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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number: 0-5537
INVESTMENT PROPERTIES ASSOCIATES
(Exact Name of Registrant as specified in its charter)
A New York Limited Partnership 13-2647723
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 687-6400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
820,000 Participations in Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant -- Not applicable.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes_________ No_________
Documents Incorporated by Reference -- None.
PART I
This report contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of any number of factors discussed herein including, without
limitation, under the captions "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." When used in this
report, the words "anticipate," "estimate," "intend," "believe," "project," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected, estimated, intended, believed or projected.
Item 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 would have
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involved substantial transfer tax, insurance premium costs and other related
expenses and no benefit to the partners of Registrant or to the holders of
Participation Interests ("Participation Interests" or "PPIs") in the limited
partnership interest of the limited partner of Registrant. Accordingly,
Registrant obtained the approval of the holders of a majority of the PPIs to,
among other things, amend the Agreement to permit the remaining General Partners
to elect to continue the business of Registrant in the event of the death of a
General Partner and to make such election with respect to the death of Mr.
Helmsley. Such amendments were effective on May 30, 1997 (the "Amendments"). As
contemplated by the amended Partnership Agreement, effective July 3, 1997, H
Associates LLC ("H Associates"), an entity owned by Leona M. Helmsley, was
admitted as a General Partner of Registrant. H Associates' economic interest in
Registrant was acquired from Helmsley-Noyes Company, Inc., also a General
Partner of Registrant.
On June 10, 1998, ScogBell Acquisition, L.L.C., a Delaware limited
liability company ("ScogBell"), purchased from Leona Helmsley all of her
interests in Registrant. The interests from this sale that were acquired by
ScogBell from Leona Helmsley included, among other things, general partnership
interests (0.05%), special limited partnership interests (33.29%) and an
aggregate of 282,377 Participation Interests. Also on June 10, 1998, ScogBell
acquired 28,550 Participation Interests in the over-the-counter market. As a
result, ScogBell became a beneficial owner of 310,927 Participation Interests in
IPA which represents 37.9% of the outstanding Participation Interests.
At December 31, 1998, Registrant owned fee titles to, or leasehold estates
in, six commercial properties, a 50% interest in one commercial property, and
fee title to two unimproved real properties (collectively, the "Properties").
The Properties are located in New
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York, New York; Midland, Texas; Houston, Texas; and Newark, New Jersey. During
1998, Registrant sold six of its properties.
On January 22, 1998, Registrant, as ground tenant, sold its leasehold
interest in its ground lease with the City of Newark, New Jersey under the
property located at 1180 Raymond Blvd. in Newark. Consequently, Registrant was
relieved of liability for ground lease rent and real estate taxes on the
property from and after January 22, 1998. The leasehold interest was sold for
$1,350,000.
On September 28, 1998, Registrant sold its five Chicago commercial
properties (the "Chicago Properties") for $121,000,000. The sales proceeds from
the sale of the Chicago Properties were used to first pay mortgage debt
($10,000,000), Affiliate Loans ($18,000,000), closing costs, including brokerage
commissions paid to an affiliate of a General Partner ($3,500,000), accrued
distributions payable to General Partners, Special Limited Partners and Limited
Partners ($25,200,000) and other commitments ($7,300,000), aggregating
approximately $64,000,000. In accordance with Registrant's Partnership
Agreement, Registrant also made special distributions to its partners of record
on October 30, 1998 using the proceeds from the sale of the Chicago Properties
in the approximate amount of $57,000,000. The Chicago Properties represented a
total rentable area of approximately 2,093,000 square feet of Registrant's
Properties. During 1998, approximately 29% of Registrant's Gross Revenues from
Real Estate and 33% of Registrant's expenses were attributable to the Chicago
Properties.
On February 1, 1999, Registrant entered into a contract for the sale of
the Mojud Building in Long Island City, New York for a sales price of $6,500,000
for which Registrant has received a $650,000 deposit that is being held in
escrow pending the closing of the property. The expected closing date for this
property is on or before April 19, 1999.
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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 were due and payable on demand, bore interest at the
rate announced from time to time by Chase Bank, N.A. ("Chase") as its "prime
rate." Registrant paid $1,160,124 and $1,540,750 in interest under the Affiliate
Loans during 1998 and 1997, respectively. The Affiliate Loans were repaid in
October, 1998 from the proceeds of the sale of the Chicago Properties. See Item
2.
On December 1, 1994, Chase loaned $10,750,000 to Registrant, which funds
were used by Registrant to repay its 9% Junior Mortgage Bonds (the "Bonds") in
full on such date. Chase also agreed to extend the 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 defaults
among the properties that secure the Chase Loans. In addition, the Registrant
was given the option of paying interest on the Chase Loans based on LIBOR plus
2.25% or prime plus 0.375%. Pursuant to a Second Note Modification Agreement,
the maturity of the Chase Loans was extended to January 2, 1999. Effective
January 2, 1999, pursuant to an agreement with Chase, the maturity of the Chase
Loans was extended further to January 2, 2000 and require principal repayments
of $3,000,000 in 1999.
On November 9, 1998, Registrant received an extension to April 30, 1999 on
the maturity of its mortgage loan with Apple Bank pertaining to its 1328
Broadway property in New
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York City. The $8,000,000 first mortgage loan with Apple Bank on 1328 Broadway
in which Registrant has a 50% tenancy in common interest, which became due on
November 24, 1997 and was extended to April 24, 1999, has been extended further
to April 30, 1999, at an interest rate of 8.5% per annum. Registrant believes
that it will be able to refinance its mortgage loan from Apple Bank with respect
to its 1328 Broadway property in New York City.
During 1998, Registrant made principal payments of $13,000,000 in the
aggregate on its Chase Loans, including $10,000,000 from the proceeds of the
sale of the Chicago Properties to make these principal payments. The aggregate
principal amount of the Chase Loans at December 31, 1998 was $19,847,488.
(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
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one identifiable market segment and has no new products, uses no raw materials,
owns no patents, trademarks, licenses, franchises or concessions and expends no
sums for research and development. No material portion of Registrant's business
is seasonal in nature.
Registrant's needs for working capital are similar to those of other
owners and operators of commercial real property and, generally, are provided
for with cash generated from operations and, in some cases, borrowings.
Each property owned by Registrant competes with real properties of similar
function and quality in its geographic area. Commercial rental properties within
a given geographic area tend to compete on the basis of location, amenities and
price. Demand for commercial rental space is also dependent upon economic
conditions prevailing in the particular geographical area and the quantity of
suitable space in such area.
Registrant employs approximately 46 people who handle maintenance of
its properties. All of the Registrant's other operating functions, which consist
primarily of property leasing and property management services, are performed by
Helmsley-Spear, Inc. ("HSI") or affiliates of HSI, which entities may be deemed
to be affiliates of Registrant. Management fees and leasing commissions charged
by HSI aggregated approximately $1,969,600 in 1998, $2,098,300 in 1997 and
$2,330,400 in 1996. HSI also earned $3,025,000 in brokerage commissions in 1998
in connection with the sale of the Chicago Properties. Additionally, Registrant
purchases some of its maintenance supplies and materials from Deco Supplies Co.
("Deco"), which may be deemed an affiliate of one of its partners. No such
purchases were made in 1998 but purchases aggregated approximately $61,000 in
1997 and $23,000 in 1996. Registrant believes that such services and products
are supplied at prices that approximate those that would be available from
non-affiliates. See Item 13.
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Item 2. Properties.
General. At December 31, 1998, Registrant's Properties included fee titles
to, or leasehold estates in, six commercial properties, a 50% interest in one
commercial property, and fee title to two unimproved real properties. The
Properties are located in New York, New York; Midland, Texas; Houston, Texas;
and Newark, New Jersey. The Properties have a total rentable area of
approximately 2,274,000 square feet.
The table below sets forth a description of each of the Properties owned
by Registrant on December 31, 1998, its location, type of ownership and rentable
area in square feet.
Property Description Ownership Total Rentable
Area (Sq. Ft.)
New York, New York
1440 Broadway 25-story office bldg. Fee 690,000
261 Fifth Avenue 25-story office bldg. Fee 402,000
245 Fifth Avenue 26-story office bldg. Fee 287,000
Marbridge Building 11-story office bldg. 50% of Fee 357,000
(1328 Broadway)
Mojud Building(1) 5-story loft building Fee 181,000
(Long Island City)
Texas
Midland Savings Bldg. 14-story office bldg. Fee 167,000
(Midland)(2) (currently vacant)
_______________________
(1) On February 1, 1999, Registrant entered into a contract for the sale of
the Mojud Building in Long Island City, New York for a sales price of
$6,500,000. The expected closing date for this property is on or before
April 19, 1999.
(2) 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.
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Total Rentable
Property Description Ownership Area (Sq. Ft.)
- -------- ----------- --------- --------------
Edgewood Shopping Center
(Houston) Unimproved Land Fee --
Bellway Shopping Center Unimproved Land Fee --
(Houston)
New Jersey
570 Broad Street (Newark)(3) 14-story office bldg. Fee 190,000
On January 22, 1998, IPA sold its leasehold interest in its ground lease
with the City of Newark, New Jersey on the property located at 1180 Raymond
Blvd. in Newark. As a consequence of the transaction, IPA is relieved of
liability for ground lease rent and real estate taxes on the ground lease. IPA
was incurring operating losses of approximately $65,000 per month with respect
to 1180 Raymond Blvd. The leasehold interest was sold for $1,350,000.
On September 28, 1998, IPA sold its five Chicago Properties for
$121,000,000. The sale proceeds were applied first to the payment of mortgage
debt ($10,000,000), Affiliate Loans ($18,000,000), closing costs including
brokerage commissions paid to an affiliate of a General Partner ($3,500,000),
accrued distributions payable to General Partners, Special Limited Partners and
Limited Partners ($25,200,000) and other commitments ($7,300,000), aggregating
approximately $64,000,000. IPA made a special distribution to its partners
following the end of the September 30, 1998 quarter to partners of record on
October 30, 1998 in the approximate amount of $57,000,000. The Chicago
Properties represented a total rentable area of approximately 2,093,000 square
feet of Registrant's Properties. During 1998, approximately 29% of
_____________________________
(3) Vacant since 1996.
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Registrant's Gross Revenues from Real Estate and 33% of Registrant's expenses
were attributable to the Chicago Properties.
Additional Property Information. Three of Registrant's Properties
individually account for 10% or more of its total assets or revenues at December
31, 1998. Such properties are referred to above as 1440 Broadway, New York, New
York, 261 Fifth Avenue, New York, New York, and 245 Fifth Avenue, New York, New
York.
The estimated occupancy rate for the Registrant's 1440 Broadway property
for 1998, 1997, 1996, 1995 and 1994 was approximately 74%, 74%, 61%, 73% and
70%, respectively. The average annual base rent per leased square foot at such
property was approximately $22.90 in 1998, $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 1998, 1997, 1996, 1995 and 1994 was approximately 84% 80%, 80%, 78%
and 72%, respectively. The average rental per square foot at such property was
approximately $22.88 in 1998, $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 245 Fifth Avenue
property for 1998, 1997, 1996, 1995 and 1994 was approximately 78%, 74%, 67%,
57% and 56%, $20.50, respectively. The average rental per square foot at such
property was approximately $25.03 in 1998, $22.17 in 1997, $20.84 in 1996,
$20.38 in 1995 and $20.05 in 1994.
Registrant's 1440 Broadway property is a 25 story commercial office
building in midtown Manhattan. Three separate tenants, all of which are clothing
retailers, occupy 10% or more of the rentable area of such property. The rental
per annum of the first clothing retailer is $4,225,476 and its lease expires on
December 31, 1999, subject to two consecutive five year renewal options to 2004
and 2009 at then prevailing market rentals. The rental per annum of the
` - 10 -
second clothing retailer is $1,914,800 per year and such lease expires on
December 31, 2002 with no renewal options. In January, 1998, approximately
92,950 square feet was rented to a third clothing retailer whose lease expires
in 2013. The rental per annum through January 2003 under such lease is
approximately $1,431,000. From 2003 to 2008, the rental per annum will be
approximately $2,555,800. From 2008 to 2013, the rental per annum will be
approximately $2,931,700.
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 245 Fifth Avenue property is a 26 story building located in
midtown Manhattan. One tenant occupies 10% or more of the rentable area of such
property. The rental per annum is approximately $1,159,200 and the tenant has
three leases which expire on June 30, 1999 with respect to rent of approximately
$164,000, December 31, 1999 with respect to rent of approximately $695,500 and
December 31, 2002 with respect to rent of approximately $299,600.
While the New York commercial real estate market is highly competitive.
Registrant has achieved occupancy and rental rates at its New York properties
which have enabled it to operate these properties profitably. Registrant
believes that rental rates will remain high enough to operate these properties
profitably for the foreseeable future, although there can be no assurances in
this regard.
The following table sets forth certain information concerning lease
expirations for the Registrant's principal properties at December 31, 1998:
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1440 Broadway
Number of Total Leased % of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
- ---- ----------------- ----------- ------------- ------
1999 19 196,172 $4,217,922 35.4
2000 6 7,025 168,749 1.4
2001 3 26,470 900,759 7.6
2002 3 85,987 1,970,228 16.5
2003 2 7,518 236,032 2.0
2004 1 2,000 225,583 1.9
2005 4 13,884 882,173 7.4
2006 2 72,762 1,647,405 13.8
2007 0 0 0 0.0
2008 or later 3 96,546 1,667,113 14.0
-- ------- ----------- -----
Totals 43 508,364 $11,915,964 100.0
== ======= =========== =====
261 Fifth Avenue
Number of Total Leased % of Gross
Tenants whose Area in Annual
Year lease will expire Square Feet Annual Rental Rental
- ---- ----------------- ----------- ------------- ------
1999 23 58,739 $1,378,677 17.4
2000 16 45,466 1,025,200 12.9
2001 11 40,012 900,744 11.4
2002 11 35,584 813,105 10.3
2003 5 13,043 307,964 3.9
2004 4 38,743 978,143 12.4
2005 4 30,668 749,896 9.5
2006 0 0 0 0.0
2007 4 73,327 1,681,086 21.1
2008 or later 1 1,000 84,080 1.1
-- ------- ---------- ------
Totals 79 336,582 $7,918,895 100.0
== ======= ========== ======
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245 Fifth Avenue
Number of Total Leased % of Gross
Tenants whose Area in Annual
Year lease will expire Square Feet Annual Rental Rental
- ---- ----------------- ----------- ------------- ------
1999 18 73,850 $2,110,609 38.6
2000 5 9,505 246,547 4.5
2001 16 59,590 1,436,689 26.3
2002 13 45,213 1,023,543 18.7
2003 5 12,975 319,161 5.8
2004 2 9,607 190,655 3.5
2005 1 2,324 60,773 1.1
2006 1 4,684 84,312 1.5
2007 0 0 0 0
2008 or later 0 0 0 0
-- ------- ---------- -----
Totals 61 217,748 $5,472,289 100.0
== ======= ========== =====
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which Registrant is a
party or of which any of Registrant's property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of holders of PPIs at a meeting or
otherwise during the fourth quarter of 1998.
PART II
Item 5. Market for the Registrant's Participation Interests and Related Security
Holder Matters.
As discussed above, Registrant is a limited partnership. Participation
Interest, 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
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Securities Dealers Automated Quotations System ("NASDAQ") under the symbol
"IVPA." There is no regular market for these securities and quotations are
limited and sporadic.
The range of high and low closing bid quotations for PPIs in the
over-the-counter market for the two most recent years was as follows:
1998 1997
---- ----
High Low High Low
---- --- ---- ---
First Qtr. 85 70 1/8 60 38
Second Qtr. 102 72 1/2 85 57
Third Qtr. 119 99 1/2 86 65 1/2
Fourth Qtr. 110 61 71 61
The foregoing over-the-counter quotations represent prices between
dealers, do not include retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. As of December 31, 1998, there were
535 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
Minlyn, Inc.
ScogBell AG, Inc. (formerly known as
Helmsley-Noyes Company, Inc.)
ScogBell(1)
_____________________________
(1) Based upon information in a Schedule 13D filed by ScogBell on June 23,
1998, the Registrant believes that ScogBell was formed to acquire, hold,
finance and sell interests in the Registrant. By agreement among
ScogBell's members, the management and control of ScogBell is vested
exclusively in ScogBell AG Manager, Inc., a Delaware corporation, and
ScogBell SB Manager, Inc., a Delaware corporation, as managers.
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Converted Special L.P. Interest
ScogBell .95%
Special Limited Partners (as a group): 48.50%
ScogBell
Irving Schneider
Limited Partner (nominee for
holders of Partnership
Participation Interests): 50.0%
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 1998, Registrant had "net operating revenues" (as defined below), of
$9,803,570, of which $5,442,159 in the aggregate (or $6.64 per Participation
Interest) was distributed on March 31, 1999 to the holders of record as of
December 31, 1998 of Participation Interests. An aggregate of $5,442,159 in
respect of 1998 net operating revenues is required to be distributed to the
Special Limited Partners and General Partners identified above. Accrued
distributions with
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respect to net operating revenues for 1994, 1995, 1996 and 1997 aggregating
$20,310,705 were paid to the General Partners and Special Limited Partners, in
1998 using the proceeds of the sale of the Chicago Properties. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
In 1997, Registrant had "net operating revenues" of $9,174,787, of which
$4,923,892 in the aggregate (or $6.00 per Participation Interest, $0.48 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."
"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 generally 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. See "Item 7" below.
Four of Registrant's properties are encumbered by first mortgages, three
of which require payments of interest at variable rates. Consequently, if
interest rates on such variable rate
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mortgages were to increase, Registrant could have less funds available for
distribution to holders of Participation Interests.
Item 6. Selected Financial Data.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Income Statement Data
Gross revenues from real $43,454,081 $46,463,473 $52,216,081 $53,879,055 $52,739,194
estate
Net Income transferred to 112,747,733 8,726,836 8,452,069 9,331,341 8,702,453
Partner's capital accounts
Net operating revenues, as 9,803,570 9,174,787 8,342,911 9,857,034 10,212,572
defined
Net income per 60.4848 5.5280 5.8636 5.8446 5.4269
Participation Interest:
Balance Sheet Data
Total assets $49,762,234 $53,585,976 $55,393,657 $55,061,349 $55,524,560
Mortgages payable $23,847,488 $36,847,488 $40,314,558 $43,363,342 $46,408,730
Affiliate Loans -- $18,000,000 $18,000,000 $18,000,000 $18,000,000
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources:
Historically, Registrant's income for operations has been sufficient to
provide for its expenses. From time to time, however, Registrant has borrowed
funds to meet its short term liquidity needs. Registrant believes that its
properties are not overly leveraged and that, under normal market conditions, it
will be able to obtain additional financing as needed. The Registrant has sold
significant assets during 1998 and may sell assets in the future to discharge
its obligations.
On September 28, 1998, Registrant sold the Chicago Properties for
$121,000,000. The sales proceeds were used to first pay mortgage debt
($10,000,000), Affiliate Loans
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($18,000,000), closing costs, including brokerage commissions paid to an
affiliate of a General Partner ($3,500,000), accrued distributions payable to
General Partners, Special Limited Partners and Limited Partners ($25,200,000)
and other commitments ($7,300,000), aggregating approximately $64,000,000. In
accordance with Registrant's Partnership Agreement, Registrant also made special
distributions to its partners of record on October 30, 1998 using the proceeds
of the sale of the Chicago Properties in the approximate amount of $57,000,000.
On January 22, 1998, Registrant, as ground tenant, sold its leasehold
interest in its ground lease with the City of Newark, New Jersey under the
property located at 1180 Raymond Blvd. in Newark. Consequently, Registrant was
relieved of liability for ground lease rent and real estate taxes on the
property from and after January 22, 1998. The leasehold interest was sold for
$1,350,000.
On February 1, 1999, a contract for the sale of the Mojud Building in Long
Island City, New York was entered into for a sales price of $6,500,000 for which
Registrant has received a $650,000 deposit that is being held in escrow pending
the closing of title in respect of the property. The expected closing date for
this property is on or before April 19, 1999.
Pursuant to an agreement with Chase effective January 2, 1999, the
maturity of Registrant's Chase Loan having an outstanding principal balance of
$19,847,500 was extended to January 2, 2000. See "Business" above. Pursuant to
an agreement on November 9, 1998, the Registrant's mortgage loan with Apple Bank
pertaining to its 1328 Broadway property in New York City, which has an
outstanding balance of $8,000,000 of which Registrant is obligated for its 50%
tenancy in common interest of $4,000,000, was extended to a maturity date of
April 30, 1999. Registrant believes that it will be able to refinance its
mortgage loan from Apple Bank with respect to its 1328 Broadway property in New
York City.
Registrant is required to make certain cash distributions to its partners
for each year. See "Item 5." In October, 1998, payment of accrued distributions
to the General Partners and
- 18 -
Special Limited Partners aggregating $20,310,705 in respect of 1994 through 1997
net operating revenues were paid for with cash from the sale of the Chicago
Properties. Also in October, 1998, Registrant made a special distribution to its
partners of approximately $57,000,000 which was paid with cash from the sale of
the Chicago Properties. Registrant anticipates satisfying its working capital
requirements for 1999 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 $9.4 million
in 1998, as compared to $7.7 million in 1997. Such higher levels in 1998 were
primarily due to the improved performance of Registrant's Properties in New
York. Net cash used in financing activities was approximately $113.4 million in
1998, as compared to $8.4 million in 1997 which was due to the repayment of
indebtedness and payment of distributions using the proceeds from the sale of
the Chicago Properties. Net cash provided by investing activities was
approximately $115.6 million in 1998, as compared to net cash used in investing
activities of $2.2 million in 1997. Such an increase was attributable to the
proceeds received from the sale of the Chicago Properties.
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 bore interest at the rate announced from time to time by
Chase as its "prime rate" and were due and payable on demand. In October, 1998,
the Affiliate Loans were repaid using the proceeds from the sale of the Chicago
Properties. See "Item 2."
At December 31, 1998, Registrant has outstanding mortgage indebtedness in
connection with its Chase Loans of $19,847,488 which is secured by three of the
New York
- 19 -
properties. The Chase Loans bears interest at LIBOR plus 2.25% and require
principal repayments of $3,000,000 during 1999 with the balance due on the
maturity date of January 2, 2000.
During 1998, principal repayments on the Chase Loans of $13,000,000 were
made including a payment of $10,000,000 in connection with the sale of the
Chicago Properties. Registrant is also obligated for one-half of the $8,000,000
mortgage payable to Apple Bank which bears interest at 8.5% and which has a
maturity date of April 30, 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, 1998, Registrant has invested approximately $2,051,000 on tenant
improvements and leasing commissions at such property. 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 1999.
Four of Registrant's properties are encumbered by first mortgages, three
of which require payments of interest at variable rates. Consequently, if
interest rates on such variable rate mortgages were to increase, Registrant
could have less funds available for distribution to holders of Participation
Interests.
Year 2000 Disclosure:
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" or
"Y2K."
- 20 -
Registrant has been informed by its vendors that each has developed a plan
to address the affected informational (accounting, billing payroll) and
operational (HVAC, fire alarms, security, elevators, and lighting) systems of
Registrant.
Registrant has determined that the majority of its systems, including all
mission critical systems, are already Y2K compliant. Registrant also anticipates
that any issues encountered with informational or operational systems will be
remediated. Registrant expects that where appropriate all mission critical
systems will be tested by the close of the second quarter of 1999. The cost of
Registrant's compliance for Y2K was not material to 1998 operations and is not
expected to be material to 1999 operations.
- 21 -
Results of Operations:
1998 Compared to 1997
Gross revenues from rentals for 1998 decreased approximately $3,009,000
(approximately 7%) as compared to 1997, primarily due to decreases in revenue as
a result of the sale of the Chicago Properties offset in part by increases in
revenue from Registrant's New York properties. Net income for 1998 increased
approximately $104,000,000 primarily due to the sale of the Chicago Properties.
Total expenses decreased by approximately $5,294,000 (approximately 15%)
primarily as a result of decreases in leasehold rentals, interest, real estate
taxes, repairs and maintenance and other property operating expenses,
attributable to the sale of the Chicago Properties in September, 1998.
During 1998, approximately 8 tenants in various properties with an
aggregate annualized rental of approximately $236,000 vacated their premises
prior to the expiration of their leases. While leasing activity has recently
been more active in New York, it remains relatively flat in Newark. Although
Registrant anticipates continuing its practice of negotiating new leases and
renewing existing leases upon their expiration, there is no assurance that some
of Registrant's tenants will not go out of business, reduce their space
requirements or relocate.
For 1998, Registrant's interest expense decreased approximately $848,000
(approximately 18%), primarily due to lower levels of average outstanding
indebtedness resulting from mortgage principal repayments of $13,000,000 and
repayments of Affiliate Loans of $18,000,000.
- 22 -
Registrant's real estate tax expense in 1998 decreased approximately
$2,269,000 (approximately 24%), primarily due to the sale of the Chicago
Properties in September, 1998. Registrant, under certain commercial leases, 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 $251,000 (approximately 18%),
primarily due to the sale of the Chicago Properties in September, 1998.
Depreciation expenses decreased approximately $658,000 (approximately 14%),
primarily due to the sale of the Chicago Properties in September, 1998.
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 compared to 1996. Net income for 1997
increased approximately $275,000 (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. Although Registrant anticipates continuing its practice of
- 23 -
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 totaled $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 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.
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
- 24 -
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 leasehold interest was sold for $1,350,000. In connection with
such sale, past due property taxes on the property totaling $410,143 were paid
to the City of Newark with a portion of the sale proceeds.
Item 7A. Disclosures About Market Risk.
Registrant is exposed to interest rate risk on its variable rate
mortgages. On December 31, 1998, Registrant had total mortgage debt of
approximately $23,847,000 of which approximately $19,847,000 (or approximately
83%) is variable rate. All of Registrant's mortgage debt is scheduled to mature
within the next 12 months. If Registrant elects to refinance such mortgage debt
upon maturity, Registrant would seek to manage its interest rate risk
through the use of fixed rate debt or interest rate derivatives in conjunction
with variable rate debt. Registrant believes that it can refinance such mortgage
debt at commercially reasonable rates, although there can be no assurances in
this regard.
Item 8. Financial Statements and Supplementary Data.
The response to this Item is submitted in a separate section of this
report.
- 25 -
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. General Partners of the Registrant.
(a) (b) Identification of General Partners.
Registrant is a limited partnership. It does not have directors or
executive officers. The information set forth below is provided with respect to
the General Partners of the Registrant, who may be considered to occupy
positions equivalent to directors or executive officers. There is no specific
term of office for any General Partner of the Registrant. Each General Partner,
with the exception of ScogBell, has served in such capacity since December 4,
1969.
The names, ages, and business experience during the past five years of the
two individual General Partners of the Registrant, including their principal
occupations and 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 - 79; Executive Vice President of Helmsley-Spear, Inc.
Mr. Schneider has been in the real estate business for over 50 years and owns
and operates, individually or through partnerships, numerous real estate
investments.
Minlyn, Inc. was formed in 1968. All of its stock is owned by Mr.
Schneider. Mr. Schneider is a director of Reliance Group Holdings, Inc. and
Reliance Insurance Company.
Registrant has been advised that ScogBell was created in June, 1998 to
acquire, hold, finance and sell interests in Registrant. Control of ScogBell is
vested exclusively with ScogBell AG Manager, Inc. and ScogBell SB Manager, Inc.,
as managers.
- 26 -
ScogBell AG, Inc. (formerly known as Helmsley-Noyes Company, Inc.) was
incorporated in 1926. It is a real estate management firm in New York City.
It was acquired by ScogBell on June 10, 1998.
Harry B. Helmsley was a General Partner of Registrant until his death on
January 4, 1997. He was succeeded by H Associates on July 3, 1997. H Associates
acquired a nominal general partner interest from Helmsley-Noyes Corporation in
connection with its admission as a General Partner. On June 10, 1998, H
Associates ceased to be a General Partner of Registrant and was replaced by
ScogBell as a General Partner pursuant to a sale of its entire beneficial
ownership position. See "Business."
Item 11. Executive Compensation.
(a) General, (b) Summary Compensation Table, (c) Option/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)
Report on Repricing of Options/SARs, (j) Additional Information with Respect to
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions, (k) Board Compensation Committee Report on Executive Compensation,
(l) Performance Graph.
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
- 27 -
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, 1998 was $1,160,000. For the fiscal years ended December 31, 1998,
Registrant paid or accrued, pursuant to such paragraph 11A(3), guaranteed
payments to the General and Special Limited Partners in an aggregate amount of
$101,500 as follows: Irving Schneider - $33,732, ScogBell - $67,576, ScogBell
AG, Inc. (formerly known as Helmsley-Noyes Company, Inc.) - $91 and Minlyn, Inc.
- - $101.
Under the terms of the Partnership Agreement, since January 1, 1973, the
General Partners are entitled to receive an annual payment equal to 1/2% of the
gross operating income of Registrant. During the fiscal year ended December 31,
1998, Registrant accrued in connection with such annual payments an aggregate of
$214,703 as follows: Irving Schneider - $64,410, ScogBell AG, Inc. (formerly
known as Helmsley-Noyes Company, Inc.) - $6,442, ScogBell - $136,695, and
Minlyn, Inc. - $7,156. Mr. Schneider and ScogBell are entitled to receive
distributions of net operating revenues in each of their respective capacities
as Special Limited Partners. See "Item 5" above.
The Registrant does not provide any compensation to the General Partners
or the other persons in the form of option or stock appreciation right grants,
long-term incentive plans, or a defined benefit or actuarial plans. The
Registrant has no standard arrangements for payment
- 28 -
of fees to General Partners (other than for their interest as General Partners,
as described above), or employment contracts or change-in-control arrangements.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
(a) Registrant is a limited partnership. Except to the extent set forth
below, it does not have voting securities. The right to control the business of
Registrant is vested in the General Partners of Registrant by virtue of
provisions of the Partnership Agreement and Article 8A of the New York
Partnership Law.
The Partnership Agreement provides for modification or amendments of the
Partnership Agreement upon obtaining the consents or affirmative votes of
specified percentages of the Special Limited Partners and the Limited Partners,
each voting as a class. The sole limited partner votes as directed by the
holders of PPIs. To the extent that the Special Limited
- 29 -
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, 1998:
Amount and
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ------------------- ---------- --------
Special Limited ScogBell Direct 66.66
Partnership Interest 660 Madison Ave.
New York, NY 10021
Irving Schneider Direct(2) 33.34
880 Fifth Avenue
New York, NY
Converted Special L.P. ScogBell Direct 100.00
Interest 660 Madison Ave.
New York, NY 10021
Participation ScogBell 310,927(1) 37.92
Interests 660 Madison Ave.
New York, NY 10021
Irving Schneider 90,095 10.99
880 Fifth Avenue Direct(2)
New York, NY
(1) Based upon a Schedule 13D filed by ScogBell on June 23, 1998, the
Registrant believes that ScogBell was formed to acquire, hold, finance and
sell interests in the Registrant. By agreement among ScogBell's members,
management and control of ScogBell is vested exclusively in ScogBell AG
Manager, Inc., a Delaware corporation and ScogBell SB Manager, Inc., a
Delaware corporation, as managers. The following members of ScogBell hold
Participation Interests in Registrant in the following manner: 231,489
PPI's beneficially owned indirectly and 35,000 PPI's beneficially owned
directly by Scoggin, Inc; 224,489 PPI's beneficially owned indirectly and
35,000 PPI's beneficially owned directly by Scoggin Capital Management,
L.P.; 227,989 PPI's beneficially owned indirectly and 4,000 beneficially
owned directly by Curtis Schenker; 62,185 PPI's beneficially owned
indirectly by John M. Angelo; 227,989 PPI's beneficially owned indirectly
and 2,000 PPI's beneficially owned directly by Craig Effron; 224,489 PPI's
beneficially owned indirectly by ScogBell SB Manager, Inc.; 231,489 PPI's
beneficially owned indirectly and 35,000 PPI's beneficially owned directly
by S&E Partners, L.P.; 224,489 PPI's beneficially owned indirectly by
ScogBell SB Member, L.L.C.; 62,185 PPI's beneficially owned indirectly by
ScogBell AG Manager, Inc.; 62,185 PPI's beneficially owned indirectly by
Michael L. Gordon; 62,185 PPI's beneficially owned indirectly by Angelo,
Gordon & Co., L.P.; 62,185 PPI's beneficially owned indirectly by AG
Partners, L.P.; 62,185 PPI's beneficially owned indirectly by AG Class A
ScogBell Acquisition, L.L.C.; 62,185 PPI's beneficially owned indirectly
by AG Class B ScogBell Acquisition, L.L.C. and 62,185 PPI's beneficially
owned indirectly by ScogBell AG Manager, Inc. See "Business."
(2) Does not include 31,960 Participation Interests owned by Mr. Schneider's
daughters (3.9%).
- 30 -
(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, 1998 of each class of
partnership interests by its General Partners individually and as a group:
Amount and
nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ----------------- ---------- --------
General Partnership Irving Schneider
Interests 880 Fifth Avenue
New York, NY (1) 90.91
ScogBell
660 Madison Avenue
New York, NY 10021 Indirect 9.09
As a group 100.00(3)
Special Limited Partnership ScogBell
660 Madison Avenue
New York, NY 10021 Direct(2) 66.66
Interests
Irving Schneider Direct(2) 33.34
880 Fifth Avenue
New York, NY
As a group 100.00
Converted Special
Limited Partner Interests ScogBell
660 Madison Avenue
New York, NY 10021 Direct 100.00
Participation Interests ScogBell
660 Madison Avenue
New York, NY 10021 310,927(3) 37.92
Irving Schneider
880 Fifth Avenue
New York, NY 90,095 10.99
Direct(4)
As a group 401,022(2)(4) 48.91
(1) Mr. Irving Schneider owns approximately 90% of such interest directly and
10% indirectly through his ownership of Minlyn, Inc.; 60 East 42nd Street,
New York, New York, which is also a General Partner of Registrant.
(2) The Special Limited Partnership Interests have the rights set forth in the
Partnership Agreement and are not securities issued by Registrant. The
Converted Special L.P. Interest represents the economic interest in
Registrant formerly owned by Harry B. Helmsley in his capacity as a
General Partner. See "Business."
(3) Includes PPI's purchased from the following: 258,877 PPIs owned directly
by Leona M. Helmsley; also 4,000 PPIs held by Helmsley-Noyes Company, Inc.
(0.5%), a company owned by Helmsley 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%),
6,500 PPIs held by Park Lane Hotel, Inc. (0.8%) and 28,550 PPIs in the
over-the-counter market.
(4) Does not include 31,960 Participation Interests owned by Mr. Schneider's
daughters (3.9%).
- 31 -
Item 13. Certain Relationships and Related
Transactions.
(a) Transactions with Management and Others.
(b) Certain Business Relationships.
As set forth in Item 11(a) above, during the year ended December 31, 1998
Registrant paid certain fees and certain guaranteed payments to each of its
corporate General Partners, ScogBell AG, Inc. (formerly known as Helmsley-Noyes
Company, Inc.) and Minlyn, Inc., pursuant to the Partnership Agreement. See Item
10 hereof as to the ownership of said corporations.
HSI, either directly or through various subsidiaries, acts as managing
agent of the Properties. For such management and leasing brokerage services, HSI
charged Registrant the aggregate sum of approximately $1,969,570 during the
fiscal year ended December 31, 1998. Leasing commissions charged by HSI are
based upon varying percentages of the annual rent paid by tenants obtained by
HSI. Property management fees charged by HSI are based upon negotiated amounts
that are believed to be below market rate. Leasing fees charged by HSI to
Registrant are believed to be, from Registrant's perspective, on a basis that
approximate those that would be available to Registrant from non-affiliates at
arm's-length. In 1998, HSI earned $3,025,000 in brokerage commissions in
connection with the sale of the Chicago Properties. Additionally, Registrant
purchases some of its maintenance supplies and materials from Deco.There were no
purchases by Registrant from Deco in 1998. Prior to September 24, 1997, Mr.
Helmsley or his estate was the indirect owner of substantially all of the
capital stock of HSI and Mr. Schneider was a stockholder of HSI and Executive
Vice President of that company. On September 24, 1997, Mr. Schneider became a
principal owner of HSI 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.
- 32 -
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. In October, 1998, the full balance of the Affiliate Loans were
repaid using the proceeds of the sale of the Chicago Properties.
(c) Indebtedness of Management.
None.
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.
(a) (1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(a) (3) Exhibits. Subject to Rule 12b-32 of the Securities Act of 1934
regarding incorporation by reference, listed below are the exhibits which are
filed as part of this report (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.
(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
- 33 -
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:
(i) On September 28, 1998, Registrant filed a Current Report
on Form 8-K relating to the sale of its five Chicago
commercial properties for $121,000,000.
(ii) On August 18, 1998, Registrant filed a Current Report
on Form 8-K relating to its execution of a contract to
sell its five Chicago commercial properties for
$121,000,000.
(c) Exhibits -- None.
(d) Financial Statement Schedules -- The response to this period
of Item 14 is submitted as a separate section of this report.
(27) Financial Data Schedule.
- 34 -
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, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Irving Schneider General Partner,
- ------------------------- Principal Executive,
Irving Schneider Financial and
Accounting Officer
MINLYN, INC. General Partner
By: /s/ Irving Schneider
------------------------------
Irving Schneider
President
SCOGBELL AG, INC. General Partner
By: /s/ Craig Effron
------------------------------
Craig Effron
President
SCOGBELL ACQUISITION, L.L.C. General Partner
By: /s/ Craig Effron
------------------------------
President
Scog Bell AG Manager, Inc., manager
- 35 -
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, 1998
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, 1998 and 1997....................................S-2
Statements of Income-Years Ended December 31, 1998,
1997 and 1996........................................................S-3 and S-4
Statements of Changes in Partners' Capital (Deficiency)-
Years Ended December 31, 1998, 1997 and 1996.................................S-5
Statements of Cash Flows-Years Ended December 31, 1998,
1997 and 1996................................................................S-6
Notes to Financial Statements........................................S-7 to S-20
The following financial statement schedule of Investment Properties Associates
is included in Item 14(d):
Schedule III-Real Estate and Accumulated Depreciation..............S-21 and S-22
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or have been otherwise disclosed, and
therefore have been omitted.
Report of Independent Auditors
Investment Properties Associates
We have audited the accompanying balance sheets of Investment Properties
Associates (a New York Limited Partnership) as of December 31, 1998 and 1997,
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,
1998. 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, 1998 and 1997, and the results of its operations and
its cash flows for each of the years in the three year period ended December 31,
1998, 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.
/s/ ERNST & YOUNG LLP
New York, New York
April 2, 1999
S-1
Investment Properties Associates
(A New York Limited Partnership)
Balance Sheets
December 31,
1998 1997
-----------------------------
Assets
Real estate, at cost (Notes 3 and 5) $ 68,589,793 $ 136,524,047
Less accumulated depreciation and
amortization 44,261,629 95,613,778
------------ -------------
24,328,164 40,910,269
Cash and cash equivalents 13,831,031 2,240,190
Due from managing agent (Helmsley-
Spear Inc.) including tenants' security
deposit of $1,614,898 (1998) and
$1,595,372 (1997) (Note 6) 2,375,753 2,712,979
Receivables, principally for rentals 471,968 1,459,925
Deferred rent receivable 1,045,707 --
Deferred charges, including deferred
leasing commissions of $3,399,132
(1998) and $3,329,055 (1997)
(Note 6) 7,709,611 6,262,613
============ =============
Total assets $ 49,762,234 $ 53,585,976
============ =============
Liabilities and partners' capital (deficiency)
Accounts payable $ 1,155,069 $ 2,210,354
Accrued real estate taxes 3,067,023 4,884,856
Accrued interest 155,025 393,144
Distributions payable to General Partners,
Special Limited Partners and Limited
Partner (Note 9) 10,884,318 25,234,597
Guaranteed payments due to General
Partners, Special Limited Partners and
Limited Partner (Note 7) 700,828 384,625
Accrued leasing commissions and
management fees due to Helmsley-
Spear, Inc. (Note 6) 291,405 772,348
Sundry and accrued liabilities 1,079,965 847,668
Notes payable to related parties(Note 4) -- 18,000,000
Mortgages payable (Note 5) 23,847,488 36,847,488
Deposits and rents received in advance of
$255,641 (1998) and $119,174 (1997) 1,859,300 1,981,789
------------ -------------
Total liabilities 43,040,421 91,556,869
------------ -------------
Commitments and contingencies
(Notes 10 and 13)
Partners' capital (deficiency)
(Notes 1, 7, 8 and 9):
General Partners (2,768,948) (3,089,297)
Special Limited Partners (21,325,648) (50,128,009)
Limited Partner (represented by
the equivalent of 820,000
Participation Interests) 30,816,409 15,246,413
------------ -------------
6,721,813 (37,970,893)
============ =============
Total liabilities and partners'
capital (deficiency) $ 49,762,234 $ 53,585,976
============ =============
See accompanying notes
S-2
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income
Year ended December 31,
1998 1997 1996
---- ---- ----
Revenues:
Gross revenues from real
estate (Note 11) $ 43,454,081 $46,463,473 $52,216,081
Interest and other income 917,010 1,144,284 74,663
------------ ----------- -----------
44,371,091 47,607,757 52,290,744
------------ ----------- -----------
Expenses:
Leasehold rentals 409,095 563,446 929,787
Real estate taxes 7,149,045 9,418,042 9,883,375
Interest (Notes 4 and 5) 3,842,192 4,690,344 4,879,233
Management fees (Note 6) 1,121,955 1,373,436 1,460,004
Payroll and related expenses 4,220,947 5,026,993 5,208,172
Repairs and maintenance expenses 3,139,757 2,928,374 3,530,972
Other property expenses 8,463,862 9,645,887 11,753,758
Administrative expenses 309,626 239,602 236,072
Co-owners' share of (expense) income 25,027 60,817 53,766
Depreciation and amortization
of real estate 2,781,850 3,349,946 3,447,071
Amortization of leasing commissions 1,100,072 1,122,721 1,128,228
Amortization of mortgage
refinancing costs 24,323 91,775 184,266
------------ ----------- -----------
32,587,751 38,511,383 42,694,704
------------ ----------- -----------
Income before items shown below 11,783,340 9,096,374 9,596,040
Loss on abandonment of real estate -- -- (765,972)
Gain (loss) on sale of real
estate (Note 3) 101,295,596 (14,913) --
------------ ----------- -----------
Income before guaranteed
payments required
under the Limited
Partnership
agreement (Note 7) $113,078,936 $ 9,081,461 $ 8,830,068
See accompanying notes.
S-3
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income (continued)
Year ended December 31,
1998 1997 1996
---- ---- ----
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 214,703 238,125 261,499
------------ ---------- -----------
331,203 354,625 377,999
------------ ---------- -----------
Net income $112,747,733 $8,726,836 $ 8,452,069
============ ========== ===========
Net income allocable
as follows: (Note 8)
General Partners $ 694,652 $ 40,829 $ (633,678)
Special Limited Partners 62,455,572 4,153,067 4,277,582
Limited Partner 49,597,509 4,532,940 4,808,165
------------ ---------- -----------
$112,747,733 $8,726,836 $ 8,452,069
============ ========== ===========
Net Income Per Limited
Partner Participation
Interest (820,000 units
outstanding): $ 60.4848 $ 5.5280 $ 5.8636
============ ========== ===========
See accompanying notes.
S-4
Investment Properties Associates
(A New York Limited Partnership)
Statements of Changes in Partners' Capital (Deficiency)
Special
Limited
Total General Partners Partners Limited Partners
----- ---------------- -------- ----------------
Partners' Capital (Deficiency)
December 31, 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
Distribution to General Partners,
Special Limited Partners and Limited
Partner (Note 9) (68,055,027) (374,303) (33,653,211) (34,027,513)
Net income for the year ended
December 31, 1998 112,747,733 694,652 62,455,572 49,597,509
------------- ------------ ------------ ------------
Partners' Capital (Deficiency)
December 31, 1998 $ 6,721,813 $ (2,768,948) $(21,325,648) $ 30,816,409
============= ============ ============ ============
See accompanying notes.
S-5
Investment Properties Associates
(A New York Limited Partnership)
Statements of Cash Flows
Year ended December 31,
1998 1997 1996
---- ---- ----
Operating activities:
Net income $ 112,747,733 $ 8,726,836 $ 8,452,069
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,906,245 4,564,442 4,759,565
Loss (gain) on sale of real estate (101,295,596) 14,913 765,972
Changes in operating assets and liabilities:
Due from managing agent 337,226 (631,394) 659,072
Receivables, net (57,750) (16,349) (160,659)
Deferred charges, net (3,077,192) (3,304,107) (1,820,797)
Accounts payable (1,055,285) (544,867) 225,737
Accrued real estate tax (1,817,833) 254,271 66,315
Accrued interest (238,119) (3,009) (38,373)
Guaranteed payments due to General Partners
Special Limited Partners and Limited Partner 316,203 (8,375) 8,580
Accrued leasing commissions and management fees (480,943) (443,667) 701,176
Sundry and accrued liabilities 232,297 (982,367) (929,238)
Deposits and rents received in advance (122,489) 35,150 225,743
------------- ------------- ------------
Net cash provided by operating activities 9,394,497 7,661,477 12,915,162
------------- ------------- ------------
Investing activities:
Property improvements (2,201,413) (2,208,474) (2,438,279)
Net proceeds from sale of real estate 117,803,063 -- --
------------- ------------- ------------
Net cash provided by (used in) investing activities 115,601,650 (2,208,474) (2,438,279)
------------- ------------- ------------
Financing activities:
Distributions to General Partners, Special Limited
Partners and Limited Partner (82,405,306) (5,374,588) (5,330,917)
Principal payments on mortgages payable (13,000,000) (3,025,816) (3,048,784)
Principal payments on notes payable to related parties (18,000,000) -- --
------------- ------------- ------------
Net cash used in financing activities (113,405,306) (8,400,404) (8,379,701)
------------- ------------- ------------
Increase (decrease) in cash and cash equivalents 11,590,841 (2,947,401) 2,097,182
Cash and cash equivalents at beginning of year 2,240,190 5,187,591 3,090,409
------------- ------------- ------------
Cash and cash equivalents at end of year $ 13,831,031 $ 2,240,190 $ 5,187,591
============= ============= ============
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 4,080,311 $ 4,693,353 $ 4,917,606
============= ============= ============
See accompanying notes.
S-6
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements
December 31, 1998
1. Description of Business
Investment Properties Associates ("IPA") was formed as a limited partnership on
May 15, 1969 to acquire and operate commercial properties. Through January 4,
1997, the General Partners of IPA were Mr. Harry B. Helmsley and Mr. Irving
Schneider and two corporations owned or controlled by them. Collectively, the
General Partners owned a 1.5% interest in IPA. Upon the death of Mr. Helmsley on
January 4, 1997, the general partnership interest owned by him automatically
converted to a Special Limited Partnership Interest owned by his estate. As a
result of this conversion, the total interests of the General Partners were
reduced to .55%. The Special Limited Partners are Mrs. Leona M. Helmsley, Mr.
Irving Schneider, and the Estate of Mr. Harry B. Helmsley and the Limited
Partner is Mr. John Bailey. Undivided interests in the limited partnership are
represented by 820,000 Participation Interests ("PPI's"). Changes in ownership
subsequent to January 4, 1997 are described below.
Under the terms of the Partnership Agreement in effect on the date of Mr.
Helmsley's death, the General Partners were required to create a new limited
partnership with the same attributes as IPA and convey all assets and
liabilities of IPA to that entity. Because such a course of action would have
resulted in substantial expense to IPA and no benefit to the partners and
holders of PPI's, the General Partners obtained approval of a majority of the
holders of the PPI's to continue the business of IPA, and the Partnership
Agreement was amended to that effect effective May 30, 1997.
Effective July 3, 1997, the Partnership Agreement was further amended to admit a
newly formed limited liability company owned by Mrs. Leona M. Helmsley as a
General Partner of IPA, which entity was allocated a portion of the general
partner interest owned by one of the corporate general partners.
On June 10, 1998 the General Partner interests of the corporation and limited
liability company owned by Mrs. Leona M. Helmsley, and the Special Limited
Partner interests owned by Mrs. Leona M. Helmsley and the Estate of Harry B.
Helmsley were acquired by ScogBell Acquisition, L.L.C. ("ScogBell"). Also on
June 10, 1998 ScogBell acquired 282,377 PPI's from Mrs. Leona M. Helmsley and
28,550 PPI's in the over-the-counter market.
S-7
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies
a. The preparation of financial statements in conformity with 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 at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
b. Rental revenue from tenant leases is recognized on a straight line
basis over the terms of the associated leases.
c. Depreciation of buildings and building improvements is provided for
by the straight-line method over estimated useful lives of 19 to 39
years. Leaseholds, leasehold improvements and tenants' alterations
are amortized over the terms of the related leases. Amounts
applicable to tenants' alterations and the related accumulated
amortization are eliminated from the accounts at the time the
related lease expires or, if the tenant should vacate the premises
prior thereto, unamortized assets are charged to operations in the
year the premises are vacated.
d. Costs in connection with mortgage refinancings are included in
deferred charges and are being amortized over the terms of the
related mortgages.
e. Leasing commissions are amortized over the terms of the related
leases.
f. IPA's employees are covered under multi-employer defined
contribution pension plans. All contributions are funded currently
based upon negotiated union contracts. Information from the plans'
administrators is not available to permit IPA to determine its share
of unfunded vested benefits. During 1998, 1997 and 1996 IPA paid
approximately $562,000, $673,000, and $750,000, respectively, for
employees to union plans for pension, welfare and other benefits.
g. For the purpose of determining cash equivalents, IPA considers all
highly liquid investments with a maturity of three months or less,
when purchased, to be cash equivalents.
S-8
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
h. Financial Accounting Standards Board ("FASB") Statement No. 107,
"Disclosures About Fair Value of Financial Investments", defines
fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between
willing parties. The methods and assumptions used to estimate the
fair value of financial instruments are as follows:
(i) The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities and
deposits and rents received in advance approximate fair value
due to the short maturities of these items.
(ii) The carrying value of 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. Basic earnings per share has been calculated by dividing the net
income allocated to the Limited Partner by the 820,000 PPI's
outstanding. As IPA has no potentially dilutive securities, no
presentation of diluted earnings per share is required.
S-9
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
k. Effective January 1, 1998, IPA adopted FASB Statement No. 131,
Disclosures about Segments of an Enterprise and Related Information
("Statement 131"). Statement 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement
131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The adoption of Statement 131 did not affect results of
operations, financial position or disclosure of segment information
as IPA is engaged in the ownership and operation of commercial
office properties and has one reportable segment. IPA evaluates real
estate performance and allocates resources based on net operating
income. The primary sources of revenue are generated from tenant
base rents and escalations of operating expenses and real estate
taxes. Operating expenses primarily consist of common area
maintenance. The commercial office property segment meets the
quantitative threshold for determining reportable segments. IPA has
no investment in foreign operations.
3. Real Estate
Real estate excludes co-owners' share in one property and is summarized as
follows:
Classification 1998 1997
- ----------------------------------------- ------------ ------------
Land $ 10,569,184 $ 21,349,575
Buildings and building improvements 40,105,028 79,852,946
Leaseholds and leasehold improvements 7,486,730 22,008,106
Tenants' alterations 10,428,851 13,313,420
------------ ------------
$ 68,589,793 $136,524,047
============ ============
S-10
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
3. Real Estate (continued)
On January 22, 1998, IPA sold to an unrelated party its leasehold interest as
ground tenant under its lease with the City of Newark, NJ on the property
located at 1180 Raymond Blvd. As a consequence of the transaction, IPA was
relieved of liability for ground lease rent and real estate taxes on the
property after January 22, 1998. In connection with this transaction, IPA
recognized a gain of approximately $611,700.
On September 28, 1998, IPA sold its five Chicago commercial properties (the
"Chicago Properties") for $121,000,000. The sales proceeds were used to repay
mortgage debt, loans from the General Partners, accrued distributions payable to
the General Partners and Special Limited Partners, sales commissions of
$3,025,000 paid to an affiliate of one of the General Partners and other related
costs, aggregating approximately $64,000,000. In addition, IPA made a special
distribution to its partners of approximately $57,000,000. In connection with
this transaction, IPA recognized a gain on sale of approximately $100,683,900.
On February 1, 1999, IPA entered into a contract to sell the Mojud Building
located in Long Island City, New York for a sales price of $6,500,000.
4. Notes Payable to Related Parties
On November 30, 1994, affiliates of the General Partners loaned IPA $18,000,000,
evidenced by two promissory notes (the "Notes") in the amount of $6,000,000 and
$12,000,000. These notes were repaid in 1998 with the proceeds from the sale of
the Chicago properties.
The affiliate notes bore interest at a variable rate based on the Chase prime
rate and were payable on demand. Interest expense for the year ended December
31, 1998 and 1997, with respect to the Notes was $1,160,124 and $1,540,750,
respectively.
S-11
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
5. Mortgages Payable
As of December 31, 1998 and 1997 mortgages payable consist of the following:
Balance Balance
Interest Rate at Outstanding Outstanding
December 31, Maturity December 31, December 31,
Description 1998 Date 1998 1997
- -----------------------------------------------------------------------------------------------------------
Chase Manhattan Bank (1):
Mortgage loans with variable interest
rates collateralized by:
1440 Broadway, N.Y., N.Y. 7.32% 1/2/00 $ 12,203,503 $ 15,062,428
261 Fifth Avenue, N.Y., N.Y. 7.32% 1/2/00 466,985 9,467,810
245 Fifth Avenue, N.Y., N.Y. 7.32% 1/2/00 7,177,000 8,317,250
Apple Bank for Savings (2):
Mortgage loan in the amount of
$8,000,000 with fixed interest
payments collateralized by 1328
Broadway Building N.Y., N.Y. (in
which IPA has a 50% tenancy in common
interest) 8.5% 4/30/99 4,000,000 4,000,000
------------- --------------
Total $ 23,847,488 $ 36,847,488
============= ==============
(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
S-12
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
5. Mortgages Payable (continued)
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, which extended the maturity date of the loan to January 2,
1999, and provided for principal payments with respect to the mortgage
loans of $3,000,000 during 1998.
As of January 2, 1999, a Third Modification to the Agreement was made
between IPA and Chase. The maturity date was extended through the earlier
of (a) January 2, 2000, 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, 1999 - $1,000,000
(which payment was made) June 15, 1998 - $1,000,000, September 15, 1999 -
$500,000, and December 15, 1999 - $500,000.
(2) The loan with Apple Bank for Savings ("Apple") matured on April 24, 1998.
The loan has been extended to April 30, 1999, at an interest rate of 8.5%
per annum. Apple has informed IPA that there shall be no further
extensions of the maturity of this loan beyond April 30, 1999.
S-13
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
6. Management of Properties
The properties are managed by Helmsley-Spear, Inc. Mr. Irving Schneider is
co-chairman and Chief Operating Officer of Helmsley-Spear, Inc., and owns 50% of
its outstanding stock. In addition to providing general property management
services, Helmsley-Spear, Inc. locates tenants and negotiates leases for its
properties. Management fees are based upon negotiated percentages of revenues
for each property in the portfolio. Leasing commissions are based upon varying
percentages of the annual rent paid by tenants obtained by Helmsley-Spear, Inc.
Management fees and leasing commissions charged to IPA by Helmsley-Spear, Inc.
aggregated $1,969,571 (1998) $2,098,318 (1997) and $2,330,424, (1996).
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 $0 (1998), $61,000 (1997) and $23,000, (1996).
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, 1998, 1997, and 1996). In addition, the General Partners receive
guaranteed payments equal to 1/2% of gross revenues, as defined and the Limited
Partner receives $15,000 per annum.
S-14
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
8. Allocations of Partnership Income
In accordance with the terms of the Limited Partnership Agreement, elements of
income for financial reporting purposes were credited (but not distributed in
cash) to the capital accounts of the partners through January 3, 1997 as follows
(see Note 9 for the basis on which cash distributions are determined):
Special
General Limited Limited
-----------------------------------------------------
A. Net income before items C, D, E and F below 1.5% 48.5% 50.0%
B. Net losses, before items below 100.0% -- --
C. Depreciation and amortization of real estate:
1. Equal to mortgage amortization (as
defined) 1.5% 48.5% 50.0%
2. Balance 3.0% 97.0% --
D. Bond discount amortization -- -- 100.0%
E. Gain on disposition of property:
1. To the extent of the aggregate
depreciation and amortization of such
property included in C(2) above 3.0% 97.0% --
2. Balance 1.5% 48.5% 50.0%
F. Loss on disposition of property 100.0% -- --
S-15
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
8. Allocations of Partnership Income (continued)
Upon the death of Mr. Helmsley on January 4, 1997 and the conversion of his
General Partner interest into a Special Limited Partner interest, the elements
of income for financial reporting purposes are credited (but not distributed in
cash) to the capital accounts of the partners as follows:
General Special Limited Limited
------------------------------------------
A. Net income before items C, D, E and F below .55% 49.45% 50.0%
B. Net losses, before items below 36.67% 63.33% --
C. Depreciation and amortization of real estate:
1. Equal to mortgage amortization (as
defined) .55% 49.45% 50.0%
2. Balance 1.1% 98.9% --
D. Bond discount amortization -- -- 100.0%
E. Gain on disposition of property:
1. To the extent of the aggregate
depreciation and amortization of such
property included in C(2) above 1.1% 98.9% --
2. Balance .55% 49.45% 50.0%
F. Loss on disposition of property 36.67% 63.33% --
9. Cash Distributions
Net Operating Revenues, as defined, are distributable at the discretion of the
General Partners, as follows:
Through From
January 3, 1997 January 4, 1997
--------------- ---------------
General Partners 1.5% .55%
Special Limited Partners 48.5% 49.45%
Limited Partner 50.0% 50.0%
Notwithstanding the foregoing, if with respect to any calendar year the Limited
Partner's distributive share (computed on the same basis as that used in
preparing IPA's Federal income tax return) of income (loss) plus one-half of
such partner's distributive share of long-term
S-16
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
9. Cash Distributions (continued)
capital gains exceeds the cash distributions referred to above, IPA must
distribute an additional amount equal to such excess to the Holders of the
Participation Interests.
In 1998, 1997 and 1996, Net Operating Revenues, as defined in the Limited
Partnership Agreement, amounted to $9,803,570, $9,174,787 and $8,342,911,
respectively. At December 31, 1998, 1997 and 1996, IPA accrued distributions
amounting to $10,884,318, $9,847,784 and $10,482,594, respectively of which
$5,442,159, $4,923,892 and $5,241,297, respectively, are distributable to the
Holders of Participation Interests. An amount of $10,102,642 was distributed in
respect of such accrued distributions on March 31, 1999.
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,
1998, 1997 and 1996 was $111,019,115, $9,782,211 and $8,914,979 respectively, as
compared with the net income of $112,747,733, $8,726,836 and $8,452,069,
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-17
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
10. Income Taxes (continued)
December 31,
1998 1997 1996
---- ---- ----
Net income per statements
of income $ 112,747,733 $ 8,726,856 $ 8,452,069
Depreciation and amortization 929,903 1,083,904 1,149,617
Gain on sale of property (1,233,105) -- --
Loss on sale of property -- (50,660) --
Loss on abandonment of property -- -- (801,642)
Deferred rental income (1,045,707) -- --
Other, net (379,709) 22,111 114,935
------------- ----------- -----------
Income for federal tax purposes $ 111,019,115 $ 9,782,211 $ 8,914,979
============= =========== ===========
11. Gross Revenue From Real Estate
IPA earns rental income under leases principally with commercial tenants located
in its office buildings. Such leases generally provide for the tenant to pay
minimum rentals plus, in certain instances, a portion of increases in real
estate taxes, operating expenses and increases in the consumer price index based
on lease escalation clauses. Office leases generally range from 5 years to 15
years and contain various renewal options. In addition, IPA earns rental income
from retail stores. Such leases generally provide for minimum rentals plus
percentage rentals based on the store sales. Retail store leases generally range
from 1 to 5 years and contain various renewal options. All of the aforementioned
leases are accounted for as operating leases. Included in Gross Revenues from
Real Estate for the years ended 1998, 1997 and 1996 are $956,247, $1,089,301 and
$1,745,212, respectively, representing revenue from escalations and percentage
rentals, and for the year ended 1998, 1997 and 1996, approximately $1,397,
$256,000 and $1,400,000, respectively, received in connection with lease
cancellations with former tenants.
S-18
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
11. Gross Revenue From Real Estate (continued)
The following is a schedule by years of minimum future rentals on noncancelable
operating leases as of December 31, 1998, 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:
1999 $24,219,000
2000 17,536,000
2001 15,180,000
2002 12,042,000
2003 8,507,000
Thereafter 24,760,000
------------
Total minimum future rentals $102,244,000
============
12. Recently Issued Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (the
"Statement"), which is required to be adopted in years beginning after June 15,
1999. The Statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Company expects to adopt the Statement effective
January 1, 2000. The Statement will require IPA to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If a derivative is a hedge, depending on
the nature of the hedge, changes in fair value of the derivative will either be
offset against the change in fair value of the hedged asset, liability, or firm
commitment through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
IPA does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.
S-19
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
13. Contingencies
IPA is involved in various legal matters and disputes arising in the normal
course of operations, the ultimate outcome of which is not expected to have a
material effect on the financial statements.
S-20
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1998
Col. A Col. B Col. C Col. D Col. E Col. F
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Amount at
Initial Cost of Company Which Carried Close of Period
----------------------- Improvements -----------------------------
Buildings Capitalized Buildings
and Subsequent to and Accumulated
Description Encumbrances Land Improvements Acquisition Land Improvements Total Depreciation
- ------------------------------------------------------------------------------------------------------------------------------------
Midland Savings Building,
Midland, Texas -- $ 593,787 $ 4,354,441 $ 286,307 $ 349,087 $ 2,717,362 $3,066,449 $ 3,066,449
1440 Broadway, Building
New York, New York $ 12,203,503 4,938,421 10,864,525 7,090,220 4,938,421 18,284,860 23,223,281 14,321,360
261 Fifth Avenue, Building
New York, New York 466,985 987,731 8,695,910 8,069,399 987,731 16,765,309 17,753,040 12,105,489
Marbridge Building, New
York, New York (a) 4,000,000 2,765,881 1,877,196 1,247,163 2,765,881 3,124,359 5,890,240 2,577,411
Mojud Building, Long Island
City, New York -- 346,514 643,526 462,823 346,514 1,106,349 1,452,863 933,670
Edgewood and Bellway
Shopping Centers,
Houston, Texas -- 447,893 -- -- -- -- -- --
570 Broad Street Building
Newark, New Jersey -- 502,032 5,937,404 1,549,324 502,032 7,368,812 7,870,844 5,399,488
245 Fifth Avenue Building,
New York, New York 7,177,000 679,520 2,080,700 6,572,856 679,520 8,653,556 9,333,076 5,857,762
------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Totals $ 23,847,488 $11,261,779 $34,453,702 $25,278,092 $10,569,186 $58,020,607 $68,589,793 $44,261,629
============= =========== =========== =========== =========== =========== =========== ===========
Col. G Col. H
- ------------------------------------------------------------------
Life on which
Depreciation in
Latest Income
Date of Statements is
Description Construction Computed
- ------------------------------------------------------------------
Midland Savings Building,
Midland, Texas 1959 34.3
1440 Broadway, Building
New York, New York 1925 24.3
261 Fifth Avenue, Building
New York, New York 1928 24.3
Marbridge Building, New
York, New York (a) 1907 19.3
Mojud Building, Long Island
City, New York 1916 19.3
Edgewood and Bellway
Shopping Centers,
Houston, Texas 1957 24.3
570 Broad Street Building
Newark, New Jersey 1962 34.3
245 Fifth Avenue Building,
New York, New York 1923 24.3
Totals
S-21
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation (continued)
December 31, 1998
(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,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
Investment in Real Estate
Balance at beginning of year $ 136,524,047 $ 138,214,361 $ 141,282,613
Sale of real estate (67,998,324) (2,606,881) --
Abandonment of real estate (4,183,692)
Improvements and additions 2,201,413 2,208,474 2,438,279
Fully depreciated assets written off during
the year (2,137,343) (1,291,907) (1,322,839)
------------- ------------- -------------
Balance at end of year $ 68,589,793 $ 136,524,047 $ 138,214,361
============= ============= =============
Accumulated Depreciation
Balance at beginning of year $ 95,613,778 $ 95,710,079 $ 97,003,567
Depreciation charged to costs and expenses 2,781,850 3,349,946 3,447,071
Less amounts applicable to sale of real estate (51,996,656) (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 (2,137,343) (1,291,907) (1,322,839)
------------- ------------- -------------
Balance at end of year $ 44,261,629 $ 95,613,778 $ 95,710,079
============= ============= =============
The aggregate basis of real estate assets for Federal income tax purposes
amounted to $71,268,168 (1998), $132,029,646 (1997) and $132,590,090 (1996).
S-22