates continuing its practice of negotiating new
leases and renewing existing leases upon their
18
expiration; however, there is no assurance that some of Registrant's tenants
will not go out of business, reduce their space requirements or relocate.
For 1999, Registrant's interest expense decreased approximately
$2,166,000 (approximately 56%), primarily due to lower levels of average
outstanding indebtedness during 1999 which resulted from mortgage principal
repayments of $13,000,000 made in 1998 and the repayments of Affiliate Loans of
$18,000,000 made in 1998. In addition, Registrant repaid the outstanding balance
of its mortgage loan with Chase in December 1999.
Registrant's real estate tax expense in 1999 decreased approximately
$2,515,000 (approximately 35%), due to the sale of the Chicago Properties in
September 1998 and the sale of the Mojud building in April 1999. Registrant,
under certain commercial leases, is able to pass a portion of the increases in
real estate taxes, operating expenses and increases in the consumer price index
to the tenants based on lease escalation clauses.
Management fees decreased approximately $605,000 (approximately 54%),
due to the sale of the Chicago Properties in September 1998 and the sale of the
Mojud building in April 1999.
Payroll and related expenses decreased approximately $2,323,000
(approximately 55%), due to the sale of the Chicago Properties in September 1998
and the sale of the Mojud building in April 1999.
Repairs and maintenance expenses decreased approximately $1,357,000
(approximately 43%), due to the sale of the Chicago Properties in September 1998
and the sale of the Mojud building in April 1999.
19
Other property expenses decreased approximately $4,550,000
(approximately 54%), due to the sale of the Chicago Properties in September 1998
and the sale of the Mojud building in April 1999.
Administrative expenses increased approximately $283,000 (approximately
91%), due to increased professional fees associated with the administration of
partnership activities and increased regulatory filing requirements.
Depreciation and amortization expenses decreased approximately
$1,098,000 (approximately 28%), due to the sale of the Chicago Properties in
September 1998 and the sale of the Mojud building in April 1999.
1998 Compared to 1997
Gross revenues from rentals for 1998 decreased approximately $3,009,000
(approximately 7%) as compared to 1997, primarily due to decreases in revenue as
a result of the sale of the Chicago Properties offset in part by increases in
revenue from Registrant's New York properties. Net income for 1998 increased
approximately $104,000,000 primarily due to the sale of the Chicago Properties.
Total expenses decreased by approximately $5,294,000 (approximately 15%)
primarily as a result of decreases in leasehold rentals, interest, real estate
taxes, repairs and maintenance and other property operating expenses,
attributable to the sale of the Chicago Properties in September 1998.
During 1998, approximately 8 tenants in various properties with an
aggregate annualized rental of approximately $236,000 vacated their premises
prior to the expiration of their leases. While leasing activity had been more
active in New York, it remained relatively flat in Newark. Although Registrant
anticipated continuing its practice of negotiating new leases and
20
renewing existing leases upon their expiration, there was no assurance that some
of Registrant's tenants would not go out of business, reduce their space
requirements or relocate.
For 1998 Registrant's interest expense decreased approximately $848,000
(approximately 18%), primarily due to lower levels of average outstanding
indebtedness resulting from mortgage principal repayments of $13,000,000 and
repayments of Affiliate Loans of $18,000,000.
Registrant's real estate tax expense in 1998 decreased approximately
$2,269,000 (approximately 24%), primarily due to the sale of the Chicago
Properties in September 1998. Registrant, under certain commercial leases, was
able to pass a portion of the increases in real estate taxes, operating expenses
and increases in the consumer price index to the tenants based on lease
escalation clauses.
Management fees decreased approximately $251,000 (approximately 18%),
primarily due to the sale of the Chicago Properties in September 1998.
Depreciation expenses decreased approximately $658,000 (approximately 14%),
primarily due to the sale of the Chicago Properties in September 1998.
Item 7A. Disclosures About Market Risk.
Upon the repayment of all of its variable rate mortgage indebtedness in
December 1999, Registrant has significantly reduced its exposure to interest
rate risk. At December 31, 1999, Registrant's sole interest bearing indebtedness
related to its obligation for one-half of the $8 million mortgage payable to
Apple Bank which bears interest at a fixed rate of 8 1/2 percent and which had
matured on April 30, 1999. Registrant repaid its $4 million share of such
obligation on January 18, 2000 using the proceeds from the sale of its 50%
tenancy in common
21
interest of the 1328 Broadway property which secured such indebtedness. Should
Registrant elect to refinance any of its remaining properties, Registrant would
seek to manage its interest rate risk through the use of fixed rate debt or
interest rate derivatives in conjunction with variable rate debt. Registrant
believes that it can refinance its properties at commercially reasonable rates,
although there can be no assurances in this regard.
Item 8. Financial Statements and Supplementary Data.
The response to this Item is submitted in a separate section of this
report.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 10. General Partners of the Registrant.
(a) (b) Identification of General Partners.
Registrant is a limited partnership. It does not have directors or
executive officers. The information set forth below is provided with respect to
the General Partners of the Registrant, who may be considered to occupy
positions equivalent to directors or executive officers. There is no specific
term of office for any General Partner of the Registrant. Each General Partner,
with the exception of ScogBell, has served in such capacity since December 4,
1969.
The names, ages, and business experience during the past five years of
the two individual General Partners of the Registrant, including their principal
occupations and
22
employment during that period and the name and principal business of any
corporation or other organization in which such occupations and employment were
carried on, is as follows:
Irving Schneider - 80; Executive Vice President of Helmsley-Spear, Inc.
Mr. Schneider has been in the real estate business for over 50 years and owns
and operates, individually or through partnerships, numerous real estate
investments.
Minlyn, Inc. was formed in 1968. All of its stock is owned by Mr.
Schneider. Mr. Schneider is a director of Reliance Group Holdings, Inc. and
Reliance Insurance Company.
Registrant has been advised that ScogBell was created in June 1998 to
acquire, hold, finance and sell interests in Registrant. Control of ScogBell is
vested exclusively with ScogBell AG Manager, Inc. and ScogBell SB Manager, Inc.,
as managers.
ScogBell AG, Inc. (formerly known as Helmsley-Noyes Company, Inc.), was
incorporated in 1926. It is a real estate management firm in New York City. It
was acquired by ScogBell on June 10, 1998.
Harry B. Helmsley was a General Partner of Registrant until his death
on January 4, 1997. He was succeeded by H Associates on July 3, 1997. H
Associates acquired a nominal general partner interest from Helmsley-Noyes
Corporation in connection with its admission as a General Partner. On June 10,
1998, H Associates ceased to be a General Partner of Registrant and was replaced
by ScogBell as a General Partner pursuant to a sale of its entire beneficial
ownership position. See "Business."
Item 11. Executive Compensation.
Registrant is a limited partnership. It does not have officers,
executive officers or directors. The information set forth below is provided
with respect to the General Partners and the Special Limited Partners of the
Registrant, who may be considered to act in capacities similar
23
to directors, or perform policy-making functions similar to those of executive
officers or officers in charge of a principal business unit, division or
function.
Paragraph 11A(3) of the Partnership Agreement provides for certain
guaranteed payments to be made to the General Partners and Special Limited
Partners of Registrant equal to 8-3/4% per annum of their "Remaining Original
Cash Contribution." The Remaining Original Cash Contribution is $1,500,000, less
the cumulative amounts distributed to the General Partners and Special Limited
Partners from time to time in respect of the net proceeds from the sale of
Registrant's properties. The Remaining Original Cash Contribution as of December
31, 1999 was $1,160,000. For the fiscal years ended December 31, 1999,
Registrant paid or accrued, pursuant to such paragraph 11A(3), guaranteed
payments to the General and Special Limited Partners in an aggregate amount of
$101,500 as follows: Irving Schneider - $33,732, ScogBell - $67,576, ScogBell
AG, Inc. (formerly known as Helmsley-Noyes Company, Inc.) - $91 and Minlyn, Inc.
- - $101.
Under the terms of the Partnership Agreement, since January 1, 1973,
the General Partners are entitled to receive an annual payment equal to 1/2% of
the gross revenue from real estate of the Registrant. During the fiscal year
ended December 31, 1999, Registrant accrued in connection with such annual
payments an aggregate of $154,222 as follows: Irving Schneider - $46,266,
ScogBell AG, Inc. (formerly known as Helmsley-Noyes Company, Inc.) - $4,627,
ScogBell - $98,189 and Minlyn, Inc. - $5,140. Mr. Schneider and ScogBell are
entitled to receive distributions of net operating revenues in each of their
respective capacities as Special Limited Partners. See "Item 5" above.
The Registrant does not provide any compensation to the General
Partners or the other persons in the form of option or stock appreciation right
grants, long-term incentive plans,
24
or a defined benefit or actuarial plans. The Registrant has no standard
arrangements for payment of fees to General Partners (other than for their
interest as General Partners, as described above), or employment contracts or
change-of-control agreements.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
(a) Registrant is a limited partnership. Except to the extent set forth
below, it does not have voting securities. The right to control the business of
Registrant is vested in the General Partners of Registrant by virtue of
provisions of the Partnership Agreement and Article 8A of the New York
Partnership Law.
The Partnership Agreement provides for modification or amendments of
the Partnership Agreement upon obtaining the consents or affirmative votes of
specified percentages of the Special Limited Partners and the Limited Partners,
each voting as a class. The sole limited partner votes as directed by the
holders of PPIs.
25
To the extent that the Special Limited Partnership Interests and PPIs
are considered voting securities, the following information is provided as to
holders of 5% or more of each such class at December 31, 1999:
Amount and
nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- --------- --------
Special Limited ScogBell Direct 66.66
Partnership Interests 660 Madison Ave.
New York, NY 10021
As a group
Special Limited Irving Schneider Direct 33.34
Interests 880 Fifth Avenue
New York, NY
Converted Special ScogBell Direct 100.00
Limited Partnership Interests 660 Madison Ave.
New York, NY 10021
PPIs ScogBell 310,927(1) 37.92
660 Madison Ave.
New York, NY 10021
Irving Schneider 90,095 10.99
880 Fifth Avenue Direct(2)
New York, NY
- ----------
(1) Includes PPIs purchased from the following: 258,877 PPIs owned directly by
Leona M. Helmsley; also 4,000 PPIs held by Helmsley-Noyes Company, Inc.
(0.5%), a company owned by Helmsley Enterprieses, Inc., which in turn is
wholly-owned by the Harry B. Helmsley Revocable Trust, under agreement
dated December 13, 1989; 13,000 PPIs held by HBH Holdings Corp. (1.6%),
6,500 PPIs held by Park Lane Hotel, Inc. (0.8%) and 28,550 PPIs in the
over-the-counter market.
(2) Does not include 31,960 PPIs owned by Mr. Schneider's daughters (3.9%).
26
(b) Registrant is a limited partnership and, as such, its affairs are
managed by its General Partners. The following table sets forth the amount and
nature of the beneficial ownership at December 31, 1999 of each class of
partnership interests by its General Partners individually and as a group:
Amount and
nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- --------- --------
General Partnership Irving Schneider
Interests 880 Fifth Avenue
New York, NY Direct(1) 90.91
ScogBell Indirect 9.09
660 Madison Ave.
New York, NY 10021
As a group 100.00
Special Limited ScogBell Direct(2) 66.66
Partnership Interests 660 Madison Ave.
New York, NY 10021
Irving Schneider Direct(2) 33.34
880 Fifth Avenue
New York, NY
As a group 100.00
- ----------
(1) Mr. Irving Schneider owns approximately 90% of such interest directly and
10% indirectly through his ownership of Minlyn, Inc.; 60 East 42nd Street,
New York, New York, which is also a General Partner of Registrant.
(2) The Special Limited Partnership Interests have the rights set forth in the
Partnership Agreement and are not securities issued by Registrant. The
Converted Special L.P. Interest represents the economic interest in
Registrant formerly owned by Harry B. Helmsley in his capacity as a
General Partner. See "Business."
27
Amount and
nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- --------- --------
Converted Special
Limited Partner Interests ScogBell Direct 100.00
660 Madison Ave.
New York, NY 10021
Participation Interests ScogBell 310,927 37.92
660 Madison Ave.
New York, NY 10021 Direct(3)
Irving Schneider 90,095 10.99
880 Fifth Avenue Direct(4)
New York, NY
As a group 401,022(2)(4) 48.91
Item 13. Certain Relationships and Related
Transactions.
(a) Transactions with Management and Others.
(b) Certain Business Relationships.
As set forth in Item 11(a) above, during the year ended December 31,
1999, Registrant paid certain fees and certain guaranteed payments to each of
its corporate General Partners, ScogBell AG, Inc. (formerly known as
Helmsley-Noyes Company, Inc.) and Minlyn, Inc., pursuant to the Partnership
Agreement. See Item 10 hereof as to the ownership of said corporations.
- ----------
(3) Includes PPIs purchased from the following: 258,877 PPIs owned directly by
Leona M. Helmsley; also 4,000 PPIs held by Helmsley-Noyes Company, Inc.
(0.5%), a company owned by Helmsley Enterprieses, Inc., which in turn is
wholly-owned by the Harry B. Helmsley Revocable Trust, under agreement
dated December 13, 1989; 13,000 PPIs held by HBH Holdings Corp. (1.6%),
6,500 PPIs held by Park Lane Hotel, Inc. (0.8%) and 28,550 PPIs in the
over-the-counter market.
(4) Does not include 31,960 PPIs owned by Mr. Schneider's daughters (3.9%).
28
HSI, either directly or through various subsidiaries, acts as managing
agent of the Properties. For such management and leasing brokerage services, HSI
charged Registrant the aggregate sum of approximately $1,288,000 during the
fiscal year ended December 31, 1999. Leasing commissions charged by HSI are
based upon varying percentages of the annual rent paid by tenants obtained by
HSI. Property management fees charged by HSI are based upon negotiated amounts
that are believed to be below market rate. Leasing fees charged by HSI to
Registrant are believed to be, from Registrant's perspective, on a basis that
approximate those that would be available to Registrant from non-affiliates at
arm's-length. In 1999, HSI also earned $3,962,500 in brokerage commissions in
connection with the sale of the Mojud and 1440 Broadway properties. The amount
of the commissions paid for such services is believed by Registrant to be no
more than the amount which Registrant would be required to pay to unrelated
parties performing such services.
(c) Indebtedness of Management.
None.
PART IV
Item 14. Exhibits,Financial Statement
Schedules, and Reports on Form 8-K.
(a) (1) and (2) The response to this portion of Item 14 is submitted as
a separate section of this report.
(a) (3) Exhibits. Subject to Rule 12b-32 of the Securities Act of 1934
regarding incorporation by reference, listed below are the exhibits which are
filed as part of this report and are hereby incorporated by reference (according
to the numbers assigned to them in Item 601 of Regulation S-K):
29
(3) (i) Registrant's Limited Partnership Agreement dated as of May 15,
1969, as amended on October 2, 1969, October 31, 1969, and
December 3, 1969 is hereby incorporated by reference to Exhibits
3.1, 3.2, 3.3 and 3.4 to Registration Statement No. 2-33132 which
was declared effective by the SEC on December 4, 1969.
(ii) Amendment to Agreement of Limited Partnership, dated as of May
30, 1997.
(10.1) Management Agreement dated May 20, 1969 between Helmsley-Spear,
Inc. and Registrant is hereby incorporated by reference to
Exhibit 12.1 to Registration Statement No. 2-33132. The leasing
commissions and management fees currently being charged to the
Registrant are consistent with the rates generally charged in the
areas where the properties are located.
(10.2) Forms of Promissory Notes, dated November 30, 1994, evidencing
the Affiliate Loans is hereby incorporated by reference to
Exhibit 10.2 of Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1994.
30
(b) Reports on Form 8-K filed during the period covered by this
Report:
(i) On October 7, 1999, Registrant filed a Current Report on
Form 8-K relating to the contract to sell 1440 Broadway,
New York, New York for $152,000,000.
(ii) On December 17, 1999, Registrant filed a Current Report on
Form 8-K relating to the contract to sell 1328 Broadway,
New York, New York for $43,500,000.
(c) Financial Statement Schedules -- The response to this portion of
Item 14 is submitted as a separate section of this report.
(27) Financial Data Schedule.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INVESTMENT PROPERTIES ASSOCIATES
By: /s/ Irving Schneider
----------------------------
Irving Schneider
General Partner
Dated: April 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date first indicated above.
/s/ Irving Schneider
- ------------------------------------------------ General Partner,
Irving Schneider Principal Executive,
Financial and
Accounting Officer
MINLYN, INC. General Partner
By: /s/ Irving Schneider
--------------------------------------------
Irving Schneider
President
SCOGBELL AG, INC. General Partner
By: /s/ Craig Effron
--------------------------------------------
Craig Effron
President
SCOGBELL ACQUISITION, L.L.C. General Partner
By: /s/ Craig Effron
--------------------------------------------
President
ScogBell AG Manager, Inc., Manager
32
The following is an index to all exhibits filed with this report other
than those incorporated by reference herein:
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
33
Annual Report On Form 10-K
Item 14(A)(1) And (2) And Item 14(D)
List Of Financial Statements And Financial Statement Schedule
Financial Statements And Financial Statement Schedule
Year Ended December 31, 1999
Investment Properties Associates
(A New York Limited Partnership)
New York, New York
Investment Properties Associates
(A New York Limited Partnership)
Index Of Financial Statements And Financial Statement Schedule
The following financial statements of Investment Properties Associates are
included in Item 8:
Page
Report of Independent Auditors ............................................. S-1
Balance Sheets-December 31, 1999 and 1998 .................................. S-2
Statements of Income-Years Ended December 31, 1999,
1998 and 1997 ......................................................S-3 and S-4
Statements of Changes in Partners' Capital (Deficiency)-
Years Ended December 31, 1999, 1998 and 1997 .............................. S-5
Statements of Cash Flows-Years Ended December 31, 1999,
1998 and 1997 ............................................................. S-6
Notes to Financial Statements....................................... S-7 to S-20
The following financial statement schedule of Investment Properties Associates
is included in Item 14(d):
Schedule III-Real Estate and Accumulated Depreciation ............ S-21 and S-22
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or have been otherwise disclosed, and
therefore have been omitted.
Report of Independent Auditors
Investment Properties Associates
We have audited the accompanying balance sheets of Investment Properties
Associates (a New York Limited Partnership) as of December 31, 1999 and 1998,
and the related statements of income, changes in partners' capital (deficiency)
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedule listed in the
index at Item 14. These financial statements and schedule are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Investment Properties
Associates at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
March 31, 2000, except
for Note 14 as to which the
date is April 12, 2000
S-1
Investment Properties Associates
(A New York Limited Partnership)
Balance Sheets
December 31,
1999 1998
-------------------------------------
Assets
Real estate, at cost (Notes 3 and 5) $ 40,649,960 $68,589,793
Less accumulated depreciation and
amortization 26,391,697 44,261,629
------------------------------------
14,258,263 24,328,164
Cash and cash equivalents 79,770,013 13,831,031
Due from managing agent (Helmsley-
Spear Inc.) including tenants' security
deposits of $1,963,001 (1999) and
$1,614,898 (1998) (Note 6) 2,822,168 2,375,753
Receivables, principally for rentals 332,926 471,968
Deferred rent receivable 134,306 1,045,707
Deferred charges, including deferred
leasing commissions of $2,115,053
(1999) and $3,399,132 (1998)
(Note 6) 5,293,355 7,709,611
------------------------------------
Total assets $102,611,031 $ 49,762,234
====================================
Liabilities and partners' capital
(deficiency)
Accounts payable $ 678,177 $ 1,155,069
Accrued real estate taxes 1,480,861 3,067,023
Accrued interest 29,278 155,025
Distributions payable to General Partners,
Special Limited Partners and Limited
Partner (Note 9) 77,979,781 10,884,318
Guaranteed payments due to General
Partners, Special Limited Partners and
Limited Partner (Note 7) 300,721 700,828
Accrued leasing commissions and
management fees due to Helmsley-
Spear, Inc. (Note 6) 231,113 291,405
Sundry and accrued liabilities 610,712 1,079,965
Mortgages payable (Note 5) 4,000,000 23,847,488
Deposits, and rents received in advance of
$85,406 (1999) and $255,641 (1998) 1,696,853 1,859,300
------------------------------------
Total liabilities $ 87,007,496 43,040,421
------------------------------------
Commitments and contingencies
(Note 10 and 13)
Partners' capital (deficiency)
(Notes 1, 7, 8 and 9):
General Partners (2,683,508) (2,768,948)
Special Limited Partners (13,643,808) (21,325,648)
Limited Partner (represented by
the equivalent of 820,000
Participation Interests) 31,930,851 30,816,409
------------------------------------
15,603,535 6,721,813
------------------------------------
Total liabilities and partners'
capital (deficiency) $102,611,031 $ 49,762,234
====================================
See accompanying notes.
S-2
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income
Year ended December 31,
1999 1998 1997
-----------------------------------------------
Revenues:
Gross revenues from real estate (Note 11) $ 31,640,834 $43,454,081 $46,463,473
Interest and other income 798,599 917,010 1,144,284
-----------------------------------------------
32,439,433 44,371,091 47,607,757
Expenses:
Leasehold rentals -- 409,095 563,446
Real estate taxes 4,633,769 7,149,045 9,418,042
Interest (Notes 4 and 5) 1,676,492 3,842,192 4,690,344
Management fees (Note 6) 517,005 1,121,955 1,373,436
Payroll and related expenses 1,898,115 4,220,947 5,026,993
Repairs and maintenance expenses 1,783,373 3,139,757 2,928,374
Other property expenses 3,914,440 8,463,862 9,645,887
Administrative expenses 592,736 309,626 239,602
Co-owners' share of (expense) income -- 25,027 60,817
Depreciation and amortization of real estate 1,974,245 2,781,850 3,349,946
Amortization of leasing commissions 831,865 1,100,072 1,122,721
Amortization of mortgage refinancing costs 1,593 24,323 91,775
-----------------------------------------------
17,823,633 32,587,751 38,511,383
-----------------------------------------------
Income before items shown below 14,615,800 11,783,340 9,096,374
Gain (loss) on sales of real estate (Note 3) 136,434,754 101,295,596 (14,913)
-----------------------------------------------
Income before guaranteed payments required
under the Limited Partnership agreement $151,050,554 $113,078,936 $ 9,081,461
See accompanying notes.
S-3
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income (continued)
Year ended December 31,
1999 1998 1997
-----------------------------------------------
Guaranteed payments required under the
Limited Partnership agreement (Note 7):
To the Limited Partner $ 15,000 $ 15,000 $ 15,000
To General and Special Limited Partners 101,500 101,500 101,500
To General Partners 154,222 214,703 238,125
-----------------------------------------------
270,722 331,203 354,625
-----------------------------------------------
Net income $150,779,832 $ 112,747,733 $8,726,836
===============================================
Net income allocable as follows (Note 8):
General Partners $ 865,880 694,652 40,829
Special Limited Partners 77,850,455 62,455,572 4,153,067
Limited Partner 72,063,497 49,597,509 4,532,940
===============================================
$150,779,832 $112,747,733 $8,726,836
===============================================
Net Income Per Limited Partner Participation
Interest (820,000 units outstanding): $ 87.8823 $ 60.4848 $ 5.5280
===============================================
See accompanying notes.
S-4
Investment Properties Associates
(A New York Limited Partnership)
Statements of Changes in Partners' Capital (Deficiency)
Special Limited
Total General Partners Partners Limited Partners
-------------------------------------------------------------------
Partners' Capital (Deficiency)
December 31, 1996 $(36,849,945) $(8,388,913) $(44,098,397) $15,637,365
Reclassification of General Partner
interest (Note 1) -- 5,312,950 (5,312,950) --
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 9) (9,847,784) (54,163) (4,869,729) (4,923,892)
Net income for the year ended
December 31, 1997 (Note 8) 8,726,836 40,829 4,153,067 4,532,940
-------------------------------------------------------------------
Partners' Capital (Deficiency)
December 31, 1997 (37,970,893) (3,089,297) (50,128,009) 15,246,413
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 9) (68,055,027) (374,303) (33,653,211) (34,027,513)
Net income for the year ended
December 31, 1998 (Note 8) 112,747,733 694,652 62,455,572 49,597,509
-------------------------------------------------------------------
Partners' Capital (Deficiency)
December 31, 1998 6,721,813 (2,768,948) (21,325,648) 30,816,409
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 9) (141,898,110) (780,440) (70,168,615) (70,949,055)
Net income for the year ended December
31, 1999 (Note 8) 150,779,832 865,880 77,850,455 72,063,497
===================================================================
Partners' Capital (Deficiency) December
31, 1999 $ 15,603,535 $(2,683,508) $(13,643,808) $31,930,851
===================================================================
See accompanying notes.
S-5
Investment Properties Associates
(A New York Limited Partnership)
Statements of Cash Flows
Year ended December 31,
1999 1998 1997
----------------------------------------------------
Operating activities:
Net income $ 150,779,832 $112,747,733 $ 8,726,836
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,807,703 3,906,245 4,564,442
Deferred rent (1,082,359) (1,045,707) -
Loss (gain) on sale of real estate (136,434,754) (101,295,596) 14,913
Changes in operating assets and liabilities:
Due from managing agent (446,415) 337,226 (631,394)
Receivables, net 139,042 987,957 (16,349)
Deferred charges, net (121,133) (3,077,192) (3,304,107)
Accounts payable (476,892) (1,055,285) (544,867)
Accrued real estate tax (1,586,162) (1,817,833) 254,271
Accrued interest (125,747) (238,119) (3,009)
Guaranteed payments due to General Partners
Special Limited Partners and Limited Partner (400,107) 316,203 (8,375)
Accrued leasing commissions and management fees (60,292) (480,943) (443,667)
Sundry and accrued liabilities (469,253) 232,297 (982,367)
Deposits and rents received in advance (162,447) (122,489) 35,150
----------------------------------------------------
Net cash provided by operating activities 12,361,016 9,394,497 7,661,477
Investing activities:
Property improvements (1,371,534) (2,201,413) 2,208,474)
Net proceeds from sale of real estate 149,599,635 117,803,063 -
----------------------------------------------------
Net cash provided by (used in) investing activities 148,228,101 115,601,650 (2,208,474)
----------------------------------------------------
Financing activities:
Distributions to General Partners, Special Limited
Partners and Limited Partner (74,802,647) (82,405,306) (5,374,588)
Principal payments on mortgages payable (19,847,488) (13,000,000) (3,025,816)
Principal payments on notes payable to related parties - (18,000,000) -
----------------------------------------------------
Net cash used in financing activities $ (94,650,135) (113,405,306) (8,400,404)
----------------------------------------------------
Increase (decrease) in cash and cash equivalents 65,938,982 11,590,841 (2,947,401)
Cash and cash equivalents at beginning of year 13,831,031 2,240,190 5,187,591
====================================================
Cash and cash equivalents at end of year $ 79,770,013 $ 13,831,031 $ 2,240,190
====================================================
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 1,802,239 $ 4,080,311 $ 4,693,353
====================================================
Supplemental disclosure of non-cash investing and
financing activities:
Deferred rent receivable charged to cost of sales $ 1,993,760 -- --
Deferred leasing commissions charged to cost of sales 1,703,931 -- --
See accompanying notes.
S-6
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements
December 31, 1999
1. Description of Business
Investment Properties Associates ("IPA") was formed as a limited partnership on
May 15, 1969 to acquire and operate commercial properties. Through January 4,
1997, the General Partners of IPA were Mr. Harry B. Helmsley and Mr. Irving
Schneider and two corporations owned or controlled by them. Collectively, the
General Partners owned a 1.5% interest in IPA. Upon the death of Mr. Helmsley on
January 4, 1997, the general partnership interest owned by him automatically
converted to a Special Limited Partnership Interest owned by his estate. As a
result of this conversion, the total interests of the General Partners were
reduced to .55%. The Special Limited Partners are Mrs. Leona M. Helmsley, Mr.
Irving Schneider, and the Estate of Mr. Harry B. Helmsley and the Limited
Partner is Mr. John Bailey. Undivided interests in the limited partnership are
represented by 820,000 Participation Interests ("PPI's"). Changes in ownership
subsequent to January 4, 1997, are described below.
Under the terms of the Partnership Agreement in effect on the date of Mr.
Helmsley's death, the General Partners were required to create a new limited
partnership with the same attributes as IPA and convey all assets and
liabilities of IPA to that entity. Because such a course of action would have
resulted in substantial expense to IPA and no benefit to the partners and
holders of PPI's, the General Partners obtained approval of a majority of the
holders of the PPI's to continue the business of IPA, and the Partnership
Agreement was amended to that effect effective May 30, 1997.
Effective July 3, 1997, the Partnership Agreement was further amended to admit a
newly formed limited liability company owned by Mrs. Leona M. Helmsley as a
General Partner of IPA, which entity was allocated a portion of the general
partner interest owned by one of the corporate general partners.
On June 10, 1998, the General Partner interests of the corporation and limited
liability company owned by Mrs. Leona M. Helmsley, and the Special Limited
Partner interests owned by Mrs. Leona M. Helmsley and the Estate of Harry B.
Helmsley were acquired by ScogBell Acquisition, L.L.C. ("ScogBell"). Also on
June 10, 1998, ScogBell acquired 282,377 PPI's from Mrs. Leona M. Helmsley and
28,550 PPI's in the over-the-counter market.
S-7
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies
a. The preparation of financial statements in conformity with
accounting principals generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amount 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.
b. Rental revenue from tenant leases is recognized on a straight line
basis over the terms of the associated leases.
c. Depreciation of buildings and building improvements is provided for
by the straight-line method over estimated useful lives of 19 to 39
years. Leaseholds, leasehold improvements and tenants' alterations
are amortized over the terms of the related leases. Amounts
applicable to tenants' alterations and the related accumulated
amortization are eliminated from the accounts at the time the
related lease expires or, if the tenant should vacate the premises
prior thereto, unamortized assets are charged to operations in the
year the premises are vacated.
d. Costs in connection with mortgage refinancings are included in
deferred charges and are being amortized over the terms of the
related mortgages.
e. Leasing commissions are amortized over the terms of the related
leases.
f. IPA's employees are covered under multi-employer defined
contribution pension plans. All contributions are funded currently
based upon negotiated union contracts. Information from the plans'
administrators is not available to permit IPA to determine its share
of unfunded vested benefits. During 1999, 1998 and 1997, IPA paid
approximately $273,000, $562,000, and $673,000, respectively, for
employees to union plans for pension, welfare and other benefits.
g. For the purpose of determining cash equivalents, IPA considers all
highly liquid investments with a maturity of three months or less,
when purchased, to be cash equivalents.
S-8
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
h. Financial Accounting Standards Board ("FASB") Statement No. 107,
"Disclosures About Fair Value of Financial Investments", defines
fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between
willing parties. The methods and assumptions used to estimate the
fair value of financial instruments are as follows:
(i) The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities and
deposits and rents received in advance approximate fair value
due to the short maturities of these items.
(ii) The carrying value of mortgages payable approximates fair
value due to the short term maturities of the notes.
i. Gains on sales of real estate are recognized at closing in
accordance with FASB Statement No. 66, "Accounting for Sales of Real
Estate".
j. FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flow estimates to be generated by those assets are
less than the asset's carrying amount or on long-lived assets held
for sale when the assets carrying amount is greater than the fair
market value less costs of disposal for those assets on a property
by property basis. IPA evaluates each of its properties for
indicators of impairment by reference to the undiscounted cash flows
to be generated from the operation and sale of the properties. No
indicators of impairment were present, and, accordingly no
provisions for impairment have been recorded in any of the periods
presented.
k. Basic earnings per share has been calculated by dividing the net
income allocated to the Limited Partner by the 820,000 PPI's
outstanding. As IPA has no potentially dilutive securities, no
presentation of diluted earnings per share is required.
S-9
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
l. Effective January 1, 1998, IPA adopted FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement
131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The adoption of Statement 131 did not affect results of
operations, financial position or disclosure of segment information
as IPA is engaged in the ownership and operation of commercial
office properties and has one reportable segment. IPA evaluates real
estate performance and allocates resources based on net operating
income. The primary sources of revenue are generated from tenant
base rents and escalations of operating expenses and real estate
taxes. Operating expenses primarily consist of common area
maintenance. The commercial office property segment meets the
quantitative threshold for determining reportable segments. IPA has
no investment in foreign operations.
m. Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentation.
3. Real Estate
Real estate is summarized as follows:
Classification 1999 1998
--------------------------------------------------------------------------
Land $ 4,935,164 $10,569,184
Buildings and building improvements 21,401,388 40,105,028
Leaseholds and leasehold improvements 7,497,580 7,486,730
Tenants' alterations 6,815,828 10,428,851
---------------------------
$40,649,960 $68,589,793
===========================
The amounts reflected above include one property in which IPA owns a 50%
undivided interest as a co-tenant in common. Accordingly, it has sole and
exclusive control over its interest, is
S-10
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
3. Real Estate (continued)
severally liable for its share of outstanding indebtedness, and is entitled only
to its pro-rata share of income and expenses. On January, 18, 2000, IPA sold its
interest in this property (see Note 14).
On January 22, 1998, IPA sold to an unrelated party its leasehold interest as
ground tenant under its lease with the City of Newark, NJ on the property
located at 1180 Raymond Blvd. As a consequence of the transaction, IPA was
relieved of liability for ground lease rent and real estate taxes on the
property after January 22, 1998. In connection with this transaction, IPA
recognized a gain of approximately $611,700.
On September 28, 1998, IPA sold its five Chicago commercial properties (the
"Chicago Properties") for $121,000,000. The sales proceeds were used to repay
mortgage debt, loans from the General Partners, accrued distributions payable to
the General Partners and Special Limited Partners, sales commissions of
$3,025,000 paid to an affiliate of one of the General Partners and other related
costs, aggregating approximately $64,000,000. In addition, IPA made a special
distribution to its partners of approximately $57,000,000. In connection with
this transaction, IPA recognized a gain on sale of approximately $100,683,900.
On April 14, 1999, IPA sold the Mojud Building located in Long Island City, New
York for a sales price of $6,500,000. The sales proceeds were used to pay sales
commissions of $162,500 to an affiliate of one of the General Partners and other
closing costs of approximately $239,000. In connection with this transaction,
IPA recognized a gain of approximately $5,580,000.
On May 18, 1999, IPA sold the Midland Savings Building located in Midland, Texas
for a sales price of $300,000. In connection with this transaction, IPA
recognized a gain of approximately $298,000.
On December 16, 1999, IPA sold the 1440 Broadway property for $152,000,000. The
sales proceeds were used to repay mortgage debt of approximately $17,347,500,
sales commissions of $3,800,000 paid to an affiliate of one of the General
Partners and other closing costs of approximately $5,047,000. In connection with
this transaction, IPA recognized a gain on sale of approximately $130,557,000.
In addition, on December 16, 1999, IPA declared a special distribution to its
partners of approximately $128,000,000 of which $64,000,000 was paid to the
General Partners and Special Limited Partners in
S-11
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
3. Real Estate (continued)
December 1999 and $64,000,000 was accrued for the holders of Participation
Interests, which was paid on January 18, 2000 (see Note 9).
4. Notes Payable to Related Parties
On November 30, 1994, affiliates of the General Partners loaned IPA $18,000,000,
evidenced by two promissory notes (the "Notes") in the amount of $6,000,000 and
$12,000,000. These notes were repaid in 1998 with the proceeds from the sale of
the Chicago properties.
The affiliate notes bore interest at a variable rate based on the Chase prime
rate and were payable on demand. Interest expense for the year ended December
31, 1998, with respect to the Notes was $1,160,124.
5. Mortgages Payable
As of December 31, 1999 and 1998, mortgages payable consist of the following:
Balance Balance
Interest Rate Outstanding Outstanding
at December Maturity December 31, December 31,
Description 31, 1999 Date 1999 1998
- ----------------------------------------------------------------------------------------------------------
Apple Bank for Savings (1):
Mortgage loan in the amount of
$8,000,000 with fixed interest
payments collateralized by 1328
Broadway Building N.Y., N.Y. (in
which IPA has a 50% tenancy in
common interest) 8.5% 4/30/99 $4,000,000 $ 4,000,000
Chase Manhattan Bank (2):
Mortgage loans with variable interest
rates collateralized by:
1440 Broadway, N.Y., N.Y. -- 1/2/00 -- $12,203,503
261 Fifth Avenue, N.Y., N.Y. -- 1/2/00 -- 466,985
245 Fifth Avenue, N.Y., N.Y. -- 1/2/00 -- 7,177,000
------------------------------------
Total $4,000,000 $23,847,488
====================================
S-12
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
5. Mortgages Payable (continued)
(1) The loan with Apple Bank for Savings ("Apple") matured on April 24,
1998. The loan was extended to April 30, 1999, at an interest rate
of 8.5% per annum and was repaid on January 18, 2000 using the
proceeds from the sale of IPA's undivided interest in the 1328
Broadway property (see Note 14).
(2) IPA executed a Note Modification Agreement (the "Agreement") on
April 25, 1996, with Chase Manhattan Bank ("Chase") whereby mortgage
loans collateralized by five of IPA's properties; 1440 Broadway, NY,
NY, 261 Fifth Avenue, NY, NY, 245 Fifth Avenue, NY, NY, One North
Dearborn, Chicago, IL and One North LaSalle, Chicago, IL were
generally modified to provide for: (a) an extension of the maturity
date until January 2, 1997, at which time all outstanding principal
and interest was due and payable, (b) interest based on LIBOR plus
2.25% or Prime plus .375% at IPA's option subject to certain
limitations as defined in the Agreement, (c) cross default and cross
collateralization provisions for the five properties, (d) IPA's
guaranty of $6,000,000 of the outstanding principal balance, and (e)
principal payments with respect to the mortgage loans of $3,000,000
during 1996.
On March 28, 1997, a first modification to the Agreement was made
between IPA and Chase which extended the maturity date of the loan
to January 2, 1998, and provided for principal payments with respect
to the mortgage loans of $3,000,000 during 1997.
On March 23, 1998, a Second Modification to the Agreement was made
between IPA and Chase, which extended the maturity date of the loan
to January 2, 1999, and provided for principal payments with respect
to the mortgage loans of $3,000,000 during 1998. In addition, upon
the sale of its Chicago Properties in September, 1998, IPA repaid
$16,847,488 of principal to obtain a release for the Chicago
Properties.
On January 2, 1999, a Third Modification to the Agreement was made
between IPA and Chase, which extended the maturity date of the loan
to January 2, 2000, and provided for principal payments with respect
to the mortgage loans of $3,000,000 during 1999. Scheduled principal
repayments aggregating $2,500,000 were made through September 15,
1999, with the entire remaining balance of the loan being repaid in
December 1999 with proceeds from the sale of the Mojud, Midland and
1440 Broadway properties.
S-13
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
6. Management of Properties
The properties are managed by Helmsley-Spear, Inc. Mr. Irving Schneider is
co-chairman and Chief Operating Officer of Helmsley-Spear, Inc., and owns 50% of
its outstanding stock. In addition to providing general property management
services, Helmsley-Spear, Inc. locates tenants and negotiates leases for its
properties. Management fees are based upon negotiated percentages of revenues
for each property in the portfolio. Leasing commissions are based upon varying
percentages of the annual rent paid by tenants obtained by Helmsley-Spear, Inc.
Management fees and leasing commissions charged to IPA by Helmsley-Spear, Inc.
aggregated $1,287,902 (1999), $1,969,571 (1998), and $2,098,318 (1997).
Additionally, IPA purchased some of its maintenance supplies and materials from
Deco Supplies Co. ("Deco"), an affiliate of one of its partners. No purchases
occurred in 1999 or 1998. Purchases of $61,000 were made in 1997.
Tenants' security deposits for certain properties are held by the managing agent
principally in special bank accounts; interest thereon accrues principally for
the benefit of the tenants.
7. Guaranteed Payments Due to Partners
The Limited Partnership Agreement requires that certain guaranteed payments be
made to partners and deducted as expenses in determining net income. The General
Partners and Special Limited Partners receive guaranteed payments equal to
8-3/4% per annum of their "Remaining Original Cash Contribution" ($1,160,000 at
December 31, 1999, 1998, and 1997). In addition, the General Partners receive
guaranteed payments equal to 1/2% of gross revenues, as defined and the Limited
Partner receives $15,000 per annum.
S-14
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
8. Allocations of Partnership Income
In accordance with the terms of the Limited Partnership Agreement, elements of
income for financial reporting purposes were credited (but not distributed in
cash) to the capital accounts of the partners through January 3, 1997, as
follows (see Note 9 for the basis on which cash distributions are determined):
Special
General Limited Limited
------------------------------------------
A. Net income before items C, D, E and F below 1.5% 48.5% 50.0%
B. Net losses, before items below 100.0% -- --
C. Depreciation and amortization of real estate:
1.Equal to mortgage amortization (as
defined) 1.5% 48.5% 50.0%
2.Balance 3.0% 97.0% --
D. Bond discount amortization -- -- 100.0%
E. Gain on disposition of property:
1.To the extent of the aggregate
depreciation and amortization of such
property included in C(2) above 3.0% 97.0% --
2.Balance 1.5% 48.5% 50.0%
F. Loss on disposition of property 100.0% -- --
S-15
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
8. Allocations of Partnership Income (continued)
Upon the death of Mr. Helmsley on January 4, 1997, and the conversion of his
General Partner interest into a Special Limited Partner interest, the elements
of income for financial reporting purposes are credited (but not distributed in
cash) to the capital accounts of the partners as follows:
Special
General Limited Limited
----------------------------------------
A. Net income before items C, D, E and F below .55% 49.45% 50.0%
B. Net losses, before items below 36.67% 63.33% --
C. Depreciation and amortization of real estate:
1.Equal to mortgage amortization (as
defined) .55% 49.45% 50.0%
2.Balance 1.1% 98.9% --
D. Bond discount amortization -- -- 100.0%
E. Gain on disposition of property:
1.To the extent of the aggregate
depreciation and amortization of such
property included in C(2) above 1.1% 98.9% --
2.Balance .55% 49.45% 50.0%
F. Loss on disposition of property 36.67% 63.33% --
9. Cash Distributions
Net Operating Revenues, as defined, are distributable at the discretion of the
General Partners, as follows:
Through From
January 3, 1997 January 4, 1997
--------------- ---------------
General Partners 1.5% .55%
Special Limited Partners 48.5% 49.45%
Limited Partner 50.0% 50.0%
Notwithstanding the foregoing, if with respect to any calendar year the Limited
Partner's distributive share (computed on the same basis as that used in
preparing IPA's Federal income tax return) of income (loss) plus one-half of
such partner's distributive share of long-term
S-16
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
9. Cash Distributions (continued)
capital gains exceeds the cash distributions referred to above, IPA must
distribute an additional amount equal to such excess to the Holders of the
Participation Interests.
In 1999, 1998 and 1997, Net Operating Revenues, as defined in the Limited
Partnership Agreement, amounted to $12,606,987, $9,803,570, and $9,174,787,
respectively. At December 31, 1999, 1998 and 1997, IPA accrued distributions
amounting to $77,979,781 (of which $64,000,000 was payable to the holders of
Participation Interests in respect of the sales proceeds of the Mojud, Midland,
and 1440 Broadway properties), $10,884,318, and $9,847,784, respectively of
which $71,030,725, $5,442,159, and $4,923,892, respectively, are distributable
to the Holders of Participation Interests. An amount of $63,999,004 was
distributed to the holders of Participation Interests in January 2000 in respect
of the accrued distribution of net proceeds from the sales of the Mojud, Midland
and 1440 Broadway properties and $13,898,110 was distributed on March 31, 2000
to the General Partners, Special Limited Partners and holders of Participation
Interests in respect of the accrued distributions of 1999 Net Operating Revenue.
10. Income Taxes
IPA has obtained a ruling from the Internal Revenue Service that IPA will be
classified as a partnership for Federal income tax purposes, and has received an
opinion of tax counsel that IPA, as a partnership, will not be subject to any
Federal income taxes, and that each holder of Participation Interests will be
treated for Federal income tax purposes as if he were a limited partner of IPA
to the extent of his proportionate interest in the Limited Partnership Interest.
Each partner of IPA and each holder of Participation Interests at any time
during the taxable year of IPA must take into account his distributive share of
all items of IPA's income, gain, loss, deduction or credit, without regard to
whether such partner or holder of Participation Interests has received or will
receive any distributions from IPA. Accordingly, no provision for income taxes
has been made in the accompanying statements of income.
The amount of income for federal tax purposes for the years ended December 31,
1999, 1998 and 1997 was $150,375,301, $111,019,115, and $9,782,211,
respectively, as and compared with the net income of $150,779,832, $112,747,733,
and $8,726,836, respectively, shown in the statements of income. A
reconciliation of the differences between income as reflected in the
S-17
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
10. Income Taxes (continued)
accompanying statements of income and the amount of income for federal tax
purposes is as follows:
December 31,
1999 1998 1997
---------------------------------------------
Net income per statements of income $150,779,832 $112,747,733 $8,726,856
Depreciation and amortization 762,866 929,903 1,083,904
Gain on sale of property 42,439 (1,233,105) --
Loss on sale of property -- -- (50,660)
Loss on abandonment of property -- -- --
Deferred rental income (1,082,359) (1,045,707) --
Other, net (127,477) (379,709) 22,111
---------------------------------------------
Income for federal tax purposes $150,375,301 $111,019,115 $9,782,211
=============================================
11. Gross Revenue From Real Estate
IPA earns rental income under leases principally with commercial tenants located
in its office buildings. Such leases generally provide for the tenant to pay
minimum rentals plus, in certain instances, a portion of increases in real
estate taxes, operating expenses and increases in the consumer price index based
on lease escalation clauses. Office leases generally range from 5 years to 15
years and contain various renewal options. In addition, IPA earns rental income
from retail stores. Such leases generally provide for minimum rentals plus
percentage rentals based on the store sales. Retail store leases generally range
from 1 to 5 years and contain various renewal options. All of the aforementioned
leases are accounted for as operating leases. Included in Gross Revenues from
Real Estate for the years ended 1999, 1998 and 1997, are $536,325, $956,247, and
$1,089,301, respectively, representing revenue from escalations and percentage
rentals, and for the year ended 1999, 1998 and 1997, approximately $17,000,
$1,400, and $256,000, respectively, received in connection with lease
cancellations with former tenants.
S-18
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
11. Gross Revenue From Real Estate (continued)
The following is a schedule by years of minimum future rentals on noncancelable
operating leases as of December 31, 1999, exclusive of amounts due as percentage
rent, expense escalations or amounts that would be due from new leases or the
exercise of renewal options under existing leases:
Years ending December 31:
2000 $16,998,000
2001 13,739,000
2002 10,434,000
2003 9,219,000
2004 6,403,000
Thereafter 13,601,100
-----------
Total minimum future rentals $70,394,000
===========
12. Recently Issued Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the
"Statement"). In June 1999, the FASB issued Statement No. 137, which deferred
the effective date of Statement No. 133, requiring it to be adopted for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
expects to adopt the Statement effective January 1, 2001. The Statement will
require IPA to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. IPA does not anticipate that the adoption of
this Statement will have a significant effect on its results of operations or
financial position.
S-19
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
13. Contingencies
IPA is involved in various legal matters and disputes arising in the normal
course of operations, the ultimate outcome of which is not expected to have a
material effect on the financial statements.
14. Subsequent Events
On January 18, 2000 IPA sold its 50% undivided interest in the 1328 Broadway
property for a sales price of $43,500,000. In connection with this transaction,
IPA recognized a gain of approximately $37,400,000. The sales proceeds were used
to repay IPA's $4,000,000 share of the the outstanding principal balance of the
Apple loan, sales commissions of $1,087,500 paid to an affiliate of one of the
general partners and other closing costs of approximately $1,438,000. On January
18, 2000, IPA also declared a distribution of $37,000,000 to its partners using
the proceeds from the sale of 1328 Broadway and the remaining proceeds from
previous asset sales. An amount of $18,500,000 was paid to the General Partners
and Special Limited Partners in January 2000 and $18,500,000 was paid to the
holders of Participation Interests in February 2000.
On April 12, 2000, IPA announced that, subject to a variety of conditions,
including additional due diligence by the buyer and definitive documentation
with respect to finalizing sales prices and other relevant terms, it had agreed
in principle to sell its 245 Fifth Avenue and 261 Fifth Avenue properties.
S-20
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1999
Col. A Col. B Col. C Col. D Col. E
- ------------------------------------------------------------------------------------------------------------------------------
Gross Amount
Initial Cost of Company at Which Carried Close of Period
------------------------- Improvements -----------------------------------------
Buildings Capitalized
and Subsequent to Buildings and
Description Encumbrances Land Improvements Acquisition Land Improvements Total
- ------------------------------------------------------------------------------------------------------------------------------
261 Fifth Avenue,
Building
New York, New York $ -- $ 987,731 $8,695,910 $ 8,184,257 $ 987,731 $16,880,167 $17,867,898
Marbridge Building,
New York, New York (a) 4,000,000 2,765,881 1,877,196 1,291,573 2,765,881 3,168,769 5,934,650
Edgewood and Bellway
Shopping Centers,
Houston, Texas -- 447,893 -- -- -- -- --
570 Broad Street Building
Newark, New Jersey -- 502,032 5,937,404 1,560,175 502,032 7,379,663 7,881,695
245 Fifth Avenue
Building,
New York, New York -- 679,520 2,080,700 6,205,497 679,520 8,286,197 8,965,717
===================================================================================================
Totals $ 4,000,000 5,383,057 $18,591,210 $17,241,502 4,935,164 $35,714,796 $40,649,960
===================================================================================================
Description Col. F Col. G Col. H
-------------------------------------------------------------------------------
Life on which
Depreciation in
Latest Income
Accumulated Date of Statements is
Depreciation Construction Computed
261 Fifth Avenue, -----------------------------------------------------
Building
New York, New York $12,363,066 1928 24.3
Marbridge Building, New
York, New York (a) 2,627,386 1907 19.3
Edgewood and Bellway
Shopping Centers,
Houston, Texas -- 1957 24.3
570 Broad Street Building
Newark, New Jersey 5,639,677 1962 34.3
245 Fifth Avenue
Building,
New York, New York 5,761,568 1923 24.3
-----------
Totals $26,391,697
===========
(a) Amounts shown represent 50% of amounts applicable to a tenancy in common, in
which IPA has an undivided one-half interest.
S-21
Investment Properties Associates
(A New York Limited Partnership)
(b) Reconciliation of "Real Estate and Accumulated Depreciation":
Year ended December 31,
------------------------------------------
1999 1998 1997
------------------------------------------
Investment in Real Estate
Balance at beginning of year $68,589,793 $136,524,047 $138,214,361
Sale of real estate (29,311,368) (67,998,324) (2,606,881)
Improvements and additions 1,371,535 2,201,413 2,208,474
Fully depreciated assets written
off during the year -- (2,137,343) (1,291,907)
----------- ----------- ------------
Balance at end of year $40,649,960 $ 68,589,793 $136,524,047
=========== ============ ============
Accumulated Depreciation
Balance at beginning of year $44,261,629 $ 95,613,778 $ 95,710,079
Depreciation charged to costs
and expenses 1,974,245 2,781,850 3,349,946
Less amounts applicable to sale
of real estate (19,844,177) (51,996,656) (2,154,340)
Less amounts applicable to fully
depreciated assets written off
during the year -- (2,137,343) (1,291,907)
-----------------------------------------
Balance at end of year $26,391,697 $ 44,261,629 $ 95,613,778
=========================================
The aggregate basis of real estate assets for Federal income tax purposes
amounted to $44,822,622 (1999), $71,268,168 (1998), and $132,029,646 (1997).
S-22