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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998 Commission File
----------------- Number: 0-13493
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TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
(Exact Name of Small Business Issuer As Specified in Its Charter)
Massachusetts 04-2833662
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(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
5 Cambridge Center, Cambridge, Massachusetts 02142
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 617-234-3000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check mark whether Registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B 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-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant had no revenue for its most recent fiscal year.
No market for the Limited Partnership Units exists and therefore, a market value
for such Units cannot be determined.
Documents Incorporated by Reference
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PART I
Item 1. Description of Business
General
Twelve AMH Associates Limited Partnership (the "Partnership") was
organized under the Massachusetts Uniform Limited Partnership Act on April 24,
1984. The general partners of the Partnership (the "General Partners") are Two
Winthrop Properties, Inc. ("Two Winthrop") and Linnaeus-Lexington Associates
Limited Partnership ("Linnaeus-Lexington"). Two Winthrop is a Massachusetts
corporation which is a wholly-owned subsidiary of First Winthrop Corporation
("First Winthrop"), a Delaware corporation, which in turn is controlled by
Winthrop Financial Associates, A Limited Partnership ("WFA"). Linnaeus-Lexington
is a Massachusetts limited partnership. The general partner of
Linnaeus-Lexington is WFA. Two Winthrop is the managing general partner of the
Partnership.
The Partnership was capitalized by contributions from partners. In
August 1984, upon completion of its offering, the Partnership sold 600 Units of
Limited Partnership Interest at an aggregate purchase price of $57,750,000
pursuant to Regulation D promulgated under the Securities Act of 1933. The
Partnership used the net proceeds from the offering, together with a line of
credit obtained from a major commercial bank for an interim loan which has been
repaid in full, and a purchase money note from the seller, the Aetna Casualty
and Surety Company ("Aetna"), to acquire its 66.667% general partner interest in
Square 254 Limited Partnership ("Square 254") and to acquire, in 1988, a 66.67%
general partner interest in National Place Land Limited Partnership ("National
Land"). Square 254 and National Land are hereinafter collectively referred to as
the "Operating Partnerships." In addition, during the first quarter of 1998, the
Partnership, together with its partners in the Operating Partnerships, formed
The Shops LLC (see "The Retail Space" below) in which the Partnership holds a
66.67% member interest.
Square 254 is a District of Columbia limited partnership organized in
1979. The general partners of Square 254 are the Partnership, the Quadrangle
Development Corporation ("Quadrangle") and an affiliate of the Marriott
Corporation ("Marriott"). Quadrangle is the managing general partner of Square
254. The limited partners are Marriott and NP Limited Partnership, an affiliate
of Quadrangle. Quadrangle is the general partner of NP Limited Partnership and
owns approximately 77% of the partnership interests in NP Limited Partnership.
Quadrangle and Marriott are not affiliated with the Partnership, WFA or any of
its affiliates.
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National Land is a District of Columbia limited partnership organized
on August 8, 1988. The 66.67% general partner of National Land is the
Partnership. Quadrangle and Marriott hold both limited partner interests and
general partner interests in National Land.
The Shops LLC is a District of Columbia limited liability company. The
members of The Shops are the Partnership (66.67%), Quadrangle (16.665%) and
Marriott (16.665%).
The only business of the Partnership is investing as a general
partner in Square 254 and National Land and as a member of The Shops LLC.
The Partnership, together with Quadrangle and Marriott, is currently
attempting to refinance the existing indebtedness of the Operating Partnerships.
In addition, the Partnership is also attempting to obtain a forbearance
agreement from its lender to avoid the lender from foreclosing on its interest
in the Operating Partnerships for a period of time. It is expected that the
Partnership's interest in the Operating Partnerships will be lost during the
next two years. See Item 6 "Management's Discussion and Analysis or Plan of
Operation" for additional information relating to the Partnership's ability to
satisfy its loan obligations.
In 1998, Two Winthrop successfully negotiated with Quadrangle and
Marriott an amendment to the Partnership Agreements of the Operating
Partnerships and the Limited Liability Company Agreement of The Shops LLC to
provide for a buy/sell right among the entities which will enable the parties to
cause a sale of the Properties or acquire the other entities interest in the
Operating Partnerships and The Shops LLC.
Properties owned by the Operating Partnerships
1. Square 254
Square 254 developed and presently owns and operates a mix-use complex
know as "National Place," located at 1331 Pennsylvania Avenue, N.W., Washington,
D.C. National Place consists of: (i) a 772-room J.W. Marriott Hotel managed by
the Marriott Corporation, (ii) 71,000 square feet of retail space which was
leased to and managed by The Rouse Company until April 1, 1998 at which time the
lease was assigned to The Shops LLC and management was transferred to an
affiliate of Quadrangle, (iii) 418,000 square feet of office space, (iv) a
leasehold interest in the 1,600-seat National Theatre leased on a net basis to
the New National Theater Corporation, which in turn contracts with the Shubert
Organization to provide programming for the theater, and (v) a 400-car parking
garage managed by QuikPark, Inc. until
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April 1, 1998, and since then by All-Right Parking, Inc. In addition, Square 254
leases from National Land pursuant to a ground lease (the "Ground Lease") which
expires in 2083 the land on which National Place is located.
The Hotel: The J. W. Marriott Hotel is a fifteen story, 772-room hotel
which opened in February 1984. Its special features include four restaurants,
in-house catering services, health club including an indoor swimming pool, two
ballrooms of 14,000 and 8,400 square feet, 10 function rooms totaling 30,000
square feet, 18 hospitality suites, 2 Vice-Presidential suites, and 2
Presidential suites. The following table sets forth the average occupancy,
average room rate and revenue per available room at the Hotel for the calendar
years ended December 1998 and 1997:
December 31,
1998 1997
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Average Occupancy(%) 85.5 83.9
Average Room Rate($) 166 158
Revenue per
Available Room($) 142 133
Square 254 entered into a Management Agreement with Marriott pursuant
to which Marriott is acting as the exclusive agent to manage and operate the
hotel. The agreement has a term of 30 years and expires in February 2014.
Marriott may renew the agreement for four renewal terms of 10 years each and one
final renewal term through the expiration of the ground lease with National
Land. Marriott earns a management fee equal to 3% of gross revenues for central
office services and an incentive fee of 20% of the operating profit of the
hotel. For this purpose hotel operating profit is defined as the excess of gross
revenues over deductions including: (i) all normal costs of operation; (ii) the
3% of gross revenues central office services fee described above; (iii) a
reserve to cover replacements of the hotel's furniture, fixtures and equipment
and non-routine repairs and maintenance, which reserve is 5% of the hotel's
gross revenues with the balance limited at any time to 3.5% of gross revenues
for the immediately preceding three years; (iv) the hotel's pro rata share of
chain services; and (v) certain insurance costs and real estate taxes. However,
if, during the initial term of the agreement, the 80% share of the operating
profit that Square 254 is to receive is less than the Owner's Priority, defined
as 50% of Square 254's debt service on first mortgage financing, Square 254 is
to receive the portion of Marriott's 20% incentive fee needed to make up the
difference. This portion will be paid back to Marriott in subsequent years from
distributions to Square 254 in excess of the Owner's Priority. Neither Marriott
nor Square 254 may assign their
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rights and obligations under the agreement without the approval of the other
party except for certain small shops and concessions in the hotel which Marriott
may sublease. Square 254 may terminate the agreement if (i) the operating profit
that it receives in any two consecutive fiscal years falls below the Owner's
Priority or (ii) in any two consecutive years during a renewal term, Square
254's rate of return on replacement costs is less than 120% of the average
annual yield for the three immediately preceding fiscal years on 20-year U.S.
Treasury bonds and, in either case, Marriott does not advance the difference to
Square 254. If Square 254 decides to sell the hotel, it must notify Marriott,
which shall have the right to purchase the hotel on the same terms as proposed
to be offered to proposed buyers.
The Office Towers: The Office Towers are known as the North and South
Towers. The North Tower has 15 floors with an aggregate of approximately 350,000
square feet of net rentable office space. The South Tower has 6 floors with an
aggregate of approximately 60,000 square feet of net rentable office space.
There is a connecting access between the two towers at the fifth floor level.
The Office Towers and common areas are managed by Quadrangle pursuant
to an agreement which was scheduled to expire on April 30, 1999 but was extended
in 1998 until April 30, 2004. The agreement provides for fees payable to
Quadrangle of (i) 3% of gross receipts as a fee for management of the office
space and (ii) $100,000 per year increased by 25% of the percentage increase in
the CPI with January 1, 1984 as the base for management of the common areas. The
following table sets forth the average occupancy, the average rent per square
foot of the Office Towers and the effective rent per square foot after taking
into consideration any free rent periods or give-backs for the calendar years
ended December 1998 and 1997:
December 31,
1998 1997
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Average Occupancy(%) 88 85
Average Rent
Per Square Foot ($) 33 33
Effective Rent($) 32 32
The Department of Justice ("DOJ") leases, in the aggregate,
approximately 43% of the leasable space at the Office Towers (office and storage
space of 175,675 square feet, in the aggregate). The leases with DOJ provide for
annual rent payments in the aggregate of $5,738,020 and terminate on May 14,
2000 with respect to 87,413 square feet, December 10, 2000 with respect to 2,888
square feet, December 31, 2003 with respect to 2,699 square feet and August 14,
2004 with respect to 82,675 square feet.
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The National Association of Manufacturers ("NAM") leases 10.5% of
leasable space at the Office Towers. NAM occupies the entire 6th floor (42,530
square feet), and 2,305 square feet on the 12th floor, with aggregate annual
lease payments of $1,613,427, increasing annually with a lease termination date
of April 30, 2012.
The Retail Space: The Shops at National Place is a three-story indoor
mall with 71,118 square feet of space, surrounding a central atrium, which is
interconnected to the retail space in the National Press Building. The space
beneath the National Press Building is not owned by Square 254. Effective April
1, 1998 management of the section owned by Square 254 was transferred from the
Rouse Company, which is not affiliated with the Partnership or its General
Partners, to an affiliate of Quadrangle. In addition, The Rouse Company
assigned, and The Shops LLC assumed, the lease with respect to The Shops at
National Place. The lowest level of The Shops has both retail tenants and
restaurants. The middle level has primarily retail tenants. The upper level is a
food court with fast-food restaurants and large common seating areas. In
addition, The Shops connect with the Hotel lobby on the lowest level along an
arcade, where additional food and retail operations are located. In all, there
are approximately 40 merchants currently leasing the retail space.
The retail space is governed by a lease between Square 254 as Lessor
and, effective April 1, 1998, The Shops LLC as Lessee. The original term of the
lease expires on May 15, 2014 with two options to extend (first option for 30
years and second option until the end of the ground lease). Payments to Square
254 under the lease are dependent on and a function of net cash flow from the
retail space. The Base Rent is $1,368,100 (or approximately $19.00 per square
foot). The Additional Rent $202,440 (or approximately $3 per square foot) is the
amount of the increase in the annual lease payment because the net cash flow
during the first two years of operation was below $18 per square foot. The Base
Rent and the Additional Rent are limited, however, to the extent that cash flow
generated by The Shops LLC is sufficient to pay such amounts. The Percentage
Rent is 67% of net cash flow in excess of the aggregate of the Base Rent and the
Additional Rent up to $30.56 per square foot plus 72% of net cash flow in excess
of $30.56 per square foot up to $37 per square foot and 63% of net cash flow in
excess of $37 per square foot. No Percentage Rent was paid to Square 254 in 1998
or 1997. In addition any increase in rent under the ground lease due to a
redevelopment that materially changes the market area will raise the fixed
annual rent by 7% of such increase.
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The National Theater: The National Theater is a seven-story structure
whose auditorium holds approximately 1,600 seats. It was built in 1885 with
substantial renovations in 1922 and 1984. The National Theater is leased on a
net basis to the New National Theater Corporation, which in turn contracts with
the Shubert Organization to provide programming for the theater.
Revenue received by Square 254 from the National Theater was
$78,650 and $66,816 in 1998 and 1997, respectively.
Square 254 entered into a lease with the New National Theatre
Corporation with an initial term of 35 years, plus renewal options extending
throughout the 99-year term of the ground lease. The lease commenced on December
29, 1980. Under the lease, Square 254 agreed to reconstruct and renovate the
National Theatre Building, and the New National Theatre Corporation (the
"Corporation") agreed to operate the National Theatre, primarily for the
production of live, non-media drama presentations. The Corporation has
contracted with the New York-based Shubert organization to provide established
Broadway shows. The Corporation pays annual base rent under the lease of
$100,000 plus $25,000 multiplied by the percentage increase in the Consumer
Price Index for the District of Columbia (the "CPI"). The Corporation has the
right to renew the lease for five ten-year terms and one fourteen-year term.
Rent during the first two renewal terms will consist of annual base rent of
$100,000 and additional rent equal to the greater of (a) $100,000 multiplied by
the percentage increase in the CPI for that year or (b) 1% of the increase in
the Corporation's gross receipts for that year over the annual average of gross
receipts for the preceding three years. Rent is to be renegotiated by the
parties after 55 years and decided by arbitration if necessary.
The Parking Garage: The Parking Garage is a 400-car, underground
parking facility consisting of five floors of underground parking garage
facilities, together with the first floor garage entrance, driveway and ramps
leading to the parking facility, containing approximately 143,662 square feet.
Square 254 received $591,156 and $379,836 in revenue from the Parking Garage for
the years ended December 31, 1998 and 1997, respectively.
The Parking Garage was leased to QuikPark, Inc. under a lease until
April 1, 1998 at which time All-Right Parking Washington, Inc., an entity in
which an affiliate of WFA holds an ownership interest, assumed the lease and
began providing services at the Parking Garage. The rent payable under the lease
is equal to ninety-five percent of gross revenue (i.e. all receipts other than
D.C. Parking Tax). The operating expenses of the Parking Garage are expenses of
Square 254.
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2. National Land
National Land was formed in 1988 for the purpose of purchasing the fee
interest in the Land and the National Theater Building (collectively, the "New
Properties") from the Pennsylvania Avenue Development Corporation ("PADC"). As a
result, National Land became the lessor under the Ground Lease and the Theater
Lease under which Square 254 is the Lessee.
Square 254 signed a lease with the PADC on September 12, 1979 (the
"Ground Lease"). The commencement date for the land was September 12, 1979 and
for the National Theatre building was December 29, 1980. In August 1988,
National Land purchased the land and National Theatre building from PADC and
assumed the Ground Lease from PADC. The term of the lease is 99 years. At the
expiration of the lease, National Land will own the land and National Theatre
building. Square 254 pays annual rent of $2,100,000 to National Land. Square 254
is also obligated to pay Additional Ground Lease Rent consisting of (a) $600,000
of the first $3,150,000 of net cash flow pari passu with the distribution of
$2,550,000 to Square 254 and (b) 20% of all remaining net cash flow after
distribution to Square 254 of an amount equal to a 12% return upon Square 254's
equity in the property, if any, in excess of $15,000,000. Until there is an
appraisal (which is not expected to occur during the first fifteen years),
Square 254's equity will not be deemed to exceed $40,000,000. No additional
Ground Lease Rent was paid by Square 254 in 1998 or 1997.
Square 254 and National Land maintain property and liability insurance
on the properties and believes such coverage to be adequate.
Buy/Sell Agreement
In 1998, the Partnership, Marriott and Quadrangle entered into a
buy/sell agreement. Pursuant to the agreement, either the Partnership, Marriott
and/or Quadrangle (the "initiating partner") has the right to give notice to the
other partners (the "non-initiating partners") that it desires to sell all of
the assets of the Operating Partnerships (the "Assets") to a third party for a
stated price. The non-initiating partners would then have the right to purchase
the initiating partner's interests in the Operating Partnerships and The Shops
for a price which the initiating partner would have received if the Assets were
sold for the price set forth in the notice. If the non-initiating partners elect
not to purchase the initiating partner's interests, then the Assets are to be
marketed for sale at a price of no less than the notice price. No partner has
presently exercised its right to purchase under the buy/sell agreement.
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Competition
National Place is affected by and subject to the general competitive
conditions of the lodging industry and commercial real estate. In addition,
National Place is located in an area which contains numerous other properties
which may be considered competitive. The varying cycles of Congress (when in
session and when elections are held) cause fluctuations in the Washington D.C.
hotel market.
Employees
The Registrant does not have any employees. Services are performed for
the Partnership by the General Partners and agents retained by it. In addition,
the Partnership has retained Winthrop Financial Co., Inc., an affiliate of the
General Partners, to perform certain administrative services for the
Partnership, such as investor communications. See Item 12, "Certain
Relationships and Related Transactions."
Item 2. Description of Properties
The Partnership owns no property other than its interest in Square 254,
NPLLP and The Shops LLC. The Operating Partnerships own no property other than
the properties which are described under Item 1 above.
The annual realty taxes for the Properties in 1998 were $3,228,601.
Item 3. Legal Proceedings
To the Partnership's knowledge, there are no material pending legal
proceedings to which the Partnership is a party or of which any of its property
is subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
There is no public trading market for the Units. Trading in the Units
is infrequent and occurs solely through private transactions. In addition,
transfers of Units are subject to limitations contained in the Partnership's
partnership agreement, including a requirement that the General Partners consent
thereto which consent may be granted or withheld in the General Partners' sole
discretion. As of March 15, 1999, there were approximately 714 holders of 600
outstanding Units.
The Partnership's partnership agreement requires that Cash Flow (as
defined therein) be distributed to the partners in specified portions at
reasonable intervals during the fiscal year, but in any event not less often
than annually no later than 90 days after the end of the fiscal year. There are
no restrictions on the Partnership's present or future ability to make
distributions of Cash Flow. There have been no cash distributions paid or
accrued since the inception of the Partnership.
Square 254 made distributions to the Partnership totaling $500,000 and
$1,832,785 in 1998 and 1997, respectively. Certain fees due to an affiliate were
repaid from these distributions. See "Item 6, Management's Discussion and
Analysis or Plan of Operation."
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Item 6. Management's Discussion and Analysis or Plan of
Operation
The matters discussed in this Form 10-KSB contain certain
forward-looking statements and involve risks and uncertainties (including
changing market conditions, competitive and regulatory matters, etc.) detailed
in the disclosure contained in this Form 10-KSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
Liquidity and Capital Resources
The Partnership's only assets consist of cash and its general
partnership interests in Square 254 and National Land and its company interest
in The Shops LLC. It is anticipated that the Partnership's interest in Square
254, National Land and The Shops LLC will be foreclosed upon during the next two
years. Prior to 1996, the Partnership received no cash distributions from the
Operating Partnerships. As a result, the Partnership had relied on loans from
affiliates as its primary source of liquidity. In order to satisfy its
administrative and other expenses, affiliates of the General Partners have made
interest-free loans to the Partnership for administrative expenses, an
interest-bearing loan related to the Partnership's interest in National Land and
Winthrop Management has agreed to defer its fees. As of December 31, 1998, all
loans from affiliates of the General Partners have been fully repaid and the
Partnership owed $1,300,000 to Winthrop Management for unpaid asset management
fees. In 1998 and 1997, the Operating Partnerships had sufficient revenues to
make distributions to the Partnership totaling $500,000 and $1,832,785,
respectively. These distributions were used to satisfy certain of the fees due
to an affiliate. In January 1998, the Partnership paid Winthrop Management's
1998 fee of $300,000 and reduced the $2,800,000 accrued management fee balance
at December 31, 1997 by $1,500,000. The balance of the distribution plus the
$500,000 distribution received in December 1998 have been retained as
Partnership reserves.
In the future, the Partnership will continue to require cash to pay
management fees and general and administrative expenses and may require cash to
satisfy its obligation to fund any operating deficits of the Operating
Partnerships. The Partnership has made no commitments for capital expenditures
as
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of December 31, 1998. To the extent required, affiliated entities have agreed to
provide funds to the Partnership in an amount sufficient to satisfy the
Partnership's operating requirements through August 31, 1999.
Based on Square 254's budget for 1999, it is anticipated that Square
254 will generate positive cash flow from operations. However, at present, such
excess is budgeted for capital improvements and refinancing costs. To the extent
that cash from operations is not used for capital improvements or refinancing
costs, it is expected that Square 254 would be able to make a distribution to
the Partnership in 1999. If such excess is used, however, for capital
improvements and/or refinancing costs, Square 254 will most likely not have
sufficient funds to make a distribution to the Partnership. The ability of
Square 254 to generate sufficient cash flow with which to make distributions to
its partners is subject to many factors outside the control of the Partnership.
Accordingly, there can be no assurance that Square 254 will continue to be able
to make distributions to its partners.
In addition to the unpaid asset management fee described above, the
Partnership is obligated on the following loans:
(a) In connection with the Partnership's acquisition of its interest in
Square 254, the Partnership obtained a non-recourse purchase money note payable
to Aetna in the principal amount of $22,000,000 (the "Aetna Loan"). The Aetna
Loan bears simple interest at 15% per annum and requires no current payments
until maturity in August 1999, at which time the lender is obligated to
refinance the Note if the Partnership is unable to obtain financing from another
source. The term of the refinancing shall be 10 years; the rate of the
refinancing shall be equal to the lender's then current rate for 10-year
permanent loans secured by first mortgage liens on collateral substantially
similar to the Partnership's investment. However, the Partnership may not be
able to satisfy the debt service for the refinanced loan. On December 31, 1998,
the outstanding balance of principal plus accrued interest on the Aetna Loan was
$69,300,000. In 1996, Aetna sold its loan to The Travelers Insurance Company
("Travelers").
(b) Aetna also provided the Partnership with a $20 million line of
credit (the "Aetna Line of Credit"), which expired in December 1989. The
Partnership used the Aetna Line of Credit to fund its requirement to contribute
its pro rata share of operating deficits incurred by Square 254. Borrowings
under the Aetna Line of Credit bear interest at the annual rate of 15.5% and
require no current payments until maturity in August 1999 at which time the
lender is obligated to refinance the Aetna Line of Credit if the Partnership is
unable to obtain financing from
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another source. The term of the refinancing shall be 10 years; the rate of the
refinancing shall be equal to the lender's then current rate for 10-year
permanent loans secured by first mortgage liens on collateral substantially
similar to the Partnership's investment. On December 31, 1998, the outstanding
balance of principal and accrued interest on the Aetna Line of Credit was
$30,650,288. In 1996, Aetna sold its loan to Travelers.
Based on the Partnership's current and expected cash flows, the
Partnership will not have sufficient funds to satisfy the Purchase Money Note
and Operating Deficit Notes that are scheduled to mature on August 31, 1999.
Accordingly, if the Partnership cannot refinance or modify these notes on
favorable terms, or sell its interest in the Operating Partnerships for amounts
sufficient to satisfy such indebtedness, the Partnership may lose its interests
in the Operating Partnerships through foreclosure. The Managing General Partner
has begun discussions with Travelers in an attempt to restructure these loans.
At this time, it appears that a restructuring of these notes is not likely.
Accordingly, the Managing General Partner will seek a forbearance agreement from
Travelers in an effort to put off foreclosure for as long as possible. As a
result, at this time it appears that investors in the Partnership will not
receive a return of a significant portion, or any, of their investment.
Square 254
Square 254 receives room revenues from the Hotel and rental revenues
from the other components of its property and is responsible for operating
expenses, administrative expenses, capital improvements and debt service
payments. Square 254 had positive cash flow prior to making a distribution to
partners for the year ended December 31, 1998 and 1997. Square 254 uses working
capital reserves as its primary source of liquidity. Square 254 had adequate
working capital reserves to fund its operations and other expenditures through
1998.
During 1998, the general partners of Square 254 made substantial
capital expenditures of $3,071,514. The majority of these expenditures were made
in connection with re-leasing a significant portion of the Office Towers and
renovation of meeting rooms at the Hotel. Such expenditures were funded from
Square 254's short-term investments and unrestricted cash reserves, which
together had a balance of $12,950,266 at December 31, 1998 as well as cash
generated from operation of Square 254. Each year, a portion of the gross
revenue of the Hotel (currently 5% of gross revenue) is added to the Hotel
replacement reserve account for the purpose of funding future capital
requirements of the Hotel. The Hotel replacement reserve account had a remaining
balance of $4,738,655 as of December 31, 1998.
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The general partners of Square 254 currently believe Square 254's short-term
investments and unrestricted cash reserves will be sufficient to fund Square
254's operations and capital expenditures in the near future. However, the
ability of Square 254 to fund expenditures in the future will depend on Square
254's ability to achieve certain levels of operation. If existing reserves and
future operations are not sufficient to support these expenditures, the general
partners of Square 254 will evaluate the necessity of making these expenditures
against the ability of Square 254 to obtain additional capital from outside
lending sources and the willingness and ability of the general partners of
Square 254 to contribute additional capital.
Square 254 has two mortgage loans, both of which are secured by a first
mortgage on its assets. The debt maturity date is in 1999 with a balloon payment
in the aggregate of approximately $124 million. The aggregate mortgage balance
was $124,469,383 as of December 31, 1998. See, Item 7 "Financial Statements" ,
Note 4 for a description of the terms of these loans.
The Partnership believes that the Square 254 loans will be able to be
refinanced or restructured on or prior to maturity. The Partnership is currently
pursuing, along with Square 254's other two general partners, refinancing and
restructuring opportunities. However, if these loans are not refinanced,
restructured or satisfied, or the property is not sold, it could be lost through
foreclosure.
Under the terms of the Ground Lease, Square 254 was able to defer
certain amounts of its rent obligations. The deferred amount accrues interest at
12.4447% per annum. Interest and deferred rent is repaid monthly to the extent
Square 254 has sufficient cash flow. In each of 1998 and 1997, Square 254 made
payments on the deferred ground rent of principal and interest of $153,929. The
outstanding balance of deferred ground rent on December 31, 1998 was $789,248.
Square 254 is current in its obligation under the Ground Lease with respect to
payment due on the deferred ground rent.
National Land
National Land receives revenues solely from lease payment under the
Ground Lease and is responsible for debt service payments. In connection with
its acquisition of the Land, National Land obtained a loan in the original
principal amount of $43,101,900, which loan matures in 2018. As of December 31,
1998, the outstanding balance on this loan was $43,101,900. In addition, accrued
interest on this loan totaled $45,676,266 at December 31, 1998. See, Item 7,
"Financial Statements", Note 4 for a description of the terms of this loan.)
14
<PAGE>
In order for National Land to sell its property or refinance the loan
encumbering the property, the consent of all of the general partners is
required.
Results of Operations
The Partnership's loss from operations increased from $8,932,690 for the
year ended December 31, 1997 to $9,766,232 for the year ended December 31, 1998.
This increase in loss from operations was due to an increase in interest expense
of $836,434 which was only partially offset by a decrease in other expenses of
$2,892. Interest expense increased due to increased principal and accrued
interest balance on the Partnership's outstanding loans. All other items of
revenue and expense remained relatively constant.
The Operating Partnerships' net loss increased from $7,656,008 for the
year ended December 31, 1997 to $8,383,529 for the year ended December 31, 1998.
The increase in net loss is attributable to a decrease in net rental operating
income and an increase in interest expense, which was partially offset by an
increase in hotel operations. Hotel operations revenue increased by $4,401,491
for the year ended December 31, 1998 as compared to December 31, 1997 as a
result of a higher average room occupancy and average rental rate as well as
increased food, beverage and other revenue. There was a corresponding increase
in hotel operations expense of $3,008,089 for such comparable periods due to
increases in direct room and food costs, administrative expenses, management
fees and repairs and maintenance expenses which were only slightly offset by
decreases in insurance, utilities and miscellaneous costs. Rental operations
revenue increased by $1,484,200 and rental operations expense increased by
$2,103,205 primarily as a result of the commencement of operations for The Shops
LLC in 1998. Interest expense increased $640,338 in 1998, as compared to 1997,
as a result of an increase in interest expense from National Land.
Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The Registrant
is dependent upon the Managing General Partner and its affiliates for management
and administrative services. Any computer programs or hardware that have
date-sensitive software or embedded chips may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
15
<PAGE>
During the first half of 1998, the Managing General Partner and its
affiliates completed their assessment of the various computer software and
hardware used in connection with the management of the Registrant. This review
indicated that significantly all of the computer programs used by the Managing
General Partner and its affiliates are off-the-shelf "packaged" computer
programs which are easily upgraded to be Year 2000 compliant. In addition, to
the extent that custom programs are utilized by the Managing General Partner and
its affiliates, such custom programs are Year 2000 compliant.
Following the completion of its assessment of the computer software and
hardware, the Managing General Partner and its affiliates began upgrading those
systems which required upgrading. To date, significantly all of these systems
have been upgraded. The Registrant has to date not borne, nor is it expected
that the Registrant will bear any significant cost, in connection with the
upgrade of those systems to requiring remediation. It is expected that all
systems will be remediated, tested and implemented during the first half of
1999.
To date, the Managing General Partner is not aware of any external agent
with a Year 2000 issue that would materially impact the Registrant's results of
operations, liquidity or capital resources. However, the Managing General
Partner has no means of ensuring that external agents will be Year 2000
compliant. The Managing General Partner does not believe that the inability of
external agents to complete their Year 2000 resolution process in a timely
manner will have a material impact on the financial position or results of
operations of the Registrant. However, the effect of non-compliance by external
agents is not readily determinable.
16
<PAGE>
Item 7. Financial Statements
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Twelve AMH Associates Limited Partnership:
We have audited the accompanying balance sheets of Twelve AMH Associates Limited
Partnership (the "Partnership") as of December 31, 1998 and 1997, and the
related statements of operations, changes in partners' deficit and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Twelve AMH Associates Limited
Partnership as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. As discussed in Note 9 to the
financial statements, the uncertainty as to the Partnership's ultimate ability
to repay the outstanding purchase money notes and operating deficit notes
payable, and an operating partnership's ability to repay its loans due in 1999
raises substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 9. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Boston, Massachusetts
March 29, 1999
18
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- -----
Assets:
<S> <C> <C>
Cash and cash equivalents.............................................. $ 629,887 $ 2,012,003
Deferred financing costs, net of accumulated
amortization of $47,775 and $44,442 respectively ................... 2,225 5,558
----------- ------------
Total assets.................................................... $ 632,112 $ 2,017,561
=========== ============
Liabilities:
Purchase Money Note, net of unamortized discount ...................... $ 66,029,049 $ 58,597,428
Notes payable ......................................................... 9,873,978 9,873,978
Accrued interest on operating deficit notes ........................... 20,776,310 19,224,587
Investments in Operating Partnerships ................................. 14,072,159 7,581,600
Accrued expenses....................................................... - 17,492
Due to affiliate ...................................................... 1,300,000 2,800,000
------------ -----------
112,051,496 98,095,085
------------ ------------
Partners' Deficit:
Limited partners - Units of Limited Partnership
interest, $96,250 stated value per unit; authorized,
issued and outstanding - 600 Units ................................... (109,778,909) (94,590,468)
General partners ...................................................... (1,640,475) (1,487,056)
------------- ------------
(111,419,384) (96,077,524)
------------- ------------
Total liabilities and partners' deficit .......................... $ 632,112 $ 2,017,561
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
Expenses:
<S> <C> <C>
Interest .............................................................. $ 8,983,343 $ 8,146,909
Amortization .......................................................... 404,630 404,630
Related party management fee ......................................... 300,000 300,000
Other.................................................................. 78,259 81,151
------------- ------------
9,766,232 8,932,690
------------- ------------
Loss from operations....................................... (9,766,232) (8,932,690)
Interest income............................................ 13,635 14,433
Equity in losses of operating partnerships................. (5,589,263) (5,104,230)
-------------- -------------
Net loss .................................................. $ (15,341,860) $(14,022,487)
============== =============
Net loss allocated to general partners..................... $ (153,419) $ (140,225)
============== =============
Net loss allocated to limited partners..................... $ (15,188,441) $(13,882,262)
============== =============
Net loss per unit of limited partnership interest.......... $ (25,314) $ (23,137)
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
-------- -------- ------
<S> <C> <C> <C>
Balance, December 31, 1996.............. $ (80,708,206) $ (1,346,831) (82,055,037)
Net Loss................................ (13,882,262) (140,225) (14,022,487)
--------------- ------------- --------------
Balance, December 31, 1997.............. (94,590,468) (1,487,056) (96,077,524)
Net Loss................................ (15,188,441) (153,419) (15,341,860)
--------------- ------------- --------------
Balance, December 31, 1998.............. $ (109,778,909) $ (1,640,475) $(111,419,384)
=============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss .......................................................... $(15,341,860) $(14,022,487)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization ...................................................... 4,536,250 3,699,484
Equity in losses of Operating Partnerships ........................ 5,589,263 5,104,230
Interest added to loan principal on Purchase
Money Note ....................................................... 3,300,000 3,300,000
Increase in accrued interest on operating deficit notes ........... 1,551,723 1,551,723
(Decrease)/increase in accrued expenses ........................... (17,492) 2,482
Decrease in due to affiliate ...................................... (1,500,000) (500,000)
------------- -------------
Net cash used in operating activities ............................. (1,882,116) (864,568)
------------- -------------
Cash flows from investing activities:
Distributions received from an operating partnership................ 500,000 1,832,785
------------- -------------
Net cash provided by investing activities ......................... 500,000 1,832,785
------------- -------------
(Decrease)/increase in cash and cash equivalents.................... (1,382,116) 968,217
Cash and cash equivalents, beginning of the period.................. 2,012,003 1,043,786
------------- -------------
Cash and cash equivalents, end of the period....................... $ 629,887 $ 2,012,003
============= =============
Supplemental disclosure of cash flow information
Cash paid for interest.......................................... $ - $ -
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION
Twelve AMH Associates Limited Partnership (the "Partnership") was organized as a
Massachusetts limited partnership under the Massachusetts Uniform Limited
Partnership Act on April 24, 1984, for the purpose of acquiring a 66.667%
general partnership interest in Square 254 Limited Partnership ("Square 254"), a
District of Columbia limited partnership organized in 1979. On August 31, 1984,
the Partnership acquired the interest in Square 254 from The Aetna Casualty and
Surety Company, a Connecticut corporation ("Aetna"). In 1988, the Partnership
acquired a 66.67% general partner interest in National Place Land Limited
Partnership ("National Land"). In 1998, the Partnership, together with its
partners in Square 254 and National Land, formed The Shops LLC in which the
Partnership holds a 66.67% member interest. Square 254, National Land and The
Shops LLC are collectively referred to as the Operating Partnerships.
Square 254 has developed and presently owns and operates a multiple use complex
known as "National Place", located at 1331 Pennsylvania Avenue, NW, Washington
D.C. National Place consists of the 772-room J.W. Marriott Hotel, a retail area
containing 71,000 square feet, office towers containing 418,000 net rentable
square feet, a 400-car parking garage and the 1,600-seat National Theatre, which
is subleased to a not-for-profit organization. Square 254 leased the land on
which National Place is situated and the National Theatre Building on a long
term basis from the Pennsylvania Avenue Development Corporation through August
11, 1988, after which it has been leased from National Land as described below.
Additionally, beginning April 1, 1998, Square 254 leases the retail space to The
Shops LLC. Prior to April 1, 1998, the retail space was leased to an
unaffiliated third party, as described below. The Partnership will terminate on
December 31, 2090, or sooner, in accordance with the terms of the Partnership
Agreement. The general partners of the Partnership are Two Winthrop Properties,
Inc. and Linnaeus Lexington Associates Limited Partnership. The general partners
of Square 254 are Quadrangle Development Corporation, a Delaware corporation,
Marriott Corporation, a Delaware corporation, and the Partnership.
The general partners have contributed $20 in respect of their general
partnership interests in the Partnership. On August 31, 1984, the Partnership
admitted investor limited partners whom subscribed for a total of 600 Units,
representing capital contributions of $57,750,000. Pursuant to the terms of the
Partnership Agreement, profits or losses and cash distributions (after certain
priority distributions) are allocated 99% to the investor limited partners and
1% to the general partners, respectively. Profits or losses and cash
distributions resulting from the sale or refinancing of the Partnership's
interest in Square 254 will be allocated 70% to the investor limited partners
and 30% to the general partners after certain priority allocations to the
partners of amounts necessary to increase their capital balances to an amount
equal to their invested capital.
23
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION (continued)
National Land was organized on August 8, 1988 to acquire and lease both the land
underlying the National Place complex (the "Land") and the National Theatre
Building for an aggregate purchase price of $43,101,900. As owners of the Land,
the Land Partnership partners became lessors under the 99-year lease of the
Property (the "Lease") to Square 254 described in the Confidential Memorandum
dated June 11, 1984 (the "Confidential Memorandum"). Square 254, as lessee,
remains obligated under the Lease to pay rent to the Land Partnership, as
lessor. The rent payments under the Lease to the Land Partnership provide the
cash flow that will service the acquisition debt incurred by the Land
Partnership in connection with the purchase of the Land.
Each of the partners of National Land contributed to the capital of National
Land its pro rata share of the approximately $1,000,000 of expenses incurred in
connection with the purchase of the Land and the closing of the $43,101,900 loan
from AEW Trust #136, a trust funded by certain pension funds. As security for
this loan, the lender received a first priority deed of trust in the property of
National Land. The partners of National Land (including the Partnership) also
pledged a portion of their respective partnership interests in Square 254 to the
lender. In addition, the Partnership granted to Aetna a security interest in the
Partnership's interest in National Land. The Partnership's pro rata share of
National Land's initial capitalization was $667,000, which was loaned by Two
Winthrop Properties, Inc. to the Partnership at an interest rate of the then
current rate for five year U.S. Treasury Notes plus 250 basis points. This loan
was repaid from the first available cash flow from operations of the Partnership
in 1996. Net profits and losses of National Land are to be allocated among
partners in proportion to their respective partnership interests.
The Shops LLC was formed to assume the lease with respect to The Shops at
National Place previously held by The Rouse Company. Effective April 1, 1998 The
Shops LLC began leasing the retail space under a lease agreement with Square
254. The lease expires on May 15, 2014 with two options to extend (first option
for 30 years and second option until the end of the ground lease, which expires
in 2083). The minimum annual rental consists of base rent of $1,368,100 plus
additional rent of $202,440. In addition, a percentage rent would be due based
upon meeting certain operational criteria.
24
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Basis of Accounting
The Partnership prepares its financial statements using the accrual basis of
accounting. The Partnership, as an investor partnership, accounts for its
investments in Operating Partnerships using the equity method of accounting.
Under the equity method of accounting, the investment cost (including amounts
paid or accrued) is subsequently adjusted by the Partnership's share of the
Operating Partnerships' results of operations and by distributions received.
Costs relating to the acquisition and selection of the investments in the
Operating Partnerships are capitalized to the investment account and amortized
over forty years. Costs in excess of the Partnership's initial basis in the net
assets of Square 254 (approximately $14,800,000) are also amortized over forty
years. The accounting books and records of the Operating Partnerships are
maintained using the accrual basis of accounting.
Cash and Cash Equivalents
Investments in a money market account are considered to be cash equivalents for
financial reporting purposes.
Deferred Financing Costs
Amortization of deferred financing costs is computed using the straight-line
method over the term of the Purchase Money Note.
Income Taxes
No provision for income taxes is reflected in the accompanying financial
statements of the Partnership. Partners are required to report on their
individual tax return their allocable share of income, gains, losses, deductions
and credits of the Partnership.
Syndication Costs
Each investor limited partner's capital account has been reduced by the
partner's pro-rata share of syndication costs incurred by the Partnership.
25
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
3. DEFERRED FINANCING COSTS
The following is a summary of deferred financing costs at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
Amortization
Period 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Financing fee, at cost 15 years $ 50,000 $ 50,000
Less: Accumulated amortization (47,775) (44,442)
---------- ----------
Unamortized costs $ 2,225 $ 5,558
========== ===========
</TABLE>
26
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS
The Partnership's Investments in the Operating Partnerships are summarized as
follows:
<TABLE>
<CAPTION>
National Land Square 254 The Shops LLC
-------------- ---------- -------------
<S> <C> <C> <C>
Balance, December 31, 1996....................... $ 21,659,269 $(21,902,889) --
Distribution from Operating Partnership.......... (1,832,785) -- --
Amortization..................................... (400,965) -- --
Equity in losses of Operating Partnerships....... (774,525) (4,329,705) --
------------ ------------- -------------
Balance, December 31, 1997....................... 18,650,994 (26,232,594) --
Member contribution.............................. -- -- --
Distribution from Operating Partnership.......... (500,000) -- --
Amortization..................................... (401,296) -- --
Equity in losses of Operating Partnerships....... (765,692) (4,823,571) --
------------ ------------- -------------
Balance, December 31, 1998....................... $16,984,006 $(31,056,165) --
============ ============= =============
</TABLE>
27
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS (continued)
The condensed financial statements and condensed notes to financial statements
of the Operating Partnerships (presented on a combined basis with all
significant inter-entity transactions eliminated) are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
Assets
- ------
<S> <C> <C>
Rental property, net of accumulated depreciation
of $91,544,702 and $82,454,125, respectively..................... $114,050,897 $120,069,960
Land .......................................................... 39,123,872 39,123,872
Cash, cash equivalents and replacement reserve..................... 13,470,538 8,858,411
Accounts receivable, net of allowance for
doubtful accounts of $210,151 and
$100,000, respectively.......................................... 2,971,902 3,620,575
Deferred costs, net of accumulated amortization
of $204,484 and $185,316, respectively.......................... 386,630 405,798
Other assets....................................................... 3,868,106 4,158,980
------------ -------------
Total Assets.............................................. $173,871,945 $176,237,596
============ =============
Liabilities and Owners' Deficit
- -------------------------------
Liabilities:
Notes payable................................................. $213,247,549 $206,957,700
Accounts payable.............................................. 3,723,499 3,662,640
Other liabilities............................................. 493,144 325,974
------------ -------------
217,464,192 210,946,314
Owners' Deficit:
Twelve AMH Associates Limited Partnership..................... (23,714,004) (17,624,741)
Others........................................................ (19,878,243) (17,083,977)
------------ -------------
Total Owners' Deficit.............................................. (43,592,247) (34,708,718)
------------ -------------
Total Liabilities and Owners' Deficit.............................. $173,871,945 $176,237,596
============ =============
</TABLE>
28
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS (continued)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997
--------- ----------
<S> <C> <C>
Hotel:
Revenues................................................. $ 63,965,742 $ 59,564,251
Operating expenses....................................... (47,095,991) (44,087,902)
Depreciation and amortization............................ (4,805,883) (4,297,893)
-------------- --------------
Net hotel operations.......................................... 12,063,868 11,178,456
-------------- --------------
Rental:
Revenues................................................. 14,514,313 13,030,113
Operating expenses....................................... (7,217,776) (5,114,571)
Depreciation and amortization............................ (4,303,862) (3,858,419)
-------------- --------------
Net rental operations......................................... 2,992,675 4,057,123
Interest...................................................... (23,993,031) (23,352,693)
Other ...................................................... 552,959 461,106
-------------- --------------
Net loss...................................................... $ (8,383,529) $ (7,656,008)
=============== ==============
Net loss allocated to Twelve AMH
Associates Limited Partnership........................... $ (5,589,263) $ (5,104,230)
============== ==============
Net loss allocated to others.................................. $ (2,794,266) $ (2,551,778)
============== ==============
</TABLE>
29
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS (continued)
CONDENSED NOTES TO FINANCIAL STATEMENTS OF THE OPERATING
PARTNERSHIPS
A. Summary of Significant Accounting Policies
Rental Property
Square 254 and NPLLP review their long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Rental property includes building costs, lease costs and furniture,
fixtures and equipment. Building costs are recorded at cost and are composed of
the J.W. Marriott Hotel and National Place. Depreciation is computed using the
straight-line method over 40 years commencing when the component is placed in
service. Depreciation and amortization expense amounted to $9,109,745 and
$8,156,312 for 1998 and 1997, respectively.
Lease costs include costs of tenant improvements, renovation of the
National Theatre and office space leasing costs. Such amounts are amortized over
the lesser of the term of the related lease or the life of the asset, generally
five to ten years, using the straight-line method.
Furniture, fixtures and equipment are recorded at cost. Depreciation is
computed based on the useful lives of the assets, generally five to ten years,
using the straight-line method.
Deferred Financing Costs
Costs incurred in obtaining permanent loan financing are amortized on a
straight-line basis over the term of the loans.
30
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS (continued)
Revenue Recognition
Base rental revenue is reported for financial statement purposes using the
straight-line method over the terms of the respective leases. Square 254 records
unbilled rent receivable representing the amount that straight-line rental
revenue exceeds rents collectible under the lease agreements.
Square 254 considers current information and events regarding the tenants'
ability to repay their obligations in determining if unbilled rent receivable is
ultimately collectible. The uncollectible portion of unbilled receivables is
charged to rental revenues in the period in which the determination is made.
Revenues from hotel operations are recorded when earned, in accordance with
accrual basis accounting.
Income Taxes
No provision has been included in the financial statements for federal income
taxes since income or loss of the Operating Partnerships is required to be
reported by the respective partners or members. The Operating Partnerships are
subject to local franchise taxes.
Certain items are treated differently for financial statement reporting and tax
return purposes.
Cash Equivalents
For financial statement purposes, the Operating Partnerships consider cash in
the hotel replacement reserve account and funds invested in money market
accounts (that have maturities of three months or less) to be cash equivalents.
The hotel replacement reserve account is equal to 5 percent of the hotel's gross
revenues per year with the balance limited to 3.5 percent of gross revenue for
the preceding three years. The cash is not restricted.
31
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Partnerships to make estimates and judgments
that affect the reported amounts of assets and operating liabilities and
disclosures of contingencies at the date of the financial statements and the
revenues and expenses recognized during the reporting period. Actual results
could differ from those estimates.
Reclassification
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
32
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS (continued)
B. Notes Payable
The Aetna Life Insurance Company has provided permanent loan financing to Square
254. The terms of the loans and balances outstanding are as follows:
<TABLE>
<CAPTION>
1998 1997
---- -----
<S> <C> <C>
15-year permanent loan at 11 5/8% interest. Principal and interest payments
of $1,178,000 are due monthly based on a 38-year amortization schedule. The
loan is due July 1999 with a balloon payment of approximately $114,400,000
plus accrued interest thereon. The loan may be prepaid after July 1996 with
a prepayment premium of 3%. Such premium is reduced by 1% each year. $114,805,352 $115,547,662
15-year permanent loan at 13% interest. Principal and interest payments of
$109,200 are due monthly based on a 38-year amortization schedule. The loan
is due May 1999 with a balloon payment of approximately $9,650,000 plus
accrued interest thereon. The loan may be prepaid after May 1996 with a
prepayment premium of 3%. Such premium is reduced by 1% each year. 9,664,031 9,714,483
------------- -------------
124,469,383 125,262,145
The above loans are secured by the building and tenant improvements. There are
no restrictive covenants or provisions on the loans. Square 254 has estimated
the fair value of its notes payable at December 31, 1998 to be $127,507,000 by
discounting the future cash flows under the notes payable using borrowing rates
for notes with similar terms and maturities.
NPLLP has obtained long term financing from the AEW Trust #136 as follows:
30-year permanent loan at 11% base interest and additional interest based on
NPLLP's net cash flow, as defined in the loan agreement. Minimum monthly
interest payments are $187,827. Any unpaid base interest in excess of the
minimum monthly interest payment will be deferred and added to principal, up
to a maximum principal outstanding of $300,000,000. All unpaid principal and
interest is due in August 2018, including "shared appreciation interest,"
which is based on the capitalized value of the land lease and on the
lender's required rate of return. The note is secured by NPLLP's interest in
the land lease. Also, NPLLP's partners have assigned portions of their
interests in Square 254 as additional collateral. 88,778,166 81,695,555
------------- -------------
$213,247,549 $206,957,700
============= =============
</TABLE>
In addition, the Partnership has collaterally assigned a portion of its interest
in Square 254 and all of its interest in NPLLP as additional collateral for a
note payable of NPLLP.
33
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS (continued)
C. Related Party Transactions
Square 254 has entered into a contract for hotel management services with
Marriott Corporation ("Marriott"), a general partner of the Operating
Partnerships, which has an initial term of 30 years commencing with the
opening date of the hotel and four 10-year renewal options. Under the terms of
the management agreement, Marriott will retain a fee equal to 20% of the
operating profit of the hotel subject to certain deferrals. This fee amounted
to $3,524,168 and $3,092,689 in 1998 and 1997, respectively. There were no
deferred fees as of December 31, 1998 and 1997. In addition, Marriott earns an
amount equal to 3 percent of gross revenues to cover costs and expenses
incurred as managing agent. This fee amounted to $1,918,970 and $1,786,926 in
1998 and 1997, respectively. Total management fees earned by Marriott amounted
to $5,443,138 and $4,879,615 in 1998 and 1997, respectively.
Square 254 has entered into a property management agreement with QDC Property
Management, Inc., a subsidiary of Quadrangle Development Corporation ("QDC"), a
general partner of the Operating Partnerships. Under the terms of the agreement,
the management company will be paid a fee equal to 3 percent of the gross
rentals from National Place office space but not less than $5,000 per month.
Additionally, for common area management services, QDC Property Management, Inc.
is to be paid an annual base fee of $100,000 with increases tied to the Consumer
Price Index. Management fees earned by QDC Property Management, Inc. amounted to
$392,036 and $404,405 for the years ended December 31, 1998 and 1997,
respectively.
Square 254 reimburses Quadrangle Management Corporation ("QMC") for certain
costs incurred by QMC on its behalf, such as engineering, janitorial, and
tenants services. Total reimbursable costs earned by QMC were $627,700 and
$604,220 in 1998 and 1997, respectively.
Square 254 entered into a garage management agreement with Quik Park, Inc., an
affiliate of QDC, which expires in 2004. Quik Park, Inc. earns a management fee
of 5 percent of gross garage revenue. The agreement with Quik Park, Inc. was
terminated effective April 1998. Allright Parking Washington, Inc., an affiliate
of a general partner of the Partnership, assumed the management contract on the
date of Quik Park Inc.'s termination. Quik Park Inc.'s fees amounted to $18,320
and $85,456 for 1998 and 1997, respectively. Allright Parking Washington, Inc.'s
fees amounted to $86,518 for 1998.
On September 12, 1979, Square 254 entered into a 99-year land lease agreement
with Pennsylvania Avenue Development Corporation ("PADC"), a wholly owned
subsidiary of the United States government. The lease was subsequently assumed
by NPLLP on August 11, 1988 in connection with the purchase of the leased land
and related deferred rent by NPLLP. The
34
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INVESTMENTS IN OPERATING PARTNERSHIPS
C. Related Party Transactions (continued)
lease provides for a basic annual rent of $2,100,000 payable in equal monthly
installments and other rent deferrals based on Square 254's compliance with
certain criteria stated in the lease. The deferred portion accrues interest at
12.4447%, compounded monthly. Payments on the deferred rent and accrued interest
are payable to NPLLP in equal monthly installments over a 36 year period which
began in May 1984. Square 254 has the option to prepay any or all of the
deferred rent or accrued interest thereon.
Additionally, the lease provides for additional rental payments when net cash
flow, as defined in the lease agreement, is generated. No additional rent was
due for 1998 or 1997 since there was no net cash flow, as defined in the lease
agreement.
The effects of this lease have been eliminated for purposes of the condensed
financial statement information presented above.
D. Going Concern Matters
Square 254's ability to continue as a going concern has been impaired due to the
scheduled maturity of its loan obligations in 1999. NPLLP's reliance on Square
254 for rental revenue may indicate that NPLLP will be unable to continue as a
going concern for a reasonable period of time.
These condensed financial statements do not include any adjustments relating to
the recoverability and classification of liabilities that might be necessary
should these Operating Partnerships be unable to continue as a going concern.
The Operating Partnerships' ability to meet these obligations is dependent upon
Square 254 refinancing its debt. Management of the Partnership believes that
Square 254 will be able to refinance the existing debt obligations, enabling the
payment of its land lease obligations to NPLLP without a material adverse effect
on NPLLP's financial condition.
5. PURCHASE MONEY NOTE
In 1984, the Partnership acquired Aetna's 66.667% general partnership interest
in Square 254. The purchase price of $60,000,000 for the interest was evidenced
by a cash payment of $38,000,000 and a nonrecourse purchase money promissory
note ("Purchase Money Note") of $22,000,000. The Purchase Money Note is secured
by the Partnership's investment in Square 254 as well as a security interest in
the Partnership's interest in NPLLP. The Purchase Money
35
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
5. PURCHASE MONEY NOTE (continued)
Note bears simple interest at a rate of 15% per annum, with all interest payable
at maturity, August 31, 1999. In the event that the Partnership wishes to
refinance outstanding principal and interest under the note at maturity and the
Partnership is unable to refinance with another financial institution on terms
then prevailing in the market, Aetna has agreed to refinance outstanding
principal and interest at prevailing market rates for a term of not less than 10
years. In accordance with generally accepted accounting principles, the
Partnership has discounted the Purchase Money Note at an imputed interest rate
of 12%, compounded monthly.
The Purchase Money Note outstanding at December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Purchase Money Note,
including accrued interest $69,300,000 $66,000,000
Less: Unamortized discount (3,270,951) (7,402,572)
------------- -------------
$66,029,049 $58,597,428
============= =============
</TABLE>
In 1996, Aetna sold the Purchase Money Note to Travelers Insurance Company.
It is not practicable to estimate the fair value of the note due to the nature
of the instrument and the absence of quoted market prices for similar financial
instruments.
6. NOTES PAYABLE
The Partnership entered into an Operating Deficit Guarantee Agreement with Aetna
which required Aetna to lend to the Partnership an aggregate amount of up to
$20,000,000, as needed by the Partnership, which in turn contributed or loaned
such amounts to Square 254. The Partnership's ability to borrow under this
agreement expired on December 31, 1989. No contributions have been made since
1987 when the Partnership contributed $1,124,678 to fund Square 254's operating
deficits. Advances under the Operating Deficit Guarantee Agreement ("Operating
Deficit Notes") bear interest at the rate of 15.5% per annum and are due and
payable together with interest on or before August 31, 1999. In the event that
the Partnership wishes to refinance outstanding principal and interest under the
note at maturity and the Partnership is unable to refinance with another
financial institution on terms then prevailing in the market, Aetna has agreed
to refinance outstanding principal and interest at prevailing market rates for a
term of not less than 10 years. The outstanding balance of these advances was
$9,873,978 as of December 31, 1998 and 1997. The balance of the accrued interest
on these advances was $20,776,310 and $19,224,587 as of December 31, 1998 and
1997, respectively.
36
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
6. NOTES PAYABLE (continued)
In 1996, Aetna sold the Operating Deficit Notes to Travelers Insurance Company.
It is not practicable to estimate the fair value of the notes due to the nature
of the instruments and the absence of quoted market prices for similar financial
instruments.
7. TAXABLE LOSS
The Partnership's tax basis net loss for the years ended December 31, 1998 and
1997 differs from the net loss for financial reporting purposes primarily due to
differences in the recognition of depreciation and capitalized costs. A
reconciliation of net loss for financial reporting purposes to federal income
tax basis net loss for the years ended December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net loss for financial reporting purposes................................ $(15,341,860) $(14,022,487)
Amortization of the costs in excess of the Partnership's
initial basis in the net assets of an Operating Partnership......... 370,046 370,046
Expenses accrued and payable to related parties not
deductible until year of payment for tax purposes................... (1,500,000) (500,000)
Interest expense on the Purchase Money Note
utilizing the simple interest method for tax purposes............... 4,131,620 3,295,186
Non-deductible expenses for tax purposes................................. 255 349
Amortization of costs.................................................... (19,062) (19,062)
Equity in Operating Partnerships' financial
statement loss in excess of tax loss (tax
loss in excess of financial statement loss)......................... 861,429 (686,333)
Depreciation of basis adjustment under
Section 708 of the Internal Revenue Code............................ (1,582,049) (1,582,049)
------------- -------------
Tax basis net loss....................................................... $(13,079,621) $(13,144,350)
============= =============
Partners deficit account balances for federal income tax purposes were
$174,145,915 and $161,066,294 as of December 31, 1998 and 1997, respectively.
37
<PAGE>
TWELVE AMH ASSOCIATES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
8. TRANSACTIONS WITH AFFILIATE
Expenses for 1998 and 1997 include an annual management fee of $300,000 earned
by an affiliate of a general partner. Unpaid management fees payable to this
affiliate amounted to $1,300,000 and $2,800,000 at December 31, 1998 and 1997,
respectively.
9. LIQUIDITY
During 1998 and 1997, the Partnership received $500,000 and $1,832,785,
respectively, of cash distributions from the Operating Partnerships. These funds
were used primarily to pay management fees that were due to affiliates. The
Partnership will continue to require cash to repay amounts due to affiliates,
pay management fees and general and administrative expenses, and may require
cash to satisfy its obligation to fund any operating deficits of the Operating
Partnerships. Any future distributions received by the Partnership from the
Operating Partnerships will be applied first to satisfy the unpaid management
fees. To the extent required, affiliated entities have agreed to provide funds
to the Partnership in an amount sufficient to satisfy the Partnership's
operating requirements through August 31, 1999.
As discussed in Note 4, the scheduled maturity of Square 254's loans in 1999
raises substantial doubt regarding the Partnership's ability to continue as a
going concern. The Partnership, together with its partners in the Operating
Partnerships, is currently attempting to refinance or restructure the existing
indebtedness of the Operating Partnerships. However, if these loans are not
refinanced, restructured or satisfied, or if the property is not sold, Square
254's property could be lost through foreclosure.
Based on the Partnership's current and expected cash flows, the Partnership will
not have sufficient funds to satisfy its existing zero coupon, purchase money
notes and notes payable at maturity in August 1999. This situation also raises
substantial doubt about the Partnership's ability to continue as a going
concern. The Partnership is attempting to obtain a forbearance agreement from
its lenders to avoid the lender from foreclosing on the Partnership's interests
in the Operating Partnerships for as long as possible. Accordingly, if the
Partnership cannot refinance or modify this indebtedness on favorable terms, or
sell all or a portion of its interest in the Operating Partnerships for
sufficient value, the Partnership may lose its interests in the Operating
Partnerships through foreclosure. As a result, at this time it appears that
investors in the Partnership will not receive a return of a significant portion,
or any, of their investment.
38
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
39
<PAGE>
PART III
Item 9. Directors and Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act.
The Partnership has no officers or directors. Two Winthrop manages and
controls substantially all of Registrant's affairs and has general
responsibility and ultimate authority in all matters affecting its business. As
of March 1, 1999, the names of the directors and executive officers of Two
Winthrop and the position held by each of them, are as follows:
Has Served as
Position Held with the a Director or
Name Managing General Partner Officer Since
- ---- ------------------------ ---------------
Michael L. Ashner Chief Executive Officer 1-96
and Director
Thomas C. Staples Chief Financial Officer 1-99
Peter Braverman Executive Vice President 1-96
and Director
Patrick J. Foye Vice President - Residential 10-98
and Director
Carolyn Tiffany Chief Operating Officer 10-95
and Clerk
Michael L. Ashner, age 46, has been the Chief Executive Officer of
Winthrop Financial Associates, A Limited Partnership ("WFA") and the Managing
General Partner since January 15, 1996. From June 1994 until January 1996, Mr.
Ashner was a Director, President and Co-chairman of National Property Investors,
Inc., a real estate investment company ("NPI"). Mr. Ashner was also a Director
and executive officer of NPI Property Management Corporation ("NPI Management")
from April 1984 until January 1996. In addition, since 1981 Mr. Ashner has been
President of Exeter Capital Corporation, a firm which has organized and
administered real estate limited partnerships.
Thomas C. Staples, age 43, has been the Chief Financial Officer
of WFA since January 1, 1999. From March 1996 through December 1998, Mr. Staples
was Vice President/Corporate Controller of WFA. From May 1994 through February
1996, Mr. Staples was the Controller of the Residential Division of Winthrop
Management.
Peter Braverman, age 47, has been a Vice President of WFA and the
Managing General Partner since January 1996. From June 1995 until January 1996,
Mr. Braverman was a Vice President of
40
<PAGE>
NPI and NPI Management. From June 1991 until March 1994, Mr. Braverman was
President of the Braverman Group, a firm specializing in management consulting
for the real estate and construction industries. From 1988 to 1991, Mr.
Braverman was a Vice President and Assistant Secretary of Fischbach Corporation,
a publicly traded, international real estate and construction firm.
Patrick J. Foye, age 41, has been Vice President-Residential and
Director of the Managing General Partner since October 1, 1998. Mr. Foye has
served as Executive Vice President of Apartment Investment and Management
Company ("AIMCO") since May 1998. Prior to joining AIMCO, Mr. Foye was a partner
in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998
and was Managing Partner of the firm's Brussels, Budapest and Moscow offices
from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island
Power Authority and serves as a member of the New York State Privatization
Council. He received a B.A. from Fordham College and a J.D. from Fordham
University Law School.
Carolyn Tiffany, age 32, has been employed with WFA since January 1993.
From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and Associate in
WFA's accounting and asset management departments. Ms. Tiffany was a Vice
President in the asset management and investor relations departments of WFA from
October 1995 to December 1997, at which time she became the Chief Operating
Officer of WFA.
One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the
reporting requirements of Section 15(d) of such Act: Winthrop Partners 79
Limited Partnership; Winthrop Partners 80 Limited Partnership; Winthrop Partners
81 Limited Partnership; Winthrop Residential Associates I, A Limited
Partnership; Winthrop Residential Associates II, A Limited Partnership; Winthrop
Residential Associates III, A Limited Partnership; 1626 New York Associates
Limited Partnership; 1999 Broadway Associates Limited Partnership; Nantucket
Island Associates Limited Partnership; One Financial Place Limited Partnership;
Presidential Associates I Limited Partnership; Riverside Park Associates Limited
Partnership; Springhill Lake Investors Limited Partnership; Winthrop California
Investors Limited Partnership; Winthrop Growth Investors I Limited Partnership;
Winthrop Interim Partners I, A Limited Partnership; Southeastern Income
Properties Limited Partnership; and Southeastern Income Properties II Limited
Partnership.
41
<PAGE>
Except as indicated above, neither the Partnership nor Two Winthrop has
any significant employees within the meaning of Item 401(b) of Regulation S-B.
There are no family relationships among the officers and directors of Two
Winthrop.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership under Rule 16a-3(e) during the Partnership's most
recent fiscal year and Forms 5 and amendments thereto furnished to the
Partnership with respect to its most recent fiscal year, the Partnership is not
aware of any director, officer or beneficial owner of more than ten percent of
the units of limited partnership interest in the Partnership that failed to file
on a timely basis, as disclosed in the above Forms, reports required by section
16(a) of the Exchange Act during the most recent fiscal year or prior fiscal
years.
Item 10. Executive Compensation
Registrant is not required to and did not pay any compensation to the
officers or directors of the Managing General Partner. The Managing General
Partner does not presently pay any compensation to any of its officers and
directors (See Item 12, "Certain Relationships and Related Transactions").
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners.
Two Winthrop and Linnaeus own all the outstanding general partnership
interests in the Partnership. As general partners, they are entitled in the
aggregate to 1% of the Partnership's net income or loss for tax purposes, and,
after certain priority distributions, 1% of cash flow. In addition, after
certain priority allocations to the partners of amounts necessary to increase
their capital balances to an amount equal to their invested capital, the General
Partners are entitled to 30% of the proceeds of a capital transaction in
connection with the liquidation or termination of the Partnership. No other
person or group is known by the Partnership to be the beneficial owner of more
than 5% of the outstanding partnership interests as of March 15, 1999.
The Partnership is a limited partnership and has issued Units of
limited partnership interest. The Units are not voting securities, except that
the consent of the Limited Partners is required to approve or disapprove certain
transactions, including the removal of a General Partner, certain amendments to
the Partnership Agreement, the dissolution of the Partnership or the sale of all
or substantially all of the assets of the
42
<PAGE>
Partnership. No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units.
(b) Security Ownership of Management.
None of the officers, directors or partners the General Partners
beneficially own any Units as of the date hereof.
(c) Changes in Control.
There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the Partnership.
Item 12. Certain Relationships and Related Transactions
(a) Transactions with management and others
Pursuant to the terms of the Partnership Agreement, the General
Partners and their affiliates are entitled to receive certain cash distributions
and allocations of taxable income or loss from the Partnership. In addition, the
General Partners and their affiliates are entitled to various fees in connection
with the offering and the operations of the Partnership.
The following table sets forth the amounts of fees, commissions and
cash distributions which the Partnership paid to or accrued for the account of
the General Partners and their affiliates for the years ended December 31, 1998
and 1997:
Entity Compensation 1998 1997
- ------ ------------ ---- ----
Winthrop Financial Partnership $1,800,000(1) $800,000(2)
Co. Inc. Management Fee
(1) Includes $1,500,000 of past management fees which had been accrued.
(2) Includes $500,000 of past management fees which had been accrued.
From 1984 through 1995, Winthrop Financial Co., Inc. agreed to
the Partnership's deferral, on an interest-free basis, of the payment of an
annual partnership management fee for administrative and investor services in
the amount of $300,000. In 1997, Winthrop Financial Co., Inc. received its
$300,000 current fee and $500,000 of its accrued fees. In 1998, Winthrop
Financial Co., Inc. received its $300,000 current fee and $1,500,000 of its
accrued fees.
Total management fees earned by Marriott and paid by Square 254 for
managing and operating the J. W. Marriott Hotel, amounted to $5,443,138 and
$4,879,615 in 1998 and 1997, respectively. Total management fees earned by
Quadrangle and paid by Square 254 for managing the Office Towers and common area
amounted to $392,036 and $404,405 for the years ended December 31, 1998 and
43
<PAGE>
1997, respectively. QuikPark, Inc., an affiliate of Quadrangle, earned fees of
$18,320 and $85,456 in 1998 and 1997, for managing and operating the parking
garage. Effective April 1, 1998, All-Right Parking Washington, Inc., an
affiliate of WFA began providing management services at the Parking Garage and
earned $86,518 in 1998 for these services.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits are
filed as part of this Annual Report and incorporated in this
Annual Report as set forth in said Index.
(b) Reports on Form 8-K - None
44
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TWELVE AMH ASSOCIATES LIMITED
PARTNERSHIP
By: Two Winthrop Properties, Inc.
Managing General Partner
By: /s/ Michael L. Ashner
----------------------
Michael Ashner
Chief Executive Officer
Date: April 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature/Name Title Date
- -------------- ----- ----
/s/ Michael Ashner
- ------------------ Chief Executive April 13, 1999
Michael Ashner Officer and Director
/s/ Thomas Staples
- ------------------ Chief Financial April 13, 1998
Thomas Staples Officer
/s/ Peter Braverman
- ------------------- Executive Vice April 13, 1998
Peter Braverman President and Director
45
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Document Page
- ----------- -------- ----
3(a) Form of Amended and Restated Limited Partnership
Agreement of the Partnership (incorporated by
reference to Exhibit 3 to the Partnership's
Registration Statement on Form 10 dated April 30,
1985, as thereafter amended)
3(b) Certificate of Limited Partnership of National
Place Land Limited Partnership dated August 2,
1988 (incorporated by reference to Exhibit 3(h)
to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1988)
3(c) Agreement of Limited Partnership of National
Place Land Limited Partnership dated August 8,
1988 (incorporated by reference to Exhibit 3(c)
to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1988)
3(d) Amendment to Amended and Restated Limited
Partnership Agreement of the Partnership dated
August 23, 1995 incorporated by reference to the
Partnership's Current Report on Form 8-K filed
with the Securities and Exchange Commission on
September 6, 1995.
4 See Exhibit 3 above
10(a) Form of Amended and Restated Limited Partnership
Agreement of Square 254 Limited Partnership
(incorporated by reference to Exhibit 10(a) to
the Registration Statement)
(b) Leasing Agreement dated as of March 3, 1984
between Square 254 Limited Partnership and
Quadrangle Development Corporation (incorporated
by reference to Exhibit 10(b) to the Registration
Statement)
46
<PAGE>
(c) Management Agreement dated as of June 6, 1984
between Square 254 Limited Partnership and
Quadrangle Development Corporation (incorporated
by reference to Exhibit 10(c) to the Registration
Statement)
(d) Garage Lease dated June 6, 1984 between Square
254 Limited Partnership and Quickpark, Inc.
(incorporated by reference to Exhibit 10(d) to
the Registration Statement)
(e) Pennsylvania Avenue Hotel Management Agreement
dated as of July 23, 1984 between Square 254
Limited Partnership and Marriott Corporation
(incorporated by reference to Exhibit 10(e) to
the Registration Statement)
10(f) Lease dated September 12, 1979 between
Pennsylvania Avenue Development Corporation
("PADC") and Square 254 Limited (incorporated by
reference to Exhibit 10(f) to the Registration
Statement)
(g) Lease dated April 24, 1984 between Square 254
Limited Partnership and The Rouse Company of the
District of Columbia (incorporated by reference
to Exhibit 10(g) to the Registration Statement)
(h) Pennsylvania Avenue Technical Services Agreement
between Square 254 Limited Partnership and the
Marriott Corporation (incorporated by reference
to Exhibit 10(h) to the Registration Statement)
(i) Credit and Security Agreement dated August 31,
1984 between Citibank, N.A. and the Partnership
(incorporated by reference to Exhibit 10(i) to
the Registration Statement)
(j) Sublease dated May 26, 1982 by and between Square
254 Limited Partnership and New National Theatre
Corporation incorporated by reference to Exhibit
10(j) to the Registration Statement)
47
<PAGE>
(k) Inducement Agreement dated as of August 2, 1984
by and between Financial Guaranty Associates,
Inc., the Partnership, Two Winthrop Properties,
Linnaeus Lexington Associates Limited Partnership
and Winthrop Financial Co., Inc. (incorporated by
reference to Exhibit 10(k) to the Registration
Statement)
(l) Documents relating to the Mortgage Loan With
Respect to the Property Made by Aetna Casualty
and Surety Corporation (incorporated by reference
to Exhibit 10(l) to the Registration Statement)
(m) Deed dated August 8, 1988 by and between PADC and
National Place Land Limited Partnership ("NPLLP")
(incorporated by reference to Exhibit 10(m) to
the Registration Statement)
(n) Deed of Trust dated August 9, 1988 by and between
NPLLP, grantor, NPLLP, grantor, and the Trustees
of AEW #136 Trust, beneficiary (incorporated by
reference to Exhibit 10(n) to the Registration
Statement)
48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from audited
financial statements for the twelve month period ending December 31, 1998 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 629,887
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 632,112
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (111,419,384)
<TOTAL-LIABILITY-AND-EQUITY> 632,112
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 782,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,983,343
<INCOME-PRETAX> (15,341,860)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,341,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,341,860)
<EPS-PRIMARY> (25,314.07)
<EPS-DILUTED> (25,314.07)
</TABLE>
