SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
(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, 1994
OR
/ / 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 1-9516
AMERICAN REAL ESTATE PARTNERS, L.P.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3398766
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
90 South Bedford Road, Mt. Kisco, New York 10549
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(Address of principal executive offices) (Zip Code)
(914) 242-7700
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(AREP'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
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Depositary Units Representing New York Stock Exchange
Limited Partner Interests
5% Cumulative Pay-in-Kind New York Stock Exchange
Redeemable Preferred Units
Representing Limited Partner
Interests
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether AREP (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
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/
Based upon the closing price of Depositary Units on March 17,
1995, as reported on the New York Stock Exchange Composite Tape
(as reported by The Wall Street Journal), the aggregate market
value of AREP's Depositary Units held by nonaffiliates of AREP as
of such date was $91,796,861.
Trading in the Preferred Units has not yet commenced but is
expected to begin on March 31, 1995 on a when issued basis.
<TABLE>
<S> <C>
Number of Depositary Units outstanding as of March 17, 1995:
13,812,800.<F1>
Number of Preferred Units outstanding as of March 17, 1995: 0.<F1>
<FN>
--------------------
<F1> Subject to the terms of the Subscription Guaranty Agreement (as
defined herein), as of the date hereof there were no Preferred
Units outstanding. AREP expects that there will be up to
approximately 2,000,000 Preferred Units outstanding and
approximately an additional 12,000,000 Depositary Units outstanding
following the closing of the rights offering referenced in
this Form 10-K.
</FN>
</TABLE>
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PART I
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Item 1. Business.
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Introduction
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American Real Estate Partners, L.P. ("AREP") was formed in
Delaware on February 17, 1987. Pursuant to an exchange offer
(the "Exchange Offer") which was consummated on July 1, 1987,
AREP acquired the real estate and other assets, subject to the
liabilities, of thirteen limited partnerships (the "Predecessor
Partnerships"). The Predecessor Partnerships acquired such
assets between 1972 and 1985. A registration statement on Form
S-4 relating to the Exchange Offer (Registration No. 33-13943)
was filed with the Securities and Exchange Commission (the "SEC")
and declared effective May 18, 1987.
AREP's general partner is American Property Investors, Inc.
(the "General Partner"), a Delaware corporation which is wholly
owned by Carl C. Icahn ("Icahn"). The General Partner's
principal business address is 90 South Bedford Road, Mt. Kisco,
New York 10549. AREP's business is conducted through a
subsidiary limited partnership, American Real Estate Holdings
Limited Partnership (the "Subsidiary"), in which AREP owns a 99%
limited partnership interest. The General Partner also acts as
the general partner for the Subsidiary. The General Partner has
a 1% general partnership interest in each of AREP and the
Subsidiary. References to AREP herein include the Subsidiary,
unless the context otherwise requires.
During the end of March and early April 1995, AREP
anticipates completing a rights offering (the "Rights Offering"),
pursuant to which it will raise approximately $109,000,000, net
of related expenses. High Coast Limited Partnership, a Delaware
limited partnership which is controlled by Icahn, has acted as
guarantor of the offering (the "Guarantor"). Through the
Guarantor, Icahn will exercise certain subscription rights and an
over-subscription privilege to acquire additional depositary
units representing limited partner interests (the "Depositary
Units") and 5% cumulative pay-in-kind redeemable preferred units
representing limited partner interests (the "Preferred Units").
As of March 17, 1995, Icahn, through the Guarantor, beneficially
owned 9.89% of the Depositary Units then outstanding prior to
giving effect to the Rights Offering. In addition, as a result
of the Guarantor's participation in the Rights Offering, AREP
expects that Icahn will increase his percentage ownership in AREP
and obtain a substantial portion of the Preferred Units being
offered. A registration statement on Form S-3 relating to the
Rights Offering (Registration No. 33-54767) was filed with the
SEC and declared effective February 23, 1995. See "Business --
Rights Offering" and ITEM 12 -- "Security Ownership of Certain
Beneficial Owners and Management."
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Description of Business
-----------------------
AREP is in the business of acquiring and managing real
estate and activities related thereto. Historically, the
properties owned by AREP have been primarily office, retail,
industrial, residential and hotel properties. Most of the real
estate assets currently owned by AREP were acquired from the
Predecessor Partnerships and such assets are generally net-leased
to single, corporate tenants. As of March 17, 1995, AREP owned
249 separate real estate assets primarily consisting of fee and
leasehold interests in 35 states and Canada (one property). As
discussed below, AREP is seeking to acquire new investments to
take advantage of investment opportunities it believes exist in
the current real estate market to further diversify its portfolio
and to mitigate against lease expirations.
For each of the years ended December 31, 1994, 1993 and
1992, no single real estate asset or series of assets leased to
the same lessee accounted for more than 10% of the gross revenues
of AREP. However, at December 31, 1994 and 1993, Portland
General Electric Company ("PGEC") occupied a property (the "PGEC
Property") which represented more than 10% of AREP's total
assets. See ITEM 2 -- "Properties."
Certain of AREP's investments may be owned by special
purpose subsidiaries formed by AREP or by joint ventures
(including joint ventures with affiliates of the General Partner)
in which AREP, or AREP together with an affiliate, has a
controlling interest. For example, AREP entered into two joint
ventures with unaffiliated co-venturers in June 1994 for the
purpose of developing two luxury garden apartment complexes. The
first joint venture, formed as an Alabama limited liability
company, is developing a 240-unit multi-family project in Hoover,
Alabama. The second joint venture, a Delaware limited
partnership, is developing a 288-unit multi-family project in
Cary, North Carolina.
In addition to holding real property, AREP may originate or
purchase mortgage loans including non-performing mortgage loans.
AREP will normally acquire non-performing mortgage loans with a
view to acquiring title to or control over the underlying
properties and in 1993 it acquired two such loans on two residential
apartment complexes located in Lexington, Kentucky. AREP
foreclosed on one of these loans in 1993 and one in 1994 and now
holds title to the underlying properties.
AREP also may retain purchase money mortgages in connection
with its sale of portfolio properties, with such terms as the
General Partner deems appropriate at the time of sale, and may
indirectly acquire interests in real estate by acquiring the
securities of entities which own real estate.
All decisions with respect to the improvement, expansion,
acquisition, disposition, development, management, financing or
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refinancing of properties or other investments are at the sole
discretion of the General Partner.
Rights Offering
---------------
During the end of March and early April 1995 AREP
anticipates completing the Rights Offering through which it will
raise approximately $109,000,000, net of related expenses.
Pursuant to the terms of the Rights Offering, holders of
Depositary Units on the record date received one transferable
subscription right (each, a "Right") for each seven Depositary
Units held. Each Right was exercisable for a combination of
securities consisting of six Depositary Units and one Preferred
Unit.
AREP conducted the Rights Offering to raise funds to
increase its assets available for investment, thereby better
positioning it to take further advantage of investment
opportunities in the real estate market, to further diversify its
portfolio and to mitigate against the impact of lease expirations.
Most of AREP's real estate assets are net-leased to single
corporate tenants. By the end of the year 2000, net leases
representing approximately 26% of AREP's net annual rentals from
its portfolio will be due for renewal, and by the end of the year
2002, net leases representing approximately 40% of AREP's net
annual rentals will be due for renewal. In many of these leases,
the tenant has an option to renew at the same rents they are
currently paying and in many of the leases the tenant also has an
option to purchase. AREP believes that tenants acting in their
best interests will renew those leases which are at below market
rents, and permit leases for properties that are less marketable
(either as a result of the condition of the property or its
location) or are at above-market rents to expire. AREP expects
that it may be difficult and time consuming to re-lease or sell
those properties that existing tenants decline to re-let or
purchase and that AREP may be required to incur expenditures to
renovate such properties for new tenants. In addition, AREP may
become responsible for the payment of certain operating expenses,
including maintenance, utilities, taxes, insurance and
environmental compliance costs associated with such properties
which are presently the responsibility of the tenant. As a
result, AREP could experience an adverse impact on net cash flow
from such properties in the next decade and is seeking to acquire
new investments to mitigate against such a possibility and
diversify its portfolio.
The General Partner believes that, because of
overdevelopment in certain real estate markets and the desire of
certain real estate holders, including financial institutions, to
dispose of real estate assets, there are significant
opportunities available to acquire new investments that are
undervalued, including commercial properties, land parcels,
residential development projects and non-performing loans. Such
properties may not be generating positive cash flow in the near
term; however, the General Partner believes that in the current market,
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properties requiring some degree of management or
development activity has the greatest potential for growth, both
in terms of capital appreciation and the generation of cash flow.
A substantial portion of the proceeds from the Rights Offering
will be used to fund the acquisition of such properties. The
General Partner believes that the acquisition by AREP of
properties requiring some degree of management or development
activity is consistent with AREP's historical investment
objectives of reinvesting the proceeds of sales and refinancings
in properties that offer greater growth potential and portfolio
diversification.
Following the closing of the Rights Offering, there will be
approximately 2,000,000 Preferred Units and approximately an
additional 12,000,000 Depositary Units outstanding (subject to
rounding). The Preferred Units represent limited partner
interests in AREP and have certain rights and designations,
generally as follows. Each Preferred Unit will have a
liquidation preference of $10.00 and will entitle the holder
thereof to receive distributions thereon, payable solely in
additional Preferred Units, at the rate of $.50 per Preferred
Unit per annum (which is equal to a rate of 5% of the liquidation
preference thereof), payable annually on March 31 of each year
(each, a "Payment Date"), commencing March 31, 1996. On any
Payment Date commencing with the Payment Date on March 31, 2000,
AREP, with the approval of the Audit Committee of the Board of
Directors of the General Partner (the "Audit Committee"), may opt
to redeem all, but not less than all, of the Preferred Units for
a price, payable either all in cash or by issuance of additional
Depositary Units, equal to the liquidation preference of the
Preferred Units, plus any accrued but unpaid distributions
thereon. On March 31, 2010, AREP must redeem all, but not less
than all, of the Preferred Units on the same terms as any
optional redemption. Holders of Preferred Units will have no
voting rights except as mentioned in ITEM 10 -- "Directors and
Executive Officers of AREP," below.
Recent Acquisitions
-------------------
In June 1994, AREP entered into two joint ventures with
unaffiliated co-venturers for the purpose of developing luxury
garden apartment complexes. Both of these joint ventures have
been consolidated in the accompanying financial statements.
The first joint venture, formed as an Alabama limited
liability company, will develop a 240-unit multi-family project
situated on approximately twenty acres currently owned by the
joint venture, located in Hoover, Alabama, a suburb of
Birmingham. AREP, which owns a seventy percent (70%) majority
interest in the joint venture, contributed $1,750,000 in June
1994, and the co-venturer contributed $250,000. Distributions
will be made in proportion to ownership interests. Construction
financing has been obtained by the joint venture in the amount of
$8,760,000 and is guaranteed by the co-venturer and personally by
its principals. The development costs are expected to total approximately
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$11,350,000. As of December 31, 1994, approximately $5,529,000
of development costs have been incurred, including the
acquisition of land valued at approximately $1,138,000.
Construction loan funding at December 31, 1994 was approximately
$2,400,000. The first units were completed and available for
occupancy in February 1995 and project completion is scheduled
for August 1995. An affiliate of AREP's co-venturer will manage
the property. A reinvestment incentive fee of approximately
$40,000 is due to the General Partner upon completion of the
project.
The second joint venture, a Delaware limited partnership,
will develop a 288-unit multi-family project situated on
approximately thirty-three acres in Cary, North Carolina
(Raleigh-Durham area). AREP, which owns a ninety percent (90%)
majority interest in the partnership, has contributed
approximately $3,744,000 as of December 31, 1994 and is a limited
partner. The co-venturer is the general partner and also has a
limited partner interest. AREP is entitled to a cumulative annual
preferred return of 12% on its investment before cash
distributions are made in proportion to ownership interests.
AREP made its final contribution which totalled approximately
$278,000 in January 1995. Construction financing has been
obtained by the joint venture in the amount of $12,205,000 and is
guaranteed by the joint venture general partner and personally by
its principals. The development costs are expected to total
approximately $16,100,000. As of December 31, 1994,
approximately $3,891,000 of development costs had been incurred,
including the acquisition of land valued at approximately
$1,600,000. The first units are expected to be available for
occupancy on or about July 1995 and project completion is
scheduled for February 1996. An affiliate of AREP's co-venturer
will manage the property. A reinvestment incentive fee of
approximately $70,000 is due to the General Partner upon
completion of the project.
Investment Opportunities and Strategies
---------------------------------------
In selecting future investments, AREP intends to focus on
assets that it believes are undervalued in the current real
estate market, such as development properties and non-performing
loans, which the General Partner believes have the potential to
diversify and enhance the long-term value of AREP's portfolio.
Such investments may require active management, which could result
in higher operating expenses for AREP. The cash flow generated
by an asset will be a consideration, but AREP may acquire assets
that are not generating positive cash flow. While this may
impact cash flow in the near term and there can be no assurance
that any property acquired by AREP will increase in value or
generate positive cash flow, management intends to focus on
assets that it believes may provide opportunities for long-term
growth and diversification of its portfolio. Investment by the
Partnership in certain types of assets that may be regarded as
non-income producing, such as land or non-performing loans, is
currently restricted under AREP's $50 million senior unsecured
debt financing (the "Senior Unsecured Debt"). The holders of the
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Senior Unsecured Debt have agreed, however, to waive this restriction
with respect to additional capital raised by AREP in the Rights
Offering and the Partnership may, subject to negotiating terms
favorable to the Partnership, prepay in full the Senior Unsecured
Debt with a portion of the proceeds from the Rights Offering.
Management will seek to identify and evaluate opportunities
that could permit an investment to be made on favorable terms.
For example, management believes that such attractive investment
opportunities will be available in the context of assets held or
controlled by persons who do not intend to hold such assets for
long-term investment (such as assets of failed financial
institutions sold in connection with their interim management by
federal or state regulators and similar assets which management
believes will be available from insurance companies or financial
institutions under regulatory pressure to sell). AREP will also
consider investments in properties encumbered by indebtedness
that are in default, are not performing or are believed by
management to be likely to be subject to future default, and
properties performing at a level believed by management to be
substantially below their potential, due to identifiable
management weaknesses or temporary market conditions such as
oversupply of comparable space or stagnant or recessionary local
or regional economies.
AREP may also elect to establish an ownership position by
first acquiring debt secured by targeted assets and then
negotiating for the ownership of some or all of the underlying
equity in such assets. For example, properties in Lexington,
Kentucky were purchased at substantial discounts through the
acquisition of the mortgages secured by these properties. See
"Financing Activities" below and Notes 7 and 8 to the Financial
Statements contained herein. AREP also may seek to establish
a favorable economic and negotiating position through the acquisition
of other rights or interests that provide it with leverage in negotiating
the acquisition of targeted assets. AREP also will seek to acquire
assets that are not in financial distress but which, due to the particular
circumstances of their ownership, use or locations, present
substantial opportunities for development or long-term growth.
Financing Activities
--------------------
During 1994 AREP had approximately $10,000,000 in maturing
balloon mortgages due, approximately $6,700,000 of which has
been repaid and approximately $3,300,000 of which has been
refinanced. Approximately $5,700,000 and $16,000,000 are due in
1995 and 1996, respectively. During the period 1997 through 1998
approximately $9,100,000 in balloon mortgages will come due.
AREP will seek to refinance a portion of these maturing
mortgages, although it does not expect to be able to refinance
all of them and may be required to repay them from cash flow and
reserves created from time to time, thereby reducing cash flow
otherwise available for other uses. See Note 8 to the Financial
Statements contained herein.
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AREP also has significant maturing debt requirements under
its two unsecured note agreements (the "Note Agreements") that it
entered into in May 1988. Under the Note Agreements, AREP is
required to make semi-annual interest payments and annual
principal payments. In May 1994, AREP repaid $10,000,000 of the
outstanding principal balance under the Note Agreements. Prior
to 1994, AREP was not required to pay principal under the Note
Agreements. Principal payments of approximately $11,308,000 are
due under such agreements annually from 1995 through 1998.
Subject to negotiating terms favorable to AREP, the Senior
Unsecured Debt may be prepaid in full with a portion of the
proceeds from the Rights Offering. See ITEM 2 -- "Properties."
A balloon payment of approximately $6,266,000 was originally
due June 1, 1994 on a nonrecourse mortgage which encumbered the
Holiday Inn in Phoenix, Arizona; however, AREP paid off
approximately $2,966,000 on that date and subsequently refinanced
the remaining balance with a nonrecourse mortgage loan in the
amount of $3,330,000. See Note 8(i) to the Financial Statements
contained herein.
On July 25, 1994 AREP obtained financing on the two
apartment complexes located in Lexington, Kentucky. The two
nonrecourse mortgage loans are in the amount of $5,500,000 and
$4,500,000, respectively. See Note 8(j) to the Financial Statements
contained herein. Under the terms of the loans, $100,000 was
initially funded on each loan, with the balance funded on January
19, 1995.
Leasing Activities
------------------
In 1994, fourteen leases covering fourteen properties and
representing approximately $810,000 in annual rentals expired.
Seven of these fourteen leases, originally representing
approximately $513,000 in annual rental income, were re-let or
renewed for approximately $593,000 in annual rentals. One
property, with an approximate annual rental income of $112,000,
has been renewed at $175,000, which amount has been determined by
a market appraisal. Three properties with an approximate annual
rental income of $69,000 are currently being marketed for sale or
lease. Three properties with an approximate annual rental income
of $116,000 were sold in 1994.
In 1995, 24 leases covering 24 properties and representing
approximately $832,000 in annual rentals are scheduled to expire.
Eleven of these 24 leases, originally representing approximately
$492,000 in annual rental income, have been or will be re-let or
renewed for approximately $507,000 in annual rentals. Thirteen
leases with an approximate annual rental income of $340,000
will be marketed for sale or lease when the current lease terms
expire.
By the end of the year 2000, net leases representing
approximately 26% of AREP's net annual rentals from its portfolio
will be due for renewal, and by the end of the year 2002, net
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leases representing approximately 40% of AREP's net annual
rentals will be due for renewal. See "Business -- Rights
Offering" above.
Bankruptcies and Defaults
-------------------------
AREP is aware that eleven of its present and former tenants
have been or are currently involved in some type of bankruptcy or
reorganization. Under the Bankruptcy Code, a tenant may assume
or reject its unexpired lease. In the event a tenant rejects its
lease, the Bankruptcy Code limits the amount of damages a
landlord, such as AREP, is permitted to claim in the bankruptcy
proceeding as a result of the lease termination. Generally, a
claim resulting from a rejection of an unexpired lease is a
general unsecured claim. When a tenant rejects a lease, there
can be no assurance that AREP will be able to re-let the property
at an equivalent rental. As a result of tenant bankruptcies,
AREP has incurred and expects -- at least in the near term -- to
continue to incur certain property expenses and other related
costs. Thus far, these costs have consisted largely of legal
fees, real estate taxes and property operating expenses. Of
AREP's eleven present and former tenants involved in bankruptcy
proceedings or reorganization, eight have rejected their leases,
affecting 27 properties, all of which have been vacated. These
rejections have had an adverse impact on annual net cash flow
(including both the decrease in revenues from lost rents, as
well as increased operating expenses).
The two most significant bankruptcies which affected AREP
involved Days Inn and Integra. In August 1993, AREP reached a
settlement of its bankruptcy claim against Days Inn of America
(now known as Buckhead America Corporation ("Buckhead")). On
September 27, 1991, the debtor filed a voluntary petition for
reorganization pursuant to the provisions of Chapter 11 of the
Federal Bankruptcy Code and rejected its lease effective July 31,
1992. In August 1993, AREP reached a settlement of its claim
against Buckhead. Pursuant to the settlement, AREP received
approximately $184,000 and $1,035,000 in cash and stock in
Buckhead in the years ended December 31, 1994 and 1993,
respectively. Such amounts were recognized as "other income" in
the years then ended. See Note 7(d) to the Financial Statements
contained herein. AREP engaged a management company to perform
on-site and supervisory management services for the former
Buckhead's property. Management estimates that AREP will incur
costs of approximately $3.2 million over the next three years, as
leases are executed, to renovate, build-out and re-lease the property.
Buckhead's rejection of the lease adversely impacted AREP's
cash flow by approximately $110,000 per month. As a result of
Buckhead's rejection of the lease, management wrote down the
value of the Buckhead property to what it believed was its
recoverable value in the year ended December 31, 1991.
Integra, which leased two hotel properties located in Miami,
Florida and Phoenix, Arizona filed a voluntary petition for
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reorganization pursuant to the provisions of Chapter 11 of the
Bankruptcy Code on July 14, 1992. The tenant's petition to
reject the leases of those properties was approved on August 7,
1992, and AREP assumed operation of the properties on that date.
AREP has entered into a management agreement for the
operation of the two hotel properties with a national management
organization. Since August 7, 1992, both properties have been
classified as Hotel Operating Properties and their revenues and
expenses have been separately disclosed in the Consolidated Statements
of Earnings. Income from hotel operations ("Hotel Operating Income"
minus "Hotel Operating Expenses," as defined in the Financial
Statements contained herein) was approximately $1,781,000,
$1,195,000 and $795,000 for the years ended December 31, 1994,
1993 and 1992, respectively. This was approximately $379,000,
$965,000 and $100,000 less than the rent that would have been
payable pursuant to the rejected leases.
AREP has also entered into a ten-year licensing agreement
with Holiday Inn Franchising, Inc. for these two hotel
properties. According to the terms of the agreement, AREP will
make a monthly payment for royalties, marketing and reservation
fees of approximately 7.5% of gross revenues and a one-time
licensing fee of approximately $185,000. Additionally, pursuant
to a property improvement plan accepted by AREP in connection
with this agreement, AREP has incurred capital expenditures of
approximately $2,550,000 for these two properties, most of which
was paid in 1993. See Note 7(e) to Financial Statements
contained herein.
AREP has claims against Integra for damages arising out of
the rejection of the leases and deferred maintenance costs. A
claim was submitted to the Bankruptcy Court in 1992. There can
be no assurance that AREP will be able to recover all or any
portion of this claim. As a result of the lease rejection, AREP
wrote down the value of the Phoenix property to reflect what
management believed to be the recoverable value of the property
by incurring a provision for loss on real estate in the amount of
approximately $4,538,000 for the year ended December 31, 1992.
AREP has recently been informed that Grand Union, a tenant
leasing eight of AREP's properties, representing approximately
$1,450,000 in annual rentals (including two properties which are
sublet, representing approximately $58,000 in annual rentals),
is currently involved in bankruptcy proceedings. AREP is not yet
aware of any plans the tenant may have to seek to accept or
reject any or all of such leases. See Note 16(a) to the
Financial Statements contained herein.
For a description of certain other tenant and mortgagor
bankruptcies affecting AREP, please refer to Notes 7, 12 and 16
to the Financial Statements contained herein. The General
Partner monitors all tenant bankruptcies and defaults and may,
when it deems it necessary or appropriate, establish additional
reserves for such contingencies.
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Environmental Matters
---------------------
Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain
hazardous substances released on or in its property. Such laws
often impose such liability without regard to whether the owner
or operator knew of, or was responsible for, the release of such
hazardous substances. If any such substances were found in or on
any property invested in by AREP, AREP could be exposed to
liability and be required to incur substantial remediation costs.
The presence of such substances or the failure to undertake
proper remediation may adversely affect the ability to finance,
refinance or dispose of such property. AREP will generally
require that properties in which AREP invests have been subject
to a Phase I environmental audit, which involves record review,
visual site assessment and personnel interviews, but does not
involve invasive procedures such as soil sampling or groundwater
analysis. There can be no assurance, however, that these audits
will reveal all potential liabilities or that future uses or
conditions or changes in applicable environmental laws and
regulations will not result in the creation of environmental
liabilities with respect to a property.
Most of AREP's properties continue to be net-leased to
single corporate tenants, and AREP believes these tenants would
be responsible for any environmental conditions existing on the
properties they lease. Normally, therefore, such conditions
should not have a material adverse effect on the financial
statements or competitive position of AREP. Many of the
properties acquired by AREP in connection with the Exchange were
not subjected to any type of environmental site assessment at the
time of the acquisition. Consequently, AREP recently has
undertaken to have certain properties (approximately 81) in its
portfolio, which were not inspected at the time of acquisition,
subjected to Phase I Environmental Site Assessment by a third-
party consultant. AREP believes that under the terms of its net
leases with its tenants, the costs of any environmental problems
that may be discovered on these properties generally would be the
responsibility of such tenants. However, while most tenants have
assumed responsibility for the environmental conditions existing
on their leased property, there can be no assurance that AREP
would not be deemed to be a responsible party or that the tenant
could bear the costs of remediation.
The Phase I Environmental Assessments received on these
properties inconclusively indicate that certain sites may have
environmental conditions that should be further reviewed. Based
on the results of these Phase I Environmental Site Assessments,
the environmental consultant has recommended that limited Phase II
Environmental Site Investigations be conducted for approximately 29 of the
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sites in order to ascertain whether there are any environmental
conditions and the anticipated cost of any remediation. At the
conclusion of AREP's environmental site investigations, AREP will
seek to coordinate with the tenants to attempt to ensure that they
cause any required remediation to be performed. As no Phase II
Environmental Site Investigations have been conducted by the
consultant, there can be no accurate estimation of the need for
or extent of any required remediation, or the cost thereof.
In addition to conducting such Phase I Environmental Site
Assessments, AREP has developed a site inspection program. This
program is being conducted by an in-house employee (who is an
experienced construction manager and registered architect) who
visits AREP's properties and visually inspects the premises in an
effort to determine whether there is any indication that tenants
are engaged in any practices which would potentially expose AREP
to liability and to ensure that the property is being maintained
properly. There is no assurance, however, that this program will
in fact minimize any potential environmental or other cost
exposure to AREP.
AREP could also become liable for environmental clean-up
costs if a bankrupt tenant were unable to pay such costs.
Environmental problems may also delay or impair AREP's ability to
sell, refinance or re-lease particular properties, resulting in
decreased income and increased cost to AREP.
Lockheed Missile & Space Company ("Lockheed"), a tenant of
AREP's leasehold property in Palo Alto, California, has entered
into a consent decree to undertake certain environmental
remediation at this property. Although Lockheed was found
responsible for approximately 75% of the costs of such
remediation and AREP was allocated no responsibility for any such
costs, Lockheed has indicated that it may exercise its statutory
right to have its liability reassessed in a binding arbitration
proceeding. See ITEM 3 -- "Legal Proceedings" and Note 12(f) to
the Financial Statements contained herein.
Other Property Matters
----------------------
Under Title III of the Americans with Disabilities Act of
1990 and the rules promulgated thereunder (collectively, the
"ADA"), in order to protect individuals with disabilities, owners
and certain tenants of public accommodations (such as hotels,
restaurants and shopping centers) must remove architectural and
communication barriers which are structural in nature from
existing places of public accommodation to the extent "readily
achievable" (as described in the ADA). In addition, under the
ADA, alterations to a place of public accommodation or a
commercial facility are to be made so that, to the maximum extent
feasible, such altered portions are readily accessible to and
usable by disabled individuals.
I-11
<PAGE>
<PAGE>
Except for certain properties operated by AREP, the General
Partner believes that the existing net leases require the tenants
of the majority of AREP's properties to comply with the ADA. If
a tenant does not comply with the ADA or rejects its lease in
bankruptcy without complying with the ADA, AREP may ultimately
have to bear the expense of complying with the ADA. The General
Partner is aware of one pending complaint alleging failure to
comply with the ADA in connection with a property that is net-
leased to Gino's of Pennsylvania, Inc. The General Partner
notified the tenant that it is obligated for such compliance and
the tenant has now notified AREP that all required action has
been taken.
As AREP acquires more operating properties, it may be
required to make expenditures to bring such properties into
compliance with the ADA and other applicable laws.
Employees
---------
Seventeen people, including three who are officers of the
General Partner, presently perform services for AREP on a full-
time basis. These people perform administrative services for
AREP, including accounting, legal, financial, investor services,
secretarial, real estate management and other services.
Management believes it currently has sufficient staffing to
operate effectively the day-to-day business of AREP.
Competition
-----------
Competition in the real estate industry remains strong as
current economic and real estate conditions have made it more
difficult to re-let upon favorable terms properties vacated by
tenants who have rejected their leases in bankruptcy or whose
leases have expired. The real estate market continues to be weak
in certain areas of the country, particularly in certain usage
categories, including the office and hotel areas. While vacancy
rates have declined somewhat, commercial real estate continues to
suffer from a combination of oversupply and continuing corporate
consolidation and contraction. This has intensified the existing
competition among landlords for creditworthy tenants and resulted
in making it significantly more difficult to lease space at rates
equal to or greater than the rates payable by former tenants. In
addition, it is anticipated that any rental property owned by
AREP (whether retail, residential, office or industrial) will
have substantial competition from similar properties in the
vicinity in which it is located. However, the value of certain
quality net-leased properties in AREP's portfolio appears to be
withstanding such pressures somewhat better than other types of
real estate properties. AREP believes it is one of the largest
real estate entities of its kind and that it will continue to
compete effectively with other similar real estate companies,
although there are real estate entities with greater financial
resources than AREP. In addition, competition for investments of the type
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<PAGE>
<PAGE>
AREP intends to pursue has been increasing in recent years,
resulting in, among other things, higher prices for such assets.
Item 2. Properties.
----------
As of March 17, 1995, AREP owned 249 separate real estate
assets (primarily consisting of fee and leasehold interests and,
to a limited extent, interests in real estate mortgages) in 35
states and Canada (one property). These properties are generally
net-leased to single corporate tenants. Approximately 98% of
AREP's properties are currently net-leased. See Note 8 to the
Financial Statements contained herein for information on
mortgages payable.
The following table summarizes the type, location and
average net effective rent per square foot of AREP's properties:
<TABLE>
<S> <C>
Average Net
Number Effective Rent
Type of Property of Properties Per Square Foot
---------------- ------------- ---------------
Retail 121 $4.15<F1>
Industrial 25 $2.38<F1>
Office 34 $7.69<F1>
Supermarkets 21 $3.39<F1>
Banks 8 $5.10<F1>
Other:
Properties That
Collateralize Purchase
Money Mortgages 15 N/A
Land 15 N/A
Truck Terminals 4 $1.69<F1>
Hotels 4 N/A
Apartment Complexes 2 N/A
<FN>
-------------------
<F1> Based on net-lease rentals.
</FN>
</TABLE>
Location Number
of Property of Properties
----------- -------------
US: Southeast 109
Northeast 54
South Central 11
Southwest 20
North Central 46
Northwest 8
Canada: 1
From January 1, 1994 through March 17, 1995, AREP sold or
otherwise disposed of 34 properties. In connection with
such sales and dispositions, AREP received an aggregate of
approximately $16,000,000 in cash, net of amounts utilized to
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<PAGE>
<PAGE>
satisfy mortgage indebtedness which encumbered such properties.
As of December 31, 1994, AREP owned four properties that were
being actively marketed for sale. The aggregate net realizable
value of such properties is estimated to be approximately
$413,000.
Furthermore, AREP has executed a contract for the sale of a
property located in Taylor, Michigan which is tenanted by Pace
Membership Warehouse, Inc. AREP expects to complete the sale by
the end of March 1995. The sales price is $9,300,000 and AREP
expects to record a gain of approximately $3,300,000 in the three
months ended March 31, 1995. The property is encumbered by a
nonrecourse mortgage payable of approximately $4,346,000, which
the purchaser will assume. In addition, the purchaser is
obligated to pay AREP $50,000 should it default on its
obligations under the contract.
For each of the years ended December 31, 1994, 1993 and
1992, no single real estate asset or series of assets leased to
the same lessee accounted for more than 10% of the gross revenues
of AREP. However, at December 31, 1994 and 1993, PGEC occupied a
property, which represented more than 10% of AREP's total assets.
PGEC is an electric utility engaged in the generation,
purchase, transmission, distribution and sale of electricity,
whose shares are traded on the New York Stock Exchange, Inc.
(the "NYSE").
The PGEC Property is an office complex consisting of three
buildings containing an aggregate of approximately 803,000 square
feet on an approximate 2.7 acre parcel of land located in
Portland, Oregon. The Predecessor Partnership originally
purchased the PGEC Property on September 11, 1978 for a price of
approximately $57,143,000.
The PGEC Property is subject to two underlying mortgages,
which in the aggregate as of December 31, 1994, had an
outstanding principal balance of $36,190,135. The first mortgage
bears interest at 8.5% per annum, provides for aggregate annual
debt service of $2,856,960 and matures on October 1, 2002, at
which time a balloon payment of $19,304,091 will be due and
payable. By its terms, this mortgage is prepayable at any time
subject to certain restrictions. The second mortgage bears
interest at 10% per annum, provides for interest-only payments
during its term (an aggregate of $1,000,000 per annum) and
matures in October 1996, at which time a balloon payment of
$10,000,000 will be due and payable. By its terms, this second
mortgage was not prepayable until September 1989, and then only
with a 6% penalty, which penalty decreases by .5% each year
thereafter.
The PGEC Property is net-leased to a wholly owned subsidiary
of PGEC for forty (40) years, with two ten-year and one five-year
renewal options. The annual rental is $5,137,309 until 2003,
$4,973,098 until 2018 and $2,486,549 during each renewal option.
PGEC has guaranteed the performance of its subsidiary's
obligations under the lease. The lessee has an option to purchase the PGEC
I-14
<PAGE>
<PAGE>
Property in September of 2003, 2008, 2013 and 2018 at a price
equal to the fair market value of the PGEC Property determined in
accordance with the lease and is required to make a rejectable
offer to purchase the PGEC Property in September 2018 for a price
of $15,000,000. A rejection of such offer will have no effect on
the lease obligations or the renewal and purchase options.
In June 1994, AREP entered into two joint ventures with
unaffiliated co-venturers for the purpose of developing luxury
garden apartment complexes. See ITEM 1 -- "Business -- Recent
Acquisitions" above.
AREP's most significant acquisition in 1993 was the purchase
of two non-performing mortgage loans for a combined price of
$13,000,000. AREP foreclosed on these loans in 1993 and 1994, and
now holds title to the underlying properties. On July 25, 1994,
AREP obtained financing on these two properties. See ITEM 1 --
"Business -- Financing Activities."
AREP is continuing to seek opportunities to refinance upon
favorable terms and sell certain of its properties to generate
proceeds for future investments, in addition to the proceeds
anticipated from the Rights Offering. In the current real estate
environment, management continues to seek to improve the long-
term value of AREP's portfolio by, among other means, using the
proceeds of the Rights Offering and reinvesting capital
transaction proceeds to maximize capital appreciation and
diversification of the portfolio. AREP believes that the
continuing weakness in the real estate market presents
opportunities to acquire significantly undervalued properties,
including commercial properties, residential development projects
and non-performing loans, thereby enhancing AREP's portfolio and
its return on investments. In selecting investments, AREP
intends to focus on assets that it believes are undervalued in
the current real estate market, such as development properties
and non-performing loans, which the General Partner believes have
the potential to diversify and enhance the long-term value of
AREP's portfolio. Such investments may require active management
which could result in higher operating expenses for AREP. The
cash flow generated by an asset will be a consideration, but AREP
may acquire assets that are not generating positive cash flow.
While this may impact cash flow in the near term and there can be
no assurance that any property acquired by AREP will increase in
value or generate positive cash flow, management intends to focus
on assets that it believes may provide opportunities for long-
term growth and diversification of its portfolio.
Item 3. Legal Proceedings.
-----------------
Unitholder Litigation
---------------------
On August 15 and 16, 1994, AREP was served with two class
action complaints, both filed with the Delaware Court of Chancery,
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<PAGE>
New Castle County, in connection with the Rights Offering, Steven
Yavers v. American Real Estate Partners, L.P., American Property
Investors, Inc., and Carl C. Icahn, C.A. No. 13682, and Allan
Haymes, I.R.A. v. American Real Estate Partners, L.P., American
Property Investors, Inc., and Carl C. Icahn, C.A. No. 13687. An
additional complaint relating to the Rights Offering was
filed with the Delaware Court of Chancery, New Castle County, and
all three have been consolidated into one action (the
"Consolidated Action").
Plaintiffs in the Consolidated Action claim that defendants
have breached fiduciary and common law duties owed to plaintiffs
and plaintiffs' putative class by engaging in self-dealing and by
failing to disclose all relevant facts regarding the Rights
Offering. Plaintiffs seek declaratory and injunctive relief
declaring the action properly maintainable as a class action,
declaring that defendants breached their fiduciary and other
duties, enjoining the Rights Offering, ordering defendants to
account for all damages suffered by the class as a result of the
alleged acts and awarding further relief as the court deems
appropriate.
By agreement among AREP and the above mentioned plaintiffs,
AREP's time to respond to the consolidated complaint has been
extended to April 7, 1995. AREP believes the allegations are
without merit and intends to vigorously defend the Consolidated
Action. The allegations in the consolidated complaint relate to
previous superseded terms of the Rights Offering and, hence, AREP
believes they are moot.
Defaulted Mortgages
-------------------
As of December 31, 1994, AREP held a mortgage note
receivable in the principal amount of approximately $463,000.
The mortgage encumbers four properties together with a collateral
assignment of ground leases and rents. The properties are
tenanted by Gino's and Foodarama. The mortgage had been taken
back by a Predecessor Partnership in connection with the sale of
these properties. The tenants remained current in their lease
obligations.
The terms of the mortgage called for a balloon payment of
$1,100,000 on January 1, 1992, which was not received. On January
9, 1992, AREP gave written notice of default to Sheldon Lowe and
Joseph T. Comras, the mortgagors and the current owners of the
properties. As of December 31, 1994, AREP is in the process of
foreclosing on the four properties. See Note 12(d) to the
Financial Statements contained herein.
Property Litigation
-------------------
Simultaneously with the acquisition of property in East
Syracuse, New York, AREP entered into a general construction
I-16
<PAGE>
<PAGE>
contract (the "GC Agreement") pursuant to which the seller was
required to construct the property for a guaranteed maximum
amount of $2,327,802. However, the construction of the BJ's
Warehouse Store was subject to delays and the seller did not meet
all of its construction obligations under the GC Agreement and
failed to cure such defaults. AREP sent a notice, dated February
19, 1993, terminating the GC Agreement. AREP contacted the surety
of the GC Agreement to make a claim pursuant to the terms of the
surety bond and was unsuccessful. AREP has determined at this
point that it will not pursue any potential claims that it may
have against the surety, because after due inquiry, it believes
that such claims will not be able to be satisfied. Additionally,
in connection with certain alleged agreements between related
entities and principals of the seller, and a brokerage company,
the broker filed an action in the amount of $250,000. AREP did
not agree to assume the obligation to pay such commission and is
defending such action. Furthermore, another broker has
instituted an action against AREP and certain other co-defendants
regarding a $224,500 brokerage claim with respect to such
property, as well as punitive damages of $1,000,000; this action
was settled in January 1995 with dismissal of the action with
prejudice and with a reservation of AREP's rights against its co-
defendants.
Environmental Litigation
------------------------
On September 16, 1991, AREP brought suit against Alco
Standard Corporation and its affiliates, a former tenant of an
industrial facility located in Rome, Georgia whose lease expired
in October 1990. The action was brought against the defendants
in the United States District Court for the Northern District of Georgia,
Rome Division, for reimbursement of costs that could be incurred
for clean-up of hazardous materials on the site and certain
deferred maintenance. In July 1994, this litigation was settled
and the property was sold for $525,000. A gain of approximately
$100,000 was recognized in the third quarter of 1994. In
addition, Alco reimbursed AREP for $150,000 of expenses incurred
and indemnified AREP against any future liability in connection
with any site contamination.
Lockheed, a tenant of AREP's leasehold property in Palo
Alto, California, has entered into a consent decree with the
California Department of Toxic Substances ("CDTS") to undertake
certain environmental remediation at this property. Lockheed has
estimated that the environmental remediation costs may be up to
approximately $14,000,000. In a non-binding determination by
CDTS, Lockheed was found responsible for approximately 75% of
such costs and the balance was allocated to other parties. AREP
was allocated no responsibility for any such costs.
Lockheed has served a notice that it may exercise its
statutory right to have its liability reassessed in a binding
arbitration proceeding. In this notice of arbitration, Lockheed
stated that it will attempt to have allocated to AREP and to
AREP's ground-lessor (which may claim a right of indemnity against AREP)
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<PAGE>
<PAGE>
approximately 9% and 17%, respectively, of the total remediation
costs. AREP believes that it has no liability for any of such
costs and, in any proceeding in which such liability is asserted
against AREP, AREP intends to contest such liability vigorously.
In the event any of such liability is allocated to AREP, AREP
intends to seek indemnification for any such liability from
Lockheed in accordance with its lease.
Bankruptcies
------------
AREP is aware that eleven of its present and former tenants
have been or are currently involved in some type of bankruptcy or
reorganization during the three-year period ended December 31,
1994, affecting a total of forty-one of AREP's properties. See
also Notes 7(c), (d), (e), (g) and 12(a), (c), (d), (e) and 16(a)
to the Financial Statements contained herein describing various
tenant and mortgagor bankruptcies for which AREP has filed
claims.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
I-18
<PAGE>
<PAGE>
PART II
Item 5. Market for AREP's Common Equity and
Related Security Holder Matters.
-----------------------------------
Market Information
------------------
AREP's Depositary Units are traded on the NYSE under the
symbol "ACP." Trading on the NYSE commenced July 23, 1987,
and the range of high and low market prices for the Depositary
Units on the New York Stock Exchange Composite Tape (as reported
by The Wall Street Journal) from January 1, 1993 through
December 31, 1994 is as follows:
High Low
---- ---
Quarter ended:
March 31, 1993 $ 9.38 $6.63
June 30, 1993 8.25 7.50
September 30, 1993 9.00 8.00
December 31, 1993 9.50 7.00
March 31, 1994 $ 8.375 $7.375
June 30, 1994 8.50 7.375
September 30, 1994 8.625 7.375
December 31, 1994 8.00 7.25
On March 17, 1995, the last sales price of the Depositary
Units, as reported by the New York Stock Exchange Composite Tape
(as reported by The Wall Street Journal) was $7.375.
As of March 17, 1995, there were approximately 23,400 record
holders of the Depositary Units.
<TABLE>
<S> <C>
Since January 1, 1993, AREP has made the following cash
distributions with respect to the Depositary Units<F1>:
Amount
-------------------------
Distribution Return of
Record Date Payable Date Per Unit Capital<F2>
----------- ------------ ------------- ---------
March 31, 1993 May 14, 1993 .125 .00
June 30, 1993 August 13, 1993 .125 .00
September 30, 1993 November 12, 1993 .125 .00
December 31, 1993 February 14, 1994 .125 .00
<FN>
-----------
<F1> No distributions were declared for the calendar year 1994.
<F2> Represents the portion of total distributions representing
a return of capital on a basis consistent with generally
accepted accounting principles.
</FN>
</TABLE>
II-1
<PAGE>
<PAGE>
Trading in the Preferred Units on the NYSE under the symbol "ACP
PR" is expected to commence on March 31, 1995 on a when issued
basis.
Distributions
-------------
After evaluating the contingencies facing AREP, its
anticipated cash flows, liquidity needs, maturing debt
obligations and capital expenditure requirements, the Board of
Directors of the General Partner reduced the quarterly
distributions in 1993 from $.25 to $.125 per quarter. This
reduction permitted management to continue to establish reserves
for AREP's maturing debt obligations and other contingencies. In
1994, the General Partner determined that it was necessary for
AREP to conserve cash and increase reserves from time to time in
order to meet capital expenditures and maturing debt obligations.
As a result, distributions to Unitholders were suspended. On
March 16, 1995, the Board of Directors of the General Partner
announced that a distribution for the fiscal quarter ended March
31, 1995 would not be made. In making its announcement, AREP
noted that, consistent with previously announced estimates, net
operating cash flow in 1994 was only break-even, after payment of
periodic principal payments and maturing debt obligations,
capital expenditures and the creation of additional cash
reserves. AREP also noted that cash reserves had been set aside
for its scheduled approximately $11.3 million principal payment
due in May 1995 on its Senior Unsecured Debt and for the
repayment of approximately $3.6 million of balloon mortgages
coming due by May 1995. See ITEM 7 -- "Management's Discussion
and Analysis of the Financial Condition and Results of Operations
-- Capital Resources and Liquidity." Following the Rights Offering,
a substantial portion of the proceeds from the Rights Offering will
be used to fund the acquisition of additional properties by AREP,
which the General Partner believes have the potential to diversify
and enhance the long-term value of AREP's investment portfolio.
Each Unitholder will be taxed on the Unitholder's allocable share
of AREP's taxable income and gains and accrued guaranteed payments,
whether or not any cash is distributed to the Unitholder.
Repurchase of Depositary Units
------------------------------
AREP announced in 1987 its intention to purchase up to one
million Depositary Units. On June 16, 1993, AREP increased the
amount of shares authorized to be repurchased to 1,250,000
Depositary Units. As of March 17, 1995, AREP had purchased
1,037,200 Depositary Units at an aggregate cost of approximately
$11,184,000. In light of the existing cash needs of the
Partnership, management recently has not been acquiring
Depositary Units for AREP, although AREP may from time to time
acquire additional Depositary Units. Under the terms of the Note
Agreements for the Senior Unsecured Debt, distributions and the
amounts used to repurchase Depositary Units cannot exceed net
cash flow, as defined therein, plus $15,000,000. See ITEM 7
-- "Management's Discussion and Analysis of the Financial Condition
and Results of Operations -- Capital Resources and Liquidity." To
II-2
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<PAGE>
date this restriction has not impaired the ability of AREP to make
distributions.
Item 6. Selected Financial Data.
-----------------------
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Unit Amounts)
Year Ended December 31,
---------------------------------------------------------
1994* 1993* 1992* 1991* 1990*
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues $ 61,551 $ 60,157 $ 57,781 $ 56,571 $ 58,876
___________ __________ __________ _________ _________
Earnings before gain (loss) on
property transactions and
extraordinary item $ 19,577 $ 18,379 $ 20,581 $ 22,252 $ 24,344
Gain (loss) on sales and
disposition of real estate 4,174 4,760 342 893 (2,104)
Provision for loss on real estate (582) (462) (8,847) (4,252) (4,134)
___________ __________ __________ _________ _________
Earnings before extraordinary
item 23,169 22,677 12,076 18,893 18,106
(Loss) gain from early
extinguishment of debt - - (784) 543 -
___________ __________ __________ _________ _________
Net earnings $ 23,169 $ 22,677 $ 11,292 $ 19,436 $ 18,106
=========== ========== ========== ========= =========
Net earnings per limited
partnership unit:
Earnings before extraordinary item $ 1.64 $ 1.60 $ .84 $ 1.31 $ 1.23
Extraordinary item - - (.05) .04 -
___________ __________ __________ _________ _________
Net Earnings $ 1.64 $ 1.60 $ .79 $ 1.35 $ 1.23
=========== ========== ========== ========= =========
Distributions to partners $ - $ 7,078 $ 14,333 $ 28,755 $ 29,284
At year end:
Real estate leased to others $ 437,699 $ 444,409 $ 435,959 $ 474,859 $ 491,611
Hotel operating properties $ 13,654 $ 14,070 $ 12,459 - -
Mortgages receivable $ 8,301 $ 20,065 $ 22,447 $ 22,491 $ 24,157
Total assets $ 492,868 $ 502,981 $ 503,262 $ 517,100 $ 536,715
Senior indebtedness $ 45,231 $ 55,231 $ 54,684 $ 53,607 $ 52,551
Mortgages payable $ 174,096 $ 195,274 $ 205,938 $ 213,503 $ 223,269
Partners' equity $ 259,237 $ 236,068 $ 221,855 $ 225,693 $ 235,293
</TABLE>
* To the extent financial information pertaining to AREP is
reflected, such information is consolidated for AREP and its
Subsidiary.
II-3
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<PAGE>
Item 7. Management's Discussion and Analysis of the
Financial Condition and Results of Operations.
---------------------------------------------
General
-------
Historically, substantially all of AREP's real estate assets have been
net-leased to single corporate tenants under long-term leases. With certain
exceptions, these tenants are required to pay all expenses relating to the
leased property and therefore AREP is not typically responsible for payment
of expenses, such as maintenance, utilities, taxes and insurance associated
with such properties. AREP has experienced an increase in its property
expenses in recent years, due principally to tenant bankruptcies and
defaults as well as the acquisition of operating properties. Management
expects that AREP's property ownership and management expenses will continue
to be higher for the next several years as properties vacated by tenants are
re-leased or held for sale and development and operating properties are
acquired. Moreover, as AREP's various debt obligations come due, including
the Senior Unsecured Debt, there will be increasing demands on cash flow.
By the end of the year 2000, net leases representing approximately 26%
of AREP's net annual rentals from its portfolio will be due for renewal, and
by the end of the year 2002, net leases representing approximately 40% of
AREP's net annual rentals will be due for renewal. In many of these leases,
the tenant has an option to renew at the same rents they are currently
paying and in many of these leases the tenant also has an option to
purchase. AREP believes that tenants acting in their best interest may be
expected to renew those leases which will be at below market rents and to
permit leases for properties that are less marketable (either as a result of
the condition of such property or its location) or provide for renewal at
above-market rents to expire. Since most of AREP's properties are net-
leased to single, corporate tenants, it is expected that it may be difficult
and time-consuming to re-lease or sell those properties that existing
tenants decline to re-let or purchase and AREP may be required to incur
expenditures to renovate such properties for new tenants. In addition, AREP
may become responsible for the payment of certain operating expenses,
including maintenance, utilities, taxes, insurance and environmental
compliance costs associated with such properties, which are presently the
responsibility of the tenant. As a result, AREP could experience an adverse
impact on net cash flow from such properties in the next decade.
In the past AREP has generated cash flow from operations, primarily
through net-lease transactions, for the purpose of making distributions to
Unitholders; however, the recession and real estate downturn that occurred
in the early 1990's led the General Partner to re-examine AREP's cash needs
and investment opportunities. As a result of tenant defaults, including the
bankruptcy of a number of tenants, and lease expirations, AREP's property
management and operating expenses increased, as well as
II-4
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<PAGE>
its expenditures relating to the re-leasing of properties (such expenditures
including capital expenditures necessary to refurbish vacated properties and
to build out properties to meet the specifications of new tenants) and
rental revenues decreased. In addition, the availability of acceptable
financing to re-finance maturing mortgage debt and AREP's Senior Unsecured
Debt became increasingly scarce. Consequently, the General Partner
determined that it was necessary to conserve cash and establish reserves
from time to time in order to meet capital expenditures and maturing debt
obligations. As a result, there was insufficient cash flow from operations
to pay distributions to Unitholders and such distributions were reduced and
finally suspended. As of December 31, 1994, AREP had approximately
$13,000,000 in cash reserves.
At the same time that the recession was imposing cash flow constraints
on AREP, it was also creating what the General Partner perceived as
significant investment opportunities to acquire undervalued properties. As
discussed under ITEM 1 -- "Business -- Rights Offering," during the next
decade AREP expects net leases representing approximately 40% of its net
annual rentals to expire and it is possible that AREP's investment portfolio
will become stagnant. In order to enhance AREP's investment portfolio (and
ultimately its asset values and cash flow prospects), AREP is seeking to
acquire investments in undervalued properties. The General Partner believes
that because of overdevelopment in certain real estate markets and the
desire of certain real estate holders, including financial institutions, to
dispose of real estate assets, there are assets available which are
performing at a level, or may be available at a price, which may be
substantially below their potential value (due to management weaknesses or
temporary market conditions such as oversupply of comparable space or
stagnant or recessionary local regional economies). Such properties may not
be generating a positive cash flow in the near term; however, the General
Partner believes that the acquisition of properties requiring some degree of
management or development activity have the greatest potential for growth,
both in terms of capital appreciation and the generation of cash flow. With
the implementation of improved asset management, debt restructuring and
capital improvements, for example, AREP would seek to maximize the
performance and value of any such undervalued properties. Where
opportunities exist, AREP may acquire such properties with proceeds of the
Rights Offering or, as has been the case with acquisitions made by AREP over
the last several years, sale or refinancing proceeds which AREP retains for
reinvestment (rather than for distribution to Unitholders). The General
Partner believes the acquisition of such investments is consistent with
AREP's historical objectives of reinvesting proceeds of sales and
refinancings in properties that offer greater growth potential and
diversification. In addition, to the extent such investments enhance AREP's
portfolio, AREP may be able to reinstate distributions to holders of
Depositary Units, although there can be no assurances thereof.
II-5
<PAGE>
<PAGE>
As a consequence of the foregoing, AREP decided to raise funds
through the Rights Offering to increase its assets available for investment
so that it will be in a better position to take further advantage of the
investment opportunities in the real estate market and to further diversify
its portfolio and mitigate against the impact of potential lease
expirations. See ITEM 1 -- "Business -- Rights Offering" for a further
discussion of the Rights Offering.
During 1994 AREP had approximately $10,000,000 in maturing balloon
mortgages due, approximately $6,700,000 of which have been repaid and
approximately $3,300,000 of which have been refinanced. Approximately
$5,700,000 and $16,000,000 of balloon mortgages are due in 1995 and 1996,
respectively. During the period 1997 through 1998, approximately $9,100,000
in maturing balloon mortgages come due. AREP will seek to refinance a
portion of these maturing mortgages, although it does not expect to be able
to refinance all of them and may be required to repay them from cash flow
and reserves created from time to time, thereby reducing cash flow otherwise
available for other uses. AREP also has significant maturing debt
requirements under the note agreements. In particular, AREP is required to
make semi-annual interest payments and annual principal payments. In May
1994, AREP repaid $10,000,000 of the outstanding principal balance under the
Note Agreements. Prior to 1994, AREP was only required to make payments of
interest on such debt. Principal payments of approximately $11,308,000 are
due under such agreements annually from 1995 through 1998. See ITEM 1 --
"Business -- Financing Activities" and ITEM 2 -- "Properties."
Expenses relating to environmental clean-up have not had a material
effect on the earnings, capital expenditures, or competitive position of
AREP. Management believes that substantially all such costs would be the
responsibility of the tenants pursuant to lease terms. While most tenants
have assumed responsibility for the environmental conditions existing on
their leased property, there can be no assurance that AREP will not be
deemed to be a responsible party or that the tenant will bear the costs of
remediation. In addition, environmental clean-up costs could become the
responsibility of AREP to the extent that tenants file for bankruptcy or
otherwise fail to fulfill their lease obligations. See ITEM 1 -- "Business
-- Environmental Matters." Environmental problems may also delay or impair
AREP's ability to sell, refinance or re-lease particular properties,
resulting in decreased income and increased costs to AREP. In addition, as
AREP acquires more operating properties, its exposure to environmental
clean-up costs may increase. In light of the potential impact of
environmental clean-up costs, AREP recently has undertaken to have certain
properties (approximately 81) in its portfolio which were not inspected at
the time of acquisition to be subjected to Phase I Environmental Site
Assessment by a third-party consultant. Based on the results of these Phase I
Environmental Site Assessments, the environmental consultant has recommended
that limited Phase II Environmental Site Investigations be conducted for
approximately 29 of the
II-6
<PAGE>
<PAGE>
sites in order to ascertain whether there are any environmental conditions
and the anticipated cost of any remediation. At the conclusion of AREP's
environmental site investigations, AREP will seek to coordinate with the
tenants to attempt to ensure that they undertake any required remediation.
As no Phase II Environmental Site Investigations have been conducted by the
consultant, there can be no accurate estimation of the need for or extent of
any required remediation, or the cost thereof. See also the discussion of
the Lockheed property in ITEM 3 -- "Legal Proceedings."
Results of Operations
---------------------
CALENDAR YEAR 1994 COMPARED TO CALENDAR YEAR 1993. Gross revenues
increased by approximately $1,394,000, or 2.3%, during calendar year 1994 as
compared to calendar year 1993. This increase reflects approximate
increases of $3,393,000, or 21.6%, in rental income and $405,000, or 4.8%,
in hotel operating income, partially offset by decreases of approximately
$861,000, or 2.6%, in financing lease income, $571,000, or 28.4%, in other
interest income, and $972,000, or 84.1%, in other income. The increase in
rental income is primarily attributable to the two apartment complexes in
Lexington, Kentucky acquired in 1993, increases in rents from a property
formerly occupied by Amdura and rents received from BJ's Warehouse Store.
The hotel operating revenues were generated by two hotels formerly leased to
Integra. AREP has been operating these hotel properties through a third-
party management company since August 7, 1992. The decrease in financing
lease income is primarily attributable to normal amortization of financing
leases partially offset by increased income from the Toy's "R" Us properties
reacquired as a result of foreclosure on defaulted purchase money mortgages.
The decrease in other interest income is primarily attributable to less
interest received on defaulted purchase money mortgages and payments of
balloon balances due. The decrease in other income related primarily to the
settlement of the Days Inn bankruptcy claim, most of which was recognized in
1993.
Expenses increased by approximately $196,000, or .5%, during calendar
year 1994 compared to calendar year 1993. This increase reflects increases
of approximately $1,833,000, or 71.1%, in property expenses, $600,000, or
13.8%, in depreciation and amortization and $336,000, or 13.7%, in general
and administrative expenses, offset by decreases of approximately
$2,392,000, or 9.5%, in interest expense and $181,000, or 2.5%, in hotel
operating expenses. The increase in property expenses is primarily
attributable to costs associated with the newly acquired operating
properties mentioned previously, as well as the former Days Inn and Amdura
properties now operated by the Company. The decrease in interest expense is
primarily attributable to normal loan amortization and reductions due to
certain loan refinancings and the repayments of maturing balloon debt
obligations, including the Senior Unsecured Debt.
II-7
<PAGE>
<PAGE>
Earnings before property transactions increased during the
calendar year 1994 by approximately $1,198,000, or 6.5%, from calendar year
1993.
Gain on property transactions decreased by approximately $586,000
during the calendar year 1994 as compared to calendar year 1993, due to
differences in the size and number of transactions.
During calendar year 1994, AREP recorded a provision for loss on real
estate of $582,000 as compared to $462,000 in 1993.
Net earnings for the calendar year 1994 increased by approximately
$492,000, or 2.2%, as compared to net earnings for the calendar year 1993.
This increase is attributable to the approximate $1,198,000 increase in
earnings before property transactions, offset by the decrease in gain on
sales of real estate and the increase in provision for loss on real estate.
CALENDAR YEAR 1993 COMPARED TO CALENDAR YEAR 1992. Gross revenues,
including revenues from hotel operating properties, increased by
approximately $2,375,000, or 4.1%, during calendar year 1993 as compared to
calendar year 1992. This increase reflects approximate increases of
$4,745,000, or 128.1%, in hotel operating revenues and $498,000, or 75.8%,
in other income, partially offset by decreases of approximately $1,270,000,
or 3.7%, in financing lease income, $1,373,000, or 8.0%, in rental income,
and $224,000, or 10.0%, in other interest income. The hotel operating
revenues were generated by two hotels formerly leased to Integra and
accounted for as financing leases. AREP has been operating these hotel
properties through a third-party management company since August 7, 1992.
The other income reflects partial settlements of bankruptcy claims against
Days Inn and National Convenience Stores. See Note 7 to the Financial
Statements contained herein. The decrease in financing lease income was
primarily attributable to normal amortization of financing leases and the
reclassification of rent from Integra and certain National Convenience
Stores due to the filings by such tenants of voluntary petitions for
reorganization pursuant to the provisions of Chapter 11 of the Bankruptcy
Code, which leases were subsequently rejected in 1992. As a result of lease
rejections, financing lease income decreased by approximately $740,000. The
decrease in other interest income was primarily attributable to less
interest received on two purchase money mortgages due to defaults and
payments of balloon balances due. The decrease in rental income was
primarily attributable to the loss of income resulting from property sales
(approximately $1,200,000), the rejection of its lease by Days Inn, the
Occidental lease expiration and decreases caused by re-letting properties at
lower rentals, partially offset by increases primarily attributable to rents
received from BJ's Warehouse Store and the Stoney Falls apartment complex in
Lexington, Kentucky, both newly acquired operating properties in 1993. As a
result of lease rejections, AREP's rental income decreased by approximately
$480,000.
II-8
<PAGE>
<PAGE>
Expenses increased by approximately $4,578,000, or 12.3%, during
calendar year 1993 compared to calendar year 1992. This increase reflects
an increase of approximately $4,344,000, or 149.3%, in hotel operating
expenses, $802,000, or 45.1%, in property expenses and $136,000, or 5.9%, in
general and administrative expenses, partially offset by a decrease of
approximately $731,000, or 2.8%, in interest expense. The hotel operating
expenses were generated by the two hotels mentioned previously. The
increase in property expenses is primarily attributable to expenses from
several properties, including the former Days Inn and Amdura properties,
AREP is now operating through third-party management companies, as well as
off-lease properties and the newly acquired apartment complex in Lexington,
Kentucky. The decrease in interest expense is primarily attributable to
normal loan amortization, reductions due to certain loan refinancings and
repayments, and the capitalization of interest in connection with the
construction of the BJ's Warehouse Store, partially offset by increases in
mortgage interest due to the foreclosure of properties tenanted by Toys R Us.
Earnings before property transactions decreased during the calendar
year 1993 by approximately $2,202,000, or 10.7%, from calendar year 1992.
Gain on property transactions increased by approximately $4,418,000
during the calendar year 1993 as compared to calendar year 1992, due to
differences in the size and number of transactions.
During calendar year 1993, AREP recorded a provision for loss on real
estate of $462,000 as compared to approximately $8,847,000 in 1992.
During calendar year 1992, a loss from early extinguishment of debt was
incurred of approximately $785,000. No such loss was incurred during
calendar year 1993.
Net earnings for the calendar year 1993 increased by approximately
$11,385,000, or 100.8%, as compared to net earnings for the calendar year
1992. This increase is attributable to the approximately $4,418,000
increase in gain on property transactions and the decreases of approximately
$8,385,000 and $785,000 in provision for loss on real estate and loss from
early extinguishment of debt, respectively, partially offset by the decrease
in earnings before property transactions of approximately $2,202,000.
Capital Resources and Liquidity
-------------------------------
Generally, the cash needs of AREP for day-to-day operations have been
satisfied from cash flow generated from current operations. The cash flow
generated from day-to-day operations (before payment of maturing debt
II-9
<PAGE>
<PAGE>
obligations) has decreased in recent years, although it improved in 1994 due
to the acquisition and foreclosure of certain operating properties and the
repayment of debt. Cash flow has been negatively impacted by a reduction in
operating cash flow caused by, among other things, tenant defaults and the
termination of existing leases (due to expiration, rejection in bankruptcy or
otherwise). Furthermore, AREP has experienced an increase in operating
expenses with respect to vacated properties and has been required to perform
maintenance and repair work in order to re-let such properties. AREP also
has had to apply a larger portion of its cash flow to the repayment of
maturing debt obligations. Cash flow from day-to-day operations represents
net cash provided by operating activities (excluding working capital changes
and non-recurring other income) plus principal payments received on financing
leases, as well as principal receipts on mortgages receivable reduced by
periodic principal payments on mortgage debt.
As a result of tenant bankruptcies, AREP has incurred and expects -- at
least in the near term -- to continue to incur certain property expenses and
other related costs. Thus far, these costs have consisted largely of legal
fees, real estate taxes and property operating expenses. As of December 31,
1994, the total of such expenses relating to tenants who rejected their
leases during the three-year period then ended was approximately $1,400,000
net of rent received from re-let properties. Of AREP's eleven present and
former tenants involved in bankruptcy proceedings or reorganization, eight
have rejected their leases, affecting 27 properties, all of which
have been vacated. During 1992, AREP began operating some of these
properties through third-party management companies. The rejections have
had an adverse impact on annual cash flow (including both the decrease in
revenues from lost rents, as well as increased operating expenses). The
aggregate annual rent lost from tenants who rejected their leases during the
three-year period ended December 31, 1994 was approximately $4,000,000. See
Notes 7(c), (d), (e), (g) and 12(a), (c), (d), (e) and 16(a) to the
Financial Statements contained herein. Currently AREP has one tenant in
bankruptcy which occupies eight of AREP's properties.
In 1994, fourteen leases covering fourteen properties and representing
approximately $810,000 in annual rental income expired. Seven of these
fourteen leases originally representing approximately $513,000 in annual
rental income were renewed or re-let for approximately $593,000 in annual
rental income. One property, which had an approximate annual rental income
of $112,000, has been renewed at $175,000, which amount has been determined
by a market value appraisal. Three properties, with an approximate annual
rental income of $69,000, are currently being marketed for sale or lease.
Three properties, with an approximate annual rental of $116,000, were sold
in 1994.
In 1995, 24 leases covering 24 properties and representing
approximately $832,000 in annual rentals are scheduled to expire. AREP
anticipates that eleven of these 24 leases originally representing
II-10
<PAGE>
<PAGE>
approximately $492,000 in annual rental income have been or will
be re-let or renewed for approximately $507,000 in annual rentals.
Thirteen leases, with an approximate annual rental income of $340,000, will
be marketed for sale or lease when the current lease terms expire.
AREP may not be able to re-let certain of its properties at current
rentals. As discussed above, net leases representing approximately 40% of
AREP's net annual rentals will be due for renewal by the end of the
year 2002. Moreover, it is expected that it may be difficult and
time consuming to re-lease or sell those properties that existing tenants
decline to re-let or purchase and AREP may be required to incur expenditures
to renovate such properties for new tenants. In addition, AREP will
become responsible for the payment of certain operating expenses, including
maintenance, utilities, taxes, insurance and environmental compliance
costs, associated with such properties which are presently the responsibility
of the tenant. As a result, AREP could experience an adverse impact
on net cash flow from such properties in the next decade. There are
also certain below-market leases with renewal options which are likely to be
exercised.
During 1994, AREP generated approximately $22 million in cash flow
from day-to-day operations and approximately $200,000 from the Days Inn
bankruptcy claim settlement. During the comparable period in 1993, AREP
generated approximately $19 million in cash flow from day-to-day operations
and approximately $1,200,000 from the Days Inn and SNG bankruptcy claims'
settlements. During the comparable period of 1992, AREP generated
approximately $23.5 million in cash flow from day-to-day operations and
approximately $700,000 from the settlement of the Amdura Corp. bankruptcy
claim. See Note 7(d) to the Financial Statements contained herein.
Capital expenditures for real estate, excluding new acquisitions, were
approximately $2,300,000 during 1994. During 1993, such expenditures,
excluding new acquisitions, totalled approximately $2,500,000. During 1992,
such expenditures totalled approximately $200,000.
During 1994, AREP had approximately $10,000,000 in maturing balloon
mortgages due, approximately $6,700,000 of which have been repaid and
approximately $3,300,000 of which have been refinanced. Repayment of
balloon mortgages out of AREP's cash flow totalled approximately $3,800,000
in 1993 and $1,100,000 in 1992, net of refinancings and exclusive of debt
placement costs. Approximately $5,700,000 and $16,000,000 of maturing
balloon mortgages are due in 1995 and 1996, respectively, and during the
period 1997 through 1998 approximately $9,100,000 in maturing balloon
mortgages come due. AREP will seek to refinance a portion of these maturing
mortgages, although it does not expect to be able to refinance all of them
and may be required to repay them from cash flow and increase reserves
from time to time, thereby reducing cash flow otherwise available
for other uses.
II-11
<PAGE>
<PAGE>
AREP also has significant maturing debt requirements under the
Note Agreements. As of December 31, 1994, AREP had $45,231,106 of Senior
Unsecured Debt outstanding. Pursuant to the Note Agreements, AREP is
required to make semi-annual interest payments and annual principal
payments. The interest rate charged on the Senior Unsecured Debt is 9.6%
per annum. Under the terms of the Note Agreements, AREP deferred and
capitalized 2% annually of its interest payment through May 1993. In May
1994, AREP repaid $10 million of its outstanding Senior Unsecured Debt under
the Note Agreements and principal payments of approximately $11,308,000 are
due annually from 1995 through the final payment date of May 27, 1998. As
of December 31, 1994, AREP was in compliance with the terms of the Note
Agreements.
The Note Agreements contain certain covenants restricting the
activities of AREP. Under the Note Agreements, AREP must maintain a
specified level of net annual rentals from unencumbered properties (as
defined in the Note Agreements) and is restricted, in certain respects, in
its ability to create liens and incur debts. Investment by AREP in certain
types of assets that may be regarded as non-income producing, such as land
or non-performing loans, is restricted under the Note Agreements. The
holders of the Senior Unsecured Debt have agreed, however, to waive this
restriction with respect to any additional capital raised by AREP in the
Rights Offering. While the restrictions in the Note Agreements generally
have not adversely affected AREP's operations in any material manner, if
AREP encountered severe operating difficulties, certain options that
management might otherwise elect, such as seeking additional secured
financing, might be limited or prohibited.
The Note Agreements contain certain prepayment penalties which AREP
would be required to pay if it extinguishes any portion of the outstanding
principal prior to its annual due date. The Note Agreements require that
such prepayment consist of 100% of the principal amount to be prepaid plus a
premium based on a formula described therein. As of March 17, 1995 the
premium required in order to prepay the Note Agreement in full would have
been approximately $2,600,000. Subject to negotiating terms favorable to
AREP, the Senior Unsecured Debt may be prepaid in full with a portion
from the proceeds of the Rights Offering. Prepayment would release AREP
from certain covenants which restrict its operating and investment
activities, including, among others, covenants relating to the level of
net annual rentals from unencumbered properties and the ability to create
liens and incur additional debt. AREP believes that this prepayment and
the resulting release from the covenants in the Note Agreements could
further permit it to take advantage of the investment opportunities that
exist in the real estate market.
After evaluating the contingencies facing AREP, its anticipated cash
flows, liquidity needs, maturing debt obligations and capital expenditure
requirements, the Board of Directors of the General Partner reduced the
quarterly distributions in 1993 from $.25 to $.125 per quarter. This
reduction permitted management to continue to establish reserves for AREP's
II-12
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<PAGE>
maturing debt obligations and other contingencies. In 1994, the General
Partner determined that it was necessary for AREP to conserve cash and
increase reserves from time to time in order to meet capital expenditures and
maturing debt obligations. As a result, distributions to Unitholders were
reduced and finally suspended. On March 16, 1995, the Board of Directors of
the General Partner announced that a distribution for the fiscal quarter
ended March 31, 1995 would not be made. In making its announcement, AREP
noted that, consistent with previously announced estimates, net operating cash
flow in 1994 was only breakeven, after payment of periodic principal payments
and maturing debt obligations, capital expenditures and the creation of
additional cash reserves. AREP also noted that cash reserves had been set
aside for its scheduled approximately $11.3 million principal payment due in
May 1995 on its Senior Unsecured Debt and for the repayment of approximately
$3.6 million of balloon mortgages coming due by May 1995.
There were no distributions due to Unitholders for the year ended
December 31, 1994. Distributions paid during 1994 totalled approximately
$1,869,000, representing distributions due to Unitholders for the fourth
quarter of 1993 and to Unitholders who exchanged their limited partner
interests during 1994. Distributions due to Unitholders for the year ended
December 31, 1993 were approximately $7.1 million. Distributions paid
during the year ended December 31, 1993 totalled approximately $9.3 million,
representing distributions due to Unitholders for the fourth quarter of 1992
and the first three quarters of 1993 and to Unitholders who exchanged their
limited partner interests during 1993. Distributions due to Unitholders
for the year ended December 31, 1992 were approximately $14.3 million.
Distributions paid during 1992 totalled approximately $18.8 million,
representing distributions due to Unitholders for the fourth quarter of 1991
and the first three quarters of 1992 and to Unitholders who exchanged their
limited partner interests during 1992.
The proceeds from the Rights Offering are anticipated to be
approximately $109,000,000 after the payment of offering expenses of
approximately $1,000,000. The net proceeds of the Rights Offering will be
used to further diversify and expand AREP's investment portfolio and,
subject to negotiating terms favorable to AREP, the balance may be used to
prepay its Senior Unsecured Debt. If the Senior Unsecured Debt is not
prepaid, such funds will be used for additional portfolio investments. See
ITEM 1 -- "Investment Opportunities and Strategies."
Sales proceeds from the sale or disposal of portfolio properties
totalled approximately $12.6 million, including $1.4 million of net proceeds
from balloon payments of mortgages receivable in 1994. During the
comparable period of 1993, sales proceeds totalled approximately $14
million, including $2.4 million of net proceeds from balloon payments of
mortgages receivable. AREP entered into two joint ventures with
unaffiliated co-venturers in June 1994 for the purpose of developing luxury
garden apartment complexes in Hoover, Alabama, and Cary, North Carolina. In
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the year ended December 31, 1994, AREP invested approximately $5,500,000 in
these joint ventures. In May 1993, AREP completed the construction of the
BJ's Warehouse in Syracuse, New York for an aggregate cost of approximately
$7,900,000, and an approximate $1.2 million cost for the adjacent parcel.
In June 1993 AREP also acquired two non-performing mortgage loans on two
residential apartment complexes located in Lexington, Kentucky for
approximately $13 million. AREP foreclosed on each of these loans (one in
1993 and one in 1994) and now holds title to the underlying properties. See
Notes 7(h) and (l) of the Financial Statements contained herein.
II-14
ITEM 8. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Partners
American Real Estate Partners, L.P.:
We have audited the accompanying consolidated balance sheets of
American Real Estate Partners, L.P. and subsidiary as of
December 31, 1994 and 1993, and the related consolidated
statements of earnings, partners' equity and cash flows for each of
the years in the three year period ended December 31, 1994. In
connection with our audits of the consolidated financial statements,
we also have audited the 1994 financial statement schedule as listed
in the Index at Item 14 (a) 2. These consolidated financial
statements and the financial statement schedule are the
responsibility of the Partnership's management. Our responsibility
is to express an opinion on these consolidated financial statements
and the financial statement 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of American Real Estate Partners, L.P. and subsidiary as of
December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the years in the three year period
ended December 31, 1994, in conformity with generally accepted
accounting principles. Also in our opinion the related financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
New York, New York
March 16, 1995
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<PAGE>
<PAGE>
<TABLE>
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 and 1993
-----------------------------------------------------------------------
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
------
REAL ESTATE LEASED TO OTHERS:
Accounted for under the financing method
(Notes 2, 4 and 7) $314,260,786 $327,470,322
Accounted for under the operating method,
net of accumulated depreciation
(Notes 2, 5 and 7) 123,438,444 116,939,331
CASH AND CASH EQUIVALENTS (Note 2) 18,615,572 14,932,560
HOTEL OPERATING PROPERTIES, net of
accumulated depreciation (Notes 5
and 7) 13,654,442 14,070,278
MORTGAGES RECEIVABLE (Notes 6, 7,
12 and 14) 8,301,090 20,064,920
CONSTRUCTION-IN-PROGRESS (Note 7) 6,681,333 --
RECEIVABLES AND OTHER ASSETS (Note 14) 5,373,553 5,345,912
DEBT PLACEMENT COSTS - Net of accumulated
amortization (Note 2) 2,130,003 1,831,258
PROPERTY HELD FOR SALE (Notes 2, 7
and 13) 412,717 2,326,737
------------ ------------
TOTAL $492,867,940 $502,981,318
============ ============
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
MORTGAGES PAYABLE (Note 8) $174,095,697 $195,274,201
SENIOR INDEBTEDNESS (Notes 9 and 14) 45,231,106 55,231,106
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND
OTHER LIABILITIES (Note 14) 6,496,410 5,370,456
DEFERRED INCOME (Note 6) 3,637,398 7,392,138
CONSTRUCTION LOAN PAYABLE (Note 7) 2,393,954 --
DISTRIBUTIONS PAYABLE (Notes 3 and 15) 1,776,482 3,645,088
------------ ------------
233,631,047 266,912,989
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3,
12 and 16)
PARTNERS' EQUITY (Notes 2, 3 and 16) 259,236,893 236,068,329
------------ ------------
TOTAL $492,867,940 $502,981,318
============ ============
See notes to consolidated financial statements.
</TABLE>
II-16
<PAGE>
<PAGE>
<TABLE>
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Interest income:
Financing leases $31,990,262 $32,851,135 $34,121,308
Other 1,438,491 2,009,598 2,234,035
Rental income 19,084,506 15,691,513 17,064,641
Hotel operating income (Note 7) 8,853,480 8,448,879 3,704,308
Other income (Note 7) 183,987 1,155,674 657,251
----------- ----------- -----------
61,550,726 60,156,799 57,781,543
----------- ----------- -----------
EXPENSES:
Interest expense 22,735,908 25,127,931 25,859,176
Depreciation and amortization 4,960,704 4,360,933 4,333,940
General and administrative
expenses (Note 3) 2,791,123 2,454,786 2,318,856
Property expenses 4,413,651 2,580,259 1,778,614
Hotel operating expenses
(Note 7) 7,072,641 7,254,119 2,909,747
----------- ----------- -----------
41,974,027 41,778,028 37,200,333
----------- ----------- -----------
EARNINGS BEFORE PROPERTY
TRANSACTIONS AND
EXTRAORDINARY ITEM 19,576,699 18,378,771 20,581,210
PROVISION FOR LOSS ON REAL ESTATE
(Notes 7 and 12) (582,000) (462,000) (8,847,165)
GAIN ON SALES AND DISPOSITION OF
REAL ESTATE (Note 7) 4,173,865 4,759,983 342,372
----------- ----------- -----------
EARNINGS BEFORE EXTRAORDINARY
ITEM 23,168,564 22,676,754 12,076,417
LOSS FROM EARLY EXTINGUISHMENT OF
DEBT (Note 8) -- -- (784,540)
----------- ----------- -----------
NET EARNINGS $23,168,564 $22,676,754 $11,291,877
=========== =========== ===========
NET EARNINGS ATTRIBUTABLE
TO (Note 3):
Limited partners $22,707,510 $22,225,487 $11,067,169
General partner 461,054 451,267 224,708
----------- ----------- -----------
$23,168,564 $22,676,754 $11,291,877
=========== =========== ===========
NET EARNINGS PER LIMITED
PARTNERSHIP UNIT (Note 2):
Earnings before extraordinary
item $ 1.64 $ 1.60 $ .84
Extraordinary item -- -- (.05)
----------- ----------- -----------
NET EARNINGS $ 1.64 $ 1.60 $ .79
=========== =========== ===========
LIMITED PARTNERSHIP UNITS
OUTSTANDING AT YEAR-END 13,812,800 13,812,800 13,981,300
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
II-17
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<PAGE>
<TABLE>
<CAPTION>
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL LIMITED HELD IN TREASURY TOTAL
PARTNERS' PARTNERS' --------------------------- PARTNERS'
EQUITY EQUITY AMOUNT UNITS EQUITY
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1991 $ 4,670,423 $230,023,894 $(9,000,915) 758,800 $225,693,402
Net earnings 224,708 11,067,169 -- -- 11,291,877
Distributions to partners (Notes 2 and 3) (285,226) (14,047,730) -- -- (14,332,956)
Purchase of treasury units -- -- (797,759) 109,900 (797,759)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1992 $ 4,609,905 $227,043,333 $(9,798,674) 868,700 $221,854,564
Net earnings 451,267 22,225,487 -- -- 22,676,754
Distributions to partners (Notes 2 and 3) (140,848) (6,936,950) -- -- (7,077,798)
Purchase of treasury units -- -- (1,385,191) 168,500 (1,385,191)
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1993 $ 4,920,324 $242,331,870 $(11,183,865) 1,037,200 $236,068,329
Net earnings 461,054 22,707,510 -- -- 23,168,564
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1994 $ 5,381,378 $265,039,380 $(11,183,865) 1,037,200 $259,236,893
============ ============ ============ ============ ============
See notes to consolidated financial statements.
</TABLE>
II-18
<PAGE>
<PAGE>
<TABLE>
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
---------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net earnings $ 23,168,564 $ 22,676,754 $ 11,291,877
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 4,960,704 4,360,933 4,333,940
Deferred interest expense -- 546,842 1,077,496
Amortization of deferred income (26,218) (26,218) (26,218)
Gain on sales and disposition
of real estate (4,173,865) (4,759,983) (342,372)
Provision for loss on real estate 582,000 462,000 8,847,165
Early extinguishment costs -- -- (784,540)
Loss on early extinguishment
of debt -- -- 784,540
Changes in:
Increase in accounts payable and
accrued expenses 1,139,297 131,638 636,119
(Decrease) increase in deferred
income (3,640) (100,269) 307,825
Increase in receivables and
other assets (177,434) (1,440,793) (1,171,011)
--------------- --------------- ---------------
Net cash provided by
operating activities 25,469,408 21,850,904 24,954,821
--------------- --------------- ---------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Decrease (increase) in mortgages
receivable 116,524 (5,391,052) --
Net proceeds from the sales and
disposition of real estate 11,171,802 11,667,845 1,035,413
Principal payments received on
leases accounted for under
the financing method 6,708,644 6,066,011 5,592,462
Construction in progress (6,681,333) -- (3,961,656)
</TABLE>
<TABLE>
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
---------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
Principal receipts on mortgages
receivable 275,459 251,857 70,082
Property acquisitions (3,336,145) (12,074,542) --
Capitalized expenditures for
real estate (2,331,380) (2,490,061) (159,449)
Balloon payment on mortgage
receivable 1,392,649 2,411,698 --
--------------- --------------- ---------------
Net cash provided by investing
activities 7,316,220 441,756 2,576,852
--------------- --------------- ---------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Partners' equity:
Purchase of treasury units -- (1,385,191) (797,759)
Distribution to partners (1,868,607) (9,268,892) (18,787,736)
Debt:
Increase in mortgages
payable 282,391 4,036,933 4,581,617
Early extinguishment of
mortgages payable (3,364,023) (3,038,346) --
Periodic principal payments (9,241,669) (9,032,917) (7,754,590)
Balloon payments (6,682,984) (3,808,767) (4,190,851)
Senior debt principal payment (10,000,000) -- --
Increase in construction loan
payable 2,393,954 -- --
Debt placement costs (621,678) (502,558) (718,042)
--------------- --------------- ---------------
Net cash used in financing
activities (29,102,616) (22,999,738) (27,667,361)
--------------- --------------- ---------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 3,683,012 (707,078) (135,688)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR 14,932,560 15,639,638 15,775,326
--------------- --------------- ---------------
CASH AND CASH
EQUIVALENTS, END OF
YEAR $ 18,615,572 $ 14,932,560 $ 15,639,638
=============== =============== ===============
</TABLE>
II-19
<PAGE>
<PAGE>
<TABLE>
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
---------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
SUPPLEMENTAL
INFORMATION:
Cash payments for interest $ 22,762,631 $ 25,492,543 $ 25,479,241
=============== =============== ===============
SUPPLEMENTAL SCHEDULE
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Property acquired in satisfaction
of mortgages:
Additions to property accounted
for under the financing method $ -- $ 4,141,930 $ --
Additions to property accounted
for under the operating method 6,645,589 1,812,319 --
Additions to mortgages payable -- (2,904,481) --
Decrease in mortgages receivable (9,109,376) (3,550,365)
Increase to property held for sale 300,530 -- --
Decrease in deferred income 2,163,257 500,597 --
--------------- --------------- ---------------
$ -- $ -- $ --
=============== =============== ===============
Reclassification of real estate
to operating lease $ -- 4,686,419 3,804,998
Reclassification of real estate
from operating lease (840,844) (1,018,735) (7,331,421)
Reclassification of real estate
from financing lease -- (808,667) (21,902,382)
Reclassification of real estate
to hotel operating properties -- -- 17,114,660
Reclassification of real estate
from construction in progress -- (3,961,656) --
Reclassification of real estate
to property held for sale 840,844 1,102,639 8,314,145
--------------- --------------- ---------------
$ -- $ -- $ --
=============== =============== ===============
See notes to consolidated financial statements.
</TABLE>
II-20
<PAGE>
<PAGE>
AMERICAN REAL ESTATE PARTNERS, L.P. AND
SUBSIDIARY
________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
_____________________________________________
1. ORGANIZATION AND BASIS OF PRESENTATION
On July 1, 1987, American Real Estate Holdings Limited
Partnership (the "Subsidiary"), in connection with an
exchange offer (the "Exchange"), entered into merger
agreements with American Real Estate Partners, L.P. (the
"Company") and each of American Property Investors,
L.P., American Property Investors II, L.P., American
Property Investors III, L.P., American Property Investors
IV, L.P., American Property Investors V, L.P., American
Property Investors VI, L.P., American Property Investors
VII, L.P., American Property Investors VIII, L.P.,
American Property Investors IX, L.P., American Property
Investors X, L.P., American Property Investors XI, L.P.,
American Property Investors 82, L.P. and American
Property Investors 83, L.P. (collectively, the"Predecessor
Partnerships"), pursuant to which the Subsidiary acquired
all the assets, subject to the liabilities (known and unknown)
of the Predecessor Partnerships.
The limited partners of the Predecessor Partnerships
received limited partner interests in the Subsidiary. The
number of such limited partner interests received by a
limited partner was determined based upon his percentage
ownership interest in the Predecessor Partnerships, the
value of the Predecessor Partnerships' net assets and the
number of limited partner interests allocable to the
Predecessor Partnerships' general partners and their
affiliates. The limited partner interests in the Subsidiary
were contributed to the Company in exchange for limited
partner interests therein. Limited partnership interests were
allocable to the Predecessor Partnerships' general partners
and their affiliates as a result of their rights: (i) to receive
a portion of the cash flow of the Predecessor Partnerships
by virtue of their ownership of interests in such partnerships
and their entitlement to receive management fees and
nonaccountable expense reimbursements and (ii) to share in
the proceeds from the sale or liquidation of the assets of the
Predecessor Partnerships and to receive real estate
commissions with respect to the sale of properties by the
Predecessor Partnerships. These rights of the Predecessor
Partnerships' general partners and their affiliates were
valued in connection with the Exchange. As a result of
such valuation, and the assignment of the interests
receivable by the corporate affiliates to American Property
Investors, Inc. (the "General Partner"), an aggregate of
1,254,280 units and a 1% general partner interest in the
Company were issued to the General Partner and 5,679
units were issued to noncorporate affiliates of the
Predecessor Partnerships' general partners. In addition, the
General Partner also received a 1% general partner interest
in the Subsidiary.
By virtue of the Exchange, the Subsidiary owns the assets,
subject to the liabilities, of the Predecessor Partnerships.
The Company owns a 99% limited partner interest in the
Subsidiary. The General Partner owns a 1% general
partner interest in both the Subsidiary and the Company
representing an aggregate 1.99% general partner interest in
the Company and the Subsidiary.
II-21
<PAGE>
<PAGE>
The participation in the transaction by a Predecessor
Partnership was conditioned upon obtaining the approval of
a majority-in-interest of the limited partners in such
Predecessor Partnership. Such approvals were obtained
with respect to each of the Predecessor Partnerships prior
to July 1, 1987.
During 1989, Integrated Resources, Inc. ("Integrated"), the
former parent of the General Partner, experienced serious
financial difficulties and, on February 13, 1990, it filed in
the Bankruptcy Court for the Southern District of New
York a voluntary petition for reorganization pursuant to the
provisions of Chapter 11 of the Federal Bankruptcy Code
(the "Filing"). The General Partner was a separate entity
and neither the General Partner nor any other subsidiary of
Integrated was included in the Filing.
On September 13, 1990, in connection with its voluntary
petition for reorganization pursuant to Chapter 11 of the
Bankruptcy Code, Integrated entered into an agreement
whereby it agreed to sell all of its stock in the General
Partner to Meadowstar Holding Company, Inc.
("Meadowstar"). Neither the Company nor the General
Partner was a party to such agreement. The sale of the
stock of the General Partner to Meadowstar was approved
by the Bankruptcy Court on October 22, 1990. On
November 15, 1990, pursuant to the terms of the
Acquisition Agreement, Meadowstar purchased all of the
outstanding shares of Common Stock of the General
Partner. In May 1993, Carl C. Icahn acquired all of
Meadowstar's interest in the General Partner.
II-22
<PAGE>
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENTS AND PRINCIPLES OF
CONSOLIDATION - The consolidated financial
statements are prepared on the accrual basis of accounting
and include only those assets, liabilities and results of
operations which relate to the Company and the Subsidiary.
All material intercompany accounts and transactions have
been eliminated in consolidation.
REGISTRATION COSTS AND EXPENSES OF THE
EXCHANGE - Registration costs of the Predecessor
Partnerships were charged against partners' equity upon the
closing of the public offerings in accordance with prevalent
industry practice. Expenses of the Exchange were charged
against partners' equity upon consummation of the
Exchange.
NET EARNINGS AND DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT - For financial reporting purposes,
the weighted average number of units assumed outstanding
for the years ended December 31, 1994, 1993 and 1992
was 13,812,800, 13,889,667 and 14,058,153, respectively.
There were no distributions in 1994. Distributions were
$.50 per unit in 1993 and $1.00 per unit in 1992.
UNIT OPTION PLAN - The Company adopted a
Nonqualified Unit Option Plan (the "Plan") in 1987, which
was further amended in 1989, under which options to
purchase an aggregate of 1,416,910 Units may be granted
to officers and key employees of the General Partner and
the Company who provide services to the Company. To
date, no options have been granted under the Plan.
CASH AND CASH EQUIVALENTS - The Company considers
short-term investments, which are highly liquid
with original maturities of three months or less from date of
issuance, to be cash equivalents.
Included in cash and cash equivalents at December 31, 1994
and 1993 are investments in government backed securities
of approximately $17,155,000 and $13,772,000,
respectively.
INCOME TAXES - No provision has been made for
Federal, state or local income taxes since the Company is
a partnership and, accordingly, such taxes are the
responsibility of the partners.
LEASES - The Company leases to others substantially all
its real property under long-term net leases and accounts for
these leases in accordance with the provisions of Financial
Accounting Standards Board Statement No. 13, "Accounting
for Leases," as amended. This Statement sets forth specific
criteria for determining whether a lease is to be accounted
for as a financing lease or operating lease.
a. FINANCING METHOD - Under this method,
minimum lease payments to be received plus the
estimated value of the property at the end of the
lease are considered the gross investment in the
lease. Unearned income, representing the difference
between gross investment and actual cost of the
leased property, is amortized to income over the
lease term so as to produce a constant periodic rate
of return on the net investment in the lease.
b. OPERATING METHOD - Under this method,
revenue is recognized as rentals become due and
expenses (including depreciation) are charged to
operations as incurred.
II-23
<PAGE>
<PAGE>
PROPERTIES - Properties, other than those accounted for
under the financing method, are carried at cost less
accumulated depreciation unless declines in the values of
the properties are considered other than temporary.
For each of the years ended December 31, 1994, 1993 and
1992 no individual real estate or series of assets leased to
the same lessee accounted for more than 10% of the gross
revenues of the Company. At December 31, 1994 and
1993, Portland General Electric Company occupied a
property, consisting of corporate offices, which represented
more than 10% of the Company's total assets.
DEPRECIATION - Depreciation on properties accounted
for under the operating method is computed using the
straight-line method over the estimated useful life of the
particular property or property components, which range
from 5 to 45 years. When properties are sold or otherwise
disposed of, the cost and accumulated depreciation are
removed from the property account and the accumulated
depreciation account, and any gain or loss on such sale or
disposal is generally credited or charged to income (see
Note 7).
DEBT PLACEMENT COSTS - Debt placement costs are
amortized on a straight-line basis over the term of the
respective indebtedness.
Assets Held for Sale - Assets held for sale are carried at
the lower of cost or net realizable value.
II-24
<PAGE>
<PAGE>
3. CONFLICTS OF INTEREST AND TRANSACTIONS
WITH RELATED PARTIES
a. The General Partner and its affiliates may realize
substantial fees, commissions and other income from
transactions involving the purchase, operation,
management, financing and sale of the Partnership's
properties, subject to certain limitations relating to
properties acquired from the Predecessor
Partnerships in the Exchange. Some of such
amounts may be paid regardless of the overall
profitability of the Partnership and whether any
distributions have been made to Unitholders. As
new properties are acquired, developed,
constructed, operated, leased, financed and sold, the
General Partner or its affiliates may perform
acquisition functions, development and construction
oversight and other land development services,
property management and leasing services, either on
a day-to-day basis or on an asset management basis,
and other services and be entitled to fees and
reimbursement of expenses relating thereto,
including the Reinvestment Incentive Fee, property
management fees, real estate brokerage and leasing
commissions, fees for financing either provided or
arranged by the General Partner and its affiliates,
development fees, general contracting fees and
construction management fees. The terms of any
transactions between the Company and the General
Partner or its affiliates must be fair and reasonable
to the Company and customary to the industry.
Reinvestment incentive fees as payment for services
rendered in connection with the acquisition of
properties from July 1, 1987 through July 1, 1997
were 1% of the purchase price for the first five
years and are 1/2% for the second five years.
Reinvestment incentive fees are only payable on an
annual basis if the sum of (x), the sales price of all
Predecessor Partnerships' properties (net of
associated debt which encumbered such properties at
the consummation of the Exchange) sold through the
end of such year, and (y), the appraised value of all
Predecessor Partnerships' properties which have
been financed or refinanced (and not subsequently
sold), net of the amount of any refinanced debt,
through the end of such year determined at the time
of such financings or refinancings, exceeds the
aggregate values assigned to such Predecessor
Partnerships' properties for purposes of the
Exchange. If the subordination provisions are not
satisfied in any year, payment of reinvestment
incentive fees for such year will be deferred. At the
end of each year, a new determination will be made
with respect to subordination requirements
(reflecting all sales, financings and refinancings
from the consummation of the Exchange through the
end of such year) in order to ascertain whether
reinvestment incentive fees for that year and for any
prior year, which have been deferred, may be paid.
From the commencement of the Exchange through
December 31, 1994, the Company (i) sold or
disposed of an aggregate of 126 properties of the
Predecessor Partnerships for an aggregate of
approximately $56,879,000, net of associated
indebtedness which encumbered such properties at
the consummation of the Exchange and (ii)
refinanced 25 Predecessor Partnership properties
with an aggregate appraised value, net of the amount
of the refinanced debt, of approximately
$44,431,000 for a sum total of approximately
$101,310,000. Aggregate appraised values
attributable to such properties for purposes of the
Exchange were approximately $88,322,000. Fifteen
properties have been acquired since the
commencement of the Exchange, including two joint
ventures entered into in 1994, for aggregate
purchase prices of approximately $52,000,000.
Reinvestment incentive fees of approximately
$354,000 have previously been paid to the General
Partner, and approximately $113,000 are payable to
the General Partner for the 1994 acquisitions. The
property acquired in 1992 was subject to a
II-25
<PAGE>
<PAGE>
conditional sale agreement (see Note 7); therefore,
no reinvestment incentive fee was due at December
31, 1992.
b. The Company entered into a lease, effective June 1,
1991, for approximately 6,900 square feet of office
space with an affiliate of the General Partner. The
lease is for a ten year term and provides for initial
monthly rent (inclusive of charges for utilities) of
$11,642, which amount increased to $12,936 on
June 1, 1994 and increases to $14,804 on June 1,
1997. The terms of the lease agreement were
reviewed for fairness by the Audit Committee of the
Board of Directors of the General Partner which
determined that the terms of such transaction were
fair and reasonable to the Company. In evaluating
the transaction, the Audit Committee consulted with
an independent appraiser regarding the terms of the
lease. For the year ended December 31, 1992, the
Company paid $139,704 in rent.
On December 29, 1992, the affiliate of the General
Partner assigned its interest in the lease to an
unaffiliated third party.
II-26
<PAGE>
<PAGE>
4. REAL ESTATE LEASED TO OTHERS ACCOUNTED FOR
UNDER THE FINANCING METHOD
Real estate leased to others accounted for under the financing
method is summarized as follows:
December 31,
--------------------------------
1994 1993
--------------- ---------------
Minimum lease payments
receivable $446,943,110 $497,100,936
Unguaranteed residual value 171,636,874 175,214,737
------------ -------------
618,579,984 672,315,673
Less unearned income 304,319,198 344,845,351
------------ -------------
$314,260,786 $327,470,322
============ =============
The following is a summary of the anticipated future receipts of the
minimum lease payments receivable at December 31, 1994:
Year ending
December 31, Amount
-------------------- ---------------
1995 $ 38,439,834
1996 38,397,613
1997 38,366,876
1998 38,293,967
1999 37,214,924
Thereafter 256,229,896
--------------
$ 446,943,110
==============
At December 31, 1994, approximately $244,463,000 of the net
investment in financing leases was pledged to collateralize the
payment of nonrecourse mortgages payable.
II-27
<PAGE>
<PAGE>
5. REAL ESTATE LEASED TO OTHERS ACCOUNTED
FOR UNDER THE OPERATING METHOD
Real estate leased to others accounted for under the
operating method is summarized as follows:
December 31,
----------------------------
1994 1993
------------- -------------
Land $ 57,411,117 $ 53,446,863
Commercial building 112,762,861 107,809,870
------------- --------------
$170,173,978 $ 161,256,733
Less accumulated depreciation 46,735,534 44,317,402
------------- --------------
$123,438,444 $ 116,939,331
============= ==============
As of December 31, 1994 and 1993, accumulated depreciation on the
hotel operating properties (not included above) amounted to
approximately $1,499,000 and $723,000, respectively (see Note 7).
The following is a summary of the anticipated future receipts
of minimum lease payments under noncancelable leases at December
31, 1994:
Year ending
December 31, Amount
------------ -----------
1995 $14,413,774
1996 13,554,598
1997 11,872,170
1998 10,650,677
1999 9,174,571
Thereafter 36,548,268
------------
$96,214,058
============
At December 31, 1994, approximately $91,029,000 of real estate leased
to others was pledged to collateralize the payment of nonrecourse mortgages
payable.
II-28
<PAGE>
<PAGE>
6. MORTGAGES RECEIVABLE
<TABLE>
<CAPTION>
Balance at
Monthly December 31,
Interest Maturity Balance at Payment -----------------
Rate Date Maturity Amount 1994 1993
-------- -------- ---------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Collateralized by
Property Tenanted by
--------------------
Gino's Inc. and
Foodarama Supermarkets,
Inc. 8.051% 1/92 $1,005,237 $ - (a) $462,712 1,005,237
Hardee's Food Systems,
Inc. 9.00(b) 11/05 - 735 153,460 153,460
Bank of Virginia 9.00(c) 1/06 847,902 1,436 341,955 336,171
Best Products Co., Inc. 9.00(d) 9/01 - - (d) 249,170 271,538
Data 100 Corp. 9.00 12/10 - 9,589 974,890 1,021,363
11.6087 12/19 - - (e) 496,230 455,362
Easco Corp. 8.875 2/97(f) 3,586,940 27,800(f) 3,536,384 3,555,204
Webcraft Technologies
Co.(a) 9.70 6/92 1,863,365 16,607 - 1,889,138
The Wickes Corp.(a) 10.3937 1/93 3,691,873 31,977 - 3,691,873
Winchester Partnership 9.00 11/01 - 33,857 2,086,289 2,294,520
Stoney Brooke(a) - - - - - 5,391,054
--------- ---------
$8,301,090 20,064,920
========== ==========
</TABLE>
(a) See Note 7.
(b) 5.75% is paid currently and 3.25% is deferred. The principal and
deferred interest is payable in monthly installments from March
1999 until November 2005.
(c) 4.5% is paid currently and 4.5% is deferred until maturity.
(d) Payments (with interest only at 9%) are $46,931 through
November 1, 1996 and $54,276 through September 1, 2001 (See
Note 12a).
(e) Interest only will accrue until December 1, 2010; commencing
January 1, 2011, monthly payments of $39,035 will be due, which
will self-amortize the outstanding principal and current and
deferred interest, with the final payment due December 1, 2019.
Increased rentals on the property, if any, during the renewal term
of the underlying lease will be applied against accrued interest and
then the outstanding principal.
(f) On January 16, 1992, the purchase money mortgage was amended.
The maturity date was extended to November 1994 and the
monthly payments decreased to $27,800 commencing February 1,
1992. Under the terms of the amendment, the maturity date has
been further extended to February 1997 to coincide with Easco's
renewal of its lease for an additional ten years.
The Company has generally not recognized any profit in connection
with the property sales in which the above purchase money
mortgages receivable were taken back. Such profits are being
deferred and will be recognized when the principal balances on the
purchase money mortgages are received.
II-29
<PAGE>
<PAGE>
7. SIGNIFICANT PROPERTY TRANSACTIONS
Information on significant property transactions during the three-year
period ended December 31, 1994 is as follows:
a. On March 27, 1991, The Public Building Commission of Chicago
("Public Building Commission") commenced a condemnation
proceeding against a property leased by The TJX Companies, Inc.
The condemnation proceeding was settled on March 12, 1993 when
the Company received approximately $4,305,000 from the tenant
who purchased the property in accordance with their lease
obligations. A net gain of approximately $1,575,000 was
recognized on this transaction in the year ended December 31,
1993.
b. The lease on a property formerly tenanted by Occidental
Petroleum Corp. initially expired June 30, 1992 and was
extended to March 1993 on a month-to-month basis. Based
on existing conditions, the Company believed the carrying
value at December 31, 1992 to be substantially in excess
of the property's value, and as a result, wrote the asset
down to its recoverable value by incurring a provision
for loss on real estate in the amount of $1,400,000 for
the year then ended. This asset has a carrying value of
approximately $2,242,000 and is encumbered by a
nonrecourse mortgage payable of approximately $2,182,000
as of December 31, 1994.
The Company has obtained zoning approval which will
enable the re-development of the site into a 67,000
square foot retail center with two out parcels totaling
11,000 square feet of rentable area.
c. On April 2, 1990, Amdura Corp., formerly American Hoist
and Derrick Co., and certain of its subsidiaries,
including Amdura National Distribution Company, a tenant
of a property owned by the Company, filed voluntary
petitions for reorganization pursuant to the provisions
of Chapter 11 of the Federal Bankruptcy Code. The
Company and the tenant previously executed an agreement
which permitted the tenant to assume the lease and pursue
assignment of said lease, subject to the Company's
approval, during a specified time period. The tenant was
unsuccessful in assigning the lease and, as a result, the
lease was terminated and the Company took possession of
the premises effective August 1, 1992. In accordance
with this agreement, the Company was entitled to and
recognized approximately $657,000 of income in full
settlement of all claims against the tenant. This was
included in "Other income" for the year ended December
31, 1992. The lease termination initially adversely
impacted day-to-day operating cash flow by approximately
$35,000 per month. During the year ended December 31,
1994, operating rental income exceeded expenses by
approximately $575,000. During the year ended December
31, 1993, operating expenses exceeded rental income by
approximately $280,000. As of December 31, 1994, the
property is 100% leased. The property has a carrying
value of approximately $3,699,000 and is encumbered by a
nonrecourse mortgage payable of approximately $1,554,000
as of December 31, 1994. Based on current circumstances,
the Company believes that the carrying value of the asset
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<PAGE>
is fairly stated. The Company engaged and continues to
use a management company to perform supervisory
management and leasing services, including the leasing
of any vacant portions of the premises.
d. On September 27, 1991, Days Inn of America, Inc. ("Days
Inn"), a tenant of a property owned by the Company,
located in Atlanta, Georgia, filed a voluntary petition
for reorganization pursuant to the provisions of Chapter
11 of the Federal Bankruptcy Code. The tenant, by order
of the Bankruptcy Court, rejected the lease effective
July 31, 1992. As of December 31, 1992, the tenant was
in arrears by approximately $250,000 in rent and real
estate taxes, both of which were pre-petition
obligations. Subsequent to the filing, the tenant was
current in its lease obligations. The Company previously
wrote the asset down to what it believed was the
recoverable value by incurring a provision for loss on
real estate in the amount of approximately $4,252,000 for
the year ended December 31, 1991. The asset whose
carrying value at December 31, 1994 is approximately
$4,537,000 is unencumbered by any mortgage.
The Company submitted a claim to the Bankruptcy Court and
in August 1993, it reached a settlement of this claim
against Days Inn, now known as Buckhead America
Corporation ("Buckhead"). As a result, the Company has
received cash in the amounts of approximately $184,000
and $730,000 in the years ended December 31, 1994 and
1993, respectively. In addition, stock in Buckhead
valued at approximately $305,000 was received in the year
ended December 31, 1993. These amounts of approximately
$184,000 and $1,035,000 have been included in "Other
income" for the years ended December 31, 1994 and 1993,
respectively. The Buckhead stock was disposed of in 1994
with a nominal gain.
Effective August 1, 1992 the Company engaged a management
company to perform on-site and supervisory management
services. The lease rejection has adversely impacted
operating cash flow by approximately $110,000 per month.
In addition, the Company expects to incur costs of
approximately $3,200,000, as leases are executed, to
renovate, build-out and re-lease the property.
e. On July 14, 1992, Integra, A Hotel and Restaurant Company
("Integra"), which leased two hotel properties located in
Miami, Florida and Phoenix, Arizona filed a voluntary
petition for reorganization pursuant to the provisions of
Chapter 11 of the Bankruptcy Code. The tenant's
petition, previously filed with the Bankruptcy Court, to
reject the aforementioned leases, was approved on August
7, 1992 and the Company assumed operation of the
properties on that date. As of December 31, 1992, the
tenant was in arrears by approximately $720,000 for which
an allowance of approximately $543,000 was provided in
the year then ended. In addition, real estate taxes
representing a pre-petition obligation were paid or
accrued in the amount of approximately $425,000. These
taxes were included in "Property expenses" for the year
ended December 31, 1992. The Company has submitted a
claim to the Bankruptcy Court.
At December 31, 1994, the property located in Miami,
Florida has a carrying value of approximately $5,774,000
and is encumbered by nonrecourse mortgages payable of
approximately $46,000. This property is subject to a
ground lease. Based on current conditions, management
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believes the carrying value of the Miami property is
reasonably stated.
Based on existing conditions and discussions with
certain operators and managers of hotels, management
believed the recoverable value of the Phoenix property to
be substantially less than its carrying value. As a
result, the Company wrote the property down by incurring
a provision for loss on real estate in the amount of
$4,538,000 in the year ended December 31, 1992. At
December 31, 1994, this property has a carrying value of
approximately $7,880,000 and is encumbered by a
nonrecourse mortgage payable of approximately $3,286,000.
This mortgage was refinanced during the year ended
December 31, 1994 (see Note 8).
During the year ended December 31, 1993, the Company
completed major renovations at the Miami and Phoenix
Holiday Inns with capital expenditures totalling
approximately $1,700,000 and $400,000, respectively. In
connection with these renovations, approximately $250,000
of nonrecurring maintenance expenses were incurred at the
Miami location. These expenses were included in hotel
operating expenses for the year ended December 31, 1993.
During the year ended December 31, 1994, additional
capital expenditures of approximately $190,000 and
$240,000 were incurred at the Miami and Phoenix Holiday
Inns, respectively.
The Company has entered into a management agreement for
the operation of the hotels with a national management
organization. Since August 7, 1992, the hotels have been
classified as Hotel Operating Properties and their
revenues and expenses separately disclosed in the
Consolidated Statements of Earnings. From August 7
through December 31, 1992, net hotel operations (hotel
operating revenues less hotel operating expenses)
totalled approximately $795,000. This was $100,000 less
than the rent would have been from the rejected leases
for the same period. Net hotel operations totalled
approximately $1,781,000 and $1,195,000 for the years
ended December 31, 1994 and 1993, respectively. This was
approximately $379,000 and $965,000 less than the rent
would have been from the rejected leases for the years
then ended, respectively. Hotel operating expenses
include all expenses except for approximately $215,000 of
depreciation and $322,000 of interest expense for the
period commencing August 7, 1992 through year end and
approximately $776,000 and $509,000 of depreciation and
$456,000 and $742,000 of interest expense for the years
ended December 31, 1994 and 1993, respectively. These
amounts are included in their respective captions in the
Consolidated Statements of Earnings. The results for the
year ended December 31, 1994 are not necessarily
indicative of future operating results.
f. During 1992, leases on two properties formerly tenanted
by Petrolane, Inc. located in Belle Chasse, LA and Nisku,
Alberta, Canada, expired and were re-let at rents
substantially less than the previous leases. The new
lease on the former location expires April 1996 and
includes a purchase option for $575,000. The latter
location's new lease expires March 1995. After
evaluating the existing market conditions and the
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potential use of the facilities, the Company believed the
Belle Chasse property's carrying value at September 30,
1992 of approximately $1,267,000 to exceed the
recoverable value in the amount of $517,000 and the Nisku
property's carrying value at September 30, 1992 of
approximately $1,020,000 to exceed the recoverable value
in the amount of $270,000. As a result, the Company
recorded a provision for loss on real estate in the
amount of $787,000 for the year ended December 31, 1992.
In addition, after further evaluation and review, the
Company believed the Belle Chasse property's carrying
value at June 30, 1994 to exceed the recoverable value in
the amount of $237,000. As a result, the Company
recorded a provision for loss on real estate in the
amount of $237,000 for the year ended December 31, 1994.
g. On December 9, 1991, Stop N Go Markets of Texas, Inc.
(National Convenience Stores, Inc.) filed a voluntary
petition for reorganization pursuant to the provisions of
Chapter 11 of the Bankruptcy Code. The tenant, who
previously leased twenty-three locations, filed a motion
with the Bankruptcy Court to assume four leases and
reject the remaining leases. Pursuant to a stipulation
by the Bankruptcy Court on February 4, 1993, the tenant's
motion was approved effective as of August 31, 1992. The
tenant was in arrears in the approximate amount of $6,000
rent and $34,000 of real estate taxes as of December 31,
1992. On March 19, 1993, the Company filed a proof of
claim with the Bankruptcy Court. In November 1993, the
Company received stock of the debtor valued at
approximately $123,000 in partial settlement of its
claim. This total has been included in "Other income"
for the year ended December 31, 1993. In May of 1994
additional stock of the debtor was received. The total
value of the stock at December 31, 1994 of $102,000 is
based on the lower of cost or market.
In 1994, all four of the leased locations were sold. The
remaining nineteen properties, whose rents totaled
approximately $217,000 per year, were actively marketed
for sale by the Company. Based on existing market
conditions, the Company believed the carrying value of
approximately $1,781,000 at December 31, 1992 to exceed
the estimated net realizable value by $780,000, for which
a provision for loss on real estate was recorded during
the year then ended. During the years ended December 31,
1994 and 1993, the Company sold ten and nine of these
locations, respectively. A nominal gain was recognized
on the disposal of all twenty-three properties.
h. On November 2, 1992, the Company purchased approximately
fifteen acres of land in East Syracuse, New York for
approximately $3,500,000 and contracted to build a
116,000 square foot BJ's Warehouse Store ("BJ's") upon
the site. The Company has entered into a twenty year
lease with Waban, Inc. ("Waban"), the parent company of
BJ's Warehouse Club. Construction was substantially
completed on May 22, 1993 and Waban took possession of
the premises, which is situated on approximately ten
acres of land, and commenced rental payments on that
date. The lease provides for an initial annual net
rental of $659,262 with CPI increases every five years,
not to exceed 8.77%. Under the lease, Waban is
responsible for any required structural repairs. Of the
remaining five acres of adjacent land approximately 3.6
acres is available for future development by the Company.
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<PAGE>
Simultaneously with the acquisition of the property, the
Company entered into a general construction contract with
the seller (the "GC Agreement") pursuant to which the
seller (the "Seller") was required to construct BJ's in
accordance with the terms and conditions of the lease for
a guaranteed maximum amount of $2,327,802. However, the
construction of BJ's was subject to delays and the Seller
did not meet all of its construction obligations under
the GC Agreement and failed to cure such defaults. The
Company sent a notice, dated February 19, 1993,
terminating the GC Agreement and assumed the construction
obligations. The Company contacted the surety of the GC
Agreement pertaining to the site work. The surety was
not responsive to the Company. The Company has
determined at this point to not pursue any potential
claims it may have because after further investigation,
it believes such claims will not be able to be satisfied.
At December 31, 1994, the BJ's land, including related
improvements, cost a total of approximately $4,996,000
and the building cost a total of approximately
$3,105,000. The adjacent land available for future
development, including related improvements, cost a total
of approximately $1,256,000. Approximately $268,000 of
interest was capitalized which included $210,000 and
$58,000 during the years ended December 31, 1993 and
1992, respectively.
A reinvestment incentive fee was paid to the General
Partner of approximately $45,000 pertaining to this
acquisition and development.
The Company received permanent financing of $4,000,000 on
the BJ's parcel and improvements. (see Note 8).
i. At December 31, 1992, the Company owned fifteen
properties tenanted by Nationsbank, formerly NCNB
National Bank of South Carolina. The leases on fourteen
of these properties expired in December 1992 and one
expired in March 1993; however, nine leases were extended
to March 1993 in connection with an executed agreement
(the "Agreement") entered into between the Company and
the tenant to purchase and/or lease any one or more of
ten locations, including the property whose lease expired
in March 1993. The tenant elected to purchase four and
lease six properties in accordance with the Agreement.
The four properties which were sold on March 26, 1993 had
a carrying value of approximately $4,357,000 and were
unencumbered by any mortgage at December 31, 1992. Since
the contracted selling price of approximately $5,300,000
exceeded the carrying value, the Company believed the
assets were fairly stated. The six leased locations were
re-let at an annual rental of approximately $214,000, a
reduction of approximately $196,000 from the previous
rent. As a result, the Company believed the carrying
value at December 31, 1992 exceeded the recoverable value
and wrote the properties down by incurring a provision
for loss on real estate in the amount of $1,000,000 for
the year then ended. At December 31, 1994, these
properties have a carrying value of approximately
$2,081,000 and are unencumbered by any mortgage.
Of the remaining five properties whose leases were not
extended, one was sold on January 20, 1993. The property
had a carrying value at December 31, 1992 of
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<PAGE>
approximately $261,000 that exceeded the net realizable
value and therefore the Company wrote the property down
by incurring a provision for loss on real estate in the
amount of $192,165 for the year then ended. This asset
was unencumbered by any mortgage at December 31, 1992.
Another property, whose carrying value at December 31,
1992 was $357,000 was written down by incurring a
provision for loss on real estate in the amount of
$182,000 in the three months ended March 31, 1993 and
subsequently sold on April 15, 1993. The other three
properties were sold during the year ended December 31,
1994.
j. On July 31, 1993, the Company held a nonrecourse mortgage
in the amount of approximately $3,456,000 secured by four
properties tenanted by Toys "R" Us, Inc. The mortgage
had been taken back by a Predecessor Partnership in
connection with the sale of such properties. The tenant
remained current in its obligations under the lease. The
terms of the mortgage called for a balloon payment of
approximately $3,456,000 on January 1, 1993 which was not
received. The Company reacquired these properties in
satisfaction of such mortgage and as of August 1, 1993
real estate with a carrying value of approximately
$5,883,000 and a nonrecourse mortgage payable with a
balance of approximately $2,904,000 were recorded. No
gain or loss resulted upon foreclosure because the
estimated fair value of the properties exceeds their
carrying value. These properties have a carrying value
of approximately $5,799,000 and are encumbered by a
nonrecourse mortgage payable of approximately $3,354,000
at December 31, 1994. See Note 8 concerning the mortgage
refinancing in 1994.
k. On December 31, 1992, the Company held four nonrecourse
wrap-around mortgages in the amount of approximately
$7,689,000 secured by four properties tenanted by The
Wickes Corp. The mortgages had been taken back by a
Predecessor Partnership in connection with the sale of
such properties. The tenant remained current in its
obligations under the lease. However, the Company did
not receive monthly debt service payments on these
mortgages from the purchaser. Additionally, the terms of
mortgages called for balloon payments of approximately
$7,689,000 on January 1, 1993 which were not received.
However, the tenant had previously purchased one property
from the debtor and in January 1993, the tenant paid the
balloon mortgage due on the property net of the
underlying first mortgage, which it assumed. A gain of
approximately $1,371,000 was recognized on this
transaction in the year ended December 31, 1993.
In addition, the debtor paid the balloon mortgage due on
one property, net of the underlying first mortgage in
August of 1993. A gain of approximately $784,000 was
recognized in the year ended December 31, 1993.
In January 1994, the debtor paid the balloon mortgage
due, net of the underlying first mortgage, on one Wickes
property and a gain of approximately $1,238,000 was
recognized in the year ended December 31, 1994. In
addition, the Company foreclosed on the remaining Wickes
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<PAGE>
property in January 1994 and real estate with a carrying
value of approximately $643,000 was recorded in the year
ended December 31, 1994. No gain or loss was incurred
upon foreclosure because the estimated fair value of the
property is equal to its carrying value. The mortgage
balance on this remaining property is approximately
$544,000 at December 31, 1994.
l. On June 17, 1993, the Company purchased two non-
performing mortgage loans for a combined price of
$13,000,000. Each loan was collateralized by a
residential apartment complex located in Lexington,
Kentucky. The face value of the non-performing loans was
approximately $21,188,000.
The first non-performing loan, purchased for $6,990,000,
was collateralized by a 396 unit multi-family complex.
The Company foreclosed on this property ("Stoney Falls"),
and received the deed on October 11, 1993. The Company
has entered into a management agreement for the operation
of this property with a national management organization
which began operating the property effective September 1,
1993. Subsequent to the acquisition, the Company
received distributions from the receiver and cash flow
from the property pertaining to the period prior to
formal foreclosure, net of expenditures incurred by the
Company, which have been applied as a reduction to the
initial cost of the loan. This net cash flow, subsequent
to the acquisition, totalled approximately $94,000.
During the year ended December 31, 1994, the Company
completed major renovations which totalled approximately
$1,360,000. In connection with these renovations,
approximately $350,000 of non recurring maintenance
expenses were incurred. These expenses are included in
"property expenses" for the year ended December 31, 1994.
This asset has a carrying value of approximately
$8,078,000 at December 31, 1994.
The second non-performing loan, purchased for $6,010,000,
is collateralized by a 232-unit apartment complex.
Foreclosure proceedings were initiated in April 1993
resulting in the debtor filing for reorganization
pursuant to the provisions of Chapter 11 of the Federal
Bankruptcy Code. The Company executed an agreement with
the borrower, which was approved by the Bankruptcy Court,
and foreclosed on this property ("Stoney Brooke") and
received the deed on February 11, 1994. Subsequent to
the acquisition, the Company received distributions from
the seller of the note and began to receive cash flow
from the property pertaining to the period prior to
formal foreclosure, net of expenditures incurred by the
Company, which have been applied as a reduction to the
initial cost of the loan. This cash flow, net of
expenditures incurred by the Company, totalled
approximately $735,000. This property at December 31,
1994 has a carrying value of approximately $5,144,000.
A reinvestment incentive fee of approximately $65,000 was
paid the General Partner (See Note 3).
See Note 8 in connection with the mortgage financing of
these two properties in 1994.
m. In March 1994, the Company foreclosed on the property
tenanted by Webcraft Technologies and KSS Transportation.
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<PAGE>
As a result, real estate with a carrying value of
approximately $626,000 was recorded in the year ended
December 31, 1994. No gain or loss was incurred upon
foreclosure because the estimated fair value of the
property is believed to exceed its carrying value.
n. In June 1994, the Company sold a property to the tenant,
Lockheed Sanders, Inc. The property, which was located
in Plainfield, N.J., was subject to a purchase option
which was exercised. The selling price was $5,625,000
and a gain of approximately $1,961,000 was recognized in
the year ended December 31, 1994. The property was
unencumbered by any mortgage.
o. The Company entered into two joint ventures in June 1994
with unaffiliated co-venturers for the purpose of
developing luxury garden apartment complexes. Both of
these joint ventures have been consolidated in the
accompanying financial statements.
1. The first joint venture, formed as an Alabama
Limited Liability Company, will develop a 240 unit
multi-family project situated on approximately
twenty acres, currently owned by the joint venture,
located in Hoover, Alabama, a suburb of Birmingham.
The Company, which owns a seventy percent (70%)
majority interest in the joint venture, contributed
$1,750,000 in June 1994 and the co-venturer
contributed $250,000. As of December 31, 1994
$250,000 representing the minority interest of the
co-venturer has been included in "Accounts payable,
accrued expenses, and other liabilities" in the
accompanying financial statements. The Company has
no further funding commitment. Distributions will
be made in proportion to ownership interests.
Construction financing has been obtained by the
joint venture in the amount of $8,760,000 and is
guaranteed by the co-venturer and personally by its
principals. The development costs are expected to
total approximately $11,350,000. As of December
31, 1994, approximately $5,529,000 of development
costs have been incurred, including the acquisition
of land valued at approximately $1,138,000.
Construction loan funding at December 31, 1994 was
approximately $2,400,000. The first units were
completed and available for occupancy in February
1995 and project completion is scheduled for August
1995. An affiliate of the Company's co-venturer
will manage the property.
A reinvestment incentive fee of approximately
$40,000 will be due the General Partner upon
completion of the project (see Note 3).
2. The second joint venture, a Delaware limited
partnership, will develop a 288-unit multi-family
project situated on approximately thirty-three
acres in Cary, North Carolina (Raleigh-Durham
area). The Company, which owns a ninety percent
(90%) majority interest in the partnership, has
contributed approximately $3,744,000 as of December
31, 1994 and is a limited partner. The co-venturer
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is the general partner and has a limited partner
interest. The Company is entitled to a cumulative
annual preferred return of 12% on its investment
before cash distributions are made in proportion to
ownership interests. The Company has made its
final contribution which totalled approximately
$278,000 in January 1995. Construction financing
has been obtained by the joint venture in the
amount of $12,205,000 and is guaranteed by the
joint venture general partner and personally by its
principals. The development costs are expected to
total approximately $16,100,000. As of December
31, 1994, approximately $3,891,000 of development
costs have been incurred, including the acquisition
of land valued at $1,600,000. The first units are
expected to be available for occupancy on or about
July 1995 and project completion is scheduled for
February 1996. An affiliate of the Company's co-
venturer will manage the property.
A reinvestment incentive fee of approximately
$70,000 will be due the Company's General Partner
upon completion of the project (see Note 3).
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8. MORTGAGES PAYABLE
At December 31, 1994, mortgages payable, all of which are
nonrecourse to the Company, are summarized as follows:
<TABLE>
<CAPTION>
Annual Principal Balance at December 31,
Number of Range of Range of And ------------------------------
Mortages Interest Rates Maturities Interest Payment 1994 1993
--------- -------------- ---------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
23 6.000%-8.875% 2/15/95-6/1/17 $ 8,860,668 $ 59,351,878 $ 59,688,143
53 9.000-10.875 1/31/95-12/1/09 15,600,093 106,344,848 122,238,191
4 11.500-12.250 2/01/96-11/1/05 744,262 4,235,589 5,627,878
1 14.250 3/01/06 744,559 4,163,382 7,719,989
---------------- --------------- --------------
$ 25,949,582 $ 174,095,697 $ 195,274,201
================ =============== ==============
</TABLE>
The following is a summary of the anticipated future principal
payments of the mortgages:
Year ending
December 31, Amount
-------------- --------------
1995 $ 13,556,295
1996 25,230,486
1997 14,461,679
1998 8,917,349
1999 21,818,304
2000-2004 61,154,049
2005-2009 24,523,090
2010-2014 4,377,923
2015-2017 56,522
--------------
$ 174,095,697
==============
a. On November 5, 1992, the Company closed a nonrecourse
mortgage on the property located in Broomal, PA. The
mortgage is in the amount of $3,000,000, bears interest
at 9.125%, and matures October 15, 1997. Monthly debt
service is approximately $38,000. Debt placement costs
totaled approximately $145,000. The new mortgage
replaces a previous wrap-around mortgage, which bore
interest at 9 1/2%, that was prepaid at a discount in
December 1991.
b. On April 15, 1992, the Company refinanced a nonrecourse
mortgage loan which had an outstanding principal balance
of approximately $4,677,000. The mortgage encumbered a
property tenanted by The Rouse Company and bore interest
at 8.625%. The original maturity date was April 1, 1999;
however, in 1991 the lender called the mortgage as
provided for under the terms of the loan. The new
nonrecourse mortgage loan, which is in the principal
amount of $5,000,000, bears interest at 9.5%, matures May
1, 2004 and is self-liquidating. Debt placement costs of
approximately $153,000 were incurred. No gain or loss
was incurred as a result of this transaction.
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c. On May 1, 1992, the Company refinanced a nonrecourse
mortgage loan which had an outstanding principal balance
of approximately $11,803,000. This mortgage encumbered
fifteen properties tenanted by the Louisiana Power and
Light Company. It was scheduled to mature on November 1,
2000 and bore interest at 13.5%. The new mortgage loan
was obtained at an interest rate of 8.79%, in the
principal amount of $13,000,000, matures November 15,
2000 and is self-liquidating. Debt placement costs of
approximately $390,000 were incurred. Prepayment
penalties in connection with the extinguishment of the
former debt totaled approximately $785,000. As a result,
an extraordinary loss of the same amount was recorded
during the year ended December 31, 1992. The monthly
debt service of approximately $180,000 reflects a
decrease of $14,000.
d. As of June 1, 1992, the Company consummated a
modification and extension of a nonrecourse mortgage loan
which had an outstanding principal balance of
approximately $4,713,000. This mortgage encumbers a
property tenanted by Forte Hotels, Inc. It matured June
1, 1992 and bore interest at 9% per annum. In accordance
with the modified terms, approximately $2,357,000 of the
outstanding principal balance was repaid on June 1, 1992.
The remaining principal balance matures June 1, 1998,
bears interest at 10.75%, and is self-liquidating with
monthly payments of approximately $45,000. An extension
fee of approximately $24,000 was incurred in connection
with this transaction.
e. On October 18, 1993, the Company obtained permanent
financing on the BJ's property in East Syracuse, New
York. The nonrecourse loan is in the principal amount of
$4,000,000, bears interest at 8.25% per annum, and
matures October 31, 1998 at which time the Company has
the option to extend the loan for one to five years,
providing certain conditions are met. The monthly debt
service is approximately $34,000. Debt placement costs
of approximately $156,000 have been incurred.
f. On December 13, 1993, the Company prepaid a mortgage with
an outstanding balance of $3,038,346 that encumbered a
property tenanted by the Lockheed Corporation, located in
Burbank, CA. This mortgage was scheduled to mature on
February 1, 1996 and bore interest at 16%. Prepayment
penalties of approximately $91,000 were incurred.
g. On December 22, 1993, the Company refinanced a
nonrecourse mortgage loan which had an outstanding
principal balance of approximately $7,613,000. This
mortgage encumbered a property tenanted by Super Foods
Services, Inc. It was scheduled to mature on October 1,
2010 and bore interest at 11.076%. The new mortgage loan
which is self-liquidating is in the principal amount of
$7,650,000, bears interest at 8.25% per annum, and
matures August 1, 2010. Debt placement costs of
approximately $333,000 and prepayment penalties of
approximately $76,000 were incurred. The new annual debt
service of approximately $846,000 reflects a decrease of
$156,000 and initial interest savings of approximately
$215,000 in 1994.
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<PAGE>
h. On March 4, 1994, the Company paid off one nonrecourse
mortgage loan and refinanced two nonrecourse mortgage
loans that encumbered a total of seven properties
tenanted by Toys "R" Us. The loan paid off, which
encumbered one property, had an outstanding principal
balance of approximately $616,000, bore interest at
10.375%, and was callable at the lender's option in 1994.
The two loans refinanced had outstanding principal
balances of approximately $1,550,000 and $2,863,000, bore
interest at 9.25% and 9.55%, were self-liquidating, and
were callable at the lender's option in 1995 and 1996,
respectively. The two new mortgage loans, in the
principal amounts of approximately $1,464,000 and
$3,636,000, bear interest at 7.08%, are self-liquidating
and mature January 15, 2012. Debt placement costs of
approximately $226,000 have been incurred. The new
annual debt service of approximately $532,000 reflects a
decrease of approximately $89,000.
i. A balloon payment of approximately $6,266,000 was
originally due June 1, 1994 on a nonrecourse mortgage
which encumbered the Holiday Inn in Phoenix, Arizona;
however, the Company paid off approximately $2,966,000 on
that date and was granted an extension on the remaining
balance. The interest rate was 10.75%. On June 27, 1994
the Company refinanced the remaining balance with a
nonrecourse mortgage loan in the amount of $3,300,000.
The new mortgage loan matures July 27, 1999, bears
interest at 10.35% and has a balloon payment due at
maturity of approximately $3,120,000. Debt placement
costs of approximately $143,000 were incurred. The new
annual debt service is approximately $370,000.
j. On July 25, 1994 the Company obtained financing on the
two apartment complexes located in Lexington, Kentucky.
The two nonrecourse mortgage loans in the amount of
$5,500,000 and $4,500,000 for Stoney Falls and Stoney
Brooke Apartments, respectively, bear interest at 8.375%
and mature in ten years when balloon payments totaling
approximately $8,150,000 will be due. Under the terms of
the loans, $100,000 was initially funded on each loan
with the balance funded in January 1995. Debt placement
costs of approximately $250,000 have been incurred.
Annual debt service on the two loans is approximately
$956,000.
k. On December 9 and 23, 1994, the Company prepaid the first
and second mortgages, respectively, with aggregrate
outstanding balances of approximately $3,364,000 which
encumbered a property tenanted by Chomerics, Inc. located
in Woburn, Massachusetts. The first and second mortgages
were scheduled to mature August 1, 2011 and February 1,
2005, respectively, and both bore interest at 13.875%.
The first mortgage was callable August 1, 1996.
II-41
<PAGE>
<PAGE>
9. SENIOR INDEBTEDNESS
On May 27, 1988, the Company closed a $50,000,000, 10-year
senior unsecured debt financing. The notes bear interest at
9.6%, payable semiannually, 2% of which may be deferred and
added to the principal at the Company's option during the
first five years. During 1993 and 1992, $546,842 and
$1,077,496, respectively, were added to the principal of the
note. In May 1994, the Company repaid $10,000,000 of the
outstanding principal balance of the notes. The Company is
required to make principal repayments of approximately
$11,308,000 in each of the years 1995 through 1998.
The note agreements also place limitations on the Company with
respect to, among other things, additional debt and the use of
proceeds from property sales. In addition, distributions and
the amounts used to purchase partnership interests cannot
exceed cash flow, as defined in the agreements, plus
$15,000,000. The Company is also required to maintain, among
other things, specified levels of (i) net annual rentals, as
defined in the agreements, on properties unencumbered by
mortgage financing and (ii) net cash flow.
II-42
<PAGE>
<PAGE>
10. RECONCILIATION OF NET EARNINGS PER FINANCIAL STATEMENTS TO TAX
REPORTING
1994 1993 1992
------------ ------------ ------------
Net earnings per financial
statements $ 23,168,564 $ 22,676,754 $ 11,291,877
Minimum lease payments 6,708,644 6,066,011 5,592,462
received, net of income
earned on leases accounted
for under the financing
method
Gain on real estate 1,325,735 228,436 119,712
transactions for tax
purposes in excess of that
for financial statement
purposes
Provision for loss for 582,000 462,000 8,847,165
financial statement
purposes
Difference attributed to (29,367) (25,094) (4,243)
joint ventures and minority
interest
Difference between expense (256,431) 584,286 1,768,031
accruals, net of income
accruals, at beginning of
year and end of year
Depreciation and (9,532,694) (9,818,998) (10,124,573)
amortization for tax
purposes in excess of that
for financial statement
purposes due to leases
accounted for under the
financing method
Other (26,218) (26,218) (26,218)
------------ ------------ -----------
Taxable income $ 21,940,233 $ 20,147,177 $17,464,213
============ ============ ===========
II-43
<PAGE>
<PAGE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT DATA)
Three Months Ended
---------------------------------------------
March 31, June 30,
---------------------- ----------------------
1994 1993 1994 1993
-------- --------- --------- --------
Revenues $15,943 $15,787 $15,156 $14,342
======== ========= ========= ========
Earnings before
property transactions $ 5,231 $ 5,375 $ 5,030 $ 4,093
Provision for loss on
real estate (75) (182) (237) (196)
Gains on property
transactions 1,364 3,806 2,236 34
-------- -------- --------- --------
Net earnings $ 6,520 $ 8,999 $ 7,029 $ 3,931
======== ======== ========= ========
Net earnings per limited
partnership unit $.46 $.63 $.50 $.28
======== ======== ========= ========
Three Months Ended
---------------------------------------------
September 30, December 31,
--------------------- ---------------------
1994 1993 1994 1993
--------- --------- --------- ----------
Revenues $14,750 $14,952 $15,702 $15,076
========== ========= ========= ==========
Earnings before property
transactions $ 4,411 $ 4,592 $ 4,905 $ 4,319
Provision for loss on
real estate (75) - (195) (84)
Gains on property
transactions 238 899 336 21
---------- --------- ---------- ---------
Net earnings $ 4,574 $ 5,491 $ 5,046 $ 4,256
========== ========= ========== =========
Net earnings per limited
partnership unit $ .32 $ .39 $ .36 $ .30
========== ========= ========== =========
Net earnings per unit is computed separately for each period
and, therefore, the sum of such quarterly per unit amounts
may differ from the total for the year.
II-44
<PAGE>
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
a. On January 4, 1991, Best Products Co., Inc., a tenant in
a property owned by the Company, filed a voluntary
petition for reorganization pursuant to the provisions of
Chapter 11 of the Federal Bankruptcy Code. On June 14,
1994 the tenant came out of bankruptcy and affirmed the
leases. The tenant has remained and is current in its
obligations under the lease. As of December 31, 1994,
the property had a carrying value of approximately
$3,742,000 and is encumbered by a nonrecourse mortgage
payable of approximately $256,000.
b. On September 16, 1991, the Company brought suit against
Alco Standard Corporation and its affiliates, a former
tenant of an industrial facility located in Rome, Georgia
whose lease expired in October 1990. The action was
brought against the defendants in the United States
District Court Northern District of Georgia, Rome
Division for reimbursement of costs that could be
incurred for clean-up of hazardous materials on the site
and certain deferred maintenance. In July 1994, this
litigation was settled and the property was sold for
$525,000. A gain of approximately $100,000 was
recognized in the year ended December 31, 1994. In
addition, Alco reimbursed the Company for $150,000 of
expenses incurred and indemnified the Company against any
future liability in connection with any site
contamination. The expense reimbursement has been
included in "Property expenses" in the financial
statements for the year ended December 31, 1994.
c. On July 31, 1992, Chipwich, Inc. ("Chipwich"), parent of
Peltz Food Corporation, a tenant in a property owned by
the Company, filed a voluntary petition for
reorganization pursuant to the provisions of Chapter 11
of the Federal Bankruptcy Code. Chipwich then filed a
motion for rejection of the lease and, pursuant to an
order of the Bankruptcy Court, the lease was rejected on
September 29, 1992. There is a guarantor of the lease
and the Company is currently proceeding to enforce all
obligations under such guaranty including settlement of
an unsecured proof of claim filed by the Company. At
December 31, 1994, the property has a carrying value of
approximately $937,000 and is encumbered by a nonrecourse
mortgage payable of approximately $314,000. Based on the
existence of the guaranty, the Company believes that the
carrying value of the asset is fairly stated at December
31, 1994.
d. On December 31, 1994, the Company held a mortgage note
receivable in the principal amount of $462,712. The
mortgage encumbers four properties together with a
collateral assignment of ground leases and rents. The
properties are tenanted by Gino's and Foodarama. The
mortgage had been taken back by a Predecessor Partnership
in connection with the sale of these properties. The
tenants remained current in their lease obligations.
The terms of the mortgage called for a balloon payment of
$1,100,000 on January 1, 1992 which was not received. On
January 9, 1992, the Company gave written notice of
default to Sheldon Lowe and Joseph T. Comras, the
mortgagors and the current owners of the properties. As
II-45
<PAGE>
<PAGE>
of December 31, 1994, the Company has commenced
foreclosure actions on the four properties as follows:
two each in Pennsylvania and New Jersey. The Company
foreclosed on the property in Michigan on October 7, 1993
and real estate with carrying value of approximately
$70,000 was recorded in the year ended December 31, 1993.
On February 25, 1994 the Company foreclosed on the
previously encumbered property formerly tenanted by
Lionel Leisure located in Pennsylvania. In September
1994, this property was sold and no gain or loss was
incurred upon disposition. In October 1994, the Company
foreclosed on two properties located in Massachusetts and
real estate with a carrying value of approximately
$102,000 was recorded in the year ended December 31,
1994. No gain or loss was incurred or is anticipated
upon foreclosure because the estimated fair value of the
properties exceeds their carrying value.
e. On January 26, 1993, Be-Mac Transport Company, Inc. ("Be-
Mac"), a tenant in a property owned by the Company, filed
a voluntary petition for reorganization pursuant to the
provisions of Chapter 11 of the Federal Bankruptcy Code.
Be-Mac then filed a motion for rejection of the lease
and, pursuant to an order of the Bankruptcy Court, the
lease was rejected on February 24, 1993. There is a
guarantor of the lease and the Company is currently
proceeding to enforce all obligations under such guaranty
including settlement of an unsecured proof of claim filed
by the Company. The rejected lease contains a purchase
option exercisable by the guarantor. Based on the
purchase option price, the Company wrote the property
down by incurring a provision for loss on real estate in
the amount of $196,000 in the year ended December 31,
1993. At December 31, 1994, the property has a carrying
value of approximately $948,000 and is unencumbered by
any mortgage. The Company has re-let the property
effective March 1, 1994 at an annual rental of $120,000.
f. Lockheed Missile and Space Company, Inc. ("Lockheed"), a
tenant of the Company's leasehold property in Palo Alto,
California, has entered into a consent decree with the
California Department of Toxic Substances Control
("CDTS") to undertake certain environmental remediation
at this property. Lockheed has estimated that the
environmental remediation costs may be up to
approximately $14,000,000. In a non-binding
determination by the CDTS, Lockheed was found responsible
for approximately 75% of such costs and the balance was
allocated to other parties. The Company was allocated no
responsibility for any such costs.
Lockheed has served a notice that it may exercise its
statutory right to have its liability reassessed in a
binding arbitration proceeding. In connection with this
notice, Lockheed has stated that it will attempt to have
allocated to the Company and to the Company's ground-
lessor (which may claim a right of indemnity against the
Company) approximately 9% and 17%, respectively, of the
total remediation costs. The Company believes that it
has no liability for any of such costs, and in any
proceeding in which such liability is asserted against
it, the Company will vigorously contest such liability.
In the event any of such liability is allocated to the
Company, it will seek indemnification from Lockheed in
accordance with its lease.
II-46
<PAGE>
<PAGE>
13. PROPERTY HELD FOR SALE
At December 31, 1994, the Company owned four properties that
were being actively marketed for sale. At December 31, 1994,
these properties have been stated at the lower of their
carrying value or net realizable value. The aggregate value
of the properties is estimated to be approximately $413,000,
after incurring a provision for loss on real estate in the
amount of $85,000 in the year ended December 31, 1994. At
December 31, 1993, the aggregate value of the properties was
estimated to be approximately $2,327,000 after incurring a
provision for loss on real estate in the amount of
approximately $84,000 in the year then ended.
II-47
<PAGE>
<PAGE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable, and Accounts
------------------------------------------------------------
Payable and Accrued Expenses
----------------------------
The carrying amount of cash and cash equivalents, accounts
receivable, and accounts payable and accrued expenses
approximates fair value because of the short maturity of these
instruments.
Mortgages Receivable
--------------------
The fair values of the mortgages receivable past due, in
process of foreclosure, or for which foreclosure proceedings
are pending, are based on the discounted cash flows of the
underlying lease. The fair values of the mortgages receivable
satisfied subsequent to year end are based on the amount of
the net proceeds received.
The fair values of the mortgages receivable which are current
are based on the discounted cash flows of their respective
payment streams.
The approximate estimated fair values of the mortgages
receivable held as of December 31, 1994 are summarized as
follows:
At December 31, 1994
-------------------------
Collateralized by Net Estimated
Property Tenanted by Investment Fair Value
-------------------- ----------- -----------
Gino's, Inc., and Foodarama
Supermarkets, Inc. $ 293,000 $ 334,000
Hardee's Food Systems, Inc. 51,000 186,000
Bank of Virginia 342,000 400,000
Best Products Co., Inc. 249,000 253,000
Data 100 Corp. 807,000 1,028,000
Easco Corp. 972,000 3,482,000
Winchester Partnership 2,086,000 2,023,000
The net investment at December 31, 1994 is equal to the
carrying amount of the mortgage receivable less any deferred
income recorded.
Senior Indebtedness
The approximate fair value and carrying value of the Company's
senior indebtedness at December 31, 1994 is $47,653,000 and
$45,231,000, respectively. The estimated fair value is based
on the amount of future cash flows associated with the
instrument discounted using the rate at which the Company
believes it could currently replace the senior indebtedness.
II-48
<PAGE>
<PAGE>
Limitations
Fair value estimates are made at a specific point in time,
based on relevant market information and information about the
financial instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the
estimates.
II-49
<PAGE>
<PAGE>
15. DISTRIBUTIONS PAYABLE
Distributions payable represent amounts accrued and unpaid due
to non-consenting investors ("Non-consents"). Non-consents
are those investors who have not yet exchanged their limited
partnership interest in the various Predecessor Partnerships
for limited partnership units of American Real Estate
Partners, L.P.
II-50
<PAGE>
<PAGE>
16. SUBSEQUENT EVENTS
a. On January 25, 1995, the Grand Union Company, a tenant
leasing eight properties owned by the Company, filed a
prepackaged voluntary petition for reorganization
pursuant to the provisions of Chapter 11 of the Federal
Bankruptcy Code. These eight properties' annual rentals
total approximately $1,450,000 (including two properties
which are sub-let, representing approximately $58,000 in
annual rentals). The tenant has not yet determined
whether it will exercise its right to reject or affirm
the leases which will require an order of the Bankruptcy
Court. The tenant is current in its obligations under
the leases.
b. During the end of March and early April 1995 the Company
anticipates completing the Rights Offering through which
it will raise approximately $109,000,000 net of related
expenses. Pursuant to the terms of the Rights Offering,
holders of depositary units representing limited partner
interests (the "Depositary Units") on the record date
received one transferable subscription right (each a
"Right") for each seven Depositary Units held. Each
Right was exercisable for a combination of securities
consisting of six Depositary Units and one 5% cumulative
pay-in-kind redeemable preferred unit representing
limited partner interests (the "Preferred Units"). High
Coast Limited Partnership, a Delaware Limited
Partnership which is controlled by Carl C. Icahn
("Icahn"), has acted as guarantor of the offering (the
"Guarantor"). Through the Guarantor, Icahn will exercise
certain subscription rights and an over-subscription
privilege to acquire additional Depositary Units and
Preferred Units. A registration statement on Form S-3
relating to the Rights Offering (Registration No. 33-
54767) was filed with the Securities and Exchange
Commission and declared effective February 23, 1995.
c. On February 1, 1995, the Penske Corp. exercised its
purchase option on three properties leased from the
Company (two in New Jersey and one in New York). The
selling price was approximately $4,535,000 and a gain of
approximately $1,030,000 will be recognized in the three
months ended March 31, 1995. Each property was
encumbered by first and second mortgages which totalled
approximately $1,162,000 and which were paid from the
sales proceeds.
d. The Company has executed a contract for the sale of the
property tenanted by Pace Membership Warehouse, Inc. In
addition, the purchaser is obligated to pay the Company
$50,000 should it default on its obligations under the
contract. The Company expects to complete the sale by
the end of March 1995. The sale price is $9,300,000 and
the Company expects to record a gain of approximately
$3,300,000 in the three months ended March 31, 1995. The
property is encumbered by a nonrecourse mortgage payable
of approximately $4,346,000, which the purchaser will
assume.
II-51
<PAGE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
---------------------------------------------
None.
II-52
<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of AREP.
----------------------------------------
The names, offices held and the ages of the directors and executive
officers of the General Partner are as follows:
Name Age Office
---- --- ------
Carl C. Icahn 59 Chairman of the Board
Alfred D. Kingsley 52 Director
Mark H. Rachesky 36 Director and Vice
President
William A. Leidesdorf 49 Director
Jack G. Wasserman 58 Director
John P. Saldarelli 53 Vice President, Secretary
and Treasurer
Carl C. Icahn has been Chairman of the Board of the General Partner
since November 15, 1990. He was Chief Executive Officer and Member of the
Office of the Chairman of Trans World Airlines, Inc. ("TWA") from November
8, 1988 to January 8, 1993; Chairman of the Board of Directors of TWA from
January 3, 1986 to January 8, 1993 and Director of TWA from September 27,
1985 to January 8, 1993. He is also Chairman of the Board of Directors and
President of Icahn & Co., Inc. since 1968. Icahn & Co., Inc. is a
registered broker-dealer and a member of The New York Stock Exchange, Inc.
Mr. Icahn has also been Chairman of the Board of Directors of ACF since
October 29, 1984 and a Director of ACF since June 29, 1984. ACF is a
railroad freight and tank car leasing, sales and manufacturing company. In
1979, Mr. Icahn acquired control and presently serves as Chairman of the
Board of Directors of Bayswater Realty & Capital Corp., which is a real
estate investment and development company. ACF, Icahn & Co., Inc. and
Bayswater Realty & Capital Corp. are deemed to be directly or indirectly
owned and controlled by Carl C. Icahn. Mr. Icahn also has substantial
equity interests in and controls various partnerships and corporations which
invest in publicly traded securities.
Alfred D. Kingsley has served as Director of the General Partner since
November 15, 1990. He was also Vice Chairman of the Board of Directors of
TWA from February 1, 1989 to January 8, 1993 and a Member of the Office of
the Chairman from November 8, 1988 to January 8, 1993. Mr. Kingsley was a
Director of TWA from September 27, 1985 to January 8, 1993. He also was a
Director and Executive Officer and Director of Research at Icahn & Co., Inc.
and related entities from 1968 until December 1994. He also has been Vice
Chairman of the Board of Directors of ACF since October 29, 1984 and a
Director of ACF
III-1
<PAGE>
<PAGE>
since June 29, 1984. Mr. Kingsley has also been a Senior Managing
Director of Greenway Partners, L.P. since May 1993, which invests in
publicly traded securities.
Mark H. Rachesky has served as Director of the General Partner since
November 15, 1990 and as Vice President since November 29, 1990. Since
February 1, 1990, Mr. Rachesky has been employed at Icahn & Co., Inc., where
he is involved in the finance and investments areas. Mr. Rachesky was
formerly with Robert M. Bass Group, Inc., where he also was involved in
financing and investment activities. Prior thereto, Mr. Rachesky was
employed at Goldman, Sachs & Co.
William A. Leidesdorf has served as Director of the General Partner
since March 26, 1991. Since January 1, 1994, Mr. Leidesdorf has been
Managing Director of RFG Financial, Inc., a commercial mortgage company.
From September 30, 1991 to December 31, 1993, Mr. Leidesdorf was Senior Vice
President of Palmieri Asset Management Group. From May 1, 1990 to September
30, 1991, Mr. Leidesdorf was Senior Vice President of Lowe Associates, Inc.,
a real estate development company, where he was involved in the acquisition
of real estate and the asset management workout and disposition of business
areas. He also acted as the Northeast Regional Director for Lowe
Associates, Inc. From June 1985 to January 30, 1990, Mr. Leidesdorf was
Senior Vice President and stockholder of Eastdil Realty, Inc., a real estate
company, where he was involved in the asset management workout, disposition
of business and financing areas. During the interim period from January 30,
1990 through May 1, 1990, Mr. Leidesdorf was an independent contractor for
Eastdil Realty, Inc. on real estate matters.
Jack G. Wasserman has served as a Director of the General Partner since
December 3, 1993. Mr. Wasserman is an attorney and a member of the New York
State Bar and has been with the New York based law firm of Wasserman,
Schneider & Babb since 1966, where he is currently a senior partner.
John P. Saldarelli has served as Vice President, Secretary and
Treasurer of the General Partner since March 18, 1991. Mr. Saldarelli was
also President of Bayswater Realty Brokerage Corp. from June 1987 until
November 19, 1993 and Vice President of Bayswater Realty & Capital Corp.
from September 1979 until April 15, 1993, both of which are deemed to be
directly or indirectly owned and controlled by Carl C. Icahn.
William Leidesdorf and Jack G. Wasserman are on the Audit Committee of
the Board of Directors of the General Partner.
Each of Messrs. Icahn and Kingsley served on the Board of Directors of
TWA. On January 31, 1992, TWA filed a petition for bankruptcy in the U.S.
Bankruptcy Court in Delaware, seeking reorganization under Chapter 11 of the
Bankruptcy Code. In connection therewith, the Pension Benefit Guaranty
III-2
<PAGE>
<PAGE>
Corporation asserted that there existed in the TWA defined benefit plans an
underfunding deficiency, and that if the Plans were terminated, TWA and all
members of the controlled group of which TWA was a member, including the
General Partner, would be liable, jointly and severally, for approximately
$1.2 billion. On January 8, 1993, TWA, the Pension Benefit Guaranty
Corporation, Mr. Icahn and the members of the controlled group, among
others, settled all claims and potential claims which they had against each
other.
Each executive officer and director will hold office until the next
annual meeting of the General Partner and until his or her successor is
elected and qualified. Effective June 15, 1993, directors who are not
employed by AREP or certain affiliates, receive fees of $3,000 for
attendance at each quarterly meeting of the Board of Directors. Mr.
Kingsley, Mr. Leidesdorf and Mr. Wasserman each received $12,000 for
attendance at meetings in 1994.
Each of the executive officers of the General Partner, other than John
P. Saldarelli, performs services for other affiliates of the General Partner.
There are no family relationships between or among any of the directors
and/or executive officers of the General Partner.
If distributions (which are payable in kind) are not made to the
holders of Preferred Units on any two Payment Dates (which need not be
consecutive), the holders of more than 50% of all outstanding Preferred
Units, including the General Partner and its affiliates, voting as a class,
shall be entitled to appoint two nominees for the Board of Directors of the
General Partner. Holders of Preferred Units owning at least 10% of all
outstanding Preferred Units, including the General Partner and its
affiliates to the extent that they are holders of Preferred Units, may call
a meeting of the holders of Preferred Units to elect such nominees. Once
elected, the nominees will be appointed to the Board of Directors of the
General Partner by Icahn. As directors, the nominees will, in addition to
their other duties as directors, be specifically charged with reviewing all
future distributions to the holders of the Preferred Units. Such additional
directors shall serve until the full distributions accumulated on all
outstanding Preferred Units have been declared and paid or set apart for
payment. If and when all accumulated distributions on the Preferred Units
have been declared and paid or set aside for payment in full, the holders of
Preferred Units shall be divested of the special voting rights provided by
the failure to pay such distributions, subject to revesting in the event of
each and every subsequent default. Upon termination of such special voting
rights attributable to all holders of Preferred Units with respect to
payment of distributions, the term of office of each director nominated by
the holders of Preferred Units (the "Preferred Unit Directors") pursuant to
such special voting rights shall terminate and the number of directors
constituting the entire Board of Directors shall be reduced by the number of
Preferred Unit Directors. The holders of the Preferred Units will have no
III-3
<PAGE>
<PAGE>
other rights to participate in the management of AREP and will not be
entitled to vote on any matters submitted to a vote of the holders of
Depositary Units.
III-4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Item 11. Executive Compensation.<F1>
----------------------
The following table sets forth information in respect of the
compensation of the Chief Executive Officer and each of the other
four most highly compensated executive officers of AREP for services
in all capacities to AREP for the fiscal years ended December 31,
1994, 1993 and 1992.<F2>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation
----------------------------------------------------------------
(a) (b) (c)
Name and Principal Position Year Salary ($)
--------------------------- ------ ----------
John P. Saldarelli,<F3> 1994 126,000
Vice President, Secretary and 1993 126,000
Treasurer 1992 125,411
<FN>
--------------------
<F1> Pursuant to applicable regulations, certain columns of the
Summary Compensation Table and each of the remaining tables
have been omitted, as there has been no compensation awarded
to, earned by or paid to any of the named executive officers
by AREP or by the General Partner, which was subsequently
reimbursed by AREP, required to be reported in those columns
or tables.
<F2> Carl C. Icahn, the Chief Executive Officer, received no
compensation as such for the periods indicated. In
addition, other than John P. Saldarelli, no other executive
officer received compensation in excess of $100,000 from
AREP for the applicable period.
<F3> On March 18, 1991, Mr. Saldarelli was elected Vice
President, Secretary and Treasurer of the General Partner.
Mr. Saldarelli devotes all of his time to the performance of
services for AREP and the General Partner. The other executive
officers and directors of the General Partner devote only a
portion of their time to performance of services for AREP.
</FN>
</TABLE>
III-5
<PAGE>
<PAGE>
AREP has adopted a Nonqualified Unit Option Plan (the "Plan")
pursuant to which options to purchase an aggregate of 1,416,910 Depositary
Units at an option price equal to the market price on the date of grant may
be granted to officers and key employees of the General Partner and AREP who
provide services to AREP. To date, no options have been granted under the
Plan.
In February 1993, AREP adopted a 401K plan pursuant to which AREP will
make a matching contribution to an employee's individual plan account in the
amount of one-third (1/3) of the first six (6%) percent of gross salary
contributed by the employee.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
--------------------------------
As discussed below, effective February 22, 1995 the General Partner and
its affiliates contributed all of their Depositary Units to the Guarantor in
exchange for a general partner interest in the Guarantor. As a result, as
of February 22, 1995, the Guarantor owned 1,365,768 Depositary Units, or
approximately 9.89% of the outstanding Depositary Units then outstanding,
prior to giving effect to the Rights Offering. There were no outstanding
Preferred Units on that date. The foregoing is exclusive of a 1.99%
ownership interest in AREP which the General Partner held by virtue of its
1% General Partner interest in each of AREP and the Subsidiary. Prior to
May 1993, Icahn's ownership of the General Partner was through his
affiliate, Meadowstar Holding Company, Inc. ("Meadowstar"). Meadowstar had
originally purchased all of the outstanding shares of common stock of (i)
the General Partner and (ii) API Nominee Corp., a Delaware corporation
("Nominee"), pursuant to an Acquisition Agreement, dated as of September 13,
1990 (the "Acquisition Agreement") between Meadowstar and Integrated
Resources, Inc. In May 1993, Icahn purchased all of the outstanding shares
of the General Partner from Meadowstar. As a result, Icahn became the
beneficial owner of the 1,254,280 Depositary Units owned by the General
Partner. Icahn may also be deemed to be the beneficial owner of the 159,894
Depositary Units owned of record by Nominee (the Units owned by Nominee are
Depositary Units of holders who have not yet exchanged their limited partner
interests); however, Icahn disclaims such beneficial ownership.
In connection with the Rights Offering, the Guarantor was formed. The
general partner of the Guarantor is the General Partner. The limited
partners of the Guarantor are ACF Industries, Incorporated ("ACF"), a New
Jersey corporation, and Tortoise Corp. ("Tortoise"), a New York corporation.
Both ACF and Tortoise are controlled by Icahn. Each of the General
Partner, ACF and Tortoise contributed to the Guarantor all Depositary Units
and related rights, privileges and benefits owned by them or their
affiliates, including the right to receive the Rights Offering. As a result
of the above transactions, the Guarantor received 1,365,768 Depositary
Units (which includes 76,088 Depositary Units Icahn acquired
III-6
<PAGE>
<PAGE>
through participation in AREP's Dividend Reinvestment Plan which is
available to all Unitholders, and 35,400 Depositary Units which were
originally owned by Unicorn Associates Corporation, an affiliate of Icahn),
representing approximately 9.89% of the outstanding Depositary Units prior
to the Rights Offering which entitled the Guarantor to receive 195,110
Rights in the Offering.
Pursuant to the terms of the Rights Offering and a subscription
guaranty agreement entered into in connection with the Rights Offering, the
Guarantor agreed to subscribe for and purchased (i) 1,176,660 Depositary
Units and 195,110 Preferred Units through the exercise of its Rights and
(ii) all of the available Depositary Units and Preferred Units pursuant to
the exercise of an over-subscription privilege. The Guarantor received
certain registration rights with respect to its Depositary Units and
Preferred Units for providing the subscription guaranty but was not
otherwise compensated. As a result of the Guarantor's participation in the
Rights Offering, AREP expects that Icahn will increase his percentage
ownership in the Partnership and obtain a substantial portion of the
Preferred Units being offered.
The affirmative vote of Unitholders holding more than 75% of the total
number of all Units then outstanding, including Depositary Units held by the
General Partner and its affiliates, is required to remove the General
Partner. Thus, if Icahn, through the Guarantor, holds 25% or more of the
Depositary Units outstanding after giving effect to the Rights Offering, the
General Partner will not be able to be removed pursuant to the terms of the
Partnership Agreement without Icahn's consent. Moreover, under the
Partnership Agreement, the affirmative vote of the General Partner and
Unitholders owning more than 50% of the total number of all outstanding
Depositary Units then held by Unitholders, including the Guarantor, is
required to approve, among other things, selling or otherwise disposing of
all or substantially all of AREP's assets in a single sale or in a related
series of multiple sales, dissolving AREP or electing to continue AREP in
certain instances, electing a successor general partner, making certain
amendments to the Partnership Agreement or causing AREP, in its capacity as
sole limited partner of the Subsidiary, to consent to certain proposals
submitted for the approval of the limited partners of the Subsidiary.
Accordingly, if Icahn, through the Guarantor, holds 50% or more of the
Depositary Units outstanding after giving effect to the Rights Offering,
Icahn, through the Guarantor, will have effective control over such approval
rights.
As of March 17, 1995, to the best knowledge of AREP, Tweedy, Browne
Company L.P., a Delaware limited partnership, TBK Partners L.P., a Delaware
limited partnership and Vanderbilt Partners, L.P., a Delaware limited
partnership, who collectively filed an amended Form 13-D on November 30,
1993, owned 945,010 Depositary Units, or approximately 6.83% of the
outstanding Depositary Units.
The following table provides information, as of March 17, 1995, as to
the beneficial ownership of the Depositary Units of AREP for each
III-7
<PAGE>
<PAGE>
director of the General Partner, and all directors and
executive officers of the General Partner as a group.
<TABLE>
<S> <C>
Percent
Beneficial Ownership of
Name of Beneficial Owner of Depositary Units Class
------------------------ -------------------- -------
Carl C. Icahn<F1> 1,365,768 9.89
William A. Leidesdorf 7,000 0.005
All directors and executive
officers as a group
(6 Persons) 1,372,768 9.895
<FN>
----------------
<F1> Carl C. Icahn, through the Guarantor, is the
beneficial owner of the 1,365,768 Depositary Units set
forth above and may also be deemed to be the beneficial
owner of the 159,894 Depositary Units owned of record by
API Nominee Corp.; however, Mr. Icahn disclaims such
beneficial ownership. The foregoing is exclusive of a
1.99% ownership interest in AREP which the General Partner
holds by virtue of its 1% General Partner interest in each
of AREP and the Subsidiary. Also, the foregoing table does
not include the Preferred Units the Guarantor will acquire
through the Rights Offering. The Partnership expects that
Mr. Icahn's percentage ownership in the Partnership will
increase as a result of the Guarantor's participation in
the Rights Offering. Upon completion of the Rights Offering,
Icahn (through the Guarantor) will, assuming no other Unitholder
were to exercise its Rights, acquire up to an additional
12,000,000 Depositary Units and all of the Preferred
Units. In addition, Icahn may be entitled to receive
additional Depositary Units upon redemption of the
Preferred Units he owns through the Guarantor; however,
the amount of such Depositary Units cannot be determined
at this time because the redemption amount will be
determined based on the then existing market price of the
Depositary Units. Furthermore, pursuant to a registration rights
agreement entered into by the Guarantor in connection with the
Rights Offering, AREP has agreed to pay any expenses incurred in
connection with two demand and unlimited piggy-back registrations
requested by the Guarantor.
</FN>
</TABLE>
III-8
<PAGE>
<PAGE>
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
Related Transactions with the General Partner and its Affiliates
----------------------------------------------------------------
In November 1993 AREP replaced a letter of credit obtained by
Meadowstar for the benefit of AREP in 1990 (the "Letter of Credit") with
respect to AREP's Lockheed Electronics property in New Jersey relating to
environmental clean-up costs, with a self-guaranty by AREP (the
"Guaranty"). The Audit Committee approved the replacement of the Letter of
Credit with the Guaranty as permitted under New Jersey law. The clean-up
costs are the tenant's responsibility.
For the year ended December 31, 1994, AREP made no payments with
respect to the Depositary Units owned by the General Partner. For the year
ended December 31, 1993, AREP paid the General Partner (i) $641,360 ($0.50
per Unit) with respect to the Depositary Units owned by the General Partner
(see ITEM 12) and (ii) $140,848 with respect to the aggregate 1.99% general
partner interest of the General Partner in AREP. Based on distributions
payable in respect of 1993, the General Partner acquired 76,088 Depositary
Units through participation in the DRIP. In addition, AREP paid Unicorn
Associates Corporation $17,700 ($0.50 per Unit) with respect to the 35,400
Depositary Units owned by it.
AREP entered into a lease, effective June 1, 1991, for approximately
6,900 square feet of office space with Riverdale Investors Corp., Inc., an
affiliate of the General Partner (the "Lessor"). The terms of this lease
were reviewed for fairness by the Audit Committee, which determined that the
terms of such transaction were fair and reasonable to AREP. In evaluating
the transaction, the Audit Committee consulted with an independent appraiser
regarding the terms of the lease. The lease is for a ten-year term and
provides for initial monthly rent (inclusive of charges for utilities) of
$11,642, which amount increases to $12,936 on June 1, 1994 and $14,804 on
June 1, 1997. For the year ended December 31, 1992, AREP paid $139,704 in
rent to the Lessor. On December 29, 1992, the Lessor assigned its rights in
the lease to an unaffiliated third party.
Property Management and Other Related Transactions
--------------------------------------------------
The General Partner and its affiliates benefited from the Rights
Offering because, in their capacity as Exercising Rights Holders, they were
entitled to the same right to increase their investment in AREP as other
Unitholders, including acquiring additional Depositary Units. The Guarantor
also received certain registration rights with respect to its Depositary
Units and Preferred Units for providing the Subscription Guaranty.
The General Partner and its affiliates may receive fees in connection
with the acquisition, sale, financing, development and management of
new properties acquired by AREP. As development and other
III-9
<PAGE>
<PAGE>
new properties are acquired, developed, constructed, operated,
leased and financed, the General Partner or its affiliates may perform
acquisition functions, including the review, verification and analysis of
data and documentation with respect to potential acquisitions, and perform
development and construction oversight and other land development services,
property management and leasing services, either on a day-to-day basis or on
an asset management basis, and may perform other services and be entitled to
fees and reimbursement of expenses relating thereto, provided the terms of
such transactions are fair and reasonable to AREP in accordance with AREP
Agreement and customary to the industry. It is not possible to state
precisely what role, if any, the General Partner or any of its affiliates
may have in the acquisition, development or management of any new
investments. Consequently, it is not possible to state the amount of the
income, fees or commissions the General Partner or its affiliates might be
paid in connection with the investment of the Rights Offering proceeds since
the amount thereof is dependent upon the specific circumstances of each
investment, including the nature of the services provided, the location of
the investment and the amount customarily paid in such locality for such
services. However, investors may expect that, subject to the specific
circumstances surrounding each transaction and the overall fairness and
reasonableness thereof to AREP, the fees charged by the General Partner and
its affiliates for the services described below generally will be within the
ranges set forth below:
-- Property Management and Asset Management Services. To the extent that
AREP acquires any properties requiring active management (e.g., operating
properties that are not net leased) or asset management services, including
on-site services, it may enter into management or other arrangements with
the General Partner or its affiliates. Generally, it is contemplated that
under property management arrangements, the entity managing the property
would receive a property management fee (generally 3% to 6% of gross rentals
for direct management, depending upon the location) and under asset
management arrangements, the entity managing the asset would receive an
asset management fee (generally .5% to 1% of the appraised value of the
asset for asset management services, depending upon the location) in payment
for its services and reimbursement for costs incurred.
-- Brokerage and Leasing Commissions. AREP also may pay affiliates of
the General Partner real estate brokerage and leasing commissions (which
generally may range from 2% to 6% of the purchase price or rentals depending
on location; this range may be somewhat higher for problem properties or
lesser-valued properties).
-- Lending Arrangements. The General Partner or its affiliates may lend
money to, or arrange loans for, AREP. Fees payable to the General Partner
or its affiliates in connection with such activities include mortgage
brokerage fees (generally .5% to 3% of the loan amount), mortgage origination
III-10
<PAGE>
<PAGE>
fees (generally .5% to 1.5% of the loan amount) and loan servicing fees
(generally .10% to .12% of the loan amount), as well as interest on any
amounts loaned by the General Partner or its affiliates to AREP.
-- Development and Construction Services. The General Partner or its
affiliates may also receive fees for development services, generally 1% to
4% of development costs, and general contracting services or construction
management services, generally 4% to 6% of construction costs.
-- Reinvestment Incentive Fees. Subject to the limitations described
below, the General Partner is entitled to receive a reinvestment incentive
fee (a "Reinvestment Incentive Fee") for performing acquisition services
equal to a percentage of the purchase price (whether paid in cash,
Depositary Units, other securities and/or with mortgage financing) of
properties (other than Predecessor Properties) acquired from July 1, 1987
through July 1, 1997. This percentage is 1% for the first five years and
1/2% for the second five years. Although a Reinvestment Incentive Fee
accrues each time a property is acquired, Reinvestment Incentive Fees are
only payable on an annual basis, within 45 days after the end of each
calendar year, if the following subordination provisions are satisfied.
Reinvestment Incentive Fees accrued in any year will only be payable if the
sum of (x) the sales price of all Predecessor Properties (net of associated
debt which encumbered these Properties at the consummation of the Exchange)
sold through the end of that year and (y) the appraised value of all
Predecessor Properties which have been financed or refinanced (and not
subsequently sold), net of the amount of any refinanced debt through the end
of that year determined at the time of such financings or refinancings,
exceeds the aggregate values assigned to those Predecessor Properties for
purposes of the Exchange. If the subordination provisions are not satisfied
in any year, payment of Reinvestment Incentive Fees for that year will be
deferred. At the end of each year a new determination will be made with
respect to subordination requirements (reflecting all sales, financings and
refinancings from the consummation of the Exchange through the end of that
year) in order to ascertain whether Reinvestment Incentive Fees may be
payable irrespective of whether distributions have been made or are
projected to be made to Unitholders. Through December 31, 1994, an
aggregate of (i) 126 Predecessor Properties were sold or disposed of for an
aggregate of approximately $56,879,000 net of associated indebtedness which
encumbered these Properties at the consummation of the Exchange and (ii) 25
Predecessor Properties were refinanced at an aggregate appraised value, net
of the amount of the refinanced debt, of approximately $44,431,000 for a sum
total of approximately $101,310,000. Aggregate appraised values
attributable to these Predecessor Properties for purposes of the Exchange
were approximately $88,322,000. Accordingly, through December 31, 1994,
AREP satisfied the subordination requirements detailed above.
III-11
<PAGE>
<PAGE>
Nonqualified Unit Option Plan
-----------------------------
AREP has adopted the Plan, under which options to purchase an aggregate
of 1,416,910 Depositary Units may be granted to officers and key employees
of the General Partner and AREP who provides services to AREP. To date, no
options have been granted under the Plan. See ITEM 11 -- "Executive
Compensation."
III-12
<PAGE>
<PAGE>
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.
---------------------------------------
(a) (1) Financial Statements:
--------------------
The following financial statements of American Real Estate Partners,
L.P. are included in Part II, ITEM 8:
Page
Number
------
Independent Auditors' Report II-15
Consolidated Balance Sheets -- II-16
December 31, 1994 and 1993
Consolidated Statements of Earnings -- II-17
Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Partners' Equity -- II-18
Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows -- II-19-20
Years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements II-21-51
(a) (2) Financial Statement Schedules:
-----------------------------
Schedule III - Real Estate Owned and Revenues IV-4-22
Earned (by tenant or guarantor
as applicable)
All other Financial Statement schedules have been omitted because the
required financial information is not applicable or the information is shown
in the Financial Statements or Notes thereto.
(a) (3) Exhibits:
--------
3.1 Certificate of Limited Partnership of AREP, dated
February 17, 1987 (filed as Exhibit No. 3.1 to AREP's
Annual Report on Form 10-K for the year ended December
31, 1987 and incorporated herein by reference).
3.2 Amended and Restated Agreement of Limited Partnership
of AREP, dated as of May 12, 1987 (filed as Exhibit
No. 3.2 to AREP's Annual Report on Form 10-K for the
year ended December 31, 1987 and incorporated herein
by reference).
3.3 Amendment No. 1 to the Partnership Agreement.
IV-1
<PAGE>
<PAGE>
3.4 Certificate of Limited Partnership of American Real
Estate Holdings Limited Partnership (the "Subsidiary"),
dated February 17, 1987 and amendment thereto, dated
March 12, 1987 (filed as Exhibit No. 3.3 to AREP's Annual
Report on Form 10-K for the year ended December 31, 1987
and incorporated herein by reference).
3.5 Amended Restated Agreement of Limited Partnership of
the Subsidiary, dated as of July 1, 1987 (filed as
Exhibit No. 3.4 to AREP's Annual Report on Form 10-K
for the year ended December 31, 1987 and incorporated
herein by reference).
4.1 Depositary Agreement among AREP, the General Partner
and Registrar and Transfer Company, dated as of July
1, 1987 (filed as Exhibit No. 4.1 to AREP's Annual
Report on Form 10-K for the year ended December 31,
1987 and incorporated herein by reference).
4.2 Amendment No. 1 to the Depositary Agreement.
4.3 Specimen Depositary Receipt (filed as Exhibit No. 4.2
to AREP's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
4.4 Form of Transfer Application (filed as Exhibit No. 4.3
to AREP's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
4.5 Form of Certificate representing Preferred Units.
10.1 Nonqualified Unit Option Plan (filed as Exhibit No.
10.2 to AREP's Annual Report on Form 10-K for the year
ended December 31, 1987 and incorporated herein by reference).
10.2 Distribution Reinvestment Plan (filed as Exhibit No.
10.3 to AREP's Annual Report on Form 10-K for the year
ended December 31, 1987 and incorporated herein by reference).
10.3 Note Purchase Agreements, dated as of May 27, 1988
among AREP, the Subsidiary and The Prudential Insurance Company
of America (the "Note Agreements") (filed as Exhibit Nos. 2a
and 2b to AREP's Current Report on Form 8-K dated May 27, 1988
and incorporated herein by reference).
10.4 Amendment No. 1 to the Note Agreements dated November
17, 1988 (filed as Exhibit No. 10.2 to AREP's
IV-2
<PAGE>
<PAGE>
Registration Statement on Form S-3 (Registration No.
33-54767) and incorporated herein by reference).
10.5 Amendment No. 2 to the Note Agreements dated November
17, 1988 (filed as Exhibit No. 10.3 to AREP's Registration
Statement on Form S-3 (Registration No. 33-54767) and
incorporated herein by reference).
10.6 Amendment No. 3 to the Note Agreements dated as of
June 21, 1994 (filed as Exhibit No. 10.4 to AREP's
Registration Statement on Form S-3 (Registration No.
33-54767) and incorporated herein by reference).
10.7 Amendment No. 4 to the Note Agreements dated as of
August 12, 1994 (filed as Exhibit No. 10.5 to AREP's
Registration Statement on Form S-3 (Registration No.
33-54767) and incorporated herein by reference).
10.8 9.6% Senior Promissory Note of AREP and the Subsidiary
due May 27, 1998 payable to The Prudential Insurance
Company of America (filed as Exhibit No. 2c to AREP's
Current Report on Form 8-K dated May 27, 1988 and
incorporated herein by reference).
10.9 9.6% Senior Promissory Note of AREP and the Subsidiary
due May 27, 1998 payable to Prudential Property and
Casualty Insurance Company (filed as Exhibit No. 2d to
AREP's Current Report on Form 8-K dated May 27, 1988
and incorporated herein by reference).
10.10 Subscription Guaranty Agreement between AREP and High
Coast Limited Partnership (the "Guarantor").
10.11 Registration Rights Agreement between AREP and the Guarantor.
16 Letter dated September 27, 1991 of Deloitte & Touche
regarding change in accountants (filed as Exhibit No. A to
AREP's Current Report on Form 8-K dated October 3, 1991 and
incorporated herein by reference).
22 List of Subsidiaries (filed as Exhibit No. 22 to
AREP's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
(b) Reports on Form 8-K:
-------------------
AREP filed a Current Report on Form 8-K (the "Form 8-K") with the
Securities and Exchange Commission on March 17, 1995. Pursuant to Item 5
of the Form 8-K, AREP release its earnings for the fourth quarter and
fiscal year ended December 31, 1994 and also announced that no distribution
would be made for the fiscal quarter ending March 31, 1995.
IV-3
<PAGE>
<PAGE>
<TABLE>
SCHEDULE III
Page 1
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership
REAL ESTATE OWNED AND REVENUES EARNED
----------------------------------------------
<CAPTION>
Part 1 - Real estate owned at December 31, 1994
- Accounted for under the:
---------------------------------------------------------
Operating Method
---------------------------------------------------------
Amount
No. of Carried
Loca- Amount of Initial Cost Cost of at close Reserve for
State tions Encumbrances to Company Improvements of period Depreciation
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Acme Markets, Inc. and FPBT of Penn. PA 1 $2,004,393 $2,004,393 $1,277,238
Alabama Power Company AL 5 $5,356,057
Amer Stores and The Fidelity Bank PA 1
Amer Stores, Grace, & Shottenstein Stores NJ 1 2,043,567 2,043,567 1,471,681
American Electric Power Service Corp. OH 1
American Recreation Group, Inc. NC 1
Amterre Ltd. Partnership NJ 1 1,559,648 1,559,648
Amterre Ltd. Partnership PA 2 1,096,109 639,797 639,797
Amterre Ltd. Partnership PA 1 2,577,911
Best Products Co., Inc. VA 1 255,589
Chesebrough-Pond's Inc. CN 1 702,095 1,549,805 1,549,805 1,027,553
Chomerics, Inc. MA 1
Coldwell Banker & Co. CA 1 482,399 482,399 218,010
Coldwell Banker & Co. MN 1 998,771 998,771 647,303
Coldwell Banker & Co. VA 1 803,998 803,998 436,593
Coldwell Banker & Co. MO 1
Collins Foods International, Inc. OR 6 181,018 298,451 298,451
Collins Foods International, Inc. CA 3 257,838 429,166 429,166
Collins Foods International, Inc. IL 1 0 0
Cordis Corporation FL 1 15,225,119
David Miller of California CA 1 1,036,681 1,036,681 432,398
Dillon Companies, Inc. MO 1 546,681 546,681 271,930
Dillon Companies, Inc. LA 8 1,979,697 1,979,697 1,024,256
Druid Point Bldg. GA 1 4,919,046 4,919,046 381,790
Duke Power Co. NC 1 3,708,409
European American Bank and Trust Co. NY 1 1,355,210 1,355,210 1,143,015
Farwell Bldg. MN 1 1,553,720 3,804,998 $296,008 4,101,006 401,873
Federated Department Stores, Inc. CA 1 0 0 0
Federated Department Stores, Inc. CA 1 363,342 363,342
First National Supermarkets, Inc. CT 1 15,582,539
First Union National Bank NC 1
Fisher Scientific Company IL 1 569,014 597,806 597,806 76,145
Foodarama Supermarkets, Inc. PA 1 309,233 1,317,844 1,317,844 786,307
Forte Hotels International, Inc. NJ 1 1,523,230
Forte Hotels International, Inc. TX 1 518,934 3,572,242 3,572,242 2,730,561
Fox Grocery Company WV 1 1,603,812
General Signal Technical Corp. MA 1 10,954,219
Gino's, Inc. MO 1 103,090 209,213 209,213
Gino's, Inc. CA 1 120,965 225,100 225,100
Gino's, Inc. OH 1 110,368 201,938 201,938
Gino's, Inc. IL 1 125,700 235,972 235,972
Gino's, Inc. NJ 1 137,045 259,525 259,525
Gino's, Inc. & The A&P Co. PA 1 719,647 3,022,710 3,022,710 1,833,452
Grand Union Co. NJ 1 430,664 430,664
Grand Union Co. MD 1 372,383 372,383 234,762
Grand Union Co. NY 3 1,110,120 1,110,120
Grand Union Co. NY 1 2,273,841 2,273,841 1,201,322
Grand Union Co. VA 1 266,468 266,468 168,263
Grand Union Co. NY 1 4,757,723
Gunite IN 1 272,367 1,134,565 1,134,565 983,368
G.D. Searle & Co. MD 1 299,229 299,229 129,717
G.D. Searle & Co. OH 1 0 0 0
G.D. Searle & Co. MN 1 261,918 261,918 163,780
G.D. Searle & Co. AL 1 0 0 0
G.D. Searle & Co. OH 1 0 0 0
G.D. Searle & Co. IL 1 256,295 256,295 143,064
G.D. Searle & Co. FL 1 0 0 0
G.D. Searle & Co. MN 1 339,358 339,358 129,153
G.D. Searle & Co. IL 1 323,559 323,559 209,934
G.D. Searle & Co. TN 1 214,421 214,421 129,593
G.D. Searle & Co. TN 1 0 0 0
G.D. Searle & Co. MD 1 325,891 325,891 130,705
G.D. Searle & Co. LA 1
Hancock LA 1 2,397,919 4,484,256 4,484,256 498,953
Haverty Furniture Companies, Inc. GA 1 319,164
Haverty Furniture Companies, Inc. FL 1 241,000
Haverty Furniture Companies, Inc. VA 1 302,865
Holiday Inn AZ 1 3,285,638 8,419,901 241,329 8,661,230 780,738
Integra A Hotel and Restaurant Co. AL 2 245,625 245,625
Integra A Hotel and Restaurant Co. IL 1 198,392 198,392
Integra A Hotel and Restaurant Co. IN 1 231,513 231,513
Integra A Hotel and Restaurant Co. OH 1
Integra A Hotel and Restaurant Co. MO 1 224,837 224,837
Integra A Hotel and Restaurant Co. TX 1 228,793 228,793
Integra A Hotel and Restaurant Co. MI 1 234,464 234,464
Intermountain Color KY 1 96,730 559,644 559,644 371,926
J.C. Penney Company, Inc. MA 1 261,092 2,484,262 2,484,262 1,349,837
Kansas City Round Up, Inc. KS
Kelley Springfield Tire Company TN 1 120,946 120,946 67,405
K-Mart Corporation LA 1 887,412
K-Mart Corporation WI 1
K-Mart Corporation FL 1
K-Mart Corporation MN 1 665,000
K-Mart Corporation FL 1 2,581,077 2,581,077 1,554,504
K-Mart Corporation IA 1
K-Mart Corporation FL 1 2,636,000 2,636,000 1,634,573
K-Mart Corporation IL 1 370,579
Kobacker Stores, Inc. MI 4 215,148 215,148
Kobacker Stores, Inc. KY 1 80,058 88,364 88,364
Kobacker Stores, Inc. OH 5 690,440 354,140 354,140
Kobacker Stores, Inc. FL 1 183,483 186,211 186,211
Kraft, Inc. NC 1 1,434,125 1,434,125 1,030,096
Landmark Bancshares Corporation MO 1
Levitz Furniture Corporation NY 1 1,648,463 1,648,463
Lockheed Corporation CA 1 2,449,469 2,449,469
Lockheed Corporation NJ 1
Louisiana Power and Light Company LA 8 6,224,644
Louisiana Power and Light Company LA 7 3,723,644 3,496,322 3,496,322
Macke Co. VA 1 553,113 553,113 343,354
Marsh Supermarkets, Inc. IN 1 5,001,933 5,001,933 1,439,245
Montgomery Ward, Inc. PA 1 1,001,288 3,289,166 3,289,166 1,946,243
Montgomery Ward, Inc. NJ 1
Morrison, Inc. AL 1 324,288 324,288
Morrison, Inc. GA 2 817,838 817,838
Morrison, Inc. FL 1 375,392 375,392
Morrison, Inc. VA 2 363,059 363,059
M.C.O. Properties CO 1 43,476
National Convenience Stores, Inc. TX
North Carolina National Bank SC 6 2,938,008 2,938,008 857,047
Occidental Petroleum Corp. CA 1 2,182,009 2,564,053 2,564,053 322,356
Old National Bank of Washington WA 1 4,190,632 4,190,632 1,337,294
Pace Membership Warehouse, Inc. MI 1 4,348,410 6,575,775 6,575,775 725,324
Penske Corp. NJ 2 720,282
Penske Corp. OH 1 193,170
Penske Corp. NY 1 421,503
Penske Corp. MI 1 403,255 3,284,450 3,284,450 1,781,754
Petrolane, Inc. LA 1 895,377<F2> 895,377 430,846
Pioneer Standard Electronics, Inc. NY 1 146,611 365,354 365,354
Pneumo Corp. OH 1 1,303,254
Ponderosa Systems, Inc. GA 1
Portland General Electric Company OR 1 36,190,135
Rouse Company MD 1 4,320,716
Rummel Fibre Co., Inc. GA 1 0 0
Safeway Stores, Inc. LA 1 1,782,885 1,782,885 1,021,526
Sams MI 1 5,742,773 8,844,225 8,844,225 887,617
Smith's Management Corp. NV 1 452,163
Southland Corporation FL 10 2,203,667 2,203,667 1,099,497
Sperry - Sun Drilling CAN 1 1,057,300 1,057,300 356,102
Stop 'N Shop Co., Inc. NY 1 1,481,453 5,013,507 5,013,507 3,341,016
Stop 'N Shop Co., Inc. VA 1 1,262,859
Super Foods Services, Inc. MI 1 7,426,761
SuperValu Stores, Inc. MN 1 1,370,965 1,370,965 131,910
SuperValu Stores, Inc. OH 1 3,000,671 3,000,671 299,308
SuperValu Stores, Inc. GA 1 2,344,836 2,344,836 230,559
SuperValu Stores, Inc. IN 1 2,267,573 2,267,573 222,583
Telecom Properties, Inc. OK 1 60,531
Telecom Properties, Inc. KY 1 158,554 281,253 281,253
The A&P Company MI 1
The TJX Companies, Inc. IL 1
Toys "R" Us, Inc. MA 1 635,166 330,605 330,605
Toys "R" Us, Inc. IL 1 823,731 427,993 427,993
Toys "R" Us, Inc. NY 1 927,940 480,785 480,785
Toys "R" Us, Inc. TX 1 967,636 501,836 501,836
Toys "R" Us, Inc. MI 1 666,146
Toys "R" Us, Inc. TX 1 932,605
Trafalgar Industries, Inc. NY 1 314,109
Unisource Corporation CA 1
USA Petroleum Corporation SC 2 163,161 163,161
USA Petroleum Corporation OH 1 78,443 78,443
USA Petroleum Corporation GA 2 138,062 138,062
Waban NY 1 3,903,609 7,879,044 221,258 8,100,302 173,049
Watkins MO 1 965,741 965,741 17,619
Webcraft Technologies MD 1 640,052 780,774 780,774 23,474
Weigh-Tronix, Inc. CA 1
Wetterau, Inc. PA 1 175,717
Wetterau, Inc. NJ 2 1,032,323
Wickes Companies, Inc. CA 3 1,768,910 4,330,986 4,330,986 2,277,901
RESIDENTIAL PROPERTY LAND AND BUILDING
-------------------------------------
Stoney Falls KY 1 100,000 6,930,916 1,360,186 8,291,102 213,004
Stoney Brooke KY 1 100,000 5,250,000 5,250,000 106,250
COMMERCIAL PROPERTY - LAND
-------------------------------------
Easco Corp. NC 1 157,560 157,560
Foodarama supermarkets, Inc. NY 1 140,619 140,619
Gino's, Inc. MD 1 86,027 86,027
Gino's, Inc. MI 1 71,160 71,160
Gino's, Inc. MA 2 102,048 102,048
J.C. Penney Company, Inc. NY 1 51,009 51,009
Levitz Furniture Corporation CA 2 1,134,836 1,134,836
Levitz Furniture Corporation KS 1 460,490 460,490
COMMERCIAL PROPERTY - BUILDING
-------------------------------------
Bank South GA 1 2,104,777
Caldor, Inc. MA 1
Harwood Square IL 1 6,809,551 6,809,551 2,407,744
Holiday Inn FL 1 45,911 6,373,759 118,641 6,492,400 718,450
Lockheed Corporation CA 1
Safeway Stores, Inc. CA 1 558,652 558,652 451,852
Toys "R" Us, Inc. RI 1
United Life & Accident Ins. Co. NH 1 2,558,844
Wickes Companies, Inc. PA 1 487,599
DEVELOPMENT PROPERTY
-------------------------------------
Crown Cliffs AL 1 1,138,000 1,138,000
Grassy Hollow NY 1 598,145 598,145
Westover Hills NC 1 1,600,000 1,600,000
East Syracuse NY 2 1,177,000 79,000 1,256,000
--------------------------------------------------------------------------------------
$174,095,697 $183,011,186 $2,316,422 $185,327,608<F3> $48,234,722<F3>
======================================================================================
</TABLE>
IV-4
<PAGE>
<PAGE>
<TABLE>
SCHEDULE III
Page 2
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership
REAL ESTATE OWNED AND REVENUES EARNED
----------------------------------------------
<CAPTION>
Part 1 - Real estate owned at December 31, 1994 Part 2 - Revenues earned for the
- Accounted for under the: Year ended December 31, 1994
-----------------------------------------------------------------------------------------
Operating Method Financing Method
---------------- -----------------------------
Rent due Minimum lease Expended
and accrued payments due Total for interest,
or received and accrued revenue taxes, Net Income
in advance at Net at end applicable repairs and applicable
end of period Investment of period to period expenses to period
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL PROPERTY LAND AND BUILDING
-------------------------------------
Acme Markets, Inc. and FPBT of Penn. ($7,083) $223,471 $38,903 $184,568
Alabama Power Company $8,381,948 875,293 510,370 364,923
Amer Stores and The Fidelity Bank 791,909 96,093 496 95,597
Amer Stores, Grace, & Shottenstein Stores 232,735 38,520 194,215
American Electric Power Service Corp. 4,205,548 $114,600 391,308 157 391,151
American Recreation Group, Inc. 786,604 77,565 11,952 65,613
Amterre Ltd. Partnership 3,543,232 478,184 17,793 460,391
Amterre Ltd. Partnership (6,147) 2,180,696 (24,901) 301,555 109,467 192,088
Amterre Ltd. Partnership 6,653,431 (70,618) 660,958 275,319 385,639
Best Products Co., Inc. 3,742,121 368,204 30,902 337,302
Chesebrough-Pond's Inc. (11,770) 141,236 121,746 19,490
Chomerics, Inc. 6,691,930 80,505 848,489 616,254 232,235
Coldwell Banker & Co. 4,935 59,215 8,376 50,839
Coldwell Banker & Co. 10,280 123,364 14,590 108,774
Coldwell Banker & Co. 8,224 98,692 16,861 81,831
Coldwell Banker & Co. 6,874 24,924 8,620 16,304
Collins Foods International, Inc. 191,947 48,851 15,676 33,175
Collins Foods International, Inc. 271,707 70,013 27,358 42,655
Collins Foods International, Inc. 0 0 5,249 (5,249)
Cordis Corporation 20,050,583 2,012,483 1,562,975 449,508
David Miller of California 5,290 81,684 23,523 58,161
Dillon Companies, Inc. (3,272) 64,033 12,756 51,277
Dillon Companies, Inc. (19,367) 232,407 42,429 189,978
Druid Point Bldg. 594,092 658,445 (64,353)
Duke Power Co. 5,578,572 559,480 371,588 187,892
European American Bank and Trust Co. 133,000 112,253 20,747
Farwell Bldg. 982,773 795,195 187,578
Federated Department Stores, Inc. 0 2,037 (2,037)
Federated Department Stores, Inc. 12,779 438,402 69,890 0 69,890
First National Supermarkets, Inc. 24,956,415 (221,459) 2,305,793 1,504,014 801,779
First Union National Bank 680,664 62,694 0 62,694
Fisher Scientific Company 163,000 89,569 73,431
Foodarama Supermarkets, Inc. 120,516 74,226 46,290
Forte Hotels International, Inc. 6,763,483 (59,447) 616,053 189,567 426,486
Forte Hotels International, Inc. 334,152 132,994 201,158
Fox Grocery Company 3,636,597 325,690 149,970 175,720
General Signal Technical Corp. 20,202,453 219,294 2,243,599 1,356,054 887,545
Gino's, Inc. (4,899) 200,157 37,504 12,070 25,434
Gino's, Inc. (4,311) 190,580 46,534 12,879 33,655
Gino's, Inc. (5,354) 170,469 42,518 12,922 29,596
Gino's, Inc. (4,736) 177,173 49,221 15,237 33,984
Gino's, Inc. (4,027) 219,311 52,386 17,529 34,857
Gino's, Inc. & The A&P Co. (5,417) 299,053 195,921 103,132
Grand Union Co. 495,673 91,562 0 91,562
Grand Union Co. 33,750 5,080 28,670
Grand Union Co. 1,277,656 255,782 9,988 245,794
Grand Union Co. 102,767 55,303 47,464
Grand Union Co. 24,150 3,579 20,571
Grand Union Co. 7,920,908 729,766 486,208 243,558
Gunite 143,625 83,032 60,593
G.D. Searle & Co. 27,000 8,119 18,881
G.D. Searle & Co. 0 2,577 (2,577)
G.D. Searle & Co. 22,162 2,035 20,127
G.D. Searle & Co. 13,619 4,302 9,317
G.D. Searle & Co. 7,209 3,104 4,105
G.D. Searle & Co. 23,013 9,574 13,439
G.D. Searle & Co. 25,065 6,088 18,977
G.D. Searle & Co. 30,614 8,872 21,742
G.D. Searle & Co. 28,319 4,516 23,803
G.D. Searle & Co. 25,529 7,008 18,521
G.D. Searle & Co. 0 149 (149)
G.D. Searle & Co. 28,598 7,427 21,171
G.D. Searle & Co. 22,458 7,844 14,614
Hancock (39,195) 439,017 412,709 26,308
Haverty Furniture Companies, Inc. 734,587 65,775 32,289 33,486
Haverty Furniture Companies, Inc. 556,504 49,830 24,347 25,483
Haverty Furniture Companies, Inc. 709,358 (437) 63,783 30,559 33,224
Holiday Inn 271,079 5,296,130 4,779,672 516,458
Integra A Hotel and Restaurant Co. 1,586,469 257,080 0 257,080
Integra A Hotel and Restaurant Co. 584,893 112,481 0 112,481
Integra A Hotel and Restaurant Co. 673,807 127,926 0 127,926
Integra A Hotel and Restaurant Co. 749,707 105,532 0 105,532
Integra A Hotel and Restaurant Co. 577,151 116,684 3,918 112,766
Integra A Hotel and Restaurant Co. 680,554 148,242 0 148,242
Integra A Hotel and Restaurant Co. 659,266 144,352 0 144,352
Intermountain Color (5,833) 69,417 32,422 36,995
J.C. Penney Company, Inc. (20,854) 250,244 119,113 131,131
Kansas City Round Up, Inc. (1,440) (1,344) (96)
Kelley Springfield Tire Company 10,241 10,594 (353)
K-Mart Corporation 1,798,778 150,991 87,583 63,408
K-Mart Corporation 2,056,654 184,843 0 184,843
K-Mart Corporation 2,491,747 202,240 120,620 81,620
K-Mart Corporation 1,907,836 13,340 155,993 38,293 117,700
K-Mart Corporation 43,878 237,666 0 237,666
K-Mart Corporation 1,472,651 138,075 0 138,075
K-Mart Corporation 2,052,034 432,013 98,538 333,475
K-Mart Corporation 1,079,286 85,926 33,887 52,039
Kobacker Stores, Inc. 3,839 466,856 35,629 2,564 33,065
Kobacker Stores, Inc. 1,884 109,416 20,062 9,389 10,673
Kobacker Stores, Inc. 12,171 675,305 127,992 70,765 57,227
Kobacker Stores, Inc. 4,008 230,544 42,727 22,369 20,358
Kraft, Inc. (22,864) 137,181 21,137 116,044
Landmark Bancshares Corporation 4,828,300 666,075 0 666,075
Levitz Furniture Corporation 2,517,390 385,693 0 385,693
Lockheed Corporation 4,449,763 806,737 21,930 784,807
Lockheed Corporation 256,576 120 256,456
Louisiana Power and Light Company 13,782,482 172,448 1,722,111 605,428 1,116,683
Louisiana Power and Light Company 39,198 4,935,563 63,957 1,078,136 394,900 683,236
Macke Co. 5,000 60,000 13,077 46,923
Marsh Supermarkets, Inc. 506,300 156,479 349,821
Montgomery Ward, Inc. 314,280 213,334 100,946
Montgomery Ward, Inc. 1,715,269 150,130 69,621 80,509
Morrison, Inc. 3,518 806,313 10,372 144,631 0 144,631
Morrison, Inc. 8,905 1,574,821 20,322 307,954 0 307,954
Morrison, Inc. 3,997 812,030 10,204 151,982 (1,469) 153,451
Morrison, Inc. 3,940 1,955,743 24,420 296,444 1,406 295,038
M.C.O. Properties 403,432<F1> 56,177 6,148 50,029
National Convenience Stores, Inc. 9,424 38,781 38,926 (145)
North Carolina National Bank 17,997 215,811 57,341 158,470
Occidental Petroleum Corp. 0 308,227 (308,227)
Old National Bank of Washington 677,222 208,183 469,039
Pace Membership Warehouse, Inc. 735,751 577,272 158,479
Penske Corp. 2,323,048 223,448 78,561 144,887
Penske Corp. 648,892 61,711 20,291 41,420
Penske Corp. 1,157,937 113,113 44,932 68,181
Penske Corp. 346,393 103,594 242,799
Petrolane, Inc. 50,000 28,987 21,013
Pioneer Standard Electronics, Inc. 622,338 94,442 17,330 77,112
Pneumo Corp. 2,577,995 251,204 127,662 123,542
Ponderosa Systems, Inc. 0 8,629 (8,629)
Portland General Electric Company 53,847,154 428,109 4,642,451 3,288,261 1,354,190
Rouse Company 6,868,375 62,280 606,090 437,923 168,167
Rummel Fibre Co., Inc. 8,823 (34,562) 43,385
Safeway Stores, Inc. 85,150 20,981 64,169
Sams 999,779 716,507 283,272
Smith's Management Corp. 903,509 81,106 43,943 37,163
Southland Corporation 237,679 69,375 168,304
Sperry - Sun Drilling 67,500 34,790 32,710
Stop 'N Shop Co., Inc. 454,145 344,903 109,242
Stop 'N Shop Co., Inc. 3,136,284 322,957 129,261 193,696
Super Foods Services, Inc. 10,685,247 (3,784) 1,135,000 641,450 493,550
SuperValu Stores, Inc. (32,678) 114,885 26,679 88,206
SuperValu Stores, Inc. 30,529 319,371 58,394 260,977
SuperValu Stores, Inc. 37,697 224,215 45,631 178,584
SuperValu Stores, Inc. 10,502 193,024 44,128 148,896
Telecom Properties, Inc. 129,943 1,338 12,191 6,135 6,056
Telecom Properties, Inc. 2,293 117,024 1,274 38,418 16,088 22,330
The A&P Company 1,823,640 190,876 0 190,876
The TJX Companies, Inc. 2,912,841 (54,094) 254,096 (871) 254,967
Toys "R" Us, Inc. 772,177 109,589 81,053 28,536
Toys "R" Us, Inc. 998,515 126,409 83,931 42,478
Toys "R" Us, Inc. 1,118,208 129,557 104,772 24,785
Toys "R" Us, Inc. 1,169,304 147,999 107,595 40,404
Toys "R" Us, Inc. 1,107,367 97,513 79,339 18,174
Toys "R" Us, Inc. 1,541,194 136,855 111,191 25,664
Trafalgar Industries, Inc. 936,768 41,175 (30,885) 135,959 (166,844)
Unisource Corporation 714 82,822 80,607 2,215
USA Petroleum Corporation 325,975 44,062 0 44,062
USA Petroleum Corporation 156,718 21,184 0 21,184
USA Petroleum Corporation 275,829 37,283 610 36,673
Waban 659,262 534,592 124,670
Watkins 42,076 0 90,000 106,014 (16,014)
Webcraft Technologies 130,253 113,176 17,077
Weigh-Tronix, Inc. 3,092,586 315,642 0 315,642
Wetterau, Inc. 956,318 98,352 14,244 84,108
Wetterau, Inc. 2,084,870 216,703 129,589 87,114
Wickes Companies, Inc. 37,000 636,282 269,270 367,012
RESIDENTIAL PROPERTY LAND AND BUILDING
-------------------------------------
Stoney Falls 1,805,385 1,457,366 348,019
Stoney Brooke 1,168,375 615,091 553,284
COMMERCIAL PROPERTY - LAND
-------------------------------------
Easco Corp. 1,033 12,400 15,569 (3,169)
Foodarama supermarkets, Inc. 14,000 0 14,000
Gino's, Inc. 7,143 87 7,056
Gino's, Inc. 7,143 154 6,989
Gino's, Inc. 0 0 0
J.C. Penney Company, Inc. 5,500 0 5,500
Levitz Furniture Corporation 458 117,077 0 117,077
Levitz Furniture Corporation 47,009 0 47,009
COMMERCIAL PROPERTY - BUILDING
-------------------------------------
Bank South 4,025,918 406,138 231,135 175,003
Caldor, Inc. 2,062,280 196,062 0 196,062
Harwood Square (1,568) 788,087 299,017 489,070
Holiday Inn 449,093 3,557,350 3,628,393 (71,043)
Lockheed Corporation 6,422,461 883,398 926 882,472
Safeway Stores, Inc. 26,900 20,691 6,209
Toys "R" Us, Inc. 1,102,181 10,430 105,742 35,884 69,858
United Life & Accident Ins. Co. 4,817,097 (43,667) 405,609 251,894 153,715
Wickes Companies, Inc. 3,506,115 397,904 62,800 335,104
DEVELOPMENT PROPERTY
-------------------------------------
Crown Cliffs 0 0 0
Grassy Hollow 0 0 0
Westover Hills 0 2,595 (2,595)
East Syracuse 0 0 0
----------------------------------------------------------------------------------------
$889,240 $314,260,786 $795,661 $60,089,287 $33,440,460 $26,648,827
========================================================================================
<FN>
<F1> Amount shown is net of a $110,000 write down to recoverable value.
<F2> Amount shown is net of a $237,000 write down to recoverable value.
<F3> Amount shown includes hotel operating properties.
</FN>
</TABLE>
SCHEDULE III
PAGE 8
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------------
1a. A reconciliation of the total amount at which real estate
owned, accounted for under the operating method and hotel
operating properties, was carried at the beginning of the
period, with the total at the close of the period, is shown
below:
Balance - January 1, 1994 $ 176,050,393
Additions during period 12,496,354
Write downs (322,000)
Reclassifications during
period to assets held for
sale (1,340,935)
Disposals during period (1,556,204)
--------------
Balance - December 31, 1994 $ 185,327,608
==============
b. A reconciliation of the total amount of accumulated
depreciation at the beginning of the period, with the total at
the close of the period, is shown below:
Balance - January 1, 1994 $ 45,040,784
Depreciation during period 4,501,318
Disposals during period (709,930)
Reclassifications during
period to property held for
sale (597,450)
--------------
Balance - December 31, 1994 $ 48,234,722
==============
IV-11
<PAGE>
<PAGE> (continued)
Depreciation on properties accounted for under the operating
method is computed using the straight-line method over the
estimated useful life of the particular property or property
components, which range from 5 to 45 years.
2. A reconciliation of the total amount at which real estate
owned, accounted for under the financing method, was carried
at the beginning of the period, with the total at the close of
the period, is shown below:
Balance - January 1, 1994 $ 327,470,322
Additions during period 41,256
Write downs (110,000)
Disposals during period (6,432,148)
Amortization of unearned
income 31,990,262
Minimum lease rentals
received (38,698,906)
------------
Balance - December 31, 1994 $314,260,786
============
3. The aggregate cost of real estate owned for federal income tax
purposes is $402,624,341.
4. Net income applicable to the period in Schedule III is
reconciled with net earnings as follows:
Net income applicable to
financing and operating
leases $ 26,648,827
Add interest income - other 1,438,491
------------
28,087,318
------------
Deduct expenses not
allocated:
General and administrative
expenses 2,791,123
Nonmortgage interest expense 4,731,517
Other 987,979
------------
8,510,619
------------
Earnings before gain on
property transactions 19,576,699
Provision for loss on
property (582,000)
Gain on sales of real estate 4,173,865
------------
Net earnings $ 23,168,564
============
IV-12
(Continued)
<PAGE>
<PAGE>
SCHEDULE III
PAGE 10
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1993
-------------------------------------------------------------------------------
1a. A reconciliation of the total amount at which real estate
owned, accounted for under the operating method and hotel
operating properties, was carried at the beginning of the
period, with the total at the close of the period, is shown
below:
Balance - January 1, 1993 $162,201,694
Additions during period 20,347,239
Write downs (247,000)
Reclassifications during
period from financing
leases 800,429
Reclassifications during
period to assets held for
sale (2,212,215)
Disposals during period (4,839,754)
------------
Balance - December 31, 1993 $176,050,393
============
b. A reconciliation of the total amount of accumulated
depreciation at the beginning of the period, with the total at
the close of the period, is shown below:
Balance - January 1, 1993 $ 44,105,825
Depreciation during period 3,992,036
Disposals during period (1,896,524)
Reclassifications during
period to assets held for
sale (1,160,553)
-----------
Balance - December 31, 1993 $45,040,784
===========
Depreciation on properties accounted for under the operating
method is computed using the straight-line method over the
estimated useful life of the particular property or property
components, which range from 5 to 45 years.
IV-13
(continued)
<PAGE>
<PAGE>
2. A reconciliation of the total amount at which real estate
owned, accounted for under the financing method, was carried
at the beginning of the period, with the total at the close of
the period, is shown below:
Balance - January 1, 1993 $330,322,814
Additions during period 4,130,942
Reclassifications during
period (800,429)
Disposals during period (116,994)
Amortization of unearned
income 32,851,135
Minimum lease rentals
received (38,917,146)
------------
Balance - December 31, 1993 $327,470,322
============
3. The aggregate cost of real estate owned for federal income tax
purposes is $398,245,532.
4. Net income applicable to the period in Schedule III is
reconciled with net earnings as follows:
Net income applicable to
financing and operating
leases $ 24,390,249
Add interest income - other 2,009,598
------------
26,399,847
============
Deduct expenses not allocated:
General and administrative
expenses 2,454,786
Nonmortgage interest expense 5,070,729
Other 495,561
------------
8,021,076
============
Earnings before gain on
property transactions 18,378,771
Provision for loss on
property (462,000)
Gain on sales of real estate 4,759,983
------------
Net earnings $22,676,754
============
IV-14
(Continued)
<PAGE>
<PAGE>
SCHEDULE III
PAGE 12
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------------------------------------
1a. A reconciliation of the total amount at which real estate
owned, accounted for under the operating method and hotel
operating properties was carried at the beginning of the
period, with the total at the close of the period, is shown
below:
Balance - January 1, 1992 $159,169,561
Additions during period 160,748
Write downs (8,847,165)
Reclassifications during
period from financing
leases 21,902,382
Reclassifications during
period to assets held for
sale (9,090,374)
Disposals during period (1,093,458)
------------
Balance - December 31, 1992 $162,201,694
============
b. A reconciliation of the total amount of accumulated
depreciation at the beginning of the period, with the total at
the close of the period, is shown below:
Balance - January 1, 1992 $ 42,315,717
Depreciation during period 4,073,691
Disposals during period (385,164)
Reclassifications during
period to assets held for
sale (1,898,419)
------------
Balance - December 31, 1992 $ 44,105,825
============
Depreciation on properties accounted for under the operating
method is computed using the straight-line method over the
estimated useful life of the particular property or property
components, which range from 5 to 45 years.
IV-15
<PAGE>
<PAGE> (continued)
2. A reconciliation of the total amount at which real estate
owned, accounted for under the financing method, was carried
at the beginning of the period, with the total at the close of
the period, is shown below:
Balance - January 1, 1992 $358,005,265
Additions during period -
Reclassifications during
period (21,902,382)
Disposals during period (187,607)
Amortization of unearned
income 34,121,308
Minimum lease rentals
received (39,713,770)
------------
Balance - December 31, 1992 $330,322,814
============
3. The aggregate cost of real estate owned for federal income tax
purposes is $382,975,157.
4. Net income applicable to the period in Schedule III is
reconciled with net earnings as follows:
Net income applicable to
financing and operating
leases $ 26,101,004
Add interest income - other 2,234,035
------------
28,335,039
============
Deduct expenses not allocated:
General and administrative
expenses 2,318,856
Nonmortgage interest expense 5,142,818
Other 292,155
------------
7,753,829
============
Earnings before gain on
property transactions and
extraordinary item 20,581,210
Provision for loss on
property (8,847,165)
Gain on sales of real estate 342,372
------------
Extraordinary item, gain
from early extinguishment
of debt (784,540)
------------
Net earnings $11,291,877
============
IV-16
(Continued)
<PAGE>
<PAGE>
SCHEDULE III
PAGE 14
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED BY STATE (ACCOUNTED FOR UNDER THE
FINANCING METHOD) DECEMBER 31, 1994
-----------------------------------------------------------------------------
Net
State Investment
------ --------------------------
Alabama $ 10,774,730
California 14,865,499
Colorado 403,433
Connecticut 24,956,415
Florida 26,193,440
Georgia 6,611,153
Illinois 5,752,708
Indiana 673,807
Iowa 1,472,651
Kentucky 226,439
Louisiana 20,516,823
Maryland 6,868,375
Massachusetts 29,728,840
Michigan 14,742,376
Minnesota 1,907,837
Missouri 5,605,609
Nevada 903,509
New Hampshire 4,817,099
New Jersey 17,144,885
New York 15,551,206
North Carolina 7,045,840
Ohio 9,184,634
Oklahoma 129,943
Oregon 54,039,101
Pennsylvania 14,088,469
Rhode Island 1,102,181
South Carolina 325,975
Texas 3,391,052
Virginia 9,543,506
West Virginia 3,636,597
Wisconsin 2,056,654
-------------------
$314,260,786
===================
IV-17
(Continued)
<PAGE>
<PAGE>
SCHEDULE III
PAGE 15
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED AND RESERVE FOR DEPRECIATION BY STATE
(ACCOUNTED FOR UNDER THE OPERATING METHOD)
DECEMBER 31, 1994
-----------------------------------------------------------------------------
Amount at which
Carried at Reserve for
State Close of Year Depreciation
--------- ---------------- -------------
Alabama $ 1,707,913 $ -
Arizona 8,661,230 780,739
California 13,574,684 3,702,517
Connecticut 1,549,805 1,027,553
Florida 14,474,746 5,007,024
Georgia 8,219,782 612,349
Illinois 8,849,567 2,836,885
Indiana 8,635,584 2,645,196
Kansas 460,490 -
Kentucky 14,470,363 691,180
Louisiana 12,638,536 2,975,581
Maryland 1,864,304 518,658
Massachusetts 2,916,915 1,349,837
Michigan 19,225,223 3,394,696
Minnesota 7,072,018 1,474,020
Missouri 1,946,471 289,549
New Jersey 4,293,403 1,471,681
New York 22,393,357 5,858,402
North Carolina 3,191,685 1,030,096
Ohio 3,635,192 299,308
Oregon 298,451 -
Pennsylvania 10,273,909 5,843,239
South Carolina 3,101,170 857,047
Tennessee 335,368 196,998
Texas 4,302,872 2,730,561
Virginia 1,986,638 948,210
Washington 4,190,632 1,337,294
Canada 1,057,300 356,102
------------ -----------
$185,327,608 $48,234,722
============ ===========
IV-18
(Continued)
<PAGE>
<PAGE>
SCHEDULE III
PAGE 16
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED BY STATE (ACCOUNTED FOR UNDER THE FINANCING METHOD)
DECEMBER 31, 1993
--------------------------------------------------------------------------
Net
State Investment
--------- -----------
Alabama $ 11,067,060
California 17,888,934
Colorado 544,251
Connecticut 25,308,131
Florida 26,800,208
Georgia 6,769,438
Illinois 5,905,143
Indiana 233,369
Iowa 1,501,626
Kentucky 233,369
Louisiana 21,056,026
Maryland 7,009,645
Massachusetts 30,296,481
Michigan 14,950,167
Minnesota 1,943,843
Missouri 5,568,962
Nevada 921,680
New Hampshire 4,935,607
New Jersey 21,248,834
New York 16,253,711
North Carolina 7,355,915
Ohio 9,415,352
Oklahoma 133,802
Oregon 54,546,141
Pennsylvania 14,491,751
Rhode Island 1,121,598
South Carolina 342,233
Texas 3,534,796
Virginia 9,807,705
West Virginia 3,742,187
Wisconsin 2,094,811
------------
$327,470,322
============
IV-19
(Continued)
<PAGE>
<PAGE>
SCHEDULE III
PAGE 17
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED AND RESERVE FOR DEPRECIATION BY STATE
(ACCOUNTED FOR UNDER THE OPERATING METHOD)
DECEMBER 31, 1993
-----------------------------------------------------------------------------
Amount at which
Carried at Reserve for
State Close of Year Depreciation
------- ---------------- -------------
Alabama $ 736,694 $ 87,325
Arizona 8,419,901 432,415
California 12,931,574 3,463,370
Connecticut 1,549,805 965,696
Florida 14,636,201 4,438,112
Georgia 9,238,378 1,029,031
Illinois 8,850,494 2,604,653
Indiana 8,635,584 2,410,912
Kansas 460,490 -
Kentucky 7,860,177 389,534
Louisiana 13,125,806 2,884,385
Maryland 1,238,325 474,818
Massachusetts 2,814,867 1,270,340
Michigan 19,225,223 3,044,807
Minnesota 6,776,010 1,243,786
Missouri 2,335,344 455,296
New Jersey 4,293,403 1,434,545
New York 21,711,796 5,430,334
North Carolina 1,591,685 1,008,960
Ohio 3,876,312 351,221
Oregon 298,451 -
Pennsylvania 10,274,362 5,531,108
South Carolina 3,101,170 806,722
Tennessee 449,753 248,129
Texas 4,384,018 2,650,621
Virginia 1,986,638 920,929
Washington 4,190,632 1,129,111
Canada 1,057,300 334,624
--------------- --------------
$176,050,393 $45,040,784
=============== ==============
IV-20 (Continued)
<PAGE>
<PAGE>
SCHEDULE III
PAGE 18
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED BY STATE (ACCOUNTED FOR UNDER THE FINANCING METHOD)
DECEMBER 31, 1992
---------------------------------------------------------------------
Net
State Investment
----------- -----------
Alabama $11,323,580
California 18,426,291
Colorado 571,985
Connecticut 25,629,109
Florida 27,350,648
Georgia 6,912,260
Illinois 5,123,971
Indiana 696,217
Iowa 1,528,040
Kentucky 239,682
Louisiana 21,534,147
Maryland 7,139,145
Massachusetts 30,013,085
Michigan 15,133,474
Minnesota 1,977,036
Missouri 6,273,577
Nevada 938,304
New Hampshire 5,044,563
New Jersey 21,672,020
New York 15,515,259
North Carolina 7,638,332
Ohio 9,620,021
Oklahoma 137,321
Oregon 55,011,975
Pennsylvania 14,862,614
Rhode Island 1,140,167
South Carolina 357,160
Texas 2,464,953
Virginia 10,079,084
West Virginia 3,838,951
Wisconsin 2,129,843
-----------
$330,322,814
============
IV-21
(Continued)
<PAGE>
<PAGE>
SCHEDULE III
PAGE 19
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
--------------------------------------------------
REAL ESTATE OWNED AND RESERVE FOR DEPRECIATION BY STATE
(ACCOUNTED FOR UNDER THE OPERATING METHOD)
DECEMBER 31, 1992
-----------------------------------------------------------------------
Amount at which
Carried at Reserve for
State Close of Year Depreciation
------- ---------------- -------------
Alabama $ 736,694 $ 81,154
Arizona 8,009,897 133,108
California 13,694,521 3,671,678
Connecticut 1,549,805 903,840
Florida 12,909,626 3,958,440
Georgia 8,819,331 832,671
Illinois 13,270,355 4,227,516
Indiana 8,635,584 2,201,628
Kansas 460,490 -
Kentucky 929,261 330,093
Louisiana 13,125,806 2,674,988
Maryland 1,238,325 452,663
Massachusetts 2,484,262 1,190,844
Michigan 19,154,063 2,658,874
Minnesota 6,776,010 991,465
Missouri 1,806,775 428,289
New Jersey 4,293,404 1,390,643
New York 12,174,966 5,047,805
North Carolina 1,591,685 987,823
Ohio 4,108,388 410,445
Oregon 298,451 -
Pennsylvania 10,273,909 5,218,974
South Carolina 3,101,170 756,396
Tennessee 987,111 434,167
Texas 3,966,086 2,570,682
Virginia 2,557,787 1,222,566
Washington 4,190,632 1,015,928
Canada 1,057,300 313,145
--------------- --------------
$162,201,694 $44,105,825
=============== ==============
IV-22
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page No.
------- --------
3.1 Certificate of Limited Partnership of
AREP, dated February 17, 1987 (filed as
Exhibit No. 3.1 to AREP's Annual Report on
Form 10-K for the year ended December 31,
1987 and incorporated herein by
reference).
3.2 Amended and Restated Agreement of Limited
Partnership of AREP, dated as of May 12,
1987 (filed as Exhibit No. 3.2 to AREP's
Annual Report on Form 10-K for the year
ended December 31, 1987 and incorporated
herein by reference).
3.3 Amendment No. 1 to the Partnership
Agreement.
3.4 Certificate of Limited Partnership of
American Real Estate Holdings Limited
Partnership (the "Subsidiary"), dated
February 17, 1987 and amendment thereto,
dated March 12, 1987 (filed as Exhibit No.
3.3 to AREP's Annual Report on Form 10-K
for the year ended December 31, 1987 and
incorporated herein by reference).
3.5 Amended Restated Agreement of Limited
Partnership of the Subsidiary, dated as of
July 1, 1987 (filed as Exhibit No. 3.4 to
AREP's Annual Report on Form 10-K for the
year ended December 31, 1987 and
incorporated herein by reference).
4.1 Depositary Agreement among AREP, the
General Partner and Registrar and Transfer
Company, dated as of July 1, 1987 (filed
as Exhibit No. 4.1 to AREP's Annual Report
on Form 10-K for the year ended December
31, 1987 and incorporated herein by
reference).
4.2 Amendment No. 1 to the Depositary
Agreement.
4.3 Specimen Depositary Receipt (filed as
Exhibit No. 4.2 to AREP's Annual Report on
Form 10-K for the year ended December 31,
1987 and incorporated herein by
reference). <PAGE>
<PAGE>
Exhibit Page No.
------- --------
4.4 Form of Transfer Application (filed as
Exhibit No. 4.3 to AREP's Annual Report on
Form 10-K for the year ended December 31,
1987 and incorporated herein by
reference).
4.5 Specimen of Certificate representing
Preferred Units (filed as Exhibit No. 4.9
to AREP's Registration Statement on Form
S-3 (Registration No. 33-54767) and
incorporated herein by reference).
10.1 Nonqualified Unit Option Plan (filed as
Exhibit No. 10.1 to AREP's Annual Report
on Form 10-K for the year ended December
31, 1987 and incorporated herein by
reference).
10.2 Distribution Reinvestment Plan (filed as
Exhibit No. 10.3 to AREP's Annual Report
on Form 10-K for the year ended December
31, 1987 and incorporated herein by
reference).
10.3 Note Purchase Agreements, dated as of May
27, 1988 among AREP, the Subsidiary and
The Prudential Insurance Company of
America (the "Note Agreements") (filed as
Exhibit Nos. 2a and 2b to AREP's Current
Report on Form 8-K dated May 27, 1988 and
incorporated herein by reference).
10.4 Amendment No. 1 to the Note Agreements
dated November 17, 1988 (filed as Exhibit
No. 10.2 to AREP's Registration Statement
on Form S-3 (Registration No. 33-54767)
and incorporated herein by reference).
10.5 Amendment No. 2 to the Note Agreements
dated November 17, 1988 (filed as Exhibit
No. 10.3 to AREP's Registration Statement
on Form S-3 (Registration No. 33-54767)
and incorporated herein by reference).
10.6 Amendment No. 3 to the Note Agreements
dated as of June 21, 1994 (filed as
Exhibit No. 10.4 to AREP's Registration
Statement on Form S-3 (Registration No.
33-54767) and incorporated herein by
reference).
<PAGE>
<PAGE>
Exhibit Page No.
------- --------
10.7 Amendment No. 4 to the Note Agreements
dated as of August 12, 1994 (filed as
Exhibit No. 10.5 to AREP's Registration
Statement on Form S-3 (Registration No.
33-54767) and incorporated herein by
reference).
10.8 9.6% Senior Promissory Note of AREP and
the Subsidiary due May 27, 1998 payable to
The Prudential Insurance Company of
America (filed as Exhibit No. 2c to AREP's
Current Report on Form 8-K dated May 27,
1988 and incorporated herein by
reference).
10.9 9.6% Senior Promissory Note of AREP and
the Subsidiary due May 27, 1998 payable to
Prudential Property and Casualty Insurance
Company (filed as Exhibit No. 2d to AREP's
Current Report on Form 8-K dated May 27,
1988 and incorporated herein by
reference).
10.10 Subscription Guaranty Agreement between
AREP and High Coast Limited Partnership
(the "Guarantor") (filed as Exhibit No.
4.10 to AREP's Registration Statement on
Form S-3 (Registration No. 33-54767) and
incorporated herein by reference).
10.11 Registration Rights Agreement between AREP
and the Guarantor (filed as Exhibit No.
4.11 to AREP's Registration Statement on
Form S-3 (Registration No. 33-54767) and
incorporated herein by reference).
10.12 Amended and Restated Agency Agreement.
10.13 Subscription Agent Agreement.
16 Letter dated September 27, 1991 of
Deloitte & Touche regarding change in
accountants (filed as Exhibit No. A to
AREP's Current Report on Form 8-K dated
October 3, 1991 and incorporated herein by
reference).
22 List of Subsidiaries (filed as Exhibit No.
22 to AREP's Annual Report on Form 10-K
for the year ended December 31, 1987 and
incorporated herein by reference).
27 Financial Data Schedule
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(a) of the Securities
Exchange Act of 1934, AREP has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 31st day of
March, 1995.
AMERICAN REAL ESTATE PARTNERS, L.P.
By: AMERICAN PROPERTY INVESTORS, INC.
General Partner
By: /s/ Carl C. Icahn
---------------------------------
Carl C. Icahn
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of AREP
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Carl C. Icahn Chairman of the Board March 31, 1995
----------------------- (Principal Executive
Carl C. Icahn Officer)
/s/Alfred Kingsley Director March 31, 1995
-----------------------
Alfred Kingsley
/s/Mark Rachesky Director March 31, 1995
-----------------------
Mark Rachesky
/s/William A. Leidesdorf Director March 31, 1995
------------------------
William A. Leidesdorf
/s/Jack G. Wasserman Director March 31, 1995
------------------------
Jack G. Wasserman
/s/John P. Saldarelli Treasurer March 31, 1995
------------------------ (Principal Financial
John P. Saldarelli Officer and Principal
Accounting Officer)
EXHIBIT 3.3
AMENDMENT NO. 1 TO THE AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
AMERICAN REAL ESTATE PARTNERS, L.P.
Amendment No. 1, dated as of February 22, 1995 (the
"Amendment"), by and among American Property Investors, Inc., a
Delaware corporation, as general partner (the "General Partner"),
and all other persons and entities who are or shall in the future
become limited partners (the "Limited Partners") of American Real
Estate Partners, L.P., a Delaware limited partnership (the
"Partnership").
WHEREAS, the Partnership was formed pursuant to an
Agreement of Limited Partnership, dated as of April 29, 1987, which
was amended and restated in its entirety on May 12, 1987 (the
"Partnership Agreement"); and
WHEREAS, the Partnership proposes to distribute at no
cost to holders of record as of the close of business on or about
February 24, 1995 of depositary units representing limited partner
interests in the Partnership ("Depositary Units") one subscription
right (each, a "Right") for each seven Depositary Units held (the
"Rights Offering"); and
WHEREAS, pursuant to the authority expressly granted to
and vested in the General Partner by Section 4.05 of the
Partnership Agreement and in connection with the Rights Offering,
the General Partner intends to create a series of 5% cumulative
pay-in-kind redeemable preferred units representing limited partner
interests in the Partnership; and
WHEREAS, the General Partner desires to further amend the
Partnership Agreement to establish the series of Preferred Units
upon the terms and conditions set forth herein and fix the
designation and number of units thereof and fix the powers,
preferences and relative participating, optional or other special
rights, and the qualifications, limitations and restrictions
thereof and to incorporate certain changes conforming with the
Internal Revenue Code of 1986, as amended.
NOW THEREFORE, in consideration of the foregoing, the
Partnership Agreement is amended as follows:
Section 1. DEFINITIONS. Terms used but not otherwise
defined in this Amendment shall have the respective meanings
ascribed to such terms in the Partnership Agreement.
Section 2. CERTAIN ADDITIONAL DEFINITIONS. As used herein
the following terms and phrases shall have the meanings set forth
below:<PAGE>
<PAGE>
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account
maintained for each Partner for each Fiscal Year: (i) increased by
any amounts which such Partner is obligated to restore pursuant to
any provision of this Agreement or is deemed to be obligated to
restore pursuant to the penultimate sentence of Treasury Regulation
Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the
items described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5), and (6). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions
of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"BOARD OF DIRECTORS" shall mean the Board of Directors of
the General Partner.
"DISTRIBUTION PERIOD" means the applicable period from
and including a Payment Date (as defined below) to and excluding
the next Payment Date, or, as to particular Preferred Units, such
shorter period during which such Preferred Units are outstanding
(including the first day but excluding the last day of such shorter
period).
"LEGAL HOLIDAY" means any day on which banking
institutions are authorized or obligated by law or executive order
to close in New York, New York.
"NONRECOURSE DEDUCTIONS" means the nonrecourse deductions
as defined in Treasury Regulation Section 1.704-2(b)(1). The
amount of Nonrecourse Deductions for a Fiscal Year equals the net
increase, if any, in the amount of Partnership Minimum Gain during
such Fiscal Year reduced by any distributions during such Fiscal
Year of proceeds of a Nonrecourse Liability that are allocable to
an increase in Partnership Minimum Gain, determined according to
the provisions of Treasury Regulation Section 1.704-2(c)
and 1.704-2(h).
"NONRECOURSE LIABILITY" means a liability as defined in
Treasury Regulation Section 1.704-2(b)(3).
"PARTNER MINIMUM GAIN" means an amount, with respect to
each Partner Nonrecourse Debt, equal to the Partnership Minimum
Gain that would result if such Partner Nonrecourse Debt were
treated as a Nonrecourse Liability, determined in accordance with
Treasury Regulation Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" means a liability as defined
in Treasury Regulation Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" means the partner
nonrecourse deductions as defined in Treasury Regulation Section
1.704-2(i)(2). The amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Fiscal Year equals the
net increase, if any, in the amount of Partner Minimum Gain during
such Fiscal Year attributable to such Partner Nonrecourse Debt,
2<PAGE>
<PAGE>
reduced by any distributions during that Fiscal Year to the Partner
that bears the economic risk of loss for such Partner Nonrecourse
Debt to the extent that such distributions are from the proceeds of
such Partner Nonrecourse Debt and are allocable to an increase in
Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined according to the provisions of Treasury Regulation
Section 1.704-2(h) and 1.704-2(i).
"PARTNERSHIP MINIMUM GAIN" means the aggregate gain, if
any, that would be realized by the Partnership for purposes of
computing book income or loss with respect to each Partnership
asset if each Partnership asset subject to a Nonrecourse Liability
were disposed of for the amount outstanding on the Nonrecourse
Liability by the Partnership in a taxable transaction. Partnership
Minimum Gain with respect to each Partnership asset shall be
further determined in accordance with Treasury Regulation Section
1.704-2(d) and any subsequent rule or regulation governing the
determination of minimum gain. A Partner's share of Partnership
Minimum Gain at the end of any Fiscal Year shall equal the
aggregate Nonrecourse Deductions allocated to such Partner (or his
predecessors in interest) up to that time, less such Partner's (and
predecessors') aggregate share of decreases in Partnership Minimum
Gain determined in accordance with Treasury Regulation Section
1.704-2(g).
Additionally, all references to a "Majority Interest", as
defined in the Partnership Agreement, shall not include holders of
Preferred Units.
Section 3. DESIGNATION AND AMOUNT; LIQUIDATION PREFERENCE.
There shall be hereby created a series of Units (the "Preferred
Units") representing limited partner interests in the Partnership
designated as "5% Cumulative Pay-in-Kind Redeemable Preferred
Units" and the number of Units constituting such series shall be
15,000,000. The Preferred Units will be represented by
certificates issuable solely in whole Preferred Units. No
certificates representing fractional Preferred Units will be
issued, but record of the ownership of such fractional Preferred
Units will be kept on the books of the Partnership and allocations,
distributions, voting rights, rights with respect to redemption or
conversion and the like shall be determined in accordance with
fractional Unit ownership. Record Holders of the Preferred Units
shall be entitled to exercise the voting rights, to participate in
the distributions and to have the benefit of all other rights and
be subject to all limitations of Record Holders of Preferred Units
as set forth herein and in the Partnership Agreement. The
liquidation preference (the "Liquidation Preference") of each
Preferred Unit shall be $10.
3<PAGE>
<PAGE>
Section 4. Distributions.
-------------
(a) Prior to redemption of Preferred Units or Liquidation
(as defined below) and dissolution of the Partnership, Record
Holders of Preferred Units shall be entitled to receive
distributions solely in additional Preferred Units. The
distribution rate per Preferred Unit shall be 5.0% per annum on the
Liquidation Preference plus all accumulated and unpaid
distributions. Distributions shall be payable annually on March 31
of each year (each, a "Payment Date"), commencing March 31, 1996
(except that, if any Payment Date is a Saturday, Sunday or Legal
Holiday, then such distribution shall be payable on the next day
that is not a Saturday, Sunday or Legal Holiday), subject to
declaration thereof by the Board of Directors, to holders of
record as they appear upon the books of the Partnership at the
close of business on the Record Date therefor. Such Record Date
shall be not more than sixty days nor less than ten days prior to
the applicable Payment Date, as fixed by the Board of Directors
from time to time.
(b) The aggregate distribution paid to a Record Holder of
Preferred Units shall be based on the aggregate number of Preferred
Units held by such Record Holder at the close of business on the
applicable Record Date and rounded to the nearest whole cent (with
one-half cent rounded upward). Unless otherwise provided herein,
distributions on each Preferred Unit will be cumulative from and
including the date the Preferred Units are first issued to and
excluding the earliest to occur of (i) the Redemption Date (as
defined below) and (ii) the date of final distribution of assets
upon any liquidation or winding up of the Partnership, whether
voluntary or involuntary (any such event referred to in this clause
(ii), a "Liquidation").
(c) Any reference to "distribution" contained in this
Section 4 shall not include any distribution made in connection
with any Liquidation.
Section 5. Liquidation Preference.
----------------------
(a) In the event of any Liquidation, each Record Holder
of Preferred Units shall be entitled to receive, and be paid out of
the assets of the Partnership available for distribution to its
Record Holders, the amount of the Record Holder's Capital Account
in respect of the Preferred Units, which amount is intended to
equal the Liquidation Preference, plus all accumulated and unpaid
distributions on such Preferred Units to the date of final
distribution to the Record Holders of Preferred Units, whether or
not declared, without interest, and no more, before any payment
shall be made or any assets distributed to Record Holders of
Depositary Units or any other class or series of the Partnership's
Units or other equity ranking junior to the Preferred Units upon
such Liquidation. If, upon any Liquidation, the amounts payable
with respect to liquidation preferences of the Preferred Units and
any other class or series of the Partnership's Units or other
4<PAGE>
<PAGE>
equity securities ranking on a parity with the Preferred Units upon
such Liquidation are not paid in full, the Record Holders of the
Preferred Units and of such other securities will share pro rata in
the amounts payable and other property distributable with respect
to such Liquidation so that the per unit amounts to which Record
Holders of Preferred Units and such other securities are entitled
will in all cases bear to each other the same ratio that the
liquidation preferences of the Preferred Units and such other
securities bear to each other. After payment in full of the
Liquidation Preference and any accumulated and unpaid distributions
in respect of the Preferred Units upon Liquidation, the Record
Holders of such Preferred Units in their capacity as such shall not
be entitled to any further right or claim to any remaining assets
of the Partnership.
(b) Neither the merger nor consolidation of the
Partnership into or with any other entity, nor the merger or
consolidation of any other entity into or with the Partnership, nor
a sale, transfer or lease of all or any part of the assets of the
Partnership, shall be deemed to be a Liquidation for purposes of
this Amendment.
(c) Written notice of any Liquidation, stating the
payment date or dates when and the place or places where the
amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage prepaid, not less than thirty
(30) days prior to any payment date stated therein, to the holders
of record of the Preferred Units at their respective addresses as
the same shall appear on the books of the Partnership or the
Transfer Agent for the Preferred Units.
Section 6. Optional Redemption.
-------------------
(a) On any Payment Date, commencing with the Payment Date
on March 31, 2000, the Partnership, with the approval of the Audit
Committee, may redeem all, but not less than all, of the Preferred
Units, out of funds legally available therefor, at a price per
Preferred Unit equal to the Liquidation Preference plus any
accumulated and unpaid distributions thereon, whether or not
declared, up to but excluding the date fixed for redemption (such
sum being hereinafter referred to as the "Redemption Price"). The
aggregate Redemption Price paid to a Record Holder of Preferred
Units shall be the product of the aggregate number of Preferred
Units redeemed from such Record Holder and the per unit Redemption
Price, with such product being rounded to the nearest whole cent
(with one-half cent rounded upward) and shall be payable either in
all cash or, as provided in Section 6(b) below, Depositary Units.
Upon any Redemption, the Redemption Price may be paid either all in
cash or all in Depositary Units but not in a combination thereof.
(b) If the Redemption Price is paid in Depositary Units,
each Record Holder of Preferred Units shall be entitled to receive
an amount of Depositary Units equal to the Redemption Price;
provided that if the Redemption Price payable with respect to any
5<PAGE>
<PAGE>
Record Holder's Preferred Units is not an integral multiple of the
value of one Depositary Unit, as determined in accordance with the
formula set forth below, the difference between the Redemption
Price of such Preferred Units of such Preferred Units and the
highest integral multiple of the value of one Depositary Unit which
is less than the Redemption Price of such Preferred Units shall be
paid to such Record Holder in cash (the "Cash Payment").
Depositary Units will be valued at (i) if the Depositary Units are
listed or admitted to trading on one or more national securities
exchange, the average price at which the Depositary Units had been
trading over the 20-day period immediately preceding such
Redemption on the principal national securities exchange on which
the Depositary Units are listed or admitted to trading; (ii) if the
Depositary Units are not listed or admitted to trading on a
national securities exchange but are quoted by NASDAQ, the average
bid price per Depositary Unit at which the Depositary Units had
been trading over the 20-day period immediately preceding such
Redemption, as furnished by the National Quotation Bureau
Incorporated ("Bureau") or such other nationally recognized
quotation service as may be selected by the General Partner for
such purpose, if such Bureau is not at the time furnishing
quotations; or (iii) if the Depositary Units are not listed or
admitted to trading on a national securities exchange or quoted by
NASDAQ, an amount equal to the book value as reflected in the most
recent audited financial statement of the Partnership as of the
date of Redemption.
(c) Not more than sixty nor less than thirty days prior
to the date fixed by the Partnership for redemption (the
"Redemption Date"), notice by first class mail, postage prepaid,
shall be given to the Record Holders of Preferred Units to be
redeemed addressed to such Record Holders at their last addresses
as shown upon the books of the Partnership. Each such notice of
redemption shall specify, as applicable, (i) the Redemption Date,
(ii) the Redemption Price, (iii) whether the Redemption Price is
payable in cash or Depositary Units, (iv) if the Redemption Price
is payable in Depositary Units, the number of Depositary Units to
be delivered and the amount of the Cash Payment, if any, (v) the
place or places of delivery and payment, (vi) that delivery and
payment will be made upon presentation and surrender of the
certificates representing Preferred Units at the place designated
in such notice and (vii) that on and after the Redemption Date,
distributions will cease to accumulate on the Preferred Units
(unless the Partnership defaults in the payment of the Redemption
Price).
(d) Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the
Record Holder of Preferred Units receives such notice; and failure
to give such notice by mail, or any defect in such notice to the
Record Holders of any Preferred Units designated for redemption,
shall not affect the validity of the proceedings for the redemption
of any other Preferred Units. On or after the Redemption Date, as
stated in such notice, each Record Holder of Preferred Units shall
6<PAGE>
<PAGE>
surrender the certificate evidencing such Units to the Partnership
at the place designated in such notice and shall thereupon receive
payment in the amount and form specified in such notice. Notice
having been given as aforesaid, if funds and any Depositary Units
necessary for the redemption shall be legally available therefor
and shall have been irrevocably deposited or set aside on or before
the Redemption Date, then on and after the close of business on the
Redemption Date, notwithstanding that the certificates evidencing
any Preferred Units so called for redemption shall not have been
surrendered, (i) distributions with respect to the Preferred Units
shall cease to accumulate on the Redemption Date, (ii) such
Preferred Units shall no longer be deemed outstanding, (iii) the
Record Holders thereof shall cease to be Limited Partners of the
Partnership to the extent of their interest in such Preferred Units
(provided that such Record Holders shall be deemed admitted as
Limited Partners with respect to any Depositary Units issued in
payment of the Redemption Price for their Preferred Units) and (iv)
all rights whatsoever with respect to the Preferred Units so called
for redemption (except the right of the Record Holders to receive
the Redemption Price for each such Preferred Unit, without interest
or any sum of money in lieu of interest thereon, upon surrender of
their certificates therefor at the place designated in such notice)
shall terminate.
(e) Except as provided in Section 7 hereof, holders of
Preferred Units shall have no right to require redemption of the
Preferred Units.
Section 7. MANDATORY REDEMPTION. On March 31, 2010, the
Partnership must redeem all, but not less than all, of the
Preferred Units on the same terms as any optional redemption set
forth in Section 6 hereof.
Section 8. BUSINESS COMBINATIONS. In the event that the
Partnership shall effect any capital reorganization or
reclassification of its Units or shall consolidate or merge with or
into, or shall sell or transfer all or substantially all of its
assets to, any other entity, the holders of Preferred Units then
outstanding shall be entitled to receive the same kind and amount
of securities, cash, property, rights or interests as shall have
been receivable for each Depositary Unit by the holders thereof in
such reorganization, reclassification, consolidation, merger, sale
or transfer had such Preferred Units been redeemed for Depositary
Units in accordance with Section 6 immediately prior to such
reorganization, reclassification, consolidation, merger, sale or
transfer. The above provisions of this Section 8 shall similarly
apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or transfers.
Section 9. STATUS OF ACQUIRED PREFERRED UNITS. Preferred
Units acquired by the Partnership upon a redemption pursuant to
Sections 6 or 7 or otherwise acquired by the Partnership will be
retired and restored to the status of authorized but unissued
Preferred Units and may not thereafter be reissued. Preferred
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Units held by the Partnership shall not be deemed outstanding for
any purpose and shall have no voting rights or rights to
allocations or distributions.
Section 10. Voting Rights.
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(a) The Record Holders of Preferred Units will not have
any voting rights except as set forth below or as otherwise from
time to time required by applicable law. If a distribution is not
declared and made to the Record Holders of Preferred Units on any
two Payment Dates (which Payment Dates need not be consecutive),
the Record Holders of more than 50% of all outstanding Preferred
Units, including the General Partner and its affiliates, voting as
a class, shall be entitled to appoint two nominees for the Board of
Directors of the General Partner. Once elected, the nominees will
be appointed to the Board of Directors by action of the General
Partner. As directors, the nominees will, in addition to their
other duties as directors, be specifically charged with reviewing
all future distributions to the Record Holders of the Preferred
Units. Such additional directors shall serve until the full
distributions accumulated on all outstanding Preferred Units have
been declared and paid or set apart for payment. If and when all
accumulated distributions on the Preferred Units have been declared
and paid or set aside for payment in full, the holders of Preferred
Units shall be divested of the special voting rights provided by
this paragraph, subject to revesting in the event of each and every
subsequent default. Upon termination of such special voting rights
attributable to all holders of Preferred Units with respect to
payment of distributions, the term of office of each director
nominated by the holders of Preferred Units (the "Preferred Unit
Director") pursuant to such special voting rights shall forthwith
terminate and the number of directors constituting the entire Board
of Directors shall be reduced by the number of Preferred Unit
Directors. So long as a distribution default shall continue, any
vacancy in the office of a Preferred Unit Director may be filled by
written consent of the Preferred Unit Director remaining in office
or, if none remain in office, by vote of the holders of Preferred
Units who are then entitled to participate in the appointment of
such Preferred Unit Directors as provided above.
(b) The General Partner or Record Holders of Preferred
Units owning at least 10% of all outstanding Preferred Units,
including the General Partner and its affiliates, may call a
meeting of the Record Holders of Preferred Units to elect such
nominees. Any Record Holder of Preferred Units calling a meeting
shall specify the number of Preferred Units as to which such Record
Holder is exercising the right to call a meeting and only those
specified Preferred Units shall be counted for the purpose of
determining whether the required ten percent (10%) standard of the
preceding sentence has been met. Record Holders of Preferred Units
desiring to call a meeting shall deliver to the General Partner one
or more calls in writing stating that the Record Holders signing
such writing wish to call a meeting. Action at the meeting shall
be limited to appointing two nominees for the Board of Directors
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and the Record Holders of Preferred Units will have no right to
call or participate at other meetings under Section 14.04 of the
Partnership Agreement or otherwise. Within sixty (60) days after
receipt of such a call from Record Holders of Preferred Units, or
within such greater time as may be reasonably necessary for the
Partnership to comply with any statutes, rules, regulations,
listing agreements or similar requirements governing the holding of
a meeting or the solicitation of proxies for use at such a meeting,
the General Partner shall send a notice of the meeting to the
Record Holders of Preferred Units directly. A meeting shall be
held at a reasonable time and convenient place determined by the
General Partner or the Liquidating Trustee, as the case may be, on
a date not more than sixty (60) days after the mailing of notice of
the meeting. Record Holders of Preferred Units may vote either in
person or by proxy at any meeting. Each Record Holder shall have
one vote for each whole Preferred Unit held of record by such
Record Holder. No action shall be taken by the Record Holders of
Preferred Units without a meeting duly called and held or without
written consent in accordance with Section 12 hereof.
(c) Notice of a meeting called pursuant to this Section
10 shall be given either personally in writing or by mail or other
means of written communication addressed to each Record Holder of
Preferred Units at the address of the Record Holder appearing on
the books of the Partnership. An affidavit or certificate of
mailing of any notice or report in accordance with the provisions
of this Section 10 executed by the General Partner, Transfer Agent
or mailing organization shall constitute conclusive (but not
exclusive) evidence of the giving of notice. If any notice
addressed to a Record Holder of Preferred Units at the address of
such Record Holder appearing on the books of the Partnership is
returned to the Partnership by the United States Postal Service
marked to indicate that the United States Postal Service is unable
to deliver such notice, the notice and any subsequent notices or
reports shall be deemed to have been duly given without further
mailing if they are available for the Record Holder of Preferred
Units at the principal office of the Partnership for a period of
one year from the date of the giving of the notice to all other
Record Holders of Preferred Units.
(d) For purposes of determining the Record Holders
entitled to notice of or to vote at a meeting of the Record Holders
of Preferred Units, the General Partner or the Liquidating Trustee,
as the case may be, may set a record date, which shall not be less
than ten (10) days nor more than sixty (60) days prior to the date
of such meeting (unless such requirement conflicts with any rule,
regulation, guideline, or requirement of any securities exchange on
which the Preferred Units are listed for trading, in which case the
rule, regulation, guidelines, or requirement of such securities
exchange shall govern).
(e) Record Holders with respect to more than fifty
percent (50%) of the total number of all outstanding Preferred
Units then held by all Record Holders of Preferred Units, whether
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represented in person or by proxy, shall constitute a quorum at a
meeting of Record Holders of Preferred Units. The Record Holders
present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment of such
meeting, notwithstanding the withdrawal of enough Record Holders of
Preferred Units to leave less than a quorum, if any action taken
(other than adjournment) is approved by the requisite number of
Record Holders specified in this Amendment. In the absence of a
quorum, any meeting of Record Holders of Preferred Units may be
adjourned from time to time by the affirmative vote of a majority
of the Preferred Units represented either in person or by proxy at
such meeting. When a meeting is adjourned to another time or place
notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the holders of Preferred Units
may transact any business which might have been transacted at the
original meeting.
(f) The General Partner or the Liquidating Trustee, as
the case may be, shall be solely responsible for convening,
conducting, and adjourning any meeting of Record Holders of
Preferred Units, including, without limitation, the determination
of Persons entitled to vote at such meeting, the existence of a
quorum for such meeting, the satisfaction of the requirements of
Section 10(b) with respect to such meeting, the conduct of voting
at such meeting, the validity and effect of any proxies represented
at such meeting, and the determination of any controversies, votes,
or challenges arising in connection with or during such meeting or
voting. The General Partner or the Liquidating Trustee, as the
case may be, shall designate a Person to serve as chairman of any
meeting and further shall designate a Person to take the minutes of
any meeting, which Person, in either case, may be, without
limitation, a Partner or any employee or agent of the General
Partner. The General Partner or the Liquidating Trustee, as the
case may be, may make all such other regulations, consistent with
applicable law and this Amendment, as it may deem advisable
concerning the conduct of any meeting of the Record Holders of
Preferred Units, including regulations in regard to the appointment
of proxies, the appointment and duties of inspectors of votes, and
the submission and examination of proxies and other evidence of the
right to vote.
(g) So long as any Preferred Units are outstanding, the
Partnership shall not amend, alter or repeal any provisions of the
Partnership Agreement or this Amendment so as to alter or change
the express powers, preferences or special rights of the Preferred
Units set forth herein so as to affect them adversely without the
consent of the holders of at least two-thirds of the total number
of outstanding Preferred Units, including those held by the General
Partner and its affiliates, given in person or by proxy, by vote at
a meeting called for that purpose or by written consent as
permitted by law. For purposes of this paragraph and in
furtherance of the foregoing, any such amendment or any resolution
or action of the Board of Directors which would create or issue any
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series of Preferred Units out of the authorized Preferred Units, or
which would authorize, create or issue any securities (whether or
not already authorized) ranking junior to, on a parity with or
senior to the Preferred Units with respect to payment of
distributions and distributions upon any Liquidation or having
special voting or other rights, shall not be considered to affect
adversely the powers, preferences or special rights of the
outstanding Preferred Units.
(h) The Record Holders of the Preferred Units will have
no other rights to participate in the management of the Partnership
and they will not be entitled to vote on any matters submitted to
a vote of the Record Holders of Depositary Units.
Section 11. PREEMPTIVE RIGHTS. No Record Holder of
Preferred Units shall have any preemptive right with respect to (a)
additional Capital Contributions, (b) issuance or sale of Units,
whether unissued, held in treasury or hereafter created, (c)
issuance of any obligations, evidences of indebtedness or other
securities of the Partnership convertible into or exchangeable for,
or carrying or accompanied by any rights to receive, purchase or
subscribe for, any such unissued Units or Units held in treasury,
(d) issuance of any right of, subscription to, or right to receive,
or any warrant or option for the purchase of, any of the foregoing
securities, or (e) issuance or sale of any other securities that
may be issued or sold by the Partnership.
Section 12. ACTION WITHOUT A MEETING. Any action that may
be taken at a meeting of the Record Holders of Preferred Units may
be taken without a meeting if a consent in writing setting forth
the action so taken is signed by Record Holders of Preferred Units
owning not less than the number of Preferred Units that would be
necessary to authorize or take such action at a meeting at which
all of the Record Holders of Preferred Units were present and
voted. Prompt notice of the taking of action without a meeting
shall be given to the Record Holders of Preferred Units who have
not consented thereto in writing. The General Partner may specify
that any written ballot submitted by the General Partner to Record
Holders of Preferred Units for the purpose of taking any action
without a meeting shall be returned to the Partnership within the
time, not less than twenty (20) days, specified by the General
Partner. If a ballot returned to the Partnership does not vote all
of the Preferred Units held by a Record Holder of Preferred Units,
the Partnership shall be deemed to have failed to receive a ballot
for the Preferred Units that were not voted. If consent to the
taking of any action by the Record Holders of Preferred Units is
solicited by any person other than by the General Partner, the
written consents shall have no force and effect unless and until
(i) they are deposited with the Partnership in care of the General
Partner, and (ii) consents sufficient to take the action proposed
are dated as of a date not more than ninety (90) days prior to the
date sufficient consents are deposited with the Partnership.
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Section 13. ISSUANCE OF CERTIFICATES EVIDENCING PREFERRED
UNITS. On the closing date of the Rights Offering, the General
Partner shall cause the Partnership to issue certificates
evidencing the aggregate whole number of Preferred Units to which
the Record Holders of Preferred Units are entitled in the form of
Exhibit A annexed hereto. Upon a transfer of a Preferred Unit in
accordance with Section 14 hereof, the General Partner shall cause
the Partnership to issue replacement certificates, according to
such procedures as the General Partner shall establish. The
certificates issued pursuant to this Section 13 shall, upon
issuance, be distributed to the Record Holders of such Preferred
Units. The Preferred Units will not be evidenced by Depositary
Receipts and, although the Partnership intends to seek to list the
Preferred Units on the New York Stock Exchange, there is no
obligation to list the Preferred Units on the New York Stock
Exchange or any other national securities exchange.
Section 14. TRANSFER OF PREFERRED UNITS. Until a Preferred
Unit has been transferred on the books of the Partnership, the
Partnership and the Registrar and Transfer Company or any successor
appointed by the General Partner, as transfer agent, registrar and
distribution-paying agent for the Preferred Units (the "Transfer
Agent") will treat the Record Holder thereof as the absolute owner
for all purposes, notwithstanding any notice to the contrary or any
notation or other writing on the certificate representing such
Preferred Unit, except as otherwise required by law. Any transfers
of a Preferred Unit will not be recorded by the Transfer Agent or
recognized by the Partnership unless certificates representing the
Preferred Units are surrendered and the transferee executes and
delivers a Transfer Application to the Transfer Agent. By
executing and delivering a Transfer Application, the transferee of
Preferred Units is an assignee until admitted to the Partnership as
a substituted limited partner, and shall have been deemed to have
automatically requested admission to the Partnership as a
substituted limited partner, agreed to be bound by the terms and
conditions of the Partnership Agreement, represented that such
transferee has the capacity and authority to enter into the
Partnership Agreement and granted the powers of attorney to the
General Partner as set forth in the Partnership Agreement. On a
monthly basis, the Transfer Agent will, on behalf of transferees
who have submitted Transfer Applications, request the General
Partner to admit such transferees as substituted limited partners
in the Partnership. If the General Partner consents to such
substitution, a transferee will be admitted to the Partnership as
a substituted limited partner upon the recordation of such
transferee's name in the books and records of the Partnership.
Upon such admission, which is in the sole discretion of the General
Partner, he or she will be entitled to all of the rights of a
limited partner under the Delaware Act and pursuant to this
Amendment and the Partnership Agreement. A transferee will, after
submitting a Transfer Application to the Partnership but before
being admitted to the Partnership as a substituted unitholder of
record, have the rights of an assignee under the Delaware Act and
this Amendment and the Partnership Agreement, including the right
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to receive his or her distributions. Preferred Units are
securities and are transferable according and subject to the laws
governing transfers of securities.
A transferee who does not execute and deliver a Transfer
Application to the Partnership will not be recognized as the Record
Holder of Preferred Units and will only have the right to transfer
or assign his Preferred Units to another transferee. Therefore,
such transferee will neither receive distributions from the
Partnership or have any other rights to which Record Holders of
Preferred Units are entitled under the Delaware Act or pursuant to
this Amendment or the Partnership Agreement. Distributions made in
respect of the Preferred Units held by such transferees will
continue to be paid to the transferor of such Preferred Units. The
Partnership and a transferor will have no duty to ensure the
execution of a Transfer Application by a transferee and will have
no liability or responsibility if such transferee neglects or
chooses not to execute and deliver the Transfer Application to the
Partnership.
Whenever Preferred Units are transferred, the Transfer
Application requires that a transferee answer a series of
questions. The required information is designed to provide the
Partnership with the information necessary to prepare its tax
information return. If the transferee does not furnish the
required information, the Partnership will make certain assumptions
concerning this information.
As used in this Amendment, the term Transfer Application
means an application and agreement for transfer of Preferred Units
in the form set forth on the back of the certificates evidencing
Preferred Units or in a form substantially to the same effect in a
separate instrument.
Section 15. REPLACEMENT OF LOST, STOLEN, DESTROYED OR
MUTILATED PREFERRED UNIT CERTIFICATES. The Partnership shall issue
or cause to be issued a new certificate representing a Preferred
Unit in place of any certificate representing a Preferred Unit
previously issued if the Record Holder of such certificate:
(a) makes proof, in form and substance satisfactory to
the General Partner, of the loss, theft or destruction, and of such
General Partner's ownership, of such previously issued certificate;
(b) surrenders any mutilated certificate;
(c) requests the issuance of a new certificate before the
Partnership has notice that such previously issued certificate has
been acquired by a purchaser for value in good faith and without
notice of an adverse claim;
(d) if requested by the General Partner, delivers to the
Partnership a bond, in form and substance satisfactory to the
General Partner, with such surety or sureties and with fixed or
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open penalty, as the General Partner may direct, to indemnify the
Partnership against any claim that may be made on account of the
alleged loss, theft, destruction or mutilation of such previously
issued certificate; and
(e) satisfies any other reasonable requirements imposed
by the General Partner.
When a previously issued certificate representing a
Preferred Unit has been lost, stolen, destroyed or mutilated, and
the Record Holder fails to notify the Partnership within a
reasonable time after he has notice of such event, and a transfer
of Preferred Units represented by the certificate is registered
before such Partnership receives such notification, the Record
Holder of the Preferred Unit shall be precluded from making any
claim against the Partnership or any Transfer Agent with respect to
such transfer or for a new certificate.
Section 16. Allocations of Income and Loss.
------------------------------
(a) Section 5.01 of the Partnership Agreement is amended
by adding the following provisions:
(e) All distributions accrued to a Record Holder of Preferred
Units under Section 4(a) of the Amendment during a Fiscal Year
shall be treated as guaranteed payments to such Record Holder
pursuant to Section 707(c) of the Code for such Fiscal Year.
Record Holders of Preferred Units shall not be allocated any other
items of income, gain, loss or deduction of the Partnership in
respect of the Preferred Units except (i) upon the redemption of
such Preferred Units for Depository Units or (ii) as required under
paragraph (c) of Section 5.01.
(f) Upon any redemption of Preferred Units for Depositary
Units, the General Partner is authorized to allocate items of
income, gain, loss and deduction between the Record Holders of
Depositary Units received upon the redemption and the General
Partner and other Record Holders of Depositary Units in such
amounts, if any, as are required to cause the Capital Accounts of
the Record Holders of each Depositary Unit to be in proportion to
the number of Depositary Units held by each Record Holder.
(b) Sections 5.01(b) and (c) of the Partnership Agreement are
amended to provide as follows:
"(b)
(1) To the extent that any Partner has or would have, as a
result of an allocation of an item of loss or deduction, an
Adjusted Capital Account deficit, such amount of loss or deduction
shall be allocated to the other Partners (excluding Record Holders
of Preferred Units) in proportion to their respective Percentage
Interests, but in a manner which will not produce an Adjusted
Capital Account deficit as to any such Partner. To the extent such
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allocation would result in all Record Holders of Depositary Units
and the General Partner having Adjusted Capital Account deficits,
such loss or deduction shall be allocated to the Record Holders of
Preferred Units in proportion to the number of Preferred Units held
by each Record Holder until they would have an Adjusted Capital
Account deficit. Any balance shall be allocated to the General
Partner.
(2) Notwithstanding any other provision of this Article V,
if there is a net decrease in Partnership Minimum Gain during any
Partnership Year, then, subject to the exceptions set forth in
Treasury Regulation Section 1.704-2(f)(2), (3), (4) and (5), each
Partner shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in an
amount equal to such Partner's share of the net decrease in
Partners Minimum Gain, as determined under Treasury Regulation
Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to
be allocated to each Partner pursuant thereto. The items to be so
allocated shall be determined in such section of the Regulations in
accordance with Treasury Regulation Section 1.704-2(f). This
paragraph is intended to comply with the minimum gain chargeback
requirements in Treasury Regulation Section 1.704-2(f) and shall be
interpreted consistently therewith.
(3) Notwithstanding any other provision of this Article V
except Section 5.01(b)(2), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any
Fiscal Year then, subject to the exceptions set forth in Treasury
Regulation Section 1.704-2(i)(4), each Partner who has a share of
the Partner Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Treasury Regulation
Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of the
net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Treasury Regulation
Section 1.704-2(i)(4). The items to be so allocated shall be
determined in accordance with Treasury Regulation
Section 1.704-2(i)(4). This paragraph is intended to comply with
the minimum gain chargeback requirement in Treasury Regulation
Section 1.704-2(i) and shall be interpreted consistently therewith.
"(c)
(1) Notwithstanding any other provision of this Article V,
except Section 5.01(b), in the event any Partner receives any
adjustments, allocations or distributions described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), that cause
or increase an Adjusted Capital Account deficit of such Partner,
items of Partnership income and gain shall be specially allocated
to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Treasury Regulation, the Adjusted
Capital Account deficit of such Partner as quickly as possible.
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(2) Nonrecourse Deductions for any Fiscal Year shall be
allocated between the General Partner and the Record Holders of
Depositary Units in proportion to their respective Percentage
Interests.
(3) Any Partner Nonrecourse Deductions for any Fiscal Year
shall be specially allocated to the Partner who bears the economic
risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulation Section 1.704-2(i)(1).
(4) The allocations set forth in Sections 5.01(b) and
5.01(c)(1) and (3) above (the "Regulatory Allocations") are
intended to comply with certain requirements of Treasury Regulation
Section 1.704-1(b). The Regulatory Allocations shall be taken into
account for the purpose of equitably adjusting subsequent alloca-
tions of income, gain, loss and deduction, and items of income,
gain, loss, and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of income, gain, loss
and deduction and other items to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if
the Regulatory Allocations had not occurred.
(5) Pursuant to Treasury Regulation Section 1.752-3(a), for
the purpose of determining the General Partner's and each Record
Holders of Depositary Units' share of excess Nonrecourse Liabili-
ties of the Partnership, each such Person shall be treated as
having a share of the Partnership's profit and income equal to
their respective Percentage Interests. For this purpose, the
Percentage Interest allocable to Record Holders of Preferred Units
shall be zero.
(6) To the extent permitted by Treasury Regulation
Sections 1.704-2(h)(3) and 1.704-2(i)(6), the General Partner shall
endeavor to treat distributions as having been made from the
proceeds of Nonrecourse Liabilities or Partner Nonrecourse Debt
only to the extent that such distributions would cause or increase
a deficit balance in any Partner's Adjusted Capital Account."
(c) Section 5.02 of the Partnership Agreement is amended by
deleting paragraphs (c) and (d), relabelling paragraphs (e) through
(h) as paragraphs (c) through (f), respectively, and amending
paragraph (a) to read as follows:
"(a) Except as otherwise provided in this Section 5.02, all
items of income, gain, loss and deduction of the Partnership for
federal income tax purposes shall be allocated for federal income
tax purposes among the General Partner and Limited Partners in
accordance with the allocation of the corresponding items of book
income, gain, loss and deduction under Section 5.01 hereof."
Section 17. LIABILITY OF GENERAL PARTNER TO RECORD HOLDERS
OF PREFERRED UNITS. The General Partner and its Affiliates and all
partners, shareholders, directors, officers, employees or agents of
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the General Partner and its Affiliates shall not be liable (for
monetary damages or otherwise) to the Record Holders of Preferred
Units for errors in judgment or for breach of fiduciary duty as the
General Partner of the Partnership or as a partner, shareholder,
director, officer, employee or agent of the General Partner of the
Partnership or any of its Affiliates, except for liability (i) for
any breach of such Person's duty of loyalty to the Partnership, as
such duty of loyalty may be set forth in or modified by this
Amendment or the Partnership Agreement, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or
knowing violation of law or (iii) for any transaction from which
such Person has derived an improper benefit.
Section 18. REIMBURSEMENT OF EXPENSES OF GENERAL PARTNER.
The Partnership shall reimburse the General Partner for all
expenses, disbursements and advances reasonably incurred by the
General Partner in connection with the registration of the Rights,
the Preferred Units and the Depositary Units under applicable
federal and state securities laws in connection with the Rights
Offering, the offering, sale and distribution of the Preferred
Units and the Depositary Units pursuant to the Rights Offering and,
as applicable, the listing of the Rights, the Preferred Units and
the Depositary Units on the New York Stock Exchange.
Section 19. REPORTS. The General Partner shall furnish
such reports and information to Record Holders of Preferred Units
at the same time and in the same manner as are required to be
furnished to Record Holders pursuant to Section 8.04 of the
Partnership Agreement.
Section 20. NOTICES. All notices, demands, requests or
other communications which may be or are required to be given,
served, or sent by a Record Holder of Preferred Units or the
Partnership pursuant to this Amendment shall be in writing and
shall be personally delivered, mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or
transmitted by telegram or telex, addressed as follows:
(a) If to the General Partner:
American Property Investors, Inc.
90 South Bedford Road
Mt. Kisco, New York 10549
Attention: John P. Saldarelli
(b) If to a Record Holder of Preferred Units:
The Last Known Business, Residence or
Mailing Address of Such Record Holder
Reflected in the Records of the
Partnership
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(c) If to the Partnership:
American Real Estate Partners, L.P.
90 South Bedford Road
Mt. Kisco, New York 10549
Attention: John P. Saldarelli
The General Partner and each Record Holder of Preferred Units
and the Partnership may designate by notice in writing a new
address to which any notice, demand, request or communication may
thereafter be so given, served or sent. Each notice, demand,
request or communication which shall be delivered, mailed or
transmitted in the manner described above shall be deemed
sufficiently given, served, sent or received for all purposes at
such time as it is delivered to the addressee (with an affidavit of
personal delivery, the return receipt, the delivery receipt, or
(with respect to a telex) the answerback being deemed conclusive
(but not exclusive) evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
Section 21. SEVERABILITY. The invalidity of any one or
more provisions hereof or of any other agreement or instrument
given pursuant to or in connection with this Amendment shall not
affect the remaining portions of this Amendment or any such other
agreement or instrument or any part thereof, all of which are
inserted conditionally on their being held valid in law; and in the
event that one or more of the provisions contained herein or
therein should be invalid, or should operate to render this
Amendment or any such other agreement or instrument invalid, this
Amendment and such other agreements and instruments shall be
construed as if such invalid provisions had not been inserted.
Section 22. WAIVER. Neither the waiver by a Partner of a
breach or of a default under any of the provisions of this
Amendment, nor the failure of a Partner, on one or more occasions,
to enforce any of the provisions of this Amendment or to exercise
any right, remedy, or privilege hereunder shall be construed as a
waiver of any subsequent breach or default of a similar nature, or
a waiver of any such provisions, rights, remedies, or privileges
hereunder.
Section 23. LIMITATION ON BENEFITS OF THIS AGREEMENT. It
is the explicit intention of the Partners and the Partnership that
no person or entity other than the Partners and the Partnership is
or shall be entitled to bring any action to enforce any provision
of this Amendment against any Partners or the Partnership, and that
except as set forth in this Amendment, the covenants, undertakings,
and agreements set forth in this Amendment shall be solely for the
benefit of, and shall be enforceable only by, the Partners (or
their respective successors and assigns as permitted hereunder) and
the Partnership.
Section 24. CONSENT OF RECORD HOLDERS OF PREFERRED UNITS.
By acceptance of a Preferred Unit, each Record Holder thereof shall
18<PAGE>
<PAGE>
be deemed to have applied for admission as a Limited Partner of the
Partnership with respect to the Depositary Units and Preferred
Units and to have agreed to be bound by all of the terms and
conditions of the Partnership Agreement. In addition, by
acceptance of a Preferred Unit, each Record Holder thereof
expressly consents and agrees that, whenever in this Amendment it
is specified that an action may be taken upon the affirmative vote
of less than all of the Record Holders of Preferred Units, such
action may be so taken upon the concurrence of less than all of the
Record Holders of Preferred Units and each such Record Holder of
Preferred Units shall be bound by the results of such action.
Section 25. PRONOUNS. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural as the identity of the person or entity
may require.
Section 26. HEADINGS. Section and subsection headings
contained in this Amendment are inserted for convenience of
reference only, shall not be deemed to be a part of this Agreement
for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
Section 27. GOVERNING LAW. This Amendment, the rights and
obligations of the parties hereto, and any claims or disputes
relating thereto, shall be governed by and construed in accordance
with the Delaware Act and all other laws of Delaware (but not
including the choice of law rules thereof).
Section 28. AMENDMENTS. The Record Holders of Preferred
Units shall have no right to propose amendments to the terms of the
Preferred Units under Article 14 of the Partnership Agreement or
otherwise.
Section 29. EXECUTION IN COUNTERPARTS. To facilitate
execution, this Amendment may be executed in as many counterparts
as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures
of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of or on
behalf of, each party, or that the signatures of the person
required to bind any party, appear on one or more of the
counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in making proof of
this Amendment to produce or account for more than a number of
counterparts containing the respective signatures of, or on behalf
of, all of the parties hereto.
Section 30: INCONSISTENT TERMS; CONTINUATION OF PARTNERSHIP
AGREEMENT. In the event of any inconsistency between the terms of
the Partnership Agreement and the terms of this Amendment, the
Partnership Agreement is deemed amended to conform to the terms of
this Amendment. Except as amended by this Amendment, the
Partnership Agreement continues in full force and effect.
19<PAGE>
<PAGE>
Section 31. POWERS OF GENERAL PARTNER. Record Holders of
Preferred Units acknowledge that the General Partner shall have the
right, power and authority, in the management and control of the
business and affairs of the Partnership, to do or cause to be done
any and all acts deemed by the General Partner to be necessary or
appropriate to carry out the purposes and business of the
Partnership, as set forth in the Partnership Agreement, and the
Record Holders of Preferred Units further acknowledge that their
rights are limited to those set forth in this Amendment and any
rights set forth in the Partnership Agreement consistent herewith.
IN WITNESS WHEREOF, the undersigned have duly executed
this Amendment, or have caused this Amendment to be duly executed
on their behalf, as of the day and year first hereinabove set
forth.
General Partner:
AMERICAN PROPERTY INVESTORS, INC.
By: /s/John P. Saldarelli
____________________________
Title: Treasurer
____________________________
Limited Partners:
By: American Property Investors,
Inc. (attorney-in-fact)
By: /s/John P. Saldarelli
____________________________
Title: Treasurer
____________________________
[Amendment No. 1 to Partnership Agreement]
20
EXHIBIT 4.2
AMENDMENT NO. 1 TO DEPOSITARY AGREEMENT
AMENDMENT NO. 1 TO DEPOSITARY AGREEMENT (the "Amendment") made
as of this 22nd day of February, 1995 by and between American Real
Estate Partners, L.P., a Delaware limited partnership (the
"Partnership"), and Registrar and Transfer Company, a New York
corporation (the "Depositary").
WHEREAS, the Partnership and American Property Investors,
Inc., a Delaware corporation (the "Managing General Partner"),
entered into a Depositary Agreement with the Depositary dated July
1, 1987 (the "Original Agreement") to appoint the Depositary to act
as depositary of the Partnership in connection with its depositary
units representing limited partner interests (the "Depositary
Units") issued at the closing of an exchange offer on July 1, 1987;
and
WHEREAS, the Partnership proposes to distribute at no cost to
holders of record as of the close of business on February 24, 1995
of Depositary Units one subscription right (each a "Right") for
each seven Depositary Units held (the "Rights Offering"); and
WHEREAS, each Right entitles the holder thereof to purchase,
at any time prior to 5:00 p.m., New York City time, on March 30,
1995 (as such date may be extended by the Partnership) the
following securities: (i) six Depositary Units and (ii) one 5%
cumulative pay-in-kind redeemable preferred unit representing a
limited partner interest; and
WHEREAS, the Partnership and the Depositary desire to amend
the Original Agreement to include the Depositary Units issued in
connection with the Rights Offering and any future Depositary Units
issued by the Partnership in the Original Agreement and to make
certain other amendments; and
WHEREAS, the parties hereto desire to amend the Original
Agreement to reflect the foregoing.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
Section 1. DEFINITIONS. Terms used but not defined in
this Amendment shall have the respective meanings ascribed to them
in the Original Agreement.
Section 2. AMENDMENTS. The Original Agreement shall be
amended as follows:
<PAGE>
<PAGE>
A. Section 2.1 of the Original Agreement is hereby
amended in its entirety as follows:
2.1 DEPOSIT OF CERTIFICATES OF LIMITED PARTNER
INTERESTS. Pursuant to Section 9.01 of the Partnership Agreement,
and subject to the terms and conditions of this Agreement, on the
date of any issuance of Depositary Units by the Partnership, the
Managing General Partner shall deposit with the Depositary a
Certificate or Certificates evidencing the aggregate whole number
of Depositary Units so issued. Such deposit shall be accompanied
by (a) written instructions containing the name, address, social
security or taxpayer identification number and the number of
Depositary Units to be issued to each investor in the Partnership,
and (b) a written request that the Depositary execute and deliver
to each such investor Depositary Receipts evidencing the Depositary
Units, registered in the name of such investor, in accordance with
such written instructions. Each investor shall thereupon be
recognized by the Partnership as a Record Holder as of the closing
date of such issuance of Depositary Units.
B. Section 11.3(a) of the Original Agreement is hereby
amended in its entirety as follows:
(a) Any notice to be given hereunder shall be
deemed to have been duly given if personally delivered or sent by
telegram or telex, confirmed by letter, addressed to the party in
the manner and at the address shown below, or at such address as
the party has specified in a notice given in accordance with this
Section 11.3.
To the Partnership:
American Real Estate Partners, L.P.
90 South Bedford Road
Mt. Kisco, New York 10549
Attn: John P. Saldarelli
To the Managing Partner:
American Property Investors, Inc.
90 South Bedford Road
Mt. Kisco, New York 10549
Attn: John P. Saldarelli
To the Depositary:
Registrar and Transfer Company
10 Commence Drive
Cranford, New Jersey
Attn: Thomas L. Montrone
Section 3. DOCUMENTS OTHERWISE UNCHANGED. Except as
herein provided, the Original Agreement shall remain unchanged and
in full force and effect, and each reference therein to the
Agreement shall be a reference to the Original Agreement as amended
2<PAGE>
<PAGE>
hereby and as the same may be further amended, supplemented or
otherwise modified and in effect from time to time.
Section 4. COUNTERPARTS. This Amendment may be executed
in any number of counterparts, each of which shall be identical and
all of which, when taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this
Amendment by signing any such counterpart.
Section 5. GOVERNING LAW. This Amendment shall be
governed by and construed in accordance with the laws of the State
of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first above
written.
AMERICAN REAL ESTATE PARTNERS, L.P.
By: American Property Investors, Inc.,
as General Partner
By: /s/John P. Saldarelli
_____________________
Name: John P. Saldarelli
Title: Treasurer
REGISTRAR AND TRANSFER COMPANY
By: /s/Thomas L. Montrone
___________________________
Name: Thomas L. Montrone
Title: President
3
EXHIBIT 10.12
AMENDED AND RESTATED AGENCY AGREEMENT
-------------------------------------
AMENDED AND RESTATED AGENCY AGREEMENT (the "Agency
Agreement") made as of this 22nd day of February, 1995 by and between
AMERICAN REAL ESTATE PARTNERS, L.P., a Delaware limited partnership
(the "Partnership"), and REGISTRAR AND TRANSFER COMPANY, a New York
corporation (the "Agent").
WHEREAS, the Partnership entered into an Agency Agreement
with the Agent dated February 1, 1991 (the "Original Agreement") to
appoint the Agent as transfer agent, registrar and disbursing agent
of the Partnership in connection with its depositary units
representing limited partner interest (the "Depositary Units"); and
WHEREAS, the Partnership proposes to distribute at no cost
to holders of record as of the close of business on February 24, 1995
of Depositary Units one subscription right for each seven Depositary
Units held (the "Rights Offering"); and
WHEREAS, in connection with the Rights Offering, the
Partnership intends to issue a series of 5% cumulative pay-in-kind
redeemable preferred units representing limited partner interests in
the Partnership (the "Preferred Units"); and
WHEREAS, the Partnership and the Agent desire to amend and
restate the Original Agreement to appoint the Agent as transfer
agent, registrar and disbursing agent of the Partnership with respect
to the Preferred Units and confirm the Agent's appointment as
transfer agent, registrar and disbursing agent with respect to the
Depositary Units; and
WHEREAS, the Agent desires to serve as transfer agent,
registrar and disbursing agent of the Partnership in connection with
its Depositary Units and Preferred Units.
NOW, THEREFORE, in consideration of the mutual premises
herein made and for other good and valuable consideration and
intending to be legally bound, the parties hereto agree as follows:
1. Items to be Furnished to Agent
------------------------------
The Partnership shall deliver to the Agent for its
examination and retention simultaneously with the execution of this
Agency Agreement a copy of the Partnership Agreement, as amended to
date, a copy of the certificate of limited partnership of the
Partnership, certified by the Secretary of State of the State of
Delaware, a certificate of the Partnership's good standing in the
State of Delaware and the following items certified by an authorized
officer of the Partnership as being true, correct and complete and,
as applicable, in full force and effect on the date hereof:
<PAGE>
<PAGE>
(a) A copy of the Bylaws of American Property Investors,
Inc. (the "General Partner);
(b) A copy of the resolutions of the Board of Directors of
the General Partner authorizing the appointment of the
Agent as transfer agent, registrar and disbursing
agent and the execution of this Agency Agreement by
authorized officers;
(c) A list of officers of the Partnership and directors of
the General Partner, bearing their respective
facsimile signatures, who are authorized to sign and
furnish instructions and other information as required
by the Agent; and
(d) A specimen certificate representing the Depositary
Units and a specimen certificate representing the
Preferred Units (together, the "Certificates").
2. Certificates
------------
The Partnership shall furnish the Agent with a sufficient
supply of blank Certificates in the form of the specimen Certificates
delivered herewith and from time to time shall renew such supply upon
the request of the Agent.
3. Maintenance and Safekeeping of Records, Cancelled
Certificates
------------
The Agent shall maintain such books of the Partnership and
any other records required in the performance of its agency, and
shall retain for safekeeping all cancelled Certificates. At the end
of each calendar year, the Agent shall promptly deliver to the
Partnership all cancelled Certificates which have accumulated and are
more than one year old since cancellation. In addition, upon request
of the Partnership, the Agent shall promptly deliver to the
Partnership any records which have accumulated. The Partnership
shall return any such records as may be requested by the Agent or any
regulatory agency having jurisdiction over the same. The Partnership
shall indemnify and hold harmless the Agent against all losses,
liabilities, and expenses, including reasonable attorneys' fees,
which may be incurred by reason of the failure of the Partnership to
return the same.
4. Validity of Signatures
----------------------
The Agent may act upon any signature or facsimile thereof
lodged with the Agent or which the Agent believes in good faith to be
genuine. When any officer of the Partnership shall no longer be
vested with authority to sign for the Partnership on behalf of the
Partnership, written notice thereof shall immediately be given to the
Agent and, until receipt of such notice, the Agent shall be fully
protected and held harmless in recognizing and acting upon any
correspondence, certificates or instructions bearing the signature of
2<PAGE>
<PAGE>
such officer or a signature believed by it in good faith to be such
genuine signature. Certificates bearing signatures or facsimiles
thereof of persons heretofore and hereafter duly authorized to sign
such Certificates may be issued from time to time regardless of
whether any such person shall then be able or duly authorized to sign
such Certificates, and the Agent, unless otherwise specifically
instructed in writing, may use any such Certificates which may be on
hand from time to time and such certificates may be issued with the
same effect and validity as if such person were then able and
authorized to sign certificates. From time to time, additional
officers of the Partnership may be appointed by resolutions of the
Board of Directors of the General Partner to sign Certificates or
furnish instructions to the Agent on behalf of the Partnership.
5. Amendment of Governing Instruments
----------------------------------
The Partnership shall file with the Agent a copy of any
amendment to its Partnership Agreement or the Bylaws of the General
Partner made after the date hereof, certified by an authorized
officer of the Partnership or the General Partner, as the case may
be, as being a true, correct and complete copy of such amendment in
full force and effect on the date such certification is made.
6. Instructions and Advice Counsel
-------------------------------
When the Agent deems it desirable, it may apply to any
officer of the Partnership or it may consult with counsel for the
Partnership or the Agent's own counsel concerning any matter arising
in connection with its agency. The Partnership agrees that the Agent
shall be held harmless and indemnified from any liability, claim or
expense, including reasonable attorneys' fees, in acting pursuant to
instruction or the advice of counsel as aforesaid.
7. Limitations and Liabilities
---------------------------
(a) AGENT'S INDEMNITY. The Partnership shall indemnify
and hold harmless the Agent, its employees and agents (hereinafter
referred to severally and collectively as the "Agent Group"), from
and against any loss, damage, liability or claim suffered, incurred
by, or asserted against the Agent Group, including expenses of legal
counsel arising out of, in connection with or based upon any act or
omission by the Agent Group relating in any way to this Agreement or
the Agent Group's services hereunder, so long as the Agent Group has
acted in good faith and without gross negligence.
(b) PARTNERSHIP INDEMNITY. The Agent shall indemnify and
hold harmless the Partnership, its employees and agents and any
persons who control the Partnership (hereinafter referred to
severally and collectively as the "Partnership Group") from and
against any loss, damage, liability or claim suffered, incurred by,
or asserted against the Partnership Group, including expenses of
legal counsel arising out of, in connection with or based upon any
act or omission by the Agent relating in any way to the Agency
3<PAGE>
<PAGE>
Agreement or its services hereunder, so long as the Partnership Group
has not acted in bad faith and/or with gross negligence.
8. Resignation and Termination
---------------------------
The term of agreement will commence from the effective date
of appointment and will run for a period of one (1) year with fees
guaranteed for the entire period. Thereafter, the Agency Agreement
will be automatically annually renewed.
9. Original Issue of Depositary Units and Preferred Units
------------------------------------------------------
Upon the receipt of a duly executed Letter of Instruction
from the Partnership signed by two (2) duly authorized officers, the
Agent shall issue and countersign the Certificate or Certificates
representing the appropriate number of Depositary Units and Preferred
Units, bearing the facsimile signature of authorized officers of the
Partnership and shall deliver such Certificates as instructed. The
Agent shall record all such issuances.
10. Transfer of Units
-----------------
The Agent, as transfer agent, shall transfer Depositary
Units and Preferred Units from time to time upon surrender of the
Certificate or Certificates representing the units to be transferred,
properly endorsed, accompanied by such documentation as the Agent
deems necessary to evidence the authority of the transferor to make
such transfer, and bearing evidence of payment of transfer taxes, if
any, and upon cancellation of the Certificate or Certificates
representing such units, to record and countersign a new Certificate
or Certificates in lieu thereof signed by or bearing facsimile
signatures of authorized officers of the Partnership and deliver such
Certificate or Certificates to the presentor or designee.
11. Distributions
-------------
(a) DEPOSITARY UNITS. The Agent shall, as disbursing
agent, distribute by check, distributions which may be allocated to
the holders of Depositary Units of the Partnership pursuant to the
instructions of the Partnership. The Partnership shall advise the
Agent (in writing) of the date that such distribution is to be made
the earlier of at least five (5) business days prior to such
distribution date or the record date for such distribution, and shall
advise the Agent of the total amount to be distributed to the holders
of Depositary Units at least five (5) full business days prior to
such date and shall provide New York Clearing House funds to the
Agent at least one full business day prior to such distribution date.
(b) PREFERRED UNITS. The Agent shall, as disbursing
agent, distribute certificates representing Preferred Units which may
be allocated to the holders of Preferred Units of the Partnership as
annual distributions pursuant to the instructions of the Partnership.
The Partnership shall advise the Agent (in writing) of the date that
such distribution is to be made the earlier of at least five (5)
4<PAGE>
<PAGE>
business days prior to such distribution date or the record date for
such distribution, and shall advise the Agent of the total amount to
be distributed to the holders of Preferred Units at least five (5)
full business days prior to such date and shall provide an adequate
amount of certificates representing Preferred Units to the Agent at
least five (5) full business days prior to such distribution date.
12. Replacement of Lost Distribution Checks
---------------------------------------
In the event that any distribution check issued by the
Agent pursuant to paragraph 11 hereof shall become lost or destroyed,
the Agent shall issue a stop payment order against such check and
shall thereafter issue a replacement check upon written order of the
person entitled to receive such distribution.
13. Replacement of Lost Certificates
--------------------------------
In the event that any Certificate shall become lost or
destroyed, the Agent shall issue a replacement Certificate or
Certificates upon receipt of a request for replacement in writing by
the beneficial owner accompanied by a properly sworn affidavit and a
surety bond acceptable to the Agent. In such circumstances, the
Partnership shall indemnify and hold harmless the Agent from and
against all losses, liabilities and expenses, including reasonable
attorney fees which may be incurred by reason of any loss relating to
certificate replacement.
14. Delivery of Certificates by Mail
--------------------------------
When mail is used for delivery of Certificates, the Agent
shall forward Certificates by mail or other means insured as to
replacement in the event of non-receipt by the addressee within one
(1) year of the mail date or other such time period as may be
specified by the then existing insurance agreements.
15. Governing Law
-------------
This Agency Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
16. Entire Agreement
----------------
This Agency Agreement contains the entire agreement of the
parties and no representations, inducements, promises or agreements
oral or otherwise not embodied herein shall be of any force or
effect. If any provisions of this Agency Agreement are held for any
reason to be unenforceable, the remainder of this Agency Agreement
shall nevertheless remain in full force and effect.
17. Exhibits
--------
Proposal submitted by the Agent dated February 1, 1991, is
incorporated herein as Exhibit A.
5<PAGE>
<PAGE>
Additional Fees and Services schedule submitted by the
Agent is incorporated herein as Exhibit B.
IN WITNESS WHEREOF, the parties hereto have executed this
Agency Agreement and affixed their corporate seals on the day and
year first written.
AMERICAN REAL ESTATE PARTNERS, L.P.
By: American Property Investors, Inc.
General Partner
By:/s/John P. Saldarelli
_____________________________
Title: Treasurer
Attest:/s/Diane P. Diblin By:/s/Martin Hirsch
------------------ _____________________________
Title: Vice President
REGISTRAR AND TRANSFER COMPANY
Attest:/s/* By:/s/Thomas L.Montrone
__________________ __________________________________
Assistant Secretary Title: President
Corporate Seal
* - illegible
6<PAGE>
<PAGE>
EXHIBIT A - FEES AND SERVICES PROVIDED
--------------------------------------
Agency Agreement - Registrar and Transfer Company (New York) and
American Real Estate Partners, L.P.
February 1, 1991
Registrar and Transfer Company will provide the transfer agency
services to the American Real Estate Partners Limited Partnership for
a fixed annual fee of $99,600 billed monthly at $8,300. This fee is
guaranteed for a three year period. Services include those specified
in the contract in addition to those noted below:
- The maintenance of a 1-800 telephone line for AREP unitholder
inquiries;
- All transfer services including the issuance of certificates,
examination of certificates to insure transferability, rejection
of deficient items, archival of records as required by the SEC,
replacement of lost certificates upon receipt of a satisfactory
surety bond and other routine transfer services;
- Maintenance of all account details including current and prior
addresses, demographic information, distribution details,
certificated details, lost and replaced certificate details, and
other pertinent information;
- Storage of security records in accordance with SEC regulations;
- Processing of up to four cash distributions per year, providing
outstanding check tapes to the financial institution for
reconcilement, stopping and replacement of lost checks, and two
copies of a distribution journal;
- Mailing up to three quarterly reports and one annual report,
including the receipt of beneficial holder files from the
General Partner;
- Preparation of up to twelve demographic reports indicating
ownership positions annually;
- Continued processing of the exchanges for the remaining API
units, validation of the units, research for un-exchanged
holders, calculation and preparation of checks for past
distributions, processing estate and replacement transactions
and other processing as required by the exchange;
- Preparation of special tapes for K-1 processing.
<PAGE>
<PAGE>
EXHIBIT B
---------
Agent will receive an account administration fee of $3.50 per
account per year with a minimum annual fee of $2,400. Agent will
perform the following services for the following fees:
Additional Fees and Services
----------------------------
* Coordination of Annual Dividend in Kind tax reporting;
. . . . . . . $0.25 per 1099 minimum distribution fee
of $250.
* Certificate Issuance;
. . . . . . . $0.75 per certificate issued.
Services not described in the Prospectus nor anticipated at the
present time will be billed per appraisal.
EXHIBIT 10.13
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is
made as of February 22, 1995 between American Real Estate Partners,
L.P., a Delaware limited partnership (the "Partnership"), and
Registrar and Transfer Company, a New York corporation (the
"Agent"). All terms not defined herein shall have the meaning
given in the prospectus (the "Prospectus") included in the
Registration Statement on Form S-3 (Registration No. 33-54767)
filed by the Partnership with the Securities and Exchange
Commission on July 27, 1994, as amended by any amendment filed with
respect thereto (the "Registration Statement").
WHEREAS, the Partnership proposes to make a subscription
offer by issuing certificates or other evidences of subscription
rights, in the form designated by the Partnership (the
"Subscription Certificates") to unitholders of record (the "Record
Date Unitholders") of its depositary units representing limited
partner interests ("Depositary Units"), as of a record date
specified by the Partnership (the "Record Date"), pursuant to which
each Unitholder will have certain rights (the "Rights") to
subscribe for Depositary Units and 5% cumulative pay-in-kind
redeemable preferred units representing limited partner interests
in the Partnership (the "Preferred Units"), as described in and
upon such terms as are set forth in the Prospectus, a final copy of
which has been or, upon availability will promptly be, delivered to
the Agent; and
WHEREAS, the Partnership wishes the Agent to perform
certain acts on behalf of the Partnership, and the Agent is willing
to so act, in connection with the distribution of the Subscription
Certificates and the issuance and exercise of the Rights to
subscribe therein set forth, all upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of
the mutual agreements set forth herein, the parties agree as
follows:
1. APPOINTMENT. The Partnership hereby appoints the Agent to act
as subscription agent in connection with the distribution of
Subscription Certificates and the issuance and exercise of the
Rights in accordance with the terms set forth in this Agreement and
Exhibit A hereto, and the Agent hereby accepts such appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
-----------------------------------------------
(a) Each Subscription Certificate shall be irrevocable and
fully transferable. The Agent shall, in its capacity as Transfer
Agent of the Partnership, maintain a register of Subscription
Certificates and the holders of record thereof (each of whom shall
be deemed a "Unitholder" hereunder for purposes of determining the<PAGE>
<PAGE>
rights of holders of Subscription Certificates). Each Subscription
Certificate shall, subject to the provisions thereof, entitle the
Unitholder in whose name it is recorded to the following:
(1) The right to acquire during the Subscription Period,
as defined in the Prospectus, at the Subscription Price, six
Depositary Units and one Preferred Unit for each Right (the
"Basic Subscription Right"); and
(2) If all Basic Subscription Rights are not exercised,
the right to subscribe for additional Depositary Units and
Preferred Units, at the Subscription Price, subject to the
availability of such Depositary Units and Preferred Units and
to the allotment of such units as may be available among
Unitholders who exercise their Over-Subscription Privilege on
the basis specified in the Prospectus (the "Over-Subscription
Privilege").
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
------------------------------------------------
(a) Each Subscription Certificate shall evidence the Rights
of the Unitholder therein named to purchase Depositary Units and
Preferred Units upon the terms and conditions therein set forth.
(b) Upon the written advice of the Partnership, signed by any
of its duly authorized officers, as to the Record Date, the Agent
shall, from a list of the Unitholders as of the Record Date to be
prepared by the Agent in its capacity as Transfer Agent of the
Partnership, prepare and record Subscription Certificates in the
names of the Unitholders, setting forth the number of Rights to
subscribe for the Partnership's Depositary Units and Preferred
Units calculated on the basis of one Right for each seven
Depositary Units recorded on the books in the name of each such
Unitholder as of the Record Date. The number of Rights that are
issued to Record Date Holders of a number of Depositary Units not
evenly divisible by seven will be determined by multiplying the
number of Depositary Units held by such Record Date Holder by
.1428571 and then rounding up to the nearest whole number if the
fractional amount is greater than or equal to .5 and rounding down
to the nearest whole number if the fractional amount is less than
.5. In the case of Depositary Units held of record by a Nominee
Holder, the number of Rights issued to such Nominee Holder will be
adjusted, by the Agent, to permit rounding up (to the nearest whole
number of Rights evenly divisible by seven) of the Rights to be
received by beneficial holders for whom the Nominee Holder is the
holder of record only if the Nominee Holder provides to the Agent
on or before the close of business on the fifth business day prior
to March 30, 1995 (the "Expiration Date"), written representation
of the number of Rights required for such rounding. Each
Subscription Certificate shall be dated as of the Record Date and
shall be executed by a duly authorized officer of the Partnership.
Upon the written advice, signed as aforesaid, as to the effective
date of the Registration Statement, the Agent shall deliver the
Subscription Certificates, together with a copy of the Prospectus,
2<PAGE>
<PAGE>
instruction letter and any other document as the Partnership deems
necessary or appropriate, to all Unitholders with record addresses
in the United States (including its territories and possessions and
the District of Columbia). Delivery shall be by first class mail
(without registration or insurance), except for those Unitholders
having a registered address outside the United States (who will
only receive copies of the Prospectus, instruction letter and other
documents as the Partnership deems necessary or appropriate, if
any), delivery shall be by air mail (without registration or
insurance) and by first class mail (without registration or
insurance) to those Unitholders having Army Post Office or Foreign
Post Office addresses. No Subscription Certificate shall be valid
for any purpose unless so executed. Should any officer of the
Partnership whose signature has been placed upon any Subscription
Certificate cease to hold such office at any time thereafter, such
event shall have no effect on the validity of such Subscription
Certificate.
(c) The Agent will mail a copy of the Prospectus, instruction
letter, a special notice and other documents as the Partnership
deems necessary or appropriate, if any, but not Subscription
Certificates to Record Date Holders whose record addresses are
outside the United States (including its territories and
possessions and the District of Columbia) ("Foreign Record Date
Unitholders"). The Rights to which such Subscription Certificates
relate will be held by the Agent for such Foreign Record Date
Unitholders' accounts until instructions are received to exercise,
sell or transfer the Rights. If no instructions have been received
by 12:00 Noon, New York City time, three Business Days prior to the
Expiration Date, the Agent will use its best efforts to sell the
Rights of those registered Foreign Record Date Unitholders. The
proceeds net of commissions, if any, to the Agent from the sale of
those Rights by the Agent will be remitted to those Foreign Record
Date Unitholders on a pro rata basis.
4. EXERCISE.
--------
(a) Exercising Rights Holders may acquire Depositary Units
and Preferred Units pursuant to Basic Subscription Rights and the
Over-Subscription Privilege by delivery to the Agent as specified
in the Prospectus of (i) the Subscription Certificate with respect
thereto, duly executed by such Unitholder in accordance with and as
provided by the terms and conditions of the Subscription
Certificate, together with (ii) the purchase price of $_____ for
each six Depositary Units and one Preferred Unit subscribed for by
exercise of Basic Subscription Rights and the Over-Subscription
Privilege, in U.S. dollars by money order or check drawn on a bank
in the United States, in each case payable to the order of the
Agent for the account of the Partnership.
(b) Rights may be exercised at any time after the date of
issuance of the Subscription Certificates with respect thereto but
no later than 5:00 P.M. New York time on the Expiration Date. For
the purpose of determining the time of the exercise of any Rights,
3<PAGE>
<PAGE>
delivery of any material to the Agent shall be deemed to occur when
such materials are received at the Unitholder Services Division of
the Agent specified in the Prospectus.
(c) Notwithstanding the provisions of Section 4(a) and 4(b)
regarding delivery of an executed Subscription Certificate to the
Agent prior to 5:00 p.m. New York time on the Expiration Date, if
prior to such time the Agent receives a Notice of Guaranteed
Delivery from a bank, a trust company or a New York Stock Exchange
member guaranteeing delivery of (i) payment of the full
Subscription Price for the Depositary Units and Preferred Units
subscribed for pursuant to the exercise of Basic Subscription
Rights and any additional Preferred Units and/or Depositary Units
subscribed for pursuant to the Over-Subscription Privilege and (ii)
a properly completed and executed Subscription Certificate, then
such exercise of Basic Subscription Rights and the Over-
Subscription Privilege shall be regarded as timely, subject,
however, to receipt of the duly executed Subscription Certificate
and full payment for the Depositary Units and Preferred Units by
the Agent within five business days after the Expiration Date (the
"Protect Period").
(d) Within seven business days following the end of the
Protect Period, the Agent shall send to each Exercising Rights
Holder (or, if Depositary Units on the Record Date are held by Cede
& Co. or any other depository or nominee, to Cede & Co. or such
other depository or nominee) the certificates representing the
Depositary Units and Preferred Units acquired pursuant to the Basic
Subscription Rights, and, if applicable, the Over-Subscription
Privilege. Any excess payment to be refunded by the Partnership to
an Exercising Rights Holder who is not allocated the full amount of
Depositary Units and Preferred Units subscribed for pursuant to the
Over-Subscription Privilege, shall be mailed by the Agent to him or
her within seven business days following the Protect Period.
5. TRANSFER OF RIGHTS.
------------------
(a) Rights Holders who do not wish to exercise any or all of
their Rights may sell any unexercised Rights. The Agent will use
its best efforts to sell all Rights which remain unclaimed as a
result of Subscription Certificates being returned by the postal
authorities to the Agent as undeliverable as of the fourth business
day prior to the Expiration Date and Rights of non-U.S.
shareholders who do not respond to the Agent at least four days
prior to the Expiration Date. Such sales will be made, net of
commissions, on behalf of the nonclaiming Unitholders. The Agent
will hold the proceeds from those sales for the benefit of such
nonclaiming Unitholders until such proceeds are either claimed or
escheat.
(b) Rights Holders may transfer a portion of the Rights
evidenced by a single Subscription Certificate by delivering to the
Agent at least one business day prior to the Expiration Date a
Subscription Certificate properly endorsed for transfer, with
4<PAGE>
<PAGE>
instructions to register such portion of the Rights evidenced
thereby in the name of the transferee and to issue a new
Subscription Certificate to the transferee evidencing such
transferred Rights. In such event, the Agent shall issue a new
Subscription Certificate evidencing the balance of the Rights to
the transferring Rights Holder or, if the transferring Rights
Holder so instructs, to an additional transferee.
6. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not
otherwise covered by specific instructions herein shall be
submitted to an appropriate officer of the Partnership and handled
in accordance with his or her instructions. Such instructions will
be documented by the Agent indicating the instructing officer and
the date thereof.
7. OVER-SUBSCRIPTION. If all Basic Subscription Rights are not
exercised, the remaining Depositary Units and Preferred Units (the
"Remaining Units") shall be allocated to persons exercising the
Over-Subscription Privilege in the amounts of such over-
subscriptions. If the number of Depositary Units and Preferred
Units for which the Over-Subscription Privilege has been exercised
is greater than the Remaining Units, the Agent shall allocate the
Remaining Units to the persons exercising the Over-Subscription
Privilege pro rata according to the aggregate number of Basic
Subscription Rights exercised so that the aggregate amount of
Depositary Units and Preferred Units issued to Unitholders who
subscribe pursuant to the Over-Subscription Privilege will
generally be in proportion to the aggregate amount of Depositary
Units and Preferred Units purchased through the exercise of Basic
Subscription Rights. The Agent shall advise the Partnership
immediately upon the completion of the allocation set forth above
as to the total number of Depositary Units and Preferred Units
subscribed and distributable.
8. DELIVERY OF CERTIFICATES. Within seven business days
following the end of the Protect Period, the Agent will deliver
(i) certificates representing those Depositary Units and Preferred
Units purchased pursuant to exercise of Basic Subscription Rights
and (ii) certificates representing those Depositary Units and
Preferred Units purchased pursuant to the exercise of the Over-
Subscription Privilege.
9. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
---------------------------------------------
(a) All proceeds received by the Agent from Unitholders in
respect of the exercise of Rights shall be held by the Agent, on
behalf of the Partnership, in a segregated, interest-bearing escrow
account (the "Escrow Account"). Pending disbursement in the manner
described in Section 4(d) above, funds held in the Escrow Account
shall be invested by the Agent at the direction of the Partnership.
(b) The Agent shall deliver all proceeds received in respect
of the exercise of Rights (including interest earned thereon) to
the Partnership as promptly as practicable, but in no event later
5<PAGE>
<PAGE>
than seven business days after the end of the Protect Period.
Proceeds held in respect of excess payments (including interest
earned thereon) shall be refunded to Unitholders entitled to such
a refund within seven business days after the end of the Protect
Period.
10. REPORTS. Daily, during the period commencing on the Record
Date, until termination of the Subscription Period, the Agent will
report by telephone or telecopier (by 12:00 Noon, New York time),
confirmed by letter, to a designated officer of the Partnership,
daily data regarding Rights exercised, the selling price of Rights,
the total number of Depositary Units and Preferred Units subscribed
for, payments received therefor, the number of Rights sold and the
net proceeds thereof, bringing forward the figures from the
previous day's report in each case so as to also show the
cumulative totals and any such other information as may be mutually
determined by the Partnership and the Agent.
11. LOSS OR MUTILATION. If any Subscription Certificate is lost,
stolen, mutilated or destroyed, the Agent may, on such terms which
will indemnify and protect the Partnership and the Agent as the
Agent may in its discretion impose (which shall, in the case of a
mutilated Subscription Certificate include the surrender and
cancellation thereof), issue a new Subscription Certificate of like
denomination in substitution for the Subscription Certificate so
lost, stolen, mutilated or destroyed.
12. COMPENSATION FOR SERVICES. The Partnership agrees to pay to
the Agent compensation for its services as such in accordance with
its Fee Schedule set forth hereto as Exhibit A. The Agent agrees
that such compensation shall include all services as Transfer Agent
and Registrar provided in connection with the offering of the
Rights. The Partnership further agrees that it will reimburse the
Agent for its reasonable out-of-pocket expenses incurred in the
performance of its duties as such.
13. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the
duties and obligations imposed by this Agreement upon the following
terms and conditions:
(a) The Agent shall be entitled to rely upon any instructions
or directions furnished to it by an appropriate officer of the
Partnership, whether in conformity with the provisions of this
Agreement or constituting a modification hereof or a supplement
hereto. Without limiting the generality of the foregoing or any
other provision of this Agreement, the Agent, in connection with
its duties hereunder, shall not be under any duty or obligation to
inquire into the validity or invalidity or authority or lack
thereof of any instruction or direction from an officer of the
Partnership which conforms to the applicable requirements of this
Agreement and which the Agent reasonably believes to be genuine and
shall not be liable for any delays, errors or loss of data
occurring by reason of circumstances beyond the Agent's control,
including, without limitation, acts of civil or military authority,
6<PAGE>
<PAGE>
national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(b) The Partnership will indemnify the Agent and its nominees
against, and hold it harmless from, all liability and expense which
may arise out of or in connection with the services described in
this Agreement or the instructions or directions furnished to the
Agent relating to this Agreement by an appropriate officer of the
Partnership, except for any liability or expense which shall arise
out of the negligence, bad faith or willful misconduct of the Agent
or such nominees.
14. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without
the consent or concurrence of the Unitholders in whose names
Subscription Certificates are registered, by supplemental agreement
or otherwise, concur with the Partnership in making any changes or
corrections in a Subscription Certificate that it shall have been
advised by counsel (who may be counsel for the Partnership) is
appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or clerical omission or mistake or manifest
error therein or herein contained, and which shall not be
inconsistent with the provision of the Subscription Certificate
except insofar as any such change may confer additional rights upon
the Unitholders.
15. ASSIGNMENT; DELEGATION.
----------------------
(a) Neither this Agreement nor any rights or obligations
hereunder may be assigned or delegated by either party without the
written consent of the other party.
(b) This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors
and assigns. Nothing in this Agreement is intended or shall be
construed to confer upon any other person any right, remedy or
claim or to impose upon any other person any duty, liability or
obligation.
16. GOVERNING LAW. The validity, interpretation and performance
of this Agreement shall be governed by the laws of the State of New
York.
17. SEVERABILITY. The parties hereto agree that if any of the
provisions contained in this Agreement shall be determined invalid,
unlawful or unenforceable to any extent, such provisions shall be
deemed modified to the extent necessary to render such provisions
enforceable. The parties hereto further agree that this Agreement
shall be deemed severable, and the invalidity, unlawfulness or
unenforceability of any term or provision thereof shall not affect
the validity, legality or enforceability of this Agreement or of
any term or provision hereof.
7<PAGE>
<PAGE>
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of
which together shall be considered one and the same agreement.
19. CAPTIONS. The captions and descriptive headings herein are
for the convenience of the parties only. They do not in any way
modify, amplify, alter or give full notice of the provisions
hereof.
20. FURTHER ACTIONS. Each party agrees to perform such further
acts and execute such further documents as are necessary to effect
the purposes of this Agreement.
21. ADDITIONAL PROVISIONS. Except as specifically modified by
this Agreement, the Agent's rights and responsibilities set forth
in the Agreement for Stock Transfer Services between the
Partnership and the Agent are hereby ratified and confirmed and
continue in effect.
AMERICAN REAL ESTATE PARTNERS, L.P.
By: American Property Investors, Inc.,
General Partner
By:/s/John P. Saldarelli Treasurer
_______________________________
REGISTRAR AND TRANSFER COMPANY
By:/s/Thomas L. Montrone
_____________________________________
Name: Thomas L. Montrone
Title: President
8<PAGE>
<PAGE>
EXHIBIT A
Transfer Service Agreement between American Real Estate Partners,
L.P. (the "Company") and Registrar and Transfer Company ("Agent").
FEES AND SERVICES
-----------------
Agent will receive will receive $6.00 for each Subscription
Certificate that is exercised in the Rights Offering, provided
however, the minimum fee payable to Agent for its role in the
Rights Offering will be $10,000 and the maximum fee for such role
will be $32,000. The fee for the Rights Offering includes the
following services:
* Acceptance and initial review of
certificates;
* Programming expenses for the
proration of rights or over
subscription requests;
* Responding to routine investor
correspondence;
* Calculation, imprinting and
enclosing Subscription Certificates
and related materials, up to four
enclosures;
* Curing defective Subscription
Certificates;
* Proration calculation and issuance of
Depositary Units, Preferred Units and
refund checks;
* Maintenance of an interest bearing
escrow account;
* Nominee fulfillment.
Out-of-pocket expenses including stationery, telephone,
postage delivery and other expenses are not included and will be
itemized and billed as incurred.
9
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 18,616
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 506,270
<DEPRECIATION> 48,235
<TOTAL-ASSETS> 492,868
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<BONDS> 219,327
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0
0
<OTHER-SE> 259,237
<TOTAL-LIABILITY-AND-EQUITY> 492,868
<SALES> 0
<TOTAL-REVENUES> 61,551
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<OTHER-EXPENSES> 2,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,736
<INCOME-PRETAX> 23,169
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,169
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<NET-INCOME> 23,169
<EPS-PRIMARY> 1.64
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