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, 1997
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>
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,
1997 1996
Income:
Rent income, from a related
party (Note B) $1,504,687 $1,504,687
Dividend income 2,382 2,094
---------- ----------
Total income 1,507,069 1,506,781
---------- ----------
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 -0- 46
---------- ----------
Total expenses 584,471 584,517
---------- ----------
Net income $ 922,598 $ 922,264
========== ==========
Earnings per $10,000 partici-
pation unit, based on 3,300
participation units out-
standing during the year $ 279.58 $ 279.47
========== ==========
Distributions per $10,000
participation:
Distributions per $10,000
participation consisted
of the following:
Income $ 279.58 $ 279.47
Return of capital 15.07 15.18
---------- ----------
Total distributions $ 294.65 $ 294.65
========== ==========
At March 31, 1997 and 1996, there were $33,000,000 of
participations outstanding.<PAGE>
<PAGE>
Empire State Building Associates 3.
Condensed Balance Sheet
(Unaudited)
Assets March 31, 1997 December 31, 1996
Current assets
Cash $ 370,534 $ 368,152
Prepaid rent 23,831 23,831
----------- ----------
Total current assets 394,365 391,983
Real Estate
Leasehold on Empire State Building 39,000,000 39,000,000
Less, allowance for amortization 35,716,606 35,664,489
----------- -----------
3,283,394 3,335,511
----------- -----------
Total assets $ 3,677,759 $ 3,727,494
=========== ===========
Capital
Capital January 1, $ 3,727,494 $ 3,927,316
Add, Net income:
January 1, 1997 through March 31, 1997 922,598 -0-
January 1, 1996 through December 31, 1996 -0- 3,689,511
---------- -----------
4,650,092 7,616,827
Less, Distributions:
Monthly distributions,
January 1, 1997 through March 31, 1997 972,333 -0-
January 1, 1996 through
December 31, 1996 -0- 3,889,333
---------- -----------
972,333 3,889,333
---------- -----------
Capital:
March 31, 1997 3,677,759 -0-
December 31, 1996 -0- 3,727,494
---------- -----------
Total liabilities and capital:
March 31, 1997 $ 3,677,759
===========
December 31, 1996 $ 3,727,494
===========<PAGE>
<PAGE>
4.
Empire State Building Associates
Condensed Statement of Cash Flows
(Unaudited)
January 1, 1997 January 1, 1996
through through
March 31, 1997 March 31, 1996
Cash flows from operating activities:
Net income $ 922,598 $ 922,264
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization of leasehold 52,117 52,117
---------- ----------
Net cash provided by operating
activities 974,715 974,381
---------- ----------
Cash flows from financing activities:
Cash distributions (972,333) (972,333)
---------- ----------
Net cash used in financing
activities (972,333) (972,333)
---------- ----------
Net increase (decrease) in cash
and cash equivalents 2,382 2,048
Cash and cash equivalents
beginning of period 368,152 359,505
---------- ----------
Cash and cash equivalents
end of period $ 370,534 $ 361,553
========== ========== <PAGE>
<PAGE>
Empire State Building Associates 5.
March 31, 1997
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 periods 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 Stanley Katzman, John L. Loehr
and Peter L. Malkin (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, 1997
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 1996, Sublessee reported net operating loss of $7,914,032;
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 LLP, 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 original
cash investment in any year ("Additional Payment"). At March 31,
1997, such remaining cash investment was $33,000,000, representing
the original cash investment of the Participants in Registrant.
No remuneration was paid during the three month period
ended March 31, 1997 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, 1997, and $4,951 a month as
the Additional Payment for supervisory services. The supervisory
services provided to Registrant by Counsel include legal,<PAGE>
<PAGE>
Empire State Building Associates 7.
March 31, 1997
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 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, 1997, the Partners owned of record and
beneficially an aggregate $186,250 of participations in
Registrant, representing less than 1% of the currently outstanding
participations therein totaling $33,000,000.
In addition, as of March 31, 1997 certain of the
Partners (or their respective spouses) held additional
Participations as follows:
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.<PAGE>
<PAGE>
Empire State Building Associates 8.
March 31, 1997
Stanley Katzman owned of record as trustee but not
beneficially, $25,000 of participations. Mr. Katzman
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, 1997, 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 cycles 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 1997. It is difficult for
management to forecast whether the New York City real estate
market will improve or deteriorate over the next few years.
Total income increased for the three month period ended
March 31, 1997 as compared with the three month period ended March
31, 1996. Such increase resulted from an increase in dividend
income earned on funds temporarily invested in Fidelity U.S.
Treasury Income Portfolio. Total expenses decreased for the<PAGE>
<PAGE>
Empire State Building Associates 9.
March 31, 1997
three-month period ended March 31, 1997 as compared with the three
month period ended March 31, 1996. Such decrease resulted from
miscellaneous expenses incurred in the three month period ended
March 31, 1996.
The State of New York has asserted utility tax
deficiencies through December 31, 1992 in connection with water,
steam and non-metered electricity rent inclusion charges to
tenants, plus estimated 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. Sublessee sought permission to appeal the Appellate
Division's decision and order to the Court of Appeals. The Court
of Appeals denied Sublessee's motion. In May 1996, Sublessee
entered into a settlement agreement with the State. Pursuant to
the terms of the settlement agreement, Sublessee agreed to pay the
State's assessed tax in the sum of $979,109, plus interest of
approximately $605,000 through July 31, 1996. The State has
tentatively agreed to payment of the aforesaid liability over a
period of four years, commencing August, 1996, in equal monthly
installments of $40,000, including interest on the unpaid balance
at the statutory rate. Installment payments to the State of
$40,000 per month have been made by Sublessee commencing on August
1, 1996. It is anticipated that New York State will seek to
impose liability on Sublessee for State utility tax for periods
after December 31, 1992. The amount of such additional tax has
yet to be determined.
The City of New York has asserted a utility tax
deficiency in the amount of $277,125 against Sublessee, through
December 31, 1994, in connection with water, steam and non-metered
electricity rent inclusion charges to tenants, plus accrued
interest of approximately $90,000 through December 31, 1996.
Sublessee is contesting the calculation of the City's proposed
utility tax deficiency before the New York City Tax Appeals
Tribunal. The final outcome of Sublessee's appeal cannot
presently be determined. It is anticipated that New York City
will seek to impose liability on Sublessee for additional New York
City utility tax for periods after December 31, 1994. The amount
of such additional tax has yet to be determined.
Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity for the three month period ended March 31, 1997, as
compared with the three month period ended March 31, 1996.
Registrant anticipates that the value of the Building
and the Property will exceed the indicated balance sheet value at
March 31, 1997.<PAGE>
<PAGE>
Empire State Building Associates 10.
March 31, 1997
Registrant anticipates that funds for working capital
for the Property will be generated by operations of the Building
by Sublessee, which entity in turn is required to make payments of
Basic Rent 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,
1996, 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:
Studley v. Empire State Building Associates: This
action was filed in October 1991, in New York Supreme Court.
Plaintiff holds a $20,000 original participation in
Registrant. The defendants are the partner Agents of
Registrant and Wien, Malkin & Bettex (now Wien & Malkin LLP).
Plaintiff has claimed that defendants have committed breaches
of fiduciary duty in connection with a solicitation of
consents of participants in Registrant in September, 1991,
and in respect to other matters affecting Registrant.
Motions by plaintiff and defendants for summary judgment are
pending.
Proceedings Involving Trump Empire State Partners:
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 the 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. On February 14, 1995,
Registrant and Sublessee filed an action in New York State
Supreme Court against Trump and a related entity 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<PAGE>
<PAGE>
Empire State Building Associates 11.
March 31, 1997
of default. On March 24, 1995, the 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 declaratory judgment and
an injunction and other relief against the Trump defendants.
On February 15, 1995, Trump filed an action against
Registrant, Sublessee, Counsel, Harry B. Helmsley,
Helmsley-Spear, Inc. and the Agents for Registrant in New
York Supreme Court, alleging that the notice of default is
valid and seeking damages and related relief based thereon.
On October 24, 1996, the Court dismissed all of Trump's
claims in their entirety against all defendants in the
action. Trump has appealed this dismissal.
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 for disparagement
of the Property in violation of Registrant's and Sublessee's
leasehold rights. The action was amended to include
additional claims by Registrant and Sublessee seeking a
declaratory judgment that they may act as an owner of the
Property for purposes of making applications and related
activities pursuant to the New York City Building Code. By
decision and order dated October 24, 1996, the Court
sustained Registrant's and Sublessee's claims concerning the
parties who may act as owner of the property under the
Building Code. The Court directed that the remaining claims
should proceed to trial. At the same time, the Court
dismissed Registrant's and Sublessee's claims against Trump
and co-defendants for money damages. Registrant and
Sublessee have taken an appeal from that portion of the
Court's order dismissing their claims for money damages.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal quarter ended March 31, 1997,
Registrant did not submit any matter to a vote by the Participants
through the solicitation of proxies or otherwise.
Item 5. Other Information
Sublessee maintains the Building as a high-class office
building as required by the terms of the Sublease.
In 1990, 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
windows are being replaced and this portion of the program is
completed. In addition, the elevators have been upgraded through
installation of a computerized control system and replacement of<PAGE>
<PAGE>
Empire State Building Associates 12.
March 31, 1997
all electrical and mechanical equipment. The elevator
modernization program has increased elevator speed from
approximately 800-950 feet per minute to approximately 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 deck ticket office.
Sublessee anticipates that the costs of improvements to
be incurred will reduce or eliminate Overage Rent during the years
from 1996 through 1999, 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, 1997
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
August 6, 1996 (the "Power").
EMPIRE STATE BUILDING ASSOCIATES
(Registrant)
By: /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: May 13, 1997
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/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: May 13, 1997
______________________
* Mr. Katzman supervises accounting functions for Registrant<PAGE>
<PAGE>
Empire State Building Associates 14.
March 31, 1997
EXHIBIT INDEX
Number Document Page*
25 Power of Attorney dated August 6,
1996, between Peter L. Malkin, John L.
Loehr and Stanley Katzman, the
partners in Registrant and Richard A.
Shapiro and Stanley Katzman, filed as
Exhibit 25 to Registrant's Form 10-Q
for the quarter ended September 30,
1996 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, 1997 and the Statement Of Income
for the period ended March 31, 1997, and is qualified in its entirety by
reference to such financial statements.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 370,534
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 394,365<F1>
<PP&E> 39,000,000
<DEPRECIATION> 35,716,606
<TOTAL-ASSETS> 3,677,759
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,677,759
<TOTAL-LIABILITY-AND-EQUITY> 3,677,759
<SALES> 1,504,687<F2>
<TOTAL-REVENUES> 1,507,069<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 584,471<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 922,598
<INCOME-TAX> 0
<INCOME-CONTINUING> 922,598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 922,598
<EPS-PRIMARY> 279.58<F5>
<EPS-DILUTED> 279.58<F5>
<FN>
<F1>Includes prepaid rent
<F2>Rental income
<F3>Includes dividend income
<F4>Leasehold rent, supervisory fees and amortization of leasehold
<F5>Earnings per $10,000 participation unit, based on 3,300 participation
units outstanding during the year
</FN>
</TABLE>
