UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from _______ to ________
Commission file number: 33-8105
STAMFORD TOWERS LIMITED PARTNERSHIP
and
STAMFORD TOWERS DEPOSITARY CORP.
Exact name of registrant as specified in its charter
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
- ------------------------------ -------------------
Stamford Towers Limited Partnership-Delaware 13-3392080
Stamford Depository Corp.-Delaware 13-3392081
Attention: Andre Anderson
3 World Financial Center, 29th Floor, New York, New York 10285
- -------------------------------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Depositary Units of Limited Partnership Interest
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 the 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 ]
Aggregate market value of voting stock held by non-affiliates of the Registrant
- - Not Applicable
Documents Incorporated by Reference: None
PART I
ITEM 1. Business
(a) General Development of Business.
Stamford Towers Limited Partnership (the "Partnership") is a Delaware limited
partnership which was formed on August 14, 1986. The general partner of the
Partnership is Stamford Towers Inc., a Delaware corporation (the "General
Partner") and an affiliate of Lehman Brothers Inc. The sole limited partner of
the Partnership is Stamford Towers Depositary Corp., a Delaware corporation
(the "Assignor Limited Partner") and also an affiliate of Lehman Brothers Inc.
The control and management of the Partnership's business and affairs are vested
solely in the General Partner.
On November 19, 1986, the Partnership began an offering of 7,826,300 depositary
units ("Units") representing assignments of the limited partnership interests
in the Partnership. The offering was on a "best efforts" basis through
Shearson Lehman Brothers Inc. ("Shearson") at a price of $10 per Unit. On June
30, 1987, a supplement to the prospectus for the offering of the Units was
issued for the purpose of updating, modifying and amending certain information
contained in the original prospectus.
On July 30, 1987, the Partnership commenced operations with the acceptance of
subscriptions for 4,562,075 Units ($45,620,750). The remaining Units were sold
pursuant to eight additional Partnership closings occurring on a monthly basis
from August 1987 through March 1988. Net proceeds to the Partnership from the
public offering of the Units were $71,808,474, after deducting offering and
organizational costs and setting aside funds for a working capital reserve.
The Partnership was formed to acquire, construct, develop, own and operate two
parcels of land totaling approximately 3.63 acres located in the central
business district of Stamford, Connecticut (the "Land") and two commercial
office buildings together with ancillary facilities (the "Buildings")
constructed thereon which contain 325,416 net rentable square feet (the Land
and the Buildings are collectively referred to as the "Project"). See Item 2.
The Partnership entered into a development agreement dated September 17, 1986
as modified by a modification dated June 5, 1987 (collectively, the
"Development Agreement") with an unaffiliated party, Edlar, Inc., a Delaware
corporation (the "Developer"), pursuant to which the Developer agreed to convey
the Land to the Partnership and construct the Buildings.
Under the terms of the Development Agreement, the Developer was obligated,
among other things, to (1) cause substantial completion of the Buildings to
occur within 550 days of the commencement of construction (subject to
extensions for force majeure work delays and approved change orders), (2)
complete construction of the Buildings for a guaranteed maximum cost (including
Land and Miscellaneous carrying costs) of $59,384,922 (subject to increases
attributable to approved change orders and costs resulting from force majeure
work delays) and (3) complete the tenant finish pursuant to a standard work
letter for all initial leases entered into prior to the date 550 days after
substantial completion of the Buildings, for a guaranteed maximum cost. The
Developer, in connection with carrying out its construction obligations under
the Development Agreement, entered into a construction management agreement
dated May 28, 1987 with Gilbane Building Company ("Gilbane"), a Rhode Island
corporation, and assigned a construction supervisor to the Project to work
with Gilbane.
Edward Feldman, the principal shareholder of the Developer, executed a personal
guaranty in favor of the Partnership (the "Guaranty"), guaranteeing the
Developer's payment obligations under the Development Agreement, including
those relating to failure to complete performance of the work in a timely
fashion and funding of cost overruns. In the Guaranty, Mr. Feldman agreed to
maintain a personal net worth of at least $15,000,000 for so long as his
obligations thereunder remained outstanding. Because of Mr. Feldman's
substantial financial commitments with respect to other projects, as well as
his substantial contingent liabilities, it was understood that there could be
no assurance that Mr. Feldman would be able to make any required payments under
the Guaranty.
Construction of the Buildings commenced in July 1987. Certificates of
Occupancy were not received from the City of Stamford until February 1990,
representing a substantial delay from the originally scheduled completion date
of February 1989. Moreover, during the course of the construction, substantial
cost overruns were incurred. Because the Developer denied responsibility for
the delays and overruns, the Partnership commenced an arbitration in January
1989 to resolve the dispute. In the arbitration, the Partnership contended
that the Developer was responsible for all cost overruns (except for the cost
of three approved change orders which represented a total cost of less than
$20,000) incurred in connection with the construction of the buildings. In
addition, the Partnership contended that the Developer was obligated to make
certain liquidated damage payments as a result of the unjustified delays in the
completion of construction, and that the Developer's failure to make those
payments entitled the Partnership to terminate the Developer. The Developer,
in turn, filed numerous claims against the Partnership principally designed to
establish the Partnership's responsibility for the cost overruns incurred on
the Project.
As a result of a ruling by the New York State Supreme Court, the Partnership's
arbitration with the Developer was combined with the Developer's separate
arbitration with the Project's construction manager, Gilbane. Hearings in the
consolidated arbitration commenced in the fall of 1989 and continued
periodically until the summer of 1992. On January 27, 1993, the arbitration
panel issued its decision, awarding the Partnership approximately $8.1 million
in monetary relief and granting certain additional declaratory relief. The
arbitrators also decided in favor of Gilbane Building Company with respect to
its separate dispute with the Developer. See Items 3 and 7 for a discussion of
the arbitration award and its significance.
Because of the delays and cost overruns which occurred in the course of
construction of the Buildings, funds in addition to those budgeted were
required to complete the construction of the Buildings. Furthermore, due to
soft market conditions in Stamford, additional funds have been required to fund
increases in the Partnership's leasing budget.
Accordingly, on July 19, 1990, the Partnership closed a mortgage loan (the
"Financing") with People's Bank ("People's") to provide mortgage financing to
the Partnership. The Financing consisted of a $25 million, seven-year,
revolving loan payable, secured by a non-recourse first mortgage on the
Project. For the specific terms of the Financing, see Note 7 "Mortgage Note
Payable" of the Notes to the Financial Statements contained in Item 8 of this
report.
On February 17, 1994, the Partnership entered into a loan modification
agreement with People's (the "Loan Modification"). The Loan Modification: (i)
reduced the interest rate on the loan from 11.5% to 7.43% commencing February
1, 1994 and continuing until the first adjustment date on July 19, 1995, at
which time the interest rate was reset to 9.03%; (ii) reduced the principal
balance of the loan from $25 million to $24,449,795; and (iii) eliminated the
interest reserve line item. Payments of interest are due monthly in arrears
and are required to be paid from the Partnership's own funds. Loan proceeds
may continue to be used on an "as needed" basis to fund all other approved line
items. As of December 31, 1995, the principal balance of the loan was
$16,483,152 plus interest payable of $124,036 for a total balance of
$16,607,188.
The General Partner, at this time, cannot determine whether or when cash flow
from operations will be available for distribution to holders of Units ("Unit
Holders").
(b) Financial Information About Industry Segments. The Partnership's sole
business is the ownership and operation of the Project. All of the
Partnership's revenues, operating profit or loss and assets relate solely to
its interest as the owner of the Project.
(c) Narrative Description of Business. The Partnership's sole business is the
ownership and operation of the Project. The Partnership currently intends to
hold the Project until such time as the General Partner, pursuant to the terms
of the Partnership Agreement, deems it prudent to sell the Project. The
principal objectives of the Partnership, in no particular order of priority,
are to:
(i) provide long-term capital appreciation;
(ii) provide cash distributions from operation following
lease-up of the Project subsequent to the repayment of
the Financing; and
(iii) preserve and protect Partnership capital.
There can be no assurance that the Partnership will achieve its objectives.
The Partnership has no employees. CB Commercial Real Estate Group Inc. ("CB
Commercial") provides full-time property management services with respect to
the Project, and Rostenberg-Doern & Company serves as the Project's exclusive
leasing agent.
ITEM 2. Properties
The Land has been developed with two architecturally integrated, 11-story,
multi-tenant office buildings (comprised of four levels of parking and seven
levels of office space), one of which contains approximately 192,939 square
feet of rentable floor space (the "North Tower"), and the other of which
contains approximately 132,477 square feet of rentable floor space (the "South
Tower"). The Partnership owns no real property other than the Land and the
Buildings. A 3,000 square foot cafeteria available for the use of all tenants
was completed in December 1990 on the 5th floor of the North Tower.
The Partnership entered into a lease with Citicorp POS Information Services,
Inc. ("Citicorp POS") which became effective on May 15, 1990 (the "Original
Lease") for approximately 136,000 rentable square feet in the Project's North
Tower. On June 28, 1995, the Partnership executed the First Amendment (the
"Citicorp Lease Extension") to the Original Lease with Citicorp North America,
Inc. ("Citicorp"). For information regarding the lease with Citicorp and the
Citicorp Lease Extension, refer to Note 5 "Lease Agreement with Citicorp
Information Services" of the Notes to the Financial Statements contained in
Item 8 of this report. Occupancy at the Project was 49% as of December 31,
1995, as compared to 46% at December 31, 1994. In addition to Citicorp, there
are five other tenants occupying space in the Project. Four of these tenants
occupy approximately 21,800 square feet of office space. The fourth tenant
occupies approximately 500 square feet of retail space.
On October 18, 1995, the Partnership executed a 10-year, three-month lease with
Consolidated Hydro, Inc. ("Consolidated Hydro") for approximately 8,600 square
feet in the Project's South Tower. Consolidated Hydro, the first tenant in the
South Tower, took occupancy in the Project upon the completion of its tenant
improvements in late December 1995.
Subsequent to December 31, 1995, the Partnership signed a 10-year lease with
Cardmember Publishing Corp. ("Cardmember Publishing") for approximately 18,650
square feet in the Project's South Tower. Cardmember Publishing took occupancy
on March 15, 1996 which increases the Project's occupancy to approximately 54%.
According to leasing reports prepared by CB Commercial, the total office
inventory available for lease in Stamford, Connecticut was approximately
2,447,100 square feet at December 31, 1995. This represents a decline from the
prior year and reflects absorption of approximately 143,600 square feet. The
Stamford market remained relatively stable as reflected by the vacancy rate
which declined slightly from 19.9% at year-end 1994 to 16.6% at the end of
1995. As of December 31, 1995, the average asking gross rental rate for class
A office space in Stamford was approximately $21.50 per square foot. The
increase in leasing activity is beginning to reduce the availability of class A
space in Stamford and the surrounding areas and may lead to a slight increase
in rental rates during 1996.
One of the most significant developments in Stamford during 1994 was the
announcement that Swiss Bank Corporation ("Swiss Bank") would be constructing a
20-story North American headquarters building directly across the street from
the Project. Construction commenced in January 1996 and is expected to take
several years to complete. Swiss Bank's commitment is an indication of the
continuing interest of major corporations in Stamford as an alternative to New
York. Swiss Bank's plans call for the relocation of approximately 1,200
employees from its current Manhattan location to Stamford by late 1997 or early
1998.
ITEM 3. Legal Proceedings
In early 1993, the Partnership received the decision of a five-member
arbitration board impaneled to determine numerous disputes between and among
the Partnership, the Developer and Gilbane arising from the development and
construction of the Project. In their decision, the arbitrators awarded the
Partnership approximately $8.1 million in damages and costs on its claims
against the Developer and awarded the Developer no amounts on its claims
against the Partnership. The arbitrators also awarded Gilbane approximately
$2.6 million in damages and costs on its claims against the Developer and
ordered that the Developer hold the Partnership harmless with respect to any
mechanics liens filed against the Partnership's property in connection with the
Project. The Partnership has obtained a judgment in New York for the full
amount of the arbitration award against Edlar and Edward Feldman, pursuant to
the Guaranty.
However, the General Partner's preliminary investigation indicates that the
Developer has no significant assets from which the Partnership's arbitration
award could be satisfied. Moreover, Mr. Feldman has advised the Partnership
that he has no significant liquid assets from which to satisfy the judgment
against him, and that he has outstanding debts to other creditors in the
approximate amount of $53,000,000. Mr. Feldman has proposed that his
creditors, including the Partnership, enter into a non-judicial workout
arrangement whereby his debts might be partially satisfied in the event that
his real estate investments appreciate in value in future years. Currently,
those investments appear to be over-leveraged and without significant market
value. The Partnership along with Mr. Feldman's other creditors are in the
process of evaluating and potentially proposing alternatives to Mr. Feldman's
proposal. Berkshire Bank, one of Mr. Feldman's creditors, has thus far not
participated in this process.
On February 1, 1991, Gilbane filed a mechanic's lien against the Project in the
sum of $4,583,481. This amount was subsequently reduced to $2,650,018 at the
request of the Partnership. On August 9, 1991, Gilbane commenced an action
entitled Gilbane Building Co. v. Stamford Towers Limited Partnership, et. al.,
in the Connecticut Superior Court for the Judicial District of Stamford/Norwalk
at Stamford (the "Gilbane Action"). The defendants include the Partnership.
Gilbane alleges breach of various contracts and unfair trade practices and
seeks foreclosure of its mechanic's lien, approximately $2.65 million in
monetary damages, interest, costs, attorneys' fees, punitive damages,
possession of the Project, and the appointment of a receiver.
On October 21, 1993, the Partnership filed its Answer, Special Defenses and
Counterclaims to Gilbane's Action, which alleged breach of various contracts,
unfair trade practices and slander of title. On September 13, 1995, the
Partnership filed a Substituted Answer, Special Defenses, Counterclaims,
Set-offs and Recoupment which, in addition to the allegations of its original
counterclaim, brought additional claims of negligence, breach of warranty,
breach of contract, products liability and unfair trade practices. The
Partnership, by way of its counterclaims, seeks approximately $1.7 million in
damages in addition to interest, costs, punitive damages and attorneys' fees.
On December 31, 1990, a subcontractor of the Project, Moliterno Stone Sales,
Inc. ("Moliterno") filed a mechanic's lien against the Property in the sum of
$155,936. On December 11, 1991, Moliterno filed a cross-claim against the
Partnership in the Gilbane Action. Moliterno seeks foreclosure on its
mechanic's lien, monetary damages, and possession of the Project. An
application to discharge Moliterno's mechanic's lien was filed by the
Partnership on April 30, 1993. On September 1, 1995, the Partnership filed its
answer, special defenses and counterclaims to Moliterno's cross-claim, alleging
that Moliterno was negligent, breached its contract and an implied warranty,
and engaged in unfair trade practices in performing its work on the Project.
The Partnership, Gilbane and Moliterno (collectively, the "Parties")
participated in the trial of the Gilbane Action over the course of
approximately 20 trial days in late 1995. The evidentiary portion of the trial
was completed with the exception of what is expected to be one final day of
trial currently expected to occur early in the second quarter of 1996. It is
anticipated that the court at that time will order a post-trial briefing
schedule. A decision from the trial court, therefore, is currently not
expected until, at the earliest, late in the second quarter of 1996. While the
Partnership believes it has meritorious defenses and counterclaims against each
claim, pursuant to the provisions of Statement of Position 94-6, which became
effective with financial statements issued for fiscal years ending on or after
December 15, 1995, the Partnership is required to disclose that the ultimate
resolution of the matter, which is expected to occur within one year, could
result in a loss of approximately $2.8 million. The Partnership has made no
accrual for potential losses related to this litigation as of December 31,
1995.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Unit Holders at a meeting or
otherwise during the fourth quarter in the year for which this report is filed.
PART II
ITEM 5. Market for the Partnership's Limited Partnership Interests and Related
Security Holder Matters
(a) Market Price Information. There is no established trading market for the
Units. The Partnership originally intended to apply to include the Units
on NASDAQ or another quoted securities market upon the completion of the
lease-up of the Project. However, an application is not anticipated at
this time.
(b) Holders. As of December 31, 1995, there were 8,842 Unit Holders.
(c) Distribution of Net Cash Flow. For information regarding the
Partnership's policy with respect to distribution of net cash flow, refer
to Note 3 "The Partnership Agreement" of the Notes to the Financial
Statements contained in Item 8 of this report.
ITEM 6. Selected Financial Data
Set forth below is the selected financial data for the referenced periods.
For the years ended December 31,
1995 1994 1993 1992 1991
Rental
Income $ 2,947,857 $ 2,486,730 $ 2,392,211 $ 2,359,242 $ 2,200,820
Interest
Income 319,278 192,911 182,101 259,422 489,484
Net
Loss (3,017,904) (3,711,936) (4,387,694) (4,180,101) (5,001,682)
Net Loss
per Unit(1) (.38) (.47) (.56) (.53) (.63)
Total
Assets 69,670,348 70,989,125 74,328,520 76,917,606 79,778,759
Revolving
loan
payable 16,483,152 15,407,772 14,951,320 13,312,685 11,465,501
Cash
Distributions
per Unit -0- -0- -0- -0- -0-
(1) Based upon the weighted average number of Units (7,826,300) outstanding
at year end.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
Initially, the principal source of the Partnership's liquidity was the proceeds
from the offering of Units which was completed in March 1988 and totaled
$78,263,000. After paying offering expenses and syndication costs of the
Partnership and establishing a working capital reserve, the Partnership had
approximately $71,808,474 available to invest in the acquisition of the Land
and the construction, lease-up and operation of the Buildings. On July 30,
1987, the Partnership acquired the Land for $14,714,483. As of December 31,
1995, $59,515,928 had been invested in the construction of the Buildings and
tenant improvements.
The Partnership is currently preserving its funds to lease and operate the
Project. Through December 31, 1995, the Partnership's sources of liquidity
have been net proceeds from the public offering of the Units, rental payments
under the terms of the leases discussed in Item 2, proceeds from the Financing
discussed in Item 1 and Note 7, "Mortgage Note Payable", of the Notes to the
Financial Statements contained in Item 8 of this report, and interest earned on
the Partnership's cash balance.
Because of delays and cost overruns which occurred in the course of
construction of the Buildings and due to soft market conditions in the Stamford
real estate market, additional funds have been required to fund cost overruns,
operating deficits and leasing costs. See Item 1. While the Partnership
sought to recover the amount of the construction overruns from the Developer
and eventually prevailed on most of its claims at the arbitration (see Item 3),
it currently appears that neither the Developer nor Edward Feldman, the
Developer's principal shareholder, have any significant liquid assets from
which to pay the Partnership. While the General Partner intends to pursue,
with all prudent measure, payment of the $8.1 million arbitration award, it
seems unlikely that any substantial sums will be realized in the foreseeable
future with respect to the arbitration award.
In order to fund cost overruns, operating deficits and leasing commissions to
date, the Partnership obtained a $25 million, seven-year, revolving loan
payable from People's in July 1990. On February 17, 1994, the Partnership
entered into the Loan Modification with People's which: (i) reduced the
interest rate on the loan from 11.5% to 7.43% commencing February 1, 1994 and
continuing until the first adjustment date on July 19, 1995, at which time the
interest rate was reset to 9.03%; (ii) reduced the principal balance of the
loan from $25 million to $24,449,795; and (iii) eliminated the interest
reserve line item. Another provision of the Financing was that when occupancy
at the Property reached 50% or greater, the interest rate on the loan would be
reduced by 25 basis points. The Cardmember Publishing lease in the South
Tower commenced on March 15, 1996 which brought the Project's occupancy to
approximately 54%. Payments of interest are due monthly in arrears and are
required to be paid from the Partnership's own funds. Loan proceeds may
continue to be used on an "as needed" basis to fund all other approved line
items. The $1,075,380 increase in principal from December 31, 1994 was
attributable to funds drawn to pay for costs associated with the Citicorp
Lease Extension.
Cash and cash equivalents totaled $5,873,982 and $5,768,902 at December 31,
1995 and 1994, respectively. The increase was primarily due to cash provided
by borrowings under the revolving note payable, partially offset by net cash
used for operating activities and additions to real estate.
As of December 31, 1995, the Partnership had deferred rent receivable of
$1,855,670, compared with $2,381,869 at December 31, 1994. Deferred rent
receivable represents rental income which is recognized on a straight-line
basis over the non-cancelable terms of the tenants' leases which will not be
received until later periods.
Prepaid expenses increased from $320,021 at December 31, 1994 to $1,399,363 at
December 31, 1995. The increase is attributable to the paying of leasing
commissions related to the Citicorp Lease Extension and Consolidated Hydro
lease, partially offset by the continued amortization of insurance premiums and
leasing commissions.
Accounts payable and accrued expenses increased from $857,084 at December 31,
1994 to $1,464,994 at December 31, 1995. The increase is primarily
attributable to prepaid rental payments made by Citicorp. The increase is also
due to accrued invoices relating to Consolidated Hydro's tenant improvements.
The Partnership has made no cash distributions to date. See Item 1 for a
discussion of the adverse impact which the placement of the Financing on the
Project will have on the amount and the timing of any distributions of cash
flow to Unit Holders in the future.
On February 16, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner, and no partner will be entitled to receive any
distribution, until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on February 29, 1996.
Results of Operations
1995 vs. 1994
The Partnership incurred a net loss of $3,017,904 for the year ended December
31, 1995 compared with a net loss of $3,711,936 for the year ended December 31,
1994. The reduction in the net loss is primarily the result of increases in
rental income due to the Citicorp Lease Extension and, to a lesser extent, an
increase in interest income.
Rental income totaled $2,947,857 in 1995, up 19% from 1994, primarily due to a
rent step-up in 1995 and a reduction in the amortization of deferred rent
relating to the Citicorp Lease Extension. Other income increased from $293,767
in 1994 to $331,828 in 1995, reflecting an increase in tenant reimbursements
for HVAC improvements for Citicorp and, to a lesser extent, income received
from the rental of storage space to Citicorp. Partially offsetting these
increases was a reduction in tenant reimbursements for electricity costs,
resulting primarily from a reduction in the number of employees occupying the
Citicorp space. Interest income for the year ended December 31, 1995 was
$319,278 as compared to $192,911 for the year ended December 31, 1994. The
increase is the result of an increase in the Partnership's average cash balance
due to a drawdown on the first mortgage loan in July 1995, as well as an
increase in the interest rate earned on the balance.
Total expenses for the year ended December 31, 1995 were $6,616,867 compared
with $6,685,344 in 1994. Depreciation and amortization for the year ended
December 31, 1995 was $2,446,866 compared to $2,912,878 in 1994. The decline
in depreciation and amortization is attributable to the Citicorp Lease
Extension which extended the length of Citicorp's lease and the corresponding
asset life of the tenant improvements. As a result, the annual depreciation
expense was reduced. Property operating expenses decreased to $2,308,093 from
$2,313,161 in 1994, primarily due to lower real estate taxes, advertising and
promotion expenses. Real estate taxes were reduced as a result of a reduction
in the City of Stamford's real estate tax rate and a reduction in the assessed
value of the South Tower, partially offset by a slight increase in the assessed
value of the North Tower. Although the Partnership is contesting the assessed
values of the North and South Towers, there are no assurances that the
Partnership will be successful in obtaining a further reduction in the
Project's real estate taxes. Partially offsetting these reductions was an
increase in construction costs related to HVAC improvements for Citicorp. These
expenses were reimbursed to the Partnership by Citicorp and are reflected under
other income. Interest expense relating to the revolving loan payable
increased to $1,289,309 in 1995 from $1,188,986 in 1994. Interest expense
increased due to the additional borrowings and an increase in the interest rate
discussed above. Professional fees totaled $434,597 in 1995 compared with
$146,489 in 1994. The increase is attributable to legal and engineering
consulting fees associated with the Gilbane mediation, and to a lesser extent,
an increase in legal fees associated with new leases.
1994 vs. 1993
The Partnership incurred a net loss of $3,711,936 for the year ended December
31, 1994 compared with a net loss of $4,387,694 for the year ended December 31,
1993. The reduction in the net loss is primarily the result of increases in
rental and other income, as well as decreases in interest expense and
professional fees.
Rental income totaled $2,486,730 in 1994, up 4% from 1993, due to rental
income received from the signing of two leases representing 4,150 square feet
in July and November 1993. Other income increased from $224,612 in 1993 to
$293,767 in 1994, reflecting an increase in tenant reimbursements for
electricity and other building costs, as well as income generated from
cafeteria operations at the Property.
Total expenses for the year ended December 31, 1994 were $6,685,344 compared
with $7,186,618 in 1993. Property operating expenses decreased to $2,313,161
from $2,380,642 in 1993, primarily due to lower building service expense and
real estate taxes, partially offset by higher repairs and maintenance and
payroll costs at the Property. Interest expense relating to the revolving loan
payable decreased to $1,188,986 in 1994 from $1,627,333 in 1993. Interest
expense decreased, despite the increase in the outstanding loan balance, due to
the Loan Modification discussed above.
Professional fees totaled $146,489 in 1994 compared with $188,344 in 1993. The
decrease is attributable to lower legal fees.
ITEM 8. Financial Statements and Supplementary Data
See Item 14 for a listing of the financial statements and supplementary data
filed with this report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The Partnership has no Directors or Executive Officers. The affairs of the
Partnership are conducted through the General Partner. Certain officers and
directors of the General Partner are now serving (or in the past have served)
as officers and directors of entities which act as general partners of a number
of real estate limited partnerships which have sought protection under the
provisions of the Federal Bankruptcy Code. The partnerships which have filed
for bankruptcy petitions own real estate which has been adversely affected by
the economic condition in the markets in which the real estate is located and,
consequently, the partnerships sought protection of the bankruptcy laws to
protect the partnerships' assets from loss through foreclosure.
On July 31, 1993, Shearson Lehman Brothers, Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. ("Lehman"). The transaction
did not affect the ownership of the Partnership or the General Partner.
Set forth below are the names, positions and offices held, and a brief account
of the business experience during the past five years of each Director and
Executive Officer of the General Partner and the Assignor Limited Partner as of
December 31, 1995. Each such officer and director holds a similar position in
the General Partner and the Assignor Limited Partner.
Name Office
Regina M. Hertl President
Rocco F. Andriola Vice President, Director
and Chief Financial Officer
Jeffrey C. Carter Vice President
Roy W. Pollitt Vice President
Regina M. Hertl, 37, is a First Vice President of Lehman Brothers in its
Diversified Asset Group and is responsible for the investment management of
commercial and residential real estate, and a venture capital portfolio. From
January 1988 through December 1988, Ms. Hertl was Vice President of the Real
Estate Accounting Group within the Controller's Department of Shearson Lehman
Brothers. From September 1986 through December 1987, she was an Assistant Vice
President responsible for real estate accounting analysis within the
Controller's Department at Shearson. From September 1981 to September 1986,
Ms. Hertl was employed by the accounting firm of Coopers & Lybrand. Ms. Hertl,
who is a Certified Public Accountant, graduated from Manhattan College in 1981
with a B.S. degree in Accounting.
Rocco F. Andriola, 37, is a Senior Vice President of Lehman Brothers in its
Diversified Asset Group. Since joining Lehman Brothers in 1986, Mr. Andriola
has been involved in a wide range of restructuring and asset management
activities involving real estate and other direct investment transactions.
From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. degree from Fordham University, a J.D. degree from New York
University School of Law, and an LL.M degree in Corporate Law from New York
University's Graduate School of Law.
Jeffrey C. Carter, 50, is a Senior Vice President of Lehman Brothers in the
Diversified Asset Group. Mr. Carter joined Lehman Brothers in September 1988.
From 1972 to 1988, Mr. Carter held various positions with Helmsley-Spear
Hospitality Services, Inc. and Stephen W. Brener Associates, Inc. including
Director of Consulting Services at both firms. From 1982 through 1987, Mr.
Carter was President of Keystone Hospitality Services, an independent hotel
consulting and brokerage company. Mr. Carter received his B.S. degree in Hotel
Administration from Cornell University and an M.B.A. degree from Columbia
University.
Roy W. Pollitt, 24, is an Associate of Lehman Brothers and is responsible for
the management of various commercial real estate transactions in the
Diversified Asset Group. Mr. Pollitt joined Lehman Brothers in November 1995.
Prior to that, Mr. Pollitt had attained Senior status with Arthur Andersen
L.L.P. in the Real Estate Services Group, where he had been employed since May
1992. Mr. Pollitt is a candidate to become a Certified Public Accountant and
earned a B.A. degree in Accounting from the Hagan School of Business at Iona
College in May 1993.
ITEM 11. Executive Compensation
The Directors and Officers of the General Partner and the Assignor Limited
Partner do not receive any salaries or other compensation from the Partnership
or the Assignor Limited Partner.
The General Partner is entitled to varying percentages of Net Cash Flow
distributed in any fiscal year and to varying percentages of the Net Proceeds
of capital transactions. See Note 3 "The Partnership Agreement" of the Notes
to the Financial Statements in Item 8 of this report for a description of such
arrangements.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1995, the only entity known by the Partnership to be the
beneficial owner of more than five percent of the Units was Chrysler Master
Pension Trust, U/A/D 5/28/56, 12,000 Chrysler Drive, Highland Park, Michigan,
which was the beneficial owner of 450,000 Units or approximately 5.74% of the
total outstanding Units.
As of December 31, 1995, neither the General Partner nor any of its officers or
directors held any Units.
ITEM 13. Certain Relationships and Related Transactions
The General Partner or its affiliates earned fees and compensation in
connection with the syndication, acquisition, and organization services
rendered to the Partnership. As of December 31, 1995, $127,921 remained
unpaid.
Under the terms of the Partnership Agreement, the General Partner and certain
affiliates may be reimbursed by the Partnership for certain operational
expenses, including but not limited to audit, appraisal, legal and tax
preparation fees as well as costs of data processing. First Data Investor
Services Group provides partnership accounting and investor relations services
for the Registrant. Prior to May 1993, these services were provided by an
affiliate of the General Partner. The Registrant's transfer agent and certain
tax reporting services are provided by Service Data Corporation. Both First
Data Investor Services Group and Service Data Corporation are unaffiliated
companies. For the amounts paid to affiliates for the three years ended
December 31, 1995, 1994, and 1993, see Note 4 "Transactions with Related
Parties" of the Notes to the Financial Statements included in Item 8 of this
report.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Schedules.
Page
----
Report of Independent Auditors F-1
Balance Sheets at December 31, 1995 and 1994 F-2
Statements of Partners Capital (Deficit) for the years ended
December 31, 1995, 1994 and 1993 F-2
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 F-3
Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993 F-4
Notes to the Financial Statements F-5
Schedule III - Real Estate and Accumulated Depreciation F-10
No other schedules are presented because the information is not applicable or
is included in the Financial Statements or the notes thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the year ended
December 31, 1995.
(c) Exhibits
Subject to Rule 12b-32 of the Securities and Exchange Act of 1934 regarding
incorporation by reference, listed below are the exhibits which are filed as
part of this report:
3. The Partnership's Amended and Restated Agreement of Limited
Partnership, dated as of November 1, 1986, is hereby
incorporated by reference to Exhibit A to the Prospectus
contained in Registration Statement No. 33-8105, which
registration statement (the "Registration Statement") was
declared effective by the SEC on November 19, 1986.
4. The form of Unit Certificate is hereby incorporated by
reference to Exhibit 4.1 to the Registration Statement.
10.1 Subscription Agreement and Signature Page is included as
Exhibits B and C to the Prospectus contained in the
Registration Statement, and is incorporated herein by
reference.
10.2 Escrow Agreement between the Partnership and United States
Trust Company of New York is hereby incorporated by reference
to Exhibit 10.3 to the Registration Statement.
10.3 Property Management Agreement between the Partnership and
Feldman Realty relating to the Project is hereby incorporated
by reference to Exhibit 10.3 to the Registration Statement.
10.4 Supervisory Leasing and Management Agreement between the
Partnership and the Manager relating to the Project is hereby
incorporated by reference to Exhibit 10.4 to the Registration
Statement.
10.5 Demand Promissory Note from Shearson to the General Partner is
hereby incorporated by reference to Exhibit 10.5 to the
Registration Statement.
10.6 Contract of Sale, as amended to date, relating to the land
portion of the Project and all exhibits thereto is included as
Exhibit L to the Development Agreement, and is hereby
incorporated herein by reference to Exhibit 10.6 to the
Registration Statement.
10.7 Development Agreement between the Developer and the Partnership
is hereby incorporated by reference to Exhibit 10.7 to the
Registration Statement.
10.8 Guaranty of the Developer's obligations is hereby incorporated
by reference to Exhibit 10.8 to the Registration Statement.
10.9 Form of Letter Agreement between Edward Feldman and the
Partnership relating to the Guaranty is hereby incorporated by
reference to Exhibit 10.9 to the Registration Statement.
10.10 Modification of Development Agreement between the Developer and
the Partnership is hereby incorporated by reference to Exhibit
10.10 to the Registration Statement.
10.11 Commitment Letter from Shearson Lehman Brothers Holdings Inc.
to the Partnership is hereby incorporated by reference to
Exhibit 10.11 to the Registration Statement.
10.12 Agreement Regarding Securities Law Liability between Developer,
Feldman Realty & Management Corp., Edward Feldman, Shearson,
Registrant and the General Partner is hereby incorporated by
reference to Exhibit 10.14 to the Registration Statement.
10.13 Modification of Supervisory Leasing and Management Agreement
between the Partnership and the Manager is hereby incorporated
by reference to Exhibit 10.15 to the Registration Statement.
10.14 Commercial Revolving Loan Agreement between the Partnership and
People's Bank dated July 19, 1990 is hereby incorporated by
reference to Exhibit 10.14 to the Partnership's report on
Form 10-K for the year ended December 31, 1990.
10.15 Modification of Loan Agreement, Mortgage, Collateral Assignment
of Leases and Other Loan Documents, between the Partnership and
Peoples Bank, dated February 17, 1994, is hereby incorporated
by reference to Exhibit 10.15 to the Partnership's report on
Form 10-K for the year ended December 31, 1993.
27. Financial Data Schedule
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.
Dated: March 29, 1996
STAMFORD TOWERS LIMITED PARTNERSHIP
BY: Stamford Towers, Inc.
General Partner
BY: /S/ Rocco F. Andriola
Name: Rocco F. Andriola
Title: Director, Chief Financial
Officer and Vice President
STAMFORD TOWERS DEPOSITARY CORP.
BY: /S/ Rocco F. Andriola
Name: Rocco F. Andriola
Title: Director, Chief Financial
Officer and Vice President
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 in the capabilities and on the dates indicated.
STAMFORD TOWERS, INC. and
STAMFORD TOWERS DEPOSITARY CORP.
General Partner
Date: March 29, 1996
BY: /S/ Rocco F. Andriola
Rocco F. Andriola
Vice President, Director and
Chief Financial Officer
Date: March 29, 1996
BY: /S/ Regina Hertl
Regina Hertl
President
REPORT OF INDEPENDENT AUDITORS
General and Limited Partners
Stamford Towers Limited Partnership
We have audited the accompanying balance sheets of Stamford Towers Limited
Partnership as of December 31, 1995 and 1994, and the related statements of
operations, partners' capital (deficit), and cash flows for each of the three
years in the period ended December 31, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Stamford Towers Limited
Partnership at December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
January 29, 1996
except for Note 1, as to which the date is
February 16, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate investments, at cost:
Land $ 14,714,483 $ 14,714,483
Buildings and improvements 52,729,013 52,537,022
Tenant improvements 6,786,915 6,618,562
Furniture, fixtures and equipment 372,541 372,541
74,602,952 74,242,608
Less accumulated depreciation (14,405,825) (12,226,266)
60,197,127 62,016,342
Cash and cash equivalents 5,873,982 5,768,902
Restricted cash 91,458 89,294
5,965,440 5,858,196
Accounts receivable 71,052 103,201
Deferred rent receivable 1,855,670 2,381,869
Deferred charges, net of accumulated
amortization of $573,387 in 1995 and $445,587
in 1994 181,696 309,496
Prepaid expenses, net of accumulated
amortization of $775,742 in 1995 and $636,235
in 1994 1,399,363 320,021
Total Assets $ 69,670,348 $ 70,989,125
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 1,464,994 $ 857,084
Interest payable 124,036 95,400
Due to affiliates 146,292 159,091
Revolving loan payable 16,483,152 15,407,772
Total Liabilities 18,218,474 16,519,347
Partners' Capital (Deficit):
General Partner (203,466) (173,287)
Limited Partners 51,655,340 54,643,065
Total Partners' Capital 51,451,874 54,469,778
Total Liabilities and Partners'
Capital $ 69,670,348 $ 70,989,125
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
General Limited
Partner Partners Total
Balance at December 31, 1992 $ (92,291) $ 62,661,699 $ 62,569,408
Net loss (43,877) (4,343,817) (4,387,694)
Balance at December 31, 1993 (136,168) 58,317,882 58,181,714
Net loss (37,119) (3,674,817) (3,711,936)
Balance at December 31, 1994 (173,287) 54,643,065 54,469,778
Net loss (30,179) (2,987,725) (3,017,904)
Balance at December 31, 1995 $ (203,466) $ 51,655,340 $ 51,451,874
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental $ 2,947,857 $ 2,486,730 $ 2,392,211
Other 331,828 293,767 224,612
Interest 319,278 192,911 182,101
Total Income 3,598,963 2,973,408 2,798,924
Expenses
Depreciation and amortization 2,446,866 2,912,878 2,860,958
Property operating 2,308,093 2,313,161 2,380,642
Interest 1,289,309 1,188,986 1,627,333
Professional fees 434,597 146,489 188,344
Partnership service fees 104,289 99,724 113,572
General and administrative 33,713 24,106 15,769
Total Expenses 6,616,867 6,685,344 7,186,618
Net Loss $ (3,017,904) $(3,711,936) $(4,387,694)
Net Loss Allocated:
To the General Partner $ (30,179) $ (37,119) $ (43,877)
To the Limited Partners (2,987,725) (3,674,817) (4,343,817)
$ (3,017,904) $(3,711,936) $(4,387,694)
Per limited partnership unit
(7,826,300 outstanding) $ (.38) $ (.47) $ (.56)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net loss $ (3,017,904) $ (3,711,936) $ (4,387,694)
Adjustments to reconcile net loss
to net cash used for operating
activities:
Depreciation 2,179,559 2,640,336 2,628,482
Amortization 267,307 272,542 232,476
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Restricted cash (2,164) (6,702) (2,079)
Accounts receivable 32,149 (32,231) (10,355)
Deferred rent receivable 526,199 26,856 (704,396)
Deferred charges -- (137,622) --
Prepaid expenses (1,218,849) (7,791) (61,729)
Accounts payable and accrued
expenses 452,070 (31,366) 144,701
Interest payable 28,636 (47,476) 15,859
Due to affiliates (12,799) (5,069) (587)
Net cash used for operating activities (765,796) (1,040,459) (2,145,322)
Cash Flows from Investing Activities:
Additions to real estate assets (204,504) (199,169 (152,409)
Net cash used for investing activities (204,504) (199,169) (152,409)
Cash Flows from Financing Activities:
Borrowings under the revolving
loan payable 1,075,380 456,452 1,638,635
Net cash provided by financing
activities 1,075,380 456,452 1,638,635
Net increase (decrease) in cash and
cash equivalents 105,080 (783,176) (659,096)
Cash and cash equivalents at beginning
of year 5,768,902 6,552,078 7,211,174
Cash and cash equivalents at end
of year $ 5,873,982 $ 5,768,902 $ 6,552,078
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 1,260,673 $ 949,390 $ --
Supplemental Disclosure of Non-Cash Investing Activities:
Tenant improvements funded through
accounts payable $ 155,840 $ -- $ --
Notes to the Financial Statements
December 31, 1995, 1994 and 1993
1. Organization and Business
Stamford Towers Limited Partnership (the "Partnership"), a Delaware limited
partnership, was formed on August 14, 1986 for the purpose of acquiring two
parcels of land, aggregating 3.63 acres, located in Stamford, Connecticut and
developing, owning and operating two class A office buildings (the "Buildings")
to be constructed thereon (collectively the "Project"). The Buildings contain
approximately 325,000 square feet of rentable space.
The general partner of the Partnership is Stamford Towers, Inc. (the "General
Partner"), an affiliate of Lehman Brothers Inc. (see below).
Construction of the Buildings commenced in July 1987. However, certificates of
occupancy were not received from the City of Stamford until February 6, 1990,
representing a substantial delay from the originally scheduled completion date
of February 1989. Moreover, during the course of construction, substantial
cost overruns were incurred. The Partnership initiated an arbitration
proceeding against Edlar, Inc., a Delaware corporation, ("Edlar") in order to
establish Edlar's responsibility for certain cost overruns, delays, expenses
and liquidated damages in connection with the construction phase of the
Project. In January 1993, the arbitrators issued their decision which, in
substance, awards the Partnership approximately $8.1 million in damages and
costs against Edlar. However, the General Partner's preliminary investigation
indicates that Edlar has no significant assets from which the Partnership's
arbitration award could be satisfied. Moreover, Edward Feldman, the principal
of Edlar, has advised the Partnership that he has no significant, liquid
assets from which to satisfy the judgment against him pursuant to his personal
guaranty of Edlar's obligation to the Partnership. Mr. Feldman has proposed
that his creditors, including the Partnership, enter into a non-judicial
workout arrangement whereby his debts might be partially satisfied in the event
that his real estate investments appreciate in value in future years.
Currently, those investments appear to be over-leveraged and without
significant market value. The Partnership is in the process of evaluating Mr.
Feldman's proposal. (see Note 9).
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated. Subsequent to the sale, Shearson Lehman Brothers Inc.
changed its name to Lehman Brothers Inc. The transaction did not affect the
ownership of the General Partner.
The Partnership will terminate on December 31, 2036 unless dissolved sooner as
provided within the Agreement.
On February 16, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on February 29, 1996.
2. Significant Accounting Policies
Real Estate Investments
Real estate investments, which consist of buildings and improvements, tenant
improvements and furniture, fixtures and equipment, are recorded at cost less
accumulated depreciation. Cost of the buildings includes the initial purchase
price of the property plus closing costs, acquisition and legal fees and
capital improvements. Depreciation on the buildings and improvements is
computed using the straight-line method based on estimated useful lives of 35
years. Tenant improvements are depreciated by the straight-line method over
the terms of the related leases. Furniture, fixtures and equipment are
depreciated over their estimated useful lives.
Accounting for Impairment
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Partnership adopted FAS 121 during
the fourth fiscal quarter of 1995. Based on current circumstances, the
adoption of FAS 121 had no impact on the financial statements.
Cash Equivalents
Cash equivalents consist of short-term highly liquid investments which have
maturities of three months or less from the date of purchase. Substantially
all the Partnership's cash balances are invested with an affiliate of the
General Partner. The carrying value approximates fair value because of the
short maturity of these instruments.
Offering Costs
Offering costs of $6,454,526 are non-amortizable and have been deducted from
the Limited Partners' capital.
Deferred Rent Receivable
Deferred rent receivable consists of rental income which is recognized on a
straight-line basis over the non-cancelable portion of the leases which will
not be received until later periods as a result of rental concessions.
Deferred Charges
Costs incurred in connection with obtaining mortgage financing are included in
deferred charges. These costs are amortized over the life of the related
mortgage loan.
Leasing Commissions
Leasing commissions included in prepaid expenses are being amortized over the
term of the non-cancelable portions of the leases.
Income Taxes
No provision for income taxes has been made in the financial statements since
such taxes are the responsibility of the individual partners rather than that
of the Partnership.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires that the Partnership
disclose the estimated fair values of its financial instruments. Fair values
generally represent estimates of amounts at which a financial instrument could
be exchanged between willing parties in a current transaction other than in
forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgement regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
3. The Partnership Agreement
Pursuant to the terms of the Partnership Agreement, all net income from
operations of the Partnership will be allocated in substantially the same
manner as cash distributions from operations. All net losses from operations
of the Partnership generally will be allocated 99% to the Limited Partners and
1% to the General Partner.
Distributions of net cash flow from operations, if any, as defined in the
Partnership Agreement, shall be made to the partners quarterly during each year
on the basis of 99% to the Limited Partners and 1% to the General Partner until
the limited partners have received their Preferred Return (14% per annum), as
defined in the Partnership Agreement, and then 90% to the Limited Partners and
10% to the General Partner. Cash distributions from operations will be reduced
to the extent of any debt service payable with respect to the financing (see
Note 7).
Upon sale or an interim capital transaction, net proceeds will be distributed
after the close of the calendar quarter in which such a sale or capital
transaction occurs. Such net proceeds will first be distributed 99% to the
Limited Partners and 1% to the General Partner until the Limited Partners
receive their Preferred Return Arrearage and Unrecovered Capital, as defined in
the Partnership Agreement, with any remaining proceeds to be distributed 90% to
the Limited Partners and 10% to the General Partner.
Upon sale or an interim capital transaction, net gains will first be allocated
to the extent of net proceeds distributed to the Limited Partners and General
Partner from related transactions, then to the Limited Partners and General
Partner in proportion to their respective negative balances in their capital
accounts; then the remainder of such net gains should be allocated to the
extent possible so that the positive balances in the capital accounts of the
Limited Partners and the General Partner are in the proportions of 90% and 10%,
respectively. Tax losses from sale or an interim capital transaction will be
allocated to the Limited Partners and General Partner in proportion to their
respective positive balances in their capital accounts after such allocation,
the remainder of the tax losses should be allocated to the extent possible so
that the negative balances in the capital accounts of the Limited Partners and
General Partner are in the proportions of 90% and 10%, respectively.
All net gains and tax losses in connection with the sale of all or
substantially all of the assets of the Partnership or any other event causing a
dissolution of the Partnership shall be allocated in substantially the same
manner as net gains and tax losses from sale or an interim capital transaction.
If, as a result of the dissolution of the Partnership, the capital account of
the General Partner is less than zero, the General Partner shall contribute to
the Partnership an amount equal to the lesser of the deficit balance in its
capital account or the excess of one and one one-hundredth percent of the total
capital contribution of the Limited Partners over the total capital
contributions previously made by the General Partner to the Partnership.
4. Transactions with Related Parties
The General Partner earned fees and compensation in connection with
organization, syndication and acquisition services rendered to the Partnership.
As of December 31, 1995, $127,921 of these amounts remain accrued and unpaid.
Under the terms of the Partnership Agreement, the Partnership reimburses the
General Partner, at cost, for the performance of certain administrative
services provided by a third party. For the years ended December 31, 1995,
1994 and 1993, costs of such services were $59,445, $51,044, and $55,375,
respectively. At December 31, 1995 and 1994, $17,846 and $31,027,
respectively, were due to the General Partner for the performance of these
services.
5. Lease Agreement with Citicorp POS Information Services
The Partnership entered into a lease with Citicorp POS Information Services
("Citicorp POS") on May 11, 1990 (the "Original Lease"). Citicorp POS leased
approximately 136,000 rentable square feet ("RSF") of the North Tower,
representing 41% of the Project. The lease term was for 11 years with the
option to cancel after June 1996. Had Citicorp POS elected to exercise the
option to cancel, Citicorp POS would have been required to pay a substantial
penalty to the Partnership (see below).
In December 1992, Citicorp POS discontinued operations, vacated the space and
assigned the Lease Agreement to Citicorp North America, Inc. ("Citicorp"). As
of December 1995, substantially all of the space of the North Tower is occupied
by Citicorp and its affiliates.
On June 28, 1995, the Partnership executed the First Amendment (the "Citicorp
Lease Extension") to the Original Lease between the Partnership and Citicorp.
The Citicorp Lease Extension, which was effective July 1, 1995, (i) reduces
Citicorp's annual rent from $29.50 to $25 per RSF for the initial three years
and to $24 per RSF for the next two years, and (ii) extends the term of the
Original Lease for an additional five years, through June 30, 2006, at an
annual rental rate of $24 per RSF. In addition, there was no tenant
improvement allowance provided by the Partnership to Citicorp in connection
with the Citicorp Lease Extension. Although the Original Lease was for an
11-year term, expiring June 30, 2001, Citicorp had the option to terminate
the Original Lease as of June 30, 1996 by paying $45 per RSF or approximately
$6.1 million to the Partnership on or before June 30, 1995. The Citicorp
Lease Extension ensures Citicorp's continued occupancy at the Project through
June 30, 2006. As a result of the Citicorp Lease Extension, the Partnership
extended the amortization period of the deferred rent relating to the
Original Lease through June 30, 2006, effective July 1, 1995. The effect of
this change in estimate was an increase in rental income of $774,270 for the
year ended December 31, 1995.
During 1995, 1994 and 1993, Citicorp and other tenants, have reimbursed the
Partnership for tenant electricity, overtime heating and air conditioning
charges and certain other operating expenses, in accordance with their
respective lease agreements, in the total amount of $326,963, $288,472, and
$220,012, respectively. These amounts have been included in other income on
the statement of operations.
6. Future Minimum Lease Rental Payments
Future minimum rental payments (excluding cancellation penalties) to be
received under the non-cancelable portion of the existing operating leases as
of December 31, 1995 are as follows:
1996 $ 3,814,490
1997 3,848,816
1998 3,783,610
1999 3,686,831
2000 3,540,927
Thereafter 19,236,101
$ 37,910,775
7. Mortgage Note Payable
On July 19, 1990, the Partnership closed a loan with People's Bank ("People's")
to provide mortgage financing to the Partnership. As part of this loan, the
Partnership paid People's a fee equal to one and one-half percent of the
aggregate loan amount. The mortgage note payable (the "Financing") was a $25
million, seven year, non-recourse first mortgage loan with an 11.5% fixed
interest rate for the first five years which was set at 3% over the five-year
United States treasury security rate at loan closing.
On February 17, 1994, the Partnership entered into modification of the First
Mortgage Loan with People's Bank (the "Loan Modification") which: (i) reduced
the interest rate from 11.5% to 7.43% for the period February 1, 1994 through
the adjustment date on July 19, 1995, at which time the interest rate was reset
to 9.03%, (ii) reduced the principal balance of the First Mortgage Loan from
$25 million to $24,449,795; and (iii) eliminated the interest reserve line
item. Another provision of the Financing was that when occupancy at the
Property reached 50% or greater, the interest rate on the loan would be reduced
by 25 basis points. Payments of interest are due monthly in arrears and are
paid from the Partnership's funds. The remaining First Mortgage Loan proceeds
available at December 31, 1995 were $7,966,643 and may continue to be used on
an "as needed" basis to fund all other approved line items. Payment of the
outstanding principal amount is due at the end of the seven-year term. The loan
may be prepaid in whole or in part at any time without penalty. As of December
31, 1995, the principal balance of the loan was $16,483,152 plus interest
payable of $124,036 for a total balance of $16,607,188. During 1995, the
Partnership drew down on the loan $1,075,380 for leasing commissions associated
with the Citicorp Lease Extension. In 1994 the Partnership drew down on the
loan $456,452 for capital expenditures and interest expense, and in 1993,
$1,638,635 for interest expense only.
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar terms and average maturities, the fair value of
long-term debt approximates its carrying value.
8. Reconciliation of Net Loss to Tax Loss
For the year ended December 31, 1995, net loss reported in the financial
statements exceeded the tax loss by $707,321. For the years ended December 31,
1994 and 1993, the tax loss exceeded the net loss reported in the financial
statements by $28,358 and $730,926, respectively. These differences are due to
the differences between the tax basis and financial statement basis of
buildings and improvements and the use of accelerated methods of depreciating
real estate for tax purposes as compared to the straight-line method used for
financial statement purposes. In addition, rental income is recorded on a
straight-line basis over the terms of the leases for financial statement
purposes, and is reportable for tax purposes when received or receivable.
9. Arbitration Proceedings with the Developer
In late January of 1989, the Partnership initiated an arbitration proceeding
against Edlar, Inc. ("Edlar") in order to establish Edlar's responsibility for
certain cost overruns, delays, expenses and liquidated damages in connection
with the construction phase of the Stamford Towers office project (the
"Project"). Subsequently, the arbitration was consolidated with a separate
arbitration between Edlar and the Project's construction manager, Gilbane
Building Company ("Gilbane").
In January 1993, the arbitrators issued their decision which, in substance,
awards the Partnership approximately $8.1 million in damages and costs against
Edlar and awards Gilbane approximately $2.6 million in damages and costs
against Edlar. In addition, the arbitrators ordered Edlar to hold the
Partnership harmless with respect to (i) the mechanic's lien filed by Gilbane
against the Partnership, which is presently the subject of an action in
Connecticut state court, and (ii) any similar liens filed by subcontractors who
worked on the Project. The arbitrators further found that the Partnership
properly terminated Edlar under the Development Agreement. That finding has
the effect of eliminating the residual interest of Edlar's affiliate, Feldco,
Inc., in the Project. Edlar was not awarded any amounts on its claims against
the Partnership or Gilbane. The Partnership has entered judgment against both
Edlar and Edward Feldman for the full amount of the arbitration award.
Based on preliminary investigation by the General Partner, it appears that
Edlar has no significant assets from which to satisfy the arbitration award.
Moreover, based on the General Partner's discussions with Edward Feldman
concerning his proposal for a non-judicial workout, it would appear that his
assets, consisting largely of illiquid real estate investments, are
insufficient to satisfy his substantial outstanding obligations to his
creditors, including the Partnership.
10. Litigation
On February 1, 1991, Gilbane filed a mechanic's lien against the Project in the
sum of $4,583,481. This amount was subsequently reduced to $2,650,018 at the
request of the Partnership. On August 9, 1991, Gilbane commenced an action
entitled Gilbane Building Co. v. Stamford Towers Limited Partnership, et. al.,
in the Connecticut Superior Court for the Judicial District of Stamford/Norwalk
at Stamford (the "Gilbane Action"). The defendants include the Partnership.
Gilbane alleges breach of various contracts and unfair trade practices and
seeks foreclosure of its mechanic's lien, approximately $2.65 million in
monetary damages, interest, costs, attorneys' fees, punitive damages,
possession of the Project, and the appointment of a receiver.
On October 21, 1993, the Partnership filed its Answer, Special Defenses and
Counterclaims to Gilbane's Action, which alleged breach of various contracts,
unfair trade practices and slander of title. On September 13, 1995, the
Partnership filed a Substituted Answer, Special Defenses, Counterclaims,
Set-offs and Recoupment which, in addition to the allegations of its original
counterclaim, brought additional claims of negligence, breach of warranty,
breach of contract, products liability and unfair trade practices. The
Partnership, by way of its counterclaims, seeks approximately $1.7 million in
damages in addition to interest, costs, punitive damages and attorneys' fees.
On December 31, 1990, a subcontractor of the Project, Moliterno Stone Sales,
Inc. ("Moliterno") filed a mechanic's lien against the Property in the sum of
$155,936. On December 11, 1991, Moliterno filed a cross-claim against the
Partnership in the Gilbane Action. Moliterno seeks foreclosure on its
mechanic's lien, monetary damages, and possession of the Project. An
application to discharge Moliterno's mechanic's lien was filed by the
Partnership on April 30, 1993. On September 1, 1995, the Partnership filed its
answer, special defenses and counterclaims to Moliterno's cross-claim, alleging
that Moliterno was negligent, breached its contract and an implied warranty,
and engaged in unfair trade practices in performing its work on the Project.
The Partnership, Gilbane and Moliterno (collectively, the "Parties")
participated in the trial of the Gilbane Action over the course of
approximately 20 trial days in late 1995. The evidentiary portion of the trial
was completed with the exception of what is expected to be one final day of
trial currently expected to occur early in the second quarter of 1996. It is
anticipated that the court at that time will order a post-trial briefing
schedule. A decision from the trial court, therefore, is currently not
expected until, at the earliest, late in the second quarter of 1996. While the
Partnership believes it has meritorious defenses and counterclaims against each
claim, pursuant to the provisions of Statement of Position 94-6, which became
effective with financial statements issued for fiscal years ending on or after
December 15, 1995, the Partnership is required to disclose that the ultimate
resolution of the matter, which is expected to occur within one year, could
result in a loss of approximately $2.8 million. The Partnership has made no
accrual for potential losses related to this litigation as of December 31,
1995.
STAMFORD TOWERS LIMITED PARTNERSHIP Schedule III - Real Estate and
Accumulated Depreciation
December 31, 1995
Cost Capitalized
Subsequent
Initial Cost to Partnership (A) To Acquisition
Buildings and Buildings and
Description Encumbrances Land Improvements Improvements
Office Buildings:
North Tower
Stamford, CT $ 10,320,043 $ 8,828,690 $ 31,289,872 $ 7,528,864
South Tower
Stamford, CT 6,163,109 5,885,793 20,859,915 432,896
$ 16,483,152 $ 14,714,483 $ 52,149,787 $ 7,961,760
STAMFORD TOWERS LIMITED PARTNERSHIP
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Gross Amount at Which Carried at Close of Period (B, C)
Buildings and Accumulated
Description Retirements Land Improvements Total Depreciation
Office Buildings:
North Tower
Stamford, CT $ 133,847 $ 8,828,690 $ 38,684,889 $ 47,513,579 $ 10,844,283
South Tower
Stamford, CT 89,231 5,885,793 21,203,580 27,089,373 3,561,542
$ 223,078 $14,714,483 $ 59,888,469 $ 74,602,952 $ 14,405,825
STAMFORD TOWERS LIMITED PARTNERSHIP
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Life on which
Depreciation
Date Date in Latest
Construction Construction Income Statements
Description Complete Began is Computed
Office Buildings:
North Tower
Stamford, CT February 1990 August 1987 5-35 years
South Tower
Stamford, CT February 1990 August 1987 5-35 years
(A) The initial cost to the Partnership represents the original purchase
price of the properties.
(B) For Federal income tax purposes, the aggregate cost of real estate at
December 31, 1995 and 1994 is $75,009,915 and $74,649,569,
respectively.
(C) For Federal income tax purposes, the amount of accumulated depreciation
at December 31, 1995 and 1994 is $11,221,111 and $9,267,837,
respectively.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993:
Real estate investments: 1995 1994 1993
Beginning of year $ 74,242,608 $ 74,043,439 $ 73,891,030
Additions 306,344 199,169 152,409
End of year $ 74,548,952 $ 74,242,608 $ 74,043,439
Accumulated Depreciation:
Beginning of year $ 12,226,266 $ 9,585,930 $ 6,957,448
Depreciation expenses 2,179,559 2,640,336 2,628,482
End of year $ 14,405,825 $ 12,226,266 $ 9,585,930
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