<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
FORM 10-K
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(Mark One)
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997.
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________________
to __________________.
Commission file number 1-8971*
RCPI TRUST
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(Exact name of registrant as specified in its charter)
Delaware 13-7087445
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Tishman Speyer Properties, L.P.
45 Rockefeller Plaza, New York, N.Y. 10111
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(Address of principal executive offices) (Zip Code)
(212) 332-6535
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant is $0.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2 Trust Ownership Interests as
of March 31, 1998.
Documents Incorporated by Reference
Rockefeller Center Properties Inc.'s Proxy Statement for its 1996 Special
Meeting of Stockholders, dated February 14, 1996, is incorporated by reference
as a supplemental response to the information required by Items 11, 12 and 13
of Part III of this Annual Report on Form 10-K.
- ----------
* As successor in interest to Rockefeller Center Properties, Inc. (Commission
File No. 1-8971).
<PAGE> 2
RCPI TRUST
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Business........................................................1
ITEM 2. Property........................................................4
ITEM 3. Legal Proceedings...............................................8
ITEM 4. Submission of Matters to a Vote of
Security Holders...............................................10
PART II
ITEM 5. Market for the Registrant's Common Equity
and Related Stockholder Matters................................11
ITEM 6. Selected Financial Data........................................12
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................15
ITEM 8. Financial Statements and Supplementary Data....................22
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.........................50
PART III
ITEM 10. Directors and Executive Officers
of the Registrant..............................................51
ITEM 11. Executive Compensation.........................................52
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management...............................53
ITEM 13. Certain Relationships and Related
Transactions...................................................53
PART IV
ITEM 14. Exhibits, Financial Statements Schedules
and Reports on Form 8-K........................................56
(i)
<PAGE> 3
PART I
Item 1. Business
Organization and Purpose
Rockefeller Center Properties, Inc. (referred to as "Inc." or the
"Predecessor") was incorporated in Delaware on July 17, 1985. Inc. was
formed to permit public investment in two convertible participating
mortgages totaling $1.3 billion (collectively the "Mortgage Loan"). On
September 19, 1985, Inc. issued 37,510,000 shares of common stock (the
"Common Stock") in an initial public offering registered under the
Securities Act of 1933 (the "Act"). Simultaneously with the offering of
the Common Stock, Inc. issued Current Coupon Convertible Debentures due
2000 and Zero Coupon Convertible Debentures due 2000 (collectively, the
"Convertible Debentures"). In December of 1993, 750,704 warrants issued in
connection with the settlement of litigation were exercised and a like
number of shares of Common Stock were issued. In December 1994, Inc.
issued $150 million of Floating Rate Notes (the "Floating Rate Notes") due
December 31, 2000 to Goldman Sachs Mortgage Company, and $75 million of
14% Debentures (the "14% Debentures") due December 31, 2007 to Whitehall
Street Real Estate Limited Partnership V ("Whitehall"). In conjunction
with the issuance of the 14% Debentures, Inc. also issued 4,155,927
Warrants ("Warrants") to acquire newly issued common stock exercisable at
$5 per share and 5,394,541 Stock Appreciation Rights ("SARS") convertible
into 14% Debentures or under certain circumstances, Warrants.
The net proceeds of the initial Common Stock offering and the offerings of
Convertible Debentures were used by Inc. to make the Mortgage Loan to two
partnerships, Rockefeller Center Properties and RCP Associates
(collectively, the "Previous Owners"). The partners of the Previous Owners
were Rockefeller Group, Inc. ("RGI") and a wholly-owned subsidiary of RGI.
Mitsubishi Estate Company, Ltd. controlled an 80% equity interest in RGI,
and Rockefeller family interests held the remaining 20%.
RCPI Trust (the "Company") was established in the State of Delaware on
March 26, 1996 as a Delaware business trust. The Company was organized
pursuant to the Trust Agreement dated July 10, 1996 (the "Trust
Agreement") between Inc., a wholly owned subsidiary of RCPI Holdings, Inc.
("Holdings") and RCPI Investors L.L.C. ("LLC"), each owning a 50%
undivided beneficial interest. The primary purpose of the Company is to
own, manage and operate the landmarked buildings and public space known as
Rockefeller Center (the "Property"), and to be successor in interest to
Inc.
On July 10, 1996, pursuant to the Merger Agreement (as described below),
Holdings purchased all the outstanding Common Stock of Inc. with
approximately $172 million of its own equity and approximately $172
million obtained through a note payable to LLC. The note payable was then
transferred to Inc. prior to the transfer of all Inc.'s assets and
liabilities to the Company in exchange for a 50% undivided beneficial
ownership interest. At the same time, LLC contributed its note receivable
of $172 million to the Company in exchange for a 50% undivided beneficial
ownership interest.
Prior to July 10, 1996, the Company's activities were limited to
organizational matters.
Merger Agreement
Pursuant to an Agreement and Plan of Merger dated November 7, 1995 (as
amended, the "Merger Agreement"), entered into between Inc. and a group of
investors (the "Investor Group") the members of which are Exor Group S.A.,
Prometheus Investors, L.L.C., Rockprop, L.L.C., Troutlet Investments
Corporation, Gribble Investments (Tortola) BVI, Inc., Weevil Investments
(Tortola) BVI, Inc. and
1
<PAGE> 4
Whitehall, RCPI Merger Inc., a wholly owned subsidiary of Holdings, was
merged (the "Merger") with and into the Predecessor. Consequently, the
Predecessor became a subsidiary of Holdings, a Delaware corporation
controlled by the Investor Group.
The Merger Agreement was approved by the stockholders of the Predecessor
on March 25, 1996 and became effective on July 10, 1996 (the "Effective
Date"). Pursuant to the Merger, each share of the Predecessor's common
stock outstanding as of the Effective Date (other than (i) shares of
Common Stock held by the Predecessor or any of its subsidiaries, (ii)
shares of Common Stock held by Holdings or any of its subsidiaries
(including RCPI Merger Inc.) and (iii) any shares of Common Stock held by
a stockholder who was entitled to demand, and who properly demanded and
has not withdrawn such demand an appraisal for such shares in accordance
with Section 262 of the Delaware General Corporation Law) was converted
into the right to receive $8.00 in cash, without interest thereon. As of
the Effective Date, the Common Stock of Inc. was held by Holdings and the
Warrants and SARS, previously held by Whitehall were contributed through
Holdings to Inc. and canceled. Thereafter, on the Effective Date, Inc.
transferred substantially all of its assets (including the Mortgage Loan)
and liabilities to the Company and the Company became the successor to
Inc. under the Indenture governing the Convertible Debentures.
In addition, under the Merger Agreement, Goldman Sachs Mortgage Company
("GSMC"), an affiliate of Whitehall, which was a party to the Merger
Agreement for this purpose, agreed to make a line of credit available to
the Predecessor (the "GSMC Loan") during the period between November 7,
1995 and the earlier of (1) the consummation of the merger contemplated by
the Merger Agreement or (2) any termination of the Merger Agreement. The
Predecessor had borrowed $63.7 million under the GSMC Loan. The principal
balance and accrued interest were repaid in full on July 17, 1996 by the
Company.
Borrower's Chapter 11 Plan
On May 11, 1995, the Previous Owners filed for protection under Chapter 11
of the Federal Bankruptcy Code in the United States Bankruptcy Court in
the Southern District of New York. The Previous Owners and their partners
filed a Chapter 11 reorganization plan (the "Chapter 11 Plan") that
contemplated ownership of the Property being turned over to Inc. or its
designee upon consummation of the Chapter 11 Plan. Pursuant to the order
of the Bankruptcy Court, the Chapter 11 Plan was confirmed on May 29,
1996, and became effective on July 17, 1996, upon the transfer of the
Property by the Previous Owners to the Company in satisfaction of the
Mortgage Loan (the "Transfer").
NBC Sale
Pursuant to the Agreement dated April 23, 1996, among the Investor Group,
General Electric Company ("GE"), National Broadcasting Company, Inc.
("NBC") and NBC Trust No. 1996A ("NBC Trust"), on July 17, 1996,
immediately preceding the transfer of the Property, the Previous Owners
sold to GE, NBC and NBC Trust ("NBC Sale"), interests in certain buildings
in the Property (the "NBC Space") previously leased by GE or its
affiliates, including NBC. Pursuant to the Chapter 11 Plan, the proceeds
of $440 million from the NBC Sale were paid directly to the Company
reducing the outstanding Mortgage Loan. GSMC was paid $4.4 million by the
Company in connection with securing the proceeds of the NBC Sale as a
partial repayment of the Mortgage Loan. Upon satisfaction of the Mortgage
Loan, this fee was expensed by the Company.
2
<PAGE> 5
Merger with Holdings
On June 30, 1997, the Predecessor merged with and into Holdings, with
Holdings being the surviving corporation. Pursuant to the merger, Holdings
succeeded to the Predecessor's beneficial interest in the Company and
Holdings was renamed Rockefeller Center Properties, Inc.
Repurchases and Repayments of Debt
Between 1987 and 1992, the Predecessor repurchased and retired 36.4% of
the original principal amount of the Current Coupon Convertible Debentures
and 38.4% of the face amount of the Zero Coupon Convertible Debentures.
These repurchases were financed with unsecured short-term nonconvertible
borrowings. Subsequently, these borrowings were replaced with Floating
Rate Notes and 14% Debentures in December 1994. The remaining Current
Coupon Convertible Debentures were redeemed on August 28, 1996, and the
principal amount of $213,170,000 plus accrued interest was paid on that
date. The remaining Zero Coupon Convertible Debentures accrete to a face
value of $586,185,000. A total of $106,296,000 of the outstanding
principal plus accrued interest of the Floating Rate Notes was prepaid on
July 17, 1996. As of December 31, 1996, an aggregate principal amount of
$10 million remained outstanding, which was repaid on May 16, 1997. See
also Note 6 to the Financial Statements provided in response to Item 8.
Competitive Market
The information set forth in this section is based upon data supplied by
Cushman & Wakefield, Inc. ("C&W") and publicly available sources. The
statements with respect to real estate markets and market trends made in
this section and elsewhere in this Annual Report are based upon the
conclusions of C&W as experts and are based upon their 1997 year end
office summary.
New York City is the largest office real estate market in the United
States. Its central business district has two primary concentrations,
midtown and downtown Manhattan. The Property is located in Manhattan's
midtown office market. The midtown market comprises approximately 221
million square feet of rentable office space, of which 169 million square
feet of existing space is considered Class "A" or "Prime". The market
principally serves corporate headquarters and financial, legal,
communications, advertising and other service firms, as well as foreign
businesses and governments, for which prestige, central location and
amenities are factors justifying the higher rental rates charges for prime
office space.
Substantial lease commitments completed in the Midtown market during the
year drove total leasing activity to nearly 20 million square feet, the
highest level ever recorded in Midtown and a gain of seven percent from
1996. While more than half of the Midtown submarkets posted gains in
leasing from last year's level, the most significant growth occurred
within the Penn Station and Textile/Garment sectors, each of which
increased by roughly 62 percent. These two submarkets accounted for nearly
22 percent of total Midtown activity, compared to a 14 percent share in
1996.
The demand for space was mainly driven by financial investment firms,
banking and publishing companies. These three top leasing industries
committed to a combined total of nearly four million square feet in
transactions 10,000 square feet and larger. The printing/publishing sector
was bolstered by the commitment by McGraw Hill to lease more than 450,000
square feet at Two Penn Plaza, the largest transaction of the year.
Dynamic leasing activity outweighing new space availabilities drove total
absorption to positive 4.2 million square feet, the highest recorded level
in Midtown.
3
<PAGE> 6
The Midtown vacancy rate fell to 8.9 percent from 11.1 percent in the
prior year driven by a year of exceptional activity. The Class A vacancy
rate declined to 8.2 percent from 10 percent, while the class B vacancy
rate fell by 4.2 percentage points to 11.3 percent. Of the 11 Midtown
submarkets, seven posted vacancy rates well under 10 percent for the year.
Class A blocks of 50,000 square feet and larger decreased by 15 percent
from 1996. The majority of opportunities were in the Grand Central market
where 22 blocks of class A space were available at year-end.
Total direct asking rentals rose to $33.34 per square foot from $30.63 in
1996. The most critical gains occurred in the class A market, where rental
rates rose by $3.55 per square foot in 1997 and measured $39.29. The
Madison/Fifth and Park Avenue submarkets posted the highest class A asking
rental rates in the City at $49.01 and $48.19 per square foot,
respectively.
Item 2. Property
Rockefeller Center is among the best-known commercial real estate
complexes in the world, offering an architecturally renowned combination
of office, retail and public space. Occupying most of the three blocks
(approximately 12 acres) between 48th and 51st Streets and Fifth Avenue
and Avenue of the Americas in midtown Manhattan, the Property includes 12
buildings, all but one of which were completed between 1932 and 1940,
having approximately 7.4 million square feet of rentable office, retail,
storage and studio space as measured in accordance with the measurement
standards promulgated by the Real Estate Board of New York in 1987
(including the NBC space). The Company owns the fee interest in the entire
Property, except the NBC Space, and the land underlying a portion of the
building at 600 Fifth Avenue, which is owned by an unrelated party and
leased to the Company through the year 2000 at an annual rent of $650,000.
This lease provides for three renewal periods of 21 years each.
Thereafter, this ground lease provides for three renewal periods of 21
years each at annual rents of 6%, 7% and 8%, respectively, of the value of
the land (exclusive of improvements and unencumbered by the ground lease)
appraised for its highest and best use, determined at the beginning of
each such renewal term.
Also included in the Property is Radio City Music Hall (the "Music Hall"),
which is leased to Radio City Music Hall Productions, Inc. ("RCMHP") at
$5,400,000 annually through February 28, 1998. RCMHP was a wholly-owned
subsidiary of an affiliate of the Previous Owners. RCMHP is obligated
under the lease to pay for the expenses of maintaining the interior of the
Music Hall and the property taxes assessed against the portion of the
building housing the Music Hall. The Company is responsible for the
expenses of exterior maintenance. A new lease was executed with RCMHP on
December 4, 1997 for the Music Hall. The lease has a commencement date of
March 1, 1998 and provides for approximately $13 million in base rent per
year.
4
<PAGE> 7
The following table provides summary information regarding the buildings
included in the Property.
<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------
Number of Rentable area Occupancy
Building Year opened stories (sq.ft.)(1) percentage
- -------- ----------- --------- ------------- ----------
<S> <C> <C> <C> <C>
GE (2) 1933 69 2,289,904 92.8
NBC Studio (2) 1933 10 384,592 100.0
GE West (2) 1933 16 188,814 100.0
1270 Avenue of the Americas (3) 1932 32 478,602 78.3
Associated Press 1938 16 469,128 84.3
International 1935 40 1,239,226 81.2
British Empire 1933 9 123,596 90.3
La Maison Francaise 1933 9 127,570 94.9
One Rockefeller Plaza 1937 35 566,231 93.8
Ten Rockefeller Plaza (5) 1939 17 346,986 91.7
Simon & Schuster 1940
and Addition 729,836 93.6
600 Fifth Avenue 1955 21 434,258 80.3
Additional Property (4) 1952 29 35,385 100.0
---------
Subtotal -- -- 7,414,128 89.3
Less: NBC Space 1,514,431
---------
Total 5,899,697 86.7
=========
</TABLE>
- ----------
(1) Measured in accordance with the standard for measurement promulgated by
the New York Real Estate Board in 1987. Includes office, retail and
storage space. ( Includes NBC Space of 1,514,431 square feet.)
(2) Includes NBC Space in the GE, NBC Studio, and GE West buildings of
941,025, 384,592 and 188,814 square feet, respectively.
(3) Radio City Music Hall is included as part of this building but excluded
from the rentable area and occupancy percentage data.
(4) Includes the underground concourse and lower plaza and includes the
Television City and Hurley's restaurant buildings.
(5) Includes the Garage as part of the building but excluded from rentable
area and occupancy.
Rockefeller Center is one of the world's largest privately-owned business
and entertainment complexes which employs 575 people. In addition to
the buildings described above, the Property contains a wide range of
amenities including the Channel Gardens landscaped promenade, the lower
plaza used as an ice skating rink during colder weather and otherwise for
outdoor dining, a 3 story 275-car parking garage and extensive off-street
truck delivery areas, an underground retail and pedestrian concourse
connecting all buildings and providing access to an on-site subway
station, roof gardens and the Music Hall. Retail space within the Property
includes approximately 200 shops and 20 restaurants as of December 31,
1997. The murals and statuary which are an integral part of the Property
include over one hundred major works by more than thirty artists,
including the renowned sculpture "Prometheus". A private street,
Rockefeller Plaza, parallels Fifth Avenue and the Avenue of the Americas
and bisects the Property.
Under the existing zoning regulations, there is allocable to the Property
the right to develop up to approximately 2.0 million square feet of floor
area in excess of the floor area presently constructed thereon. These
excess development rights may be transferred to other properties or, with
the approval of the New York City Landmarks Preservation Commission (the
"Landmarks Commission"), used to construct additional floor area within
the Property. The Company has reserved the right to transfer these rights.
See also Note 11 to the Financial Statements provided in response to Item
8.
5
<PAGE> 8
In April 1985, the Landmarks Commission granted landmark status to the
exterior of all of the buildings in the Property. The Landmarks Commission
has also designated as landmarks portions of the interiors of the GE and
International Buildings and the interior of the Music Hall. As a result of
these designations, alteration, demolition and reconstruction of the
Property will under most circumstances be subject to approval of the
Landmarks Commission.
On March 24, 1997, the Company signed a 30 year lease with Christie's
Auction House. Christie's will move its New York headquarters to a new
300,000 square foot facility in the Property consisting of auction,
gallery, and office space.
Appraisal Value
The Property was appraised as of December 31, 1994 by Douglas Elliman
Appraisal and Consulting Division ("Douglas Elliman"), an independent
appraisal firm. In a report dated January 11, 1995, Douglas Elliman
concluded that, as of December 31, 1994, the fair market value of the
Property was $1.25 billion, an increase of $100 million from the value
assigned in an appraisal conducted by that same firm as of December 31,
1993. The Weitzman Group, Inc. ("The Weitzman Group"), an independent real
estate consulting firm, reviewed the Douglas Elliman appraisal and issued
a review and concurrence report dated February 15, 1995 stating that,
based upon the review described in such report, The Weitzman Group
concurred with the Douglas Elliman appraisal and that, in the opinion of
The Weitzman Group, the market value estimated by Douglas Elliman did not
vary by more than 5 percent from the market value The Weitzman Group would
have estimated in a full and complete appraisal of the same interests.
Copies of the 1994 appraisal and concurrence report were filed as exhibits
to the Predecessor's Current Report on Form 8-K filed on February 22,
1995, and a copy of the 1993 appraisal was filed as an exhibit to the
Predecessor's Current Report on Form 8-K filed on February 22, 1994. Based
on the price of $8.00 per share paid for the Predecessor's common stock,
the fair market value of the Property on the Effective Date, prior to the
sale of the NBC Space, was $1.21 billion.
Property Management
On July 10, 1996 the Company entered into a management agreement (the
"Management Agreement") with Tishman Speyer Properties (the "Agent"), an
affiliate of Rockprop, L.L.C., a member of the Investor Group, which
expires on July 17, 1999. The Management Agreement will automatically
renew for additional one year terms unless either party gives notice of
election not to renew. The Agent earns a management fee based on 1.5% of
Gross Revenues, as defined. See also Item 13 provided in response to
Item 8, "Certain Relationships and Related Transactions" and Note 10 to
the accompanying financial statements.
Real Estate Taxes
The targeted and actual assessed valuation of the Property and the real
estate taxes payable by the Property are set forth in the following
schedule for the fiscal year periods encompassing the years ended December
31, 1995, 1996, 1997 and 1998 and the period ended June 30, 1999. The
schedule reflects the final settlement negotiated with the Tax Commission
of the City of New York during 1995. This settlement reduced the targeted
assessed valuation of the Property. Increases in targeted assessed
valuation are required to be phased-in over a five-year period commencing
with the fiscal year for which it is first increased.
6
<PAGE> 9
<TABLE>
<CAPTION>
($ in millions)
Targeted
Assessed Actual Assessed Real Estate
Fiscal Year Valuation Valuation Taxes Payable
July 1-June 30 (1)(2) (1)(2) (1)(2)
-------------- --------- --------------- -------------
<S> <C> <C> <C>
1994/95 $320.8 $320.8 $34.0
1995/96 $318.2 $318.2 $33.1
1996/97 $326.1 $326.1 $33.4
1997/98 $332.4 $332.4 $34.2
1998/99 $359.8 $359.8 $34.9(3)
</TABLE>
----------
(1) Excludes amounts applicable to Radio City Music Hall. Real estate
taxes assessed against the Music Hall portions of the Property are
not charged to the Property.
(2) Excludes amounts applicable to the NBC space.
(3) Based on the tax rate for the 1997/98 fiscal year.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2 digit year is commonly referred to as the Year 2000 Compliance issue. As
the year 2000 approaches, such systems may be unable to accurately process
certain date-based information.
The Company began preparations for the year 2000 in 1996 and has
identified all significant applications that will require modification to
ensure compliance. Internal and external resources have been and continue
to be used to make the required modifications and test Year 2000
Compliance. The modification process of all significant applications is
substantially complete.
In addition, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and
the extent to which the Company is vulnerable to any third party Year 2000
issues. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company.
The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position
or results of operations in any given year. These costs and the date on
which the Company plans to complete the Year 2000 modification and testing
processes are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ from those plans.
7
<PAGE> 10
Item 3. Legal Proceedings
On January 23, 1995, Bear, Stearns & Co., Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation commenced an action against the
Predecessor in the Supreme Court of the State of New York, County of New
York. The plaintiffs alleged that the Predecessor breached a contract
relating to the plaintiffs' provision of investment banking services to
the Predecessor in connection with a proposed 1994 transaction. The
plaintiffs sought $5.1 million, plus costs, attorneys' fees and interest.
On October 10, 1995, the Predecessor filed an answer to the complaint
which denied the plaintiffs' allegations and asserted numerous affirmative
defenses. On June 11, 1996, the plaintiffs moved for partial summary
judgment on their claim for $950,000 in advisory fees and reimbursement of
expenses incurred in connection with the underlying proposed transaction.
On December 10, 1996, the court granted plaintiffs' motion, and on
February 5, 1997, the court entered judgment on that claim in the total
amount, including pre-judgment interest, of $1,115,612. The Company
satisfied that judgment prior to trial. The trial regarding the
plaintiffs' claims for its "success fees" and indemnification of legal
fees and expenses commenced on February 24, 1997. On March 3, 1997, during
the course of the trial, the parties agreed to a settlement. Pursuant to
the settlement agreement, the Company paid plaintiffs $2 million, and
plaintiffs dismissed the lawsuit with prejudice. Plaintiffs and the
Company executed mutual releases of all claims arising out of the
engagement of plaintiffs in connection with the proposed 1994 transaction.
On May 24, 1995, Jerry Krim commenced an action encaptioned Krim v.
Rockefeller Center Properties, Inc. and Peter D. Linneman. On June 7,
1995, Kathy Knight and Moishe Malamud commenced an action encaptioned
Knight, et al. v. Rockefeller Center Properties, Inc. and Peter D.
Linneman. Both actions were filed in the United States District Court for
the Southern District of New York and purport to be brought on behalf of a
class of plaintiffs comprised of all persons who purchased the
Predecessor's Common Stock between March 20, 1995 and May 10, 1995. The
complaints allege that the Predecessor and Dr. Linneman violated the
federal securities laws by their purported failure to disclose, prior to
May 11, 1995, that the Previous Owners would file for bankruptcy
protection. The cases have been consolidated. On July 28, 1995, the
Predecessor and Dr. Linneman filed answers to the complaints denying
plaintiffs' substantive allegations and asserting numerous affirmative
defenses. On September 22, 1995, plaintiffs served an Amended Class Action
Complaint adding the Predecessor's remaining directors and its president
as defendants. In addition to the foregoing claims, the Amended Complaint
also asserts a cause of action for breach by the Predecessor's directors
and its president of their fiduciary duties by approving the Agreement and
Plan of Combination dated as of September 11, 1995, between the
Predecessor and Equity Office Holdings, L.L.C. ("EOH") (the "Combination
Agreement"). The plaintiffs are seeking damages in such amount as may be
proved at trial. Plaintiffs are also seeking injunctive relief, plus
costs, attorneys' fees and interest. The Company intends to vigorously
contest these actions.
On November 15, 1996, Charal Investment Co., Inc. and C.W. Sommer & Co.
filed a purported class action complaint in the United States District
Court for the District of Delaware against certain former directors and
officers of the Predecessor and against certain of the Company's indirect
shareholders. Plaintiffs alleged that the defendants violated Section
10(b) of the Securities and Exchange Act of 1934 (the "Act") and Rule
10b-5 promulgated thereunder, and Section 14 of the Act and Rule 14a-9
promulgated thereunder by allegedly failing to provide adequate disclosure
of the alleged possibility of a sale or lease financing of a portion of
the Property to NBC and its parent corporation, GE, prior to the
shareholder vote on the Merger. The complaint sought unspecified damages,
rescission of the Merger and/or disgorgement. The Company may have
indemnity obligations with respect to one or more of the defendants. On
December 11, 1996 and December 18, 1996, identical complaints were filed
in the federal court in Delaware by additional plaintiffs. On January 13,
1997, all these actions
8
<PAGE> 11
were consolidated under the caption In re Rockefeller Center Properties,
Inc. Securities Litigation, Cons. C.A. No 96-543 (RRM) ("In re RCPI"). On
January 31, 1997, all defendants moved to dismiss the complaint for
failure to state a claim. On March 3, 1997, the plaintiffs in In re RCPI
responded to the motion to dismiss by filing an amended complaint. The two
federal securities law claims remain the same, but the plaintiffs added
new allegations that defendants failed adequately to disclose (i) the
existence of certain transferable development rights, or air rights, that
were obtained by the Company in connection with the Merger, and (ii)
alleged negotiations with Christie's Auction House and the Walt Disney
Company to become new tenants at Rockefeller Center. On April 30, 1997,
defendants supplemented their initial motion to dismiss by moving to
dismiss the amended complaint for failure to state a claim. On May 9,
1997, the court signed a supplemental order of consolidation admitting
four new plaintiffs. On December 11, 1997, the Court entered an order
dismissing all of plaintiffs' claims except those concerning the
transferable development rights. Plaintiffs subsequently filed a motion
for reconsideration of the order or, in the alternative, for certification
of the order for interlocutory appeal. Defendants opposed both parts of
the motion. The motion is currently pending before the Court.
On January 21, 1997, an action entitled Flashman v. Goldman, Sachs & Co.,
97 Civ. 0403 (MGC) (S.D.N.Y.), was filed in New York Federal court
containing allegations substantially similar to those in the original
complaint in In re RCPI. Subsequently, the plaintiff in Flashman joined as
a plaintiff in the amended complaint filed in In re RCPI. The Company has
been advised that plaintiff intends to dismiss the New York action
voluntarily and to join as plaintiff in the consolidated Delaware federal
action described above.
On February 25, 1997, an action entitled Debora v. Rockefeller, et. al.,
97 Civ. 01312 (LLS) ("Debora"), was filed in the United States District
Court for the Southern District of New York. The complaint in Debora is
substantially similar to the original complaint in In re RCPI. The
defendants are the same in both actions. The Debora complaint alleges
common law fraud and deceit in addition to the two federal securities law
violations alleged in In re RCPI.
On July 31, 1995, L.L. Capital Partners, L.P. commenced an action against
the Predecessor in the United States District Court in the Southern
District of New York. The plaintiff alleged that, the Predecessor's
prospectus dated November 3, 1993, failed to disclose its purported belief
that the Rockefeller family interests and Mitsubishi Estate Company, Ltd.
would cease to fund the Previous Owners' cash flow shortfalls. On January
3, 1997, the parties entered into a settlement agreement and executed and
filed stipulations of dismissal and releases dismissing all claims,
counterclaims and third party claims with prejudice. In connection with
the dismissal, the Company paid L.L. Capital Partners, L.P. the sum of
$50,000.
On September 13 and 14, 1995, five class action complaints, captioned
Faegheh Moezinia v. Peter D. Linneman, Benjamin D. Holloway, Peter G.
Peterson, William F. Murdoch, Jr. and Rockefeller Center Properties, Inc.;
Martin Zacharias v. B.D. Holloway, P.G. Peterson, W.F. Murdoch, P.D.
Linneman and Rockefeller Center Properties, Inc.; James Cosentino v. Peter
D. Linneman, Benjamin D. Holloway, Peter G. Peterson, William F. Murdoch,
Jr. and Rockefeller Center Properties, Inc.; Mary Millstein v. Peter D.
Linneman, Peter G. Peterson, Benjamin D. Holloway, William F. Murdoch, Jr.
and Rockefeller Center Properties, Inc.; and Robert Markewich v. Peter D.
Linneman and Daniel M. Neidich, et al. were filed in the Delaware Court of
Chancery. On October 11, 1995, an additional complaint captioned Hunter
Hogan v. Rockefeller Center Properties, Inc., et al. was filed in the
Delaware Court of Chancery. Each of the complaints purports to be brought
on behalf of a class of plaintiffs comprised of stockholders of the
Predecessor who have been or will be adversely affected by the Combination
Agreement. All of the complaints allege that the Predecessor's directors
breached their fiduciary duties by approving the Combination Agreement.
The plaintiffs seek damages in such amount
9
<PAGE> 12
as may be proved at trial. Plaintiffs also seek injunctive relief, plus
costs and attorneys fees. On November 8, 1995, the Delaware Court of
Chancery entered an order consolidating these actions under the caption In
re Rockefeller Center Properties, Inc. Shareholders Litigation, Consol.
C.A. No. 14612. In a status report filed with the court on February 28,
1997, plaintiffs counsel represented to the court that the actions "had
been mooted" and that an application for counsel fees was being prepared.
The Company intends to contest any such application vigorously.
On July 31, 1996, a Petition for Appraisal, captioned Solomon v.
Rockefeller Center Properties, Inc., C.A. No. 15155, was filed in the
Delaware Court of Chancery. The petitioners allege that the consideration
paid to the Predecessor's stockholders in conjunction with the Merger was
inadequate, and they request that the Court determine the fair value of
their stock at the time of the Merger. Predecessor filed its Response to
the Petition for Appraisal on October 7, 1996, in which it asserts that
the fair value of Predecessor common stock at the time of the Merger was
not more than $8.00 per share and asks the Court to so determine.
During 1997, the Company resolved certain legal claims with no material
adverse impact on the 1997 results of operations. The Company is also a
defendant in other litigation and in some instances the amounts sought
include substantial claims. Although the outcome of claims, litigation and
disputes cannot be predicted with certainty, in the opinion of management
based on facts known at this time, the resolution of such matters are not
anticipated to have a material adverse effect on the financial position or
results of operations of the Company. As these matters continue to proceed
through the process to ultimate resolution, it is reasonably possible that
the Company's estimation of the effect of such matters could change within
the next year.
Item 4. Submission of Matters to a Vote of Security Holders.
None
10
<PAGE> 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for the Company's Trust
Ownership Interests. There are two (2) record holders of such interests as
of March 31, 1998.
On July 10, 1996, pursuant to the Merger Agreement, Holdings and RCPI
Investors L.L.C. each received a 50% undivided beneficial interest in the
Company for $172 million each. This sale of securities was exempt from the
registration requirements of the Act by virtue of Section 4(2) thereof due
to the fact that there were only two offerees. See also Item 1,
"Business".
The Indenture governing the Convertible Debentures limits cash
distributions to the Owners, as defined, to the amount of cumulative
Distributable Cash, as defined. The Indenture defines Distributable Cash
as cash receipts from operations less operating expenses and interest. The
amount of Distributable Cash, net of dividends paid, at December 31, 1997
and 1996 was computed as follows ($ in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flow provided by (used in) operations (i) $ 43,912 $ (6,997)
Distributions (44,128) --
-------- --------
Decrease in cumulative Distributable Cash (216) (6,997)
Balance, beginning of period 62,790 69,787(ii)
-------- --------
Balance, end of period $ 62,574 $ 62,790
======== ========
</TABLE>
(i) See statements of cash flows. See Item 8.
(ii) This amount includes cash flows from operating activities and
certain investing activities, net of dividends paid, from Inc.'s
inception through July 9, 1996 of approximately $70 million. As
interest income was not received by Inc. during the period when the
Previous Owners, as defined, were under Chapter 11 protection, net
cash flows from operations of the Property, which accrued to the
benefit of the Company during this period, are also included.
11
<PAGE> 14
Item 6. Selected Financial Data.
RCPI TRUST
Selected Financial Information
(Dollars in thousands)
<TABLE>
<CAPTION>
Statement of Operations Data
(for the period ended): December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Total revenues $ 189,182 $ 88,488
Operating expenses 111,808 62,575
Interest expense 58,832 30,508
Depreciation and amortization 19,762 7,047
----------------- ------------------
Net loss $ (1,220) $ (11,642)
================= ==================
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data: As of December 31, 1997 As of December 31, 1996
----------------------- -----------------------
<S> <C> <C>
Real estate $ 785,829 $ 766,627
Total assets 887,646 839,672
Debt 563,199 473,310
Debt due after one year 563,199 463,310
Total liabilities 600,518 507,206
Owners' equity 287,128 332,466
</TABLE>
<TABLE>
<CAPTION>
Other Financial Data (for the period ended): December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 43,912 $ (6,997)
Net cash (used in) provided by investing activities (1) (42,225) 419,852
Net cash (used in) financing activities (2) (2,935) (384,090)
Repurchase of Convertible Debentures (3) - (213,170)
</TABLE>
- ----------
(1) Included in net cash provided by investing activities for the period ended
December 31, 1996 is $440,000 of proceeds received from the sale of the
NBC space.
(2) Net cash (used in) financing activities for the period ended December 31,
1996 includes cash expended to retire the Current Coupons, GSMC Loan, and
a significant portion of the Floating Rate Notes.
(3) As of December 31, 1997, the aggregate face value of the Convertible
Debentures repurchased since 1987 was $710,605.
12
<PAGE> 15
Item 6. Selected Financial Data (Continued)
ROCKEFELLER CENTER PROPERTIES, INC.
(Predecessor)
SELECTED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
January 1
Statements of Operations Data through July 9, December 31, December 31, December 31,
(for the period ended): 1996 1995 1994 1993
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues (1) $ 38 $ 21,470 $ 109,285 $ 113,560
--------- --------- --------- ---------
Interest expense 46,984 85,563 77,501 78,343
General and administrative 4,774 11,267 4,170 3,728
Amortization of financing costs (2) 12,421 9,258 705 705
Stock appreciation rights liability (4) 2,041 10,795 -- --
Effects of the execution and delivery
of the Merger Agreement (3) (8,232) 99,163 -- --
Expenses related to the March 25, 1996
special meeting of the stockholders 422 553 -- --
Cost of swap terminations and modifications
related to debt extinguishment -- -- 9,855 3,451
Cost of evaluating alternative financing -- -- 1,942 --
--------- --------- --------- ---------
58,410 216,599 94,173 86,227
--------- --------- --------- ---------
(Loss) income before non-recurring income (58,372) (195,129) 15,112 27,333
--------- --------- --------- ---------
Non-recurring income (gain on sales of
portfolio securities) -- -- 31 8,593
--------- --------- --------- ---------
Net (loss) income $ (58,372) $(195,129) $ 15,143 $ 35,926
========= ========= ========= =========
Weighted average shares outstanding 38,261 38,261 38,261 37,510
========= ========= ========= =========
Net (loss) income per share $ (1.53) $ (5.10) $ 0.40 $ 0.96
========= ========= ========= =========
</TABLE>
13
<PAGE> 16
Item 6. Selected Financial Data (Continued)
ROCKEFELLER CENTER PROPERTIES, INC.
(Predecessor)
SELECTED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of As of As of
December 31, December 31, December 31,
Balance Sheet Data: 1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Total assets (1)(2) $ 1,190,776 $ 1,319,995 $ 1,317,509
Total debt 770,667 760,394 756,936
Total debt due after one year 760,467 760,394 756,936
Total liabilities 874,177 802,528 792,344
Total stockholders' equity 316,599 517,467 525,165
Other Financial Data:
Ratio of earnings to fixed charges (5) -- 1.19X 1.35X
Net cash (used in) provided by
operating activities $ (17,706) $ 57,198 $ 58,231
Net cash provided by investing activities 50,000 14,331 126,668
Net cash used in financing activities
Excluding dividends paid 28,154 44,015 147,082
Dividends paid 5,739 24,869 37,697
Dividends paid per share 0.15 0.65 1.00
Portion of dividends representing
a return of capital 100% 39.4% 7.4%
Book value per share $ 8.27 $ 13.52 $ 13.73
Book value per share assuming
exercise of Warrants and SARs $ 7.90 $ 11.88 $ --
Market price per share (at end of period) $ 7.625 $ 5.00 $ 6.75
</TABLE>
- ----------
(1) On May 11, 1995, the Previous Owners filed for protection under Chapter 11
of the Bankruptcy Code. The Predecessor's only significant source of
income was interest received on the Mortgage Loan from the Previous
Owners.
Due to the significant uncertainties created by the Previous Owners'
Chapter 11 filings, the Predecessor limited recognition of income on the
Mortgage Loan for the period ended July 9, 1996 and the year ended
December 31, 1995 to the cash actually received from the Previous Owners
during this period, which amounts were $0 and $20,339 respectively.
(2) Included in the amortization of deferred financing costs for the period
ended July 9, 1996 is a write-off of the unamortized balance of $10,565
relating to the debt which was transferred to the Company on the Effective
Date. Included in amortization for the year ended December 31, 1995 is the
write-off of debt issuance costs and letter of intent fees totaling $4,650
relating to the termination of the working capital loan and the Agreement
and Plan of Combination dated as of September 11, 1995, between the
Predecessor and Equity Office Holdings, L.L.C.
(3) The Predecessor reflected in its December 31, 1995 financial statements a
valuation reserve, totaling $74,000 to reduce the carrying value of the
Mortgage Loan to reflect the economics of the transactions contemplated by
the Merger Agreement. In addition, the Predecessor recorded certain
transaction costs and expenses aggregating $25,163 for the year ended
December 31, 1995. The Predecessor adjusted these costs by $8,232 for the
period ended July 9, 1996 to more accurately reflect the amounts actually
paid upon consummation of the Merger and amounts remaining unpaid.
(4) Due to the increase in the market price of the Predecessor's Common Stock
during the period ended July 9, 1996 and the year ended December 31, 1995,
the Company was required to increase its liability for the SARs issued in
December 1994 and record a current noncash charge to earnings of $2,041
and $10,795, respectively.
(5) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net income plus fixed charges. Fixed charges
consist of interest expense and amortization of financing costs. For the
year ended December 31, 1995, earnings were inadequate to cover fixed
charges by $195,129 due to the Predecessor's net loss for the year. The
loss was due primarily to the Previous Owners' failure to pay interest on
the Mortgage Loan after the Previous Owners' Chapter 11 filings (see (1)
above).
14
<PAGE> 17
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements made in this Annual Report may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general
economic and business conditions, which will, among other things, affect
demand for retail or commercial space or retail goods, availability or
financing; adverse changes in the real estate market including, among
other things, competition with other companies, properties and technology;
risks of real estate development and acquisition; governmental actions and
initiatives; and environmental/safety requirements.
The discussion below relates primarily to the results of operations of
Inc. for the period ended July 9, 1996 and the year ended December 31,
1995, and the financial condition and results of operations of the Company
for the year ended December 31, 1997 and for the period from July 10, 1996
to December 31, 1996. In addition, pro forma operating statements are
presented to provide a meaningful comparison of the results of operations
of the Property for the years ended December 31, 1996 and 1995 as if the
acquisition of the Property and the NBC Sale (see below) had occurred on
January 1, 1995.
Results of Operations - Rockefeller Center Properties, Inc.
Inc.'s principal source of revenue for the period ended July 9, 1996 and
the year ended December 31, 1995 was interest income received on the
Mortgage Loan. For the periods ended July 9, 1996 and December 31, 1995,
Inc. limited recognition of income on the Mortgage Loan to the cash
actually received. During the year ended December 31, 1995, Inc.
recognized $20.3 million of revenue, prior to the Previous Owners' filing
for Chapter 11 protection on May 11, 1995. Since that date and through the
Effective Date, Inc. did not receive any interest payments, and
accordingly no income was recognized.
Due principally to decreased cash available for investment, other income
for the period ended July 9, 1996 was $38,000 as compared to $1.1 million
for the year ended December 31, 1995.
Amortization of deferred debt issuance costs for the period ended July 9,
1996 and the year ended December 31, 1995 was $12.4 million and $9.3
million, respectively. The increase from 1995 is due to the write-off of
the unamortized balance of $10.6 million related to the debt which was
transferred to the Company on the Effective Date.
Inc. was required to adjust the SAR liability to reflect the aggregate
principal amount of 14% Debentures that would have been issuable upon
exchange of the SARS on July 9, 1996 and December 31, 1995. This
adjustment, which is directly related to the increase in Inc.'s stock
price, resulted in an expense of $2.0 million and $10.8 million for those
periods, respectively. Concurrent with the Merger, Inc.'s SARS and
Warrants were canceled.
During the year ended December 31, 1995, Inc. recorded certain transaction
costs and expenses aggregating $25.2 million which reflected the breakup
fee related to the termination of the Combination Agreement, professional
fees, and certain liquidation expenses and other liabilities specifically
provided for in the Merger Agreement. Also during this period, Inc.
reduced the carrying value of the Mortgage
15
<PAGE> 18
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
Loan by $74 million to reflect the economics of the Merger Agreement. This
total expense of $99.2 million recognized during the year ended December
31, 1995, was adjusted by a credit to expense of $8.2 million during the
period ended July 9, 1996 to more accurately reflect the amounts actually
paid upon consummation of the Merger and amounts remaining unpaid. As a
result, a credit is reflected for the period ended July 9, 1996.
During the period ended July 9, 1996 and the year ended December 31, 1995,
Inc. recognized $422,000 and $553,000, respectively of expenses related to
the March 25, 1996 special meeting of stockholders. The stockholders
approved the Merger Agreement on that date.
All of Inc.'s debt was transferred to the Company on the Effective Date.
To provide a more meaningful comparison to the year ended December 31,
1995, interest expense recognized by Inc. for the period January 1 through
July 9, 1996 and interest expense recognized by the Company for the period
July 10, 1996 through December 31, 1996 have been combined. The following
table illustrates comparative interest expense for the years ended
December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
For the years ended December 31,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current Coupon Convertible Debentures $ -- $15,337 $22,979
Zero Coupon Convertible Debentures 46,334 38,890 33,420
14% Debentures 9,201 10,221 10,973
Floating Rate Notes 507 6,517 14,272
GSMC Facility -- 2,664 153
NationsBank loan 2,661 -- --
Interest rate swaps and other 129 3,863 3,766
------- ------- -------
Total $58,832 $77,492 $85,563
======= ======= =======
</TABLE>
The Current Coupon Convertible Debentures were redeemed on August 28,
1996. Due primarily to the shorter period such Debentures were outstanding
during 1996, interest expense related to these Debentures decreased from
1995 to 1996.
Interest expense on the Zero Coupons increased each year as a result of
accruals of interest on the increasing accretion of the principal amount.
The accretion had compounded at an effective interest rate of 10.23% prior
to the Merger. As of the Effective Date, the fair market value of the Zero
Coupons was adjusted, and the carrying amount of the Zero Coupons has been
accreting at 12.10%, since that date.
Interest expense on the 14% Debentures accrues at the pay rate of 14%. The
fair market value of these Debentures was adjusted as of the Effective
Date. As a result of premium amortization related to this adjustment,
interest expense was lower during 1997 and 1996.
On September 1, 1995, Inc. repaid $33.7 million of the $150 million of
Floating Rate Notes originally issued in December 1994. On July 17, 1996,
the Company prepaid an additional $106.3 million of outstanding principal
plus accrued interest, leaving an outstanding balance of $10 million which
was repaid
16
<PAGE> 19
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
on May 16, 1997. Interest expense related to the Floating Rate Notes
decreased due to the smaller principal balance outstanding during the
years ended December 31, 1997 and 1996. Interest expense on the swap
agreement, which Inc. had accounted for as a component of interest expense
related to the Floating Rate Notes, has been reclassified for this
analysis.
Interest expense related to the GSMC Loan, which was obtained in November
1995 and repaid in full on July 17, 1996, totaled $2.7 million during the
year ended December 31, 1996.
As the NationsBank Loan was only established in 1997, there is no
corresponding expense in 1996 and 1995.
The decrease in interest rate swaps and other interest in 1997 is due
primarily to a decrease in interest rates which required the Company to
adjust the value of the three remaining swap obligations to market.
Liquidity and Capital Resources - RCPI Trust
Land and Building
As discussed above, on July 17, 1996, the Property was transferred to the
Company and the related Mortgage Loan was canceled. Concurrently, the
Previous Owners sold certain interests in NBC space to GE, NBC, and their
affiliates for $440 million. The NBC Space, measured in accordance with
the standards promulgated by the New York Real Estate Board in 1987,
accounted for approximately 1,514,000 square feet, or 20.5% of the total
area of the Property. At December 31, 1997 the Property, exclusive of the
NBC Space, was approximately 86.7% occupied. Occupancy rates for the
Property at various dates are presented in the following table. Occupancy
rates for dates prior to the Effective Date have been adjusted to account
for the sale of the NBC space.
<TABLE>
<S> <C> <S> <C>
September 30, 1997 86.3% December 31, 1996 83.6%
June 30, 1997 86.4% September 30, 1996 82.8%
March 31, 1997 83.3% June 30, 1996 82.2%
</TABLE>
The following table shows selected lease expirations and vacancy of the
Property as of December 31, 1997. Square feet, as presented below and
discussed above, is measured based on standards promulgated by the New
York Real Estate Board in 1987. Lease turnover could offer an opportunity
to increase the revenue of the Property or might have a negative impact on
the Property's revenue. Actual renewal and rental income will be affected
significantly by market conditions at the time and by the terms at which
the Company can then lease space.
17
<PAGE> 20
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
<TABLE>
<CAPTION>
Square Feet Percent
Year Expiring Expiring
---- ----------- --------
<S> <C> <C>
Vacant 784,462 13.3%
1998 388,499 6.6%
1999 203,646 3.5%
2000 466,234 7.9%
2001 120,985 2.1%
2002 216,422 3.7%
Thereafter 3,719,449 62.9%
--------- ------
Total 5,899,697 100.0%
========= ======
</TABLE>
Debt
The Zero Coupons due December 31, 2000 accrete to a face value of approximately
$586.2 million at an effective annual interest rate of 12.10%. Concurrent with
the Merger, the carrying value of such Debentures was adjusted to reflect the
fair market value as of the Effective Date. As a result, the effective annual
interest rate was adjusted from 10.23% to 12.10%. At December 31, 1997, the
carrying value of the Debentures, net of unamortized discount, was approximately
$408.5 million.
The Current Coupons were redeemed on August 28, 1996. Principal in the amount of
$213.2 million plus accrued interest of $18.3 million was paid on that date.
Interest accrued at the pay rate of 13% from the Effective Date through the
redemption date. Prior to the Effective Date, interest accrued at an effective
annual interest rate of 9.23%.
The GSMC Facility was repaid in full on July 17, 1996. The total payment of
$66.5 million included accrued interest of $2.8 million. Interest accrued at 10%
from inception through the payment date.
The Floating Rate Notes were repaid in full on May 16, 1997 and bore interest at
the London Interbank Offered Rate ("LIBOR") plus 4%. Interest was paid quarterly
on March 1, June 1, September 1, and December 1. On July 17, 1996, outstanding
principal in the amount of $106.3 million plus accrued interest of $1.2 million
was prepaid.
The 14% Debentures have a principal balance of $75 million and mature on
December 31, 2007. On the Effective Date, the carrying value of the 14%
Debentures was adjusted to reflect their estimated fair value at that date,
resulting in a premium. Interest expense is net of the amortization of this
premium. Interest payments are made semi-annually on July 31 and January 31. As
of December 31, 1997, the carrying value of the Debentures was $99.7 million.
Cash Flow
Cash flows from operating activities increased from 1996 to 1997 primarily due
to a full year of collections at higher rental rates and lower overall operating
expenses.
18
<PAGE> 21
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
The proceeds from the sale of the NBC Space were used primarily to retire the
Current Coupons, the GSMC Facility, and a significant portion of the Floating
Rate Notes.
The Company expended approximately $12.6 million of legal and consulting fees to
acquire the Property. Since acquisition of the Property, the Company has
expended $22.3 million, $31.4 million and $15.1 million in building
improvements, tenant improvements and leasing commissions, respectively.
The Company believes that its current cash balance and future cash flows from
operations, together with its expected additional borrowings in an amount
currently believed not to exceed $100 million, will be sufficient to fund its
requirements for the foreseeable future.
Inflation
Inflation and changing prices during the current period did not significantly
affect the markets in which the Company conducts its business. In view of the
moderate rate of inflation, its impact on the Company's business has not been
significant.
Results of Operations - RCPI Trust
As the Company's statement of operations only reflects activity from the
Effective Date through December 31, 1997, pro forma operating statements for the
years ended December 31, 1996 and 1995 have been prepared as if the Property had
been acquired on January 1, 1995. The discussion below highlights certain items
included on the Company's operating statement for the period from July 10, 1996
through December 31, 1996, which are not otherwise discussed. For a discussion
of comparative results of operations, refer to the caption "Pro Forma Results of
Operations - The Property."
The Company expended $530,000 and $1.8 million in 1997 and 1996, respectively,
to buy out the leases of tenants in order to gain control of the underlying
space.
For a comparison of interest expense of the Company and RCPI for the years ended
December 31, 1997, 1996 and 1995, see "Results of Operations - Rockefeller
Center Properties, Inc."
Pro Forma Results of Operations - The Property
To provide a more meaningful comparison of results of operations, pro forma
statements of operations have been presented for the years ended December 31,
1996 and 1995 as if the acquisition of the Property by the Company had occurred
on January 1, 1995. The pro forma statements of operations are based upon the
Company's statement of operations for the period from July 17, 1996 through
December 31, 1996 and the Previous Owners' statements of operations for the
period from January 1, 1996 through July 16, 1996 and for the year ended
December 31, 1995.
The pro forma statements of operations for the years ended December 31, 1996 and
1995 have been adjusted to show the effect of (i) gross revenues and operating
expenses had the NBC Sale occurred on January 1, 1995; (ii) interest expense had
the GSMC Loan and Current Coupons been repaid in full, and $106.3 million of
19
<PAGE> 22
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
principal on the Floating Rate Notes been paid on January 1, 1995; (iii)
depreciation and amortization expense had the Property been purchased and the
NBC Sale had occurred on January 1, 1995, and (iv) general and administrative
expenses had certain bankruptcy related costs not been incurred by the Previous
Owners and costs related to the NBC Sale had not been incurred during 1995.
The pro forma results for 1996 and 1995 are for illustrative purposes only, and
do not purport to be indicative of the actual results which would have occurred,
nor are they indicative of future results of operations.
<TABLE>
<CAPTION>
($ in thousands)
Year ended December 31,
Actual Proforma Proforma
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total Revenues:
Rent and other tenant charges $ 187,630 $ 177,653 $ 174,856
Interest income 1,552 1,483 639
--------- --------- ---------
189,182 179,136 175,495
Operating Expenses:
Real estate taxes 33,591 33,876 33,867
Real estate tax refund -- -- (7,535)
Utilities 14,601 15,356 14,850
Maintenance, engineering, and other operating expenses 51,025 54,193 52,966
Management fee 3,415 5,052 3,059
General and administrative 9,176 6,371 10,630
Depreciation and amortization 19,762 16,955 16,614
Interest expense 58,832 55,606 51,166
--------- --------- ---------
Net loss ($ 1,220) ($ 8,273) ($ 122)
========= ========= =========
</TABLE>
Rent and other tenant charges increased by $10.0 million and $2.8 million for
the years ended December 31, 1997 and 1996, respectively, as compared to the
prior year due primarily to increased fixed rent related to new leases.
Occupancy at December 31, 1997 and 1996 were 87% and 83.6%, respectively, as
compared to 82.7% at December 31, 1995.
The decrease in maintenance, engineering and other operating expenses in 1997 is
primarily due to the implementation of cost savings measures by management.
The increase in interest income of $844,000 for the year ended December 31, 1996
was due primarily to a larger average cash balance on hand during 1996 as
compared to 1995.
On June 29, 1995, the bankruptcy court approved a settlement between the
Previous Owners and New York City that incorporated a reduction in the assessed
valuation of the Property. The agreement for the period from July 1, 1989
through June 30, 1995, resulted in a total New York City real estate tax refund
accruing to the property in the amount of $25.6 million, net of certiorari
attorneys fees. Of the total refund, $15.4 million was credited to existing and
former tenants and $2.7 million real estate tax expense for the year ended
December 31, 1995. The remaining $7.5 million related to prior years and is
included under the caption "Real estate tax refund" in 1995.
20
<PAGE> 23
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
The increase in management fees in 1996 from 1995 is due to a renegotiated fee
schedule obtained by the Previous Owners prior to the Company's acquisition of
the Property and to a new management agreement, signed concurrently with the
acquisition of the Property.
General and administrative expenses increased by $2.8 million in 1997 from 1996
primarily due to $2.6 million of legal fees and settlement costs related to the
Bear, Stearns & Co., Inc. settlement (See Item 3-Legal Proceedings).
Additionally, the Company wrote-off $2.2 million of abandoned projects.
The decrease in general and administrative expenses from 1995 to 1996 is due
primarily to legal and professional fees related to the NBC Sale, which based on
pro forma results, would have been incurred entirely during 1995.
The increase in depreciation and amortization of approximately $2.8 million from
1996 to 1997 is primarily due to increased capital expenditures at the Property
since the Effective Date and increased tenant improvements because of leasing
activity.
Based on pro forma calculations, interest expense increased by $4.4 million for
the year ended December 31, 1996. This increase is due primarily to increased
interest accretion related to the Zero Coupons. The Zero Coupons compound at
12.10% annually, which resulted in an additional $4.7 million of expense during
1996.
For a further comparison of interest expense for the years ended December 31,
1997, 1996 and 1995, see "Results of Operations - Rockefeller Center Properties,
Inc.".
21
<PAGE> 24
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
I. Financial Statements and Reports of Independent Public Accountants
1. RCPI Trust (the "Company") and Rockefeller Center Page No.
Properties, Inc. (the "Predecessor") --------
1. Reports of Independent Public Accountants
a. Arthur Andersen LLP...............................................23
b. Ernst & Young LLP.................................................24
2. RCPI Trust (Company)
a. Balance Sheets as of December 31, 1997 and 1996...................25
b. Statements of Operations for the year ended December 31, 1997
and for the period from July 10, 1996 through December 31, 1996...26
c. Statements of Changes in Owners' Equity for the year ended
December 31, 1997 and for the period from July 10, 1996
through December 31, 1996.........................................27
d. Statements of Cash Flows for the year ended December 31, 1997
and for the period from July 10, 1996 through December 31, 1996...28
3. Rockefeller Center Properties, Inc. (Predecessor)
a. Statements of Operations for the period from January 1, 1996
through July 9, 1996 and for the year ended December 31, 1995.....29
b. Statements of Changes in Stockholders' Equity for the period
from January 1, 1996 through July 9, 1996 and for the year
ended December 31, 1995...........................................30
c. Statements of Cash Flows for the period from January 1, 1996
through July 9, 1996 and for the year ended December 31, 1995 ....31
4. Notes to Financial Statements........................................32
II. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997 ........................................................48
All other schedules in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.
22
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees of RCPI Trust:
We have audited the accompanying balance sheets of RCPI Trust (a Delaware
business trust) as of December 31, 1997 and 1996, and the related statements of
operations, changes in owners' equity and cash flows for the year ended December
31, 1997 and for the period from July 10, 1996 (commencement of operations)
through December 31, 1996. We have also audited the statements of operations,
changes in stockholders' equity and cash flows of Rockefeller Center Properties,
Inc., as more fully described in Note 1, for the period from January 1, 1996
through July 9, 1996. These financial statements and the schedule referred to
below are the responsibility of the Companies' management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 RCPI Trust as of December 31,
1997 and 1996, and the results of its operations and its cash flows for the year
ended December 31, 1997 and for the period from July 10, 1996 (commencement of
operations) through December 31, 1996 and the results of operations, changes in
stockholders' equity and cash flows for Rockefeller Center Properties, Inc. for
the period January 1, 1996 through July 9, 1996, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements, described above, taken as a whole. The schedule listed in
the index to financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New York, New York
February 12, 1998
23
<PAGE> 26
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Rockefeller Center Properties, Inc.
We have audited the accompanying statements of operations of Rockefeller Center
Properties, Inc. (the "Company"), and the related statements of changes in
stockholders' equity and cash flows for the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Rockefeller Center
Properties, Inc. and its cash flows for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern as more fully described in Note 1 to the
Company's financial statements. The borrowers (collectively, the "Borrower")
under the mortgage loan, the Company's principal asset, filed for protection
under Chapter 11 of the Federal Bankruptcy Code on May 11, 1995. As a result of
these filings and until such time as the Chapter 11 cases have been brought to a
conclusion, the Company does not expect to receive interest payments from the
Borrower, and the Company's ability to enforce its rights under the mortgage
loan has been and will be stayed unless and until the Bankruptcy Court issues an
order permitting the Company to take steps to enforce such rights. The Company
cannot predict either the time it will take to conclude these proceedings or
their ultimate outcome. On November 7, 1995, the Company executed and delivered
an Agreement and Plan of Merger (as amended as of February 12, 1996, the "Merger
Agreement") with an investor group. If the transactions contemplated by the
Merger Agreement are consummated, the stockholders will receive $8.00 in cash
for each of their shares of the Company's Common Stock. Also, on November 7,
1995, the Company entered into an agreement that would allow the Company to make
a $200 million publicly registered rights offering should the stockholders not
approve the Merger Agreement. The uncertainties created by the bankruptcy of the
Borrower raise substantial doubt about the Company's ability to continue as a
going concern if the Merger Agreement is not approved by the Company's
stockholders or if the transactions contemplated by the Merger Agreement are not
consummated. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
New York, New York
February 29, 1996
24
<PAGE> 27
RCPI TRUST
(a Delaware business trust)
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
($ in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
-------- --------
<S> <C> <C>
Real Estate:
Land $158,149 $158,149
Buildings and improvements 611,711 596,880
Tenant improvements 36,170 14,405
Furniture, fixtures and equipment 4,192 3,911
-------- --------
810,222 773,345
Less: Accumulated depreciation and amortization 24,393 6,718
-------- --------
785,829 766,627
Cash and cash equivalents 27,517 28,765
Restricted cash 9,369 10,027
Accounts receivable 11,946 19,859
Prepaid expenses 495 478
Deferred costs, net of accumulated
amortization of $2,192 and $329, respectively 22,521 5,486
Accrued rent 29,969 8,430
-------- --------
Total Assets $887,646 $839,672
======== ========
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Zero coupon convertible debentures, net of unamortized
discount of $177,696 and $224,030, respectively $408,489 $362,155
14% debentures (includes premium of $24,710 and $26,155,
respectively) 99,710 101,155
Floating rate notes -- 10,000
NationsBank Loans 55,000 --
Accrued interest payable 7,152 7,234
Accounts payable and accrued expenses 21,227 19,383
Tenant security deposits payable 8,940 7,279
-------- --------
Total Liabilities 600,518 507,206
Commitments and Contingencies (Note 11)
Owners' Equity 287,128 332,466
-------- --------
Total Liabilities and Owners' Equity $887,646 $839,672
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 28
RCPI TRUST
(a Delaware business trust)
STATEMENTS OF OPERATIONS
($ in thousands)
<TABLE>
<CAPTION>
For the Period from
July 10, 1996
(Commencement of
For the Year Ended Operations) through
December 31, 1997 December 31, 1996
------------------ -------------------
<S> <C> <C>
Revenues:
Base rental $ 171,968 $ 76,496
Escalations and percentage rents 7,926 6,562
Interest and other income 9,288 5,430
--------- ---------
Total revenues 189,182 88,488
--------- ---------
Expenses:
Interest 58,832 30,508
Real estate taxes 33,591 15,585
Payroll and benefits 18,584 10,375
Repairs, maintenance and supplies 14,308 8,137
Utilities 14,601 6,539
Cleaning 14,157 7,253
Professional fees 2,739 8,735
Insurance 1,237 1,451
Management and accounting fees 3,415 1,424
General and administration 3,847 1,297
Litigation settlement 2,612 --
Write off of abandoned projects 2,187 --
Tenant buyout costs 530 1,779
Depreciation and amortization 19,762 7,047
--------- ---------
Total expenses 190,402 100,130
--------- ---------
Net Loss $ (1,220) $ (11,642)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 29
RCPI TRUST
(a Delaware business trust)
STATEMENTS OF CHANGES IN OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD
FROM JULY 10, 1996 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1996
($ in thousands)
<TABLE>
<CAPTION>
Balance Balance Balance
Percentage July 10 1996 December 31, 1997 December 31,
Interest 1996 Activity 1996 Activity 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rockefeller Center Properties, Inc.:
Capital contribution 50% $ 172,054 $ -- $ 172,054 $ -- $ 172,054
Distributions -- -- -- (22,064) (22,064)
Net loss -- (5,821) (5,821) (610) (6,431)
--------- --------- --------- --------- ---------
Total 172,054 (5,821) 166,233 (22,674) 143,559
--------- --------- --------- --------- ---------
RCPI Investors L.L.C.:
Capital contribution 50% 172,054 -- 172,054 10 172,064
Distributions -- -- -- (22,064) (22,064)
Net loss -- (5,821) (5,821) (610) (6,431)
--------- --------- --------- --------- ---------
Total 172,054 (5,821) 166,233 (22,664) 143,569
--------- --------- --------- --------- ---------
Total Owners' Equity $ 344,108 $ (11,642) $ 332,466 $ (45,338) $ 287,128
========= ========= ========= ========= =========
</TABLE>
27
<PAGE> 30
RCPI TRUST
(a Delaware business trust)
STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the Period from
July 10, 1996
(Commencement of
For the Year Ended Operations) through
December 31, 1997 December 31, 1996
------------------ -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (1,220) $ (11,642)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of original issue discount and premium 44,889 19,263
Depreciation and amortization 19,762 7,047
Decrease (increase) in restricted cash 658 (3,260)
Decrease (increase) in accounts receivable 7,913 (5,138)
(Increase) decrease in prepaid expenses (17) 18,169
Increase in accrued rent (21,539) (8,430)
Decrease in accounts payable and accrued expenses
and tenant security deposits payable (6,452) (3,959)
Decrease in accrued interest payable (82) (19,047)
--------- ---------
Net cash provided by (used in) operating activities 43,912 (6,997)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment on mortgage loan receivable -- 440,000
Cash acquired as part of Transfer -- 2,800
Additions to buildings and improvements (14,141) (2,728)
Additions to tenant improvements (16,952) (14,405)
Additions to furniture, fixtures and equipment (281) --
Additions to deferred costs (10,851) (5,815)
--------- ---------
Net cash (used in) provided by investing activities (42,225) 419,852
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from NationsBank Loans 55,000 --
Payment of current coupon debentures -- (213,170)
Payment of floating rate notes (10,000) (107,891)
Payment of GSMC Facility -- (63,029)
Distributions to Owners (44,128) --
Capital contributions 10 --
Payment of deferred financing fees (3,817) --
--------- ---------
Net cash used in financing activities (2,935) (384,090)
--------- ---------
(Decrease) increase in cash and cash equivalents (1,248) 28,765
Cash and cash equivalents, beginning of period 28,765 --
--------- ---------
Cash and cash equivalents, end of period $ 27,517 $ 28,765
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 31
ROCKEFELLER CENTER PROPERTIES, INC.
(Predecessor)
STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
For the Period from
January 1, 1996 Year ended
through July 9, 1996 December 31, 1995
-------------------- -----------------
<S> <C> <C>
Revenues:
Loan interest income $ -- $ 20,339
Other income 38 1,131
--------- ---------
38 21,470
--------- ---------
Expenses:
Interest expense:
Current Coupon Convertible Debentures 11,642 22,979
Zero Coupon Convertible Debentures 18,985 33,420
14% Debentures 5,790 10,973
Floating Rate Notes 8,013 17,858
GSMC Facility 2,554 153
Commercial paper and other -- 180
--------- ---------
46,984 85,563
General and administrative 4,774 11,267
Amortization of deferred debt issuance costs 12,421 9,258
Increase in liability for stock appreciation rights 2,041 10,795
Effects of the execution and delivery of the Merger Agreement (8,232) 99,163
Expenses related to the March 25, 1996 special
meeting of stockholders 422 553
--------- ---------
58,410 216,599
--------- ---------
Net loss $ (58,372) $(195,129)
========= =========
Net loss per share $ (1.53) $ (5.10)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 32
ROCKEFELLER CENTER PROPERTIES, INC.
(Predecessor)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except share and per share data)
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH JULY 9, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Distributions
Additional to stockholders Total
Common Stock paid-in in excess of stockholders'
Shares Amount capital net income equity
---------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 38,260,704 $ 383 $ 707,545 $ (190,461) $ 517,467
Net loss -- -- -- (195,129) (195,129)
Distributions to stockholders
($0.15 per share) -- -- -- (5,739) (5,739)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 38,260,704 383 707,545 (391,329) 316,599
Net loss (from January 1,
through July 9, 1996) -- -- -- (58,372) (58,372)
---------- ---------- ---------- ---------- ----------
Balance at July 9, 1996 38,260,704 $ 383 $ 707,545 $ (449,701) $ 258,227
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 33
ROCKEFELLER CENTER PROPERTIES, INC.
(Predecessor)
STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the Period from
January 1, 1996 Year ended
through July 9, 1996 December 31, 1995
-------------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Loan interest received $ -- $ 20,339
Other interest income received 38 1,131
Interest paid on Floating Rate Notes (7,626) (17,114)
Interest paid on 14% Debentures (5,308) (9,917)
Interest paid on commercial paper and other -- (198)
Interest paid on Current Coupon Convertible Debentures (27,712) --
Payments for accounts payable, accrued expenses and other assets (13,463) (11,947)
--------- ---------
Net cash used in operating activities (54,071) (17,706)
--------- ---------
Cash flows from investing activities:
Draw downs on letter of credit support -- 50,000
--------- ---------
Net cash provided by investing activities -- 50,000
--------- ---------
Cash flows from financing activities:
Dividends paid -- (5,739)
Floating Rate Note principal repayment -- (33,704)
Interim financing cost -- (4,650)
Net proceeds from GSMC loan 52,829 10,200
--------- ---------
Net cash provided by (used in) financing activities 52,829 (33,893)
--------- ---------
Net decrease in cash and cash equivalents (1,242) (1,599)
Cash and cash equivalents at the beginning of the period 1,298 2,897
--------- ---------
Cash and cash equivalents at the end of the period $ 56 $ 1,298
========= =========
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss $ (58,372) $(195,129)
Adjustments to reconcile net loss to net cash used in operating activities:
Effects of the execution and delivery of the Merger Agreement -- 99,163
Amortization of discount:
Zero Coupon Convertible Debentures 18,985 33,420
14% Debentures 188 357
Decrease in deferred debt issuance costs and other costs, net 12,280 8,270
(Decrease) increase in accrued interest payable and amortized
unpaid discount on commercial paper (12,836) 24,576
Increase in stock appreciation rights liability 2,041 10,795
(Decrease) increase in accounts payable and accrued expenses (16,357) 842
--------- ---------
Net cash used in operating activities $ (54,071) $ (17,706)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 34
RCPI TRUST
(a Delaware business trust)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND PURPOSE
RCPI Trust (the "Company") was established in the State of Delaware on
March 26, 1996 as a Delaware business trust. The Company was organized
pursuant to the Trust Agreement dated July 10, 1996 (the "Trust
Agreement") between Rockefeller Center Properties, Inc. (the
"Predecessor"), a wholly-owned subsidiary of RCPI Holdings, Inc.
("Holdings"), and RCPI Investors L.L.C. ("LLC"), each owning a 50%
undivided beneficial interest. The primary purpose of the Company is to
own, manage and operate the landmarked buildings and public space known as
Rockefeller Center (the "Property") and to be successor in interest to the
Predecessor.
The Predecessor was incorporated in Delaware on July 17, 1985. The
Predecessor qualifies and has elected to be treated, for Federal income
tax reporting purposes, as a real estate investment trust (a "REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"). The
Predecessor was originally formed to permit public investment in two
convertible, participating mortgages on the Property. From the proceeds of
its offering of common stock (the "Common Stock") and the offerings of its
Current Coupon Convertible Debentures ("Current Coupons") due December 31,
2000 and Zero Coupon Convertible Debentures ("Zero Coupons") due December
31, 2000 (collectively, the "Convertible Debentures"), the Predecessor
made a $1.3 billion convertible, participating mortgage loan (the
"Mortgage Loan") to two partnerships, Rockefeller Center Properties and
RCP Associates (collectively, the "Previous Owners"). The partners of the
Previous Owners were Rockefeller Group, Inc. ("RGI") and Radio City Music
Hall Productions, Inc. ("RCMHP"), a wholly owned subsidiary of RGI.
Mitsubishi Estate Company, Ltd. controlled an 80% equity interest in RGI,
and Rockefeller family interests held the remaining 20%.
On July 10, 1996, pursuant to the Merger Agreement (as described below),
Holdings purchased all the outstanding Common Stock of the Predecessor
with approximately $172 million of its own equity and approximately $172
million obtained through a note payable to LLC. The note payable was then
transferred to the Predecessor prior to the transfer of all the
Predecessor's assets and liabilities to the Company in exchange for a 50%
undivided beneficial ownership interest. At the same time, LLC contributed
its note receivable of $172 million to the Company in exchange for a 50%
undivided beneficial ownership interest.
Prior to July 10, 1996, the Company's activities were limited to
organizational matters.
Merger Agreement
Pursuant to an Agreement and Plan of Merger dated November 7, 1995, (the
"Merger Agreement"), entered into between the Predecessor and a group of
investors (the "Investor Group") the members of which are Exor Group S.A.,
Prometheus Investors, L.L.C., Rockprop, L.L.C., Troutlet Investments
Corporation, Gribble Investments (Tortola) BVI, Inc., Weevil Investments
(Tortola) BVI, Inc. and Whitehall Street Real Estate Limited Partnership V
("Whitehall"), RCPI Merger Inc., a wholly owned subsidiary of Holdings,
was merged (the "Merger") with and into the Predecessor. Consequently, the
Predecessor became a subsidiary of Holdings, a Delaware corporation
controlled by the Investor Group.
The Merger Agreement was approved by the stockholders of the Predecessor
on March 25, 1996 and became effective on July 10, 1996 (the "Effective
Date"). Pursuant to the Merger, each share of the
32
<PAGE> 35
Predecessor's common stock outstanding as of the Effective Date (other
than (i) shares of Common Stock held by the Predecessor or any of its
subsidiaries, (ii) shares of Common Stock held by Holdings or any of its
subsidiaries (including RCPI Merger Inc. ) and (iii) any shares of Common
Stock held by a stockholder who was entitled to demand, and who properly
demanded and has not withdrawn such demand, an appraisal for such shares
in accordance with Section 262 of the Delaware General Corporation Law was
converted into the right to receive $8.00 in cash, without interest
thereon. As of the Effective Date, the Common Stock of the Predecessor was
held by Holdings and the Warrants and Stock Appreciation Rights (see Note
6), previously held by Whitehall were contributed through Holdings to the
Predecessor and canceled. Thereafter, on the Effective Date, the
Predecessor transferred substantially all of its assets (including the
Mortgage Loan) and liabilities to the Company and the Company became the
successor to the Predecessor under the Indenture governing the Convertible
Debentures (see Note 6).
Borrower's Chapter 11 Plan
On May 11, 1995, the Previous Owners filed for protection under Chapter 11
of the Federal Bankruptcy Code in the United States Bankruptcy Court in
the Southern District of New York. The Previous Owners and their partners
filed a Chapter 11 reorganization plan (the "Chapter 11 Plan") that
contemplated ownership of the Property being turned over to the
Predecessor or its designee upon consummation of the Chapter 11 Plan.
Pursuant to the order of the Bankruptcy Court, the Chapter 11 Plan was
confirmed on May 29, 1996, and became effective on July 17, 1996, upon the
transfer of the Property by the Previous Owners to the Company in
satisfaction of the Mortgage Loan (the "Transfer").
NBC Sale
Pursuant to the Agreement dated April 23, 1996, among the Investor Group,
General Electric Company ("GE"), National Broadcasting Company, Inc.
("NBC") and NBC Trust No. 1996A ("NBC Trust"), on July 17, 1996,
immediately preceding the Transfer of the Property, the Previous Owners
sold to GE, NBC and NBC Trust (the "NBC Sale") interests in certain
buildings in the Property (the "NBC Space") previously leased by GE or its
affiliates, including NBC. Pursuant to the Chapter 11 Plan, the proceeds
of $440 million from the NBC Sale were paid directly to the Company
reducing the outstanding Mortgage Loan. Goldman Sachs Mortgage Company
("GSMC"), an affiliate of Whitehall, was paid $4.4 million by the Company
in connection with securing the proceeds of the NBC Sale as a partial
repayment of the Mortgage Loan. Upon satisfaction of the Mortgage Loan,
this fee was expensed as a component of professional fees in the Company's
accompanying 1996 statement of operations.
Merger with Holdings
On June 30, 1997, the Predecessor merged with and into Holdings, with
Holdings being the surviving corporation. Pursuant to the merger, Holdings
succeeded to the Predecessor's beneficial interest in the Company and
Holdings was renamed Rockefeller Center Properties, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Basis of preparation
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP"). The preparation of
financial statements in conformity with GAAP 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
33
<PAGE> 36
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
The accompanying financial statements present the Company's balance
sheets, as successor to the Predecessor, as of December 31, 1997 and 1996
and the results of operations, changes in owners' equity and cash flows
for the year ended December 31, 1997 and for the period from July 10, 1996
through December 31, 1996. The accompanying financial statements also
present the Predecessor's results of operations, changes in stockholders'
equity and cash flows for the period from January 1, 1996 through July 9,
1996 and for the year ended December 31, 1995. Pro forma results of
operations for the Company, as if the acquisition of the Property and the
NBC Sale had occurred as of January 1, 1995, are presented in Note 13 to
the financial statements.
The Merger was accounted for by the Predecessor under the purchase
accounting method whereby the purchase price was allocated among the
assets acquired and liabilities assumed based on their respective fair
market values on July 10, 1996. These assets and liabilities were then
transferred down to the Company on the same day.
The Transfer on July 17, 1996 was also accounted for under the purchase
method whereby the Company recorded the value of the assets and
liabilities received from the Previous Owners based on their respective
fair market values as of that date.
Real Estate
Buildings and improvements are carried at cost and depreciated using the
straight-line method over their estimated useful lives of forty years.
Significant renovations or improvements which extend the economic useful
life of the assets are capitalized. Expenditures for maintenance and
repairs are expensed as incurred.
Tenant improvements are amortized using the straight-line method over the
terms of the respective leases. Furniture, fixtures and equipment are
depreciated using the straight-line method over their expected useful
lives of five to ten years.
The Company reviews the carrying value of the Property for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If such review indicates that
the asset is impaired, given that the carrying amount of an asset exceeds
the sum of its expected future cash flows, on an undiscounted basis, the
asset's carrying amount will be written down to fair value. As of December
31, 1997, there was no impairment in the value of the Property.
Restricted Cash
On July 17, 1996, the Company entered into a Collateral Agreement with
Chase Manhattan Bank, pursuant to certain tenant lease agreements. The
Collateral Agreement establishes five letters of credit, as defined, in
the aggregate amount of approximately $10.4 million. As of December 31,
1997 and 1996, the restricted cash balance associated with these letters
of credit was approximately $333,000 and $2.7 million, respectively.
The Company also maintains tenant security deposits in a restricted cash
account. At December 31, 1997 and 1996, the carrying amount in the
restricted cash account for tenant security deposits was approximately
$8.9 million and $7.3 million, respectively.
34
<PAGE> 37
Deferred Costs
Deferred costs include costs incurred in the successful negotiation of
leases, including brokerage and legal, and are being amortized on a
straight-line basis over the terms of the respective leases. Deferred
costs also include costs incurred in connection with the formation of the
Company and are being amortized over a period of five years. Deferred
financing costs related to the NationsBank Loans are amortized over the
terms of the loans (see Note 6).
Debt issuance costs include fees and costs incurred by the Predecessor to
obtain long-term financing, and were amortized over the terms of the
respective loans on a basis which approximated the interest method. The
Predecessor had unamortized deferred debt issuance costs related to its
outstanding Convertible Debentures, Floating Rate Notes and 14% Debentures
as of December 31, 1995 of $3.5 million, $5.8 million and $3.1 million,
respectively. On July 9, 1996, the Predecessor fully amortized the
remaining deferred debt issuance costs due to the Merger (see Note 1).
Revenue Recognition
Base rental revenue is reported on a straight-line basis over the terms of
the respective leases. Differences between base rental revenue and
contractual amounts are recorded in the accompanying balance sheet as
accrued rent. The impact of the straight-line adjustment increased base
rental revenues for the Company by approximately $21.5 million and $8.4
million for the year ended December 31, 1997 and for the period ending
December 31, 1996, respectively. Escalations and percentage rents, which
are provided for in the leases, are recognized as income when earned and
their amounts can be reasonably estimated.
Statements of Cash Flows
The statements of cash flows for the periods ending December 31, 1997 and
1996 are presented in accordance with the indirect method. The statements
of cash flows for the period from January 1, 1996 through July 9, 1996 and
for the year ended December 31, 1995 are presented in accordance with the
direct method.
The Company and the Predecessor consider all highly liquid investments
with original maturities of three months or less to be cash equivalents.
Interest paid by the Company on its debt obligations was approximately
$13.8 million for the year ended December 31, 1997 and $30.3 million for
the period ending December 31, 1996.
On July 10, 1996, pursuant to the Merger Agreement, the Predecessor
transferred all of its assets (including the Mortgage Loan) totaling
approximately $1.220 billion and liabilities (including the note payable
to LLC of approximately $172 million) totaling approximately $1.048
billion to the Company in exchange for its 50% undivided beneficial
ownership interest. Simultaneously, LLC contributed its note receivable of
$172 million for its 50% undivided beneficial ownership interest. These
transactions are considered noncash investing and financing activities.
On July 17, 1996, the Company obtained title to the Property, subsequent
to the NBC Sale, and certain other assets (net of cash acquired of
approximately $2.8 million) totaling approximately $795.4 million and
assumed liabilities totaling approximately $18.8 million in full
satisfaction of the Mortgage Loan. This transaction is considered a
noncash investing activity.
35
<PAGE> 38
Prior Year Reclassifications
Certain prior year balances have been reclassified to conform with the
current year financial statement presentation.
3. THE PROPERTY
Rockefeller Center
The Property consists of twelve landmarked buildings and public space
located in midtown Manhattan, New York City. The Company owns the fee
interest in the entire Property, except for the NBC Space and the land
underlying a portion of the building located at 600 Fifth Avenue which is
subject to a ground lease. The ground lease provides for an annual rent of
$650,000 through the year 2000. Thereafter, this ground lease provides for
three renewal periods of 21 years each at annual rents of 6%, 7% and 8%,
respectively, of the value of the land (exclusive of improvements and
unencumbered by the ground lease) appraised for its highest and best use,
determined at the beginning of each such renewal term. The ground rent
expense is included in general and administration in the Company's
accompanying statements of operations.
At December 31, 1997 and 1996, approximately 5.1 million and 4.9 million
square feet representing approximately 87% and 83%, respectively, of total
rentable square feet were leased to tenants under operating leases. Of the
total rentable square feet, approximately 23% or 1.34 million square feet
is under lease to six tenants in the financial services, legal or
publishing industry as of December 31, 1997. These leases are scheduled to
expire in years 2000 through 2014.
Future Minimum Rentals
Future minimum rentals to be received under non-cancelable tenant leases
at December 31, 1997 are as follows ($ in thousands):
<TABLE>
<S> <C>
1998 $ 154,062
1999 164,497
2000 159,102
2001 148,993
2002 145,558
Thereafter 1,167,354
</TABLE>
The schedule presented above includes the effect of the lease for the
Radio City Music Hall space executed on December 4, 1997. The lease has a
commencement date of March 1, 1998 and provides for approximately $13
million in base rent per year.
Future minimum rentals do not include amounts which may be received for
overage rents, which are based on tenant sales, or other reimbursements
for certain operating costs.
The Rockefeller Center Tower Condominium
On July 17, 1996, in connection with the NBC Sale, NBC purchased 53.75% of
the office condominium units within 30 Rockefeller Plaza, 1250 Avenue of
the Americas and the Studio Building (collectively known as the
"Condominium Buildings"). The Company amended and restated the Declaration
of The Rockefeller Tower Condominium (the "Condominium") to establish the
ownership rights of the office
36
<PAGE> 39
condominium units between NBC and the Company. The purpose of the
Condominium is to operate and maintain the Common Elements, as defined in
the Operation, Maintenance and Reciprocal Easement Agreement ("REA") and
the Unit Owners Agreement ("UOA"). On behalf of the Condominium, the
Company is responsible for determining and collecting all costs pursuant
to the REA and UOA (collectively the "Shared Costs").
For financial reporting purposes, the Company's portion of Shared Costs is
allocated to the respective expense accounts based on the REA and UOA in
the accompanying statements of operations. The following represents the
summary of Shared Costs for the year ended December 31, 1997 and for the
period ending December 31, 1996:
The Rockefeller Center Tower Condominium
Summary of Shared Costs
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Payroll and benefits $ 7,243 $ 4,082
Repairs, maintenance and supplies 5,838 3,100
Utilities 6,519 3,085
Cleaning 4,427 2,657
General and administration 4,980 2,093
Management and accounting fees 1,599 668
------- -------
Shared Costs, as defined $30,606 $15,685
======= =======
Shared Costs, NBC $11,176 $ 5,645
Shared Costs, the Company 19,430 10,040
------- -------
$30,606 $15,685
======= =======
</TABLE>
4. MORTGAGE LOAN AND INTEREST INCOME
The Mortgage Loan, which was issued in the original face amount of $1.3
billion, was made pursuant to a Mortgage Loan Agreement between the
Predecessor and the Previous Owners on September 19, 1985 (as amended, the
"Mortgage Loan Agreement"), and was evidenced by two notes. Following the
Previous Owners' failure to make the interest payment due on May 31, 1995,
the Predecessor drew down the full amount available under the $50 million
of letters of credit which supported, among other things, payment of Base
Interest, as defined, on the Mortgage Loan. Due to the significant
uncertainties caused by the filing of the Chapter 11 Plan and solely for
accounting purposes, this $50 million was applied to reduce the carrying
value of the Mortgage Loan to $1.25 billion. Subsequent to the Previous
Owners' Chapter 11 Plan filing and prior to the execution and delivery of
the Merger Agreement, the Predecessor had based the value assigned to the
Property and hence to the Mortgage Loan on an independent appraisal as of
December 31, 1994, which was supported by a concurring review. The terms
of the Merger Agreement indicated that the market value of the Property
was less than its carrying value. As such, the Predecessor further reduced
the carrying value of the Mortgage Loan by $74 million as of December 31,
1995. The impact of the writedown is included on the Predecessor's
statement of operations as a component of "effects of the execution and
delivery of the Merger Agreement", which reflects the economics of the
transactions contemplated by the Merger Agreement.
37
<PAGE> 40
The Predecessor limited recognition of income on the Mortgage Loan for the
year ended December 31, 1995 and the period from January 1, 1996 through
July 9, 1996 to the cash actually received from the Previous Owners. The
Company continued this income recognition policy of the Predecessor from
the date it received the Mortgage Loan (July 10, 1996) from the
Predecessor to the date it acquired the Property (July 17, 1996) from the
Previous Owners in full satisfaction of the Mortgage Loan.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
In assessing the fair value of financial instruments at December 31, 1997,
the Company has used a variety of methods and assumptions which are based
on estimates of market conditions and risks existing at the time. In cases
where quoted market prices are not available, fair values are based on
estimates using present value and other techniques. Such techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Derived fair value estimates
cannot be substantiated by comparison to independent markets and may not
reflect the values that could be realized in any immediate settlement of
the instrument or otherwise. The aggregate fair value amounts may not
necessarily represent the underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating the fair value disclosures for financial instruments:
Cash and cash equivalents.
The carrying amounts of cash and cash equivalents approximate their fair
value.
Debt
The fair value of the Zero Coupons is estimated using quoted market
prices. The fair value of all other debt instruments is estimated using
discounted cash flow analysis, based on incremental borrowing rates
currently available to the Company for debt with similar terms and
maturity.
As of December 31, 1997 and 1996, the estimated fair value of the Zero
Coupons was approximately $416.2 million and $373 million, respectively,
as compared to their carrying amount of approximately $408.5 million and
$362 millions, respectively. As of December 31, 1997 the carrying values
of all other debt instruments approximated their estimated fair values.
6. DEBT
Convertible Debentures
The Convertible Debentures were issued pursuant to an Indenture, dated as
of September 15, 1985 (as amended, the "Indenture"), between the
Predecessor and Manufacturers Hanover Trust Company (now the United States
Trust Company) as Trustee. The Convertible Debentures were convertible
into shares of Common Stock of the Predecessor on the maturity date,
December 31, 2000. On July 10, 1996, the Indenture was amended to
eliminate this convertible feature. At such time, the Company became the
successor to the Predecessor under the amended Indenture.
Upon maturity, the Convertible Debentures are convertible to
nonconvertible floating rate notes, at the Company's option. After
conversion, the floating rate notes would mature on December 31, 2007 and,
would be prepayable any time at the Company's option, at par. The notes
will bear interest at the three-
38
<PAGE> 41
month London Interbank Offering Rate ("LIBOR") plus 1/4% or such greater
spread (not in excess of 1%) as would, in the opinion of a major
international investment bank selected by the Company, cause such notes to
trade at par.
Interest expense recognized by the Predecessor on the Convertible
Debentures was based on the average yields to the maturity date. The
average yields were computed (using the interest method with semiannual
compounding) by (1) combining the differing coupon rates on the Current
Coupons and (2) amortizing the original issue discount related to the Zero
Coupons. The resulting effective annual interest rates were 9.23% and
10.23% through the Effective Date for the Current Coupons and Zero
Coupons, respectively. Upon consummation of the Merger, the carrying value
of the Zero Coupons was adjusted by the Company to reflect the fair market
value using an imputed interest rate of 12.10%. The face amount of the
Zero Coupons is approximately $586.2 million.
The Current Coupons bore interest from the date of issuance until December
31, 1994 at the rate of 8% per annum, and thereafter at the rate of 13%
per annum payable annually on December 31 of each year. On August 28,
1996, the Current Coupons were redeemed at the principal amount of
$213,170,000 plus accrued interest.
Interest expense recorded by the Company for the Zero Coupons and Current
Coupons was approximately $46.3 million and $19.9 million, respectively,
for the year ended December 31, 1997 and for the period ended December 31,
1996. Interest expense for the Current Coupons was approximately $3.7
million for the period ended December 31, 1996.
GSMC Facility
Pursuant to a Loan Agreement dated December 18, 1994, between the
Predecessor and GSMC (as Agent and as Lender), the Predecessor issued
Floating Rate Notes totaling $150 million. The Predecessor made mandatory
principal payments on the Floating Rate Notes of approximately $33.7
million, which reduced the principal balance to approximately $116.3
million prior to the Effective Date. On July 17, 1996, a total of
approximately $106.3 million of the outstanding principal plus accrued
interest was prepaid by the Company, including a prepayment penalty of
approximately $1.6 million.
Pursuant to the Amended and Restated Loan Agreement (the "GSMC Facility")
dated July 17, 1996, the Company was named as successor in interest to the
Predecessor. The GSMC Facility, among other things, was amended to change
the maturity date of the Floating Rate Notes to December 31, 1996 and
provided for an Additional Advance, as defined, up to a maximum
outstanding balance of $60 million. At the same time, the GSMC Facility
was secured by a guarantee from the Investor Group. As of December 31,
1996, no amounts had been drawn on the Additional Advance and the balance
remained at $10 million. Subsequent amendments to the GSMC Facility
extended the maturity date to May 31, 1997. On May 16, 1997 (the
"Repayment Date"), the remaining $10 million of principal was prepaid,
plus accrued interest of approximately $196,000 and a prepayment penalty
of $150,000. At that time, the GSMC Facility was terminated.
The Floating Rate Notes bore interest based on 90-day LIBOR plus 4% which
were reset two business days prior to each interest payment date. At
December 31, 1996, the interest rate in effect was 9.28%. The weighted
average interest rate from January 1, 1997 through the Repayment Date and
for the period from July 10, 1996 through December 31, 1996 was 9.52% and
9.48%, respectively, for the Company. The weighted average interest rate
for the Predecessor for the period from January 1, 1996 through July 9,
1996 and for the year ended December 31, 1995, was 9.50% and 10.17%,
respectively. Interest was payable quarterly on March 1, June 1, September
1, and December 1 of each year. Interest expense for
39
<PAGE> 42
the Company on the Floating Rate Notes was approximately $357,000 and
$622,000 for the year ended December 31, 1997 and for the period from July
10, 1996 through December 31, 1996, respectively.
The Merger Agreement provided that GSMC would make a line of credit (the
"GSMC Loan") available to the Predecessor during the period between
November 7, 1995 and the earlier of (1) the consummation of the Merger as
contemplated by the Merger Agreement or (2) any termination of the Merger
Agreement. The GSMC Loan accrued interest at the rate of 10% per annum
(compounded quarterly) and was prepayable at any time without penalty. The
Predecessor borrowed a total of approximately $63.7 million under the GSMC
Loan which was repaid, along with accrued interest, on July 17, 1996 by
the Company. Interest expense incurred by the Company prior to the
repayment was approximately $110,000.
14% Debentures
The 14% Debentures were issued pursuant to a Debenture Purchase Agreement
dated as of December 18, 1994 between the Predecessor and Whitehall and
amended effective July 10, 1996 to, among other things, name the Company
as the successor in interest to the Predecessor. The unsecured 14%
Debentures mature on December 31, 2007 and bear interest at a rate of 14%
per annum. On May 16, 1997, the agreement was further amended to change
the semi-annual interest payments from each June 2 and December 2 to each
July 31 and January 31, respectively.
The Company's interest expense for the 14% Debentures includes the
amortization of a premium adjustment to reflect the carrying amount of the
14% Debentures at their estimated fair value as of the Effective Date. The
premium on the 14% Debentures is being amortized on the effective interest
method until maturity. Interest expense, net of premium amortization of
$1.4 million, on the 14% Debentures was approximately $9.2 million for the
year ended December 31, 1997. Interest expense, net of premium
amortization of $641,000, on the 14% Debentures was approximately $4.5
million for the period from July 10, 1996 through December 31, 1996.
The Predecessor's interest expense on the 14% Debentures includes the
straight-line amortization of the original issue discount related to the
Warrants and SARs (see below) through the maturity date, December 31,
2007.
Under the terms of the 14% Debentures, to the extent that Net Cash Flow,
as defined, is insufficient to pay interest on an interest payment date,
the Company will not be obligated to pay interest on the 14% Debentures on
such date and such interest will accrue. If an Event of Default, as
defined, were to occur and be continuing, the 14% Debentures would bear
interest at 18% per annum. Upon the occurrence of an Event of Default, the
holders of the 14% Debentures may declare the unpaid principal thereof and
accrued interest thereon due and payable. The 14% Debentures are
redeemable in whole or in part at any time after December 30, 2000. The
Debenture Purchase Agreement provides for decreasing penalties for early
redemption of the 14% Debentures before December 31, 2003.
In connection with the issuance of the 14% Debentures in December 1994,
the Predecessor issued to Whitehall 4,155,927 Warrants to acquire shares
of newly issued Common Stock of the Predecessor and 5,349,541 Stock
Appreciation Rights ("SARs"), which were exchangeable for 14% Debentures
or, under certain circumstances, for Warrants on a one-for-one basis. The
Predecessor was required to make adjustments to earnings for the
difference between the aggregate principal amount of 14% Debentures
issuable upon exchange of the SARs (SARs liability) and the value at which
the SARs liability was carried. The noncash charge to earnings was
approximately $2.0 million and $10.8 million for the period from January
1, 1996 through July 9, 1996 and for the year ended December 31, 1995,
respectively.
40
<PAGE> 43
In connection with the Merger (see Note 1), all outstanding Warrants and
SARs were contributed by Whitehall through Holdings to the Predecessor at
a value of $4.00 per Warrant and SAR and were then canceled.
NationsBank Credit Facility
The Company entered into a Credit Agreement (the "NationsBank Credit
Agreement") dated as of May 16, 1997, with NationsBank of Texas, N.A.
("NationsBank"), pursuant to which NationsBank agreed to make term loans
(the "NationsBank Loans") to the Company in an aggregate principal amount
of up to $100 million. On May 16, 1997, NationsBank made a term loan to
the Company in the principal amount of $55 million. The Company may elect
interest periods based on one, two, three, or six month LIBOR rates.
Interest accrues at LIBOR plus 1.75% and is payable at the end of each
interest period. As of December 31, 1997, interest was accruing at 7.71%
on the initial $55 million and no other NationsBank Loans had been made.
The maximum amount of NationsBank Loans which may be outstanding at any
time reduces quarterly commencing March 31, 1998 through the May 16, 2000
maturity date. Subject to the satisfaction of certain conditions
precedent, the Company may extend the maturity date of the NationsBank
Loans to December 31, 2000 and such loans will bear interest based on
LIBOR plus 2.125% during such extension period. Interest expense recorded
by the Company was approximately $2.6 million for the year ended December
31, 1997.
The NationsBank Credit Agreement requires, among other covenants: 1)
limitations on indebtedness and hedging obligations, 2) restrictions on
payments of distributions, and 3) required level of minimum and maximum
capital expenditures. The Company was in compliance with all financial
covenants as of December 31, 1997.
In connection with the NationsBank Loans, the Company purchased an
interest rate protection agreement, with a notional amount of $55 million,
from Goldman Sachs Capital Markets L.P., an affiliate of Whitehall,
capping LIBOR at 7.69% during the first two years of the initial term and
at 8.69% thereafter including the extension period. The cost of purchasing
this agreement of $230,000 has been capitalized as part of deferred costs
on the accompanying 1997 balance sheet.
As a condition to making the NationsBank Loan, the holder of the 14%
Debentures and the Company executed an Intercreditor and Subordination
Agreement pursuant to which the holder of the 14% Debentures agreed (i) to
subordinate payment on the 14% Debentures to the NationsBank Loans, (ii)
that in certain circumstances interest would accrue but not be paid on the
14% Debentures, and (iii) that NationsBank may take certain actions on
behalf of the holder of the 14% Debentures upon the occurrence of certain
bankruptcy related events in respect of the Company.
In addition, certain members of the Investor Group and/or certain of their
affiliates entered into a Limited Recourse Agreement dated as of May 16,
1997, in favor of NationsBank.
On January 16, 1998, the Company entered into a second NationsBank Loan in
the principal amount of $20 million bringing the aggregate loans due to
NationsBank to $75 million.
Interest Rate Swap Agreements
In connection with its short-term floating rate debt, the Predecessor
entered into interest rate swap agreements with financial institutions
that were intended to fix a portion of the Predecessor's interest rate
risk on floating rate debt. The Predecessor paid a fixed rate of interest
semi-annually and received a variable rate of interest semi-annually based
on 180-day LIBOR. The Predecessor had three contracts
41
<PAGE> 44
with an aggregate notional amount of $105 million and expiration dates
during 1998. The amount to be paid or received from interest rate swap
agreements is accrued as floating interest rates are reset semi-annually.
On the Effective Date, the Company assumed three interest rate swap
agreements and adjusted the carrying value of the swap liabilities to
reflect their estimated fair value of approximately $5.3 million. For each
swap, the Company and the Predecessor paid a weighted average fixed rate
of interest semi-annually at 9.64% for the years ended December 31, 1997,
1996 and 1995. The Company received a weighted average variable rate as of
December 31, 1997 and 1996 of 5.87% and 5.71%, respectively. The
Predecessor received a weighted average variable rate as of December 31,
1995 of 5.89%. As of December 31, 1997 and 1996, the weighted average
interest rates of swaps outstanding for the Company were 3.77% and 3.93%,
respectively, and the aggregate net interest expense relating to the swaps
agreements was approximately $4 million and $1.9 million, respectively.
The interest rate swaps were used by the Predecessor for hedging purposes;
therefore only the incremental revenue or expense is recognized in the
Predecessor's statements of operations.
The interest rate swaps are reported in the Company's financial statements
on a mark to market basis. As of December 31, 1997 and 1996, the carrying
amount of all interest rate swap agreements was reported as a liability by
the Company of approximately $1.3 million and $5.2 million, respectively,
based on information supplied by the swap counter parties to the swap
contracts. The Company recorded adjustments of approximately $3.8 million
and $142,000 as a reduction to interest expense in the accompanying
statements of operations for the year ended December 31, 1997 and for the
period ended December 31, 1996, respectively.
7. CONTRIBUTIONS, DISTRIBUTION AND NET LOSS PER SHARE
Pursuant to the Stock Subscription and Stockholders Agreement dated July
9, 1996 that organized Holdings and the Limited Liability Company
Agreement dated July 9, 1996 that organized LLC (hereinafter, Holdings and
LLC will be collectively referred to as the "Owners"), and the Amendment
Agreement dated May 1, 1997 among the Owners, the Owners are required to
provide additional contributions up to the Maximum Additional Mandatory
Contribution, as defined, totaling $82.5 million. The Maximum Additional
Mandatory Contribution shall be used to fund unforeseen capital
expenditures and similar contingencies reasonably necessary to protect and
maintain the value of the Property. During the year ended December 31,
1997, the Company made cash distributions to each of its Owners in an
aggregate amount of $44,127,504. RCPI and LLC have each received 50%.
During the year ended December 31, 1997, LLC contributed an additional
$10,000 to the Company, and LLC receives an 8% cumulative preferred return
on the $10,000 contribution.
The Indenture governing the Convertible Debentures limits cash
distributions to the Owners to the amount of cumulative Distributable
Cash, as defined. The Indenture defines Distributable Cash as cash
receipts from operations less operating expenses and interest.
42
<PAGE> 45
The amount of Distributable Cash, net of dividends paid, at December 31,
1997 and 1996 was computed as follows ($ in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flow provided by (used in) operations(i) $ 43,912 $ (6,997)
Distributions (44,128) --
-------- --------
Decrease in cumulative Distributable Cash (216) (6,997)
Balance, beginning of period 62,790 69,787(ii)
-------- --------
Balance, end of period $ 62,574 $ 62,790
======== ========
</TABLE>
(i) See statements of cash flows.
(ii) This amount includes cash flows from operating activities and
certain investing activities, net of dividends paid, from the
Predecessor's inception through July 9, 1996 of approximately $70
million. As interest income was not received by the Predecessor
during the period when the Borrower was under Chapter 11 protection,
net cash flows from operations of the Property, which accrued to the
benefit of the Company during this period, are also included.
Net loss per share for the Predecessor is based upon 38,260,704 average
shares of Common Stock outstanding during the period from January 1, 1996
through July 9, 1996, and for the year ended December 31, 1995. For each
of these periods, fully diluted net loss per share is not presented since
the effect of the assumed conversion of the Convertible Debentures,
Warrants and SARs would be anti-dilutive.
8. INCOME TAXES
The Company, formed as a Delaware business trust, is taxed as a
partnership for federal, state and local income tax reporting purposes. No
provision for income taxes is made in the accompanying financial
statements for the Company since such taxes are liabilities of the Owners
and depend on their respective tax positions. Further, the Owners' equity
accounts reflected in the Company's accompanying financial statements
differ from the amounts reported on the Company's federal income tax
return due to differences in accounting policies adopted for financial and
tax reporting purposes.
No provisions for current or deferred income taxes have been made by the
Predecessor on the basis that it has qualified under the Code as a REIT
and has distributed at least 95% of its annual net income as computed for
tax purposes to stockholders. To the extent that such distributions exceed
such income, the excess was treated as a return of capital. Net capital
gains generated by the Predecessor are proportionately distributed to the
stockholders as net capital gains dividends. During the period January 1,
1996 through July 9, 1996, the Predecessor had no taxable income and did
not make any distributions to stockholders. During the year ended December
31, 1995, the Predecessor made per share distributions to stockholders of
$0.15 which represented a return of capital. Through December 31, 1995,
the cumulative return of capital paid was $5.25 per share. During 1995,
due to the uncertainties created by the Previous Owners' Chapter 11 Plan,
the Predecessor paid only one dividend in April. Under the terms of the
Merger Agreement, the Predecessor was prohibited from paying additional
dividends unless required to do so to maintain REIT status.
43
<PAGE> 46
9. GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES
General and administrative expenses includes compensation and benefits for
the Predecessor's employees, rent and related facility costs, directors'
and officers' liability insurance premiums, registrar and transfer agent
fees, debenture trustee fees, legal, audit and financial advisory fees and
stockholder reporting costs.
During the year ended December 31, 1995, the Predecessor incurred
approximately $99.2 million of expenses related to the effects of the
execution and delivery of the Merger Agreement including the writedown of
the Mortgage Loan (as discussed in Note 4) and certain transaction costs
and expenses aggregating approximately $25.2 million. These transaction
costs and expenses included the accrual for the break up fee related to
the termination of the Combination Agreement entered into by the
Predecessor, EOH and ZML (see Note 11).
For the period from January 1, 1996 through July 9, 1996, these costs were
adjusted by the Predecessor by $8.2 million to more accurately reflect the
amounts actually paid upon consummation of the Merger and amounts
remaining unpaid. As a result, a credit of $8.2 million is reflected on
the accompanying statement of operations of the Predecessor for the period
from January 1, 1996 through July 9, 1996.
10. RELATED PARTY TRANSACTIONS
On July 10, 1996, the Company entered into a management agreement (the
"Management Agreement") with an affiliate of Rockprop, L.L.C. (the
"Agent"), which expires on July 17, 1999. The Management Agreement will
automatically renew for additional one year terms unless either party
gives notice of election not to renew. The Agent earns a management fee
based on 1.5% of Gross Revenues, as defined. For the year ended December
31, 1997 and the period ended December 31, 1996, the Agent earned
approximately $3.2 million and $1.3 million, respectively. Of total
management fees earned by the Agent, the Company and NBC incurred
approximately $2.3 million and $922,000 for the year ended December 31,
1997, respectively, and $929,000 and $432,000, for the period ended
December 31, 1996, respectively.
In addition, the Company pays the Agent an accounting fee pursuant to the
Management Agreement. The payment is equal to $1,134,000 for the first
year to be increased each year by 4% of the sum of $254,000 plus the
aggregate amount of the prior year increases. For the year ended December
31, 1997 and the period ended December 31, 1996, the total accounting fee
was approximately $1.2 million and $515,000, respectively.
The Agent also earns commissions for leasing services provided to the
Company. For the year ended December 31, 1997 and the period ended
December 31, 1996, total leasing commissions paid to the Agent were
approximately $3.8 million and $85,000, respectively. As of December 31,
1997 and 1996, the Company owes approximately $1.3 million and $443,000,
respectively, to the Agent for leasing commissions.
The Agent also earns fees for cleaning and development services. For the
year ended December 31, 1997 and the period ended December 31, 1996, the
Agent earned approximately $397,000 and $291,000, respectively, in
cleaning fees. For the year ended December 31, 1997 and the period ended
December 31, 1996, the Company incurred development fees of approximately
$783,000 and $36,000, respectively.
An affiliate of the Company provides cleaning services for which the
Company incurred expenses of approximately $1.4 million and $135,000
during 1997 and 1996, respectively.
44
<PAGE> 47
Prior to the commencement of the Management Agreement, the Agent provided
consulting and other services related to the transaction in the amount of
approximately $2.4 million. GSMC also provided consulting and other
services related to the transaction in the amount of approximately
$574,000. These costs were capitalized to the Property as transaction
costs in 1996.
The Company paid a $1 million investment banking fee to Goldman, Sachs &
Co., an affiliate of Whitehall, related to the closing of the NationsBank
Loans (see Note 6). This fee was capitalized as a component of deferred
costs in the accompanying 1997 balance sheet.
11. COMMITMENTS AND CONTINGENCIES
Legal Matters
On January 23, 1995, Bear, Stearns & Co., Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation commenced an action against the
Predecessor in the Supreme Court of the State of New York, County of New
York. The plaintiffs alleged that the Predecessor breached a contract
relating to the plaintiffs' provision of investment banking services to
the Predecessor in connection with a proposed 1994 transaction. The
plaintiffs sought $5.1 million, plus costs, attorneys' fees and interest.
On October 10, 1995, the Predecessor filed an answer to the complaint
which denied the plaintiffs' allegations and asserted numerous affirmative
defenses. On June 11, 1996, the plaintiffs moved for partial summary
judgment on their claim for $950,000 in advisory fees and reimbursement of
expenses incurred in connection with the underlying proposed transaction.
On December 10, 1996, the court granted plaintiffs' motion, and on
February 5, 1997, the court entered judgment on that claim in the total
amount, including pre-judgment interest, of approximately $1.1 million.
The Company satisfied that judgment prior to trial. The trial regarding
the plaintiffs' claims for its "success fees" and indemnification of legal
fees and expenses commenced on February 24, 1997. On March 3, 1997, during
the course of the trial, the parties agreed to a settlement. Pursuant to
the settlement agreement, the Company paid plaintiffs $2 million which is
included in litigation settlement in the accompanying 1997 statement of
operations. The plaintiffs dismissed the lawsuit with prejudice and the
parties executed mutual releases of all claims arising out of the
engagement of plaintiffs in connection with the proposed 1994 transaction.
On July 31, 1995, L.L. Capital Partners, L.P. commenced an action against
the Predecessor in which they alleged that the prospectus for the
Predecessor failed to disclose its purported belief that the Rockefeller
family interests and Mitsubishi Estate Company, Ltd. would cease to fund
the Previous Owners' cash flow shortfalls. On January 3, 1997, the parties
entered into a settlement agreement and executed and filed stipulations of
dismissal and releases dismissing all claims, counterclaims and third
party claims with prejudice. In connection with the dismissal, the Company
paid L.L. Capital Partners, L.P. the sum of $50,000.
On November 6, 1996, the parties filed stipulations of dismissal with
prejudice in Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership III ("ZML") v. Rockefeller Center Properties, Inc., 96 Civ.
1445, in the United States District Court for the Southern District of New
York, and Rockefeller Center Properties, Inc. v. Zell/Merrill Lynch Real
Estate Opportunity Partners Limited Partnership III and Equity Office
Holdings, L.L.C. ("EOH"), in the Supreme Court of the State of New York,
New York County, dismissing all claims, counterclaims and third-party
claims with prejudice. In connection with the dismissal of the two
actions, the Company paid in the aggregate $10.3 million to EOH and ZML,
which has been reflected in the purchase price of the Property.
During 1997, the Company resolved certain legal claims with no material
adverse impact on the 1997 results of operations. The Company is also a
defendant in other litigation and in some instances the
45
<PAGE> 48
amounts sought include substantial claims. Although the outcome of claims,
litigation and disputes cannot be predicted with certainty, in the opinion
of management based on facts known at this time, the resolution of such
matters are not anticipated to have a material adverse effect on the
financial position or results of operations of the Company. As these
matters continue to proceed through the process to ultimate resolution, it
is reasonably possible that the Company's estimation of the effect of such
matters could change within the next year.
Other
The Company has the right to develop additional floor area in excess of
the floor area presently constructed at the Property. These excess
development air rights may be transferred to other properties or, with the
approval of the New York City Landmarks Preservation Commission, used to
construct additional floor area over certain buildings at the Property.
12. INTERIM FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------
RCPI Trust
1997 1Q 2Q 3Q 4Q
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 47,650 $ 44,405 $ 46,181 $ 50,946
Net income (loss) $ 2,666 ($ 953) ($ 1,475) ($ 1,458)
Net loss per share N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
1996 1Q 2Q 3Q 4Q
- ---------------------------------------------------------------------------------------------------------------
Total revenues N/A N/A $ 38,490 $ 49,998
Net loss N/A N/A ($ 11,446) ($ 196)
Net loss per share N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Rockefeller Center Properties, Inc.
1996 1Q 2Q 3Q 4Q
- ---------------------------------------------------------------------------------------------------------------
Revenues $ 14 $ 22 $ 2 N/A
Net loss ($ 28,588) ($ 18,000) ($ 11,784) N/A
Net loss per share ($ 0.75) ($ 0.47) ($ 0.31) N/A
- ---------------------------------------------------------------------------------------------------------------
1995 1Q 2Q 3Q 4Q
- ---------------------------------------------------------------------------------------------------------------
Revenues $ 20,446 $ 339 $ 556 $ 129
Net loss ($ 7,478) ($ 17,818) ($141,078) ($ 28,755)
Net loss per share ($ 0.20) ($ 0.46) ($ 3.69) ($ 0.75)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 49
13. PRO FORMA FINANCIAL INFORMATION (Unaudited)
To provide a more meaningful comparison of results of operations, pro
forma statements of operations have been presented for the years ended
December 31, 1996 and 1995 as if the acquisition of the Property by the
Company had occurred on January 1, 1995. The pro forma statements of
operations are based upon the Company's statement of operations for the
period from July 17, 1996 through December 31, 1996 and the Previous
Owners' statements of operations for the period from January 1, 1996
through July 16, 1996 and for the year ended December 31, 1995. The
results of operations for the year ended December 31, 1997 are actual.
The pro forma statements of operations for the years ended December 31,
1996 and 1995 have been adjusted to show the effect of (i) gross revenues
and operating expenses had the NBC Sale occurred on January 1, 1995; (ii)
interest expense had the GSMC Loan and Current Coupons been repaid in
full, and $106.3 million of principal on the Floating Rate Notes been paid
on January 1, 1995; (iii) depreciation and amortization expense had the
Property been purchased and the NBC Sale had occurred on January 1, 1995;
and (iv) general and administrative expenses had certain bankruptcy
related costs not been incurred by the Previous Owners and costs related
to the NBC Sale had been incurred during 1995.
The pro forma results are for illustrative purposes only, and do not
purport to be indicative of the actual results which would have occurred,
nor are they indicative of future results of operations.
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
Actual Proforma Proforma
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Total Revenues $ 189,182 $ 179,136 $ 175,495
Less:
Operating expenses (131,570) (131,803) (124,451)
Interest expense (58,832) (55,606) (51,166)
--------- --------- ---------
Net Loss ($ 1,220) ($ 8,273) ($ 122)
========= ========= =========
</TABLE>
47
<PAGE> 50
RCPI TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Cost Capitalization Gross Amount at Which
Initial Cost Subsequent to Capitalization Carried at Close of Period
---------------------------- ---------------------------- ----------------------------
Buildings and Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements Land Improvements
----------- ------------ ---- ------------- ---- ------------- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
GE Building $ 46,715 $165,626 $ -- $ 6,358 $ 46,715 $171,984
International Building 29,984 106,308 -- 13,986 29,984 120,294
One Rockefeller Plaza 12,890 45,701 -- 9,158 12,890 54,859
600 Fifth Avenue -- 33,442 -- 79 -- 33,521
Ten Rockefeller Plaza 14,835 52,598 -- 7,202 14,835 59,800
Simon & Schuster 10,535 37,351 -- 2,286 10,535 39,637
Associated Press 10,625 37,669 -- 9,548 10,625 47,217
1270 Ave. of the Americas/
Radio City Music Hall 16,636 58,981 -- 3,714 16,636 62,695
La Maison Francaise 6,449 22,864 -- 925 6,449 23,789
British Empire Building 6,909 24,496 -- 441 6,909 24,937
Additional Property 2,571 9,116 32 2,571 9,148
-------- -------- -------- -------- -------- --------
$158,149 $594,152 $ -- $ 53,729 $158,149 $647,881
======== ======== ======== ======== ======== ========
<CAPTION>
Column A Column F Column G Column H Column I
-------- -------- -------- -------- --------
Life on which
Accumulated Date of Date Depreciation
Description Total Depreciation Construction Acquired is Calculated
----------- ----- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
GE Building $218,699 $ 5,908 1933 1996 40 years
International Building 150,278 4,377 1935 1996 40 years
One Rockefeller Plaza 67,749 1,957 1937 1996 40 years
600 Fifth Avenue 33,521 1,185 1952 1996 40 years
Ten Rockefeller Plaza 74,635 1,892 1939 1996 40 years
Simon & Schuster 50,172 1,502 1940 1996 40 years
Associated Press 57,842 2,216 1938 1996 40 years
1270 Ave. of the Americas/
Radio City Music Hall 79,331 2,326 1932 1996 40 years
La Maison Francaise 30,238 857 1933 1996 40 years
British Empire Building 31,846 885 1933 1996 40 years
Additional Property 11,719 325 1996 40 years
-------- --------
$806,030 $ 23,430
======== ========
</TABLE>
48
<PAGE> 51
RCPI TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 1997 AND 1996
($ in thousands)
The changes in real estate for the periods ended December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
Period from
July 17, 1996
Year Ended through
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Real estate balance at beginning
of period $611,285 $594,152
Improvements 36,596 17,133
-------- --------
Balance at close of period $647,881 $611,285
======== ========
</TABLE>
The changes in accumulated depreciation, exclusive of amounts relating to
furniture, fixtures and equipment for the periods ended December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
Period from
July 17, 1996
Year Ended through
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Balance at beginning of period $ 6,439 $ --
Depreciation for period 16,991 6,439
------- -------
Balance at end of period $23,430 $ 6,439
======= =======
</TABLE>
49
<PAGE> 52
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
50
<PAGE> 53
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following information is furnished with respect to the trustees and
executive officers of the Company.(1)
<TABLE>
<CAPTION>
Company Position
Occupation and Business Experience Held Continuously Term
Name Age During the Last Five Years(2) Since Expires(3)
- ---- --- ----------------------------------- ----------------- ----------
<S> <C> <C> <C> <C>
David Rockefeller 82 Chairman of the Board of Trustees; July, 1996 Indefinite
Chairman of the Board of Rockefeller
Group, Inc. since prior to 1992; retired
since October, 1995.
Henry M. Paulson 52 Vice Chairman of the Board of Trustees; July, 1996 Indefinite
Partner of Goldman, Sachs & Co. since
prior to 1992; Participating Managing
Director of Goldman, Sachs & Co. since
November, 1996.
Ralph F. Rosenberg 33 Trustee, Vice President, Treasurer and July, 1996 Indefinite
Assistant Secretary; Vice President of
Goldman, Sachs & Co. since 1994 and
an associate of Goldman, Sachs & Co.
since 1990. Also a director of Metropolis
Realty Trust, Inc.
Mark Tercek 41 Trustee; Vice President of Goldman, Sachs July, 1996 Indefinite
& Co. since prior to 1992; Managing
Director of Goldman, Sachs & Co.
since November, 1996.
Daniel M. Neidich 48 Trustee; Partner of Goldman, Sachs & Co. July, 1996 Indefinite
since prior to 1992; Managing Director of
Goldman, Sachs & Co. since November, 1996.
Barry S. Volpert 38 Trustee; Vice President of Goldman, Sachs July, 1996 Indefinite
& Co. since prior to 1992; Partner of Goldman,
Sachs & Co. since November, 1994; Managing
Director of Goldman, Sachs & Co. since
November, 1996. Also a director of Insilco
Corporation.
G. Andrea Botta 44 Trustee; President from 1993 to present and July, 1996 Indefinite
Vice President from 1981-1993 of
EXOR America Inc. Also a director of
Lear Corporation, Constitution
Reinsurance Corporation and
Riverwood International Corporation.
Andreas C. Dracopoulos 34 Trustee; financial consultant to Transoceanic July, 1996 Indefinite
Marine, Inc. since prior to 1992.
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
Company Position
Occupation and Business Experience Held Continuously Term
Name Age During the Last Five Years(2) Since Expires(3)
- ---- --- ----------------------------------- ----------------- ----------
<S> <C> <C> <C> <C>
Richard E. Salomon 55 Trustee; President and Managing Directod July, 1996 Indefinite
of Spears, Benzak, Salomon & Farrell (an
investment advisor). Also a director of
Cousins Properties, Inc.
Jerry I. Speyer 57 President and Chief Executive July, 1996 Indefinite
Officer; President and Chief Executive
Officer of Tishman Speyer Properties,
L.P. since prior to 1992.
David Augarten 42 Vice President, Treasurer and Assistant July, 1996 Indefinite
Secretary; Chief Financial Officer of
Tishman Speyer Properties, L.P.
since prior to 1992.
Geoffrey P. Wharton 55 Vice President, Assistant Treasurer and July, 1996 Indefinite
Assistant Secretary; Managing Director of
Tishman Speyer Properties, L.P. since prior
to 1992.
</TABLE>
- ----------
(1) Wilmington Trust Company also serves as a trustee of the Company pursuant
to the requirement of Title 12, Section 3807 of the Delaware Code but has
no vote and does not have any management responsibilities with respect to
the Company.
(2) The names of companies subject to the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended, on which any of the
trustees serves as a director are also listed.
(3) The Company's existence will terminate, if not earlier terminated, in
2046.
Item 11. Executive Compensation.
None. (1)
The Predecessor's Proxy Statement for its 1996 Special Meeting of
Stockholders, dated February 14, 1996, is incorporated by reference as a
supplemental response to the information required by this item.
- ----------
(1) Wilmington Trust Company receives an annual administration fee of $2,500
and certain other immaterial transaction based fees.
52
<PAGE> 55
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as of March 31, 1998
concerning the beneficial ownership of the outstanding Trust Ownership
Interests by each person known by the Company to own more than 5% of the
outstanding Trust Ownership Interests on March 31, 1998.
<TABLE>
<CAPTION>
Percent of Trust
Name and Address Amount and Nature of Ownership Interest
of Beneficial Owner Beneficial Ownership(1) Outstanding
- ------------------- ----------------------- ------------------
<S> <C> <C>
Rockefeller Center Properties, Inc. 1(2) 50%
c/o Tishman Speyer Properties, L.P.
45 Rockefeller Plaza
New York, NY 10111
RCPI Investors L.L.C. 1(2) 50%
c/o Tishman Speyer Properties, L.P.
45 Rockefeller Plaza
New York, NY 10111
</TABLE>
- ----------
(1) This table lists beneficial ownership in accordance with the definitions
contained in Rule 13d-3 adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended. All shares and
other equity interests listed are subject to the sole investment and
voting power of the named beneficial owner.
(2) Each of Rockefeller Center Properties, Inc. and RCPI Investors L.L.C. has
sole investment and voting power with respect to its interest in the
Company.
Security Ownership of Management
Except as disclosed in the Predecessor's Proxy Statement for its 1996
Special Meeting of Stockholders, dated February 14, 1996 which is
incorporated by reference as a supplemental response to the information
required by this item as of March 31, 1998, no person who since July 10,
1996 served as a trustee or executive officer of RCPI Trust has beneficial
ownership of any equity interest in the Company, the Predecessor, RCPI
Investors L.L.C. or other affiliates of the Company.
Item 13. Certain Relationships and Related Transactions.
On July 10, 1996, the Company entered into a management agreement (the
"Management Agreement"), with an affiliate of (the "Agent") Rockprop,
L.L.C., which expires on July 17, 1999. The Management Agreement will
automatically renew for additional one year terms unless either party
gives notice of election not to renew. The Agent earns a management fee
based on 1.5% of Gross Revenues, as defined. For the year ended December
31, 1997 and the period ended December 31, 1996, the Agent earned
approximately $3.2 million and $1.3 million, respectively. Of total
management fees earned by the Agent, the Company and NBC incurred
approximately $2.3 million and $922,000 for the year ended December 31,
1997, respectively, and $929,000 and $432,000, for the period ended
December 31, 1996, respectively.
53
<PAGE> 56
In addition, the Company pays the Agent an accounting fee pursuant to the
Management Agreement. The payment is equal to $1,134,000 for the first
year to be increased each year by 4% of the sum of $254,000 plus the
aggregate amount of the prior year increases. For the year ended December
31, 1997 and the period ended December 31, 1996, the total accounting fee
was approximately $1.2 million and $515,000, respectively.
The Agent also is entitled to reimbursement for the following reasonable
out-of-pocket expenses incurred by the Agent in connection with its
performance of its responsibilities under the Management Agreement,
including: (i) travel and entertainment expenses (including meals and
lodging), (ii) costs of advertising and engaging in promotional activities
(including the preparation of brochures and other marketing materials) and
(iii) costs of insurance required to be maintained by the Agent pursuant
to the Management Agreement. The Company also reimburses the Agent for
compensation paid to employees of the Agent which are listed in the
Operating Budget (as defined) as payable by the Company and placement fees
and other out-of-pocket expenses incurred in connection with the hiring of
employees whose compensation is payable by the Company pursuant to the
Operating Budget. If with the Company's consent or at the Company's
direction, the Agent hires any attorneys to negotiate and prepare leases
of space at the Property or to perform other work in respect of the
Property, the compensation of such attorneys will be paid or reimbursed by
the Company.
The Agent also earns commissions for leasing services provided to the
Company. The Agent earns for each lease the sum of the following, as
appropriate: 5% of the Fixed Rent (as defined) for the 1st year of any
lease term, 4% for the 2nd year, 3 1/2% for the 3rd through 5th years, 2
1/2% for the 6th through 10th year, 2% for the 11th through 20th year, and
1% for the 21st year and each succeeding year thereafter. This fee is
reduced by 50% for renewals. In addition, if the lease is secured by an
outside broker, the Agent receives 50% of such broker's commission in lieu
of the fee structure set forth above. For the year ended December 31, 1997
and for the period ending December 31, 1996, total leasing commissions
paid to the Agent were approximately $3.8 million and $85,000,
respectively. As of December 31, 1997 and 1996, the Company owes
approximately $1.3 million and $443,000, respectively to the Agent for
leasing commissions.
The Agent also earns fees for cleaning and development fees. The Agent
earns 5% of the amount of any wages and other compensation (including
benefit obligations but excluding severance obligations) payable any year
to employees to furnish cleaning services to the Property, and 4% of the
Hard Construction Costs (as defined) of capital improvements (excluding
tenant improvements) for the Agent's supervisory and coordinating
services. For the year ended December 31, 1997 and for the period ended
December 31, 1996, the Agent earned approximately $397,000 and $291,000 in
cleaning fees, respectively. For the year ended December 31, 1997 and for
the period ended December 31, 1996, the Company incurred development fees
of approximately $783,000 and $36,000, respectively.
The Agent will also earn an incentive fee under certain circumstances. If
the Company disposes of its interest in all of the Property, the Company
and the Agent will calculate (as provided in the Management Agreement) the
internal rate of return received by Rockefeller Center Properties, Inc.
and the LLC from the date the Company first acquired its interest in the
Property to the date of such disposition. If such internal rate of return
exceeds fifteen percent then the Company will pay to the Agent an amount
equal to ten percent, of all amounts received by RCPI and the LLC which
result in the internal rate of return exceeding fifteen percent (the
"Incentive Fee") unless the Management Agreement is terminated by the
Company due to certain defaults by the Agent.
54
<PAGE> 57
The Agent is also indemnified by the Company for certain claims arising
under the Management Agreement and the Agent's activities pursuant
thereto.
Prior to the commencement of the Management Agreement, the Agent provided
consulting and other services related to the Merger in the amount of
approximately $2.4 million. GSMC also provided consulting and other
services related to the Merger in the amount of approximately $574,000.
These costs were capitalized to the Property as transaction costs.
GSMC was paid $4.4 million by the Company in connection with securing the
proceeds of the NBC Sale as a partial repayment of the Mortgage Loan.
The Company paid a $1 million investment banking fee to Goldman, Sachs &
Co., an affiliate of Whitehall, related to the closing of the NationsBank
Loans. This fee was capitalized as a component of deferred costs in the
Company's accompanying 1997 balance sheet.
As of December 31, 1997, an aggregate of $99.7 million in principal and
premium of the Company's 14% Debentures is held by Whitehall. Certain
directors and executive officers of the Company are also directors or
executive officers of Goldman, Sachs & Co., an affiliate of Whitehall. See
Item 10 - "Directors and Executive Officers" of the Registrant. The
Predecessor's Proxy Statement for its 1996 Special Meeting of
Stockholders, dated February 14, 1996 is incorporated by reference as a
supplemental response to the information required by this item.
55
<PAGE> 58
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports on Form 8-K
(a) Documents filed as part of the report
1. Financial Statements and Reports of Independent Public
Accountants Page No.
--------
RCPI Trust (the "Company") and Rockefeller Center
Properties, Inc. (the "Predecessor")
(1) Reports of Independent Public Accountants
a. Arthur Andersen LLP ........................................ 23
b. Ernst & Young LLP .......................................... 24
(2) RCPI Trust
a. Balance Sheets as of December 31, 1997 and 1996 ............ 25
b. Statements of Operations for the year ended December 31,
1997 and for the period from July 10, 1996 through
December 31, 1996 .......................................... 26
c. Statements of Changes in Owners' Equity for the year ended
December 31, 1997 and for the period from July 10, 1996
through December 31, 1996 .................................. 27
d. Statements of Cash Flows for the year ended December 31,
1997 and for the period from July 10, 1996 through
December 31, 1996 .......................................... 28
(3) Rockefeller Center Properties, Inc. (Predecessor)
a. Statements of Operations for the period from January 1,
1996 through July 9, 1996 and for the year ended December
31, 1995 ................................................... 29
b. Statements of Changes in Stockholders' Equity for the
period from January 1, 1996 through July 9, 1996 and for
the year ended December 31, 1995 ........................... 30
c. Statements of Cash Flows for the period from January 1,
1996 through July 9, 1996 and for the year ended
December 31, 1995 .......................................... 31
(4) Notes to Financial Statements .................................. 32
56
<PAGE> 59
PART IV (Cont'd)
Page No.
--------
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1997 ........................................... 48
All other schedules are not required under the applicable
accounting regulation of the Securities and Exchange Commission
or under the related instructions and therefore have been
omitted.
3. Exhibits
(3.1) Certificate of Trust of RCPI Trust, dated March 22, 1996 is
incorporated by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1996.
(4.1) Amended and Restated Debenture Purchase Agreement dated as of July 17,
1996 between the Company and WHRC Real Estate Limited Partnership is
incorporated by reference to exhibit 4.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 (the "1996 10-K").
(4.2) Indenture dated as of September 15, 1985 between the Predecessor and
Manufacturers Hanover Trust Company, as Trustee, including the forms of
Current Coupon Convertible Debenture, Zero Coupon Convertible Debenture
and Floating Rate Note, is incorporated by reference to Exhibit 4 to
the Predecessor's Quarterly Report on Form 10-Q for the period ended
September 30, 1985.
(4.3) First Supplemental Indenture dated as of December 15, 1985 between the
Predecessor and the Trustee, is incorporated by reference to the
Predecessor's Annual Report on Form 10-K for the year ended December
31, 1985.
(4.4) Second Supplemental Indenture dated as of July 10, 1996 between the
Company and the United States Trust Company of New York, as Trustee is
incorporated by reference to exhibit 4.4 to the 1996 10-K.
(4.5) Instrument of Resignation, Appointment and Acceptance dated as of
December 1, 1993 among the Predecessor, Chemical Bank, successor by
merger to Manufacturers Hanover Trust Company, and United States Trust
Company of New York is incorporated by reference to Exhibit 4.21 to the
Predecessor's Annual Report on Form 10-K for the year ended December
31, 1993.
(10.1) Amended and Restated Loan Agreement dated as of July 17, 1996 among the
Company, the lenders parties thereto and GSMC, as agent, is
incorporated by reference to Exhibit 10.1 to the 1996 10-K.
(10.2) Guarantee dated July 17, 1996 by Whitehall Street Real Estate Limited
Partnership V, Exor Group S.A., Tishman Speyer Crown Equities, David
Rockefeller, Troutlet Investments Corporation, Gribble Investments
(Tortola) BVI, Inc. and Weevil Investments (Tortola) BVI, Inc., as
guarantors in favor of GSMC, as agent and lender, is incorporated by
reference to Exhibit 10.2 to the 1996 10-K.
57
<PAGE> 60
PART IV (Cont'd)
Exhibits: (Cont'd)
(10.3) Agreement and Plan of Merger dated as of November 7, 1995 among the
Predecessor, RCPI Holdings Inc., RCPI Merger Inc., Whitehall Street
Real Estate Limited Partnership V, Rockprop, L.L.C., David Rockefeller,
Exor Group S.A. and Troutlet Investments Corporation is incorporated by
reference to Exhibit 10.28 to the Predecessor's Current Report on Form
8-K dated November 13, 1995.
(10.4) Amendment No. 1 dated as of February 12, 1996 to the Agreement and Plan
of Merger dated as of November 7, 1995 among the Predecessor, RCPI
Holdings Inc., RCPI Merger Inc., Whitehall Street Real Estate Limited
Partnership V, Rockprop, L.L.C., David Rockefeller, Exor Group S.A. and
Troutlet Investments Corporation is incorporated by reference to
Exhibit 10.31 to the Predecessor's Current Report on Form 8-K dated
February 22, 1996.
(10.5) Amendment No. 2 to the Agreement and Plan of Merger, dated as of April
25, 1996 is incorporated herein by reference to the Predecessor's
Current Report on Form 8-K, filed on April 25, 1996.
(10.6) Amendment No. 3 to the Agreement and Plan of Merger, dated as of May
29, 1996 is incorporated herein by reference to the Predecessor's
Current Report on Form 8-K, filed on May 29, 1996.
(10.7) Amendment No. 4 to the Agreement and Plan of Merger, dated as of June
30, 1996 is incorporated herein by reference to the Predecessor's
Current Report on Form 8-K, filed on July 1, 1996.
(10.8) Credit Agreement, dated as of May 16, 1997, between the Company and
NationsBank of Texas, N.A. is incorporated by reference to Exhibit 4.6
to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1997.
(10.9 ) Intercreditor and Subordination Agreement, dated as of May 16, 1997,
between the Company and Whitehall is incorporated by reference to
Exhibit 4.7 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1997.
(10.10) Limited Resource Agreement, dated as of May 16, 1997 is incorporated
by reference to Exhibit 4.8 to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1997.
(25) Statement of Eligibility of the Trustee.
(27.1) Company's Financial Data Schedule.
(b) Reports on Form 8-K.
No Current Reports on Form 8-K have been filed during the last fiscal
quarter.
58
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RCPI TRUST
By: /s/JERRY I. SPEYER
------------------------------------
JERRY I. SPEYER
President
Date: March 31, 1998
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.
By: /s/DAVID ROCKEFELLER
-------------------------------------
DAVID ROCKEFELLER
Chairman of the Board of Trustees
Date: March 31, 1998
By: /s/HENRY M. PAULSON
-------------------------------------
HENRY M. PAULSON
Vice Chairman of the Board of Trustees
Date: March 31, 1998
By: /s/RALPH F. ROSENBERG
-------------------------------------
RALPH F. ROSENBERG
Trustee and Vice President
Date: March 31, 1998
59
<PAGE> 62
SIGNATURES (Cont'd)
By: /s/MARK TERCEK
-------------------------------------
MARK TERCEK
Trustee
Date: March 31, 1998
By: /s/DANIEL M. NEIDICH
-------------------------------------
DANIEL M. NEIDICH
Trustee
Date: March 31, 1998
By: /s/BARRY S. VOLPERT
-------------------------------------
BARRY S. VOLPERT
Trustee
Date: March 31, 1998
By: /s/G. ANDREA BOTTA
-------------------------------------
ANDREA BOTTA
Trustee
Date: March 31, 1998
By: /s/ANDREAS C. DRACOPOULOS
-------------------------------------
ANDREAS C. DRACOPOULOS
Trustee
Date: March 31, 1998
60
<PAGE> 63
SIGNATURES (Cont'd)
By: /s/RICHARD E. SALOMON
-------------------------------------
RICHARD E. SALOMON
Trustee
Date: March 31, 1998
By: /s/JERRY I. SPEYER
-------------------------------------
JERRY I. SPEYER
President
(Principal Executive Officer)
Date: March 31, 1998
By: /s/DAVID AUGARTEN
-------------------------------------
DAVID AUGARTEN
Vice President
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 31, 1998
61
<PAGE> 64
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No proxy material has been sent to more than ten (10) of the Company's security
holders and no annual report has been sent to the Company's security holders.
62
<PAGE> 65
[Letterhead of ERNST & YOUNG LLP]
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Rockefeller Center Properties, Inc.
We have audited the accompanying statements of operations of Rockefeller Center
Properties, Inc. (the "Company"), and the related statements of changes in
stockholders' equity and cash flows for the year ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Rockefeller Center
Properties, Inc. and its cash flows for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern as more fully described in Note 1 to the
Company's financial statements. The borrowers (collectively, the "Borrower")
under the mortgage loan, the Company's principal asset, filed for protection
under Chapter 11 of the Federal Bankruptcy Code on May 11, 1995. As a result of
these filings and until such time as the Chapter 11 cases have been brought to a
conclusion, the Company does not expect to receive interest payments from the
Borrower, and the Company's ability to enforce its rights under the mortgage
loan has been and will be stayed unless and until the Bankruptcy Court issues an
order permitting the Company to take steps to enforce such rights. The Company
cannot predict either the time it will take to conclude these proceedings or
their ultimate outcome. On November 7, 1995, the Company executed and delivered
an Agreement and Plan of Merger (as amended as of February 12, 1996, the "Merger
Agreement") with an investor group. If the transactions contemplated by the
Merger Agreement are consummated, the stockholders will receive $8.00 in cash
for each of their shares of the Company's Common Stock. Also, on November 7,
1995, the Company entered into an agreement that would allow the Company to make
a $200 million publicly registered rights offering should the stockholders not
approve the Merger Agreement. The uncertainties created by the bankruptcy of the
Borrower raise substantial doubt about the Company's ability to continue as a
going concern if the Merger Agreement is not approved by the Company's
stockholders or if the transactions contemplated by the Merger Agreement are not
consummated. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Ernst & Young LLP
New York, New York
February 29, 1996
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 36,886
<SECURITIES> 0
<RECEIVABLES> 11,946
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0
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<TOTAL-LIABILITY-AND-EQUITY> 887,646
<SALES> 189,182
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