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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1995
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.)
100 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 Redeemable Preferred New York Stock Exchange
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
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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 20, 1996, 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 $112,493,536.
Based upon the closing price of Preferred Units on March 20, 1996, as reported
on the New York Stock Exchange Composite Tape (as reported by The Wall Street
Journal), the aggregate market value of AREP's Preferred Units held by
nonaffiliates of AREP as of such date was $1,403,712.
Number of Depositary Units outstanding as of March 20, 1996: 25,666,640.
Number of Preferred Units outstanding as of March 20, 1996: 1,975,640.
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PART I
Item 1. Business.
Introduction
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 100 South
Bedford Road, Mt. Kisco, New York 10549, and its telephone number is (914)
242-7700. 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.
On March 30, 1995, AREP completed a rights offering (the "Rights
Offering"), pursuant to which it raised approximately $107,600,000, net of
related expenses. In addition, in connection therewith the General Partner
contributed $2,206,242 in accordance with the terms of the Partnership's
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"). 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 a limited partner
interest (the "Preferred Units"). High Coast Limited Partnership, a Delaware
limited partnership which is controlled by Icahn, acted as guarantor of the
offering (the "Guarantor"). The Guarantor exercised certain subscription
rights and an over-subscription privilege pursuant to which it acquired a total
of 10,324,128 additional Depositary Units and 1,720,688 Preferred Units; as a
result, the Rights Offering was fully subscribed. 1,975,640 Rights were issued
in the offering, of which 418,307 were exercised. 190,554 Depositary Units and
31,759 Preferred Units were subscribed for through the exercise of the
Over-Subscription Privilege by Rights Holders other than the Guarantor. As of
March 20, 1996, Icahn, through the Guarantor, beneficially owned approximately
50.6% of the Depositary Units then outstanding and approximately 88.2% of the
Preferred Units then outstanding, giving effect to the Rights Offering. 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. Such acquisitions may be accomplished by
purchasing assets outright or by acquiring securities of entities which hold
significant real estate related assets. 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 generally are
net-leased to single, corporate tenants. As of March 7, 1996, AREP owned 238
separate real estate assets primarily consisting of fee and leasehold interests
in 35 states. As discussed below, AREP is seeking to make new investments to
take advantage of investment opportunities it believes exist in the real estate
market to further diversify its portfolio and to mitigate against lease
expirations.
For each of the years ended December 31, 1995, 1994 and 1993, 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, 1995, 1994 and 1993, Portland General Electric Company ("PGEC")
occupied a property (the "PGEC Property") which represented more than 10% of
AREP's total real estate 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, developed 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.
Other real estate investment opportunities AREP may pursue include the
purchase of undeveloped land for future residential and commercial development,
investments in underperforming distressed properties, through outright purchase
of the property or the purchase of the debt or other securities of the entity
owning the property, and investments in securities of entities which own,
manage or develop real estate, including limited partnership units and
securities issued by real estate investment trusts.
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All decisions with respect to the improvement, expansion, acquisition,
disposition, development, management, financing or refinancing of properties or
other investments are at the sole discretion of the General Partner.
Rights Offering
On March 30, 1995, AREP completed the Rights Offering through which it
raised approximately $107,600,000, net of related expenses. Pursuant to the
terms of the Rights Offering, holders of Depositary Units on the record date
received one 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.
The Rights Offering enabled AREP 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, further
diversify its portfolio and 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. AREP also 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. In addition, net leases representing approximately 30% of AREP's net
annual rentals from its portfolio are with tenants in the retail sector, many
of which are currently experiencing cash flow difficulties and a number of
which are in bankruptcy. As a result, operating expenses may be incurred with
respect to the properties underlying any such leases rejected in bankruptcy and
those expenses, coupled with the effects of the downturn in the retail markets,
could have an adverse impact on AREP's net cash flow. AREP 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
opportunities available to acquire new investments that are undervalued,
including commercial properties, residential development projects, land parcels
for future residential and commercial development, non-performing loans and the
securities of entities which own, manage or develop significant real estate
assets, including limited partnership units and securities issued by real
estate investment trusts. Such investments may not be generating positive cash
flow in the near term; however, the General Partner believes that in the
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current market, investments 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. A substantial portion of the
proceeds from the Rights Offering as well as AREP's available cash will be used
to fund the acquisition of such properties and securities.
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. To further these investment
objectives, AREP may consider the acquisition of real estate operating and
development companies which will enhance its ability to develop and manage
these properties as well as its ability to reduce the operating expenses
related to such properties.
As of March 20, 1996, there were 25,666,640 Depositary Units and
1,975,640 Preferred Units outstanding. Trading in the Preferred Units
commenced March 31, 1995 on the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "ACP PR." The Preferred Units represent limited partner
interests in AREP and have certain rights and designations, generally as
follows. Each Preferred Unit has a liquidation preference of $10.00 and
entitles 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 in all 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.
Partnership Distributions
On December 4, 1995, AREP announced that no distribution would be made
for the fourth quarter of 1995 and that no distributions on its Depositary
Units are expected to be made in 1996. No distributions were made in 1994 or
1995. In making its announcement, AREP noted that it intends to continue to
apply available cash flow toward its operations, repayment of maturing
indebtedness, tenant requirements and other capital expenditures and creation
of cash reserves for contingencies facing AREP, including environmental matters
and scheduled lease expirations. As previously reported, 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,
40% of such rentals will be due for renewal. In making its decision to curtail
distributions on its Depositary Units, AREP also considered the number of
properties that are leased to retail tenants (approximately 30% of AREP's net
annual rentals from its portfolio) some of which are experiencing cash flow
difficulties and restructurings. See
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Item 5 -- "Market for AREP's Common Equity and Related Security Holder Matters
- -- Distributions" and Item 7 -- "Management's Discussion and Analysis of the
Financial Condition and Results of Operations -- Capital Resources and
Liquidity."
Pursuant to the terms of the Preferred Units, on April 1, 1996, AREP
will distribute to holders of record of Preferred Units as of March 15, 1996,
additional Preferred Units at the rate of $.50 per Preferred Unit (which is
equal to a rate of 5% of the liquidation preference thereof). The total number
of additional Preferred Units anticipated to be distributed by AREP on April 1,
1996 is approximately 98,782.
Recent Acquisitions
On May 18, 1995, AREP purchased approximately 248 acres of partially
improved land located in Armonk, New York. The purchase price was
approximately $3,044,000. AREP intends to construct approximately 45 to 50
single-family detached luxury homes, subject to subdivision and other required
approvals. No material development costs have yet been incurred. A
reinvestment incentive fee of approximately $15,000 may be due to the General
Partner in respect of this purchase.
On August 15, 1995, AREP invested approximately $7,100,000 in a note
receivable by purchasing a portion (approximately 1.85%) of an unsecured senior
term facility agreement (the "Facility Agreement"). The borrower is Queens
Moat Houses, P.L.C. ("Queens Moat"), and certain subsidiaries. Queens Moat is
a United Kingdom-based hotel operator with properties in the United Kingdom,
Germany, the Netherlands, France and Belgium. AREP purchased its participation
portion from Lazard Freres & Co. LLC, defined as a Priority Lender in the
Facility Agreement, at 71.75% of the face amount of AREP's pro rata portion of
the Facility Agreement's outstanding senior advances on the acquisition date.
The Facility Agreement's advances are denominated in Pounds Sterling, Deutsche
Marks, Dutch Guilders, Belgian Francs and French Francs. The discount at the
acquisition date, based on the then existing spot rate, was approximately
$2,800,000. The Facility Agreement matures December 31, 2000 and bears
interest at the London Interbank Offered Rate plus 1.75% per annum for the
relevant currencies. Interest will accrue from July 1, 1995 to June 30, 1996,
which interest will then be due and payable to AREP. Subsequent to June 30,
1996, interest periods and payments can vary from one month to two, three or
six months, at the discretion of the borrower. There are scheduled repayments
of the advances over the term of the loan. In addition, repayments are required
when certain underlying assets are sold. As of March 7, 1996, principal
repayments totalled approximately $126,000.
The discount at the acquisition date will be amortized on a
straight-line basis over the term of the Facility Agreement. In accordance
with accounting policy, foreign exchange gains and losses will be recorded each
quarter based on the prevailing exchange rates at each balance sheet date.
Foreign exchange gains of approximately $158,000 have been recognized during
the twelve months ended December 31, 1995.
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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, developed 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. The co-venturer will be credited with $500,000 of
additional capital in lieu of receiving a general contractor's fee. Permanent
financing has been obtained by the joint venture in the amount of $8,860,000 of
which $360,000 is guaranteed by the co-venturer and personally by its
principals. AREP funded approximately $140,000 of $200,000 of approved
additional improvements with the co-venturer funding the balance in 1995. The
complex was completed in September 1995 and all rental units are available for
occupancy. As of February 1996, approximately 83% of the units were leased.
The development costs totalled approximately $10,889,000, including the
acquisition of land valued at approximately $1,138,000. An affiliate of AREP's
co-venturer is managing the property. For the year ended December 31, 1995,
net rental operations resulted in a loss of approximately $301,000, including
approximately $289,000 of depreciation and amortization, before consideration
of the co-venturer's minority interest in such loss of approximately $90,000.
A reinvestment incentive fee of approximately $38,000 is due to the General
Partner.
The second joint venture, formed as a Delaware limited partnership, is
developing 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 $4,022,000 as of December 31, 1995 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,
1995, approximately $12,216,000 of development costs have been incurred of
which approximately $6,988,000 represents completed rental units, including the
acquisition of land valued at $1,600,000. Construction loan funding at
December 31, 1995 was approximately $7,834,000. The first units became
available for occupancy in October 1995 and project completion is scheduled for
July 1996. As of March 1996, approximately 29% of the rental units were
leased. An affiliate of AREP's co-venturer is managing the property. For the
year ended December 31, 1995, net rental operations resulted in a loss of
approximately $115,000 including approximately $87,000 of depreciation and
amortization. A reinvestment incentive fee of approximately $70,000 is due to
the General Partner upon completion of the project.
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Investment Opportunities and Strategies
In selecting future investments, AREP intends to focus on assets that
it believes are undervalued in the real estate market, which investments may
require substantial liquidity to maintain a competitive advantage. Such
investments may include commercial properties, residential development
projects, land parcels for future residential and commercial development,
non-performing loans and securities of entities which own, manage or develop
significant real estate assets, including limited partnership units and
securities issued by real estate investment trusts, which in each case the
General Partner believes have the potential to diversify and enhance the
long-term value of AREP's portfolio. AREP also may acquire real estate
operating and development companies which would enhance its ability to develop
and manage properties it acquires as well as its ability to reduce the
operating expenses related to investments which require active management. 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 asset 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 and non-performing loans, is currently restricted under AREP's $50 million
senior unsecured debt financing (the "Senior Unsecured Debt"). The holders of
the Senior Unsecured Debt have agreed, however, to waive this restriction with
respect to additional capital raised by AREP in the Rights Offering. 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. To date, the Partnership has been unable to negotiate
favorable terms for such prepayment.
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.
Other real estate investment opportunities AREP may pursue
include investments in joint venture arrangements with developers for the
purpose of developing single family homes, luxury garden apartments and
shopping centers and the acquisition of underperforming distressed properties
through outright purchase or the purchase of the debt or securities of such
entities. For example, AREP may 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 as evidenced
by its acquisition of the properties in Lexington,
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Kentucky which were purchased at substantial discounts through the acquisition
of the mortgages secured by these properties. See "Financing Activities" below
and Notes 6, 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 location, present substantial
opportunities for development or long-term growth.
While AREP believes opportunistic real estate acquisitions continue to
remain available for companies like AREP, such acquisition opportunities for
value-added investors are becoming more competitive to source and the increased
competition may have some impact on the spreads and the ability to find quality
assets that provide returns sought by AREP.
Financing Activities
During 1995, AREP had approximately $3,633,000 in maturing balloon
mortgages due, all of which have been repaid. Approximately $19,000,000 and
$5,500,000 are due in 1996 and 1997, respectively. During the period 1998
through 1999 approximately $12,000,000 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.
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 and 1995, AREP repaid
$10,000,000 and $11,308,000, respectively, 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 1996 through 1998. See
Note 9 to the Financial Statements contained herein. 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. To date, the Partnership
has been unable to negotiate favorable terms for such prepayment. 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 $3,300,000. See Note 8 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 to
the Financial Statements contained herein. Under
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the terms of the loans, $100,000 was initially funded on each loan, with the
balance funded on January 19, 1995.
Leasing Activities
In 1995, seventeen leases covering twenty-six properties and
representing approximately $996,000 in annual rentals expired. Sixteen of
these twenty-six properties' leases, originally representing approximately
$653,000 in annual rental income, were re-let or renewed for approximately
$662,000 in annual rentals. Three properties with an approximate annual rental
income of $137,000 are currently being marketed for sale or lease. Seven
properties with an approximate annual rental income of $206,000 were sold in
1995.
In 1996, 22 leases covering 22 properties and representing
approximately $2,413,000 in annual rentals are scheduled to expire. Seven of
these 22 leases, originally representing approximately $1,102,000 in annual
rental income have been or will be re-let or renewed for approximately
$1,109,000 in annual rentals. Such renewals are generally for a term of five
years. Six leases with an approximate annual rental income of $822,000 will be
marketed for sale or lease when the current lease terms expire. Tenants
occupying two of the properties with approximate annual rental income of
$358,000 have elected to exercise their purchase options and the renewal status
of the remaining seven properties representing approximately $131,000 in annual
rental income is uncertain as of the date hereof.
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. See "Business -- Rights Offering"
above.
Bankruptcies and Defaults
AREP is aware that 14 of its present and former tenants have been or
are currently involved in some type of bankruptcy or reorganization. Under the
Federal Bankruptcy Code (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 14 present
and former tenants involved in bankruptcy proceedings or reorganization, nine
have rejected their leases, affecting 28 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). In addition, a number of AREP's properties are leased to
retail chains, some of
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which are currently experiencing cash flow difficulties or restructurings, and
three of which are in bankruptcy as discussed below. A continued downturn in
the retail market affecting AREP's tenants could have an adverse impact on
AREP's annual net cash flow.
The three most significant bankruptcies which affected AREP in 1995
involved Bradlees Stores, Inc. ("Bradlees"), Caldor Corp. ("Caldor") and Grand
Union Company ("Grand Union"). On September 18, 1995, Caldor, a tenant in a
property owned by AREP, filed a voluntary petition for reorganization pursuant
to the provisions of Chapter 11 of the Bankruptcy Code. The annual rental for
this property is approximately $248,000. The tenant is current in its
obligations under the lease, with the exception of approximately $12,000 of
prepetition rent. 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. At December 31, 1995, the property had a carrying value of
approximately $2,005,000 and was unencumbered by any mortgage.
On June 23, 1995, Bradlees, a tenant leasing four properties owned by
AREP, filed a voluntary petition for reorganization pursuant to the provisions
of Chapter 11 of the Bankruptcy Code. The annual rentals for these four
properties is approximately $1,320,000. The tenant is current in its
obligations under the leases. 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. There are existing assignors who are still
obligated to fulfill all of the terms and conditions of the leases. At
December 31, 1995, the carrying value of these four properties was
approximately $7,537,000. Two of the properties are encumbered by nonrecourse
mortgages payable of approximately $2,031,000.
On January 25, 1995, 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), filed a prepackaged voluntary petition for reorganization pursuant to
the provisions of Chapter 11 of the Bankruptcy Code. The tenant rejected the
lease on one property located in Waterford, New York effective July 31, 1995 by
order of the Bankruptcy Court on June 6, 1995. The annual rent for this
property was approximately $103,000. AREP is now actively marketing this
property for sale and believes the property's carrying value of $1,057,149 at
December 31, 1995 exceeds its estimated net realizable value by $157,149, for
which a provision for loss on real estate was recorded in the year then ended.
The property is unencumbered by any mortgage.
In June 1995, Grand Union emerged from bankruptcy and affirmed five of
the seven remaining leases and allowed the two sublet properties' leases to
remain in effect. At December 31, 1995, the carrying value of these seven
properties is approximately $11,203,000. One of these properties is encumbered
by a nonrecourse mortgage payable of approximately $4,672,000. AREP has filed
a proof of claim with the Bankruptcy Court for the rejected lease. See Note 14
to the Financial Statements contained herein.
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 Bankruptcy
Code and rejected its lease effective July 31, 1992. In August
I-10
<PAGE> 12
1993, AREP reached a settlement of its claim against Buckhead. Pursuant to the
settlement, AREP received approximately $104,000, $184,000 and $730,000 in cash
in the years ended December 31, 1995, 1994 and 1993, respectively and stock in
Buckhead valued at approximately $28,000 and $305,000 was received in the years
ended December 31, 1995 and 1993, respectively. These amounts of approximately
$132,000, $184,000 and $1,035,000 were recognized as "other income" in the
years ended December 31, 1995, 1994 and 1993, respectively. See Note 7 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
$2,600,000 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.
On July 31, 1992, Chipwich, Inc. ("Chipwich"), parent company of Peltz
Food Corporation, a tenant in a property owned by AREP, filed a voluntary
petition for reorganization pursuant to the provisions of Chapter 11 of the
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. In September 1995 AREP agreed to settle certain claims
against Pechiney Packaging Corporation ("Pechiney"), Nelson Peltz ("Peltz") and
Peter W. May ("May") as guarantors (Pechiney, Peltz and May, collectively, the
"Guarantors") of the lease. Under the terms of the settlement agreement, the
Guarantors paid AREP $2,200,000 in full satisfaction of their leasehold
obligation, which, net of related costs, resulted in approximately $2,034,000
of "Other income" for the fiscal year ended December 31, 1995. AREP
reclassified this property as "Property held for sale" and reduced its carrying
value to net realizable value by recording a provision for loss of $611,552 for
the fiscal year ended December 31, 1995.
For a description of certain other tenant and mortgagor bankruptcies
affecting AREP, please refer to Notes 7, 14 and 18 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.
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
I-11
<PAGE> 13
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 Offer were not subjected to
any type of environmental site assessment at the time of the acquisition.
Consequently, AREP undertook to have certain properties (approximately 110) in
its portfolio, which were not inspected at the time of acquisition, subjected
to Phase I Environmental Site Assessment by third-party consultants. 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 28 of the sites that are still owned by AREP in order to
ascertain whether there are any environmental conditions and the anticipated
cost of any remediation. AREP has notified the tenants at the 28 sites and is
seeking to coordinate with the tenants to attempt to ensure that they cause any
required remediation to be performed. It is possible that, in some instances,
the tenant will either refuse to take appropriate action, or fail to respond at
all, in which case AREP may be required to act. Therefor, in addition to
AREP's possible exposure with respect to the Lockheed property described below,
if the tenants fail to perform responsibilities under their leases in respect
of such sites, based solely upon the consultant's preliminary estimates
resulting from its Phase I Environmental Site Assessments referred to above, it
is presently estimated that AREP's exposure could amount to $3-4 million.
However, 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. In addition, AREP is planning Phase I
Environmental Site Assessments for approximately 100 more net-leased properties
during 1996 and 1997. Phase I Environmental Assessments will also be performed
in connection with new acquisitions and with such property refinancings as AREP
may deem necessary and appropriate.
In addition to conducting such Phase I Environmental Site Assessments,
AREP has developed a site inspection program. This program is being conducted
by two in-house employees (both of which are experienced construction managers
and registered architects) who visit AREP's properties and visually inspect the
premises to assess the physical condition of the properties in an effort to
determine whether there are any indications of environmental conditions which
would potentially expose AREP to liability and to ensure that the property is
being
I-12
<PAGE> 14
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 or insolvent 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. In April 1995
Lockheed began ground water remediation at the leasehold property. See Item 2
- -- "Properties - Environmental Litigation," Item 3 -- "Legal Proceedings" and
Note 14 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, offices 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 defined 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.
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 to bear the
expense of such compliance and the tenant has 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.
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<PAGE> 15
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 whose leases have expired or who
have rejected their leases in bankruptcy. The real estate market continues to
be weak in certain areas of the country, particularly in the retail category.
The downturn in the retail markets and ongoing corporate consolidations have
contributed to increasing vacancy rates and oversupply for retail tenants.
This has intensified the existing competition among landlords for creditworthy
tenants and resulted in making it more difficult to lease space at rates equal
to or greater than the rates payable by former tenants. While certain real
estate markets have begun to stabilize, as evidenced by decreasing vacancy
levels, the commercial real estate market in general may continue to suffer
from oversupply and competition to attract tenants will remain intense. This
intense competition may in turn lead to stagnating or decreasing rents. In
addition, it also 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.
Competition for investments of the type AREP intends to pursue has
been increasing in recent years, resulting in, among other things, higher
prices for such investments. While AREP believes its capital base may enable
it to gain a competitive advantage over certain other purchasers of real estate
by allowing it to respond quickly and make all cash transactions without
financing contingencies where appropriate, there can be no assurance that this
will be the case. In addition, acquisition opportunities for value-added
investors are becoming more competitive to source and the increased competition
may have some impact on the spreads and the ability to find quality assets that
provide returns sought by AREP.
Item 2. Properties.
As of March 7, 1996, AREP owned 238 separate real estate assets
(primarily consisting of fee and leasehold interests and, to a limited extent,
interests in real estate mortgages) in 35 states. These properties are
generally net-leased to single corporate tenants. Approximately
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<PAGE> 16
97% 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, number per type and average
net effective rent per square foot of AREP's properties:
<TABLE>
<CAPTION>
Number Average Net Effective
Type of Property of Properties Rent Per Square Foot
---------------- ------------- --------------------
<S> <C> <C>
Retail 112 $4.06(1)
Industrial 23 $2.37(1)
Office 33 $7.41(1)
Supermarkets 21 $3.36(1)
Banks 8 $5.13(1)
Other:
Properties That
Collateralize Purchase
Money Mortgages 12 N/A
Land 17 N/A
Truck Terminals 4 $1.69(1)
Hotels 4 N/A
Apartment Complexes 4 N/A
</TABLE>
- --------------
(1) Based on net-lease rentals.
The following table summarizes the number of AREP's properties in each
region specified below:
<TABLE>
<CAPTION>
Location Number
of Property of Properties
----------- -------------
<S> <C>
United States:
Southeast 100
Northeast 54
South Central 11
Southwest 20
North Central 45
Northwest 8
</TABLE>
From January 1, 1995 through March 7, 1996, AREP sold or otherwise
disposed of 15 properties. In connection with such sales and dispositions,
AREP received an aggregate of approximately $21,000,000 in cash, net of amounts
utilized to satisfy mortgage indebtedness which encumbered such properties. As
of December 31, 1995, AREP owned seven properties that were being actively
marketed for sale. The aggregate net realizable value of such properties is
estimated to be approximately $1,983,000.
I-15
<PAGE> 17
On February 1, 1995, the Penske Corp. exercised its purchase option on
three properties leased from AREP, two located in New Jersey and one located in
New York. The selling price was approximately $4,535,000 and a gain of
approximately $1,003,000 was recognized in the year ended December 31, 1995.
Each property was encumbered by first and second mortgages which totalled
approximately $1,152,000 and which were paid from the sales proceeds.
On March 24, 1995, AREP sold a property located in Taylor, Michigan
which is tenanted by Pace Membership Warehouse, Inc. The sales price was
$9,300,000 and a gain of approximately $3,307,000 was recognized in the year
ended December 31, 1995. The property was encumbered by a nonrecourse mortgage
payable of approximately $4,346,000, which the purchaser assumed.
On May 18, 1995, AREP purchased approximately 248 acres of partially
improved land located in Armonk, New York. The purchase price was
approximately $3,044,000. AREP intends to construct approximately 45 to 50
single-family detached luxury homes subject to subdivision and other required
approvals. No material development costs have yet been incurred.
On June 28, 1995, General Signal Technology Corporation, a tenant of a
property located in Andover, Massachusetts, exercised its rights under the
lease to purchase the property. The selling price was approximately
$19,808,000, and a loss of approximately $125,000 was recognized in the year
ended December 31, 1995. The property was encumbered by two nonrecourse
mortgages payable, which totalled approximately $10,670,000 and were paid from
the sales proceeds.
For each of the years ended December 31, 1995, 1994 and 1993, 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, 1995,
1994 and 1993, PGEC occupied a property, which represented more than 10% of
AREP's total real estate assets. PGEC is an electric utility engaged in the
generation, purchase, transmission, distribution and sale of electricity, whose
shares are traded on 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. A 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, 1995, had an outstanding principal balance of
$35,534,172. 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
I-16
<PAGE> 18
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 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 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 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 its available
cash 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, land parcels for the future development of
residential and commercial properties, non-performing loans and securities of
entities which own, manage or develop significant real estate assets, including
limited partnership units and securities issued by real estate investment
trusts, which will enhance 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,
non-performing loans and securities of companies with significant real estate
assets, which the General Partner believes have the potential to diversify and
enhance the long-term value of AREP's portfolio. AREP also may acquire real
estate operating and development companies which may enhance its ability to
develop and manage properties it acquires as well as its ability to reduce the
operating expenses related to investments which require active management. 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 asset 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.
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<PAGE> 19
Item 3. Legal Proceedings.
Unitholder Litigation
In August 1994, three class action complaints against AREP were filed
with the Delaware Court of Chancery, New Castle County, in connection with the
Rights Offering, Allan Haymes, I.R.A. v. American Real Estate Partners, L.P.,
American Property Investors, Inc. and Carl C. Icahn and Steven Yavers v.
American Real Estate Partners, L.P., American Property Investors, Inc. and Carl
C. Icahn and Wilbert Schoomer v. American Real Estate Partners, L.P., American
Property Investors, Inc. and Carl C. Icahn (the "Complaints"). The Complaints
were consolidated. The Complaints claimed defendants breached fiduciary and
common law duties owed to plaintiffs and plaintiffs' class by self dealing and
failing to disclose all relevant facts regarding the Rights Offering, and
sought declaratory and injunctive relief declaring the action was properly
maintainable as a class action, declaring the defendants breached their
fiduciary and other duties, enjoining the Rights Offering, ordering defendants
to account for all damages suffered by the class for alleged acts and
transactions and awarding further relief as the court deemed appropriate. On
April 7, 1995, defendants moved to dismiss the consolidated complaint as moot.
Only July 28, 1995, the parties submitted a stipulation of dismissal agreeing
to dismiss the action as moot. The plaintiffs have reserved their right to
make application to the Court for fees and expenses. On August 3, 1995, the
Court signed an order dismissing the plaintiffs' claims with prejudice as moot.
The Court retained jurisdiction with respect to any application filed by the
plaintiffs for fees and expenses.
Defaulted Mortgage Receivable
As of December 31, 1995, AREP held a mortgage note receivable in the
principal amount of approximately $97,000 which is in default. The mortgage
encumbers one property together with a collateral assignment of ground lease
and rent. The property is tenanted by Gino's. The mortgage had been taken
back by a Predecessor Partnership in connection with the sale of this property.
The tenant remained current in its lease obligations. See Note 14 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 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 but 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
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<PAGE> 20
agreements between related entities and principals of the seller, and a
brokerage company, the broker filed an action for a commission in the amount of
$250,000 plus additional damages of $500,000. AREP served an answer denying
any liability and served a cross-claim on the seller and its principals, based
upon representations in the contract of sale that no commissions were due to
this broker. AREP did not agree to assume the obligation to pay such
commission and is defending such action; discovery is proceeding in the matter.
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 year ended December 31, 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) 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. In April 1995 Lockheed began
ground water remediation at the leasehold property.
On December 11, 1995, Panos Sklavenitis commenced an action against
the Subsidiary and others related to a shopping center that he purchased from a
successor-in-interest to AREP. The action was brought in the United States
District Court for the Central District of California, for reimbursement of the
cost of remediating certain environmental contamination that appears
I-19
<PAGE> 21
to have been caused by a dry cleaner that was a tenant at the property; the
amount of damages sought have not yet been quantified. Mr. Sklavenitis is
suing the parties who are in the chain of ownership, as well as the dry cleaner
and its predecessor. AREP believes that it has no liability for any such costs
and intends to vigorously contest the action. In the event any liability under
the suit is allocated to AREP, AREP will seek indemnification for such monies
from Federated Department Stores, Inc., Ralph's Grocery Company and Los Coyotes
Associates and the other owners in the chain of title.
Bankruptcies
AREP is aware that 14 of its present and former tenants have been or
are currently involved in some type of bankruptcy or reorganization. Of AREP's
14 present and former tenants involved in bankruptcy proceedings or
reorganization, nine have rejected their leases, affecting 28 properties, all
of which have been vacated. See also Notes 7, 14 and 18 to the Financial
Statements contained herein and "Business - Bankruptcies and Defaults" which
describe various tenant and mortgagor bankruptcies for which AREP has filed
claims.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
I-20
<PAGE> 22
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, 1994 through
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Quarter Ended: High Low
------------- ---- ---
<S> <C> <C>
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
March 31, 1995 8.50 7.25
June 30, 1995 8.125 7.75
September 30, 1995 8.75 6.75
December 31, 1995 9.375 8.125
</TABLE>
On March 20, 1996, 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 $8.875.
As of March 20, 1996, there were approximately 22,000 record holders
of the Depositary Units.
Since January 1, 1994, AREP has made no cash distributions with
respect to the Depositary Units.
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 and
no distributions were made to Unitholders in 1994 or 1995.
On December 4, 1995, the Board of Directors of the General Partner
announced that no distribution for the fiscal quarter ended December 31, 1995
would be made and that no
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<PAGE> 23
distributions are expected to be made in 1996. In making its announcement,
AREP noted it plans to continue to apply available Partnership operating cash
flow toward its operations, repayment of maturing indebtedness, tenant
requirements and other capital expenditures and creation of cash reserves for
Partnership contingencies, including environmental matters and scheduled lease
expirations. As previously reported, 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, 40% of such rentals
will be due for renewal. Another factor that AREP took into consideration was
that net leases representing approximately 30% of AREP's net annual rentals
from its portfolio are with tenants in the retail sector, some of which are
currently experiencing cash flow difficulties and restructurings. In addition,
AREP noted that net operating cash flow in 1995 was break-even, after payment
of approximately $23,900,000 of periodic principal payments and maturing debt
obligations, including an $11.3 million principal payment made in May 1995 on
its Senior Unsecured Debt, capital expenditures and the creation of cash
reserves for its obligations. In making its announcement, AREP stated that it
expects to reconsider distribution issues for 1997. See Item 7 --
"Management's Discussion and Analysis of the Financial Condition and Results of
Operations -- Capital Resources and Liquidity." A substantial portion of the
proceeds from the Rights Offering and its available cash 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.
Pursuant to the terms of the Preferred Units, on April 1, 1996, AREP
will distribute to holders of record of Preferred Units as of March 15, 1996,
additional Preferred Units at the rate of $.50 per Preferred Unit (which is
equal to a rate of 5% of the liquidation preference thereof). The total number
of additional Preferred Units anticipated to be distributed by AREP on April 1,
1996 is approximately 98,782.
Each Depositary Unitholder will be taxed on the Unitholder's allocable
share of AREP's taxable income and gains and, with respect to Preferred
Unitholders, 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 1,000,000
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 8,
1996, AREP had purchased 1,037,200 Depositary Units at an aggregate cost of
approximately $11,184,000. Management 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 date this restriction has
not impaired the ability of AREP to make distributions.
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<PAGE> 24
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
(Dollars in Thousands Except Per Unit Amounts)
Year Ended December 31,
-----------------------------------------------------------------------
1995* 1994* 1993* 1992* 1991*
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues $ 69,920 $ 61,551 $ 60,157 $ 57,781 $ 56,571
========== ========== ========== ========== ==========
Earnings before gain (loss) on
property transactions
and extraordinary item $ 30,833 $ 19,577 $ 18,379 $ 20,581 $ 22,252
Gain (loss) on sales and
disposition of real estate 5,092 4,174 4,760 342 893
Provision for loss on real
estate (769) (582) (462) (8,847) (4,252)
---------- ---------- ---------- ---------- ----------
Earnings before
extraordinary item 35,156 23,169 22,677 12,076 18,893
(Loss) gain from early
extinguishment of debt -- -- -- (784) 543
---------- ---------- ---------- ---------- ----------
Net earnings $ 35,156 $ 23,169 $ 22,677 $ 11,292 $ 19,436
========== ========== ========== ========== ==========
Net earnings per limited
partnership unit: Earnings before
extraordinary item $ 1.33 $ 1.64 $ 1.60 $ .84 $ 1.31
Extraordinary item -- -- -- (.05) .04
---------- ---------- ---------- ---------- ----------
Net Earnings $ 1.33 $ 1.64 $ 1.60 $ .79 $ 1.35
========== ========== ========== ========== ==========
Distributions to partners $ -- $ -- $ 7,078 $ 14,333 $ 28,755
At year end:
Real estate leased to others $ 412,075 $ 437,699 $ 444,409 $ 435,959 $ 474,859
Hotel operating properties $ 13,362 $ 13,654 $ 14,070 $ 12,459 --
Mortgages and note receivable $ 15,056 $ 8,301 $ 20,065 $ 22,447 $ 22,491
Total assets $ 620,880 $ 492,868 $ 502,981 $ 503,262 $ 517,100
Senior indebtedness $ 33,923 $ 45,231 $ 55,231 $ 54,684 $ 53,607
Mortgages payable $ 163,968 $ 174,096 $ 195,274 $ 205,938 $ 213,503
Partners' equity $ 404,189 $ 259,237 $ 236,068 $ 221,855 $ 225,693
</TABLE>
* To the extent financial information pertaining to AREP is reflected, such
information is consolidated for AREP and its Subsidiary.
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<PAGE> 25
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, although such expenses decreased in
1995 in comparison to 1994 as discussed below under "-Results of Operations".
Economic conditions in recent years led the General Partner to
reexamine from time to time AREP's cash needs and investment opportunities.
Tenant defaults and lease expirations caused rental revenues to decrease and
property management and certain operating expenses to increase and led to
expenditures to re-let. In addition, the availability of acceptable financing
to refinance maturing debt obligations including AREP's Senior Unsecured Debt
became increasingly scarce. Consequently, the General Partner determined it
was necessary to conserve cash and establish reserves from time to time. As a
result, there was insufficient cash flow from operations to pay distributions
to unitholders and such distributions were reduced and finally suspended. As
discussed below, AREP's investment strategy is to apply its capital transaction
proceeds and Rights Offering proceeds, including interest earned thereon,
toward its investment purposes.
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. 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.
As a consequence of the foregoing, AREP decided to raise funds through
the Rights Offering to increase its assets available for investment, take
advantage of real estate investment opportunities, further diversify its
portfolio and mitigate against the impact of potential lease expirations. The
Rights Offering was successfully completed during April 1995 and net proceeds
of approximately $107.6 million were raised for investment purposes. 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, including commercial properties, residential development projects,
land parcels for the future development of
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<PAGE> 26
residential and commercial properties, non-performing loans and securities of
entities which own, manage or develop significant real estate assets, including
limited partnership units and securities issued by real estate investment
trusts. Such assets may not be generating 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. These types of investments may involve debt restructuring,
capital improvements and active asset management and by their nature as
under-performing assets may not be readily financeable. As such, they require
AREP to maintain a strong capital base.
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. Also,
as AREP acquires more operating properties, its exposure to environmental
clean-up costs may increase. AREP completed Phase I Environmental Site
Assessments of certain of its properties by third-party consultants. 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. AREP has notified each of the tenants of the
respective sites of the environmental consultant's findings. If such tenants
do not arrange for further investigations, or remediations, if required, AREP
may determine to undertake the same at its own cost. If the tenants fail to
perform responsibilities under their leases referred to above, based solely
upon the consultant's estimates resulting from its Phase I Environmental Site
Assessments referred to above, it is presently estimated that AREP's exposure
could amount to $3-4 million, however, as no Phase II Environmental Site
Assessments have been conducted by the consultants, there can be no accurate
estimation of the need for or extent of any required remediation, or the costs
thereof. In addition, AREP is planning Phase I Environmental Site Assessments
for approximately 100 more net leased properties during 1996 and 1997. Phase I
Environmental Site Assessments will also be performed in connection with new
acquisitions and with such property refinancings as AREP may deem necessary and
appropriate.
Results of Operations
Calendar Year 1995 Compared to Calendar Year 1994. Gross revenues
increased by approximately $8,370,000, or 13.6%, during calendar year 1995 as
compared to calendar year 1994. This increase reflects approximate increases
of $6,715,000, or 466.8%, in other interest income, $2,655,000 in other income,
$980,000, or 11.1%, in hotel operating income, and $558,000, or 2.9%, in rental
income, partially offset by a decrease of approximately $2,538,000, or 7.9%, in
financing lease income. The increase in other interest income is primarily due
to an increase in AREP's short-term cash investments as a result of the Rights
Offering proceeds and the investment in the Facility Agreement. The increase
in other income is primarily due to the settlement of the Chipwich and Be-Mac
bankruptcy claims. The hotel operating revenues were generated by two hotels
formerly leased to Integra. AREP has been
II-5
<PAGE> 27
operating these hotel properties through a third-party management company since
August 7, 1992. The increase in rental income is primarily due to increased
rents at the two apartment complexes in Lexington, Kentucky and the new
apartment complex in Alabama, partially offset by the loss of rents due to
property sales. The decrease in financing lease income is primarily
attributable to normal lease amortization and property sales.
Expenses decreased by approximately $2,886,000, or 6.9%, during
calendar year 1995 compared to calendar year 1994. This decrease reflects
decreases of approximately $3,122,000, or 13.7%, in interest expense, $586,000,
or 13.3%, in property expenses and $185,000, or 6.7%, in general and
administrative expenses, partially offset by increases of approximately
$630,000, or 8.9%, in hotel operating expenses and $377,000, or 7.6%, in
depreciation and amortization expense.
The decrease in interest expense is primarily attributable to normal
loan amortization and reductions due to repayments of maturing balloon debt
obligations, including the Senior Unsecured Debt, certain loan refinancings, as
well as the sale of encumbered properties. The decrease in property expenses
is primarily attributable to decreases in certain operating property expenses
and environmental review expenses. The hotel expenses were generated from the
hotels mentioned previously.
Earnings before property transactions increased during the calendar
year 1995 by approximately $11,256,000, or 57.5%, from calendar year 1994
primarily due to increased interest income earned on the Rights Offering
proceeds, other income from the settlement of bankruptcy claims and decreased
interest expense due to refinancings and repayments of maturing debt
obligations, partially offset by a decrease in financing lease income.
Gain on property transactions increased by approximately $918,000
during the calendar year 1995 as compared to calendar year 1994, due to
differences in the size and number of transactions.
During calendar year 1995, AREP recorded a provision for loss on real
estate of approximately $769,000 as compared to $582,000 in 1994.
Net earnings for the calendar year 1995 increased by approximately
$11,987,000, or 51.7%, as compared to net earnings for the calendar year 1994.
This increase was primarily attributable to the increase in other interest
income, other income from the settlement of bankruptcy claims and decreased
interest expense, partially offset by a decrease in financing lease income.
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
II-6
<PAGE> 28
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.
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.
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. In recent years,
AREP has applied 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
II-7
<PAGE> 29
as well as principal receipts on mortgages receivable reduced by periodic
principal payments on mortgage debt.
AREP may not be able to re-let certain of its properties at current
rentals. As previously discussed, net leases representing approximately 40% of
AREP's net annual rentals will be due for renewal by the end of the year 2002.
In 1995, seventeen leases covering twenty-six properties and representing
approximately $996,000 in annual rentals expired. Sixteen of these twenty-six
properties originally representing approximately $653,000 in annual rental
income have been or will be re-let or renewed for approximately $662,000 in
annual rentals. Three properties, with an approximate annual rental income of
$137,000, are currently being marketed for sale or lease. Seven properties
with annual rentals of approximately $206,000 were sold in 1995.
In 1996, 22 leases covering 22 properties and representing
approximately $2,413,000 in annual rentals are scheduled to expire. Seven of
these 22 leases originally representing approximately $1,102,000 in annual
rental income have been or will be re-let or renewed for approximately
$1,109,000 in annual rentals. Such renewals are generally for a term of five
years. Six leases, with an approximate annual rental income of $822,000, will
be marketed for sale or lease when the current lease terms expire. Tenants
occupying two of the properties with approximate annual rental income of
$358,000 have elected to exercise their purchase options and the renewal status
of the remaining seven properties representing approximately $131,000 in annual
rental income is uncertain as of the date hereof.
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 and
no distributions were made to Unitholders in 1994 or 1995.
On December 4, 1995, the Board of Directors of the General Partner
announced that no distribution for the fiscal quarter ended December 31, 1995
would be made and that no distributions on its Depositary Units are expected to
be made in 1996. In making its announcement, AREP noted it plans to continue
to apply available Partnership operating cash flow toward its operations,
repayment of maturing indebtedness, tenant requirements and other capital
expenditures and creation of cash reserves for Partnership contingencies
including environmental matters and scheduled lease expirations. As previously
reported, by the end of the year 2000, net leases representing approximately
26% of AREP's net annual rentals will be due for renewal, and by the end of the
year 2002, 40% of such rentals will be due for renewal. Another factor that
AREP took into consideration was that net leases representing approximately 30%
of AREP's annual rentals from its portfolio are with tenants in the retail
sector, some of which are currently experiencing cash flow difficulties and
restructurings. In addition, AREP noted that net operating cash flow in 1995
was break-even, after payment of approximately $23,900,000 of periodic
principal payments and maturing debt obligations, including an $11.3
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<PAGE> 30
million principal payment made in May 1995 on its Senior Unsecured Debt,
capital expenditures and the creation of cash reserves for its obligations. In
making its announcement, AREP stated that it expects to reconsider distribution
issues for 1997.
There were no distributions due to Unitholders for the year ended
December 31, 1995. Distributions paid during December 31, 1995 totalled
approximately $105,000, representing distributions due to Unitholders who
exchanged their limited partner interests during 1995. There were no
distributions due to Unitholders for the year ended December 31, 1994.
Distributions paid during 1994 totalled approximately $1.9 million,
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 $7,100,000. Distributions paid during 1993 totalled
approximately $9,300,000, representing distributions due to Unitholders for the
fourth quarter of 1992, the first three quarters of 1993 and to Unitholders who
exchanged their limited partner interests during 1993.
During the year ended December 31, 1995, AREP generated approximately
$26,900,000 in cash flow from day-to-day operations which excludes
approximately $4.6 million in interest earned on the Rights Offering proceeds
which will be retained for future acquisitions. In addition, approximately
$2.8 million of non-recurring income, including approximately $2 million from
the Chipwich bankruptcy settlement, was recorded. During 1994, AREP generated
approximately $22,000,000 in cash flow from day-to-day operations and
approximately $200,000 from the Days Inn bankruptcy settlement.
Capital expenditures for real estate, excluding new acquisitions, were
approximately $2,100,000 during 1995. During 1994, such expenditures totalled
approximately $2,300,000. During 1993, such expenditures totalled
approximately $2,500,000.
During 1995, approximately $14.9 million of balloon mortgages were
repaid out of AREP's cash flow, including the scheduled payment due on AREP's
Senior Unsecured Debt. During 1994, approximately $16.7 million of balloon
mortgages were repaid out of the AREP's cash flow, including the scheduled
payment due on the AREP's Senior Unsecured Debt. In addition to payments due
under AREP's Senior Unsecured Debt, approximately $19,000,000 and $5,500,000 of
maturing balloon mortgages are due in 1996 and 1997, respectively, and during
the period 1998 through 1999 approximately $12,000,000 in maturing 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.
During 1995, net cash flow after payment of maturing debt obligations
and capital expenditures but before creation of cash reserves was approximately
$10 million, excluding non-recurring income and interest earned on the Rights
Offering proceeds which will be retained for acquisitions. After the creation
of such reserves net cash flow for 1995 was approximately break-even. AREP's
operating cash reserves are approximately $23 million at December 31, 1995
which are being retained to meet maturing debt obligations, capitalized
expenditures for
II-9
<PAGE> 31
real estate and certain contingencies facing AREP. AREP from time to time may
increase its cash reserves to meet its maturing debt obligations, tenant
requirements and other capital expenditures and to guard against scheduled
lease expirations and other contingencies including environmental matters.
Rights Offering proceeds and related interest income are being retained for
investment in undervalued assets including commercial properties, residential
development projects, land parcels for the development of residential and
commercial properties, non-performing loans and securities of entities which
own, manage or develop significant real estate assets, including limited
partnership units and securities issued by real estate investment trusts. In
addition to using its available cash to make these types of investments, AREP
intends to sell some of its existing portfolio properties and use such proceeds
to reinvest in such undervalued assets. These types of investments may involve
debt restructuring, capital improvements and active asset management and by
their nature as underperforming assets may not be readily financeable and may
not generate immediate positive cash flow. As such, they require AREP to
maintain a strong capital base both to react quickly to these market
opportunities as well as to allow AREP to rework the assets to enhance their
turnaround performance.
AREP also has significant maturing debt requirements under the Note
Agreements. As of December 31, 1995, AREP has $33,923,329 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 and 1995, AREP repaid $10 million and
$11.3 million, respectively, of its outstanding Senior Unsecured Debt under the
Note Agreements and principal payments of approximately $11,308,000 are due
annually from 1996 through the final payment date of May 27, 1998. As of
December 31, 1995, 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 capital raised by AREP in the Rights Offering.
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 8, 1996, the premium
required in order to prepay the Note Agreement in full would have been
approximately $2,745,000. Subject to negotiating favorable terms AREP may
prepay in full the Senior Unsecured Debt. Prepayment would release the Company
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
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<PAGE> 32
incur additional debt. To date, the Partnership has been unable to negotiate
favorable terms for such prepayment.
Sales proceeds from the sale or disposal of portfolio properties
totalled approximately $21 million in 1995. During 1994, sales proceeds
totalled approximately $12.6 million, including $1.4 million of net proceeds
from a balloon payment of a mortgage receivable. During 1995, AREP received
$9.8 million of mortgage proceeds from the financing of its two apartment
complexes located in Lexington, Kentucky. In addition, approximately $8.8
million of mortgage financing was obtained by the Alabama joint venture. AREP
intends to use property sales, financing and refinancing proceeds for new
investments. In addition, AREP successfully completed its Rights Offering in
April 1995 and net proceeds of approximately $107.6 million were raised for
investment purposes.
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 the year ended December 31,
1994, AREP invested approximately $5,500,000 in these joint ventures. During
1995, AREP invested approximately an additional $400,000. In May 1995, AREP
acquired approximately 248 acres of land for approximately $3,044,000. AREP
intends to develop and construct 45 to 50 single-family detached luxury homes
on this land. In August 1995, AREP invested approximately $7.1 million by
purchasing a portion of an unsecured Senior Term Facility Agreement. The
borrower is Queens Moat Houses P.L.C., which is a United Kingdom based hotel
operator with properties located in various countries in Europe.
AREP's cash and cash equivalents increased by approximately $147.6
million during 1995, primarily due to Rights Offering proceeds, and the
interest earned thereon, of $115.4 million, sales proceeds, net of property
acquisitions and investments, of approximately $11 million and financing
proceeds of approximately $10 million. These funds are being retained for
investment in undervalued assets including commercial properties, residential
development projects, land parcels, non-performing loans and securities of
companies which own significant real estate assets. In addition, approximately
$10 million of additional cash reserves were created.
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<PAGE> 33
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, 1995 and 1994, and the related
consolidated statements of earnings, changes in partners' equity and cash flows
for each of the years in the three-year period ended December 31, 1995. In
connection with our audits of the consolidated financial statements, we also
have audited the 1995 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic 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 7, 1996
II-12
<PAGE> 34
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 and 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ---- ----
<S> <C> <C>
REAL ESTATE LEASED TO OTHERS:
Accounted for under the financing
method (Notes 2, 4 and 7) $281,532,529 $ 314,260,786
Accounted for under the operating
method, net of accumulated
depreciation (Notes 2, 5 and 7) 130,542,549 123,438,444
CASH AND CASH EQUIVALENTS (Note 2) 166,261,635 18,615,572
MORTGAGES AND NOTE
RECEIVABLE (Notes 6, 7, 12 and 16) 15,056,367 8,301,090
HOTEL OPERATING PROPERTIES, net of
accumulated depreciation (Notes 5 and 7) 13,362,375 13,654,442
RECEIVABLES AND OTHER ASSETS (Note 16) 4,587,765 5,373,553
CONSTRUCTION-IN-PROGRESS (Note 7) 5,622,156 6,681,333
DEBT PLACEMENT COSTS - Net of
accumulated amortization (Note 2) 1,931,472 2,130,003
PROPERTY HELD FOR SALE (Notes 2, 7 and 15) 1,983,033 412,717
----------- -----------
TOTAL $620,879,881 $492,867,940
=========== ===========
</TABLE>
(Continued)
II-13
<PAGE> 35
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 and 1994 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
MORTGAGES PAYABLE (Notes 4, 5, 8 and 16) $163,967,561 $ 174,095,697
SENIOR INDEBTEDNESS (Notes 9 and 16) 33,923,329 45,231,106
CONSTRUCTION LOAN PAYABLE (Note 7) 7,834,175 2,393,954
ACCOUNTS PAYABLE, ACCRUED EXPENSES
AND OTHER LIABILITIES (Notes 7 and 16) 5,770,443 6,496,410
DEFERRED INCOME (Note 6) 3,524,349 3,637,398
DISTRIBUTIONS PAYABLE (Notes 3 and 17) 1,671,069 1,776,482
----------- -----------
216,690,926 233,631,047
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 3, 14 and 18)
LIMITED PARTNERS:
Preferred units, $10 liquidation preference,
5% cumulative pay-in-kind redeemable; 4,200,000
authorized, 1,975,640 issued and outstanding 20,497,265 -
Depositary units; 26,850,000 authorized; 25,666,640
and 13,812,800 outstanding as of December 31,
1995 and 1994 386,609,631 265,039,380
GENERAL PARTNER 8,265,924 5,381,378
TREASURY UNITS AT COST:
1,037,200 depositary units (11,183,865) (11,183,865)
----------- -----------
PARTNERS' EQUITY (Notes 2, 3 and 10) 404,188,955 259,236,893
----------- -----------
TOTAL $620,879,881 $ 492,867,940
=========== ===========
</TABLE>
See notes to consolidated financial statements.
II-14
<PAGE> 36
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
REVENUES: 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Financing leases $ 29,452,066 $ 31,990,262 $ 32,851,135
Other 8,153,310 1,438,491 2,009,598
Rental income 19,641,915 19,084,506 15,691,513
Hotel operating income (Note 7) 9,833,752 8,853,480 8,448,879
Other income (Note 7) 2,839,423 183,987 1,155,674
---------- ---------- ----------
69,920,466 61,550,726 60,156,799
---------- ---------- ----------
EXPENSES:
Interest expense 19,613,860 22,735,908 25,127,931
Depreciation and amortization 5,337,884 4,960,704 4,360,933
General and administrative expenses (Note 3) 2,605,331 2,791,123 2,454,786
Property expenses 3,827,641 4,413,651 2,580,259
Hotel operating expenses (Note 7) 7,702,874 7,072,641 7,254,119
---------- ---------- ----------
39,087,590 41,974,027 41,778,028
---------- ---------- ----------
EARNINGS BEFORE PROPERTY
TRANSACTIONS 30,832,876 19,576,699 18,378,771
PROVISION FOR LOSS ON
REAL ESTATE (Notes 7 and 14) (768,701) (582,000) (462,000)
GAIN ON SALES AND
DISPOSITION OF REAL ESTATE
(Note 7) 5,091,445 4,173,865 4,759,983
---------- ---------- ----------
NET EARNINGS $ 35,155,620 $ 23,168,564 $ 22,676,754
========== ========== ==========
NET EARNINGS ATTRIBUTABLE TO
(Note 3):
Limited partners $ 34,456,023 $ 22,707,510 $ 22,225,487
General partner 699,597 461,054 451,267
---------- ---------- ----------
$ 35,155,620 $ 23,168,564 $ 22,676,754
========== ========== ==========
NET EARNINGS PER LIMITED
PARTNERSHIP UNIT (Notes 2 and 11): $1.33 $1.64 $1.60
==== ==== ====
LIMITED PARTNERSHIP UNITS
OUTSTANDING AT YEAR-END (Note 10) 25,666,640 13,812,800 13,812,800
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
II-15
<PAGE> 37
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited Partners' Equity
General ------------------------ Held in Treasury Total
Partner's Depository Preferred ---------------- Partners'
Equity Units Units Amount Units Equity
------ ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
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
Distribution 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
Net earnings 699,597 34,456,023 - - - 35,155,620
Rights offering - 88,903,800 19,756,400 - - 108,660,200
Expenses of Rights offering (21,293) (1,048,707) - - - (1,070,000)
Capital Contribution 2,206,242 - - - - 2,206,242
Pay-in-kind distribution - (740,865) 740,865 - - -
----------- ------------ ------------ ----------- ---------- -----------
BALANCE, DECEMBER 31, 1995 $ 8,265,924 $ 386,609,631 $ 20,497,265 $ (11,183,865) 1,037,200 $ 404,188,955
=========== ============ ============ =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
II-16
<PAGE> 38
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 35,155,620 $ 23,168,564 $ 22,676,754
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 5,337,884 4,960,704 4,360,933
Deferred interest expense - - 546,842
Amortization of deferred income (26,218) (26,218) (26,218)
Gain on sales and disposition of real estate (5,091,445) (4,173,865) (4,759,983)
Provision for loss on real estate 768,701 582,000 462,000
Changes in:
(Decrease) increase in accounts payable and
accrued expenses (782,826) 1,139,297 131,638
Decrease in deferred income (3,767) (3,640) (100,269)
Decrease (increase) in receivables and other assets 72,249 (177,434) (1,440,793)
------------ ------------ ------------
Net cash provided by operating activities 35,430,198 25,469,408 21,850,904
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in mortgages and note receivable (7,396,106) 116,524 (5,391,052)
Net proceeds from the sales and disposition of real estate 21,303,820 11,171,802 11,667,845
Principal payments received on leases
accounted for under the financing method 7,204,850 6,708,644 6,066,011
Construction in progress (14,080,412) (6,681,333) -
Principal receipts on mortgages receivable 301,273 275,459 251,857
Property acquisitions (3,280,259) (3,336,145) (12,074,542)
Capitalized expenditures for real estate (2,067,824) (2,331,380) (2,490,061)
Balloon payment on mortgage receivable - 1,392,649 2,411,698
------------ ------------ ------------
Net cash provided by investing activities 1,985,342 7,316,220 441,756
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' equity:
Proceeds from rights offering 110,866,442 - -
Expenses of the rights offering (468,380) - -
Purchase of treasury units - - (1,385,191)
Distribution to partners (105,413) (1,868,607) (9,268,892)
Debt:
Increase in mortgages payable 18,631,467 282,391 4,036,933
Early extinguishment of mortgages payable - (3,364,023) (3,038,346)
Periodic principal payments (8,959,273) (9,241,669) (9,032,917)
Balloon payments (3,632,696) (6,682,984) (3,808,767)
Senior debt principal payment (11,307,777) (10,000,000) -
Increase in construction loan payable 5,440,221 2,393,954 -
Debt placement costs (234,068) (621,678) (502,558)
------------ ------------- ------------
Net cash provided by (used in) financing activities 110,230,523 (29,102,616) (22,999,738)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 147,646,063 3,683,012 (707,078)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 18,615,572 14,932,560 15,639,638
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 166,261,635 18,615,572 $ 14,932,560
============ ============ ============
</TABLE>
(Continued)
II-17
<PAGE> 39
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Cash payments for interest $ 19,903,859 22,762,631 $ 25,492,543
=========== =========== ===========
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 256,492 6,645,589 1,812,319
Additions to mortgages payable - - (2,904,481)
Decrease in mortgages receivable (365,774) (9,109,376) (3,550,365)
Increase to property held for sale - 300,530 -
Decrease in deferred income 109,282 2,163,257 500,597
------------ ----------- ------------
$ - - $ -
============ =========== ============
Reclassification of real estate to operating lease $ 15,139,589 - 4,686,419
Reclassification of real estate from operating lease (1,104,916) (840,844) (1,018,735)
Reclassification of real estate from financing lease (669,187) - (808,667)
Reclassification of real estate from construction in progress (15,139,589) - (3,961,656)
Reclassification of real estate to property held for sale 1,774,103 840,844 1,102,639
------------ ----------- ------------
$ - $ - $ -
============ =========== ============
</TABLE>
See notes to consolidated financial statements.
II-18
<PAGE> 40
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
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.
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.
II-19
<PAGE> 41
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. See Note 10 pertaining to the Rights
Offering consummated in March 1995.
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, Expenses of the Exchange and Rights Offering Expenses
- 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. Rights
Offering Expenses were charged against partners' equity upon consummation
of the Right's Offering.
Net Earnings and Distributions Per Limited Partnership Unit - For
financial reporting purposes, the weighted average number of depositary
units and equivalent units outstanding and subscribed for assumed
outstanding for the year ended December 31, 1995 was 27,467,194. For the
years ended December 31, 1994 and 1993 the weighted average number of
depositary units assumed outstanding was 13,812,800 and 13,889,667,
respectively. There were no distributions in 1995 or 1994.
Distributions were $.50 per unit in 1993.
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 depositary 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, 1995 and 1994 are
investments in government backed securities of approximately $164,130,000
and $17,155,000, 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.
II-20
<PAGE> 42
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.
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, 1995, 1994 and 1993 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.
Use of Estimates - Management of the Partnership has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Assets Held for Sale - Assets held for sale are carried at the lower of
cost or net realizable value.
Accounting by Creditors for Impairment of a Loan - On January 1, 1995,
SFAS No. 114, Accounting by Creditors for Impairment of a Loan
("Statement 114"), as amended by SFAS 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition Disclosures, was adopted by the
Company. In accordance with these standards, if it is probable that
based upon current information that a creditor will be unable to collect
all amounts due according to the contractual terms of a loan agreement,
the asset is considered "impaired". Reserves are established against
impaired loans in amounts equal to the difference between the recorded
investment in the asset and either the present value of the cash flows
expected to be received, or the fair value of the underlying collateral
if foreclosure is deemed probable or if the loan is considered collateral
dependent. The adoption of Statement 114 and 118 had no impact on net
income.
II-21
<PAGE> 43
Impact of New Accounting Standards Issued, But Not Yet Adopted
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of ("Statement 121")
Statement 121, which was issued in March 1995 , and requires that
long-lived assets and certain identifiable intangibles, and goodwill
related to those assets to be held and used and long-lived assets and
certain identifiable intangibles to be disposed of, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Statement 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected
to result from the use of the asset and its eventual disposition. If the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than that carrying amount of the asset, an impairment
loss is recognized. Otherwise, an impairment loss in not recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the
fair value of the asset.
This Statement generally requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell.
Statement 121 is effective for fiscal years beginning after December 15,
1995, applied prospectively. Statement 121 is not expected to have a
material effect on the Company's financial condition or results of
operations.
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
II-22
<PAGE> 44
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, 1995
the Company (i) sold or disposed of an aggregate of 140 properties
of the Predecessor Partnerships for an aggregate of approximately
$69,123,000, 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 $113,554,000.
Aggregate appraised values attributable to such properties for
purposes of the Exchange were approximately $105,039,000. Sixteen
properties have been acquired since the commencement of the
exchange, including two joint ventures entered into in 1994, for
aggregate purchase prices of approximately $58,000,000.
Reinvestment incentive fees of approximately $354,000 have
previously been paid to the General Partner, and approximately
$113,000 and $15,000 are payable to the General Partner for the
1994 and 1995 acquisitions, respectively.
b. The Company and certain affiliates of its General Partner entered
into an agreement with the third-party landlord of its leased
executive office space. The agreement provided for the Company
and these affiliates to relocate their offices to an adjacent
building also owned by the landlord which relocation occurred in
September 1995. In accordance with the agreement, the Company
entered into a lease, expiring in 2001, for 7,920 square feet of
office space, at an annual rental of approximately $153,000. The
Company has sublet to certain affiliates 3,205 square feet at an
annual rental of approximately $62,000, resulting in a net annual
rental of approximately $91,000. The prior lease, which was
terminated, provided for approximately 6,900 square feet at an
annual rental of $155,000. During the year ended December 31,
1995, the affiliates reimbursed the Company approximately $15,000
for rent in connection with the new lease.
In addition, the Company and an affiliate received a lease
termination fee of $350,000 which has been allocated $175,000 to
the Company and $175,000 to the affiliates. Such allocations and
terms of the sublease were approved by the Audit Committee of the
Board of Directors of the General Partner.
c. The Company was reimbursed by an affiliate of the General Partner
for payroll and certain overhead expenses related to certain
employees of the Company who provided services on a part-time
basis in the amount of approximately $86,000 for the year ended
December 31, 1995. Such reimbursements were approved by the Audit
Committee of the Board of Directors of the General Partner.
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:
II-23
<PAGE> 45
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1995 1994
---- ----
<S> <C> <C>
Minimum lease payments receivable $378,482,993 $446,943,110
Unguaranteed residual value 156,165,105 171,636,874
----------- -----------
534,648,098 618,579,984
Less unearned income 253,115,569 304,319,198
----------- -----------
$281,532,529 $314,260,786
=========== ===========
</TABLE>
II-24
<PAGE> 46
The following is a summary of the anticipated future receipts of the
minimum lease payments receivable at December 31, 1995:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------- ------
<S> <C>
1996 $ 35,065,918
1997 35,035,181
1998 34,962,271
1999 34,072,193
2000 32,686,620
Thereafter 206,660,810
------------
$ 378,482,993
============
</TABLE>
At December 31, 1995, approximately $213,771,000 of the net investment in
financing leases was pledged to collateralize the payment of nonrecourse
mortgages payable.
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:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Land $ 57,739,747 $ 57,411,117
Commercial building 119,887,821 112,762,861
------------ ------------
177,627,568 170,173,978
Less accumulated depreciation 47,085,019 46,735,534
------------ ------------
$ 130,542,549 $ 123,438,444
============ ============
</TABLE>
As of December 31, 1995 and 1994, accumulated depreciation on the hotel
operating properties (not included above) amounted to approximately
$2,321,000 and $1,499,000, respectively (see Note 7).
The following is a summary of the anticipated future receipts of minimum
lease payments under noncancelable leases at December 31, 1995:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------- ------
<S> <C>
1996 $ 13,069,184
1997 11,235,481
1998 10,041,376
1999 8,718,524
2000 6,779,083
Thereafter 26,144,426
------------
$ 75,998,074
============
</TABLE>
At December 31, 1995, approximately $95,147,000 of real estate leased to
others was pledged to collateralize the payment of nonrecourse mortgages
payable.
II-25
<PAGE> 47
6. MORTGAGES AND NOTE RECEIVABLE (See Note 2)
<TABLE>
<CAPTION>
Balance at
Balance Monthly December 31,
Collateralized by Interest Maturity at Payment -----------------
Property Tenanted by Rate Date Maturity Amount 1995 1994
-------------------- ------- ------- -------- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gino's Inc. and Foodarama
Supermarkets, Inc. 8.051% 1/92 1,005,237 - (a) $ 96,938 462,712
Hardee's Food Systems, Inc. 9.00 (b) 11/05 - 735 (b) 153,460 153,460
Bank of Virginia 9.00 (c) 1/06 847,902 1,436 (c) 347,739 341,955
Best Products Co., Inc. 9.00 (d) 9/01 - - (d) 224,704 249,170
Data 100 Corp. 9.00 12/10 - 9,589 946,406 974,890
11.6087 12/19 - - (e) 516,664 496,230
Easco Corp. 8.875 2/97 (f) 3,586,940 27,800 (f) 3,515,824 3,536,384
Winchester Partnership 9.00 11/01 - 33,857 1,858,525 2,086,289
Queens Moat Houses,
P.L. C. (Note receivable) Variable (g) 12/00 9,838,819 (g) - (g) 7,396,107 -
---------- ----------
$15,056,367 8,301,090
========== ==========
</TABLE>
(a) See Note 14a.
(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 are $46,931 through November 1, 1996 and $54,276 through
September 1, 2001.
(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.
(g) On August 15, 1995, the Company invested approximately $7.1
million in a note receivable by purchasing a portion
(approximately 1.85%) of an unsecured Senior Term Facility
Agreement ("Facility Agreement"). The borrower is Queens Moat
Houses P.L.C. ("Queens Moat") and certain subsidiaries. Queens
Moat is a United Kingdom based hotel operator with properties in
the U.K., Germany, Netherlands, France and Belgium. The Company
purchased its participation portion from Lazard Freres & Co. LLC,
defined as a Priority Lender in the Facility Agreement, at 71.75%
of the face amount of the Company's pro rata portion of the
Facility Agreement's outstanding senior advances on the
acquisition date. The Facility Agreement's advances are
denominated in Pounds Sterling, Deutsche Marks, Dutch Guilders,
Belgian Francs and French Francs. The discount at acquisition
date, based on the then existing spot rate, was approximately $2.8
million. The Facility Agreement matures December 31, 2000 and
bears interest at LIBOR (London Interbank Offered Rate) plus 1.75%
per annum for the relevant currencies. Interest will accrue from
July 1, 1995 to June 30, 1996 which will then be
II-26
<PAGE> 48
due and payable to the Company. Subsequent to June 30, 1996
interest periods and payments can vary from one month to two,
three or six months at the discretion of the borrower. There are
scheduled payments of the advances over the term of the loan. In
addition, repayments are required when certain underlying assets
are sold. During the year ended December 31, 1995, these
repayments totalled approximately $102,000.
The discount at acquisition date will be amortized on a
straight-line basis over the term of the Facility Agreement. For
the year ended December 31, 1995, approximately $225,000 of
discount was amortized. In accordance with accounting policy,
foreign exchange gains and losses will be recorded each quarter
based on the prevailing exchange rates at each balance sheet data.
Foreign exchange gains of approximately $158,000 have been
recognized and are included in "Other Income" for the year ended
December 31, 1995.
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
since profit recognition was not allowed under generally accepted
accounting principles at the time of sale.
7. SIGNIFICANT PROPERTY TRANSACTIONS
Information on significant property transactions during the three-year
period ended December 31, 1995 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. On September 16, 1991, the Company brought suit against Alco
Standard Corporation and its affiliates, a former tenant of an
industrial facility locate 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 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. 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 $104,000, $184,000 and
$730,000 in the years ended December 31, 1995, 1994 and 1993,
respectively. In addition, stock in Buckhead valued at
approximately $28,000 and $305,000 was received in the years ended
December 31, 1995 and 1993, respectively. The total of the above
amounts of approximately $132,000, $184,000 and
II-27
<PAGE> 49
$1,035,000 have been included in "Other income" for the years
ended December 31, 1995, 1994 and 1993, respectively. The
Buckhead stock received in 1993 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 and 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 $2,600,000, as leases are
executed to renovate, build-out and re-lease the property.
d. 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. The Company has submitted a claim to
the Bankruptcy Court.
At December 31, 1995, the property located in Miami Florida has a
carrying value of approximately $5,475,000 and is unencumbered by
any mortgages. This property is subject to a ground lease. Based
on current conditions, management believes the carrying value of
the Miami property is reasonably stated.
At December 31, 1995, the property located in Phoenix, Arizona has
a carrying value of approximately $7,888,000 and is encumbered by
a nonrecourse mortgage payable of approximately $3,255,000. This
mortgage was refinanced during the year ended December 31, 1994
(see Note 8e). Based on current conditions, the management
believes the carrying value of the Phoenix property is reasonably
stated.
During the year ended December 31, 1993, the Company completed
major renovations at the Miami and Phoenix Holiday Inns with
capital expenditures totaling 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, 1995, additional capital
expenditures of approximately $162,000 and $368,000 were incurred
at the Miami and Phoenix Holiday Inn's, respectively. During the
year ended December 31, 1994 approximately $190,000 and $240,000
were incurred at the Miami and Phoenix properties, respectively.
The Company 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. Net hotel operations
(hotel operating revenues less hotel operating expenses) totalled
approximately $2,131,000, $1,781,000 and $1,195,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. This was
approximately $29,000, $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 $822,000, $776,000 and $509,000 of
depreciation and $339,000, $456,000 and $742,000 of interest
expense for the years ended December 31, 1995, 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, 1995 are not necessarily
indicative of future operating results.
e. 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
II-28
<PAGE> 50
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 was a guarantor of the
lease and the Company settled its claim against the guarantor.
In 1995, the guarantor paid the company $2,200,000 in full
satisfaction of its leasehold obligation which, net of related
costs, resulted in approximately $2,034,000 of "Other income" in
the year ended December 31, 1995. The company reclassified this
property to "Property held for sale" and reduced its carrying
value to net realizable value by recording a provision for loss on
real estate of $611,552 in the year ended December 31, 1995.
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. As a result, the Company previously recorded
provisions for loss on real estate in 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.
In September 1995, the Company sold the property located in Belle
Chasse, LA to the current tenant pursuant to a purchase option for
$575,000. A gain of approximately $116,000 was recorded in the
year ended December 31, 1995. In December 1995, the properly
located in Nisku, Alberta, Canada was sold to the current tenant
for a sale price of approximately $730,000. A gain of
approximately $6,000 was recorded in the year ended December 31,
1995.
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. 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 April of 1995 and May of 1994 additional
stock of the debtor was received. The total value of the stock at
December 31, 1995 of $120,000 is based on the lower of cost or
market. In January 1996, the entire NCS stock was sold pursuant
to a tender offer for proceeds totaling $364,500. A gain of
approximately $245,000 will be recognized in the three months
ending March 31, 1996.
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.
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
II-29
<PAGE> 51
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.
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, 1995, the BJ's land, including related
improvements, cost a total of approximately $4,877,000 and the
building cost a total of approximately $3,421,000. The carrying
value of this property at December 31, 1995 is approximately
$8,016,000 and is encumbered by a nonrecourse mortgage payable of
approximately $3,813,000. The adjacent land available for future
development, including related improvements, cost a total of
approximately $1,244,000. Approximately $210,000 of interest was
capitalized during the year ended December 31, 1993.
A reinvestment incentive fee was paid in 1994 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 in October 1993. (see Note 8a).
II-30
<PAGE> 52
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 wrote the properties down by incurring a
provision for loss on real estate for the year ended December 31,
1992. At December 31, 1995, these properties have a carrying
value of approximately $2,031,000 and are unencumbered by any
mortgage.
Of the remaining five properties whose leases were not extended,
one was sold on January 20, 1993. 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 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 was a
guarantor of the lease and the Company settled its unsecured proof
of claim filed by the Company for $377,000 in May 1995. As a
result, approximately $331,000, net of related costs, of "Other
income" was recognized in the year ended December 31, 1995. Based
on the purchase option price contained in the rejected lease, 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, 1995, the property has a
carrying value of $927,000 and is unencumbered by any mortgage.
The Company re-let the property effective March 1, 1994 at an
annual rental of $120,000.
k. 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 exceeded their carrying
value. These properties have a carrying value of approximately
$5,734,000 and are encumbered by a nonrecourse mortgage payable of
approximately $3,235,000 at December 31, 1995. See Note 8d
concerning the mortgage refinancing in 1994.
II-31
<PAGE> 53
l. 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 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 $538,000 at December 31, 1995.
m. 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 where
incurred. These expenses are included in "Property expenses" for
the year ended December 31, 1994. During the year ended December
31, 1995, approximately $267,000 of capital expenditures were
incurred. This asset has a carrying value of approximately
$8,132,000 and is encumbered by a nonrecourse mortgage payable of
approximately $5,438,000 at December 31, 1995.
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
II-32
<PAGE> 54
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,
1995 has a carrying value of approximately $5,130,000 and is
encumbered by a nonrecourse mortgage payable of approximately
$4,449,000.
A reinvestment incentive fee of approximately $65,000 was paid to
the General Partner in 1994. (See Note 3).
See Note 8f in connection with the mortgage financing of these two
properties in 1994.
n. In March 1994, the Company foreclosed on the property tenanted by
Webcraft Technologies and KSS Transportation. 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.
II-33
<PAGE> 55
o. 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.
p. 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, developed 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, 1995 and
1994 approximately $220,000 and $250,000, respectively,
representing the minority interest of the co-venturer has been
included in "Accounts payable, accrued expenses, and other
liabilities" in the accompanying financial statements.
Distributions will be made in proportion to ownership interests.
The co-venturer will be credited with $500,000 of additional
capital in lieu of receiving a general contractor's fee.
Permanent financing has been obtained by the joint venture in the
amount of $8,860,000 of which $360,000 is guaranteed by the
co-venturer and personally by its principals. The Company funded
approximately $140,000 of $200,000 of approved additional
improvements with the co-venturer funding the balance. The
complex was completed in September 1995, and all rental units were
available for occupancy. As of February 1996, approximately 83%
of the units are leased. The development totalled approximately
$10,889,000, including the acquisition of land valued at
approximately $1,138,000. An affiliate of the Company's
co-venturer is managing the property.
For the year ended December 31, 1995, net rental operations
resulted in a loss of approximately $301,000, including
approximately $289,000 of depreciation and amortization, before
consideration of the co-venturer's minority interest in such loss
of approximately $90,000.
A reinvestment incentive fee of approximately $38,000 is due the
general partner upon completion of the project (see Note 3).
2. The second joint venture, a Delaware limited
partnership, is developing 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 $4,022,000 as of December 31, 1995 and
is a limited partner. The Company has fulfilled its contribution
obligation. The co-venturer 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.
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, 1995, approximately $12,216,000 of development costs
have been incurred of which approximately $6,988,000 represents
completed rental units, including the acquisition of land valued
at $1,600,000. Construction loan funding at December 31, 1995 was
II-34
<PAGE> 56
approximately $7,834,000. The first units were available for
occupancy in October 1995 and project completion is scheduled for
July 1996. As of March 1996, approximately 29% of the rental
units are leased. An affiliate of the Company's co-venturer is
managing the property.
For the year ended December 31, 1995, net rental operations
resulted in a loss of approximately $115,000, including
approximately $87,000 of depreciation and amortization.
A reinvestment incentive fee of approximately $70,000 will be due
the Company's general partner upon completion of the project (see
Note 3).
q. 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 $1,003,000 was recognized
in the year ended December 31, 1995. Each property was encumbered
by first and second mortgages which totalled approximately
$1,152,000 and which were paid from the sales proceeds.
r. On March 24, 1995, the Company sold the property tenanted by Pace
Membership Warehouse, Inc. in Taylor, Michigan. The selling price
was $9,300,000 and a gain of approximately $3,307,000 was
recognized in the year ended December 31, 1995. The property was
encumbered by a nonrecourse mortgage payable of approximately
$4,346,000 which the purchaser assumed.
s. On May 18, 1995, the Company purchased approximately 248 acres of
partially improved land located in Armonk, New York. The purchase
price was approximately $3,044,000. The Company intends to
construct approximately 45 to 50 single-family detached luxury
homes subject to subdivision and other required approvals. No
material development costs have yet been incurred.
A reinvestment incentive fee of approximately $15,000 is payable
to the Company's general partner (see Note 3).
t. On June 28, 1995, General Signal Technology Corporation, a tenant
of a property located in Andover, Massachusetts exercised its
rights under the lease to purchase the property. The selling
price was approximately $19,808,000 and a loss of approximately
$125,000 was recognized in the year ended December 31, 1995. The
property was encumbered by two nonrecourse mortgages payable which
totalled approximately $10,670,000 and were paid from the sales
proceeds.
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<PAGE> 57
8. MORTGAGES PAYABLE
At December 31, 1995, mortgages payable, all of which are nonrecourse to
the Company, are summarized as follows:
<TABLE>
<CAPTION>
Balance at
Annual Principal December 31,
Number of Range of Range of and -----------------------
Mortgages Interest Rates Maturities Interest Payment 1995 1994
--------- -------------- ---------- ---------------- ---- ----
<S> <C> <C> <C> <C> <C>
21 6.000% - 8.875% 5/31/96 - 6/1/17 $ 9,828,897 $ 71,926,694 $ 59,351,878
49 9.000 - 10.875 1/31/96 - 12/1/09 13,657,592 88,055,516 106,344,848
4 11.500 - 12.250 1/31/96 - 11/1/05 744,262 3,985,351 4,235,589
- 14.250 - - 4,163,382
---------- ----------- -----------
$24,230,751 $163,967,561 $174,095,697
========== =========== ===========
</TABLE>
The following is a summary of the anticipated future principal
payments of the mortgages:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------- ------
<S> <C>
1996 $ 25,384,587
1997 14,080,407
1998 8,472,174
1999 17,236,691
2000 12,127,642
2001 - 2005 63,631,953
2006 - 2010 20,112,900
2011 - 2015 2,884,377
2016 - 2017 36,830
------------
$ 163,967,561
============
</TABLE>
a. 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.
b. 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.
c. 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> 58
d. 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.
e. 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.
f. 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.
g. On December 9 and 23, 1994, the Company prepaid the first and
second mortgages, respectively, with aggregate 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.
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 $546,842
was added to the principal of the note. In May 1994 and 1995, the
Company repaid $10,000,000 and approximately $11,308,000 of the
outstanding principal balance of the notes, respectively. The Company is
required to make principal repayments of approximately $11,308,000 in
each of the years 1996 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
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<PAGE> 59
unencumbered by mortgage financing and (ii) net cash flow.
10. RIGHTS OFFERING
A registration statement relating to the Rights Offering was filed with
the Securities and Exchange Commission and declared effective February
23, 1995.
On March 1, 1995, the Company issued to record holders of its Depositary
Units one transferable subscription right (a "Right"), for each seven
Depositary Units of the Company held on February 24, 1995, the record
date. The Rights entitled the holders thereof (the "Rights Holders") to
acquire during the subscription period at a subscription price of $55,
six Depositary Units and one 5% cumulative pay-in-kind redeemable
preferred unit representing a limited partner interest ("Preferred
Units"). The subscription period commenced on March 1, 1995 and expired
at the close of business on March 30, 1995.
The Preferred Units 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, the Company with
the approval of the Audit Committee of the Board of Directors of the
General Partner may opt to redeem all, but not less than all, of the
Preferred Units for a price, payable either in all 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, the Company must redeem all, but not less than all, of
the Preferred Units on the same terms as any optional redemption.
1,975,640 Rights were issued in the Rights Offering of which 418,307 were
exercised. 190,554 Depositary Units and 31, 759 Preferred Units were
subscribed for through the exercise of the Over-Subscription Privilege by
Rights Holders other than High Coast Limited Partnership ("High Coast"),
a Delaware limited partnership.
High Coast acted as guarantor for the Rights Offering and is an affiliate
of Carl C. Icahn, ("Icahn"), the Chairman of American Property Investors,
Inc., ("API"), the general partner of the Company. API is also the
general partner of the guarantor and the two limited partners are
affiliates of and are controlled by Icahn. Pursuant to its subscription
guaranty, High Coast oversubscribed for a total of 9,343,998 Depositary
Units and 1,557,333 Preferred Units. As a result, the Rights Offering
was fully subscribed. The proceeds received by the Company, after
deduction of expenses of approximately $1.1 million incurred by the
Company in connection with the Rights Offering, were approximately $107.6
million.
In addition, in accordance with the terms of the Company's and its
subsidiary's partnership agreements, API was required to contribute
$2,206,242 in order to maintain its aggregate 1.99% general partnership
interest.
On April 12, 1995, the Company received $108,660,200, the gross proceeds
of the Rights Offering, from its subscription agent and $2,206,242 from
API. The Company issued 1,975,640 Preferred Units and an additional
11,853,840 Depositary Units. Trading in the Preferred Units commenced
March 31, 1995 on the New York Stock Exchange ("NYSE") under the symbol
"ACP PR". The Depositary Units trade on the NYSE under the symbol "ACP".
As of March 6, 1996, High Coast owns 1,741,688 Preferred Units and
12,991,312 Depositary
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<PAGE> 60
Units.
11. EARNINGS PER SHARE
Net earnings per limited partnership unit and equivalent partnership
units are computed using the weighted average number of units and
equivalent units outstanding during the period. The earnings per share
calculation for the year ended December 31, 1995 assumes the Depositary
and Preferred Units subscribed for in the Rights Offering were
outstanding at the beginning of the year. Also, with respect to the year
ended December 31, 1995 calculation, net income has been increased by
approximately $2,100,000 in accordance with the modified treasury stock
method. The dilutive effect of preferred units and the pro rata
quarterly portion of the annual pay-in-kind distribution to preferred
Unitholders have been included in the earnings per share calculation, as
calculated under the effective yield method, as equivalent depositary
units (see Note 10).
12. RECONCILIATION OF NET EARNINGS PER FINANCIAL STATEMENTS TO TAX REPORTING
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net earnings per financial statements $ 35,155,620 $ 23,168,564 $ 22,676,754
Minimum lease payments received,
net of income earned on leases
accounted for under the financing
method 7,204,850 6,708,644 6,066,011
Gain on real estate transactions for tax
purposes in excess of that for
financial statement purposes 9,739,167 1,325,735 228,436
Provision for loss for financial
statement purposes 768,701 582,000 462,000
Difference attributed to joint
ventures and minority interest (85,692) (29,367) (25,094)
Difference between expense accruals,
net of income accruals, at
beginning of year and end of year (993,688) (256,431) 584,286
Depreciation and amortization for
tax purposes in excess of that for
financial statement purposes due
to leases accounted for under the
financing method (7,071,152) (9,532,694) (9,818,998)
Other (26,218) (26,218) (26,218)
----------- ----------- -----------
Taxable income $ 44,691,588 $ 21,940,233 $ 20,147,177
=========== =========== ===========
</TABLE>
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<PAGE> 61
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
March 31, June 30,
---------- --------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 16,199 $ 15,943 $ 17,234 $ 15,156
====== ====== ====== ======
Earnings before property transactions $ 6,155 $ 5,231 $ 7,336 $ 5,030
Provision for loss on real estate - (75) - (237)
Gains on property transactions 4,321 1,364 (85) 2,236
------ ------ ------ ------
Net earnings $ 10,476 $ 6,520 $ 7,251 $ 7,029
====== ====== ====== ======
Net earnings per limited partnership unit $.48 (1) $.46 $.25 (1) $.50
=== === === ===
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
September 30, December 31,
------------- ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 19,245 $ 14,750 $ 17,242 $ 15,702
====== ====== ====== ======
Earnings before property transactions $ 9,966 $ 4,411 $ 7,376 $ 4,905
Provision for loss on real estate (611) (75) (158) (195)
Gains on property transactions 176 238 680 336
------ ------ ------ ------
Net earnings $ 9,531 $ 4,574 $ 7,898 $ 5,046
====== ====== ====== ======
Net earnings per limited partnership unit $.33 (1) $.32 $.27 (1) $.36
=== === === ===
</TABLE>
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.
(1) Includes the issuance of additional Partnership units and equivalent
units in 1995.
14. COMMITMENTS AND CONTINGENCIES
a. On December 31, 1995, the Company held a mortgage note receivable
in the principal amount of $96,938. The mortgage encumbers one
property together with a collateral assignment of the ground lease
and rent. The property is tenanted by Gino's. The mortgage had
been taken back by a Predecessor Partnership in connection with
the sale of this property and seven other properties. The tenant
has remained current in its 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
at that date of the eight properties. As of December 31, 1995,
the Company has commenced
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<PAGE> 62
foreclosure action on the Gino's property which is located in
Pennsylvania. 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. During the year ended December 31, 1995, the Company
completed foreclosure actions on three properties (one in
Pennsylvania and two in New Jersey), tenanted by Gino's and
Foodarama. As a result, real estate with a carrying value of
approximately $256,000 was recorded. No gain or loss was incurred
or is anticipated upon foreclosure because the estimated fair
value of the properties exceeds their carrying value.
b. 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.
c. 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 sublet, representing
approximately $58,000 in annual rentals). The tenant is current
in its obligations under the lease. The tenant rejected the lease
on one property located in Waterford, NY effective July 31, 1995
by order of the Bankruptcy Court on June 6, 1995. The annual rent
for this property was approximately $103,000. The Company is now
actively marketing this property for sale and believes the
property's carrying value of $1,057,149 at December 31, 1995 to
exceed its estimated net realizable value by $157,149, for which a
provision for loss on real estate was recorded in the year then
ended.
In June 1995, the tenant emerged from Bankruptcy. The tenant
affirmed five of the seven remaining leases and allowed the two
sub-let property's leases to remain in effect. At December 31,
1995, the carrying value of these seven properties is
approximately $11,203,000. One of these properties is encumbered
by a nonrecourse mortgage payable of approximately $4,672,000.
The Company has filed a proof of claim with the Bankruptcy Court
for the rejected lease.
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<PAGE> 63
d. On June 23, 1995, Bradlees Stores, Inc., a tenant leasing four
properties owned by the Company, filed a voluntary petition for
reorganization pursuant to the provisions of Chapter 11 of the
Federal Bankruptcy Code. The annual rentals for these four
properties is approximately $1,320,000. The tenant is current in
its obligations under the leases. 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.
There are existing assignors who are still obligated to fulfill
all of the terms and conditions of the leases.
At December 31, 1995, the carrying value of these four properties
is approximately $7,537,000. Two of the properties are encumbered
by nonrecourse mortgages payable of approximately $2,031,000.
e. On September 18, 1995, Caldor Corp., 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. The annual rental for this property is approximately
$248,000. The tenant is current in its obligations under the
lease with the exception of approximately $12,000 of prepetition
rent. 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. At December 31, 1995, the property
has a carrying value of approximately $2,005,000 and is
unencumbered by any mortgage.
15. PROPERTY HELD FOR SALE
At December 31, 1995, the Company owned seven properties that were being
actively marketed for sale. At December 31, 1995, 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
$1,983,000, after incurring a provision for loss on real estate in the
amount of $157,149 in the year ended December 31, 1995 (see Note 14c).
At December 31, 1994, the aggregate value of the properties was estimated
to be approximately $413,000 after incurring a provision for loss on real
estate in the amount of approximately $85,000 in the year then ended.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable, Construction Loans
Payable, Mortgages Payable and Accounts Payable and Accrued Expenses
The carrying amount of cash and cash equivalents, accounts receivable,
construction loans payable, mortgages payable and accounts payable and
accrued expenses are carried at cost, which approximates their fair
value.
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, 1995 are summarized as follows:
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<PAGE> 64
<TABLE>
<CAPTION>
At December 31, 1995
--------------------------------------
Collateralized by Net Estimated
Property Tenanted by Investment Fair Value
-------------------- ---------- ----------
<S> <C> <C>
Gino's, Inc., and Foodarama
Supermarkets, Inc. $ 36,000 $ 5,000
Hardee's Food Systems, Inc. 51,000 169,000
Bank of Virginia 348,000 419,000
Best Products Co., Inc. 225,000 224,000
Data 100 Corp. 798,000 3,105,000
Easco Corp. 951,000 3,535,000
Winchester Partnership 1,859,000 1,809,000
</TABLE>
The net investment at December 31, 1995 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, 1995 is $34,106,000 and $33,923,000,
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.
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.
17. 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.
18. SUBSEQUENT EVENTS
a. On January 10, 1996, Rickel Home Centers, Inc., a tenant leasing a
property owned by the Company, filed a voluntary petition for
reorganization pursuant to the provisions of Chapter 11 of the
Federal Bankruptcy Code. This property's annual rental totals
approximately $90,000. The tenant has not yet determined whether
it will exercise its right to reject or affirm the lease which
will require an order of the Bankruptcy Court. The tenant is
current in its obligations under the lease.
b. On January 11, 1996, Forte Hotels, Inc. ("Forte") a/k/a
Travelodge, a tenant in a property owned by the Company entered
into a Lease Termination and Mutual Release Agreement
("Agreement"). This Agreement terminated the lease, which was due
to expire on June 30, 1996, effective January 17, 1996 and
required Forte to pay the Company $2,800,000 in consideration of
the early lease termination and certain deferred maintenance
items. In addition, this property was encumbered by two
mortgages. The first mortgage with a principal balance of
approximately $84,000 was paid off on January 18, 1996. The
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<PAGE> 65
second mortgage with a principal balance of approximately $231,000
was paid off March 1, 1996.
As a result of the above settlement and mortgage payoffs, the
Company will recognize "Other income" of approximately $2,700,000,
net of related costs, in the quarter ended March 31, 1996. The
carrying value of this property at December 31, 1995 is
approximately $762,000. The Company believes that the carrying
value of the asset is fairly stated at December 31, 1995.
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<PAGE> 66
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
II-45
<PAGE> 67
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:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Carl C. Icahn 60 Chairman of the Board
Alfred D. Kingsley 53 Director
Mark H. Rachesky 37 Director and Vice President
William A. Leidesdorf 50 Director
Jack G. Wasserman 59 Director
John P. Saldarelli 54 Vice President, Secretary and Treasurer
</TABLE>
Carl C. Icahn has been Chairman of the Board of the General Partner
since November 15, 1990. He is also President and a Director of Starfire
Holding Corporation (formerly Icahn Holding Corporation), a Delaware
corporation ("SHC") and Chairman of the Board and a Director of various of
SHC's subsidiaries, including ACF Industries, Inc., a New Jersey corporation
("ACF"). SHC is primarily engaged in the business of holding, either directly
or through subsidiaries, a majority of the common stock of ACF and its address
is 100 South Bedford Road, Mount Kisco, New York 10549. 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. He has also been 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 National Association of
Securities Dealers. 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 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. 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
III-1
<PAGE> 68
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 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, M.D. has served as Director of the General Partner
since November 15, 1990 and as Vice President since November 29, 1990.
Beginning February 1990, Dr. Rachesky acted as a senior investment advisor to
Carl C. Icahn and his affiliated companies and shortly thereafter, he became
their chief investment officer. Dr. Rachesky is also the sole Managing
Director of Starfire Holding Corporation, which is responsible for
substantially all of Mr. Icahn's investment activities. Dr. Rachesky has been
a director of Samsonite Corporation since June 1993, and is also a director of
Culligan Water Technologies, Inc. since its spin-off from Samsonite in August
1995. From August 1993, Dr. Rachesky has served as a director of Cadus
Pharmaceutical Corporation. From June 1987 to February 1990, Dr. Rachesky was
employed by an affiliate of the Robert M. Bass Group, Inc. where he was
involved in financing and investment activity. Dr. Rachesky is a graduate of
the Stanford University School of Medicine and School of Business.
William A. Leidesdorf has served as Director of the General Partner
since March 26, 1991. Since April 1995, Mr. Leidesdorf has acted as an
independent real estate investment banker. From January 1, 1994 through April
1995, Mr. Leidesdorf was 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.
III-2
<PAGE> 69
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
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 1995.
Each of the executive officers of the General Partner 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, will 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 have no
other
III-3
<PAGE> 70
rights to participate in the management of AREP and are not entitled to vote on
any matters submitted to a vote of the holders of Depositary Units.
Filing of Reports
To the best of AREP's knowledge, no director, executive officer or
beneficial owner of more than 10% of AREP's Depositary Units failed to file on
a timely basis reports required by Section 16(a) of the Securities Exchange
Act of 1934, as amended, during the year ended December 31, 1995.
Item 11. Executive Compensation. (1)
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, 1995, 1994 and 1993. (2)
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(a) (b) (c)
Name and Principal Position Year Salary ($)
--------------------------- ------ ----------
<S> <C> <C>
John P. Saldarelli(3) 1995 126,000
Vice President, Secretary and Treasurer 1994 126,000
1993 126,000
</TABLE>
- --------------------
(1) 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.
(2) 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.
(3) On March 18, 1991, Mr. Saldarelli was elected Vice President,
Secretary and Treasurer of the General Partner. Mr. Saldarelli
devotes substantially 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.
III-4
<PAGE> 71
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 Depositary Units then outstanding, prior to giving
effect to the Rights Offering. There were no outstanding Preferred Units on
that date. After giving effect to the Rights Offering, the Guarantor owned
11,689,896 Depositary Units, or approximately 45.6% of the Depositary Units
then outstanding, and 1,720,688 Preferred Units, or 87.1% of the Preferred
Units then outstanding. 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. In addition, 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. 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 148,962
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) which, in accordance with state law are in the process of being
turned over to the relevant state authorities as unclaimed property; however,
Icahn disclaims such beneficial ownership. During the fiscal year ended
December 31, 1995, the Guarantor acquired 810,416 Depositary Units in open
market purchases. As a result of these purchases and subsequent purchases in
1996 to date and after giving effect to the Rights Offering, as of March 20,
1996, the Guarantor owns 12,991,312 Depositary Units, or approximately 50.6% of
the outstanding Depositary Units and 1,741,688 Preferred Units or approximately
88.2% of the outstanding Preferred Units.
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
III-5
<PAGE> 72
affiliates, is required to remove the General Partner. Thus, since Icahn,
through the Guarantor, holds approximately 50.6% of the Depositary Units
outstanding after giving effect to the Rights Offering and subsequent purchases
to date, 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, as the
Guarantor holds in excess of 50% of the Depositary Units outstanding, Icahn,
through the Guarantor, will have effective control over such approval rights.
As of March 20, 1996, to the best knowledge of AREP, Wellington
Management Company, a Massachusetts corporation, who filed a Schedule 13-G on
January 26, 1996, owns 1,526,546 Depositary Units, or approximately 5.95% of
the outstanding Depositary Units.
The following table provides information, as of March 20, 1996, as to
the beneficial ownership of the Depositary Units and Preferred Units of AREP
for each director of the General Partner, and all directors and executive
officers of the General Partner as a group.
<TABLE>
<CAPTION>
Beneficial Beneficial
Name of Ownership of Percent Ownership of Percent
Beneficial Owner Depositary Units of Class Preferred Units of Class
---------------- -------------------- -------- -------------------- --------
<S> <C> <C> <C> <C>
Carl C. Icahn (1) 12,991,312 50.6 1,741,688 88.2%
All directors and executive
officers 12,991,312 50.6 1,741,688 88.2%
as a group (6 persons)
</TABLE>
- ---------------
(1) Carl C. Icahn, through the Guarantor, is the beneficial owner of the
12,991,312 Depositary Units set forth above and may also be deemed to
be the beneficial owner of the 148,962 Depositary Units owned of
record by API Nominee Corp., which in accordance with state law are in
the process of being turned over to the relevant state authorities as
unclaimed property; 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, but inclusive of
the Depositary Units the Guarantor acquired through the Rights
Offering. 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.
III-6
<PAGE> 73
Item 13. Certain Relationships and Related Transactions.
Related Transactions with the General Partner and its Affiliates
For the year ended December 31, 1995, AREP made no payments with
respect to the Depositary Units owned by the General Partner. However, in 1995
the General Partner was allocated $699,597 of the income of AREP as a result of
its 1.99% general partner interest in AREP.
In May 1995, AREP and an affiliate of the General Partner
("Affiliate") entered into an agreement with the third-party landlord of its
leased executive office space. The agreement provided for AREP and the
Affiliate to relocate their offices to an adjacent building also owned by the
landlord which relocation occurred in September 1995. In accordance with the
agreement, AREP entered into a lease, expiring in 2001, for 7,920 square feet
of office space, at an annual rental of approximately $153,000. AREP has
sublet to certain affiliates of the General Partner 3,205 square feet at an
annual rental of approximately $62,000, resulting in a net annual rental of
approximately $91,000. Affiliates of the General Partner reimbursed AREP for
approximately $15,000 in rent paid by AREP on its behalf during 1995 in
connection with the new lease. The prior lease, which was terminated, provided
for approximately 6,900 square feet at an annual rental of $155,000 to AREP.
In addition, AREP and the Affiliate received a lease termination fee of
$350,000 allocated $175,000 to AREP and $175,000 to the Lessor. Such
allocations and the terms of the sublease were reviewed and approved by the
Audit Committee of the Board of Directors of the General Partner.
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 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
III-7
<PAGE> 74
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, Unitholders 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 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
III-8
<PAGE> 75
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, 1995, an aggregate of (i) 140 Predecessor
Properties were sold or disposed of for an aggregate amount of approximately
$69,123,000 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
$113,554,000. Aggregate appraised values attributable to these Predecessor
Properties for purposes of the Exchange were approximately $105,039,000.
Accordingly, through December 31, 1995, AREP satisfied the subordination
requirements detailed above.
AREP may also enter into other transactions with the General Partner
and its affiliates, including, without limitation, buying and selling
properties and borrowing and lending funds from or to the General Partner or
its affiliates, joint venture developments and issuing securities to the
General Partner or its affiliates in exchange for, among other things, assets
that they now own or may acquire in the future, provided the terms of such
transactions are fair and reasonable to AREP. The General Partner is also
entitled to reimbursement by AREP for all allocable direct and indirect
overhead expenses (including, but not limited to, salaries and rent) incurred
in connection with the conduct of AREP's business.
In addition, employees of AREP may, from time to time, provide
services to affiliates of the General Partner, with AREP being reimbursed
therefor. Reimbursement to AREP by such affiliates in respect of such services
is subject to review and approval by the Audit Committee of the Board of
Directors of the General Partner. In 1995 such amounts were approximately
$86,000, which reimbursement was approved by the Audit Committee of the General
Partner.
The Audit Committee of the Board of Directors of the General Partner
meets on an annual basis, or more often if necessary, to review any conflicts
of interest which may arise, including the payment by AREP of any fees to the
General Partner or any of its affiliates. The General Partner and its
affiliates may not receive duplicative fees.
III-9
<PAGE> 76
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-10
<PAGE> 77
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:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Independent Auditors' Report II-12
Consolidated Balance Sheets - II-13-14
December 31, 1995 and 1994
Consolidated Statements of Earnings - II-15
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Partners' Equity - II-16
Years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows - II-17-18
Years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements II-19
(a)(2) Financial Statement Schedules:
-----------------------------
Schedule III - Real Estate Owned and Revenues IV-5-22
Earned (by tenant or guarantor,
as applicable)
</TABLE>
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:
<TABLE>
<S> <C>
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).
</TABLE>
IV-1
<PAGE> 78
<TABLE>
<S> <C>
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 Amended and Restated Agreement of Limited Partnership of AREP (filed as Exhibit 3.3 to
AREP's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference).
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 and 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 (filed as Exhibit 4.2 to AREP's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by reference).
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 Specimen 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).
</TABLE>
IV-2
<PAGE> 79
<TABLE>
<S> <C>
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).
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 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 4.11 to AREP's
Registration Statement on Form S-3 (Registration No. 33-54767) and incorporated herein by reference).
</TABLE>
IV-3
<PAGE> 80
<TABLE>
<S> <C>
10.12 Amended and Restated Agency Agreement (filed as Exhibit 10.12 to AREP's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated herein by reference).
10.13 Subscription Agent Agreement (filed as Exhibit 10.13 to AREP's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference).
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).
</TABLE>
(b) Reports on Form 8-K:
(1) AREP filed a Current Report on Form 8-K (the "Form 8-K") with the
Securities and Exchange Commission on March 16, 1995. Pursuant to
Item 5 of the Form 8-K, AREP released its earnings for the fourth
quarter and fiscal year ended December 31, 1995 and also announced
that no distribution would be made for the fiscal quarter ending March
31, 1996.
(2) AREP filed a Current Report on Form 8-K (the "Form 8-K") with the
Securities and Exchange Commission on December 4, 1995. Pursuant to
Item 5 of the Form 8-K, AREP announced that no distribution would be
made for the fourth quarter of 1995 and that no distributions are
expected to be made in 1996.
IV-4
<PAGE> 81
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership Schedule III
------------
page 1
REAL ESTATE OWNED AND REVENUES EARNED
------------- -------------- --------------
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 -
Accounted for under the:
---------------------------------------------------------
Operating Method
---------------------------------------------------------
Amount
Carried
No. of Amount of Initial Cost Cost of at close Reserve for
State Locations Encumberances 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 $1,314,697
Alabama Power Company AL 5 5,033,746
Amer Stores and The Fidelity Bank PA 1
Amer Stores, Grace, & Shottenstein Stores NJ 1 2,043,567 2,043,567 1,489,539
American Recreation Group, Inc. NC 1
Amterre Ltd. Partnership NJ 1 1,559,648 1,559,648
Amterre Ltd. Partnership PA 2 987,374 639,797 639,797
Amterre Ltd. Partnership PA 1 2,345,097
Best Products Co., Inc. VA 1 16,727
Caldor, Inc. MA 1
Chesebrough-Pond's Inc. CN 1 1,549,805 1,549,805 1,070,864
Chomerics, Inc. MA 1
Coldwell Banker & Co. CA 1 482,399 482,399 226,386
Coldwell Banker & Co. MN 1 998,771 998,771 672,174
Coldwell Banker & Co. VA 1 803,998 803,998 453,368
Coldwell Banker & Co. MO 1
Collins Foods International, Inc. OR 6 136,869 298,451 298,451
Collins Foods International, Inc. CA 3 194,939 429,166 429,166
Collins Foods International, Inc. IL 1 0 0
Cordis Corporation FL 1 14,628,215
David Miller of California CA 1 1,036,681 1,036,681 453,148
Dillon Companies, Inc. MO 1 546,681 546,681 284,686
Dillon Companies, Inc. LA 8 1,555,112 1,555,112 830,746
Druid Point Bldg. GA 1 4,919,046 910 4,919,956 521,787
Duke Power Co. NC 1 3,465,631
European American Bank and Trust Co. NY 1 1,355,210 1,355,210 1,207,260
Farwell Bldg. MN 1 1,366,386 4,101,006 951,280 5,052,286 587,899
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 15,084,046
First Union National Bank NC 1
Fisher Scientific Company IL 1 480,176 597,806 597,806 98,431
Foodarama Supermarkets, Inc. PA 1 1,317,844 1,317,844 815,718
Forte Hotels International, Inc. NJ 1 1,133,475
Forte Hotels International, Inc. TX 1 329,645 3,572,242 3,572,242 2,810,501
</TABLE>
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 - Part 2 - Revenues earned for the
Accounted for under the: Year ended December 31, 1995
--------------------------------------------------------------------------------------
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. $245,888 $39,937 $205,951
Alabama Power Company $8,120,488 851,792 481,998 369,794
Amer Stores and The Fidelity Bank 746,379 ($3,250) 91,721 0 91,721
Amer Stores, Grace, & Shottenstein Stores 232,735 22,100 210,635
American Recreation Group, Inc. 738,606 73,201 761 72,440
Amterre Ltd. Partnership 3,442,111 469,379 18,028 451,351
Amterre Ltd. Partnership ($6,147) 2,102,022 (24,901) 293,906 99,733 194,173
Amterre Ltd. Partnership 6,447,887 (70,618) 641,867 255,191 386,676
Best Products Co., Inc. 3,587,991 354,092 11,013 343,079
Caldor, Inc. 2,005,151 11,716 190,970 19,534 171,436
Chesebrough-Pond's Inc. (11,770) 141,236 102,337 38,899
Chomerics, Inc. 6,558,715 80,505 832,845 (38,896) 871,741
Coldwell Banker & Co. 4,935 59,215 8,971 50,244
Coldwell Banker & Co. 10,280 123,364 24,871 98,493
Coldwell Banker & Co. 8,224 98,692 16,775 81,917
Coldwell Banker & Co. 0 7,141 (7,141)
Collins Foods International, Inc. 178,591 47,678 13,711 33,967
Collins Foods International, Inc. 252,760 68,349 24,429 43,920
Collins Foods International, Inc. 0 0 0 0
Cordis Corporation 19,587,827 1,988,130 1,509,165 478,965
David Miller of California 5,290 63,482 20,750 42,732
Dillon Companies, Inc. (13,087) 57,850 12,756 45,094
Dillon Companies, Inc. (15,819) 220,140 39,583 180,557
Druid Point Bldg. 201,016 469,445 (268,429)
Duke Power Co. 5,317,568 (66,431) 536,173 349,310 186,863
European American Bank and Trust Co. 175,000 64,244 110,756
Farwell Bldg. 926,778 623,766 303,012
Federated Department Stores, Inc. 0 0 0
Federated Department Stores, Inc. 12,779 416,818 67,212 0 67,212
First National Supermarkets, Inc. 24,571,019 (221,459) 2,272,113 1,459,007 813,106
First Union National Bank 649,224 59,997 142 59,855
Fisher Scientific Company 163,000 68,568 94,432
Foodarama Supermarkets, Inc. 120,516 35,567 84,949
Forte Hotels International, Inc. 6,656,998 (59,447) 606,883 150,145 456,738
Forte Hotels International, Inc. 334,152 141,430 192,722
</TABLE>
IV-5
<PAGE> 82
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a limited partnership Schedule III
------------
page 2
REAL ESTATE OWNED AND REVENUES EARNED
------------- -------------- --------------
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 -
Accounted for under the:
---------------------------------------------------------
Operating Method
---------------------------------------------------------
Amount
Carried
No. of Amount of Initial Cost Cost of at close Reserve for
State Locations Encumberances to Company Improvements of period Depreciation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fox Grocery Company WV 1 1,479,272
General Signal Technical Corp. MA 1
Gino's, Inc. MO 1 101,431 209,213 209,213
Gino's, Inc. CA 1 89,311 225,100 225,100
Gino's, Inc. OH 1 93,261 201,938 201,938
Gino's, Inc. IL 1 76,301 235,972 235,972
Gino's, Inc. NJ 1 81,688 259,525 259,525
Gino's, Inc. & The A&P Co. PA 1 309,332 3,022,710 3,022,710 1,894,099
Grand Union Co. NJ 1 430,664 430,664
Grand Union Co. MD 1 372,383 372,383 239,755
Grand Union Co. NY 3 1,110,120 1,110,120
Grand Union Co. NY 1
Grand Union Co. VA 1 266,468 266,468 171,842
Grand Union Co. NY 1 4,672,275
Gunite IN 1 234,727 1,134,565 1,134,565 1,017,044
G.D. Searle & Co. MD 1 299,229 299,229 136,070
G.D. Searle & Co. OH 1 0 0 0
G.D. Searle & Co. MN 1 261,918 261,918 167,299
G.D. Searle & Co. AL 1 0 0 0
G.D. Searle & Co. OH 1 0 0 0
G.D. Searle & Co. IL 1 256,295 256,295 149,249
G.D. Searle & Co. FL 1 0 0 0
G.D. Searle & Co. MN 1 339,358 339,358 136,164
G.D. Searle & Co. IL 1 323,559 323,559 214,450
G.D. Searle & Co. TN 1 214,421 214,421 134,786
G.D. Searle & Co. TN 1 0 0 0
G.D. Searle & Co. MD 1 325,891 325,891 135,089
G.D. Searle & Co. LA 1
Hancock LA 1 2,344,465 4,484,256 4,484,256 614,311
Haverty Furniture Companies, Inc. GA 1 296,867
Haverty Furniture Companies, Inc. FL 1 224,164
Haverty Furniture Companies, Inc. VA 1 281,722
Holiday Inn AZ 1 3,254,594 8,661,230 367,645 9,028,875 1,141,233
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
</TABLE>
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 - Part 2 - Revenues earned for the
Accounted for under the: Year ended December 31, 1995
--------------------------------------------------------------------------------------
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>
Fox Grocery Company 3,521,376 316,059 139,288 176,771
General Signal Technical Corp. 1,105,293 650,770 454,523
Gino's, Inc. (4,899) 188,145 36,310 9,442 26,868
Gino's, Inc. (4,311) 179,142 45,398 11,823 33,575
Gino's, Inc. 160,238 41,502 10,108 31,394
Gino's, Inc. (4,736) 166,539 48,165 11,948 36,217
Gino's, Inc. (4,027) 206,149 51,079 12,630 38,449
Gino's, Inc. & The A&P Co. (5,417) 299,053 113,651 185,402
Grand Union Co. 474,997 89,724 15 89,709
Grand Union Co. 33,750 7,744 26,006
Grand Union Co. 1,224,356 231,272 155 231,117
Grand Union Co. 59,947 123,318 (63,371)
Grand Union Co. 24,150 3,722 20,428
Grand Union Co. 7,735,443 713,735 482,544 231,191
Gunite (16,667) 200,000 73,934 126,066
G.D. Searle & Co. 27,000 5,372 21,628
G.D. Searle & Co. 0 3,356 (3,356)
G.D. Searle & Co. 22,162 3,519 18,643
G.D. Searle & Co. 0 856 (856)
G.D. Searle & Co. 0 0 0
G.D. Searle & Co. (1,918) 23,013 6,185 16,828
G.D. Searle & Co. 5,390 6,780 (1,390)
G.D. Searle & Co. 30,614 7,011 23,603
G.D. Searle & Co. 28,319 4,516 23,803
G.D. Searle & Co. 18,740 12,338 6,402
G.D. Searle & Co. 0 5,193 (5,193)
G.D. Searle & Co. 28,598 5,365 23,233
G.D. Searle & Co. 7,486 1,290 6,196
Hancock (2,847) 436,170 404,473 31,697
Haverty Furniture Companies, Inc. 698,446 62,761 30,229 32,532
Haverty Furniture Companies, Inc. 529,125 47,546 22,758 24,788
Haverty Furniture Companies, Inc. 674,314 60,860 28,744 32,116
Holiday Inn 222,608 5,713,473 4,915,231 798,242
Integra A Hotel and Restaurant Co. 1,540,326 253,388 0 253,388
Integra A Hotel and Restaurant Co. 549,309 110,523 0 110,523
Integra A Hotel and Restaurant Co. 660,868 126,821 0 126,821
Integra A Hotel and Restaurant Co. 717,080 101,668 0 101,668
</TABLE>
IV-6
<PAGE> 83
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership Schedule III
------------
page 3
REAL ESTATE OWNED AND REVENUES EARNED
------------- -------------- --------------
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 -
Accounted for under the:
---------------------------------------------------------
Operating Method
---------------------------------------------------------
Amount
Carried
No. of Amount of Initial Cost Cost of at close Reserve for
State Locations Encumberances to Company Improvements of period Depreciation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 71,070 559,644 559,644 392,843
J.C. Penney Company, Inc. MA 1 110,839 2,484,262 2,484,262 1,429,333
Kansas City Round Up, Inc. KS
Kelley Springfield Tire Company TN 1 120,946 120,946 71,165
K-Mart Corporation LA 1 872,405
K-Mart Corporation WI 1
K-Mart Corporation FL 1
K-Mart Corporation MN 1 625,000
K-Mart Corporation FL 1 2,581,077 175,921 2,756,998 1,622,806
K-Mart Corporation IA 1
K-Mart Corporation FL 1 2,636,000 2,636,000 1,692,753
K-Mart Corporation IL 1 338,058
Kobacker Stores, Inc. MI 4 215,148 215,148
Kobacker Stores, Inc. KY 1 75,916 88,364 88,364
Kobacker Stores, Inc. OH 5 75,543 354,140 (110) 354,030
Kobacker Stores, Inc. FL 1 174,059 186,211 186,211
Kraft, Inc. NC 1 1,434,125 1,434,125 1,051,233
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 5,385,523
Louisiana Power and Light Company LA 7 3,221,674 3,496,322 (4,891) 3,491,431
Macke Co. VA 1 553,113 553,113 350,281
Marsh Supermarkets, Inc. IN 1 5,001,933 5,001,933 1,670,725
Montgomery Ward, Inc. PA 1 887,277 3,289,166 3,289,166 2,020,875
Montgomery Ward, Inc. NJ 1
Morrison, Inc. AL 1 324,288 324,288
Morrison, Inc. GA 2 347,404 347,404
Morrison, Inc. FL 1 375,392 375,392
Morrison, Inc. VA 2 363,059 363,059
M.C.O. Properties CO 1 1,579
National Convenience Stores, Inc. TX
North Carolina National Bank SC 6 2,938,008 2,938,008 907,373
</TABLE>
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 - Part 2 - Revenues earned for the
Accounted for under the: Year ended December 31, 1995
--------------------------------------------------------------------------------------
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>
Integra A Hotel and Restaurant Co. 549,508 114,868 0 114,868
Integra A Hotel and Restaurant Co. 655,406 146,556 0 146,556
Integra A Hotel and Restaurant Co. 639,957 143,470 0 143,470
Intermountain Color (6,417) 76,417 35,785 40,632
J.C. Penney Company, Inc. (20,854) 250,244 101,878 148,366
Kansas City Round Up, Inc. 0 0 0
Kelley Springfield Tire Company 11,449 3,760 7,689
K-Mart Corporation 1,763,760 148,182 85,753 62,429
K-Mart Corporation 2,014,945 181,291 0 181,291
K-Mart Corporation 2,410,825 230,436 0 230,436
K-Mart Corporation 1,868,777 13,340 152,941 54,038 98,903
K-Mart Corporation 302,337 158,634 143,703
K-Mart Corporation 1,440,868 135,267 0 135,267
K-Mart Corporation 1,984,651 426,438 60,642 365,796
K-Mart Corporation 1,047,866 83,549 31,152 52,397
Kobacker Stores, Inc. 6,479 453,821 36,976 215 36,761
Kobacker Stores, Inc. 1,884 106,607 19,802 8,974 10,828
Kobacker Stores, Inc. 9,691 656,732 123,826 40,521 83,305
Kobacker Stores, Inc. 4,008 224,627 42,178 20,569 21,609
Kraft, Inc. (24,007) 142,897 21,279 121,618
Landmark Bancshares Corporation 4,758,696 667,021 0 667,021
Levitz Furniture Corporation (13,017) 2,405,435 (27,661) 376,176 0 376,176
Lockheed Corporation 4,360,086 768,552 4,366 764,186
Lockheed Corporation 0 1,694 (1,694)
Louisiana Power and Light Company 13,389,795 172,448 1,676,689 534,549 1,142,140
Louisiana Power and Light Company 39,198 4,755,128 63,957 1,057,428 343,531 713,897
Macke Co. 5,000 60,000 6,999 53,001
Marsh Supermarkets, Inc. 548,962 231,479 317,483
Montgomery Ward, Inc. 314,280 160,121 154,159
Montgomery Ward, Inc. 1,671,132 146,484 3,116 143,368
Morrison, Inc. 3,518 781,317 10,372 141,685 0 141,685
Morrison, Inc. 3,793 750,295 10,097 306,388 3,111 303,277
Morrison, Inc. 3,997 787,495 10,204 149,090 0 149,090
Morrison, Inc. 3,940 1,905,992 24,420 290,554 801 289,753
M.C.O. Properties (7,250) (1) 52,749 7,169 45,580
National Convenience Stores, Inc. 9,424 787 8,637
North Carolina National Bank 18,269 218,755 56,419 162,336
</TABLE>
IV-7
<PAGE> 84
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership Schedule III
------------
page 4
REAL ESTATE OWNED AND REVENUES EARNED
------------ -------------- ---------
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 -
Accounted for under the:
---------------------------------------------------------
Operating Method
---------------------------------------------------------
Amount
Carried
No. of Amount of Initial Cost Cost of at close Reserve for
State Locations Encumberances to Company Improvements of period Depreciation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Occidental Petroleum Corp. CA 1 2,083,578 2,564,053 2,564,053 363,326
Ohio Power Co. Inc. OH 1
Old National Bank of Washington WA 1 4,190,632 4,190,632 1,830,477
Pace Membership Warehouse, Inc. MI 1
Penske Corp. NJ 2
Penske Corp. OH 1 166,844
Penske Corp. NY 1
Penske Corp. MI 1 207,778 3,284,450 3,284,450 1,816,955
Petrolane, Inc. LA 1
Pioneer Standard Electronics, Inc. NY 1 55,092 365,354 365,354
Pneumo Corp. OH 1 1,174,441
Ponderosa Systems, Inc. GA 1
Portland General Electric Company OR 1 35,534,172
Rouse Company MD 1 4,018,418
Rummel Fibre Co., Inc. GA 1 0 0
Safeway Stores, Inc. LA 1 1,782,885 1,782,885 1,034,762
Sams MI 1 5,679,283 8,844,225 8,844,225 1,049,002
Smith's Management Corp. NV 1 427,639
Southland Corporation FL 10 1,162,971 1,162,971 626,779
Sperry - Sun Drilling CAN 1
Stop 'N Shop Co., Inc. NY 1 5,013,507 5,013,507 3,454,933
Stop 'N Shop Co., Inc. VA 1 1,143,339
Super Foods Services, Inc. MI 1 7,186,060
SuperValu Stores, Inc. MN 1 1,370,965 1,370,965 158,589
SuperValu Stores, Inc. OH 1 3,000,671 3,000,671 357,702
SuperValu Stores, Inc. GA 1 2,344,836 2,344,836 276,190
SuperValu Stores, Inc. IN 1 2,267,573 2,267,573 266,710
Telecom Properties, Inc. OK 1 55,736
Telecom Properties, Inc. KY 1 145,625 281,253 281,253
The A&P Company MI 1
The TJX Companies, Inc. IL 1
Toys "R" Us, Inc. MA 1 612,590 330,605 330,605
Toys "R" Us, Inc. IL 1 794,453 427,993 427,993
Toys "R" Us, Inc. NY 1 894,956 480,785 480,785
Toys "R" Us, Inc. TX 1 933,243 501,836 501,836
Toys "R" Us, Inc. MI 1 892,537
Toys "R" Us, Inc. TX 1 637,527
</TABLE>
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 - Part 2 - Revenues earned for the
Accounted for under the: Year ended December 31, 1995
--------------------------------------------------------------------------------------
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>
Occidental Petroleum Corp. 0 317,490 (317,490)
Ohio Power Co. Inc. 4,131,774 114,600 384,862 1,697 383,165
Old National Bank of Washington 677,222 493,183 184,039
Pace Membership Warehouse, Inc. 0 150,340 (150,340)
Penske Corp. 28,767 11,685 17,082
Penske Corp. 626,168 60,757 17,936 42,821
Penske Corp. 15,616 674 14,942
Penske Corp. 347,495 65,090 282,405
Petrolane, Inc. 34,018 (480) 34,498
Pioneer Standard Electronics, Inc. 581,057 90,718 9,515 81,203
Pneumo Corp. 2,485,733 27,923 242,813 116,323 126,490
Ponderosa Systems, Inc. 0 353 (353)
Portland General Electric Company 53,308,138 428,109 4,598,293 3,202,805 1,395,488
Rouse Company 6,714,267 62,280 593,252 410,397 182,855
Rummel Fibre Co., Inc. 18,270 0 18,270
Safeway Stores, Inc. 85,150 13,236 71,914
Sams 1,167,894 725,195 442,699
Smith's Management Corp. 883,647 79,415 41,712 37,703
Southland Corporation 214,592 64,151 150,441
Sperry - Sun Drilling 69,683 38,308 31,375
Stop 'N Shop Co., Inc. 454,145 149,527 304,618
Stop 'N Shop Co., Inc. 3,038,584 (30,930) 273,456 108,950 164,506
Super Foods Services, Inc. 10,544,185 1,121,571 622,206 499,365
SuperValu Stores, Inc. (43,680) 114,885 26,679 88,206
SuperValu Stores, Inc. 84,630 319,834 58,394 261,440
SuperValu Stores, Inc. 13,237 224,215 45,631 178,584
SuperValu Stores, Inc. (7,325) 193,024 44,128 148,896
Telecom Properties, Inc. 125,713 1,338 11,820 5,691 6,129
Telecom Properties, Inc. 2,293 112,224 1,274 38,001 14,891 23,110
The A&P Company 1,780,281 186,641 269 186,372
The TJX Companies, Inc. 2,836,063 (54,094) 247,784 0 247,784
Toys "R" Us, Inc. 761,036 108,557 45,718 62,839
Toys "R" Us, Inc. 982,537 125,094 59,290 65,804
Toys "R" Us, Inc. 1,098,708 128,097 67,221 60,876
Toys "R" Us, Inc. 1,150,423 146,446 69,648 76,798
Toys "R" Us, Inc. 1,088,756 95,939 48,258 47,681
Toys "R" Us, Inc. 1,515,075 134,645 67,351 67,294
</TABLE>
IV-8
<PAGE> 85
AMERICAN REAL ESTATE PARTNER, LP
a limited partnership Schedule III
------------
page 5
REAL ESTATE OWNED REVENUES EARNED
------------- ------------ -----------
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 -
Accounted for under the:
---------------------------------------------------------
Operating Method
---------------------------------------------------------
Amount
Carried
No. of Amount of Initial Cost Cost of at close Reserve for
State Locations Encumberances to Company Improvements of period Depreciation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Trafalgar Industries, Inc. NY 1 285,008
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 3,813,302 8,112,513 185,788 8,298,301 282,343
Watkins MO 1 965,741 965,741 38,762
Webcraft Technologies MD 1 594,044 780,774 780,774 54,773
Wetterau, Inc. PA 1
Wetterau, Inc. NJ 2 991,981
Wickes Companies, Inc. CA 3 1,698,075 4,330,986 4,330,986 2,345,723
RESIDENTIAL PROPERTY LAND AND BUILDING
- -------------------------------------
Stoney Falls KY 1 5,438,030 8,291,102 267,436 8,558,538 426,345
Stoney Brooke KY 1 4,449,298 5,250,000 113,441 5,363,441 233,750
Crown Cliffs AL 1 8,831,461 1,138,000 9,751,183 10,889,183(2) 265,569
Westover Hills NC 1 1,600,000 5,388,427 6,988,427(3) 69,433
COMMERCIAL PROPERTY - LAND
- --------------------------
Easco Corp. NC 1 157,560 157,560
Foodarama supermarkets, Inc. NY 1 140,619 140,619
Foodarama supermarkets, Inc. PA 1 112,554 112,554
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
Gino's, Inc. NJ 2 143,938 143,938
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
Lionel PA
</TABLE>
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 - Part 2 - Revenues earned for the
Accounted for under the: Year ended December 31, 1995
--------------------------------------------------------------------------------------
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>
Trafalgar Industries, Inc. 2,008,741 124,923 1,883,818
Unisource Corporation 0 0 0
USA Petroleum Corporation 308,267 42,612 0 42,612
USA Petroleum Corporation 148,205 20,487 0 20,487
USA Petroleum Corporation 260,845 36,056 0 36,056
Waban 659,262 463,056 196,206
Watkins (9,000) 0 439,046 21,143 417,903
Webcraft Technologies 171,353 90,135 81,218
Wetterau, Inc. 916,460 96,328 3,143 93,185
Wetterau, Inc. 1,993,471 207,882 120,707 87,175
Wickes Companies, Inc. 37,000 686,887 255,067 431,820
RESIDENTIAL PROPERTY LAND AND BUILDING
- -------------------------------------
Stoney Falls 2,131,988 1,651,536 480,452
Stoney Brooke 1,335,006 1,059,553 275,453
Crown Cliffs 795,550 1,006,798 (211,248)
Westover Hills 53,103 168,148 (115,045)
COMMERCIAL PROPERTY - LAND
- --------------------------
Easco Corp. (2,083) 12,400 143 12,257
Foodarama supermarkets, Inc. 14,000 0 14,000
Foodarama supermarkets, Inc. 2,000 14,932 (12,932)
Gino's, Inc. 7,143 0 7,143
Gino's, Inc. 7,143 0 7,143
Gino's, Inc. 14,286 344 13,942
Gino's, Inc. 5,357 8,506 (3,149)
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
Lionel 0 (17,957) 17,957
</TABLE>
IV-9
<PAGE> 86
AMERICAN REAL ESTATE PARTNERS, LP
a limited partnership
Schedule III
------------
page 6
REAL ESTATE OWNED AND REVENUES EARNED
--------------- -------------- ----------
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 -
Accounted for under the:
---------------------------------------------------------
Operating Method
---------------------------------------------------------
Amount
Carried
No. of Amount of Initial Cost Cost of at close Reserve for
State Locations Encumberances to Company Improvements of period Depreciation
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL PROPERTY - BUILDING
- ------------------------------
Bank South GA 1 2,018,511
Harwood Square IL 1 6,810,478 6,810,478 2,603,602
Holiday Inn FL 1 6,492,400 162,417 6,654,817 1,180,084
Lockheed Corporation CA 1
Safeway Stores, Inc. CA 1 558,652 558,652 472,543
Toys "R" Us, Inc. RI 1
United Life & Accident Ins. Co. NH 1 2,432,946
Wickes Companies, Inc. PA 1 190,915
Weigh-Tronix, Inc. CA 1
DEVELOPMENT PROPERTY
- ------------------------------
Dellwood NY 1 3,104,793 3,104,793
Grassy Hollow NY 1 598,145 598,145
East Syracuse NY 2 1,243,789 1,243,789
-------------------------------------------------------------------------
$163,967,561 $175,951,812 $17,359,447 $193,311,259(1) $49,406,334(1)
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Part 1 - Real estate owned at December 31, 1995 - Part 2 - Revenues earned for the
Accounted for under the: Year ended December 31, 1995
--------------------------------------------------------------------------------------
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 - BUILDING
- ------------------------------
Bank South 3,950,065 398,919 239,028 159,891
Harwood Square 5,778 707,869 362,768 345,101
Holiday Inn 400,622 4,217,221 4,085,827 131,394
Lockheed Corporation 6,091,013 872,823 0 872,823
Safeway Stores, Inc. 26,900 20,691 6,209
Toys "R" Us, Inc. 1,079,730 102,709 0 102,709
United Life & Accident Ins. Co. 4,688,575 (43,667) 395,358 240,501 154,857
Wickes Companies, Inc. 3,427,188 389,541 33,960 355,581
Weigh-Tronix, Inc. 2,914,612 298,857 0 298,857
DEVELOPMENT PROPERTY
- ------------------------------
Dellwood 0 0 0
Grassy Hollow 0 0 0
East Syracuse 0 0 0
--------------------------------------------------------------------------------
$682,633 $281,532,529 $430,125 $61,522,086 $32,209,576 $29,312,510
================================================================================
</TABLE>
(1) Amount shown includes hotel operating properties.
(2) The Company owns a 70% interest in the joint venture which owns this
property.
(3) The Company owns a 90% interest in the joint venture which owns this
property.
IV-10
<PAGE> 87
SCHEDULE III
PAGE 7
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1995
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:
<TABLE>
<S> <C>
Balance-January 1, 1995 $185,327,608
Additions during period 22,019,288
Write downs (768,701)
Reclassifications during period to assets held for sale (3,227,355)
Disposals during period (10,039,581)
------------
Balance-December 31, 1995 $193,311,259
============
</TABLE>
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:
<TABLE>
<S> <C>
Balance-January 1, 1995 $ 48,234,722
Depreciation during period 4,731,153
Disposals during period (2,106,287)
Reclassifications during period to property held for sale (1,453,254)
------------
Balance-December 31, 1995 $ 49,406,334
===========
</TABLE>
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:
<TABLE>
<S> <C>
Balance-January 1, 1995 $314,260,786
Reclassifications during period (1,280,739)
Disposals during period (24,242,668)
Amortization of unearned income 29,452,066
Minimum lease rentals received (36,656,916)
------------
Balance-December 31, 1995 $281,532,529
===========
</TABLE>
3. The aggregate cost of real estate owned for Federal income tax purposes
is $376,471,538.
(Continued)
IV-11
<PAGE> 88
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1995
4. Net income applicable to the period in Schedule III is reconciled with
net earnings as follows:
<TABLE>
<S> <C>
Net income applicable to financing and operating leases $ 29,312,510
Add interest income - other 8,398,380
----------
37,710,890
----------
Deduct expenses not allocated:
General and administrative expenses 2,605,331
Nonmortgage interest expense 3,696,889
Other 575,794
----------
6,878,014
----------
Earnings before gain on property transacitons 30,832,876
Provision for loss on property (768,701)
Gain on sales of real estate 5,091,445
----------
Net earnings $ 35,155,620
==========
</TABLE>
(Continued)
IV-12
<PAGE> 89
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:
<TABLE>
<S> <C>
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
============
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
3. The aggregate cost of real estate owned for Federal income tax purposes
is $402,624,341.
(Continued)
IV-13
<PAGE> 90
Schedule III
Page 8.1
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1994
4. Net income applicable to the period in Schedule III is reconciled with
net earnings as follows:
<TABLE>
<S> <C>
Net income applicable to financing and operating leases $ 26,648,827
Add interest income - other 1,438,491
----------
28,807,318
----------
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
==========
</TABLE>
(Continued)
IV-14
<PAGE> 91
SCHEDULE III
PAGE 9
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:
<TABLE>
<S> <C>
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
============
</TABLE>
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:
<TABLE>
<S> <C>
Balance-January 1, 1993 $ 44,105,825
Depreciation during period 3,992,036
Disposals during period (1,896,524)
Reclassifications during period to property held for sale (1,160,553)
------------
Balance-December 31, 1993 $ 45,040,784
===========
</TABLE>
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:
<TABLE>
<S> <C>
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
===========
</TABLE>
The aggregate cost of real estate owned for Federal income tax purposes is
$398,245,532.
(Continued)
IV-15
<PAGE> 92
SCHEDULE III
PAGE 9.1
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED AND REVENUES EARNED
YEAR ENDED DECEMBER 31, 1993
4. Net income applicable to the period in Schedule III is reconciled with
net earnings as follows:
<TABLE>
<S> <C>
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 and extraordinary item 18,378,771
Provision for loss on property (462,000)
Gain on sales of real estate 4,759,983
----------
Net earnings $ 22,676,754
==========
</TABLE>
(Continued)
IV-16
<PAGE> 93
Schedule III
Page 10
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED BY STATE (ACCOUNTED FOR UNDER THE FINANCING METHOD)
DECEMBER 31, 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
State Investment
----- ------------
<S> <C>
Alabama $ 10,442,132
California 14,214,432
Connecticut 24,571,019
Florida 25,524,549
Georgia 5,659,651
Illinois 5,582,313
Indiana 660,868
Iowa 1,440,868
Kentucky 218,831
Louisiana 19,908,683
Maryland 6,714,267
Massachusetts 9,324,902
Michigan 14,507,001
Minnesota 1,868,777
Missouri 5,496,349
Nevada 883,647
New Hampshire 4,688,575
New Jersey 14,444,858
New York 13,044,999
North Carolina 6,705,397
Ohio 8,925,929
Oklahoma 125,713
Oregon 53,486,728
Pennsylvania 13,639,937
Rhode Island 1,079,730
South Carolina 308,267
Texas 3,320,904
Virginia 9,206,882
West Virginia 3,521,376
Wisconsin 2,014,945
------------
$281,532,529
===========
</TABLE>
(Continued)
IV-17
<PAGE> 94
Schedule III
Page 10.1
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, 1995
- --------------------------------------------------------------------------------
Amount at which
Carried at Reserve for
State Close of Year Depreciation
----- --------------- ------------
[S] [C] [C]
Alabama $ 11,459,096 $ 265,568
Arizona 9,028,875 1,141,233
California 13,574,684 3,861,125
Connecticut 1,549,805 1,070,864
Florida 13,772,389 5,122,422
Georgia 7,750,258 797,977
Illinois 8,850,494 3,065,734
Indiana 8,635,584 2,954,479
Kansas 460,490 -
Kentucky 14,851,240 1,052,938
Louisiana 11,313,683 2,479,819
Maryland 1,864,304 565,688
Massachusetts 2,916,915 1,429,333
Michigan 12,649,448 2,865,957
Minnesota 8,023,299 1,722,126
Missouri 1,946,471 323,448
New Jersey 4,437,341 1,489,539
New York 23,410,097 4,944,535
North Carolina 8,580,112 1,120,666
Ohio 3,635,082 357,702
Oregon 298,451 -
Pennsylvania 10,386,463 6,045,388
South Carolina 3,101,170 907,373
Tennessee 335,367 205,951
Texas 4,302,872 2,810,501
Virginia 1,986,638 975,491
Washington 4,190,631 1,830,477
------------ -----------
$ 193,311,259 $ 49,406,334
============ ===========
(Continued)
IV-18
<PAGE> 95
Schedule III
Page 11
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED BY STATE (ACCOUNTED FOR UNDER THE
FINANCING METHOD) DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
State Investment
----- ------------
<S> <C>
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
===========
</TABLE>
(Continued)
IV-19
<PAGE> 96
Schedule III
Page 11.1
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
----- --------------- ------------
[S] [C] [C]
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
============ ===========
(Continued)
IV-20
<PAGE> 97
Schedule III
Page 12
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED BY STATE (ACCOUNTED FOR UNDER THE FINANCING METHOD)
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
State Investment
----- ------------
<S> <C>
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 680,915
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
===========
</TABLE>
(Continued)
IV-21
<PAGE> 98
Schedule III
Page 12.1
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARY
REAL ESTATE OWNED BY STATE (ACCOUNTED FOR UNDER THE FINANCING METHOD)
DECEMBER 31, 1993
- --------------------------------------------------------------------------------
Amount at which
Carried at Reserve for
State Close of Year Depreciation
----- --------------- ------------
[S] [C] [C]
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-22
<PAGE> 99
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,
1996.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Carl C. Icahn Chairman of the Board March 31, 1996
- ----------------------- (Principal Executive
Carl C. Icahn Officer)
/s/Alfred Kingsley Director March 31, 1996
- -----------------------
Alfred Kingsley
/s/Mark Rachesky Director March 31, 1996
- -----------------------
Mark Rachesky
/s/William A. Leidesdorf Director March 31, 1996
- ------------------------
William A. Leidesdorf
/s/Jack G. Wasserman Director March 31, 1996
- ------------------------
Jack G. Wasserman
/s/John P. Saldarelli Treasurer March 31, 1996
- ------------------------ (Principal Financial
John P. Saldarelli Officer and Principal
Accounting Officer)
</TABLE>
<PAGE> 100
EXHIBIT INDEX
-------------
Exhibit 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 166,262
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 480,466
<DEPRECIATION> 49,406
<TOTAL-ASSETS> 620,880
<CURRENT-LIABILITIES> 0
<BONDS> 197,891
0
0
<COMMON> 0
<OTHER-SE> 404,189
<TOTAL-LIABILITY-AND-EQUITY> 620,880
<SALES> 0
<TOTAL-REVENUES> 69,920
<CGS> 0
<TOTAL-COSTS> 16,869
<OTHER-EXPENSES> 2,605
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<INCOME-TAX> 0
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<NET-INCOME> 35,156
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
</TABLE>
