<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, 1998.
[ ] 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
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(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, 1999.
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.
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* As successor in interest to Rockefeller Center Properties, Inc.
(Commission File No. 1-8971).
<PAGE> 2
RCPI TRUST
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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 7A. Quantitative and Qualitative Disclosures About Market Risk..19
ITEM 8. Financial Statements and Supplementary Data.................21
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
</TABLE>
(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, as amended (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 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.
The Company operates in only one segment: owning, operating and managing
the Property.
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
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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, 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
did not withdraw 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.
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<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 1998 year-end
office summary.
New York City (the "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 and is considered Class "A" or "Prime"
space. The Midtown market comprises approximately 221 million square feet
of rentable office space, of which 169 rentable million square feet is
considered Class "A" or "Prime". In addition, approximately 3.1 million
rentable square feet of office space is currently under construction in
the Midtown market. The Midtown 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 rate charges for prime office space.
Substantial lease commitments completed in the Midtown market during the
past year drove total leasing activity to nearly 18.7 million square feet.
While the activity was strong, it was a 6.3% decrease from the record high
in 1997 of 19.9 million square feet. Uncertainty in the real estate
market, promulgated by the August 1998 stock market decline, caused an
overall decrease in New York's office leasing activity. Leasing activity
again picked up and stabilized towards the end of 1998 as the stock market
regained its strength.
Mergers and cutbacks in many financial services firms, including Merrill
Lynch, have resulted in a number of medium-sized blocks of space returning
to the market. This additional space created alternative opportunities for
other tenants, including the growing computer services and Internet
industry, scouring an already tight office market. With more space on the
market in 1998 and less leasing activity compared to 1997, net absorption
decreased by approximately 1.9 million square feet (or approximately 46%)
in 1998. However, despite the leasing trends and volatility in the market
during 1998, the overall Midtown
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<PAGE> 6
vacancy rate continued to decrease, dropping slightly from 8.9% at the end
of 1997 to 8.1% at the end of 1998.
Overall, direct asking rental rates rose during 1998 throughout the City.
The most significant gains were made in both the Midtown market, with an
average increase from $39.29 to $46.94 per square foot, and in the
Downtown market, from $31.46 to $38.70 per square foot, from 1997 to 1998,
respectively. The Madison/Fifth and Park Avenue submarkets posted the
highest class A asking rental rates in the City in 1998 at $58.02 and
$52.32 per square foot, respectively.
Financial Information About Segments
See the Financial Statements provided in response to Item 8 for financial
information about the Company's sole segment.
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.
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 Productions, LLC ("RCP") through February
28, 2023 with an option to extend for an additional 10 years at $13
million annually beginning March 1, 1998. RCP was a wholly-owned
subsidiary of an affiliate of the Previous Owners. RCP is obligated under
the lease to pay for the expenses of maintaining the interior of the Music
Hall. The Company is responsible for the expenses of exterior maintenance.
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<PAGE> 7
The following table provides summary information regarding the buildings
included in the Property.
<TABLE>
<CAPTION>
At December 31, 1998
-------------------------
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 93.0
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 88.8
Associated Press 1938 16 469,128 86.4
International 1935 40 1,239,226 93.5
British Empire 1933 9 123,596 95.9
La Maison Francaise 1933 9 127,570 87.5
One Rockefeller Plaza 1937 35 566,231 99.5
Ten Rockefeller Plaza (5) 1939 17 346,986 91.7
Simon & Schuster 1940
and Addition 1955 21 729,836 95.2
600 Fifth Avenue 1952 29 434,258 96.2
Additional Property (4) -- -- 35,385 81.8
--------- ------
Subtotal 7,414,128
Less: NBC Space 1,514,431
Total 5,899,697 93.0
========= ======
</TABLE>
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(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 and the Christie's, Inc. Auction House 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 new 300,000 square foot auction facility operated by Christie's,
Inc., 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. Currently, retail space within the Property
includes approximately 53 shops and 16 restaurants as of December 31,
1998.
Beginning in January 1999, the Company is commencing a retail
redevelopment project which will include, among other things, the
restoration of the Channel Gardens, repaving of Rockefeller Plaza,
refurbishment of the common area in the concourse under 30 Rockefeller
Plaza and the completion of numerous new retail stores. Such work is
scheduled to be finished by the end of 1999.
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.
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<PAGE> 8
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.
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.
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 $1.21 billion.
Property Management
On July 10, 1996 the Company entered into a management agreement (the
"Management Agreement") with Tishman Speyer Properties (the "Agent"), an
affiliate of Rockprop, L.L.C., a member of the Investor Group, which
expires on July 17, 1999. The Management Agreement will automatically
renew for additional one year terms unless either party gives notice of
election not to renew. The Agent earns a management fee based on 1.5% of
Gross Revenues, as defined. See also Item 13 "Certain Relationships and
Related Transactions", and Note 10 to the accompanying financial
statements.
Real Estate Taxes
The targeted and actual assessed valuation of the Property and the real
estate taxes payable by the Property are set forth in the following
schedule for the fiscal year periods encompassing the years ended December
31, 1996, 1997, 1998 and 1999 and the period ended June 30, 2000. The
schedule reflects the final settlement negotiated with the Tax Commission
of the City of New York during 1995. This settlement reduced the targeted
assessed valuation of the Property. Increases in targeted assessed
valuation are required to be phased-in over a five-year period commencing
with the fiscal year for which it is first increased.
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($ in millions)
<TABLE>
<CAPTION>
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>
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
1999/00 $368.3 $368.3 $36.1 (3)
</TABLE>
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(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 1998/99 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 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 were consolidated under the caption In re
Rockefeller Center Properties, Inc. Securities Litigation, Cons. C.A. No
96-543 (RRM) ("In re RCPI"). On March 4, 1998, defendants moved for
summary judgment on the remaining claim involving the alleged
non-disclosure of the transferable development rights (previously
defendants prevailed on a motion to dismiss all of plaintiffs' claims
except those concerning the transferable development rights). On July 10,
1998, the Court issued a Memorandum Opinion and Order that, inter alia,
denied plaintiffs' motion for reargument of the Court's December 10, 1997
Order Granting Defendants' Motion to Dismiss in Part and granted
defendants' motion for summary judgment on plaintiffs' claim involving the
alleged non-disclosure of the transferable development rights. On July 22,
1998, pursuant to the Court's Memorandum Opinion and Order dated July 19,
1998, the Clerk of the Court entered Judgment in favor of all defendants
against all plaintiffs as to all claims in the amended complaint. On July
17, 1998, plaintiffs filed notices of appeal to the United States Court of
Appeals for the Third Circuit from the District Court's dismissal of the
case. The appeal (Consolidated Nos. 98-5394/5395) is pending.
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. During 1998, the plaintiff in Flashman joined as
a plaintiff in
8
<PAGE> 11
the amended complaint filed in In re RCPI and voluntarily dismissed the
action in Federal Court in New York.
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. During 1998, the plaintiff in Debora
joined as a plaintiff in In re RCPI and voluntarily dismissed the action
in Federal Court in New York.
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 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. This
case was dismissed with prejudice by Order dated November 25, 1997, which
Order became effective on or about March 18, 1998.
In June, 1998, Samuel and Laurel Beizer and several of the named
plaintiffs in In re RCPI filed another purported class action complaint
and shortly thereafter an amended complaint in the Court of Chancery of
the State of Delaware in and for New Castle County (the "Chancery Court
action"), making largely the same allegations as in In re RCPI, but
asserting them as state law claims, rather than federal securities law
claims. The action is entitled Beizer et al. v. Linneman et al., C.A. No.
16413. As in In re RCPI, the defendants in Chancery Court action include
several former officers and directors of the Predecessor as to one or more
of whom the Company may have indemnity obligations. Also, as in In re
RCPI, plaintiffs seek unspecified damages, rescission of the Merger,
and/or disgorgement. By agreement of Counsel, this matter has been stayed
indefinitely.
9
<PAGE> 12
During 1998, the Company resolved certain legal claims with no material
adverse impact on the 1998 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 is 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, 1999.
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 $172 million each. This sale of securities was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof due to the fact that there were only two offerees. See also Item
1, "Business".
The Indenture governing the Convertible Debentures limits cash
distributions to the Owners, as defined, to the amount of cumulative
Distributable Cash, as defined. The Indenture defines Distributable Cash
as cash receipts from operations less operating expenses and interest. The
amount of Distributable Cash, net of dividends paid, at December 31, 1998,
1997 and 1996 was computed as follows ($ in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flow provided by operations (i) $ 49,069 $ 43,912 $ (6,997)
Distributions -- (44,128) --
-------- -------- --------
Increase (decrease) in cumulative Distributable Cash 49,069 (216) (6,997)
Balance, beginning of period 62,574 62,790 69,787(ii)
-------- -------- --------
Balance, end of period $111,643 $ 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 December 31, December 31, December 31,
(for the years and the period ended): 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Total revenues $ 208,064 $ 189,182 $ 88,488
Operating expenses 109,327 111,808 62,575
Interest expense 66,748 58,832 30,508
Depreciation and amortization 24,361 19,762 7,047
---------- ---------- ----------
Net income (loss) $ 7,628 $ (1,220) $ (11,642)
========== ========== ==========
<CAPTION>
As of December 31, As of December 31, As of December 31,
Balance Sheet Data: 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Real estate $ 814,132 $ 785,829 $ 766,627
Total assets 969,750 887,646 839,672
Debt 638,879 563,199 473,310
Debt due after one year 613,879 563,199 463,310
Total liabilities 674,994 600,518 507,206
Owners' equity 294,756 287,128 332,466
<CAPTION>
December 31, December 31, December 31,
Other Financial Data (for the period ended): 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ 49,069 $ 43,912 $ (6,997)
Net cash provided by (used in) investing activities (1) 70,316 (42,225) 419,852
Net cash provided by (used in) financing activities (2) 25,000 (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, 1998, 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,
(for the years and the period ended): 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (1) $ 38 $ 21,470 $ 109,285
---------- ---------- ----------
Interest expense 46,984 85,563 77,501
General and administrative 4,774 11,267 4,170
Amortization of financing costs (2) 12,421 9,258 705
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
Cost of evaluating alternative financing -- -- 1,942
---------- ---------- ----------
58,410 216,599 94,173
---------- ---------- ----------
(Loss) income before non-recurring income (58,372) (195,129) 15,112
---------- ---------- ----------
Non-recurring income (gain on sales of
portfolio securities) -- -- 31
---------- ---------- ----------
Net (loss) income $ (58,372) $ (195,129) $ 15,143
========== ========== ==========
Weighted average shares outstanding 38,261 38,261 38,261
========== ========== ==========
Net (loss) income per share $ (1.53) $ (5.10) $ 0.40
========== ========== ==========
</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
December 31, December 31,
Balance Sheet Data: 1995 1994
------------ ------------
<S> <C> <C>
Total assets (1)(2) $ 1,190,776 $ 1,319,995
Total debt 770,667 760,394
Total debt due after one year 760,467 760,394
Total liabilities 874,177 802,528
Total stockholders' equity 316,599 517,467
Other Financial Data:
Ratio of earnings to fixed charges (5) -- 1.19X
Net cash (used in) provided by
operating activities $ (17,706) $ 57,198
Net cash provided by investing activities 50,000 14,331
Net cash used in financing activities
Excluding dividends paid 28,154 44,015
Dividends paid 5,739 24,869
Dividends paid per share 0.15 0.65
Portion of dividends representing
a return of capital 100% 39.4%
Book value per share $ 8.27 $ 13.52
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
</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 forwardlooking 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 to the financial condition and results of
operations of the Company for the years ended December 31, 1998 and 1997 and for
the period from July 10, 1996 to December 31, 1996. Pro forma operating
statements are presented to provide a meaningful comparison of the results of
operations of the Property for the year ended December 31, 1996 as if the
acquisition of the Property and the NBC Sale (see below) had occurred on January
1, 1996.
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 the 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, 1998, the Property, exclusive of the NBC Space, was
approximately 93% occupied. Occupancy rates for the Property at various dates
are presented in the following table.
<TABLE>
<S> <C> <C> <C>
September 30, 1998 89.6% December 31, 1997 86.7%
June 30, 1998 88.1% September 30, 1997 86.3%
March 31, 1998 88.1% June 30, 1997 86.4%
</TABLE>
The following table shows selected lease expirations and vacancy of the Property
as of December 31, 1998. 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.
15
<PAGE> 18
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 412,979 7.0%
1999 164,104 2.8%
2000 464,859 7.9%
2001 125,686 2.1%
2002 213,949 3.6%
2003 169,733 2.9%
2004 513,290 8.7%
Thereafter 3,835,097 65.0%
---------- -------
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, 1998, the
carrying value of the Debentures, net of unamortized discount, was approximately
$460.7 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, 1998, the carrying value of the Debentures was $98.1 million.
The Company entered into a credit agreement as of May 16, 1997, with NationsBank
of Texas, N.A. ("NationsBank"), pursuant to which the bank agreed to make term
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. Additional loans aggregating $30 million were drawn by
the Company
16
<PAGE> 19
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
in 1998. 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. On December 31, 1998, the Company repaid $5 million on the loans
bringing the total outstanding balance down to $80 million.
Cash Flow
Cash flows from operating activities increased in both 1997 and 1998 primarily
due to an increase in rental revenues caused by higher occupancy and increased
rents, while operating expenses increased at a slower rate. During the period
ended December 31, 1996 the Company's positive cash flow were primarily
attributable to the proceeds received from the sale of the NBC Space. Such
proceeds were used primarily to retire the Current Coupons, the GSMC Facility,
and a significant portion of the Floating Rate Notes.
During 1997, positive cash flow from operating activities was used to fund
capital needs for new building improvements, tenant improvements and leasing
commissions of approximately $42 million. During 1998, the Company spent
approximately $70 million on similar capital projects which was funded by cash
flows from operating activities and net additional draws on the NationsBank
facility of $25 million.
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 $125 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, 1998, pro forma operating statements for the
year ended December 31, 1996 have been prepared as if the Property had been
acquired on January 1, 1996. 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.
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 year ended December 31,
1996 as if the acquisition of the Property by the Company had occurred on
January 1, 1996. 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.
17
<PAGE> 20
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
The pro forma statement of operations for the year ended December 31, 1996 has
been adjusted to show the effect of (i) gross revenues and operating expenses
had the NBC Sale occurred on January 1, 1996; (ii) interest expense had the GSMC
Loan and Current Coupons been repaid in full, and $106.3 million of principal on
the Floating Rate Notes been paid on January 1, 1996; (iii) depreciation and
amortization expense had the Property been purchased and the NBC Sale had
occurred on January 1, 1996; and (iv) general and administrative expenses had
certain bankruptcy related costs not been incurred by the Previous Owners and
costs related to the NBC Sale had not been incurred during 1996.
The pro forma results for 1996 are for illustrative purposes only, and do not
purport to be indicative of the actual results which would have occurred, nor
are they indicative of future results of operations.
<TABLE>
<CAPTION>
($ in thousands)
Year ended December 31,
Actual Actual Proforma
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Total Revenues:
Rent and other tenant charges $ 205,920 $ 187,630 $ 177,653
Interest income 2,144 1,552 1,483
--------- --------- ---------
208,064 189,182 179,136
Operating Expenses:
Real estate taxes 34,265 33,591 33,876
Utilities 13,845 14,601 15,356
Maintenance, engineering, and other operating expenses 51,866 51,025 54,193
Management and accounting fees 3,599 3,415 5,052
General and administrative 5,752 9,176 6,371
Depreciation and amortization 24,361 19,762 16,955
Interest expense 66,748 58,832 55,606
--------- --------- ---------
Net income (loss) $ 7,628 ($ 1,220) ($ 8,273)
========= ========= =========
</TABLE>
Rent and other tenant charges increased by $18.3 million and $10.0 million for
the years ended December 31, 1998 and 1997, respectively, as compared to the
prior year due primarily to increased fixed rent related to new leases.
Occupancy rates at December 31, 1998 and 1997 were 93% and 87%, respectively, as
compared to 84% at December 31, 1996.
The increase in interest income of $592,000 from 1997 to 1998 was due primarily
to a larger average cash balance on hand during 1998 as compared to 1997.
The decrease in maintenance, engineering and other operating expenses from 1996
to 1997 is primarily due to the implementation of cost savings measures by
management.
The decrease in management fees in 1997 from 1996 is due to a new management and
accounting agreement signed concurrently with the acquisition of the Property.
18
<PAGE> 21
RCPI TRUST
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd)
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
Bear, Stearns & Co., Inc. settlement. Additionally, the Company wrote-off $2.2
million of abandoned projects. The increase due to these charges was partially
offset by the fact that 1996 included additional professional fees associated
with the implementation of the takeover of the Property. The decrease from 1997
to 1998 is primarily due to the fact that the abandoned projects and the Bear,
Stearns & Co. Inc. settlement were non-recurring charges. The overall decrease
was partially offset by increased general and administrative expenses related to
the implementation of a new retail redevelopment plan in 1998.
The increase in depreciation and amortization of approximately $4.6 million from
1997 to 1998 and $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 office and retail leasing activity.
Based on pro forma calculations, interest expense increased by $3.2 million from
the year ended December 31, 1996 to 1997. 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. Interest expense also increased from 1997 to 1998 due to
higher debt balances due to additional draws on the NationsBank loans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company has no material exposure to market risk sensitive instruments other
than the NationsBank Loans. The market risk associated with this floating rate
loan is minimized by an interest rate protection agreement which caps out the
floating rate on the NationsBank loans at 7.69% during the first two years of
the initial term and 8.69% thereafter, including the extension period. The
Company enters into derivative instruments only to hedge its exposure to changes
in interest rates on some of its outstanding indebtedness, not for speculative
or trading purposes, and does not enter into leveraged derivatives. See Note 6
to the Financial Statements provided in response to Item 8 for information about
the Company's interest rate protection agreement.
19
<PAGE> 22
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
I. Financial Statements and Reports of Independent Public Accountants
1. RCPI Trust (the "Company") and Rockefeller Center Properties, Inc.
(the "Predecessor")
1. Reports of Independent Public Accountants
a. Arthur Andersen LLP.................................................................21
2. RCPI Trust (Company)
a. Balance Sheets as of December 31, 1998 and 1997.....................................22
b. Statements of Operations for the years ended December 31, 1998
and 1997 and for the period from July 10, 1996
through December 31, 1996...........................................................23
c. Statements of Changes in Owners' Equity for the years ended
December 31, 1998 and 1997 and for the period from
July 10, 1996 through December 31, 1996.............................................24
d. Statements of Cash Flows for the years ended December 31, 1998 and
1997 and for the period from July 10, 1996
through December 31, 1996...........................................................25
3. Rockefeller Center Properties, Inc. (Predecessor)
a. Statement of Operations for the period from January 1, 1996 through
July 9, 1996........................................................................26
b. Statement of Changes in Stockholders' Equity for the period from
January 1, 1996 through July 9, 1996................................................27
c. Statement of Cash Flows for the period from January 1, 1996 through
July 9, 1996........................................................................28
4. Notes to Financial Statements............................................................29
II. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at December 31, 1998 ....................45
</TABLE>
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.
20
<PAGE> 23
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, 1998 and 1997, and the related statements of
operations, changes in owners' equity and cash flows for the years ended
December 31, 1998, 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,
1998 and 1997, and the results of its operations and its cash flows for the
years ended December 31, 1998 and 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 from 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, 1999
21
<PAGE> 24
RCPI TRUST
(a Delaware business trust)
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
($ in thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Real Estate:
Land $158,149 $158,149
Buildings and improvements 637,288 611,711
Tenant improvements 58,086 36,170
Furniture, fixtures and equipment 4,920 4,192
-------- --------
858,443 810,222
Less: Accumulated depreciation and amortization 44,311 24,393
-------- --------
814,132 785,829
Cash and cash equivalents 31,270 27,517
Restricted cash 10,120 9,369
Accounts receivable 6,680 11,946
Prepaid expenses 973 495
Deferred costs, net of accumulated
amortization of $5,918 and $2,192, respectively 40,724 22,521
Accrued rent 65,851 29,969
-------- --------
Total Assets $969,750 $887,646
======== ========
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Zero coupon convertible debentures, net of unamortized
discount of $125,433 and $177,696, respectively $460,752 $408,489
14% debentures (includes premium of $23,127 and $24,710,
respectively) 98,127 99,710
NationsBank loans 80,000 55,000
Accrued interest payable 4,738 7,152
Accounts payable and accrued expenses 21,392 21,227
Tenant security deposits payable 9,985 8,940
-------- --------
Total Liabilities 674,994 600,518
Commitments and Contingencies (Note 11)
Owners' Equity 294,756 287,128
-------- --------
Total Liabilities and Owners' Equity $969,750 $887,646
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 25
RCPI TRUST
(a Delaware business trust)
STATEMENTS OF OPERATIONS
($ in thousands)
<TABLE>
<CAPTION>
For the Period from
July 10, 1996
For the For the (Commencement of
Year Ended Year Ended Operations) through
December 31, December 31, December 31,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Base rental $ 193,311 $ 171,968 $ 76,496
Escalations and percentage rents 7,035 7,926 6,562
Interest and other income 7,718 9,288 5,430
---------- ---------- ----------
Total revenues 208,064 189,182 88,488
---------- ---------- ----------
Expenses:
Interest 66,748 58,832 30,508
Real estate taxes 34,265 33,591 15,585
Payroll and benefits 20,788 18,584 10,375
Repairs, maintenance and supplies 15,683 14,308 8,137
Utilities 13,845 14,601 6,539
Cleaning 13,288 14,157 7,253
Professional fees 1,219 2,739 8,735
Insurance 888 1,237 1,451
Management and accounting fees 3,599 3,415 1,424
General and administration 5,752 3,847 1,297
Litigation settlement -- 2,612 --
Write off of abandoned projects -- 2,187 --
Tenant buyout costs -- 530 1,779
Depreciation and amortization 24,361 19,762 7,047
---------- ---------- ----------
Total expenses 200,436 190,402 100,130
---------- ---------- ----------
Net Income (Loss) $ 7,628 $ (1,220) $ (11,642)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 26
RCPI TRUST
(a Delaware business trust)
STATEMENTS OF CHANGES IN OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
AND FOR THE PERIOD FROM JULY 10, 1996 (COMMENCEMENT OF
OPERATIONS) THROUGH DECEMBER 31, 1996
($ in thousands)
<TABLE>
<CAPTION>
Balance Balance
Percentage July 10, 1996 December 31,
Interest 1996 Activity 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rockefeller Center Properties, Inc.:
Capital contribution 50% $ 172,054 -- $ 172,054
Distributions -- -- --
Net income (loss) -- (5,821) (5,821)
---------- ---------- ----------
Total 172,054 (5,821) 166,233
---------- ---------- ----------
RCPI Investors L.L.C.:
Capital contribution 50% 172,054 -- 172,054
Distributions -- -- --
Net income (loss) -- (5,821) (5,821)
---------- ---------- ----------
Total 172,054 (5,821) 166,233
---------- ---------- ----------
Total Owners' Equity $ 344,108 (11,642) $ 332,466
========== ========== ==========
<CAPTION>
Balance Balance
1997 December 31, 1998 December 31,
Activity 1997 Activity 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rockefeller Center Properties, Inc.:
Capital contribution $ -- $ 172,054 $ -- 172,054
Distributions (22,064) (22,064) -- (22,064)
Net income (loss) (610) (6,431) 3,814 (2,617)
---------- ---------- ---------- ----------
Total (22,674) 143,559 3,814 147,373
---------- ---------- ---------- ----------
RCPI Investors L.L.C.:
Capital contribution 10 172,064 -- 172,064
Distributions (22,064) (22,064) -- (22,064)
Net income (loss) (610) (6,431) 3,814 (2,617)
---------- ---------- ---------- ----------
Total (22,664) 143,569 3,814 147,383
---------- ---------- ---------- ----------
Total Owners' Equity $ (45,338) $ 287,128 $ 7,628 294,756
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 27
RCPI TRUST
(a Delaware business trust)
STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
For the Period from
July 10, 1996
For the For the (Commencement of
Year Ended Year Ended Operations) through
December 31, December 31, December 31,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,628 $ (1,220) $ (11,642)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization of original issue discount and premium 50,680 44,889 19,263
Depreciation and amortization 24,361 19,762 7,047
(Increase) decrease in restricted cash (751) 658 (3,260)
Decrease (increase) in accounts receivable 5,266 7,913 (5,138)
(Increase) decrease in prepaid expenses (478) (17) 18,169
Increase in accrued rent (35,882) (21,539) (8,430)
Increase (decrease) in accounts payable and accrued expenses
and tenant security deposits payable 659 (6,452) (3,959)
Decrease in accrued interest payable (2,414) (82) (19,047)
---------- ---------- ----------
Net cash provided by (used in) operating activities 49,069 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 (24,596) (14,141) (2,728)
Additions to tenant improvements (22,605) (16,952) (14,405)
Additions to furniture, fixtures and equipment (728) (281) --
Additions to deferred costs (22,387) (10,851) (5,815)
---------- ---------- ----------
Net cash (used in) provided by investing activities (70,316) (42,225) 419,852
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of NationsBank Loans (5,000) -- --
Proceeds from NationsBank Loans 30,000 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 provided by (used in) financing activities 25,000 (2,935) (384,090)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents 3,753 (1,248) 28,765
Cash and cash equivalents, beginning of period 27,517 28,765 --
---------- ---------- ----------
Cash and cash equivalents, end of period $ 31,270 $ 27,517 $ 28,765
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 28
ROCKEFELLER CENTER PROPERTIES, INC.
(Predecessor)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996
THROUGH JULY 9, 1996
($ in thousands, except per share data)
<TABLE>
<S> <C>
Revenues:
Other income $ 38
--------
Expenses:
Interest expense:
Current Coupon Convertible Debentures 11,642
Zero Coupon Convertible Debentures 18,985
14% Debentures 5,790
Floating Rate Notes 8,013
GSMC Facility 2,554
--------
46,984
General and administrative 4,774
Amortization of deferred debt issuance costs 12,421
Increase in liability for stock appreciation rights 2,041
Effects of the execution and delivery of the Merger Agreement (8,232)
Expenses related to the March 25, 1996 special
meeting of stockholders 422
--------
58,410
--------
Net loss $(58,372)
========
Net loss per share $ (1.53)
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
26
<PAGE> 29
ROCKEFELLER CENTER PROPERTIES, INC.
(Predecessor)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH JULY 9, 1996
(Dollars in thousands, except share and per share data)
<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, 1995 38,260,704 $ 383 $ 707,545 $ (391,329) $ 316,599
Net loss (from January 1, 1996
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.
27
<PAGE> 30
ROCKEFELLER CENTER PROPERTIES, INC.
(Predecessor)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996
THROUGH JULY 9, 1996
($ in thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Other interest income received $ 38
Interest paid on Floating Rate Notes (7,626)
Interest paid on 14% Debentures (5,308)
Interest paid on Current Coupon Convertible Debentures (27,712)
Payments for accounts payable, accrued expenses and other assets (13,463)
--------
Net cash used in operating activities (54,071)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from GSMC loan 52,829
--------
Net cash provided by financing activities 52,829
--------
Net decrease in cash and cash equivalents (1,242)
Cash and cash equivalents at the beginning of the period 1,298
--------
Cash and cash equivalents at the end of the period $ 56
========
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss $(58,372)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of discount:
Zero Coupon Convertible Debentures 18,985
14% Debentures 188
Decrease in deferred debt issuance costs and other costs, net 12,280
Decrease in accrued interest payable and amortized
unpaid discount on commercial paper (12,836)
Increase in stock appreciation rights liability 2,041
Decrease in accounts payable and accrued expenses (16,357)
--------
Net cash used in operating activities $(54,071)
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
28
<PAGE> 31
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 qualified and 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. 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 Predecessor's common
stock outstanding as of the Effective Date (other than (i) shares of
Common Stock
29
<PAGE> 32
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 did not withdraw 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 amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
30
<PAGE> 33
The accompanying financial statements present the Company's balance
sheets, as successor to the Predecessor, as of December 31, 1998 and 1997
and the results of operations, changes in owners' equity and cash flows
for the years ended December 31, 1998 and 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. 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, 1996, 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, 1998, 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,
1998 and 1997, the restricted cash balance associated with these letters
of credit was approximately $0 and $333,000, respectively.
The Company also maintains tenant security deposits in a restricted cash
account. At December 31, 1998 and 1997, the carrying amount in the
restricted cash account for tenant security deposits was approximately $10
million and $8.9 million, respectively.
31
<PAGE> 34
Deferred Costs
Deferred costs include costs incurred in the successful negotiation of
leases, including brokerage and legal, and are 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 amortized over a period of five years. Deferred financing
costs 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).
The Company plans to adopt the provisions of SOP 98-5 "Reporting on the
Costs of Start-up Activities" effective January 1, 1999. The effect of
adopting this statement will be a charge of $1.34 million and will be
included as a component of depreciation and amortization in the statement
of operations for the three months ending March 31, 1999.
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 $35.9 million, $21.5
million and $8.4 million for the years ended December 31, 1998 and 1997
and the period from July 10, 1996 through 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 Company's statements of cash flows for the years ended December 31,
1998 and 1997 and the period from July 10, 1996 through December 31, 1996,
are presented in accordance with the indirect method. The Predecessor's
statement of cash flows for the period from January 1, 1996 through July
9, 1996 is 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
$18.5 million, $13.8 million and $30.3 million for the years ended
December 31, 1998 and 1997 and the period from July 10, 1996 through
December 31, 1996, respectively.
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.
32
<PAGE> 35
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.
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
$650,000 through the year 2000. Thereafter, this ground lease provides for
three renewal periods of 21 years each at annual rents of 6%, 7% and 8%,
respectively, of the value of the land (exclusive of improvements and
unencumbered by the ground lease) appraised for its highest and best use,
determined at the beginning of each such renewal term. The ground rent
expense is included in general and administration in the Company's
accompanying statements of operations.
At December 31, 1998 and 1997, approximately 5.5 million and 5.1 million
square feet representing approximately 93% and 87%, respectively, of total
rentable square feet were leased to tenants under operating leases. Of the
total rentable square feet, approximately 23% or 1.34 million square feet
is under lease to six tenants in the financial services, legal or
publishing industry as of December 31, 1998. These leases are scheduled to
expire in years 2000 through 2014.
Future Minimum Rentals
Future minimum rentals to be received under non-cancelable tenant leases
at December 31, 1998 are as follows ($ in thousands):
<TABLE>
<S> <C>
1999 $ 200,501
2000 206,798
2001 196,375
2002 193,295
2003 189,394
Thereafter 1,492,480
</TABLE>
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
33
<PAGE> 36
Rockefeller Tower Condominium (the "Condominium") to establish the
ownership rights of the office 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 years ended December 31, 1998 and 1997 and
for the period from July 10, through December 31, 1996:
The Rockefeller Center Tower Condominium
Summary of Shared Costs
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payroll and benefits $ 8,066 $ 7,243 $ 4,082
Repairs, maintenance and supplies 5,485 5,838 3,100
Utilities 5,929 6,519 3,085
Cleaning 3,974 4,427 2,657
General and administration 3,551 4,980 2,093
Management and accounting fees 1,729 1,599 668
-------- -------- --------
Shared Costs, as defined $ 28,734 $ 30,606 $ 15,685
======== ======== ========
Shared Costs, NBC $ 11,112 $ 11,176 $ 5,645
Shared Costs, the Company 17,622 19,430 10,040
-------- -------- --------
$ 28,734 $ 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 Predecessor limited recognition of income on the Mortgage Loan for the
period from January 1, 1996 through July 9, 1996 to the cash actually
received from the Previous Owners. The Company
34
<PAGE> 37
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, 1998,
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, 1998 and 1997, the estimated fair value of the Zero
Coupons was approximately $422.1 million and $416.2 million, respectively,
as compared to their carrying amount of approximately $460.8 million and
$408.5 million, respectively.
As of December 31, 1998 and 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-month London Interbank Offering Rate
("LIBOR") plus 1/4% or such greater spread (not in excess of
35
<PAGE> 38
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 was
approximately $52.3 million, $46.3 million and $19.9 million, for the
years ended December 31, 1998 and 1997 and the period ended December 31,
1996, respectively. 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 was 9.50%. Interest was payable quarterly on March 1, June 1,
September 1, and December 1 of each year. Interest expense for the Company
on the Floating Rate Notes was approximately $357,000
36
<PAGE> 39
and $622,000 for the year ended December 31, 1997 and the period ended
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. The Company's net interest expense and premium
amortization was as follows:
<TABLE>
<CAPTION>
Year/Period Ended Net Interest Expense Premium Amortization
----------------- -------------------- --------------------
<S> <C> <C>
December 31, 1998 $9.1 million $1.6 million
December 31, 1997 $9.2 million $1.4 million
December 31, 1996 $4.5 million $641,000
</TABLE>
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
37
<PAGE> 40
carried. The noncash charge to earnings was approximately $2.0 million for
the period from January 1, 1996 through July 9, 1996. 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") as of May 16, 1997, with NationsBank of Texas, N.A.
("NationsBank"), pursuant to which NationsBank agreed to make term 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. Additionally loans of aggregating $20 million and
$10 million were drawn by the Company on January 16, 1998 and June 29,
1998, respectively. 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. On December 31, 1998, the Company
repaid $5 million on the NationsBank Loans bringing the total outstanding
balance down to $80 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. 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. As of December
31, 1998, interest was accruing at 7.27% on the initial $55 million and
the additional $20 million loan drawn in January 1998. Interest on the
remaining $5 million of NationsBank Loans was accruing at 7.38% as of
December 31, 1998. Interest expense recorded by the Company was
approximately $5.9 million and $2.6 million for the years ended December
31, 1998 and 1997, respectively.
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, 1998.
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 $230,000 has been capitalized as part of deferred costs
on the accompanying balance sheets.
As a condition to making the NationsBank Loan, the holder of the 14%
Debentures and the Company executed an Intercreditor and Subordination
Agreement pursuant to which the holder of the 14% Debentures agreed (i) to
subordinate payment on the 14% Debentures to the NationsBank Loans, (ii)
that in certain circumstances interest would accrue but not be paid on the
14% Debentures, and (iii) that NationsBank may take certain actions on
behalf of the holder of the 14% Debentures upon the occurrence of certain
bankruptcy related events in respect of the Company.
In addition, certain members of the Investor Group and/or certain of their
affiliates entered into a Limited Recourse Agreement dated as of May 16,
1997, in favor of NationsBank.
38
<PAGE> 41
Future Maturity of Debt
The principal balance of the Company's debts outstanding as of December
31, 1998 matures as follows ($ in thousands):
<TABLE>
<S> <C>
1999 $ 25,000
2000 515,752
2001 --
2002 --
2003 --
Thereafter 98,127
---------
$ 638,879
=========
</TABLE>
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 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.
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.
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. The $105
million aggregate notional amount of the interest rate swap agreements
expired during 1998. The amount to be paid or received from the swap
agreements was accrued at floating rates which were reset semi-annually.
For each swap, the Company paid a weighted average fixed rate of interest
semi-annually at 9.61% and 9.64% during 1998 and 1997, respectively, and
received a variable rate of interest semi-annually based on 180-day LIBOR.
The weighted average variable rate was 5.88% prior to maturity in 1998 and
5.87% for the year ended December 31, 1997. The net weighted average
interest rate of swaps outstanding was 3.73% prior to maturity in 1998 and
3.77% and 3.93% for the years ended December 31, 1997 and 1996,
respectively. The aggregate net interest expense for the years ended
December 31, 1998 and 1997 and the period ended December 31, 1996 relating
to the swap agreements was approximately $822,000, $4 million and $1.9
million, respectively.
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 $1.3 million,
$3.8 million and $142,000 as a reduction to interest expense in the
accompanying statements of operations for the years ended December 31,
1998 and 1997 and for the period ended December 31, 1996, respectively.
39
<PAGE> 42
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 $10,000 contribution.
The Indenture governing the Convertible Debentures limits cash
distributions to the Owners to the amount of cumulative Distributable
Cash, as defined. The Indenture defines Distributable Cash as cash
receipts from operations less operating expenses and interest. The amount
of Distributable Cash, net of dividends paid, at December 31, 1998, 1997
and 1996 was computed as follows ($ in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flow provided by (used in) operations (i) $ 49,069 $ 43,912 ($ 6,997)
Distributions -- (44,128) --
-------- -------- --------
Decrease in cumulative Distributable Cash 49,069 (216) (6,997)
Balance, beginning of period 62,574 62,790 69,787(ii)
-------- -------- --------
Balance, end of period $111,643 $ 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. For this period, 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
40
<PAGE> 43
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.
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 1995, the Predecessor incurred certain transaction costs and
expenses related to the effects of the execution and delivery of the
Merger Agreement. 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 years ended December
31, 1998 and 1997 and the period ended December 31, 1996, the Agent earned
approximately $3.3 million, $3.2 million and $1.3 million, respectively.
Of total management fees earned by the Agent, the Company incurred $2.4
million, $2.3 million and $929,000 for the years ended December 31, 1998
and 1997 and for the period ended December 31, 1996, respectively. NBC
incurred approximately $916,000, $922,000 and $432,000 for the years ended
December 31, 1998 and 1997 and 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. The total accounting fee for
each of the years ended December 31, 1998 and 1997 was approximately $1.2
million and the fee for the period ended December 31, 1996 was $515,000.
The Agent also earns commissions for leasing services provided to the
Company. For the years ended December 31, 1998 and 1997 and the period
ended December 31, 1996, total leasing commissions paid to the Agent were
approximately $7.7 million, $3.8 million and $85,000, respectively. As of
December
41
<PAGE> 44
31, 1998 and 1997 and the period ended December 31, 1996, the Company owes
approximately $1.4 million, $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
years ended December 31, 1998 and 1997 and the period ended December 31,
1996, the Agent earned approximately $132,000, $397,000 and $291,000,
respectively, in cleaning fees. For the years ended December 31, 1998 and
1997 and the period ended December 31, 1996, the Company incurred
development fees of approximately $970,000, $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 RCPI and 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.
An affiliate of the Company provides cleaning services for which the
Company incurred expenses of approximately $2.9 million, $1.7 million and
$135,000, during the years ended December 31, 1998 and 1997 and the period
ended December 31, 1996, respectively.
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
42
<PAGE> 45
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 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 1998, the Company resolved certain legal claims with no material
adverse impact on the 1998 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.
Other
Under existing zoning regulations, there is allocable to the Property the
right to develop additional floor area in excess of the floor area
presently constructed at the Property. These excess development rights may
be used to construct additional floor area with the Property with the
approval of the New York City Landmarks Preservation Commission, or, with
certain approvals, may be transferred to a limited number of other
properties.
12. INTERIM FINANCIAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data)
- -----------------------------------------------------------------------------------------------
RCPI Trust
1998 1Q 2Q 3Q 4Q
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 50,841 $ 50,589 $ 52,163 $ 54,471
Net income (loss) $ 4,475 $ 1,522 $ 1,733 ($ 102)
Net loss per share N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------
<CAPTION>
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
- -----------------------------------------------------------------------------------------------
<CAPTION>
1996 1Q 2Q 3Q 4Q
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- -----------------------------------------------------------------------------------------------
<CAPTION>
Rockefeller Center Properties, Inc.
1996 1Q 2Q 3Q 4Q
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total 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
- -----------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 46
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 year ended
December 31, 1996 as if the acquisition of the Property by the Company had
occurred on January 1, 1996. 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. The
results of operations for the years ended December 31, 1998 and 1997 are
actual.
The pro forma statement of operations for the year ended December 31, 1996
have been adjusted to show the effect of (i) gross revenues and operating
expenses had the NBC Sale occurred on January 1, 1996; (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, 1996; (iii) depreciation and amortization expense had the
Property been purchased and the NBC Sale had occurred on January 1, 1996;
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 1996.
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 Actual Proforma
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Total Revenues $ 208,064 $ 189,182 $ 179,136
Less:
Operating expenses (133,688) (131,570) (131,803)
Interest expense (66,748) (58,832) (55,606)
--------- --------- ---------
Net Income (Loss) $ 7,628 ($ 1,220) ($ 8,273)
========= ========= =========
</TABLE>
44
<PAGE> 47
RCPI TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
($ in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
Cost Capitalized
Initial Cost Subsequent to Acquisition
Buildings and Buildings and
Description Encumbrances Land Improvements Land Improvements
- ----------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
GE Building $ 46,715 $ 165,626 $ -- $ 18,108
International Building 29,984 106,308 -- 27,259
One Rockefeller Plaza 12,890 45,701 -- 12,441
600 Fifth Avenue -- 33,442 -- 3,072
Ten Rockefeller Plaza 14,835 52,598 -- 14,454
Simon & Schuster 10,535 37,351 -- 2,936
Associated Press 10,625 37,669 -- 10,435
1270 Avenue of the Americas 16,636 58,981 -- 10,584
La Maison Francaise 6,449 22,864 -- 1,217
British Empire Building 6,909 24,496 -- 684
Other Property 2,571 9,116 -- 32
---------- ---------- ---------- ----------
$ 158,149 $ 594,152 $ -- $ 101,222
========== ========== ========== ==========
<CAPTION>
Column A Column E Column F Column G Column H Column I
Gross Amount at Which
Carried at Close of Period Life on which
Buildings and Accumulated Date of Date Depreciation
Description Land Improvements Total Depreciation Construction Acquired is Calculated
- ----------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
GE Building $ 46,715 $ 183,734 $ 230,449 $ 10,350 1933 1996 40 years
International Building 29,984 133,567 163,551 8,083 1935 1996 40 years
One Rockefeller Plaza 12,890 58,142 71,032 4,041 1937 1996 40 years
600 Fifth Avenue -- 36,514 36,514 2,053 1952 1996 40 years
Ten Rockefeller Plaza 14,835 67,052 81,887 3,471 1939 1996 40 years
Simon & Schuster 10,535 40,287 50,822 2,603 1940 1996 40 years
Associated Press 10,625 48,104 58,729 4,047 1938 1996 40 years
1270 Avenue of the Americas 16,636 69,565 86,201 4,290 1932 1996 40 years
La Maison Francaise 6,449 24,081 30,530 1,537 1933 1996 40 years
British Empire Building 6,909 25,180 32,089 1,554 1933 1996 40 years
Other Property 2,571 9,148 11,719 568 Various 1996 40 years
---------- ---------- ---------- ----------
$ 158,149 $ 695,374 $ 853,523 $ 42,597
========== ========== ========== ==========
</TABLE>
45
<PAGE> 48
RCPI TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)
DECEMBER 31, 1998 AND 1997
($ in thousands)
The changes in real estate for the periods ended December 31, 1998, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
Period from
July 17, 1996
Year Ended Year Ended through
December 31, 1998 December 31, 1997 December 31, 1996
---------- ---------- ----------
<S> <C> <C> <C>
Real estate balance at beginning
of period $ 647,881 $ 611,285 $ 594,152
Improvements 47,493 36,596 17,133
---------- ---------- ----------
Balance at close of period $ 695,374 $ 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, 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
Period from
July 17, 1996
Year Ended Year Ended through
December 31, 1998 December 31, 1997 December 31, 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period $ 23,430 $ 6,439 $ --
Depreciation for period 19,148 16,991 6,439
---------- ---------- ----------
Balance at end of period $ 42,578 $ 23,430 $ 6,439
========== ========== ==========
</TABLE>
46
<PAGE> 49
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
47
<PAGE> 50
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 83 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.
Ralph F. Rosenberg 34 Trustee, Vice President, Treasurer and July, 1996 Indefinite
Assistant Secretary; Managing Director
for Merchant Banking Division of
Goldman Sachs and Co. , Vice President of
Goldman, Sachs & Co. since 1994 and
an associate of Goldman, Sachs & Co.
since 1990. Also a director of Metropolis
REIT and Cadillac Fairview Corp.
Mark Tercek 42 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 49 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 39 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 Elifin S.A.
and IDB Holdings, Inc.
G. Andrea Botta 45 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 and
Riverwood International
Corporation.
Andreas C. Dracopoulos 35 Trustee; financial consultant to Transoceanic July, 1996 Indefinite
Marine, Inc. since prior to 1992.
Richard E. Salomon 56 Trustee; President and Managing Director July, 1996 Indefinite
of Spears, Benzak, Salomon & Farrell (an
investment advisor). Also a director of
Cousins Properties, Inc.
</TABLE>
48
<PAGE> 51
<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>
Jerry I. Speyer 58 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 43 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 56 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.
49
<PAGE> 52
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, 1999
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, 1999.
<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, 1999, 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 years ended December
31, 1998 and 1997 and the period ended December 31, 1996, the Agent earned
approximately $3.3 million, $3.2 million and $1.3 million, respectively.
Of total management fees earned by the Agent, the Company incurred $2.4
million, $2.3 million and $929,000 for the years ended December 31, 1998
and 1997 and for the period ended December 31, 1996, respectively. NBC
incurred approximately $916,000, $922,000 and $432,000
50
<PAGE> 53
for the years ended December 31, 1998 and 1997 and 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. The total accounting fee for
each of the years ended December 31, 1998 and 1997 was approximately $1.2
million and the fee for the period ended December 31, 1996 was $515,000.
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 years ended December 31,
1998 and 1997 and for the period ending December 31, 1996, total leasing
commissions paid to the Agent were approximately $7.7 million, $3.8
million and $85,000, respectively. As of December 31, 1998, 1997 and 1996,
the Company owed approximately $1.4 million, $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 years ended December 31, 1998 and 1997 and for the
period ended December 31, 1996, the Agent earned approximately $132,000,
$397,000 and $291,000 in cleaning fees, respectively. For the years ended
December 31, 1998 and 1997 and for the period ended December 31, 1996, the
Company incurred development fees of approximately $970,000, $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
51
<PAGE> 54
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.
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.
An affiliate of the Company provides cleaning services for which the
Company incurred expenses of approximately $2.9 million, $1.7 million and
$135,000, during the years ended December 31, 1998 and 1997 and the period
ended December 31, 1996, respectively.
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, 1998, an aggregate of $98.1 million in principal and
premium of the Company's 14% Debentures was 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.
52
<PAGE> 55
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports on Form 8-K
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
(a) Documents filed as part of the report
1. Financial Statements and Reports of Independent Public Accountants
RCPI Trust (the "Company") and Rockefeller Center Properties, Inc.
(the "Predecessor")
(1) Reports of Independent Public Accountants
a. Arthur Andersen LLP..............................................................21
(2) RCPI Trust
a. Balance Sheets as of December 31, 1998 and 1997..................................22
b. Statements of Operations for the years ended December 31, 1998
and 1997 and for the period from July 10, 1996
through December 31, 1996........................................................23
c. Statements of Changes in Owners' Equity for the years
ended December 31, 1998 and 1997
and for the period from July 10, 1996
through December 31, 1996........................................................24
d. Statements of Cash Flows for the years ended December 31, 1998,
and 1997 and for the period from July 10, 1996
through December 31, 1996........................................................25
(3) Rockefeller Center Properties, Inc. (Predecessor)
a. Statement of Operations for the period from January 1, 1996 through
July 9, 1996.....................................................................26
b. Statement of Changes in Stockholders' Equity for the period from
January 1, 1996 through July 9, 1996 ............................................27
c. Statement of Cash Flows for the period from January 1, 1996
through July 9, 1996.............................................................28
(4) Notes to Financial Statements.........................................................29
</TABLE>
53
<PAGE> 56
PART IV (Cont'd)
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1998...................................................................45
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
</TABLE>
(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.
54
<PAGE> 57
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.
(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.
55
<PAGE> 58
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, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By:/s/ DAVID ROCKEFELLER
---------------------------------
DAVID ROCKEFELLER
Chairman of the Board of Trustees
Date: March 31, 1999
By:/s/ RALPH F. ROSENBERG
---------------------------------
RALPH F. ROSENBERG
Trustee and Vice President
Date: March 31, 1999
By:/s/ MARK TERCEK
---------------------------------
MARK TERCEK
Trustee
Date: March 31, 1999
56
<PAGE> 59
SIGNATURES (Cont'd)
By:/s/ DANIEL M. NEIDICH
---------------------------------
DANIEL M. NEIDICH
Trustee
Date: March 31, 1999
By:/s/ BARRY S. VOLPERT
---------------------------------
BARRY S. VOLPERT
Trustee
Date: March 31, 1999
By: /s/ G. ANDREA BOTTA
---------------------------------
ANDREA BOTTA
Trustee
Date: March 31, 1999
By:/s/ ANDREAS C. DRACOPOULOS
---------------------------------
ANDREAS C. DRACOPOULOS
Trustee
Date: March 31, 1999
57
<PAGE> 60
SIGNATURES (Cont'd)
By:/s/ RICHARD E. SALOMON
---------------------------------
RICHARD E. SALOMON
Trustee
Date: March 31, 1999
By:/s/ JERRY I. SPEYER
---------------------------------
JERRY I. SPEYER
President
(Principal Executive Officer)
Date: March 31, 1999
By:/s/ DAVID AUGARTEN
---------------------------------
DAVID AUGARTEN
Vice President
(Principal Financial Officer and
Principal Accounting Officer)
Date: March 31, 1999
58
<PAGE> 61
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.
59
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from RCPI
Trust's Balance Sheet as of December 31, 1998 and RCPI Trust's Statement of
Operations for the year ended December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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0
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