FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 0-827
EMPIRE STATE BUILDING ASSOCIATES
(Exact name of registrant as specified in its charter)
A New York Partnership 13-6084254
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 East 42nd Street, New York, New York
(Address of principal executive offices)
10165
(Zip Code)
(212) 687-8700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed since last report)
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 [ ].
An Exhibit Index is located on Page 14 of this Report.
Number of pages (including exhibits) in this filing: 14.<PAGE>
<PAGE>
2.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Empire State Building Associates
Condensed Statement of Income
(Unaudited)
For the Three Months
Ended March 31,
1996 1995
Income:
Rent income, from a related
party (Note B) $1,504,687 $1,504,687
Dividend income 2,094 28,632
---------- ----------
Total income 1,506,781 1,533,319
---------- ----------
Expenses:
Leasehold rent 492,500 492,500
Supervisory services, to a
related party (Note C) 39,854 39,854
Amortization of leasehold 52,117 52,117
Miscellaneous 46
---------- ----------
Total expenses 584,517 584,471
---------- ----------
Net income $ 922,264 $ 948,848
========== ==========
Earnings per $10,000 partici-
pation unit, based on 3,300
participation units out-
standing during the year $ 279.47 $ 287.53
========== ==========
Distributions per $10,000
participation:
Distributions per $10,000
participation consisted
of the following:
Income $ 279.47 $ 287.53
Return of capital 15.18 1,043.27
---------- ----------
Total distributions $ 294.65 $ 1,330.80
========== ==========
At March 31, 1996 and 1995, there were $33,000,000 of
participations outstanding.<PAGE>
<PAGE>
Empire State Building Associates 3.
Condensed Balance Sheet
(Unaudited)
Assets March 31, 1996 December 31, 1995
Current assets
Cash $ 361,553 $ 359,505
Prepaid rent 23,831 23,831
---------- ----------
Total current assets 385,384 383,336
Real Estate
Leasehold on Empire State Building 39,000,000 39,000,000
Less, allowance for amortization 35,508,137 35,456,020
---------- ----------
3,491,863 3,543,980
---------- ----------
Total assets $3,877,247 $3,927,316
========== ==========
Capital
Capital January 1, 3,927,316 7,519,530
Add, Net income:
January 1, 1996 through March 31, 1996 922,264 -0-
January 1, 1995 through December 31, 1995 -0- 3,716,420
---------- ----------
4,849,580 11,235,950
Less, Distributions:
Monthly distributions,
January 1, 1996 through March 31, 1996 972,333 -0-
January 1, 1995 through
December 31, 1995 -0- 3,889,333
Distribution on February 28, 1995 of
Overage Rent for the lease year ended
December 31, 1994 and dividend income -0- 3,419,301
---------- -----------
972,333 7,308,634
---------- -----------
Capital:
March 31, 1996 3,877,247 -0-
December 31, 1995 -0- 3,927,316
---------- -----------
Total liabilities and capital:
March 31, 1996 $3,877,247
==========
December 31, 1995 $3,927,316
===========
<PAGE>
<PAGE>
4.
Empire State Building Associates
Condensed Statement of Cash Flows
(Unaudited)
January 1, 1996 January 1, 1995
through through
March 31, 1996 March 31, 1995
Cash flows from operating activities:
Net income $ 922,264 $ 948,848
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of leasehold 52,117 52,117
Change in Overage Rent due from
Empire State Building Company,
a related party -0- 97,887
Change in accrued supervisory
services, to a related party -0- (8,253)
---------- ----------
Net cash provided by operating
activities 974,381 1,090,599
---------- ----------
Cash flows from financing activities:
Cash distributions (972,333) (4,391,634)
---------- ----------
Net cash used in financing
activities (972,333) (4,391,634)
---------- ----------
Net increase (decrease) in cash
and cash equivalents 2,048 (3,301,035)
Cash and cash equivalents
beginning of period 359,505 3,653,616
---------- ----------
Cash and cash equivalents
end of period $ 361,553 $ 352,581
========== ==========
<PAGE>
<PAGE>
Empire State Building Associates 5.
March 31, 1996
Notes to Condensed Financial Statements (unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions
to Form 10-Q and therefore do not include all information and
footnotes necessary for a fair presentation of financial position,
results of operations and statement of cash flows in conformity
with generally accepted accounting principles. The accompanying
unaudited condensed financial statements include all adjustments
(consisting only of normal recurring accruals) which are, in the
opinion of the partners in Registrant, necessary for a fair
statement of the results for such interim periods. The partners
in Registrant believe that the accompanying unaudited condensed
financial statements and the notes thereto fairly disclose the
financial condition and results of Registrant's operations for the
periods indicated and are adequate to make the information pre-
sented therein not misleading.
Note B - Interim Period Reporting
The results for the interim period are not necessarily
indicative of the results to be expected for a full year.
Registrant is a partnership which was organized on July
11, 1961. Registrant owns the tenant's interest in a master
operating leasehold (the "Master Lease") on the Empire State
Building (the "Building") and the land thereunder, located at 350
Fifth Avenue, New York, New York (the "Property"). On November
27, 1991, Prudential Insurance Company of America sold the fee
ownership of the property to EGHolding Co. Inc. which, through
merger and conveyance, reportedly transferred its interest as
lessor to Trump Empire State Partners ("Trump"). Associates'
rights under the master leasehold remain unchanged.
Registrant's partners are Donald A. Bettex, Peter L.
Malkin and C. Michael Spero (collectively the "Partners"), each of
whom also acts as an agent for holders of participations in his
respective partnership interest in Registrant (the
"Participants").
The initial term of the Master Lease expired on January
5, 1992. On January 30, 1989, Registrant exercised its first of
four 21-year renewal options contained in the Master Lease and
extended the Master Lease through January 5, 2013. The annual
rent payable under Master Lease is $1,970,000 through January 5,
2013 and $1,723,750 annually during the term of each renewal
period thereafter. <PAGE>
<PAGE>
Empire State Building Associates 6.
March 31, 1996
The value of the Master Lease is stated at cost. To
reflect Registrant's exercise of the first renewal option under
the Master Lease, the estimated useful life of the Master Lease
has been revised to 25 years, effective January 1, 1988, through
January 5, 2013.
Registrant does not operate the Property. It subleases
the Property to Empire State Building Company ("Sublessee")
pursuant to a net operating sublease (the "Sublease") with a term
and renewal options essentially coextensive with those contained
in the Master Lease. On January 30, 1989, Sublessee elected to
renew the Sublease for a term commencing January 4, 1992 to
January 4, 2013.
Sublessee is required to pay annual basic rent ("Basic
Rent") of $6,018,750 from January 1, 1992 through January 4, 2013
and $5,895,625 from January 5, 2013 through the expiration of all
renewal terms. Sublessee is also required to pay Registrant
overage rent of 50% of Sublessee's net operating profit in excess
of $1,000,000 for each lease year ending December 31 ("Overage
Rent").
Overage Rent and other accumulated interest income is
distributed annually after payment of any additional payments for
supervisory services to Counsel (as described in Note C below).
For 1995, Sublessee reported net operating loss of $139,025;
therefore, there was no Overage Rent.
Sublessee is a New York partnership in which Peter L.
Malkin is a partner. The Partners in Registrant are also members
of the law firm of Wien, Malkin & Bettex, 60 East 42nd Street, New
York, New York, which acts as counsel to Registrant and Sublessee
("Counsel"). See Note C below.
Note C - Supervisory Services
Registrant pays Counsel for supervisory services and
disbursements, (i) the basic payment of $100,000 per annum, (the
"Basic Payment") and (ii) an additional payment of 6% of all
distributions to Participants in any year in excess of the amount
representing a return of 9% per annum on their remaining cash
investment in any year ("Additional Payment").
No remuneration was paid during the three month period
ended March 31, 1996 by Registrant to any of the Partners as such.
Pursuant to the fee arrangements described herein, Registrant paid
Counsel $25,000, of the Basic Payment for supervisory services for
the three month period ended March 31, 1996, and $4,951 a month as
the Additional Payment for supervisory services. The supervisory
<PAGE>
<PAGE>
Empire State Building Associates 7.
March 31, 1996
services provided to Registrant by Counsel include legal,
administrative and financial services. The legal and
administrative services include acting as general counsel to
Registrant, maintaining all of its partnership records, performing
physical inspections of the Building, reviewing insurance coverage
and conducting annual partnership meetings. Financial services
include monthly receipt of rent from the Sublessee, payment of
monthly rent to the fee owner, payment of monthly and additional
distributions to the Participants, payment of all other
disbursements, confirmation of the payment of real estate taxes,
and active review of financial statements submitted to Registrant
by the Sublessee and financial statements audited and tax
information prepared by Registrants' independent certified public
accountant, and distribution of such materials to the
Participants. Counsel also prepares quarterly, annual and other
periodic filings with the Securities and Exchange Commission and
applicable state authorities and distributes to the Participants
quarterly source of distribution reports.
Reference is made to Note B of this Item 1 ("Note B")
for a description of the terms of the Sublease between Registrant
and Sublessee. The respective interests of the Partners in
Registrant and in Sublessee arise solely from ownership of their
respective participations in Registrant and, in the case of Mr.
Malkin, his ownership of a partnership interest in Sublessee. The
Partners receive no extra or special benefit not shared on a pro
rata basis with all other Participants in Registrant or partners
in Sublessee. However, each of the Partners, by reason of his
respective interest in Counsel, is entitled to receive his pro
rata share of any legal fees or other remuneration paid to Counsel
for legal services rendered to Registrant and Sublessee.
As of March 31, 1996, the Partners owned of record and
beneficially an aggregate $136,250 of participations in
Registrant, representing less than 1% of the currently outstanding
participations therein totaling $33,000,000.
In addition, as of March 31, 1996 certain of the
Partners (or their respective spouses) held additional
Participations as follows:
Barbara N. Bettex, the wife of Donald A. Bettex, owned
of record and beneficially, $12,500 of Participations.
Mr. Bettex disclaims any beneficial ownership of such
Participations.
C.M. Spero owned of record as trustee or co-trustee, but
not beneficially, $55,000 of Participations. Mr. Spero
disclaims any beneficial ownership of such
Participations.<PAGE>
<PAGE>
Empire State Building Associates 8.
March 31, 1996
Peter L. Malkin owned of record as trustee or co-trustee
but not beneficially, $170,000 of Participations. Mr.
Malkin disclaims any beneficial ownership of such
Participations.
Isabel W. Malkin, the wife of Peter L. Malkin, owned of
record and beneficially, $153,333 of Participations.
Mr. Malkin disclaims any beneficial ownership of such
Participations.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
As stated in Note B, Registrant was organized for the
purpose of acquiring the Property subject to a net operating
sublease held by Sublessee. Basic Rent received by Registrant is
used to pay annual rent due under the Master Lease, the Basic
Payment and the Additional Payment for supervisory services; the
balance of such Rent is distributed to the Participants. Overage
Rent and any interest and dividends accumulated thereon are
distributed to the Participants after the Additional Payment is
made to Counsel. See Note C of Item 1 above. Pursuant to the
Sublease, Sublessee has assumed responsibility for the condition,
operation, repair, maintenance and management of the Property.
Registrant is not required to maintain substantial reserves or
otherwise maintain liquid assets to defray any operating expenses
of the Property.
Registrant does not pay dividends. During the three
month period ended March 31, 1996, Registrant made regular monthly
distributions of $98.21 for each $10,000 participation ($1,178.52
per annum for each $10,000 participation). There are no
restrictions on Registrant's present or future ability to make
distributions; however, the amount of such distributions depends
solely on the ability of Sublessee to make monthly payments of
Basic Rent and Overage Rent to Registrant in accordance with the
terms of the Sublease. Registrant expects to make distributions
in the future so long as it receives the payments provided for
under the Sublease. See Note B.
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Sublease.
The amount of Overage Rent payable to Registrant is affected by
(i) the downturn in the New York City economy and real estate
rental market and (ii) the cost of the Property improvement
program described herein under Other Information. It is
anticipated that the improvement program to the Building, which
commenced in 1990, will negatively impact Overage Rent in 1996
through 1999. It is difficult for management to forecast whether
the New York City real estate market will improve over the next
few years. <PAGE>
<PAGE>
Empire State Building Associates 9.
March 31, 1996
Total income decreased for the three-month period ended
March 31, 1996 as compared with the three-month period ended March
31, 1995. Such decrease resulted from a decrease in dividend
income earned on funds temporarily invested in Fidelity U.S.
Treasury Income Portfolio. Total expenses increased for the three
month period ended March 31, 1996 as compared with the three month
period ended March 31, 1995. Such increase resulted from
miscellaneous expenses incurred in the three month period ended
March 31, 1996.
The State of New York has asserted a utility tax
deficiency of $1,528,816 against the Sublessee through December
31, 1992 in connection with electricity, water and steam charges
to tenants, plus accrued interest. The Supreme Court, New York
County granted summary judgment in favor of the State, which
ruling was affirmed by the Appellate Division, First Department,
holding that the State utility tax applies to such rent inclusion
charges. The Sublessee is seeking permission to appeal the
Appellate Division decision before the Court of Appeals and the
final outcome of the appeal cannot presently be determined. The
City of New York has also asserted a utility tax deficiency of
$277,125 against the Sublessee through December 31, 1994 in
connection with electricity, water and steam charges to tenants
plus accrued interest. An appeal before the New York City taxing
authority is pending and the final outcome of the appeal cannot
presently be determined.
If it is finally determined that the State's and City's
positions are correct, the Sublessee would also be liable for
additional utility taxes for quarterly periods ending after
December 31, 1992 for New York State Utility tax and for periods
after December 31, 1994 for New York City utility tax. Any
amounts for which the Sublessee might be ultimately liable would
reduce the net income in the year it becomes determinable and may
therefore impact Overage Rent payable to Registrant.
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the three month period ended March 31, 1996, as
compared with the three month period ended March 31, 1995.
Assuming that the Building continues to generate an
annual net profit in future years comparable to that in the
current year, Registrant anticipates that the value of the
Building and the Property will exceed the indicated balance sheet
value at March 31, 1996.
Registrant anticipates that funds for working capital
will be generated by operations of the Building by Sublessee,
which entity in turn is required to make payments of Basic Rent <PAGE>
<PAGE>
Empire State Building Associates 10.
March 31, 1996
and Overage Rent under the Sublease and, to the extent necessary,
from additional capital investment by the partners in Sublessee
and/or external financing. Registrant foresees no need to make
material commitments for capital expenditures while the Sublease
is in effect.
Inflation
Registrant believes that there has been no material
change in the impact of inflation on its operations since the
filing of its report on Form 10-K for the year ended December 31,
1995, which report and all exhibits thereto are incorporated
herein by reference and made a part hereof.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Property of Registrant is the subject of the
following pending litigation:
(1) On October 21, 1991, the holder of a $20,000 original
participation in Registrant brought suit in New York
Supreme Court, New York County against the Registrant;
the Partners; the Sublessee; Harry B. Helmsley, a
partner in Sublessee; and Counsel. Registrant is a
nominal defendant. The suit claims that the defendants
have engaged in breaches of fiduciary duty and acts of
self-dealing in relation to the Partners' solicitation
of consents and authorizations of the participants in
Registrant in September 1991 and in relation to other
unrelated acts of the Partners and Sublessee. The suit
is styled as a class action, but the Court has ruled
that class certification shall not be granted. The suit
seeks relief including an injunction and an accounting.
On January 10, 1992, all defendants answered the
complaint and denied all material allegations of
liability and damage. The complaint does not seek any
relief against Registrant, and accordingly, Registrant's
counsel is of the opinion that no loss or other
unfavorable outcome of the action against Registrant is
anticipated. The action has been dismissed against
Sublessee and Mr. Helmsley.
(2) In December 1994, Registrant received a notice of
default from Trump Empire State Partners ("Trump"). The
Trump default notice to Registrant claims that
Registrant is in violation of its master lease because
of extensive work which Sublessee has undertaken as part
of an improvement program that commenced before Trump
reportedly acquired its interest in the property in
1994. Trump's notice also complains that the Building
is in need of repairs. <PAGE>
<PAGE>
Empire State Building Associates 11.
March 31, 1996
On February 14, 1995, Registrant and Sublessee filed an
action in New York State Supreme Court against Trump for
a declaratory judgment that none of the matters set
forth in the notice of default constitutes a violation
of the master lease or sublease, and that the notice of
default is entirely without merit. Registrant's and
Sublessee's suit also seeks an injunction to prevent
Trump from implementing the notice of default.
On February 15, 1995, Trump filed an action against
Registrant, Sublessee, Counsel, Harry B. Helmsley,
Helmsley-Spear, Inc. (the management company of Empire
State Building), and the Partners in New York State
Supreme Court, alleging that the notice of default is
valid and seeking damages and related relief based
thereon. The defendants intend to defend against
Trump's action and seek its dismissal. Counsel believes
that Registrant and Sublessee should prevail in their
actions against Trump, and that Trump's action should be
dismissed.
On March 24, 1995, the New York State Supreme Court
granted Registrant a preliminary injunction against
Trump. The injunction prohibits Trump from acting on
its notice of default to Registrant, at any time,
pending the prosecution of claims by Registrant and
Sublessee for a final judgment granting a permanent
injunction and other relief against the Trump
defendants.
In May 1995, Registrant and Sublessee filed a separate
legal action against Trump and various affiliated
persons for breach of the master lease and sublease, and
disparagement of the property in violation of
Registrant's and Sublessee's leasehold rights. This
action seeks money damages and related relief.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal quarter ended March 31, 1996,
Registrant did not submit any matter to a vote by the Participants
through the solicitation of proxies or otherwise.
Item 5. Other Information
The Sublessee maintains the Building as a high-class
office building as required by the terms of the Sublease.
In 1990, the Sublessee commenced its latest improvement
program which is estimated to be completed in 1997 at a total cost
in excess of $60,000,000. Under this program, approximately 6,400<PAGE>
<PAGE>
Empire State Building Associates 12.
March 31, 1996
windows are being replaced and this portion of the program is
completed. In addition, the elevators have been upgraded through
installing a computerized control system and replacing all
electrical and mechanical equipment. The elevator modernization
program has increased elevator speed from 800 to 950 feet per
minute to 1200 feet per minute. Also included is waterproofing
the Building's exterior, resetting and repairing the limestone
facade, upgrading the Building's security system, upgrading and
replacing the Building's fire safety system and making substantial
further improvement to the air-conditioning, domestic pump and
water systems, waterproofing the mooring mast and installing a new
observation ticket office.
The Sublessee anticipates that the costs of improvements
to be incurred will result in reductions in Overage Rent during
1996 and 1997, but should have no effect on the payment of Basic
Rent in those years.
Under Sublessee's management, the Building recently won
three awards from the Building Owners and Management Association
("BOMA") (BOMA/NY Award 1989; BOMA Middle Atlantic Region Award
1990/91 and the BOMA International Award for excellence 1992/93).
The New York Landmarks Conservancy recently awarded a Merit
Citation to the Building. In 1994, Metaloptics recognized the
Building for excellence in lighting efficiency. In December 1994,
Energy User News, a national publication, awarded a Certificate of
Merit in the lighting category for excellence and innovation in
energy efficiency and management of the Building.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits hereto are being incorporated by
reference.
(b) Registrant has not filed any report on Form 8-K
during the quarter for which this report is being filed. <PAGE>
<PAGE>
Empire State Building Associates 13.
March 31, 1996
SIGNATURES
Pursuant to the requirements 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.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to a Power of Attorney, dated
March 29, 1996 (the "Power").
EMPIRE STATE BUILDING ASSOCIATES
(Registrant)
By: /s/ Richard A. Shapiro
Richard A. Shapiro, Attorney-in-Fact*
Date: May 14, 1996
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the undersigned as
Attorney-in-Fact for each of the Partners in Registrant, pursuant
to the Power, on behalf of Registrant and as a Partner in
Registrant, on the date indicated.
By: /s/ Richard A. Shapiro
Richard A. Shapiro, Attorney-in-Fact*
Date: May 14, 1996
______________________
* Mr. Shapiro supervises accounting functions for Registrant<PAGE>
<PAGE>
Empire State Building Associates 14.
March 31, 1996
EXHIBIT INDEX
Number Document Page*
25 Power of Attorney dated March 29,
1996, which was filed as Exhibit 24 to
Registrant's Form 10-K for the fiscal
year ended December 31, 1995 and is
incorporated by reference as an
exhibit hereto.
28(a) Order of the Supreme Court of the
State of New York, County of New York,
dated March 21, 1994, which was filed
with Form 8-K and is incorporated by
reference as an exhibit hereto.
______________________
* Page references are based on sequential numbering system.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet as of March 31, 1996 and the Statement Of Income
for the period ended March 31, 1996, and is qualified in its entirety by
reference to such financial statements.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 361,553
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 385,384<F1>
<PP&E> 39,000,000
<DEPRECIATION> 35,508,137
<TOTAL-ASSETS> 3,877,247
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,877,247
<TOTAL-LIABILITY-AND-EQUITY> 3,877,247
<SALES> 1,504,687<F2>
<TOTAL-REVENUES> 1,506,781<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 584,517<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 922,264
<INCOME-TAX> 0
<INCOME-CONTINUING> 922,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 922,264
<EPS-PRIMARY> 279.47<F5>
<EPS-DILUTED> 279.47<F5>
<FN>
<F1>Includes prepaid rent
<F2>Rental income
<F3>Includes dividend income
<F4>Leasehold rent, supervisory fees, amortization of leasehold
and miscellaneous expense
<F5>Earnings per $10,000 participation unit, based on 3,300 participation
units outstanding during the year
</FN>
</TABLE>
