SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to __________
Commission File No.: 0-5537
INVESTMENT PROPERTIES ASSOCIATES
-----------------------------------------------------
(Exact Name of Registrant as specified in its charter)
A New York Limited Partnership 13-2647723
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
60 East 42nd Street, New York, New York 10165
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 687-6400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
820,000 Participations in Limited Partnership Interest
------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant -- Not applicable.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes_________ No_________
Documents Incorporated by Reference -- Not applicable.
Page 1 of __ Pages
<PAGE>
PART I
1. Business.
(a) General Development of Business. Investment Properties Associates
("Registrant") is a New York limited partnership formed pursuant to a Limited
Partnership Agreement dated as of May 15, 1969, as amended on October 2, 1969,
October 31, 1969, and December 3, 1969 (the "Agreement"). On February 4, 1997,
Registrant announced that it was offering its commercial properties for sale.
On January 4, 1997, Harry B. Helmsley, a General Partner of Registrant,
died. Under the terms of the Agreement, the General Partners are obligated to
create a new limited partnership with the same attributes as Registrant and to
convey all of the assets and liabilities of Registrant to such entity. Such
action would involve substantial expense and no benefit to the partners of
Registrant or to the holders of Partnership Participation Interests ("PPIs").
Accordingly, Registrant intends to seek approval from the holders of a majority
of the PPIs to amend the Agreement to permit the remaining General Partners to
elect to continue the business of Registrant in the event of the death of a
General Partner and to make such election with respect to the death of Mr.
Helmsley.
At December 31, 1996, Registrant owned fourteen commercial properties
(thirteen of which were operating properties) located in metropolitan areas in
Illinois, New York, New Jersey and Texas. Of such fourteen commercial
properties, Registrant owned fee titles to, or leasehold estates in, twelve
commercial properties, a 50% interest in one property and a 73-1/3% beneficial
interest in another property. Thirteen of these properties are office buildings
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(one of which, located in Midland, Texas, is vacant) and one is a loft building.
In addition, Registrant owns fee title to two unimproved real properties in
Houston, Texas. On December 20, 1996, Registrant agreed to accept an early
surrender of space located at 1440 Broadway, New York, New York due to expire on
December 31, 1999 in exchange for a lump sum payment from the tenant of
$1,000,000. This transaction was recorded as income in the fourth quarter of
1996. In consideration of Chase Manhattan Bank's consenting to the early
surrender, Registrant agreed to invest at least $1,000,000 in 1997 in connection
with leasing costs and capital improvements at 1440 Broadway, New York, New
York.
On May 1, 1996, Registrant exercised its option to terminate the ground
lease on the 744 Broad Street Building in Newark, New Jersey. As provided in the
lease, the ground lessor, Newark Building Associates, was given sixty days
written notice of Registrant's plan to terminate the ground lease. The lease was
to expire on August 31, 2002.
On November 30, 1994, Registrant borrowed $6,000,000 from Irving Schneider,
a General Partner of Registrant, and $12,000,000 from an affiliate of Harry B.
Helmsley, also a General Partner (collectively, the "Affiliate Loans"). The
Affiliate Loans, which are due and payable on demand, bear interest at the rate
announced from time to time by Chase Bank, N.A. ("Chase") as its "prime rate."
The proceeds of the Affiliate Loans were used by Registrant (i) to prepay
indebtedness owed to Chase in the amount of $10,750,000 (which amount Chase
subsequently readvanced to Registrant in connection with the extension of the
mortgage loans relating to 1440 Broadway, 245 Fifth Avenue, 261 Fifth Avenue,
all in New York, New York, and One North Dearborn and One LaSalle, both in
Chicago, Illinois, and the cross collateralization and cross defaults among
these properties); (ii) to pay the outstanding accrued interest on the Bonds due
on December 1, 1994 in the amount of $484,000; (iii) to pay
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outstanding distribution obligations to the Special Limited Partners in respect
of 1993 net operating revenues, which were past due since March 31, 1994 in the
amount of $5,317,000; and (iv) to reduce a portion of Registrant's accounts
payable to trade creditors by approximately $1,449,000. Registrant paid
$1,612,875 in interest in respect of the Affiliate Loans during 1995 and
$1,513,625 in interest thereon during 1996.
On December 1, 1994, Chase loaned $10,750,000 to Registrant, which funds
were used by Registrant to repay its 9% Junior Mortgage Bonds (the "Bonds") in
full on such date. Chase also agreed to extend the final maturity date of
Registrant's mortgage loans relating to its 1440 Broadway, 245 Fifth Avenue and
261 Fifth Avenue properties in New York, New York, and to its One North Dearborn
and One LaSalle buildings in Chicago (collectively, the "Chase Loans") from
January 2, 1995 to January 2, 1997. On April 25, 1995 Registrant and Chase
entered the definitive agreements providing for the extension of the maturity of
the Chase Loans and the cross collateralization and cross defaults among the
properties that secure the Chase Loans. In addition, the Registrant was given
the option of paying interest on the Chase Loans based on LIBOR plus 2.25% or
prime plus .375%. The maturity of the Chase Loans has been extended to January
2, 1998. See Note 4 to Financial Statements.
During 1996, Registrant made principal payments of $3,048,785 in the
aggregate on its first mortgage loans including a $3,000,000 net reduction of
the mortgage loan held by Chase. The aggregate principal amount of the Chase
Loans at December 31, 1996 was $35,847,488. The aggregate outstanding principal
balance of the Chase Loans as of December 31, 1995 was $38,847,488.
On November 13, 1995, Registrant and First Fidelity Bank ("Fidelity")
entered into a modification of the mortgage note held by Fidelity on
Registrant's Federal Trust building
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in Newark, New Jersey. Effective January 1, 1996, the maturity date of the note
was extended to June 30, 1997. Interest on the amended note is based on the
weekly average yield on U.S. Treasury Securities plus 2% and the modification
calls for the monthly payment of principal and interest. The principal balance
of the Fidelity loan at December 31, 1996 was $467,070.
(b) Financial Information About Industry Segments. Registrant's sole
business is the ownership and operation of commercial real estate. All of
Registrant's revenues, operating profit or loss and assets relate solely to such
industry segment.
(c) Narrative Description of Business. Registrant's only business is the
ownership and operation of commercial real properties which it leases to various
tenants. Registrant's principal source of revenues is rent received from such
tenants. The primary costs associated with owning and leasing commercial real
estate are real estate taxes, utilities, interest on indebtedness, property
management and leasing fees, payroll and related expenses, repair and
maintenance expenses and depreciation. See Financial Statements, page S-3. All
of the properties owned and operated by Registrant are set forth in Item 2.
Registrant's properties taken as a whole are leased to large numbers of
lessees and Registrant is not dependent upon any single lessee, the loss of
which would have a material adverse effect on Registrant. Due to the nature of
the Registrant's business, Registrant has only one identifiable market segment,
has no new products, uses no raw materials, owns no patents, trademarks,
licenses, franchises or concessions and expends no sums for research and
development. No material portion of Registrant's business is seasonal in nature.
Registrant's needs for working capital are similar to those of other owners
and operators of commercial real property and, generally, are provided for with
cash generated from operations and, in some cases, borrowings.
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Each property owned by Registrant competes with real properties of similar
function and quality in its geographic vicinity. Commercial rental properties
within a given geographic area tend to compete on the basis of location,
amenities and price. Demand for commercial rental space is also dependent upon
economic conditions prevailing in the particular geographical area and the
quantity of suitable space in such area.
Registrant employs approximately 150 people who handle maintenance of its
properties. All of the Registrant's other operating functions, which consist
primarily of property leasing and property management services, are performed by
Helmsley-Spear, Inc. or affiliates of Helmsley-Spear, Inc., which entities may
be deemed to be affiliates of Registrant. Management fees and leasing
commissions charged by Helmsley-Spear, Inc. aggregated approximately $2,330,400
in 1996, $2,362,700 in 1995 and $2,228,000 in 1994. Additionally, Registrant
purchases some of its maintenance supplies and materials from Deco Purchasing
Co., Inc. ("Deco"), affiliate of one of its partners. Such purchases aggregated
approximately $23,000 in 1996, $13,000 in 1995 and $14,000 in 1994. Registrant
believes that such services and products are supplied at prices that approximate
those that would be available from non-affiliates. See Item 13.
2. Properties.
General. At December 31, 1996, Registrant owned fee titles to, or leasehold
estates in, twelve commercial properties, a 50% interest in one commercial
property, a 73-1/3% beneficial interest in another commercial property and fee
title to two unimproved real properties (collectively, the "Properties"). The
Properties are located in New York, New York; Chicago, Illinois; Midland, Texas;
Houston, Texas; and Newark, New Jersey. The Properties have a total rentable
area of approximately 4,914,000 square feet.
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Substantially all of the commercial Properties have modern lobby facilities
and automatic self-service elevators. The Registrant takes a depreciation
deduction for tax purposes on the buildings, building improvements and tenant
improvements on its properties. See Schedule III of the Financial Statements
included elsewhere herein.
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<PAGE>
The table below sets forth a description of each of the Properties owned by
Registrant on December 31, 1996, its location, types of ownership and rentable
area in square feet.
<TABLE>
<CAPTION>
Total
Rentable
Area
Property Description Ownership (Sq. Ft.)
- -------- ----------- --------- ---------
<S> <C> <C> <C>
New York, New York
1440 Broadway 25-story office Fee 690,000
bldg.
261 Fifth Avenue 25-story office Fee 402,000
bldg.
245 Fifth Avenue 26-story office Fee 287,000
bldg.
Marbridge Building 11-story office 50% of Fee 357,000
(1328 Broadway) bldg.
Mojud Building 5-story loft Fee 181,000
(Long Island City) building
Chicago, Illinois
One LaSalle Bldg. 49-story office Fee 491,000
(1 N. LaSalle St.) bldg.
360 No. Michigan Avenue Bldg. 21-story office Leasehold (lease 259,000
(360 No. Michigan Ave.) bldg. expires 4/30/2058)
One N. Dearborn Bldg. 17-story office Fee and Leasehold 938,000
bldg. (2 leases expire
3/31/2020 and
3/31/2077)
59 E. Van Buren Bldg. 27-story office Fee 182,000
bldg.
6 N. Michigan Ave. 21-story office 73-1/3% beneficial 223,000
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Total
Rentable
Area
Property Description Ownership (Sq. Ft.)
- -------- ----------- --------- ---------
<S> <C> <C> <C>
Texas
Midland Savings Bldg. 14-story office Fee 167,000
(Midland) bldg. (currently
vacant)(1)
Edgewood Shopping Center Unimproved Fee --
(Houston) Land
Bellway Shopping Center Unimproved Fee --
(Houston) Land
New Jersey
Raymond Commerce Bldg. 37-story office Leasehold (lease 359,000
(1180 Raymond Blvd., bldg. expires 12/31/03)
Newark)
570 Broad Street (Newark) 14-story office Fee 190,000
bldg.(2)
Federal Trust Bldg. (24 20-story office Fee 188,000
Commerce St., Newark) bldg. and 7-story
office bldg.
</TABLE>
- --------------------
(1) Registrant is not attempting to rent space in such building since it does
not believe that the building can be operated profitably under current
market conditions. Such property is not material to Registrant's
operations.
(2) Vacated by sole tenant during 1996.
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<PAGE>
Additional Property Information. Four of Registrant's properties
individually account for 10% or more of its total assets or revenues at December
31, 1996. Such properties are referred to above as 1440 Broadway, New York, New
York; 261 Fifth Avenue, New York, New York; One North Dearborn, Chicago,
Illinois and One North LaSalle, Chicago, Illinois.
The estimated occupancy rate for the Registrant's 1440 Broadway property
for 1996, 1995, 1994, 1993 and 1992 was approximately 61%, 73%, 70%, 71% and
73%, respectively. The average annual base rent per leased square foot at such
property was approximately $28.10 in 1996, $23.94 in 1995, $24.57 in 1994 and
$24.85 in 1993.
The estimated occupancy rate for the Registrant's 261 Fifth Avenue property
for 1996, 1995, 1994, 1993 and 1992 was approximately 80%, 78%, 72%, 74% and
82%, respectively. The average rental per square foot at such property was
approximately $21.28 in 1996, $21.25 in 1995, $20.49 in 1994 and $20.70 in 1993.
The estimated occupancy rate for the Registrant's One North Dearborn
property for 1996, 1995, 1994, 1993 and 1992 was approximately 47%, 54%, 62%,
68% and 77%, respectively. The average rental per square foot at such property
was approximately $16.25 in 1996, $16.44 in 1995, $16.47 in 1994 and $18.47 in
1993.
The estimated occupancy rate of Registrant's One North LaSalle property for
1996, 1995, 1994, 1993 and 1992 was approximately 58%, 54%, 56%, 56% and 62%,
respectively. The average rental per square foot at such property was
approximately $11.80 in 1996, $13.80 in 1995, $13.69 in 1994 and $17.37 in 1993.
Registrant's 1440 Broadway property is a 25 story commercial office
building in midtown, Manhattan. Two separate tenants occupy 10% or more of the
rental area of such building, both of which are clothing retailers. The rental
per annum of one clothing retailer is
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$4,641,000 and its lease expires on December 31, 1999, subject to two
consecutive five year renewal options to 2004 and 2009 at then prevailing market
rentals. The rental per annum of the other clothing retailer is $2,349,000 per
year and such lease expires on May 31, 1998, with no renewal options.
Registrant's 261 Fifth Avenue property is a 25 story building located in
midtown Manhattan. No single tenant of such property occupies 10% or more of the
rentable area of such property.
Registrant's One North Dearborn property has one tenant that occupy 10% or
more of the rentable area of such property, a commercial bank. Effective January
31, 1997 a portion of the space with an annual rental of $425,000 was vacated.
The remaining portion of the bank's space, with an annual rental of $4,341,000,
has a portion expiring January 31, 2000 and a portion expiring April 30, 2000
without any renewal options.
Registrant's One North LaSalle property has one tenant, a commercial bank,
that leases 10% or more of the rentable area of such property. Such tenant's
annual rental is $1,480,000 per year and the lease expires on December 31, 2000,
without renewals.
The Chicago and New York commercial real estate markets are highly
competitive. In recent years, this has resulted in reduced occupancy rates and
lower rentals per square foot at Registrant's properties in these cities.
Although this trend is anticipated to continue, Registrant believes that rental
rates remain high enough to operate these properties profitably for the
foreseeable future, although there can be no assurances in this regard.
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<PAGE>
The following table sets forth certain information concerning lease
expirations for the Registrant's principal properties at December 31, 1996:
1440 Broadway
<TABLE>
<CAPTION>
Number of Total Leased % of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
<S> <C> <C> <C> <C>
1997 10 11,377 $ 305,580 2.6%
1998 14 102,172 2,962,776 25.2%
1999 7 181,742 4,858,224 41.4%
2000 3 2,587 56,220 0.5%
2001 2 23,641 806,556 6.9%
2002 1 1,789 37,569 0.3%
2003 1 318 26,669 0.2%
2004 1 2,000 230,772 2.0%
2005 4 13,884 873,966 7.4%
2006 or later 2 78,206 1,578,612 13.4%
-- ------- ----------- ------
Totals 45 417,716 $11,736,944 100.0%
== ======= =========== ======
</TABLE>
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<PAGE>
261 Fifth Avenue
<TABLE>
<CAPTION>
Number of Total Leased % of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
<S> <C> <C> <C> <C>
1997 24 70,436 $1,566,192 23.6%
1998 8 33,254 560,736 8.4%
1999 14 55,706 1,215,312 18.3%
2000 11 29,570 647,268 9.7%
2001 10 38,837 890,340 13.4%
2002 6 23,813 512,580 7.7%
2003 1 5,777 121,028 1.8%
2004 2 27,282 518,076 7.8%
2005 1 10,322 221,551 3.3%
2006 or later 1 17,225 390,246 5.9%
-- ------- ---------- ------
Totals 78 312,222 $6,643,329 100.0%
== ======= ========== ======
</TABLE>
One North Dearborn
<TABLE>
<CAPTION>
Number of Total Leased % of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
<S> <C> <C> <C> <C>
1997 6 135,544 $1,508,723 22.8%
1998 3 12,311 567,430 8.6%
1999 1 626 25,008 0.4%
2000 3 252,841 4,217,664 63.7%
2001 0 0 0 0.0%
2002 1 3,850 154,000 2.3%
2003 0 0 0 0.0%
2004 0 0 0 0.0%
2005 2 2,480 152,412 2.3%
2006 or la0er 0 0
-- ------- ---------- ------
Totals 16 407,652 $6,625,237 100.0%
== ======= ========== ======
</TABLE>
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<PAGE>
One North LaSalle
<TABLE>
<CAPTION>
Number of Total Leased % of
Tenants whose Area in Gross Annual
Year lease will expire Square Feet Annual Rental Rental
---- ----------------- ----------- ------------- ------
<S> <C> <C> <C> <C>
1997 21 37,563 630,828 21.0%
1998 10 22,616 353,706 11.4%
1999 15 37,723 320,856 10.4%
2000 4 154,400 1,620,684 52.4%
2001 1 2,638 42,576 1.4%
2002 1 2,597 34,774 1.1%
2003 0 0 0 0.0%
2004 0 0 0 0.0%
2005 0 0 0 0.0%
2006 or later 1 4,626 69,384 2.2%
-- ------- ---------- ------
Totals 52 262,163 $3,092,808 100.0%
== ======= ========== ======
</TABLE>
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<PAGE>
3. Legal Proceedings.
There are no material pending legal proceedings to which Registrant is a
party or of which any of Registrant's property is the subject.
4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of holders of PPIs at a meeting or
otherwise during the fourth quarter of 1996.
PART II
5. Market for the Registrant's Participation Interests
and Related Security Holder Matters.
As discussed above, Registrant is a limited partnership. Participations in
Limited Partnership Interest or "PPIs", which represent the beneficial interest
of the Registrant's sole Limited Partner, are traded in the over-the-counter
market on the National Association of Securities Dealers Automated Quotations
System ("NASDAQ") under the symbol "IVPA." There is no regular market for these
securities and quotations are limited and sporadic.
The range of high and low closing bid quotations for PPIs in the
over-the-counter market for the two most recent years were as follows:
1996 1995
-------------------- --------------------
High Low High Low
---- --- ---- ---
First Qtr. 36 33 46 38
Second Qtr. 46 32 46 35
Third Qtr. 45 39 1/2 41 30
Fourth Qtr. 45 1/4 36 1/2 37 30
The foregoing over-the-counter quotations represent prices between dealers,
do not include retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
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As of December 31, 1996, there were 651 holders of record of Participation
Interests.
Pursuant to the Limited Partnership Agreement, Registrant is required to
make certain cash distributions to holders of Participation Interests. Net
operating revenues for each calendar year are distributable to the partners of
Registrant as follows:
General Partners (as a group): 1.5%
Harry B. Helmsley*
Irving Schneider
Helmsley-Noyes Company, Inc.
Minlyn, Inc.
Special Limited Partners (as a group): 48.5%
Leona M. Helmsley
Irving Schneider
Limited Partner (nominee for
holders of Partnership
Participation Interests): 50.0%
- --------------------
* Mr. Helmsley died on January 4, 1997.
The Limited Partner is the nominee for the holders of Participation
Interests and all distributions to the Limited Partner are distributed ratably
to the holders of 820,000 Participation Interests. If with respect to any
calendar year the Limited Partner's distributive share (computed on the same
basis as that used in preparing Registrant's Federal income tax return) of
income (loss), plus one-half of such partner's distributive share of long-term
capital gains, exceed the net operating revenue allocated to the Limited Partner
as referred to in the preceding paragraph, then Registrant must also distribute
additional funds in an amount equal
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to such excess to the holders of Participation Interests. If Registrant does not
have funds for such distribution (from cash on hand or borrowings), the
Partnership Agreement obligates the General Partners to lend or contribute funds
to Registrant for such purpose.
In 1996, Registrant had "net operating revenues" (as defined) of
$8,342,911, of which $5,241,297 in the aggregate (or $6.39 per Participation
Interest, $.53 of which, for financial reporting purposes, represents a return
of capital) was distributed to the holders of record as of December 31, 1996 of
Participation Interests. An aggregate of $5,241,297 in respect of 1996 net
operating revenues is required to be distributed to the Special Limited Partners
and General Partners identified above. The Special Limited Partners have
deferred receipt of their distributions in respect of net operating revenues for
1994, 1995 and 1996. See Management's Discussion and Analysis of Financial
Condition and Results of Operations.
In 1995, Registrant had net operating revenues of $9,857,034, of which
$5,203,216 was distributed to holders of Participation Interests (or $6.35 per
Participation Interest, $.50 of which, for financial reporting purposes,
represented a return of capital) and the same aggregate amount, receipt of which
has been deferred, is distributable to the Special Limited Partners and General
Partners. See "Management's Discussion and Analysis of Financial Condition,
Results of Operations -- Liquidity and Capital Resources."
"Net operating revenues" is defined in Registrant's partnership agreement
as follows: for any year, (i) net taxable income of the Registrant, plus (ii)
depreciation and amortization expenses allowable for income tax purposes during
such year (but only to the extent of mortgage repayments), (iii) plus
amortization of Bond issuance costs and Bond discount (which is not relevant
after 1994), (iv) plus amortization of financing costs, (v) less principal
repayments on mortgages. Because certain of Registrant's properties are fully
depreciated for
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tax purposes, the net operating revenues of Registrant in recent years has
exceeded cash available for distribution to Registrant's partners. This trend is
anticipated to continue. Consequently, Registrant may have to borrow additional
funds or sell properties to fund such distributions of net operating revenues in
the future. In addition, Registrant's Special Limited Partners and General
Partners have deferred receipt of their portion of 1994, 1995 and 1996 net
operating revenues. See "Item 7 below."
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6. Selected Financial Data.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement
Data
Gross revenues from $52,216,081 $53,879,055 $52,739,194 $55,663,069 $57,905,539
real estate
Income before 8,452,069 9,331,341 8,702,453 9,369,900 8,949,453
extraordinary credit
transferred to Partners'
capital accounts
Extraordinary credit - -- -- -- -- 2,473
Income arising from
repurchase of 9%
Junior Mortgage
Bonds
Net Income transferred 8,452,069 9,331,341 8,702,453 9,369,900 8,951,926
to Partner's capital
accounts
Net operating 8,342,911 9,857,034 10,212,572 11,406,150 11,626,046
revenues, as defined
Net income per
Participation Interest:
Income before 5.8636 5.8446 5.4269 6.6122 6.2048
extraordinary credit
Extraordinary credit -- -- -- -- .0015
----------- ----------- ----------- ----------- -----------
Net Income $ 5.8636 $ 5.8446 $ 5.4269 $ 6.6122 $ 6.2063
Balance Sheet Data
Total assets $55,521,358 $55,061,349 $55,524,560 $54,562,430 $57,902,637
Mortgages payable $40,314,558 $43,363,342 $46,408,730 $43,656,775 $46,721,651
9% Junior Mortgage -- -- -- $10,750,000 $16,750,000
Bonds
Chase Interim Loan -- -- -- $ 6,000,000 --
Affiliate Loans $18,000,000 $18,000,000 $18,000,000 -- --
</TABLE>
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7. Management's Discussion and Analysis of Financial Condition and Results of
Operation.
Liquidity and Capital Resources:
Historically, Registrant's income for operations has been sufficient to
provide for its expenses. From time to time, however, Registrant has borrowed
funds to meet its short term liquidity needs. Registrant believes that its
properties are not overly leveraged and that, under normal market conditions, it
will be able to obtain additional financing as needed. Alternatively, Registrant
may sell assets to discharge its obligations. On February 4, 1997, Registrant
announced that it was offering its commercial properties for sale. There can be
no assurances, however, that a sale will be concluded.
Registrant is required to make certain cash distributions to its Partners
for each year. See "Item 5." Distributions to holders of Participation Interests
in respect of 1994, 1995 and 1996 net operating revenues were provided for with
cash from operations. The General and Special Limited Partners have deferred
receipt of their portion of distributions in respect of 1994, 1995 and 1996 net
operating revenues. Registrant believes that distributions to holders of
Participation Interests of net operating revenues for 1996 will be provided for
with cash from operations. Registrant also believes that the General and Special
Limited Partners will, if necessary, defer receipt of their entitlement to 1997
net operating revenues to accommodate the Registrants liquidity needs.
Registrant does not know, however, whether or not such persons will make
additional loans to the Registrant to finance such distributions. Registrant
anticipates satisfying its working capital requirements for 1997 generally
through cash from the operations and additional short-term borrowings or
mortgage refinancings and/or the sale of properties.
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<PAGE>
Net cash provided by operating activities was approximately $12.8 million
in 1996 as compared to $11.2 million in 1995 and $11.6 million in 1994. For the
year ended December 31, 1996, such higher levels were primarily attributable to
lower operating expenses. Net cash used in financing activities was
approximately $8.3 million in 1996 as compared to $8.4 million in 1995 and $6.9
million in 1994. Net cash used in investing activities was approximately $2.4
million in 1996 as compared to $3.8 million in 1995 and $3.0 million in 1994.
Mortgages payable decreased to approximately $40.3 million in 1996 as compared
to $43.4 million in 1995 and approximately $46.4 million at the end of 1994,
primarily due to scheduled mortgage principal payments.
On November 30, 1994, Registrant borrowed $6,000,000 from Irving Schneider,
a General Partner of Registrant, and $12,000,000 from an affiliate of Harry B.
Helmsley, also a General Partner pursuant to the Affiliate Loans. The Affiliate
Loans bear interest at the rate announced from time to time by Chase as its
"prime rate" and are due and payable on demand. The proceeds of the Affiliate
Loans were used by Registrant (i) to prepay indebtedness owed to Chase in the
amount of $10,750,000 (which amount Chase subsequently readvanced to Registrant
in connection with the Letter of Intent as defined below); (ii) to pay the
outstanding accrued interest on the Bonds due on December 1, 1994 in the amount
of $484,000; (iii) to pay outstanding distribution obligations to the Special
Limited Partners in respect of 1993 net operating revenues, which were past due
since March 31, 1994 in the amount of $5,317,000;
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<PAGE>
and (iv) to reduce a portion of Registrant's accounts payable to trade creditors
by approximately $1,449,000.
On December 1, 1994, Chase loaned $10,750,000 to Registrant, which funds
were used by Registrant to repay the Bonds in full on such date. Chase also
agreed to extend the final maturity date of Registrant's mortgage loans relating
to three of its New York properties and to its One North Dearborn and One
LaSalle buildings in Chicago (collectively, the "Chase Loans") from January 2,
1995 to January 2, 1997. On April 25, 1995, Registrant and Chase entered into
definitive agreements providing for the extension of the maturity of the Chase
Loans and the cross collateralization and the defaults among the properties that
secure the Chase Loans. The maturity of the Chase Loans has been extended to
January 2, 1998.
Registrant has agreed with its lender to invest at least $1,000,000 in 1997
at its 1440 Broadway property in New York. See "Business". Registrant has no
present material commitments for any other capital expenditures in excess of
normal business requirements and does not anticipate incurring any such
commitments through 1997.
The charges to operations for depreciation represent the allocation of
historical costs and are significantly less than if they were based on the
current cost to replace the Registrant's properties. Registrant, however, is
prohibited by the Limited Partnership Agreement from replacing its properties.
Seven of Registrant's properties are encumbered by first mortgages, six of
which require payments of interest at variable rates. Consequently, if interest
rates on such variable rate mortgages were to increase, Registrant could have
less funds available for distribution to holders of Participation Interests.
Results of Operations:
-22-
<PAGE>
1996 Compared to 1995
Gross revenues from rentals (which included a $1 million lump sum payment
from a tenant for early termination of its lease) for 1996 decreased
approximately 3.2% as compared to 1995, primarily due to the following factors.
Firstly, decreased occupancy rates at Registrant's Chicago and Newark properties
have had an adverse affect on revenues. Secondly, Registrant terminated the
ground lease at 744 Broad Street effective July 1, 1996 which resulted in a
decline in revenue. Net income for 1996 decreased approximately $879,000
(approximately 10%) primarily due to the decrease in gross revenues mentioned
above and a one time charge for loss on abandonment of real estate at 744 Broad
Street, Newark, New Jersey. Other property expenses decreased by approximately
$444,000 primarily as a result of a decrease in real estate taxes, decreased
leasehold rentals paid by Registrant and lower interest on indebtedness.
During 1996 approximately seventeen tenants in various properties with an
aggregate annualized rental of approximately $255,964 vacated their premises
prior to the expiration of their leases. In February 1996, the tenant which
occupied 92% of the building located at 570 Broad Street, Newark, New Jersey
notified management of its intention not to renew its lease which expired
December 31, 1996. While leasing activity has recently been more active in New
York, it remains relatively flat in Chicago and down in Newark. Tenants of
Registrant have been able to negotiate lease renewals at rates lower than prior
levels. Although Registrant anticipates continuing its practice of negotiating
new leases and renewing others, Registrant believes more of its space may become
vacant as a result of additional tenants going out of business, reducing their
space requirements or relocating. In the competitive markets in which the
Registrant's properties are located, it is often difficult to find acceptable
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<PAGE>
replacement tenants, even at lower rents. These trends have adversely affected
Registrant's results in 1996 and could continue to adversely affect Registrant's
results in 1997. At December 31, 1996, Registrant did not have any receivables
associated with such vacancies.
For 1996 Registrant's interest expense decreased to $4,879,233
(approximately 10%), primarily due to lower levels of average outstanding
indebtedness.
Registrant's real estate tax expense in 1996 totalled $9,883,375, which
represents a decrease of approximately 6% over amounts expensed in 1995. This
decrease is attributable primarily to decreases in real estate assessments for
certain of the properties. Registrant, under certain commercial leases, is able
to pass a portion of the increases in real estate taxes, operating expenses and
increases in the consumer price index to the tenants based on lease escalation
clauses.
Management fees decreased approximately 3% in 1996 as compared to 1995,
primarily due to lower gross revenues from rentals. Depreciation expenses
decreased approximately 1% in 1996 as compared to 1995, primarily due to the
fact that certain of Registrant's properties became fully depreciated by 1995.
Other operating expenses decreased approximately 2% in 1996, primarily due to
lower property taxes and interest expense.
1995 Compared to 1994
Gross revenues from rentals for 1995 increased approximately 2.2% as
compared to 1994, primarily due to the receipt of $950,000 in connection with a
settlement with a major tenant at one of the Registrant's Newark properties,
which tenant vacated the premises prior to its scheduled lease expiration. Net
income for 1995 increased approximately $628,888 primarily due to the increase
in gross revenues mentioned above. Other property expenses increased $562,234
primarily as a result of an increase of utilities expense of approximately
$385,384.
-24-
<PAGE>
During 1995 approximately 25 tenants in various properties with an
aggregate annualized rental of approximately $754,000 vacated their premises
prior to the expiration of their leases. Although Registrant anticipates
continuing its practice of negotiating new leases and renewing others,
Registrant believes more of its space may become vacant as a result of
additional tenants going out of business, reducing their space requirements or
relocating. In the competitive markets in which the Registrant's properties are
located, it is often difficult to find acceptable replacement tenants, even at
lower rents. These trends have adversely affected Registrant's results in 1995
and could continue to adversely affect Registrant's results in 1996. At December
31, 1995, Registrant did not have any receivables associated with such
vacancies.
For 1995 Registrant's interest expense increased to $5,394,017
(approximately 14.9%), primarily due to higher levels of average outstanding
indebtedness.
Registrant's real estate tax expense in 1995 totalled $10,496,407, which
represents a decrease of approximately 7.8% over amounts expensed in 1994. This
decrease is attributable primarily to decreases in real estate assessments for
certain of the properties. Registrant, under certain commercial leases, is able
to pass a portion of the increases in real estate taxes, operating expenses and
increases in the consumer price index to the tenants based on lease escalation
clauses.
Management fees decreased approximately 3.1% in 1995 as compared to 1994,
primarily due to lower gross revenues from rentals. Depreciation expenses
decreased approximately 8.9% in 1995 as compared to 1994, primarily due to the
fact that certain of Registrant's properties became fully depreciated by 1994.
Other operating expenses increased approximately 4.8% in 1995. This increase is
attributable primarily to higher utilities costs.
-25-
<PAGE>
8. Financial Statements and Supplementary Data.
The response to this Item is submitted in a separate section of this
report.
-26-
<PAGE>
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
None.
PART III
10. General Partners of the Registrant. (a) (b) Identification of General
Partners.
Registrant is a limited partnership. It does not have directors or
executive officers. The information set forth below is provided with respect to
the General Partners of the Registrant, who may be considered to occupy
positions equivalent to directors or executive officers. There is no specific
term of office for any General Partner of the Registrant. Each General Partner
has served in such capacity since December 4, 1969.
The names, ages, and business experience during the past five years of the
two individual General Partners of the Registrant, including their principal
occupations and employment during that period and the name and principal
business of any corporation or other organization in which such occupations and
employment were carried on, is as follows:
Irving Schneider - 77; Executive Vice President of Helmsley-Spear, Inc. Mr.
Schneider has been in the real estate business for over 50 years and owns and
operates, individually or through partnerships, numerous real estate
investments.
Helmsley-Noyes Company, Inc. (formerly Charles F. Noyes Company, Inc.), was
incorporated in 1926. It is a major real estate management firm in New York
City, managing approximately 25 properties. It is owned by Helmsley Enterprises,
Inc., which in turn is wholly-owned by the Harry B. Helmsley Revocable Trust, of
which Leona M. Helmsley is the beneficiary.
-27-
<PAGE>
Minlyn, Inc. was formed in 1968. All of its stock is owned by Mr.
Schneider. There is no family relationship between the two individual General
Partners. Mr. Schneider is a director of Reliance Group Holdings, Inc., and
Reliance Insurance Company.
Harry B. Helmsley was a General partner of Registrant until his death on
January 4, 1997.
11. Executive Compensation.
(a) General, (b) Summary Compensation Table, (c) Options/SAR Grants Table,
(d) Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table,
(e) Long-Term Incentive Plan ("LTIP") Awards Table, (f) Defined Benefit or
Actuarial Plan Disclosure, (g) Compensation of Directors, (h) Employment
Contracts and Termination of Employment and Change-in-Control Arrangements, (i)
Additional Information with Respect to Compensation Committee Interlocks and
Insider Participation in Compensation Decisions.
Registrant is a limited partnership. It does not have officers, executive
officers or directors. The information set forth below is provided with respect
to the General Partners and the Special Limited Partners of the Registrant, who
may be considered to act in capacities similar to directors, or perform
policy-making functions similar to those of executive officers or officers in
charge of a principal business unit, division or function.
Paragraph 11A(3) of the Limited Partnership Agreement provides for certain
guaranteed payments to be made to the General Partners and Special Limited
Partners of Registrant equal to 8-3/4% per annum of their "Remaining Original
Cash Contribution." The Remaining Original Cash Contribution is $1,500,000, less
the cumulative amounts distributed to the General Partners and Special Limited
Partners from time to time in respect of the net proceeds of the sale of
Registrant's properties. The Remaining Original Cash Contribution as
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<PAGE>
of December 31, 1996 was $1,160,000 For the fiscal years ended December 31, 1996
and December 31, 1995, Registrant paid or accrued, pursuant to such paragraph
11A(3), guaranteed payments to the General and Special Limited Partners in an
aggregate amount of $101,500 as follows: Harry B. Helmsley - $67,566, Irving
Schneider - $33,732, Helmsley-Noyes Company, Inc. - $101, and Minlyn, Inc. -
$101.
Under the terms of the Limited Partnership Agreement, since January 1,
1973, the General Partners are entitled to receive an annual payment equal to
1/2% of the gross operating income of Registrant. During the fiscal year ended
December 31, 1996, Registrant accrued in connection with such annual payments an
aggregate of $261,499 as follows: Harry B. Helmsley - $165,618, Irving Schneider
- - $78,449, Helmsley-Noyes Company, Inc. - $8,716 and Minlyn, Inc. - $8,716.
During the fiscal year ended December 31, 1995, Registrant accrued in connection
with such annual payments an aggregate amount of $267,919 as follows: Harry B.
Helmsley - $169,682, Irving Schneider - $80,379, Helmsley-Noyes Company, Inc. -
$8,929 and Minlyn, Inc. - $8,929. The total accrual to the General Partners and
their affiliates in 1996 and 1995 in respect of their Original Cash Contribution
and right to 1/2% of gross operating income were as follows: Harry B. Helmsley
and his affiliate is $411,896 and $246,278, respectively; Irving Schneider and
his affiliates - $201,588 and $123,139, respectively. Mr. Schneider also is
entitled to receive distributions of net operating revenues in his capacity as
Special Limited Partners. See "Item 5" above.
The Registrant does not provide any compensation to the General Partners or
the other persons in the form of option or stock appreciation right grants,
long-term incentive plans, or a defined benefit or actuarial plans. The
Registrant has no standard arrangements for
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<PAGE>
payment of fees General Partners (other than for their interest as General
Partners, as described above), or employment contracts or change-in-control
arrangements.
12. Security Ownership of Certain
Beneficial Owners and Management.
(a) Registrant is a limited partnership. Except to the extent set forth
below, it does not have voting securities. The right to control the business of
Registrant is vested in the General Partners of Registrant by virtue of
provisions of Paragraph 20A of the Limited Partnership Agreement and Article 8
of the New York Partnership Law.
Paragraph 31 of the Limited Partnership Agreement provides for modification
or amendments of the Limited Partnership Agreement upon obtaining the consents
or affirmative votes of specified percentages of the General Partners, the
Special Limited Partners, and the Limited Partners, each voting as a class. To
the extent that the General Partnership Interests, the Special Limited
Partnership Interests, and the Participation Interests are considered as voting
securities by virtue of the provisions of said Paragraph 31, the following
information is provided as to holders of 5% or more of each such class of
securities at December 31, 1996:
Amount and
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- --------- --------
General Partnership Harry B. Helmsley -- 63.33(1)
Interests 36 Central Park So. Direct (4)
New York, New York
Irving Schneider -- 30.00(1)
880 Fifth Avenue Direct (4)
New York, New York
Special Limited Leona M. Helmsley -- 66.66
Partnership Interest Direct (4)
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<PAGE>
Amount and
Nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- --------- --------
Irving Schneider -- 33.34
Direct (4)
Participation Leona M. Helmsley 258,877 31.57(2)
Interests Direct (2)
Harry B. Helmsley 23,500 2.87(3)
Indirect (3)
Irving Schneider 90,095 10.99
Direct (5)
John D. and Catherine T 87,000 10.61
MacArthur Foundation c/o Direct
Cyrus Smith
Chief Financial Officer
Foundation Land Company
4176 Burns Road
Palm Beach Garden, FL
33410-4653
- ---------------
(1) The remaining 6.67% of General Partnership Interests are owned,
beneficially and of record, by Helmsley-Noyes Company, Inc., 22 Cortlandt
Street, New York, New York and Minlyn, Inc., 60 East 42nd Street, New York,
New York. See Item 10 hereof as to ownership of said corporations.
(2) Leona M. Helmsley is the spouse of Harry B. Helmsley who died on January 4,
1997. Above amount excludes the 23,500 PPIs that were owned beneficially by
Mr. Helmsley.
(3) Includes: 4,000 PPIs held by Helmsley-Noyes Company, Inc. (.5%), a company
owned by Helmsley Enterprises, Inc., which in turn is wholly-owned by the
Harry B. Helmsley Revocable Trust, under agreement dated December 13, 1989;
13,000 PPIs held by HBH Holdings Corp. (1.6%) and 6,500 PPIs held by Park
Lane Hotel, Inc. (.8%). See Item 10 hereof as to ownership of
Helmsley-Noyes Company, Inc. HBH Holdings Corp. and Park Lane Hotel, Inc.
are wholly-owned by Helmsley Enterprises, Inc. Mrs. Helmsley is the
executor of the estate of Harry B. Helmsley and is the beneficiary of the
Revocable Trust. Consequently, Mrs. Helmsley may be deemed to be the
beneficial owner of such securities.
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<PAGE>
(4) The General Partnership Interests and the Special Limited Partnership
Interests have the rights set forth in the Limited Partnership Agreement
and are not reflected in any number or amount of securities issued by
Registrant. Mr. Helmsley died on January 4, 1997.
(5) Does not include 31,960 Participation Interests owned by Mr. Schneider's
daughters (3.9%).
(b) Registrant is a limited partnership. It does not have directors and
officers. The following table sets forth the amount and nature of the beneficial
ownership at December 31, 1996 of Registrant's three classes of partnership
interests by its two individual General Partners and by all its General Partners
as a group:
Amount and
nature of
Name and Address of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -------------- ---------------- --------- --------
General Partnership Harry B. Helmsley -- 63.33
Interests 36 Central Park So. Direct (3)
New York, NY
Irving Schneider -- 30.00
880 Fifth Avenue Direct (3)
New York, NY
As a group 100.00 (1)
Special Limited Leona M. Helmsley -- 66.66
Partnership Interests Direct (3)
Irving Schneider -- 33.34
Direct (3)
As a group 100.00
Participation Interests Harry B Helmsley 23,500 2.87
Indirect (2)(5)
Irving Schneider 90,095 10.99
Direct (4)
As a group 113,595(2)(4) 13.86(2)
(4)
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<PAGE>
- ---------------
(1) The remaining 6.67% of General Partnership Interests are owned,
beneficially and of record, by Helmsley-Noyes Company, Inc., 22 Cortlandt
Street, New York, New York and Minlyn, Inc.; 60 East 42nd Street, New York,
New York. See Item 10 hereof as to ownership of said corporations.
(2) Includes: 4,000 PPIs held by Helmsley-Noyes Company, Inc. (.5%), a company
owned by Helmsley Enterprises, Inc., which in turn is wholly-owned by the
Harry B. Helmsley Revocable Trust, under agreement dated December 13, 1989;
13,000 PPIs held by HBH Holdings Corp. (1.6%) and 6,500 PPIs held by Park
Lane Hotel, Inc. (.8%). HBH Holdings Corp. and Park Lane Hotel, Inc. are
wholly-owned by Helmsley Enterprises, Inc. Mrs. Helmsley is the executor of
the estate of Harry B. Helmsley and is the beneficiay of the Revocable
Trust. Consequently, Mrs. Helmsley may be deemed to be the beneficial owner
of such securities.
(3) The General Partnership Interests and the Special Limited Partnership
Interests have the rights set forth in the Limited Partnership Agreement
and are not reflected in any number or amount of securities issued by
Registrant. Mr. Helmsley died on January 4, 1997.
(4) Does not include 31,960 Participation Interests owned by Mr. Schneider's
daughters (3.9%).
(5) Does not include 258,877 Participation Interests owned by Leona M.
Helmsley.
13. Certain Relationships and Related
Transactions.
(a) Transactions with Management and Others.
(b) Certain Business Relationships.
As set forth in Item 11(a) above, during the year ended December 31, 1996
Registrant paid certain fees and certain guaranteed payments to each of its
corporate General Partners, Helmsley-Noyes Company, Inc. and Minlyn, Inc.,
pursuant to the Limited Partnership Agreement. See Item 10 hereof as to the
ownership of said corporations.
Helmsley-Spear, Inc., either directly or through various subsidiaries, acts
as managing agent of the Properties. For such management and leasing brokerage
services, Helmsley-Spear, Inc. charged Registrant the aggregate sum of
approximately $2,330,429 during the fiscal year ended December 31, 1996. Leasing
commissions charged by Helmsley-Spear,
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<PAGE>
Inc. are based upon varying percentages of the annual rent paid by tenants
obtained by Helmsley-Spear, Inc. Property management fees charged by
Helmsley-Spear, Inc. are based upon negotiated amounts that are believed to be
below market rate. Leasing fees and property management fees charged by
Helmsley-Spear, Inc. to Registrant are believed to be, from Registrant's
perspective, on a basis that approximate those that would be available to
Registrant from non-affiliates at arm's-length. Mr. Helmsley, a General Partner
of the Registrant, is the indirect owner of substantially all of the capital
stock of Helmsley-Spear, Inc. and Mr. Schneider is a stockholder of
Helmsley-Spear, Inc. and is the Executive Vice President of that company. The
amount of the commissions paid for such services is believed by Registrant to be
no more than the amount which Registrant would be required to pay to unrelated
parties performing such services.
Registrant purchases some of its maintenance supplies and materials from
Deco Purchasing Co. Inc., an affiliate of one of its partners. During 1994,
Registrant also borrowed $18 million from Irving Schneider and an affiliate of
Harry Helmsley pursuant to the Affiliate Loans. See Item 1(a) above.
(c) Indebtedness of Management.
None.
PART IV
14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K.
(a) (1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
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<PAGE>
(a) (3) Exhibits. Subject to Rule 12b-32 of the Securities Act of 1934
regarding incorporation by reference, listed below are the exhibits which are
filed as part of this report (according to the numbers assigned to them in Item
601 of Regulation S-K):
(3) (i) Registrant's Limited Partnership Agreement dated as of May
15, 1969, as amended on October 2, 1969 October 31, 1969, and
December 3, 1969 is hereby incorporated by reference to Exhibits
3.1, 3.2, 3.3 and 3.4 to Registration Statement No. 2-33132 which
was declared effective by the SEC on December 4, 1969.
(10.1) Management Agreement dated May 20, 1969 between Helmsley-Spear,
Inc. and Registrant is hereby incorporated by reference to
Exhibit 12.1 to Registration Statement No. 2-33132. The leasing
commissions and management fees currently being charged to the
Registrant are consistent with the rates generally charged in the
areas where the properties are located.
(10.2) Forms of Promissory Notes, dated November 30, 1994, evidencing
the Affiliate Loans is hereby incorporated by reference to
Exhibit 10.2 of Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1994.
(b) Reports on Form 8-K filed during the period covered by this
Report:
None.
(c) Exhibits -- None.
d) Financial Statement Schedules -- The response to this portion of
Item 14 is submitted as a separate section of this report.
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<PAGE>
(27) Financial Data Schedule
-36-
<PAGE>
Annual Report On Form 10-K
Item 14(A)(1) And (2) And Item 14(D)
List Of Financial Statements And Financial Statement Schedule
Financial Statements And Financial Statement Schedule
Year Ended December 31,1996
Investment Properties Associates
(A New York Limited Partnership)
New York, New York
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Index Of Financial Statements And Financial Statement Schedule
The following financial statements of Investment Properties Associates are
included in Item 8:
Page
Report of Independent Auditors............................................S-1
Balance Sheets - December 31, 1996 and 1995...............................S-2
Statements of Income - Years Ended December 31, 1996,
1995 and 1994.....................................................S-3 and S-4
Statements of Changes in Partners' Capital (Deficiency)-
Years Ended December 31, 1996, 1995 and 1994..............................S-5
Statements of Cash Flows - Years Ended December 31, 1996,
1995 and 1994.............................................................S-6
Notes to Financial Statements.....................................S-7 to S-16
The following financial statement schedule of Investment
Properties Associates is included in Item 14(d):
Schedule III-Real Estate and Accumulated Depreciation...........S-17 and S-18
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or have been otherwise disclosed, and
therefore have been omitted.
<PAGE>
Report of Independent Auditors
Investment Properties Associates
We have audited the accompanying balance sheets of Investment Properties
Associates (a New York Limited Partnership) as of December 31, 1996 and 1995,
and the related statements of income, changes in partners' capital (deficiency)
and cash flows for each of the years in the three year period ended December 31,
1996. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Investment Properties
Associates at December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three year period ended December 31,
1996, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
New York, New York
April 2, 1997
S-1
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Balance Sheets
1996 1995
------------------------------
Assets
Real estate, at cost (Notes 3 and 5) $138,214,361 $141,282,613
Less accumulated depreciation and
amortization 95,710,079 97,003,567
------------------------------
42,504,282 44,279,040
Cash and cash equivalents 5,187,591 3,090,409
Due from managing agent (Helmsley-
Spear Inc.) including tenants'
security deposit of $1,587,384
(1996) and $1,398,781 (1995) (Note 6) 2,081,585 2,740,657
Receivables, principally for rentals 1,443,576 1,282,917
Deferred Charges, including deferred
leasing commissions of $3,225,134
(Notes 8 and 9) (1996) and
$3,470,607 (1995) (Note 6) 4,304,324 3,668,320
------------------------------
Total assets $ 55,521,358 $ 55,061,349
==============================
Liabilities and partners' capital (deficiency)
Accounts payable $ 2,755,221 $ 2,529,484
Accrued real estate taxes 4,630,585 4,564,270
Accrued interest 396,153 434,526
Distributions payable to General Partners,
Special Limited Partners and Limited
Partner (Note 9) 20,889,097 15,609,719
Guaranteed payments due to General
Partners, Special Limited Partners and
Limited Partner (Note 7) 393,000 384,420
Accrued leasing commissions and
management fees due to Helmsley-
Spear, Inc. (Note 6) 1,216,015 514,839
Sundry and accrued liabilities 1,830,035 2,759,273
Notes payable to related parties
(Note 4) 18,000,000 18,000,000
Mortgages payable (Note 5) 40,314,558 43,363,342
Deposits and rents received in advance of
$96,613 (1996) and $103,007 (1995) 1,946,639 1,720,896
------------------------------
Total liabilities 92,371,303 89,880,769
------------------------------
Contingencies (Note 13)
Partners' Capital (Deficiency)
(Notes 8 and 9)
General Partners (8,388,913) (7,597,996)
Special Limited Partners (44,098,397) (43,291,921)
Limited Partner (represented by
the equivalent of 820,000
Participation Interests) 15,637,365 16,070,497
------------------------------
(36,849,945) (34,819,420)
------------------------------
Total liabilities and partners'
capital (deficiency) $ 55,521,358 $ 55,061,349
==============================
See accompanying notes.
S-2
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income
Year ended December 31,
1996 1995 1994
---------------------------------------
Revenues:
Gross revenues from real estate (Note 12) $52,216,081 $53,879,055 $52,739,194
Interest and other income 74,663 109,309 68,674
-------------------------------------
52,290,744 53,988,364 52,807,868
-------------------------------------
Expenses:
Leasehold rentals (Note 11) 929,787 1,258,903 1,265,265
Real estate taxes 9,883,375 10,496,407 11,386,800
Interest, on mortgages and notes
payable 4,879,233 5,394,017 4,693,669
Management fees (Note 6) 1,460,004 1,506,896 1,555,575
Payroll and related expenses 5,208,172 5,379,123 5,164,684
Repairs and maintenance expenses 3,530,972 2,964,873 2,469,067
Other property expenses 11,753,758 12,198,128 11,635,894
Administrative expenses 236,072 195,661 230,825
Co-owners' share of (expense) income 53,766 75,638 34,671
Depreciation and amortization of
real estate 3,447,071 3,487,384 3,827,709
Amortization of leasing commissions 1,128,228 1,127,422 1,075,970
Amortization of deferred expenses of
issuance of 9% Junior Mortgage -- -- 19,739
Bonds
Amortization of discount on 9%
Junior Mortgage Bonds -- -- 75,978
Amortization of mortgage
refinancing costs 184,266 188,152 286,273
-------------------------------------
42,694,704 44,272,604 43,722,119
-------------------------------------
Income before items shown below 9,596,040 9,715,760 9,085,749
-------------------------------------
Loss on abandonment of real estate (Note 3) 765,972 -- --
-------------------------------------
See accompanying notes.
S-3
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Statements of Income (continued)
Year ended December 31,
1996 1995 1994
-------------------------------------------------
Guaranteed payments
required under the
Limited Partnership
agreement (Note 7):
To the Limited Partner $ 15,000 $ 15,000 $ 15,000
To General and Special
Limited Partners 101,500 101,500 101,500
To General Partners 261,499 267,919 266,796
---------------------------------------------
377,999 384,419 383,296
---------------------------------------------
Net income $8,452,069 $9,331,341 $8,702,453
=============================================
Net income allocable as
follows: (Note 8)
General Partners $ (633,678) $ 136,162 $ 127,572
Special Limited Partners 4,277,582 4,402,586 4,124,818
Limited Partner 4,808,165 4,792,593 4,450,063
---------------------------------------------
$8,452,069 $9,331,341 $8,702,453
=============================================
Net Income Per Limited
Partner Participation
Interest (820,000 units
outstanding): $ 5.8636 $ 5.8446 $ 5.4269
=============================================
See accompanying notes.
S-4
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Statements of Changes in Partners' Capital (Deficiency)
<TABLE>
<CAPTION>
Special
General Limited Limited
Total Partners Partners Partner
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Partners' Capital (Deficiency)
December 31, 1993 $(31,942,988) $(7,548,077) $(41,677,865) $17,282,954
Distribution to General Partners,
Special Limited Partners and
Limited Partner (Note 9) (10,503,794) (157,557) (5,094,340) (5,251,897)
Net income for the year ended
December 31, 1994 8,702,453 127,572 4,124,818 4,450,063
-------------------------------------------------------------------
Partners' Capital (Deficiency)
December 31, 1994 (33,744,329) (7,578,062) (42,647,387) 16,481,120
Distribution to General Partners,
Special Limited Partners and
Limited Partner (Note 9) (10,406,432) (156,096) (5,047,120) (5,203,216)
Net income for the year ended
December 31, 1995 9,331,341 136,162 4,402,586 4,792,593
-------------------------------------------------------------------
Partners' Capital (Deficiency)
December 31, 1995 (34,819,420) (7,597,996) (43,291,921) 16,070,497
Distribution to General Partners,
Special Limited Partners and
Limited Partner (Note 9) (10,482,594) (157,239) (5,084,058) (5,241,297)
Net income for the year ended
December 31, 1996 8,452,069 (633,678) 4,277,582 4,808,165
-------------------------------------------------------------------
Partners' Capital (Deficiency)
December 31, 1996 $(36,849,945) $(8,388,913) $(44,098,397) $15,637,365
===================================================================
</TABLE>
See accompanying notes.
S-5
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 8,452,069 $ 9,331,341 $ 8,702,453
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,759,565 4,802,958 5,285,669
Loss on abandonment of real estate 765,972
Changes in operating assets and liabilities:
Due from managing agent 659,072 (501,119) 141,652
Receivables (160,659) 29,618 (377,287)
Deferred charges, net (1,948,498) (1,089,557) (1,241,032)
Accounts payable 225,737 (594,366) (1,442,492)
Accrued real estate tax 66,315 (449,205) (141,281)
Accrued interest (38,373) (100,058) 188,086
Guaranteed payments due to General Partners
Special Limited Partners and Limited Partner 8,580 8,672 (11,702)
Accrued leasing commissions and management fees 701,176 (29,374) (379,131)
Sundry and accrued liabilities (929,238) (224,877) 767,080
Deposits and rents received in advance 225,743 6,561 98,590
-----------------------------------------
Net cash provided by operating activities 12,787,461 11,190,594 11,590,605
-----------------------------------------
Investing activities:
Property improvements (2,438,279) (3,827,196) (2,457,354)
Land additions -- -- (502,032)
-----------------------------------------
Net cash used in investing activities (2,438,279) (3,827,196) (2,959,386)
-----------------------------------------
Financing activities:
Distributions of net operating revenues to General
Partners, Special Limited Partners and Limited
Partner (5,203,216) (5,366,517) (10,897,406)
Principal payments on mortgages payable (3,048,784) (3,045,388) (3,248,045)
Proceeds from short-term note -- -- 18,000,000
Repurchase of 9% Junior Mortgage Bonds -- -- (10,750,000)
-----------------------------------------
Net cash used in financing activities (8,252,000) (8,411,905) (6,895,451)
-----------------------------------------
(Decrease) increase in cash and cash equivalents 2,097,182 (1,048,507) 1,735,768
Cash and cash equivalents at beginning of year 3,090,409 4,138,916 2,403,148
-----------------------------------------
Cash and cash equivalents at end of year $ 5,187,591 $ 3,090,409 $ 4,138,916
=========================================
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 4,917,606 $ 5,494,075 $ 4,505,583
=========================================
</TABLE>
See accompanying notes.
S-6
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements
December 31, 1996
1. Description of Business
Investment Properties Associates ("IPA") was formed as a limited partnership on
May 15, 1969 to acquire and operate commercial properties. The General Partners
are Mr. Harry B. Helmsley and Mr. Irving Schneider and two corporations owned or
controlled by them; the Special Limited Partners are Mrs. Leona M. Helmsley, Mr.
Irving Schneider and the Limited Partner is Mr. John Bailey. Undivided economic
interests in the limited partnership are represented by 820,000 Participation
Interests.
On January 4, 1997 Harry B. Helmsley died. Under the terms of the partnership
agreement the general partners are obligated to create a new limited partnership
substantially the same as IPA and convey all assets and liabilities to the newly
formed entity. On April 2, 1997 the remaining general partner filed a proxy
seeking the consent of a majority of the holders of participation interests to
continue the business of IPA without a formal change in partnership entity.
Following Mr. Helmsley's death, IPA announced, on February 5, 1997, that all of
the properties included in the portfolio are available for sale. Management
believes that the estimated fair market value, less cost of disposal, is in
excess of the carrying amount of each property.
2. Significant Accounting Policies
a. The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
b. Depreciation of buildings and building improvements is provided for by
the straight-line method over estimated useful lives of 19 to 39 years.
Leaseholds, leasehold improvements and tenants' alterations are
amortized over the terms of the related leases. Amounts applicable to
tenants' alterations and the related accumulated amortization are
eliminated from the accounts at the time the related lease expires or,
if the tenant should vacate the premises prior thereto, unamortized
assets are charged to operations at that time.
S-7
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
c. The discount on and the deferred expenses of issuance of 9% Junior
Mortgage Bonds were amortized over the term of the Bonds.
d. Costs in connection with mortgage refinancings are included in "Deferred
Charges-Other" and are being amortized over the terms of the related
mortgages.
e. Leasing commissions are amortized over the terms of the related leases.
f. IPA's employees are covered under multi-employer defined contribution
pension plans. All contributions are funded currently based upon
negotiated union contracts. Information from the plans' administrators
is not available to permit IPA to determine its share of unfunded vested
benefits. During 1996, 1995 and 1994 IPA paid approximately $750,000,
$820,000, and $771,000, respectively, for employees to union plans for
pension, welfare and other benefits.
g. For the purpose of determining cash equivalents, IPA considers all
highly liquid investments with a maturity of three months or less, when
purchased, to be cash equivalents.
h. FASB Statement No. 121 Accounting for the Impairment of Long Lived
Assets and for Long-Lived Assets to be Disposed Of, requires impairment
losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flow
estimates to be generated by those assets are less than the asset's
carrying amount or on long-lived assets held for sale when the assets
carrying amount is greater then the fair market value less costs of
disposal for those assets on a property by property basis.
i. Certain balances in the 1995 and 1994 financial statements have been
reclassified to conform to the current year presentation.
S-8
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
3. Real Estate
Real estate excludes co-owners' shares in two properties and is summarized as
follows:
Classification 1996 1995
- --------------------------------------------------------------------------------
Land $ 21,940,529 $ 21,940,529
Buildings and building improvements 81,232,202 80,670,065
Leaseholds and leasehold improvements 22,010,223 25,536,212
Tenants' alterations 13,031,407 13,135,807
------------------------------
$138,214,361 $141,282,613
==============================
On July 1, 1996 IPA terminated the ground lease at the property located at 744
Broad Street in Newark, New Jersey in accordance with the terms of the lease. In
connection therewith, IPA surrendered the improvements on the property to the
lessor incurring a loss on abandonment of real estate of $765,972 for the year
ended December 31, 1996.
During 1992 and 1993, IPA received approximately $6,495,000 of insurance
proceeds with respect to flood damage incurred at the One LaSalle Building. As
of December 31, 1996 IPA has completed the necessary repairs in connection with
the flood damage.
On March 15, 1994, IPA purchased the land underlying the property at the 570
Broad Street Building for approximately $500,000. In December 1996, a major
tenant occupying approximately 92% of the building's gross leaseable area left
the building upon expiration of its lease.
4. Notes Payable
On November 30, 1994, affiliates of the General Partners loaned IPA $18,000,000,
evidenced by two promissory notes (the "Notes") in the amount of $6,000,000 and
$12,000,000. Such Notes were used to (1) prepay indebtedness owed to Chase
Manhattan Bank, N.A. ("Chase") in the amount of $10,750,000 (see Note 5) (2) pay
the outstanding accrued interest on the Bonds (see below) (3) pay outstanding
distribution obligations to the Special Limited Partners and (4) to reduce a
portion of accounts payable. Concurrently, IPA entered into an agreement with
Chase whereby Chase advanced $10,750,000 on December 1, 1994. The proceeds of
the Chase loan was used to retire the Junior Mortgage Bonds which matured on
December 1, 1994. In connection with the agreement, IPA caused the indenture,
pursuant to which the Bonds were originally issued, to be assigned to Chase as
additional collateral.
S-9
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
4. Notes Payable (continued)
The affiliate notes bear interest at a variable rate based on Chase's prime rate
and are payable on demand. Interest expense for the year ended December 31, 1996
with respect to the Notes was $1,513,625.
5. Mortgages Payable
As of December 31, 1996 mortgages payable consist of the following:
<TABLE>
<CAPTION>
Interest Balance Balance
Rate Outstanding Outstanding
at December 31, Maturity December December
Description 1996 Date 31, 1996 31, 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chase Manhattan Bank (1)
Mortgage loans with variable interest rates
collateralized by:
1440 Broadway, N.Y., N.Y. 7.88% 01/02/98 $16,442,428 $17,796,425
261 Fifth Avenue, N.Y., N.Y. 7.88% 01/02/98 10,307,810 10,867,810
245 Fifth Avenue, N.Y., N.Y. 7.88% 01/02/98 9,097,250 9,617,250
One North Dearborn, Chicago Ill. 7.88% 01/02/98 -- 566,002
One North LaSalle, Chicago, Ill. 7.88% 01/02/98 -- --
Apple Bank for Savings
Mortgage loan in the amount of $8,000,000
with fixed interest payments collateralized
by 1328 Broadway Building N.Y., N.Y. (in
which IPA has a 50% tenancy in common
interest) 7.75% 11/24/97 4,000,000 4,000,000
First Fidelity Bank (2):
Mortgage loans with fixed interest
collateralized by the Federal Trust
Building in Newark, N.J. 7.375% 6/30/97 467,070 515,855
-------------------------
Total $40,314,558 $43,363,342
=========================
</TABLE>
S-10
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
5. Mortgages Payable (continued)
(1) IPA executed a Note Modification Agreement (the "Agreement") on April 25,
1995 with Chase Manhattan Bank ("Chase") whereby mortgage loans
collateralized by five of IPA's properties; 1440 Broadway, NY, NY, 261
Fifth Avenue, NY, NY, 245 Fifth Avenue, NY, NY, One North Dearborn,
Chicago, IL and One North LaSalle, Chicago, IL were generally modified to
provide for: (a) an extension of the maturity date until January 2, 1997 at
which time all outstanding principal and interest is due and payable, (b)
interest based on LIBOR plus 2.25% or Prime plus .375% at IPA's option
subject to certain limitations as defined in the Agreement, (c) cross
default and cross collateralization provisions for the five properties, (d)
IPA's guaranty of $6,000,000 of the outstanding principal balance, and (e)
the following principal payments prior to maturity with respect to the
mortgage loans; March 15, 1996 - $1,000,000, June 15, 1996 - $1,000,000,
September 15, 1996 - $500,000 and December 15, 1996 - $500,000.
On December 20, 1996 IPA accepted an early surrender of space located at
1440 Broadway, New York, New York, in exchange for an early termination
payment of $1,000,000 which was recorded as income at December 31, 1996. In
consideration of Chase consenting to the early termination, IPA agreed to
invest $1,000,000 during 1997 for leasing costs and capital improvements at
1440 Broadway.
On March 28, 1997 a First Modification to the Agreement (the "First
Modification") was made between IPA and Chase. The maturity date was
extended through the earlier of (a) January 2, 1998, (b) May 30, 1997, if
IPA does not provide evidence of the ratification of the Agreement, or (c)
the first date on which IPA fails to make a scheduled principal payment.
The four additional scheduled principal payments of the mortgage loans are
to be made as follows; March 15, 1997 - $1,000,000, June 15, 1997 -
$1,000,000, September 15, 1997 - $500,000, and December 15, 1997 -
$500,000.
(2) On November 13, 1995, the terms of the First Fidelity Bank loan were
modified. The modification which is effective January 1, 1996 (a) extends
the maturity date until June 30, 1997, (b) provides for variable interest
at the weekly average yield on U.S. Treasury Securities plus 2%, and (c)
provides for monthly payment of principal and interest.
Principal maturities with respect to mortgages payable through December 31,
2000 are as follows:
1997 $ 7,467,070
1998 32,847,488
------------
Total $ 40,314,558
============
S-11
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
5. Mortgages Payable (continued)
(3) The carrying amounts of IPA's borrowings under mortgages and notes payable
approximate their fair value.
6. Management of Properties
The properties are managed by Helmsley-Spear, Inc. and Mr. Harry B. Helmsley and
Mr. Irving Schneider, respectively, are the President and Executive Vice
President of Helmsley-Spear, Inc., and Mr. Helmsley owns substantially all of
its outstanding stock. In addition to providing general property management
services, Helmsley-Spear, Inc. locates tenants and negotiates leases for its
properties. Management fees and leasing commissions charged to IPA by
Helmsley-Spear, Inc. aggregated approximately $2,330,429 (1996), $2,362,700,
(1995) and $2,228,000 (1994). Additionally, IPA purchases some of its
maintenance supplies and materials from Deco Supplies Co. ("Deco"), an affiliate
of one of its partners. Such purchases aggregated approximately $23,000 (1996)
$13,000, (1995) and $14,000 (1994).
Tenants' security deposits for certain properties are held by the managing agent
principally in special bank accounts; interest thereon accrues principally for
the benefit of the tenants.
7. Guaranteed Payments Due to Partners
The Limited Partnership Agreement requires that certain guaranteed payments be
made to partners and deducted as expenses in determining net income. The General
Partners and Special Limited Partners receive guaranteed payments equal to
8-3/4% per annum of their "Remaining Original Cash Contribution" ($1,160,000 at
December 31, 1996, 1995, and 1994). In addition, the General Partners receive
guaranteed payments equal to 1/2% of gross revenues, as defined and the Limited
Partner receives $15,000 per annum.
S-12
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
8. Allocations of Partnership Income
In accordance with the terms of the Limited Partnership Agreement, elements of
income for financial reporting purposes are credited (but not distributed in
cash) to the capital accounts of the partners as follows (see Note 8 for the
basis on which cash distributions are determined):
Special
General Limited Limited
------------------------
A. Net income before items C, D, E and F below 1.5% 48.5% 50.0%
B. Net losses, before items below 100.0%
C. Depreciation and amortization of real estate:
1. Equal to mortgage amortization (as defined)
1.5% 48.5% 50.0%
2. Balance 3.0% 97.0%
D. Bond discount amortization 100.0%
E. Gain on disposition of property:
1. To the extent of the aggregate depreciation
and amortization of such property included
in C(2) above 3.0% 97.0%
2. Balance 1.5% 48.5% 50.0%
F. Loss on disposition of property 100.0%
9. Cash Distributions
Net Operating Revenues, as defined, are distributable at the discretion of the
General Partners, as follows:
General Partners 1.5%
Special Limited Partners 48.5%
Limited Partner 50.0%
Notwithstanding the foregoing, if with respect to any calendar year the Limited
Partner's distributive share (computed on the same basis as that used in
preparing IPA's Federal income tax return) of income (loss) plus one-half of
such partner's distributive share of long-term capital gains exceeds the cash
distributions referred to above, IPA must distribute an additional amount equal
to such excess to the Holders of the Participation Interests.
S-13
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
9. Cash Distributions (continued)
In 1996, 1995 and 1994, net operating revenues, as defined in the Limited
Partnership Agreement, amounted to $8,342,911, $9,857,034 and $10,212,572,
respectively. At December 31, 1996, 1995 and 1994, IPA accrued distributions
amounting to $10,482,594, $10,406,432, and $10,503,794, respectively of which
$5,241,297, $5,203,216 and $5,251,897, respectively, are distributable to the
Holders of Participation Interests. At December 31, 1996, distributions payable
include the 1996 and 1995 accrued distribution payable to the General and
Special Limited Partners.
10. Income Taxes
IPA has obtained a ruling from the Internal Revenue Service that IPA will be
classified as a partnership for Federal income tax purposes, and has received an
opinion of tax counsel that IPA, as a partnership, will not be subject to any
Federal income taxes, and that each holder of Participation Interests will be
treated for Federal income tax purposes as if he were a limited partner of IPA
to the extent of his proportionate interest in the Limited Partnership Interest.
Each partner of IPA and each holder of Participation Interests at any time
during the taxable year of IPA must take into account his distributive share of
all items of IPA's income, gain, loss, deduction or credit, without regard to
whether such partner or holder of Participation Interests has received or will
receive any distributions from IPA. Accordingly, no provision for income taxes
has been made in the accompanying Statements of Income. The Internal Revenue
Service is examining the partnership return (Form 1065) filed by IPA for year
ended December 31, 1989. As of March 28, 1997, no revenue report has yet been
issued.
Net income for Federal income tax purposes was to $8,914,978, $10,406,432, and
$10,579,711, for the years ended December 31, 1996, 1995 and 1994, respectively,
as compared with the net income of $8,452,069, $9,331,341, and $8,702,453,
respectively, shown in the Statements of Income. The differences result
principally from the method of recognition of rental income, and differences in
depreciation expense resulting from differences in the basis of real estate for
tax and financial reporting purposes.
S-14
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
11. Lease Obligations
IPA is obligated under certain non cancelable ground leases which require
minimum rentals and in most instances, payments for real estate taxes and
certain other expenses. Certain of the leases contain renewal options. Minimum
annual rentals exclusive of renewal options under such leases are:
Years ending December 31:
1997 $ 394,000
1998 394,000
1999 394,000
2000 394,000
2001 394,000
Thereafter 9,725,750
------------
$ 11,695,750
============
12. Gross Revenue From Real Estate
IPA earns rental income under leases principally with commercial tenants located
in its office buildings. Such leases generally provide for the tenant to pay
minimum rentals plus, in certain instances, a portion of increases in real
estate taxes, operating expenses and increases in the consumer price index based
on lease escalation clauses. Office leases generally range from 5 years to 15
years and contain various renewal options. In addition, IPA earns rental income
from retail stores. Such leases generally provide for minimum rentals plus
percentage rentals based on the store sales. Retail store leases generally range
from 1 to 5 years and contain various renewal options. All of the aforementioned
leases are accounted for as operating leases. Included in Gross Revenues from
Real Estate for the years ended 1996, 1995 and 1994 are $1,745,212, $1,946,428,
and $1,608,734, respectively, representing revenue from escalations and
percentage rentals, and for the year ended 1996 and 1995, $1,400,000 and
$950,000, respectively, received in connection with lease cancellations with
former tenants.
S-15
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Notes to Financial Statements (continued)
12. Gross Revenue From Real Estate (continued)
The following is a schedule by years of minimum future rentals on noncancelable
operating leases as of December 31, 1996, exclusive of amounts due as percentage
rent, expense escalations or amounts that would be due from new leases or the
exercise of renewal options under existing leases:
Years ending December 31:
1997 $ 37,653,355
1998 31,506,219
1999 26,945,932
2000 17,090,800
2001 11,622,913
Thereafter 26,639,853
-------------
Total minimum future rentals $ 151,459,072
=============
13. Contingencies
The company is involved in various legal matters and disputes arising in the
normal course of operations, the ultimate outcome of which is not expected to
have a material effect on the financial statements.
S-16
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
<TABLE>
<CAPTION>
Co. A Col. B Col. C Col. D
- ----------------------------------------------------------------------------------------------------
Initial Cost of Company
--------------------------- Improvements
Capitalized
Buildings and Subsequent to
Description Encumbrances Land Improvements Acquisition
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Raymond Commerce Building,
(leasehold) Newark, New $ 7,220,632 $ 690,650
Jersey
59 East Van Buren Building,
Chicago, Illinois $ 692,284 1,780,158 801,988
Midland Savings Building,
Midland, Texas 593,787 4,354,441 286,307
One La Salle Building,
Chicago, Illinois 2,968,499 13,359,878 3,165,105
360 No. Michigan Building
(leasehold), Chicago, 5,442,873 2,003,607
Illinois
73-1/3% Interest in 6 North
Michigan Avenue Building,
Chicago, Illinois 1,830,012 2,521,979 1,287,252
1440 Broadway, Building
New York, New York $ 16,442,428 4,938,421 10,864,525 6,053,799
One North Dearborn
Building*, Chicago, 5,289,594 13,359,927 6,025,273
Illinois
261 Fifth Avenue, Building
New York, New York 10,307,810 987,731 8,695,910 7,146,009
Marbridge Building, New
York, New York (a) 4,000,000 2,765,881 1,877,196 1,366,643
Mojud Building, Long Island
City, New York 346,514 643,526 459,575
Edgewood and Bellway
Shopping Centers, 447,893
Houston, Texas
570 Broad Street Building
Newark, New Jersey 502,032 5,937,404 1,549,324
24 Commerce, Federal Trust
Building, Newark, New 467,070 398,864 1,994,319 213,697
Jersey
245 Fifth Avenue Building,
New York, New York 9,097,250 679,520 2,080,700 6,994,411
-----------------------------------------------------------------
Totals $ 40,314,558 $22,441,032 $ 80,133,468 $ 38,043,640
=================================================================
<CAPTION>
Col. E Col. F Col. G Col. H
-----------------------------------------------------------------------------------------------------
Gross Amount Life on which
at Which Carried Close of Period Depreciation
--------------------------------------- in Latest
Buildings Income
and Accumulated Date of Statements is
Land Improvements Total Depreciation Construction Computed
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Raymond Commerce Building,
(leasehold) Newark, New $ 7,793,366 $ 7,793,366 $ 7,110,335 1930 29.3
Jersey
59 East Van Buren Building,
Chicago, Illinois $ 692,284 2,582,146 3,274,430 2,384,252 1931 24.3
Midland Savings Building,
Midland, Texas 349,087 2,717,362 3,066,449 3,066,449 1959 34.3
One La Salle Building,
Chicago, Illinois 2,968,499 16,524,983 19,493,482 14,272,871 1930 29.3
360 No. Michigan Building
(leasehold), Chicago, 7,446,480 7,446,480 6,841,785 1923 24.3
Illinois
73-1/3% Interest in 6 North
Michigan Avenue Building,
Chicago, Illinois 1,830,012 3,809,231 5,639,243 3,207,612 1893 19.3
1440 Broadway, Building
New York, New York 4,938,421 17,248,439 22,186,860 13,477,550 1925 24.3
One North Dearborn
Building*, Chicago, 5,289,594 19,385,200 24,674,794 17,065,605 1903 19.3
Illinois
261 Fifth Avenue, Building
New York, New York 987,731 15,841,919 16,829,650 11,909,903 1928 24.3
Marbridge Building, New
York, New York (a) 2,765,881 3,243,839 6,009,720 2,617,899 1907 19.3
Mojud Building, Long Island
City, New York 346,514 1,103,101 1,449,615 878,939 1916 19.3
Edgewood and Bellway
Shopping Centers, -- -- 1957 24.3
Houston, Texas
570 Broad Street Building
Newark, New Jersey 502,032 7,486,728 7,988,760 4,916,542 1962 34.3
24 Commerce, Federal Trust
Building, Newark, New 398,864 2,208,016 2,606,880 2,146,410 1906, 1962 20.3
Jersey
245 Fifth Avenue Building,
New York, New York 679,520 9,075,112 9,754,632 5,813,927 1923 24.3
----------------------------------------------------------------
Totals $21,748,439 $ 116,465,922 $138,214,361 $95,710,079
================================================================
</TABLE>
* Formerly State-Madison Building.
The answer to Column H, "Date Acquired," is December 4, 1969 for all real estate
except 245 Fifth Avenue where the fee title to land and building was purchased
on April 1, 1983 and 570 Broad Street where the fee title to the land was
purchased on March 15, 1994 (IPA had acquired a leasehold interest in both
properties on December 4, 1969).
S-17
<PAGE>
Investment Properties Associates
(A New York Limited Partnership)
Schedule III - Real Estate and Accumulated Depreciation (continued)
December 31, 1996
(a) Amounts shown represent 50% of amounts applicable to a tenancy in common,
in which IPA has an undivided one-half interest.
(b) Reconciliation of "Real Estate and Accumulated Depreciation":
Year ended December 31,
-----------------------------------------
1996 1995 1994
-----------------------------------------
Investment in Real Estate
Balance at beginning of year $141,282,613 $138,759,013 $136,653,653
Abandonment of real estate (4,183,692) -- --
Improvements and additions 2,438,279 3,827,196 2,959,386
Fully depreciated assets written
off during the year (1,322,839) (1,303,596) (854,026)
----------------------------------------
Balance at end of year $138,214,361 $141,282,613 $138,759,013
========================================
Accumulated Depreciation
Balance at beginning of year $ 97,003,567 $ 94,819,779 $ 91,846,096
Additions charged to costs
and expenses 3,447,071 3,487,384 3,827,709
Less amounts applicable to
abandonment of real estate (3,417,720) -- --
Less amounts applicable to fully
depreciated assets written off
during the year
(1,322,839) (1,303,596) (854,026)
----------------------------------------
Balance at end of year $ 95,710,079 $ 97,003,567 $ 94,819,779
========================================
The aggregate cost of real estate assets for Federal income tax purposes
amounted to $132,590,090, $134,841,652 (1995), and $131,238,635 (1994).
S-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INVESTMENT PROPERTIES ASSOCIATES
/s/ Irving Schneider
By: ----------------------------------
Irving Schneider
General Partner
Dated: April 15, 1997
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.
/s/ Irving Schneider
- ----------------------------------------- General Partner,
Irving Schneider Principal Executive,
Financial and
Accounting Officer
MINLYN, INC. General Partner
By: /s/ Irving Schneider
- -----------------------------------------
Irving Schneider
President
HELMSLEY-NOYES COMPANY, INC. General Partner
By: /s/ John Trainor
- ----------------------------------------
John Trainor
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,187,591
<SECURITIES> 0
<RECEIVABLES> 3,525,161
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 138,214,361
<DEPRECIATION> 95,720,079
<TOTAL-ASSETS> 55,521,358
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 55,521,358
<SALES> 0
<TOTAL-REVENUES> 52,290,744
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 37,815,471
<LOSS-PROVISION> 765,972
<INTEREST-EXPENSE> 4,879,233
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,452,069
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
