UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 0-21849
------------------------------------------------
METROPOLIS REALTY TRUST, INC.
(Exact name of Registrant as specified in its charter)
MARYLAND 13-3910684
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
605 Third Avenue
26th Floor
New York, New York 10016
(Address of principal executive offices, including zip code)
(212) 655-0220
(Registrant's telephone number, including area code)
Securities registered pursuant
to Section 12(b) of the Act:
None
Securities registered pursuant
to Section 12(g) of the Act:
Title of Class
--------------
Class A Common Stock, par value $10.00 per share
Class B Common Stock, par value $10.00 per share
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 / /
809954.6
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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. /X/
Of the Company's 12,970,646 shares of Common Stock outstanding, 9,330,410 shares
are held by affiliates of the Registrant and 3,640,236 of the Company's shares
are held by non-affiliates of the Registrant. The Common Stock is not listed on
any exchange; the Company does not intend to list the Common Stock on any
exchange in the near term; there is not currently a public market for the Common
Stock; and there can be no assurance that an active trading market for the
Common Stock will develop or be sustained.
As of March 29, 1999, there were 12,970,646 shares of the Registrant's Common
Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The Exhibits to the Company Registration Statement on Form 10, as
amended, are hereby incorporated by reference in Item 14
of this Annual Report on Form 10-K.
ii
809954.6
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<TABLE>
TABLE OF CONTENTS
<S> <C>
PART I ...................................................................................................1
ITEM 1. BUSINESS.................................................................................1
ITEM 2. PROPERTIES...............................................................................5
ITEM 3. LEGAL PROCEEDINGS.......................................................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................11
PART II ..................................................................................................12
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................................................12
ITEM 6. SELECTED FINANCIAL DATA.................................................................13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................................14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................................................34
PART III...................................................................................................35
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................35
ITEM 11. EXECUTIVE COMPENSATION..................................................................37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT............................................................................38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................41
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K............................................................................44
</TABLE>
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE SECURITIES LITIGATION REFORM ACT OF 1995
WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES,"
"ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN
THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS -- QUALIFICATION AS A REIT." READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF OR THEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER
THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THE
COMPANY'S ACTUAL RESULTS OR OUTCOMES MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED.
iii
809954.6
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PART I
ITEM 1. BUSINESS
Overview
Metropolis Realty Trust, Inc., a Maryland corporation (the
"Company"), is a real estate investment trust (a "REIT"). The Company was formed
on May 13, 1996 to facilitate the consummation of the Second Amended Joint Plan
of Reorganization of 237 Park Avenue Associates, L.L.C. ("237 LLC") and 1290
Associates, L.L.C. ("1290 LLC" and, together with 237 LLC, the "Debtors"), dated
September 20, 1996 (as amended, the "Plan"), and, thereby, acquire the interests
of 237 LLC and 1290 LLC in the properties located in New York City at 237 Park
Avenue (the "237 Property") and 1290 Avenue of the Americas (the "1290
Property," and together with the 237 Property, the "Properties"). The Debtors
were two of the many companies, partnerships and joint ventures that
collectively constituted the United States operations of the Olympia & York
("O&Y") group of companies. The transactions contemplated by the Plan were
consummated on October 10, 1996 (the "Effective Date").
As depicted in the following chart, the Company owns a 95%
partnership interest, as general partner, in 237/1290 Lower Tier Associates,
L.P., a Delaware limited partnership (the "Lower Tier Limited Partnership")
which owns a 99% partnership interest, as limited partner, in each of 237 Park
Partners, L.P., a Delaware limited partnership (the "237 Property Owning
Partnership") and 1290 Partners, L.P., a Delaware limited partnership (the "1290
Property Owning Partnership," and together with the 237 Property Owning
Partnership, the "Property Owning Partnerships"). The Property Owning
Partnerships own the Properties. The remaining 1% interest in each of the
Property Owning Partnerships is owned by one of two wholly-owned subsidiaries of
the Company (the "GP Corps"), as general partner. The remaining 5% interest in
the Lower Tier Limited Partnership (the "LP Interest") is owned by a limited
partnership (the "Upper Tier Limited Partnership") which is owned almost
entirely by JMB/NYC Office Building Associates, L.P. ("JMB LP"), a former holder
of equity interests in the Debtors, as limited partner. The 5% LP Interest is
subordinated to the 95% partnership interest of the Company with respect to
certain priority distributions from the Lower Tier Limited Partnership. The
Upper Tier Limited Partnership, the Lower Tier Limited Partnership and the
Property Owning Partnerships are hereinafter referred to, collectively, as the
"Partnerships."
809954.6
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The following chart depicts the Company's indirect ownership of
the Properties as described above. [GRAPHIC OMITTED]
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Business
The Company's principal assets consist of its interests in the
Partnerships through which it owns the 1290 Property and the 237 Property, as
described below under "ITEM 2. -- PROPERTIES." The Company's principal business
objective is to operate the Properties in a manner that will maximize the
Properties' revenues and value and in turn maximize funds from operations and
stockholder value. The Company may acquire additional properties in the future,
although it has no present plans to do so. As further described under
"MANAGEMENT OF THE COMPANY -- Asset Management Agreement" and " -- Management
and Leasing Agreements," the Property Owning Partnerships have retained 970
Management, LLC (the "Asset Manager"), an affiliate of Victor Capital Group,
L.P. ("VCG"), to serve as asset manager and Tishman Speyer Properties, L.P. (the
"Property Manager/Leasing Agent"), to serve as property manager/leasing agent to
manage the day-to-day operations of the Properties.
Competition
Numerous office building properties in New York City compete with
the Properties in attracting tenants to lease space. Some of these competing
properties are newer or better located than the Properties. The amount of space
available in competitive commercial properties in the New York City area could
have a material effect on the Property Owning Partnerships' ability to lease
space in the Properties and on the rents charged. However, the 1290 Property is
currently 98% leased, with leases aggregating approximately 19% of the total
rentable square feet expiring over the next five years and the 237 Property is
currently 99% leased, with leases aggregating approximately 21% of the total
rentable square feet expiring over the next five years. See "Item 2 --
Properties."
Employees
The Company does not have any employees. The Property Owning
Partnerships assumed the Debtors' labor agreements with respect to union
employees employed at the Properties. The Property Manager/Leasing Agent has
employed such union employees on behalf of the Property Owning Partnerships. The
Company believes that there are no unfunded retiree benefits liabilities under
the pension plans established pursuant to the labor agreements referred to
above.
Qualification as a REIT
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), commencing with its taxable year ended December 31, 1996. As a
REIT, the Company (subject to certain exceptions) will not be subject to federal
income taxation at the corporate level on income it distributes to stockholders
so long as it distributes at least 95% of its REIT taxable income. For any year
in which the Company does not meet the requirements for qualifying to be taxed
as a REIT, it will be taxed as a corporation. Although the Company believes that
it will operate in such a manner so as to qualify to be taxed as a REIT,
qualification as a REIT involves the application of highly technical and complex
Internal Revenue Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Company's control may affect its ability
to qualify and to continue to qualify as a REIT. Moreover, no assurance can be
given that legislation, new regulations, administrative interpretations or court
decisions will not change the tax laws with respect to qualification as a REIT
or the Federal income tax consequences of such qualification.
To obtain the favorable tax treatment accorded to a REIT under the
Internal Revenue Code, the Company generally will be required each year to
distribute to its stockholders at least 95% of its taxable income. The Company
will be subject to income tax on any of its undistributed taxable income and net
capital gains, and to a 4% nondeductible excise tax on the amount, if any, by
which certain distributions paid by it with respect to any
809954.6
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calendar year are less than the sum of 85% of its ordinary income plus 95% of
its capital gain net income for the calendar year, plus 100% of its
undistributed income from prior years.
The Company intends to make distributions to its stockholders to
comply with the distribution provisions of the Internal Revenue Code and to
avoid Federal income taxes and the nondeductible 4% excise tax. A substantial
portion of the Company's income will consist of the income of the Property
Owning Partnerships and the Company's cash flow will consist primarily of
distributions from the Property Owning Partnerships through the Lower Tier
Limited Partnership.
Differences in timing between the receipt of income and the
payment of expenses in arriving at taxable income of the Company, the Upper Tier
Limited Partnership, the Lower Tier Limited Partnership or the Property Owning
Partnerships, the effect of nondeductible capital expenditures, the creation of
reserves or required debt amortization payments could require the Company to
borrow funds on a short-term or long-term basis to meet the distribution
requirements that are necessary to continue to qualify as a REIT. In such
circumstances, the Company might need to borrow funds to avoid adverse tax
consequences even if the Company's management believes that the then prevailing
market conditions generally are not favorable for such borrowings or that such
borrowings are not advisable in the absence of such tax considerations. There is
no assurance that the Company will be able to continue to satisfy the annual
distribution requirement so as to qualify as a REIT.
In order for the Company to qualify as a REIT under the Internal
Revenue Code, not more than 50% in value of its outstanding stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Internal
Revenue Code to include certain entities) during the last half of a taxable year
(other than the first year) (the "Five or Fewer Requirement"), and such shares
of stock must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. In order to protect the Company
against the risk of losing its status as a REIT on account of a concentration of
ownership among its stockholders, the Company's Amended and Restated Articles of
Incorporation (the "Charter"), subject to certain exceptions, provides that no
Person (as defined in the Charter) may beneficially own, or be deemed to own by
virtue of the attribution provisions of the Internal Revenue Code, more than
7.9% (the "Ownership Limit") of the aggregate value of the Company's shares of
stock. The restrictions contained in the Charter, however, may not ensure that
the Company will be able to satisfy the Five or Fewer Requirement in all cases.
If the Company fails to satisfy such requirement, the Company's status as a REIT
will terminate, and the Company will not be able to prevent such termination. If
the Company were to fail to qualify as a REIT in any taxable year, the Company
would be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, and would not be
allowed a deduction in computing its taxable income for amounts distributed to
its stockholders. Moreover, unless entitled to relief under certain statutory
provisions, the Company also would be ineligible for qualification as a REIT for
the four taxable years following the year during which qualification was lost.
Such disqualification would reduce the net earnings of the Company available for
investment or distribution to its stockholders due to the additional tax
liability of the Company for the years involved.
Subject to certain exceptions, the Charter does not permit any
person to acquire or own (either actually or constructively under the applicable
attribution rules of the Code) more than the Ownership Limit. In addition, no
holder may own or acquire (either actually or constructively under the
applicable attribution rules of the Code) shares of any class of the Company's
common stock, par value $10.00 per share (the "Common Stock"), if such ownership
or acquisition (i) would cause more than 50% in value of the outstanding Common
Stock to be owned by five or fewer individuals or (ii) would otherwise result in
the Company failing to qualify as a REIT. The Charter provides that the
foregoing ownership restrictions will not apply to persons designated by Apollo
Real Estate Investment Fund, L.P. ("Apollo") provided that the aggregate
percentage by which all individuals permitted, by designation, to exceed the
Ownership Limit will not be greater than 10%.
Any attempted acquisition (actual or constructive) of Common Stock
by a person who, as a result of such acquisition, would violate certain of the
limitations set forth in the Charter will cause the Common Stock
809954.6
4
<PAGE>
purportedly transferred to be automatically transferred to the trustee of a
trust for the benefit of a charitable beneficiary and such shares will not be
entitled to voting rights or rights to distributions and the transfer resulting
in such violation may be deemed void ab initio. Violations of the ownership
limitations may result in a repurchase by the Company of shares in excess of the
Ownership Limit.
ITEM 2. PROPERTIES
The 1290 Property
The 1290 Property Owning Partnership holds the fee title to the
1290 Property and all improvements thereon. The 1290 Property, completed in
1963, is a 43-story, first class commercial office building with approximately
1,963,000 rentable square feet of space. The building is centrally located in
midtown Manhattan and is connected to the famed "Rockefeller Center" complex via
an underground passageway.
The average occupancy rates for the 1290 Property for
the years 1994 through 1998 were 94%, 78%, 90%, 97%, and 99%, respectively.
As of December 31, 1998, the 1290 Property was
approximately 98% leased and there were leases and license agreements with 36
tenants and 4 licensees covering approximately 1,931,000 rentable square feet of
space. For the year ended December 31, 1998, the annual average rent (including
electricity and additional rent payable on account of operating expenses,
porters wage, and real estate tax escalations) for office space leased in the
building was approximately $40.89 per square foot. For the year ended December
31, 1998, approximately 73,000 square feet of space was under lease to retail
tenants, at an average annual rent (including electricity and additional rent
payable on account of operating expenses, porters wage and real estate tax
escalations) of approximately $64.80 per rentable square foot. As of December
31, 1998, approximately 32,000 rentable square feet of office and storage space
was available for rent.
The building serves as the corporate headquarters of The Equitable
Life Assurance Society of the United States ("Equitable"). In addition to
Equitable, the building houses a variety of tenants, including financial
institutions, entertainment companies and law firms.
The following table summarizes certain information regarding the
largest leases at the 1290 Property as of December 31, 1998:
<TABLE>
<CAPTION>
Annual Base Gross Rent Date(s) of
Leased square Rent per square per square Lease
Tenant Nature of Business footage(1) foot leased(2) foot leased(3) Expiration
- - ------ ------------------ ------- ---------------- ----------- ----------
<S> <C>
Equitable(4) Insurance/Financial <C> <C> <C> <C>
Services 567,963 $36.48(5) $39.01(5) 12/31/11
Warner Communications, Inc. Entertainment 273,803 $40.03(6) $43.08(6) 6/30/12(7)
The Bank of New York Financial Services 189,340 $36.41(8) $37.64(8) 12/31/10(9)
EMI Entertainment World, Inc. Entertainment 144,981 $38.56(10) $42.49(10) 9/30/02
Deutsche Bank, AG Financial Services 120,741 $41.15(11) $42.00(11) 2/14/14(12)
Other Office and Retail Various 693,612(13) $40.34 $45.05 1999-2014
Tenants
</TABLE>
(1) Leased square footage does not include approximately 19,800 square feet of
storage and building space.
809954.6
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(2) Annual Base Rent means the amount contractually due (excluding adjustments
related to recoveries from tenants for operating expenses, porters wage,
real estate taxes, utilities or other items and rent concessions) for the
year ended December 31, 1998. The Company believes that base rent is a
conservative and appropriate measure for comparative purposes of
commercial real estate rental revenue from office building properties that
do not generate percentage rents based on sales.
(3) Gross Rent means Annual Base Rent plus recoveries from tenants for
operating expenses, porters wage, real estate taxes, utilities and other
items.
(4) As of December 31, 1998, Equitable was in possession of 488,675 rentable
square feet. Approximately 79,288 rentable square feet of space previously
occupied by another tenant, was delivered to Equitable on March 1, 1999.
Equitable is entitled to a free rent period through December 1999 with
respect to such space and to a credit against rent of up to approximately
$256,000 as reimbursement for the cost of certain tenant improvements made
by and paid for by Equitable with respect to such space.
(5) Does not include (i) 10,574 square feet leased in the basement at an
Annual Base Rent of $20.00 per square foot and a Gross Rent of $21.00 per
square foot, (ii) 203 square feet leased in the basement at an Annual Base
Rent of $15.00 per square foot and a Gross Rent of $16.50 per square foot,
and (iii) 2,864 square feet leased in the basement at an Annual Base Rent
and a Gross Rent of $20.00 per square foot.
(6) A block of space consisting of 24,380 rentable square feet was delivered
to Warner Communications, Inc. ("Warner") on September 15, 1998, with
respect to which Warner is entitled to a free rent period through November
1999. Does not include 8,555 square feet of space leased in the basement
at an Annual Base Rent of $20.00 per square foot and a Gross Rent of
$22.25 per square foot.
(7) Leases with Warner expire February 28, 2000 (with respect to 28,056 square
feet and 8,555 square feet in the basement); September 30, 2004 (with
respect to 79,801 square feet); and June 30, 2012 (with respect to 157,391
square feet).
(8) Does not include 11,633 square feet of space leased in the basement at an
Annual Base Rent and a Gross Rent of $43.33 per square foot.
(9) The Bank of New York lease expires April 30, 2003 (with respect to 31,402
square feet and 11,633 square feet in the basement); and December 31, 2010
(with respect to 146,305 square feet). The Bank of New York lease also
provides that the Bank of New York has the option to terminate its lease
with respect to 100,159 square feet on the third floor of the 1290
Property effective as of December 31, 2006 by giving the 1290 Property
Owning Partnership notice on December 31, 2005 and by paying a fee of
$1,000,000.
(10) Does not include (i) 720 square feet of space leased in the basement at an
Annual Base Rent of $16.00 per square foot and a Gross Rent of $17.02 per
square foot, (ii) an additional 1,533 square feet of space leased in the
basement at an Annual Base Rent of $32.50 per square foot and a Gross Rent
of $36.21 per square foot, and (iii) an additional 203 square feet in the
basement at an Annual Base rent of $22.00 per square foot and a Gross Rent
of $23.04 per square foot.
(11) Deutsche Bank is entitled to a free rent period through January 1999
with respect to 26,303 square feet and through February 1999 with respect
to 74,077 square feet.
(12) The lease with Deutsche Bank expires on March 31, 1999 with respect to
20,361 square feet and on February 14, 2014 with respect to 100,380 square
feet.
(13) Other Office and Retail Tenants includes 79,288 square feet of
office space that was occupied by other tenants on December 31, 1998,
which was delivered to Equitable on March 1, 1999 as disclosed in footnote
(4).
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Expenditures for capital projects for the 1290 Property in 1998
aggregated approximately $2,044,000 and related primarily to (i) the
continuation of the elevator modernization program; (ii) the continuation of the
conversion of a refrigeration machine (in accordance with the 1992 Clean Air
Act); (iii) removal of asbestos in certain mechanical rooms; and (iv)
replacement of the 17th floor roof setback. Anticipated expenditures for capital
projects for the 1290 Property in 1999 are approximately $1,510,000 and relate
primarily to: (i) the completion of the elevator modernization program; (ii)
removal of asbestos in several mechanical rooms; and (iii) installation of a 200
ton cooling tower.
An environmental report prepared for the Properties indicates that
the 1290 Property contains asbestos or asbestos containing materials in several
mechanical rooms and certain other locations. The remaining cost of removing the
asbestos in accordance with the operations and maintenance plan for the 1290
Property is estimated to be approximately $190,000 and the removal is
anticipated to be completed in 1999.
The following table shows anticipated lease expirations on an
aggregate basis for each calendar year from 1999 through and including 2008.
Such chart assumes that there are no early terminations of leases and that
leases expire without extension by existing tenants pursuant to lease options.
<TABLE>
<CAPTION>
Percentage of Total
1290 Property Owning
Rentable Square Annual Base Rent Partnership Annual
Year of Lease Number of Feet Subject to Represented by Base Rent Represented
Expiration Leases Expiring Expiring Leases Expiring Leases by Expiring Leases
------------ --------------- --------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
1999 3 24,215 $ 952,812 1.38%
2000 4 45,333 $ 1,067,494 2.13%
2001 3 5,803 $ 157,716 .21%
2002 3 238,802 $ 10,217,340 14.32%
2003 3 47,003 $ 2,039,799 3.23%
2004 4 253,347 $ 12,099,120 21.16%
2005 6 51,345 $ 2,647,308 5.05%
2006 2 91,042 $ 3,811,656 7.75%
2007 - - - -
2008 2 113,015 $ 6,158,100 13.21%
</TABLE>
Annual real estate taxes assessed against the 1290 Property for
the fiscal years ended June 30, 1999, 1998, 1997 and 1996 were $17,964,180,
$17,152,000, $17,300,250 and $19,023,178, respectively, which amounts were
calculated on assessed values of approximately $175,500,000, $168,750,000,
$168,750,000 and $189,000,000, respectively. See -- "Tax Certiorari Proceedings
and Tenant Reimbursement Claims."
The 237 Property
The 237 Property Owning Partnership holds the fee title to the 237
Property and all improvements thereon. The 237 Property is a 21-story, first
class commercial office building with approximately 1,142,000 rentable square
feet of space. The building was completed in 1981 as a comprehensive renovation
of an existing structure and now features an interior layout of an open full
atrium. The building, centrally located in midtown Manhattan, is situated off of
one of New York City's prestigious thoroughfares and is within close proximity
to Grand Central Station, a transportation hub.
The average occupancy rates for the 237 Property for each of the
years 1994 through 1998 were 98%, 98%, 98%, 98% and 99%.
As of December 31, 1998, the 237 Property was approximately 99%
leased and there were leases and license agreements with 17 tenants and 3
licensees covering approximately 1,126,000 rentable square feet of space.
7
809954.6
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For the year ended December 31, 1998, the annual average rent (including
additional rent on this space payable on account of operating expenses, porters
wage and real estate tax escalations) for office space leased in the building
was approximately $44.23 per square foot. For the year ended December 31, 1998,
approximately 28,000 square feet of space was under lease to retail tenants, at
an average annual rent (including additional rent on this space payable on
account of operating expenses, porters wage and real estate tax escalations) of
approximately $57.33 per rentable square foot. As of December 31, 1998,
approximately 13,000 rentable square feet of retail space was available for
rent.
The following table summarizes certain information regarding the
largest leases at the 237 Property as of December 31, 1998:
<TABLE>
<CAPTION>
Annual Base Rent Gross Rent Date(s) of
Leased Square per square per square Lease
Tenant Nature of Business Footage(1) foot leased(2) foot leased(3) Expiration
- - ------ ------------------ ---------- -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
J. Walter Thompson Advertising 456,132 $22.39 $32.88 8/31/06
Company(4)
Swiss Reinsurance
Company, U.S. Branch
(and certain of its Insurance/Financial
affiliates)(5) Services 279,906 $36.09 $58.50 8/31/01
E.M. Warburg Pincus &
Co., LLC(5) Financial Services 167,788 $47.33(6) $53.52 10/31/09
Champion International Pulp and Paper
Corporation Industry 110,800 $39.20 $44.96 9/30/11
Other Office and Retail
Tenants Various 108,862 $42.41 $43.40 1999-2014
</TABLE>
- - ------------------------
(1) Leased square footage does not include approximately 2,100 square feet of
storage space.
(2) Annual Base Rent means the amount contractually due (excluding
adjustments related to recoveries from tenants for operating expenses,
porters wage, real estate taxes or other items and rent concessions) for
the year ended December 31, 1998. The Company believes that base rent is
a conservative and appropriate measure for comparative purposes of
commercial real estate rental revenue from office building properties
that do not generate percentage rents based on sales.
(3) Gross Rent means Annual Base Rent plus recoveries from tenants for
operating expenses, porters wage, real estate taxes and other items.
(4) J. Walter Thompson Company ("JWT") has the option to terminate its lease
on September 30, 2000 with respect to up to 110,607 rentable square feet
of space on the 8th Floor and the 9th Floor if JWT's subtenant exercises
its option to terminate its sublease. JWT must provide notice to the 237
Property Owning Partnership with respect to such termination at least one
year in advance of such date.
(5) Pursuant to an agreement with the Company, Swiss Reinsurance Company must
vacate the entire 13th floor (55,907 square feet) on or before October 1,
1999. E.M. Warburg Pincus & Co., LLC ("Warburg Pincus") has entered into
a lease and will take possession of such space through October 31, 2009.
(6) The lease agreement with Warburg Pincus provides that fixed rent shall be
abated in full with respect to 77,238 rentable square feet for the months
of September and October 1999.
Expenditures for capital projects for the 237 Property in 1998
aggregated approximately $613,000 and related primarily to roof repairs and an
upgrade of the condenser water system. Anticipated expenditures for capital
projects for the 237 Property in 1999 are approximately $1,760,000 and relate
primarily to an upgrade of the building's electrical capacity system.
809954.6
8
<PAGE>
The following table sets forth anticipated lease expirations on an
aggregate basis for each calendar year from 1999 through and including 2008.
This chart assumes that there are no early terminations of leases and that
leases expire without extension by existing tenants pursuant to lease options.
<TABLE>
<CAPTION>
Percentage of Total
237 Property Owning
Rentable Square Annual Base Rent Partnership Annual
Number of Feet Subject Represented Base Rent Represented
Year of Lease Leases/Licenses to Expiring by Expiring by Expiring
Expiration Expiring Leases/Licenses Leases/Licenses Leases/Licenses
---------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1999 1 3,372 $ 269,760 .75%
2000 1 3,450 $ 196,656 .54%
2001 2 225,839 $ 10,867,028 32.86%
2002 - - - -
2003 1 2,050 $ 187,740 .71%
2004 2 9,693 $ 350,332 1.32%
2005 - - - -
2006 1 456,132 $ 10,898,364 47.24%
2007 1 713 $ 105,372 .65%
2008 1 6,110 $ 238,296 1.48%
</TABLE>
Annual real estate taxes assessed against the 237 Property for the
fiscal years ended June 30, 1999, 1998, 1997 and 1996 were $10,140,242,
$9,826,626, $9,835,307 and $9,511,807, respectively, which amounts were
calculated on assessed values of approximately $109,594,500, $108,805,000,
$110,250,000 and $108,450,000, respectively. See -- "Tax Certiorari Proceedings
and Tenant Reimbursement Claims."
Other Assets
Tenant Notes Receivable
The Company is the holder of a note (the "Robinson Silverman
Note") issued by Robinson Silverman Pearce & Aronsohn ("Robinson Silverman"),
dated April 1, 1989, in the face amount of $6,500,000 and a maturity date of
September 1, 1999, which note was executed in connection with Robinson
Silverman's lease at the 1290 Property. In 1991 and 1992, Robinson Silverman
claimed certain concessions regarding the payment terms of such note. Although
1290 LLC was unable to locate any records evidencing an agreement to such
concessions, Robinson Silverman has made payments reflecting such concessions
and such payments were not rejected by 1290 LLC and have not been rejected by
the 1290 Property Owning Partnership. Without the Company expressing any opinion
with regard thereto, if such concessions were granted, the Robinson Silverman
note would have an outstanding principal balance as of December 31, 1998 of
$3,843,102, would bear interest at 7.5% per annum and would require level
monthly payments of interest and principal of $75,000. If such concessions were
not granted, then the Robinson Silverman Note would bear interest at 10% and,
based on the monthly payments of $75,000 received from Robinson Silverman, the
outstanding balance as of December 31, 1998 would be approximately $5,418,666.
The Company is the holder of a note (the "Warburg Pincus Note,"
and together with the Robinson Silverman Note, the "Tenant Notes"), issued by
Warburg Pincus, dated August 20, 1985, in the face amount of $4,354,758, which
note was executed in connection with Warburg Pincus' lease at the 237 Property.
The note is payable on October 31, 1999 and does not bear interest prior to its
maturity.
809954.6
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<PAGE>
JMB Notes
Certain notes (the "JMB Notes") were issued by JMB LP's
predecessor in interest to an affiliate of O&Y in 1984 in connection with the
admission of such predecessor as a partner of the predecessor of the Debtors and
an affiliate of the Debtors which owned the property located at 2 Broadway, New
York, New York (the "2 Broadway Property"). The amount outstanding on an
aggregate basis under all the JMB Notes, as of the Effective Date, was
$83,918,815. On the Effective Date, the JMB Notes and related security
agreements were assigned by such O&Y affiliate to the Company. Immediately prior
to such assignment, the Company entered into a Participation Agreement with an
affiliate of JMB LP pursuant to which the Company or its designee will receive
the first $750,000 of payments made pursuant to, or in respect of, the JMB Notes
and the JMB LP affiliate will receive all further payments in respect of the JMB
Notes. Amounts, if any, distributable to JMB LP from the Upper Tier Limited
Partnership, including pursuant to the Company's purchase option and JMB LP's
put option as provided for in the Upper Tier Limited Partnership Agreement,
would first be applied to the prepayment of the JMB Notes. On the Effective
Date, the JMB Notes were restated. The JMB Notes, as restated, bear interest at
12.75% per annum and have a maturity date of January 1, 2001. The JMB Notes are
non-recourse and are payable solely out of the distributions JMB LP receives
from the Upper Tier Limited Partnership.
Tax Certiorari Proceedings and Tenant Reimbursement Claims
2 Broadway Associates, L.P. ("2 Broadway LP") commenced tax
certiorari proceedings against the City of New York for over-assessment of
property taxes for the tax years ended June 30, 1988 through June 30, 1995 with
respect to the 2 Broadway Property. The rights to the proceeds of the 2 Broadway
Property tax certiorari proceedings were assigned to the Company pursuant to the
Plan. The Company settled such proceedings with the City of New York on July 14,
1998 and received net proceeds of approximately $8,342,000, after reimbursements
to tenants and $2,238,000 of fees and expenses incurred in connection with such
proceedings. Such net proceeds were approximately $3,280,000 in excess of
estimated net proceeds and are included in miscellaneous income in 1998. Tax
certiorari proceedings have been commenced which remain outstanding against the
City of New York, for over-assessment of property taxes for the tax years ending
June 30, 1995 through June 30, 1998 with respect to the 237 Property and for the
tax years ending June 30, 1991 through June 30, 1998 with respect to the 1290
Property. The Company has reflected real estate tax proceeds of $3,175,000 and
the corresponding tenant reimbursements, fees and expenses of $2,800,000 related
to the 1290 Property in the balance sheet as of December 31, 1998.
Priority Utility Tax Claims
Pursuant to the reorganization plan related to the 2 Broadway
Property (the "2 Broadway Plan"), and an Assumption and Indemnification
Agreement, dated as of the Effective Date (i) the Company assumed any and all
remaining obligations of 1290 LLC and 2 Broadway LP in connection with any
claims reserved pursuant to section 9.3 of the 2 Broadway Plan, and (ii) the
Company received all amounts remaining in the 2 Broadway claims reserve. The
obligations assumed, and amounts remaining in the 2 Broadway claims, related
primarily to settlement of potential utility tax claims against 2 Broadway LP by
the taxing authorities of the City and State of New York (the "2 Broadway
Utility Tax Claims"). In December 1997, the Company entered into a resolution
with the City of New York Department of Finance settling the 2 Broadway Utility
Tax Claims with respect to New York City utility taxes for an aggregate of
$236,000.
The taxing authorities of the City and State of New York also
filed claims in the Debtors bankruptcy cases alleging nonpayment of New York
City and New York State utility taxes in respect of the 1290 and 237 Properties
(the "Priority Utility Tax Claims"). Pursuant to the Plan, the Company has the
exclusive right to compromise and settle such claims; provided, that in
connection with any such compromise or settlement, the Company is required to
indemnify the previous holders of equity interests in the Debtors (and their
successors and assigns) from all claims which may be made by the City or State
of New York in respect of utility taxes, interest and penalties related to the
1290 and 237 Properties unless such settlement includes a release of such
holders from all such claims. At such time as the Priority Utility Tax Claims
are disallowed or allowed (as determined by either a court of competent
jurisdiction or by agreement between the Company and the relevant taxing
authority), the
809954.6
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<PAGE>
Company will pay any such allowed claims from cash held in the claims reserve
and any amount held in the claims reserve in excess of the amount of such
allowed claims will be retained by the Company. In December 1997, the Company
entered into a resolution with the City of New York Department of Finance
settling the Priority Utility Tax Claims with respect to New York City utility
taxes for an aggregate of $34,000.
As of December 31, 1998, $2,707,000 is being held in trust for the
benefit of holders of Priority Utility Tax Claims and the 2 Broadway Utility Tax
Claims pending determination of their entitlement thereto (the "Claims
Reserve"). The Company believes that amounts in the Claims Reserve will be
sufficient to pay in full all such claims. If any cash held in the Claims
Reserve remains after all claims have been allowed or disallowed and
distributions have been made in accordance with the Plan, such cash will be
retained by the Company.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than
ordinary routine litigation incidental to the business of the Company, against
or involving the Company, the Partnerships or the Properties.
Retention of Jurisdiction by Bankruptcy Court
In July 1997, the Bankruptcy Court entered a final decree closing
the reorganization cases of the Debtors.
The Bankruptcy Court may retain jurisdiction, and if the
Bankruptcy Court exercises its retained jurisdiction, it will have exclusive
jurisdiction of all matters arising out of, and related to, the Plan and, for
among other things, the following purposes: (a) to determine any and all
adversary proceedings, applications and contested matters; (b) to allow or
disallow any disputed claim, including Tenant Reimbursement Claims, in whole or
in part; (c) to issue such orders in aid of execution of the Plan, to the extent
authorized by section 1142 of the Bankruptcy Code; (d) to cure any defect or
omission, or reconcile any inconsistency in any order of the Bankruptcy Court,
including the Confirmation Order (as such term is defined in the Plan); (e) to
hear and determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Plan; and (f) to hear and determine
matters concerning state, local and federal taxes in accordance with sections
346, 505 and 1146 of the Bankruptcy Code including, without limitation, the New
York Real Property Transfer Gains Tax, Article 31-B of the New York Tax Law.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held on December 1, 1998.
At such meeting, the shareholders of the Company (i) elected Lee S. Neibart as a
Class I Director of the Company and Bruce H. Spector and David Roberts as Class
II Directors of the Company, each of their terms to expire in 2001, and (ii)
ratified Deloitte & Touche LLP as the Company's independent auditors for the
year ended December 31, 1998.
809954.6
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is not listed on any exchange, the Company does
not intend to list the Common Stock on any exchange in the near term, there is
not currently a public market for the Common Stock and there can be no assurance
that an active trading market for the Common Stock will develop or be sustained.
As of March 12, 1999, there were approximately 108 holders of record of the
Company's Common Stock.
Distribution Policy
On March 6, 1997, the Board of Directors adopted a distribution
policy calling for regular quarterly distributions. The Board of Directors, in
its sole discretion, determines the actual distribution rate based on a number
of factors, including the amount of cash available for distribution, the
Company's financial condition, capital expenditure requirements for the
Company's Properties, the annual distribution requirements under the REIT
provisions of the Internal Revenue Code and such other factors as the Board of
Directors deems relevant. The Company intends to make distributions to comply
with the REIT distribution requirements. In order to maintain its qualification
as a REIT, the Company must make annual distributions to stockholders of at
least 95% of its taxable income (excluding capital gains). Since the Effective
Date, the Company has made the following distributions:
Amount of Distribution
Date of Distribution Type of Distribution (Per Share)
-------------------- -------------------- -----------
January 20, 1997 special $0.50
April 15, 1997 regular $0.25
July 15, 1997 regular $0.50
October 15, 1997 regular $0.50
special $0.50
December 31, 1997 regular $0.50
special $0.50
March 17, 1998 regular $0.50
December 31, 1998 regular $0.50
special $0.50
On July 1, 1998 the Company suspended its regular quarterly dividend
pending consideration of strategic alternatives to maximize stockholder value.
On July 13, 1998 the Company announced the retention of Victor Capital Group,
L.P. and Eastdil Realty Company, LLC to explore the sale of the Company or its
two principal assets -- the 1290 Property and 237 Property.
809954.6
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<PAGE>
On November 16, 1998, the Company announced that after considering
strategic alternatives in order to maximize stockholder value, it had postponed
the marketing of the Company's properties. The Company also announced the
reinstatement of its regular quarterly dividend of $.50 per share.
On March 21, 1999 the Company announced its regular quarterly
dividend of $0.50 per share, which is payable to the holders of record as of
March 31, 1999 and which will be paid on April 15, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Period
October 10, 1996
(commencement
of operations) to
Years Ended December 31, December 31,
1998 1997 1996
---- ---- ----
REVENUES
<S> <C> <C> <C>
Rental income $134,754 $129,617 $28,141
Miscellaneous income 4,889 1,190 1,965
Interest income 3,293 3,676 779
--------- -------- --------
Total revenues 142,936 134,483 30,885
======= ======= ======
OPERATING EXPENSES
Real Estate Taxes 27,733 26,813 6,208
Operating and Maintenance 7,119 7,553 1,774
Utilities 6,674 6,870 1,195
Payroll 4,430 4,332 1,170
Management Fees 2,298 2,121 426
Professional Fees 3,451 2,055 384
General and Administrative 562 1,032 204
------- ------ --------
Total Operating Expenses 52,267 50,776 11,361
====== ====== ======
OTHER ITEMS
Interest Expense 33,615 34,048 7,484
Depreciation and Amortization 16,651 15,532 3,457
------ ------ ------
Total Other Expenses 50,266 49,580 10,941
------ ------ ------
NET INCOME $ 40,403 $ 34,127 $ 8,583
======== ======== =======
Net Income Per Common Share:
Net Income $3.12 $2.63 $0.66
----- ----- -----
Weighted Average Common Shares Outstanding 12,967,153 12,963,963 12,963,046
---------- ---------- ----------
Net Income Per Common Share
(assuming dilution):
Net Income $3.11 $2.63 $0.66
----- ----- -----
Weighted Average Common Shares Outstanding
(assuming dilution): 12,993,666 12,988,963 12,990,046
---------- ---------- ----------
Funds from Operations $ 54,839 $ 47,422 $ 11,541
--------- --------- ---------
Total Assets as of year end $767,771 $757,932 $766,219
-------- -------- --------
Long-Term Debt as of year end $410,625 $418,125 $420,000
-------- -------- --------
Cash Dividends Declared Per Common Share $1.50 $2.75 $0.50
----- ----- -----
</TABLE>
809954.6
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
Selected Financial Data and the financial statements included in "ITEM 6. --
SELECTED FINANCIAL DATA" and "ITEM 8. -- FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA."
Overview
The Company was formed on May 13, 1996 and commenced operations on
October 10, 1996, upon acquisition of the 237 Property and the 1290 Property
pursuant to the Plan. The Company is a Maryland corporation that qualifies as a
REIT for tax purposes.
The Company's principal business objective is to operate the
Properties in a manner that will maximize the Properties' revenues and value and
in turn maximize funds from operations and stockholder value.
The 1290 Property is a 43-story Class A commercial office building
with approximately 2 million rentable square feet of space. The building is
centrally located in midtown Manhattan and is connected to the famed
"Rockefeller Center" complex via an underground passageway. The 1290 Property
serves as the corporate headquarters for The Equitable Life Assurance Society of
the United States, and is currently 98% leased. Over the next five years,
approximately 19% of the total rentable area of the building is subject to
expiring leases.
The 237 Property is a 21-story Class A commercial office building
with approximately 1.1 million rentable square feet of space. The building,
centrally located in midtown Manhattan, is situated off one of New York City's
most prestigious thoroughfares and is within close proximity to Grand Central
Station, a transportation hub. The 237 Property serves as the corporate
headquarters for J. Walter Thompson Company, a major advertising agency, as well
as Swiss Reinsurance Company ("Swiss Re"), an insurance/financial services
organization, and is currently 99% leased. Over the next five years,
approximately 21% of the total rentable area of the building is subject to
expiring leases.
The Company, through the Property Owning Partnerships, has
retained Tishman Speyer Properties, L.P. to serve as the property manager and
leasing agent, which is responsible for managing the daily operations of the
Properties, and 970 Management, LLC, an affiliate of Victor Capital Group, L.P.,
to serve as the Asset Manager. The Company has also entered into a REIT
Management Agreement with Tishman Speyer Properties, L.P. to perform certain
accounting, administrative and REIT compliance monitoring services.
On July 1, 1998 the Company suspended its regular quarterly
dividend pending consideration of strategic alternatives to maximize stockholder
value. On July 13, 1998 the Company announced the retention of Victor Capital
Group, L.P. and Eastdil Realty Company, LLC to explore the sale of the Company
or its two principal assets -- the 1290 Property and 237 Property.
On November 16, 1998, the Company announced that after considering
strategic alternatives in order to maximize stockholder value, it has postponed
the marketing of the Company's properties. The Company also announced the
reinstatement of its regular quarterly dividend of $.50 per share and that the
Board of Directors had declared a dividend of $1.00 per share, consisting of a
regular quarterly dividend of $.50 per share and a special dividend of $.50 per
share, payable on December 31, 1998 to stockholders of record on December 18,
1998.
As of December 31, 1998, 12,970,646 shares of common stock were
issued and outstanding. The Common Stock of the Company is not listed on any
exchange, and the Company does not intend to list the Common Stock on any
exchange in the near term.
809954.6
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<PAGE>
The assets and results of operations of the Properties are
reported in the consolidated financial statements of the Company using the
consolidation method of accounting. In accordance with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission, the financial information
presented for the period January 1, 1996 to October 10, 1996 represents a
Combined Statement of Revenues and Certain Expenses. This statement is not
representative of the actual operations for such period, as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the Properties, have been excluded. As a result, the
operating results of the Company for the years ended December 31, 1998 and 1997
and for the period October 10, 1996 to December 31, 1996 are not directly
comparable with such prior period.
Historical Consolidated Statement of Income, year ended December
31, 1998
Base rental income increased by approximately $5,092,000 for the
year ended December 31, 1998 as compared to the prior year. This increase of
4.5% is attributable to an overall increase in occupancy at the Properties.
Miscellaneous income increased by approximately $3,699,000 for the year ended
December 31, 1998 as compared to the prior year primarily as a result of receipt
of net proceeds in excess of accrued amounts related to the settlement of tax
certiorari proceedings with respect to 2 Broadway, a property previously owned
by the Predecessors.
Operating expenses for the year ended December 31, 1998 were
$52,267,000, an increase of 2.9% from the year ended December 31, 1997. This
increase is primarily attributable to professional fees and expenses incurred in
connection with the settlement of tax certiorari proceedings related to 2
Broadway, totaling $2,238,000. Operating expenses as a percentage of base rental
income and escalation income remained at 39%.
Depreciation and amortization for the year ended December 31, 1998
was $16,651,000 as compared to $15,532,000 for the prior year. The increase of
$1,119,000 is primarily the result of building and tenant improvements made
subsequent to December 31, 1997.
Historical Consolidated Statement of Income, year ended December
31, 1997
The Company's revenues of $134,483,000 for the year consisted of
base rental income of $114,183,000 (84.9%), escalation income of $15,434,000
(11.5%), and other income of $4,866,000 (3.6%). This revenue is achieved based
on the 237 Property and the 1290 Property being approximately 98% and 97%
leased, respectively, during the year.
Historical Consolidated Statement of Income, Period October 10,
1996 to December 31, 1996.
The Company's revenues of $30,885,000 for the period consisted of
base rental income of $24,919,000 (80.7%), operating escalation income of
$3,222,000 (10.4%), and miscellaneous income of $2,744,000 (8.9%). This revenue
is achieved based on the 237 Property and the 1290 Property being approximately
98% and 90% leased, respectively, during the period.
Liquidity and Capital Resources
During 1998, the Company received cash flows of approximately
$49,038,000 from operations of the Properties. The Company used this cash flow
from operations to fund building and tenant improvements of approximately
$15,903,000, principal payments of $7,500,000 on the Loan (as hereinafter
defined) to the Property Owning Partnership, and leasing costs of approximately
$5,790,000.
At December 31, 1998, the Company had unrestricted cash on hand of
approximately $25,357,000. At December 31, 1997, the Company had unrestricted
cash on hand of approximately $24,627,000.
809954.6
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<PAGE>
On October 10, 1996, the Property Owning Partnerships borrowed
$420,000,000 (the "Loan"), secured by the 1290 Property and the 237 Property.
The Loan is cross-collateralized by the Properties and prohibits the Property
Owning Partnerships from incurring any additional indebtedness. The Company may,
however, be able to incur unsecured indebtedness, although it has no present
plans to do so. The Company believes that cash on hand and existing cash flow
from operations are sufficient to satisfy the Company's foreseeable cash
requirements which consist primarily of property operating expenses, real estate
taxes, capital expenditures, debt service on the Loan and distributions
necessary to enable the Company to continue to qualify as a REIT. The Loan
matures on October 10, 2001. If not repaid or refinanced prior to such date, the
Property Owning Partnerships will be required to refinance the Loan on that
date. There can be no assurance, however, that the Company will be able to
refinance the Loan on that date or what the terms of any refinancing will be.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a two
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company began preparations for the year 2000 in 1996 and has
identified all significant applications that will require modification to ensure
compliance. Internal and external resources have been and continue to be used to
make the required modifications and test Year 2000 Compliance. The modification
process of all significant applications is substantially complete.
In addition, the Company has communicated with others with whom it
does significant business to determine their Year 2000 Compliance readiness and
the extent to which the Company is vulnerable to any third party Year 2000
issues. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be timely converted, or that a failure
to convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The total cost to the Company of these Year 2000 Compliance
activities has not been and is not anticipated to be material to its financial
position or results of operations in any given year. These costs to complete the
Year 2000 modification and testing processes are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ from those
plans.
Funds from Operations
The Company generally considers Funds from Operations to be a
useful measure of the operating performance of an equity REIT because, together
with net income and cash flows, Funds from Operations provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. Funds from Operations does
not represent net income or cash flows from operations as defined by generally
accepted accounting principles ("GAAP") and does not necessarily indicate that
cash flows will be sufficient to fund cash needs. It should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Funds from Operations
does not measure whether cash flow is sufficient to fund all of the Company's
cash needs, including principal amortization, capital improvements and
distributions to shareholders. Funds from operations also does not represent
cash flows generated from operating, investing or financing activities as
defined by GAAP. Further, Funds from Operations as disclosed by other REITs may
not be comparable to the Company's calculation of Funds from Operations. The
Company adopted the National Association of Real Estate Investment Trusts
("NAREIT") definition of Funds from Operations in 1996 and has used it for all
periods presented. Funds from Operations is calculated as net income (loss)
computed in accordance with GAAP adjusted for depreciation expense attributable
to real property,
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<PAGE>
amortization expense attributable to real property, amortization expense
attributable to capitalized leasing costs, tenant allowances and improvements,
gains and losses on sales of real estate investments and extraordinary and
nonrecurring items.
Funds from Operations for the years ended December 31, 1998 and
1997 and the period October 10, 1996 (commencement of operations) to December
31, 1996 is summarized in the following table (in thousands, except share data).
<TABLE>
<CAPTION>
Period October 10, 1996
(commencement of
operations)
Years ended December 31, to December 31, 1996
---------------------
1998 1997
---- ----
<S> <C> <C> <C>
Net Income $ 40,403 $ 34,127 $ 8,583
Add:
Depreciation attributable to real property and
amortization attributable to leasing costs $ 14,436 $ 13,295 $ 2,958
----------- --------- ---------
Funds from Operations $ 54,839 $ 47,422 $ 11,541
=========== ========= =========
Weighted average number of shares of 12,993,666 12,988,963 12,990,046
Common Stock outstanding (assuming dilution) (1) ========== ========== ==========
(1) Includes 28,000, 25,000 and 27,000 shares of Common Stock issuable upon the exercise of outstanding options as of
December 31, 1998, 1997 and 1996, respectively.
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Property Owning Partnerships and the lead lender under the
Loan entered into an Interest Rate Exchange Agreement effective October 10, 1996
(the "Swap Agreement"). The Swap Agreement has a term of 5 years and provides
that the Property Owning Partnerships will pay interest at an effective rate of
7.987% per annum of the notional amount of $420,000,000. Management believes the
risk of incurring losses related to the credit risk is remote and any losses
would be immaterial.
The Company believes the fair value of the Swap Agreement
generally offsets gains or losses on the Loan being hedged and changes the
nature of such underlying financial instruments. Because the maturity date of
the Loan and the termination date of the Swap Agreement are identical and the
Company has no intention of terminating either the Loan or the Swap Agreement,
the fair value of the Swap Agreement may be of limited usefulness.
809954.6
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
METROPOLIS REALTY TRUST, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
Independent Auditors' Report.......................................................................... 19
Consolidated Balance Sheets as of December 31, 1998 and 1997.......................................... 20
Consolidated Statements of Income for the years ended December 31, 1998 and 1997
and the period October 10, 1996 (commencement of operations) to December 31, 1996.................... 21
Consolidated Statements of Stockholders' Equity for years ended December 31, 1998 and 1997
and the period October 10, 1996 (commencement of operations) to December 31, 1996.................... 22
Consolidated Statements of Cash Flows for years ended December 31, 1998 and 1997
and the period October 10, 1996 (commencement of operations) to December 31, 1996.................... 23
Notes to Consolidated Financial Statements............................................................ 24
PURCHASED PROPERTIES
Independent Auditors' Report.......................................................................... 31
Combined Statement of Revenues and Certain Expenses for the period
January 1, 1996 to October 10, 1996................................................................... 32
Notes to Combined Statement of Revenues
and Certain Expenses.................................................................................. 33
</TABLE>
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Metropolis Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of Metropolis
Realty Trust, Inc. and Subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity and cash flows
for the years ended December 31, 1998 and 1997 and the period October 10, 1996
(commencement of operations) to December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Metropolis Realty Trust, Inc. and
Subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for the years ended December 31, 1998 and 1997
and the period October 10, 1996 (commencement of operations) to December 31,
1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
January 29, 1999
809954.6
19
<PAGE>
METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS
December 31,
1998 1997
---- ----
<S> <C> <C>
Rental property - net of accumulated depreciation of $30,172 and $16,165, $ 651,003 $ 649,107
respectively
Cash and cash equivalents 25,357 24,627
Escrow deposits 3,084 2,909
Tenant security deposits 644 640
Due from tenants - net of doubtful accounts of $2,696 and $2,745, respectively 4,088 3,005
Deferred financing costs - net of amortization of $4,863 and $2,678, 6,062 8,247
respectively
Real estate tax refunds 3,175 14,088
Notes receivable - net of unamortized discount of $187 and $420, respectively 9,307 9,101
Deferred rent receivable 39,831 26,855
Prepaid real estate taxes 14,138 13,575
Deferred leasing costs, net of amortization of $538 and $110, respectively 10,628 5,266
Other assets 454 512
----------- ---------
TOTAL ASSETS $ 767,771 $ 757,932
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Secured notes $ 410,625 $ 418,125
Accounts payable and accrued expenses 11,927 16,968
Tenants' security deposits and unearned revenue 3,292 2,009
------------ ------------
Total Liabilities 425,844 437,102
------- -------
Subordinated Minority Interest 14,855 14,855
------- -------
Stockholders' Equity
Preferred Stock - $10 par value, 10,000,000 shares authorized, none issued
and outstanding
Common Stock - $10 par value, 50,000,000 authorized
(Class A - outstanding - 8,034,586 and 7,990,586 shares, respectively;
Class B - outstanding - 4,936,060 and 4,936,060 shares, respectively;
and Class C - outstanding - 0 and 40,000 shares, respectively) 129,706 129,666
Paid-in capital 175,844 175,736
Retained earnings 21,522 573
--------- ---------
Total Stockholders' Equity 327,072 305,975
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 767,771 $ 757,932
========= =========
See notes to consolidated financial statements.
</TABLE>
809954.6
20
<PAGE>
<TABLE>
METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, except share amounts)
- - -----------------------------------------------------------------------------------------------------------------------------------
October 10, 1996
(commencement
of operations) to
Years ended December 31, December 31,
1998 1997 1996
---- ---- ----
REVENUES:
<S> <C> <C> <C>
Base rental income $119,275 $114,183 $24,919
Operating escalation income 15,479 15,434 3,222
Interest income 3,293 3,676 779
Miscellaneous income 4,889 1,190 1,965
--------- --------- ------
Total revenues 142,936 134,483 30,885
-------- -------- ------
OPERATING EXPENSES:
Real estate taxes 27,733 26,813 6,208
Operating and maintenance 7,119 7,553 1,774
Utilities 6,674 6,870 1,195
Payroll 4,430 4,332 1,170
General and administrative 562 1,032 204
Professional fees 3,451 2,055 384
Management fees 2,298 2,121 426
------ ------- ---
Total operating expenses 52,267 50,776 11,361
------ ------ -------
OTHER ITEMS:
Interest expense 33,615 34,048 7,484
Depreciation and amortization 16,651 15,532 3,457
------ ------ ------
Total other items 50,266 49,580 10,941
------ ------ ------
NET INCOME $ 40,403 $ 34,127 $ 8,583
======== ======== =======
NET INCOME PER COMMON SHARE:
Net income $3.12 $2.63 $0.66
===== ===== =====
Weighted Average Common Shares Outstanding 12,967,153 12,963,963 12,963,046
========== ========== ==========
NET INCOME PER COMMON SHARE
(assuming dilution):
Net income $3.11 $2.63 $0.66
===== ===== =====
Weighted Average Common Shares Outstanding 12,993,666 12,990,046
========== ==========
(including 28,000, 25,000 and 27,000 shares of 12,988,963
Common Stock issuable upon the exercise of outstanding ==========
options as of December 31, 1998, 1997 and 1996, respectively).
See notes to consolidated financial statements.
</TABLE>
809954.6
21
<PAGE>
METROPOLIS REALTY TRUST, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Common
Stock at Total
Par Paid-in Retained Stockholders'
Value Capital Earnings Equity
--------------- ------------------- ------------------ --------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 10, 1996 $129,630 $175,615 $ -- $305,245
Net income -- -- 8,583 8,583
Dividends Declared -- -- (6,481) (6,481)
-------- -------- ------- -------
BALANCE, DECEMBER 31, 1996 129,630 175,615 2,102 307,347
Shares issued under Directors' Stock Plan 36 121 -- 157
Net income -- -- 34,127 34,127
Dividends Declared -- -- (35,656) (35,656)
-------- ------- -------- -------
BALANCE, DECEMBER 31, 1997 129,666 175,736 573 305,975
Shares issued under Directors' Stock Plan 40 108 -- 148
Net income -- -- 40,403 40,403
Dividends Declared -- -- (19,454) (19,454)
-------- ------- ------- -------
BALANCE, DECEMBER 31, 1998 $129,706 $175,844 $ 21,522 $327,072
======== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
809954.6
22
<PAGE>
METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 10, 1996
(Commencement of
Operations) to
Years Ended December 31, December 31,
1998 1997 1996
---- ---- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $40,403 $34,127 $ 8,583
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,651 15,532 3,457
Issuance of shares of Common Stock 148 157 --
Amortization of discount - notes receivable (545) (504) (96)
Change in:
(Increase)/Decrease in escrow deposits (175) 10,848 8,177
(Increase)/Decrease in due from tenants (1,084) 947 734
(Increase) /Decrease in prepaid expenses and other assets (535) 199 (7,860)
Decrease in real estate tax refunds 10,913 -- --
Increase in deferred rent receivable (12,976) (20,279) (6,576)
Increase/(Decrease) in accounts payable and accrued expenses (5,041) 547 (79)
Increase/(Decrease) in unearned revenue 1,279 848 (5,125)
------- ------- ------
Net cash provided by operating activities 49,038 42,422 1,215
------ ------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to building and equipment (15,903) (6,559) (2,405)
Leasing costs (5,790) (5,206) (182)
Collections on notes receivable 339 307 48
------- -------- -------
Net cash used in investing activities (21,354) (11,458) (2,539)
-------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Secured Notes (7,500) (1,875) --
Dividends Paid (19,454) (42,137) --
-------- ------- -------
Net cash used in financing activities (26,954) (44,012) --
------- ------- -------
INCREASE/(DECREASE) IN CASH AND CASH 730 (13,048) (1,324)
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 24,627 37,675 38,999
------- -------- ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $25,357 $24,627 $37,675
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $33,489 $33,905 $ 5,341
======= ======= =======
Dividends declared $19,454 $35,656 $ 6,481
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
809954.6
23
<PAGE>
METROPOLIS REALTY TRUST, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE
PERIOD OCTOBER 10, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
(In Thousands except share amounts)
- - -------------------------------------------------------------------------------
1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - Metropolis Realty Trust, Inc., a Maryland corporation
("Metropolis" or the "Company"), was formed on May 13, 1996 to facilitate
the consummation of the Second Amended Joint Plan of Reorganization of 237
Park Avenue Associates, L.L.C. ("237 LLC") and 1290 Associates, L.L.C.
("1290 LLC" and together with 237 LLC, the "Predecessors"), dated
September 20, 1996 (the "Plan"). Pursuant to the Plan, on October 10,
1996, the date operations commenced ("Effective Date"), the Company
acquired the interests of 237 LLC and 1290 LLC in the properties located
at 237 Park Avenue (the "237 Property") and 1290 Avenue of the Americas
(the "1290 Property," and together with the 237 Property, the
"Properties"). The Company owns a 95% interest, as general partner, and
.05% interest, as limited partner (through its 1% general partnership
interest in Upper Tier Associates, L.P.), in 237/1290 Lower Tier
Associates, L.P., a Delaware limited partnership (the "Lower Tier Limited
Partnership") which owns a 99% partnership interest, as limited partner in
each of 237 Park Partners, L.P., a Delaware limited partnership (the "237
Property Owning Partnership") and 1290 Partners, L.P., a Delaware limited
partnership (the "1290 Property Owning Partnership," and together with the
237 Property Owning Partnership, the "Property Owning Partnerships"). The
Property Owning Partnerships were formed to own the Properties. The
remaining 1% general partnership interest in each of the Property Owning
Partnerships is owned by 237 GP Corp. and 1290 GP Corp. (the "GP Corps")
which are wholly-owned subsidiaries of the Company.
Basis of Presentation - The consolidated financial statements include
Metropolis, the Lower Tier Limited Partnership, the GP Corps and each of
the Property Owning Partnerships.
Certain 1996 amounts have been reclassified to conform with the 1997 and
1998 presentation.
The presentation of the consolidated financial statements requires
estimates and assumptions that affect the reported amounts of assets and
liabilities at the balance sheet date. Actual results could differ from
those estimates.
Rental Property - Rental property is carried at cost, net of accumulated
depreciation and amortization and, includes land, building, tenant
improvements and building improvements. Land is valued at $134,518 as of
December 31, 1998 and 1997 and building, tenant improvements and building
improvements are carried at $546,658 and $530,754 as of December 31, 1998
and 1997, respectively. In accordance with SFAS No. 121, impairment of
property is determined to exist when estimated amounts recoverable through
future operations and sale of property on an undiscounted basis are below
that property's carrying value. If a property is determined to be
impaired, it must be written down to its estimated fair value. Fair value
is defined as the amount for which the asset could be bought or sold in a
current transaction, that is, other than a forced or liquidation sale.
Cash and Cash Equivalents - Cash and cash equivalents includes investments
purchased with an original maturity of three months or less.
809954.6
24
<PAGE>
Depreciation and Amortization - Building and building improvements are
depreciated over their useful life of 40 years. Furniture and fixtures are
depreciated over their useful life, ranging from 5 to 7 years. Tenant
improvements are amortized on a straight-line basis over the terms of the
respective leases.
Deferred Charges - Deferred financing costs are amortized over the term of
the related loan. Direct costs related to leasing are amortized over the
related lease term on a straight-line basis.
Rental Income - Rental income is recognized on a straight-line basis over
the terms of the related leases. Differences between actual base amounts
due from tenant leases and the straight-line basis are included in
deferred rent receivable.
Escrow Deposits - Escrow deposits include reserves for certain claims made
in conjunction with the Plan and escrow deposits for tenant improvements,
insurance and real estate taxes and utility taxes.
Income Taxes - The Company qualifies as a REIT under the Internal Revenue
Code, as amended, and will generally not be taxed at the corporate level
on income it currently distributes to its stockholders so long as it,
among other things, distributes at least 95% of its REIT taxable income.
Amounts Per Share - In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share (SFAS 128). SFAS 128 replaced
the calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the requirements of SFAS 128.
2. REAL ESTATE TAX REFUNDS
2 Broadway Associates, L.P. ("2 Broadway LP") commenced tax
certiorari proceedings against the City of New York for over-assessment of
property taxes for the tax years ended June 30, 1988 through June 30, 1995 with
respect to the 2 Broadway Property. The rights to the proceeds of the 2 Broadway
Property tax certiorari proceedings were assigned to the Company pursuant to the
Plan. The Company settled such proceedings with the City of New York on July 14,
1998 and received net proceeds of approximately $8,342 after reimbursements to
tenants and $2,238 of fees and expenses incurred in connection with such
proceedings. Such net proceeds were approximately $3,280 in excess of estimated
net proceeds and are included in miscellaneous income in 1998. Tax certiorari
proceedings have been commenced which remain outstanding against the City of New
York, for over-assessment of property taxes for the tax years ending June 30,
1995 through June 30, 1998 with respect to the 237 Property and for the tax
years ending June 30, 1991 through June 30, 1998 with respect to the 1290
Property. The Company has reflected real estate tax proceeds of $3,175 and the
corresponding tenant reimbursements, fees and expenses of $2,800 related to the
1290 Property in the balance sheet as of December 31, 1998.
3. NOTES RECEIVABLE
Included in Notes Receivable are two tenant notes aggregating
approximately $9,307 and $9,101 at December 31, 1998 and 1997,
respectively. The first note, dated April 1, 1989 with a face amount of
$6,500 and a maturity date of September 1, 1999, is carried at $5,232 as
of December 31, 1998, based on certain payment terms net of unamortized
discount. Such payment terms include a stated interest rate of 10%. In
1991 and 1992, the tenant claimed certain concessions regarding the
payment terms of such note. Without the Company expressing an opinion with
regard thereto, if such concessions were granted, the note would bear
interest at 7.5% per annum and would require level monthly payments of
interest and principal of $75. The second note, dated August 20, 1985,
with a face value of $4,355, is carried at $4,075 as of December 31, 1998
net of unamortized discount. The second note does not bear interest and is
payable on October 31, 1999.
809954.6
25
<PAGE>
4. SECURED NOTES
Secured Notes consist of promissory notes ("Loan") issued by the Property
Owning Partnerships in the original principal amount of $420,000 pursuant
to a Credit Agreement ("Agreement") among the Property Owning
Partnerships, the lenders as signatories thereto in the Agreement and the
lead lender. Of the aggregate principal amount of the loan, $250,000 of
the Loan is allocated to the 1290 Property and $170,000 is allocated to
the 237 Property. The Loan is cross collateralized by the Properties. The
Loan will terminate on October 10, 2001 unless sooner terminated by the
occurrence of an Event of Default as described in the Agreement. The Loan
requires the Property Owning Partnerships to make payments of interest
only through October 7, 1997 and then make principal payments of $1,875,
$7,500, $8,125, $11,250 and $11,250 in each of 1997, 1998, 1999, 2000 and
2001, respectively. Scheduled principal payments of $625 were made each
month since October 7, 1997. If any such scheduled principal payments
would cause the Company to fail to comply with any income test
requirements necessary for the Company to maintain its status as a REIT,
then the Property Owning Partnerships may, in lieu of such principal
payment, post an irrevocable letter of credit in the amount of such
payment. The Property Owning Partnerships have entered into lock box
agreements for the collection of rents and have established escrow
accounts for real estate taxes and insurance.
The Property Owning Partnerships and the lead lender entered into an
Interest Rate Exchange Agreement effective October 10, 1996 (the "Swap
Agreement"). The Swap Agreement has a term of 5 years and provides that
the Property Owning Partnerships will pay interest at an effective rate of
7.987% per annum of the notional amount of $420,000. Management believes
the risk of incurring losses related to the credit risk is remote and any
losses would be immaterial.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include funded reserves held by the
Company for utility tax claims, certain claims related to the Plan, tenant
claims against real estate tax proceeds and property operating expenses
payable.
6. SUBORDINATED MINORITY INTEREST
The Subordinated Minority Interest represents 4.95% of the net
reorganization value of the Lower Tier Limited Partnership, reflecting the
99% limited partnership interest of JMB/NYC Office Building Associates,
L.P. ("JMB LP") in the limited partnership (the "Upper Tier Limited
Partnership") which owns a subordinated 5% limited partnership interest in
the Lower Tier Limited Partnership (the "Subordinated Minority Interest").
Management believes, however, that no economic obligation exists to JMB LP
as of December 31, 1998 and, that, pursuant to the distribution priorities
set forth in the limited partnership agreement of the Lower Tier Limited
Partnership (the "Lower Tier Partnership Agreement"), if the Company's
Properties were sold, JMB LP would be entitled to receive approximately
$450 in respect of the Subordinated Minority Interest. Pursuant to the
Lower Tier Limited Partnership Agreement, JMB LP would be entitled to
distributions only after the Company has received certain priority
distributions as more fully described below. As of December 31, 1998, the
Company, as general partner of the Lower Tier Limited Partnership, is
entitled to receive $400,000 and a 12% cumulative compounded return (from
October 10, 1996) on such amount from the Lower Tier Limited Partnership,
before any distributions are made in respect of the Subordinated Minority
Interest.
The Upper Tier Limited Partnership has the right to require the Company to
acquire the Subordinated Minority Interest at a price based upon a
multiple of the net operating income of the Properties for the immediately
preceding calendar year reduced by the debt encumbering the Properties and
any priority distributions to which the Company is entitled as general
partner of the Lower Tier Limited Partnership. As of December 31, 1998, no
economic obligation exists based upon such formula.
809954.6
26
<PAGE>
The Lower Tier Limited Partnership Agreement provides that the aggregate
Available Cash (as defined in the Lower Tier Limited Partnership
Agreement), from distributions from the Property Owning Partnerships will
be distributed no less frequently than quarterly to the partners of the
Lower Tier Limited Partnership as follows:
(i) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause and clauses
(i) and (iv) of the succeeding paragraph, aggregate distributions equal to
a cumulative compounded return, commencing on October 10, 1996 (or with
respect to capital contributions made after October 10, 1996, the date of
such capital contributions), of 12% per annum on the sum of (x) $280,000,
(y) any additional capital contributions made by the Company, as general
partner, to the Lower Tier Limited Partnership ($20,000 as of December 31,
1998), and (z) a $100,000 preference amount (the "Preference Amount") (the
amounts in (x), (y) and (z), as reduced by distributions in respect of
such amounts referred to herein as the "Adjusted GP Contribution");
(ii) 100% to the Company, as general partner, until it has received in
total, taking into account distributions made to it from Available Cash
and sale or refinancing proceeds, the Adjusted GP Contribution; and
(iii) the balance, 95% to the Company, as general partner, and 5% to the
Upper Tier Limited Partnership, as limited partner.
The Lower Tier Limited Partnership Agreement also provides that net
proceeds from any distributions from the Property Owning Partnerships
related to any sale, refinancing, condemnation or insurance recovery of
the Properties or any loan made to the Partnership will be distributed by
the Lower Tier Limited Partnership to its partners as follows:
(i) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause (i) and
clause (i) of the immediately preceding paragraph, aggregate distributions
equal to the product of (x) 0.5 and (y) a 12% per annum cumulative
compounded return on the Adjusted GP Contribution from October 10, 1996
(or with respect to capital contributions made after October 10, 1996, the
date of such capital contributions);
(ii) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause (ii) and
clause (ii) of the immediately preceding paragraph, aggregate
distributions equal to the product of (x) .75 and (y) the Adjusted GP
Contribution;
(iii) from the next $500, 90% (i.e., $450) to the Upper Tier Limited
Partnership, as limited partner, and 10% to the Company, as general
partner;
(iv) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause (iv), clause
(i) of this paragraph and clause (i) of the immediately preceding
paragraph, a 12% per annum cumulative compounded return on the Adjusted GP
Contribution commencing with respect to each capital contribution, on the
date such Capital Contribution was made;
(v) 100% to the Company, as general partner, until it has received,
together with all prior distributions pursuant to this clause (v), clause
(ii) of this paragraph and clause (ii) of the immediately preceding
paragraph, aggregate distributions equal to the Adjusted GP Contribution;
and
(vi) 95% to the Company, as general partner, and 5% to the Upper Tier
Limited Partnership, as limited partner.
7. STOCKHOLDERS' EQUITY
The Company has the authority to issue 50,000,000 shares of common stock,
par value $10 per share (the "Common Stock"), and 10,000,000 shares of
Preferred Stock, par value $10 per share.
809954.6
27
<PAGE>
As of December 31, 1998, there were 12,970,646 shares of the Company's
Common Stock issued and outstanding, 8,034,586 of which were Class A
Common Stock and 4,936,060 of which were Class B Common Stock. On November
3, 1998, all of the issued and outstanding shares of Class C Common Stock
were converted into Class A Common Stock. The Class A Common Stock and the
Class B Common Stock have identical rights and privileges, and are treated
as a single class, with respect to all matters (other than certain voting
rights) including, without limitation, the payment of distributions and
upon liquidation.
On January 20, 1997, the Company made a special distribution of $.50 per
share of Common Stock to shareholders of record on December 31, 1996.
On April 15, 1997, the Company made a regular distribution of $.25 per
share of Common Stock to shareholders of record on March 31, 1997.
On July 15, 1997, the Company made a regular distribution of $.50 per
share of Common Stock to shareholders of record on June 30, 1997.
On October 15, 1997, the Company made a distribution of $1.00 per share of
Common Stock to shareholders of record on September 30, 1997; consisting
of a regular distribution of $.50 per share of Common Stock and a special
distribution of $.50 per share of Common Stock.
On December 31, 1997, the Company made a distribution of $1.00 per share
of Common Stock to shareholders of record on December 26, 1997; consisting
of a regular distribution of $.50 per share of Common Stock and a special
distribution of $.50 per share of Common Stock.
On April 15, 1998, the Company made a regular distribution of $.50 per
share of Common Stock to shareholders of record on March 31, 1998.
On July 1, 1998 the Company suspended its regular quarterly dividend
pending consideration of strategic alternatives to maximize stockholder
value. On July 13, 1998 the Company announced the retention of Victor
Capital Group, L.P. and Eastdil Realty Company, LLC to explore the sale of
the Company or its two principal assets, the 1290 Property and 237
Property.
On November 16, 1998, the Company announced that after considering
strategic alternatives in order to maximize stockholder value, it has
postponed the marketing of the Company's properties. The Company also
announced the reinstatement of its regular quarterly dividend of $.50 per
share and that the Board of Directors had declared a dividend of $1.00 per
share, consisting of a regular quarterly dividend of $.50 per share and a
special dividend of $.50 per share, payable on December 31, 1998 to
stockholders of record on December 18, 1998.
809954.6
28
<PAGE>
8. STOCK PLAN AND REGISTRATION RIGHTS
The Board of Directors of the Company adopted a Directors' Stock Plan
effective October 10, 1996. Pursuant to the Stock Plan, the Board of
Directors of the Company has the authority to issue to members of the
Company's Board of Directors options to purchase, in the aggregate,
100,000 shares of Common Stock. On the Effective Date, the initial members
of the Company's Board of Directors were granted options entitling each
director to purchase an aggregate of 3,000 shares of Common Stock at an
exercise price of $25 per share.
Pursuant to the Stock Plan, each Director received 400 shares of Common
Stock in September 1997 in consideration for services rendered to the
Company during the Company's first fiscal year of operations. The value of
such shares was based upon the most recent price at which shares of the
Company's Common Stock were traded prior to such grant of shares and is
included as an operating expense. Each Director received an additional 400
shares of Common Stock at the 1998 annual meeting of the Company's
stockholders and will receive shares at each subsequent annual meeting.
In March 1998, a new director was granted 400 shares of Common Stock and
options entitling him to purchase an aggregate of 3,000 shares of Common
Stock at an exercise price of $42.50 per share. Such shares and options
were issued in July 1998. Of such options, 1,000 were immediately
exercisable, 1,000 became exercisable on October 10, 1998 and 1,000 become
exercisable on October 10, 1999. Total outstanding options at December 31,
1998 aggregated 28,000, of which 27,000 were exercisable.
The Company has entered into a Registration Rights Agreement between the
Company and the holders of Common Stock. The Registration Rights Agreement
permits certain of the Company's stockholders to demand, subject to
certain conditions, that the Company register their Common Stock for sale
and provides all of the Company's stockholders with the right to
participate proportionally in any public offering of the Company's
securities.
9. RELATED PARTY TRANSACTIONS
Asset Management - The Company has entered into an Asset Management
Agreement with a company ("Asset Manager") that is directly affiliated
with two of Metropolis' shareholders. One of these shareholders is also a
Director and Officer of the Company. The Asset Manager provides asset
advisory, consultation and management services for the Company. Fees for
such services are payable in arrears, on a monthly basis of $25. The Asset
Management Agreement also provides for reimbursement for costs and
expenses for contractors and professional fees, payable as incurred. Asset
management fees incurred for the years ended December 31, 1998 and 1997
and the period October 10, 1996 to December 31, 1996 aggregated
approximately $300, $300 and $74, respectively.
Property Management - The Company has also entered into a Management and
Leasing Agreement with a company ("Property Manager/Leasing Agent") that
is an affiliate of a shareholder. The Property Manager/Leasing Agent is to
manage and operate the property and provide all supervisory, management
and leasing services. The Management and Leasing Agreement provides for a
fee of 1.5% of Gross Revenues, payable monthly and reimbursement for
overhead and all reasonable out-of-pocket expenses incurred. The
Management and Leasing Agreement also provides for leasing commissions to
be calculated on a sliding scale percentage basis of the lease's base
rent. Fees under Management and Leasing Agreement for the years ended
December 31, 1998 and 1997 and the period October 10, 1996 to December 31,
1996 aggregated approximately $3,451, $3,333 and $392, respectively.
An affiliate of the Property Manager/Leasing Agent provides the cleaning
services for the Properties. Fees paid for cleaning services for the years
ended December 31, 1998 and 1997 and the period October 10, 1996 through
December 31, 1996 totaled $4,248, $4,226 and $196, respectively.
809954.6
29
<PAGE>
REIT Management - The Company has entered into a REIT Management Agreement
with the Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager
is to perform certain accounting, administrative and monitoring services.
The REIT Management Agreement provides for compensation to the REIT
Manager of a monthly fee and reimbursement of documented out-of-pocket
expenses. Fees incurred under the REIT Management Agreement for the years
ended December 31, 1998 and 1997 aggregated $141 and $140. There were no
fees paid under the REIT Management Agreement for the period October 10,
1996 to December 31, 1996.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, escrow deposits, tenant
security deposits, tax refunds receivable, and accounts receivable are a
reasonable estimate of their fair value due to their short-term nature.
The Company believes the fair value of the Swap Agreement generally
offsets gains or losses on the Secured Notes being hedged and changes the
nature of such underlying financial instruments. Because the maturity date
of the Secured Notes and the termination date of the Swap Agreement are
identical and the Company has no intention of terminating either the
Secured Notes or the Swap Agreement, the fair value of the Swap Agreement
may be of limited usefulness.
The fair value of the notes receivable has been estimated by discounting
cash flows at the current rate at which similar instruments would be
issued with similar credit ratings for the remaining term. Management
believes the fair market value of the notes receivable approximates the
carrying value at December 31,1998.
The fair value of the Secured Notes has been estimated by discounting cash
flows at the current rate at which similar loans would be made to
borrowers with similar credit ratings for the remaining term. Management
believes the fair market value of the Secured Notes approximates the
carrying value at December 31, 1998.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1998.
11. LEASES
Minimum future rents (excluding escalation rentals) due to the Company
under noncancellable leases as of December 31, 1998 are as follows:
1999 $105,074
2000 111,032
2001 107,366
2002 97,928
2003 89,751
Thereafter 530,218
----------
$1,041,369
==========
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INDEPENDENT AUDITORS' REPORT
To the Stockholders of Metropolis Realty Trust, Inc.:
We have audited the combined statement of revenues and certain
expenses as described in Note 1 for the period January 1, 1996 to October 10,
1996. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audits.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our
opinion.
The accompanying combined statement of revenue and certain
expenses was prepared in compliance with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the Annual Report on Form
10-K of Metropolis Realty Trust, Inc.) and as described in Note 1, is not
intended to be a complete presentation of the Purchased Properties' revenue and
expenses.
In our opinion, the financial statement referred to above present
fairly, in all material respects, the combined revenues and certain expenses as
described in Note 1 for the period January 1, 1996 to October 10, 1996 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
December 5, 1996
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PURCHASED PROPERTIES
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
Period January 1, to October 10, 1996
(in thousands)
Period January 1,
to October 10, 1996
-------------------
REVENUES:
Rental Income $90,993
Interest Income 410
------
Total Revenues 91,403
CERTAIN EXPENSES:
Payroll and Benefits 3,258
Operating and Maintenance 4,798
Utilities 5,288
Management Fees 528
Real Estate Taxes 21,299
General and Administrative 1991
======
Total Certain Expenses 37,162
------
REVENUES IN EXCESS OF CERTAIN EXPENSES $54,241
========
See notes to Combined Statement of Revenues and Certain Expenses.
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<PAGE>
PURCHASED PROPERTIES
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
For the period January 1, 1996 to October 10, 1996
(in thousands)
1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - Metropolis Realty Trust, Inc., a Maryland
corporation ("Metropolis" or the Company"), was formed on May 13,
1996 to facilitate the consummation of the Second Amended Joint
Plan of Reorganization of 237 Park Avenue Associates, L.L.C.
("237 LLC") and 1290 Associates, L.L.C. ("1290 LLC" and together
with 237 LLC, the "Predecessors"), dated September 20, 1996 (the
"Plan"). Pursuant to the Plan, on October 10, 1996 (the
"Effective Date") the Company acquired the interests of 237 LLC
and 1290 LLC in the office properties located at 237 Park Avenue
(the "237 Property") and 1290 Avenue of the Americas (the "1290
Property," and together with the 237 Property, the "Properties").
The Company owns a 95% interest, as general partner, in 237/1290
Lower Tier Associates, L.P., a Delaware limited partnership (the
"Lower Tier Limited Partnership") which owns a 99% partnership
interest, as limited partner in each of 237 Park Partners, L.P.,
a Delaware limited partnership (the "237 Property Owning
Partnership") and 1290 Partners, L.P., a Delaware limited
partnership (the "1290 Property Owning Partnership," and together
with the 237 Property Owning Partnership, the "Property Owning
Partnerships"). The Property Owning Partnerships were formed to
own the Properties. The remaining 1% interest in each of the
Property Owning Partnerships is owned by one of two wholly-owned
subsidiaries of the Company.
Basis of Presentation - The combined statement relates to the
operations of the Properties (the "Purchased Properties"). The
Purchased Properties have a combined net leaseable area of
approximately 3,103,000 square feet. As of October 10, 1996, the
Purchased Properties are encumbered with less debt and related
interest; the asset base and related depreciation is
significantly different; one of the Predecessor's equity holders
has a remaining subordinated 5% indirect interest; and the
properties are managed by an affiliated property manager with a
different management structure. Accordingly, Management believes
the combined statement is the most meaningful presentation as it
presents the Purchased Properties' operations in a manner which
excludes variables associated with the ownership and management
of the Predecessors.
Combined Statement of Revenue and Certain Expenses:
---------------------------------------------------
The accompanying combined statement of revenue and certain
expenses is presented in conformity with Rule 3-14 of Regulation
S-X of the Securities and Exchange Commission. Accordingly, the
statement is not representative of the actual operations for the
period January 1, 1996 to October 10, 1996 as certain expenses
which may not be comparable to the expenses expected to be
incurred in the proposed future operations of the Purchased
Properties have been excluded. Expenses excluded consist of
interest, depreciation and amortization and other costs not
directly related to the future operations of the Purchased
Properties.
Rental income is recognized on a straight line basis over the
term of the related leases.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
809954.6
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company as of December 31, 1998 are
as follows:
Name Age Position
- - ---- --- --------
William L. Mack..................... 59 Director and Chairman of the Board
Lee S. Neibart...................... 48 Director and President
Bruce H. Spector.................... 56 Director
John R.S. Jacobsson................. 30 Director and Secretary
John R. Klopp....................... 45 Director and Vice President
Russel S. Bernard................... 41 Director
Ralph F. Rosenberg.................. 34 Director
David A. Strumwasser................ 47 Director
David Roberts....................... 37 Director
Each of the officers and directors listed above, other than John
R. Klopp and John Jacobsson, has served in the positions listed for the Company
since September 1996. Mr. Klopp has served as a Director since September 1996
and as an officer since December 1996. Mr. Jacobsson has served as a Director
since October 1997 and as an officer since December 1996.
William L. Mack is the managing partner of Apollo Real Estate
Advisors, L.P., the manager of three opportunistic real estate investment funds,
which he founded in 1993 and serves as President of its corporate general
partner. Beginning in 1969, Mr. Mack served as Managing Partner of the Mack
Company, where he oversaw the dynamic growth of the Mack Company's office,
industrial, retail and hotel facilities. Mr. Mack has served as a director of
Mack-Cali Realty Corporation since the 1997 merger of the Mack Company's office
portfolio into Mack-Cali. Mr. Mack is also a director of The Bear Stearns
Companies, Inc., an investment banking firm, Koger Equity, Inc., a REIT which
owns and operates suburban office parks in the Southeast and the Southwest, and
Vail Resorts, Inc., an owner and operator of Colorado ski resorts. Mr. Mack
attended the Wharton School of Business and Finance at the University of
Pennsylvania and received a B.S. degree in business administration, finance and
real estate from New York University.
Lee S. Neibart is a partner of Apollo Real Estate Advisors, L.P.,
with which he has been associated since 1993, and directs portfolio and asset
management. From 1979 to 1993, he was Executive Vice President and Chief
Operating Officer of the Robert Martin Company, a private real estate
development and management firm. Mr. Neibart is a director of Atlantic Gulf
Communities Corp., a land development company, Koger Equity, Inc., NextHealth,
Inc., an owner and operator of spa and wellness facilities, and Roland
International Corporation, a land development company. Mr. Neibart received a BA
from the University of Wisconsin and an MBA from New York University.
Bruce H. Spector is a partner of Apollo Real Estate Advisors,
L.P., with which he has been associated since 1993 and has been responsible for
advising on matters of reorganization strategy. From 1967 to 1992, Mr. Spector
was a member of the law firm of Stutman, Treister and Glatt, spending a
substantial amount of
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<PAGE>
that time as a senior partner and head of the firm's executive committee. Mr.
Spector is a director of NextHealth, Inc., Telemundo Group, Inc., a national
Spanish-language oriented television producer, United International Holding,
Inc., a designer and owner of cable and telephone systems outside of North
America, and Vail Resorts, Inc. Mr. Spector received a B.A. from the University
of Southern California and a J.D. from the UCLA School of Law.
John R.S. Jacobsson is a partner of Apollo Real Estate Advisors,
L.P. with which he has been associated since 1993 and is responsible for
investments. Prior to 1993, Mr. Jacobsson was associated with the acquisitions
group of Trammell Crow Ventures, a real estate investment firm. Mr. Jacobsson is
a director of Koger Equity, Inc. and Roland International Corporation. Mr.
Jacobsson received a B.A. from Harvard College in 1990.
John R. Klopp is a Trustee, the Chief Executive Officer and a
Vice Chairman of Capital Trust, a specialty finance company focused on the
commercial real estate industry. Mr. Klopp is a founder and has been a Managing
Partner of Victor Capital Group L.P. (a subsidiary of Capital Trust) since 1989.
From 1982 to 1989, Mr. Klopp was a Managing Director and co-head of Chemical
Realty Corporation ("Chemical Realty"), the real estate investment banking
affiliate of Chemical Bank. Prior to founding Chemical Realty, he held various
positions in Chemical Bank's Real Estate Division and was responsible for
originating, closing and monitoring portfolios of construction and interim
loans. He received a B.A. from Tufts University in 1976 with a major in
economics, and an M.B.A. in 1978 from the Wharton School at the University of
Pennsylvania with a major in real estate and finance.
Russel S. Bernard is a principal of Oaktree Capital Management,
LLC ("Oaktree"), with which he has been involved since 1995, and is the
portfolio manager of Oaktree's real estate and mortgage funds. Prior to joining
Oaktree in 1995, Mr. Bernard was a Managing Director of Trust Company of the
West (TCW). Under subadvisory relationships with Oaktree, Mr. Bernard continues
to serve as portfolio manager for the TCW Special Credits distressed mortgage
funds. From 1986 to 1994, Mr. Bernard was a partner in Win Properties, Inc., a
national real estate investment company, where he was responsible for the
acquisition, financing and operation of a national real estate portfolio. Mr.
Bernard holds a B.S. in Business Management and Marketing from Cornell
University.
Ralph F. Rosenberg has been a Managing Director in the Merchant
Banking Division at Goldman Sachs & Co. ("Goldman Sachs"), since November 1998.
Prior to that he was a Vice President in the Investment Banking Division at
Goldman Sachs since 1994. Mr. Rosenberg joined the Real Estate Department of
Goldman Sachs as an Associate in 1990, transferred to their Real Estate
Principal Investment Area at its inception in 1992 and became a Vice-President
in 1994. Mr. Rosenberg serves on the Whitehall Investment Committee and the
Goldman Sachs Emerging Market Real Estate Investment Committee. Additionally, he
serves on the Board of Directors of Cadillac Fairview Corp. and Rockefeller
Center Properties. He received a B.A. from Brown University in 1986, and an
M.B.A. from the Stanford Graduate School of Business in 1990.
David A. Strumwasser is a principal of Whippoorwill Associates,
Incorporated ("Whippoorwill"), an investment management firm, and has served as
a Managing Director and General Counsel of Whippoorwill since 1993. From 1984 to
1993, Mr. Strumwasser was a Partner and co-head of the Bankruptcy and
Reorganization Practice at the New York law firm of Berlack, Israels & Liberman
LLP. Prior to that, he practiced bankruptcy law at Anderson Kill & Olick, LLP,
from 1981 to 1984, and at Weil, Gotshal & Manges LLP, from 1976 to 1979. From
1979 to 1981, Mr. Strumwasser was an Assistant Vice President at Citicorp
Industrial Credit, Inc. Mr. Strumwasser received a B.A. in political science
from the State University of New York at Buffalo in 1973, and a J.D. from Boston
College Law School in 1976.
David Roberts has been a Managing Director of Angelo, Gordon &
Co., L.P. ("Angelo, Gordon") an investment management firm, since 1993, where he
oversees the firm's real estate and special situations investment activities.
From 1988 until 1993, Mr. Roberts was a principal of Gordon Investment
Corporation, a Canadian merchant bank, where he participated in a wide variety
of principal transactions including investments in the real estate and mortgage
banking industries. Prior to that, Mr. Roberts worked in the Corporate Finance
Department of L.F. Rothschild & Co. Incorporated, an investment bank, as a
Senior Vice President specializing in mergers and acquisitions. Mr. Roberts has
a B.S. in Economics from the Wharton School of the University of Pennsylvania.
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<PAGE>
Pursuant to the Charter, until the occurrence of a Simplification
Event (as hereinafter defined), the Company's nine-member Board of Directors is
divided into five classes. The Class I Director, Lee S. Neibart, was elected by
the holder of the Class B Common Stock; the Class II Directors consist of Bruce
H. Spector and David Roberts, both elected by the holders of the Class A Common
Stock and Class B Common Stock; the Class III Directors consist of John
Jacobsson, a director designated by the holder of the Class B Common Stock and
David A. Strumwasser, a director designated by the holders of Class A Common
Stock; the Class IV Directors consist of William L. Mack, a director designated
by the holder of the Class B Common Stock and Ralph F. Rosenberg, a director
designated by Whitehall Street Real Estate, Limited Partnership V (the
"Whitehall"); and the Class V Directors consist of Russel S. Bernard, a director
designated by Oaktree and John R. Klopp, a director designated by stockholders
(other than Apollo, Whitehall and Oaktree).
The initial terms of Class I and Class II directors of the
Company expired in 1997 and 1998, respectively and the initial terms of the
Class III, Class IV and Class V directors expire in 1999, 2000 and 2001,
respectively. As the term of each class expires, directors in that class will be
elected by the stockholders of the Company for a term of years which will expire
in 2001, after which time all five classes of directors will be elected for one
year terms. At the 1998 Annual Meeting, one Class I director and two Class II
directors were elected to serve on the Board of Directors until the Annual
Meeting of Stockholders in 2001 or until their successors are duly elected and
qualify or until their earlier death, resignation or removal. Lee S. Neibart was
duly elected to serve as the Class I director of the Company and Bruce H.
Spector and David Roberts were each elected to serve as the Class II directors
of the Company. The Charter provides that the Company will at all times have at
least two directors that are not affiliated with Apollo, any Transferee (as
defined in the Charter) or any other stockholder of more than 10% of the stock
of the Company.
"Simplification Event" means the earliest to occur of (i) the
date on which Apollo and its affiliates (taken together) or any transferee and
its affiliates (taken together) no longer hold a number of shares of Common
Stock representing at least 30% of the combined voting power of all outstanding
shares of stock of the Company; (ii) the date on which Apollo and its affiliates
(taken together) or any transferee and its affiliates (taken together) or any
other person or entity and its affiliates (taken together) holds a number of
shares of Common Stock representing at least 75% of the combined voting power of
all outstanding shares of stock of the Company; (iii) the fifth anniversary of
the Effective Date; and (iv) the date of the annual meeting of stockholders in
2001.
ITEM 11. EXECUTIVE COMPENSATION
The Company has no employees. The members of the Board of
Directors will each receive as an annual retainer (i) $10,000 which will be paid
in cash, and (ii) 400 shares of Common Stock to be issued under the Stock Plan.
Such stock and cash will be paid to the current Board of Directors at the time
of each annual meeting of directors. Directors will receive an additional
payment of seven hundred and fifty dollars for each Board of Directors meeting
attended. Upon election to the Board of Directors, each initial Director
received options to purchase 3,000 shares of the Company's common stock which
will vest over two years and are exercisable at $25.00 per share. In March 1998,
a new director was granted 400 shares of Common Stock and options entitling him
to purchase an aggregate of 3,000 shares of Common Stock at an exercise price of
$42.50 per share. Of such options, 1,000 were immediately exercisable, 1,000
became exercisable on October 10, 1998 and 1,000 become exercisable on October
10, 1999. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT --
Description of the Company's Stock Plan."
The Company has purchased a directors' and officers' liability
insurance policy in the amount of $10,000,000.
The Directors and officers of the Company, the Upper Tier GP
Corp. and the GP Corps are identical. The officers of the Company will not
receive any compensation from the Company, other than any
809954.6
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<PAGE>
compensation they may receive as Directors. The Directors and officers of the
Upper Tier GP Corp. and the GP Corps will not receive any compensation from the
Upper Tier GP Corp. or the GP Corps.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the following table is furnished as
of March 5, 1999, with respect to any person (including, any "group," as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) who is known to the Company to be the beneficial
owner of more than 5% of any class of the Company's voting securities, and as to
those shares of the Company's equity securities beneficially owned by each of
its Directors, its executive officers, and all of its executive officers and
Directors as a group. As of December 31, 1998, there were 12,970,646 shares of
Common Stock outstanding.
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of Common
Beneficially Owned Stock
------------------ ------------------
Principal Stockholders
<S> <C> <C>
Apollo Real Estate Investment Fund, L.P. (1) 4,936,060 38.1%
The TCW Group, Inc.(2) 2,254,341 17.4%
Oaktree Capital Management, LLC (3) 1,913,263 13.6%
Whitehall Street Real Estate, Limited Partnership V (4) 1,122,821 8.7%
Angelo, Gordon & Co., L.P. (5) 818,739 6.3%
Intermarket Corp. (6) 890,862 6.9%
Directors and Executive Officers
William L. Mack (7) 3,800 *
Lee S. Neibart (8) 3,800 *
John R.S. Jacobsson (9) 2,800 *
Bruce H. Spector (10) 3,800 *
John R. Klopp (11) 23,800 *
Russel S. Bernard (12) 3,000 *
Ralph F. Rosenberg (13) 3,000 *
David A. Strumwasser (14) 3,800 *
David Roberts (15) 3,000 *
------
Directors and Executive Officers as a group (9 persons) (16) 50,800 *
======
- - ----------------------
</TABLE>
* Less than 1%
(1) Held of record by Atwell & Co., c/o The Chase Manhattan Bank, N.A., 4
New York Plaza, New York, NY 10004. Apollo Real Estate Advisors, L.P.
is the managing general partner of Apollo Real Estate Investment, L.P.
("AREIF"), and a joint reporting person with respect to beneficial
ownership of these shares of Common Stock, pursuant to AREIF's
Schedule 13G, filed with the Securities and Exchange Commission on
February 13,1998.
(2) Includes 1,586,814 shares as to which voting and dispositive power is
shared with Oaktree Capital Management, LLC ("Oaktree"), as an
investment sub-adviser to TCW Asset Management Company for various
limited partnerships, trusts and third party accounts for which TCW
Asset Management Company acts as general partner or investment
manager. According to the Schedule 13G filed with the Securities and
Exchange Commission on February 12, 1998, Robert Day, Chairman and
Chief Executive Officer of the TCW Group, Inc. ("TCW"), may be deemed
to be a control person of TCW and certain other holders of the
Company's Common Stock. Also includes 667,527 shares held by various
limited partnerships, trusts and third party accounts for which TCW
Special Credits acts as general partner or investment manager. The
shares shown are held of record by (i) Taylor & Co., c/o Sanwa Bank
California Trust Operations, 1977 Saturn Street, Montrerey Park, CA
91754 (1,848,248 shares), and (ii) Cede & Co., c/o Sanwa Bank
California Trust Operations, 1977 Saturn Street, Montrerey Park, CA
91754 (406,093 shares). To the extent permitted by applicable law, The
TCW Group, Inc. and Robert Day hereby disclaim beneficial ownership of
such shares.
(3) Includes 1,586,814 shares as to which voting and dispositive power is
shared with TCW Asset Management Company, which acts as general
partner or investment manager for certain funds and accounts for which
Oaktree acts as an investment sub-adviser. According to the Schedule
13G filed with the Securities and Exchange Commission on February 12,
1998, Robert Day, Chairman and Chief Executive Officer of TCW, may be
deemed to be a control person of Oaktree and certain other holders of
the Company's Common Stock. Also includes 284,839 shares held by two
limited partnerships of which Oaktree is general partner and 41,210
shares held by a third party account for which Oaktree acts as
investment manager. The 326,049 shares as to which Oaktree has sole
voting and dispositive power are held of record by Cun & Co., c/o The
Bank of New York, One Wall Street, New York, NY 10005. Also includes
400 shares held directly by Oaktree. To the extent permitted by
applicable law, Oaktree hereby disclaims beneficial ownership of such
shares.
(4) Held of record by WSB Realty LLC, (1,122,421 shares) and The Goldman
Sachs Group, L.P. (400 shares) 85 Broad Street, New York, NY 10004.
Pursuant to Schedule 13G/A, filed by The Goldman Sachs Group, L.P.
with the Securities and Exchange Commission on February 17, 1999 these
shares are reported as beneficially owned by: (i) Goldman, Sachs & Co.
(ii) The Goldman Sachs Group, L.P., (iii) WSB Realty, L.L.C., (iv)
Whitehall Street Real Estate Limited Partnership V and (v) WH
Advisors, L.P. V.
(5) Angelo, Gordon & Co., L.P.'s address is 245 Park Avenue, New York, NY
10167. Pursuant to Schedule 13G, filed by Angelo, Gordon & Co., L.P.
with the Securities and Exchange Commission on February 13, 1998 these
shares are reported as beneficially owned by: (i) Angelo, Gordon &
Co., L.P. ("Angelo, Gordon"), (ii) John M. Angelo, in his capacities
as a general partner of AG Partners, L.P., the sole general partner of
Angelo, Gordon, and the chief executive officer of Angelo, Gordon and
(iii) Michael L. Gordon, in his capacities as the other general
partner of AG Partners, L.P., the sole general partner of Angelo,
Gordon, and the chief operating officer of Angelo, Gordon.
(6) Intermarket Corp.'s address is 667 Madison Avenue, New York, NY 10021.
(7) Does not include shares owned by Apollo. Includes 800 shares of Common
Stock and 3,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Mack under the Company's Stock Plan. Mr. Mack
is the managing partner of Apollo Real Estate Advisors, L.P., the
general partner of Apollo, and the President of its corporate general
partner. Mr. Mack disclaims beneficial ownership of the shares of
Common Stock owned by Apollo.
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(8) Does not include shares owned by Apollo. Includes 800 shares of Common
Stock and 3,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Neibart under the Company's Stock Plan. Mr.
Neibart is a partner of Apollo Real Estate Advisors, L.P. Mr. Neibart
disclaims beneficial ownership of the shares of Common Stock owned by
Apollo.
(9) Does not include shares owned by Apollo, or 1,000 shares granted to
Mr. Jacobsson pursuant to the Stock Plan that will not vest until
October 10, 1999. Includes 800 shares of Common Stock and 2,000 shares
of Common Stock issuable upon the exercise of options granted to Mr.
Jacobsson under the Company's Stock Plan. Mr. Jacobsson is a partner
of Apollo Real Estate Advisors, L.P. Mr. Jacobsson disclaims
beneficial ownership of the Common Stock owned by Apollo.
(10) Does not include shares owned by Apollo. Includes 800 shares of Common
Stock and 3,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Spector under the Company's Stock Plan. Mr.
Spector is a partner of Apollo Real Estate Advisors, L.P. Mr. Spector
disclaims beneficial ownership of the shares of Common Stock owned by
Apollo.
(11) Includes 20,800 shares of Common Stock and 3,000 shares of Common
Stock issuable upon the exercise of options granted to Mr. Klopp under
the Company's Stock Plan.
(12) Does not include shares owned by funds and accounts managed by
Oaktree. Includes 3,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Bernard under the Company's Stock
Plan. Mr. Bernard is a principal of Oaktree. Mr. Bernard disclaims
beneficial ownership of the shares of Common Stock owned by funds and
accounts managed by Oaktree. Mr. Bernard is required to transfer to
funds managed by Oaktree any shares of Common Stock he either receives
directly under the Company's Stock Plan or purchases upon an exercise
of options granted under the Company's Stock Plan.
(13) Does not include shares owned by Whitehall. Includes 3,000 shares of
Common Stock issuable upon the exercise of options granted to Mr.
Rosenberg under the Company's Stock Plan. Mr. Rosenberg disclaims
beneficial ownership of the shares of Common Stock owned by Whitehall.
Mr. Rosenberg is a Vice President of Goldman, Sachs & Co. Pursuant to
Mr. Rosenberg's employment arrangements with Goldman Sachs, Mr.
Rosenberg is required to transfer to Goldman Sachs any shares of
Common Stock he receives either directly under the Company's Stock
Plan or purchases upon an exercise of options granted under the
Company's Stock Plan.
(14) Does not include 311,591 shares held by various limited partnerships,
trusts and third party accounts for which Whippoorwill Associates,
Inc. has discretionary authority and acts as general partner or
investment manager. Includes 800 shares of Common Stock and 3,000
shares of Common Stock issuable upon the exercise of options granted
to Mr. Strumwasser under the Company's Stock Plan. Mr. Strumwasser is
a principal of and Managing Director and General Counsel of
Whippoorwill Associates. Mr. Strumwasser disclaims beneficial
ownership of the shares of Common Stock owned by discretionary
accounts managed by Whippoorwill Associates as set forth above.
(15) Does not include shares owned by Angelo, Gordon. Includes 3,000 shares
of Common Stock issuable upon the exercise of options granted to Mr.
Roberts under the Company's Stock Plan. Mr. Roberts is a Managing
Director of Angelo, Gordon. Mr. Roberts disclaims beneficial ownership
of the shares of Common Stock owned by Angelo, Gordon.
(16) See notes 1 through 15 above with respect to the nature of the
ownership of Directors and Executive Officers as a group, including
disclaimers of beneficial ownership described therein.
Description of Stock Plan
The following is a summary of the material terms of the Stock
Plan. Such summary does not purport to be complete and is qualified in its
entirety by reference to the Stock Plan, a copy of which has been filed as an
exhibit to the Company's Registration Statement on Form 10 and is incorporated
by reference herein.
The Board of Directors adopted the Stock Plan on the Effective
Date. The purpose of the Stock Plan is to attract and retain qualified persons
as Directors. Pursuant to the Stock Plan, the Board of Directors of the Company
has the authority to issue to members of the Company's Board of Directors
options to purchase, in the aggregate, 100,000 shares of Common Stock. Pursuant
to the Plan and the Stock Plan, on the Effective Date, the initial members of
the Company's Board of Directors were granted options entitling each director to
purchase an aggregate of 3,000 shares of Common Stock at an exercise price of
$25.00 per share. In March 1998, a new director was granted 400 shares of Common
Stock and options entitling him to purchase an aggregate of 3,000 shares of
Common Stock at an exercise price of $42.50 per share. Such shares and options
were issued in July 1998. Of such options, 1,000 were immediately exercisable
and 1,000 became exercisable on October 10, 1998 and 1,000 will become
exercisable on October 10, 1999. Each Director who is elected or appointed after
the Effective Date will be granted options to purchase 3,000 shares of Common
Stock on the date of the meeting of the Company's stockholders at which such
Director is first elected to the Board of Directors or the date of the Board of
Directors meeting at which such Director is first appointed to the Board of
Directors to fill a vacancy on the Board of Directors. Each holder of an option
issued under the Stock Plan will be entitled to exercise the option to purchase
one-third of
809954.6
40
<PAGE>
the shares of Common Stock covered by such option on the date of original
issuance thereof, one-third on the first anniversary of such date and one-third
on the second anniversary of such date, in each case, any time prior to the
tenth anniversary of the date of grant.
If the holder of an option ceases to serve as a Director of the
Company for any reason, options that have been previously granted to such holder
and that have not been vested will be forfeited and options that are vested as
of the date of such cessation may be exercised by such holder in accordance with
and subject to the Stock Plan. If the holder of an option dies while serving as
a Director of the Company, options that have been previously granted to such
holder and that are vested as of the date of such holder's death may be
exercised by such holder's legal representative in accordance with and subject
to the Stock Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Asset Manager
The Company has retained 970 Management, LLC, an affiliate of
Victor Capital Group, L.P., to serve as the Company's Asset Manager pursuant to
an Asset Management Agreement, dated as of the Effective Date (the "Asset
Management Agreement"). John R. Klopp, one of the Company's Directors and an
officer and a stockholder of the Company, is a Managing Partner of VCG. Pursuant
to the Asset Management Agreement, the Asset Manager will act as the Company's
advisor and consultant with respect to the management of the Properties and the
Company's interests in the Property Owning Partnerships and Lower Tier Limited
Partnership.
The Asset Management Agreement has a term of one year, which
term will be automatically extended for consecutive one year periods thereafter
unless the Company or the Asset Manager notify the other at least 30 days before
the then current term would otherwise terminate, of its election not to extend
the term.
The Company may terminate the Asset Management Agreement (i)
after the expiration of a cure period, by notice to the Asset Manager if the
Asset Manager defaults in any material respect in its performance under the
Asset Management Agreement, and (ii) immediately upon notice to the Asset
Manager if the Properties are sold or if there is a change in control of the
Asset Manager. The Asset Manager may terminate the Asset Management Agreement if
the Company defaults in the payment of any amount due and payable to the Asset
Manager and such failure continues for 30 days after the Asset Manager's written
notice of such failure. Either party may terminate the Asset Management
Agreement by giving notice to the other upon the occurrence of certain events
relating to the bankruptcy or insolvency of the other party.
The Company will pay the Asset Manager a fee (the "Asset
Management Fee") in an amount equal to $25,000 per month. Asset management fees
incurred for the years ended December 31, 1998 and 1997 and the period October
10, 1996 to December 31, 1996 aggregated approximately $300,000, $300,000 and
$74,000, respectively. In addition to the payment of the Asset Management Fee,
the Company will reimburse the Asset Manager for certain expenses. If the
Company sells or disposes of one but not both of the Properties, the Company and
the Asset Manager will review whether an adjustment to the Asset Management Fee
is appropriate. If the Company believes that the Asset Management Fee should be
reduced and the parties are unable in good faith to agree upon a reduced fee,
the Asset Management Agreement will be terminable by either party upon 90 days'
notice to the other.
809954.6
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<PAGE>
Management and Leasing Agreements
Each of the Property Owning Partnerships entered into a
Management and Leasing Agreement, dated as of the Effective Date (the "Property
Management Agreements") with the Property Manager/Leasing Agent. Nyprop, LLC, a
stockholder of the Company, is an affiliate of the Property Manager/Leasing
Agent. Pursuant to the Property Management Agreements, the Property
Manager/Leasing Agent will perform all supervisory, management and leasing
services and functions reasonably necessary or incidental to the leasing,
management and operations of the Properties. Fees under the Property Management
Agreements for the years ended December 31, 1998 and 1997 and the period October
10, 1996 to December 31, 1996 aggregated approximately $3,451,000, $3,333,000
and $392,000, respectively.
An affiliate of the Property Manager/Leasing Agent provides the
cleaning services for the Properties. Fees paid for cleaning services for the
years ended December 31, 1998 and 1997 and the period October 10, 1996 through
December 31, 1996 totaled $4,248,000, $4,226,000 and $196,000, respectively.
The Property Management Agreements have an initial term of two
years, which term will be automatically extended for additional consecutive 90
day terms until such time as a Property Owning Partnership notifies the Property
Manager/Leasing Agent in writing, at least 30 days before the then current term
would otherwise terminate, of its election not to extend the term of a Property
Management Agreement.
A Property Owning Partnership may terminate its Property
Management Agreement on 60 days notice if its Property is either sold by the
Property Owning Partnership or refinanced by the Property Owning Partnership
pursuant to a securitized financing of the Property, provided that termination
of the Property Management Agreement as a result of such financing will only be
effective if the Property Manager/Leasing Agent is not approved by the rating
agency participating in such financing. Each Property Owning Partnerships may
terminate its Property Management Agreement (i) after a certain cure period,
upon notice to the Property Manager/Leasing Agent if the Property
Manager/Leasing Agent breaches a material term of the Property Management
Agreement, and (ii) immediately upon notice to the Property Manager/Leasing
Agent if (x) the Property Manager/Leasing Agent or any principal of the Property
Manager/Leasing Agent intentionally misappropriates funds of the Property Owning
Partnership or commits fraud against the Property Owning Partnership or if there
is a change in control of the Property Manager/Leasing Agent. The Property
Manager/Leasing Agent may terminate a Property Management Agreement (i) after a
certain cure period, upon notice to the Property Owning Partnership if the
Property Owning Partnership breaches a material term of the Property Management
Agreement, and (ii) upon 60 days notice to the Property Owning Partnership if
the Property Owning Partnership fails to provide funds on a consistent basis to
operate and maintain the Property. Either party may terminate a Property
Management Agreement upon notice to the other party in the event that a petition
in bankruptcy is filed against the other party and is not dismissed within 60
days, or a trustee, receiver or other custodian is appointed for a substantial
part of the other party's assets and is not vacated within 60 days or the other
party makes an assignment for the benefit of its creditors.
On the Effective Date, each Property Owning Partnership paid the
Property Manager/Leasing Agent $50,000 per month (pro rated for any partial
month) for services provided by the Property Manager/Leasing Agent prior to the
Effective Date in connection with the transition of ownership and management of
the Properties from the Property Owning Partnerships' predecessors, for the
period commencing August 1, 1996 and ending on the Effective Date. Each Property
Owning Partnership will (i) pay the Property Manager/Leasing Agent a fee in an
amount equal to 1.5% of gross revenues from the respective Property, which fee
will be paid monthly, and (ii) reimburse the Property Manager/Leasing Agent for
all reasonable out-of-pocket expenses incurred by the Property Manager/Leasing
Agent related to the performance of its responsibilities under the Property
Management Agreement, to the extent set forth in the annual budget. In addition,
the Property Manager/Leasing Agent will be entitled to receive commissions in
connection with the leasing of space at the Properties and renewals and
extensions of leases.
The Company has entered into a REIT Management Agreement with the
Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager is to perform
certain accounting, administrative and monitoring
809954.6
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<PAGE>
services. The REIT Management Agreement provides for compensation to the REIT
Manager of monthly fees aggregating approximately $125,000 per annum, a one-time
fee of $15,000, and reimbursement of documented out-of-pocket expenses. Fees
incurred under the REIT Management Agreement for the years ended December 31,
1998 and 1997 aggregated $141,000 and $140,000. There were no fees paid under
the REIT Management Agreement for the period October 10, 1996 to December 31,
1996.
809954.6
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<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements are included in response to Item 8 hereof.
(a)(2) Financial Statement Schedules have been omitted because they
are inapplicable, not required, or the information is
included in the financial statements or notes thereto.
(a)(3) Exhibits
2.1 Second Amended Joint Plan of Reorganization of 237 Park Avenue
Associates, L.L.C. and 1290 Associates, L.L.C.(*)
2.2 Technical Amendment to Second Amended Joint Plan of Reorganization
of 237 Park Avenue Associates, L.L.C. and 1290 Associates, L.L.C.*
2.3 Second Technical Amendment to Second Amended Joint Plan of
Reorganization of 237 Park Avenue Associates, L.L.C. and 1290
Associates, L.L.C.*
3.1 Articles of Amendment and Restatement of Metropolis Realty, Trust,
Inc., dated October 7, 1996.*
3.2 Amended and Restated By-Laws of Metropolis Realty Trust, Inc.*
10.1 Agreement and Plan of Merger among 1290 Associates, L.L.C.,
237 Park Avenue Associates, L.L.C. and 237/1290 Upper Tier
Associates, L.P., as of October 10, 1996.*
10.2 Limited Partnership Agreement of 237 Park Partners, L.P.*
10.3 Limited Partnership Agreement of 1290 Partners, L.P.*
10.4 Agreement of Limited Partnership of 237/1290 Lower Tier
Associates, L.P.*
10.5 Amended and Restated Limited Partnership Agreement of 237/1290
Upper Tier Associates, L.P.*
10.6 Redemption and Substitution Agreement among JMB/NYC Office
Building Associates, L.P., O&Y Equity Company, L.P., O&Y NY
Building Corp., 237/1290 Upper Tier GP Corp., and 237/1290 Upper
Tier Associates, L.P., dated October 10, 1996.*
10.7 Metropolis Realty Trust, Inc. 1996 Directors' Stock Plan.*
10.8 Form of Metropolis Realty Trust, Inc. Stock Option Agreement for
Directors.*
10.9 Form of Indemnification Agreement, dated as of October 10, 1996.*
10.10 Registration Rights Agreement, dated as of October 10, 1996.*
10.11 Participation Agreement (JMB Notes) between Metropolis Realty
Trust, Inc. and Michigan Avenue L.L.C., dated as of October 10,
1996.*
10.12 Indemnification Agreement given by Property Partners, L.P.,
Carlyle-XIII Associates, L.P., and Carlyle-XIV Associates, L.P. to
Metropolis Realty Trust, Inc., dated as of October 10, 1996.*
10.13 Modification of Operating Agreement of 237 Park Avenue Associates,
L.L.C., dated as of October 10, 1996.*
- - --------
(*) Incorporated by reference to the Registrant's Registration Statement on Form
10 (File No. 0-21849) and any amendments thereto.
809954.6
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<PAGE>
10.14 Noteholders Contribution and Participation Agreement between
Metropolis Realty Trust, Inc. and Bankers Trust Company, dated as
of October 10, 1996.*
10.15 Debt Contribution Agreement, dated as of October 10, 1996, among
Metropolis Realty Trust, Inc., 237/1290 Lower Tier Associates,
L.P., 237 Park Partners, L.P., and 1290 Partners, L.P.(*)
10.16 Debt Assumption, Release and Security Agreement (237 Excess
amount) dated October 10, 1996.*
10.17 Debt Assumption, Release and Security Agreement (1290 Excess
amount) dated October 10, 1996.*
10.18 Release of Assumed Debt and Termination of Security Interest by
Bankers Trust Company for the benefit of O&Y NY Building Corp. and
O&Y Equity Company, L.P., dated as of October 10, 1996.*
10.19 237 Property Contribution Agreement between 237/1290 Upper Tier
Associates, L.P., 237/1290 Lower Tier Associates, L.P. and 237
Park Partners, L.P. dated as of October 10, 1996.*
10.20 1290 Property Contribution Agreement among 237/1290 Upper Tier
Associates, L.P., 237/1290 Lower Tier Associates, L.P. and 1290
Partners, L.P. dated as of October 10, 1996.*
10.21 Credit Agreement among 1290 Partners, L.P., 237 Park Partners,
L.P., the lenders listed herein and The Chase Manhattan Bank,
dated as of October 10, 1996.*
10.22 Consolidated, Amended and Restated Promissory Note in the amount
of $420,000,000 from 1290 Partners, L.P., and 237 Park Partners,
L.P. to The Chase Manhattan Bank, dated October 10, 1996.*
10.23 Mortgage Modification, Restatement and Security Agreement from
1290 Partners, L.P., and 237 Park Partners, L.P., to The Chase
Manhattan Bank, dated as of October 10, 1996.*
10.24 Master Agreement among The Chase Manhattan Bank, 1290 Partners,
L.P. and 237 Park Partners, L.P., dated as of October 10, 1996.*
10.25 Schedule to the Master Agreement between The Chase Manhattan Bank
and 1290 Partners, L.P. and 237 Park Partners, L.P., dated as of
October 10, 1996.*
10.26 Interest Rate Agreement Pledge, and Security Agreement among 1290
Partners, L.P., 237 Park Partners, L.P., and The Chase Manhattan
Bank, dated as of October 10, 1996.*
10.27 Assignment of Leases, Rents and Security Deposits, dated October
10, 1996, by 1290 Partners, L.P. and 237 Park Partners L.P. to The
Chase Manhattan Bank.*
10.28 Note Pledge and Security Agreement among 1290 Partners, L.P., 237
Park Partners, L.P. and The Chase Manhattan Bank, dated as of
October 10, 1996.*
10.29 Consent and Subordination of Property Management Agreement, dated
as of October 10, 1996.*
10.30 Cash and Collateral Account Security, Pledge and Assignment
Agreement among 1290 Partners, L.P., 237 Park Partners, L.P., and
The Chase Manhattan Bank, dated as of October 10, 1996.*
- - --------
(*) Incorporated by reference to the Registrant's Registration Statement on Form
10 (File No. 0-21849) and any amendments thereto.
809954.6
45
<PAGE>
10.31 Management and Leasing Agreement between 237 Park Partners, L.P.
and Tishman Speyer Properties, L.P.*
10.32 Management and Leasing Agreement between 1290 Partners, L.P. and
Tishman Speyer Properties, L.P.*
10.33 Asset Management Agreement between Metropolis Realty Trust, Inc.
and 970 Management, L.L.C., dated as of October 10, 1996.(*)
27.1 Financial Data Schedule as of, and for the year ended, December
31, 1997.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed by the Company during
the last quarter of the period covered by this report.
(c) Exhibits.
Refer to paragraph (a)(3) under this Item 14.
(d) Not applicable.
- - --------
(*) Incorporated by reference to the Registrant's Registration Statement on
Form 10 (File No. 0-21849) and any amendments thereto.
809954.6
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
METROPOLIS REALTY TRUST, INC.
By: /s/ Lee S. Neibart
----------------------
Name: Lee S. Neibart
Title: President and Director
By: /s/ Stuart Koenig
----------------------
Name: Stuart Koenig
Title: Principal Financial Officer
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lee S. Neibart President and Director March 31, 1999
- - --------------------------------
Lee S. Neibart
/s/ William L. Mack Chairman of the Board and March 31, 1999
- - -------------------------------- Director
William L. Mack
/s/ John R.S. Jacobsson Secretary and Director March 31, 1999
- - --------------------------------
John R. S. Jacobsson
/s/ John R. Klopp Vice President and Director March 31, 1999
- - --------------------------------
John R. Klopp
Director March __, 1999
- - --------------------------------
Bruce H. Spector
S-1
809954.6
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Russel S. Bernard Director March 31, 1999
- - --------------------------------
Russel S. Bernard
Director March __, 1999
- - --------------------------------
Ralph F. Rosenberg
Director March __, 1999
- - --------------------------------
David A. Strumwasser
/s/ David Roberts Director March 31, 1999
- - --------------------------------
David Roberts
</TABLE>
S-2
809954.6
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001028198
<NAME> Louis Vitali
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 29,085
<SECURITIES> 0
<RECEIVABLES> 13,395
<ALLOWANCES> 2,696
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 681,176
<DEPRECIATION> 30,172
<TOTAL-ASSETS> 767,771
<CURRENT-LIABILITIES> 15,219
<BONDS> 0
0
0
<COMMON> 129,706
<OTHER-SE> 175,844
<TOTAL-LIABILITY-AND-EQUITY> 767,771
<SALES> 134,754
<TOTAL-REVENUES> 142,936
<CGS> 0
<TOTAL-COSTS> 52,267
<OTHER-EXPENSES> 16,651
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,615
<INCOME-PRETAX> 40,403
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