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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 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to __________
Commission File No.: 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
incorporation or organization) Identification Number)
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.
Page 1 of __ Pages
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.
1. Business.
(a) General Development of 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 IPA 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
-2-
would 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" and "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 LLC ("H Associates"), an entity owned by Leona M. Helmsley, was
admitted as a General Partner of Registrant. H Associate's economic interest in
Registrant was acquired from Helmsley-Noyes Company, Inc., also a General
Partner of Registrant.
On February 4, 1997, Registrant announced that it was offering its
commercial properties for sale. No sale was concluded. On July 24, 1997,
Registrant announced that it would not pursue a sales effort at such time.
At December 31, 1997, Registrant owned fee titles to, or leasehold estates
in, eleven commercial properties, a 50% interest in one commercial property, a
73-1/3% beneficial interest in another commercial property and fee title to two
unimproved real properties (collectively, the "Properties"). The Properties are
located in New York, New York; Chicago, Illinois; Midland, Texas; Houston,
Texas; and Newark, New Jersey. Subsequent to December 31, 1997, Registrant sold
one of its properties.
-3-
On November 30, 1994, Registrant borrowed $6,000,000 from Irving
Schneider, a General Partner of Registrant, and $12,000,000 from an affiliate of
Harry B. Helmsley, also a General Partner (collectively, the "Affiliate Loans").
The Affiliate Loans, which are due and payable on demand, bear interest at the
rate announced from time to time by Chase Bank, N.A. ("Chase") as its "prime
rate." The proceeds of the Affiliate Loans were used by Registrant (i) to prepay
indebtedness owed to Chase in the amount of $10,750,000 (which amount Chase
subsequently readvanced to Registrant in connection with the extension of the
mortgage loans relating to 1440 Broadway, 245 Fifth Avenue, 261 Fifth Avenue,
all in New York, New York, and One North Dearborn and One LaSalle, both in
Chicago, Illinois, and the cross collateralization and cross defaults among
these properties); (ii) to pay the outstanding accrued interest on the Bonds due
on December 1, 1994 in the amount of $484,000; (iii) to pay outstanding
distribution obligations to the Special Limited Partners in respect of 1993 net
operating revenues, which were past due since March 31, 1994 in the amount of
$5,317,000; and (iv) to reduce a portion of Registrant's accounts payable to
trade creditors by approximately $1,449,000. Registrant paid $1,513,625 and
$1,540,750 in interest under the Affiliate Loans during 1996 and 1997,
respectively.
On December 1, 1994, The Chase Manhattan Bank ("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 final 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
(collectively, the "Chase 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
-4-
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 .375%. Pursuant to a Second Note Modification
Agreement, the maturity of the Chase Loans has been further extended to January
2, 1999.
During 1997, Registrant made principal payments of $3,025,816 in the
aggregate on its first mortgage loans including a $3,000,000 net reduction of
the mortgage loan held by Chase. The aggregate principal amount of the Chase
Loans at December 31, 1997 was $32,847,488.
On June 1, 1997, Registrant assigned its ground lease with the City of
Newark, New Jersey on the property located at 1180 Raymond Boulevard to a
newly-formed corporation. The assignee has agreed that such assignment was
received by it as agent for Registrant. In connection with this transfer,
management had determined that, due to the recurring operating losses sustained
by this property and the general deterioration of the surrounding area, the
transferred leasehold had no value, and recorded a reserve for impairment equal
to the book value of the leasehold of $711,522 at the transfer date. In December
1997, Registrant received from a third party an offer of $1,350,000 for its 1180
Raymond Blvd. ground lease. Upon receipt of the offer Registrant reversed the
previously recorded reserve for impairment. On January 22, 1998, the property
was sold for $1,350,000. In connection with such sale, past due property taxes
on the property totalling $410,143 were paid to the City of Newark with a
portion of the sale proceeds.
On July 14, 1997, as part of an arrangement with First Union National
Bank, the holder of the first mortgage on the property located at 24 Commerce
Street, Newark, N.J., Registrant transferred title to the property to an
unrelated entity. By reason of such
-5-
arrangement, Registrant was relieved of liability for the outstanding balance of
the mortgage loan ($441,254) and received a full release from any future
liability with respect to such loan.
(b) Financial Information About Industry 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. 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
the Registrant's 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
-6-
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 144 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. or affiliates of Helmsley-Spear, Inc., which entities may
be deemed to be affiliates of Registrant. Management fees and leasing
commissions charged by Helmsley-Spear, Inc. aggregated approximately $2,098,300
in 1997, $2,330,400 in 1996 and $2,362,700 in 1995. Additionally, Registrant
purchases some of its maintenance supplies and materials from Deco Purchasing
Co., Inc. ("Deco"), an affiliate of one of its partners. Such purchases
aggregated approximately $61,000 in 1997, $23,000 in 1996 and $13,000 in 1995.
Registrant believes that such services and products are supplied at prices that
approximate those that would be available from non-affiliates. See Item 13.
2. Properties.
General. At December 31, 1997, Registrant owned fee titles to, or
leasehold estates in, eleven commercial properties, a 50% interest in one
commercial property, a 73-1/3% beneficial interest in another commercial
property and fee title to two unimproved real properties (collectively, the
"Properties"). The Properties are located in New York, New York; Chicago,
Illinois; Midland, Texas; Houston, Texas; and Newark, New Jersey. The Properties
have a total rentable area of approximately 4,726,000 square feet.
Registrant takes a depreciation deduction for tax purposes on the
buildings, building improvements and tenant improvements on its properties. See
Schedule III of the Financial Statements included elsewhere herein.
-7-
The table below sets forth a description of each of the Properties owned
by Registrant on December 31, 1997, its location, types of ownership and
rentable area in square feet.
Total
Rentable
Area
Property Description Ownership (Sq. Ft.)
- -------- ----------- --------- --------
New York, New York
1440 Broadway 25-story office Fee 690,000
bldg.
261 Fifth Avenue 25-story office Fee 402,000
bldg.
245 Fifth Avenue 26-story office Fee 287,000
bldg.
Marbridge Building 11-story office 50% of Fee 357,000
(1328 Broadway) bldg.
Mojud Building 5-story loft Fee 181,000
(Long Island City) building
Chicago, Illinois
One LaSalle Bldg. 49-story office Fee 491,000
(1 N. LaSalle St.) bldg.
360 No. Michigan Avenue Bldg. 21-story office Leasehold (lease 259,000
(360 No. Michigan Ave.) bldg. expires 4/30/2058)
One N. Dearborn Bldg. 17-story office Fee and Leasehold 938,000
bldg. (2 leases expire
3/31/2020 and
3/31/2077)
59 E. Van Buren Bldg. 27-story office Fee 182,000
bldg.
6 N. Michigan Ave. 21-story office 73-1/3% beneficial 223,000
bldg. interest
-8-
Total
Rentable
Area
Property Description Ownership (Sq. Ft.)
- -------- ----------- --------- ---------
Texas
Midland Savings Bldg. 14-story office Fee 167,000
(Midland)(1) bldg. (currently
vacant)
Edgewood Shopping Center Unimproved Fee --
(Houston) Land
Bellway Shopping Center Unimproved Fee --
(Houston) Land
New Jersey
Raymond Commerce Bldg. 37-story office Leasehold (lease 359,000
(1180 Raymond Blvd., bldg. expires 12/31/03)
Newark)(2)
570 Broad Street (Newark)(3) 14-story office Fee 190,000
bldg.
Federal Trust Bldg. (24 20-story office Fee --
Commerce St., Newark)(4) bldg. and 7-story
office bldg.
- -----------
(1) Registrant is not attempting to rent space in such building since it does
not believe that the building can be operated profitably under current
market conditions. Such property is not material to Registrant's
operations.
(2) Registrant sold its leasehold on January 22, 1998.
(3) Vacated by tenant during 1996.
(4) Registrant transferred title to this property to an unaffiliated third
party on July 14, 1997.
-9-
Additional Property Information. Four of Registrant's properties
individually account for 10% or more of its total assets or revenues at December
31, 1997. Such properties are referred to above as 1440 Broadway, New York, New
York; 261 Fifth Avenue, New York, New York; One North Dearborn, Chicago,
Illinois and One North LaSalle, Chicago, Illinois.
The estimated occupancy rate for the Registrant's 1440 Broadway property
for 1997, 1996, 1995, 1994 and 1993 was approximately 74%, 61%, 73%, 70% and
71%, respectively. The average annual base rent per leased square foot at such
property was approximately $26.91 in 1997, $28.10 in 1996, $23.94 in 1995 and
$24.57 in 1994.
The estimated occupancy rate for the Registrant's 261 Fifth Avenue
property for 1997, 1996, 1995, 1994 and 1993 was approximately 80%, 80%, 78%,
72% and 74%, respectively. The average rental per square foot at such property
was approximately $22.61 in 1997, $21.28 in 1996, $21.25 in 1995 and $20.49 in
1994.
The estimated occupancy rate for the Registrant's One North Dearborn
property for 1997, 1996, 1995, 1994 and 1993 was approximately 39%, 47%, 54%,
62% and 68%, respectively. The average rental per square foot at such property
was approximately $18.59 in 1997, $16.25 in 1996, $16.44 in 1995 and $16.47 in
1994.
The estimated occupancy rate of Registrant's One North LaSalle property
for 1997, 1996, 1995, 1994 and 1993 was approximately 54%, 58%, 54%, 56% and
56%, respectively. The average rental per square foot at such property was
approximately $16.32 in 1997, $14.74 in 1996, $13.80 in 1995 and $13.69 in 1994.
Registrant's 1440 Broadway property is a 25 story commercial office
building in midtown, Manhattan. Two separate tenants, both of which are clothing
retailers, occupy 10% or more of the rental area of such building. The rental
per annum of one clothing retailer is $4,458,000 and its lease expires on
December 31, 1999, subject to two consecutive five year
-10-
renewal options to 2004 and 2009 at then prevailing market rentals. The rental
per annum of the other clothing retailer is $1,889,000 per year and such lease
expires on December 31, 2002 with no renewal options. Effective January 27,
1998, approximately 92,950 square feet was rented to a new tenant whose lease
expires in 2013. The base annual rental through January, 2003 under such lease
is $1,093,115. From 2003 to 2008 the annual base rental will be $2,323,800. From
2008 to 2013, the annual base rental will be $2,602,658.
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 the
rentable area of such property.
Registrant's One North Dearborn property has one tenant that occupies 10%
or more of the rentable area of such property, a commercial bank. Effective
January 31, 1997, a portion of the space with an annual rental of $425,000 was
vacated. The remaining portion of the bank's space, with an annual rental of
$4,636,000, has a portion expiring January 31, 2000 (with a renewal option for
such portion) to 2004 at the then escalated rental) and a portion expiring April
30, 2000 (without any renewal options). Effective April 1, 1998, this tenant
leased an additional 22,949 square feet through January 31, 2000 with an annual
rental of $321,286.
Registrant's One North LaSalle property has one tenant, a commercial bank,
that leases 10% or more of the rentable area of such property. Such tenant's
annual rental is $1,480,000 per year and the lease expires on December 31, 2000,
without renewals.
The Chicago and New York commercial real estate markets are highly
competitive. In recent years, this has resulted in reduced occupancy rates at
certain of Registrant's properties in these cities. In addition, rents per
square foot have remained relatively constant. Although this trend may continue,
-11-
Registrant believes that rental rates 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, 1997:
1440 Broadway
Number of Total Leased % of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
1998 21 25,700 $ 797,904 7.1%
1999 13 188,098 4,725,984 41.9%
2000 4 5,090 121,627 1.1%
2001 3 26,470 888,167 7.9%
2002 2 84,654 1,930,003 17.1%
2003 1 318 27,635 0.2%
2004 1 2,000 238,604 2.1%
2005 4 13,884 886,383 7.9%
2006 2 72,762 1,659,457 14.7%
2007 or later 0 0 0 0.0%
-- ------- ----------- ------
Totals 51 418,976 $11,275,765 100.0%
== ======= =========== ======
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261 Fifth Avenue
Number of Total Leased % of Gross
Tenants whose Area in Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
1998 18 58,906 $1,213,956 16.0%
1999 20 67,105 1,532,380 20.3%
2000 11 30,823 738,686 9.8%
2001 10 38,838 912,324 12.1%
2002 11 35,584 814,752 10.8%
2003 1 6,929 148,289 2.0%
2004 2 12,772 296,724 3.9%
2005 1 10,322 226,191 3.0%
2006 0 0 0 0.0%
2007 or later 4 73,327 1,683,012 22.2%
-- ------- ---------- -----
Totals 78 334,606 $7,566,314 100.0%
== ======= ========== =====
One North Dearborn
Number of
Tenants Total Leased
whose Area % of Gross
lease will in Square Annual
Year expire Feet Annual Rental Rental
---- ------ ------------ ------------- ------
1998 8 56,526 $1,296,000 19.2%
1999 1 626 25,008 0.4%
2000 3 299,288 5,104,920 75.7%
2001 0 0 0 0.0%
2002 1 3,850 173,250 2.6%
2003 0 0 0 0.0%
2004 0 0 0 0.0%
2005 2 2,480 143,136 2.1%
2006 0 0 0 0.0%
2007 or later 0 0 0 0.0%
-- ------- --------- ----
Totals 15 362,770 $6,742,314 100.0%
== ======= ========== =====
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One North LaSalle
Number of Total Leased % of Gross
Tenants whose Area in Annual Annual
Year lease will expire Square Feet Rental Rental
---- ----------------- ----------- ------ ------
1998 30 52,300 $ 968,904 22.7%
1999 14 35,822 697,008 16.3%
2000 7 157,123 2,323,596 54.4%
2001 2 3,754 74,756 1.7%
2002 2 8,180 128,628 3.0%
2003 0 0 0 0.0%
2004 0 0 0 0.0%
2005 0 0 0 0.0%
2006 1 4,626 81,024 1.9%
2007 or later 0 0 0 0.0%
-- ------- ---------- ------
Totals 56 261,805 $4,273,916 100.0%
== ======= ========== ======
-14-
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.
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 1997. During 1997, Registrant solicited
written consent from the holders PPIs seeking the approval of the Amendments.
The Amendments, which were approved by written consent of the requisite holders
of PPIs, were effective as of May 30, 1997, provided for (i) the ability of the
remaining General Partners of Registrant to continue the business of Registrant
after certain events of dissolution, including the death of Harry B. Helmsley;
(ii) the appointment of a new General Partner to replace a former General
Partner, and various minor amendments related to the foregoing.
PART II
5. Market for the Registrant's Participation Interests and Related
Security Holder Matters.
As discussed above, Registrant is a limited partnership. Participations in
Limited Partnership Interest or "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 were as follows:
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1997 1996
---- ----
High Low High Low
First Qtr. 60 38 36 33
Second Qtr. 85 57 46 32
Third Qtr. 86 65 1/2 45 39 1/2
Fourth Qtr. 71 61 45 1/4 36 1/2
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, 1997, there were
610 holders of record of Participation Interests.
Pursuant to the Partnership Agreement, Registrant is required to make
certain cash distributions to holders of Participation Interests. Net operating
revenues for each calendar year are distributable to the partners of Registrant
approximately as follows:
General Partners (as a group): .55%
Irving Schneider
H Associates LLC*
Helmsley-Noyes Company, Inc.
Minlyn, Inc.
Converted Special L.P. Interest
Leona M. Helmsley .95%
Special Limited Partners (as a group): 48.5%
Leona M. Helmsley
Irving Schneider
Limited Partner (nominee for
holders of Partnership
Participation Interests): 50.0%
- ------------
* Replaced Harry B. Helmsley as of July 3, 1997 pursuant to the Amendments.
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The Limited Partner is the nominee for the holders of Participation
Interests 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
Participation Interests. If Registrant does not have funds for such distribution
(from cash on hand or borrowings), the Agreement obligates the General Partners
to lend or contribute funds to Registrant for such purpose.
In 1997, Registrant had "net operating revenues" (as defined) of
$9,174,787, of which $4,923,892 in the aggregate (or $6.00 per Participation
Interest, $.48 of which, for financial reporting purposes, represents a return
of capital) was distributed on March 31, 1998 to the holders of record as of
December 31, 1997 of Participation Interests. An aggregate of $4,923,892 in
respect of 1997 net operating revenues is required to be distributed to the
Special Limited Partners and General Partners identified above. The Special
Limited Partners also deferred receipt of their distributions in respect of net
operating revenues for 1994, 1995, 1996 and 1997. See Management's Discussion
and Analysis of Financial Condition and Results of Operations.
In 1996, Registrant had "net operating revenues" (as defined) of
$8,342,911, of which $5,241,297 in the aggregate (or $6.39 per Participation
Interest, $.53 of which, for financial reporting purposes, represents a return
of capital) was distributed to the holders of record as of December 31, 1996 of
Participation Interests. An aggregate of $5,241,297 in respect of 1996 net
operating revenues is required to be distributed to the Special Limited
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Partners and General Partners identified above. The Special Limited Partners
have deferred receipt of their distributions in respect of net operating
revenues for 1994, 1995 and 1996. 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. Net operating revenues of Registrant in recent years
has exceeded cash available for distribution to Registrant's partners. This
trend is anticipated to continue. Consequently, Registrant may have to borrow
additional funds or sell properties to fund such distributions of net operating
revenues in the future. In addition, Registrant's Special Limited Partners and
General Partners have deferred receipt of their portion of 1994, 1995 1996 and
1997 net operating revenues. See "Item 7 below."
-18-
6. Selected Financial Data.
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Income Statement
Data
Gross revenues from $46,463,473 $52,216,081 $53,879,055 $52,739,194 $55,663,069
real estate
Net Income transferred 8,726,836 8,452,069 9,331,341 8,702,453 9,369,900
to Partner's capital
accounts
Net operating 9,174,787 8,342,911 9,857,034 10,212,572 11,406,150
revenues, as defined
Net income per 5.5280 5.8636 5.8446 5.4269 6.6122
Participation Interest:
Balance Sheet Data
Total assets $53,585,976 $55,393,657 $55,061,349 $55,524,560 $54,562,430
Mortgages payable 36,847,488 $40,314,558 $43,363,342 $46,408,730 $43,656,775
9% Junior Mortgage -- -- -- -- $10,750,000
Bonds
Chase Interim Loan -- -- -- -- $ 6,000,000
Affiliate Loans $18,000,000 $18,000,000 $18,000,000 $18,000,000 --
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7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
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. Alternatively, Registrant
may sell assets to discharge its obligations. On February 4, 1997, Registrant
announced that it was offering its commercial properties for sale. On July 24,
1997, Registrant announced that it had suspended its sales effort.
Pursuant to a Second Note Modification Agreement, the maturity of
Registrant's Chase Loan was extended to January 2, 1999. See "Business" above.
The Registrant's mortgage loan with Apple Bank pertaining to its 1328 Broadway
property in New York City is scheduled to mature on April 24, 1998. Registrant
anticipates that it will refinance this loan.
Registrant is required to make certain cash distributions to its partners
for each year. See "Item 5." Distributions to holders of Participation Interests
in respect of 1994, through 1997 net operating revenues were provided for with
cash from operations. The General and Special Limited Partners have deferred
receipt of their portion of distributions in respect of 1994, 1995, 1996 and
1997 net operating revenues. Registrant believes that distributions to holders
of Participation Interests of net operating revenues for 1997 will be provided
for with cash from operations. Registrant also believes that the General
Partners and Special Limited Partners will, if necessary, defer receipt of their
entitlement to 1997 net operating revenues to accommodate the Registrants
liquidity needs. Registrant does not know, however, whether the General Partners
and the Special Limited Partners will make additional loans to the Registrant
-20-
to finance such distributions. Registrant anticipates satisfying its working
capital requirements for 1997 generally through cash from the operations and
additional short-term borrowings or mortgage refinancings and/or the sale of
properties.
Net cash provided by operating activities was approximately $7.7 million
in 1997 as compared to $12.9 million in 1996 and 11.2 million in 1995. Such
lower levels in 1997 were primarily attributable to prepayment of real estate
taxes due of approximately $2.0 million, additions to leasing commissions of
approximately $1.2 million, and reductions in accounts payable, accrued leasing
commissions and sundry liabilities of approximately $2.0 million. Net cash used
in financing activities was approximately $8.4 million in 1997, 1996 and 1995.
Net cash used in investing activities was approximately $2.2 million in 1997 as
compared to $ 2.4 million in 1996 and $3.8 million in 1995. Mortgages payable
decreased to approximately $36.8 million in 1997 as compared to $40.3 million in
1996 primarily due to scheduled mortgage principal payments.
On November 30, 1994, Registrant borrowed $6,000,000 from Irving
Schneider, a General Partner of Registrant, and $12,000,000 from an affiliate of
Harry B. Helmsley, also then a General Partner, pursuant to the Affiliate Loans.
The Affiliate Loans bear interest at the rate announced from time to time by
Chase as its "prime rate" and are due and payable on demand. The proceeds of the
Affiliate Loans were used by Registrant (i) to prepay indebtedness owed to Chase
in the amount of $10,750,000 (which amount Chase subsequently readvanced to
Registrant in connection with the Letter of Intent as defined below); (ii) to
pay the outstanding accrued interest on the Bonds due on December 1, 1994 in the
amount of $484,000; (iii) to pay outstanding distribution obligations to the
Special Limited Partners in respect of 1993 net operating revenues, which were
past due since March 31, 1994 in the amount of $5,317,000;
-21-
and (iv) to reduce a portion of Registrant's accounts payable to trade creditors
by approximately $1,449,000.
On December 1, 1994, Chase loaned $10,750,000 to Registrant, which funds
were used by Registrant to repay the Bonds in full on such date. Chase also
agreed to extend the final maturity date of Registrant's mortgage loans relating
to three of its New York properties and to its One North Dearborn and One
LaSalle buildings in Chicago (collectively, the "Chase Loans") from January 2,
1995 to January 2, 1997. On April 25, 1995, Registrant and Chase entered into
definitive agreements providing for the extension of the maturity of the Chase
Loans and the cross collateralization and the defaults among the properties that
secure the Chase Loans. The maturity of the Chase Loans was extended to January
2, 1998 and, subsequently, to January 2, 1999.
Pursuant to an agreement with Chase, Registrant has agreed to invest
$1,000,000 at its 1440 Broadway property in New York. See "Business". Through
December 31, 1997, Registrant has invested approximately $860,000 on tenant
improvements and leasing commissions. Registrant has no present material
commitments for any other capital expenditures in excess of normal business
requirements and does not anticipate incurring any such commitments through
1997.
The charges to operations for depreciation represent the allocation of
historical costs and are significantly less than if they were based on the
current cost to replace the Registrant's properties. Registrant, however, is
prohibited by the Partnership Agreement from replacing its properties.
Six of Registrant's properties are encumbered by first mortgages, all of
which require payments of interest at variable rates. Consequently, if interest
rates on such variable
-22-
rate mortgages were to increase, Registrant could have less funds available for
distribution to holders of Participation Interests.
Until recently, computer programs were written to store only two digits of
date- related information in order to more efficiently handle and store data.
Thus the programs were unable to properly distinguish between the year 1900 and
the year 2000. This is frequently referred to as the "Year 2000 Problem."
Registrant is primarily dependent on its Managing Agent, Helmsley-Spear, Inc.
("HSI"), for maintaining and processing financial information concerning IPA's
properties and for its billing processes and accounting functions. HSI has
advised IPA that, although it has not fully assessed the impact of the Year 2000
on its computer systems and data bases, it will probably need to replace its
computer systems to effectively deal with the Year 2000 problem. HSI has advised
IPA that it intends to resolve its Year 2000 issues in a timely manner. There
can be no assurances, however, that HSI will be able to replace or upgrade its
computer system in a timely manner so as to avoid all inconvenience or problems
for IPA, or that a portion of the cost of such system upgrade will not be passed
on to IPA. Such problems could include temporary inability to process
transactions, send invoices or engage in similar activities. These problems
could be substantially alleviated with manual processing on a delayed basis but
there can be no assurances in this regard.
Results of Operations:
1997 Compared to 1996
Gross revenues from rentals for 1997 decreased approximately $5.7 million
(approximately 11%) as compared to 1996, primarily due to the vacancy of the 570
Broad Street property in Newark, New Jersey since December 31, 1996, as well as
the disposition of two other properties in Newark. In addition, lease
termination fees decreased in 1997 as
-23-
compared to 1996. Net income for 1997 increased approximately $274,000
(approximately 3.2%) primarily due to an increase in other revenues relating to
real estate tax refunds and insurance proceeds. Total expenses decreased by
approximately $4.2 million (approximately 9.8%) primarily as a result of
decreases in leasehold rentals, interest, real estate taxes, repairs and
maintenance and other property operating expenses.
During 1997 approximately 14 tenants in various properties with an
aggregate annualized rental of approximately $262,000 vacated their premises
prior to the expiration of their leases. While leasing activity has recently
been more active in New York, it remains relatively flat in Chicago and down in
Newark. Tenants of Registrant have been able to negotiate lease renewals at
rates lower than prior levels. Although Registrant anticipates continuing its
practice of negotiating new leases and renewing others, Registrant believes more
of its space may become vacant as a result of additional tenants going out of
business, reducing their space requirements or relocating. In the competitive
markets in which the Registrant's properties are located, it is often difficult
to find acceptable replacement tenants, even at lower rents. These trends have
adversely affected Registrant's results in 1997 and could continue to adversely
affect Registrant's results in 1998. At December 31, 1997, Registrant did not
have any receivables associated with such vacancies.
For 1997 Registrant's interest expense decreased to $4.7 million
(approximately 3.9%), primarily due to lower levels of average outstanding
indebtedness.
Registrant's real estate tax expense in 1997 totalled $9.4 million, which
represents a decrease of approximately 4.7% over amounts expensed in 1996. This
decrease is attributable primarily to decreases in certain real estate
assessments and the disposition of certain properties. Registrant, under certain
commercial leases, is able to pass a portion of the increases in real
-24-
estate taxes, operating expenses and increases in the consumer price index to
the tenants based on lease escalation clauses.
Management fees decreased approximately 6.0% in 1997 as compared to 1996,
primarily due to lower gross revenues from rentals. Depreciation expenses
decreased approximately 2.8% in 1997 as compared to 1996, primarily due to the
fact that certain of Registrant's properties became fully depreciated by 1996
and the disposition of certain properties. Other operating expenses decreased
approximately 10.6% in 1997, primarily due to lower property taxes and interest
expense and reduced property operating expenses and repair and maintenance.
On June 1, 1997, Registrant assigned its ground lease with the City of
Newark, New Jersey on the property located at 1180 Raymond Boulevard to a
newly-formed corporation. The assignee has agreed that such assignment was
received by it as agent for Registrant. In connection with this transfer,
management had determined that, due to the recurring operating losses sustained
by this property and the general deterioration of the surrounding area, the
transferred leasehold had no value, and recorded a reserve for impairment equal
to the book value of the leasehold of $711,522 at the transfer date. In December
1997, Registrant received from a third party an offer of $1,350,000 for its 1180
Raymond Blvd. ground lease. Upon receipt of the offer registrant reversed the
previously recorded reserve for impairment. On January 22, 1998, the property
was sold for $1,350,000. In connection with such sale, past due property taxes
on the property totalling $410,143 were paid to the City of Newark with a
portion of the sale proceeds.
-25-
1996 Compared to 1995
Gross revenues from rentals (which included a $1 million lump sum payment
from a tenant for early termination of its lease) for 1996 decreased
approximately 3.2% as compared to 1995, primarily due to the following factors.
Firstly, decreased occupancy rates at Registrant's Chicago and Newark properties
have had an adverse affect on revenues. Secondly, Registrant terminated the
ground lease at 744 Broad Street effective July 1, 1996 which resulted in a
decline in revenue. Net income for 1996 decreased approximately $879,000
(approximately 9.4%) primarily due to the decrease in gross revenues mentioned
above and a one time charge for loss on abandonment of real estate at 744 Broad
Street, Newark, New Jersey. Total expenses decreased by approximately
$1,578,000, primarily as a result of a decrease in real estate taxes, leasehold
rentals and lower interest on indebtedness.
During 1996 approximately seventeen tenants in various properties with an
aggregate annualized rental of approximately $255,964 vacated their premises
prior to the expiration of their leases. In February 1996, the tenant which
occupied 92% of the building located at 570 Broad Street, Newark, New Jersey
notified management of its intention not to renew its lease which expired
December 31, 1996. While leasing activity has recently been more active in New
York, it remains relatively flat in Chicago and down in Newark. Tenants of
Registrant have been able to negotiate lease renewals at rates lower than prior
levels. Although Registrant anticipates continuing its practice of negotiating
new leases and renewing others, Registrant believes more of its space may become
vacant as a result of additional tenants going out of business, reducing their
space requirements or relocating.
-26-
For 1996 Registrant's interest expense decreased to $4,879,233
(approximately 10%), primarily due to lower levels of average outstanding
indebtedness.
Registrant's real estate tax expense in 1996 totalled $9,883,375, which
represents a decrease of approximately 6% over amounts expensed in 1995. This
decrease is attributable primarily to decreases in real estate assessments for
certain of the properties. 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 3% in 1996 as compared to 1995,
primarily due to lower gross revenues from rentals. Depreciation expenses
decreased approximately 1% in 1996 as compared to 1995, primarily due to the
fact that certain of Registrant's properties became fully depreciated by 1995.
8. Financial Statements and Supplementary Data.
The response to this Item is submitted in a separate section of this
report.
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
10. General Partners of the Registrant.
(a) (b) Identification of General Partners.
-27-
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 H Associates, 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 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 - 78; 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.
H Associates - A limited liability company created in July, 1997,
wholly-owned by Leona M. Helmsley, which was admitted as a General Partner of
Registrant on July 3, 1997 to succeed Harry B. Helmsley.
Helmsley-Noyes Company, Inc. (formerly Charles F. Noyes Company, Inc.),
was incorporated in 1926. It is a real estate management firm in New York City,
managing approximately 25 properties. It is owned by Helmsley Enterprises, Inc.,
which in turn is wholly-owned by the Harry B. Helmsley Revocable Trust, of which
Leona M. Helmsley is the beneficiary.
Minlyn, Inc. was formed in 1968. All of its stock is owned by Mr.
Schneider. There is no family relationship between the two individual General
Partners. Mr. Schneider is a director of Reliance Group Holdings, Inc. and
Reliance Insurance Company.
-28-
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.
11. Executive Compensation.
(a) General, (b) Summary Compensation Table, (c) Options/SAR Grants Table,
(d) Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table,
(e) Long-Term Incentive Plan ("LTIP") Awards Table, (f) Defined Benefit or
Actuarial Plan Disclosure, (g) Compensation of Directors, (h) Employment
Contracts and Termination of Employment and Change-in-Control Arrangements, (i)
Additional Information with Respect to Compensation Committee Interlocks and
Insider Participation in Compensation Decisions.
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 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 of the sale of
Registrant's properties. The Remaining Original Cash Contribution as of December
31, 1997 was $1,160,000. For the fiscal years ended December 31, 1997 and
December 31, 1996, Registrant paid or accrued, pursuant to such paragraph
11A(3), guaranteed payments to the
-29-
General and Special Limited Partners in an aggregate amount of $101,500 as
follows: Harry B. Helmsley - $67,566 (payable to Leona M. Helmsley in respect of
the Converted Special L.P. interest), Irving Schneider - $33,732, Helmsley-Noyes
Company, Inc. - $91, H Associates - $10, 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 operating income of Registrant. During the fiscal year ended December 31,
1997, Registrant accrued in connection with such annual payments an aggregate of
$238,125 as follows: Harry B. Helmsley - $150,814 (payable to Leona M. Helmsley
in respect of the Converted Special L.P. Interest), Irving Schneider - $71,437,
Helmsley-Noyes Company, Inc. - $7,145, H Associates - $792, and Minlyn, Inc. -
$7,937. During the fiscal year ended December 31, 1996, Registrant accrued in
connection with such annual payments an aggregate amount of $261,499 as follows:
Harry B. Helmsley - $165,618, Irving Schneider - $78,449, Helmsley-Noyes
Company, Inc. - $8,716 and Minlyn, Inc. - $8,716. The total accrual to the
General Partners and their affiliates in 1997 and 1996 in respect of their
Original Cash Contribution and right to 1/2% of gross operating income were as
follows: Leona M. Helmsley and Harry B. Helmsley - $226,418 and $242,001,
respectively; Irving Schneider and his affiliates - $113,207 and $120,998,
respectively. Mr. Schneider also is entitled to receive distributions of net
operating revenues in his capacity 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, or a defined benefit or actuarial plans. The
Registrant has no standard arrangements for payment of fees General Partners
(other than for their interest as General Partners, as described above), or
employment contracts or change-in-control arrangements.
-30-
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. 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, 1997:
Amount and
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- --------- --------
Special Limited Leona M. Helmsley - 66.66
Partnership Interest Direct
Irving Schneider - 33.34
Direct (2)
-31-
Amount and
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- --------- --------
Converted Special L.P. Leona M. Helmsley Direct 100.00%
Interest
Participation Leona M. Helmsley 282,377(1) 34.44%
Interests
Irving Schneider 90,095 10.99
Direct (2)
John D. and Catherine T. 87,000 10.61
MacArthur Foundation c/o Direct
Cyrus Smith
Chief Financial Officer
Foundation Land Company
4176 Burns Road
Palm Beach Garden, FL
33410-4653
- ---------------
(1) Includes: 258,877 PPIs owned directly by Mrs. Helmsley; 4,000 PPIs held by
Helmsley-Noyes Company, Inc. (.5%), a company owned by Helmsley
Enterprises, 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%) and 6,500 PPIs held by Park Lane Hotel, Inc.
(.8%). See Item 10 hereof as to H ownership of Helmsley-Noyes Company,
Inc. HBH Holdings Corp. and Park Lane Hotel, Inc. are wholly-owned by
Helmsley Enterprises, Inc. Mrs. Helmsley is the executor of the estate of
Harry B. Helmsley and is the beneficiary of the Revocable Trust.
Consequently, Mrs. Helmsley may be deemed to be the beneficial owner of
such securities.
(2) Does not include 31,960 Participation Interests owned by Mr. Schneider's
daughters (3.9%).
(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, 1997 of each class of
partnership interests by its General Partners individually and as a group:
-32-
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 (1) 90.91
Leona M. Helmsley Indirect(2) 9.09
As a group 100.00 (2)
Special Limited Leona M. Helmsley Direct (3) 66.66
Partnership Interests
Irving Schneider Direct (3) 33.34
As a group 100.00
Converted Special Leona M. Helmsley Direct 100.00%
Limited Partner Interests
Participation Interests Leona M. Helmsley 282,377(4)(5) 34.44
Irving Schneider 90,095 10.99
Direct (5)
As a group 372,472(4)(5) 45.42
- -------------
(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) Leona M. Helmsley is the sole owner of H Associates, which is a General
Partner of Registrant and, indirectly, is the beneficial owner of
Helmsley-Noyes, Company, Inc., also a General Partner of Registrant.
(3) 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."
(4) Includes: 258,877 PPIs owned directly by Leona M. Helmsley; also 4,000
PPIs held by Helmsley-Noyes Company, Inc. (.5%), a company owned by
Helmsley Enterprises, 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%) and 6,500 PPIs held by Park Lane
Hotel, Inc. (.8%). HBH Holdings Corp. and Park
-33-
Lane Hotel, Inc. are wholly-owned by Helmsley Enterprises, Inc. Mrs.
Helmsley is the executor of the estate of Harry B. Helmsley and is the
beneficiary of the Revocable Trust. Consequently, Mrs. Helmsley may be
deemed to be the beneficial owner of such securities.
(5) Does not include 31,960 Participation Interests owned by Mr. Schneider's
daughters (3.9%).
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, 1997
Registrant paid certain fees and certain guaranteed payments to each of its
corporate General Partners, Helmsley-Noyes Company, Inc. and Minlyn, Inc.,
pursuant to the Partnership Agreement. See Item 10 hereof as to the ownership of
said corporations.
Helmsley-Spear, Inc., either directly or through various subsidiaries,
acts as managing agent of the Properties. For such management and leasing
brokerage services, Helmsley-Spear, Inc. charged Registrant the aggregate sum of
approximately $2,098,318 during the fiscal year ended December 31, 1997. Leasing
commissions charged by Helmsley-Spear, Inc. are based upon varying percentages
of the annual rent paid by tenants obtained by Helmsley-Spear, Inc. Property
management fees charged by Helmsley-Spear, Inc. are based upon negotiated
amounts that are believed to be below market rate. Leasing fees charged by
Helmsley-Spear, Inc. 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. Prior to September 24, 1997, Mr.
Helmsley or his estate, was the indirect owner of substantially all of the
capital stock of Helmsley-Spear, Inc. and Mr.
-34-
Schneider was a stockholder of Helmsley-Spear, Inc. and Executive Vice President
of that company. On September 24, 1997, Mr. Schneider became a principal owner
of Helmsley-Spear, Inc. which, previously, had been owned by Harry B. Helmsley
or his estate. 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.
Registrant purchases some of its maintenance supplies and materials from
Deco Purchasing Co. Inc., an affiliate of one of its partners. During 1994,
Registrant also borrowed $18 million from Irving Schneider and an affiliate of
Harry Helmsley pursuant to the Affiliate Loans. See Item 1(a) above.
(c) Indebtedness of Management.
None.
PART IV
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 (according to the numbers assigned to them in Item
601 of Regulation S-K):
(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.
-35-
(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.
(b) Reports on Form 8-K filed during the period covered by this
Report: None.
(c) Exhibits -- None.
(d) Financial Statement Schedules -- The response to this portion
of Item 14 is submitted as a separate section of this report.
(27) Financial Data Schedule
-36-
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, 1997
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, 1997 and 1996....................................S-2
Statements of Income-Years Ended December 31, 1997,
1996 and 1995........................................................S-3 and S-4
Statements of Changes in Partners' Capital (Deficiency)-
Years Ended December 31, 1997, 1996 and 1995.................................S-5
Statements of Cash Flows-Years Ended December 31, 1997,
1996 and 1995................................................................S-6
Notes to Financial Statements........................................S-7 to S-19
The following financial statement schedule of Investment
Properties Associates is included in Item 14(d):
Schedule III-Real Estate and Accumulated Depreciation..............S-20 and S-21
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, 1997 and 1996,
and the related statements of income, changes in partners' capital (deficiency)
and cash flows for each of the years in the three year period ended December 31,
1997. Our audits also included the financial statement schedule listed in the
index at Item 14(a). 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three year period ended December 31,
1997, in conformity with generally accepted accounting principles. 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.
ERNST & YOUNG LLP
New York, New York
April 2, 1998
S-1
Investment Properties Associates
(A New York Limited Partnership)
Balance Sheets
1997 1996
----------------------------
Assets
Real estate, at cost (Notes 3, 5 and 14) $136,524,047 $138,214,361
Less accumulated depreciation and
amortization 95,613,778 95,710,079
-----------------------------
40,910,269 42,504,282
Cash and cash equivalents 2,240,190 5,187,591
Due from managing agent (Helmsley-
Spear Inc.) including tenants'
security deposit of $1,595,372 (1997)
and $1,587,384 (1996) (Note 6) 2,712,979 2,081,585
Receivables, principally for rentals 1,459,925 1,443,576
Deferred charges, including deferred leasing
commissions of $3,329,055 (1997)
and $3,225,134 (1996)(Note 6) 6,262,613 4,176,623
-----------------------------
Total assets $ 53,585,976 $ 55,393,657
=============================
Liabilities and partners' capital (deficiency)
Accounts payable $ 2,210,354 $ 2,755,221
Accrued real estate taxes 4,884,856 4,630,585
Accrued interest 393,144 396,153
Distributions payable to General Partners,
Special Limited Partners and Limited
Partner (Note 9) 25,234,597 20,761,396
Guaranteed payments due to General
Partners, Special Limited Partners and
Limited Partner (Note 7) 384,625 393,000
Accrued leasing commissions and
management fees due to Helmsley-
Spear, Inc. (Note 6) 772,348 1,216,015
Sundry and accrued liabilities 847,668 1,830,035
Notes payable to related parties(Note 4) 18,000,000 18,000,000
Mortgages payable (Note 5) 36,847,488 40,314,558
Deposits and rents received in advance of
$119,174 (1997) and $96,613 (1996) 1,981,789 1,946,639
-----------------------------
Total liabilities 91,556,869 92,243,602
-----------------------------
Commitments and contingencies (Notes 11, 12
and 13)
Partners' capital (deficiency)
(Notes 1, 7, 8 and 9):
General Partners (3,089,297) (8,388,913)
Special Limited Partners (50,128,009) (44,098,397)
Limited Partner (represented by
the equivalent of 820,000
Participation Interests) 15,246,413 15,637,365
-----------------------------
(37,970,893) (36,849,945)
-----------------------------
Total liabilities and partners'
capital (deficiency) $ 53,585,976 $ 55,393,657
=============================
See accompanying notes.
S-2
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income
Year ended December 31,
1997 1996 1995
---------------------------------------
Revenues:
Gross revenues from
real estate (Note 12) $46,463,473 $52,216,081 $53,879,055
Interest and other income 1,144,284 74,663 109,309
---------------------------------------
$47,607,757 52,290,744 53,988,364
---------------------------------------
Expenses:
Leasehold rentals (Note 11) 563,446 929,787 1,258,903
Real estate taxes 9,418,042 9,883,375 10,496,407
Interest (Notes 4 and 5) 4,690,344 4,879,233 5,394,017
Management fees (Note 6) 1,373,436 1,460,004 1,506,896
Payroll and related expenses 5,026,993 5,208,172 5,379,123
Repairs and maintenance expenses 2,928,374 3,530,972 2,964,873
Other property expenses 9,645,887 11,753,758 12,198,128
Administrative expenses 239,602 236,072 195,661
Co-owners' share of
(expense) income 60,817 53,766 75,638
Depreciation and
amortization of real estate 3,349,946 3,447,071 3,487,384
Amortization of leasing
commissions 1,122,721 1,128,228 1,127,422
Amortization of mortgage
refinancing costs 91,775 184,266 188,152
---------------------------------------
38,511,383 42,694,704 44,272,604
---------------------------------------
Income before items shown below 9,096,374 9,596,040 9,715,760
Loss on abandonment of real
estate (Note 3) -- 765,972 --
Loss on sale of real
estate (Note 3) 14,913 -- --
---------------------------------------
Income before guaranteed payments
required under the Limited
Partnership agreement (Note 7) $ 9,081,461 $ 8,830,068 $ 9,715,760
See accompanying notes.
S-3
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income (continued)
Year ended December 31,
1997 1996 1995
---------------------------------------
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 238,125 261,499 267,919
---------------------------------------
354,625 377,999 384,419
---------------------------------------
Net income $8,726,836 $8,452,069 $9,331,341
=======================================
Net income allocable
as follows: (Note 8)
General Partners $ 40,829 $ (633,678) $ 136,162
Special Limited Partners 4,153,067 4,277,582 4,402,586
Limited Partner 4,532,940 4,808,165 4,792,593
---------------------------------------
$8,726,836 $8,452,069 $9,331,341
=======================================
Net Income Per Limited
Partner Participation Interest
(820,000 units outstanding): $ 5.5280 $ 5.8636 $ 5.8446
=======================================
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 Partner
-------------------------------------------------------------------------
Partners' Capital (Deficiency)
December 31, 1994 $(33,744,329) $(7,578,062) $(42,647,387) $16,481,120
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 9) (10,406,432) (156,096) (5,047,120) (5,203,216)
Net income for the year ended
December 31, 1995 9,331,341 136,162 4,402,586 4,792,593
-----------------------------------------------------------------------
Partners' Capital (Deficiency)
December 31, 1995 (34,819,420) (7,597,996) (43,291,921) 16,070,497
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 9) (10,482,594) (157,239) (5,084,058) (5,241,297)
Net income for the year ended
December 31, 1996 8,452,069 (633,678) 4,277,582 4,808,165
-----------------------------------------------------------------------
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 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
=======================================================================
See accompanying notes.
S-5
Investment Properties Associates
(A New York Limited Partnership)
Statements of Cash Flows
Year ended December 31,
1997 1996 1995
---------------------------------------------
Operating activities:
Net income $ 8,726,836 $ 8,452,069 $ 9,331,341
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 4,564,442 4,759,565 4,802,958
Loss on abandonment
of real estate -- 765,972 --
Loss on sale of real estate 14,913 -- --
Changes in operating assets
and liabilities:
Due from managing agent (631,394) 659,072 (501,119)
Receivables (16,349) (160,659) 29,618
Deferred charges, net (3,304,107) (1,820,797) (1,089,557)
Accounts payable (544,867) 225,737 (594,366)
Accrued real estate tax 254,271 66,315 (449,205)
Accrued interest (3,009) (38,373) (100,058)
Guaranteed payments due
to General Partners
Special Limited Partners
and Limited Partner (8,375) 8,580 8,672
Accrued leasing commissions
and management fees (443,667) 701,176 (29,374)
Sundry and accrued liabilities (982,367) (929,238) (224,877)
Deposits and rents
received in advance 35,150 225,743 6,561
---------------------------------------------
Net cash provided by
operating activities 7,661,477 12,915,162 11,190,594
---------------------------------------------
Investing activities:
Property improvements (2,208,474) (2,438,279) (3,827,196)
---------------------------------------------
Net cash used in investing
activities (2,208,474) (2,438,279) (3,827,196)
---------------------------------------------
Financing activities:
Distributions of net operating
revenues to General Partners,
Special Limited Partners
and Limited Partner (5,374,588) (5,330,917) (5,366,517)
Principal payments
on mortgages payable (3,025,816) (3,048,784) (3,045,388)
---------------------------------------------
Net cash used in
financing activities (8,400,404) (8,379,701) (8,411,905)
---------------------------------------------
(Decrease) increase in
cash and cash equivalents (2,947,401) 2,097,182 (1,048,507)
Cash and cash equivalents
at beginning of year 5,187,591 3,090,409 4,138,916
---------------------------------------------
Cash and cash equivalents
at end of year $ 2,240,190 $ 5,187,591 $ 3,090,409
=============================================
Supplemental disclosure of
cash flow information
Cash paid during the year
for interest $ 4,693,353 $ 4,917,606 $ 5,494,075
=============================================
See accompanying notes.
S-6
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements
December 31, 1997
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").
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.
Following Mr. Helmsley's death, IPA announced that all of the properties
included in the portfolio were available for sale. On July 24, 1997, IPA
announced that it was no longer pursuing a sales effort at that time.
2. Significant Accounting Policies
a. The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities
S-7
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
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 as earned.
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 1997, 1996 and 1995 IPA paid
approximately $673,000, $750,000, and $820,000, 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.
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:
S-8
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
(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 notes payable to related parties
approximates fair value as such notes are variable rate debt
which re-prices monthly.
(iii) The carrying value of mortgages payable approximates fair
value due to the short term maturities of the notes.
i. 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. No indicators of impairment were present, and,
accordingly no provisions for impairment have been recorded in any
of the periods presented.
j. In 1997, the Financial Accounting Standards Board issued FASB
Statement No. 128, "Earnings Per Share". Statement 128 replaced the
calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of
options, warrants, and convertible securities. Diluted earnings per
share is very similar to fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128
requirements.
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.
k. Certain balances in the 1996 and 1995 financial statements have been
reclassified to conform to the current year presentation.
S-9
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
3. Real Estate
Real estate excludes co-owners' shares in two properties and is summarized as
follows:
Classification 1997 1996
------------------------------------------------------------------------------
Land $ 21,349,575 $ 21,748,439
Buildings and building improvements 79,852,946 81,424,292
Leaseholds and leasehold improvements 22,008,106 22,010,223
Tenants' alterations 13,313,420 13,031,407
-----------------------------
$136,524,047 $138,214,361
=============================
On July 14, 1997, as part of a settlement with the mortgagee of the 24 Commerce
Street property, IPA transferred title to this property to a third party and was
relieved of liability for the then outstanding balance of the mortgage loan of
$441,254. In connection with this transaction, IPA recognized a loss of $14,913.
On July 1, 1996 IPA terminated the ground lease at the property located at 744
Broad Street in Newark, New Jersey in accordance with the terms of the lease. In
connection therewith, IPA surrendered the improvements on the property to the
lessor incurring a loss on abandonment of real estate of $765,972 for the year
ended December 31, 1996.
4. Notes Payable
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.
The affiliate notes bear interest at a variable rate based on the Chase prime
rate and are payable on demand. Interest expense for the year ended December 31,
1997 and 1996, with respect to the Notes was $1,540,750 and $1,513,625,
respectively.
S-10
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
5. Mortgages Payable
As of December 31, 1997 and 1996 mortgages payable consist of the following:
Interest Balance Balance
Rate at Outstanding Outstanding
December Maturity December December
Description 31, 1997 Date 31, 1997 31, 1996
- --------------------------------------------------------------------------------
Chase Manhattan Bank (1) (4):
Mortgage loans with
variable interest rates
collateralized by:
1440 Broadway, N.Y., N.Y 8.05% 01/02/99 $15,062,428 $16,442,428
261 Fifth Avenue, N.Y., N.Y 8.05% 01/02/99 9,467,810 10,307,810
245 Fifth Avenue, N.Y., N.Y 8.05% 01/02/99 8,317,250 9,097,250
Apple Bank for Savings (2) (4):
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) 8.50% 4/24/98 4,000,000 4,000,000
First Union National Bank (3)(4):
Mortgage loans with fixed interest
collateralized by the Federal
Trust Building in Newark, N.J 7.375% 11/24/97 -- 467,070
------------------------
Total $36,847,488 $40,314,558
========================
S-11
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
5. Mortgages Payable (continued)
(1) 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 December 20, 1996 IPA accepted an early surrender of space located at
1440 Broadway, New York, New York, in exchange for an early termination
payment of $1,000,000 which was recorded as income at December 31, 1996.
In consideration of Chase consenting to the early termination, IPA agreed
to invest $1,000,000 for leasing costs and capital improvements at 1440
Broadway.
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. The maturity date was extended through the earlier of (a)
January 2, 1999, or (b) the first date on which IPA fails to make a
scheduled principal payment. The scheduled principal payments of the
mortgage loans are to be made as follows; March 15, 1998 - $1,000,000
(which payment was made), June 15, 1998 - $1,000,000, September 15, 1998 -
$500,000, and December 15, 1998 - $500,000.
(2) The loan with Apple Bank for Savings ("Apple") matured on November 24,
1997, and the loan is in monetary default. Apple has granted a
forebearance period on the loan through April 24, 1998, during which
period interest is payable at Apple's prime rate (8.5% at December 31,
1997). IPA is currently negotiating refinancing alternatives with Apple.
(3) IPA was released from its obligation under the First Union National Bank
loan in connection with the sale of the property on July 14, 1997 (See
Note 3).
S-12
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
5. Mortgages Payable (continued)
(4) The carrying amounts of IPA's borrowings under mortgages and notes payable
approximate their fair value.
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 $2,098,318 (1997), $2,330,424, (1996) and $2,362,700 (1995).
Additionally, IPA purchases some of its maintenance supplies and materials from
Deco Supplies Co. ("Deco"), an affiliate of one of its partners. Such purchases
aggregated approximately $61,000 (1997) $23,000, (1996) and $13,000 (1995).
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, 1997, 1996, and 1995). 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-13
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-14
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-15
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 1997, 1996 and 1995, Net Operating Revenues, as defined in the Limited
Partnership Agreement, amounted to $9,174,787, $8,342,911 and $9,857,034,
respectively. At December 31, 1997, 1996 and 1995, IPA accrued distributions
amounting to $9,847,784, $10,482,594, and $10,406,432, respectively of which
$4,923,892, $5,241,297 and $5,203,216, respectively, are distributable to the
Holders of Participation Interests. At December 31, 1997, distributions payable
include the 1997, 1996 and 1995 accrued distributions payable to the General and
Special Limited Partners.
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,
1997, 1996 and 1995 was $9,782,211, $8,914,979 and $10,406,032 respectively, as
compared with the net income of $8,726,836, $8,452,069, and $9,331,341,
respectively, shown in the statements of income. A reconciliation of the
differences between income as reflected in the accompanying statements of income
and the amount of income for federal tax purposes is as follows:
S-16
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
10. Income Taxes (continued)
December 31,
1997 1996 1995
------------------------------------------
Net income per statements of income $ 8,726,856 $8,452,069 $ 9,331,341
Depreciation and amortization 1,083,904 1,149,617 1,179,550
Loss on sale of property (50,660) -- --
Loss on abandonment of property -- (801,642) --
Other, net 22,111 114,935 (104,459)
------------------------------------------
Income for federal tax purposes $ 9,782,211 $8,914,979 $10,406,432
==========================================
11. Lease Obligations
IPA is obligated under certain non cancelable ground leases which require
minimum rentals and in most instances, payments for real estate taxes and
certain other expenses. Certain of the leases contain renewal options. Minimum
annual rentals exclusive of renewal options under such leases are:
Years ending December 31:
1998 $ 532,000
1999 532,000
2000 532,000
2001 532,000
2002 532,000
Thereafter 23,435,000
-----------
$26,095,000
===========
S-17
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
12. 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 1997, 1996 and 1995 are $1,089,301, $1,745,212,
and $1,946,428, respectively, representing revenue from escalations and
percentage rentals, and for the year ended 1997, 1996 and 1995, approximately
$256,000, $1,400,000 and $950,000, respectively, received in connection with
lease cancellations with former tenants.
The following is a schedule by years of minimum future rentals on noncancelable
operating leases as of December 31, 1997, 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:
1998 $ 37,403,000
1999 32,462,000
2000 22,045,000
2001 16,204,000
2002 12,506,000
Thereafter 32,521,000
------------
Total minimum future rentals $153,141,000
============
S-18
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
13. Recently Issued Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (Statement 131). Statement 131 establishes
standards for public business enterprises to report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Statement 131 is effective
for financial statements for fiscal years beginning after December 15, 1997. and
therefore IPA will adopt the new requirements in 1998. Management has not
completed its review of Statement 131, but does not anticipate that the adoption
of this Statement will have a significant effect on the IPA's financial
statements.
14. 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.
15. Subsequent Events
On January 22, 1998 IPA closed escrow on the sale of the 1180 Raymond Boulevard
ground lease for a sales price of $1,350,000. The sale resulted in a gain of
approximately $648,000.
S-19
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
Co. A Col. B Col. C Col. D Col. E
- -----------------------------------------------------------------------------------------------------------------------------
Gross Amount
Initial Cost of Company at Which Carried Close of Period
--------------------------- Improvements --------------------------------------
Capitalized Buildings
Buildings and Subsequent to and
Description Encumbrances Land Improvements Acquisition Land Improvements Total
- -----------------------------------------------------------------------------------------------------------------------------
Raymond Commerce Building,
(leasehold) Newark, New $ 7,220,632 $ 683,048 $ 7,903,680 $ 7,903,680
Jersey
59 East Van Buren Building,
Chicago, Illinois $ 692,284 1,780,158 610,638 $ 692,284 2,390,796 3,083,080
Midland Savings Building,
Midland, Texas 593,787 4,354,441 286,307 349,087 2,717,362 3,066,449
One La Salle Building,
Chicago, Illinois 2,968,499 13,359,878 2,977,825 2,968,499 16,337,703 19,306,202
360 No. Michigan Building
(leasehold), Chicago, 5,442,873 1,930,803 7,373,676 7,373,676
Illinois
73-1/3% Interest in 6 North
Michigan Avenue Building,
Chicago, Illinois 1,830,012 2,521,979 1,244,934 1,830,012 3,766,913 5,596,925
1440 Broadway, Building
New York, New York $ 15,062,428 4,938,421 10,864,525 6,336,200 4,938,421 17,530,840 22,469,261
One North Dearborn
Building*, Chicago, 5,289,594 13,359,927 6,024,123 5,289,594 19,384,050 24,673,644
Illinois
261 Fifth Avenue, Building
New York, New York 9,467,810 987,731 8,695,910 8,186,504 987,731 16,882,414 17,870,145
Marbridge Building, New
York, New York (a) 4,000,000 2,765,881 1,877,196 1,289,420 2,765,881 3,166,616 5,932,497
Mojud Building, Long Island
City, New York 346,514 643,526 459,575 346,514 1,103,101 1,449,615
Edgewood and Bellway
Shopping Centers, 447,893 -- --
Houston, Texas
570 Broad Street Building
Newark, New Jersey 502,032 5,937,404 1,549,324 502,032 7,368,812 7,870,844
245 Fifth Avenue Building,
New York, New York 8,317,250 679,520 2,080,700 7,167,809 679,520 9,248,509 9,928,029
-------------------------------------------------------------------------------------------------
Totals $ 36,847,488 $22,042,168 $78,139,149 $38,746,510 $21,349,575 $115,174,472 $136,524,047
=================================================================================================
* Formerly State-Madison Building.
Co. A Col. F Col. G Col. H
- ------------------------------------------------------------------------
Life on which
Depreciation in
Latest Income
Accumulated Date of Statements is
Description Depreciation Construction Computed
- -------------------------------------------------------------------------
Raymond Commerce Building,
(leasehold) Newark, New $ 7,217,544 1930 29.3
Jersey
59 East Van Buren Building,
Chicago, Illinois 2,224,485 1931 24.3
Midland Savings Building,
Midland, Texas 3,066,449 1959 34.3
One La Salle Building,
Chicago, Illinois 14,685,253 1930 29.3
360 No. Michigan Building
(leasehold), Chicago, 6,868,319 1923 24.3
Illinois
73-1/3% Interest in 6 North
Michigan Avenue Building,
Chicago, Illinois 3,192,283 1893 19.3
1440 Broadway, Building
New York, New York 13,849,604 1925 24.3
One North Dearborn
Building*, Chicago, 17,203,739 1903 19.3
Illinois
261 Fifth Avenue, Building
New York, New York 12,440,900 1928 24.3
Marbridge Building, New
York, New York (a) 2,588,000 1907 19.3
Mojud Building, Long Island
City, New York 906,369 1916 19.3
Edgewood and Bellway
Shopping Centers, -- 1957 24.3
Houston, Texas
570 Broad Street Building
Newark, New Jersey 5,158,015 1962 34.3
245 Fifth Avenue Building,
New York, New York 6,212,818 1923 24.3
-------------
Totals $ 95,613,778
=============
S-20
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation (continued)
December 31, 1997
(a) Amounts shown represent 50% of amounts applicable to a tenancy in common,
in which IPA has an undivided one-half interest.
(b) Reconciliation of "Real Estate and Accumulated Depreciation":
Year ended December 31,
------------------------------------------------
1997 1996 1995
------------------------------------------------
Investment in Real Estate
Balance at beginning of year $ 138,214,361 $ 141,282,613 $ 138,759,013
Sale of real estate (2,606,881) -- --
Abandonment of real estate 2,208,474 (4,183,692) --
Improvements and additions 2,438,279 3,827,196
Fully depreciated assets
written off during
the year (1,291,907) (1,322,839) (1,303,596)
------------------------------------------------
Balance at end of year $ 136,524,047 $ 138,214,361 $ 141,282,613
================================================
Accumulated Depreciation
Balance at beginning of
year $ 95,710,079 $ 97,003,567 $ 94,819,779
Depreciation charged to
costs and expenses 3,349,946 3,447,071 3,487,384
Less amounts applicable
to sale of real estate (2,154,340) -- --
Less amounts applicable
to abandonment of real
estate -- (3,417,720) --
Less amounts applicable to
fully depreciated
assets written off
during the year (1,291,907) (1,322,839) (1,303,596)
------------------------------------------------
Balance at end of year $ 95,613,778 $ 95,710,079 $ 97,003,567
================================================
The aggregate cost of real estate assets for Federal income tax purposes
amounted to $132,029,646 (1997), $132,590,090 (1996), and $134,841,652 (1995).
S-21
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 15, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Irving Schneider General Partner,
- -------------------------- Principal Executive,
Irving Schneider Financial and
Accounting Officer
General Partner
MINLYN, INC.
By: /s/ Irving Schneider
-----------------------
Irving Schneider
President
HELMSLEY-NOYES COMPANY, INC. General Partner
By: /s/ John Trainor
-----------------------
John Trainor
Senior Vice President
H ASSOCIATES LLC General Partner
By:_______________________
_________________, Manager