Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - EMPIRE STATE BUILDING ASSOCIATES L.L.C. | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - EMPIRE STATE BUILDING ASSOCIATES L.L.C. | c22391exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - EMPIRE STATE BUILDING ASSOCIATES L.L.C. | c22391exv32w1.htm |
EX-24.1 - EXHIBIT 24.1 - EMPIRE STATE BUILDING ASSOCIATES L.L.C. | c22391exv24w1.htm |
EX-31.2 - EXHIBIT 31.2 - EMPIRE STATE BUILDING ASSOCIATES L.L.C. | c22391exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - EMPIRE STATE BUILDING ASSOCIATES L.L.C. | c22391exv32w2.htm |
Table of Contents
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
o | 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 0-827
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(Exact name of Registrant as specified in its charter)
A New York Limited Liability Company | 13-6084254 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
One Grand Central Place
60 East 42nd Street
New York, New York 10165
(Address of principal executive offices)
60 East 42nd Street
New York, New York 10165
(Address of principal executive offices)
(212) 687-8700
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
None
Securities registered pursuant to Section 12(g) of the Act:
$33,000,000 of Participations in LLC Member Interests
$33,000,000 of Participations in LLC Member Interests
Indicate by check mark whether 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 Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes þ. No o.
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes
o
No o
Indicate by check mark whether Registrant is a shell company (as defined in Rule 12b-2 of the Act)
Yes o No þ .
Indicate by check mark whether Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company þ |
TABLE OF CONTENTS
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements. |
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Balance Sheets
(Unaudited)
(A Limited Liability Company)
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, 2011 | December 31, 2010 | |||||||
Assets |
||||||||
Real Estate: |
||||||||
Building |
$ | 38,933,801 | $ | 38,933,801 | ||||
Less: Accumulated depreciation |
9,193,438 | 8,694,307 | ||||||
29,740,363 | 30,239,494 | |||||||
Building improvements |
10,162,577 | 10,162,577 | ||||||
Less: Accumulated depreciation |
541,518 | 411,235 | ||||||
9,621,059 | 9,751,342 | |||||||
Land |
21,550,588 | 21,550,588 | ||||||
Total real estate, net |
60,912,010 | 61,541,424 | ||||||
Cash and cash equivalents |
19,139,852 | 25,318,179 | ||||||
Restricted cash |
1,887,996 | 896,965 | ||||||
Due from Supervisor |
324,111 | 324,111 | ||||||
Other receivables |
89,525 | 92,118 | ||||||
Deferred costs |
2,039,477 | 1,038,603 | ||||||
Due from Sublessee |
8,961,815 | 8,961,815 | ||||||
Other assets |
250,000 | 100,000 | ||||||
Mortgage financing costs, less
accumulated amortization of
$2,790,351 in 2011 and $2,457,051 in
2010 |
568,307 | 901,607 | ||||||
Total assets |
$ | 94,173,093 | $ | 99,174,822 | ||||
Table of Contents
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Balance Sheets
(Unaudited)
(A Limited Liability Company)
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, 2011 | December 31, 2010 | |||||||
Liabilities and members equity |
||||||||
Liabilities: |
||||||||
Mortgages payable |
$ | 92,000,000 | $ | 92,000,000 | ||||
Accrued mortgage interest |
498,333 | 514,944 | ||||||
Additional rent due to Sublessee |
| 1,888,629 | ||||||
Accrued supervisory fees, to a related party |
| 312,500 | ||||||
Accrued expenses |
216,775 | 553,522 | ||||||
Total liabilities |
92,715,108 | 95,269,595 | ||||||
Commitments and contingencies |
| | ||||||
Members
equity (At June 30, 2011 and December 31, 2010,
there were 3,300 units (at $10,000 per
unit) of participation units outstanding) |
1,457,985 | 3,905,227 | ||||||
Total liabilities and members equity |
$ | 94,173,093 | $ | 99,174,822 | ||||
See notes to condensed consolidated financial statements.
Table of Contents
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Statements of Operations
(Unaudited)
(A Limited Liability Company)
Condensed Consolidated Statements of Operations
(Unaudited)
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue: |
||||||||||||||||
Rent income, from a related party |
$ | 2,021,980 | $ | 2,021,980 | $ | 4,038,275 | $ | 4,038,275 | ||||||||
Interest and dividend income |
3,261 | 3,959 | 4,660 | 6,379 | ||||||||||||
Total revenue |
2,025,241 | 2,025,939 | 4,042,935 | 4,044,654 | ||||||||||||
Expenses: |
||||||||||||||||
Interest on mortgages |
1,678,262 | 1,678,261 | 3,339,912 | 3,339,912 | ||||||||||||
Supervisory services, to a
related party |
196,104 | 39,854 | 392,209 | 79,708 | ||||||||||||
Depreciation of building and
improvements |
314,708 | 314,708 | 629,415 | 629,415 | ||||||||||||
Professional fees and
miscellaneous expenses,
including amounts paid to a
related party |
93,586 | 15,199 | 183,974 | 34,977 | ||||||||||||
Total expenses |
2,282,660 | 2,048,022 | 4,545,510 | 4,084,012 | ||||||||||||
Net Loss |
$ | (257,419 | ) | $ | (22,083 | ) | $ | (502,575 | ) | $ | (39,358 | ) | ||||
Loss per $10,000 participation
unit, based on 3,300 participation
units outstanding during the period |
$ | (78.01 | ) | $ | (6.69 | ) | $ | (152.30 | ) | $ | (11.93 | ) | ||||
Distributions per $10,000
participation unit consisted of the
following: |
||||||||||||||||
Income |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Return of capital |
294.64 | 294.64 | 589.29 | 1,608.06 | ||||||||||||
Total distributions |
$ | 294.64 | $ | 294.64 | $ | 589.29 | $ | 1,608.06 | ||||||||
See notes to condensed consolidated financial statements.
Table of Contents
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Statements of Members Equity
(Unaudited)
(A Limited Liability Company)
Condensed Consolidated Statements of Members Equity
(Unaudited)
For the | For the | |||||||
Six Months Ended | Year Ended | |||||||
June 30, 2011 | December 31, 2010 | |||||||
Members equity: |
||||||||
January 1, 2011 |
$ | 3,905,227 | ||||||
January 1, 2010 |
$ | 7,637,435 | ||||||
Add, net income (loss): |
||||||||
January 1, 2011 through June 30, 2011 |
(502,575 | ) | -0- | |||||
January 1, 2010 through December 31, 2010 |
-0- | 3,519,049 | ||||||
3,402,652 | 11,156,484 | |||||||
Less, distributions: |
||||||||
Monthly distributions |
||||||||
January 1, 2011 through June 30, 2011 |
1,944,667 | -0- | ||||||
January 1, 2010 through December 31, 2010 |
-0- | 3,889,333 | ||||||
Additional distribution on March 2, 2010 |
-0- | 3,361,924 | ||||||
Total distributions |
1,944,667 | 7,251,257 | ||||||
Members equity at the end of the period: |
$ | 1,457,985 | $ | 3,905,227 | ||||
See notes to condensed consolidated financial statements.
Table of Contents
Empire State Building Associates L.L.C.
(A Limited Liability Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(A Limited Liability Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the | For the | |||||||
Six Months Ended | Six Months Ended | |||||||
June 30, 2011 | June 30, 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (502,575 | ) | $ | (39,358 | ) | ||
Adjustments to reconcile net loss to net cash
used in operating activities: |
||||||||
Depreciation of building and improvements |
629,415 | 629,415 | ||||||
Amortization of mortgage financing costs |
333,299 | 333,301 | ||||||
Changes in operating assets and liabilities: |
||||||||
Change in restricted cash |
(991,031 | ) | (1,171,967 | ) | ||||
Change in other receivables |
2,593 | 60,137 | ||||||
Additional rent due to Sublessee |
(1,888,629 | ) | (2,429,589 | ) | ||||
Accrued mortgage interest |
(16,611 | ) | (16,611 | ) | ||||
Accrued expenses |
(336,747 | ) | | |||||
Accrued supervisory fees, to a related party |
(312,500 | ) | (214,591 | ) | ||||
Net cash used in operating activities |
(3,082,786 | ) | (2,849,263 | ) | ||||
Cash flows from financing activities: |
||||||||
Distributions to Participants |
(1,944,667 | ) | (5,306,591 | ) | ||||
Members distributions held by Supervisor |
| (324,111 | ) | |||||
Deferred costs |
(1,000,874 | ) | | |||||
Other assets |
(150,000 | ) | | |||||
Net cash used in financing activities |
(3,095,541 | ) | (5,630,702 | ) | ||||
Net decrease in cash and cash equivalents |
(6,178,327 | ) | (8,479,965 | ) | ||||
Cash and cash equivalents, beginning of period |
25,318,179 | 28,531,544 | ||||||
Cash and cash equivalents, end of period |
$ | 19,139,852 | $ | 20,051,579 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 3,023,222 | $ | 3,023,222 | ||||
See notes to condensed consolidated financial statements.
Table of Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
Note A Interim Period Reporting
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements of Empire State Building Associates L.L.C. (Registrant) reflect all adjustments,
consisting of normal recurring accruals, necessary to present fairly the financial position of
Registrant as of June 30, 2011, its results of operations for the three and six months ended June
30, 2011 and 2010 and its cash flows for the six-months ended June 30, 2011 and 2010. The
condensed consolidated financial statements include the accounts of Registrant and its wholly-owned
limited liability company, Empire State Land Associates L.L.C. All intercompany accounts and
transactions have been eliminated in consolidation. Information included in the condensed balance
sheet as of December 31, 2010 has been derived from the audited balance sheet included in
Registrants Form 10-K for the year ended December 31, 2010 (the 10-K) previously filed with the
Securities and Exchange Commission (the SEC). Pursuant to rules and regulations of the SEC,
certain information and disclosures normally included in financial statements prepared in
accordance with U.S. generally accepted accounting principles have been condensed or omitted from
these consolidated financial statements unless significant changes have taken place since the end
of the most recent fiscal year. Accordingly, these unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and
notes thereto and the other information contained in the 10-K. The consolidated results of
operations for the three and six months ended June 30, 2011 are not necessarily indicative of the
results to be expected for any interim period or the full year.
Reclassification
Certain prior year balances have been reclassified to conform with the current period presentation.
Note B Organization
Registrant was originally organized on July 11, 1961 as a general partnership. On October 1,
2001, Registrant converted from a general partnership to a limited liability company under New York
law and is now known as Empire State Building Associates L.L.C. The conversion did not change any
aspect of the assets and operations of Registrant other than to protect its investors from any
future liability to a third party.
Registrants members (Members) are Peter L. Malkin, Anthony E. Malkin and Thomas N. Keltner,
Jr. (collectively, the Agents), each of whom also acts as an agent for holders of participations
(Participations) in their respective member interest in Registrant (the Participants).
Note C Purchase of Fee Title to The Empire State Building and Land Thereunder,
Mortgage Debt, and Related Depreciation and Amortization
On April 17, 2002, Registrant acquired, through a wholly-owned limited liability company
(Empire State Land Associates L.L.C.) the fee title to the building known as the Empire State
Building at 350 Fifth Avenue in New York (the Building), and the land thereunder (the Land)
(together, the Real Estate or Property), at a price of $57,500,000, and obtained a $60,500,000
first mortgage (the First Mortgage) with Capital One Bank to finance the acquisition and certain
related costs.
Table of Contents
The Real Estate is carried in the financial statements at its historical cost of $60,484,389,
consisting of $57,500,000 for the purchase price paid to the seller, $752,022 for acquisition
costs, and $2,232,367 representing the unamortized balance of the cost of the Master Lease on the
date the Real Estate was acquired. The cost of the Land was estimated to be 35.63% of the total
cost of the Real Estate, and the Building 64.37%. Under the terms of the contract of sale, the deed
contains language to avoid the merger of the fee estate and the leasehold, although on a
consolidated financial statement basis Registrant incurred no leasehold rent expense after
acquiring the Real Estate.
On July 26, 2011 Registrant closed on a new mortgage loan with HSBC Bank USA (New Mortgage)
and other participating banks with an initial advance of $159,000,000 to be used to pay and
discharge all existing mortgage loans including the First and the Second Mortgages, both of which
were repaid, the New Mortgage secured by a lien on the Real Estate and Registrants leasehold
estate under the Master Lease of the Real Estate, to fund operations and working capital
requirements relating to the Property (including for improvements) and certain other general
purposes. The First Mortgage was scheduled to mature on May 1, 2012 and required monthly payments
of interest only at 6.5% per annum. The First Mortgage was secured by a lien on the Real Estate and
Registrants leasehold estate under the Master Lease of the Real Estate.
To finance improvements at the Property and costs of the financing, on February 25, 2009
Registrant borrowed $31,500,000 from Signature Bank (the Second Mortgage). The Second Mortgage
was also scheduled to mature on May 1, 2012 and required monthly payments of interest only at 6.5%
per annum. The First Mortgage and Second Mortgage loans aggregating $92,000,000 plus accrued
interest and applicable prepayment penalties were prepaid on July 26, 2011 out of proceeds from the
new $159,000,000 financing described above.
The estimated fair value of Registrants total mortgage debt based upon available market
information was $93,947,055 at June 30, 2011.
Restricted cash at June 30, 2011 represents funds in an interest-bearing account held at
Capital One Bank pursuant to the terms of the First Mortgage, to be used monthly to satisfy a
portion ($166,667) of Registrants First Mortgage interest obligation. On March 24, 2011,
Registrant deposited an additional $2,000,000 into this restricted account under the same
conditions.
The Building and Building improvements are being depreciated on the straight-line basis over
their estimated useful lives of 39 years. Mortgage financing costs, totaling $3,358,658, are being
amortized ratably over the lives of the respective mortgages. As the mortgages were prepaid on July
26, 2011, the remaining unamortized balance will be written-off in the third quarter of 2011.
Note D Sublease
Registrant does not operate the Building. It subleases the Building to Empire State Building
Company L.L.C. (Sublessee) pursuant to a net operating sublease (the Sublease), which included
an initial term which expired on January 4, 1992. The Sublease provided four separate options for
Sublessee to renew the term, in each case for an additional 21 years, on the terms of the original
Sublease. Such renewals have been exercised by Sublessee (a) on January 30, 1989, for the first
renewal period from January 5, 1992 through January 4, 2013 and (b) as of February 11, 2010, for
the remaining three renewal periods from January 5, 2013 through January 4, 2076 (the last two such
renewals being exercised by Sublessee with Registrants consent for early exercise).
Table of Contents
Sublessee is required to pay annual basic rent (Basic Rent) of $6,018,750 from January 1,
1992 through January 4, 2013 and $5,895,625 from January 5, 2013 through the expiration of all
renewal terms. Sublessee is also required to pay Registrant additional rent of 50% of Sublessees
net operating profit, as defined in the Sublease, in excess of $1,000,000 for each lease year
ending December 31 (Additional Rent).
In accordance with the 2nd lease modification dated February 25, 2009, Basic Rent
described above has been increased to cover debt service on the $31,500,000 Second Mortgage that
closed on February 25, 2009. Basic Rent will be increased to cover debt service on any additional
borrowings for improvements and tenanting costs and on any refinancing of such debt so long as the
aggregate amount refinanced does not exceed the then existing amount of debt plus refinancing
costs. Basic rent will be increased to cover debt service relating to the July 26, 2011 refinancing
(see Item 2) to the extent the new mortgage debt exceeds the First Mortgage of $60,500,000.
Due from Sublessee at June 30, 2011 represents advances made to Sublessee for building
improvements costs.
Additional Rent and any interest and dividends accumulated thereon are distributed annually
after deduction for any additional payment described in Note E below, set-aside of $2,000,000 to
satisfy a portion of Registrants First Mortgage interest obligation, other expenses and additions
to general contingencies management judges to be suitable under the circumstances. For 2010,
Sublessee reported net operating profit of $9,222,742; therefore, Additional Rent of $4,111,371 was
earned for the year ended December 31, 2010. Registrant recognizes Additional Rent income when
earned from the Sublessee at the close of the lease year ending December 31st; such
income is not determinable until Sublessee, pursuant to the Sublease, provides Registrant with a
certified operating report from a certified public accountant on the Sublessees operation of the
Real Estate. The Sublease requires that this report be delivered to Registrant annually within 60
days after the end of each such fiscal year. Accordingly, all Additional Rent income and the
additional payment to Supervisor are reflected in the fourth quarter of each year. The Sublease
does not provide for the Sublessee to render interim reports to Registrant.
Sublessee is a New York limited liability company in which Peter L. Malkin is a member and
entities for Peter L. Malkins family members are beneficial owners.
Note E Supervisory Services
Supervisory and other services are provided to Registrant by its supervisor, Malkin Holdings
LLC (Malkin Holdings or Supervisor) (formerly Wien & Malkin LLC), a related party. Beneficial
interests in Registrant are held directly or indirectly by one or more persons at Malkin Holdings
and/or their family members.
Table of Contents
Registrant pays Supervisor for supervisory services and disbursements. The basic fee (the
Basic Payment) had been payable at the rate of $100,000 per annum, payable $8,333 per month,
since inception in 1961. The Agents have approved an increase in such fee in an amount equal to the
increase in the Consumer Price Index since such date, resulting in an increase in the Basic
Payment to $725,000 per annum effective July 1, 2010. The Basic Payment will be subject to further
increase in accordance with any future increase in the Consumer Price Index. The fee is payable
(i) not less than $8,333 per month and (ii) the balance out of available reserves from Additional
Rent. If Additional Rent is insufficient to pay such balance, any deficiency shall be payable in
the next year in which Additional Rent is sufficient. The Agents also approved payment by
Registrant, effective July 1, 2010, of the expenses in connection with regular accounting services
related to maintenance of Registrants books and records. Such expenses were previously paid by
Supervisor.
The basic supervisory services provided to Registrant by Supervisor include, but are not
limited to, maintaining all of its entity and Participant records, performing physical inspections
of the Building, providing or coordinating certain counsel services to Registrant, reviewing
insurance coverage, conducting annual supervisory review meetings, receipt of monthly rent from
Sublessee, payment of monthly and additional distributions to the Participants, payment of all
other disbursements, confirmation of the payment of real estate taxes, active review of financial
statements submitted to Registrant by Sublessee and financial statements audited by and tax
information prepared by Registrants independent registered public accounting firm, and
distribution of related materials to the Participants. Supervisor also prepares quarterly, annual
and other periodic filings with the SEC and applicable state authorities.
Registrant pays Supervisor for other services at hourly rates.
Pursuant to the fee arrangements described herein, Registrant incurred supervisory service
fees of $362,500 for the six month period ended June 30, 2011 plus additional fees totaling $29,708
representing 6% of the annual rent and debt service reductions from which Registrant has benefited.
No remuneration was paid during the six-month periods ended June 30, 2011 and 2010 by Registrant to
any of the Members.
Supervisor also receives an additional payment equal to 6% of distributions to Participants in
Registrant in excess of 9% per annum on their remaining cash investment in Registrant (which
remaining cash investment at June 30, 2011 was equal to the Participants original cash investment
of $33,000,000). For tax purposes, such additional payment is recognized as a profits interest and
the Supervisor is treated as a member, all without modifying each Participants distributive share
of reportable income and cash distributions.
Reference is made to Note D above for a description of the terms of the Sublease between
Registrant and Sublessee. The respective interests of the Members in Registrant and in Sublessee
arise solely from ownership of their respective Participations in Registrant and, in the case of
Peter L. Malkin his participating interest and his family entities ownership of member interests
in Sublessee. The Members as such receive no extra or special benefit not shared on a pro rata
basis with all other Participants in Registrant or members in Sublessee. However, all of the
Members hold senior positions at Supervisor (which supervises Registrant and Sublessee) and may, by
reason of their positions at Supervisor, receive income attributable to supervisory or other
remuneration paid by Registrant to Supervisor and Sublessee.
Subsequent Events
Subsequent events have been evaluated for potential recognition and disclosure.
Table of Contents
Item 2. | Managements Discussion and Analysis of
Financial Condition and Results of Operations |
Forward Looking Statements
Readers of this discussion are advised that it should be read in conjunction with the
condensed consolidated financial statements of Registrant (including related notes thereto)
appearing elsewhere in this Form 10-Q. Certain statements in this discussion may constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements reflect Registrants current expectations regarding future results
of operations, economic performance, financial condition and achievements of Registrant, and do not
relate strictly to historical or current facts. Registrant has tried, wherever possible, to
identify these forward-looking statements by using words such as believe, expect, anticipate,
intend, plan, estimate or words of similar meaning.
Although Registrant believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, such statements are subject to risks and
uncertainties, which may cause the actual results to differ materially from those projected. Such
factors include, but are not limited to, the following: general economic and business conditions,
which will, among other things, affect demand for rental space, the availability of prospective
tenants, lease rents and the availability of financing; adverse changes in Registrants real estate
market, including, among other things, competition with other real estate owners, risks of real
estate development and acquisitions; governmental actions and initiatives; and environmental/safety
requirements.
Financial Condition and Results of Operations
At the time of its organization, Registrant acquired the Master Lease of the Property subject to
the Sublease. Basic Rent received by Registrant was used to pay annual rent due under the Master
Lease and the Basic Payment for supervisory services to Supervisor; the balance of such Basic Rent
was distributed to the Participants. Basic Rent received by Registrant is used to pay the Basic
Payment and a portion of debt service on the First Mortgage; the balance of such Basic Rent is
distributed to the Participants. Commencing July 26, 2011, Basic rent will be increased to cover
debt service on the refinanced loan balance to the extent the new mortgage debt exceeds the First
Mortgage of $60,500,000.
Additional Rent and any interest and dividends accumulated thereon less any expenses and
additions to general contingencies and and other reserves are distributed to the Participants after
the additional payment to Supervisor. See Note D to the condensed consolidated financial
statements herein. Pursuant to the Sublease, Sublessee has assumed responsibility for the
condition, operation, repair, maintenance and management of the Property. Registrant is not
required to maintain liquid assets to defray any operating expenses of the Property.
Registrant does not pay dividends. During the six-month period ended June 30, 2011,
Registrant made regular monthly distributions of $98.21 for each $10,000 Participation ($1,178.52
per annum for each $10,000 Participation). There are no restrictions on Registrants present or
future ability to make distributions; however, the amount of such distributions, particularly
distributions of
Additional Rent, depends solely on Sublessees ability to make payments of Basic Rent and
Additional Rent to Registrant. Registrant expects to make distributions in the future to the
extent it receives the payments provided for under the Sublease.
Table of Contents
During March 2011 Registrant made no additional distribution to Participants of Additional
Rent received for the year ending December 31, 2010. Additional Rent of $4,111,371 was applied to
Registrants mortgage interest obligation and the balance for general contingencies. See Notes C
and D to the condensed financial statements herein; and see below in Liquidity, Capital Resources
and Distributions regarding Registrants anticipated inability to pay additional distributions
during next several years.
During March 2010 Registrant made an additional distribution of Additional Rent of $3,361,924
received for the year ending December 31, 2009 to Participants after adding $2,000,000 to general
contingencies of Registrant, $2,020,000 to satisfy a portion of Registrants First Mortgage
interest obligation and $214,591 to Supervisor, offset by $26,104 of dividend and interest income.
Registrants results of operations are affected primarily by the amount of rent payable to it
under the Sublease. The amount of Additional Rent payable to Registrant is affected by the New
York City economy and real estate rental and tourist attraction markets, which are difficult for
management to forecast, and by the amount of unfinanced improvements undertaken at the Property.
The following summarizes, with respect to the current period and the corresponding period of the
previous year, the material factors regarding Registrants results of operations for such periods:
Total revenues decreased for the six-month period ended June 30, 2011 as compared
with the corresponding period of the prior year. The decrease was the result of a
decrease in dividend and interest income for the six-month period as compared with
the corresponding period of the prior year.
Total revenues decreased for the three-month period ended June 30, 2011 as compared
with the corresponding period of the prior year. The decrease was the result of a
decrease in dividend and interest income for the three-month period as compared with
the corresponding period of the prior year.
Total expenses increased for the six-month period ended June 30, 2011 as compared
with the corresponding period of the prior year. The increase was the result of an
increase in basic supervisory fees to Malkin Holdings effective July 1, 2010 and
professional fees and miscellaneous expenses for accounting fees which were paid by
Supervisor prior to 2010 and other professional fees to Malkin Holdings for services
rendered in connection with matters regarding ownership and operation of the Empire
State Building for the six-month period as compared with the corresponding period of
the prior year.
Total expenses increased for the three-month period ended June 30, 2011 as compared
with the corresponding period of the prior year. The increase was the result of an
increase in basic supervisory fees to Malkin Holdings effective July 1, 2010 and
professional fees and miscellaneous expenses for accounting fees which were paid by
Supervisor prior to 2010 and other professional fees to Malkin Holdings for services
rendered in connection with matters regarding ownership and operation of the Empire
State Building for the three-month period ended June 30, 2011 as compared with the corresponding period
of the prior year.
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Liquidity, Capital Resources and Distributions
Registrants liquidity has decreased as of June 30, 2011, as compared with December 31, 2010
due to substantially increased deferred costs. Adverse developments in economic, credit and
investment markets over the last several years impaired general liquidity (although some
improvement in such markets has arisen recently) and the developments may negatively impact
Registrant and/or space tenants at the Building. Any such impact should be ameliorated by the fact
that (a) each of Registrant and its Sublessee has very low debt in relation to asset value, (b) the
Buildings rental revenue is derived from a substantial number of tenants in diverse businesses
with lease termination dates spread over numerous years.
No amortization payments are due under the First Mortgage and Second Mortgage to reduce the
outstanding principal balances prior to maturity. Furthermore, Registrant does not maintain any
reserve to cover the principal payment of mortgage indebtedness at maturity. Therefore, repayment
of the mortgages will depend on Registrants ability to arrange a refinancing. Assuming that the
Real Estate continues to generate an annual net profit in future years comparable to that in past
years, and assuming further that real estate capital and operating markets return to more stable
patterns, consistent with long-term historical trends in the geographic area in which the Real
Estate is located, Registrant anticipates that the value of the Real Estate will be in excess of
the amount of the mortgage balances at maturity.
Registrant anticipates that funds for short-term working capital requirements for the Real
Estate will be provided by cash on hand, rental payments received from the Sublessee (which entity
is required under the Sublease to make payments of Basic Rent and, subject to cash flow, Additional
Rent) and from additional advances of up to $76,000,000 available with respect to the July 26, 2011
refinancing. Long-term sources of working capital will be provided by rental payments from the
Sublessee and, to the extent necessary, from additional capital investment by the members in
Sublessee and/or additional external financing. Sublessee would also be required to make
additional capital investment, if necessary to maintain the Real Estate. Registrant has no
requirement to maintain substantial reserves to defray any operating expenses of the Real Estate.
Sublessee is to maintain the Building as a high-class office building as required by the terms
of the Sublease.
Based on Sublessees review of the need for upgrades and improvements to the Property,
Registrant has incurred improvement costs of approximately $10,163,000 through June 30, 2011, which
costs were funded from Second Mortgage financing proceeds. Other improvement and tenanting costs
funded out of Sublessees operating cash flow are owned by Sublessee and reflected in its financial
statements. However, as of June 30, 2011 Registrant advanced approximately $8,962,000 to Sublessee
to acquire building improvements and tenanting costs. To seek to maximize overall funds
for improvement and tenanting costs, funding for the foregoing will be derived from currently
unapplied amounts from the $31,500,000 financing that closed in the first quarter of 2009 and from
the New Mortgage obtained in July 2011 for which Registrant received an initial advance of
$159,000,000 and may be advanced an additional $76,000,000. Costs in excess of available mortgage
proceeds will
be funded out of Sublessees operating cash flow. Sublessee estimates that the total cost of
all projects will be approximately $626,000,000 over 10 years including sprinklering of the
Building of approximately $23,000,000 required by Local Law #26 to be completed by 2019.
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On July 26, 2011, Registrant closed on a new mortgage loan with HSBC Bank USA and other
participating banks (the Lenders) with an initial advance of $159,000,000 to be used to pay and
discharge all existing mortgage loans secured by the Property, to fund operations and working
capital requirements relating to the Property (including for improvements) and certain other
general purposes. Subject to the conditions set forth in the loan agreement (the Loan Agreement),
the Lenders may provide Registrant with additional advances of up to $76,000,000 and use
commercially reasonable efforts to arrange for additional commitments from other financial
institutions in an aggregate amount equal to $65,000,000. Subject to the terms and conditions of
the Loan Agreement, the outstanding principal amount of the loan shall bear interest at a rate
equal to 2.5% p.a. above 30-day LIBOR. Registrant is obligated to repay the outstanding amount of
the loan plus accrued and unpaid interest and all other amounts due under the Loan Agreement and
related documents on June 30, 2014, which Registrant may extend to June 30, 2015 and thereafter to
June 30, 2016, in each case, subject to an extension fee of 0.25% of the total availability under
the Loan Agreement at the time of such extension. Such extensions are subject to customary
conditions, including the maintenance of a certain loan-to-value ratio and debt yield and the
absence of an event of default. The First Mortgage and Second Mortgage loans aggregating
$92,000,000 plus accrued interest and applicable prepayment penalties were prepaid on July 26, 2011
out of proceeds from the new $159,000,000 financing described above.
Sublessee anticipates that its operating cash flow will continue to be dedicated largely to
the ongoing improvement costs, greatly reducing or eliminating both (a) Sublessees payment of
Additional Rent and (b) Registrants ability to make extra distributions to Participants.
As a result, Registrant previously advised Participants that, for several subsequent years, it
may make no distributions other than regular monthly distributions at the rate of $1,178.52 per
annum for each $10,000 Participation. As noted above in Forward Looking Statements, the
foregoing is based on estimates, and actual results may be materially different.
Inflation
Registrant believes that there has been no material change in the impact of inflation on its
operations since the filing of the 10-K for the year ended December 31, 2010.
Security Ownership
As of June 30, 2011, the Members of Registrant owned of record and beneficially an aggregate
of $41,042 of Participations in Registrant, representing less than .131% of the currently
outstanding Participations therein totaling $33,000,000.
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As of June 30, 2011, certain of the Members of Registrant held additional Participations as
follows:
Entities for the benefit of members of Peter L. Malkins family owned of record and
beneficially $1,064,583 of Participations. Peter L. Malkin disclaims any beneficial
ownership of such Participations, except that related trusts are required to complete
scheduled payments to Peter L. Malkin.
Peter L. Malkin owned of record as trustee or co-trustee, but not beneficially,
$516,667 of Participations. Peter L. Malkin disclaims any beneficial ownership of
such Participations.
Anthony E. Malkin owned of record as trustee or co-trustee, but not beneficially,
$38,333 of Participations. Anthony E. Malkin disclaims any beneficial ownership of
such Participations.
Trusts for the benefit of members of Anthony E. Malkins family owned of record and
beneficially $50,000 of Participations. Anthony E. Malkin disclaims any beneficial
ownership of such Participations.
Members of Thomas N. Keltner, Jr.s family owned of record and beneficially $6,667 of
Participations
Item 4T. | Controls and Procedures. |
(a) Evaluation of disclosure controls and procedures. The Supervisor after evaluating the
effectiveness of Registrants disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of June 30, 2011, the end of the period
covered by this report, has concluded that as of that date that Registrants disclosure controls
and procedures were effective and designed to ensure that material information relating to
Registrant would be made known to it by others within those entities on a timely basis.
(b) Changes in internal controls over financial reporting. There were no changes in
Registrants internal controls over financial reporting that occurred during the most recent fiscal
quarter that have materially affected, or are reasonably likely to affect, Registrants internal
controls over financial reporting.
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PART II. OTHER INFORMATION
Item 1. | Legal Proceedings. |
The Property of Registrant was the subject of the following material litigation:
Malkin Holdings LLC and Peter L. Malkin, a member in Registrant, were engaged in a proceeding
with Sublessees former managing agent, Helmsley-Spear, Inc. commenced in 1997, concerning the
management, leasing and supervision of the Property that is subject to the Sublease to Sublessee.
In this connection, certain costs for legal and professional fees and other expenses were paid by
Malkin Holdings and Mr. Malkin. Malkin Holdings and Mr. Malkin have represented that
such costs will be recovered only to the extent that (a) a competent tribunal authorizes
payment or (b) an investor voluntarily agrees that his or her proportionate share be paid.
Accordingly, Registrants allocable share of such costs is as yet undetermined, and Registrant has
not provided for the expense and related liability with respect to such costs in its financial
statements included in this Form 10-Q. As a result of an August 29, 2006 settlement agreement,
which included termination of this proceeding, Registrant will not recognize any gains or losses
from this proceeding other than the possible charges for the aforementioned fees and expenses.
An August 29, 2006 settlement agreement terminated Helmsley-Spear, Inc. as managing and
leasing agent at the Property as of August 30, 2006. Sublessee is now self-managing the Property
while engaging third party leasing agents, CB Richard Ellis for retail space since August 30, 2006
and Newmark Knight Frank for non-retail space since October 21, 2009.
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EXHIBIT INDEX
Number | Document | Page* | |||||
3 | (a) | Registrants Partnership Agreement dated July 11, 1961,
filed as Exhibit No. 1 to Registrants Registration
Statement on Form S-1 as amended (the Registration
Statement) by letter dated August 8, 1962 and assigned
File No. 2-18741, is itself incorporated by reference as
an exhibit hereto. |
|||||
3 | (b) | Amended Business Certificate of Registrant filed with
the Clerk of New York County on August 7, 1998
reflecting a change in the Partners of Registrant which
was filed as Exhibit 3(b) to Registrants 10-Q-A for the
quarter ended September 30, 1998 and is incorporated by
reference as an exhibit hereto. |
|||||
3 | (c) | Registrants Consent and Operating Agreement dated as of
September 30, 2001 |
|||||
3 | (d) | Certificate of Conversion of Registrant to a limited
liability company dated October 1, 2001 filed with the
New York Secretary of State on October 3, 2001. |
|||||
4 | Registrants form of Participating Agreement, filed as
Exhibit No. 6 to the Registration Statement by letter
dated August 8, 1962 and assigned File No. 2-18741, is
incorporated by reference as an exhibit hereto. |
||||||
10 | (d) | Second Modification of Lease Agreement,
dated February 25, 2009, which was filed under Item
10(d) of Registrants Form 10-K for the fiscal year
ended December 31, 2008 and is incorporated by reference
as an exhibit hereto. |
|||||
10 | (e) | Exercise of lease renewal options as of January 1, 2010
by Registrant and February 11, 2010 by Sublessee for the
period January 5, 2013 to January 5, 2076 which was
filed as Exhibit 10 (e) to Registrants Form 10-k for
the fiscal year ended December 31, 2009 and is
incorporated by reference as an exhibit hereto. |
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EXHIBIT INDEX
(cont.)
(cont.)
Number | Document | Page* | |||||
10 | (f) | Agreement of Members of Registrant as of July 1, 2010
which was filed as Exhibit 10 (f) to Registrants Form
10-k for the fiscal year ended December 31, 2009 and is
incorporated by reference as an exhibit hereto. |
|||||
24.1 | Power of Attorney dated September 8, 2011 between the
Members and Mark Labell which is being filed as Exhibit
24.1 to Registrants 10-Q for the quarter ended June 30,
2011. |
||||||
31.1 | Certification of Mark Labell, Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
||||||
31.2 | Certification of Mark Labell, Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 |
||||||
32.1 | Certification of Mark Labell, Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
||||||
32.2 | Certification of Mark Labell, Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
* | Page references are based on sequential numbering system. |
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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.
The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant
and each of the Members in Registrant, pursuant to Power of Attorney, dated September 8, 2011 (the
Power).
EMPIRE STATE BUILDING ASSOCIATES L.L.C.
(Registrant)
(Registrant)
By:
|
/s/ Mark Labell
|
|||
Peter L. Malkin, Member | ||||
Anthony E. Malkin, Member | ||||
Thomas N. Keltner, Jr., Member |
Date:
September 20, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the undersigned as Attorney-in-Fact for each of the Members in Registrant, pursuant to
the Power, on behalf of Registrant and as a Member in Registrant on the date indicated.
By:
|
/s/ Mark Labell
|
|||
Peter L. Malkin, Member | ||||
Anthony E. Malkin, Member | ||||
Thomas N. Keltner, Jr., Member |
Date:
September 20, 2011
* | Mr. Labell supervises accounting functions for Registrant. |